<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
<TABLE>
<CAPTION>
Commission Registrant, State of Incorporation I.R.S. Employer
File Number Address and Telephone Number Identification No.
_______________________________________________________________________
<S> <C> <C>
0-7862 AMERCO 88-0106815
(A Nevada Corporation)
1325 Airmotive Way, Ste. 100
Reno, Nevada 89502-3239
Telephone (702) 688-6300
2-38498 U-Haul International, Inc. 86-0663060
(A Nevada Corporation)
2727 N. Central Avenue
Phoenix, Arizona 85004
Telephone (602) 263-6645
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
29,426,048 shares of AMERCO Common Stock, $0.25 par value and 9,238,015 shares
of AMERCO Series A common stock, $0.25 par value were outstanding at November
10, 1994.
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were
outstanding at November 10, 1994.
<PAGE> 2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
a) Consolidated Balance Sheets as of September 30, 1994,
March 31, 1994 and September 30, 1993.............. 4
b) Consolidated Statements of Earnings for the Six
Months ended September 30, 1994 and 1993........... 6
c) Consolidated Statements of Changes in Stockholders'
Equity for the Six Months ended September 30, 1994
and 1993........................................... 7
d) Consolidated Statements of Earnings for the
Quarters ended September 30, 1994 and 1993......... 8
e) Consolidated Statements of Cash Flows for the
Six Months ended September 30, 1994 and 1993....... 9
f) Notes to Consolidated Financial Statements -
September 30, 1994, March 31, 1994 and
September 30, 1993................................. 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 29
<PAGE> 3
THIS PAGE LEFT
INTENTIONALLY BLANK
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
September 30, March 31, September 30,
ASSETS 1994 1994 1993
------ ------------- --------- -------------
(unaudited) (audited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Cash $ 41,882 18,442 13,973
Receivables 260,727 204,814 113,401
Inventories 47,691 49,012 52,469
Prepaid expenses 21,029 24,503 21,477
Investments, fixed maturities 701,220 719,605 679,826
Investments, other 97,727 84,738 106,202
Deferred policy acquisition costs 49,940 47,846 49,829
Other assets 18,192 21,246 26,592
--------- --------- ---------
Property, plant and equipment, at
cost:
Land 202,987 186,210 179,382
Buildings and improvements 710,680 676,297 637,253
Furniture and equipment 174,139 163,495 161,043
Rental trailers and other rental
equipment 225,498 212,187 208,043
Rental trucks 905,669 820,395 764,706
General rental items 54,131 57,421 59,902
--------- --------- ---------
2,273,104 2,116,005 2,010,329
Less accumulated depreciation 1,005,433 941,769 884,266
--------- --------- ---------
Total property, plant and
equipment 1,267,671 1,174,236 1,126,063
--------- --------- ---------
$ 2,506,079 2,344,442 2,189,832
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
September 30, March 31, September 0,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994 1993
------------------------------------ ------------- --------- -------------
(unaudited) (audited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Liabilities:
Accounts payable and accrued
liabilities $ 149,940 124,062 118,546
Notes and loans 752,529 723,764 793,871
Policy liabilities and accruals 464,883 439,266 338,899
Liabilities from premium deposits 300,069 312,708 320,421
Cash overdraft 27,013 26,559 27,116
Other policyholders' funds and
liabilities 8,805 9,592 10,107
Deferred income 8,652 5,913 5,027
Deferred income taxes 85,404 50,791 57,268
--------- --------- ---------
Stockholders' equity:
Serial preferred stock, with or
without par value, 50,000,000
shares authorized; 6,100,000
issued without par value and
outstanding as of September 30, 1994
and March 31, 1994, none issued or
outstanding as of September, 30, 1993 - - -
Serial common stock, with or with-
out par value, 150,000,000 shares
authorized - - -
Series A common stock of $.25 par
value, authorized 10,000,000 shares,
issued 9,238,015 shares as of
September 30, 1994 and 5,754,334
shares as of March 31, 1994,
none as of September 30, 1993 2,309 1,438 -
Common stock of $.25 par value,
authorized 150,000,000 shares,
issued 30,761,985 shares as of
September 30, 1994 and 34,245,666
shares as of March 31, 1994 and
40,000,000 as of September 30, 1993 7,691 8,562 10,000
Additional paid-in capital 165,651 165,651 19,331
Foreign currency translation (10,027) (11,152) (9,202)
Retained earnings 573,908 515,200 527,050
--------- --------- ---------
739,532 679,699 547,179
Less:
Cost of common shares in treasury,
(1,335,937 shares as of September
30, 1994 and March 31, 1994 and
September 30, 1993) 10,461 10,461 10,461
Loan to leveraged employee stock
ownership plan 20,287 17,451 18,141
--------- --------- ---------
Total stockholders' equity 708,784 651,787 518,577
Contingent liabilities and commitments
--------- --------- ---------
$ 2,506,079 2,344,442 2,189,832
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 6
<TABLE>
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Six Months ended September 30,
(Unaudited)
<CAPTION>
1994 1993
---------- ----------
(in thousands except
per share data)
<S> <C> <C>
Revenues
Rental and other revenue $ 496,985 447,226
Net sales 97,688 92,779
Premiums 67,597 56,661
Net investment income 22,423 19,650
---------- ----------
Total revenues 684,693 616,316
Costs and expenses
Operating expense 342,560 323,866
Cost of sales 53,288 55,098
Benefits and losses 66,279 59,910
Amortization of deferred acquisition
costs 5,676 4,332
Depreciation 74,755 62,266
Interest expense 33,297 35,268
---------- ----------
Total costs and expenses 575,855 540,740
Pretax earnings from operations 108,838 75,576
Income tax expense (39,354) (24,344)
---------- ----------
Earnings from operations before
cumulative effect of change in
accounting principle 69,484 51,232
Cumulative effect of a change in
accounting principle - (3,272)
---------- ----------
Net earnings $ 69,484 47,960
========== ==========
Earnings per common share:
Earnings from operations before
cumulative effect of change in
accounting principle $ 1.70 1.38
Cumulative effect of a change in
accounting principle - (.09)
---------- ----------
Net earnings $ 1.70 1.29
========== ==========
Weighted average common shares outstanding 37,053,707 37,119,233
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 7
<TABLE>
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Six Months ended September 30,
(Unaudited)
<CAPTION>
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Series A common stock of $.25 par
value: Authorized 10,000,000 shares,
issued 9,238,015 as of September 30, 1994
and 5,754,334 as of March 31, 1994 and
none in 1993
Beginning of period $ 1,438 -
Exchange for common stock 871 -
------- -------
End of period 2,309 -
------- -------
Common stock of $.25 par value:
Authorized 150,000,000 shares in 1994
and 1993, 30,761,985 issued in 1994,
40,000,000 issued in 1993
Beginning of period 8,562 10,000
Exchange of Series A common stock (871) -
------- -------
End of period 7,691 10,000
------- -------
Additional paid-in capital:
Beginning and end of period 165,651 19,331
------- -------
Foreign currency translation:
Beginning of period (11,152) (6,122)
Change during period 1,125 (3,080)
------- -------
End of period (10,027) (9,202)
------- -------
Retained earnings:
Beginning of period 515,200 482,163
Net earnings 69,484 47,960
Dividends paid to stockholders:
Preferred stock: ($1.06 per share 1994) (6,482) -
Common stock: ($.08 per share 1993) - (3,147)
Tax benefits related to ESOP dividends - 74
Change in net unrealized gain
on investments (4,294) -
------- -------
End of period 573,908 527,050
------- -------
Treasury stock:
Beginning and end of period 10,461 10,461
------- -------
Loan to leveraged employee stock ownership plan:
Beginning of period 17,451 14,953
Increase in loan 2,955 3,309
Proceeds from loan (119) (121)
End of period 20,287 18,141
------- -------
Total stockholders' equity $ 708,784 518,577
======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 8
<TABLE>
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Quarters ended September 30,
(Unaudited)
<CAPTION>
1994 1993
---------- ----------
(in thousands except
per share data)
<S> <C> <C>
Revenues
Rental and other revenue $ 266,778 239,184
Net sales 46,386 45,137
Premiums 36,038 32,021
Net investment income 11,913 8,626
---------- ----------
Total revenues 361,115 324,968
Costs and expenses
Operating expense 175,774 165,001
Cost of sales 25,738 25,825
Benefits and losses 39,867 35,969
Amortization of deferred acquisition
costs 2,592 2,179
Depreciation 37,473 32,126
Interest expense 16,659 17,930
---------- ----------
Total costs and expenses 298,103 279,030
Pretax earnings from operations 63,012 45,938
Income tax expense (22,941) (15,569)
---------- ----------
Earnings from operations before
cumulative effect of change in
accounting principle 40,071 30,369
Cumulative effect of a change in
accounting principle - 232
---------- ----------
Net earnings $ 40,071 30,601
========== ==========
Earnings per common share:
Earnings from operations before
cumulative effect of change in
accounting principle $ 1.00 .82
Cumulative effect of a change in
accounting principle - .01
---------- ----------
Net earnings $ 1.00 .83
========== ==========
Weighted average common shares outstanding 36,999,879 37,080,255
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 9
<TABLE>
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months ended September 30,
(Unaudited)
<CAPTION>
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 69,484 47,960
Depreciation and amortization 82,684 68,463
Provision for losses on accounts
receivable 1,868 526
Net gain on sale of real and personal
property 132 (2,396)
Gain on sale of investments (1,066) (870)
Cumulative effect of a change in
accounting principle - 3,272
Changes in policy liabilities and
accruals 26,568 1,643
Additions to deferred policy
acquisition costs (7,770) (4,413)
Net change in other operating assets
and liabilities 27,705 21,312
-------- --------
Net cash provided by operating activities 199,605 135,497
-------- --------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment (255,231) (330,302)
Fixed maturities (86,291) (128,602)
Real estate (8) (176)
Mortgage loans (36,087) (22,002)
Proceeds from sale of investments:
Property, plant and equipment 88,669 136,049
Fixed maturities 100,522 96,868
Real estate 459 1,116
Mortgage loans 5,374 4,804
Changes in other investments (834) 7,290
-------- --------
Net cash used by investing activities (183,427) (234,955)
-------- --------
Cash flows from financing activities:
Net change in short-term borrowings 16,250 (48,000)
Proceeds from notes 66,000 186,000
Loan to leveraged employee stock
ownership plan (2,955) (3,309)
Proceeds from leveraged employee stock
ownership plan 119 121
Principal payments on notes (53,485) (41,250)
Net change in cash overdraft 454 2,265
Dividends paid (6,482) (3,147)
Investment contract deposits 13,661 17,089
Investment contract withdrawals (26,300) (17,629)
-------- --------
Net cash provided by financing activities 7,262 92,140
-------- --------
Increase (decrease) in cash 23,440 (7,318)
Cash at beginning of quarter 18,442 21,291
-------- --------
Cash at end of quarter $ 41,882 13,973
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 10
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994, March 31, 1994 and September 30, 1993
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent
corporation, AMERCO, and its subsidiaries, all of which are wholly-owned.
All material intercompany accounts and transactions of AMERCO and its
subsidiaries (herein called the "Company" or the "consolidated group") have
been eliminated. The consolidated balance sheets as of September 30, 1994
and 1993, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for the quarters ended September 30,
1994 and 1993 are unaudited; in the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q
and do not contain information included in the Company's annual financial
statements and notes.
Earnings per share are computed based on the weighted average number of
shares outstanding, not including ESOP shares that have not been committed
to release. Net income is reduced for preferred dividends.
Certain reclassifications have been made to the financial statements for the
quarter ended September 30, 1993 to conform with the current year's
presentation.
2. INVESTMENTS
<TABLE>
A comparison of amortized cost to market for fixed maturities is as follows
(in thousands):
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Market
June 30, 1994 Par Value Value Gains Losses Value
------------- --------- ----- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
U.S. Treasury
securities and
government
obligations 146,430,239 171,608 2,952 (8,942) 165,618
States, municipal-
ities and political
subdivisions 41,232,000 41,121 2,868 (197) 43,792
Corporate
Securities 409,444,901 432,200 6,172 (14,324) 424,048
Mortgage-backed
securities 53,698,684 54,129 389 (3,616) 50,902
Redeemable pre-
ferred stock 36,054 2,162 382 - 2,544
------- ------ -------- -------
701,220 12,763 (27,079) 686,904
======= ======= ======== =======
</TABLE>
<PAGE> 11
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF PONDEROSA HOLDINGS, INC.
AND ITS SUBSIDIARIES
<TABLE>
A summary consolidated balance sheet (unaudited) for Ponderosa Holdings, Inc.
and its subsidiaries is presented below:
<CAPTION>
September 30,
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
Investments - fixed maturities $ 701,220 679,826
Other investments 97,727 106,202
Receivables 150,841 45,128
Deferred policy acquisition costs 49,940 49,829
Due from affiliate (1,531) 9,468
Deferred federal income taxes 7,957 7,478
Other assets 18,600 8,861
--------- ---------
Total assets $ 1,024,754 906,792
========= =========
Policy liabilities and accruals $ 398,602 297,730
Unearned premiums 66,111 41,169
Premium deposits 300,069 320,421
Other policyholders' funds and
liabilities 14,613 12,317
--------- ---------
Total liabilities 779,395 671,637
Stockholder's equity 245,359 235,155
--------- ---------
Total liabilities and
stockholder's equity $ 1,024,754 906,792
========= =========
</TABLE>
<PAGE> 12
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF PONDEROSA HOLDINGS, INC.
AND ITS SUBSIDIARIES, continued
<TABLE>
A summarized consolidated income statement (unaudited) for Ponderosa
Holdings, Inc. and its subsidiaries is presented below:
<CAPTION>
Six Months ended September 30,
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
Premiums $ 76,865 66,286
Net investment income 22,498 19,945
Other income 3,245 3,039
--------- ---------
Total revenue 102,608 89,270
Benefits and losses 66,279 59,910
Amortization of deferred policy
acquisition costs 5,676 4,332
Other expenses 12,756 11,945
--------- ---------
Income from operations 17,897 13,083
Federal income tax expense (5,675) (3,039)
--------- ---------
Earnings from operations before
change in accounting principle 12,222 10,044
Cumulative effect of a change in
accounting principle - (101)
--------- ---------
Net income $ 12,222 9,943
========= =========
</TABLE>
Effective June 30, 1994, the Board of Directors of Oxford declared a dividend
of its stock in Republic Western Insurance Company to Ponderosa.
During the quarter, the Board of Directors of Ponderosa Holdings, Inc.
declared and paid a dividend of $14,603,000 to AMERCO.
4. CONTINGENT LIABILITIES AND COMMITMENTS
During the six months ended September 30, 1994, U-Haul Leasing & Sales Co., a
wholly-owned subsidiary of U-Haul International, Inc., entered into seven
transactions, whereby they sold rental trucks and subsequently leased them
back. AMERCO has guaranteed $6,313,000 of residual values at September 30,
1994 on these assets at the end of the lease terms. Following are the
lease commitments for those leases executed during the six months ended
September 30, 1994, which have a term of more than one year (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ended Lease
March 31, Commitments
---------- -----------
1995 $ 8,457
1996 12 044
1997 12,044
1998 12,044
1999 12,044
Thereafter 27,607
------
$ 84,240
======
</TABLE>
<PAGE> 13
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
4. CONTINGENT LIABILITIES AND COMMITMENTS, continued
The Company is a defendant in a number of suits and claims incident to the
type of business conducted and several administrative proceedings arising
from state and local provisions that regulate the removal and/or clean-up
of underground fuel storage tanks. The Company owns property within two
state hazardous waste sites in the State of Washington. At this time, the
remedial clean-up cost or range of costs for such sites cannot be
estimated. Management's opinion is that none of these suits or claims
involving AMERCO and/or its subsidiaries is expected to result in any
material loss.
Certain of the Company's credit agreements contain provisions that could
result in a required prepayment upon a "change in control" of the Company.
A "change in control" is deemed to occur if (a) any transfer of any shares
of any class of capital stock results in the Company's ESOP and members of
the Shoen family owning in the aggregate less than the amount of capital
stock as may be necessary to enable them to cast in excess of 50% of the
votes for the election of directors of the Company, or (b) during any
period for two consecutive years, persons who at the beginning of such
period constituted the Board of Directors of the Company (including any
director approved by a vote of not less than 66 2/3% of such board)
cease for any reason to constitute greater than 50% of the then acting
Board.
The Company does not currently have available sources of financing to fund
such prepayments if they become payable in full. In addition, upon such a
"change in control," the Company might lose the ability to draw on certain
unutilized lines of credit otherwise available.
As disclosed in the Form 10-K for the year ended March 31, 1994, certain
members of the Company's Board of Directors are defendants in an action
whereby the plaintiffs, certain shareholders of the Company, have alleged
that certain of the individual plaintiffs were wrongfully excluded from
sitting on the Company's Board of Directors in 1988 through the sale of the
Company's common stock to certain key employees, various breaches of
fiduciary duty and other unlawful conduct by the individual defendants.
The plaintiffs seek equitable relief, compensatory damages, and punitive
damages. All claims for various breaches of fiduciary duty and other
unlawful conduct by the individual defendants that would have allowed the
plaintiffs to sit on the Board of Directors have been dismissed, subject
only to the right of the plaintiffs to appeal such dismissal. The Company
was also a defendant in the action as originally filed, but was dismissed
from the action on August 15, 1994, subject only to the right, to the
extent that any exists, of the plaintiffs to appeal such dismissal. See
also Note 8 to Consolidated Financial Statements (Unaudited).
<PAGE> 14
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
5. SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
The (increase) decrease in receivables, inventories and accounts payable and
accrued liabilities net of other operating and investing activities
follows:
<CAPTION>
Six Months ended September 30,
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Receivables $ (41,291) (1,796)
======= =======
Inventories $ 1,321 (1,032)
======= =======
Accounts payable and
accrued liabilities $ 23,758 5,074
======= =======
</TABLE>
Income tax paid in cash amounted to $5,566,000 and $2,142,000 for 1994 and
1993, respectively.
Interest paid in cash amounted to $30,878,000 and $33,325,000 for 1994 and
1993, respectively.
6. RELATED PARTIES
On August 24, 1994, the Company entered into an Exchange Agreement with
Edward J. Shoen, the Company's Chairman of the Board and President. In
exchange for 3,483,681 shares of Common Stock owned by Edward J. Shoen, the
Company issued 3,483,681 shares of Series A Common Stock to him.
Through the second quarter of fiscal 1995, a subsidiary of the Company loaned
SAC Self-Storage Corporation(SAC)a total of $32,164,000 for the purchase of
21 self-storage properties by SAC. Such properties are presently being
operated by the Company pursuant to management agreements. SAC is owned by
Edward J. Shoen, Mark V. Shoen and James P. Shoen, who are all shareholders
and directors of the Company. The underlying notes bear interest at a rate
of 9%, due quarterly and are secured by real property and operating cash
flows. The notes mature in 2004. All of the notes are cross-collaterized
with other notes issued by SAC.
7. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 112 - Employers' Accounting
for Postemployment Benefits.
Issued in November 1992, this statement applies to employers who provide
certain benefits to former or inactive employees after employment but
before retirement. It requires that the cost of such benefits be
recognized over the service period of employees as these benefits vest or
accumulate. The provisions of this statement must be adopted for fiscal
years beginning after December 15, 1993. The impact of adoption of this
statement will not be material.
<PAGE> 15
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
7. NEW ACCOUNTING STANDARDS, continued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan", was issued by the Financial Accounting Standards
Board in May 1993. This standard is effective for years beginning after
December 15, 1994. The standard requires that an impaired loan's fair
value be measured and compared to the recorded investment in the loan. If
the fair value of the loan is less than the recorded investment in the
loan, a valuation allowance is established. The Company has not completed
an evaluation of the effect of this standard.
Statement of Financial Accounting Standards No. 115 - Accounting for Certain
Investments in Debt and Equity Securities.
Effective December 31, 1993, RWIC adopted SFAS 115. This statement requires
classification of debt securities into one of the following three
categories based on management's intention with regard to such securities:
held-to-maturity, available-for-sale and trading. Securities classified
as held-to-maturity are recorded at cost adjusted for the amortization of
premiums or accretion of discounts while those classified as available-for-
sale are recorded at fair value with unrealized gains or losses reported
on a net basis as a separate component of stockholders' equity.
Securities classified as trading, if any, are recorded at fair value with
unrealized gains or losses reported on a net basis in income. RWIC does
not currently maintain a trading portfolio. U-Haul and Oxford will adopt
this statement in fiscal 1995. The effect of adopting this statement on
the Company's financial statements is immaterial.
Statement of Position 93-7, "Reporting on Advertising Costs", was issued by
the Accounting Standards Executive Committee in December 1993. This
statement of position provides guidance on financial reporting on
advertising costs in annual financial statements. The statement of
position requires reporting advertising costs as expenses when incurred or
when the advertising takes place, reporting the costs of direct-response
advertising, and amortizing the amount of direct-response advertising
reported as assets. This statement of position is effective for financial
statements for years beginning after June 15, 1994. The Company currently
matches certain advertising costs with revenue generated in future periods,
and at September 30, 1994, $9.3 million in advertising costs are deferred
and included in prepaid expenses. The Company has completed an evaluation
of the effect of this statement of position but has not determined the
timing of adoption. However, the Company must adopt this statement of
position in fiscal 1996.
<PAGE> 16
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
8. SUBSEQUENT EVENTS
On October 13, 1994, the Company declared a cash dividend of $3,241,000 ($.53
per preferred share) to preferred stockholders of record as of November 8,
1994.
As disclosed in Note 4, certain of the Company's current and former directors
are defendants in an action initiated by certain of the Company's
shareholders. Based upon the preliminary rulings by the Court and the fact
that the plaintiffs alleged that their stock is virtually worthless, the
Company believes that the plaintiffs elected that their remedy in the
litigation would be the sale of their stock to the defendants at a price
determined by the Court based on the value of their stock in 1988. On
October 7, 1994, the jury determined that such value was $81.12 per share
or approximately $1.48 billion. The defendants have filed post-trial
motions to (i) request a new trial and/or (ii) reduce the amount of
consideration to be paid to the plaintiffs for their stock to not more than
$394 million or (iii) to obtain judgment in favor of the defendants.
The Company is unable to predict the outcome of the post-trial motions and
the likelihood of appeal by any party or the consequences of any appeal.
However, based upon the advice of Snell & Wilmer, counsel to the defendants
other than Paul F. Shoen, the Company believes that even if the Court does
not render judgment in favor of the defendants or order a new trial, a
substantial reduction in the jury verdict is probable.
The Company has agreed to indemnify the defendants to the fullest extent
permitted by law or the Company's Articles of Incorporation or Bylaws, for
all expenses and damages, if any, incurred by the defendants in this
proceeding, subject to certain exceptions. At this time, the extent of the
Company's indemnification obligations, if any, cannot be reasonably
estimated. The Company believes that there is a substantial likelihood
that if the jury verdict is substantially reduced, the resulting amount to
be paid to the plaintiffs for their shares will not exceed the fair market
value of the shares to be acquired by the defendants. In such event, the
defendants may choose to acquire the shares without making indemnification
claims against the Company. No provision has been made in the Company's
financial statements for any possible indemnification claims. If the jury
verdict in this case is significantly reduced, the Company believes that it
can satisfy its indemnification obligations, if any. Before the Company
will have any indemnification obligations, a final judgment must be entered
against the defendants, the defendants must request indemnification from
the Company, and a determination must be
made under Nevada law as to the validity of the indemnification claims. If
valid indemnification claims are made, the Company believes that it has
various means of financing any such indemnification obligations consistent
with its existing credit agreements. In the alternative, the Company may
<PAGE> 17
seek the waiver or amendment of certain of the provisions of one or more of
its credit agreements when the indemnification obligations are determined.
The Company believes, but no assurances can be given, that it can obtain
any necessary waivers or amendments. If the jury verdict is significantly
reduced, the Company does not believe that there would be a material
adverse effect on its earnings, financial position, or cash flows. If the
jury verdict is not significantly reduced and any resulting judgment is not
stayed by appeal or other proceedings, the Company may be unable to satisfy
its indemnification obligations if valid indemnification claims are made.
There can be no assurance that the jury verdict will be significantly
reduced.
The Company, certain officers of the Company, certain members of the
Company's Board of Directors, and others are defendants in an action
currently pending in United States District Court for the District of
Nevada entitled Sidney Wisotzky and Dorothy Wisotzky, et al. v. Edward J.
---------------------------------------------------------
Shoen. et al., No. CV-N-94-771-HDM (filed October 28, 1994 and served on
-------------
the Company on November 7, 1994). The plaintiffs, who claim to have
purchased the Company's Series A 8 1/2% Preferred Stock, are seeking class
action certification and are defining the class as all persons who
purchased or otherwise acquired the Series A 8 1/2% Preferred Stock of
AMERCO from October 14, 1993 through October 18, 1994, inclusive, and who
sustained damage as a result of such purchases. The plaintiffs allege
among other things, that the defendants violated the federal securities
laws by inflating the price of the Series A 8 1/2% Preferred Stock via
false and misleading statements, the concealment of material adverse
information and other manipulative actions, and that the Prospectus for the
Series A 8 1/2% Preferred Stock, certain Form 10-K and Form 10-Q filings
made by the Company, and the Company's Notice and Proxy Statement dated
July 8, 1994 contained false and misleading statements and omissions
regarding the action currently pending in the Superior Court of the State
of Arizona in and for the County of Maricopa entitled Samuel W. Shoen,
----------------
M.D., et al. v. Edward J. Shoen, et al., No. CV88-20139, instituted August
---------------------------------------
2, 1988 (the "Shoen Litigation"). On October 7, 1994, the jury in the
Shoen Litigation awarded the plaintiffs in that case approximately $1.48
billion to be paid by the defendants in exchange for the plaintiffs' stock.
The jury in that case also awarded the plaintiffs $70 million in punitive
damages against Edward J. Shoen. The plaintiffs are requesting unspecified
compensatory damages as well as attorneys' fees and costs. The Company and
the individual defendants deny plaintiffs' allegations of wrongdoing and
intend to vigorously defend themselves in this action.
On November 10, 1994, the public sale of 500,000 shares of the Company's
Common Stock pursuant to a Share Repurchase and Registration Rights
Agreement with Sophia M. Shoen was consummated at an initial public
offering price of $17 per share. The Common Stock sold by Sophia M. Shoen
is traded on NASDAQ - National Market under the ticker symbol "AMOO". The
Company did not receive any proceeds from the sale.
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS:
The following table shows industry segment data from the Company's three
industry segments, rental operations, life insurance, and property and
casualty insurance, for the six months ended September 30, 1994 and 1993.
Rental operations is composed of the operations of U-Haul and AMERCO Real
Estate Company. Life insurance is composed of the operations of Oxford.
Property and casualty insurance is composed of the operations of Republic
Western Insurance Company (RWIC). The Company's results of operations have
historically fluctuated from quarter to quarter. In particular, the
Company's U-Haul rental operations are seasonal and a majority of the
Company's revenues and substantially all of it's earnings from its U-Haul
rental operations are generated in the first and second quarters each
fiscal year (April through September).
<TABLE>
<CAPTION>
Property/ Adjustments
Rental Life Casualty And
Operations Insurance Insurance Eliminations Consolidated
---------- --------- --------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Six months ended September 30, 1994
Revenues:
Outside $ 591,737 19,682 73,274 - 684,693
Intersegment (41) 744 8,939 (9,642) -
---------- -------- -------- --------- ---------
Total Revenue 591,696 20,426 82,213 (9,642) 684,693
========== ======== ======== ========= =========
Operating profit 124,197 6,295 11,602 41 142,135
========== ======== ======== =========
Interest expense 33,297
---------
Pretax earnings
from operations 108,838
=========
Identifiable Assets
at September 30 1,733,767 462,229 577,127 (267,044) 2,506,079
========== ======== ======== ========= =========
Six months ended September 30, 1993
Revenues:
Outside $ 537,284 16,161 62,871 - 616,316
Intersegment 936 464 9,798 (11,198) -
---------- -------- -------- --------- ---------
Total Revenue 538,220 16,625 72,669 (11,198) 616,316
========== ======== ======== ========= =========
Operating profit 98,905 4,734 8,349 (1,144) 110,844
========== ======== ======== ========= =========
Interest expense 35,268
---------
Pretax earnings
from operations 75,576
=========
Identifiable Assets
at September 30 1,528,430 463,294 448,661 (250,553) 2,189,832
========== ======== ======== ========= =========
</TABLE>
<PAGE> 19
SIX MONTHS ENDED SEPTEMBER 30, 1994 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1993
U-Haul
U-Haul revenues consist of (i) total rental and other revenue and (ii)
net sales. Total rental and other revenue increased by $48.6 million,
approximately 10.9%, to $494.0 million in the first six months of fiscal 1995.
The increase in the first six months of fiscal 1995 is primarily attributable to
a $46.2 million increase in net revenues from the rental of moving related
equipment, which rose to $459.4 million as compared to $413.2 million in the
first six months of fiscal 1994. Moving related revenues benefited from
transactional (volume) growth within the truck and trailer fleets reflecting
higher utilization and rental fleet expansion. Revenues from the rental of
self-storage facilities increased by $4.7 million to $39.4 million in the first
six months of fiscal 1995, an increase of approximately 13.5%. Storage revenues
were positively impacted by additional rentable square footage and higher
average rental rates. Other revenues declined by $2.3 million which primarily
reflects changes in gains realized from the disposition of property, plant and
equipment.
Net sales revenues were $97.7 million in the first six months of
fiscal 1995, which represents an increase of approximately 5.3% from the first
six months of fiscal 1994 net sales of $92.8 million. Revenue growth from the
sale of hitches, moving support items (i.e. boxes, etc.), and propane resulted
in a $6.3 million increase during the first six month period, which was offset
by a $1.3 million decrease in revenue from gasoline sales and outside repair.
Cost of sales was $53.3 million in the first six months of fiscal
1995, which represents a decrease of approximately 3.3% from $55.1 million for
the same period in fiscal 1994. The decrease in cost of sales primarily
reflects improved margins on hitch sales, and the liquidation of RV parts in the
first quarter of fiscal 1994. Increased material costs from the sale of moving
support items and propane, which can be primarily attributed to higher sales
levels, partially offset these decreases.
Operating expenses increased to $339.5 million in the first six months
of fiscal 1995 from $322.0 million in the first six months of fiscal 1994, an
increase of approximately 5.4%. The change from the prior year primarily
reflects a $16.7 million increase in rental equipment maintenance costs.
Efforts to minimize downtime, an increase in fleet size, and higher transaction
levels are primarily responsible for the increase. Lease expense declined by
$17.3 million to $31.5 million reflecting lease terminations, lease
restructuring, and lower finance costs on new leases originated during the past
18 months. All other operating expense categories increased in the aggregate of
$18.1 million, approximately 9.8%, to $202.5 million.
Depreciation expense for the six month period was $74.8 million, as
compared to $62.3 million in the same period of the prior year, reflecting the
increase in fleet size, the acquisition of trucks that were previously leased
and real property acquisitions.
<PAGE> 20
Oxford - Life Insurance
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $8.2 million for the six months ended June 30, 1994, an
increase of $.6 million, approximately 7.9% over 1993 and accounted for 78.5% of
Oxford's premiums in 1994. These premiums are primarily from term life
insurance and single and flexible premium deferred annuities. Increases in
premiums are primarily from the anticipated increase in annuitizations as a
result of the maturing of deferred annuities.
Premiums from Oxford's direct lines before intercompany eliminations
were $2.3 million for the six months ended June 30, 1994, an increase of $1.1
million over the prior year. The increase in direct premium is primarily due to
Oxford's entrance into the credit life and accident and health business.
Oxford's direct lines are principally related to the underwriting of group life
and disability income and credit life and accident and health. Insurance on the
lives of the employees of AMERCO and its subsidiary companies accounted for
approximately 8.0% of Oxford's premiums in 1994. Unaffiliated direct lines
accounted for approximately 13.5% of Oxford's premiums in 1994.
Net investment income before intercompany eliminations was $7.7
million and $6.4 million for the six months ended June 30, 1994 and 1993,
respectively. This increase is primarily due to increasing margins on the
interest sensitive business. Gains on the disposition of fixed maturity
investments were $1.2 million and $.5 million for the six months ended June 30,
1994 and 1993, respectively. Oxford had $1.0 million of other income for both
of the six months periods ended June 30, 1994 and 1993.
Benefits and expenses incurred were $14.1 million for the six months
ended June 30, 1994, an increase of 18.5% over 1993. Comparable benefits and
expenses incurred for 1993 were $11.9 million. This increase is primarily due
to the increase in reserve caused by the increase in annuitizations and the
credit life and accident and health business discussed above.
Operating profit before intercompany eliminations increased by $1.6
million, or approximately 34%, in 1994 to $6.3 million, primarily due to the
increasing margins on the interest sensitive business and the gain on
disposition of fixed maturities.
RWIC - Property and Casualty
RWIC gross premium writings continued to grow in the first six months
of 1994, to $93.6 million as compared to $81.3 million in the first half of
1993. This represents an increase of $12.3 million, or 15.1%. RWIC continues
underwriting professional reinsurance via broker markets, and premiums in this
area increased in the first half of 1994 to $38.7 million, or 41.4% of total
premium, from comparable 1993 figures of $26.2 million, or 32.3% of total
premium. As in prior years, the rental industry market also accounts for a
significant share of total premiums, approximately 40.5% and 38.9% in the first
half of 1994 and the first half of 1993, respectively. These writings include
U-Haul customers, fleetowners
<PAGE> 21
and U-Haul as well as other rental industry insureds with similar
characteristics.
Net earned premiums increased $8.9 million, or 15.5%, to $66.4 million
for the six months ended June 30, 1994, compared with premiums of $57.5 million
for the six months ended June 30, 1993. The premium increase was primarily due
to increased writings in the assumed reinsurance area.
Underwriting expenses incurred were $70.6 million for the six months
ended June 30, 1994, an increase of $6.3 million, or 9.8% over 1993. Comparable
underwriting expenses incurred for 1993 were $64.3 million. The increase in
underwriting expenses is due to the larger premium volume being written in 1994,
which increased acquisition costs and commensurate reserves. The ratio of
underwriting expenses to net earned premiums decreased from 1.12 in the first
half of 1993 to 1.06 in the first half of 1994. This improvement is primarily
attributable to improved loss experience combined with continued rate strength
in the Company's assumed reinsurance area. Also contributing to the improvement
was better than expected loss ratios on the Company's general agency lines.
Net investment income was $14.8 million during the first half of 1994,
an increase of 8.8% over 1993 net investment income of $13.6 million. The
increase is due to an increased asset base generated from larger premium volume.
RWIC completed the first six months of 1994 with net after tax income
of $8.2 million as compared to $6.9 million for the comparable period ended June
1993. This represents an increase of $1.3 million, or 18.8% over 1993. The
increase is due to better underwriting results in the assumed reinsurance area.
Interest Expense
Interest expense decreased by $2.0 million to $33.3 million for the
six months ended September 30, 1994, as compared to $35.3 million for the six
months ended September 30, 1993. This decrease reflects a reduction in the
costs of funds and lower average debt levels outstanding.
Consolidated Group
As a result of the foregoing, pretax earnings of $108.8 million were
realized in the six months ended September 30, 1994, as compared to $75.6
million for the same period in 1993. After providing for income taxes, net
earnings for the six months ended September 30, 1994 were $69.5 million, as
compared to $48.0 million for the same period of the prior year. The
consolidated results for the prior year reflect a cumulative effect adjustment
resulting from the adoption of Statement of Accounting Standards No. 106
"Accounting for Post-Retirement Benefits Other Than Pensions."
<PAGE> 22
THREE MONTHS ENDED SEPTEMBER 30, 1994 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1993
U-Haul
U-Haul revenues consist of (i) total rental and other revenue and (ii)
net sales. Total rental and other revenue increased by $26.0 million,
approximately 10.9%, to $264.9 million in the three months ended September 1994.
The increase is primarily attributable to a $22.8 million increase in net
revenues from the rental of moving related equipment, which rose to $245.0
million, as compared to $22.8 million for the three months ended September 30,
1994 and September 30, 1993, respectively. Moving related revenues benefited
from transactional (volume) growth within the truck and trailer fleets.
Revenues from the rental of self-storage facilities increased by $2.6 million to
$20.6 million for the three months ended September 1994, an increase of
approximately 14.4%. Storage revenues were positively impacted by additional
rentable square footage and higher average rental rates. Other revenues
declined by $.6 million which primarily reflects changes in gains realized from
the disposition of property, plant and equipment.
Net sales were $46.4 million for the three months ended September 30,
1994, which represents an increase of approximately 2.9% from the three months
ended September 30, 1993 net sales of $45.1 million. Revenue growth from the
sale of hitches, moving support items (i.e. boxes, etc.), and propane resulted
in a $2.0 million increase during the three month period, which was offset by a
$.7 million decrease in revenue from gasoline sales and outside repair.
Cost of sales was $25.7 million for the three months ended September
30, 1994 compared to $25.8 million for the same period ended September 1993.
The relative static activity represents improved margins on hitch sales, with
increased material costs for support items and propane.
Operating expenses increased to $177.5 million for the three months
ended September 30, 1994 compared to $166.4 million for the three months ended
September 1993, an increase of approximately 6.7%. The change from the prior
year primarily reflects a $6.6 million increase in rental equipment maintenance
costs. Efforts to minimize downtime, an increase in fleet size and higher
transaction levels are primarily responsible for the increase. Lease expense
declined by $4.8 million to $16.3 million reflecting lease terminations, lease
restructuring, and lower finance costs on new leases originated during the past
18 months. All other operating expense categories increased in the aggregate by
$9.3 million, approximately 9.5% to $106.2 million.
Depreciation expense for the three month period was $37.5 million, as
compared to $32.1 million in the same period of the prior year, reflecting the
increase in fleet size, the acquisition of trucks that were previously leased
and real property acquisitions.
<PAGE> 23
Oxford - Life Insurance
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $4.4 million for the quarter ended June 30, 1994, an increase
of $.1 million, approximately 2.3% over 1993 and accounted for 78.5% of Oxford's
premiums in 1994. These premiums are primarily from term life insurance and
single and flexible premium deferred annuities. Increases in premiums are
primarily from the anticipated increase in annuitizations as a result of the
maturing of deferred annuities.
Premiums from Oxford's direct lines before intercompany eliminations
were $1.9 million for the quarter ended June 30, 1994, an increase of $.6
million (46.2%) over the prior year. Oxford's direct lines are principally
related to the underwriting of group life and disability income insurance on the
lives of the employees of AMERCO and its subsidiary companies. Unaffiliated
direct lines include the underwriting of credit life and accident and health
business and individual life insurance acquired from other insurers.
Net investment income before intercompany eliminations was $4.1
million and $3.0 million for the quarters ended June 30, 1994 and 1993,
respectively. This increase is primarily due to increasing margins on the
interest sensitive business. Gains on the disposition of fixed maturity
investments were $1.0 million and $.2 million. Oxford had $.5 million of other
income for both of the quarters ended June 30, 1994 and 1993.
Benefits and expenses incurred were $7.5 million for the quarter ended
June 30, 1994, an increase of 7.1% over 1993. Comparable benefits and expenses
incurred for 1993 were $7.0 million. This increase is primarily due to the
increase in reserve caused by the increase in annuitizations and Oxford's
entrance into credit life and accident and health business. Oxford also
increased its amortization of deferred acquisition costs.
Operating profit before intercompany eliminations increased by $2.2
million, or approximately 100%, in 1994 to $4.4 million, primarily due to the
increasing margins on the interest sensitive business and the gain on
disposition of fixed maturities.
RWIC - Property and Casualty
RWIC gross premium writings in the second quarter of 1994 were $48.0
million as compared to $47.2 million in the second quarter of 1993. This
represents an increase of $.8 million, or 1.7%. As in prior years, the rental
industry market accounts for a significant share of total premiums,
approximately 62.2% and 50.7% for the second quarter of 1994 and the second
quarter of 1993, respectively. These writings include U-Haul customers,
fleetowners and U-Haul as well as other rental industry insureds with similar
characteristics.
Net earned premiums increased $2.5 million, or 7.4%, to $36.3 million
for the three months ended June 30, 1994, compared with premiums of $33.8
million for the three months ended June 30, 1993. The premium increase was
primarily due to increased writings in the assumed reinsurance area.
<PAGE> 24
Underwriting expenses incurred were $39.9 million for the three months
ended June 30, 1994, an increase of $2.5 million, or 6.7% over 1993. Comparable
underwriting expenses incurred for 1993 were $37.4 million. The increase in
underwriting expenses is due to the larger premium volume being written in 1994,
which increased acquisition costs and commensurate reserves. The ratio of
underwriting expenses to net earned premiums remained the same from 1.1 in the
second quarter of 1993 to 1.1 in the second quarter of 1994.
Net investment income was $7.9 million during the second quarter of
1994, an increase of 33.9% over 1993 net investment income of $5.9 million. The
increase is attributable to one time accrual changes to certain government
agency bonds in first quarter 1993 which decreased second quarter 1993 net
investment income.
RWIC completed the three months ended June 30, 1994 with net after tax
income of $3.3 million as compared to $2.6 million for the comparable period
ended June 1993. This represents an increase of $.7 million, or 26.9% over
1993. The increase is due to better underwriting results in the assumed
reinsurance area.
Interest Expense
Interest expense decreased by $1.3 million to $16.7 million for the
three months ended September 30, 1994, as compared to $18.0 million for the
three months ended September 30, 1993. This decrease reflects a reduction in
the costs of funds and lower average debt levels outstanding.
Consolidated Group
As a result of the foregoing, pretax earnings of $63.0 million were
realized in the three months ended September 30, 1994, as compared to $45.9
million for the same period in 1993. After providing for income taxes, net
earnings for the three months ended September 30, 1994 were $40.1 million, as
compared to $30.6 million for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
U-Haul
To meet the needs of its customers, U-Haul must maintain a large
inventory of fixed asset rental items. At September 30, 1994, net property,
plant and equipment represented approximately 73.1% of total U-Haul assets and
approximately 50.6% of consolidated assets. In the first six months of fiscal
1995, capital expenditures were $255.2 million, as compared to $330.3 million in
the first six months of fiscal 1994, reflecting expansion of the rental fleet in
both periods, purchase of trucks previously leased, and increases in the
available square footage in the self-storage segment. The capital needs
required to fund these acquisitions were funded with internally generated funds
from operations, debt and lease financings.
<PAGE> 25
Cash flows from operations were $162.6 million in the first six months
of fiscal 1995, as compared to $143.0 million in the first six months of fiscal
1994. The increase primarily reflects improved earnings and higher depreciation
during the current year.
Oxford - Life Insurance
Oxford's primary sources of cash are premiums, receipts from interest-
sensitive products and investment income. The primary uses of cash are
operating costs and benefit payments to policyholders. Matching the investment
portfolio to the cash flow demands of the types of insurance being written is an
important consideration. Benefit and claim statistics are continually monitored
to provide projections of future cash requirements.
Cash flows from operations were $9.8 million and $8.0 million for the
six months ended June 30, 1994 and 1993, respectively. During 1993 there were no
cash flows from new reinsurance agreements. In addition to cash flow from
operations and financing activities, a substantial amount of liquid funds is
available through Oxford's short-term portfolio. At June 30, 1994 and 1993,
short-term investments amounted to $9.1 million and $9.5 million, respectively.
Management believes that the overall sources of liquidity will continue to meet
foreseeable cash needs.
Stockholder's equity of Oxford, on June 30, 1994 was $91.0 million.
Stockholder's equity excluding investment in RWIC, was $83.8 million in 1993.
On June 30, 1994 Oxford dividended 100% of common stock of RWIC to Ponderosa.
In May 1993, Oxford paid dividends of $10.0 million to Ponderosa.
Applicable laws and regulations of the State of Arizona require the
Company's insurance subsidiaries to maintain minimum capital determined in
accordance with statutory accounting practices in the amount of $600,000. In
addition, the amount of dividends that can be paid to shareholders by insurance
companies domiciled in the State of Arizona is limited. Any dividend in excess
of the limit requires prior regulatory approval. Statutory surplus that can be
distributed as dividends without prior regulatory approval is $17,619,000 at
June 30, 1994. These restrictions are not expected to have a material adverse
effect on the ability of the Company to meet its cash obligations.
RWIC - Property and Casualty
Cash flows from operations were $12.4 million and $4.3 million for the
six months ended June 30, 1994 and 1993, respectively. The increase is
primarily attributed to increased premium writings which were partially offset
by increased reinsurance loss payables. In addition to cash flows from
operations, a substantial amount of liquid assets and budgeted cash flows is
available to meet periodic needs.
<PAGE> 26
RWIC's short-term investment portfolio was $6.2 million at June 30,
1994. This level of liquid assets, combined with budgeted cash flow, is
adequate to meet periodic needs. This balance also reflects funds in transition
from maturity proceeds to long-term investments. The structure of the long-term
portfolio is designed to match future cash needs. Capital and operating budgets
allow RWIC to schedule cash needs.
RWIC maintains a diversified investment portfolio, primarily in bonds
at varying maturity levels. Approximately 97.4% of the portfolio consists of
investment grade securities. The maturity distribution is designed to provide
sufficient liquidity to meet future cash needs. Current liquidity is adequate,
with current invested assets equal to 93.4% of total liabilities.
Shareholder equity increased 2.4% from $165.1 million at December 31,
1993 to $169.0 million at June 30, 1994. RWIC considers current shareholders'
equity to be adequate to support future growth and absorb unforseen risk events.
RWIC does not use debt or equity issues to increase capital and therefore has no
exposure to capital market conditions. During the first six months of 1994,
RWIC paid no shareholder dividends.
Consolidated Group
At September 30, 1994, total notes and loans payable outstanding was
$752.5 million as compared to $723.8 million at March 31, 1994, $793.9 million
at September 30, 1993. The decrease from September 1993 is due to a combination
of cash flow from operations, a preferred stock offering and lease fundings.
During each of the fiscal years ending March 31, 1995, 1996, and 1997,
U-Haul estimates gross capital expenditures will average approximately $360
million as a result of the expansion of the rental fleet and self-storage
segment. This level of capital expenditures, combined with an average of
approximately $100 million in annual long-term debt maturities during this same
period, are expected to create annual average funding needs of approximately
$460 million. Management estimates that U-Haul will fund approximately 55% of
these requirements with internally generated funds, including proceeds from the
disposition of older trucks and other asset sales. The remainder of the
required capital expenditures are expected to be financed through existing
credit facilities, new debt placements, lease fundings, and equity offerings.
Credit Agreements
The Company's operations are funded by various credit and financing
arrangements, including unsecured long-term borrowings, unsecured medium-term
notes, and revolving lines of credit with domestic and foreign banks.
Principally to finance its fleet of trucks and trailers, the Company routinely
enters into sale and leaseback transactions. As of September 30, 1994, the
Company had $752.5 million in total notes and loans payable outstanding and
unutilized lines of credit of approximately $422.0 million.
<PAGE> 27
Certain of the Company's credit agreements contain restrictive
financial and other covenants, including, among others, covenants with respect
to incurring additional indebtedness, maintaining certain financial ratios, and
placing certain additional liens on its properties and assets. At September 30,
1994, the Company was in compliance with these covenants. In addition, these
credit agreements contain provisions that could result in a required prepayment
upon a "change in control" of the Company.
Under certain of the Company's credit agreements, a "change in
control" is deemed to occur if (a) any transfer of any shares of any class of
capital stock results in the Company's ESOP and members of the Shoen family
owning in the aggregate less than the amount of capital stock as may be
necessary to enable them to cast in excess of 50% of the votes for the election
of directors of the Company or (b) during any period for two consecutive years,
persons who at the beginning of such period constituted the Board of Directors
of the Company (including any director approved by a vote of not less than 66
2/3% of such board) cease for any reason to constitute greater than 50% of the
then acting Board.
The Company is further restricted in the type and amount of dividends
and distributions that it may issue or pay, and in the issuance of certain types
of preferred stock. The Company is prohibited from issuing shares of preferred
stock that provide for any mandatory redemption, sinking fund payment, or
mandatory prepayment, or that allow the holders thereof to require the Company
or an subsidiary of the Company to repurchase such preferred stock at the option
of such holders or upon the occurrence of any event or events without the
consent of its lenders.
Shareholder Litigation
Certain current and former members of the Company's Board of Directors
are defendants in an action initiated by certain of the Company's shareholders.
The Company has agreed to indemnify the defendants to the fullest extent
permitted by law or the Company's Articles of Incorporation or Bylaws for all
expenses and damages, if any, incurred by the defendants in this proceeding,
subject to certain exceptions. The extent of the Company's indemnification
obligation, if any, cannot be reasonably estimated. The Company believes that
the plaintiffs elected that their remedy in this litigation would be the sale of
their stock to the defendants at a price determined by the Court based on the
value of their stock in 1988. The jury has determined that such value was
$81.12 per share or approximately $1.48 billion. The jury also awarded the
plaintiffs $70 million in punitive damages against Edward J. Shoen. Edward J.
Shoen has filed a motion to set aside in its entirety or in the alternative to
reduce this award. No assurance can be given as to the ruling of the Court on
this motion. The defendants have filed post-trial motions to (i) request a new
trial and/or (ii) reduce the amount of consideration to be paid to the
plaintiffs for their stock to not more than $394 million or to obtain judgment
in favor of the defendants. The Company is unable to predict the outcome of the
post-trial motions and the likelihood of appeal by any party or the consequences
of any appeal. However, the Company believes that even if the Court does not
<PAGE> 28
render judgment in favor of the defendants or order a new trial, a substantial
reduction in the jury verdict is probable. The Company believes that there is a
substantial likelihood that if the jury verdict is substantially reduced, the
resulting amount to be paid to the plaintiffs for their shares will not exceed
the fair market value of the shares to be acquired by the defendants. In such
event, the defendants may chose to acquire the shares without making
indemnification claims against the Company. No provision has been made in the
Company's financial statements for any possible indemnification claims. Before
the Company will have any indemnification obligations, a final judgment must be
entered against the defendants, the defendants must request indemnification from
the Company, and a determination must be made under Nevada law as to the
validity of the indemnification claims. If valid indemnification claims are
made, the Company believes that various means of financing the purchase of the
plaintiffs' stock would exist, including, but not limited to, the public sale of
common stock by the Company or by certain of the defendants. The Company does
not believe that in such event there would be a material adverse effect on its
earnings, financial position, or cash flows. The Company believes, but no
assurance can be given, that it can obtain any necessary waivers or amendments
of any provisions of its credit agreements to permit the Company to finance the
purchase of the plaintiffs' stock. If the jury verdict is not significantly
reduced and any resulting judgment is not stayed by appeal or other proceedings,
the Company may be unable to satisfy its indemnification obligation if valid
indemnification claims are made, and such obligation may have a material adverse
effect on the Company's capital expenditure plans in the future. There can be
no assurance that the jury verdict will be significantly reduced or that the
Company or the defendants will be able to finance the purchase of the
plaintiffs' stock if the jury verdict is significantly reduced.
<PAGE> 29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
10(a) AMERCO Employee Savings, Profit Sharing and Employee Stock
Ownership Plan (1)
10(b) U-Haul Dealership Contract (1)
10(c) Share Repurchase and Registration Rights Agreement (1)
10(d) Share Repurchase and Registration Rights Agreement (1)
10(e) Management Consulting Agreement (1)
10(f) Management Consulting Agreement (1)
10(g) ESOP Loan Credit Agreement (2)
10(h) ESOP Loan Agreement (2)
10(i) Trust Agreement for the AMERCO Employee Savings, Profit Sharing
and Employee Stock Ownership Plan (2)
10(j) Amended Indemnification Agreement (2)
10(k) Indemnification Trust Agreement (2)
10(l) W.E. Carty Installment Sales Agreement (2)
10(m) Exchange Agreement with Mark V. Shoen (3)
10(n) Exchange Agreement with James P. Shoen (3)
10(o) Exchange Agreement with Edward J. Shoen (3)
10(p) W.E. Carty Contract of Purchase and Sale of Land (3)
10(q) Promissory Notes between SAC Self-Storage Corporation and a
subsidiary of AMERCO
27 Financial Data Schedule
b. Reports on Form 8-K.
A current report Form 8-K was filed on October 13, 1994.
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1993, file no. 0-7862.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1990, file no. 0-7862.
(3) Incorporated by reference to the Company's S-2 Pre-effective Amendment No 2
dated September 16, 1994 file no. 0-7862.
<PAGE> 30
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, thereunto duly authorized.
U-Haul International, Inc.
___________________________________
(Registrant)
Dated: November 10, 1994 By: /S/ DONALD W. MURNEY
___________________________________
Donald W. Murney, Treasurer
(Principal Financial Officer)
<PAGE>
Senior Loan
PROMISSORY NOTE
$45,500,000.00 dated as of June 3, 1994
FOR VALUE RECEIVED, the undersigned SAC Self-Storage Corporation, a Nevada
corporation (the "Maker" or the "undersigned"), promises to pay to the order of
----- -----------
Nationwide Commercial Co. ("Payee"), an Arizona corporation, at the principal
-----
office of the Payee at 2721 N. Central Avenue, Phoenix, Arizona 85004 or at
such other place or places as the holder hereof may from time to time designate
in writing, the principal sum of FORTY FIVE MILLION FIVE HUNDRED THOUSAND AND
00/100 DOLLARS ($45,500,000.00), or, if less, the aggregate unpaid principal
amount of the Loan made by Payee to Maker, with Interest (as hereinafter
defined) on the principal balance outstanding from time to time all as
hereinafter set forth.
1. Definitions. As used in this Note, each of the following terms shall
-----------
have the following meanings, respectively:
"Affiliate": shall mean, as to any Person, any other Person
-----------
directly or indirectly controlling, controlled by or under direct or
indirect common control with, such Person. "Control" as used herein means
the power to direct the management and policies of the controlled Person.
"Assignment and Pledge Agreement": shall mean that certain
---------------------------------
Assignment and Pledge Agreement (Lockbox) of even date herewith between
the Maker, the Payee, the Project Manager and the Servicer.
"Assignment of Management Agreement": shall have the meaning given
------------------------------------
it in Section 14 hereof.
----------
"Capital Expenditure Account": shall mean the reserve account
-----------------------------
required to be established for capital expenditures in Section 1.19 of the
------------
Mortgage and by the Collection Account Agreement.
"Capital Expenditure Reserve Deposit": shall mean for any calendar
-------------------------------------
quarter the deposit actually made by (or on behalf of) the Payee into the
Capital Expenditure Account which deposit shall not exceed three percent
(3.0%) of Gross Receipts for such quarter.
"Collection Account Agreement": shall mean that certain Collection
------------------------------
Account Agreement of even date herewith among the Maker, the Payee, the
Servicer, the Junior Lender and the Project Manager.
<PAGE>
"Debt Papers": shall mean the documents and instruments
-------------
included within the definition of the term "Debt Papers" as provided
in Section 14 below.
----------
"Environmental Indemnity Agreement": shall have the meaning given
-----------------------------------
it in Section 14 below.
----------
"GAAP": shall mean generally accepted accounting principles as used
------
and understood in the United States of America from time to time.
"Gross Receipts": shall mean, for any period all gross receipts,
----------------
revenues and income of any and every kind collected or received by or for
the benefit or account of Maker during such period arising from the
ownership, rental, use, occupancy or operation of the Project or any
portion thereof. Gross Receipts shall include, without limitation, all
receipts from all tenants, licensees and other occupants and users of the
Project or any portion thereof, including, without limitation, rents,
security deposits and the like, interest earned and paid or credited on
all Maker's deposit accounts related to the Project, all proceeds of rent
or business interruption insurance, and the proceeds of all casualty
insurance or eminent domain awards to the extent not (i) applied, or
reserved and applied within six (6) months after the creation of such
reserve, to the restoration of the Project in accordance with the Mortgage
or (ii) paid to Holder to reduce the principal amount of the Loan. Gross
Receipts shall include the net commission payable from U-Haul
International, Inc. for the rental of its equipment. Gross Receipts shall
not include any capital contributed to Maker, whether in the form of a
loan or equity, or any proceeds from any loan made to Maker. For the
purpose of calculating the Permitted Management Fee and the Capital
Expenditure Reserve Deposit, Gross Receipts shall also exclude sales taxes
collected by the Maker in connection with the operation of the Project and
held in trust for payment to the taxing authorities. Any receipt included
within Gross Receipts in one period shall not be included within Gross
Receipts for any other period (i.e., no item of revenue or receipts shall
be counted twice).
"Highest Lawful Rate": shall mean the maximum rate of interest
---------------------
which the Holder is allowed to contract for, charge, take, reserve, or
receive under applicable law after taking into account, to the extent
required by applicable law, any and all relevant payments or charges
hereunder.
"Holder": shall mean at any particular time, the Person which is
--------
then the holder of this Note.
"Interest": shall have the meaning given it in Section 2 below.
---------- ---------
"Junior Lender": shall mean Nationwide Commercial Co. and its
---------------
successors and assigns in its capacity as the maker of the Junior Loan.
"Junior Loan": shall mean that certain loan in the amount of
-------------
$4,000,000.00 made by the Junior Lender to the Maker evidenced by a
<PAGE>
promissory note of even date herewith.
"Loan": shall mean the mortgage loan made by Payee to Maker and
------
evidenced by the Note. The Loan, which shall not exceed the face amount
of this Note, shall be disbursed beginning on the date hereof in amounts
and times determined by Payee with no disbursements occurring after
October 31, 1994. From time to time, the principal balance of this Note
shall be the sum of the Loan disbursements made as of such time less any
principal payments made pursuant to Section 3 hereof.
---------
"Loan Year": shall mean a year commencing on the date of this
-----------
Note, or an anniversary thereof, and ending 365 days (or 366 days in a
leap year) thereafter.
"Management Fee": shall mean the fee paid to the Project Manager
----------------
pursuant to the Property Management Agreement which fee shall in no event
exceed six percent (6.0%) of Gross Receipts.
"Material Adverse Effect": shall mean the likely inability or
-------------------------
reasonably anticipated inability of Maker to pay the Loan and perform its
other obligations in compliance with the terms of the Debt Papers.
"Maturity Date": shall mean the first to occur of the Stated
---------------
Maturity Date and the earlier date (if any) on which the unpaid principal
balance of, and unpaid Interest on, this Note shall become due and payable
on account of acceleration by the Holder hereof.
"Mortgage": shall mean collectively the Deeds of Trust (and
----------
Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents,
Security Agreement and Financing Statement securing this Note, as the same
may be amended, modified or restated from time to time and together with
all replacements and substitutions therefor. The Mortgage is more fully
identified in Section 14 below.
----------
"Net Cash Flow": shall mean, for any period, the amount by which
---------------
the Gross Receipts for such period exceed the sum of Interest paid during
such period and Operating Expenses for and with respect to such period,
but Net Cash Flow for any period shall not be less than zero.
"Note": shall mean this Promissory Note as it may be amended,
------
modified, extended or restated from time to time, together with all
substitutions and replacements therefor.
"Operating Expenses": shall mean, for any period, all cash
--------------------
expenditures of Maker actually paid (and properly payable) during such
period for (i) payments into escrow pursuant to the Debt Papers for real
and personal property taxes; (ii) real and personal property taxes on the
Project (except to the extent paid from escrowed funds); (iii) premiums
<PAGE>
for liability and property insurance on the Project; (iv) the Capital
Expenditure Reserve Deposit; (v) the Management Fee; (vi) sales and rental
taxes relating to the Project (except to the extent paid from the Tax and
Insurance Escrow Account); and (vii) normal and customary operating
expenses of the Project. In no event shall Operating Expenses include
amounts distributed to the partners or shareholder's of Maker, payments to
Affiliates not permitted under Section 7(d) below, any payments made on
------------
the Loan or any other loan obtained by Maker, amounts paid out of any
funded reserve expressly approved by Holder, non-cash expenses such as
depreciation, or any cost or expense related to the restoration of the
Project in the event of a casualty or eminent domain taking paid for from
the proceeds of insurance or an eminent domain award or any reserve funded
by insurance proceeds or eminent domain awards.
"Person": shall mean any corporation, natural person, firm, joint
--------
venture, general partnership, limited partnership, limited liability
company, trust, unincorporated organization, government or any department
or agency of any government.
"Pooling and Servicing Agreement": shall mean the agreement
---------------------------------
pursuant to which the Debt Papers are held by the Trustee for the benefit
of holders of certain Commercial Mortgage Pass-Through Certificates.
"Present Value": shall have the meaning given such term in Section
--------------- -------
4(c) below.
----
"Project": shall mean the Real Estate, the Improvements and the
---------
Goods (as such terms are defined in the Mortgage), taken together
collectively.
"Project Manager": shall have the meaning given it in Section 6(j)
----------------- ------------
below.
"Property Management Agreement": shall have the meaning given such
-------------------------------
term in Section 6(j) below.
------------
"Requirements of Law": shall mean, as to any Person, requirements
---------------------
as set out in the provisions of such Person's Certificate of Incorporation
and Bylaws (in the case of a corporation) partnership agreement and
certificate or statement of partnership (in the case of a partnership) or
other organizational or governing documents, or as set out in any law,
treaty, rule or regulation, or final and binding determination of an
arbitrator, or determination of a court or other federal, state or local
governmental agency, authority or subdivision applicable to or binding
upon such Person or any of its property or to which such Person or any of
its property is subject, or in any private covenant, condition or
restriction applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Sale": shall mean any direct or indirect sale, assignment,
------
transfer, conveyance, lease (except for leases of terms not exceeding 1
year to tenants in the ordinary course of business complying with
standards and in a form approved by Payee) or disposition of any kind
<PAGE>
whatsoever of the Project, or of any portion thereof or interest (whether
legal, beneficial or otherwise) or estate in any thereof, or (if Maker is
a general or limited partnership) any part of any general partner's
interest in Maker or in any general partner in Maker, or (if Maker is a
limited partnership) 50% or more (in the aggregate of all such sales,
transfers, assignments, etc., made at any time or from time to time, taken
together) of all the partnership interests in Maker (except for a
Permitted Sale), or the entering into of any contract or agreement to do
any of the foregoing.
"Security Agreement and Assignment (Management Agreement)": shall
----------------------------------------------------------
mean that certain Security Agreement and Assignment (Management Agreement)
of even date herewith between the Maker and the Payee.
"Security Documents": shall mean the documents and instruments
--------------------
included within the definition of the term "Security Documents" as
--------------------
provided in Section 14 below.
----------
"Servicer": shall mean the Person employed by the Payee to manage
----------
and control the accounts subject to the Assignment and Pledge Agreement
and the Collection Account Agreement.
"Stated Maturity Date": shall mean June 3, 2004.
----------------------
"Tax and Insurance Escrow Account": shall have the meaning given
----------------------------------
it in the Collection Account Agreement.
"Treasury Yield": shall have the meaning given such term in
----------------
Section 4(c) below.
------------
"Trustee": shall mean any Person (and such Person's successors and
---------
assigns) to whom the Debt Papers are assigned to be held in trust by such
Person for the benefit of holders of Commercial Mortgage Pass-Through
Certificates.
"Yield Maintenance Premium": shall have the meaning given such
---------------------------
term in Section 4(c) below.
------------
Any term that is capitalized but not specifically defined in this Note, which
is capitalized and defined in the Mortgage, shall have the same meaning for
purposes hereof as the meaning assigned to it in the Mortgage.
2. Interest.
--------
(a) Prior to the Maturity Date, interest ("Interest") shall accrue
--------
on the principal balance outstanding hereunder from time to time at the
rate of: nine percent (9.0%) per annum, to be paid in cash, on the last
day of each calendar month commencing on the last day of the first
calendar month immediately following the date of this Note. From and
<PAGE>
after the Maturity Date, "Interest" will accrue and will be payable on
demand at the rate of twelve percent (12%) per annum. All Interest
referred to herein shall be calculated on the basis of a three hundred
sixty (360) day year consisting of twelve (12) thirty (30) day months.
(b) The provisions of this Section 2(b) shall govern and control
------------
over any irreconcilably inconsistent provision contained in this Note or
in any other document evidencing or securing the indebtedness evidenced
hereby. The Holder hereof shall never be entitled to receive, collect, or
apply as interest hereon (for purposes of this Section 2(b), the word
------------
"interest" shall be deemed to include Interest and any other sums treated
as interest under applicable law governing matters of usury and unlawful
interest), any amount in excess of the Highest Lawful Rate (hereinafter
defined) and, in the event the Holder ever receives, collects, or applies
as interest any such excess, such amount which would be excessive interest
shall be deemed a partial prepayment of principal and shall be treated
hereunder as such; and, if the principal of this Note is paid in full, any
remaining excess shall forthwith be paid to Maker. In determining whether
or not the interest paid or payable, under any specific contingency,
exceeds the Highest Lawful Rate, Maker and the Holder shall, to the
maximum extent permitted under applicable law, (i) characterize any
nonprincipal payment as an expense, fee, or premium rather than as
interest, (ii) exclude voluntary prepayments and the effects thereof, and
(iii) spread the total amount of interest throughout the entire
contemplated term of this Note; provided, that if this Note is paid and
performed in full prior to the end of the full contemplated term hereof,
and if the interest received for the actual period of existence hereof
exceeds the Highest Lawful Rate, the Holder shall refund to Maker the
amount of such excess or credit the amount of such excess against the
principal of this Note, and, in such event, the Holder shall not be
subject to any penalties provided by any laws for contracting for,
charging, or receiving interest in excess of the Highest Lawful Rate.
3. Principal Payments. During the term of the Loan, the Maker will make
------------------
to the Holder of this Note on the last day of each calendar month on which
Interest is due, a principal payment for the calendar month for which Interest
is then due, in an amount necessary to fully amortize, on a twenty (20) year
amortization schedule, a principal sum equal to the unpaid principal balance of
this Note. All unpaid principal shall be finally due and payable on the
Maturity Date. On the last day of each calendar month on which an Interest
payment is due, Maker shall furnish to Holder a certified statement of
operations of the Project for the calendar month in which such Interest payment
is due, showing in reasonable detail and in a format approved by Holder the
Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required
by Holder) all data necessary for the calculation of any such amounts. Maker
shall keep and maintain at all times full and accurate books of account and
records adequate to correctly reflect all such amounts. Such books and records
shall be available for at least five (5) years after the end of the relevant
calendar month. Holder shall have the right to inspect, copy and audit such
books of account and records at Holder's expense, during reasonable business
hours, and upon reasonable notice to Maker, for the purpose of verifying the
accuracy of any principal payments made. The costs of any such audit will be
paid by Holder, except that Maker shall pay all reasonable costs and expenses
<PAGE>
of any such audit which discloses that any amount properly payable by Maker to
Holder hereunder exceeded by five percent (5%) or more the amount actually paid
and initially reported by Maker as being payable with respect thereto.
4. Payments.
--------
(a) Interest and Principal. Maker promises to pay to the Holder
----------------------
hereof Interest as, in the respective amounts, and at the respective times
provided in Section 2 hereinabove and principal as, in the amounts, and at
---------
the times respectively provided in Section 3 hereinabove. Maker also
---------
agrees that, on the Maturity Date, Maker will pay to the Holder the entire
principal balance of this Note then outstanding, together with all
Interest accrued hereunder and not theretofore paid. Each payment of
principal of, Interest on, or any other amounts of any kind with respect
to, this Note shall be made by the Maker to the Holder hereof at its
office in Phoenix, Arizona (or at any other place which the Holder may
hereafter designate for such purpose in a notice duly given to the Maker
hereunder), not later than noon, Eastern Standard time, on the date due
thereof; and funds received after that hour shall be deemed to have been
received by the Holder on the next following business day. Whenever any
payment to be made under this Note shall be stated to be due on a date
which is not a business day, the due date thereof shall be extended to the
next succeeding business day, and interest shall be payable at the
applicable rate during such extension.
(b) Late Payment Charges. If any amount of Interest, principal or
--------------------
any other charge or amount which becomes due and payable under this Note
is not paid and received by the Holder within five business days after the
date it first becomes due and payable, Maker shall pay to the Holder
hereof a late payment charge in an amount equal to five percent (5.0%) of
the full amount of such late payment, whether such late payment is
received prior to or after the expiration of the ten-day cure period set
forth in Section 8(a). Maker recognizes that in the event any payment
------------
secured hereby (other than the principal payment due upon maturity of the
Note, whether by acceleration or otherwise) is not made when due, Holder
will incur extra expenses in handling the delinquent payment, the exact
amount of which is impossible to ascertain, but that a charge of five
percent (5%) of the amount of the delinquent payment would be a reasonable
estimate of the expenses so incurred. Therefore, if any such payment is
not received when due and payable, Maker shall without prejudicing or
affecting any other rights or remedies of the trustee under those certain
Senior Deeds of Trust (or Senior Mortgages, or Senior Deeds to Secure
Debt), Assignment of Leases and Rents, Security Agreement, Financing
Statement and Fixture Filing of even date herewith or Holder pay to Holder
to cover expenses incurred in handling the delinquent payment, an amount
calculated at five percent (5%) of the amount of the delinquent payment.
(c) No Prepayment. The principal of this Note may not be
-------------
voluntarily prepaid in whole or in part during the period ending on the
date six (6) months prior to the
<PAGE>
stated Maturity Date. Maker shall have the right to prepay this Note at any
time thereafter, but only subject to the requirements and conditions set forth
below. If under any circumstances whatsoever this Note is paid in whole or in
part prior to the period ending on the date six (6) months prior to the stated
Maturity Date, whether voluntarily, following acceleration after the occurrence
of an Event of Default, with the consent of Holder, by Holder's application of
any condemnation or insurance proceeds to amounts due under the Note, by
operation of law or otherwise, and whether or not such payment prior to the
Stated Maturity Date results from the Holder's exercise of its rights to
accelerate the indebtedness evidenced hereby, then Maker shall pay to the
Holder the Yield Maintenance Premium (defined hereinbelow) in addition to
paying the entire unpaid principal balance of this Note and all Interest which
has accrued but is unpaid.
If those certain Senior Deeds of Trust (or Senior Mortgages, or
Senior Deeds to Secure Debt), Assignment of Leases and Rents, Security
Agreement, Financing Statement and Fixture Filing or any obligation
secured thereby provides for any charge for pre-payment of any
indebtedness secured thereby, Maker agrees to pay said charge if for any
reason (except as otherwise expressly provided in this Note or Senior
Deeds of Trust, Senior Mortgages, or Senior Deeds to Secure Debt) any of
said indebtedness shall be paid prior to the stated maturity date thereof,
even if and notwithstanding that an Event of Default shall have occurred
and Holder, by reason thereof, shall have declared said indebtedness or
all sums secured hereby immediately due and payable, and whether or not
said payment is made prior to or at any sale held under or by virtue of
this Note or the Senior Deeds of Trust, Senior Mortgages, or Senior Deeds
to Secure Debt.
Without limiting the scope of the foregoing provisions, the
provisions of this paragraph shall constitute, within the meaning of any
applicable state statute, both a waiver of any right Maker may have to
prepay the Note, in whole or in part, without premium or charge, upon
acceleration of the maturity of the Note, foreclosure of the Senior Deeds
of Trust, Senior Mortgages, or Senior Deeds to Secure Debt, or otherwise,
and an agreement by Maker to pay the prepayment charge described in this
Note, whether such prepayment is voluntary or upon or following any
acceleration of this Note, foreclosure of those Senior Deeds of Trust,
Senior Mortgages, or Senior Deeds to Secure Debt, including, without
limitation, any acceleration following a transfer, conveyance or
disposition of the trust estate except as expressly permitted hereunder,
and for such purpose Maker has separately initialled this provision in the
space provided below, and Maker hereby declares that Holder's agreement to
make the Loan to Maker at the interest rate and for the term set forth in
the Note constitutes adequate consideration, of individual weight, for
this waiver and agreement by Maker.
Maker's Initials:
---------------
For purposes hereof, "Yield Maintenance Premium" means the sum of (i)
---------------------------
one percent (1%) of the unpaid principal balance of the Note plus (ii) the
amount (but not less than zero) equal to the excess, if any, of subclause
(A) over subclause (B) when (A) and (B) equal:
<PAGE>
(A) the sum of the Present Values (as hereinafter defined) of the
remaining payments of principal and Interest on the Note (assuming such
Interest and principal payments were made at the times and in the amounts
when due but that no further principal payments were made until the period
ending on the date six (6) months prior to the Stated Maturity Date); and
(B) the then outstanding principal balance of the Note and accrued
Interest since the last date of payment of Interest.
For purposes of this definition, "Present Value" shall be determined
---------------
in accordance with generally accepted financial practice in the United
States of America on a monthly basis at a discount rate equal to the sum
of the applicable Treasury Yield; and the "Treasury Yield" for such
----------------
purpose shall be determined as of 10:00 A.M., New York City time on the
fifth Business Day prior to the date of such prepayment of the Note by
reference to the yields of those actively traded United States Treasury
securities having a maturity on the period ending on the date six (6)
months prior to the Stated Maturity Date of this Note or if there is no
actively traded United Treasury security having such a maturity date then
of all such securities having maturities after the period ending on the
date six (6) months prior to the Stated Maturity Date, the security having
the maturity date closest to the period ending on the date six (6) months
prior to the Stated Maturity Date.
5. Representations and Warranties of Maker. Maker represents and
---------------------------------------
warrants to Payee, as of the date hereof, that:
(a) Due Authorization. Maker is a partnership or corporation duly
-----------------
organized under the laws of the state of its organization, with the
authority to own the Project and enter into the Debt Papers and consummate
the transactions contemplated thereby;
(b) No Violation. Maker's execution, delivery and performance of
------------
its obligations under the Debt Papers do not and will not violate the
partnership agreement (or, if Maker is a corporation, the articles of
incorporation or by-laws) of Maker and will not violate, conflict with or
constitute a default under any agreement to which Maker is a party or by
which the Project is bound or encumbered, or violate any Requirements of
Law to which Maker or the Project is subject;
(c) Consents. No consents, approvals, filings, or notices of, with
--------
or to any Person are required on the part of Maker in connection with
Maker's execution, delivery and performance of its obligations under the
Debt Papers that have not been duly obtained, made or given, as the case
may be;
(d) Enforceability. The Debt Papers are valid, binding and
--------------
<PAGE>
enforceable in accordance with their terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally;
(e) Zoning and Other Laws. The Project and the use thereof as a
---------------------
self-storage facility, separate and apart from any other properties,
constitutes a legal and conforming use under applicable zoning regulations
and each such Project is in compliance in all material respects with all
applicable Requirements of Law;
(f) Litigation. No litigation, investigation or proceeding or
----------
notice thereof before any arbitrator or governmental authority, agency or
subdivision is pending or, to Maker's best knowledge, threatened, against
Maker or the Project;
(g) Utilities. All utilities required by Requirements of Law or by
---------
the normal and intended use of the Project are installed to the property
line and connected by valid permits; and
(h) Easements. Maker has obtained and has encumbered in favor of
---------
Holder pursuant to the Mortgage all easements, appurtenances and rights of
way necessary for access to and the normal uses of the Project; and
(i) Place of Business. Maker is located at 715 S. Country Club
-----------------
Drive, Mesa, Arizona 85210, and that address is its only place of business
or its chief executive office.
6. Affirmative Covenants. Maker hereby covenants and agrees that, so
---------------------
long as any indebtedness under the Note remains unpaid, Maker shall:
(a) Use of Proceeds. Use the proceeds of the Loan to repay certain
---------------
indebtedness presently outstanding against the Project and held by Payee.
(b) Financial Statements. Deliver or cause to be delivered to
--------------------
Holder, the Trustee and the Servicer:
(i) As soon as available and in any event within 90 days
after the end of each calendar year, annual financial reports on the
Project showing all income and expenses certified to be accurate and
complete by an officer of the managing general partner of Maker (or,
if Maker is a corporation, of Maker); and
(ii) As soon as available and in any event within 45 days
after the end of each of the first three calendar quarters of each
year, (1) a detailed comparative earnings statement for such quarter
and for the period commencing at the end of the previous fiscal year
and ending with the end of such quarter, and (2) financial reports on
the Project showing all income and expenses, certified to be accurate
<PAGE>
and complete by an officer of the managing general partner of Maker
(or, if Maker is a corporation, of Maker); and
(iii) Promptly, such additional financial and other
information (including, without limitation, information regarding the
Project) as Holder, the Trustee or the Servicer may from time to time
reasonably request.
(c) Inspection of Property; Books and Records; Discussions. Keep
------------------------------------------------------
proper books of record and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and,
upon reasonable notice, permit representatives of Holder, the Trustee, and
the Servicer to examine and make abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired
by Holder, the Trustee or the Servicer and to discuss the business,
operations, properties and financial and other conditions of Maker with
officers and employees of Maker and with its independent certified public
accountants.
(d) Notices. Give prompt written notice to Holder, the Trustee and
-------
the Servicer of (a) any claims, proceedings or disputes (whether or not
purportedly on behalf of Maker) against, or to Maker's knowledge,
threatened or affecting Maker or the Project which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect
(without in any way limiting the foregoing, claims, proceedings, or
disputes involving in the aggregate monetary amounts in excess of $15,000
not fully covered by insurance shall be deemed to be material, exclusive
of deductibles in an amount not to exceed $1,000), or (b) any proposal by
any public authority to acquire the Project or any portion thereof.
(e) Expenses. Pay legal fees of its own legal counsel in connection
--------
with the preparation and negotiation of the Debt Papers and pay all
reasonable out-of-pocket expenses (including fees and disbursements of
counsel, including special local counsel) of Holder, incident to any
amendments, waivers and renewals relating to the Debt Papers and the
protection of the rights of Holder under the Debt Papers whether by
judicial proceedings or otherwise, including, without limitation, in
connection with bankruptcy, insolvency, liquidation, reorganization,
moratorium or other similar proceedings involving Maker or a "workout" of
the Loan. The obligations of Maker under this Section 6(e) shall survive
------------
repayment of the Loan.
(f) Debt Papers. Comply with and observe all terms and conditions
-----------
of the Debt Papers.
(g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS
---------------
DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED
-----------
PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND
-------
<PAGE>
SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE
------
CLAIMS OF ANY PARTY RELATING TO OR ARISING OUT OF THE DEBT PAPERS OR THE
TRANSACTIONS CONTEMPLATED THEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE
EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND
DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE
INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED
CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF
RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER
HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT
DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND
----------------
AGREED BY MAKER THAT THE INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES
HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE
INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN
THIS SECTION 6(g) FOR PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE
------------
INDEMNIFIED PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER
SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY,
DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE
DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE
SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT
SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE
COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED
PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF
THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING
THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS
SECTION 6(g) SHALL SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED
------------
HEREBY. IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER SHALL
------------
INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED
BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF
THE INDEMNIFIED PARTIES.
MAKER'S INITIALS
---------------
(h) Co-operation. Execute and deliver to Holder any and all
------------
instruments, documents and agreements, and do or cause to be done from
time to time any and all other acts, reasonably deemed necessary or
desirable by Holder to effectuate the provisions and purposes of the Debt
Papers.
<PAGE>
(i) Requirements of Law. Comply at all times with all Requirements
-------------------
of Law.
(j) Management Agreement. Cause or permit the Project to be
--------------------
initially managed by a subsidiary of U-Haul International, Inc. and to be
at all times managed by a nationally recognized self-storage property
management company (the "Project Manager") designated by the Holder, which
---------------
Project Manager shall be employed pursuant to an agreement (the "Property
--------
Management Agreement") approved by the Holder. In no event shall the fees
--------------------
paid (or required to be paid) the Project Manager exceed six percent (6%)
of Gross Receipts for any time period. The rights of the Maker under the
Property Management Agreement (and under each successive one, if there is
more than one) shall be assigned to the Holder as additional security for
this Note pursuant to an assignment or assignments in form and substance
satisfactory to the Holder, and such assignment shall be acknowledged by
the Project Manager pursuant to a consent document acceptable to the
Holder.
7. Negative Covenants. Maker hereby agrees that, as long as any
------------------
indebtedness under the Note remains unpaid, Maker shall not, directly or
indirectly:
(a) Indebtedness. Create, incur or assume any Indebtedness except
------------
for: (i) the Loan; (ii) the Junior Loan; (iii) the obligations of Maker
under the Property Management Agreement; and (iv) non-delinquent taxes.
(b) Consolidation and Merger. Liquidate or dissolve or enter into
------------------------
any consolidation, merger, partnership, joint venture, syndicate or other
combination (except for a merger or consolidation for the purpose of, and
having the effect of, changing Maker's jurisdiction of organization).
(c) Transactions with Affiliates. Purchase, acquire or lease any
----------------------------
property from, or sell, transfer or lease any property to, or lend or
advance any money to, or borrow any money from, or guarantee any
obligation of, or acquire any stock, obligations or securities of, or
enter into any merger or consolidation agreement, or any management or
similar agreement with, any Affiliate, or enter into any other transaction
or arrangement or make any payment to (including, without limitation, on
account of any management fees, service fees, office charges, consulting
fees, technical services charges or tax sharing charges) or otherwise deal
with, in the ordinary course of business or otherwise, any Affiliate on
terms which are unreasonably burdensome or unfair, except (i) transactions
relating to the sharing of overhead expenses, including, without
limitation, managerial, payroll and accounting and legal expenses, for
which charges assessed against Maker are not greater than would be
incurred by Maker in similar transactions with non-Affiliates, or (ii)
fair and reasonable transactions between Maker and U-Haul International,
Inc. and its related companies.
<PAGE>
(d) Sales. Without obtaining the prior written consent of Holder
-----
(which Holder may withhold or condition in its sole and absolute
discretion), cause, permit or acquiesce in any Sale or Financing.
(e) Distributions. Notwithstanding anything to the contrary
-------------
contained in this Note or the Debt Papers, Maker shall not make any
distributions to any of its partners or shareholders, except for
distributions expressly permitted by the Assignment and Pledge Agreement.
8. Event of Default; Remedies. Any one of the following occurrences
--------------------------
shall constitute an Event of Default under this Note:
(a) The failure by the undersigned to make any payment of principal
or Interest upon this Note as and when the same becomes due and payable in
accordance with the provisions hereof, and the continuation of such
failure for a period of ten (10) days after notice thereof to the Maker;
(b) Any representation, warranty or certification made by Maker
under any Debt Paper or in any report, certificate or financial statement
delivered to the Holder under or in connection with any Debt Paper is
materially inaccurate or incomplete as of the date made; provided,
however, that such inaccurate or incomplete representation, warranty or
certification is material and cannot be cured without material prejudice
to the Holder within 30 days written notice thereof to the Maker;
(c) The failure by Maker to perform any obligation under, or the
occurrence of any other default with respect to any provision of, this
Note, the Assignment of Management Agreement, or any of the other Debt
Papers other than as described in any of the other clauses of this Section
-------
8, and the continuation of such default for a period of 30 days after
-
written notice thereof to the Maker;
(d) The occurrence of any Default under the Mortgage, under the
Assignment and Pledge Agreement, the Assignment of Management Agreement,
or under any of the other Debt Papers;
(e) (i) Maker shall file, institute or commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets,
or Maker shall make a general assignment for the benefit of its creditors;
or (ii) there shall be filed, instituted or commenced against Maker any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of any order for relief or any such
<PAGE>
adjudication or appointment, or (B) remains undismissed or undischarged
for a period of 60 days; or (iii) there shall be commenced against Maker
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or
substantially all of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, stayed,
satisfied or bonded to Holder's satisfaction pending appeal, within 60
days from the first entry thereof; or (iv) Maker shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts described in any of the preceding clauses (i), (ii) or
(iii); or (v) Maker shall not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due, or shall in
writing admit that it is insolvent; or
(f) One or more judgments or decrees in an aggregate amount
exceeding $1,000,000.00 shall be entered against Maker and all such
judgments or decrees shall not have been vacated, discharged, stayed,
satisfied, or bonded to Holder's satisfaction pending appeal within 60
days from the first entry thereof.
Upon the occurrence of any Event of Default hereunder: the entire unpaid
principal balance of, and any unpaid Interest then accrued on, this Note shall,
at the option of the Holder hereof and without demand or notice of any kind to
the undersigned or any other person, immediately become and be due and payable
in full (except that such acceleration shall occur automatically upon the
occurrence of any Event of Default described in the preceding clause (e) of
this Section 8, without further action or decision by Holder); and the Holder
shall have and may exercise any and all rights and remedies available at law or
in equity and also any and all rights and remedies provided in the Mortgage and
any of the other Security Documents.
9. Offset. In addition to (and not in limitation of) any rights of
------
offset that the Holder hereof may have under applicable law, upon the
occurrence of any Event of Default hereunder the Holder hereof shall have the
right, immediately and without notice, to appropriate and apply to the payment
of this Note any and all balances, credits, deposits, accounts or moneys of the
Maker then or thereafter with or held by the Holder hereof.
10. Allocation of Balances or of Payments. At any and all times until
-------------------------------------
this Note and all amounts hereunder (including principal, Interest, and other
charges and amounts, if any) are paid in full, all payments (whether of
principal, Interest or other amounts) made by the undersigned or any other
person (including any guarantor) to the Holder hereof may be allocated by the
Holder to principal, Interest or other charges or amounts as the Holder may
determine in its sole, exclusive and unreviewable discretion (and without
notice to or the consent of any person).
11. Captions. Any headings or captions in this Note are inserted for
--------
convenience of reference only, and they shall not be deemed to constitute a
part hereof, nor shall they be used to construe or interpret the provisions of
this Note.
<PAGE>
12. Waiver.
------
(a) Maker, for itself and for its successors, transferees and
assigns and all guarantors and endorsers, hereby waives diligence,
presentment and demand for payment, protest, notice of protest and
nonpayment, dishonor and notice of dishonor, notice of the intention to
accelerate, notice of acceleration, and all other demands or notices of
any and every kind whatsoever (except only for any notice of default
expressly provided for in Section 8 of this Note or in the Security
---------
Documents) and the undersigned agrees that this Note and any or all
payments coming due hereunder may be extended from time to time in the
sole discretion of the Holder hereof without in any way affecting or
diminishing their liability hereunder.
(b) No extension of the time for the payment of this Note or any
payment becoming due or payable hereunder, which may be made by agreement
with any Person now or hereafter liable for the payment of this Note shall
operate to release, discharge, modify, change or affect the original
liability under this Note, either in whole or in part, of the Maker if it
is not a party to such agreement.
(c) No delay in the exercise of any right or remedy hereunder shall
be deemed a waiver of such right or remedy, nor shall the exercise of any
right or remedy be deemed an election of remedies or a waiver of any other
right or remedy. Without limiting the generality of the foregoing, the
failure of the Holder hereof promptly after the occurrence of any Event of
Default hereunder to exercise its right to declare the indebtedness
remaining unmatured hereunder to be immediately due and payable shall not
constitute a waiver of such right while such Event of Default continues
nor a waiver of such right in connection with any future Event of Default
on the part of the undersigned.
13. Payment of Costs. The undersigned hereby expressly agrees that upon
----------------
the occurrence of any Event of Default under this Note, the undersigned will
pay to the Holder hereof, on demand, all costs of collection or enforcement of
every kind, including (but not limited to) all attorneys' fees, court costs,
and other costs and expenses of every kind incurred by the Holder hereof, on
demand, all costs of collection or enforcement of every kind, including (but
not limited to) all attorneys' fees, court costs, and other costs and expenses
of every kind incurred by the Holder hereof in connection with the protection
or realization of any or all of the security for this Note, whether or not any
lawsuit is ever filed with respect thereto.
14. The Debt Papers. This Note is secured by, inter alia, (i) certain
---------------
Deeds of Trust (or Mortgages, or Deeds to Secure Debt), Assignment of Leases
and Rents, Security Agreement and Financing Statement, made and granted by
Maker to or for the benefit of Payee, which creates a lien on real estate in
the Project and which also creates a security interest in personal property
located thereat or utilized in connection therewith; (ii) the Security
Agreement and Assignment (Management Agreement)(as amended, modified or
replaced from time to time, the "Assignment of Management Agreement"); (iii)
----------------------------------
the Assignment and Pledge Agreement (Lockbox); (iv) the Environmental Indemnity
<PAGE>
Agreement (as amended from time to time, the "Environmental Indemnity
------------------------
Agreement"); and (v) the Collection Account agreement entered into in
- ----------
connection herewith (such documents together with each and every additional
document or instrument which may at any time be delivered to the Holder hereof
as security for this Note, as any of the same may at any time or from time to
time be amended, modified or restated, and together with all substitutions and
replacements therefor, are sometimes referred to collectively herein as the
"Security Documents"). Reference should be made to the Mortgage and the other
------------------
Security Documents for a statement of certain circumstances under which this
Note may be accelerated and for a description of the property encumbered
thereby and the nature and extent of the security thereof. This Note, the
Security Documents and all other documents executed in connection with the Note
and the Security Documents are sometimes referred to collectively herein as the
"Debt Papers". This Note, the Mortgage, and the other Debt Papers (if any) are
-----------
hereby incorporated by reference into this Note in their entirety, as though
the complete text of each of them were set out in full here in the body of this
Note.
15. Notices. All notices, demands and other communications hereunder to
-------
either party shall be deemed to have been given when actually received or, if
mailed, on the first to occur of actual receipt or the third business day after
the deposit thereof in the United States mails, by registered or certified
mail, postage prepaid, addressed as follows:
If to the Maker: SAC Self-Storage Corporation,
a Nevada corporation,
715 South Country Club Drive
Mesa, AZ 85210
If to the Holder: Nationwide Commercial Co.
c/o Amerco
2721 North Central Avenue
Phoenix, Arizona 85004
Attention: Donald Murney or
Treasurer
with a copy to: Nationwide Commercial Co.
c/o Amerco
2721 North Central Avenue
Phoenix, Arizona 85004
Attention: Gary V. Klinefelter or
General Counsel
or to either party at such other address in the 48 contiguous continental
United States of America as such party may designate as its address for the
receipt of notices hereunder in a written notice duly given to the other party.
<PAGE>
16. Time of the Essence. Time is hereby declared to be of the essence of
-------------------
this Note and of every part hereof.
17. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the internal laws of the State of
Arizona.
18. Jurisdiction. In any controversy, dispute or question arising
------------
hereunder or under the other Debt Papers, the Maker consents to the exercise of
jurisdiction over its person and property by any court of competent
jurisdiction situated in the State of Arizona (whether it be a court of the
State of Arizona, or a court of the United States of America situated in the
State of Arizona), and in connection therewith, agrees to submit to, and be
bound by, the jurisdiction of such court upon the Holder's mailing of process
by registered or certified mail, return receipt requested, postage prepaid,
within or without the State of Arizona, to the Maker at its address for receipt
of notices under this Note.
19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL
---------------------------
THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER
OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE
MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS
BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR
IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER
SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER.
20. Limitation of Personal Liability. Except for fraud or knowing
--------------------------------
misrepresentations, neither Maker nor any partner in Maker shall be liable
personally to pay this Note or the indebtedness evidenced hereby, and the
Holder shall not seek any personal or deficiency judgment on this Note except
for fraud or knowing misrepresentations, and the sole remedy of the Holder
hereunder or under any of the other Debt Papers shall (except for fraud,
misappropriation of funds or knowing misrepresentations) be under the Security
Documents for enforcement thereof or shall otherwise be against the Collateral
(defined for purposes hereof as defined in the Mortgage) and any other property
at any time securing any or all of the Liabilities (defined for purposes hereof
as defined in the Mortgage); provided, however, that the foregoing shall not in
any way diminish or affect (i) any rights the Holder may have (as a secured
party or otherwise) to, against or with respect to the Collateral or any other
property at any time securing any of the liabilities, (ii) any rights of the
Holder against the Maker with respect to any fraud, misappropriation of funds
or knowing misrepresentation, or (iii) any rights of the Holder under or with
respect to any guaranty at any time furnished to the Holder relating to or
concerning any of the Liabilities.
<PAGE>
21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
----------
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP
EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
22. Assignment to the Trustee. It is the intention of the Payee that
-------------------------
this Note and the other Debt Papers shall be assigned by mesne conveyances to
the Trustee to be held by the Trustee for the benefit of the holders of certain
Commercial Mortgage Pass-Through Certificates. The Maker agrees to cooperate
fully and promptly with the Holder in the transfer of the Notes and the Debt
Papers. Further, the Maker agrees to promptly execute such additional
certificates, instruments, assignments and other documents as may be reasonably
requested by the Holder or the Trustee from time to time in connection with the
pledging of the Note and the Debt Papers and the issuance and sale of
certificates pursuant to the Pooling and Servicing Agreements.
23. This Note and the other Security Documents constitute the entire
agreement between Maker and Payee. No representations, warranties,
undertakings, or promises whether written or oral, expressed or implied have
been made by the Payee or its agent unless expressly stated in this Note or the
Security Documents.
24. Loan Documents. This Note evidences advances to be made to the Maker
--------------
by the Payee from time to time up to the stated face amount of the Note. Such
advances are made by the Payee in the Payee's sole discretion and the Payee is
not obligated to loan to Maker the full face amount of the Note.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note,
pursuant to proper authority duly granted, as of the date and year first above
written.
SAC SELF-STORAGE CORPORATION
a Nevada corporation
/S/ EDWARD J. SHOEN
--------------------------
Edward J. Shoen, President
<PAGE>
Junior Loan
PROMISSORY NOTE
$4,000,000.00 dated as of June 3, 1994
FOR VALUE RECEIVED, the undersigned SAC Self-Storage Corporation, a Nevada
corporation (the "Maker" or the "undersigned"), promises to pay to the order of
----- -----------
Nationwide Commercial Co. ("Payee"), an Arizona corporation, at the principal
-----
office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at
such other place or places as the holder hereof may from time to time designate
in writing, the principal sum of FOUR MILLION AND 00/100 DOLLARS
($4,000,000.00), or, if less, the aggregate unpaid principal amount of the Loan
made by Payee to Maker, with Interest (as hereinafter defined) on the principal
balance outstanding from time to time, all as hereinafter set forth.
1. Definitions. As used in this Note, each of the following terms shall
-----------
have the following meanings, respectively:
"Accrual Rate": shall mean the annual interest rate of nine percent
------------
(9.0%).
"Additional Interest": shall mean and include both Cash Flow
---------------------
Contingent Interest and Capital Proceeds Contingent Interest.
"Affiliate": shall mean, as to any Person, any other Person directly
-----------
or indirectly controlling, controlled by or under direct or indirect common
control with, such Person. "Control" as used herein means the power to direct
-------
the management and policies of the controlled Person.
"Assignment and Pledge Agreement": shall mean that certain
---------------------------------
Assignment and Pledge Agreement (Lockbox) of even date herewith between the
Maker, the Payee, the Project Manager and the Servicer.
"Basic Interest": shall have the meaning given it in Section 2(a)
---------------- ------------
and 2(b) below.
----
"Capital Expenditure Account": shall mean the reserve account
-----------------------------
required to be established for capital expenditures in Section 1.19 of the
Mortgage and by the Collection Account Agreement.
"Capital Expenditure Reserve Deposit": shall mean for any calendar
-------------------------------------
quarter the deposit actually made by (or on behalf of) the Maker into the
Capital Expenditure Account (which deposit shall not exceed three percent
(3.0%) of Gross Receipts for such quarter).
<PAGE>
"Capital Proceeds Contingent Interest": shall have the meaning given
--------------------------------------
it in Section 2(h)(i) below.
---------------
"Cash Flow Contingent Interest": shall have the meaning given it in
-------------------------------
Section 2(e) below.
- ------------
"Catch-Up Payment": shall have the meaning given it in Section 2(d).
------------------ ------------
"Collection Account Agreement": shall mean that certain Collection
------------------------------
Account Agreement of even date herewith among the Maker, the Payee, the
Servicer, the Senior Lender and the Project Manager.
"Debt Papers": shall mean the documents and instruments included
-------------
within the definition of the term "Debt Papers" as provided in Section 14
----------- ----------
below.
"Deferred Interest": shall have the meaning given it in Section
------------------- -------
2(a).
- -----
"Environmental Indemnity Agreement": shall have the meaning given it
-----------------------------------
in Section 14 below.
----------
"GAAP": shall mean generally accepted accounting principles as used
------
and understood in the United States of America from time to time.
"Gross Receipts": shall mean, for any period all gross receipts,
----------------
revenues and income of any and every kind collected or received by or for the
benefit or account of Maker during such period arising from the ownership,
rental, use, occupancy or operation of the Project or any portion thereof.
Gross Receipts shall include, without limitation, all receipts from all
tenants, licensees and other occupants and users of the Project or any portion
thereof, including, without limitation, rents, security deposits and the like,
interest earned and paid or credited on all Maker's deposit accounts related to
the Project, all proceeds of rent or business interruption insurance, and the
proceeds of all casualty insurance or eminent domain awards to the extent not
(i) applied, or reserved and applied within six (6) months after the creation
of such reserve, to the restoration of the Project in accordance with the
Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or
(iii) paid to reduce the principal amount of the Senior Loan. Gross Receipts
shall include the net commission payable from U-Haul International, Inc. for
the rental of its equipment. Gross Receipts shall not include any capital
contributed to Maker, whether in the form of a loan or equity, or any proceeds
from any loan made to Maker. For the purpose of calculating the permitted
Management Fee and the Capital Expenditure Reserve Deposit, Gross Receipts
shall also exclude sales taxes collected by the Maker in connection with the
operation of the Project and held in trust for payment to the taxing
authorities. Any receipt included within Gross Receipts in one period shall
not be included within Gross Receipts for any other period (i.e., no item of
----
revenue or receipts shall be counted twice).
<PAGE>
"Highest Lawful Rate": shall mean the maximum rate of interest which
---------------------
the Holder is allowed to contract for, charge, take, reserve, or receive under
applicable law after taking into account, to the extent required by applicable
law, any and all relevant payments or charges hereunder.
"Holder": shall mean at any particular time, the Person which is
--------
then the holder of this Note.
"Interest": shall mean Additional Interest, Basic Interest and
----------
Deferred Interest.
"Loan": shall mean the mortgage loan made by Payee to Maker and
------
evidenced by the Note. The Loan, which shall not exceed the face amount of
this Note, shall be disbursed beginning on the date hereof in amounts and times
determined by Payee with no disbursements occurring after October 31, 1994.
From time to time, the principal balance of this Note shall be the sum of the
Loan disbursements made as of such time less any principal payments made
pursuant to Section 4 hereof.
---------
"Loan Year": shall mean a year commencing on the date of this Note,
-----------
or an anniversary thereof, and ending 365 days (or 366 days in a leap year)
thereafter.
"Management Fee": shall mean the fee paid to the Project Manager
----------------
pursuant to the Property Management Agreement which fee shall in no event
exceed six percent (6.0%) of Gross Receipts.
"Material Adverse Effect": shall mean the likely inability or
-------------------------
reasonably anticipated inability of Maker to pay the Loan and perform its other
obligations in compliance with the terms of the Debt Papers.
"Maturity Date": shall mean the first to occur of the Stated
---------------
Maturity Date and the earlier date (if any) on which the unpaid principal
balance of, and unpaid Interest on, this Note shall become due and payable on
account of acceleration by the Holder hereof.
"Mortgage": shall mean collectively the Deeds of Trust (and
----------
Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security
Agreement and Financing Statement securing this Note, as the same may be
amended, modified or restated from time to time and together with all
replacements and substitutions therefor. The Mortgage is more fully identified
in Section 14 below.
----------
"Net Capital Proceeds": shall have the meaning given it in Section
---------------------- -------
2(h)(iv) below.
- --------
"Net Cash Flow": shall mean, for any period, the amount by which the
---------------
Gross Receipts for such period exceed the sum of Interest paid during such
period, Operating Expenses paid for and with respect to such period, and
interest paid under and on
<PAGE>
account of the Senior Loan during such period; but Net Cash Flow for any period
shall not be less than zero.
"Net Cash Flow Before Debt Service": shall mean, for any period, the
-----------------------------------
amount by which the Gross Receipts for such period exceed the Operating
Expenses for and with respect to such period.
"Note": shall mean this Promissory Note as it may be amended,
------
modified, extended or restated from time to time, together with all
substitutions and replacements therefor.
"Operating Expenses": shall mean, for any period, all cash
--------------------
expenditures of Maker actually paid (and properly payable during such period)
for (i) payments into escrow pursuant to the Debt Papers or the Senior Debt
Papers for real and personal property taxes; (ii) real and personal property
taxes on the Project (except to the extent paid from escrowed funds); (iii)
premiums for liability and property insurance on the Project; (iv) the Capital
Expenditure Reserve Deposit; (v) the Management Fee; (vi) sales and rental
taxes relating to the Project (except to the extent paid from the Tax and
Insurance Escrow Account); and (vii) normal and customary operating expenses of
the Project. In no event shall Operating Expenses include amounts distributed
to the partners or shareholder's of Maker, payments to Affiliates not permitted
under Section 7(d) below, any payments made on the Loan or any other loan
------------
obtained by Maker, amounts paid out of any funded reserve expressly approved by
Holder, non-cash expenses such as depreciation, or any cost or expense related
to the restoration of the Project in the event of a casualty or eminent domain
taking paid for from the proceeds of insurance or an eminent domain award or
any reserve funded by insurance proceeds or eminent domain awards.
"Pay Rate": shall mean the annual interest rate of nine percent
----------
(9.0%).
"Pay Rate Interest": shall mean for any period the amount of Basic
-------------------
Interest payable for such period less the amount of Deferred Interest which
accrued during such period.
"Person": shall mean any corporation, natural person, firm, joint
--------
venture, general partnership, limited partnership, limited liability company,
trust, unincorporated organization, government or any department or agency of
any government.
"Present Value": shall have the meaning given such term in Section
--------------- -------
4(c) below.
- ----
"Project": shall mean the Real Estate, the Improvements and the
---------
Goods (as such terms are defined in the Mortgage), taken together collectively.
<PAGE>
"Project Manager": shall have the meaning given it in Section 6(j)
----------------- ------------
below.
"Property Management Agreement": shall have the meaning given such
-------------------------------
term in Section 6(j) below.
------------
"Requirements of Law": shall mean, as to any Person, requirements as
---------------------
set out in the provisions of such Person's Certificate of Incorporation and
Bylaws (in the case of a corporation) partnership agreement and certificate or
statement of partnership (in the case of a partnership) or other organizational
or governing documents, or as set out in any law, treaty, rule or regulation,
or final and binding determination of an arbitrator, or determination of a
court or other federal, state or local governmental agency, authority or
subdivision applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject, or in any private
covenant, condition or restriction applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
"Sale": shall mean any direct or indirect sale, assignment,
------
transfer, conveyance, lease (except for leases of terms not exceeding 1 year to
tenants in the ordinary course of business complying with standards and in a
form approved by Payee) or disposition of any kind whatsoever of the Project,
or of any portion thereof or interest (whether legal, beneficial or otherwise)
or estate in any thereof, or (if Maker is a general or limited partnership) any
part of any general partner's interest in Maker or in any general partner in
Maker, or (if Maker is a limited partnership) 50% or more (in the aggregate of
all such sales, transfers, assignments, etc., made at any time or from time to
time, taken together) of all the partnership interests in Maker, or the
entering into of any contract or agreement to do any of the foregoing.
"Security Agreement and Assignment (Management Agreement)": shall
----------------------------------------------------------
mean that certain Security Agreement and Assignment (Management Agreement) of
even date herewith between the Maker and the Payee.
"Security Documents": shall mean the documents and instruments
--------------------
included within the definition of the term "Security Documents" as provided in
------------------
Section 14 below.
- ----------
"Senior Debt Papers": shall mean and include, at any time, all
--------------------
promissory notes, mortgages and other documents and instruments which create,
evidence or secure all or any part of the Senior Loan.
"Senior Lender" shall mean Nationwide Commercial Co. in its capacity
---------------
as the maker of the Senior Loan.
"Senior Loan": shall mean that certain loan in the amount of
-------------
$45,500,000.00 made by the Senior Lender to the Maker.
"Servicer": shall mean the Person employed by the Payee to manage
----------
and control the accounts subject to the Assignment and Pledge Agreement and the
Collection Account Agreement.
<PAGE>
"Stated Maturity Date": shall mean June 3, 2004.
----------------------
"Tax and Insurance Escrow Account": shall have the meaning given it
----------------------------------
in the Collection Account Agreement.
"Treasury Yield": shall have the meaning given such term in Section
---------------- -------
4(c) below.
- ----
"Triggering Event": shall have the meaning given it in Section
------------------ -------
2(h)(ii) below.
- --------
"Trustee": shall have the meaning given such term in the Senior Debt
---------
Papers.
"Yield Maintenance Premium": shall have the meaning given such term
---------------------------
in Section 4(c) below.
------------
Any term that is capitalized but not specifically defined in this Note, which
is capitalized and defined in the Mortgage, shall have the same meaning for
purposes hereof as the meaning assigned to it in the Mortgage.
2. Interest.
--------
(a) Basic Interest Rate Prior to Maturity. Prior to the Maturity
-------------------------------------
Date, interest ("Basic Interest") shall accrue on the principal balance of the
--------------
Note outstanding from time to time at the Accrual Rate. Such interest shall be
paid as follows: quarterly in arrears, on the last day of each calendar
quarter during the term hereof, commencing on the last day of the first
calendar quarter after the date hereof. Maker shall pay to Holder an amount
calculated by applying the Pay Rate to the principal balance outstanding
hereunder; and, the remainder of the Basic Interest accrued hereunder at the
Accrual Rate during such quarter through the last day of such quarter
("Deferred Interest") shall be deferred, shall be payable as and at the time
-----------------
provided in Section 2(d) below, and commencing on the day payment of Basic
------------
Interest at the Pay Rate is due for such quarter, interest shall accrue on such
Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall
be considered part of Deferred Interest).
(b) Post-Maturity Basic Interest. From and after the Maturity Date
----------------------------
interest ("Basic Interest") shall accrue and be payable on the outstanding
--------------
principal balance hereof until paid in full at an annual rate equal to twelve
percent (12%) and such Basic Interest shall be payable upon demand.
(c) Computations. All computations of interest and fees payable
------------
hereunder shall be based upon a year of 360 days for the actual number of days
elapsed.
(d) Deferred Interest. Deferred Interest shall be paid as follows:
-----------------
(i) On each quarterly date for the payment of Basic Interest, Maker
shall pay an
<PAGE>
amount (the "Catch-Up Payment") equal to the lesser of
----------------
(i) the aggregate outstanding Deferred Interest on the last day of the quarter
for which such payment is being made and (ii) fifty percent (50%) of the result
of subtracting from Net Cash Flow Before Debt Service for that quarter the sum
of principal and interest paid on the Senior Loan for such period plus an
additional amount equal to twice the Pay Rate Interest for such period;
(ii) All unpaid Deferred Interest shall be paid on the Maturity
Date; and
(iii) No payment of Deferred Interest may, when added to all other
payments of interest or payments construed as interest, shall exceed
the Highest Low Full Rate.
(e) Cash Flow Contingent Interest. In addition to Basic Interest
-----------------------------
and Deferred Interest, on each date on which Basic Interest is payable
hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent Interest")
-----------------------------
in an amount equal to the amount (if any) by which fifty percent (50%) of the
result of subtracting from Net Cash Flow Before Debt Service for that quarter
the sum of principal and interest paid on the Senior Loan for such period plus
an additional amount equal to twice the Pay Rate Interest for such period each
calculated as of that date exceeds the Catch-Up Payment paid on that date by
Maker to Holder. Additionally, at the time of the closing of the tax and
insurance escrow account, the Capital Expenditure Reserve Account or any of the
other accounts established pursuant to the Collection Account Agreement
deposits into which are considered Operating Expenses, Cash Flow Contingent
Interest shall be due to the Holder on the balances in those accounts except to
the extent such balances are paid to the Senior Lender.
(f) Quarterly Statements; Adjustment of Payments. On the due date
--------------------------------------------
for each payment of Basic Interest, Maker shall deliver to Holder a certified
statement of operations of the Project for the calendar quarter or other period
with respect to which such Basic Interest is due, showing in reasonable detail
and in a format approved by Holder respective amounts of, and the method of
calculating, the Gross Receipts, Operating Expenses, Net Cash Flow, Catch-Up
Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as
well as (if requested by Holder) all data necessary for the calculation of any
such amounts. Maker shall keep and maintain at all times full and accurate
books of account and records adequate to correctly reflect all such amounts.
Such books and records shall be available for at least five years after the end
of the calendar quarter to which they relate. Holder shall have the right to
inspect, copy and audit such books of account and records during reasonable
business hours, and upon reasonable notice to Maker, for the purpose of
verifying the accuracy of any payments made on account of Cash Flow Contingent
Interest. The costs of any such audit will be paid by Holder, except that
Maker shall pay all reasonable costs and expenses of any such audit which
discloses that any amount properly payable by maker to Holder hereunder
exceeded by five percent (5%) or more the amount actually paid and initially
<PAGE>
reported by maker as being payable with respect thereto.
(g) Prorations of Cash Flow Contingent Interest. Cash Flow
-------------------------------------------
Contingent Interest shall be equitably prorated on the basis of a 365-day year
for any partial calendar quarter in which the term of the Loan commences or in
which the Note is paid in full. If the payment of Cash Flow Contingent
Interest due on the Maturity Date is made before the delivery to Holder of the
quarterly statement for the then current calendar quarter, then Maker shall pay
to Holder on Maturity Date an estimate of such amount. Maker shall
subsequently deliver to Holder an operating statement as required by Section
-------
2(f) for the quarter in which the Maturity Date occurred, and an appropriate
- ----
adjustment of the estimated amount previously paid by Maker shall be made by
the parties within ten (10) days after the operating statement for such final
quarter is delivered to Holder.
(h) Capital Proceeds Contingent Interest.
------------------------------------
(i) Capital Proceeds Contingent Interest Defined. Maker shall
--------------------------------------------
pay to Holder, in addition to Basic Interest and Cash Flow Contingent Interest,
at the time or times and in the manner hereinafter described, an amount equal
to fifty percent (50%) of the Net Capital Proceeds resulting from, or
determined at the time of, any of the Triggering Events described below
(collectively, "Capital Proceeds Contingent Interest").
------------------------------------
(ii) Events Triggering Payment of Net Capital Proceeds.
-------------------------------------------------
Capital Proceeds Contingent Interest shall be due and payable concurrently with
the occurrence of each and every one of the following events (collectively
"Triggering Events", and individually, a "Triggering Event"):
----------------- ----------------
(A) Project Sale or Financing. The closing of any Sale or
-------------------------
any encumbrance of the Project (any such event is hereinafter collectively
referred to as a "Sale or Financing");
-----------------
(B) Default Occurrence. The occurrence of any Event of
------------------
Default which is not fully cured within the period of time, if any, expressly
provided for cure herein, and the acceleration of the maturity of the Loan on
account thereof (hereinafter collectively referred to as a "Default
-------
Occurrence"); and
- ----------
(C) Maturity Occurrence. The occurrence of the Maturity
-------------------
Date or the prepayment by Maker (if permitted hereunder) of all principal and
accrued Basic Interest (including, without limitation, Deferred Interest) and
Cash Flow Contingent Interest outstanding on the Loan (the "Maturity
--------
Occurrence").
- ----------
(iii) Notice of Triggering Event: Time for Payment of Capital
-------------------------------------------------------
Proceeds Contingent Interest. Maker shall notify Holder of the occurrence of a
- ----------------------------
Triggering Event, and shall pay Holder the full amount of any applicable
Capital Proceeds Contingent Interest which is payable in connection therewith,
as follows:
<PAGE>
(A) In the case of any Sale or Financing or the Maturity
Occurrence, Maker shall give Holder written notice of any such Triggering
Event not less than seventy five (75) days before the date such Triggering
Event is to occur. Any Capital Proceeds Contingent Interest due Holder on
account of any Sale or Financing or the Maturity Occurrence shall be paid
to Holder on the date such Triggering Event occurs.
(B) In the case of a Default Occurrence, no notice of such
a Triggering Event need be given by Maker. In such event, payment of any
and all Capital Proceeds Contingent Interest on account of the Default
Occurrence shall be immediately due and payable upon acceleration of the
maturity of the Loan.
(iv) Determination of Net Capital Proceeds. Prior to the
-------------------------------------
occurrence of a Triggering Event (or, in the event of a Default Occurrence,
within a reasonable time thereafter), the "Net Capital Proceeds" resulting from
--------------------
such Triggering Event shall be determined as follows:
(A) Net Capital Proceeds From Sale or Financing. Except
-------------------------------------------
as provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing,
-------------------
"Net Capital Proceeds" shall be the amount which is equal to: (I) either (x)
--------------------
the Gross Capital Proceeds (as hereinafter defined) realized from the Project,
or (y) the fair market value of the Project determined pursuant to Section
-------
2(h)(v) below, if Holder in its discretion requires such a determination, minus
- ------- -----
(II) the sum of: (aa) reasonable brokerage commissions (excluding any payments
to any Affiliate of Maker to the extent such payments exceed those which would
have been due as commissions to a non-Affiliate broker rendering identical
services), title insurance premiums, documentary transfer taxes, escrow fees
and recording charges, appraisal fees, reasonable attorneys' fees and costs,
and sales taxes (if any), in each case actually paid or payable by Maker in
connection with the Sale or Financing, plus (bb) all payments of principal and
Deferred Interest paid to Holder an account of this Note from the proceeds of
such Sale or Financing, plus (cc) an amount equal to all payments of principal
and interest on the Senior Loan made from the proceeds of such Sale or
Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result
of such Sale or Financing. For purposes of this Section 2(h), "Gross Capital
------------ -------------
Proceeds" shall mean the gross proceeds of whatever form or nature payable
- --------
directly or indirectly to or for the benefit or account of Maker in connection
with such Sale or Financing, including, without limitation: cash; the
outstanding balance of any financing which will remain as a lien or encumbrance
against the Project or any portion thereof following such Sale or Financing
(but only in the case of a Sale, and not in the case of an encumbrance); and
the cash equivalent of the fair market value of any non-cash consideration,
including the present value of any promissory note received as part of the
proceeds of such Sale or Financing (valued at a market rate of interest, as
determined by an independent investment banker designated by Holder).
(B) Net Capital Proceeds In Connection With a Default or
----------------------------------------------------
Maturity Occurrence. In the event of a Default Occurrence or the Maturity
- -------------------
Occurrence
<PAGE>
when no Sale or Financing has occurred, the "Net Capital Proceeds" shall equal:
--------------------
(I) the fair market value of the Project determined as of the date of such
Triggering Event in accordance with Section 2(h)(v) below, minus (II) the sum
---------------
of (aa) the outstanding principal balance plus Deferred Interest on the Note
plus (bb) the outstanding principal balance of, and accrued but unpaid interest
on, the Senior Loan.
(v) Determination of Fair Market Value. The fair market value
----------------------------------
of the Project shall be determined for purposes of this Note as follows:
(A) Partial Sale. In the event of a Sale of a portion of
------------
the Project, Holder shall select an experienced and reputable appraiser to
prepare a written appraisal report of the fair market value of the Project in
accordance with clause (C) below, and the appraised fair market value submitted
to Holder by such appraiser shall be conclusive for purposes of this Note.
(B) Other Occurrences. In all other circumstances the
-----------------
fair market value of the Project shall be deemed to equal the result of
dividing the Net Cash Flow Before Debt Service for the immediately preceding
fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt
Service for the immediately preceding fiscal year has been lowered because of
unusually high Operating Expenses during such fiscal year the fair market value
of the Project may, at the option of the Maker be determined by dividing by ten
percent (10%) the mean average of the Net Cash Flow Before Debt Service of the
Project for the 3 immediately preceding fiscal years of the Project.
(C) Appraisal Standards and Assumptions. In making any
-----------------------------------
determination by appraisal of fair market value, the appraiser(s) shall assume
that the improvements then located on the Project constitute the highest and
best use of the property. If the Triggering Event is a Sale or Financing, the
appraiser(s) shall take the sales price into account, although such sales price
shall not be determinative of fair market value. Each appraiser selected
hereunder shall be an independent MAI-designated appraiser with not less than
ten years' experience in commercial real estate appraisal in the general
geographical area where the Project is located.
(vi) Effect on Holder's Approval Rights. Nothing contained in
----------------------------------
this Section 2(h) shall be deemed or construed to waive, restrict, impair, or
------------
in any manner affect Holder's rights hereunder or under any provisions of the
Debt Papers to consent (or withhold its consent) to: any prepayment of the Loan
in whole or in part; sales or other transfers of all or any portion of the
Project or any interest therein; sales or other transfers of any ownership
interests in Maker; any refinancing of all or any portion of the Loan; any
junior financing; or, any other matters which require Holder's consent.
(vii) Statement, Books and Records. With each payment of
----------------------------
Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement
setting forth Maker's proposed calculation of Net Capital Proceeds and Capital
Proceeds Contingent
<PAGE>
Interest and shall provide a detailed breakdown of all items necessary for such
calculation. For a period of five years after each payment of Capital Proceeds
Contingent Interest, Maker shall keep and maintain full and accurate books and
records adequate to correctly reflect each such item. Said books and records
shall be available for Holder's inspection, copying and audit during reasonable
business hours following reasonable notice for the purpose of verifying the
accuracy of the payments made on account of Capital Proceeds Contingent
Interest. The costs of any such audit will be paid by Holder, except that
Maker shall pay all reasonable costs and expenses of any such audit which
discloses that any amount properly payable by Maker to Holder hereunder
exceeded by five percent (5%) or more the amount actually paid and initially
reported by maker as being payable with respect thereto.
(viii) Negative Capital Proceeds Contingent Interest.
---------------------------------------------
Notwithstanding any other provision of this Agreement, Holder shall not be
responsible or liable in any respect to Maker or any other Person for any
reduction in the fair market value of the Project or for any contingency,
condition or occurrence that might result in a negative number for Capital
Proceeds Contingent Interest. If at any time it is calculated, Capital
Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds
Contingent Interest shall at that time be payable to Holder, but Holder shall
in no way be liable for any such negative amount and there shall be no
deduction or offset for such negative amount at any time when Capital Proceeds
Contingent Interest shall be subsequently calculated.
(ix) No payment of Capital Proceeds Contingent Interest may,
when added to all other payments of interest or payments construed as
interest, shall exceed the Highest Low Full Rate.
3. Usury Savings Clause. The provisions of this Section 3 shall govern
-------------------- ---------
and control over any irreconcilably inconsistent provision contained in this
Note or in any other document evidencing or securing the indebtedness evidenced
hereby. The Holder hereof shall never be entitled to receive, collect, or
apply as interest hereon (for purposes of this Section 3, the word "interest"
---------
shall be deemed to include Basic Interest, Additional Interest and any other
sums treated as interest under applicable law governing matters of usury and
unlawful interest), any amount in excess of the Highest Lawful Rate
(hereinafter defined) and, in the event the Holder ever receives, collects, or
applies as interest any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and shall be treated
hereunder as such; and, if the principal of this Note is paid in full, any
remaining excess shall forthwith be paid to Maker. In determining whether or
not the interest paid or payable, under any specific contingency, exceeds the
Highest Lawful Rate, Maker and the Holder shall, to the maximum extent
permitted under applicable law, (i) characterize any nonprincipal payment as an
expense, fee, or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) spread the total amount of
interest throughout the entire contemplated term of this Note; provided, that
if this Note is paid and performed in full prior to the end of
<PAGE>
the full contemplated term hereof, and if the interest received for the actual
period of existence hereof exceeds the Highest Lawful Rate, the Holder shall
refund to Maker the amount of such excess or credit the amount of such excess
against the principal of this Note, and, in such event, the Holder shall not be
subject to any penalties provided by any laws for contracting for, charging, or
receiving interest in excess of the Highest Lawful Rate.
4. Payments.
--------
(a) Interest and Principal. Maker promises to pay to the Holder
----------------------
hereof Basic Interest, Deferred Interest and Additional Interest as, in the
respective amounts, and at the respective times provided in Section 2
---------
hereinabove. Maker also agrees that, on the Maturity Date, Maker will pay to
the Holder the entire principal balance of this Note then outstanding, together
with all Basic Interest (including without limitation, Deferred Interest), and
Additional Interest accrued hereunder and not theretofore paid. Each payment
of principal of, Basic Interest (including without limitation, Deferred
Interest), and Additional Interest on, or any other amounts of any kind with
respect to, this Note shall be made by the Maker to the Holder hereof at its
office in Phoenix, Arizona (or at any other place which the Holder may
hereafter designate for such purpose in a notice duly given to the Maker
hereunder), not later than noon, Eastern Standard Time, on the date due
thereof; and funds received after that hour shall be deemed to have been
received by the Holder on the next following business day. Whenever any
payment to be made under this Note shall be stated to be due on a date which is
not a business day, the due date thereof shall be extended to the next
succeeding business day, and interest shall be payable at the applicable rate
during such extension.
(b) Late Payment Charges. If any amount of Interest, principal or
--------------------
any other charge or amount which becomes due and payable under this Note is not
paid and received by the Holder within five business days after the date it
first becomes due and payable, Maker shall pay to the Holder hereof a late
payment charge in an amount equal to five percent (5%) of the full amount of
such late payment, whether such late payment is received prior to or after the
expiration of the ten-day cure period set forth in Section 8(a). Maker
------------
recognizes that in the event any payment secured hereby (other than the
principal payment due upon maturity of the Note, whether by acceleration or
otherwise) is not made when due, Holder will incur extra expenses in handling
the delinquent payment, the exact amount of which is impossible to ascertain,
but that a charge of five percent (5%) of the amount of the delinquent payment
would be a reasonable estimate of the expenses so incurred. Therefore, if any
such payment is not received when due and payable, Maker shall without
prejudicing or affecting any other rights or remedies of the trustee under
those certain Junior Deeds of Trust (or Junior Mortgages, or Junior Deeds to
Secure Debt), Assignment of Leases and Rents, Security Agreement, Financing
Statement and Fixture Filing of even date herewith or Holder pay to Holder to
cover expenses incurred in handling the delinquent payment, an amount
calculated at five percent (5%) of the amount of the delinquent payment.
<PAGE>
(c) No Prepayment. The principal of this Note may not be
-------------
voluntarily prepaid in whole or in part during the period ending on the date
six (6) months prior to the Stated Maturity Date except with the written
consent of the Holder. Maker shall have the right to prepay this Note at any
time thereafter, but only subject to the requirements and conditions set forth
below. If under any circumstances whatsoever (other than pursuant to Section 3
above) this Note is paid in whole or in part prior to the period ending on the
date six (6) months prior to the Stated Maturity Date, whether voluntarily,
following acceleration after the occurrence of an Event of Default, with the
consent of Holder, by Holder's application of any condemnation or insurance
proceeds to amounts due under the Note, by operation of law or otherwise, and
whether or not such payment prior to the Stated Maturity Date results from the
Holder's exercise of its rights to accelerate the indebtedness evidenced
hereby, then Maker shall pay to the Holder the Yield Maintenance Premium
(defined hereinbelow) in addition to paying the entire unpaid principal balance
of this Note and all Interest which has accrued but is unpaid except with the
written consent of the Holder.
If those certain Junior Deeds of Trust (or Junior Mortgages, or
Junior Deeds to Secure Debt), Assignment of Leases and Rents, Security
Agreement, Financing Statement and Fixture Filing or any obligation
secured thereby provides for any charge for pre-payment of any
indebtedness secured thereby, Maker agrees to pay said charge if for any
reason (except as otherwise expressly provided in this Note or Junior
Deeds of Trust, Junior Mortgages, or Junior Deeds to Secure Debt) any of
said indebtedness shall be paid prior to the stated maturity date thereof,
even if and notwithstanding that an Event of Default shall have occurred
and Holder, by reason thereof, shall have declared said indebtedness or
all sums secured hereby immediately due and payable, and whether or not
said payment is made prior to or at any sale held under or by virtue of
this Note or the Junior Deeds of Trust, Junior Mortgages, or Junior Deeds
to Secure Debt.
Without limiting the scope of the foregoing provisions, the
provisions of this paragraph shall constitute, within the meaning of any
applicable state statute, both a waiver of any right Maker may have to
prepay the Note, in whole or in part, without premium or charge, upon
acceleration of the maturity of the Note, foreclosure of the Junior Deeds
of Trust, Junior Mortgages, or Junior Deeds to Secure Debt, or otherwise,
and an agreement by Maker to pay the prepayment charge described in this
Note, whether such prepayment is voluntary or upon or following any
acceleration of this Note, foreclosure of those Junior Deeds of Trust,
Junior Mortgages, or Junior Deeds to Secure Debt, including, without
limitation, any acceleration following a transfer, conveyance or
disposition of the trust estate except as expressly permitted hereunder,
and for such purpose Maker has separately initialled this provision in the
space provided below, and Maker hereby declares that Holder's agreement to
make the Loan to Maker at the interest rate and for the term set forth in
the Note constitutes adequate consideration, of individual weight, for
this waiver and agreement by Maker.
Maker's Initials:
-----------
<PAGE>
For purposes hereof, "Yield Maintenance Premium" means the sum of (i)
-------------------------
one percent (1%) of the unpaid principal balance of the Note plus (ii) the
amount (but not less than zero) equal to the excess, if any, of subclause (A)
over subclause (B) when (A) and (B) equal:
(A) the sum of the Present Values (as hereinafter defined) of the
remaining payments of principal and Interest on the Note (assuming such
Interest and principal payments were made at the times and in the amounts
when due but that no further principal payments were made until the period
ending on the date six (6) months prior to the Stated Maturity Date); and
(B) the then outstanding principal balance of the Note and accrued
Interest since the last date of payment of Interest.
For purposes of this definition, "Present Value" shall be determined
-------------
in accordance with generally accepted financial practice in the United States
of America on a monthly basis at a discount rate equal to the sum of the
applicable Treasury Yield; and the "Treasury Yield" for such purpose shall be
--------------
determined as of 10:00 A.M., New York City time on the fifth Business Day prior
to the date of such prepayment of the Note by reference to the yields of those
actively traded United States Treasury securities having a maturity on the
period ending on the date six (6) months prior to the Stated Maturity Date of
this Note or if there is no actively traded United Treasury security having
such a maturity date then of all such securities having maturities after the
Stated Maturity Date, the security having the maturity date closest to the
period ending on the date six (6) months prior to the Stated Maturity Date.
5. Representations and Warranties of Maker. Maker represents and
---------------------------------------
warrants to Payee, as of the date hereof, that:
(a) Due Authorization. Maker is a partnership or corporation duly
-----------------
organized under the laws of the state of its organization, with the authority
to own the Project and enter into the Debt Papers and consummate the
transactions contemplated thereby;
(b) No Violation. Maker's execution, delivery and performance of
------------
its obligations under the Debt Papers do not and will not violate the
partnership agreement (or, if Maker is a corporation, the articles of
incorporation or by-laws) of Maker and will not violate, conflict with or
constitute a default under any agreement to which Maker is a party or by which
the Project is bound or encumbered, or violate any Requirements of Law to which
Maker or the Project is subject;
(c) Consents. No consents, approvals, filings, or notices of, with
--------
or to any Person are required on the part of Maker in connection with Maker's
execution, delivery and performance of its obligations under the Debt Papers
that have not been duly obtained, made or given, as the case may be;
<PAGE>
(d) Enforceability. The Debt Papers are valid, binding and
--------------
enforceable in accordance with their terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws relating to or affecting the enforcement of creditors' rights
generally.
(e) Zoning and Other Laws. The Project and the use thereof as a
---------------------
self-storage facility, separate and apart from any other properties,
constitutes a legal and conforming use under applicable zoning regulations and
each such Project is in compliance in all material respects with all applicable
Requirements of Law;
(f) Litigation. No litigation, investigation or proceeding or
----------
notice thereof before any arbitrator or governmental authority, agency or
subdivision is pending or, to Maker's best knowledge, threatened, against Maker
or the Project;
(g) Utilities. All utilities required by Requirements of Law or by
---------
the normal and intended use of the Project are installed to the property line
and connected by valid permits;
(h) Easements. Maker has obtained and has encumbered in favor of
---------
Holder pursuant to the Mortgage all easements, appurtenances and rights of way
necessary for access to and the normal uses of the Project; and
(i) Place of Business. Maker is located at 715 South Country Club
-----------------
Drive, Mesa, AZ 85210, and that address is its only place of business or its
chief executive office.
6. Affirmative Covenants. Maker hereby covenants and agrees that, so
---------------------
long as any indebtedness under the Note remains unpaid, Maker shall:
(a) Use of Proceeds. Use the proceeds of the Loan to repay certain
---------------
indebtedness presently outstanding against the Project and held by Payee.
(b) Financial Statements. Deliver or cause to be delivered to
--------------------
Holder, the Trustee and the Servicer:
(i) As soon as available and in any event within 90 days
after the end of each calendar year, annual financial reports on the
Project showing all income and expenses certified to be accurate and
complete by an officer of the managing general partner of Maker (or,
if Maker is a corporation, of Maker); and
(ii) As soon as available and in any event within 45 days
after the end of each of the first three calendar quarters of each
year, (1) a detailed comparative earnings statement for such quarter
and for the period commencing at the end of the previous fiscal year
and ending with the end of such quarter, and (2) financial reports
<PAGE>
on the Project showing all income and expenses, certified to be
accurate and complete by an officer of the managing general partner
of Maker (or, if Maker is a corporation, of Maker); and
(iii) Promptly, such additional financial and other
information (including, without limitation, information regarding the
Project) as Holder, the Trustee or the Servicer may from time to time
reasonably request.
(c) Inspection of Property; Books and Records; Discussions. Keep
------------------------------------------------------
proper books of record and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and, upon
reasonable notice, permit representatives of Holder, the Trustee, and the
Servicer to examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired by Holder, the
Trustee or the Servicer and to discuss the business, operations, properties and
financial and other conditions of Maker with officers and employees of Maker
and with its independent certified public accountants.
(d) Notices. Give prompt written notice to Holder, the Trustee and
-------
the Servicer of (a) any claims, proceedings or disputes (whether or not
purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or
affecting Maker or the Project which, if adversely determined, could reasonably
be expected to have a Material Adverse Effect (without in any way limiting the
foregoing, claims, proceedings, or disputes involving in the aggregate monetary
amounts in excess of $15,000 not fully covered by insurance shall be deemed to
be material, exclusive of deductibles in an amount not to exceed $1,000), or
(b) any proposal by any public authority to acquire the Project or any portion
thereof.
(e) Expenses. Pay all reasonable out-of-pocket expenses (including
--------
fees and disbursements of counsel, including special local counsel) of Holder,
incident to any amendments, waivers and renewals relating to the Debt Papers
and the protection of the rights of Holder under the Debt Papers whether by
judicial proceedings or otherwise, including, without limitation, in connection
with bankruptcy, insolvency, liquidation, reorganization, moratorium or other
similar proceedings involving Maker or a "workout" of the Loan. The
obligations of Maker under this Section 6(e) shall survive repayment of the
------------
Loan.
(f) Debt Papers. Comply with and observe all terms and conditions
-----------
of the Debt Papers.
(g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS
---------------
DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED
-----------
PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND
- -------
SEVERALLY,
<PAGE>
"LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS OF ANY PARTY
------
RELATING TO OR ARISING OUT OF THE DEBT PAPERS OR THE TRANSACTIONS CONTEMPLATED
THEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY
EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY
INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF
ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM
(INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS),
REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY
THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS
----------------
ACKNOWLEDGED AND AGREED BY MAKER THAT THE INDEMNIFICATION RIGHTS OF THE
INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER
RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH
ABOVE IN THIS SECTION 6(g) FOR PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY
------------
THE INDEMNIFIED PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER
SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY
DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR
ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO
SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE
OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED
PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE
COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING
IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE
OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL SURVIVE REPAYMENT IN FULL OF
------------
THE INDEBTEDNESS EVIDENCED HEREBY. IT IS THE INTENT OF THIS SECTION 6(g) THAT
------------
THE MAKER SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES
OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE,
OF THE INDEMNIFIED PARTIES.
MAKER'S INITIALS
--------------
(g) Co-operation. Execute and deliver to Holder any and all
------------
instruments, documents and agreements, and do or cause to be done from time to
time any and all other acts, reasonably deemed necessary or desirable by Holder
to effectuate the
<PAGE>
provisions and purposes of the Debt Papers.
(h) Requirements of Law. Comply at all times with all Requirements
-------------------
of Law.
(i) Management Agreement. Cause or permit the Project to be
--------------------
initially managed by a subsidiary of U-Haul International, Inc. and to be at
all times managed by a nationally recognized self-storage property management
company (the "Project Manager") approved by the Holder, which Project Manager
---------------
shall be employed pursuant to an agreement (the "Property Management
-------------------
Agreement") approved by the Holder. In no event shall the fees paid (or
- ---------
required to be paid) to the Project Manager exceed six percent (6%) of Gross
Receipts for any time period. The rights of the Maker under the Property
Management Agreement (and under each successive one, if there is more than one)
shall be assigned to the Holder pursuant to a security assignment in form and
substance satisfactory to the Holder, and such assignment shall be acknowledged
by the Project Manager pursuant to a consent document acceptable to the Holder.
Additionally, Maker shall observe and perform all terms and conditions of the
Property Management Agreement, and take all other actions necessary to keep the
Property Management Agreement in full force and effect.
7. Negative Covenants. Maker hereby agrees that, as long as any
------------------
indebtedness under the Note remains unpaid, Maker shall not, directly or
indirectly:
(a) Indebtedness. Create, incur or assume any Indebtedness except
------------
for: (i) the Loan; (ii) the Senior Loan; (iii) the obligations of Maker under
the Property Management Agreement; and (iv) for non-delinquent taxes.
(b) Consolidation and Merger. Liquidate or dissolve or enter into
------------------------
any consolidation, merger, partnership, joint venture, syndicate or other
combination (except for a merger or consolidation for the purpose of, and
having the effect of changing Maker's jurisdiction of organization).
(c) Transactions with Affiliates. Purchase, acquire or lease any
----------------------------
property from, or sell, transfer or lease any property to, or lend or advance
any money to, or borrow any money from, or guarantee any obligation of, or
acquire any stock, obligations or securities of, or enter into any merger or
consolidation agreement, or any management or similar agreement with, any
Affiliate, or enter into any other transaction or arrangement or make any
payment to (including, without limitation, on account of any management fees,
service fees, office charges, consulting fees, technical services charges or
tax sharing charges) or otherwise deal with, in the ordinary course of business
or otherwise, any Affiliate on terms which are unreasonably burdensome or
unfair, except (i) transactions relating to the sharing of overhead expenses,
including, without limitation, managerial, payroll and accounting and legal
expenses, for which charges assessed against Maker are not greater than would
be incurred by Maker in similar
<PAGE>
transactions with non-Affiliates, or (ii) fair and reasonable transactions
between Maker and U-Haul International, Inc. and its related companies.
(d) Sale of Interests in the Project or in the Maker. Without
------------------------------------------------
obtaining the prior written consent of Holder (which Holder may withhold or
condition in its sole and absolute discretion), cause, permit or acquiesce in
any Sale or Financing.
(e) Distributions. Notwithstanding anything to the contrary
-------------
contained in this Note or the Debt Papers, Maker shall not make any
distributions to any of its partners, except for distributions of amounts not
in excess of [(i) the Catch-Up Amount for any quarter,] (ii) any Net Cash Flow
for any quarter remaining after the payment to Holder of all Interest and the
Catch-Up Amount payable for and with respect to such quarter, and (iii) upon
the Sale or Financing any Net Sale or Financing proceeds remaining after
payment to Holder of the amounts to which Holder is entitled hereunder in
connection therewith.
8. Event of Default; Remedies. Any one of the following occurrences
--------------------------
shall constitute an Event of Default under this Note:
(a) The failure by the undersigned to make any payment of principal
or Interest upon this Note as and when the same becomes due and payable in
accordance with the provisions hereof, and the continuation of such
failure for a period of ten (10) days after notice thereof to the Maker;
(b) Any representation, warranty or certification made by Maker
under any Debt Paper or in any report, certificate or financial statement
delivered to the Holder under or in connection with any Debt Paper is
materially inaccurate or incomplete as of the date made; provided,
however, that such inaccurate or incomplete representation, warranty or
certification is material and cannot be cured without material prejudice
to the Holder within 30 days written notice thereof to the Maker;
(c) The failure by Maker to perform any obligation under, or the
occurrence of any other default with respect to any provision of, this
Note other than as described in any of the other clauses of this Section
8, and the continuation of such default for a period of 30 days after
written notice thereof to the Maker;
(d) The occurrence of any Default under the Mortgage, under the
Assignment and Pledge Agreement, under the Security Agreement and
Assignment (Management Agreement), or under any of the other Debt Papers;
(e) (i) Maker shall file, institute or commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or
<PAGE>
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets, or
Maker shall make a general assignment for the benefit of its creditors; or (ii)
there shall be filed, instituted or commenced against Maker any case,
proceeding or other action of a nature referred to in clause (i) above which
(A) results in the entry of any order for relief or any such adjudication or
appointment, or (B) remains undismissed undischarged for a period of 60 days;
or (iii) there shall be commenced against Maker any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or substantially all of its assets which results in
the entry of an order for any such relief which shall not have been vacated,
discharged, stayed, satisfied, or bonded to Holder's satisfaction pending
appeal, within 60 days from the first entry thereof; or (iv) Maker shall take
any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts described in any of the preceding clauses (i)
, (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due, or shall in
writing admit that it is insolvent;
(f) One or more judgments or decrees in an aggregate amount
exceeding $1,000,000.00 shall be entered against Maker and all such
judgments or decrees shall not have been vacated, discharged, stayed,
satisfied, or bonded to Holder's satisfaction pending appeal within 60
days from the first entry thereof; or
(g) The occurrence of a Event of Default under the Promissory Note
evidencing the Senior Loan.
Upon the occurrence of any Event of Default hereunder: the entire unpaid
principal balance of, and any unpaid Basic Interest and Additional Interest
then accrued on, this Note together with the Yield Maintenance Premium, if any,
and other charges payable pursuant to the Debt Papers shall, at the option of
the Holder hereof and without demand or notice of any kind to the undersigned
or any other person, immediately become and be due and payable in full (except
that such acceleration shall occur automatically upon the occurrence of any
Event of Default described in the preceding clause (e) of this Section 8,
without further action or decision by Holder) ; and the Holder shall have and
may exercise any and all rights and remedies available at law or in equity and
also any and all rights and remedies provided in the Mortgage and any of the
other Security Documents.
9. Offset. In addition to (and not in limitation of) any rights of
------
offset that the Holder hereof may have under applicable law, upon the
occurrence of any Event of Default hereunder the Holder hereof shall have the
right, immediately and without notice, to appropriate and apply to the payment
of this Note any and all balances, credits, deposits, accounts or moneys of the
Maker then or thereafter with or held by the Holder hereof.
<PAGE>
10. Allocation of Balances or of Payments. At any and all times until
-------------------------------------
this Note and all amounts hereunder (including principal, Interest, and other
charges and amounts, if any) are paid in full, all payments (whether of
principal, Interest or other amounts) made by the undersigned or any other
person (including any guarantor) to the Holder hereof may be allocated by the
Holder to principal, Interest or other charges or amounts as the Holder may
determine in its sole, exclusive and unreviewable discretion (and without
notice to or the consent of any person).
11. Captions. Any headings or captions in this Note are inserted for
--------
convenience of reference only, and they shall not be deemed to constitute a
part hereof, nor shall they be used to construe or interpret the provisions of
this Note.
12. Waiver.
------
(a) Maker, for itself and for its successors, transferees and
assigns and all guarantors and endorsers, hereby waives diligence,
presentment and demand for payment, protest, notice of protest and
nonpayment, dishonor and notice of dishonor, notice of the intention to
accelerate, notice of acceleration, and all other demands or notices of
any and every kind whatsoever (except only for any notice of default
expressly provided for in Section 8 of this Note or in the Security
---------
Documents) and the undersigned agrees that this Note and any or all
payments coming due hereunder may be extended from time to time in the
sole discretion of the Holder hereof without in any way affecting or
diminishing their liability hereunder.
(b) No extension of the time for the payment of this Note or any
payment becoming due or payable hereunder, which may be made by agreement
with any Person now or hereafter liable for the payment of this Note,
shall operate to release, discharge, modify, change or affect the original
liability under this Note, either in whole or in part, of the Maker if it
is not a party to such agreement.
(c) No delay in the exercise of any right or remedy hereunder shall
be deemed a waiver of such right or remedy, nor shall the exercise of any
right or remedy be deemed an election of remedies or a waiver of any other
right or remedy. Without limiting the generality of the foregoing, the
failure of the Holder hereof promptly after the occurrence of any Event of
Default hereunder to exercise its right to declare the indebtedness
remaining unmatured hereunder to be immediately due and payable shall not
constitute a waiver of such right while such Event of Default continues
nor a waiver of such right in connection with any future Event of Default
on the part of the undersigned.
13. Payment of Costs. The undersigned hereby expressly agrees that upon
----------------
the occurrence of any Event of Default under this Note, the undersigned will
pay to the Holder hereof, on demand, all costs of collection or enforcement of
every kind, including (but not limited to) all attorneys' fees, court costs,
and other costs and expenses of every kind incurred by the Holder hereof, on
demand, all costs of collection or enforcement of every kind, including (but
not limited to) all attorneys' fees, court costs, and other costs and expenses
of every kind
<PAGE>
incurred by the Holder hereof in connection with the protection or realization
of any or all of the security for this Note, whether or not any lawsuit is ever
filed with respect thereto.
14. The Debt Papers. This Note is secured by, inter alia, (i) certain
--------------- ----- ----
Deeds of Trust (and Mortgages, and Deeds to Secure Debt), Assignment of Leases
and Rents, Security Agreement and Financing Statement, made and granted by
Maker to or for the benefit of Payee, which creates a lien on real estate in
the Project and which also creates a security interest in personal property
located thereat or utilized in connection therewith; (ii) the Security
Agreement and Assignment (Management Agreement)(as amended, modified or
replaced from time to time, the "Assignment of Management Agreement"); (iii)
----------------------------------
the Assignment and Pledge Agreement; (iv) the Environmental Indemnity Agreement
(as amended from time to time, the "Environmental Indemnity Agreement"); and
---------------------------------
(v) the Collection Account Agreement (such documents together with each and
every additional document or instrument which may at any time be delivered to
the Holder hereof as security for this Note, as any of the same may at any time
or from time to time be amended, modified or restated, and together with all
substitutions and replacements therefor, are sometimes referred to collectively
herein as the "Security Documents"). Reference should be made to the Mortgage
------------------
and the other Security Documents for a statement of certain circumstances under
which this Note may be accelerated and for a description of the property
encumbered thereby and the nature and extent of the security thereof. This
Note, the Security Documents and all other documents executed in connection
with the Note and the Security Documents are sometimes referred to collectively
herein as the "Debt Papers". This Note, the Mortgage, and the other Debt
-----------
Papers (if any) are hereby incorporated by reference into this Note in their
entirety, as though the complete text of each of them were set out in full here
in the body of this Note.
15. Notices. All notices, demands and other communications hereunder to
-------
either party shall be made in writing and shall be deemed to have been given
when actually received or, if mailed, on the first to occur of actual receipt
or the third business day after the deposit thereof in the United States mails,
by registered or certified mail, postage prepaid, addressed as follows:
If to the Maker: SAC Self-Storage Corporation
a Nevada corporation
715 South Country Club Drive
Mesa, AZ 85210
If to the Holder: Nationwide Commercial Co.
c/o Amerco
2721 North Central Avenue
Phoenix, Arizona 85004
Attention: Donald Murney or
Treasurer
<PAGE>
with a copy to: Nationwide Commercial Co.
c/o Amerco
2721 North Central Avenue
Phoenix, Arizona 85004
Attention: Gary V. Klinefelter or
General Counsel
or to either party at such other address in the 48 contiguous continental
United States of America as such party may designate as its address for the
receipt of notices hereunder in a written notice duly given to the other party.
16. Time of the Essence. Time is hereby declared to be of the essence of
-------------------
this Note and of every part hereof.
17. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the internal laws of the State of Arizona.
18. Jurisdiction. In any controversy, dispute or question arising
------------
hereunder or under the other Debt Papers, the Maker consents to the exercise of
jurisdiction over its person and property by any court of competent
jurisdiction situated in the State of Arizona (whether it be a court of the
State of Arizona, or a court of the United States of America situated in the
State of Arizona), and in connection therewith, agrees to submit to, and be
bound by, the jurisdiction of such court upon the Holder's mailing of process
by registered or certified mail, return receipt requested, postage prepaid,
within or without the State of Arizona, to the Maker at its address for
receipt of notices under this Note.
19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL
---------------------------
THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER
OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE
MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS
BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR
IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER
SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER.
20. Limitation of Personal Liability. Except for fraud or knowing
--------------------------------
misrepresentations, neither Maker nor any partner in Maker shall be liable
personally to pay this Note or the indebtedness evidenced hereby, and the
Holder shall not seek any personal or deficiency judgment on this Note except
for fraud or knowing misrepresentations, and the sole remedy of the Holder
hereunder or under any of the other Debt Papers shall (except for fraud,
misappropriation of funds or knowing misrepresentations) be under the Security
Documents for enforcement thereof or shall otherwise be against the Collateral
(defined for purposes hereof as defined in the Mortgage) and any other property
at any time securing any or all of the Liabilities
<PAGE>
(defined for purposes hereof as defined in the Mortgage); provided, however,
that the foregoing shall not in any way diminish or affect (i) any rights the
Holder may have (as a secured party or otherwise) to, against or with respect
to the Collateral or any other property at any time securing any of the
liabilities, (ii) any rights of the Holder against the Maker with respect to
any fraud, misappropriation of funds or knowing misrepresentation, or (iii) any
rights of the Holder under or with respect to any guaranty at any time
furnished to the Holder relating to or concerning any of the Liabilities.
21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
----------
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP
EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
22. Subordination Agreement. This Note and the indebtedness evidence
-----------------------
hereby have been subordinated to the Senior Debt Papers and to the indebtedness
evidenced and secured thereby pursuant to a Subordination Agreement of even
date herewith between the Senior Lender and the Payee.
23. This Note and the other Security Documents constitute the entire
agreement between Maker and Payee. No representations, warranties,
undertakings, or promises whether written or oral, expressed or implied have
been made by the Payee or its agent unless expressly stated in this Note or the
Security Documents.
24. Loan Documents. This Note evidences advances to be made to the Maker
--------------
by the Payee from time to time up to the stated face amount of the Note. Such
advances are made by the Payee in the Payee's sole discretion and the Payee is
not obligated to loan to Maker the full face amount of the Note.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note,
pursuant to proper authority duly granted, as of the date and year first above
written.
SAC SELF-STORAGE CORPORATION
a Nevada corporation
/S/ EDWARD J. SHOEN
---------------------------------------------
Edward J. Shoen, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10Q SEPTEMBER 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 41882
<SECURITIES> 701220
<RECEIVABLES> 263805
<ALLOWANCES> 3078
<INVENTORY> 47691
<CURRENT-ASSETS> 0
<PP&E> 2273104
<DEPRECIATION> 1005433
<TOTAL-ASSETS> 2506079
<CURRENT-LIABILITIES> 0
<BONDS> 752529
<COMMON> 10000
0
0
<OTHER-SE> 698784
<TOTAL-LIABILITY-AND-EQUITY> 2506079
<SALES> 97688
<TOTAL-REVENUES> 684693
<CGS> 53288
<TOTAL-COSTS> 540690
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1868
<INTEREST-EXPENSE> 33297
<INCOME-PRETAX> 108838
<INCOME-TAX> 39354
<INCOME-CONTINUING> 69484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69484
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
