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As filed with the Securities and Exchange Commission on March 3, 1997
Registration No. 333-
================================================================================
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)
95-3551121 6798
(I.R.S. Employer (Primary Standard Industrial
Identification No.) Classification Code Number)
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701 Western Avenue, Suite 200 HUGH W. HORNE
Glendale, California 91201-2397 Public Storage, Inc.
(818) 244-8080 701 Western Avenue, Suite 200
(Address, including zip code, and Glendale, California 91201-2397
telephone number, including area code, (818) 244-8080
of registrant's principal executive offices) (Name, address, including zip code, and telephone
number, including area code, of agent for service)
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______________
Copies to:
DAVID GOLDBERG, ESQ.
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
______________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement.
______________
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company, check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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=========================================================================================================================
Proposed Proposed
Amount Offering Maximum Maximum
to be Price Aggregate Amount of
Title of Each Class of Securities to be Registered Registered Per Share Offering Price Registration Fee
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- -------------------------------------------------------------------------------------------------------------------------
Common Stock, $.10 par value per share (1) (1) (1) $34,795(1)(2)
=========================================================================================================================
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(1) This Registration Statement relates to (a) the proposed merger of Public
Storage Properties XIV, Inc. ("PSP14") into the Registrant and the
conversion of shares of common stock of PSP14 into either cash (as to up to
20% of the outstanding shares of common stock series A of PSP14) or common
stock of the Registrant and (b) the proposed merger of Public Storage
Properties XV, Inc. ("PSP15") into the Registrant and the conversion of
shares of common stock of PSP15 into either cash (as to up to 20% of the
outstanding shares of common stock series A of PSP15) or common stock of the
Registrant. At the mergers, there will be a maximum of (a) 2,263,218 shares
of common stock series A, 232,762 shares of common stock series B and
659,494 shares of common stock series C, of PSP14 outstanding and (b)
2,136,885 shares of common stock series A, 232,762 shares of common stock
series B and 659,494 shares of common stock series C, of PSP15 outstanding.
The closing price of the common stock series A of PSP14 on the American
Stock Exchange on February 26, 1997 was $21.125 per share and the book value
of the common stock series B and C of PSP14 at September 30, 1996 was $11.66
per share. The closing price of the common stock series A of PSP15 on the
American Stock Exchange on February 26, 1997 was $21.375 per share and the
book value of the common stock series B and C of PSP15 at September 30, 1996
was $12.25 per share. 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) and (f)(2) under the Securities
Act of 1933. $13,714 of the registration fee was previously paid in
connection with PSP14's preliminary proxy materials.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
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PUBLIC STORAGE, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY FORM S-4
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Registration Statement Item Location in Prospectus
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A. Information About the Transaction
1. Forepart of Registration Front Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back See page 1 and pages (iii)-(iv)
Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings Risk Factors
to Fixed Charges and Other
Information
4. Terms of the Transaction Summary and The Mergers
5. Pro Forma Financial Information Incorporation of Certain Documents by
Reference
6. Material Contacts with the Risk Factors, Conflicts of Interest
Company Being Acquired 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 Legal Opinions
Counsel
9. Disclosure of Commission Position The Mergers -- Comparison of PSP14
on Indemnification for Securities and PSP15 Common Stock with PSI
Act Liabilities Common Stock -- Management and Duties
B. Information About the Registrant
10. Information with Respect to S-3 Incorporation of Certain Documents by
Registrants Reference
11. Incorporation of Certain Incorporation of Certain Documents by
Information By Reference Reference
12. Information with Respect to S-2 Incorporation of Certain Documents by
or S-3 Registrants Reference
13. Incorporation of Certain Incorporation of Certain Documents by
Information By Reference Reference
14. Information with Respect to Incorporation of Certain Documents by
Registrants Other than S-2 or S-3 Reference
Registrants
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_________________
* Omitted as Inapplicable.
(ii)
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C. Information About the Company Being Acquired
15. Information with Respect to S-3 Incorporation of Certain Documents by
Companies Reference
16. Information with Respect to S-2 Incorporation of Certain Documents by
or S-3 Companies Reference
17. Information with Respect to Incorporation of Certain Documents by
Companies Other than S-2 or S-3 Reference
Companies
D. Voting and Management Information
18. Information if Proxies, Consents Incorporation of Certain Documents by
or Authorizations are to be Solicited Reference
19. Information if Proxies, Consents Incorporation of Certain Documents by
or Authorizations are not to be Reference
Solicited or in an Exchange Offer
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_________________
* Omitted as Inapplicable.
(iii)
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
APRIL 9, 1997
A special meeting of shareholders of Public Storage Properties XIV, Inc., a
California corporation ("PSP14"), will be held at PSP14's offices at 701 Western
Avenue, Suite 200, Glendale, California on April 9, 1997, at the hour of 10:00
a.m. for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization among
PSP14, Public Storage, Inc. ("PSI") and Public Storage Properties XV, Inc.
("PSP15") described in the accompanying Combined Proxy Statement and
Prospectus (the "Merger Agreement") pursuant to which PSP14 would be merged
into PSI (the "PSP14 Merger"). Each outstanding share of PSP14 Common
Stock would be converted into the right to receive a value of $21.73 in
cash, PSI Common Stock or a combination of the two, as follows:
. If holders of 20% or less of the outstanding PSP14 Common Stock elect
to receive cash in the PSP14 Merger, shares held by PSP14 Shareholders
electing cash will be converted into the right to receive $21.73 in
cash for each share of PSP14 Common Stock, subject to reduction as
described below.
. If holders of more than 20% of the outstanding PSP14 Common Stock
elect to receive cash in the PSP14 Merger, shares held by PSP14
Shareholders electing cash will be converted into the right to receive
cash on a pro rata basis, and the balance of these shares would be
converted into PSI Common Stock with a market value (as determined
below) of $21.73 per share of PSP14 Common Stock, subject to reduction
as described below.
. To be effective a cash election must be made by April 8, 1997, in
accordance with the accompanying Cash Election Form.
. If a PSP14 Shareholder does not elect cash, all of his or her PSP14
Common Stock will be converted into PSI Common Stock with a market
value (as determined below) of $21.73 per share of PSP14 Common Stock,
subject to reduction as described below.
. Shares held by PSP14 Shareholders who have properly exercised
dissenter's rights under California law will be purchased by PSP14 on
the terms described under "Dissenting Shareholders' Rights of
Appraisal" in the accompanying Combined Proxy Statement and
Prospectus.
. For purposes of the PSP14 Merger, the market value of the PSI Common
Stock will be the average of the per share closing prices on the New
York Stock Exchange of the PSI Common Stock during the 20 consecutive
trading days ending on the fifth trading day prior to the special
meeting of the shareholders of PSP14.
. The consideration paid by PSI to PSP14 Shareholders in the PSP14
Merger will be reduced by the amount of cash distributions required to
be paid to PSP14 Shareholders by PSP14 prior to completion of the
PSP14 Merger (estimated at $1.18 per share) in order to satisfy
PSP14's REIT distribution requirements ("Required PSP14 REIT
Distributions"). The consideration received by PSP14 Shareholders in
the PSP14 Merger, however, along with any Required PSP14 REIT
Distributions, will not be less than $21.73 per share of PSP14 Common
Stock. PSP14 Shareholders
<PAGE>
would receive the Required PSP14 REIT Distributions upon any
liquidation of PSP14, regardless of the PSP14 Merger.
. Additional distributions would be made to the PSP14 Shareholders to
cause PSP14's estimated net asset value allocable to the PSP14
Shareholders as of the date of the PSP14 Merger to be substantially
equivalent to $21.73 per share.
. The PSP14 Common Stock and PSP14 Common Stock Series B and C held by
PSI will be cancelled in the PSP14 Merger.
. Under the Merger Agreement, PSP15 will also be merged into PSI (the
"PSP15 Merger"), if approved by the shareholders of PSP15.
. THE PSP14 MERGER AND THE PSP15 MERGER ARE NOT CONDITIONED ON EACH
OTHER.
2. To consider and vote upon a related amendment to PSP14's bylaws to
authorize the PSP14 Merger in the form of Appendix E-1 to the accompanying
Combined Proxy Statement and Prospectus.
The Board of Directors has determined that holders of record of PSP14
Common Stock, PSP14 Common Stock Series B and PSP14 Common Stock Series C at the
close of business on February 24, 1997 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
March __, 1997
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PUBLIC STORAGE PROPERTIES XV, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
APRIL 9, 1997
A special meeting of shareholders of Public Storage Properties XV, Inc., a
California corporation ("PSP15"), will be held at PSP15's offices at 701 Western
Avenue, Suite 200, Glendale, California on April 9, 1997, at the hour of 10:00
a.m. for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization among
PSP15, Public Storage, Inc. ("PSI") and Public Storage Properties XIV, Inc.
("PSP14") described in the accompanying Combined Proxy Statement and
Prospectus (the "Merger Agreement") pursuant to which PSP15 would be merged
into PSI (the "PSP15 Merger"). Each outstanding share of PSP15 Common
Stock would be converted into the right to receive a value of $21.99 in
cash, PSI Common Stock or a combination of the two, as follows:
. If holders of 20% or less of the outstanding PSP15 Common Stock elect
to receive cash in the PSP15 Merger, shares held by PSP15 Shareholders
electing cash will be converted into the right to receive $21.99 in
cash for each share of PSP15 Common Stock, subject to reduction as
described below.
. If holders of more than 20% of the outstanding PSP15 Common Stock
elect to receive cash in the PSP15 Merger, shares held by PSP15
Shareholders electing cash will be converted into the right to receive
cash on a pro rata basis, and the balance of these shares would be
converted into PSI Common Stock with a market value (as determined
below) of $21.99 per share of PSP15 Common Stock, subject to reduction
as described below.
. To be effective a cash election must be made by April 8, 1997, in
accordance with the accompanying Cash Election Form.
. If a PSP15 Shareholder does not elect cash, all of his or her PSP15
Common Stock will be converted into PSI Common Stock with a market
value (as determined below) of $21.99 per share of PSP15 Common Stock,
subject to reduction as described below.
. Shares held by PSP15 Shareholders who have properly exercised
dissenter's rights under California law will be purchased by PSP15 on
the terms described under "Dissenting Shareholders' Rights of
Appraisal" in the accompanying Combined Proxy Statement and
Prospectus.
. For purposes of the PSP15 Merger, the market value of the PSI Common
Stock will be the average of the per share closing prices on the New
York Stock Exchange of the PSI Common Stock during the 20 consecutive
trading days ending on the fifth trading day prior to the special
meeting of the shareholders of PSP15.
. The consideration paid by PSI to PSP15 Shareholders in the PSP15
Merger will be reduced by the amount of cash distributions required to
be paid to PSP15 Shareholders by PSP15 prior to completion of the
PSP15 Merger (estimated at $1.23 per share) in order to satisfy
PSP15's REIT distribution requirements ("Required PSP15 REIT
Distributions"). The consideration received by PSP15 Shareholders in
the PSP15 Merger, however, along with any Required PSP15 REIT
Distributions, will not be less than $21.99 per share of PSP15 Common
Stock. PSP15 Shareholders
<PAGE>
would receive the Required PSP15 REIT Distributions upon any
liquidation of PSP15, regardless of the PSP15 Merger.
. Additional distributions would be made to the PSP15 Shareholders to
cause PSP15's estimated net asset value allocable to the PSP15
Shareholders as of the date of the PSP15 Merger to be substantially
equivalent to $21.99 per share.
. The PSP15 Common Stock and PSP15 Common Stock Series B and C held by
PSI will be cancelled in the PSP15 Merger.
. Under the Merger Agreement, PSP14 will also be merged into PSI (the
"PSP14 Merger"), if approved by the shareholders of PSP14.
. THE PSP15 MERGER AND THE PSP14 MERGER ARE NOT CONDITIONED ON EACH
OTHER.
2. To consider and vote upon a related amendment to PSP15's bylaws to
authorize the PSP15 Merger in the form of Appendix E-2 to the accompanying
Combined Proxy Statement and Prospectus.
The Board of Directors has determined that holders of record of PSP15
Common Stock, PSP15 Common Stock Series B and PSP15 Common Stock Series C at the
close of business on February 24, 1997 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
March __, 1997
<PAGE>
PUBLIC STORAGE, INC.
PUBLIC STORAGE PROPERTIES XIV, INC.
PUBLIC STORAGE PROPERTIES XV, INC.
COMBINED PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETINGS OF SHAREHOLDERS OF
PUBLIC STORAGE PROPERTIES XIV, INC. AND PUBLIC STORAGE PROPERTIES XV, INC.
April 9, 1997
This Combined Proxy Statement and Prospectus is being furnished to holders
of shares of (a) Public Storage Properties XIV, Inc. ("PSP14") Common Stock
Series A, par value $.01 per share (the "PSP14 Common Stock"), Common Stock
Series B, par value $.01 per share and Common Stock Series C, par value $.01 per
share (collectively, the "PSP14 Common Stock Series B and C") and (b) Public
Storage Properties XV, Inc. ("PSP15") Common Stock Series A, par value $.01 per
share (the "PSP15 Common Stock"), Common Stock Series B, par value $.01 per
share and Common Stock Series C, par value $.01 per share (collectively, the
"PSP15 Common Stock Series B and C") and relates to meetings of shareholders of
PSP14 and PSP15 called to approve the proposed mergers of each of PSP14 and
PSP15 with and into Public Storage, Inc. ("PSI") (the "PSP14 Merger" and the
"PSP15 Merger," respectively; together, the "Mergers") pursuant to the Agreement
and Plan of Reorganization attached as Appendix A to this Combined Proxy
Statement and Prospectus (the "Merger Agreement"). Holders of PSP14 and PSP15
Common Stock are referred to hereafter as the "PSP14 Shareholders" and the
"PSP15 Shareholders," respectively, and holders of PSI Common Stock, par value
$.10 per share (the "PSI Common Stock") are referred to hereafter as the "PSI
Shareholders." THE PSP14 MERGER AND THE PSP15 MERGER ARE NOT CONDITIONED ON
EACH OTHER.
PSI and its executive officers have significant relationships with PSP14
and PSP15, and PSI and B. Wayne Hughes ("Hughes"), the chief executive officer
of each of PSI, PSP14 and PSP15, own a substantial amount of the capital stock
of each of PSP14 and PSP15. See "Summary -- Relationships." The Merger
Agreement requires that each of the Mergers be approved by a majority of the
outstanding shares of Common Stock and Common Stock Series B and C of the
respective corporation, voting together as a class, with the Common Stock Series
B and C voted with the holders of a majority of the unaffiliated shares of the
Common Stock of the respective corporation. Each of the Boards of Directors of
PSP14 and PSP15, based on recommendations of special committees composed of
independent directors, recommends that PSP14 and PSP15 Shareholders,
respectively, vote for the PSP14 and PSP15 Mergers, respectively.
The Mergers involve certain factors that should be considered by the PSP14
and PSP15 Shareholders, including the following:
. The Mergers have not been negotiated at arm's length, no unaffiliated
representatives were appointed to negotiate the terms of the Mergers on
behalf of PSP14 or PSP15 and no third party proposals for PSP14 or PSP15 or
their properties were solicited.
. The nature of the investment of PSP14 and PSP15 Shareholders who receive
shares of PSI Common Stock is being changed from holding an interest in a
specified portfolio of properties for a finite period to holding an
investment in an ongoing fully-integrated real estate company, whose
portfolio of properties is changed from time to time without approval of
shareholders, and which does not plan to liquidate its assets within a
fixed period of time.
(Continued on following page)
------------------
THE SECURITIES TO BE ISSUED IN THE MERGERS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
March __, 1997
<PAGE>
. Based on a market price of PSI Common Stock of $27 per share and the
current regular quarterly distribution rate for PSI, PSP14 and PSP15, the
level of distributions to PSP14 and PSP15 Shareholders who receive PSI
Common Stock in the Mergers would be approximately 48% and 40% lower,
respectively, after the Mergers.
. The properties of PSP14 and PSP15 may continue to appreciate in value and
might be able to be liquidated at a later date for more consideration than
in the Mergers.
. Under California law, PSP14 and PSP15 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 PSP14 and PSP15 Common Stock, respectively.
. PSI and its affiliates have conflicts of interest in connection with the
Mergers.
. The public PSI Shareholders are substantially limited in their ability to
control PSI. At January 31, 1997, Hughes and members of his family (the
"Hughes Family") owned approximately 43% of the PSI Common Stock
(approximately 47% upon conversion of the PSI Class B Common Stock), and
there are restrictions on beneficial ownership of PSI securities in PSI's
organizational documents. Such ownership factors should prevent any
takeover not approved by Hughes.
. As a result of a prior business combination, PSI is subject to tax risks,
including additional risks as to PSI's continued qualification as a real
estate investment trust ("REIT").
. In making real estate investments, PSI, unlike PSP14 and PSP15, has
incurred ($113 million at September 30, 1996), and may continue to incur,
debt.
. The interest of PSI Shareholders can be diluted through the issuance of
additional securities. PSI has outstanding ($835 million), 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 PSP14 and PSP15 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, such as changes in interest rates and market conditions.
. The consideration to be received by PSP14 and PSP15 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
PSP14 or PSP15.
. PSP14 and PSP15 Shareholders who receive any cash in connection with the
Mergers may have a taxable gain.
See "Glossary" beginning on page 100 for definitions of certain terms used in
this Combined Proxy Statement and Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 21 OF THIS COMBINED PROXY STATEMENT AND
PROSPECTUS.
The PSI Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "PSA". On March ___, 1997, the closing price of the PSI Common
Stock on the NYSE was $_____. The PSP14 and PSP15 Common Stock are traded on
the American Stock Exchange ("AMEX") under the symbols "PSP" and "PSQ",
respectively. On March ___, 1997, the closing prices of the PSP14 and PSP15
Common Stock on the AMEX were $_____ and $_____, respectively.
This Combined Proxy Statement and Prospectus is first being mailed on or
about March 11, 1997 to shareholders of record of PSP14 and PSP15 at the close
of business on February 24, 1997. The special meetings of shareholders of PSP14
and PSP15 to consider the Mergers will occur concurrently.
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, PSP14 OR
PSP15. THIS COMBINED 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 COMBINED PROXY STATEMENT AND PROSPECTUS
RELATES TO OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
ii
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TABLE OF CONTENTS
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Available Information................................................................... 1
Incorporation of Certain Documents by Reference......................................... 1
Cautionary Statement.................................................................... 2
Summary................................................................................. 3
Overview of Mergers................................................................ 3
Meetings and Vote Requirements of Shareholders..................................... 5
PSP14.............................................................................. 6
PSP15.............................................................................. 6
PSI................................................................................ 6
Risk Factors....................................................................... 6
Background and Reasons for the Mergers............................................. 8
Potential Advantages of the Mergers................................................ 9
Detriments of the Mergers.......................................................... 10
Rights of Dissenting Shareholders.................................................. 10
Determination of Payments to be Received by PSP14 Shareholders
in Connection with the PSP14 Merger............................................... 11
Determination of Payments to be Received by PSP15 Shareholders
in Connection with the PSP15 Merger............................................... 11
Federal Income Tax Matters......................................................... 11
Recommendations; Opinions of Financial Advisors.................................... 12
Comparison of PSP14 and PSP15 Common Stock with PSI Common Stock................... 12
Summary Financial Information...................................................... 15
Relationships...................................................................... 19
Risk Factors............................................................................ 21
No Arm's Length Negotiation or Unaffiliated Representatives........................ 21
Change in Nature of Investment..................................................... 21
Lower Level of Distributions After the Mergers..................................... 21
Potential Loss of Future Appreciation.............................................. 21
Limitation on Dissenters' Rights of Appraisal...................................... 21
Control and Influence by the Hughes Family and Ownership Limitations............... 21
Tax Risks.......................................................................... 22
Financing Risks.................................................................... 23
Uncertainty Regarding Market Price of PSI Common Stock............................. 24
Merger Consideration Based on Appraisals Instead of Arm's Length Negotiation....... 24
Tax to PSP14 and PSP15 Shareholders................................................ 24
Operating Risks.................................................................... 24
Shares Eligible for Future Sale.................................................... 26
Conflicts of Interest in the Mergers.................................................... 27
The Mergers............................................................................. 28
General............................................................................ 28
Background......................................................................... 30
Reasons for the Mergers and Timing................................................. 33
Alternatives to the Mergers........................................................ 33
No Solicitation of Other Proposals................................................. 36
Determination of Payments to be Received by PSP14 and PSP15 Shareholders
in Connection with the Mergers.................................................... 36
Potential Advantages of the Mergers to PSP14 and PSP15............................. 39
Detriments of the Mergers.......................................................... 39
Recommendation to PSP14 and PSP15 Shareholders and Fairness Analysis............... 40
Comparison of Consideration to be Received in the Mergers to Other Alternatives.... 42
Real Estate Portfolio Appraisals by Wilson......................................... 46
Fairness Opinions from Stanger..................................................... 48
The Merger Agreement............................................................... 53
Cash Election Procedure............................................................ 55
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iii
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Consequences to PSP14 and PSP15 if the Mergers are Not Completed................... 56
Costs of the Mergers............................................................... 56
Accounting Treatment............................................................... 57
Regulatory Requirements............................................................ 57
Comparison of PSP14 and PSP15 Common Stock with PSI Common Stock................... 58
Amendment to Bylaws of PSP14 and PSP15.................................................. 62
Approval of the Mergers and Bylaw Amendments............................................ 63
General............................................................................ 63
PSP14.............................................................................. 63
PSP15.............................................................................. 63
Security Ownership of Certain Beneficial Owners and Management..................... 64
Solicitation of Proxies............................................................ 71
Description of PSP14's Properties....................................................... 72
Description of PSP15's Property......................................................... 75
Description of PSI's Properties......................................................... 78
Distributions and Price Range of PSI Common Stock....................................... 79
Distributions and Price Range of PSP14 Common Stock..................................... 80
Distributions and Price Range of PSP15 Common Stock..................................... 81
Description of PSI Capital Stock........................................................ 82
Common Stock....................................................................... 82
Ownership Limitations.............................................................. 82
Class B Common Stock............................................................... 83
Preferred Stock.................................................................... 84
Equity Stock....................................................................... 85
Effects of Issuance of Capital Stock............................................... 85
Dissenting Shareholders' Rights of Appraisal............................................ 86
Federal Income Tax Matters.............................................................. 88
The Mergers........................................................................ 88
Opinion of Counsel................................................................. 90
General Tax Treatment of PSI....................................................... 91
Consequences of the PSMI Merger on PSI's Qualification as a REIT................... 93
Taxation of Holders of PSI Common Stock............................................ 97
State and Local Taxes................................................................... 98
Legal Opinions.......................................................................... 98
Experts................................................................................. 99
Independent Auditors.................................................................... 99
Shareholder Proposals................................................................... 99
Glossary................................................................................ 100
Appendix A - Agreement and Plan of Reorganization among PSI, PSP14 and PSP15 dated as of December 5, 1996
Appendix B-1 - Real Estate Appraisal Report by Charles R. Wilson & Associates, Inc. for PSP14 dated November
15, 1996
Appendix B-2 - Real Estate Appraisal Report by Charles R. Wilson & Associates, Inc. for PSP15 dated November
15, 1996
Appendix C-1 - Opinion of Robert A. Stanger & Co., Inc. (PSP14 Merger) dated March 3, 1997
Appendix C-2 - Opinion of Robert A. Stanger & Co., Inc. (PSP15 Merger) dated March 3, 1997
Appendix D - Chapter 13 of the California General Corporation Law Concerning Dissenters' Rights
Appendix E-1 - Proposed Amendment to PSP14's Bylaws
Appendix E-2 - Proposed Amendment to PSP15's Bylaws
Appendix F-1 - Financial Statements of PSP14
Appendix F-2 - Financial Statements of PSP15
Appendix G-1 - Management's Discussion and Analysis of Financial Condition and Results of Operations of PSP14
Appendix G-2 - Management's Discussion and Analysis of Financial Condition and Results of Operations of PSP15
</TABLE>
iv
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AVAILABLE INFORMATION
Each of PSI, PSP14 and PSP15 is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such material can be
inspected and copied at the public reference facilities maintained by the
Commission in Washington, D.C. and at the Regional Offices of the Commission at
7 World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or by accessing
the Commission's Worldwide Web site at http://www.sec.gov. Such material can
also be inspected, in the case of PSI, at the NYSE, 20 Broad Street, New York,
New York 10005 and the Pacific Stock Exchange Incorporated, 301 Pine Street, San
Francisco, California 94104, and, in the case of PSP14 or PSP15, 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 Combined Proxy Statement and Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by PSI with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-8389), are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/As dated April 29, 1996, May 14, 1996 and May 15,
1996; (ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; and (iii) the Current Reports on
Form 8-K dated January 22, 1996, September 6, 1996, September 18, 1996 and
October 28, 1996.
All documents filed by PSI pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Combined Proxy Statement and
Prospectus and prior to the date of the special meetings of the shareholders of
PSP14 and PSP15 shall be deemed to be incorporated by reference herein from the
date of filing such documents.
The following documents filed by PSP14 with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-10792) are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/As dated April 26, 1996 and February 27, 1997;
(ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996; and (iii) the Current Report on Form 8-K
dated December 5, 1996.
The following documents filed by PSP15 with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-10837) are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/As dated April 26, 1996 and February 27, 1997;
(ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996; and (iii) the Current Report on Form 8-K
dated December 5, 1996.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Combined Proxy Statement and Prospectus
("Proxy Statement") shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained in this Proxy
Statement or in any subsequently filed document which also is or is deemed to be
incorporated by reference in this Proxy Statement modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
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Also incorporated by reference herein is the Merger Agreement, which is
attached as Appendix A to this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (INCLUDING DOCUMENTS
FILED SUBSEQUENT TO THE DATE HEREOF), EXCEPT THE EXHIBITS TO SUCH DOCUMENTS
(UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH
DOCUMENTS), SHALL BE DELIVERED TO ANY PERSON TO WHOM THIS PROXY STATEMENT IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON AND BY FIRST CLASS MAIL
WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST. REQUESTS FOR SUCH COPIES
SHOULD BE DIRECTED TO INVESTOR SERVICES DEPARTMENT, 701 WESTERN AVENUE, SUITE
200, GLENDALE, CALIFORNIA 91201-2397 OR BY TELEPHONE AT (818) 244-8080. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
_______________, 1997.
CAUTIONARY STATEMENT
Statements contained in this Proxy Statement that are not based on
historical fact are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "continue" or similar terms, variations of those
terms or the negative of those terms. Cautionary statements set forth in "Risk
Factors" and elsewhere in this Proxy Statement identify important factors that
could cause actual results to differ materially from those in the forward-
looking statements.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Combined Proxy Statement and Prospectus.
See "Glossary" beginning on page 100 for definitions of certain terms used in
this Combined Proxy Statement and Prospectus.
OVERVIEW OF MERGERS
MERGER OF PSP14 INTO PSI. PSP14 will be merged into PSI, which will be the
surviving corporation. Each outstanding share of PSP14 Common Stock would be
converted into the right to receive a value of $21.73 in cash, PSI Common Stock
or a combination of the two, as follows:
. If holders of 20% or less of the outstanding PSP14 Common Stock elect
to receive cash in the PSP14 Merger, shares held by PSP14 Shareholders electing
cash will be converted into the right to receive $21.73 in cash for each share
of PSP14 Common Stock, subject to reduction as described below.
. If holders of more than 20% of the outstanding PSP14 Common Stock
elect to receive cash in the PSP14 Merger, shares held by PSP14 Shareholders
electing cash will be converted into the right to receive cash on a pro rata
basis, and the balance of these shares would be converted into PSI Common Stock
with a market value (as determined below) of $21.73 per share of PSP14 Common
Stock, subject to reduction as described below.
. To be effective a cash election must be made by April 8, 1997, in
accordance with the accompanying Cash Election Form.
. If a PSP14 Shareholder does not elect cash, all of his or her PSP14
Common Stock will be converted into PSI Common Stock with a market value (as
determined below) of $21.73 per share of PSP14 Common Stock, subject to
reduction as described below.
. Shares held by PSP14 Shareholders who have properly exercised
dissenter's rights under California law will be purchased by PSP14 on the terms
described under "Dissenting Shareholders' Rights of Appraisal."
. For purposes of the PSP14 Merger, the market value of the PSI Common
Stock will be 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 the shareholders of PSP14.
. The consideration paid by PSI to PSP14 Shareholders in the PSP14
Merger will be reduced by the amount of cash distributions required to be paid
to PSP14 Shareholders by PSP14 prior to completion of the PSP14 Merger
(estimated at $1.18 per share) in order to satisfy PSP14's REIT distribution
requirements ("Required PSP14 REIT Distributions"). The consideration received
by PSP14 Shareholders in the PSP14 Merger, however, along with any Required
PSP14 REIT Distributions, will not be less than $21.73 per share of PSP14 Common
Stock. PSP14 Shareholders would receive the Required PSP14 REIT Distributions
upon any liquidation of PSP14, regardless of the PSP14 Merger.
. Additional distributions would be made to the PSP14 Shareholders to
cause PSP14's estimated net asset value allocable to the PSP14 Shareholders as
of the date of the PSP14 Merger to be substantially equivalent to $21.73 per
share.
. The PSP14 Common Stock and PSP14 Common Stock Series B and C held by
PSI will be cancelled in the PSP14 Merger.
See "The Mergers -- Determination of Payments to be Received by PSP14 and
PSP15 Shareholders in Connection with the Mergers." For a description of the
terms of the PSP14 Merger, see "The Mergers -- The Merger Agreement."
3
<PAGE>
MERGER OF PSP15 INTO PSI. PSP15 will be merged into PSI, which will be the
surviving corporation. Each outstanding share of PSP15 Common Stock would be
converted into the right to receive a value of $21.99 in cash, PSI Common Stock
or a combination of the two, as follows:
. If holders of 20% or less of the outstanding PSP15 Common Stock elect
to receive cash in the PSP15 Merger, shares held by PSP15 Shareholders electing
cash will be converted into the right to receive $21.99 in cash for each share
of PSP15 Common Stock, subject to reduction as described below.
. If holders of more than 20% of the outstanding PSP15 Common Stock
elect to receive cash in the PSP15 Merger, shares held by PSP15 Shareholders
electing cash will be converted into the right to receive cash on a pro rata
basis, and the balance of these shares would be converted into PSI Common Stock
with a market value (as determined below) of $21.99 per share of PSP15 Common
Stock, subject to reduction as described below.
. To be effective a cash election must be made by April 8, 1997, in
accordance with the accompanying Cash Election Form.
. If a PSP15 Shareholder does not elect cash, all of his or her PSP15
Common Stock will be converted into PSI Common Stock with a market value (as
determined below) of $21.99 per share of PSP15 Common Stock, subject to
reduction as described below.
. Shares held by PSP15 Shareholders who have properly exercised
dissenter's rights under California law will be purchased by PSP15 on the terms
described under "Dissenting Shareholders' Rights of Appraisal."
. For purposes of the PSP15 Merger, the market value of the PSI Common
Stock will be 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 the shareholders of PSP15.
. The consideration paid by PSI to PSP15 Shareholders in the PSP15
Merger will be reduced by the amount of cash distributions required to be paid
to PSP15 Shareholders by PSP15 prior to completion of the PSP15 Merger
(estimated at $1.23 per share) in order to satisfy PSP15's REIT distribution
requirements ("Required PSP15 REIT Distributions"). The consideration received
by PSP15 Shareholders in the PSP15 Merger, however, along with any Required
PSP15 REIT Distributions, will not be less than $21.99 per share of PSP15 Common
Stock. PSP15 Shareholders would receive the Required PSP15 REIT Distributions
upon any liquidation of PSP15, regardless of the PSP15 Merger.
. Additional distributions would be made to the PSP15 Shareholders to
cause PSP15's estimated net asset value allocable to the PSP15 Shareholders as
of the date of the PSP15 Merger to be substantially equivalent to $21.99 per
share.
. The PSP15 Common Stock and PSP15 Common Stock Series B and C held by
PSI will be cancelled in the PSP15 Merger.
See "The Mergers -- Determination of Payments to be Received by PSP14 and
PSP15 Shareholders in Connection with the Mergers." For a description of the
terms of the PSP15 Merger, see "The Mergers -- The Merger Agreement."
The shares of PSP14 and PSP15 Common Stock Series B and C are owned by PSI
and by certain executive officers of PSI and members of their families. Upon
consummation of the PSP14 Merger, each share of PSP14 Common Stock Series B and
C (other than shares held by PSI which will be cancelled in the PSP14 Merger)
will be converted into the right to receive $16.07 in PSI Common Stock (valued
as in the case of the PSP14 Common Stock), plus (i) any additional distributions
equal to the amount by which PSP14's estimated net asset value allocable to the
holders of the PSP14 Common Stock Series B and C as of the date of the PSP14
Merger exceeds $16.07 per share and (ii) any Required PSP14 REIT Distributions
payable to the holders of the PSP14 Common Stock Series B. Upon consummation of
the PSP15 Merger, each share of PSP15 Common Stock Series B and C (other than
shares held by
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<PAGE>
PSI which will be cancelled in the PSP15 Merger) will be converted into the
right to receive $12.63 in PSI Common Stock (valued as in the case of the PSP15
Common Stock), plus (i) any additional distributions equal to the amount by
which PSP15's estimated net asset value allocable to the holders of the PSP15
Common Stock Series B and C as of the date of the PSP15 Merger exceeds $12.63
per share and (ii) any Required PSP15 REIT Distributions payable to the holders
of the PSP15 Common Stock Series B. See "The Mergers -- Determination of
Payments to be Received by PSP14 and PSP15 Shareholders in Connection with the
Mergers." The Common Stock Series B and C will be voted with the majority of
shares of Common Stock of the respective corporation held by unaffiliated
owners.
The PSI Common Stock is listed on the NYSE, and the PSP14 and PSP15 Common
Stock are listed on the AMEX. On December 4, 1996, the last full trading day
prior to the first announcement of the proposed Mergers, the reported closing
sales price per share of PSI Common Stock on the NYSE was $26, and the reported
closing sales prices per share of PSP14 and PSP15 Common Stock on the AMEX were
$20 1/8 and $20 1/8, respectively. On March ___, 1997, the last full trading day
prior to the date of this Combined Proxy Statement and Prospectus, the reported
closing sales prices per share of PSI, PSP14 and PSP15 Common Stock were
$______, $______ and $______, respectively.
THE PSP14 MERGER AND THE PSP15 MERGER ARE NOT CONDITIONED ON EACH OTHER.
MEETINGS AND VOTE REQUIREMENTS OF SHAREHOLDERS
<TABLE>
<CAPTION>
PSP14 PSP15
---------------------------------- ----------------------------------
<S> <C> <C>
Meeting Date April 9, 1997 at April 9, 1997 at
10:00 a.m. 10:00 a.m.
Record Date February 24, 1997 February 24, 1997
Purpose To Approve the PSP14 Merger To Approve the PSP15 Merger
and Proposed Bylaw Amendment and Proposed Bylaw Amendment
Shares Outstanding 2,263,218 shares of 2,136,885 shares of
PSP14 Common Stock PSP15 Common Stock
892,256 shares of PSP14 892,256 shares of PSP15
Common Stock Series B and C Common Stock Series B and C
Vote Required Majority of outstanding shares Majority of outstanding shares
of PSP14 Common Stock and of PSP15 Common Stock and
PSP14 Common Stock Series B PSP15 Common Stock Series B and C,
and C, voting together as a class* voting together as a class*
Percentage Ownership of Total
Combined Outstanding Shares of
Common Stock and Common Stock
Series B and C by PSI and Hughes 33.70% 34.88%
</TABLE>
_______________
* In accordance with the bylaws of PSP14 and PSP15, the Common Stock Series B
and C will be voted with the holders of a majority of the unaffiliated
shares of the Common Stock of the respective corporation.
PSP14
PSP14 is a REIT organized as a California corporation that was formed to
succeed to the business of Public Storage Properties XIV, Ltd., a California
limited partnership (the "PSP14 Partnership"), in a reorganization transaction
completed on June 3, 1991. PSP14 owns 14 properties located in seven states,
including seven mini-warehouses, two business parks and five properties that
combine mini-warehouse and business park space. All of these facilities are
5
<PAGE>
operated under the "Public Storage" name. See "Description of PSP14's
Properties." The PSP14 Common Stock is traded on the AMEX under the symbol
"PSP".
PSP14's properties are managed by PSI and an affiliate. PSP14'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 each of PSP14 and PSP15. See "-- Relationships."
PSP15
PSP15 is a REIT organized as a California corporation that was formed to
succeed to the business of Public Storage Properties XV, Ltd., a California
limited partnership (the "PSP15 Partnership"), in a reorganization transaction
completed on September 5, 1991. PSP15 owns 19 properties located in 10 states,
including 18 mini-warehouses and one property that combines mini-warehouse and
business park space. All of these facilities are operated under the "Public
Storage" name. See "Description of PSP15's Properties." The PSP15 Common Stock
is traded on the AMEX under the symbol "PSQ".
PSP15's properties are managed by PSI and an affiliate. PSP15'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 each of PSP14 and PSP15. See "-- Relationships."
PSI
PSI is a fully integrated, self-administered and self-managed REIT,
organized as a California corporation that acquires, develops, owns and operates
mini-warehouses, which are self-service facilities offering storage space for
personal and business use. PSI is the largest owner and operator of mini-
warehouses in the United States. PSI also owns and operates, to a lesser
extent, business parks containing commercial and industrial rental space. At
September 30, 1996, PSI had equity interests (through direct ownership, as well
as general and limited partnership and capital stock interests) in 1,072
properties located in 37 states, consisting of 1,037 mini-warehouse facilities
and 35 business parks.
In a series of mergers among Public Storage Management, Inc. and its
affiliates (collectively, "PSMI"), culminating in the November 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." In
addition, the outstanding capital stock of PSMI was converted into an aggregate
of 29,449,513 shares of PSI Common Stock (exclusive of shares of PSI Common
Stock held by PSMI prior to the PSMI Merger) and 7,000,000 shares of PSI Class B
Common Stock.
The principal executive offices of PSI, PSP14 and PSP15 are located at 701
Western Avenue, Suite 200, Glendale, California 91201-2397. The telephone
number is (818) 244-8080.
RISK FACTORS
Each of the Mergers involves certain risks and detriments that should be
considered by PSP14 and PSP15 Shareholders, including the following:
. No Arm's Length Negotiation or Unaffiliated Representatives. The
Mergers have not been negotiated at arm's length, and no unaffiliated
representatives were appointed to negotiate the terms of the Mergers
on behalf of PSP14 or PSP15. If such persons had been engaged, the
terms of the Mergers may have been more favorable to PSP14 and PSP15
Shareholders. In addition, no third party proposals for PSP14 or
PSP15 or their properties were solicited. Such proposals could have
generated higher prices.
. Change from Finite Life to Infinite Life. The nature of the
investment of PSP14 and PSP15 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
6
<PAGE>
of the mini-warehouse industry, including property development and
management. PSP14 and PSP15 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. The level of
distributions to PSP14 and PSP15 Shareholders who receive PSI Common
Stock in the Mergers is expected to be lower after the Mergers than
before. Based on a market price of PSI Common Stock of $27 and the
current regular quarterly distribution rate for PSI ($.22 per share),
PSP14 ($.34 per share) and PSP15 ($.30 per share), (a) PSP14
Shareholders would receive approximately $.16 (48%) less in regular
quarterly distributions per share of PSP14 Common Stock after the
PSP14 Merger from PSI than before the PSP14 Merger from PSP14 and
approximately $.01 less per share in regular quarterly distributions
for each $1 5/8 (6%) increase in the market price of PSI Common Stock
above $27 and (b) PSP15 Shareholders would receive approximately $.12
(40%) less in regular quarterly distributions per share of PSP15
Common Stock after the PSP15 Merger from PSI than before the PSP15
Merger from PSP15 and approximately $.01 less per share in regular
quarterly distributions for each $1 5/8 (6%) increase in the market
price of PSI Common Stock above $27.
. Potential Loss of Future Appreciation. The properties of PSP14 and
PSP15 may continue to appreciate in value and might be able to be
liquidated at a later date for more consideration than in the Mergers.
. Limitation on Dissenters' Rights of Appraisal. Under California law,
PSP14 and PSP15 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 PSP14 and PSP15 Common Stock, respectively.
. Conflicts of Interest. PSI and its affiliates, which are affiliated
with PSP14 and PSP15, have conflicts of interest in connection with
the Mergers.
. Control and Influence by the Hughes Family and Ownership Limitations.
The public PSI Shareholders are substantially limited in their ability
to control PSI. At January 31, 1997, the Hughes Family owned
approximately 43% of the PSI Common Stock (approximately 47% upon
conversion of the PSI Class B Common Stock). Also, there are
restrictions on beneficial ownership of PSI securities in PSI's
Articles of Incorporation. Such ownership factors should prevent any
takeover of PSI not approved by Hughes.
. Tax Risks -- Additional Risks to Continued REIT Qualification. As a
result of the PSMI Merger, PSI is subject to tax risks, including
risks as to PSI's continued qualification as a REIT resulting from a
substantial increase in PSI's nonqualifying income.
. Financing Risks. In making real estate investments, PSI, unlike PSP14
and PSP15, has incurred ($113 million at September 30, 1996), 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 ($835 million), 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 PSP14 and PSP15 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, such as changes in interest rates and market
conditions.
. Merger Consideration Based on Appraisals Instead of Arm's Length
Negotiations. The consideration to be paid to the PSP14 and PSP15
Shareholders is based on third party appraisals of the properties of
PSP14 and PSP15. 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 PSP14 and
PSP15. There can be no assurance that if the properties of PSP14 and
PSP15 were sold, they would be sold at the appraised values; the sales
price might be higher or lower.
7
<PAGE>
. Tax to PSP14 and PSP15 Shareholders Upon Receipt of Cash. PSP14 and
PSP15 Shareholders who receive any cash in connection with the Mergers
may recognize a taxable gain. In addition, the Required PSP14 REIT
Distributions and the Required PSP15 REIT Distributions will be
taxable to PSP14 and PSP15 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, PSP14 AND PSP15. SPECIAL COMMITTEES COMPOSED OF VERN
O. CURTIS AND JACK D. STEELE, INDEPENDENT DIRECTORS OF PSP14 AND PSP15 (THE
"PSP14 SPECIAL COMMITTEE" AND "PSP15 SPECIAL COMMITTEE," RESPECTIVELY), HAVE
REVIEWED AND RECOMMENDED FOR APPROVAL THE TERMS OF THE MERGERS, AND THE BOARDS
OF DIRECTORS OF PSP14 AND PSP15, BASED ON RECOMMENDATIONS OF THE PSP14 AND PSP15
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 PSP14 AND PSP15 SHAREHOLDERS, RESPECTIVELY, AND RECOMMEND
THAT PSP14 AND PSP15 SHAREHOLDERS, RESPECTIVELY, VOTE FOR THE MERGERS.
THE PSP14 AND PSP15 SPECIAL COMMITTEES ARE COMPRISED OF THE SAME TWO
INDEPENDENT DIRECTORS OF PSP14 AND PSP15. THE MEETINGS OF THE PSP14 AND PSP15
SPECIAL COMMITTEES OCCURRED SIMULTANEOUSLY AND THE PSP14 AND PSP15 SPECIAL
COMMITTEES BELIEVE THAT THE SAME GENERAL CONSIDERATIONS ARE APPLICABLE TO EACH
OF THE MERGERS, EXCEPT AS NOTED IN THIS COMBINED PROXY STATEMENT AND PROSPECTUS.
PSP14 and PSP15 were organized to succeed to the business of the PSP14
Partnership and the PSP15 Partnership, respectively, in reorganization
transactions completed in June and September 1991. In response to changes in
the reorganizations requested by the unaffiliated dealer manager of the
partnerships' original offerings of limited partnership interests, PSP14 and
PSP15 added provisions to their bylaws to the effect that their shareholders be
presented with proposals in 1997 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
reorganizations their bylaw provisions were amended to expand the terms of the
proposals to include possible financings of their properties. See "The Mergers
- -- Background."
IF APPROVED BY THE SHAREHOLDERS OF PSP14 AND PSP15, THE MERGERS WOULD
SATISFY THE OBLIGATION OF PSP14 AND PSP15 TO PRESENT PROPOSALS TO THEIR
SHAREHOLDERS FOR THE SALE OF THEIR PROPERTIES.
The PSP14 and PSP15 Special Committees and Boards of Directors believe that
the proposed Mergers are consistent with their respective bylaw provisions. In
the Mergers, PSP14 and PSP15 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 PSP14 and PSP15 would cease. Furthermore, the
consideration to be received in the Mergers is based on the appraised value of
the assets of PSP14 and PSP15, and PSP14 and PSP15 Shareholders have the right,
with respect to up to 20% of the outstanding PSP14 and PSP15 Common Stock (less
any Dissenting PSP14 and PSP15 Shares), respectively, 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 PSP14 or PSP15 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 December 1996, PSI merged with 10 REITs which, like PSP14 and
PSP15, had been organized by PSMI to succeed to the business of predecessor
partnerships.
On September 11, 1996, each of the PSP14 and PSP15 Boards of Directors
appointed the PSP14 and PSP15 Special Committees to consider and make
recommendations to their respective Boards of Directors and shareholders
regarding possible mergers with PSI. On December 5, 1996, each of the PSP14 and
PSP15 Boards of Directors based on recommendations of its respective Special
Committee, which were adopted by the respective Board of Directors, approved the
respective Merger and determined to recommend that the respective shareholders
vote for the respective Merger.
The PSP14 and PSP15 Boards of Directors and Special Committees believe that
the respective consideration being offered in the Mergers compares favorably
with the trading price of the PSP14 and PSP15 Common Stock immediately prior to
the first announcement of the Mergers and during other periods, a range of
estimated going-
8
<PAGE>
concern values per share of PSP14 and PSP15 Common Stock, an estimated
liquidation value per share of PSP14 and PSP15 Common Stock and the book value
per share of PSP14 and PSP15 Common Stock. The PSP14 and PSP15 Boards of
Directors and 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 PSP14 and PSP15
Shareholders, the PSP14 and PSP15 Boards of Directors and Special Committees
considered several alternatives to the Mergers, including liquidation of PSP14
and PSP15, continued operation of PSP14 and PSP15 and an amendment to the
organizational documents of PSP14 and PSP15. In order to determine whether the
Mergers or one of the alternatives would be more advantageous to PSP14 and PSP15
Shareholders, the PSP14 and PSP15 Boards of Directors and 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
PSP14 and PSP15 Boards of Directors and Special Committees have concluded that
the Mergers are more attractive to PSP14 and PSP15 Shareholders, respectively,
than any of the alternatives considered. The PSP14 and PSP15 Boards of
Directors did not solicit any other proposals for the acquisition of PSP14 or
PSP15 or their properties. See "The Mergers -- No Solicitation of Other
Proposals."
In comparing the Mergers to other alternatives, the PSP14 and PSP15 Boards
of Directors and Special Committees noted the following:
Liquidation. The PSP14 and PSP15 Boards of Directors and Special
Committees do not believe this is an opportune time to sell the properties of
the respective corporation because the properties may continue to appreciate in
value. The Mergers provide PSP14 and PSP15 Shareholders with the opportunity
either to convert their investment into an investment in PSI, which like PSP14
and PSP15 primarily owns mini-warehouses, on a tax-free basis (to the extent
that PSP14 and PSP15 Shareholders receive only PSI Common Stock) or to receive
cash based on the appraised value of PSP14's and PSP15's properties as to a
portion of their investment. However, if PSP14 or PSP15 liquidated its assets
through asset sales to unaffiliated third parties, PSP14 and PSP15 Shareholders
would not need to rely upon real estate portfolio appraisals to estimate the
fair market value of the respective corporation's properties.
Continued Operation. Nothing requires the liquidation or merger of PSP14
or PSP15 at this time. All are operating profitably. Continued operation
should provide PSP14 and PSP15 Shareholders with continued distributions of net
operating cash flow and participation in future appreciation of the respective
corporation's properties, as well as avoiding many of the risks described under
"Risk Factors." However, continued operation would fail to secure the potential
benefits of the Mergers described under "The Mergers -- Potential Advantages of
the Mergers."
Amendment of Bylaws of PSP14 and PSP15. An amendment to the bylaws of
PSP14 and PSP15 to remove the restrictions on investment of cash flow and
issuance of securities by PSP14 and PSP15 would permit them to take advantage of
investment opportunities and to grow as new investments are made. However, the
PSP14 and PSP15 Boards of Directors and 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 following are the principal potential benefits to PSP14 and PSP15
Shareholders who receive PSI Common Stock:
. Acquisition of Additional Properties. Following the Mergers, PSP14
and PSP15 Shareholders will be investors in an entity with a larger
asset base and market capitalization than PSP14 or PSP15. PSI has
grown and is expected to continue to grow, as new investments are
made.
. Increased Liquidity. PSP14 has 2,263,218 shares of PSP14 Common Stock
listed on the AMEX (3,155,474 shares upon conversion of the PSP14
Common Stock Series B and C into PSP14 Common Stock) with an average
daily trading volume during the 12 months ended December 31, 1996 of
1,720 shares. PSP15 has 2,136,885 shares of PSP15 Common Stock listed
on the AMEX (3,029,141 shares upon conversion of the PSP15 Common
Stock Series B and C into PSP15 Common Stock) with an average daily
trading volume during the same period of 1,181 shares. In comparison,
at January 31,
9
<PAGE>
1997, PSI had approximately 88.4 million shares of PSI Common Stock
listed on the NYSE (52.6 million of which are freely tradeable) with
an average daily trading volume during the 12 months ended December
31, 1996 of 98,719 shares. Given PSI's greater market capitalization
and trading volume than PSP14's or PSP15's, shareholders who receive
PSI Common Stock in the Mergers 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 PSP14 and PSP15 Shareholders who
exchange their PSP14 and PSP15 Common Stock solely for PSI Common
Stock. However, the Required PSP14 REIT Distributions and Required
PSP15 REIT Distributions will be taxable to shareholders of the
respective distributing corporation as ordinary income. Hughes, who
has little tax basis in his PSP14 and PSP15 Common Stock, has advised
PSI, PSP14 and PSP15 that he intends to exchange his PSP14 and PSP15
Common Stock solely for PSI Common Stock. See "Federal Income Tax
Matters -- The Mergers."
DETRIMENTS OF THE MERGERS
For a summary of certain risks and detriments of the Mergers, refer to "--
Risk Factors" beginning on page 6.
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Chapter 13 of the Corporations Code of the State of California
(the "California Code"), PSP14 and PSP15 Shareholders will be entitled to
Dissenters' Rights only if demands for payment are filed with respect to 5% or
more of the respective outstanding shares of PSP14 or PSP15 Common Stock,
respectively.
A dissenting PSP14 or PSP15 Shareholder who wishes to require PSP14 or
PSP15 to purchase his or her shares of Common Stock of the respective
corporation 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 PSP14 or
PSP15 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 meeting of
shareholders of the respective corporation, 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 4, 1996; and
(3) submit for endorsement, within 30 days after the date on which
the notice of approval of the Merger by the shareholders of 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. PSP14
and PSP15 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 PSP14 SHAREHOLDERS IN CONNECTION
WITH THE PSP14 MERGER
In connection with the PSP14 Merger, PSP14 Shareholders will receive the
net asset value or $21.73 per share of PSP14 Common Stock. PSP14's net asset
value is the sum of (a) the appraised value of PSP14's real estate assets
determined by Charles R. Wilson & Associates, Inc. ("Wilson"), as of October 31,
1996, plus (b) the estimated book values of PSP14's non-real estate assets as of
March 31, 1997, less (c) PSP14's estimated liabilities as of March 31,
10
<PAGE>
1997 and less (d) the amount of PSP14's net asset value allocable to the PSP14
Common Stock Series B and C (estimated at $14,337,000, or $16.07 per share, plus
the Required PSP14 REIT Distributions payable to holders of the PSP14 Common
Stock Series B, if any). Additional distributions would be made to PSP14
Shareholders to cause PSP14's estimated net asset value allocable to the PSP14
Common Stock as of the date of the PSP14 Merger to be substantially equivalent
to $21.73 per share. The consideration paid to PSP14 Shareholders by PSI in the
PSP14 Merger will be reduced by the amount of the Required PSP14 REIT
Distributions paid to PSP14 Shareholders by PSP14 prior to completion of the
PSP14 Merger. See "The Mergers -- Determination of Payments to be Received by
PSP14 Shareholders in Connection with the Mergers." However, the consideration
received by PSP14 Shareholders in the PSP14 Merger along with the Required PSP14
REIT Distributions (which will be paid in cash) will not be less than $21.73 per
share of PSP14 Common Stock.
DETERMINATION OF PAYMENTS TO BE RECEIVED BY PSP15 SHAREHOLDERS IN CONNECTION
WITH THE PSP15 MERGER
In connection with the PSP15 Merger, PSP15 Shareholders will receive the
net asset value or $21.99 per share of PSP15 Common Stock. PSP15's net asset
value is the sum of (a) the appraised value of PSP15's real estate asset
determined by Wilson, as of October 31, 1996, plus (b) the estimated book values
of PSP15's non-real estate assets as of March 31, 1997, less (c) PSP15's
estimated liabilities as of March 31, 1997 and less (d) the amount of PSP15's
net asset value allocable to the PSP15 Common Stock Series B and C (estimated at
$11,266,000, or $12.63 per share, plus the Required PSP15 REIT Distributions
payable to holders of the PSP15 Common Stock Series B, if any). Additional
distributions would be made to PSP15 Shareholders to cause PSP15's estimated net
asset value allocable to the PSP15 Common Stock as of the date of the PSP15
Merger to be substantially equivalent to $21.99 per share. The consideration
paid to PSP15 Shareholders by PSI in the PSP15 Merger will be reduced by the
amount of the Required PSP15 REIT Distributions paid to PSP15 Shareholders by
PSP15 prior to completion of the PSP15 Merger. See "The Mergers --
Determination of Payments to be Received by PSP15 Shareholders in Connection
with the Mergers." However, the consideration received by PSP15 Shareholders in
the PSP15 Merger along with the Required PSP15 REIT Distributions (which will be
paid in cash) will not be less than $21.99 per share of PSP15 Common Stock.
FEDERAL INCOME TAX MATTERS
Each of the Mergers is intended to qualify as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), in which case generally (A) (i) no gain or loss would be recognized by
PSP14 Shareholders who receive solely PSI Common Stock in exchange for their
PSP14 Common Stock; (ii) gain or loss would be recognized by PSP14 Shareholders
who receive solely cash in exchange for their PSP14 Common Stock in an amount
equal to the difference between their adjusted basis in their PSP14 Common Stock
and the amount of cash received in exchange therefor; and (iii) gain or loss
would be recognized by PSP14 Shareholders who receive a combination of PSI
Common Stock and cash in exchange for their PSP14 Common Stock in an amount
equal to the lesser of (a) the cash received and (b) the difference between
their adjusted basis in their PSP14 Common Stock and the sum of (1) the fair
market value of the PSI Common Stock received and (2) the amount of cash
received, but only to the extent of the amount of cash received; and (B) (i) no
gain or loss would be recognized by PSP15 Shareholders who receive solely PSI
Common Stock in exchange for their PSP15 Common Stock; (ii) gain or loss would
be recognized by PSP15 Shareholders who receive solely cash in exchange for
their PSP15 Common Stock in an amount equal to the difference between their
adjusted basis in their PSP15 Common Stock and the amount of cash received in
exchange therefor; and (iii) gain or loss would be recognized by PSP15
Shareholders who receive a combination of PSI Common Stock and cash in exchange
for their PSP15 Common Stock in an amount equal to the lesser of (a) the cash
received and (b) the difference between their adjusted basis in their PSP15
Common Stock and the sum of (1) the fair market value of the PSI Common Stock
received and (2) the amount of cash received, but only to the extent of the
amount of cash received. The Required REIT Distributions would not be treated
as cash paid in exchange for the Common Stock of the respective corporation, but
rather as a dividend taxable to all recipients as ordinary income. See "Federal
Income Tax Matters -- The Mergers."
RECOMMENDATIONS; OPINIONS OF FINANCIAL ADVISORS
RECOMMENDATIONS OF PSP14 AND PSP15 BOARDS OF DIRECTORS TO PSP14 AND PSP15
SHAREHOLDERS. Based upon an analysis of each of the Mergers, the PSP14 and
PSP15 Special Committees and Boards of Directors have concluded that (i) the
terms of the Mergers are fair to PSP14 and PSP15 Shareholders, respectively,
(ii) after comparing the potential benefits and detriments of the Mergers with
those of several alternatives, the Mergers are more
11
<PAGE>
advantageous to PSP14 and PSP15 Shareholders, respectively, than such
alternatives and (iii) PSP14 and PSP15 Shareholders should vote for the
respective Merger.
The PSP14 and PSP15 Special Committees and Boards of Directors based their
conclusions on the following factors: (i) the bylaws of PSP14 and PSP15 require
proposals for the sale or financing of each of the properties of the respective
corporation in 1997; (ii) the Mergers provide PSP14 and PSP15 Shareholders with
a choice of converting their investment into an investment in PSI or, with
respect to up to 20% of the outstanding PSP14 and PSP15 Common Stock (less any
Dissenting Shares), receiving cash for their investment; (iii) the properties of
PSP14 and PSP15 have been appraised by an independent appraiser and PSP14 and
PSP15 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) each of the Mergers is required to be approved by a majority of the
shares of Common Stock and Common Stock Series B and C of the respective
corporation entitled to vote on the respective Merger, counted together as a
single class, with the shares of Common Stock Series B and C of the respective
corporation voting with a majority of the shares of Common Stock of the
respective corporation held by unaffiliated owners and, subject to certain
limitations, PSP14 and PSP15 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 ARM'S LENGTH NEGOTIATION. The terms of the Mergers are not the
result of arm's length negotiation. Each of the PSP14 and PSP15 Boards of
Directors believes that the absence of independent representatives to negotiate
the respective Merger does not undermine the fairness of each Merger because the
terms of each Merger have been reviewed and approved, respectively, by the PSP14
and PSP15 Special Committees, each of which is comprised of independent
directors.
FAIRNESS OPINIONS FROM STANGER. Stanger was engaged by PSP14 and PSP15
through the PSP14 and PSP15 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 public PSP14 and
PSP15 Shareholders, respectively. The full text of the opinions is set forth in
Appendix C-1 and C-2 to this Combined Proxy Statement and Prospectus. Subject
to the assumptions, qualifications and limitations contained therein, each
fairness opinion concludes that, as of the date of the fairness opinion, the
consideration to be received in the respective Merger is fair to the public
PSP14 and PSP15 Shareholders, respectively, 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 PSP14 and
PSP15, the estimated liquidation value of PSP14 and PSP15 prepared by PSP14 and
PSP15, respectively, based upon liquidation of the portfolio on a property-by-
property basis, financial analyses and projections prepared by PSP14 and PSP15,
respectively, concerning the going-concern value from continuing operation of
each of PSP14 and PSP15 as a stand-alone entity, and a comparison of the
historical market prices of the common stock of each of PSP14 and PSP15 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 PSP14 or PSP15
Shareholders with respect to whether to approve or reject the Mergers or whether
to select the cash or PSI 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 Mergers or the PSMI Merger or
relating to PSI's continued qualification as a REIT. Stanger's opinions are
based on business, economic, real estate and securities markets, and other
conditions as of the date of its analysis. See "The Mergers -- Fairness
Opinions from Stanger."
COMPARISON OF PSP14 AND PSP15 COMMON STOCK WITH PSI COMMON STOCK
The information below summarizes certain principal differences between the
PSP14 and PSP15 Common Stock and the PSI Common Stock and the effect of the
Mergers on PSP14 and PSP15 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
PSP14 and PSP15 Common Stock with PSI Common Stock."
12
<PAGE>
PSP14 AND PSP15 PSI
INVESTMENT OBJECTIVES AND POLICIES
To provide (i) quarterly cash To maximize funds from operations
distributions from operations and ("FFO") allocable to holders of PSI
(ii) long-term capital gains through Common Stock and to increase
appreciation in the value of shareholder value through internal
properties. growth and acquisitions. FFO is a
supplemental performance measure for
equity REITs used by industry
analysts. FFO does not take into
consideration principal payments on
debt, capital improvements,
distributions and other obligations
of PSI. Accordingly, FFO is not a
substitute for PSI's net cash
provided by operating activities or
net income as a measure of PSI's
liquidity or operating performance.
An increase in PSI's FFO will not
necessarily correspond with an
increase in distributions to holders
of PSI Common Stock. See "--
Liquidity, Marketability and
Distributions."
PSP14 and PSP15 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,
equity stock and warrants and intends to issue additional securities under this
registration statement. There is no assurance that any such securities will be
issued. The preferred stock and the equity stock are issuable from time to time
in one or more series and would, if issued, have rights, including dividend
rights, conversion rights, voting rights, redemption price and liquidation
rights, as may be determined by PSI's Board of Directors. See "Risk Factors --
Uncertainty Regarding Market Price of PSI Common Stock" and "-- Financing Risks
- -- Dilution and Subordination."
PSI has no plans with respect to a sale or financing of any of the
properties of PSP14 and PSP15. PSI expects to transfer the business park
properties acquired from PSP14 and PSP15 to a subsidiary of PSI so that PSI can
focus on the ownership of mini-warehouses and the subsidiary can focus on the
ownership of business parks. PSI intends to continue to acquire properties from
other parties.
BORROWING POLICIES
Not permitted to incur borrowings in Permitted to borrow in furtherance
acquisition of properties. of its investment objectives,
subject to certain limitations.
PSI, unlike PSP14 and PSP15, incurs debt in the acquisition of properties
and reinvests proceeds from borrowings. The incurrence of debt increases the
risk of loss of investment.
TRANSACTIONS WITH AFFILIATES
Restricted from entering into a Restricted from acquiring properties
variety of business transactions from its affiliates or from selling
with its affiliates without properties to them unless the
shareholder approval. See transaction is approved by a
"Amendment to Bylaws of PSP14 and majority of PSI's independent
PSP15." 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 PSP14 or PSP15 because shareholder approval is not required.
13
<PAGE>
PSP14 AND PSP15 PSI
PROPERTIES (As of September 30, 1996)
PSP14 - 14 wholly owned properties in Direct and indirect equity interests
seven states. in 1,072 properties in 37 states.
PSP15 - 19 wholly owned properties in
10 states.
Because PSI owns substantially more property interests in more states than
PSP14 or PSP15, PSI's results of operations are less affected by the operations
of a single property than are those of PSP14 or PSP15, and it would be more
difficult to liquidate PSI than PSP14 or PSP15 within a reasonable period of
time.
LIQUIDITY, MARKETABILITY AND DISTRIBUTIONS
The PSP14 and PSP15 Common Stock is PSI Common Stock is traded on the
traded on the AMEX. During the 12 NYSE. During the 12 months ended
months ended December 31, 1996, the December 31, 1996, the average daily
average daily trading volume of trading volume of PSI Common Stock
PSP14 and PSP15 Common Stock was was 98,719 shares. PSI has issued,
1,720 and 1,181 shares, and may in the future issue,
respectively. PSP14 and PSP15 may securities that have priority over
not issue securities having priority PSI Common Stock as to cash flow,
over the PSP14 and PSP15 Common distributions and liquidation
Stock, respectively. proceeds.
Distributions may be declared by the Boards of Directors of PSI, PSP14 and
PSP15 out of any funds legally available for that purpose. PSI, PSP14 and PSP15
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 PSP14 or PSP15 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 PSP14 or PSP15 Common Stock. Distributions on PSI Common Stock
are subject, however, to priority of preferred stock.
ADDITIONAL ISSUANCES OF SECURITIES AND ANTI-TAKEOVER PROVISIONS
PSP14 and PSP15 Shareholders must Subject to the rules of the NYSE and
approve all additional issuances of applicable provisions of California
capital stock. law, PSI has issued and intends to
continue to issue authorized capital
stock without shareholder approval.
Given the ownership level of PSI Common Stock by the Hughes Family and
PSI's greater flexibility to issue capital stock, including senior securities
with special voting rights and priority over PSI Common Stock, PSI should be in
a better position to deter attempts to obtain control in transactions not
approved by its Board of Directors than PSP14 or PSP15, and PSI Shareholders
could be less likely to benefit from a takeover not approved by PSI's Board of
Directors than would PSP14 or PSP15 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 included in the documents incorporated herein by reference,
including the pro forma financial statements in the Form 8-K dated September 6,
1996.
PSI
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ------------------------ ---- ----
Historical Pro forma(1)
---------- ---------
($ In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $ 93,528 $ 97,448 $114,680 $147,196 $ 212,650 $347,562 $ 148,048 $ 244,666
Depreciation and amortization 21,773 22,405 24,998 28,274 40,760 69,823 27,887 47,553
Interest expense 10,621 9,834 6,079 6,893 8,508 27,653 5,249 6,893
Minority interest in income 6,693 6,895 7,291 9,481 7,137 6,992 5,449 7,268
Net income $ 11,954 $ 15,123 $ 28,036 $ 42,118 $ 70,386 $128,855 $ 49,221 $ 110,446
BALANCE SHEET DATA
(AT END OF PERIOD):
Total cash and cash equivalents $ 6,439 $ 8,384 $ 10,532 $ 20,151 $ 80,436 $ 14,697 $ 60,228
Total assets 548,220 537,724 666,133 820,309 1,937,461 1,190,061 2,374,579
Total debt 104,244 69,478 84,076 77,235 158,052 110,689 112,647
Shareholders' equity $188,113 $253,669 $376,066 $587,786 $1,634,503 $ 922,941 $2,103,066
PER SHARE OF COMMON STOCK:
Net income(2) $ .81 $ .90 $ .98 $ 1.05 $ .95 $ 1.08 $ .76 $ .81
Distributions(3) .82 .84 .84 .85 .88 .88 .66 .66
Book value (at end of period)(4) $ 12.75 $ 12.02 $ 11.93 $ 12.66 $ 13.99 $ 13.30 $ 14.97
Weighted average shares of
Common Stock (in thousands) 14,751 15,981 17,558 24,077 41,171 81,280 35,847 81,690
</TABLE>
15
<PAGE>
PSP14 - HISTORICAL
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
($ In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $ 7,346 $ 7,612 $ 7,764 $ 8,231 $ 8,500 $ 6,377 $ 6,599
Depreciation and amortization 1,282 1,253 1,264 1,338 1,403 1,046 1,059
Reorganization costs(5) 368 -- -- -- -- -- --
Interest expense -- -- -- 8 -- -- --
Net income $ 3,095 $ 3,556 $ 3,658 $ 4,013 $ 3,870 $ 3,151 $ 3,325
BALANCE SHEET DATA (AT END OF PERIOD):
Total cash and cash equivalents $ 1,881 $ 954 $ 545 $ 1,540 $ 949 $ 1,589 $ 1,931
Total assets 43,215 41,357 40,097 40,091 38,794 39,235 38,666
Shareholders' equity $41,343 $39,611 $38,345 $38,489 $36,785 $37,518 $36,784
PER SHARE OF COMMON STOCK:
Net income(6):
Primary $ 1.02 $ 1.27 $ 1.34 $ 1.52 $ 1.50 $ 1.23 $ 1.36
Fully-diluted .87 1.03 1.08 1.21 1.19 .96 1.05
Distributions(7)(8):
Series A $ 1.71 $ 1.36 $ 1.36 $ 1.36 $ 1.36 $ 1.02 $ 1.02
Series B 1.71 1.36 1.36 1.36 1.36 1.02 1.02
Book value (at end of period)(9) $ 11.77 $ 11.64 $ 11.51 $ 11.61 $ 11.51 $ 11.62 $ 11.66
Weighted average shares of
common stock (in thousands):
Primary 2,656 2,558 2,491 2,431 2,362 2,379 2,278
Fully-diluted 3,548 3,450 3,383 3,323 3,254 3,271 3,170
</TABLE>
PSP14 - PRO FORMA
<TABLE>
PER SHARE OF PSP14 COMMON STOCK (10):
<S> <C> <C>
Net income $.87 $ .65
Distributions paid on Common Stock .71 .53
Book value (at September 30, 1996) 12.05
</TABLE>
16
<PAGE>
PSP15 - HISTORICAL
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
($ In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $ 6,140 $ 6,614 $ 7,204 $ 7,697 $ 8,077 $ 6,036 $ 6,304
Depreciation and amortization 1,378 1,383 1,267 1,233 1,279 953 980
Reorganization costs(5) 378 -- -- -- -- -- --
Interest expense -- -- -- -- -- -- 16
Net income $ 1,656 $ 2,345 $ 3,077 $ 3,499 $ 3,567 $ 2,798 $ 2,889
BALANCE SHEET DATA (AT END OF PERIOD):
Total cash and cash equivalents $ 1,894 $ 1,776 $ 1,854 $ 932 $ 825 $ 1,384 $ 1,341
Total assets 43,766 42,389 41,270 39,648 38,956 39,496 38,533
Shareholders' equity $42,502 $41,107 $39,719 $38,007 $36,902 $38,180 $37,099
PER SHARE OF COMMON STOCK:
Net income(6):
Primary $ .55 $ .83 $ 1.16 $ 1.40 $ 1.45 $ 1.15 $ 1.25
Fully-diluted .46 .67 .92 1.09 1.14 .89 .95
Distributions(7)(11):
Series A $ .84 $ .86 $ 1.01 $ 1.22 $ 1.42 $ .90 $ .90
Series B .84 .86 1.01 1.22 1.42 .90 .90
Book value (at end of period)(9) $ 12.00 $ 12.04 $ 12.13 $ 12.11 $ 12.04 $ 12.28 $ 12.25
Weighted average shares of
common stock (in thousands):
Primary 2,674 2,600 2,451 2,304 2,227 2,240 2,148
Fully-diluted 3,566 3,492 3,343 3,196 3,119 3,133 3,041
</TABLE>
PSP15 - PRO FORMA
<TABLE>
<CAPTION>
PER SHARE OF PSP15 COMMON STOCK (12):
<S> <C> <C>
Net income $.88 $ .66
Distributions paid on Common Stock .72 .54
Book value (at September 30, 1996) 12.19
</TABLE>
_______________
(1) Historical information of PSI for 1995 has been restated to reflect the pro
forma impact of the PSMI Merger which occurred November 16, 1995. The pro
forma results presented are as if the PSMI Merger and certain other
transactions occurred on the first day of the period presented.
(2) Net income per common share is computed using the weighted average shares
of PSI Common Stock outstanding (adjusted for stock options). The
inclusion of the PSI Class B Common Stock in the determination of earnings
per common share has been determined to be anti-dilutive (after giving
effect to the pro forma additional income required to satisfy certain
contingencies required for the PSI Class B Common Stock to convert into PSI
Common Stock) and, accordingly, the conversion of the PSI Class B Common
Stock into PSI Common Stock has not been assumed.
(3) For federal income tax purposes all distributions on the PSI Common Stock
are from ordinary income. The distributions for generally accepted
accounting principles ("GAAP") include a return of capital for 1991 of
$.01. All distributions for 1992, 1993, 1994, 1995 and 1996 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.
17
<PAGE>
(4) Book value per share computed based on the number of shares of PSI Common
Stock and PSI Class B Common Stock outstanding.
(5) PSP14 and PSP15 were reorganized from the PSP14 and PSP15 Partnerships on
June 3 1991 and September 5, 1991, respectively (the "Reorganizations").
Reorganization costs, which consist primarily of legal fees, accounting
fees, transfer taxes, registration and solicitation fees, represent the
costs incurred in the Reorganizations.
(6) Net income per share is presented on a primary and fully diluted basis.
Primary earnings per share represents the shareholders' rights to
distribution out of the respective period's net income, which is calculated
by dividing net income after reduction for any distributions made to the
holders of the Common Stock Series B (holders of the Common Stock Series C
are not entitled to cash distributions) by the weighted average number of
shares of Common Stock Series A. (See note 7 below.) Fully diluted
earnings per share assumes conversion of the Common Stock Series B and C
into Common Stock Series A.
(7) In connection with the Reorganizations, PSP14 and PSP15 issued Common Stock
Series A, B and C. The capital structure of PSP14 and PSP15 was designed
to reflect the economic rights of the limited partners and general partners
in the respective predecessor partnership and the capital shares were
distributed to the limited and general partners in respect of their
interests in the respective predecessor partnership.
Common Stock Series A shares are entitled to 100% of cash distributions
from operations from the respective corporation until (a) the sum of (1)
all cumulative dividends and other distributions from all sources to the
holders of Common Stock Series A shares of the respective corporation and
(2) the cumulative respective predecessor partnership distributions from
all sources with respect to all units equal (b) the product of $20
multiplied by the number of the then-outstanding "Common Stock Series A
shares," at which time Common Stock Series B and Common Stock Series C
shares of the respective corporation will automatically convert to Common
Stock Series A shares of the respective corporation ("Conversion").
As of September 30, 1996, Conversion will occur with respect to PSP14 and
PSP15 when $13,562,000 and $20,718,000, respectively, in additional
distributions are made to holders of Common Stock Series A (assuming no
further repurchases of Common Stock Series A).
(8) For federal income tax purposes, distributions on the PSP14 Common Stock
for (a) 1991 consisted of $.34 of partnership distributions, $.81 of
ordinary income and $.56 of return of capital and (b) 1992, 1993, 1994,
1995 and 1996 were from ordinary income. Distributions through 1993
exceeded net income in accordance with GAAP. The distributions for GAAP
purposes included a return of capital for 1991 of $.64, 1992 of $.08 and
1993 of $.01. Distributions for each year included distributions declared
during the fourth quarter and paid in January. The difference between the
components of distributions for GAAP purposes and tax purposes results
primarily from the methods used to compute depreciation expense.
(9) Book value per share computed based on the numbers of shares of Common
Stock Series A, B and C outstanding at the end of the period.
(10) Presents pro forma amounts of PSI per equivalent share of PSP14 Common
Stock. Net income, cash distributions and book value data are calculated
by multiplying PSI's historical results (before impact of the Mergers,
which are not expected to have a material impact on PSI's per share
amounts; however, net income for 1995 is based on PSI's pro forma results
which reflects the impact of the PSMI Merger in November 1995) by an
assumed exchange ratio of .805 (PSP14's merger value of $21.73 divided by
an assumed issue price of PSI stock of $27).
(11) For federal income tax purposes, distributions on the PSP15 Common Stock
for (a) 1991 consisted of $.42 of partnership distributions, $.26 of
ordinary income and $.16 of return of capital and (b) 1992, 1993, 1994,
1995 and 1996 were from ordinary income. Distributions through 1992
exceeded net income computed in accordance with GAAP. The distributions
for GAAP purposes included a return of capital for 1991 of $.28 and 1992 of
$.03. Distributions for each year included distributions declared during
the fourth quarter and paid in January.
18
<PAGE>
The difference between the components of distributions for GAAP purposes
and tax purposes results primarily from the methods used to compute
depreciation expense.
(12) Presents pro forma amounts of PSI per equivalent share of PSP15 Common
Stock. Net income, cash distributions and book value data are calculated
by multiplying PSI's historical results (before impact of the Mergers,
which are not expected to have a material impact on PSI's per share
amounts; however, net income for 1995 is based on PSI's pro forma results
which reflects the impact of the PSMI Merger in November 1995) by an
assumed exchange ratio of .814 (PSP15's merger value of $21.99 divided by
an assumed issue price of PSI stock of $27).
RELATIONSHIPS
The following charts show the relationships among Hughes, PSI, PSP14 and
PSP15 both before and after the Mergers (assuming maximum Cash Elections). The
properties of PSP14 and PSP15 are managed by PSI, the largest shareholder of
PSP14 and PSP15, and an affiliate of PSI, under the supervision of their Boards
of Directors. PSI is controlled by Hughes, the chairman of the board and chief
executive officer of PSI, PSP14 and PSP15.
19
<PAGE>
BEFORE THE MERGERS
[CHART OMITTED HERE]
Description of Graphic
Chart illustrating the affiliated relationships among PSP14, PSP15, PSI and
certain affiliates before the Mergers: Hughes owns 42.6% of PSI and Public
Shareholders own 57.4% of PSI; Hughes owns .43% of PSP14, PSI (which is the
Property Manager of PSP14) owns 33.27% of PSP14 and Public Shareholders own
66.30% of PSP14; Hughes owns .02% of PSP15, PSI (which is the Property Manager
of PSP15) owns 34.86% of PSP15 and Public Shareholders own 65.12% of PSP15.
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: Hughes owns 41.5% of PSI and Public Shareholders
own 58.5% of PSI.
SOLID LINES INDICATE OWNERSHIP INTERESTS AND BROKEN LINES INDICATE OTHER
RELATIONSHIPS. (THE PERCENTAGES OF OWNERSHIP OF PSI REFLECT ONLY PSI COMMON
STOCK; THE ECONOMIC INTEREST OF HUGHES IN PSI IS SUBSTANTIALLY LESS THAN THE
PERCENTAGES SHOWN BECAUSE OF THE SUBSTANTIAL AMOUNT OF PREFERRED STOCK THAT PSI
HAS OUTSTANDING.) AT JANUARY 31, 1997, HUGHES AND MEMBERS OF HIS FAMILY OWNED
42.6% OF PSI COMMON STOCK (46.8% UPON CONVERSION OF PSI CLASS B COMMON STOCK).
PERCENTAGE OWNERSHIP OF PSP14 AND PSP15 BY PSI AND HUGHES IS THE TOTAL COMBINED
OUTSTANDING SHARES OF THE COMMON STOCK AND THE COMMON STOCK SERIES B AND C OF
THE RESPECTIVE CORPORATION.
20
<PAGE>
RISK FACTORS
The Mergers involve the following risk factors and detriments which should
be considered by PSP14 and PSP15 Shareholders, including the following:
NO ARM'S LENGTH NEGOTIATION OR UNAFFILIATED REPRESENTATIVES
The Mergers have not been negotiated at arm's length, and PSI and its
affiliates have significant relationships with PSP14 and PSP15. No unaffiliated
representatives were appointed to negotiate the terms of the Mergers on behalf
of PSP14 or PSP15. If such persons had been engaged, the terms of the Mergers
might have been more favorable to the shareholders of PSP14 or PSP15. In
addition, no third party proposals for PSP14 or PSP15 or their properties were
solicited. Such proposals could have generated higher prices.
CHANGE IN NATURE OF INVESTMENT
PSP14 and PSP15 are REITs organized to hold interests in properties for a
finite period. The bylaws of PSP14 and PSP15 require that their shareholders be
presented with liquidation proposals in 1997, 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, PSP14 and PSP15 Shareholders receiving
PSI Common Stock will be able to liquidate their investment only by selling
their shares on the NYSE or in private transactions.
LOWER LEVEL OF DISTRIBUTIONS AFTER THE MERGERS
The level of distributions to PSP14 and PSP15 Shareholders who receive PSI
Common Stock in the Mergers is expected to be lower after the Mergers. Based on
a market price of PSI Common Stock of $27 and the current regular quarterly
distribution rate for PSI ($.22 per share), PSP14 ($.34 per share) and PSP15
($.30 per share), (a) PSP14 Shareholders would receive approximately $.16 (48%)
less in regular quarterly distributions per share of PSP14 Common Stock after
the PSP14 Merger from PSI than before the PSP14 Merger from PSP14 and
approximately $.01 less per share in regular quarterly distributions for each
$1 5/8 (6%) increase in the market price of PSI Common Stock above $27 and (b)
PSP15 Shareholders would receive approximately $.12 (40%) less in regular
quarterly distributions per share of PSP15 Common Stock after the PSP15 Merger
from PSI than before the PSP15 Merger from PSP15 and approximately $.01 less per
share in regular quarterly distributions for each $1 5/8 (6%) increase in the
market price of PSI Common Stock above $27.
POTENTIAL LOSS OF FUTURE APPRECIATION
The properties of PSP14 and PSP15 may continue to appreciate in value and
might be able to be liquidated at a later date for more consideration than in
the Mergers.
LIMITATION ON DISSENTERS' RIGHTS OF APPRAISAL
Under California law, PSP14 and PSP15 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 PSP14 and
PSP15 Common Stock, respectively. See "Dissenting Shareholders Rights of
Appraisal."
CONTROL AND INFLUENCE BY THE HUGHES FAMILY AND OWNERSHIP LIMITATIONS
Public PSI shareholders are substantially limited in their ability to
control PSI. At January 31, 1997, the Hughes Family owned approximately 43% of
the outstanding shares of PSI Common Stock (approximately 47% upon conversion of
the PSI Class B Common Stock). Consequently, the Hughes Family controls matters
submitted to a vote of PSI Shareholders, including the election of directors,
amendment of PSI's Articles of Incorporation, dissolution and the approval of
other extraordinary transactions, such as a takeover attempt. Also, there are
restrictions in the PSI Articles of Incorporation and Bylaws on beneficial
ownership of PSI securities. Unless such limitations are waived
21
<PAGE>
by PSI's board of directors (the "PSI Board of Directors"), no PSI Shareholder
may own more than (A) 2.0% of the outstanding shares of all common stock of PSI
or (B) 9.9% of the outstanding shares of each class or series of preferred stock
of PSI. The PSI Articles of Incorporation and Bylaws provide, however, that no
person shall be deemed to exceed the ownership limit solely by reason of the
beneficial ownership of shares of any class of stock to the extent that such
shares of stock were beneficially owned by such person at the time of the PSMI
Merger, which includes the PSI Common Stock owned by the Hughes Family at the
time of the PSMI Merger. The principal purpose of the foregoing limitations is
to assist in preventing, to the extent practicable, a concentration of ownership
that might jeopardize the ability of PSI to obtain the favorable tax benefits
afforded a qualified REIT. See "-- Tax Risks -- Increased Violation of
Ownership Requirements." An incidental consequence of such provisions is to
make a change of control significantly more difficult (if not impossible) even
if it would be favorable to the interests of the public PSI Shareholders. Such
provisions will prevent future takeover attempts which the PSI Board of
Directors has not approved even if a majority of the public PSI Shareholders
deem it to be in their best interests or in which the public PSI Shareholders
may receive a premium for their shares over the then market value. See
"Description of PSI Capital Stock -- Ownership Limitations."
TAX RISKS
INCREASED RISK OF VIOLATION OF GROSS INCOME REQUIREMENTS. As a result of
the PSMI Merger, PSI performs property management services for properties in
which it has no or only a partial interest. Some or all of the gross income
received from these services will not be treated as income qualifying for
certain REIT gross income tests applicable to PSI ("Nonqualifying Income"). If
PSI's Nonqualifying Income were to exceed 5% of its total gross income in any
year, 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. PSI's Nonqualifying Income as a percentage of its total gross income is
estimated to be less than 3% in each of 1996 and 1997. The Mergers are not
expected to increase PSI's 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% and such percentage has been reduced
to approximately 36% as of January 31, 1997. 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 entered into an agreement with PSI restricting the Hughes Family's
acquisition of additional shares of capital stock of PSI and providing that if,
at any time, for any reason, more than 50% in value of its outstanding capital
stock otherwise would be considered owned by five or fewer individuals, a number
of shares of PSI Common Stock owned by Hughes necessary to prevent such
violation will automatically and irrevocably be transferred to a designated
charitable beneficiary. The provisions in the PSI Articles of Incorporation and
Bylaws and the agreement with Hughes are modeled after certain arrangements that
the Internal Revenue Service (the "IRS") has ruled in private letter rulings
will preclude a REIT from being considered to violate the ownership restrictions
so long as such arrangements are enforceable as a matter of state law and the
REIT seeks to enforce them as and when necessary. There can be no assurance,
however, that the IRS might not seek to take a different position with respect
to PSI (a private letter ruling is legally binding only with respect to the
taxpayer to whom it was issued) or contend that PSI failed to enforce these
various arrangements and, hence, there can be no assurance that these
arrangements will necessarily preserve PSI's REIT status. No private letter
ruling has been sought by PSI from the IRS on the effect of these arrangements.
ELIMINATION OF ANY ACCUMULATED EARNINGS AND PROFITS. Any accumulated
earnings and profits of PSMI carried over to PSI in the PSMI Merger. To retain
its REIT status, PSI would have had to distribute any acquired earnings and
profits on or before December 31, 1995. As a condition to the PSMI Merger, PSI
obtained from PSMI
22
<PAGE>
a study of the earnings and profits that showed that PSMI had no earnings and
profits at the time of the PSMI Merger. The determination of earnings and
profits depends upon a number of factual matters related to the activities and
operation of PSMI and its predecessors in years prior to the PSMI Merger.
Accordingly, no assurances can be given that the IRS will not challenge such
conclusion. If the IRS were subsequently to determine that such earnings and
profits existed at the time of the PSMI Merger, PSI may lose its REIT
qualification for 1995 and, perhaps, for subsequent years unless certain relief
provisions apply. See "Federal Income Tax Considerations -- Consequences of the
Merger on PSI's Qualification as a REIT -- Elimination of any Accumulated
Earnings and Profits Attributable to Non-REIT Years."
CONSEQUENCES OF FAILURE TO QUALITY AS A REIT. For any taxable year that
PSI fails to qualify as a REIT and the relief provisions do not apply, PSI would
be taxed at the regular corporate rates on all of its taxable income, whether or
not it makes any distributions to its shareholders. Those taxes would reduce
the amount of cash available to PSI for distribution to its shareholders or for
reinvestment. As a result, failure of PSI to qualify during any taxable year as
a REIT could have a material adverse effect upon PSI and its shareholders.
Furthermore, unless certain relief provisions apply, PSI would not be eligible
to elect REIT status again until the fifth taxable year that begins after the
first year for which PSI fails to qualify.
CORPORATE LEVEL TAX ON SALE OF CERTAIN BUILT-IN GAIN ASSETS. PSI will be
subject to a corporate level tax if it disposes of any of the assets acquired in
the PSMI Merger at any time during the 10-year period beginning at the time of
the PSMI Merger (the "Restriction Period"). This tax would be imposed at the
top regular corporate rate (currently 35%) in effect at the time of the
disposition on the excess of (i) the lesser of (a) the fair market value at the
time of the PSMI Merger of the assets disposed of and (b) the selling price of
such assets over (ii) PSI's adjusted basis at the time of the PSMI Merger in
such assets (such excess being referred to as the "Built-in Gain"). PSI
currently does not intend to dispose of any of the assets acquired in the PSMI
Merger during the Restriction Period, but there can be no assurance that one or
more such dispositions will not occur.
FINANCING RISKS
DILUTION AND SUBORDINATION. The interest of PSI Shareholders in PSI,
including persons who receive shares in the Mergers, can be diluted through the
issuance of additional securities.
Since October 1992, PSI has issued shares of preferred stock and intends to
issue additional such shares. These issuances could involve certain risks to
holders of shares of PSI Common Stock, including shares of PSI Common Stock to
be issued in the 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 $835 million in respect of preferred stock outstanding at
January 31, 1997), 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 $77 million per year in respect of
preferred stock outstanding at January 31, 1997), in preference to holders of
PSI Common Stock. As a REIT, PSI must distribute at least 95% of its REIT
taxable income to its shareholders (which include not only holders of PSI Common
Stock but also holders of preferred stock). Failure to pay full dividends on
the preferred stock could jeopardize PSI's qualification as a REIT. See
"Federal Income Tax Matters."
Certain of these securities have been issued under a currently effective
registration statement of PSI for preferred stock, common stock, equity stock
and warrants. PSI intends to issue additional securities under this
registration statement. PSI is considering an offering of Common Stock; PSI has
no present plans for an offering of preferred stock or equity stock. There is
no assurance that any such securities will be issued. If PSI issues additional
preferred or equity stock, the interest of PSI Shareholders could be further
subordinated, and if PSI issues additional Common Stock, the interest of PSI
Shareholders could be diluted. See "Description of PSI Capital Stock" for a
discussion of the terms of the preferred stock, Common Stock and equity stock.
RISK OF LEVERAGE. In making real estate investments, PSI, unlike PSP14 and
PSP15, has incurred, and may continue to incur, debt, subject to certain
limitations. The incurrence of debt increases the risk of loss of the
23
<PAGE>
investment. At September 30, 1996, PSI's debt of $113 million was approximately
5% as a percentage of its total capitalization.
UNCERTAINTY REGARDING MARKET PRICE OF PSI COMMON STOCK
The number of shares of PSI Common Stock that would be received by PSP14
and PSP15 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 PSP14 and PSP15
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, such as changes
in interest rates and market conditions, the market value of PSI Common Stock
that PSP14 and PSP15 Shareholders may receive in the Mergers may decrease
following the Mergers.
MERGER CONSIDERATION BASED ON APPRAISALS INSTEAD OF ARM'S LENGTH NEGOTIATION
The consideration to be received by PSP14 and PSP15 Shareholders is based
on third party appraised values of the properties of PSP14 and PSP15 of
$62,000,000 and $56,500,000, 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
appraised values; the sales prices might be higher or lower.
TAX TO PSP14 AND PSP15 SHAREHOLDERS
PSP14. Any PSP14 Shareholder who receives only cash in connection with the
PSP14 Merger in exchange for his or her PSP14 Common Stock will recognize
taxable gain to the extent that the amount of cash received exceeds the adjusted
basis of such PSP14 Shareholder in his or her PSP14 Common Stock. A PSP14
Shareholder receiving a combination of cash and PSI Common Stock in the PSP14
Merger in exchange for his or her PSP14 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 PSP14 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.
PSP15. Any PSP15 Shareholder who receives only cash in connection with the
PSP15 Merger in exchange for his or her PSP15 Common Stock will recognize
taxable gain to the extent that the amount of cash received exceeds the adjusted
basis of such PSP15 Shareholder in his or her PSP15 Common Stock. A PSP15
Shareholder receiving a combination of cash and PSI Common Stock in the PSP15
Merger in exchange for his or her PSP15 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 PSP15 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 PSP14 REIT Distributions and Required PSP15 REIT Distributions
will be taxable to PSP14 and PSP15 Shareholders, respectively, as ordinary
income.
OPERATING RISKS
GENERAL RISKS OF REAL ESTATE OWNERSHIP. Like PSP14 and PSP15, 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 PSP14 and PSP15, 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
24
<PAGE>
affected the occupancy levels, rental rates and operating expenses of certain of
their properties. Competition may be accelerated by any increase in
availability of funds for investment in real estate. Recent increases in
development of mini-warehouses are expected to further intensify competition
among mini-warehouse operators in certain market areas in which PSI operates.
RISK OF ENVIRONMENTAL LIABILITIES. Under various federal, state and local
laws, regulations and ordinances (collectively, "Environmental Laws"), an owner
or operator of real estate interests may be liable for the costs of cleaning up,
as well as certain damages resulting from, past or present spills, disposals or
other releases of hazardous or toxic substances or wastes on, in or from a
property. Certain Environmental Laws impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of hazardous or
toxic substances or wastes at or from a property. An owner or operator of real
estate or real estate interests also may be liable under certain Environmental
Laws that govern activities or operations at a property having adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous or toxic wastes. In some cases,
liability may not be limited to the value of the property. The presence of such
substances or wastes, or the failure to properly remediate any resulting
contamination, also may adversely affect the owner's or operator's ability to
sell, lease or operate its property or to borrow using its property as
collateral.
PSI has 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 (estimated at $4 million) from
environmental contamination or potential contamination and PSI is not aware of
any environmental contamination of its facilities material to its overall
business, financial condition or results of operation.
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. In December 1996, the Hughes Family sold the
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voting common stock of PSCP to Ronald L. Havner, Jr., former senior vice
president and chief financial officer of PSI, who became the chief executive
officer of PSCP. While PSI will continue to own a substantial economic interest
in PSCP, Mr. Havner is able to control the operations of PSCP through ownership
of its 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
following the PSMI Merger, PSI transferred this lock and box business to a
separate corporation (the "Lock/Box Company"). The nonvoting preferred stock of
the Lock/Box Company (representing 95% of the equity) was issued to PSI. The
voting common stock of the Lock/Box Company (representing 5% of the equity) was
issued to the Hughes Family, which will be able to control the operations of the
Lock/Box Company by reason of ownership of the Lock/Box Company's voting stock.
PSPUD. Public Storage Pickup & Delivery, Inc. ("PSPUD") was organized in
1996 to operate a portable self-storage business. Because the revenues from
this business would be non-qualifying income to PSI, the capital stock of PSPUD
is owned by the Lock/Box Company.
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 agreed to indemnify PSI for pre-merger activities
and shares of PSI Class B Common Stock received in the PSMI Merger were placed
in escrow 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. At January 31, 1997,
there were approximately 88.4 million shares of PSI Common Stock and seven
million shares of PSI Class B Common Stock outstanding. Of these shares,
approximately 52.6 million shares of PSI Common Stock are tradeable without
restriction (except as to affiliates of PSI) or further registration under the
Securities Act. The remaining approximately 35.8 million shares of PSI Common
Stock and seven million shares of PSI Class B Common Stock were issued in the
PSMI Merger without registration under the Securities Act in reliance on an
exemption from registration and are "restricted securities" within the meaning
of Rule 144 adopted under the Act (the "Restricted Shares"). The beneficial
owners of 15.5 million of the Restricted Shares (including all of the PSI Class
B Common Stock) have agreed not to offer, sell or otherwise dispose (except for
gifts and pledges) of any of their shares until November 13, 1998, in the case
of the PSI Common Stock, or until November 13, 2002, in the case of the PSI
Class B Common Stock. Upon expiration of such periods, each will be entitled to
sell his or her shares in the public market subject to Rule 144, which contains
certain public information, volume, holding period and manner of sale
requirements. The remaining approximately 27.3 million Restricted Shares will
be available for sale in the public market pursuant to Rule 144, subject to the
foregoing requirements that include, as the Rule is currently in effect, a two-
year holding period. Sales of substantial amounts of such PSI Common Stock in
the public market could adversely affect the market price of the PSI Common
Stock.
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CONFLICTS OF INTEREST IN THE MERGERS
PSI and its affiliates have conflicts of interest in connection with the
Mergers. PSI and Hughes have a significant ownership interest in PSP14 and
PSP15, owning 33.70% and 34.88% of the total combined Common Stock and Common
Stock Series B and C of PSP14 and PSP15, respectively. See "Summary --
Relationships."
The Mergers have been initiated and structured by individuals who are
executive officers of each of PSI, PSP14 and PSP15, and the Mergers have not
been negotiated at arm's length. No independent representatives have been
retained to negotiate the terms of the Mergers on behalf of PSP14 or PSP15. If
such representatives had been retained, the terms of the Mergers might have been
more favorable to the PSP14 and PSP15 Shareholders. Although independent
representatives were not retained, PSP14 and PSP15 have created Special
Committees, comprised of independent directors, which have engaged an
independent financial advisor, to evaluate the fairness of the consideration to
be received by the PSP14 and PSP15 Shareholders in the Mergers. Each of the
Special Committees has reviewed the terms of the respective Merger and
recommends that the PSP14 and PSP15 Shareholders vote for the respective Merger.
Based upon the use of an independent appraisal firm to determine the value of
consideration to be paid to PSP14 and PSP15 Shareholders, the fairness opinions
and the participation of the PSP14 and PSP15 Special Committees, the Boards of
Directors of PSP14 and PSP15 considered that the engagement of independent
representatives to negotiate the terms of each of the Mergers was not necessary
or cost effective.
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THE MERGERS
GENERAL
PSP14. As a result of the PSP14 Merger, the separate existence of PSP14
would cease. Each outstanding share of PSP14 Common Stock would be converted
into the right to receive a value of $21.73 in cash, PSI Common Stock or a
combination of the two, as follows:
. If holders of 20% or less of the outstanding PSP14 Common Stock elect
to receive cash in the PSP14 Merger (a "PSP14 Cash Election"), shares held by
PSP14 Shareholders electing cash will be converted into the right to receive
$21.73 in cash for each share of PSP14 Common Stock, subject to reduction as
described below.
. If holders of more than 20% of the outstanding PSP14 Common Stock elect
to receive cash in the PSP14 Merger, shares held by PSP14 Shareholders electing
cash will be converted into the right to receive cash on a pro rata basis, and
the balance of these shares would be converted into PSI Common Stock with a
market value (as determined below) of $21.73 per share of PSP14 Common Stock,
subject to reduction as described below.
. To be effective a cash election must be made by April 8, 1997, in
accordance with the accompanying Cash Election Form.
. If a PSP14 Shareholder does not elect cash, all of his or her PSP14
Common Stock will be converted into PSI Common Stock with a market value (as
determined below) of $21.73 per share of PSP14 Common Stock, subject to
reduction as described below.
. Shares held by PSP14 Shareholders who have properly exercised
dissenter's rights under California law ("Dissenting PSP14 Shares") will be
purchased by PSP14 on the terms described under "Dissenting Shareholders' Rights
of Appraisal."
. For purposes of the PSP14 Merger, the market value of the PSI Common
Stock will be 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 the shareholders of PSP14.
. The consideration paid by PSI to PSP14 Shareholders in the PSP14 Merger
will be reduced by the amount of cash distributions required to be paid to PSP14
Shareholders by PSP14 prior to completion of the PSP14 Merger (estimated at
$1.18 per share) in order to satisfy PSP14's REIT distribution requirements
("Required PSP14 REIT Distributions"). The consideration received by PSP14
Shareholders in the PSP14 Merger, however, along with any Required PSP14 REIT
Distributions, will not be less than $21.73 per share of PSP14 Common Stock.
PSP14 Shareholders would receive the Required PSP14 REIT Distributions upon any
liquidation of PSP14, regardless of the PSP14 Merger.
. Additional distributions would be made to the PSP14 Shareholders to
cause PSP14's estimated net asset value allocable to the PSP14 Shareholders as
of the date of the PSP14 Merger to be substantially equivalent to $21.73 per
share.
. The PSP14 Common Stock and PSP14 Common Stock Series B and C held by
PSI will be cancelled in the PSP14 Merger.
It is estimated that the aggregate consideration (cash and PSI Common
Stock) to be paid by PSI to purchase all of the PSP14 Common Stock and the PSP14
Common Stock Series B and C (other than stock held by PSI) in the PSP14 Merger
and to pay related costs and expenses would be $46,337,000 (assuming no Required
PSP14 REIT Distributions) and that the total amount of cash that would be
required by PSI to purchase the PSP14 Common Stock from PSP14 Shareholders
making PSP14 Cash Elections and to pay the allocated portion of the costs and
expenses of the PSP14 Merger would be $10,696,000 (assuming maximum PSP14 Cash
Elections). See "-- Determination of Payments to be Received by PSP14 and PSP15
Shareholders in Connection with the Mergers" and "-- Costs of the
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Mergers." These amounts would be reduced to the extent PSP14 must pay Required
PSP14 REIT Distributions, and the total amount of cash would also be reduced to
the extent that PSP14 Cash Elections are less than the maximum.
PSP15. As a result of the PSP15 Merger, the separate existence of PSP15
would cease. Each outstanding share of PSP15 Common Stock would be converted
into the right to receive a value of $21.99 in cash, PSI Common Stock or a
combination of the two, as follows:
. If holders of 20% or less of the outstanding PSP15 Common Stock elect
to receive cash in the PSP15 Merger (a "PSP15 Cash Election"), shares held by
PSP15 Shareholders electing cash will be converted into the right to receive
$21.99 in cash for each share of PSP15 Common Stock, subject to reduction as
described below.
. If holders of more than 20% of the outstanding PSP15 Common Stock elect
to receive cash in the PSP15 Merger, shares held by PSP15 Shareholders electing
cash will be converted into the right to receive cash on a pro rata basis, and
the balance of these shares would be converted into PSI Common Stock with a
market value (as determined below) of $21.99 per share of PSP15 Common Stock,
subject to reduction as described below.
. To be effective a cash election must be made by April 8, 1997, in
accordance with the accompanying Cash Election Form.
. If a PSP15 Shareholder does not elect cash, all of his or her PSP15
Common Stock will be converted into PSI Common Stock with a market value (as
determined below) of $21.99 per share of PSP15 Common Stock, subject to
reduction as described below.
. Shares held by PSP15 Shareholders who have properly exercised
dissenter's rights under California law ("Dissenting PSP15 Shares") will be
purchased by PSP15 on the terms described under "Dissenting Shareholders' Rights
of Appraisal."
. For purposes of the PSP15 Merger, the market value of the PSI Common
Stock will be 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 the shareholders of PSP15.
. The consideration paid by PSI to PSP15 Shareholders in the PSP15 Merger
will be reduced by the amount of cash distributions required to be paid to PSP15
Shareholders by PSP15 prior to completion of the PSP15 Merger (estimated at
$1.23 per share) in order to satisfy PSP15's REIT distribution requirements
("Required PSP15 REIT Distributions"). The consideration received by PSP15
Shareholders in the PSP15 Merger, however, along with any Required PSP15 REIT
Distributions, will not be less than $21.99 per share of PSP15 Common Stock.
PSP15 Shareholders would receive the Required PSP15 REIT Distributions upon any
liquidation of PSP15, regardless of the PSP15 Merger.
. Additional distributions would be made to the PSP15 Shareholders to
cause PSP15's estimated net asset value allocable to the PSP15 Shareholders as
of the date of the PSP15 Merger to be substantially equivalent to $21.99 per
share.
. The PSP15 Common Stock and PSP15 Common Stock Series B and C held by
PSI will be cancelled in the PSP15 Merger.
The Required PSP14 and PSP15 REIT Distributions are sometimes collectively
referred to as the "Required REIT Distributions," and a PSP14 and PSP15 Cash
Election are sometimes collectively referred to as a "Cash Election."
It is estimated that the aggregate consideration (cash and PSI Common
Stock) to be paid by PSI to purchase all of the PSP15 Common Stock and the PSP15
Common Stock Series B and C (other than stock held by PSI) in the PSP15 Merger
and to pay related costs and expenses would be $41,360,000 (assuming no Required
PSP15 REIT Distributions) and that the total amount of cash that would be
required by PSI to purchase the PSP15 Common Stock
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from PSP15 Shareholders making PSP15 Cash Elections and to pay the allocated
portion of the costs and expenses of the PSP15 Merger would be $10,423,000
(assuming maximum PSP15 Cash Elections). See "-- Determination of Payments to
be Received by PSP14 and PSP15 Shareholders in Connection with the Mergers" and
"-- Costs of the Mergers." These amounts would be reduced to the extent PSP15
must pay Required PSP15 REIT Distributions, and the total amount of cash would
also be reduced to the extent that PSP15 Cash Elections are less than the
maximum.
The Boards of Directors of PSP14 and PSP15 are also proposing that the
bylaws of PSP14 and PSP15 be amended to authorize the Mergers. See "Amendment
to Bylaws of PSP14 and PSP15."
The shares of PSP14 and PSP15 Common Stock Series B and C are owned by PSI
and by certain executive officers of PSI and members of their families. Upon
consummation of the PSP14 Merger, each share of PSP14 Common Stock Series B and
C (other than shares held by PSI which will be cancelled in the PSP14 Merger)
will be converted into the right to receive $16.07 in PSI Common Stock (valued
as in the case of the PSP14 Common Stock), plus (i) any additional distributions
equal to the amount by which PSP14's estimated net asset value allocable to the
holders of the PSP14 Common Stock Series B and C as of the date of the PSP14
Merger exceeds $16.07 per share and (ii) any Required PSP14 REIT Distributions
payable to the holders of the PSP14 Common Stock Series B. Upon consummation of
the PSP15 Merger, each share of PSP15 Common Stock Series B and C (other than
shares held by PSI which will be cancelled in the PSP15 Merger) will be
converted into the right to receive $12.63 in PSI Common Stock (valued as in the
case of the PSP15 Common Stock), plus (i) any additional distributions equal to
the amount by which PSP15's estimated net asset value allocable to the holders
of the PSP15 Common Stock Series B and C as of the date of the PSP15 Merger
exceeds $12.63 per share and (ii) any Required PSP15 REIT Distributions payable
to the holders of the PSP15 Common Stock Series B. See "-- Determination of
Payments to be Received by PSP14 and PSP15 Shareholders." The Common Stock
Series B and C will be voted with the majority of shares of Common Stock of the
respective corporation held by unaffiliated owners.
THE PSP14 MERGER AND THE PSP15 MERGER ARE NOT CONDITIONED ON EACH OTHER.
BACKGROUND
GENERAL. THE MERGERS HAVE BEEN INITIATED AND STRUCTURED BY INDIVIDUALS WHO
ARE EXECUTIVE OFFICERS OF PSI, PSP14 AND PSP15. EACH OF THE PSP14 AND PSP15
SPECIAL COMMITTEES HAS REVIEWED AND RECOMMENDED FOR APPROVAL THE TERMS OF THE
RESPECTIVE MERGER, AND EACH OF THE BOARDS OF DIRECTORS OF PSP14 AND PSP15, BASED
ON RECOMMENDATIONS OF THE PSP14 AND PSP15 SPECIAL COMMITTEES, RESPECTIVELY,
WHICH EACH RESPECTIVE BOARD OF DIRECTORS HAS ADOPTED, AND ON THE OPINION OF
FINANCIAL ADVISORS IN WHICH EACH CONCURS, BELIEVES THAT EACH RESPECTIVE MERGER
IS FAIR TO THE PUBLIC PSP14 AND PSP15 SHAREHOLDERS, RESPECTIVELY, AND RECOMMENDS
THAT PSP14 AND PSP15 SHAREHOLDERS, RESPECTIVELY, VOTE FOR THE RESPECTIVE MERGER.
PSP14 and PSP15 were organized to succeed to the business of the PSP14
Partnership and the PSP15 Partnership, respectively, in reorganization
transactions completed in June and September 1991. The PSP14 and PSP15
Partnerships were formed primarily to develop mini-warehouses, each raising $53
million in public offerings completed in 1985. All of the proceeds from the
offerings have been invested. PSMI was the sponsor of the PSP14 and PSP15
Partnerships.
Each of the PSP14 and PSP15 Partnerships originally anticipated selling or
financing its properties from seven to 10 years after development, i.e., between
1993 and 1996 in the case of the PSP14 Partnership and between 1995 and 1998 in
the case of the PSP15 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.
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In view of the events affecting the timing of the sale or financing of the
PSP14 and PSP15 Partnerships' properties, PSMI concluded that the limited
partners of these 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 PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15 Partnerships' properties.
In response to changes requested by the unaffiliated dealer manager of the
PSP14 and PSP15 Partnerships' original offerings of limited partnership
interests, PSP14 and PSP15 added provisions to their bylaws to the effect that
their shareholders be presented with proposals in 1997 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
reorganizations of PSP14 and PSP15, their bylaw provisions were amended to
expand the terms of the proposals to include possible financings of their
properties.
IF APPROVED BY PSP14 AND PSP15 SHAREHOLDERS, THE MERGERS WOULD SATISFY THE
OBLIGATION OF PSP14 OR PSP15 TO PRESENT PROPOSALS TO THEIR SHAREHOLDERS FOR THE
SALE OF THEIR PROPERTIES.
The PSP14 and PSP15 Special Committees and Boards of Directors believe that
the proposed Mergers are consistent with their respective bylaw provisions. In
the Mergers, PSP14 and PSP15 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 PSP14 and PSP15 would cease. Furthermore, the
consideration to be received in the Mergers is based on the appraised value of
the assets of PSP14 and PSP15, and PSP14 and PSP15 Shareholders have the right,
with respect to up to 20% of the outstanding PSP14 and PSP15 Common Stock (less
any Dissenting PSP14 and PSP15 Shares), respectively, 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 PSP14 or PSP15 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 December 1996, PSI merged with 10 REITs, which like PSP14 and
PSP15 had been organized to succeed to the business of predecessor partnerships
sponsored by PSMI and in June 1996 PSI merged with another REIT sponsored by
PSMI.
PSP14 AND PSP15 BOARD ACTIONS. Each of the Boards of Directors of PSP14
and PSP15 consists of the same three persons: B. Wayne Hughes, the chief
executive officer of PSI, PSP14 and PSP15, Vern O. Curtis and Jack D. Steele.
At a meeting on September 11, 1996, which included individuals who are
officers of PSP14, PSP15 and PSI, the Boards of Directors of PSP14 and PSP15
appointed the PSP14 and PSP15 Special Committees, consisting of Vern O. Curtis
and Jack D. Steele, both independent directors, to consider and make
recommendations to the Boards of Directors of PSP14 and PSP15 regarding proposed
mergers of PSP14 and PSP15 into PSI. Messrs. Curtis and Steele were the members
of the special committees that considered the mergers of 11 other REITs into PSI
from September 1994 - December 1996. Following the September 11 board meetings,
the PSP14 and PSP15 Special Committees held organizational meetings, which were
attended by individuals who are officers of PSP14, PSP15 and PSI, and discussed
generally the properties of PSP14 and PSP15 and the timing of the proposed
Mergers. Following the discussion, the PSP14 and PSP15 Special Committees
approved Wilson, on behalf of PSI, PSP14 and PSP15, to appraise the properties
of PSP14 and PSP15, determined to engage Hogan & Hartson L.L.P. as special
counsel to represent and advise the
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PSP14 and PSP15 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 PSP14 and PSP15
Shareholders in the Mergers. Wilson, Hogan & Hartson L.L.P. and Stanger had
acted in similar capacities in connection with the mergers of other REITs into
PSI.
On December 5, 1996, the PSP14 and PSP15 Special Committees held a
telephonic meeting, which was attended by individuals who are officers of PSP14,
PSP15 and PSI, and representatives of Wilson, Stanger and Hogan & Hartson L.L.P.
First, the officers described the timing of the transaction, the capital
structure of PSP14 and PSP15 and the mechanics of arriving at the value per
share of PSP14 and PSP15 Common Stock, including the allocation of value between
the PSP14 and PSP15 Common Stock and the PSP14 and PSP15 Common Stock Series B
and C and the provision giving PSI the right to terminate the Merger Agreement
if the average price of PSI Common Stock during the measurement period is below
$24 per share. Next, the Wilson representatives described generally the
methodology used in appraising the properties of PSP14 and PSP15, including a
physical inspection of all of their properties and an analysis of other recent
and pending transactions, including acquisitions of assembled portfolios by PSI
and others, operating information on the properties and market conditions. The
Wilson representative noted that Wilson had reviewed and reconciled
capitalization rates and prices paid in recent and pending multi-property
transactions involving both PSI and others with the capitalization rates and
values resulting from the appraisals. The Stanger representatives presented
Stanger's analysis, which included the following items: (1) they briefly
reviewed Stanger's recent experience relating to mini-warehouses; (2) they noted
that Stanger had performed a similar analysis in connection with prior mergers
of REITs into PSI, including a review of the portfolio appraisals; (3) they
noted that Stanger reviewed the appraisal methodologies utilized by Wilson; (4)
they noted that Stanger reviewed the effective capitalization rates of the
portfolio appraisals, which were approximately 9.30% in the case of PSP14 and
9.35% in the case of PSP15, based on net operating income generated for the 12
months ended September 30, 1996 (adjusted for non-recurring expenses and after
certain property tax adjustments); (5) they noted that Stanger reviewed the
capitalization rates on PSI transactions during the prior 12 months, reviewed
capitalization rates currently cited by industry sources for mini-warehouse
transactions, and concluded that the capitalization rates used in Wilson's
appraisals were consistent with transactions in the market; (6) they noted that
Stanger reviewed liquidation analyses, including assumptions (liquidation of
PSP14's and PSP15's properties on a property-by-property basis) prepared by
PSP14 and PSP15 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 noted that
Stanger reviewed going-concern analyses, based on analyses of five-year and 10-
year projections provided by PSP14 and PSP15, under scenarios in which the PSP14
and PSP15 Common Stock would be liquidated into the securities markets or the
properties of PSP14 and PSP15 would be liquidated after 10 years at their
residual value (from Wilson's appraisals), that Stanger reviewed the FFO
multiples used in the various scenarios regarding the sale of the PSP14 and
PSP15 Common Stock, and that the estimated value per share on a going-concern
basis was lower than the consideration offered in the Mergers; (8) they noted
that Stanger had reviewed the historical market prices of PSP14 Common Stock and
compared them with the consideration offered in the PSP14 Merger, and they noted
that the consideration offered in the PSP14 Merger, reduced by estimated
retained earnings between the date of the Wilson appraisal and March 31, 1997,
represents an approximately 5.5% premium over the then current price of the
PSP14 Common Stock and a 6.0%, 7.2%, 10.7% and 13.7% premium over its average
closing price for the prior 20 days, 60 days, 180 days and 360 days,
respectively; (9) they noted that Stanger had reviewed the historical market
prices of PSP15 Common Stock and compared them with the consideration offered in
the PSP15 Merger, and they noted that the consideration offered in the PSP15
Merger, reduced by estimated retained earnings between the date of the Wilson
appraisal and March 31, 1997, represents an approximately 6.9% premium over the
then current price of the PSP15 Common Stock and a 5.4%, 8.5%, 12.3% and 16.7%
premium over its average closing price for the prior 20 days, 60 days, 180 days
and 360 days, respectively; and (10) they indicated that, subject to receipt of
certain documents, Stanger was prepared to render its opinions that the
consideration to be received in each of the respective Mergers is fair to the
public PSP14 and PSP15 Shareholders, respectively, from a financial point of
view. The PSP14 and PSP15 Special Committees and Stanger representatives
discussed the reduction in distributions to PSP14 and PSP15 Shareholders (and in
FFO per share) who receive PSI Common Stock in the respective Mergers (assuming
the then current trading price of PSI Common Stock of $25.50 per share).
Following the discussion, the PSP14 and PSP15 Special Committees expressed the
belief that each of the Mergers is fair to, and in the best interests of, public
PSP14 and PSP15 Shareholders, respectively, and determined to recommend to the
Boards of Directors that each of the Mergers be approved and to recommend that
PSP14 and PSP15 Shareholders vote for each respective Merger. Based on the
foregoing recommendations of the PSP14 and PSP15 Special Committees, which were
adopted by the PSP14 and PSP15 Boards of Directors, the PSP14 and PSP15
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Boards of Directors expressed the belief that each of the Mergers is fair to,
and in the best interests of, public PSP14 and PSP15 Shareholders, respectively,
approved the Mergers, determined to recommend that PSP14 and PSP15 Shareholders,
respectively, vote for each respective Merger and approved the filing with the
Commission of preliminary proxy materials. See "-- Comparison of Consideration
to be Received in the Merger to Other Alternatives" and "Risk Factors -- Lower
Level of Distributions to PSP14 and PSP15 Shareholders."
PUBLIC ANNOUNCEMENT OF MERGERS AND COMMISSION FILINGS. On December 5,
1996, PSI, PSP14 and PSP15 signed the Merger Agreement and publicly announced
the general terms of the Mergers. On January 6, 1997, PSP14 and PSP15 filed
preliminary proxy materials with the Commission. [On _______________, 1997, PSI
filed a registration statement, which was declared effective on _______________,
1997.]
REASONS FOR THE MERGERS AND TIMING
The reasons for the decision of the PSP14 and PSP15 Special Committees and
Boards of Directors to recommend the Mergers include:
. Each of the bylaws of PSP14 and PSP15 includes a provision that
shareholders be presented with a proposal to sell or finance all of the
corporation's properties, distribute the proceeds from such sale and
liquidate the corporation. The proposed Mergers satisfy these
obligations. See "-- Background."
. The Mergers provide the PSP14 and PSP15 Shareholders with the choice of
either (A) converting their investment in PSP14 and PSP15,
respectively, into an investment in PSI, which generally owns the same
type of properties, on a tax-free basis (assuming each of the Mergers
is a tax-free reorganization and that a PSP14 or PSP15 Shareholder
receives only PSI Common Stock in the Mergers) and which has, and
intends to continue, to acquire additional properties or (B) with
respect to up to 20% of the outstanding PSP14 and PSP15 Common Stock
(less any Dissenting Shares), receiving in cash the amounts they would
receive if the properties of PSP14 and PSP15 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 PSP14 and PSP15 Shareholders and Fairness
Analysis."
. The PSP14 and PSP15 Special Committees and Boards of Directors believe
that the Mergers are more advantageous to PSP14 and PSP15 Shareholders
than any of the alternatives. See "-- Alternatives to Mergers" and "--
Recommendation to PSP14 and PSP15 Shareholders and Fairness Analysis."
. PSI has agreed to merge with PSP14 and PSP15 at this time, subject to
approval by PSP14 and PSP15 Shareholders and certain other conditions.
See "-- The Merger Agreement -- Conditions to Consummation of the
Mergers."
ALTERNATIVES TO THE MERGERS
The following is a brief discussion of the benefits and disadvantages of
alternatives to the Mergers that were considered and rejected by the PSP14 and
PSP15 Boards of Directors.
LIQUIDATION
BENEFITS OF LIQUIDATION. An alternative to the Mergers would be to
liquidate the assets of PSP14 and PSP15, distribute the net liquidation proceeds
to their respective shareholders and thereafter dissolve PSP14 and PSP15.
Through such liquidation, PSP14 and PSP15 would provide for a final disposition
of their shareholders' interests in the corporations. PSP14 and PSP15
Shareholders would receive cash liquidation proceeds (as they will as to a
portion of their investment if they make Cash Elections). Liquidating PSP14 and
PSP15 would be consistent with their bylaws that provide that their shareholders
be presented with proposals for the sale of their properties and liquidation in
1997. If PSP14 and PSP15 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 arm's length negotiations between
PSP14 and PSP15 and prospective purchasers.
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<PAGE>
DISADVANTAGES OF LIQUIDATION. Over the last several years, the
performance of the properties of PSP14 and PSP15 has improved as described under
"-- Continued Operation of PSP14 and PSP15 -- Benefits of Continuation." The
PSP14 and PSP15 Boards of Directors and Special Committees believe that the
improvement may continue, making liquidation (other than through the Mergers)
inadvisable at this time. The Mergers provide PSP14 and PSP15 Shareholders with
the opportunity either to convert their investment in PSP14 or PSP15 into an
investment in PSI, which like PSP14 and PSP15 primarily owns mini-warehouses, on
a tax-free basis (to the extent that PSP14 and PSP15 Shareholders receive only
PSI Common Stock) or to receive cash based on the appraised value of the
properties of PSP14 and PSP15 as to a portion of their investment. In addition,
for many PSP14 and PSP15 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 $.85 per share of PSP14 Common Stock and $.86
per share of PSP15 Common Stock).
PSP14 and PSP15 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 PSP14 or
PSP15 would require approval by the holders of a majority of the outstanding
common stock of the respective corporation. Upon the dissolution of PSP14 or
PSP15, the properties of the respective corporation would be sold and any funds
remaining after payment of debts, and liabilities would be distributed to the
shareholders of the respective corporation in respect of their shares. PSI and
its affiliates would receive their share of the available funds in the
liquidation. The process for liquidating the assets of PSP14 and PSP15 would in
large measure be within the control of the PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15 Boards of
Directors, as fiduciaries to PSP14 and PSP15 Shareholders, respectively, remain
responsible for determining the terms and conditions of such transactions. One
of the more significant considerations for the PSP14 and PSP15 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 respective corporation until
receipt of those amounts by the respective corporation and their distribution to
its shareholders. Such arrangements would also expose the respective
corporation to the risk that deferred payments might not be collected in full
and that the respective 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 PSP14 or
PSP15 because it would depend on market conditions at the time of liquidation.
CONTINUED OPERATION OF PSP14 AND PSP15
BENEFITS OF CONTINUATION. Another alternative to the Mergers would be
to continue PSP14 and PSP15 in accordance with their existing business plans,
with PSP14 and PSP15 remaining as separate legal entities and with their own
assets and liabilities. Nothing requires the liquidation or merger of PSP14 and
PSP15 at this time, since PSP14 and PSP15 are operating profitably and do not
need to liquidate or reorganize to satisfy debt obligations or other current
liabilities or to avert defaults, foreclosures or other adverse business
developments.
There has been improvement in the mini-warehouse markets. As the pace
of new mini-warehouse development has slowed from the peak levels of 1984-88,
there has been a corresponding improvement in the financial performance of
existing properties. This improvement is evidenced by the performance of the
mini-warehouses of PSP14 and PSP15. For example, from 1993 to 1995, occupancy
per square foot remained stable at 93% in the case of PSP14 and increased from
an average of 85% to 90% in the case of PSP15, and realized monthly rents per
square foot increased from an average of $.74 to $.82 and $.63 to $.64 in the
case of PSP14 and PSP15, respectively. Despite
34
<PAGE>
recent increases in the development of new mini-warehouses, the PSP14 and PSP15
Boards of Directors believe that the financial performance from existing
facilities may continue to improve, although not necessarily at the rate of
improvement experienced in prior years. Should such improvements continue, the
value of the properties of PSP14 and PSP15 could be expected to increase. See
"Description of PSP14's Properties" and "Description of PSP15's Properties."
A number of advantages could be expected to arise from the continued
operation of PSP14 and PSP15. PSP14 and PSP15 Shareholders would continue to
receive regular quarterly distributions of net cash flow arising from operations
and the sale or refinancing of the respective corporation's assets. Given the
currently improving market conditions for mini-warehouses, the PSP14 and PSP15
Boards of Directors and Special Committees believe that the level of these
distributions to the shareholders of the respective corporation may increase.
Continuing PSP14 and PSP15 affords the shareholders of the respective
corporation with the opportunity to participate in any future appreciation in
their respective corporation's properties. In addition, the decision to
continue PSP14 and PSP15, if elected, would mean that there would be no change
in the nature of the investment of the shareholders of the respective
corporation. This option avoids whatever disadvantages might be deemed inherent
in the Mergers. See "Risk Factors" for discussion of various risks associated
with the Mergers.
DISADVANTAGES OF CONTINUATION. The primary disadvantage with
continuing PSP14 and PSP15 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 PSP14 and PSP15 Shareholders increased liquidity. In
addition, because PSP14 and PSP15 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 PSP14 and PSP15 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. PSP14 and PSP15
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 PSP14 and PSP15 Boards of
Directors and Special Committees believe that such an amendment has
disadvantages. It is believed that PSP14 and PSP15 Shareholders could better
take advantage through PSI than through PSP14 or PSP15 of the current market for
REIT securities for the following reasons. First, PSI has a larger capital
base. At September 30, 1996, PSP14 and PSP15 had total shareholders' equity of
$36,784,000 and $37,099,000, respectively, compared with PSI's total
shareholders' equity of $2,103,066,000 (including preferred stock) and
$1,368,647,000 (without preferred stock). Second, the market for PSI Common
Stock should be more liquid than the market for Common Stock of PSP14 or PSP15.
PSP14 and PSP15 have 2,263,218 shares and 2,136,885 shares of Common Stock,
respectively (3,155,474 shares and 3,029,141 shares of Common Stock,
respectively, upon conversion of the Common Stock Series B and C), traded on the
AMEX, and, during the 12 months ended December 31, 1996, the average daily
trading volume of the Common Stock of PSP14 and PSP15 was 1,720 and 1,181
shares, respectively. In comparison, at January 31, 1997, PSI had approximately
88,400,000 shares of PSI Common Stock traded on the NYSE (approximately
52,600,000 of which are freely tradeable) and, during the 12 months ended
December 31, 1996, the average daily trading volume of PSI Common Stock was
98,719 shares. Third, PSI has broader geographic diversification than PSP14 or
PSP15. At September 30, 1996, PSP14 owned 14 properties in seven states, PSP15
owned 19 properties in six states and PSI owned equity interests (directly, as
well as through general and limited partnership interests and stock interests)
in 1,072 properties in 37 states. For additional information on the properties
owned by PSP14, PSP15 and PSI, see "-- Comparison of PSP14 and PSP15 Common
Stock with PSI Common Stock," "Description of PSP14's Properties" and
"Description of PSP15's Properties."
35
<PAGE>
NO SOLICITATION OF OTHER PROPOSALS
Neither the Boards of Directors nor the Special Committees of PSP14 or
PSP15 solicited any other proposals for the acquisition of PSP14 or PSP15 or
their properties. The Boards of Directors of PSP14 and PSP15 agreed to the
Merger Agreement, which includes a provision against soliciting other offers to
buy, because they believe that the potential advantages to PSP14 and PSP15
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 PSP14 and PSP15 Shareholders who
exchange their PSP14 and PSP15 Common Stock solely for PSI Common Stock. The
Required REIT Distributions generally will be taxable to shareholders of the
respective corporation 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 of PSP14 and PSP15, and many PSP14 and PSP15 Shareholders
have a tax basis in their PSP14 and PSP15 Common Stock (approximately $17.87 for
most original PSP14 Shareholders and approximately $18.43 for most original
PSP15 Shareholders) lower than the consideration to be received in the Mergers.
Accordingly, for many PSP14 and PSP15 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 $.85 per share of PSP14
Common Stock and $.86 per share of PSP15 Common Stock). However, other
proposals could have been for a higher price and possibly also structured as
mergers qualifying as tax-free reorganizations. Under California law, most
acquisitions of PSP14 or PSP15 or their properties would require approval by the
shareholders of PSP14 and PSP15, respectively. PSI and Hughes in the aggregate
own 33.70% and 34.88% of the total combined outstanding shares of Common Stock
and Common Stock Series B and C of PSP14 and PSP15, respectively.
DETERMINATION OF PAYMENTS TO BE RECEIVED BY PSP14 AND PSP15 SHAREHOLDERS IN
CONNECTION WITH THE MERGERS
PSP14. In connection with the PSP14 Merger, PSP14 Shareholders will
receive a value of $21.73 (less the amount of any Required PSP14 REIT
Distributions) per share of PSP14 Common Stock in cash, PSI Common Stock, or a
combination of the two, calculated as follows:
1. The market value (not book value) of PSP14's real estate assets has
been determined by Wilson, showing such value as of October 31, 1996. In
valuing PSP14'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 PSP14'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 PSP14's
portfolio of real estate assets based on property operations (before non-
recurring charges and after certain property tax adjustments) for the 12 months
ended September 30, 1996 averaged 9.30%. Wilson's valuation is as of October
31, 1996 in the context of the information available on that date. See "-- Real
Estate Portfolio Appraisals by Wilson."
2. PSP14's net asset value has been computed as (a) the market value of
PSP14's real estate assets as of October 31, 1996 ($62,000,000) plus (b) the
estimated book value of PSP14's non-real estate assets as of March 31, 1997 (a
total of $2,826,000) less (c) PSP14's estimated liabilities as of March 31, 1997
(a total of $1,033,000).
3. PSP14's net asset value per share of PSP14 Common Stock was calculated
at $21.73 by reducing PSP14's net asset value (as computed in 1 and 2 above,
$63,793,000) by the amount of PSP14's net asset value allocable to the PSP14
Common Stock Series B and C (estimated at $14,337,000, or $16.07 per share) and
the estimated Required PSP14 REIT Distributions attributable to the PSP14 Common
Stock Series B ($275,000 or $1.18 per share) and dividing the result by the
number of outstanding shares of PSP14 Common Stock.
4. Upon completion of the PSP14 Merger, each share of PSP14 Common Stock
(other than Dissenting PSP14 Shares and shares of PSP14 Common Stock held by
PSI) would be converted into the right to receive $21.73 in cash (with respect
to up to 20% of the outstanding PSP14 Common Stock, less any Dissenting PSP14
Shares),
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<PAGE>
subject to reduction as described below, or that number of shares of PSI Common
Stock determined by dividing $21.73, subject to reduction as described below, by
the average of the closing prices on the NYSE of PSI Common Stock during the 20
consecutive trading days ending on the fifth trading day prior to the meeting of
shareholders of PSP14. Additional distributions would be made to PSP14
Shareholders to cause PSP14's estimated net asset value allocable to the PSP14
Shareholders as of the date of the PSP14 Merger to be substantially equivalent
to $21.73 per share. The consideration paid by PSI to PSP14 Shareholders in the
PSP14 Merger will be reduced by the amount of any Required PSP14 REIT
Distributions. However, the consideration received by PSP14 Shareholders in the
PSP14 Merger along with the Required PSP14 REIT Distributions (which will be
paid in cash) will not be less than $21.73 per share of PSP14 Common Stock.
Hughes, who owns .43% of the total combined outstanding shares of PSP14
Common Stock and PSP14 Common Stock Series B and C, would receive approximately
10,973 shares of PSI Common Stock in the PSP14 Merger (assuming no Required
PSP14 REIT Distributions and PSI Common Stock price of $27).
The following tables set forth the calculation of the payments to be paid
to PSP14 Shareholders:
COMPUTATION OF PAYMENTS
<TABLE>
<CAPTION>
Net book Appraised Book value PSP14's PSP14's net PSP14's PSP14's net Payments
value of market of PSP14's net asset asset value net asset asset value received in
PSP14's real value of other net value(1) allocable value per share connection with
estate PSP14's assets(1) to PSP14 allocable of PSP14 Merger per
portfolio(1) real estate Common Stock to PSP14 Common original $1,000
portfolio(2) Series B Common Stock investment in
and C(3) Stock (1) the PSP14
Partnership(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$36,123,000 $62,000,000 $1,793,000 $63,793,000 $14,612,000 $49,181,000 $21.73 $1,087
</TABLE>
_______________
(1) Estimated as of March 31, 1997. The net asset value per share of PSP14
Common Stock includes the Required PSP14 REIT Distributions, estimated at
$1.18 per share or $2,671,000 in the aggregate. PSP14 Shareholders would
receive the Required PSP14 REIT Distributions upon any liquidation of PSP14
regardless of the PSP14 Merger.
(2) As of October 31, 1996.
(3) Includes $16.07 per share of PSP14 Common Stock Series B and C plus the
estimated Required PSP14 REIT Distributions attributable to the PSP14 Common
Stock Series B of $1.18 per share.
(4) Does not include quarterly cash distributions to PSP14 Shareholders or to
limited partners of the PSP14 Partnership. PSP14 was organized in June 1991
to succeed to the business of the PSP14 Partnership, which completed its
offering of limited partnership interests in 1985. PSP14's capital
structure was designed to reflect the economic rights of the limited and
general partners in the PSP14 Partnership. The market price of PSI Common
Stock may fluctuate following establishment of the number of shares to be
issued to PSP14 Shareholders in the PSP14 Merger and prior to issuance and
could decrease as a result of increased selling activity following issuance
of shares in the PSP14 Merger and other factors.
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<PAGE>
PSP15. In connection with the PSP15 Merger, PSP15 Shareholders will
receive a value of $21.99 (less the amount of any Required PSP15 REIT
Distributions) per share of PSP15 Common Stock in cash, PSI Common Stock, or a
combination of the two, calculated as follows:
1. The market value (not book value) of PSP15's real estate assets has
been determined by Wilson, showing such values as of October 31, 1996. In
valuing PSP15'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 PSP15'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 PSP15's
portfolio of real estate assets based on property operations (before non-
recurring charges and after certain property tax adjustments) for the 12 months
ended September 30, 1996 averaged 9.35%. Wilson's valuation is as of October
31, 1996 in the context of the information available on that date. See "-- Real
Estate Portfolio Appraisals by Wilson."
2. PSP15's net asset value has been computed as (a) the market value of
PSP15's real estate assets as of October 31, 1996 ($56,500,000) plus (b) the
estimated book value of PSP15's non-real estate assets as of March 31, 1997 (a
total of $2,771,000) less (c) PSP15's estimated liabilities as of March 31, 1997
(a total of $723,000).
3. PSP15's net asset value per share of PSP15 Common Stock was calculated
at $21.99 by reducing PSP15's net asset value (as computed in 1 and 2 above,
$58,548,000) by the amount of PSP15's net asset value allocable to the PSP15
Common Stock Series B and C (estimated at $11,266,000, or $12.63 per share) and
the estimated Required PSP15 REIT Distributions attributable to the PSP15 Common
Stock Series B ($287,000 or $1.23 per share) and dividing the result by the
number of outstanding shares of PSP15 Common Stock.
4. Upon completion of the PSP15 Merger, each share of PSP15 Common Stock
(other than Dissenting PSP15 Shares and shares of PSP15 Common Stock held by
PSI) would be converted into the right to receive $21.99 in cash (with respect
to up to 20% of the outstanding PSP15 Common Stock, less any Dissenting PSP15
Shares), subject to reduction as described below, or that number of shares of
PSI Common Stock determined by dividing $21.99, subject to reduction as
described below, by the average of the closing prices on the NYSE of PSI Common
Stock during the 20 consecutive trading days ending on the fifth trading day
prior to the meeting of shareholders of PSP15. Additional distributions would
be made to PSP15 Shareholders to cause PSP15's estimated net asset value
allocable to the PSP15 Shareholders as of the date of the PSP15 Merger to be
substantially equivalent to $21.99 per share. The consideration paid by PSI to
PSP15 Shareholders in the PSP15 Merger will be reduced by the amount of any
Required PSP15 REIT Distributions. However, the consideration received by PSP15
Shareholders in the PSP15 Merger along with the Required PSP15 REIT
Distributions (which will be paid in cash) will not be less than $21.99 per
share of PSP15 Common Stock.
Hughes, who owns .02% of the total combined outstanding shares of PSP15
Common Stock and PSP15 Common Stock Series B and C, would receive approximately
435 shares of PSI Common Stock in the PSP15 Merger (assuming no Required PSP15
REIT Distributions and PSI Common Stock price of $27).
The following tables set forth the calculation of the payments to be paid
to PSP15 Shareholders:
COMPUTATION OF PAYMENTS
<TABLE>
<CAPTION>
Net book Appraised Book value PSP15's PSP15's net PSP15's PSP15's net Payments
value of market of PSP15's net asset asset value net asset asset value received in
PSP15's real value of other net value(1) allocable value per share connection with
estate PSP15's assets(1) to PSP15 allocable of PSP15 Merger per
portfolio(1) real estate Common Stock to PSP15 Common original $1,000
portfolio(2) Series B Common Stock investment in
and C(3) Stock (1) the PSP15
Partnership(4)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$36,037,000 $56,500,000 $2,048,000 $58,548,000 $11,553,000 $46,995,000 $21.99 $1,100
</TABLE>
_______________
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<PAGE>
(1) Estimated as of March 31, 1997. The net asset value per share of PSP15
Common Stock includes the Required PSP15 REIT Distributions, estimated at
$1.23 per share or $2,628,000 in the aggregate. PSP15 Shareholders would
receive the Required PSP15 REIT Distributions upon any liquidation of PSP15
regardless of the PSP15 Merger.
(2) As of October 31, 1996.
(3) Includes $12.63 per share of PSP15 Common Stock Series B and C plus the
estimated Required PSP15 REIT Distributions attributable to the PSP15
Common Stock Series B of $1.23 per share.
(4) Does not include quarterly cash distributions to PSP15 Shareholders or to
limited partners of the PSP15 Partnership. PSP15 was organized in September
1991 to succeed to the business of the PSP15 Partnership, which completed
its offering of limited partnership interests in 1985. PSP15's capital
structure was designed to reflect the economic rights of the limited and
general partners in the PSP15 Partnership. The market price of PSI Common
Stock may fluctuate following establishment of the number of shares to be
issued to PSP15 Shareholders in the PSP15 Merger and prior to issuance and
could decrease as a result of increased selling activity following issuance
of shares in the PSP15 Merger and other factors.
POTENTIAL ADVANTAGES OF THE MERGERS TO PSP14 AND PSP15
The principal potential benefits to PSP14 and PSP15 Shareholders who
receive PSI Common Stock include the following:
ACQUISITION OF ADDITIONAL PROPERTIES. The primary business activity of
PSP14 and PSP15 is operating the properties originally acquired by their
predecessors. PSP14 and PSP15 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, PSP14 and PSP15
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. PSP14 has 2,263,218 shares of PSP14 Common Stock
traded on the AMEX (3,155,484 shares upon conversion of the PSP14 Common Stock
Series B and C into PSP14 Common Stock) and, during the 12 months ended December
31, 1996, the average daily trading volume of PSP14 Common Stock was 1,720
shares. PSP15 has 2,136,885 shares of PSP15 Common Stock traded on the AMEX
(3,029,141 shares upon conversion of the PSP15 Common Stock Series B and C into
PSP15 Common Stock) and, during the same period, the average daily trading
volume of PSP15 Common Stock was 1,181 shares. In comparison, at January 31,
1997, PSI had approximately 88,400,000 shares of PSI Common Stock traded on the
NYSE (approximately 52,600,000 of which are freely tradeable) and, during the 12
months ended December 31, 1996, the average daily trading volume of PSI Common
Stock was 98,719 shares. Accordingly, the investment in PSI of PSP14 and PSP15
Shareholders who receive PSI Common Stock in the Mergers should have greater
liquidity than the current investment of these same shareholders in their
respective corporations.
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 PSP14 and PSP15
Shareholders who exchange their common stock solely for PSI Common Stock.
However, the Required PSP14 REIT Distributions and the Required PSP15 REIT
Distributions will be taxable to all PSP14 Shareholders and PSP15 Shareholders,
respectively, as ordinary income. Hughes, who has little tax basis in his PSP14
and PSP15 Common Stock, intends to exchange his PSP14 and PSP15 Common Stock
solely for PSI Common Stock. See "Federal Income Tax Matters -- The Mergers."
DETRIMENTS OF THE MERGERS
For a discussion of certain risks and detriments of the Mergers, see "Risk
Factors" beginning on page 21.
39
<PAGE>
RECOMMENDATION TO PSP14 AND PSP15 SHAREHOLDERS AND FAIRNESS ANALYSIS
CONCLUSIONS. Based upon an analysis of each of the Mergers, the PSP14 and
PSP15 Special Committees and Boards of Directors have concluded (i) that the
terms of each respective merger are fair to PSP14 and PSP15 Shareholders, (ii)
after comparing the potential benefits and detriments of the Mergers with
alternatives, that each of the Mergers is more advantageous to PSP14 and PSP15
Shareholders, respectively, than such alternatives and (iii) that PSP14 and
PSP15 Shareholders, respectively, should vote for the Mergers.
Although the PSP14 and PSP15 Boards of Directors and Special Committees
reasonably believe the terms of each of the Mergers are fair to PSP14 and PSP15
Shareholders and recommend that PSP14 and PSP15 Shareholders vote for the
Mergers, an affiliate of PSI is a member of the PSP14 and PSP15 Boards of
Directors, and PSI has other significant relationships with PSP14 and PSP15 and
conflicts of interest with respect to the Mergers. The Mergers have been
initiated and structured by individuals who are executive officers of PSP14 and
PSP15 and who are also affiliated with PSI. The PSP14 and PSP15 Special
Committees, comprised of independent directors, have reviewed and approved the
terms of the Mergers. See "Summary -- Relationships" and "Conflicts of
Interest."
MATERIAL FACTORS UNDERLYING CONCLUSIONS OF SPECIAL COMMITTEES AND BOARDS OF
DIRECTORS OF PSP14 AND PSP15. The following is a discussion of the material
factors underlying the conclusions of the PSP14 and PSP15 Special Committees and
Boards of Directors. The PSP14 and PSP15 Boards of Directors and Special
Committees have not quantified the relative importance of these factors.
1. Bylaw Provisions. The bylaws of PSP14 and PSP15 require proposals for
the sale of their properties in 1997. As discussed under "-- Background," the
PSP14 and PSP15 Special Committees and Boards of Directors believe that the
proposed Mergers satisfy these requirements and that, as discussed in paragraph
2 below, the form and amount of consideration offered to PSP14 and PSP15
Shareholders constitute fair value in respect of their shares of PSP14 and PSP15
Common Stock, respectively. The PSP14 and PSP15 Special Committees and Boards
of Directors recognize that, if the properties of PSP14 and PSP15 were
liquidated through sales to third parties, the PSP14 and PSP15 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 arm's length negotiations between PSP14 and PSP15 and the prospective
purchasers.
2. Consideration Offered. The PSP14 and PSP15 Boards of Directors and
Special Committees believe that (i) the proposal that the consideration to be
paid to PSP14 and PSP15 Shareholders in the Mergers be based on the value of the
assets of PSP14 and PSP15 is reasonable and consistent with the bylaws of PSP14
and PSP15, respectively, (ii) the net asset value of PSP14 and PSP15 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 PSP14 and PSP15 Shareholders, and (iii) the consideration to be received by
PSI and Hughes in respect of their interest in PSP14 and PSP15 is fair because
it reflects the amount they would receive upon liquidation of the respective
corporation. There was no negotiation regarding the basis for determining the
consideration to be paid to PSP14 and PSP15 Shareholders in the Mergers or the
consideration to be received by PSI and Hughes in respect of their interest in
PSP14 and PSP15. See "-- Background."
3. Choice as to Form of Consideration. The Mergers provide PSP14 and
PSP15 Shareholders with the choice of either (A) converting their investment
into an investment in PSI, which generally owns the same type of properties as
PSP14 and PSP15, on a tax-free basis (assuming the Mergers are tax-free
reorganizations, the PSP14 and PSP15 Shareholders receive solely PSI Common
Stock in the Mergers, 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 PSP14 and PSP15 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).
4. Independent Portfolio Appraisals and Fairness Opinions. The
conclusions of the PSP14 and PSP15 Special Committees and Boards of Directors
are based partially upon the portfolio appraisals prepared by Wilson and
Stanger's fairness opinions. The PSP14 and PSP15 Special Committees and Boards
of Directors attributed significant
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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 PSP14 and
PSP15 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 PSP14 and PSP15 Special Committees and
Boards of Directors in the fulfillment of their duties to PSP14 and PSP15
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 PSP14 and PSP15 Special
Committees and Boards of Directors believe that the voting process and the
rights of dissenting shareholders of PSP14 and PSP15 support their conclusions
as to the Mergers. Each of the Mergers is required to be approved by a majority
of the outstanding shares of Common Stock and Common Stock Series B and C of the
respective corporation, all voting together as a class, and the Common Stock
Series B and C will be voted with the holders of a majority of the unaffiliated
Common Stock of each respective corporation. The PSP14 Merger and the PSP15
Merger are not conditioned on each other. PSP14 and PSP15 Shareholders will
have the right to exercise Dissenters' Rights, although the PSP14 and PSP15
Special Committees and Boards of Directors recognize that these rights may be
exercised by PSP14 and PSP15 Shareholders only if demands for payment are filed
with respect to 5% or more of the outstanding shares of PSP14 and PSP15 Common
Stock, respectively.
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
$21.73 per share of PSP14 Common Stock and $21.99 per share of PSP15 Common
Stock generally compares favorably with (A) the trading price of the PSP14 and
PSP15 Common Stock immediately prior to the first announcement of the Mergers
($20 1/8 and $20 1/8, respectively) and during other periods, (B) a range of
estimated going-concern value per share of PSP14 and PSP15 Common Stock ($17.69
to $20.39 and $17.18 to $19.78, respectively), (C) an estimated liquidation
value per share of PSP14 and PSP15 Common Stock ($20.88 and $21.13,
respectively) and (D) the book value per share of PSP14 and PSP15 Common Stock
as of September 30, 1996 ($11.66 and $12.25, respectively). The PSP14 and PSP15
Boards of Directors and Special Committees 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 PSP14 and PSP15 Shareholders After the
Mergers. The level of distributions to PSP14 and PSP15 Shareholders who receive
PSI Common Stock in the Mergers is expected to be lower after the Mergers.
Based on a market price of PSI Common Stock of $27 and the current regular
quarterly distribution rate for PSI ($.22 per share), PSP14 ($.34 per share) and
PSP15 ($.30 per share), (a) PSP14 Shareholders would receive approximately $.16
(48%) less in regular quarterly distributions per share of PSP14 Common Stock
after the Mergers from PSI than before the Mergers from PSP14 and approximately
$.01 less per share in regular quarterly distributions for each $1 5/8 (6%)
increase in the market price of PSI Common Stock above $27 and (b) PSP15
Shareholders would receive approximately $.12 (40%) less in regular quarterly
distributions per share of PSP15 Common Stock after the Mergers from PSI than
before the Mergers from PSP15 and approximately $.01 less per share in regular
quarterly distributions for each $1 5/8 (6%) increase in the market price of PSI
Common Stock above $27.
8. Conflicts of Interest. The Mergers have been initiated and structured
by individuals who are executive officers of PSP14 and PSP15 and who are also
affiliated with PSI. Independent representatives were not engaged to negotiate
these arrangements on behalf of the public PSP14 and PSP15 Shareholders, and the
terms of the Mergers are not the result of arm's length negotiations. Hughes
will receive PSI Common Stock in respect of his ownership of capital stock of
PSP14 and PSP15.
The PSP14 and PSP15 Special Committees and Boards of Directors 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 PSP14 and PSP15 Special Committees, comprised of independent
directors. Based upon the use of an independent appraisal firm, the Stanger
fairness opinions and the participation of the PSP14 and PSP15 Special
Committees, the Boards of Directors and Special Committees considered that the
engagement of such independent representatives was not necessary or cost
effective.
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<PAGE>
COMPARISON OF BENEFITS AND DETRIMENTS. Prior to concluding that the
Mergers should be proposed to PSP14 and PSP15 Shareholders, the PSP14 and PSP15
Boards of Directors and Special Committees considered several alternatives to
the Mergers. The alternatives considered by the PSP14 and PSP15 Boards of
Directors and Special Committees 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 PSP14 and PSP15
Shareholders, the PSP14 and PSP15 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 PSP14 and PSP15 Boards
of Directors and Special Committees regarding the comparison of the Mergers to
the alternatives.
(i) The PSP14 and PSP15 Boards of Directors and Special Committees
favor the Mergers over liquidation because they believe that (A) PSP14 and
PSP15 should not be liquidated at this time (other than through the Mergers
that provide PSP14 and PSP15 Shareholders who receive PSI Common Stock with
greater liquidity and increased geographic diversification, while retaining
an interest in a similar type of properties which may increase in value)
because of potential continued improvement of the properties of PSP14 and
PSP15 and (B) the Mergers provide PSP14 and PSP15 Shareholders, with
respect to up to 20% of the outstanding PSP14 and PSP15 Common Stock (less
any PSP14 and PSP15 Dissenting Shares, respectively), with the opportunity,
if they so elect, to receive in cash the amounts they would receive if
PSP14's and PSP15's properties were sold at their appraised values and were
liquidated, but without any reduction for real estate commissions and other
sales expenses.
(ii) The PSP14 and PSP15 Boards of Directors and Special Committees
have concluded that continued operation of PSP14 and PSP15 is not as
attractive an alternative as each of the Mergers because the Mergers afford
PSP14 and PSP15 Shareholders increased liquidity and the opportunity to
participate in PSI, an entity that, unlike PSP14 and PSP15, has grown, and
is expected to continue to grow, as new investments are made. However, the
PSP14 and PSP15 Boards of Directors and Special Committees recognize that
the level of distributions to PSP14 and PSP15 Shareholders who receive PSI
Common Stock is expected to be reduced. See "-- Recommendation to PSP14
and PSP15 Shareholders -- 7. Lower Level of Distributions to PSP14 and
PSP15 Shareholders After the Mergers."
(iii) The PSP14 and PSP15 Boards of Directors and Special
Committees believe that PSP14 and PSP15 Shareholders would have better
opportunities to participate in the current markets for equity securities
of REITs through PSI than through PSP14 and PSP15, even if their bylaws
were amended to remove restrictions on reinvestment of cash flow and on the
issuance of securities of PSP14 and PSP15, 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 PSP14 and PSP15 Boards of Directors and
Special Committees have concluded that each of the Mergers is more attractive to
PSP14 and PSP15 Shareholders, respectively, than any of the alternatives.
COMPARISON OF CONSIDERATION TO BE RECEIVED IN THE MERGERS TO OTHER ALTERNATIVES
GENERAL. To assist PSP14 and PSP15 Shareholders in evaluating the Mergers,
the PSP14 and PSP15 Boards of Directors and Special Committees compared the
consideration to be received in each of the Mergers, i.e., (A) a value of $21.73
per share of PSP14 Common Stock (less the amount of any Required PSP14 REIT
Distributions) and (B) a value of $21.99 per share of PSP15 Common Stock (less
the amount of any Required PSP15 REIT Distributions), to: (i) the trading price
of the PSP14 and PSP15 Common Stock on the AMEX; (ii) estimates of the value of
PSP14 and PSP15 on a liquidation basis assuming that their assets were sold at
their appraised fair market value and the net proceeds distributed to the PSP14
and PSP15 Shareholders in accordance with their share ownership in PSP14 and
PSP15, respectively; and (iii) estimates of the value of each of PSP14 and PSP15
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 10-year
holding period or its assets sold at the end of a 10-year holding period. Due
to the uncertainty in establishing these
42
<PAGE>
values, the PSP14 and PSP15 Boards of Directors and Special Committees 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 each of the Mergers is
dependent upon varying market conditions, no assurance can be given that the
range of estimated values indicated establishes the highest or lowest possible
values. However, the PSP14 and PSP15 Boards of Directors and Special Committees
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 these comparative analyses are summarized in the following
tables. PSP14 and PSP15 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 PSP14 and PSP15. These assumptions
relate, among other things, to: projections as to PSP14's and PSP15's future
income, expenses, cash flow and other significant financial matters; the
capitalization rates that will be used by prospective buyers when PSP14's and
PSP15'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 PSP14 and PSP15 Common Stock. In addition,
these estimates are based upon certain information available to PSP14 and PSP15
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 PSP14 and PSP15 Boards of Directors and Special Committees in good faith,
and, where appropriate, are based upon current and historical information
regarding PSP14 and PSP15 and current real estate markets, and have been
highlighted below to the extent critical to the conclusions of the PSP14 and
PSP15 Boards of Directors and Special Committees.
No assurance can be given that such consideration would be realized through
any of the designated alternatives, and PSP14 and PSP15 Shareholders should
carefully consider the following discussions to understand the assumptions,
qualifications and limitations inherent in the presented valuations. The
estimated values presented in the following table are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These estimated values are based upon certain assumptions that relate,
among other things, to (i) the price of PSI Common Stock as of the date of the
Merger being the same as during the 20 trading days ending on the fifth trading
day prior to the meeting of shareholders of PSP14 and PSP15, (ii) projections as
to the future revenues, expenses, cash flow and other significant financial
matters of PSP14 and PSP15, (iii) the capitalization rates that will be used by
prospective buyers when the assets of PSP14 and PSP15 are liquidated, (iv)
selling costs, (v) appropriate discount rates to apply to expected cash flows in
computing the present value of the cash flows and (vi) the manner of sale of the
properties of PSP14 and PSP15. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for mini-warehouses, the manner in which the
properties are sold and changes in availability of capital to finance
acquisitions of mini-warehouses.
PSP14 COMPARISON OF ALTERNATIVES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Estimated Liquidation
Payments in PSP14 Estimated Going Concern Value per Share of PSP14
Merger per Share of Trading Prices of PSP14 Value per Share of PSP14 Common Stock at
PSP14 Common Stock Common Stock (2) Common Stock (3) Appraised Value (4)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21.73(1) $18 $19 3/4 $17.69 $20.39 $20.88
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
PSP15 COMPARISON OF ALTERNATIVES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Estimated Liquidation
Payments in PSP15 Estimated Going Concern Value per Share of PSP15
Merger per Share of Trading Prices of PSP15 Value per Share of PSP15 Common Stock at
PSP15 Common Stock Common Stock (2) Common Stock (3) Appraised Value (4)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21.99(1) $17 7/8 $19 5/8 $17.18 $19.78 $21.13
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
_______________
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<PAGE>
(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, 1996 and estimated book value of its
other net assets as of March 31, 1997 and assuming no Required REIT
Distributions. The market price of PSI Common Stock may fluctuate following
establishment of the number of shares to be issued to PSP14 and PSP15
Shareholders in the Mergers and prior to issuance and could decrease as a
result of increased selling activity following issuance of the shares in the
Mergers and other factors. See "-- Determination of Payments to be Received
by PSP14 and PSP15 Shareholders in Connection with the Mergers."
(2) High and low sales prices on the AMEX composite tape for the third quarter
of 1996, the last full calendar quarter prior to the announcement of the
Mergers. On December 4, 1996, the closing price of PSP14 and PSP15 Common
Stock was $20 1/8 and $20 1/8, 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 PSP14 and PSP15 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 PSP14 AND PSP15 COMMON STOCK.
PSP14. The PSP14 Board of Directors and Special Committee also
considered that the trading price for PSP14 Common Stock averaged $20.02,
$19.80, $19.17 and $18.67 for the 20-day, 60-day, 180-day and 360-day periods
preceding the announcement of the proposed Mergers and that the closing price
for PSP14 Common Stock on the last trading day prior to the first announcement
of the proposed Mergers was $20 1/8. The PSP14 Board of Directors also
considered that the consideration offered in the PSP14 Merger adjusted for
interim earnings of approximately $.51 per share (which amount represents
increases in current net assets projected to be generated and retained between
the date of the Appraisal and March 31, 1997) represents a premium of 6.0%,
7.2%, 10.7%, 13.7% and 5.5% 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, respectively.
PSP15. The PSP15 Board of Directors and Special Committee also
considered that the trading price for PSP15 Common Stock averaged $20.41,
$19.84, $19.15 and $18.43 for the 20-day, 60-day, 180-day and 360-day periods
preceding the announcement of the proposed Mergers and that the closing price
for PSP15 Common Stock on the last trading day prior to the first announcement
of the proposed Mergers was $20 1/8. The PSP15 Board of Directors also
considered that the consideration offered in the PSP15 Merger adjusted for
interim earnings of approximately $.48 per share (which amount represents
increases in current net assets projected to be generated and retained between
the date of the Appraisal and March 31, 1997) represents a premium of 5.4%,
8.5%, 12.3%, 16.7% and 6.9% 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, respectively.
GOING-CONCERN VALUE. The PSP14 and PSP15 Boards of Directors and Special
Committees have estimated the going-concern value of each of PSP14 and PSP15 by
analyzing projected cash flows and distributions assuming that each of PSP14 and
PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15 liquidated
in private real estate markets at the terminal value projected by the appraiser
in the portfolio appraisals and the net proceeds resulting from the liquidation
of the properties and other remaining assets of PSP14 and PSP15 paid out to the
shareholders of PSP14 and PSP15 in liquidation distributions. Dividends and
sale proceeds per share of PSP14 and PSP15 Common Stock were discounted in the
projections at rates ranging from 12.25% to 12.75%.
Scenario #3 of the going-concern analysis assumes the properties of each of
PSP14 and PSP15 are sold in a single transaction after a 10-year holding period.
Should the assets be liquidated over time, even at prices equal to
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<PAGE>
those projected, distributions to shareholders out of the respective
corporation'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 PSP14 and PSP15 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 PSP14
and PSP15 Boards of Directors is to proceed with a liquidation of PSP14 and
PSP15, and the corresponding distribution of the net liquidation proceeds to the
shareholders of PSP14 and PSP15, respectively, the PSP14 and PSP15 Boards of
Directors and Special Committees have estimated the liquidation value of PSP14
and PSP15 assuming that the real estate portfolios of these corporations were
sold at their fair market value, based upon the Wilson real estate portfolio
appraisals. 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 PSP14 and PSP15), PSP14 and PSP15 incur selling costs at the time of
liquidation (state and local transfer taxes, real estate commissions and legal
and other closing costs) of $2,695,000 and $2,612,000, respectively, and the
remaining net liquidation proceeds are distributed among the shareholders of
PSP14 and PSP15 under the terms of their respective articles of incorporation,
according priority to the PSP14 and PSP15 Shareholders.
The liquidation analysis assumes that the properties of PSP14 and PSP15 are
sold in single transactions at the respective appraised values. Should the
assets be liquidated over time, even at prices equal to those projected,
distributions to PSP14 and PSP15 Shareholders out of the respective
corporation's cash flow from operations might be reduced because their
relatively fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of each portfolio are assumed to occur
concurrently.
Applying these procedures, the PSP14 and PSP15 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 the real estate portfolios of PSP14 and PSP15 as of October
31, 1996. 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 relevant information regarding the historical revenues and expenses of
the properties. The real estate portfolio appraisals assume that the properties
of PSP14 and PSP15 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 PSP14 and PSP15 Boards of Directors and
Special Committees have considered the potential impact of the Mergers upon
distributions that would be made to PSP14 and PSP15 Shareholders who exchange
their PSP14 and PSP15 Common Stock for PSI Common Stock. Based on a market
price of PSI Common Stock of $27 and the current regular quarterly distribution
rate for PSI ($.22 per share), PSP14 ($.34 per share) and PSP15 ($.30 per
share), (a) PSP14 Shareholders would receive approximately $.16 (48%) less in
regular quarterly distributions per share of PSP14 Common Stock after the
Mergers from PSI than before the Mergers from PSP14 and approximately $.01 less
per share in regular quarterly distributions for each $1 5/8 (6%) increase in
the market price of PSI Common Stock above $27 and (b) PSP15 Shareholders would
receive approximately $.12 (40%) less in regular quarterly distributions per
share of PSP15 Common Stock after the Mergers from PSI than before the Mergers
from PSP15 and approximately $.01 less per share in regular quarterly
distributions for each $1 5/8 (6%) increase in the market price of PSI Common
Stock above $27. These estimates are based upon the actual distributions made by
PSI, PSP14 and PSP15 (not upon the amounts that might have been distributed by
them based upon their cash flow from operations).
In evaluating this estimate, PSP14 and PSP15 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
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<PAGE>
of PSI with those of PSP14 and PSP15 does not show how the Mergers might affect
a PSP14 or PSP15 Shareholder's distribution level over a number of years.
REAL ESTATE PORTFOLIO APPRAISALS BY WILSON
Wilson was engaged by PSI, PSP14 and PSP15 to appraise the real estate
portfolios of PSP14 and PSP15 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 the portfolio of properties of each of PSP14 and PSP15
as of October 31, 1996 (the "Appraisals"). PSI, PSP14 and PSP15 selected Wilson
to provide the Appraisals because of its experience and reputation in connection
with appraising mini-warehouses, its familiarity with the properties of PSP14
and PSP15 and Wilson's appraisal of the properties of other REITs in connection
with their mergers with PSI. The consideration to be paid by PSI to PSP14 and
PSP15 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
Appendices 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 250
mini-warehouses in 1996.
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 PSI, PSP14 and PSP15, Wilson
evaluated the portfolios of real estate of PSP14 and PSP15. 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 the properties of PSP14 and PSP15.
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 PSP14 and PSP15
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 the properties of PSP14 and
PSP15 diminishes the validity of this approach.
While the Appraisals were prepared separately for the entire portfolio of
each of PSP14 and PSP15, Wilson analyzed the individual properties by (a)
reviewing each property's previous three years' operating statements, (b)
reviewing information submitted to the appraiser by on-site managers which
included competitive rental and occupancy surveys, subject facility
descriptions, area trends and other factors, which were verified by Wilson
through physical inspections, telephone calls and other sources; (c) reviewing,
in the case of business park properties, existing lease terms; (d) developing
information from a variety of sources about market conditions for each
individual property
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that included population, employment and housing trends within the market; and
(e) 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 the properties
of PSP14 and PSP15 to discuss competitive conditions, area economic trends
affecting the properties, historical operating revenues and expenses, lease
terms 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 mini-warehouses and business
parks conducted by management. Representatives of Wilson performed site
inspections on all of the properties of PSP14 and PSP15 between September 1996
and November 1996. Several of the properties of PSP14 and PSP15 had been
appraised by Wilson previously.
Wilson then estimated the value of each property in the portfolio relying
heavily upon the income approach. Indicated values were developed using a yield
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 through the third quarter of
1996. Further, Wilson interviewed various sources in local markets to identify
sales of mini-warehouses and business parks 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 applying a discounted cash flow analysis, projections of cash flow from
each property were developed for a 10-year period ending in the year 2006 with a
terminal residual value computed at the end of year 10. The first year's
scheduled gross income was estimated taking into consideration each property's
current rent structure and the rental rates of competitive facilities. Also
included in the income estimate were trends in ancillary income from
administrative charges and late fees, if any. Wilson then made an analysis of
each subject's occupancy history, current lease terms (in the case of business
park properties), took into consideration the occupancy level of competitive
facilities and estimated a stabilized occupancy level for each property in each
of the portfolios.
Estimated expenses were based upon each property's actual operating
history; where appropriate, adjustments were made to property taxes to estimate
taxes which would be due after a sales transaction. The projected expenses were
tested for reasonableness based upon a comparison of the operating expense
ratios to market norms. Expenses were deducted from effective gross income to
derive a net operating income for each property. Consideration was given to and
adjustment made to reflect capital expenditures and replacement reserves.
Income and expense growth rates were based on projection parameters
currently being used by property investors as well as upon local, regional and
historical trends. Wilson also reviewed capitalization rates and purchase
prices paid in recent and pending transactions of assembled portfolios similar
to the portfolios of PSP14 and PSP15, including transactions involving PSI and
third parties. Based on these analyses, Wilson derived the parameters for the
valuation of the portfolios of PSP14 and PSP15. Growth rates for income and
expenses ranged from 3.0% to 3.5% depending upon property and local market
conditions. Wilson then used a terminal capitalization rate of 10% for the
mini-warehouses and rates ranging from 10.25% to 11.00% for the business parks
to capitalize each property's 11th year net income into a residual value at the
end of the holding period, assuming normal cost of disposing of the properties.
The 10 yearly cash flows were then discounted to present worth using discount
rates ranging from 12.25% to 12.75% for the mini-warehouses and 12.25% to 12.75%
for the business parks, again depending upon local market and property
conditions. The indicated value based upon the income approach is $61,460,000
for PSP14's properties and $55,710,000 for PSP15's properties.
In applying the sales comparison approach to the properties of PSP14 and
PSP15, Wilson analyzed 140 mini-warehouse properties that were sold during 1996
in individual transactions and similar assembled portfolio transactions.
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Using a regression analysis, a statistically significant correlation was derived
between each of the comparable property's net income and its sales price per
square foot. With respect to the business parks, Wilson compared the facilities
to comparable facilities sold in the market during the prior year. Based upon a
regression analysis for the mini-warehouse portfolios of PSP14 and PSP15
computed based on net income per square foot, and the comparable sales for the
business parks, the indicated value by the sales comparison approach ranged
between $59,920,000 and $65,170,000 for PSP14's properties and between
$53,030,000 and $60,710,000 for PSP15's properties.
CONCLUSIONS AS TO VALUE. Wilson reconciled the values indicated from the
direct sales comparison and income approaches to arrive at a final valuation
conclusion. Wilson gave primary emphasis to the income approach, an emphasis
deemed appropriate based on acquisition criteria currently employed in the mini-
warehouse market. The resulting effective implied capitalization rate for the
portfolios based on reported property operations (before non-recurring expenses
and after certain property tax adjustments) during the 12 months ended September
1996 averaged 9.30% and 9.35% for PSP14 and PSP15, respectively.
Based on the valuation methodology described above, Wilson assigned a
market value to the portfolios of real property assets of PSP14 and PSP15 as of
October 31, 1996 of $62,000,000 and $56,500,000, respectively.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF THE APPRAISALS. The
Appraisals reflect Wilson's valuation of the real estate portfolios of PSP14 and
PSP15 as of October 31, 1996 in the context of the information available on such
date. Events occurring after October 31, 1996 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 Appraisals on the basis of
subsequent events; however, Wilson has informed PSI, PSP14 and PSP15 that, as of
the date of this Combined Proxy Statement and Prospectus, Wilson is not aware of
any event or change in conditions since October 31, 1996 that may have caused a
material change in the value of the portfolios of real estate of PSP14 and PSP15
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 the properties of PSP14 or PSP15, (ii)
assumed that the properties comply with local building codes and zoning
ordinances, (iii) assumed that there are no new or planned facilities except as
noted in the Appraisals and (iv) did not involve the physical inspections of
competing properties. See Appendices 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 $85,000 for preparation of the Appraisals, which fee includes
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 a leading appraiser of mini-warehouses since 1976, Wilson has
continuously prepared appraisals for PSI and its affiliates, including
appraisals of the properties of prior REITs in connection with their mergers
with PSI, and is expected to continue to prepare appraisals for PSI.
FAIRNESS OPINIONS FROM STANGER
Stanger was engaged by PSP14 and PSP15 through the PSP14 and PSP15 Special
Committees to deliver written summaries of its determination as to the fairness
of the consideration to be received in each of the Mergers, from a financial
point of view, to the public PSP14 and PSP15 Shareholders. 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
Appendices C-1 and C-2 to this Combined 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 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 PSP14 and
PSP15 advised Stanger that it would be reasonable to make, PSP14 and PSP15
imposed no conditions or limitations on the scope of Stanger's
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investigation or with respect to the methods and procedures to be followed in
rendering the fairness opinions. PSP14 and PSP15 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 NYSE firms and insurance companies and over 70
companies engaged in the management and operation of partnerships and REITs.
The investment banking activities of Stanger include financial advisory
services, asset and securities valuations, industry and company research and
analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
In particular, Stanger's valuation practice principally involves partnerships,
partnership securities and the assets typically owned through partnerships
including, but not limited to, oil and gas reserves, real estate, cable
television systems and equipment leasing assets.
SUMMARY OF MATERIALS CONSIDERED. In the course of Stanger's analysis to
render its opinions regarding the Mergers, Stanger: (i) reviewed this Combined
Proxy Statement and Prospectus; (ii) reviewed the annual reports on Form 10-K of
PSI, PSP14 and PSP15 for the three fiscal years ending December 31, 1993, 1994
and 1995, their quarterly reports on Form 10-Q for the period ending September
30, 1996; (iii) reviewed the Appraisals and discussed with management of PSP14
and PSP15 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; (v) reviewed estimates prepared by PSP14 and PSP15, and
based in part on the Appraisals, of the current net liquidation value per common
share of the assets of PSP14 and PSP15 and projections of cash flow from
operations, dividend distributions and going-concern values for PSP14 and PSP15,
and the calculation of the allocation of such values between (A) the PSP14
Shareholders and the holders of the PSP14 Common Stock Series B and C and (B)
the PSP15 Shareholders and the holders of the PSP15 Common Stock Series B and C;
(vi) discussed with certain members of management of PSI, PSP14 and PSP15
conditions in self-storage property markets, conditions in the market for
sales/acquisitions of properties similar to those owned by PSP14 and PSP15,
current and expected operations and performance, and the financial condition and
future prospects of PSI, PSP14 and PSP15; (vii) reviewed historical market
prices, trading volume and dividends for PSI, PSP14 and PSP15 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 Combined 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 the portfolios of properties of PSP14 and PSP15 which were
prepared as of October 31, 1996 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.
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, and the sales comparison approach.
Stanger observed that the effective capitalization rate utilized in the
Appraisals was approximately 9.3% and 9.4% for the properties of PSP14 and
PSP15, respectively, based on net operating income (before non-recurring
expenses and after certain property tax adjustments) generated for the 12 months
ended September 30, 1996. Stanger further observed that among stabilized
properties acquired by PSI or affiliated entities from third-parties between
August
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1994 and November 1996, capitalization rates for such purchases averaged
approximately 9.5%. Lower capitalization rates generally reflect higher sales
prices for income-producing properties.
Review of Liquidation Analysis. Stanger reviewed an analysis prepared by
management of PSP14 and PSP15 of the estimated value of PSP14 and PSP15 based
upon liquidation of their portfolios on a property-by-property basis utilizing
estimates prepared by PSP14 and PSP15 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 PSP14 to independent third-parties were estimated by
PSP14 to total approximately $2,694,000 and were comprised of estimates of
$214,000 in state and local transfer taxes, $1,860,000 in commissions and
$620,000 in legal and other closing costs. Costs of such property sales by
PSP15 to independent third-parties were estimated by PSP15 to total
approximately $2,613,000 and were comprised of estimates of $352,000 in state
and local transfer taxes, $1,695,000 in commissions and $566,000 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 PSP14 and PSP15 based on
knowledge of real estate transactions. Stanger observed that the estimated net
proceeds from such liquidation, assuming no Required PSP14 REIT Distributions
(prior to the date of liquidation) and the associated dissolution of PSP14 and
distribution of all remaining assets was $20.88 per share of PSP14 Common Stock,
versus the consideration offered in the PSP14 Merger of $21.73 cash per share of
PSP14 Common Stock, or the equivalent of $21.73 of PSI Common Stock per share of
PSP14 Common Stock, based on the average closing price of PSI Common Stock on
the NYSE during the 20 consecutive trading days ending on the fifth trading day
prior to the meeting of shareholders of PSP14. Stanger observed that the
estimated net proceeds from the liquidation of PSP15's properties, assuming no
Required PSP15 REIT Distributions (prior to the date of liquidation), and the
associated dissolution of PSP15 and distribution of all remaining assets was
$21.13 per share of PSP15 Common Stock, versus the consideration offered in the
PSP15 Merger of $21.99 cash per share of PSP15 Common Stock, or the equivalent
of $21.99 of PSI Common Stock per share of PSP15 Common Stock, based on the
average closing price of PSI Common Stock on the NYSE during the 20 consecutive
trading days ending on the fifth trading day prior to the meeting of
shareholders of PSP15.
Stanger also reviewed information on recent multi-property purchases and
sales of self-storage properties transacted by PSI, PSMI or affiliates during
1993 through November 1996. Stanger observed that PSI, PSMI or affiliated
entities have completed 11 bulk purchases of property portfolios during the
period reviewed, excluding the properties associated with the mergers of eleven
prior REITs with PSI. These transactions involved affiliated and unaffiliated
entities with an interest in 106 properties with an aggregate acquisition cost
of approximately $250 million. Capitalization rates ranged from 9.1% to 10.7%,
averaging 9.7%, for bulk transactions during the entire period reviewed and
ranged from 9.1% to 9.8%, averaging 9.3%, for bulk transactions during the
preceding 12 months.
Review of Going-Concern Analysis. Stanger reviewed financial analyses and
projections prepared by the management of PSP14 and PSP15 concerning estimated
cash flows and dividend distributions from continued operation of PSP14 and
PSP15 as independent stand-alone entities and estimated sales proceeds from the
liquidation of the shares of PSP14 and PSP15 or the portfolios of properties
owned by PSP14 and PSP15. 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 PSP14 and PSP15 or the properties owned by
PSP14 and PSP15 during projection periods of up to 10 years. The analyses and
projections assumed, among other things, that (i) net operating income for PSP14
and PSP15 would grow at a compound annual rate of approximately 3.5% and 3.1%
for the properties of PSP14 and PSP15, respectively, 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 Appraisals.
The projections evaluated the going-concern value of PSP14 and PSP15 under
three scenarios: Scenario #1 -- a five-year holding period, with shares of
PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15 liquidated in private real estate
markets at the terminal
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value projected in the Appraisals and the net proceeds resulting from the
liquidation of the properties and other remaining assets of PSP14 and PSP15 paid
out to shareholders in liquidating distributions. Dividends and sale proceeds
per share of PSP14 and PSP15 Common Stock were discounted in the projections at
rates ranging from 12.25% to 12.75%.
Stanger observed that the FFO multiples utilized by management in the
projections were consistent with historical FFO multiples among publicly traded
REITs investing in self-storage facilities and with market capitalization and
leverage levels reasonably comparable to those of PSP14 and PSP15. This group
of publicly traded REITs are or were all affiliated with PSI. 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 PSP14 and
PSP15 Common Stock on a going-concern basis resulting from the above analysis
were as follows for each scenario: Scenario #1 -- $17.69 to $20.39 and $17.18
to $19.69, respectively; Scenario #2 -- $18.29 to $20.34 and $17.83 to $19.78,
respectively; and Scenario #3 -- $19.66 to $20.25 and $19.03 to $19.58,
respectively, compared with the consideration offered in the Mergers of $21.73
per share of PSP14 Common Stock and $21.99 per share of PSP15 Common Stock.
The estimated values assigned to the alternative forms of consideration are
based on a variety of assumptions that have been made by PSP14 and PSP15. While
PSP14 and PSP15 have advised Stanger that they believe they have a reasonable
basis for these assumptions, these assumptions may not reflect the actual
experience of PSP14 and PSP15 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 PSP14 and PSP15 Common Stock. In the
course of this review, Stanger compared the historical market prices of PSP14
and PSP15 Common Stock with amounts to be received at the time of the Mergers.
Stanger observed that the trading price for PSP14 Common Stock averaged $20.02,
$19.80, $19.17 and $18.67 for the respective 20-day, 60-day, 180-day, and 360-
day periods preceding the announcement of the proposed PSP14 Merger and that the
closing price for PSP14 Common Stock on the last trading day prior to the first
announcement of the proposed PSP14 Merger was $20 1/8. Stanger further observed
that the consideration offered in the PSP14 Merger, reduced by $1,594,000, or
approximately $.51 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, 1997) represents a premium of 6.0%, 7.2%, 10.7%,
13.7% and 5.5% 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 PSP14 Merger, respectively. Stanger observed that the trading price
for PSP15 Common Stock averaged $20.41, $19.84, $19.15 and $18.43, for the
respective 20-day, 60-day, 180-day, and 360-day periods preceding the
announcement of the proposed PSP15 Merger and that the closing price for PSP15
Common Stock on the last trading day prior to the first announcement of the
proposed PSP15 Merger was $20 1/8. Stanger further observed that the
consideration offered in the PSP15 Merger, reduced by $1,456,000, or
approximately $.48 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, 1997) represents a premium of 5.4%, 8.5%, 12.3%,
16.7% and 6.9% 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 PSP15 Merger, respectively.
In addition, Stanger observed that the consideration per share of PSP14 and
PSP15 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 PSP14 and PSP15 Common Stock. Such
value will be based on the average closing prices on the NYSE of PSI Common
Stock during the 20 consecutive trading days ending on the fifth trading day
prior to the respective special meeting of shareholders.
Distribution/FFO Analysis. Stanger reviewed distributions per share and
FFO per share for PSP14 and PSP15 Shareholders on an equivalent per share basis.
Stanger noted that based on a closing price of $27 for PSI Common Stock and the
resulting exchange ratio of PSP14 and PSP15 Common Stock for PSI Common Stock
and based on operating results for PSI, regular quarterly distributions per
share would decrease by approximately $.16 (48%) for
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PSP14 Shareholders receiving PSI Common Stock and would decrease by
approximately $.12 (40%) for PSP15 Shareholders receiving PSI Common Stock.
Stanger observed that, at the closing price of $27 for PSI Common Stock and
based on operating results for PSI, FFO per share on a quarterly basis on an
equivalent per share basis earned by PSP14 Shareholders would decrease by $.05
(12%) and earned by PSP15 Shareholders would decrease by $.02 (4%).
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 each of the Mergers is fair to the public PSP14
and PSP15 Shareholders, from a financial point of view.
ASSUMPTIONS. In evaluating each of the Mergers, Stanger relied upon and
assumed, without independent verification, the accuracy and completeness of all
financial and other information contained in the Combined Proxy Statement and
Prospectus or that was furnished or otherwise communicated to Stanger. Stanger
did not perform an independent appraisal of the assets and liabilities of PSI,
PSP14 and PSP15 and relied upon and assumed the accuracy of the Appraisals.
Stanger also relied on the assurances of PSI, PSP14 and PSP15 that any
projections, budgets, or value estimates contained in the Combined Proxy
Statement and Prospectus or otherwise provided to Stanger, were reasonably
prepared on bases consistent with actual historical experience and reflect the
best currently available estimates and good faith judgments; that 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 opinions; and that PSI, PSP14 and PSP15 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 opinions, 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
Appendices 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
opinions and related services in connection with the Mergers, Stanger is being
paid a fee of $115,000. 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 any of the
Mergers. During the past three years (1994 to present), Stanger has rendered
consulting and related services and provided products to PSI and to PSMI and its
affiliates, including fairness opinions to the public shareholders of 11 REITs
in connection with their mergers with PSI, and may be engaged in the future.
Stanger has received compensation aggregating approximately $540,000 in
connection with these services and products since 1994 (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 PSP14 or PSP15
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 Mergers, the PSMI Merger or relating
to PSI's continued qualification as a REIT. Stanger's opinions are based on
business, economic, real estate and securities markets, and other conditions as
of the date of its analysis. Events occurring after that date may materially
affect the assumptions used in preparing the opinions.
Among the factors considered in the selection of Stanger were Stanger's
experience in connection with the mergers of 11 other REITs with PSI, its
expertise in real estate transactions and the fee quoted by Stanger. No party
other than Stanger was contacted to render an opinion as to the fairness of the
Mergers to PSP14 and PSP15 Shareholders, and PSP14 and PSP15 have neither
requested nor received any views, preliminary or otherwise, from any party other
than Stanger regarding the fairness of the Mergers to the PSP14 and PSP15
Shareholders.
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THE MERGER AGREEMENT
If the Mergers are approved by the shareholders of PSP14 and PSP15 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 hereto, and is incorporated by reference into, this Combined Proxy
Statement and Prospectus. As a result of the Mergers, all of the assets now
held by PSP14 and PSP15 will be held by PSI upon completion of the Mergers. The
Merger Agreement contains representations and warranties of PSI, PSP14 and PSP15
and certain other provisions relating to the Mergers. The representations and
warranties are extinguished by, and do not survive, the Mergers. THE PSP14
MERGER AND THE PSP15 MERGER ARE NOT CONDITIONED ON EACH OTHER.
CONDITIONS TO CONSUMMATION OF THE MERGERS. Consummation of each Merger is
contingent upon standard conditions, including the following: (i) the
Registration Statement shall have been declared effective by the Commission and
PSI shall have received all other authorizations necessary to issue PSI Common
Stock in exchange for PSP14 and PSP15 Common Stock and to consummate the
Mergers; (ii) with respect to the PSP14 Merger, the Merger Agreement and the
PSP14 Merger shall have been approved and adopted by the requisite vote of the
shareholders of PSP14; (iii) with respect to the PSP15 Merger, the Merger
Agreement and the PSP15 Merger shall have been approved and adopted by the
requisite vote of the shareholders of PSP15; (iv) receipt by PSP14 and PSP15,
respectively, of a legal opinion of Hogan & Hartson L.L.P. that the respective
Merger will qualify as a reorganization under Section 368(a) of the Code (which
opinion has been received and is described under "Federal Income Tax Matters");
(v) the shares of PSI Common Stock issued to PSP14 and PSP15 Shareholders shall
be listed on the NYSE; (vi) the Boards of Directors of PSP14 and PSP15,
respectively, shall have received a fairness opinion from Stanger (which
opinions have been received); (vii) the Board of Directors of PSI shall have
approved the Mergers (which approval has been obtained); (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 meetings of shareholders of PSP14 and PSP15 is not less
than $24; and (ix) demands for payment by holders of Dissenting PSP14 and PSP15
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
each Merger is also subject to PSI, in its sole discretion, being satisfied as
to title to, and the results of an environmental audit of, each property of
PSP14 and PSP15, respectively. Any of these conditions (other than the
conditions of approval by the shareholders of PSP14 and PSP15) 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 with respect to each Merger by written agreement authorized
by the boards of directors of PSI and PSP14 and PSP15, respectively, 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. Each Merger may be
abandoned at any time before or after shareholder approval by mutual written
consent and may be abandoned by the action of the board of directors of either
party if, among other things, the closing of the Merger has not occurred on or
before December 31, 1997.
CONSUMMATION. It is contemplated that the Mergers will be consummated by
filing the Agreements of Merger (attached as Exhibit A to the Merger Agreement)
with the California Secretary of State as soon as practicable after its approval
by the shareholders of PSP14 and PSP15 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 quarter of 1997. 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 PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14
53
<PAGE>
or PSP15 Common Stock in exchange for certificates evidencing PSI Common Stock.
HOLDERS OF PSP14 AND PSP15 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
PSP14 or PSP15 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 PSP14 and PSP15 Common Stock
evidenced thereby were converted. However, until the certificates formerly
evidencing PSP14 and PSP15 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 PSP14 and PSP15 Common Stock on the records of
PSP14 and PSP15 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 PSP14
and PSP15 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 respective Merger. In such event, the
holder will be paid an amount in cash (without interest), rounded to the nearest
$.01, determined by multiplying (i) the per share closing price on the NYSE of
the PSI Common Stock at the time of effectiveness of the respective Merger by
(ii) the fractional interest.
RESTRICTIONS ON OTHER ACQUISITIONS. PSP14 and PSP15 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 each of
the boards of directors of PSP14 and PSP15 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 board of directors to breach their fiduciary duty to
PSP14 or PSP15 Shareholders, respectively, under applicable law as advised by
counsel. PSP14 and PSP15 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, PSP14 and PSP15 are precluded from
declaring or paying any dividend on their capital stock or making any other
distribution to their shareholders other than (i) regular dividends at a
quarterly rate not in excess of $.34 per share in the case of PSP14 and $.30 per
share in the case of PSP15, (ii) distributions to shareholders of record of
PSP14 and PSP15 immediately prior to the effectiveness of the Mergers equal to
the amount by which the respective corporation's estimated net asset value
allocable to the respective shareholders as of the date of the respective Merger
exceeds $21.73 per share in the case of the PSP14 Common Stock, $16.07 per share
in the case of the PSP14 Common Stock Series B and C, $21.99 per share in the
case of the PSP15 Common Stock and $12.63 per share in the case of the PSP15
Common Stock Series B and C and (iii) Required REIT Distributions. See "--
Determination of Payments to be Received by PSP14 and PSP15 Shareholders in
Connection with the Mergers."
54
<PAGE>
CASH ELECTION PROCEDURE
PSP14. Each holder of record of PSP14 Common Stock may make a Cash
Election to have its shares of PSP14 Common Stock converted into the right to
receive cash in the PSP14 Merger. If the aggregate number of shares of PSP14
Common Stock as to which Cash Elections are made, together with Dissenting PSP14
Shares (see "Dissenting Shareholders' Rights of Appraisal"), is 20% or less than
the number of shares of PSP14 Common Stock outstanding as of the record date for
the meeting of shareholders of PSP14, all such shares as to which Cash Elections
are made shall be converted into the right to receive cash in the PSP14 Merger.
If the aggregate number of such shares (together with any Dissenting PSP14
Shares) is more than 20%, such shares shall be converted into the right to
receive cash in the PSP14 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 PSP14 Shareholders receiving both cash and
PSI Common Stock in connection with the PSP14 Merger, see "Federal Income Tax
Matters -- The Mergers -- PSP14 and PSP15 Shareholders Receiving Cash and PSI
Common Stock."
PSP15. Each holder of record of PSP15 Common Stock may make a Cash
Election to have its shares of PSP15 Common Stock converted into the right to
receive cash in the PSP15 Merger. If the aggregate number of shares of PSP15
Common Stock as to which Cash Elections are made, together with Dissenting PSP15
Shares (see "Dissenting Shareholders' Rights of Appraisal"), is 20% or less than
the number of shares of PSP15 Common Stock outstanding as of the record date for
the meeting of shareholders of PSP15, all such shares as to which Cash Elections
are made shall be converted into the right to receive cash in the PSP15 Merger.
If the aggregate number of such shares (together with any Dissenting PSP15
Shares) is more than 20%, such shares shall be converted into the right to
receive cash in the PSP15 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 PSP15 Shareholders receiving both cash and
PSI Common Stock in connection with the PSP15 Merger, see "Federal Income Tax
Matters -- The Mergers -- PSP14 and PSP15 Shareholders Receiving Cash and PSI
Common Stock."
All Cash Elections are to be made on a cash election form (a "Cash Election
Form"). A Cash Election Form is being sent to PSP14 and PSP15 Shareholders of
record on February 24, 1997. To be effective, a Cash Election Form must be
properly completed and signed and must be received by American Stock Transfer &
Trust Company (the "Depositary") accompanied by all stock certificates
representing shares of PSP14 or PSP15 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 April 8, 1997. Holders of record of shares of PSP14
and PSP15 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 PSP14 or PSP15 Common Stock held by such
Representative for a particular beneficial owner. Any Cash Election Form may be
revoked by written notice received by the Depositary prior to 5:00 p.m., New
York City time, on April 8, 1997. 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 Cash Election Form is properly revoked, the
certificate or certificates (or any guarantee of delivery) in respect of the
PSP14 or PSP15 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 PSP14 AND PSP15 COMMON STOCK WHO WISH TO SUBMIT CASH
ELECTION FORMS SHOULD DELIVER THEIR STOCK CERTIFICATES WITH SUCH CASH ELECTION
FORMS OR PROVIDE FOR, AND COMPLY WITH THE REQUIREMENTS OF, GUARANTEED DELIVERY.
A HOLDER OF PSP14 OR PSP15 COMMON STOCK MAY NOT MAKE A CASH ELECTION AS TO
LESS THAN ALL OF THE SHARES OF PSP14 OR PSP15 COMMON STOCK OWNED BY SUCH
SHAREHOLDER. ANY HOLDER OF PSP14 OR PSP15 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,
55
<PAGE>
ON APRIL 8, 1997 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
HOLDER OF PSP14 OR PSP15 COMMON STOCK MAKING SUCH PURPORTED CASH ELECTION WILL,
FOR PURPOSES HEREOF, RECEIVE PSI COMMON STOCK IN THE MERGERS. NONE OF PSI,
PSP14, PSP15 OR THE DEPOSITARY WILL BE UNDER ANY OBLIGATION TO NOTIFY ANY PERSON
OF ANY DEFECT IN A CASH ELECTION FORM.
The tax consequences of receiving cash and/or PSI Common Stock are
different. See "Federal Income Tax Matters -- The Mergers."
CONSEQUENCES TO PSP14 AND PSP15 IF THE MERGERS ARE NOT COMPLETED
If any Merger is not completed with respect to PSP14 or PSP15, such
corporation will remain as a separate legal entity and will continue to operate
its properties.
COSTS OF THE MERGERS
It is estimated that the total consideration (cash and PSI Common Stock) to
be paid by PSI to purchase all of the PSP14 and PSP15 Common Stock and PSP14 and
PSP15 Common Stock Series B and C (other than shares held by PSI) in the Mergers
and to pay related costs and expenses would be $87,697,000 (less the amount of
any Required REIT Distributions) and that the total amount of funds that would
be required by PSI to purchase the PSP14 and PSP15 Common Stock from PSP14 and
PSP15 Shareholders making Cash Elections and to pay the cost and expenses of the
Mergers would be $21,119,000 (assuming maximum Cash Elections and no Required
REIT Distributions). These amounts will be paid from PSI's working capital or
with funds borrowed under credit facilities with a group of banks for which
Wells Fargo Bank, National Association acts as agent. These credit facilities
aggregate $125,000,000 and bear interest at LIBOR plus .75% to 1.25%. PSI
intends to repay amounts borrowed under these facilities from the public or
private placement of securities or from PSI's undistributed cash flow.
If the Mergers are completed, all costs incurred by PSI, PSP14 and PSP15 in
connection with the Mergers will be paid by PSI. 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 Combined Proxy
Statement and Prospectus and related registration statement, the Appraisals,
environmental and structural audits and preparation for real estate closings and
filing fees and PSP14 and PSP15 will pay the other one-half of such costs.
PSP14's and PSP15's share of such costs would be paid from their working
capital.
56
<PAGE>
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>
<S> <C>
Preclosing Transaction Costs
Printing and mailing $ 430,000
Proxy solicitation 40,000
Legal 30,000
Real Estate Appraisals and Fairness Opinions 200,000
Registration, listing and filing fees 156,000
Accounting 16,000
Other 38,000
----------
Subtotal 915,000
Closing Transaction Costs*
Transfer taxes and fees 565,000
Transfer agent fees 40,000
Legal 80,000
Title endorsements and escrow 263,000
Other 22,000
----------
Subtotal 970,000
TOTAL $1,885,000
==========
</TABLE>
- ---------------
* Would not be incurred if Mergers are not approved.
ACCOUNTING TREATMENT
Each of the Mergers will be treated as a purchase. Accordingly, the assets
and liabilities of PSP14 and PSP15 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.
57
<PAGE>
COMPARISON OF PSP14 AND PSP15 COMMON STOCK WITH PSI COMMON STOCK
The information below compares certain attributes of the PSP14 and PSP15
Common Stock with the PSI Common Stock. The effect of the Mergers on PSP14 and
PSP15 Shareholders who receive PSI Common Stock in the Mergers is set forth in
italics below each caption.
PSP14 AND PSP15 PSI
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVES AND POLICIES
<S> <C>
The principal investment objectives The investment objectives of PSI are
are to provide (i) quarterly cash to maximize FFO allocable to holders
distributions from its operations of PSI Common Stock and to increase
and (ii) long-term capital gains shareholder value through internal
through appreciation in the value of growth and acquisitions. FFO is a
properties. supplemental performance measure for
equity REITs used by industry
Under the organizational documents of analysts. FFO does not take into
PSP14 and PSP15, they are not consideration principal payments on
permitted to raise new capital or to debt, capital improvements,
reinvest operating cash flow or sale distributions and other obligations
or financing proceeds. PSP14 and of PSI. Accordingly, FFO is not a
PSP15 will terminate on December 31, substitute for PSI's net cash
2038, unless earlier dissolved. The provided by operating activities or
predecessors of PSP14 and PSP15 net income as a measure of PSI's
anticipated selling or financing liquidity or operating performance.
their properties within seven to 10 An increase in PSI's FFO will not
years after development (i.e., necessarily correspond with an
between 1993 and 1996 in the case of increase in distributions to holders
PSP14 and between 1995 and 1998 in of PSI Common Stock. See "--
the case of PSP15). Liquidity, Marketability and
Distributions."
PSI intends to continue its
operations for an indefinite period
of time and is not precluded from
raising new capital, including senior
securities that would have priority
over PSI Common Stock (including PSI
Common Stock issued in the 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 PSI
Common Stock may not necessarily
equal or exceed the market value of
PSI's assets or the net proceeds
which might be available for
distribution upon liquidation if PSI
were to liquidate. PSI has grown,
and intends to continue to grow, as
new investments are made.
</TABLE>
PSP14 and PSP15 Shareholders who receive PSI Common Stock in the Mergers
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,
equity 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 -- Uncertainty Regarding Market Price of Common
Stock" and "-- Financing Risks -- Dilution and Subordination."
58
<PAGE>
PSP14 AND PSP15 PSI
PSI has no plans with respect to a sale or financing of any of the
properties of PSP14 and PSP15. PSI expects to transfer the business park
properties acquired from PSP14 and PSP15 to a subsidiary of PSI so that PSI can
focus on the ownership of mini-warehouses and the subsidiary can focus on the
ownership of business parks. PSI intends to continue to acquire properties from
other parties.
<TABLE>
<CAPTION>
BORROWING POLICIES
<S> <C>
PSP14 and PSP15 are not permitted to Subject to certain limitations in
borrow in connection with the PSI's Bylaws, PSI has broad powers to
acquisition of properties. They are borrow in furtherance of its
fully invested and would distribute investment objectives. PSI has
the proceeds from a financing of incurred in the past, and may incur
properties. 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,
1996, PSI's ratio of "Debt"
(liabilities other than "accrued and
other liabilities" and "minority
interest" that should, in accordance
with GAAP, be reflected on PSI's
balance sheet) to "Assets" (PSI's
total assets that should, in
accordance with GAAP, be reflected on
PSI's balance sheet) was
approximately 5%.
</TABLE>
PSI, unlike PSP14 and PSP15, incurs debt in the acquisition of properties
and reinvests proceeds from borrowings. The incurrence of debt increases the
risk of loss of investment.
<TABLE>
<CAPTION>
TRANSACTIONS WITH AFFILIATES
<S> <C>
The bylaws of PSP14 and PSP15 PSI's Bylaws restrict PSI from
restrict them from entering into a acquiring properties from its
variety of business transactions affiliates or from selling properties
with affiliates. The bylaws may be to them unless the transaction (i) is
amended by a majority vote of approved by a majority of PSI's
shareholders. See "Amendment to independent directors and (ii) is
Bylaws of PSP14 and PSP15." fair to PSI based on an independent
appraisal.
</TABLE>
It is easier for PSI to enter into transactions with its affiliates than in
the case of PSP14 or PSP15 because shareholder approval is not required.
<TABLE>
<CAPTION>
PROPERTIES (As of September 30, 1996)
<S> <C>
PSP14 - PSP14 owns 14 wholly-owned PSI owns equity interests (directly,
properties in seven states. For the as well as through general and
year ended December 31, 1995, the limited partnership interests and
weighted average occupancy level and capital stock interests) in 1,072
realized monthly rent per square properties in 37 states, including
foot of PSP14's mini-warehouses were 359 wholly owned properties. See
93% and $.82, respectively. See "Description of PSI Properties."
"Description of PSP14's Properties."
PSP15 - PSP15 owns 19 wholly-owned
properties in 10 states. For the
year ended December 31, 1995, the
weighted average occupancy level and
realized
</TABLE>
59
<PAGE>
PSP14 AND PSP15 PSI
<TABLE>
<S> <C>
monthly rent per square foot of
PSP15's mini-warehouses were 90% and
$.64, respectively. See
"Description of PSP15's Property."
</TABLE>
Because PSI owns substantially more property interests in more states than
PSP14 or PSP15, PSI's results of operations are less affected by the
profitability or lack of profitability of a single property than are those of
PSP14 or PSP15 and it would be more difficult to liquidate PSI than PSP14 or
PSP15 within a reasonable period of time.
<TABLE>
<CAPTION>
LIQUIDITY, MARKETABILITY AND DISTRIBUTIONS
<S> <C>
The PSP14 and PSP15 Common Stock is PSI Common Stock is traded on the
traded on the AMEX. During the 12 NYSE. During the 12 months ended
months ended December 31, 1996, the December 31, 1996, the average daily
average daily trading volume of trading volume of PSI Common Stock
PSP14 Common Stock and PSP15 Common was 98,719 shares. PSI has issued,
Stock was 1,720 and 1,181 shares, and may in the future issue,
respectively. PSP14 and PSP15 have securities that have priority over
not issued any securities that have PSI Common Stock as to cash flow,
priority over their Common Stock. distributions and liquidation
proceeds.
</TABLE>
Distributions may be declared by the boards of directors of PSI, PSP14 and
PSP15 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 PSP14 or PSP15 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 PSP14 or PSP15 Common Stock. Distributions of PSI Common Stock
are subject, however, to priority of preferred stock. See "Risk Factors --
Consequences of Loss of Qualification as a REIT," "Distributions and Price Range
of PSI Common Stock," "Distributions and Price Range of PSP14 Common Stock" and
"Distributions and Price Range of PSP15 Common Stock" for information on trading
prices of the PSI, PSP14 and PSP15 Common Stock.
TAXATION
Each of PSI, PSP14 and PSP15 was organized to qualify for taxation as a
REIT and intends 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 PSI, PSP14 and
PSP15 Shareholders generally constitute portfolio income, which cannot offset
"passive" income and loss from other investments.
60
<PAGE>
PSP14 AND PSP15 PSI
VOTING RIGHTS
PSI, PSP14 and PSP15 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.
<TABLE>
<CAPTION>
MANAGEMENT AND DUTIES
<S> <C>
PSP14 and PSP15 are managed by their PSI is managed by its board of
boards of directors and executive directors and executive officers. A
officers. Two of the directors are majority of the directors of PSI are
independent directors and the third independent directors.
director is Hughes.
</TABLE>
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 PSI, PSP14 and PSP15 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 PSI, PSP14 and PSP15 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. PSI, PSP14 and PSP15 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, PSI, PSP14
and PSP15 have been advised that, in the opinion of the Commission, such
provisions are contrary to public policy and therefore are not enforceable.
<TABLE>
<CAPTION>
RESTRICTIONS ON TRANSFER AND ANTI-TAKEOVER PROVISIONS
<S> <C>
For PSP14 and PSP15 to be taxed as For PSI to be taxed as a REIT, PSI
REITs, their common stock must be Common Stock must be widely held. To
widely held. To aid PSP14 and PSP15 aid PSI in meeting this requirement,
in meeting this requirement, their PSI's articles of incorporation
boards of directors are given the contain significant restrictions on
power to restrict the transfer of the ownership of PSI Common Stock.
shares of their common stock if the PSI is authorized to issue
transfer could produce a violation 200,000,000 shares of PSI Common
of this requirement. PSP14 and Stock, of which approximately
PSP15 cannot issue additional common 88,400,000 shares were outstanding at
and preferred stock without January 31, 1997, 7,000,000 shares of
shareholder approval. Class B Common Stock, all of which
were outstanding at January 31, 1997,
50,000,000 shares of preferred stock,
of which approximately 13,400,000
shares were outstanding at January
31, 1997 and 200,000,000 shares of
equity stock, none of which were
outstanding at January 31, 1997.
Subject to the rules of the NYSE
</TABLE>
61
<PAGE>
PSP14 AND PSP15 PSI
<TABLE>
<C> <S>
and applicable provisions of
California law, PSI can issue
authorized capital stock without
shareholder approval. See
"Description of PSI Capital Stock --
Effects of Issuance of Capital
Stock," "-- Ownership Limitations"
and "Federal Income Tax Matters --
General Tax Treatment of PSI."
</TABLE>
Given the ownership level of PSI Common Stock by the Hughes Family and
PSI's greater flexibility to issue capital stock, including senior securities
with special voting rights and priority over common stock, PSI should be in a
better position to deter attempts to obtain control in transactions not approved
by its board of directors than PSP14 or PSP15, and shareholders of PSI could be
less likely to benefit from a takeover not approved by PSI's board of directors
than would shareholders of PSP14 or PSP15 in a similar circumstance.
LIMITED LIABILITY OF INVESTORS
Under California law, shareholders are not generally liable for corporate
debts or obligations. The PSI, PSP14 and PSP15 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 PSP14 AND PSP15
A provision of the bylaws of PSP14 and PSP15 prohibits the sale of property
to affiliates. Because this would arguably apply to the Mergers, PSP14 and
PSP15 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 PSP14 and PSP15 who recommend that PSP14 and PSP15
Shareholders vote FOR the proposals. Appendices E-1 and E-2 contain complete
texts of the proposed amendments.
62
<PAGE>
APPROVAL OF THE MERGERS AND BYLAW AMENDMENTS
GENERAL
This Combined Proxy Statement and Prospectus and the enclosed proxy are
first being mailed on or about March 11, 1997 to the shareholders of PSP14 and
PSP15 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 PSP14 Merger and the PSP15 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 with respect to a particular
Merger or Bylaw amendment, unspecified shares held by PSP14 Shareholders will be
voted in favor of the PSP14 Merger and the PSP14 Bylaw amendment and unspecified
shares held by PSP15 Shareholders will be voted in favor of the PSP15 Merger and
the PSP15 Bylaw amendment. A proxy is revocable by delivering a subsequently
signed and dated proxy or other written notice to the Secretary of PSP14 or
PSP15, 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.
PSP14
Holders of record at the close of business on February 24, 1997 of the
PSP14 Common Stock will be entitled to receive notice of and to vote at the
meeting. On such date, there were outstanding 2,263,218 shares of PSP14 Common
Stock and 892,256 shares of PSP14 Common Stock Series B and C, and each share is
entitled to one vote on the PSP14 Merger and the PSP14 Bylaw amendment.
Presence, in person or by proxy, of a majority of the shares of PSP14 Common
Stock and of PSP14 Common Stock Series B and C, counted together as a single
class, constitutes a quorum. As of the record date, PSI and Hughes beneficially
owned 221,668 shares of PSP14 Common Stock and 841,674 shares of PSP14 Common
Stock Series B and C (approximately 33.7% of the total combined outstanding
shares of PSP14 Common Stock and PSP14 Common Stock Series B and C) and the
directors and executive officers of PSP14, excluding Hughes, beneficially owned
an additional 1,400 shares of PSP14 Common Stock and 21,004 shares of PSP14
Common Stock Series B and C (approximately 0.7% of the total combined
outstanding shares of PSP14 Common Stock and PSP14 Common Stock Series B and C).
The affirmative vote of a majority of the shares of PSP14 Common Stock and
of PSP14 Common Stock Series B and C outstanding and entitled to vote on the
record date, counted together as a single class, is required under California
law to approve the PSP14 Merger and the PSP14 Bylaw amendment. Accordingly, for
these purposes, an abstention or a broker non-vote will have the same effect as
a vote against the PSP14 Merger and the PSP14 Bylaw amendment. The shares of
PSP14 Common Stock Series B and C will be voted with the majority of shares of
PSP14 Common Stock held by unaffiliated owners.
PSP15
Holders of record at the close of business on February 24, 1997 of the
PSP15 Common Stock will be entitled to receive notice of and to vote at the
meeting. On such date, there were outstanding 2,136,885 shares of PSP15 Common
Stock and 892,256 shares of PSP15 Common Stock Series B and C, and each share is
entitled to one vote on the PSP15 Merger and the PSP15 Bylaw amendment.
Presence, in person or by proxy, of a majority of the shares of PSP15 Common
Stock and of PSP15 Common Stock Series B and C, counted together as a single
class, constitutes a quorum. As of the record date, PSI and Hughes beneficially
owned 501,760 shares of PSP15 Common Stock and 554,734 shares of PSP14 Common
Stock Series B and C (approximately 34.9% of the total combined outstanding
shares of PSP15 Common Stock and PSP15 Common Stock Series B and C) and the
directors and executive officers of PSP15, excluding Hughes, beneficially owned
an additional 2,800 shares of PSP15 Common Stock and 133,879 shares of PSP15
Common Stock Series B and C (approximately 4.5% of the total combined
outstanding shares of PSP15 Common Stock and PSP15 Common Stock Series B and C).
63
<PAGE>
The affirmative vote of a majority of the shares of PSP15 Common Stock and
of PSP15 Common Stock Series B and C outstanding and entitled to vote on the
record date, counted together as a single class, is required under California
law to approve the PSP15 Merger and the PSP15 Bylaw amendment. Accordingly, for
these purposes, an abstention or a broker non-vote will have the same effect as
a vote against the PSP15 Merger and the PSP15 Bylaw amendment. The shares of
PSP15 Common Stock Series B and C will be voted with a majority of shares of
PSP15 Common Stock held by unaffiliated owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PSP14. The following table sets forth information as of February 24, 1997
with respect to the person known to PSP14 to be the beneficial owner of more
than 5% of the outstanding shares of PSP14 Common Stock and PSP14 Common Stock
Series B and C:
<TABLE>
<CAPTION>
Shares of PSP14 Common Stock and
PSP14 Common Stock Series B and C
Beneficially Owned(1)
---------------------------------
Number
Name and Address of Shares(2)(3) Percent
---------------- --------------- -------
<S> <C> <C>
PSI A: 208,568(4) A: 9.2%
701 Western Avenue, Suite 200 B: 218,616(4) B: 93.9%
Glendale, California 91201-2397 C: 623,058(4) C: 94.5%
--------- ----
1,050,242(4)(5) 33.3%
</TABLE>
_______________
(Footnotes are set forth following the next table).
The following table sets forth information as of February 24, 1997
concerning the beneficial ownership of PSP14 Common Stock and PSP14 Common Stock
Series B and C of each director of PSP14 (including Hughes, the chief executive
officer) and of all directors and executive officers of PSP14 as a group:
<TABLE>
<CAPTION>
Shares of PSP14 Common Stock and
PSP14 Common Stock Series B and C
Beneficially Owned(1)
---------------------------------
Number
Name of Shares(2)(3) Percent
---- --------------- -------
<S> <C> <C>
B. Wayne Hughes A: 13,635(6) A: 0.6%
Vern O. Curtis A: 500 (7)
Jack D. Steele A: 100(8) (7)
All Directors and Executive A: 15,035(6)(8)(9) A: 0.7%
Officers as a Group B: 6,430 B: 2.8%
(nine persons) C: 14,574 C: 2.2%
------ ---
36,039(5)(6)(8)(9) 1.1%
- ---------------
</TABLE>
(1) Except as otherwise indicated and subject to applicable community property
and similar statutes, the persons listed as beneficial owners of the shares
have sole voting and investment power with respect to the shares.
(2) Capital letters "A", "B" and "C" denote share information with respect to
PSP14 Common Stock and PSP14 Common Stock Series B and C, respectively.
64
<PAGE>
(3) PSP14's Articles of Incorporation provide that the PSP14 Common Stock
Series B and C will convert automatically into PSP14 Common Stock on a
share-for-share basis when (A) the sum of (1) all cumulative dividends and
other distributions from all sources paid with respect to the PSP14 Common
Stock (including liquidating distributions, but not including payments made
to redeem such stock other than in liquidation) and (2) the cumulative
PSP14 Partnership distributions from all sources with respect to all PSP14
Partnership units (including the general partners' 1% interest) equals (B)
the product of $20 multiplied by the number of then outstanding "Original
Series A Shares." The term "Original Series A Shares" means the shares of
PSP14 Common Stock issued in the PSP14 Reorganization.
(4) Includes (i) 208,033 shares of PSP14 Common Stock Series A, 218,616 shares
of PSP14 Common Stock Series B and 623,058 shares of PSP14 Common Stock
Series C owned by PSI as to which PSI has sole voting and dispositive power
and (ii) 535 shares of PSP14 Common Stock Series A which PSI has an option
to acquire (together with other securities) from Hughes as trustee of the
B.W. Hughes Living Trust and as to which PSI has sole voting power (pursuant
to an irrevocable proxy) and no dispositive power.
(5) Includes PSP14 Common Stock and PSP14 Common Stock Series B and C.
(6) Includes (i) 535 shares of PSP14 Common Stock Series A owned by Hughes as
trustee of the B.W. Hughes Living Trust as to which Hughes has sole
dispositive power and no voting power; PSI has an option to acquire these
shares and an irrevocable proxy to vote these shares (see footnote (4)
above), and (ii) 13,100 shares of PSP14 Common Stock Series A owned by Mrs.
Kathleen Becker Hughes (Hughes' wife) as trustee FBO Parker Hughes Trust dtd
3/7/91.
(7) Less than 0.1%.
(8) Shares held by a bank custodian of a simplified employee pension for the
benefit of Mr. Steele.
(9) Includes shares held of record or beneficially by members of the immediate
family of officers of PSP14 and shares held by custodians of individual
retirement accounts for the benefit of officers of PSP14 (or members of
their immediate families).
PSP15. The following table sets forth information as of February 24, 1997
with respect to the person known to PSP15 to be the beneficial owner of more
than 5% of the outstanding shares of PSP15 Common Stock and PSP15 Common Stock
Series B and C:
<TABLE>
<CAPTION>
Shares of PSP15 Common Stock and
PSP15 Common Stock Series B and C
Beneficially Owned(1)
---------------------------------
Number
Name and Address of Shares(2)(3) Percent
---------------- --------------- -------
<S> <C> <C>
PSI A: 501,760(4) A: 23.5%
701 Western Avenue, Suite 200 B: 138,655(4) B: 59.6%
Glendale, California 91201-2397 C: 416,079(4) C: 63.1%
--------- ----
1,056,494(4)(5) 34.9%
</TABLE>
_______________
(Footnotes are set forth following the next table).
The following table sets forth information as of February 24, 1997
concerning the beneficial ownership of PSP15 Common Stock and PSP15 Common Stock
Series B and C of each director of PSP15 (including Hughes, the chief executive
officer) and of all directors and executive officers of PSP15 as a group:
65
<PAGE>
<TABLE>
<CAPTION>
Shares of PSP15 Common Stock and
PSP15 Common Stock Series B and C
Beneficially Owned(1)
---------------------------------
Number
Name and Address of Shares(2)(3) Percent
---------------- --------------- -------
<S> <C> <C>
B. Wayne Hughes A: 535(6) (7)
Vern O. Curtis A: 500 (7)
Jack D. Steele A: 400(8) (7)
All Directors and Executive Officers A: 3,335(6)(8)(9) A: 0.2%
as a Group (nine persons) B: 40,983 B: 17.6%
C: 92,896 C: 14.1%
------- ----
137,214(5)(6)(8)(9) 4.5%
- ---------------
</TABLE>
(1) Except as otherwise indicated and subject to applicable community property
and similar statutes, the persons listed as beneficial owners of the shares
have sole voting and investment power with respect to the shares.
(2) Capital letters "A", "B" and "C" denote share information with respect to
PSP15 Common Stock and PSP15 Common Stock Series B and C, respectively.
(3) PSP15's Articles of Incorporation provide that the PSP15 Common Stock Series
B and C will convert automatically into PSP15 Common Stock on a share-for-
share basis when (A) the sum of (1) all cumulative dividends and other
distributions from all sources paid with respect to the PSP15 Common Stock
(including liquidating distributions, but not including payments made to
redeem such stock other than in liquidation) and (2) the cumulative PSP15
Partnership distributions from all sources with respect to all PSP15
Partnership units (including the general partners' 1% interest) equals (B)
the product of $20 multiplied by the number of then outstanding "Original
Series A Shares." The term "Original Series A Shares" means the shares of
PSP15 Common Stock issued in the PSP15 Reorganization.
(4) Includes (i) 501,225 shares of PSP15 Common Stock Series A, 138,655 shares
of PSP15 Common Stock Series B and 416,079 shares of PSP15 Common Stock
Series C owned by PSI as to which PSI has sole voting and dispositive power
and (ii) 535 shares of PSP15 Common Stock Series A which PSI has an option
to acquire (together with other securities) from Hughes as trustee of the
B.W. Hughes Living Trust and as to which PSI has sole voting power (pursuant
to an irrevocable proxy) and no dispositive power.
(5) Includes PSP15 Common Stock and PSP15 Common Stock Series B and C.
(6) Includes 535 shares of PSP15 Common Stock Series A owned by Hughes as
trustee of the B.W. Hughes Living Trust as to which Hughes has sole
dispositive power and no voting power; PSI has an option to acquire these
shares and an irrevocable proxy to vote these shares (see footnote (4)
above).
(7) Less than 0.1%.
(8) Includes 100 shares of PSP15 Common Stock Series A held by a bank custodian
of a simplified employee pension for the benefit of Mr. Steele and 300
shares of PSP15 Common Stock Series A held by a bank custodian of an
individual retirement account for the benefit of Mrs. Marion L. Steele (Mr.
Steele's wife).
(9) Includes shares held of record or beneficially by members of the immediate
family of officers of PSP15 and shares held by custodians of individual
retirement accounts for the benefit of officers of PSP15 (or members of
their immediate families).
66
<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,
PS Orangeco, Inc. ("PSOI") 37,651,890 42.6%
701 Western Avenue, Suite 200
Glendale, California 91201-2397
PS Insurance Company, Ltd. ("PSIC")
41 Cedar Avenue
Hamilton, Bermuda(1)
FMR Corp. 6,312,803 7.1%
82 Devonshire Street
Boston, Massachusetts 02109(2)
Cohen & Steers Capital Management, Inc. 4,747,400 5.4%
757 Third Avenue
New York, New York 10017(3)
</TABLE>
_______________
(1) This information is as of January 31, 1997. The reporting persons listed
above (the "PSI Reporting Persons") have filed a joint Schedule 13D, amended
as of December 23, 1996. The number of shares of PSI Common Stock
beneficially owned by the PSI Reporting Persons at January 31, 1997 includes
6,522 shares which can be acquired upon conversion of 3,875 shares of 8.25%
Convertible Preferred Stock which are beneficially owned by the PSI
Reporting Persons. The common stock of PSOI (representing approximately 5%
of the equity) is owned one-third each by B. Wayne Hughes, Tamara L. Hughes
(an adult daughter of B. Wayne Hughes) and B. Wayne Hughes, Jr. (an adult
son of B. Wayne Hughes), and the non-voting preferred stock of PSOI
(representing approximately 95% of the equity) is owned by PSI. The stock of
PSIC is owned approximately 45% by B. Wayne Hughes, 47% by Tamara L. Hughes
and 8% by B. Wayne Hughes, Jr. Tamara L. Hughes is the trustee of Parker
Hughes Trust No. 2, an irrevocable trust for the benefit of a minor son of
B. Wayne Hughes. Each of the PSI Reporting Persons disclaims the existence
of a group within the meaning of Section 13(d)(3) of the Exchange Act. B.
Wayne Hughes, Tamara L. Hughes and B. Wayne Hughes, Jr. share voting and
dispositive power with respect to the 30,777 shares owned by PSOI, and B.
Wayne Hughes and Tamara L. Hughes share voting and dispositive power with
respect to the 301,032 shares owned by PSIC. B. Wayne Hughes disclaims
beneficial ownership of the shares owned by B. Wayne Hughes, Jr., Parker
Hughes Trust No. 2 and Tamara L. Hughes (an aggregate of 17,625,083 shares
(exclusive of the shares owned by PSOI and PSIC) or approximately 19.9% of
the shares of PSI Common Stock outstanding (or deemed to be outstanding) as
of January 31, 1997). Each of the other PSI Reporting Persons disclaims
beneficial ownership of the shares owned by any other PSI Reporting Person.
The above table does not include 7,000,000 shares of PSI's Class B Common
Stock which are owned by Tamara L. Hughes and B. Wayne Hughes, Jr. The PSI
Class B Common Stock is convertible into PSI Common Stock on a share-for-
share basis upon satisfaction of certain conditions, but in no event earlier
than January 1, 2003.
(2) This information is as of December 31, 1996 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 at January 31,
1997). As of December 31, 1996, FMR Corp. beneficially owned 6,312,803
shares of PSI Common Stock. This number includes 5,907,600 shares
beneficially owned by Fidelity Management & Research Company, as a result of
its serving as investment adviser to several investment companies registered
67
<PAGE>
under Section 8 of the Investment Company Act of 1940, and 405,203 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 367,003 shares and sole dispositive
power with respect to 6,312,803 shares.
(3) This information is as of December 31, 1996 and is based on a Schedule 13G
filed by Cohen & Steers Capital Management, Inc. (except that the percent
shown in the table is based on the shares of PSI Common Stock outstanding at
January 31, 1997). As of December 31, 1996, Cohen & Steers Capital
Management, Inc. beneficially owned 4,747,400 shares of PSI Common Stock.
Cohen & Steers Capital Management, Inc. has sole voting power with respect
to 4,217,400 shares and sole dispositive power with respect to 4,747,400
shares.
The following table sets forth information as of January 31, 1997
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 20,026,807(1)(4) 22.7%
Harvey Lenkin President and Director 586,451(1)(5) 0.7%
15,000(2) *
4,040(3) *
---------- -----
605,491 0.7%
Robert J. Abernethy Director 67,185(1) *
17,499(2) *
---------- -----
84,684 *
Dann V. Angeloff Director 81,117(1)(6) *
2,499(2) *
---------- -----
83,616 *
William C. Baker Director 10,000(1) *
22,499(2) *
---------- -----
32,499 *
Uri P. Harkham Director 555,118(1)(7) 0.6%
2,499(2) *
---------- -----
557,617 0.6%
All Directors and Executive Officers
as a Group (13 persons) 21,648,192(1)(4)(5)
(6)(7)(8) 24.5%
221,162(2) 0.2%
26,260(3) *
---------- -----
21,895,614 24.7%
</TABLE>
_______________
* Less than 0.1%
68
<PAGE>
(1) Shares of PSI Common Stock beneficially owned as of January 31, 1997.
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 31, 1997, and portion of which will
be vested within 60 days of January 31, 1997, of shares of PSI Common Stock
subject to options granted to the named individuals or the group pursuant to
PSI's 1990 Stock Option Plan and 1994 Stock Option Plan.
(3) Represents shares of PSI Common Stock which can be acquired upon conversion
of the shares of 8.25% Convertible Preferred Stock which are beneficially
owned as of January 31, 1997 by the named individuals or the group.
(4) Includes 19,654,178 shares held of record by the B.W. Hughes Living Trust as
to which Mr. Hughes has voting and investment power, 1,428 and 1,423 shares,
respectively, held by custodians of individual retirement accounts ("IRAs")
for Mr. Hughes and Mrs. Kathleen Becker Hughes as to which each has
investment power, 4,826 shares held by Mrs. Hughes as to which she has
investment power and 33,143 shares held by Mrs. Hughes as custodian FBO
Parker Hughes Trust dated 3/7/91. Also includes 30,777 shares held of record
by PSOI as to which Mr. Hughes, Tamara L. Hughes and B. Wayne Hughes, Jr.
share voting and dispositive power and 301,032 shares held of record by PSIC
as to which Mr. Hughes and Tamara L. Hughes share voting and dispositive
power.
(5) Includes 1,249 and 734 shares, respectively, held by custodians of IRAs for
Mr. Lenkin and Mrs. Heather Lenkin (Mr. Lenkin's wife) as to which each has
investment power, 300 shares held by Mrs. Lenkin, 574 shares and 150 shares,
respectively, held by Mrs. Lenkin as custodian for two sons and 100 shares
held by a custodian of an IRA for a son. Also includes 540,000 shares held
of record by the Public Storage, Inc. Profit Sharing Plan and Trust (the
"PSI Plan") as to which Mr. Lenkin, as a member of the PSI Plan's Advisory
Committee, shares the power to direct voting and disposition and as to which
Mr. Lenkin expressly disclaims beneficial ownership.
(6) Includes 5,846 shares held by a custodian of an IRA for Mr. Angeloff, 2,327
shares held by Mr. Angeloff as trustee of Angeloff's Children's Trust and
70,944 shares held by Mr. Angeloff as trustee of Angeloff Family Trust.
(7) Includes 99,057 shares held by Mr. Harkham as trustee of Harkham Industries
Profit Sharing Plan, 373,979 shares held by Harkham Industries, Inc. (dba
Jonathan Martin, Inc.), a corporation wholly owned by Mr. Harkham, 68,681
shares held by Mr. Harkham as trustee of Uri Harkham Trust, 875 shares held
by a custodian of an IRA for Mr. Harkham as to which he has investment
power, 3,102, 3,177, 2,150, 1,950 and 2,050 shares, respectively, held by
Mr. Harkham as custodian for five of his children and 97 shares held by a
custodian of an IRA for a son.
(8) Includes shares held of record or beneficially by members of the immediate
family of executive officers of PSI and shares held by custodians of IRAs
for the benefit of executive officers of PSI.
The following tables set forth information as of January 31, 1997
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:
69
<PAGE>
<TABLE>
<CAPTION>
Shares of 8.25% Convertible Shares of 10% Cumulative
Preferred Stock Preferred Stock, Series A
Beneficially Owned(1) Beneficially Owned(1)
--------------------- ---------------------
Number Number
Name of Shares Percent of Shares Percent
---- --------- ------- --------- -------
<S> <C> <C> <C> <C>
B. Wayne Hughes -- -- -- --
Harvey Lenkin 2,400(1)(2) 0.1% -- --
Robert J. Abernethy -- -- -- --
Dann V. Angeloff -- -- -- --
William C. Baker -- -- -- --
Uri P. Harkham -- -- -- --
All Directors and Executive
Officers as a Group (13 persons) 15,600(1)(2)(3) 0.7% 4,060(1)(3) 0.2%
<CAPTION>
Shares of 9.20% Cumulative Shares of Adjustable Rate Shares of 9.75%
Preferred Stock, Cumulative Preferred Stock, Cumulative Preferred Stock,
Series B Series C Series F
Beneficially Owned(1) Beneficially Owned(1) Beneficially Owned(1)
--------------------- --------------------- ---------------------
Number Number Number
Name of Shares Percent of Shares Percent of Shares Percent
---- --------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
B. Wayne Hughes -- -- -- -- -- --
Harvey Lenkin -- -- 29,300(1)(4) 2.4% -- --
Robert J. Abernethy -- -- -- -- -- --
Dann V. Angeloff -- -- -- -- -- --
William C. Baker -- -- -- -- -- --
Uri P. Harkham -- -- -- -- -- --
All Directors and Executive
Officers as a Group
(13 persons) 4,000(1)(3) 0.2% 29,900(1)(3)(4) 2.5% 2,900 0.1%
- ---------------
</TABLE>
(1) Shares of PSI 8.25% Convertible Preferred Stock, 10% Cumulative Preferred
Stock, Series A, 9.20% Cumulative Preferred Stock, Series B, Adjustable Rate
Cumulative Preferred Stock, Series C, or 9.75% Cumulative Preferred Stock,
Series F, as applicable, beneficially owned as of January 31, 1997. Except
as otherwise indicated and subject to applicable community property and
similar statutes, the persons listed as beneficial owners of the shares have
sole voting and investment power with respect to such shares.
(2) Includes 100 shares held by Mrs. Lenkin and 300 shares held by Mrs. Lenkin
as custodian for a son.
(3) Includes shares held of record or beneficially by members of the immediate
family of executive officers of PSI and shares held by custodians of IRAs
for the benefit of executive officers of PSI.
(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 31, 1997, 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, Depositary Shares, each representing
1/1,000 of a Share of 8 7/8% Cumulative Preferred Stock, Series G, Depositary
Shares, each representing 1/1,000 of a Share of 8.45% Cumulative Preferred
Stock, Series H, Convertible Preferred Stock, Series CC or Class B Common Stock
(the Class B Common Stock is owned by Tamara L. Hughes and B. Wayne Hughes,
Jr.).
70
<PAGE>
SOLICITATION OF PROXIES
Each of PSP14 and PSP15 will pay its respective cost of soliciting proxies.
In addition to solicitation by mail, certain directors, officers and regular
employees of PSP14 and PSP15 and their affiliates may solicit the return of
proxies by telephone, telegraph, personal interview or otherwise. PSP14 and
PSP15 may also reimburse brokerage firms and other persons representing the
beneficial owners of PSP14 and PSP15 Common Stock for reasonable expenses in
forwarding proxy solicitation materials to such beneficial owners. Shareholder
Communications Corporation may be retained to assist PSP14 and PSP15 in
solicitation of proxies at an estimated aggregate cost of $40,000.
71
<PAGE>
DESCRIPTION OF PSP14'S PROPERTIES
PSP14 owns a total of 14 properties: seven mini-warehouses, two business
parks and five properties that combine mini-warehouse and business park space.
The following table contains information as of December 31, 1995 about PSP14's
properties. Pursuant to the PSP14 Merger, these properties would be acquired by
PSI.
<TABLE>
<CAPTION>
Net
Size of Number Rentable
Parcel of Square Completion
Location (Acres) Spaces Feet Date
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA
Campbell, State Hwy 17 (1) 2.71 742 86,000 August 1985
Fountain Valley, Newhope (1) 2.78 521 71,000 February 1986
Santa Cruz, Soquel Ave. (1) 1.59 406 43,000 November 1985
So. San Francisco, Airport (2) 2.43 40 51,000 December 1986
Torrance, Crenshaw Blvd. (2) 6.52 56 114,000 January 1986
COLORADO
Aurora, Mississippi Ave. (1) 3.37 490 72,000 September 1985
INDIANA
Indianapolis, Hwy 31 4.22 507 59,000 September 1985
Indianapolis, Lafayette Rd. 3.60 513 59,000 September 1985
NEW YORK
Farmingdale, Broad Hollow Rd. 2.96 517 52,000 April 1986
SOUTH CAROLINA
Columbia, Broad River Rd. .79 159 14,000 July 1985
TEXAS
Dallas, Winsted Rd. 1.73 866 71,000 February 1986
Fort Worth, Interstate 30 2.49 569 62,000 July 1985
VIRGINIA
Fairfax, Backlick Rd. 2.35 383 42,000 September 1985
Fairfax County, Tyson's Corner (1) 3.57 1,225 116,000 November 1986
</TABLE>
- ---------------
(1) Facility combines mini-warehouse and business park space.
(2) Business park facility.
As of the date of this Combined Proxy Statement and Prospectus, each of
these properties is generating sufficient revenues to cover its operating
expenses.
None of the properties is subject to any material mortgage, lien, or any
encumbrance other than liens for taxes and assessments not yet due or payable,
utility easements or other immaterial liens or encumbrances. Each of the
properties will continue to be used for its current purpose. PSP14 believes each
property is adequately covered by insurance.
72
<PAGE>
As reflected in the table below, PSP14 has experienced overall improved
property operations:
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level 93% 93% 93% 93% 94%
Realized monthly rent per occupied
square foot (1) $.74 $.81 $.82 $.82 $.85
</TABLE>
- ---------------
(1) Realized monthly rent per occupied square foot represents the actual
revenue earned per occupied square foot. PSP14 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.
Additional information is set forth below with respect to the
Campbell/State Highway 17, Torrance/Crenshaw Blvd. and Fairfax County/Tyson's
Corner properties, because they are the only properties with a book value of at
least 10% of PSP14's total assets or that have accounted for more than 10% of
its aggregate gross revenues.
CAMPBELL/STATE HIGHWAY 17. This mini-warehouse is located approximately
three miles from downtown Campbell, California along State Highway 17 near the
San Tomas Expressway. Both of these thoroughfares connect Campbell with San
Jose. The property is visible and accessible from State Highway 17. 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>
December 31, 1995 99% $12.24
December 31, 1994 99 11.16
December 31, 1993 94 10.80
December 31, 1992 93 10.08
December 31, 1991 90 9.96
</TABLE>
TORRANCE/CRENSHAW BOULEVARD. This business park is located in Torrance,
California, approximately 13 miles from Los Angeles. The property is visible and
accessible from Crenshaw Boulevard, a major north/south artery. No tenant
occupies 10% or more of the rentable area.
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
---- --------- -----------
<S> <C> <C>
December 31, 1995 77% $ 9.72
December 31, 1994 85 11.40
December 31, 1993 87 11.16
December 31, 1992 84 11.88
December 31, 1991 70 11.04
</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>
Year of Total Amt. Percentage of
Expiration* Base Rent Total Income
----------- --------- -------------
<S> <C> <C>
1996 $ 557,000 52.25%
1997 228,000 21.39
1998 144,000 13.51
1999 105,000 9.85
2000 32,000 3.00
---------- ------
Total $1,066,000 100.00%
========== ======
</TABLE>
- ---------------
* Assumes that none of the renewal options included in the leases will be
exercised.
FAIRFAX COUNTY/TYSON'S CORNER. This mini-warehouse is located in Fairfax
County, Virginia, approximately three miles from the Fairfax central business
district. 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>
December 31, 1995 94% $14.16
December 31, 1994 95 13.32
December 31, 1993 94 12.84
December 31, 1992 96 11.64
December 31, 1991 92 10.32
</TABLE>
74
<PAGE>
DESCRIPTION OF PSP15'S PROPERTIES
PSP15 owns a total of 19 properties: 18 mini-warehouses and one property
that combines mini-warehouse and business park space. The following table sets
forth information as of December 31, 1995 about PSP15's properties. Pursuant to
the PSP15 Merger, these properties would be acquired by PSI.
<TABLE>
<CAPTION>
Net
Size of Number Rentable
Parcel of Square Completion
Location (Acres) Spaces Feet Date
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA
Antioch/Sunset Dr. 3.03 475 53,000 December 1985
Livermore, Newhope St. 2.48 437 45,000 December 1985
Rancho Cordova, Sunrise 4.75 901 97,000 June 1985
Sacramento, Mather Field Rd. 2.75 468 51,000 April 1986
San Jose, Story Road 4.39 608 74,000 November 1985
Whittier, Whittier Blvd. 1.90 368 44,000 March 1986
COLORADO
Aurora, Abilene 4.63 632 83,000 December 1985
Denver, Blake St. 0.36 414 33,000 May 1986
CONNECTICUT
Berlin, Berlin Turnpike 4.10 645 68,000 October 1986
Manchester, Tolland Turnpike 3.13 567 67,000 April 1988
INDIANA
Evansville, Green River Rd. 3.68 521 63,000 July 1986
MARYLAND
Gaithersburg, Christopher Av. (1) 4.86 492 70,000 November 1987
MASSACHUSETTS
Peabody, Route 1 3.09 650 65,000 November 1986
NEW JERSEY
Washington, Blackhorse Pike 3.61 356 42,000 July 1986
OHIO
Columbus, Eastland Dr. 3.97 474 14,000 July 1985
TEXAS
Dallas, Plano Rd. 1.77 554 58,000 February 1986
Sugarland, Eldridge Rd. 3.99 630 59,000 August 1986
WASHINGTON
Burien, First Ave. So. 1.86 460 53,000 June 1986
Seattle, Aurora Ave. 0.88 559 48,000 June 1986
</TABLE>
_______________
(1) Facility combines mini-warehouse and business park space.
75
<PAGE>
As of the date of this Combined Proxy Statement and Prospectus, each of
these properties is generating sufficient revenues to cover its operating
expenses.
None of the properties is subject to any material mortgage, lien, or any
encumbrance other than liens for taxes and assessments not yet due or payable,
utility easements or other immaterial liens or encumbrances. Each of the
properties will continue to be used for its current purpose. PSP15 believes each
property is adequately covered by insurance.
As reflected in the table below, PSP15 has experienced overall improved
property operations:
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level 85% 89% 90% 90% 92%
Realized monthly rent per occupied
square foot (1) $.63 $.63 $.64 $.66 $.69
</TABLE>
- ---------------
(1) Realized rent per square foot represents the actual revenue earned per
occupied square foot. PSP15 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.
Additional information is set forth below with respect to the
Gaithersburg/Christopher Ave. property because it is the only property with a
book value of at least 10% of PSP15's total assets or that has accounted for
more than 10% of its aggregate gross revenues.
GAITHERSBURG/CHRISTOPHER AVE. This property is located approximately 1/4
mile from the intersection of Christopher Avenue and Route 355. Route 355 is a
principal traffic artery in the Gaithersburg-Rockville region of Maryland which
is northwest of Washington, D.C. 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 mini-warehouse portion of the facility (approximately 40,000
square feet).
<TABLE>
<CAPTION>
Annual
Scheduled
Occupancy Rent Per
Date Rate Square Foot
---- --------- -----------
<S> <C> <C>
December 31, 1995 96% $10.84
December 31, 1994 94 10.20
December 31, 1993 87 10.08
December 31, 1992 88 10.44
December 31, 1991 81 9.96
</TABLE>
76
<PAGE>
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the business park portion of the facility (approximately 30,000
square feet).
<TABLE>
<CAPTION>
Annual
Scheduled
Occupancy Rent Per
Date Rate Square Foot
---- --------- -----------
<S> <C> <C>
December 31, 1995 94% $10.09
December 31, 1994 94 9.96
December 31, 1993 100 10.80
December 31, 1992 100 10.20
December 31, 1991 80 10.32
</TABLE>
A schedule showing total annual base rent and percentage of total income
relating to leases according to their expiration dates for the business park
facility is set forth below:
<TABLE>
<CAPTION>
Year of Total Amt. Percentage of
Expiration* Base Rent Total Income
----------- --------- -------------
<S> <C> <C>
1996 $421,000 51.0%
1997 347,000 42.0
1998 58,000 7.0
Thereafter - -
-------- -------
Total $826,000 100.00%
======== =======
</TABLE>
- ---------------
* Assumes that none of the renewal options included in the leases will be
exercised.
77
<PAGE>
DESCRIPTION OF PSI'S PROPERTIES
At December 31, 1995, PSI had equity interests (through direct ownership,
as well as general and limited partnership interests and stock ownership
interests) in 1,050 facilities (273 of which were wholly-owned) located in 37
states. These facilities consist of 1,016 mini-warehouses and 34 business
parks. None of PSI's current investments involves 10% or more of PSI's total
assets or gross revenues. In the opinion of management of PSI, the facilities
in which PSI has invested are adequately insured.
The following table reflects the geographic diversification of PSI's mini-
warehouses ("Mini") and business parks ("BP"):
<TABLE>
<CAPTION>
At December 31, 1995
-------------------------------------------------
Net Rentable Square Feet
Number of Facilities (in thousands)
------------------------ ----------------------
Mini(1) BP Mini(1) BP
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
California:
Southern 146 16 9,419 1,434
Northern 129 4 7,211 291
Texas 109 5 7,092 670
Florida 81 -- 4,491 --
Illinois 62 -- 3,899 --
Colorado 36 -- 2,275 --
Washington 36 1 2,228 28
Georgia 33 -- 1,727 --
New Jersey 32 -- 1,846 --
Maryland 31 -- 1,772 --
Virginia 28 3 1,921 213
New York 27 -- 1,584 --
Ohio 27 -- 1,651 --
Oregon 25 1 1,232 40
Nevada 22 -- 1,410 --
Pennsylvania 18 -- 1,227 --
Other states (22 states) 174 4 9,734 406
------ ----- ------- ------
Totals 1,016 34 60,719 3,082
======= ===== ======= ======
</TABLE>
- -------------------------
(1) 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,
---------------------------------- ------------------
1993 1994 1995 1995 1996
----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level (1) 87% 89% 90% 90% 91%
Realized monthly rent per occupied
square foot (1)(2) $.64 $.68 $.70 $.70 $.72
- ---------------
</TABLE>
(1) Mini-warehouses owned throughout the periods.
(2) Realized monthly rent per occupied square foot represents the actual revenue
earned per occupied square foot. PSI believes this is a more relevant
measure than the posted rental rates, since posted rates can be discounted
through the use of promotions. Includes administrative and late fees.
78
<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>
1995:
First quarter 17 1/8 13 1/2 .22
Second quarter 17 1/8 15 1/4 .22
Third quarter 18 3/4 16 3/8 .22
Fourth quarter 19 3/4 17 3/8 .22
1996:
First quarter 21 7/8 18 7/8 .22
Second quarter 21 1/2 19 3/8 .22
Third quarter 22 5/8 19 7/8 .22
Fourth quarter 31 3/8 22 1/4 .22
1997:
First quarter
(through
March ___) .22(2)
</TABLE>
_______________
(1) For GAAP purposes, all distributions were from investment income.
(2) Distribution of $.22 per share payable on March 31, 1997 to shareholders of
record on March 14, 1997.
As of February 12, 1997, there were approximately 19,854 record holders of
PSI Common Stock. On December 4, 1996, 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 $26. On March ___, 1997, the last full trading day
prior to the date of this Combined Proxy Statement and Prospectus, the closing
price was $______.
Holders of PSI Common Stock are entitled to receive distributions when, as
and if declared by the board of directors out of any funds legally available for
that purpose. PSI, as a REIT, is required to distribute annually at least 95%
of its "REIT taxable income," which, as defined by the relevant tax statutes and
regulations, is generally equivalent to net taxable ordinary income. Under
certain circumstances, PSI can rectify a failure to meet this distribution
requirement by paying dividends after the close of a particular taxable year.
See "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.
79
<PAGE>
DISTRIBUTIONS AND PRICE RANGE OF PSP14 COMMON STOCK
The PSP14 Common Stock has been listed on the AMEX since July 1991. The
following table sets forth the distributions paid per share on PSP14 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>
1995:
First quarter 17 1/4 15 1/4 .34
Second quarter 17 3/8 15 5/8 .34
Third quarter 17 7/8 16 3/8 .34
Fourth quarter 18/1/2 17 1/4 .34
1996:
First quarter 19 1/2 17 3/8 .34
Second quarter 19 1/4 17 5/8 .34
Third quarter 19 3/4 18 .34
Fourth quarter 21 1/8 19 1/4 .34
1997:
First quarter
(through
March ___) --
</TABLE>
_______________
(1) Distributions paid per share of PSP14 Common Stock with respect to the
applicable periods. Actual payment was made 15 days after end of quarter.
For GAAP purposes, all distributions were from investment income.
As of February 12, 1997, there were approximately 1,215 record holders of
PSP14's Common Stock. On December 4, 1996, the last full trading day prior to
the first public announcement of the proposed Mergers, the closing price of
PSP14 Common Stock was $20 1/8. On March ___, 1997, the last full trading day
prior to the date of this Combined Proxy Statement and Prospectus, the closing
price was $______.
Holders of PSP14 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. PSP14, as a REIT, is required to distribute annually at least
95% of its "REIT taxable income," which, as defined by the relevant tax statutes
and regulations, is generally equivalent to net taxable ordinary income. Under
certain circumstances, PSP14 can rectify a failure to meet this distribution
requirement by paying dividends after the close of a particular taxable year.
80
<PAGE>
DISTRIBUTIONS AND PRICE RANGE OF PSP15 COMMON STOCK
The PSP15 Common Stock has been listed on the AMEX since September 1991.
The following table sets forth the distributions paid per share on PSP15 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>
1995:
First quarter 16 5/8 15 1/2 .30
Second quarter 16 7/8 16 1/2 .30
Third quarter 16 5/8 16 .30
Fourth quarter 18 1/4 16 3/8 .52(2)
1996:
First quarter 18 16 3/4 .30
Second quarter 18 3/4 17 3/4 .30
Third quarter 19 5/8 17 7/8 .30
Fourth quarter 21 1/2 19 1/4 .30
1997:
First quarter
(through
March ___) --
</TABLE>
_______________
(1) Distributions paid per share of PSP15 Common Stock with respect to the
applicable periods. Actual payment was made 15 days after end of quarter.
For GAAP purposes, all distributions were from investment income.
(2) Includes a special distribution of $.22 in the fourth quarter of 1995.
As of February 12, 1997, there were approximately 1,059 record holders of
PSP15's Common Stock. On December 4, 1996, the last full trading day prior to
the first public announcement of the proposed Mergers, the closing price of
PSP15 Common Stock was $20 1/8. On March ___, 1997, the last full trading day
prior to the date of this Combined Proxy Statement and Prospectus, the closing
price was $_____.
Holders of PSP15 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. PSP15, as a REIT, is required to distribute annually at least
95% of its "REIT taxable income," which, as defined by the relevant tax statutes
and regulations, is generally equivalent to net taxable ordinary income. Under
certain circumstances, PSP15 can rectify a failure to meet this distribution
requirement by paying dividends after the close of a particular taxable year.
81
<PAGE>
DESCRIPTION OF PSI CAPITAL STOCK
PSI is authorized to issue 200,000,000 shares of PSI Common Stock, par
value $.10 per share, 7,000,000 shares of PSI Class B Common Stock, par value
$.10 per share, 50,000,000 shares of preferred stock, par value $.01 per share
and 200,000,000 shares of equity stock, par value $.01 per share. At January 31,
1997, PSI had outstanding 88,405,397 shares of PSI Common Stock (exclusive of
shares issuable upon conversion of PSI's convertible capital stock and shares
subject to options), 7,000,000 shares of Class B Common Stock, 13,409,280 shares
of preferred stock and no shares of equity stock.
COMMON STOCK
The following description of PSI Common Stock sets forth certain general
terms and provisions of PSI Common Stock. The statements below describing PSI
Common Stock are in all respects subject to and qualified in their entirety by
reference to the applicable provisions of the PSI's Articles of Incorporation
and Bylaws.
PSI Shareholders will be entitled to receive dividends when, as and if
declared by PSI's Board of Directors, out of funds legally available therefor.
Payment and declaration of dividends on PSI Common Stock and purchases of shares
thereof by PSI will be subject to certain restrictions if PSI fails to pay
dividends on outstanding preferred stock. See "-- Preferred Stock." Upon any
liquidation, dissolution or winding up of PSI, holders of PSI Common Stock will
be entitled to share equally and ratably in any assets available for
distribution to them, after payment or provision for payment of the debts and
other liabilities of PSI and the preferential amounts owing with respect to any
outstanding preferred stock. Holders of PSI Common Stock have no preemptive
rights, which means they have no right to acquire any additional shares of PSI
Common Stock that may be issued by PSI at a subsequent date.
Each outstanding share of PSI Common Stock entitles the holder to one vote
on all matters presented to PSI Shareholders for a vote, with the exception that
PSI Shareholders have cumulative voting rights with respect to the election of
the Board of Directors, in accordance with California law. Cumulative voting
entitles each PSI Shareholder to cast as many votes as there are directors to be
elected multiplied by the number of shares registered in his or her name. A PSI
Shareholder may cumulate the votes for directors by casting all of the votes for
one candidate or by distributing the votes among as many candidates as the PSI
Shareholder chooses. PSI Shareholders have no preemptive or other rights to
subscribe for or purchase additional shares of PSI Common Stock. All outstanding
shares of PSI Common Stock are fully paid and nonassessable.
OWNERSHIP LIMITATIONS
For PSI to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of capital stock may be owned, directly or constructively
under the applicable attribution rules of the Code, by five or fewer individuals
(as defined in the Code to include certain entities) during the last half of a
taxable year. In order to maintain its qualification as a REIT, PSI's Articles
of Incorporation and Bylaws provide certain restrictions on the shares of
capital stock that any PSI Shareholder may own.
PSI's Articles of Incorporation and Bylaws provide that, subject to certain
exceptions, no holder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than (A) 2.0% of the outstanding shares of all
common stock of PSI, or (B) 9.9% of the outstanding shares of each class or
series of shares of preferred stock of PSI. The Articles of Incorporation and
Bylaws provide, however, that no person shall be deemed to exceed the ownership
limit solely by reason of the beneficial ownership of shares of any class of
stock to the extent that such shares of stock were beneficially owned by such
person (including the Hughes Family) at the time of the PSMI Merger. This
ownership limitation is necessary in order to assist in preserving PSI's REIT
status in view of the Hughes Family's substantial ownership interest in PSI. See
"Federal Income Tax Considerations -- Tax Treatment of PSI."
PSI's Board of Directors, in its sole and absolute discretion, may grant an
exception to the ownership limits to any person so requesting, so long as (A)
the Board of Directors has determined that, after giving effect to (x) an
acquisition by such person of beneficial ownership (within the meaning of the
Code) of the maximum amount of capital stock of PSI permitted as a result of the
exception to be granted and (y) assuming that the four other persons who
82
<PAGE>
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 PSI's Board of Directors such
representations and undertakings as the Board of Directors may require.
Notwithstanding any of the foregoing ownership limits, no holder may own or
acquire, either directly, indirectly or constructively under the applicable
attribution rules of the Code, any shares of any class of PSI's capital stock if
such ownership or acquisition (i) would cause more than 50% in value of PSI's
outstanding capital stock to be owned, either directly or constructively, under
the applicable attribution rules of the Code, by five or fewer individuals (as
defined in the Code to include certain tax-exempt entities, other than, in
general, qualified domestic pension funds), (ii) would result in PSI's stock
being beneficially owned by less than 100 persons (determined without reference
to any rules of attribution), or (iii) would otherwise result in PSI's failing
to qualify as a REIT.
PSI's Articles of Incorporation and Bylaws provide that, if any holder of
PSI's capital stock purports to transfer shares to a person or there is a change
in the capital structure of PSI and either the transfer or the change in capital
structure would result in PSI failing to qualify as a REIT, or such transfer or
the change in capital structure would cause the transferee to hold shares in
excess of the applicable ownership limit, then the stock being transferred (or
in the case of an event other than a transfer, the stock beneficially owned)
which would cause one or more of the restrictions on ownership or transfer to be
violated shall be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of such shares shall
have no right to receive dividends or other distributions with respect to such
shares and shall have no right to vote such shares. Any dividends or other
distributions paid to such purported transferee prior to the discovery by PSI
that the shares have been transferred to a trust shall be paid to the trustee of
the trust for the benefit of the charitable beneficiary upon demand. The trustee
of the trust will have all rights to dividends with respect to shares of stock
held in trust, which rights will be exercised for the exclusive benefit of the
charitable beneficiary. Any dividends or distributions paid over to the trustee
will be held in trust for the charitable beneficiary. The trustee shall
designate a transferee of such stock so long as such shares of stock would not
violate the restrictions on ownership or transfer in the PSI Articles of
Incorporation or Bylaws in the hands of such designated transferee. Upon the
sale of such shares, the purported transferee shall receive the lesser of (A)(i)
the price per share such purported transferee paid for the stock in the
purported transfer that resulted in the transfer of the shares to the trust, or
(ii) if the transfer or other event that resulted in the transfer of the shares
of the trust was not a transaction in which the purported transferee gave full
value for such shares, a price per share equal to the market price on the date
of the purported transfer or other event that resulted in the transfer of the
shares to the trust and (B) the price per share received by the trustee from the
sale or other disposition of the shares held in the trust.
CLASS B COMMON STOCK
The PSI Class B Common Stock (i) does not participate in distributions
until the later to occur of Funds from Operations ("FFO") per Common Share (as
defined below by PSI) aggregating $1.80 during any period of four consecutive
calendar quarters, or January 1, 2000; thereafter, the PSI Class B Common Stock
will participate in distributions (other than liquidating distributions), at the
rate of 97% of the per share distributions on the PSI Common Stock, provided
that cumulative distributions of at least $.22 per quarter per share have been
paid on the PSI Common Stock, (ii) does not participate in liquidating
distributions, (iii) is not entitled to vote (except as expressly required by
California law) and (iv) will automatically convert into PSI Common Stock, on a
share for share basis, upon the later to occur of FFO per Common Share
aggregating $3.00 during any period of four consecutive calendar quarters or
January 1, 2003.
For these purposes:
(1) FFO means net income (loss) (computed in accordance with GAAP) before
(i) gain (loss) on early extinguishment of debt, (ii) minority interest in
income and (iii) gain (loss) on disposition of real estate, adjusted as follows:
(i) plus depreciation and amortization (including PSI's pro-rata share of
depreciation and amortization of unconsolidated equity interests and
amortization of assets acquired in the PSMI Merger, including property
management agreements and goodwill), and (ii) less FFO attributable to minority
interest. FFO is a supplemental performance measure for equity REITs as defined
by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT").
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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 PSI Common Stock assuming conversion of all
outstanding convertible securities and the PSI Class B Common Stock.
PREFERRED STOCK
PSI is authorized to issue 50,000,000 shares of preferred stock, $.01 par
value per share. PSI's Articles of Incorporation provide that the preferred
stock may be issued from time to time in one or more series and give the Board
of Directors broad authority to fix the dividend and distribution rights,
conversion and voting rights, if any, redemption provisions and liquidation
preferences of each series of preferred stock.
At January 31, 1997, PSI had 11 series of preferred stock outstanding: nine
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 two series of
convertible preferred stock), provides for cumulative quarterly dividends
calculated as a percentage of the stated value (ranging from 8.45% to 10% per
year in the case of the eight series of fixed rate Senior 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 Senior 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 Senior Preferred Stock and on or after
various dates between December 31, 2000 and April 30, 2005 in the case of the
series of fixed rate Senior Preferred Stock).
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of PSI, the holders of each of the series of Senior Preferred Stock
will be entitled to receive out of PSI's assets available for distribution to
stockholders, before any distribution of assets is made to holders of PSI Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the Senior Preferred Stock (including both series of convertible
preferred stock), liquidating distributions in the amount of $25.00 per share,
plus all accrued and unpaid dividends.
Except as expressly required by law and in certain other limited
circumstances, the holders of the Senior Preferred Stock are not entitled to
vote. The consent of holders of at least 66 2/3% of the outstanding shares of
the Senior Preferred Stock (and any other series of preferred stock ranking on a
parity therewith), voting as a single class, is required to authorize another
class of shares senior to such preferred stock.
In all respects, each of the series of convertible preferred stock ranks on
a parity with each other and is senior to the PSI Common Stock. One of the
series of the convertible preferred stock (i) has a stated value of $25.00 per
share, (ii) in preference to the holders of shares of the PSI Common Stock and
any other capital stock ranking junior to the convertible preferred stock as to
payment of dividends, provides for cumulative quarterly dividends at an annual
rate of 8.25% of the stated value thereof, (iii) is convertible at the option of
the holder at any time into PSI Common Stock at a conversion price of 1.6835
shares of PSI Common Stock for each share of such convertible preferred stock
(subject to adjustment in certain circumstances) and (iv) after July 1, 1998,
under certain circumstances, is redeemable for PSI Common Stock at the option of
PSI, in whole or in part, at a redemption price of 1.6835 shares of PSI Common
Stock for each share of such convertible preferred stock (subject to adjustment
in certain circumstances).
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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 PSI Common Stock and any
other capital stock ranking junior to the convertible preferred stock as to
payment of dividends, provides for dividends of $1,916,038 per quarter, (iii) is
convertible at the option of the holder at any time into PSI Common Stock at a
conversion price of 35.014 shares of PSI Common Stock for each share of such
convertible preferred stock (subject to adjustment under certain circumstances)
and (iv) on March 31, 2000 will be automatically converted into PSI Common Stock
at the conversion price described above.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of PSI, the holders of the convertible preferred stock will be
entitled to receive out of PSI's assets available for distribution to
stockholders, before any distribution of assets is made to holders of PSI Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the convertible preferred stock, liquidating distributions (i) in the
amount of $25.00 per share, plus all accrued and unpaid dividends, in the case
of one of the series of convertible preferred stock and (ii) a minimum
liquidation preference of $58,955,000, plus all accrued and unpaid dividends, in
the case of the other series of convertible preferred stock.
Except as expressly required by law and in certain other limited
circumstances, the holders of the convertible preferred stock are not entitled
to vote. The consent of holders of at least 66 2/3% of the outstanding shares
of one of the series of convertible preferred stock and at least 50% of the
outstanding shares of the other series is required to authorize another class of
shares senior to the convertible preferred stock and junior to the Senior
Preferred Stock.
EQUITY STOCK
PSI is authorized to issue 200,000,000 shares of equity stock, $.01 par
value per share. At January 31, 1997, PSI had no outstanding shares of equity
stock. PSI's Articles of Incorporation provide that the equity 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, redemption provisions and liquidation rights of each series of
equity stock. Holders of equity stock have no preemptive rights. The shares of
equity stock will be, when issued, fully paid and nonassessable.
EFFECTS OF ISSUANCE OF CAPITAL STOCK
The issuance of PSI Common Stock and the issuance of preferred stock or
equity stock with special voting rights could be used to deter attempts by a
single shareholder or group of shareholders to obtain control of PSI in
transactions not approved by PSI's Board of Directors. PSI has no intention to
issue PSI Common Stock or the preferred stock or equity 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 PSP14 or PSP15 Common Stock may, in some instances,
be entitled to require PSP14 or PSP15 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 5, 1996. The following is a brief summary of
the procedures to be followed by a PSP14 or PSP15 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 Combined
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 PSP14 and PSP15 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 PSP14 and PSP15 Common Stock, respectively. This 5%
requirement is applicable because PSP14 and PSP15 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 PSP14 or PSP15 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 PSP14
or PSP15 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 of the respective corporation, 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 4, 1996; 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 PSP14 or PSP15
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 PSP14 Common Stock must be
addressed to Public Storage Properties XIV, Inc., 701 Western Avenue, Suite 200,
Glendale, California 91201-2397, attention: Investor Services Department or to
PSP14'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 PSP15 Common Stock must be addressed to Public
Storage Properties XV, Inc., 701 Western Avenue, Suite 200, Glendale, California
91201-2397, attention: Investor Services Department or to PSP15'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 "Federal Income Tax
Matters."
PSP14 and PSP15 Shareholders are entitled, upon written demand, to inspect
and copy the record of PSP14 or PSP15 Shareholders, respectively, at any time
during usual business hours to communicate with other shareholders of the
respective corporation with respect to the Mergers.
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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 PSP14 and PSP15
Shareholders. PSI, PSP14 and PSP15 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 PSI, PSP14 or PSP15 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 PSP14 and PSP15, has reviewed the
following discussion and is of the opinion that this discussion fairly
summarizes the material federal income tax considerations to a PSP14 and PSP15
Shareholder as a result of the PSP14 Merger and the PSP15 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 PSI, PSP14 and PSP15 and certain representations made by PSP14,
PSP15 and PSI and certain shareholders of PSP14 and PSP15. 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 PSI, PSP14 and PSP15 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 PSP14 AND PSP15 SHAREHOLDERS,
PSP14 AND PSP15 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 PSP14 or PSI
in connection with the PSP14 Merger or by PSP15 or PSI in connection with the
PSP15 Merger; and (I) no gain or loss will be recognized by PSP14 Shareholders
who receive solely PSI Common Stock in exchange for their PSP14 Common Stock in
the PSP14 Merger (but all PSP14 Shareholders will recognize ordinary income in
the amount of any Required PSP14 REIT Distributions made to them) and (II) no
gain or loss will be recognized by PSP15 Shareholders who receive solely PSI
Common Stock in exchange for their PSP15 Common Stock in the PSP15 Merger (but
all PSP15 Shareholders will recognize ordinary income in the amount of any
Required PSP15 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 Combined Proxy Statement and Prospectus. Hogan & Hartson
L.L.P., counsel to PSP14 and PSP15, 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 PSI, PSP14 and PSP15
and certain PSP14 and PSP15 Shareholders. Of particular importance are certain
assumptions and representations relating to the "continuity of interest"
requirement discussed below. THE PSP14 MERGER AND THE PSP15 MERGER ARE NOT
CONDITIONED ON EACH OTHER.
Continuity of Interest Assumption. To qualify as a reorganization as to
PSP14 or PSP15, among other requirements, each of the Mergers must satisfy a
"continuity of interest" test, under which the historic PSP14 and PSP15
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 PSP14 Merger and the PSP15
Merger, respectively. Generally, this test will be considered satisfied if
historic PSP14 Shareholders (in the case of the PSP14 Merger) or historic PSP15
Shareholders (in the case of the PSP15 Merger) exchange at least 50% of their
respective corporation's Common Stock for PSI Common Stock in the PSP14 Merger
and the PSP15 Merger, respectively, and the PSP14 and PSP15 Shareholders do not
at the time of the PSP14 Merger and the PSP15 Merger, respectively, plan to
dispose of that PSI Common Stock. Management of PSI and PSP14 and PSP15,
respectively, have represented that they are not aware of any plan on the part
of PSP14 or PSP15 Shareholders, respectively, 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 that the continuity of interest
test will be satisfied.
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Reorganization Consequences to PSI, PSP14 and PSP15. As a result of
reorganization treatment, PSI, PSP14 and PSP15 will not recognize gain or loss
as a result of the Mergers. PSI also will succeed to the assets, liabilities,
and tax attributes of PSP14 and PSP15. Accordingly, following the Mergers, PSI
will hold the properties of PSP14 and PSP15 with a carryover tax basis,
determined by reference to the relatively low, historic basis of those assets in
the hands of PSP14 and PSP15, 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 PSP14 or
PSP15 Shareholders who may be taxable as a result of the Mergers.
Exchange of PSP14 or PSP15 Common Stock Solely for PSI Common Stock. As a
result of reorganization treatment (I) (i) no gain or loss will be recognized by
PSP14 Shareholders who exchange their PSP14 Common Stock solely for PSI Common
Stock pursuant to the PSP14 Merger (but see "Required REIT Distributions"
below), (ii) such a PSP14 Shareholder's aggregate tax basis in the PSI Common
Stock received will be the same as the aggregate tax basis of the shares of
PSP14 Common Stock surrendered and (iii) provided such PSP14 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 PSP14 Common
Stock; and (II) (i) no gain or loss will be recognized by PSP15 Shareholders who
exchange their PSP15 Common Stock solely for PSI Common Stock pursuant to the
PSP15 Merger (but see "Required REIT Distributions" below), (ii) such a PSP15
Shareholder's aggregate tax basis in the PSI Common Stock received will be the
same as the aggregate tax basis of the shares of PSP15 Common Stock surrendered
and (iii) provided such PSP15 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 PSP15 Common Stock.
PSP14 or PSP15 Shareholders Receiving Only Cash. A PSP14 Shareholder who
exchanges PSP14 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 PSP14
Shareholder's adjusted basis in his or her PSP14 Common Stock and the amount of
cash received. A PSP15 Shareholder who exchanges PSP15 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 PSP15 Shareholder's adjusted basis in his or her PSP15
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 PSP14 or PSP15 Shareholder is
actually or constructively related to continuing PSI Shareholders).
PSP14 or PSP15 Shareholders Receiving Cash and PSI Common Stock. As a
result of reorganization treatment (I) (i) a PSP14 Shareholder who, pursuant to
the PSP14 Merger and subject to the conditions of the Cash Election, exchanges
PSP14 Common Stock for a combination of PSI Common Stock and cash will not
recognize any loss realized on such exchange and (ii) such PSP14 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 PSP14 Shareholder's tax basis in the PSP14 Common Stock
surrendered; and (II) (i) a PSP15 Shareholder who, pursuant to the PSP15 Merger
and subject to the conditions of the Cash Election, exchanges PSP15 Common Stock
for a combination of PSI Common Stock and cash will not recognize any loss
realized on such exchange and (ii) such PSP15 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 PSP15
Shareholder's tax basis in the PSP15 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 Required PSP14 REIT Distributions and the
Required PSP15 REIT Distributions would not be treated as cash paid in exchange
for the PSP14 Common Stock or PSP15 Common Stock, but rather as a dividend
taxable to all recipients as ordinary income.
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Cash Received in Lieu of Fractional Shares of PSI Common Stock. PSP14 or
PSP15 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 to the
difference between the tax basis allocable to the fractional share and the cash
paid for it, provided that the PSP14 or PSP15 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 PSP14 or PSP15, 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 PSP14 and PSP15, has rendered an opinion
to PSP14 with respect to the PSP14 Merger and to PSP15 with respect to the PSP15
Merger to the effect that (i) for federal income tax purposes, the respective
Merger will constitute a reorganization under Section 368(a) of the Code, (ii)
PSI continues to qualify as a REIT following the PSMI Merger so long as (A) PSI
continues to meet the stock ownership and gross income requirements applicable
to REITs and (B) either PSMI at the time of (and 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 (iii) the
discussion under the heading "Federal Income Tax Matters," to the extent that
they describe matters of law or legal conclusions, are correct in all material
respects (the "Opinion of Counsel"). Hogan & Hartson has not opined that PSI
continues to meet the stock ownership and gross income requirements applicable
to REITs following the PSMI Merger or that PSMI did not have current or
accumulated earnings and profits at the time of the PSMI Merger, due to the
numerous factual determinations 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, PSP14 and PSP15
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,
PSP14 and PSP15, 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 Agreement. The Opinion of Counsel states that the conclusion set forth
therein could be adversely affected if any of these representations or
assumptions is incorrect or incomplete at the time that any of the Mergers is
consummated. The Opinion of Counsel only represents counsel's best judgment,
based upon the underlying representations and assumptions, regarding the
application of relevant provisions of the Code and interpretations thereof, as
set forth in existing judicial decisions, administrative regulations and
published rulings and procedures of the Internal Revenue Service. The Opinion of
Counsel is not binding upon the Internal Revenue Service or the courts, and
there can be no assurance that the Internal Revenue Service would not seek to
assert a contrary position. Also, there cannot be any assurance that future
legislative, judicial or administrative changes (which could be retroactive in
effect) will not adversely affect the conclusions reached in the Opinion of
Counsel. Finally, the Opinion of Counsel is expressly limited to the specific
conclusions described in the first sentence of this section and does not purport
to address any other federal, state, local or foreign tax consequences that may
result from the Mergers or any other transaction (including the tax consequences
of any of the Mergers as applied to specific PSP14 or PSP15 Shareholders (or
classes of PSP14 or PSP15 Shareholders); the tax consequences of any of the
Mergers to PSI, PSP14 or PSP15 (including whether any entity will recognize any
gain in any of the Mergers and PSI's adjusted tax basis in the assets
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of PSP14 and PSP15 acquired in the Mergers); the application of the "golden
parachute" provisions, the alternative minimum tax provisions, and any other
provisions of the Code (other than Section 368(a) of the Code) to any of the
Mergers and/or participants therein; and whether PSP14 or PSP15 Shareholders who
have provided or will provide services to PSI, PSP14 or PSP15 will recognize
compensation income, either as a result of the Mergers or otherwise).
GENERAL TAX TREATMENT OF PSI
If certain detailed conditions imposed by the Code and the related Treasury
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, and PSI expects to continue to
be taxed as a REIT for federal income tax purposes. 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
Requirements."
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
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contractor" requirement, however, does not apply to the extent the services
provided by PSI are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered "rendered to
the occupant." Any services with respect to certain Properties that PSI believes
may not be provided by PSI directly without jeopardizing the qualification of
rent as "rents from real property" will be performed by "independent
contractors."
See "-- Consequences of the PSMI Merger on PSI's Qualification as a REIT --
Nonqualifying Income," and "-- Consequences of the PSMI Merger on PSI's
Qualification as a REIT -- Acquisition of Affiliated Partnership Interests" for
a discussion of specific aspects of the PSMI Merger that may impact upon PSI's
ability to satisfy the 95% gross income test following the PSMI Merger.
3. Generally, 75% by value of PSI's investments must be in real estate,
mortgages secured by real estate, cash, or government securities (including its
allocable share of real estate assets held by any partnerships in which PSI owns
an interest). Not more than 25% of PSI's total assets may be represented by
securities other than those in the 75% asset class. Of the investments included
in the 25% asset class, the value of any one issuer's securities owned by PSI
may not exceed 5% of the value of PSI's total assets, and PSI may not own more
than 10% of any one issuer's outstanding voting securities. The 5% test
generally must be met for any quarter in which PSI acquires securities of an
issuer. PSI believes that it satisfies these tests. In this regard, however, the
10% voting stock prohibition precludes PSI from controlling the operations of
the Lock/Box Company (in which PSI owns 95% of the equity in the form of non-
voting stock and the Hughes Family owns 5% of the equity but 100% of the voting
stock), PSPUD (a subsidiary of the Lock/Box Company) or PS Clearing Company,
Inc. ("PSCC") (in which PSI owns a less than 10% equity interest) and may
preclude PSI from exercising its rights of first refusal with respect to the
corporations owning the Canadian operations and the reinsurance business.
4. PSI must distribute to its shareholders in each taxable year an amount
at least equal to 95% of PSI's "REIT Taxable Income" (which is generally
equivalent to net taxable ordinary income). Under certain circumstances, PSI can
rectify a failure to meet the 95% distribution test by paying dividends after
the close of a particular taxable year.
In years prior to 1990, PSI made distributions in excess of its REIT
Taxable Income. During 1990, PSI reduced its distributions to the PSI
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 through 1995 by attributing distributions in 1991 through
1996 to the prior year's taxable income, and PSI expects to satisfy the
distribution requirement for 1996 by attributing distributions in 1997 to the
1996 taxable income. PSI may be required, over each of the next several years,
to make distributions after the close of a taxable year and to attribute those
distributions to the prior year, but PSI Shareholders will be treated for
federal income tax purposes as having received such distributions in the taxable
years in which they were actually made. The extent to which PSI will be required
to attribute distributions to the prior year will depend on PSI's operating
results and the level of distributions as determined by PSI's Board of
Directors. Reliance on subsequent year distributions could cause PSI to be
subject to certain penalty taxes. In that regard, if PSI should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such calendar year, (ii) 95% of its REIT capital gain net
income for such calendar year, and (iii) any undistributed taxable income from
prior periods, PSI would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed during such calendar
year (not taking into account distributions made in subsequent years but
attributed to such calendar year). PSI intends to comply with this 85%
distribution requirement in an effort to minimize any excise tax. Any
distributions required to be made by PSI in order to eliminate any accumulated
earnings and profits of PSMI would not be counted in determining whether PSI
satisfies the 95% distribution test and could adversely impact upon PSI's
ability to satisfy the 95% distribution test. See "-- Consequences of the PSMI
Merger on PSI's Qualification as a REIT -- Elimination of Any Accumulated
Earnings and Profits Attributable to Non-REIT Years."
For purposes of applying the income and asset tests mentioned above, a REIT
is considered to own a proportionate share of the assets of any partnership in
which it holds a partnership interest. See "-- Consequences of the PSMI Merger
on PSI's Qualification as a REIT -- Acquisition of Affiliated Partnership
Interests in the PSMI Merger."
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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"). This tax would
be imposed on PSI at the top regular corporate rate (currently 35%) in effect at
the time of the disposition on the excess of (i) the lesser of (a) the fair
market value on the closing date of the assets disposed of and (b) the selling
price of such assets over (ii) PSI's adjusted basis in such assets at the time
of the PSMI Merger (such excess being referred to as the "Built-in Gain"). PSI
currently does not intend to dispose of any of the assets acquired in the PSMI
Merger during the Restriction Period, but there can be no assurance that one or
more such dispositions will not occur.
Termination of REIT Election. For any taxable year that PSI fails to
qualify as a REIT, it would be taxed at the usual corporate rates on all of its
taxable income, whether or not it makes any distributions to its shareholders.
Those taxes would reduce the amount of cash available to PSI for distribution to
its shareholders. As a result, failure of PSI to qualify during any taxable year
as a REIT could have a material adverse effect upon PSI and its shareholders,
unless certain relief provisions are available.
PSI's election to be treated as a REIT will terminate automatically if PSI
fails to meet the qualification requirements described above. If a termination
(or a voluntary revocation) occurs, unless certain relief provisions apply, PSI
will not be eligible to elect REIT status again until the fifth taxable year
that begins after the first year for which PSI's election was terminated (or
revoked). If PSI loses its REIT status, but later qualifies and elects to be
taxed as a REIT again, PSI may face significant adverse tax consequences.
Immediately prior to the effectiveness of the 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 continues 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 continues to meet the stock ownership and gross income
requirements applicable to REITs following the PSMI Merger or that PSMI did not
have current or accumulated earnings and profits at the time of the PSMI Merger,
due to the numerous factual determinations and future events that bear on those
conclusions.
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Nonqualifying Income. PSI must meet several annual gross income tests to
retain its REIT qualification. See "-- General Tax Treatment of PSI." 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 PSMI Merger, PSI assumed and performs property management
activities for the various partnerships and REITs in which PSI has an interest
that own Properties, as well as for various other entities that own mini-
warehouse properties and/or business parks. PSI will receive management fees
from such partnerships, REITs, and other owners in exchange for the performance
of such management activities. The gross income received by PSI from these
property management activities with respect to Properties owned by other
entities (including the REITs in which PSI has an ownership interest) is treated
as income not qualifying under the 95% test ("Nonqualifying Income"). See "--
Acquisition of Affiliated Partnership Interests in the PSMI Merger."
In 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 below.
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% and such percentage has been reduced to approximately 36% as
of January 31, 1997. In order to assist PSI in meeting these ownership
restrictions, the PSI Articles of Incorporation and Bylaws prohibit the actual
or constructive ownership of more than 2.0% of the outstanding shares of all
common stock of PSI or more than 9.9% of the outstanding shares of each class or
series of shares of preferred stock of PSI. (The PSI Articles of Incorporation
and Bylaws provide, however, that no person is deemed to exceed this ownership
limitation solely by reason of the beneficial ownership of shares of any class
of stock to the extent that such shares of stock were beneficially owned by such
person at the time of the PSMI Merger.) However, even with these ownership
limitations, there still could be a violation of the ownership restrictions if
four individuals unrelated to the Hughes Family were to own the maximum amount
of capital stock permitted under the PSI Articles of Incorporation. Therefore,
to further assist PSI in meeting the ownership restrictions, the Hughes Family
entered into an agreement with PSI for the benefit of PSI and certain designated
charitable beneficiaries restricting their acquisition of additional shares of
PSI's capital stock and providing that if, at any time, for any reason, more
than 50% in value of PSI's outstanding stock otherwise would be considered owned
by five or fewer individuals, then a number of shares of PSI Common Stock owned
by Wayne Hughes necessary to cure such violation will automatically and
irrevocably be transferred to a designated charitable beneficiary. These
provisions are modeled after certain arrangements that the IRS has ruled in
private letter rulings will preclude a REIT from being considered to violate the
ownership restrictions so long as such arrangements are enforceable as a matter
of state law and the REIT seeks to enforce them as and when necessary. There can
be no assurance, however, that the IRS might not seek to take a different
position with respect to PSI (a private letter ruling is legally binding only
with respect to the taxpayer to whom it was issued) or contend that PSI failed
to enforce these various arrangements and, hence, there can be no 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, any accumulated
earnings and profits of PSMI and its predecessors (including earnings and
profits resulting from transactions undertaken in contemplation of the PSMI
Merger or from the PSMI Merger itself) carried over to PSI in the PSMI Merger
and PSI would have been required to distribute any such accumulated earnings and
profits prior to the close of 1995 (the year in which the PSMI Merger occurred).
Failure to do so would result in disqualification of PSI as a REIT (unless the
"deficiency dividend" procedures described below apply and PSI complies with
those procedures).
The amount of any accumulated earnings and profits of PSMI acquired by PSI
was based on the consolidated earnings and profits of PSMI (including each of
its predecessors) through and including the date of the PSMI Merger
("Consolidated Accumulated Earnings"). As a condition to the PSMI Merger, PSI
received a study prepared by PSMI of the earnings and profits of PSMI and its
subsidiaries that showed, taking into account projected income of PSMI and its
affiliates to and including the time of the PSMI Merger and distributions to the
PSMI shareholders made at or prior to the time of the PSMI Merger, PSMI had no
Consolidated Accumulated Earnings at the time of the PSMI Merger. The
determination of the accumulated earnings and profits acquired by PSI in the
PSMI Merger ("Acquired Earnings") depends upon a number of factual matters
related to the activities and operations of PSMI and its predecessors during
their entire corporate existence and is subject to review and challenge by the
IRS. There can be
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no assurance that the IRS will not examine the tax returns of PSMI and its
predecessors for years prior to and including the PSMI Merger and propose
adjustments to increase their taxable income. Because the earnings and profits
study used to calculate the amount of Acquired Earnings is based on these
returns, such adjustments could increase the amount of the Acquired Earnings. In
this regard, the IRS can consider all taxable years of PSMI and its predecessors
as open for review for purposes of determining earnings and profits.
Although not free from doubt, it appears that pursuant to Treasury
regulations PSI may be able to use certain "deficiency dividend" procedures to
distribute any Acquired Earnings that were subsequently determined to exist as a
result of an IRS audit. In order to use this "deficiency dividend" procedure,
PSI would have to make an additional dividend distribution to its shareholders
(in addition to distributions made for purposes of satisfying the normal REIT
distribution requirements), in the form of cash, notes, other property, or stock
in a taxable stock dividend, within 90 days of the IRS determination. In
addition, PSI would have to pay to the IRS an interest charge on 50% of the
Acquired Earnings that were not distributed prior to December 31, 1995, from the
date on which its 1995 tax return was due to the date the IRS determination was
made. The statute and Treasury regulations related to the application of the
"earnings and profits distribution" requirement to a REIT that acquires a "non-
REIT" in a reorganization and the availability of the "deficiency dividend"
procedure in those circumstances are not entirely clear, and there can be no
assurance that the IRS would not take the position either that the "deficiency
dividend" procedure is not available (in which case, PSI would cease to qualify
as a REIT effective for its taxable year in which the PSMI Merger occurs) or,
alternatively, that even if the procedure is available, PSI cannot qualify as a
REIT for the taxable year in which the Merger occurs (but it could qualify as a
REIT for subsequent years).
Acquisition of Affiliated Partnership Interests. PSI has acquired interests
in various partnerships that own and operate Properties in the PSMI Merger and
in other transactions. 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 creates several issues
regarding PSI's satisfaction of the 95% gross income test. First, PSI earns
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 disregards the portion of
management fees derived from partnerships in which it is a partner that
corresponds to its interest in these partnerships in determining the amount of
its Nonqualifying Income, and PSI's prepayment of management fees set forth
above was computed based upon this approach. There can be no assurance, however,
that the IRS would not take a contrary position with respect to PSI, either
rejecting the approach set forth in the private letter rulings mentioned above
or contending that PSI's situation is distinguishable from those addressed in
the private letter rulings (for example, because PSI does not have a
"substantial" interest in the partnerships).
Second, PSI acquired interests in certain of these partnerships that
entitles PSI to a percentage of profits (either from operations, or upon a sale,
or both) in excess of the percentage of total capital originally contributed to
the partnership with respect to such interest. Existing Treasury Regulations do
not specifically address this situation, and it is uncertain, based on existing
authority, how PSI's "capital interest" in these partnerships should be
determined. This determination is relevant because it affects both the
percentage of the gross rental income of the partnership that is considered
gross rental income (or qualifying income) to PSI and the percentage of the
management fees paid to PSI that are disregarded in determining PSI's
Nonqualifying Income. For example, if PSI takes the position that it has a 25%
"capital interest" in a partnership (because it would receive 25% of the
partnership's assets upon a sale and liquidation) but the IRS determines it only
has a 1% "capital interest" (because the original holder of PSI's interest only
contributed 1% of the total capital contributed to the partnership), PSI's share
of the qualifying income from the
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partnership would be reduced and the portion of the management fee from the
partnership that would be treated as Nonqualifying Income would be increased,
thereby adversely affecting PSI's ability to satisfy the 95% gross income test.
In determining its "capital interest" in the various partnerships in which PSI
acquired an interest in the PSMI Merger, PSI determines the percentage of the
partnership's assets that would be distributed to it if those assets were sold
and distributed among the partners in accordance with the applicable provisions
of the partnership agreements. There can be no assurance, however, that the IRS
will agree with this methodology and not contend that another, perhaps less
favorable, method must be used for purposes of determining PSI "capital
interests." If that were to occur, it could adversely affect PSI's ability to
satisfy the 95% gross income test following the PSMI Merger.
TAXATION OF HOLDERS OF PSI COMMON STOCK
As long as PSI qualifies as a REIT, distributions made to PSI's taxable
domestic shareholders generally will be taxable to such 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. The Treasury Department has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current clarification procedures
and forms and clarify and modify reliance standards. If finalized in their
current form, the proposed regulations would generally be effective for payments
made after December 31, 1997, subject to certain transition rules.
PSI is required to demand annual written statements from the record holders
of designated percentages of its capital stock disclosing the actual owners of
the capital stock and to maintain permanent records showing the information it
has received as to the actual ownership of such capital stock and a list of
those persons failing or refusing to comply with such demand.
In any year in which PSI does not qualify as a REIT, distributions by PSI
to shareholders will be taxable in the same manner discussed above, except that
no distributions can be designated as capital gain dividends, distributions
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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 PSP14 and PSP15 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 PSP14 and
PSP15 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 PSI Common Stock to be
issued in the Mergers will be validly issued, fully paid and nonassessable. Mr.
Goldberg owns 74,500 shares of PSI Common Stock, 1,000 shares of PSI convertible
preferred stock and 600 shares of PSI Senior Preferred Stock and has options to
acquire an additional 157,500 shares of PSI Common Stock. Mr. Goldberg also owns
500 shares of PSP14 Common Stock. Hogan & Hartson L.L.P., Washington, D.C., has
rendered an opinion to the effect that the discussion under "Federal Income Tax
Matters" fairly summarizes the material federal income tax considerations to a
PSP14 or PSP15 Shareholder as a result of the PSP14 and PSP15 Mergers,
respectively, and the subsequent ownership of PSI Common Stock, as well as to
the effect 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 PSI, PSP14 and PSP15, and certain shareholders of PSP14
and PSP15). 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, 1995 appearing in PSI's Annual Report on Form 10-K, as amended by a Form 10-
K/A (Amendment No. 3) dated May 15, 1996, and the combined summary of historical
information relating to operating revenues and specified expenses -- certain
properties (the "Combined Summary") for the properties and periods indicated in
Note 1 to such Combined Summary, appearing in PSI's Current Report on Form 8-K
dated September 6, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports included in PSI's Annual Report on Form
10-K and PSI's Current Report on Form 8-K dated September 6, 1996 and
incorporated herein by reference. Such consolidated financial statements and
Combined Summary 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 PSP14 and PSP15 for the year ended December 31,
1995 appearing herein and in the Annual Reports on Form 10-K of PSP14 and PSP15,
each as amended by a Form 10-K/A (Amendment No. 2) dated February 27, 1997, 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 reports 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, PSP14 and PSP15 since their respective
organization, will be in attendance at the special meetings of shareholders of
PSP14 and PSP15 with the opportunity to make a statement if they desire to do so
and to respond to any appropriate inquiries of such shareholders or their
representatives.
SHAREHOLDER PROPOSALS
Any proposal that a PSP14 or PSP15 Shareholder wishes to submit for
consideration for inclusion in the proxy statement for the 1997 annual meetings
of shareholders must be received by PSP14 or PSP15 no later than August 1, 1997.
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GLOSSARY
The following are definitions of certain terms used in this Combined Proxy
Statement and Prospectus:
"Mergers." The mergers of PSP14 and PSP15 with and into PSI.
"PSP14." Public Storage Properties XIV, Inc., a REIT organized as a
California corporation.
"PSP15." Public Storage Properties XV, Inc., a REIT organized as a
California corporation.
"PSP14 Common Stock." Shares of Common Stock Series A, par value $.01 per
share, of PSP14.
"PSP15 Common Stock." Shares of Common Stock Series A, par value $.01 per
share, of PSP15.
"PSP14 Partnership." Public Storage Properties XIV, Ltd., a California
limited partnership, the predecessor to PSP14.
"PSP15 Partnership." Public Storage Properties XV, Ltd., a California
limited partnership, the predecessor to PSP15.
"PSP14 Shareholder." A holder of shares of PSP14 Common Stock.
"PSP15 Shareholder." A holder of shares of PSP15 Common Stock.
"PSI." Public Storage, Inc., a REIT organized as a California corporation
(formerly Storage Equities, Inc.).
"PSI Common Stock." Shares of Common Stock, par value $.10 per share, of
PSI.
"PSI Shareholder." A holder of shares of PSI Common Stock.
"PSMI." Public Storage Management, Inc., a California corporation, which,
together with its affiliates, was merged into Storage Equities, Inc. on November
16, 1995.
"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 5th day of December, 1996, by and among PUBLIC STORAGE, INC., a
California corporation ("PSI"), PUBLIC STORAGE PROPERTIES XIV, INC., a
California corporation ("PSP14") and PUBLIC STORAGE PROPERTIES XV, INC., a
California corporation ("PSP15").
A. The parties intend that this Agreement shall constitute a Plan of
Reorganization for purposes of Section 368(a) of the Internal Revenue Code of
1986, as amended. The Plan of Reorganization provides for the mergers of PSP14
and PSP15 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 PSI, PSP14 and PSP15 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), PSP14 and PSP15 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,
PSP14 and PSP15 are filed with the California Secretary of State in accordance
with the GCLC (the "Effective Time"). PSI, PSP14 and PSP15 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." The merger of PSP14 into PSI and the merger of PSP15
into PSI are not conditioned on each other.
2.2 Effect of the Merger. At the Effective Time:
2.2.1 Constituent Corporations. The separate corporate existence
of PSP14 and PSP15 shall cease and the Surviving Corporation shall thereupon
succeed, without other transfer, to all the rights and property of PSP14 and
PSP15 and shall be subject to all the debts and liabilities of PSP14 and PSP15
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 PSP14 and PSP15 shall be limited to the property affected thereby
immediately prior to the Effective Time; and any action or proceeding pending by
or against PSP14 and PSP15 may be prosecuted to judgment, which shall bind the
Surviving Corporation, or the Surviving Corporation may be proceeded against or
substituted in its place.
2.2.2 Articles and Bylaws. The Articles of Incorporation and the
Bylaws of PSI, as then amended, shall continue to be the Articles of
Incorporation and the Bylaws of the Surviving Corporation until changed as
provided by law and their respective provisions.
2.2.3 Officers and Directors. The officers and directors of PSI
shall continue as officers and directors of the Surviving Corporation until
their successors are elected and qualified as provided by law and in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation.
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2.3 Conversion of Common Stock Series A. The manner of converting the
outstanding shares of (i) Common Stock Series A ($.01 par value) of PSP14 (the
"PSP14 Shares") and (ii) Common Stock Series A ($.01 par value) of PSP15 (the
"PSP15 Shares") into cash and/or shares of Common Stock ($.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 PSP14 Share and PSP15 Share as to which a cash election
has been made in accordance with the provisions of Sec tion 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 $21.73 and $21.99, 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 PSP14 Share and PSP15 Share (other than Cash
Election Shares and PSP14 and PSP15 Shares owned by PSI) shall be converted into
that number of PSI Shares equal to, rounded to the nearest thousandth, the
quotient (the "Conversion Number") derived by dividing $21.73 and $21.99,
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 PSP14 and PSP15, 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 PSP14 and PSP15
Shares who would other wise be entitled to such fractional share will, upon
surrender of the certificate representing such PSP14 and PSP15 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
Combined Proxy Statement and Prospectus provided for in Section 6.5 hereof, PSI
will send to each holder of record of PSP14 and PSP15 Shares at the record date
for PSP14 and PSP15 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 PSP14 or PSP15 Shares. Any such election to receive
the cash payment contemplated by Section 2.3.1 hereof shall have been properly
made only if American Stock Transfer & Trust Company (the "Depositary") 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 accompa nied 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
Depositary only by written notice received by the Depositary 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 Depositary 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 PSP14 and PSP15
Shares to which such Form of Election relates shall be promptly returned to the
person submitting the same to the Depositary. The Depositary 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 Depositary determines that any election to receive cash was not
properly or timely made, the PSP14 and PSP15 Shares covered thereby shall not be
treated as Cash Election Shares, and shall be converted in the Mergers as
provided in Section 2.3.2 hereof. The
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Depositary may, with the agreement of PSI, PSP14 and PSP15, 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 PSP14 Shares. If the aggregate number of
Cash Election Shares and Dissenting Shares (as defined below) of PSP14 is 20% or
less than the number of PSP14 Shares outstanding as of the record date for the
meeting of shareholders of PSP14 referred to in Section 6.2, then each Cash
Election Share of PSP14 shall be converted in the Mergers into the right to
receive the Cash Election Price for PSP14 Shares.
2.6.2 No Proration of PSP15 Shares. If the aggregate number of
Cash Election Shares and Dissenting Shares (as defined below) of PSP15 is 20% or
less than the number of PSP15 Shares outstanding as of the record date for the
meeting of shareholders of PSP15 referred to in Section 6.2, then each Cash
Election Share of PSP15 shall be converted in the Mergers into the right to
receive the Cash Election Price for PSP15 Shares.
2.6.3 Proration of PSP14 Shares. If the aggregate number of Cash
Election Shares and Dissenting Shares of PSP14 exceeds 20%, then each Cash
Election Share of PSP14 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 PSP14 owned by a holder of PSP14 Shares that shall be converted into the
right to receive the Cash Election Price for PSP14 Shares shall equal the number
obtained by multiplying (i) (A) 20% of outstanding PSP14 Shares less (B) the
number of Dissenting Shares (as hereinafter defined) of PSP14, 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 PSP14. 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 PSP14 to receive the Cash Election Price for PSP14
Shares even if the aggregate number of Cash Election Shares and Dissenting
Shares of PSP14 exceeds 20% (but not 50%) of the number of PSP14 Shares
outstanding as of the record date for the meeting of shareholders of PSP14
referred to in Section 6.2.
2.6.4 Proration of PSP15 Shares. If the aggregate number of Cash
Election Shares and Dissenting Shares of PSP15 exceeds 20%, then each Cash
Election Share of PSP15 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 PSP15 owned by a holder of PSP15 Shares that shall be converted into the
right to receive the Cash Election Price for PSP15 Shares shall equal the number
obtained by multiplying (i) (A) 20% of outstanding PSP15 Shares less (B) the
number of Dissenting Shares (as hereinafter defined) of PSP15, 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 PSP15. 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 PSP15 to receive the Cash Election Price for PSP15
Shares even if the aggregate number of Cash Election Shares and Dissenting
Shares of PSP15 exceeds 20% (but not 50%) of the number of PSP15 Shares
outstanding as of the record date for the meeting of shareholders of PSP15
referred to in Section 6.2.
2.7 Dissenting Shares. PSP14 and PSP15 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
PSP14 or PSP15 Shares pursuant to these provisions of the GCLC shall receive
payment therefor from the Surviving Corporation in accordance therewith. If any
holder of PSP14 or PSP15 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 PSP14 or PSP15 Shares, such PSP14 or PSP15
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 PSP14 and PSP15 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 PSP14 and PSP15 Shares which
were converted into PSI Shares pursuant hereto, upon surrender of such
certificate to The First National Bank of Boston (the "Exchange Agent") or such
other agent or agents as shall be appointed by the Surviving Corporation, shall
be entitled to receive a certificate representing the number of whole PSI Shares
into which the PSP14 and PSP15 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 PSP14
and PSP15 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 PSP14 and PSP15 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 PSP14 or PSP15 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 PSP14 or PSP15 Shares
evidenced thereby were converted. However, until such outstanding certificates
formerly evidencing PSP14 or PSP15 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 PSP14 or PSP15 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
frac tional 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 PSP14 and PSP15 Shares on the records of
PSP14 and PSP15, 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.
2.13 Conversion of Common Stock Series B and C. At the Effective
Time, subject to Section 6.8 hereof, each share of (i) Common Stock Series B and
C ($.01 par value) of PSP14 and (ii) Common Stock Series B and C ($.01 par
value) of PSP15 (in each case, other than shares owned by PSI) shall be
converted into that number of PSI Shares equal to, rounded to the nearest
thousandth, the quotient derived by dividing $16.07 and $12.63, respectively, by
the average per share closing prices on the NYSE of PSI Shares during the 20
consecutive trading days ending on the fifth trading day prior to the meeting of
shareholders of PSP14 and PSP15, 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, such conversion number will be appropriately
adjusted to reflect such action. At the Effective Time, any Common Stock Series
B and C of PSP14 and PSP15 owned by PSI shall be cancelled and retired and no
shares shall be issuable with respect thereto.
3. Closing.
3.1 Time and Place of Closing. If this Agreement is approved by the
shareholders of PSP14 or PSP15, 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."
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3.2 Execution and Filing of Merger Agreement. At or before the
Closing and after shareholder approval of PSP14 or PSP15, 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 PSP14 and PSP15.
4.1 Representations, Warranties and Agreements of PSP14. PSP14
represents, warrants and agrees with PSI that:
4.1.1 Authorization. Subject to approval of this Agreement by the
shareholders of PSP14, (i) the execution, delivery and performance of this
Agreement by PSP14 has been duly authorized and approved by all necessary
corporate action of PSP14, and (ii) PSP14 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. PSP14 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 PSP14. PSP14 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 PSP14
consists solely of (i) 3,569,024 shares of Common Stock Series A ($.01 par
value), 2,263,218 of which were issued and outstanding as of November 30, 1996,
(ii) 232,762 shares of Common Stock Series B ($.01 par value), all of which were
issued and outstanding as of November 30, 1996 and (iii) 659,494 shares of
Common Stock Series C ($.01 par value), all of which were issued and outstanding
as of November 30, 1996. All of the issued and outstanding shares of Common
Stock Series A, B and C of PSP14 have been duly and validly authorized and
issued, and are fully paid and nonassessable. There are no options or
agreements to which PSP14 is a party or by which it is bound calling for or
requiring the issuance of any of PSP14's capital stock, except that the shares
of Common Stock Series B and C are convertible into shares of Common Stock
Series A in accordance with PSP14's Articles of Incorporation.
4.1.4 Consents and Approvals; No Violation. Assuming approval of
the Mergers and of this Agreement by the shareholders of PSP14, neither the
execution and delivery of this Agreement nor the consummation by PSP14 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 PSP14 is authorized to do
business, (D) in connection with any state or local tax which is attributable to
the beneficial ownership of PSP14'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 PSP14
or adversely affect the ability of PSP14 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, cancella tion or
acceleration) under any of the terms, conditions or provisions of any note,
license, mortgage, agreement or other instrument or obligation to which PSP14 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 PSP14 or adversely affect the ability of PSP14 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
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timely obtained or made, violate any order, writ, injunction, decree, statute,
rule or regulation applicable to PSP14 or its properties or assets, except for
violations which would not in the aggregate have a material adverse effect on
PSP14 or adversely affect the ability of PSP14 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 PSP14, threatened against
PSP14 or involving any of its properties or assets.
4.1.6 SEC Reports. Since January 1, 1993, PSP14 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 "PSP14 SEC Reports").
None of the PSP14 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.
4.1.7 Financial Statements. The financial statements included in
the PSP14 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 PSP14 as of their respective dates, and the results of operations of PSP14
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,
1996, the business of PSP14 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 Combined Proxy Statement and
Prospectus. None of the information supplied or to be supplied by PSP14 for
inclusion or incorporation by reference in the S-4 Registration Statement or the
Combined 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 Combined Proxy Statement and Prospectus, at the time of the
mailing of the Combined Proxy Statement and Prospectus and at the time of the
meetings of the shareholders of PSP14 and PSP15, 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 PSP14 is currently in
full force and effect and PSP14 has reported all claims and occurrences to the
extent required by such insurance.
4.1.11 Disclosure. The representations and warranties by PSP14 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 PSP15. PSP15
represents, warrants and agrees with PSI that:
4.2.1 Authorization. Subject to approval of this Agreement by the
shareholders of PSP15, (i) the execution, delivery and performance of this
Agreement by PSP15 has been duly authorized and approved by
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all necessary corporate action of PSP15, and (ii) PSP15 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. PSP15 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 PSP15. PSP15 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 PSP15
consists solely of (i) 3,569,024 shares of Common Stock Series A ($.01 par
value), 2,136,885 of which were issued and outstanding as of November 30, 1996,
(ii) 232,762 shares of Common Stock Series B ($.01 par value), all of which were
issued and outstanding as of November 30, 1996 and (iii) 659,494 shares of
Common Stock Series C ($.01 par value), all of which were issued and outstanding
as of November 30, 1996. All of the issued and outstanding shares of Common
Stock Series A, B and C of PSP15 have been duly and validly authorized and
issued, and are fully paid and nonassessable. There are no options or
agreements to which PSP15 is a party or by which it is bound calling for or
requiring the issuance of any of PSP15's capital stock, except that the shares
of Common Stock Series B and C are convertible into shares of Common Stock
Series A in accordance with PSP15's Articles of Incorporation.
4.2.4 Consents and Approvals; No Violation. Assuming approval of
the Mergers and of this Agreement by the shareholders of PSP15, neither the
execution and delivery of this Agreement nor the consummation by PSP15 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 PSP15 is authorized to do
business, (D) in connection with any state or local tax which is attributable to
the beneficial ownership of PSP15'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 PSP15
or adversely affect the ability of PSP15 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, cancella tion or
acceleration) under any of the terms, conditions or provisions of any note,
license, mortgage, agreement or other instrument or obligation to which PSP15 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 PSP15 or adversely affect the ability of PSP15 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 PSP15 or its
properties or assets, except for violations which would not in the aggregate
have a material adverse effect on PSP15 or adversely affect the ability of PSP15
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 PSP15, threatened against
PSP15 or involving any of its properties or assets.
4.2.6 SEC Reports. Since January 1, 1993, PSP15 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 "PSP15 SEC Reports"). None of the PSP15 SEC Reports,
including without limitation any financial statements or schedules included
therein, at the time filed
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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 PSP15 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 PSP15 as of their respective dates, and the results of operations of PSP15
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,
1996, the business of PSP15 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.
4.2.9 S-4 Registration Statement and Combined Proxy Statement and
Prospectus. None of the information supplied or to be supplied by PSP15 for
inclusion or incorporation by reference in the S-4 Registration Statement or the
Combined 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 Combined Proxy Statement and Prospectus, at the time of the
mailing of the Combined Proxy Statement and Prospectus and at the time of the
meetings of the shareholders of PSP14 and PSP15, 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 PSP15 is currently in
full force and effect and PSP15 has reported all claims and occurrences to the
extent required by such insurance.
4.2.11 Disclosure. The representations and warranties by PSP15 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 PSP14 and PSP15 that:
5.1 Authorization. The execution, delivery and performance of this
Agreement by PSI have been duly authorized and approved by all necessary
corporate action of PSI, and PSI has all necessary corporate power and authority
to enter into this Agreement, to perform its obligations hereunder and to
complete the transactions contemplated hereby.
5.2 Organization and Related Matters. PSI is a corporation duly
organized, existing and in good standing under the laws of the State of
California, with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as and where now owned,
leased, operated or carried on, as the case may be; and is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business carried on by it requires such qualification and where the failure to
so qualify would have a material adverse effect on the business, properties,
results of operations or financial condition of PSI.
5.3 Capital Stock. The authorized capital stock of PSI consists solely
of (i) 200,000,000 shares of Common Stock ($.10 par value), 84,411,391 of which
were issued and outstanding as of September 30, 1996, (ii) 7,000,000 shares of
Class B Common Stock ($.10 par value), all of which were issued and outstanding
as of
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September 30, 1996 and (iii) 50,000,000 shares of Preferred Stock ($.10 par
value), 13,441,180 of which were issued and outstanding as of September 30,
1996. 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. The issuance of the PSI Shares in the Mergers has 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 sharehold ers of PSI have no preemptive rights with
respect to any shares of capital stock of PSI.
5.4 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement nor the consummation by PSI of the transactions
contemplated hereby will: (i) conflict with or result in any breach of any
provision of its Articles of Incorporation or Bylaws; (ii) require any consent,
waiver, approval, authorization or permit of, or filing with or notification to,
any governmental or regulatory authority, except (A) in connection with the
applicable requirements, if any, of the HSR Act, (B) pursuant to the applicable
requirements of the federal securities laws and the rules and regulations
promulgated thereunder, (C) the filing of the Merger 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 the real property of PSP14 and PSP15, (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.
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5.9 S-4 Registration Statement and Combined 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
Combined 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 Combined Proxy Statement and Prospectus, at the time of the
mailing of the Combined Proxy Statement and Prospectus and at the time of the
meetings of the shareholders of PSP14 and PSP15, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
5.10 Insurance. All material insurance of PSI is currently in full
force and effect and PSI has reported all claims and occurrences to the extent
required by such insurance.
5.11 Disclosure. The representations and warranties by PSI in this
Agreement and any certificate or document delivered by it pursuant hereto do not
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
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,
PSP14 and PSP15 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.
PSP14 and PSP15 will not issue any capital stock or debt securities convertible
into capital stock. PSI, PSP14 and PSP15 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. PSP14 and PSP15 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 PSP14, the affirmative vote of a majority
of the outstanding shares of Common Stock Series A, B and C of PSP14, counted
together as a single class with the shares of Common Stock Series B and C voted
with the holders of a majority of the unaffiliated shares of Common Stock Series
A; and (ii) in the case of PSP15, the affirmative vote of a majority of the
outstanding shares of Common Stock Series A, B and C of PSP15, counted together
as a single class with the shares of Common Stock Series B and C voted with the
holders of a majority of the unaffiliated shares of Common Stock Series A.
6.3 Tax Reporting. Each of PSI, PSP14 and PSP15 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. PSP14 and PSP15 will not initiate, solicit
or encourage, directly or indirectly, any inquiries or the making of any
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving PSP14 or PSP15, 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 respective Board of Directors on behalf of
PSP14 or PSP15 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 PSP14 or PSP15 to breach their fiduciary duty to the
shareholders of the respective corporation under applicable law
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as advised by counsel. PSP14 and PSP15 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 PSP14 or PSP15, 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. PSP14 and PSP15 will promptly
prepare and file with the SEC a combined preliminary proxy statement in
connection with the vote of shareholders of PSP14 and PSP15 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 combined 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 PSP14 and PSP15 Shares in the
Mergers (such combined 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 PSP14 and PSP15, being herein called the "Combined Proxy
Statement and Prospectus"). PSI, PSP14 and PSP15 will use their 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 PSP14 and PSP15 will each use
its best efforts to cause the Combined Proxy Statement and Prospectus to be
mailed to its respective shareholders at the earliest practicable date. PSP14
and PSP15 agree that if at any time prior to the Effective Time any event with
respect to PSP14 and PSP15, respectively, should occur which is required to be
described in an amendment of, or a supplement to, the Combined 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 PSP14 and PSP15 and
(ii) the Combined Proxy Statement and Prospectus will (with respect to PSP14 and
PSP15) 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 Combined 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 PSP14 and PSP15
and (ii) the Combined 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, PSP14 and PSP15 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 PSP14 Distributions. PSP14 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
$.34 per share, (ii) distributions to shareholders of record immediately prior
to the Effective Time in an aggregate amount equal to the amount by which the
estimated Net Asset Value of PSP14 (as defined below) allocable to the
respective shareholders as of the Effective Time exceeds $21.73 per share in the
case of the PSP14 Shares and $16.07 per share in the case of the PSP14 Common
Stock Series B and C and (iii) pre-Mergers cash distributions required to
satisfy PSP14'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 PSP14 is the sum of (a) the fair market
value of PSP14's real estate assets as determined by appraisal by Charles R.
Wilson & Associates, Inc. as of October 31, 1996, and (b) the book value of
PSP14's non-real estate assets as of the date of determination, and less (c)
PSP14's liabilities as of the date of
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determination. The determination of book value and liabilities shall be from
PSP14's financial statements prepared in accordance with generally accepted
accounting principles on a basis consistent with prior periods.
6.8.2 PSP15 Distributions. PSP15 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
$.30 per share, (ii) distributions to shareholders of record immediately prior
to the Effective Time in an aggregate amount equal to the amount by which the
estimated Net Asset Value of PSP15 (as defined below) allocable to the
respective shareholders as of the Effective Time exceeds $21.99 per share in the
case of the PSP15 Shares and $12.63 per share in the case of the PSP15 Common
Stock Series B and C and (iii) pre-Mergers cash distributions required to
satisfy PSP15'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 PSP15 is the sum of (a) the fair market
value of PSP15's real estate assets as determined by appraisal by Charles R.
Wilson & Associates, Inc. as of October 31, 1996, and (b) the book value of
PSP15's non-real estate assets as of the date of determination, and less (c)
PSP15's liabilities as of the date of determination. The determination of book
value and liabilities shall be from PSP15's financial statements prepared in
accordance with generally accepted accounting principles on a basis consistent
with prior periods.
7. Conditions.
7.1 Conditions to Each Party's Obligations. The respective obligations
of each party to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Closing of each of the following
conditions, any or all of which may be waived in whole or in part, to the extent
permitted by applicable law:
7.1.1 PSP14 and PSP15 Shareholder Approval. This Agreement and
the transactions contemplated hereby shall have been duly approved by the
shareholders of PSP14 and PSP15 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, PSP14 or PSP15.
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 PSP14 and
PSP15 shall have received the opinion of Robert A. Stanger & Co., Inc. in form
and substance satisfactory to them to the effect that the
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consideration to be received by the shareholders of PSP14 and PSP15 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, PSP14 and
PSP15 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.
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 PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15 as PSI may reasonably request in
connection with the Closing, including upon request a certificate satisfactory
to it of the Chief Executive Officer and the Chief Financial Officer of PSP14
and PSP15, to the effect that, to the best of their knowledge, all
representations and warranties of PSP14 and PSP15 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 PSP14 and PSP15 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 PSP14 and PSP15.
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
PSP14 and PSP15 provided for in Section 6.2 hereof (the "Average PSI Share
Price") shall be not less than $24.
7.2.5 Dissenting Shares. The number of Dissenting Shares shall be
less than 5% of the outstanding PSP14 Shares in the case of PSP14 and less than
5% of the outstanding PSP15 Shares in the case of PSP15.
7.3 Conditions to Obligations of PSP14 and PSP15. The obligations of
PSP14 and PSP15 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 PSP14 and PSP15 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. PSP14 and PSP15 shall have
received such certificates of officers of PSI as PSP14 and PSP15 may reasonably
request in connection with the Closing, including upon request a certificate
satisfactory to them of the Chief Executive Officer and the Chief Financial
Officer of PSI, to the effect
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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. The merger of PSP14 into PSI and the merger of
PSP15 into PSI are not conditioned on the others. 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.
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, PSP14 or
PSP15.
8.2 Termination by PSI, PSP14 or PSP15. This Agreement may be
terminated and the Mergers may be abandoned by action of the Board of Directors
of PSI, PSP14 or PSP15 if (i) the Mergers shall not have been consummated by
December 31, 1997 (provided that the right to terminate this Agreement under
this Section 8.2(i) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of or resulted in the
failure of the 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) (A) the shareholders of PSP14, in the case of the
merger of PSP14 into PSI, or (B) the shareholders of PSP15, in the case of the
merger of PSP15 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) PSP14 or PSP15 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 PSP14 or PSP15 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 PSP14 or PSP15. This Agreement may be terminated by
PSP14 or PSP15 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.
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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, PSP14 and
PSP15 shall pay its own expenses, except that any expenses incurred in
connection with the printing of the S-4 Registration Statement and the Combined
Proxy Statement and Prospectus, the real estate appraisals and environmental
audits of the properties of PSP14 and PSP15 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 and the
balance by PSP14 and PSP15 in equal shares.
9.2 Survival of Representations, Warranties and Covenants. The
respective representations and warranties of PSI, PSP14 and PSP15 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 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:
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If to PSI:
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Attention: Harvey Lenkin
President
If to PSP14:
Public Storage Properties XIV, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Attention: B. Wayne Hughes
Chief Executive Officer
If to PSP15:
Public Storage Properties XV, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
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
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confirm, of record or otherwise, in the Surviving Corporation, title to any
property or rights of PSP14 or PSP15, the officers of any Constituent
Corporation are fully authorized in the name of PSP14 or PSP15 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 XIV, INC.
By: /s/ B. WAYNE HUGHES
-------------------
B. Wayne Hughes
Chief Executive Officer
PUBLIC STORAGE PROPERTIES XV, INC.
By: /s/ B. WAYNE HUGHES
-------------------
B. Wayne Hughes
Chief Executive Officer
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<PAGE>
Exhibit A to
Appendix A
----------
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is entered into as of this
_____ day of _______________, 1997, by and between PUBLIC STORAGE, INC., a
California corporation ("PSI"), and [PUBLIC STORAGE PROPERTIES XIV, INC., a
California corporation ("PSP14") and PUBLIC STORAGE PROPERTIES XV, INC., a
California corporation ("PSP15")], with reference to the following:
A. PSI was incorporated in 1980 under the laws of California, and on
the date hereof its authorized capital stock consists of 200,000,000 shares of
Common Stock, $.10 par value (the "PSI Shares"), ___________ of which are issued
and outstanding, 7,000,000 shares of Class B Common Stock, $.10 par value, all
of which are issued and outstanding, 50,000,000 shares of Preferred Stock, $.01
par value, ___________ of which are issued and outstanding and 200,000,000
shares of Equity Stock, $.01 par value, none of which are issued and
outstanding.
B. __________ was incorporated in 1990 under the laws of California,
and on the date hereof has outstanding __________ shares of Common Stock Series
A, $.01 par value (the "_____ Shares"), _________ shares of Common Stock Series
B and _________ shares of Common Stock Series C.
C. PSI, PSP14 and PSP15 have entered into an Agreement and Plan of
Reorganization dated as of December 5, 1996 (the "Plan"), setting forth certain
representations, warranties, conditions and agreements pertaining to the Merger
(as defined below).
D. The Boards of Directors of PSI and __________ 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.
E.A-1
<PAGE>
(b) The Articles of Incorporation and the Bylaws of PSI,
as then amended, shall continue to be the Articles of Incorporation and the
Bylaws of the Surviving Corporation until changed as provided by law and their
respective provisions.
(c) The directors of PSI shall continue as directors of
the Surviving Corporation until their successors are elected and qualified as
provided by law and in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation.
ARTICLE II
----------
2.1 CONVERSION OF __________ 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 and
__________ Shares owned by PSI) 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.
E.A-2
<PAGE>
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 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.
2.9 CONVERSION OF COMMON STOCK SERIES B AND C. At the Effective
Time, each share of Common Stock Series B (other than shares owned by PSI) shall
be converted into ______ PSI Shares and each share of Common Stock Series C
(other than shares owned by PSI) shall be converted into ______ PSI Shares.
ARTICLE III
-----------
3.1 HEADINGS. The descriptive headings contained in the
Sections of this Agreement are for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
3.2 PARTIES IN INTEREST. This Agreement, and the rights,
interests and obligations created by this Agreement, shall bind and inure to the
benefit of the parties and their respective successors and permitted assigns.
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.
E.A-3
<PAGE>
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.
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
Assistant Secretary
[PUBLIC STORAGE PROPERTIES XIV, INC.
or
PUBLIC STORAGE PROPERTIES XV, INC.]
By: ________________________________
Harvey Lenkin
President
By: ________________________________
Obren B. Gerich
Secretary
E.A-4
<PAGE>
APPENDIX B-1
[LETTERHEAD OF CHARLES R. WILSON & ASSOCIATES, INC.]
November 15, 1996
PUBLIC STORAGE PROPERTIES XIV, INC., and
PUBLIC STORAGE, INC.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Re: Market Value Appraisal
14-Property Portfolio
Job File No. 960275
<TABLE>
<C> <S> <C>
Self-Storage
- ------------
01401 4400 Backlick Road Annandale, VA
01402 8801 West Freeway Fort Worth, TX
01404 175 Curtner Avenue Campbell, CA
01405 1150 S Idalia Street Aurora, CO
01406 115 Capitola Extension Santa Cruz, CA
01407 4305 LaFayette Road Indianapolis, IN
01408 4350 S East Street Indianapolis, IN
01409 47 Broad Hollow Road Farmingdale, NY
01410 1510 Spring Hill Road McLean, VA
01411 17300 Newhope Street Fountain Valley, CA
01412 2105 Winsted Drive Dallas, TX
01413 3415 Broad River Road-B Columbia, SC
Business Park
- -------------
01403 350 Crewshaw Boulevard Torrance, CA
01414 31 Airport Boulevard South San Francisco, CA
</TABLE>
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 and Leased Fee 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 of Public Storage Properties XIV,
Inc., (PSP 14) and Public Storage, Inc. (PSI).
<PAGE>
Market Value Appraisal
PUBLIC STORAGE PROPERTIES XIV, INC.
Page -2-
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 PSP 14 and 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 and Leased
Fee Market Value of the Portfolio, as of October 31, 1996, is:
SIXTY TWO MILLION DOLLARS
--------------------------
($62,000,000)
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 XIV, INC., 14-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 14 separate locations in 7 states and are
specifically identified by street address below:
<TABLE>
<CAPTION>
Net No.
Rentable SF Units
----------- -----
<C> <S> <C> <C>
Self-Storage
- -------------
01401 4400 Backlick Road, Annandale, VA............... 41,690 380
01402 8801 West Freeway, Fort Worth, TX............... 61,925 569
01404 175 Curtner Avenue, Campbell, CA................ 86,350 742
01405 1150 S Idalia Street, Aurora, CO................ 72,125 489
01406 115 Capitola Extension, Santa Cruz, CA.......... 42,685 406
01407 4305 LaFayette Road, Indianapolis, IN........... 59,550 502
01408 4350 S East Street, Indianapolis, IN............ 59,350 505
01409 47 Broad Hollow Road, Farmingdale, NY........... 52,360 517
01410 1510 Spring Hill Road, McLean, VA............... 116,025 1,217
01411 17300 Newhope Street, Fountain Valley, CA....... 70,665 521
01412 2105 Winsted Drive, Dallas, TX.................. 71,280 832
01413 3415 Broad River Road-B, Columbia, SC........... 13,750 159
Business Park
- -------------
01403 350 Crenshaw Boulevard, Torrance, CA........... 111,820 55
01414 31 Airport Boulevard, South San Francisco, CA... 51,417 40
</TABLE>
PURPOSE, FUNCTION AND SCOPE OF THE APPRAISAL
The purpose of this appraisal is to estimate the Fee Simple and Leased Fee
Market Value of the portfolio and to present a summary of conclusions.
The function of this appraisal is for use only by our clients, PSP 14 and PSI,
and their advisors in connection with the proposed merger of PSP 14 with and
into PSI.
The scope of this assignment is in accordance with an agreement between Charles
R. Wilson & Associates, Inc., and PSP 14 and PSI. 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.
. Demographic information including population trends, household income,
employment, average housing prices and rental rates was obtained from
Scan/US Inc.
. 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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-Property Portfolio
. 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 12 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 20 years. Surveying self storage
investor's criteria is an ongoing function of Charles R. Wilson &
Associates, Inc., and SSDS, Inc. In addition, specific individual and
multiple-property transactions involving Public Storage Inc., which are
currently under contract or consummated within the past 12 months were
reviewed.
. The Sales Comparison Approach is based on 140 sales of self storage
facilities which have occurred in 1996.
. Projects 01403 and 01414 are business parks. Rental income and expense
information was 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 and Leased Fee Estates.
Due to the short-term, month-to-month tenancies, and the fact that rents are at
market levels, a Fee Simple Interest is appropriate for the 12 operating self
storage facilities. The Leased Fee Interest is appropriate for the 2 business
parks which are subject to short term leases.
According to the Appraisal Institute, Dictionary of Real Estate Appraisal, 3rd
Edition, 1993,
"Fee Simple Estate" is defined on page 140 as: "Absolute ownership
unencumbered by any other interest or estate; subject only to the
limitations of governmental powers of taxation, eminent domain, police
power, and, escheat."
"Leased Fee Estate" is defined on page 140 as: "An ownership interest held
by a landlord with the rights of use and occupancy conveyed by lease to
others."
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;
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-Property Portfolio
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 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 or business park. 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 the facilities.
Inspections were made of each property and interviews with property management
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
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-Property Portfolio
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 Yield Capitalization. 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 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.
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 September 31, 2006 was prepared. Using the investment criteria discussed
above, the income and expenses were increased between 3% and 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 11th year income at a terminal capitalization rate of 10% 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 12.25% and
12.75%.
A ten-year discounted cash flow analysis of the business parks (PSI Projects
01403 and 01414), ending in September 2006 was also prepared. Using the
investment criteria discussed above, an escalation rate of 3% was used to grow
both income and expenses. Real estate taxes were adjusted to reflect projected
taxes after a re-evaluation transaction and subsequently escalated at 2% per
annum. The residual values were determined by capitalizing the 11th year income
at a terminal capitalization rate of 11% for Project 01403 and 10.25% for
Project 01414 and then deducting 3% for sales costs. The yearly cash flows and
the properties' residual values were discounted to present worth using an
unleveraged discount rate of 12.75% for Project 01403 and 12.25% for Project
01414.
The indicated value of the self storage portion of the portfolio based upon the
Income Approach is $52,330,000. The indicated value of the business parks based
upon the Income Approach was $9,130,000. Thus, the total value of the portfolio
by the Income Approach is $61,460,000.
Sales Comparison Approach
- -------------------------
In the Sales Comparison Approach, we relied most heavily upon an analysis of 140
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 of the self storage facilities ranged
between $50,990,000 and $56,240,000 rounded.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-Property Portfolio
The Sales Comparable Approach used to value the business parks was based upon
the recent transfer of comparable business parks. Each sale was inspected and
adjustments were taken into consideration for differences in time, location and
physical characteristics. The indicated value of the portfolio's business
parks, based upon a Sales Comparison Approach, was $9,130,000.
Thus, adding the value of the self storage facilities and the business park
resulted in a total value of the portfolio ranging between $59,920,000 and
$65,170,000.
Value Conclusion
- ----------------
Although 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. We reconciled our value conclusions from both approaches (Income
and Sales Comparison) into our final value conclusion of $62,000,000.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-Property Portfolio
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.
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 CRA 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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-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 XIV, Inc., (PSP 14) and Public
Storage Inc. 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. It is further
assumed that there are no new or planned facilities which would negatively
impact any of the portfolios properties.
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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-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 XIV, 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, November 15, 1996, 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 September and November 1996.
- - 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, November 15, 1996, 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, 1996 in Fee Simple estate is: $62,000,000.
- - The appraisers have extensive experience in appraising properties similar to
the portfolio.
Respectfully submitted,
CHARLES R. WILSON & ASSOCIATES, INC.
/s/ Charles R. Wilson
- -----------------------------------
Charles Ray Wilson, MAI, CRE
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XIV, INC., 14-Property Portfolio
State of California
Certification No. AG002172
<PAGE>
APPENDIX B-2
[LETTERHEAD OF CHARLES R. WILSON & ASSOCIATES, INC.]
November 15, 1996
PUBLIC STORAGE PROPERTIES XV, INC., and
PUBLIC STORAGE, INC.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Re: Market Value Appraisal
19-Property Portfolio
Job File No. 960274
<TABLE>
<C> <S> <C>
Self-Storage
- ------------
01501 5055 S Front Road Livermore, CA
01502 406 N Plano Road Garland, TX
01503 1500 Story Road San Jose, CA
01504 1710 S Abilene Street Aurora, CO
01505 601 Sunset Drive Antioch, CA
01506 2656 Sunrise Boulevard Rancho Cordova, CA
01507 120 Wilbur Cross Highway Berlin, CT
01508 12235 E Whittier Boulevard Whittier, CA
01509 240 Newbury Street Peabody, MA
01510 2100 Blake Street Denver, CO
01511 1920 N Green River Road Evansville, IN
01512 14034 1st Avenue South Seattle, WA
01513 3200 Mather Field Road Rancho Cordova, CA
01514 888 Eldridge Road Sugar Land, TX
01515 4511 Eastland Drive Columbus, OH
01516 140 Black Horse Pike Sicklerville, NJ
01517 11512 Aurora Avenue Seattle, WA
01518/01520 360-70 Christopher Avenue Gaithersburg, MD
01519 440 Tolland Turnpike Manchester, CT
</TABLE>
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 and Leased Fee 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 of Public Storage Properties XV,
Inc., (PSP 15) and Public Storage, Inc. (PSI).
<PAGE>
Market Value Appraisal
PUBLIC STORAGE PROPERTIES XV, INC.
Page -2-
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 PSP 15 and 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 and Leased
Fee Market Value of the Portfolio, as of October 31, 1996, is:
FIFTY SIX MLLION FIVE HUNDRED THOUSAND DOLLARS
----------------------------------------------
($56,500,000)
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 XV, INC., 19-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 19 separate locations in 10 states and are
specifically identified by street address:
<TABLE>
<CAPTION>
Net No.
Rentable SF Units
----------- -----
<C> <S> <C> <C>
Self-Storage
- ------------
01501 5055 S Front Road, Livermore, CA............................. 45,058 412
01502 406 N Plano Road, Garland, TX................................ 59,180 558
01503 1500Story Road, San Jose, CA................................. 76,962 608
01504 1710 S Abilene Street, Aurora, CO............................ 83,370 630
01505 601 Sunset Drive, Antioch, CA................................ 53,272 475
01506 2656 Sunrise Boulevard, Rancho Cordova, CA................... 96,465 885
01507 120 Wilbur Cross Highway, Berlin, CT......................... 67,350 629
01508 12235 E Whittier Boulevard, Whittier, CA..................... 43,540 368
01509 240 Newbury Street, Peabody, MA.............................. 64,925 646
01510 2100 Blake Street, Denver, CO................................ 32,660 405
01511 1920 N Green River Road, Evansville, IN...................... 62,800 505
01512 14034 1st Avenue South, Seattle, WA.......................... 52,075 459
01513 3200 Mather Field Raod, Rancho, Cordova, CA.................. 50,710 460
01514 888 Eldridge Road, Sugar Land, TX............................ 58,400 542
01515 4511 Eastland Drive, Columbus, OH............................ 54,300 469
01516 140 Black Horse Pike, Sicklerville, NJ....................... 41,750 356
01517 11512 Aurora Avenue, Seattle, WA............................. 48,350 559
01518/20 360-70 Christopher Avenue, Gaithersburg, MD (Self Storage)... 39,779 466
(Business Park)........... 28,994 16
01519 440 Tolland Turnpike, Manchester, CT......................... 66,875 565
</TABLE>
PURPOSE, FUNCTION AND SCOPE OF THE APPRAISAL
The purpose of this appraisal is to estimate the Fee Simple and Leased Fee
Market Value of the portfolio and to present a summary of conclusions.
The function of this appraisal is for use only by our clients, PSP 15 and PSI,
and their advisors in connection with the proposed merger of PSP 15 with and
into PSI.
The scope of this assignment is in accordance with an agreement between Charles
R. Wilson & Associates, Inc., and PSP 15 and PSI. 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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-Property Portfolio
. Demographic information including population trends, household income,
employment, average housing prices and rental rates was obtained from
Scan/US Inc.
. 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 12 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. In addition, specific individual and
multiple-property transactions involving Public Storage Inc., which are
currently under contract or consummated within the past 12 months were
reviewed.
. The Sales Comparison Approach is based on 140 sales of self storage
facilities which have occurred in 1996.
. Project 01520 is a business park. Rental income and expense information
was 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 and Leased Fee Estates.
Due to the short-term, month-to-month tenancies, and the fact that rents are at
market levels, a Fee Simple Interest is appropriate for the 19 operating self
storage facilities. The Leased Fee Interest is appropriate for the business
park which is subject to short term leases.
According to the Appraisal Institute, Dictionary of Real Estate Appraisal, 3rd
Edition, 1993,
"Fee Simple Estate" is defined on page 140 as: "Absolute ownership
unencumbered by any other interest or estate; subject only to the
limitations of governmental powers of taxation, eminent domain, police
power, and, escheat."
"Leased Fee Estate" is defined on page 140 as: "An ownership interest
held by a landlord with the rights of use and occupancy conveyed by lease
to others."
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:
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-Property Portfolio
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
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 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 or business park. 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 the facilities.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-Property Portfolio
Inspections were made of each property and interviews with property management
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 Yield Capitalization. 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 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.
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 September 31, 2006 was prepared. Using the investment criteria discussed
above, the income and expenses were increased between 3.0% and 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 of 10% 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 12.25% and 12.75%.
A ten-year discounted cash flow analysis of the business park (PSI Project
01520), ending in September 2006 was also prepared. Using the investment
criteria discussed above, an escalation rate of 3% was used to grow both income
and expenses. Real estate taxes were adjusted to reflect projected taxes after
a re-evaluation transaction and subsequently escalated at 2% per annum. The
residual value was determined by capitalizing the 11th year income at a terminal
capitalization rate of 10.5% and then deducting 3% for sales costs. The yearly
cash flow and the property's residual value was discounted to present worth
using an unleveraged discount rate of 12.5%.
The indicated value of the self storage portion of the portfolio based upon the
Income Approach is $54,160,000. The indicated value of the business park based
upon the Income Approach was $1,550,000. Thus, the total value of the portfolio
by the Income Approach is $55,710,000.
Sales Comparison Approach
- -------------------------
In the Sales Comparison Approach, we analyzed 140 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
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-Property Portfolio
per square foot, using the regression analysis, the indicated value of the self
storage facilities ranged between $51,600,000 to $59,280,000 rounded.
The Sales Comparable Approach used to value the business park was based upon the
recent transfer of comparable business parks. Each sale was inspected and
adjustments were taken into consideration for differences in time, location and
physical characteristics. The indicated value of the portfolio's business park,
based upon a Sales Comparison Approach, was $1,550,000.
Thus, adding the value of the self storage facilities and the business park
resulted in a total value of the portfolio ranging between $53,030,000 and
$60,710,000.
Value Conclusion
- ----------------
Although 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. We reconciled our value conclusions from both approaches (Income
and Sales Comparison) into our final value conclusion of $56,500,000.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-Property Portfolio
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.
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 CRA 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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-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 XV, Inc., (PSP 15) and Public Storage
Inc. 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. It is further
assumed that there are no new or planned facilities which would negatively
impact any of the portfolios properties.
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.
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-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 XV, 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, November 15, 1996, 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 September and November 1996.
- - 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, November 15, 1996, 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, 1996 in Fee Simple estate is: $56,500,000.
- - The appraisers have extensive experience in appraising properties similar to
the portfolio.
Respectfully submitted,
CHARLES R. WILSON & ASSOCIATES, INC.
/s/ Charles R. Wilson
- -----------------------------------
Charles Ray Wilson, MAI, CRE
<PAGE>
Appraisal: PUBLIC STORAGE PROPERTIES XV, INC., 19-Property Portfolio
State of California
Certification No. AG002172
<PAGE>
APPENDIX C-1
[LETTERHEAD OF ROBERT A. STANGER & CO., INC.]
The Special Committee of
The Board of Directors of
Public Storage Properties XIV, Inc.
701 Western Avenue, Suite 200
Glendale, CA 91201
Gentlemen:
We have been advised that Public Storage Properties XIV, Inc. ("PSP14") is
entering into a transaction (the "Transaction") in which PSP14 will be merged
with Public Storage, Inc. ("PSI"), an affiliated, publicly traded real estate
investment trust. In the Transaction, the shareholders of PSP14 will be asked
to approve the merger of PSP14 into PSI and the conversion of outstanding shares
of PSP14 Common Stock Series A, other than shares held by Series A shareholders
of PSP14 who have properly exercised dissenters rights under California law
("Dissenting Shares"), Series B and Series C into newly issued shares of PSI
Common Stock or, at the option of the PSP14 shareholders with respect to up to
20% of the outstanding PSP14 Common Stock Series A less any Dissenting Shares,
cash (collectively, the "Consideration"). We have been further advised that
each share of PSP14 Common Stock Series A, other than Dissenting Shares held by
PSP14 shareholders, will be converted into $21.73 (the net asset value per
Series A share of PSP14 Common Stock based on an independent appraisal of
PSP14'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 PSP14. We also
have been advised that (i) additional distributions will be made to the
shareholders of PSP14 prior to the consummation of the Transaction to the extent
required to cause PSP14's net asset value as of the date of the Transaction to
be substantially equivalent to the estimate of PSP14's net asset value as of
March 31, 1997 contained in the Combined Proxy Statement and Prospectus filed
with the Securities and Exchange Commission dated March 3, 1997, and (ii) if
additional cash distributions are required to satisfy PSP14's REIT distribution
requirements and are paid to PSP14 shareholders prior to the consummation of the
Transaction, the Consideration would be reduced to reflect such additional cash
distributions.
PSP14 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 PSP14 (excluding PSI or its
affiliates), from a financial point of view, of the Consideration to be received
in the Transaction.
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In the course of our review to render this opinion, we have, among other
things:
. Reviewed the Combined Proxy Statement and Prospectus related to the
Transaction and filed with the Securities and Exchange Commission (the
"SEC") on March 3, 1997;
. Reviewed PSP14's and PSI's annual reports to shareholders filed with
the SEC on Form 10-K for the three fiscal years ending December 31,
1993, 1994 and 1995, and PSP14's and PSI's quarterly reports filed
with the SEC on Form 10-Q for the quarter ending September 30, 1996,
which reports PSP14's management and PSI's management have indicated
to be the most current financial statements available;
. Reviewed the MAI-certified portfolio appraisal of the properties owned
by PSP14 dated October 31, 1996 performed by Charles R. Wilson &
Associates, Inc. (the "Appraisal"), and discussed with management of
PSP14 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 PSP14,
and based in part on the Appraisal, of the current net liquidation
value per common share of PSP14's assets and projections of cash flow
from operations, dividend distributions and going-concern values for
PSP14, and the calculation of the allocation of such values among the
PSP14 Shareholders and the holders of PSP14 Common Stock Series B and
C;
. Discussed with members of senior management of PSP14 and PSI
conditions in self-storage property markets, conditions in the market
for sales/acquisitions of properties similar to those owned by PSP14,
current and projected operations and performance, financial condition
and future prospects of PSP14 and PSI;
. Reviewed historical market prices, trading volume and dividends for
PSP14 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 Combined Proxy Statement and Prospectus
or that was furnished or otherwise communicated to us by PSP14 and PSI. We have
not performed an independent appraisal of the assets and liabilities of PSP14 or
PSI and have relied upon and assumed the accuracy of the appraisals
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<PAGE>
performed by Charles R. Wilson & Associates, Inc. We have also relied on the
assurance of PSP14 and PSI that any pro forma financial statements, projections,
budgets, estimates of environmental liability, or value estimates contained in
the Combined Proxy Statement and Prospectus or otherwise provided to us, were
reasonably prepared on bases consistent with actual historical experience and
reflect the best currently available estimates and good faith judgments; that
the allocation of Consideration between the Series A, Series B and Series C
shareholders has been determined by PSP14 in accordance with the provisions of
the Articles of Incorporation of PSP14; 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 PSP14 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 PSP14 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, the impact
of any possible transfer by PSI of its business park properties to a separate
entity, or tax factors resulting from the PSMI Merger or relating to PSI's
continued qualification as a REIT. Our opinion is based on business, economic,
real estate and securities markets, and other conditions as of the date of our
analysis and addresses the Transaction in the context of information available
as of the date of our analysis. Events occurring after that date may materially
affect the assumptions used in preparing the opinion.
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that as of the date of this letter the Consideration to be received in
the Transaction is fair to the public shareholders of PSP14 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 PSP14 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
March 3, 1997
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APPENDIX C-2
[LETTERHEAD OF ROBERT A. STANGER & CO., INC.]
The Special Committee of
The Board of Directors of
Public Storage Properties XV, Inc.
701 Western Avenue, Suite 200
Glendale, CA 91201
Gentlemen:
We have been advised that Public Storage Properties XV, Inc. ("PSP15") is
entering into a transaction (the "Transaction") in which PSP15 will be merged
with Public Storage, Inc. ("PSI"), an affiliated, publicly traded real estate
investment trust. In the Transaction, the shareholders of PSP15 will be asked
to approve the merger of PSP15 into PSI and the conversion of outstanding shares
of PSP15 Common Stock Series A, other than shares held by Series A shareholders
of PSP15 who have properly exercised dissenters rights under California law
("Dissenting Shares"), Series B and Series C into newly issued shares of PSI
Common Stock or, at the option of the PSP15 shareholders with respect to up to
20% of the outstanding PSP15 Common Stock Series A less any Dissenting Shares,
cash (collectively, the "Consideration"). We have been further advised that
each share of PSP15 Common Stock Series A, other than Dissenting Shares held by
PSP15 shareholders, will be converted into $21.73 (the net asset value per
Series A share of PSP15 Common Stock based on an independent appraisal of
PSP15'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 PSP15. We also
have been advised that (i) additional distributions will be made to the
shareholders of PSP15 prior to the consummation of the Transaction to the extent
required to cause PSP15's net asset value as of the date of the Transaction to
be substantially equivalent to the estimate of PSP15's net asset value as of
March 31, 1997 contained in the Combined Proxy Statement and Prospectus filed
with the Securities and Exchange Commission dated March 3, 1997, and (ii) if
additional cash distributions are required to satisfy PSP15's REIT distribution
requirements and are paid to PSP15 shareholders prior to the consummation of the
Transaction, the Consideration would be reduced to reflect such additional cash
distributions.
PSP15 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 PSP15 (excluding PSI or its
affiliates), from a financial point of view, of the Consideration to be received
in the Transaction.
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In the course of our review to render this opinion, we have, among other
things:
. Reviewed the Combined Proxy Statement and Prospectus related to the
Transaction and filed with the Securities and Exchange Commission (the
"SEC") on March 3, 1997;
. Reviewed PSP15's and PSI's annual reports to shareholders filed with
the SEC on Form 10-K for the three fiscal years ending December 31,
1993, 1994 and 1995, and PSP15's and PSI's quarterly reports filed
with the SEC on Form 10-Q for the quarter ending September 30, 1996,
which reports PSP15's management and PSI's management have indicated
to be the most current financial statements available;
. Reviewed the MAI-certified portfolio appraisal of the properties owned
by PSP15 dated October 31, 1996 performed by Charles R. Wilson &
Associates, Inc. (the "Appraisal"), and discussed with management of
PSP15 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 PSP15,
and based in part on the Appraisal, of the current net liquidation
value per common share of PSP15's assets and projections of cash flow
from operations, dividend distributions and going-concern values for
PSP15, and the calculation of the allocation of such values among the
PSP15 Shareholders and the holders of PSP15 Common Stock Series B and
C;
. Discussed with members of senior management of PSP15 and PSI
conditions in self-storage property markets, conditions in the market
for sales/acquisitions of properties similar to those owned by PSP15,
current and projected operations and performance, financial condition
and future prospects of PSP15 and PSI;
. Reviewed historical market prices, trading volume and dividends for
PSP15 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 Combined Proxy Statement and Prospectus
or that was furnished or otherwise communicated to us by PSP15 and PSI. We have
not performed an independent appraisal of the assets and liabilities of PSP15 or
PSI and have relied upon and assumed the accuracy of the appraisals
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<PAGE>
performed by Charles R. Wilson & Associates, Inc. We have also relied on the
assurance of PSP15 and PSI that any pro forma financial statements, projections,
budgets, estimates of environmental liability, or value estimates contained in
the Combined Proxy Statement and Prospectus or otherwise provided to us, were
reasonably prepared on bases consistent with actual historical experience and
reflect the best currently available estimates and good faith judgments; that
the allocation of Consideration between the Series A, Series B and Series C
shareholders has been determined by PSP15 in accordance with the provisions of
the Articles of Incorporation of PSP15; 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 PSP15 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 PSP15 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, the impact
of any possible transfer by PSI of its business park properties to a separate
entity, or tax factors resulting from the PSMI Merger or relating to PSI's
continued qualification as a REIT. Our opinion is based on business, economic,
real estate and securities markets, and other conditions as of the date of our
analysis and addresses the Transaction in the context of information available
as of the date of our analysis. Events occurring after that date may materially
affect the assumptions used in preparing the opinion.
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that as of the date of this letter the Consideration to be received in
the Transaction is fair to the public shareholders of PSP15 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 PSP15 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
March 3, 1997
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.
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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.
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(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
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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.
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(S) 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
(S) 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization set aside or rescinded, the shareholder
shall not thereafter have any right to demand payment of cash for the
shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10-days prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the reorgani-
zation or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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Appendix E-1
PROPOSED AMENDMENT TO PSP14'S BYLAWS
Add a new subsection (f) to Article IX, Section 8 of the Bylaws of PSP14 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 except as permitted in
Section 2(e) of Article X. 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, and provided further that there
is no difference in interest rates of any loans secured by the property at
the time acquired by PSI or its affiliates and the time acquired by the
corporation, nor any other benefit to PSI or its affiliates arising out of
such transaction other than the compensation permitted in these bylaws.
(b) The corporation shall not sell or lease property to PSI or its
affiliates, other than as permitted in Section 2(e) of Article X, 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 or
Section 2(e) of Article X, 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 PSP15'S BYLAWS
Add a new subsection (f) to Article IX, Section 8 of the Bylaws of PSP15 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 except as permitted in
Section 2(e) of Article X. 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, and provided further that there
is no difference in interest rates of any loans secured by the property at
the time acquired by PSI or its affiliates and the time acquired by the
corporation, nor any other benefit to PSI or its affiliates arising out of
such transaction other than the compensation permitted in these bylaws.
(b) The corporation shall not sell or lease property to PSI or its
affiliates, other than as permitted in Section 2(e) of Article X, 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 or
Section 2(e) of Article X, 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-1
PUBLIC STORAGE PROPERTIES XIV, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
-----------------
<S> <C>
Report of independent auditors F1 - 1
Balance sheets at December 31, 1995 and 1994 F1 - 2
For the years ended December 31, 1995, 1994 and 1993:
Statements of income F1 - 3
Statements of shareholders' equity F1 - 4
Statements of cash flows F1 - 5
Notes to financial statements F1 - 6 - F1 - 9
Condensed balance sheets at September 30, 1996 and December 31, 1995 F1 - 10
Condensed statements of income for the three
and nine months ended September 30, 1996 and 1995 F1 - 11
Condensed statement of shareholders' equity for the
nine months ended September 30, 1996 F1 - 12
Condensed statements of cash flows for the
nine months ended September 30, 1996 and 1995 F1 - 13
Notes to condensed financial statements F1 - 14
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Public Storage Properties XIV, Inc.
We have audited the accompanying balance sheets of Public Storage Properties
XIV, Inc. as of December 31, 1995 and 1994, and the related statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statementss based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Storage Properties XIV,
Inc. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 27, 1996
Los Angeles, California
F1-1
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 949,000 $ 1,540,000
Rent and other receivables 98,000 20,000
Prepaid expenses 329,000 80,000
Real estate facilities at cost:
Building, land improvements and equipment 30,575,000 30,280,000
Land 18,712,000 18,712,000
------------ ------------
49,287,000 48,992,000
Less accumulated depreciation (11,869,000) (10,541,000)
------------ ------------
37,418,000 38,451,000
------------ ------------
Total assets $ 38,794,000 $ 40,091,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 824,000 $ 349,000
Dividends payable 863,000 904,000
Advance payments from renters 322,000 349,000
Shareholders' equity:
Series A common, $.01 par value,
3,569,024 shares authorized,
2,304,218 shares issued and
outstanding (2,423,618 shares
issued and outstanding in 1994) 23,000 24,000
Convertible Series B common, $.01 par
value, 232,762 shares authorized,
issued and outstanding 2,000 2,000
Convertible Series C common, $.01 par
value, 659,494 shares authorized,
issued and outstanding 7,000 7,000
Paid-in-capital 40,941,000 42,997,000
Cumulative income 27,859,000 23,989,000
Cumulative distributions (32,047,000) (28,530,000)
------------ ------------
Total shareholders' equity 36,785,000 38,489,000
------------ ------------
Total liabilities and shareholders' equity $ 38,794,000 $ 40,091,000
============ ============
</TABLE>
See accompanying notes.
F1-2
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $8,448,000 $8,206,000 $7,749,000
Interest income 52,000 25,000 15,000
---------- ---------- ----------
8,500,000 8,231,000 7,764,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 2,251,000 2,155,000 2,141,000
Management fees paid to affiliates 491,000 476,000 449,000
Depreciation and amortization 1,403,000 1,338,000 1,264,000
Administrative 241,000 241,000 252,000
Environmental cost 244,000 - -
Interest expense paid to affiliate - 8,000 -
---------- ---------- ----------
4,630,000 4,218,000 4,106,000
---------- ---------- ----------
NET INCOME $3,870,000 $4,013,000 $3,658,000
========== ========== ==========
Primary earnings per share-Series A $ 1.50 $ 1.52 $ 1.34
========== ========== ==========
Fully diluted earnings per share-Series A $ 1.19 $ 1.21 $ 1.08
========== ========== ==========
Dividends declared per share:
Series A $ 1.36 $ 1.36 $ 1.36
========== ========== ==========
Series B $ 1.36 $ 1.36 $ 1.36
========== ========== ==========
Weighted average Common shares outstanding:
Primary- Series A 2,361,951 2,430,935 2,491,093
========== ========== ==========
Fully diluted- Series A 3,254,207 3,323,191 3,383,349
========== ========== ==========
</TABLE>
See accompanying notes.
F1-3
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
---------- -------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 2,509,568 $25,000 232,762 $2,000 659,494 $7,000
Net income
Repurchase of shares (70,700) (1,000)
Cash distributions declared:
$1.36 per share - Series A
$1.36 per share - Series B
-----------------------------------------------------------------
Balances at December 31, 1993 2,438,868 24,000 232,762 2,000 659,494 7,000
Net income
Repurchase of shares (15,250) -
Cash distributions declared:
$1.36 per share - Series A
$1.36 per share - Series B
-----------------------------------------------------------------
Balances at December 31, 1994 2,423,618 24,000 232,762 2,000 659,494 7,000
Net income
Repurchase of shares (119,400) (1,000)
Cash distributions declared:
$1.36 per share - Series A
$1.36 per share - Series B
-----------------------------------------------------------------
Balances at December 31, 1995 2,304,218 $23,000 232,762 $2,000 659,494 $7,000
=================================================================
<CAPTION>
Cumulative Total
Paid-in Net Cumulative Shareholders'
Capital Income Distributions Equity
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 $44,469,000 $16,318,000 ($21,210,000) $39,611,000
Net income 3,658,000 3,658,000
Repurchase of shares (1,225,000) (1,226,000)
Cash distributions declared:
$1.36 per share - Series A (3,381,000) (3,381,000)
$1.36 per share - Series B (317,000) (317,000)
----------------------------------------------------------------
Balances at December 31, 1993 43,244,000 19,976,000 (24,908,000) 38,345,000
Net income 4,013,000 4,013,000
Repurchase of shares (247,000) (247,000)
Cash distributions declared:
$1.36 per share - Series A (3,305,000) (3,305,000)
$1.36 per share - Series B (317,000) (317,000)
----------------------------------------------------------------
Balances at December 31, 1994 42,997,000 23,989,000 (28,530,000) 38,489,000
Net income 3,870,000 3,870,000
Repurchase of shares (2,056,000) (2,057,000)
Cash distributions declared:
$1.36 per share - Series A (3,201,000) (3,201,000)
$1.36 per share - Series B (316,000) (316,000)
----------------------------------------------------------------
Balances at December 31, 1995 $40,941,000 $27,859,000 ($32,047,000) $36,785,000
================================================================
</TABLE>
See accompanying notes.
F1-4
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,870,000 $ 4,013,000 $ 3,658,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,403,000 1,338,000 1,264,000
(Increase) decrease in rent and
other receivables (78,000) (6,000) 57,000
Increase in prepaid expenses (249,000) - (37,000)
Increase (decrease) in accounts payable 475,000 (78,000) 6,000
(Decrease) increase in advance
payments from renters (27,000) (67,000) 24,000
----------- ----------- -----------
Total adjustments 1,524,000 1,187,000 1,314,000
----------- ----------- -----------
Net cash provided by operating activities 5,394,000 5,200,000 4,972,000
----------- ----------- -----------
Cash flows from investing activities:
Additions to real estate facilities (370,000) (331,000) (433,000)
----------- ----------- -----------
Net cash used in investing activities (370,000) (331,000) (433,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (3,558,000) (3,627,000) (3,722,000)
Advances from affiliate - 750,000 -
Repayment of advances from affiliate - (750,000) -
Purchase of Company Series A common stock (2,057,000) (247,000) (1,226,000)
----------- ----------- -----------
Net cash used in financing activities (5,615,000) (3,874,000) (4,948,000)
----------- ----------- -----------
Net (decrease) increase in
cash and cash equivalents (591,000) 995,000 (409,000)
Cash and cash equivalents at
the beginning of the year 1,540,000 545,000 954,000
----------- ----------- -----------
Cash and cash equivalents at
the end of the year $ 949,000 $ 1,540,000 $ 545,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F1-5
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS
Public Storage Properties XIV, 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 XIV, Ltd. (the "Partnership") in a
reorganization transaction which was effective June 3, 1991 (the
"Reorganization").
The Company owns and operates primarily self-storage facilities and,
to a lesser extent, business park facilities containing commercial or
industrial spaces.
The term of the Company is until all properties have been sold and, in
any event, not later than December 31, 2038. The bylaws of the Company
provide that, during 1997, unless shareholders have previously approved
such a proposal, the shareholders will be presented with a proposal to
approve or disapprove (a) the sale or financing of all or substantially all
of the properties and (b) the distribution of the proceeds from such
transaction and, in the case of a sale, the liquidation of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes:
The Company has and intends to continue to qualify as a REIT, as
defined in Section 856 of the Internal Revenue Code (the Code). As a REIT,
the Company is not taxed on that portion of its taxable income which is
distributed to its shareholders provided that the Company meets the
requirements of the Code. The Company believes it is in compliance with
these requirements and, accordingly, no provision for income taxes has been
made.
Statements of Cash Flows:
For purposes of financial statement presentation, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Real Estate Facilities:
Cost of land includes appraisal and legal fees related to acquisition
and closing costs. Buildings, land improvements and equipment reflect costs
incurred through December 31, 1995 and 1994 to develop primarily mini-
warehouse facilities and to a lesser extent, business park facilities. The
mini-warehouse facilities provide self-service storage spaces for lease,
usually on a month-to-month basis, to the general public. The buildings
and equipment are depreciated on the straight-line basis over estimated
useful lives of 25 and 5 years, respectively. Included in depreciation and
amortization is amortization of tenant improvements on the Company's
business park facilities of $117,000, $85,000 and $36,000 in 1995, 1994,
and 1993, respectively.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("Statement 121"), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt Statement 121 in 1996 and, based on
current circumstances, does not believe the effect of adoption will be
material.
F1-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Real Estate Facilities (continued):
At December 31, 1995, the basis of real estate facilities (excluding
land) for Federal income tax purposes (after adjustment for accumulated
depreciation of $14,576,000) is $14,757,000.
Revenue Recognition:
Property rents are recognized as earned.
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.
Environmental Cost:
Substantially all of the Company's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995,
the Company completed environmental assessments of its properties to
evaluate the environmental condition of, and potential environmental
liabilities of such properties. These assessments were performed by an
independent environmental consulting firm. Based on the assessments, the
Company has expensed, as of December 31, 1995, an estimated $244,000 for
known environmental remediation requirements. Although there can be no
assurance, the Company is not aware of any environmental contamination of
any of its property sites which individually or in the aggregate would be
material to the Company's overall business, financial condition, or results
of operations.
3. RELATED PARTY TRANSACTIONS
In 1995, there were a series of mergers among Public Storage
Management, Inc. (which was the Company's mini-warehouse operator), Public
Storage, Inc. and their affiliates (collectively, PSMI), culminating in the
November 16, 1995 merger (the "PSMI merger") of PSMI into Storage Equities,
Inc. (SEI). In the PSMI merger, Storage Equities, Inc.'s name was changed
to Public Storage, Inc. (PSI). B. Wayne Hughes and members of his family
(the Hughes Family) are the major shareholders of PSI. PSI has a 95%
economic interest and the Hughes family has a 5% economic interest in
Public Storage Commercial Properties Group, Inc. (PSCPG).
The Company has Management Agreements with PSI (as successor-in-
interest to PSMI) and PSCPG. Under the terms of the agreements, PSI
operates the mini-warehouse facilities and PSCPG operates the business park
facilities for fees equal to 6% and 5%, respectively, of the facilities'
monthly gross revenue (as defined).
F1-7
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Each Management Agreement provides that the agreement will expire in
February 2002 provided that in February of each year, commencing February
21, 1996, it shall be automatically extended for one year (thereby
maintaining a seven-year term) unless either party notifies the other that
the Management Agreement is not being extended, in which case it expires,
on the first anniversary of its then scheduled expiration date. Each
Management Agreement may also be terminated by either party for cause, but
if terminated for cause by the Company, the Company retains the rights to
use the service marks and related designs until the then scheduled
expiration date, if applicable, or otherwise a date seven years after such
termination.
In August 1995, the Management Agreement with PSMI was amended to
provide that upon demand from PSI or PSMI made prior to December 15, 1995,
the Company agreed to prepay (within 15 days after such demand) up to 12
months of management fees (based on the management fees for the comparable
period during the calendar year immediately preceding such prepayment)
discounted at the rate of 14% per year to compensate for early payment. In
November 1995, the Company prepaid, to PSI, 8 months of 1996 management
fees at a cost of $248,000. The amount is included in prepaid expenses
in the Balance Sheet at December 31, 1995 and will be amortized as
management fee expense in 1996.
In January 1994, the Company borrowed $750,000 from an affiliate for
working capital purposes. The advance, which was repaid in June 1994, bore
interest at the prime rate plus .25%. Interest expense of $8,000 was
charged to income in 1994 with respect to this advance.
4. SHAREHOLDERS' EQUITY
Series A shares are entitled to all distributions of cash from sale or
refinancing and participate ratably with the Convertible Series B shares in
distributions of cash flow from operations. The Convertible Series C
shares (prior to conversion into Series A shares) will not participate in
any distributions.
The Convertible Series B shares and Convertible Series C shares will
convert automatically into Series A shares on a share-for-share basis (the
"Conversion") when (A) the sum of (1) all cumulative dividends and other
distributions from all sources paid with respect to the Series A shares
(including liquidating distributions, but not including payments made to
redeem such stock other than in liquidation) and (2) the cumulative
Partnership distributions from all sources with respect to all units equals
(B) the product of $20 multiplied by the number of the then outstanding
"Original Series A shares". The term "Original Series A shares" means the
Series A shares issued in the Reorganization. Through December 31, 1995,
the Company has made and declared cumulative cash distributions of
approximately $29,382,000 with respect to the Series A shares. Accordingly,
assuming no repurchases or redemptions of Series A shares, Conversion will
occur when $16,703,000 in additional distributions with respect to the
Series A shares have been made.
Assuming liquidation of the Company at its net book value at December
31, 1995 and 1994, each Series of common shares would receive the following
as a liquidating distribution:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Series A $31,178,000 $34,130,000
Convertible Series B 1,463,000 1,137,000
Convertible Series C 4,144,000 3,222,000
----------- -----------
Total $36,785,000 $38,489,000
=========== ===========
</TABLE>
F1-8
<PAGE>
4. SHAREHOLDERS' EQUITY (CONTINUED)
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 600,000 shares of the Company's Series A common stock. As
of December 31, 1995, the Company had purchased and retired 372,550 shares
of Series A common stock, of which 119,400 and 15,250 were purchased and
retired in 1995 and 1994, respectively.
For Federal income tax purposes, all distributions declared by the
Board of Directors in 1995, 1994 and 1993 were ordinary income.
5. LEASE AGREEMENTS
The Company has invested primarily in mini-warehouses which are
operated as self-storage facilities. Leases for such space are generally
on a month-to-month basis.
The Company has also invested in office and industrial properties
which are operated as business parks. Leases for such space are generally
long-term non-cancelable operating leases. At December 31, 1995, the
minimum amounts receivable under these non-cancelable leases were as
follows:
<TABLE>
<CAPTION>
Year Amount
----- ------
<S> <C>
1996 $ 973,000
1997 404,000
1998 191,000
1999 105,000
2000 32,000
----------
Total $1,705,000
==========
</TABLE>
6. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------
March 1995 June 1995 Sept 1995 Dec. 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $2,074,000 $2,136,000 $2,167,000 $2,123,000
---------- ---------- ---------- ----------
Expenses 1,086,000 1,103,000 1,037,000 1,404,000
---------- ---------- ---------- ----------
Net income $ 988,000 $1,033,000 $1,130,000 $ 719,000
========== ========== ========== ==========
Primary earnings per share- Series A $ 0.38 $ 0.40 $ 0.45 $ 0.27
========== ========== ========== ==========
Fully diluted earnings per share- Series A $ 0.30 $ 0.32 $ 0.34 $ 0.23
========== ========== ========== ==========
<CAPTION>
Three months ended
----------------------------------------------------
March 1994 June 1994 Sept 1994 Dec. 1994
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,970,000 $2,080,000 $2,108,000 $2,073,000
---------- ---------- ---------- ----------
Expenses 1,067,000 1,047,000 1,048,000 1,056,000
---------- ---------- ---------- ----------
Net income $ 903,000 $1,033,000 $1,060,000 $1,017,000
========== ========== ========== ==========
Primary earnings per share- Series A $ 0.34 $ 0.39 $ 0.40 $ 0.39
========== ========== ========== ==========
Fully diluted earnings per share- Series A $ 0.27 $ 0.31 $ 0.32 $ 0.31
========== ========== ========== ==========
</TABLE>
F1-9
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 1,931,000 $ 949,000
Rent and other receivables 51,000 98,000
Prepaid expenses 99,000 329,000
Real estate facilities at cost:
Building, land improvements and equipment 30,712,000 30,575,000
Land 18,712,000 18,712,000
------------ ------------
49,424,000 49,287,000
Less accumulated depreciation (12,839,000) (11,869,000)
------------ ------------
36,585,000 37,418,000
------------ ------------
Total assets $ 38,666,000 $ 38,794,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 717,000 $ 824,000
Dividends payable 849,000 863,000
Advance payments from renters 316,000 322,000
Shareholders' equity:
Series A common, $.01 par value,
3,569,024 shares authorized.
2,263,218 shares issued and
outstanding (2,304,218 shares
issued and outstanding in 1995) 23,000 23,000
Convertible Series B common, $.01 par
value, 232,762 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common, $.01 par
value, 659,494 shares
authorized, issued and outstanding 7,000 7,000
Paid-in-capital 40,170,000 40,941,000
Cumulative income 31,184,000 27,859,000
Cumulative distributions (34,602,000) (32,047,000)
------------ ------------
Total shareholders' equity 36,784,000 36,785,000
------------ ------------
Total liabilities and shareholders' equity $ 38,666,000 $ 38,794,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
F1-10
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $2,259,000 $2,153,000 $6,570,000 $6,335,000
Interest income 16,000 14,000 29,000 42,000
---------- ---------- ---------- ----------
2,275,000 2,167,000 6,599,000 6,377,000
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 505,000 488,000 1,702,000 1,624,000
Management fees paid to affiliates 120,000 125,000 345,000 368,000
Depreciation 364,000 354,000 1,059,000 1,046,000
Administrative 63,000 70,000 168,000 188,000
---------- ---------- ---------- ----------
1,052,000 1,037,000 3,274,000 3,226,000
---------- ---------- ---------- ----------
NET INCOME $1,223,000 $1,130,000 $3,325,000 $3,151,000
========== ========== ========== ==========
Earnings per share:
Primary - Series A $ 0.51 $ 0.45 $ 1.36 $ 1.23
========== ========== ========== ==========
Fully diluted - Series A $ 0.39 $ 0.34 $ 1.05 $ 0.96
========== ========== ========== ==========
Dividends declared per share:
Series A $ 0.34 $ 0.34 $ 1.02 $ 1.02
========== ========== ========== ==========
Series B $ 0.34 $ 0.34 $ 1.02 $ 1.02
========== ========== ========== ==========
Weighted average common
shares outstanding:
Primary - Series A 2,268,518 2,348,051 2,277,807 2,378,551
========== ========== ========== ==========
Fully diluted - Series A 3,160,774 3,240,307 3,170,063 3,270,807
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F1-11
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 2,304,218 $23,000 232,762 $2,000 659,494 $7,000
Net income
Repurchase of shares (41,000) -
Cash distributions declared:
$1.02 per share - Series A
$1.02 per share - Series B
---------------------------------------------------------------------------
Balances at September 30, 1996 2,263,218 $23,000 232,762 $2,000 659,494 $7,000
===========================================================================
<CAPTION>
Cumulative Total
Paid-in Net Cumulative Shareholders'
Capital Income Distributions Equity
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $40,941,000 $27,859,000 ($32,047,000) $36,785,000
Net income 3,325,000 3,325,000
Repurchase of shares (771,000) (771,000)
Cash distributions declared:
$1.02 per share - Series A (2,318,000) (2,318,000)
$1.02 per share - Series B (237,000) (237,000)
---------------------------------------------------------
Balances at September 30, 1996 $40,170,000 $31,184,000 ($34,602,000) $36,784,000
=========================================================
</TABLE>
See accompanying notes to condensed financial statements.
F1-12
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,325,000 $ 3,151,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,059,000 1,046,000
Decrease (increase) in rent and other receivables 47,000 (13,000)
Increase in prepaid expenses (18,000) -
Amortization of prepaid management fees 248,000 -
(Decrease) increase in accounts payable (107,000) 150,000
Decrease in advance payments from renters (6,000) (6,000)
----------- -----------
Total adjustments 1,223,000 1,177,000
----------- -----------
Net cash provided by operating activities 4,548,000 4,328,000
----------- -----------
Cash flows from investing activities:
Additions to real estate facilities (226,000) (128,000)
----------- -----------
Net cash used in investing activities (226,000) (128,000)
----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (2,569,000) (2,684,000)
Purchase of Company Series A common stock (771,000) (1,467,000)
----------- -----------
Net cash used in financing activities (3,340,000) (4,151,000)
----------- -----------
Net increase in cash and cash equivalents 982,000 49,000
Cash and cash equivalents at the beginning of the period 949,000 1,540,000
----------- -----------
Cash and cash equivalents at the end of the period $ 1,931,000 $ 1,589,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F1-13
<PAGE>
PUBLIC STORAGE PROPERTIES XIV, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Company's Form 10-K for the year ended December 31, 1995.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Company's financial position at
September 30, 1996 and December 31, 1995, the results of its operations for
the three and nine months ended September 30, 1996 and 1995 and its cash
flows for the nine months then ended.
3. The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results expected for the full
year.
4. In March 1996, the Company obtained an unsecured revolving credit facility
with a bank for borrowings up to $2,500,000. Outstanding borrowings on the
credit facility which, at the Company's option, bear interest at either the
bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%, will
convert to a term loan on December 31, 1998. Interest is payable monthly.
Commencing on January 31, 1999, principal will be payable monthly in eleven
installments equal to one forty-eighth of the outstanding principal amount
of the line of credit on December 31, 1998. On December 31, 1999, the
remaining unpaid principal and interest is due and payable. There was no
outstanding balance on the credit facility at September 30, 1996.
5. In 1995, the Company prepaid eight months of 1996 management fees at a
total cost of $248,000. The amount has been expensed as management fees
paid to affiliate during the nine months ended September 30, 1996.
F1-14
<PAGE>
Appendix F-2
PUBLIC STORAGE PROPERTIES XV, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
------------------
<S> <C>
Report of independent auditors F2 - 1
Balance sheets at December 31, 1995 and 1994 F2 - 2
For the years ended December 31, 1995, 1994 and 1993:
Statements of income F2 - 3
Statements of shareholders' equity F2 - 4
Statements of cash flows F2 - 5
Notes to financial statements F2 - 6 - F2 - 10
Condensed balance sheets at September 30, 1996 and December 31, 1995 F2 - 11
Condensed statements of income for the three
and nine months ended September 30, 1996 and 1995 F2 - 12
Condensed statement of shareholders' equity for the
nine months ended September 30, 1996 F2 - 13
Condensed statements of cash flows for the
nine months ended September 30, 1996 and 1995 F2 - 14
Notes to condensed financial statements F2 - 15
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Public Storage Properties XV, Inc.
We have audited the accompanying balance sheets of Public Storage Properties XV,
Inc. as of December 31, 1995 and 1994, and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial 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 XV,
Inc. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 27, 1996
Los Angeles, California
F2-1
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 825,000 $ 932,000
Marketable equity securities of affiliate
at market value (cost of $339,000) 437,000 330,000
Rent and other receivables 42,000 41,000
Prepaid expenses 358,000 74,000
Real estate facilities at cost:
Building, land improvements and equipment 31,919,000 31,641,000
Land 16,992,000 16,992,000
------------ ------------
48,911,000 48,633,000
Less accumulated depreciation (11,617,000) (10,362,000)
------------ ------------
37,294,000 38,271,000
------------ ------------
Total assets $ 38,956,000 $ 39,648,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 491,000 $ 296,000
Dividends payable 1,251,000 1,042,000
Advance payments from renters 312,000 303,000
Shareholders' equity:
Series A common, $.01 par value,
3,569,024 shares authorized,
2,171,885 shares issued and
outstanding (2,247,485 shares
issued and outstanding in 1994) 22,000 23,000
Convertible Series B common,
$.01 par value, 232,762 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common,
$.01 par value, 659,494 shares
authorized, issued and outstanding 7,000 7,000
Paid-in-capital 39,864,000 41,167,000
Cumulative income 18,870,000 15,303,000
Unrealized gain (loss) in marketable
equity securities securities 98,000 (9,000)
Cumulative distributions (21,961,000) (18,486,000)
------------ ------------
Total shareholders' equity 36,902,000 38,007,000
------------ ------------
Total liabilities and shareholders' equity $ 38,956,000 $ 39,648,000
============ ============
</TABLE>
See accompanying notes.
F2-2
<PAGE>
PUBLIC STORAGE PROPERTIES XV INC.
STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income $8,019,000 $7,655,000 $7,168,000
Interest income and other income
(including dividends from marketable
securities of affiliate in 1994 and 1995) 58,000 42,000 36,000
---------- ---------- ----------
8,077,000 7,697,000 7,204,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 2,407,000 2,278,000 2,193,000
Management fees paid to affiliates 482,000 460,000 428,000
Depreciation and amortization 1,279,000 1,233,000 1,267,000
Environmental cost 132,000 - -
Administrative 210,000 227,000 239,000
---------- ---------- ----------
4,510,000 4,198,000 4,127,000
---------- ---------- ----------
NET INCOME $3,567,000 $3,499,000 $3,077,000
========== ========== ==========
Primary earnings per share-Series A $ 1.45 $ 1.40 $ 1.16
========== ========== ==========
Fully diluted earnings per share-Series A $ 1.14 $ 1.09 $ 0.92
========== ========== ==========
Dividends declared per share:
Series A $ 1.42 $ 1.22 $ 1.01
========== ========== ==========
Series B $ 1.42 $ 1.22 $ 1.01
========== ========== ==========
Weighted average Common shares outstanding:
Primary Series A 2,226,760 2,303,827 2,451,052
========== ========== ==========
Fully diluted-Series A 3,119,016 3,196,083 3,343,308
========== ========== ==========
</TABLE>
See accompanying notes.
F2-3
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For each of the three years in the period ended
December 31, 1995
<TABLE>
<CAPTION>
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 2,522,868 $25,000 232,762 $2,000 659,494 $7,000
-----------------------------------------------------------------------------
Net income
Repurchase of shares (140,033) (1,000)
Cash distributions declared:
$1.01 per share - Series A
$1.01 per share - Series B
-----------------------------------------------------------------------------
Balances at December 31, 1993 2,382,835 24,000 232,762 2,000 659,494 7,000
Net income
Repurchase of shares (135,350) (1,000)
Unrealized loss in
marketable securities
Cash distributions declared:
$1.22 per share - Series A
$1.22 per share - Series B
-----------------------------------------------------------------------------
Balances at December 31, 1994 2,247,485 23,000 232,762 2,000 659,494 7,000
Net income
Repurchase of shares (75,600) (1,000)
Unrealized gain in
marketable securities
Cash distributions declared:
$1.42 per share - Series A
$1.42 per share - Series B
-----------------------------------------------------------------------------
Balances at December 31, 1995 2,171,885 $22,000 232,762 $2,000 659,494 $7,000
=============================================================================
<CAPTION>
Unrealized
Cumulative gain (loss) Total
Paid-in net Cumulative in marketable shareholders'
Capital income distributions securities equity
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1992 $45,063,000 $8,727,000 ($12,717,000) $ 0 $41,107,000
Net income 3,077,000 3,077,000
Repurchase of shares (1,769,000) (1,770,000)
Cash distributions declared:
$1.01 per share - Series A (2,461,000) (2,461,000)
$1.01 per share - Series B (234,000) (234,000)
-----------------------------------------------------------------------------
Balances at December 31, 1993 43,294,000 11,804,000 (15,412,000) - 39,719,000
Net income 3,499,000 3,499,000
Repurchase of shares (2,127,000) (2,128,000)
Unrealized loss in
marketable securities (9,000) (9,000)
Cash distributions declared:
$1.22 per share - Series A (2,790,000) (2,790,000)
$1.22 per share - Series B (284,000) (284,000)
-----------------------------------------------------------------------------
Balances at December 31, 1994 41,167,000 15,303,000 (18,486,000) (9,000) 38,007,000
Net income 3,567,000 3,567,000
Repurchase of shares (1,303,000) (1,304,000)
Unrealized gain in
marketable securities 107,000 107,000
Cash distributions declared:
$1.42 per share - Series A (3,144,000) (3,144,000)
$1.42 per share - Series B (331,000) (331,000)
-----------------------------------------------------------------------------
Balances at December 31, 1995 $39,864,000 $18,870,000 ($21,961,000) $ 98,000 $36,902,000
=============================================================================
</TABLE>
See accompanying notes.
F2-4
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,567,000 $ 3,499,000 $ 3,077,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,279,000 1,233,000 1,267,000
(Increase) decrease in rent and
other receivables (1,000) (10,000) 12,000
Increase in prepaid expenses (284,000) - (19,000)
Increase (decrease) in accounts payable 195,000 (78,000) 21,000
Increase (decrease) in advance
payments from renters 9,000 (36,000) 19,000
----------- ----------- -----------
Total adjustments 1,198,000 1,109,000 1,300,000
----------- ----------- -----------
Net cash provided by operating activities 4,765,000 4,608,000 4,377,000
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable securities securities of affiliate - (339,000) -
Additions to real estate facilities (302,000) (193,000) (66,000)
----------- ----------- -----------
Net cash used in investing activities (302,000) (532,000) (66,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (3,266,000) (2,870,000) (2,463,000)
Purchase of Company Series A common stock (1,304,000) (2,128,000) (1,770,000)
----------- ----------- -----------
Net cash used in financing activities (4,570,000) (4,998,000) (4,233,000)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (107,000) (922,000) 78,000
Cash and cash equivalents at the beginning of the year 932,000 1,854,000 1,776,000
----------- ----------- -----------
Cash and cash equivalents at the end of the year $ 825,000 $ 932,000 $ 1,854,000
=========== =========== ===========
Supplemental schedule of non-cash
investing and financing activities:
(Increase) decrease in fair value of
marketable securities of affiliate $ (107,000) $ 9,000 -
=========== =========== ===========
Unrealized gain (loss) on
marketable securities of affiliate $ 107,000 $ (9,000) -
=========== =========== ===========
</TABLE>
See accompanying notes.
F2-5
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS
Public Storage Properties XV, 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 XV, Ltd. (the "Partnership") in a
reorganization transaction which was effective September 5, 1991 (the
"Reorganization").
The Company owns and operates primarily self-storage facilities and,
to a lesser extent, 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 1997, unless shareholders have previously approved
such a proposal, the shareholders will be presented with a proposal to
approve or disapprove (a) the sale or financing of all or substantially all
of the properties and (b) the distribution of the proceeds from such
transaction and, in the case of a sale, the liquidation of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes:
The Company has and intends to continue to qualify as a REIT, as
defined in Section 856 of the Internal Revenue Code (the Code). As a REIT,
the Company is not taxed on that portion of its taxable income which is
distributed to its shareholders provided that the Company meets the
requirements of the Code. The Company believes it is in compliance with
these requirements and, accordingly, no provision for income taxes has been
made.
Statements of Cash Flows:
For purposes of financial statement presentation, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Real Estate Facilities:
Cost of land includes appraisal and legal fees related to acquisition
and closing costs. Buildings, land improvements and equipment reflect
costs incurred through December 31, 1995 and 1994 to develop primarily
mini-warehouse facilities and to a lesser extent, business park facilities.
The mini-warehouse facilities provide self-service storage spaces for
lease, usually on a month-to-month basis, to the general public. The
buildings and equipment are depreciated on the straight-line basis over
estimated useful lives of 25 and 5 years, respectively.
At December 31, 1995, the basis of real estate facilities (excluding
land) for Federal income tax purposes (after adjustment for accumulated
depreciation of $13,246,000) is $17,254,000.
Revenue Recognition:
Property rents are recognized as earned.
F2-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in affiliate:
In February 1994, the Company purchased 23,000 common shares of Public
Storage, Inc. (PSI), a publicly traded real estate investment trust and an
affiliate of the Company, for $339,000. The Company has designated its
portfolio of marketable securities as being available for sale.
Accordingly, at December 31, 1995 and 1994, the Company has recorded the
marketable securities at fair value, based upon the closing quoted price of
the securities at December 31, 1995 and 1994, and has recorded a
corresponding unrealized gain and loss (loss) totaling $98,000 and
$(9,000), respectively, in shareholders' equity. The Company
recognized $20,000 in dividends in 1995 and 1994 and included these amounts
in other income in the Statements of Income.
Net Income Per Share:
Net income per share is based on net income attributable to each
series of common shares and the weighted average number of such shares
outstanding during the periods presented.
Net income per share is presented on a primary and fully diluted
basis. Primary earnings per share represents the Series A shareholders'
right to distributions out of the respective period's net income, which is
calculated by dividing net income after reduction for distributions to the
Convertible Series B shareholders (Convertible Series C shareholders are
not entitled to cash distributions) by the weighted average number of
Series A shares (Note 4). Fully diluted earnings per share assumes
conversion of the Convertible Series B and Series C shares into Series A
shares.
Environmental Cost:
Substantially all of the Company's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995,
the Company completed environmental assessments of its properties to
evaluate the environmental condition of, and potential environmental
liabilities of such properties. These assessments were performed by an
independent environmental consulting firm. Based on the assessments, the
Company has recorded cost of expensed, as of December 31, 1995, an
estimated $132,000 for known environmental remediation requirements.
Although there can be no assurance, the Company is not aware of any
environmental contamination of any of its property sites which individually
or in the aggregate would be material to the Company's overall business,
financial condition, or results of operations.
3. RELATED PARTY TRANSACTIONS
In 1995, there were a series of mergers among Pubic Storage
Management, Inc. (which was the Company's mini-warehouse operator), Public
Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in
the November 16, 1995 merger (the "PSMI merger") of PSMI into Storage
Equities, Inc. ("SEI"). In the PSMI merger, Storage Equities, Inc.'s name
was changed to Public Storage, Inc. ("PSI"). B. Wayne Hughes and members of
his family (the "Hughes Family") are the major shareholders of PSI. PSI has
a 95% economic interest and the Hughes family has a 5% economic interest in
Public Storage Commercial Properties Group, Inc. (PSCPG).
The Company has Management Agreements with PSI (as successor-in-
interest to PSMI) and PSCPG. Under the terms of the agreements, PSI
operates the mini-warehouse facilities and PSCPG operates the business park
facility for fees equal to 6% and 5%, respectively, of the facilities'
monthly gross revenue (as defined).
F2-7
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Each Management Agreement provides that the agreement will expire in
February 2002 provided that in February of each year commencing February
21, 1996 it shall be automatically extended for one year (thereby
maintaining a seven-year term) unless either party notifies the other that
the Management Agreement is not being extended, in which case it expires on
the first anniversary of its then scheduled expiration date. Each
Management Agreement may also be terminated by either party for cause, but
if terminated for cause by the Company, the Company retains the rights to
use the service marks and related designs until the then scheduled
expiration date, if applicable, or otherwise a date seven years after such
termination.
In August 1995, the Management Agreement with PSMI was amended to
provide that upon demand from PSI or PSMI made prior to December 15, 1995,
the Company agreed to prepay (within 15 days after such demand) up to 12
months of management fees (based on the management fees for the comparable
period during the calendar year immediately preceding such prepayment)
discounted at the rate of 14% per year to compensate for early payment. In
November 1995, the Company prepaid, to PSI, 8 months of 1996 management
fees at a cost of $279,000. The amount is included in prepaid expenses in
the Balance Sheet at December 31, 1995 and will be amortized as management
fee expense in 1996.
4. SHAREHOLDERS' EQUITY
Series A shares are entitled to all distributions of cash from sale or
refinancing and participate ratably with the Convertible Series B shares in
distributions of cash flow from operations. The Convertible Series C
shares (prior to conversion into Series A shares) will not participate in
any distributions.
The Convertible Series B shares and Convertible Series C shares will
convert automatically into Series A shares on a share-for-share basis (the
"Conversion") when (A) the sum of (1) all cumulative dividends and other
distributions from all sources paid with respect to the Series A shares
(including liquidating distributions, but not including payments made to
redeem such stock other than in liquidation) and (2) the cumulative
Partnership distributions from all sources with respect to all units equals
(B) the product of $20 multiplied by the number of the then outstanding
"Original Series A shares". The term "Original Series A shares" means the
Series A shares issued in the Reorganization. Through December 31, 1995,
the Company has made and declared cumulative cash distributions of
approximately $20,088,000 with respect to the Series A shares.
Accordingly, assuming no repurchases or redemptions of Series A shares,
Conversion will occur when $23,350,000 in additional distributions with
respect to the Series A shares have been made.
Assuming liquidation of the Company at its net book value at December
31, 1995 and 1994, each Series of common shares would receive the
following as a liquidating distribution:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Series A $32,956,000 $35,164,000
Convertible Series B 1,029,000 742,000
Convertible Series C 2,917,000 2,101,000
----------- -----------
Total $36,902,000 $38,007,000
=========== ===========
</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.
F2-8
<PAGE>
4. SHAREHOLDERS' EQUITY (CONTINUED)
The Company's Board of Directors has authorized the Company to
purchase up to 900,000 shares of the Company's Series A common stock. As
of December 31, 1995, the Company had purchased and retired 504,883 shares
of Series A common stock, of which 75,600 and 135,350 were purchased and
retired in 1995 and 1994, respectively.
For Federal income tax purposes, all distributions declared by the
Board of Directors in 1995, 1994 and 1993 were ordinary income.
5. SUBSEQUENT EVENT
In November 1995, the Company's Board of Directors authorized the
Company to obtain a line of credit facility for a maximum of $5,000,000 for
working capital purposes, including the repurchase of the Company's stock.
In January 1996, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $5,000,000. Outstanding
borrowings on the credit facility which, at the Company's option, bear
interest at either the bank's prime rate plus .25% or the bank's LIBOR rate
plus 2.25%, will convert to a term loan on January 1, 1998. Interest is
payable monthly beginning on April 1, 1996 until maturity. Principal will
be payable quarterly beginning on January 1, 1998. On October 1, 2002, the
remaining unpaid principal and interest is due and payable.
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 .5
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) 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.
6. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------
March 1995 June 1995 Sept 1995 Dec. 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $1,941,000 $2,009,000 $2,086,000 $2,041,000
Expenses 1,039,000 1,076,000 1,123,000 1,272,000
---------- ---------- ---------- ----------
Net income $ 902,000 $ 933,000 $ 963,000 $ 769,000
========== ========== ========== ==========
Earnings per share:
Primary - Series A $ 0.37 $ 0.38 $ 0.33 $ 0.37
========== ========== ========== ==========
Fully diluted - Series A $ 0.29 $ 0.30 $ 0.30 $ 0.25
========== ========== ========== ==========
</TABLE>
F2-9
<PAGE>
6. QUARTERLY RESULTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------
March 1994 June 1994 Sept 1994 Dec. 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,871,000 $1,903,000 $1,979,000 $1,944,000
Expenses 1,047,000 1,031,000 1,057,000 1,063,000
---------- ---------- ---------- ----------
Net Income $ 824,000 $ 872,000 $ 922,000 $ 881,000
========== ========== ========== ==========
Earnings per share:
Primary - Series A $ 0.33 $ 0.34 $ 0.38 $ 0.35
========== ========== ========== ==========
Fully diluted - Series A $ 0.25 $ 0.27 $ 0.29 $ 0.28
========== ========== ========== ==========
</TABLE>
F2-10
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 1,341,000 $ 825,000
Marketable securities of affiliate at
market value (cost of $339,000) 520,000 437,000
Rent and other receivables 60,000 42,000
Prepaid expenses 106,000 358,000
Real estate facilities at cost:
Building, land improvements and
equipment 32,012,000 31,919,000
Land 16,992,000 16,992,000
------------ ------------
49,004,000 48,911,000
Less accumulated depreciation (12,498,000) (11,617,000)
------------ ------------
36,506,000 37,294,000
------------ ------------
Total assets $ 38,533,000 $ 38,956,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 443,000 $ 491,000
Dividends payable 711,000 1,251,000
Advance payments from renters 280,000 312,000
Shareholders equity:
Series A common, $.01 par value,
3,569,024 shared authorized,
2,136,885 shares issued and
outstanding (2,171,885 shares
issued and outstanding in 1995) 21,000 22,000
Convertible Series B common, $.01 par
value, 232,762 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common, $.01 par
value, 659,494 shares
authorized, issued and outstanding 7,000 7,000
Paid-in-capital 39,231,000 39,864,000
Cumulative income 21,759,000 18,870,000
Unrealized gain in marketable securities 181,000 98,000
Cumulative distributions (24,102,000) (21,961,000)
------------ ------------
Total shareholders' equity 37,099,000 36,902,000
------------ ------------
Total liabilities and shareholders'
equity $ 38,533,000 $ 38,956,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
F2-11
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ---------- -----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
REVENUES:
Rental income $2,137,000 $2,072,000 $6,269,000 $5,997,000
Dividends from marketable securities
of affiliate 5,000 5,000 15,000 15,000
Interest income 10,000 9,000 20,000 24,000
---------- ---------- ---------- ----------
2,152,000 2,086,000 6,304,000 6,036,000
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 640,000 613,000 1,924,000 1,763,000
Management fees paid to affiliates 116,000 124,000 334,000 360,000
Depreciation 342,000 327,000 980,000 953,000
Interest expense -- -- 16,000 --
Administrative 59,000 59,000 161,000 162,000
---------- ---------- ---------- ----------
1,157,000 1,123,000 3,415,000 3,238,000
---------- ---------- ---------- ----------
NET INCOME $ 995,000 $ 963,000 $2,889,000 $2,798,000
========== ========== ========== ==========
Earnings per share:
Primary - Series A $ 0.44 $ 0.40 $ 1.25 $ 1.15
========== ========== ========== ==========
Fully diluted - Series A $ 0.33 $ 0.30 $ 0.95 $ 0.89
========== ========== ========== ==========
Dividends declared per share:
Series A $ 0.30 $ 0.30 $ 0.90 $ 0.90
========== ========== ========== ==========
Series B $ 0.30 $ 0.30 $ 0.90 $ 0.90
========== ========== ========== ==========
Weighted average common shares
outstanding:
Primary - Series A 2,139,185 2,225,785 2,148,418 2,240,252
========== ========== ========== ==========
Fully diluted - Series A 3,031,441 3,118,041 3,040,674 3,132,508
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F2-12
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 2,171,885 $22,000 232,762 $2,000 659,494 $7,000
Net income
Repurchase of shares (35,000) (1,000)
Unrealized gain in
marketable securities
Cash distributions declared:
$.90 per share - Series A
$.90 per share - Series B
--------- ------- ------- ------ ------- ------
Balances at September 30,
1996 2,136,885 $21,000 232,762 $2,000 659,494 $7,000
========= ======= ======= ====== ======= ======
<CAPTION>
Unrealized
Cumulative gain Total
Paid-in Net Cumulative in marketable Shareholders'
Capital Income Distributions Securities Equity
----------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $39,864,000 $18,870,000 ($21,961,000) $ 98,000 $36,902,000
Net income 2,889,000 2,889,000
Repurchase of shares (633,000) (634,000)
Unrealized gain in 83,000 83,000
marketable securities
Cash distributions declared:
$.90 per share - Series A (1,931,000) (1,931,000)
$.90 per share - Series B (210,000) (210,000)
----------- ----------- ----------- -------- -----------
Balances at September 30,
1996 $39,231,000 $21,759,000 ($24,102,000) $181,000 $37,099,000
=========== =========== =========== ======== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F2-13
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,889,000 $ 2,798,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 980,000 953,000
Increase in rent and other receivables (18,000) (2,000)
Amortization of prepaid management fees 279,000 --
Increase in prepaid expenses (27,000) --
(Decrease) increase in accounts payable (48,000) 3,000
Decrease in advance payments from
renters (32,000) (22,000)
----------- -----------
Total adjustments 1,134,000 932,000
----------- -----------
Net cash provided by operating
activities 4,023,000 3,730,000
----------- -----------
Cash flows from investing activities:
Additions to real estate facilities (192,000) (249,000)
----------- -----------
Net cash used in investing activities (192,000) (249,000)
----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (2,681,000) (2,530,000)
Purchase of Company Series A common
stock (634,000) (499,000)
----------- -----------
Net cash used in financing activities (3,315,000) (3,029,000)
----------- -----------
Net increase in cash and cash
equivalents 516,000 452,000
Cash and cash equivalents at the
beginning of the period 825,000 932,000
----------- -----------
Cash and cash equivalents at the end of
the period $ 1,341,000 $ 1,384,000
=========== ===========
Supplemental schedule of non-cash
investing and financing activities:
Increase in fair value of marketable
securities $ (83,000) $ (98,000)
=========== ===========
Unrealized gain on marketable securities $ 83,000 $ 98,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F2-14
<PAGE>
PUBLIC STORAGE PROPERTIES XV, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Company's Form 10-K for the year ended December 31, 1995.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Company's financial position at
September 30, 1996 and December 31, 1995, the results of its operations for
the three and nine months ended September 30, 1996 and 1995 and its cash
flows for the nine months then ended.
3. The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results expected for the full
year.
4. Certain prior year amounts have been restated in order to conform to
current year presentation.
5. In 1995, the Company prepaid eight months of 1996 management fees at a
total cost of $279,000. The amount has been expensed as management fees
paid to affiliate during the nine months ended September 30, 1996.
6. In February 1994, the Company purchased 23,000 common shares of Public
Storage, Inc., a publicly traded real estate investment trust and an
affiliate of the Company, for $339,000. The market value of these
securities at September 30, 1996 was $520,000.
7. In January 1996, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $5,000,000. Outstanding
borrowings on the credit facility which, at the Company's option, bear
interest at either the banks prime rate plus .25% or the banks LIBOR rate
plus 2.25%, will convert to a term loan on January 1, 1998. Interest is
payable monthly until maturity. Principal will be payable quarterly
beginning on January 1, 1998. On October 1, 2002, the remaining unpaid
principal and interest is due and payable. During the six months ended
June 30, 1996, the Company borrowed and repaid $1,050,000. At September
30, 1996, there was no outstanding balance on the credit facility.
F2-15
<PAGE>
APPENDIX G-1
------------
PUBLIC STORAGE PROPERTIES XIV, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS.
- ----------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE AND
------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995. The Company's net income for the nine
- ------------------------------------
months ended September 30, 1996 and 1995 was $3,325,000 and $3,151,000,
respectively, representing an increase of $174,000 or 5%. Net income was
$1,223,000 and $1,130,000 for the three months ended September 30, 1996 and
1995, respectively, representing an increase of $93,000 or 8%. These increases
are primarily the result of increases in property net operating income (rental
income less cost of operations, management fees paid to affiliates and
depreciation expense).
Rental income for the nine months ended September 30, 1996 and 1995 was
$6,570,000 and $6,335,000, respectively, representing an increase of $235,000 or
4%. Rental income for the three months ended September 30, 1996 and 1995 was
$2,259,000 and $2,153,000, respectively, representing an increase of $106,000 or
5%. The Company's mini-warehouse operations showed increases in rental income of
$234,000 and $88,000 for the nine and three months ended September 30, 1996,
respectively, compared to the same periods in 1995, primarily due to an increase
in rental rates and occupancy levels. The Company's business park operations
also showed increases in rental income for the three and nine months ended
September 30, 1996 over 1995. The increase in rental income from business park
operations was generated by the Company's San Francisco, California business
park due to an increase in rental rates. The Company's Torrance, California
business park showed a decline in rental income for the nine months ended
September 30, 1996 over 1995 due primarily to a decrease in occupancy levels.
The Company's mini-warehouse operations had weighted average occupancy
levels of 94% and 93% for the nine month periods ended September 30, 1996 and
1995, respectively. The Company's business park operations had weighted average
occupancy levels of 93% and 96% for the nine month periods ended September 30,
1996 and 1995, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) for the nine months ended September 30, 1996 and 1995 was
$3,106,000 and $3,038,000, respectively, representing an increase of $68,000 or
2%. Cost of operations for the three months ended September 30, 1996 and 1995
was $989,000 and $967,000, respectively, representing an increase of $22,000 or
2%. These increases are primarily attributable to increases in payroll expense,
advertising and repairs and maintenance costs. The increase in repairs and
maintenance costs is primarily due to an increase in snow removal costs
associated with higher than normal snow levels experienced at the Company's
mini-warehouse properties in the eastern states offset by a decrease in costs
associated with storm damage sustained in early 1995 at the Company's Torrance,
California business park. The increase in repairs and maintenance costs for the
three months ended September 30, 1996 over 1995 is mainly due to an increase in
landscaping costs.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations (based on the management fees for the comparable
period during the calendar year immediately preceding the prepayment) discounted
at the rate of 14% per year to compensate for early payment. The Company has
expensed the prepaid management fees. The amount is included in management fees
paid to affiliates in the condensed statements of income. As a result of the
prepayment, the Company saved approximately $37,000 in management fees, based on
the management fees that would have been payable on rental income generated in
the nine months ended September 30, 1996 compared to the amount prepaid.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. Net
---------------------------------------------------------------------
income in 1995 was $3,870,000 compared to $4,013,000 in 1994, representing a
decrease of $143,000. Net income per fully diluted Series A share was $1.19 in
1995 compared to $1.21 in 1994, representing a decrease of $.02 or 2% per share.
This decrease is primarily due to a decrease in property net operating income at
the Company's business park facilities in 1995 compared to 1994 and
environmental costs incurred on the Company's properties in the fourth quarter
of 1995 (see discussion below).
G1-1
<PAGE>
During 1995, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
increased $66,000 from $4,237,000 in 1994 to $4,303,000 in 1995. This increase
is attributable to an increase in rental revenues at the Company's
mini-warehouse operations.
Rental income of the mini-warehouse operations increased $298,000 or 5%
from $6,595,000 in 1994 to $6,893,000 in 1995. Cost of operations (including
management fees paid to an affiliate of the Company) increased $98,000 or 5%
from $1,986,000 in 1994 to $2,084,000 in 1995. The results of these changes was
a net increase in property net operating income before depreciation expense of
$200,000 or 4% from $4,609,000 in 1994 to $4,809,000 in 1995. The increase in
rental income is primarily due to an increase in rental rates at a majority of
the Company's mini-warehouse operations. The increase in cost of operations is
primarily due to increases in payroll, repairs and maintenance and property tax
expense. Repairs and maintenance increased due to an increase in painting costs,
sign, and roof repairs.
Property net operating income before depreciation expense with respect to
the Company's business park operations decreased by $69,000 or 7% from $966,000
in 1994 to $897,000 in 1995. This decrease is primarily due to a decrease in
rental revenues combined with an increase in cost of operations. The decrease
in rental revenues is due to a decrease in rental rates at the Company's
Torrance, California business park. On new and renewal leases, the Company has
lowered its rates in response to lower current market rates. The increase in
cost of operations is due to an increase in repairs and maintenance offset by a
decrease in property tax expense. The increase in repairs and maintenance is
due to storm damage sustained at the Torrance, California facility in early
1995. The decrease in property taxes is primarily due to a tax refund received
from appealing a prior period tax assessment on the Torrance facility.
Substantially all of the Company's facilities were acquired prior to the
time that it was customary to conduct environmental investigations in connection
with property acquisitions. During the fourth quarter of 1995, the Company
completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent environmental
consulting firm. Based on the assessments, the Company has recorded cost
of expensed, as of December 31, 1995, an estimated $244,000 for known
environmental remediation requirements. Although there can be no assurance, the
Company is not aware of any environmental contamination of any of its property
sites which individually or in the aggregate would be material to the Company's
overall business, financial condition, or results of operations.
Weighted average occupancy levels were 93% for the mini-warehouse
facilities and 94% for the business park facilities in 1995 and 1994.
Mini-warehouse Operating Trends.
- -------------------------------
The following table illustrates the operating trends for the Company's 12
mini-warehouses:
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------
1995 1994 1993
--------------- ------------------ ---------------
<S> <C> <C> <C>
Weighted average occupancy
level 93% 93% 93%
Realized monthly rent per
occupied square foot (1) $.82 $.81 $.74
Operating margin: (2)
Before reduction for
depreciation expense 70% 70% 69%
After reduction for
depreciation expense 57% 57% 55%
</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.
G1-2
<PAGE>
Management believes that the trends in property operations are due to:
. Stable occupancy levels resulting from decreased levels of new supply in
the industry and promotion of the Company's facilities by PSI.
. 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 stable
occupancy levels offset in part by an increase in expenses
(approximately 5% for 1995 (as compared to 1994) and 4% in 1994).
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
Capital structure. The Company's financial profile is characterized by
-----------------
increasing cash provided by operating activities and increasing funds from
operations ("FFO").
Net Cash Provided by Operating Activities and Funds from Operations. The
-------------------------------------------------------------------
Company believes that important measures of its performance as well as liquidity
are net cash provided by operating activities and FFO.
Net cash provided by operating activities (net income plus depreciation and
amortization) reflects the cash generated from the Company's business before
distributions to shareholders and capital expenditures. Net cash provided by
operating activities has increased over the past years from $4,972,000 in 1993
to $5,394,000 in 1995. Net cash provided by operating activities has increased
from $4,328,000 for the nine months ended September 30, 1995 to $4,548,000 for
the nine months ended September 30, 1996.
FFO is defined generally by the National Association of Real Estate
Investment Trusts ("NAREIT") as net income before loss on early extinguishment
of debt, gain on disposition of real estate, plus depreciation and amortization
and non-recurring items (including environmental costs). FFO is a supplemental
performance measure for equity Real Estate Investment Trusts used by industry
analysts. FFO does not take into consideration principal payments on debt,
capital improvements, distributions and other obligations of the Company. The
only depreciation or amortization that is added to income to derive FFO is
depreciation and amortization directly related to physical real estate. All
depreciation and amortization reported by the Company relates to physical real
estate and does not include any depreciation or amortization related to
goodwill, deferred financing costs or other intangibles. FFO is not a substitute
for the Company's net cash provided by operating activities or net income, as a
measure of liquidity or operating performance.
The following table summarizes the Company's ability to make capital
improvements to maintain its facilities through the use of cash provided by
operating activities. The remaining cash flow is available to the Company to
pay distributions to shareholders and repurchase its stock.
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
-------------------------- ------------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income $ 3,325,000 $ 3,151,000 $ 3,870,000 $ 4,013,000 $ 3,658,000
Depreciation and amortization 1,059,000 1,046,000 1,403,000 1,338,000 1,264,000
Environmental cost -- -- 244,000 -- --
----------- ----------- ----------- ----------- -----------
Funds from operations (net cash 4,384,000 4,197,000 5,517,000 5,351,000 4,922,000
provided by operating activities
before changes in working capital
components)
Capital improvements to maintain
facilities (226,000) (128,000) (370,000) (331,000) (433,000)
----------- ----------- ----------- ----------- -----------
Excess funds available for 4,158,000 4,069,000 5,147,000 5,020,000 4,489,000
distributions to
shareholders and repurchases of stock
Cash distributions to shareholders (2,569,000) (2,684,000) (3,558,000) (3,627,000) (3,722,000)
----------- ----------- ----------- ----------- -----------
Excess funds available for cash
distributions
to shareholders and repurchase of stock $ 1,589,000 $ 1,385,000 $ 1,589,000 $ 1,393,000 $ 767,000
=========== =========== =========== =========== ===========
</TABLE>
The Company believes that its rental revenues and interest and other income
will be sufficient over at least the next twelve months to meet the Company's
operating expenses, capital improvements and distributions to shareholders.
G1-3
<PAGE>
The Company believes its geographically diverse portfolio has resulted in a
relatively stable and predictable investment portfolio.
In January 1994, the Company borrowed $750,000 from an affiliate for
working capital purposes. The advance, which was repaid in June 1994, bore
interest at the prime rate plus .25%. Interest expense of $8,000 was charged to
income in 1994 with respect to this advance.
In August 1995, the Management Agreement with PSMI was amended to provide
that upon demand from PSI or PSMI made prior to December 15, 1995, the Company
agreed to prepay (within 15 days after such demand) up to 12 months of
management fees (based on the management fees for the comparable period during
the calendar year immediately preceding such prepayment) discounted at the rate
of 14% per year to compensate for early payment. In November 1995, the Company
prepaid, to PSI, 8 months of 1996 management fees at a cost of $248,000.
In March 1996, the Company obtained an unsecured revolving credit facility
with a bank for borrowings up to $2,500,000. Outstanding borrowings on the
credit facility which, at the Company's option, bear interest at either the
bank's prime rate plus .25% or the banks LIBOR rate plus 2.25%, will convert to
a term loan on December 31, 1998. Interest is payable monthly. Commencing on
January 31, 1999, principal will be payable monthly in eleven installments equal
to one-forty eighth of the outstanding principal amount of the line of credit on
December 31, 1998. On December 31, 1999, the remaining unpaid principal and
interest is due and payable. There was no outstanding balance on the credit
facility at September 30, 1996.
The Company's Board of Directors has authorized the Company to purchase up
to 600,000 shares of Series A common stock. As of September 30, 1996, the
Company had repurchased 413,550 shares of Series A common stock, of which 41,000
were purchased in 1996.
The Company has elected and intends to continue to qualify as a real estate
investment trust ("REIT") for federal income tax purposes. As a REIT, the
Company must meet, among other tests, sources of income, share ownership, and
certain asset tests. The Company is not taxed on that portion of its taxable
income which is distributed to its shareholders provided that at least 95% of
its taxable income is so distributed to its shareholders prior to filing of the
Company's tax return. The primary difference between book income and taxable
income is depreciation expense. In 1995, the Company's federal tax depreciation
was $1,480,000.
The bylaws of the Company provide that, during 1997, unless shareholders
have previously approved such a proposal, the shareholders will be presented
with a proposal to approve or disapprove (a) the sale or financing of all or
substantially all of the properties and (b) the distribution of the proceeds
from such transaction and, in the case of a sale, the liquidation of the
Company.
G1-4
<PAGE>
APPENDIX G-2
-------------
PUBLIC STORAGE PROPERTIES XV, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS.
- ----------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE AND
------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995. The Company's net income for the nine
- -------------------------------------
months ended September 30, 1996 and 1995, was $2,889,000 and $2,798,000,
respectively, representing an increase of $91,000 or 3%. Net income for the
three months ended September 30, 1996 and 1995 was $995,000 and $963,000,
respectively, representing an increase of $32,000 or 3%. These increases are
primarily the result of increases in property net operating income (rental
income less cost of operations, management fees paid to affiliates and
depreciation expense).
Rental income for the nine months ended September 30, 1996 and 1995 was
$6,269,000 and $5,997,000, respectively, representing an increase of $272,000 or
5%. Rental income for the three months ended September 30, 1996 and 1995 was
$2,137,000 and $2,072,000, respectively, representing an increase of $65,000 or
3%. The Company's mini-warehouse operations showed increases in rental income of
$247,000 and $50,000 for the nine and three month periods ended September 30,
1996, respectively, compared to the same periods in 1995 due to increased rental
rates and occupancy levels. The Company's Gaithersburg, Maryland business park
also showed an increase in rental income due to increased rental rates and
occupancy levels.
The Company's mini-warehouse operations had weighted average occupancy
levels of 92% and 90% for the nine month periods ended September 30, 1996 and
1995, respectively. The Company's business park facility had an average
occupancy level of 100% and 94% for the nine month periods ended September 30,
1996 and 1995, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) increased to $3,238,000 from $3,076,000 for the nine month
periods ended September 30, 1996 and 1995, respectively, representing an
increase of $162,000 or 5%. Cost of operations increased to $1,098,000 from
$1,064,000 for the three month periods ended September 30, 1996 and 1995,
respectively, representing an increase of $34,000 or 3%. These increases are
primarily attributable to increases in payroll, repairs and maintenance costs,
advertising and property tax expense. The increase in repairs and maintenance
costs is mainly due to an increase in snow removal costs associated with higher
than normal snow levels experienced at the Company's facilities located in the
eastern states. Property taxes increased primarily due to a one-time tax refund
received in early 1995 at the Company's San Jose, California mini-warehouse
facility.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations (based on the management fees for the comparable
period during the calendar year immediately preceding the prepayment) discounted
at the rate of 14% per year to compensate for early payment. The Company has
expensed the prepaid management fees. The amount is included in management fees
paid to affiliates in the condensed statements of income. As a result of the
prepayment, the Company saved approximately $39,000 in management fees, based on
the management fees that would have been payable on rental income generated in
the nine months ended September 30, 1996 compared to the amount prepaid.
During the nine months ended September 30, 1996, the Company incurred
$16,000 of interest expense on its line of credit facility.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. Net
---------------------------------------------------------------------
income in 1995 was $3,567,000 compared to $3,499,000 in 1994, representing an
increase of $68,000. Net income per fully diluted Series A share was $1.14 in
1995 compared to $1.09 in 1994, representing an increase of $.05 or 5% per
share. This increase is primarily due to an increase in property net operating
income combined with a decrease in administrative expense and offset by
environmental cost incurred in 1995. Net income per share in 1995 also
benefited by the reduction in the number of series a shares outstanding due to
the companys repurchase of Series A shares.
During 1995, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
increased $167,000 from $3,684,000 in 1994 to $3,851,000 in 1995. This increase
is primarily
G2-1
<PAGE>
attributable to an increase in rental revenues at the Company's mini-warehouse
facilities partially offset by increases in cost of operations and depreciation
expense.
Rental income for the mini-warehouse operations increased $375,000 or 5%
from $7,368,000 in 1994 to $7,743,000 in 1995. Cost of operations (including
management fees paid to an affiliate of the Company) increased $155,000 or 6%
from $2,600,000 in 1994 to $2,755,000 in 1995. The increase in rental income is
primarily due to slight increases in rental rates and occupancy levels at a
majority of the Company's mini-warehouse facilities. The increase in cost of
operations is mainly due to increases in payroll, repairs and maintenance and
property tax expense. Repairs and maintenance increased due to costs for such
items as doors, elevators, fence and gate repairs. Property taxes increased due
to increases in tax assessments.
Property net operating income before depreciation expense with respect to
the Company's business park facility decreased by $8,000 or 5% from $149,000 in
1994 to $141,000 in 1995. This decrease is primarily due to a decrease in
rental revenues caused by a decrease in occupancy levels.
Substantially all of the Company's facilities were acquired prior to the
time that it was customary to conduct environmental investigations in connection
with property acquisitions. During the fourth quarter of 1995, the Company
completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent environmental
consulting firm. Based on the assessments, the Company has expensed, as of
December 31, 1995, an estimated $132,000 for known environmental remediation
requirements. Although there can be no assurance, the Company is not aware of
any environmental contamination of any of its property sites which individually
or in the aggregate would be material to the Company's overall business,
financial condition, or results of operations.
Weighted average occupancy levels were 90% for the mini-warehouse
facilities and 93% for the business park facility in 1995 compared to 89% for
the mini-warehouse facilities and 97% for the business park facility in 1994.
Mini-warehouse Operating Trends.
- --------------------------------
The following table illustrates the operating trends for the Company's 19
mini-warehouses:
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average occupancy level 90% 89% 89%
Realized monthly rent per occupied square foot (1) $.65 $.63 $.63
Operating margin: (2)
Before reduction for depreciation expense 64% 65% 64%
After reduction for depreciation expense 48% 49% 43%
</TABLE>
(1) Realized rent per square foot represents the actual revenue earned per
occupied square foot. Management believes this is a more relevant measure
than the posted rental rates, since posted rates can be discounted through
the use of promotions. Includes administrative and late fees.
(2) Operating margin (before reduction for depreciation expense) is computed by
dividing rental income less cost of operations by rental income. Operating
margin (after reduction for depreciation expense) is computed by dividing
rental income less cost of operations and depreciation by rental income.
Management believes that the trends in property operations are due to:
. Stable occupancy levels resulting from decreased levels of new
supply in the industry and promotion of the Company's facilities by PSI.
. 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 6% for 1995 (as
compared to 1994) and 4% in 1994).
G2-2
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
Capital structure. The Company's financial profile is characterized by
-----------------
increasing net income, increasing cash provided by operating activities and
increasing funds from operations ("FFO").
Net Cash Provided by Operating Activities and Funds from Operations. The
-------------------------------------------------------------------
Company believes that important measures of its performance as well as liquidity
are net cash provided by operating activities and FFO.
Net cash provided by operating activities (net income plus depreciation and
amortization) reflects the cash generated from the Company's business before
distributions to shareholders and capital expenditures. Net cash provided by
operating activities has increased over the past years from $4,377,000 in 1993
to $4,765,000 in 1995. Net cash provided by operating activities has increased
from $3,730,000 for the nine months ended September 30, 1995 to $4,023,000 for
the nine months ended September 30, 1996.
FFO is defined generally by the National Association of Real Estate
Investment Trusts (NAREIT) as net income before loss on early extinguishment of
debt, gain on disposition of real estate and environmental cost, plus
depreciation and amortization and non-recurring items (including
environmental costs). FFO is a supplemental performance measure for equity Real
Estate Investment Trusts used by industry analysts. FFO does not take into
consideration principal payments on debt, capital improvements, distributions
and other obligations of the Company. The only depreciation or amortization
that is added to income to derive FFO is depreciation and amortization directly
related to physical real estate. All depreciation and amortization reported by
the Company relates to physical real estate and does not include any
depreciation or amortization related to goodwill, deferred financing costs or
other intangibles. FFO is not a substitute for the Company's net cash provided
by operating activities or net income, as a measure of liquidity or operating
performance.
The following table summarizes the Company's ability to make capital
improvements to maintain its facilities through the use of cash provided by
operating activities. The remaining cash flow is available to the Company to
pay distributions to shareholders and repurchase its stock.
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
-----------------------------------------------------------------------
1996 1995 1995 1994 1993
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Income $ 2,889,000 $ 2,798,000 $ 3,567,000 $ 3,499,000 $ 3,077,000
Depreciation and amortization 980,000 953,000 1,279,000 1,233,000 1,267,000
Environmental cost -- -- 132,000 -- --
Funds from operations (net cash ----------- ----------- ----------- ---------- -----------
provided by
operating activities before changes in
working capital components) 3,869,000 3,751,000 4,978,000 4,732,000 4,344,000
Capital improvements to maintain
facilities (192,000) (249,000) (302,000) (193,000) (66,000)
----------- ----------- ----------- ---------- -----------
Excess funds available for
distributions to
shareholders and repurchases of stock 3,677,000 3,502,000 4,676,000 4,539,000 4,278,000
Cash distributions to shareholders (2,681,000) (2,530,000) (3,266,000) (2,870,000) (2,463,000)
----------- ----------- ----------- ---------- -----------
Excess funds available for cash
distributions to shareholders and
repurchase of stock $ 996,000 $ 972,000 $ 1,410,000 $ 1,669,000 $ 1,815,000
=========== =========== =========== =========== ===========
</TABLE>
The Company believes that its rental revenues and interest and other income
will be sufficient over at least the next twelve months to meet the Company's
operating expenses, capital improvements and distributions to shareholders. For
1996, the Company has budgeted anticipates approximately $296,000 for capital
improvements. in capital improvements.
The Company believes its geographically diverse portfolio has resulted in a
relatively stable and predictable investment portfolio.
In February 1994, the Company purchased 23,000 common shares of Public
Storage, Inc. (PSI), a publicly traded real estate investment trust and an
affiliate of the Company, for $339,000. The market value of these securities at
December 31, 1995 was $437,000. The Company recognized $20,000 in dividends for
1995 and 1994 and included this amount in other income on the Statements of
Income.
G2-3
<PAGE>
In August 1995, the Management Agreement with PSMI was amended to provide
that upon demand from PSI or PSMI made prior to December 15, 1995, the Company
agreed to prepay (within 15 days after such demand) up to 12 months of
management fees (based on the management fees for the comparable period during
the calendar year immediately preceding such prepayment) discounted at the rate
of 14% per year to compensate for early payment. In November 1995, the Company
prepaid, to PSI, 8 months of 1996 management fees at a cost of $279,000.
In January 1996, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $5,000,000. Outstanding borrowings on
the credit facility which, at the Company's option, bear interest at either the
banks prime rate plus .25% or the banks LIBOR rate plus 2.25%, will convert to a
term loan on January 1, 1998. Interest is payable monthly until maturity.
Principal will be payable quarterly beginning on January 1, 1998. On October 1,
2002, the remaining unpaid principal and interest is due and payable. During
the six months ended June 30, 1996, the Company borrowed and repaid $1,050,000.
At September 30, 1996, there was no outstanding balance on the credit facility.
The Company's Board of Directors has authorized the Company to purchase up
to 900,000 shares of Series A common stock. The Company has repurchased 539,883
shares of Series A common stock, of which 35,000 shares were purchased in 1996
utilizing funds from the credit facility described above.
The Company has elected and intends to continue to qualify as a real estate
investment trust (REIT) for federal income tax purposes. As a REIT, the Company
must meet, among other tests, sources of income, share ownership, and certain
asset tests. The Company is not taxed on that portion of its taxable income
which is distributed to its shareholders provided that at least 95% of its
taxable income is so distributed to its shareholders prior to filing of the
Company's tax return. The primary difference between book income and taxable
income is depreciation expense. In 1995, the Company's federal tax depreciation
was $1,404,000.
The bylaws of the Company provide that, during 1997, unless shareholders
have previously approved such a proposal, the shareholders will be presented
with a proposal to approve or disapprove (a) the sale or financing of all or
substantially all of the properties and (b) the distribution of the proceeds
from such transaction and, in the case of a sale, the liquidation of the
Company.
G2-4
<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 3.18) which
are incorporated herein by this reference. In October 1988, the Company also
entered into indemnity agreements (in the form approved by the shareholders in
August 1988) with its management and non-management directors and executive
officers. The agreements permit the Company to indemnify directors and
executive officers to the maximum extent permitted under California law and
prohibit the Company from terminating its indemnification obligations as to acts
or omissions of any director or executive officer occurring before the
termination. The indemnification and limitations on liability permitted by the
amendment to the Articles of Incorporation and the agreements are subject to the
limitations set forth by California law. The Company believes the
indemnification agreements will assist it in attracting and retaining qualified
individuals to serve as directors and executive officers of the Company.
ITEM 21. Exhibits and Financial Statement Schedules.
(a) Exhibits: See Exhibit Index contained herein.
(b) Financial Statement Schedules:
See Index to Financial Statement Schedules in registrant's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
All other financial statement schedules are omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
ITEM 22. Undertakings.
The undersigned Registrant hereby undertakes as follows:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
S-1
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs 3.(i) and 3.(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
4. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
5. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
6. That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
7. To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
8. Except as permitted by General Instruction H to Form S-4 (in a
transaction not covered by General Instruction I), to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described under Item 20 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Glendale, State of
California, on the 3rd day of March, 1997.
PUBLIC STORAGE, INC.
By: B. WAYNE HUGHES
--------------------------------------
B. Wayne Hughes, Chairman of the Board
Each person whose signature appears below hereby authorizes B. Wayne Hughes
and Harvey Lenkin, and each of them, as attorney-in-fact, to sign on his behalf,
individually and in each capacity stated below, any amendment, including post-
effective amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
B. WAYNE HUGHES Chairman of the Board, Chief Executive March 3, 1997
_____________________ Officer and Director (principal executive
B. Wayne Hughes officer)
HARVEY LENKIN President and Director March 3, 1997
_____________________
Harvey Lenkin
JOHN REYES Senior Vice President and Chief March 3, 1997
_____________________ Financial Officer (principal financial
John Reyes officer and principal accounting officer)
ROBERT J. ABERNETHY Director March 3, 1997
_____________________
Robert J. Abernethy
DANN V. ANGELOFF Director March 3, 1997
_____________________
Dann V. Angeloff
WILLIAM C. BAKER Director March 3, 1997
__________________
William C. Baker
URI P. HARKHAM Director March 3, 1997
________________
Uri P. Harkham
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization among Registrant, Public Storage
Properties XIV, Inc. ("PSP14") and Public Storage Properties XV, Inc.
("PSP15") dated as of December 5, 1996 (filed as Appendix A to the
Combined Proxy Statement and Prospectus).
3.1 Restated Articles of Incorporation. Filed with Registrant's
Registration Statement No. 33-54557 and incorporated herein by
reference.
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B. Filed with Registrant's Registration
Statement No. 33-56925 and incorporated herein by reference.
3.5 Certificate of Determination for the 8.25% Convertible Preferred Stock.
Filed with Registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 9.50% Cumulative Preferred Stock, Series D and
incorporated herein by reference.
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 10% Cumulative Preferred Stock, Series E and
incorporated herein by reference.
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 9.75% Cumulative Preferred Stock, Series F and
incorporated herein by reference.
3.10 Certificate of Determination for the Convertible Participating Preferred
Stock. Filed with Registrant's Registration Statement No. 33-63947 and
incorporated herein by reference.
3.11 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 33-63947 and incorporated herein
by reference.
3.12 Certificate of Determination for the 8-7/8% Cumulative Preferred Stock,
Series G. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 8-7/8% Cumulative Preferred Stock, Series G and
incorporated herein by reference.
3.13 Certificate of Determination for the 8.45% Cumulative Preferred Stock,
Series H. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 8.45% Cumulative Preferred Stock, Series H and
incorporated herein by reference.
3.14 Certificate of Determination for the Convertible Preferred Stock, Series
CC. Filed with Registrant's Registration Statement No. 333-03749 and
incorporated herein by reference.
3.15 Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock. Filed with Registrant's
Registration Statement No. 333-08791 and incorporated herein by
reference.
S-4
<PAGE>
3.16 Certificate of Determination for the 8 5/8% Cumulative Preferred Stock,
Series I. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 8 5/8% Cumulative Preferred Stock, Series I and
incorporated herein by reference.
3.17 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 333-18395 and incorporated
herein by reference.
3.18 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.
3.19 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.
5.1 Opinion on legality. Filed herewith.
8.1 Opinion on tax matters for PSP14. Filed herewith.
8.2 Opinion on tax matters for PSP15. 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 Second Amended and Restated Credit Agreement by and among Registrant,
Wells Fargo Bank, National Association, as agent, and the financial
institutions party thereto dated as of February 25, 1997. Filed
herewith.
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 Registrant's 1996 Stock Option and Incentive Plan. Filed with
Registrant's Registration Statement No. 333-13463 and incorporated herein
by reference.
10.8 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.
10.9 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. for PSP14 (included in Exhibit 8.1).
23.4 Consent of Hogan & Hartson L.L.P. for PSP15 (included in Exhibit 8.2).
S-5
<PAGE>
23.5 Consent of Charles R. Wilson & Associates, Inc. Filed herewith.
99.1 Proxy card for PSP14. Filed herewith.
99.2 Proxy card for PSP15. Filed herewith.
99.3 Cash Election Form for PSP14. Filed herewith.
99.4 Cash Election Form for PSP15. Filed herewith.
99.5 Real Estate Appraisal Report by Charles R. Wilson & Associates, Inc. for
PSP14 dated November 15, 1996 (filed as Appendix B-1 to the Combined
Proxy Statement and Prospectus).
99.6 Real Estate Appraisal Report by Charles R. Wilson & Associates, Inc. for
PSP15 dated November 15, 1996 (filed as Appendix B-2 to the Combined
Proxy Statement and Prospectus).
99.7 Opinion of Robert A. Stanger & Co., Inc. (PSP14 Merger) dated March 3,
1997 (filed as Appendix C-1 to the Combined Proxy Statement and
Prospectus).
99.8 Opinion of Robert A. Stanger & Co., Inc. (PSP15 Merger) dated March 3,
1997 (filed as Appendix C-2 to the Combined Proxy Statement and
Prospectus).
_______________
* Compensatory benefit plan.
S-6
<PAGE>
Exhibit 5.1
DAVID GOLDBERG
Senior Vice President and General Counsel
701 Western Avenue, Suite 200
Glendale, California 91201-2397
March 3, 1997
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Gentlemen:
As Senior Vice President and General Counsel of Public Storage, Inc. (the
"Company"), I have examined the Registration Statement on Form S-4, which is
expected to be filed by the Company with the Securities and Exchange Commission
on or about the date of delivery of this opinion (the "Registration Statement"),
which relates to the offer and sale of the Company's common stock, par value
$.10 per share (the "Shares").
I am familiar with the proceedings taken or to be taken by the Company
relating to the authorization and issuance of the Shares in the manner set forth
in the Registration Statement. I have also examined the Company's Restated
Articles of Incorporation and Revised Bylaws and have made such other
investigation as I have deemed necessary in order to express the opinions
contained herein.
It is my opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of California.
2. The Shares, when issued and delivered in the manner and on the terms
described in the Registration Statement, will be legally issued, fully paid and
nonassessable.
I hereby consent to the reference to me under the caption "Legal Opinions"
in the Registration Statement and to the filing of this opinion as an exhibit to
the Registration Statement or amendments thereto.
Very truly yours,
/S/ DAVID GOLDBERG
DAVID GOLDBERG
<PAGE>
Exhibit 8.1
[LETTERHEAD OF HOGAN & HARTSON L.L.P.]
March 3, 1997
Public Storage Properties XIV, Inc.
701 Western Ave., Suite 200
Glendale, California 91201-2397
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section
7.1.7 of the Agreement and Plan of Merger by and between Public Storage, Inc., a
California corporation ("PSI") and Public Storage Properties XIV, Inc., a
California corporation ("PSP14"). We have acted as legal counsel to PSP14 in
connection with the Merger. Pursuant to the Agreement and Plan of
Reorganization dated December 5, 1996 (the "Reorganization Agreement"), PSP14
will merge with and into PSI (the "Merger").
Except as otherwise provided, capitalized terms referred to herein
have the meanings set forth in the Reorganization Agreement and in the Combined
Proxy Statement and Prospectus filed with the Securities and Exchange Commission
on or about the date of delivery of this opinion (the "Proxy Statement and
Prospectus"). All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
In connection with the preparation of this opinion, we have examined
and with your consent relied upon (without any independent investigation or
review thereof) the following documents (including all exhibits and schedules
thereto):
1. The Reorganization Agreement;
2. Representations made to us by PSI;
3. Representations made to us by PSP14;
4. The Proxy Statement and Prospectus;
5. Such other instruments and documents related to the formation,
organization and operation of PSI and PSP14 or to the consummation of the Merger
and the transactions contemplated thereby as we have deemed necessary or
appropriate.
<PAGE>
Public Storage Properties XIV, Inc.
March 3, 1997
Page 2
In connection with rendering this opinion, we have assumed or obtained
representations (and, with your consent, are relying thereon, without any
independent investigation or review thereof) that:
1. All information contained in each of the documents we have
examined and relied upon in connection with the preparation of this opinion is
accurate, all copies are accurate, and all signatures are genuine. We have also
assumed that 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 the effectiveness thereof.
2. The Merger will be effective and will qualify as a statutory
merger under 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. Any representation or statement made "to the best of the
knowledge" or similarly qualified is correct without such qualification.
5. The Merger will be consummated in accordance with the Agreement
and as described in the Proxy Statement and Prospectus (including satisfaction
of all covenants and conditions to the obligations of the parties without
amendment or waiver thereof); each of PSI and PSP14 will comply with all
reporting obligations with respect to the Merger required under the Code, and
the Treasury Regulations thereunder; and the Reorganization Agreement and all
other documents and instruments referred to therein or in the Proxy Statement
and Prospectus are valid and binding in accordance with their terms.
Based on and subject to the foregoing, it is our opinion (1) that for
federal income tax purposes, the Merger will constitute a "reorganization" as
defined in Section 368(a) of the Code, (2) that PSI continues to qualify as a
REIT under sections 856 through 860 of the Internal Revenue Code (the "Code")
following the merger of Public Storage Management, Inc. ("PSMI") into PSI (the
"PSMI
<PAGE>
Public Storage Properties XIV, Inc.
March 3, 1997
Page 3
Merger") SO LONG AS (A) PSI has met at all times since the PSMI Merger and
continues to meet the stock ownership and gross income requirements applicable
to REITs and (B) PSMI at the time of (and after giving effect to) the PSMI
Merger was not considered to have any current or accumulated earnings and
profits for tax purposes, and (3) that the discussion under the heading "Federal
Income Tax Matters" in the Proxy Statement and Prospectus to the extent that it
describes matters of law or legal conclusions, is correct in all material
respects.
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. An opinion of
counsel merely represents counsel's best judgment with respect to the probable
outcome on the merits and is not binding on the Internal Revenue Service or the
courts. There can be no assurance that positions contrary to our opinions will
not be taken by the Internal Revenue Service, or that a court considering the
issues would not hold contrary to such opinions. 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 PSP14 Shareholder who has
provided or will provide services to PSP14 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
<PAGE>
Public Storage Properties XIV, Inc.
March 3, 1997
Page 4
provisions (Sections 55, 56 and 57) of the Code or Sections 305, 306, 357, and
708 of the Code, or the regulations promulgated thereunder; and
(iii) the tax consequences of the Merger (including the opinion set
forth above) as applied to specific stockholders of PSP14 and/or holders of
options or warrants for PSP14 stock or that may be relevant to particular
classes of PSP14 Shareholders and/or holders of options or warrants for PSP14
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 Reorganization Agreement or to any transaction
whatsoever, including the Merger, if all the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of
such Reorganization 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 Reorganization 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 "Federal Income Tax Matters" in the Proxy
Statement and
<PAGE>
Public Storage Properties XIV, Inc.
March 3, 1997
Page 5
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
[LETTERHEAD OF HOGAN & HARTSON L.L.P.]
March 3, 1997
Public Storage Properties XV, Inc.
701 Western Ave., Suite 200
Glendale, California 91201-2397
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section
7.1.7 of the Agreement and Plan of Merger by and among Public Storage, Inc., a
California corporation ("PSI"), Public Storage Properties XV, Inc., a California
corporation ("PSP15") and Public Storage Properties XIV, Inc. We have acted as
legal counsel to PSP15 in connection with the Merger. Pursuant to the Agreement
and Plan of Reorganization dated December 5, 1996 (the "Reorganization
Agreement"), PSP15 will merge with and into PSI (the "Merger").
Except as otherwise provided, capitalized terms referred to herein
have the meanings set forth in the Reorganization Agreement and in the Combined
Proxy Statement and Prospectus filed with the Securities and Exchange Commission
on or about the date of delivery of this opinion (the "Proxy Statement and
Prospectus"). All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
In connection with the preparation of this opinion, we have examined
and with your consent relied upon (without any independent investigation or
review thereof) the following documents (including all exhibits and schedules
thereto):
1. The Reorganization Agreement;
2. Representations made to us by PSI;
3. Representations made to us by PSP15;
4. The Proxy Statement and Prospectus;
5. Such other instruments and documents related to the formation,
organization and operation of PSI and PSP15 or to the consummation of the Merger
and the transactions contemplated thereby as we have deemed necessary or
appropriate.
<PAGE>
Public Storage Properties XV, Inc.
March 3, 1997
Page 2
In connection with rendering this opinion, we have assumed or obtained
representations (and, with your consent, are relying thereon, without any
independent investigation or review thereof) that:
1. All information contained in each of the documents we have
examined and relied upon in connection with the preparation of this opinion is
accurate, all copies are accurate, and all signatures are genuine. We have also
assumed that 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 the effectiveness thereof.
2. The Merger will be effective and will qualify as a statutory
merger under 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. Any representation or statement made "to the best of the
knowledge" or similarly qualified is correct without such qualification.
5. The Merger will be consummated in accordance with the Agreement
and as described in the Proxy Statement and Prospectus (including satisfaction
of all covenants and conditions to the obligations of the parties without
amendment or waiver thereof); each of PSI and PSP15 will comply with all
reporting obligations with respect to the Merger required under the Code, and
the Treasury Regulations thereunder; and the Reorganization Agreement and all
other documents and instruments referred to therein or in the Proxy Statement
and Prospectus are valid and binding in accordance with their terms.
Based on and subject to the foregoing, it is our opinion (1) that for
federal income tax purposes, the Merger will constitute a "reorganization" as
defined in Section 368(a) of the Code, (2) that PSI continues to qualify as a
REIT under sections 856 through 860 of the Internal Revenue Code (the "Code")
following the merger of Public Storage Management, Inc. ("PSMI") into PSI (the
"PSMI
<PAGE>
Public Storage Properties XV, Inc.
March 3, 1997
Page 3
Merger") SO LONG AS (A) PSI has met at all times since the PSMI Merger and
continues to meet the stock ownership and gross income requirements applicable
to REITs and (B) PSMI at the time of (and after giving effect to) the PSMI
Merger was not considered to have any current or accumulated earnings and
profits for tax purposes, and (3) that the discussion under the heading "Federal
Income Tax Matters" in the Proxy Statement and Prospectus to the extent that it
describes matters of law or legal conclusions, is correct in all material
respects.
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. An opinion of
counsel merely represents counsel's best judgment with respect to the probable
outcome on the merits and is not binding on the Internal Revenue Service or the
courts. There can be no assurance that positions contrary to our opinions will
not be taken by the Internal Revenue Service, or that a court considering the
issues would not hold contrary to such opinions. 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 PSP15 Shareholder who has
provided or will provide services to PSP15 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
<PAGE>
Public Storage Properties XV, Inc.
March 3, 1997
Page 4
provisions (Sections 55, 56 and 57) of the Code or Sections 305, 306, 357, and
708 of the Code, or the regulations promulgated thereunder; and
(iii) the tax consequences of the Merger (including the opinion set
forth above) as applied to specific stockholders of PSP15 and/or holders of
options or warrants for PSP15 stock or that may be relevant to particular
classes of PSP15 Shareholders and/or holders of options or warrants for PSP15
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 Reorganization Agreement or to any transaction
whatsoever, including the Merger, if all the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of
such Reorganization 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 Reorganization 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 "Federal Income Tax Matters" in the Proxy
Statement and
<PAGE>
Public Storage Properties XV, Inc.
March 3, 1997
Page 5
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 10.3
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
By and Among
PUBLIC STORAGE, INC.,
as the Borrower,
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Agent,
and
THE FINANCIAL INSTITUTIONS PARTY HERETO
Dated as of February 25, 1997
____________________
$150,000,000
Schedules to this Agreement will be furnished to the Securities and Exchange
Commission upon request.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 Definitions......................................... 1
ARTICLE 2 Loans............................................... 25
2.1 Revolving Credit.................................... 25
(a) Revolving Loans................................ 25
(b) Commitment Limits.............................. 26
(c) Borrowing Procedures........................... 26
(d) Notes.......................................... 27
2.2 Interest and Fees................................... 27
(a) Interest....................................... 27
(b) Extensions and Conversions..................... 28
(c) Facility Fee................................... 28
(d) Computation of Interest and Facility Fee....... 28
(e) Illegality, Taxation and Additional
Interest Rate Provisions....................... 29
(f) Capital Adequacy Requirements.................. 30
(g) Annual Renewal Fee............................. 30
2.3 Payments............................................ 30
(a) Payment of Loans............................... 30
(b) Optional Prepayment............................ 31
(c) Mandatory Prepayments.......................... 31
(d) Payments Prior to Interest Period
Expiration..................................... 32
(e) Payments by the Borrower....................... 32
(f) Payments by the Banks to the Agent............. 33
(g) Sharing of Payments, etc....................... 34
(h) Offset......................................... 34
(i) Application of Prepayments..................... 35
2.4 Swing Line.......................................... 35
(a) Swing Line..................................... 35
(b) Borrowing and Repayment........................ 35
2.5 Competitive Bid Borrowings.......................... 37
(a) Competitive Bid Borrowings..................... 37
(b) Borrowing Procedure for Competitive Bid
Loans.......................................... 37
ARTICLE 3 Transition Provisions............................... 42
3.1 Exchange of Notes................................... 42
3.2 Transfer of Loan Balances........................... 42
ARTICLE 4 Conditions Precedent................................ 43
4.1 Conditions to Initial Borrowing..................... 43
(a) Delivery of Documents.......................... 43
(b) Reports, Certificates and Other
Information.................................... 43
(c) Opinions of Counsel............................ 44
(d) Payment of Fees................................ 44
(e) No Existing Default............................ 44
(f) Representations and Warranties Correct......... 44
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(g) Legality of Transactions....................... 45
(h) Notice of Authorized Representatives........... 45
(i) Other Documents................................ 45
4.2 Conditions to Each Loan............................. 45
(a) Initial Closing Date........................... 45
(b) No Existing Default............................ 45
(c) Representations and Warranties Correct......... 45
(d) Loan Request................................... 45
(e) No Material Adverse Change..................... 45
4.3 Conditions for the Benefit of the Agent and the
Banks............................................... 46
4.4 Failure of Conditions............................... 46
ARTICLE 5 Representations and Warranties of the Borrower...... 46
5.1 Due Organization.................................... 46
5.2 Subsidiaries........................................ 46
5.3 Requisite Power..................................... 47
5.4 Authorization....................................... 47
5.5 Officer Authorization............................... 47
5.6 Binding Nature...................................... 47
5.7 No Conflict......................................... 47
5.8 No Event of Default................................. 48
5.9 Financial Statements................................ 48
5.10 Projected Financial Statements and Projections...... 48
5.11 Real Property....................................... 49
5.12 Equipment........................................... 49
5.13 Contracts........................................... 49
5.14 Intellectual Property............................... 49
5.15 Litigation and Contingent Liabilities............... 50
5.16 Tax Returns and Tax Matters......................... 50
5.17 REIT Status......................................... 50
5.18 No Subordination.................................... 50
5.19 Employee Benefits................................... 50
(a) Plans Maintained............................... 50
(b) Reporting and Disclosure....................... 51
(c) Qualification of Plans......................... 51
(d) Contributions and Premiums..................... 52
(e) Litigation and Extraordinary Claims............ 52
(f) Prohibited Transactions........................ 52
(g) COBRA.......................................... 52
5.20 Environmental Matters............................... 52
5.21 Compliance with Laws................................ 53
5.22 Statutory Regulation................................ 53
5.23 Use of Proceeds; Regulation U....................... 53
5.24 Solvency............................................ 53
ARTICLE 6 Affirmative Covenants............................... 54
6.1 Accounting Records.................................. 54
6.2 Financial Statements and Notices.................... 54
6.3 Inspection of Property, Books and Records........... 58
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
6.4 Maintenance of Existence............................. 58
6.5 Tax Returns.......................................... 59
6.6 Qualifications To Do Business........................ 59
6.7 Compliance with Laws................................. 59
6.8 REIT Status.......................................... 59
6.9 Material Agreements.................................. 59
6.10 Insurance............................................ 59
6.11 Facilities........................................... 59
6.12 Taxes and Other Liabilities.......................... 60
6.13 Governmental Approvals............................... 60
6.14 Tax Qualification.................................... 60
6.15 Funding.............................................. 60
6.16 Financial Tests...................................... 61
6.17 Unencumbered Assets.................................. 61
6.18 Borrower's Account................................... 61
6.19 Accounting Policies.................................. 61
6.20 Investments in Mini-storage Properties............... 62
ARTICLE 7 Negative Covenants................................... 62
7.1 Mergers.............................................. 62
7.2 Change of Business................................... 62
7.3 Distributions........................................ 62
7.4 Liens................................................ 63
7.5 Indebtedness......................................... 63
7.6 Sale of Assets....................................... 63
7.7 Transactions with Affiliates......................... 63
7.8 Restrictive Agreements............................... 64
7.9 Key Contracts........................................ 64
7.10 Certain ERISA Payments............................... 64
7.11 Compliance with ERISA................................ 64
7.12 Changes in Partnerships.............................. 65
7.13 Other Contracts...................................... 65
ARTICLE 8 Events of Default.................................... 65
8.1 Events of Default.................................... 65
(a) Payments........................................ 65
(b) Certain Covenants in This Agreement............. 65
(c) Other Covenants and Agreements.................. 66
(d) Representations and Warranties.................. 66
(e) Monetary Judgment............................... 66
(f) Non-Monetary Judgments.......................... 66
(g) Liens for Pension Contributions................. 66
(h) ERISA........................................... 66
(i) Cross-Default................................... 67
(j) Bankruptcy...................................... 67
(k) Invalidity of Loan Documents.................... 68
(l) Change of Control............................... 69
(m) Loss of REIT Status............................. 69
8.2 Termination of Commitment and Acceleration........... 69
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 9 The Agent............................................ 69
9.1 Appointment and Authorization........................ 69
9.2 Delegation of Duties................................. 70
9.3 Liability of Agent................................... 70
9.4 Reliance by Agent.................................... 70
9.5 Notice of Default.................................... 71
9.6 Credit Decision...................................... 71
9.7 Indemnification...................................... 72
9.8 Agent in Individual Capacity......................... 73
9.9 Successor Agent...................................... 73
9.10 Borrower's Reliance.................................. 73
ARTICLE 10 Miscellaneous........................................ 73
10.1 Successors and Assigns and Sale of Interests......... 73
10.2 No Implied Waiver.................................... 75
10.3 Amendments and Waivers............................... 75
10.4 Remedies Cumulative.................................. 76
10.5 Severability......................................... 76
10.6 Costs, Expenses and Attorneys' Fees.................. 76
10.7 General Indemnification.............................. 77
10.8 Environmental Indemnification........................ 78
10.9 Notices.............................................. 78
10.10 Entire Agreement..................................... 79
10.11 Governing Law and Consent to Jurisdiction............ 80
10.12 Counterparts......................................... 80
10.13 Waiver of Jury Trial................................. 80
10.14 Headings............................................. 80
10.15 Supersession......................................... 80
</TABLE>
SCHEDULES AND EXHIBITS
Schedule 1 Permitted Liens
Schedule 5.2 Subsidiaries and Controlled Partnerships
Schedule 5.11 Real Property
Schedule 5.15 Litigation
Schedule 5.19(i) Qualified Benefit Plans
Schedule 5.19(ii) Non-qualified Benefit Plans
Schedule 5.20 Environmental Matters
Schedule 7.7 Transactions with Affiliates
Exhibit 1.1 Form of Invitation for Competitive Bids
Exhibit 2.1(c) Form of Loan Request
Exhibit 2.1(d) Form of Revolving Note
Exhibit 2.2(b) Form of Notice of Conversion/Extension
Exhibit 2.4(a) Form of Swing Line Note
Exhibit 2.5(b)(i) Form of Competitive Bid Request
Exhibit 2.5(b)(iii) Form of Competitive Bid
Exhibit 2.5(c) Form of Competitive Bid Loan Note
Exhibit 4.1(c) Form of Opinion of Borrower's Counsel
-iv-
<PAGE>
Exhibit 4.1(h) Form of Notice of Authorized Representatives
Exhibit 6.2(b) Form of Letter from Auditor
Exhibit 6.2(c) Form of Compliance Certificate
Exhibit 10.1(b) Form of Assignment and Acceptance
-v-
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
February 25, 1997, by and among PUBLIC STORAGE, INC., a California corporation
--------------------
(formerly known as Storage Equities, Inc.) (the "Borrower"), WELLS FARGO BANK,
-----------------
NATIONAL ASSOCIATION, a national banking association, as agent for the financial
- --------------------
institutions party hereto (in such capacity, the "Agent"), and THE FINANCIAL
-------------
INSTITUTIONS PARTY TO THIS AGREEMENT (collectively, the "Banks"; individually, a
- ------------------------------------
"Bank").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Banks (excepting Signet Bank)
entered into that certain Amended and Restated Credit Agreement, dated as of May
22, 1995, (the "Original Amended and Restated Credit Agreement"), whereunder the
Banks (excepting Signet Bank) agreed to extend credit to the Borrower; and
WHEREAS, on November 16, 1995, the Borrower (as the surviving corporation)
merged with Public Storage Management, Inc., a California corporation and
immediately after the merger changed its name to Public Storage, Inc.; and
WHEREAS, the Agent and the Borrower have entered into the Commitment Letter
and agreed that (a) from and after the Initial Closing Date, the Banks would
extend credit to the Borrower upon and subject to the terms of this Credit
Agreement, and (b) as of the Initial Closing Date, the Original Amended and
Restated Credit Agreement would be amended and restated in its entirety and
superseded by this Credit Agreement:
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
---------
Definitions
-----------
In addition to any terms defined elsewhere in this Agreement, the
following terms have the meanings indicated for purposes of this Agreement (such
definitions being equally applicable to the singular and plural forms of the
defined term):
"Acceleration" means that the Loans (i) shall not have been paid at the
Final Maturity Date, or (ii) shall have become due and payable prior to their
stated maturity pursuant to Paragraph 8.2 hereof.
-1-
<PAGE>
"Adjusted Non-Consolidated Affiliate" means a Non-Consolidated Affiliate in
which the Borrower's ownership interest has a value greater than 2% of
Borrower's Consolidated Gross Asset Value calculated without inclusion of any
amounts attributable to such Non-Consolidated Affiliate. For purposes of the
foregoing, the value of the Borrower's ownership interest in a Non-Consolidated
Affiliate shall be the Borrower's Combined Percentage Interest of the Gross
Asset Value of such Non-Consolidated Affiliate.
"Affiliate" means with respect to any Person (i) each Person that, directly
or indirectly, owns or controls, whether beneficially, or as a trustee, guardian
or other fiduciary, five percent (5%) or more of the capital stock having
ordinary voting power in the election of directors of such Person, or if such
Person is a partnership, five percent (5%) or more of the interests in income or
cash flow of such Person, (ii) each Person that controls, is controlled by or is
under common control with such Person or any Affiliate of such Person or (iii)
each of such Person's officers, directors, joint venturers and general partners.
For the purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" has the meaning specified in the heading to this Agreement and any
successor agent.
"Agent's Letter" means that certain letter dated August 15, 1996 from the
Agent to the Borrower, referred to therein as the Fee Letter.
"Agent-Related Persons" shall have the meaning set forth in Paragraph 9.3
hereof.
"Aggregate Net Asset Value" means, with respect to any Unencumbered Asset
or Real Estate Investment, Borrower's Combined Percentage Interest in the pre-
depreciation net book value (determined in accordance with GAAP) of such
Unencumbered Asset or Real Estate Investment.
"Agreement" or "Credit Agreement" means this Second Amended and Restated
Credit Agreement, as from time to time amended, modified or supplemented.
"Annual Report" means the Borrower's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the fiscal year ended December 31,
1995.
"Applicable Interest Coverage Ratio" means, as of any date, the Interest
Coverage Ratio for the period of four consecutive full fiscal quarters most
recently ended as of such date.
-2-
<PAGE>
"Applicable Margin" means, on any date that either Borrower's Senior
Unsecured Debt or Borrower's Preferred Stock is rated Investment Grade and with
respect to each Revolving Loan, the applicable margin set forth below based on
the type of Revolving Loan and the Applicable Interest Coverage Ratio on such
date:
<TABLE>
<CAPTION>
Applicable Interest Base Rate
Coverage Ratio Loans LIBOR Loans
------------------- --------- -----------
<S> <C> <C>
Less than 7.0 to 1.0 0.00% 1.10%
Equal to or greater than
7.0 to 1.0, but less
than 10.0 to 1.0 0.00% 0.90%
Equal to or greater than
10.0 to 1.0, but less
than 13.0 to 1.0 0.00% 0.75%
Equal to or greater than
13.0 to 1.0, but less
than 15.0 to 1.0 0.00% 0.625%
Equal to or greater than
15.0 to 1.0 0.00% 0.40%
</TABLE>
provided, however, that, irrespective of the Applicable Interest Coverage Ratio
but subject to the immediately following sentence, on any date that neither
Borrower's Senior Unsecured Debt nor Borrower's Preferred Stock is rated
Investment Grade, the Applicable Margin for Base Rate Loans shall be 0.50% and
the Applicable Margin for LIBOR Loans shall be 2.00%. If a determinative rating
by any one or more Rating Agencies shall change (other than as a result of a
change in the rating system used by any applicable Rating Agency) such that
neither Borrower's Senior Unsecured Debt nor Borrower's Preferred Stock would be
rated Investment Grade as a result, such change shall effect a change in
Applicable Margin(s) (A) in the case of all Base Rate Loans, as of the date that
is five days after the applicable Rating Notice Date, and (B) in the case of
LIBOR Loans, as of the first day of the Interest Period immediately following
such Rating Notice Date.
"Assignment and Acceptance" has the meaning specified in Paragraph 10.1(b)
hereof.
"Authorized Officer" means each officer of a corporation authorized by the
board of directors of that corporation to act on behalf of that corporation or
on behalf of any Partnership of which that corporation is a general partner,
under this Agreement or any of the other Loan Documents.
-3-
<PAGE>
"Authorized Representatives" shall mean those officers and employees
designated by the Borrower on the most current Notice of Authorized
Representatives delivered to the Agent as being authorized to request any
borrowing, to make any interest rate designation on behalf of the Borrower
hereunder, or to give the Agent any other notice hereunder which is contemplated
by the terms hereof.
"Available Revolving Commitment Amount" means, with respect to any Bank as
of any date, an amount equal to such Bank's Commitment Amount as in effect on
such date (a) minus (i) such Bank's Commitment Percentage in effect on such date
applied to (ii) the aggregate principal amount of all Revolving Loans
outstanding on such date, and (b) minus the principal amount of such Bank's
Competitive Bid Loans outstanding on such date.
"Average Life" means, with respect to any Indebtedness as of the date of
any determination thereof, the number of years obtained by dividing the then
Remaining Dollar-Years of the principal amount of such Indebtedness by the
aggregate amount of such principal. The term "Remaining Dollar-Years" means the
sum of the amounts obtained by multiplying (i) the principal amount due on each
scheduled payment date (not taking into account any prepayments of principal) by
(ii) the number of years (calculated to the nearest one-twelfth) that will
elapse between the date of determination and such scheduled payment date.
"Balance Sheet Leverage Ratio" means, as of any day, the ratio of
Consolidated Total Liabilities as of such day to Consolidated Gross Asset Value
as of such day.
"Bank Indemnitees" shall have the meaning set forth in Paragraph 10.7
hereof.
"Bank" or "Banks" shall have the meaning specified in the heading of this
Agreement and any successors thereto.
"Banking Day" means a day other than a Saturday or a Sunday when commercial
banks are open for business in San Francisco, California and, with respect to
LIBOR Loans, when commercial banks are open for business in London, England.
"Base LIBOR" shall mean, for any Interest Period pertaining to a LIBOR
Loan, the rate per annum at which the Agent is offered dollar deposits in the
London interbank Eurodollar market at approximately 9:00 a.m. San Francisco time
two (2) Banking Days prior to the beginning of the Interest Period for such
Loan, for delivery on the first day thereof for the number of months comprised
therein and in an amount equal to the amount of the LIBOR Loan to be outstanding
during such Interest Period.
"Base Rate" means on any day the greater of (a) the Prime Rate in effect on
that day, or (b) the Federal Funds Rate in effect on that day plus 0.5% per
annum.
-4-
<PAGE>
"Base Rate Loans" means all Loans bearing interest at a rate based on the
Base Rate.
"Borrower" has the meaning specified in the heading to this Agreement.
"Borrower's Account" means the wholesale demand deposit account maintained
by the Borrower with the Agent at the Agent's Regional Commercial Banking Office
in El Monte, California, or such other account of the Borrower with the Agent as
the Borrower and the Agent may agree in writing.
"Borrower's Preferred Stock" means the "Senior Preferred Stock" of the
Borrower described in the Annual Report.
"Borrower's Senior Unsecured Debt" means the senior unsecured debt of the
Borrower outstanding from time to time.
"Borrowing" means an extension of a Loan by the Banks to the Borrower
pursuant to Article 2 hereof.
"Business Park Property" means a property generally of the type described
in the Annual Report as "business parks."
"Business of Borrower" means (a) the business of the Borrower as described
in the Annual Report, consisting of the ownership, management and operation of
Business Park Properties, Mini-storage Properties and Combination Properties in
the United States or Canada; ownership and collection or enforcement of Mortgage
Notes; and ownership of partnership interests in partnerships or shares of
stock in corporations which qualify as real estate investments trusts under
sections 856-886 of the Code, which, in each case, own, manage and operate
Business Park Properties, Mini-storage Properties and/or Combination Properties,
and (b) additional lines of business ancillary to the foregoing consisting of
truck rentals, sales of locks, the container storage business and tenant
reinsurance.
"Capital Expenditure" means any expenditure in respect of any depreciable
asset, including expenditures for repair and maintenance of real property or for
the acquisition of equipment (including any portion of any payment under any
Capitalized Lease), that would be capitalized on the consolidated balance sheet
of the Borrower and its Consolidated Affiliates as of the end of that period, in
conformity with GAAP, other than payment of the purchase price in connection
with acquisitions of real property or payments for any development,
construction, reconstruction or renovation project involving costs in excess of
five hundred thousand dollars ($500,000).
"Capitalized Lease" means any lease under which the obligation of the
lessee is required by GAAP to be shown as a liability on the financial
statements of the lessee.
-5-
<PAGE>
"Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"Cash Flow Coverage Ratio" means for any period the ratio of (a) the sum of
(i) Cash Flow from Operations for such period, plus (ii) Borrower's Combined
Percentage Interest in Consolidated Interest Expense for such period, to (b) the
sum of (i) Borrower's Combined Percentage Interest in Consolidated Interest
Expense for such period, plus (ii) Borrower's Combined Percentage Interest in
scheduled principal payments (excluding balloon payments) during such period in
respect of Long-term Indebtedness of the Borrower and the Consolidated
Affiliates on a consolidated basis in accordance with GAAP, plus (iii)
Borrower's Combined Percentage Interest in scheduled principal payments during
such period in respect of Capitalized Lease Obligations of the Borrower and the
Consolidated Affiliates on a consolidated basis in accordance with GAAP, plus
(iv) Consolidated Capital Expenditures for such period, plus (v) the amount of
all cash dividends in respect of any capital stock of the Borrower.
"Cash Flow from Operations" means, for any period, (a) Borrower's Combined
Percentage Interest in Consolidated Net Income of the Borrower and its
Consolidated Affiliates (which is the same as Consolidated Net Income of the
Borrower and its Consolidated Affiliates net of minority interest in such
Consolidated Net Income) for such period, excluding gains (or losses) on early
extinguishment of debt and gains (or losses) on dispositions of real property,
plus (b) depreciation, amortization and other noncash charges for the Borrower
and the Consolidated Affiliates for such period, plus (c) distributions from
equity interests, minus (d) distributions to minority interests in excess of
minority interest in income for such period, minus (e) income from equity
interests, minus (f) Borrower's Combined Percentage Interest in amortization of
discounts on mortgage notes receivable for such period, all determined in
accordance with the methodology utilized in preparation of the Annual Report.
"Change of Control" means the occurrence of any of the following events:
(a) all or substantially all of the assets of the Borrower are sold, leased,
exchanged or otherwise transferred to any Person or group of persons or entities
acting in concert as a partnership or other group; (b) the Borrower is merged or
consolidated with or into another corporation with the effect that the common
stockholders of Borrower immediately prior to such merger or consolidation hold
less than seventy-five percent (75%) of the ordinary voting power of the
outstanding securities of the surviving corporation of such merger or the
corporation resulting from such consolidation; (c) a change in the composition
of the board of directors of the
-6-
<PAGE>
Borrower after the Initial Closing Date as a result of which fewer than a
majority of the incumbent directors are directors who either (i) had been
directors of the Borrower 24 months prior to such change, or (ii) were elected,
or nominated for election, to the board of directors with the affirmative votes
of a majority of the directors who had been directors of the Borrower 24 months
prior to such change and who were still in office at the time of the election or
nomination; or (d) a Person or group (as such term is used in Rule 13d-5 under
the Securities Exchange Act of 1934) of Persons (other than B. Wayne Hughes;
members of the immediate family of B. Wayne Hughes; any foundation, trust, or
other Person controlled by B. Wayne Hughes and/or his immediate family; any
partnership or corporation controlled by B. Wayne Hughes and/or members of his
immediate family (including PS Insurance Company, Ltd., Public Storage Partners,
Ltd., Public Storage Partners II, Ltd., Public Storage Properties, Ltd., Public
Storage Properties IV, Ltd., and Public Storage Properties V, Ltd.); and any
Person eligible to file a statement on Schedule 13G pursuant to Rule 13d-1(b)(1)
of the Securities Exchange Act of 1934) shall, as a result of a tender or
exchange offer, open market purchases, merger, privately negotiated purchases or
otherwise, have become, directly or indirectly, the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of securities
having twenty-five percent (25%) or more of the ordinary voting power of then
outstanding securities of the Borrower.
"COBRA" means Title X of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combination Property" means a property part of which is a Mini-storage
Property and part of which is a Business Park Property.
"Combined Percentage Interest" means, as to any asset, liability or item of
income, gain, loss, deduction or expense on the consolidated financial
statements of the Borrower and the Consolidated Affiliates, the Borrower's
allocable share of such asset, liability or item, for the relevant period or as
of the date of determination, taking into account (a) the relative proportion of
each such item constituting or derived from assets directly owned by the
Borrower and constituting or derived from assets owned by the respective
Consolidated Affiliates or Non-Consolidated Affiliates and (b) Borrower's
Percentage Interests in the respective Consolidated Affiliates or Non-
Consolidated Affiliates.
As an example, assume that there are two Controlled Partnerships:
Partnership A, in which the Borrower's Percentage Interest is 55%; and
Partnership B, in which the Borrower's Percentage Interest is 40%. Further
assume that, for fiscal year 1994, depreciation derived from assets directly
owned by
-7-
<PAGE>
the Borrower is $40,000; depreciation derived from assets owned by Partnership A
is $20,000; and depreciation derived from assets owned by Partnership B is
$30,000. For fiscal year 1994, the Borrower's Combined Percentage Interest of
all depreciation derived from the consolidated assets of the Borrower and the
Consolidated Affiliates would be 70%, calculated as follows:
(55% of $20,000) + (40% of $30,000) + (100% of $40,000) / $90,000 = 63
--
90
"Commercial Properties Group" means American Office Park Properties, Inc.,
a California corporation.
"Commitment" means the obligation of the Banks severally to extend
Revolving Loans to the Borrower pursuant to the terms and conditions of
Paragraph 2.1 hereof.
"Commitment Amount" means, with respect to each Bank, an amount equal to
such Bank's Commitment Percentage multiplied by the Total Commitment Amount as
of the date of determination.
"Commitment Letter" means the letter agreement dated August 15, 1996 from
the Agent to the Borrower, countersigned by the Borrower August 16, 1996.
"Commitment Percentage" means as to any Bank the percentage set forth after
such Bank's signature at the end of this Agreement, plus the aggregate of any
Commitment Percentages thereafter acquired by such Bank as the Assignee pursuant
to any Assignment and Acceptance to which such Bank is a party, less the
aggregate of any Commitment Percentages assigned by such Bank pursuant to any
Assignment and Acceptance to which such Bank is a party, and, as to any new
Bank, the aggregate of any Commitment Percentages acquired by such new Bank as
the Assignee pursuant to any Assignment and Acceptance to which such new Bank is
a party, less the aggregate of any Commitment Percentages assigned by such new
Bank as the Assignor pursuant to any Assignment and Acceptance to which such new
Bank is a party.
"Competitive Bid" means an offer by a Bank to make a Competitive Bid Loan
in accordance with Paragraph 2.5.
"Competitive Bid Loan" means a loan by a Bank to the Borrower under
Paragraph 2.5.
"Competitive Bid Loan Notes" shall have the meaning set forth in Paragraph
2.5(c) hereof.
"Competitive Bid Margin" shall have the meaning set forth in Paragraph
2.5(b) hereof.
"Competitive Bid Request" shall have the meaning set forth in Paragraph
2.5(b) hereof.
-8-
<PAGE>
"Consolidated Affiliates" means, collectively, the Subsidiaries of the
Borrower and the Controlled Partnerships.
"Consolidated Adjusted EBITDA" means, for any period, EBITDA of the
Borrower and its Consolidated Affiliates for such period, minus equity and
earnings of Non-Consolidated Affiliates received by the Borrower or any
Consolidated Affiliate, plus (but without duplication) Borrower's Combined
Percentage Interest of EBITDA of Adjusted Non-Consolidated Affiliates.
"Consolidated Capital Expenditures" means, for any period, the aggregate
Capital Expenditures of the Borrower and the Consolidated Affiliates, on a
consolidated basis in accordance with GAAP, minus the amount paid or reimbursed
by minority interests with respect to such Capital Expenditures during such
period.
"Consolidated Gross Asset Value" means the sum (without duplication of any
item) at any date of determination, of (i) cash owned by Borrower or any of its
Consolidated Affiliates as of such date, (ii) cash equivalents owned by Borrower
or any of its Consolidated Affiliates as of such date, (iii) an amount equal to
(a) Consolidated Adjusted EBITDA for the most recently ended fiscal quarter (as
adjusted by the Agent in its reasonable discretion to take into account any
acquisitions or dispositions of real property or other assets by Borrower or any
of its Consolidated Affiliates), times (b) four (4), divided by (c) ten percent
(10%), (iv) the cost of construction of new Mini-storage Properties, Business
Park Properties and Combination Properties owned by the Borrower or a
Consolidated Affiliate, in each case until the end of the first full four fiscal
quarter period after the earlier to occur of (A) completion of construction as
evidenced by issuance of a certificate of occupancy or similar certificate
indicating that the applicable property is ready for occupancy as a business
park or storage facility, as applicable, by the appropriate governmental
authority, and (B) the date that is eighteen months after the commencement of
physical construction of the applicable property, all for the most recently
ended fiscal quarter determined in accordance with GAAP, and (v) the acquisition
cost of the assets and business of any Person or any substantial part of the
assets and business of any Person that are acquired by Borrower or a
Consolidated Affiliate, in each case for the period until the first full fiscal
quarter ending after the date of acquisition, all as determined in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, gross consolidated
interest expense for the period (including all commissions, discounts, fees and
other charges in connection with standby letters of credit and similar
instruments, such portion of payments under Capitalized Leases as may be
characterized as interest expense in accordance with GAAP; but excluding
Facility Fees, amortization of loan origination costs and other one-time or non-
cash charges related to the incurrence
-9-
<PAGE>
of Indebtedness) for the Borrower and the Consolidated Affiliates, on a
consolidated basis in accordance with GAAP, plus the portion of the up-front
costs and expenses for Rate Contracts (to the extent not included in gross
interest expense) fairly allocated to such Rate Contracts as expenses for such
period; all as determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income for such
period determined on a consolidated basis in accordance with GAAP; provided,
however, that in determining Consolidated Net Income of the Borrower and the
Consolidated Affiliates, (a) there shall not be included in gross revenues any
revenues of a Non-Consolidated Affiliate, but there shall be included any
dividends or distributions from any Non-Consolidated Affiliate received by the
Borrower or any Consolidated Affiliate; (b) there shall not be included in gross
revenues any earnings properly attributable to the assets and business of any
Person or any substantial part of the assets and business of any Person acquired
by the Borrower or any Consolidated Affiliate, or part thereof, prior to the
date of such acquisition but there shall be included in gross revenues (without
duplication) an amount equal to the earnings properly attributable to any such
assets and business for the first three full fiscal quarters after the date of
the acquisition an amount equal to such earnings from the beginning of the first
full fiscal quarter after the date of acquisition annualized over a period equal
to the actual number of fiscal quarters from the beginning of such fiscal
quarter to the date of determination plus the difference between such amount and
the end of the first full fiscal quarter after the date that is one year from
the date of the acquisition; and (c) there shall not be included in gross
revenues any earnings of, and dividends payable to, the Borrower or one of the
Consolidated Affiliates in a currency which at the time may not be converted
into Dollars under the laws of the nation issuing such currency.
"Consolidated Total Liabilities" means all direct and contingent
liabilities required to be disclosed or reported by GAAP of Borrower and its
Consolidated Affiliates, plus (without duplication) Indebtedness (not including
nonrecourse debt of minority interests), letters of credit, repurchase
obligations, forward commitments, accounts payable, lease obligations (including
ground leases), and unfunded obligations of Borrower and its Consolidated
Affiliates. Consolidated Total Liabilities will include (without duplication)
(a) 100% of the recourse liability of Borrower and its Consolidated Affiliates
under (i) guarantees of indebtedness or (ii) loans where Borrower or a
Consolidated Affiliate is liable for debt as a general partner and (b) the share
of Borrower or a Consolidated Affiliate, as applicable, of nonrecourse debt in
Adjusted Non-Consolidated Affiliates.
"Consolidated Unsecured Recourse Indebtedness" means, for the Borrower and
the Consolidated Affiliates on a consolidated
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<PAGE>
basis in accordance with GAAP, all Obligations and all other interest-bearing
Indebtedness (including any Indebtedness or Contingent Obligation with respect
to outstanding letters of credit and any Contingent Obligation with respect to
any interest-bearing indebtedness of any other Person), excluding (a) any such
Indebtedness to the extent that it is fully secured, and (b) any Non-recourse
Indebtedness.
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet item, level of income or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the
nondelivery or nonfurnishing thereof, in any such case if the purpose or intent
of such agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. The amount of any Contingent Obligation shall
be equal to the actual amount of the obligation so guaranteed or otherwise
supported. Without limitation, Contingent Obligation shall include any
environmental indemnity or other agreement with respect to the environmental
condition of any property (whether or not entered into in connection with the
issuance of Non-recourse Indebtedness).
"Continuing Loans" shall have the meaning set forth in Paragraph 3.2(a)
hereof.
"Controlled Group" means the Borrower and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Borrower pursuant to section 414(b) or (c) of the Code.
"Controlled Partnership" means any of the following: (a) any Joint
Venture, (b) any PS Partnership, or (c) as of any date, any other general or
limited partnership whose financial statements are required, as of such date, to
be consolidated with those of the Borrower in accordance with GAAP.
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<PAGE>
"Controlled Partnership Interest" means any direct or indirect interests of
the Borrower (a) as a partner in any Controlled Partnership, or (b) in the
income or cash flow of any Controlled Partnership.
"Controlled Property" means any Mini-storage Property wholly-owned by the
Borrower, any Subsidiary of the Borrower or any Controlled Partnership,
excluding any Mini-storage Property which is under development.
"Dollars" and "$" mean United States Dollars.
"EBITDA" means, in respect of any fiscal period, Consolidated Net Income,
increased by extraordinary losses, decreased by extraordinary gains, and
increased by depreciation, amortization, interest (including the portion of
payments under any Capitalized Lease that may be characterized as interest), and
federal and state income taxes, all for such period on a consolidated basis in
accordance with GAAP.
"Employee Benefit Plan" means any Pension Plan or any other employee
benefit plan (as defined in section 3(3) of ERISA) which the Borrower or any
member of the Controlled Group maintains, or to which it makes or is obligated
to make contributions.
"Environmental Claim" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Substance at, in or from property,
whether or not owned by the Borrower, any Subsidiary of the Borrower or any
Controlled Partnership, or (b) any other circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means any Governmental Requirement pertaining to land
use, air, soil, surface water, groundwater (including the protection, cleanup,
removal, remediation or damage thereof), public or employee health or safety or
any other environmental matter; including without limitation, the following laws
as the same may be amended from time to time:
(1) Clean Air Act (42 U.S.C. (S) 7401, et seq.);
-------
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<PAGE>
(2) Clean Water Act (33 U.S.C. (S) 1251, et seq.);
-------
(3) Resource Conservation and Recovery Act (42 U.S.C. (S) 6901, et
--
seq.);
----
(4) Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. (S) 9601, et seq.);
-------
(5) Safe Drinking Water Act (42 U.S.C. (S) 300f, et seq.);
-------
(6) Toxic Substances Control Act (15 U.S.C. (S) 2601, et seq.);
-------
(7) Rivers and Harbors Act (33 U.S.C. (S) 401, et seq.);
-------
(8) Endangered Species Act (16 U.S.C. (S) 1531, et seq.); and
-------
(9) Occupational Safety and Health Act (29 U.S.C. (S) 651, et seq.);
-------
together with any other foreign or domestic laws (federal, state, provincial or
local) relating to emissions, discharges, releases or threatened releases of any
Hazardous Substance into ambient air, land, surface water, groundwater, personal
property or structures, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, discharge or
handling of any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliated Group" means any entity that, together with the Borrower
or other member of the Controlled Group, is treated as a single employer under
sections 414(m) and 414(o) of the Code.
"Event of Default" shall have the meaning set forth in Article 8 hereof.
"Facility Fee" shall have the meaning set forth in Para graph 2.2(c)
hereof.
"Federal Funds Rate" means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Board (including any such successor,
"H.15(519)") for such day opposite the caption "Federal Funds (Effective)." If
on any relevant day such rate is not yet published in H.15(519), the rate for
such day will be the rate set forth in the daily statistical release designated
as the Composite 3:30 p.m.
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<PAGE>
Quotations for U.S. Government Securities, or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor,
the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal
Funds Effective Rate." If on any relevant day the appropriate rate for such day
is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations,
the rate for such day will be the arithmetic mean of the rates for the last
transaction in overnight federal funds arranged prior to 9:00 a.m. New York time
on that day by each of three leading brokers of federal funds transactions in
New York City, selected by the Agent.
"Final Maturity Date" means July 1, 2001, subject to any extensions thereof
pursuant to Paragraph 2.1(b) hereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Approvals" means any consent, right, exemption, concession,
permit, license, authorization, certificate, order, franchise, determination or
approval of any federal, state, provincial, municipal or governmental
department, commission, board, bureau, agency or instrumentality required for
the ownership of, or activities of the Borrower, any of its Subsidiaries or any
Controlled Partnership, or any other Person in connection with the business of
the Borrower, any of its Subsidiaries or any Controlled Partnership.
"Governmental Authority" means any nation or government, any state,
province or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Governmental Requirements" means all legal requirements in effect from
time to time including all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, certificates, orders, franchises, determinations, approvals,
notices, demand letters, directions and requirements of all governments,
departments, commissions, boards, courts, authorities, agencies, officials and
officers, and all instruments of record, foreseen or unforeseen, ordinary or
extraordinary, including but not limited to any change in any law, regulation or
the interpretation thereof by any foreign or domestic governmental or other
authority (whether or not having the force of law), relating now or at any time
heretofore or hereafter to the business or operations of the Borrower, any of
its Subsidiaries or any Controlled
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Partnership or to any Real Property including, without limitation, the
development, design, construction, acquisition, start-up, ownership, operation
and maintenance of property.
"Gross Asset Value" means as to any Person the sum (without duplication of
any item) at any date of determination, of (i) cash owned by such Person as of
such date, (ii) cash equivalents owned by such Person as of such date, and (iii)
an amount equal to (a) EBITDA of such Person as of the most recently ended
fiscal quarter (adjusted by the Agent in its reasonable discretion to take into
account any acquisitions or dispositions of real property or other assets by
such Person), times (b) four (4) divided by (c) ten percent (10%).
"Hazardous Substance" means any pollutant, contaminant, toxic or hazardous
substance, material, constituent or waste as such terms are defined in or
pursuant to any Environmental Law.
"Incipient Default" shall have the meaning set forth in Paragraph 4.1(e)
hereof.
"Indebtedness" means (a) any obligation for borrowed money; (b) any
obligation evidenced by bonds, debentures, notes or other similar instruments;
(c) any obligation to pay the deferred purchase price of property or for
services (other than in the ordinary course of business); (d) any Capitalized
Lease Obligation; (e) any obligation under any Rate Contract; (f) any obligation
or liability of others secured by a Lien, whether or not such obligation or
liability is assumed; and (g) any Contingent Obligation (other than those
incurred in the ordinary course of business).
"Initial Closing Date" means the date on which all of the conditions set
forth in Paragraph 4.1 hereof have been satisfied or waived and the initial
Borrowing occurs.
"Initial Commitment Amount" means, with respect to each Bank, an amount
equal to such Bank's Commitment Percentage multiplied by one hundred fifty
million Dollars ($150,000,000).
"Insolvency Proceeding" means (a) any case, action or proceeding before any
court or other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors; or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors or other, similar arrangement.
"Intellectual Property Rights" shall have the meaning set forth in
Paragraph 5.14 hereof.
"Interest Coverage Ratio" means for any period the ratio of (a) Borrower's
Combined Percentage Interest in EBITDA of the Borrower and its Consolidated
Affiliates for such period, to
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(b) Borrower's Combined Percentage Interest in Consolidated Interest Expense for
such period.
"Interest Period" means, with respect to any LIBOR Loan, a period from the
borrowing date with respect to such Loan (or the date of the expiration of the
then current Interest Period with respect to such Loan) to a date up to one (1),
two (2), three (3) or six (6) months thereafter, subject to the following:
(a) if any Interest Period would otherwise end on a day which is not
a Banking Day, that Interest Period shall be extended to the next
succeeding Banking Day, unless the result of such extension would be to
extend such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Banking Day;
(b) no Interest Period may be extended beyond a principal payment
date unless at the time of such extension the aggregate amount of any Base
Rate Loans plus the aggregate amount of all LIBOR Loans having Interest
Periods expiring on or before such principal payment date is at least equal
to the principal payment due on such date;
(c) any Interest Period that would otherwise extend beyond the Final
Maturity Date shall end on the Final Maturity Date or, if the Final
Maturity Date shall not be a Banking Day, on the next preceding Banking
Day; and
(d) no Interest Period for a LIBOR Loan that is a Competitive Bid Loan
may be for a period exceeding three (3) months.
"Investment," as applied to any Person, means any direct or indirect
ownership or purchase or other acquisition by that Person of any capital stock,
equity interest, obligations or other securities, or of a beneficial interest in
any capital stock, equity interest, obligations or other securities, or all or
substantially all of the assets of any other Person (including any Subsidiary)
or of the assets which comprise a separate or separable line of business, or any
direct or indirect loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution by that Person to any other Person,
including all indebtedness and accounts receivable from that other Person which
are not current assets or did not arise from sales to that other Person in the
ordinary course of business.
"Investment Grade" means a rating by two or more of the Rating Agencies
each of which ratings is equal to or more favorable than BBB- (or, in the case
of Rating Agencies other
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than S & P, a rating equivalent to a BBB- rating by S & P). If the rating
system of any Rating Agency shall change prior to the date all Obligations have
been paid and the Commitment cancelled, the Borrower and the Banks shall
negotiate in good faith to amend promptly the references to specific ratings in
this definition to reflect such changed rating system, and pending such
amendment, if it cannot be determined whether the Borrower's Senior Unsecured
Debt or Borrower's Preferred Stock is rated Investment Grade based upon the
foregoing, the applicable rating by such Rating Agency in effect as of the date
of such change shall continue to apply.
"Invitation for Competitive Bids" means a solicitation for Competitive
Bids, substantially in the form of Exhibit 1.1.
"Joint Venture" means any one of SEI/PSP I Joint Ventures, a California
general partnership; SEI/PSP II Joint Ventures, a California general
partnership; SEI/PSP III Joint Ventures, a California general partnership;
SEI/PSP IV Joint Ventures, a California general partnership; SEI/PSP V Joint
Ventures, a California general partnership; SEI/PSP VI Joint Ventures, a
California general partnership; SEI/PSP VII Joint Ventures, a California general
partnership; and "Joint Ventures" means all such partnerships collectively.
"Joint Venture Agreement" means any one of the General Partnership
Agreements of the respective Joint Ventures, each dated December 31, 1990, as
heretofore amended and as the same may be amended, modified or supplemented
hereafter.
"Key Contracts" means the Management Contracts, the Joint Venture
Agreements and the Noncompetition Agreement.
"LIBOR Loan" means any Loan bearing interest at a rate based upon Base
LIBOR.
"LIBOR Rate" means the rate (rounded upwards if necessary to the nearest
whole one-sixteenth of 1%) equal to the product of Base LIBOR times Statutory
Reserves.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest, right to purchase,
prescriptive right or preferential arrangement of any kind or nature whatsoever
(including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capitalized Lease, any financing lease having substantially the
same economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as debtor,
under the UCC or any comparable law) and any contingent or other agreement to
provide any of the foregoing.
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"Loan" means any Revolving Loan (including any and all Base Rate Loans and
LIBOR Loans comprising the Revolving Loans), and/or any Competitive Bid Loan;
"Loans" means all such Revolving Loans (including any and all Base Rate Loans
and LIBOR Loans comprising the Revolving Loans) and the Competitive Bid Loans at
any time outstanding.
"Loan Documents" means this Agreement, the Notes, the Swing Line Note, the
Agent's Letter, and all agreements, instruments and documents (including,
without limitation, any security agreements, loan agreements, notes, fee
agreements, guaranties, mortgages, deeds of trust, subordination agreements,
pledges, assignments of intellectual property, powers of attorney, consents,
assignments, contracts, notices, leases, financing statements, certificates
reports and notices and all other writings) heretofore, now or hereafter
executed by, on behalf of or for the benefit of the Borrower, any of its
Subsidiaries or any Controlled Partnership and delivered to the Agent or any of
the Banks pursuant to or in connection with this Agreement or the transactions
contemplated hereby, together with all amendments, modifications and
supplements thereto.
"Loan Request" shall have the meaning set forth in Paragraph 2.1(c) hereof.
"Long-term Indebtedness" means, as to any fiscal year, Indebtedness as to
which some or all principal payments are due in a later fiscal year.
"Majority Banks" means at any time two or more Banks which together hold at
least fifty-one percent (51%) of the Commitment Percentages or, if the
Commitments have been terminated, two or more Banks which together hold at least
fifty-one percent (51%) of the then aggregate unpaid principal amount of the
Loans.
"Management Contracts" means any contracts between the Borrower and any
other Person pursuant to which the Borrower manages real property for such other
Person.
"Material Adverse Change" shall mean a material adverse change in the
ability of the Borrower to pay the Obligations in accordance with their terms.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, operations, prospects or financial condition of the Borrower
and the Consolidated Affiliates considered as a whole, or (ii) the ability of
the Borrower to pay the Obligations in accordance with their terms.
"Maturity" means any date on which a Loan or any portion thereof becomes
due and payable whether as stated, by virtue of mandatory prepayment, by
acceleration or otherwise.
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"Mini-storage Property" means a property generally of the type described in
the Annual Report as "mini-warehouse facilities."
"Miscellaneous Properties" means any investment of the Borrower or any
Subsidiary of the Borrower in real property (other than Controlled Properties)
including, without limitation, (a) partnership interests, (b) stock in
corporations that qualify as real estate investment trusts, and (c) interests in
limited liability companies.
"Mortgage Note" means a promissory note secured by a mortgage or deed of
trust encumbering a Mini-Storage Property or by a Business Park Property or by a
Combination Property.
"Multiemployer Plan" means a "multiemployer plan" as defined in section
4001(a)(3) of ERISA) and to which the Borrower or any other member of the
Controlled Group makes, is obligated to make or at any time since December 31,
1988 has made or been obligated to make contributions.
"Noncompetition Agreement" means the Noncompetition Agreement, dated as of
November 16, 1995, between the Borrower and Wayne B. Hughes.
"Non-Consolidated Affiliate" means a partnership, corporation or other
entity in which the Borrower owns a direct or indirect equity interest but which
is not a Consolidated Affiliate.
"Non-Joint Venture Wholly-Owned Controlled Properties" means Controlled
Properties that are wholly-owned in fee by the Borrower or a Wholly-Owned
Subsidiary of the Borrower.
"Non-recourse Indebtedness" means, as to any Person, Indebtedness of such
Person, secured by specified collateral, the obligation to pay which
Indebtedness is nonrecourse to such Person and in respect of which obligation no
Affiliate of such Person is contingently or otherwise liable; provided that
Indebtedness shall not be deemed to be other than Non-recourse Indebtedness
solely by reason of the obligor's personal liability (a) for fraud,
misappropriation of rents, waste or similar intentional conduct, or (b)
environmental matters.
"Notes" means the Revolving Notes and the Competitive Bid Notes.
"Notice of Authorized Representatives" has the meaning set forth in
Paragraph 4.1(h) hereof.
"Obligations" means all loans, advances, debts, liabilities, obligations,
covenants and duties owing to the Agent or the Banks by the Borrower of any kind
or nature, present or future, whether or not evidenced by any note, guaranty or
other
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instrument, arising under this Agreement, any of the Notes, the Swing Line Note,
the Agent's Letter, or any of the other Loan Documents, whether or not for the
payment of money, arising by reason of an extension of credit, absolute or
contingent, due or to become due, now existing or hereafter arising, including
all principal, interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower under this Agreement
or any other Loan Document.
"Old Commitment Percentage" shall mean, as to each Bank, the "Commitment
Percentage" (as defined in the Original Amended and Restated Credit Agreement)
of such Bank in effect on the Banking Day immediately preceding the Initial
Closing Date.
"Old Notes" shall have the meaning set forth in Paragraph 3.1 hereof.
"Operating Lease" means a lease of real or personal property which is not a
Capitalized Lease.
"Operating Lease Payments" means payments made under Operating Leases.
"Original Amended and Restated Credit Agreement" shall have the meaning
specified in the first recital at the beginning of this Agreement.
"Participant" shall have the meaning set forth in Paragraph 10.1(e) hereof.
"Partnership Agreement" means any of the Joint Venture Agreements, any of
the partnership agreements of the PS Partnerships, and any partnership agreement
of any other Controlled Partnership, as amended, modified and supplemented from
time to time.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor to
all or any part of such corporation's functions under ERISA.
"Pension Plan" means any Multiemployer Plan or any other employee pension
benefit plan (as defined in section 3(2) of ERISA) that is subject to Title IV
of ERISA and which the Borrower or any member of the Controlled Group maintains,
or to which it makes, is obligated to make or at any time during the preceding
five calendar years has made or has been obligated to make contributions.
"Percentage Interest" means, as to each Subsidiary of the Borrower and each
Controlled Partnership and each other Affiliate of Borrower, the cumulative
percentage ownership interest (direct and indirect) of the Borrower in such
Subsidiary's or Controlled Partnership's or other Affiliate's income.
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"Permitted Encumbrances" means: (a) carriers', warehousemen's,
mechanics', landlords', materialmen's, suppliers', tax, assessment, governmental
and other like liens and charges arising in the ordinary course of business
securing obligations that are not incurred in connection with the obtaining of
any advance or credit and which are not overdue, or are being contested in good
faith by appropriate proceedings, provided that, in accordance with GAAP,
adequate reserves have been established; (b) liens arising in connection with
worker's compensation, unemployment insurance, appeal and release bonds and
progress payments under government contracts; (c) judgment or attachment liens
in existence less than forty-five (45) days after the entry of the judgment, or
with respect to which execution has been stayed, or the payment of which is
covered in full by insurance; (d) zoning restrictions, easements, licenses or
other restrictions on the use of real property, so long as the same do not
materially impair the use of such real property by the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships or the value thereof to the
owner of such real property; (e) any lien existing or arising by operation of
law in the ordinary course of business, such as a "banker's lien" or similar
right of offset; (f) liens on the property of the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships securing (i) the performance
of bids, trade contracts (other than for borrowed money), leases, statutory
obligations, (ii) obligations on surety and appeal bonds, and (iii) other
obligations of a like nature incurred in the ordinary course of business,
provided all such liens in the aggregate have no reasonable likelihood of
causing a Material Adverse Effect; (g) liens covering equipment, which liens
secure purchase money financing for such equipment, provided that (A) any such
lien covers only the equipment so acquired, and (B) the indebtedness secured
thereby is permitted pursuant to Paragraph 7.5 hereof; (h) liens identified on
Schedule 1 attached hereto and any renewals, extensions or replacements thereof,
provided that by any such renewal, extension or replacement no lien is extended
to additional property and that no monetary amount secured by any such lien is
increased; and (i) other liens securing obligations in an aggregate amount not
exceeding one million dollars ($1,000,000) at any time.
"Person" means any individual, corporation, partnership, trust, association
or other entity or organization, including any government, political
subdivision, agency or instrumentality thereof.
"Prime Rate" shall be the rate most recently announced by the Agent at its
principal office in San Francisco as its "Prime Rate." Prime Rate is one of the
Agent's base rates and serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto, and is
evidenced by the reporting thereof after its announcement in such internal
publication or publications as the Agent may designate. Any change in the
interest rate resulting from a change in such
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Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on which
each change in Prime Rate is announced by the Agent.
"Projected Balance Sheet" shall have the meaning set forth in Paragraph
5.10 hereof.
"PS Partnerships" means, collectively, PS Partners, Ltd., a California
limited partnership; PS Partners II, Ltd., a California limited partnership; PS
Partners III, Ltd., a California limited partnership; PS Partners IV, Ltd., a
California limited partnership; PS Partners V, Ltd., a California limited
partnership; PS Partners VI, Ltd., a California limited partnership; and PS
Partners VII, Ltd., a California limited partnership.
"PSMI Note Agreement" means the Note Agreement, dated as of November 1,
1993, among Borrower (as successor by merger to Public Storage Management, Inc.)
and certain note purchasers signatory thereto.
"PSMI Term Notes" means the promissory notes in the aggregate principal
amount of $70,500,000 on the date hereof issued by Borrower (as successor by
merger to Public Storage Management, Inc.) pursuant to the PSMI Note Agreement.
"Public Storage Trademark" means all rights of Borrower in the name "Public
Storage", including without limitation, trademark rights and any registrations
or applications from registration thereof, and all trademarks based on or
incorporating the words "Public Storage", and all associated goodwill.
"Rate Contracts" means interest rate and currency swap agreements, cap,
floor and collar agreements, interest rate insurance, currency spot and forward
contracts and other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"Rating Agencies" means, collectively, S & P, Moody's Investor Service and
Duff & Phelps Credit Rating Co.
"Rating Notice" shall have the meaning set forth in paragraph 6.2(l)
hereof.
"Rating Notice Date" means the earlier of (a) the date a Rating Notice is
sent to the Agent, or (b) the date the Agent, having received actual notice of a
change in rating by a Rating Agency of its rating applicable to Borrower's
Senior Unsecured Debt or Borrower's Preferred Stock, sends notice to the
Borrower of such change, provided that nothing contained herein shall imply any
obligation of the Agent to monitor such ratings changes, or to send such notice
except at the instruction of Majority Banks.
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"Real Estate Investments" means (a) all real property owned by Borrower,
any of its Subsidiaries or any of the Controlled Partnerships, and (b) all
Investments of the Borrower in any Person (other than the Subsidiaries and the
Controlled Partnerships) which qualifies as a real estate investment trust or
otherwise engages principally in the business of investing in real property.
"Real Property" means any real property in which Borrower, any of its
Subsidiaries, or any Controlled Partnership has an interest, directly or
indirectly.
"Reportable Event" means any of the events set forth in section 4043(b) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of thirty (30) days' notice to the PBGC is waived under applicable
regulations, a withdrawal from a plan described in section 4063 of ERISA, or a
cessation of operations described in section 4062(e) of ERISA.
"Responsible Officer" means the Borrower's Chief Executive Officer, Chief
Financial Officer or any Vice President or, with respect to any other Person,
such Person's Chief Executive Officer or Chief Financial Officer or, as to a
partnership, the Chief Executive Officer or Chief Financial Officer of such
Person's general partner.
"Revolving Loan" shall have the meaning set forth in Paragraph 2.1(a)
hereof.
"Revolving Note" shall have the meaning set forth in Paragraph 2.1(d)
hereof.
"S & P" means Standard and Poor's Rating Group, a division of McGraw Hill,
Inc.
"Solvent" means, when used with respect to any Person, that at the time of
determination:
(i) the fair value of its assets (both at fair valuation and at
present fair salable value) is in excess of the total amount of all of its
debts and liabilities, including contingent, subordinated, unmatured and
unliquidated liabilities; and
(ii) it is then able to pay its debts as they become due; and
(iii) it owns property having a value (both at fair valuation and at
present fair salable value) in excess of the total amount required to pay
its debts; and
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(iv) it has capital sufficient to carry on its business.
"Statutory Reserves" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency or supplemental reserves, and
expressed as a decimal) established by the Federal Reserve Board or any other
United States banking authority to which the Agent or any Bank is subject for
Eurocurrency Liabilities (as defined in Regulation D of the Federal Reserve
Board). Such reserve percentages shall include, without limitation, those
imposed under said Regulation D. LIBOR Loans shall be deemed to constitute
Eurocurrency Liabilities and as such shall be deemed to be subject to such
reserve requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to the Banks under said
Regulation D. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"Subsidiary" of a Person means any corporation, association or other
business entity of which such Person now or hereafter owns, directly or
indirectly, securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other governing body thereof.
"Swing Line" shall mean the line of credit referred to in Paragraph 2.4(a).
"Swing Line Loan" shall have the meaning set forth in Paragraph 2.4(a).
"Swing Line Loan Refund" shall have the meaning set forth in Paragraph
2.4(b).
"Swing Line Note" shall have the meaning set forth in Paragraph 2.4(a).
"Termination Date" means the Final Maturity Date or any earlier date on
which the Total Commitment Amount is reduced to zero pursuant to Paragraph
2.1(b) hereof.
"Total Commitment Amount" means, subject to Paragraph 2.1(b) hereof, one
hundred fifty million Dollars ($150,000,000).
"Total Shareholders' Equity" means the total shareholders' equity of the
Borrower, determined in accordance with GAAP as of any day.
"Unencumbered Assets" means Controlled Properties and Miscellaneous
Properties which are free and clear of all Liens and are not subject to any
prohibitions against encumbrance other than those set forth in this Agreement,
provided that a
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Controlled Property or Miscellaneous Property owned by a Consolidated Affiliate
shall not be considered an Unencumbered Asset unless the Borrower's ownership
interests (direct and indirect) in such Consolidated Affiliate are free and
clear of Liens and are not subject to any prohibitions against encumbrance other
than those set forth in this Agreement.
"Unfunded Bank" means, with respect to any Swing Line Loan,
a Bank which shall not have paid to Agent the Swing Line Loan Refund in
accordance with Paragraph 2.4(b).
"Unused Commitment Amount" means, as to any Banking Day, an amount equal to
(a) the Total Commitment Amount as of such Banking Day, minus (b) the aggregate
principal amount of all Loans outstanding on such Banking Day.
"Wells Fargo" means Wells Fargo Bank, National Association, for itself and
not in its capacity as the Agent.
"Wholly-Owned Subsidiary" means any direct or indirect Subsidiary of the
Borrower where the Borrower's ownership of such Subsidiary is through ownership
of 100% of all issued and outstanding capital stock and warrants, options or
rights to purchase capital stock at all levels.
"Wholly-Owned Controlled Properties" means (a) Non-Joint Venture Wholly-
Owned Controlled Properties and (b) Controlled Properties owned by any Joint
Venture to the extent of Borrower's interest in such Controlled Properties.
Each accounting term not defined herein and each accounting term partly defined
herein to the extent not defined shall have the meaning given to it under GAAP.
ARTICLE 2
---------
Loans
-----
2.1 Revolving Credit.
----------------
(a) Revolving Loans. Subject to the terms and conditions of this
---------------
Agreement, each Bank severally agrees to make loans to the Borrower on a
revolving basis (each herein called a "Revolving Loan") from time to time on and
after the Initial Closing Date until the Termination Date, in an aggregate
principal amount not to exceed at any time outstanding such Bank's Commitment
Amount. The Borrower shall use the proceeds of the Revolving Loans exclusively
for general corporate purposes. All of the Revolving Loans in the aggregate
shall consist of one or more Base Rate Loans and LIBOR Loans. Subject to the
terms and conditions of this Agreement, Revolving Loans which are repaid may be
reborrowed prior to the Termination Date. Each Borrowing of a Base Rate Loan
hereunder shall be in
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an amount equal to an integral multiple of ten thousand Dollars ($10,000) and in
a minimum amount of two hundred fifty thousand Dollars ($250,000), and each
Borrowing of a LIBOR Loan hereunder shall be in an amount equal to an integral
multiple of ten thousand Dollars ($10,000) and in a minimum amount of two
million Dollars ($2,000,000).
(b) Commitment Limits. The aggregate principal amount of all Revolving
-----------------
Loans outstanding plus the aggregate principal amount of all Competitive Bid
Loans outstanding shall not at any one time exceed the Total Commitment Amount
then in effect. The Borrower may reduce the Total Commitment Amount upon not
less than five (5) Banking Days' telephone notice, confirmed by an Authorized
Representative on the date of such notice by electronic facsimile transmission,
to the Agent and by repaying to the Banks any Loans outstanding in excess of the
limits specified in the immediately preceding sentence. Any such reduction of
the Total Commitment Amount requested by the Borrower shall be in an amount
equal to at least two million Dollars ($2,000,000), shall be an integral
multiple of ten thousand Dollars ($10,000), and shall be permanent. The
Borrower may, by notice to Agent no later than each July 1 during the term of
this Agreement, commencing July 1, 1998, and no earlier than ninety (90) days
before each such date, request that the Banks extend the then current Final
Maturity Date for an additional one-year period. The Final Maturity Date shall
be so extended if, but only if, all of the Banks, in the sole and absolute
discretion of each Bank, so agree in writing. If at any time (i) all the Banks
fail to agree to any such requested extension of the Final Maturity Date, or
(ii) the Borrower fails to request on extension at any time when the Borrower is
entitled to do so under this Paragraph 2.1(b), then in each case the Borrower's
right to request additional extensions hereunder shall terminate.
(c) Borrowing Procedures. For any proposed Borrowing of a Revolving Loan
--------------------
which is to be a Base Rate Loan, an Authorized Representative shall give the
Agent telephone notice not later than 9:00 a.m. (San Francisco time) at least
one (1) Banking Day prior to the date of the proposed Borrowing, confirmed by a
written borrowing request in substantially the form attached hereto as Exhibit
2.1(c) (a "Loan Request"), executed by an Authorized Representative and received
by the Agent by facsimile on the day of such telephone notice. For any proposed
Borrowing of a Revolving Loan which is to consist of at least one LIBOR Loan, an
Authorized Representative shall give the Agent telephone notice not later than
9:00 a.m. (San Francisco time) at least three (3) Banking Days prior to the date
of the proposed Borrowing, confirmed by a Loan Request executed by an Authorized
Representative and received by the Agent by facsimile on the day of such
telephone notice. Upon the Agent's receipt of the Loan Request, the Agent shall
on the same Banking Day notify each Bank of the proposed Borrowing, including
the date and amount thereof. Each Bank will make an amount equal to its
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respective Commitment Percentage of any such Borrowing available to the Agent
for the account of the Borrower at the office of the Agent for payment by 10:00
a.m. (San Francisco time) on the borrowing date requested by the Borrower in
funds immediately available to the Agent. Unless any applicable condition
specified in Article 4 has not been satisfied, the proceeds of all such Loans
will then be made available to the Borrower by the Agent by crediting the
Borrower's Account with the aggregate of the amounts made available to the Agent
by the Banks in like funds as received by the Agent.
(d) Notes. The Borrower's obligations to repay all Revolving Loans made
-----
by the Banks shall be evidenced by a promissory note in favor of each Bank in
the form attached hereto as Exhibit 2.1(d) (the "Revolving Notes"). On the
Initial Closing Date, the Borrower shall deliver to the Agent Revolving Notes
payable to the respective Banks in the Initial Commitment Amount of each Bank,
executed by an Authorized Representative.
2.2 Interest and Fees.
-----------------
(a) Interest. Subject to all other provisions of this Paragraph 2.2, all
--------
or a part of each Revolving Loan may, at the option of the Borrower, be a Base
Rate Loan or a LIBOR Loan. All Competitive Bid Loans shall be LIBOR Loans.
Subject to Paragraph 2.2(f) hereof, the Loans shall bear interest from the date
of disbursement on the unpaid principal amount thereof until such amount shall
become due and payable (whether upon Maturity, by Acceleration or otherwise) (i)
in the case of each Base Rate Loan, at a fluctuating rate per annum equal to the
Base Rate, as from time to time in effect, plus the Applicable Margin in effect
from time to time, (ii) in the case of each LIBOR Loan that is a Revolving Loan,
at a rate per annum equal to the LIBOR Rate for the applicable Interest Period
plus the Applicable Margin in effect from time to time, and (iii) in the case of
each Competitive Bid Loan, at a rate per annum equal to the LIBOR Rate
applicable to such Loan plus the Competitive Bid Margin for such Loan. Interest
on each Base Rate Loan shall be payable in arrears on the last Banking Day of
each calendar quarter, commencing with the quarter ending March 31, 1997, on any
date that such Base Rate Loan is converted to a LIBOR Loan, on the date of any
prepayment as to the amount of such prepayment, and on the Termination Date.
Interest on each LIBOR Loan shall be payable in arrears on the last day of the
applicable Interest Period (provided, however, that interest on each LIBOR Loan
with an Interest Period of six (6) months shall be paid three (3) months after
commencement of such Interest Period), on any date when such LIBOR Loan is
converted to a Base Rate Loan, on the date on which any LIBOR Loan is prepaid as
to the amount of such prepayment, and on the Termination Date.
While any Event of Default exists or after Acceleration, the Loans shall
bear interest at a rate equal to the applicable
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rate provided above plus two percent (2%) per annum. All other Obligations, if
not paid when due, shall bear interest from the date when due until paid, at a
rate equal to the Base Rate plus the Applicable Margin plus two percent (2%) per
annum.
(b) Extensions and Conversions. Subject to the terms and conditions
--------------------------
hereof, the Borrower shall have the option at any time to convert all or any
part of a Revolving Loan into a Base Rate Loan or a LIBOR Loan; provided,
however, that a LIBOR Loan may be converted only as of the last day of the
applicable Interest Period. Subject to the terms and conditions hereof, the
Borrower may extend a LIBOR Loan that is a Revolving Loan beyond its current
Interest Period. In the case of a proposed conversion of a Base Rate Loan into
a LIBOR Loan or an extension of a LIBOR Loan that is a Revolving Loan, an
Authorized Representative shall give the Agent telephone notice not later than
9:00 a.m. (San Francisco time) at least three (3) Banking Days prior to the date
of the proposed conversion or extension, confirmed by a written notice in the
form of Exhibit 2.2(b) attached hereto (a "Notice of Conversion/Extension")
executed by an Authorized Representative and received by the Agent by facsimile
on the day of such telephone notice. In the case of a proposed conversion into
a Base Rate Loan, an Authorized Representative shall give the Agent telephone
notice not later than 9:00 a.m. (San Francisco time) at least one (1) Banking
Day prior to the end of the applicable Interest Period confirmed by a Notice of
Conversion/Extension executed by any Authorized Representative and received by
the Agent by facsimile the day of such telephone notice. Any notice given by an
Authorized Representative under this Paragraph 2.2(b) shall be irrevocable.
Notwithstanding anything to the contrary in this Paragraph 2.2(b), if an Event
of Default shall have occurred and be continuing on the last day of an Interest
Period for a LIBOR Loan that is a Revolving Loan, then such Loan shall
automatically be converted to a Base Rate Loan. Unless the Agent receives
notice of a proposed conversion or extension as and when required hereunder,
then at the end of an Interest Period for a LIBOR Loan that is a Revolving Loan,
such Loan shall automatically convert to a Base Rate Loan.
(c) Facility Fee. The Borrower shall pay to the Agent for the account of
------------
each Bank a facility fee (the "Facility Fee") on such Bank's Commitment Amount
at a rate per annum equal to one quarter of one percent (0.25%) for each
calendar quarter. The Facility Fee shall (i) be computed on a daily basis based
on the respective Commitment Amount of each Bank in effect on each day, (ii)
accrue from the Initial Closing Date to the Termination Date and (iii) be
payable quarterly in arrears on the last Banking Day of each quarter commencing
with the quarter ending March 31, 1997 and on the Termination Date.
(d) Computation of Interest and Facility Fee. Interest and the Facility
----------------------------------------
Fee shall be computed for the actual number of days elapsed on the basis of a
year consisting of 360 days.
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<PAGE>
(e) Illegality, Taxation and Additional Interest Rate Provisions.
------------------------------------------------------------
(i) In the event the Agent shall have reasonably determined (which
reasonable determination shall be conclusive and binding) that by reason of
circumstances affecting the interbank Eurodollar market, adequate and
reasonable means do not exist for ascertaining Base LIBOR, the Agent shall
forthwith give notice of such determination, confirmed in writing, to the
Borrower. If such notice is given, and until such notice has been
withdrawn by the Agent, no additional LIBOR Loans shall be made and no
additional conversions of Loans to LIBOR Loans shall be permitted, and at
the end of the Interest Period relating to any outstanding LIBOR Loans,
such Loans shall become Base Rate Loans.
(ii) Notwithstanding any other provisions herein, if any law, treaty,
rule or regulation, or determination of a court or other Governmental
Authority, or any change therein or in the interpretation or application
thereof, shall make it unlawful for a Bank to make or maintain LIBOR Loans,
as contemplated by this Agreement, the obligation of such Bank hereunder
to make LIBOR Loans shall forthwith be canceled, and each LIBOR Loan of
such Bank then outstanding shall immediately become a Base Rate Loan.
(iii) In the event that any adoption or modification of any law,
treaty, rule or regulation, or determination of a court or other
Governmental Authority, or that any change in the interpretation or
application thereof, which adoption, modification or change becomes
effective after the Initial Closing Date, or in the event that compliance
by a Bank with any request or directive issued after the date hereof
(whether or not having the force of law) from any Governmental Authority:
(A) does or shall subject a Bank or any of its foreign offices
to any tax of any kind whatsoever with respect to this Agreement, the
Notes, the Loans or any payments made to and received by such Bank of
principal, interest, fees or any other amount payable hereunder; or
(B) does or shall impose, modify, or hold applicable any
reserve, special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, deposits or other liabilities in
or for the account of, advances or loans by, other credit extended by
or any other acquisition of funds by, any office of a Bank
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<PAGE>
(other than to the extent previously taken into account in determining
the Base Rate or Statutory Reserves); or
(C) does or shall impose on a Bank any other condition;
and the result of any of the foregoing is to increase the cost to a Bank of
making, renewing or maintaining such Bank's Commitment Amount or the Loans,
or to reduce any amount receivable in respect thereof or under any of the
Loan Documents; then, in any such case, such Bank shall notify the Borrower
of any such event of which it has knowledge and shall deliver to the Agent
and the Borrower a written statement in reasonable detail of the losses or
expenses sustained or incurred, and any reasonable allocation made by such
Bank of such losses and expenses shall be conclusive. The Borrower shall,
upon demand, pay the amount of such losses and expenses.
(f) Capital Adequacy Requirements. If any Bank shall have determined that
-----------------------------
the adoption of any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein or any change in the interpretation or
administration thereof by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or compliance by such
Bank (or its lending office) or any corporation controlling such Bank, with any
request, guideline or directive regarding capital adequacy (whether or not
having the force of law) of any such central bank or other authority, affects
the amount of capital required or expected to be maintained by such Bank or any
corporation controlling such Bank, and such Bank determines that the amount of
such capital is increased as a consequence of its obligation under this
Agreement, then, upon demand of such Bank, the Borrower shall immediately pay to
such Bank, from time to time as specified by the Bank, additional amounts
sufficient to compensate such Bank for such increase as set forth in a
reasonably detailed statement.
(g) Annual Renewal Fee. The Borrower shall pay to the Agent, for the
------------------
account of the Banks pro rata in proportion to their respective Commitment
Amounts, a fee equal to .0425% of the Total Commitment Amount for each one-year
extension agreed to by the Banks pursuant to Paragraph 2.1(b). Such fee shall
be payable immediately upon notification to the Borrower that the Banks have
agreed to the applicable extension.
2.3 Payments.
--------
(a) Payment of Loans. The Borrower shall repay all Loans then outstanding
----------------
on the Termination Date. The Borrower shall
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<PAGE>
repay each Competitive Bid Loan on the last day of the Interest Period for such
Loan.
(b) Optional Prepayment. Subject to the following and the provisions of
-------------------
Paragraph 2.3(d) hereof, the Borrower may at any time prepay, upon not less than
one (1) Banking Day's prior notice to the Agent in the case of Base Rate Loans,
or three (3) Banking Days' prior written notice to the Agent as to any LIBOR
Loans, any or all of the Loans in whole or in part, without penalty or premium.
Each such prepayment shall include interest accrued to the date of prepayment on
the amount of such prepayment. Any such notice of prepayment shall specify the
amount of the prepayment. Any such prepayment of a Revolving Loan shall be in a
minimum principal amount of two million Dollars ($2,000,000) and in a principal
amount which is an integral multiple of ten thousand Dollars ($10,000). Any
such prepayment of a Competitive Bid Loan shall be in an amount equal to the
total principal amount thereof.
(c) Mandatory Prepayments. (i) If at any time the aggregate principal
---------------------
amount of the Loans outstanding exceeds the Total Commitment Amount then in
effect, then the Borrower shall immediately pay to the Agent for the account of
each Bank the amount of such excess (as a prepayment in respect of first the
Revolving Loans and second the Competitive Bid Loans), plus any amount due under
Paragraph 2.3(d) hereof as a result of such prepayment.
(ii) The Borrower shall make prepayments to the Banks in respect of the
Loans in amounts equal to:
(A) one hundred percent (100%) of all net cash proceeds in excess of
ten million dollars ($10,000,000) in the aggregate during any fiscal year
received by the Borrower from sales of assets by the Borrower, any
Subsidiary of the Borrower or any Controlled Partnership (and, for purposes
of this subparagraph, the Borrower shall be deemed to have received its
Percentage Interest of net proceeds of any such sale by a Subsidiary or a
Controlled Partnership), excluding sales of Business Park Properties and
assets of the Commercial Properties Group;
(B) one hundred percent (100%) of all net cash proceeds received by
Borrower from any issuance by the Borrower, any of its Subsidiaries or any
Controlled Partnership of debt or equity securities; and
(C) one hundred percent (100%) of all net cash proceeds received by
the Borrower from or as a result of the dissolution of any of the
Borrower's Subsidiaries or any Controlled Partnership (and, for purposes of
this sub-paragraph, the Borrower shall be
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<PAGE>
deemed to have received its Percentage Interest of any net cash proceeds of
any such dissolution).
Notwithstanding the foregoing, if in any fiscal year, the Borrower receives or
is deemed to receive an amount in excess of fifteen percent (15%) of the
consolidated assets of the Borrower and the Consolidated Subsidiaries
(determined as of the last day of the immediately preceding fiscal year) in the
aggregate from all transactions described in clauses (A) and (C) of this
Paragraph, then (to the extent required by the terms of the PSMI Term Notes)
such excess shall be paid pro rata to the Banks and the holders of the PSMI Term
Notes in accordance with the respective outstanding principal amounts thereof.
(d) Payments Prior to Interest Period Expiration. The Borrower hereby
--------------------------------------------
agrees to indemnify and hold the Banks free and harmless from any loss or
expense (including, without limitation, any loss or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired by the
Banks to fund or maintain any LIBOR Loan and in addition to any interest or
other payments which may be due the Banks under this Agreement) which the Banks
may incur as a result of (i) the termination of this Agreement without the
occurrence of the Initial Closing Date, other than by reason of a default by the
Banks, (ii) the failure by the Borrower to accept or complete a borrowing,
conversion or extension with respect to a LIBOR Loan after making a request
therefor, (iii) the failure of the Borrower to make any prepayment after notice
has been given in accordance with Paragraph 2.3(b) hereof, (iv) a prepayment in
whole or in part (whether optional or mandatory) of any LIBOR Loan prior to the
expiration of a related Interest Period, or (v) the conversion of a LIBOR Loan
as a result of any of the events indicated in Paragraph 2.2(e) hereof. The
Agent shall deliver to the Borrower a written statement in reasonable detail of
any amounts due the Banks as provided above, and such statement, in the absence
of manifest error, shall be fixed and binding on both parties. In no event
shall any amounts be payable by the Banks to the Borrower under this Paragraph
2.3(d).
(e) Payments by the Borrower. All payments (including prepayments)
------------------------
required to be made to the Banks on account of principal, interest, fees or
other Obligations shall be made without set-off or counterclaim and shall be
made to the Agent, for the account of the Banks, at the Agent's Regional
Commercial Banking Office in El Monte, California, in Dollars and in immediately
available funds no later than 12:00 noon (San Francisco time). The Agent will
promptly distribute to each Bank its Commitment Percentage of such principal,
interest, fees or other amounts, in like funds as received; provided, however,
that the Agent will distribute payments of principal and interest on Competitive
Bid Loans received by the Agent to the Bank which made the Competitive Bid Loan
for which the principal or interest is received. Any such amount payable to the
Banks
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<PAGE>
which is received by the Agent and is not distributed to a Bank within two (2)
Banking Days after receipt shall be payable to such Bank with interest for the
period from and after such second Banking Day until paid at the daily Federal
Funds Rate. Any payment which is received by the Agent later than 12:00 noon
(San Francisco time) shall be deemed to have been received on the immediately
succeeding Banking Day. Whenever any payment hereunder shall be stated to be
due on a day other than a Banking Day, such payment shall be made on the next
succeeding Banking Day, and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be. Unless the
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Banks hereunder that the Borrower will not make such
payment in full, the Agent may assume that the Borrower has made such payment in
full to the Agent on such date and the Agent may (but shall not be so required),
in reliance upon such assumption, cause to be distributed to each Bank on such
due date an amount equal to the amount then due such Bank. If and to the extent
such payment has not been made in full to the Agent, each Bank shall repay to
the Agent on demand such amount distributed to such Bank, together with interest
thereon for each day from the date such amount is distributed to such Bank until
the date such Bank repays such amount to the Agent, at the Federal Funds Rate as
in effect from time to time. The Borrower irrevocably authorizes the Agent to
debit the Borrower's Account or any other account maintained by the Borrower
with the Agent for any payment due the Agent or the Banks hereunder.
(f) Payments by the Banks to the Agent. Each Bank shall make available to
----------------------------------
the Agent in immediately available funds for deposit to the Borrower's Account
(i) the amount of such Bank's Commitment Percentage of any Borrowing consisting
of Revolving Loans, and (ii) the amount of any Competitive Bid Loan to be made
by such Bank. Unless the Agent shall have received notice from a Bank at least
one Banking Day prior to the date of any proposed Borrowing that such Bank will
not make available to the Agent for the account of the Borrower the amount of
that Bank's Commitment Percentage of the proposed Borrowing or the amount of the
Competitive Bid Loans to be made by such Bank, as applicable, the Agent may
assume that each Bank has made such amount available to the Agent on the
borrowing date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made its
full amount available to the Agent and the Agent in such circumstances has made
available to the Borrower such amount, that Bank shall within two (2) Banking
Days following the date of such Borrowing make such amount available to the
Agent, together with interest at the Federal Funds Rate as in effect for each
day during such period. A notice from the Agent submitted to any Bank with
respect to amounts owing under this Paragraph 2.3(f) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the Agent
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<PAGE>
shall constitute such Bank's Loan on the date of the Borrowing for all purposes
of this Agreement. If such amount is not made available to the Agent within two
(2) Banking Days following the date of such Borrowing, the Agent shall notify
the Borrower of such failure to fund and, upon demand by the Agent, the Borrower
shall pay such amount to the Agent for the Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing. The failure of any Bank to make any Loan on any date
of any proposed Borrowing shall not relieve any other Bank of its obligation
hereunder to make its Loan on such date, but no Bank shall be responsible for
the failure of any other Bank to make the Loan to be made by such other Bank on
such date.
(g) Sharing of Payments, etc. If at any time any Bank shall obtain on
-------------------------
account of the Loans made by it, any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or otherwise) in excess of its
Commitment Percentage of payments on account of the Loans obtained by all the
Banks, such Bank shall forthwith (a) notify the Agent of such fact, and (b)
purchase from the other Banks such participations in the Loans made by them as
shall be necessary to cause such purchasing Bank to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
-------- -------
excess payment is thereafter recovered from the purchasing Bank, such purchase
shall to that extent be rescinded and each other Bank shall repay to the
purchasing Bank the purchase price paid thereto together with an amount equal to
such paying Bank's Commitment Percentage (according to the proportion of (i) the
amount of such paying Bank's required repayment to (ii) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees that any Bank so purchasing a participation from another Bank
pursuant to this Paragraph 2.3(g) may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of offset in Paragraph
2.3(h) hereof), with respect to such participation as fully as if such Bank were
the direct creditor of the Borrower in the amount of such participation. The
Agent shall keep records (which shall be conclusive and binding in the absence
of manifest error), of participations purchased pursuant to this Paragraph
2.3(g) and shall in each case notify the Banks following any such purchases.
(h) Offset. In addition to and not in limitation of all rights of offset
------
that the Banks may have under applicable law, the Banks, upon the occurrence and
during the continuance of an Acceleration, shall have the right to appropriate
and apply to the payment of all Obligations any and all balances, credits,
deposits, accounts or moneys of the Borrower then or thereafter with the Banks.
Each Bank agrees promptly to notify the Borrower and the Agent after any such
offset and application
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<PAGE>
made by such Bank; provided, however, that the failure to give such notice shall
-------- -------
not affect the validity of such offset and application. The rights of each Bank
under this Paragraph 2.3(h) are in addition to the other rights and remedies
which such Bank may have.
(i) Application of Prepayments. Any prepayment the application of which
--------------------------
is not designated otherwise shall be applied first to the Revolving Loans then
to the Competitive Bid Loans.
2.4 Swing Line.
----------
(a) Swing Line. In the event that Agent receives a Loan Request for a
----------
Base Rate Loan which Loan Request expressly requests funds on the same Banking
Day that the Agent receives such Loan Request, then, upon and subject to the
terms and conditions of this Agreement, Wells Fargo hereby agrees to make a
portion of Wells Fargo's Commitment available to the Borrower by making loans
under the Swing Line (each a "Swing Line Loan"), in accordance with this
Paragraph 2.4, the proceeds of which shall be used exclusively for the purposes
permitted pursuant to Paragraph 2.1(a) hereof. Each Swing Line Loan shall be
made on the same Banking Day that the Agent receives a Loan Request in
accordance with Paragraph 2.1(c) hereof, provided that the Agent receives the
Loan Request not later than 4:00 p.m. (San Francisco time) on such Banking Day.
The Borrower's obligations to repay all Swing Line Loans shall be evidenced by a
promissory note in favor of the Agent in the form attached hereto as Exhibit
2.4(a) (the "Swing Line Note").
(b) Borrowing and Repayment. The Borrower may from time to time during
-----------------------
the term of the Swing Line, borrow, partially or wholly repay outstanding
borrowings and reborrow, subject to all of the limitations, terms and conditions
contained in this Agreement; provided, however, that no Swing Line Loan shall be
available if such Swing Line Loan would cause (i) the sum of the aggregate
principal balance of all outstanding Swing Line Loans to exceed thirty million
Dollars ($30,000,000), (ii) the sum of the aggregate principal balance of all
outstanding Swing Line Loans and the aggregate principal balance of all other
Loans to exceed the Total Commitment Amount then in effect, or (iii) the sum of
the aggregate principal balance of all outstanding Swing Line Loans and the
aggregate principal balance of all other Loans by Wells Fargo to exceed Wells
Fargo's Commitment Amount then in effect. All Swing Line Loans shall, except as
otherwise set forth in this Paragraph 2.4, be upon and subject to all of the
terms and conditions (including, without limitation, interest terms) of this
Agreement applicable to Base Rate Loans, and, if not repaid or refunded earlier
(as set forth hereinbelow), shall be due and payable on the Termination Date.
With respect to any Swing Line Loans which have not been voluntarily repaid
by the Borrower or refunded by a Bank as
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<PAGE>
provided herein, such Bank shall, on the Banking Day immediately following the
day on which such Swing Line Loan was made, pay to the Agent, for the account of
Wells Fargo, an amount equal to its Commitment Percentage of the subject Swing
Line Loan (the "Swing Line Loan Refund"). On the Banking Day on which a Swing
Line Loan Refund is received by the Agent, (i) the Swing Line Loan shall be
deemed to be repaid in an amount equal to the amount of such Swing Line Loan
Refund, and (ii) the Bank paying such Swing Line Loan Refund shall be deemed to
have made a Base Rate Loan in the amount of such Swing Line Loan Refund.
Nothing in this Paragraph 2.4 shall reduce any of the obligations of any Bank
under Paragraph 2.1 or 2.3(f) hereof.
If, as a result of any bankruptcy or similar proceeding with respect to the
Borrower, payments of Swing Line Loan Refunds are not made pursuant to this
Paragraph 2.4(b) in an amount sufficient to repay any amounts owed to the Agent
in respect of any outstanding Swing Line Loans, each Unfunded Bank shall be
deemed to have purchased and hereby agrees to purchase a participation in such
outstanding Swing Line Loans in an amount equal to the amount payable by such
Unfunded Bank to the Agent in accordance with this Paragraph 2.4(b). Upon one
Banking Day's notice from the Agent, any such Unfunded Bank shall pay to the
Agent for the account of Wells Fargo an amount equal to the amount of such
participation in same day funds at the Agent's Regional Commercial Banking
Office in El Monte, California. In the event any such Unfunded Bank fails to
pay to the Agent the amount of such Unfunded Bank's participation as provided in
this paragraph, interest shall accrue on the amount due at the daily Federal
Funds Rate for a period ending on the third Banking Day following the date such
amount was due, and at the Base Rate thereafter.
Anything contained herein to the contrary notwithstanding, each Bank's
obligation to make Base Rate Loans for the purpose of paying any Swing Line Loan
Refund and each Bank's obligation to purchase a participation in any unpaid
Swing Line Loans shall be absolute and unconditional and shall not be affected
by any circumstance, including without limitation (A) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the Agent,
the Borrower or any other person or entity for any reason whatsoever; (B) the
occurrence or continuance of an Event of Default or an Acceleration; (C) any
Material Adverse Change; (D) any breach of this Agreement or any other Loan
Document by any party thereto; or (E) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing; provided that
no Bank shall be obligated to pay any Swing Line Loan Refund if such Bank
demonstrates that, without such Bank's consent or an effective waiver by
Majority Banks, Wells Fargo advanced the relevant Swing Line Loan with actual
knowledge that any applicable condition set forth in Article 4 was not satisfied
at the time such Swing Line Loan was advanced.
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<PAGE>
2.5 Competitive Bid Borrowings.
--------------------------
(a) Competitive Bid Borrowings. In addition to Revolving Loans, each Bank
--------------------------
severally agrees that the Borrower may, as set forth below, from time to time
prior to the Termination Date, request that the Banks submit offers to make
Competitive Bid Loans to the Borrower; provided, however, that the Banks may,
but shall have no obligation to, submit such offers and the Borrower may, but
shall have no obligation to, accept any such offers, and, if such offers are
accepted by the Borrower, any Bank may make such Competitive Bid Loans; and
provided, further, that at no time shall (i) the aggregate principal amount of
all Competitive Bid Loans outstanding, plus the aggregate principal amount of
all Revolving Loans outstanding exceed the Total Commitment Amount; (ii) the
aggregate principal amount of all Competitive Bid Loans outstanding exceed fifty
million ($50,000,000); and (iii) the number of Interest Periods for Competitive
Bid Loans then outstanding exceed three (3). The Borrower may not request
offers for Competitive Bid Loans under this Paragraph 2.5 (i) more than once in
any consecutive thirty-day period, or (ii) at any time when the Borrower's
Senior Unsecured Debt is rated less than A- by Duff & Phelps Credit Rating Co.
(b) Borrowing Procedure for Competitive Bid Loans.
---------------------------------------------
(i) When the Borrower wishes to request the Banks to submit offers to
make Competitive Bid Loans hereunder, the Borrower shall transmit to the
Agent by telephone call followed promptly by facsimile transmission a
notice in substantially the form of Exhibit 2.5(b)(i) (a "Competitive Bid
Request") so as to be received no later than 9:00 a.m. (San Francisco,
California time) four Banking Days prior to the date of a proposed
Borrowing specifying:
(A) the date of such Borrowing, which shall be a Banking Day;
(B) the aggregate amount of all such Competitive Bid Loans, which
shall be a minimum amount of ten million Dollars ($10,000,000) and in
integral multiples of one million Dollars ($1,000,000) in excess
thereof; and
(C) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of "Interest Period"
herein.
Subject to subparagraph (iii) below, the Borrower may not request Competitive
Bids for more than one (1) Interest Period in a single Competitive Bid Request.
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(ii) Upon receipt of a Competitive Bid Request, the Agent will
promptly send to the Banks by facsimile transmission an Invitation for
Competitive Bids, which shall constitute an invitation by the Borrower to
each Bank to submit Competitive Bids offering to make the Competitive Bid
Loans to which such Competitive Bid Request relates in accordance with this
Paragraph.
(iii) (A) Each Bank may at its discretion submit a Competitive Bid
containing an offer or offers to make Competitive Bid Loans in response to
any Invitation for Competitive Bids. No Competitive Bid submitted by a
Bank other than Wells Fargo may exceed the Available Commitment Amount of
such Bank. No Competitive Bid submitted by Wells Fargo may exceed the
lesser of (i) thirty million Dollars ($30,000,000), and (ii) the Available
Commitment Amount of Wells Fargo. Each Competitive Bid must comply with
the requirements of this subparagraph (iii) and must be submitted to the
Agent by facsimile transmission at the Agent's office for notices set forth
in Paragraph 10.9 hereof not later than (1) 9:00 a.m. (San Francisco,
California time) on the third Banking Day preceding the proposed date of
Borrowing; provided that Competitive Bids submitted by the Agent in the
capacity of a Bank may be submitted, and may only be submitted, if the
Agent notifies the Borrower of the terms of the offer or offers contained
therein not later than 5:00 p.m. (San Francisco, California time) on the
fourth Banking Day preceding the proposed date of Borrowing.
(B) Each Competitive Bid shall be in substantially the form of
Exhibit 2.5(b)(iii), specifying therein:
(1) the proposed date of Borrowing;
(2) the principal amount of each Competitive Bid Loan for which
such Competitive Bid is being made, which principal amount (x) may be
equal to or less than (but not greater than) the Available Commitment
Amount of the quoting Bank in the case of each Bank other than Wells
Fargo and in the case of Wells Fargo the lesser of (i) thirty million
Dollars ($30,000,000), and (ii) the Available Commitment Amount of
Wells Fargo, (y) must be ten million Dollars ($10,000,000) or in
integral multiples of one million Dollars ($1,000,000) in excess
thereof, and (z) may not exceed the principal amount of Competitive
Bid Loans for which Competitive Bids were requested;
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<PAGE>
(3) the margin above or below the applicable LIBOR Rate (the
"Competitive Bid Margin") offered for each such Competitive Bid Loan,
expressed as a percentage specified to the nearest 1/100th of one
percent, and the Interest Period applicable thereto; and
(4) the identity of the quoting Bank.
A Competitive Bid may contain only one offer by the quoting Bank with
respect to each Interest Period specified in the related Invitation for
Competitive Bids.
(C) Any Competitive Bid shall be disregarded if it:
(1) is not substantially in conformity with Exhibit
2.5(b)(iii) or does not specify all of the information required by
subparagraph (iii)(B) of this Paragraph 2.5(b);
(2) contains qualifying, conditional or similar language;
(3) proposes terms other than or in addition to those set
forth in the applicable Invitation for Competitive Bids; or
(4) arrives after the time set forth in subparagraph
(iii)(A).
(iv) Promptly on receipt and not later than 9:30 a.m. (San Francisco,
California time) on the third Banking Day preceding the proposed date of
Borrowing, the Agent will notify the Borrower of the terms (A) of any
Competitive Bid submitted by a Bank that is in accordance with subparagraph
(iii) above, and (B) of any Competitive Bid that amends, modifies or is
otherwise inconsistent with a previous Competitive Bid submitted by such
Bank with respect to the same Competitive Bid Request. Any such subsequent
Competitive Bid shall be disregarded by the Agent unless such subsequent
Competitive Bid is submitted solely to correct a manifest error in such
former Competitive Bid and only if received within the times set forth in
subparagraph (iii) above. The Agent's notice to the Borrower shall specify
(1) the aggregate principal amount of Competitive Bid Loans for which
offers have been received for each Interest Period specified in the related
Competitive Bid Request; and (2) the respective principal amounts and
Competitive Bid Margins so offered. Subject only to the provisions of
Paragraphs 4.1 and 4.2 hereof and the
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<PAGE>
provisions of this subparagraph (iv), any Competitive Bid shall be
irrevocable except with the written consent of the Agent given on the
written instructions of the Borrower.
(v) Not later than 10:00 a.m. (San Francisco, California time) on the
third Banking Day preceding the proposed date of Borrowing, the Borrower
shall notify the Agent of its acceptance or non-acceptance of the offers so
notified to it pursuant to subparagraph (iv) above. The Borrower shall be
under no obligation to accept any offer and may choose to reject all
offers. In the case of acceptance, such notice shall specify the aggregate
principal amount of offers for each Interest Period that is accepted. The
Borrower may accept any Competitive Bid in whole or in part; provided that:
(A) the aggregate principal amount of all such Competitive Bids
accepted may not exceed the applicable amount set forth in the related
Competitive Bid Request;
(B) the principal amount of all such Competitive Bids accepted
must be ten million Dollars ($10,000,000) and in any multiple of one
million Dollars ($1,000,000) in excess thereof;
(C) acceptance of offers may only be made on the basis of
ascending Competitive Bid Margins within each Interest Period; and
(D) the Borrower may not accept any offer that is described in
subparagraph (iii)(C) above or that otherwise fails to comply with the
requirements of this Agreement.
(vi) If offers are made by two or more Banks with the same
Competitive Bid Margins, for a greater aggregate principal amount than the
amount in respect of which such offers are accepted for the related
Interest Period, the principal amount of Competitive Bid Loans in respect
of which such offers are accepted shall be allocated by the Agent among
such Banks as nearly as possible (in such multiples, not less than one
hundred thousand dollars ($100,000) as the Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers.
Determination by the Agent of the amounts of Competitive Bid Loans shall be
conclusive in the absence of manifest error.
(vii) (A) The Agent will promptly notify each Bank having submitted a
Competitive Bid if its offer has been accepted and, if its offer has been
accepted,
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<PAGE>
of the amount of the Competitive Bid Loan or Competitive Bid Loans to be
made by it.
(B) Each Bank, which has received notice pursuant to subparagraph (A)
above that its Competitive Bid has been accepted, shall make the amounts of
such Competitive Bid Loans available to the Agent for the account of the
Borrower, by 11:00 a.m. (San Francisco, California time), on such date of
Borrowing, in funds immediately available to the Agent for the account of
the Borrower.
(C) Promptly following each bid borrowing, the Agent shall notify
each Bank of the ranges of bids submitted and the highest and lowest bids
accepted for each Interest Period requested by the Borrower and the
aggregate amount borrowed pursuant to such bid borrowing.
(D) From time to time, the Borrower and the Banks shall furnish such
information to the Agent as the Agent may request relating to the making of
Competitive Bid Loans, including the amounts, interest rates, dates of
borrowings and maturities thereof, for purposes of the allocation of
amounts received from the Borrower for payment of all amounts owing
hereunder.
(viii) If, on the proposed date of Borrowing all applicable
conditions to funding referenced in Paragraphs 4.1 and 4.2 hereof are
satisfied, the Bank whose offers the Borrower has accepted will fund each
Competitive Bid Loan so accepted. Nothing in this Paragraph 2.5 shall be
construed as a right of first offer in favor of the Banks or to otherwise
limit the ability of the Borrower to request and accept credit facilities
from any Person (including any of the Banks), provided that no Default or
Event of Default would otherwise arise or exist as a result of the Borrower
executing, delivering or performing under such credit facilities.
(c) Competitive Bid Loan Notes. The Borrower's obligation to repay each
--------------------------
Competitive Bid Loan shall be evidenced by a promissory note in favor of the
applicable Bank in the form attached hereto as Exhibit 2.5(c) (the "Competitive
Bid Loan Notes"). On the Initial Closing Date, the Borrower shall deliver the
Competitive Bid Loan Notes, executed by an Authorized Officer of the Borrower,
to the Agent.
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<PAGE>
ARTICLE 3
---------
Transition Provisions
---------------------
3.1 Exchange of Notes. Prior to the Initial Closing Date, each Bank shall
-----------------
deposit with the Agent the promissory note (including the "Swing Line Note" as
defined in the Original Amended and Restated Credit Agreement) issued pursuant
to the Original Amended and Restated Credit Agreement (collectively, the "Old
Notes") held by such Bank, and the Agent shall hold the Old Notes, as bailee for
the account of such respective Banks pending the Initial Closing Date. On the
Initial Closing Date, upon the Borrower's delivery to the Agent of the Notes
pursuant to Paragraph 2.1(d) and the Swing Line Note, the Agent shall cancel the
Old Notes, return the cancelled Old Notes to the Borrower and deliver the Notes
to the respective Banks and the Swing Line Note to Wells Fargo.
3.2 Transfer of Loan Balances.
-------------------------
(a) As of the Initial Closing Date, all Loans made pursuant to the
Original Amended and Restated Credit Agreement and not theretofore repaid in
full ("Continuing Loans") shall constitute Revolving Loans under this Agreement
and, subject to Paragraphs 3.2(b) and 3.2(c), shall be subject to all of the
terms and conditions of this Agreement. As of the Initial Closing Date, the
principal amount of each such Revolving Loan shall be deemed to be outstanding
under and evidenced by the Revolving Note to the order of the Bank which
advanced such Revolving Loan. From and after the Initial Closing Date, interest
on Continuing Loans which were "Base Rate Loans" (as defined in the Original
Amended and Restated Credit Agreement) shall constitute Base Rate Loans, as
defined herein, and shall bear interest as such in accordance with Paragraph
2.2(a).
(b) Notwithstanding anything to the contrary in Paragraph 3.2(a), each
Continuing Loan which is a "LIBOR Loan" (as defined in the Original Amended and
Restated Credit Agreement) shall continue to bear interest at the rate
determined in accordance with Paragraph 2.2(a) of the Original Amended and
Restated Credit Agreement until the last day of the Interest Period for such
Continuing Loan.
(c) Notwithstanding the provisions of Paragraph 2.3(e) to the contrary,
until the principal amount of all Continuing Loans and all other Obligations in
respect of Continuing Loans have been paid in full,
(i) all principal payments by Borrower (unless expressly designated
by the Borrower to be applicable to LIBOR Loans) shall be applied first to
the payment of the outstanding principal balance of Continuing Loans which
are Base Rate Loans, before application to any Loans advanced on or after
the Initial Closing Date;
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<PAGE>
(ii) on the last day of any Interest Period for any Continuing Loans
which are LIBOR Loans, unless the Borrower pays the principal balance of
such LIBOR Loans, such LIBOR Loans shall be extended or converted in
accordance with Paragraph 2.2(b); as among the Banks, such extension or
conversion shall be deemed to be a repayment of the outstanding principal
balance of such Continuing Loans (to be allocated among the Banks according
to the Old Commitment Percentages) and an advance of new Revolving Loans
(pro rata in accordance with the Commitment Percentages); and the Banks
shall make appropriate cash adjustments, as determined by Agent, to reflect
such deemed repayment and advance; and
(iii) all payments of interest, principal, fees and other Obligations
in respect of Continuing Loans shall be distributed by the Agent to the
Banks in accordance with the Old Commitment Percentages.
ARTICLE 4
---------
Conditions Precedent
--------------------
4.1 Conditions to Initial Borrowing. The effectiveness of this Agreement
-------------------------------
and the obligation of the Banks to consummate the transactions described in
Article 3 shall be subject to the prior or contemporaneous satisfaction of each
of the following conditions precedent on the Initial Closing Date:
(a) Delivery of Documents. The Notes and the Swing Line Note shall
---------------------
each have been duly executed and delivered to the Agent by the Borrower;
(b) Reports, Certificates and Other Information. The Agent shall
-------------------------------------------
have received the following, dated and in full force and effect on the
Initial Closing Date, and in form and substance satisfactory to the Agent:
(i) a certificate of the Secretary or an Assistant Secretary of
the Borrower as to (A) its corporate charter and by-laws, (B)
authorization of the execution, delivery and performance of this
Agreement and all of the other Loan Documents by the Borrower
(including action of shareholders, where required), and (C) the
incumbency and signatures of persons authorized to act hereunder and
thereunder on behalf of the Borrower; and
(ii) a certificate, signed by a Responsible Officer of the
Borrower, stating (A) that the representations and warranties
contained in Article 5 hereof are then true and accurate as
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though made on and as of such date, and (B) that there then exists no
Event of Default or Incipient Default;
(iii) a good standing certificate for the Borrower, bearing a
date satisfactory to the Agent, issued by the Secretary of State of
the State of California; and
(iv) such other instruments or documents as the Agent may
reasonably request relating to the existence and good standing of the
Borrower, any of its Subsidiaries, any Controlled Partnership or any
other person, or corporate authority for execution, delivery and
performance of this Agreement, any of the other Loan Documents or any
other document or instrument relating to the Loans.
(c) Opinions of Counsel. There shall have been delivered to the
-------------------
Agent a written opinion dated as of the Initial Closing Date by David
Goldberg, as counsel to the Borrower, substantially in the form of Exhibit
4.1(c) attached hereto;
(d) Payment of Fees. The Agent shall have received payment of (i)
---------------
all fees required in the Commitment Letter or the Agent's Letter to be paid
on or prior to the Initial Closing Date, and (ii) a reasonable estimate of
the reasonable fees and expenses of the Agent's special counsel, Pillsbury
Madison & Sutro LLP, in connection with preparation, negotiation, execution
and closing of this Agreement (provided such estimate shall have been
provided to the Borrower at least three (3) days prior to the Initial
Closing Date), and (iii) any other fee or other payment due the Agent or
the Banks under any of the Loan Documents on or before the Initial Closing
Date;
(e) No Existing Default. No Event of Default or event which, upon
-------------------
the lapse of time or the giving of notice or both, would constitute an
Event of Default (an "Incipient Default") shall exist on the Initial
Closing Date or after giving effect to the transactions contemplated to
take place hereunder on such date;
(f) Representations and Warranties Correct. The representations and
--------------------------------------
warranties set forth in Article 5 hereof shall be true and correct on the
Initial Closing Date, and after giving effect to the transactions
contemplated to occur on such date;
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<PAGE>
(g) Legality of Transactions. It shall not be unlawful for the
------------------------
Borrower, the Agent or the Banks to carry out their respective obligations
under this Agreement;
(h) Notice of Authorized Representatives. The Agent shall have
------------------------------------
received a Notice of Authorized Representatives in the form attached hereto
as Exhibit 4.1(h) (a "Notice of Authorized Representatives), duly executed
on behalf of the Borrower; and
(i) Other Documents. The Agent shall have received any other
---------------
document, instrument, undertaking or certificate stated in any of the Loan
Documents to be delivered on the Initial Closing Date.
4.2 Conditions to Each Loan. The obligation of the Banks to make any Loan
-----------------------
is subject to the prior or contemporaneous satisfaction of each of the following
conditions precedent on and as of the date of such Borrowing:
(a) Initial Closing Date. The Initial Closing Date shall have
--------------------
occurred.
(b) No Existing Default. No Event of Default or Incipient Default
-------------------
shall exist at the date of such Borrowing, or after giving effect to the
transactions contemplated to take place hereunder on such date;
(c) Representations and Warranties Correct. The representations and
--------------------------------------
warranties set forth in Article 5 hereof shall be true and correct at the
date of such Borrowing, and after giving effect to the transactions
contemplated to take place hereunder on such date (except that to the
extent that such representations and warranties by their terms relate
solely to an earlier date, in which case such representations and
warranties shall have been true and correct as of the date to which such
representations and warranties relate);
(d) Loan Request. The Agent shall have received in connection with
------------
each Loan a Loan Request or an acceptance of a Competitive Bid by the
Borrower, as the case may be, the receipt of which by the Agent shall
constitute a certification by the Borrower that the conditions set forth in
Paragraphs 4.2(b) and 4.2(c) hereof are or will be satisfied on and as of
the date of such Borrowing; and
(e) No Material Adverse Change. No Material Adverse Change shall
--------------------------
have occurred since December 31, 1995.
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<PAGE>
4.3 Conditions for the Benefit of the Agent and the Banks. The conditions
-----------------------------------------------------
set forth in this Article 4 are for the exclusive benefit of the Banks and the
Agent and may be waived only by a written waiver signed by all the Banks or the
Agent, as applicable (but the Agent shall not, without the approval of Majority
Banks, waive any such condition which is for the benefit of the Banks).
4.4 Failure of Conditions. The Borrower shall take any and all actions
---------------------
necessary or appropriate on their part, and shall use their best efforts to
cause others to take necessary or appropriate action on their part, in order to
satisfy the conditions set forth in Paragraph 4.1 hereof and otherwise cause the
Initial Closing Date to occur not later than February 28, 1997. This Agreement
(exclusive of obligations of the Borrower stated herein to survive termination
hereof) shall terminate if the Initial Closing Date does not occur on or before
February 28, 1997. In such event, the Borrower shall pay to Agent on demand
such amounts as may be due under the Commitment Letter or the Agent's Letter.
The obligation of the Borrower to make such payment shall survive termination of
this Agreement.
ARTICLE 5
---------
Representations and Warranties of the Borrower
----------------------------------------------
In order to induce the Agent and the Banks to enter into or become parties
to this Agreement and to extend the Loans, the Borrower makes the following
representations and warranties to the Agent and the Banks:
5.1 Due Organization. The Borrower, each of its Subsidiaries and each of
----------------
the Controlled Partnerships is a corporation or partnership, as the case may be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and each is duly licensed or qualified to
conduct business, and each is in good standing in each jurisdiction wherein the
character of the property owned or the nature of the business transacted by it
makes such licensing or qualification necessary, except where the failure to so
qualify would not, individually or in the aggregate, have a Material Adverse
Effect.
5.2 Subsidiaries and Partnerships.
-----------------------------
(a) Set forth in Schedule 5.2 attached hereto is a complete and accurate
list of the Borrower's Subsidiaries and all of the Controlled Partnerships,
showing their respective jurisdictions of incorporation or organization.
(b) All of the outstanding capital stock of the Borrower and its
Subsidiaries has been validly issued in compliance with all federal and state
securities laws and is fully paid and
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<PAGE>
nonassessable. Except as specified in Schedule 5.2, all of the capital stock of
each of the Subsidiaries listed in Schedule 5.2 attached hereto is owned by the
Borrower or one of its Subsidiaries free and clear of all Liens or adverse
claims. Neither the Borrower nor any of its Subsidiaries nor any of the
Controlled Partnerships is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital stock or
any Controlled Partnership Interests, as the case may be.
5.3 Requisite Power. The Borrower and each of its Subsidiaries and each
---------------
of the Controlled Partnerships has all requisite power and all governmental
licenses, permits, authorizations, consents and approvals necessary to own and
operate its respective properties and to carry on its respective business as
now conducted and as proposed to be conducted, except any such licenses,
permits, authorizations, consents and approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect. The Borrower
has all requisite power to borrow the sums provided for in this Agreement and to
execute, deliver, issue and perform this Agreement, the Notes, the Swing Line
Note, and the other Loan Documents.
5.4 Authorization. All corporate action on the part of the Borrower and
-------------
its directors and stockholders necessary for the authorization, execution and
delivery and performance of this Agreement, the Notes, the Swing Line Note, and
the other Loan Documents has been duly taken and is in full force and effect.
5.5 Officer Authorization. Each natural person executing this Agreement
---------------------
or any of the other Loan Documents on behalf of the Borrower is (as of the date
of such execution) duly and properly in office and fully authorized to execute
and deliver the same.
5.6 Binding Nature. This Agreement, the Notes, the Swing Line Note, and
--------------
each of the other Loan Documents is, or upon the execution and delivery thereof
will be, a legal, valid and binding obligation of the Borrower, in full force
and effect and enforceable in accordance with its respective terms, except for
the effect of applicable laws regarding bankruptcy or insolvency and the effect
of equitable principles generally.
5.7 No Conflict. Neither the execution nor delivery of this Agreement,
-----------
the Notes, the Swing Line Note, or any of the other Loan Documents nor
performance of nor compliance with the terms and provisions hereof or thereof
will (a) conflict with or result in a breach of any Governmental Requirement, or
of any other agreement or instrument binding upon the Borrower, any of its
Subsidiaries or any of the Controlled Partnerships, or conflict with or result
in a breach of any provision of the corporate charter or by-laws of the Borrower
or any of its Subsidiaries or the Partnership Agreement of any of the
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<PAGE>
Controlled Partnerships, except any such conflict or breach as would not,
individually or in the aggregate, result in a Material Adverse Effect, or (b)
result in the creation or imposition of any Lien upon any property of the
Borrower, any of its Subsidiaries or any of the Controlled Partnerships pursuant
to any such agreement or instrument. No authorization, consent or approval or
other action by, and no notice to or filing with, any Governmental Authority is
required to be obtained or made by the Borrower, any of its Subsidiaries or any
of the Controlled Partnerships, other than those which will be obtained or made
prior to the Initial Closing Date, for the due execution, delivery and
performance by the Borrower of this Agreement, the Notes, the Swing Line Note,
or any of the other Loan Documents or for the validity or enforceability
thereof.
5.8 No Event of Default. No Event of Default or Incipient Default has
-------------------
occurred and is continuing or would result from the execution, delivery or
performance of this Agreement, the Notes, the Swing Line Note, or any of the
other Loan Documents.
5.9 Financial Statements. The Annual Report and the financial statements
--------------------
for the immediately preceding fiscal year and quarter for which financial
statements are available, copies of which have been furnished to the Agent and
the Banks, fairly present the financial condition and results of operations of
the Borrower consolidated with the Consolidated Affiliates, as of the dates or
for the periods described therein. All such financial statements were prepared
in accordance with GAAP consistently applied throughout the respective periods
covered thereby, except that financial statements not dated as of the end of a
fiscal year are subject to adjustments upon audit. Neither the Borrower nor any
Subsidiary of the Borrower nor any of the Controlled Partnerships is liable for
any material liability, direct or contingent, including, but not limited to,
liabilities for taxes, long-term leases or long-term commitments, which would
be required to be shown as a liability or otherwise disclosed in current
financial statements.
5.10 Projected Financial Statements and Projections. The Agent and the
----------------------------------------------
Banks have been furnished with (a) projected consolidated balance sheets (the
"Projected Balance Sheet") for the Borrower and the Consolidated Affiliates as
of December 31, 1996-2000, assuming the consummation of the transactions
contemplated to occur on the Initial Closing Date, and (b) projections of the
consolidated results of operations for the Borrower and the Consolidated
Affiliates for certain future periods. The Projected Balance Sheet and such
estimates and projections were prepared with reasonable care on the basis of the
assumptions stated therein, and such assumptions are, to the best knowledge and
belief of the Borrower, reasonable and made in good faith. It is understood that
no representation or warranty is made by the Borrower concerning any
predictions, forecasts, estimates, or any other analyses prepared by or on
behalf of the Borrower, which are dependent on future events, except as above
stated.
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<PAGE>
There is no fact actually known to any Responsible Officer of the Borrower
(excluding general economic and political conditions) which may have a Material
Adverse Effect which has not been disclosed or reflected in documents furnished
to the Agent in connection with this Agreement.
5.11 Real Property. The Borrower has good marketable title in fee simple
-------------
to, or a valid and subsisting leasehold interest in, all real property
reasonably necessary for the operation of its business as a whole, free from all
Liens of any nature whatsoever, except for Permitted Encumbrances. The
Borrower, its Subsidiaries and the Controlled Partnerships have good marketable
title in fee simple to all of the real property identified on Schedule 5.11
attached hereto as being owned by the Borrower, a Subsidiary of the Borrower or
a Controlled Partnership, in each case free from all Liens of any nature
whatsoever, except for Permitted Encumbrances. The Borrower, Subsidiary of the
Borrower or Controlled Partnership, as the case may be, is the insured under
owner's policies of title insurance covering all real property owned by it, in
each case in an amount not less than the purchase price for such real property.
5.12 Equipment. The Borrower, its Subsidiaries and the Controlled
---------
Partnerships own or have the right to use under valid and subsisting leases, all
equipment and fixtures reasonably necessary for the operation of their business
as a whole.
5.13 Contracts. Each of the Key Contracts was in full force and effect as
---------
of the Initial Closing Date. The Borrower has delivered to the Agent accurate
and complete copies of each Key Contract, and any amendment or modification
thereof. Performance by the parties to all contracts and other commitments of
the Borrower, its Subsidiaries and the Controlled Partnerships would not in the
aggregate have a Material Adverse Effect. Except where the failure of the
following to be true and correct would not in the aggregate have a Material
Adverse Effect, neither the Borrower nor any of its Subsidiaries nor any
Controlled Partnership, nor to the best knowledge of the Borrower, any other
party, is in material default under or after the giving of notice or passage of
time could reasonably be expected to be in material default under any Key
Contract or under any other contract or commitment of the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships.
5.14 Intellectual Property. The Borrower owns or has the right to use all
---------------------
patents, copyrights, trademarks, licenses, service marks, trade names and other
similar rights (the "Intellectual Property Rights") necessary for the operation
of the Borrower's business in the ordinary course. To the best of the
Borrower's knowledge, no proceedings have been instituted or are pending or have
been threatened in writing which challenge the validity, ownership or use of any
such Intellectual Property Rights. To the best knowledge of the Borrower, no
infringement
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<PAGE>
of any Intellectual Property Right of any third party has occurred or will
result in any way from the operations or business of the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships, and no claim has been made
by any such third party based on allegation of any such infringement.
5.15 Litigation and Contingent Liabilities. Excepting those matters set
-------------------------------------
forth in Schedule 5.15 attached hereto, there is no action, suit, investigation,
tax claim or proceeding pending or, to the knowledge of the Borrower,
threatened in writing against or affecting the Borrower or any Subsidiary or any
of the Controlled Partnerships or any Real Property, before any court,
arbitrator or administrative or governmental body which involves an amount
(excluding amounts covered by insurance) in excess of one million Dollars
($1,000,000) in any case or five million Dollars ($5,000,000) in the aggregate.
5.16 Tax Returns and Tax Matters. The Borrower and each of its
---------------------------
Subsidiaries and each of the Controlled Partnerships has filed all federal and
state income tax returns which are required to be filed, and each has paid all
taxes as shown on said returns and on all assessments received by it to the
extent that such taxes have become due. There is no proposed, asserted or
assessed tax deficiency against the Borrower or any of its Subsidiaries or any
of the Controlled Partnerships, except those being contested in good faith and
for which such reserve as is required by GAAP has been created.
5.17 REIT Status. The Borrower has elected to be qualified as, and
-----------
conducts its business in a manner so as to qualify as, a real estate investment
trust pursuant to sections 856-886 of the Code. There is no proposed, asserted
or assessed federal income tax deficiency against the Borrower arising out of
the Borrower's alleged failure to so qualify as a real estate investment trust.
5.18 No Subordination. The Borrower is not a party to or bound by any
----------------
agreement, instrument or indenture that may require the subordination in right
of payment of any of the Obligations to any other indebtedness or obligation of
the Borrower.
5.19 Employee Benefits.
-----------------
(a) Plans Maintained. Except as provided in Schedule 5.19(i) with respect
----------------
to clauses (i) and (ii), below, or in Schedule 5.19(ii) with respect to clauses
(iii), (iv) and (v), neither the Borrower nor any ERISA Affiliated Group member
is a party to, contributes to or is currently obligated to contribute to any
plans, programs, agreements, policies, commitments or other arrangements
(whether or not set forth in a written document) in the following categories:
(i) Any funded employee pension benefit plan, as defined in section
3(2) of ERISA, including any Multi-
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employer Plan, other than Multiemployer Plans with an aggregate withdrawal
liability of less than $100,000;
(ii) Any retiree or survivor health care plan (other than COBRA) or
any other retiree or survivor welfare benefit program as defined in section
3(1) of ERISA;
(iii) Any plan that is an excess benefit plan, as defined in section
3(36) of ERISA, and is unfunded, as described in section 4(b)(5) of ERISA,
or any other unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees (as described in section 201(2) or 301(a)(3) of
ERISA);
(iv) Any bonus, deferred-compensation, incentive, restricted-stock,
stock purchase, stock option, stock appreciation right, phantom stock,
debenture, supplemental pension, profit-sharing, commission, or similar
plan or arrangement; or
(v) Any plan, program, agreement, policy, commitment or other
arrangement relating to severance or termination pay, whether or not
published or generally known.
(b) Reporting and Disclosure. With respect to each Employee Benefit Plan,
------------------------
including employee welfare benefit plans not required to be listed in Schedule
5.19(i), and which is subject to the reporting, disclosure and record retention
requirements set forth in Part 1 of Subtitle B of Title I of ERISA and the
regulations thereunder, each of such requirements has been fully met on a timely
basis, except where instances of failing to do so could not, considered in the
aggregate, have a Material Adverse Effect. The representation and warranty set
forth in this Paragraph 5.19(b) is made to the best knowledge of the Borrower to
the extent that it applies to a Multiemployer Plan.
(c) Qualification of Plans. Each Employee Benefit Plan which is intended
----------------------
to be qualified under section 401(a) of the Code, including any Multiemployer
Plan not required to be listed in Schedule 5.19(i), has been determined by the
Internal Revenue Service in writing to be so qualified in the past. To the best
knowledge of the Borrower, since the Internal Revenue Service issued its
determination with respect to any such plan, there has been no occurrence
(including, without limitation, a plan amendment, the enactment of legislation
or the adoption of regulations) that could cause such plan not to be so
qualified which cannot be corrected by an amendment adopted within the
applicable remedial amendment period. Within the applicable remedial amendment
period described in the regulations under section 401(b) of the Code, any such
amendment shall be adopted and an
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application for such a determination will be submitted to the Internal Revenue
Service with respect to such amendment and Borrower will adopt any additional
amendments required to maintain such qualification. Each such plan has in all
material respects been administered in accordance with its terms and the
applicable provisions of ERISA and the Code and the regulations thereunder. The
representations and warranties set forth in this Paragraph 5.19(c) are made to
the best knowledge of the Borrower with respect to any Multiemployer Plan.
(d) Contributions and Premiums. All contributions, premiums or other
--------------------------
payments due from the Borrower or any member of the Controlled Group to (or
under) any Employee Benefit Plan have been fully paid or adequately provided for
on the books and financial statements of the Borrower or such member of the
Controlled Group.
(e) Litigation and Extraordinary Claims. There are no pending or, to the
-----------------------------------
best knowledge of the Borrower, threatened claims, actions or lawsuits, other
than immaterial claims for benefits in the usual and ordinary course, asserted
or instituted against (i) any Employee Benefit Plan, (ii) any member of the
Controlled Group with respect to any Employee Benefit Plan or (iii) any
fiduciary with respect to any Employee Benefit Plan.
(f) Prohibited Transactions. With respect to each Employee Benefit Plan
-----------------------
which is subject to Part 4 of Subtitle B of Title I of ERISA, there does not now
exist, nor has there existed within the six-year period ending on the date
hereof, any act or omission which constitutes a violation of section 406 or 407
of ERISA and is not exempted by section 408 of ERISA or which constitutes a
violation of section 4975(c) of the Code and is not exempted by section 4975(d)
of the Code, except for violations which, considered in the aggregate, would not
have a Material Adverse Effect.
(g) COBRA. With respect to its Employee Benefit Plans, the Borrower and
-----
all of its Subsidiaries are in compliance with COBRA, except for violations
which, considered in the aggregate, would not have a Material Adverse Effect.
5.20 Environmental Matters. Except as disclosed in Schedule 5.20 attached
---------------------
hereto, to the best knowledge of the Borrower, (a) all of the Real Property and
the operations of the Borrower, and each of its Subsidiaries and each of the
Controlled Partnerships, comply in all respects with all applicable
Environmental Laws; (b) there are no past, present or future events, conditions,
circumstances, activities or plans with respect to any Real Property, the
Borrower, any Subsidiary or any Controlled Partnership which may interfere with
or prevent compliance with Environmental Laws or give rise to any liability or
otherwise form the basis of any claim, action, investigation or other proceeding
based on or related to the
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manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment of any Hazardous Substance; and (c) none of the Borrower,
any Subsidiary, any Controlled Partnership nor any Real Property is subject to
any pending or threatened judicial or administrative claim, action,
investigation or other proceeding or any lien relating in any way to the
Environmental Laws or Hazardous Substances.
5.21 Compliance with Laws. The Borrower, each of its Subsidiaries and
--------------------
each of the Controlled Partnerships are in compliance with all Governmental
Requirements applicable to their properties, assets and business with only such
exceptions as in the aggregate could not have a Material Adverse Effect. There
are no proceedings pending or, to the best of their knowledge, threatened, to
terminate or modify any Governmental Approvals.
5.22 Statutory Regulation. Neither the Borrower nor any of its
--------------------
Subsidiaries nor any of the Controlled Partnerships is an investment company
within the meaning of the Investment Company Act of 1940, as amended, or is,
directly or indirectly, controlled by or acting on behalf of any person which is
an investment company, within the meaning of said Act. Neither the Borrower nor
any of its Subsidiaries nor any of the Controlled Partnerships is subject to any
state law or regulation regulating public utilities or similar entities, or is,
within the meaning of the Public Utility Holding Company Act of 1935, as
amended, (a) a holding company; (b) a subsidiary or affiliate of a holding
company; or (c) a public utility. Neither the Borrower nor any of its
Subsidiaries nor any of the Controlled Partnerships is subject to regulation
under the Interstate Commerce Act or the Federal Power Act or under any other
federal or state statute or regulation limiting or placing conditions upon their
respective power or right to borrow money.
5.23 Use of Proceeds; Regulation U. Neither the Borrower nor any of its
-----------------------------
Subsidiaries nor any of the Controlled Partnerships is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System of the
United States). The Loans will not be subject to Regulation U or Regulation X
of said Board of Governors. No part of the proceeds of the Loans will be used
for any purpose which violates, or which is inconsistent with, the provisions of
Regulation G, T, U or X of said Board of Governors.
5.24 Solvency. As of the Initial Closing Date and after giving effect to
--------
the transactions contemplated by this Agreement and the other Loan Documents,
including all of the Loans made and to be made hereunder, the Borrower is
Solvent and each of its Subsidiaries is Solvent and each of the Controlled
Partnerships is Solvent.
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ARTICLE 6
---------
Affirmative Covenants
---------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding or any Commitment is in effect it will comply with and, if
applicable, cause each of its Subsidiaries and each of the Controlled
Partnerships to comply with the following provisions:
6.1 Accounting Records. The Borrower and each of its Subsidiaries and
------------------
each of the Controlled Partnerships shall maintain adequate books and accounts
in accordance with sound business practices and GAAP consistently applied.
6.2 Financial Statements and Notices. The Borrower shall furnish to the
--------------------------------
Agent with sufficient copies for each Bank the following financial statements,
information and notices:
(a) Within fifty (50) days after the close of each quarter (other
than the fourth quarter) of each of Borrower's fiscal years, commencing
with the fiscal quarter ending March 31, 1997, a copy of the Borrower's
Quarterly Report on Form 10-Q filed with the Securities Exchange
Commission, including the financial statements of the Borrower for such
quarter. All such financial statements shall be prepared on a consolidated
basis for the Borrower and the Consolidated Affiliates, in reasonable
detail, subject to year-end audit adjustments, shall include appropriate
comparisons to the same period for the prior year, and shall be certified
by the Chief Financial Officer of the Borrower to have been prepared in
accordance with GAAP consistently applied, subject to year-end audit
adjustments;
(b) Within one hundred twenty (120) days after the close of each
fiscal year, commencing with the fiscal year ending December 31, 1996, a
copy of the Borrower's Annual Report on Form 10-K filed with the Securities
Exchange Commission, including the consolidated financial statements of
the Borrower and the Consolidated Affiliates for such year. All such
financial statements shall include appropriate comparisons to the prior
year. Such consolidated financial statements shall be audited by Ernst &
Young LLP or another independent certified public accounting firm
acceptable to the Majority Banks, and shall include a report of such
accounting firm, which report shall be unqualified and shall state that
such financial statements fairly present the financial position of the
Borrower and the Consolidated Affiliates as at the dates indicated and the
results
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of their operations and their cash flows for the periods indicated in
conformity with GAAP consistently applied. Such report shall include a
letter from the auditor in the form of Exhibit 6.2(b) attached hereto,
confirming compliance (or specifying any noncompliance) with the covenants
set forth in Paragraph 6.16 hereof);
(c) Contemporaneously with each quarterly and year-end financial
report required by the foregoing paragraphs (a) and (b), a certificate in
the form of Exhibit 6.2(c) attached hereto, together with such information
as may be reasonably necessary to permit the Agent and the Banks to confirm
the Borrower's compliance with the covenants referred to in such
certificate and a schedule listing in reasonable detail the Unencumbered
Assets maintained pursuant to Paragraph 6.17 hereof as of the end of the
applicable fiscal quarter or year;
(d) Contemporaneously with each year-end financial report required by
the foregoing paragraph (b) and at such other times as the Agent may
request, an occupancy report setting forth, for each state in which any
Real Property is located, the number of Mini-storage Properties, the
aggregate square footage thereof and the percentage of such square footage
then under lease; the number of Business Park Properties, the aggregate
square footage thereof and the percentage of such square footage then under
lease; the number of Combination Properties, the aggregate square footage
thereof and the percentage of such square footage then under lease;
together with totals for all states for each such category of information;
(e) [Intentionally Deleted]
(f) Promptly but in no event later than one (1) Banking Day after a
Responsible Officer of the Borrower obtains knowledge of (i) the occurrence
of an Event of Default or an Incipient Default, (ii) the occurrence of an
event that has or could reasonably be expected to have a Material Adverse
Effect or (iii) any default or event of default as defined in any evidence
of Indebtedness in excess of two million five hundred thousand Dollars
($2,500,000) or under any agreement, indenture or other instrument under
which such Indebtedness has been created, whether or not such Indebtedness
is accelerated or such default waived, the Borrower shall notify the Agent,
and, within five (5) calendar days after obtaining such knowledge, the
Borrower shall provide the Agent with a statement of a Responsible Officer
setting forth
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details thereof and the action, if any, which the Borrower propose to take
with respect thereto;
(g) Contemporaneously with each quarterly and year-end financial
report required by the foregoing paragraphs (a) and (b), a schedule of Non-
Consolidated Affiliates which shall include the following: (i) the Gross
Asset Value of the Borrower's investment in each Non-Consolidated
Affiliate, (ii) the Combined Percentage Interest of the Borrower in each
Non-Consolidated Affiliate, (iii) all Indebtedness of each Non-Consolidated
Affiliate, and (iv) the EBITDA of each Non-Consolidated Affiliate for the
immediately preceding four fiscal quarters;
(h) Promptly but in no event later than five (5) calendar days after
a Responsible Officer learns thereof, written notice of any actual or
threatened claim, litigation, suit, investigation, proceeding or dispute
(including without limitation matters involving Environmental Laws) against
or affecting the Borrower or any of its Subsidiaries or any of the
Controlled Partnerships, which (i) may have a Material Adverse Effect; or
(ii) involves a monetary amount in excess of three million Dollars
($3,000,000) and is not covered by insurance;
(i) As soon as possible, and in any event within twenty (20) calendar
days, after a Responsible Officer learns that any of the following events
has occurred, such Responsible Officer shall deliver to the Agent a
statement describing such event and any action that the Borrower proposes
to take with respect thereto: (i) any Reportable Event with respect to a
Pension Plan, other than a Reportable Event for which the 30-day notice
requirement under ERISA has been waived in regulations of the PBGC; (ii)
the institution of proceedings by the PBGC to terminate any Pension Plan to
have a trustee appointed to administer such plan, or receipt of notice of
any intention by the PBGC to do so; (iii) the filing of a request for a
minimum funding waiver under section 412 of the Code with respect to any
Pension Plan or any employee pension benefit plan (as defined in section
3(2) of ERISA) maintained by any member of the ERISA Affiliated Group; (iv)
the receipt by the Borrower or any member of the Controlled Group of a
demand for withdrawal liability under section 4219 or 4202 of ERISA; or (v)
a failure of any member of the ERISA Affiliated Group to make required
contributions to a Pension Plan subject to section 412 of the Code;
(j) As soon as possible, and in any event within ten (10) days after
receipt of a written request from
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the Agent or the Majority Banks, the Borrower shall deliver to the Agent,
as requested by the Agent or the Majority Banks: (i) a copy of any
Employee Benefit Plan or summary description of such plan; (ii) a copy of
any report, description or other document filed with any governmental
agency with respect to any Employee Benefit Plan; or (iii) a copy of any
plan (as defined in section 3(3) of ERISA) maintained by the Borrower or
any ERISA Affiliate; or (iv) a copy of any notice, determination letter,
ruling or opinion that the Borrower or any Controlled Group member receives
from any governmental agency with respect to any Employee Benefit Plan;
(k) Contemporaneously with the Borrower's delivery thereof to the
Rating Agencies, and in any event not later than one hundred twenty (120)
days after commencement of each fiscal year of the Borrower, a copy of the
Borrower's consolidated financial projections for such fiscal year,
including a projected consolidated balance sheet, income statement, and
statement of changes in financial position or statement of cash flows for
and as of the end of such fiscal year;
(l) No later than two (2) Banking Days after the date of promulgation
thereof by any Rating Agency, notice of any change in rating by such Rating
Agency in respect of any debt or preferred stock of the Borrower, together
with the details thereof, and of any announcement by any Rating Agency that
any such rating is "under review" or that any such rating has been placed
on a "CreditWatch List"(R) or "watch list" or that any similar action has
been taken by such Rating Agency (each such notice, a "Rating Notice"); and
(m) As soon as possible, and in any event within five (5) calendar
days after a Responsible Officer learns that any of the following events
has occurred, such Responsible Officer shall deliver to the Agent a
statement describing such event and any action that the Borrower proposes
to take with respect thereto: (i) the exercise by the Borrower of any
option to require a Joint Venture to sell property pursuant to section
16.1(c) of the Joint Venture Agreement of such Joint Venture; (ii) any
proposed dissolution or liquidation of any of the Controlled Partnerships;
(iii) any disqualification of the Borrower as a real estate investment
trust pursuant to the Code, or any event or circumstance which might
reasonably be expected to be the basis for such disqualification; (iv) any
change in the name or address of any partner with Borrower in any Joint
Venture (a "Co-Venturer");
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and (v) any assignment, transfer, pledge or hypothecation of any interest
in any Joint Venture by any Co-Venturer;
(n) As soon as possible and in any event within fifteen (15) calendar
days after a receipt of a written request from the Agent, the Borrower
shall deliver true and correct copies of the Partnership Agreements as then
in effect to the Agent; and
(o) Within a reasonable time after a request therefor, such other
information as the Agent or the Majority Banks may reasonably request.
6.3 Inspection of Property, Books and Records.
-----------------------------------------
(a) The Borrower and each of its Subsidiaries and each of the Controlled
Partnerships shall permit either the Agent or any of the Banks, at such
reasonable times and intervals as the Agent or Banks may designate upon
reasonable notice, at their own expense, by and through the representatives of
the Agent or any of the Banks, to inspect, audit and examine their respective
books and records, to make copies thereof, to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants, and to visit and inspect their respective properties; provided,
however, when an Event of Default has occurred and is continuing,
representatives of the Agent or any of the Banks may visit and inspect at the
expense of the Borrower such properties at any time during business hours and
without advance notice.
(b) The Borrower and its Subsidiaries and the Controlled Partnerships
shall extend their cooperation and assistance and comply with the requests of
the Agent or the Majority Banks or their respective representatives in
connection with any audit regarding the Controlled Properties and will furnish
any information reasonably requested in respect thereof, including, without
limitation, appraisals of the Controlled Properties and lien search reports, if
available. At any time during the continuance of an Event of Default, the
Borrower shall pay the reasonable fees and expenses of such accounting firm as
may be selected by the Agent or Majority Banks to conduct an examination of the
financial affairs of the Borrower and its Subsidiaries and the Controlled
Partnerships.
6.4 Maintenance of Existence. The Borrower and each of its Subsidiaries
------------------------
and each of the Controlled Partnerships shall preserve and maintain their
respective existences and all of their licenses, permits, privileges and
franchises and other rights necessary or desirable in the normal course of their
businesses (except to the extent the failure to do so shall not, individually or
in the aggregate, result in a Material Adverse Effect), and will use reasonable
efforts, in the ordinary course and consistent with past practice, to preserve
their respective
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business organization and preserve the goodwill and business of the customers,
suppliers and others having business relations with them.
6.5 Tax Returns. The Borrower and each of its Subsidiaries and each of
-----------
the Controlled Partnerships shall file all federal and state income tax returns
which are required to be filed, and shall pay all taxes as shown on said returns
and on all assessments received by it to the extent that such taxes have become
due, except any such assessments which are being contested in good faith and for
which such reserve as is required by GAAP has been created.
6.6 Qualifications To Do Business. The Borrower and each of its
-----------------------------
Subsidiaries and each of the Controlled Partnerships shall qualify to do
business and shall remain in good standing in each jurisdiction in which the
nature of their business requires them to be so qualified, except where the
failure to so qualify could not have a Material Adverse Effect.
6.7 Compliance with Laws. The Borrower and its Subsidiaries and each of
--------------------
the Controlled Partnerships shall comply with all Governmental Requirements,
except where the failure to do so could not have a Material Adverse Effect.
6.8 REIT Status. The Borrower shall elect to be taxed as, and shall
-----------
conduct its affairs in a manner so as to qualify as, a real estate investment
trust pursuant to sections 856-886 of the Code.
6.9 Material Agreements. The Borrower and its Subsidiaries and the
-------------------
Controlled Partnerships shall comply in all respects with the terms of each
agreement to which any of them is a party, including, without limitation, the
Key Contracts, except where all instances of any failure to so comply would not,
in the aggregate, have a Material Adverse Effect.
6.10 Insurance. The Borrower and its Subsidiaries and the Controlled
---------
Partnerships shall maintain in full force and effect with insurers duly licensed
in the applicable jurisdictions insurance of such types and in such amounts as
are customarily carried in their respective lines of business, including, but
not limited to, fire, hazard, public liability, property damage, products
liability and workers' compensation insurance. The Borrower and its
Subsidiaries and the Controlled Partnerships shall deliver or cause to be
delivered to the Agent, as the Agent may from time to time request, schedules
identifying all insurance then in effect and certificates evidencing such
insurance.
6.11 Facilities. The Borrower and its Subsidiaries and the Controlled
----------
Partnerships shall keep the Real Properties in good repair, working order and
condition, and from time to time shall make necessary repairs or replacements
thereto so that
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their property shall be maintained adequately for its intended use.
6.12 Taxes and Other Liabilities. The Borrower and its Subsidiaries and
---------------------------
the Controlled Partnerships shall pay and discharge when due any and all
indebtedness, obligations, liabilities, assessments and real and personal
property taxes, including, but not limited to, federal and state income and
personal and real property taxes, except as may be subject to good faith contest
or as to which a bona fide dispute may arise; provided, however, that adequate
reserves in accordance with GAAP or other provision is made to the satisfaction
of the Agent for prompt payment thereof in the event that it is found that any
of the above are due and owing.
6.13 Governmental Approvals. Except where the failure to do so could not
----------------------
have a Material Adverse Effect, the Borrower and its Subsidiaries and the
Controlled Partnerships shall apply for, diligently pursue, and obtain or cause
to be obtained, and shall thereafter maintain in full force and effect and
comply with all terms and conditions of, all Governmental Approvals that shall
now or hereafter be necessary under any Governmental Requirement. The Borrower
shall promptly notify the Agent in the event of any, and provide the Agent with
a copy of all notices of, denial, suspension or revocation of any material
Governmental Approvals.
6.14 Tax Qualification. For any Employee Benefit Plan of which the
-----------------
Borrower or any member of the ERISA Affiliated Group in the sponsor and which is
intended to be qualified under section 401(a) of the Code, the Borrower shall,
or shall cause the respective member of the Controlled Group to:
(a) Use its best efforts to seek and receive determination letters
from the Internal Revenue Service stating that such plan, or any material
amendment to such plan, meets the requirements for qualification under
section 401(a) of the Code, unless there is no reasonable possibility that
the failure to do so would have a Material Adverse Effect;
(b) Use its best efforts to cause such plan to meet such requirements
in operation and to be administered in all material respects in accordance
with the requirements of the Code and ERISA; and
(c) Refrain from taking any action that would cause such plan to lose
its qualification under section 401(a) of the Code or to violate the
requirements of the Code or ERISA in any material respect.
6.15 Funding. The Borrower shall, and shall cause each member of the
-------
Controlled Group to, make all contributions that
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it is required to make by law or by any plan prior to the earliest date when
statutory Liens could be imposed under the Code or ERISA on any assets of the
Borrower or such member of the Controlled Group in order to satisfy payment of
such contributions. The Borrower shall not, and shall not permit any member of
the Controlled Group to, allow or suffer any statutory Lien to be placed upon
its assets under the Code or ERISA.
6.16 Financial Tests. The Borrower shall:
---------------
(a) Maintain at all times a Balance Sheet Leverage Ratio of less than
0.40 to 1.00;
(b) Maintain net income of not less than $1.00 for each fiscal
quarter and each fiscal year;
(c) Maintain a Cash Flow Coverage Ratio of not less than 1.00 to 1.00
for the period of four (4) fiscal quarters ending on the last day of each
fiscal quarter, commencing with the quarter ending December 31, 1996;
(d) Maintain an Interest Coverage Ratio of not less than 5.00 to 1.00
for the period of four (4) fiscal quarters ending on the last day of each
fiscal quarter, commencing with the quarter ending December 31, 1996;
(e) Maintain at all times, Total Shareholders' Equity of not less
than (i) one billion four hundred forty-five million Dollars
($1,445,000,000); plus (ii) an amount equal to ninety percent (90%) of the
net cash proceeds of any issuance by the Borrower, any of its Subsidiaries
or any Controlled Partnership of equity securities after the Initial
Closing Date.
6.17 Unencumbered Assets. The Borrower shall at all times maintain
-------------------
Unencumbered Assets with an Aggregate Net Asset Value greater than an amount
equal to the product of (a) Consolidated Unsecured Recourse Indebtedness of the
Borrower and its Consolidated Affiliates, multiplied by (b) three (3). Not less
than seventy percent (70%) of the Unencumbered Assets so maintained (measured by
Aggregate Net Asset Value) shall consist of Wholly-Owned Controlled Properties
and not less than forty percent (40%) of such seventy percent (70%) of the
Unencumbered Assets so maintained (measured by Aggregate Net Asset Value) shall
consist of Non-Joint Venture Wholly-Owned Controlled Properties.
6.18 Borrower's Account. The Borrower shall maintain the Borrower's
------------------
Account with the Agent.
6.19 Accounting Policies. The Borrower shall continue to maintain its
-------------------
financial records and prepare the financial
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statements of the Borrower and the Consolidated Affiliates in accordance with
GAAP, consistently applied. Except in order to comply with GAAP, the Borrower
shall maintain its current accounting policies and its current fiscal year and
the current fiscal year of any of its Subsidiaries or any of the Joint Ventures.
6.20 Investments in Mini-storage Properties. The Borrower shall at all
--------------------------------------
times maintain at least fifty-one percent (51%) of the total value of its Real
Estate Investments in Real Estate Investments consisting of Mini-storage
Properties. For purposes of this Paragraph 6.20, (a) the value of a Real Estate
Investment described in clause (a) of the definition of Real Estate Investment
shall be the Aggregate Net Asset Value of such Real Estate Investment, and (b)
the value of a Real Estate Investment described in clause (b) of the definition
of Real Estate Investment shall be the book value of such Real Estate
Investment.
ARTICLE 7
---------
Negative Covenants
------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding or any Commitment is in effect, it will comply with and, if
applicable, cause each of its Subsidiaries to comply with the following
provisions:
7.1 Mergers. Neither the Borrower nor any of its Subsidiaries shall
-------
enter into any merger, consolidation or reorganization, or any agreement to do
any of the foregoing, except mergers, consolidations or reorganizations with or
involving another corporation, partnership or other entity principally engaged
in the Business of Borrower, provided that, at the time thereof and giving
effect thereto, no Event of Default or Incipient Default has occurred and is
continuing and that the Borrower is the surviving corporation in such merger,
consolidation or reorganization.
7.2 Change of Business. Neither the Borrower nor any of its Subsidiaries
------------------
shall change the nature of its business or engage in any other business other
than the Business of Borrower (provided that the Borrower's ownership of an
Investment shall not, in itself, constitute a change in the nature of the
Borrower's business).
7.3 Distributions. The Borrower shall not, directly or indirectly, make
-------------
or declare any dividend (in cash, securities or any other form of property) on,
or other payment or distribution on account of, or set aside assets for a
sinking or other similar fund for purchase, or redeem, purchase, retire or
otherwise acquire, any capital stock of the Borrower, or make any other
distribution in respect thereof, whether in cash or other property, except if,
at the time of such event, and giving
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effect thereto, no Event of Default has occurred and is continuing.
7.4 Liens. Neither the Borrower nor any of its Subsidiaries shall (a)
-----
mortgage, pledge, grant or permit to exist, nor agree to mortgage, pledge or
grant, a security interest in, or Lien upon, any of their respective assets of
any kind now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Encumbrances, other than in the case of the Public Storage
Trademark and the Management Contracts as to which no Permitted Encumbrances
shall be permitted, or (b) enter into any agreement to refrain from granting, or
an agreement limiting the right to grant, a Lien (other than in connection with
the granting or sufferance of a Permitted Encumbrance, provided that such
agreement pertains only to the property covered by the Permitted Encumbrance).
7.5 Indebtedness. Neither the Borrower nor any of its Subsidiaries shall
------------
incur, create, assume or permit to exist, nor agree to incur, create or assume,
any Indebtedness other than the Obligations and the PSMI Term Notes, if (a)
after giving effect to such Indebtedness Borrower is not in compliance with the
provisions of Paragraph 6.16 or 6.17, (b) such Indebtedness has a maturity date
prior to the date that is eight (8) years from the date of this Agreement or has
an Average Life of less than four (4) years, or (c) the aggregate amount of Non-
recourse Indebtedness outstanding after giving effect to such Indebtedness would
exceed fifteen (15%) of Consolidated Gross Asset Value as of the date of
determination.
7.6 Sale of Assets. Other than (a) sales of real property on an arm's-
--------------
length basis to unaffiliated parties (which sales (other than sales of Business
Park Properties and sales of assets of the Commercial Properties Group) shall be
permitted only if, in connection therewith, the Borrower makes the payment
required pursuant to subparagraph 2.3(c)(ii)(A) hereof), (b) sales of
Subsidiaries or divisions engaged principally in the business of selling trucks,
locks and containers, and (c) sales of other assets in an aggregate amount not
exceeding five million Dollars ($5,000,000) in any calendar year, neither the
Borrower nor any of its Subsidiaries shall sell, transfer or otherwise dispose
of any of their respective assets (including, but not limited to, sales of stock
of Subsidiaries, sales of Joint Venture Interests, and sales of other Controlled
Partnership Interests).
7.7 Transactions with Affiliates. Excepting the transactions or
----------------------------
arrangements described in Schedule 7.7 attached hereto, neither the Borrower nor
any of its Subsidiaries shall, directly or indirectly, enter into any
transaction or permit to exist any relationship with or for the benefit of an
Affiliate on terms more favorable to the Affiliate than would have been
obtainable in a similar transaction or relationship with a party other than an
Affiliate of the Borrower. Prior to the Borrower or any of
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its Subsidiaries engaging in any transaction or relationship permitted by this
Paragraph 7.7, the board of directors of the Borrower shall determine that such
transaction has been negotiated or such relationship will be conducted in good
faith and on a basis that is fair and reasonable and such determination shall be
evidenced by a resolution of the board of directors of the Borrower; provided,
however, that no member of such board of directors affiliated (except by virtue
of being members of the board of directors or by being employed by the Borrower
or one of its Subsidiaries or a Controlled Partnership) with any such Affiliate
shall participate in such determination with respect to transactions or
relationships in which such holder or Affiliate is a participant.
7.8 Restrictive Agreements. The Borrower shall not and shall not permit
----------------------
any of its Subsidiaries or any of the Joint Ventures to enter into any agreement
which restricts the ability or right of any such Subsidiary or Joint Venture to
make payments to the Borrower or another Subsidiary of the Borrower or a Joint
Venture by way of dividends, distributions, returns of capital, advances,
reimbursement or otherwise.
7.9 Key Contracts. The Borrower shall not terminate or fail to renew, or
-------------
permit the termination or non-renewal of, any Key Contract, shall not permit any
Key Contract to cease to be effective, shall not permit any material rights
thereunder to be terminated or impaired, shall not assign any rights under and
shall not amend, modify or supplement any of the Key Contracts unless, in each
such event, (a) the Borrower shall have given fifteen (15) Banking Days' notice
to the Agent describing the proposed termination, non-renewal, assignment,
amendment, modification or supplement and the transactions relating thereto, and
(b) Agent shall not have notified the Borrower, within such fifteen (15) day
period, that such termination, non-renewal, assignment, amendment, modification
or supplement and the related transactions will, in the reasonable judgment of
Majority Banks, result in a Material Adverse Effect; provided, however, that any
such termination, non-renewal, assignment, amendment, modification or supplement
shall be deemed not to result in Material Adverse Effect to the extent that it
is necessary to reflect a sale of Business Park Properties or assets of the
Commercial Properties Group otherwise permitted under this Agreement.
7.10 Certain ERISA Payments. Neither the Borrower nor any of its
----------------------
Subsidiaries shall make any payment of any liability arising under ERISA or
under the Code of any Controlled Group member which is not a Subsidiary of the
Borrower.
7.11 Compliance with ERISA. The Borrower shall not directly or indirectly
---------------------
and shall not permit any Controlled Group member directly or indirectly to:
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(a) Maintain, become a party to, contribute to or become or be
obligated to contribute to a Pension Plan, if the aggregate withdrawal
liability or unfunded liability of the Borrower and all members of the
Controlled Group would exceed five hundred thousand Dollars ($500,000)
following such action;
(b) Maintain, become a party to, contribute to or become obligated to
contribute to a plan maintained outside of the United States primarily for
the benefit of persons substantially all of whom are nonresident aliens, as
described in section 4(b)(4) of ERISA; or
(c) Maintain, become a party to, contribute to or being obligated to
contribute to or otherwise provide health care or other welfare benefits to
retirees or survivors of employees.
7.12 Changes in Partnerships. The Borrower shall not grant any waiver, or
-----------------------
enter into any amendment, modification or supplement of or to any Partnership
Agreement which, in any case or in the aggregate, (a) would adversely affect the
Borrower's rights to receive distributions of any kind, or (b) would otherwise
diminish or impair the rights of the Borrower thereunder. The Borrower shall
not permit or suffer the dissolution or liquidation of any of the Joint Ventures
or voluntarily withdraw as a general partner in any Controlled Partnership in
which the Borrower is a general partner.
7.13 Other Contracts. The Borrower shall not enter into any employment
---------------
contracts or other arrangements whose terms, including salaries, benefits and
other compensation, are not normal and customary in the industry, except for
contracts under which the aggregate compensation payable in any calendar year
does not exceed five hundred thousand Dollars ($500,000).
ARTICLE 8
---------
Events of Default
-----------------
8.1 Events of Default. Each of the following shall constitute an Event
-----------------
of Default under this Agreement:
(a) Payments. The Borrower shall fail to pay not later than two (2)
--------
days after the date when due any installment of principal or interest or
any other sum payable hereunder or under the Agent's Letter or any of the
other Loan Documents;
(b) Certain Covenants in This Agreement. The Borrower shall default
-----------------------------------
in the performance of any of its agreements set forth in Paragraph 6.16
hereof or in Article 7 hereof;
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(c) Other Covenants and Agreements. The Borrower shall default in
------------------------------
the performance of any of its agreements set forth in any other provision
herein or in any of the other Loan Documents (and not constituting an Event
of Default under any of the other clauses of this Paragraph 8.1) and
continuation of such default for ten (10) days after written notice thereof
to the Borrower from the Agent;
(d) Representations and Warranties. Any representation, warranty or
------------------------------
certification made by any of the Borrower or any officer of the Borrower,
in or pursuant to any of the Loan Documents, shall be untrue in any
material respect, on any date as of which the facts set forth are stated or
certified;
(e) Monetary Judgment. A judgment shall be entered against the
-----------------
Borrower or any of its Subsidiaries or any of the Controlled Partnerships
in the aggregate amount of one million Dollars ($1,000,000) or more on an
uninsured and unbonded claim or claims, and such judgment shall remain
unstayed, unvacated, undischarged or unsatisfied for thirty (30) days;
(f) Non-Monetary Judgments. Any final non-monetary judgment, order
----------------------
or decree shall be rendered against the Borrower or any of its Subsidiaries
or any of the Controlled Partnerships which may have a Material Adverse
Effect, and either (i) enforcement proceedings shall have been commenced by
any Person upon such judgment or order or (ii) there shall be any period of
thirty (30) days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect,
unless such judgment, order or decree shall, within such thirty-day period,
be vacated or discharged (other than by satisfaction thereof);
(g) Liens for Pension Contributions. Any statutory Lien shall have
-------------------------------
been placed upon the assets of the Borrower or any member of the Controlled
Group under the Code or ERISA;
(h) ERISA. (i) An Employee Benefit Plan that is intended to be
-----
qualified under section 401(a) of the Code shall lose its qualification,
and the resulting loss or cost to the Borrower or any Controlled Group
member can reasonably be expected to exceed five hundred thousand Dollars
($500,000); (ii) the commencement or increase of contributions to, the
adoption of, or the amendment of a plan by, the Borrower or any Controlled
Group member shall result in a net increase in unfunded liabilities to the
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Borrower or any Controlled Group member in the aggregate in excess of five
hundred thousand Dollars ($500,000); or (iii) the Internal Revenue Service
asserts a claim against the Borrower or any Controlled Group member in
connection with the unfunded liabilities arising under section 412 of the
Code under the employee pension benefit (as defined in section 3(2) of
ERISA) maintained by any member of the ERISA Affiliated Group, if such
claim can reasonably be expected to impose on the Borrower or any
Controlled Group member liability in the aggregate amount of five hundred
thousand Dollars ($500,000) or more;
(i) Cross-Default. (A) The Borrower or any of its Subsidiaries or any
-------------
of the Controlled Partnerships shall default (unless waived) in the payment
when due, whether by acceleration or otherwise, of any amount of principal
or interest due in respect of Indebtedness other than Nonrecourse
Indebtedness in an aggregate principal amount greater than two million five
hundred thousand Dollars ($2,500,000) or in respect of any guaranty of such
Indebtedness, or shall default (unless waived) in the performance or
observance (subject to any applicable grace period) of any agreement,
covenant or condition with respect to any such Indebtedness or guaranty if
the effect of such default is to accelerate the maturity of any such
indebtedness or to permit the holder or holders of any such Indebtedness or
guaranty, or any trustee or agent for such holders, to cause such
Indebtedness to become due and payable prior to its expressed maturity or
to call upon such guaranty in advance of nonpayment of the guaranteed
indebtedness; or (B) the Borrower or any of its Subsidiaries or any of the
Controlled Partnerships shall default (unless waived) in the payment when
due, whether by acceleration or otherwise, of any amount of principal or
interest due in respect of Nonrecourse Indebtedness in an aggregate
principal amount greater than three million Dollars ($3,000,000) or in
respect of any guaranty of such Indebtedness, or shall default (unless
waived) in the performance or observance (subject to any applicable grace
period) of any agreement, covenant or condition with respect to any such
Indebtedness or guaranty if the effect of such default is to accelerate
the maturity of any such indebtedness or to permit the holder or holders of
any such Indebtedness or guaranty, or any trustee or agent for such
holders, to cause such Indebtedness to become due and payable prior to its
expressed maturity or to call upon such guaranty in advance of nonpayment
of the guaranteed indebtedness;
(j) Bankruptcy. The Borrower or any of its Subsidiaries or any of
----------
the Controlled Partnerships
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<PAGE>
shall institute a voluntary case seeking liquidation or reorganization
under Chapter 7 or Chapter 11, respectively, of the United States
Bankruptcy Code, or shall consent to the institution of an involuntary case
thereunder against it; or the Borrower or any of its Subsidiaries or any of
the Controlled Partnerships shall file a petition initiating or shall
otherwise institute any similar Insolvency Proceeding under any other
applicable federal or state law, or shall consent thereto; or the Borrower
or any of its Subsidiaries or any of the Controlled Partnerships shall
apply for, or by consent or acquiescence there shall be an appointment of,
a receiver, liquidator, sequestrator, trustee or other officer with similar
powers, or the Borrower or any of its Subsidiaries or any of the Controlled
Partnerships shall make an assignment for the benefit of creditors; or the
Borrower or any of its Subsidiaries or any of the Controlled Partnerships
shall admit in writing its inability to pay its debts generally as they
become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of the Borrower or any of its Subsidiaries or
any of the Controlled Partnerships under Chapter 7 or Chapter 11,
respectively, of the United States Bankruptcy Code, or any similar
proceeding shall be commenced against the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships under any other
applicable federal or state law, and (i) the Borrower, any of its
Subsidiaries or any of the Controlled Partnerships is a party to the
petition commencing the involuntary case; or (ii) the petition commencing
the involuntary case is not timely controverted; or (iii) the petition
commencing the involuntary case is not dismissed within forty-five (45)
days of its filing; or (iv) an interim trustee is appointed to take
possession of all or a portion of the property and/or to operate all or any
part of the business of the Borrower or such Subsidiary or Controlled
Partnership; or (v) an order for relief shall have been issued or entered
therein; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee or other officer having similar powers over the Borrower or such
Subsidiary or Controlled Partnership, or of all or a part of the property
of any of the foregoing, shall have been entered; or any other similar
relief shall be granted against the Borrower or any of its Subsidiaries or
any of the Controlled Partnerships under any applicable federal or state
law;
(k) Invalidity of Loan Documents. Any of the Loan Documents shall
----------------------------
cease for any reason (other than by reason of the intentional conduct of
the Agent or
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any Bank) to be in full force and effect or any party thereto (other than
the Agent or the Banks) shall purport to disavow its obligations
thereunder, shall declare that it does not have any further obligation
thereunder or shall contest the validity or enforceability thereof;
(l) Change of Control. A Change of Control shall occur; or
-----------------
(m) Loss of REIT Status. The Borrower fails at any time to be
-------------------
qualified as a real estate investment trust under the Code.
8.2 Termination of Commitment and Acceleration. If any Event of Default
------------------------------------------
described in Paragraph 8.1(j) hereof shall occur, the Commitments shall
terminate immediately, and the Notes and all other Obligations shall become
immediately due and payable, all without notice of any kind. If any other Event
of Default shall be continuing, the Agent or the Majority Banks may declare the
Commitments to be terminated and the outstanding Notes and all other Obligations
to be due and payable, or all of the foregoing, whereupon the Commitments shall
be terminated and the Notes and all other Obligations shall immediately become
due and payable, all as so declared by the Agent or the Majority Banks and
without presentment, demand, protest or other notice of any kind. Any such
declaration made pursuant to this Paragraph 8.2 by Agent may be rescinded by the
Agent or the Majority Banks. Any such declaration made pursuant to this
Paragraph 8.2 by Majority Banks may be rescinded only by Majority Banks.
ARTICLE 9
---------
The Agent
---------
9.1 Appointment and Authorization. Each Bank hereby irrevocably appoints,
-----------------------------
designates and authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document (except for the Swing
Line Note) and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Bank, and no implied covenants, functions, responsibilities, duties, obligations
or liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. The Agent shall exercise the Banks' rights
arising upon the occurrence of an Event of Default only as directed by Majority
Banks, except that
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the Agent may take such action as it deems to be in the best interests of the
Banks if the delay required to obtain direction from the other Banks could, in
the Agent's judgment, be contrary to the best interests of the Banks.
9.2 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
9.3 Liability of Agent. None of the Agent, its Affiliates, or any of
------------------
their respective officers, directors, employees, agents, or attorneys-in-fact
(collectively, the "Agent-Related Persons") shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement (except for its own gross negligence or willful misconduct) or (b) be
responsible in any manner to any of the Banks for any recital, statement,
representation or warranty made by the Borrower or any Subsidiary of the
Borrower or any of the Controlled Partnerships or any officer thereof contained
in this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
for the value of any Collateral or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of the Borrower or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of the Borrower or any of its Subsidiaries or any Controlled
Partnership.
9.4 Reliance by Agent.
-----------------
(a) The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telegram, facsimile, telex or telephone message, statement or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Majority Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against
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any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions specified
in Paragraphs 4.1 and 4.2 hereof, each Bank shall be deemed to have consented
to, approved or accepted or to be satisfied with each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Banks unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from
a Bank prior to the extension of a Borrowing specifying its objection thereto
and either such objection shall not have been withdrawn by notice to the Agent
to that effect or such Bank shall not have made available to the Agent the
Bank's ratable portion of such Borrowing.
9.5 Notice of Default. The Agent shall not be deemed to have knowledge or
-----------------
notice of the occurrence of any Default or Event of Default, except with respect
to defaults in the payment of principal, interest and fees payable to the Agent
for the account of the Banks, unless the Agent shall have received written
notice from a Bank or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Banks. The Agent shall take such action with respect
to such Default or Event of Default as shall be requested by the Majority Banks
in accordance with Article 8; provided, however, that unless and until the Agent
-------- -------
shall have received any such request, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Banks; and provided, further, that, the Agent shall not, without the
approval of Majority Banks, take action to accelerate the Obligations.
9.6 Credit Decision. Each Bank expressly acknowledges that none of the
---------------
Agent-Related Persons has made any representation or warranty to it and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Borrower and its Subsidiaries, shall be deemed to constitute any representation
or warranty by the Agent to any Bank. Each Bank represents to the Agent that it
has, independently and without reliance upon the Agent and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, prospects, operations, property,
financial and other condition and creditworthiness of the Borrower
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and made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder. Each Bank also represents that it will, independently and
without reliance upon the Agent and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Borrower. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of any of
the Agent-Related Persons.
9.7 Indemnification. The Banks agree to indemnify the Agent-Related
---------------
Persons (to the extent not reimbursed by or on behalf of the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
the respective amounts of their outstanding Loans, or, if no Loans are
outstanding, their outstanding Commitment Percentages, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind whatsoever which may at any
time (including at any time following the repayment of the Loans) be imposed on,
incurred by or asserted against any such person any way relating to or arising
out of this Agreement or any document contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by any such person under or in connection with any of the foregoing;
provided, however, that no Bank shall be liable for the payment to the Agent-
Related Persons of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such person's gross negligence or willful misconduct or resulting
from an action by the Agent which the Agent knows to be in violation of this
Agreement (unless Majority Banks shall have directed Agent to take such action).
Without limitation of the foregoing, each Bank shall reimburse the Agent
promptly upon demand for its ratable share of any costs or out-of-pocket
expenses (including attorneys' fees and the allocated cost of in-house counsel)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Borrower.
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9.8 Agent in Individual Capacity. Wells Fargo Bank and any successor
----------------------------
Agent and its Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from and generally engage in any kind of business
with the Borrower or any of its Subsidiaries or any of the Controlled
Partnerships as though the Agent were not the Agent hereunder and without notice
to the Banks. With respect to its Loans, Wells Fargo Bank and any successor
Agent shall have the same rights and powers under this Agreement as any other
Bank and may exercise the same as though it were not the Agent, and the terms
"Bank" and "Banks" shall include Wells Fargo Bank and any successor Agent in its
individual capacity.
9.9 Successor Agent. The Agent may, and at the request of the Majority
---------------
Banks shall, resign as Agent upon thirty (30) days' notice to the Banks. If the
Agent shall resign as Agent under this Agreement, the Majority Banks shall
appoint from among the Banks a successor agent for the Banks. If no successor
Agent is appointed prior to the effective date of the resignation of the Agent,
the Agent shall appoint, after consulting with the Banks and the Borrower, a
successor agent from among the Banks. Upon the acceptance of its appointment as
successor agent hereunder, such successor agent shall succeed to all the rights,
powers and duties of the retiring Agent and the term "Agent" shall mean such
successor agent and the retiring Agent's rights, powers and duties as Agent
shall be terminated. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article 9 and Paragraphs 10.6, 10.7 and 10.8 hereof shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
9.10 Borrower's Reliance. Except as to matters requiring action by
-------------------
Majority Banks or all of the Banks, the Borrower shall be entitled to rely on
any notice, instruction or other communication delivered by the Agent as if
such notice, instruction or other communication were delivered by the Banks.
Upon the Borrower's request, the Agent shall deliver to the Borrower any
evidence of action by Majority Banks or all of the Banks.
ARTICLE 10
----------
Miscellaneous
-------------
10.1 Successors and Assigns and Sale of Interests.
--------------------------------------------
(a) The terms and provisions of this Agreement shall be binding upon, and,
subject to the provisions of this Paragraph 10.1, the benefits thereof shall
inure to, the parties hereto and their respective successors and assigns;
provided, however, that the Borrower may not assign this Agreement or any of the
rights, duties or obligations of the Borrower hereunder without the prior
written consent of all of the Banks.
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(b) Any Bank, with the written consent of the Borrower, which shall not be
unreasonably withheld (but which consent shall not be required at any time
during the continuance of an Event of Default of the type described in
Paragraphs 8.1(a) or 8.1(j) hereof), and with the written consent of the Agent,
which shall not be unreasonably withheld, may at any time assign and delegate to
any Person, or, with notice to the Borrower and the Agent but without the
consent of either the Borrower or the Agent, may assign and delegate to any of
its wholly owned Affiliates (each an "Assignee") all or any part of the Loans or
the Commitments or any other rights or obligations of such Bank hereunder in a
minimum amount of ten million Dollars ($10,000,000), representing the principal
amount of the Loans assigned plus the amount of the Commitment Percentage so
assigned multiplied by the Total Commitment Amount; provided, however, that the
Borrower and the Agent may continue to deal solely and directly with such Bank
in connection with the interests so assigned to an Assignee until (i) written
notice of such assignment, together with payment instructions, addresses and
related information with respect to the Assignee, shall have been given to the
Borrower and the Agent by such Bank and the Assignee, and (ii) such Bank and its
Assignee shall have delivered to the Borrower and the Agent an Assignment and
Acceptance in the form of Exhibit 10.1(b) ("Assignment and Acceptance") together
with any Note or Notes subject to such assignment; and (iii) the processing fees
of three thousand five hundred Dollars ($3,500) shall have been paid to the
Agent.
(c) From and after the date that the Agent notifies the assignor Bank that
it has received the Assignment and Acceptance, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Bank under the Loan Documents and (ii) assignor
Bank shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Loan Documents.
(d) Within five (5) Banking Days after its receipt of notice by the Agent
that it has received an executed Assignment and Acceptance, the Borrower shall
execute and deliver to the Agent new Notes evidencing such Assignee's assigned
Loans and Commitment Amount and, if the assignor Bank has retained a portion of
its Loans and its Commitment Amount, replacement Notes in the Commitment Amount
retained by the assignor Bank (such Notes to be in exchange for, but not in
payment of, the Notes held by such Bank). Immediately upon each Assignee's
making its payment under the Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent necessary to reflect
the addition of the Assignee and the resulting adjustment of the Assignor's
Commitment Amount arising therefrom. The Commitment Amount allocated to each
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Assignee shall reduce the Commitment Amount of the assigning Bank pro tanto.
---------
(e) Any Bank may at any time sell to one or more banks or other entities
(a "Participant") participating interests in any Loans, the Commitment Amount of
that Bank or any other interest of that Bank hereunder; provided, however, that
(i) the selling Bank's obligations under this Agreement shall remain unchanged,
(ii) the selling Bank shall remain solely responsible for the performance of
such obligations, (iii) the Borrower and the Agent shall continue to deal solely
and directly with the selling Bank in connection with such Bank's rights and
obligations under this Agreement, and (iv) no Bank shall transfer or grant any
participating interest under which the Participant shall have rights to approve
any amendment to, or any consent or waiver with respect to, this Agreement
except to the extent such amendment, consent or waiver would require unanimous
consent as described in the first proviso to Paragraph 10.3 hereof. In the case
of any such participation, the Participant shall not have any rights under this
Agreement, or any of the other Loan Documents, and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement.
10.2 No Implied Waiver. No delay or omission to exercise any right, power
-----------------
or remedy accruing to the Agent or any Bank upon any breach or default of any of
the Borrower under this Agreement or under any of the other Loan Documents shall
impair any such right, power or remedy of the Agent or any Bank, nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default occurring thereafter, nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring theretofore or thereafter.
10.3 Amendments and Waivers. No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall
be in writing and signed by the Majority Banks, and then such waiver shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Banks, do any of the following:
(a) increase the Commitment Amount of any Bank or subject any Bank to
any additional obligations;
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<PAGE>
(b) postpone or delay any date fixed for any payment of principal,
interest, fees or other amounts due hereunder or under any Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or of any fees or other amounts payable hereunder or under any
Loan Document;
(d) change the definition of "Majority Banks" or the percentage of
the aggregate Commitment Percentages or of the aggregate unpaid principal
amount of the Loans which shall be required for the Banks or any of them to
take any action hereunder;
(e) amend this Paragraph 10.3; or
(f) amend any provision of this Agreement or any other Loan Document
to eliminate or modify a provision referring to a requirement that all
Banks act unanimously in any matter;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Banks, affect the
rights or duties of the Agent under this Agreement, and (ii) the definition of
"Majority Banks" or the percentage of the aggregate Commitment Percentages or of
the aggregate principal amount of the Loans which shall be required for the
Banks or any of them to take any action hereunder may be changed without the
consent of the Borrower.
10.4 Remedies Cumulative. All rights and remedies, either under this
-------------------
Agreement or any other Loan Document, by law or otherwise afforded to the Agent
or the Banks shall be cumulative and not exclusive, and any single or partial
exercise of any power or right hereunder or thereunder does not preclude other
or further exercise thereof, or the exercise of any other power or right.
10.5 Severability. Any provision of this Agreement, the Notes or any of
------------
the other Loan Documents which is prohibited or unenforceable in any
jurisdiction, shall be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
this Agreement, the Notes and the other Loan Documents shall remain valid.
10.6 Costs, Expenses and Attorneys' Fees. The Borrower shall reimburse
-----------------------------------
the Agent for all costs and expenses, including, but not limited to, reasonable
attorneys' fees and expenses (including the allocated cost of the Agent's
internal counsel) and appraisal, audit, review, search and filing fees and
expenses, expended or incurred by the Agent in connection with the preparation,
negotiation and execution of this Agreement, in
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<PAGE>
connection with the initial Borrowing, in amending this Agreement, or extending
any waiver or consent hereunder, or in any transaction referred to in Paragraph
10.1(b) hereof, and shall reimburse the Agent and the Banks for all costs and
expenses, including, but not limited to, reasonable attorneys' fees and expenses
(including the allocated cost of the Agent's internal counsel), expended or
incurred by the Agent or any Bank in collecting any sum which becomes due under
the Notes or under this Agreement or any of the other Loan Documents, or in the
protection, perfection, preservation and enforcement of any and all rights of
the Agent or any Bank in connection with the Loan Documents, including, without
limitation, the fees and costs incurred in any out-of-court work-out or a
bankruptcy or reorganization proceeding. This obligation on the part of the
Borrower shall survive the expiration or termination of this Agreement, with or
without occurrence of the Initial Closing Date.
10.7 General Indemnification. The Borrower shall indemnify and hold each
-----------------------
Bank, the Agent and each of their directors, officers, employees, Affiliates,
attorneys and agents (collectively referred to herein as the "Bank
Indemnitees") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (including, without
limitation, any expenses (including attorneys' fees and the allocated cost of
in-house counsel) incurred by any such Bank Indemnitee in connection with any
investigation in connection with any such matter, whether or not any such Bank
Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by or asserted against such Bank Indemnitees by any Person other than
the Bank with which such Bank Indemnitee is affiliated (whether direct, indirect
or consequential and whether based on any federal or state laws or other
statutory regulations, including, without limitation, securities, environmental
and commercial laws and regulations, under common law or at equitable cause, or
on contract or otherwise) in any manner relating to or arising out of this
Agreement, any other Loan Documents, or any act, event or transaction related or
attendant thereto; the making of Loans hereunder, the management of the Loans
(including any liability under federal, state or local environmental laws or
regulations), the use or intended use of the proceeds of the Loans
(collectively, the "Indemnified Matters"); provided, however, that the Borrower
shall have no obligation to any Bank Indemnitee under this Paragraph 10.7 with
respect to Indemnified Matters to the extent such Indemnified Matters were
caused by or resulted from the gross negligence or willful misconduct of a Bank
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Borrower shall contribute to the
payment and satisfaction of all Indemnified Matters incurred by the Bank
Indemnitees the maximum portion which the Borrower is permitted
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<PAGE>
to pay and satisfy under applicable law. This indemnification shall survive
repayment by the Borrower of all Loans made under this Agreement, and the
termination of this Agreement without occurrence of the Initial Closing Date.
10.8 Environmental Indemnification. The Borrower hereby agrees to
-----------------------------
indemnify, defend and hold harmless each Bank Indemnitee, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, charges, expenses or disbursements (including
attorneys' fees and the allocated cost of in-house counsel), which may be
incurred by or asserted against such Bank Indemnitee in connection with or
arising out of any pending or threatened investigation, litigation or
proceeding, or any action taken by any Person, with respect to any Environmental
Claim arising out of or related to any Real Property or the actions or omissions
of the Borrower or any Subsidiary of the Borrower or any of the Controlled
Partnerships. No action taken by legal counsel chosen by the Agent or any Bank
in defending against any such investigation, litigation or proceeding or
requested remedial, removal or response action shall vitiate or in any way
impair the Borrower' obligations and duties hereunder to indemnify and hold
harmless the Agent and each Bank. In no event shall any site visit,
observation, or testing by the Agent or any Bank be a representation that
Hazardous Substances are or are not present in, on, or under the site, or that
there has been or shall be compliance with any law, regulation, or ordinance
pertaining to Hazardous Substances or any other applicable Governmental
Requirement. Neither the Borrower nor any other party is entitled to rely on
any site visit, observation, or testing by the Agent or any Bank. Neither the
Agent nor any Bank owes any duty of care to protect the Borrower or any other
party against, or to inform the Borrower or any other party of, any Hazardous
Substances or any other adverse condition affecting any site or property.
Neither the Agent nor any Bank shall be obligated to disclose to the Borrower or
any other party any report or findings made as a result of, or in connection
with, any site visit, observation, or testing by the Agent or any Bank. This
indemnification shall survive repayment of all Loans made under this Agreement
and termination of the Commitments, and the termination of this Agreement
without occurrence of the Initial Closing Date.
10.9 Notices. Any notice which the Borrower, the Agent or any of the
-------
Banks may be required or may desire to give to the other parties under any
provision of this Agreement shall be in writing by electronic facsimile
transmission and shall be deemed to have been given or made when transmitted and
addressed to any Bank at the address set forth on the signature pages hereto or
to the Agent or the Borrower as follows:
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<PAGE>
To the Borrower: Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, CA 91201
Attention: John Reyes
Chief Financial Officer
Facsimile: (818) 244-9267
To the Agent: Wells Fargo Bank, National Association
AS TO LOAN Agency Department
REQUESTS 201 Third Street, 8th Floor
San Francisco, California 94103
Attention: Maggie Miranda
Facsimile: (415) 512-9408
Copy to: Wells Fargo Bank, National Association
Regional Commercial Banking Office
9000 Flair Drive, 1st Floor
El Monte, CA 91731
Attention: Debbie Dillard-Bell
Facsimile: (818) 280-9240
To the Agent: Wells Fargo Bank, National Association
EXCEPT LOAN Regional Commercial Banking Office
REQUESTS 9000 Flair Drive, 1st Floor
El Monte, CA 91731
Attention: Debbie Dillard-Bell
Facsimile: (818) 280-9240
Copy to: Pillsbury Madison & Sutro LLP
225 Bush Street
San Francisco, CA 94104
Attention: Glenn Q. Snyder, Esq.
Facsimile: (415) 983-1200
Any party may change the address to which all notices, requests and other
communications are to be sent to it by giving written notice of such address
change to the other parties in conformity with this paragraph, but such change
shall not be effective until notice of such change has been received by the
other parties.
10.10 Entire Agreement. This Agreement, together with the schedules and
----------------
exhibits to this Agreement and all of the other Loan Documents, is intended by
the Borrower, the Agent and the
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<PAGE>
Banks as a final expression of their agreement and, together with all of the
other Loan Documents, is intended as a complete statement of the terms and
conditions of their agreement. This Agreement and the other Loan Documents
contain all of the agreements and understandings between or among the Borrower,
the Agent and the Banks concerning the Loans and the other transactions
contemplated hereby. This Agreement and the other Loan Documents completely
supersede the Commitment Letter.
10.11 Governing Law and Consent to Jurisdiction. The validity,
-----------------------------------------
construction and effect of this Agreement, the Notes and all of the other Loan
Documents shall be governed by the laws of the State of California, without
regard to its laws regarding choice of applicable law, but giving effect to
federal laws applicable to national and federally insured banks. All judicial
proceedings brought against the Borrower with respect to this Agreement, the
Notes or any of the other Loan Documents may be brought in any state or federal
court of competent jurisdiction in the State of California, and the Borrower
accepts for itself and its assets and properties, generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts. The Borrower waives, to
the fullest extent permitted by applicable law, any objection (including,
without limitation, any objection to the laying of venue or based on the grounds
of forum non conveniens) which it may now or hereafter have to the bringing of
any such action or proceeding in any such jurisdiction. Nothing herein shall
limit the right of a Bank or the Agent to bring proceedings against the Borrower
in the court of any other jurisdiction.
10.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
10.13 Waiver of Jury Trial. The Borrower waives any right to trial by
--------------------
jury with regard to any action of any type or nature whatsoever under or
concerning this Agreement or any of the other Loan Documents or in any way
related to the Loans or the administration or enforcement thereof.
10.14 Headings. Captions, headings and the table of contents in this
--------
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
10.15 Supersession. This Agreement replaces and supersedes the Original
------------
Amended and Restated Credit Agreement. Upon the Initial Closing Date, the
Original Amended and Restated Credit Agreement shall terminate and be of no
further force or effect, except that the terms of the Original Amended and
Restated Credit Agreement shall survive and continue to be operative as to any
Obligation (as defined in the Original Amended and Restated Credit Agreement)
arising on or prior to the Initial Closing Date.
-80-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by its
duly authorized officers as of the date and year first above written.
PUBLIC STORAGE, INC.
By /s/ John Reyes
----------------------------------
John Reyes
Chief Financial Officer
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Agent
By /s/ Debbie Dillard-Bell
----------------------------------
Debbie Dillard-Bell
Vice President
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as a Bank
By /s/ Debbie Dillard-Bell
----------------------------------
Debbie Dillard-Bell
Vice President
Address: Regional Commercial
Banking Office
9000 Flair Drive, 1st Floor
El Monte, CA 91731
Attn: Debbie Dillard-Bell
Facsimile: (818) 280-9240
Commitment Percentage: 33.33%
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<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Jeffrey L. Warwick
----------------------------------
Jeffrey L. Warwick
Director
Address: 115 Perimeter Center Place, N.E.
Suite 500
Atlanta, GA 30346
Attn: Jeffrey L. Warwick
Facsimile: (770) 390-8434
Commitment Percentage: 20.00%
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Kevin L. Gillen
----------------------------------
Kevin L. Gillen
Assistant Vice President
Address: 1 First National Plaza
Mail Suite 0151
Chicago, IL 60670-0151
Attn: Kevin L. Gillen
Facsimile: (312) 732-1117
Commitment Percentage: 20.00%
COMMERZBANK A.G., LOS ANGELES BRANCH
By /s/ John Korthuis
----------------------------------
John Korthuis
Vice President
By /s/ Carl Kemmerer
----------------------------------
Carl Kemmerer
Assistant Treasurer
Address: 633 West Fifth Street
Suite 6600
Los Angeles, CA 90071
Attn: Steve Larsen
Facsimile: (213) 623-0039
Commitment Percentage: 20.00%
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<PAGE>
SIGNET BANK
By /s/ John Schissel
----------------------------------
John Schissel
Vice President
Address: 7799 Leesburg Pike
Falls Church, VA 22043
Attn: John Schissel
Facsimile: (703) 506-0284
Commitment Percentage: 6.66%
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<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 (No. 333- ) with respect to Public
Storage, Inc.'s registration of common stock and in the related Combined Proxy
Statement and Prospectus of Public Storage, Inc., Public Storage Properties XIV,
Inc. and Public Storage Properties XV, Inc. and to the incorporation by
reference therein of our report dated February 26, 1996 with respect to the
consolidated financial statements and schedules of Public Storage, Inc. in its
Annual Report on Form 10-K, as amended by a Form 10-K/A (Amendment No. 3) dated
May 15, 1996, for the year ended December 31, 1995 filed with the Securities and
Exchange Commission, to the use of our report dated February 27, 1996 with
respect to the financial statements and schedules of Public Storage Properties
XIV, Inc. included in the Registration Statement and Combined Proxy Statement
and Prospectus, and to the use of our report dated February 27, 1996 with
respect to the financial statements and schedules of Public Storage Properties
XV, Inc. included in the Registration Statement and Combined Proxy Statement and
Prospectus.
We also consent to the incorporation by reference of our report dated
September 6, 1996 on the combined summaries of historical information relating
to operating revenues and specified expenses -- certain properties which is
included in the Current Report on Form 8-K dated September 6, 1996 and
incorporated by reference in the Registration Statement on Form S-4
(No. 333- ) and related Combined Proxy Statement and Prospectus.
ERNST & YOUNG LLP
Los Angeles, California
March 3, 1997
<PAGE>
Exhibit 23.5
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 Combined 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.
March 3, 1997
Pasadena, California
<PAGE>
Exhibit 99.1
PUBLIC STORAGE PROPERTIES XIV, INC.
701 Western Avenue, Suite 200
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 XIV, Inc. ("PSP14") held of record by the undersigned on February 24,
1997, at the Special Meeting of Shareholders to be held on April 9, 1997, 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 "PSP14 Merger")
of PSP14 with and into Public Storage, Inc. ("PSI") pursuant to an Agreement
and Plan of Reorganization among PSI, PSP14 and Public Storage Properties XV,
Inc. described in the accompanying Combined Proxy Statement and Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSED AMENDMENT TO BYLAWS. To consider and vote upon a related amendment
to PSP14's bylaws to authorize the PSP14 Merger in the form of Appendix E-1
to the accompanying Combined 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 Combined Proxy Statement and Prospectus dated March ___, 1997.
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: ____________________, 1997
______________________________________
Signature
______________________________________
Signature if held jointly
Please sign exactly as your name
appears. Joint owners should each
sign. Trustees and others acting in a
representative capacity should
indicate the capacity in which they
sign.
<PAGE>
Exhibit 99.2
PUBLIC STORAGE PROPERTIES XV, INC.
701 Western Avenue, Suite 200
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 XV, Inc. ("PSP15") held of record by the undersigned on February 24,
1997, at the Special Meeting of Shareholders to be held on April 9, 1997, 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 "PSP15 Merger")
of PSP15 with and into Public Storage, Inc. ("PSI") pursuant to an Agreement
and Plan of Reorganization among PSI, PSP15 and Public Storage Properties
XIV, Inc. described in the accompanying Combined Proxy Statement and
Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSED AMENDMENT TO BYLAWS. To consider and vote upon a related amendment
to PSP15's bylaws to authorize the PSP15 Merger in the form of Appendix E-2
to the accompanying Combined 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 Combined Proxy Statement and Prospectus dated March ___, 1997.
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: ____________________, 1997
______________________________________
Signature
______________________________________
Signature if held jointly
Please sign exactly as your name
appears. Joint owners should each
sign. Trustees and others acting in a
representative capacity should
indicate the capacity in which they
sign.
<PAGE>
Exhibit 99.3
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XIV, 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 XIV, Inc. ("PSP14") Common Stock Series A, par value
$.01 per share ("PSP14 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 PSP14 COMMON STOCK COVERED HEREBY (UNLESS DELIVERY IS GUARANTEED IN BOX E
BELOW IN ACCORDANCE WITH INSTRUCTION A), MUST BE RECEIVED BY AMERICAN STOCK
TRANSFER & TRUST COMPANY (THE "DEPOSITARY") NAMED BELOW, AT THE APPROPRIATE
ADDRESS SET FORTH BELOW, NO LATER THAN THE ELECTION DEADLINE (AS DEFINED IN
INSTRUCTION A). DELIVERIES MADE TO ADDRESSES OTHER THAN THE ADDRESS FOR THE
DEPOSITARY SET FORTH BELOW DO NOT CONSTITUTE VALID DELIVERIES AND THE DEPOSITARY
WILL NOT BE RESPONSIBLE THEREFOR.
HOLDERS OF PSP14 COMMON STOCK WHO INTEND TO RECEIVE PUBLIC STORAGE, INC.
("PSI") COMMON STOCK IN THE PSP14 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 PSP14 MERGER.
This Cash Election Form is to be executed and returned to the Depositary
at the following address:
<TABLE>
<S> <C>
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 406
40 Wall Street, 46th Floor
New York, NY 10005
(800) 937-5449
(718) 921-8200
</TABLE>
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 "PSP14 Merger") of PSP14 with and into Public Storage, Inc. ("PSI"),
pursuant to the Agreement and Plan of Reorganization dated as of December 5,
1996, among PSI, PSP14 and Public Storage Properties XV, 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 PSP14 Common Stock listed in Box A (Certificate Information) and (b) elects
(an "Election"), as indicated below, upon consummation of the PSP14 Merger to
have each of the shares of PSP14 Common Stock represented by the Certificates
converted into the right to receive $21.73 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 PSP14 Merger.
The undersigned hereby certifies that this Election covers all of the
shares of PSP14 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 PSP14 Shareholder may not make a cash
election as to less than all of the shares of PSP14 Common Stock beneficially
owned by such shareholder.
This Election is subject to the terms and conditions set forth in the
Merger Agreement and the Combined Proxy Statement and Prospectus, dated March
___, 1997 (the "Combined Proxy Statement and Prospectus"), furnished to
shareholders of PSP14, in connection with the PSP14 Merger, all of which are
incorporated herein by reference. Receipt of the Combined Proxy Statement and
Prospectus, including the Merger Agreement attached as Appendix A thereto, is
hereby acknowledged. Copies of the Combined 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 PSP14 Common Stock to be converted into the right to receive cash
in the PSP14 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 PSP14
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 Combined 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 PSP14 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 PSP14 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK IN
THE PSP14 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 PSP14 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 PSP14 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 PSP14 (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 PSP14 Merger (the "Effective Time") could occur on the
same day approval of the PSP14 Merger by shareholders of PSP14 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 APRIL 8, 1997,
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 PSP14
Merger is anticipated to occur is determined, PSP14 and PSI will publicly
announce such date, although no assurance can be given that the Effective Time
will occur on such date. Persons whose stock Certificates are not immediately
available may also make an Election by completing this Cash Election Form and
having Box E (Guaranty of Delivery) properly completed and duly executed by a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States (subject to the condition
that the Certificates, the delivery of which is thereby guaranteed, are in fact
delivered to the Depositary no later than 5:00 p.m., New York City Time, on the
third business day after the Election Deadline (the "Guaranteed Delivery
Deadline")).
IF THE DEPOSITARY HAS NOT RECEIVED YOUR PROPERLY COMPLETED CASH ELECTION
FORM, ACCOMPANIED BY YOUR STOCK CERTIFICATES, BY THE ELECTION DEADLINE (UNLESS
BOX E (GUARANTY OF DELIVERY) HAS BEEN PROPERLY COMPLETED AND SUCH CERTIFICATES
ARE RECEIVED BY THE DEPOSITARY BY THE GUARANTEED DELIVERY DEADLINE), YOU WILL
RECEIVE PSI COMMON STOCK IN THE PSP14 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 PSP14 Merger to have each of the shares of PSP14 Common
Stock covered by this Cash Election Form converted into the right to receive
$21.73 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
Combined Proxy Statement and Prospectus. The Merger Agreement is included as
Appendix A to the Combined Proxy Statement and Prospectus. Copies of the
Combined Proxy Statement and Prospectus may be requested from the Depositary at
the address and telephone numbers 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 Combined
Proxy Statement and Prospectus. EACH HOLDER OF PSP14 COMMON STOCK IS STRONGLY
ENCOURAGED TO READ THE COMBINED PROXY STATEMENT AND PROSPECTUS IN ITS ENTIRETY
AND TO DISCUSS THE CONTENTS THEREOF, THE PSP14 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 PSP14 COMMON STOCK
WILL VARY DEPENDING UPON A NUMBER OF FACTORS. FOR CERTAIN INFORMATION REGARDING
THE FEDERAL INCOME TAX CONSEQUENCES OF AN ELECTION, SEE "FEDERAL INCOME TAX
MATTERS -- THE MERGERS" IN THE COMBINED 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 PSP14
Common Stock covered by this Cash Election Form.
D. RECEIPT OF PSI COMMON STOCK
HOLDERS OF PSP14 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK IN
THE PSP14 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 PSP14 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 PSP14 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 PSP14 Common Stock subject
to such Election and the serial numbers shown on the Certificates representing
such PSP14 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 PSP14 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 Combined 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 PSP14 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 PSP14 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 PSP14 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 PSP14 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 PSP14 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 PSP14 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 PSP14, 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 PSP14 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 PSP14 Common Stock, you should contact American Stock Transfer &
Trust Company, PSP14's transfer agent, at (800) 937-5449 or (718) 921-8200. In
such event, the transfer agent will forward additional documentation which the
shareholder must complete in order to effectively surrender such lost or
destroyed Certificate(s). There will be a cost to replace lost Certificates.
(9) Federal Income Tax Withholding. Under Federal income tax law, the
Depositary is required to file a report with the Internal Revenue Service
disclosing any payments of cash being made to each holder of Certificates
formerly representing shares of PSP14 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 PSP14
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 406
(individual holders), or (212) 805-7000 (banks and brokers). You may also
obtain additional copies of the Cash Election Form and the Combined Proxy
Statement and Prospectus from the Depositary at the addresses and telephone
numbers set forth on the first page of this Cash Election Form.
H. Delivery of Payment Checks
As soon as practicable after the PSP14 Merger becomes effective, the
Depositary will make the allocations of cash to be received by holders of PSP14
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 PSP14 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 PSP14 Merger becomes
effective, a Letter of Transmittal for you to use to send in your stock
Certificates for shares of PSP14 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 PSP14 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 COMBINED PROXY STATEMENT AND PROSPECTUS FOR THAT
PURPOSE.
4
<PAGE>
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XIV, INC.
EXECUTION SECTION
BOX A
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE INFORMATION
List below the certificates to which this Cash Election Form relates. (Attach additional sheets if necessary.)
Number of Shares
Name and Address of Registered Holder(s) as Shown on the Share Records Represented by
(Fill in, if Blank) Certificate Number Each Certificate
- -------------------------------------------------------------------------------- ------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
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
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
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: -----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOX C
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE GUARANTEE
To be completed only if required by Instruction G(5). Your signature must be MEDALLION GUARANTEED by an eligible financial
institution. Note: a notarization by a notary public is not acceptable.
FOR USE BY FINANCIAL INSTITUTION ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
E-1
<PAGE>
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XIV, INC.
EXECUTION SECTION (CONTINUED)
IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER ON
THIS SUBSTITUTE FORM W-9 AND CERTIFY THAT YOU ARE NOT SUBJECT TO BACKUP
WITHHOLDING. FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE PSP14
MERGER. IF THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9 IS CHECKED, THE
"CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER" BELOW MUST BE
COMPLETED.
<TABLE>
<CAPTION>
BOX D
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Part 1 - PLEASE PROVIDE YOUR Social Security Number or
TIN IN THE BOX AT RIGHT AND Employer Identification Number
SUBSTITUTE CERTIFY BY 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
Department of the Treasury or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject
Internal Revenue Service to backup withholding. [ ]
----------------------------------------------------------------------------------------------------
Payer's Request for Taxpayer Certification - Under penalties of perjury, I certify that the Part 3 -
Identification Number (TIN) information provided on this form is true, correct and complete.
Awaiting TIN [ ]
---------------------------------
Signature: ------------------------------------------- Date: ------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed
or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social
Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of any cash payment made to me will be withheld, but that such
amount will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days.
Signature: --------------------------------------------------- Date: -------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
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 PSP14 Common Stock
submitted with this Cash Election Form no later than 5:00 p.m., New York City Time, on the third business day after the Election
Deadline (as defined in Instruction A).
[ ] 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 PSP14
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
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
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: -------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOX G
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
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: ------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
E-2
<PAGE>
TEAR HERE AND RETURN EXECUTION SECTION TO THE DEPOSITARY
- -- [Graphics for Execution Section Page E-1,
left margin.] [Graphics for Execution
right margin.]--
- --------------------------------------------------------------------------------
TEAR HERE AND RETURN EXECUTION SECTION TO THE DEPOSITARY
<PAGE>
Exhibit 99.4
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XV, 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 XV, Inc. ("PSP15") Common Stock Series A, par value
$.01 per share ("PSP15 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 PSP15 COMMON STOCK COVERED HEREBY (UNLESS DELIVERY IS
GUARANTEED IN BOX E BELOW IN ACCORDANCE WITH INSTRUCTION A), MUST BE RECEIVED BY
AMERICAN STOCK TRANSFER & TRUST COMPANY (THE "DEPOSITARY") NAMED BELOW, AT THE
APPROPRIATE ADDRESS SET FORTH BELOW, NO LATER THAN THE ELECTION DEADLINE (AS
DEFINED IN INSTRUCTION A). DELIVERIES MADE TO ADDRESSES OTHER THAN THE ADDRESS
FOR THE DEPOSITARY SET FORTH BELOW DO NOT CONSTITUTE VALID DELIVERIES AND THE
DEPOSITARY WILL NOT BE RESPONSIBLE THEREFOR.
HOLDERS OF PSP15 COMMON STOCK WHO INTEND TO RECEIVE PUBLIC STORAGE,
INC. ("PSI") COMMON STOCK IN THE PSP15 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 PSP15 MERGER.
This Cash Election Form is to be executed and returned to the
Depositary at the following address:
<TABLE>
<CAPTION>
BY MAIL, HAND OR OVERNIGHT COURIER OR FOR INFORMATION
FOR DUPLICATE COPIES OF MATERIAL
<S> <C>
American Stock Transfer & Trust Company Shareholder Communications Corporation
Attn: Reorganization Department (800) 733-8481, extension 406
40 Wall Street, 46th Floor
New York, NY 10005
(800) 937-5449
(718) 921-8200
</TABLE>
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 "PSP15 Merger") of PSP15 with and into Public Storage, Inc. ("PSI"),
pursuant to the Agreement and Plan of Reorganization dated as of December 5,
1996, among PSI, PSP15 and Public Storage Properties XIV, 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 PSP15 Common Stock listed in Box A (Certificate Information) and (b) elects
(an "Election"), as indicated below, upon consummation of the PSP15 Merger to
have each of the shares of PSP15 Common Stock represented by the Certificates
converted into the right to receive $21.99 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 PSP15
Merger.
The undersigned hereby certifies that this Election covers all of the
shares of PSP15 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 PSP15 Shareholder may not make a cash
election as to less than all of the shares of PSP15 Common Stock beneficially
owned by such shareholder.
This Election is subject to the terms and conditions set forth in the
Merger Agreement and the Combined Proxy Statement and Prospectus, dated March
___, 1997 (the "Combined Proxy Statement and Prospectus"), furnished to
shareholders of PSP15, in connection with the PSP15 Merger, all of which are
incorporated herein by reference. Receipt of the Combined Proxy Statement and
Prospectus, including the Merger Agreement attached as Appendix A thereto, is
hereby acknowledged. Copies of the Combined 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 PSP15 Common Stock to be converted into the right to receive
cash in the PSP15 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 PSP15
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 Combined 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 PSP15 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 PSP15 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK
IN THE PSP15 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 PSP15 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 PSP15 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 PSP15 (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 PSP15 Merger (the "Effective Time") could occur on the
same day approval of the PSP15 Merger by shareholders of PSP15 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 APRIL 8, 1997,
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 PSP15
Merger is anticipated to occur is determined, PSP15 and PSI will publicly
announce such date, although no assurance can be given that the Effective Time
will occur on such date. Persons whose stock Certificates are not immediately
available may also make an Election by completing this Cash Election Form and
having Box E (Guaranty of Delivery) properly completed and duly executed by a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States (subject to the condition
that the Certificates, the delivery of which is thereby guaranteed, are in fact
delivered to the Depositary no later than 5:00 p.m., New York City Time, on the
third business day after the Election Deadline (the "Guaranteed Delivery
Deadline")).
IF THE DEPOSITARY HAS NOT RECEIVED YOUR PROPERLY COMPLETED CASH
ELECTION FORM, ACCOMPANIED BY YOUR STOCK CERTIFICATES, BY THE ELECTION DEADLINE
(UNLESS BOX E (GUARANTY OF DELIVERY) HAS BEEN PROPERLY COMPLETED AND SUCH
CERTIFICATES ARE RECEIVED BY THE DEPOSITARY BY THE GUARANTEED DELIVERY
DEADLINE), YOU WILL RECEIVE PSI COMMON STOCK IN THE PSP15 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 PSP15 Merger to have each of the shares of PSP15 Common
Stock covered by this Cash Election Form converted into the right to receive
$21.99 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
Combined Proxy Statement and Prospectus. The Merger Agreement is included as
Appendix A to the Combined Proxy Statement and Prospectus. Copies of the
Combined Proxy Statement and Prospectus may be requested from the Depositary at
the address and telephone numbers 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 Combined
Proxy Statement and Prospectus. EACH HOLDER OF PSP15 COMMON STOCK IS STRONGLY
ENCOURAGED TO READ THE COMBINED PROXY STATEMENT AND PROSPECTUS IN ITS ENTIRETY
AND TO DISCUSS THE CONTENTS THEREOF, THE PSP15 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 PSP15 COMMON STOCK
WILL VARY DEPENDING UPON A NUMBER OF FACTORS. FOR CERTAIN INFORMATION REGARDING
THE FEDERAL INCOME TAX CONSEQUENCES OF AN ELECTION, SEE "FEDERAL INCOME TAX
MATTERS -- THE MERGERS" IN THE COMBINED 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 PSP15
Common Stock covered by this Cash Election Form.
D. RECEIPT OF PSI COMMON STOCK
HOLDERS OF PSP15 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK
IN THE PSP15 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 PSP15 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 PSP15 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 PSP15 Common Stock subject
to such Election and the serial numbers shown on the Certificates representing
such PSP15 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 PSP15 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 Combined 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 PSP15 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 PSP15 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 PSP15 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 PSP15 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 PSP15 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 PSP15 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 PSP15, 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 PSP15 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 PSP15 Common Stock, you should contact American Stock Transfer &
Trust Company, PSP15's transfer agent, at (800) 937-5449 or (718) 921-8200. In
such event, the transfer agent will forward additional documentation which the
shareholder must complete in order to effectively surrender such lost or
destroyed Certificate(s). There will be a cost to replace lost Certificates.
(9) FEDERAL INCOME TAX WITHHOLDING. Under Federal income tax law, the
Depositary is required to file a report with the Internal Revenue Service
disclosing any payments of cash being made to each holder of Certificates
formerly representing shares of PSP15 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
PSP15 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 406
(individual holders), or (212) 805-7000 (banks and brokers). You may also
obtain additional copies of the Cash Election Form and the Combined Proxy
Statement and Prospectus from the Depositary at the addresses and telephone
numbers set forth on the first page of this Cash Election Form.
H. DELIVERY OF PAYMENT CHECKS
As soon as practicable after the PSP15 Merger becomes effective, the
Depositary will make the allocations of cash to be received by holders of PSP15
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 PSP15 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 PSP15 Merger becomes
effective, a Letter of Transmittal for you to use to send in your stock
Certificates for shares of PSP15 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 PSP15 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 COMBINED PROXY STATEMENT AND PROSPECTUS FOR THAT
PURPOSE.
4
<PAGE>
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XV, INC.
EXECUTION SECTION
<TABLE>
<CAPTION>
BOX A
- ----------------------------------------------------------------------------------------------------------------------------
CERTIFICATE INFORMATION
List below the certificates to which this Cash Election Form relates. (Attach additional sheets if necessary.)
Number of Shares
Name and Address of Registered Holder(s) as Shown on the Share Records Represented by
(Fill in, if Blank) Certificate Number Each Certificate
- -------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
__________________ ________________
__________________ ________________
__________________ ________________
__________________ ________________
Total Shares: ================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATE HOLDER(S) SIGN HERE
The undersigned hereby represents and warrants that the undersigned has full
power and authority to complete and deliver this Cash Election Form and to
deliver for surrender and cancellation the above-described Certificate(s)
delivered herewith and that the rights represented by the Certificate(s) are
free and clear of all liens, restrictions, charges and encumbrances and are not
subject to any adverse claim. The undersigned will, upon request, execute any
additional documents necessary or desirable to complete the surrender of the
Certificate(s) surrendered herewith. All authority herein conferred shall
survive the death or incapacity of the undersigned and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Delivery of the Certificate(s) for
surrender and cancellation may be revoked only in accordance with Instruction
F(2).
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
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XV, INC.
EXECUTION SECTION (CONTINUED)
IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER ON
THIS SUBSTITUTE FORM W-9 AND CERTIFY THAT YOU ARE NOT SUBJECT TO BACKUP
WITHHOLDING. FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE PSP15
MERGER. IF THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9 IS CHECKED, THE
"CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER" BELOW MUST BE
COMPLETED.
<TABLE>
<CAPTION>
BOX D
- ------------------------------------------------------------------------------------------------------------------------------------
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. _______________________________
--------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Department of the Treasury or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject
Internal Revenue Service to backup withholding. [_]
--------------------------------------------------------------------------------------------------
Payer's Request for Taxpayer Certification - Under penalties of perjury, I certify that the information PART 3 -
Identification Number (TIN) provided on this form is true, correct and complete.
Awaiting TIN [_]
---------------------
Signature: _______________________________________________________________ Date: ____________________________
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed
or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social
Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of any cash payment made to me will be withheld, but that such
amount will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days.
Signature: _____________________________________________________________ Date: ________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
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 PSP15 Common
Stock submitted with this Cash Election Form no later than 5:00 p.m., New York City Time, on the third business day after the
Election Deadline (as defined in Instruction A).
<S> <C>
[_] 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 PSP15
Common Stock surrendered will be issued in the same name(s) as the
Certificate(s) surrendered and will be mailed to the address of the registered
holder(s) indicated above, unless otherwise indicated in Box F or Box G below.
If Box F is completed, the signature of the undersigned must be guaranteed as
set forth in Instruction G(5).
<TABLE>
BOX F
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
SPECIAL PAYMENT INSTRUCTIONS
To be completed only if the Payment Check(s) is (are) to be issued in the name(s) of someone other than the registered holder(s)
set forth above. Signature must be guaranteed. (See Instruction G(5).)
<S> <C>
Name: ______________________________________________________________________________________
Address: ______________________________________________________________________________________
______________________________________________________________________________________
Social Security Number or
Employer Identification Number: ______________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
BOX G
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SPECIAL MAILING INSTRUCTIONS
To be completed only if the Payment Check(s) is (are) to be issued to the registered holder(s) and mailed to an address other than
that of the registered holder(s) set forth above. (See Instruction G(7).)
<S> <C>
Address: ______________________________________________________________________________________
______________________________________________________________________________________
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</TABLE>
E-2
<PAGE>
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TEAR HERE AND RETURN EXECUTION SECTION TO THE DEPOSITARY
[Graphics for Execution Section Page E-1,
left margin.]
[Graphics for Execution Section Page E-2,
right margin.]
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TEAR HERE AND RETURN EXECUTION SECTION TO THE DEPOSITARY
