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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1998
REGISTRATION NO. 333-41123
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PUBLIC STORAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3551121
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
HARVEY LENKIN
PUBLIC STORAGE, INC.
701 WESTERN AVENUE 701 WESTERN AVENUE
GLENDALE, CALIFORNIA 91201-2397 GLENDALE, CALIFORNIA 91201-2397
(818) 244-8080 (818) 244-8080
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP
TELEPHONE NUMBER, INCLUDING AREA CODE, CODE, AND TELEPHONE
OF REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF
EXECUTIVE OFFICES) AGENT FOR SERVICE)
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COPIES TO:
DAVID GOLDBERG, ESQ.
PUBLIC STORAGE, INC.
701 WESTERN AVENUE, SUITE 200
GLENDALE, CALIFORNIA 91201-2397
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(a)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
AMOUNT OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE PER SHARE OR AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT OFFERING PRICE FEE
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Preferred Stock, $.01 par value
per share......................... (1)(3) (2) (1)(2)(3) N/A
Depositary Shares.................. (1)(3) (2) (1)(2)(3) N/A
Equity Stock, $.01 par value
per share......................... (1)(4) (2) (1)(2)(4) N/A
Common Stock, $.10 par value per
share............................. (1)(5) (2) (1)(2)(5) N/A
Warrants........................... (1)(6) (2) (1)(2)(6) N/A
Total............................ $635,275,000(7) (2) $635,275,000(7) $190,902(8)
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(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $635,275,000. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) The proposed maximum offering price per unit will be determined, from time
to time, by the Registrant in connection with the issuance by the Registrant
of the securities registered hereunder. No separate consideration will be
received for any Depositary Shares representing shares of Preferred Stock of
the Registrant.
(3) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Preferred Stock, and Depositary Shares representing a
fractional interest in a share of Preferred Stock, as may be sold, from time
to time, by the Registrant. In the event Registrant elects to offer to the
public fractional interests in shares of the Preferred Stock
registered hereunder, Depositary Receipts will be distributed to those
persons acquiring such fractional interests and the shares of Preferred
Stock will be issued to a Depositary under a Deposit Agreement. There is
also being registered hereunder an indeterminate number of shares of
Preferred Stock as shall be issuable upon exercise of Warrants registered
hereby.
(4) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Equity Stock as may be sold, from time to time, by the
Registrant.
(5) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Common Stock as may be sold, from time to time, by the
Registrant. There is also being registered hereunder an indeterminate number
of shares of Common Stock as shall be issuable upon conversion of the
Preferred Stock or the Equity Stock or exercise of Warrants registered
hereby.
(6) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of Warrants representing rights to purchase Preferred Stock, Equity
Stock or Common Stock, as the case may be, registered pursuant to this
Registration Statement.
(7) An additional $64,725,000 of securities were registered by Registrant under
Registration Statement No. 333-18395 and remain unissued.
(8) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended. $131,902 of the registration fee was
previously paid in connection with the initial filing on November 26, 1997.
An additional $19,614 registration fee was paid by Registrant in connection
with Registration Statement No. 333-18395 with respect to securities
registered thereunder that remain unissued.
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PURSUANT OF RULE 429 OF THE RULES AND REGULATIONS UNDER THE SECURITIES ACT OF
1933, THE PROSPECTUS WHICH IS A PART OF THIS REGISTRATION STATEMENT WILL ALSO
BE USED IN CONNECTION WITH SECURITIES REGISTERED BY REGISTRANT'S REGISTRATION
STATEMENT NO. 333-18395. IN THE EVENT ANY OF SUCH PREVIOUSLY REGISTERED
SECURITIES ARE OFFERED PRIOR TO THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT, THEY WILL NOT BE INCLUDED IN SUCH PROSPECTUS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
PUBLIC STORAGE, INC.
PREFERRED STOCK
DEPOSITARY SHARES
EQUITY STOCK
COMMON STOCK
WARRANTS
Public Storage, Inc. (the "Company") may from time to time offer in one or
more series (i) shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), and depositary shares (the "Depositary Shares")
representing a fractional interest in a share of Preferred Stock, (ii) shares
of equity stock, par value $.01 per share (the "Equity Stock"), (iii) shares
of common stock, par value $.10 per share (the "Common Stock"), or (iv)
warrants to purchase Preferred Stock, Equity Stock or Common Stock (the
"Warrants"), with an aggregate public offering price of up to $700,000,000 on
terms to be determined at the time of offering. The Preferred Stock,
Depositary Shares, Equity Stock, Common Stock and Warrants (collectively, the
"Securities") may be offered, separately or together (in any combination), as
separate series, in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Preferred Stock and
Depositary Shares, the specific title and stated value, any dividend,
liquidation, redemption, conversion, voting and other rights, the offering
price and whether Depositary Shares will be offered, and if so, the fraction
of a share of Preferred Stock represented by a Depositary Share; (ii) in the
case of Equity Stock, the specific title, any dividend, liquidation,
redemption conversion, voting and other rights and the offering price; (iii)
in the case of Common Stock, the offering price; and (iv) in the case of
Warrants, the duration, offering price, exercise price and detachability.
The applicable Prospectus Supplement will also contain information, where
applicable, about any listing on a securities exchange of the Securities
covered by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities,
their names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable
from the information set forth, in the applicable Prospectus Supplement. See
"Plan of Distribution." No Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the
offering of such series of Securities.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 IN THE PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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January 12, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission in
Washington, D.C. and at the Regional Offices of the Commission at 7 World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or by
accessing the Commission's World Wide Web site at http://www.sec.gov. Such
material can also be inspected at the New York Stock Exchange ("NYSE"), 20
Broad Street, New York, New York 10005 and the Pacific Exchange, 301 Pine
Street, San Francisco, California 94104.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act")
(File No. 1-8389), are incorporated herein by reference: (i) the Annual Report
on Form 10-K for the year ended December 31, 1996, as amended by a Form 10-K/A
dated April 30, 1997, (ii) the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997 and (iii) the
Current Reports on Form 8-K dated March 12, 1997, August 25, 1997, November
17, 1997 and December 24, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such information), will be provided
without charge to any person, including any beneficial owner, to whom this
Prospectus is delivered, upon written request. Requests for such copies should
be directed to Investor Services Department, Public Storage, Inc., 701 Western
Avenue, Glendale, California 91201-2397.
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THE COMPANY
The Company is a fully integrated, self-administered and self-managed real
estate investment trust ("REIT") that acquires, develops, owns and operates
self-service facilities offering space for personal and business use ("mini-
warehouses"). The Company is the largest owner and operator of mini-warehouses
in the United States with equity interests (through direct ownership, as well
as general and limited partnership and capital stock interests), as of
September 30, 1997, in 1,072 mini-warehouses located in 37 states. The Company
also has a significant ownership in American Office Park Properties, Inc., a
REIT that, as of September 30, 1997, had equity interests in 42 commercial
properties located in ten states.
In 1996 Public Storage Pickup & Delivery, Inc. ("PSPUD") was organized as a
separate affiliated corporation to operate a portable self-storage business
that rents storage containers to customers for storage in central warehouses
and provides related transportation services. As of September 30, 1997, PSPUD
operated 43 facilities in 13 states.
In a series of mergers among Public Storage Management, Inc. and its
affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger
of PSMI into the Company (the "Merger"), the Company became self-administered
and self-managed, acquired substantially all of PSMI's United States real
estate interests and was renamed "Public Storage, Inc."
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). To the extent that the Company
continues to qualify as a REIT, it will not be taxed, with certain limited
exceptions, on the net income that is distributed currently to its
shareholders (the "Shareholders"). See "Certain Federal Income Tax
Considerations." The Company was incorporated in California in 1980; its
principal executive offices are located at 701 Western Avenue, Glendale,
California 91201-2397. Its telephone number is (818) 244-8080.
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RISK FACTORS
In evaluating the Securities, investors should consider the following
factors, in addition to other matters set forth or incorporated in this
Prospectus (and in the applicable Prospectus Supplement) and the Registration
Statement.
CONTROL AND INFLUENCE BY THE HUGHES FAMILY
At December 31, 1997, B. Wayne Hughes, the chief executive officer of the
Company, and members of his family (collectively, the "Hughes Family")
beneficially owned approximately 35.4% of the outstanding shares of Common
Stock (approximately 39.4% upon conversion of the Company's Class B common
stock, par value $.10 per share (the "Class B Common Stock")). Consequently,
the Hughes Family has the ability to effectively control all matters submitted
to a vote of Shareholders, including the election of directors, amendment of
the Company's restated articles of incorporation (the "Articles of
Incorporation"), dissolution and the approval of other extraordinary
transactions. In addition, this concentration of ownership may have the effect
of delaying or preventing a change in control of the Company.
OWNERSHIP LIMITATIONS
Public shareholders are further limited in their ability to change control
of the Company due to restrictions in the Articles of Incorporation and the
Company's bylaws (the "Bylaws") on beneficial ownership. Unless such
limitations are waived by the Company's board of directors (the "Board of
Directors"), no Shareholder may own more than (A) 2.0% of the outstanding
shares of all common stock of the Company or (B) 9.9% of the outstanding
shares of any class or series of shares of preferred stock or equity stock of
the Company. The Articles of Incorporation and Bylaws provide, however, that
no person shall be deemed to exceed the ownership limit solely by reason of
the beneficial ownership of shares of any class of capital stock to the extent
that such shares of capital stock were beneficially owned by such person at
the time of the Merger, which includes the Common Stock owned by the Hughes
Family. The principal purpose of the foregoing limitations is to assist in
preventing, to the extent practicable, a concentration of ownership that might
jeopardize the ability of the Company to obtain the favorable tax benefits
afforded a qualified REIT. An incidental consequence of such provisions is to
make a change of control significantly more difficult (if not impossible) even
if it would be favorable to the interests of the public shareholders. Such
provisions will prevent future takeover attempts which the Board of Directors
has not approved even if a majority of the public shareholders deem it to be
in their best interests or in which the public shareholders may receive a
premium for their shares over the then market value. See "Description of
Common Stock and Class B Common Stock--Ownership Limitations."
TAX RISKS
Increased Risk of Violation of Ownership Requirements. For the Company to
qualify as a REIT under the Code, no more than 50% in value of its outstanding
stock may be owned, directly or constructively under the applicable
attribution rules of the Code, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year.
Following the Merger, the value of the outstanding capital stock of the
Company held by the Hughes Family was estimated at approximately 45% and, as
of December 31, 1997, has been reduced to approximately 30%. In order to
assist the Company in meeting these ownership restrictions, the Articles of
Incorporation contain the ownership limitations described under "Description
of Common Stock and Class B Common Stock--Ownership Limitations." However,
even with these ownership limitations, the Company could still be in violation
of the ownership restrictions if four individuals unrelated to the Hughes
Family were to own the maximum amount of capital stock permitted under the
Articles of Incorporation. Therefore, to further assist the Company in meeting
the ownership restrictions, the Hughes Family entered into an agreement with
the Company restricting the Hughes Family's acquisition of additional shares
of capital stock of the Company and providing that if, at any time, for any
reason, more than 50% in value of its outstanding capital stock otherwise
would be considered owned by five or fewer individuals, a number of shares of
Common Stock owned by Wayne Hughes necessary to prevent such violation will
automatically and irrevocably be
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transferred to a designated charitable beneficiary. The provisions in the
Articles of Incorporation and the agreement with Wayne Hughes are modeled
after certain arrangements that the Internal Revenue Service (the "IRS") has
ruled in private letter rulings will preclude a REIT from being considered to
violate the ownership restrictions so long as such arrangements are
enforceable as a matter of state law and the REIT seeks to enforce them as and
when necessary. There can be no assurance, however, that the IRS might not
seek to take a different position with respect to the Company (a private
letter ruling is legally binding only with respect to the taxpayer to whom it
was issued) or contend that the Company failed to enforce these various
arrangements and, hence, there can be no assurance that these arrangements
will necessarily preserve the Company's REIT status. No private letter ruling
has been sought by the Company from the IRS with respect to the effect of
these arrangements.
Consequences of Failure to Qualify as a REIT. For any taxable year that the
Company fails to qualify as a REIT and certain relief provisions do not apply,
the Company would be taxed at the regular corporate rates on all of its
taxable income, whether or not it makes any distributions to its shareholders.
Those taxes would reduce the amount of cash available to the Company for
distribution to its shareholders or for reinvestment. As a result, failure of
the Company to qualify during any taxable year as a REIT could have a material
adverse effect upon the Company and its shareholders. Furthermore, unless
certain relief provisions apply, the Company would not be eligible to elect
REIT status again until the fifth taxable year that begins after the first
year for which the Company fails to qualify.
Corporate Level Tax on Sale of Certain Built-in Gain Assets. The Company
generally will be subject to a corporate level tax if it disposes in a taxable
transaction of any of the assets acquired in the Merger at any time during the
10-year period beginning at the time of the Merger (the "Restriction Period").
This tax would be imposed at the top regular corporate rate (currently 35%) in
effect at the time of the disposition on the excess of (i) the lesser of (a)
the fair market value at the time of the Merger of the assets disposed of and
(b) the selling price of such assets over (ii) the Company's adjusted basis at
the time of the Merger in such assets (such excess being referred to as the
"Built-in Gain"). The Company currently does not intend to dispose in a
taxable transaction of any material portion of the assets acquired in the
Merger during the Restriction Period, but there can be no assurance that one
or more such dispositions will not occur. See "Certain Federal Income Tax
Considerations--Tax Treatment of the Merger--Built-in Gain Rules."
OPERATING RISKS
General Risks of Real Estate Ownership. The Company is subject to the risks
generally incident to the ownership of real estate-related assets, including
lack of demand for rental spaces in a locale, changes in general economic or
local conditions, changes in supply of or demand for similar or competing
facilities in an area, the impact of environmental protection laws, changes in
interest rates and availability of permanent mortgage funds which may render
the sale or financing of a property difficult or unattractive and changes in
tax, real estate and zoning laws.
Significant Competition Among Mini-Warehouses. Most of the Company's
properties are mini-warehouses. Competition in the market areas in which the
Company operates is significant and has affected the occupancy levels, rental
rates and operating expenses of certain of the Company's properties.
Competition may be accelerated by any increase in availability of funds for
investment in real estate. Recent increases in development of mini-warehouses
are expected to further intensify competition among mini-warehouse operators
in certain market areas.
Risk of Environmental Liabilities. Under various federal, state and local
laws, regulations and ordinances (collectively, "Environmental Laws"), an
owner or operator of real estate interests may be liable for the costs of
cleaning up, as well as certain damages resulting from, past or present
spills, disposals or other releases of hazardous or toxic substances or wastes
on, in or from a property. Certain Environmental Laws impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of hazardous or toxic substances or wastes at or from a property. An
owner or operator of real estate or real estate interests also may
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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.
The Company has conducted preliminary environmental assessments of its
properties (and intends to conduct such assessments in connection with
property acquisitions) to evaluate the environmental condition of, and
potential environmental liabilities associated with, such properties. Such
assessments generally consist of an investigation of environmental conditions
at the subject property (not including soil or groundwater sampling or
analysis), as well as a review of available information regarding the site and
publicly available data regarding conditions at other sites in the vicinity.
In connection with these recent property assessments, the Company's operations
and recent property acquisitions, the Company has become aware that prior
operations or activities at certain facilities or from nearby locations have
or may have resulted in contamination to the soil and/or groundwater at such
facilities. In this regard, certain such facilities are or may be the subject
of federal or state environmental investigations or remedial actions. The
Company has obtained with respect to recent acquisitions, and intends to
obtain with respect to pending or future acquisitions, appropriate purchase
price adjustments, indemnifications or insurance that it believes are
sufficient to cover any such potential liabilities. Although there can be no
assurance, based on the recent preliminary environmental assessments, the
Company believes it has funds available to cover any liability from
environmental contamination or potential contamination and the Company is not
aware of any environmental contamination of its facilities material to its
overall business or financial condition.
Tenant Reinsurance. A corporation owned by the Hughes Family continues to
reinsure policies insuring against losses to goods stored by tenants in the
mini-warehouses operated by the Company. The Company believes that the
availability of insurance reduces its potential liability to tenants for
losses to their goods from theft or destruction. This corporation will
continue to receive the premiums and bear the risks associated with the
insurance. The Company has a right of first refusal to acquire the stock or
assets of this corporation if the Hughes Family or the corporation agree to
sell them, but the Company has no interest in its operations and no right to
acquire the stock or assets of the corporation in the absence of a decision to
sell. If the reinsurance business were owned directly by the Company, the
insurance premiums would be nonqualifying income to the Company. The Company
would be precluded from exercising its right of first refusal with respect to
the stock of the reinsurance corporation if such exercise would cause the
Company to violate any of the requirements for qualification as a REIT under
the Code.
Canadian Operations. The Hughes Family continues to own and operate mini-
warehouses in Canada. The Company has a right of first refusal to acquire the
stock or assets of the corporation engaged in these operations if the Hughes
Family or the corporation agree to sell them, but the Company has no interest
in its operations and no right to acquire the stock or assets in the absence
of a decision to sell.
Merchandise and Portable Self Storage Companies. At almost all of the
Company's mini-warehouses, PS Orangeco, Inc. ("Orangeco") offers for sale to
the general public, including mini-warehouse tenants, a variety of items such
as locks and boxes to assist in the moving and storage of goods. Because the
revenues received from the sale of these items would be nonqualifying income
to the Company, the nonvoting preferred stock of Orangeco (representing 95% of
the equity) is owned by the Company. The voting common stock of Orangeco
(representing 5% of the equity) is owned by the Hughes Family, which will be
able to control the operations of Orangeco by reason of their ownership of its
voting stock.
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 the Company, the capital stock of
PSPUD is owned by Orangeco. In order to continue to meet the requirements for
qualification as a REIT, the value of the nonvoting preferred stock of
Orangeco held by the Company (which includes the value
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of Orangeco's interest in PSPUD) may not exceed 5% of the value of the
Company's total assets. The ability of PSPUD to operate profitably depends
upon its success in the relatively new field of portable self-storage, and
there can be no assurance as to its profitability. As a start-up enterprise,
PSPUD incurred operating losses for the nine months ended September 30, 1997
of $21,185,000.
Liabilities with Respect to Acquired General Partner Interests. Upon
succeeding to substantially all of the properties and operations of PSMI in
the Merger, there may be certain liabilities and associated costs suffered by
the Company in its capacity as general partner of former PSMI limited
partnerships arising out of facts and circumstances in existence prior to the
Merger, and the Company will also have general partner liability for post-
Merger activities of these partnerships, as it does for other partnerships as
to which it is a general partner. Subject to certain limitations, Hughes has
agreed to indemnify the Company for pre-Merger activities and the Class B
Common Stock has been placed in escrow to support such indemnification.
FINANCING RISKS
Dilution and Subordination. The interest of Shareholders, including persons
who acquire Securities in this offering, can be diluted through the issuance
of additional securities.
Since October 1992 the Company has issued shares of Preferred Stock and
intends to issue additional such shares. These issuances could involve certain
risks to holders of shares of Common Stock. In the event of a liquidation of
the Company, the holders of the Preferred Stock outstanding at September 30,
1997 will be entitled to receive, before any distribution of assets to holders
of Common Stock, liquidating distributions (an aggregate of approximately
$923.5 million in respect of Preferred Stock issued to date), plus any accrued
and unpaid dividends. Holders of Preferred Stock are entitled to receive, when
declared by the Board of Directors, cash dividends (an aggregate of
approximately $81.0 million per year in respect of Preferred Stock outstanding
at September 30, 1997), in preference to holders of Common Stock. As a REIT,
the Company must distribute to its Shareholders (which include not only
holders of Common Stock but also holders of Preferred Stock) for each taxable
year at least 95% of its annual taxable income. Failure to pay full dividends
on the Preferred Stock could jeopardize the Company's qualification as a REIT.
See "Description of Preferred Stock" and "Certain Federal Income Tax
Considerations--Tax Treatment of the Company."
Risk of Leverage. In making real estate investments, the Company has
incurred and may continue to incur indebtedness to the extent believed
appropriate. The incurrence of indebtedness increases the risk of loss of the
investment.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. At December 31, 1997, the
Company had approximately 105.1 million shares of Common Stock and seven
million shares of Class B Common Stock outstanding. Of these shares,
approximately 69.3 million shares of Common Stock are tradeable without
restriction (except those applicable to affiliates of the Company) or further
registration under the Securities Act. The remaining approximately 35.8
million shares of Common Stock and seven million shares of Class B Common
Stock were issued in the Merger without registration under the Securities Act
in reliance on an exemption from registration and are "restricted securities"
within the meaning of Rule 144 adopted under the Act (the "Restricted
Shares"). The beneficial owners of 15.5 million of the Restricted Shares
(including all of the Class B Common Stock) have agreed not to offer, sell or
otherwise dispose (except for gifts and pledges) of any of their shares until
November 13, 1998, in the case of the Common Stock, or until November 13,
2002, in the case of the Class B Common Stock. Upon expiration of such
periods, each will be entitled to sell his or her shares in the public market
subject to certain public information, volume and manner of sale requirements
in Rule 144. The remaining approximately 27.3 million Restricted Shares are
available for sale in the public market pursuant to Rule 144, subject to the
foregoing requirements. Sales of substantial amounts of such Common Stock in
the public market could adversely affect the market price of the Common Stock.
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USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, primarily to make investments in mini-warehouses,
including mortgage loans and interests in real estate partnerships, to make
additional investments in PSPUD, and to repay outstanding bank borrowings
under the Company's credit facility.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to combined fixed charges and preferred stock
dividends is computed by dividing earnings by the sum of fixed charges and
preferred stock dividends. Earnings consists of net income before minority
interest in income, loss on early extinguishment of debt and gain on
disposition of real estate plus fixed charges (other than preferred stock
dividends) less the portion of minority interest in income which does not
contribute to fixed charges.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed
charges and preferred stock
dividends......................... 1.86 2.03 2.07 2.04 2.22 2.40 2.89
</TABLE>
DESCRIPTION OF COMMON STOCK AND CLASS B COMMON STOCK
The Company is authorized to issue 200,000,000 shares of Common Stock and
7,000,000 shares of Class B Common Stock. At December 31, 1997, the Company
had outstanding 105,102,145 shares of Common Stock (exclusive of shares
issuable upon conversion of the Company's convertible stock and shares subject
to options) and 7,000,000 shares of Class B Common Stock.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that Common Stock will
be issuable upon conversion of the Preferred Stock or upon the exercise of the
Warrants. The statements below describing the Common Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Articles of Incorporation and the Company's Bylaws (the
"Bylaws").
Holders of Common Stock will be entitled to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available
therefor. Payment and declaration of dividends on the Common Stock and
purchases of shares thereof by the Company will be subject to certain
restrictions if the Company fails to pay dividends on outstanding preferred
stock. See "Description of Preferred Stock." Upon any liquidation, dissolution
or winding up of the Company, holders of Common Stock will be entitled to
share equally and ratably in any assets available for distribution to them,
after payment or provision for payment of the debts and other liabilities of
the Company and the preferential amounts owing with respect to any outstanding
preferred stock. Holders of Common Stock have no preemptive rights, which
means they have no right to acquire any additional shares of Common Stock that
may be issued by the Company at a subsequent date.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters presented to such holders for a vote, with the exception that they
have cumulative voting rights with respect to the election of the Board of
Directors, in accordance with California law. Cumulative voting means that
each holder of Common Stock is entitled to cast as many votes as there are
directors to be elected multiplied by the number of shares
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<PAGE>
registered in his or her name. A holder of Common Stock may cumulate the votes
for directors by casting all of the votes for one candidate or by distributing
the votes among as many candidates as he or she chooses. The outstanding
shares of Common Stock are, and additional shares of Common Stock will be,
when issued, fully paid and nonassessable.
OWNERSHIP LIMITATIONS
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of capital stock may be owned, directly or
constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. In order to maintain its qualification as a
REIT, the Articles of Incorporation and Bylaws provide certain restrictions on
the shares of capital stock that any Shareholder may own.
The Articles of Incorporation and Bylaws provide that, subject to certain
exceptions, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than (A) 2.0% of the outstanding
shares of all Common Stock or (B) 9.9% of the outstanding shares of any class
or series of shares of Preferred Stock or Equity Stock. The Articles of
Incorporation and Bylaws provide, however, that no person shall be deemed to
exceed the ownership limit solely by reason of the beneficial ownership of
shares of any class of capital stock to the extent that such shares of capital
stock were beneficially owned by such person (including the Hughes Family) at
the time of the Merger. However, in determining whether an acquisition of
shares after the Merger violates the Articles of Incorporation or Bylaws,
Shareholders will be subject to these ownership limitations. This ownership
limitation is necessary in order to assist in preserving the Company's REIT
status in view of the Hughes Family's substantial ownership interest in the
Company. See "Risk Factors--Ownership Limitations" and "Certain Federal Income
Tax Considerations--Tax Treatment of the Company."
The Board of Directors, in its sole and absolute discretion, may grant an
exception to the ownership limits to any person so requesting, so long as (A)
the Board of Directors has determined that, after giving effect to (x) an
acquisition by such person of beneficial ownership (within the meaning of the
Code) of the maximum amount of capital stock of the Company permitted as a
result of the exception to be granted and (y) assuming that the four other
persons who would be treated as "individuals" for the purposes of Section
542(a)(2) of the Code and who would beneficially own the largest amounts of
capital stock of the Company (determined by value) beneficially own the
maximum amount of capital stock of the Company permitted under the ownership
limits (or any exceptions to the ownership limits granted with respect to such
persons), the Company would not be "closely held" within the meaning of
Section 856(h) of the Code and would not otherwise fail to qualify as a REIT,
and (B) such person provides to the Board of Directors such representations
and undertakings as the Board of Directors may require. Notwithstanding any of
the foregoing ownership limits, no holder may own or acquire, either directly,
indirectly or constructively under the applicable attribution rules of the
Code, any shares of any class of the Company's capital stock if such ownership
or acquisition (i) would cause more than 50% in value of the Company's
outstanding capital stock to be owned, either directly or constructively,
under the applicable attribution rules of the Code, by five or fewer
individuals (as defined in the Code to include certain tax-exempt entities,
other than, in general, qualified domestic pension funds), (ii) would result
in the Company's capital stock being beneficially owned by less than 100
persons (determined without reference to any rules of attribution), or (iii)
would otherwise result in the Company failing to qualify as a REIT.
The Articles of Incorporation and Bylaws provide that, if any holder of the
Company's capital stock purports to transfer shares to a person or there is a
change in the capital structure of the Company or other event and either the
transfer, the change in capital structure or such other event would result in
the Company failing to qualify as a REIT, or such transfer, the change in
capital structure or such other event would cause the transferee to hold
shares in excess of the applicable ownership limit, then the stock being
transferred (or in the case of an event other than a transfer, the stock
beneficially owned) which would cause one or more of the restrictions on
ownership or transfer to be violated shall be automatically transferred to a
trust for the benefit of a designated charitable beneficiary. The purported
transferee of such shares shall have no right to receive dividends or other
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<PAGE>
distributions with respect to such shares and shall have no right to vote such
shares. Any dividends or other distributions paid to such purported transferee
prior to the discovery by the Company that the shares have been transferred to
a trust shall be paid to the trustee of the trust for the benefit of the
charitable beneficiary upon demand. The trustee of the trust will have all
rights to dividends with respect to shares of stock held in trust, which
rights will be exercised for the exclusive benefit of the charitable
beneficiary. Any dividends or distributions paid over to the trustee will be
held in trust for the charitable beneficiary. Within 20 days of receiving
notice from the Company that shares of capital stock have been transferred to
the trust, the trustee shall designate a transferee of such stock so long as
such shares of stock would not violate the restrictions on ownership or
transfer in the Articles of Incorporation or Bylaws in the hands of such
designated transferee. Upon the sale of such shares, the purported transferee
shall receive the lesser of (A)(i) the price per share such purported
transferee paid for the stock in the purported transfer that resulted in the
transfer of the shares to the trust, or (ii) if the transfer or other event
that resulted in the transfer of the shares of the trust was not a transaction
in which the purported transferee gave full value for such shares, a price per
share equal to the market price on the date of the purported transfer or other
event that resulted in the transfer of the shares to the trust and (B) the
price per share received by the trustee from the sale or other disposition of
the shares held in the trust.
In addition, the Company's Bylaws provide the Board of Directors with the
power to prevent the transfer of shares of capital stock or to redeem shares
of capital stock if the Board of Directors determines in good faith that such
action is necessary to preserve the Company's REIT status.
CLASS B COMMON STOCK
The Class B Common Stock (i) does not participate in distributions on the
Common Stock until the later to occur of (x) funds from operations ("FFO") per
Common Share (as defined below) aggregating $1.80 during any period of four
consecutive calendar quarters or (y) January 1, 2000; thereafter, the Class B
Common Stock will participate in distributions (other than liquidating
distributions) at the rate of 97% of the per share distributions on the Common
Stock, provided that cumulative distributions of at least $.22 per quarter
(beginning with the 4th quarter of 1995) per share have been paid on the
Common Stock, (ii) does not participate in liquidating distributions, (iii) is
not entitled to vote (except as expressly required by California law) and (iv)
will automatically convert into Common Stock, on a share for share basis, upon
the later to occur of (A) FFO per Common Share aggregating $3.00 during any
period of four consecutive calendar quarters or (B) January 1, 2003.
For these purposes:
1) FFO means net income (loss) (computed in accordance with GAAP) before
(i) gain (loss) on early extinguishment of debt, (ii) minority interest in
income and (iii) gain (loss) on disposition of real estate, adjusted as
follows: (i) plus depreciation and amortization (including the Company's
pro-rata share of depreciation and amortization of unconsolidated equity
interests and amortization of assets acquired in the Merger (including
property management agreements and goodwill)), and (ii) less FFO
attributable to minority interest. FFO is a supplemental performance
measure for equity REITs as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT"). The NAREIT definition does not
specifically address the treatment of minority interest in the
determination of FFO or the treatment of the amortization of property
management agreements and goodwill. In the case of the Company, FFO
represents amounts attributable to Shareholders after deducting amounts
attributable to the minority interests and before deductions for the
amortization of property management agreements and goodwill. FFO does not
take into consideration scheduled principal payments on debt, capital
improvements, distributions and other obligations of the Company.
Accordingly, FFO is not a substitute for the Company's cash flow or net
income as a measure of its liquidity or operating performance or ability to
pay distributions.
2) FFO per Common Share means FFO less Preferred Stock dividends (other
than dividends on convertible preferred stock) divided by the outstanding
weighted average shares of Common Stock assuming conversion of all
outstanding convertible securities and the Class B Common Stock.
10
<PAGE>
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 50,000,000 shares of Preferred Stock. At
December 31, 1997, the Company had outstanding 13,261,884 shares of Preferred
Stock (of which 23,650 shares of Preferred Stock are represented by 23,650,000
depositary shares). The Articles of Incorporation provide that the Preferred
Stock may be issued from time to time in one or more series and give the Board
of Directors broad authority to fix the dividend and distribution rights,
conversion and voting rights, if any, redemption provisions and liquidation
preferences of each series of Preferred Stock. Holders of Preferred Stock have
no preemptive rights. The outstanding shares of Preferred Stock are, and
additional shares of Preferred Stock will be, when issued, fully paid and
nonassessable.
The issuance of Preferred Stock with special voting rights (or Common Stock)
could be used to deter attempts by a single Shareholder or group of
Shareholders to obtain control of the Company in transactions not approved by
the Board of Directors. The Company has no intention to issue the Preferred
Stock (or Common Stock) for such purposes.
OUTSTANDING PREFERRED STOCK
At December 31, 1997, the Company had 11 series of Preferred Stock
outstanding: ten series of senior Preferred Stock (the "Senior Preferred
Stock") and a series of convertible Preferred Stock. In all respects, each of
the series of Senior Preferred Stock ranks on a parity with all others and is
senior to the series of convertible Preferred Stock. Each of the series of
Senior Preferred Stock (i) has a stated value of $25.00 per share or
depositary share, (ii) in preference to the holders of shares of the Common
Stock and any other capital stock ranking junior to the Senior Preferred Stock
as to payment of dividends (including both series of convertible Preferred
Stock), provides for cumulative quarterly dividends calculated as a percentage
of the stated value (ranging from 8% to 10% per year in the case of the nine
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 the Company at a cash redemption price of $25.00 per
share or depositary 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 the Company, the holders of each of the series of Senior
Preferred Stock will be entitled to receive out of the Company's assets
available for distribution to shareholders, before any distribution of assets
is made to holders of Common Stock or any other shares of capital stock
ranking as to such distributions junior to the Senior Preferred Stock
(including both series of convertible Preferred Stock), liquidating
distributions in the amount of $25.00 per share or depositary 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.
The series of convertible Preferred Stock (i) has a stated value of $25.00
per share, (ii) in preference to the holders of shares of the Common Stock and
any other capital stock ranking junior to the convertible Preferred Stock as
to payment of dividends, provides for cumulative quarterly dividends at an
annual rate of 8.25% of the stated value thereof, (iii) is convertible at the
option of the holder at any time into Common Stock at a conversion price of
1.6835 shares of Common Stock for each share of such convertible Preferred
Stock (subject to adjustment in certain circumstances) and (iv) after July 1,
1998, under certain circumstances, is redeemable for Common Stock at the
option of the Company, in whole or in part, at a redemption price of 1.6835
shares of Common Stock for each share of such convertible Preferred Stock
(subject to adjustment in certain circumstances).
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<PAGE>
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the convertible Preferred Stock will
be entitled to receive out of the Company's assets available for distribution
to shareholders, before any distribution of assets is made to holders of
Common Stock or any other shares of capital stock ranking as to such
distributions junior to the convertible Preferred Stock, liquidating
distributions 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 convertible Preferred Stock are not entitled
to vote. The consent of holders of at least 66 2/3% of the outstanding shares
of one of the series of convertible Preferred Stock and at least 50% of the
outstanding shares of the other series is required to authorize another class
of shares senior to the convertible Preferred Stock and junior to the Senior
Preferred Stock.
OWNERSHIP LIMITATIONS
For a discussion of the ownership limitations that apply to Preferred Stock,
see "Description of Common Stock and Class B Common Stock--Ownership
Limitations."
FUTURE SERIES OF PREFERRED STOCK
The following description of Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Articles of Incorporation (including the
applicable form of Certificate of Determination) and Bylaws.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including, where applicable, the
following: (1) the title and stated value of such Preferred Stock; (2) the
number of shares of such Preferred Stock offered, the liquidation preference
per share and the offering price of such Preferred Stock; (3) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to such Preferred Stock; (4) the date from which dividends on such
Preferred Stock shall accumulate, if applicable; (5) the provision for a
sinking fund, if any, for such Preferred Stock; (6) the provision for
redemption, if applicable, of such Preferred Stock; (7) any listing of such
Preferred Stock on any securities exchange; (8) the terms and conditions, if
applicable, upon which such Preferred Stock will be convertible into Common
Stock, including the conversion price (or manner of calculation thereof); (9)
the voting rights, if any, of such Preferred Stock; (10) any other specific
terms, preferences, rights, limitations or restrictions of such Preferred
Stock; (11) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and (12) any limitations on issuance of any series of
Preferred Stock ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company.
Ranking. The ranking of the Preferred Stock is set forth in the applicable
Prospectus Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, such Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of the
Company, rank (i) senior to the Common Stock, any additional class of common
stock and any series of Preferred Stock expressly made junior to such
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the affairs of the Company; (ii) on a parity with
all Preferred Stock previously issued by the Company the terms of which
specifically provide that such Preferred Stock rank on a parity with the
Preferred Stock offered hereby with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; and (iii) junior to all
Preferred Stock previously issued by the Company the terms of which
specifically provide that such Preferred Stock rank senior to the Preferred
Stock offered hereby with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company.
Dividends. Holders of shares of the Preferred Stock of each series offered
hereby shall be entitled to receive, when, as and if declared by the Board of
Directors, out of assets of the Company legally available for
12
<PAGE>
payment, cash dividends at such rates and on such dates as will be set forth
in the applicable Prospectus Supplement. Each such dividend shall be payable
to holders of record as they appear on the stock transfer books of the Company
on such record dates as shall be fixed by the Board of Directors.
Dividends on any series of the Preferred Stock offered hereby may be
cumulative or non-cumulative, as provided in the applicable Prospectus
Supplement. Dividends, if cumulative, will be cumulative from and after the
date set forth in the applicable Prospectus Supplement. If the Board of
Directors fails to declare a dividend payable on a dividend payment date on
any series of the Preferred Stock for which dividends are noncumulative, then
the holders of such series of the Preferred Stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such series are declared
payable on any future dividend payment date.
No dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of any series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment, nor shall any
other distribution be declared or made upon the Common Stock, or any other
capital stock of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any Common Stock or any other capital stock of the Company ranking junior to
or on a parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period and (ii) if such series of
Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period.
Any dividend payment made on shares of a series of Cumulative Preferred
Stock offered hereby shall first be credited against the earliest accrued but
unpaid dividend due with respect to shares of such series which remains
payable.
Redemption. If so provided in the applicable Prospectus Supplement, the
shares of Preferred Stock will be subject to mandatory redemption or
redemption at the option of the Company, in whole or in part, in each case
upon the terms, at the times and at the redemption prices set forth in such
Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such Preferred Stock that shall be redeemed by the Company in each
year commencing after a date to be specified, at a redemption price per share
to be specified, together with an amount equal to all accrued and unpaid
dividends thereon (which shall not, if such Preferred Stock does not have a
cumulative dividend, include any accumulation in respect of unpaid dividends
for prior dividend periods) to the date of redemption. The redemption price
may be payable in cash, securities or other property, as specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, no shares of any series of Preferred Stock
offered hereby shall be redeemed and the Company shall not purchase or
otherwise acquire directly or indirectly any shares of Preferred Stock of such
series (except by conversion into or exchange for capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless all outstanding shares of Preferred Stock of such series
are simultaneously redeemed unless, in each case, (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends on the
Preferred Stock of such series shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred
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<PAGE>
Stock does not have a cumulative dividend, full dividends on the Preferred
Stock of such series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment
for the then current dividend period; provided, however, that the foregoing
shall not prevent the purchase or acquisition of shares of Preferred Stock of
such series pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or any other equitable method determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder and, upon redemption, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof. In order to facilitate the redemption of shares of Preferred Stock,
the Board of Directors may fix a record date for the determination of shares
of Preferred Stock to be redeemed, such record date to be not less than 30 or
more than 60 days prior to the date fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless the Company defaults in
providing funds for the payment of the redemption price on such date, all
dividends on the Preferred Stock called for redemption will cease. From and
after the redemption date, unless the Company so defaults, all rights of the
holders of the Preferred Stock as shareholders of the Company, except the
right to receive the redemption price (but without interest), will cease.
Subject to applicable law and the limitation on purchases when dividends on
Preferred Stock are in arrears, the Company may, at any time and from time to
time, purchase any shares of Preferred Stock in the open market, by tender or
by private agreement.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or
any other class or series of capital stock of the Company ranking junior to
any series of the Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of such
series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Stock does not have a cumulative dividend). After payment of the full amount
of the liquidating distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of any series of Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of
the Company ranking on a parity with the Preferred Stock in the distribution
of assets upon liquidation, dissolution or winding up, then the holders of
such series of Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be
respectively entitled.
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If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking
junior to such series of Preferred Stock upon liquidation, dissolution or
winding up, according to their respective rights and preferences and in each
case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights. Holders of the Preferred Stock offered hereby will not have
any voting rights, except as set forth below or as otherwise expressly
required by law or as indicated in the applicable Prospectus Supplement.
If the equivalent of six quarterly dividends payable on any series of
Preferred Stock are in default (whether or not declared or consecutive), the
holders of all such series of Preferred Stock, voting as a single class with
all other series of Preferred Stock upon which similar voting rights have been
conferred and are exercisable, will be entitled to elect two additional
directors until all dividends in default have been paid or declared and set
apart for payment.
Such right to vote separately to elect directors shall, when vested, be
subject, always, to the same provisions for vesting of such right to elect
directors separately in the case of future dividend defaults. At any time when
such right to elect directors separately shall have so vested, the Company
may, and upon the written request of the holders of record of not less than
20% of the total number of preferred shares of the Company then outstanding
shall, call a special meeting of Shareholders for the election of directors.
In the case of such a written request, such special meeting shall be held
within 90 days after the delivery of such request and, in either case, at the
place and upon the notice provided by law and in the Bylaws, provided that the
Company shall not be required to call such a special meeting if such request
is received less than 120 days before the date fixed for the next ensuing
annual meeting of Shareholders, and the holders of all classes of outstanding
preferred stock are offered the opportunity to elect such directors (or fill
any vacancy) at such annual meeting of shareholders. Directors so elected
shall serve until the next annual meeting of Shareholders or until their
respective successors are elected and qualify. If, prior to the end of the
term of any director so elected, a vacancy in the office of such director
shall occur, during the continuance of a default by reason of death,
resignation, or disability, such vacancy shall be filled for the unexpired
term of such former director by the appointment of a new director by the
remaining director or directors so elected.
The affirmative vote or consent of the holders of at least a majority of the
outstanding shares of each series of Preferred Stock will be required to amend
or repeal any provision of or add any provision to, the Articles of
Incorporation, including the Certificate of Determination, if such action
would materially and adversely alter or change the rights, preferences or
privileges of such series of Preferred Stock.
No consent or approval of the holders of any series of Preferred Stock
offered hereby will be required for the issuance from the Company's authorized
but unissued Preferred Stock of other shares of any series of Preferred Stock
ranking on a parity with or junior to such series of Preferred Stock, or
senior to a series of Preferred Stock expressly made junior to other series of
Preferred Stock as to payment of dividends and distribution of assets,
including other shares of such series of Preferred Stock.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption upon proper notice and sufficient
funds shall have been deposited in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which shares of
any series of Preferred Stock offered hereby are convertible into Common Stock
will be set forth in the applicable Prospectus Supplement relating thereto.
Such terms will include the number of shares of Common Stock into which the
Preferred Stock is convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be
at the option of the Company or the holders of the Preferred Stock or
automatically upon the occurrence of certain events, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such Preferred Stock.
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DESCRIPTION OF THE DEPOSITARY SHARES
The Company may, at its option, elect to offer Depositary Shares rather than
full shares of Preferred Stock. In the event such option is exercised, each of
the Depositary Shares will represent ownership of and entitlement to all
rights and preferences of a fraction of a share of Preferred Stock of a
specified series (including dividend, voting, redemption and liquidation
rights). The applicable fraction will be specified in the Prospectus
Supplement. The shares of Preferred Stock represented by the Depositary Shares
will be deposited with a Depositary (the "Depositary") named in the applicable
Prospectus Supplement, under a Deposit Agreement (the "Deposit Agreement"),
among the Company, the Depositary and the holders of the Depositary Receipts.
Certificates evidencing Depositary Shares ("Depositary Receipts") will be
delivered to those persons purchasing Depositary Shares in the offering. The
Depositary will be the transfer agent, registrar and dividend disbursing agent
for the Depositary Shares. Holders of Depositary Receipts agree to be bound by
the Deposit Agreement, which requires holders to take certain actions such as
filing proof of residence and paying certain charges.
The summary of terms of the Depositary Shares contained in this Prospectus
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Deposit Agreement, the Articles of
Incorporation and the form of Certificate of Determination for the applicable
series of Preferred Stock.
DIVIDENDS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the series of Preferred Stock represented
by the Depositary Shares to the record holders of Depositary Receipts in
proportion to the number of Depositary Shares owned by such holders on the
relevant record date, which will be the same date as the record date fixed by
the Company for the applicable series of Preferred Stock. The Depositary,
however, will distribute only such amount as can be distributed without
attributing to any Depositary Share a fraction of one cent, and any balance
not so distributed will be added to and treated as part of the next sum
received by the Depositary for distribution to record holders of Depositary
Receipts then outstanding.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary
Receipts entitled thereto, in proportion, as nearly as may be practicable, to
the number of Depositary Shares owned by such holders on the relevant record
date, unless the Depositary determines (after consultation with the Company)
that it is not feasible to make such distribution, in which case the
Depositary may (with the approval of the Company) adopt any other method for
such distribution as it deems equitable and appropriate, including the sale of
such property (at such place or places and upon such terms as it may deem
equitable and appropriate) and distribution of the net proceeds from such sale
to such holders.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or involuntary, the holders of each Depositary
Share will be entitled to the fraction of the liquidation preference accorded
each share of the applicable series of Preferred Stock, as set forth in the
Prospectus Supplement.
REDEMPTION
If the series of Preferred Stock represented by the applicable series of
Depositary Shares is redeemable, such Depositary Shares will be redeemed from
the proceeds received by the Depositary resulting from the redemption, in
whole or in part, of Preferred Stock held by the Depositary. Whenever the
Company redeems any Preferred Stock held by the Depositary, the Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing the Preferred Stock so redeemed. The Depositary will mail the
notice of redemption promptly upon receipt of such notice from the Company and
not less than 30 nor more than 60 days prior to the date fixed for redemption
of the Preferred Stock and the Depositary Shares to the record holders of the
Depositary Receipts.
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VOTING
Promptly upon receipt of notice of any meeting at which the holders of the
series of Preferred Stock represented by the applicable series of Depositary
Shares are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts as of the record date for such meeting. Each such record holder of
Depositary Receipts will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the number of shares of Preferred
Stock represented by such record holder's Depositary Shares. The Depositary
will endeavor, insofar as practicable, to vote such Preferred Stock
represented by such Depositary Shares in accordance with such instructions,
and the Company will agree to take all action which may be deemed necessary by
the Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting any of the Preferred Stock to the extent that it does not
receive specific instructions from the holders of Depositary Receipts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the principal office of the
Depositary, upon payment of any unpaid amount due the Depositary, and subject
to the terms of the Deposit Agreement, the owner of the Depositary Shares
evidenced thereby is entitled to delivery of the number of whole shares of
Preferred Stock and all money and other property, if any, represented by such
Depositary Shares. Partial shares of Preferred Stock will not be issued. If
the Depositary Receipts delivered by the holder evidence a number of
Depositary Shares in excess of the number of Depositary Shares representing
the number of whole shares of Preferred Stock to be withdrawn, the Depositary
will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares. Holders of Preferred Stock
thus withdrawn will not thereafter be entitled to deposit such shares under
the Deposit Agreement or to receive Depositary Receipts evidencing Depositary
Shares therefor.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time and from time to time be
amended by agreement between the Company and the Depositary. However, any
amendment which materially and adversely alters the rights of the holders
(other than any change in fees) of Depositary Shares will not be effective
unless such amendment has been approved by at least a majority of the
Depositary Shares then outstanding. No such amendment may impair the right,
subject to the terms of the Deposit Agreement, of any owner of any Depositary
Shares to surrender the Depositary Receipt evidencing such Depositary Shares
with instructions to the Depositary to deliver to the holder the Preferred
Stock and all money and other property, if any, represented thereby, except in
order to comply with mandatory provisions of applicable law. The Deposit
Agreement may be terminated by the Company or the Depositary only if (i) all
outstanding Depositary Shares have been redeemed or (ii) there has been a
final distribution in respect of the Preferred Stock in connection with any
liquidation, dissolution or winding up of the Company and such distribution
has been made to all the holders of Depositary Shares.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the Preferred Stock and the initial issuance of the Depositary Shares, and
redemption of the Preferred Stock and all withdrawals of Preferred Stock by
owners of Depositary Shares. Holders of Depositary Receipts will pay transfer,
income and other taxes and governmental charges and certain other charges as
are provided in the Deposit Agreement to be for their accounts. In certain
circumstances, the Depositary may refuse to transfer Depositary Shares, may
withhold dividends and distributions and sell the Depositary Shares evidenced
by such Depositary Receipt if such charges are not paid.
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MISCELLANEOUS
The Depositary will forward to the holders of Depositary Receipts all
reports and communications from the Company which are delivered to the
Depositary and which the Company is required to furnish to the holders of the
Preferred Stock. In addition, the Depositary will make available for
inspection by holders of Depositary Receipts at the principal office of the
Depositary, and at such other places as it may from time to time deem
advisable, any reports and communications received from the Company which are
received by the Depositary as the holder of Preferred Stock.
Neither the Depositary nor the Company assumes any obligation or will be
subject to any liability under the Deposit Agreement to holders of Depositary
Receipts other than for its negligence or willful misconduct. Neither the
Depositary nor the Company will be liable if the Depositary is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder, and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares
or Preferred Stock unless satisfactory indemnity is furnished. The Company and
the Depositary may rely on written advice of counsel or accountants, on
information provided by holders of Depositary Receipts or other persons
believed in good faith to be competent to give such information and on
documents believed to be genuine and to have been signed or presented by the
proper party or parties.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice for
resignation or removal and must be a bank or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $150,000,000.
FEDERAL INCOME TAX CONSIDERATIONS
Owners of the Depositary Shares will be treated for Federal income tax
purposes as if they were owners of the Preferred Stock represented by such
Depositary Shares. Accordingly, such owners will be entitled to take into
account, for Federal income tax purposes, income and deductions to which they
would be entitled if they were holders of such Preferred Stock. In addition,
(i) no gain or loss will be recognized for Federal income tax purposes upon
the withdrawal of Preferred Stock in exchange for Depositary Shares, (ii) the
tax basis of each share of Preferred Stock to an exchanging owner of
Depositary Shares will, upon such exchange, be the same as the aggregate tax
basis of the Depositary Shares exchanged therefor, and (iii) the holding
period for Preferred Stock in the hands of an exchanging owner of Depositary
Shares will include the period during which such person owned such Depositary
Shares.
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DESCRIPTION OF EQUITY STOCK
The Company is authorized to issue 200,000,000 shares of Equity Stock. At
December 31, 1997, the Company had outstanding 225,000 shares of Equity Stock.
The 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.
The issuance of Equity Stock with special voting rights (or Common Stock)
could be used to deter attempts by a single Shareholder or group of
Shareholders to obtain control of the Company in transactions not approved by
the Board of Directors. The Company has no intention to issue the Equity Stock
(or Common Stock) for such purposes.
OWNERSHIP LIMITATIONS
For a discussion of the ownership limitations that apply to Equity Stock,
see "Description of Common Stock and Class B Common Stock--Ownership
Limitations."
TERMS OF EQUITY STOCK
The following description of Equity Stock sets forth certain general terms
and provisions of the Equity Stock to which any Prospectus Supplement may
relate. The statements below describing the Equity Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Articles of Incorporation (including the applicable form of
Certificate of Determination) and Bylaws.
Reference is made to the Prospectus Supplement relating to the Equity Stock
offered thereby for specific terms, including, where applicable, the
following: (1) the designation of such Equity Stock; (2) the number of shares
of such Equity Stock offered, the liquidation rights and the offering price of
such Equity Stock; (3) the dividend rate(s), period(s) and/or payment date(s)
or method(s) of calculation thereof applicable to such Equity Stock; (4) the
provision for redemption, if applicable, of such Equity Stock; (5) any listing
of such Equity Stock on any securities exchange; (6) the terms and conditions,
if applicable, upon which such Equity Stock will be convertible into Common
Stock, including the conversion price (or manner of calculation thereof); (7)
the voting rights, if any, of such Equity Stock; (8) any other specific terms,
rights, limitations or restrictions of such Equity Stock; and (9) the relative
ranking of such Equity Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company.
Ranking. The ranking of the Equity Stock is set forth in the applicable
Prospectus Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, such Equity Stock will, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of the affairs of the Company,
rank on a parity with the Common Stock.
Dividends. Holders of shares of the Equity Stock of each series offered
hereby shall be entitled to receive, when, as and if declared by the Board of
Directors, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the stock transfer books of the Company on
such record dates as shall be fixed by the Board of Directors. Unless
otherwise specified in the applicable Prospectus Supplement, dividends on such
Equity Stock will be non-cumulative.
Redemption. If so provided in the applicable Prospectus Supplement, the
shares of Equity Stock will be subject to mandatory redemption or redemption
at the option of the Company, in whole or in part, in each case upon the
terms, at the times and at the redemption prices set forth in such Prospectus
Supplement.
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The Prospectus Supplement relating to a series of Equity Stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such Equity Stock that shall be redeemed by the Company in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid dividends
thereon (which shall not, if such Equity Stock does not have a cumulative
dividend, include any accumulation in respect of unpaid dividends for prior
dividend periods) to the date of redemption. The redemption price may be
payable in cash, securities or other property, as specified in the applicable
Prospectus Supplement.
If fewer than all of the outstanding shares of Equity Stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or any other equitable method determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Equity Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Equity Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Equity Stock are
to be surrendered for payment of the redemption price; (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and
(vi) the date upon which the holder's conversion rights, if any, as to such
shares shall terminate. If fewer than all the shares of Equity Stock of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of Equity Stock to be redeemed from each
such holder and, upon redemption, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof. In
order to facilitate the redemption of shares of Equity Stock, the Board of
Directors may fix a record date for the determination of shares of Equity
Stock to be redeemed, such record date to be not less than 30 or more than 60
days prior to the date fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless the Company defaults in
providing funds for the payment of the redemption price on such date, all
dividends on the Equity Stock called for redemption will cease. From and after
the redemption date, unless the Company so defaults, all rights of the holders
of the Equity Stock as shareholders of the Company, except the right to
receive the redemption price (but without interest), will cease.
Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of the Equity Stock or
any other class or series of capital stock of the Company ranking junior to
any series of the Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of such
series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share, plus an
amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of the Company. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the legally
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of any series of Preferred
Stock and the corresponding amounts payable on all shares of other classes or
series of capital stock of the Company ranking on a parity with the Preferred
Stock in the distribution of assets upon liquidation, dissolution or winding
up, then the holders of such series of Preferred Stock and all other such
classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
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If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking
junior to such series of Preferred Stock upon liquidation, dissolution or
winding up, including the Equity Stock, according to their respective rights
and in each case according to their respective number of shares. For such
purposes, the consolidation or merger of the Company with or into any other
corporation, or the sale, lease, transfer or conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
Unless otherwise specified in the applicable Prospectus Supplement, upon any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, holders of the Equity Stock will rank on a parity with the
holders of the Common Stock, subject to any maximum or minimum distribution to
holders of Equity Stock specified in such Prospectus Supplement.
Voting Rights. Unless otherwise specified in the applicable Prospectus
Supplement, holders of the Equity Stock will have the same voting rights as
holders of the Common Stock.
No consent or approval of the holders of any series of Equity Stock will be
required for the issuance from the Company's authorized but unissued Equity
Stock of other shares of any series of Equity Stock including shares of such
series of Equity Stock.
Conversion Rights. The terms and conditions, if any, upon which shares of
any series of Equity Stock offered hereby are convertible into Common Stock
will be set forth in the applicable Prospectus Supplement relating thereto.
Such terms will include the number of shares of Common Stock into which the
Equity Stock is convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be
at the option of the Company or the holders of the Equity Stock or
automatically upon the occurrence of certain events, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such Equity Stock.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under the
Company's stock option plans). The Company may issue Warrants for the purchase
of Preferred Stock, Equity Stock or Common Stock. Warrants may be issued
independently or together with any other Securities offered by any Prospectus
Supplement and may be attached to or separate from such Securities. Each
series of Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant
agent specified in the applicable Prospectus Supplement (the "Warrant Agent").
The Warrant Agent will act solely as an agent of the Company in connection
with the Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners
of Warrants. The following sets forth certain general terms and provisions of
the Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will
be issued; (4) the designation, number and terms of the shares of Preferred
Stock, Equity Stock or Common Stock purchasable upon exercise of such
Warrants; (5) the designation and terms of the other Securities, if any, with
which such Warrants are issued and the number of such Warrants issued with
each such Security; (6) the date, if any, on and after which such Warrants and
the related Preferred Stock, Equity Stock or Common Stock, if any, will be
separately transferable; (7) the price at which each share of Preferred Stock,
Equity Stock or Common Stock purchasable upon exercise of such Warrants may be
purchased; (8) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire; (9) the minimum or
maximum amount of such Warrants which may be exercised at any one time; and
(10) any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
considerations to a holder of Common Stock. The applicable Prospectus
Supplement will contain information about additional federal income tax
considerations, if any, relating to Securities other than Common Stock. The
following discussion, which is not exhaustive of all possible tax
considerations, does not give a detailed description of any state, local, or
foreign tax considerations. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to a prospective shareholder in light of
his or her particular circumstances or to certain types of shareholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under
federal income tax laws. As discussed below, the Taxpayer Relief Act of 1997
(the "1997 Act") contains certain changes to the REIT qualification
requirements and to the taxation of REITs that may be material to a holder of
Common Stock, but that will become effective only for the Company's taxable
years commencing on or after January 1, 1998.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER TAX ADVISOR, REGARDING THE TAX CONSEQUENCES
TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAX TREATMENT OF THE COMPANY
If certain detailed conditions imposed by the Code and the related Treasury
regulations are met, an entity, such as the Company, that invests principally
in real estate and that otherwise would be taxed as a corporation may elect to
be treated as a REIT. The most important consequence to the Company of being
treated as a REIT for federal income tax purposes is that this enables the
Company to deduct dividend distributions to its shareholders, thus effectively
eliminating the "double taxation" (at the corporate and shareholder levels)
that typically results when a corporation earns income and distributes that
income to shareholders in the form of dividends.
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code, beginning with its fiscal year ending December 31,
1981. That election will continue in effect until it is revoked or terminated.
The Company believes that it has qualified during each of the fiscal years for
which such an election has been in effect, and currently qualifies as a REIT,
and the Company expects to continue to be taxed as a REIT for federal income
tax purposes. While the Company intends to operate so that it will continue to
qualify as a REIT, given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility
of future changes in the circumstances of the Company, no assurance can be
given by the Company that the Company will qualify as a REIT in any particular
year.
Technical Requirements for Taxation as a REIT. The following is a very brief
overview of certain of the technical requirements that the Company must meet
on an ongoing basis in order to continue to qualify as a REIT. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
regulations and administrative and judicial interpretations thereof.
1. The capital stock must be widely-held and not more than 50% of the value
of the capital stock may be held by five or fewer individuals ("5/50 Test")
(determined after giving effect to various ownership attribution rules).
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, if the Company complies with regulatory rules pursuant
to which it is required to send annual letters to holders of Common Stock
requesting information regarding the actual ownership of the Common Stock, and
the Company does not know, or exercising reasonable diligence would not have
known, whether it failed to meet the 5/50 Test, the Company will be treated as
having met the 5/50 Test. See "--Consequences of Merger on the Company's
Qualification as a REIT--Violation of Ownership Requirements."
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2. The Company's gross income must meet the following income tests:
(a) at least 75% of the gross income must be derived from specified real
estate sources (including "rents from real property" and, in certain
circumstances, interest);
(b) at least 95% of the gross income must be from the real estate sources
includable in the 75% income test, and/or from dividends, interest, or
gains from the sale or disposition of stock or securities not held for sale
in the ordinary course of business; and
(c) for its taxable year ending December 31, 1997, 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 (pursuant to
the 1997 Act, the Company will not have to meet the 30% test for its
taxable years commencing on or after January 1, 1998).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts of sales. The Company anticipates that none of its gross annual
income will be attributable to rents that are based in whole or in part on the
income of any person (excluding rents based on a percentage of receipts or
sales, which, as described above, are permitted). Second, the Code provides
that rents received from a tenant will not qualify as "rents from real
property" if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
The Company does not anticipate that it will receive income from Related Party
Tenants. Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." The Company
does not anticipate deriving rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents. Finally,
for rents received to qualify as "rents from real property," the Company
generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" which is
adequately compensated and from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" ("Permissible Services"). Any services
with respect to certain Properties that the Company believes may not be
provided by the Company directly without jeopardizing the qualification of
rent as "rents from real property" will be performed by "independent
contractors."
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, rents received generally will qualify as rents from
real property even if the Company were to provide services that are not
Permissible Services so long as the amount received for such services meets a
de minimis standard. The amount received for "impermissible services" with
respect to a property (or, if services are available only to certain tenants,
possibly with respect to such tenants) cannot exceed one percent of all
amounts received, directly or indirectly, by the Company with respect to such
property (or, if services are available only to certain tenants, possibly with
respect to such tenants). In computing any such amounts, the amount that the
Company would be deemed to have received for performing "impermissible
services" will be the greater of the actual amount so received or 150% of the
direct cost to the Company of providing those services.
See "--Consequences of the Merger on the Company's Qualification as a REIT--
The Company's Assumption of Management Activities With Respect to its
Properties," "--Consequences of the Merger on the Company's Qualification as a
REIT--Nonqualifying Income," and "--Consequences of the Merger on the
Company's Qualification as a REIT--Acquisition of Affiliated Partnership
Interests in the Merger" for a discussion of specific aspects of the Merger
that may impact upon the Company's ability to satisfy the 95% gross income
test.
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3. Generally, 75% of the value of the Company's total assets must be
represented by real estate, mortgages secured by real estate, cash, or
government securities (including its allocable share of real estate assets
held by any partnerships in which the Company owns an interest). Not more than
25% of the Company's total assets may be represented by securities other than
those in the 75% asset class. Of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities. The 5%
test generally must be met for any quarter in which the Company acquires
securities of an issuer. The Company believes that it satisfies these tests.
In this regard, however, the 10% voting stock prohibition will preclude the
Company from controlling the operations of Orangeco and PSPUD (the Company
owns 95% of the equity of Orangeco in the form of non-voting stock and the
Hughes Family owns 5% of the equity but 100% of the voting stock of Orangeco)
or PSCC (in which the Company owns a less than 10% equity interest) and may
preclude the Company from exercising its rights of first refusal with respect
to the corporations owning the Canadian operations and the reinsurance
business.
4. The Company must distribute to its shareholders in each taxable year an
amount at least equal to 95% of the Company's "REIT Taxable Income" (which is
generally equivalent to net taxable ordinary income). Under certain
circumstances, the Company can rectify a failure to meet the 95% distribution
test by paying dividends after the close of a particular taxable year.
In years prior to 1990, the Company made distributions in excess of its REIT
Taxable Income. During 1990, the Company reduced its distribution to its
shareholders.
As a result, distributions paid by the Company in 1990 were less than 95% of
the Company's REIT Taxable Income for 1990. The Company has satisfied the REIT
distribution requirements for 1990 through 1996 by attributing distributions
in 1991 through 1997 to the prior year's taxable income, and PSI expects to
satisfy the distribution requirement for 1997 by attributing distributions in
1998 to the 1997 taxable income. The Company may be required, over each of the
next several years, to make distributions after the close of a taxable year
and to attribute those distributions to the prior year, but shareholders will
be treated for federal income tax purposes as having received such
distributions in the taxable years in which they were actually made. The
extent to which the Company will be required to attribute distributions to the
prior year will depend on the Company's operating results and the level of
distributions as determined by the Board of Directors. Reliance on subsequent
year distributions could cause the Company to be subject to certain penalty
taxes. In that regard, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
calendar year, (ii) 95% of its REIT capital gain net income for such calendar
year, and (iii) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed during such calendar year
(not taking into account distributions made in subsequent years but attributed
to such calendar year). The Company intends to comply with this 85%
distribution requirement in an effort to minimize any excise tax. Any
distributions required to be made by the Company in order to eliminate any
accumulated earnings and profits of PSMI would not be counted in determining
whether the Company satisfies the 95% distribution test and could adversely
impact upon the Company's ability to satisfy the 95% distribution test. See
"--Consequences of the Merger on the Company's Qualification as a REIT--
Elimination of Any Accumulated Earnings and Profits Attributable to Non-REIT
Years."
For purposes of applying the income and asset tests mentioned above, a REIT
is considered to own a proportionate share of the assets of any partnership in
which it holds a partnership interest. See "--Consequences of the Merger on
the Company's Qualification as a REIT--Acquisition of Affiliated Partnership
Interests in the Merger."
Applicable Federal Income Tax. If the Company qualifies for taxation as a
REIT, it generally will not be subject to federal corporate income taxes on
net income that it distributes currently to shareholders. However, the Company
will be subject to federal income tax in the following circumstances. First,
the Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital
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gains. Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" (which is, in general, property acquired by foreclosure or otherwise
on default of a lease or a loan secured by the property) which is held
primarily for sale to customers in the ordinary course of business or (ii)
other nonqualifying income from foreclosure property, it will be subject to
tax at the highest corporate rate on such income. Fourth, if the Company has
net income from prohibited transactions (which are, in general, certain sales
or other dispositions of property (other than foreclosure property) held
primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
above), and has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on
the net income attributable to the greater of the amount by which the Company
fails the 75% or 95% gross income test.
Under the "Built-in Gain Rules" of IRS Notice 88-19, 1988-1 C.B. 486, the
Company generally will be subject to a corporate level tax if it disposes in a
taxable transaction of any of the assets acquired in the Merger at any time
during the 10-year period beginning on the closing date of the Merger (the
"Restriction Period"). This tax would be imposed on the Company at the top
regular corporate rate (currently 35%) in effect at the time of the
disposition on the excess of (i) the lesser of (a) the fair market value at
the time of the Merger of the assets disposed of and (b) the selling price of
such assets over (ii) the Company's adjusted basis in such assets at the time
of the Merger (such excess being referred to as the "Built-in Gain"). The
Company currently does not intend to dispose of a material portion of the
assets acquired in the Merger in a taxable transaction during the Restriction
Period, but there can be no assurance that one or more such dispositions will
not occur.
Failure to Qualify as a REIT. For any taxable year that the Company fails to
qualify as a REIT and the relief provisions do not apply, the Company would be
taxed at the regular corporate rates on all of its taxable income, whether or
not it makes any distribution to its shareholders. Those taxes would reduce
the amount of cash available to the Company for distributions to its
shareholders or for reinvestment. As a result, failure of the Company to
qualify during any taxable year as a REIT could have a material adverse effect
upon the Company and its shareholders.
Termination of REIT Election. The Company's election to be treated as a REIT
will terminate automatically if the Company fails to meet the REIT
qualification requirements described above. If a termination (or a voluntary
revocation) occurs, unless certain relief provisions apply, the Company would
not be eligible to elect REIT status again until the fifth taxable year that
begins after the first year for which the Company's election was terminated
(or revoked). If the Company loses its REIT status, but later qualifies and
elects to be taxed as a REIT again, the Company may face significant adverse
tax consequences. Immediately prior to the effectiveness of the election to
return to REIT status, the Company would be treated as if it disposed of all
of its assets in a taxable transaction, triggering taxable gain with respect
to the Company's appreciated assets. (The Company would, however, be permitted
to elect an alternative treatment under which the gains would be taken into
account only as and when they actually are recognized upon sales of the
appreciated property occurring within the 10-year period after return to REIT
status.) The Company would not receive the benefit of a dividends paid
deduction to reduce any such taxable gains. Thus, any such gains on
appreciated assets would be subject to double taxation, at the corporate as
well as the shareholder level.
CONSEQUENCES OF THE MERGER ON THE COMPANY'S QUALIFICATION AS A REIT
In light of the unique federal income tax requirements applicable to REITs,
the Merger could have adverse consequences on the Company's continued
qualification as a REIT, as discussed in greater detail below. Hogan & Hartson
L.L.P. ("Hogan & Hartson"), counsel to the Company, is of the opinion that the
Company continues to qualify as a REIT following the Merger so long as (A) the
Company has met at all times since the Merger and continues to meet the stock
ownership and gross income requirements applicable to REITs and (B) either
PSMI at the time of (and giving effect to) the Merger was not considered to
have any current or accumulated earnings and profits for tax purposes or the
Company made distributions prior to the end of 1995 in an amount
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sufficient to eliminate such earnings and profits. See "--Nonqualifying
Income," "--Violation of Ownership Requirements," and "--Elimination of Any
Accumulated Earnings and Profits Attributable to Non-REIT Years." Hogan &
Hartson, however, has not opined that the Company continues to meet the stock
ownership and gross income requirements applicable to REITs following the
Merger or that PSMI did not have current or accumulated earnings and profits
at the time of the Merger, due to the numerous factual determinations and
future events that bear on those conclusions.
Nonqualifying Income. The Company must meet several annual gross income
tests to retain its REIT qualification. See "--Tax Treatment of the Company--
Technical Requirements for Taxation as a REIT." Under the 95% gross income
test, the Company must derive at least 95% of its total gross income from
specified classes of income related to real property, dividends, interest or
gains from the sale or other disposition of stock or other securities that do
not constitute "dealer property." Income related to real property includes:
(i) proceeds from the rental of mini-warehouse facilities; (ii) interest on
obligations secured by mortgages on real property; and (iii) gains from the
sale or other disposition of real property (other than real property held by
the Company as a dealer).
After the Merger, the Company assumed and performs property management
activities for the various partnerships and REITs in which the Company has an
interest that own Properties, as well as for various other entities that own
mini-warehouse properties and/or business parks. The Company will receive
management fees from such partnerships, REITs, and other owners in exchange
for the performance of such management activities. The gross income received
by the Company from these property management activities with respect to
Properties owned by other entities (including the REITs in which the Company
has an ownership interest) and advisory services rendered to such other
entities is treated as income not qualifying under the 95% gross income test
("Nonqualifying Income"). See "--Acquisition of Affiliated Partnership
Interests."
In order to reduce the amount of Nonqualifying Income, in December 1995
certain Properties pre-paid to the Company approximately $4.5 million of
management fees that the Company 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 the
Company in taxable years subsequent to such prepayment. In connection with the
Merger, Hogan & Hartson delivered an opinion that it is more likely than not
that the IRS would respect the inclusion of the prepaid management fees in the
gross income of the Company when they are received. Hogan & Hartson's opinion
is based on numerous cases where courts have upheld the IRS's position that
fees should be included in income when they are received, rather than when the
services to which such fees relate are performed. There are, however, several
contrary authorities where courts, over the IRS's objections, have held that
prepaid amounts are not included in income in advance of performance. Because
of these contrary authorities, there can be no assurance that the IRS might
not assert that such management fees should be included in the gross income of
the Company as the related management services are provided, rather than being
included in the gross income when they are received. If the IRS were to
successfully challenge the treatment of such management fees and the inclusion
of such fees in the Company's gross income resulted in it failing the 95%
gross income test for a taxable year ending after the Merger, the Company's
REIT status may terminate for such year and future years unless it meets the
"good cause" exception described above.
The Company and the various other owners of mini-warehouses and business
parks for which the Company performs management activities (the "Owners") have
entered into an agreement (the "Administrative and Cost-Sharing Agreement")
with PSCC, Inc. ("PSCC") pursuant to which PSCC provides the Owners and the
Company certain administrative and cost-sharing services in connection with
the operation of the Properties and the performance of certain administrative
functions. Each of the Owners and the Company pay the PSCC directly for
services rendered by PSCC in connection with the Administrative and Cost
Sharing Agreement. That payment is separate from and in addition to the
compensation paid to the Company under the management agreement for the
management of the Properties owned by the Owners. The Company has received a
private letter ruling from the IRS to the effect that the reimbursements and
other payments made to PSCC by the Owners will not be treated as revenues of
the Company for purposes of the 95% gross income test.
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If the Company fails to meet the 95% gross income test during any taxable
year, its REIT status would terminate for that year and future years unless it
qualifies for the "good cause" exception. In order to qualify for the "good
cause" exception, the Company would have to satisfy each of the following: (i)
it reported the source and nature of each item of its gross income in its
federal income tax return for such year; (ii) the inclusion of any incorrect
information in its return is not due to fraud with intent to evade tax; and
(iii) the failure to meet such test is due to a reasonable cause and not to
willful neglect. The Company intends to conduct its operations and affairs so
that it meets the 95% gross income test for each taxable year. The Company
also intends to operate so that, in the event it were to fail to meet the 95%
gross income test, it would satisfy the "reasonable cause" requirement of the
"good cause" exception because it exercised ordinary business care and
prudence in attempting to satisfy the 95% gross income test (including by
receiving opinions of counsel where appropriate). There can be no assurance,
however, that if the Company were unable to satisfy the 95% gross income test,
the IRS would necessarily agree that the Company had operated in a manner that
qualifies for the "good cause" exception. Furthermore, even if the Company's
REIT status were not terminated because of the "good cause" exception, the
Company still would be subject to an excise tax on any excess nonqualifying
income. Generally, if the Company fails the 95% gross income test but still
retains its qualification as a REIT under the "good cause" exception, it would
be subject to a 100% excise tax on the amount of the excess nonqualifying
income multiplied by a fraction, the numerator of which would be the Company's
taxable income (computed without its distribution deduction) and the
denominator of which would be the Company's gross income from all sources.
This excise tax would have the general effect of causing the Company to pay
all net profits generated from this excess nonqualifying income to the IRS.
Violation of Ownership Requirements. For the Company to qualify as a REIT
under the Code, no more than 50% in value of its outstanding stock may be
owned, directly or constructively under certain attribution rules of the Code,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. Following the 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
30% as of December 31, 1997. In order to assist the Company in meeting these
ownership restrictions, the Articles of Incorporation and Bylaws prohibit the
actual or constructive ownership of more than 2.0% of the outstanding shares
of all common stock of the Company or more than 9.9% of the outstanding shares
of each class or series of shares of preferred stock of the Company. (The
Articles of Incorporation and Bylaws provide, however, that no person is
deemed to exceed this ownership limitation solely by reason of the beneficial
ownership of shares of any class of stock to the extent that such shares of
stock were beneficially owned by such person at the time of the Merger.)
However, even with these ownership limitations, the Company could still be in
violation of the ownership restrictions if four individuals unrelated to the
Hughes Family were to own the maximum amount of capital stock permitted under
the Articles of Incorporation and Bylaws. Therefore, to further assist the
Company in meeting the ownership restrictions, the Hughes Family entered into
an agreement with the Company for the benefit of the Company and certain
designated charitable beneficiaries restricting their acquisition of
additional shares of the Company's capital stock and providing that if, at any
time, for any reason, more than 50% in value of the Company's outstanding
stock otherwise would be considered owned by five or fewer individuals, then a
number of shares of Common Stock of the Company owned by Wayne Hughes
necessary to cure such violation will automatically and irrevocably be
transferred to a designated charitable beneficiary. These provisions are
modeled after certain arrangements that the IRS has ruled in private letter
rulings will preclude a REIT from being considered to violate the ownership
restrictions so long as such arrangements are enforceable as a matter of state
law and the REIT seeks to enforce them as and when necessary. There can be no
assurance, however, that the IRS might not seek to take a different position
with respect to the Company (a private letter ruling is legally binding only
with respect to the taxpayer to whom it was issued) or contend that the
Company failed to enforce these various arrangements and, hence, there can be
no assurance that these arrangements will necessarily preserve the Company's
REIT status. No private letter ruling has been sought by the Company from the
IRS with respect to the effect of these arrangements.
Elimination of Any Accumulated Earnings and Profits Attributable to Non-REIT
Years. A REIT is not allowed to have accumulated earnings and profits
attributable to non-REIT years. A REIT has until the close of
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its first taxable year in which it has non-REIT earnings and profits to
distribute any such accumulated earnings and profits. In a corporate
reorganization qualifying as a tax free statutory merger, the acquired
corporation's current and accumulated earnings and profits are carried over to
the surviving corporation. Any earnings and profits treated as having been
acquired by a REIT through such a merger will be treated as accumulated
earnings and profits of a REIT attributable to non-REIT years. Accordingly,
any accumulated earnings and profits of PSMI and its predecessors (including
earnings and profits resulting from transactions undertaken in contemplation
of the Merger or from the Merger itself) carried over to the Company in the
Merger and the Company would have been required to distribute any such
accumulated earnings and profits prior to the close of 1995 (the year in which
the Merger occurred). Failure to do so would result in disqualification of the
Company as a REIT (unless the "deficiency dividend" procedures described below
apply and the Company complies with those procedures).
The amount of the accumulated earnings and profits of PSMI acquired by the
Company is based on the consolidated earnings and profits of PSMI (including
each of its predecessors) through and including the date of the Merger
("Consolidated Accumulated Earnings"). In connection with the Merger, the
Company received a study prepared by PSMI of the earnings and profits of PSMI
and its subsidiaries, taking into account projected income of PSMI and its
predecessors to and including the time of the Merger and distributions to the
PSMI shareholders made at or prior to the time of the Merger, that showed that
PSMI had no Consolidated Accumulated Earnings at the time of the Merger. The
determination of accumulated earnings and profits acquired by the Company in
the Merger ("Acquired Earnings") depends upon a number of factual matters
related to the activities and operations of PSMI and its predecessors during
their entire corporate existence and is subject to review and challenge by the
IRS. There can be no assurance that the IRS will not examine the tax returns
of PSMI and its predecessors for years prior to and including the Merger and
propose adjustments to increase their taxable income. Because the earnings and
profits study used to calculate the amount of Acquired Earnings is based on
these returns, any such adjustments could increase the amount of the Acquired
Earnings. In this regard, the IRS can consider all taxable years of PSMI and
its predecessors as open for review for purposes of determining the amount of
earnings and profits.
Although not free from doubt, "deficiency dividend" procedures may be
available for the Company to distribute any Acquired Earnings that were
subsequently determined to exist as a result of an IRS audit. In order to use
this "deficiency dividend" procedure, the Company would have to make an
additional dividend distribution to its shareholders (in addition to
distributions made for purposes of satisfying the normal REIT distribution
requirements), in the form of cash, notes, other property, or stock in a
taxable stock dividend, within 90 days of the IRS determination. In addition,
the Company would have to pay to the IRS an interest charge on 50% of the
Acquired Earnings that were not distributed prior to December 31, 1995, from
the date on which its 1995 tax return was due to the date the IRS
determination was made. The statute and Treasury regulations related to the
application of the "earnings and profits distribution" requirement to a REIT
that acquires a "non-REIT" in a reorganization and the availability of the
"deficiency dividend" procedure in those circumstances are not entirely clear,
and there can be no assurance that the IRS would not take the position either
that the "deficiency dividend" procedure is not available (in which case, the
Company would cease to qualify as a REIT effective for its taxable year in
which the Merger occurred) or, alternatively, that even if the procedure is
available, the Company cannot qualify as a REIT for the taxable year in which
the Merger occurred (but it could qualify as a REIT for subsequent years).
Acquisition of Affiliated Partnership Interests. The Company has acquired
interests in various partnerships that own and operate Properties in the
Merger and in other transactions. The Company, for purposes of satisfying the
REIT asset and gross income tests, will be treated as if it directly owns a
proportionate share of each of the assets of these partnerships. For these
purposes, under current Treasury regulations the Company's interest in each of
the partnerships must be determined in accordance with its "capital interest"
in such partnership. The character of the various assets in the hands of the
partnership and the items of gross income of the partnership will retain their
same character in the hands of the Company for these purposes. Accordingly, to
the extent the partnership receives real estate rentals and holds real
property, a proportionate share of such qualified income and assets will be
treated as qualified rental income and real estate assets of the Company for
purposes of
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determining its REIT qualification. The Company expects that substantially all
of the properties of the partnerships will constitute real estate assets and
will generate qualifying rental income for purposes of the REIT gross income
tests.
The acquisition of these partnership interests creates several issues
regarding the Company's satisfaction of the 95% gross income test. First, the
Company 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. The Company
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 the Company'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 the Company, either rejecting the approach
set forth in the private letter rulings mentioned above or contending that the
Company's situation is distinguishable from those addressed in the private
letter rulings (for example, because the Company does not have a "substantial"
interest in the partnerships).
Second, the Company acquired interests in certain of these partnerships that
entitle the Company to a percentage of profits (either from operations, or
upon a sale, or both) in excess of the percentage of total capital originally
contributed to the partnership with respect to such interest. Existing
Treasury Regulations do not specifically address this situation, and it is
uncertain, based on existing authority, how the Company's "capital interest"
in these partnerships 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
the Company and the percentage of the management fees paid to the Company that
are disregarded in determining the Company's Nonqualifying Income. For
example, if the Company takes the position that it has a 25% "capital
interest" in a partnership (because it would receive 25% of the partnership's
assets upon a sale and liquidation) but the IRS determines it only has a 1%
"capital interest" (because the original holder of the Company's interest only
contributed 1% of the total capital contributed to the partnership), the
Company's share of the qualifying income from the partnership would be reduced
and the portion of the management fee from the partnership that would be
treated as Nonqualifying Income would be increased, thereby adversely
affecting the Company's ability to satisfy the 95% gross income test.
In determining its "capital interest" in the various partnerships in which
the Company acquired an interest in the Merger, the Company 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 the Company "capital interests." If that were to occur, it
could adversely affect the Company's ability to satisfy the 95% gross income
test following the Merger.
TAXATION OF TAXABLE DOMESTIC HOLDERS OF COMMON STOCK
As used herein, the term "U.S. Shareholder" means a holder of Common Stock
who (for United States federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof, (iii) is an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who have
the authority to control all substantial decisions of the trust.
Distributions by the Company. As long as the Company qualifies as a REIT,
distributions made to the Company's U.S. Shareholders (and not designated as
capital gain dividends) will generally be taxable to U.S. Shareholders as
ordinary income to the extent of the Company's earnings and profits. Such
distributions will not
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be eligible for the dividends received deduction in the case of U.S.
Shareholders that are corporations. For this purpose, earnings and profits of
the Company will first be allocated to distributions paid on preferred stock
until an amount equal to such distributions has been allocated thereto. As a
result, it is likely that any distributions paid on preferred stock will be
taxable in full as dividends to the holders of preferred stock. Dividends
declared during the last quarter of a calendar year and actually paid during
January of the immediately following calendar year generally are treated as if
received by the shareholders on December 31 of the calendar year during which
they were declared.
Distributions designated by the Company as capital gain dividends generally
will be taxed as gain from the sale or exchange of a capital asset held for
more than one year (to the extent that the distributions do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its stock. Corporate shareholders
however, may be required to treat up to 20% of certain capital gain dividends
as ordinary income. As described below in "--Recent Legislation," the 1997 Act
changed significantly the taxation of capital gains by taxpayers who are
individuals, estates, or trusts. On November 10, 1997, the IRS issued IRS
Notice 97-64, which provides generally that the Company may classify portions
of its designated capital-gain dividend as (i) a 20% rate gain distribution
(which would be taxed as long-term capital gain in the 20% group), (ii) an
unrecaptured Section 1250 gain distribution (which would be taxed as long-term
capital gain in the 25% group), or (iii) a 28% rate gain distribution (which
would be taxed as long-term capital gain in the 28% group). (If no designation
is made, the entire designated capital gain dividend will be treated as a 28%
rate gain distribution.) IRS Notice 97-64 provides that a REIT must determine
the maximum amounts that it may designate as 20% and 25% rate capital gain
dividends by performing the computation required by the Code as if the REIT
were an individual whose ordinary income were subject to a marginal tax rate
of at least 28%. The Notice further provides that designations made by the
REIT will only be effective to the extent that they comply with Revenue Ruling
89-81, which requires that distributions made to different classes of shares
be composed proportionately of dividends of a particular type.
U.S. Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against future
income (subject to certain limitations). Distributions made by the Company and
gain arising from the sale or exchange by a U.S. Shareholder of Common Stock
will not be treated as passive activity income, and, as a result, U.S.
Shareholders generally will not be able to apply any "passive losses" against
such income or gain.
The Company may distribute cash in excess of its net taxable income. Upon
distribution of such cash by the Company to Shareholders (other than as a
capital gain dividend), if all of the Company's current and accumulated
earnings and profits have been distributed, the excess cash will be deemed to
be a non-taxable return of capital to each Shareholder to the extent of the
adjusted tax basis of the Shareholder's capital stock. Distributions in excess
of the adjusted tax basis will be treated as gain from the sale or exchange of
the capital stock. A Shareholder who has received a distribution in excess of
current and accumulated earnings and profits of the Company may, upon the sale
of the capital stock, realize a higher taxable gain or a smaller loss because
the basis of the Common Stock as reduced will be used for purposes of
computing the amount of the gain or loss.
Sales of Common Stock. In general, a U.S. Shareholder will realize gain or
loss on the disposition of shares of Common Stock equal to the difference
between (i) the amount of cash and the fair market value of any property
received on such disposition and (ii) the shareholder's adjusted basis of such
shares of Common Stock. With respect to dispositions occurring after July 28,
1997, in the case of a U.S. Shareholder who is an individual or an estate or
trust, such gain or loss will be mid-term capital gain or loss if such shares
have been held for more than one year but not more than 18 months and long-
term capital gain or loss if such shares have been held for more than 18
months. In the case of a U.S. Shareholder that is a corporation, such gain or
loss will be long-term capital gain or loss if such shares have been held for
more than one year. Loss upon a sale or exchange of shares of Common Stock by
a shareholder who has held such shares of Common Stock for six months or less
(after applying certain holding period rules) will be treated as either a
long-term or mid-term capital loss to the extent of distributions from the
Company required to be treated by such shareholder as long-term or mid-term
capital gain.
30
<PAGE>
BACKUP WITHHOLDING
If a U.S. Shareholder is subject to "backup withholding," the Company will
be required to deduct and withhold from any dividends payable to such U.S.
Shareholder a tax of 31%. These rules may apply when a U.S. Shareholder fails
to supply a correct taxpayer identification number, or when the IRS notifies
the Company that a U.S. Shareholder is subject to the rules or has furnished
an incorrect taxpayer identification number.
TAXATION OF TAX EXEMPT SHAREHOLDERS
In general, a tax exempt entity that is a Shareholder is not subject to tax
on distributions from the Company or gain realized on the sale of capital
stock, provided that the tax exempt entity has not financed the acquisition of
its capital stock with "acquisition indebtedness" within the meaning of the
Code. Special rules apply to organizations exempt under Code Sections
501(c)(7), (c)(9), (c)(17) and (c)(20), and such prospective investors should
consult their own tax advisors concerning the applicable "set aside" and
reserve requirements. In addition, certain distributions by a REIT to a tax-
exempt employee's pension trust that owns more than 10% of the REIT will, in
certain circumstances, be treated as "unrelated business taxable income."
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. Federal income taxation of non-U.S. Shareholders
are complex, and the following discussion is intended only as a summary of
such rules. Prospective non-U.S. shareholders should consult with their tax
advisors to determine the impact of U.S. Federal, state, and local income tax
laws on an investment in the Company, including any reporting requirements, as
well as the tax treatment of such an investment under their home country laws.
Distributions by the Company. Distributions to a non-U.S. Shareholder will
generally be subject to tax as ordinary income to the extent of the Company's
current or accumulated earnings and profits as determined for U.S. Federal
income tax purposes. Such distributions will generally be subject to
withholding of such income tax at a 30% rate, unless reduced by an applicable
tax treaty or unless such dividends are treated as effectively connected with
a United States trade or business. If the amount distributed exceeds a non-
U.S. Shareholder's allocable share of such earnings and profits, the excess
will be treated as a tax-free return of capital to the extent of such
shareholder's adjusted basis in the Common Stock. To the extent that such
distributions exceed the adjusted basis of a non-U.S. Shareholder's Common
Stock, such distributions will generally be subject to tax if such shareholder
would otherwise be subject to tax on any gain from the sale or disposition of
its Common Stock, as described below. Under current law, it appears that the
Company will be required to withhold 10% of any distribution to a non-U.S.
Shareholder in excess of the Company's current and accumulated earnings and
profits. Consequently, although the Company intends to withhold at a rate of
30% on the entire amount of any distribution to a non-U.S. Shareholder (or
lower applicable treaty rate), to the extent the Company does not do so, any
portion of such a distribution not subject to withholding at a rate of 30% (or
lower applicable treaty rate) will be subject to withholding at a rate of 10%.
However, the non-U.S. Shareholder may seek a refund of such amounts from the
IRS if it subsequently determined that such distribution was, in fact, in
excess of current or accumulated earnings and profits of the Company, and the
amount withheld exceeded the non-U.S. Shareholder's United States tax
liability, if any, with respect to the distribution.
Distributions to a non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) the investment in the Common Stock is effectively connected with the non-
U.S. Shareholder's United States trade or business, in which case the non-U.S.
Shareholder will be subject to the same treatment as domestic shareholders
with respect to such gain (except that a shareholder that is a foreign
corporation may also be subject to the 30% branch profits tax) or (ii) the
non-U.S. Shareholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and certain other
requirements are met, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
31
<PAGE>
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests
(whether or not designated as a capital gain dividend) will be treated as
income effectively connected with a United States trade or business. Non-U.S.
Shareholders would thus generally be taxed at the same rates applicable to
domestic shareholders (subject to a special alternative minimum tax in the
case of nonresident alien individuals). Also, such gain may be subject to a
30% branch profits tax in the hands of a non-U.S. Shareholder that is a
corporation. The Company is required to withhold 35% of any such distribution.
That amount is creditable against the non-U.S. Shareholder's United States
federal income tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of shares of Common Stock (see "Taxation of Taxable
Domestic Holders of Common Stock" above) would be treated with respect to non-
U.S. Shareholders in the manner outlined in the preceding paragraph for actual
distributions by the Company of capital gain dividends. Under that approach,
the non-U.S. Shareholders would be able to offset as a credit against their
United States federal income tax liability resulting therefrom their
proportionate share of the tax paid by the Company on such undistributed
capital gains (and to receive from the IRS a refund to the extent their
proportionate share of such tax paid by the Company were to exceed their
actual United States federal income tax liability).
Sale of Common Stock. Gain recognized by a non-U.S. Shareholder upon a sale
of its Common Stock will generally not be subject to tax under FIRPTA if the
Company is a "domestically controlled REIT," which is defined generally as a
REIT in which at all times during a specified testing period less than 50% in
value of its shares were held directly or indirectly by non-U.S. persons.
Because only a minority of the Shareholders are non-U.S. Shareholders, the
Company expects to qualify as a "domestically controlled REIT." Accordingly, a
non-U.S. Shareholder should not be subject to U.S. tax from gains recognized
upon disposition of the Common Stock, provided that such gain is not
effectively connected with the conduct of a United States trade or business
and, in the case of an individual shareholder, such holder is not present in
the United States for 183 days or more during the year of sale and certain
other requirements are met.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at a rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends, or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply,
however, to a payment of the proceeds of a sale of Common Stock by a foreign
office of a broker that (a) is a United States person, (b) derives 50% or more
of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) is a "controlled foreign corporation"
(generally a foreign corporation controlled by United States shareholders) for
United States tax purposes, unless the broker has documentary evidence in its
records that the holder is a non-U.S. Shareholder and certain other conditions
are met, or the shareholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Common
Stock is subject to both backup withholding and information reporting unless
the shareholder certifies under penalty of perjury that the shareholder is a
non-U.S. Shareholder, or otherwise establishes an exemption. A non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The United States Treasury Department has recently finalized regulations
regarding the withholding and information reporting rules discussed above. In
general, these regulations do not alter the substantive withholding and
information reporting requirements but unify certification procedures and
forms and clarify and modify reliance standards. These regulations generally
are effective for payments made after December 31, 1998, subject
32
<PAGE>
to certain transition rules. A non-U.S. Shareholder should consult its advisor
regarding the effect of the new Treasury Regulations.
RECENT LEGISLATION
As described above, the 1997 Act contains certain changes to the REIT
qualification requirements and to the taxation of REITs. The 1997 Act also
contains certain changes to the taxation of capital gains of individuals,
trusts and estates.
Capital Gain Rates. Under the 1997 Act, individuals, trusts and estates that
hold certain investments for more than 18 months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those
investments. Individuals, trusts and estates that hold certain assets for more
than one year but not more than 18 months may be taxed at a maximum mid-term
capital gain rate of 28% on the sale or exchange of those investments. The
1997 Act also provides a maximum rate of 25% for "unrecaptured section 1250
gain" for individuals, trusts and estates, special rules for "qualified 5-year
gain," and other changes to prior law. The 1997 Act allows the IRS to
prescribe regulations on how the 1997 Act's new capital gain rates will apply
to sales of capital assets by "pass-through entities," including REITs and to
sales of interests in "pass-through entities." For a discussion of new rules
under the 1997 Act that apply to the taxation of distributions by the Company
to its shareholders that are designated by the Company as "capital gain
dividends," see "Taxation of Taxable Domestic Holders of Common Stock--
Distributions by the Company" above. Shareholders are urged to consult with
their tax advisors with respect to the new rules contained in the 1997 Act.
REIT Provisions. In addition to the provisions discussed above, the 1997 Act
contains a number of technical provisions that either (i) reduce the risk that
the Company will inadvertently cease to qualify as a REIT, or (ii) provide
additional flexibility with which the Company can meet the REIT qualification
requirements. These provisions are effective for the Company's taxable years
commencing on or after January 1, 1998.
TAXATION OF HOLDERS OF PREFERRED STOCK, EQUITY STOCK, DEPOSITARY SHARES AND
WARRANTS
If the Company offers one or more series of Preferred Stock, Equity Stock,
Depositary Shares or Warrants, there may be tax consequences for the holders
of such Securities not discussed herein. For a discussion of any such
additional consequences, see the applicable Prospectus Supplement.
STATE AND LOCAL TAXES
The tax treatment of the Company and the Shareholders in states having
taxing jurisdiction over them may differ from the federal income tax
treatment. Accordingly, no discussion of state taxation of the Company and the
Shareholders is provided nor is any representation made as to the tax status
of the Company in such states. All investors should consult their tax advisors
as to the treatment of the Company under the respective state tax laws
applicable to them.
33
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale
of the Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of Securities, underwriters
may be deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions
or commissions allowed by underwriters to participating dealers, will be set
forth in the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Company, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase,
in accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("marketing firms"), acting as principals for
their own accounts or as agents for the Company. Any remarketing firm will be
identified and the terms of its agreement, if any, with the Company and its
compensation will be described in the applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters in connection with the
Securities remarketed thereby. Remarketing firms may be entitled under
agreements which may be entered into with the Company to indemnification by
the Company against certain liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with or
perform services for the Company in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the offering price set
forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated
in such Prospectus Supplement. Each Contract will be for an amount not less
than, and the aggregate principal amount of Securities sold pursuant to
Contracts shall be not less nor more than, the respective amounts stated in
the applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject,
and (ii) if the Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Securities
less the principal amount thereof covered by Contracts. Agents and
underwriters will have no responsibility in respect of the delivery or
performance of Contracts.
Certain of the underwriters, if any, and their affiliates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
34
<PAGE>
LEGAL OPINIONS
David Goldberg, senior vice president and general counsel of the Company,
has delivered an opinion to the effect that the securities offered by this
Prospectus will be validly issued, fully paid and nonassessable. Hogan &
Hartson L.L.P., Washington, D.C., has delivered an opinion as to the status of
the Company as a REIT. See "Certain Federal Income Tax Considerations."
Mr. Goldberg owns 81,199 shares of Common Stock, 1,000 shares of convertible
preferred stock and 600 shares of Senior Preferred Stock, and has options to
acquire an additional 157,500 shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company as at December 31, 1996
and 1995 and for the three years in the period ended December 31, 1996 which
are included in the Company's Annual Report on Form 10-K have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report with
respect thereto and incorporated herein by reference. The following have also
been audited by Ernst & Young LLP as set forth in their reports with respect
thereto: (i) the combined statements of revenues and certain operating
expenses of the Acquired Properties (as defined in Note 1 to such combined
statements) for each of the three years in the period ended December 31, 1996,
the statement of revenues and certain operating expenses of the Largo Property
(as defined in Note 1 to such statement) for the year ended December 31, 1996,
the statement of revenues and certain operating expenses of the Gunston
Property (as defined in Note 1 to such statement) for the year ended December
31, 1996 and the combined statement of revenues and certain operating expenses
of the Proposed Acquisition Properties (as defined in Note 1 to such combined
statement) for the year ended December 31, 1996, which are included in the
Company's Current Report on Form 8-K dated December 24, 1997 and (ii) the
financial statements of Public Storage Properties XVI, Inc., the financial
statements of Public Storage Properties XVII, Inc., the financial statements
of Public Storage Properties XVIII, Inc. and the financial statements of
Public Storage Properties XIX, Inc., which are included in the Registration
Statement on Form S-4 (No. 333-26959) of Public Storage, Inc. Such financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The combined statement of revenues and certain operating expenses of the
Acquiport Properties (as defined in Note 1 to such combined statement) for the
year ended December 31, 1996 which is included in the Company's Current Report
on Form 8-K dated December 24, 1997 have been audited by KPMG Peat Marwick
LLP, independent auditors, as set forth in their report included in the
Company's Current Report on Form 8-K dated December 24, 1997 and incorporated
herein by reference. Such combined statement is incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses, other than underwriting discounts and commissions,
in connection with the offerings of the Securities, are as follows:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission... $ 191,000
Transfer Agent and Depositary Fees..................... 150,000
Rating Agency Fees..................................... 150,000
Printing and Engraving Expenses........................ 300,000
Legal Fees and Expenses................................ 150,000
Accounting Fees and Expenses........................... 150,000
Miscellaneous.......................................... 9,000
--------
TOTAL................................................ $1,100,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 Article V of the Certificate of Amendment of Articles of
Incorporation (Exhibit 3.11) and Article VII of the By-Laws (Exhibit 3.20) 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 16. EXHIBITS.
See Exhibit Index contained herein.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
II-1
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed with or furnished to the
Commission 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, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remains unsold at the termination of
the offering.
(6) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Glendale, State of California, on the 12th day of
January, 1998.
PUBLIC STORAGE, INC.
By: /s/ B. WAYNE HUGHES
--------------------------------
B. Wayne Hughes,
Chairman of the Board
Each person whose signature appears below hereby authorizes B. Wayne Hughes
and Harvey Lenkin, and each of them, as attorney-in-fact, to sign on his behalf,
individually and in each capacity stated below, any amendment, including
post-effective amendments to this Registration Statement, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ B. WAYNE HUGHES Chairman of the Board, Chief January 12, 1998
____________________________________ Executive Officer and
B. Wayne Hughes Director (principal
executive officer)
/s/ HARVEY LENKIN President and Director January 12, 1998
____________________________________
Harvey Lenkin
/s/ JOHN REYES Senior Vice President and Chief January 12, 1998
____________________________________ Financial Officer (principal
John Reyes financial officer and principal
accounting officer)
/s/ ROBERT J. ABERNETHY Director January 12, 1998
____________________________________
Robert J. Abernethy
/s/ DANN V. ANGELOFF Director January 12, 1998
____________________________________
Dann V. Angeloff
/s/ WILLIAM C. BAKER Director January 12, 1998
____________________________________
William C. Baker
/s/ URI P. HARKHAM Director January 12, 1998
____________________________________
Uri P. Harkham
/s/ B. WAYNE HUGHES, JR. Director January 12, 1998
____________________________________
B. Wayne Hughes, Jr.
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Restated Articles of Incorporation.(2)
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A.(2)
3.3 Certificate of Determination for the 9.20% Cumulative Preferred
Stock, Series B.(2)
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B.(3)
3.5 Certificate of Determination for the 8.25% Convertible Preferred
Stock.(2)
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C.(2)
3.7 Certificate of Determination for the 9.50% Cumulative Preferred
Stock, Series D.(4)
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E.(5)
3.9 Certificate of Determination for the 9.75% Cumulative Preferred
Stock, Series F.(6)
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock.(7)
3.11 Certificate of Amendment of Articles of Incorporation.(7)
3.12 Certificate of Determination for the 8 7/8% Cumulative Preferred
Stock, Series G.(8)
3.13 Certificate of Determination for the 8.45% Cumulative Preferred
Stock, Series H.(9)
3.14 Certificate of Determination for the Convertible Preferred Stock,
Series CC.(10)
3.15 Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock.(11)
3.16 Certificate of Determination for the 8 5/8% Cumulative Preferred
Stock, Series I.(12)
3.17 Certificate of Amendment of Articles of Incorporation.(13)
3.18 Certificate of Determination for the Equity Stock, Series A.(14)
3.19 Certificate of Determination for the 8% Cumulative Preferred
Stock, Series J.(15)
3.20 Bylaws, as amended.(16)
3.21 Amendment to Bylaws adopted on May 9, 1996.(17)
3.22 Amendment to Bylaws adopted on June 26, 1997.
3.23 Amendment to Bylaws adopted on January 6, 1998.
4.1 Form of Certificate of Determination for additional series of
Preferred Stock.(1)
4.2 Form of Deposit Agreement.(1)
4.3 Form of Certificate of Determination for series of Equity Stock.(1)
4.4 Form of Warrant Agreement.(1)
5.1 Opinion of David Goldberg as to the legality of the securities being
registered.
8.1 Opinion of Hogan & Hartson L.L.P. re tax matters.
12.1 Statement on computation of ratio of earnings to fixed charges.(18)
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of David Goldberg (included in Exhibit 5.1).
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1).
24.1 Power of Attorney (included on page II-3).
</TABLE>
II-4
<PAGE>
- -----------
(1) To be filed by amendment or incorporated by reference in connection with
the offering of Securities.
(2) Filed with registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
(3) Filed with registrant's Registration Statement No. 33-56925 and
incorporated herein by reference.
(4) 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.
(5) Filed with registrant's Form 8-A/A Registration Statement relating to the
10% Cumulative Preferred Stock, Series E and incorporated herein by
reference.
(6) 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.
(7) Filed with registrant's Registration Statement No. 33-63947 and
incorporated herein by reference.
(8) 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.
(9) 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.
(10) Filed with registrant's Registration Statement No. 333-03749 and
incorporated herein by reference.
(11) Filed with registrant's Registration Statement No. 333-08791 and
incorporated herein by reference.
(12) 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.
(13) Filed with registrant's Registration Statement No. 333-18395 and
incorporated herein by reference.
(14) Filed with registrant's Form 10-Q for the quarterly period ended
June 30, 1997 and incorporated herein by reference.
(15) Filed with registrant's Form 8-A/A Registration Statement relating to the
8% Cumulative Preferred Stock, Series J and incorporated herein by
reference.
(16) Filed with registrant's Registration Statement No. 33-64971 and
incorporated herein by reference.
(17) Filed with registrant's Registration Statement No. 333-03749 and
incorporated herein by reference.
(18) Filed with registrant's Form 10-Q for the quarterly period ended September
30, 1997 and incorporated herein by reference.
II-5
<PAGE>
EXHIBIT 3.22
AMENDMENT TO BYLAWS OF PUBLIC STORAGE, INC.
ADOPTED BY THE BOARD OF DIRECTORS ON JUNE 26, 1997
RESOLVED: That subsections (l) through (v) appearing at the end of Section
7 of Article XI of the Bylaws are hereby amended as follows:
1. The caption of subsection (l) which reads "Ownership Limitations--Preferred
Stock" is amended to read "Ownership Limitations--Preferred Stock and
Equity Stock."
2. All other references in subsections (l) through (v) to "Preferred Stock"
are amended to read "Preferred Stock or Equity Stock."
<PAGE>
Exhibit 3.23
AMENDMENT TO BYLAWS OF PUBLIC STORAGE, INC.
ADOPTED BY THE BOARD OF DIRECTORS ON JANUARY 6, 1998
WHEREAS: The Board of Directors of this corporation considers it to be in
the best interests of the corporation to increase the authorized number of
directors of the corporation from six (6) to seven (7); and
WHEREAS: The corporation's Bylaws permit the Board of Directors to
designate the number of directors of the corporation provided that such
number is within the range of not less than five (5) or more than nine (9).
NOW, THEREFORE, BE IT RESOLVED: That the second sentence of Section 3 of
Article IV of the corporation's Bylaws is hereby amended to read as follows:
"The exact number of directors shall be seven (7) until changed within
the limits specified above, by a bylaw amending this section 3, duly
adopted by the board of directors or by the shareholders."
<PAGE>
Exhibit 5.1
David Goldberg
Senior Vice President and General Counsel
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
January 12, 1998
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 (A) the Registration Statement on Form S-3 filed by
the Company with the Securities and Exchange Commission (the "Commission") on
December 20, 1996, as amended through the date hereof (File No. 333-18395) and
(B) the Registration Statement on Form S-3, filed by the Company with the
Commission on November 26, 1997, as amended through the date hereof (File No.
333-41123) (collectively, the "Registration Statements"), which includes a
Prospectus to be used in connection with securities registered under the
Registration Statements (the "Prospectus"). The Prospectus relates to the offer
and sale of up to $700,000,000 stated amount of (i) shares of preferred stock,
par value $.01 per share (the "Preferred Shares"), (ii) depositary shares (the
"Depositary Shares") representing a fractional interest in a Preferred Share,
(iii) shares of equity stock, par value $.01 per share (the "Equity Shares"),
(iv) shares of common stock, par value $.10 per share (the "Common Shares") and
(v) warrants (the "Warrants").
I am familiar with the proceedings taken or to be taken by the Company
relating to the authorization and issuance of the Preferred Shares, the
Depositary Shares, the Equity Shares, the Common Shares and the Warrants in the
manner set forth in the Registration Statements. 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 Preferred Shares, the Depositary Shares, the Equity Shares, the
Common Shares and the Warrants, when issued and delivered in the manner and on
the terms described in the Registration Statements and payment of the agreed
consideration therefor has been received by the Company, will be legally issued,
fully paid and nonassessable.
I hereby consent to the reference to me under the caption "Legal Opinions"
in the Registration Statements and to the filing of this opinion as an exhibit
to each of the Registration Statements or amendments thereto.
Very truly yours,
/s/ DAVID GOLDBERG
DAVID GOLDBERG
<PAGE>
EXHIBIT 8.1
[Hogan & Hartson L.L.P. Letterhead]
January 12, 1998
Public Storage, Inc.
701 Western Avenue
Suite 200
Glendale, CA 91201-2397
Ladies and Gentlemen:
In connection with the registration by Public Storage, Inc., a
California corporation (the "Company"), of shares of preferred stock, par value
$.01 per share, depositary shares representing a fractional interest in a share
of such preferred stock, shares of equity stock, par value $.01 per share,
shares of common stock, par value $.10 per share, and warrants to purchase
shares of such preferred or common stock, with an aggregate public offering
price of up to $700,000,000, as more fully described in the Company's
Registration Statement on Form S-3, filed with the Securities and Exchange
Commission on November 26, 1997, as amended through the date hereof (the
"Registration Statement," which includes the "Prospectus"), we have been
requested to provide you with our opinion as to whether the Company 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 the Company (the "Merger").
All capitalized terms used herein have the same meaning as set forth
in the Registration Statement unless otherwise defined herein.
Our opinion is based on (i) existing law as contained in the Code,
regulations issued thereunder by the U.S. Treasury Department ("Regulations"),
administrative pronouncements of the Internal Revenue Service ("IRS"), and court
decisions as of the date hereof, (ii) our understanding of the relevant facts
related to the Company, its past, current, and contemplated operation, as
reflected in the Registration Statement and as represented to us in the
certificate of the Company of even date herewith (the "Management Representation
Letter"), (iii) our assumption that the Company will continue to be operated in
accordance with the representations contained in the Management Representation
Letter and (iv) our assumption that each class or series of shares of stock of
the Company (including
<PAGE>
Public Storage, Inc.
January 12, 1998
Page 2
the shares of Equity Stock, Series A (which shares were issued pursuant to a
Certificate of Determination filed with the California Secretary of State on
June 27, 1997)) that is issued and outstanding is and has been at all times
validly issued and enforceable in accordance with its terms under the laws of
the State of California. Any of the statutes, regulations, administrative
pronouncements, or judicial decisions upon which this opinion is based could be
changed at any time, perhaps with retroactive effect. Furthermore, some of the
issues under existing law that could significantly affect our opinion have not
yet been authoritatively addressed by the IRS or the courts.
In rendering our opinion, we have examined such statutes, regulations,
records, certificates and other documents as we have considered necessary or
appropriate as a basis for such opinion, including the following: (1) the
Agreement and Plan of Reorganization by and among Public Storage, Inc., PSMI and
the Company dated June 30, 1995; (2) the Registration Statement (including the
exhibits thereto and all amendments thereto made through the date hereof); (3)
the Amendment to the Company's Restated Articles of Incorporation, as adopted in
connection with the Merger; (4) the Shareholders' Agreement dated November 16,
1995 ("Shareholders' Agreement") entered into by B. Wayne Hughes, Tamara L.
Hughes, B. Wayne Hughes, Jr. and Parker Hughes Trust No. 2; (5) the articles of
incorporation, by-laws and stock ownership information for PS Orange Co., Inc.
("Lock/Box Company"), American Office Park Properties, Inc. (formerly Public
Storage Commercial Properties Group, Inc.), PSCC, Inc. ("PSCC"), and Public
Storage Pick-Up & Delivery, Inc. ("PS Pick-Up"); (6) the ruling request letters,
dated March 19, 1995 and June 7, 1995, submitted to the IRS on behalf of the
Company, and the ruling letter dated October 4, 1995, issued by the IRS in
response thereto and the ruling request letters dated July 30, 1996, December
23, 1996, and March 4, 1997 and the ruling letter dated May 16, 1997 issued by
the IRS in response thereto (the "Ruling Requests"); (7) the Amendment to the
Amended Management Agreement dated August 8, 1995; and (8) such other
instruments and documents related to the organization and operation of the
Company as we have deemed necessary or appropriate.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are true
and correct in all material respects, and that all of the obligations imposed by
any such documents on the parties thereto have been and will be performed or
satisfied substantially in accordance with their terms. Moreover, we have
assumed that the Company has been, and each of the Company, the Lock/Box
Company, PSCC and PS Pick-Up will be, operated substantially in the manner
described in the
<PAGE>
Public Storage, Inc.
January 12, 1998
Page 3
Registration Statement, the Ruling Requests, and the relevant articles of
incorporation and other organizational documents. We also have assumed the
genuineness of all signatures, the proper execution of all documents that are
executed, the authenticity of all documents submitted to us as originals, the
conformity to originals of documents submitted to us as copies, and the
authenticity of the originals from which any copies were made.
For the purposes of our opinion, we have not made an independent
investigation of the facts set forth in documents we reviewed or of
representations made by the Company. We consequently have assumed that the
information presented in such documents or otherwise furnished to us accurately
and completely describes all material facts relevant to our opinion. Without
limiting the foregoing, we have not undertaken to review and determine the tax
status, as a partnership for federal income tax purposes, of each limited
partnership and each limited liability company in which the Company owns an
interest. Instead, we have, with the Company's consent, relied upon the
Company's representations, set forth in the Management Representation Letter, as
to the status of these entities for federal income tax purposes. If any one or
more of these entities were to be classified as an association taxable as a
corporation for federal income tax purposes, that would preclude the Company
from qualifying as a "real estate investment trust" for federal income tax
purposes and therefore would have a material adverse impact on the opinions set
forth herein. We also have assumed for the purposes of this opinion that the
Company is a validly organized and duly incorporated corporation under the laws
of the State of California and that the provisions of the Shareholders'
Agreement and Article IV of the Amendment to the Company's Restated Articles of
Incorporation are fully enforceable in the manner set forth therein under the
laws of the State of California. In the event any of the statements,
representations, or assumptions upon which we have relied in rendering this
opinion is incorrect or incomplete, our opinion could be adversely affected and
may not be relied upon.
Based upon the foregoing, and subject to the various assumptions,
limitations, and qualifications set forth in this letter, we are of the opinion
that:
The Company continues to qualify as a REIT under sections 856 through
860 of the Code following the Merger SO LONG AS (A) the Company has
met at all times since the Merger and continues to meet the stock
ownership and gross income requirements applicable to REITs and (B)
either PSMI at the time of (and after giving effect to) the Merger was
not considered to have any current or accumulated earnings and profits
for tax purposes or the Company made
<PAGE>
Public Storage, Inc.
January 12, 1998
Page 4
distributions prior to the end of 1995 in an amount sufficient to
eliminate such earnings and profits.
We note that the Prospectus does not currently address the federal
income tax considerations that may be relevant to a holder of Securities other
than Common Stock. It is our understanding that in the event the Company issues
Securities other than Common Stock, the Company will prepare a supplement to the
Prospectus, which supplement will address the federal income tax considerations
that are likely to be material to a holder of such Securities.
We are expressing our opinion only as to the specific matters set
forth in the preceding paragraph. With regard to whether the Company continues
to qualify as a REIT following the Merger, we specifically are not rendering an
opinion as to whether the Company has satisfied or will continue to satisfy the
stock ownership and gross income requirements applicable to REITs following the
Merger or whether PSMI had current or accumulated earnings and profits at the
time of the Merger. For a discussion of certain of the considerations
associated with these issues, we direct your attention specifically to the
discussions of these matters contained in the Registration Statement under the
caption "Certain Federal Income Tax Considerations--Consequences of the Merger
on the Company's Qualification as a REIT."
This opinion only 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 IRS or courts. There can be no
assurance that positions contrary to our opinion will not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinion.
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. We undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws. We undertake no obligation to
update this opinion, or to ascertain after the date hereof whether circumstances
occurring after such date may affect the conclusions set forth herein.
We hereby consent to the filing of our opinion, together with the
attachments thereto, as Exhibit 8.1 to the Registration Statement and to the use
of
<PAGE>
Public Storage, Inc.
January 12, 1998
Page 5
the name of our firm in the Registration Statement. In giving this consent,
however, we do not thereby admit that we are an "expert" within the meaning of
the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
Hogan & Hartson L.L.P.
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Prospectus of Public Storage, Inc. (included in Amendment No. 1 to the
Registration Statement on Form S-3 (No. 333-41123)) and which will also be used
in connection with the Registration Statement on Form S-3 (No. 333-18395) for
the registration of shares of its preferred stock, its depositary shares, its
equity stock, shares of its common stock and warrants for the purchase of its
preferred stock, equity stock and common stock and to the incorporation by
reference therein of (i) our report dated February 25, 1997 with respect to the
consolidated financial statements and schedules of Public Storage, Inc. in its
Annual Report on Form 10-K for the year ended December 31, 1996 filed with the
Securities and Exchange Commission, (ii) our report dated December 16, 1997
on the combined statements of revenues and certain operating expenses of the
Acquired Properties for each of the three years in the period ended December 31,
1996, our report dated October 9, 1997 on the statement of revenues and certain
operating expenses of the Largo Property for the year ended December 31, 1996,
our report dated November 10, 1997 on the statement of revenues and certain
operating expenses of the Gunston Property for the year ended December 31, 1996,
and our report dated December 19, 1997 on the combined statement of revenues and
certain operating expenses of the Proposed Acquisition Properties for the year
ended December 31, 1996, each of which is included in the Current Report on Form
8-K dated December 24, 1997 of Public Storage, Inc. and (iii) our report dated
February 18, 1997 with respect to the financial statements of Public Storage
Properties XVI, Inc., our report dated February 18, 1997 with respect to the
financial statements of Public Storage Properties XVII, Inc., our report dated
February 18, 1997 with respect to the financial statements of Public Storage
Properties XVIII, Inc. and our report dated February 18, 1997 with respect to
the financial statements of Public Storage Properties XIX, Inc., each of which
is included in the Registration Statement on Form S-4 (No. 333-26959) of Public
Storage, Inc.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 12, 1998
<PAGE>
Exhibit 23.2
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the reference to our firm under the caption "Experts" in the
Prospectus of Public Storage, Inc. (included in Amendment No. 1 to the
Registration Statement on Form S-3 (No. 333-41123)) and which will also be used
in connection with the Registration Statement on Form S-3 (No. 333-18395) for
the registration of shares of its preferred stock, its depositary shares, its
equity stock, shares of its common stock and warrants for the purchase of its
preferred stock, equity stock and common stock and to the incorporation by
reference therein of our report dated February 14, 1997 on the combined
statement of revenues and certain operating expenses of the Acquiport Properties
which is included in the Current Report on Form 8-K dated December 24, 1997 of
Public Storage, Inc.
/s/ KPMG PEAT MARWICK LLP
303 Peachtree Street, NE
Atlanta, Georgia 30308
January 12, 1998
