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As filed with the Securities and Exchange Commission on January 31, 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)
600 North Brand Boulevard HUGH W. HORNE
Glendale, California 91203-1241 Public Storage, Inc.
(818) 244-8080 600 North Brand Boulevard
(Address, including zip code, and Glendale, California 91203-1241
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.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
--------------
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) $18,797(1)(2)
==================================================================================================================
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(1) This Registration Statement relates to (a) the proposed merger of Public
Storage Properties IX, Inc. ("PSP9") into the Registrant and the conversion
of shares of common stock of PSP9 into either cash (as to up to 20% of the
outstanding shares of common stock of PSP9) or common stock of the
Registrant and (b) the proposed merger of PS Business Parks, Inc. ("PSBP")
into the Registrant and the conversion of shares of common stock of PSBP
into either cash (as to up to 20% of the outstanding shares of common stock
of PSBP) or common stock of the Registrant. At the mergers, there will be a
maximum of 2,447,506 shares of common stock of PSP9 outstanding and 534,159
shares of common stock of PSBP outstanding. The closing prices of the
common stock of PSP9 and the common stock of PSBP on the American Stock
Exchange on January 29, 1996 were $18.125 per share and $19.00 per share,
respectively. The number of shares of common stock of the Registrant to be
issued in the mergers cannot be determined at this time.
(2) Calculated in accordance with rule 457(f)(1) under the Securities Act of
1933. $10,240 of the registration fee was previously paid in connection
with PSP9'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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<PAGE>
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 See page 1 and pages (iii)-(iv)
Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges and Risk Factors and Material Considerations
Other Information
4. Terms of the Transaction Summary and The Mergers
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 Mergers and The Mergers
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 The Mergers -- Comparison of PSP9 and
on Indemnification for Securities PSBP Common Stock with PSI Common
Act Liabilities 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 S-2 or S-3 Incorporation of Certain Documents by Reference
Registrants
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_________________
* Omitted as Inapplicable.
(ii)
<PAGE>
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C. Information About the Company Being Acquired
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15. Information with Respect to S-3 Companies Incorporation of Certain Documents by Reference
16. Information with Respect to S-2 or S-3 Companies Incorporation of Certain Documents by Reference
17. Information with Respect to Companies Other Incorporation of Certain Documents by Reference
than S-2 or S-3 Companies
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations Incorporation of Certain Documents by Reference
are to be Solicited
19. Information if Proxies, Consents or Authorizations Incorporation of Certain Documents by Reference
are not to be Solicited or in an Exchange Offer
</TABLE>
_________________
* Omitted as Inapplicable.
(iii)
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
_______________, 1996
A special meeting of shareholders of Public Storage Properties IX, Inc.,
a California corporation ("PSP9"), will be held at PSP9's offices at 600 North
Brand Boulevard, Suite 300, Glendale, California on _______________, 1996, at
the hour of __________ for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization
among PSP9, Public Storage, Inc. ("PSI") and PS Business Parks, Inc.
("PSBP") described in the accompanying Joint Proxy Statement and
Prospectus pursuant to which (a) PSP9 would be merged with and into
PSI (the "PSP9 Merger") and (b) PSBP would be merged with and into
PSI (the "PSBP Merger" and collectively, the "Mergers"). Upon the
Mergers, each outstanding share of PSP9 Common Stock Series A ("PSP9
Common Stock") (other than shares held by PSI or by shareholders of
PSP9 who have properly exercised dissenters' rights under California
law ("Dissenting PSP9 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 PSP9
Common Stock (not to exceed 20% of the outstanding PSP9 Common
Stock, or 489,501 shares, less any Dissenting PSP9 Shares), upon a
shareholder's election, $18.64 in cash, subject to reduction as
described below (the "Cash Election") or (ii) that number (subject
to rounding) of shares of PSI Common Stock determined by dividing
$18.64, 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 PSP9. If a shareholder does not make a Cash Election, all of his
or her PSP9 Common Stock would be converted into PSI Common Stock in
the Mergers. The consideration paid by PSI in the Mergers will be
reduced on a pro rata basis by the amount of cash distributions
required to be paid by PSP9 to its shareholders prior to completion
of the Merger in order to satisfy PSP9's REIT distribution
requirements ("Required PSP9 REIT Distributions"). The
consideration received by the shareholders of PSP9 in the Mergers,
however, along with any Required PSP9 REIT Distributions, will not
be less than $18.64 per share of PSP9 Common Stock, which amount
represents the market value of PSP9's real estate assets at October
31, 1995 (based on an independent appraisal) and the estimated net
asset value of its other assets at March 31, 1996. Additional pre-
merger cash distributions would be made to the shareholders of PSP9
to cause PSP9's estimated net asset value as of the date of the
Mergers to be substantially equivalent to its estimated net asset
value as of March 31, 1996. The PSP9 Common Stock held by PSI will
be cancelled in the Mergers. The PSP9 Merger and the PSBP Merger
are not conditioned on each other.
2. To consider and vote upon a related amendment to PSP9's bylaws to
authorize the PSP9 Merger in the form of Appendix E-1 to the
accompanying Joint Proxy Statement and Prospectus.
The Board of Directors has determined that holders of record of PSP9
Common Stock at the close of business on ____________, 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
______________, 1996
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PS BUSINESS PARKS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
_______________, 1996
A special meeting of shareholders of PS Business Parks, Inc., a
California corporation ("PSBP"), will be held at PSBP's offices at 600 North
Brand Boulevard, Suite 300, Glendale, California on _______________, 1996, at
the hour of __________ for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization
among PSBP, Public Storage, Inc. ("PSI") and Public Storage
Properties IX, Inc. ("PSP9") described in the accompanying Joint
Proxy Statement and Prospectus pursuant to which (a) PSBP would be
merged with and into PSI (the "PSBP Merger") and (b) PSP9 would be
merged with and into PSI (the "PSP9 Merger" and collectively, the
"Mergers"). Upon the Mergers, each outstanding share of PSBP Common
Stock Series A ("PSBP Common Stock") (other than shares held by PSI
or by shareholders of PSBP who have properly exercised dissenters'
rights under California law ("Dissenting PSBP 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 PSBP Common Stock (not to exceed 20% of the
outstanding PSBP Common Stock, or 106,832 shares, less any
Dissenting PSBP Shares), upon a shareholder's election, $19.59 in
cash, subject to reduction as described below (the "Cash Election")
or (ii) that number (subject to rounding) of shares of PSI Common
Stock determined by dividing $19.59, 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 PSBP. If a shareholder
does not make a Cash Election, all of his or her PSBP Common Stock
would be converted into PSI Common Stock in the Mergers. The
consideration paid by PSI in the Mergers will be reduced on a pro
rata basis by the amount of cash distributions required to be paid
by PSBP to its shareholders prior to completion of the Merger in
order to satisfy PSBP's REIT distribution requirements ("Required
PSBP REIT Distributions"). The consideration received by the
shareholders of PSBP in the Mergers, however, along with any
Required PSBP REIT Distributions, will not be less than $19.59 per
share of PSBP Common Stock, which amount represents the market value
of PSBP's real estate assets at October 31, 1995 (based on an
independent appraisal) and the estimated net asset value of its
other assets at March 31, 1996. Additional pre-merger cash
distributions would be made to the shareholders of PSBP to cause
PSBP's estimated net asset value as of the date of the Mergers to be
substantially equivalent to its estimated net asset value as of
March 31, 1996. The PSBP Common Stock held by PSI will be cancelled
in the Mergers. The PSBP Merger and the PSP9 Merger are not
conditioned on each other.
2. To consider and vote upon a related amendment to PSBP's bylaws to
authorize the PSBP Merger in the form of Appendix E-2 to the
accompanying Joint Proxy Statement and Prospectus.
The Board of Directors has determined that holders of record of PSBP
Common Stock at the close of business on ____________, 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
______________, 1996
<PAGE>
PUBLIC STORAGE, INC.
PUBLIC STORAGE PROPERTIES IX, INC.
PS BUSINESS PARKS, INC.
JOINT PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETINGS OF SHAREHOLDERS OF
PUBLIC STORAGE PROPERTIES IX, INC. AND PS BUSINESS PARKS, INC.
_______________, 1996
This Joint Proxy Statement and Prospectus is being furnished to holders
of shares of Common Stock Series A, par value $.01 per share (the "PSP9 Common
Stock") of Public Storage Properties IX, Inc. ("PSP9") and holders of shares
of Common Stock Series A, par value $.01 per share (the "PSBP Common Stock")
of PS Business Parks, Inc. ("PSBP") and relates to meetings of shareholders of
PSP9 and PSBP called to approve the proposed mergers of each of PSP9 and PSBP
with and into Public Storage, Inc. ("PSI") (the "PSP9 Merger" and the "PSBP
Merger," respectively; together, the "Mergers") pursuant to the Agreement and
Plan of Reorganization attached as Appendix A to this Joint Proxy Statement
and Prospectus (the "Merger Agreement"). Holders of PSP9 and PSBP Common
Stock are referred to hereafter as the "PSP9 Shareholders" and the "PSBP
Shareholders," respectively. The PSP9 Merger and the PSBP Merger are not
conditioned on each other.
PSI and its executive officers have significant relationships with both
PSP9 and PSBP, and PSI owns approximately 24% and 31% of the PSP9 and PSBP
Common Stock, respectively. B. Wayne Hughes ("Hughes"), the chief executive
officer of PSI, PSP9 and PSBP, owns an additional approximately 4% of the PSP9
Common Stock. See "Summary -- Relationships." PSI and Hughes have informed
PSP9 and PSBP that they intend to vote their shares for the Mergers. The
Boards of Directors of PSP9 and PSBP, based on recommendations of special
committees composed of independent directors, recommend that PSP9 and PSBP
Shareholders, respectively, vote for the Mergers. Each of PSP9 and PSBP has
imposed as an additional condition to the Mergers that they be approved by a
majority of the shares of PSP9 and PSBP Common Stock voting at the respective
shareholder meetings not held by PSI and Hughes.
The Mergers involve certain factors that should be considered by the PSP9
and PSBP Shareholders, including the following:
. The Mergers have not been negotiated at arms' length, and no unaffiliated
representatives were appointed to negotiate the terms of the Mergers on
behalf of either PSP9 or PSBP.
. The nature of the investment of PSP9 and PSBP Shareholders who receive
shares of Common Stock, par value $.10 per share, of PSI (the "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 ($20 per share) and
the current regular quarterly distribution rate for PSP9 and PSI, the
level of distributions to PSP9 Shareholders who receive PSI Common Stock
in the Mergers would be approximately 32% lower after the Mergers than
before.
(Continued on following page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON, OR
ENDORSED THE MERITS OF, THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
______________, 1996
<PAGE>
. The properties of PSP9 and PSBP may continue to appreciate in value and
might be able to be liquidated at a later date for more consideration
than receivable in the Mergers.
. Under California law, PSP9 and PSBP Shareholders will be entitled to
dissenters' rights of appraisal in connection with the Mergers only if
demands for payments are filed with respect to 5% or more of the
outstanding shares of PSP9 or PSBP Common Stock, respectively.
. PSI and its affiliates have conflicts of interest in connection with the
Mergers.
. Hughes and members of his family (the "Hughes Family") own approximately
53% of the PSI Common Stock.
. The public PSI Shareholders are further limited in their ability to
change control of PSI due to restrictions in PSI's organizational
documents on beneficial ownership.
. 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 PSP9 and PSBP, has
incurred, and may continue to incur, debt.
. The interest of holders of PSI Common Stock ("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 PSP9 and PSBP
Shareholders in the Mergers and prior to issuance and could decrease as a
result of increased selling activity following issuance of shares in the
Mergers and other factors.
. The consideration to be received by PSP9 and PSBP Shareholders in the
Mergers 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
PSP9 or PSBP.
. PSP9 and PSBP Shareholders who receive any cash in connection with the
Mergers may have a taxable gain.
See "Risk Factors and Material Considerations" beginning on page ___ of this
Joint 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 PSP9 and PSBP Common Stock are
traded on the American Stock Exchange ("AMEX") under the symbols "PSK" and
"PSB," respectively. On _______________, 1996, the closing prices of the PSP9
and PSBP Common Stock on the AMEX were $_____ and _____, respectively.
This Joint Proxy Statement and Prospectus is first being mailed on or
about _______________, 1996 to PSP9 and PSBP Shareholders of record at the
close of business on _______________, 1996.
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, PSP9 or
PSBP. This Joint 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 Joint 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
Page
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Available Information............................................................................................. 1
Incorporation of Certain Documents by Reference................................................................... 1
Summary........................................................................................................... 3
Overview of Mergers.......................................................................................... 3
Meetings and Vote Requirements of Shareholders............................................................... 4
PSI.......................................................................................................... 4
PSP9......................................................................................................... 5
PSBP......................................................................................................... 5
Merger with PSMI............................................................................................. 5
Risk Factors and Material Considerations..................................................................... 5
Background and Reasons for the Mergers....................................................................... 7
Potential Advantages of the Mergers.......................................................................... 9
Rights of Dissenting Shareholders............................................................................ 9
Determination of Payments to be Received by PSP9 Shareholders in Connection with the PSP9 Merger............. 10
Determination of Payments to be Received by PSBP Shareholders in Connection with the PSBP Merger............. 10
Federal Income Tax Matters................................................................................... 10
Recommendations; Opinions of Financial Advisors.............................................................. 11
Comparison of PSP9 and PSBP Common Stock with PSI Common Stock............................................... 12
Summary Financial Information................................................................................ 15
Relationships................................................................................................ 19
Risk Factors and Material Considerations.......................................................................... 22
No Arms' Length Negotiation or Unaffiliated Representatives.................................................. 22
Change in Nature of Investment............................................................................... 22
Uncertainty Regarding Market Price of PSI Common Stock....................................................... 22
Potential Loss of Future Appreciation........................................................................ 22
Limitation on Dissenters' Rights of Appraisal................................................................ 22
Lower Level of Distributions to PSP9 Shareholders............................................................ 22
Control and Influence by the Hughes Family................................................................... 23
Ownership Limitations........................................................................................ 23
Tax Risks.................................................................................................... 23
Financing Risks.............................................................................................. 24
Merger Consideration Based on Appraisals Instead of Arms' Length Negotiation................................. 25
Tax to PSP9 and PSBP Shareholders............................................................................ 25
Operating Risks.............................................................................................. 25
Shares Eligible for Future Sale.............................................................................. 27
Conflicts of Interest in the Mergers.............................................................................. 27
The Mergers....................................................................................................... 28
General...................................................................................................... 28
Background................................................................................................... 29
Reasons for the Mergers and Timing........................................................................... 32
Alternatives to Mergers...................................................................................... 32
No Solicitation of Other Proposals........................................................................... 35
Determination of Payments to be Received by PSP9 and PSBP Shareholders in Connection with the Mergers........ 35
Potential Advantages of the Mergers to PSP9 and PSBP......................................................... 38
Recommendation to PSP9 and PSBP Shareholders and Fairness Analysis........................................... 38
Comparison of Consideration to be Received in the Mergers to Other Alternatives.............................. 41
Real Estate Portfolio Appraisals by Wilson................................................................... 44
Fairness Opinions from Stanger............................................................................... 47
The Merger Agreement......................................................................................... 52
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iii
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Cash Election Procedure..................................................................................... 54
Consequences to PSP9 and PSBP if the Mergers are Not Completed.............................................. 55
Costs of the Mergers........................................................................................ 55
Accounting Treatment........................................................................................ 56
Regulatory Requirements..................................................................................... 56
Comparison of PSP9 and PSBP Common Stock with PSI Common Stock.............................................. 56
Amendment to Bylaws of PSP9 and PSBP............................................................................. 60
Approval of the Mergers and Bylaw Amendments..................................................................... 61
General..................................................................................................... 61
PSP9........................................................................................................ 61
PSBP........................................................................................................ 61
Security Ownership of Certain Beneficial Owners and Management.............................................. 62
Solicitation of Proxies..................................................................................... 68
Description of PSP9's Properties................................................................................. 69
Description of PSBP's Property................................................................................... 73
Description of PSI's Properties.................................................................................. 75
Distributions and Price Range of PSI Common Stock................................................................ 77
Distributions and Price Range of PSP9 Common Stock............................................................... 78
Distributions and Price Range of PSBP Common Stock............................................................... 79
Description of PSI Capital Stock................................................................................. 80
Common Stock................................................................................................ 80
Ownership Limitations....................................................................................... 80
Class B Common Stock........................................................................................ 81
Preferred Stock............................................................................................. 82
Effects of Issuance of Capital Stock........................................................................ 83
Dissenting Shareholders' Rights of Appraisal..................................................................... 84
Certain Federal Income Tax Matters............................................................................... 86
The Mergers................................................................................................. 86
Opinion of Counsel.......................................................................................... 88
General Tax Treatment of PSI................................................................................ 89
Consequences of the PSMI Merger on PSI's Qualification as a REIT............................................ 91
Taxation of PSI Shareholders................................................................................ 96
State and Local Taxes....................................................................................... 97
Legal Opinions................................................................................................... 97
Experts.......................................................................................................... 98
Independent Auditors............................................................................................. 98
Shareholder Proposals............................................................................................ 98
Glossary......................................................................................................... 98
</TABLE>
Appendix A - Agreement and Plan of Reorganization among PSI, PSP9 and
PSBP dated as of December 13, 1995
Appendix B-1 - Real Estate Appraisal Report by Charles R. Wilson &
Associates, Inc. for PSP9
Appendix B-2 - Real Estate Appraisal Report by Charles R. Wilson &
Associates, Inc. for PSBP
Appendix C-1 - Opinion of Robert A. Stanger & Co., Inc. (PSP9 Merger)
Appendix C-2 - Opinion of Robert A. Stanger & Co., Inc. (PSBP Merger)
Appendix D - Chapter 13 of the California General Corporation Law
Concerning Dissenters' Rights
Appendix E-1 - Proposed Amendment to PSP9's Bylaws
Appendix E-2 - Proposed Amendment to PSBP's Bylaws
Appendix F - Financial Statements of PSP9
Appendix G - Financial Statements of PSBP
Appendix H - Management's Discussion and Analysis of Financial Condition
and Results of Operations of PSP9
Appendix I - Management's Discussion and Analysis of Financial Condition
and Results of Operations of PSBP
iv
<PAGE>
AVAILABLE INFORMATION
Each of PSI, PSP9 and PSBP 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. 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 PSP9 or PSBP, 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 Joint 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,
1994, as amended by Form 10-K/As dated April 4, 1995 and April 21, 1995; (ii)
the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June
30, 1995 and September 30, 1995; and (iii) the Current Reports on Form 8-K
dated January 24, 1995, April 25, 1995 and May 22, 1995, the Current Report on
Form 8-K, as amended by a Form 8-K/A, each dated June 30, 1995, and the
Current Report on Form 8-K dated November 16, 1995. The financial statements
included in the Registration Statement No. 33-58893, filed by the Company with
the Commission pursuant to the Securities Act, are also incorporated herein by
reference.
All documents filed by PSI pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Joint Proxy Statement and
Prospectus and prior to the date of the special meetings of the PSP9 and PSBP
Shareholders shall be deemed to be incorporated by reference herein from the
date of filing such documents.
The following documents filed by PSP9 with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-10713) are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1994, as amended by Form 10-K/As dated April 12, 1995 and January 29, 1996;
(ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995; and (iii) the Current Report on Form 8-K
dated December 13, 1995.
The following documents filed by PSBP with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-10842) are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1994, as amended by a Form 10-K/A dated April 12, 1995; (ii) the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995; and (iii) the Current Report on Form 8-K dated December
13, 1995.
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 Joint 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 Joint Proxy Statement and Prospectus.
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Also incorporated by reference herein is the Merger Agreement, which is
attached as Appendix A to this Joint Proxy Statement and Prospectus.
This Joint 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 Joint 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, 600 North Brand Boulevard, Suite 300, Glendale,
California 91203-1241 or by telephone at (818) 244-8080. In order to ensure
timely delivery of the documents, any request should be made by
_______________.
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SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Joint Proxy Statement and Prospectus.
See "Glossary" for definitions of certain terms used in this Joint Proxy
Statement and Prospectus.
Overview of Mergers
Merger of PSP9 into PSI. Upon consummation of the PSP9 Merger, PSP9 will
be merged into PSI, which will be the surviving corporation. Each share of
PSP9 Common Stock outstanding immediately prior to the consummation of the
PSP9 Merger (other than shares held by PSP9 Shareholders who have properly
exercised dissenter's rights under California law ("Dissenting PSP9 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 PSP9 Common Stock (not to exceed 20% of the outstanding PSP9 Common
Stock, or 489,501 shares, less any Dissenting PSP9 Shares), upon a PSP9
Shareholder's election (the "PSP9 Cash Election"), $18.64 in cash, subject to
reduction as described below, or (ii) that number of shares of PSI Common
Stock (subject to rounding) determined by dividing $18.64, 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 PSP9
Shareholders. If a PSP9 Shareholder does not make a PSP9 Cash Election, all
of his or her PSP9 Common Stock would be converted into PSI Common Stock. The
consideration paid by PSI to PSP9 Shareholders in the PSP9 Merger will be
reduced on a pro rata basis by the amount of cash distributions required to be
paid to PSP9 Shareholders by PSP9 prior to completion of the PSP9 Merger
(estimated at up to $.55 per share) in order to satisfy PSP9's REIT
distribution requirements ("Required PSP9 REIT Distributions"). The
consideration received by PSP9 Shareholders in the PSP9 Merger, however, along
with any Required PSP9 REIT Distributions, will not be less than $18.64 per
share of PSP9 Common Stock, which amount represents the market value of PSP9's
real estate assets at October 31, 1995 (based on an independent appraisal) and
the estimated net asset value of its other assets at March 31, 1996. PSP9
Shareholders would receive the Required PSP9 REIT Distributions upon any
liquidation of PSP9, regardless of the PSP9 Merger. Additional pre-merger
cash distributions would be made to the PSP9 Shareholders to cause PSP9's
estimated net asset value as of the date of the PSP9 Merger to be
substantially equivalent to its estimated net asset value as of March 31,
1996. The PSP9 Common Stock held by PSI will be cancelled in the PSP9 Merger.
See "The Mergers -- Determination of Payments to be Received by PSP9 and PSBP
Shareholders in Connection with the Mergers." For a description of the terms
of the PSP9 Merger, see "The Mergers -- The Merger Agreement."
Merger of PSBP into PSI. Upon consummation of the PSBP Merger, PSBP will
be merged into PSI, which will be the surviving corporation. Each share of
PSBP Common Stock outstanding immediately prior to the consummation of the
PSBP Merger (other than shares held by PSBP Shareholders who have properly
exercised dissenter's rights under California law ("Dissenting PSBP 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 PSBP Common Stock (not to exceed 20% of the outstanding PSBP Common
Stock, or 106,832 shares, less any Dissenting PSBP Shares), upon a PSBP
Shareholder's election (the "PSBP Cash Election"), $19.59 in cash, subject to
reduction as described below, or (ii) that number of shares of PSI Common
Stock (subject to rounding) determined by dividing $19.59, 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 PSBP
Shareholders. If a PSBP Shareholder does not make a PSBP Cash Election, all
of his or her PSBP Common Stock would be converted into PSI Common Stock. The
consideration paid by PSI to PSBP Shareholders in the PSBP Merger will be
reduced on a pro rata basis by the amount of cash distributions required to be
paid to PSBP Shareholders by PSBP prior to completion of the PSBP Merger
(estimated at up to $.24 per share) in order to satisfy PSBP's REIT
distribution requirements ("Required PSBP REIT Distributions"). The
consideration received by PSBP Shareholders in the PSBP Merger, however, along
with any Required PSBP REIT Distributions, will not be less than $19.59 per
share of PSBP Common Stock, which amount represents the market value of PSBP's
real estate assets at October 31, 1995 (based on an independent appraisal) and
the estimated net asset value of its other assets at March 31, 1996. PSBP
Shareholders would receive the Required PSBP REIT Distributions upon any
liquidation of PSBP, regardless of the PSBP Merger. Additional pre-merger
cash distributions would be made to the PSBP Shareholders to cause PSBP's
estimated net asset value as of the date of the PSBP Merger to be
substantially equivalent to its
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estimated net asset value as of March 31, 1996. The PSBP Common Stock held by
PSI will be cancelled in the PSBP Merger. See "The Mergers -- Determination
of Payments to be Received by PSBP Shareholders and PSP9 Shareholders in
Connection with the Mergers." For a description of the terms of the PSBP
Merger, see "The Mergers -- The Merger Agreement."
The Required PSP9 REIT Distributions and the PSBP REIT Distributions are
sometimes collectively referred to as the "Required REIT Distributions."
The PSP9 Merger and the PSBP Merger are not conditioned on each other.
The PSI Common Stock is listed on the NYSE, and the PSP9 and PSBP Common
Stock are listed on the AMEX. On December 13, 1995, the last full trading day
prior to the first announcement of the proposed Mergers, the reported closing
sales prices per share of PSI, PSP9 and PSBP Common Stock on the NYSE and
AMEX, respectively, were $19-3/8, $17-1/8 and $17-3/8. On _______________,
the last full trading day prior to the date of this Joint Proxy Statement and
Prospectus, the reported closing sales prices per share of PSI, PSP9 and PSBP
Common Stock were $_____, $_____ and $_____, respectively.
Meetings and Vote Requirements of Shareholders
<TABLE>
<CAPTION>
PSP9 PSBP
-------------- --------------
<S> <C> <C>
Meeting Date __________, 1996 at __________ __________, 1996 at __________
Record Date _______________ _______________
Purpose To Approve the PSP9 Merger and To Approve the PSBP Merger and
Proposed Bylaw Amendment Proposed Bylaw Amendment
2,447,506 Series A Shares 534,159 Series A Shares
Shares of Common
Stock Outstanding
Vote Required Majority of Shares of Outstanding Majority of Shares of Outstanding
PSP9 Common Stock * PSBP Common Stock *
Percentage Ownership by PSI
and Hughes 28% 31%
Shareholder Lists Available upon written Available upon written
demand demand
</TABLE>
- -----------------------
* Each of PSP9 and PSBP has imposed as an additional condition to each of
the PSP9 and PSBP Mergers, respectively, that each be approved by a
majority of the shares of PSP9 and PSBP Common Stock voting at the meeting
of PSP9 and PSBP Shareholders, respectively, not held by PSI and Hughes.
PSI
PSI is a fully integrated, self-administered and self-managed REIT,
organized as a California corporation that acquires, develops, owns and
operates self-service facilities offering space for personal and business use
("mini-warehouses"). 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 November
16, 1995, PSI had equity interests (through direct ownership, as well as
general and limited partnership and capital stock interests) in 1,044
properties located in 37 states, consisting of 1,009 mini-warehouse facilities
and 35 business parks. PSI also operates 77 properties in which it has no
equity interest.
In a series of mergers among Public Storage Management, Inc. and its
affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger
of PSMI into 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 was renamed "Public Storage, Inc."
See "-- Merger with PSMI."
PSI's Current Report on Form 8-K dated November 16, 1995 contains pro forma
financial statements of PSI reflecting the PSMI Merger and certain other
transactions. See "Incorporation of Certain Documents by Reference."
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PSP9
PSP9 is a REIT organized as a California corporation that was formed to
succeed to the business of Public Storage Properties IX, Ltd., a California
limited partnership (the "PSP9 Partnership"), in a reorganization transaction
completed on December 31, 1990. PSMI was the sponsor of the PSP9 Partnership.
PSP9 owns 15 properties located in six states, including 13 mini-warehouses,
one business park and one combination mini-warehouse/business park facility.
All of these facilities are operated under the "Public Storage" name. See
"Description of PSP9's Properties." The PSP9 Common Stock is traded on the
AMEX under the symbol "PSK."
PSP9's properties are managed by PSI. PSP9'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. The same persons are the
directors of PSP9 and PSBP. See "-- Relationships."
PSBP
PSBP is a REIT organized as a California corporation that was formed to
succeed to the business of PS Business Parks, Ltd., a California limited
partnership (the "PSBP Partnership"), in a reorganization transaction
completed on August 5, 1991. PSMI was the sponsor of the PSBP Partnership.
PSBP owns a business park located in California, which is operated under the
"Public Storage" name. See "Description of PSBP's Property." The PSBP Common
Stock is traded on the AMEX under the symbol "PSB."
PSBP's property is managed by PSI. PSBP'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. The same persons are the directors of
PSP9 and PSBP. See "-- Relationships."
The principal executive offices of PSI, PSP9 and PSBP are located at 600
North Brand Boulevard, Suite 300, Glendale, California 91203-1241. Their
telephone number is (818) 244-8080.
Merger with PSMI
In a series of mergers among PSMI and its affiliates, culminating in the
PSMI Merger, SEI became self-administered and self-managed, acquired
substantially all of the United States real estate operations of PSMI, and
changed its name to "Public Storage, Inc." In addition, the outstanding
capital stock of PSMI was converted into an aggregate of 30,000,000 shares of
PSI Common Stock, subject to certain adjustments, and the right to receive
7,000,000 shares of PSI Class B Common Stock.
The real estate operations acquired in the PSMI Merger included (1) the
"Public Storage" name, (2) seven wholly owned properties, (3) all-inclusive
deeds of trust secured by ten mini-warehouses, (4) general and limited
partnership interests in 47 limited partnerships owning an aggregate of 286
mini-warehouses, (5) shares of common stock in 16 REITs owning an aggregate of
218 mini-warehouses and 14 commercial properties, (6) property management
contracts, exclusive of facilities owned by PSI, for 563 mini-warehouses and,
through ownership of a 95% economic interest in a subsidiary, 24 commercial
properties (522 of which collectively were owned by entities affiliated with
PSMI) and (7) a 95% economic interest in another subsidiary that currently
sells locks and boxes in mini-warehouses operated by PSI.
Risk Factors and Material Considerations
The Mergers involve certain factors that should be considered by PSP9 and
PSBP Shareholders, including the following:
. No Arms' Length Negotiation or Unaffiliated Representatives. The
Mergers have not been negotiated at arms' length, and no
unaffiliated representatives were appointed to negotiate the terms
of the Mergers on behalf of either PSP9 or PSBP. If such persons
had been engaged, the terms of the Mergers may have been more
favorable to the shareholders of PSP9 and PSBP.
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. Change from Finite Life to Infinite Life. The nature of the
investment of PSP9 Shareholders and PSBP 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. PSP9 and PSBP Shareholders who receive PSI Common Stock
in the Mergers will be able to liquidate their investment only by
selling their shares in the market.
. Lower Level of Distributions After the Mergers to PSP9 Shareholders.
Depending on the market price of the PSI Common Stock during the
period in which the number of shares to be issued in the Mergers is
established, the level of distributions to PSP9 Shareholders who
receive PSI Common Stock in the Mergers may be lower after the
Mergers than before. Based on a market price of PSI Common Stock of
$20 and the current regular quarterly distribution rate for PSI
($.22 per share) and PSP9 ($.30 per share), PSP9 Shareholders would
receive approximately $.095 (32%) less in regular quarterly
distributions per share of PSP9 Common Stock after the Mergers from
PSI than before the Mergers from PSP9 and approximately $.01 less
per share in regular quarterly distributions for each $1.03 (5.2%)
increase in the market price of PSI Common Stock above $20.
. Potential Loss of Future Appreciation. The properties of PSP9 and
PSBP may continue to appreciate in value and might be able to be
liquidated at a later date for more consideration than receivable in
the Mergers.
. Limitation on Dissenters' Rights of Appraisal. Under California law,
PSP9 and PSBP Shareholders will be entitled to dissenters' rights of
appraisal in connection with the Mergers ("Dissenters' Rights") only
if demands for payment are filed with respect to 5% or more of the
outstanding shares of PSP9 and PSBP Common Stock, respectively.
. Conflicts of Interest. PSI and its affiliates, which are affiliated
with both PSP9 and PSBP, have conflicts of interest in connection
with the Mergers.
. Control and Influence by the Hughes Family. The Hughes Family owns
approximately 53% of the PSI Common Stock (approximately 57% upon
conversion of the Class B Common Stock).
. Ownership Limitations. The public PSI Shareholders are further
limited in their ability to change control of PSI due to
restrictions in PSI's Articles of Incorporation on beneficial
ownership.
. 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.
. Financing Risks. In making real estate investments, PSI, unlike PSP9
and PSBP, 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 PSP9 and PSBP Shareholders in
the Mergers and prior to issuance and could decrease as a result of
increased selling activity following issuance of shares in the
Mergers and other factors.
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<PAGE>
. Merger Consideration Based on Appraisals Instead of Arms' Length
Negotiations. The consideration to be paid to the PSP9 and PSBP
Shareholders is based on third party appraisals of the properties of
PSP9 and PSBP. 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
PSP9 and PSBP. There can be no assurance that if the properties of
PSP9 and PSBP were sold, they would be sold at the appraised values;
the sales price might be higher or lower.
. Tax to PSP9 and PSBP Shareholders Upon Receipt of Cash. PSP9 and
PSBP Shareholders who receive any cash in connection with the
Mergers may recognize a taxable gain. In addition, the Required PSP9
REIT Distributions and the Required PSBP REIT Distributions will be
taxable to all PSP9 and PSBP Shareholders, respectively, as ordinary
income.
Background and Reasons for the Mergers
The Mergers have been initiated and structured by individuals who are
executive officers of PSI, PSP9 and PSBP. Special committees composed of
independent directors of PSP9 and PSBP (the "PSP9 Special Committee" and "PSBP
Special Committee," respectively) have reviewed the terms of the Mergers, and
the Boards of Directors of PSP9 and PSBP, based on recommendations of these
special committees which the Boards of Directors have adopted, and on the
opinions of financial advisors in which they concur, believe that the Mergers
are fair to the public shareholders of PSP9 and PSBP, respectively, and
recommend that PSP9 and PSBP Shareholders, respectively, vote for the Mergers.
The PSP9 Special Committee and the PSBP Special Committee are comprised of
the same two independent directors of PSP9 and PSBP. The meetings of the PSP9
and PSBP Special Committees occurred simultaneously and the PSP9 and PSBP
Special Committees believe that the same general considerations are applicable
to both the PSP9 Merger and the PSBP Merger, except as noted in this Joint
Proxy Statement and Prospectus.
PSP9 and PSBP were organized to succeed to the business of the PSP9
Partnership and PSBP Partnership, respectively, in reorganization transactions
completed on December 31, 1990 and August 5, 1991, respectively. In response
to changes in the reorganizations requested by the unaffiliated dealer manager
of both partnerships' original offerings of limited partnership interests,
PSP9 and PSBP added provisions to their bylaws to the effect that their
shareholders be presented with proposals, in 1996 and 1999, respectively, to
sell all or substantially all of their properties, distribute the proceeds
from such sale and liquidate the corporations. Later, in settlement of
litigation arising from the reorganization of PSP9, PSP9's bylaw provision was
amended to expand the terms of the proposal to include a possible financing of
its properties. See "The Mergers -- Background."
The proposed PSP9 Merger satisfies PSP9's obligation to present a proposal
to PSP9 Shareholders for the sale or financing of its properties.
If approved by PSBP Shareholders, the PSBP Merger would obviate PSBP's
obligation to present a proposal to PSBP Shareholders for the sale of its
property. If PSBP Shareholders do not approve the PSBP Merger or if the PSBP
Merger is not completed because other conditions are not satisfied, PSBP would
continue to be obligated to present a proposal to PSBP Shareholders in 1999
for the sale of its property.
The PSP9 and PSBP Special Committees and the PSP9 and PSBP Boards of
Directors believe that the proposed Mergers are consistent with their
respective bylaw provisions. In the Mergers, PSP9 and PSBP would be disposing
of their properties to PSI for value, i.e., PSI Common Stock and cash (if Cash
Elections are made), and the corporate existence of PSP9 and PSBP would cease.
Furthermore, the consideration to be received in the Mergers is based on the
appraised value of the assets of PSP9 and PSBP, and PSP9 and PSBP Shareholders
have the right, with respect to up to 20% of the outstanding PSP9 and PSBP
Common Stock (less any Dissenting Shares), to receive cash in the Mergers.
The applicable bylaw provisions do not (i) define the terms "sale,"
"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 PSP9 or PSBP to PSI.
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<PAGE>
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 June 1995, PSI merged with three REITs which, like PSP9 and
PSBP, had been organized by PSMI to succeed to the business of predecessor
partnerships.
In November 1995, the PSP9 and PSBP Boards of Directors appointed the PSP9
and PSBP Special Committees to consider and make recommendations to their
respective Boards of Directors and shareholders regarding possible mergers
with PSI. On December 13, 1995, the PSP9 and PSBP Boards of Directors based
on recommendations of their respective special committees, which were adopted
by the respective Boards of Directors, approved the respective Merger and
determined to recommend that their respective shareholders vote for the
respective Merger.
The PSP9 and PSBP Boards of Directors and the PSP9 and PSBP Special
Committees believe that the respective consideration being offered in the
Mergers compares favorably with the trading price of the PSP9 and PSBP Common
Stock immediately prior to the first announcement of the Mergers and during
other periods, a range of estimated going concern values per share of PSP9 and
PSBP Common Stock, an estimated liquidation value per share of PSP9 and PSBP
Common Stock and the book value per share of PSP9 and PSBP Common Stock. The
PSP9 and PSBP Boards of Directors and the PSP9 and PSBP Special Committees
recognize that this comparison is subject to significant assumptions,
qualifications and limitations. See "The Mergers -- Comparison of
Consideration to be Received in the Mergers to Other Alternatives."
Prior to concluding that the Mergers should be proposed to PSP9 and PSBP
Shareholders, the PSP9 and PSBP Boards of Directors and the PSP9 and PSBP
Special Committees considered several alternatives to the Mergers, including
liquidation of PSP9 and PSBP, continued operation of PSP9 and PSBP and an
amendment to the organizational documents of PSP9 and PSBP. In order to
determine whether the Mergers or one of the alternatives would be more
advantageous to PSP9 and PSBP Shareholders, the PSP9 and PSBP Boards of
Directors and the PSP9 and PSBP Special Committees compared the potential
benefits and detriments of the Mergers with the potential benefits and
detriments of other alternatives. Based upon a comparison of the potential
benefits and detriments of the Mergers with their alternatives, the PSP9 and
PSBP Boards of Directors and the PSP9 and PSBP Special Committees have
concluded that the Mergers are more attractive to PSP9 and PSBP Shareholders,
respectively, than any of the alternatives considered. The PSP9 and PSBP
Boards of Directors did not solicit any other proposals for the acquisition of
PSP9 or PSBP or their properties. See "The Mergers -- No Solicitation of
Other Proposals."
In comparing the Mergers to other alternatives, the PSP9 and PSBP Boards of
Directors and the PSP9 and PSBP Special Committees noted the following:
Liquidation. The PSP9 Board of Directors and the PSP9 Special Committee do
not believe this is an opportune time to sell PSP9's properties because they
may continue to appreciate in value. The PSP9 Merger provides PSP9
Shareholders with the opportunity either to convert their investment in PSP9
into an investment in PSI, which like PSP9 primarily owns mini-warehouses, on
a tax-free basis or to receive cash based on the appraised value of PSP9's
properties as to a portion of their investment. The PSBP Board of Directors
and the PSBP Special Committee also do not believe this is an opportune time
to sell PSBP's business park because it may appreciate in value. The PSBP
Merger provides PSBP Shareholders with the opportunity either to convert their
investment in PSBP into an investment in PSI, which also owns, to a lesser
extent, business parks, on a tax-free basis or to receive cash based on the
appraised value of PSBP's property as to a portion of their investment.
However, if PSP9 or PSBP liquidated its assets through asset sales to
unaffiliated third parties, PSP9 and PSBP Shareholders would not need to rely
upon real estate portfolio appraisals to estimate the fair market value of the
properties of their respective corporation's properties.
Continued Operation. Nothing requires the liquidation or merger of either
PSP9 or PSBP at this time. Both are operating profitably. Continued
operation should provide PSP9 and PSBP Shareholders with continued
distributions of net operating cash flow and participation in future
appreciation of their respective corporation'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 Mergers described under "The Mergers -- Potential Advantages of the
Mergers."
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Amendment of Bylaws of PSP9 and PSBP. An amendment to the bylaws of PSP9
and PSBP to remove the restrictions on investment of cash flow and issuance of
securities by PSP9 and PSBP would permit them to take advantage of investment
opportunities and to grow as new investments are made. However, the PSP9 and
PSBP Boards of Directors and the PSP9 and PSBP Special Committees 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.
Potential Advantages of the Mergers
The principal potential benefits to PSP9 and PSBP Shareholders who receive
PSI Common Stock are:
. Acquisition of Additional Properties. Following the Mergers, PSP9
and PSBP Shareholders will be investors in an entity with a larger
asset base and market capitalization than PSP9 and PSBP. PSI has
grown and is expected to continue to grow, as new investments are
made.
. Increased Liquidity. PSP9 has 2,447,506 shares of PSP9 Common Stock
listed on the AMEX with an average daily trading volume during the
12 months ended September 30, 1995 of 1,300 shares, and PSBP has
534,159 shares of PSBP Common Stock listed on the AMEX with an
average daily trading volume during the same period of 400 shares.
In comparison, PSI has approximately 72 million shares of Common
Stock listed on the NYSE (35.6 million of which are freely
tradeable) with an average daily trading volume during the same
period of 60,200 shares (48,400 shares if November 1994 and May
1995, during which PSI was engaged in public offerings of Common
Stock, are excluded). Given PSI's greater market capitalization and
trading volume than either PSP9 or PSBP, PSP9 and PSBP Shareholders
who receive PSI Common Stock in exchange for their 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. Each of the
Mergers is intended to qualify as a tax-free reorganization.
Assuming such qualification, no taxable gain or loss will be
recognized in connection with the Mergers by PSP9 and PSBP
Shareholders who exchange their PSP9 and PSBP Common Stock solely
for PSI Common Stock. However, the Required PSP9 REIT Distributions
and PSBP REIT Distributions will be taxable to all shareholders of
the respective distributing corporation as ordinary income. Hughes,
who has little tax basis in his PSP9 Common Stock, has advised PSI
and PSP9 that he intends to exchange his PSP9 Common Stock solely
for PSI Common Stock. See "Certain Federal Income Tax Matters -- The
Mergers."
Rights of Dissenting Shareholders
Pursuant to Chapter 13 of the Corporations Code of the State of California
(the "California Code"), PSP9 and PSBP Shareholders will be entitled to obtain
appraisal of the fair value of their respective shares ("Dissenters' Rights")
if demands for payment are filed with respect to 5% or more of the respective
outstanding shares of PSP9 or PSBP Common Stock.
A dissenting shareholder who wishes to require PSP9 or PSBP to purchase his
or her respective shares of common stock must:
(1) vote against the respective Merger any or all of the shares of
common stock entitled to be voted (shares of common stock not voted are
not considered to be voted against a Merger and will not be counted
toward the 5% minimum for Dissenters' Rights to exist); provided that if
a PSP9 or PSBP Shareholder votes part of the shares entitled to be voted
in favor of the respective 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 the respective corporation or its
transfer agent, which is received not later than the date of the
respective meeting of shareholders, setting forth the number
9
<PAGE>
of shares of common stock demanded to be purchased by the respective
corporation and a statement as to claimed fair market value of such
shares at December 13, 1995; and
(3) submit for endorsement, within 30 days after the date on which the
notice of approval of the Mergers by the shareholders of the respective
corporation is mailed to such shareholders, to the respective corporation
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.
The provisions of Chapter 13 are technical in nature and complex. PSP9
and PSBP 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 PSP9 Shareholders in Connection
with the PSP9 Merger
In connection with the PSP9 Merger, PSP9 Shareholders will receive the
net asset value or $18.64 per share of PSP9 Common Stock. PSP9's net asset
value is the sum of (a) the appraised value of PSP9's real estate assets
determined by Wilson, as of October 31, 1995, plus (b) the estimated book
values of PSP9's non-real estate assets as of March 31, 1996, less (c) PSP9's
estimated liabilities as of March 31, 1996. Pre-merger cash distributions
would be made to PSP9 Shareholders to cause PSP9's estimated net asset value
as of the date of the PSP9 Merger to be substantially equivalent to its
estimated net asset value as of March 31, 1996. The consideration paid to
PSP9 Shareholders by PSI in the PSP9 Merger will be reduced on a pro rata
basis by the amount of the Required PSP9 REIT Distributions paid to PSP9
Shareholders by PSP9 prior to completion of the PSP9 Merger. See "The Mergers
--Determination of Payments to be Received by PSP9 Shareholders in Connection
with the Mergers." However, the consideration received by PSP9 Shareholders
in the PSP9 Merger along with the Required PSP9 REIT Distributions (which will
be paid in cash) will not be less than $18.64.
Determination of Payments to be Received by PSBP Shareholders in Connection
with the PSBP Merger
In connection with the PSBP Merger, PSBP Shareholders will receive the
net asset value or $19.59 per share of PSBP Common Stock. PSBP's net asset
value is the sum of (a) the appraised value of PSBP's real estate asset
determined by Wilson, as of October 31, 1995, plus (b) the estimated book
values of PSBP's non-real estate assets as of March 31, 1996, less (c) PSBP's
estimated liabilities as of March 31, 1996. Pre-merger cash distributions
would be made to PSBP Shareholders to cause PSBP's estimated net asset value
as of the date of the PSBP Merger to be substantially equivalent to its
estimated net asset value as of March 31, 1996. The consideration paid to
PSBP Shareholders by PSI in the PSBP Merger will be reduced on a pro rata
basis by the amount of the Required PSBP REIT Distributions paid to PSBP
Shareholders by PSBP prior to completion of the PSBP Merger. See "The Mergers
--Determination of Payments to be Received by PSBP Shareholders in Connection
with the Mergers." However, the consideration received by PSBP Shareholders
in the PSBP Merger along with the Required PSBP REIT Distributions (which will
be paid in cash) will not be less than $19.59.
Federal Income Tax Matters
Each of the Mergers is intended to qualify as a tax-free reorganization
under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), in which case generally (A) (i) no gain or loss would be
recognized by PSP9 Shareholders who receive solely PSI Common Stock in
exchange for their PSP9 Common Stock; (ii) gain or loss would be recognized by
PSP9 Shareholders who receive solely cash in exchange for their PSP9 Common
Stock in an amount equal to the difference between their adjusted basis in
their PSP9 Common Stock and the amount of cash received in exchange therefor;
and (iii) gain or loss would be recognized by PSP9 Shareholders who receive a
combination of PSI Common Stock and cash in exchange for their PSP9 Common
Stock in an amount equal to the difference between their adjusted basis in
their PSP9 Common Stock and the sum of (a) the fair market value of the PSI
Common Stock received and (b) the amount of cash received, but only to the
extent of the amount of cash received and (B) (i) no gain or loss would be
recognized by PSBP Shareholders who receive solely PSI Common Stock
10
<PAGE>
in exchange for their PSBP Common Stock; (ii) gain or loss would be recognized
by PSBP Shareholders who receive solely cash in exchange for their PSBP Common
Stock in an amount equal to the difference between their adjusted basis in
their PSBP Common Stock and the amount of cash received in exchange therefor;
and (iii) gain or loss would be recognized by PSBP Shareholders who receive a
combination of PSI Common Stock and cash in exchange for their PSBP Common
Stock in an amount equal to the difference between their adjusted basis in
their PSBP Common Stock and the sum of (a) the fair market value of the PSI
Common Stock received and (b) the amount of cash received, but only to the
extent of the amount of cash received. The Required PSP9 REIT Distributions
and Required PSBP REIT Distributions would not be treated as cash paid in
exchange for the PSP9 Common Stock and PSBP Common Stock, respectively, but
rather as a dividend taxable to all recipients as ordinary income. See
"Certain Federal Income Tax Matters -- The Mergers."
Recommendations; Opinions of Financial Advisors
Recommendation of PSP9 and PSBP Boards of Directors to PSP9 and PSBP
Shareholders. Based upon an analysis of the Mergers, the PSP9 and PSBP
Special Committees and the PSP9 and PSBP Boards of Directors have concluded
that (i) the terms of the Mergers are fair to the public shareholders of the
respective corporation, (ii) after comparing the potential benefits and
detriments of the Mergers with those of several alternatives, the Mergers are
more advantageous to the public shareholders of their respective corporation
than such alternatives and (iii) PSP9 and PSBP Shareholders should vote for
the respective Merger.
The PSP9 and PSBP Special Committees and the PSP9 and PSBP Boards of
Directors based their conclusion on the following factors: (i) the bylaws of
PSP9 and PSBP require proposals for the sale of properties of PSP9 and PSBP in
1996 and 1999, respectively; (ii) the Mergers provide PSP9 and PSBP
Shareholders with a choice of converting their investment into an investment
in PSI or, with respect to up to 20% of the outstanding PSP9 and PSBP Common
Stock (less any Dissenting Shares), receiving cash for their investment; (iii)
the properties of PSP9 and PSBP have been appraised by an independent
appraiser and PSP9 and PSBP each has received a fairness opinion from Robert
A. Stanger & Co. Inc. ("Stanger") relating to the consideration to be received
in the respective Merger; (iv) the Mergers are required to be approved by PSP9
and PSBP Shareholders and, subject to certain limitations, these 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 Mergers compares favorably with other alternatives.
Absence of Arms' Length Negotiation. The terms of the Mergers are not
the result of arms' length negotiation. The PSP9 and PSBP Boards of Directors
do not believe that the absence of independent representatives to negotiate
the Mergers undermines the fairness of the Mergers because the terms of the
Mergers have been reviewed and approved by the PSP9 and PSBP Special
Committees, comprised of independent directors of PSP9 and PSBP.
Fairness Opinions from Stanger. Stanger was engaged by PSP9 and PSBP
through the PSP9 and PSBP Special Committees to deliver a written summary of
its determination as to the fairness of the respective consideration to be
received in each Merger, from a financial point of view, to the respective
public shareholders of PSP9 and PSBP. The full text of the opinions is set
forth in Appendix C-1 and C-2 to this Joint Proxy Statement and Prospectus.
Subject to the assumptions, qualifications and limitations contained therein,
the fairness opinions conclude that, as of the date of the fairness opinions,
the consideration to be received in each Merger is fair to the public
shareholders of each of PSP9 and PSBP, from a financial point of view. In
arriving at its opinions, Stanger considered, among other things, the
independent appraised value of the portfolio of properties of each of PSP9 and
PSBP, the estimated liquidation value of PSP9 and PSBP prepared by PSP9 and
PSBP, respectively, based upon liquidation of the portfolio on a property-by-
property basis, financial analyses and projections prepared by PSP9 and PSBP
concerning the going-concern value from continuing operation of each of PSP9
and PSBP as a stand-alone entity, and a comparison of the historical market
prices of the common stock of each of PSP9 and PSBP with the consideration
offered in the Mergers. Stanger was not requested to, and therefore did not:
(i) select the method of determining the consideration offered in the Mergers;
(ii) make any recommendation to the PSP9 or PSBP Shareholders with respect to
whether to approve or reject the Mergers or whether to select the cash or
common stock option in the Mergers; or (iii) express any opinion as to the
business decision to effect the Mergers, alternatives to the Mergers, or tax
factors resulting from the PSMI Merger or relating to PSI's continued
qualification as a REIT. Stanger's opinions are based on business, economic,
real estate
11
<PAGE>
and securities markets, and other conditions as of the date of its analysis.
See "The Mergers -- Fairness Opinion from Stanger."
Comparison of PSP9 and PSBP Common Stock with PSI Common Stock
The information below summarizes certain principal differences between
the PSP9 and PSBP Common Stock and the PSI Common Stock and the effect of the
Mergers on PSP9 and PSBP Shareholders who receive PSI Common Stock in the
Mergers (set forth in italics below each caption). For an expanded discussion
of these and other comparisons and effects, see "The Mergers -- Comparison of
PSP9 and PSBP Common Stock with PSI Common Stock."
Investment Objectives and Policies
PSP9 and PSBP
To provide (i) quarterly cash distributions from operations and (ii) long-term
capital gains through appreciation in the value of properties.
PSI
To maximize funds from operations ("FFO") allocable to holders of PSI Common
Stock and to increase shareholder value through internal 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."
PSP9 and PSBP Shareholders who receive PSI Common Stock in the Mergers
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
PSP9 and PSBP
Not permitted to incur borrowings in acquisition of properties.
PSI
Permitted to borrow in furtherance of its investment objectives, subject to
certain limitations.
PSI, unlike PSP9 and PSBP, incurs debt in the ordinary course of
business and reinvests proceeds from borrowings. The incurrence of debt
increases the risk of loss of investment.
12
<PAGE>
Transactions with Affiliates
PSP9 and PSBP
Restricted from entering into a variety of business transactions with its
affiliates without shareholder approval. See "Amendment to Bylaws of PSP9 and
PSBP."
PSI
Restricted from acquiring properties from its affiliates or from selling
properties to them unless the transaction is approved by a majority 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 PSP9 or PSBP because shareholder approval is not required.
Properties (As of November 16, 1995)
PSP9 and PSBP
PSP9 - 15 wholly owned properties in six states.
PSBP - one wholly owned property in California.
PSI
Direct and indirect equity interests in 1,044 properties in 37 states.
Because PSI owns substantially more property interests in more states
than either PSP9 or PSBP, PSI's results of operations are less affected by the
operations of a single property than are those of PSP9 or PSBP, and it would
be more difficult to liquidate PSI than either PSP9 or PSBP within a
reasonable period of time.
Liquidity, Marketability and Distributions
PSP9 and PSBP
The common stock of PSP9 and PSBP is traded on the AMEX. During the 12 months
ended September 30, 1995, the average daily trading volume of PSP9 and PSBP
Common Stock was 1,300 shares and 400 shares, respectively. PSP9 and PSBP may
not issue securities having priority over their common stock.
PSI
PSI Common Stock is traded on the NYSE. During the 12 months ended September
30, 1995, the average daily trading volume of PSI Common Stock was 60,200
shares (48,400 shares if November 1994 and May 1995, during which PSI was
engaged in public offerings of Common Stock, are 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 PSP9, PSBP
and PSI out of any funds legally available for that purpose. PSP9, PSBP and
PSI are required to distribute at least 95% of their ordinary REIT 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 PSP9 or PSBP Shareholder who receives PSI Common Stock in the
Mergers should have an investment for which the market is broader and more
active than the market for PSP9 or PSBP Common Stock. Distributions on PSI
Common Stock are subject, however, to priority of preferred stock.
Additional Issuances of Securities and Anti-Takeover Provisions
PSP9 and PSBP
PSP9 and PSBP Shareholders must approve all additional issuances of capital
stock.
PSI
Subject to the rules of the NYSE and applicable provisions of California law,
PSI has issued and intends to continue to issue authorized common and
preferred stock without shareholder approval.
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<PAGE>
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 either PSP9 or PSBP, and PSI
Shareholders could be less likely to benefit from a takeover not approved by
its Board of Directors than would PSP9 or PSBP Shareholders in a similar
circumstance.
14
<PAGE>
Summary Financial Information
The financial data in this section should be read in conjunction with
the financial statements and pro forma financial statements incorporated
herein by reference.
PSI - Historical
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------------------------- -------------------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- -------------------- ---- --------------------
Historical Proforma(9) Historical Proforma(9)
---------- -------- ---------- --------
($ In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total revenues $ 93,570 $ 93,528 $ 97,448 $114,680 $147,196 $248,411 $106,089 $ 148,048 $ 197,032
Depreciation and
amortization 21,099 21,773 22,405 24,998 28,274 51,022 20,532 27,887 39,809
Interest expense 10,920 10,621 9,834 6,079 6,893 16,350 4,455 5,249 11,797
Minority interest in income 9,154 6,693 6,895 7,291 9,481 6,918 7,795 5,449 5,304
Net income 11,994 11,954 15,123 28,036 42,118 96,621 29,884 49,221 79,980
Other Data:
Net cash provided by
operating activities $ 41,101 $ 40,419 $ 44,025 $ 59,477 $ 79,180 $154,991 $ 59,478 $ 82,599 $ 124,451
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(1) 2.79x 2.71x 2.89x 2.40x 2.22x 2.41x 2.31x 2.07x 2.59x
Balance Sheet Data
(at end of period):
Total cash and cash
equivalents $ 9,225 $ 6,439 $ 8,384 $ 10,532 $ 20,151 $ - $ 16,888 $ 14,697 $ 5,494
Total assets 572,247 548,220 537,724 666,133 820,309 - 799,188 1,190,061 1,829,157
Total debt 105,285 104,244 69,478 84,076 77,235 - 46,376 110,689 189,170
Shareholders' equity 175,585 188,113 253,669 376,066 587,786 - 553,251 922,941 1,479,081
Per Share of Common Stock:
Net income $ 1.04 $ .81 $ .90 $ .98 $ 1.05 $ .91 $ .79 $ .76 $ .77
Distributions(2) .65(3) .82 .84 .84 .85 .85 .63 .66 .66
Book value (at end of
period) 15.16 12.75 12.02 11.93 12.66 - 12.64 13.29 14.11
Weighted average shares of
Common Stock (in thousands) 11,583 14,751 15,981 17,558 24,077 71,845 22,951 35,847 72,144
</TABLE>
15
<PAGE>
PSP9 - Historical
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------------------- ----------------
1990(4) 1991 1992 1993 1994 1994 1995
-------- ------- -------- ------- ------- ------- -------
($ In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total revenues $ 6,958 $ 6,968 $ 6,737 $ 6,830 $ 7,068 $ 5,309 $ 5,385
Depreciation and amortization 974 996 984 951 938 704 716
Reorganization costs(5) 371 299 (117) - - - -
Interest expense - - - - 95 74 71
Gain on sale of real estate - - 1,729 237 - - -
Net income 3,124 2,977 4,936 3,545 3,388 2,568 2,622
Other Data:
Net cash provided by operating
activities $ 4,285 $ 4,047 $ 4,100 $ 4,091 $ 4,289 $ 3,184 $ 2,999
Ratio of earnings to fixed charges N/A N/A N/A N/A 36.7x 35.7x 37.9x
Balance Sheet Data (at end of period):
Total cash and cash equivalents $ 1,299 $ 1,575 $ 1,881 $ 473 $ 1,032 $ 822 $ 19
Total assets 32,716 32,169 29,641 27,498 27,300 27,267 26,062
Total debt - - - - 1,050 800 100
Shareholders' equity 31,847 30,268 27,940 25,938 24,738 25,003 24,489
Per Share of Common Stock:
Net income:
Primary $ 1.30 $ 1.24 $ 2.24 $ 1.69 $ 1.70 $ 1.28 $ 1.05
Fully-diluted 1.08 1.04 1.76 1.33 1.33 1.01 1.05
Distributions(6):
Series A $ 1.60 $ 1.65 $ 2.51 $ 1.56 $ 1.56 $ 1.17 $ .99
Series B(7)(10) 1.60 1.65 1.56 1.44 1.56 1.17 -
Series C - - - - - - -
Book value (at end of period)(8) $ 11.00 $ 10.53 $ 10.27 $ 10.00 $ 9.85 $ 9.80 $ 9.84
Weighted average shares of
common stock (in thousands):
Primary 2,172 2,151 2,075 1,935 1,821 1,828 2,488
Fully-diluted 2,896 2,875 2,799 2,658 2,544 2,552 2,488
</TABLE>
16
<PAGE>
PSBP - Historical
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------------------------- ----------------
1990(4) 1991 1992 1993 1994 1994 1995
-------- ------- ------- ------- ------- ------- -------
($ In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total revenues $ 1,703 $1,754 $1,736 $1,632 $1,727 $1,294 $1,324
Depreciation and amortization 382 467 372 356 363 276 265
Reorganization costs(5) 54 116 - - - - -
Interest expense - - - - 3 - 59
Net income 683 571 725 605 581 459 434
Other Data:
Net cash provided by operating
activities $ 1,044 $ 716 $1,316 $ 934 $ 975 $ 782 $ 723
Ratio of earnings to fixed charges N/A N/A N/A N/A 194.7x N/A 8.4x
Balance Sheet Data (at end of period):
Total cash and cash equivalents $ 574 $ 219 $ 466 $ 408 $ 101 $ 255 $ 243
Total assets 8,358 7,939 7,741 7,444 6,823 7,051 6,784
Total debt - - - - 575 - 1,000
Shareholders' equity 7,929 7,412 7,175 6,911 5,712 6,483 5,186
Per Share of Common Stock:
Net income:
Primary $ 1.25 $ 1.03 $ 1.40 $ 1.16 $ 1.16 $ .91 $ .93
Fully-diluted 1.04 .88 1.14 .96 .96 .75 .80
Distributions(12):
Series A $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.20 $ 1.20
Series B(13) 1.60 1.60 1.60 1.60 1.60 1.20 .80
Series C - - - - - - -
Book value (at end of period)(8) $ 12.09 $11.62 $11.41 $11.06 $10.24 $10.57 $ 9.71
Weighted average shares of
common stock (in thousands):
Primary 492 488 470 464 440 449 436
Fully-diluted 656 652 634 628 604 613 546
</TABLE>
- ----------
(1) For purposes of these computations, earnings consist of net income
before minority interest in income, loss on early extinguishment of debt
and gain on disposition of real estate plus fixed charges (other than
preferred stock dividends) and less the portion of minority interest in
income for those consolidated minority interests which had no fixed
charges during the period. Fixed charges and preferred stock dividends
consist of interest expense and the dividend requirements of PSI
preferred stock.
(2) For federal income tax purposes (a) distributions for 1990 consist of
$.50 of ordinary income and $.15 return of capital and (b) distributions
for 1991, 1992, 1993, 1994 and the nine months ended September 30, 1995
are from ordinary income. The distributions for generally accepted
accounting principles ("GAAP"), include a return of capital for 1991 of
$.01. All distributions for 1990, 1992, 1993, 1994 and the nine months
ended September 30, 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.
(3) When PSI was organized in 1980, it intended to distribute all net cash
flow from operations less reserves. PSI's distributions per share of
Common Stock were reduced from $.35 per quarter to $.05 for the first
quarter of
17
<PAGE>
1990 and $.20 for each subsequent quarter of 1990. Distributions had
been reduced because distributions had exceeded cash available for
distributions and because capital expenditures had been required for
maintenance of properties. Commencing in 1990 PSI changed its
distribution policy and distributes less than its cash available for
distributions, permitting it to retain funds for additional investment
and debt reduction.
(4) PSP9 was reorganized from the PSP9 Partnership on December 31, 1990 (the
"Reorganization"). The Reorganization has been reflected by
retroactively restating the information for 1990; the only impact
relates to the classification of certain equity accounts.
(5) Reorganization costs, which consist primarily of legal fees, accounting
fees, transfer taxes, registration and solicitation fees, represent the
costs incurred in the Reorganization.
(6) For federal income tax purposes, distributions on Series A Shares for
(a) 1991 consist of $1.50 of ordinary income and $.10 of return of
capital, (b) distributions for 1992 consisted of $1.31 of ordinary
income, $.95 of capital gain and $.20 of return of capital, (c)
distributions for 1993 consisted of $1.44 of ordinary income and $.12 of
capital gain, and (d) distributions for 1994 and the nine months ended
September 30, 1995 are from ordinary income. Distributions through 1992
exceeded net income computed in accordance with GAAP. The distributions
for GAAP purposes include a return of capital for 1990 of $.28, for 1991
of $.37 and for 1992 of $.24. The distributions for GAAP purposes in
1992 and 1993 include $.95 and $.12, respectively, of capital gain. All
distributions for 1994 were from investment income. Distributions for
each year include 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.
(7) In the Reorganization, PSP9 issued shares of Common Stock Series A,
Series B and Series C. In February 1995 the Series B and Series C shares
converted to Series A shares on a share for share basis in accordance
with PSP9's articles of incorporation. Therefore, commencing with the
distribution with respect to the first quarter of 1995, no distributions
have been paid on the Series B shares.
(8) Book value per share computed based on the number of Series A, Series B
and Series C shares outstanding at period end.
(9) Historical information of PSI for 1994 and the nine months ended
September 30, 1995 have 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.
(10) The Series B shares (prior to conversion into Series A shares) were not
entitled to participate in distributions attributable to sale or
refinancing of PSP9's properties or the liquidation of PSP9. As a
result, the Series B shares did not participate in the capital gain
distributions in 1993 and 1992.
(11) PSBP was reorganized from the PSBP Partnership on August 5, 1991 (the
"Reorganization"). The Reorganization has been reflected by
retroactively restating the information for 1990; the only impact
relates to the classification of certain equity accounts.
(12) For federal income tax purposes, distributions on PSBP's Series A Shares
for (a) 1990 and 1991 consisted of $1.37 of ordinary income and $.23 of
return of capital, (b) distributions for 1993 consisted of $1.38 of
ordinary income and $.22 of return of capital, and (c) distributions for
1992, 1994 and the nine months ended September 30, 1995 are from
ordinary income. Distributions for GAAP purposes include a return of
capital for 1990 of $.32, 1991 of $.44, 1992 of $.18, 1993 of $.41, 1994
of $.38 and the nine months ended September 30, 1995 of $.22.
Distributions for each year include 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.
(13) In the Reorganization, PSBP issued shares of Common Stock Series A,
Series B and Series C. In August 1995 the Series B and Series C shares
converted to Series A shares on a share for share basis in accordance
with
18
<PAGE>
PSBP's articles of incorporation. Therefore, commencing with the
distribution with respect to the third quarter of 1995, no distributions
have been paid on the Series B shares.
Relationships
The following charts show the relationships among PSP9, PSBP, PSI and
certain of their affiliates both before and after the Mergers. The properties
of PSP9 and PSBP are managed by PSI, the principal shareholder of PSP9 and
PSBP, under the supervision of their Boards of Directors. PSI is controlled by
B. Wayne Hughes, the chairman of the board and chief executive officer of
PSP9, PSBP and PSI.
19
<PAGE>
Before the Mergers
[CHART OMITTED HERE]
Description of Graphic
Chart illustrating the affiliated relationships among PSP9, PSBP, PSI and
certain affiliates before the Mergers: BWH owns 53% of PSI and Public
Shareholders own 47% of PSI; BWH owns 4% of PSP9, PSI (which is the Property
Manager of PSP9) owns 24% of PSP9 and Public Shareholders own 72% of PSP9; PSI
(which is the Property Manager of PSBP) owns 31% of PSBP and Public
Shareholders own 69% of PSBP.
(See notes on succeeding page.)
20
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After the Mergers
(Assuming Maximum Cash Elections)
[CHART OMITTED HERE]
Description of Graphic
Chart illustrating the affiliated relationships between PSI and certain
affiliates after the Mergers: BWH owns 52% of PSI and Public Shareholders own
48% of PSI.
BWH = B. Wayne Hughes. Mr. Hughes is the chairman of the board and chief
executive officer of PSP9, PSBP and PSI
PSP9 = Public Storage Properties IX, Inc.
PSBP = PS Business Parks, Inc.
PSI = Public Storage, Inc. Mr. Hughes and members of his family own 53% of the
PSI Common Stock (57% upon the conversion of PSI's Class B Common
Stock). PSI manages the commercial properties of PSP9 and PSBP through
Public Storage Commercial Properties Group, Inc. ("PSCP") which is
economically owned 95% by PSI and 5% by the Hughes Family.
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RISK FACTORS AND MATERIAL CONSIDERATIONS
The Mergers involve the following factors which should be considered by
PSP9 and PSBP Shareholders, including the following:
No Arms' Length Negotiation or Unaffiliated Representatives
The Mergers have not been negotiated at arm's length, and PSI and its
affiliates have significant relationships with both PSP9 and PSBP. No
unaffiliated representatives were appointed to negotiate the terms of the
Mergers on behalf of either PSP9 or PSBP. If such persons had been engaged,
the terms of the Mergers might have been more favorable to the shareholders of
either PSP9 or PSBP.
Change in Nature of Investment
PSP9 and PSBP are REITs organized to hold interests in properties for a
finite period. The bylaws of PSP9 and PSBP require that their shareholders be
presented with liquidation proposals in 1996 and 1999, respectively, although
they 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 Mergers, PSP9 and PSBP
Shareholders receiving PSI Common Stock will be able to liquidate their
investment only by selling their shares on the NYSE or in private
transactions. PSBP Shareholders who receive PSI Common Stock will be changing
the nature of their investment from ownership in a company that owns a
business park to ownership in a company that owns primarily mini-warehouses.
Uncertainty Regarding Market Price of PSI Common Stock
The number of shares of PSI Common Stock that would be received by PSP9
and PSBP 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 respective shareholders' meetings. Since the market price of PSI Common
Stock fluctuates, the market value of PSI Common Stock that holders of PSP9
and PSBP Common Stock may receive in the Mergers may decrease following
establishment of the number of shares. In addition, because of increased
selling activity following issuance of shares in the Mergers and other
factors, the market value of PSI Common Stock that PSP9 and PSBP Shareholders
may receive in the Mergers may decrease following the Mergers.
Potential Loss of Future Appreciation
The properties of PSP9 and PSBP may continue to appreciate in value and
might be able to be liquidated at a later date for more consideration than
receivable in the Mergers.
Limitation on Dissenters' Rights of Appraisal
Under California law, PSP9 and PSBP Shareholders will be entitled to
Dissenters' Rights in connection with the Mergers only if demands for payment
are filed with respect to 5% or more of the outstanding shares of PSP9 and
PSBP Common Stock, respectively. See "Dissenting Shareholders Rights of
Appraisal."
Lower Level of Distributions to PSP9 Shareholders
Depending on the market price of the PSI Common Stock during the period
in which the number of shares to be issued in the Mergers is established, the
level of distributions to PSP9 Shareholders who receive PSI Common Stock in
the Mergers may be lower after the Mergers than before. Based on a market
price of PSI Common Stock of $20 and the current regular quarterly
distribution rate for PSI ($.22 per share) and PSP9 ($.30 per share), PSP9
Shareholders would receive approximately $.095 (32%) less in regular quarterly
distributions per share of PSP9 Common Stock after the Mergers from PSI than
before the Mergers from PSP9 and approximately $.01 less per share in regular
quarterly distributions for each $1.03 (5.2%) increase in the market price of
PSI Common Stock above $20.
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Control and Influence by the Hughes Family
The Hughes Family owns approximately 53% of the outstanding shares of PSI
Common Stock (approximately 57% upon conversion of PSI's 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.
Ownership Limitations
Public shareholders are further limited in their ability to change
control of PSI due to restrictions in the PSI Articles of Incorporation and
Bylaws on beneficial ownership. Unless such limitations are waived by PSI's
board of directors (the "Board of Directors"), no shareholder may own more
than (A) 2.0% of the outstanding shares of all common stock of PSI or (B) 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 shall be deemed to exceed the ownership limit solely by reason of
the beneficial ownership of shares of any class of stock to the extent that
such shares of stock were beneficially owned by such person at the time of the
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. An incidental
consequence of such provisions is to make a change of control significantly
more difficult (if not impossible) even if it would be favorable to the
interests of the public shareholders. Such provisions will prevent future
takeover attempts which the PSI Board of Directors has not approved even if a
majority of the public shareholders of PSI deem it to be in their best
interests or in which the public shareholders may receive a premium for their
shares over the then market value. See "Description of 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.
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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.
Elimination of Any Accumulated Earnings and Profits. The accumulated
earnings and profits, if any, of PSMI carried over to PSI in the PSMI Merger.
To retain its REIT status, PSI distributed all of these acquired earnings and
profits on or before December 31, 1995. Accordingly, PSI was required to
accurately determine the amount of acquired earnings and profits and to
increase its distributions to its shareholders in 1995 if necessary to
eliminate these earnings and profits. As a condition to the 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 and PSI
failed to distribute such earnings and profits by December 31, 1995, PSI may
lose its REIT qualification for 1995 and, perhaps, for 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, including
persons who receive shares in the Mergers, can be diluted through the issuance
of additional securities.
Since October 1992, PSI has issued shares of preferred stock in public
offerings 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 Mergers. 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 $710 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
$64 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 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."
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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 PSP9
and PSBP, 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 September 30, 1995 (pro forma the PSMI Merger), PSI's debt as
a percentage of its total capitalization was approximately 13%.
Merger Consideration Based on Appraisals Instead of Arms' Length Negotiation
The consideration to be received by PSP9 and PSBP Shareholders is based
on third party appraisals of the properties valuing the properties of PSP9 and
PSBP at $45,400,000 and $11,500,000, respectively. 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 appraisal values; the sales price might be higher or lower.
Tax to PSP9 and PSBP Shareholders
PSP9. PSP9 Shareholders who receive cash in connection with the PSP9
Merger in exchange for their PSP9 Common Stock will recognize taxable gain to
the extent that the amount of cash received exceeds the adjusted basis of such
shareholder in his or her PSP9 Common Stock. A PSP9 Shareholder receiving a
combination of cash and PSI Common Stock in the PSP9 Merger in exchange for
his or her PSP9 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 PSP9 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.
PSBP. PSBP Shareholders who receive cash in connection with the PSBP
Merger in exchange for their PSBP Common Stock will recognize taxable gain to
the extent that the amount of cash received exceeds the adjusted basis of such
shareholder in his or her PSBP Common Stock. A PSBP Shareholder receiving a
combination of cash and PSI Common Stock in the PSBP Merger in exchange for
his or her PSBP 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 PSBP 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 PSP9 REIT Distributions and Required PSBP REIT Distributions
will be taxable to all PSP9 and PSBP Shareholders, respectively, as ordinary
income.
Operating Risks
General Risks of Real Estate Ownership. Like PSP9 and PSBP, 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 PSP9, 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.
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
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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
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 agree 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 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)
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was issued to the Hughes Family, who will be able to control the operations of
the Lock/Box Company by reason of their ownership of its voting stock.
Liabilities with Respect to Acquired General Partner Interests. Upon
succeeding to substantially all of the properties and operations of PSMI in
the 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.
Shares Eligible for Future Sale
Future sales of substantial amounts of PSI Common Stock in the public
market could adversely affect prevailing market prices. Upon completion of
certain adjustments relating to the PSMI Merger, it is estimated that there
will be approximately 72 million shares of PSI Common Stock and seven million
shares of Class B Common Stock outstanding. Of these shares, approximately
35.6 million shares of PSI Common Stock outstanding prior to the PSMI Merger
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 36.4 million shares of PSI Common Stock
and seven million shares of Class B Common Stock were issued in such merger
without registration under the Securities Act in reliance on an exemption from
registration and are "restricted securities" within the meaning of Rule 144
adopted under the Act (the "Restricted Shares"). The beneficial owners of
15.5 million of the Restricted Shares (including all of the Class B Common
Stock) have agreed not to offer, sell or otherwise dispose (except for gifts
and pledges) of any of their shares for a period of three years following the
PSMI Merger, in the case of the PSI Common Stock, or for seven years following
the PSMI Merger, in the case of the Class B Common Stock. Upon expiration of
such periods, each will be entitled to sell his or her shares in the public
market subject to Rule 144, which contains certain public information, volume,
holding period and manner of sale requirements. The remaining approximately
27.9 million Restricted Shares will be available for sale in the public market
pursuant to Rule 144, subject to the foregoing requirements that include, as
the Rule is currently in effect, a two-year holding period. Sales of
substantial amounts of such PSI Common Stock in the public market could
adversely affect the market price of the PSI Common Stock.
CONFLICTS OF INTEREST IN THE MERGERS
PSI and its affiliates have conflicts of interest in connection with the
Mergers. PSI has a significant ownership interest in both PSP9 and PSBP,
owning approximately 24% of the PSP9 Common Stock and 31% of the PSBP Common
Stock. Hughes owns an additional approximately 4% of the PSP9 Common Stock.
See "Summary--Relationships."
The Mergers have been initiated and structured by individuals who are
executive officers of PSI, PSP9 and PSBP, and the Mergers have not been
negotiated at arms' length. No independent representatives have been retained
to negotiate the terms of the Mergers on behalf of either PSP9 or PSBP. If
such representatives had been retained, the terms of the Mergers might have
been more favorable to the shareholders of PSP9 and PSBP. Although
independent representatives were not retained by PSP9 or PSBP, they have
created special committees comprised of independent directors, which have
engaged an independent financial advisor, to evaluate the Mergers. The
special committees have reviewed the terms of the Mergers and recommend that
the shareholders of PSP9 and PSBP, respectively, vote for the Mergers. Based
upon the use of an independent appraisal firm to determine the value of
consideration to be paid to PSP9 and PSBP Shareholders, the fairness opinions
and the participation of the special committees of PSP9 and PSBP, the Boards
of Directors of PSP9 and PSBP considered that the engagement of independent
representatives to negotiate the terms of the Mergers was not necessary or
cost effective.
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THE MERGERS
General
PSP9. As a result of the PSP9 Merger, the separate existence of PSP9
would cease. Upon consummation of the PSP9 Merger, each outstanding share of
PSP9 Common Stock (other than PSP9 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 PSP9 Common Stock
(not to exceed 20% of the outstanding PSP9 Common Stock, or 489,501 shares,
less any PSP9 Dissenting Shares), upon a Cash Election, $18.64 in cash,
subject to reduction as described below, or (ii) that number of shares of PSI
Common Stock (subject to rounding) determined by dividing $18.64, 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 PSP9
Shareholders. If a PSP9 Shareholder does not make a Cash Election, all of his
or her PSP9 Common Stock would be converted into PSI Common Stock in the PSP9
Merger. The consideration paid to PSP9 Shareholders by PSI in the PSP9 Merger
will be reduced on a pro rata basis by the Required PSP9 REIT Distributions
(estimated at up to $.55 per share). The consideration received by PSP9
Shareholders in the PSP9 Merger, however, along with any Required PSP9 REIT
Distributions, will not be less than $18.64 per share of PSP9 Common Stock,
which amount represents the market value of PSP9's real estate assets at
October 31, 1995 (based on an independent appraisal) and the estimated net
asset value of its other assets at March 31, 1996. PSP9 Shareholders would
receive the Required PSP9 REIT Distributions upon any liquidation of PSP9,
regardless of the PSP9 Merger. Additional pre-merger cash distributions would
be made to the PSP9 Shareholders to cause PSP9's estimated net asset value as
of the date of the PSP9 Merger to be substantially equivalent to its estimated
net asset value as of March 31, 1996. The PSP9 Common Stock held by PSI will
be cancelled in the PSP9 Merger.
It is estimated that the aggregate consideration (cash and PSI Common
Stock) to be paid by PSI to purchase all of the PSP9 Common Stock in the PSP9
Merger and to pay related costs and expenses would be $46,747,000 (assuming no
Required PSP9 REIT Distributions) and that the total amount of cash that would
be required by PSI to purchase the PSP9 Common Stock from PSP9 Shareholders
making Cash Elections and to pay the allocated portion of the costs and
expenses of the PSP9 Merger would be $10,249,300 (assuming maximum Cash
Elections). See "-- Determination of Payments to be Received by PSP9 and PSBP
Shareholders in Connection with the Mergers" and "-- Costs of the Mergers."
These amounts would be reduced to the extent PSP9 must pay a Required PSP9
REIT Distribution.
PSBP. As a result of the PSBP Merger, the separate existence of PSBP
would cease. Upon consummation of the PSBP Merger, each outstanding share of
PSBP Common Stock (other than PSBP 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 PSBP Common Stock
(not to exceed 20% of the outstanding PSBP Common Stock, or 106,832 shares,
less any PSBP Dissenting Shares), upon a Cash Election, $19.59 in cash,
subject to reduction as described below, or (ii) that number of shares of PSI
Common Stock (subject to rounding) determined by dividing $19.59, 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 PSBP
Shareholders. If a PSBP Shareholder does not make a Cash Election, all of his
or her PSBP Common Stock would be converted into PSI Common Stock in the PSBP
Merger. The consideration paid to PSBP Shareholders by PSI in the PSBP Merger
will be reduced on a pro rata basis by the Required PSBP REIT Distributions
(estimated at up to $.24 per share). The consideration received by PSBP
Shareholders in the PSBP Merger, however, along with any Required PSBP REIT
Distributions, will not be less than $19.59 per share of PSBP Common Stock,
which amount represents the market value of PSBP's real estate assets at
October 31, 1995 (based on an independent appraisal) and the estimated net
asset value of its other assets at March 31, 1996. PSBP Shareholders would
receive the Required PSBP REIT Distributions upon any liquidation of PSBP,
regardless of the PSBP Merger. Additional pre-merger cash distributions would
be made to the PSBP Shareholders to cause PSBP's estimated net asset value as
of the date of the PSBP Merger to be substantially equivalent to its estimated
net asset value as of March 31, 1996. The PSBP Common Stock held by PSI will
be cancelled in the PSBP Merger.
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It is estimated that the aggregate consideration (cash and PSI Common
Stock) to be paid by PSI to purchase all of the PSBP Common Stock in the PSBP
Merger and to pay related costs and expenses would be $10,794,000 (assuming no
Required PSBP REIT Distributions) and that the total amount of cash that would
be required by PSI to purchase the PSBP Common Stock from PSBP Shareholders
making Cash Elections and to pay the allocated portion of the costs and
expenses of the PSBP Merger would be $2,442,800 (assuming maximum Cash
Elections). See "-- Determination of Payments to be Received by PSP9 and PSBP
Shareholders in Connection with the Mergers" and "-- Costs of the Mergers."
These amounts would be reduced to the extent PSBP must pay a Required PSBP
REIT Distribution.
The Boards of Directors of PSP9 and PSBP are also proposing that the
bylaws of PSP9 and PSBP be amended to authorize the Mergers. See "Amendment
to Bylaws of PSP9 and PSBP."
The PSP9 Merger and the PSBP Merger are not conditioned on each other.
Background
General. The Mergers have been initiated and structured by individuals
who are executive officers of PSI, PSP9 and PSBP. Special committees composed
of independent directors of PSP9 and PSBP, respectively, have reviewed the
terms of the Mergers, and the Boards of Directors of PSP9 and PSBP, based on
recommendations of these special committees, which the Boards of Directors
have adopted, and on the opinions of financial advisors in which they concur,
believe that the Mergers are fair to the public shareholders of PSP9 and PSBP,
respectively, and recommend that PSP9 and PSBP Shareholders, respectively,
vote for the Mergers.
PSP9 and PSBP were organized to succeed to the business of the PSP9
Partnership and PSBP Partnership in reorganization transactions completed on
December 31, 1990 and August 5, 1991, respectively. The PSP9 Partnership
raised $43,434,300 in a public offering in 1983 primarily to develop and
operate mini-warehouses. The PSBP Partnership raised $9,840,500 in a public
offering in 1982 to develop and operate a business park. All of the proceeds
from both offerings have been invested. PSMI was the sponsor of both
partnerships.
Both partnerships originally anticipated selling or financing their
properties from seven to ten years after completion of their development,
i.e., between 1992 and 1995 in the case of the PSP9 Partnership and between
1991 and 1994 in the case of the PSBP Partnership. 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, the sponsor of the partnerships, concluded
that the limited partners of the partnerships, 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 PSP9 and PSBP Partnerships and
other public limited partnerships sponsored by PSMI into individual
corporations taxed as REITs, and, between December 1990 and November 1991,
PSMI completed such reorganization of the partnerships and 16 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.
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In response to changes requested by the unaffiliated dealer manager of
both partnerships' original offerings of limited partnership interests, PSP9
and PSBP added provisions to their bylaws to the effect that their
shareholders be presented with proposals to sell all or substantially all of
the properties, distribute the proceeds from such sale and liquidate the
corporations. Later, in settlement of litigation arising from the
reorganization of PSP9, PSP9's bylaw provision was amended to expand the terms
of the proposal to include a possible financing of its properties.
The PSP9 Merger satisfies PSP9's obligation to present a proposal to PSP9
Shareholders for the sale or financing of its properties in 1996.
If approved by PSBP Shareholders, the PSBP Merger would obviate PSBP's
obligation to present a proposal to PSBP Shareholders for the sale of its
property. If PSBP Shareholders do not approve the PSBP Merger or if the PSBP
Merger is not completed because other conditions are not satisfied, PSBP would
continue to be obligated to present a proposal to PSBP Shareholders in 1999
for the sale of its property.
The PSP9 and PSBP Special Committees and the PSP9 and PSBP Boards of
Directors believe that the proposed Mergers are consistent with their
respective bylaw provisions. In the Mergers, PSP9 and PSBP would be disposing
of their properties to PSI for value, i.e., PSI Common Stock and cash (if Cash
Elections are made), and the corporate existence of PSP9 and PSBP would cease.
Furthermore, the consideration to be received in the Mergers is based on the
appraised value of the assets of PSP9 and PSBP, and PSP9 and PSBP Shareholders
have the right, with respect to up to 20% of the outstanding PSP9 and PSBP
Common Stock (less any Dissenting Shares), to receive cash in the Mergers.
The applicable bylaw provisions do not (i) define the terms "sale,"
"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 PSP9 or PSBP 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 June 1995, PSI merged with three REITs, which like PSP9 and
PSBP had been organized to succeed to the business of predecessor partnerships
sponsored by PSMI.
PSP9 and PSBP Board Actions. The Boards of Directors of PSP9 and PSBP
consist of the same three persons: B. Wayne Hughes, the chief executive
officer of PSI, PSP9 and PSBP, Vern O. Curtis and Jack D. Steele.
At a telephonic meeting of the Boards of Directors of PSP9 and PSBP,
which included officers and in-house counsel on November 2, 1995, the Boards
of Directors of PSP9 and PSBP appointed special committees of independent
directors, consisting of Vern O. Curtis and Jack D. Steele, to consider and
make recommendations to the Boards of Directors regarding proposed mergers of
PSP9 and PSBP into PSI. Mr. Curtis and Mr. Steele were the members of the
special committees that considered the mergers of three other REITs into PSI
in September 1994 - June 1995. Following the board meetings, the special
committees held organizational meetings by telephone, which included officers
and in-house counsel, and discussed the current financial performance of the
properties of PSP9 and PSBP, the trading price of the PSP9 and PSBP Common
Stock, the status of the PSMI Merger and the qualifications of Stanger and
Wilson. Following the discussion, the special committees approved Wilson, on
behalf of PSP9, PSBP and PSI, to appraise the properties of PSP9 and PSBP,
determined to engage Hogan & Hartson L.L.P. as special counsel to represent
and advise the special committees as to their legal obligations in making
recommendations regarding the proposed mergers with PSI and approved the
engagement of Stanger to render opinions as to the fairness, from a financial
point of view, of the consideration to be received by PSP9 and PSBP
Shareholders in the Mergers. Wilson, Hogan & Hartson L.L.P. and Stanger had
acted in similar capacities in connection with the mergers of three other
REITs into PSI.
On December 13, 1995, the PSP9 and PSBP Special Committees held a
telephone meeting, which included officers of PSP9 and PSBP, a representative
of Wilson and representatives of Stanger. First, the officers of PSP9 and
PSBP described the mechanics of arriving at the value per share of PSP9 and
PSBP Common Stock, the absence of any material environmental contingency and
the provision giving PSI the right to terminate the Merger Agreement if the
price of PSI Common Stock is below $18 per share. Next, the Wilson
representative described generally the methodology used in appraising PSP9's
and PSBP's properties. The Stanger representatives presented Stanger's
analysis, which included the following items: (1) they briefly reviewed
Stanger's recent experience relating to mini-
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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 prepared by Wilson; (3) they noted that Stanger reviewed
the appraisal methodologies utilized; (4) they noted that Stanger reviewed the
capitalization rates utilized in the portfolio appraisals, which were
approximately 10.1% in the case of PSP9 and 9.5% in the case of PSBP, based on
net operating income generated for the 12 months prior to the appraisal date;
(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 Wilson's appraisal were
consistent with transactions in the market; (6) they noted that Stanger
reviewed a liquidation analysis, including assumptions (liquidation of PSP9's
and PSBP's properties on a property-by-property basis) prepared by PSP9 and
PSBP based on certain information provided by Wilson and that the projected
consideration per share resulting from liquidation under that analysis was
less than the consideration offered in the Mergers; (7) they indicated that
Stanger noted Wilson's assumption that no premium is appropriate for the bulk
acquisition of an assembled portfolio, that Stanger reviewed information on
bulk purchases by PSI or affiliates in which the capitalization rates averaged
10.4%, and discussed bulk transactions with industry sources, and, based upon
that review, Stanger concluded that Wilson's assumption was consistent with
transactions in the market; (8) they noted that Stanger reviewed a going
concern analysis, based on analyses and five-year and 10-year projections
provided by PSP9 and PSBP, under scenarios in which the PSP9 and PSBP Common
Stock would be liquidated into the securities markets or PSP9's and PSBP's
properties would be liquidated after 10 years at their residual value (from
Wilson's appraisal), that Stanger reviewed the FFO multiples used in the
various scenarios regarding the sale of the PSP9 and PSBP Common Stock, and
they noted that, under the lower multiple, the estimated value per share on a
going concern basis was approximately 21% and 15% lower for PSP9 and PSBP,
respectively, than the consideration offered in the Mergers and that, under
the higher multiple, the estimated value per share on a going concern basis
was approximately 9% and 3% lower, respectively; (9) they noted that Stanger
had reviewed the historical market prices of PSP9's Common Stock and compared
them with the consideration offered in the Mergers, and they noted that the
consideration offered in the Mergers, reduced by estimated retained earnings
between the date of the appraisal and March 31, 1996, represents an
approximately 5.76% premium over the then current price of the PSP9 Common
Stock and a 7.17%, 7.68%, 7.04% and 6.98% premium over its average closing
price for the prior 20 days, 60 days, 180 days and 360 days, respectively;
(10) they noted that Stanger had reviewed the historical market prices of
PSBP's Common Stock and compared them with the consideration offered in the
Mergers, and they noted that the consideration offered in the Mergers, reduced
by estimated retained earnings between the date of the appraisal and March 31,
1996, represents an approximately 10.66% premium over the then current price
of the PSBP Common Stock and a 8.69%, 9.93%, 9.24% and 14.72% premium over its
average closing price for the prior 20 days, 60 days, 180 days and 360 days,
respectively; and (11) they indicated that, subject to receipt of certain
documents, Stanger was prepared to render its opinions that the consideration
to be received in the Mergers is fair to the public shareholders of PSP9 and
PSBP from a financial point of view. A financing of the properties was briefly
discussed by officers of PSP9 and PSBP and the PSP9 and PSBP Special
Committees, but was considered not to be a feasible alternative because REITs,
like PSP9 and PSBP, are required to distribute substantially all taxable
income and, as a result of the age of PSP9's and PSBP's properties, within the
next several years, PSP9 and PSBP will have no depreciation deductions
available to reduce PSP9's and PSBP's taxable income. Therefore, if they were
to refinance their properties, PSP9 and PSBP would not have sufficient funds
available to meet the REIT distribution requirements after making principal
amortization payments. The PSP9 and PSBP Special Committees and Stanger
discussed the reduction in distributions to PSP9 Shareholders who receive PSI
Common Stock in the Mergers. Following the discussion, the PSP9 and PSBP
Special Committees expressed the belief that the Mergers are fair to, and in
the best interests of, public shareholders of PSP9 and PSBP and determined to
recommend to the Board that the Mergers be approved and to recommend that PSP9
and PSBP Shareholders vote for the Mergers. Based on the foregoing
recommendations of the PSP9 and PSBP Special Committees, which were adopted by
the PSP9 and PSBP Boards of Directors, the PSP9 and PSBP Boards of Directors
expressed the belief that the Mergers are fair to, and in the best interests
of, public shareholders of PSP9 and PSBP, approved the Mergers, determined to
recommend that PSP9 and PSBP Shareholders vote for the Mergers 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 PSP9 Shareholders."
Public Announcement of Mergers and Commission Filings. On December 13 and
14, 1995, PSI, PSP9 and PSBP signed the Merger Agreement and publicly
announced the general terms of the Mergers, respectively. On
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December 22, 1995, PSP9 and PSBP filed preliminary proxy materials with the
Commission. On _______________, 1996, PSI filed a registration statement,
which was declared effective on _______________, 1996.
Reasons for the Mergers and Timing
The reasons for the decision of the special committees and boards of
directors of PSP9 and PSBP to recommend the Mergers include:
. The bylaws of PSP9 and PSBP include provisions that their
shareholders be presented with a proposal to sell all of the
corporations' properties, distribute the proceeds from such sale and
liquidate the corporations. The proposed Mergers satisfy these
obligations. See "-- Background."
. The Mergers provide PSP9 and PSBP Shareholders with the choice of
either (A) converting their investment in PSP9 and PSBP,
respectively, into an investment in PSI, which generally owns the
same type of properties as PSP9 (and which, like PSBP, also owns
business parks to a lesser extent), on a tax-free basis (assuming
each of the Mergers is a tax-free reorganization) and which has, and
intends to continue, to acquire additional properties or (B) with
respect to up to 20% of the outstanding PSP9 and PSBP Common Stock
(less any Dissenting Shares), receiving in cash the amounts they
would receive if the properties of PSP9 and PSBP were sold at their
appraised values and the corporations were liquidated (without any
reduction for real estate commissions and other sales expenses). See
"-- Recommendation to PSP9 and PSBP Shareholders and Fairness
Analysis."
. The special committees and boards of directors of PSP9 and PSBP
believe that the Mergers are more advantageous to PSP9 and PSBP
Shareholders than any of the alternatives. See "-- Alternatives to
Mergers" and "-- Recommendation to PSP9 and PSBP Shareholders and
Fairness Analysis."
. PSI has agreed to merge with PSP9 and PSBP at this time, subject to
approval by PSP9 and PSBP Shareholders and certain other conditions.
See "-- The Merger Agreement -- Conditions to Consummation of the
Mergers."
Alternatives to Mergers
The following is a brief discussion of the benefits and disadvantages of
alternatives to the Mergers that could have been pursued by the PSP9 and PSBP
Board of Directors.
Liquidation
Benefits of Liquidation. An alternative to the Mergers would be to
liquidate the assets of PSP9 and PSBP, distribute the net liquidation proceeds
to their respective shareholders in proportion to their share ownership and
thereafter dissolve PSP9 and PSBP. Through such liquidation, PSP9 and PSBP
would provide for a final wrapping up of their shareholders' interests in the
corporations. PSP9 and PSBP Shareholders would receive cash liquidation
proceeds (as they will as to a portion of their investment if they make Cash
Elections). Liquidating PSP9 and PSBP would be consistent with their bylaws
that provide that their shareholders be presented with proposals for the sale
of their properties and liquidation. If PSP9 and PSBP liquidated their assets
through asset sales to unaffiliated third parties, their shareholders would
not need to rely upon real estate portfolio appraisals of the fair market
value of their real estate assets. Such assets would be valued through arms'
length negotiations between PSP9 and PSBP and prospective purchasers.
Disadvantages of Liquidation. Since the time the predecessors of
PSP9 and PSBP were organized, significant changes have taken place in the
financial and real estate markets that have had a materially adverse impact
upon the value of commercial real estate. These changes have included, among
others, the following: (i) the increased construction of mini-warehouses and
business parks from 1984 to 1988, which has 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 has significantly
affected property values and decreased real estate sales activities, (iii) the
reduced sources
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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. Although conditions have improved, these
developments have resulted in a reduced market for the sale and financing of
commercial real estate, making this, in the view of the boards of directors
and special committees of PSP9 and PSBP, a less than optimal time to liquidate
the real estate assets of PSP9 and PSBP. For many PSP9 and PSBP Shareholders,
the proceeds available for reinvestment after liquidation would be reduced as
a result of federal and state income taxes (as they would be in the case of
Cash Elections) and real estate commissions and other sales expenses
(estimated at $.95 per share of PSP9 Common Stock and $1.06 per share of PSBP
Common Stock).
PSP9 and PSBP 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 PSP9 or
PSBP would require approval by the holders of a majority of outstanding common
stock. Upon the dissolution of PSP9 or PSBP, properties would be sold and any
funds remaining after payment of debts, and liabilities would be distributed
to shareholders in respect of their shares. As holders of approximately 30%
of the shares of PSP9 and PSBP Common Stock, PSI and its affiliates would
receive approximately 30% of the available funds in the liquidation. The
process for liquidating the assets of PSP9 and PSBP would in large measure be
within the control of the PSP9 and PSBP Boards 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 PSP9 and PSBP Boards of Directors may engage real estate
brokers, investment bankers, financial consultants and others to assist with
the disposition of the corporations' assets. These persons may assist with
the identification of prospective purchasers, arrangements for asset
financing, and assistance with the structure of the transaction. The PSP9 and
PSBP Boards of Directors, as fiduciaries to PSP9 and PSBP Shareholders,
respectively, remain responsible for determining the terms and conditions of
the transaction. One of the more significant considerations for the PSP9 and
PSBP Boards 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 would extend the life of the
corporation until receipt of those amounts by the corporation and their
distribution to the shareholders. Such arrangements would also expose the
corporation 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 PSP9 or PSBP because it
would depend on market conditions at the time of liquidation.
Continued Operation of PSP9 and PSBP
Benefits of Continuation.
PSP9. Another alternative to the PSP9 Merger would be to continue
PSP9 in accordance with its existing business plan, with PSP9 remaining as a
separate legal entity and with its own assets and liabilities. Nothing
requires the liquidation or merger of PSP9 at this time, and PSP9 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, there has been a
corresponding improvement in the financial performance of existing properties.
This improvement is evidenced by the performance of PSP9's mini-warehouses.
For example, from 1992 to 1994, occupancy per square foot increased from an
average of 90% to 91%, and realized monthly rents from an average of $.64 per
square foot to $.70 per square foot. Assuming that there is no substantial
new development of mini-warehouses in the foreseeable future, the PSP9 Board
of Directors anticipates that the financial performance from existing
facilities may continue to improve, although not necessarily at the rate of
improvement experienced in prior
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years. Should such improvements continue, the value of PSP9's properties
would be expected to increase. See "Description of PSP9's Properties."
A number of advantages are expected to arise from the continued
operation of PSP9. PSP9 Shareholders should continue to receive regular
quarterly distributions of net cash flow arising from operations and the sale
or refinancing of PSP9's assets. Given the currently improving market
conditions for mini-warehouses, the PSP9 Board of Directors and the PSP9
Special Committee believe that the level of these distributions to PSP9 may
improve. Continuing PSP9 affords PSP9 Shareholders with the opportunity to
participate in any future appreciation in PSP9's properties. In addition, the
decision to continue PSP9, if selected, means that there would be no change in
the nature of PSP9's Shareholders' investment. This option avoids whatever
disadvantages might be deemed inherent in the PSP9 Merger. See "Risk Factors
and Material Considerations" for discussion of various risks associated with
the PSP9 Merger.
PSBP. Another alternative to the PSBP Merger would be to continue
PSBP in accordance with its existing business plan, with PSBP remaining as a
separate legal entity and with its own assets and liabilities. Nothing
requires the liquidation or merger of PSBP at this time, and PSBP 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. The performance of PSBP's business park
has generally been stable with its occupancy and rental rates remaining
approximately the same over the last three years.
A number of advantages are expected to arise from the continued
operation of PSBP. PSBP Shareholders should continue to receive regular
quarterly distributions of net cash flow arising from operations and the sale
or refinancing of PSBP's property. Continuing PSBP affords PSBP Shareholders
with the opportunity to participate in any future appreciation in PSBP's
property. In addition, the decision to continue PSBP, if selected, means that
there would be no change in the nature of PSBP's Shareholders' investment from
an interest in an entity that owns a single business park to an interest in an
entity that owns primarily mini-warehouses. This option avoids whatever
disadvantages might be deemed inherent in the PSBP Merger. See "Risk Factors
and Material Considerations" for discussion of various risks associated with
the PSBP Merger.
Disadvantages of Continuation. The primary disadvantage with
continuing PSP9 and PSBP is the failure of that strategy to secure the
benefits that their boards of directors expect to result from the Mergers.
These benefits are highlighted under "-- Potential Advantages of the Mergers."
The Mergers afford PSP9 and PSBP Shareholders increased liquidity. In
addition, because PSP9 and PSBP are not authorized to issue new securities or
to reinvest sale or financing proceeds, they are 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 Mergers
would be an amendment to the bylaws of PSP9 and PSBP 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 Mergers.
PSP9 and PSBP 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 boards of directors and the
special committees of PSP9 and PSBP believe that such an amendment has
disadvantages. It is believed that PSP9 and PSBP Shareholders could better
take advantage through PSI than through either PSP9 or PSBP of the current
market for REIT securities for the following reasons. First, PSI has a larger
capital base. At September 30, 1995, PSP9 and PSBP had total shareholders'
equity of $24,489,000 and $5,186,000 compared with PSI's total shareholders'
equity (pro forma for the PSMI Merger) of $1,479,081,000 (including preferred
stock) and $1,115,461,000 (without preferred stock). Second, the market for
PSI Common Stock should be more liquid than the market for common stock of
either PSP9 or PSBP. PSP9 and PSBP have 2,447,506 shares and 534,159 shares
of common stock, respectively, traded on the AMEX and, during the 12 months
ended September 30, 1995, the average daily trading volume of the common stock
of PSP9 and
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PSBP was 1,300 and 400 shares, respectively. In comparison, PSI has
approximately 72,000,000 shares of Common Stock traded on the NYSE and, during
the 12 months ended September 30, 1995, the average daily trading volume of
PSI Common Stock was 60,200 shares (48,400 shares if November 1994 and May
1995, during which PSI was engaged in public offerings of common stock, are
excluded). Third, PSI has broader geographic diversification than either PSP9
or PSBP. At November 16, 1995, PSP9 owned 15 properties in six states, PSBP
owned one property and PSI owned equity interests (directly, as well as
through general and limited partnership interests and stock interests) in
1,044 properties in 37 states. For additional information on the properties
owned by PSP9, PSBP and PSI, see "-- Comparison of PSP9 and PSBP Common Stock
with PSI Common Stock," "Description of PSP9's Properties," "Description of
PSBP's Property" and "Description of PSI's Properties."
No Solicitation of Other Proposals
Neither the board of directors nor the special committee of either PSP9
or PSBP solicited any other proposal for the acquisition of PSP9 or PSBP or
their properties. The boards of directors of PSP9 and PSBP agreed to the
Merger Agreement, which includes a provision against soliciting other offers
to buy, because they believe that the potential advantages to PSP9 and PSBP
Shareholders described under "-- Potential Advantages of the Mergers" are more
likely to be achieved through the Mergers than in a transaction with another
party. In particular, assuming the Mergers qualify as tax-free
reorganizations, no taxable gain or loss will be recognized by PSP9 and PSBP
Shareholders who exchange their PSP9 and PSBP Common Stock solely for PSI
Common Stock. The Required PSP9 REIT Distributions and the Required PSBP REIT
Distributions generally will be taxable to all PSP9 Shareholders and PSBP
Shareholders, respectively, as ordinary income to the extent of the respective
corporation's earnings and profits. PSI and Hughes have little tax basis in
their common stock, and many PSP9 and PSBP Shareholders have a tax basis in
their common stock (approximately $15.48 for most original PSP9 Shareholders
and approximately $16.74 for most original PSBP Shareholders) lower than the
consideration to be received in the Mergers. Accordingly, for many PSP9 and
PSBP Shareholders, the proceeds available for reinvestment after liquidation
would be reduced as a result of federal and state income taxes (as they would
be in the case of Cash Elections) and real estate commissions and other sales
expenses (estimated at $.95 per share of PSP9 Common Stock and $1.06 per share
of PSBP Common Stock). However, another proposal could have been for a higher
price and possibly also structured as mergers qualifying as tax-free
reorganizations. Under California law, most acquisitions of PSP9 or PSBP or
its properties would require approval by PSP9 and PSBP Shareholders,
respectively. PSI and Hughes own approximately 28% of the PSP9 Common Stock
and approximately 31% of the PSBP Common Stock.
Determination of Payments to be Received by PSP9 and PSBP Shareholders in
Connection with the Mergers
PSP9. In connection with the PSP9 Merger, PSP9 Shareholders will receive
a value of $18.64 (less the amount of any Required PSP9 REIT Distributions)
per share of PSP9 Common Stock in cash, PSI Common Stock, or a combination of
the two, calculated as follows:
1. The market value (not book value) of PSP9's real estate assets has
been determined by Wilson, showing such values as of October 31, 1995. In
valuing PSP9's real estate assets, Wilson considered the applicability of all
three commonly recognized approaches to valuation: the cost approach, the
income approach and the sales comparison approach. Wilson did not consider
the cost approach to be applicable to PSP9's properties. Wilson reconciled
the values indicated from the sales comparison and income approaches to arrive
at a final valuation conclusion. Wilson gave primary emphasis to the income
approach. The resulting effective implied capitalization rate for PSP9's
portfolio of real estate assets based on property operations (before non-
recurring charges) for the 12 months ended September 30, 1995 averaged 10.1%.
Wilson's valuation is as of October 31, 1995 in the context of the information
available on that date. See "-- Real Estate Portfolio Appraisals by Wilson."
2. PSP9's net asset value has been computed as (a) the market value of
PSP9's real estate assets as of October 31, 1995 ($45,400,000) plus (b) the
estimated book value of PSP9's non-real estate assets as of March 31, 1996 (a
total of $945,000) less (c) PSP9's estimated liabilities as of March 31, 1996
(a total of $727,000).
35
<PAGE>
3. PSP9's net asset value per share of PSP9 Common Stock was calculated
at $18.64 by dividing PSP9's net asset value (as computed in 1 and 2 above,
$45,618,000) by the number of outstanding shares of PSP9 Common Stock
(2,447,506).
4. Upon completion of the PSP9 Merger, each share of PSP9 Common Stock
(other than PSP9 Dissenting Shares) would be converted into the right to
receive $18.64 in cash (with respect to up to 20% of the outstanding PSP9
Common Stock, less any PSP9 Dissenting Shares), subject to reduction as
described below, or that number of shares of PSI Common Stock determined by
dividing $18.64, 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 PSP9
Shareholders. Pre-merger cash distributions would be made to PSP9
Shareholders to cause PSP9's estimated net asset value as of the date of the
PSP9 Merger to be substantially equivalent to its estimated net asset value as
of March 31, 1996. The consideration paid by PSI to PSP9 Shareholders in the
PSP9 Merger will be reduced on a pro rata basis by the amount of any Required
PSP9 REIT Distributions. However, the consideration received by PSP9
Shareholders in the PSP9 Merger along with the Required PSP9 REIT
Distributions (which will be paid in cash) will not be less than $18.64.
The following tables set forth the calculation of the payments to be paid
to PSP9 Shareholders:
Computation of Payments
<TABLE>
<CAPTION>
Net book Appraised Book value PSP9's PSP9's net Payments
value of market of PSP9's net asset asset value received in
PSP9's real value of other net value(1) per share connection with
estate PSP9's assets(1) of PSP9 PSP9 Merger per
portfolio(1) real estate Common original $1,000
portfolio(2) Stock investment in the
(1) PSP9 Partnership(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$25,119,000 $45,400,000 $218,000 $45,618,000 $18.64 $932
</TABLE>
- ------------------
(1) Estimated as of March 31, 1996. Does not reflect the effect of Required
PSP9 REIT Distributions, estimated at up to $.55 per share or $1,342,000
in the aggregate. PSP9 Shareholders would receive the Required PSP9 REIT
Distributions upon any liquidation of PSP9, regardless of the PSP9 Merger.
Also includes $599,000 contribution by PSI and Hughes in respect of
obligations incurred in connection with the PSP9 Partnership.
(2) As of October 31, 1995.
(3) Does not include quarterly cash distributions to PSP9 Shareholders or to
limited partners of the PSP9 Partnership. PSP9 was organized to succeed,
on December 31, 1990, to the business of the PSP9 Partnership, which
completed its offering of limited partnership interests in 1983. PSP9's
capital structure was designed to reflect the economic rights of the
limited and general partners in the PSP9 Partnership. The market price of
PSI Common Stock may fluctuate following establishment of the number of
shares to be issued to PSP9 Shareholders in the PSP9 Merger and prior to
issuance and could decrease as a result of increased selling activity
following issuance of shares in the PSP9 Merger and other factors.
Hughes, who owns approximately 4% of the PSP9 Common Stock would receive
approximately 98,000 shares of PSI Common Stock in the PSP9 Merger (assuming
no Required PSP9 REIT Distributions and PSI Common Stock price of $20).
PSBP. In connection with the PSBP Merger, PSBP Shareholders will receive
a value of $19.59 (less the amount of any Required PSBP REIT Distributions)
per share of PSBP Common Stock in cash, PSI Common Stock, or a combination of
the two, calculated as follows:
1. The market value (not book value) of PSBP's property has been
determined by Wilson, showing such value as of October 31, 1995. In valuing
PSBP's property, Wilson considered the applicability of, and utilized, all
36
<PAGE>
three commonly recognized approaches to valuation: the cost approach, the
income approach and the sales comparison approach. Wilson reconciled the
values indicated from the three approaches to arrive at a final valuation
conclusion. Wilson gave primary emphasis to the income approach. The
resulting effective implied capitalization rate for PSBP's property based on
property operations (before non-recurring charges) for the 12 months ended
September 30, 1995 was 9.5%. Wilson's valuation is as of October 31, 1995 in
the context of the information available on that date. See "-- Real Estate
Portfolio Appraisals by Wilson."
2. PSBP's net asset value has been computed as (a) the market value of
PSBP's property as of October 31, 1995 ($11,500,000) plus (b) the estimated
book value of PSBP's non-real estate assets as of March 31, 1996 (a total of
$168,000) less (c) PSBP's estimated liabilities as of March 31, 1996 (a total
of $1,202,000).
3. PSBP's net asset value per share of PSBP Common Stock was calculated
at $19.59 by dividing PSBP's net asset value (as computed in 1 and 2 above,
$10,466,000) by the number of outstanding shares of PSBP Common Stock
(534,159).
4. Upon completion of the PSBP Merger, each share of PSBP Common Stock
(other than PSBP Dissenting Shares) would be converted into the right to
receive $19.59 in cash (with respect to up to 20% of the outstanding PSBP
Common Stock, less any PSBP Dissenting Shares), subject to reduction as
described below, or that number of shares of PSI Common Stock determined by
dividing $19.59, 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 PSBP
Shareholders. Pre-Merger cash distributions would be made to PSBP
Shareholders to cause PSBP's estimated net asset value as of the date of the
PSBP Merger to be substantially equivalent to its estimated net asset value as
of March 31, 1996. The consideration paid by PSI to PSBP Shareholders in the
PSBP Merger will be reduced on a pro rata basis by the amount of any Required
PSBP REIT Distributions. However, the consideration received by PSBP
Shareholders in the PSBP Merger along with the Required PSBP REIT
Distributions (which will be paid in cash) will not be less than $19.59.
The following tables set forth the calculation of the payments to be paid
to PSBP Shareholders:
Computation of Payments
<TABLE>
<CAPTION>
Net book Appraised Book value PSBP's PSBP's net Payments
value of market of PSBP's net asset asset value received in
PSBP's value of other net value(1) per share connection with
property PSBP's assets(1) of PSBP PSBP Merger per
(1) property Common original $1,000
(2) Stock investment in the
(1) PSBP Partnership(3)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$6,353,000 $11,500,000 ($1,034,000) $10,466,000 $19.59 $980
</TABLE>
- ------------
(1) Estimated as of March 31, 1996. Does not reflect the effect of Required
PSBP REIT Distributions, estimated at up to $.24 per share or $130,000 in
the aggregate. PSBP Shareholders would receive the Required PSBP REIT
Distributions upon any liquidation of PSBP, regardless of the PSBP Merger.
(2) As of October 31, 1995.
(3) Does not include quarterly cash distributions to PSBP Shareholders or to
limited partners of the PSBP Partnership. PSBP was organized to succeed,
on August 5, 1991, to the business of the PSBP Partnership, which
completed its offering of limited partnership interests in 1982. PSBP's
capital structure was designed to reflect the economic rights of the
limited and general partners in the PSBP Partnership. The market price of
PSI Common Stock may fluctuate following establishment of the number of
shares to be issued to PSBP Shareholders in the PSBP Merger and prior to
issuance and could decrease as a result of increased selling activity
following issuance of shares in the PSBP Merger and other factors.
37
<PAGE>
Potential Advantages of the Mergers to PSP9 and PSBP
The principal potential benefits to PSP9 and PSBP Shareholders who receive
PSI Common Stock include the following:
Acquisition of Additional Properties. The primary business activity of
PSP9 and PSBP is operating the properties originally developed by their
predecessors. PSP9 and PSBP have not raised additional capital, and their
articles of incorporation and bylaws restrict their 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, PSP9 and PSBP
Shareholders who receive PSI Common Stock in the Mergers will be investors in
an entity that has grown, and is expected to continue to grow, as new
investments are made.
Increased Liquidity. PSP9 has 2,447,506 shares of Common Stock traded on
the AMEX and, during the 12 months ended September 30, 1995, the average daily
trading volume of PSP9 Common Stock was 1,300 shares. PSBP has 534,159 shares
of common stock traded on the AMEX and, during the 12 months ended September
30, 1995, the average daily trading volume of PSBP Common Stock was 400
shares. In comparison, PSI has approximately 72,000,000 shares of common
stock traded on the NYSE (approximately one-half of which are freely
tradeable) and, during the 12 months ended September 30, 1995, the average
daily trading volume of PSI Common Stock was 60,200 shares (48,400 shares if
November 1994 and May 1995, during which PSI was engaged in public offerings
of common stock, are excluded). Accordingly, the investment in PSI of PSP9
and PSBP Shareholders who receive PSI Common Stock in the Mergers should have
greater liquidity than the current investment of these same shareholders in
either PSP9 or PSBP.
Possible Tax-Free Treatment. Each of the Mergers is intended to qualify
as a tax-free reorganization. Assuming such qualification, no taxable gain or
loss will be recognized in connection with the Mergers by PSP9 and PSBP
Shareholders who exchange their PSP9 Common Stock and PSBP Common Stock,
respectively, solely for PSI Common Stock. However, the Required PSP9 REIT
Distributions and the Required PSBP REIT Distributions will be taxable to all
PSP9 Shareholders and PSBP Shareholders, respectively, as ordinary income.
Hughes, who has little tax basis in his PSP9 Common Stock, has advised PSI and
PSP9 that he intends to exchange his PSP9 Common Stock solely for PSI Common
Stock. See "Certain Federal Income Tax Matters -- The Mergers."
Recommendation to PSP9 and PSBP Shareholders and Fairness Analysis
Conclusions. Based upon an analysis of the Mergers, the special
committees and boards of directors of PSP9 and PSBP have concluded (i) that
the terms of the respective merger are fair to PSP9 and PSBP Shareholders,
(ii) after comparing the potential benefits and detriments of the Mergers with
alternatives, that the Mergers are more advantageous to PSP9 and PSBP
Shareholders, respectively, than such alternatives and (iii) that PSP9 and
PSBP Shareholders, respectively, should vote for the Mergers.
Although the PSP9 and PSBP Boards of Directors and PSP9 and PSBP Special
Committees reasonably believe the terms of the Mergers are fair to PSP9 and
PSBP Shareholders and recommend that PSP9 and PSBP Shareholders vote for the
Mergers, an affiliate of PSI is a member of the Boards of Directors of both
PSP9 and PSBP, and PSI has other significant relationships with both PSP9 and
PSBP and conflicts of interest with respect to the Mergers. The Mergers have
been initiated and structured by individuals who are executive officers of
PSP9 and PSBP and who are also affiliated with PSI. The PSP9 and PSBP Special
Committees, composed of independent directors, have reviewed and approved,
respectively, the terms of the Mergers. See "Summary -- Relationships" and
"Conflicts of Interest."
Material Factors Underlying Conclusions of Special Committees and Boards
of Directors of PSP9 and PSBP. The following is a discussion of the material
factors underlying the conclusions of the PSP9 and PSBP Special Committees and
Boards of Directors. The PSP9 and PSBP Boards of Directors and Special
Committees have not quantified the relative importance of these factors.
38
<PAGE>
1. Bylaw Provisions. The bylaws of PSP9 and PSBP require proposals for
the sale of their properties by 1996 and 1999, respectively. As discussed
under "-- Background," the PSP9 and PSBP Special Committees and Boards of
Directors believe, respectively, that the proposed Mergers satisfy these
requirements and that, as discussed in paragraph 2 below, the form and amount
of consideration offered to PSP9 and PSBP Shareholders constitute fair value
in respect of their shares of PSP9 and PSBP Common Stock, respectively. The
PSP9 and PSBP Special Committees and Boards of Directors recognize that if the
properties of PSP9 and PSBP were liquidated through sales to third parties,
the PSP9 and PSBP Shareholders would not need to rely upon real estate
portfolio appraisals to estimate the fair market value of their real estate
assets. Such assets would be valued through arms' length negotiations between
PSP9 and PSBP and the prospective purchasers.
2. Consideration Offered. The PSP9 and PSBP Boards of Directors and
Special Committees believe that (i) the proposal that the consideration to be
paid to PSP9 and PSBP Shareholders in the Mergers be based on the value of the
assets of PSP9 and PSBP is reasonable and consistent with the bylaws of PSP9
and PSBP, respectively, (ii) the net asset value of PSP9 and PSBP represents a
fair estimate of the value of their respective assets, net of liabilities, and
constitutes a reasonable basis for determining the consideration to be
received by PSP9 and PSBP Shareholders, and (iii) the consideration to be
received by Hughes in respect of his PSP9 Common Stock is fair because it is
based on his proportionate share ownership of PSP9. There was no negotiation
regarding the basis for determining the consideration to be paid to PSP9 and
PSBP Shareholders in the Mergers or the consideration to be received by Hughes
in respect of his PSP9 Common Stock. See "-- Background."
3. Choice as to Form of Consideration. The Mergers provide PSP9 and
PSBP Shareholders with the choice of either (A) converting their investment
into an investment in PSI, which generally owns the same type of properties as
PSP9 (and which, like PSBP, also owns business parks to a lesser extent), on a
tax-free basis (assuming the Mergers are tax-free reorganizations 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 PSP9 and PSBP
Common Stock (less any Dissenting Shares), receiving in cash the amounts they
would receive if their properties were sold at their appraised values and the
corporations were liquidated (without any reduction for real estate
commissions and other sales expenses). Although Cash Elections may not be
made with respect to more than 20% of the outstanding PSP9 or PSBP Common
Stock, the shares of PSP9 and PSBP Common Stock held by PSI will be cancelled
in the Mergers, and Hughes would receive PSI Common Stock in respect of his
PSP9 Common Stock. Accordingly, Cash Elections may be made with respect to
approximately 28% and 29% of the outstanding PSP9 and PSBP Common Stock,
respectively, held by public shareholders.
4. Independent Portfolio Appraisals and Fairness Opinions. The
conclusions of the PSP9 and PSBP Special Committees and Boards of Directors
are partially based upon the portfolio appraisals prepared by Wilson and
Stanger's fairness opinions. The special committees and boards of directors
of PSP9 and PSBP 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 Wilson's portfolio
appraisals and Stanger's fairness opinions. The PSP9 and PSBP Special
Committees and Boards of Directors believe that the engagement of Wilson and
Stanger to provide the portfolio appraisals and the fairness opinions,
respectively, assisted the PSP9 and PSBP Special Committees and Boards of
Directors in the fulfillment of their duties to PSP9 and PSBP Shareholders,
notwithstanding that each of these parties has received fees in connection
with their engagements and may receive fees in the future. See "-- Real
Estate Portfolio Appraisals by Wilson" and "-- Fairness Opinions from
Stanger."
5. Voting Procedures and Dissenters' Rights. The PSP9 and PSBP Special
Committees and Boards of Directors believe that the voting process and the
rights of dissenting shareholders of PSP9 and PSBP support their conclusions
as to the Mergers. The Mergers are required to be approved by a majority of
the outstanding shares of PSP9 and PSBP Common Stock, respectively, as well as
by a majority of the shares of PSP9 and PSBP Common Stock voting at the
meetings of PSP9 and PSBP Shareholders not held by PSI and Hughes. The PSP9
Merger and the PSBP Merger are not conditioned on each other. PSP9 and PSBP
Shareholders will have the right to exercise Dissenters' Rights, although the
special committees and boards of directors of PSP9 and PSBP recognize that
these rights may be exercised by PSP9 and PSBP Shareholders only if demands
for payment are filed with respect to 5% or more of the outstanding shares of
PSP9 and PSBP Common Stock, respectively.
39
<PAGE>
6. Comparison of Payments to be Received at the Time of the Mergers to
Other Alternatives. The payments to be received at the time of the Mergers of
$18.64 per share of PSP9 Common Stock and $19.59 per share of PSBP Common
Stock compares favorably with (A) the trading price of the PSP9 and PSBP
Common Stock immediately prior to the first announcement of the Mergers ($17-
1/8 and $17-3/8, respectively) and during other periods, (B) a range of
estimated going concern value per share of PSP9 and PSBP Common Stock ($15.78
to $18.04 and $15.37 to $17.83, respectively), (C) an estimated liquidation
value per share of PSP9 and PSBP Common Stock ($17.39 and $18.53,
respectively) and (D) the book value per share of PSP9 and PSBP Common Stock
as of September 30, 1995 ($9.84 and $9.71, respectively). The boards of
directors and special committees of PSP9 and PSBP recognize that this
comparison is subject to significant assumptions, qualifications and
limitations. See "-- Comparison of Consideration to be Received in the
Mergers to Other Alternatives."
7. Lower Level of Distributions to PSP9 Shareholders After the Mergers.
Depending on the market price of the PSI Common Stock during the period in
which the number of shares to be issued in the Mergers is established, the
level of distributions to PSP9 Shareholders who receive PSI Common Stock in
the Mergers may be lower after the Mergers than before. Based on a market
price of PSI Common Stock of $20 and the current regular quarterly
distribution rate for PSI ($.22 per share) and PSP9 ($.30 per share), PSP9
Shareholders would receive approximately $.095 (32%) less in regular quarterly
distributions per share of PSP9 Common Stock after the Mergers from PSI than
before the Mergers from PSP9 and approximately $.01 less per share in regular
quarterly distributions for each $1.03 (5.2%) increase in the market price of
PSI Common Stock above $20.
8. Conflicts of Interest. The Mergers have been initiated and
structured by individuals who are executive officers of PSP9 and PSBP and who
are also affiliated with PSI. Independent representatives were not engaged to
negotiate these arrangements on behalf of the public shareholders of PSP9 and
PSBP, and the terms of the Mergers are not the result of arms' length
negotiations. Hughes will receive PSI Common Stock in respect of his
ownership of approximately 4% of the PSP9 Common Stock.
The special committees and boards of directors of PSP9 and PSBP do not
believe that the absence of independent representatives to negotiate the
Mergers undermines the fairness of the Mergers because the Mergers have been
reviewed and approved by the special committees of PSP9 and PSBP, comprised of
independent directors. Based upon the use of an independent appraisal firm,
the Stanger fairness opinions and the participation of the special committees
of PSP9 and PSBP, the boards of directors and special committees of PSP9 and
PSBP considered that the engagement of such independent representatives was
not necessary or cost effective.
Comparison of Benefits and Detriments. Prior to concluding that the
Mergers should be proposed to PSP9 and PSBP Shareholders, the boards of
directors and special committees of PSP9 and PSBP considered several
alternatives to the Mergers. The alternatives considered by the boards of
directors and special committees of PSP9 and PSBP were liquidation,
continuation of operations and amendments to organizational documents. In
order to determine whether the Mergers or one of its alternatives would be
more advantageous to PSP9 and PSBP Shareholders, the PSP9 and PSBP Boards of
Directors and Special Committees compared the potential benefits and
detriments of the Mergers with the potential benefits and detriments of the
alternatives. See "-- Alternatives to Mergers" for a discussion of the
potential benefits and detriments of each of these alternatives. Each of the
Mergers and its alternatives offers potential benefits and suffers from
potential detriments not possessed by the other alternatives. Set forth below
are the conclusions of the PSP9 and PSBP Boards of Directors and Special
Committees regarding the comparison of the Mergers to the alternatives.
(i) The PSP9 and PSBP Boards of Directors and Special Committees
favor the Mergers over liquidation because they believe that (A) the
Mergers permit PSP9 and PSBP Shareholders to take advantage of the
current markets for REIT securities which more fully reflect the
underlying net asset value of many REITs that grow, like PSI, (B) PSP9
and PSBP should not be liquidated at this time (other than through the
Mergers that provide PSP9 and PSBP Shareholders who receive PSI Common
Stock with greater liquidity and increased geographic diversification,
while retaining an interest in a similar type of properties (in the case
of PSP9) which may increase in value) and (C) the Mergers provide PSP9
and PSBP Shareholders, with respect to up to 20% of the outstanding
common stock of PSP9 and PSBP (less any PSP9 and PSBP Dissenting Shares,
respectively), with the opportunity, if they so elect, to receive in cash
the amounts they would receive
40
<PAGE>
if PSP9's and PSBP's properties were sold at their appraised values and
were liquidated (without any reduction for real estate commissions and
other sales expenses).
(ii) The PSP9 and PSBP Boards of Directors and Special Committees
have concluded that continued operation of PSP9 and PSBP is not as
attractive an alternative as the Mergers because the Mergers afford PSP9
and PSBP Shareholders increased liquidity and the opportunity to
participate in PSI, an entity that, unlike PSP9 and PSBP, has grown, and
is expected to continue to grow, as new investments are made. However,
the PSP9 and PSBP Boards of Directors and Special Committees recognize
that the level of distributions to PSP9 Shareholders who receive PSI
Common Stock may be reduced. See "-- Recommendation to PSP9 Shareholders
-- 7. Lower Level of Distributions to PSP9 Shareholders After the
Mergers."
(iii) The PSP9 and PSBP Boards of Directors and Special Committees
believe that PSP9 and PSBP Shareholders would have better opportunities
to participate in the current markets for equity securities of REITs
through PSI than through PSP9 and PSBP, even if their bylaws were amended
to remove restrictions on reinvestment of cash flow and on the issuance
of securities of PSP9 and PSBP, because of PSI's larger capital base,
greater liquidity and broader geographic diversification.
Based upon this comparison of the potential benefits and detriments of the
Mergers with its alternatives, the PSP9 and PSBP Boards of Directors and
Special Committees have concluded, respectively, that the Mergers are more
attractive to PSP9 and PSBP Shareholders than any of the alternatives.
Comparison of Consideration to be Received in the Mergers to Other
Alternatives
General. To assist PSP9 and PSBP Shareholders in evaluating the Mergers,
the PSP9 and PSBP Boards of Directors and Special Committees compared the
consideration to be received in the Mergers, i.e., a value of $18.64 per share
(less the amount of any Required PSP9 REIT Distributions) of PSP9 Common Stock
and a value of $19.59 per share (less the amount of any Required PSBP REIT
Distributions) of PSBP Common Stock against: (i) the trading price of the
PSP9 and PSBP Common Stock on the AMEX; (ii) estimates of the value of PSP9
and PSBP on a liquidation basis assuming that their assets were sold at their
appraised fair market value and the net proceeds distributed to the PSP9 and
PSBP Shareholders in accordance with their share ownership in PSP9 and PSBP,
respectively; and (iii) estimates of the value of each of PSP9 and PSBP on a
going-concern basis assuming that each were to continue as a stand-alone
entity and its securities sold at the end of either a five-year or ten-year
holding period or its assets sold at the end of a ten-year holding period.
Due to the uncertainty in establishing these values, the boards of directors
and special committees of PSP9 and PSBP 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 Mergers are 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 boards of
directors and special committees of PSP9 and PSBP 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. PSP9 and PSBP 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 PSP9 and PSBP. These assumptions
relate, among other things, to: projections as to PSP9's and PSBP's future
income, expenses, cash flow and other significant financial matters; the
capitalization rates that will be used by prospective buyers when PSP9's and
PSBP'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 PSP9 and PSBP Common Stock. In
addition, these estimates are based upon certain information available to PSP9
and PSBP 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 Mergers. The assumptions used have
been determined by the PSP9 and PSBP Boards of Directors and Special
Committees in good faith, and, where appropriate, are based upon current and
historical information regarding PSP9 and PSBP and current real estate
markets, and have been highlighted below to the extent critical to the
conclusions of the PSP9 and PSBP Boards of Directors and Special Committees.
While PSP9 and PSBP believe they have a reasonable basis for the assumptions
41
<PAGE>
selected, the assumptions employed by them as to future events may not reflect
their actual experience. The estimated values of alternate forms of
consideration would have been different had PSP9 and PSBP made different
assumptions, and such differences could be material.
No assurance can be given that such consideration would be realized
through any of the designated alternatives, and PSP9 and PSBP Shareholders
should carefully consider the following discussions to understand the
assumptions, qualifications and limitations inherent in the presented
valuations.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Estimated Liquidation
Payments in PSP9 Merger Estimated Going Concern Value per Share of PSP9
per Share of PSP9 Trading Prices of PSP9 Value per Share of PSP9 Common Stock at
Common Stock Common Stock (2) Common Stock (3) Appraised Value (4)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$18.64(1) $16-5/8 $17-1/2 $15.78 $18.04 $17.39
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Estimated Liquidation
Payments in PSBP Estimated Going Concern Value per Share of PSBP
Merger per Share of Trading Prices of PSBP Value per Share of PSBP Common Stock at
PSBP Common Stock Common Stock (2) Common Stock (3) Appraised Value (4)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$19.59(1) $17-1/4 $18-1/4 $15.37 $17.83 $18.53
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Based on the respective corporation's net asset value consisting of the
independently appraised market value of the respective corporation's real
estate portfolio as of October 31, 1995 and estimated book value of its
other net assets as of March 31, 1996 and assuming no Required REIT
Distributions. See "-- Determination of Payments to be Received by PSP9
and PSBP Shareholders in Connection with the Mergers."
(2) High and low sales prices on the AMEX composite tape for the third quarter
of 1995, the last full calendar quarter prior to the announcement of the
Mergers. On December 13, 1995, the closing price of PSP9 and PSBP Common
Stock was $17-1/8 and $17-3/8, respectively.
(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 PSP9 and PSBP and the date of their liquidation. See "--
Going-Concern Value."
(4) Based upon Wilson's real estate appraisal, less estimated expenses of
liquidation. See "-- Liquidation Values."
Trading Prices of PSP9 and PSBP Common Stock.
PSP9. The PSP9 Board of Directors and Special Committee also
considered that the trading price for PSP9 Common Stock averaged $16.90,
$16.82, $16.92 and $16.93 for the 20-day, 60-day, 180-day and 360-day periods
preceding the announcement of the proposed Mergers, that the closing price for
PSP9 Common Stock on the last trading day prior to the first announcement of
the proposed Mergers was $17-1/8, and that the highest closing price for PSP9
Common Stock preceding the announcement of the proposed Mergers was $20-1/4.
The PSP9 Board of Directors also considered that the consideration offered in
the PSP9 Merger adjusted for interim earnings of approximately $.53 per share
(which amount represents increases in current net assets projected to be
generated and retained between the date of the property Appraisal and March
31, 1996) represents a premium of 7.17%, 7.68%, 7.04%, 6.98%, 5.76% and
(10.56)% 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 Mergers and the highest closing price recorded for PSP9 Common Stock,
respectively.
PSBP. The PSBP Board of Directors and Special Committee also
considered that the trading price for PSBP Common Stock averaged $17.69,
$17.49, $17.60 and $16.76 for the respective 20-day, 60-day, 180-day and
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360-day periods preceding the announcement of the proposed Mergers, that the
closing price for PSBP Common Stock on the last trading day prior to the first
announcement of the proposed Mergers was $17-3/8, and that the highest closing
price for PSBP Common Stock preceding the announcement of the proposed Mergers
was $18-5/8. The PSBP Board of Directors also considered that the
consideration offered in the PSBP Merger adjusted for interim earnings of
approximately $.36 per share (which amount represents increases in current net
assets projected to be generated and retained between the date of the property
Appraisal and March 31, 1996) represents a premium of 8.69%, 9.93%, 9.24%,
14.72%, 10.66% and 3.23% 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 Mergers and the highest closing price recorded
for PSBP Common Stock, respectively.
Going-Concern Value. The PSP9 and PSBP Boards of Directors and Special
Committees have estimated the going-concern value of each of PSP9 and PSBP by
analyzing projected cash flows and distributions assuming that each of PSP9
and PSBP 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 PSP9 and PSBP
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 PSP9 and PSBP
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 portfolios of
PSP9 and PSBP 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
PSP9 and PSBP paid out to PSP9 and PSBP Shareholders in liquidation
distributions. Dividends and sale proceeds per share of PSP9 and PSBP Common
Stock were discounted in the projections at a rate of 13%.
Scenario #3 of the going-concern analysis assumes PSP9'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 PSP9 Shareholders out of PSP9'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.
The estimated value of each of PSP9 and PSBP on a going-concern basis is
not intended to reflect the distributions payable to each of their
shareholders if their assets were to be sold at their current fair market
values.
Liquidation Values. Since one of the alternatives available to the PSP9
and PSBP Boards of Directors is to proceed with a liquidation of PSP9 and
PSBP, and the corresponding distribution of the net liquidation proceeds to
PSP9 and PSBP Shareholders, respectively, the PSP9 and PSBP Boards of
Directors and Special Committees have estimated the liquidation value of PSP9
and PSBP assuming that the real estate portfolios of these corporations were
sold at their fair market value, based upon the Wilson real estate portfolio
appraisals (excluding for these purposes any pre-merger distributions that
might be made to PSP9 and PSBP 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 each of PSP9 and PSBP), PSP9 and
PSBP incur selling costs at the time of liquidation (state and local transfer
taxes, real estate commissions and legal and other closing costs) of
$2,320,000 and $568,000, respectively, and the remaining net liquidation
proceeds are distributed among PSP9 and PSBP Shareholders in proportion to
their share ownership.
The liquidation analysis assumes that PSP9'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 PSP9
Shareholders out of PSP9's cash flow from operations might be reduced because
PSP9'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 PSP9 and PSBP Boards of Directors and
Special Committees arrived at the liquidation value set forth in the table.
The real estate portfolio appraisals set forth, subject to the specified
assumptions, limitations and qualifications, Wilson's professional opinion as
to the market value of PSP9's and PSBP's real estate portfolios as of October
31, 1995. While the portfolio appraisals are 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
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relevant information regarding the historical revenues and expenses of the
properties. The real estate portfolio appraisals assume that PSP9's and
PSBP'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 Appraisals by Wilson."
Distribution Comparison. The PSP9 and PSBP Boards of Directors and
Special Committees have considered the potential impact of the Mergers upon
distributions that would be made to PSP9 and PSBP Shareholders who exchange
their PSP9 and PSBP Common Stock for PSI Common Stock. Based on a market
price of PSI Common Stock of $20 and the current regular quarterly
distribution rate for PSI ($.22 per share) and PSP9 ($.30 per share), PSP9
Shareholders would receive approximately $.095 (32%) less in regular quarterly
distributions per share of PSP9 Common Stock after the Mergers from PSI than
before the Mergers from PSP9 and approximately $.01 less per share in regular
quarterly distributions for each increase in the market price of PSI Common
Stock above $20 of $1.03 (5.2%). These estimates are based upon the actual
distributions made by PSP9 and PSI (not upon the amounts that might have been
distributed by them based upon their cash flow from operations). Based on a
market price of $20 and the regular quarterly distribution rate for PSI ($.22
per share) and PSBP ($.19 per share), PSBP Shareholders are not expected to
receive less in regular quarterly distributions after the Mergers.
In evaluating this estimate, PSP9 and PSBP 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 PSP9 and PSBP does not show
how the Mergers might affect a PSP9 or PSBP Shareholder's distribution level
over a number of years.
Real Estate Portfolio Appraisals by Wilson
Wilson was engaged by PSP9, PSBP and PSI to appraise the real estate
portfolios of PSP9 and PSBP and has delivered written reports of its analysis,
based upon the review, analysis, scope and limitations described therein, as
to the fair market value of portfolio of properties of each of PSP9 and PSBP
as of October 31, 1995 (the "Appraisals"). PSP9, PSBP and PSI selected Wilson
to provide the Appraisals because of its experience and reputation in
connection with appraising mini-warehouses and business parks, its familiarity
with PSP9's and PSBP's properties and its appraisal of the properties of three
other REITs in connection with their mergers with PSI. The consideration to
be paid by PSI to PSP9 and PSBP Shareholders in the Mergers is based on the
Appraisals. The Appraisals, which contain a description of the assumptions
and qualifications made, matters considered and limitations on the review and
analysis, are set forth as Appendix B-1 and B-2 and should be read in their
entirety. Certain of the material assumptions, qualifications and limitations
to the Appraisals are described below.
Experience of Wilson. Wilson was founded by Charles R. Wilson in 1976,
who has specialized in the appraisal of mini-warehouses since 1972. Wilson
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. Wilson appraised over
100 mini-warehouses in 1994.
Mr. Wilson founded Self Storage Data Services, Inc. ("SSDS") in 1993 for
the purpose of tracking and publishing income and expense trends in the mini-
warehouse industry. The SSDS data base now contains over 23,600 facilities
nationwide. Mr. Wilson, recognized as a leading authority on mini-warehouses,
has spoken extensively and has written several articles on the subject of
mini-warehouses.
Summary of Methodology. At the request of PSP9, PSBP and PSI, Wilson
evaluated PSP9's and PSBP's portfolio of real estate. In valuing the
properties, Wilson considered the applicability of all three commonly
recognized approaches to value: the cost approach, the income 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. Wilson did not consider the
cost approach to be applicable to PSP9's properties.
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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 PSP9 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 PSP9's properties diminishes the validity of
this approach.
While the Appraisals were prepared separately for PSP9's entire portfolio
and for PSBP's sole property, Wilson analyzed the individual PSP9 properties
by (a) reviewing each property's previous four 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 Wilson
through telephone calls and other sources; (c) developing information from a
variety of sources about market conditions for each individual property that
included population, employment and housing trends within the neighborhood;
and (d) considering published data on median income and expense benchmarks on
comparable facilities.
To determine any significant differences in quality among the various
properties, Wilson considered such variables as property income growth
patterns and potential, quality of location and construction, tenant appeal,
property appearance, security and potential competition.
Wilson also interviewed management personnel responsible for PSP9's and
PSBP'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. Wilson also reviewed surveys of local self storage and business
park markets conducted by management. Representatives of Wilson performed
site inspections on all 15 of PSP9's properties and on PSBP's sole property
between August and October, 1995. Most of the properties had been appraised
by Wilson previously.
Wilson then determined the value of each property in the portfolio relying
heavily upon the income approach. The results were verified 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, Wilson
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, Wilson reviewed other
published information concerning acquisition criteria in use by property
investors during the third quarter of 1995. Further, Wilson interviewed
various sources in local markets 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 local appraisers, property
owners, real estate brokers, and others. Wilson also reviewed information
compiled by management identifying sales and acquisitions of mini-warehouses
in local markets.
In applying a discounted cash flow analysis, projections of cash flow from
each property (assuming no indebtedness) were developed for a ten-year period
ending October 2005. The first year's scheduled gross income was estimated
taking into consideration each property's current rent structure and the
rental rates in competitive facilities. Also included in the income estimate
were trends in ancillary income from late fees and rental concessions. Wilson
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 as well as the actual experience of several other mini-warehouses and
business parks within each given market. Expenses were deducted from
effective
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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 generally ranged from
3% to 4% depending upon property and local market conditions. Wilson then
used terminal capitalization rates that ranged from 10.25% to 10.50% for PSP9
and 11% for PSBP to capitalize each property's eleventh year net income into a
residual value at the end of the holding period, assuming normal cost of
disposing of the properties. The ten yearly cash flows were then discounted
to present worth using discount rates ranging from 12.5% to 13.5% for PSP9's
properties, again depending upon local market and property conditions, and 12%
for PSBP's property. PSP9's properties having retail/office space were
discounted using rates at the lower end of the indicated range to reflect
current market conditions and parameters. The indicated value based upon the
income approach is $45,554,000 for PSP9's properties and $11,500,000 for
PSBP's property.
In applying the sales comparison approach to the PSP9 properties, Wilson
analyzed over 100 properties which were sold during the past 24 months. Using
a regression analysis, a statistically significant correlation was derived
between each of PSP9's properties' net income and its sales price per square
foot. Based upon the PSP9 portfolio's net income per square foot, using the
regression analysis, the indicated value by the sales comparison approach
ranged between $41,900,000 to $48,560,000 for PSP9's properties. For PSBP's
property, Wilson utilized a direct analysis and reconciliation of comparable
sales in the local market of the property. Based on such comparable sales
analysis, the indicated value by the sales comparison approach is $11,300,000.
Wilson also applied the cost approach to the property owned by PSBP in
which Wilson estimated the replacement cost of land and improvements less
depreciation. Wilson assigned a market value to the PSBP property using the
cost approach of $9,300,000.
Based on the valuation methodology described above, Wilson assigned a
market value of $45,400,000 to PSP9's portfolio of real property assets and
$11,500,000 to PSBP's sole property.
Assumptions, Limitations and Qualifications of the Appraisals. The
Appraisals reflect Wilson's valuation of PSP9's and PSBP's real estate
portfolio as of October 31, 1995 in the context of the information available
on such date. Events occurring after October 31, 1995 and before the closing
of the Mergers could affect the properties or assumptions used in preparing
the Appraisals. Wilson has no obligation to update the Appraisal on the basis
of subsequent events; however, Wilson has informed PSP9, PSBP and PSI that, as
of the date of this Joint Proxy Statement and Prospectus, Wilson is not aware
of any event or change in conditions, since October 31, 1995, that may have
caused a material change in the value of either PSP9's portfolio of real
estate or PSBP's property since that date.
The Appraisals are 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 Appraisals (i) did not consider the effect of easements,
restrictions and other similar items on the value of PSP9's and PSBP's
properties, (ii) assumed that the properties comply with local building codes
and zoning ordinances, (iii) did not involve the physical inspections of
competing properties and (iv) did not involve a comparison of PSP9's
properties' commercial leases with other properties' commercial leases (but
did for PSBP's property's leases). See Appendix B-1 and B-2 for a discussion
of the specific assumptions, limitations and qualifications of the Appraisals.
Compensation and Material Relationships. Wilson is being paid an
aggregate fee of $43,000 for preparation of the Appraisals, which fee will
include reimbursement for all of Wilson's related out-of-pocket expenses.
Wilson is also entitled to indemnification against certain liabilities. The
fee was negotiated with Wilson and payment is not dependent upon completion of
the Mergers. As one of the nation's leading appraisers of mini-warehouses,
since 1976, Wilson has continuously prepared appraisals for PSI and its
affiliates, including appraisals of the properties of three prior REITs in
connection with their mergers with PSI, and is expected to continue to prepare
appraisals for PSI.
Fairness Opinions from Stanger
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Stanger was engaged by PSP9 and PSBP through the PSP9 and PSBP Special
Committees to deliver written summaries of its determination as to the
fairness of the consideration to be received in the Mergers, from a financial
point of view, to the public shareholders of PSP9 and PSBP. The full text of
the opinions, which contain descriptions of the assumptions and qualifications
made, matters considered and limitations on the review and opinion, is set
forth in Appendix C-1 and C-2 to this Joint Proxy Statement and Prospectus and
should be read in their entirety. Certain of the material assumptions,
qualifications and limitations to the fairness opinions are set forth below.
The summary set forth below does not purport to be a complete description of
the analyses to be used by Stanger in rendering the fairness opinions.
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 PSP9 and
PSBP advised Stanger that it would be reasonable to make, they 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
opinions. PSP9 and PSBP have agreed to indemnify Stanger against certain
liabilities arising out of its engagement to prepare and deliver the fairness
opinions.
Experience of Stanger. Stanger, founded in 1978, has provided
information, research, investment banking and consulting services to clients
throughout the United States, including major New York Stock Exchange firms
and insurance companies and over 70 companies engaged in the management and
operation of partnerships and real estate investment trusts. 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 opinions regarding the Mergers, Stanger: (i) reviewed this Joint
Proxy Statement and Prospectus; (ii) reviewed PSP9's, PSBP's and PSI's annual
reports on Form 10-K for the three fiscal years ending December 31, 1992, 1993
and 1994, their quarterly reports on Form 10-Q for the quarter ending
September 30, 1995 and the pro forma financial statements of PSI; (iii)
reviewed the Appraisals and discussed with management of PSP9 and PSBP and
Wilson the methodologies and procedures employed in preparing the Appraisals;
(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 and business parks; (v) reviewed estimates prepared by PSP9 and
PSBP, and based in part on the Appraisals, of the current net liquidation
value per common share of PSP9's and PSBP's assets and projections of cash
flow from operations, dividend distributions and going-concern values for PSP9
and PSBP; (vi) discussed with certain members of management of PSP9, PSBP 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
PSP9 and PSBP, current and projected operations and performance, and the
financial condition and future prospects of PSP9, PSBP and PSI; (vii) reviewed
historical market prices, trading volume and dividends for PSP9, PSBP 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 opinions. The summary of the opinions and analysis of Stanger
set forth in this Joint Proxy and Prospectus is qualified in its entirety by
reference to the full text of such opinions.
Review of Appraisals. In preparing its opinions, Stanger relied upon the
Appraisals of PSP9's and PSBP's portfolio of properties which were prepared as
of October 31, 1995 by Wilson, an independent appraiser. Stanger reviewed the
Appraisals rendered by Wilson, reviewed a sample of supporting documentation
for the Appraisals and discussed with Wilson its experience and qualifications
and the appraisal methodologies utilized.
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Stanger observed that the Appraisals were certified by a Member of the
Appraisal Institute and were conducted utilizing the income approach to
valuation, applying the discounted cash flow method to establish a value for
each individual property, the sales comparison approach and, in the case of
PSBP, the cost approach. In addition, Stanger observed that in the course of
conducting the Appraisals, Wilson confirmed certain parameters utilized based
upon interviews conducted by Wilson of major buyers, owners and managers of
self-storage and business park properties, and data collected by Wilson
relating to capitalization rates and net operating income per square foot for
actual sales transactions in the marketplace for mini-warehouse and business
park properties which occurred during the 24 months preceding the date of the
Appraisals.
Stanger observed that the effective capitalization rate utilized in the
Appraisals was approximately 10.1% and 9.5% for the properties of PSP9 and
PSBP, respectively, based on net operating income (before non-recurring
expenses) generated for the 12 months prior to the date of the Appraisals.
Stanger further observed that among properties acquired by PSI or affiliated
entities from third-parties between December 1993 and November 1995,
capitalization rates for such purchases averaged approximately 10.1%. In
addition, capitalization rates among transactions involving self-storage
properties tracked by Self Storage Data Services, Inc., an affiliate of
Wilson, averaged approximately 10.5%. Lower capitalization rates generally
reflect higher sales prices for income-producing properties.
Review of Liquidation Analysis. Stanger reviewed an analysis prepared by
management of PSP9 and PSBP of the estimated value of PSP9 and PSBP based upon
liquidation of their portfolios on a property-by-property basis utilizing
estimates prepared by PSP9 and PSBP and information provided by Wilson.
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 Appraisals, to an independent third-party buyer.
Costs of such property sales by PSP9 to independent third-parties were
estimated by PSP9 to total approximately $2,320,000 and were comprised of
estimates of $310,000 in state and local transfer taxes, $1,340,000 in
commissions and $670,000 in legal and other closing costs. Costs of such
property sales by PSBP to independent third-parties were estimated by PSBP to
total approximately $568,000 and were comprised of estimates of $51,000 in
state and local transfer taxes, $345,000 in commissions and $172,000 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 PSP9 and PSBP based
on their knowledge of real estate transactions. Stanger observed that the
estimated net proceeds from such liquidation, assuming no Required PSP9 REIT
Distributions (prior to the date of liquidation), the contribution of $599,000
by PSI and Hughes in respect of obligations due upon liquidation incurred in
connection with the PSP9 Partnership, and the associated dissolution of PSP9
and distribution of all remaining assets was $17.39 per share, versus the
consideration offered in the Mergers of $18.64 cash per share of PSP9 Common
Stock, or the equivalent of $18.64 of PSI Common Stock per share of PSP9
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 PSP9 Shareholders. Stanger observed that the
estimated net proceeds from the liquidation of PSBP's sole property, assuming
no Required PSBP REIT Distributions (prior to the date of liquidation), and
the associated dissolution of PSBP and distribution of all remaining assets
was $18.53 per share, versus the consideration offered in the Mergers of
$19.59 cash per share of PSBP Common Stock, or the equivalent of $19.59 of PSI
Common Stock per share of PSBP 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 PSBP Shareholders.
Stanger also observed that Wilson concluded that no premium or discount is
appropriate for the bulk acquisition of an assembled portfolio in self-storage
property markets today. Stanger reviewed information on bulk purchases and
sales of self-storage properties transacted by PSI, PSMI or affiliates during
1993 through November 1995 and reviewed available information concerning bulk
purchases of self-storage properties by independent third parties.
Stanger observed that PSI, PSMI or affiliated entities have transacted
seven bulk purchases of property portfolios during the period reviewed
excluding the properties associated with the mergers of three prior REITs with
PSI. These transactions involved affiliated entities and a total of 33
properties with an aggregate value of approximately $75 million.
Specifically, the transactions included the sale of: (1) a three-property
portfolio by a private limited partnership affiliated with PSMI in November
1993 (at a capitalization rate of approximately 10.2%); (2) a twelve-
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property portfolio in which PSMI has an interest by an unaffiliated party in
December 1993 (at a capitalization rate of approximately 10.5% for the owner's
interest); (3) a three-property portfolio in which PSMI has an interest by an
unaffiliated party in December 1993 (at a capitalization rate of approximately
10.5% for the owner's interest); (4) a two-property portfolio by a private
limited partnership affiliated with PSMI in October 1993 (at a capitalization
rate of approximately 10.7%); (5) a seven-property portfolio by a private
limited partnership affiliated with PSMI in June 1994 (at a capitalization
rate of approximately 10.7%); (6) a three-property portfolio by a private
limited partnership affiliated with PSMI in June 1994 (at a capitalization
rate of approximately 10.1%); and (7) a three-property portfolio by a private
limited partnership affiliated with PSMI in December 1994 (at a capitalization
rate of approximately 10.0%). Among these transactions, capitalization rates
averaged approximately 10.4%. Stanger also observed that capitalization rates
currently cited by market participants for bulk property sales transactions
generally range from 10% to 11%, a range consistent with capitalization rates
for individual property purchases.
Based upon the review cited above, Stanger concluded that Wilson's opinion
that assembled portfolios do not command a premium to underlying individual
property values in the current market for self-storage property acquisitions
appears to be supported by available data.
Review of Going Concern Analysis. Stanger reviewed financial analyses and
projections prepared by the management of PSP9 and PSBP concerning estimated
cash flows and dividend distributions from continued operation of PSP9 and
PSBP as independent stand-alone entities and estimated sales proceeds from the
liquidation of the shares of PSP9 and PSBP or the portfolios of properties
owned by PSP9 and PSBP. 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 PSP9 and PSBP or the properties
owned by PSP9 and PSBP during projection periods of up to 10 years. The
analyses and projections assumed, among other things, that (i) net operating
income for PSP9 and PSBP would grow at a compound annual rate of approximately
3.7% over the 10-year projection period; (ii) general and administrative
expenses would increase at an average rate of 3.0% 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 independent Appraisals.
The projections evaluated the going-concern value of PSP9 and PSBP under
three scenarios: Scenario #1 --a five-year holding period, with shares of
PSP9 and PSBP 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 PSP9 Common Stock and PSBP 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 PSP9 and PSBP liquidated in private real
estate markets at the terminal value projected by the appraiser in the
Appraisals and the net proceeds resulting from the liquidation of the
properties and other remaining assets of PSP9 and PSBP paid out to
shareholders in liquidating distributions. Dividends and sale proceeds per
share of PSP9 and PSBP Common Stock were discounted in the projections at a
rate of 13%.
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 PSP9 and
PSBP. This group of publicly traded REITs are all affiliated with PSMI and
PSI, and include Storage Properties, Partners Preferred Yield I, II and III,
and Public Storage Properties X, XI, XII, 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 PSP9 and
PSBP Common Stock on a going-concern basis resulting from the above analysis
were as follows for each scenario: Scenario #1 -- $15.78 to $18.04 and $15.37
to $17.74, respectively; Scenario #2 -- $16.49 to $17.93 and $16.28 to $17.83,
respectively; and Scenario #3 -- $17.60 and $16.93, respectively, compared
with the consideration offered in the Mergers of $18.64 per share of PSP9
Common Stock and $19.59 per share of PSBP Common Stock.
The estimated values assigned to the alternative forms of consideration
are based on a variety of assumptions that have been made by PSP9 and PSBP.
While PSP9 and PSBP have advised Stanger that they believe they have a
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reasonable basis for these assumptions, these assumptions may not reflect the
actual experience of PSP9 and PSBP and such differences could be material.
See "-- Comparison of Consideration to be Received in the Mergers to Other
Alternatives."
Review of Market Value. Stanger reviewed historical market prices,
trading volume and dividend distributions for PSP9 Common Stock and PSBP
Common Stock. In the course of this review, Stanger compared the historical
market prices of PSP9 and PSBP Common Stock with amounts to be received at the
time of the Mergers. Stanger observed that the trading price for PSP9 Common
Stock averaged $16.90, $16.82, $16.92 and $16.93, for the respective 20-day,
60-day, 180-day, and 360-day periods preceding the announcement of the
proposed Mergers, that the closing price for PSP9 Common Stock on the last
trading day prior to the first announcement of the proposed Mergers was $20-
1/4, and that the highest closing price for PSP9 Common Stock preceding the
announcement of the proposed Mergers was $17-1/8. Stanger further observed
that the consideration offered in the Mergers, reduced by $1,294,000, or
approximately $.53 per share (which amount represents increases in current net
assets projected by management to be generated and retained between the date
of the Appraisals and March 31, 1996) represents a premium of 7.17%, 7.68%,
7.04%, 6.98%, 5.76% and (10.56)% 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 Mergers and the highest closing price
recorded for PSP9 Common Stock, respectively. Stanger observed that the
trading price for PSBP Common Stock averaged $17.69, $17.49, $17.60 and
$16.76, for the respective 20-day, 60-day, 180-day, and 360-day periods
preceding the announcement of the proposed Mergers, that the closing price for
PSBP Common Stock on the last trading day prior to the first announcement of
the proposed Mergers was $17-3/8, and that the highest closing price for PSBP
Common Stock preceding the announcement of the proposed Mergers was $18-5/8.
Stanger further observed that the consideration offered in the Mergers,
reduced by $194,000, or approximately $.36 per share (which amount represents
increases in current net assets projected by management to be generated and
retained between the date of the Appraisals and March 31, 1996) represents a
premium of 8.69%, 9.93%, 9.24%, 14.72%, 10.66% and 3.23% 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 Mergers and the highest
closing price recorded for PSBP Common Stock, respectively.
In addition, Stanger observed that the consideration per share of PSP9 and
PSBP Common Stock offered in the Mergers 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 PSP9 and PSBP Common Stock. Such
value will be based on the average closing prices on the NYSE of PSI Common
Stock during the twenty consecutive trading days ending on the fifth trading
day prior to the special meeting of shareholders.
Distribution/FFO Analysis. Stanger reviewed distributions per share and
FFO per share for PSP9 and PSBP Shareholders on an equivalent per share basis.
Stanger noted that based on a closing price of $20 for PSI Common Stock and
the resulting exchange ratio of PSP9 and PSBP 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
$.095 (32%) for PSP9 Shareholders receiving PSI Common Stock and would
increase by approximately $.025 (13%) for PSBP Shareholders receiving PSI
Common Stock. Stanger observed that, at the $20 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 PSP9 Shareholders on an equivalent
per share basis would decrease approximately $.048 (10%), and FFO per share
earned by PSBP Shareholders on an equivalent per share basis would decrease
approximately $.008 (1.7%). Stanger also observed that the historical FFO per
share annual growth rate for PSI for the 1992-1994 period was 11.81% compared
to the historical FFO per share annual growth rate for PSP9 and PSBP for the
1992-1994 period of 8.2% and a negative 4.9%, respectively.
Conclusions. Based on the foregoing, Stanger concluded that, based upon
its analysis and assumptions, and as of the date of the fairness opinions, the
consideration to be received in the Mergers is fair to the public shareholders
of PSP9 and PSBP, from a financial point of view.
Assumptions. In evaluating the Mergers, Stanger 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 Stanger.
Stanger did not perform an independent
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<PAGE>
appraisal of the assets and liabilities of PSP9, PSBP or PSI and relied upon
and assumed the accuracy of the Appraisals. Stanger also relied on the
assurances of PSP9, PSBP and PSI that any pro forma financial statements,
projections, budgets, or value estimates contained in the Joint Proxy
Statement and Prospectus or otherwise provided to Stanger, were reasonably
prepared on bases consistent with actual historical experience and reflecting
the best currently available estimates and good faith judgments; that no
material changes have occurred in the appraised value of the portfolio or the
information reviewed between the date of the Appraisals or the date of the
other information provided and the date of the opinion; and that PSP9, PSBP
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-1 and C-2. 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 Mergers, Stanger is being
paid a fee of $90,000. In addition, Stanger will be reimbursed for certain
out-of-pocket expenses, including legal fees, up to a maximum of $18,000 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 Mergers.
During the past two years (1993 to present), Stanger has rendered consulting
and related services and provided products to PSI and to PSMI and its
affiliates, including a fairness opinion to the public shareholders of three
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 $185,000 in connection with these services and products since
1993 (exclusive of amounts received in connection with the Mergers).
Limitations and Qualifications. Stanger was not requested to, and
therefore did not: (i) select the method of determining the consideration
offered in the Mergers; (ii) make any recommendation to the shareholders of
PSP9, PSBP or PSI with respect to whether to approve or reject the Mergers or
whether to select the cash or Common Stock option in the Mergers; or (iii)
express any opinion as to the business decision to effect the Mergers,
alternatives to the Mergers 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.
Among the factors considered in the selection of Stanger were Stanger's
experience in connection with the mergers of three 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 Mergers to PSP9 and PSBP Shareholders, and PSP9 and PSBP have neither
requested nor received any views, preliminary or otherwise, from any party
other than Stanger regarding the fairness of the Mergers to PSP9 and PSBP
Shareholders.
The Merger Agreement
If the Mergers are approved by PSP9 and PSBP Shareholders and the other
applicable conditions to the Mergers are satisfied or waived, the Mergers will
be consummated pursuant to the Merger Agreement which is set forth in Appendix
A to, and is incorporated by reference into, this Joint Proxy Statement and
Prospectus. As a result of the Mergers, all of the assets now held by PSP9
and PSBP will be held by PSI upon completion of the Mergers. The Merger
Agreement contains representations and warranties of PSP9, PSBP and PSI and
certain other provisions relating to the Mergers. The representations and
warranties are extinguished by, and do not survive, the Mergers. The PSP9
Merger and the PSBP Merger are not conditioned on each other.
Conditions to Consummation of the Mergers. Consummation of the Mergers
are 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 PSP9 and PSBP Common Stock and to consummate the
Mergers; (ii) the Merger Agreement and the PSP9 Merger shall have been
approved and adopted by the requisite vote of the shareholders of PSP9,
including a majority of the shares of PSP9 Common Stock voting at the meeting
of PSP9 Shareholders which are not owned by PSI and its affiliates; (iii)
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the Merger Agreement and the PSBP Merger shall have been approved and adopted
by the requisite vote of the shareholders of PSBP, including a majority of the
shares of PSBP Common Stock voting at the meeting of PSBP Shareholders which
are not owned by PSI and its affiliates; (iv) receipt by PSP9 and PSBP of a
legal opinion of Hogan & Hartson L.L.P. that the Mergers will qualify as
reorganizations under Section 368(a) of the Code (which opinion has been
received and is described under "Certain Federal Income Tax Matters"); (v) the
PSI Shares issued to PSP9 and PSBP Shareholders shall be listed on the NYSE;
(vi) the Boards of Directors of PSP9 and PSBP shall have received fairness
opinions from Stanger (which opinions have been received); (vii) the Board of
Directors of PSI shall have approved the Mergers; (viii) in the case of PSI,
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 PSP9 and PSBP Shareholders is not less than
$18; and (ix) demands for payment by holders of Dissenting Shares are filed
with respect to less than 5% of the outstanding shares of common stock of the
respective corporation. The obligation of PSI to effect the Mergers are also
subject to it, in its sole discretion, being satisfied as to title to, and the
results of an environmental audit of, each property of PSP9 and PSBP. Any of
these conditions (other than the conditions of approval by the PSP9 and PSBP
Shareholders) 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 PSP9, PSBP 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 Mergers or the
Merger Agreement. The Mergers 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 Mergers shall not have occurred on or before December 31, 1996.
Consummation. It is contemplated that the Mergers will be consummated by
filing the Agreements of Merger (attached as Exhibits A-1 and A-2 to the
Merger Agreement) with the California Secretary of State as soon as
practicable after its approval by PSP9 and PSBP Shareholders and the
satisfaction or waiver of various conditions contained in the Merger
Agreement. It is currently contemplated that the Mergers will be consummated
during the first half of 1996. If the conditions to the merger of only one of
the corporations into PSI are satisfied, only that corporation will be merged
with PSI.
Exchange of Certificates. After the Mergers, holders of certificates that
evidenced outstanding shares of PSP9 and PSBP 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 common stock shall have been converted and cash
payment in lieu of fractional share interests, if applicable. As soon as
practicable after the Mergers, the Exchange Agent will send a notice and a
transmittal form to each holder of record whose common stock shall have been
converted into shares of PSI Common Stock, advising of the effectiveness of
the Mergers and the procedure for surrendering to the Exchange Agent
certificates evidencing PSP9 or PSBP Common Stock in exchange for certificates
evidencing PSI Common Stock. HOLDERS OF PSP9 AND PSBP COMMON STOCK WHO INTEND
TO RECEIVE PSI COMMON STOCK IN THE MERGERS 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 MERGERS.
Until surrendered, each outstanding certificate which represents shares of
PSP9 or PSBP 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 common stock evidenced
thereby were converted. However, until the certificates formerly evidencing
PSP9 and PSBP 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 Mergers. After the Mergers, there will be no further
registration of transfers of PSP9 and PSBP Common Stock on
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the records of PSP9 and PSBP 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 Mergers. In lieu of any fractional share interests, each holder
of PSP9 and PSBP Common Stock who would otherwise be entitled to a fractional
share of PSI Common Stock will, upon surrender of the certificate representing
such 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 Mergers.
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 Mergers, by (ii) the fractional interest.
Restrictions on Other Acquisitions. PSP9 and PSBP have 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 their assets, or any equity interest in them, 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 boards of directors on behalf of PSP9 and PSBP 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 boards of
directors to breach their fiduciary duty to PSP9 and PSBP Shareholders under
applicable law as advised by counsel. PSP9 and PSBP have 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 them, and to keep PSI informed of the status and terms of any
such proposals and any such negotiations or discussions.
Distributions. Pending the Mergers, PSP9 and PSBP are precluded from
declaring or paying any dividend on their common stock or making any other
distribution to their shareholders other than (i) regular dividends at a
quarterly rate not in excess of $.30 per share in the case of PSP9 and $.19
per share in the case of PSBP, (ii) dividends to shareholders of record of
PSP9 and PSBP immediately prior to the effectiveness of the Mergers equal to
the amount by which the respective corporation's estimated net asset value at
such date exceeds the estimated net asset value at March 31, 1996 and (iii)
Required REIT Distributions. Pending the Mergers, PSI is precluding from
declaring or paying any dividend on its common stock or making any other
distribution to its shareholders other than regular quarterly dividends. See
"Determination of Payments to be Received by PSP9 and PSBP Shareholders in
Connection with the Mergers."
Cash Election Procedure
PSP9. Each holder of record of PSP9 Common Stock may make a Cash Election
and have its shares of PSP9 Common Stock converted into the right to receive
cash in the PSP9 Merger. If the aggregate number of shares of PSP9 Common
Stock as to which Cash Elections are made, together with shares of PSP9 Common
Stock owned by Dissenting Shareholders (see "Dissenting Shareholders' Rights
of Appraisal"), is 20% or less than the number of shares of PSP9 Common Stock
outstanding as of the record date for the meeting of PSP9 Shareholders, all
such shares as to which Cash Elections are made shall be converted into the
right to receive cash in the PSP9 Merger. If the aggregate number of such
shares (together with any PSP9 Dissenting Shares) is more than 20%, such
shares shall be converted into the right to receive cash in the PSP9 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 PSP9
Shareholders receiving both cash and PSI Common Stock in connection with the
PSP9 Merger, see "Certain Federal Income Tax Matters -- The Mergers -- PSP9
and PSBP Shareholders Receiving Cash and PSI Common Stock."
PSBP. Each holder of record of PSBP Common Stock may make a Cash Election
and have its shares of PSBP Common Stock converted into the right to receive
cash in the PSBP Merger. If the aggregate number of shares of PSBP Common
Stock as to which Cash Elections are made, together with shares of PSBP Common
Stock owned by
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Dissenting Shareholders (see "Dissenting Shareholders' Rights of Appraisal"),
is 20% or less than the number of shares of PSBP Common Stock outstanding as
of the record date for the meeting of PSBP Shareholders, all such shares as to
which Cash Elections are made shall be converted into the right to receive
cash in the PSBP Merger. If the aggregate number of such shares (together
with any PSBP Dissenting Shares) is more than 20%, such shares shall be
converted into the right to receive cash in the PSBP 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 PSBP
Shareholders receiving both cash and PSI Common Stock in connection with the
PSBP Merger, see "Certain Federal Income Tax Matters -- The Mergers -- PSP9
and PSBP 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 PSP9 and PSBP 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 PSP9 and PSBP 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 Mergers have been abandoned.
If a PSP9 or PSBP Shareholder does not properly complete and return the
Cash Election Form, he or she will receive PSI Common Stock in the Mergers. A
PSP9 or PSBP Shareholder may not make a Cash Election as to less than all of
the shares of the respective corporation's common stock owned by such
shareholder. A Cash Election Form is being sent to PSP9 and PSBP Shareholders
of record on _______________, 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 PSP9 or PSBP
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
_______________, 1996. If a Cash Election Form is properly revoked, the
certificate or certificates (or any guarantee of delivery) in respect of the
PSP9 or PSBP 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 PSP9 AND PSBP COMMON STOCK THAT WISH TO SUBMIT A CASH
ELECTION FORM SHOULD DELIVER THEIR STOCK CERTIFICATES WITH SUCH CASH ELECTION
FORM OR PROVIDE FOR, AND COMPLY WITH THE REQUIREMENTS OF, GUARANTEED DELIVERY.
ANY HOLDER OF PSP9 OR PSBP 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 _______________, 1996 WILL RECEIVE PSI COMMON STOCK IN THE
MERGERS. 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 HOLDERS OF PSP9 OR PSBP COMMON STOCK MAKING SUCH
PURPORTED CASH ELECTION WILL, FOR PURPOSES HEREOF, RECEIVE PSI COMMON STOCK IN
THE MERGERS. NEITHER PSI, PSP9, PSBP NOR 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 Mergers."
Consequences to PSP9 and PSBP if the Mergers are Not Completed
If the Mergers are not completed with respect to either PSP9 or PSBP, such
corporation will remain as a separate legal entity and will continue to
operate its properties.
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Costs of the Mergers
It is estimated that the total consideration (cash and Common Stock) to be
paid by PSI to purchase all of the PSP9 and PSBP Common Stock in the Mergers
and to pay related costs and expenses would be $57,540,700 (less the amount of
any Required REIT Distributions) and that the total amount of funds that would
be required by PSI to purchase the PSP9 and PSBP Common Stock from
shareholders making Cash Elections and to pay the cost and expenses of the
Mergers would be $12,672,100 (assuming maximum Cash Elections and no Required
REIT Distributions). These amounts will be paid 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 Mergers are not completed, all costs incurred in connection with
the Mergers 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 Joint Proxy Statement and Prospectus and related registration
statement, the Appraisals, environmental and structural audits and preparation
for real estate closings and filing fees and PSP9 and PSBP will pay the other
one-half of such costs. PSP9's and PSBP's share of such costs would be paid
from their working capital. If the Mergers are completed, all costs incurred
in connection with the Mergers will be paid by PSI.
The following is a statement of certain fees and expenses estimated to be
incurred in connection with the Mergers (exclusive of amounts paid as a result
of Cash Elections).
<TABLE>
<CAPTION>
<S> <C>
Preclosing Transaction Costs
Printing and Mailing $ 295,000
Proxy Solicitation 50,000
Legal 100,000
Real Estate Valuations and Fairness Opinions 140,000
Registration, Listing and Filing Fees 160,000
Accounting 50,000
Other 30,000
----------
Subtotal 825,000
Closing Transaction Costs
Transfer Fees 360,000
Legal 40,000
Title endorsements and escrow 220,000
Other 10,000
----------
Subtotal 630,000*
----------
TOTAL $1,455,000
==========
</TABLE>
- -------------
* Would not be incurred if Mergers are not approved.
Accounting Treatment
Each of the PSP9 Merger and the PSBP Merger will be treated as a purchase.
Accordingly, the assets and liabilities of PSP9 and PSBP will be accounted for
at fair market value based upon independent appraisals and estimates in PSI's
financial statements for periods after the Mergers.
Regulatory Requirements
The Mergers are subject to compliance with federal and state securities law
requirements.
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Comparison of PSP9 and PSBP Common Stock with PSI Common Stock
The information below compares certain attributes of the PSP9 and PSBP
Common Stock with the PSI Common Stock. The effect of the Mergers on PSP9 and
PSBP Shareholders who receive PSI Common Stock in the Mergers is set forth in
italics below each caption.
Investment Objectives and Policies
PSP9 and PSBP
The principal investment objectives are to provide (i) quarterly cash
distributions from its operations and (ii) long-term capital gains through
appreciation in the value of properties.
Under the organizational documents of PSP9 and PSBP, they are not permitted to
raise new capital or to reinvest operating cash flow or sale or financing
proceeds. PSP9 and PSBP will terminate on December 31, 2038, unless earlier
dissolved. The predecessors of PSP9 and PSBP anticipated selling or financing
their properties within seven to ten years after completion of development
(i.e., between 1992 and 1995 in the case of PSP9 and 1991 and 1994 in the case
of PSBP).
PSI
The investment objectives of PSI are to maximize FFO allocable of holders of PSI
Common Stock and to increase shareholder value through internal 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."
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 its Common Stock (including Common Stock issued in the
Mergers) 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 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.
PSP9 and PSBP 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."
56
<PAGE>
PSI has no plans with respect to a sale or financing of any of PSP9's
or PSBP'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
PSP9 AND PSBP
Neither PSP9 nor PSBP is permitted to borrow in connection with the
acquisition of properties. Both are fully invested and would distribute the
proceeds from a financing of properties. Neither generally incurs borrowings
in the ordinary course of business.
PSI
Subject to certain limitations in PSI's Bylaws, PSI has broad powers to
borrow in furtherance of its investment objectives. PSI has incurred in the
past, and may incur in the future, both short-term and long-term debt to
increase its funds available for investment in real estate, capital
expenditures and distributions. As of September 30, 1995 (pro forma the PSMI
Merger), 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 13%.
PSI, unlike PSP9 and PSBP, 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
PSP9 AND PSBP
The bylaws of PSP9 and PSBP restrict them from entering into a variety of
business transactions with affiliates. The bylaws may be amended by a
majority vote of shareholders. See "Amendment to Bylaws of PSP9 and PSBP."
PSI
PSI's Bylaws restrict PSI from acquiring properties from its affiliates or
from selling properties to them unless the transaction (i) is approved by a
majority of PSI's 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 PSP9 or PSBP because shareholder approval is not
required.
Properties (As of November 16, 1995)
PSP9 AND PSBP
PSP9 - PSP9 owns 15 wholly-owned properties in six states. For the year
ended December 31, 1994, the weighted average occupancy level and realized
monthly rent per square foot of PSP9's mini-warehouses were 91% and $.70,
respectively. See "Description of PSP9's Properties."
PSBP - PSBP owns one wholly-owned property in California. See "Description
of PSBP's Property."
PSI
PSI owns equity interests (directly, as well as through general and limited
partnership interests and capital stock interests) in 1,044 properties in 37
states, including 269 wholly owned properties. See "Description of PSI
Properties."
57
<PAGE>
Because PSI owns substantially more property interests in more states
than does either PSP9 or PSBP, PSI's results of operations are less affected
by the profitability or lack of profitability of a single property than are
those of PSP9 or PSBP and it would be more difficult to liquidate PSI than
either PSP9 or PSBP within a reasonable period of time.
Liquidity, Marketability and Distributions
PSP9 AND PSBP
The common stock of PSP9 and PSBP is traded on the AMEX. During the 12
months ended September 30, 1995, the average daily trading volume of PSP9
Common Stock and PSBP Common Stock was 1,300 and 400 shares, respectively.
PSP9 and PSBP have not issued any securities that have priority over their
common stock.
PSI
PSI Common Stock is traded on the NYSE. During the 12 months ended September
30, 1995, the average daily trading volume of PSI Common Stock was 60,200
shares (48,400 shares if November 1994 and May 1995, during which PSI was
engaged in public offerings of common stock, are 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 PSP9, PSBP
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 PSP9 or PSBP Shareholder who receives PSI Common Stock in the
Mergers should have an investment for which the market is broader and more
active than the market for PSP9 or PSBP 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," "Distributions and Price Range of PSP9 Common Stock" and
"Distributions and Price Range of PSBP Common Stock" for information on
trading prices of the PSP9, PSBP and PSI Common Stock.
Taxation
Each of PSP9, PSBP and PSI was 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
PSP9, PSBP and PSI Shareholders generally constitute portfolio income, which
cannot offset "passive" income and loss from other investments.
Voting Rights
PSP9, PSBP 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.
58
<PAGE>
Management and Duties
PSP9 AND PSBP
PSP9 and PSBP are managed by their boards of directors and executive
officers. Two of the directors are independent directors and the third
director is Hughes.
PSI
PSI is managed by its board of directors and executive officers. A majority
of the directors of PSI are independent directors.
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 PSP9, PSBP 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 PSP9, PSBP 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. PSP9, PSBP 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, PSP9,
PSBP 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
PSP9 AND PSBP
For PSP9 and PSBP to be taxed as REITs, their common stock must be widely
held. To aid PSP9 and PSBP in meeting this requirement, their boards of
directors are given the power to restrict the transfer of shares of their
common stock if the transfer could produce a violation of this requirement.
PSP9 and PSBP cannot issue additional common and preferred stock without
shareholder approval.
PSI
For PSI to be taxed as a REIT, PSI Common Stock must be widely held. To aid
PSI in meeting this requirement, PSI's articles of incorporation contain
significant restrictions on the ownership of PSI Common Stock. PSI is
authorized to issue 200,000,000 shares of PSI Common Stock, of which
approximately 72,000,000 shares are currently outstanding, and 50,000,000
shares of preferred stock, of which approximately 13,000,000 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 its 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 either PSP9 or
PSBP, and shareholders of PSI could be less likely to benefit from a
takeover not approved by its board of directors than would shareholders of
PSP9 or PSBP in a similar circumstance.
59
<PAGE>
Limited Liability of Investors
Under California law, shareholders are not generally liable for
corporate debts or obligations. The PSP9, PSBP and PSI Common Stock are
nonassessable.
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 PSP9 AND PSBP
A provision of the bylaws of PSP9 and PSBP prohibits the sale of property
to affiliates. Because this would arguably apply to the Mergers, PSP9 and
PSBP are proposing amendments to their bylaws that expressly authorize a
merger with PSI provided any such merger is approved by the majority of
outstanding shares of their common stock. The proposed amendments have been
approved by the Boards of Directors of PSP9 and PSBP who recommend that PSP9
and PSBP Shareholders vote FOR the proposals. Appendices E-1 and E-2 contain
complete texts of the proposed amendments.
60
<PAGE>
APPROVAL OF THE MERGERS AND BYLAW AMENDMENTS
General
This Joint Proxy Statement and Prospectus and the enclosed proxy are
first being mailed on or about _______________, 1996 to the shareholders of
PSP9 and PSBP in connection with the solicitation by their boards of directors
for use at the special meetings of their shareholders (and at any adjournment)
to consider and vote upon the PSP9 Merger and the PSBP Merger, respectively,
and the respective 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 PSP9
Shareholders will be voted in favor of the PSP9 Merger and the PSP9 Bylaw
amendment. The shares held by PSBP Shareholders will be voted in favor of the
PSBP Merger and the PSBP Bylaw amendment. A proxy is revocable by delivering
a subsequently signed and dated proxy or other written notice to the Secretary
of PSP9 or PSBP, as the case may be, 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.
PSP9
Holders of record at the close of business on _______________, 1996 of
the PSP9 Common Stock will be entitled to receive notice of and to vote at the
meeting. On such date, there were ____________ shares of PSP9 Common Stock
outstanding, and each share is entitled to one vote on the PSP9 Merger and the
PSP9 Bylaw amendment. Presence, in person or by proxy, of a majority of the
shares of PSP9 Common Stock constitutes a quorum. As of the record date, PSI
beneficially owned ____________ shares (approximately ____%) of PSP9 Common
Stock and the directors and executive officers of PSP9, including Hughes,
beneficially owned an additional ___________ shares (approximately ____%) of
PSP9 Common Stock. Such parties intend to vote their shares of PSP9 Common
Stock for the PSP9 Merger and the PSP9 Bylaw amendment.
The affirmative vote of a majority of the shares of PSP9 Common Stock
outstanding and entitled to vote on the record date is required under
California law to approve the PSP9 Merger and the PSP9 Bylaw amendment.
Accordingly, for these purposes, an abstention or a broker non-vote will have
the same effect as a vote against the PSP9 Merger and the PSP9 Bylaw
amendment. PSP9 has voluntarily imposed the additional condition that the
PSP9 Merger be approved by a majority of the shares of PSP9 Common Stock
voting at the meeting of PSP9 Shareholders not held by PSI and its affiliates.
For these purposes, an abstention or broker non-vote will not be counted as a
share voting.
PSBP
Holders of record at the close of business on _______________, 1996 of
the PSBP Common Stock will be entitled to receive notice of and to vote at the
meeting. On such date, there were ____________ shares of PSBP Common Stock
outstanding, and each share is entitled to one vote on the PSBP Merger and the
PSBP Bylaw amendment. Presence, in person or by proxy, of a majority of the
shares of PSBP Common Stock constitutes a quorum. As of the record date, PSI
beneficially owned ____________ shares (approximately ____%) of PSBP Common
Stock and the directors and executive officers of PSBP, including Hughes,
beneficially owned ___________ an additional shares (approximately ____%) of
PSBP Common Stock. Such parties intend to vote their shares of PSBP Common
Stock for the PSBP Merger and the PSBP Bylaw amendment.
The affirmative vote of a majority of the shares of PSBP Common Stock
outstanding and entitled to vote on the record date is required under
California law to approve the PSBP Merger and the PSBP Bylaw amendment.
Accordingly, for these purposes, an abstention or a broker non-vote will have
the same effect as a vote against the PSBP Merger and the PSBP Bylaw
amendment. PSBP has voluntarily imposed the additional condition that the
PSBP Merger be approved by a majority of the shares of PSBP Common Stock
voting at the meeting of PSBP Shareholders not held by PSI and Hughes. For
these purposes, an abstention or broker non-vote will not be counted as a
share voting.
61
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
PSP9. The following table sets forth information as of January 15, 1996
with respect to the person known to PSP9 to be the beneficial owner of more
than 5% of the outstanding shares of PSP9 Common Stock:
<TABLE>
<CAPTION>
Shares of PSP9 Common Stock
Beneficially Owned
------------------
Number
Name and Address of Shares Percent
---------------- --------- -------
<S> <C> <C>
PSI 689,506(1) 28.2%
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
</TABLE>
- ---------------
(1) Includes (i) 584,725 shares of PSP9 Common Stock owned by PSI as to which
PSI has sole voting and dispositive power and (ii) 104,781 shares of PSP9
Common Stock which PSI has an option to acquire (together with other
securities) from B. Wayne 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.
The following table sets forth information as of January 15, 1996
concerning the beneficial ownership of PSP9 Common Stock of each director of
PSP9 (including Hughes, the chief executive officer) and of all directors and
executive officers of PSP9 as a group:
<TABLE>
<CAPTION>
Shares of PSP9 Common Stock
Beneficially Owned(1)
----------------------
Number
Name Positions of Shares Percent
---- --------- --------- -------
<S> <C> <C> <C>
B. Wayne Hughes Chairman of the Board and
Chief Executive Officer 104,781(2) 4.3%
Vern O. Curtis Director 600 (3)
Jack D. Steele Director 100(4) (3)
All Directors and Executive Officers
as a Group (seven persons) 105,481(2)(4) 4.3%
</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) Shares owned by B. Wayne Hughes as trustee of the B.W. Hughes Living Trust
as to which Mr. 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 (1) to the preceding table).
(3) Less than 0.1%.
(4) Shares held by a bank custodian of a SEP for the benefit of Mr. Steele.
62
<PAGE>
PSBP. The following table sets forth information as of January 15, 1996
with respect to the person known to PSBP to be the beneficial owner of more
than 5% of the outstanding shares of PSBP Common Stock:
<TABLE>
<CAPTION>
Shares of PSBP Common Stock
Beneficially Owned
------------------
Number
Name and Address of Shares Percent
---------------- --------- -------
<S> <C> <C>
PSI 164,009(1) 30.7%
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
</TABLE>
- ---------------
(1) PSI has sole voting and dispositive power with respect to these shares.
The following table sets forth information as of January 15, 1996
concerning the beneficial ownership of PSBP Common Stock of each director of
PSBP (including Hughes, the chief executive officer) and of all directors and
executive officers of PSBP as a group:
<TABLE>
<CAPTION>
Shares of PSBP Common Stock
Beneficially Owned(1)
----------------------
Number
Name Positions of Shares Percent
---- --------- --------- -------
<S> <C> <C> <C>
B. Wayne Hughes Chairman of the Board and
Chief Executive Officer -- --
Vern O. Curtis Director 500 (2)
Jack D. Steele Director 100(3) (2)
All Directors and Executive Officers
as a Group (seven persons) 1,150(3) 0.2%
</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) Less than 0.1%.
(3) Shares held by a bank custodian of a SEP for the benefit of Mr. Steele.
63
<PAGE>
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 37,741,511 52.4%
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
PS Insurance Company, Ltd. ("PSIC")
41 Cedar Avenue
Hamilton, Bermuda(1)
FMR Corp. 5,465,555 7.6%
82 Devonshire Street
Boston, Massachusetts 02109(2)
</TABLE>
- ---------------
(1) This information is as of January 15, 1996. The reporting persons listed
above (the "PSI Reporting Persons") have filed a joint Schedule 13D, amended
as of November 16, 1995. The number of shares of PSI Common Stock
beneficially owned by the PSI Reporting Persons at January 15, 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 stock of PSIC is owned approximately 45% by B. Wayne
Hughes, 47% by Tamara L. Hughes (an adult daughter of B. Wayne Hughes) and
8% by B. Wayne Hughes, Jr. (an adult son of B. Wayne Hughes). 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 and Tamara L. Hughes share
voting and dispositive power with respect to the 300,000 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 17,872,781 shares (exclusive of the shares owned by PSIC) or
approximately 24.8% of the shares of PSI Common Stock outstanding (or deemed
to be outstanding) as of January 15, 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 October 31, 1995 and is based on a Schedule 13G
(Amendment No. 2) filed by FMR Corp. (except that the percent shown in the
table is based on the shares of PSI Common Stock outstanding (or deemed to
be outstanding) at January 15, 1996. As of October 31, 1995, FMR Corp.
beneficially owned 5,465,555 shares of PSI Common Stock. This number
includes 5,133,300 shares beneficially owned by Fidelity Management &
Research Company, as a result of its 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 288,155 shares and sole dispositive power with respect to
5,465,555 shares.
64
<PAGE>
The following table sets forth information as of January 15, 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 19,868,730(1)(4) 27.6%
Harvey Lenkin President and Director 582,590(1)(5) 0.8%
5,000(2) *
4,040(3) *
------- ----
591,630 0.8%
Robert J. Abernethy Director 65,591(1) *
20,833(2) *
------ ----
86,424 0.1%
Dann V. Angeloff Director 79,164(1)(6) 0.1%
833(2) *
------ ----
79,997 0.1%
William C. Baker Director 10,000(1) *
20,833(2) *
------ ----
30,833 *
Uri P. Harkham Director 475,116(1)(7) 0.7%
10,833(2) *
------- ----
485,949 0.7%
Berry Holmes Director 5,100(1)(8) *
15,833(2) *
------ ----
20,933 *
All Directors and Executive Officers
as a Group (15 persons) 21,429,757(1)(4)(5)(6)
(7)(8)(9) 29.7%
211,661(2) 0.3%
17,252(3) *
---------- -----
21,658,670 30.0%
</TABLE>
- ---------------
* Less than 0.1%
(1) Shares of PSI Common Stock beneficially owned as of January 15, 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) Represents vested portion, as of January 15, 1996, and portion of which will
be vested within 60 days of January 15, 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.
65
<PAGE>
(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 January 15, 1996 by the named individuals or the group.
(4) Includes 19,531,640 shares held of record by the B.W. Hughes Living Trust as
to which Mr. Hughes has voting and investment power, 1,400 and 1,395 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
300,000 shares held of record by PSIC as to which Mr. Hughes and Tamara L.
Hughes share voting and dispositive power.
(5) Includes 1,000 and 700 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 and 500 shares held by Mrs. Lenkin as custodian 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 5,000 shares held by a custodian of an IRA for Mr. Angeloff, 2,000
shares held by Mr. Angeloff as trustee of Angeloff's Children's Trust and
70,164 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, 5,300
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 1,525, 1,600, 1,500,
1,600 and 1,500 shares, respectively, held by Mr. Harkham as custodian for
five of his children.
(8) Shares held of record by Mr. and Mrs. Holmes, who share voting and
investment power.
(9) 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.
66
<PAGE>
The following tables set forth information as of January 15, 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 -- -- -- --
Berry Holmes -- -- -- --
All Directors and Executive Officers
as a Group (15 persons) 10,250(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 -- -- 40,000(1)(4) 3.3%
Robert J. Abernethy -- -- -- --
Dann V. Angeloff -- -- -- --
William C. Baker -- -- -- --
Uri P. Harkham -- -- -- --
Berry Holmes -- -- -- --
All Directors and Executive Officers
as a Group (15 persons) 4,000(1)(3) 0.2% 40,500(1)(3)(4) 3.4%
</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 January 15, 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.
67
<PAGE>
(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.
(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 January 15, 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, Convertible Participating Preferred Stock, 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 or Class B Common Stock (the Class B Common Stock is
owned by Tamara L. Hughes and B. Wayne Hughes, Jr.).
Solicitation of Proxies
PSP9 and PSBP will pay its respective cost of soliciting proxies. In
addition to solicitation by mail, certain directors, officers and regular
employees of PSP9, PSBP and their affiliates may solicit the return of proxies
by telephone, telegraph, personal interview or otherwise. PSP9 and PSBP may also
reimburse brokerage firms and other persons representing the beneficial owners
of their common stock for reasonable expenses in forwarding proxy solicitation
materials to such beneficial owners. Shareholder Communications Corporation may
be retained to assist PSP9 and PSBP in solicitation of proxies at an estimated
cost of $20,000.
68
<PAGE>
DESCRIPTION OF PSP9'S PROPERTIES
PSP9 owns a total of 15 properties: 13 mini-warehouses, one business park
and one property that combines mini-warehouse and business park space. The
following table contains information as of November 16, 1995 about PSP9's
properties. Pursuant to the Mergers, these properties would be acquired by PSI.
<TABLE>
<CAPTION>
Net
Size of Number Rentable
Parcel of Square Date
Location (Acres) Spaces Feet Opened
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California
Irvine, Alton Pkwy (1) 4.36 37 72,000 July 1984
Irvine, Hughes Dr. 2.23 501 61,000 April 1984
Oakland, Hegenberger Rd. 2.60 497 59,000 January 1984
Saratoga, Sunnyvale Rd. 3.90 689 88,000 March 1985
Torrance, Lomita Blvd. 2.07 795 54,000 May 1985
Connecticut
West Haven, Interstate 95 6.33 443 54,000 August 1985
Florida
Jacksonville, Baymeadows 2.73 462 59,000 December 1983
Maryland
Baltimore, Interstate 695 6.00 527 57,000 December 1984
Baltimore, Liberty Rd. 6.57 652 75,000 April 1984
Texas
Carrollton, Interstate 35E 2.98 474 57,000 November 1983
Dallas, Thornton Fwy 2.56 329 41,000 January 1984
Houston, Fondren Rd. 2.98 464 58,000 January 1984
Houston, Interstate 45 (2) 5.86 524 112,000 June 1984
Plano, Parker Rd. 3.02 453 52,000 December 1983
Wisconsin
Milwaukee, W. Layton Ave. 3.06 443 54,000 October 1983
</TABLE>
- -------------
(1) Business park facility.
(2) Combination mini-warehouse and business park facility.
As of the date of this Joint 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
69
<PAGE>
properties will continue to be used for its current purpose. PSP9 believes each
property is adequately covered by insurance.
As reflected in the table below, PSP9 has experienced overall improved
property operations:
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
-------------------------- -----------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level (1) 90% 91% 91% 91% 90%
Realized monthly rent per occupied
square foot (1)(2) $ .64 $ .65 $ .70 $ .68 $ .71
</TABLE>
(1) Mini-warehouses only.
(2) Realized monthly rent per occupied square foot represents the actual
revenue earned per occupied square foot. PSP9 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
Saratoga/Saratoga - Sunnyvale Road, Irvine/Alton Parkway and Houston/Interstate
45 properties because they are the only properties with a book value of at least
10% of the total assets of PSP9 or that have accounted for gross revenues of at
least 10% of the aggregate gross revenues of PSP9.
Saratoga/Saratoga - Sunnyvale Road. The property is located approximately
nine miles southwest of downtown San Jose on the west side of Saratoga -
Sunnyvale Road in the city of Saratoga. The property is located in a heavily
populated residential area.
The 3.9-acre property, which opened in 1985, consists primarily of
mini-warehouse spaces and includes an incidental amount of retail and office
space. The mini-warehouse consists of approximately 81,000 square feet of net
rentable area, including 689 individual storage units. The retail office
buildings consist of 7,000 square feet of net rentable area containing two
office/warehouse units. As of December 31, 1994, the mini-warehouse had 655
units occupied, representing a 95% occupancy rate, and the business park space
was 100% occupied by two tenants. No tenant occupies 10% or more of the rentable
area of the property.
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>
Annual
Scheduled
Occupancy Rent Per
Date Rate Square Foot
---- --------- -----------
<S> <C> <C>
September 30, 1995 100% $11.97
September 30, 1994 98 11.39
December 31, 1994 95 11.76
December 31, 1993 93 11.64
December 31, 1992 92 11.04
December 31, 1991 94 10.20
December 31, 1990 93 10.20
December 31, 1989 95 10.20
December 31, 1988 92 9.48
</TABLE>
70
<PAGE>
Irvine/Alton Parkway. This property, a business park, is located
approximately 43 miles southeast of downtown Los Angeles in the Irvine
Industrial Complex East. The business park contains a combination of office
space and light industrial space. The office space is suitable for general
management use and interaction with customers. The industrial space is
suitable for light manufacturing, assembly, distribution or research and
development.
Alton Parkway has become a major route to the expanding residential areas
surrounding the site. The 4.36-acre property contains approximately 72,000
square feet of net rentable space divided into 36 units. The property, which
opened in 1984, was 81% occupied at December 31, 1994 by 29 tenants. 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>
Annual
Scheduled
Occupancy Rent Per
Date Rate Square Foot
---- --------- -----------
<S> <C> <C>
September 30, 1995 90% $ 9.59
September 30, 1994 79 10.77
December 31, 1994 81 9.60
December 31, 1993 83 10.56
December 31, 1992 86 10.68
December 31, 1991 88 12.01
December 31, 1990 84 11.76
December 31, 1989 98 10.92
December 31, 1988 86 10.56
</TABLE>
A schedule showing, as of November 30, 1995, the total annual base rent
and percentage of total income relating to leases according to their
expiration dates is set forth below:
<TABLE>
<CAPTION>
Year of Total Amt. Percentage of
Expiration* Base Rent Total Income
---------- ---------- -------------
<S> <C> <C>
1995 (December) $ 1,000 .2%
1996 205,000 44.7
1997 227,000 49.4
1998 26,000 5.7
Thereafter - -
-------- ------
Total $459,000 100.00%
======== ======
</TABLE>
- -------------
* Assumes that none of the renewal options included in the leases will be
exercised.
Houston/Interstate 45. This 5.86-acre property is situated approximately
11 miles northwest of downtown Houston. The property fronts both Interstate
45, a heavily traveled north-south thoroughfare and Bluebell Road.
Surrounding the site is a mixture of residential, industrial and commercial
establishments.
The property, which opened in 1984, consists of six single-story
mini-warehouse buildings with approximately 68,000 net rentable square feet
divided into 499 individual storage units. In addition, there are 25
office/warehouse units containing approximately 45,000 net rentable square
feet. As of December 31, 1994, the property's mini-warehouse facility had 422
units occupied representing an 85% occupancy rate and the business park
facility was 96% occupied by 25 tenants. No tenant occupies 10% or more of the
rentable area.
71
<PAGE>
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the mini-warehouse portion of the property at the dates
indicated:
<TABLE>
<CAPTION>
Annual
Scheduled
Occupancy Rent Per
Date Rate Square Foot
---- --------- -----------
<C> <C> <C>
September 30, 1995 88% $4.17
September 30, 1994 87 4.16
December 31, 1994 85 4.68
December 31, 1993 83 4.68
December 31, 1992 85 5.04
December 31, 1991 90 4.80
December 31, 1990 95 4.44
December 31, 1989 82 4.44
December 31, 1988 76 4.56
</TABLE>
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the business park portion of the facility at the dates
indicated:
<TABLE>
<CAPTION>
Annual
Scheduled
Occupancy Rent Per
Date Rate Square Foot
---- --------- -----------
<C> <C> <C>
September 30, 1995 99% $3.57
September 30, 1994 92 3.61
December 31, 1994 96 3.60
December 31, 1993 84 3.84
December 31, 1992 96 3.96
December 31, 1991 92 3.91
December 31, 1990 81 3.84
December 31, 1989 93 3.72
December 31, 1988 90 3.60
</TABLE>
A schedule showing, as of November 30, 1995, total annual base rent and
percentage of total income relating to leases according to their expiration
dates is set forth below:
<TABLE>
<CAPTION>
Total Percentage
Year of Amount of Total
Expiration* Base Rent Income
----------- --------- -----------
<S> <C> <C>
1995 (December) $ - -
1996 55,000 35.0%
1997 86,000 54.8
1998 16,000 10.2
Thereafter - -
-------- ------
Total $157,000 100.00%
-------- ------
</TABLE>
- -----------
* Assumes that none of the renewal options included in the leases will be
exercised.
72
<PAGE>
DESCRIPTION OF PSBP'S PROPERTY
The following table sets forth information as of December 31, 1994 about
PSBP's property. Pursuant to the Mergers, this property would be acquired by
PSI.
<TABLE>
<CAPTION>
Net
Size of Rentable
Parcel Square Date
Location (Acres) Feet Opened
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
California
San Jose, Old Oakland Road 8.31 173,000 April 1984
</TABLE>
The following is the property performance for the last three years:
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
------------------------ -----------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level 97% 98% 98% 98% 98%
Realized monthly rent per occupied
square foot (1) $.86 $.80 $.84 $.85 $.86
</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.
The property is a business park facility located on Old Oakland Road in
San Jose, California, in the Santa Clara Valley, one and one-half miles west
of the Bayshore Freeway (U.S. Highway 101), and two miles northwest of the San
Jose Municipal Airport.
The property is situated on an 8.31-acre site. PSBP originally acquired
a total of 14.52 acres; 6.21 acres were sold to unaffiliated parties. The
property opened in April 1984 and the conversion and expansion of the property
was completed in 1985. The property contains approximately 173,000 square
feet of net rentable space divided into 118 units. The facility was 98%
occupied at December 31, 1994 by 115 tenants. No tenant occupies 10% or more
of the rentable area. The property includes both industrial and office space.
Approximately 45% of the available space is occupied by electronics related
industries, approximately 75% of the space is used for offices and the
remaining approximately 25% of the space is used for warehousing. The
business park also includes facilities for commercial uses such as banks or
other savings institutions, travel agencies or restaurants.
At December 31, 1994 the property is generating sufficient revenues to
cover its ongoing operating expenses.
73
<PAGE>
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>
Annual
Scheduled
Occupancy Rent Per
Date Rate Square Foot
---- --------- -----------
<C> <C> <C>
September 30, 1995 99% $10.37
September 30, 1994 98 9.97
December 31, 1994 98 10.20
December 31, 1993 98 10.08
December 31, 1992 97 9.72
December 31, 1991 97 10.41
December 31, 1990 94 10.28
December 31, 1989 94 9.87
</TABLE>
A schedule showing total annual base rent and percentage of total income
relating to leases according to their expiration dates is set forth below:
<TABLE>
<CAPTION>
Total Percentage
Year of Amount of Total
Expiration* Base Rent Income
----------- --------- -----------
<S> <C> <C>
1995 (December) $ 1,000 0.1%
1996 785,000 57.3
1997 399,000 29.1
1998 175,000 12.8
1999 9,000 .7
---------- ------
Total $1,369,000 100.00%
========== ======
</TABLE>
- ------------
* Assumes that none of the renewal options included in the leases will be
exercised.
74
<PAGE>
DESCRIPTION OF PSI'S PROPERTIES
At November 16, 1995, PSI had equity interests (through direct ownership,
as well as general and limited partnership interests and stock ownership
interests) in 1,044 facilities (269 of which were wholly-owned) located in 37
states. These facilities consist of 1,009 mini-warehouses and 35 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. In addition to the
properties in which it has an equity interest, the Company operates 77
properties in which it has no equity interest.
The following table reflects the geographic diversification of PSI's
mini-warehouses ("Mini") and business parks ("BP"):
<TABLE>
<CAPTION>
At September 30, 1995(1)
------------------------
Number of
Real Estate Facilities
----------------------
Mini(2) BP
------- --
<S> <C> <C>
California:
Southern.................. 164 17
Northern.................. 143 5
Texas....................... 122 8
Florida..................... 79 --
Illinois.................... 62 --
Colorado.................... 36 --
Washington.................. 37 1
Virginia.................... 28 3
Georgia..................... 37 --
New Jersey.................. 34 --
Maryland.................... 31 1
New York.................... 29 --
Ohio........................ 27 --
Nevada...................... 22 --
Pennsylvania................ 20 --
Oregon...................... 26 1
Other states (23 states).... 179 9
----- --
Totals................. 1,076 45
===== ==
</TABLE>
------------
(1) Pro forma for the PSMI Merger.
(2) Includes properties that combine mini-warehouse and business park
space.
As reflected in the table below, PSI has experienced overall improved
property operations:
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
------------------------ -----------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level (1) 86.1% 89.5% 90.3% 90.3% 90.0%
Realized monthly rent per occupied
square foot (1)(2) $.55 $.56 $.59 $.58 $.60
</TABLE>
- ------------
(1) Mini-warehouses owned throughout the periods.
75
<PAGE>
(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.
At December 31, 1994, PSI had 10% more of its portfolio of properties (based
on original acquisition cost) in the following states:
<TABLE>
<CAPTION>
Weighted average Realized monthly
Percentage of occupancy level rent per occupied
Portfolio at for the twelve square foot for
December 31, months ended the year ended
Number of 1994 Based on December 31, December 31,
Properties Original Cost 1994(1) 1994(1)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
California 95 22% 88% $.82
Texas 61 14% 87% .50
Other 246 64% 90% .58
--- --- -- ----
402 100% 88% $.63
=== === == ====
</TABLE>
- -----------------
(1) Mini-warehouses only.
76
<PAGE>
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>
1993:
First quarter $12 $ 8 7/8 $.21
Second quarter 12 1/4 11 .21
Third quarter 14 1/2 11 5/8 .21
Fourth quarter 15 13 5/8 .21
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
</TABLE>
--------------
(1) For GAAP purposes, all distributions were from investment income.
As of September 30, 1995, there were approximately 13,932 record holders
of PSI Common Stock. On December 31, 1995, the last full trading day prior to
the first public announcement of the proposed Mergers, the closing price of
the Common Stock of PSI was $19-3/8. On _______________, 1996, the last full
trading day prior to the date of this Joint 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 "real estate investment trust 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.
77
<PAGE>
DISTRIBUTIONS AND PRICE RANGE OF PSP9 COMMON STOCK
The PSP9 Common Stock has been listed on the AMEX since February 1991.
The following table sets forth the distributions paid per share on PSP9 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>
1993:
First quarter $16 7/8 $13 1/4 $.39
Second quarter 17 3/4 16 1/2 .39
Third quarter 20 17 .39
Fourth quarter 20 1/4 15 7/8 .39
1994:
First quarter 18 5/8 16 1/8 .39
Second quarter 18 5/8 17 .39
Third quarter 17 7/8 16 5/8 .39
Fourth quarter 18 1/4 16 5/8 .39
1995:
First Quarter 18 1/8 16 .39
Second Quarter 17 3/8 16 1/2 .30
Third quarter 17 1/2 16 5/8 .30
</TABLE>
----------
(1) Distributions paid per share of PSP9 Common Stock with respect to the
applicable periods. Actual payment was made 15 days after end of quarter.
For GAAP purposes, distributions in 1993 includes $.12 of capital gain
distributions. Distributions in 1994 and 1995 were from investment
income.
As of September 30, 1995, there were approximately 2,220 record holders
of PSP9's Common Stock. On December 13, 1995, the last full trading day prior
to the first public announcement of the proposed Mergers, the closing price of
PSP9 Common Stock was $17-1/8. On _______________, 1996, the last full
trading day prior to the date of this Joint Proxy Statement and Prospectus,
the closing price was $_____.
Holders of PSP9 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. PSP9 as a REIT, is required to distribute
annually at least 95% of its "real estate investment trust taxable income,"
which, as defined by the relevant tax statutes and regulations, is generally
equivalent to net taxable ordinary income. Under certain circumstances, PSP9
can rectify a failure to meet this distribution requirement by paying
dividends after the close of a particular taxable year.
78
<PAGE>
DISTRIBUTIONS AND PRICE RANGE OF PSBP COMMON STOCK
The PSBP Common Stock has been listed on the AMEX since September 1991.
The following table sets forth the distributions paid per share on PSBP 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>
1993:
First quarter $16 1/2 $13 7/8 $.40
Second quarter 16 1/4 14 7/8 .40
Third quarter 16 5/8 14 7/8 .40
Fourth quarter 15 5/8 14 7/8 .40
1994:
First quarter 15 7/8 15 .40
Second quarter 16 1/4 15 .40
Third quarter 16 1/4 16 5/8 .40
Fourth quarter 15 5/8 14 1/4 .40
1995:
First Quarter 16 7/8 14 1/2 .40
Second Quarter 18 3/8 16 1/4 .40
Third quarter 18 1/4 17 1/4 .40 (2)
</TABLE>
-------------
(1) Distributions paid per share of PSBP Common Stock with respect to the
applicable periods. Actual payment was made 15 days after end of quarter.
For GAAP purposes, distributions in 1993, 1994 and the nine months ended
September 1995, include $.41, $.38 and $.22 return of capital,
respectively, from investment income.
(2) Includes $.21 special distribution. PSBP announced that regular
distributions for the fourth quarter of 1995 and subsequent quarters would
be $.19 per share.
As of September 30, 1995, there were approximately 716 record holders of
PSBP's Common Stock. On December 13, 1995, the last full trading day prior to
the first public announcement of the proposed Mergers, the closing price of
PSBP Common Stock was $17-3/8. On _______________, 1996, the last full
trading day prior to the date of this Joint Proxy Statement and Prospectus,
the closing price was $_____.
Holders of PSBP 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. PSBP as a REIT, is required to distribute
annually at least 95% of its "real estate investment trust taxable income,"
which, as defined by the relevant tax statutes and regulations, is generally
equivalent to net taxable ordinary income. Under certain circumstances, PSBP
can rectify a failure to meet this distribution requirement by paying
dividends after the close of a particular taxable year.
79
<PAGE>
DESCRIPTION OF PSI CAPITAL STOCK
PSI is authorized to issue 200,000,000 shares of Common Stock, par value
$.10 per share, 7,000,000 shares of Class B Common Stock, par value $.10 per
share and 50,000,000 shares of preferred stock, par value $.01 per share. At
November 16, 1995, the Company had outstanding 65,652,073 shares of Common
Stock (exclusive of shares issuable upon conversion of the Company's
convertible preferred stock and shares subject to options) and 13,437,200
shares of preferred stock and had agreed to issue (i) subject to certain
conditions, 7,000,00 shares of Class B Common Stock and (ii) subject to
certain post-PSMI Merger adjustments, an additional 6,412,200 shares of Common
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 the 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 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 shareholders for a vote, with the exception
that 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. Under California law, if PSI is liquidated, subject to the
rights of any holders of preferred stock, each outstanding share is entitled
to participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of PSI.
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
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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 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 the Board of Directors
such representations and undertakings as the Board of Directors may require.
Notwithstanding any of the foregoing ownership limits, no holder may own or
acquire, either directly, indirectly or constructively under the applicable
attribution rules of the Code, any shares of any class of 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 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 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 Class B Common Stock
will participate in distributions (other than liquidating distributions), at
the rate of 97% of the per share distributions on the Common Stock, provided
that cumulative distributions of at least $.22 per quarter per share have been
paid on the Common Stock, (ii) does not participate in liquidating
distributions, (iii) is not entitled to vote (except as expressly required by
California law) and (iv) will automatically convert into Common Stock, on a
share for share basis, upon the later to occur of 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
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agreements and goodwill), and (ii) less FFO attributable to minority interest.
FFO is a supplemental performance measure for equity REITs as defined by the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"). The
NAREIT definition does not specifically address the treatment of minority
interest in the determination of FFO or the treatment of the amortization of
property management agreements and goodwill. In the case of 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 Common Stock assuming conversion of all outstanding
convertible securities and the 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 November 16, 1995, PSI had eight series of preferred stock
outstanding: six series of senior preferred stock (the "Senior Preferred
Stock") and two series of convertible preferred stock. In all respects, each
of the series of Senior Preferred Stock ranks on a parity with each other and
is senior to both series of convertible preferred stock. Each of the series
of Senior Preferred Stock (i) has a stated value of $25.00 per share, (ii) in
preference to the holders of shares of the Common Stock and any other capital
stock ranking junior to the Senior Preferred Stock as to payment of dividends
(including both series of convertible preferred stock), provides for
cumulative quarterly dividends calculated as a percentage of the stated value
(ranging from 9.2% to 10% per year in the case of the seven series of fixed
rate preferred stock and a rate adjustable quarterly ranging from 6.75% to
10.75% per year in the case of a series of adjustable rate preferred stock)
and (iii) is subject to redemption, in whole or in part, at the option of 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 September 30, 2002 and
April 30, 2005 in the case of the series of fixed rate preferred stock).
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of 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 Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the Senior Preferred Stock (including both series of convertible
preferred stock), liquidating distributions in the amount of $25.00 per share,
plus all accrued and unpaid dividends.
Except as expressly required by law and in certain other limited
circumstances, the holders of the Senior Preferred Stock are not entitled to
vote. The consent of holders of at least 66 2/3% of the outstanding shares
of the Senior Preferred Stock (and any other series of preferred stock ranking
on a parity therewith), voting as a single class, is required to authorize
another class of shares senior to such preferred stock.
In all respects, each of the series of convertible preferred stock ranks
on a parity with each other and is senior to the Common Stock. One of the
series of the convertible preferred stock (i) has a stated value of $25.00 per
share, (ii) in preference to the holders of shares of the Common Stock and any
other capital stock ranking junior to the convertible preferred stock as to
payment of dividends, provides for cumulative quarterly dividends at an annual
rate of 8.25% of the stated value thereof, (iii) is convertible at the option
of the holder at any time into Common Stock at a conversion price of 1.6835
shares of Common Stock for each share of such convertible preferred stock
(subject to adjustment in certain circumstances) and (iv) after July 1, 1998,
under certain circumstances, is redeemable for Common Stock at the option of
PSI, in whole or in part, at a redemption price of 1.6835 shares of Common
Stock for each share of such convertible preferred stock (subject to
adjustment in certain circumstances).
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The other series of convertible preferred stock (i) has no stated value,
(ii) in preference to the holders of shares of the Common Stock and any other
capital stock ranking junior to the convertible preferred stock as to payment
of dividends, provides for dividends at a rate adjustable quarterly with a
minimum annual rate of 5% per year of the minimum liquidation preference,
(iii) is convertible at the option of the holder at any time into Common Stock
at a conversion price adjustable quarterly and (iv) on June 30, 2002 will be
automatically converted into Common Stock at a conversion price determined as
of the time of conversion.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of 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 Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the convertible preferred stock, liquidating distributions (i) in
the amount of $25.00 per share, plus all accrued and unpaid dividends, in the
case of one of the series of convertible preferred stock and (ii) a minimum
liquidation preference of $31,200,000, plus all accrued and unpaid dividends,
in the case of the other series of convertible preferred stock.
Except as expressly required by law and in certain other limited
circumstances, the holders of the convertible preferred stock are not entitled
to vote. The consent of holders of at least 66 2/3% of the outstanding
shares of one of the series of convertible preferred stock and at least 50% of
the outstanding shares of the other series is required to authorize another
class of shares senior to the convertible preferred stock and junior to the
Senior Preferred Stock.
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 the Board of Directors. PSI has no intention to issue PSI
Common Stock or the preferred stock for such purposes.
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DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Chapter 13 of the California General Corporation Law
("Chapter 13"), a holder of shares of PSP9 or PSBP Common Stock may, in some
instances, be entitled to require PSP9 or PSBP to purchase his or her shares
in the respective corporation for cash at their fair market value as of the
day before the first announcement of the terms of the Mergers, excluding any
appreciation or depreciation in consequence of the Mergers. The general terms
of the Mergers were first announced on December 14, 1995. The following is a
brief summary of the procedures to be followed by a PSP9 or PSBP 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 Joint 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 PSP9 and PSBP 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 PSP9 and PSBP Common Stock, respectively. This 5%
requirement is applicable because PSP9 and PSBP 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 PSP9 or PSBP to purchase
his or her respective shares of common stock must:
(1) vote against the respective Merger any or all of the shares of
common stock entitled to be voted (shares of common stock not voted are
not considered to be voted against the Mergers and will not be counted
toward the 5% minimum for Dissenters' Rights to exist); provided that if
a PSP9 or PSBP Shareholder votes part of the shares entitled to be voted
in favor of the respective 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 the respective corporation or its
transfer agent at the addresses listed below, which is received not later
than the date of the meeting of shareholders, setting forth the number of
shares of common stock demanded to be purchased by the respective
corporation and a statement as to claimed fair market value of such
shares at December 13, 1995; and
(3) submit for endorsement, within 30 days after the date on which
the notice of approval of the Mergers by the shareholders of the
respective corporation described below is mailed to such shareholders, to
the respective corporation 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 Mergers 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 Mergers will be voted in
favor of the Mergers. Accordingly, shares covered by such a proxy will not be
Dissenting Shares. In addition, a vote in favor of the Mergers, 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 PSP9 or PSBP
Common Stock have made demands for payment on or prior to the date of the
respective corporation's shareholders' meeting to approve the Mergers, and
have voted against the respective Merger at the meeting, within 10 days after
the date of the approval of the respective Merger, the respective corporation
will mail to each Dissenting Shareholder who holds common stock a notice of
such approval together with a statement of the price determined by the
respective corporation 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
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followed if the shareholder desires to exercise Dissenter's Rights. The
statement of price will constitute an offer by the respective corporation to
purchase at the price stated therein any Dissenting Shares.
If the respective corporation and the Dissenting Shareholder agree that
any shares of common stock of the respective corporation 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 respective Merger
are satisfied, whichever is later. If the respective corporation denies that
the shares are Dissenting Shares or if the respective corporation 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 respective Merger by the shareholders of the
respective corporation 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 common stock of the
respective corporation. 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 the respective corporation
to the shareholder upon the surrender of the certificates representing such
shares to the respective corporation. The costs of the proceeding shall be
apportioned as the court considers equitable, but if the appraisal exceeds
the price offered by the respective corporation, it shall pay the costs, and
if the appraisal is more than 125% of the price offered by it, 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 the respective corporation's consent. Written
demands for payment and submissions for endorsement with respect to PSP9
Common Stock must be addressed to Public Storage Properties IX, Inc., 600
North Brand Boulevard, Suite 300, Glendale, California 91203-1241, attention:
Investor Services Department or to PSP9's transfer agent, American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005. Written
demands for payment and submissions for endorsement with respect to PSBP
Common Stock must be addressed to PS Business Parks, Inc., 600 North Brand
Boulevard, Suite 300, Glendale, California 91203-1241, attention: Investor
Services Department or to PSP9'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 the respective corporation 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."
PSP9 and PSBP Shareholders are entitled, upon written demand, to
inspect and copy the record of PSP9 or PSBP Shareholders, respectively, at any
time during usual business hours to communicate with other shareholders of
their respective corporation with respect to the Mergers.
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CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes the material federal income tax
considerations of the Mergers and the subsequent ownership and disposition of
shares of PSI Common Stock that are generally applicable to PSP9 and PSBP
Shareholders. PSP9, PSBP and PSI do not plan to obtain any rulings from the
Internal Revenue Service ("IRS") concerning tax issues with respect to the
Mergers or the qualification of PSP9, PSBP 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 PSP9 and PSBP,
has reviewed the following discussion and is of the opinion that this
discussion fairly summarizes the material federal income tax considerations to
a PSP9 and PSBP Shareholder as a result of the PSP9 Merger and the PSBP
Merger, respectively, 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 PSP9, PSBP and PSI and certain
representations made by PSP9, PSBP, PSI and certain shareholders of PSP9 and
PSBP. 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 PSP9, PSBP 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 PSP9 AND PSBP SHAREHOLDERS, PSP9 AND PSBP 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 Mergers
Each of the Mergers is intended to be a "reorganization" for federal
income tax purposes, and accordingly no gain or loss will be recognized by
PSP9 or PSI in connection with the PSP9 Merger, or PSBP or PSI in connection
with the PSBP Merger; and (I) no gain or loss will be recognized by PSP9
Shareholders who receive solely PSI Common Stock in exchange for their PSP9
Common Stock in the PSP9 Merger (but all PSP9 Shareholders will recognize
ordinary income in the amount of any Required PSP9 REIT Distributions made to
them) and (II) no gain or loss will be recognized by PSBP Shareholders who
receive solely PSI Common Stock in exchange for their PSBP Common Stock in the
PSBP Merger (but all PSBP Shareholders will recognize ordinary income in the
amount of any Required PSBP REIT Distributions made to them). No rulings have
been or will be requested from the IRS regarding the Mergers or any other
aspect of the matters discussed in this Joint Proxy Statement and Prospectus.
Hogan & Hartson L.L.P., counsel to PSP9 and PSBP, has rendered an opinion that
each of the Mergers will constitute a reorganization under Section 368(a) of
the Code, based on certain factual assumptions and representations made by
PSP9, PSBP, PSI and certain PSP9 and PSBP Shareholders. Of particular
importance are certain assumptions and representations relating to the
"continuity of interest" requirement discussed below. The PSP9 Merger and the
PSBP Merger are not conditioned on each other.
Continuity of Interest Assumption. To qualify as a reorganization as to
either PSP9 or PSBP, among other requirements, each of the Mergers must
satisfy a "continuity of interest" test, under which the historic PSP9 and
PSBP Shareholders (shareholders who purchase shares in anticipation of the
Mergers may not be included for this purpose), respectively, must continue to
retain a meaningful ownership interest in PSI after the PSP9 Merger and the
PSBP Merger, respectively. Generally, this test will be considered satisfied
if historic PSP9 Shareholders (in the case of the merger of PSP9 into PSI) or
historic PSBP Shareholders (in the case of the merger of PSBP into PSI)
exchange at least 50% of their respective corporation's common stock for PSI
Common Stock in the PSP9 Merger and the PSBP Merger, respectively, and the
PSP9 Shareholders and the PSBP Shareholders do not at the time of the PSP9
Merger and the PSBP Merger, respectively, plan to dispose of that PSI Common
Stock. Management of PSP9, PSBP and PSI have represented that they are not
aware of any plan on the part of either PSP9 or PSBP 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 each of the Mergers will constitute a reorganization, and
that the continuity of interest test will be satisfied in each of the Mergers.
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Reorganization Consequences to PSP9, PSBP and PSI. As a result of
reorganization treatment, PSP9, PSBP and PSI will not recognize gain or loss
because of the Mergers. PSI will also succeed to the assets, liabilities, and
tax attributes of each of PSP9 and PSBP. Accordingly, following the Mergers,
PSI will hold the properties of each of PSP9 and PSBP with a carryover tax
basis, determined by reference to the relatively low, historic basis of those
assets in the hands of PSP9 and PSBP, respectively. 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
PSP9 or PSBP Shareholders who may be taxable as a result of the transaction.
Exchange of PSP9 or PSBP Common Stock Solely for PSI Common Stock. As a
result of reorganization treatment (I) (i) no gain or loss will be recognized
by PSP9 Shareholders who exchange their PSP9 Common Stock solely for PSI
Common Stock pursuant to the PSP9 Merger (but see "Required REIT
Distributions" below), and (ii) such a shareholder's aggregate tax basis in
the PSI Common Stock received will be the same as the aggregate tax basis of
the shares of PSP9 Common Stock surrendered, and (iii) provided such PSP9
Common Stock is held as a capital asset at the Effective Time, the holding
period of the PSI Common Stock will include the holding period of the
surrendered PSP9 Common Stock and (II) (i) no gain or loss will be recognized
by PSBP Shareholders who exchange their PSBP Common Stock solely for PSI
Common Stock pursuant to the PSBP Merger (but see "Required REIT
Distributions" below), and (ii) such a shareholder's aggregate tax basis in
the PSI Common Stock received will be the same as the aggregate tax basis of
the shares of PSBP Common Stock surrendered, and (iii) provided such PSBP
Common Stock is held as a capital asset at the Effective Time, the holding
period of the PSI Common Stock will include the holding period of the
surrendered PSBP Common Stock.
PSP9 or PSBP Shareholders Receiving Only Cash. A PSP9 Shareholder who
exchanges PSP9 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 shareholder's
adjusted basis in his or her PSP9 Common Stock and the amount of cash
received. A PSBP Shareholder who exchanges PSBP 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 shareholder's adjusted basis in his or her PSBP 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 shareholder is actually or
constructively related to continuing shareholders of PSI).
PSP9 or PSBP Shareholders Receiving Cash and PSI Common Stock. As a
result of reorganization treatment (I) (i) a PSP9 Shareholder who, pursuant to
the PSP9 Merger and subject to the conditions of the Cash Election, exchanges
PSP9 Common Stock for a combination of PSI Common Stock and cash will not
recognize any loss realized on such exchange, and (ii) such 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 shareholder's tax basis in the PSP9 Common Stock
surrendered and (II) (i) a PSBP Shareholder who, pursuant to the PSBP Merger
and subject to the conditions of the Cash Election, exchanges PSBP Common
Stock for a combination of PSI Common Stock and cash will not recognize any
loss realized on such exchange, and (ii) such 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
shareholder's tax basis in the PSBP Common Stock surrendered. The recognized
gain will be treated as capital gain (provided the 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
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
common stock surrendered for the PSI Common Stock, provided that the common
stock is held as a capital asset at the Effective Time.
Required REIT Distributions. The PSP9 Required REIT Distribution and the
PSBP Required REIT Distribution would not be treated as cash paid in exchange
for the PSP9 Common Stock or PSBP 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. PSP9 or
PSBP Shareholders that receive cash in lieu of a fractional share of PSI
Common Stock pursuant to the Mergers will recognize capital gain or loss equal
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to the difference between the tax basis allocable to the fractional share and
the cash paid for it, provided that the PSP9 or PSBP Common Stock is held as a
capital asset as the Effective Time.
Failure to Qualify for Reorganization Treatment. In the event that the
Mergers do not qualify as a reorganization as to either PSP9 or PSBP, the
Mergers likely would be treated as a taxable sale by the respective
corporation of its assets and a contemporaneous liquidation. The respective
corporation presumably would not incur a federal income tax liability as a
result of this deemed sale because of the contemporaneous deemed liquidating
distribution. The shareholders of the respective corporation 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 their common stock, but some of the income
could be ordinary income. The shareholders of the respective corporation
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 Mergers, and the holding
period would not include the period during which their shares of common stock
were held. PSI would receive a basis in the properties acquired from the
respective corporation equal to their fair market value.
Opinion of Counsel
Hogan & Hartson L.L.P., counsel to PSP9 and PSBP, has rendered an opinion
to PSP9 with respect to the PSP9 Merger and PSBP with respect to the PSBP
Merger to the effect that (i) for federal income tax purposes, the respective
Mergers will constitute a reorganization under Section 368(a) of the Code,
(ii) PSI will continue 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 Mergers is 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 PSP9 and PSBP
Shareholders, respectively, as a result of the respective Mergers and the
subsequent ownership of PSI Common Stock (the "Opinion of Counsel"). Hogan &
Hartson 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. The Opinion of Counsel is based upon
certain extensive and detailed representations as to factual and legal matters
made by PSI, PSP9 and PSBP that relate both to the qualification of PSI as a
REIT and to the qualification of the Mergers as reorganizations, and specific
representations from Hughes regarding the expected continued ownership of PSI
Common Stock to be received in each of the Mergers. In addition, as discussed
above, the Opinion of Counsel expressly assumes, based upon certain
representations of the management of PSI, PSP9 and PSBP, that the "continuity
of interest" requirement necessary for each of the Mergers to qualify as
reorganizations will be satisfied. See "The Mergers -- Continuity of Interest
Assumption" and "The Mergers -- 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 each of
the Mergers in accordance with the terms of each of the Merger Agreements.
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 either of the Mergers are 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 Mergers or any other transaction (including the tax
consequences of either of the Mergers as applied to specific shareholders of
PSP9 or PSBP (or classes of shareholders of PSP9 or PSBP); the tax
consequences of either of the Mergers to PSP9, PSBP or PSI (including whether
any entity will recognize any gain in either of the Mergers and PSI's adjusted
tax basis in the assets of PSP9 and PSBP acquired in the Mergers); the
application of the "golden parachute" provisions, the alternative minimum tax
provisions, and any
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other provisions of the Code (other than Section 368(a) of the Code) to either
of the Mergers and/or participants therein; and whether shareholders of PSP9
or PSBP who have provided or will provide services to PSP9, PSBP or PSI will
recognize compensation income, either as a result of either of the Mergers 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;
(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
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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 will preclude PSI
from controlling the operations of PSCP and the Lock/Box Company (in which PSI
will own 95% of the equity in the form of non-voting stock and the Hughes
Family will own 5% of the equity but 100% of the voting stock) or PS Clearing
Company, Inc. ("PSCC") (in which PSI will own 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 its shareholders to
permit PSI to make an optional reduction in short-term borrowings (which
previously had been used to fund distributions to its Shareholders). As a
result, distributions paid by PSI in 1990 were less than 95% of PSI's REIT
Taxable Income for 1990. PSI has satisfied the REIT distribution requirements
for 1990, 1991, 1992, 1993 and 1994 by attributing distributions in 1991,
1992, 1993, 1994 and 1995 to the prior year's taxable income, and PSI expects
to satisfy the distribution requirement for 1995 by attributing distributions
in 1996 to the 1995 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 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 the 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."
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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"), assuming PSI
makes the election pursuant to the Built-in Gain Rules (or applicable future
administrative rules or Treasury regulations) to have the 10-year rule apply.
This tax would be imposed on 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 Merger during the Restriction Period, but there can be
no assurance that one or more such dispositions will not occur. If PSI does
not make the election to have the 10-year rule apply, PSMI would be taxed on
the Built-in Gain at the time of the PSMI Merger at regular corporate tax
rates and PSI, as the successor to PSMI in the PSMI Merger, would succeed to
the liability for that tax.
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
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
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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.
PSI's Assumption of Management Activities With Respect to its Properties.
Because of the unique federal income tax requirements attributable to REITs, a
number of federal income tax issues must be addressed in connection with the
PSMI Merger that are unique to PSI's status as a REIT. One issue is whether
PSI is permitted to perform property management functions internally with
respect to the mini-warehouse and business park properties ("Properties") it
owns. Generally, a REIT is permitted to perform services with respect to
properties it rents to tenants so long as such services are usually and
customarily rendered in connection with the rental of space for occupancy only
and are not considered to be "rendered to the occupant." If a REIT performs
services beyond this extent, the rental income received for the use of its
property will not qualify as "rental income" for purposes of the REIT gross
income tests. See "-- Tax Treatment of PSI -- Technical Requirements for
Taxation as a REIT." Failure to satisfy these tests would result in the
disqualification of PSI as a REIT. See "-- Tax Treatment of PSI --
Termination of REIT Election."
As a result of the PSMI Merger, PSI "self-manages" the Properties it owns.
PSI received a private letter ruling from the IRS to the effect that, should
PSI acquire PSMI and assume and perform the management activities of its
Properties, such property management activities by PSI would not adversely
affect the characterization of PSI's rents from the Properties as rents from
real property. The ruling is based on PSI's description of those management
activities to be performed in connection with its own Properties, including
maintenance, repair, lease administration and accounting, and security. The
ruling also considers the ancillary activities to be directly performed by the
Lock/Box Company, such as the sale of inventory products such as locks, boxes,
and packing materials.
Nonqualifying Income. 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)
and advisory services rendered to such other entities will be treated as
income not qualifying under the 95% test ("Nonqualifying Income"). See "--
Acquisition of Affiliated Partnership Interests in the PSMI Merger." If there
were no change in current revenues of PSI through acquisitions or otherwise
and no other action by PSI to reduce its nonqualifying income (for example,
through the prepayment of management fees described below), PSI estimates that
it would not satisfy the 95% gross income test for 1996 because its
nonqualifying income would represent approximately 7% of its total gross
income for 1996. However, the percentage of Nonqualifying Income may be
reduced in a variety of ways. First, PSI could reduce the actual dollar
amount of its Nonqualifying Income. Second, because the income tests are
based on a percentage of total gross income, increases in overall gross income
that result from increases in qualifying rents will reduce the percentage of
Nonqualifying Income. Pursuant to PSI's existing acquisition program,
additional assets may be acquired by it during 1996 that would generate
additional qualifying income, thereby lowering the percentage of total
Nonqualifying Income recognized by it. Finally, to the extent that PSI
acquires properties following the PSMI Merger for which it assumed management
responsibilities in connection with the PSMI Merger (such as the mergers with
PSP9), the management fees received with respect to such properties would
cease to be Nonqualifying Income. Nevertheless, there can be no assurance
that future acquisitions will be made in amounts or at such times to permit
PSI to satisfy these gross income requirements. Moreover, increases in other
Nonqualifying Income may similarly affect these calculations.
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If PSI determines at any time during the year that the receipt of third-
party management fees could adversely affect its ability to satisfy the 95%
test, it will notify the third-party property owners to which it provides
property management services and request that management fees be paid at
reduced rates for the remainder of the year. PSI will, to the extent possible
under existing tax guidelines, defer receipt of such fees to a succeeding year
in which recognition of the Nonqualifying Income does not jeopardize its
qualification as a REIT. If such deferral is not possible, however, PSI would
reduce the fees without condition or deferral (reduction estimated at $1.5
million, assuming no growth and no acquisition of properties other than in the
Mergers). Although this measure would reduce PSI's gross income (and
correspondingly its net profits), it would effectively reduce PSI's overall
Nonqualifying Income and preserve its REIT status. PSI anticipates that this
measure will be taken only as necessary and intends to pursue less costly
alternatives when appropriate.
In addition, in order to reduce the amount of Nonqualifying Income, 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. For years subsequent to
1996, assuming that there were no changes in current revenues of PSI and
assuming no acquisition or development of additional assets, PSI estimates
that it would not be able to satisfy the 95% gross income test unless it were
to take further steps to reduce management fees for those years (for example
by deferring the payment of those fees until later years or by disposing of a
portion of its management business, including possibly to a taxable
corporation in which PSI would own substantially all of the economic interests
but none of the voting stock).
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 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
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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 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 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 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.
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, the accumulated earnings and profits, if any, 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 was required to distribute
those accumulated earnings and profits prior to the close of 1995 (the year in
which the merger occurred). Failure to do so would result in disqualification
of PSI as a REIT (unless the "deficiency dividend" procedures described below
apply and PSI complies with those procedures).
The amount of the accumulated earnings and profits of PSMI acquired by PSI
is 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
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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 pursuant to the recently finalized
Treasury regulations that 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 will earn property management fees from these partnerships.
Existing Treasury regulations do not address the treatment of management fees
derived by a REIT from a partnership in which the REIT holds a partnership
interest, but the IRS has issued a number of private letter rulings holding
that the portion of the management fee that corresponds to the REIT interest
in the partnership in effect is disregarded in applying the 95% gross income
test where the REIT holds a "substantial" interest in the partnership. PSI
expects to disregard the portion of management fees derived from partnerships
in which it is a partner that corresponds to its interest in these
partnerships in determining the amount of its Nonqualifying Income, and the
estimate of 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 will acquire 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 will be determined. This determination is relevant because it
affects both the percentage of the gross rental income of the partnership that
is considered gross rental income (or qualifying income) to 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
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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 will determine the percentage of the
partnership's assets that would be distributed to it if those assets were sold
and distributed among the partners in accordance with the applicable
provisions of the partnership agreements. There can be no assurance, however,
that the IRS will agree with this methodology and not contend that another,
perhaps less favorable, method must be used for purposes of determining 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 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.
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
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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.
State and Local Taxes
The tax treatment of PSI, and PSP9 and PSBP 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 PSP9
Shareholders and PSBP 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 Mergers will be validly issued, fully paid and nonassessable.
Mr. Goldberg owns 67,229 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 62,500 shares of PSI 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 PSP9 or PSBP Shareholder
as a result of the PSP9 and PSBP Mergers, respectively, 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 PSP9, PSBP, PSI and certain
PSP9 and PSBP Shareholders). Hogan & Hartson L.L.P. has performed certain
legal services on behalf of PSI, including the representation of PSI in the
PSMI Merger.
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EXPERTS
The consolidated financial statements of PSI for the year ended December
31, 1994 incorporated by reference in this Prospectus have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report with
respect thereto. The following financial statements incorporated by reference
have also been audited by Ernst & Young LLP as set forth in their reports with
respect thereto: (i) the financial statements of Public Storage Properties
VII, Inc. which is included in the Registration Statement on Form S-4 (No.
33-58893) of PSI, (ii) the combined statements of assets, liabilities and
deficit of the property management and advisory business of PSMI (and its
predecessors) as of December 31, 1994 and 1993 and the related combined
statements of operations and cash flows for each of the three years in the
period ended December 31, 1994, and our report dated July 10, 1995 on the
combined summaries of historical information relating to real estate interests
to be acquired for each of the three years in the period ended December 31,
1994 which are included in the Current Report on Form 8-K, as amended by a
Form 8-K/A, each dated June 30, 1995, of PSI and (iii) the combined statements
of assets, liabilities and equity of the property management and advisory
businesses and real estate assets of PSMI (and its predecessors) as of
December 31, 1994 and 1993 and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31,
1994 which are included in the Current Report on Form 8-K dated November 16,
1995, of PSI. 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 PSP9 and PSBP for the year ended December 31,
1994 appearing herein and in the Annual Reports on Form 10-K of PSP9 and PSBP
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports 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, PSP9 and PSBP since their respective
organization, will be in attendance at the special meetings of PSP9
Shareholders and PSBP 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 PSP9 or PSBP Shareholder wishes to submit for
consideration for inclusion in the proxy statement for the 1996 annual
meetings of shareholders must be received by the respective corporation no
later than July 1, 1996. Shareholder proposals should be addressed to: 600
North Brand Boulevard, Suite 300, Glendale, California 91203-1241.
GLOSSARY
The following are definitions of certain terms used in this Joint Proxy
Statement and Prospectus:
"Mergers." The mergers of PSP9 and PSBP with and into PSI.
"PSBP." PS Business Parks, Inc., a REIT organized as a California
corporation.
"PSBP Common Stock." Shares of Common Stock Series A, par value $.01 per
share, of PSBP.
"PSBP Partnership." PS Business Parks, Ltd., a California limited
partnership, the predecessor to PSBP.
"PSBP Shareholder." A holder of shares of PSBP Common Stock.
"PSCP." Public Storage Commercial Properties Group, Inc., a California
corporation.
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"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 Common Stock of PSI.
"PSMI." Public Storage Management, Inc., a California corporation, which,
together with its affiliates, was merged into Storage Equities, Inc. on
November 16, 1995.
"PSP9." Public Storage Properties IX, Inc., a REIT organized as a
California corporation.
"PSP9 Common Stock." Shares of Common Stock Series A, par value $.01 per
share, of PSP9.
"PSP9 Partnership." Public Storage Properties IX, Ltd., a California
limited partnership, the predecessor to PSP9.
"PSP9 Shareholder." A holder of shares of PSP9 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 13th day of December, 1995, by and among PUBLIC STORAGE, INC., a
California corporation ("PSI"), PUBLIC STORAGE PROPERTIES IX, INC., a California
corporation ("PSP9") and PS BUSINESS PARKS, INC., a California corporation
("PSBP").
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 mergers of
PSP9 and PSBP with and into PSI in accordance with the applicable provisions of
the General Corporation Law of California (the "GCLC") and the Agreements of
Merger substantially in the form attached hereto as Exhibit A ("Merger
Agreements").
B. The Boards of Directors of PSP9 and PSBP 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), PSP9 and PSBP will be merged with and into PSI (the "Mergers") in
accordance with the terms, conditions and provisions of this Agreement and the
Merger Agreements. The Mergers shall become effective at the time at which the
Merger Agreements, together with the requisite Officers' Certificates of PSI,
PSP9 and PSBP are filed with the California Secretary of State in accordance
with the GCLC (the "Effective Time"). PSI, PSP9 and PSBP are sometimes
collectively referred to herein as the "Constituent Corporations" and PSI, as
the surviving corporation of the Mergers, is sometimes referred to herein as the
"Surviving Corporation." Neither the merger of PSP9 with and into PSI, nor the
merger of PSBP with and into PSI is conditioned on the other.
2.2 Effect of the Merger. At the Effective Time:
2.2.1 Constituent Corporations. The separate corporate
existence of PSP9 and PSBP shall cease and the Surviving Corporation shall
thereupon succeed, without other transfer, to all the rights and property of
PSP9 and PSBP and shall be subject to all the debts and liabilities of PSP9 and
PSBP 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 PSP9 and PSBP shall be limited to the property affected thereby
immediately prior to the Effective Time; and any action or proceeding pending by
or against PSP9 and PSBP 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 PSP9 and PSBP Shares. The manner of converting the
outstanding shares of Common Stock Series A ($.01 par value) of PSP9 (the "PSP9
Shares") and of Common Stock Series A ($.01 par value) of PSBP (the "PSBP
Shares") into cash and/or shares of Common Stock ($.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 PSP9 Share and PSBP 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 $18.64 and $19.59, respectively, 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 PSP9 Share and PSBP 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 $18.64 and $19.59, respectively, 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 PSP9 and PSBP, respectively, 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 Mergers.
In lieu of any such fractional share interests, each holder of PSP9 Shares or
PSBP Shares who would otherwise be entitled to such fractional share will, upon
surrender of the certificate representing such PSP9 or PSBP 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 Mergers. 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 fractional interest.
2.5 Procedure for Cash Election. At the time of the mailing of the Joint
Proxy Statement and Prospectus provided for in Section 6.5 hereof, PSI will send
to each holder of record of PSP9 Shares and PSBP Shares at the record date for
PSP9 and PSBP meetings 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 PSP9 Shares or PSBP 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 Mergers have 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 PSP9 Shares or PSBP
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 PSP9 Shares or PSBP Shares
covered thereby shall not be treated as Cash Election Shares, and shall be
converted in the Mergers as
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provided in Section 2.3.2 hereof. The Exchange Agent may, with the agreement of
PSI, PSP9 and PSBP, establish such procedures, not inconsistent with this
Section 2.5, as may be necessary or desirable to implement this Section 2.5.
2.6 Procedure for Proration.
2.6.1 No Proration of PSP9 Shares. If the aggregate number of
Cash Election Shares and Dissenting Shares (as defined below) of PSP9 is 20% or
less than the number of PSP9 Shares outstanding as of the record date for the
meeting of shareholders of PSP9 referred to in Section 6.2, then each Cash
Election Share of PSP9 shall be converted in the Mergers into the right to
receive the Cash Election Price for PSP9 Shares.
2.6.2 No Proration of PSBP Shares. If the aggregate number of
Cash Election Shares and Dissenting Shares (as defined below) of PSBP is 20% or
less than the number of PSBP Shares outstanding as of the record date for the
meeting of shareholders of PSBP referred to in Section 6.2, then each Cash
Election Share of PSBP shall be converted in the Mergers into the right to
receive the Cash Election Price for PSBP Shares.
2.6.3 Proration of PSP9 Shares. If the aggregate number of Cash
Election Shares and Dissenting Shares of PSP9 exceeds 20%, then each Cash
Election Share of PSP9 shall be converted in the Mergers into the right to
receive cash or into PSI Shares as follows: the number of Cash Election Shares
of PSP9 owned by a holder of PSP9 Shares that shall be converted into the right
to receive the Cash Election Price for PSP9 Shares shall equal the number
obtained by multiplying (i) (A) 20% of outstanding PSP9 Shares less (B) the
number of Dissenting Shares (as hereinafter defined) of PSP9, 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 of PSP9. 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 of PSP9 to receive the Cash Election Price for PSP9 Shares
even if the aggregate number of Cash Election Shares and Dissenting Shares of
PSP9 exceeds 20% (but not 50%) of the number of PSP9 Shares outstanding as of
the record date for the meeting of shareholders of PSP9 referred to in Section
6.2.
2.6.4 Proration of PSBP Shares. If the aggregate number of Cash
Election Shares and Dissenting Shares of PSBP exceeds 20%, then each Cash
Election Share of PSBP shall be converted in the Mergers into the right to
receive cash or into PSI Shares as follows: the number of Cash Election Shares
of PSBP owned by a holder of PSBP Shares that shall be converted into the right
to receive the Cash Election Price for PSBP Shares shall equal the number
obtained by multiplying (i) (A) 20% of outstanding PSBP Shares less (B) the
number of Dissenting Shares (as hereinafter defined) of PSBP, 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 of PSBP. 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 of PSBP to receive the Cash Election Price for PSBP Shares
even if the aggregate number of Cash Election Shares and Dissenting Shares of
PSBP exceeds 20% (but not 50%) of the number of PSBP Shares outstanding as of
the record date for the meeting of shareholders of PSBP referred to in Section
6.2.
2.7 Dissenting Shares. PSP9 Shares and PSBP 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 PSP9 Shares or PSBP Shares pursuant to these provisions of the
GCLC shall receive payment therefor from the Surviving Corporation in accordance
therewith. If any holder of PSP9 Shares or PSBP 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 PSP9 Shares or PSBP Shares,
such PSP9 Shares or PSBP Shares shall automatically be converted into the right
to receive PSI Shares pursuant to Section 2.3.2 hereof.
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2.8 PSI Shares Unaffected. The Mergers 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 Mergers, 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 PSP9 Shares and PSBP 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 PSP9 Shares and PSBP 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 PSP9
Shares and PSBP 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 PSP9 Shares and PSBP
Shares of record at the Effective Time whose stock shall have been converted
into PSI Shares, advising such holder of the effectiveness of the Mergers and
the procedure for surrendering to the Exchange Agent certificates evidencing
PSP9 Shares and PSBP 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 PSP9 Shares or PSBP 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 PSP9 Shares
or PSBP Shares evidenced thereby were converted. However, until such
outstanding certificates formerly evidencing PSP9 Shares or PSBP 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 PSP9 Shares
or PSBP 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 PSP9 Shares and PSBP Shares on the records
of PSP9 and PSBP, respectively, 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.
3. Closing.
3.1 Time and Place of Closing. If this Agreement is approved by the
shareholders of either PSP9 or PSBP or both, a meeting (the "Closing") shall
take place as promptly as practicable thereafter at which the applicable 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 of either PSP9 or PSBP or both, the
applicable parties shall execute and deliver the Merger Agreements, together
with the requisite Officers' Certificates, for filing with the California
Secretary of State. The Merger Agreements, 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 PSP9 and PSBP.
4.1 Representations, Warranties and Agreements of PSP9. PSP9
represents, warrants and agrees with PSI that:
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4.1.1 Authorization. Subject to approval of this Agreement by the
shareholders of PSP9, (i) the execution, delivery and performance of this
Agreement by PSP9 has been duly authorized and approved by all necessary
corporate action of PSP9, and (ii) PSP9 has necessary corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to complete the transactions contemplated hereby.
4.1.2 Organization and Related Matters. PSP9 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 PSP9. PSP9 has no direct or
indirect equitable or beneficial interest in any other corporation other than
PSCC, Inc.
4.1.3 Capital Stock. The authorized capital stock of PSP9
consists solely of (i) 2,896,094 shares of Common Stock Series A ($.01 par
value), 2,447,506 of which were issued and outstanding as of November 30, 1995.
All of the issued and outstanding shares of Common Stock Series A of PSP9 have
been duly and validly authorized and issued, and are fully paid and
nonassessable. There are no options or agreements to which PSP9 is a party or
by which it is bound calling for or requiring the issuance of any of PSP9's
capital stock. PSP9's Common Stock Series B and C have been fully converted and
are no longer authorized or outstanding.
4.1.4 Consents and Approvals; No Violation. Assuming approval of
the Mergers and of this Agreement by the shareholders of PSP9, neither the
execution and delivery of this Agreement nor the consummation by PSP9 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(s)
and Officers' Certificates pursuant to the GCLC and appropriate documents with
the relevant authorities of other states in which PSP9 is authorized to do
business, (D) in connection with any state or local tax which is attributable to
the beneficial ownership of PSP9'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 PSP9
or adversely affect the ability of PSP9 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 PSP9 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
PSP9 or adversely affect the ability of PSP9 to consummate the transactions
contemplated hereby; or (iv) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in this Section 4.1.4 are duly
and timely obtained or made, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to PSP9 or its properties or assets,
except for violations which would not in the aggregate have a material adverse
effect on PSP9 or adversely affect the ability of PSP9 to consummate the
transactions contemplated hereby.
4.1.5 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 PSP9, threatened against
PSP9 or involving any of its properties or assets.
4.1.6 SEC Reports. Since January 1, 1993, PSP9 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 "PSP9 SEC Reports").
None of the PSP9 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
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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.
4.1.7 Financial Statements. The financial statements included in
the PSP9 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 PSP9 as of their respective dates, and the results of operations of PSP9 for
the periods presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
4.1.8 Absence of Certain Changes or Events. Since January 1, 1995,
the business of PSP9 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.
4.1.9 S-4 Registration Statement and Joint Proxy Statement and
Prospectus. None of the information supplied or to be supplied by PSP9 for
inclusion or incorporation by reference in the S-4 Registration Statement or the
Joint 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 Joint Proxy Statement and Prospectus, at the time of the mailing
of the Joint Proxy Statement and Prospectus and at the time of the meetings of
the shareholders of PSP9 and PSBP, 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.
4.1.10 Insurance. All material insurance of PSP9 is currently in
full force and effect and PSP9 has reported all claims and occurrences to the
extent required by such insurance.
4.1.11 Disclosure. The representations and warranties by PSP9 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.
4.2 Representations, Warranties and Agreements of PSBP. PSBP represents,
warrants and agrees with PSI that:
4.2.1 Authorization. Subject to approval of this Agreement by the
shareholders of PSBP, (i) the execution, delivery and performance of this
Agreement by PSBP has been duly authorized and approved by all necessary
corporate action of PSBP, and (ii) PSBP has necessary corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to complete the transactions contemplated hereby.
4.2.2 Organization and Related Matters. PSBP 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 PSBP. PSBP has no direct or
indirect equitable or beneficial interest in any other corporation other than
PSCC, Inc.
4.2.3 Capital Stock. The authorized capital stock of PSBP consists
solely of (i) 656,034 shares of Common Stock Series A ($.01 par value), 534,159
of which were issued and outstanding as of November 30, 1995. All of the issued
and outstanding shares of Common Stock Series A of PSBP have been duly and
validly
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authorized and issued, and are fully paid and nonassessable. There are no
options or agreements to which PSBP is a party or by which it is bound calling
for or requiring the issuance of any of PSBP's capital stock. PSBP's Common
Stock Series B and C have been fully converted and are no longer authorized or
outstanding.
4.2.4 Consents and Approvals; No Violation. Assuming approval of
the Mergers and of this Agreement by the shareholders of PSBP, neither the
execution and delivery of this Agreement nor the consummation by PSBP 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(s)
and Officers' Certificates pursuant to the GCLC and appropriate documents with
the relevant authorities of other states in which PSBP is authorized to do
business, (D) in connection with any state or local tax which is attributable to
the beneficial ownership of PSBP'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 PSBP
or adversely affect the ability of PSBP 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 PSBP 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
PSBP or adversely affect the ability of PSBP to consummate the transactions
contemplated hereby; or (iv) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in this Section 4.2.4 are duly
and timely obtained or made, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to PSBP or its properties or assets,
except for violations which would not in the aggregate have a material adverse
effect on PSBP or adversely affect the ability of PSBP to consummate the
transactions contemplated hereby.
4.2.5 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 PSBP, threatened against
PSBP or involving any of its properties or assets.
4.2.6 SEC Reports. Since January 1, 1993, PSBP 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 "PSBP SEC Reports"). None of the PSBP 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.
4.2.7 Financial Statements. The financial statements included in
the PSBP 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 PSBP as of their respective dates, and the results of operations of PSBP for
the periods presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
4.2.8 Absence of Certain Changes or Events. Since January 1, 1995,
the business of PSBP 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.
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4.2.9 S-4 Registration Statement and Joint Proxy Statement and
Prospectus. None of the information supplied or to be supplied by PSBP for
inclusion or incorporation by reference in the S-4 Registration Statement or the
Joint 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 Joint Proxy Statement and Prospectus, at the time of the mailing
of the Joint Proxy Statement and Prospectus and at the time of the meetings of
the shareholders of PSP9 and PSBP, 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.
4.2.10 Insurance. All material insurance of PSBP is currently in
full force and effect and PSBP has reported all claims and occurrences to the
extent required by such insurance.
4.2.11 Disclosure. The representations and warranties by PSBP 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 PSP9 and PSBP that:
5.1 Authorization. Upon approval of this Agreement by the Board of
Directors of PSI, (i) the execution, delivery and performance of this Agreement
by PSI will have been duly authorized and approved by all necessary corporate
action of PSI, and (ii) 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. PSI has no direct or
indirect equitable or beneficial interest in any other corporation, other than
Public Storage Commercial Properties Group, Inc., PS Orangeco, Inc., PSCC, Inc.
and a number of "qualified REIT subsidiaries."
5.3 Capital Stock. The authorized capital stock of PSI consists solely
of (i) 200,000,000 shares of Common Stock ($.10 par value), approximately
65,700,000 of which were issued and outstanding as of November 30, 1995, (ii)
7,000,000 shares of Class B Common Stock ($.10 par value), none of which were
issued and outstanding as of November 30, 1995 and (iii) 50,000,000 shares of
Preferred Stock ($.10 par value), 13,437,200 of which were issued and
outstanding as of November 30, 1995. All of the issued and outstanding shares of
Common Stock and Preferred Stock of PSI have been duly and validly authorized
and issued, and are fully paid and nonassessable. Other than shares subject to
stock options, shares issuable upon the conversion of convertible preferred
stock, shares of Common Stock and Class B Common Stock issuable in connection
with the November 16, 1995 merger of Public Storage Management, Inc. into PSI
and as provided in this Agreement, there are no options or agreements to which
PSI is a party or by which it is bound calling for or requiring the issuance of
any of PSI's capital stock. Upon the approval of the Mergers and this Agreement
by the Board of Directors of PSI, the issuance of the PSI Shares in the Mergers
will have been duly and validly authorized and, when issued and delivered as
provided in this Agreement, the PSI Shares will have been 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. Upon the approval of the
Mergers 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
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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 Agreements 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 PSP9's and PSBP'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 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 violations, 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, 1995, 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 Joint 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
Joint 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 Joint Proxy Statement and Prospectus, at the time of the mailing
of the Joint Proxy Statement and Prospectus and at the time of the meetings of
the shareholders of PSP9 and PSBP, 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.
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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.
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,
PSP9 and PSBP 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. Neither PSP9 nor PSBP
will issue any capital stock or debt securities convertible into capital stock.
PSI, PSP9 and PSBP will promptly notify the others 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 Meetings of Shareholders. Each of PSP9 and PSBP 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 the principal terms of the Agreement
must be approved by (i) in the case of PSP9, the affirmative vote of (A) a
majority of the outstanding PSP9 Shares entitled to vote at the PSP9
shareholders meeting and (B) a majority of the PSP9 Shares voting at the meeting
of PSP9 shareholders not held by PSI and its affiliates, and (ii) in the case of
PSBP, the affirmative vote of (A) a majority of the outstanding PSBP Shares
entitled to vote at the PSBP shareholders meeting and (B) a majority of the PSBP
Shares voting at the meeting of PSBP shareholders not held by PSI and its
affiliates.
6.3 Tax Reporting. Each of PSI, PSP9 and PSBP agrees to report the
Mergers 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. Neither PSP9 nor PSBP will 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 PSP9 or PSBP, or any purchase of all or any significant
portion of either of their assets, or any equity interest in either of them,
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 either
PSP9 or PSBP 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 of either PSP9 or PSBP to breach their fiduciary duty to
the shareholders of the respective corporation under applicable law as advised
by counsel. PSP9 and PSBP 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 either
PSP9 or PSBP, 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. PSP9 and PSBP will promptly
prepare and file with the SEC a joint preliminary proxy statement in connection
with the vote of shareholders of PSP9 and PSBP with respect to the Mergers. 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 joint
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 PSP9 Shares and PSBP Shares in the Mergers (such joint
proxy statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms to be mailed to the shareholders of
PSP9 and PSBP, being
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herein called the "Joint Proxy Statement and Prospectus"). PSI, PSP9 and PSBP
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
PSP9 and PSBP will each use its best efforts to cause the Joint Proxy Statement
and Prospectus to be mailed to its respective shareholders at the earliest
practicable date. PSP9 and PSBP agree that if at any time prior to the Effective
Time any event with respect to PSP9 and PSBP, respectively, should occur which
is required to be described in an amendment of, or a supplement to, the Joint
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 PSP9
and PSBP and (ii) the Joint Proxy Statement and Prospectus will (with respect to
PSP9 and PSBP) 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 Joint 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 PSP9 and PSBP and
(ii) the Joint 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, PSP9 and PSBP shall: (i) promptly make
its respective filings and thereafter make any other required submissions under
all applicable laws with respect to the Mergers 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.
6.8.1 PSP9 Distributions. PSP9 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
$.___ per share, (ii) pre-Mergers cash 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 PSP9 (as defined below) as of
the Effective Time exceeds the estimated Net Asset Value of PSP9 as of March 31,
1996 and (iii) additional pre-Mergers cash distributions required to satisfy
PSP9's REIT distribution requirements (the number of PSI Shares issued in the
Mergers 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 PSP9 is the sum of (a) the fair market
value of PSP9's real estate assets as determined by appraisal by Charles R.
Wilson & Associates, Inc. as of October 31, 1995, and (b) the book value of
PSP9's non-real estate assets as of the date of determination, and less (c)
PSP9's liabilities as of the date of determination. The determination of book
value and liabilities shall be from PSP9's financial statements prepared in
accordance with generally accepted accounting principles on a basis consistent
with prior periods.
6.8.2 PSBP Distributions. PSBP 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
$.___ per share, (ii) pre-Mergers cash 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 PSBP (as defined below) as of
the Effective Time exceeds the estimated Net Asset Value of PSBP as of March 31,
1996 and (iii) additional pre-Mergers cash distributions required to satisfy
PSBP's REIT distribution requirements (the number of PSI Shares issued in the
Mergers 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 PSBP is the sum of (a) the fair market
value of PSBP's real estate assets as determined by appraisal by Charles R.
Wilson & Associates, Inc. as of October 31, 1995, and (b) the book value of
PSBP's non-real estate assets as of the date of determination, and less (c)
PSBP's liabilities as of the date
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of determination. The determination of book value and liabilities shall be from
PSBP's financial statements prepared in accordance with generally accepted
accounting principles on a basis consistent with prior periods.
6.8.3 PSI Distributions. PSI shall not, at any time prior to
the Effective Time, declare, set aside or make payment of any cash distributions
or distribution of assets to its shareholders except for regular quarterly
dividends.
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 PSP9 and PSBP Shareholder Approval. This Agreement and
the transactions contemplated hereby shall have been duly approved by the
shareholders of PSP9 and PSBP 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 PSI, PSP9 or PSBP.
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.
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 Fairness Opinion. The Boards of Directors of PSP9 and
PSBP shall have received the opinion of Robert A. Stanger & Co., Inc. in form
and substance satisfactory to them to the effect that the consideration to be
received by the shareholders of PSP9 and PSBP in the Mergers 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 Boards of Directors of PSI, PSP9 and
PSBP shall have received a legal opinion of Hogan & Hartson that the Merger will
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended.
7.1.8 PSI Board Approval. This Agreement and the transactions
contemplated hereby shall have been duly approved by the Board of Directors of
PSI.
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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 PSP9 and PSBP 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 PSP9 and PSBP 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 PSP9 and PSBP as PSI may reasonably request in
connection with the Closing, including a certificate satisfactory to it of the
Chief Executive Officer and the Chief Financial Officer of PSP9 and PSBP, to the
effect that, to the best of their knowledge, all representations and warranties
of PSP9 and PSBP 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 PSP9 and PSBP have performed or complied with all agreements
and covenants required by this Agreement to be performed or complied with by
them 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 PSP9 and PSBP.
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
PSP9 and PSBP provided for in Section 6.2 hereof (the "Average PSI Share Price")
shall be not less than $18.
7.2.5 Dissenting Shares. The number of Dissenting Shares shall
be less than 5% of the outstanding PSP9 Shares in the case of PSP9 and less than
5% of the outstanding PSBP Shares in the case of PSBP.
7.3 Conditions to Obligations of PSP9 and PSBP. The obligations of
PSP9 and PSBP 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 PSP9 and PSBP 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. PSP9 and PSBP shall have
received such certificates of officers of PSI as PSP9 and PSBP may reasonably
request in connection with the Closing, including 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 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.
7.4 Separate Mergers. Neither the merger of PSP9 into PSI nor the
merger of PSBP into PSI is conditioned on the other. If the conditions to one
of the Mergers are satisfied or waived, such merger will be consummated on the
terms provided in this Agreement, notwithstanding that the conditions to the
other Merger have not been satisfied or waived.
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8. Termination.
8.1 Termination by Mutual Consent. This Agreement may be terminated
and the Mergers may be abandoned at any time prior to the Effective Time, before
or after shareholder approval, by the mutual written consent of PSI, PSP9 or
PSBP.
8.2 Termination by PSI, PSP9 or PSBP. This Agreement may be terminated
and the Mergers may be abandoned by action of the Board of Directors of PSI,
PSP9 or PSBP if (i) the Mergers shall not have been consummated by December 31,
1996 (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 Mergers 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 Mergers and such
order, decree, ruling or other action shall have become final and nonappealable;
or (iii) the shareholders of PSP9, in the case of the merger of PSP9 into PSI,
or the shareholders of PSBP, in the case of the merger of PSBP into PSI, shall
have failed to approve this Agreement and the transactions contemplated hereby
at their respective meetings of shareholders.
8.3 Termination by PSI. This Agreement may be terminated by PSI, and
the Mergers may be abandoned at any time prior to the Effective Time, as to the
defaulting party if (i) PSP9 or PSBP 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 such party at or prior to such
date of termination, which failure to comply has not been cured within five
business days following notice to such party of such failure to comply, or (ii)
any representation or warranty of PSP9 or PSBP 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 such party 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 PSP9 or PSBP. This Agreement may be terminated by
PSP9 or PSBP and the Mergers 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 Mergers 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 Mergers are 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 Mergers are not consummated, each of PSI, PSP9 and
PSBP shall pay its own expenses, except that any expenses incurred in connection
with the printing of the S-4 Registration Statement and the Joint Proxy
Statement and Prospectus, the real estate appraisals and environmental audits of
PSP9's and PSBP'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 shall be paid 50% by PSI, 25% by PSP9 and 25% by PSBP.
9.2 Survival of Representations, Warranties and Covenants. The
respective representations and warranties of PSI, PSP9 and PSBP contained herein
or in any certificate or document delivered pursuant hereto shall expire with
and be terminated and extinguished by the effectiveness of the Mergers and shall
not survive the Effective
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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 a party, no
amendment shall be made which changes any of the principal terms of the Mergers
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 Mergers 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.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
Attention: Harvey Lenkin
President
If to PSP9:
Public Storage Properties IX, Inc.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
Attention: B. Wayne Hughes
Chief Executive Officer
If to PSBP:
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PS Business Parks, Inc.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
Attention: B. Wayne Hughes
Chief Executive Officer
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 PSP9 or PSBP, the officers of any Constituent Corporation are fully
authorized in the name of PSP9 or PSBP 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 IX, INC.
By: /s/ B. WAYNE HUGHES
---------------------------------
B. Wayne Hughes
Chief Executive Officer
PS BUSINESS PARKS, INC.
By: /s/ B. WAYNE HUGHES
---------------------------------
B. Wayne Hughes
Chief Executive Officer
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EXHIBIT A TO APPENDIX A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is entered into as of this
_____ day of _______________, 1995, by and between PUBLIC STORAGE, INC., a
California corporation ("PSI"), and [PUBLIC STORAGE PROPERTIES IX, INC., a
California corporation ("PSP9") or PS BUSINESS PARKS, INC. ("PSBP")], 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, $.10 par value (the "PSI Shares"), ___________ of which are issued
and outstanding, and 50,000,000 shares of Preferred Stock ($.01 par value),
___________ of which are issued and outstanding.
B. __________ was incorporated in _____ under the laws of
California, and on the date hereof has __________ shares of Common Stock Series
A, $.01 par value (the "_____ Shares") outstanding. __________'s Common Stock
Series B and Common Stock Series C have been fully converted and are no longer
authorized or outstanding.
C. PSI, PSP9 and PSBP have entered into an Agreement and Plan of
Reorganization dated as of December 13, 1995 (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 __________ 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),
__________ will be merged with and into PSI (the "Merger") and PSI shall be the
surviving corporation. PSI and __________ 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 __________, 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 __________ shall
cease and the Surviving Corporation shall thereupon succeed, without other
transfer, to all the rights and property of __________ and shall be subject to
all the debts and liabilities of __________ 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 __________ shall
be limited to the property affected thereby immediately prior to the Effective
Time; and any action or proceeding pending by or against __________ may be
prosecuted to judgment, which shall bind the Surviving Corporation, or the
Surviving Corporation may be proceeded against or substituted in its place.
(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.
E.A-1
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(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 __________ Shares. The manner of converting
the outstanding __________ 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 __________ 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 __________ 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 __________ Shares who would otherwise be entitled to such fractional
share will, upon surrender of the certificate representing such __________
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. __________ 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 __________
Shares pursuant to these provisions of the GCLC shall receive payment therefor
from the Surviving Corporation in accordance therewith. If any holder of
__________ 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 __________ Shares, such __________ 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 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.
2.5 Cancellation of Shares Held or Owned by Parties. At the
Effective Time, any __________ Shares owned by PSI shall be cancelled and
retired and no shares shall be issuable, and no cash shall be exchangeable, with
respect thereto.
2.6 Exchange of Certificates. After the Effective Time, each
holder of a certificate theretofore evidencing outstanding __________ 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
E.A-2
<PAGE>
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
__________ 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 __________
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
__________ 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 __________ 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 __________ Shares
evidenced thereby were converted. However, until such outstanding certificates
formerly evidencing __________ 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 __________ 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 __________ Shares on the records of
__________ 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.
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.
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 __________, the officers of either Constituent Corporation are fully
authorized in the name of __________ 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 IX, INC.
or
PB BUSINESS PARKS, INC.]
By: _____________________________
B. Wayne Hughes
Chairman of the Board and
Chief Executive Officer
By: _____________________________
Obren B. Gerich
Secretary
E.A-4
<PAGE>
Appendix B-1
APPRAISAL OF A
FIFTEEN-PROPERTY PORTFOLIO
NATIONWIDE
PREPARED FOR
PUBLIC STORAGE INC. and
PUBLIC STORAGE PROPERTIES IX, INC.
600 NORTH BRAND BOULEVARD
3RD FLOOR
GLENDALE, CALIFORNIA
PREPARED BY
CHARLES R. WILSON & ASSOCIATES, INC.
595 EAST COLORADO BOULEVARD
SUITE -518-
PASADENA, CALIFORNIA 91101
OCTOBER 1995
<PAGE>
October 31, 1995
PUBLIC STORAGE PROPERTIES IX, INC.
and PUBLIC STORAGE INC.
600 North Brand Boulevard, 3/rd/ Floor
Glendale, California 91221
Re: Market Value Appraisal
Fifteen-Property Portfolio
Job File No. 950188
Self-Storage
------------
Project #00901 680 Hegenberger Road, Oakland, California
Project #00902 12299 South Saratoga Sunnyvale Road, Saratoga, California
Project #00903 9201 Liberty Road, Randallstown, Maryland
Project #00904 2801 Avenue K, Plano, Texas
Project #00905 12090 Fondren Road, Houston, Texas
Project #00906 18 Hughes Street, Irvine, California
Project #00909 900 West Layton Avenue, Milwaukee, WI
Project #00910 1707 I-35 East, Carrollton, Texas
Project #00911 3501 Lomita Boulevard, Torrance, California
Project #00912 8523 Baymeadows Road, Jacksonville, Florida
Project #00913 8939 East R.L. Thornton Freeway, Dallas, Texas
Project #00914/*/ 9811 North Freeway, Houston, Texas
Project #00915 7 Wever Road, Baltimore, Maryland
Project #00917 125 Railroad Avenue, New Haven, Connecticut
Business Park
-------------
Project #00908 10-16 Hughes Street, Irvine, California
/*/Includes retail/office space.
Gentlemen:
According to your request and authorization, we have prepared a limited
appraisal of the above-referenced portfolio described in the attached
document, entitled Property Identification and Classification, and formed an
opinion of their Fee Simple Market Value. The accompanying appraisal report,
of which this letter is a part, briefly describes each property and method of
appraisal.
This report is presented in a restricted format and cannot be fully
understood without additional information supporting the appraisal, which has
been retained in the working files of the appraiser.
PURPOSE OF APPRAISAL
--------------------
The purpose of the appraisal is to estimate the aggregate market value of the
portfolio in connection with a proposed merger with Public Storage Inc.,
(PSI).
<PAGE>
Market Value Appraisal
Public Storage Properties IX, Inc.
Page -3-
This report, presented in a restricted format, is intended for use only by
the clients or their advisors. It may be referred to in solicitation
materials and distributed to the shareholders of Public Storage Properties
IX, Inc. (PSP9) or PSI in connection with the proposed merger.
SCOPE OF ASSIGNMENT
-------------------
The accompanying report describes the appraisal process undertaken. In
accordance with our agreement, the scope of this assignment has been limited,
as described herein, but is in conformity with the Departure Provision of
Uniform Standards of Professional Appraisal Practice (USPAP). The client
must consider the value may be impacted to the degree there is a departure
from specific USPAP Guidelines. However, this valuation analysis has
utilized the two most appropriate approaches to value. We did not consider
the Cost Approach to be applicable. Based upon our contact with
knowledgeable self storage investors, owners and managers little reliance is
placed upon the Cost Approach, particularly as to properties the age and type
of those included in the portfolio. Therefore, we have employed both the
Income and Sales Comparison Approaches. We have relied most heavily on the
Income Approach which is supported by actual market data found in the Sales
Comparison Approach. In our opinion, we have performed all actions necessary
to ensure an accurate valuation of the portfolio.
Your attention is directed to the Assumptions and Limiting Conditions and
description of the appraisal process set forth on the accompanying pages
which are an integral part our report. Only the summary conclusions are
presented in this report.
VALUE CONCLUSIONS
-----------------
Aggregate Market Value
The market value estimate set forth herein is a gross value estimate and does
not include either a premium or a discount a potential buyer may assign to a
portfolio of properties as a result of its size. Based on our experience
with buyers and sellers of properties of the type included in the portfolio,
it would be inappropriate to assign either a premium or discount.
Furthermore, the market value estimate herein assumes that the properties
would be disposed of in an orderly manner, allowing sufficient time for
exposure of each property on the open market.
Based upon the analysis made, it is our opinion that the Fee Simple Market
Value of the Portfolio, as of October 31, 1995, is:
FORTY FIVE MILLION FOUR HUNDRED THOUSAND DOLLARS
------------------------------------------------
($45,400,000)
Sincerely
CHARLES R. WILSON & ASSOCIATES, INC.
/S/ CHARLES R. WILSON
Charles R. Wilson, MAI, CRE
State of California
Certification #AG002172
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
NATURE OF ASSIGNMENT AND DEFINITIONS
This report sets forth a summary of the analysis and valuation conclusions. In
accordance with our agreement, the Limited Appraisal presented in a restricted
report format represents a departure from a full narrative appraisal but has
been prepared in conformity with the Departure Provision of the Uniform
Standards of Professional Appraisal Practice Guidelines.
Property Identification and Classification
The subject properties are located in 15 separate locations in seven states and
are specifically identified by street address below:
<TABLE>
<CAPTION>
Net No.
Rentable SF Units
----------- -----
Self-Storage
- ------------
<S> <C> <C> <C>
00901 680 Hegenberger Road, Oakland, CA.................... 59,295 497
00902 12299 S. Saratoga Sunnyvale Road, Saratoga, CA....... 88,003 689
00903 9201 Liberty Road, Randallstown, MD.................. 74,750 652
00904 2801 Avenue K, Plano, TX............................. 51,850 453
00905 12090 Fondren Road, Houston, TX...................... 57,610 464
00906 18 Hughes, Irvine, CA................................ 60,500 501
00909 900 West Layton Avenue, Milwaukee, WI................ 53,650 443
00910 1707 I-35 East, Carrollton, TX....................... 56,775 472
00911 3501 Lomita Boulevard, Torrance, CA.................. 53,867 795
00912 8523 Baymeadows Road, Jacksonville, FL............... 58,550 458
00913 8939 East R.L. Thornton Freeway, Dallas, TX.......... 41,350 329
00914 9811 North Freeway, Houston, TX...................... 67,625 499
00915 7 Wever Road, Baltimore, MD.......................... 57,325 512
00917 123 Railroad Avenue, New Haven, CT................... 54,175 443
------- -----
Subtotal Self-Storage............................................... 835,325 7,207
Business Parks
- --------------
00908 10-16 Hughes Street, Irvine, CA...................... 70,286 34
/*/ 00916 9811 North Freeway, Houston, TX...................... 46,580 26
------- -----
Subtotal Business Park.............................................. 116,866 60
TOTAL COMBINED...................................................... 952,191 7,267
======= =====
</TABLE>
/*/Represents business park component of property 00914.
Purpose, Function and Scope of the Appraisal
The purpose of this appraisal is to estimate the Fee Simple Market Value of the
portfolio and to present a summary of conclusions.
The function of this appraisal is for use only by our clients, Public Storage
Properties IX, Inc. (PSP9), and their advisors in connection with the proposed
merger of PSP9 with Public Storage, Inc. (PSI).
The scope of this assignment is in accordance with an agreement between Charles
R. Wilson & Associates, Inc. and PSP9. In connection with this portfolio
valuation, the following actions have been taken as described more fully in the
section entitled Valuation Methodology.
. Inspections were conducted by Charles R. Wilson, MAI/CRE or a representative
of Charles R. Wilson & Associates, Inc.
. Physical descriptive information was provided by the subject's on-site
managers and from previous appraisals of the subject properties performed by
Charles R. Wilson & Associates, Inc.
1
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
. Demographic information including population trends, household income,
employment, average housing prices and rental rates was obtained from Scan/US.
. A rental survey of competitive facilities was provided by on-site managers of
the subject facilities. The information was verified by phone calls and other
sources.
. Self Storage Data Services, Inc. (SSDS), an affiliate company of Charles R.
Wilson & Associates, Inc., provided operating income and expense information
on facilities nationwide from its database of over 23,600 self storage
facilities.
. Historical income and expense information on each of the subject properties
was provided by PSI, the property manager, and compared to the operating
information found in the SSDS database.
. In the cash flow analysis, the actual operating history of each of the subject
properties was evaluated based on the experience of Charles R. Wilson &
Associates, Inc., which have appraised over 200 self storage facilities during
the past twelve months.
. Discount rates, capitalization rates, and growth rates for income and expenses
were derived from data on actual sales of similar properties, surveys of self
storage operators/investors throughout the United States, and our market
experience over the past twenty years. Surveying self storage investor's
criteria is an ongoing function of Charles R. Wilson & Associates, Inc., and
SSDS, Inc.
. The Sales Comparison Approach is based on 51 sales of self storage facilities
which have occurred since September 1994.
. Two of the subject properties are business parks. Three of the self-storage
properties contain office or retail/showroom type space. Rental income and
expense information for these facilities were derived in the same manner as
the self storage data, including lease summaries. The capitalization and
yield rates reflect these improvements.
Property Rights Appraised
The property rights appraised consist of the Fee Simple Estate. Due to the
short-term, month-to-month tenancies in the facilities, and the fact that rents
are at market levels, a Fee Simple Interest is appropriate.
According to the Appraisal Institute, Dictionary of Real Estate Appraisal, 2nd
Edition, 1989, p. 123, "Fee Simple Estate" is defined as: "Absolute ownership
unencumbered by any other interest or estate; subject only to the limitations of
eminent domain, escheat, police power, and taxation."
Market Value Definition
The following Market Value definition is based on Uniform Standards of
Professional Appraisal Practice regulations and standards.
"Market Value" means 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. Buyer and seller are well informed or well advised, and acting in what they
consider their own best interest;
3. A reasonable time is allowed for exposure on the open market;
4. Payment is made in cash in U.S. dollars or in terms of financial
arrangements comparable thereto; and
2
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
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.
Source: Office of the Comptroller of the Currency under 12 CRF, part 34, Subpart
C-Appraisals, 34.43 Definitions [f].
MARKET OVERVIEW
An overall analysis of the self storage marketplace is important, because supply
and demand for space plays a key role in determining a property's value. This
overview summarizes factors that apply to the portfolio's property type and
analyzes the trends in supply and demand.
In survey after survey, we have found that self storage investors believe
capitalization rates are in the 10% to 11% range, which is supported by our
analysis of over 531 sales nationwide. Our analysis of 531 sales over the past
eleven years shows that capitalization rates have not changed significantly over
time. They typically range between 10% and 11%, excluding un-stabilized or
distress facilities.
Value changes occur as a result of variations in collected income, primarily
effected by occupancy, and due to variations in expenses. The perceived risk on
the part of major investors has not changed significantly. This is particularly
true when comparing capitalization rates for self storage facilities to
capitalization rates for multi-tenanted industrial buildings.
In 1994, most operators played catch up on rental rates. Physical and economic
occupancy reached the 90% plus level. Thus, owners and operators started
increasing rents to existing tenants who had been paying below market rates. At
the same time rental concessions were eliminated. Therefore, the significant
increases we observed during 1994 and most of 1995 should start to slow. Future
rental increases should occur at a more normal pace consistent with or somewhat
below the general inflation rate within a range of 3% to 3.5% annually.
Significant market improvement occurred as the result of a total lack of new
construction during the past several years. This allowed demand to catch up
with the huge supply of space that was placed on the market during the late
1980's.
Based upon the appraisal of over 200 facilities during the past 12 months, and
upon the information from the Self Storage Data Systems, Inc. database of actual
operating histories, we can draw the following conclusions about today's
national self storage market:
. Collected income nationwide should continue to increase, but at slower
rates than was experienced during the past 18 to 24 months. Rental
concessions have declined or have ceased altogether in most markets.
. Economic occupancy has stabilized at slightly over 90% in most markets.
. While more lenders are looking closely at self storage, construction
financing is still limited to a relatively few smaller size banks.
However, several markets have numerous proposed construction projects.
. Capitalization rates of well located, properly designed and managed,
stabilized facilities are generally in the 10% to 11% range nationwide.
Sales in Southern California are toward the lower end of that range.
. Property values have been increasing due to increases in collected income
and not due to lower capitalization rates.
. The investment market for self storage facilities continues to improve
faster than other property types which are still recovering from the
overbuilding that occurred in the 1980s.
In short, the self storage market is strong and should remain so in the
foreseeable future. The continued lack of construction financing should prevent
massive overbuilding in the near term. We would expect that in most markets,
increased rental rates will shortly encounter tenant resistance.
3
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
VALUATION METHODOLOGY
Analysis and Valuation of the subject properties involved determining the
highest and best use of the sites, estimating the value of the subjects by
current appraisal theory, and reconciling to a final estimate of value.
The term "highest and best use," as used in this report, is defined as follows:
"The reasonably probable and legal use of vacant land or an improved property,
which is physically possible, appropriately supported, financially feasible, and
that results in the highest value."
SOURCE: Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd
Edition, 1993, p. 171.
In considering the highest and best use of the properties in this portfolio, we
believe that each facility is producing net operating income in excess of a
reasonable land value. Therefore, we have concluded that the Highest and Best
Use of each property, as improved and as if vacant, is its existing use as a
self storage facility. No other use would warrant their removal or alteration
from their current and intended use.
This valuation analysis has considered all appropriate approaches to value,
namely: the Cost, Income, and Sales Comparison Approach.
The Cost Approach is based upon the proposition that the informed purchaser
would pay no more than the cost of producing a substitute property with the same
utility as the subject property. The Cost Approach is particularly applicable
when the property being appraised involves relatively new improvements which
represent the highest and best use of the land and when relatively unique or
specialized improvements are located on the site and for which there exists no
comparable properties in the marketplace.
The Income Capitalization Approach is a procedure in appraisal analysis which
converts the anticipated benefits (dollar income or amenities) to be derived
from the ownership of property into a value estimate. The Income Capitalization
Approach is widely applied in appraising income producing properties.
Anticipated future income and/or reversions are discounted to a present worth
figure through the capitalization process.
The Sales Comparison Approach is based upon the principle that an informed
purchaser would pay no more for a property than the cost of acquiring an
existing property with the same utility. This approach is applicable when an
active market provides sufficient quantities of reliable data which can be
verified from authoritative sources. The Sales Comparison Approach is
relatively unreliable in an inactive market or in estimating the value of
properties for which no real comparable sales data is available.
In all instances, we considered the Income and Sales Comparison Approaches to be
most applicable for the subject properties. Based on our contact with property
buyers and sellers and others knowledgeable of recent transactions, today's
investors do not rely on the Cost Approach, particularly as to properties the
age and type of those included in the portfolio. Therefore, we have employed
both the Income and Sales Comparison Approaches to value all properties.
Inspections were made of each property and interviews with PSMI personnel were
conducted to learn of any deferred maintenance items that needed correcting, any
known environmental conditions, as well as general information on the overall
condition of the property. Questionnaires were completed by each on-site
manager concerning performance of the subject property and market competitors.
Demographic information on each market was reviewed to gain insight about local
economic trends. Consideration has been given to significant variations in
quality among the various portfolio of properties including: property income
potential, quality of location and construction, tenant appeal, access,
viability and potential competition.
Valuation Analysis
Income Approach
- ---------------
The Income Approach utilized both direct and yield capitalization. In both
instances, the analysis was premised upon a survey of competitive properties in
order to determine market rental rates, occupancy, and expense levels. In
addition, we reviewed each property's previous four year's operating statement.
Ancillary income included: late fees, administrative fees, lock sales, packing
material sales, etc. Rental concessions if any were analyzed and taken
4
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
into consideration. Utilizing the SSDS database of operating statistics, the
actual operating experience of self storage facilities in each subject's market
area were compared to the subjects' actual expenses to determine the
reasonableness of each item of expense. Stabilized levels of income and
expenses were determined.
Using direct capitalization, the net operating income was capitalized into a
value estimate using overall capitalization rates derived directly from the
market (see Sales Comparison Approach below). Overall capitalization rates in
the market generally ranged from 10% to 11%.
In applying yield capitalization, we studied acquisition criteria of investors
in self storage, and analyzed recent sales for valuation indicators such as
overall capitalization rates, effective gross rent multipliers and prices being
paid per square foot. We also consulted published sources of investment
criteria for other types of real estate.
A ten-year discounted cash flow analysis of the self storage facilities, ending
on June 30, 2005 was prepared. Using the investment criteria discussed above,
the income and expenses were increased 3% to 3.5% annually based on local market
conditions. Real estate taxes for the California properties are based on a sale
and reassessment as of the date of value and increased at 2% per annum, per
California law. The residual value was determined by capitalizing the eleventh
year income at a terminal capitalization rate between 10.25% and 10.5% and then
deducting 3% for sales costs. The yearly cash flows and the properties'
residual values were discounted to present worth using a discount rate between
13% and 13.50%.
A ten-year discounted cash flow analysis of the two business park projects
ending in August 2006 was also prepared. Using the investment criteria
discussed above, an escalation rate of 4% was used to inflate income and
expenses on both business parks reflective of expectation of the parks. For
California properties, real estate taxes were adjusted to reflect projected
taxes after a re-evaluation transaction and subsequently escalated at two
percent per annum. The residual value of each property was determined by
capitalizing the eleventh year income at a terminal capitalization rate of
10.50% and then deducting 3% for sales costs. The yearly cash flows and the
properties' residual values were discounted to present worth using unleveraged
discount rates of 12.25% to 12.75%.
The indicated value of the portfolio based upon the Income Approach is
$45,554,000.
Sales Comparison Approach
- -------------------------
In the Sales Comparison Approach, we relied upon an analysis of 51 sales of self
storage properties which occurred during the past 12 months. The sales were
analyzed on the basis of effective gross rent multipliers, overall
capitalization rates and sales price per square foot of net rentable area. A
regression analysis of the relationship between net operating income and sales
price per square foot was prepared. The value conclusion derived in the Income
Approach was compared to the conclusions derived from the Sales Comparison
Approach to determine the reasonableness of the value conclusion by the Income
Approach. Differences in time of sale, location, and physical characteristics
between the sale comparables and each subject property were taken into
consideration. Based upon the portfolio's net income per square foot, using the
regression analysis, the indicated value ranged between $41,900,000 and
$48,560,000.
Value Conclusion
- ----------------
Considering 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.
The value conclusion from both approaches was then reconciled into our final
value conclusion of $45,400,000. Most weight was given the Income Approach, as
this is the methodology employed by today's investors in self storage.
5
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
GENERAL ASSUMPTIONS & LIMITING CONDITIONS
Standards Rule ("S.R.") 2-1 of the "Standards of Professional Practice" of the
Appraisal Institute requires the appraiser to "clearly and accurately disclose
any extraordinary assumption or limiting condition that directly affects an
appraisal analysis, opinion, or conclusion." In compliance with S.R. 2-1, and
to assist the reader in interpreting this report, such assumptions and limiting
conditions are set forth as follows:
1. The date of value to which the conclusions and opinions expressed in this
report apply is set forth in the letter of transmittal. Further, the dollar
amount of any value opinion rendered in this report is based upon the
purchasing power of the American dollar existing on that date.
2. The appraiser assumes no responsibility for economic or physical factors
which may affect the opinions in the report which occur after the date of
the letter transmitting the report.
3. Forecasts of anticipated revenue and expenses were based on our analysis of
market trends, economic conditions, and historical operating results of the
properties. Such forecasts are dependent on assumptions as to future
economic, social and political conditions, as well as market related
activity. They represent our opinion of current investor attributes and
motivations applicable to the class of property appraised, and no warranty
or representation that these forecasts will materialize is implied.
4. The information furnished by others is believed to be reliable. However, no
warranty is given for its accuracy.
5. No opinion as to title is rendered. Data related to ownership and legal
description was obtained from public records and is considered reliable.
Title is assumed to be marketable and free and clear of all liens,
encumbrances, easements and restrictions except those specifically discussed
in the report. The properties are appraised assuming they will be under
responsible ownership and competent management, and available for their
highest and best use.
6. The appraiser reserves the right to make such adjustments to the analyses,
opinions and conclusions set forth in this report as may be required by
consideration of additional data or more reliable data that may become
available.
7. The appraiser assumes no responsibility for hidden or unapparent conditions
of the properties, subsoil, or structures that render them more or less
valuable. No responsibility is assumed for arranging for engineering studies
that may be required to discover them.
8. The properties are appraised assuming that all applicable zoning and use
regulations and restrictions have been complied with, unless otherwise
stated.
9. The properties are appraised assuming that all required licenses,
certificates of occupancy, consents, or other legislative or administrative
authority from any local, state, or national government or private entity or
organization have been, or can be, obtained or renewed for any use on which
the value estimate contained in this report is based, unless otherwise
stated.
10. No engineering survey has been made by the appraiser. Except as specifically
stated, data relative to size and area was taken from sources considered
reliable, and no encroachment of real property improvements is considered to
exist.
11. No soil tests or environmental studies were available. It is assumed that
there are no sub-surface, toxic waste or building material hazards in or on
the properties that would adversely affect their existing or potential use.
12. Unless specifically stated, this appraisal does not take into consideration
the possibility of the existence of asbestos, PCB transformers, or other
toxic, hazardous, or contaminated substances and/or underground storage
tanks (hazardous material), or the cost of encapsulation or removing
thereof.
13. No opinion is expressed as to the value of subsurface oil, gas or mineral
rights or whether the properties are subject to surface entry for the
exploration or removal of such materials except as is expressly stated.
6
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
14. Maps, plats and exhibits included in this report are for illustration only
as an aid in visualizing matters discussed within the report. They should
not be considered as surveys or relied upon for any other purpose, nor
should they be removed from, reproduced, or used apart from this report.
15. No opinion is intended to be expressed for matters which require legal
expertise or specialized investigation or knowledge beyond that customarily
employed by real estate appraisers.
16. Except as consented to in the letter of transmittal, possession of this
report, or a copy of it, does not carry with it the right of publication.
It may not be used for any purpose by any person other than the party to
whom it is addressed without the written consent of the appraiser, and in
any event only with proper written qualification and only in its entirety.
17. Testimony or attendance in court or at any other hearing is not required by
reason of rendering this appraisal, unless such arrangements are made a
reasonable time in advance relative to such additional employment.
18. Disclosure of the contents of this appraisal report is governed by the By-
Laws and Regulations of the Appraisal Institute.
19. Except as consented to in the letter of transmittal, neither all nor any
part of the contents of this report (especially any conclusions as to value,
the identity of the appraisers, or any reference to the Appraisal Institute,
or the MAI or SRA designation) shall be disseminated to the public through
advertising media, public relations media, news media, sales media, or any
other public means of communication without the prior written consent and
approval of the author.
7
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
SPECIFIC ASSUMPTIONS AND LIMITING CONDITIONS
1. The physical description and current condition of each subject property was
based upon a combination of previous appraisals, inspections by
representatives of Charles R. Wilson & Associates, Inc., and information
provided by Public Storage Properties Fund IX and it's property manager PSMI.
Charles R. Wilson & Associates, Inc. assumes no responsibility for the
soundness of structural members nor for the condition of mechanical
equipment, plumbing or electrical components.
2. Pursuant to the Engagement Agreement, the content of the appraisal report has
been limited as presented herein. This report is not intended to meet the
requirements of Title XI of the Federal Financial Institutions Reform,
Recovery and Enforcement Act of 1989. Therefore, federally regulated
institutions should not rely on this report for financing purposes.
3. The portfolio valuation reported herein does not reflect any premium or
discount a potential buyer may assign to the portfolio of properties as a
result of its size. Neither a premium nor a discount is appropriate based on
our experience with buyers and sellers of self storage facilities.
4. This valuation analysis assumes that capitalization and discount rates used
in the market for valuing individual properties are appropriate to apply to a
portfolio's cash flow for the purpose of estimating the portfolio's fair
market value.
5. This valuation covers only the real properties described herein and only
applies to the valuation problems as stated and does not include
consideration of mineral rights or related right of entry, nor personal
property or the removal thereof. Values reported herein are not intended to
be valid in any other context, nor are any conclusions as to unit values
applicable to any other property or utilization than that specifically
identified herein. No value has been assigned to any personal property,
fixtures or intangible items that are not real property, except for that
equipment and personal property considered usual and incidental to the
operation of the facilities such as golf carts, office supplies, computer
systems, etc.
6. This report invokes the Departure Provision as follows:
Standard Rule 1-2 (c), states that the appraiser must, "consider easements,
restrictions, encumbrances, reservations, covenants, contracts, declarations,
special assessments, ordinances, or other items of a similar nature". The
effect of any easements, encumbrances, and similar items were not taken into
consideration in this valuation analysis. We were not provided copies of
title reports, deed restrictions or similar items nor are we aware of any
restrictions or similar items existing that could have an impact on our
valuation of the portfolio. At the request of the clients, this valuation
analysis does not consider any such restrictions.
Standard Rule 1-3 (a), states that the appraiser must "consider the effect on
use and value of the following factors: existing land use regulations,
reasonably probable modification of such land use regulations, economic
demand, the physical adaptability of the property, neighborhood trends, and
the highest and best use of the property". City and county officials were
not interviewed and thus it is assumed that each property complies with city
and county building codes and zoning ordinances.
Standard Rule 1-4 (a) states the appraiser must "collect, verify, analyze and
reconcile: ...(iv) such comparable rental data, adequately identified and
described, as are available to estimate the market rental of the property
being appraised;..." Each on-site manager provided the appraiser with
competition surveys. The rental rates were verified and used to determine
market rent, however, no physical inspections were made of competing
facilities.
7. For properties located in California, real estate taxes used in the Income
Approach are adjusted to reflect a fair sale as is standard practice in
California in compliance with Proposition 13.
8
<PAGE>
Appraisal: Public Storage Properties IX, Inc., 15-Property Portfolio
CERTIFICATION
The appraiser certifies, to the best of his knowledge and belief, that:
- - The statements of fact contained in this report are true and correct.
- - The reported analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions and are the appraisers'
personal, unbiased professional analyses, opinions and conclusions.
- - The appraiser has no present or prospective interest in the property that is
the subject of this report and no personal interest or bias with respect to
the parties involved.
- - The appraisers' 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.
- - Receipt of the appraisal assignment was not based upon a requested minimum
value, a specific value or approval of a loan.
- - The appraiser's analyses, opinions, and conclusions were developed and this
report has been prepared in conformity with the agreement between Charles R.
Wilson & Associates, Inc., and Public Storage Properties IX, Inc. The
appraisers have relied upon the departure provisions of Uniform Standards of
Professional Appraisal Practice (USPAP).
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - As of the effective date of this report, October 31, 1995, Charles R. Wilson,
MAI/CRE has completed the requirements of the continuing education program of
the Appraisal Institute.
- - Inspections of the properties in this portfolio were made by Charles R.
Wilson, MAI, CRE or a representative of Charles R. Wilson & Associates, Inc.,
between August 18 and October 20, 1995.
- - Our firm's analyses, opinions and conclusions were not developed nor is this
report intended to comply with the appraisal related mandates within Title XI
of the Federal Financial Institution's Reform, Recovery and Enforcement Act
of 1989 (FIRREA).
- - The date of this report, October 31, 1995, indicates that the perspective of
the appraisers on the market conditions as of the effective date of the
appraisal.
- - The appraiser's estimate of aggregate As Is Market Value for the portfolio as
of October 31, 1995 in Fee Simple estate is: $45,400,000.
- - The appraisers have extensive experience in appraising properties similar to
the portfolio.
Respectfully submitted,
CHARLES R. WILSON & ASSOCIATES, INC.
/S/ CHARLES RAY WILSON
- ----------------------------
Charles Ray Wilson, MAI, CRE
State of California
Certification No. AG002172
9
<PAGE>
VOLUME II
PUBLIC STORAGE PROPERTIES IX, INC.
A -15- PROPERTY
PORTFOLIO VALUATION
SUPPORTING DOCUMENTATION
TO THE MARKET VALUE APPRAISAL
DATED OCTOBER 1995
CHARLES R. WILSON & ASSOCIATES, INC.
595 EAST COLORADO BOULEVARD
SUITE 518
PASADENA, CALIFORNIA 91101
<PAGE>
October 31, 1995
PUBLIC STORAGE PROPERTIES IX, INC.
and PUBLIC STORAGE INC.
600 North Brand Boulevard
3rd Floor
Glendale, California 91221
Re: Support Documentation for Market Value Appraisal
PUBLIC STORAGE PROPERTIES IX, INC.
-15- Property Portfolio
Gentlemen:
Pursuant to your request, enclosed is supporting documentation compiled in
connection with the above referenced portfolio appraisal report, dated
October 27, 1995. The information contained herein supports the
conclusions of the above referenced appraisal report and should only be
used in evaluating such report. No opinion is expressed as to the value of
a single property nor should any other conclusion be drawn with respect to
the information presented herein.
No reference may be made to any data contained herein without the written
consent of Charles R. Wilson & Associates, Inc.
CHARLES R. WILSON & ASSOCIATES, INC.
<PAGE>
INCOME APPROACH
<TABLE>
<CAPTION>
Project
Number Value
- ------- -------
<S> <C>
Self-Storage
00901 680 Hegenberger Road, Oakland, CA............... $ 3,550,000
00902 12299 S. Saratoga Sunnyvale Road, Saratoga, CA.. 7,810,000
00903 9201 Liberty Road, Randallstown, MD............. 4,530,000
00904 2801 Avenue K, Plano, TX........................ 2,160,000
00905 12090 Fondren Road, Houston, TX................. 1,800,000
00906 18 Hughes, Irvine, CA........................... 3,090,000
00909 900 West Layton Avenue, Milwaukee, WI........... 1,800,000
00910 1707 I-35 East, Carrollton, TX.................. 1,920,000
00911 3501 Lomita Boulevard, Torrance, CA............. 4,720,000
00912 8523 Baymeadows Road, Jacksonville, FL.......... 2,370,000
00913 8939 East R.L. Thornton Freeway, Dallas, TX..... 1,040,000
00914 9811 North Freeway, Houston, TX................. 1,470,000
00915 7 Wever Road, Baltimore, MD..................... 2,800,000
00917 125 Railroad Avenue, New Haven CT............... 2,450,000
-----------
Subtotal Self-Storage..................................... $41,510,000
Business Parks
00908 10-16 Hughes Street, Irvine, CA................. 3,300,000
/*/00916 9811 North Freeway, Houston, CA................. 744,000
-----------
Subtotal Business Parks................................... 4,044,000
-----------
TOTAL PORTFOLIO........................................... $45,554,000
===========
</TABLE>
/*/Business park component of property 00914.
SALES COMPARISON APPROACH
During the course of this and other recent assignments, we have investigated
sales of self storage facilities nationwide. Our research disclosed 51 sales
which have transferred during the past 12 months wherein information on sale
price per square foot, effective gross income multipliers and overall
capitalization rate data was available.
In the Income Approach, we relied upon this information in estimating the
residual capitalization rates in performing Direct Capitalization and considered
the range in Effective Gross Income Multipliers when evaluating the results of
our discounted cash flow analyses.
A summary of all the pertinent sales data disclosed is included in the addenda
of this report. This data set establishes the value parameters applicable to
the subject portfolio. An analysis of this data suggests a strong correlation
(R-Square of 0.94) between net operating income and sales price on a per square
foot basis. That is to say, given the net operating income per square foot, one
can predict the probable selling price with a considerable degree of confidence.
In this instance, we have several years of actual operating history upon which
to estimate stabilized net operating income. The portfolio's stabilized net
operating income is $4.94 per square foot and based upon the analysis of the
sales in the addenda, the value of the portfolio should be approximately $47.30
per square foot. We have included the two business parks which represent 10% of
the total NOI and 14% or the total square footage. Using one standard
deviation, the range would be between $44.00 and $51.00 per square foot.
Based upon our valuation conclusion as derived by the Income Approach, the
subject's value equates to $47.84 per square foot and is within a reasonable
range.
Thus, it is our opinion the indicated value of the portfolio by the Sales
Comparison Approach using a regression analysis is $45,040,000 or $47.30 per
square foot.
<PAGE>
RECONCILIATION
<TABLE>
<S> <C>
Income Approach....................................... $45,554,000
Sales Comparison Approach............................. $45,040,000
</TABLE>
The Income Approach was premised upon actual operating history that is supported
by information on the performance of competitive facilities within the market.
Overall capitalization rates were derived directly from the comparables which
have transferred within the past few months. Most emphasis has been placed on
this approach.
The Sales Comparison Approach supports the conclusion reached by the Income
Approach. The quality of the comparable data would dictate most weight be given
the Income Approach as it most closely reflects the actual performance of the
entire portfolio.
Final Value Conclusion as of
October 31, 1995 is:
FORTY FIVE MILLION FOUR HUNDRED THOUSAND DOLLARS
------------------------------------------------
($45,400,000)
<PAGE>
Appendix B-2
APPRAISAL OF A
PS BUSINESS PARK (05101)
OLD OAKLAND ROAD
1630 OLD OAKLAND ROAD
SAN JOSE, CALIFORNIA
PREPARED FOR
PS BUSINESS PARKS, INC.
and PUBLIC STORAGE, INC.
600 NORTH BRAND BOULEVARD
THIRD FLOOR
GLENDALE, CALIFORNIA
PREPARED BY
CHARLES R. WILSON & ASSOCIATES, INC.
595 EAST COLORADO BOULEVARD
SUITE -518-
PASADENA, CALIFORNIA 91101
NOVEMBER 1995
<PAGE>
November 1, 1995
PS BUSINESS PARKS, INC.
and PUBLIC STORAGE, INC.
600 North Brand Boulevard, 3rd Floor
Glendale, CA 91203
Re: Market Value Appraisal
PS Business Park - Old Oakland Road
PSI Project 05101
1630 Old Oakland Road, San Jose, CA
Job File #950205
Gentlemen:
In accordance with your request and authorization, we have appraised the above-
referenced multi-tenant industrial park and formed an opinion of its Leased Fee
Market Value. The subject property consists of a four-building 173,237 gross /
rentable square foot industrial park. The buildings have concrete tilt-up and
wood frame construction and are demised into smaller research/light
industrial/office units which average 1,520 square feet. The property is
located in the City of San Jose, in Santa Clara County.
The park was constructed in 1986 and is currently 99% occupied by a variety of
non-credit office and light industrial tenants. Based on the overall occupancy
of the park and our survey of the market, the subject is at its long term level
of stabilized occupancy.
The accompanying report, of which this letter is a part, is a restricted report
of a complete appraisal performed on the subject property. This complete
appraisal has been performed under the self-contained appraisal report option of
the Uniform Standards of Professional Appraisal Practice of the Appraisal
Foundation. This report is presented in a restricted format and cannot be fully
understood without additional information contained in the complete self-
contained appraisal report.
This report is intended for use only the clients or their advisors. It may be
included in and referred to in solicitation materials filed with the Securities
and Exchange Commission and distributed to the shareholders of PS Business
Parks, Inc. (PSBP) or Public Storage Inc. (PSI) in connection with the proposed
merger.
The following value estimate is based on a marketing time of nine months.
Support for this conclusion is based upon conversations with market
participants, as well as evidence from comparable sales. We have estimated that
nine months represents a reasonable time frame whereby the subject should
capture market attention and solidify a sale at or around the estimated value.
Based upon an inspection of the subject environs and all discoverable factors
that influence value, it is our conclusion that the Leased Fee Market Value of
the property described in this report, as of October 31, 1995, is:
ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($11,500,000)
<PAGE>
PS Business Parks, Inc.
Project 05101
Page Two
Steven R. Norris, MAI, inspected the subject property. Charles Ray Wilson, MAI,
CRE did not inspect the subject of this appraisal; however, he has reviewed the
accompanying report and concurs with the value estimate. The above value
estimate is predicated on the Assumptions and Limiting Conditions stated in this
report. We appreciate the opportunity to be of service to PS Business Parks,
Inc., and Public Storage, Inc., and we look forward to future consultations at
your request.
Sincerely
CHARLES R. WILSON & ASSOCIATES, INC.
/S/ STEPHEN R. NORRIS
- ----------------------------
Steven R. Norris, MAI
State of California
Certification No. AG001677
/S/ CHARLES RAY WILSON
- ----------------------------
Charles Ray Wilson, MAI, CRE
State of California
Certification No. AG002172
<PAGE>
APPRAISAL SUMMARY
Client: PS Business Parks, Inc., and
Public Storage, Inc.
Owner of Record: PS Business Parks, Inc.
Location: 1630 Old Oakland Road
San Jose, California
Assessor's Parcel: No. 241-17-002, 006, 007 and 008
Map Page: Santa Clara County, Thomas Bros., Pg. 55-A3
Purpose and Function
of Appraisal: The purpose of this appraisal is to estimate the
Leased Fee Market Value; the function is to assist
the clients in establishing value in connection with
a proposed sale or merger transaction.
Interest Appraised: Leased Fee
Date of Value: October 31, 1995
Land Area: 358,063 SF / 8.22 Acres
Zoning: PD (Planned Development - Industrial)
Improvements: Four-building industrial park containing 173,237
gross and rentable square feet. The improvements
were constructed in 1986.
Remaining Economic Life: 31 years
Environmental Information: No hazardous conditions were observed during our
routine site inspection.
Flood Zone: The subject is not located in a Special Flood Hazard
Area.
Seismic Zone: The subject is not located within an Alquist-Priolo
Seismic Zone.
Market Value Conclusions
As of October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Replacement Cost Approach...................................... $ 9,300,000
Income Capitalization Approach................................. $12,000,000
Sales Comparison Approach...................................... $11,300,000
Reconciled Conclusion.......................................... $11,500,000
</TABLE>
i
<PAGE>
NATURE OF ASSIGNMENT
Property Identification and Classification
- ------------------------------------------
The subject property is located in Santa Clara County, and specifically in the
City of San Jose. It consists of a four-building 173,237 rentable square foot
industrial park, constructed in 1986. The development is currently 99%
occupied.
Purpose, Intended Use and Scope of the Appraisal
- ------------------------------------------------
The purpose of this appraisal is to estimate the Leased Fee Market Value as of
October 31, 1995.
The intended use of this appraisal is to assist the client in establishing value
in connection with a proposed sale or merger transaction.
The scope of this assignment involved:
1. An inspection of the subject site;
2. An inspection of the subject buildings;
3. A search of the public records for sales of land parcels within the
neighborhood;
4. A regional search for improved sales and rental income data for comparable
business park developments;
5. The verification of the real property transfers with buyers, sellers,
brokers, and appraisers; and,
6. Research of local leasing activity and overall condition of the market.
Effective Date of the Appraisal
- -------------------------------
The effective date of this appraisal report is October 31, 1995. Unless
otherwise stated, all factors pertinent to a determination of value were
considered as of this date. The property was inspected on August 31, 1995 by
Steven R. Norris, MAI.
Property Rights Appraised (Leased Fee Interest)
- -----------------------------------------------
The type and duration of tenancies in the park indicate that a Leased Fee
valuation is the best reflection of market value. According to the Appraisal
Institute, Dictionary of Real Estate Appraisal, 3rd Edition, 1993, page 204, the
-----------------------------------
term "leased fee estate," as used in this report, is defined as follows:
"An ownership interest held by a landlord with the rights of use and occupancy
conveyed by lease to others. The rights of lessor (the leased fee owner) and
leased fee are specified by contract terms contained within the lease."
The appraisal is a valuation of the Real Estate only.
Market Value Definition
- -----------------------
"Market Value" means 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;
1
<PAGE>
2. Buyer and seller are well informed or well advised, and acting in what
they consider their own best interest;
3. A reasonable time is allowed for exposure on the open market;
4. Payment is made in 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.
(Source: Office of the Comptroller of the Currency under 12 CRF, part 34,
Subpart C-Appraisals, 34.43 Definitions [f].)
VALUATION METHODOLOGY
Analysis and Valuation of the subject property involved determining the highest
and best use of the site, estimating the value of the subject by current
appraisal theory, and reconciling to a final estimate of value.
The term "highest and best use," as used in this report, is defined as follows:
"The reasonably probable and legal use of vacant land or an improved property,
which is physically possible, appropriately supported, financially feasible, and
that results in the highest value."
SOURCE: Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd
Edition, 1993, p. 171.
In considering the highest and best use of the property, we believe that the
facility is producing net operating income in excess of a reasonable land value.
Therefore, we have concluded that the Highest and Best Use, as improved and as
if vacant, is its existing use as an industrial park. No other use would
warrant the removal of these existing improvements and bring a higher return to
the land. As such, the subject is considered the highest and best use of the
site as improved.
This valuation analysis has considered all appropriate approaches to value,
namely: the Cost, Income, and Sales Comparison Approaches.
The Cost Approach is based upon the proposition that the informed purchaser
would pay no more than the cost of producing a substitute property with the same
utility as the subject property. The Cost Approach is particularly applicable
when the property being appraised involves relatively new improvements which
represent the highest and best use of the land and when relatively unique or
specialized improvements are located on the site and for which there exists no
comparable properties in the marketplace.
The Income Capitalization Approach is a procedure in appraisal analysis which
converts the anticipated benefits (dollar income or amenities) to be derived
from the ownership of property into a value estimate. The Income Capitalization
Approach is widely applied in appraising income producing properties.
Anticipated future income and/or reversions are discounted to a present worth
figure through the capitalization process.
The Sales Comparison Approach is based upon the principle that an informed
purchaser would pay no more for a property than the cost of acquiring an
existing property with the same utility.
This approach is applicable when an active market provides sufficient quantities
of reliable data which can be verified from authoritative sources. The Sales
Comparison Approach is relatively unreliable in an inactive market or in
estimating the value of properties for which no real comparable sales data is
available.
Valuation Analysis
Cost Approach
- -------------
The Cost Approach requires valuing the site as if vacant and estimating the
costs associated with replacing the building and site improvements. Deducted
from the replacement cost of the improvements is all evidence of depreciation.
The resulting figure plus the estimated land value provides a value indication
by the Cost Approach.
2
<PAGE>
The first step of the Cost Approach is to estimate the value of the subject site
as if vacant. The methodology used was a Sales Comparison Approach. Land sales
of three sites within the subject area and within similar type environments were
surveyed and compared to the subject.
The second step within this Cost Approach is to estimate the replacement cost
new. The replacement cost new is composed of direct costs, indirect costs, and
entrepreneurial profit. The costs associated with the actual building and site
improvements are segregated into direct or hard costs and indirect or soft
costs. Direct costs are primarily building materials and labor. Indirect costs
involve permits, fees, taxes, plans, insurance, interim financing, leasing
commissions, and other related adjunct costs. Entrepreneurial profit is an
additional cost that reflects a return to the developer for taking the risk
associated with developing the project. Profit can vary depending on the type
of project, as well as market conditions. As indicated, the sum of these three
items is called the Replacement Cost New.
After the reproduction cost new is calculated, all forms of depreciation
including physical, functional, and external depreciation are deducted from the
replacement cost new of the improvements. This depreciated reproduction cost is
then added to the estimated land value in order to provide a value indication by
the Cost Approach.
The indicated value of the property using the Cost Approach is $9,300,000.
Income Approach
- ---------------
The Income Approach utilized both direct and yield capitalization. In both
instances, the analysis was premised upon a survey of competitive properties in
order to determine market rental rates, occupancy, and expense levels. In
addition, we reviewed the property's previous four year's operating statement.
Using direct capitalization, the net operating income was capitalized into a
value estimate using overall capitalization rates derived directly from the
market (see Sales Comparison Approach below). Overall capitalization rates in
the market generally indicated a 10% rate is appropriate for the subject
property.
In applying yield capitalization, we studied acquisition criteria of investors
in self storage, and analyzed recent sales for valuation indicators such as
overall capitalization rates, effective gross rent multipliers and prices being
paid per square foot. We also consulted published sources of investment
criteria for other types of real estate.
A ten-year discounted cash flow analysis of the property ending in August 2006
was also prepared. Using the investment criteria discussed above, an escalation
rate of approximately 4% was used to inflate income and expenses reflective of
expectation of the property. For California properties, real estate taxes were
adjusted to reflect projected taxes after a re-evaluation transaction and
subsequently escalated at 2% per annum. The residual value of the property was
determined by capitalizing the eleventh year income at a terminal capitalization
rate of 11.0% and then deducting 2% for sales costs. The yearly cash flows and
the property's residual values were discounted to present worth using an
unleveraged discount rates of 12.0%.
The indicated value of the property based upon the Income Approach is
$12,000,000.
Sales Comparison Approach
- -------------------------
The Sales Comparison Approach compared the subject property to five comparable
multi-tenant business park facilities having quality space similar to the
subject in the regional area of the subject facility which have recently been
sold or are listed for sale. The cost per square foot of each of these
facilities was adjusted to be comparable to the subject.
Based on a concluded value of $65.00 per square foot, the indicated of the
subject property using the Sales Comparison Approach is $11,300,000.
3
<PAGE>
Reconciliation
- --------------
The indicated values for the subject property as of October 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Market
Value
-----------
<S> <C>
Replacement Cost Approach................................. $ 9,300,000
Income Capitalization Approach............................ $12,000,000
Sales Comparison Approach................................. $11,300,000
Reconciled Conclusion..................................... $11,500,000
</TABLE>
In the final value conclusion, equal consideration was given to both the Income
Approach and Sales Comparison Approaches. The Cost Approach was viewed
primarily as a check on the two other approaches to value, and given no weight
in the final value estimate.
Therefore, the Leased Fee Market Value, as of October 31, 1995, is:
ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($11,500,000)
ESTIMATE OF MARKETING TIME
The above value estimate is based on a marketing time of nine months. Support
for this conclusion is based upon conversations with market participants, as
well as evidence from the comparable sales. We have estimated that nine months
represents a reasonable time frame whereby the subject should capture market
attention and solidify a sale at or around the estimated value.
4
<PAGE>
ASSUMPTIONS & LIMITING CONDITIONS
Standards Rule ("S.R.") 2-1 of the "Standards of Professional Practice" of the
Appraisal Institute requires the appraiser to "clearly and accurately disclose
any extraordinary assumption or limiting condition that directly affects an
appraisal analysis and indicate its impact on value." In compliance with S.R.
2-1, and to assist the reader in interpreting this report, such assumptions and
limiting conditions are set forth as follows:
1. The date of value to which the conclusions and opinions expressed in this
report apply is set forth in the letter of transmittal. Further, the dollar
amount of any value opinion rendered in this report is based upon the
purchasing power of the American dollar existing on that date.
2. The appraiser assumes no responsibility for economic or physical factors
which may affect the opinions in the report which occur after the date of
the letter transmitting the report.
3. Forecasts of anticipated revenue and expenses were based on our analysis of
market trends, economic conditions, and historical operating results of the
property. Such forecasts are dependent on assumptions as to future economic,
social and political conditions, as well as market related activity. They
represent our opinion of current investor attributes and motivations
applicable to the class of property appraised, and no warranty or
representation that these forecasts will materialize is implied.
4. The information furnished by others is believed to be reliable. However, no
warranty is given for its accuracy.
5. No opinion as to title is rendered. Data related to ownership and legal
description was obtained from public records and is considered reliable.
Title is assumed to be marketable and free and clear of all liens,
encumbrances, easements and restrictions except those specifically discussed
in the report. The property is appraised assuming it will be under
responsible ownership and competent management, and available for its
highest and best use.
6. The appraiser reserves the right to make such adjustments to the analyses,
opinions and conclusions set forth in this report as may be required by
consideration of additional data or more reliable data that may become
available.
7. The appraiser assumes no responsibility for hidden or unapparent conditions
of the property, subsoil, or structures that render it more or less
valuable. No responsibility is assumed for arranging for engineering studies
that may be required to discover them.
8. The property is appraised assuming that all applicable zoning and use
regulations and restrictions have been complied with, unless otherwise
stated.
9. The property is appraised assuming that all required licenses, certificates
of occupancy, consents, or other legislative or administrative authority
from any local, state, or national government or private entity or
organization have been, or can be, obtained or renewed for any use on which
the value estimate contained in this report is based, unless otherwise
stated.
10. No engineering survey has been made by the appraiser. Except as specifically
stated, data relative to size and area was taken from sources considered
reliable, and no encroachment of real property improvements is considered to
exist.
11. No soil tests or environmental studies were available. It is assumed that
there are no sub-surface, toxic waste or building material hazards in the
property that would adversely affect its existing or potential use.
12. Unless specifically stated, this appraisal does not take into consideration
the possibility of the existence of asbestos, PCB transformers, or other
toxic, hazardous, or contaminated substances and/or underground storage
tanks (hazardous material), or the cost of encapsulation or removing
thereof. Should client have concern over the existence of such substances on
the property, we consider it imperative for you to retain the services of a
qualified, independent engineer or contractor to determine the existence and
extent of any hazardous materials, as well as the cost associated with any
required or desirable treatment or removal thereof.
5
<PAGE>
13. The lack of proper tenant screening, in some instances, has led to the
abandonment of toxic and hazardous materials in some facilities. We assume
this has not occurred in the subject of this appraisal.
14. No opinion is expressed as to the value of subsurface oil, gas or mineral
rights or whether the property is subject to surface entry for the
exploration or removal of such materials except as is expressly stated.
15. Maps, plats and exhibits included in this report are for illustration only
as an aid in visualizing matters discussed within the report. They should
not be considered as surveys or relied upon for any other purpose, nor
should they be removed from, reproduced, or used apart from this report.
16. No opinion is intended to be expressed for matters which require legal
expertise or specialized investigation or knowledge beyond that customarily
employed by real estate appraisers.
17. The distribution, if any, of the total valuation in this report between land
and improvements applies only under the stated program of utilization. The
separate allocations for land and buildings must not be used in conjunction
with any other appraisal and are invalid if so used.
18. Except as consented to in the letter of transmittal, possession of this
report, or a copy of it, does not carry with it the right of publication. It
may not be used for any purpose by any person other than the party to whom
it is addressed without the written consent of the appraiser, and in any
event only with proper written qualification and only in its entirety.
19. Testimony or attendance in court or at any other hearing is not required by
reason of rendering this appraisal, unless such arrangements are made a
reasonable time in advance relative to such additional employment.
20. Disclosure of the contents of this appraisal report is governed by the By-
Laws and regulations of the Appraisal Institute.
21. Except as consented to in the Letter Transmittal, neither all nor any part
of the contents of this report (especially any conclusions as to value, the
identity of the appraisers, or any reference to the Appraisal Institute, or
the MAI or SRA designation) shall be disseminated to the public through
advertising media, public relations media, news media, sales media, or any
other public means of communication without the prior written consent and
approval of the author.
6
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CERTIFICATION
The appraisers certify, to the best of their knowledge and belief, that:
- - The statements of fact contained in this report are true and correct.
- - The reported analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions and are the appraisers'
personal, unbiased professional analyses, opinions and conclusions.
- - The appraisers' 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.
- - The appraisers have no present or prospective interest in the property that
is the subject of this report and no personal interest or bias with respect
to the parties involved.
- - Receipt of the appraisal assignment was not based upon a requested minimum
valuation, a specific valuation, or the approval of a loan.
- - The appraisers' analyses, opinions and conclusions were developed, and this
report has been prepared in conformity with the requirements of the Code of
Professional Ethics and Standards of Professional Appraisal Practice of the
Appraisal Institute, and the Uniform Standards of Professional Appraisal
Practice (USPAP). The appraisers have not relied upon any departure
provisions of USPAP.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - As of the effective date of this report, Steven R. Norris, MAI, and Charles
Ray Wilson, MAI, CRE, have completed the requirements of the continuing
education program of the Appraisal Institute.
- - The subject of this appraisal was inspected by Steven R. Norris, MAI.
Charles Ray Wilson, MAI, CRE has not made a personal inspection of the
property that is the subject of this report, but he has reviewed this report
and concurs with the value conclusion.
- - Our firm's analyses, opinions and conclusions were developed and this report
is intended to comply with the appraisal related mandates within Title XI of
the Federal Financial Institution's Reform, Recovery and Enforcement Act of
1989 (FIRREA).
- - No one provided professional assistance to the persons signing this report.
- - The appraisers' estimate of "as is" market value for the subject property in
Leased Fee Estate as of the date of value is as follows: $11,500,000.
- - The appraisers have extensive experience in appraising properties similar to
the subject.
/S/ STEPHEN R. NORRIS /S/ CHARLES RAY WILSON
- ----------------------------- ------------------------------
Steven R. Norris, MAI Charles Ray Wilson, MAI, CRE
State of California State of California
Certification No. AG001677 Certification No. AG002172
7
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ROBERT A. STANGER & CO. INC. Appendix C-1
The Special Committee of
The Board of Directors of
Public Storage Properties IX, Inc.
600 North Brand Boulevard
Glendale, CA 91203
Gentlemen:
We have been advised that Public Storage Properties IX, Inc. ("PSP9") is
entering into a transaction (the "Transaction") in which PSP9 will be merged
with Public Storage, Inc. ("PSI"), an affiliated, publicly traded real estate
investment trust. In the Transaction, the shareholders of PSP9 will be asked to
approve the merger of PSP9 into PSI and the conversion of outstanding shares of
PSP9 Common Stock Series A (other than shares held by shareholders of PSP9 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
PSP9 shareholders with respect to up to 20% of the outstanding PSP9 Common
Stock, or 489,501 shares of PSP9 less any Dissenting Shares, cash (collectively,
the "Consideration"). We have been further advised that each share of PSP9
Common Stock, other than Dissenting Shares held by PSP9 shareholders, will be
converted into $18.64 (the net asset value per share of PSP9 Common Stock based
on an independent appraisal of PSP9'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 PSP9. We also have been advised that (i) cash distributions
will be made to the shareholders of PSP9 prior to the consummation of the
Transaction to the extent required to cause PSP9's net asset value as of the
date of the Transaction to be substantially equivalent to the estimate of PSP9's
net asset value as of March 31, 1996 contained in the Joint Proxy Statement and
Prospectus filed with the Securities and Exchange Commission dated January 31,
1996, and (ii) if additional cash distributions are required to satisfy PSP9's
REIT distribution requirements for 1995 and are paid to PSP9 shareholders prior
to the consummation of the Transaction, the Consideration would be reduced to
reflect such additional cash distributions.
PSP9 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 PSP9, from a financial point of
view, of the Consideration to be received in the Transaction.
1
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ROBERT A. STANGER & CO. INC.
In the course of our review to render this opinion, we have, among other
things:
. Reviewed the Joint Proxy Statement and Prospectus related to the
Transaction and filed with the Securities and Exchange Commission on
January 31, 1996;
. Reviewed PSP9's and PSI's annual reports to shareholders filed with the
SEC on Form 10-K for the three fiscal years ending December 31, 1992,
1993 and 1994, and PSP9's and PSI's quarterly reports filed with the SEC
on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995, which reports PSP9's management and PSI's management
have indicated to be the most current financial statements available;
. Reviewed the PSI pro forma financial statements and pro forma schedules
prepared by PSP9's management and PSI's management;
. Reviewed the MAI-certified portfolio appraisal of the fifteen properties
owned by PSP9 dated October 31, 1995 performed by Charles R. Wilson &
Associates, Inc. (the "Appraisal"), and discussed with management of
PSP9 and the appraiser the methodologies and procedures employed in
preparing the Appraisal;
. 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;
. Reviewed internal financial analyses and forecasts prepared by PSP9, and
based in part on the Appraisal, of the current net liquidation value per
common share of PSP9's assets and projections of cash flow from
operations, dividend distributions and going-concern values for PSP9;
. Discussed with members of senior management of PSP9 and PSI conditions
in self-storage property markets, conditions in the market for
sales/acquisitions of properties similar to those owned by PSP9, current
and projected operations and performance, financial condition and future
prospects of PSP9 and PSI;
. Reviewed historical market prices, trading volume and dividends for PSP9
and PSI Common Stock; and
. Conducted other studies, analyses, inquiries and investigations as we
deemed appropriate.
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 PSP9 and PSI. We have not
performed an independent appraisal of the assets and
2
<PAGE>
ROBERT A. STANGER & CO. INC.
liabilities of PSP9 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 PSP9 and PSI that any pro forma financial statements,
projections, budgets, 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 reflecting 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 PSP9 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 PSP9 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 merger of PSMI into PSI or relating to PSI's
continued qualifications 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 PSP9, 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 PSP9 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
January 31, 1996
3
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ROBERT A. STANGER & CO. INC. Appendix C-2
The Special Committee of
The Board of Directors of
PS Business Parks, Inc.
600 North Brand Boulevard
Glendale, CA 91203
Gentlemen:
We have been advised that PS Business Parks, Inc. ("PSBP") is entering into
a transaction (the "Transaction") in which PSBP will be merged with and into
Public Storage, Inc. ("PSI"), an affiliated, publicly traded real estate
investment trust. In the Transaction, the shareholders of PSBP will be asked to
approve the merger of PSBP into PSI and the conversion of outstanding shares of
PSBP Common Stock Series A (other than shares held by shareholders of PSBP 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
PSBP shareholders with respect to up to 20% of the outstanding Common Stock, or
106,832 shares of PSBP less any Dissenting Shares, cash (collectively, the
"Consideration"). We have been further advised that each share of PSBP Common
Stock, other than Dissenting Shares held by PSBP shareholders, will be converted
into $19.59 (the net asset value per share of PSBP Common Stock based on an
independent appraisal of PSBP'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 PSBP. We also have been advised that (i) cash distributions
will be made to the shareholders of PSBP prior to the consummation of the
Transaction to the extent required to cause PSBP's net asset value as of the
date of the Transaction to be substantially equivalent to the estimate of PSBP's
net asset value as of March 31, 1996 contained in the Joint Proxy Statement and
Prospectus filed with the Securities and Exchange Commission dated January 31,
1996, and (ii) if additional cash distributions are required to satisfy PSBP's
REIT distribution requirements for 1995 and are paid to PSBP shareholders prior
to the consummation of the Transaction, the Consideration would be reduced to
reflect such additional cash distributions.
PSBP 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 PSBP, from a financial point of
view, of the Consideration to be received in the Transaction.
1
<PAGE>
ROBERT A. STANGER & CO. INC.
In the course of our review to render this opinion, we have, among other
things:
. Reviewed the Joint Proxy Statement and Prospectus related to the
Transaction and filed with the Securities and Exchange Commission on
January 31, 1996;
. Reviewed PSBP's and PSI's annual reports to shareholders filed with the
SEC on Form 10-K for the three fiscal years ending December 31, 1992,
1993 and 1994, and PSBP's and PSI's quarterly reports filed with the SEC
on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995, which reports PSBP's management and PSI's management
have indicated to be the most current financial statements available;
. Reviewed the PSI pro forma financial statements and pro forma schedules
prepared by PSBP's management and PSI's management;
. Reviewed the MAI-certified appraisal of the sole property owned by PSBP
dated October 31, 1995 performed by Charles R. Wilson & Associates, Inc.
(the "Appraisal"), and discussed with management of PSBP and the
appraiser the methodologies and procedures employed in preparing the
Appraisal;
. Reviewed internal financial analyses and forecasts prepared by PSBP, and
based in part on the Appraisal, of the current net liquidation value per
common share of PSBP's assets and projections of cash flow from
operations, dividend distributions and going-concern values for PSBP;
. Discussed with members of senior management of PSBP and PSI conditions
in business parks property markets and the local market of the property,
conditions in the market for sales/acquisitions of properties similar to
that owned by PSBP, current and projected operations and performance,
financial condition and future prospects of PSBP and PSI;
. Reviewed historical market prices, trading volume and dividends for PSBP
and PSI Common Stock; and
. Conducted other studies, analyses, inquiries and investigations as we
deemed appropriate.
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 PSBP and PSI. We have not
performed an independent appraisal of the assets and liabilities of PSBP or PSI
and have relied upon and assumed the accuracy of the appraisal performed by
Charles R. Wilson & Associates. We have also relied on the assurance of PSBP and
PSI that any pro forma financial statements, projections, budgets, or value
estimates
2
<PAGE>
ROBERT A. STANGER & CO. INC.
contained in the Joint Proxy Statement and Prospectus or otherwise provided to
us were reasonably prepared on bases consistent with actual historical
experience and reflecting the best currently available estimates and good faith
judgments; that no material changes have occurred in the appraised value of the
property 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
PSBP 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 PSBP 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 merger of PSMI into PSI 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 PSBP, 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 PSBP 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
January 31, 1996
3
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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
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(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
reorganization 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-1
Proposed Amendment to PSP9's Bylaws
Add a new subsection (f) to Article IX, Section 8 of the Bylaws of PSP9 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 E-2
Proposed Amendment to PSBP's Bylaws
Add a new subsection (f) to Article IX, Section 8 of the Bylaws of PSBP 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 IX, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Report of independent auditors F-1
Balance sheets at December 31, 1994 and 1993 F-2
For the years ended December 31, 1994, 1993 and 1992:
Statements of income F-3
Statements of shareholders' equity F-4
Statements of cash flows F-5
Notes to financial statements F-6
Condensed balance sheets at September 30, 1995 and December 31, 1994 F-12
Condensed statements of income for the three
and nine months ended September 30, 1995 and 1994 F-13
Condensed statement of shareholders' equity for the
nine months ended September 30, 1995 F-14
Condensed statements of cash flows for the
nine months ended September 30, 1995 and 1994 F-15
Notes to condensed financial statements F-16
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Public Storage Properties IX, Inc.
We have audited the accompanying balance sheets of Public Storage Properties IX,
Inc. as of December 31, 1994 and 1993, and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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 IX,
Inc. at December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 24, 1995
F-1
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 1,032,000 $ 473,000
Rent and other receivables 41,000 22,000
Prepaid expenses 88,000 86,000
Real estate facilities at cost:
Building, land improvements and equipment 23,026,000 22,899,000
Land 12,695,000 12,695,000
----------- -----------
35,721,000 35,594,000
Less accumulated depreciation (9,582,000) (8,677,000)
----------- -----------
26,139,000 26,917,000
----------- -----------
Total assets $27,300,000 $27,498,000
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Accounts payable $ 506,000 $ 495,000
Dividends payable 771,000 803,000
Advance payments from renters 235,000 262,000
Note payable 1,050,000 -
Shareholders' equity:
Series A common, $.01 par value,
2,896,094 shares authorized,
1,787,200 shares issued and
outstanding (1,869,300 shares
issued and outstanding in 1993) 18,000 19,000
Convertible Series B common,
$.01 par value, 188,845 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common,
$.01 par value, 535,061 shares
authorized, issued and
outstanding 5,000 5,000
Paid-in-capital 31,713,000 33,176,000
Cumulative income 31,297,000 27,909,000
Cumulative distributions (38,297,000) (35,173,000)
------------ -----------
Total shareholders' equity 24,738,000 25,938,000
------------ -----------
Total liabilities and shareholders' equity $ 27,300,000 $27,498,000
============ ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
PUBLIC STORAGE PROPERTIES IX INC.
STATEMENTS OF INCOME
For each of the three years in the
period ended December 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income $7,045,000 $6,816,000 $6,685,000
Interest income 23,000 14,000 52,000
---------- ---------- ----------
7,068,000 6,830,000 6,737,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 2,024,000 1,942,000 2,012,000
Management fees paid to affiliates 416,000 398,000 393,000
Depreciation and amortization 938,000 951,000 984,000
Administrative 207,000 231,000 258,000
Reorganization cost - - (117,000)
Interest expense 95,000 - -
---------- ---------- ----------
3,680,000 3,522,000 3,530,000
---------- ---------- ----------
Income before gain on sale of real estate 3,388,000 3,308,000 3,207,000
Gain on sale of real estate - 237,000 1,729,000
---------- ---------- ----------
NET INCOME $3,388,000 $3,545,000 $4,936,000
========== ========== ==========
Primary earnings per share-Series A
Income before gain on sale of real estate $ 1.70 $ 1.57 $ 1.41
Gain on sale of real estate - .12 0.83
---------- ---------- ----------
Net income $ 1.70 $ 1.69 $ 2.24
========== ========== ==========
Fully diluted earnings per share-Series A
Income before gain on sale of real estate $ 1.33 $ 1.24 $ 1.14
Gain on sale of real estate - 0.09 0.62
---------- ---------- ----------
Net income $ 1.33 $ 1.33 $ 1.76
========== ========== ==========
Dividends declared per share:
Series A $ 1.56 $ 1.56 $ 2.51
========== ========== ==========
Series B $ 1.56 $ 1.44 $ 1.56
========== ========== ==========
Series C - - -
========== ========== ==========
Weighted average Common shares
outstanding:
Primary Series A 1,820,592 1,934,501 2,075,021
========== ========== ==========
Fully diluted-Series A 2,544,498 2,658,407 2,799,027
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE PROPERTIES IX, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For each of the three years in the period ended
December 31, 1994
Convertible Convertible Cumulative Total
Series A Series B Series C Paid-in net Cumulative shareholder's
Shares Amount Shares Amount Shares Amount Capital Income distributions equity
------------------- --------------- --------------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991 2,117,117 $21,000 188,845 $2,000 535,061 $5,000 $37,224,000 $19,428,000 ($26,412,000) $30,268,000
Net Income 4,936,000 4,936,000
Repurchase of shares (119,683) (1,000) (1,780,000) (1,781,000)
Cash distribution declared:
$2.51 per share-Series A (5,188,000) (5,188,000)
$1.56 per share-Series B (295,000) (295,000)
------------------------------------------------------------- --------------------------------------
Balances at December 31, 1992 1,997,234 20,000 188,845 2,000 535,061 5,000 35,444,000 24,364,000 (31,895,000) 27,940,000
Net Income 3,545,000 3,545,000
Repurchase of shares (127,934) (1,000) (2,268,000) (2,269,000)
Cash distribution declared:
$1.56 per share-Series A (3,006,000) (3,006,000)
$1.44 per share-Series B (272,000) (272,000)
------------------------------------------------------------- --------------------------------------
Balances at December 31, 1993 1,669,300 19,000 188,845 2,000 535,061 5,000 33,176,000 27,909,000 (35,173,000) 25,938,000
Net Income 3,388,000 3,388,000
Repurchase of shares (82,100) (1,000) (1,463,000) (1,464,000)
Cash distribution declared:
$1.56 per share-Series A (2,829,000) (2,829,000)
$1.56 per share-Series B (295,000) (295,000)
------------------------------------------------------------- --------------------------------------
Balances at December 31, 1994 1,787,200 $18,000 188,845 $2,000 535,061 $5,000 $31,713,000 $31,297,000 ($38,297,000) $24,738,000
============================================================== ======================================
</TABLE>
See Accompanying Notes.
F - 5
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
STATEMENTS OF CASH FLOWS
For each of the three years in the
period ended December 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
------------ -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,388,000 $ 3,545,000 $ 4,936,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sale of real estate
facility - (237,000) (1,729,000)
Depreciation and amortization 938,000 951,000 984,000
(Increase) decrease in rent and
other receivables (19,000) (22,000) 100,000
Increase in prepaid expenses (2,000) (55,000) (42,000)
Increase (decrease) in accounts
payable 11,000 (89,000) (161,000)
(Decrease) increase in advance
payments from renters (27,000) (2,000) 12,000
----------- ----------- -----------
Total adjustments 901,000 546,000 (836,000)
----------- ----------- -----------
Net cash provided
by operating activities 4,289,000 4,091,000 4,100,000
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate
facility - 237,000 3,700,000
Additions to real estate
facilities (160,000) (139,000) (179,000)
----------- ----------- -----------
Net cash (used in) provided
by investing activities (160,000) 98,000 3,521,000
----------- ----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (3,156,000) (3,328,000) (5,534,000)
Proceeds from note payable to Bank 1,050,000 - -
Purchase of Company Series A
common stock (1,464,000) (2,269,000) (1,781,000)
----------- ----------- -----------
Net cash used in
financing activities (3,570,000) (5,597,000) (7,315,000)
----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 559,000 (1,408,000) 306,000
Cash and cash equivalents at
the beginning of the year 473,000 1,881,000 1,575,000
----------- ----------- -----------
Cash and cash equivalents at
the end of the year $ 1,032,000 $ 473,000 $ 1,881,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
1. Description of Business
Public Storage Properties IX, 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 IX, 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 1996, 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.
The Company paid $95,000 in interest costs during 1994.
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, 1994 and 1993 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.
In July 1992, the Company sold a property to the State of California
under a condemnation proceeding. The Company received $3,700,000 and
$237,000 in 1992 and 1993, respectively. In 1992, the Company recognized a
gain of $1,729,000 on the sale. In 1993, the Company received an additional
$237,000 in sales proceeds as a final settlement on the sales price of the
facility. The entire amount was recognized as a gain on sale of real estate.
Pursuant to the Company's By-laws, the Company's Common Stock Series B shares
are not entitled to participate in distributions attributable to sale or
financing proceeds. As a result, the Company paid special dividends in 1992
and 1993 of $0.95 and $0.12, respectively, per Series A share, for total
distributions of $1,970,000 and $237,000.
F-7
<PAGE>
2. Summary of Significant Accounting Policies (continued)
At December 31, 1994, the basis of real estate facilities (excluding
land) for Federal income tax purposes (after adjustment for accumulated
depreciation of $14,691,000) is $7,294,000.
Revenue Recognition:
Property rents are recognized as earned.
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.
3. Related Party Transactions
The Company has Management Agreements with Public Storage Management,
Inc. (PSMI) and Public Storage Commercial Properties Group, Inc. (PSCPG),
subsidiaries of Public Storage, Inc. (PSI) a wholly-owned subsidiary of PSI
Holdings, Inc. (PSIH). Under the terms of the agreements, PSMI operates
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).
The 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. The 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-8
<PAGE>
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" ("Total Capital Return"). The term "Original
Series A shares" means the Series A shares issued in the Reorganization.
Through December 31, 1994, the Company has made and declared cumulative cash
distributions of approximately $35,319,000 with respect to the Series A
shares. Accordingly, assuming no repurchases or redemptions of Series A
shares, the Conversion would occur when $425,000 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, 1994 and 1993, each Series of common shares would receive the following
as a liquidating distribution:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Series A $18,328,000 $20,665,000
Convertible Series B 1,672,000 1,376,000
Convertible Series C 4,738,000 3,897,000
----------- -----------
Total $24,738,000 $25,938,000
=========== ===========
</TABLE>
The Series B and Series C shareholders have agreed that they will not be
entitled to the first $599,000 of distributions from the Company in respect
of the Series A shares received upon conversion of the Convertible Series B
and Convertible Series C shares 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. Until the Conversion, 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.
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, 1994, the Company had purchased and retired 384,517 shares of Series A
common stock, of which 82,100 and 127,934 were purchased and retired in 1994
and 1993, respectively.
In February 1995, Total Capital Return was achieved, and as a result the
Series B and C shares were converted into Series A shares on a share-for-
share basis.
For Federal income tax purposes, distributions declared by the Board of
Directors in 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Ordinary income $3,124,000 $3,091,000 $2,786,000
Return of Capital - - 537,000
Capital gains - 187,000 2,160,000
---------- ---------- ----------
Total $3,124,000 $3,278,000 $5,483,000
========== ========== ==========
</TABLE>
F-9
<PAGE>
5. Note Payable to Bank
In December 1993, the Company obtained an unsecured revolving credit
facility from a commercial bank for borrowings up to $2,000,000 for working
capital purposes. Outstanding borrowings on the revolving credit facility
bore interest at the bank's prime rate plus one and one-half percent through
September 30, 1994. In September, 1994, the Company renegotiated its credit
facility to reduce the interest rate from prime plus one and one-half percent
to prime and eliminate the amortization requirement of loan principal. The
credit facility matures on December 31, 1996 at which time all unpaid
principal and accrued interest is due. As of December 31, 1994, the Company
had borrowed $1,050,000 against the credit facility.
6. Subsequent Event
On January 11, 1995, the Company borrowed $100,000 against the credit
facility.
7. Quarterly results (unaudited)
The following is a summary of unaudited quarterly results of operations:
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------
March 1994 June 1994 Sept 1994 Dec. 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,728,000 $1,770,000 $1,811,000 $1,759,000
---------- ---------- ---------- ----------
Expenses 924,000 893,000 924,000 939,000
---------- ---------- ---------- ----------
Net income $ 804,000 $ 877,000 $ 887,000 $ 820,000
========== ========== ========== ==========
Earnings per share:
Primary - Series A $ 0.39 $ 0.45 $ 0.45 $ 0.42
========== ========== ========== ==========
Fully Diluted - Series A $ 0.31 $ 0.34 $ 0.35 $ 0.32
========== ========== ========== ==========
</TABLE>
F-10
<PAGE>
7. Quarterly results (unaudited) (continued):
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------
March 1993 June 1993 Sept 1993 Dec. 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,620,000 $1,703,000 $1,766,000 $1,741,000
---------- ---------- ---------- ----------
Expenses 903,000 851,000 887,000 881,000
---------- ---------- ---------- ----------
Income before gain on sale
of real estate 717,000 852,000 879,000 860,000
Gain on sale of real estate - - 237,000 -
---------- ---------- ---------- ----------
Net Income $ 717,000 $ 852,000 $1,116,000 $ 860,000
========== ========== ========== ==========
Earnings per share:
Primary- Series A -
Income before gain on sale
of real estate $ 0.32 $ 0.40 $ 0.42 $ 0.43
Gain on sale of real estate - - 0.12 -
---------- ---------- ---------- ----------
$ 0.32 $ 0.40 $ 0.54 $ 0.43
========== ========== ========== ==========
Fully diluted- Series A -
Income before gain on sale
of real estate $ 0.27 $ 0.32 $ 0.33 $ 0.32
Gain on sale of real estate - - 0.09 -
---------- ---------- ---------- ----------
$ 0.27 $ 0.32 $ 0.42 $ 0.32
========== ========== ========== ==========
</TABLE>
F-11
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 19,000 $ 1,032,000
Rent and other receivables 340,000 41,000
Prepaid expenses 114,000 88,000
Real estate facilities at cost:
Building, land improvements and equipment 23,171,000 23,026,000
Land 12,695,000 12,695,000
------------ -----------
35,866,000 35,721,000
Less accumulated depreciation (10,277,000) (9,582,000)
------------ -----------
25,589,000 26,139,000
------------ -----------
Total assets $ 26,062,000 $27,300,000
============ ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Accounts payable $ 487,000 $ 506,000
Dividends payable 746,000 771,000
Advance payments from renters 240,000 235,000
Note payable 100,000 1,050,000
Shareholders' equity:
Series A common, $.01 par value,
4,312,521 shares authorized,
2,487,506 shares issued and
outstanding (1,817,800 shares
outstanding in 1994) 25,000 18,000
Convertible Series B common,
$.01 par value, 188,845 shares
authorized and issued , none outstanding
(188,845 issued and outstanding in 1994) - 2,000
Convertible Series C common,
$.01 par value, 535,061 shares
authorized and issued , none outstanding
(535,061 issued and outstanding in 1994) - 5,000
Paid-in-capital 31,305,000 31,713,000
Cumulative income 33,919,000 31,297,000
Cumulative distributions (40,760,000) (38,297,000)
------------ -----------
Total shareholders' equity 24,489,000 24,738,000
------------ -----------
Total liabilities and shareholders' equity $ 26,062,000 $27,300,000
============ ===========
</TABLE>
See Accompanying notes to condensed financial statements.
F-12
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $1,844,000 $1,801,000 $5,371,000 $5,290,000
Interest income 5,000 10,000 14,000 19,000
---------- ---------- ---------- ----------
1,849,000 1,811,000 5,385,000 5,309,000
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Costs of operations 508,000 495,000 1,508,000 1,491,000
Management fees paid to
affiliates 108,000 107,000 317,000 312,000
Depreciation and
amortization 242,000 231,000 716,000 704,000
Administrative 54,000 60,000 151,000 160,000
Interest expense 19,000 31,000 71,000 74,000
---------- ---------- ---------- ----------
931,000 924,000 2,763,000 2,741,000
---------- ---------- ---------- ----------
NET INCOME $ 918,000 $ 887,000 $2,622,000 $2,568,000
========== ========== ========== ==========
Earnings per share:
Primary - Series A $ 0.37 $ 0.45 $ 1.05 $ 1.28
========== ========== ========== ==========
Fully diluted - Series A $ 0.37 $ 0.35 $ 1.05 $ 1.01
========== ========== ========== ==========
Dividends declared per:
Series A share $ 0.30 $ 0.39 $ 0.99 $ 1.17
========== ========== ========== ==========
Series B share - $ 0.39 - $ 1.17
========== ========== ========== ==========
Weighted average common
shares outstanding:
Primary - Series A 2,487,506 1,808,467 2,487,506 1,828,200
========== ========== ========== ==========
Fully diluted - Series A 2,487,506 2,532,373 2,487,506 2,552,106
========== ========== ========== ==========
</TABLE>
See Accompanying notes to condensed financial statements.
F-13
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible Convertible Cumulative Total
Series A Series B Series C Paid-in Net Cumulative Shareholders'
Shares Amount Shares Amount Shares Amount Capital Income Distributions equity
------------------- ------------------- ------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 1,787,200 $18,000 188,845 $2,000 535,061 $5,000 $31,713,000 $31,297,000 ($38,297,000) $24,738,000
Net income - - - - - - - 2,622,000 - 2,622,000
Conversion of B &
C shares to A shares 723,906 7,000 (188,845) (2,000) (535,061) (5,000) - - - -
Repurchase of shares (23,600) - - - - - (408,000) - - (408,000)
Cash distributions
declared:
$0.99 per share-
Series A - - - - - - - - (2,463,000) (2,463,000)
------------------ ------------------ ----------------- ---------------------------------------------------
Balances at
September 30, 1995 2,487,506 $25,000 0 $0 0 $0 $31,305,000 $33,919,000 ($40,760,000) $24,489,000
================== ================== ================= ===================================================
</TABLE>
See Accompanying Notes.
F-14
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,622,000 $ 2,568,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 716,000 704,000
Increase in rent and other receivables (299,000) (16,000)
Increase in prepaid expenses (26,000) (1,000)
Decrease in accounts payable (19,000) (41,000)
Increase (decrease) in advance payments
from renters 5,000 (30,000)
----------- -----------
Total adjustments 377,000 616,000
----------- -----------
Net cash provided by operating
activities 2,999,000 3,184,000
----------- -----------
Cash flows from investing activities:
Additions to real estate facilities (166,000) (107,000)
----------- -----------
Net cash used in investing
activities (166,000) (107,000)
----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (2,488,000) (2,378,000)
Net (payments on) proceeds from note
payable to Bank (950,000) 800,000
Purchase of Company Series A common stock (408,000) (1,150,000)
----------- -----------
Net cash used in financing
activities (3,846,000) (2,728,000)
----------- -----------
Net (decrease) increase in cash
and cash equivalents (1,013,000) 349,000
Cash and cash equivalents at
the beginning of the period 1,032,000 473,000
----------- -----------
Cash and cash equivalents at
the end of the period $ 19,000 $ 822,000
=========== ===========
</TABLE>
See Accompanying notes to condensed financial statements.
F-15
<PAGE>
PUBLIC STORAGE PROPERTIES IX, 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, 1994.
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 September 30,
1995 and December 31, 1994, the results of its operations for the three and
nine months ended September 30, 1995 and 1994 and its cash flows for the six
months then ended.
3. The results of operations for the three months and nine months ended
September 30, 1995 are not necessarily indicative of the results expected for
the full year.
4. The Convertible Series B shares and Convertible Series C shares 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" ("Total Capital Return"). The term "Original
Series A shares" means the Series A shares issued in the Reorganization. On
February 9, 1995, the requirements for Conversion were met and the
Convertible Series B shares and Convertible Series C shares converted to
Series A shares. As a result of the Conversion, 188,845 Convertible Series B
shares and 535,061 Convertible Series C shares were converted into Series A
shares on a share-for-share basis. Prior to Conversion, the Series C shares
did not receive dividends.
5. Public Storage, Inc. ("PSI") and Public Storage Management, Inc. ("PSMI"),
the Company's mini-warehouse property manager, have entered into an Agreement
and Plan of Reorganization by and among PSI, PSMI and Storage Equities, Inc.
("SEI"), dated as of June 30, 1995, pursuant to which PSMI would be merged
into SEI. Prior to the merger, substantially all of the United States real
estate interests of PSI, together with Public Storage Commercial Properties
Group, Inc. (the Company's business park property manager) and Public Storage
Advisers, Inc. (SEI's investment adviser), will be combined with PSMI. The
merger is subject to a number of conditions.
In August 1995, the Management Agreement with PSMI was amended to provide
that upon demand from PSMI or SEI made prior to December 15, 1995, the
Company agrees to prepay (within 15 days after such demand) up to 12 months
of management fees (based on the management fees for the calendar year
immediately preceding such prepayment) discounted at the rate of 14% per year
to compensate for early payment.
F-16
<PAGE>
Appendix G
PS BUSINESS PARKS, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Report of independent auditors G- 1
Balance sheets at December 31, 1994 and 1993 G- 2
For the years ended December 31, 1994, 1993 and 1992:
Statements of income G- 3
Statements of shareholders' equity G- 4
Statements of cash flows G- 5
Notes to financial statements G- 6
Condensed balance sheets at September 30, 1995 and December 31, 1994 G-10
Condensed statements of income for the three
and nine months ended September 30, 1995 and 1994 G-11
Condensed statement of shareholders' equity for the
nine months ended September 30, 1995 G-12
Condensed statements of cash flows for the
nine months ended September 30, 1995 and 1994 G-13
Notes to condensed financial statements G-14
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
PS Business Parks, Inc.
We have audited the accompanying balance sheets of PS Business Parks, Inc. as of
December 31, 1994 and 1993, and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 PS Business Parks, Inc. at
December 31, 1994 and 1993, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
February 24, 1995
G-1
<PAGE>
PS BUSINESS PARKS, INC.
BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 101,000 $ 408,000
Real estate facilities at cost:
Building, land improvements, tenant
improvements and equipment 8,526,000 8,501,000
Land 2,254,000 2,254,000
----------- -----------
10,780,000 10,755,000
Less accumulated depreciation (4,072,000) (3,737,000)
----------- -----------
6,708,000 7,018,000
----------- -----------
Other assets 14,000 18,000
----------- -----------
Total assets $ 6,823,000 $ 7,444,000
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Accounts payable $ 199,000 $ 172,000
Dividends payable 178,000 202,000
Security deposits 159,000 159,000
Note payable 575,000 -
Shareholders' equity:
Series A common, $.01 par value,
656,034 shares authorized,
393,650 shares issued and
outstanding (461,025 shares
issued and outstanding in 1993) 4,000 5,000
Convertible Series B common, $.01 par
value, 42,785 shares authorized,
issued and outstanding 1,000 1,000
Convertible Series C common, $.01 par
value, 121,224 shares authorized,
issued and outstanding 1,000 1,000
Paid-in-capital 7,239,000 8,252,000
Cumulative income 6,206,000 5,625,000
Cumulative distributions (7,739,000) (6,973,000)
----------- -----------
Total shareholders' equity 5,712,000 6,911,000
----------- -----------
Total liabilities and shareholders' equity $ 6,823,000 $ 7,444,000
=========== ===========
</TABLE>
See accompanying notes.
G-2
<PAGE>
PS BUSINESS PARKS, INC.
STATEMENTS OF INCOME
For each of the three years in the
period ended December 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $1,723,000 $1,632,000 $1,732,000
Interest income 4,000 - 4,000
---------- ---------- ----------
1,727,000 1,632,000 1,736,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 620,000 518,000 473,000
Management fees paid to affiliate 86,000 81,000 86,000
Depreciation and amortization 363,000 356,000 372,000
Administrative 74,000 72,000 80,000
Interest expense 3,000 - -
---------- ---------- ----------
1,146,000 1,027,000 1,011,000
---------- ---------- ----------
NET INCOME $ 581,000 $ 605,000 $ 725,000
========== ========== ==========
Primary earnings per share-Series A $ 1.16 $ 1.16 $ 1.40
========== ========== ==========
Fully diluted earnings per share-Series A $ 0.96 $ 0.96 $ 1.14
========== ========== ==========
Dividends declared per share:
Series A $ 1.60 $ 1.60 $ 1.60
========== ========== ==========
Series B $ 1.60 $ 1.60 $ 1.60
========== ========== ==========
Weighted average Common shares outstanding:
Primary-Series A 440,121 464,275 470,258
========== ========== ==========
Fully diluted-Series A 604,130 628,284 634,267
========== ========== ==========
</TABLE>
See accompanying notes.
G-3
<PAGE>
PS BUSINESS PARKS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For each of the three years in the period ended
December 31, 1994
<TABLE>
<CAPTION>
Convertible Convertible
Series A Series B Series C Cumulative Total
-------------- -------------- -------------- Paid-in net Cumulative shareholders'
Shares Amount Shares Amount Shares Amount Capital income distributions equity
------ ------ ------ ------ ------ ------ ------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991 474,125 $5,000 42,785 $1,000 121,224 $1,000 $8,453,000 $4,295,000 ($5,343,000) $7,412,000
Net income 725,000 725,000
Repurchase of shares (9,400) - (143,000) (143,000)
Cash distributions declared:
$1.60 per share - Series A (751,000) (751,000)
$1.60 per share - Series B (68,000) (68,000)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1992 464,725 5,000 42,785 1,000 121,224 1,000 8,310,000 5,020,000 (6,162,000) 7,175,000
Net income 805,000 605,000
Repurchase of shares (3,700) - (58,000) (58,000)
Cash distributions declared:
$1.60 per share - Series A (743,000) (743,000)
$1.60 per share - Series B (68,000) (68,000)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1993 461,025 5,000 42,785 1,000 121,224 1,000 8,252,000 5,625,000 (6,973,000) 6,911,000
Net income 581,000 581,000
Repurchase of shares (67,375) (1,000) (1,013,000) (1,014,000)
Cash distributions declared:
$1.60 per share - Series A (698,000) (698,000)
$1.60 per share - Series B (68,000) (68,000)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1994 393,650 $4,000 42,785 $1,000 121,224 $1,000 $7,238,000 $6,206,000 ($7,739,000) $5,712,000
===================================================================================================
</TABLE>
See accompanying notes
G-4
<PAGE>
PS BUSINESS PARKS, INC.
STATEMENTS OF CASH FLOWS
For each of the three years in the
period ended December 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
----------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 581,000 $ 605,000 $ 725,000
Adjustments to reconcile net
income to net cash
provided
by operating activities:
Depreciation and amortization 363,000 356,000 372,000
Decrease in other assets 4,000 5,000 176,000
Increase (decrease) in
accounts payable 27,000 (57,000) 56,000
Increase (decrease) in
security deposits - 25,000 (13,000)
----------- --------- ----------
Total adjustments 394,000 329,000 591,000
----------- --------- ----------
Net cash provided
by operating
activities 975,000 934,000 1,316,000
----------- --------- ----------
Cash flows from investing activities:
Additions to business park
facility (53,000) (122,000) (103,000)
----------- --------- ----------
Net cash used in
investing activities (53,000) (122,000) (103,000)
----------- --------- ----------
Cash flows from financing activities:
Distributions paid to
shareholders (790,000) (812,000) (823,000)
Proceeds from note payable to
Bank 575,000 - -
Purchase of Company Series A
common stock (1,014,000) (58,000) (143,000)
----------- --------- ----------
Net cash used in
financing activities (1,229,000) (870,000) (966,000)
----------- --------- ----------
Net (decrease) increase in
cash and cash equivalents (307,000) (58,000) 247,000
Cash and cash equivalents at
the beginning of the year 408,000 466,000 219,000
----------- --------- ----------
Cash and cash equivalents at
the end of the year $ 101,000 $ 408,000 $ 466,000
=========== ========= ==========
</TABLE>
See accompanying notes.
G-5
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
1. Description of Business
PS Business Parks, 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 PS
Business Parks, Ltd. (the "Partnership") in a reorganization transaction
which was effective August 5, 1991 (the "Reorganization").
The Company owns and operates a business park facility 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 1999, 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.
The Company paid $3,000 in interest costs during 1994.
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, 1994 and 1993 to develop the business park
facility. The buildings and equipment are depreciated on the straight-line
basis over estimated useful lives of 25 and 5 years, respectively. Included
in depreciation and amortization is amortization of tenant improvements on
the Company's business park facility of $27,000, $30,000 and $37,000 in
1994, 1993 and 1992, respectively.
At December 31, 1994, the basis of real estate facilities (excluding
land) for Federal income tax purposes (after adjustment for accumulated
depreciation of $5,300,000) is $3,124,000.
Revenue Recognition:
Property rents are recognized as earned.
G-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' rights 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 (Series C shareholders are not entitled to cash
distributions) by the weighted average number of outstanding 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.
3. Related Party Transactions
The Company has a Management Agreement with Public Storage Commercial
Properties Group, Inc. (PSCPG), a subsidiary of Public Storage, Inc. (PSI),
which is a wholly-owned subsidiary of PSI Holdings, Inc. (PSIH). Under the
terms of the agreement, PSCPG operates the business park facility for a fee
which is equal to 5% of the facility's monthly gross revenue (as defined).
The 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. The 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 mark
and related designs until the then scheduled expiration date, if applicable,
or otherwise a date seven years after such termination.
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, 1994,
the Company has made and declared cumulative cash distributions of
approximately $7,106,000 with respect to the Series A shares. Accordingly,
assuming no repurchases or redemptions of Series A shares, the Conversion
would occur when $768,000 in additional distributions with respect to the
Series A shares have been made.
G-7
<PAGE>
4. Shareholders' Equity (continued)
Assuming liquidation of the Company at its net book value at December
31, 1994 and 1993, each Series of common shares would receive the following
as a liquidating distribution:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Series A $4,258,000 $5,836,000
Convertible Series B 379,000 280,000
Convertible Series C 1,075,000 795,000
---------- ----------
Total $5,712,000 $6,911,000
========== ==========
</TABLE>
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.
The Company's Board of Directors has authorized the Company to purchase
up to 200,000 shares of the Company's Series A common stock. As of December
31, 1994, the Company had purchased and retired 98,375 shares of Series A
common stock, of which 67,375 and 3,700 were purchased and retired in 1994
and 1993, respectively.
For Federal income tax purposes, distributions declared by the Board of
Directors in 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Ordinary income $766,000 $697,000 $819,000
Return of capital - 114,000 -
-------- -------- --------
Total $766,000 $811,000 $819,000
======== ======== ========
</TABLE>
5. Note Payable to Bank
In November 1994, the Company's Board of Directors authorized the Company to
obtain a line of credit facility for a maximum of $1,500,000 for working
capital purposes, including the repurchase of the Company's stock.
In November 1994, the Company obtained a secured non-revolving credit
facility with a bank for borrowings up to $1,500,000 for working capital
purposes and to repurchase the Company's stock. Outstanding borrowings on
the credit facility which bear interest at the bank's prime rate plus .25%
(8.75% at December 31, 1994) will convert to a term loan on July 1, 1995.
Interest will be payable monthly beginning on January 1, 1995 until
maturity. Principal will be payable quarterly beginning on July 1, 1995.
On December 31, 1998, the remaining unpaid principal and interest is due and
payable.
At December 31, 1994, the outstanding balance on the credit facility was
$575,000.
Under covenants of the credit facility, the Company is (1) required to
maintain a ratio of debt to net worth (as defined) of not more than .6 to
1.0, (2) required to maintain a REIT cash flow coverage ratio (as defined)
measured on a year-to-date basis for each fiscal quarter of not less than
1.2 to 1.0 and (3) beginning on and after the date on which the credit
facility converts to a term loan, required to maintain a dividend cash flow
coverage ratio (as defined) measured on a year- to-date basis for each
fiscal quarter of not less than 1.0 to 1.0. At December 31, 1994, the
Company was in compliance with the covenants of the credit facility.
G-8
<PAGE>
6. Lease Agreements
Leases relating to the Company's facility include long-term non-cancelable
operating leases. At December 31, 1994, the minimum lease amounts
receivable under such non-cancelable leases were as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1995 $1,126,000
1996 430,000
1997 125,000
1998 15,000
1999 2,000
----------
Total $1,698,000
==========
</TABLE>
7. Quarterly results (unaudited)
The following is a summary of unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------
March 1994 June 1994 Sept 1994 Dec. 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $413,000 $458,000 $423,000 $433,000
-------- -------- -------- --------
Expenses 272,000 277,000 286,000 311,000
-------- -------- -------- --------
Net income $141,000 $181,000 $137,000 $122,000
======== ======== ======== ========
Primary earnings per
share- Series A $0.27 $0.37 $0.27 $0.25
===== ===== ===== =====
Fully diluted earnings
per share- Series A $0.23 $0.29 $0.23 $0.21
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------
March 1993 June 1993 Sept 1993 Dec. 1993
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $420,000 $387,000 $413,000 $412,000
-------- -------- -------- --------
Expenses 248,000 244,000 259,000 276,000
-------- -------- -------- --------
Net income $172,000 $143,000 $154,000 $136,000
======== ======== ======== ========
Primary earnings
per share- Series A $0.33 $0.27 $0.29 $0.27
===== ===== ===== =====
Fully diluted earnings
per share- Series A $0.27 $0.23 $0.24 $0.22
===== ===== ===== =====
</TABLE>
G-9
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
----------- -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 243,000 $ 101,000
Real estate facilities at cost:
Building, land improvements, tenant
improvements and equipment 8,571,000 8,526,000
Land 2,254,000 2,254,000
----------- -----------
10,825,000 10,780,000
Less accumulated depreciation (4,300,000) (4,072,000)
----------- -----------
6,525,000 6,708,000
----------- -----------
Other assets 16,000 14,000
----------- -----------
Total assets $ 6,784,000 $ 6,823,000
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Accounts payable $ 212,000 $ 199,000
Dividends payable 214,000 178,000
Security deposits 172,000 159,000
Note payable 1,000,000 575,000
Shareholders' equity:
Series A common, $.01 par value,
656,034 shares authorized,
534,159 shares issued and
outstanding (393,650 shares
issued and outstanding in 1994) 5,000 4,000
Convertible Series B common, $.01 par
value, 42,785 shares authorized and
issued, none outstanding (42,785
issued and outstanding in 1994) - 1,000
Convertible Series C common, $.01 par
value, 121,224 shares authorized and
issued, none outstanding (121,224
issued and outstanding in 1994) - 1,000
Paid-in-capital 6,836,000 7,239,000
Cumulative income 6,640,000 6,206,000
Cumulative distributions (8,295,000) (7,739,000)
----------- -----------
Total shareholders' equity 5,186,000 5,712,000
----------- -----------
Total liabilities and shareholders' equity $ 6,784,000 $ 6,823,000
=========== ===========
</TABLE>
See Accompanying notes to condensed financial statements.
G-10
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
-------- -------- ---------- ----------
REVENUES:
Rental income $438,000 $422,000 $1,318,000 $1,292,000
Interest income 2,000 1,000 6,000 2,000
-------- -------- ---------- ----------
440,000 423,000 1,324,000 1,294,000
-------- -------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 137,000 158,000 444,000 440,000
Management fees
paid to an affiliate 22,000 21,000 66,000 64,000
Depreciation and amortization 93,000 90,000 265,000 276,000
Administrative 17,000 17,000 56,000 55,000
Interest expense 22,000 - 59,000 -
-------- -------- ---------- ----------
291,000 286,000 890,000 835,000
-------- -------- ---------- ----------
NET INCOME $149,000 $137,000 $ 434,000 $ 459,000
======== ======== ========== ==========
Earnings per share:
Primary - Series A $ 0.28 $ 0.27 $ 0.93 $ 0.91
======== ======== ========== ==========
Fully diluted - Series A $ 0.28 $ 0.23 $ 0.80 $ 0.75
======== ======== ========== ==========
Dividends declared per share:
Series A $ 0.40 $ 0.40 $ 1.20 $ 1.20
======== ======== ========== ==========
Series B $ - $ 0.40 $ 0.80 $ 1.20
======== ======== ========== ==========
Weighted average common
shares outstanding:
Primary - Series A 536,292 442,325 436,286 449,069
======== ======== ========== ==========
Fully diluted - Series A 536,292 606,334 545,626 613,078
======== ======== ========== ==========
</TABLE>
See Accompanying notes to condensed financial statements.
G-11
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible Convertible
Series A Series B Series C Cumulative Total
------------------ --------------- --------------- Paid-in net Cumulative shareholder's
Shares Amount Shares Amount Shares Amount Capital income distributions equity
------------------ --------------- --------------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 393,850 $4,000 42,785 $1,000 121,224 $1,000 $7,239,000 $6,206,000 ($7,739,000) $5,712,000
Net Income 434,000 434,000
Conversion of B & C
shares to A shares 164,000 2,000 (42,785)(1,000)(121,224)(1,000)
Repurchase of shares (23,500) (1,000) (403,800) (404,000)
Cash distribution declared:
$1.20 per share-Series A (522,000) (522,000)
$0.80 per share-Series B (34,000) (34,000)
------------------------------------------------------------------------------------------------------
Balances at September 30, 1995 534,159 $5,000 0 $0 0 $0 $6,836,000 $6,640,000 ($8,295,000) $5,186,000
======================================================================================================
</TABLE>
See Accompanying Notes
G - 12
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 434,000 $ 459,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 265,000 276,000
(Increase) decrease in other assets (2,000) 4,000
Increase in accounts payable 13,000 46,000
Increase (decrease) in security deposits 13,000 (3,000)
--------- ---------
Total adjustments 289,000 323,000
--------- ---------
Net cash provided by operating activities 723,000 782,000
--------- ---------
Cash flows from investing activities:
Additions to business park facility (82,000) (40,000)
--------- ---------
Net cash used in investing activities (82,000) (40,000)
--------- ---------
Cash flows from financing activities:
Distributions paid to shareholders (520,000) (597,000)
Proceeds from note payable to Bank 425,000 -
Purchase of Company Series A common stock (404,000) (298,000)
--------- ---------
Net cash used in financing activities (499,000) (895,000)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 142,000 (153,000)
Cash and cash equivalents at
the beginning of the period 101,000 408,000
--------- ---------
Cash and cash equivalents at
the end of the period $ 243,000 $ 255,000
========= =========
</TABLE>
See Accompanying notes to condensed financial statements.
G-13
<PAGE>
PS BUSINESS PARKS, 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, 1994.
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 September
30, 1995 and December 31, 1994, the results of its operations for the three
and nine months ended September 30, 1995 and 1994 and its cash flows for the
nine months then ended.
3. The results of operations for the three and nine months ended September 30,
1995 are not necessarily indicative of the results expected for the full
year.
4. In November 1994, the Company obtained a credit facility with a bank for
borrowings up to $1,500,000 for working capital purposes and general
corporate purposes. The credit facility was guaranteed by Public Storage,
Inc. In June 1995, the Company renegotiated its credit facility to reduce
the maximum borrowings to $1,000,000, extend the conversion date to a term
loan to October 31, 1995, change the maturity date to December 31, 1997 and
release the guaranty. Outstanding borrowings on the credit facility which
bear interest at the bank's prime rate plus .25% (9% at September 30, 1995)
will convert to a term loan on October 31, 1995. Interest is payable
monthly beginning on January 1, 1995 until maturity. Principal will be
payable quarterly beginning on October 31, 1995. On December 31, 1997, the
remaining unpaid principal and interest is due and payable. At September
30, 1995, the outstanding balance on the credit facility was $1,000,000.
The Company is subject to certain covenants including cash flow coverages
and dividend restrictions. As of September 30, 1995, the Company was in
compliance with the covenants of the credit facility except one for which it
had received a waiver as to compliance.
5. The Company's Articles of Incorporation provide that the Series B shares and
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 (including the General Partners' 1% interest) 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. On August 31, 1995, the requirements for
Conversion were met and the Convertible Series B shares and Convertible
Series C shares converted into Series A shares.
6. The Company reduced its regular dividend rate to $.19 per share per quarter
effective with the dividend payable on October 13, 1995 to shareholders of
record on September 29, 1995. The Company also declared a one-time special
dividend of $.21 per share payable on October 13, 1995 to shareholders of
record on September 29, 1995. .
G-14
<PAGE>
Appendix H
PUBLIC STORAGE PROPERTIES IX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine months ended September 30, 1995 compared to the nine months ended
----------------------------------------------------------------------
September 30, 1994: Public Storage Properties IX, Inc.'s net income for the
- -------------------
nine months ended September 30, 1995 and 1994 was $2,622,000 and $2,568,000,
respectively, representing an increase of $54,000. The 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 was $5,371,000 and $5,290,000 for the nine months ended
September 30, 1995 and 1994, respectively. This increase of $81,000 is
primarily a result of an increase in rental income at Public Storage Properties
IX, Inc.'s four mini-warehouses located in the State of California. Overall,
Public Storage Properties IX, Inc.'s ten other mini-warehouse facilities showed
increases in rental income as a result of increases in rental rates as well.
Rental revenues remained stable at Public Storage Properties IX's two business
park facilities for the nine month period ended September 30, 1995 compared to
the same period in 1994.
Public Storage Properties IX, Inc.'s mini-warehouse operations had weighted
average occupancy levels of 89.5% and 91.4% at September 30, 1995 and 1994,
respectively. Public Storage Properties IX, Inc.'s business park operations had
weighted average occupancy levels of 90.8% and 81.6% for the nine month periods
ended September 30, 1995 and 1994, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) increased slightly, $34,000, for the nine month period
ended September 30, 1995 versus the nine month period ended September 30, 1994.
During May 1995, Public Storage Properties IX, Inc.'s Houston, Texas
property sustained fire damage to two of its buildings which impacted operations
by 175 units, or, 30% of the property being unavailable for occupancy. During
the third quarter, Public Storage Properties IX, Inc. incurred approximately
$280,000 in repair costs which were reimbursed by insurance proceeds in October
1995. Reconstruction of these buildings has been completed. Additionally,
Public Storage Properties IX, Inc. will be reimbursed with business interruption
insurance for loss of rents caused by the fire.
Interest expense for the nine and three month periods ended September 30,
1995 compared to the same period in 1994 decreased $3,000 and $12,000 as a
result of lower average balances on its credit facility in 1995 compared to the
same periods in 1994.
Year ended December 31, 1994 compared to year ended December 31, 1993. Net
----------------------------------------------------------------------
income in 1994 was $3,388,000 compared to $3,545,000 in 1993, representing a
decrease of $157,000. The decrease in net income is primarily due to a gain on
the sale of real estate of $237,000 realized in the third quarter of 1993. Net
income per fully diluted Series A share was $1.33 in both 1993 and 1994. Net
income per fully diluted shares remained stable due to the repurchase and
retirement of Series A shares.
During 1994, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
increased $142,000 from $3,525,000 in 1993 to $3,667,000 in 1994. This increase
is attributable to an increase in rental revenues at Public Storage Properties
IX, Inc.'s mini-warehouse facilities.
Rental income for the mini-warehouse operations increased $379,000 or 6% from
$5,947,000 in 1993 to $6,326,000 in 1994. Cost of operations (including
management fees paid to an affiliate of Public Storage
H-1
<PAGE>
Properties IX, Inc.) increased $140,000 or 7% from $1,978,000 in 1993 to
$2,118,000 in 1994. The increase in rental income is primarily due to slight
increases in rental rates. The increase in cost of operations is mainly due to
increases in property taxes and repairs and maintenance offset by a decrease in
advertising expense.
Property net operating income before depreciation expense with respect to
Public Storage Properties IX, Inc.'s business park facility decreased by
$113,000 or 22% from $510,000 in 1993 to $397,000 in 1994. This decrease is
primarily due to a decrease in rental revenues as a result of a decrease in
rental rates and occupancy caused by market conditions where Public Storage
Properties IX, Inc.'s two business park facilities operate. The decrease in
rental revenue was offset by a decrease in cost of operations. The decrease in
cost of operations is due to decreases in property taxes and management fees
paid to affiliates.
Weighted average occupancy levels were 91% for the mini-warehouse facilities
and 83% for the business park facility in 1994 compared to 91% for the mini-
warehouse facilities and 90% for the business park facility in 1993.
Interest income increased from $14,000 in 1993 to $23,000 in 1994 for a net
increase of $9,000. This increase is primarily due to a slight increase in the
average interest rate earned on invested cash.
During 1994, Public Storage Properties IX, Inc. incurred $95,000 of interest
expense on its line of credit facility. No such expense was incurred in 1993
since Public Storage Properties IX, Inc. did not have a credit facility.
Mini-warehouse Operating Trends.
- --------------------------------
The following table illustrates the operating trends of Public Storage
Properties IX, Inc.'s 15 mini-warehouses:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Weighted average occupancy level 91% 91% 90%
Realized monthly rent per occupied
square foot (1) $ .70 $ .65 $ .64
Operating margin (2):
Before reduction for depreciation expense 65% 66% 64%
After reduction for depreciation expense 52% 52% 49%
</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 expense 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 Public Storage Properties IX, Inc.'s
facilities.
. 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 3% for 1994 (as
compared to 1993) and 2% in 1993.
H-2
<PAGE>
Liquidity and Capital Resources.
- --------------------------------
Capital structure. Public Storage Properties IX, Inc.'s financial profile is
-----------------
characterized by a low level of debt to total capitalization, 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. Public
-------------------------------------------------------------------
Storage Properties IX, Inc. 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
Public Storage Properties IX, Inc.'s business before distributions to
shareholders, capital expenditures and principal payments on debt. Net cash
provided by operating activities has increased over the past years from
$4,091,000 in 1993 to $4,289,000 in 1994. Net cash provided by operating
activities decreased from $3,184,00 for the nine months ended September 30, 1994
to $2,999,000 for the nine months ended September 30, 1995.
The Public Storage Properties IX, Inc.'s FFO is defined generally by the
National Associations of Real Estate Investment Trust ("NAREIT") as net income
before loss on early extinguishment of debt and gain on disposition of real
estate, plus depreciation and amortization. FFO for the years ended December
31, 1994 and 1993 were $4,326,000 and $4,259,000, respectively. FFO for the
nine months ended September 30, 1995 and 1994 was $3,338,000 and $3,272,000,
respectively. NAREIT has recently adopted revisions to the definition of funds
from operations which will become effective in 1996. The most material impact
of the new guidelines will be (i) amortization of deferred financing costs will
be treated as an expense - i.e. it will no longer be treated as an add-back to
net income and (ii) certain gains on sales of land will be included in funds
from operations if deemed to be recurring. These changes will have no impact on
the way Public Storage Properties IX, Inc. currently computes its funds from
operations. 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 Public
Storage Properties IX, Inc.. 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 Public
Storage Properties IX, Inc. 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 Public Storage Properties IX,
Inc.'s net cash provided by operating activities or net income, as a measure of
liquidity or operating performance.
The following table summarizes Public Storage Properties IX, Inc.'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
Public Storage Properties IX, Inc. to pay distributions to shareholders and
repurchase its stock.
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
------------------- --------------------------------
1995 1994 1994 1993 1992
--------- -------- ---------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income $ 2,622 $ 2,568 $ 3,388 $ 3,545 $ 4,936
Depreciation and
amortization 716 704 938 951 984
------- ------- ------- ------- -------
Funds from Operations
(Net cash provided by
operating
activities before
changes in
working capital
components) 3,338 3,272 4,326 4,496 5,920
Capital improvements to
maintain facilities (166) (107) (160) (139) (179)
------- ------- ------- ------- -------
Excess funds available for
distributions to
shareholders
and repurchase of stock 3,172 3,165 4,166 4,357 5,741
Cash distributions to
shareholders (2,488) (2,378) (3,156) (3,328) (5,534)
------- ------- ------- ------- -------
Excess funds available for
repurchase of stock $ 684 $ 787 $ 1,010 $ 1,029 $ 207
======= ======= ======= ======= =======
</TABLE>
H-3
<PAGE>
Cash flow from operations is expected to be sufficient to cover operating
expenses, capital improvements, debt service requirements and distributions (at
current dividend levels of $.30 per quarter per share) to shareholders.
Public Storage Properties IX, Inc. believes its geographically diverse
portfolio has resulted in a relatively stable and predictable investment
portfolio.
In December 1993, Public Storage Properties IX, Inc. obtained an unsecured
revolving credit facility from a commercial bank for borrowings up to $2,000,000
for working capital purposes. Outstanding borrowings on the revolving credit
facility bore interest at the bank's prime rate plus one and one-half percent
through September 30, 1994. In September, 1994, Public Storage Properties IX,
Inc. renegotiated its credit facility to reduce the interest rate from prime
plus one and one-half percent to prime and eliminate the amortization
requirement of loan principal. The credit facility matures on December 31, 1996
at which time all unpaid principal and accrued interest is due. As of September
30, 1995, Public Storage Properties IX, Inc. had borrowed $100,000 against the
credit facility.
Public Storage Properties IX, Inc.'s Board of Directors has authorized
Public Storage Properties, Inc. to purchase up to 500,000 shares of Series A
common stock. Public Storage Properties IX, Inc. has repurchased 408,117 shares
of Series A common stock, of which 23,600 shares were purchased in the first
three months of 1995.
The bylaws of Public Storage Properties IX, Inc. provide that, during 1996,
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 Public Storage Properties IX, Inc.
The Convertible Series B shares and Convertible Series C shares 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" ("Total Capital
Return"). The term "Original Series A shares" means the Series A shares issued
in the Reorganization of Public Storage Properties IX, Inc. from a partnership
to a corporation.
On February 9, 1995, Public Storage Properties IX, Inc.'s 188,845
convertible B and 535,061 convertible C shares converted into Series A shares as
provided for under Public Storage Properties IX, Inc.'s articles of
incorporation. Prior to Conversion, the Series C shares did not receive
distributions. As a result of the additional Series A shares outstanding due to
conversion, Public Storage Properties IX, Inc. decreased its regular quarterly
dividend to $.30 per share beginning with the March 31, 1995 dividend. Public
Storage Properties IX, Inc. believes that this level of dividends can be
supported by cash flow from operations and enable Public Storage Properties IX,
Inc. to repay advances under the terms of the credit facility.
H-4
<PAGE>
Appendix I
PS BUSINESS PARKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine months ended September 30, 1995 compared to the nine months ended
----------------------------------------------------------------------
September 30, 1994: The PS Business Parks, Inc.'s net income for the nine
- -------------------
months ended September 30, 1995 and 1994 was $434,000 and $459,000,
respectively, representing a decrease of $25,000 or 5%. The decrease is
primarily the result of an increase in interest expense.
Rental income for the nine months ended September 30, 1995 and 1994 was
$1,318,000 and $1,292,000, respectively, representing an increase of $26,000 or
2%. The increase is primarily due to an increase in cost recovery income
realized in 1995 (operating expenses billed to tenants) compared to 1994.
PS Business Parks, Inc.'s business park facility had an average occupancy
level of 97.9% and 98.4% for the nine month periods ended September 30, 1995 and
1994, respectively.
Cost of operations (including management fees paid to an affiliate and
depreciation expense) for the nine months ended September 30, 1995 and 1994 was
$775,000 and $780,000, respectively, representing a decrease of $5,000 or 1%.
The decrease is primarily attributable to a decrease in property tax expense
offset by an increase in payroll cost and tenant improvement expenses. Property
taxes were higher in 1994 due to a property tax assessment received in 1994
related to prior years. The increase in tenant improvement expenses is
attributable to cost incurred on repairs made to office space associated with
higher tenant turnover in 1995 compared to 1994.
During the nine months ended September 30, 1995, PS Business Parks, Inc.
incurred $59,000 in interest expense on its line of credit facility. No such
expense was incurred during the same periods in 1994 since PS Business Parks,
Inc. did not have a credit facility.
Year ended December 31, 1994 compared to year ended December 31, 1993. Net
----------------------------------------------------------------------
income in 1994 was $581,000 compared to $605,000 in 1993, representing a
decrease of $24,000. The decrease in net income is primarily due to a decrease
in the net operating income of PS Business Parks, Inc.'s business park facility
in San Jose, California. Net income per fully diluted Series A share remained
stable at $.96 in 1994 and 1993. Net income per share in 1994 remained stable,
despite the decrease in net income, as a result of a reduction in the number of
Series A shares outstanding due to PS Business Parks, Inc.'s repurchase of
Series A shares.
During 1994, property net operating income (rental income less cost of
operations, management fees paid to an affiliate and depreciation expense)
decreased $23,000 from $677,000 in 1993 to $654,000 in 1994. This decrease is
attributable to an increase in cost of operations at PS Business Parks, Inc.'s
business park facility combined with an increase in rental revenues. PS
Business Parks, Inc.'s depreciation expense remained stable in 1994 compared to
1993.
Rental income of PS Business Parks, Inc.'s business park facility increased
$91,000 or 6% from $1,632,000 in 1993 to $1,723,000 in 1994. Cost of operations
(including management fees paid to an affiliate of the Company) increased
$107,000 or 18% from $599,000 in 1993 to $706,000 in 1994. The results of these
changes was a net decrease in property net operating income before depreciation
expense of $16,000 or 2% from $1,033,000 in 1993 to $1,017,000 in 1994. The
increase in rental income is partially attributable to a one-time increase in
revenues realized from cost recovery income (operating expenses billed to
tenants) of $51,000 during the second quarter of 1994. The market in which PS
Business Parks, Inc.'s business park facility operates is showing a slow and
steady improvement. Fewer rental concessions were needed to lease out suites in
1994 than in 1993. Approximately 95% of PS Business Parks, Inc.'s leases are on
a "triple-net" basis. Additionally, PS Business Parks, Inc. has increased its
base rental rate by approximately 2%. The increase in cost of operations is
primarily due to an increase in property taxes resulting from an increase in the
assessed value of the property. As a result of this assessment, property taxes
increased $119,000 in 1994
I-1
<PAGE>
compared to 1993 (including a one-time adjustment of approximately $71,000 for
the retroactive implementation of the assessment). PS Business Parks, Inc.
projects property taxes in 1995 to be approximately $140,000.
Weighted average occupancy levels for PS Business Parks, Inc.'s business park
facility were 99% and 98% in 1994 and 1993, respectively.
During 1994, PS Business Parks, Inc. incurred $3,000 of interest expense on
its line of credit facility. No such expense was incurred in 1993 since PS
Business Parks, Inc. did not have a credit facility.
Business Park Operating Trends.
- -------------------------------
The following table illustrates the operating trends for PS Business Parks,
Inc.'s business park facility:
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average occupancy level 99% 98% 97%
Realized monthly rent per occupied
square foot (1) $ .84 $ .80 $ .86
Operating margin: (2)
Before reduction for depreciation
expense 59% 63% 68%
After reduction for depreciation
expense 38% 41% 46%
</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.
The decrease in operating margin from 1992 to 1994 is due to two factors.
The decrease from 1992 to 1993 is mainly due to a decrease in rental income as a
result of a decrease in average rental rates. The decrease from 1993 to 1994 is
due to an increase in property taxes in 1994 resulting from an increase in the
assessed value of the property.
Liquidity and Capital Resources.
- --------------------------------
Capital structure. PS Business Parks, Inc.'s financial profile is
-----------------
characterized by a low level of debt to total capitalization, decreasing net
income, decreasing cash provided by operating activities and decreasing funds
from operations ("FFO").
Net Cash Provided by Operating Activities and Funds from Operations. PS
-------------------------------------------------------------------
Business Parks, Inc. 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 (net income plus depreciation and
amortization) reflects the cash generated from PS Business Parks, Inc.'s
business before distributions to shareholders, capital expenditures and
principal payments on debt. Net cash provided by operating activities has
decreased over the past years from $1,316,000 in 1992 to $975,000 in 1994 as a
result of a decrease in property net operating income. Net cash provided by
operating activities decreased from $782,000 for the nine months ended September
30, 1994 to $723,000 for the same period in 1995.
PS Business Parks, Inc.'s FFO is defined generally by the National
Association of Real Estate Investment Trusts (NAREIT) as net income before loss
on early extinguishment of debt and gain on disposition of real estate, plus
depreciation and amortization. FFO for the years ended December 31,
I-2
<PAGE>
1994 and 1993 was $944,000 and $961,000, respectively. FFO for the nine months
ended September 30, 1995 and 1994 was $699,000 and $735,000, respectively.
NAREIT has recently adopted revisions to the definition of funds from operations
which will become effective in 1996. The most material impact of the new
guidelines will be (i) amortization of deferred financing costs will be treated
as an expense -i.e., it will no longer be treated as an add-back to net income
and (ii) certain gains on sales of land will be included in funds from
operations if deemed to be recurring. These changes will have no impact on the
way PS Business Parks, Inc. currently computes its funds from operations. 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 PS Business Parks, Inc..
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 PS Business Parks, Inc. 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 PS Business Parks, Inc.'s net cash provided by operating
activities or net income, as a measure of liquidity or operating performance.
The following table summarizes PS Business Parks, Inc.'s ability to make
capital improvements to maintain its facility through the use of cash provided
by operating activities. The remaining cash flow is available to PS Business
Parks, Inc. to pay distributions to shareholders and repurchase its stock.
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
----------------- --------------------------------
1995 1994 1994 1993 1992
------- -------- --------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income $ 434 $ 459 $ 581 $ 605 $ 725
Depreciation and
amortization 265 276 363 356 372
----- ----- ----- ----- ------
Funds from Operations
(Net cash provided by
operating
activities before
changes in
working capital
components) 699 735 944 961 1,097
Capital improvements to
maintain facilities (82) (40) (53) (122) (103)
----- ----- ----- ----- ------
Excess funds available for
distributions to
shareholders
and repurchase of stock 617 695 891 839 994
Cash distributions to
shareholders (520) (597) (790) (812) (823)
----- ----- ----- ----- ------
Excess funds available for
repurchase of stock $ 97 $ 98 $ 101 $ 27 $ 171
===== ===== ===== ===== ======
</TABLE>
Cash flow from operations is expected to be sufficient to cover operating
expenses, capital improvements, debt service requirements and distributions (at
current dividend levels of $.19 per quarter per share) to shareholders.
In November 1994, PS Business Parks, Inc. obtained a credit facility with a
bank for borrowings up to $1,500,000 for working capital purposes and general
corporate purposes. The credit facility was guaranteed by Public Storage
Management, Inc. In June 1995, PS Business Parks, Inc. renegotiated its credit
facility to reduce the maximum borrowings to $1,000,000, extend the conversion
date to a term loan to October 31, 1995, change the maturity date to
December 31, 1997 and release the guaranty. Outstanding borrowings on the
credit facility which bear interest at the bank's prime rate plus .25% (9% at
September 30, 1995) will convert to a term loan on October 31, 1995. Interest
is payable monthly beginning on January 1, 1995 until maturity. Principal will
be payable quarterly beginning on October 31, 1995. On December 31, 1997, the
remaining unpaid principal and interest is due and payable. At September 30,
1995, the outstanding balance on the credit facility was $1,000,000.
PS Business Parks, Inc.'s Articles of Incorporation provide that the Series B
shares and 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
I-3
<PAGE>
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
(including the General Partners' 1% interest) 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.
On August 31, 1995, PS Business Parks, Inc.'s Convertible Series B and
Convertible Series C shares converted into Series A shares in accordance with PS
Business Parks, Inc.'s Articles of Incorporation. Prior to conversion, the
Series C shares did not receive dividends. As a result of the additional Series
A shares outstanding due to the conversion, PS Business Parks, Inc. decreased
its regular dividend to $.19 per share per quarter effective with the dividend
payable on October 13, 1995 to shareholders of record on September 29, 1995. PS
Business Parks, Inc. believes that this level of dividends can be supported by
cash flow from operations and enable PS Business Parks, Inc. to repay the
advances under the terms of the credit facility discussed above. In addition to
the regular dividend, PS Business Parks, Inc. declared a one-time special
dividend of $.21 per share payable on October 13, 1995 to shareholders of record
on September 29, 1995.
PS Business Parks, Inc.'s Board of Directors has authorized the PS Business
Parks, Inc. to purchase up to 200,000 Series A common stock. As of September
30, 1995, the Company had repurchased 121,875 shares of Series A common stock.
From October 1, 1995 through October 31, 1995, PS Business Parks, Inc.
repurchased no additional Series A shares.
The bylaws of PS Business Parks, Inc. provide that, during 1999, 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 PS
Business Parks, Inc.
I-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 3.14) which
are incorporated herein by this reference. In October 1988, the Company also
entered into indemnity agreements (in the form approved by the shareholders in
August 1988) with its management and non-management directors and executive
officers. The agreements permit the Company to indemnify directors and
executive officers to the maximum extent permitted under California law and
prohibit the Company from terminating its indemnification obligations as to acts
or omissions of any director or executive officer occurring before the
termination. The indemnification and limitations on liability permitted by the
amendment to the Articles of Incorporation and the agreements are subject to the
limitations set forth by California law. The Company believes the
indemnification agreements will assist it in attracting and retaining qualified
individuals to serve as directors and executive officers of the Company.
ITEM 21. Exhibits and Financial Statement Schedules.
(a) Exhibits: See Exhibit Index contained herein.
(b) Financial Statement Schedules:
See Index to Financial Statement Schedules in registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and incorporated herein
by reference.
All other financial statement schedules are omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
ITEM 22. Undertakings.
The undersigned Registrant hereby undertakes 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 30th day of January, 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 January 30, 1996
------------------------- Executive Officer and Director
B. Wayne Hughes (principal executive officer)
HARVEY LENKIN President and Director January 30, 1996
- -------------------------
Harvey Lenkin
RONALD L. HAVNER, JR. Senior Vice President and Chief January 30, 1996
- ------------------------- Financial Officer (principal
Ronald L. Havner, Jr. financial officer and principal
accounting officer)
ROBERT J. ABERNETHY Director January 30, 1996
- -------------------------
Robert J. Abernethy
DANN V. ANGELOFF Director January 30, 1996
- -------------------------
Dann V. Angeloff
WILLIAM C. BAKER Director January 30, 1996
- --------------------------
William C. Baker
BERRY HOLMES Director January 30, 1996
- --------------------------
Berry Holmes
URI P. HARKHAM Director January 30, 1996
- --------------------------
Uri P. Harkham
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization among Registrant, Public Storage
Properties IX, Inc. ("PSP9") and PS Business Parks, Inc. ("PSBP") dated
as of December 13, 1995 (filed as Appendix A to the Joint 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 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.
5.1 Opinion on legality. Filed herewith.
S-4
<PAGE>
8.1 Opinion on tax matters for PSP9. Filed herewith.
8.2 Opinion on tax matters for PSBP. 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 Charles R. Wilson & Associates, Inc. Filed herewith.
99.1 Proxy card for PSP9. Filed herewith.
99.2 Proxy card for PSBP. Filed herewith.
99.3 Cash Election Form for PSP9. Filed herewith.
99.4 Cash Election Form for PSBP. Filed herewith.
99.5 Real Estate Appraisal Report by Charles R. Wilson & Associates, Inc.
dated as of October 31, 1995 for PSP9 (filed as Appendix B-1 to the Joint
Proxy Statement and Prospectus).
99.6 Real Estate Appraisal Report by Charles R. Wilson & Associates, Inc.
dated as of November 1, 1995 for PSBP (filed as Appendix B-2 to the Joint
Proxy Statement and Prospectus).
S-5
<PAGE>
99.7 Opinion of Robert A. Stanger & Co., Inc. dated January 31, 1996 for PSP9
(filed as Appendix C-1 to the Joint Proxy Statement and Prospectus).
99.8 Opinion of Robert A. Stanger & Co., Inc. dated January 31, 1996 for PSBP
(filed as Appendix C-2 to the Joint Proxy Statement and Prospectus).
- -------------
* Compensatory benefit plan.
S-6
<PAGE>
DAVID GOLDBERG
Senior Vice President and General Counsel
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
January 30, 1996
Public Storage, Inc.
600 North Brand Boulevard
Glendale, California 91203-1241
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
January 30, 1996
Public Storage Properties IX, Inc.
600 N. Brand Blvd.
Glendale, California 91203-1241
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section
7.1.7 of the Agreement and Plan of Reorganization by and among Public Storage,
Inc., a California corporation ("PSI"), Public Storage Properties IX, Inc., a
California corporation ("PSP9") and PS Business Parks, Inc., a California
corporation, dated December 13, 1995 (the "Merger Agreement"). Pursuant to the
Merger Agreement, PSP9 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 Joint Proxy
Statement and Prospectus that is a part of the Registration Statement filed with
the Securities and Exchange Commission on or about the date of delivery of this
opinion (the "Joint 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 special tax counsel to PSP9 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 PSP9;
4. The Joint Proxy Statement and Prospectus;
<PAGE>
Public Storage Properties IX, Inc.
January 30, 1996
Page 2
5. The Shareholder Agreement dated January 30, 1996 provided to
us by B. Wayne Hughes; and
6. Such other instruments and documents related to the formation,
organization and operation of PSI and PSP9 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 PSP9 or PSI has or will represent
equity for tax purposes; no outstanding equity of PSP9 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 will continue to qualify as a REIT under sections 856 through 860 of the
Internal Revenue Code (the "Code") following the merger of Public Storage
Management, Inc. ("PSMI") into 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) either 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 or PSI made
distributions prior to the end of 1995 in an amount sufficient to eliminate such
earnings and profits, and (3) that the discussion
<PAGE>
Public Storage Properties IX, Inc.
January 30, 1996
Page 3
under the heading "Certain Federal Income Tax Matters" in the Joint Proxy
Statement and Prospectus fairly summarizes the federal income tax considerations
that are material to a PSP9 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 PSP9 Shareholder who has
provided or will provide services to PSP9 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 PSP9 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 IX, Inc.
January 30, 1996
Page 4
(iv) the basis of any equity interest in PSP9 acquired by PSI in the
Merger; and
(v) the tax consequences of the Merger (including the opinion set
forth above) as applied to specific PSP9 Shareholders and/or holders of options
or warrants for PSP9 stock or that may be relevant to particular classes of PSP9
Shareholders and/or holders of options or warrants for PSP9 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 Joint 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 8.2
January 30, 1996
PS Business Parks, Inc.
600 N. Brand Blvd.
Glendale, California 91203-1241
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section
7.1.7 of the Agreement and Plan of Reorganization by and among Public Storage,
Inc., a California corporation ("PSI"), Public Storage Properties IX, Inc., a
California corporation, and PS Business Parks, Inc., a California corporation
("PSBP"), dated December 13, 1995 (the "Merger Agreement"). Pursuant to the
Merger Agreement, PSBP 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 Joint Proxy
Statement and Prospectus that is part of the Registration Statement filed with
the Securities and Exchange Commission on or about the date of delivery of this
opinion (the "Joint 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 special tax counsel to PSBP 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 PSBP;
4. The Joint Proxy Statement and Prospectus;
<PAGE>
PS Business Parks, Inc.
January 30, 1996
Page 2
5. Such other instruments and documents related to the formation,
organization and operation of PSI and PSBP 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 PSBP or PSI has or will represent
equity for tax purposes; no outstanding equity of PSBP 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 will continue to qualify as a REIT under sections 856 through 860 of the
Internal Revenue Code (the "Code") following the merger of Public Storage
Management, Inc. ("PSMI") into 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) either 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 or PSI made
distributions prior to the end of 1995 in an amount sufficient to eliminate such
earnings and profits, and (3) that the discussion under the heading "Certain
Federal Income Tax Matters" in the Joint Proxy
<PAGE>
PS Business Parks, Inc.
January 30, 1996
Page 3
Statement and Prospectus fairly summarizes the federal income tax considerations
that are material to a PSBP 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 PSBP Shareholder who has
provided or will provide services to PSBP 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 PSBP 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>
PS Business Parks, Inc.
January 30, 1996
Page 4
(iv) the basis of any equity interest in PSBP acquired by PSI in the
Merger; and
(v) the tax consequences of the Merger (including the opinion set
forth above) as applied to specific PSBP Shareholders and/or holders of options
or warrants for PSBP stock or that may be relevant to particular classes of PSBP
Shareholders and/or holders of options or warrants for PSBP 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 8.2
to the Registration Statement and to the reference to this firm under the
captions "Legal Opinions" and "Certain Federal Income Tax Matters" in the Joint
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 (formerly Storage Equities, Inc.) registration of common stock
and in the related Joint Proxy Statement and Prospectus of Public Storage, Inc.,
Public Storage Properties IX, Inc. and PS Business Parks, Inc. and to the
incorporation by reference therein of our report dated February 7, 1995, except
for Note 13, for which the date is March 13, 1995 with respect to the
consolidated financial statements and schedules of Storage Equities, Inc. in its
Annual Report on Form 10-K, as amended by a Form 10-K/A (Amendment No. 2) dated
April 27, 1995 for the year ended December 31, 1994 filed with the Securities
and Exchange Commission, to the use of our report dated February 24, 1995 with
respect to the financial statements and schedules of Public Storage Properties
IX, Inc. included in the Registration Statement and Joint Proxy Statement and
Prospectus, and to the use of our report dated February 24, 1995 with respect to
the financial statements and schedules of PS Business Parks, Inc. included in
the Registration Statement and Joint Proxy Statement and Prospectus.
We also consent to the incorporation by reference of the following: (i)
our report dated February 24, 1995 with respect to the financial statements of
Public Storage Properties VII, Inc. which is included in the Registration
Statement on Form S-4 (No. 33-58893) of Storage Equities, Inc., (ii) our report
dated July 10, 1995 on the combined statements of assets, liabilities and
deficit of the property management and advisory businesses of Public Storage,
Inc. as of December 31, 1994 and 1993 and the related combined statements of
operations and cash flows for each of the three years in the period ended
December 31, 1994, and our report dated July 10, 1995 on the combined summaries
of historical information relating to real estate interests to be acquired for
each of the three years in the period ended December 31, 1994 which are included
in the Current Report on Form 8-K, as amended by a Form 8-K/A, each dated June
30, 1995, of Storage Equities, Inc., (iii) our report dated October 6, 1995 on
the combined statements of assets, liabilities and equity of the property
management and advisory businesses and real estate assets of Public Storage,
Inc. as of December 31, 1994 and 1993 and the related combined statements of
operations and cash flows for each of the three years in the period ended
December 31, 1994 which are included in the Current Report on Form 8-K dated
November 16, 1995, of Public Storage, Inc., each of which is incorporated by
reference in the Registration Statement on Form S-4 (No. 333-________) and
related Joint Proxy Statement and Prospectus.
ERNST & YOUNG LLP
Los Angeles, California
January 30, 1996
<PAGE>
Exhibit 23.4
Consent of Charles R. Wilson & Associates, Inc.
We hereby consent to the references to our firm under "The Mergers --
Real Estate Portfolio Appraisals by Wilson" in the Joint Proxy Statement and
Prospectus which is a part of this Registration Statement and to the other
references to our firm therein.
Charles R. Wilson & Associates, Inc.
January 30, 1996
Pasadena, California
<PAGE>
PUBLIC STORAGE PROPERTIES IX, INC.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
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 IX, Inc. ("PSP9") held of record by the undersigned on
_______________, 1996, at the Special Meeting of Shareholders to be held on
_______________, 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 the merger (the "PSP9 Merger")
of PSP9 with and into Public Storage, Inc. ("PSI") pursuant to an Agreement
and Plan of Reorganization among PSI, PSP9 and PS Business Parks, Inc.
described in the accompanying Joint Proxy Statement and Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
2. PROPOSED AMENDMENT TO BYLAWS. To consider and vote upon a related
amendment to PSP9's bylaws to authorize the PSP9 Merger in the form of
Appendix E-1 to the accompanying Joint 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 Joint 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.
Exhibit 99.1
<PAGE>
PS BUSINESS PARKS, INC.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
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 PS Business Parks,
Inc. ("PSBP") held of record by the undersigned on _______________, 1996, at the
Special Meeting of Shareholders to be held on _______________, 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 the merger (the "PSBP Merger")
of PSBP with and into Public Storage, Inc. ("PSI") pursuant to an Agreement
and Plan of Reorganization among PSI, PSBP and Public Storage Properties IX,
Inc. described in the accompanying Joint Proxy Statement and Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
2. PROPOSED AMENDMENT TO BYLAWS. To consider and vote upon a related amendment
to PSBP's bylaws to authorize the PSBP Merger in the form of Appendix E-2 to
the accompanying Joint 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 Joint 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.
Exhibit 99.2
<PAGE>
Exhibit 99.3
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK OF
PUBLIC STORAGE PROPERTIES IX, 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 IX, Inc. ("PSP9") Common Stock Series A, par value
$.01 per share ("PSP9 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 PSP9 COMMON STOCK COVERED HEREBY (UNLESS DELIVERY IS GUARANTEED IN BOX E
BELOW IN ACCORDANCE WITH INSTRUCTION A), MUST BE RECEIVED BY THE 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 PSP9 COMMON STOCK WHO INTEND TO RECEIVE PUBLIC STORAGE, INC.
("PSI") COMMON STOCK IN THE PSP9 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 PSP9 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 For Information
American Stock Transfer & Trust Company Shareholder Communications Corporation
Attn: Reorganization Department (800) 733-8481, extension 421
40 Wall Street, 46th Floor
New York, NY 10005
(800) 937-5449
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
"PSP9 Merger") of PSP9 with and into Public Storage, Inc. ("PSI"), pursuant to
the Agreement and Plan of Reorganization dated as of December 13, 1995, among
PSI, PSP9 and PS Business Parks, Inc. (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 PSP9 Common
Stock listed in Box A (Certificate Information) and (b) elects (an "Election"),
as indicated below, upon consummation of the PSP9 Merger to have each of the
shares of PSP9 Common Stock represented by the Certificates converted into the
right to receive $18.64 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 PSP9 Merger.
The undersigned hereby certifies that this Election covers all of the shares
of PSP9 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 PSP9 Shareholder may not make a cash election as to less
than all of the shares of PSP9 Common Stock beneficially owned by such
shareholder.
This Election is subject to the terms and conditions set forth in the Merger
Agreement and the Joint Proxy Statement and Prospectus, dated January ___, 1996
(the "Joint Proxy Statement and Prospectus"), furnished to shareholders of PSP9,
in connection with the PSP9 Merger, all of which are incorporated herein by
reference. Receipt of the Joint Proxy Statement and Prospectus, including the
Merger Agreement attached as Appendix A thereto, is hereby acknowledged. Copies
of the Joint 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 PSP9 Common Stock to be converted into the right to receive cash in
the PSP9 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 PSP9 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 Joint 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 PSP9 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 PSP9 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK
IN THE PSP9 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 PSP9 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 PSP9 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 PSP9 (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 PSP9 Merger (the "Effective Time") could occur on the same
day approval of the PSP9 Merger by shareholders of PSP9 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
_______________, 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 PSP9 Merger is anticipated to occur is determined, PSP9 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 fifth 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 PSP9 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 PSP9 Merger to have each of the shares of PSP9 Common Stock
covered by this Cash Election Form converted into the right to receive $18.64 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
Joint Proxy Statement and Prospectus. The Merger Agreement is included as
Appendix A to the Joint Proxy Statement and Prospectus. Copies of the Joint
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 Joint Proxy
Statement and Prospectus. EACH HOLDER OF PSP9 COMMON STOCK IS STRONGLY
ENCOURAGED TO READ THE JOINT PROXY STATEMENT AND PROSPECTUS IN ITS ENTIRETY AND
TO DISCUSS THE CONTENTS THEREOF, THE PSP9 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 PSP9 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 JOINT 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 PSP9
Common Stock covered by this Cash Election Form.
D. RECEIPT OF PSI COMMON STOCK
HOLDERS OF PSP9 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK
IN THE PSP9 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 PSP9 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 PSP9 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 PSP9 Common Stock subject
to such Election and the serial numbers shown on the Certificates representing
such PSP9 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 PSP9 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 Joint 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 PSP9 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 PSP9 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 PSP9 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 PSP9 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 PSP9 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 PSP9 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 PSP9, 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 PSP9 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 PSP9 Common Stock, you should contact American Stock Transfer &
Trust Company, PSP9's transfer agent, at (800) 937-5449. 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 PSP9 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 PSP9
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 421
(individual holders), or (212) 805-7000 (banks and brokers). You may also
obtain additional copies of the Cash Election Form and the Joint Proxy Statement
and Prospectus from the Depositary at the addresses and telephone number set
forth on the first page of this Cash Election Form.
H. DELIVERY OF PAYMENT CHECKS
As soon as practicable after the PSP9 Merger becomes effective, the
Depositary will make the allocations of cash to be received by holders of PSP9
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 PSP9 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 PSP9 Merger becomes
effective, a Letter of Transmittal for you to use to send in your stock
Certificates for shares of PSP9 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 PSP9 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 JOINT PROXY STATEMENT AND PROSPECTUS FOR THAT
PURPOSE.
4
<PAGE>
CASH ELECTION FORM
EXECUTION SECTION
BOX A
- --------------------------------------------------------------------------------
CERTIFICATE INFORMATION
List below the certificates to which this Cash Election Form relates. (Attach
additional sheets if necessary.)
<TABLE>
<CAPTION>
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).
BOX B
- --------------------------------------------------------------------------------
SIGN HERE
To be completed by all person(s) surrendering certificates and executing this
Cash Election Form.
Signature(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
Date: Telephone Number:
---------------------- -------------------------
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)).
Name(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
Capacity
(Full Title):
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 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.
- --------------------------------------------------------------------------------
E-1
<PAGE>
CASH ELECTION FORM
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 PSP9 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.
BOX D
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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 report all interest or
Department of the Treasury dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup
Internal Revenue Service withholding. [_]
---------------------------------------------------------------------------------------------------------
Payer's Request for Certification - Under penalties of perjury, I certify that the information Part 3 -
Taxpayer Identification provided on this form is true, correct and complete.
Number (TIN) Awaiting TIN [_]
---------------------
Signature: Date:
---------------------------------------------------- ------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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:
----------------------- ----------------------------------------
- --------------------------------------------------------------------------------
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 PSP9 Common Stock submitted with this Cash Election Form no later
than 5:00 p.m., New York City Time, on the fifth business day after the
Election Deadline (as defined in Instruction A).
<TABLE>
<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 PSP9
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).
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).)
Name:
-------------------------------------------------
Address:
-------------------------------------------------
Social Security Number or
Employer Identification Number:
-------------------------------------------------
-------------------------------------------------
- --------------------------------------------------------------------------------
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).)
Address:
---------------------------------------------------------------
---------------------------------------------------------------
- --------------------------------------------------------------------------------
E-2
<PAGE>
Exhibit 99.4
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK OF
PS BUSINESS PARKS, 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 PS
Business Parks, Inc. ("PSBP") Common Stock Series A, par value $.01 per share
("PSBP 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 PSBP COMMON STOCK COVERED HEREBY (UNLESS DELIVERY IS GUARANTEED IN BOX E
BELOW IN ACCORDANCE WITH INSTRUCTION A), MUST BE RECEIVED BY THE 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 PSBP COMMON STOCK WHO INTEND TO RECEIVE PUBLIC STORAGE, INC.
("PSI") COMMON STOCK IN THE PSBP 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 PSBP 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 For Information
American Stock Transfer & Trust Company Shareholder Communications Corporation
Attn: Reorganization Department (800) 733-8481, extension 421
40 Wall Street, 46th Floor
New York, NY 10005
(800) 937-5449
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 "PSBP Merger") of PSBP with and into Public Storage, Inc. ("PSI"), pursuant
to the Agreement and Plan of Reorganization dated as of December 13, 1995, among
PSI, PSBP and Public Storage Properties IX, Inc. (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 PSBP Common Stock listed in Box A (Certificate Information) and (b) elects
(an "Election"), as indicated below, upon consummation of the PSBP Merger to
have each of the shares of PSBP Common Stock represented by the Certificates
converted into the right to receive $19.59 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 PSBP Merger.
The undersigned hereby certifies that this Election covers all of the shares
of PSBP 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 PSBP Shareholder may not make a cash election as to less
than all of the shares of PSBP Common Stock beneficially owned by such
shareholder.
This Election is subject to the terms and conditions set forth in the Merger
Agreement and the Joint Proxy Statement and Prospectus, dated January ___, 1996
(the "Joint Proxy Statement and Prospectus"), furnished to shareholders of PSBP,
in connection with the PSBP Merger, all of which are incorporated herein by
reference. Receipt of the Joint Proxy Statement and Prospectus, including the
Merger Agreement attached as Appendix A thereto, is hereby acknowledged. Copies
of the Joint 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 PSBP Common Stock to be converted into the right to receive cash in
the PSBP 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 PSBP 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 Joint 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 PSBP 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 PSBP COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK IN
THE PSBP 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 PSBP 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 PSBP 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 PSBP (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 PSBP Merger (the "Effective Time") could occur on the same
day approval of the PSBP Merger by shareholders of PSBP 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
_______________, 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 PSBP Merger is anticipated to occur is determined, PSBP 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 fifth 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 PSBP 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 PSBP Merger to have each of the shares of PSBP Common Stock
covered by this Cash Election Form converted into the right to receive $19.59 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
Joint Proxy Statement and Prospectus. The Merger Agreement is included as
Appendix A to the Joint Proxy Statement and Prospectus. Copies of the Joint
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 Joint Proxy
Statement and Prospectus. EACH HOLDER OF PSBP COMMON STOCK IS STRONGLY
ENCOURAGED TO READ THE JOINT PROXY STATEMENT AND PROSPECTUS IN ITS ENTIRETY AND
TO DISCUSS THE CONTENTS THEREOF, THE PSBP 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 PSBP 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 JOINT 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 PSBP
Common Stock covered by this Cash Election Form.
D. RECEIPT OF PSI COMMON STOCK
HOLDERS OF PSBP COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK IN
THE PSBP 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 PSBP 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 PSBP 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 PSBP Common Stock subject
to such Election and the serial numbers shown on the Certificates representing
such PSBP 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 PSBP 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 Joint 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 PSBP 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 PSBP 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 PSBP 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 PSBP 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 PSBP 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
PSBP 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 PSBP, 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 PSBP 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 PSBP Common Stock, you should contact American Stock Transfer &
Trust Company, PSBP's transfer agent, at (800) 937-5449. 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 PSBP 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 PSBP
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 421
(individual holders), or (212) 805-7000 (banks and brokers). You may also
obtain additional copies of the Cash Election Form and the Joint Proxy Statement
and Prospectus from the Depositary at the addresses and telephone number set
forth on the first page of this Cash Election Form.
H. DELIVERY OF PAYMENT CHECKS
As soon as practicable after the PSBP Merger becomes effective, the
Depositary will make the allocations of cash to be received by holders of PSBP
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 PSBP 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 PSBP Merger becomes
effective, a Letter of Transmittal for you to use to send in your stock
Certificates for shares of PSBP 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 PSBP 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 JOINT PROXY STATEMENT AND PROSPECTUS FOR THAT
PURPOSE.
4
<PAGE>
CASH ELECTION FORM
EXECUTION SECTION
BOX A
- --------------------------------------------------------------------------------
CERTIFICATE INFORMATION
List below the certificates to which this Cash Election Form relates. (Attach
additional sheets if necessary.)
<TABLE>
<CAPTION>
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).
BOX B
- --------------------------------------------------------------------------------
SIGN HERE
To be completed by all person(s) surrendering certificates and executing this
Cash Election Form.
Signature(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
Date: Telephone Number:
---------------------- -------------------------
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)).
Name(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
Capacity
(Full Title):
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 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.
- --------------------------------------------------------------------------------
E-1
<PAGE>
CASH ELECTION FORM
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 PSBP 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.
BOX D
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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 report all interest or
Department of the Treasury dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup
Internal Revenue Service withholding. [_]
---------------------------------------------------------------------------------------------------------
Payer's Request for Certification - Under penalties of perjury, I certify that the information Part 3 -
Taxpayer Identification provided on this form is true, correct and complete.
Number (TIN) Awaiting TIN [_]
---------------------
Signature: Date:
---------------------------------------------------- ------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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:
----------------------- ----------------------------------------
- --------------------------------------------------------------------------------
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 PSP9 Common Stock submitted with this Cash Election Form no later
than 5:00 p.m., New York City Time, on the fifth business day after the
Election Deadline (as defined in Instruction A).
<TABLE>
<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 PSBP
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).
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).)
Name:
-------------------------------------------------
-------------------------------------------------
Address:
-------------------------------------------------
-------------------------------------------------
Social Security Number or
Employer Identification Number:
-------------------------------------------------
-------------------------------------------------
- --------------------------------------------------------------------------------
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).)
Address:
---------------------------------------------------------------
---------------------------------------------------------------
- --------------------------------------------------------------------------------
E-2
