SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 15, 1999
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Public Storage, Inc.
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(Exact name of registrant as specified in its charter)
California 1-8389 95-3551121
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(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
701 Western Avenue, Glendale, California 91203-1241
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (818) 244-8080
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N/A
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(Former name or former address, if changed since last report)
Item 5. Other Events
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Public Storage, Inc., through wholly owned entities ("PSA"), has formed
a joint venture (the "Development JV") to develop and own approximately $100
million of mini-warehouses (including properties currently being developed by
Public Storage, Inc.) and $100 million of shares of Public Storage, Inc.'s
Equity Stock, Series AAA (the "Equity Stock"). The partners of the Development
JV are PSA and a limited liability company ("Investor LLC"). The members of the
Investor LLC are a state pension plan and B. Wayne Hughes, chairman and chief
executive officer of Public Storage, Inc.
Reference is made to the documents filed as exhibits to this report for
the terms of the Development JV, the Investor LLC and the Equity Stock.
Item 7. Financial Statements and Exhibits
---------------------------------
(c) Exhibits.
(3) Certificate of Determination of Equity Stock, Series AAA.
(10.1) Limited Partnership Agreement of PSAC Development Partners, L.P.
among PS Texas Holdings, Ltd., PS Pennsylvania Trust and PSAC
Storage Investors, LLC dated as of November 15, 1999.
(10.2) Agreement of Limited Liability Company of PSAC Storage
Investors, L.L.C. dated as of November 15, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUBLIC STORAGE, INC.
By: /S/ DAVID GOLDBERG
-------------------
David Goldberg
Senior Vice President
Date: November 18, 1999
EXHIBIT 3
CERTIFICATE OF DETERMINATION
OF
EQUITY STOCK, SERIES AAA
OF
PUBLIC STORAGE, INC.
[As filed in the Office of the Secretary of State of
the State of California on November 15, 1999]
The undersigned, David Goldberg and Sarah Hass, Senior Vice President
and Secretary, respectively, of PUBLIC STORAGE, INC., a California corporation,
do hereby certify:
FIRST: The Restated Articles of Incorporation of the Corporation, as
amended, authorize the issuance of 200,000,000 shares of stock designated
"equity shares," issuable from time to time in one or more series, and authorize
the Board of Directors to fix the designation and number of shares constituting
any such series, and to determine or alter the dividend rights, dividend rate,
conversion rights, voting rights, right and terms of redemption (including
sinking fund provisions), the redemption price or prices and the liquidation
rights of any wholly unissued series of such equity shares.
SECOND: The Board of Directors of the Corporation did duly adopt the
resolutions attached hereto as Exhibit A and incorporated herein by reference
authorizing and providing for the creation of a series of equity shares to be
known as "Equity Stock, Series AAA" consisting of 4,500,000 shares, none of the
shares of such series having been issued.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
IN WITNESS WHEREOF, the undersigned have executed this certificate this
15th day of November, 1999.
/S/ DAVID GOLDBERG
--------------------------------
David Goldberg
Senior Vice President
/S/ SARAH HASS
--------------------------------
Sarah Hass
Secretary
<PAGE>
EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS
OF PUBLIC STORAGE, INC.
ESTABLISHING A SERIES OF
EQUITY STOCK, SERIES AAA
RESOLVED that pursuant to the authority conferred upon the Board of
Directors by Article III of the Restated Articles of Incorporation, as amended,
of this Corporation, there is hereby established a series of the authorized
equity shares of this Corporation having a par value of $.01 per share, which
series shall be designated "Equity Stock, Series AAA," shall consist of
4,500,000 shares and shall have the following rights and privileges:
(a) Dividend Rights.
(1) If, at any time, the Corporation shall declare or pay, or set aside
funds, shares or other property to pay, a dividend or other distribution on the
Common Shares (i) in cash or (ii) in any shares of the Corporation's capital
stock or (iii) other property (but in the case of (ii), only to the extent that
the Corporation will claim with respect to the distributed shares a deduction
for dividends paid in computing its taxable income pursuant to the REIT
Provisions of the Internal Revenue Code (as defined in clause (3) of Section
(c)), a dividend or other distribution in cash shall also concurrently be
declared or paid, or so set aside, as the case may be, on each share of this
Series. The amount of the dividend or distribution on each share of this Series
shall be at the rate of five (5) times the per share dividend or distribution,
or amount so set aside, on the Common Shares (based on the amount of cash, and
in the case of shares or other property distributed with respect to the Common
Shares, the fair market value attributable to the distributed shares or other
property), but shall not be more than $0.539101563 in any calendar quarter
(prorated for the quarter ending December 31, 1999 to reflect only the number of
days in that quarter beginning with the date of the original issuance of the
shares of this Series); provided, however, during any calendar year (prorated
for the year 1999) not at a rate less than the lesser of (i) $2.15640625 per
share or (ii) five (5) times the per share dividends or distributions on the
Common Shares. Notwithstanding the foregoing, any dividend or distribution on
the shares of this Series shall be subject to adjustment as provided in Section
(e).
Each such dividend shall be paid to the holders of record of shares of
this Series as they appear on the stock register of the Corporation on such
record date, not more than 45 days nor less than 15 days preceding the payment
date thereof, as shall be fixed by the Board of Directors. After dividends on
this Series equal to the maximum amount set forth above have been paid or
declared (as provided hereby) during any particular year and funds therefor set
aside for payment, the holders of shares of this Series will not be entitled to
any further dividends in that year.
For purposes hereof, "Common Shares" shall mean shares of common stock,
$0.10 par value per share, of the Corporation or any other shares of capital
stock into which such shares are reclassified, changed or exchanged.
(2) Unless dividends on all outstanding "Senior Shares" have been or
contemporaneously are paid in full, or funds set aside therefor, for the latest
dividend period ending contemporaneously with or prior to the end of the period
for which a dividend is to be paid on shares of this Series, and, to the extent
such Senior Shares have cumulative dividend rights, for all prior dividend
periods, no dividend or other distribution shall be paid on the shares of this
Series for such period. "Senior Shares" shall mean any shares of stock of the
Corporation, exclusive of the shares of this Series and any other series of
equity stock, the Common Shares and shares of the Corporation's Class B Common
Stock, which (i) are outstanding as of the date of issuance of the shares of
this Series or (ii) are issued subsequent to the date of issuance of the shares
of this Series, on terms which do not provide that they are on a parity with, or
junior to, the shares of this Series or the Common Shares, as to dividends and
as to the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation.
(b) Liquidation.
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, after the respective liquidation preferences
in respect of all Senior Shares, if any, have been paid in full, a holder of
each share of this Series will receive out of the assets of the Corporation
available for distribution to shareholders 120% of the amount distributed to the
holder of each Common Share. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of this Series
will not be entitled to any further participation in any distribution of assets
by the Corporation.
(1) Written notice of any such liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where the amounts distributable in such circumstances shall be payable, shall be
given by first class mail, postage pre-paid, not less than 30 nor more than 60
days prior to the payment date stated therein, to each record holder of the
shares of this Series at the respective addresses of such holders as the same
shall appear on the stock transfer records of the Corporation.
(2) For purposes of liquidation rights, a reorganization (as defined in
Section 181 of the California Corporations Code) or consolidation or merger of
the Corporation with or into any other corporation or corporations or a sale of
all or substantially all of the assets of the Corporation shall be deemed not to
be a liquidation, dissolution or winding up of the Corporation.
(c) Redemption.
(1) Except as provided in clauses (2) and (3) of this Section (c), the
shares of this Series are not redeemable.
(2) The shares of this Series are redeemable at the option of the
Corporation, by resolution of the Board of Directors, in whole or in part at a
cash redemption price as determined in clause (4) of this Section (c), (i) for a
period of ten (10) days after the date the Limited Partner (as defined in the
Limited Partnership Agreement (the "Partnership Agreement") of PSAC Development
Partners, L.P. (the "Partnership")) exercises its option to liquidate the
Partnership and (ii) for a period of ten (10) days following the 15th
anniversary of the Partnership.
(3) If the Board of Directors of the Corporation shall, at any time and
in good faith, be of the opinion that ownership of securities of the Corporation
has or may become concentrated to an extent that may prevent the Corporation
from qualifying as a real estate investment trust ("REIT") under the REIT
Provisions of the Internal Revenue Code, then the Board of Directors shall have
the power to prevent the transfer of and/or to call for redemption all or such
number of shares of this Series sufficient, in the opinion of the Board of
Directors, to maintain or bring the direct or indirect ownership thereof into
conformity with the requirements of the REIT Provisions of the Internal Revenue
Code, provided that any such action shall be taken pro rata with respect to the
shares of this Series and the Common Shares to the extent such action
accomplishes the Corporation's objective.
For purposes hereof, "REIT Provisions of the Internal Revenue Code"
shall mean Sections 856 through 860 and related or successor provisions of the
Internal Revenue Code of 1986, as amended.
(4) The per share redemption price to be paid for shares of this Series
called for redemption under clauses (2) or (3) of this Section (c), on the date
fixed for redemption, shall be, as applicable, 120% of (i) the average of the
daily per share closing prices on the principal exchange on which the Common
Shares are traded or the average of the highest bid and the lowest asked
quotations as reported by the National Quotation Bureau, Incorporated or a
similar organization selected from time to time by the Corporation in each case
for the 15 consecutive trading days commencing 20 trading days prior to the
redemption or (ii) if there are no such bid and asked quotations, the value of a
Common Share as determined by the Board of Directors in good faith.
(5) In the case of a redemption under clause (2) of this Section (c),
the redemption price to be paid for shares of this Series may only be paid from
the sale proceeds of Common Shares, other equity stock or other rights or
options to purchase any of the foregoing (other than debt securities or
preferred stock convertible into or exchangeable or exercisable for Common
Shares or equity stock) or from the Corporation's undistributed cumulative net
cash provided by operating activities.
For this purpose undistributed cumulative net cash provided by operating
activities means the Corporation's aggregate "net cash provided by operating
activities" determined on a cumulative basis from the date of organization of
the Corporation through the end of the calendar quarter immediately preceding
the date of redemption as reduced by aggregate "distributions paid to
shareholders" and "distributions from operations to minority interests in
consolidated real estate entities" that occur during such period. The terms "net
cash provided by operating activities," "distributions paid to shareholders" and
"distributions from operations to minority interests in consolidated real estate
entities" shall mean all amounts that should, in accordance with generally
accepted accounting principles as in effect in the United States of America from
time to time, consistently applied, and past practice of the Corporation, be
reflected on the consolidated financial statements of the Corporation under such
heading or similar heading.
(6) If a redemption date falls after a dividend payment record date and
prior to the corresponding dividend payment date, the holder of shares of this
Series at the close of business on such dividend payment record date shall be
entitled to the dividend payable on such shares on the corresponding dividend
payment date notwithstanding the redemption of such shares before such dividend
payment date. Except as expressly provided hereinabove, the Corporation shall
make no payment or allowance for unpaid dividends on shares of this Series
called for redemption.
(7) From and after the date fixed for the redemption of shares of this
Series by the Corporation (unless the Corporation shall fail to make available
the money necessary to effect such redemption), the holder of shares selected
for redemption shall cease to be a shareholder with respect to such shares and,
subject to clause (6) of this Section (c), shall have no interest in or claim
against the Corporation by virtue thereof and shall have no voting or other
rights with respect to such shares, except the right to receive the moneys
payable upon such redemption from the Corporation, less any required tax
withholding amount, without interest thereon, upon surrender (and endorsement or
assignment of transfer, if required by the Corporation and so stated in the
notice) of the certificates, and the shares represented thereby shall no longer
be deemed to be outstanding. If fewer than all the shares represented by a
certificate are redeemed, a new certificate shall be issued, without cost to the
holder thereof, representing the unredeemed shares. The Corporation may, at its
option, at any time after a notice of redemption has been given, deposit the
redemption price for the shares of this Series designated for redemption and not
yet redeemed, in a segregated account, as a trust fund for the benefit of the
holder of the shares of this Series designated for redemption and shall pay, on
and after the date fixed for redemption or prior thereto, the redemption price
of the shares to the holder thereof upon the surrender of the share
certificates. From and after the making of such deposit, the holder of the
shares shall cease to be a shareholder with respect to such shares and, subject
to clause (6) of this Section (c), shall have no interest in or claim against
the Corporation by virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys payable upon such
redemption, without interest thereon, upon surrender (and endorsement, if
required by the Corporation) of the certificate, and the shares represented
thereby shall no longer be deemed to be outstanding.
(8) Any shares of this Series that shall at any time have been redeemed
shall, after such redemption, have the status of authorized but unissued equity
shares, without designation as to series until such shares are once more
designated as part of a particular series by the Board of Directors.
(d) Conversion.
(1) Subject to the provisions for adjustment hereinafter set forth, and
unless previously redeemed under clauses (2) or (3) of clause (c), each share of
this Series shall be automatically converted into a number of Common Shares
equal to $23.3125 divided by the Conversion Price on the earlier of (i) eleven
(11) days after the date the Limited Partner (as defined in the Partnership
Agreement) exercises its option to liquidate the Partnership or (ii) 11 days
following the 15th anniversary of the Partnership.
For purposes hereof, "Conversion Price" shall mean the conversion price
per Common Share for which this Series is convertible, as such Conversion Price
may be adjusted pursuant to Section (e). The initial Conversion Price will be
$19.4270833 (equivalent to a conversion rate of 1.2 Common Shares for each share
of this Series).
The holder of shares of this Series at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding dividend payment date notwithstanding the
conversion thereof or the Corporation's failure to pay the dividend due on such
dividend payment date. Except as expressly provided herein, no payment or
adjustment will be made on account of accrued or unpaid dividends upon the
conversion of shares of this Series.
(2) The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Shares, for
the purpose of issuance upon conversion of shares of this Series, the full
number of Common Shares then deliverable upon the conversion of all shares of
this Series then outstanding and shall take all action necessary so that Common
Shares so issued will be validly issued, fully paid and nonassessable. For
purposes of this clause (2) of Section (d), the number of Common Shares that
shall be required to be reserved for delivery upon the conversion of all
outstanding shares of this Series shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
(3) The Corporation will pay any and all stamp or similar taxes that may
be payable in respect of the issuance or delivery of Common Shares on conversion
of shares of this Series.
(4) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of shares of this Series. Instead of any
fractional interest in a Common Share that would otherwise be deliverable upon
the conversion of a share of this Series, the Corporation shall pay to the
holder of such share an amount in cash (computed to the nearest cent) based upon
the Closing Price of Common Shares on the last business day immediately
preceding the conversion date. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full Common Shares
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of this Series so surrendered.
For purposes hereof, the value of Common Shares shall be determined as
provided in clause (4) of Section (c).
(e) Adjustments.
(1) Other than a dividend or distribution as to which the Corporation
will claim a deduction for dividends paid in computing its taxable income
pursuant to the REIT Provisions of the Internal Revenue Code, in the event that
the Corporation shall subdivide or combine its outstanding Common Shares into a
greater or smaller number of Common Shares, or shall make a dividend or other
distribution of Common Shares to the holders of any of its Common Shares, then
in each case (i) the outstanding shares of this Series shall, as appropriate,
(A) be subdivided or combined in the same proportion as the Common Shares are
subdivided or combined or (B) receive the same proportionate dividend or
distribution payable in shares of this Series as paid or issued with respect to
the Common Shares and (ii) the per share dollar amounts specified herein for
computing dividends per quarter or year shall be adjusted so that the total of
each such amount for all outstanding shares of this Series is the same
immediately after, as it was immediately prior to, the subdivision, combination,
dividend or distribution.
(2) In the event that the Corporation shall issue rights, warrants or
options to all holders of its Common Shares entitling them to subscribe for or
purchase Common Shares at a price per share less than the current market price
(as defined below) per share of a Common Share on the date fixed for the
determination of stockholders entitled to receive such rights, warrants or
options, the Conversion Price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of Common Shares outstanding at the close of business on the date fixed for such
determination plus the number of Common Shares which the aggregate of the
offering price of the total number of Common Shares offered for subscription or
purchase would purchase at such current market price and the denominator shall
be the number of Common Shares outstanding at the close of business on the date
fixed for such determination plus the number of Common Shares so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For purposes of clause (2) of this Section (e), the number of
Common Shares at any time outstanding shall include shares issuable in respect
of scrip certificates issued in lieu of fractions of Common Shares.
(3) In the event that the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Shares evidence of its indebtedness or
assets (including debt securities, but excluding (i) rights, warrants or options
referred to in clause (2) of this Section (e), (ii) any dividend or distribution
paid in cash or other property of the Corporation out of or in respect of
Available Cash (as defined below), (iii) any dividend or distribution as to
which the Corporation will claim a deduction for dividends paid in computing its
taxable income pursuant to the REIT Provisions of the Internal Revenue Code and
(iv) any dividend or distribution referred to in clause (1) of this Section
(e)), the Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the numerator shall
be the current market price per share of the Common Shares on the dated fixed
for such determination less the then fair market value (as determined in good
faith by the Board of Directors of the Corporation, whose determination shall be
conclusive) of such portion of the assets or evidences of indebtedness so
distributed applicable to one Common Share (the "Distribution FMV") and the
denominator shall be such current market price per Common Share, such adjustment
to become effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such distribution; provided, however, that if the Distribution FMV
exceeds the current market price per share, or if the current market price
exceeds the Distribution FMV by less than 10%, in lieu of the foregoing
adjustment, from and after the record date for determining holders of Common
Shares entitled to receive the distribution, a holder of a share of this Series
that converts such share in accordance with the provisions hereof shall upon
such conversion be entitled to receive, in addition to the Common Shares into
which the share of this Series is convertible, the kind and amount of
securities, cash or other assets comprising the distribution that such holder
would have received if such holder had converted the share immediately prior to
the record date for determining the holders of Common Shares entitled to receive
the distribution.
For purposes hereof, Available Cash shall mean net income before loss on
early extinguishment of debt and gain on disposition of real estate, adjusted as
follows: (i) plus depreciation and amortization, (ii) plus gain on disposition
of real estate investments, (iii) less distributions to minority interest in
excess of minority interest in income and (iv) less dividends on preferred
shares, equity shares and Common Shares. The terms "net income," "loss on early
extinguishment of debt," "gain on disposition of real estate investments,"
"depreciation and amortization," "distributions to minority interest" and
"minority interest in income" shall mean, as of any date of determination, all
amounts that should, in accordance with generally accepted accounting principles
as in effect in the United States of America from time to time, consistently
applied, and past practice of the Corporation, be reflected on the consolidated
financial statements of the Corporation under such heading (or similar heading)
and shall be determined in respect of the year in which the dividend or
distribution occurs.
(4) Other than a dividend or distribution as to which the Corporation
will claim a deduction for dividends paid in computing its taxable income
pursuant to the REIT Provisions of the Internal Revenue Code, in the event that
the Corporation shall pay a dividend or make a distribution on its Common Shares
in any shares of its capital stock (other than Common Shares) or issue by
reclassification of its Common Shares any shares of its capital stock (other
than Common Shares), a holder of a share of this Series who subsequently
converts the share, at the time of conversion shall be entitled to receive the
number of shares of capital stock of the Corporation which such holder would
have owned immediately following such dividend, distribution or reclassification
if such holder had converted the share of this Series immediately prior to such
action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a reclassification.
If after an adjustment a holder of a share of this Series upon
conversion of such share may receive shares of two or more classes of capital
stock of the Corporation, the Conversion Price shall thereafter be subject to
adjustment upon the occurrence of an action taken with respect to any such class
of capital stock as is contemplated by this Section (e) with respect to the
Common Shares on terms comparable to those applicable to the Common Shares in
this Section (e).
(5) In the event that the Corporation shall effect any capital
reorganization or reclassification of its shares (other than a subdivision,
combination or stock dividend referred to in clause (1) of this Section (e) or a
dividend or distribution as to which the Corporation will claim a deduction for
dividends paid in computing its taxable income pursuant to the REIT Provisions
of the Internal Revenue Code) or shall consolidate or merge with or into any
other corporation (other than a consolidation or merger in which the Corporation
is the surviving corporation and each Common Share outstanding immediately prior
to such consolidation or merger is to remain outstanding immediately after such
consolidation or merger) or shall sell, lease or transfer all or substantially
all of its assets to any other person or entity for a consideration consisting
in whole or in part of equity securities of such other entity, lawful provision
shall be made as a part of the terms of such transaction whereby the holders of
shares of this Series shall, if entitled to convert such shares at any time
after the consummation of such transaction, receive upon conversion thereof in
lieu of each Common Share issuable upon conversion of such shares prior to such
consummation the same kind and amount of stock (and other securities, cash or
property, if any) as may be issuable or distributable in connection with such
transaction with respect to each outstanding Common Share subject to adjustments
for subsequent stock dividends and distributions, subdivisions or combinations
of shares, capital reorganizations, reclassifications, consolidations or mergers
as nearly equivalent as possible to the adjustments provided for in this Section
(e).
(6) For the purpose of any computation under this Section (e), the
"current market price" per Common Share on any date shall be determined as of
the date in question in the manner provided in clause (4) of Section (c).
(7) Notwithstanding the above provisions, no adjustment in the
Conversion Price shall be required unless such adjustment (plus any adjustments
not previously made by reason of this subsection) would require an increase or
decrease of at least 1% in such price; provided, however, that any adjustments
which by reason of this subsection are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided, further,
that adjustment shall be required and shall be made in accordance with the
provisions of this Section (e) (other than this subsection) not later than the
same time as may be required in order to preserve the tax-free nature of a
distribution to the holder of any share of this Series. All calculations under
this Section (e) shall be made to the nearest four digits.
(8) The Corporation shall take all action necessary so that shares of
this Series issued on adjustments pursuant to this Section (e) will be validly
issued, fully paid and nonassessable.
(9) Whenever the Conversion Price is adjusted as herein provided:
(A) the Corporation shall compute the adjusted Conversion Price and
shall cause to be prepared a certificate signed by the chief financial officer
of the Corporation setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based and the
computation thereof which certificate, absent manifest error, shall be prima
facie evidence of the correctness of such adjustment; such certificate shall
forthwith be filed with each transfer agent for the shares of this Series; and
(B) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall, as soon as practicable, be
mailed to the holders of record of outstanding shares of this Series.
(10) For purposes of this Section (e), the number of Common Shares at
any time outstanding shall not include any Common Shares then owned or held by
or for the account of any subsidiary of the Corporation, except to the extent of
the ownership of common shares of such subsidiary by any person other than the
Corporation.
(11) In case any event shall occur as to which the provisions of this
Section (e) are not strictly applicable but the failure to make any adjustment
would not fairly protect the conversion rights represented by the shares of this
Series in accordance with the essential intent and principles of this Section,
then, in each such case, the Corporation shall appoint an independent firm of
public accountants of recognized national standing (which may be the regular
auditors of the Corporation), which shall gave their opinion upon the
adjustments, if any, on a basis consistent with the essential intent and
principles established in this Section, necessary to preserve, without dilution,
the conversion rights represented by the shares of this Series. Upon receipt of
such opinion, the Corporation will promptly mail a copy thereof to each holder
of shares of this Series and shall make the adjustments described therein. The
certificate of any independent firm of public accountants of nationally
recognized standing selected by the Board of Directors shall be presumptive
evidence of the correctness of any computation made under this subsection.
(f) Voting Rights.
(1) The shares of this Series shall not have any voting powers either
general or special, except as required by law.
(2) Except as required by law, nothing herein shall be taken to require
a class vote or consent in connection with any matter, including the
authorization, designation, increase or issuance of any shares of any class or
series (including additional shares of this Series) that rank senior to, junior
to or on a parity with this Series as to dividends and liquidation rights or in
connection with the authorization, designation, increase or issuance of any
bonds, mortgages, debentures or other debt obligations of the Corporation.
EXHIBIT 10.1
LIMITED PARTNERSHIP AGREEMENT
OF
PSAC DEVELOPMENT PARTNERS, L.P.
By and Among
PS TEXAS HOLDINGS, LTD.,
PS PENNSYLVANIA TRUST
and
PSAC STORAGE INVESTORS, LLC
Dated as of November 15, 1999
Exhibits to this Agreement will be furnished to the Securities and Exchange
Commission upon request.
<PAGE>
Limited Partnership Agreement
of
PSAC Development Partners, L.P.
This Limited Partnership Agreement of PSAC Development Partners, L.P.
is entered into and shall be effective as of November 15, 1999 (the "Effective
Date"), by and among PS Texas Holdings, Ltd., a Texas limited partnership, as
the General Partner, PS Pennsylvania Trust, a Delaware business trust, as the PS
Limited Partner, and PSAC Storage Investors, LLC, a Delaware limited liability
company, as the Investor Limited Partner, pursuant to the provisions of the Act.
The General Partner and the Limited Partners propose to form a limited
partnership to pursue the development and ownership of a number of
state-of-the-art, geographically diversified self-storage facilities for income
and capital appreciation and to acquire and hold shares of equity stock of
Public Storage, Inc. ("PSA") and shares of common stock of PSA. PSA wholly owns
the PS Limited Partner and indirectly wholly owns the General Partner. In
consideration of the mutual covenants and agreements contained in this
Agreement, the Partners agree as follows:
1. Formation; Purposes; Term
1.1 Formation. The Partners hereby form the Partnership as a
limited partnership pursuant to the provisions of the Act and upon the terms and
conditions set forth in this Agreement.
1.2 Name. The name of the Partnership shall be PSAC Development
Partners, L.P. and all business of the Partnership shall be conducted in such
name or in the name "Public Storage."
1.3 Purposes and Powers.
(a) The Partnership is formed for the object and purpose of,
and the nature of the business to be conducted and promoted by the Partnership
is, acquiring, owning, developing, leasing and otherwise operating and dealing
with, and selling or otherwise disposing of, the Projects as self-storage
facilities, acquiring, owning and dealing with, and selling or otherwise
disposing of, PSA Equity Shares and PSA Common Shares and conducting any and all
activities as may be necessary or incidental to the foregoing.
(b) The Partnership is empowered to do any and all things
necessary, appropriate or convenient for the furtherance and accomplishment of
its purposes, and for the protection and benefit of the Partnership and its
Property, including but not limited to the following:
(i) Entering into and performing contracts of any kind;
(ii) Acquiring, constructing, operating, maintaining,
owning, transferring, selling, renting, or leasing any property, real,
personal or mixed;
(iii) Applying for and obtaining governmental
authorizations and approvals; and
(iv) Bringing and defending actions at law or in equity.
(c) Except as otherwise provided in this Agreement, the
Partnership shall not engage in any other activity or business. No Partner shall
have any authority to hold itself out as a general agent of another Partner in
any other business or activity.
1.4 Principal Executive Office. The principal executive office of
the Partnership shall be at 701 Western Avenue, Glendale, California 91201-2349.
The principal executive office may be changed from time to time by the General
Partner.
1.5 Term. The term of the existence of the Partnership shall
commence on the Effective Date and shall continue until the winding up and
liquidation of the Partnership and its business is completed following a
Liquidating Event, as provided in Section 10.
1.6 Filings; Agent for Service of Process.
(a) The General Partner has caused a Certificate of Limited
Partnership on Form LP-1 to be filed with the California Secretary of State in
accordance with the Act. The Partnership shall take any and all actions
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership under the laws of the State of California and under the laws
of any other states or jurisdictions in which the Partnership engages in
business.
(b) To the extent required pursuant to the Act or the
applicable laws of any other state or jurisdiction, the name and address of the
agent for service of process shall be Harvey Lenkin, 701 Western Avenue,
Glendale, California 91201-2349, or any successor as appointed by the General
Partner.
(c) Upon the dissolution of the Partnership, the Partnership
shall promptly execute and cause to be filed any necessary certificates of
dissolution and cancellation in accordance with the Act and the applicable laws
of any other state or jurisdiction in which the Partnership has engaged in
business.
1.7 Other Activities.
(a) The Limited Partners acknowledge that the PSA Affiliates
are engaged in the business, directly and indirectly, of acquiring, owning,
developing, leasing, managing and operating self-storage facilities. The Limited
Partners understand that the PSA Affiliates may be involved, directly or
indirectly, in various other projects and businesses not included in the
Partnership. The Partners hereby agree that the creation of the Partnership and
involvement herein by each of the Partners shall not prejudice their rights (or
the rights of their Affiliates) to have such other interests and activities and
to enjoy profits or other benefits therefrom, and each Partner waives any rights
it might otherwise have to share or participate in such other interests or
activities of the other Partners or their Affiliates. Except as otherwise
provided in this Agreement, the Partners and their Affiliates may engage in or
possess any interest in any other business venture of any nature or description,
independently or with others, including without limitation, the acquisition,
ownership, development, leasing, managing and operation of self-storage
facilities or other real property and the acquisition and ownership of stock or
securities, and neither the Partnership nor any Partner shall have any right by
virtue of this Agreement in and to such venture or the income or profits derived
therefrom.
(b) Notwithstanding the provisions of Section 1.7(a) above,
PSA, by its signature to this Agreement, has granted the Partnership the first
right and opportunity to develop and own Qualifying Projects as set forth below
and as listed on Exhibits A-1, A-2, and A-3 in accordance with this Agreement,
and PSA and the General Partner agree to ensure that no PSA Affiliates shall
develop a Qualifying Project without complying with the provisions of this
Section, Section 6.2 and Section 6.4.
The Partnership has been formed, and the General Partner shall
use its best efforts to cause the Partnership, to undertake the development
initially of a group of Projects through and including the development of the
Project that causes cumulative Project Budgeted Costs to exceed $100,000,000.
The first Projects of the Partnership are identified on Exhibits A-1 and A-2,
which also indicate the estimated Project Budgeted Costs of those Projects.
Exhibit A-3 identifies the pool of Qualifying Projects from which the balance of
the initial group of Projects of the Partnership is expected to be selected.
Exhibit A-3 also sets forth the estimated Project Budgeted Costs of those
Projects.
The General Partner shall cause PSA, from time to time, to
amend the list of Qualifying Projects on Exhibits A-2 or A-3 to reflect: (A) the
deletion of Qualifying Projects that no longer are expected to be acquired by
the Partnership because (i) the Investment Committee has rejected such
Qualifying Projects under Section 6.2, (ii) such Qualifying Projects do not meet
the standards for Qualifying Projects or for development by the Partnership in
accordance with this Agreement, (iii) none of the Partnership, PSA or any of
their respective Affiliates is pursuing development of such Qualifying Projects
any longer (including circumstances in which conditions to the acquisition of
those Qualifying Projects are unable to be satisfied); or (iv) the Partnership
has already undertaken development of sufficient Projects so that the deleted
Qualifying Project or Projects are no longer needed to satisfy the 150% standard
described in the following sentence (Qualifying Projects proposed to be deleted
pursuant to this clause (iv) shall be submitted to the Investment Committee and
shall be deleted unless the Investment Committee within thirty (30) days
determines not to permit the deletion of that specific Qualifying Project and
the Investment Committee instead substitutes for deletion another Qualifying
Project or Projects then listed on the relevant exhibit calling for an equal or
greater amount of Project Budgeted Costs, or if not then finalized in accordance
with Section 6.2, the estimated amounts thereof provided to the Investment
Committee), and (B) the addition of further Qualifying Projects; provided that
the net effect of any such deletions or additions (assuming the specified
properties were to be acquired by the Partnership) shall not reduce the Yield
expected to be realized by the Partnership from its Projects below eleven and
one half percent (11.5%). The General Partner shall use its best efforts to
ensure that the aggregate Project Budgeted Costs of the pool of Qualifying
Projects identified on Exhibit A-3 at any time will be no less than 150% of the
Partnership's uncommitted initial development capital (i.e., 150% of the excess
of $100,000,000 over the aggregate Project Budgeted Costs of all Projects
undertaken by the Partnership to that date). During any period that the
aggregate Project Budgeted Costs of the pool of Qualifying Projects listed on
Exhibit A-3 do not meet that standard, the General Partner shall cause PSA to
afford the Partnership the first right and opportunity to develop and own any
Qualifying Project that is proposed to be developed by any PSA Affiliate (not
just those properties identified on Exhibit A-3) that has not at that time been
committed to development in a transaction involving other parties.
The Partnership's first right and opportunity to develop
Qualifying Projects described in this Section 1.7(b) shall expire on the earlier
of (i) the third anniversary of the Effective Date, provided that the General
Partner and PSA are then in compliance with the provisions of this Section
1.7(b) or (ii) the date the Partnership has completed the acquisition of
Projects requiring Project Budgeted Costs in excess of $100,000,000.
1.8 Definitions. Capitalized words and phrases used in this
Agreement have the meanings set forth in this Section 1.8 or elsewhere in this
Agreement:
(a) "Act" means the California Revised Limited Partnership Act
as set forth in Title 2 (commencing with Section 15611) of the Corporations Code
of the State of California, as amended from time to time (or any corresponding
provisions of succeeding law), provided that the substantive rights of the
Partners under this Agreement shall not be adversely affected by any such
amendment.
(b) "Actual Costs" means costs of development incurred as of
the date of measurement, including Land Acquisition Costs, Basic Development
Costs and PSA Affiliates Operating Costs.
(c) "Adjusted Capital Account Deficit" means, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account as
of the end of the relevant Fiscal Year or other period, after giving effect to
the following adjustments:
(i) Credit to such Capital Account any amounts which such
Partner is obligated to restore pursuant to any provision of this Agreement
or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
(d) "Adjusted Capital Contributions" means, as of any day with
respect to a Partner, such Person's Capital Contributions, reduced by the amount
of cash and the Gross Asset Value of any Property distributed to such Person
pursuant to this Agreement in excess of such Person's Priority Distribution. In
the event such Person Transfers all or any portion of its Interest in accordance
with the terms of this Agreement, its transferee shall succeed to its Adjusted
Capital Contribution to the extent it relates to the transferred Interest.
(e) "Affiliate" means, with respect to any Person, (i) any
Person directly or indirectly controlling, controlled by or under common control
with such Person, (ii) any Person owning or controlling 10% or more of the
outstanding voting interests of such Person, (iii) any officer, director or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee or holder of 10% or more of the voting interests of any
Person described in clauses (i) through (iii) of this sentence.
(f) "Agreement" means this Limited Partnership Agreement of
PSAC Development Partners, L.P. and the exhibits hereto, as amended from time to
time. Words such as "herein," "hereinafter," "hereof," "hereto" and "hereunder"
refer to this Agreement as a whole, unless the context otherwise requires.
(g) "Appraiser" means a disinterested entity that is
experienced in valuing real estate portfolios and (a) is a M.A.I. appraiser that
is a member of the American Institute of Real Estate Appraisers, any
organization successor thereto, or other nationally recognized organization of
real estate appraisers, with at least five years' experience in the case of the
First and Second Appraisers and ten years' experience in the case of the Third
Appraiser in conducting appraisals in the commercial real estate industry, and
is qualified and experienced in appraising self-storage facilities similar to
the Projects, or (b) that works in conjunction with another disinterested entity
with the qualifications described in (a) and both such entities sign the report.
"First Appraiser," "Second Appraiser" and "Third Appraiser" shall have the
meanings set forth in Section 9.3.
(h) "Appraised Value" means the amount that a third party buyer
would reasonably be expected to pay for all of the Other Property (as defined in
Section 9.3(c)), on a portfolio basis, in a cash purchase, taking into account
the current condition, use and zoning of the Other Property, net of a provision
for all normal costs of sale, including a real estate commission at prevailing
rates.
(i) "Average Price" means the average of the PSA Common Shares
daily closing prices on the Exchange for each of the first 20 of the 25 trading
days on which PSA Common Shares are traded immediately preceding the date of a
distribution of Capital Proceeds pursuant to Section 4.2 or a distribution
pursuant to Section 10.2 or Section 10.3 or the date of any closing pursuant to
Section 9.5, as the case may be, provided that the Average Price shall be no
greater than 105% or less than 95% of the closing price of the PSA Common Shares
on the Exchange on the sixth trading day immediately preceding such date.
(j) "Basic Development Costs" means the costs actually incurred
by the Partnership or any PSA Affiliate in conducting the activity referred to
in Section 5.4, exclusive, however, of (i) Land Acquisition Costs, and (ii) PSA
Affiliates Operating Costs, but including costs of initial operations and
leaseup until a Project has achieved three consecutive calendar months of
positive monthly Net Operating Income. Basic Development Costs shall include,
without limitation, property taxes and other carrying costs incurred until a
Project becomes a Completed Project.
(k) "Business Day" means Monday through Friday of each week,
except that a legal holiday recognized as such by the United States Government
shall not be regarded as a Business Day.
(l) "Business Plans" means the "Initial Business Plan" attached
hereto as Exhibit G and "Annual Business Plans" in the form attached hereto as
Exhibit H.
(m) "Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Person in accordance with the following
provisions:
(i) To each Person's Capital Account there shall be
credited such Person's Capital Contributions, such Person's distributive
share of Profits and any items in the nature of income or gain that are
specially allocated pursuant to Sections 3.4 or 3.5, and the amount of any
Partnership liabilities assumed by such Person or that are secured by any
Property distributed to such Person.
(ii) To each Person's Capital Account there shall be
debited the amount of cash and the Gross Asset Value of any Property
distributed to such Person pursuant to this Agreement, such Person's
distributive share of Losses and any items in the nature of expenses or
losses that are specially allocated pursuant to Sections 3.3 or 3.5, and
the amount of any liabilities of such Person assumed by the Partnership or
that are secured by any property contributed by such Person to the
Partnership.
(iii) In the event any Interest is transferred in
accordance with the terms of this Agreement, the transferee shall succeed
to the Capital Account of the transferor to the extent it relates to the
transferred Interest.
(iv) In determining the amount of any liabilities for
purposes of the definitions of Adjusted Capital Contributions and Capital
Accounts, there shall be taken into account Code Section 752(c) and any
other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations. In the event the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property or that are
assumed by the Partnership or the Partners), are computed in order to comply
with such Regulations, the General Partner may make such modification, provided
that it is not likely to have a material effect on the amounts distributable to
any Partner pursuant to Section 10 upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(g), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
(n) "Capital Contributions" means, with respect to any Partner,
the amount of money and the Gross Asset Value at the time of contribution of any
property (other than money) contributed to the Partnership with respect to the
interest in the Partnership held by such Partner.
(o) "Capital Proceeds" means the gross cash proceeds of sales
and financings of the Partnership's Properties, less the portion thereof used to
pay or establish any reasonable reserves for all Partnership expenses, any debt
payments, capital improvements and other costs of development, replacements and
contingencies, all as determined in accordance with the terms hereof.
(p) "Capital Reserve" means a reserve for capital expenditures
of 2.36% of annual gross revenue from the Projects, not to exceed $1,000,000 at
any one time.
(q) "Code" means the Internal Revenue Code of 1986, as amended
from time to time (or any corresponding provisions of succeeding law).
(r) "Completed Project" means a Project as to which a final
certificate of occupancy (or its equivalent) has been received and which has
achieved three consecutive calendar months of positive monthly Net Operating
Income.
(s) "Defaulting Event" means:
(i) a Partner's withdrawal as a Partner from the
Partnership in breach of Section 2.5(a),
(ii) the Transfer by a Partner of all or any part of its
Interest in the Partnership (or such Partner's right to receive
distributions) in breach of Article 8,
(iii) a Partner's failure to make one or more capital
contributions pursuant to Section 2.2 which in the aggregate exceed
$100,000, which failure continues ten Business Days after written demand by
the General Partner or any Partner,
(iv) the General Partner taking any unilateral action which
requires the unanimous consent of the Partners without first securing such
consent in accordance with the terms hereof,
(v) a violation of Section 1.7(b) or 13.3 (to the extent
the circumstances giving rise to such violation are within the control of
the General Partner or a PSA Affiliate), and
(vi) a failure by PSA to pay a dividend on the PSA Equity
Shares in accordance with the terms of a resolution of PSA's board of
directors declaring such a dividend or in accordance with the
specifications of the PSA Equity Shares (the failure of PSA's board of
directors to declare a dividend on the PSA Equity Shares shall not be a
Defaulting Event unless the failure is a breach of the specifications of
the PSA Equity Shares);
provided, however, that in the case of (iv) or (v) the action taken would
prejudice the Investor Limited Partner in a materially adverse manner and such
default or prejudice is not in the process of being cured or eliminated in good
faith within ten days after giving of notice by the Investor Limited Partner to
the General Partner specifying the nature of such default and in any case cured
or eliminated within ninety (90) days of the giving of that notice, and in the
case of (vi) the payment is not made within 10 days after giving of notice by
the Investor Limited Partner to the General Partner specifying the failure to
pay.
(t) "Defaulting Partner" means a Partner with respect to which
a Defaulting Event occurs.
(u) "Depreciation" means, for each Fiscal Year or other period,
an amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Gross Asset Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such year or other period,
Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
(v) "Development Working Capital" means the sum of the initial
contributions made under Section 2.2(a), as may be reduced or replenished from
time to time, the outstanding balance of which shall at all times be deposited
in a commercial bank or invested in instruments backed by the United States
Government. Development Working Capital shall be used to pay or reimburse for
Project Budgeted Costs incurred with respect to Qualifying Projects approved by
the Investment Committee.
(w) "Exchange" means the New York Stock Exchange, Inc. or the
national securities exchange (as defined in Section 12(b) of the Securities
Exchange Act of 1934, as amended) or automated quotation system upon which the
PSA Common Shares are then listed for trading.
(x) "Fair Market Value" shall have the meaning set forth in
Section 9.3.
(y) "Fiscal Year" shall have the meaning set forth in Section
7.4.
(z) "Gain from Sale" shall mean any gain recognized for federal
income tax purposes from the sale or other disposition of the Partnership's
assets computed by reference to the Gross Asset Value of the Property disposed
of, notwithstanding that the adjusted tax basis of such Property differs from
its Gross Asset Value.
(aa) "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market value of
such asset, as determined by the Partners (as described below the Partners
have agreed that the gross fair market value of Projects contributed by the
General Partner and the PS Limited Partner to the Partnership at the time
of contribution will be based on the cost of those Projects as set forth in
Section 2.2);
(ii) The Gross Asset Values of all Partnership assets shall
be adjusted to equal their respective gross fair market values, as
determined by the Partners, as of the following times: (A) the acquisition
of an additional Interest by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (B) the distribution by the
Partnership to a Partner of more than a de minimis amount of Property as
consideration for an Interest; and (C) the liquidation of the Partnership
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided,
however that the adjustments pursuant to clauses (A) and (B) above shall be
made only if the Partners reasonably determine that such adjustments are
necessary or appropriate to reflect the relative economic interests of the
Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be the gross fair market value of such
asset on the date of distribution; and
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis
of such assets pursuant to Code Section 734(b) or Code Section 743(b), but
only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m) and Sections 1.8(xx) and 3.5(g); provided, however,
that Gross Asset Values shall not be adjusted pursuant to this Section
1.8(aa)(iv) to the extent the Partners determine that an adjustment
pursuant to Section 1.8(aa)(ii) is necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment pursuant to
this Section 1.8(aa)(iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 1.8(aa)(i), 1.8(aa)(ii) or 1.8(aa)(iv), such Gross Asset Value shall
thereafter be adjusted by Depreciation taken into account with respect to such
asset for purposes of computing Profits and Losses.
(bb) "Hazardous Materials" means any toxic, reactive,
corrosive, ignitable or flammable chemical compound or hazardous substance,
material or waste, whether solid, liquid or gas, that is regulated by any
federal or state law or regulation.
(cc) "Hazardous Materials Claims" shall have the meaning set
forth in Section 5.6.
(dd) "Hazardous Materials Laws" means all federal, state or
local laws or regulations which regulate or relate to the use, treatment,
storage, transportation, generation, handling or disposal of, or emission,
discharge or other release or threatened release of, any Hazardous Materials.
(ee) "Indemnitee" shall have the meaning set forth in Section
11.1.
(ff) "Interest" means an interest, whether as a general partner
or limited partner, in the Partnership representing the rights and obligations
under the Agreement of the Partner who holds such Interest.
(gg) "Investment Committee" shall have the meaning set forth in
Section 6.2(a).
(hh) "Land Acquisition Costs" means the amount paid by the
Partnership or any PSA Affiliate to acquire land from an independent third party
for development as a Project and all third party costs of closing such
acquisition (e.g., transfer tax, title insurance and escrow charges and
recording fees). Legal fees and other charges of independent firms incurred in
connection with the evaluation, negotiation and closing of each acquisition of
property which becomes a Project shall constitute Basic Development Costs and
not Land Acquisition Costs. If the property acquired for a Project includes
improvements that may be incorporated into the completed Project, that portion
of the purchase price and closing costs that is fairly allocable to the value of
the improvements to be so incorporated shall constitute Basic Development Costs
and not Land Acquisition Costs.
(ii) "Liquidating Event" shall have the meaning set forth in
Section 10.1.
(jj) "Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d).
(kk) "Net Equity" of a Partner's Interest as of a specified
date means the amount that would be distributed to such Partner in liquidation
of the Partnership pursuant to Sections 10.2 and 10.3 as of that date if (1) all
of the Partnership's Property were sold for its Fair Market Value, (2) the
Partnership paid its accrued, but unpaid, liabilities, and established reserves
pursuant to this Agreement for the payment of reasonably anticipated contingent
or unknown liabilities, and (3) the Partnership distributed the remaining
proceeds to the Partners in liquidation.
(ll) "Net Operating Income" means all income from a Project or
Projects, as the case may be, less the costs of operations, including property
management fees and a Capital Reserve. Net Operating Income shall be computed on
an accrual basis consistent with PSA Affiliates' prior practice. Net Operating
Income will not be reduced by depreciation, amortization, cost recovery
deductions or similar non-cash allowances.
(mm) "Nonrecourse Deductions" shall have the meaning set forth
in Section 1.704-2(b)(1) of the Regulations.
(nn) "Nonrecourse Liability" shall have the meaning set forth
in Section 1.704-2(b)(3) of the Regulations.
(oo) "Operating Cash" means the gross cash proceeds of the
Partnership from all operating sources (not including amounts taken into account
in determining Capital Proceeds) including dividends, less the portion thereof
used to pay or establish reasonable reserves for all Partnership expenses, any
debt payments, capital improvements and other costs of development, replacements
and contingencies, all as determined by the Partners. "Operating Cash" shall not
be reduced by depreciation, amortization, cost recovery deductions or similar
allowances, but shall be increased by any reductions of reserves previously
established.
(pp) "Partner Nonrecourse Debt" shall have the meaning set
forth in Section 1.704-2(b)(4) of the Regulations.
(qq) "Partner Nonrecourse Debt Minimum Gain" means an amount,
with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum
Gain that would result if such Partner Nonrecourse Debt were treated as a
Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of
the Regulations.
(rr) "Partner Nonrecourse Deductions" has the meaning set forth
in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
(ss) "Partners" means the General Partner, the PS Limited
Partner and the Investor Limited Partner, collectively, and reference to a
"Partner" shall be to any one of the Partners. The "General Partner," "PS
Limited Partner" and "Investor Limited Partner" are as set forth in Section 2.1.
(tt) "Partnership" means the limited partnership formed
pursuant to this Agreement.
(uu) "Person" means any individual, partnership, corporation,
trust or other entity.
(vv) "Percentage Interest" initially means, with respect to the
Investor Limited Partner, 49%, with respect to the PS Limited Partner, 50% and
with respect to the General Partner, 1%, representing the proportions in which
their Capital Contributions are initially required to be made. In the event that
the General Partner and PS Limited Partner make excess Capital Contributions
pursuant to Section 2.2(f) (certain excess contributions), the Percentage
Interests shall be adjusted to reflect the proportions in which the Partners
have made Capital Contributions to the Partnership, provided that any
contributions by the General Partner and the PS Limited Partner pursuant to
Sections 2.2(g) (Cost Overrun Contributions) and 2.2(h) (Shortfall
Contributions) shall not be taken into account. In the event any Interest is
transferred in accordance with the provisions of this Agreement, the transferee
of such Interest shall succeed to the Percentage Interest of its transferor to
the extent it relates to the transferred Interest.
(ww) "Priority Allocation" means, as to each Partner, a
cumulative amount computed at a monthly rate of one twelfth of 15%, using
monthly compounding, on the sum of that Partner's Adjusted Capital Contributions
and any shortfall of the allocations actually made with respect to any prior
months, and "Priority Distribution" means, as to each Partner, a cumulative
return computed through November 17, 2005 at a monthly rate of one twelfth of
10%, using monthly compounding, on the outstanding sum of that Partner's
Adjusted Capital Contributions and that Partner's unpaid Priority Distributions;
provided that, in the case of the General Partner and PS Limited Partner, any
Capital Contribution made pursuant to Sections 2.2(g) (Cost Overrun
Contributions) and 2.2(h) (Shortfall Contributions upon winding up under Section
10.2) shall not be taken into account in computing the General Partner's and PS
Limited Partner's Priority Allocation or Priority Distribution. For this
purpose, each Partner's unpaid Priority Distributions is the amount equal to the
cumulative Priority Distributions accrued with respect to that Partner beginning
on the Initial Funding Date (as defined in Section 2.2(a) below), less
cumulative actual distributions made to that Partner pursuant to Sections
4.1(a), 4.1(b)(i) and 4.1(b)(ii) and analogous distributions made pursuant to
Section 4.2.
(xx) "Profits" and "Losses" means, for each Fiscal Year or
other period, an amount equal to the Partnership's taxable income or loss for
such year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this Section 1.8(xx) shall be added to such
taxable income or loss;
(ii) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this Section
1.8(xx) shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to Section 1.8(aa)(ii) or Section 1.8(aa)(iii),
the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Profits or
Losses;
(iv) Gain or loss resulting from any disposition of
Property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the Property disposed of, notwithstanding that the adjusted tax basis of
such Property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such
Fiscal Year or other period, computed in accordance with Section 1.8(v);
(vi) To the extent an adjustment to the adjusted tax basis
of any Partnership asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4)
to be taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Partner's interest in the
Partnership, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Profits or
Losses; and
(vii) Notwithstanding any other provision of this Section
1.8(xx), any items which are specially allocated pursuant to Sections 3.3,
3.4 or 3.5 (including Depreciation, deductions attributable to "guaranteed
payments" and Gain from Sale) shall not be taken into account in computing
Profits or Losses.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specifically allocated pursuant to Sections 3.3, 3.4 or 3.5
shall be determined by applying rules analogous to those set forth in Sections
1.8(xx)(i) through 1.8(xx)(vi) above.
(yy) "Project Budgeted Costs" means, if a Qualifying Project is
approved based on the information submitted under Section 6.2(b)(i), the
finalized estimates of Basic Development Costs, Land Acquisition Costs, and PSA
Affiliates Operating Costs provided by the General Partner to the members of the
Investment Committee.
(zz) "Projects" means the real properties described in Exhibit
A-1 hereto and, unless the context indicates otherwise, such other real
properties as are acquired by the Partnership pursuant to Section 5.4.
(aaa) "Property" means all real, personal and other property or
assets acquired by the Partnership, and shall include the Projects and both
tangible and intangible property, and includes cash (taking into account any
unexpended reserves).
(bbb) "PSA" means Public Storage, Inc., a California
corporation.
(ccc) "PSA Affiliate" means PSA and/or any Affiliate of PSA
(other than the Partnership) that is under the direct or indirect control of
PSA. The General Partner shall be responsible for all activities performed
hereunder by PSA Affiliates.
(ddd) "PSA Affiliates Operating Costs" means that portion of
(i) compensation and other personnel costs incurred by PSA Affiliates in the
employment of their employees and (ii) all other overhead and general and
administrative costs of all PSA Affiliates, that is allocable to the performance
of services referred to in Section 5.4 with respect to Qualifying Projects,
including costs attributable to properties considered for development by the
Partnership but not acquired by it; provided, however, that the amount taken
into account as PSA Affiliates Operating Costs at any given time shall not
exceed 4% of the cumulative sum of Basic Development Costs incurred to that
date.
(eee) "PSA Common Shares" means the voting class shares of the
Common Stock, $0.10 par value, of PSA (effectively registered under the
Securities Act of 1933 or otherwise freely and immediately tradable without
restriction).
(fff) "PSA Equity Shares" means shares of Equity Stock, Series
AAA, $.01 par value, of PSA issued to the Partnership pursuant to the Stock
Purchase Agreement attached as Exhibit N.
(ggg) [intentionally deleted]
(hhh) [intentionally deleted]
(iii) "Qualifying Project" means any PSA Affiliate's real
estate development project located in the United States of which 50% or more of
the net rentable square footage will consist of self-storage facilities and no
part of the project would generate for the Investor Limited Partner more than a
de minimis amount of unrelated business taxable income under Section 511 of the
Code (the Partners acknowledge that the latter requirement will exclude projects
involving containerized, portable self storage activities). A Qualifying Project
shall not include the renovation, expansion or replacement of a self-storage
facility currently owned by a PSA Affiliate and shall not include any property
set forth in Exhibit O owned by or committed to PSAF Development Partners, L.P.
(jjj) "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such Regulations may be
amended from time to time (or any corresponding provisions of succeeding
regulations).
(kkk) "Regulatory Allocations" shall have the meaning set forth
in Section 3.5(h).
(lll) "Securities Act" means the Securities Act of 1933, as
amended (or any corresponding provisions of succeeding law).
(mmm) "Shortfall" shall be determined in the event of a
purchase of the Interest of the Investor Limited Partner pursuant to Section 9.3
or a Liquidating Event occurring as to the Partnership prior to November 17,
2005, by first calculating the monthly rate of return, using monthly
compounding, earned with respect to the Investor Limited Partner's aggregate
contributions to the Partnership, taking into account all distributions
previously received, or to be received in the sale of the Interest or the
liquidation, including amounts received as guaranteed payments, without regard
to whether a Shortfall exists (that rate of return shall be the "Realized Rate
of Return"). If the Realized Rate of Return is equal to or in excess of one
twelfth of 10.75%, the Shortfall shall be zero. If the Realized Rate of Return
is less than one twelfth of 10.75%, but more than or equal to one twelfth of
8.75%, the Shortfall shall be the amount that, when added to the distribution of
the Net Equity, would increase the Realized Rate of Return to equal one twelfth
of 10.75%. If the Realized Rate of Return is less than one twelfth of 8.75%, the
Shortfall shall be the amount that, when added to the distribution of the Net
Equity, would increase the calculated Realized Rate of Return by one twelfth of
2%. The calculations set forth in Exhibit I illustrate how any Shortfall is to
be calculated.
(nnn) "Stock Purchase Agreement" means the Stock Purchase
Agreement in substantially the form attached as Exhibit N.
(ooo) "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, pledge, hypothecation, assignment or other disposition and, as a
verb, voluntarily or involuntarily to transfer, sell, pledge, hypothecate,
assign or otherwise dispose of.
(ppp) [intentionally deleted]
(qqq) "Yield" means the projected stabilized annual Net
Operating Income of a Project or Projects divided by its or their total cost
(including land cost), as determined in accordance with the financial
projections and development costs in the form attached as Exhibit F-1 employing
the same underwriting criteria and methodology used in generating the yields in
the Initial Business Plan.
2. Partners; Capital Contributions; Purchase of PSA Equity Shares
2.1 Partners. The name of the General Partner is PS Texas Holdings,
Ltd., the name of the PS Limited Partner is PS Pennsylvania Trust, and the name
of the Investor Limited Partner is PSAC Storage Investors, LLC. The initial
addresses of the Partners are as set forth in Section 14.1.
2.2 Capital Contributions. The Capital Contributions of the
Partners shall be as follows:
(a) Initial Development Working Capital. No later than the
second Business Day following the Effective Date, the Partners shall make cash
Capital Contributions for initial Development Working Capital of $100,000 by the
General Partner, $5,000,000 by the PS Limited Partner and $4,900,000 by the
Investor Limited Partner (the date of this funding shall be the "Initial Funding
Date").
(b) Purchase of PSA Equity Shares. On the Initial Funding Date,
the Partners also shall make initial cash Capital Contributions to be used by
the Partnership to purchase the PSA Equity Shares of $1,000,000 by the General
Partner, $50,000,000 by the PS Limited Partner and $49,000,000 by the Investor
Limited Partner.
(c) Initial Projects. On the Initial Funding Date, the Partners
shall make the following initial Capital Contributions:
(i) The General Partner and PS Limited Partner shall
contribute or cause to be contributed on their behalf to the Partnership
those Projects described in Exhibit A-1 hereto, free and clear of all
indebtedness and monetary liens other than property taxes that are not yet
payable. The parties agree that with respect to such Projects, the General
Partner's Capital Account shall be credited with the amount of $377,971,
and the PS Limited Partner's Capital Account shall be credited with the
amount of $18,898,536, consisting of the amount of the expenditures made
with respect to such Projects, prior to their contribution, for (A) Land
Acquisition Costs, (B) Basic Development Costs and (C) PSA Affiliates
Operating Costs. The parties agree that this aggregate Capital Account
credit represents the agreed fair market value of those contributed assets.
(ii) The Investor Limited Partner shall make an additional
Capital Contribution in cash equal to 49% of the amount of the General
Partner's and PS Limited Partner's Capital Contributions pursuant to
Section 2.2(c)(i) above, which amount will be distributed to the General
Partner and PS Limited Partner pursuant to Section 2.2(k) below.
(d) Additional Qualifying Projects. The Partners shall make the
following additional Capital Contributions:
(i) From time to time as the General Partner and PS Limited
Partner shall contribute or cause to be contributed on their behalf to the
Partnership additional Qualifying Projects approved by the Investment
Committee, free and clear of all indebtedness and monetary liens other than
property taxes that are not yet payable, and the General Partner's and PS
Limited Partner's Capital Accounts shall be credited (in a 1/50 ratio) with
the amount of the expenditures made with respect to such Projects by PSA
Affiliates for (A) Land Acquisition Costs, (B) Basic Development Costs and
(C) PSA Affiliates Operating Costs. The parties agree that any such Capital
Account credits represent the agreed fair market value of those contributed
assets.
(ii) The Investor Limited Partner shall make additional
Capital Contributions in cash equal to 49% of the amount of the General
Partner's and PS Limited Partner's Capital Contributions from time to time
pursuant to Section 2.2(d)(i) above, which amounts will be distributed to
the General Partner and PS Limited Partner pursuant to Section 2.2(k)
below.
(e) Additional Cash for Qualifying Projects. The Partners shall
make the following additional Capital Contributions:
(i) The General Partner shall make additional cash Capital
Contributions of 1%, and the PS Limited Partner shall make additional cash
Capital Contributions of 50%, of all amounts required to pay Land
Acquisition Costs and Basic Development Costs (not to exceed 51% of such
costs as included in Project Budgeted Costs), in excess of the sum of the
net amounts credited to the General Partner and PS Limited Partner for
those costs pursuant to Sections 2.2(c)(i) and (d)(i) above after taking
into account distributions pursuant to Section 2.2(k) and the amounts paid
or to be paid for those costs from Development Working Capital or other
Partnership funds.
(ii) The Investor Limited Partner shall make additional
Capital Contributions in cash equal to 49/51 (96.0784314%) of the amount of
the Capital Contributions made by the General Partner and the PS Limited
Partner from time to time pursuant to Section 2.2(e)(i) above.
(iii) The General Partner and PS Limited Partner also shall
be deemed to have contributed, and the General Partner's and PS Limited
Partner's Capital Accounts will be credited (in a 1/50 ratio), with the
amount of that portion of any PSA Affiliates Operating Costs not credited
pursuant to Sections 2.2(c)(i) and (d)(i) above.
(iv) The Investor Limited Partner shall make additional
Capital Contributions in cash equal to 49% of the amount of the deemed
Capital Contributions made by the General Partner and PS Limited Partner
from time to time pursuant to Section 2.2(e)(iii) above, which amounts will
be distributed to the General Partner and PS Limited Partner pursuant to
Section 2.2(k) below.
(f) Certain Excess Contributions. To the extent that the
cumulative Actual Costs incurred are greater than cumulative Project Budgeted
Costs, or to the extent that the cumulative Project Budgeted Costs exceed
$100,000,000, the General Partner and PS Limited Partner shall make additional
cash Capital Contributions (in a 1/50 ratio) as needed on a Project-by-Project
basis, not to exceed the sum of (i) any cumulative Project Budgeted Costs in
excess of $100,000,000 and (ii) 3% of cumulative Project Budgeted Costs. The
General Partner shall not use Operating Cash to pay such additional amounts with
respect to such Projects. This obligation to contribute applies only to Actual
Costs incurred with respect to the initial group of Projects undertaken by the
Partnership through and including the Project that causes the Partnership's
cumulative Project Budgeted Costs to exceed $100,000,000.
(g) Cost Overrun Contributions. To the extent that the
cumulative Actual Costs incurred are greater than 103% of cumulative Project
Budgeted Costs, the General Partner and PS Limited Partner shall make additional
cash Capital Contributions (in a 1/50 ratio) as needed on a Project-by-Project
basis. The General Partner shall not use Operating Cash to pay such additional
amounts with respect to such Projects.
(h) Shortfall Contributions. In the circumstances described in
Section 10.2 below, the General Partner shall make a contribution as set forth
in Section 10.2 ("Shortfall Contributions"). Promptly following any Shortfall
Contribution, an amount equal to such Shortfall Contribution shall be
distributed by the General Partner to the Investor Limited Partner and shall be
treated as deductible "guaranteed payments" for the use of capital for income
tax purposes.
(i) Contribution Notices. Any Capital Contributions required of
Partners pursuant to Sections 2.2(d)(ii) and (e) above shall be set forth in
written notices from the General Partner to the Partners in the form attached as
Exhibit K hereto. Such notices shall contain a breakdown and supporting evidence
of Land Acquisition Costs and Basic Development Costs, and a breakdown by
Project and total showing Project Budgeted Costs, Actual Costs (with such
supporting evidence as requested by the Investor Limited Partner) and balance of
cost to complete, together with any replenishment of Development Working
Capital. Such notices shall be given on or about the 25th day of each month and
shall estimate the Capital Contributions required for that month based on the
Project Budgeted Costs. Such Capital Contributions shall be paid within ten
Business Days of delivery of the applicable notice from the General Partner.
(j) Final Costs; Limit on Investor Limited Partner's
Contributions. Notwithstanding anything herein to the contrary, the Investor
Limited Partner's obligation to make Capital Contributions shall be limited to
the lesser of (i) $98,000,000 or (ii) $49,000,000 plus 49% of Project Budgeted
Costs on a cumulative basis. Unused Development Working Capital reserves shall
be applied to pay the final Project Budgeted Costs of the Partnership, which
would otherwise be provided for by Capital Contributions, but only with respect
to the Project Budgeted Costs of the initial group of Projects undertaken by the
Partnership through and including the Project that causes the Partnership's
cumulative Project Budgeted Costs to exceed $100,000,000.
(k) Balancing Distributions to General Partner. Promptly
following the Capital Contributions by the Investor Limited Partner pursuant to
Sections 2.2(c)(ii), 2.2(d)(ii) and 2.2(e)(iv) above, an amount equal to such
Capital Contributions shall be distributed by the Partnership to the General
Partner and the PS Limited Partner (in a 1/50 ratio) as a reduction in their
Capital Contributions. The Partners acknowledge that these amounts will be
treated as contributed to the Partnership and then distributed by the
Partnership for purposes of this Agreement, notwithstanding that for federal
income tax purposes the amounts perhaps could be recharacterized as if paid by
the Investor Limited Partner to the General Partner and PS Limited Partner for
an interest in the Projects which the Investor Limited Partner then would be
treated as contributing to the Partnership. Such a recharacterization, in the
Partnership's circumstances, is not expected to produce materially differing
consequences.
2.3 Purchase of PSA Equity Shares. Concurrently with the execution
of this Agreement, the Partnership and PSA have executed the Stock Purchase
Agreement attached hereto as Exhibit N. On the Initial Funding Date, PSA shall
issue to the Partnership $100,000,000 of PSA Equity Shares pursuant to the Stock
Purchase Agreement. The parties agree that the agreed fair market value of the
PSA Equity Shares at the time of purchase is $100,000,000.
2.4 Extent of Liability. Except as otherwise provided by this
Agreement or required under applicable law:
(a) A Partner shall not be liable for the debts, liabilities,
contracts or any other obligations of the Partnership; and
(b) A Partner shall be liable only to make the future Capital
Contributions provided in Section 2.2 for Qualifying Projects approved under
Section 6.2(b) and shall not be required to lend any funds to the Partnership.
Performance of any one or more of the acts specifically authorized for
performance by any Limited Partner under this Agreement shall not in any way
constitute the Limited Partner a general partner or impose any personal
liability on the Limited Partner. The General Partner shall have no personal
liability for the repayment of any Capital Contributions of the Limited
Partners.
2.5 Other Matters.
(a) Except as otherwise provided in this Agreement, no Partner
shall demand or receive a return of its Capital Contributions or withdraw as a
Partner from the Partnership without the consent of the Partners. Under
circumstances requiring a return of any Capital Contributions, no Partner shall
have the right to receive property other than cash except as may be specifically
provided herein.
(b) No Partner shall receive any interest, salary or draw with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Partnership or otherwise in its capacity as a Partner,
except as otherwise provided in this Agreement.
3. Allocations
3.1 Profits. After giving effect to the special allocations set
forth in Sections 3.3, 3.4 and 3.5, Profits for any Fiscal Year or other period
shall be allocated to the Partners in the following order and priority:
(a) First,
(i) if and to the extent that Losses have been allocated to
the General Partner and PS Limited Partner pursuant to Section 3.2(c),
Profits initially shall be allocated to the General Partner and PS Limited
Partner, and
(ii) if and to the extent that Losses have been allocated
to the Partners pursuant to Section 3.2(a) or (b), Profits shall be
allocated to the Partners in the reverse order of the allocation of those
Losses.
(b) Then,
(i) until November 17, 2005, (A) initially to the Investor
Limited Partner until the Investor Limited Partner has been allocated
cumulative Profits pursuant to this Section 3.1(b)(i)(A) equal to the
aggregate accrued Priority Allocation of the Investor Limited Partner, and
(B) then to the General Partner and PS Limited Partner (in a 1/50 ratio)
until the General Partner and PS Limited Partner have been allocated
cumulative Profits pursuant to this Section 3.1(b)(i)(B) equal to the
aggregate accrued Priority Allocation of the General Partner and PS Limited
Partner; and
(ii) after November 17, 2005, (A) initially to the Investor
Limited Partner until the Investor Limited Partner has been allocated
cumulative Profits pursuant to Section 3.1(b)(i)(A) and this Section
3.1(b)(ii)(A) equal to the aggregate Priority Distribution of the Investor
Limited Partner, whether or not distributed, and (B) then to the General
Partner and PS Limited Partner until the General Partner and PS Limited
Partner have been allocated (in a 1/50 ratio) cumulative Profits pursuant
to Section 3.1(b)(i)(B) and this Section 3.1(b)(ii)(B) equal to the
aggregate Priority Distribution of the General Partner and PS Limited
Partner, whether or not distributed.
(c) Finally, the remaining balance, if any, shall be allocated
to the Partners in proportion to their Percentage Interests.
3.2 Losses. After giving effect to the special allocations set
forth in Sections 3.3, 3.4 and 3.5:
(a) Losses (other than Losses from the sale or other
disposition of the Partnership's assets) for any Fiscal Year or other period
shall be allocated to the Partners in proportion to their Percentage Interests.
(b) Losses from the sale or other disposition of the
Partnership's assets for any Fiscal Year or other period shall be allocated to
the Partners in proportion to the then positive balances of their capital
accounts.
(c) If and to the extent that an allocation of Losses to the
Investor Limited Partner pursuant to the preceding Sections 3.2(a) or (b) would
result in the Investor Limited Partner having an Adjusted Capital Account
Deficit, any such excess Losses instead shall be allocated to the General
Partner and PS Limited Partner (in a 1/50 ratio).
3.3 Special Allocations to the General Partner. The following
special allocations shall be made:
(a) Items of gross loss or expense shall be allocated to the
General Partner and the PS Limited Partner in proportion to their Capital
Contributions pursuant to Section 2.2(g) (Cost Overrun Contributions) until the
cumulative allocations pursuant to this Section 3.3(a) equal the aggregate
amount of their Capital Contributions pursuant to Section 2.2(g).
(b) All Depreciation shall be specially allocated to the
General Partner and PS Limited Partner (in a 1/50 ratio).
(c) All deductions for any guaranteed payments made to the
Investor Limited Partner pursuant to Section 2.2(h) (Shortfall Contributions)
shall be specially allocated to the General Partner.
3.4 Gain from Sale. All Gain from Sale shall be allocated in the
following order:
(a) First, to cause the Capital Accounts of the General
Partner, the PS Limited Partner and the Investor Limited Partner to be in
proportion to their respective Percentage Interests.
(b) Finally, the remaining balance, if any, shall be allocated
to the Partners in proportion to their Percentage Interests.
3.5 Regulatory Special Allocations. The following special
allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Except as provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article 3, if there is a net decrease in Minimum Gain during any Fiscal Year,
each Partner shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to the
portion of such Partner's share of the net decrease in Minimum Gain, determined
in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2)
of the Regulations. This Section 3.5(a) is intended to comply with the minimum
gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall
be interpreted consistently therewith.
(b) Partner Nonrecourse Debt Minimum Gain Chargeback. Except as
otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding
any other provision of this Article 3 except Section 3.5(a), if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner
Nonrecourse Debt during any Fiscal Year, each Partner who has a share of the
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Partner's share of the
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section
3.5(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of
Partnership income and gain shall be specially allocated to each such Partner in
an amount and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as
possible, provided that an allocation pursuant to this Section 3.5(c) shall be
made only if and to the extent that such Partner would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Article 3 have
been tentatively made as if this Section 3.5(c) were not in this Agreement.
(d) Gross Income Allocation. In the event any Partner has a
deficit Capital Account at the end of any Partnership Fiscal Year which is in
excess of the sum of (i) the amount such Partner is obligated to restore
pursuant to any provision of this Agreement, and (ii) the amount such Partner is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 3.5(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article 3 have been tentatively made as if Section 3.5(c)
and this Section 3.5(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
Fiscal Year or other period shall be specially allocated to the General Partner.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Fiscal Year or other period shall be specially allocated to
the Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Section 1.704-2(i)(1).
(g) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of its interest in the
Partnership, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their interests in the
Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Partners to whom such distribution was made in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) Curative Allocations. The allocations set forth in Sections
3.5(a) through (g) (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations. It is the intent of the Partners that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Partnership income, gain, loss or deduction pursuant to this Section 3.5(h).
Therefore, notwithstanding any other provision of this Article 3 (other than the
Regulatory Allocations), the General Partner shall make such offsetting special
allocations of Partnership income, gain, loss or deduction in whatever manner
the General Partner determines is appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Partner would have had if
the Regulatory Allocations were not part of the Agreement. In exercising its
discretion under this Section 3.5(h), the General Partner shall take into
account future Regulatory Allocations under Sections 3.5(a) and 3.5(b) that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 3.5(e) and 3.5(f).
3.6 Other Allocations Rules.
(a) Except as otherwise provided, all Profits and Losses
allocated to the Partners shall be allocated among them in proportion to their
Percentage Interests.
(b) For purposes of determining the Profits, Losses or any
other items allocable to any period, Profits, Losses and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
General Partner using any permissible method under Code Section 706 and the
Regulations thereunder.
(c) Except as otherwise provided in this Agreement, all items
of Partnership income, gain, loss, deduction, credit and any other allocations
not otherwise provided for shall be divided among the Partners in the same
proportions as they share Profits or Losses, as the case may be, for the year.
(d) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the General Partner shall endeavor to treat distributions of
Operating Cash as having been made from the proceeds of a Nonrecourse Liability
or a Partner Nonrecourse Debt only to the extent that such distributions would
cause or increase an Adjusted Capital Account Deficit for any Partner.
3.7 Tax Allocations: Code Section 704(c). In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss and deduction
with respect to any property contributed to the capital of the Partnership
shall, solely for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its initial Gross Asset Value
(computed in accordance with Section 1.8(aa)(i)).
In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Section 1.8(aa)(ii), subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations
shall be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
3.7 are solely for purposes of federal, state and local taxes and shall not
affect, or in any way be taken into account in computing, any Partner's Capital
Account or share of Profits, Losses other items or distributions pursuant to any
provision of this Agreement.
4. Operating Cash and Capital Proceeds
4.1 Operating Cash. Except as otherwise provided in Section 10,
Operating Cash, if any, shall be distributed or invested as provided in this
Section 4.1. To the extent distributed, Operating Cash shall be distributed to
the Partners monthly, on the 15th day of each month or the next Business Day if
the 15th day is not a Business Day, for the preceding month, or at such other
times as the Partners may determine as follows:
(a) Until November 17, 2005, Operating Cash, if any, shall be
first distributed to the Investor Limited Partner in an amount equal to any
unpaid Priority Distribution of the Investor Limited Partner, and any balance of
the Operating Cash shall in the discretion of the General Partner either be (1)
added to the Partnership's working capital, (2) used to purchase PSA Common
Shares in the open market or (3) with the approval of the Investment Committee,
used to develop additional Qualifying Projects, provided that the General
Partner shall use its reasonable efforts to ensure that any such Operating Cash
accumulated in excess of reasonable working capital reserves (for the purposes,
and to the extent, otherwise authorized hereunder, other than such PSA Common
Share purchases and the development of Qualifying Projects) and funds committed
for development of Qualifying Projects approved by the Investment Committee or
for the purchase of PSA Common Shares shall not exceed $10,000,000 at any time;
(b) Subject to the provisions of Section 9.1, after November
17, 2005, Operating Cash, if any, shall be distributed in the following order of
priority:
(i) First, to the Investor Limited Partner until the
Investor Limited Partner has received the amount of any unpaid Priority
Distribution of the Investor Limited Partner;
(ii) Second, to the General Partner and PS Limited Partner
until the General Partner and PS Limited Partner have received the amount
of any unpaid Priority Distribution of the General Partner and PS Limited
Partner;
(iii) Third, to the Partners in proportion to their
Percentage Interests; provided however, that between November 17, 2005 and
November 17, 2011, any such distribution shall only be made with the
approval of the Investment Committee, and if the Investment Committee does
not approve the distribution of any such excess Operating Cash, such
Operating Cash shall, in the discretion of the General Partner, either be
(1) added to the Partnership's working capital or (2) used to purchase PSA
Common Shares in the open market, provided that the General Partner shall
use its reasonable efforts to ensure that any such Operating Cash
accumulated in excess of reasonable working capital reserves (for the
purposes, and to the extent, otherwise authorized hereunder, other than
such PSA Common Share purchases and the development of Qualifying Projects)
and funds committed for development of Qualifying Projects approved by the
Investment Committee or for the purchase of PSA Common Shares shall not
exceed $10,000,000 at any time.
4.2 Capital Proceeds. Except as otherwise specified in this
Agreement, Capital Proceeds, if any, shall be distributed to the Partners on the
third Business Day after a sale or financing or at such other times as the
Partners may determine in the same order and priority as Operating Cash,
provided, however, that if such a distribution of Capital Proceeds in the
fashion described in Section 4.1(b)(iii) would create an Adjusted Capital
Account Deficit for any Partner that is not at the time of distribution
reasonably expected to be eliminated by future Partnership allocations,
distributions of Capital Proceeds at that time shall cease until the earlier of
the time at which (i) they can be so distributed without creating such a deficit
or (ii) a Liquidating Event (as defined in Section 10.1) takes place (and in
that case, any distribution will be made pursuant to Section 10.2).
4.3 Amounts Withheld. If required by applicable law, the General
Partner shall cause the Partnership to withhold such amounts as may be required
from any payment or distribution from the Partnership to a Partner, and the
General Partner shall remit such amounts on a timely basis to the tax authority
or other entity entitled to them. Any (a) amounts so withheld or (b) estimated
or other payments to tax authorities with respect to any Profits or other items
allocable to the Partners, shall be treated as amounts distributed to the
Partners pursuant to this Section 4 for all purposes. The General Partner shall
allocate any such amounts among the Partners in accordance with applicable law.
5. Management
5.1 Managing Partner. The Partnership shall be managed by the
General Partner. The Limited Partners shall not participate in the management of
the Partnership's business, and shall have no power to bind or act on behalf of
the Partnership.
5.2 Authority of Managing Partner. The General Partner shall have,
subject to the control of the Partners to the extent (and only the extent)
provided herein, supervision, direction and control of the business of the
Partnership. Subject to the limitations and restrictions set forth in this
Agreement, the General Partner shall act on behalf of the Partnership in all
matters affecting the management and supervision of the Partnership and its
business affairs, and shall have all rights and powers generally conferred by
law or otherwise necessary, advisable or consistent therewith, including the
right to vote the PSA Equity Shares and any PSA Common Shares. Without limiting
the scope of the foregoing, the Partners agree and acknowledge that it is their
intention and desire to confer upon the General Partner, to the fullest extent
permissible under the Act and other provisions of applicable law, and subject
only to the express limitations set forth in Section 5.3, full power and
authority relative to any and all matters relating to or affecting the
Partnership and its affairs.
Notwithstanding any provision of this Agreement, including without
limitation Section 5.3, any Person dealing with the Partnership may rely
(without duty of further inquiry) upon a certificate signed by the General
Partner as to:
(a) The identity of the General Partner or any Partner;
(b) The existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by the General Partner or which are in
any other manner germane to the affairs of the Partnership;
(c) The Persons who are authorized to execute and deliver any
instrument or document of the Partnership; or
(d) Any act or failure to act by the Partnership or any other
matter whatsoever involving the Partnership or any Partner.
5.3 Limitations on Rights and Powers. Except by the unanimous
consent of the Partners, the General Partner shall not have authority to:
(a) Require additional Capital Contributions to be made to the
Partnership in addition to the Capital Contributions required to be made
pursuant to Section 2.2;
(b) Enter into or commit to any agreement, contract, commitment
or obligation on behalf of the Partnership obligating the Limited Partners to
contribute additional capital, to make or guarantee a loan or to increase the
Limited Partners' liability either to the Partnership or to third parties;
(c) Except as is otherwise provided in this Agreement, receive
or permit any Partner or Affiliate of a Partner to receive any fee or rebate, or
to participate in any reciprocal business arrangements that would have the
effect of circumventing any of the provisions of this Agreement;
(d) Materially alter the business of the Partnership as
provided for in this Agreement;
(e) Do any act in contravention of this Agreement;
(f) Except as is otherwise provided in this Agreement, possess
Property, or assign rights in specific Property, for other than a Partnership
purpose;
(g) Cause the Partnership to borrow money or obtain any
financing, pledge or encumber any of the Property, or enter into or commit to
any agreement contract, commitment or obligation on behalf of the Partnership to
take any of those actions; or
(h) Except as provided in Article 8, admit any Person as a
Partner.
Except as otherwise contemplated by this Agreement or provided for in the
Initial Business Plans, no action specified on the attached Exhibit B shall be
taken by the General Partner without approval of the Investor Limited Partner.
5.4 Project Development. All phases of site selection, development
and construction of Projects shall be carried out by employees of PSA Affiliates
and independent contractors engaged by the General Partner for and on behalf of
the Partnership in accordance in all material respects with the specifications
and information approved by the Investment Committee. In order for any
Qualifying Project to be contributed to or acquired by the Partnership, and
before the Investor Limited Partner shall have to make any Capital Contribution
for such a Qualifying Project under Section 2.2(b), the General Partner shall
complete all the items listed on the acquisition checklist attached as Exhibit C
to the satisfaction of the Investment Committee. If land for a Qualifying
Project is required to be acquired prior to the satisfaction of the items listed
on such checklist and the land is acquired by a single member limited liability
company that is treated for income tax purposes as a disregarded entity and has
no assets, liabilities or business other than its ownership of such Qualifying
Project, then upon satisfaction of the items in the checklist, the Partnership
shall accept, in lieu of a deed, a transfer of all ownership interests in that
limited liability company, provided that the General Partner agrees to indemnify
the Investor Limited Partner against any loss or liability to the Partnership
that is attributable to that limited liability company and that would not have
been incurred by the Partnership if the Project had been acquired and held
directly by the Partnership, rather than through the limited liability company.
For up to 14 of the Projects listed on Exhibits A-1 and A-2, plans
and specifications may be reviewed by a third-party consultant acceptable to the
Investor Limited Partner and the cost of that review, not to exceed $4,000 per
Project, shall be paid for by the Partners (1% by the General Partner, 50% by
the PS Limited Partner and 49% by the Investor Limited Partner), with any excess
over $4,000 per each of those 14 Projects being paid for by the Investor Limited
Partner. For any other Projects, plans and specifications may be reviewed by a
third-party consultant acceptable to the Investor Limited Partner and the cost
of that review, not to exceed $2,000 per Project, shall be paid for by the
Partners (1% by the General Partner, 50% by the PS Limited Partner and 49% by
the Investor Limited Partner), with any excess over $2,000 per Project being
paid for by the Investor Limited Partner. Copies of the final title policy in
the amount of the Project Budgeted Costs, deed into the Partnership and closing
statement for the acquisition shall be furnished to the Investor Limited
Partner's advisor and attorneys within 30 days after payment of the initial
Capital Contribution for a Project. The General Partner and the Investor Limited
Partner shall attempt, to the extent feasible, to develop an approved list of
architects and environmental consultants for the Projects. PSA Affiliates shall
be responsible for arranging, supervising and coordinating all activities,
purchases and services associated with the development of each Qualifying
Project which is or is to become a Project including, without limitation, the
following:
(a) Review and analysis of the suitability for the Partnership
of each Qualifying Project;
(b) Negotiation and documentation of the terms of each
acquisition of property for development;
(c) Conduct of such "due diligence" and obtaining of such
studies, reports and approvals as are required in connection with the
prospective acquisition of each property, including a review and studies,
reports and approvals, as required, as to soils, environmental issues, title and
survey matters, zoning and other land use issues and economic feasibility;
(d) Obtaining of necessary building permits and other approvals
required for development;
(e) Negotiation and closing of the acquisition of each
Qualifying Project;
(f) Coordination with planners and engineers on matters
relating to the design of each Qualifying Project and any modifications thereof;
(g) Coordination with contractors regarding costs and
performance of construction and other development activity;
(h) Negotiation and preparation for execution by the
Partnership, or for the account of the Partnership, by PSA Affiliates of
construction contracts and other contracts for the supply of services and/or
material necessary to perform and complete the development of each Project;
(i) Negotiation, preparation and execution of all change orders
(provided that all material changes to materials or methods of construction
shall be approved in advance by the Investor Limited Partner or the Investment
Committee);
(j) Review and approval of applications for payment submitted
by contractors in connection with the development of each Project and
maintenance of accurate and complete books of account and other records relating
thereto;
(k) Negotiation with suppliers of major building components, if
any, where such items are not covered by a general construction contract, and
purchase of such components;
(l) Performance of normal business functions of an owner of
property in administering all aspects of the development of each Project
(including property acquisition);
(m) If necessary, and not performed under a general contract,
submission of applications to utility companies and municipal and governmental
authorities for, and obtaining of, agreements relating to utility and sewer
easements and the provision of adequate utility and sewer service to each
Project; and
(n) The engagement of such independent contractors and
professional firms including, but not limited to, construction firms,
architects, environmental consultants, engineers, architects and attorneys, as
may be required or appropriate in connection with the foregoing, it being
understood and agreed that virtually all of the activity described above in this
Section 5.4 will be undertaken by independent contractors and firms whose
charges will be borne by PSA Affiliates or by the Partnership as herein
provided.
5.5 Compensation and Reimbursement. Subject to the limitations
provided herein, and except as otherwise provided in this Agreement or agreed to
by the Partners, PSA Affiliates shall be entitled to receive the following, and
only the following, compensation and reimbursement from the Partnership:
(a) The Partnership shall enter into the Management Agreement
in the form attached as Exhibit D (provided that in the event of any conflict
between the Management Agreement and this Agreement, this Agreement shall
prevail, and the Management Agreement shall so specify) relative to the
operation and management of each Project, pursuant to which PSA Affiliates shall
be entitled to receive a management fee equal to 6% of gross operating revenues
from each Project (not including revenue earned pursuant to the Master Lease
Agreement referred to in Section 5.5(e) below or any revenue earned by PSA with
respect to truck rental operations undertaken at the Projects);
(b) In connection with the development of each Project, PSA
Affiliates shall be entitled to reimbursement for Land Acquisition Costs, Basic
Development Costs and PSA Affiliates Operating Costs as and to the extent
provided in Section 2.2;
(c) PSA Affiliates shall be entitled to reimbursement, on
submission of an itemized account, of all reasonable sums paid to unaffiliated
Persons for goods and materials for the direct benefit of the Partnership;
(d) PSA Affiliates shall be entitled to reimbursement for the
direct personnel cost (without overhead) for tax preparation and other services
provided as necessary for the conduct of the Partnership's affairs, including
preparation of reports to the Investor Limited Partner, as distinguished from
acquisition, development, operation and management of the Projects, provided
such cost does not exceed the amount the Partnership would be required to pay
other Persons not affiliated with the General Partner for comparable services;
and
(e) The Partnership shall enter into the Master Lease Agreement
in the form attached as Exhibit E relative to the lease of space to the General
Partner or its Affiliate in the Projects for retail storage related uses
involving the general public and self-storage tenants.
Except as expressly provided for in this Section 5.5 or otherwise approved by
the Partners, no payment shall be made by the Partnership to a PSA Affiliate for
services of such PSA Affiliate or any officer or employee thereof, and no
payments shall be made to PSA Affiliates that would have the effect of providing
PSA Affiliates with double compensation for services or capital or double
reimbursement for expenses incurred.
5.6 Hazardous Materials.
(a) The General Partner shall use its reasonable best efforts
to keep and maintain the Property in compliance with, and not to cause, and
shall use its reasonable efforts not to permit, the Property to be in violation
of, any Hazardous Materials Laws. The General Partner shall not dispose of any
waste (including, without limitation, any Hazardous Materials) on, under or
about the Projects and shall not use, generate, manufacture, or store any
Hazardous Materials on, under or about the Projects or transport to or from the
Projects (and shall use its reasonable efforts not to permit anyone else to do
any of the foregoing) in violation of any Hazardous Material Laws. The General
Partner shall not install or permit the installation of any underground storage
tanks on the Projects.
(b) The General Partner shall immediately advise the Partners
in writing of (i) any and all enforcement, cleanup, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any Hazardous Materials Laws of which actions the General Partner has actual
knowledge; (ii) all claims made or threatened by any third party against the
Partnership or any Partner or the Projects relating to damage, loss or injury
resulting from, or contribution, cost recovery or compensation for, any
Hazardous Materials, of which claims the General Partner has actual knowledge
(the matters set forth in clauses (i) and (ii) above are collectively referred
to in this Agreement as "Hazardous Materials Claims"); and (iii) the General
Partner's actual knowledge of any occurrence or condition on the Projects or on
any real property adjoining or in the vicinity of the Projects that the General
Partner knows could cause the Projects or any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability or use of the Projects
under any Hazardous Materials Laws.
(c) Without the prior written approval of the Investor Limited
Partner, the General Partner shall not take any remedial action in response to
the presence of any Hazardous Materials on, under or about the Projects, nor
enter into any settlement agreement, consent decree other compromise in respect
to any Hazardous Materials Claims; provided, however, that the prior approval of
all Partners shall not be necessary in the event that the presence of Hazardous
Materials on, under or about the Projects, in the reasonable belief of the
General Partner, either poses an immediate threat to the health, safety or
welfare of any individual or is of such a nature that an immediate remedial
response is necessary and it is not possible to obtain such Partners' approval
before taking such action, provided that in such event the General Partner shall
notify all Partners as soon as practicable of any action so taken. All Partners
agree not to withhold their approval, where approval is required under this
Agreement, if either (i) a particular remedial action is ordered by a court of
competent jurisdiction, or (ii) the General Partner establishes to the
satisfaction of the Partners that there is no reasonable alternative to such
remedial action which would result in less impairment of the value of the
Projects.
6. Action by Partners; Investment Committee
6.1 Action by Partners. No annual or regular meetings of the
Partners are required to be held. However, meetings of the Partners may be held
if called by the General Partner or any Partner upon at least four Business
Days' prior written notice. Any consents required of any Partner hereunder shall
be in writing and shall be filed by the General Partner with the books and
records of the Partnership.
6.2 Investment Committee.
(a) The Partnership shall have an investment committee (the
"Investment Committee") which shall consist of four members, two of whom shall
be appointed by the Investor Limited Partner as its representatives and two of
whom shall be appointed jointly by the General Partner and the PS Limited
Partner as their representatives. Initially, the Investor Limited Partner
appoints [Investor Representative 1] and [Investor Representative 2], and the
General Partner and PS Limited Partner appoint Carl B. Phelps and Harvey Lenkin,
as the members of the Investment Committee. In the event of the death or
resignation of any member of the Investment Committee or the removal of any
member of the Investment Committee by the Partner who appointed the same, the
Partner or Partners originally appointing such member of the Investment
Committee shall have the right to appoint his or her successor as its
representative.
Meetings of the members of the Investment Committee shall be
held by conference telephone or at the principal executive office of the
Partnership or another appropriate and convenient location designated by the
Investment Committee. Meetings may be called at any time by the General Partner
or by any member of the Investment Committee upon at least seven Business Days'
prior written notice. Any action requiring approval or consent of the Investment
Committee will be deemed to mean approval or consent by at least three of the
Investment Committee members at a meeting of the Investment Committee or,
alternatively, by a writing executed by at least three of the Investment
Committee members.
(b) As is described in Section 1.7, PSA has granted the
Partnership certain first rights and opportunities to develop and own proposed
Qualifying Projects.
(i) The General Partner shall provide to the members of the
Investment Committee a detailed description of the Qualifying Projects
proposed to be developed by the Partnership, including any costs for which
the General Partner's Capital Account is to be credited under Section
2.2(d)(i), preliminary financial projections and development costs in the
form attached as Exhibit F-1 and such other pertinent information,
including site and building plans, as the Investment Committee shall
reasonably request. Upon receipt thereof, the Investment Committee shall
have the option, to be exercised within 30 days, to give approval for the
Qualifying Project to be undertaken by the Partnership as a Project. The
Qualifying Projects described on Exhibit A-2 hereto shall be deemed to have
been approved by the Investment Committee, subject to Section 6.2(b)(iii).
(ii) In the event the Investment Committee shall not timely
elect to, or elects not to, have the Qualifying Project included as a
Project subject to the terms of this Agreement, PSA Affiliates shall be
free to develop such Qualifying Project outside of the Partnership, in
which event the Partnership and the Investor Limited Partner shall have no
further rights or interests therein. In the event there shall be a 10% or
greater change in the aggregate costs or in the net rentable square footage
of such Qualifying Project (as compared to the information submitted under
Section 6.2(b)(i)), then the Qualifying Project shall be resubmitted to the
Investment Committee pursuant to this Section 6.2(b) and the Investment
Committee shall thereafter have the option with respect to such Project
provided in Section 6.2(b)(i).
(iii) If a Qualifying Project is approved based on the
information submitted under Section 6.2(b)(i), the General Partner shall
thereafter provide to the members of the Investment Committee finalized
estimates of development costs and costs of funding any deficiency in Net
Operating Income until the Project experiences three consecutive calendar
months of positive monthly Net Operating Income (such final estimates for a
Project being referred to as "Project Budgeted Costs"), stabilized
yield-on-cost projections in the form attached as Exhibit F-2 and to the
extent that there have been any material changes in the site and building
plans previously submitted, revisions to such plans incorporating such
changes. In the event those finalized estimates reflect a 10% or greater
change in the Project Budgeted Costs or net rentable square footage, or a
reduction of over 25 basis points in Yield, of any Project as compared to
the information submitted under Section 6.2(b)(i) (or a 10% or greater
change in the Project Budgeted Costs or reduction of over 12 1/2 basis
points in Yield for those Projects described on Exhibit A-2), or in the
event of a material change in the site or building plans, then such change
must be approved by the Investment Committee for such Qualifying Project to
be included as one of the Projects subject to the terms of this Agreement.
(c) The Partnership's first right to develop Projects under
Sections 1.7(b) and 6.2(b) shall terminate if the General Partner shall have
presented eight consecutive Qualifying Projects to the Investment Committee that
each have a Yield of eleven and one half percent (11.5%) per year or more, and
the Investment Committee shall not have elected to cause any of such Qualifying
Projects to be included as a Project pursuant to this Agreement.
(d) The General Partner shall prepare and submit a Business
Plan to the Investment Committee on or before November 15 of each Fiscal Year
that shall apply to the twelve-month period beginning on January 1 of the
subsequent Fiscal Year. The Annual Business Plan shall include an estimated
budget for each Completed Project (as of November 15) for the subsequent Fiscal
Year and a report aggregating all such information for all Completed Projects.
(e) The General Partner shall provide to the Investment
Committee any report that any member might reasonably request, if available or
obtainable without significant cost or undue effort, including, but not limited
to, analyses of the Properties and the market, market rent surveys, tenant
traffic reports, tenant turnover statistics, tenant demographic profiles,
projected market values, projected income and expense statements, projected cost
breakdowns and cash flow analyses, summaries of the overall plan of operations
and contemplated transactions, insurance coverages and the like applicable to
the Properties.
6.3 Opportunity to Invest in Next Development Program. In the event
that any PSA Affiliate seeks to develop another program for investors to
participate in the development and ownership of self-storage facilities prior to
the expiration of the first 12 months after the expiration of the Partnership's
first right and opportunity to develop Qualifying Projects under Section 1.7,
the General Partner shall cause such PSA Affiliate to provide the Investor
Limited Partner with information concerning the first such subsequent proposed
program and to first negotiate in good faith with the Investor Limited Partner
(or a member thereof electing to pursue the same on its own in accordance with
the agreement of the Investor Limited Partner's members) concerning the Investor
Limited Partner's (or such member's) participation in that program before
approaching other investors. Investor Limited Partner acknowledges that its
rights pursuant to this provision are subject to the prior rights, if any,
granted to the limited partner pursuant to the partnership agreement of PSAF
Development Partners, L.P.
6.4 Development of Competitive Properties. Until such time as at
least 85% of the rentable square footage of any specific Project undertaken by
the Partnership has been leased to third parties in the ordinary course of
business, or November 17, 2005, whichever occurs first, the General Partner
shall ensure that PSA Affiliates will not, in the "micro-market" of that
specific Project (i.e., an area within a radius that, depending upon the density
of the population of consumers potentially using such self storage facilities
and other factors in the particular market ordinarily taken into account in the
exercise of commercially reasonable judgment, extends a minimum of one half
mile, and up to two miles, from the specific Project): (i) commence operations
at another self storage project or (ii) undertake any renovations or other
capital improvements on any property not theretofore competitive with that
specific Project which improvements would render it competitive with that
specific Project, without either: (i) the prior written consent of the Investor
Limited Partner, which may be withheld in its sole and absolute discretion, or
(ii) PSA providing to the Partnership a guarantee (in form and substance
reasonably acceptable to the Investor Limited Partner) of the budgeted operating
yield of that specific Project (as approved by the Investment Committee) through
November 17, 2006.
7. Books and Records; Fiscal Matters
7.1 Books and Records. The Partnership shall keep adequate
financial books and records in accordance with generally accepted accounting
principles. The books and records shall be kept at the principal executive
office of the Partnership and shall set forth a true and accurate account of all
business transactions arising out of and in connection with the conduct of the
Partnership. Any Partner or its designated representative (including its
appointees to the Investment Committee) shall have the right, at any reasonable
time during ordinary business hours, to have access to and inspect and copy the
contents of any of the Partnership's books and records (financial or otherwise)
and records of any PSA Affiliates relating to the Projects. The Partnership
shall not, without the consent of the Partners, which shall not be unreasonably
withheld or delayed, vary the Partnership's accounting methods, change its
Fiscal Year or make other major decisions with respect to treatment of various
transactions for bookkeeping or accounting purposes.
7.2 Reports. The General Partner shall furnish to each Partner, at
the expense of the Partnership, such statements and reports of the Partnership
as the Partners may determine or which may be required under the Act, including
the following:
(a) within 25 days of the end of each month, operating
statements for each of the Projects for such month, including occupancy reports,
a consolidated operating statement of the Projects for that month, a statement
detailing Partnership investment of funds and a statement detailing any
Partnership disposition of investments;
(b) within 40 days of the end of each of the fiscal quarters of
each Fiscal Year, a balance sheet, a profit and loss statement, a statement of
cash flows and a statement of changes in partner's capital accounts, which
statements need not be audited but shall be prepared in accordance with
generally accepted accounting principles (except that quarterly statements need
not include footnotes), and shall be certified as fairly presenting the
financial results by the chief financial officer of the General Partner;
(c) within 40 days of the end of each of the fiscal quarters of
each Fiscal Year, a report setting forth the variance between the Project
operating budget and actual results on a Project and consolidated basis;
(d) within 75 days of the end of each Fiscal Year, unaudited
financial statements of the Partnership for such Fiscal Year certified by the
General Partner; and
(e) within 90 days of the end of each Fiscal Year, audited
financial statements of the Partnership for such Fiscal Year certified by Ernst
& Young LLP or such other so-called "Big Six" firm of independent public
accountants as may be approved by the Investment Committee.
Examples of the reports required by Section 7.2(a), (b) and (c)
are attached hereto as Exhibit M.
7.3 Tax Information. The General Partner shall cause the
Partnership accountants to prepare and file on a timely basis all income and
other tax returns of the Partnership. The General Partner shall have the
accounting firm that audits the Partnership's financial statements or another
accounting firm approved by the Investment Committee review and sign as preparer
the Partnership's Federal and state income tax returns. The General Partner
shall submit such Federal income tax returns to the Investor Limited Partner for
the Investor Limited Partner's review at least ten Business Days before filing
such returns. The General Partner shall furnish to the Investor Limited Partner
a copy of such return, together with any schedules or other information which
each Partner may reasonably require in connection with such Partner's own tax
affairs within 90 days of the end of each Fiscal Year.
7.4 Fiscal Year. The Fiscal Year of the Partnership shall be the
calendar year.
7.5 Tax Matters Partner. The General Partner is hereby designated
by the Partners as, and shall be specifically authorized to act as, the "Tax
Matters Partner" under the Code and in any similar capacity under state or local
law, and to expend Partnership funds for professional services and costs
associated therewith.
7.6 Tax Elections Made by Managing Partner. The General Partner on
behalf of the Partnership may make any and all elections for tax purposes with
respect to the Partnership, with the consent of the Investor Limited Partner,
which consent will not be unreasonably withheld or delayed. At the request of
any Partner, the Partnership will make an election under Code Section 754
7.7 Taxation as a Partnership. The Partners will use their best
efforts to cause the Partnership to be treated as a partnership for income tax
purposes.
7.8 Avoidance of Unrelated Business Taxable Income. The General
Partner acknowledges that one or more members of the Investor Limited Partner
generally expect to be exempt from federal income taxes, and wish to avoid
receipt of income that otherwise might be considered unrelated business taxable
income. Accordingly, the General Partner shall use its best efforts to conduct
the Partnership's operations at all times in a manner that will avoid subjecting
the Investor Limited Partner or any Affiliate to regular corporate income tax or
to tax on "unrelated business taxable income" under Section 511 of the Code, and
if it is discovered that the operations of the Partnership create any such
material liability, the General Partner shall use its best efforts to alter the
Partnership's activities so as to reduce or minimize any such tax liability. In
furtherance of the foregoing (and not in limitation thereof), notwithstanding
any other provision herein to the contrary, absent specific written approval of
the Investor Limited Partner, the Partnership shall conduct its operations in
accordance with the following provisions at all times:
(a) The Partnership's business shall be limited to developing,
owning, operating, and disposing of the Projects, the PSA Equity Shares and the
PSA Common Shares. The Partnership shall not engage in any other business
activities.
(b) The Partnership shall not incur or continue any
"acquisition indebtedness" as defined in Section 514 of the Code.
(c) The Partnership shall be a lessor of personal property only
if the rents attributable to such personal property are an incidental amount of
the total rents received or accrued under a lease of real property within the
meaning of Section 512(b)(3)(A)(ii) of the Code.
(d) The Partnership's lease agreements shall not provide for
rents that depend in whole or in part on the income or profits derived by any
Person from the leased property.
(e) The Partnership shall not provide services to lessees of
the Projects, other than services that are usually or customarily rendered in
connection with the rental of space for occupancy only.
(f) The Partnership shall not hold property primarily for sale
to customers in the ordinary course of business or hold stock in trade or
property of a kind which would be included in inventory if on hand at the close
of its taxable year.
(g) Any sales of locks, boxes, packing or other such materials
at any Project, or any trucks rentals from any Project, will be performed for
the account of a PSA Affiliate; no such revenue will be earned by or reported by
the Partnership.
8. Transfer of Interests
8.1 Transfers by the Partners during the Initial Ten Years. During
the initial ten years of the Partnership's existence, except as otherwise
provided in this Agreement, no Partner shall Transfer all or any portion of its
Interest in the Partnership without the prior written approval of the other
Partners. Notwithstanding this limitation, the General Partner and PS Limited
Partner, shall be permitted to Transfer their Interests in connection with the
merger or reorganization of the General Partner or the PS Limited Partner into
another entity which is or becomes a PSA Affiliate or the transfer of all or
substantially all the assets of, or ownership in, the General Partner or the PS
Limited Partner or the assumption of the rights and obligations of the General
Partner or the PS Limited Partner by another entity or entities which is or
becomes a PSA Affiliate in connection with any such transaction, provided that
the General Partner or PS Limited Partner, as appropriate, acknowledges that the
Transfer shall not relieve the transferring Partner of its obligations under
this Agreement. During the initial ten years a nontransferring Partner shall be
entitled to withhold its approval of any proposed Transfer in its sole
discretion.
8.2 Additional Restrictions on Transfer. After the initial ten year
period, a Partner may transfer its interest with the prior written approval of
the other Partner, which shall not be unreasonably withheld. At any time, each
of the Partners shall have the right to Transfer its Interest to an Affiliate
without the consent of any other Partner, provided that such Transfer shall not
relieve such transferring Partner of its obligations under this Agreement.
Notwithstanding any provision of this Article 8 to the contrary, no Transfer of
any Interests may be made (i) if such Transfer shall violate or constitute a
default under any other agreement to which the Partnership is a party or (ii) if
the Interests sought to be sold, exchanged or otherwise transferred when added
to the total of all other Interests sold or exchanged prior to the date of the
proposed sale or exchange, are likely, in the opinion of tax counsel to the
Partnership to result in (A) a "change in ownership" for tax purposes as that
term is defined by applicable law or (B) the termination of the Partnership for
purposes of the Code, and such change in ownership or termination would have a
material adverse effect on the Partnership or the remaining Partners.
No interests in the Partnership may be Transferred unless (i) the
transferee executes such instruments as the non-transferring Partner may
reasonably request to confirm the transferee's agreement to be bound by the
terms of this Agreement and assumption of the transferor's obligations under
this Agreement, (ii) the Partnership obtains assurances reasonably satisfactory
to the non-transferring Partner that such Transfer is permitted under the
Securities Act of 1933 and any applicable state securities laws, (iii) to the
extent that the transferring Partner has been informed that a Transfer might
occasion a material violation of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), to the extent applicable to the remaining Partner or
any investor in or affiliate of the remaining Partner, the transferring Partner
obtains reasonably satisfactory assurances that the transfer will not cause any
such violation and (iv) subject to the provisions of Sections 8.1 (regarding
certain transfers by the General Partner or PS Limited Partner) and 8.6
(regarding transfers to Affiliates), if the transfer involves the proposed
substitution of the transferee as a Partner of the Partnership, the written
consent of the non-transferring Partner to such substitution is obtained, which
consent, in the non-transferring Partner's absolute discretion, may be withheld.
If one of only two Partners is transferring its entire interest in
the Partnership, such transfer shall not be effective unless and until the
transferee is admitted to the Partnership as a substitute Partner by the
amendment of this Agreement, and the transferring Partner shall remain a Partner
of the Partnership until such substitute Partner is admitted to the Partnership.
Each transferee shall reimburse the Partnership for any filing fees and
reasonable counsel and accountants' fees incurred by the Partnership in
connection with such transferee becoming a substitute Partner.
The transferor and transferee shall furnish the Partnership with
the transferee's taxpayer identification number, sufficient information to
determine the transferee's initial tax basis in the Interest transferred, and
any other information reasonably necessary to permit the Partnership to file all
required federal and state tax returns and other legally required information
statements or returns. Without limiting the generality of the foregoing, the
Partnership shall not be required to make any distribution otherwise provided
for in this Agreement with respect to any transferred Interest until it has
received such information.
8.3 Prohibited Transfers. Any purported Transfer of an Interest not
satisfying the requirements of Section 8.1 or 8.2 shall be null and void and of
no effect whatever; provided that, if the Partnership is required to recognize a
Transfer not satisfying those requirements, the Interest transferred shall be
strictly limited to the transferor's rights to allocations and distributions as
provided by this Agreement with respect to the transferred Interest, which
allocations and distributions may be applied (without limiting any other legal
or equitable rights of the Partnership) to satisfy any debts, obligations or
liabilities for damages that the transferor or transferee of such Interest may
have to the Partnership. Except as otherwise required under the Act, such
transferee shall have no right to any information or accounting of the affairs
of the Partnership, shall not be entitled to inspect the books or records of the
Partnership, and shall not have any of the rights of a Partner under the Act or
this Agreement until such time, if at all, that it is admitted as a Partner. In
the case of a Transfer or attempted Transfer of an Interest that is not a
permitted Transfer, the parties engaging or attempting to engage in such
Transfer shall indemnify and hold harmless the Partnership and all Partners from
all cost, liability and damage that any of such indemnified Persons may incur
(including, without limitation, incremental tax liability and attorneys' fees
and expenses) as a result of such Transfer or attempted Transfer and efforts to
enforce the indemnity granted hereby.
8.4 Representations; Legend. Each Partner hereby represents and
warrants to the Partnership and the Partners that such Partner's acquisition of
an Interest hereunder is made as principal for such Partner's own account and
not for resale or distribution of such Interest. Each Partner further hereby
agrees that the following legend may be placed upon any counterpart of this
Agreement, or any other document or instrument evidencing ownership of
Interests:
The Interest represented by this document has not been
registered under any securities laws and the transferability of such
Interest is restricted. Such Interest may not be sold, assigned or
transferred, nor will any assignee, vendee, transferee or endorsee thereof
be recognized as having acquired any such Interest by the issuer for any
purposes, unless (i) a registration statement under the Securities Act of
1933, as amended, with respect to the transfer of such Interest shall then
be in effect and such transfer has been qualified under all applicable
state securities laws, or (ii) the availability of an exemption from such
registration and qualification shall be established to the satisfaction of
counsel to the Partnership.
The Interest represented by this document is subject to
restriction as to its sale, transfer, hypothecation or assignment as set
forth in the Limited Partnership Agreement of PSAC Development Partners,
L.P. and agreed to by each Partner. Said provision restricts, among other
things, the right of any transferee to become a Partner. Said Agreement
further provides for an option to purchase the Interest represented by this
document under certain circumstances described therein.
8.5 Distributions and Allocations in Respect to Transferred
Interests. If any Interest is sold, assigned or transferred during any
accounting period in compliance with the provisions of this Section 8, Profits,
Losses, each item thereof and all other items attributable to the transferred
Interest for such period shall be divided and allocated between the transferor
and the transferee by taking into account their varying interests during the
period in accordance with Code Section 706(d), using any conventions permitted
by law and selected by the General Partner. All distributions on or before the
date of such transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Partnership shall recognize such transfer not
later than the end of the calendar month during which it is given notice of such
transfer, provided that if the Partnership does not receive a notice stating the
date such Interest was transferred and such other information as the General
Partner may reasonably require within 30 days after the end of the accounting
period during which the transfer occurs, then all of such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Partnership, on the last day of the accounting
period during which the transfer occurs, was the owner of the Interest. Neither
the Partnership, the General Partner nor the Partners shall incur any liability
for making allocations and distributions in accordance with the provisions of
this Section 8.5, whether or not the Partnership, the General Partner or the
Partners have knowledge of any transfer of ownership of any Interest.
9. Options to Cause Early Liquidation of Partnership; Options to
Purchase; Right to Cause Sale of Projects
9.1 Investor Limited Partner's Option to Cause Early Liquidation of
the Partnership. The Investor Limited Partner shall have the right and option
(but not the obligation) to cause the early liquidation of the Partnership on
the terms and conditions set forth in this Section 9 and in Section 10. The
option granted pursuant to this Section 9.1 may be exercised by the Investor
Limited Partner at any time beginning August 17, 2005 and ending June 17, 2006
by delivery of a notice to the General Partner (the "Investor Limited Partner
Liquidation Notice"). Once given, the Investor Limited Partner Liquidation
Notice shall be irrevocable. If the Investor Limited Partner exercises this
option prior to November 17, 2005 and the General Partner does not exercise its
option to purchase the Investor Limited Partner's interest pursuant to Section
9.2: (i) any distributions of Operating Cash to be made for the period beginning
on November 17, 2005 and ending on the date of the Partnership's dissolution
shall be made to the Partners in proportion to their Percentage Interests
(rather than as described in Section 4.1(b)), and (ii) solely for the purpose of
determining Fair Market Value pursuant to Section 9.3, any guarantee provided by
PSA with respect to any Project pursuant to Section 6.4 shall be taken into
account as if that guarantee continued in perpetuity.
9.2 General Partner's First Option to Purchase.
(a) If the Investor Limited Partner exercises the option set
forth in Section 9.1, the General Partner or its assignee shall have the right
and option (but not the obligation) to purchase all of the Interest of the
Investor Limited Partner on the terms and conditions set forth in this Section
9.2. The option granted pursuant to this Section may be exercised by the General
Partner by delivery of a notice to the Investor Limited Partner at any time
within 30 days of receipt of the Investor Limited Partner Liquidation Notice by
delivery of a notice to the Investor Limited Partner (the "General Partner First
Option Notice"). Once given the General Partner First Option Notice shall be
irrevocable. If the General Partner exercises its option and the General Partner
determines that it does not wish to continue to hold an ownership interest in
certain of the Projects, the Partners agree to cooperate in all reasonable
respects to have the Partnership dispose of those Projects at no cost to the
Investor Limited Partner.
(b) The purchase consideration payable by the General Partner
to the Investor Limited Partner shall be an amount that, when added to all
amounts distributed to the Investor Limited Partner under this Agreement
(including any guaranteed payments made under Section 2.2(e)) will equal to the
sum of the Investor Limited Partner's Capital Contributions and the aggregate
Priority Distribution of the Investor Limited Partner accrued from the Initial
Funding Date to the date of its payment, with the Priority Distribution for
purposes of this Section 9.2 and Section 12.1 computed using monthly compounding
at the monthly rate of one twelfth of 10.75% or 12% if the General Partner
exercises its right under Section 9.6 (i.e., causes a sale of one or more
Projects or shares of PSA stock without the consent of the Investor Limited
Partner). The General Partner's estimate of such purchase consideration shall be
set forth in the General Partner First Option Notice. If the Investor Limited
Partner disagrees with such estimate, the Investor Limited Partner shall notify
the General Partner, and if the parties are unable to reach agreement, the
matter will be arbitrated in accordance with Section 14.19.
9.3 General Partner's Obligation to Purchase.
(a) If following the Investor Limited Partner's exercise of the
option set forth in Section 9.1, the General Partner does not exercise its
option to purchase all of the Interest of the Investor Limited Partner pursuant
to Section 9.2, the General Partner or its assignee shall purchase, and the
Investor Limited Partner shall sell, all of the Interest of the Investor Limited
Partner in accordance with the provisions of this Section 9.3.
(b) The purchase consideration payable by the General Partner
to the Investor Limited Partner shall be the Net Equity of the Investor Limited
Partner's Interest as determined, without audit or certification, from the books
and records of the Partnership by the firm of independent public accountants
regularly employed by the Partnership. The Net Equity of the Investor Limited
Partner's Interest to be purchased shall be determined within 15 days after such
accountants are apprised in writing of the Fair Market Value of the Property,
and the amount of such Net Equity shall be disclosed to the Partners by written
notice. The Net Equity determination of such accountants shall be final and
binding in the absence of manifest error. The Investor Limited Partner shall
have the right to cause an audit of the Net Equity determination, at the sole
expense of the Investor Limited Partner, provided that the Partnership shall pay
such expense if the audited results of the Net Equity determination result in an
increase by two percent or more in the Net Equity of the Investor Limited
Partner's Interest as compared to the unaudited amount.
(c) The Fair Market Value of the Property shall be determined
as follows:
(i) In determining the Fair Market Value of all Property of
the Partnership, the Fair Market Value of the PSA Equity Shares and any PSA
Common Shares shall be the Average Price multiplied by the sum of (1) the
number of shares of PSA Common Shares into which the PSA Equity Shares held
by the Partnership are convertible and (2) the number of shares of PSA
Common Shares held by the Partnership. The Fair Market Value of all other
Property (i.e., all Property other than PSA Equity Shares and PSA Common
Shares, the "Other Property") shall be determined as set forth below.
(ii) The General Partner shall provide the Investor Limited
Partner its estimate of the value of the Other Property (including a
general explanation of how the estimated value was determined and
calculated) within 30 days of receipt of the Investor Limited Partner
Liquidation Notice. If the Investor Limited Partner does not provide the
General Partner with an approval of the estimate of value within 45 days of
receiving the General Partner's estimate of value of the Property, then
such value shall be deemed to be rejected as its Fair Market Value.
(iii) If the Investor Limited Partner rejects the General
Partner's estimate of value, then the General Partner shall engage an
Appraiser (the "First Appraiser"). The First Appraiser's engagement shall
require the Appraiser to determine the Appraised Value of the Other
Property, and to submit such appraisal and determination to each of the
General Partner and the Investor Limited Partner within 60 days of
engagement.
(iv) Within 20 days after receipt of such appraisal and
determination, the Investor Limited Partner shall notify the General
Partner and the First Appraiser as to whether it accepts or rejects the
Appraised Value of the Other Property. If the Investor Limited Partner
rejects the Appraised Value of the First Appraiser, it shall engage another
Appraiser (the "Second Appraiser") and include its name in the notice of
rejection. In the absence of acceptance of the Appraised Value prepared by
the First Appraiser, the Investor Limited Partner shall be deemed to have
rejected the Appraised Value as determined by the First Appraiser. If the
Investor Limited Partner accepts the Appraised Value of the First
Appraiser, then such value shall be deemed the Fair Market Value.
(v) The Second Appraiser's engagement shall require the
Appraiser to determine the Appraised Value of the Other Property, and to
submit such appraisal and determination to each of the General Partner and
the Investor Limited Partner within 60 days of engagement.
(vi) If the lower of the Appraised Values determined by the
First and Second Appraisers is at least 90% of the higher of those two
Appraised Values, then the Fair Market Value shall be the average of those
two Appraised Values. If the difference between the Appraised Values is
greater than 10%, then the First Appraiser and the Second Appraiser shall
engage another Appraiser (the "Third Appraiser") to determine the Appraised
Value of the Other Property, and to submit such appraisal and determination
to each of the General Partner and the Investor Limited Partner within 60
days of engagement.
(vii) If a Third Appraiser is so engaged, the average of
the highest Appraised Value and the lowest Appraised Value shall be
determined. If the remaining Appraised Value (the Appraised Value that is
in between the highest and the lowest) is no more than 5% greater than, and
no more than 5% less than, the average of the highest and the lowest, the
Fair Market Value shall be the average of the highest and lowest Appraised
Values. If the middle Appraised Value is outside of that range, the Fair
Market Value shall be the average of the two Appraised Values that are
closest to each other.
(viii) All costs of any appraisal process shall be borne
50% by the General Partner and 50% by the Investor Limited Partner.
(d) If the Investor Limited Partner's Net Equity with respect
to the Interest purchased, combined with all prior distributions received by the
Investor Limited Partner, produces a Shortfall as defined in Section 1.8(mmm),
the purchase consideration payable by the General Partner to the Investor
Limited Partner in respect of the Interest purchased pursuant to Section 9.2
shall include an amount equal to the Shortfall.
9.4 No Exercise of Option to Cause Early Liquidation of the
Partnership; General Partner's Second Option to Purchase.
(a) The General Partner or its assignee shall have the right
and option (but not the obligation) to purchase all of the Interest of the
Investor Limited Partner on the terms and conditions set forth in this Section
9.4. The option granted pursuant to this Section may be exercised by the General
Partner by delivery of a notice (the "General Partner Second Option Notice") to
the Investor Limited Partner at any time beginning 60 days prior to November 17,
2014. Once given the General Partner Second Option Notice shall be irrevocable.
If the General Partner exercises its option and the General Partner determines
that it does not wish to continue to hold an ownership interest in certain of
the Projects, the Partners agree to cooperate in all reasonable respects to have
the Partnership dispose of those Projects, at no cost to the Investor Limited
Partner.
(b) The purchase consideration payable by the General Partner
to the Investor Limited Partner shall be the Net Equity of the Investor Limited
Partner's Interest as of November 17, 2014, determined as provided in Section
9.3(b).
9.5 Closing. The closing of the purchase and sale of the Investor
Limited Partner's Interest under Section 9.2, 9.3 or 9.4 shall occur at the
principal executive office of the Partnership on a date and time mutually
agreeable to the General Partner and the Investor Limited Partner, which shall
not be later than 20 days following the determination of the Net Equity of the
Investor Limited Partner Interest (subject to final determination of the
component of Net Equity that is based on the Average Price). At the closing, the
Investor Limited Partner will deliver or cause to be delivered to the General
Partner (i) appropriate assignments or other documents sufficient to transfer
good and valid title to the Interest to be purchased, free and clear of all
liens and encumbrances; and (ii) such other documents as the General Partner or
its counsel may reasonably request. At the closing, the General Partner will
deliver or cause to be delivered to the Investor Limited Partner a wire transfer
of immediately available funds in the amount to which the Investor Limited
Partner is entitled under this Agreement.
9.6 General Partner Right to Compel Sale. Notwithstanding anything
in this Agreement to the contrary, the General Partner shall have the right to
compel the sale of all or any number of the Projects or shares of PSA Equity
Shares or PSA Common Shares to a third party for cash at no less than fair
market value without the consent of the Limited Partners at any time and from
time to time. In such event, the net proceeds of any such sale or sales shall be
invested in obligations of the United States Treasury.
10. Dissolution and Winding Up
10.1 Liquidating Events. The Partnership shall dissolve and
commence winding up and liquidating upon the first to occur of any of the
following (a "Liquidating Event"):
(a) The sale of all or substantially all of the Property (other
than a sale pursuant to Section 9.6);
(b) The vote by the General Partner and 100% in Percentage
Interest of the Partners to dissolve, wind up and liquidate the Partnership;
(c) The Investor Limited Partner's exercise of the option to
cause liquidation provided in Section 9.1 followed by the subsequent failure of
the General Partner to exercise the option to purchase provided in Section 9.2
by the end of the period specified therein and the then subsequent failure of
the General Partner to perform its obligation to purchase pursuant to Section
9.3;
(d) The occurrence of any of the events specified in Section
15681 of the Act; or
(e) 5:00 p.m., Pacific time, November 17, 2014.
10.2 Winding Up. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of its
creditors and Partners. In such event, no Partner shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event that
either the General Partner is in material default under this Agreement and the
default continues after reasonable notice and opportunity to cure or there is no
General Partner, any Person elected by a majority in Percentage Interest of the
Partners) shall be responsible for overseeing the winding up and dissolution of
the Partnership and shall take full account of the Partnership's liabilities and
Property and the Property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom, to the extent
sufficient therefor, shall be applied and distributed in the following order:
(a) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the Partners;
(b) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners; and
(c) The balance, if any, to the Partners in accordance with
their Capital Accounts, after giving effect to all contributions, distributions
and allocations for all periods (other than distributions and contributions made
pursuant to this Section 10.2(c) and deductions attributable thereto); provided,
however, that if: (i) the Liquidating Event occurs on or before November 17,
2005, (ii) prior to making the distributions pursuant to this Section 10.2(c),
the General Partner and the PS Limited Partner combined have a positive Capital
Account, and (iii) the distribution that otherwise would be made to the Investor
Limited Partner would result in a Shortfall, an amount otherwise distributable
to the General Partner and the PS Limited Partner combined pursuant to this
Section 10.2(c) equal to the amount of the Shortfall shall be deemed
recontributed by the General Partner and the PS Limited Partner (in a 1/50
ratio, or if different, in the ratio in which they otherwise would share the
distribution) to the Partnership and shall be distributed to the Investor
Limited Partner as a guaranteed payment pursuant to Section 2.2(e).
10.3 Compliance with Timing Requirements of Regulations. In the
event the Partnership is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Section
10 to the Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (b) if a Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Person shall have no obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit shall not be considered a debt owed to the Partnership or any other
Person for any purpose whatsoever. In the discretion of the General Partner, a
pro rata portion of the distributions that would otherwise be made to the
Partners pursuant to this Section 10 may be:
(a) Distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets, collecting amounts
owed to the Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of the Partners arising out of or in
connection with the Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable discretion of
the General Partner, in the same proportions as the amount distributed to such
trust by the Partnership would otherwise have been distributed to the Partners
pursuant to this Agreement; or
(b) Withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the Partners as soon as practicable.
10.4 Rights of Partners. Except as otherwise provided in this
Agreement each Partner shall look solely to the assets of the Partnership for
the return of its Capital Contribution and shall have no right or power to
demand or receive property other than cash from the Partnership.
11. Indemnification
11.1 Indemnification by the Partnership. The Partnership shall
indemnify and hold harmless the Partners, their Affiliates, the Investor Limited
Partner's advisor, and their respective officers, directors, employees, agents
(including members of the Investment Committee) and principals (for purposes of
this Section, an "Indemnitee") from and against any and all losses, claims,
demands, costs, damages, liabilities, joint and several, expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which the Indemnitee was involved or may be involved, or threatened to be
involved, as a party or otherwise, arising out of or incidental to the business
of the Partnership, excluding liabilities to any Partner, regardless of whether
the Indemnitee continues to be a Partner, an Affiliate, or an officer, director,
employee, agent or principal of the Partner at the time any such liability or
expense is paid or incurred, to the fullest extent permitted by the Act and all
other applicable laws; provided that such indemnity shall not extend to actions
or omissions in bad faith or constituting gross negligence by any such
Indemnitee and shall not extend to actions taken by the property manager (which
is indemnified under the Management Agreement) in its capacity as such pursuant
to the Management Agreement. Further, this Section shall not operate to
indemnify or hold harmless the General Partner or any other PSA Affiliate for
acts or omissions to the extent the General Partner is liable for those acts or
omissions pursuant to Section 11.2.
Without limitation to any other exculpatory provision of this
Agreement, the Investor Limited Partner and its representatives (including its
appointees to the Investment Committee) shall not have any fiduciary obligation
to, or any other obligation to act in the interests of, any other Partner or the
Partnership by virtue of their respective rights under this Agreement or any
guaranty by PSA, including, without limitation, their respective rights under
Sections 1.7 (certain rights of first refusal to develop Qualifying Properties),
6.2 (activities of the Investment Committee) or 6.3 (opportunity to invest in
next development program) or Article 9 (certain options to purchase Interests)
of this Agreement, or in the exercise of such rights.
11.2 Indemnification by the General Partner. The General Partner
shall indemnify and hold harmless the Investor Limited Partner, the Partnership,
and their respective Affiliates, advisors, officers, directors, employees,
agents (including members of the Investment Committee) and principals (for
purposes of this Section, an "Indemnitee") from and against any and all losses,
claims, demands, costs, damages, liabilities, joint and several, expenses of any
nature (including reasonable attorneys' fees and disbursements), judgments,
fines, settlements and other amounts arising from (i) any and all claims,
demands, actions, suits or proceedings, whether civil, criminal, administrative
or investigative, in which the Indemnitee was involved or may be involved, or
threatened to be involved, as a party or otherwise, arising out of a violation
or alleged violation of federal or state securities laws incurred in connection
with the purchase or sale of, or any other transaction involving, PSA Common
Shares or PSA Equity Shares of the Partnership, (ii) any demands, claims
actions, suits or proceedings by any third party asserting a right of first
refusal or other like right to undertake the acquisition or development of
self-storage facilities with any PSA Affiliate that conflicts with the rights
granted to the Partnership pursuant to Section 1.7, or (iii) acts or omissions
in bad faith or constituting gross negligence by the General Partner or any of
its Affiliates, directors, officers, employees, agents, and principals, in any
case, regardless of whether the Indemnitee continues to be the Investor Limited
Partner, an Affiliate, or an officer, director, employee, agent or principal of
the Investor Limited Partner at the time any such liability or expense is paid
or incurred, to the fullest extent permitted by the Act and all other applicable
laws, provided that such indemnity shall not extend to actions not taken in good
faith by any such Indemnitee.
11.3 Expenses.. Expenses incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to Sections 11.1 or 11.2
shall, from time to time, be advanced by the Partnership prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the Partnership of an undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that such Person is not entitled to be
indemnified as authorized in Sections 11.1 or 11.2.
11.4 Indemnification Rights Nonexclusive. The indemnification
provided by Sections 11.1 or 11.2 shall be in addition to any other rights to
which those indemnified may be entitled under any agreement, vote of the
Partners, as a matter of law or equity or otherwise, both as to action in the
Indemnitee's capacity as a Partner, the General Partner, an Affiliate or an
officer, director, employee, agent or principal of a Partner and as to any
action in another capacity, and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
11.5 Errors and Omissions Insurance. The Partnership may purchase
and maintain insurance, at the Partnership's expense, on behalf of the
Partnership, the General Partner, the Partners and such other Persons as the
General Partner shall determine (provided that the Partners and other Persons
shall only be named as insured to the extent that doing so does not increase the
cost of the insurance or if any added cost is borne by the affected Person),
against any liability that may be asserted against, or any expense that may be
incurred by, such Person in connection with the activities of the Partnership
and/or the General Partner's or the Partners' acts or omissions as the General
Partner and Partners of the Partnership regardless of whether the Partnership
would have the power to indemnify such Person against such liability under the
provisions of this Agreement.
11.6 Assets of the Partnership. Any indemnification under Section
11.1 shall be satisfied solely out of the assets of the Partnership. No Partner
shall be subject to personal liability or required to fund or to cause to be
funded any obligation by reason of Section 11.1's indemnification provisions.
12. Defaulting Event Remedies
12.1 Election to Purchase Defaulting Partner's Interest. In the
event that a Partner becomes a Defaulting Partner, the nondefaulting Partner
shall have the option to purchase the Interest of the Defaulting Partner in the
Partnership, with any such election to be made by the nondefaulting Partner
giving notice of such election to the Defaulting Partner within 30 days after
the nondefaulting Partner first discovers that the other Partner has become a
Defaulting Partner (and so notifies the Defaulting Partner in writing). In the
event that the General Partner is the Defaulting Partner and shall at that time
be able to exercise the option to purchase the Interest of the Investor Limited
Partner under Section 9.2, then the General Partner can exercise its Section 9.2
option within 30 days after such notice, provided that the closing under Section
9.5 shall take place within 20 days following the date of exercise of such
option.
12.2 Purchase Price of Defaulting Partner's Interest. If either
Partner becomes a Defaulting Partner, in the event that the nondefaulting
Partner elects under Section 12.1 to purchase the Defaulting Partner's Interest,
the purchase price of such Interest shall be 70% of the Adjusted Capital
Contribution of the Defaulting Partner; provided, however, that the
nondefaulting Partner shall receive a credit against such purchase price in the
amount of any delinquent capital contributions due from the Defaulting Partner
and any expenses of closing such purchase. This option to purchase the interest
of the Defaulting Partner at a discount is deemed reasonable by the Partners and
is intended to serve as agreed upon liquidated damages and not as a penalty, the
amount of the actual damages suffered by the nondefaulting partner being
difficult if not impossible to ascertain. In the event that the nondefaulting
Partner elects under Section 12.1 to purchase the Defaulting Partner's Interest,
then the Partnership shall not make any distributions on or before the closing
of the purchase of such Interest, and any such distributions which would have
been made to the Defaulting Partner shall be distributed to the nondefaulting
Partner on or after the closing. At such time as the purchase price of the
Defaulting Partner's Interest has been determined, the nondefaulting Partner
shall give notice of the amount thereof to the Defaulting Partner and the
closing shall be held on a date selected by the nondefaulting Partner within ten
Business Days thereafter.
12.3 Remedies Nonexclusive. The option of the nondefaulting Partner
to purchase the Interest of the Defaulting Partner under Section 12.1 is not the
exclusive remedy of the nondefaulting Partner, but it is merely cumulative of,
and in addition to, any rights or remedies which the nondefaulting Partner or
the Partnership may have at law or in equity against or with respect to such
Defaulting Partner, provided that any recovery under this Agreement against a
Defaulting Partner shall be limited to the Defaulting Partner's interest in the
Partnership. Without limiting its right to seek and recover damages for the
Defaulting Event, a nondefaulting Partner may at its option: (i) replace the
Defaulting Partner's representative(s) on the Investment Committee with its own
representative(s), provided that no purchase, sale or financing of Property,
other than pursuant to Section 12.2, shall be taken except with the consent of
the Partners, (ii) remove the General Partner, (iii) terminate the Management
Agreement (Exhibit D) or (iv) apply to any Capital Contribution with respect to
which the General Partner is in default the management fees otherwise payable to
PSA Affiliates under the Management Agreement for a period of up to 120 days,
during which the PSA Affiliates shall not terminate the Management Agreement for
nonpayment of such management fees.
13. Representations and Warranties
13.1 Representations and Warranties of the General Partner. The
General Partner and the PS Limited Partner hereby represent and warrant to the
Investor Limited Partner and the Partnership that:
(a) The General Partner is a duly organized and validly
existing limited partnership in good standing under the laws of the State of
Texas, duly qualified to do business in all states in which the General Partner
is required to so qualify (except where the failure to so qualify would not have
a material adverse effect on either the General Partner's ability to perform its
obligations under this Agreement or its financial condition), and has the
requisite power and authority to enter into and carry out the terms of this
Agreement, and the PS Limited Partner is a duly organized and validly existing
business trust in good standing under the laws of the State of Delaware, duly
qualified to do business in all states in which the PS Limited Partner is
required to so qualify (except where the failure to so qualify would not have a
material adverse effect on either the PS Limited Partner's ability to perform
its obligations under this Agreement or its financial condition), and has the
requisite power and authority to enter into and carry out the terms of this
Agreement;
(b) All action required to be taken by the General Partner and
the PS Limited Partner to consummate this Agreement has been taken by the
General Partner and the PS Limited Partner and no further approval of any board,
court or other body is necessary in order to permit the General Partner and the
PS Limited Partner to consummate this Agreement;
(c) Neither the execution and delivery of, nor the performance
of, nor the compliance with, this Agreement has resulted (or will result) in any
violation of, be in conflict with, invalidate, cancel or make inoperative
interfere with, or constitute a default under, or result in the creation of any
lien, encumbrance or any other charge upon the Project (each reference in this
Section 13.1 to a Project refers to each of the Projects described on Exhibit A
and shall be deemed reconfirmed by the General Partner and the PS Limited
Partner as to each additional Project as same is acquired by the Partnership) or
the other Property, pursuant to any charter, bylaw, venture agreement,
partnership agreement, trust agreement, mortgage, deed of trust, indenture,
contract, agreement, permit, judgment, decree or order to which the General
Partner, the PS Limited Partner or the Partnership is a party or by which the
Project or the other Property, or any portion thereof is bound, and there is no
default and no event or omission has occurred which, but for the passing of time
or the giving of notice, or both, would constitute a default on the part of the
General Partner or the PS Limited Partner under this Agreement;
(d) There is no action, proceeding or investigation pending or,
to the General Partner's or the PS Limited Partner's actual knowledge after
reasonable inquiry, threatened (nor any basis therefor) against the Partnership
or which questions, directly or indirectly, the validity or enforceability of
this Agreement as to the General Partner or the PS Limited Partner or which
would materially and adversely affect the Project or the other Property or the
Partnership, and no lien against the Project or the other Property has arisen or
exists under Federal or state tax or other laws, other than liens for current
real property taxes and assessments not yet due and payable;
(e) The General Partner and the PS Limited Partner have no
actual knowledge of any title defect, lien, encumbrance, adverse claim or other
matter relating to the title to the Project or the other Property or to the
title insurance coverage for the Project which they have not disclosed in
writing to the Partnership's title company or which is not shown by the public
records;
(f) No representation, warranty or covenant of the General
Partner and the PS Limited Partner in this Agreement, or in any document or
certificate furnished or to be furnished to the Investor Limited Partner
pursuant thereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements or facts contained therein not misleading, and all such
representations, warranties or statements of the General Partner and the PS
Limited Partner are based, to the General Partner's and the PS Limited Partner's
actual knowledge after reasonable inquiry, upon current, accurate and complete
information as of the time of their making, and there have been, to the General
Partner's and the PS Limited Partner's actual knowledge after reasonable
inquiry, no changes in such information subsequent thereto;
(g) The General Partner and the PS Limited Partner have
disclosed to the Investor Limited Partner all material matters known to the
General Partner and the PS Limited Partner in connection with the Project and
the other Property and all related projections, studies and budgets;
(h) This Agreement has been duly executed by the General
Partner and the PS Limited Partner and is and will remain a valid and binding
agreement, enforceable in accordance with its terms;
(i) There are no judgments or decrees of any kind against the
General Partner, and PS Limited Partner or the Partnership unpaid or unsatisfied
of record in any court of any city, county, state or of the United States;
neither the General Partner nor the PS Limited Partner is in the hands of a
receiver and neither has committed an act of bankruptcy and an order for relief
has not been entered with respect to the General Partner, the PS Limited Partner
or the Partnership; there are no due and unpaid business license taxes of the
General Partner, the PS Limited Partner or the Partnership, and there are no due
and unpaid income, property, sales or other taxes of the General Partner, the PS
Limited Partner or the Partnership which constitute a lien against the Project
or the other Property or could, with the passage of time, constitute such a
lien, except the lien of any such taxes which are not yet due and payable,
except, in each case, where the existence of such condition or conditions would
not, individually or in the aggregate, have a material adverse effect on the
business operations, assets or financial condition of the General Partner, the
PS Limited Partner or the Partnership; the General Partner and the PS Limited
Partner have received no notice of any alleged violation of, and, to the General
Partner's and the PS Limited Partner's actual knowledge, there is no violation
by the General Partner, the PS Limited Partner, the Partnership or the Project
of, any Federal, state or local law, rule or regulation affecting the Project,
other than violations that, individually or in the aggregate, would have no
material adverse effect on the Project, the other Property, the General Partner,
the PS Limited Partner or the Partnership;
(j) To the General Partner's and the PS Limited Partner's
actual knowledge, no person or entity has any oral or written right, agreement
or option to acquire all or any portion of the Project or the other Property or
any interest or estate therein, other than as reflected in the public records or
as provided in writing to the title company insuring title to a Project;
(k) To the General Partner's and the PS Limited Partner's
actual knowledge, the Project is not subject to or affected by any special
assessment for public improvements or otherwise, whether or not presently a lien
on the land; the General Partner and the PS Limited Partner have not made any
commitment to any governmental authority, utility company, school board, church
or other religious body, homeowner or homeowner's association or any other
organization, group or individual relating to the Project which would impose an
obligation upon the Partnership or its successors or assigns to make any
contributions or dedications of money or land (other that water and sewer), or
to construct, install or maintain any improvements of a public or private nature
as part of the Project or upon separate lands; other than as estimated in the
Business Plans, no governmental authority has imposed any requirement that the
General Partner or the PS Limited Partner pay directly or indirectly any special
fees or contributions or incur any expenses or obligations in connection with
the development of the Project or any portion thereof, other than any regular
and nondiscriminatory local real estate or school taxes assessed against the
Project; and the Project is separately assessed for real property tax assessment
purposes and is not combined with any other real property for tax assessment
purposes;
(l) To the General Partner's and the PS Limited Partner's
actual knowledge, the Project has not been used at any time for the disposal,
release, handling, transportation, treatment, processing or storage of any
Hazardous Materials in such amounts that would reasonably necessitate any
response or corrective action, including any such action under any Hazardous
Materials Laws; the General Partner and the PS Limited Partner have not received
any written or oral notice or other communication of pending or threatened
claims, actions, suits, proceedings or investigations against the General
Partner, the PS Limited Partner or the Partnership with respect to the Project
or any property adjacent to the Project and related to (i) the disposal or
release of solid, liquid or gaseous waste into the environment, (ii) the
disposal, release, handling, transportation, treatment, processing or storage of
any Hazardous Materials, (iii) the placement of structures or Hazardous
Materials into waters of the United States, (iv) the presence of any Hazardous
Materials in any building or structure or otherwise located on the Project or
such adjacent property, or (v) any alleged violation of any Hazardous Materials
Law; to the General Partner's actual knowledge, no soil or water in, under or
adjacent to the Project is contaminated by any Hazardous Materials; to the
General Partner's and the PS Limited Partner's actual knowledge, there are no
underground tanks or any other underground storage facilities located on the
Project; to the General Partner's and the PS Limited Partner's actual knowledge,
neither the Project nor any property adjacent to the Project is included on the
National Priority List or any other Federal or state "superfund" or "superlien"
list, nor is there any current action or investigation pending which could
result in any such inclusion;
(m) The General Partner and the PS Limited Partner have not
received any notice of any pending or threatened condemnation, expropriation,
eminent domain, change in grade of public street or similar proceeding affecting
all or any portion of the Project, and the General Partner and the PS Limited
Partner have no knowledge that any such proceeding is contemplated;
(n) To the General Partner's and the PS Limited Partner's
actual knowledge, except as otherwise indicated on any Project survey approved
by the Investment Committee, the Project has not been mapped by the Federal
Emergency Management Agency as being in an area designated as a "flood hazard
area" in accordance with the document entitled "Department of Housing and Urban
Development, Federal Insurance Administration - Special Flood Hazard Area Maps"
or mapped as being within the 100-year flood plain as depicted on the U.S. Army
Corps of Engineers Geodetic Maps of such flood plain areas, and the Project is
not located within an area identified by any governmental agency as being within
an Alquist-Priolo Zone or having special earthquake hazards;
(o) All public utilities (including, without limitation, water,
sanitary sewer, storm sewer, electricity, telephone, drainage and other utility
facilities) necessary for the normal operation of the Project are or will be
available to the Project; all of the utilities either enter the Project through
adjoining public streets or, if they pass or will pass through adjoining private
land, do so or will do so in accordance with valid and recorded public easements
or private easements which will inure to the benefit of the Partnership; and the
General Partner and the PS Limited Partner have not received any complaint or
claim with respect to storm water flow from any owner of adjacent property or
otherwise, and the General Partner and the PS Limited Partner are not aware of
any reason for any such complaint;
(p) The Project has vehicular and pedestrian ingress and egress
to paved and dedicated streets abutting or adjoining the Project with curb cut
or driveway permits from all requisite governmental authorities;
(q) The Project is zoned under the applicable zoning ordinance
to permit the development of the Project for the intended uses;
(r) The General Partner and the PS Limited Partner have not
received notice of any default or breach under any covenant, condition,
restriction, right-of-way or easement which may affect the Project or any
portion or portions thereof which are to be performed or complied with by the
owner or occupant of the Project, and no notice of any condition or circumstance
which, with the giving of notice or passage of time, or both, would constitute a
default or breach under any of such covenants, conditions, restrictions,
rights-of-way or easements; and
(s) To the General Partner's and the PS Limited Partner's
actual knowledge, the plans and specifications provided to the Investor Limited
Partner by the General Partner and the PS Limited Partner comply with all laws,
rules and regulations applicable to the Project.
13.2 Representations and Warranties of the Investor Limited
Partner. The Investor Limited Partner hereby represents and warrants to the
General Partner and the Partnership that the Investor Limited Partner is duly
formed, validly existing and in good standing under the laws of the state of
Delaware; that it is not subject to any involuntary proceeding for the
dissolution or liquidation thereof; that it has all requisite authorizations to
enter into this Agreement with the General Partner and to consummate the
transactions contemplated hereby; and that the parties executing this Agreement
on behalf of the Investor Limited Partner are duly authorized to so do.
13.3 Agreements of the General Partner.
(a) During the term of the Partnership, the Projects shall be
operated and managed as an integral part of the Public Storage network of
self-storage facilities, subject to the terms of the Management Agreement.
Without limiting the foregoing, the General Partner covenants and agrees that
the Projects will be managed in a reasonable commercial manner consistent with
the management of other self-storage projects owned by PSA Affiliates; this will
include (i) causing all rents and other charges with respect to the Projects to
be at competitive rates within the local market, taking into account occupancy,
location, the quality of the Project and all other relevant factors; (ii)
operating the Projects in a manner so as to minimize expenses applicable thereto
to the extent appropriate in the operation and promotion of first class
self-storage projects and maximizing the long term net profits therefrom and the
value thereof; and (iii) operating the Projects in a prudent and first class
manner, with all appropriate action being taken to protect and preserve them
(including appropriate repairs, maintenance, insurance coverage and the like).
(b) The General Partner will insure and keep insured at all
times all of the Projects (including the Partnership as a named insured) against
loss or damage by fire and from other causes customarily insured against by
companies engaged in similar businesses in such amounts as are usually insured
against by such companies, and in any case as are adequate to provide reasonable
protection against such loss or damage to the Projects. The General Partner also
will maintain at all times (including the Partnership as a named insured) with
financially sound and reputable insurers adequate insurance against loss or
damage from such hazards and risks to the person and property of others as are
usually insured against by companies operating businesses similar to the
businesses of the Partnership. All such insurance shall be carried with
financially sound and reputable insurers accorded a rating of "A-VI" or better
by A.M. Best Company, Inc. (or a comparable rating by any comparable rating
agency), provided that at least 75% of all coverage and the insurer with the
risk of first loss in each category shall have a rating of "A-IX" or better. If
the Partnership cannot obtain sufficient insurance which meets the above
criteria, the General Partner will provide the Investor Limited Partner with
notice and will demonstrate that insurance cannot be obtained in accordance with
the above criteria, in which case the requirement shall be reduced to the
highest rating for which coverage is reasonably available. The sum of the
deductible limit of all insurance coverage plus any amounts of self-insurance
will not exceed $1,500,000 per occurrence. A summary of insurance presently in
force has been provided to the Investor Limited Partner and is attached hereto
as Exhibit L.
(c) Expenses incurred in operating the Projects shall be
allocated among the Projects on the same basis on which such expenses are
allocated among all other projects owned by PSA Affiliates and in a manner
generally consistent with prior practice as reflected in Exhibit J.
(d) The General Partner shall allocate to the Partnership only
such amount of the compensation of each project manager of a Project as is
comparable to the compensation of project managers of similar sized self storage
facilities in the same or similar market areas that do not include retail
stores.
14. Miscellaneous
14.1 Notices. Any notice, payment, demand, or communication
required or permitted to be given by any provision of this Agreement shall be in
writing and shall be delivered personally to the Person or to an officer of the
Person to whom the same is directed, or sent by facsimile transmission, by
nationally recognized courier service or by first class mail, registered or
certified, addressed as follows, or to such other address as such Person may
from time to time specify by notice to the Partners:
(a) If to the Partnership, to the Partnership's principal
executive office set forth in Section 1.4;
(b) If to the Investor Limited Partner, to:
PSAC Storage Investors, LLC
c/o Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
Attn: Mr. B. Wayne Hughes
Fax: 818.548.9288
with copies to:
[Investor address]
and
[Investor Representative address]
(c) If to the General Partner, to:
PS Texas Holdings, Ltd.
c/o Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
Attn: Mr. Carl B. Phelps
Fax: 818.241.9489
(d) If to the PS Limited Partner, to:
PS Pennsylvania Trust
c/o Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
Attn: Mr. Carl B. Phelps
Fax: 818.241.9489
Any such notice shall be deemed to be delivered, given and received
for all purposes as of (i) the first Business Day after it is so delivered or
sent, if delivered personally or sent by facsimile transmission (with
transmission confirmed), (ii) the first Business Day after delivered to a
nationally recognized courier service, if sent by overnight delivery through
such a courier service, or (ii) three Business Days after being deposited in the
United States mail, if sent by registered or certified mail, postage and charges
prepaid. Any Person may from time to time specify a different address by notice
to the Partnership and the Partners.
14.2 Binding Effect. Except as otherwise provided in this
Agreement, every covenant, term and provision of this Agreement shall be binding
upon and inure to the benefit of the Partners and their respective successors
and permitted transferees and assigns.
14.3 Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Partner. References in this Agreement to Sections
are to Sections of this Agreement unless expressly indicated otherwise.
"Including" means "including without limitation." "Or" is inclusive and includes
"and."
14.4 Time. Time is of the essence with respect to this Agreement.
14.5 Headings. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision hereof.
14.6 Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
or legality of the remainder of this Agreement.
14.7 Incorporation by Reference. Every exhibit attached to this
Agreement and referred to herein is hereby incorporated in this Agreement by
reference.
14.8 Further Action. Each Partner, upon the request of the General
Partner, agrees to perform all further acts and execute, acknowledge and deliver
any documents which may be reasonably necessary, appropriate or desirable to
carry out the provisions of this Agreement.
14.9 Variation of Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine or neuter, singular or plural,
as the identity of the Person or Persons may require.
14.10 Governing Law. The laws of the State of California shall
govern the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the Partners.
14.11 Waiver of Action for Partition. Each Partner irrevocably
waives any right that it may have to maintain any action for partition with
respect to any of the Property.
14.12 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all of the Partners had signed the same
document. All counterparts shall be construed together and shall constitute one
agreement.
14.13 Sole and Absolute Discretion. Except as otherwise provided in
this Agreement, all actions which the Partners may take and all determinations
which the Partners may make pursuant to this Agreement may be taken and made in
their sole and absolute discretion.
14.14 Entire Agreement. This Agreement and the exhibits hereto,
which are incorporated herein by reference, constitute the entire agreement
among the parties hereto pertaining to the subject matter hereof and supersede
all prior agreements, understandings, negotiations and discussions, whether oral
or written.
14.15 Attorneys' Fees. Should any litigation, arbitration or other
action or proceeding be commenced among the parties hereto, the party or parties
prevailing in such litigation, arbitration or other action or proceeding shall
be entitled, in addition to such other relief as may be granted, to a reasonable
sum as and for its or their attorneys' fees and costs in such litigation,
arbitration or other action or proceeding which shall be determined by the court
or arbitral tribunal therein or in a separate action brought for that purpose.
14.16 Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any Person other than the parties hereto any
rights or remedies under or by reason of this Agreement.
14.17 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
14.18 Amendment and Modification. This Agreement may be amended or
modified solely by unanimous written consent of the Partners.
14.19 Dispute Resolution. If any dispute or controversy among the
parties hereto arises out of or relating to this Agreement or the enforcement,
interpretation, performance or breach of this Agreement or as to any matters
related to but not covered by this Agreement, the parties shall first consult
together, at both the working and senior management levels, in good faith to
find an amicable resolution of the dispute or controversy. If the parties cannot
resolve the dispute or controversy by such consultation, it shall be finally
resolved by binding arbitration to be held in the County of Los Angeles, State
of California, under auspices of, and in accordance with, the Commercial
Arbitration Rules (the "Rules") of the American Arbitration Association. There
shall be an arbitral tribunal consisting of three neutral arbitrators, selected
according to the procedures set forth in the Rules and this Section, one of
which shall be selected jointly by the General Partner and the PS Limited
Partner, one of which shall be selected by the Investor Limited Partner, and the
two arbitrators so selected shall mutually appoint a third arbitrator. If either
of the first two arbitrators is not appointed within thirty (30) days of
delivery of notice of demand for arbitration, the other party (or parties) shall
select the arbitrator that was to be selected by such delinquent party (or
parties). If the first two arbitrators fail to select the third arbitrator
within thirty (30) days of their selection then, at the request of any party,
the third arbitrator shall be selected by the Chief Judge of the United States
District Court for the Central District of California (the "Court"). In any such
arbitration proceedings, the arbitrators shall adopt and apply the provisions of
the Federal Rules of Civil Procedure relating to discovery so that each party
shall allow and may obtain discovery of any matter not privileged that is
relevant to the subject matter involved in the arbitration to the same extent as
if such arbitration were a civil action pending in the Court. The arbitrators
may proceed to an award notwithstanding the failure of any party to participate
in the proceedings. The arbitrators may issue decisions for interim,
interlocutory, provisional or partial relief (e.g., temporary restraining
orders, preliminary injunctions, orders to compel discovery, orders of
attachment or protective orders) during the arbitration proceedings which may be
enforced in any court of competent jurisdiction. The arbitrators may also grant
appropriate relief at law or in equity, including removing the General Partner,
in the event the General Partner (with the participation or acquiescence of its
senior management) has been guilty of fraud, bad faith, gross negligence, abuse
of authority or misappropriation or waste of Partnership assets. The decision of
a majority of the arbitrators shall constitute an arbitral award which is final,
conclusive and binding on each party, and may be entered and shall be
enforceable in any court of competent jurisdiction.
14.20 Confidentiality The Partners agree that the terms of this
Agreement, any other agreements entered into in connection with the transactions
contemplated hereby and the identities of the parties hereto and their parent
companies are confidential and shall not be disclosed to any third party without
the other party's prior written consent; provided, however, that any party may
disclose the existence and/or terms and conditions hereof if so required by law
or by applicable stock exchange rules or to such party's attorneys, accountants
and other professionals subject to the professional duty not to disclose such
existence and/or terms and conditions unless permitted by law, so long as such
party first provides a copy of any such written request to the other party.
<PAGE>
The undersigned have entered into this Agreement as of the date first
above set forth.
General Partner:
PS Texas Holdings, Ltd.,
By: PS GPT Properties, Inc., its general
partner
By /s/ John Reyes
--------------------------------
Name: John Reyes
Title: C.F.O.
PS Limited Partner:
PS Pennsylvania Trust
By: Public Storage, Inc., trustee
By /s/ John Reyes
--------------------------------
Name: John Reyes
Title: C.F.O.
Investor Limited Partner:
PSAC Storage Investors, LLC
By /s/ B. Wayne Hughes
------------------------------------
B. Wayne Hughes, trustee of the B.W.
Hughes Living Trust under agreement
of trust dated June 3, 1977, as
amended, Member
Solely for the purposes of confirming
the grant of the right of first refusal
and other agreements described in
Section 1.7:
Public Storage, Inc.
By /s/ John Reyes
------------------------------------
Name: John Reyes
Title: C.F.O.
EXHIBIT 10.2
Agreement of Limited Liability Company
of
PSAC Storage Investors, L.L.C.
a Delaware limited liability company
November 15, 1999
Exhibits to this Agreement will be furnished to the Securities and Exchange
Commission upon request.
<PAGE>
Agreement of Limited Liability Company
This Agreement of Limited Liability Company (this "Agreement") is entered
into as of November 15, 1999, by and between [Investor] ("Investor"),
[Investor's address and fax] and B. Wayne Hughes, trustee of the B.W. Hughes
Living Trust under agreement of trust dated June 3, 1977, as amended ("Hughes"),
701 Western Avenue, Glendale, California 91201-2349, Fax: 818.548.9288, as the
"Members". The Members agree as follows:
1. General Provisions
1.1. Formation and Name. The Members form a limited liability company (the
"Company") pursuant to the Delaware Limited Liability Company Act, 6 Del. C.
ss.ss. 18-101 et seq. (the "Act"). The name of the Company shall be PSAC Storage
Investors, LLC.
1.2. Business of the Company. The business of the Company shall be to own
a limited partnership interest in that certain California limited partnership
under the name PSAC Development Partners, L.P. (the "Partnership"), to be formed
substantially concurrently with the formation of the Company. The business of
the Partnership shall be to develop and own self-storage facilities and to
acquire and hold shares of equity and common stock of Public Storage, Inc. and
to engage in any and all activities in accordance with the Limited Partnership
Agreement of the Partnership (the "Partnership Agreement").
1.3. Registered Office, Principal Executive Office and Agent for Service
of Process. The registered office of the Company in the State of Delaware shall
be c/o Corporation Service Company, 1013 Centre Road, City of Wilmington, County
of New Castle, Delaware 19805. The principal executive office of the Company
shall be c/o Hughes, 701 Western Avenue Glendale, California 91201-2349, or at
such other place as the Members may agree from time to time. The records of the
Company identified in Section 11.3 shall be maintained at the principal
executive office of the Company. The registered agent for service of process on
the Company in the State of Delaware shall be Corporation Service Company, 1013
Centre Road, City of Wilmington, County of New Castle, Delaware 19805.
1.4. Term and Dissolution. The term of the Company shall commence as of
the date of the filing of the Company Certificate (defined below) in the office
of the Secretary of State of the State of Delaware and shall continue until
November 17, 2014, unless earlier dissolved pursuant to the provisions of this
Agreement. The Company shall not be dissolved by the admission of additional
Members or substituted Members. The Company shall be dissolved upon the first to
occur of (i) the election by the Members to dissolve the Partnership, (ii) the
sale of all or substantially all of the assets of the Company and the conversion
into cash of the sales proceeds, (iii) the expiration of the term set forth in
the preceding sentence, or (iv) any other event which triggers an obligatory
dissolution under the Act. Each Member waives any right to maintain any action
for partition with respect to any property owned by the Company or, to the
extent permitted by law, any action for dissolution other than pursuant to
rights set forth in this Agreement. Upon dissolution of the Company, the Members
shall liquidate the assets of the Company and distribute the proceeds as
required by this Agreement and by law, and shall cancel the Company Certificate.
1.5. Documents. Upon execution of this Agreement, the Administrative
Member shall prepare, execute, file and record such documents with the Secretary
of State of the State of Delaware and other governmental agencies as are
necessary to comply with the requirements of applicable laws for the formation
and operation of the Company, including, without limitation, a certificate of
limited liability company formation as required by the Act (the "Company
Certificate").
2. Definitions
The following terms shall have the meanings indicated or referred to
below.
"Act" See Section 1.1.
"Adjusted Capital Account Deficit" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant fiscal year or other period, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Member is
obligated to restore pursuant to any provision of this Agreement or is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"Administrative Member" means the Member who will be responsible for
administrative matters for the Company. Hughes will serve as the initial
Administrative Member and shall cause its obligations hereunder to be performed
in a prudent and commercially reasonable manner in the best interest of all of
the Members.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the United States Government shall not be
regarded as a Business Day.
"Capital Accounts" See Section 3.3.
"Capital Proceeds" means the gross cash proceeds of sales and financings
of the Company's assets (or the portion of such proceeds of the Partnership that
are distributed to the Company), less the portion used to pay or establish any
reserves approved by the Members for all Company expenses, any debt payments,
capital improvements and other costs of development, replacements and
contingencies, all as determined in accordance with the terms hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Depreciation" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Administrative Member.
"Gain from Sale" shall mean any gain recognized for federal income tax
purposes from the sale or other disposition of the Company's assets computed by
reference to the Gross Asset Value of the property disposed of, notwithstanding
that the adjusted tax basis of such property differs from its Gross Asset Value.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset,
as determined by the Members;
(ii) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Members, as of the following times: (A) the acquisition of an additional
interest by any new or existing Member in exchange for more than a de
minimis Capital Contribution; (B) the distribution by the Company to a
Member of more than a de minimis amount of property as consideration for
an interest; and (C) the liquidation of the Company within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g); provided, however that the
adjustments pursuant to clauses (A) and (B) above shall be made only if
the Members reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members in
the Company;
(iii) The Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date of
distribution; and
(iv) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m), in
determining Profits and Losses and Section 4.3.7; provided, however, that
Gross Asset Values shall not be adjusted pursuant to this clause (iv) to
the extent the Members determine that an adjustment pursuant to clause
(ii) is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this clause (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
clauses (i), (ii) or (iv), such Gross Asset Value shall thereafter be adjusted
by Depreciation taken into account with respect to such asset for purposes of
computing Profits and Losses.
"Members" See introductory statement.
"Minimum Gain" has the meaning set forth in Regulations Sections
1.704-2(b)(2) and 1.704-2(d).
"Nonrecourse Deductions" shall have the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"Nonrecourse Liability" shall have the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"Operating Cash" means the gross cash proceeds of the Company from all
operating sources (not including amounts taken into account in determining
Capital Proceeds) including Partnership operating distributions, less any
portion used to pay or establish reasonable reserves for all Company expenses,
any debt payments, and contingencies, all as determined by the Administrative
Member (any such reserves shall not exceed $30,000 at any one time without the
prior consent of the Members). "Operating Cash" shall not be reduced by
depreciation, amortization, cost recovery deductions or similar allowances, but
shall be increased by any reductions of reserves previously established.
"Partner Nonrecourse Debt" shall have the meaning set forth in Section
1.704-2(b)(4) of the Regulations.
"Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
"Partner Nonrecourse Deductions" has the meaning set forth in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
"Percentage Interest" means, until there has been a transfer of an
interest in the Company and subject to adjustment from time to time in
accordance with the terms of this Agreement, 65.35% for Hughes and 34.65% for
Investor. The Percentage Interest of any transferee shall be such portion of the
Percentage Interest of the transferor as is indicated in the instrument of
transfer and the Percentage Interest of the transferor shall be thereafter
appropriately reduced.
"Priority Distribution" means, as to Hughes, a cumulative return computed
by applying a monthly rate of one twelfth of 7.9972%, using monthly compounding,
to the sum of Hughes' Unreturned Capital Contribution and Hughes' unpaid
Priority Distributions. Hughes' unpaid Priority Distributions is the amount
equal to the cumulative Priority Distributions accrued beginning on date of this
Agreement, less cumulative actual distributions made to Hughes pursuant to
Sections 5.1.1 and 5.2.1(i).
"Profits" and "Losses" means, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses shall
be added to such taxable income or loss;
(ii) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses shall be subtracted from such
taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to clauses (ii) or (iii) of the definition of Gross
Asset Value, the amount of such adjustment shall be taken into account as
gain or loss from the disposition of such asset for purposes of computing
Profits or Losses;
(iv) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year or
other period, computed in accordance with the definition of Depreciation;
(vi) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's interest in the
Company, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Profits or
Losses; and
(vii) Notwithstanding any other provision in this definition, any
items which are specially allocated pursuant to this Agreement shall not
be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction available to
be specifically allocated pursuant to this Agreement shall be determined by
applying rules analogous to those set forth in clauses (i) through (vi) above.
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such Regulations may be amended from
time to time (or any corresponding provisions of succeeding regulations).
"Regulatory Allocations" shall have the meaning set forth in Section
4.3.8.
"Unreturned Capital Contribution" shall mean, as to each Member, the sum
of the capital contributions made by the Member pursuant to Sections 3.1 or 3.2,
reduced by distributions to that Member pursuant to Sections 5.2.1(ii) or 5.2.2.
3. Contributions And Accounts
3.1. Initial Contributions and Commitment. The Members shall make an
aggregate initial contribution to the capital of the Company of $63,345,488, and
shall make subsequent contributions so that the aggregate capital contributions
to the Company will equal $98,000,000. The Members' respective contributions
shall be made in proportion to the Members' Percentage Interests. The initial
contributions shall be made contemporaneously, on or prior to the date the
Company is required to make its initial contribution of capital to the
Partnership. Subsequent contributions towards the aggregate commitment of
$98,000,000 shall be made within 10 Business Days of delivery by the
Administrative Member of written notice that the Company is required to make a
corresponding contribution of capital to the Partnership. If any such
contribution is not made within that 10 Business Day period, it shall bear
interest payable to the Company at 12% per annum, compounded monthly, or if
lower, the maximum rate permitted by law.
3.2. Additional Contributions. Except for the contributions specified
above, without the agreement of all Members, no Member may, or shall be required
to, make any contribution to the capital of the Company.
3.3. Capital Accounts. A separate "Capital Account" shall be maintained
for each Member in accordance with the following provisions:
3.3.1. To each person's Capital Account there shall be credited such
person's capital contributions, such person's distributive share of Profits and
any items in the nature of income or gain that are specially allocated pursuant
to this Agreement, and the amount of any Company liabilities assumed by such
person or that are secured by any property distributed to such person.
3.3.2. To each person's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any property distributed to such
person pursuant to this Agreement, such person's distributive share of Losses
and any items in the nature of expenses or losses that are specially allocated
pursuant to this Agreement, and the amount of any liabilities of such person
assumed by the Partnership or that are secured by any property contributed by
such person to the Partnership.
3.3.3. In the event any interest of a Member is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.
3.3.4. In determining the amount of any liabilities for these
purposes, there shall be taken into account Code Section 752(c) and any other
applicable provisions of the Code and Regulations.
3.3.5. The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the Administrative Member
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits to the Capital Accounts (including, without
limitation, debits or credits relating to liabilities that are secured by
contributed or distributed property or that are assumed by the Company or the
Members), are computed in order to comply with such Regulations, the
Administrative Member may make such modification, provided that it is not likely
to have a material effect on the amounts distributable to any Member pursuant to
this Agreement upon the dissolution of the Company. The Administrative Member
also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Members and the amount of
Company capital reflected on the Company's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii)
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
3.4. No Right to Return of Capital. Except as otherwise provided in this
Agreement each Member shall look solely to the assets of the Company for the
return of its capital contribution and shall have no right or power to demand or
receive property other than cash from the Company.
4. Allocations
4.1. Allocation of Profits and Gain from Sale. After giving effect to any
special allocations, Profits and Gain from Sale for any fiscal year or other
period shall be allocated to the Members in the following order and priority:
4.1.1. First, if and to the extent that Losses have been allocated to
the Members, Profits and Gain from Sale shall be allocated to the Members in the
reverse order of the allocation of those Losses.
4.1.2. Next, Profits and Gain from Sale shall be allocated to Hughes
until Hughes has been allocated cumulative Profits and Gain from Sale pursuant
to this Section 4.1.2 equal to the aggregate accrued Priority Distribution of
Hughes, whether or not distributed.
4.1.3. Then, subject to the provisions of Section 6.5.1(i), Profits
and Gain from Sale shall be allocated:
(i) until November 17, 2005, 1% to Hughes and 99% to Investor,
(ii) between November 17, 2005 and November 17, 2009, 5% to
Hughes and 95% to Investor, and
(iii) after November 17, 2009, 10% to Hughes and 90% to
Investor.
4.1.4. Notwithstanding the other provisions of this Section 4.1,
Profits and Gain from Sale for the taxable year of liquidation of the Company
shall be allocated prior to the final liquidating distributions of the Company
and shall be allocated, to the extent possible, in a manner such that the
Capital Accounts of the Members immediately prior to such final liquidating
distribution are equal to the amounts that would have been distributable to the
Members under Section 5.2, if Section 5.2, rather than Section 5.4, applied to
such final liquidating distribution.
4.2. Losses. After giving effect to any special allocations, Losses for
any fiscal year or other period shall be allocated:
4.2.1. First, 1% to Hughes and 99% to Investor, until any such
additional allocation of Losses would result in Investor having an Adjusted
Capital Account Deficit.
4.2.2. Next, 100% to Hughes, until any such additional allocation of
Losses would result in Hughes having an Adjusted Capital Account Deficit.
4.2.3. Then, any excess Losses shall be allocated 100% to Investor.
4.2.4. Notwithstanding the other provisions of this Section 4.2,
Losses for the taxable year of liquidation of the Company shall be allocated
prior to the final liquidating distributions of the Company and shall be
allocated, to the extent possible, in a manner such that the Capital Accounts of
the Members immediately prior to such final liquidating distribution are equal
to the amounts that would have been distributable to the Members under Section
5.2, if Section 5.2, rather than Section 5.4, applied to such final liquidating
distribution.
4.3. Regulatory Special Allocations. The following special allocations
shall be made in the following order:
4.3.1. Minimum Gain Chargeback. Except as provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Section 4, if there is a net decrease in Minimum Gain during any fiscal year,
each Member shall be specially allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to the
portion of such Member's share of the net decrease in Minimum Gain, determined
in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2)
of the Regulations. This Section 4.3.1 is intended to comply with the minimum
gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall
be interpreted accordingly.
4.3.2. Member Nonrecourse Debt Minimum Gain Chargeback. Except as
otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding
any other provision of this Section 4 except Section 4.3.1, if there is a net
decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt during any fiscal year, each Member who has a share of the
Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Member's share of the
net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section
4.3.2 is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted accordingly.
4.3.3. Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company income
and gain shall be specially allocated to each such Member in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible, provided
that an allocation pursuant to this Section 4.3.3 shall be made only if and to
the extent that such Member would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Section 4 have been tentatively made
as if this Section 4.3.3 were not in this Agreement.
4.3.4. Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any Company fiscal year which is in excess of the
sum of (i) the amount such Member is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially
allocated items of Company income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this Section 4.3.4
shall be made if and only to the extent that such Member would have a deficit
Capital Account in excess of such sum after all other allocations provided for
in this Section 4 have been tentatively made as if Section 4.3.3 and this
Section 4.3.4 were not in the Agreement.
4.3.5. Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year or other period shall be specially allocated to Investor.
4.3.6. Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year or other period shall be specially allocated to
the Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Regulations Section 1.704-2(i)(1).
4.3.7. Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Member in complete liquidation of its interest in the Company,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Members in accordance with their interests in the Company in
the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
Members to whom such distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
4.3.8. Curative Allocations. The allocations set forth in Sections
4.3.1 through 4.3.7 (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 4.3.8.
Therefore, notwithstanding any other provision of this Section 4 (other than the
Regulatory Allocations), the Administrative Member shall make such offsetting
special allocations of Company income, gain, loss or deduction in whatever
manner the Administrative Member determines is appropriate so that, after such
offsetting allocations are made, each Member's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would have
had if the Regulatory Allocations were not part of the Agreement. In exercising
its discretion under this Section 4.3.8, the Administrative Member shall take
into account future Regulatory Allocations under Sections 4.3.1 and 4.3.2 that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 4.3.5 and 4.3.6.
4.4. Other Allocations Rules.
4.4.1. For purposes of determining the Profits, Losses or any other
items allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the
Administrative Member using any permissible method under Code Section 706 and
the Regulations thereunder.
4.4.2. Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction, credit and any other allocations not
otherwise provided for shall be divided among the Members in the same
proportions as they share Profits or Losses, as the case may be, for the year.
4.4.3. Solely for purposes of determining a Member's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a)(3), any such liabilities shall be allocated to
the Members in accordance with their Percentage Interests.
4.4.4. To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Administrative Member shall endeavor to treat distributions of
Operating Cash as having been made from the proceeds of a Nonrecourse Liability
or a Member Nonrecourse Debt only to the extent that such distributions would
cause or increase an Adjusted Capital Account Deficit for any Member.
4.5. Tax Allocations: Code Section 704(c). In accordance with Code Section
704(c) and the Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company shall, solely
for tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its initial Gross Asset Value (computed in accordance
with clause (i) of the definition of Gross Asset Value).
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to clause (ii) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the Administrative Member in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
4.5 are solely for purposes of federal, state and local taxes and shall not
affect, or in any way be taken into account in computing, any Member's Capital
Account or share of Profits, Losses other items or distributions pursuant to any
provision of this Agreement.
5. Distributions
5.1. Distributions of Operating Cash. Except as otherwise provided in this
Agreement, Operating Cash, if any, shall be distributed to the Members monthly,
on the 20th day of each month or the next Business Day if the 20th day is not a
Business Day, for the preceding month, or at such other times as the Members may
determine as follows:
5.1.1. First, Operating Cash shall be distributed to Hughes in an
amount equal to any unpaid Priority Distribution of Hughes.
5.1.2. Then, subject to the provisions of Section 6.5.1(ii),
Operating Cash shall be distributed
(i) until November 17, 2005, 1% to Hughes and 99% to Investor,
(ii) between November 17, 2005 and November 17, 2009, 5% to
Hughes and 95% to Investor, and
(iii) after November 17, 2009, 10% to Hughes and 90% to
Investor
5.2. Distributions of Capital Proceeds. Except as otherwise specified in
this Agreement, Capital Proceeds, if any, shall be distributed to the Members on
the third Business Day after a sale or financing or at such other times as the
Administrative Member may determine as follows:
5.2.1. First, Capital Proceeds shall be distributed to Hughes (i) in
an amount equal to the sum of any unpaid Priority Distribution of Hughes and
(ii) then, in an amount equal to any Unreturned Capital Contribution of Hughes.
5.2.2. Next, Capital Proceeds shall be distributed to Investor in an
amount equal to any Unreturned Capital Contribution of Investor.
5.2.3. Then, subject to the provisions of Section 6.5.1(iii), Capital
Proceeds shall be distributed
(i) until November 17, 2005, 1% to Hughes and 99% to Investor,
(ii) between November 17, 2005 and November 17, 2009, 5% to
Hughes and 95% to Investor, and
(iii) after November 17, 2009, 10% to Hughes and 90% to
Investor.
5.2.4. Provided, however, that if any distribution of Capital
Proceeds would create an Adjusted Capital Account Deficit for any Member that is
not at the time of distribution reasonably expected to be eliminated by future
Company allocations, distributions of Capital Proceeds at that time shall cease
until the earlier of the time at which (i) they can be so distributed without
creating such a deficit or (ii) the liquidation of the Company and in that case,
any distribution will be made pursuant to Section 5.4.
5.3. Amounts Withheld. If required by applicable law, the Administrative
Member shall cause the Company to withhold such amounts as may be required from
any payment or distribution from the Company to a Member, and the Administrative
Member shall remit such amounts on a timely basis to the tax authority or other
entity entitled to them. Any (a) amounts so withheld or (b) estimated or other
payments to tax authorities with respect to any Profits or other items allocable
to the Members, shall be treated as amounts distributed to the Members for all
purposes. The Administrative Member shall allocate any such amounts among the
Members in accordance with applicable law.
5.4. Distributions Upon Liquidation. Upon the occurrence of a liquidating
event as set forth in Section 1.4, the Company shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its assets
and satisfying the claims of its creditors and Members. In such event, no Member
shall take any action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Company's business and affairs. The
Administrative Member (or, in the event there is no Administrative Member, any
Person elected by the Members) shall be responsible for overseeing the winding
up and dissolution of the Company and shall take full account of the Company's
liabilities and property and the property shall be liquidated as promptly as is
consistent with obtaining its fair value, and the proceeds, to the extent
sufficient, shall be applied and distributed in the following order:
(a) First, to the payment and discharge of all of the Company's debts
and liabilities to creditors other than the Members;
(b) Second, to the payment and discharge of all of the Company's
debts and liabilities to the Members; and
(c) The balance, if any, to the Members in accordance with their
Capital Accounts, after giving effect to all contributions, distributions
and allocations for all periods.
In the event the Company is "liquidated" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g): (a) distributions shall be made pursuant to this
Section 5.4 to the Members who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (b) if a Member's Capital
Account has a deficit balance (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Person shall have no obligation to make any
contribution to the capital of the Company with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or any other
Person for any purpose whatsoever. In the discretion of the Administrative
Member, a pro rata portion of the distributions that would otherwise be made to
the Members pursuant to this Section 5.4 may be:
(a) Distributed to a trust established for the benefit of the Members
for the purposes of liquidating Company assets, collecting amounts owed to
the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company or of the Members arising out of or in
connection with the Company. The assets of any such trust shall be
distributed to the Members from time to time, in the reasonable discretion
of the Administrative Member, in the same proportions as the amount
distributed to such trust by the Company would otherwise have been
distributed to the Members pursuant to this Agreement; or
(b) Withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Company, provided that such withheld
amounts shall be distributed to the Members as soon as practicable.
6. Powers And Duties Of The Members
6.1. Authority of the Members. Except as otherwise specifically provided
in this Agreement, the Members shall jointly (i) have control of the business of
the Company and (ii) shall have all authority and power necessary or convenient
for the administration and operation of the business and affairs of the Company,
including, without limitation, the authority and power on behalf of the Company
and at the Company's expense to:
6.1.1. Acquire Assets. Acquire assets on behalf of the Company.
6.1.2. Deal in Company Assets. Deal in and with the assets of the
Company.
6.1.3. Enter Contracts. Enter into contracts and agreements and sign
any and all documents on behalf of the Company.
6.1.4. Pursue and Settle Claims. Bring, defend, compromise, collect,
pay, adjust, arbitrate or otherwise take any action with respect to any claim
available to or against the Company, provided that either Member, acting alone,
may bring, maintain, settle, collect or compromise any action in the name of and
on behalf of the Company against the other Member to enforce such other Member's
obligations under this Agreement.
6.1.5. Pay Expenses. Pay Company expenses properly incurred in the
operation of the Company.
6.1.6. Hire Others. Employ, engage, hire or otherwise secure the
services of such persons, firms or corporations as the Members may deem
necessary or advisable for the proper operation of the business of the Company.
6.1.7. Prepare and Record Documents. Prepare, execute, file, record,
publish and deliver all instruments or documents necessary or convenient to
effectuate any actions of the Company.
6.1.8. Incur Debt. Incur any indebtedness or any commitment to do so.
6.1.9. Other Action. Take any other action permitted or required of
the Company under the Act.
6.2. Investor Representative. Investor has initially designated a
representative to act on its behalf as to all matters relating to this Agreement
and the Company. Until any replacement is designated by Investor, [name of
Investor representative] shall have the authority to act as the representative
of Investor.
6.3. Tax Matters Member. The Administrative Member shall act as, and
exercise all rights and powers appropriate to serving as, the tax matters member
of the Company for all purposes under Section 6221 et seq. of the Code.
6.4. Investment Committee of the Partnership. Investor, acting alone, as
long as Investor is not in material breach of its obligations under this
Agreement, shall have the sole right (i) to designate the Company's two
appointees to the Investment Committee of the Partnership as provided in Section
6.2 of the Partnership Agreement, and (ii) to decide whether and on what terms
the Company (or Investor) would negotiate and participate in any first
subsequent development program under Section 6.3 of the Partnership Agreement
(including the right to participate in such program in lieu and independently of
the Company and Hughes for Investor's own benefit and account, in which event
the Company and Hughes shall take such action as is required to assign the
Company's rights under Section 6.3 of the Partnership Agreement to Investor).
Further, Investor, acting alone, so long as it is not in material
breach of its obligations under this Agreement, shall have the sole right to
exercise on behalf of the Company any and all other rights and privileges of the
Company under: (i) any guaranty provided by Public Storage, Inc. to the Company
from time to time, including, without limitation, the right to enforce such
guaranty or (ii) the Partnership Agreement, including, without limitation,
giving, making or obtaining (or withholding) notices, consents, approvals,
agreements, selections or elections required or permitted under the Partnership
Agreement and bringing, defending, maintaining, enforcing, compromising,
adjusting, settling, arbitrating and collecting with respect to any claim
available to or against the Company, the Partnership or its general partner
under the Partnership Agreement (including Section 14.19 thereof), provided
that, without the consent of Hughes (so long as Hughes is not in material breach
of its obligations under this Agreement), Investor shall not be entitled to
amend, waive or modify any provision of the Partnership Agreement, increase the
capital commitment of the Company under the Partnership Agreement or take any
other action relating to the Partnership (other than the exercise of its rights
set forth in the first sentence of this Section 6.4 or in any other provision of
this Agreement, including Section 6.5.1, that expressly authorizes Investor to
exercise a right acting alone or unilaterally) that then would reasonably be
expected (based upon the facts and circumstances then actually known by
Investor, after reasonable inquiry) to affect Hughes under this Agreement in a
fashion that differs materially and adversely from the effect of the action on
Investor under this Agreement. Notwithstanding the foregoing, Investor, from
time to time in any instance, by providing reasonable advance written notice,
may permit Hughes the opportunity, acting alone or jointly with Investor (i.e.,
if both agree to the joint action), to exercise the right specified in the
immediately preceding sentence alone or jointly with Investor. If Investor
offers Hughes such an opportunity to participate and (i) Hughes alone takes the
relevant action, (ii) Hughes and Investor jointly take the action, or (iii)
Hughes does not make known what action he would like to take, then, without
limitation to any other exculpatory provision of this Agreement, Investor shall
have no liability to Hughes or the Company in connection with the exercise of
(or failure to exercise) such right in that instance.
6.5. Termination of Partnership.
6.5.1. Subject to Section 6.5.2 of this Agreement, Investor, acting
alone, so long as Investor is not in material breach of its obligations under
this Agreement, shall have the right to cause the Company to seek an early
termination of the Partnership pursuant to Section 9.1 of the Partnership
Agreement. If Investor exercises that right on or prior to November 17, 2005:
(i) Profit and Gain from Sale that otherwise would be
allocated pursuant to Section 4.1.3 (ii) or (iii) shall
instead be allocated 99% to Investor and 1% to Hughes through
the liquidation of the Company,
(ii) Operating Cash that otherwise would be distributed
pursuant to Section 5.1.2 (ii) or (iii) shall instead be
distributed 99% to Investor and 1% to Hughes through the
liquidation of the Company, and
(iii) Capital Proceeds that otherwise would be distributed
pursuant to Section 5.2.3 (ii) or (iii) shall instead be
distributed 99% to Investor and 1% to Hughes through the
liquidation of the Company.
6.5.2. Should Hughes exercise his option pursuant to Section 7 of
this Agreement and Investor fails to perform its obligations under Section 7 of
this Agreement as and when required, Hughes, acting alone shall have the sole
right to cause the Company to seek an early termination of the Partnership
pursuant to Section 9.1 of the Partnership Agreement and the sole right to
change or designate the Company's two appointees to the Investment Committee of
the Partnership as referenced in Section 6.4 above, in addition to any other
remedies Hughes may have against Investor at law or in equity.
6.6. Compensation of Members. Except as may be expressly provided for in
this Agreement or in the Partnership Agreement or otherwise approved by the
Members, no payment shall be made to any Member or any member, partner, employee
or affiliate of any Member for services rendered by such Member to the Company
or otherwise.
6.7. Other Business Activities of the Members. The Members shall be
required to devote only so much of their time as is reasonably necessary for the
proper management of the Company and the Partnership. Either Member may engage
in or possess an interest in business ventures other than the business of the
Company, including securities investments and operations of self-storage
facilities.
6.8. Limitation of Liability and Indemnification.
6.8.1. Exculpatory Provisions. Neither Member nor their respective
affiliates, agents, officers, partners, employees, representatives (including
the members of the Partnership's Investment Committee appointed by either
member), directors or shareholders (each, a "Protected Party") shall be liable,
responsible or accountable in damages or otherwise to the Company or the other
Member for (i) any act performed in good faith within the scope of the authority
conferred by this Agreement, (ii) any failure or refusal to perform any acts
except those required by the terms of this Agreement, or (iii) any performance
or omission to perform any acts based upon reasonable reliance on the advice of
accountants or legal counsel for the Company; provided, however, that each
Member shall nevertheless be liable in all events for such Member's willful
misconduct or gross negligence.
6.8.2. Reliance by Protected Parties. A Protected Party shall be
fully protected in relying in good faith upon the records of the Company and
upon such information, opinions, reports or statements presented to the Company
by any person as to matters the Protected Party reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Company, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits and losses of the Company or any other facts pertinent to
the existence and amount of assets from which distribution to Members might
properly be paid.
6.8.3. Indemnification. To the fullest extent permitted by law and
subject to the provisions of this Agreement and the Act limiting the liability
of the Members, the Company shall indemnify and save harmless each Protected
Party from any loss, cost, damage, fee (including, without limitation,
reasonable legal fees) or expense incurred by reason of (i) such entity's status
as a Member, or an affiliate, officer, agent, employee, representative,
director, or shareholder of a Member, (ii) any act performed in good faith
within the scope of the authority conferred by this Agreement, (iii) any failure
or refusal to perform any acts except those required by the terms of this
Agreement, or (iv) any performance or omission to perform any acts based upon
reasonable reliance on the advice of accountants or legal counsel for the
Company, provided that no indemnification shall be given with respect to acts or
omissions which constitute willful misconduct or gross negligence.
6.8.4. Liability of Protected Parties. To the extent that, at law or
in equity, a Protected Party has duties (including fiduciary duties) and
liabilities relating thereto to the Company or to any other Protected Party, a
Protected Party acting under this Agreement shall not be liable to the Company
or to any other Protected Party for its good faith reliance on the provisions of
this Agreement. The provisions of this Agreement, to the extent that they
restrict the duties and liabilities of a Protected Party otherwise existing at
law or in equity, are agreed by the parties hereto to replace such other duties
and liabilities of such Protected Party. Except as is otherwise provided in
Section 6.4 of this Agreement, and without limitation to any other exculpatory
provision of Section 6.8, Investor and its representatives shall not have any
fiduciary obligation to, or any other obligation to act in the interests of, any
other Member or the Company by virtue of its rights under this Agreement,
including without limitation its rights under Section 6.1, 6.4 (first sentence),
or 6.5.1, or in the exercise of such rights.
6.8.5. Insurance. To the extent deemed appropriate by the Members,
the Company shall purchase and bear the cost of any insurance covering the
potential liabilities of the Members as well as the potential liabilities of the
affiliates, agents, officers, partners, employees, representatives, directors
and shareholders of the Members or any other individual or entity serving at the
request of the Members.
7. Hughes' Option To Sell Interest
7.1. Hughes shall have the right and option (but not the obligation) to
sell all of his interest in the Company to Investor on the terms set forth in
this Section 7, if (and only if) Investor has not, before November 17, 2005,
exercised the right to cause an early termination of the Partnership described
in Section 6.5.1. The option granted pursuant to this Section 7 may be exercised
by Hughes at any time during the six (6) month period commencing on November 17,
2005 by delivery of a written notice to that effect to Investor.
7.2. The purchase consideration payable by Investor to Hughes shall be an
amount equal to the sum of: (1) any unpaid Priority Distribution of Hughes, (2)
any Unreturned Capital Contribution of Hughes, and (3) the value of Hughes' 1%
residual interest in the Company, which shall be determined as set forth below:
7.2.1. The value of Hughes' 1% residual interest shall be 1% of the
excess, if any, of (1) the sum of: (a) the value of the Company's Percentage
Interest in the Partnership determined as set forth below and (b) the net fair
market value of the Company's other assets reflected in the Company's financial
statements, over (2) the aggregate capital contributions made to the Company.
7.2.2. The value of the Company's Percentage Interest in the
Partnership shall be determined by multiplying the Company's Percentage Interest
in the Partnership (as defined in the Partnership Agreement) times the sum of:
(1) the value of the PSA Equity Shares and PSA Common Shares (as defined in the
Partnership Agreement) then held by the Partnership determined as set forth
below, (2) the value of the self storage properties of the Partnership
determined as set forth below, and (3) the net fair market value of the
Partnership's other assets reflected in the Partnership's financial statements.
7.2.3. The value of the PSA Equity Shares and PSA Common Shares held
by the Partnership shall be determined as is set forth in Section 9.3(c)(i) of
the Partnership Agreement (basing the value on an average market price).
7.2.4. The value of the self storage properties of the Partnership
shall be determined by applying a capitalization rate of eight and one half
percent (8.5%) to the net operating income before non-recurring charges produced
by the Partnership's self storage properties for the immediately preceding four
calendar quarters, provided, however, that if, under Section 9.3 of the
Partnership Agreement, the Fair Market Value of the Other Property of the
Partnership (as those terms are defined in the Partnership Agreement) is to be
determined prior to five (5) Business Days before the closing of the purchase
and sale of Hughes' interest under this Section 7, then the value of the self
storage properties of the Partnership for this purpose shall be the portion of
the Fair Market Value of the Other Property of the Partnership as so determined
that is attributable to those self storage properties of the Partnership.
7.3. The closing of the purchase and sale of Hughes' interest under this
Section 7 shall occur at the principal executive office of the Company on a date
and time mutually agreeable to Investor and Hughes, which shall not be later
than the earlier of (i) fifteen (15) Business Days following notice from Hughes
pursuant to Section 7.1 of this Agreement or (ii) if a closing is to occur under
Section 9.5 of the Partnership Agreement, the date of that closing. At the
closing, Hughes will deliver or cause to be delivered to Investor (i)
appropriate assignments or other documents sufficient to transfer good and valid
title to the interest to be purchased, free and clear of all liens and
encumbrances; and (ii) such other documents as Investor or its counsel may
reasonably request. At the closing, Investor will deliver or cause to be
delivered to Hughes a wire transfer or bank cashier's check in the amount to
which Hughes is entitled under Section 7.2 of this Agreement.
8. Liabilities Of Members
No Member shall be liable for any debts, liabilities, contracts or other
obligations of the Company nor shall any Member be required to lend funds to the
Company. After contributions have been made as provided in this Agreement, no
Member, except as otherwise specifically required by the Act, shall be required
to make any further contributions to the Company.
9. Transfer Of Company Interests
9.1. Transfer by the Members during the Initial Ten Years. During the
initial ten years of the Company's existence, neither Member shall, voluntarily
or involuntarily, transfer, sell, pledge, hypothecate, assign or otherwise
dispose of, or permit to be so transferred (collectively "transfer") all or any
portion of its interest in the Company without the prior written approval of the
other Member, unless the transfer is to an affiliate of the transferring Member
and the transferring Member acknowledges that the transfer shall not relieve the
transferring Member of its obligations under this Agreement. During the initial
ten years a nontransferring Member shall be entitled to withhold its approval of
any proposed transfer (other than a permitted transfer to an affiliate) in its
sole discretion.
9.2. Additional Restrictions on Transfer. After the initial ten year
period, a Member may transfer its interest with the prior written approval of
the other Member, which shall not be unreasonably withheld. Notwithstanding any
provision of this Article 9 to the contrary, no sale, exchange or other transfer
of any company interests may be made (i) if such sale, exchange or other
transfer shall violate or constitute a default under any other agreement to
which the Company is a party or (ii) if the Company interests sought to be sold,
exchanged or otherwise transferred when added to the total of all other Company
interests sold or exchanged prior to the date of the proposed sale or exchange,
are likely, in the opinion of tax counsel appointed by the Members to result in
(A) a "change in ownership" for tax purposes as that term is defined by
applicable law or (B) the termination of the Company for purposes of the Code,
and such change in ownership or termination would have a material adverse effect
on the Company or the remaining Members.
No interests in the Company may be transferred unless (i) the transferee
executes such instruments as the non-transferring Member may reasonably request
to confirm the transferee's agreement to be bound by the terms of this Agreement
and assumption of the transferor's obligations under this Agreement, (ii) the
Company obtains assurances reasonably satisfactory to the non-transferring
Member that such transfer is permitted under the Securities Act of 1933 and any
applicable state securities laws, (iii) the remaining Member obtains reasonably
satisfactory assurances that the transfer will not occasion a violation of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to the
extent applicable to the remaining Member or any investor in or affiliate of the
remaining Member, and (iv) subject to the provisions of Section 9.1 with respect
to transfers to affiliates, if the transfer involves the proposed substitution
of the transferee as a member of the Company, the written consent of the
non-transferring Member to such substitution is obtained, which consent, in the
non-transferring Member's absolute discretion, may be withheld.
If one of only two Members is transferring its entire interest in the
Company, such transfer shall not be effective unless and until the transferee is
admitted to the Company as a substitute Member by the amendment of this
Agreement, and the transferring Member shall remain a Member of the Company
until such substitute Member is admitted to the Company. Each transferee shall
reimburse the Company for any filing fees and reasonable counsel and
accountants' fees incurred by the Company in connection with such transferee
becoming a substitute Member.
The transferor and transferee shall furnish the Company with the
transferee's taxpayer identification number, sufficient information to determine
the transferee's initial tax basis in the interest transferred, and any other
information reasonably necessary to permit the Company to file all required
federal and state tax returns and other legally required information statements
or returns. Without limiting the generality of the foregoing, the Company shall
not be required to make any distribution otherwise provided for in this
Agreement with respect to any transferred interest until it has received such
information.
9.3. Protected Party Discretion. Whenever in this Agreement a Protected
Party is permitted or required to make a decision (i) in its "absolute
discretion" or "sole discretion" or under a grant of similar authority or
latitude, the Protected Party shall be entitled to consider only such interests
and factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors affecting
the Company or any other person, or (ii) in its "good faith" or under another
express standard, the Protected Party shall act under such express standard and
shall not be subject to any other or different standard imposed by this
Agreement or other applicable law.
10. Resignation Of Members
10.1. Resignation of Members. Except as otherwise provided in this
Agreement, neither Member shall resign from the Company or cease to be a Member
without the specific written approval of the other Member.
10.2. Obligation to Continue. Upon the resignation of any Member, either
voluntarily or by operation of law, the remaining Member or Members shall have
the power to admit additional members and elect to continue the business of the
Company. If there is only one remaining member and it elects to continue the
business of the Company, the resignation of the resigning Member shall not be
effective until an additional Member has been admitted to the Company.
11. Reporting, Records And Accounting Matters
11.1. Fiscal Year. The fiscal year of the Company shall be the Company's
taxable year and shall be the calendar year.
11.2. Bank Accounts. The bank accounts of the Company shall be maintained
at Wells Fargo Bank or such other financial institution as the Administrative
Member shall determine. Each such account shall be in the name of the Company.
Withdrawals from such bank accounts shall be made upon such signatures as the
Administrative Member may designate.
11.3. Certain Records. The Administrative Member shall keep at the
Company's principal executive office a current list of the full name and last
known business, residence or mailing address of each Member, a copy of the
Company Certificate and all certificates of amendment, together with executed
copies of any powers of attorney pursuant to which any certificate has been
executed, copies of the Company's federal state and local income tax returns and
reports, if any, for the six most recent years, copies of this Agreement and any
amendments, and any and all financial statements of the Company for the three
most recent years.
11.4. Accountants and Reports. The Administrative Member, on behalf of the
Company, shall maintain, or cause to be maintained true and complete books of
account reflecting the business of the Company. The Administrative Member, at
the expense of the Company, shall have prepared such statements and reports of
the Company as the Members may determine. The Company shall retain a certified
public accountant which, unless the Members decide otherwise, shall be the same
as the certified public accountant used by the Partnership. The Company shall
prepare and distribute to the Members, within 75 days of the end of each fiscal
year, unaudited financial statements of the Company for such fiscal year
certified by the Administrative Member or its representative; and within 90 days
of the end of each fiscal year, audited financial statements of the Company for
such fiscal year certified by the Company's certified public accountant,
prepared in accordance with generally accepted accounting principles (including
fair value reporting, based on valuations supplied by representatives of
Investor). The Administrative Member shall also provide the Members with such
information as such Members may reasonably request, and all books and records of
the Company shall be open to inspection and copying by any Member or its
representatives at any time during normal business hours. The Administrative
Member shall cause the Company accountants to prepare and file on a timely basis
all income and other tax returns of the Company. The Administrative Member shall
have the Company's certified public accountant review and sign as preparer the
Company's Federal and state income tax returns and shall furnish copies to the
Members promptly.
11.5. Tax Elections. In the event of a transfer of all or part of the
interest of a Member, a distribution of Company property to a Member or the
death of any Member, the Company shall, at the election of any Member, elect
pursuant to Section 754 of the Code and the regulations thereunder (and a
corresponding election under the applicable sections of state and local law) to
adjust the basis of Company property. The Members may require as a condition to
such an election that the requesting Member agree to compensate the Company for
actual additional accounting and legal expenses in connection with such an
adjustment.
12. Miscellaneous
12.1. Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this Agreement shall be in writing and
shall be delivered personally to the person or to an officer of the entity to
whom the same is directed, or sent by facsimile transmission, by nationally
recognized courier service or by first class mail, registered or certified,
addressed to the Company at its principal executive office and to the Members at
their respective addresses as set forth above, or to such other address as such
person may from time to time specify with advance notice to the Company and the
other Members. Any such notice shall be deemed to be delivered, given and
received for all purposes as of (i) the first Business Day after it is so
delivered or sent, if delivered personally or sent by facsimile transmission
(with transmission confirmed), (ii) the first Business Day after delivered to a
nationally recognized courier service, if sent by overnight delivery through
such a courier service, or (ii) three Business Days after being deposited in the
United States mail, if sent by registered or certified mail, postage and charges
prepaid. Any person may from time to time specify a different address by notice
to the Company and the Members.
12.2. Amendments. This Agreement may be amended only with the written
approval of both Members.
12.3. Interpretation and Binding Effect. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware. If any
provision of this Agreement shall be held to be invalid, the remainder of this
Agreement shall not be affected. The titles of the Articles and Sections in this
Agreement are for convenience only and shall not be considered in construing
this Agreement. Pronouns used with reference to the Members shall be construed
to refer to the feminine, neuter, singular and plural as the identity of the
individual or entity referred to may require. Except as otherwise provided in
this Agreement, this Agreement shall be binding upon and shall inure to the
benefit of the respective successors and assigns of the Members. This Agreement
constitutes the entire agreement among the Members and supersedes any prior
written or oral agreements with respect to the subject matter of this Agreement.
No provision of this Agreement (including, without limitation, any obligation of
the Member to make Contributions) shall be interpreted as bestowing any rights
whatsoever upon any third party.
12.4. Dispute Resolution and Legal Fees. If any dispute or controversy
among the parties arises out of or relating to this Agreement or the
enforcement, interpretation, performance or breach of this Agreement or as to
any matters related to but not covered by this Agreement, the parties shall
first consult together, in good faith to find an amicable resolution of the
dispute or controversy. If the parties cannot resolve the dispute or controversy
by such consultation, it shall be finally resolved by binding arbitration to be
held in the County of Los Angeles, State of California, under auspices of, and
in accordance with, the Commercial Arbitration Rules (the "Rules") of the
American Arbitration Association. There shall be an arbitral tribunal consisting
of three neutral arbitrators, selected according to the procedures set forth in
the Rules and this Section, one of which shall be selected by the General
Partner, one of which shall be selected by the Limited Partner, and the two
arbitrators so selected shall mutually appoint a third arbitrator. If either of
the first two arbitrators is not appointed within thirty (30) days of delivery
of notice of demand for arbitration, the other party (or parties) shall select
the arbitrator that was to be selected by such delinquent party (or parties). If
the first two arbitrators fail to select the third arbitrator within thirty (30)
days of their selection then, at the request of any party, the third arbitrator
shall be selected by the Chief Judge of the United States District Court for the
Central District of California (the "Court"). In any such arbitration
proceedings, the arbitrators shall adopt and apply the provisions of the Federal
Rules of Civil Procedure relating to discovery so that each party shall allow
and may obtain discovery of any matter not privileged that is relevant to the
subject matter involved in the arbitration to the same extent as if such
arbitration were a civil action pending in the Court. The arbitrators may
proceed to an award notwithstanding the failure of any party to participate in
the proceedings. The arbitrators may issue decisions for interim, interlocutory,
provisional or partial relief (e.g., temporary restraining orders, preliminary
injunctions, orders to compel discovery, orders of attachment or protective
orders) during the arbitration proceedings which may be enforced in any court of
competent jurisdiction. The arbitrators may also grant appropriate relief at law
or in equity, including removing a Member, in the event the Member has been
guilty of fraud, gross negligence, bad faith, abuse of authority or
misappropriation or waste of Company assets. The decision of a majority of the
arbitrators shall constitute an arbitral award which is final, conclusive and
binding on each party, and may be entered and shall be enforceable in any court
of competent jurisdiction. Should any litigation, arbitration or other action or
proceeding be commenced among the parties, the party or parties prevailing in
such litigation, arbitration or other action or proceeding shall be entitled, in
addition to such other relief as may be granted, to a reasonable sum as and for
its or their attorneys' fees and costs in such litigation, arbitration or other
action or proceeding which shall be determined by the court or arbitral tribunal
or in a separate action brought for that purpose.
12.5. Confidentiality. The Members agree that the terms of this Agreement,
any other agreements entered into in connection with the transactions
contemplated under this Agreement and the identities of the parties and their
affiliates are confidential and shall not be disclosed to any third party
without the other party's prior written consent; provided, however, that any
party may disclose the existence and/or terms and conditions of this Agreement
if so required by law or by applicable stock exchange rules or to such party's
attorneys, accountants and other professionals subject to the professional duty
not to disclose such existence and/or terms and conditions unless permitted by
law, so long as such party first provides a copy of any such written request to
the other party.
12.6. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original.
12.7. ERISA and UBTI. The Company shall conduct its business in such
manner as either Member may from time to time reasonably request in order to
avoid to the greatest extent possible actual or potential violations of ERISA,
if applicable, or the applicable pension laws of [Investor's state], to the
extent such possible violations have been brought to the attention of the
Company and would materially affect either Member or investors in or affiliates
of either Member. The Company shall comply with such requirements as either
Member may from time to time reasonably propose in order to assure to the
greatest extent possible that income from the Company is not taxable to such
Member or investors in or affiliates of such Member as unrelated business
taxable income.
12.8. Taxation as a Partnership. It is the intent of the Company and its
Members that the Company be treated as a partnership for income tax purposes,
and the terms of this Agreement shall be construed so as to accomplish that goal
and the Members will use their best efforts to cause the Company to be so
treated.
[Investor]
By: [signature of Investor]
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/s/ B. Wayne Hughes
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B. Wayne Hughes, trustee of the B.W.
Hughes Living Trust under agreement of
trust dated June 3, 1977, as amended
