<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1995
REGISTRATION NO. 33-57047
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHURGARD STORAGE CENTERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 6798 91-1080141
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
1201 THIRD AVENUE, SUITE 2200
SEATTLE, WASHINGTON 98101
(206) 624-8100
(Address and telephone number of
registrant's principal executive offices)
HARRELL L. BECK
1201 THIRD AVENUE, SUITE 2200
SEATTLE, WASHINGTON 98101
(206) 624-8100
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
MICHAEL STANSBURY JOHN M. STEEL EDMUND O. BELSHEIM, JR.
LINDA A. SCHOEMAKER BENJAMIN F. STEPHENS SCOTT L. GELBAND
Perkins Coie Riddell Williams Bullitt & Bogle & Gates
1201 Third Avenue, 40th Floor Walkinshaw Two Union Square
Seattle, Washington 98101-3099 1001 Fourth Avenue, #4400 601 Union Street
(206) 583-8888 Seattle, Washington 98154 Seattle, Washington 98101-2346
(206) 624-3600 (206) 682-5151
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective and the effective
time of the merger of Shurgard Incorporated with and into the registrant, as
described in the Agreement and Plan of Merger dated as of December 19, 1994
attached as Appendix I to the Proxy Statement/Prospectus forming a part of the
Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Shurgard REIT Letterhead]
February , 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Shurgard Storage Centers, Inc. (the "Shurgard REIT") to be
held on Thursday, March 2, 1995, at 10:00 a.m., local time, at the Westin Hotel,
1900 Fifth Avenue, Seattle, Washington.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the merger of Shurgard Incorporated (the "Management
Company") with and into the Shurgard REIT (the "Merger") pursuant to an
Agreement and Plan of Merger dated as of December 19, 1994 (the "Merger
Agreement"). The purpose of the Merger is for the Shurgard REIT to become
self-administered and self-managed. Pursuant to the Merger Agreement, the
outstanding shares of common stock of the Management Company will be converted
into an aggregate of 1,400,000 shares of Class A Common Stock of the Shurgard
REIT (together with associated purchase rights, the "Shurgard Class A Common
Stock"), subject to certain adjustments based on the market price of the
Shurgard Class A Common Stock and changes to the Management Company's equity
from October 31, 1994 to the closing date of the Merger, and certain adjustments
for Management Company shareholders exercising dissenters' rights. In addition,
pursuant to the Merger Agreement, Management Company shareholders will be
entitled to receive additional shares of Shurgard Class A Common Stock based on
(i) the extent to which, during the five years following the closing of the
Merger, the Shurgard REIT realizes value as a result of certain transactions
relating to interests in or assets of six limited partnerships acquired by the
Shurgard REIT in the Merger and (ii) the value, at the end of five years or in
the event of a change of control, of any remaining interests in such
partnerships as determined by independent appraisal.
A special committee consisting of independent directors of the Shurgard
REIT, who are not members of management or employees of the Management Company
(the "Special Committee"), actively negotiated the terms of the Merger and the
Merger Agreement with the Management Company. In connection with such
consideration, the Special Committee retained Alex. Brown & Sons Incorporated
("Alex. Brown") to act as its financial advisor. Alex. Brown has rendered its
opinion that, as of the date of the Merger Agreement, the consideration to be
paid by the Shurgard REIT in the Merger is fair, from a financial point of view,
to the Shurgard REIT. The written opinion of Alex. Brown, dated December 19,
1994, is included as Appendix II to the accompanying Proxy Statement/ Prospectus
and should be read carefully by shareholders. The Special Committee has
unanimously recommended to the Shurgard REIT's Board of Directors that the
Merger Agreement be approved.
THE SPECIAL COMMITTEE AND THE SHURGARD REIT'S BOARD OF DIRECTORS HAVE
DETERMINED THE MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF THE SHURGARD
REIT AND ITS SHAREHOLDERS, HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER AND RECOMMEND A VOTE FOR APPROVAL OF THE MERGER.
You should carefully read the accompanying Notice of Special Meeting of
Shareholders and the Proxy Statement/Prospectus for details of the Merger and
additional related information. In considering the Merger and the Merger
Agreement, Shurgard REIT shareholders should consider the risks described in the
Proxy Statement/Prospectus relating to the Merger. These risks include certain
conflicts of interest that executive officers and directors of the Shurgard REIT
have with respect to the Merger and certain tax risks to the Shurgard REIT
resulting from the Merger.
<PAGE>
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage-prepaid envelope. Your stock will be voted in accordance with the
instructions you have given in your proxy. If you attend the Special Meeting,
you may vote in person if you wish, even though you previously have returned
your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
Harrell L. Beck
PRESIDENT
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
<PAGE>
SHURGARD STORAGE CENTERS, INC.
1201 THIRD AVENUE, SUITE 2200
SEATTLE, WASHINGTON 98101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 2, 1995
TO THE HOLDERS OF CLASS A COMMON STOCK OF SHURGARD STORAGE CENTERS, INC.:
A Special Meeting of holders of Class A Common Stock (the "Special Meeting")
of Shurgard Storage Centers, Inc., a Delaware corporation (the "Shurgard REIT"),
will be held on Thursday, March 2, 1995, at 10:00 a.m., local time, at the
Westin Hotel, 1900 Fifth Avenue, Seattle, Washington, for the following
purposes:
1. To consider and vote upon a proposal to approve the merger of Shurgard
Incorporated (the "Management Company") with and into the Shurgard REIT (the
"Merger") pursuant to an Agreement and Plan of Merger dated as of December 19,
1994 (the "Merger Agreement") between the Shurgard REIT and the Management
Company. Pursuant to the Merger Agreement, the outstanding shares of common
stock of the Management Company will be converted into an aggregate of 1,400,000
shares of Class A Common Stock of the Shurgard REIT (together with associated
purchase rights, the "Shurgard Class A Common Stock"), subject to certain
adjustments based on the market price of the Shurgard Class A Common Stock and
changes to the Management Company's equity from October 31, 1994 to the closing
date of the Merger, and certain adjustments for Management Company shareholders
exercising dissenters' rights. In addition, pursuant to the Merger Agreement,
Management Company shareholders will be entitled to receive additional shares of
Shurgard Class A Common Stock based on (i) the extent to which, during the five
years following the closing of the Merger, the Shurgard REIT realizes value as a
result of certain transactions relating to interests in or assets of six limited
partnerships acquired by the Shurgard REIT in the Merger and (ii) the value, at
the end of five years or in the event of a change of control, of any remaining
interests in such partnerships as determined by independent appraisal. THE
MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS, AND A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX
I THERETO.
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Only holders of record of shares of Shurgard Class A Common Stock at the
close of business on January 20, 1995, the record date for the Special Meeting,
are entitled to notice of and to vote at the Special Meeting and at any
adjournments or postponements thereof.
The affirmative vote of the holders of shares representing a majority of the
outstanding shares of Shurgard Class A Common Stock entitled to vote at the
Special Meeting is required to approve the Merger. Holders of shares of Shurgard
Class A Common Stock will not be entitled to dissenters' rights as a result of
the Merger.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOUR STOCK WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS YOU HAVE GIVEN IN YOUR PROXY. YOUR PROXY MAY BE REVOKED AT ANY TIME
BEFORE IT IS VOTED BY SIGNING AND RETURNING A LATER-DATED PROXY WITH RESPECT TO
THE SAME SHARES, BY FILING WITH THE SECRETARY OF THE SHURGARD REIT A WRITTEN
REVOCATION BEARING A LATER DATE OR BY ATTENDING AND VOTING IN PERSON AT THE
SPECIAL MEETING.
By Order of the Board of Directors,
Kristin H. Stred
SECRETARY
Seattle, Washington
February , 1995
<PAGE>
SHURGARD STORAGE CENTERS, INC.
PROXY STATEMENT/PROSPECTUS
---------------------
This Proxy Statement/Prospectus is being furnished to holders of shares of
Class A Common Stock, par value $.001 per share (together with associated
purchase rights, the "Shurgard Class A Common Stock"), of Shurgard Storage
Centers, Inc., a Delaware corporation (the "Shurgard REIT"), in connection with
the solicitation of proxies by the Shurgard REIT's Board of Directors for use at
the Special Meeting of Shareholders to be held on Thursday, March 2, 1995, at
the Westin Hotel, 1900 Fifth Avenue, Seattle, Washington, commencing at 10:00
a.m., local time, and at any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, shareholders of record of the Shurgard REIT at the
close of business on January 20, 1995, will consider and vote upon (i) a
proposal to approve the merger of Shurgard Incorporated (the "Management
Company") with and into the Shurgard REIT (the "Merger") pursuant to an
Agreement and Plan of Merger dated as of December 19, 1994 (the "Merger
Agreement") between the Shurgard REIT and the Management Company and (ii) such
other business as may properly come before the Special Meeting or any
adjournments or postponements thereof.
Upon consummation of the Merger, the outstanding shares of common stock of
the Management Company (the "Management Company Common Stock") (except shares as
to which dissenters' rights are exercised and not subsequently withdrawn) will
be converted into an aggregate of 1,400,000 shares of Shurgard Class A Common
Stock, subject to certain adjustments based on the market price of the Shurgard
Class A Common Stock and changes to the Management Company's equity from October
31, 1994 to the closing date of the Merger, and certain adjustments for
Management Company shareholders exercising dissenters' rights. In addition,
pursuant to the Merger Agreement, Management Company shareholders will have the
right to receive additional shares of Shurgard Class A Common Stock based on (i)
the extent to which, during the five years following the closing of the Merger,
the Shurgard REIT realizes value as a result of certain transactions relating to
interests in or assets of six limited partnerships acquired by the Shurgard REIT
in the Merger and (ii) the value, at the end of five years or in the event of a
change of control, of any remaining interests in such partnerships as determined
by independent appraisal.
This Proxy Statement/Prospectus constitutes the Prospectus of the Shurgard
REIT filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Shurgard Class A Common Stock issuable in connection with the Merger.
All information concerning the Shurgard REIT contained in this Proxy
Statement/Prospectus has been furnished by the Shurgard REIT, and all
information concerning the Management Company contained in this Proxy
Statement/Prospectus has been furnished by the Management Company.
This Proxy Statement/Prospectus is first being mailed to holders of Shurgard
Class A Common Stock on or about February , 1995.
THE SHARES OF SHURGARD CLASS A COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
FOR A DESCRIPTION OF RISK FACTORS RELATING TO THE MERGER AND THE RELATED
TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, SEE "RISK FACTORS."
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS FEBRUARY , 1995.
<PAGE>
AVAILABLE INFORMATION
The Shurgard REIT is subject to the information and reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
certain regional offices of the Commission located at Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661, and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such information can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
for inspection and copying as set forth above.
The Management Company is not subject to the information and reporting
requirements of the Exchange Act.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE SHURGARD REIT OR THE MANAGEMENT COMPANY. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE SHURGARD REIT OR THE MANAGEMENT COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... ii
SUMMARY................................................................... 1
Results of Operations................................................. 14
RISK FACTORS.............................................................. 16
Risks Relating to the Merger.......................................... 16
Tax Risks to the Shurgard REIT Resulting From the Merger.............. 17
General Real Estate Investment Risks and Self-Storage Industry
Risks................................................................ 19
Other General Risks................................................... 21
SPECIAL MEETING OF SHAREHOLDERS........................................... 22
General............................................................... 22
Matters to Be Considered at the Special Meeting....................... 22
Record Date; Shares Entitled to Vote; Vote Required................... 22
Proxies; Proxy Solicitation........................................... 23
BACKGROUND OF AND REASONS FOR THE MERGER.................................. 24
Background............................................................ 24
Reasons for the Merger; Recommendations of the Special Committee and
the Shurgard REIT Board.............................................. 29
Opinion of Financial Advisor to the Special Committee................. 30
SHURGARD STORAGE CENTERS, INC............................................. 35
Business.............................................................. 35
Competition........................................................... 41
Selected Financial Data............................................... 42
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 42
POLICIES REGARDING INVESTMENT AND CERTAIN OTHER ACTIVITIES................ 46
Acquisition, Development and Investment Policies...................... 46
Financing and Reserve Policies........................................ 48
Conflict of Interest Policies......................................... 50
Policy With Respect to Dividends and Certain Other Activities......... 50
SHURGARD INCORPORATED..................................................... 52
<CAPTION>
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<S> <C>
Management Services................................................... 52
Relationship With the Shurgard REIT................................... 55
Selected Financial Data............................................... 57
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 58
THE MERGER................................................................ 62
Terms of the Merger................................................... 62
Adjustments to Share Consideration.................................... 62
Indemnification Shares................................................ 63
Contingent Shares..................................................... 64
Effective Time of the Merger.......................................... 69
Fractional Shares..................................................... 69
Exchange of Shares of Management Company Common Stock................. 69
Effect on Management Company Stock Option, Employee Benefit and Stock
Plans................................................................ 70
Trading of Shares of Shurgard Class A Common Stock.................... 70
Representations and Warranties........................................ 70
Business of the Management Company Pending the Merger................. 71
No Solicitation....................................................... 71
InterMation Spin-off.................................................. 71
Shurgard Realty Advisors.............................................. 72
Conditions to Consummation of the Merger.............................. 72
Amendment and Waiver; Termination..................................... 73
Regulatory Matters.................................................... 74
Indemnification of Management Company Directors and Officers.......... 74
Resale of Shares of Shurgard Class A Common Stock Issued in the
Merger; Affiliates................................................... 74
Agreement of Management Company Significant Shareholders to Vote in
Favor of the Merger.................................................. 75
Accounting Treatment.................................................. 75
Expenses and Fees..................................................... 75
Rights of Dissenting Management Company Shareholders.................. 75
FEDERAL INCOME TAX CONSEQUENCES........................................... 77
General............................................................... 77
</TABLE>
iii
<PAGE>
<TABLE>
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<S> <C>
Tax Treatment of the Management Company and the Shurgard REIT in the
Merger............................................................... 77
Contingent Shares and Indemnification Shares.......................... 78
Tax Treatment of Management Company Shareholders in the Merger........ 78
Built-in Gain Rules................................................... 79
Failure of the Merger to Qualify...................................... 80
Tax Treatment of the InterMation Spin-off............................. 80
Failure of the InterMation Spin-off to Qualify........................ 81
Consequences of the Merger on the Shurgard REIT's Qualification as a
REIT................................................................. 82
Tax Consequences to Management Company Shareholders Receiving Shurgard
Class A Common Stock................................................. 86
State and Local Taxes................................................. 90
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 90
Appointment of Officers and a Director of the Shurgard REIT........... 90
Acceleration of the Management Company Stock Options.................. 91
Indemnification of Directors and Officers Pursuant to the Merger
Agreement............................................................ 91
Contingent Shares..................................................... 91
COMPARATIVE PER SHARE MARKET INFORMATION.................................. 92
The Shurgard REIT..................................................... 92
The Management Company................................................ 92
DESCRIPTION OF SHURGARD REIT CAPITAL STOCK................................ 92
General............................................................... 92
Common Stock.......................................................... 92
Preferred Stock....................................................... 93
Excess Stock.......................................................... 93
<CAPTION>
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Shareholder Rights Plan............................................... 94
DESCRIPTION OF MANAGEMENT COMPANY CAPITAL STOCK........................... 97
COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE SHURGARD REIT AND OF THE
MANAGEMENT COMPANY....................................................... 97
General............................................................... 97
Changes Principally Attributable to Differences Between the DGCL and
the WBCA............................................................. 97
MANAGEMENT OF THE SHURGARD REIT........................................... 101
Committees of the Shurgard REIT Board................................. 103
Compensation to the Shurgard REIT's Directors and Officers............ 104
EXECUTIVE COMPENSATION.................................................... 105
Compensation Summary.................................................. 105
Option Grants......................................................... 106
Option Exercises and Year-End Values.................................. 106
Certain Relationships and Related Transactions........................ 107
PRINCIPAL SHURGARD REIT SHAREHOLDERS...................................... 108
PRINCIPAL MANAGEMENT COMPANY SHAREHOLDERS................................. 109
LEGAL OPINION............................................................. 110
TAX OPINION............................................................... 110
EXPERTS................................................................... 110
Appendix I -- Agreement and Plan of Merger dated as of December 19, 1994 between
Shurgard Storage Centers, Inc. and Shurgard Incorporated
Appendix II -- Opinion of Alex. Brown & Sons Incorporated
</TABLE>
iv
<PAGE>
SUMMARY
CERTAIN SIGNIFICANT MATTERS DISCUSSED IN THIS PROXY STATEMENT/PROSPECTUS ARE
SUMMARIZED BELOW. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED
IN ALL RESPECTS BY REFERENCE TO THE MORE DETAILED INFORMATION APPEARING OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS (INCLUDING THE
APPENDICES HERETO).
THE COMPANIES
<TABLE>
<S> <C>
SHURGARD STORAGE CENTERS, INC..... The Shurgard REIT is a real estate investment trust (a
"REIT") that owns directly and through joint ventures
159 self-storage properties and two office and business
parks. The Shurgard REIT was formed through the
consolidation on March 1, 1994 of 17 publicly held
limited partnerships (the "Consolidation"). The mailing
address of the Shurgard REIT's principal executive
offices is 1201 Third Avenue, Suite 2200, Seattle,
Washington 98101, and its telephone number is (206)
624-8100. See "SHURGARD STORAGE CENTERS, INC."
SHURGARD INCORPORATED............. The Management Company is a real estate operating compa-
ny specializing in all aspects of the self-storage
industry. The mailing address of the Management
Company's principal executive offices is 1201 Third
Avenue, Suite 2200, Seattle, Washington 98101, and its
telephone number is (206) 624-8100. See "SHURGARD
INCORPORATED."
SPECIAL MEETING OF SHAREHOLDERS
DATE, TIME AND PLACE OF THE
SPECIAL MEETING................... The Special Meeting is to be held on Thursday, March 2,
1995, at 10:00 a.m., local time, at the Westin Hotel,
1900 Fifth Avenue, Seattle, Washington.
PURPOSE OF THE SPECIAL MEETING.... At the Special Meeting, holders of shares of Shurgard
Class A Common Stock will consider and vote upon (i) a
proposal to approve the Merger and (ii) such other
business as may properly come before the Special Meeting
or any adjournments or postponements thereof. The Merger
is being submitted to holders of shares of Shurgard
Class A Common Stock for approval in accordance with
Article 16 of the Shurgard REIT's Certificate of
Incorporation.
RECORD DATE....................... Only holders of record of shares of Shurgard Class A
Common Stock at the close of business on January 20,
1995, are entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements
thereof. On that date, 16,829,283 shares of Shurgard
Class A Common Stock were outstanding and entitled to
vote. As of such record date, current directors and
executive officers of the Shurgard REIT and their
affiliates may be deemed to be the beneficial owners of
less than 1% of the outstanding shares of Shurgard Class
A Common Stock.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
VOTE REQUIRED..................... The affirmative vote of the holders of a majority of the
outstanding shares of Shurgard Class A Common Stock
entitled to vote at the Special Meeting is required to
approve the Merger. Holders of shares of Class B common
stock of the Shurgard REIT (the "Shurgard Class B Common
Stock") are not entitled to vote at the Special Meeting
(the Shurgard Class A Common Stock and the Shurgard
Class B Common Stock are referred to collectively herein
as the "Shurgard REIT Common Stock"). See "SPECIAL
MEETING OF SHAREHOLDERS -- Record Date; Shares Entitled
to Vote; Vote Required."
THE MERGER
GENERAL........................... Upon the closing of the Merger (the "Closing"), the
Management Company will merge with and into the Shurgard
REIT and the Shurgard REIT will become a
self-administered and self-managed real estate
investment trust. Pursuant to the Merger Agreement, the
outstanding shares of Management Company Common Stock
will be converted into an aggregate of 1,400,000 shares
of Shurgard Class A Common Stock, subject to certain
adjustments based on the market price of the Shurgard
Class A Common Stock and changes to the Management
Company's equity from October 31, 1994 to the date of
the Closing (the "Closing Date"), and certain
adjustments for Management Company shareholders
exercising dissenters' rights (the "Share
Consideration"). Such adjustments to the number of
shares of Shurgard Class A Common Stock to be issued
upon the Closing are subject to certain limits. See "THE
MERGER -- Adjustments to Share Consideration." Based on
the capitalization of the Shurgard REIT as of December
31, 1994, assuming no adjustment is made to the
aggregate number of shares of Shurgard Class A Common
Stock to be issued upon the Closing, as a result of the
Merger "affiliates" (as defined under the Securities
Act) of the Management Company will acquire
approximately 7.2% of the outstanding shares of Shurgard
REIT Common Stock as a result of the Merger (excluding
shares of Shurgard REIT Common Stock beneficially owned
by Management Company affiliates prior to the Merger).
CONTINGENT SHARES................. Pursuant to the Merger Agreement, Management Company
shareholders will be entitled to receive additional
shares of Shurgard Class A Common Stock based on (i) the
extent to which, during the five years following the
Closing, the Shurgard REIT realizes value as a result of
certain transactions relating to interests in or assets
of six limited partnerships acquired by the Shurgard
REIT in the Merger and (ii) the value, at the end of
five years or in the event of a change of control, of
any remaining interests in such partnerships as
determined by independent appraisal (the "Contingent
Shares"). See "THE MERGER -- Contingent Shares."
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
TREATMENT OF OPTIONS.............. Pursuant to the Management Company's stock option plan,
holders of outstanding options to purchase shares of
Management Company Common Stock will have the right to
exercise such options immediately before the Closing,
whether or not the vesting requirements for such options
have been satisfied. All outstanding options to purchase
shares of Management Company Common Stock that are not
exercised before the Closing will terminate.
RECOMMENDATIONS OF THE SPECIAL
COMMITTEE AND THE BOARD
OF DIRECTORS...................... A special committee consisting of independent directors
of the Shurgard REIT who are not members of management
or employees of the Management Company (the "Special
Committee") received the Management Company's offer with
respect to the Merger and actively negotiated the terms
of the Merger and the Merger Agreement. In connection
with such consideration, the Special Committee retained
Alex. Brown & Sons Incorporated ("Alex. Brown") to act
as its financial advisor and to deliver a written
opinion as to the fairness of the consideration to be
paid by the Shurgard REIT in the Merger, from a
financial point of view, to the Shurgard REIT. The
Special Committee has unanimously recommended to the
Shurgard REIT's Board of Directors (the "Shurgard REIT
Board") that the Merger Agreement be approved. The
Shurgard REIT Board, after considering the recommenda-
tion of the Special Committee, has determined the Merger
Agreement to be fair to and in the best interests of the
Shurgard REIT and its shareholders and has unanimously
approved the Merger Agreement and the Merger. The
Special Committee and the Shurgard REIT Board recommend
that the shareholders of the Shurgard REIT approve the
Merger. The recommendations of the Special Committee and
the Shurgard REIT Board are based upon a number of
factors discussed in this Proxy Statement/Prospectus.
See "BACKGROUND OF AND REASONS FOR THE MERGER."
OPINION OF FINANCIAL ADVISOR...... Alex. Brown has delivered its written opinion, dated
December 19, 1994, to the Special Committee to the
effect that, as of the date of its opinion, the
consideration to be paid by the Shurgard REIT to the
shareholders of the Management Company pursuant to the
Merger Agreement is fair, from a financial point of
view, to the Shurgard REIT. A copy of the written
opinion of Alex. Brown, which sets forth the assumptions
made, matters considered and limits of its review, is
attached to this Proxy Statement/Prospectus as Appendix
II, and should be read in its entirety. See "BACKGROUND
OF AND REASONS FOR THE MERGER -- Opinion of Financial
Advisor to the Special Committee."
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
EFFECTIVE TIME OF THE MERGER...... Promptly following the satisfaction or waiver (where
permissible) of the conditions to the Merger, the Merger
will be consummated and become effective on the date and
at the time the certificate of merger to be filed
pursuant to the Delaware General Corporation Law (the
"DGCL") and the articles of merger to be filed pursuant
to the Washington Business Corporation Act (the "WBCA")
are duly filed with the Secretary of State of the state
of Delaware and of the state of Washington,
respectively, or such later date and time as may be
specified in such certificate of merger and articles of
merger (the "Effective Time"). See "THE MERGER -- Effec-
tive Time of the Merger" and "-- Conditions to Consumma-
tion of the Merger."
FRACTIONAL SHARES................. No fractional shares of Shurgard Class A Common Stock
will be issued in the Merger. In lieu thereof, the
Shurgard REIT will pay to any holder otherwise entitled
to a fractional share the cash value thereof. See "THE
MERGER -- Fractional Shares."
EXCHANGE OF CERTIFICATES IN THE
MERGER............................ As soon as reasonably practicable after the Effective
Time, the Shurgard REIT will mail a transmittal form and
instructions to each holder of record of certificates
that immediately prior to the Effective Time represented
outstanding shares of Management Company Common Stock,
which form and instructions are to be used in forwarding
such certificates for surrender and exchange for (i)
certificates representing that number of whole shares of
Shurgard Class A Common Stock that such holder has the
right to receive pursuant to the Merger and (ii) cash
for any fractional share of Shurgard Class A Common
Stock to which such holder otherwise would be entitled.
See "THE MERGER -- Exchange of Shares of Management
Company Common Stock."
TRADING OF SHARES OF SHURGARD REIT
COMMON STOCK ON THE NASDAQ
NATIONAL MARKET................... The shares of Shurgard Class A Common Stock to be issued
in the Merger have been approved for trading on the
Nasdaq National Market, subject to official notice of
issuance.
BUSINESS OF THE MANAGEMENT
COMPANY PENDING THE MERGER........ The Management Company has agreed that, prior to the Ef-
fective Time or earlier termination of the Merger
Agreement, except as permitted by the Merger Agreement,
the Management Company will pursue its business in the
ordinary course and will not engage in any of a number
of actions specified in the Merger Agreement. See "THE
MERGER -- Business of the Management Company Pending the
Merger."
</TABLE>
4
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<TABLE>
<S> <C>
NO SOLICITATION................... The Shurgard REIT and the Management Company have each
agreed that before the Effective Time it will not
initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any
proposal or offer with respect to a merger, acquisition
or similar transaction involving, or any purchase of all
or any significant portion of the assets or any equity
securities of, such party. See "THE MERGER -- No
Solicitation."
INDEMNIFICATION SHARES............ Pursuant to the Merger Agreement, subject to certain
exceptions, 10% of the shares of Shurgard Class A Common
Stock issuable upon the Closing will be deposited in
escrow. While the indemnification escrow is in place,
the Shurgard REIT will be entitled to recover to the
extent of such shares, subject to certain exceptions and
thresholds, the full dollar amount of losses incurred as
a result of (i) any breach of representation or warranty
made by the Management Company, (ii) any breach by the
Management Company of any covenant or agreement
contained in the Merger Agreement, (iii) any liability
for taxes assessed resulting from a determination that
the InterMation Spin-off (as defined below) does not
qualify for tax-free treatment, (iv) any overstatement
of Management Company equity reflected in the final
statement of assets and liabilities of the Management
Company delivered at the Closing, and (v) liabilities
and associated costs that may arise with respect to
general partnership interests. The indemnification
escrow will remain in place for three years from the
Closing, except that the Shurgard REIT's rights to
indemnification with respect to matters other than
employee benefit and retirement plans and certain tax
liabilities will terminate after two years. Following
such three-year period, any remaining shares in escrow
will be returned to the Management Company shareholders.
Notwithstanding the foregoing, the Shurgard REIT will
have recourse against such shareholders, severally, for
tax liabilities associated with the InterMation Spin-off
arising prior to expiration of the applicable statute of
limitations, limited in amount to the product of the
number of shares released and the Market Value (as de-
fined below) as of the Closing. An additional 5% of the
shares of Shurgard Class A Common Stock issuable upon
the Closing will be deposited into escrow, subject to
(i) the audit by Deloitte & Touche LLP of the closing
statement of assets and liabilities and (ii) the receipt
of an anticipated tax refund due the Management Company
as a result of its short taxable year ending as of the
Effective Time. See "THE MERGER -- Indemnification
Shares."
CONDITIONS OF THE MERGER.......... The Closing of the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of certain
conditions set forth in the Merger Agreement. See "THE
MERGER -- Conditions to Consummation of the Merger."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
TERMINATION....................... The Merger Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval
of matters presented in this Proxy Statement/Prospectus
by the Shurgard REIT shareholders, by mutual written
consent of the Shurgard REIT and the Management Company
or by either the Shurgard REIT or the Management Company
under certain circumstances, including, (i) if any
required vote of the Shurgard REIT shareholders or the
Management Company shareholders has not been obtained,
(ii) if the Merger has not been consummated by May 25,
1995, and (iii) under certain other circumstances. See
"THE MERGER -- Amendment and Waiver; Termination."
TAX TREATMENT OF MERGER........... The Shurgard REIT has obtained an opinion from counsel
that the Merger will constitute a reorganization for
federal income tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code"), and, accordingly,
that among other things, no gain or loss will be
recognized by the Management Company or the Shurgard
REIT as a result of the Merger. See "FEDERAL INCOME TAX
CONSEQUENCES -- Tax Treatment of the Management Company
and the Shurgard REIT in the Merger." The Shurgard REIT
and the Management Company believe that the Management
Company shareholders should not recognize gain or loss
as a result of the conversion of Management Company
Common Stock into shares of Shurgard Class A Common
Stock (except with respect to any cash received in lieu
of fractional shares of Shurgard Class A Common Stock,
with respect to any dissenting shares and possible
imputed interest on Contingent Shares when and as
received); however, they are urged to consult their own
tax advisors as to the specific tax consequences to them
of the Merger. See "FEDERAL INCOME TAX CONSEQUENCES --
Tax Treatment of Management Company Shareholders in the
Merger."
REGULATORY MATTERS................ In connection with the Merger, the Shurgard REIT and the
Management Company are required to file notifications
with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the
"Antitrust Division") pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Consummation of the Merger is conditioned upon,
among other things, expiration of the waiting period
under the HSR Act. The parties to the Merger are not
aware of any other regulatory approvals required to
consummate the Merger. See "THE MERGER -- Regulatory
Matters."
ACCOUNTING TREATMENT.............. The Merger will be accounted for using the purchase
method under generally accepted accounting principles
for accounting and financial reporting purposes.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
APPROVAL OF MERGER AGREEMENT
BY MANAGEMENT COMPANY
SHAREHOLDERS...................... The consummation of the Merger is subject to the
approval of the Merger Agreement by Management Company
shareholders. Certain significant shareholders of the
Management Company, who had the power to vote shares
representing an aggregate of approximately 80% of the
outstanding shares of Management Company Common Stock as
of December 31, 1994, have agreed to vote in favor of
the Merger Agreement. Accordingly, approval of the
Merger Agreement by Management Company shareholders is
assured. See "THE MERGER -- Agreement of Management
Company Significant Shareholders to Vote in Favor of the
Merger."
RESTRICTIONS ON RESALE OF SHARES
OF SHURGARD CLASS A COMMON STOCK
ISSUED IN THE MERGER.............. Pursuant to the Merger Agreement, certain significant
shareholders of the Management Company have agreed not
to sell or otherwise dispose of more than 40% of the
Share Consideration and the Contingent Shares received
by them for a two-year period commencing on the Closing
Date. In addition, shares issued to Management Company
shareholders who are deemed to be "affiliates" of the
Management Company for purposes of Rule 145 under the
Securities Act are not transferable except in compliance
with the Securities Act, including limitations on volume
of sales. Approximately 82% of the shares of Shurgard
Class A Common Stock to be issued pursuant to the Merger
will be held by such affiliates. See "THE MERGER --
Resale of Shares of Shurgard Class A Common Stock Issued
in the Merger; Affiliates."
MANAGEMENT OF THE SHURGARD REIT
FOLLOWING THE MERGER.............. As a result of the Merger, the size of the Shurgard REIT
Board will be expanded by one, with Charles K. Barbo to
serve as the Chairman of the Board. In addition, Mr.
Barbo will be appointed as President and Chief Executive
Officer of the Shurgard REIT and Harrell L. Beck and
Kristin H. Stred will each be appointed as a Senior Vice
President. Mr. Beck will also retain his current
positions of Treasurer and Chief Financial Officer of
the Shurgard REIT, and Ms. Stred will retain her current
positions of Secretary and General Counsel of the
Shurgard REIT. The other current executive officers of
the Shurgard REIT will each remain in their respective
positions after the Merger. See "MANAGEMENT OF THE
SHURGARD REIT."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
INTERESTS OF CERTAIN PERSONS IN
THE MERGER........................ The current executive officers of the Shurgard REIT,
Messrs. Beck, Grant and Rowe and Ms. Stred, also
currently serve as executive officers of the Management
Company. As described above, these individuals are
expected to continue to serve as executive officers of
the Shurgard REIT following the Merger. As of December
31, 1994, the current executive officers of the Shurgard
REIT beneficially owned approximately 6.7% of the
outstanding shares of Management Company Common Stock.
See "PRINCIPAL MANAGEMENT COMPANY SHAREHOLDERS." Holders
of outstanding options to purchase shares of Management
Company Common Stock will have the right to exercise
such options immediately prior to the Closing, whether
or not the vesting requirements for such options have
been satisfied. The executive officers of the Shurgard
REIT hold options to purchase an aggregate of 74,500
shares of Management Company Common Stock, the vesting
of 61,168 of which will be accelerated. The Shurgard
REIT has also agreed that it will provide for limitation
of director liability and indemnification of the
Management Company's directors, officers, employees and
agents at least to the extent that such persons are
entitled thereto under the Management Company's charter
documents. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER."
RISK FACTORS...................... In considering the Merger and the Merger Agreement,
Shurgard REIT shareholders should consider the risks
presented by the Merger, including certain conflicts of
interest that executive officers and directors have with
respect to the Merger and certain tax risks to the
Shurgard REIT resulting from the Merger. See "RISK
FACTORS."
DISSENTERS' RIGHTS................ Holders of shares of Shurgard Class A Common Stock will
not be entitled to dissenters' rights as a result of the
Merger.
COMPARATIVE RIGHTS The rights of shareholders of the Management Company, a
OF SHAREHOLDERS................... Washington corporation, differ in certain respects from
the rights of shareholders of the Shurgard REIT, a
Delaware corporation, as a result of differences between
the WBCA and the DGCL and differences between the
charter documents of the Shurgard REIT and the
Management Company. See "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF THE SHURGARD REIT AND OF THE MANAGEMENT
COMPANY." In addition, the Shurgard REIT has adopted a
shareholder rights plan pursuant to which shareholders
have rights to purchase shares of capital stock of the
Shurgard REIT in certain circumstances. See "DESCRIPTION
OF SHURGARD REIT CAPITAL STOCK."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
ACTION TAKEN BY MANAGEMENT COMPANY PRIOR TO THE MERGER
INTERMATION SPIN-OFF AND
DISPOSITION OF SRA................ Prior to the Closing, the Management Company will
dispose of certain of its assets that are unrelated to
the property management, real estate and advisory
services that it performs. The Management Company
currently owns and operates a commercial records storage
business through a subsidiary, InterMation, Inc.
("InterMation"). This subsidiary will be spun-off to
shareholders of the Management Company (the "InterMation
Spin-off"). In addition, Shurgard Realty Advisors, Inc.
("SRA"), which is currently a wholly owned subsidiary of
the Management Company, will be sold by the Management
Company. Unless otherwise indicated, the financial and
other information relating to the Management Company
contained in this Proxy Statement/Prospectus has been
adjusted to reflect only the core business of the
Management Company, which will be acquired by the
Shurgard REIT in the Merger. Accordingly, references to
the "Management Company" and to the "Management Company
Core Business" are to the Management Company as it will
be constituted at the Effective Time. See "THE MERGER --
InterMation Spin-off" and "-- Shurgard Realty Advisors."
</TABLE>
9
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited post-Merger pro forma balance sheet as of September
30, 1994 combines the historical Shurgard REIT balance sheet with the historical
Management Company statement of assets and liabilities as if the Merger had
occurred on September 30, 1994. The unaudited post-Merger pro forma statements
of income for the year ended December 31, 1993 and the nine months ended
September 30, 1994 combine the pro forma Shurgard REIT statements of income
(which consist of the historical statements adjusted to reflect operations as if
the Consolidation had occurred on January 1, 1993) with the pro forma Management
Company statements of revenues and expenses (which consist of the historical
statements adjusted to reflect the acquisition of the Daly City storage center
as if such acquisition had occurred on January 1, 1993) as if the Merger had
occurred on January 1, 1993. These statements are prepared on the basis of
accounting for the Merger as a purchase and should be read in conjunction with
all financial statements included elsewhere in this Prospectus/Proxy Statement.
The following unaudited pro forma combined financial information is not
necessarily indicative of actual or future operating results or financial
position that would have occurred or will occur upon consummation of the Merger.
POST-MERGER BALANCE SHEET
SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHURGARD
REIT MANAGEMENT POST-MERGER
PRO FORMA COMPANY ADJUSTMENTS PRO FORMA
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Assets:
Storage centers........................................... $ 451,799 $ 7,089 $ 576 (a) $ 459,464
Cash and cash equivalents................................. 19,299 888 (888)(b) 19,299
Investment in joint ventures.............................. 2,450 2,450
Other assets.............................................. 11,226 3,476 24,411 (c) 38,147
(966)(d)
----------- ------------- ------------- -----------
Total assets............................................ $ 484,774 $ 11,453 $ 23,133 $ 519,360
----------- ------------- ------------- -----------
----------- ------------- ------------- -----------
Liabilities and shareholders' equity:
Accounts payable and other liabilities.................... $ 10,539 $ 1,279 $ (966)(d) $ 11,370
518 (e)
Lines of credit........................................... 30,000 2,112 (b) 32,112
Notes payable............................................. 125,121 7,275 132,396
----------- ------------- ------------- -----------
Total liabilities....................................... 165,660 8,554 1,664 175,878
----------- ------------- ------------- -----------
Shareholders' equity........................................ 316,348 2,899 (3,000)(b) 340,716
24,469 (c)
Retained earnings........................................... 2,766 2,766
----------- ------------- ------------- -----------
319,114 2,899 21,469 343,482
----------- ------------- ------------- -----------
Total liabilities and shareholders' equity.............. $ 484,774 $ 11,453 $ 23,133 $ 519,360
----------- ------------- ------------- -----------
----------- ------------- ------------- -----------
<FN>
- ------------------------------
(a) Represents management's estimate to adjust the book value of the Daly City
storage center to fair market value. The adjustment was computed by
capitalizing the annualized operating results of the storage center as of
September 30, 1994 at 10%, resulting in an estimated market value of
$7,665,000.
(b) Represents $3 million committed to subsidiaries as of September 30, 1994;
such subsidiaries are not being acquired by the Shurgard REIT in the
Merger.
(c) Represents adjustments for excess of purchase price over tangible assets
and liabilities to be recognized in connection with the Merger, assuming
the price of Shurgard Class A Common Stock is $18.78 per share at the
Closing (which was the Market Value of the Shurgard Class A Common Stock on
the date the Merger Agreement was executed). After giving effect to the
adjustment based on the equity of the Management Company required in the
Merger Agreement, the number of shares to be issued to the Management
Company is 1,322,894 shares. This adjustment reflects the Management
Company's estimate of (i) the investment in subsidiaries described in
footnote (b) above, (ii) bonuses of cash and shares of Management Company
Common Stock to be paid prior to the Merger, (iii) the results of
operations from October 1, 1994 through the Closing and (iv) the amount of
an anticipated federal income tax refund.
(d) Eliminates intercompany receivable/payable for management fees and
reimbursable expenses.
(e) Accrues lender's 90% interest in any accretion in value of the Daly City
storage center. The lender is entitled to 90% of any realized gain on the
sale of the storage center (90% of $576,000 is $518,000; see footnote (a)
above). This payment, however, is not triggered by the Merger, but would be
payable if the property were sold to a third party.
</TABLE>
10
<PAGE>
POST-MERGER CONSOLIDATION
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHURGARD MANAGEMENT
REIT COMPANY POST-MERGER
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues....................... $58,169 $ 776 $ -- $58,945
Management fees....................... 5,419 (3,529)(a) 1,890
Equity in earnings of affiliated
partnerships......................... 226 226
Acquisition and development fees...... 26 (14)(a) 12
Reimbursements from affiliates........ 1,798 (1,204)(a) 594
Interest income....................... 608 81 689
---------- ---------- ----------- -----------
Total revenues.................... 58,777 8,326 (4,747) 62,356
Expenses:
Operating............................. 13,530 2,763 16,293
Property management fees.............. 3,480 49 (3,529)(a)
Depreciation and amortization......... 9,740 189 646(b) 10,575
Real estate taxes..................... 5,250 5,250
Interest.............................. 7,931 528 143(c) 8,602
General and administrative............ 2,133 2,797 (1,218)(a) 3,712
---------- ---------- ----------- -----------
Total expenses.................... 42,064 6,326 (3,958) 44,432
---------- ---------- ----------- -----------
Net income before extraordinary item.... $16,713 $2,000 $ (789) $17,924
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Per share data:
Net income before extraordinary
item................................. $ 0.98(d) $ 0.92(e) $ 0.98(f)
<FN>
- ------------------------
(a) Subsequent to the Merger, the Shurgard REIT will be self-administered and,
as such, will not pay management fees or reimbursements to the Management
Company. Expenses relating to personnel and general and administrative
costs now recognized by the Management Company, to the extent not
reimbursed by third parties, will be the responsibility of the Shurgard
REIT.
(b) Adjustment represents the amortization of the excess of the purchase price
over tangible assets and additional depreciation on the Daly City storage
center to be recognized in connection with the Merger over the estimated
useful life of 29 years.
(c) Adjustment represents interest at 9% on the line of credit to be assumed in
connection with the Merger.
(d) Per share data is calculated using the actual shares outstanding since the
Consolidation (16,983,887 shares).
(e) Per share data is calculated by dividing Management Company financial
information, net of adjustments shown to give effect to the Merger, by the
net increase in shares of Shurgard REIT Common Stock resulting from the
Merger (1,322,894 shares). See footnote (c) to the Post-Merger Balance
Sheet above.
(f) Per share data is calculated using the aggregated number of shares of (d)
plus (e) above.
</TABLE>
11
<PAGE>
POST-MERGER CONSOLIDATION
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHURGARD
REIT MANAGEMENT POST-MERGER
PRO FORMA COMPANY ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues....................... $72,310 $ 969 $ -- $73,279
Management fees....................... 6,447 (4,317)(a) 2,130
Equity in earnings of affiliated
partnerships......................... 243 243
Acquisition and development fees...... 86 86
Reimbursements from affiliates........ 1,466 (708)(a) 758
Interest income....................... 590 124 714
---------- ---------- ----------- -----------
Total revenues.................... 72,900 9,335 (5,025) 77,210
Expenses:
Operating............................. 16,840 3,803 20,643
Property management fees.............. 4,317 (4,317)(a)
Depreciation and amortization......... 12,887 291 861(b) 14,039
Real estate taxes..................... 7,068 7,068
Interest.............................. 10,303 588 190(c) 11,081
General and administrative............ 2,390 3,492 (708)(a) 5,174
---------- ---------- ----------- -----------
Total expenses.................... 53,805 8,174 (3,974) 58,005
---------- ---------- ----------- -----------
Net income.............................. $19,095 $1,161 $(1,051) $19,205
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Per share data:
Net income............................ $ 1.12(e) $ 0.08(f) $ 1.05(g)
<FN>
- ------------------------
(a) Subsequent to the Merger, the Shurgard REIT will be self-administered and,
as such, will not pay management fees or reimbursements to the Management
Company. Expenses relating to personnel and general and administrative
costs now recognized by the Management Company, to the extent not
reimbursed by third parties, will be the responsibility of the Shurgard
REIT.
(b) Adjustment represents the amortization of the excess of the purchase price
over tangible assets and additional depreciation on the Daly City storage
center to be recognized in connection with the Merger over the estimated
useful life of 29 years.
(c) Adjustment represents interest at 9% on the line of credit to be assumed in
connection with the Merger.
(d) Per share data is calculated using the actual shares outstanding since the
Consolidation (16,983,887 shares).
(e) Per share data is calculated by dividing Management Company financial
information, net of adjustments shown to give effect to the Merger, by the
net increase in shares of Shurgard REIT Common Stock resulting from the
Merger (1,322,894 shares). See footnote (c) to the Post-Merger Balance
Sheet above.
(f) Per share data is calculated using the aggregated number of shares of (d)
plus (e) above.
</TABLE>
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents comparative per share data for the Shurgard
REIT (on a historical and a pro forma basis) and for the Management Company (on
a historical and a pro forma equivalent basis) based upon the historical
consolidated financial statements of the Shurgard REIT and of the Management
Company. The pro forma combined information is not necessarily indicative of
actual or future operating results or the financial position that would have
occurred or will occur upon consummation of the Merger. The information
presented below should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and the separate historical consolidated financial
statements of the Shurgard REIT and of the Management Company included elsewhere
in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT OR FOR NINE
AT OR FOR YEAR ENDED MONTHS ENDED
DECEMBER 31, 1993 SEPTEMBER 30, 1994
--------------------- -------------------
<S> <C> <C>
THE SHURGARD REIT:
Historical:
Net income before extraordinary item................................. $ 1.12(a) $ 0.98(a)
Cash distributions................................................... 1.50(a)(b) 1.25(a)(b)
Book value........................................................... 19.78(a) 18.79
Post-Merger Pro Forma:
Net income........................................................... 1.05(c) 0.98(c)
Cash distributions................................................... 1.45(b) 1.25(b)
Book value........................................................... N/A 18.76(c)
THE MANAGEMENT COMPANY:
Historical (e):
Net income........................................................... 0.28 0.48
Cash distributions................................................... -- --
Book value........................................................... 0.74 0.70
Pro Forma Equivalent(f):
Net income........................................................... 0.08 0.92
Cash distributions................................................... -- --
Book value........................................................... N/A 18.42
<FN>
- ------------------------------
(a) Pro forma net income before extraordinary item for the year ended December
31, 1993 and the nine months ended September 30, 1994, as well as book
value at December 31, 1993, are calculated as if the Consolidation had
occurred and the current debt structure existed on January 1, 1994, divided
by the current number of outstanding shares of Shurgard REIT Common Stock
(16,983,887 shares).
(b) Cash distributions per share is calculated by multiplying funds from
operations ("FFO") by 80% (the ratio of actual Shurgard REIT cash
distributions for the nine months ended September 30, 1994 compared to the
actual FFO for the same period) and dividing the result by the
corresponding number of shares outstanding. FFO is defined as net income
before extraordinary items (determined in accordance with generally
accepted accounting principles) plus depreciation and amortization, plus or
minus nonrecurring income and expenses, and other noncash items. FFO should
not be considered as an alternative to net income (determined in accordance
with generally accepted accounting principles), as an indication of the
Shurgard REIT's financial performance or cash flow from operating
activities (determined in accordance with generally accepted accounting
principles), or as a measure of liquidity, nor is it necessarily indicative
of sufficient cash flow to fund all of the Shurgard REIT's needs.
Shurgard REIT cash distributions are generally characterized as dividends
to the extent of the Shurgard REIT's accumulated and current earnings and
profits as calculated for federal income tax purposes. Any distributions in
excess of such earnings and profits are treated as a return of capital to
the extent of a shareholder's basis in his or her shares of Shurgard REIT
Common Stock and as capital gain thereafter. The actual distributions
during the year in which the Merger occurs will be increased as necessary
to distribute the accumulated earnings and profits of the Management
Company acquired by the Shurgard REIT in the Merger as well as all other
current prior accumulated earnings and profits of the Shurgard REIT. See
"FEDERAL INCOME TAX CONSEQUENCES -- Consequences of the Merger on the
Shurgard REIT's Qualification as a REIT -- Distributions of Accumulated
Earnings and Profits Attributable to Non-REIT Years."
(c) The pro forma combined financial data give effect to the Merger by
combining the financial statement data of the Shurgard REIT and of the
Management Company using the purchase method of accounting. Total
post-Merger outstanding shares (18,306,781 shares) are assumed to be
currently outstanding shares of the Shurgard REIT and the number of shares
expected to be issued to Management Company shareholders in connection with
the Merger.
(d) Amounts represent the pro forma financial information of the Management
Company, as if the Daly City storage center had been acquired on January 1,
1993, divided by the number of outstanding shares of Shurgard Incorporated
(4,157,986 shares as of September 30, 1994).
(e) Amounts represent the pro forma financial information of the Management
Company, net of adjustments to give effect to the Merger, divided by the
1,322,894 shares of Shurgard Class A Common Stock to be issued in
connection with the Merger. See footnote (c) to the Post-Merger Balance
Sheet above.
</TABLE>
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POST-MERGER OPERATIONS
The following is a discussion of operations after the proposed merger of the
Management Company into the Shurgard REIT as of and for the period ended
September 30, 1994:
Upon the Merger, the Shurgard REIT will be a fully integrated, self-advised,
real estate operating company that specializes in all aspects of the
self-storage industry. The Shurgard REIT will own the rights to the Shurgard
name, throughout the United States, and proprietary operating systems.
Additionally, the Shurgard REIT's key personnel will have in excess of 50 years
of combined experience in the self-storage industry.
The Shurgard REIT's total assets will increase $34,586,000 or 7.1% from
$484,774,000 pre-Merger to $519,360,000 post-Merger. The increase in total
assets is the result of acquiring a storage center in northern California (Daly
City), which the Management Company financed through a non-recourse
participating mortgage with a commercial insurance company. The estimated fair
market value of the storage center is $7,665,000. The remaining $26,921,000
represents primarily the excess of purchase price over tangible assets to be
recognized in connection with the Merger.
Total liabilities will increase $10,218,000 or 6.2% from $165,660,000
pre-Merger to $175,878,000 post-Merger. This increase is primarily the result of
the participating mortgage on the Daly City storage center. The note carries a
fixed interest of 8% plus 90% of the excess cash flow.
At September 30, 1994, the Company accrued a $518,000 liability for 90% of
the increase related to the participating mortgage on the Daly City storage
center. The lender is entitled to 90% of any realized gain on sale. The payment,
however, is not triggered by the Merger, but would be payable if the property
were sold to a third party. Additionally, the Shurgard REIT anticipates
refinancing all outstanding borrowings on the Management Company's line of
credit. Currently the Shurgard REIT has lines of credit totaling $100,000,000
with $42,000,000 outstanding. At September 30, 1994, as a result of the Merger,
the Shurgard REIT debt to total assets would decline from 32% pre-Merger to
31.7% post-Merger, and its debt to equity would decline from 48.6% pre-Merger to
47.9% post-Merger.
As a result of the Merger, the Shurgard REIT would assume various operating
leases entered into by the Management Company for corporate and district
offices. Future minimum lease payments under these non-cancelable operating
leases, which continue through 1998, total $1,488,000.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994 PRE-MERGER COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1994 POST-MERGER. Net income before extraordinary item
increased $1,211,000 or 7.2% from $16,713,000 pre-Merger to $17,924,000
post-Merger. This increase is primarily the result of a $1,238,000 increase in
net income before extraordinary item attributable to the elimination of
management fees charged by the Management Company, reduced by the substitution
of the Management Company's actual direct cost to manage these properties, a
$816,000 increase in net income before extraordinary item attributable to the
Management Company's third-party management services, and a $835,000 increase in
depreciation and amortization primarily due to the amortization of the excess of
the purchase price over tangible assets contributed by the Management Company.
Property net operating income (rental income less cost of operations)
increased $1,493,000 or 4.2% as a result of the elimination of management fees
on storage centers owned by the Shurgard REIT and the acquisition of the Daly
City storage center previously owned by the Management Company. Rental revenues
post-Merger for the nine months ended September 30, 1994 increased $776,000 as a
result of the Daly City self-storage center owned by the Management Company.
The Shurgard REIT's revenues are generated principally through the operation
of its self-storage centers. Upon the Merger, the Shurgard REIT will also
provide property management and administrative services to 91 additional
self-storage properties, some affiliated and others unaffiliated with the
Management Company. The fees generated from these services for the nine months
ended September 30, 1994 included management fees ($1,890,000), equity in
earnings of affiliated partnerships
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($226,000) and reimbursements ($594,000). Upon the Merger, the Shurgard REIT's
rental revenues from owned storage centers will represent approximately 96% of
its total revenues and the remaining 4% of total revenues will be from
properties managed by the Shurgard REIT.
The Shurgard REIT will receive management fees generally equal to 6% of
revenues generated by the properties it manages. The 91 properties the Shurgard
REIT will manage after the Merger are principally located in the markets where
the Shurgard REIT currently has existing operations. These properties were
acquired by various public and private programs previously sponsored by the
Management Company, and by unaffiliated owners. The Shurgard REIT will become
the general partner in two programs owning 11 properties and will have a limited
partner interest in the general partnership of five programs owning 43
properties. The programs in which the Management Company, directly or
indirectly, owned a partner interest had total assets as of September 30, 1994
of $9.5 to $38.1 million, indebtedness levels of $0 to $12.3 million, and (with
the exception of one program, which is not yet making distributions)
distributions to its limited partners of 6.5% to 10.0% annualized. In the
future, management fees are expected to grow consistently with the Shurgard
REIT's existing same store portfolio, with most of this growth anticipated to
come from increasing rates.
Equity in earnings of affiliated partnerships relates to the limited and
general partnership interests that the Management Company has in six programs.
Under the partnership agreements, the Shurgard REIT will be entitled to 1% to 5%
of the available cash flow from the various partnerships.
Reimbursements from affiliates relates to certain administrative cost
reimbursable by the Management Company's affiliated programs. These
reimbursements include primarily asset management and legal services performed
on behalf of the affiliated programs.
Under the terms of its advisory agreement, the Management Company is
entitled to a 50 basis point fee for properties acquired or developed on behalf
of the Shurgard REIT. This fee will be eliminated upon the Merger.
Property operating expenses decreased $717,000 or 3.2% as a result of the
elimination of management fees and the substitution of the Management Company's
actual cost to operate the properties owned by the Shurgard REIT.
Depreciation and amortization increased $835,000 or 8.6% from $9,740,000
pre-Merger to $10,575,000 post-Merger. This increase is the result of the
depreciation related to the Daly City storage center and the amortization of the
excess of the purchase price over the Management Company's tangible assets.
Interest expense increased $671,000 or 8.5% from $7,931,000 pre-Merger to
$8,602,000 post-Merger. Approximately 80% of the increase is related to the
participating mortgage on the Daly City storage center. This mortgage carries
interest at 8% plus 90% of the excess cash flow. As a result, the interest
expense attributable to the Daly City property will vary based upon the annual
operating results of the storage center. The remaining 20% of the increase in
interest expense is due to the interest expense on the outstanding borrowings
under the Management Company's line of credit.
General and administrative expenses increased $1,579,000 or 74% from
$2,133,000 pre-Merger to $3,712,000 post-Merger. This increase is attributable
to the cost of managing affiliated and unaffiliated properties.
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RISK FACTORS
In considering the Merger and the Merger Agreement, the Shurgard REIT
shareholders and the Management Company shareholders should take into account
the following:
RISKS RELATING TO THE MERGER
OWNERSHIP OF SHURGARD REIT COMMON STOCK BY EXECUTIVE OFFICERS AND
DIRECTORS. Following the Merger, executive officers and directors of the
Shurgard REIT will own an aggregate of 788,602 shares of Shurgard Class A Common
Stock (assuming exercise of all outstanding options to purchase Management
Company Common Stock), which will constitute 3.6% of the outstanding shares of
Shurgard Class A Common Stock, and 76,529 shares of Shurgard Class B Common
Stock, which constitutes 49.5% of the outstanding shares of Shurgard Class B
Common Stock. See "PRINCIPAL SHURGARD REIT SHAREHOLDERS." In addition, such
individuals may be issued additional shares of Shurgard Class A Common Stock in
the future as Contingent Shares.
CERTAIN MANAGEMENT COMPANY EXECUTIVE OFFICERS AND DIRECTORS TO SERVE AS
SHURGARD REIT EXECUTIVE OFFICERS AND DIRECTORS FOLLOWING THE MERGER. Certain
current executive officers and directors of the Management Company will serve as
executive officers and directors of the Shurgard REIT following the Merger. As a
result of the Merger, Charles K. Barbo, who is currently Chairman of the Board,
President and Chief Executive Officer of the Management Company, will be
appointed as the Shurgard REIT's Chairman of the Board, President and Chief
Executive Officer and Harrell L. Beck and Kristin H. Stred, who are each
currently executive officers of the Management Company, will each be appointed
as a Senior Vice President of the Shurgard REIT. Mr. Beck will also retain his
current positions of Treasurer and Chief Financial Officer of the Shurgard REIT,
and Ms. Stred will retain her current positions of Secretary and General Counsel
of the Shurgard REIT.
BENEFITS OF THE MERGER TO CURRENT EXECUTIVE OFFICERS OF THE SHURGARD
REIT. The current executive officers of the Shurgard REIT are shareholders of
the Management Company and currently also serve as executive officers of the
Management Company. In connection with the Merger, these executive officers will
receive certain benefits. Specifically, immediately prior to the Merger the
vesting of all outstanding options to purchase shares of Management Company
Common Stock will be accelerated. The current executive officers of the Shurgard
REIT expect to exercise stock options to purchase 74,500 shares of Management
Company Common Stock immediately prior to the Merger (the vesting of 61,168 of
which will be accelerated), at a weighted average price of $3.34 per share. The
fair market value of the shares of Shurgard Class A Common Stock to be received
by current executive officers of the Shurgard REIT upon the Closing in exchange
for their shares of Management Company Common Stock (including shares acquired
upon the exercise of options), based on the closing price of the Shurgard REIT
Common Stock as of January 23, 1995 ($22.25 per share), is $2,866,890. The
Shurgard REIT has also agreed that it will provide for limitation of director
liability and indemnification of the Management Company's directors, officers,
employees and agents at least to the extent that such persons are entitled
thereto under the Management Company's Articles of Incorporation and By-Laws.
See "INTERESTS OF CERTAIN PERSONS IN THE MERGER."
SHURGARD REIT SUBJECT TO EMPLOYER LIABILITIES. The Shurgard REIT does not
currently directly employ any employees. As a result of the Merger, the Shurgard
REIT will directly employ persons that are currently employees of the Management
Company. As an employer, the Shurgard REIT will be subject to those potential
liabilities that are commonly faced by employers, such as workers' disability
and compensation claims, potential labor disputes and other employee-related
grievances.
REVENUE STREAM FROM MANAGEMENT AGREEMENTS SUBJECT TO CANCELLATION. As a
result of the Merger, the Shurgard REIT will become the property manager of
certain properties owned by third parties which have contracted with the
Management Company to provide property management services. The Shurgard REIT
will succeed to all of the Management Company's rights and obligations under
such management and related agreements. These agreements may generally be
terminated by the property owner upon short notice, with or without cause. There
can be no assurance that these
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agreements will not be terminated or that the Shurgard REIT will continue to
realize revenues from such agreements at levels comparable to those realized by
the Management Company. See "SHURGARD INCORPORATED -- Management Services."
TAX RISKS TO THE SHURGARD REIT RESULTING FROM THE MERGER
POSSIBLE TREATMENT OF MERGER AS A TAXABLE EVENT. In connection with the
Merger, Perkins Coie, counsel to the Shurgard REIT, has delivered an opinion
that, among other things, for federal income tax purposes under current law (i)
the Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code and (ii) no gain or loss will be recognized by the Shurgard
REIT or the Management Company in the Merger. See "FEDERAL INCOME TAX
CONSEQUENCES -- Tax Treatment of the Management Company and the Shurgard REIT in
the Merger."
This opinion will be based on the accuracy of certain representations made
by the Shurgard REIT, the Management Company and certain Management Company
shareholders and on certain assumptions. Furthermore, this opinion will not be
binding upon the Internal Revenue Service (the "IRS"). Therefore, the IRS may
contest the qualification of the Merger as a reorganization under Section 368(a)
of the Code. If such a contest were successful, the Merger would be a taxable
transaction and the Management Company would recognize gain in an amount equal
to the excess of the fair market value of the Shurgard Class A Common Stock
issued in the Merger, including the Contingent Shares when and as received, over
the adjusted tax basis of the assets transferred to the Shurgard REIT. As the
successor to the Management Company, the Shurgard REIT would be primarily liable
for this resulting tax liability. See "FEDERAL INCOME TAX CONSEQUENCES --
Failure of the Merger to Qualify." Furthermore, immediately prior to the Merger,
the Management Company will distribute all of the shares of common stock of
InterMation to the Management Company shareholders in the InterMation Spin-off,
which is intended to be treated as a tax-free distribution under Section
355(a)(1) of the Code. See "FEDERAL INCOME TAX CONSEQUENCES -- Tax Treatment of
the InterMation Spin-off." The failure of the Merger to qualify under Section
368(a) of the Code may cause the InterMation Spin-off to fail to qualify under
Section 355(a)(1) of the Code. See "-- Possible Treatment of InterMation
Spin-off as a Taxable Event."
POSSIBLE TREATMENT OF INTERMATION SPIN-OFF AS A TAXABLE EVENT. In
connection with the InterMation Spin-off, Riddell, Williams, Bullitt &
Walkinshaw, counsel to the Management Company, will deliver an opinion to the
Management Company that, among other things, it is more likely than not under
current law that (i) the distribution of the shares of InterMation common stock
in the InterMation Spin-off will be treated as a distribution under Section
355(a)(1) of the Code, (ii) no gain or loss will be recognized by (and no amount
will be included in the income of) the Management Company shareholders upon
their receipt of the shares of InterMation common stock, and (iii) no gain or
loss will be recognized by the Management Company upon the distribution of all
of the shares of InterMation common stock to the Management Company
shareholders. This opinion will be based on the accuracy of certain
representations made by the Management Company and certain Management Company
shareholders and on certain assumptions. This opinion will not be binding upon
the IRS and, based on its current ruling guidelines, the IRS has informally
stated that it will not rule on the federal tax treatment with respect to the
InterMation Spin-off. Therefore, the IRS may contest the qualification of the
InterMation Spin-off as a tax-free distribution under Section 355(a)(1) of the
Code. If this contest were successful, the InterMation Spin-off would be a
taxable transaction and the Management Company would recognize gain in an amount
equal to the excess of the value of the shares of InterMation common stock it
distributes in the InterMation Spin-off over its basis in such shares. As the
successor to the Management Company, the Shurgard REIT would be primarily liable
for this resulting tax liability. See "FEDERAL INCOME TAX CONSEQUENCES --
Failure of the InterMation Spin-off to Qualify."
INCREASE IN NONQUALIFYING INCOME. The Management Company currently performs
property management services for third-party self-storage facilities, which
services the Shurgard REIT will perform after the Merger. Gross income received
from such services will not be treated as income
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qualifying for certain REIT gross income tests of the Shurgard REIT. This
income, including reimbursements and acquisition and development fees received
from third parties, amounts to $2,496,000 for the nine months ended September
30, 1994 and $2,974,000 for the year ended December 31, 1993. These amounts
represent, on a post-Merger pro forma basis, approximately 4.0% and 3.9% of the
total gross revenues of the Shurgard REIT and the Management Company for each of
these respective periods. The addition of this income increases aggregate
nonqualifying income, on a pro forma basis, to approximately 6.6% and 6.4%,
respectively, for these periods. In 1995 and future years, if nonqualifying
income were to exceed 5% of the total gross income of the Shurgard REIT, the
REIT status of the Shurgard REIT would terminate for that year and future years
unless the Shurgard REIT meets certain reasonable cause standards. Even if it
meets such standards, however, the Shurgard REIT would be subject to an excise
tax on any excess nonqualifying income. If there was no change in the Shurgard
REIT's current revenues and assuming that the Merger closed on March 31, 1995,
the Shurgard REIT would earn nonqualifying income at or near 5% of its total
gross income in 1995 and would earn nonqualifying income of approximately 5.75%
of its total gross income in subsequent years, thereby failing the 95% test.
Acquisition of additional properties and development of new properties would
reduce the percentage of nonqualifying income. There can be no assurance,
however, that acquisitions and development activities will occur on such a scale
or within such time periods that nonqualifying income will meet the 95% test for
future years. Accordingly, the Shurgard REIT may be required to defer or reduce
its income from such third-party management services to avoid the risk of
terminating its REIT qualification or paying an excise tax. See "FEDERAL INCOME
TAX CONSEQUENCES -- Consequences of the Merger on the Shurgard REIT's
Qualification as a REIT -- Nonqualifying Income."
MERGER WILL NECESSITATE DISTRIBUTIONS OF ACCUMULATED EARNINGS AND
PROFITS. The accumulated earnings and profits of the Management Company will
carry over to the Shurgard REIT in the Merger. To retain its REIT status, the
Shurgard REIT must distribute all of these acquired Management Company earnings
and profits on or before December 31, 1995. Accordingly, the Shurgard REIT will
be required to accurately determine the amount of acquired Management Company
accumulated earnings and profits and to increase its distributions to its
shareholders in 1995 to eliminate these earnings and profits. To the extent the
increased distributions represent the Management Company's accumulated earnings
and profits, they will be treated as a taxable dividend to the Shurgard REIT
shareholders during 1995. In the event the IRS subsequently determines that the
Shurgard REIT failed to distribute all the acquired accumulated earnings and
profits acquired from the Management Company, the Shurgard REIT may lose its
REIT qualification for the year of the Merger and, perhaps, for subsequent
years. See "FEDERAL INCOME TAX CONSEQUENCES -- Consequences of the Merger on the
Shurgard REIT's Qualification as a REIT -- Distributions of Accumulated Earnings
and Profits Attributable to Non-REIT Years."
THE SHURGARD REIT'S QUALIFICATION AS A REIT. In the Merger, the Management
Company shareholders will be receiving shares in a publicly traded REIT as
consideration for their interests in the Management Company. The amount of
distributions made to each shareholder with respect to such shares will depend
upon the Shurgard REIT's continued qualification to be taxed as a REIT. As a
REIT, the Shurgard REIT will be entitled to a deduction when calculating its
taxable income for dividends paid to its shareholders. In order for the Shurgard
REIT to qualify as a REIT, however, certain detailed technical requirements must
be met (including certain income, asset and stock ownership tests). See "FEDERAL
INCOME TAX CONSEQUENCES -- Tax Consequences to Management Company Shareholders
Receiving the Shurgard Class A Common Stock." Furthermore, some of the
attributes of the Management Company may adversely affect the Shurgard REIT's
qualification as a REIT. See "-- Increase in Nonqualifying Income" and "--
Distributions of Accumulated Earnings and Profits." For any taxable year that
the Shurgard REIT fails to qualify as a REIT, it would not be entitled to a
deduction for dividends paid to its shareholders in calculating its taxable
income. Consequently, the net assets of the Shurgard REIT and distributions to
shareholders would be substantially reduced because of the increased tax
liability of the Shurgard REIT. Furthermore, to the extent that distributions
had been made in anticipation of the Shurgard REIT's qualification as a
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REIT, the Shurgard REIT might be required to borrow additional funds or to
liquidate certain of its investments in order to pay the applicable tax. Should
the Shurgard REIT's qualification as a REIT terminate, the Shurgard REIT may not
be able to elect to be treated as a REIT for the subsequent five-year period.
See "FEDERAL INCOME TAX CONSEQUENCES -- Tax Consequences to Management Company
Shareholders Receiving Shurgard Class A Common Stock--Failure of the Shurgard
REIT to Qualify as a REIT."
GENERAL REAL ESTATE INVESTMENT RISKS AND SELF-STORAGE INDUSTRY RISKS
GENERAL RISKS RELATING TO OWNERSHIP AND OPERATION OF SELF-STORAGE
FACILITIES. Investments in the Shurgard REIT are subject to the risks incident
to the ownership and operation of self-storage facilities. These include the
risks normally associated with changes in general national economic or local
market conditions, competition for tenants, changes in market rental rates and
the need to periodically renovate, repair and relet space and to pay the cost
therefor.
DEBT FINANCING OBLIGATIONS. The Shurgard REIT is authorized to borrow funds
up to a maximum of the lesser of 50% of its total assets and 300% of its
adjusted net worth. Such limitations on indebtedness, which are contained in the
Shurgard REIT's By-Laws, may not be amended without shareholder approval. As of
December 31, 1994, the Shurgard REIT's indebtedness totaled 33% of its total
assets and 50.7% of its adjusted net worth (as such terms are defined in the
By-Laws). To the extent the Shurgard REIT incurs such indebtedness, it is
subject to the risks associated with debt financing, including the risk that its
cash flow from operations will be insufficient to meet required payments of
principal, the risk that indebtedness on its properties (which in many cases
will not have been fully amortized at maturity) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness, and the risk that necessary capital expenditures
for such purposes as renovations and reletting space will not be able to be
financed on favorable terms, if at all. If a property is mortgaged to secure
payment of indebtedness and the Shurgard REIT is unable to meet mortgage
payments, the property could be transferred to the mortgagee with a consequent
loss of income and asset value to the Shurgard REIT.
RISKS OF REAL ESTATE DEVELOPMENT. The Shurgard REIT may invest new capital
or reinvest sale or refinancing proceeds to develop properties or to purchase
newly constructed properties that are still in the lease-up stage. Real estate
development involves significant risks in addition to those involved in the
ownership and operation of established properties, including the risks that
financing may not be available on favorable terms for development projects, that
construction may not be completed on schedule, resulting in increased debt
service expense and construction costs, that long-term financing may not be
available upon completion of construction and that properties may not be leased
on profitable terms or in accordance with scheduled lease-up plans. In addition,
in order to develop properties, the Shurgard REIT must engage appropriate
contractors and/or subcontractors to construct the properties, and problems may
arise in connection with such engagements, thereby increasing the cost of the
construction and resulting in delays in completion. If the Shurgard REIT elects
to develop properties, and if any of the above were to occur, the Shurgard
REIT's ability to make expected distributions to shareholders could be adversely
affected.
INVESTMENTS IN MORTGAGES. Since the Shurgard REIT operates primarily as an
equity REIT, it does not use significant portions of its available capital to
acquire or make mortgage loans. Under its By-Laws, the Shurgard REIT is,
however, authorized to invest up to 25% of its total assets in mortgage loans if
the debts are secured by liens on self-storage facilities or office and business
parks. To date, the Shurgard REIT has committed $13 million to mortgage loans.
To the extent of its investments in mortgage loans, the Shurgard REIT is subject
to the risks of such investments, which include the risk that borrowers may not
be able to make mortgage service payments or pay principal when due, the risk
that the value of the mortgaged property may be less than the amounts due, and
the risk that interest rates payable on the mortgage may be lower than the
Shurgard REIT's cost of funds. If any of the above were to occur, funds from
operations and the Shurgard REIT's ability to make expected distributions to
shareholders could be adversely affected.
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INVESTMENTS IN OTHER COMMERCIAL REAL ESTATE. Although the Shurgard REIT
invests primarily in self-storage facilities and business and office parks, it
may also invest in other commercial real estate if such investments are
specifically approved by the Shurgard REIT Board. The Shurgard REIT has no
present plans to make any such investments. The authority of the Shurgard REIT
Board to make such investments permits the Shurgard REIT flexibility in
selecting appropriate investments, and in adjusting to changes in the
marketplace, without requiring amendments to its By-Laws or specific shareholder
approval. Investments in other forms of real estate, if they were to occur, will
be subject to the risks unique to such investments and, in particular, the
Shurgard REIT must ensure that such investments are managed by persons having
the experience and expertise necessary for the effective management and
operation of those investments. Unfamiliarity with local laws, procedures and
practices, or in the operation of such other investments, might adversely affect
the Shurgard REIT's funds from operations and its ability to make expected
distributions to shareholders.
INDIRECT INVESTMENTS. The Shurgard REIT may invest in real estate by
acquiring equity interests in limited partnerships, partnerships, joint
ventures, trusts or other legal entities that in turn have invested in real
estate constituting appropriate investments for the Shurgard REIT. Under its
By-Laws, a number of conditions must be satisfied before such investments are
permitted, including, among others, the requirement that the joint investment
does not jeopardize the Shurgard REIT's eligibility to be taxed as a REIT or
result in the Shurgard REIT's becoming an investment company under the
Investment Company Act of 1940, as amended. If the Shurgard REIT makes such
investments, these investments will expose the Shurgard REIT to certain risks
not present had the Shurgard REIT invested directly in the real estate. These
risks include, among others, the risk that the Shurgard REIT may not have
control over the legal entity which has title to the real estate, the
possibility that the Shurgard REIT may invest in an enterprise that has
liabilities that are not disclosed at the time of the investment, and the
possibility that the Shurgard REIT's investments would be illiquid and not
readily accepted as collateral by the Shurgard REIT's lenders. Each of these
risks might reduce the Shurgard REIT's cash flow, or impair its ability to
borrow funds, which ultimately could adversely affect the ability of the
Shurgard REIT to meet debt service obligations and make expected distributions
to shareholders.
COMPETITION. The Shurgard REIT faces competition in the acquisition and
management of its real estate. The Shurgard REIT's competitors include other
businesses, individuals, financial institutions, private and public pension
funds and others engaged in real estate investment, some of which may have far
greater financial resources than the Shurgard REIT. Such competition may
adversely affect the occupancy levels at and the rental revenues of the Shurgard
REIT's properties, which could adversely affect the Shurgard REIT's funds from
operations and its ability to meet debt service obligations and make expected
distributions to shareholders.
UNINSURED LOSSES. The Shurgard REIT carries comprehensive liability, fire,
flood, earthquake, extended coverage and rental loss insurance with respect to
its properties with policy specification and insured limits customarily carried
for similar properties. There are, however, certain types of losses (such as
from environmental liabilities and wars) that are either uninsurable or not
economically insurable. Should an uninsured loss occur, the Shurgard REIT could
lose both its capital invested in and its anticipated profits from one or more
of its properties.
LIMITED ASSET DIVERSIFICATION. The Shurgard REIT intends to limit its
investments primarily to self-storage facilities. The success of an investment
in the Shurgard REIT will depend in large measure upon the profitability of such
businesses and real estate investments. The Shurgard REIT is not expected to
have substantial interests in other real estate investments to hedge against the
risk that national trends might adversely affect the profitability of
self-storage facilities. Should this development occur, this would adversely
affect the Shurgard REIT's ability to meet debt service obligations and make
expected distributions to shareholders.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS. Under various
federal, state and local laws, ordinances and regulations, an owner or operator
of real property may become liable for the
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costs of removal or remediation of certain hazardous substances released on or
in its property. Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the release of such hazardous
substances. The presence of hazardous substances may adversely affect the
owner's ability to sell such real estate or to borrow using such real estate as
collateral.
COST OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND FIRE AND SAFETY
REGULATIONS. All of the Shurgard REIT's properties are required to comply with
the Americans with Disabilities Act, and the regulations, rules and orders that
may be issued thereunder (the "ADA"). The ADA has separate compliance
requirements for "public accommodations" and "commercial facilities," but
generally requires that buildings be made accessible to persons with
disabilities. Compliance with ADA requirements could require removal of access
barriers and noncompliance could result in the imposition of fines by the U.S.
government or an award of damages to private litigants. In addition, the
Shurgard REIT is required to operate its properties in compliance with fire and
safety regulations, building codes, and other land use regulations, as they may
be adopted by governmental agencies and bodies and become applicable to the
Shurgard REIT's properties. Compliance with such requirements may require the
Shurgard REIT to make substantial capital expenditures, which expenditures would
reduce the funds otherwise available for distribution to shareholders.
OTHER GENERAL RISKS
DEPENDENCE ON KEY PERSONNEL. The Shurgard REIT is dependent on the efforts
of its directors and executive officers. See "MANAGEMENT OF THE SHURGARD REIT."
The loss of the services of its key employees could have an adverse effect on
the Shurgard REIT's operations. There can be no assurance that the Shurgard REIT
would be able to recruit additional personnel with equivalent experience in the
self-storage industry.
EFFECT OF MARKET INTEREST RATES ON PRICE OF SHURGARD CLASS A COMMON
STOCK. One of the factors that influences the price of the Shurgard Class A
Common Stock in public trading markets is the annual yield from distributions by
the Shurgard REIT on the price paid for the Shurgard Class A Common Stock as
compared to yields on other financial instruments. Thus, an increase in market
interest rates will result in higher yields on other financial instruments,
which could adversely affect the market price of the Shurgard Class A Common
Stock.
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SPECIAL MEETING OF SHAREHOLDERS
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of shares of
Shurgard Class A Common Stock in connection with the solicitation of proxies by
the Shurgard REIT Board for use at the Special Meeting to be held on Thursday,
March 2, 1995, at the Westin Hotel, 1900 Fifth Avenue, Seattle, Washington,
commencing at 10:00 a.m., local time, and at any adjournments or postponements
thereof. This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to holders of shares of Shurgard Class A Common Stock on or
about February , 1995.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of record of shares of Shurgard Class A
Common Stock as of the close of business on January 20, 1995, will consider and
vote upon (i) a proposal to approve the Merger of the Management Company with
and into the Shurgard REIT pursuant to the Merger Agreement and (ii) such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof. Holders of shares of Shurgard Class A Common Stock will
not be entitled to dissenters' rights as a result of the Merger.
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, the Management Company will merge with and into the Shurgard
REIT, and the outstanding shares of Management Company Common Stock will be
converted into an aggregate of 1,400,000 shares of Shurgard Class A Common
Stock, subject to certain adjustments based on the market price of the Shurgard
Class A Common Stock and changes to the Management Company's equity from October
31, 1994 to the Closing Date, and certain adjustments for Management Company
shareholders exercising dissenters' rights. In addition, pursuant to the Merger
Agreement, Management Company shareholders will be entitled to receive
additional shares of Shurgard Class A Common Stock based on (i) the extent to
which, during the five years following the Closing, the Shurgard REIT realizes
value as a result of certain transactions relating to interests in or assets of
six limited partnerships acquired by the Shurgard REIT in the Merger and (ii)
the value, at the end of five years or in the event of a change of control, of
any remaining interests in such partnerships as determined by independent
appraisal.
THE SHURGARD REIT BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT THE SHURGARD REIT SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE MERGER. See "BACKGROUND OF AND REASONS FOR THE MERGER."
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on January 20, 1995 (the "Record Date") has been fixed
as the record date for determining the holders of shares of Shurgard Class A
Common Stock who are entitled to notice of and to vote at the Special Meeting.
As of the Record Date, there were 16,829,283 shares of Shurgard Class A Common
Stock outstanding and entitled to vote. The holders of record on the Record Date
of shares of Shurgard Class A Common Stock are entitled to one vote per share of
Shurgard Class A Common Stock. The presence in person or by proxy of the holders
of shares representing a majority of the outstanding shares of Shurgard Class A
Common Stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the Special Meeting. As of the Record Date, current
directors and executive officers of the Shurgard REIT and their affiliates may
be deemed to be the beneficial owners of less than 1% of the outstanding shares
of Shurgard Class A Common Stock.
The affirmative vote of the holders of shares representing a majority of the
outstanding shares of Shurgard Class A Common Stock entitled to vote at the
Special Meeting is required to approve the Merger. Abstention from voting and
broker nonvotes will have the practical effect of voting against the Merger
since they are not votes in favor of the Merger.
The Merger is being submitted to holders of shares of Shurgard Class A
Common Stock for approval in accordance with Article 16 of the Shurgard REIT's
Certificate of Incorporation. Such section requires the Merger to be approved
only by the holders of shares of Class A Common Stock
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(which is referred to in this Proxy Statement/Prospectus as Shurgard Class A
Common Stock). Accordingly, holders of shares of Shurgard Class B Common Stock
are not entitled to vote at the Special Meeting.
PROXIES; PROXY SOLICITATION
Shares of Shurgard Class A Common Stock represented by properly executed
proxies received at or prior to the Special Meeting that have not been revoked
will be voted at the Special Meeting in accordance with the instructions
contained therein. Shares of Shurgard Class A Common Stock represented by
properly executed proxies for which no instruction is given will be voted "FOR"
approval of the Merger. Shurgard REIT shareholders are requested to complete,
sign, date and promptly return the enclosed proxy card in the postage-prepaid
envelope provided for this purpose to ensure that their shares are voted. A
shareholder may revoke a proxy by submitting at any time prior to the vote on
the Merger a later-dated proxy with respect to the same shares, by delivering a
written notice of revocation to the Secretary of the Shurgard REIT at any time
prior to such vote or by attending the Special Meeting and voting in person.
Mere attendance at the Special Meeting will not in and of itself revoke a proxy.
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies that have theretofore effectively
been revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting.
The Shurgard REIT will bear the cost of soliciting proxies from its
shareholders. The Shurgard REIT will pay D.F. King & Co., Inc. ("D.F. King") a
fee of $75,000 to cover its services in soliciting the forwarding and return of
proxy material, exclusive of certain additional fees for related services
performed by D.F. King. In addition, the Shurgard REIT will reimburse D.F. King
for out-of-pocket expenses incurred in connection therewith. In addition to
solicitation by mail, directors, officers and employees of the Shurgard REIT may
solicit proxies by telephone, telegram or otherwise. Such directors, officers
and employees of the Shurgard REIT will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Brokerage firms, fiduciaries and other custodians who
forward soliciting material to the beneficial owners of shares of Shurgard Class
A Common Stock held of record by them will be reimbursed for their reasonable
expenses incurred in forwarding such material.
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BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND
On March 1, 1994, the Shurgard REIT completed the acquisition of 17 publicly
held limited partnerships administered by the Management Company as a means of
assembling an initial portfolio of real estate investments (the
"Consolidation"). The Management Company and the general partners of the
partnerships included in the Consolidation initially intended for the Shurgard
REIT to be operated as a self-administered and self-managed REIT, which they
planned to accomplish by merging the Management Company with the Shurgard REIT
concurrently with the Consolidation. This proposed feature of the Consolidation
was, however, eliminated when, during the initial review of the Shurgard REIT's
registration statement, the California Department of Corporations opposed the
merger on the grounds that it was prohibited by California's recently enacted
statute regulating partnership roll-ups. Although the California Department of
Corporations reversed its position prior to the completion of the Consolidation,
the Shurgard REIT decided not to restructure its proposal in view of the
expected costs and delays of obtaining regulatory clearance for a restructured
consolidation program. The Shurgard REIT did agree, however, to provide in its
Certificate of Incorporation that it would not acquire substantially all the
assets of or merge with the Management Company without obtaining the approval of
shareholders holding a majority of the outstanding shares of Shurgard Class A
Common Stock.
In connection with the Consolidation, several class action lawsuits were
filed against various parties involved in the Consolidation, including the
Shurgard REIT and the Management Company. These class action lawsuits were
settled pursuant to a Stipulation of Settlement (the "Settlement") among the
parties involved in the lawsuits. Under the terms of the Settlement, the
Shurgard REIT agreed that, if it proposed to merge or consolidate with the
Management Company within three years of the Settlement, it would retain Green
Street Advisors or some other recognized independent expert to provide a
fairness opinion, based on an independent financial analysis, in connection with
such proposed merger or consolidation. In addition, the Settlement requires that
the Shurgard REIT not be obligated to pay any termination fee to the Management
Company in connection with any such merger or consolidation. As described below,
the Special Committee retained Alex. Brown to provide the fairness opinion
required by the Settlement.
Unless otherwise expressly stated, all members of the Special Committee were
present at all meetings involving the Special Committee described below and all
members of the Shurgard REIT Board were present at all meetings of the Shurgard
REIT Board described below.
On March 17, 1994, as part of the special meeting of the Shurgard REIT
Board, one of the independent directors raised the subject of whether, in light
of the potential synergies of a self-managed REIT, it would be appropriate to
explore the possibility of a merger or other business combination with the
Management Company. The directors requested that at the next scheduled Board
meeting counsel lead a discussion regarding the issues unique to the Shurgard
REIT in connection with a possible acquisition.
On April 26, 1994, as part of the regular meeting of the Shurgard REIT
Board, the Board received a preliminary report from Perkins Coie, counsel to the
Shurgard REIT, regarding certain issues for consideration in connection with a
proposed business combination with the Management Company, including the
background of the existing relationship between the Shurgard REIT and the
Management Company, the merger process and certain tax issues. In addition,
counsel to the Shurgard REIT presented a preliminary timetable traditional to
business combinations of this magnitude. After discussion, the Special Committee
of independent directors of the Board, consisting of Dan Kourkoumelis, Donald W.
Lusk and Wendell J. Smith, was formally established to consider the feasibility
of a possible merger transaction between the Shurgard REIT and the Management
Company. The Shurgard REIT Board concluded, however, that before the Special
Committee should begin any formal analysis of a combination with the Management
Company, further assurance from counsel to the Shurgard REIT was required
regarding how the potential merger might affect the Shurgard
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REIT's tax status as a REIT. Following the meeting, the Special Committee
appointed independent counsel, Bogle & Gates, to provide advice with respect to
the fiduciary obligations of the Special Committee in examining any potential
acquisition involving related parties. The members of the Special Committee each
received a fee of $6,000 as compensation for their services on the Special
Committee.
On April 28, 1994, the Shurgard REIT issued a press release announcing,
among other things, that its independent directors had formed a committee to
consider the feasibility of the Shurgard REIT becoming a self-administered and
self-managed REIT through the acquisition of the Management Company.
On May 25, 1994, as part of a special meeting of the Shurgard REIT Board,
counsel to the Shurgard REIT outlined certain tax issues that might arise in
connection with a merger of the Shurgard REIT and the Management Company,
including the impact of succeeding to certain forms of income and the effects of
acquiring the accumulated earnings and profits of the Management Company.
Following discussions, the Shurgard REIT Board authorized the Special Committee
to negotiate the terms of any proposed merger transactions (and any alternatives
to such transaction), to consider information regarding the financial condition
and operations of the Shurgard REIT and the Management Company (to the extent
relevant to any proposed merger transaction or any alternative transaction), and
to make recommendations to the Shurgard REIT Board and shareholders with respect
to any proposed transaction. Because of the Management Company's long history
with the Shurgard REIT and the prior discussion of a possible combination of the
Management Company and the Shurgard REIT in connection with the Consolidation,
the Special Committee did not investigate other potential acquisition targets.
Rather, the Special Committee focused its efforts on the merger transaction
proposed by the Management Company, actively negotiating both price and
structure, so that the resulting transaction would be in the best interests of
the Shurgard REIT and its shareholders. In the absence of acceptable terms, the
alternative would be that the Shurgard REIT remain an externally managed REIT.
On June 9, 1994, the Special Committee, along with independent counsel,
interviewed representatives of Alex. Brown, Green Street Advisors and other
nationally recognized financial advisors in order to determine which of such
firms (or others) might be appropriate, given the circumstances, to assist the
Special Committee with an analysis of an appropriate value for the Management
Company. After deliberation regarding which of such advisors might best provide
valuable service to the Special Committee, given the context of the transaction
and considering, among other matters, the fiduciary obligations of the Special
Committee, fees and expenses, the interested or disinterested nature of those
firms interviewed and other issues, the Special Committee contacted Alex. Brown
to determine whether it would act at financial advisor to the Special Committee
in connection with a potential merger.
On July 27, 1994, Charles K. Barbo, President, Chief Executive Officer and
Chairman of the Board of the Management Company, together with other senior
officers of the Management Company and representatives of the Management
Company's financial advisor, met with the Special Committee to outline the terms
and conditions on which the owners of the Management Company would be prepared
to merge the Management Company with and into the Shurgard REIT. Such
presentation included a report and proposal for the Management Company prepared
for such purpose by Nomura Securities Inc., who had been retained by the
Management Company to act as financial advisor to the Management Company in
connection with the proposed merger transaction. The proposal included a
suggested market value of $34,800,000, prior to certain balance sheet
adjustments. Mr. Barbo, however, believed that at this price the transaction
would be dilutive on a prospective basis to the Shurgard REIT shareholders and
as a result he suggested a price of $32,250,000, prior to certain balance sheet
adjustments, which he believed would not be dilutive to the Shurgard REIT
shareholders (resulting in the issuance of approximately 1,500,000 shares of
Shurgard Class A Common Stock). Under the terms proposed, the merger would
include all of the Management Company's tangible and
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intangible assets, except shares of the Shurgard REIT owned by the Management
Company and those assets related to the Management Company's investment in
InterMation that would be spun off, together with related earning and profits,
to the Management Company's existing shareholders.
On July 28, 1994, as part of the regular meeting of the Shurgard REIT Board,
the Board authorized the Special Committee to retain, at the Shurgard REIT's
expense, advisors (including attorneys, investment bankers, and other experts or
agents) in order further to explore a proposed merger of the Shurgard REIT and
the Management Company. Later that day, the Special Committee formally engaged
Alex. Brown to provide its opinion as to the fairness, from a financial point of
view, of the consideration payable by the Shurgard REIT in connection with the
proposed merger.
On July 29, 1994, the Special Committee, along with independent counsel,
spoke with representatives of Alex. Brown regarding the scope of the due
diligence inquiry, financial analysis and related matters to be performed by
Alex. Brown and the procedures and anticipated timetable of such activities.
On August 12, 1994, representatives of Alex. Brown spoke with Mr.
Kourkoumelis, on behalf of the Special Committee, and independent counsel
regarding the status of their investigation, the sufficiency of data received
and their preliminary thoughts with respect to the valuation of the Management
Company underlying the proposal presented by the Management Company's management
on July 27.
On September 9, 1994, Messrs. Lusk and Smith, on behalf of the Special
Committee, along with independent counsel, again spoke with representatives of
Alex. Brown, who reviewed with the Special Committee the various methodologies
to be employed thereby to evaluate the proposed transaction, including a
discounted cash flow analysis, an analysis of selected publicly traded real
estate companies and an analysis of selected real estate company transactions.
In addition, representatives of Alex. Brown spoke with the Special Committee
concerning the business and prospects of the Shurgard REIT after the completion
of the Merger. During such conversation, representatives of Alex. Brown also
discussed the concept of dilution to the existing shareholders of the Shurgard
REIT, noting that consideration in the form of shares of Shurgard Class A Common
Stock had been requested by the Management Company's management. In their
discussion, the Alex. Brown representatives stressed the importance of a
nondilutive transaction and made certain observations regarding a range of
values for the Management Company. Concepts such as an earn-out with respect to
the earnings realized from certain assets and appropriate closing adjustments to
a purchase price were discussed.
On October 13, 1994, representatives of Alex. Brown made a formal
presentation to the Special Committee. At such meeting, members of the Special
Committee, together with the Special Committee's legal and financial advisors,
reviewed, among other things, the background of the proposed merger, the
strategic rationale for the proposed merger, a summary of due diligence
findings, and financial and valuation analyses of the transaction.
Representatives of Alex. Brown noted that as part of Alex. Brown's engagement it
had reviewed, among other data, publicly available financial information
concerning the Shurgard REIT, certain internal financial information provided by
the Shurgard REIT and the Management Company and certain historical and
projected financial data provided by the parties, visited certain self-storage
centers managed by the Management Company, reviewed the price and trading volume
of the Shurgard Class A Common Stock, reviewed certain information regarding
select public companies engaged in the real estate management industry and
reviewed the financial terms of certain business combinations involving real
estate companies.
As part of the discussion, members of the Special Committee and Alex. Brown
commented on the potential synergies to be enjoyed by the Shurgard REIT as a
result of the proposed merger, including the opportunity to acquire a
high-quality, experienced management team; internalize the successful capital
markets expertise of the Management Company's management; realize certain
efficiencies arising from self-managed structures; align the interest of the
Management Company's management
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and the Shurgard REIT shareholders; enable the Shurgard REIT to capitalize on
the Management Company's name, goodwill and other intangible assets; and enjoy
enhanced market perception as a self-administered and self-managed REIT.
As part of its presentation, representatives of Alex. Brown described the
various valuation methodologies employed, including (i) a discounted cash flow
analysis using net income, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and funds from operations, (ii) a comparison of the
proposed transaction with certain transactions in the marketplace (taking into
account selected publicly traded real estate companies), and (iii) suitable
multiples derived from selected real estate company transactions. Based on this
meeting, the Special Committee, with further input from Alex. Brown, concluded
that the overall transaction must not only be nondilutive to the Shurgard REIT
shareholders but, to the extent possible, accretive in some measure, that the
offer should be framed in terms of a fixed number of shares, subject to certain
adjustments, and that certain partnership interests currently held by the
Management Company should be the subject of an earn-out whereby further shares
of Shurgard Class A Common Stock may be earned based upon the profit realized
upon disposition of such interests or the underlying assets. Additional terms of
the initial offer were discussed by the Special Committee in conference with
counsel.
On October 14, 1994, the Special Committee met with Mr. Barbo, on behalf of
the Management Company, to present the initial terms of the proposed merger,
which included a price of $28,000,000, payable in shares of Shurgard Class A
Common Stock, as well as the possibility of additional shares of Shurgard Class
A Common Stock being paid as described above, a portion of the former subject to
an indemnification escrow against certain contingent liabilities. The Special
Committee spoke later that day with independent counsel to discuss Mr. Barbo's
reaction to the offer, as proposed. As there were further legal, tax and
financial issues to explore, the Special Committee requested Alex. Brown to
consider several additional factors and requested from counsel to the Shurgard
REIT further information regarding the impact to the Shurgard REIT from a tax
standpoint of the earnings and profits of the Management Company that would be
acquired by the Shurgard REIT in the proposed merger.
On October 18, 1994, the members of the Special Committee, independent
counsel, and representatives of Alex. Brown received a preliminary report from
counsel to the Shurgard REIT regarding the legal and tax implications of the
earnings and profits to be acquired by the Shurgard REIT as a result of the
proposed acquisition of the Management Company. As there were still several
pieces of information outstanding that prevented reasonable quantification of
the tax impact to the Shurgard REIT of the proposed transaction, the Special
Committee requested that counsel to the Shurgard REIT continue to refine its
report regarding same until such time as the impact, if any, of these tax issues
on the negotiations could be assessed.
On November 21, 1994, the Special Committee met with independent counsel to
review the terms of the outstanding offer and the matters outstanding for
resolution and to receive the report of counsel to the Shurgard REIT regarding
the impact to the Shurgard REIT of the accumulated earnings and profits to be
acquired by the Shurgard REIT in connection with the proposed merger.
On November 22, 1994, representatives of Alex. Brown spoke with the Special
Committee and independent counsel regarding their revised findings, based in
part on the resolution of the impact of the earnings and profits tax issue, as
well as developments with respect to the results of operations and prospects of
the Shurgard REIT, the Management Company and the marketplace generally. During
this meeting, representatives of Alex. Brown discussed with the Special
Committee certain refinements to the offer, as proposed, including the
appropriateness of requiring certain adjustments to the purchase price based on
changes to Management Company equity as of the closing of the proposed merger.
Following the conclusion of such meeting, independent counsel to the Special
Committee met with a representative of the Management Company to communicate the
terms of the revised offer, which included a purchase price of $27,100,000,
assuming and including specified levels
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of cash and receivables, the contingent share feature described above, and a 10%
escrow for indemnification, as well as certain closing adjustments to the share
consideration to permit limited appreciation in the stock price, but preserve an
overall transaction value.
On November 23, 1994, the Special Committee, independent counsel, members of
the Management Company's management and its counsel met to begin negotiating the
principal terms of the proposed transaction. Following this meeting, Mr.
Kourkoumelis resigned from the Special Committee due to time constraints
resulting from his other business activities. Later that day a preliminary draft
of a merger agreement was circulated to all parties and their advisers. In
addition, the members of the Special Committee met again to discuss several of
the issues remaining to be negotiated.
On November 29, 1994, the Special Committee, independent counsel, members of
the Management Company's management and its counsel again met to negotiate
certain terms of the proposed merger. At this meeting, discussion focused on an
appropriate purchase price and methodology for calculating the share
consideration and suitable closing adjustments to the same. There was neither
resolution as to price nor the appropriate methodology to quantify the same; the
parties therefore concluded discussions pending clarification of certain
financial data.
On December 1, 1994, the Special Committee, independent counsel and
representatives of Alex. Brown spoke regarding certain benchmarks against which
to measure the accretion or dilution resulting from the proposed purchase price,
the statement of assets and liabilities entries and marketplace perceptions
generally.
On December 5, 1994, Mr. Lusk, on behalf of the Special Committee,
independent counsel, members of the Management Company's management and its
counsel again spoke to negotiate certain terms of the proposed merger. The
meeting focused on those issues discussed on November 29, with the Special
Committee presenting its justification for the share consideration offered and
benchmarks for appropriate closing adjustments to the same. As there continued
to be no agreement on either price or the appropriate methodology to quantify
the same, the negotiations concluded for the day.
On December 8, 1994, Mr. Lusk, on behalf of the Special Committee, and Mr.
Barbo, on behalf of the Management Company, met to discuss certain issues
relating to the purchase price. At the conclusion of such meeting, a tentative
agreement had been reached with respect to a $27,100,000 base purchase price,
subject in its entirety to suitable resolution regarding appropriate closing
adjustments, permitted activities prior to the closing of the proposed merger,
and the scope and limitations of the indemnification escrow.
On December 13, 1994, Mr. Lusk, on behalf of the Special Committee, and Mr.
Barbo, on behalf of the Management Company, spoke with respect to the scope and
limitations of the indemnification escrow, tentatively agreeing upon a framework
that balanced the Shurgard REIT's need for redress against certain liabilities
with the Management Company shareholders' interest in liquidity.
On December 16, 1994, the Special Committee, Mr. Kourkoumelis, independent
counsel and representatives of Alex. Brown met to discuss and review the then
terms of the proposed merger. After extensive discussion regarding the mechanics
of the closing adjustments and the matters subject to indemnification by the
Management Company shareholders, the Special Committee concluded that further
negotiations with the Management Company were necessary. Later that day, Mr.
Smith, on behalf of the Special Committee, along with independent counsel and a
representative of Alex. Brown, met with members of the Management Company's
management to explore further the matters referred to above. That same day, Mr.
Barbo, together with other executive officers of the Management Company,
communicated to independent counsel and a representative of Alex. Brown a
proposal that reflected a share consideration of 1,400,000 shares of Shurgard
Class A Common Stock ($26,300,000 based on the 30-day average trading price of
the Shurgard Class A Common Stock), an indemnification provision that included
recovery for potential liability as a result of the InterMation Spin-off and a
$1,500,000 cap to the balance sheet adjustments contemplated.
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On December 17, 1994, the Special Committee, Mr. Kourkoumelis, independent
counsel and a representative of Alex. Brown spoke regarding the terms and
financial ramifications of the offer of December 16. During such meeting, the
Special Committee requested that independent counsel pursue clarification of
certain issues regarding the timing of the receipt by the Management Company of
an anticipated tax refund. The meeting was adjourned until December 19.
On December 19, 1994, the Special Committee, Mr. Kourkoumelis, independent
counsel and a representative of Alex. Brown met to review the terms of the
proposed transaction and to receive the report of Alex. Brown regarding the
fairness of such terms, from a financial point of view, to the Shurgard REIT.
Following considerable discussion regarding certain contemplated transactions by
the Management Company, as well as the timing of the receipt of an anticipated
tax refund in the context of the indemnification escrow, the Special Committee
requested independent counsel to negotiate certain additional terms. That same
morning, independent counsel met with representatives of the Management
Company's management to discuss these final issues, as a result of which the
terms of the Merger were settled. On the basis of that resolution,
representatives of Alex. Brown delivered to the Special Committee their opinion
that the consideration to be paid by the Shurgard REIT to the shareholders of
the Management Company pursuant to the Merger Agreement is fair, from a
financial point of view, to the Shurgard REIT, and, as more fully discussed
below, the Special Committee concluded that the transaction was fair to and in
the best interests of the Shurgard REIT and its shareholders and unanimously
recommended the transaction for approval by the Shurgard REIT Board.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE
SHURGARD REIT BOARD
SPECIAL COMMITTEE. The Special Committee has unanimously determined the
Merger to be fair to and in the best interests of the Shurgard REIT and its
shareholders. Accordingly, the Special Committee has unanimously approved the
Merger and recommends that the Shurgard REIT shareholders vote "FOR" approval of
the Merger.
In reaching its conclusion to recommend that the Shurgard REIT Board approve
the Merger Agreement and the Merger and that the shareholders of the Shurgard
REIT approve the Merger, the Special Committee considered, without assigning
relative weights to, the following factors:
(i) the proven expertise and substantial experience of the employees of
the Management Company, who will become employees of the Shurgard REIT
through the Merger, in the development, acquisition and management of
self-storage properties;
(ii) through the Merger, the Shurgard REIT will internalize the
successful capital markets experience of the Management Company;
(iii) the existing conflicts of interest between the Shurgard REIT and
the management of the Management Company, as well as the steps taken (such
as the creation of the Special Committee and the securing of a fairness
opinion from Alex. Brown) to ensure that the Merger would not be affected by
such conflicts;
(iv) the opportunity to eliminate ongoing conflicts of interest between
the Shurgard REIT and the management of the Management Company;
(v) the fact that the Merger will enable the Shurgard REIT to realize
certain efficiencies arising from a self-managed structure in that it will
pay for management and advisory services directly rather than paying a
third-party fee for such services based on a percentage of the dollar value
of the properties managed and acquired, thereby enabling the Shurgard REIT
to both eliminate the profits that were previously being realized by the
Management Company for providing such services and potentially allowing the
Shurgard REIT in the future to expand its property holdings without a
proportionate increase in the cost of managing such properties, which would
have resulted had the properties continued to be managed by an outside
advisor;
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(vi) the interests of the Management Company will be aligned with those
of the Shurgard REIT;
(vii) through the Merger, the Shurgard REIT will acquire the "Shurgard"
name and goodwill associated with that name;
(viii) the belief of the Special Committee that the merger with the
Management Company, which will enable the Shurgard REIT to become a
self-managed and self-administered REIT, will make the Shurgard REIT more
attractive to investors and will enable it to enjoy enhanced market
perception;
(ix) the terms and conditions of the Merger Agreement, including the type
and amount of consideration being paid to the Management Company, which is
nondilutive to Shurgard REIT shareholders as to FFO (for example, based on
the pro forma financial information for the nine months ended September 30,
1994, the Shurgard REIT's FFO per share prior to and after the Merger was
$1.56); the adjustments to the purchase price; and the indemnification
escrow, which will enable the Shurgard REIT to recover damages if certain
events occur;
(x) the Merger's structure, which will not result in recognition of
income or gain for federal income tax purposes by the Shurgard REIT or the
Management Company; and
(xi) the written opinion of Alex. Brown delivered to the Special
Committee on December 19, 1994 that on such date and based on various
assumptions and considerations, the consideration to be paid by the Shurgard
REIT in the Merger is fair to the Shurgard REIT, from a financial point of
view.
SHURGARD REIT BOARD. The Shurgard REIT Board based its determination that
the Merger is fair to, and in the best interests of, the Shurgard REIT
shareholders primarily on the analyses and conclusions of the Special Committee
(which were adopted by the Shurgard REIT Board as its own), on the arm's-length
negotiations of the Special Committee with representatives of the Management
Company, which resulted in a decrease in a negotiated price significantly below
that proposed by the Management Company, and on the Alex. Brown opinion
delivered to the Special Committee. The Board did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. THE SHURGARD REIT BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT THE SHURGARD REIT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
ALEX. BROWN FAIRNESS OPINION. As a condition to the acquisition of the
Management Company, the Special Committee retained Alex. Brown to act as its
financial advisor and to render its opinion as to the fairness to the Shurgard
REIT, from a financial point of view, of the consideration to be paid by the
Shurgard REIT to the shareholders of the Management Company (the "Fairness
Opinion"). Alex. Brown assisted in the Special Committee's discussions and
negotiations with the Management Company leading up to the execution of the
Merger Agreement and in the consideration by the Special Committee of the
Merger. At a meeting of the Shurgard REIT Board held on December 19, 1994, Alex.
Brown delivered a written opinion to the Special Committee to the effect that,
as of the date of delivery of the opinion, the consideration payable by the
Shurgard REIT to the shareholders of the Management Company under the Merger
Agreement is fair, from a financial point of view, to the Shurgard REIT.
In arriving at its opinion, Alex. Brown reviewed the Merger Agreement and
certain publicly available financial information and internal financial analyses
concerning the Shurgard REIT and internal financial analyses concerning the
Management Company and held discussions with members of senior management of the
Shurgard REIT and the Management Company regarding the business and prospects of
their respective companies and the business and prospects of the Shurgard REIT
on a post-Merger basis. In addition, Alex. Brown reviewed the reported price and
trading volume of the
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Shurgard Class A Common Stock, compared certain financial information of the
Management Company with similar information for certain selected companies
engaged in the real estate management industry whose securities are publicly
traded, reviewed the financial terms of selected recent business combinations,
reviewed certain pro forma analyses regarding the business and prospects of the
Shurgard REIT after the completion of the Merger, visited certain self-storage
centers managed by the Management Company and performed such other studies and
analyses as Alex. Brown considered appropriate. Alex. Brown assumed the
accuracy, completeness and fairness of the financial and other information on
which it relied in rendering its opinion and did not independently verify such
information. Alex. Brown also assumed that the financial projections supplied to
it were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of the Shurgard REIT and the
Management Company. In addition, Alex. Brown did not make an independent
evaluation or appraisal of the assets of the Shurgard REIT or the Management
Company in connection with its analyses. No limitations were imposed by the
Special Committee on Alex. Brown with respect to the information reviewed by or
the procedures followed by Alex. Brown in rendering its opinion.
A COPY OF THE WRITTEN OPINION OF ALEX. BROWN DATED DECEMBER 19, 1994, WHICH
INCLUDES THE MATTERS CONSIDERED, THE ASSUMPTIONS MADE AND THE LIMITS OF ITS
REVIEW, IS ATTACHED HERETO AS APPENDIX II, AND IS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. ALEX.
BROWN'S OPINION IS DIRECTED ONLY TO THE FAIRNESS TO THE SHURGARD REIT, FROM A
FINANCIAL POINT OF VIEW, OF THE CONSIDERATION PAYABLE BY THE SHURGARD REIT TO
THE SHAREHOLDERS OF THE MANAGEMENT COMPANY UNDER THE MERGER AGREEMENT.
REASONS FOR SELECTION OF ALEX. BROWN. The Shurgard REIT selected Alex.
Brown as its financial advisor on the basis of Alex. Brown's experience and
expertise in transactions similar to the Merger and its familiarity with the
real estate and REIT industries. Since 1985, Alex. Brown has underwritten nearly
$5.0 billion in equity on 75 REIT securities offerings, making it one of the
largest underwriters of equity REITs, and advised on a number of real estate and
REIT merger and acquisition transactions. Alex. Brown is a nationally recognized
investment banking firm that is involved regularly in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings and private placements, and valuations for corporate
and other purposes. Neither Alex. Brown nor any of its affiliates has been
engaged previously to provide investment banking or other financial services for
either the Shurgard REIT or the Management Company.
ALEX. BROWN COMPENSATION. Pursuant to a letter agreement dated July 18,
1994 (the "Engagement Letter"), the Shurgard REIT engaged Alex. Brown to provide
investment banking advice and services in connection with the Special
Committee's review and analysis of a potential business combination with the
Management Company. The Shurgard REIT agreed to pay Alex. Brown (i) a retainer
fee of $100,000 upon execution of the Engagement Letter and (ii) a fee of
$200,000 at the time of delivery of the Fairness Opinion. The Shurgard REIT also
has agreed to reimburse Alex. Brown for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, incurred by Alex. Brown in carrying
out its duties under the Engagement Letter, and to indemnify Alex. Brown for
certain liabilities to which it may be subjected in connection with its
engagement.
ANALYSIS AND CONCLUSIONS. The following is a summary of the material
factors considered and principal financial analyses performed by Alex. Brown in
connection with the preparation of the Fairness Opinion:
In valuing the Management Company, Alex. Brown considered a variety of
valuation methodologies, including a (i) discounted cash flow analysis, (ii)
comparable company analysis, and (iii) comparable transaction analysis. Alex.
Brown also considered the effect of the Merger on the Shurgard REIT's financial
position, including the likely impact on the price of Shurgard Class A Common
Stock, funds from operations per share and the Shurgard REIT's ability to
maintain its current per share dividend rate.
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The discounted cash flow approach assumes, as a basic premise, that the
intrinsic value of any business is the current value of the future cash flow
that the business will generate for its owners. To establish a current value
under this approach, future cash flow must be estimated and an appropriate
discount rate must be determined. Alex. Brown used projections and other
information provided by the Management Company to estimate future net income,
EBITDA, and funds from operations (net income, excluding gains or losses from
debt restructuring and sales of property, plus depreciation, amortization and
minority interests, and after adjustment for unconsolidated entities in which
the Management Company holds an interest) for the Management Company for each
year of a 10-year period beginning with 1995, using discount rates ranging from
10% to 20% and terminal value capitalization rates applied to tenth-year
projected net income, EBITDA and funds from operations ranging from 10% to 20%.
Alex. Brown's calculations resulted in the following ranges of values for the
Management Company: based upon a discounted cash flow analysis of the Management
Company's net income, a range of $15.5 million to $37.8 million; based upon a
discounted cash flow analysis of the Management Company's projected EBITDA, a
range of $24.3 million to $58.8 million; and, based upon a discounted cash flow
analysis of the Management Company's projected funds from operations, a range of
$24.3 million to $58.6 million.
Alex. Brown also analyzed selected publicly traded real estate companies
engaged primarily as managers and advisors in the real estate business. Alex.
Brown considered the following companies: Grubb & Ellis Company, Christiana
Companies, Inc. and Insignia Financial Group, Inc. Alex. Brown compared the
market value of each company, as determined by the closing price recorded for
each company's common stock on December 16, 1994, with each company's revenue,
EBITDA and shareholders' equity. Alex. Brown's calculations resulted in the
following ranges of multiples for these companies and the Management Company: a
range of market value to latest twelve months' revenue of 1.5x to 3.2x (with the
Management Company at 2.3x); a range of market value to latest twelve months'
EBITDA of 8.9x to 10.7x (with the Management Company at 7.8x); and, a range of
market value to shareholders' equity of 2.7x to 2.8x (with the Management
Company at 13.8x). In addition, Alex. Brown noted that these companies trade at
multiples of price to estimated 1994 earnings per share and estimated 1995
earnings per share of 28.6x and 14.5x, respectively (with the Management Company
at 15.0x and 12.4x for projected 1994 and 1995 net income, respectively). Alex.
Brown noted that its analysis did not rely heavily on the multiples of price to
estimated earnings per share due to the limited number of estimates available
for certain of these companies. Alex. Brown also noted that its analysis did not
place significant emphasis on the ratios of market value to shareholders' equity
based on its belief that revenue and EBITDA multiples are more relevant
indicators of value for a service company such as the Management Company.
Alex. Brown also compared the proposed acquisition of the Management Company
by the Shurgard REIT with acquisitions by selected public companies engaged
primarily in the real estate management, development and acquisition business.
Under this approach, Alex. Brown considered, among others, the acquisition of
Security Management Corporation and Angeles Corporation by Insignia Financial
Group, Inc., the acquisition of Koll Management Services, Inc. by an investor
group that included certain members of its management, the acquisition of BT
Venture Corporation by Boddie-Noell Properties, Inc. and the consolidation of
Franchise Finance Corporation of America with existing related real estate
limited partnerships. Alex. Brown determined the multiples of sales price to
revenue, net income, EBITDA and shareholders' equity for each of these
companies. Alex. Brown then applied the high, low and average of each of these
multiples to the revenue, net income, EBITDA and shareholders' equity of the
Management Company. Alex. Brown's calculations resulted in the following ranges
and averages of multiples for these companies: a range of sales price to latest
twelve months' revenue of 0.8x to 6.0x, with an average of 2.8x; a range of
sales price to latest twelve months' net income of 8.2x to 24.8x, with an
average of 17.0x; a range of sales price to latest twelve months' EBITDA of 6.7x
to 14.9x, with an average of 10.1x; and, a range of sales price to shareholders'
equity of 1.4x to 17.7x, with an average of 8.9x.
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Alex. Brown compared the value of the Share Consideration of $26.3 million
with ranges of values and averages based upon the Management Company's projected
results for 1995 and the foregoing multiples and averages, as follows: based
upon the ratio of sales price to revenue, a range of $9.3 million to $69.9
million, with an average of $32.5 million; based upon the ratio of sales price
to net income, a range of $17.2 million to $52.5 million, with an average of
$35.9 million; based upon the ratio of sales price to EBITDA, a range of $22.5
million to $50.1 million, with an average of $33.9 million; and, based upon the
ratio of sales price to the Management Company's projected 1994 shareholders'
equity, a range of $2.7 million to $33.8 million, with an average of $17.0
million. Alex. Brown also considered other financial characteristics of these
companies.
Alex. Brown deemed it inappropriate to employ the asset value approach in
rendering the Fairness Opinion because services companies, like the Management
Company, are generally valued in terms of the profitability and cash flow of
their operations, not in terms of asset value.
Alex. Brown also reviewed certain acquisitions of real estate advisory and
management companies by publicly traded REITs. This review included calculating
the multiples obtained by comparing the prices paid to acquire such companies
with the advisory fees earned by the acquired companies during the last full
fiscal year prior to the REIT's becoming self-advised and with the funds from
operations and total assets of the acquiring REITs. Under this approach, Alex.
Brown considered Bradley Real Estate Trust, Boddie-Noell Properties, Inc.,
Burnham Pacific Properties, Inc., Meditrust, Real Estate Investment Trust of
California, Health Equity Properties, Incorporated, American Health Properties,
Inc., Nationwide Health Properties, Inc., Health Care Property Investors, Inc.
and BRE Properties, Inc. Alex. Brown also considered other financial and
operating characteristics of these companies.
Alex. Brown's calculations resulted in the following ranges of multiples for
these companies and the Management Company: a range of sales price to
compensation paid to the advisor during the last full fiscal year prior to the
acquisition of .27x to 10.37x (with the Management Company at 2.68x); a range of
sales price to the advised REIT's funds from operations during the last full
fiscal year prior to the acquisition of .13x to .65x (with the Management
Company at .75x); and, a ratio of sales price to the advised REIT's total assets
of .003x to .049x (with the Management Company at .054x). Each of these ratios
excluded transactions between several REITs and their advisors in which the
REITs paid no consideration for the acquisition of their advisors.
Alex. Brown observed that its analysis did not rely heavily on the ratios
derived from the REITs which had acquired their advisors because of several
significant differences between the Management Company and most of the acquired
advisors, including, among others, (i) the fact that the Management Company owns
significant intangible assets, such as the "Shurgard" name and store designs and
systems, which are recognizable by the general public, whereas most of the
advisors are unknown to the general public, (ii) the Management Company receives
approximately one-third of its revenues from parties other than the Shurgard
REIT, whereas most of the advisors received substantially all of their revenues
from their advised REITs, (iii) the Management Company has proven its ability to
access the private capital markets on its own behalf to obtain funds for the
acquisition and development of properties, whereas most of the advisors'
activities were limited to accessing the capital markets through their advised
REITs, and (iv) the Management Company owned a storage center, whereas most of
the advised REITs owned no assets other than office equipment and furniture and
fixtures.
Alex. Brown also considered the earn-out feature of the Merger. Alex. Brown
believed that the earn-out was a reasonable means of mitigating the
uncertainties involved in determining the value, if any, of the Management
Company's interests in six limited partnerships. Under the earn-out, the amount
of any Contingent Shares payable to the Management Company shareholders with
respect to these partnership interests will be determined following (i) the
receipt of proceeds by the Shurgard REIT from the sale or other disposition by
the Shurgard REIT of all or any part of its interests in the partnerships during
the five years following the Closing, (ii) the receipt by the Shurgard REIT of
any
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distribution from a partnership attributable to the sale, refinancing,
liquidation or other disposition by a partnership of one or more of its
properties during the five years following the Closing, or (iii) a deemed
liquidating distribution from a partnership to the Shurgard REIT, if and to the
extent any of the partnership interests are not sold at the end of five years
after the Closing. In all such events, the Shurgard REIT will issue Contingent
Shares to the Management Company shareholders in an amount equal to 95% of the
"profits" received in connection with the actual or deemed disposition of such
partnership interests. Prior to their disposition, the Shurgard REIT will
receive any distributions with respect to such partnership interests without
payment of any consideration to the Management Company.
Based on the foregoing, Alex. Brown concluded that, as of the date of the
Fairness Opinion and based on various assumptions and considerations, the
consideration to be paid by the Shurgard REIT to the shareholders of the
Management Company pursuant to the Merger Agreement is fair, from a financial
point of view, to the Shurgard REIT.
The summary set forth above does not purport to be a complete description of
the analyses performed by Alex. Brown in arriving at the Fairness Opinion. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, notwithstanding the
separate factors summarized above, Alex. Brown believes that its analysis must
be considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying the Fairness
Opinion.
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SHURGARD STORAGE CENTERS, INC.
BUSINESS
GENERAL. The Shurgard REIT was formed through the consolidation on March 1,
1994 of 17 publicly held real estate limited partnerships (the "Consolidation")
that had been sponsored by the Management Company. The Shurgard REIT is one of
the largest operators of self-storage properties in the United States. It now
owns directly and through joint ventures 159 self-storage properties, containing
approximately 10.8 million net rentable square feet, located in 21 major
metropolitan areas in 18 states. The Shurgard REIT's self-storage properties
offer low-cost, easily accessible storage space for personal and business uses.
In addition, the Shurgard REIT owns two business parks. As of September 30,
1994, the Shurgard REIT's self-storage properties had a weighted average
occupancy of 90% and a weighted average annual rent per square foot of $8.51.
The Shurgard REIT's self-storage properties are currently managed by the
Management Company and are operated under the "Shurgard" name, which is owned by
the Management Company. The Management Company performs all real estate
acquisition, design and development and oversees the operations of the Shurgard
REIT's self-storage centers. Additionally, the Management Company performs
various administrative services, including legal, financial, accounting,
marketing and human resources. See "SHURGARD INCORPORATED -- Relationship With
the Shurgard REIT." Upon the consummation of the Merger, the Shurgard REIT will
become a self-administered and self-managed REIT.
The Shurgard REIT seeks to maximize shareholder value by increasing funds
from operations through internal growth and through the acquisition and
development of additional self-storage properties, as well as other real estate
investments. The Shurgard REIT believes that its access to capital markets, the
experience of its management team in acquiring and developing self-storage
properties, its geographic diversification and its emphasis on quality will
enhance its ability to achieve this objective.
The Shurgard REIT's strategy for internal growth is to increase rental rates
while maintaining strong occupancy levels, provides high-quality facilities,
achieve high levels of customer satisfaction, and employ skilled facility
managers who have the ability to operate the properties with considerable
autonomy. The Shurgard REIT's external growth strategy is designed to capitalize
on the current fragmentation in the self-storage industry through acquisition
and development of facilities in appropriate markets. In particular, the
Shurgard REIT seeks to acquire or develop high-quality properties concentrated
in its existing markets and in new markets that fit well within its current
network.
The Shurgard REIT expects to fund future acquisitions through the incurrence
of additional indebtedness, future offerings of its debt and equity securities
and retained cash flow. As of September 30, 1994, the Shurgard REIT had a debt
to total market capitalization ratio of 30%.
RECENT DEVELOPMENTS. On September 1, 1994, the Shurgard REIT completed the
purchase of 20 properties from Colonial Self Storage. The new properties
acquired by the Shurgard REIT were 98% occupied with average rent per square
foot of $7.34 as of June 30, 1994. These properties are located in the
Washington D.C. metropolitan area, Raleigh, North Carolina, Richmond, Virginia,
Virginia Beach, Virginia and Charlottesville, Virginia. In the aggregate, these
properties represent 732,312 total square feet.
On April 9, 1993, the Management Company entered into an agreement with
Freeman Management Corporation ("FMC"), a property development company located
in Nashville, Tennessee, pursuant to which the Management Company (or its
assignee) and FMC agreed to jointly acquire or develop self-storage facilities
in Tennessee and Kentucky. To date, the Shurgard REIT (as assignee of the
Management Company) has entered into three joint venture agreements with
partnerships affiliated with FMC to develop three self-storage facilities in the
Nashville area. The Shurgard REIT owns a
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67% interest in the first joint venture, a 50% interest in the second joint
venture and a 91.2% interest in the third joint venture. Development of each of
the facilities is expected to be substantially completed in 1995, and they will
have an aggregate of approximately 162,000 net rentable square feet.
On August 26, 1994, the Shurgard REIT entered into a commitment with a major
financial services company to provide an additional two-year $50 million
revolving credit facility. The facility will be used to fund the acquisition and
development of self-storage properties. The Shurgard REIT expects to finalize
this credit facility by the end of 1994.
On October 21, 1994, the Shurgard REIT entered into a commitment to invest
up to $3 million in a Belgian societe en commandite simple (an entity similar to
a limited partnership) ("Benelux SCS") that will own and operate self-storage
facilities in the Benelux region of Europe. The Shurgard REIT expects to make
such investment prior to the Closing. The Shurgard REIT's interests in Benelux
SCS are similar to that of general and limited partnership interests. The
Management Company has made a $250,000 working capital loan to, and holds an
interest in, Benelux SCS similar to that of a limited partner. The Management
Company has committed to lend an additional $500,000 to Benelux SCS. In the
Merger, the Shurgard REIT will acquire the Management Company's limited partner
interest in Benelux SCS.
On October 27, 1994, the Shurgard REIT entered into two participating loan
agreements with William B. Wrench ("Wrench") and partnerships of which Wrench
serves as the managing general partner pursuant to which the Shurgard REIT
agreed to advance nonrecourse loans to be secured by self-storage facilities
located in the Fairfax, Virginia area and managed by the Management Company. The
loans, totaling $12,000,000, were advanced on December 14, 1994 and are secured
by four self-storage facilities containing a total of approximately 206,700
square feet of net rentable storage space and approximately 28,300 square feet
of net rentable office/warehouse space. The Shurgard REIT also agreed to
advance, under certain conditions, up to an additional $1,000,000 to fund the
future construction of additional improvements at one of the facilities. The two
loans bear interest at 8% per annum during their 10-year terms, plus additional
interest from cash flow and gain at maturity. In addition, the Shurgard REIT has
been granted options to acquire each of the properties at established purchase
prices, which options generally become exercisable in five years and extend for
the balance of the original loan terms. The Management Company (or the Shurgard
REIT as its successor) will continue to manage the four properties during the
terms of the loans.
INDUSTRY BACKGROUND. The self-storage industry initially developed in the
early 1960s in the southwestern portion of the United States. These facilities
were developed in response to the growing need for low-cost accessible storage.
A number of factors accelerated the demand for low-cost storage including, among
others, a more mobile society, with individuals moving to new homes and new
cities needing short-term storage for their belongings, the increasing cost of
residential housing (with the result that houses were becoming smaller), the
increased popularity of apartments and condominiums, more individuals with
growing discretionary income (resulting in the purchase of items such as boats
and recreational vehicles that cannot be stored at residences), the growing
number of small businesses and the escalating cost of other storage
alternatives. As the demand for such storage increased, and the acceptance of
self-storage became more widespread, self-storage facilities were built
throughout the United States. Generally, such facilities were constructed along
major thoroughfares that provided ready access and public visibility or in
outlying areas where land was inexpensive. In certain areas of the country,
where new construction was impractical because of construction costs, lack of
suitable sites or other restrictions, older structures have been converted into
self-storage facilities.
The self-storage industry is highly fragmented, with facilities owned and
operated by individuals, small businesses, institutional investors, REITs and
syndicated partnerships. Based on information reported in the Self-Storage
Almanac for 1994, the Shurgard REIT estimates that there are in excess of 22,000
facilities throughout the United States. It is anticipated that the demand for
self-storage will
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continue to expand in view of existing high construction costs and the
continuing need for low-cost storage. It is expected, however, that the
competition will increase as the self-storage industry expands. See "--
Competition."
DESCRIPTION AND USE OF PROPERTIES. The Shurgard REIT owns directly and
through joint ventures 159 self-storage properties located in 21 major
metropolitan areas in 18 states. The Shurgard REIT's self-storage facilities are
designed to offer low-cost accessible storage space for personal and business
use. Individuals usually rent space in self-storage facilities for storage of
furniture, household appliances, personal belongings, motor vehicles, boats,
campers, motorcycles and other household and recreational goods. Businesses
typically use space for storage of inventory, business records, seasonal goods,
equipment and fixtures. The Shurgard REIT estimates that business users rent
approximately 35% to 40% of the space at its properties. The Shurgard REIT's
self-storage facilities are divided into a number of self-enclosed rental units
that generally range in size from 25 to 360 square feet. In addition, many
facilities have uncovered storage outside the buildings for parking motor
vehicles, boats, campers and other similar items suitable for outside storage.
As a general rule, customers have access to their leased space without
additional charge during normal business hours and control access to such space
through the use of padlocks. Approximately 20% of the properties owned by the
Shurgard REIT include climate-controlled storage units.
Self-storage facilities differ from warehouses and other storage facilities
in that the tenants are generally responsible for delivering and retrieving
stored goods. Several facilities also offer truck rentals and inventory sales to
the public. See "POLICIES REGARDING INVESTMENT AND CERTAIN OTHER ACTIVITIES --
Policy with Respect to Dividends and Certain Other Activities -- Ancillary
Services." The leasing, maintenance and operation of the facility are the
responsibility of on-site managers who frequently reside in an apartment located
at the facility. The facility's security is provided through a variety of
systems that may include, among others, on-site personnel, electronic devices
such as intrusion and fire alarms, access controls and video and intercom
surveillance devices, facility fencing and lighting.
Most self-storage facilities consist of one or more single-story buildings
that are located on a site of 1 1/2 to five acres, depending on the size of the
facility. The facilities frequently are constructed with concrete block or
tilt-up concrete panels, with steel columns or precast concrete columns that
rest on concrete footings and slabs and have built-up tar roofs or pitched truss
roofs with shingles or standing seam metal roofs. The interior walls are
generally constructed with metal studs and partitions or other construction
materials that are secure but readily movable. Access to the storage units is
usually provided through roll-up or swing doors. The parking areas and driveways
are generally paved with asphalt, cement or other similar materials. Most
facilities have fencing, floodlights, sliding or swinging gates and certain of
the security devices mentioned above.
In some cases, multistory buildings able to bear substantial weight loads,
such as warehouses and newspaper plants, have been converted into self-storage
facilities. In addition, similar multistory buildings for self-storage have been
constructed in dense urban areas where land costs, zoning and other development
considerations make it impractical or undesirable to construct single-story
buildings.
Generally, tenants can access leased space directly by automobile, truck or
other delivery device, but some facilities, in particular the multistory
buildings, have separate loading docks and elevators available for delivery and
retrieval of stored goods.
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The following table provides information regarding the year acquired (by the
Shurgard REIT or by one of the partnerships included in the Consolidation, as
the case may be), year built, approximate net rentable square feet and acreage
of each of the self-storage properties owned by the Shurgard REIT.
<TABLE>
<CAPTION>
PROPERTY LOCATION APPROXIMATE
------------------------------ YEAR NET RENTABLE
PROPERTY NAME CITY STATE ACQUIRED YEAR BUILT SQUARE FEET ACREAGE
- ------------------------- ------------------- --------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kalamazoo Kalamazoo MI 1980 1980 42,695 3.0
Vancouver Mall (1) Vancouver WA 1980 1982 45,900 3.3
West Seattle (1) Seattle WA 1980 1981 47,500 3.4
Bellingham Bellingham WA 1981 1981 73,238 5.7
Everett (2) Everett WA 1981 1978 63,720 4.2
Highland Hill Tacoma WA 1981 1982 59,675 3.9
Troy East (1) Troy MI 1981 1975/77 79,090 4.8
Alsip (1) Alsip IL 1982 1980 66,406 4.6
Dolton (1) Calumet City IL 1982 1979 63,625 3.0
Lombard (1) Lombard IL 1982 1980 52,410 3.1
Rolling Meadows (1) Rolling Meadows IL 1982 1980 60,377 4.5
Schaumburg (1) Schaumburg IL 1982 1980 70,675 4.3
Grand Rapids Grand Rapids MI 1983 1978 45,845 3.2
Lansing (1) Lansing MI 1983 1978/79 40,575 2.5
Salem (1) Salem OR 1983 1979/81 66,915 3.8
Seattle (1) Seattle WA 1983 1979 78,755 4.5
Southfield (1) Southfield MI 1983 1976 76,650 4.3
Troy West (1) Troy MI 1983 1979 87,725 5.2
Bellevue East (1,4) Bellevue WA 1984 1975 164,825 5.6
Bellevue West (1,4) Bellevue WA 1984 1979 5.2
Edmonds (1) Edmonds WA 1984 1974/75 120,190 6.5
Factoria (1) Bellevue WA 1984 1984 57,275 3.8
Federal Way (1) Federal Way WA 1984 1975 134,440 5.7
Fife (3) Tacoma WA 1984 1977 63,554 3.9
North Spokane (1) Spokane WA 1984 1976 75,665 4.1
Renton (1) Renton WA 1984 1979/89 80,190 4.5
Tamarac (1) Denver CO 1984 1977 25,188 1.9
Tempe (2) Tempe AZ 1984 1976 54,469 3.0
Thornton (1) Denver CO 1984 1984 40,821 2.4
Totem Lake (2) Kirkland WA 1984 1978 60,880 2.6
Windermere (1) Littleton CO 1984 1977/79 83,281 5.3
Woodinville (2) Woodinville WA 1984 1982/84 69,875 3.5
Gladstone Gladstone OR 1984/85 1981/89 47,930 3.2
Beaverton (1) Beaverton OR 1985 1974 25,800 2.0
Bedford (3) Bedford TX 1985 1984 69,050 2.7
Bellefontaine St. Louis MO 1985 1979 45,064 4.9
Bridgeview (1) Bridgeview IL 1985 1983 74,540 4.1
Burien (2) Seattle WA 1985 1974 91,876 5.3
Colton (1) Colton CA 1985 1984 73,032 3.8
Hayward (1) Hayward CA 1985 1983 47,720 2.8
Hill Country Village (1) San Antonio TX 1985 1982 79,040 4.0
Irving (1) Irving TX 1985 1975/84 77,660 4.2
Issaquah (1) Issaquah WA 1985 1986 56,360 4.7
N.W. Houston (1) Houston TX 1985 1979/83 104,447 4.9
Oakland Park (1) Ft. Lauderdale FL 1985 1974/78 292,035 13.4
Phoenix (1) Phoenix AZ 1985 1984 77,397 2.7
Plymouth Canton Township MI 1985 1979 74,990 5.3
San Antonio NE (1) San Antonio TX 1985 1982 73,550 3.6
Scottsdale (1) Scottsdale AZ 1985 1976/85 47,185 3.0
Sea-Tac (2) Seattle WA 1985 1979 60,050 3.0
Southcenter Renton WA 1985 1979 66,975 4.1
Union City (1) Hayward CA 1985 1985 41,931 2.9
Scottsdale North (2) Scottsdale AZ 1985/87 1985 112,065 4.1
Walled Lake (1) Walled Lake MI 1985/89 1984 68,425 4.3
Newport News S. (1) Newport News VA 1985/92 1985 60,180 3.9
Airport Philadelphia PA 1986 1985 101,175 6.7
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
PROPERTY LOCATION APPROXIMATE
------------------------------ YEAR NET RENTABLE
PROPERTY NAME CITY STATE ACQUIRED YEAR BUILT SQUARE FEET ACREAGE
- ------------------------- ------------------- --------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Arlington (1) Arlington TX 1986 1984 56,525 2.7
Aurora North (1) Seattle WA 1986 1978 57,641 1.6
B Y Gold Brooklyn NY 1986 1940 107,995 0.4
B Y Utica Brooklyn NY 1986 1964 71,009 1.1
B Y Van Dam Long Island City NY 1986 1925 63,253 0.5
B Y Yonkers Yonkers NY 1986 1928 101,573 1.6
Chandler (1) Chandler AZ 1986 1986 68,565 4.0
Clinton (1) Clinton MD 1986 1985 30,508 2.0
College Park (3) Indianapolis IN 1986 1984 69,760 6.0
Downtown Seattle (2) Seattle WA 1986 1912 27,617 0.3
East Lynnwood (1) Lynnwood WA 1986 1978 79,760 3.8
El Cajon (2) El Cajon CA 1986 1977 126,998 6.0
El Cerrito Richmond CA 1986 1987 62,033 1.5
Fairfax (1) Fairfax VA 1986 1980 61,730 5.6
Glendale (3) Indianapolis IN 1986 1985 59,950 5.6
Kearney-Balboa (2) San Diego CA 1986 1984 94,007 2.3
La Habra (1) La Habra CA 1986 1979/91 96,930 7.1
Lakewood (3) Golden CO 1986 1985 66,600 2.7
Lisle (2) Lisle IL 1986 1976/86 52,050 3.4
MacArthur Blvd. (1) Irving TX 1986 1984 62,850 7.2
North Austin (1) Austin TX 1986 1982 75,690 5.9
Palo Alto (1) Palo Alto CA 1986 1987 48,915 1.4
Roswell (3) Roswell GA 1986 1986 56,579 3.8
Santa Ana (2) Santa Ana CA 1986 1975/86 168,479 8.1
Seminole (1) Seminole FL 1986 1984/85 61,098 2.7
Sunnyvale Sunnyvale CA 1986 1974/75 122,416 6.5
Thousand Oaks (2) San Antonio TX 1986 1987 53,495 2.9
West Chester West Chester PA 1986 1980 87,071 7.0
Westheimer (1) Houston TX 1986 1977 73,410 3.7
Westwood (2) Santa Monica CA 1986 1988 38,485 0.3
Willowbrook (1) Willowbrook IL 1986 1979/1982 44,325 3.3
B Y Northern Long Island City NY 1987 1940 77,573 1.9
Capitol Hill (6) Seattle WA 1987 1988 76,400 0.7
Cook Road (1) Houston TX 1987 1986 61,150 3.0
Euless Blvd. (1) Hurst TX 1987 1974 67,505 4.7
Falls Church (4,7) Falls Church VA 1987 1988 92,730 1.5
Falls Church (8) Falls Church VA 1987 1988 92,730 1.5
Fontana Sierra (1) Fontana CA 1987 1980/85 84,444 3.6
Fredricksburg (1) San Antonio TX 1987 1978/82 81,535 4.5
Interbay (3) Seattle WA 1987 1988 80,375 0.4
King City (1) Tigard OR 1987 1986 83,575 4.9
Mesa (1) Mesa AZ 1987 1985 102,830 4.8
Military Trail (1) West Palm Beach FL 1987 1981 123,842 9.4
Mountain View (1) Mountain View CA 1987 1986 28,568 0.7
Northglenn (1) Northglenn CO 1987 1979 75,000 5.5
Old Bridge Matawan NJ 1987 1987 77,600 6.1
Olive Innerbelt St. Louis MO 1987 1952/86 93,645 2.5
Phoenix East (1) Phoenix AZ 1987 1984 65,904 2.0
S. San Francisco (1) San Francisco CA 1987 1985 56,594 2.1
Smokey Point (1) Arlington WA 1987 1984/87 33,824 2.2
Solana Beach (2) Solana Beach CA 1987 1984 94,815 4.5
South Tacoma (1) Tacoma WA 1987 1975 46,490 3.1
Suitland Suitland MD 1987 1985 43,543 2.7
West Palm Beach (1) West Palm Beach FL 1987 1975 163,074 11.8
Tacoma Interstate (3) Tacoma WA 1987/88/91 1979/81 127,943 12.2
Ann Arbor Ann Arbor MI 1988 1977 61,725 3.9
Bandera Road (1) San Antonio TX 1988 1981 75,703 3.6
Bayside (3) Virginia Beach VA 1988 1984 28,392 1.7
Blanco Road (1) San Antonio TX 1988 1989/91 65,985 3.6
Brentwood Brentwood MO 1988 1977 52,576 3.4
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
PROPERTY LOCATION APPROXIMATE
------------------------------ YEAR NET RENTABLE
PROPERTY NAME CITY STATE ACQUIRED YEAR BUILT SQUARE FEET ACREAGE
- ------------------------- ------------------- --------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Canton (5) Canton MI 1988 1986 58,400 3.3
Crofton (1) Gambrills MD 1988 1985 39,823 2.1
Culver City (7) Los Angeles CA 1988 1989 76,091 1.4
Culver City (8) Los Angeles CA 1988 1989 76,091 1.4
Federal (1) Houston TX 1988 1988 55,225 3.4
Fraser (5) Fraser MI 1988 1985 73,000 5.2
Herndon (1) Herndon VA 1988 1985 38,630 3.0
Hillside (3) Hillside IL 1988 1988 65,205 5.3
Huntington Beach (2) Huntington Beach CA 1988 1986 90,681 3.3
Imperial Valley (1) Houston TX 1988 1987 54,375 3.1
Kingwood (2) Kingwood TX 1988 1988 53,675 3.3
Laurel (1) Laurel MD 1988 1984 30,222 2.0
Livonia (8) Livonia MI 1988 1985 67,450 4.8
Manassas East (1) Manassas VA 1988 1984 34,881 2.0
Manassas West (1) Manassas VA 1988 1985 34,960 1.5
North Richmond (1) Richmond VA 1988 1984 37,275 2.6
Portland (1) Portland OR 1988 1988 49,100 2.1
Sugarland (1) Sugarland TX 1988 1987 54,950 3.0
Waren (5) Warren MI 1988 1985 68,225 4.6
Woodlands (1) Houston TX 1988 1988 64,325 3.8
Beltline Rd. (1) Irving TX 1989 1985/86 88,900 6.3
Denny Road (1) Beaverton OR 1989 1988 64,860 6.2
Greenbriar (1) Houston TX 1989 1988 60,362 1.8
Kempsville (1) Virginia Beach VA 1989 1985 32,638 2.0
Medical Center (7) Houston TX 1989 1989 57,125 2.6
South Main (8) Houston TX 1989 1989 57,125 2.6
Virginia Beach Virginia Beach VA 1989 1985 36,470 2.3
Hillcroft (2) Houston TX 1991 1988 59,075 3.4
Briggs Chaney (3) Silver Spring MD 1994 1987 27,841 2.0
Capital Blvd (3) Raleigh NC 1994 1984 34,500 2.1
Cary (3) Cary NC 1994 1984 61,770 4.7
Cedar Road (3) Chesapeake VA 1994 1989 35,550 2.1
Charlottesville (3) Charlottesville VA 1994 1984 31,600 2.1
Crater Road (3) Petersburg VA 1994 1987 36,090 3.8
Dale City (3) Dale City VA 1994 1986 31,397 1.6
Frederick (3) Frederick MD 1994 1987 32,418 1.7
Gainesville (3) Gainesville VA 1994 1988 31,200 2.0
Gaithersburg (3) Gaithersburg MD 1994 1986 57,164 5.4
Garner (3) Garner NC 1994 1987 27,900 3.1
Germantown (3) Germantown MD 1994 1988 44,595 1.9
Glenwood (3) Raleigh NC 1994 1983 30,960 1.9
Holland Road (3) Virginia Beach VA 1994 1985 33,650 3.9
Jeff Davis Hwy (3) Richmond VA 1994 1990 35,075 5.2
Laskin Road (3) Virginia Beach VA 1994 1984 38,500 2.5
Morrisville (3) Morrisville NC 1994 1988 40,000 3.3
Oxon Hill (3) Ft. Washington MD 1994 1987 28,192 1.3
Princess Anne Road (3) Virginia Beach VA 1994 1985 39,850 2.2
Temple Avenue (3) Petersburg VA 1994 1989 34,060 4.0
<FN>
- ------------------------------
(1) Properties secure a loan from Nomura Asset Capital Corp., a subsidiary of
Nomura Securities International, Inc., entered into in June 1994.
(2) Properties secure a line of credit from Seattle-First National Bank entered
into in August 1994.
(3) Properties secure a line of credit from Nomura Asset Capital Corp., a
subsidiary of Nomura Securities International, Inc., entered into in
December 1994.
(4) Bellevue West and Bellevue East are operated as one facility. Their
aggregate net rentable square feet is 164,825.
(5) The Shurgard REIT owns a 30% interest in this property.
(6) The Shurgard REIT owns a 90% interest in this property.
(7) The Shurgard REIT owns a 61% interest in this property.
(8) The Shurgard REIT owns a 39% interest in this property.
</TABLE>
40
<PAGE>
LEASING OF PROPERTIES. Rental units are usually rented on a month-to-month
basis, but longer term leases are used in some circumstances. The typical total
rental period for a tenant is approximately 1 1/2 years. Business tenants tend
to lease space for longer periods than individuals. Rental income from leased
space constitutes the primary revenue from such facilities, but additional
revenues are received from incidental services rendered at the facilities, such
as lock and box sales and truck rentals. Rental rates vary substantially
depending on the size of the storage space and the facility location and quality
of the facility. In addition, self-storage facilities range considerably in
size. Of the facilities owned by the Shurgard REIT, the smallest facility is
approximately 30,000 square feet, while the largest facility is approximately
300,000 square feet. Storage units within a facility typically range from 25 to
300 square feet of storage area. Smaller units are usually leased to individuals
for consumer goods, while large spaces are frequently leased to business and
commercial users.
OFFICE AND BUSINESS PARKS. Office and business parks are designed to
provide affordable rental space that is easily accessible to the public, usually
in a campus-like setting. Such rental space is used for a wide range of
business, industrial and commercial uses, including, among other things, office
space, light manufacturing and assembly, research and development activities,
storage and warehousing and professional and business services. The combination
of users available in any particular park depends on the market demands in the
local area. The tenants of such properties are generally new or small
commercial, industrial or professional businesses. Business and office parks
vary considerably in size and nature of construction, depending on the
properties' location, quality and purpose. The typical park consists of one to
10 separate buildings located on a site of two to 15 acres. Such parks generally
provide approximately 50,000 to 250,000 square feet of rental space with rental
units ranging in size from 500 to 5,000 square feet. Such properties are
generally landscaped and provide open or covered parking spaces for tenants and
their customers. The leasing of business and office parks differs considerably
from property to property. As a general rule, leases on such properties have a
term of one to three years. Current leasing practices differ from area to area
and actual lease terms depend on market circumstances.
The Shurgard REIT currently owns two business parks, both of which are
located near Tacoma, Washington. The Fife Business Park, which was built in 1977
and acquired in 1984 by one of the partnerships included in the Consolidation,
has approximately 63,554 net rentable square feet on 4 acres. The Tacoma
Interstate Business Park, which was built in 1979 and acquired in 1987 by one of
the partnerships included in the Consolidation, has approximately 127,760 net
rentable square feet on 12 acres.
COMPETITION
In the past 25 years there has been considerable construction and
development of self-storage facilities to meet the demand for low-cost storage.
This development has increased the competition among existing self-storage
facilities. To the extent that the existing properties operate profitably, this
will likely stimulate further development and result in greater competition
between the newly developed and existing properties. Entry into the self-storage
business through acquisition of existing facilities is relatively easy for
persons or institutions with the required initial capital. Development of new
self-storage facilities is more difficult, however, due to zoning, environmental
and other regulatory requirements. In the operation of office and business
parks, the Shurgard REIT will compete with, among others, national and regional
developers. Some of the Shurgard REIT's competitors may have more resources than
the Shurgard REIT.
41
<PAGE>
Competitors may include insurance companies, mortgage banks, pension funds
and other real estate investors, including foreign investors, real estate
syndicates and REITs. The primary factors upon which competition will be based
are location, rental rates, suitability of the property's design to prospective
tenants' needs and the manner in which the property is operated and marketed.
Competition may be accentuated by any increase in availability of funds for
investment in real estate. The extent to which the Shurgard REIT is affected by
competition will depend in significant part on general market conditions.
The Shurgard REIT believes that the significant real estate, operating and
finance experience of the Management Company's employees will substantially
assist the Shurgard REIT in competing effectively with other entities.
SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Shurgard REIT
should be read in conjunction with "-- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included elsewhere in this Proxy Statement/ Prospectus.
SHURGARD STORAGE CENTERS, INC.
SELECTED FINANCIAL INFORMATION (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR
AT OR FOR NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1993 1994
----------------- -----------------
<S> <C> <C>
OPERATING DATA:
Operating revenues..................... $-- $ 45,701
Earnings............................... -- 12,617
Net income per common share............ -- 0.74
Dividends declared per common share.... -- 0.58(2)
BALANCE SHEET DATA:
Total assets........................... $ 1 $484,774
Long-term debt......................... -- 155,121
<FN>
- ------------------------
(1) Operating data for the year ended December 31, 1993 are not included as
they are de minimis.
(2) Does not include the dividend of $.44 per share declared in October 1994
based on financial results for the quarter ended September 30, 1994.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES. On March 1, 1994, the Shurgard REIT
completed the acquisition of 17 publicly held limited partnerships administered
by the Management Company as a means for assembling an initial portfolio of real
estate investments. The Shurgard REIT acquired the assets, subject to existing
liabilities, of each of the partnerships for an aggregate cost of $387.4
million. The acquisition was funded by the issuance of 16,983,728 shares of
Shurgard REIT Common Stock and $67.1 million in proceeds from a note payable to
a financial services company. Real estate assets acquired consisted of 134
self-storage centers and two business parks located in 17 states, as well as
interests in two joint ventures owning an additional five storage centers.
On June 9, 1994, the Shurgard REIT refinanced substantially all of its
existing debt (including the $104.6 million incurred in connection with the
acquisition discussed above) with Nomura Asset
42
<PAGE>
Capital Corp., a subsidiary of Nomura Securities International, Inc., through a
debt purchase transaction. The $122.58 million loan, secured by certain real
estate, provides the Shurgard REIT with funds for seven years at a fixed rate
equal to 8.28% and requires monthly payments of interest only until maturity.
The following table summarizes the uses of proceeds from this loan:
<TABLE>
<S> <C>
Repayment of Cargill debt..................... $104,600,000
Repayment of other debt....................... 14,156,000
Loan fees and closing costs................... 2,371,000
Net proceeds.................................. 1,453,000
------------
Loan proceeds........................... $122,580,000
------------
------------
</TABLE>
In connection with this transaction, the Shurgard REIT incurred a $1.2 million
loss on early retirement of debt due to the write off of unamortized loan fees.
The refinancing provides the Shurgard REIT with stabilized debt service costs
and greater flexibility for future growth.
Additionally, in August 1994, the Shurgard REIT executed a commitment letter
with a financial services company to provide a second $50 million two-year
revolving credit facility. This credit facility, which closed in December 1994,
is secured by real estate, bears interest at LIBOR plus 175 basis points, and
requires a draw fee equal to 25 basis points of the amount drawn. The commitment
fee for the revolving period is 100 basis points of the commitment amount.
On September 1, 1994, the Shurgard REIT purchased 20 storage centers from an
unaffiliated storage operator based in Raleigh, North Carolina for an aggregate
purchase price of $34 million. These centers were financed with $30 million from
the Company's credit facility, a $1 million note to the seller and $3 million in
cash. The new properties acquired by the Shurgard REIT were 98% occupied with
average rent per square foot of $7.34 as of June 30, 1994. The average age of
these properties is 7.6 years. Selected information regarding the newly acquired
centers is as follows:
<TABLE>
<CAPTION>
NO. OF NO. OF SQUARE
METROPOLITAN AREA STORES UNITS FEET
---------------------------------- ------ ------ -------
<S> <C> <C> <C>
Washington, D.C................... 7 2,399 252,807
Raleigh, NC....................... 5 1,567 195,130
Richmond, VA...................... 3 926 105,225
Virginia Beach, VA................ 4 1,196 147,550
Charlottesville, VA............... 1 300 31,600
------ ------ -------
20 6,388 732,312
------ ------ -------
------ ------ -------
</TABLE>
In connection with this purchase, the Shurgard REIT borrowed $30 million on
its $50 million two-year revolving credit facility. This credit facility is
secured by real estate and interest is payable monthly at 7.33% for the first
six months, and thereafter at either the bank's prime rate or LIBOR plus 200
basis points (at the Shurgard REIT's option). The commitment fee for the
revolving period was 75 basis points of the commitment amount and, upon the
expiration of the revolving period, for an additional fee of 37.5 basis points
of the amount outstanding, the Shurgard REIT may extend any outstanding balance
for a one-year term. The Shurgard REIT's total debt at September 30, 1994 was
$155.1 million, of which $122.6 million was at a fixed rate, with an weighted
average interest rate of 8.1%.
During July 1994, the Shurgard REIT entered into a joint venture with a
partnership managed by Freeman Management Corporation, a storage operator and
developer, to develop a property in Nashville, Tennessee. The Shurgard REIT owns
a 67% interest in this project, which will initially have 59,700 net rentable
square feet and is expected to be completed in early 1995. The Shurgard REIT's
investment in this project, which was funded from operating cash flow, is
$600,000. The Shurgard REIT has guaranteed repayment of $833,500 of the joint
venture's construction loan.
43
<PAGE>
During November 1994, the Shurgard REIT entered into a second joint venture
with a partnership managed by Freeman Management Corporation to develop another
property in Nashville, Tennessee. The Shurgard REIT owns a 50% interest in this
project, which will initially have 67,700 net rentable square feet and is
expected to be completed in early 1995. The Shurgard REIT's investment in this
project, which was funded from operating cash flow, is $640,000. The Shurgard
REIT has guaranteed repayment of $1,110,700 of the joint venture's construction
loan.
In January 1995, the Company entered into a third joint venture with a
partnership managed by the same developer to develop a third property in
Nashville, Tennessee. The Company will have a 91.2% interest in this project,
which will initially have 55,000 net rentable square feet and is expected to be
complete in late 1995. The Company's investment in this project, which is
expected to be funded from operating cash flow, will be $2,500,000.
In October 1994, the Shurgard REIT entered into a commitment to invest up to
$3 million in Benelux SCS, a Belgian societe en commandite simple (an entity
similar to a limited partnership) that will own and operate self-storage
facilities in the Benelux region of Europe. The Shurgard REIT has acquired
interests in Benelux SCS similar to that of general and limited partnership
interests. Through its entitlement to a majority of the seats on the board, the
Shurgard REIT currently has authority to direct the business affairs of Benelux
SCS. Its percentage interest in economic benefits from this partnership will be
determined based on its percentage of total contributed capital. As of the date
of this Proxy Statement/Prospectus, the Shurgard REIT has contributed
approximately $1.25 million in exchange for approximately 58% of the total
interests in Benelux SCS. The funding for this investment was obtained from the
Shurgard REIT's cash flow from operations.
As of December 14, 1994, the Shurgard REIT has paid $12 million and
committed an additional $1 million for investment in two 10-year participating
mortgage loans that are nonrecourse to the borrower and are secured by real
estate, including four storage centers and office/warehouse space located in the
Washington, D.C. metropolitan area. The four storage centers have in aggregate
207,000 square feet of rentable space in 1,917 units. They currently average 88%
occupancy and $10.13 annual rent per square foot. The warehouse/office space
totals 28,340 square feet, is fully occupied and provides rent of $21,000
monthly. All four centers have been managed by the Management Company for 1.5
years and, under the loan agreement, will continue to be managed by the
Management Company. The Shurgard REIT will receive interest at 8% per annum plus
50% of both operating cash flow and distributions from the sale of real
property. The Shurgard REIT has options to purchase the properties at
established prices, generally exercisable in five years and extending until
maturity of the loans. The Shurgard REIT funded this investment through a $12
million draw on its revolving credit facility.
The Shurgard REIT anticipates that cash flow from operating activities will
continue to provide adequate capital for debt service payments until maturity as
well as for dividend payments in accordance with REIT requirements. The Shurgard
REIT anticipates refinancing outstanding debt upon maturity through debt or
equity or some combination thereof. Cash provided by operating activities for
the seven months of operations was $21.8 million. Working capital reserves at
December 31, 1994 were $5.7 million and dividends declared by the Shurgard REIT
through December 1, 1994 total $1.02 per share.
RESULTS OF OPERATIONS -- MARCH 1, 1994 (BEGINNING OF OPERATIONS) THROUGH
SEPTEMBER 30, 1994. The Shurgard REIT operates a professionally managed real
estate portfolio consisting primarily of self-storage properties that provide
month-to-month leases for business and personal use. Income
44
<PAGE>
before extraordinary item for the period was $13.8 million, or $0.81 per share,
reflecting seven months of consolidated operations for 139 storage centers and
two business parks, and one month of operations for the 20 newly purchased
storage properties in the following states:
<TABLE>
<CAPTION>
PERCENTAGE OF PORTFOLIO SEPTEMBER 30, 1994-TO-DATE
BASED ON ORIGINAL COST ANNUALIZED PROPERTY
AT SEPTEMBER 30, 1994 PERFORMANCE
----------------------- --------------------------
<S> <C> <C>
California............... 15.2% 11.1%
Florida.................. 5.8% 10.7%
New York................. 5.4% 12.4%
Texas.................... 14.6% 10.9%
Virginia................. 9.0% 11.7%
Washington............... 20.2% 11.6%
Other.................... 29.8% 12.5%
----- ---
Total................ 100.0% 12.5%
-----
-----
</TABLE>
The annualized property performance percentages are determined by dividing
the annualized property level net operating income (rental revenue less
operating expenses, real estate taxes and management fees) for the seven months
ended September 30, 1994 by the original acquisition cost. This performance is
not necessarily indicative of what the actual property performance percentages
for the full year will be. Net operating income is not reduced by depreciation
or certain general and administrative expenses; had it been, the percentages
would be lower.
PRO FORMA RESULTS OF OPERATIONS. As the Shurgard REIT did not begin
operating the properties until March 1, 1994, management believes that the pro
forma information presented is necessary to provide more meaningful comparative
information for the nine months ended September 30, 1994. The pro forma
statements provided compare the operating results of the combined 17
partnerships for the nine months ended September 30, 1993 and the pro forma
results of operations of the Shurgard REIT for the nine months ended September
30, 1994 as if the Consolidation had occurred on January 1, 1994.
In connection with the Consolidation, certain of the partners, representing
the equivalent of 3.5 million shares of Shurgard Class A Common Stock, elected
to take cash and liquidate their investment. The Shurgard REIT borrowed the $67
million required for these cash payments and the corresponding interest expense
is reflected in the 1994 earnings. Interest on the $67 million for the nine
months ended September 30, 1994 is approximately $4.2 million. Additionally, as
a result of the Consolidation, the majority of the debt held by the
partnerships, including short-term debt at relatively low interest rates, had to
be refinanced at a slightly higher rate (8.28%). This increase in interest
expense is the primary reason for the difference in both expense and earnings
for the nine months ended September 30, 1994 compared to the combined
partnership earnings for the same period in 1993.
Rental revenues increased 7.5% to $58 million for the nine months ended
September 30, 1994, primarily due to rental rate increases. Rental rates for the
original portfolio increased by 5.9% to $8.28 per square foot for the nine
months ended September 30, 1994 compared to $7.82 per square foot for the same
period in 1993. Occupancy rates were unchanged at 90% for the nine months ended
September 30, 1994 and for the nine months ended September 30, 1993. Operating
expenses rose 6%, reflecting moderate increases in various expenses, including
utilities, repair and maintenance expense, as well as revenue-based bonuses for
on-site personnel. Management fees decreased because the partnership's contracts
contained provisions for incentive management fees which were being paid in
addition to the 6% of revenues for two of the partnerships; no such provision
exists in the Shurgard REIT's management contract. Depreciation decreased
because the original cost of the storage centers to the Shurgard REIT was lower
than the original cost to the partnerships. General
45
<PAGE>
and administrative expenses rose as a result of certain new expenses not
previously incurred by the partnerships, including franchise taxes and
directors' and officers' insurance, as well as expenses relating to the Shurgard
REIT's expansion efforts.
The 20 properties acquired on September 1, 1994 are expected to add
approximately $460,000 annually to consolidated net income. Pro forma adjusted
net income was not presented due to the immaterial nature of the transaction.
POLICIES REGARDING INVESTMENT AND CERTAIN OTHER ACTIVITIES
Set forth below is a summary of certain of the Shurgard REIT's policies with
respect to investment, financing, conflicts of interest transactions and certain
other activities. The policies with respect to these activities have been
determined by the Shurgard REIT Board. As described below, a number of these
policies are contained in the By-Laws, and may not be amended, repealed or
modified, or inconsistent provisions adopted with respect thereto, without an
affirmative vote of shareholders holding the majority of the outstanding shares
entitled to vote. The Shurgard REIT Board may amend or repeal those policies
that are not contained in the By-Laws without shareholder approval if it
determines in the future that such change is in the best interests of the
Shurgard REIT and its shareholders.
ACQUISITION, DEVELOPMENT AND INVESTMENT POLICIES
ACQUISITIONS. Subject to specific restrictions in its By-Laws, the Shurgard
REIT may acquire investments in such manner, through such means, and upon such
terms and conditions as may be determined by the Shurgard REIT Board. Such
investments may include, but are not limited to, direct investments by the
Shurgard REIT in real estate interests, as well as investments in corporations,
business trusts, general partnerships, limited partnerships, joint ventures or
other legal entities owning or holding real estate investments that could have
been made by the Shurgard REIT. The Shurgard REIT intends to structure these
investments to permit the Shurgard REIT to qualify as a REIT under the Code. The
timing and extent of such investments will depend on various factors such as the
Shurgard REIT's capitalization, availability of attractive investments, expected
investment returns and other similar economic factors generally considered when
making real estate investments.
PROPERTY DEVELOPMENT. The Shurgard REIT may acquire unimproved property for
development, or existing improvements for conversion, into self-storage
facilities. To the extent that such acquisitions are made, the Shurgard REIT
will be subject to the development and leasing risks associated with
constructing and developing new facilities. See "RISK FACTORS -- General Real
Estate Investment Risks and Self-Storage Industry Risks -- Risks of Real Estate
Development." It has been the Management Company's experience that a
self-storage facility must be approximately 35% to 40% occupied (on the basis of
square footage of cubicle storage space) in order for gross receipts from
operations to equal or exceed normal operating expenses (exclusive of debt
service payments associated with the property). Given the anticipated lease-up
timeframe, the Shurgard REIT will not normally expect a developed facility to
generate positive cash flow for distribution, or for payment of the Shurgard
REIT's debt service, during the first six months after the acquisition of a
property for development. As a general rule, the Shurgard REIT plans to acquire
and develop facilities primarily in the markets that the Shurgard REIT already
operates in.
MORTGAGE LOANS. Since the Shurgard REIT operates primarily as an equity
REIT (i.e., substantially all of the Shurgard REIT's assets will consist of
equity investments, direct or indirect, in real estate assets, not in debt
investments), the Shurgard REIT does not, generally speaking, intend to utilize
material amounts of its available capital to acquire mortgage loans. Under its
By-Laws, the Shurgard REIT is, however, authorized to invest up to 25% of its
total assets in mortgage loans secured by real estate of a type in which the
Shurgard REIT is authorized to invest. Such investments must also satisfy
certain other restrictions set forth in the By-Laws, including, among others,
the requirements that the aggregate amount of the mortgage loan and all senior
indebtedness secured by
46
<PAGE>
the property not exceed 90% of the appraised or Board-determined value of the
property and that the aggregate value of mortgage loans junior to other secured
indebtedness does not exceed 10% of the Shurgard REIT's total assets. The
Shurgard REIT recently committed approximately $13 million in mortgage loans.
See "SHURGARD STORAGE CENTERS, INC. -- Business -- Recent Developments."
Consistent with these guidelines, the Shurgard REIT may, on occasion, loan
funds to third parties to construct self-storage facilities or office and
business parks. At the time such mortgage loans are made, the Shurgard REIT may
contract to purchase the property upon completion of development or after
certain other conditions, such as minimum net income levels, have been achieved.
EQUITY INVESTMENTS AND JOINT VENTURES. As a general rule, the Shurgard REIT
invests directly in real estate by obtaining the deed to the property. There
may, however, be situations where the Shurgard REIT Board considers it
preferable for the Shurgard REIT to invest in real estate by acquiring an equity
interest in a separate legal entity, such as a partnership, limited partnership,
joint venture, another REIT or trust, that in turn has an equitable interest in
or legal title to real estate. The By-Laws place certain restrictions upon the
Shurgard REIT's right to invest in general partnerships, joint ventures,
associations, trusts, limited partnerships or other legal entities. Such
investments may not be made if they would jeopardize the qualification of the
Shurgard REIT as a REIT under the Code or result in the Shurgard REIT's becoming
an investment company (within the meaning of the Investment Company Act of 1940,
as amended). Prior to making any such investment, the Shurgard REIT Board must
determine that its terms and conditions are fair to the Shurgard REIT and that
the principal purpose of the joint enterprise is to invest in properties that
would constitute appropriate investments for the Shurgard REIT, or to render
ancillary services in connection with such real estate investments. Though there
is no policy requiring the Shurgard REIT to exercise control of joint
enterprises, the Shurgard REIT Board may determine that such control is in the
best interests of the Shurgard REIT under the circumstances. The Shurgard REIT
has recently entered into two joint ventures to develop self-storage facilities
in the Nashville area and recently invested in Benelux SCS. See "SHURGARD
STORAGE CENTERS, INC. -- Business -- Recent Developments."
NONSTORAGE FACILITY INVESTMENTS. Although the Shurgard REIT's primary
investment objectives are to acquire and develop income-producing self-storage
facilities and office and business parks with property level cash flow growth
potential, it is allowed to invest in commercial real estate other than
self-storage facilities or office and business parks if such investments are
specifically approved by the Shurgard REIT Board after certain determinations
have been made. This authority is intended to afford the Shurgard REIT Board
flexibility in selecting appropriate investments for the Shurgard REIT and
adjusting to changes in the marketplace, without requiring amendments to the
By-Laws and shareholder approval. No such investments will be made unless the
Shurgard REIT Board makes the following determinations as to the proposed
investment: (i) the acquisition and holding of the investment would not
jeopardize, or in the future be likely to jeopardize, the qualification of the
Shurgard REIT as a REIT under the Code; (ii) the Shurgard REIT's management has
the experience and expertise necessary for effective management of the
investment or has contracted or will contract, on behalf of the Shurgard REIT,
with a third party having such experience and expertise; and (iii) the
investment constitutes a prudent and reasonable investment by the Shurgard REIT
and is being made for the purpose of (a) maximizing the value of property
acquired by the Shurgard REIT, a portion of which is being used as or was
acquired for the purpose of a self-storage facility or office and business park,
or (b) diversifying the Shurgard REIT's portfolio to protect the value of its
assets and to hedge against the risk of having the Shurgard REIT's assets
concentrated in self-storage facilities and office and business parks. Since the
Consolidation, the Shurgard REIT has not made, and has no present plans to make,
any such investments.
TEMPORARY INVESTMENTS. Before investing or reinvesting its funds in
properties or other suitable investments, the Shurgard REIT may invest available
funds (as well as its reserves) in the following temporary investments: United
States Government securities, bankers' acceptances, certificates of
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<PAGE>
deposit, bank repurchase agreements covering securities of the United States
Government or governmental agencies, commercial paper rated A-1 or better by
Moody's Investors Services, Inc. or any other nationally recognized rating
agency, interest-bearing time deposits in banks and thrift institutions, money
market funds, mortgage-backed securities issued or guaranteed by the United
States Government or its agencies, debt securities or equity securities
collateralized by debt securities rated A-1 or better by Moody's Investors
Services, Inc. or any other nationally recognized rating agency, other short- or
medium-term liquid investments or hybrid debt/equity securities approved by the
Shurgard REIT Board or any combination of these investments. As of December 1,
1994, the Shurgard REIT had invested $9.7 million in such temporary investments.
OTHER INVESTMENT RESTRICTIONS. In addition to the various investment
restrictions discussed elsewhere in this Proxy Statement/Prospectus, the
Shurgard REIT may not:
(i) invest more than 10% of its Total Assets (as defined below) in
unimproved real property or mortgage loans secured by unimproved real
property (generally speaking, unimproved real property is defined as
property for which no significant development activity is planned within one
year of acquisition);
(ii) invest in foreign currency, bullion, commodities or commodity
future contracts;
(iii) invest in contracts for the sale of real estate;
(iv) engage in underwriting or the agency distribution of securities
issued by others;
(v) issue "redeemable securities" (as defined in Section 2(a)(32) of the
Investment Company Act of 1940, as amended), "face amount certificates of
the installment type" (as defined in Section 2(a)(15) thereof) or "periodic
payment plan certificates" (as defined in Section 2(a)(27) thereof (I.E.,
securities of the type that might cause the Shurgard REIT to be regarded as
an investment company under the Investment Company Act of 1940, as
amended));
(vi) issue options, warrants or similar evidences of a right to purchase
the Shurgard REIT's securities except in accordance with specific
requirements set forth in the By-Laws;
(vii) engage in short sales or borrow, on an unsecured basis, if such
borrowing will result in asset coverage of less than 300%;
(viii) engage in trading activities in securities, as compared with
investment activities; or
(ix) acquire securities in any company holding investments or engaging in
activities prohibited by paragraphs (i) through (iv), (vi) and (viii) above.
FINANCING AND RESERVE POLICIES
INDEBTEDNESS RESTRICTIONS. Subject to the following restrictions, the
Shurgard REIT may, at any time, at the discretion of the Shurgard REIT Board,
borrow funds, on a secured or unsecured basis, and in connection therewith
execute, issue and deliver promissory notes, commercial paper, notes,
debentures, bonds and other debt obligations (which may be convertible into
shares or other equity interests or be issued together with warrants to acquire
shares or other equity interest). Under the By-Laws, the Shurgard REIT may not
incur debt if after giving effect to such borrowing, the Shurgard REIT's
Indebtedness (as defined below) would exceed 50% of its total assets or 300% of
its adjusted net worth. The ceiling imposed upon the Shurgard REIT's
Indebtedness does not prohibit the Shurgard REIT from incurring Indebtedness as
necessary to refinance Indebtedness previously obtained by the Shurgard REIT,
which was permissible at the time such Indebtedness was obtained, and to make
distributions to shareholders to preserve the eligibility of the Shurgard REIT
as a REIT under the Code. The restriction on the Shurgard REIT's authorization
to borrow funds is to be applied at the time the borrowing is obtained by the
Shurgard REIT. Any borrowing by the Shurgard REIT permitted at such time does
not become unauthorized, or constitute a violation of the By-Laws, even if,
subsequent to the Shurgard REIT's borrowing such funds, the Shurgard REIT's
Indebtedness exceeds the applicable limitation, whether or not such excess is
due, in part, to any accrued but unpaid
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interest, late fees or penalties, finance charges or other amounts due with
respect to the Shurgard REIT's new borrowing or previous borrowings. As of
September 30, 1994, the Shurgard REIT's Indebtedness was 32% of its Total
Assets.
"Indebtedness" means all amounts due on financial obligations of the
Shurgard REIT evidencing its obligations to repay funds borrowed to finance its
business and affairs. "Indebtedness" includes all forms of borrowing, excludes
other liabilities of the Shurgard REIT such as accounts payable, lease
obligations (including leases required to be capitalized in accordance with
generally accepted accounting principles), liabilities or claims against the
Shurgard REIT arising from contract disputes or torts (except to the extent that
such liabilities and claims are with respect to contracts for the payment of
money) or the liabilities of other issuers in which the Shurgard REIT might have
invested. "Indebtedness" includes amounts borrowed by any of the Shurgard REIT's
wholly owned subsidiaries.
"Total Assets" means, as of the date the amount is to be determined, the
greater of (i) the Shurgard REIT's total assets computed in accordance with
generally accepted accounting principles, consistently applied (and which would
be reflected on the Shurgard REIT's balance sheet if such balance sheet were
prepared as of such date), plus all accumulated depreciation and amortization as
of such date, and (ii) the fair market value of the Shurgard REIT's assets
determined in accordance with guidelines established by the Shurgard REIT Board,
consistently applied. In the event the Shurgard REIT Board believes the fair
market value of the Shurgard REIT's assets exceeds their book value plus
accumulated depreciation and amortization, the Shurgard REIT may implement
procedures to ascertain the fair market value of the assets. There is no
requirement that these valuations be established through appraisals from third
parties, or be computed in accordance with any particular set of guidelines, but
only that the same valuation procedures be applied on a consistent basis over
time. The Shurgard REIT Board may, however, change such valuation procedures for
convenience or for such other purposes as it deems appropriate, as long as such
changes in the valuation procedures would not, if applied retrospectively, have
prohibited the Shurgard REIT from borrowing funds at any time that funds were
borrowed by the Shurgard REIT.
Funds borrowed by the Shurgard REIT may be used, as directed by the Shurgard
REIT Board, to make investments, pay dividends or ensure the Shurgard REIT's
continuing eligibility to qualify as a REIT, pay operating or other expenses,
refinance the Shurgard REIT's other obligations, and cover other expenses and
costs incurred by the Shurgard REIT or for other purposes deemed appropriate by
the Shurgard REIT Board. Such funds may be borrowed from institutional lenders,
banks, savings and loan institutions or other sources of capital.
Furthermore, to the extent the Shurgard REIT must pledge all or a portion of
the assets to secure borrowings, the Shurgard REIT may be required by lenders to
transfer such assets to one or more corporate subsidiaries created and wholly
owned by it. The subsidiaries' purpose is to segregate and shield the properties
securing the particular borrowings from the Shurgard REIT's other creditors and
restrict the Shurgard REIT's use of related cash flow from the properties other
than for the repayment of the related borrowings. The Shurgard REIT intends that
such subsidiaries, if created, will qualify as "qualified REIT subsidiaries," as
that term is defined in the Code, and their existence should not adversely
affect the Shurgard REIT's qualification as a REIT. See "FEDERAL INCOME TAX
CONSEQUENCES -- Tax Consequences to Management Company Shareholders Receiving
Shurgard Class A Common Stock -- Nature of Assets."
RESERVES. The Shurgard REIT has specific reserve requirements as to capital
expenditures, taxes and insurance for certain properties that secure debt. In
addition, the Shurgard REIT regularly evaluates and establishes working capital
reserves as it deems appropriate to meet normal contingencies in connection with
the operation of its business and investments. In the event that reserves
established by the Shurgard REIT are not sufficient to cover operating expenses
or unanticipated liabilities and claims, the Shurgard REIT may attempt to borrow
funds or liquidate assets. There can
49
<PAGE>
be no assurance that the Shurgard REIT will be able to borrow such funds or
liquidate investments on terms favorable to the Shurgard REIT. Funds held in
working capital reserves may be invested as discussed under "-- Temporary
Investments."
CONFLICT OF INTEREST POLICIES
Except as specifically provided in the By-Laws, the Shurgard REIT may not
engage in a transaction with any director, officer, shareholder owning or
controlling 10% or more of the Shurgard REIT's outstanding voting securities,
its advisor and/or any affiliate of the foregoing (collectively, the "interested
parties"). As to proposed transactions between the Shurgard REIT and any of the
interested parties, the following apply:
(i) The Shurgard REIT may not purchase property from any of the
interested parties unless after the disclosure to the Shurgard REIT Board of
the interested party's interest in the proposed transaction, a majority of
the directors not otherwise interested in such transaction (including a
majority of the independent directors) determines in good faith that the
property is being offered to the Shurgard REIT upon terms fair and
reasonable to the Shurgard REIT and at a price no greater than the cost of
such asset to the interested party.
(ii) The Shurgard REIT may not sell any property to its advisor, a
director or any affiliate thereof.
(iii) The Shurgard REIT may not make loans to, or borrow funds from, any
of the interested parties unless, after disclosure to the Shurgard REIT
Board of the interested party's interest in the proposed transaction, a
majority of directors not otherwise interested in such transaction
(including a majority of the independent directors) approve the transaction
as being fair, competitive and commercially reasonable and no less favorable
to the Shurgard REIT than loans between unaffiliated lenders and borrowers
under the same circumstances.
(iv) The Shurgard REIT may not enter into any other transaction with an
interested party unless:
(a) the terms and conditions of such transaction have been disclosed
to the Shurgard REIT Board in advance and approved by a majority of the
directors not otherwise interested in the matter (including a majority of
independent directors) (the disclosure required by this paragraph to be
in writing and to describe all material terms and conditions of the
proposed transaction) and
(b) such directors in approving the transaction have in good faith
determined that the transaction is fair, reasonable to and no less
favorable to the Shurgard REIT than transactions available from
unaffiliated third parties.
The determinations required of the Shurgard REIT Board must be set forth
in writing, together with such explanation as the directors deem
necessary or advisable, and must be filed with the Shurgard REIT's books
and records.
POLICY WITH RESPECT TO DIVIDENDS AND CERTAIN OTHER ACTIVITIES
DIVIDEND POLICY. Dividends will be paid to shareholders from time to time
when declared by the Shurgard REIT Board, in accordance with the following
policies. The Shurgard REIT intends to distribute to shareholders each year at
least 95% of its "REIT Taxable Income" so that the Shurgard REIT will be
eligible for tax treatment as a REIT. Generally speaking, "REIT Taxable Income"
includes taxable income from operations (including depreciation deductions), but
excludes gains from the sale or refinancing of properties and deductions for
dividends paid. The Shurgard REIT may, in addition, distribute cash flow
sheltered by depreciation deductions if such amounts are not needed for working
capital reserves, debt payments and capital improvements and replacements. In
1995, the Shurgard REIT will make distributions in excess of its REIT Taxable
Income to eliminate any accumulated earnings and profits acquired from the
Management Company in the Merger. See "FEDERAL INCOME TAX CONSEQUENCES --
Consequences of the Merger on the Shurgard
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REIT's Qualification as a REIT -- Distributions of Accumulated Earnings and
Profits Attributable to Non-REIT Years." The Shurgard REIT does not intend to
distribute net cash receipts from sales or refinancings of assets, but to retain
such funds to make new investments or for other corporate purposes.
The Shurgard REIT is required to distribute its REIT Taxable Income without
regard for, or reduction of, principal payments made on account of the Shurgard
REIT's Indebtedness because principal payments do not reduce the Shurgard REIT's
Taxable Income. To the extent the Shurgard REIT is obligated to make substantial
principal payments in any year, such payments might make it difficult or
impossible for the Shurgard REIT to satisfy its obligation of distributing 95%
of its REIT Taxable Income.
ANCILLARY SERVICES. While rental income from leased space constitutes the
primary source of revenues from the properties owned by the Shurgard REIT,
additional revenues are received from incidental services and products available
at the properties for tenants and others (the "Ancillary Services"). Currently,
approximately 50% of the properties owned by the Shurgard REIT receive revenues
through truck rental operations conducted at the properties and lock and box
sales to tenants and others. While revenues from Ancillary Services constitute
Nonqualifying Income (I.E., income other than generally rents, dividends,
interest or gains from the sale of real property) that, together with other
sources of Nonqualifying Income, may not exceed 5% of the Shurgard REIT's gross
revenues without jeopardizing the Shurgard REIT's qualification as a REIT, the
Shurgard REIT believes that revenues from such Ancillary Services are an
integral part of its properties' operation. See "FEDERAL INCOME TAX CONSEQUENCES
- -- Consequences of the Merger on the Shurgard REIT's Qualification as a REIT --
Nonqualifying Income." As a result, the Shurgard REIT may offer a number of
Ancillary Services directly, but only if the provision of Ancillary Services
does not, in the Shurgard REIT Board's judgment, jeopardize the Shurgard REIT's
eligibility for tax treatment as a REIT under the Code.
ISSUANCE AND REPURCHASE OF SECURITIES. The Shurgard REIT Board is
authorized to issue up to 40,000,000 shares of Preferred Stock. No such shares
have been issued, and the Shurgard REIT Board does not presently contemplate the
issuance of any Preferred Stock, except such as may be issued in accordance with
the Shurgard REIT's shareholder rights plan. The Shurgard REIT may issue
securities in exchange for property or repurchase or otherwise reacquire its
capital stock. In particular, the Certificate of Incorporation allows the
repurchase of "Excess Stock." Since its incorporation, however, the Shurgard
REIT has not engaged in these activities and has no current plans to do so. See
"DESCRIPTION OF SHURGARD REIT CAPITAL STOCK."
AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS. The Shurgard REIT's Certificate
of Incorporation may be amended as provided by the DGCL upon the affirmative
vote of more than 50% of the total shares entitled to vote. Generally, a
majority of the directors may amend the By-Laws without the vote or consent of
the shareholders of the Shurgard REIT. The shareholders of the Shurgard REIT may
propose and adopt amendments to the By-Laws by a majority vote of the
shareholders.
ANNUAL REPORT. The Shurgard REIT Board is required to cause to be sent to
the Shurgard REIT's shareholders an annual report that contains financial
statements prepared in accordance with generally accepted accounting principles
and reported on by independent certified public accountants. The report must
disclose the ratio of the costs of raising capital to the capital raised, the
aggregate fees paid to the advisor and its affiliates, and all material terms,
factors and circumstances surrounding any and all transactions involving the
Shurgard REIT and its directors, advisors and the affiliates thereof for the
previous fiscal year.
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SHURGARD INCORPORATED
The Management Company is a fully integrated real estate operating company,
with in-house expertise covering all aspects of the self-storage industry,
including real estate acquisition, development and disposition, project design
and consulting, full-service property management capabilities, marketing,
property finance and disposition, personnel management, legal, accounting and
finance. As of December 31, 1994, the Management Company employed, directly or
through affiliated owners, 619 employees. It is one of the largest self-storage
operators in the United States. The Management Company was incorporated as a
Washington corporation in 1972 by Charles K. Barbo and Donald B. Daniels to
sponsor and operate real estate investments. To finance these investments, the
Management Company organized a series of investment partnerships, in the form of
limited partnerships, joint ventures and general partnerships, that were
separately funded through partnership contributions to acquire and/or develop
single assets or pools of assets, and provided for the management of these
assets by the Management Company. The Management Company rendered to each of
these entities a variety of services relating to the acquisition, development
and management of the assets. On occasion, the Management Company has also
contracted with third parties to manage their properties.
Since its formation, the Management Company has been involved in the
organization of 10 private partnerships, which have raised approximately $88
million from investors, and 20 public partnerships, which have raised
approximately $600 million from 80,600 investors. Substantially all of the
partnerships had the similar investment objective of investing in the ownership
and operation of self-storage facilities. They differed from the objectives of
the Shurgard REIT to the extent that the partnerships passed through profits and
losses to the partners, and were intended to dispose of the properties before
the end of the finite life of the partnership. The REIT, by contrast, is a
perpetual life entity, and has different tax characteristics than limited
partnerships. Of the 20 public partnerships, 17 were consolidated to form the
Shurgard REIT. The three remaining public partnerships are making current
distributions to their limited partners and have not yet reached the time frame
originally projected for disposition. As of December 1, 1994, the Management
Company had under management 245 self-storage facilities with approximately 15.6
million net rentable square feet and three office and business parks with
approximately 220,000 net rentable square feet. These properties are located in
20 states. Of these, 161 properties (representing 65% of all properties managed)
are owned by the Shurgard REIT, 69 properties (representing 28%) are owned by
entities affiliated with the Management Company and 18 properties (representing
7%) are managed by the Management Company under third-party management contracts
for unaffiliated owners. The Management Company maintains its corporate
headquarters in Seattle, Washington, and has offices in the Atlanta, Dallas,
Phoenix and Seattle metropolitan areas.
Over the years, the Management Company has developed and refined operational
systems and procedures to enhance the value of the real estate investments under
its management. The Management Company maintains extensive market research on
its primary markets that permits it to track occupancy levels, rental rates and
other relevant operational information regarding self-storage facilities within
the market, monitor the number of new projects and identify investments for
potential acquisition. Through its involvement in the development of facilities
for sponsored programs, the Management Company has obtained substantial design,
engineering and architectural experience and, while actual construction and
design services are performed by outside architects and engineers, the
Management Company supervises and oversees property development through its
in-house technical staff. The Management Company has implemented various
employee-incentive programs and a quality-control system to maximize property
performance. Detailed monthly financial reports are prepared for each of the
properties managed by the Management Company to permit monitoring of property
performance, identify operational concerns, track the success of quality control
and incentive programs and assess employee performance. The Management Company
sends periodic reports (usually quarterly) to investors to apprise them of their
investments' performance.
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MANAGEMENT SERVICES
GENERAL. As a result of the Merger, the Shurgard REIT will become
responsible for the day-to-day management of its own properties and will become
the property manager of certain other properties owned by affiliates of the
Management Company and by third parties which have contracted with the
Management Company to provide property management services. The Shurgard REIT
will succeed to all of the Management Company's rights under the management and
related agreements with these other entities (collectively, the "Management
Agreements"). As of December 1, 1994, the Management Company managed 87
self-storage facilities for owners other than the Shurgard REIT. Income received
by the Shurgard REIT for providing these services to third parties will be
Nonqualifying Income. See "FEDERAL INCOME TAX CONSEQUENCES -- Consequences of
the Merger on the Shurgard REIT's Qualification as a REIT -- Nonqualifying
Income."
Set forth below is a table that summarizes the properties currently managed
by the Management Company, as well as the compensation received by the
Management Company with respect to its management services, which (subject to
obtaining any necessary consents) will accrue to the Shurgard REIT as the
Management Company's successor. The Management Agreements generally have
relatively short terms, with automatic one-year renewals unless 60 days' notice
of nonrenewal is given by the owner or the Shurgard REIT. In addition, the
Management Agreements may generally be terminated by the owner upon 60 days'
written notice to the Shurgard REIT, with or without cause. The Shurgard REIT
may likewise terminate the Management Agreement, with or without cause, upon 60
days' written notice. However, in some cases the Shurgard REIT's right to
terminate the Management Agreement will be restricted for the term of the
Management Agreement or a specified shorter period of time, during which
termination is only permitted if the owner has defaulted in performing its
obligations or upon the bankruptcy of the owner or the Shurgard REIT or other
similar events evidencing an inability to pay obligations as they become due.
The table does not include amounts received by the Management Company for
distributions due to ownership interests in certain partnerships, or amounts
reimbursed to the Management Company. Except as otherwise indicated, the
property management and other fees paid to the Management Company consist of a
standard management fee of 6% of gross revenues from self-storage operations and
5% of gross revenues from office and business parks (the "Standard Management
Fee") and a standard advertising fee of $75 per property per month (the
"Standard Advertising Fee"). The Standard Management Fee is reduced to 3% with
respect to rental units for which leasing services are performed by a party
other than the Management Company, but such 3% fee is in addition to the fees
payable to such other party for leasing services. In addition to the Standard
Advertising Fee, the property owner pays for the actual cost of all advertising
materials, time and space provided to the owner by the Management Company.
<TABLE>
<CAPTION>
PROPERTY MANAGEMENT AND
OTHER FEES PAID TO THE
MANAGEMENT COMPANY
AGGREGATE ---------------------------
NET RENTABLE NINE MONTHS EXCEPTIONS TO
SQUARE FEET YEAR ENDED ENDED STANDARD MANAGEMENT FEE AND
NUMBER OF OF DECEMBER 31, SEPTEMBER 30, STANDARD ADVERTISING FEE
PROPERTY OWNER PROPERTIES PROPERTIES 1993 1994 (FOOTNOTE REFERENCES)
- ----------------------------------- --------------- ------------- ------------ ------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Shurgard Storage Centers, Inc...... 161 10,583,000 $4,547,533 $ 3,633,165 1,2,3,4
Shurgard Incorporated.............. 1 96,000 2,975 49,456 4
IDS/Shurgard Income Growth
Partners L.P...................... 8 498,000 243,700 192,017
IDS/Shurgard Income Growth
Partners L.P. II.................. 8 499,000 224,301 180,813
IDS/Shurgard Income Growth
Partners L.P. III................. 17 1,051,000 272,576 313,438
Shurgard Institutional Fund L.P.... 7 391,000 215,411 169,676
Shurgard Institutional Fund L.P.
II................................ 3 120,000 38,298 105,773 5
Shurgard Evergreen Limited
Partnership....................... 7 442,000 197,825 205,152 6
Shurgard Institutional Partners.... 3 190,000 96,161 70,314
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PROPERTY MANAGEMENT AND
OTHER FEES PAID TO THE
MANAGEMENT COMPANY
AGGREGATE ---------------------------
NET RENTABLE NINE MONTHS EXCEPTIONS TO
SQUARE FEET YEAR ENDED ENDED STANDARD MANAGEMENT FEE AND
NUMBER OF OF DECEMBER 31, SEPTEMBER 30, STANDARD ADVERTISING FEE
PROPERTY OWNER PROPERTIES PROPERTIES 1993 1994 (FOOTNOTE REFERENCES)
- ----------------------------------- --------------- ------------- ------------ ------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Shurgard/Canyon Park Self-Storage
Limited Partnership............... 1 69,000 41,162 31,136 2,7
B-D Mini-Storage of Billings....... 1 66,000 18,998 13,269
B-D Mini-Storage of Flint West..... 1 48,000 15,426 12,591
B-D Mini-Storage of Puyallup....... 1 28,000 13,321 9,205
Potomac Mini-Storage............... 4 207,000 80,867 87,545
Self-Service Storage Partners,
L.P............................... 10 447,000 169,480 128,957 8
Shurgard Limited Edition........... 1 66,000 24,690 20,289
Shurgard Mini-Storage of Flint
South............................. 1 44,000 12,833 10,592
Shurgard Mini-Storage of West
Yakima............................ 1 60,000 15,194 10,838
Shurgard of Des Moines............. 1 58,000 21,689 17,300
Shurgard of Everett Mall........... 1 100,000 9,905 17,794
Shurgard of Factoria............... 1 103,000 28,667 30,581
Shurgard of Fife................... 1 43,000 17,407 13,112
Shurgard of Gig Harbor............. 1 35,000 17,474 13,237
Shurgard of Greenspoint............ 1 40,000 9,193 14,129
Shurgard of Old Hickory............ 1 64,000 0 8,196 9
Shurgard of South Hill............. 1 44,000 17,786 11,693 10
Shurgard of Stanwood............... 1 43,000 0 6,892
Shurgard of Taylor................. 1 66,000 26,978 21,074
Shurgard of Twin Lakes............. 1 57,000 17,311 16,493
Shurgard of Woodhaven.............. 1 50,000 7,576 11,445
--- ------------- ------------ -------------
Total.......................... 248 15,608,000 $ 6,404,737 $ 5,426,172
------------- ------------ -------------
------------- ------------ -------------
<FN>
- ------------------------------
(1) The Management Company also receives an advisory fee equal to one-half of
1% of the value of new real estate related investments made by the Shurgard
REIT subsequent to March 1, 1994. This fee will be discontinued upon the
consummation of the Merger.
(2) The Shurgard REIT has a 90% interest in Capital Hill Partners, a Limited
Partnership. This table includes 100% of this partnership's applicable
fees.
(3) The Shurgard REIT has a 30% interest in Shurgard Joint Partners II. This
partnership has four properties. The remaining interest is owned by a
partnership affiliated with the Management Company. This table includes
100% of this partnership's applicable fees.
(4) The Standard Management Fee, Standard Advertising Fee and the advisory fee
(with respect to the Shurgard REIT) will be eliminated upon the
consummation of the Merger.
(5) The Management Company also receives a monthly asset management fee equal
to .067% of the property value of the partnership's real estate investments
computed at the end of each month.
(6) The Management Company also receives a quarterly asset management fee equal
to $1,625 for each property owned by or invested in by the partnership,
subject to a minimum of $12,500 per quarter.
(7) Shurgard Institutional Fund L.P. serves as the sole general partner of this
limited partnership and, pursuant to the agreement of limited partnership,
is entitled to approximately 85% of the partnership's cash distributions
and tax allocations. The balance of the partnership's interests are owned
by the sole limited partner, an entity not affiliated with the Management
Company.
(8) The Management Company receives an asset management fee equal to 1% of
gross monthly revenues of the partnership for performing certain
administrative functions for the partnership.
(9) The Management Company does not receive the Standard Management Fee or the
Standard Advertising Fee for this property. The Management Company receives
2% of gross revenues from operation of this self-storage facility under an
affiliation agreement with the owner. This fee is comprised of 1% for
licensing the use of the Shurgard name and 1% for providing certain
accounting and administrative services.
(10) The Management Company is entitled to the Standard Management Fee of 6% of
gross revenues from operation of the self-storage facilities, but has
permitted 1% to be deferred.
</TABLE>
SCOPE OF SERVICES. Under the Management Agreements, the Shurgard REIT will
be vested with general responsibility and authority for all aspects of property
management, including, but not
54
<PAGE>
limited to, the establishment of operational policies, the leasing, marketing,
advertising, maintenance and security of the properties, the supervision of
construction, repairs and improvements and the employment and supervision of
on-site personnel, contract services, consultants, contractors and other
professionals. All costs and expenses of managing these assets will be borne by
the relevant owner, except to the extent that certain items are not
reimbursable.
The Shurgard REIT will also be obligated to render certain administrative
services with respect to the properties it manages, including, but not limited
to, supervising the preparation of investor reports, handling investor
inquiries, coordinating federal and state tax and securities filings,
maintaining books and records, investing uncommitted funds, if any, and
distributing available cash to investors and such entities. The Shurgard REIT's
costs and expenses incurred in performing such services will be reimbursed. Such
reimbursement is subject to review by independent certified public accountants
and will be at the lower of actual cost or the amount the owner of the property
would be required to pay to independent parties for comparable services in the
same geographical location. No reimbursement will be made for services for which
a separate fee is paid.
The Shurgard REIT may delegate any or all of its powers under the Management
Agreements to any third party so long as the Shurgard REIT remains responsible
for supervising the performance of the duties and responsibilities so delegated
and remains liable for such performance to the extent it would be liable if it
had performed the delegated duties and responsibilities itself. Accordingly, the
Shurgard REIT may perform such duties through its own employees or those of
affiliates or may cause the relevant owner to hire its own employees. It is
currently anticipated that the on-site personnel will be employees of the
Shurgard REIT. To the extent the Shurgard REIT delegates, with the owner's
consent, responsibility for leasing, re-leasing or other leasing related
services to an independent contractor, the monthly management fee attributable
to gross revenues from any space leased as a result of such services will be
reduced to 3% of gross revenues of such leases.
The Management Agreements generally give the Management Company the right to
assign its management interest so long as the assignee assumes all of the
Management Company's management obligations under the applicable agreement. To
the extent a Management Agreement requires that the owner consent to the
assignment, the Management Company and the Shurgard REIT will seek such consent.
SHURGARD SERVICE MARK. In 1978, the Management Company registered the name
"Shurgard" and related service marks with the U.S. Patent and Trademark Office
to protect the exclusive use of such name and service marks in the United
States. Subsequently, the Management Company registered the mark in several
foreign jurisdictions. The Shurgard REIT's properties, as well as the other
properties managed by the Management Company, are operated under the common name
of "Shurgard" for the purpose of creating business goodwill and a recognizable
symbol in the self-storage industry. Use of the service mark "Shurgard" by the
Shurgard REIT and the owners of other properties managed by the Management
Company is governed by the terms of the respective Management Agreements
permitting the nonexclusive use of "Shurgard" and related trademarks and service
marks for the rental and operation of the properties. Upon termination of the
Management Agreements, the owners' right to use the service mark "Shurgard"
terminates, and signs bearing the name "Shurgard" are to be removed at the
owners' expense. In the event that a Management Agreement is terminated by the
Management Company for reasons other than the owner's breach thereof, or the
Management Company is terminated for cause, the owner has the right to the
continued use of the name "Shurgard" until its properties are sold or otherwise
disposed of. However, such rights may not be passed on to subsequent purchasers
of the properties. The Management Company has attempted to operate its managed
properties to enhance the goodwill associated with the name "Shurgard" and to
have the name represent a commitment to quality, consistency and reliability in
service. Through the Merger with the Management Company, the Shurgard REIT will
acquire all of the Management Company's rights to the "Shurgard" service mark,
subject to existing licenses covering Tennessee,
Kentucky, portions of Florida, Belgium, the Netherlands and Luxembourg and the
contractual right of a co-founder of the Management Company to use the Shurgard
name with respect to six properties.
55
<PAGE>
RELATIONSHIP WITH THE SHURGARD REIT
The following sections describe those investment advisory services and
property management services currently performed by the Management Company for
the Shurgard REIT. These arrangements will terminate upon the Closing. The
Management Company will not be entitled to any termination fee upon such
termination in connection with the Merger.
INVESTMENT ADVISORY SERVICES. The Shurgard REIT engages the Management
Company to provide certain investment advisory services pursuant to the terms of
an Advisory Agreement. The Management Company provides acquisition, development
and disposition services to the Shurgard REIT with respect to real property and
mortgage loans and performs the day-to-day administrative functions of the
Shurgard REIT, including internal and external reporting, shareholder relations
and supervision of stock registrar and transfer services. In consideration of
its investment advisory services, the Management Company is paid an annual
advisory fee equal to .5% of (i) the fair market value of properties acquired
subsequent to the Consolidation, (ii) the original principal balance, plus
accrued interest, of any mortgage loans made subsequent to the Consolidation,
and (iii) the average daily balance of the Shurgard REIT's cash equivalent
investments in excess of the amount of cash equivalent investments of the
Shurgard REIT immediately subsequent to consummation of the Consolidation. The
advisory fee is paid monthly, based on the annual operating budget approved by a
majority of the Shurgard REIT's directors, and is adjusted within 110 days after
the end of each fiscal year, with the unpaid balance of the fees, if any, paid
promptly to the Management Company and, in the event of overpayments, the
overage offset against the next estimated advisory fees payable to the
Management Company. For purposes of computing the Management Company's annual
advisory fee, during the initial term of the Advisory Agreement and the first
four renewal terms, the "fair market value" of the properties acquired
subsequent to the Consolidation will equal the purchase price paid by the
Shurgard REIT for those properties. Within 90 days prior to the commencement of
the fifth renewal term, and every two years thereafter, the Shurgard REIT will
have the properties acquired by it subsequent to the Consolidation appraised,
which appraised value will be used as the "fair market value" for purposes of
computing the annual advisory fee. The Management Company would also receive an
incentive advisory fee on the sale or refinancing of all property acquired
subsequent to the Consolidation (the "Additional Properties") equal to 10% of,
in the case of a sale, the excess of the sales price over the original purchase
price of the property (reduced by any prior incentive advisory fee payments out
of the net refinancing proceeds on such property) or, in the case of a
refinancing, the net cash proceeds realized by the Shurgard REIT as a result of
the refinancing.
The Management Company's receipt of the annual and incentive advisory fees
is subject to the limitation that the Shurgard REIT's annual total operating
expenses may not exceed the greater of (i) 2% of the average invested assets of
the Shurgard REIT for the year or (ii) 25% of the net income of the Shurgard
REIT for such year. In the event the Shurgard REIT's expenses exceed such
amount, the Management Company is required to remit to the Shurgard REIT that
portion of its advisory fee necessary to eliminate the excess amount.
The Advisory Agreement has a one-year term, but is automatically renewed for
additional one-year terms unless the Shurgard REIT notifies the Management
Company of its decision not to renew the Advisory Agreement at least 60 days
prior to the expiration of the initial or renewal term. In addition, either the
Shurgard REIT or the Management Company may terminate the Advisory Agreement
without cause upon 60 days' notice to the other party. The Shurgard REIT may
terminate the Advisory Agreement immediately if the Management Company commits
an act of fraud, embezzlement or theft or any act intentionally against the
interests of the Shurgard REIT that causes the Shurgard REIT material injury.
Either party may terminate the Advisory Agreement immediately if the other party
is found by a court to have breached the Advisory Agreement, has an involuntary
bankruptcy petition filed against it or commences a voluntary bankruptcy
proceeding. In the event the Shurgard REIT terminates the Advisory Agreement
without cause or does not renew it, the Management Company will receive a
termination fee equal to the annual advisory fee it received for the immediately
preceding year. In addition, in the event the Advisory Agreement is terminated
by the Shurgard REIT without cause, or the Shurgard REIT elects not to renew the
term of the Advisory
56
<PAGE>
Agreement for reasons other than cause, the Management Company may be entitled
to incentive advisory fees, since the Advisory Agreement treats the termination
as the liquidation of the Additional Properties. The Additional Properties are,
at the time of the Management Company's termination, deemed to have been sold at
a price equal to (i) their fair market value determined through an independent
appraiser selected by the Shurgard REIT and the Management Company or (ii) in
the event that such termination or expiration results from the merger,
consolidation, acquisition or liquidation of the Shurgard REIT, in an amount
equal to (a) the net aggregate consideration paid to the Shurgard REIT's
shareholders upon such occurrence plus the aggregate liabilities, to the extent
such liabilities are assumed by, or remain liabilities secured by assets
transferred to, the acquiring or surviving entity, multiplied by (b) the cash
flow from operations of the Additional Properties divided by the aggregate cash
flow from operations of all of the Shurgard REIT's properties. No later than 60
days after the termination, the Shurgard REIT will pay the Management Company
any incentive advisory fee resulting from the deemed liquidation of the
Additional Properties. Upon termination or renewal of the Advisory Agreement,
the Shurgard REIT must cease using the "Shurgard" name.
PROPERTY MANAGEMENT SERVICES. The Shurgard REIT also engages the Management
Company to manage the day-to-day operations of its properties pursuant to a
Management Agreement that has an initial five-year term. Such services include
the establishment of operational policies, the leasing, marketing, advertising,
maintenance and security of the facilities, and the employment of on-site
personnel, contract services, consultants, contractors and other professionals.
In consideration of its property management services, the Management Company
receives a monthly fee equal to 6% of the gross revenues from self-storage
operations and 5% of the gross revenues from office and business parks, and a
monthly advertising fee typically equal to $75 for each property. The Shurgard
REIT retains the right to terminate the Management Company as the property
manager with or without cause upon 60 days' written notice. The Management
Company also renders certain administrative services and certain acquisition and
development services to the Shurgard REIT for which it is reimbursed. Under the
Management Agreement, the Management Company granted the Shurgard REIT a
nonexclusive license to use the name, trademark and service mark "Shurgard" and
related marks, slogans and service items in the rental and operation of the
properties and in the name of the Shurgard REIT. Upon termination of the
Management Agreement, all use of the name "Shurgard" will terminate, subject to
the right to continue using the name at the property sites until the next
publication dates of the yellow page advertisements in the local markets where
the properties are located. Thereafter, the Shurgard REIT must cease using the
name and remove and replace all signage at the properties.
SELECTED FINANCIAL DATA
The following selected financial data of the Management Company should be
read in conjunction with "-- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included elsewhere in this Proxy Statement/Prospectus.
MANAGEMENT COMPANY
SELECTED FINANCIAL INFORMATION (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED DECEMBER
31, AT OR FOR
------------------------------- NINE MONTHS ENDED
1991 1992 1993 SEPTEMBER 30, 1994
--------- --------- --------- ------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues............................................ $ 6,418 $ 7,189 $ 8,048 $ 8,019
Excess of revenues over expenses.............................. 1,166 1,397 1,306 2,000
BALANCE SHEET DATA:
Total assets.................................................. $ 4,723 $ 4,432 $ 14,195 $ 11,453
Long-term debt................................................ -- -- 7,275 7,275
<FN>
- ------------------------
(1) Per share data has not been included as the Management Company represents
only a portion of the historical business of Shurgard Incorporated.
</TABLE>
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Prior to the Merger, the Management Company will dispose of certain of its
assets that are unrelated to the property management, real estate and advisory
services that it performs, including InterMation and SRA. Accordingly, the
following discussions of results of operations reflect only the business of the
Management Company that is being acquired by the Shurgard REIT in the Merger and
do not reflect results of operations of InterMation or SRA.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1994. The Management
Company is a fully integrated real estate operating company that specializes in
all aspects of the self-storage industry. Revenues are generated principally
through property management services, rental revenues of owned storage centers,
real estate acquisition and development services, and advisory and
administrative services.
In 1994, annualized revenues over expenses increased $1,361,000 to
$2,667,000 compared to $1,306,000 for the year ended December 31, 1993. This
increase is primarily the result of improving operating margins relating to the
Management Company's property management business and better utilization of the
Management Company's real estate department.
The Management Company generally receives a 6% property management fee for
managing storage properties owned by both affiliated and unaffiliated entities.
As a result of adding new properties during 1993 and 1994, increasing property
management fees from same stores, and decreasing operating expenses as a result
of restructuring the department, the Management Company's property management
business contributed an additional $1,045,000.
In March 1994, the Management Company completed the consolidation of 17 of
the Shurgard partnerships into a REIT. Through the Consolidation, the Shurgard
REIT gained access to new capital, thereby providing the means to acquire and
develop additional self-storage centers. Under the Advisory Agreement between
the Management Company and the Shurgard REIT, the Management Company is
responsible for executing the Shurgard REIT's growth plan. The Shurgard REIT
reimburses the Management Company for costs incurred in acquiring and developing
storage centers on behalf of the Shurgard REIT. To date, the Management Company
has completed the acquisition of 20 storage centers, put together two joint
venture development transactions and negotiated participating mortgages on four
storage centers and ancillary commercial office space for the Shurgard REIT.
Most of the personnel dedicated to these transactions were employed in 1992 and
1993 and, as such, the reimbursement of their time had a direct effect on the
net earnings of the Management Company.
In 1994, annualized net income increased $380,000 as a result of increased
reimbursement of costs incurred by the Management Company's acquisition and
development department. Management's efforts during 1993 focused on planning for
the Consolidation; in anticipation of this, the Management Company did not
pursue other means of raising capital for investment in new storage centers.
Real estate investment activities in 1993 were limited primarily to the
expansion and improvement of storage centers currently managed by the Management
Company. As such, a lower percentage of department costs were reimbursable in
1993.
Annualized September 30, 1994 management fees increased $777,000 or 12.1%
from $6,448,000 for the year ended December 31, 1993 to $7,225,000 for
annualized 1994 management fees. Same store management fees increased 6.5% and
accounted for approximately one-half of the total increase. The increase in same
store management fees was primarily attributable to increased rates at the
stores under management. Occupancy levels as of September 30, 1994 and 1993 were
90%. As a result, the Management Company believes that future same store
management fee growth will come from increasing rates at the stores under
management.
During 1993 and 1994, the Management Company added 43 stores under
management, bringing its total stores under management to 252 as of September
30, 1994. Twenty-one of the new properties under management were acquired for
the Shurgard REIT, eleven were acquired for programs previously sponsored by the
Management Company and 10 are being managed for unaffiliated owners.
58
<PAGE>
These 43 stores accounted for the remaining increase in management fee revenues.
Of the 43 stores added during 1993 and 1994, 20 were added on September 1, 1994.
As a result, these stores had no material impact on management fees as of
September 30, 1994 ($27,000), but will have a more significant impact on the
change in management fees during 1995.
Annualized reimbursements from affiliates increased $931,000 or 63.5% from
$1,466,000 for the year ended December 31, 1993 to $2,397,000 for annualized
1994 reimbursements. This increase is primarily attributable to the full
utilization of the Management Company's real estate department.
The Daly City storage center, purchased in December 1993, has provided
additional revenues of $776,000 for the nine months ended September 30, 1994
compared to $48,000 for the year ended December 31, 1993.
Annualized September 30, 1994 personnel cost and general and administrative
expenses increased $656,000 or 10.7% from $6,156,000 for the year ended December
31, 1993 to $6,812,000 for annualized 1994 personnel and general and
administrative cost. Approximately 25% of this increase is the result of adding
real estate personnel to meet the Shurgard REIT's acquisition and development
goals for the year and approximately 60% of the increased cost is related to
operating the Daly City storage center for the entire period of 1994 compared to
one month of 1993.
The Daly City storage center was 100% financed through a non-recourse
participating mortgage with a commercial insurance company. The note carries a
fixed interest of 8% plus 90% of excess cash flow. As a result of this
participating mortgage, annualized interest expense increased to $704,000 from
$36,000 for the year ended December 31, 1993. Although the acquisition had a
$75,000 book loss for the nine months ended September 30, 1994, the investment
provided approximately $14,000 in operating cash flow after payment of
additional interest.
RESULTS OF OPERATIONS--1992 VS. 1993. During 1992, the Management Company
determined that the formation of a self-administered REIT was the best
alternative for investors. Management's efforts during 1992 and 1993 focused on
the necessary planning for the Consolidation. Accordingly, the Management
Company did not pursue other means of raising capital for investment in new
storage centers. During 1993, the California Department of Corporations mandated
that the Consolidation could not be combined with the merger of the Management
Company. Acquisition and development activities in 1992 were limited to
investment of remaining capital from commitments obtained in 1991. Real estate
investment activities in 1993 focused on maximizing the revenue-generating
capabilities of storage centers managed by the Management Company through
expansion and facility improvements.
Revenues over expenses, exclusive of the $337,000 gain on the sale of land,
increased $246,000 or 23% from $1,060,000 for the year ended December 31, 1992
to $1,306,000 for the same period in 1993. This increase is primarily the result
of improving operating margins in the Management Company's property management
business, which were offset by a $185,000 lower contribution by the Management
Company's real estate department due to the factors discussed in the preceding
paragraph. As a result of adding new properties during the period, increased
operating margins, and increased property management fees from same stores, the
Management Company's property management business contributed an additional
$410,000 during 1993.
Management fees increased $818,000 or 14.5% from $5,630,000 for the year
ended December 31, 1992 compared to $6,448,000 for the same period in 1993. Same
store management fees increased by just under 10% and accounted for
approximately 61% of the total increase. Approximately 50% of the increase in
same store management fees came from rate increases, while the other 50% was the
result of occupancy increases at the stores under management. Occupancy levels
at December 31, 1993 were 88% compared to 85% at December 31, 1992.
During 1992 and 1993, the Management Company added 35 stores under
management, bringing its total stores under management to 231 as of December 31,
1993. Twenty-three of the new properties
59
<PAGE>
were acquired for programs previously sponsored by the Management Company and
the remaining 12 are being managed for unaffiliated owners. The 35 stores
accounted for the remaining increase in management fee revenue.
Acquisition and development fees decreased $387,000 from $473,000 for the
year ended December 31, 1992 to $86,000 for the same period in 1993. This
significant decrease is the result of the Management Company's not pursuing new
capital for investment in storage centers as a result of the Consolidation
discussed above. Real estate activities in 1992 were limited to investing the
remaining capital from commitments obtained in 1991.
Reimbursements from affiliates increased $380,000 or 35% from $1,086,000 in
1992 to $1,466,000 in 1993. Of this increase, approximately 60%, or $217,000,
related to additional real estate investing activities that, in the absence of
investment capital to acquire or develop new stores, focused on maximizing the
revenue-generating capabilities of existing storage centers managed by the
Management Company through store expansions and improvements. The remaining
increase in reimbursements was due to higher operating costs for which the
Management Company was reimbursed.
Personnel cost increased $455,000 or 10.5% from $4,348,000 for the year
ended December 31, 1992 compared to $4,803,000 for the year ended December 31,
1993. Approximately 70% of the increase related to higher personnel cost
attributable to property management personnel necessary to manage the additional
35 stores under management during 1992 and 1993.
General and administrative expenses and travel increased $243,000 or 15%
from $1,617,000 for the year ended December 31, 1992 compared to $1,860,000 for
the same period in 1993. Additional overhead was necessary to expand the
capacity of the Management Company's property management business to accommodate
the 35 stores added under management during 1992 and 1993. Additional expenses
were incurred during 1993 in preparation for the January 1994 opening of a
national telephone sales center.
Interest income increased $81,000 to $124,000 for the year ended December
31, 1993 as a result of the carrying cost incurred by the Management Company to
fund the cost of the Consolidation.
RESULTS OF OPERATIONS--1991 VS. 1992. Revenues over expenses increased
$231,000 or 20% from $1,166,000 for the year ended December 31, 1991 to
$1,397,000 for the same period in 1992. This increase was primarily the result
of a $337,000 gain on the sale of land held for investment, improved operating
contribution in the Management Company's property management business, a
$260,000 lower contribution by the Management Company's real estate department
due to the factors discussed above, and a net increase in administrative cost of
approximately $190,000.
The increase in administrative cost related primarily to various marketing
costs that in 1991 was paid for by public limited partnerships which the
Management Company sponsored. This cost was borne by the Management Company in
1992, as raising new investment capital was stopped to focus on the
Consolidation. As a result of improving margins, adding new properties during
the period and increased property management fees from same stores, the
Management Company's property management business contributed an additional
$340,000 in 1992.
Management fees increased $1,024,000 or 22.2% from $4,606,000 for the year
ended December 31, 1991 to $5,630,000 for the same period in 1992. Same store
management fees increased by 8.5% and accounted for approximately 35% of the
total increase. Approximately 50% of the increase in same store management fees
came from rate increases, while the other 50% was the result of occupancy
increases at the stores under management. Occupancy levels at December 31, 1992
were 85% compared to 81% at December 31, 1991.
During 1991 and 1992, the Management Company added 32 stores under
management, bringing its total stores under management to 209 as of December 31,
1992. Twenty-nine of the new properties
60
<PAGE>
were acquired for programs previously sponsored by the Management Company and
the remaining three are being managed for unaffiliated owners. The 32 stores
accounted for the remaining increase in management fee revenue.
Acquisition and development fees and reimbursements decreased $253,000 or
14% from $1,812,000 for the year ended December 31, 1991 to $1,559,000 for the
same period in 1992. This decrease is primarily the result of the Management
Company's not pursuing new capital for investment in storage centers as a result
of the Consolidation. Real estate activities in 1992 were limited to investing
the remaining capital from commitments obtained in 1991.
Personnel cost increased $588,000 or 15.6% from $3,760,000 for the year
ended December 31, 1991 to $4,348,000 for the year ended December 31, 1992.
$370,000 or 63% of the increase related to higher personnel cost attributable to
the Company's property management business and the addition of 32 stores under
management during 1991 and 1992. An additional 14% or $80,000 related primarily
to marketing cost that the Management Company absorbed in 1992. This cost had
previously been paid by the public programs sponsored by the Management Company
in 1991.
General and administrative expenses increased $300,000 or 33% from $918,000
for the year ended December 31, 1991 to $1,218,000 for the same period in 1992.
Approximately one-third of the increase is attributable to additional marketing
cost absorbed by the Company in 1992, as discussed above. Additionally, the
Company incurred a $110,000 charge related to a failed bid, conducted by the
Resolution Trust Corporation, on a package of performing and nonperforming
self-storage loans.
During 1992, the Management Company sold approximately 2.8 acres of land for
$1,425,000. As a result of the sale, the Management Company recognized a
$337,000 gain.
LIQUIDITY AND CAPITAL RESOURCES. The changes in the statements of assets
and liabilities from December 31, 1992 to December 31, 1993 to September 30,
1994 reflect primarily the following three transactions:
(i) During 1992 and 1993, the Management Company funded costs related to
the Consolidation and formation of the Shurgard REIT, which were reimbursed
in 1994. The payment and accrual of these costs are reflected in the
balances of the partnership consolidation costs receivable and accrued
partnership consolidation costs.
(ii) On December 16, 1993, the Management Company purchased the Daly
City storage center, located near San Francisco, California, from a
nonaffiliated entity for $7,200,000 plus closing costs. The purchase was
funded with proceeds from a $7,275,000 nonrecourse participating mortgage
note payable to a commercial insurance company and cash. The nonamortizing
mortgage note, which matures January 1, 2004, is secured by a deed of trust
on the property and an assignment of leases and note requires monthly fixed
interest payments at 8% per annum and quarterly additional interest payments
of 90% of net cash flow.
(iii) At September 30, 1994, the Management Company distributed
approximately $2 million of cash to InterMation, a subsidiary that will be
spun off prior to the Merger. Prior to the Closing, the Management Company
expects to distribute an additional $3 million, which will be funded from
operating cash flow and its line of credit.
The operating cash flow of the Management Company is sufficient to meet its
interest and operating requirements until the maturity of the mortgage note
payable. The Management Company expects to refinance this note upon maturity.
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<PAGE>
THE MERGER
THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX I TO THIS PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE.
TERMS OF THE MERGER
THE MERGER. Subject to the terms and conditions of the Merger Agreement,
the Management Company will merge with and into the Shurgard REIT at the
Effective Time. The separate corporate existence of the Management Company will
then cease, and the internal corporate affairs of the Shurgard REIT (the
"Surviving Corporation") will continue to be governed by the laws of the state
of Delaware.
CERTIFICATE OF INCORPORATION AND BY-LAWS. The Merger Agreement provides
that the Shurgard REIT's Certificate of Incorporation and By-Laws in effect
immediately before the Effective Time will be the Certificate of Incorporation
and the By-Laws of the Surviving Corporation.
CONVERSION OF MANAGEMENT COMPANY COMMON STOCK IN THE MERGER. At the
Effective Time, all the issued and outstanding shares of Management Company
Common Stock (except shares as to which dissenters' rights are exercised and are
not subsequently withdrawn) will be converted into (i) an aggregate of 1,400,000
shares of Shurgard Class A Common Stock, reduced pro rata based on shares as to
which dissenters' rights have been duly exercised and not subsequently withdrawn
and subject to certain adjustments as described below (the "Share
Consideration") and (ii) the right to receive additional shares of Shurgard
Class A Common Stock (the "Contingent Shares") based on (a) the extent to which,
during the five years following the Closing, the Shurgard REIT realizes value as
a result of certain transactions relating to interests in or assets of six
limited partnerships acquired by the Shurgard REIT in the Merger and (b) the
value, at the end of five years or in the event of a change of control, of any
remaining interests in such partnerships as determined by independent appraisal.
DIRECTORS AND OFFICERS. As a result of the Merger, at the Effective Time
the directors of the Surviving Corporation will be the existing four directors
of the Shurgard REIT plus Charles K. Barbo, each to serve until his successor
has been duly elected or appointed and qualified or until his earlier death,
resignation or removal. In addition, the officers of the Surviving Corporation
will be the officers of the Shurgard REIT plus Charles K. Barbo, who will serve
as the Chairman of the Board, President, and Chief Executive Officer. Harrell L.
Beck, who is currently President, will serve as Senior Vice President, Chief
Financial Officer, and Treasurer and Kristin H. Stred, who is currently
Secretary and General Counsel, will serve as Senior Vice President, Secretary
and General Counsel. Each will serve until a successor has been duly elected or
appointed and qualified or until his or her earlier death, resignation or
removal.
ADJUSTMENTS TO SHARE CONSIDERATION
The Share Consideration will be subject to adjustment in the event that, as
of the Closing, the product obtained by multiplying the Share Consideration by
the then Market Value (as hereinafter defined) of the Shurgard Class A Common
Stock equals or exceeds $31,165,000 (the "Upper Limit"). In such case, the Share
Consideration will be adjusted and reduced to that number of shares of Shurgard
Class A Common Stock obtained by dividing the Upper Limit by the Market Value of
Shurgard Class A Common Stock as of the Closing.
References to Market Value with respect to a specified date means the
average of the daily closing price for the Shurgard Class A Common Stock for
each of the 30 trading days preceding such date. On January 24, 1995, the Market
Value was $20.70 per share of Shurgard Class A Common Stock.
In addition, the Share Consideration will be subject to adjustment based on
certain increases or decreases in the Management Company's equity based on a
comparison of a Management Company statement of assets and liabilities as of
October 31, 1994 (the "October Statement") with a statement
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of assets and liabilities as of a date within five days preceding the Closing
(the "Closing Statement"). In the event that there has been a reduction in the
Management Company's equity from that set forth in the October Statement, the
Share Consideration will be reduced by the quotient obtained by dividing such
reduction by the Market Value of the Shurgard Class A Common Stock as of the
Closing. If there has been an increase in the Management Company's equity
compared to the October Statement, the Share Consideration will be increased by
the quotient obtained by dividing such increase by the Market Value of the
Shurgard Class A Common Stock as of the Closing, subject to a $1,500,000 cap.
Within 30 days following the Closing, Deloitte & Touche LLP will conduct an
audit of the Closing Statement (the "Final Statement"), with any further
reductions to the Management Company's equity resulting in the return of
Shurgard Class A Common Stock, computed on the same basis, from the Adjustment
Indemnification Shares (as defined below) and, if required, the Indemnification
Shares referred to below. To the extent the Final Statement reflects any further
increases to the Management Company's equity, the Shurgard REIT will be
obligated to issue additional shares of Shurgard Class A Common Stock, computed
on the same basis, pro rata to the Management Company shareholders.
Between October 31, 1994 and the Closing Date, the Management Company
expects to contribute up to approximately $2.6 million in working capital to
InterMation prior to the InterMation Spin-off. To finance the contribution, the
Management Company expects to incur indebtedness under its line of credit, which
would be assumed by the Shurgard REIT in the Merger. This contribution would
also have the effect of reducing the Management Company's equity, as reflected
in the Closing Statement, below that reflected in the October Statement, thereby
reducing the Share Consideration below 1,400,000 shares.
The Share Consideration, before adjustments, was determined without taking
into account the 282,572 shares of Shurgard Class A Common Stock currently owned
by the Management Company, and the October Statement, which will be used as a
reference for calculating changes in the Management Company's equity at the
Closing, does not include any of such shares. The Management Company currently
anticipates that all of such shares will be acquired by the Shurgard REIT in the
Merger and therefore will be included in the Closing Statement, valued at their
Market Value as of the Closing. The inclusion of such shares in the Closing
Statement will increase the Share Consideration on a share-for-share basis.
Completion of the Merger will, however, result in the cancellation of the shares
acquired by the Shurgard REIT in the Merger, thereby offsetting such increase in
Share Consideration. In the event that all or a portion of such shares are
distributed to the shareholders of the Management Company or otherwise
transferred to a third party, they will not be included in the Closing Statement
and, accordingly, will not increase the Share Consideration.
INDEMNIFICATION SHARES
As part of the Merger, 10% of the Share Consideration, net of the Shurgard
Class A Common Stock acquired by the Shurgard REIT in the Merger, will be
deposited in escrow (the "Indemnification Shares"). The Indemnification Shares
will be deducted pro rata from that portion of the Share Consideration otherwise
issuable to each of the Management Company shareholders and will be held in
escrow for three years from the Closing Date. Following the expiration of such
term, any remaining Indemnification Shares will be released and returned to the
Management Company shareholders. While the indemnification escrow is in place,
the Shurgard REIT will, subject to a claims threshold of $50,000 and certain
indemnity exceptions, be entitled to recover from the Indemnification Shares the
full dollar amount of any provable or ascertainable loss, liability, damage,
cost, obligation or expense incurred by the Shurgard REIT (net of any benefits,
insurance or other recoveries received or entitled to be received by the
Shurgard REIT with respect thereto) as a result of (i) any breach of
representation or warranty made by the Management Company in the representation
and warranty section of the Merger Agreement, (ii) any breach by the Management
Company of any covenant or agreement on its part contained in the Merger
Agreement, (iii) certain tax liabilities that may be incurred in connection with
the InterMation Spin-off, (iv) subject to the procedures set forth below with
respect to
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Adjustment Indemnification Shares, the full dollar amount of any reduction in
Management Company equity as reflected on the Final Statement when compared to
the Closing Statement (an "Overstatement") (as well as any overstatement of any
tax refund (the "Refund") due the Management Company as a result of its short
taxable year ending on the Effective Date), and (v) liabilities and associated
costs suffered by the Shurgard REIT in its capacity as general partner of the
Partnerships (as defined below) to the extent arising out of facts and
circumstances in existence prior to the Closing Date, net of certain interim
distributions by the Partnerships. Notwithstanding the three-year escrow term,
indemnification with respect to matters except employee stock ownership plans
and certain tax liabilities will terminate two years after the Closing. The
determination of the number of Indemnification Shares to be transferred to the
Shurgard REIT incident to an indemnification claim will be based upon the Market
Value of the Shurgard Class A Common Stock as of the Closing.
Notwithstanding the foregoing, the Shurgard REIT will, under the terms of
the indemnification, continue to have recourse severally against the former
Management Company shareholders with respect to certain tax liabilities that may
be incurred in connection with the InterMation Spin-off, which will remain in
effect until the expiration of all applicable statutory periods of limitation.
The dollar value of such claims made against the Management Company shareholders
is, however, limited to the product obtained by multiplying the number of
Indemnification Shares released to the shareholders by the Market Value of
Shurgard Class A Common Stock as of the Closing.
An additional 5% of the Share Consideration, net of the Shurgard Class A
Common Stock acquired by the Shurgard REIT in the Merger (the "Adjustment
Indemnification Shares"), will be deposited in escrow for a period ending 10
days following the later of (i) the final determination of any Overstatement and
(ii) the date on which the Refund is received by the Shurgard REIT or the date
on which the Shurgard REIT receives notice that the Refund will not be paid. The
Adjustment Indemnification Shares will be deducted pro rata from that portion of
the Share Consideration otherwise issuable to each of the Management Company
shareholders. The Shurgard REIT's only rights with respect to the Adjustment
Indemnification Shares will be recovery of (i) any Overstatement and (ii) the
difference between any Refund claimed (as set forth in the Closing Statement)
and the actual amount received. Any amounts recoverable over and above the value
of the Adjustment Indemnification Shares will be recoverable against the
Indemnification Shares, as described above. At the termination of the Adjustment
Indemnification Share period, any Adjustment Indemnification Shares not required
to reimburse the Shurgard REIT will be released to the Management Company
shareholders.
CONTINGENT SHARES
The Management Company owns partnership interests in six limited
partnerships (the "Partnerships") that are being acquired by the Shurgard REIT
in the Merger. The Partnerships either own self-storage centers (the
"Partnership Facilities") or direct or indirect interests in partnerships (the
"Project Partnerships") that in turn own Partnership Facilities. The partnership
agreements (the "Partnership Agreements") that govern the Partnerships and the
Project Partnerships provide for allocation of distributions from the sale or
refinancing of partnership assets and Partnership Facilities among the various
partners based on a variety of formulas, as described in the table presented
below. In many cases, the level of distributions to the Management Company
depends on satisfying prior distribution requirements to other partners,
primarily returns of capital and preferred returns.
The amounts that the Management Company may ultimately realize from the
Partnerships cannot be calculated with certainty at this time and will depend on
a number of factors, including, among others (i) the timing of sales of
Partnership interests or Partnership Facilities, (ii) the financial performance
of the Partnership Facilities during the period prior to such sale, including
the net operating income of the Partnership Facilities, (iii) the allocation of
interim distributions among the Management Company and other partners, in
accordance with the terms of their respective Partnership Agreements, (iv)
changes in such allocation arrangements depending on the satisfaction of certain
capital and preferred return requirements to which partners other than the
Management Company are entitled, (v) capitalization rates typically applied to
net operating income at the time of
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sale in order to price the Partnership Facilities, (vi) the individual
circumstances of the Partnership Facility or the Project Partnership that affect
sale price and timing, and (vii) changes in general economic conditions that
could affect net operating income, cash flows, capitalization rates and sales
prices of the Partnership Facilities.
Due to these factors, the Shurgard REIT concluded that it would be difficult
to value the Management Company's interests in the Partnerships on a current
basis and, instead, proposed that the Management Company shareholders receive
additional consideration to the extent that Partnership interests or Partnership
Facilities were sold and the Shurgard REIT received gross proceeds thereof in
accordance with the Partnership Agreements or, at certain times, the Partnership
Facilities were treated as if they had been sold for values established by
independent appraisal and the gross proceeds were deemed distributed in
liquidation. In this way, the Shurgard REIT would defer issuance of additional
shares into the future, when the value of the Partnership interests would
actually be realized or when that value was likely to be more clearly
established through longer periods of operation of the Partnership Facilities.
In the meantime, the Shurgard REIT would be entitled to all Partnership
distributions from the operating cash flow of the Partnership Facilities,
without payment of further consideration.
In accordance with these general principles, the Merger Agreement provides
that, in addition to the Share Consideration, the Management Company
shareholders will receive additional consideration in the form of Contingent
Shares to be issued by the Shurgard REIT based on the Profits (as described
below), if any, arising from the Shurgard REIT's interests in the Partnerships.
Contingent Shares will be issued as a result of the following events: (i) the
receipt of proceeds by the Shurgard REIT from the sale or other disposition by
the Shurgard REIT of all or any part of its interests in the Partnerships (a
"Disposition"); (ii) the receipt by the Shurgard REIT of any distribution from a
Partnership attributable to the sale, refinancing, liquidation or other
disposition by a Partnership or a Project Partnership of one or more of its
Partnership Facilities or attributable to the sale by a Partnership (or by any
Project Partnership that is itself an owner of an interest in a Project
Partnership) of all or any part of its interest in a Project Partnership (a
"Distribution"); or (iii) a deemed liquidating distribution from a Partnership
to the Shurgard REIT on the fifth anniversary date of the Closing Date or as a
result of a change of control of the Shurgard REIT (a "Deemed Distribution").
The Partnership interests subject to this Contingent Share arrangement and
their respective interests in the Project Partnerships are described below. For
a description of the number and size of Partnership Facilities owned by the
respective Partnerships or Project Partnerships, see "SHURGARD INCORPORATED --
Management Services."
<TABLE>
<CAPTION>
PARTNERSHIP DESCRIPTION INTEREST DESCRIPTION
- --------------------------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
Shurgard Partners L.P. Shurgard Partners L.P., a Washington limited The Management Company is entitled to all
partnership, is the general partner in proceeds from Shurgard Partners L.P.,
Shurgard Institutional Fund L.P., a including all proceeds received from Shurgard
Washington limited partnership formed in Partners L.P.'s interest in Fund I after
March 1989 and financed exclusively with Shurgard Partners L.P.'s general partners
public and private pension funds ("Fund I"). receive an amount equal to 1% of all
The Management Company is the sole limited available cash flow of Fund I. Generally,
partner in Shurgard Partners L.P. Shurgard Partners L.P.'s interest in Fund I
entitles it to the following allocation of
proceeds from a sale or refinancing of Fund I
assets:
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP DESCRIPTION INTEREST DESCRIPTION
- --------------------------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
(a) 6% of available cash flow from Fund I
until the Fund I limited partners receive a
return of their invested capital;
(b) After the Fund I limited partners next
receive an 8% preferred return on their
invested capital, Shurgard Partners L.P. is
entitled to distributions in amounts
necessary to cause it to have received 20% of
the total amount distributed after the
limited partners have received a return of
their invested capital; and
(c) Thereafter, 20% of all remaining
available cash flow.
Shurgard Partners L.P. II Shurgard Partners L.P. II, a Washington The Management Company is entitled to 50% of
limited partnership, is the general partner all proceeds from Shurgard Partners L.P. II,
in Shurgard Institutional Fund L.P. II, a including all proceeds received from Shurgard
Washington limited partnership formed in Partners L.P. II's interest in Fund II after
January 1991 and financed exclusively with Shurgard Partners L.P. II's general partners
public and private pension funds ("Fund II"). receive an amount equal to 1% of all
The Management Company will own all of the available cash flow of Fund II. Generally,
limited partner interests in Shurgard Shurgard Partners L.P. II's interest in Fund
Partners L.P. II prior to the Merger. II entitles it to the following allocation of
proceeds from a sale or refinancing of Fund
II assets:
(a) After the Fund II limited partners
receive a return of capital plus an 8%
preferred return, Shurgard Partners L.P. II
is entitled to distributions in amounts
necessary to cause it to have received 20% of
the total amount previously distributed to
the limited partners from such sale or
refinancing; and
(b) Thereafter, 20% of all remaining
available cash flow.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP DESCRIPTION INTEREST DESCRIPTION
- --------------------------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
Shurgard Associates L.P., The IDS Partnerships, each a Washington The Management Company is entitled to
Shurgard Associates L.P. II limited partnership, hold general partner proceeds from the IDS Partnerships depending
and Shurgard Associates interests in IDS Shurgard Income Growth upon the amount of proceeds received by the
L.P. III (the "IDS Partners L.P., IDS Shurgard Income Growth IDS Partnerships from the IDS Funds.
Partnerships") Partners L.P. II and IDS Shurgard Income Generally, the IDS Partnerships are entitled
Growth Partners L.P. III, respectively (the to receive 5% of distributable sales proceeds
"IDS Funds"). The IDS Funds were formed in from the IDS Funds until the limited partners
1988, 1989 and 1990, respectively. The of the IDS Funds receive a return of capital
Management Company holds a limited partner plus a 9% preferred return. Thereafter, the
interest in each of the IDS Partnerships. IDS Partnerships receive 20% of distributable
sales proceeds from the IDS Funds.
The Management Company will receive from the
IDS Partnerships 40% of all IDS Fund
distributions received by the IDS
Partnerships pursuant to the 5% distribution
provision described above. Thereafter, the
Management Company will receive from the IDS
Partnerships 45% of IDS Fund distributions
received by the IDS Partnerships.
Shurgard Evergreen Limited The Management Company is the general partner The Management Company is generally entitled
Partnership in Shurgard Evergreen Limited Partnership. to 20% of all cash flow distributions after
This partnership directly owns self-storage the limited partners receive a return of
facilities and is a partner with Fund II in capital and a 9% preferred return.
Shurgard Institutional Partners.
</TABLE>
Generally, in the event of a Disposition, Distribution or Deemed
Distribution, Profits will be determined as follows:
(i) The Profits pursuant to a Disposition will consist of the gross
proceeds received by the Shurgard REIT from such Disposition, net of the
carrying value of the respective Partnership interest on the Final Statement
and the Shurgard REIT's reasonable costs and legal and accounting expenses
incurred in connection with such Disposition, provided that, in the event of
a Disposition to an affiliate of the Shurgard REIT, the gross proceeds
received by the Shurgard REIT will be deemed to be the greater of (x) the
portion of the amount, determined by appraisal, that would have been
distributed to the Shurgard REIT had there been a Deemed Distribution as of
the date of such Disposition or (y) the actual gross proceeds received by
Shurgard REIT with respect to such Disposition.
(ii) The Profits received upon a Distribution will be calculated with
reference to the amounts actually received by the Shurgard REIT with respect
to such Distribution, provided that, in the event a Partnership Facility or
interest in a Project Partnership is acquired directly by the
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<PAGE>
Shurgard REIT or an affiliate thereof, the amount received by the Shurgard
REIT will be deemed to be the greater of (x) the portion of the amount,
determined by appraisal, that would have been distributed to the Shurgard
REIT had there been a Deemed Distribution as of the date of such
acquisition; (y) the actual amount received by the Shurgard REIT with
respect to such Distribution; or (z) the amount of any credit toward the
purchase price for the Partnership Facility afforded the Shurgard REIT in
exchange for cancellation of its interest in the Partnership.
(iii) The Profits received upon a Deemed Distribution will be calculated
with reference to the amounts the Shurgard REIT would have received pursuant
to the terms of the respective Partnership Agreement had such Partnership
and the Project Partnership, if any, in which such Partnership may hold an
interest liquidated the Partnership Facilities for an amount determined by
appraisal, less reasonable costs and legal, accounting and appraisal
expenses incurred.
The number of Contingent Shares, if any, to be issued by the Shurgard REIT
in a Disposition or Distribution will be determined on a quarterly basis by (i)
multiplying the Profits received in connection with a Disposition or
Distribution occurring in such quarter by 95% and (ii) dividing such product by
the Market Value as of the last business day of such fiscal quarter.
The number of Contingent Shares, if any, to be issued by the Shurgard REIT
in a Deemed Distribution will be determined at the time of a change of control
or at the end of five years from the Closing, as the case may be, by reference
to independent appraisals of the Partnership Facilities and assuming a
liquidation of the Project Partnerships. The resulting Profits deemed received
by the Shurgard REIT will be multiplied by 95% and divided by the Market Value
as of the date of the applicable event to determine the number of Contingent
Shares.
The number of Contingent Shares so determined will be issued pro rata to
those who were Management Company shareholders immediately prior to the
Effective Time.
As indicated above, the Profits received or deemed to be received by the
Shurgard REIT cannot be computed on a current basis because they depend on
future economic conditions and future events. To demonstrate how the Contingent
Share provisions could work, however, the Shurgard REIT has prepared three
examples based on the following assumptions: (i) the net operating incomes of
the Partnership Facilities and the related partnership distributions increase by
4% annually based on the estimated net operating income of the Partnership
Facilities for the year ended December 31, 1994, (ii) all Partnership Facilities
are sold in a single transaction as of a specified date at sale prices based on
a capitalization rate of 10.5% of net operating income, (iii) a selling cost of
5% of the sale price is incurred, (iv) the estimated net operating income of
Partnership Facilities for the year ended December 31, 1994 is based on the 1994
budgets for such Partnership Facilities (which are consistent with the net
operating income for the 11 months ended November 30, 1994), except Partnership
Facilities that are still in the rent-up stage, in which case the net operating
income has been appropriately increased, and (v) for purposes of applying the
allocation provisions of the Partnership Agreements, the aggregate capital
contributions received by the Partnerships and the Project Partnerships and the
cumulative partnership distributions made by such partnerships as of December
31, 1994 have been estimated based on the unaudited amounts as of November 30,
1994. The Shurgard REIT believes, however, that it is likely that the
Partnership Facilities will actually be sold at different times, that net
operating incomes will vary over time based on changes in economic conditions,
typical capitalization rates will change and negotiated sale prices will be
affected by individual circumstances. Nevertheless, based on such assumptions
and assuming the distribution of sale proceeds in accordance with the provisions
of the respective Partnership Agreements, Profits resulting from the sale of all
Partnership Facilities at December 31, 1995, 1997 and 1999 would be
approximately $2.7 million, $5.6 million and $11 million, respectively. Based on
a Market Value of the Shurgard Class A Common Stock of $18.78 per share (the
average price for the 30 days ended December 16, 1994), the number of Contingent
Shares issuable at such dates in the future would be 136,581 shares, 283,280
shares and 556,443 shares, respectively. Since the Market Value at these future
dates could be substantially different from the current Market Value, the number
of Contingent Shares could vary accordingly and would not be
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<PAGE>
issuable until such future dates. It is important to understand that neither the
timing nor the terms of sale transactions involving the Partnership Facilities
or Partnership interests can be predicted and that the foregoing examples are
only illustrative.
In the event of a change of control or at the end of five years following
the Closing, the Shurgard REIT may issue Contingent Shares based on the value of
all of the unsold Partnership Facilities determined by appraisal, but without
actual sale transactions and without receiving distributions from the
Partnerships or recognizing gain or income for financial reporting or tax
purposes. While the Shurgard REIT would continue to own the Partnership
interests and would benefit from additional appreciation in the value of the
Partnership Facilities after such appraisal, if any, it would recognize gain or
income and receive sales proceeds in the future only in connection with an
actual sale of such assets.
All distributions or other payments (to the extent such distributions or
other payments do not constitute a Disposition or Distribution) and all voting
rights and other indicia of beneficial ownership with respect to such
Partnerships will inure to the benefit of the Shurgard REIT. Accordingly, the
Shurgard REIT will receive and retain all distributions from the Partnership
attributable to operating cash flow. For the 11 months ended November 30, 1994,
this was $295,000. Dividends or other distributions and all voting rights and
other indicia of beneficial ownership with respect to Contingent Shares will
inure to the benefit of the former holder of Management Company Common Stock
only when and from the time that such Contingent Shares are issued, if ever, in
accordance with the provisions of the Merger Agreement. The rights to Contingent
Shares are not assignable.
No fractional Contingent Shares will be issued. In lieu of any such
fractional securities, each holder of rights to Contingent Shares who would
otherwise have been entitled to a fraction of a Contingent Share will be paid an
amount in cash, without interest, equal to the Market Value of one Contingent
Share (as calculated above), multiplied by such fraction.
In light of certain IRS guidelines, the parties have agreed in the Merger
Agreement that the aggregate number of shares of Shurgard Class A Common Stock
delivered by the Shurgard REIT as Contingent Shares shall not exceed that number
of shares of Shurgard Class A Common Stock issued at the Effective Time. The
parties, however, do not believe that this maximum limit will ever be reached
and this limit does not represent an estimate by the parties of the payment of
the Contingent Shares.
EFFECTIVE TIME OF THE MERGER
Promptly following the satisfaction or waiver (where permissible) of the
conditions to the Merger, the Merger will be consummated and become effective on
the date and at the time the certificate of merger is duly filed with the
Secretary of State of the state of Delaware and the articles of merger are duly
filed with the Secretary of State of the state of Washington or such later date
and time as may be specified in such certificate of merger and articles of
merger. See "THE MERGER -- Conditions to Consummation of the Merger."
FRACTIONAL SHARES
No fractional shares of Shurgard Class A Common Stock will be issued in the
Merger. In lieu thereof, the Shurgard REIT will pay cash based on the Market
Value of Shurgard Class A Common Stock immediately preceding the Closing to any
holder otherwise entitled to a fractional share.
EXCHANGE OF SHARES OF MANAGEMENT COMPANY COMMON STOCK
The Merger Agreement provides that the exchange of shares of Management
Company Common Stock in the Merger will be effected as follows:
(i) The Shurgard REIT will deliver to each holder of record of a certificate
or certificates that immediately prior to the Effective Time represented
outstanding shares of Management Company Common Stock (the "Certificates") a
form of letter of transmittal and instructions for use in effecting the
surrender of the Certificates for payment;
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<PAGE>
(ii) Upon surrender of the Certificates for cancellation to the Shurgard
REIT, together with letters of transmittal duly executed and any other required
documents, holders of such Certificates will receive in consideration therefor
(a) a certificate representing that number of whole shares of Shurgard Class A
Common Stock to which such holder is entitled as Share Consideration; (b) the
right to receive Contingent Shares; and (c) cash in lieu of a fractional share
of Shurgard Class A Common Stock; and
(iii) After the Effective Time, each outstanding unsurrendered Certificate
will be deemed to represent only the right to receive upon such surrender (or
thereafter in the case of Contingent Shares) the number of shares of Shurgard
Class A Common Stock and the cash in lieu of a fractional share into which such
shares of Management Company Common Stock will have been converted; however, the
holders of outstanding unsurrendered Certificates after the Effective Time will
not be entitled to receive any dividends or distributions with a record date
after the Effective Time theretofore paid with respect to the shares of Shurgard
Class A Common Stock until such Certificates are surrendered, although any such
dividends or distributions will accrue and be payable to the holder, without
interest, upon surrender of such Certificates.
EFFECT ON MANAGEMENT COMPANY STOCK OPTION, EMPLOYEE BENEFIT AND STOCK PLANS
Under the Management Company Stock Option Plan, holders of outstanding
options to purchase shares of Management Company Common Stock will have the
right to exercise such options immediately prior to the Closing, whether or not
the vesting requirements for such options have been satisfied. Accordingly,
shares acquired on exercise of such options will be included in the shares of
Management Company Common Stock outstanding as of the Effective Time. All
outstanding options to purchase shares of Management Company Common Stock that
are not exercised prior to Closing will terminate.
At the Effective Time, and as a result of the Merger, the Shurgard REIT will
become the successor employer to the Management Company's employee stock
ownership ("ESOP") and incentive savings (401(k)) plans.
TRADING OF SHARES OF SHURGARD CLASS A COMMON STOCK
The shares of Shurgard Class A Common Stock to be issued in the Merger have
been approved for trading on the Nasdaq National Market, subject to official
notice of issuance.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement includes various customary representations and
warranties of the parties thereto. The Merger Agreement includes representations
and warranties of the Management Company as to, among other things: (i) the
corporate organization, standing and power of the Management Company; (ii)
approval by the Management Company's Board of Directors of the Merger Agreement;
(iii) the Management Company's capitalization; (iv) pending or threatened
litigation; (v) the Merger Agreement's noncontravention of any agreement, law or
charter or bylaw provision and the absence of the need (except as specified) for
governmental or third-party consents to the Merger; (vi) the terms, existence,
operations, liabilities and compliance with applicable laws of the Management
Company's employee plans, and certain other matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (vii) payment of taxes;
(viii) ownership of and rights to use certain intellectual property; (ix) the
Management Company's consolidated financial statements; (x) the conduct of the
Management Company's business in the ordinary and usual course and the absence
of any material adverse change in the Management Company's financial condition,
business, results of operations, properties, assets, liabilities or prospects;
(xi) certain contracts and leases of the Management Company; (xii) certain
matters with respect to compliance with environmental laws and regulations;
(xiii) certain transactions with affiliates; and (xiv) certain information to be
supplied by the Management Company for inclusion in this Proxy
Statement/Prospectus and in the Registration Statement.
The Merger Agreement also includes representations and warranties of the
Shurgard REIT as to, among other things: (i) the corporate organization,
standing and power of the Shurgard REIT and its
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subsidiaries; (ii) approvals by the Shurgard REIT Board and the authorization of
the Merger Agreement; (iii) the Shurgard REIT's capitalization; (iv) the
authorization of the Shurgard Class A Common Stock to be issued pursuant to the
Merger Agreement; (v) pending or threatened litigation; (vi) the Merger
Agreement's noncontravention of any agreement, law or charter or bylaw provision
and the absence of the need (except as specified) for governmental or
third-party consents to the Merger; (vii) the accuracy of the Shurgard REIT's
consolidated financial statements and filings with the Commission; and (viii)
the accuracy of information to be supplied by the Shurgard REIT for inclusion in
this Proxy Statement/Prospectus and in the Registration Statement.
BUSINESS OF THE MANAGEMENT COMPANY PENDING THE MERGER
The Management Company has agreed that, except as contemplated by the Merger
Agreement, during the period from the date of the Merger Agreement to the
Effective Time, the Management Company will pursue its business in the ordinary
course, with no less diligence and effort than would be applied in the absence
of the Merger Agreement. The Management Company has also agreed, on terms
expressly set forth in the Merger Agreement, that it will seek to preserve
intact its current business organization, maintain certain levels of working
capital, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it with the objective that their good will and ongoing businesses
shall be unimpaired at the Effective Time. The Management Company has also
agreed that before the Effective Time, unless the Shurgard REIT agrees in
writing or as otherwise permitted by the Merger Agreement, it will not, among
other things, enter into transactions or take actions that would, among other
things, change its capitalization, make distributions to its shareholders,
change existing employee benefits or agreements, effect any business combination
or corporate reorganization or restructuring, amend its Articles of
Incorporation or establish or amend a material agreement.
NO SOLICITATION
The Shurgard REIT and the Management Company have each agreed that before
the Effective Time (i) neither of them will, and each of them will direct and
use its best efforts to cause its respective officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its shareholders) with respect to a merger, acquisition, tender offer,
exchange offer, consolidation or similar transaction involving, or any purchase
of all or any significant portion of the assets or any equity securities of,
such party, or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to such proposal or offer, or otherwise facilitate any effort or
attempt to make or implement such proposal; (ii) it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted prior to December 19, 1994 with respect to any of the
foregoing and each will take the necessary steps to inform the individuals or
entities referred to above of the obligations undertaken pursuant to the Merger
Agreement; and (iii) it will notify the other party immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it. Notwithstanding the foregoing, nothing in the Merger Agreement will
prohibit either the Shurgard REIT Board or the Management Company's Board from
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited bona fide proposal if, and only
to the extent that, the Board of Directors of such party determines in good
faith that such action is required for the Board to comply with its fiduciary
duties to its shareholders that are imposed by law and such party keeps the
other party informed of the status of any such discussions.
INTERMATION SPIN-OFF
Prior to the Closing, the Management Company will distribute all the shares
of capital stock of InterMation held by the Management Company to its
shareholders. See "FEDERAL INCOME TAX CONSEQUENCES -- Tax Treatment of the
InterMation Spin-off."
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SHURGARD REALTY ADVISORS
The Management Company has agreed to sell SRA to Shurgard General Partners,
Inc., a corporation owned by Messrs. Barbo and Buerk, prior to the Closing, for
$25,000, which price is equal to the net capital currently required to be
maintained in SRA. The consideration will be delivered in the form of a note, to
be payable upon liquidation of SRA, or the date SRA allows its NASD
broker-dealer license to lapse, as described below, whichever occurs sooner. SRA
has entered into an agreement with the Shurgard REIT providing that so long as
(i) SRA is maintained as a legal entity licensed as a broker dealer and (ii) the
Shurgard REIT reimburses SRA for the cost of maintaining its licenses as a
broker-dealer, SRA will provide the Shurgard REIT broker-dealer services on
financial terms substantially similar to those provided to the Shurgard REIT in
connection with the Consolidation; provided, however, that SRA has the right,
upon 30 days' notice to the Shurgard REIT, to allow SRA's broker-dealer licenses
to lapse and/or to dissolve SRA.
CONDITIONS TO CONSUMMATION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The respective
obligations of the Shurgard REIT and the Management Company to effect the Merger
are subject to certain conditions, including the following: (i) the Merger will
have been duly approved by the holders of a majority of the outstanding shares
of Shurgard Class A Common Stock and the Management Company shareholders; (ii)
the waiting period under the HSR Act applicable to the Merger will have expired
or been terminated; (iii) the Registration Statement will have been declared
effective and will not be the subject of any stop order suspending the
effectiveness thereof or any proceeding seeking such a stop order; and (iv)
subject to certain exceptions, there will not be in effect any judgment, writ,
order, injunction or decree of any court or governmental body enjoining or
otherwise preventing consummation of the transactions contemplated by the Merger
Agreement nor will there be pending or threatened by any governmental body or
other person any suit, action or proceeding seeking to restrain or restrict the
consummation of the Merger or seeking damages in connection therewith.
In addition, the respective obligations of the parties to effect the Merger
are subject to the satisfaction or mutual waiver of certain conditions,
including the following: (i) all required authorizations or other third-party
consents in connection with the execution and delivery of the Merger Agreement
and the performance of the obligations thereunder will have been obtained; (ii)
the shares of Shurgard Class A Common Stock issuable pursuant to the Merger
Agreement will have been approved for trading on the Nasdaq National Market or
any national exchange upon which the Shurgard Class A Common Stock is then
listed; (iii) Mr. Barbo shall have entered into a noncompetition agreement, and
certain existing agreements shall have been terminated; and (iv) certain major
shareholders of the Management Company shall have entered into agreements
limiting sales of Shurgard Class A Common Stock received in the Merger.
Evergreen Holding Company ("EHC"), the limited partner of Shurgard Evergreen
Limited Partnership (the "Evergreen Partnership"), has notified the Management
Company that EHC considers the proposed Merger to be a transfer of interest in
the Evergreen Partnership requiring the consent of EHC. EHC has requested that
certain modifications to the Evergreen Partnership limited partnership agreement
be made as a condition of its consent to the Merger. While the Management
Company does not believe the Merger requires the consent of EHC, the parties
have commenced discussions and the Shurgard REIT and the Management Company
expect that the issue will be resolved prior to the consummation of the Merger.
There can be no assurance, however, that this issue will be resolved prior to
the consummation of the Merger.
CONDITIONS TO THE OBLIGATION OF THE SHURGARD REIT. In addition to the
foregoing conditions, the obligation of the Shurgard REIT to effect the Merger
is further subject to satisfaction or waiver of the following conditions, among
others: (i) the representations and warranties of the Management Company
contained in the Merger Agreement will be true and correct in all material
respects; (ii) the Management Company will have performed all agreements
required to be performed by it under the Merger Agreement; (iii) the Shurgard
REIT will have received a tax opinion of Perkins Coie that the
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Merger will constitute a reorganization under Section 368(a) of the Code, with
the Shurgard REIT and the Management Company being parties to that
reorganization within the meaning of Section 368(b) of the Code such that the
Management Company does not recognize taxable gain or loss on the transaction;
(iv) the InterMation Spin-off will have occurred by virtue of a transaction that
is intended to qualify for tax-free treatment under Section 355 of the Code; (v)
the Shurgard REIT shall have received an "agreed-upon procedures" report from
Deloitte & Touche LLP, independent public accountants, with respect to the
Management Company's consolidated financial statements included in this Proxy
Statement/Prospectus; (vi) the Shurgard REIT shall have received the Management
Company's Closing Statement, which conforms to the requirements of the Merger
Agreement; (vii) from December 19, 1994 through the Effective Time, there shall
not have occurred any change in the financial condition, business or operations
of the Management Company and its subsidiaries, taken as a whole, that would
have or would be reasonably likely to have a material adverse effect on the
Management Company's financial condition, business or operations; (viii) holders
in excess of 10% of the shares of Management Company Common Stock shall not have
exercised dissenters' rights under applicable law; (ix) the InterMation Spin-off
shall have occurred; (x) the disposition of SRA described in the Merger
Agreement shall have occurred; (xi) all consents necessary to transfer certain
intellectual property rights to the Surviving Corporation shall have been
obtained; and (xii) the Closing Statement shall reflect an aggregate of cash and
cash equivalents, short-term investments, fees, accounts receivable and
reimbursements receivable of not less than $1,060,700.
CONDITIONS TO THE OBLIGATION OF THE MANAGEMENT COMPANY. In addition to the
foregoing conditions, the obligation of the Management Company to effect the
Merger is further subject to satisfaction or waiver of the following conditions,
among others: (i) the representations and warranties of the Shurgard REIT
contained in the Merger Agreement are true and correct in all material respects;
(ii) the Shurgard REIT has performed all agreements required to be performed by
it under the Merger Agreement; (iii) from December 19, 1994 through the
Effective Time, there has not occurred any change in the financial condition,
business or operations of the Shurgard REIT and its subsidiaries, taken as a
whole, that would have or would be reasonably likely to have a material adverse
effect on the Shurgard REIT's business, properties, operations, condition
(financial or other) or prospects; and (iv) the Management Company has received
a tax opinion of Riddell, Williams, Bullitt & Walkinshaw that the InterMation
Spin-off more likely than not qualifies for tax-free treatment under Section 355
of the Code.
AMENDMENT AND WAIVER; TERMINATION
The parties to the Merger Agreement may not amend, change, supplement, waive
or otherwise modify the Merger Agreement, except by an instrument in writing
signed by the party against whom enforcement is sought.
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the Management Company shareholders or
the Shurgard REIT shareholders, either by the mutual written consent of the
Shurgard REIT and the Management Company or by the mutual action of their
respective Board of Directors. The Merger Agreement may also be terminated by
action of either the Shurgard REIT Board or the Management Company's Board of
Directors if (i) the Merger has not been consummated by May 25, 1995 (provided
that the terminating party shall not have breached in any material respect its
obligations under the Merger Agreement in any manner that shall have proximately
contributed to the occurrence of the failure of the Merger to occur on or before
such date); (ii) either the holders of the Management Company Common Stock or
the holders of the Shurgard Class A Common Stock shall fail to approve the
Merger; or (iii) any court or governmental body in the United States has issued
a final and nonappealable order, decree or ruling or taken any other final and
nonappealable action permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the party seeking such termination has used all
reasonable efforts to remove such order, decree, ruling or injunction).
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REGULATORY MATTERS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Certain aspects of the Merger will require
notifications to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where the Shurgard REIT and the
Management Company currently operate.
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and the
applicable waiting period has expired or been terminated. The Shurgard REIT and
the Management Company expect to file notification and report forms under the
HSR Act with the FTC and the Antitrust Division in January 1995. Unless it is
extended, the waiting period for these filings will terminate 30 days after the
filing is made. At any time before or after consummation of the Merger, the
Antitrust Division or the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking divestiture of substantial
assets of the Shurgard REIT or the Management Company. At any time before or
after the Effective Time, and notwithstanding that the waiting period under the
HSR Act has expired, any state could take such action under the antitrust laws
as it deems necessary or desirable in the public interest. Such action could
include seeking to enjoin the consummation of the Merger or seeking divestiture
of substantial assets of the Shurgard REIT or the Management Company. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Based on information available to them, the Shurgard REIT and the Management
Company believe that the Merger can be effected in compliance with federal and
state antitrust laws. However, there can be no assurance that a challenge to
consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, the Shurgard REIT and the Management Company would
prevail or would not be required to accept certain adverse conditions in order
to consummate the Merger.
INDEMNIFICATION OF MANAGEMENT COMPANY DIRECTORS AND OFFICERS
Under the Merger Agreement, the Shurgard REIT has agreed to keep in effect
provisions in its Certificate of Incorporation and By-Laws providing for
limitation of director liability and indemnification of directors, officers,
employees and agents at least to the extent such persons are entitled thereto
under the Articles of Incorporation and By-Laws of the Management Company as of
December 19, 1994, subject to Delaware law. To the extent the Shurgard REIT
Certificate of Incorporation and By-Laws do not provide for indemnification of
directors or officers of predecessor corporations the Shurgard REIT will,
subject to Delaware law, contractually assume the indemnification obligations
under the Management Company's By-Laws. In addition, such provisions will not be
amended, repealed or otherwise modified in any manner that would adversely
affect the rights of individuals who at any time prior to the Effective Time
were directors, officers, employees or agents of the Management Company in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement), unless such modification is required by law.
RESALE OF SHARES OF SHURGARD CLASS A COMMON STOCK ISSUED IN THE MERGER;
AFFILIATES
The Merger Agreement provides that Messrs. Barbo, Buerk, Daniels, Grant,
Knutzen (as trustee of the Barbo family trust) and Rowe will agree not to sell,
pledge (on a nonrecourse basis), transfer or otherwise dispose of (except by
operation of law) more than 40% of the Share Consideration and the Contingent
Shares received by them for a two-year period commencing on the Closing Date.
Except as provided above, the shares of Shurgard Class A Common Stock to be
issued in the Merger will be freely transferable, except that shares issued to
any Management Company shareholder who may be deemed to be an "affiliate" (as
defined under the Securities Act, and generally including, without limitation,
directors, certain executive officers and beneficial owners of 10% or more of a
class of capital stock) of the Management Company for purposes of Rule 145 under
the
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Securities Act shall not be transferable except in compliance with the
Securities Act. Approximately 78.3% of the shares of Shurgard Class A Common
Stock to be issued pursuant to the Merger will be held by such "affiliates." The
Management Company shareholders will not have registration rights with respect
to the shares of Shurgard Class A Common Stock they receive in the Merger.
Such "affiliates" have delivered a letter to the Shurgard REIT indicating
that they will not sell, pledge, transfer or otherwise dispose of any shares of
the Shurgard Class A Common Stock issued pursuant to the Merger except (i) in
accordance with an effective registration statement, (ii) in compliance with the
Rule 145 under the Securities Act, or (iii) pursuant to a transaction exempt
from, or otherwise not subject to, the registration requirements of the
Securities Act.
This Proxy Statement/Prospectus does not cover resales of shares of Shurgard
Class A Common Stock received by any person who may be deemed to be an affiliate
of the Management Company.
AGREEMENT OF MANAGEMENT COMPANY SIGNIFICANT SHAREHOLDERS TO VOTE IN FAVOR OF THE
MERGER
Certain significant shareholders of the Management Company (the "Management
Company Significant Shareholders") have entered into a Shareholders Agreement
pursuant to which each of the Management Company Significant Shareholders has
agreed to attend (in person or by proxy) the special meeting of Management
Company shareholders at which the Merger Agreement will be presented for
approval and to vote all shares of Management Company Common Stock that such
shareholder has the right to vote in favor of the Merger Agreement. Such special
meeting of Management Company shareholders is currently scheduled for March 2,
1995. As of December 31, 1994, the Management Company Significant Shareholders
had the power to vote shares representing an aggregate of approximately 85% of
the outstanding shares of Management Company Common Stock. Accordingly, approval
of the Merger Agreement by the Management Company shareholders is assured.
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method under generally
accepted accounting principles for accounting and financial reporting purposes.
EXPENSES AND FEES
Each party will bear its own expenses, including the fees and expenses of
any attorneys, accountants, investment bankers, brokers, finders or other
intermediaries, incurred in connection with the Merger Agreement and the
transactions contemplated thereby. Notwithstanding the foregoing, the Merger
Agreement provides that if an officer, director or affiliate of the Management
Company (collectively, the "Litigation Parties") is involuntarily made a party
to a lawsuit in connection with the Merger, the Shurgard REIT will defend,
indemnify and pay the costs associated with the defense of such Litigation
Parties. In addition, if it is deemed appropriate, such Litigation Parties may
retain separate legal counsel to defend actions brought in connection with the
Merger and the Shurgard REIT will likewise pay the associated costs. Further,
the Management Company and the Shurgard REIT have each agreed in the Merger
Agreement not to enter into settlement proceedings without the consent of the
other. The Shurgard REIT will have no duty to indemnify any of the Litigation
Parties for any liability imposed under a final judgment to the extent such
judgment has been finally adjudicated and determined to have been the result of
an untrue statement or an omission of a material fact made by the Management
Company in certain sections of the Registration Statement or this Proxy
Statement/Prospectus, or as a result of fraud, intentional misconduct or knowing
violation of the law by such Litigation Parties.
RIGHTS OF DISSENTING MANAGEMENT COMPANY SHAREHOLDERS
Holders of Shurgard Class A Common Stock will not be entitled to dissenters'
rights as a result of the Merger.
A record or beneficial holder of Management Company Common Stock will have
the right to dissent with respect to the Merger and, subject to certain
conditions, will be entitled to receive a cash
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payment equal to the fair value of his or her shares under the WBCA. Any
Management Company shareholder who intends to exercise his or her dissenters'
rights must not vote his or her shares in favor of the Merger and must satisfy
the procedural requirements concerning dissenters' rights specified in the WBCA.
The Management Company will be required to pay to each Management Company
dissenting shareholder who complies with the procedures of the WBCA, within 30
days after the later of the Effective Time and the date the payment demand is
received, the amount that the Management Company estimates to be the fair value
of the shareholders shares, plus accrued interest. The Management Company will
provide, along with such payment, certain financial information, and an
explanation of how the Management Company estimated the fair value of the
shares. Any dissenting shareholder who is dissatisfied with such payment may,
within 30 days of such payment, notify the Management Company in writing of such
shareholder's estimate of fair value of his or her shares and the amount of
interest due, and demand payment thereof.
If any Management Company dissenting shareholder's demand for payment is not
settled within 60 days after receipt by the Management Company of such
shareholder's payment demand, the WBCA requires that the Management Company
commence a proceeding in King County Superior Court, and petition the court to
determine the fair value of the shares and accrued interest. Such a
determination of fair value could result in a price higher than, lower than or
equal to the price available to Management Company shareholders pursuant to the
Merger. Under the WBCA, a court may consider a variety of factors in determining
fair value. The WBCA requires that the court consider all relevant facts and
circumstances in determining the fair value and that it not give undue emphasis
to any one factor.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes those federal income tax considerations
resulting from the Merger that materially affect the Shurgard REIT, the
Management Company and their respective shareholders. The discussion is general
in nature and is not intended as a substitute for professional tax advice.
Accordingly, the discussion does not purport to be a complete analysis or
listing of all potential effects relevant to a decision whether to vote in favor
of the Merger. The discussion neither addresses the tax consequences that may be
relevant to a particular Shurgard REIT or a Management Company shareholder nor a
Shurgard REIT or a Management Company shareholder that is subject to special
treatment under certain federal income tax laws, such as dealers in securities,
banks, insurance companies, tax-exempt organizations and non-United States
persons, nor does it address any consequences arising under the laws of any
state, local or foreign jurisdiction. The discussion is based upon the Code,
Treasury regulations promulgated thereunder and administrative rulings and court
decisions as of the date hereof. The foregoing is subject to change either
prospectively or retroactively and any such change could affect the continuing
validity of the discussion. THE SHURGARD REIT AND MANAGEMENT COMPANY
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
TAX TREATMENT OF THE MANAGEMENT COMPANY AND THE SHURGARD REIT IN THE MERGER
The following is a summary of the material federal income tax consequences
of the Merger. No ruling from the IRS will be applied for with respect to the
federal income tax consequences of the Merger. Thus, there can be no assurance
that the IRS will agree with the conclusions set forth in this Proxy
Statement/Prospectus.
In connection with the Merger, Perkins Coie, counsel to the Shurgard REIT,
has delivered an opinion that for federal income tax purposes under current law,
assuming that the Merger and related transactions will take place as described
in the Merger Agreement and that certain factual matters represented by the
Shurgard REIT, the Management Company and the Management Company Significant
Shareholders are true and correct at the Effective Time, the following would be
the material federal income tax consequences of the Merger:
(i) the Merger will be treated as a reorganization under Section 368(a)
of the Code;
(ii) each of the Shurgard REIT and the Management Company will be a
party to the reorganization under Section 368(b) of the Code;
(iii) no gain or loss will be recognized by the Shurgard REIT or the
Management Company in the Merger;
(iv) immediately following the Effective Time, the assets of the
Management Company in the hands of the Shurgard REIT will have the same
adjusted tax basis as they had in the hands of the Management Company
immediately prior to the Effective Time; and
(v) the holding period for each of the assets of the Management Company
in the hands of the Shurgard REIT following the Effective Time will include
the period each asset was held by the Management Company immediately prior
to the Effective Time.
Perkins Coie will opine as to each of the foregoing items (i) through (v)
regarding the federal income tax consequences of the Merger. Perkins Coie's
opinion will be limited, however, to the foregoing consequences. Perkins Coie is
not opining as to the consequences of other elements of the transaction,
including without limitation, the consequences of the Merger for the Management
Company Shareholders and the consequences of the InterMation Spin-off. For a
discussion of these items see "-- Tax Treatment of Management Company
Shareholders in the Merger" and "-- Tax Treatment of InterMation Spin-off."
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CONTINGENT SHARES AND INDEMNIFICATION SHARES
The Shurgard REIT will recognize no gain or loss upon the issuance of
Contingent Shares. It is likely that the Shurgard REIT would recognize no gain
or loss upon the receipt of Indemnification Shares from the escrow fund,
although the IRS might take the position that such return constituted ordinary
income to the Shurgard REIT if the related indemnification claim was for lost
profits of the Shurgard REIT. If the Shurgard REIT were to recognize ordinary
income on receipt of such shares, the Shurgard REIT may be required to increase
its distributions to retain REIT status and the Shurgard REIT shareholders would
recognize dividend income on receipt of any such additional distribution.
TAX TREATMENT OF MANAGEMENT COMPANY SHAREHOLDERS IN THE MERGER
No opinion has been requested describing the tax consequences attributable
to the Merger to the Management Company shareholders. Nonetheless, the following
are the likely federal income tax consequences of the Merger for a Management
Company shareholder:
(i) no gain or loss will be recognized by Management Company
shareholders upon receipt of shares of Shurgard Class A Common Stock in
exchange for their shares of Management Company Common Stock (other than
Contingent Shares recharacterized as interest as discussed in "-- Receipt of
Contingent Shares"), except that Management Company shareholders who receive
cash in lieu of a fractional share of Shurgard Class A Common Stock will
recognize gain equal to the difference between such cash and the tax basis
allocated to their fractional shares of Shurgard Class A Common Stock, and
such gain will constitute capital gain if their shares of Management Company
Common Stock were held as a capital asset at the Effective Time;
(ii) the tax basis of the shares of Shurgard Class A Common Stock
received (including fractional shares of Shurgard Class A Common Stock
deemed received) in the Merger by Management Company shareholders (other
than Contingent Shares recharacterized as interest as discussed in "--
Receipt of Contingent Shares") will be the same as the tax basis of their
shares of Management Company Common Stock exchanged therefor and, until the
final payment of Contingent Shares, such basis shall be determined as though
the maximum number of Contingent Shares had been issued under the Merger
Agreement (see "-- Receipt of Contingent Shares") and all of the
Indemnification Shares are released at the end of the escrow period (see "--
Indemnification Shares and Adjustment Indemnification Shares"); and
(iii) the holding period of the shares of Shurgard Class A Common Stock
in the hands of the Management Company shareholders (other than Contingent
Shares recharacterized as interest as discussed in "-- Receipt of Contingent
Shares") will include the holding period of their shares of Management
Company Common Stock exchanged therefor, provided such shares of Management
Company Common Stock are held as a capital asset at the Effective Time.
RECEIPT OF CONTINGENT SHARES. The Shurgard REIT may issue Contingent Shares
during each fiscal quarter ending after the Effective Time, through the fifth
anniversary of the Closing. See "THE MERGER -- Contingent Shares." Generally,
the offering and issuance of Contingent Shares should not adversely affect the
tax-free nature of the Merger. Nonetheless, a portion of the Contingent Shares
issued to Management Company shareholders will be taxable upon receipt by the
Management Company shareholders as interest income. The amount of interest
income recognized will equal the excess of (i) the fair market value of the
Contingent Shares at the time they are issued over (ii) such fair market value
discounted back to the Effective Time using an applicable federal interest rate.
Because of the factual uncertainty regarding the amount and timing of the
issuance of the Contingent Shares, the amount of the interest income to be
recognized by the Management Company shareholders is uncertain.
INDEMNIFICATION SHARES AND ADJUSTMENT INDEMNIFICATION SHARES. Subject to
certain limitations, a total of 15% of the Share Consideration will be deposited
into an escrow account at the Closing to
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allow the Shurgard REIT to recover from the Indemnification Shares and
Adjustment Indemnification Shares costs or expenses arising from certain events.
See "THE MERGER -- Indemnification Shares." Each Management Company shareholder
will be deemed to own at the Effective Time that portion of the Indemnification
Shares and Adjustment Indemnification Shares that he or she would receive upon
the release of such shares if no payment of such shares is made during the
escrow period. The issuance of the Indemnification Shares and Adjustment
Indemnification Shares should not adversely affect the tax-free nature of the
reorganization nor adversely impact a Management Company shareholder. The IRS
has ruled that the payment of shares as indemnification from an escrow fund of
the type used in the Merger Agreement will not result in gain or loss to the
beneficial owner of the shares if the payment is calculated on the basis of the
fair market value of the shares at the time of the initial reorganization. Rev.
Rul. 76-42, 1976-1 C.B. 102. Accordingly, the Management Company shareholders
should recognize no gain or loss upon a transfer of Indemnification Shares or
Adjustment Indemnification Shares to the Shurgard REIT. Additionally, the basis
of such shares will be added to the basis of the Indemnification Shares and
Adjustment Indemnification Shares remaining in the escrow fund.
EXERCISE OF DISSENTERS' RIGHTS. Management Company shareholders who
exercise dissenters' rights will recognize gain or loss equal to the difference
between such cash and the tax basis in their shares of Management Company Common
Stock subject to dissenters' rights, and such gain or loss will constitute
capital gain or loss if their shares of Management Company Common Stock are held
as a capital asset at the Effective Time. However, such exercise may be subject
to the provisions and limitations of Section 302 of the Code. Accordingly, under
certain limited circumstances, a Management Company shareholder exercising
dissenters' rights may recognize ordinary income to the extent of the cash
received if the resulting redemption were not treated as a complete termination
of the interest of the Management Company shareholder in the Shurgard REIT,
after application of certain attribution rules under Section 302 of the Code.
For example, if persons related (within the meaning of Section 318 of the Code)
to a Management Company shareholder who exercises dissenters' rights own shares
of the Shurgard REIT after the Merger, or the Management Company shareholder
exercises dissenters' rights for some, but not all, of his or her shares, the
cash received upon the exercise of dissenters' rights may result in dividend
treatment. Management Company shareholders should consult their own tax advisers
to determine whether dividend treatment could apply to their particular
circumstances.
BUILT-IN GAIN RULES
Under the "Built-in Gain Rules" of Notice 88-19, 1988-1 C.B. 486, the
Shurgard REIT will be subject to a corporate tax if it disposes of any of the
assets acquired from the Management Company in the Merger during the 10-year
period beginning at the Effective Time (the "Restriction Period"). This tax is
imposed at the top regular corporate rate (currently 35%) on the excess of (i)
the lesser of (a) the fair market value at the Effective Time of the assets
disposed of and (b) the selling price of such assets over (ii) the Shurgard
REIT's adjusted basis at the Effective Time in such assets (such excess being
referred to as the "Built-in Gain"). The Shurgard REIT does not intend to
dispose of any of the assets acquired in the Merger during the Restriction
Period. However, the Merger Agreement does contemplate (x) the Shurgard REIT's
disposition of interests in certain Partnerships (the "Partnership Interests")
acquired from the Management Company in the Merger and (y) the sale of some or
all of the assets of these Partnerships, as described in "THE MERGER --
Contingent Shares." On such a disposition, if the fair market value of a
Partnership Interest at the Effective Time exceeded the Shurgard REIT's basis
therein or if the fair market value of the Partnership assets at the Effective
Time exceeded the Partnership's basis therein, the Shurgard REIT would be taxed
at the time of the disposition on the resulting gain at the top corporate rate
under the Built-in Gain Rules. SEE, E.G., Prop. Treas. Reg. 1.1374-4(h).
The results described above with respect to the recognition of Built-in Gain
assume that the Shurgard REIT will make a certain election pursuant to the
Built-in Gain Rules or applicable future administrative rules or Treasury
Regulations. The Shurgard REIT intends to make this election. If
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the Shurgard REIT does not make this election, the Management Company will be
taxed on the Built-in Gain at the Effective Time at regular corporate tax rates.
Furthermore, if the Shurgard REIT does not make the election, the InterMation
Spin-off may fail to qualify under Section 355 of the Code. See "-- Tax
Treatment of the InterMation Spin-off" and "-- Failure of the InterMation
Spin-off to Qualify."
FAILURE OF THE MERGER TO QUALIFY
CONSEQUENCES TO THE MANAGEMENT COMPANY AND MANAGEMENT COMPANY
SHAREHOLDERS. Should any of the assumptions or representations upon which the
tax opinions regarding the Merger are based prove inaccurate, the Merger may not
qualify as a tax-free reorganization under Section 368(a) of the Code.
Furthermore, such tax opinions are not binding upon the IRS, which may challenge
the qualification of the Merger as a reorganization under Section 368(a) of the
Code. If the Merger does not so qualify, (i) the Management Company shareholders
will recognize gain or loss upon the Merger in an amount equal to the difference
between the fair market value at the Effective Time of the Shurgard Class A
Common Stock received, including Contingent Shares when and as received, and
their adjusted tax basis in the shares of Management Company Common Stock
exchanged therefor, including Contingent Shares when and as received and (ii)
the Management Company will recognize gain or loss in an amount equal to the
difference between the fair market value of the Shurgard Class A Common Stock
issued in the Merger, including Contingent Shares when and as received, and the
adjusted tax basis of the assets that it transfers to the Shurgard REIT in the
Merger.
Furthermore, the failure of the Merger to qualify under Section 368(a) of
the Code may cause the InterMation Spin-off to fail to qualify under Section 355
of the Code. For a discussion of the InterMation Spin-off, including the adverse
tax consequences to the Management Company and the Management Company
shareholders that may result from the InterMation Spin-off's failure to qualify
under Section 355 of the Code, see "-- Tax Treatment of the InterMation
Spin-off."
CONSEQUENCES TO THE SHURGARD REIT. The Shurgard REIT will not directly
recognize gain or loss as a result of the failure of the Merger to qualify as a
reorganization under Section 368(a) of the Code. Nonetheless, the Shurgard REIT
will be primarily liable as the successor to the Management Company for the
resulting tax liability imposed upon the Management Company. Furthermore, the
failure of the Merger to qualify under Section 368(a) of the Code may cause the
InterMation Spin-off to fail to qualify under Section 355 of the Code. For a
discussion of the InterMation Spin-off, including the adverse tax consequences
to the Shurgard REIT that may result from the InterMation Spin-off's failure to
qualify under Section 355 of the Code, see "-- Tax Treatment of the InterMation
Spin-off."
TAX TREATMENT OF THE INTERMATION SPIN-OFF
The following is a summary of the material federal income tax consequences
of the InterMation Spin-off. Based on its guidelines for submitting a ruling,
the IRS has informed the Management Company that it will not consider a ruling
regarding these consequences. Accordingly, there can be no assurance that the
IRS will determine that the InterMation Spin-off qualifies under Section 355 of
the Code.
In connection with the InterMation Spin-off, Riddell, Williams, Bullitt &
Walkinshaw, counsel to the Management Company, will deliver an opinion to the
Management Company that for federal income tax purposes under current law,
assuming that the InterMation Spin-off and related transactions will take place
as described in an Agreement and Plan of Corporate Separation between the
Management Company and InterMation and that certain factual matters represented
by the Management Company, InterMation and certain Management Company
shareholders are true and correct at the time of the InterMation Spin-off, the
following would more likely than not be the material federal income tax
consequences of the InterMation Spin-off:
(i) the distribution of the shares of InterMation common stock in the
InterMation Spin-off will be treated as described in Section 355(a)(1) of
the Code;
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(ii) no gain or loss will be recognized by (and no amount will be
included in the income of) the Management Company shareholders upon the
receipt of the shares of InterMation common stock distributed to them by the
Management Company;
(iii) no gain or loss will be recognized by the Management Company upon
the distribution of all the shares of InterMation common stock held by it to
its shareholders;
(iv) the basis of the shares of Management Company Common Stock and the
shares of InterMation common stock held by the Management Company
shareholders after the distribution will be the same as the basis of the
shares of Management Company Common Stock held immediately prior to the
distribution, allocated in proportion to the relative fair market values of
the shares of Management Company Common Stock and the shares of InterMation
common stock on the date of the distribution;
(v) provided that the shares of Management Company Common Stock were
held as a capital asset on the date of the distribution, the holding period
of the shares of InterMation common stock received by the Management Company
shareholders will include the holding period of the shares of Management
Company Common Stock exchanged therefor; and
(vi) the earnings and profits of the Management Company immediately
before the distribution will be allocated between the Management Company and
InterMation in proportion to the relative fair market values of the two
corporations as of the date of distribution, with the amount of earning and
profits allocated to InterMation being limited to the net worth of
InterMation as of the date of the distribution.
The opinion of Riddell, Williams, Bullitt & Walkinshaw, counsel to the
Management Company, regarding the InterMation Spin-off will be limited to the
foregoing.
FAILURE OF THE INTERMATION SPIN-OFF TO QUALIFY
CONSEQUENCES TO THE MANAGEMENT COMPANY AND MANAGEMENT COMPANY
SHAREHOLDERS. The tax opinion regarding the InterMation Spin-off is based on a
number of assumptions and representations, including, among others, that (i) the
assumption that the Merger will take place and that it will qualify as a
tax-free reorganization under Section 368(a)(1) of the Code and (ii) the parties
to the Merger Agreement have entered into the Merger Agreement for valid
business reasons and not for the purpose of tax avoidance. Should any of these
assumptions prove inaccurate, the InterMation Spin-off may not qualify as a
distribution under Section 355(a)(1) of the Code. Furthermore, the tax opinion
regarding the InterMation Spin-off is not binding on the IRS, which may
challenge the qualification of the InterMation Spin-off as a distribution under
Section 355(a)(1) of the Code. If the InterMation Spin-off does not so qualify,
(i) the Management Company shareholders will recognize income as a result of the
InterMation Spin-off in an amount equal to the fair market value of the
InterMation common stock received and (ii) the Management Company will recognize
gain in an amount equal to the difference between the fair market value of the
shares of InterMation common stock it distributes in the InterMation Spin-off
and its basis in such shares.
CONSEQUENCES TO THE SHURGARD REIT AND THE SHURGARD REIT SHAREHOLDERS. The
Shurgard REIT will not directly recognize any gain or loss in the event the
InterMation Spin-off fails to qualify as a distribution under Section 355(a)(1)
of the Code. Nonetheless, the Shurgard REIT will be primarily liable as the
successor to the Management Company for the tax liability imposed upon the
Management Company. In the event the Shurgard REIT is held primarily liable for
this resulting tax liability, the Shurgard REIT will be partially or completely
indemnified for the tax costs associated with the disqualified InterMation
Spin-off. If the resulting tax liability is determined within three years of the
Effective Time, the indemnification will be satisfied, to the extent possible,
through retention of the Indemnification Shares. If the resulting tax liability
is determined after such time, the Shurgard REIT will have recourse against the
Management Company Significant Shareholders, subject to certain limitations. See
"THE MERGER -- Indemnification Shares." Because the amount
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of such liability will be based on facts that are not available at this time,
including the fair market value of the InterMation common stock on the date of
distribution, it is not possible to determine with reasonable certainty the
amount of any potential tax liability should the InterMation Spin-off fail to
qualify as tax-free. Accordingly, it is possible that the amount of any
resulting tax liability, including potential interest, penalties and
professional costs, may exceed the extent of the available indemnity.
If the InterMation Spin-off does not qualify under Section 355 of the Code,
however, the amount of accumulated earnings and profits acquired by the Shurgard
REIT from the Management Company in the Merger will be reduced. See "--
Consequences of the Merger on the Shurgard REIT's Qualification as a REIT --
Distributions of Accumulated Earnings and Profits Attributable to Non-REIT
Years." The taxable distribution of InterMation shares by the Management Company
prior to the Merger has the net effect of reducing the Management Company's
accumulated earnings and profits by the adjusted tax basis of the distributed
shares. By reducing the amount of the earnings and profits, the amount of
Shurgard REIT distributions previously characterized as dividends will be
equally reduced and such distributions would be treated as a tax-free return of
capital to the Shurgard REIT shareholders to the extent of their basis in their
Shurgard Class A Common Stock, and thereafter as capital gain income.
Accordingly, if the InterMation Spin-off is subsequently determined to be
taxable, the Shurgard REIT shareholders may be entitled to a tax refund
associated with any distribution made during 1995 that was incorrectly reported
as a dividend.
CONSEQUENCES OF THE MERGER ON THE SHURGARD REIT'S QUALIFICATION AS A REIT
THE SHURGARD REIT'S SELF-ADMINISTRATION OF MANAGEMENT SERVICES. Because of
the unique federal income tax requirements attributable to REITs, a number of
federal income tax issues must be addressed in connection with the Merger that
are unique to the Shurgard REIT's status as a REIT. Of primary importance is the
issue of whether the Shurgard REIT is permitted to perform its property
management functions internally. Generally, REITs are permitted to perform
services for their own tenants, which services are usually and customarily
rendered in connection with the rental of space for occupancy only and are not
considered to be "rendered to the occupant." If a REIT performs services beyond
this extent, the income received for the use of its property will not satisfy
the REIT income tests. See "-- Tax Consequences to Management Company
Shareholders Receiving Shurgard Class A Common Stock -- Income Tests." Failure
to satisfy these tests would result in the disqualification of the Shurgard REIT
as a REIT. See "-- Tax Consequences to Management Company Shareholders Receiving
Shurgard Class A Common Stock -- Failure of the Shurgard REIT to Qualify as a
REIT."
As a result of the Merger, the Shurgard REIT will perform or
"self-administer" the property management activities for properties it owns.
Prior to the Consolidation, and on behalf of the Shurgard REIT, the Management
Company obtained an IRS private letter ruling in which the IRS ruled that,
should the Shurgard REIT acquire the Management Company and self-administer the
management activities of its properties, such property management services
rendered by the Shurgard REIT would not adversely affect the characterization of
the Shurgard REIT's rents from real property. The ruling is based on a
description of those management services to be performed by the Shurgard REIT in
connection with its own properties, including maintenance, repair, lease
administration and accounting, and security. The ruling also considers the
ancillary services to be directly performed by the
Shurgard REIT such as truck rentals and inventory sales. Based on this ruling,
the property management services rendered by the Shurgard REIT on its own
properties should not adversely affect the characterization of the Shurgard REIT
as a REIT.
NONQUALIFYING INCOME. The Shurgard REIT must meet several annual gross
income tests to retain its REIT qualification. See "-- Tax Consequences to
Management Company Shareholders Receiving Shurgard Class A Common Stock --
Income Tests." Under the 95% gross income test, the Shurgard REIT must derive at
least 95% of its total gross income from specified classes of income related to
real property, dividends, interest or gains from the sale or other disposition
of stock or other securities that do not constitute "dealer property." Income
related to real property includes: (i)
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proceeds from the rental of self-storage facilities; (ii) interest on
obligations secured by mortgages on real property; and (iii) gains from the sale
or other disposition of real property (other than real property held by the
Shurgard REIT as a dealer).
In the event the Shurgard REIT fails to meet the 95% test during any taxable
year, its REIT status would terminate for that year and future years unless it
satisfies each of the following: (i) it reported the source and nature of each
item of its gross income in its federal income tax return for such year; (ii)
the inclusion of any incorrect information in its return is not due to fraud
with intent to evade tax; and (iii) the failure to meet such test is due to a
reasonable cause and not to willful neglect. Accordingly, if the failure to meet
the 95% test is based on a reasonable cause such as a miscalculation or
interpretation as to the nature of the gross income and the Shurgard REIT
reports all of its nonqualifying income on its tax return, the Shurgard REIT
would not lose its REIT status. If the Shurgard REIT has projected that it may
have excess nonqualifying income for any years and fails to cure such problem,
it may face termination of its REIT status. If so terminated, the Shurgard REIT
cannot again elect REIT status for five years unless it can prove that such
termination was due to reasonable cause, not willful neglect.
Furthermore, in the event the Shurgard REIT fails to meet the 95% test, even
if the Shurgard REIT's REIT status is not terminated, the Shurgard REIT would
still be subject to an excise tax on any excess nonqualifying income. Generally,
if the Shurgard REIT fails the 95% test but still retains its qualification as a
REIT, it would be subject to a 100% excise tax on the amount of the excess
nonqualifying income multiplied by a fraction, the numerator of which is the
Shurgard REIT's taxable income (computed without its distribution deduction) and
the denominator of which is the Shurgard REIT's gross income from all sources.
This excise tax has the general effect of causing the Shurgard REIT to pay all
net profits generated from this excess nonqualifying income to the IRS.
Presently, the Shurgard REIT obtains a small percent of its gross income
from activities that do not qualify under this 95% gross income test
("Nonqualifying Income"). For a description of these activities, see "POLICIES
REGARDING INVESTMENT AND CERTAIN OTHER ACTIVITIES -- Policy With Respect to
Dividends and Certain Other Activities -- Ancillary Services." For example,
income received by the Shurgard REIT from the sale of inventory products such as
locks, boxes and packing materials and commissions from the rental of Ryder
trucks do not qualify under the 95% test. Currently, on an annualized basis,
gross income from these nonqualifying activities accounts for approximately
2.84% of the total gross income of the Shurgard REIT.
Upon the Merger, the gross income received by the Shurgard REIT from
property management services on properties owned by third parties will be
treated as income not qualifying under the 95% test. For a discussion regarding
the third-party property management contracts of the Management Company, see
"SHURGARD INCORPORATED -- Management Services." In addition, to the extent third
parties reimburse the Management Company for legal, acquisition, accounting,
operations or other administrative services performed by Management Company
employees, the amount of such reimbursement should similarly be treated as
Nonqualifying Income. If there was no change in the Shurgard REIT's current
revenues and assuming that the Merger closed on March 31, 1995, the Shurgard
REIT would earn nonqualifying income at or near 5% of its total gross income in
1995 and would earn Nonqualifying Income of approximately 5.75% of its total
gross income for subsequent years, thereby failing the 95% test.
The percentage of Nonqualifying Income may be reduced in a variety of ways.
Because the income tests are based on a percentage of total gross income,
increases in qualifying rents will reduce the percentage of Nonqualifying
Income. Pursuant to the Shurgard REIT's existing acquisition program, additional
assets may be acquired by it during 1995 that would generate additional
qualifying income, thereby lowering the percentage of total Nonqualifying Income
recognized by it. There can, of course, be no assurance that future acquisitions
will be made in amounts or at such times to satisfy these gross income
requirements. Increases in other Nonqualifying Income may similarly affect these
calculations.
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Accordingly, if the Shurgard REIT determines at any time during the year
that the receipt of third-party management fees could adversely affect its
ability to satisfy the 95% test, it will notify the third-party property owners
to which it provides property management services and request that management
fees be paid at reduced rates for the remainder of the year. The Shurgard REIT
will, to the extent possible under existing tax guidelines, defer receipt of
such fees to a succeeding year in which recognition of the Nonqualifying Income
does not jeopardize its qualification as a REIT. If such deferral is not
possible, however, the Shurgard REIT would reduce the fees without condition or
deferral. Although this measure would reduce the Shurgard REIT's gross income
(and correspondingly its net profits), it would effectively reduce the Shurgard
REIT's overall Nonqualifying Income and preserve its REIT status. The Shurgard
REIT anticipates that this measure will be taken only as necessary and intends
to pursue less costly alternatives when appropriate.
DISTRIBUTIONS OF ACCUMULATED EARNINGS AND PROFITS ATTRIBUTABLE TO NON-REIT
YEARS. A REIT is not allowed to have accumulated earnings and profits
attributable to non-REIT years. A REIT has until the close of its first taxable
year in which it has non-REIT earnings and profits to distribute any such
accumulated earnings and profits. In a corporate reorganization qualifying as a
tax-free statutory merger, the acquired corporation's accumulated earnings and
profits are carried over to the surviving corporation. Any accumulated earnings
and profits treated as having been acquired by a REIT through such a merger will
be treated as accumulated earnings and profits of a REIT attributable to
non-REIT years. Accordingly, any accumulated earnings and profits of the
Management Company will carry over to the Shurgard REIT and the Shurgard REIT
will be required to distribute these accumulated earnings and profits prior to
the close of 1995 (the year in which the Merger occurs). Failure to do so would
result in disqualification of the Shurgard REIT's REIT status.
The amount of the accumulated earnings and profits of the Management Company
acquired by the Shurgard REIT will be based on the consolidated earnings and
profits of the Management Company (including each of its subsidiaries) at the
time of the InterMation Spin-off (the "Consolidated Earnings"). The Consolidated
Earnings will be determined, in part, through an earnings and profits study
based on (i) the corporate tax returns of the Management Company for the years
beginning on the Management Company's date of incorporation through December 31,
1994 and (ii) consolidated earnings and profits for the 1995 period ending on
the date of the InterMation Spin-off. The Consolidated Earnings will then be
allocated between the Management Company and InterMation based on the relative
fair market values of the two separate corporations at the time of the
InterMation Spin-off. As the basis for this allocation, the Management Company
will use the share consideration paid in the Merger (exclusive of Contingent
Shares) for the value of the Management Company and will obtain an independent
valuation for InterMation. The amount of accumulated earnings and profits
allocated to the Management Company will then be adjusted for its activities
occurring between the date of the InterMation Spin-off and the Closing Date of
the Merger to arrive at the amount of accumulated earnings and profits acquired
by the Shurgard REIT (the "Acquired Earnings").
The amount of the Acquired Earnings is estimated between $6,100,000 and
$6,800,000 depending on the relative values of InterMation assumed for
allocating the Consolidated Earnings on the InterMation Spin-off. This estimate
also assumes, among other things, (i) a reduction in the Consolidated Earnings
resulting from the exercise of stock options and the payment of cash bonuses to
pay taxes associated with such exercise and (ii) a reduction in the Consolidated
Earnings resulting from payment of stock and cash bonuses during 1994 and 1995.
Because of the uncertainty of these and other assumptions, the amount of
Acquired Earnings may differ from the range estimated above.
To determine the amount of distributions required to be made by the Shurgard
REIT during 1995 to distribute these Acquired Earnings, the Shurgard REIT must
determine the source of each of its distributions made during 1995. Only those
distributions that are sourced to the Acquired Earnings will be treated as
reducing such earnings and profits. In determining the source of a distribution,
consideration should generally be given first, to the earnings and profits of
the taxable year and second, to earnings and profits accumulated in prior years.
Accordingly, to distribute the Acquired
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Earnings, the Shurgard REIT must distribute during 1995 all current year
earnings and profits plus the sum of (i) the amount of any accumulated and
undistributed 1994 Shurgard REIT earnings and profits and (ii) the amount of the
Acquired Earnings.
Furthermore, if annual distributions are made only in cash and are in excess
of current year earnings and profits, then a proportionate amount of each
distribution will be treated as sourced from current year earnings and profits.
That portion of each such distribution that is not sourced to current year
earnings and profits will be sourced to earnings and profits accumulated in
prior years that ARE AVAILABLE AT THE TIME OF THE DISTRIBUTION. Accordingly, any
distribution made by the Shurgard REIT during 1995 but prior to the Closing will
not be treated as partially reducing the Acquired Earnings. This may cause the
Shurgard REIT to further increase the amount of its distributions during 1995 to
eliminate the Acquired Earnings should the Closing extend beyond the date of its
first quarter distribution.
Based on its quarterly distribution history during 1994, the Shurgard REIT
will be required to increase its distributions during 1995 to distribute the
Acquired Earnings. For example, assume that the Shurgard REIT has annualized
taxable earnings and profits for 1995 equal to $29,000,000, $2,000,000 of
accumulated and undistributed earnings and profits attributable to 1994 and
$6,800,000 of Acquired Earnings. Assuming further that the Merger occurs prior
to the first quarterly distribution, the Shurgard REIT would be required to
distribute $37,800,000 during 1995 to retain REIT status. Assuming that total
post-Merger outstanding shares remain at 18,281,411, the amount of distributions
per share equals approximately $2.07. Any increase in distributions is intended
to be paid out of Shurgard REIT operating cash flow. The Shurgard REIT may
accomplish these additional distributions by either increasing its quarterly
distribution, making special distributions during the year or making a special
year-end distribution. A year-end distribution must be declared within the last
three months of the year and paid prior to January 31, 1996. This distribution
would be treated for all purposes as a 1995 dividend to the Shurgard REIT
shareholders even though received by the shareholders after year-end. As a
result of these increased distributions, the Shurgard REIT shareholders will
recognize additional dividend income to the extent that such distributions
received represent accumulated earnings and profits of the Shurgard REIT. Any
amounts received by shareholders in excess of such earnings and profits will be
treated as either a return of capital or capital gain. See "-- Tax Consequences
to Management Company Shareholders Receiving Shurgard Class A Common Stock --
Federal Income Taxation of Shurgard REIT Shareholders."
The calculation of the amount of Acquired Earnings is subject to challenge
by the IRS. First, there can be no assurance that the IRS will not examine the
Management Company's prior tax returns and propose adjustments to increase its
taxable income. Because the earnings and profits study used to calculate the
amount of Acquired Earnings is based on these returns, such adjustments may
increase the amount of the Acquired Earnings, particularly since the IRS may
consider all taxable years as open for review for purposes of determining
earnings and profits. Second, there can also be no assurance that the IRS will
respect the valuations used for purposes of allocating the Consolidated Earnings
between the Management Company and InterMation on the InterMation Spin-off. If
the IRS determines that the Management Company has a proportionately greater
value than InterMation at the time of the InterMation Spin-off, the amount of
Acquired Earnings would proportionately increase.
In the event the IRS subsequently determines that it failed to distribute
all the Acquired Earnings, the Shurgard REIT may make an additional distribution
within 90 days of such determination to distribute these earnings and profits
plus pay the IRS an interest charge based on 50% of such amount not previously
distributed. If such additional distribution is made, the Shurgard REIT may
retain its REIT qualification for years subsequent to the Merger. Nonetheless,
if such determination is made, the Shurgard REIT would not be treated as a REIT
for the year of the Merger.
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ACQUISITION OF AFFILIATED SHURGARD PARTNERSHIP INTERESTS. In the Merger,
the Shurgard REIT will acquire interests in various partnerships that act as
general partners in partnerships that own and operate self-storage facilities.
The Shurgard REIT, for purposes of satisfying its REIT asset and income tests,
will be treated as if it owns a proportionate share of each of the assets of the
these partnerships attributable to such interests. For these purposes, the
Shurgard REIT's interest in each of the partnerships will be determined in
accordance with its capital interest in such partnership. The character of the
various assets in the hands of the partnership and the items of gross income of
the partnership will retain their same character in the hands of the Shurgard
REIT for these purposes. Accordingly, to the extent the partnership receives
real estate rentals and holds real property, a proportionate share of such
qualified income and assets, based on the Shurgard REIT's capital interest in
the partnerships, will be treated as qualified rental income and real estate
assets of the Shurgard REIT for purposes of determining its REIT
characterization. It is expected that substantially all of the properties of the
partnerships will constitute real estate assets and generate qualified rental
income for these REIT qualification purposes.
The Shurgard REIT will acquire interests in each of these partnerships that
entitle the Shurgard REIT to a percentage of profits in excess of the percentage
of total capital contributed to the partnership. Regulatory authority does not
specifically address this situation and it is uncertain, based on existing
authority, what the treatment of these profit interests will be when applying
these rules. For example, based on the existing rules, if the amount received by
a REIT based on a profit interest in a partnership is in excess of it capital
interest in the underlying gross income, the amount of such excess should be
entirely disregarded for these REIT qualification purposes. Furthermore, these
rules do not specifically address the manner in which a REIT is to determine its
capital interest. There is no reference to the capital account or special
allocation rules of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder and these rules do not address acquisitions of
partnership interests for valuable consideration. Based on the fact that the
Shurgard REIT is acquiring the Partnership Interests for valuable consideration
and at a time when the Partnership assets may have some appreciated capital
value, the Shurgard REIT may be treated as having a capital percentage in the
Partnerships at the time of the Merger. This may increase the amount of
qualifying income recognized by the Shurgard REIT. In the event the IRS
determines that the percentage of capital contributed is the proper indicator of
a capital interest, however, a portion of the income recognized by the Shurgard
REIT attributable to its Partnership Interests may be disregarded when applying
these gross income requirements.
TAX CONSEQUENCES TO MANAGEMENT COMPANY SHAREHOLDERS RECEIVING SHURGARD CLASS A
COMMON STOCK
The Management Company shareholders will be receiving shares of Shurgard
Class A Common Stock as consideration for the Merger. The Shurgard REIT is a
publicly traded corporation that has elected to qualify as a REIT, as defined in
Section 856 of the Code. As a REIT, the Shurgard REIT avoids paying federal
income tax on income that it currently distributes to its shareholders. If the
Shurgard REIT at any time fails to qualify as a REIT, the Shurgard REIT will be
taxed on its distributed income, thereby reducing the amount of cash available
for distribution to its shareholders. Accordingly, the continued qualification
of the Shurgard REIT as a REIT is a significant consideration for Management
Company shareholders deciding to vote in favor of approval of the Merger.
OVERVIEW OF REIT QUALIFICATION RULES. The following summarizes the basic
requirements for REIT status:
(i) The Shurgard REIT stock must be transferable and held by more than
100 shareholders, and no more than 50% of the value of the Shurgard REIT's
stock may be held by five or fewer individuals.
(ii) Generally, 75% (by value) of the Shurgard REIT's investments must
be in real estate, mortgages secured by real estate, cash or government
securities.
(iii) The Shurgard REIT's gross income must meet three income tests:
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(a) At least 75% of the gross income must be derived from specific
real estate sources;
(b) At least 95% of the gross income must be from the real estate
sources includable in the 75% test, or from dividends, interest or gains
from the sale or disposition of stock and securities; and
(c) Less than 30% of the gross income may be derived from the sale of
real estate assets held for less than four years, from the sale of
certain "dealer" properties or from the sale of stock or securities
having a short-term holding period.
(iv) The Shurgard REIT must distribute to its shareholders in each
taxable year an amount at least equal to 95% of the Shurgard REIT's "REIT
taxable income" (which is generally equivalent to taxable ordinary income).
The discussion set forth below explains these REIT qualification
requirements in greater detail. It also addresses how these highly technical
rules may be expected to impact the Shurgard REIT in its operations, noting
areas of uncertainty that perhaps could lead to adverse consequences to the
Shurgard REIT and its shareholders.
SHARE OWNERSHIP. The shares of the Shurgard REIT are fully transferable,
with the exception of certain shares that are subject to contractual transfer
restrictions. Furthermore, the Shurgard REIT has more than 100 shareholders and
its Certificate of Incorporation provides, to decrease the possibility that the
Shurgard REIT will ever be closely held, that no individual, corporation or
partnership is permitted to acquire more than 9.8% of the number of outstanding
shares of Shurgard Class A Common Stock. This limitation may be adjusted,
however, by the Shurgard REIT Board in certain circumstances. Shares acquired in
excess of such limit may be redeemed by the Shurgard REIT. In addition, the
Certificate of Incorporation provides that shares acquired in excess of such
limit will automatically convert into nondividend-paying and nonvoting shares of
excess stock. See "DESCRIPTION OF SHURGARD REIT CAPITAL STOCK -- Excess Stock."
Contractual or securities law restrictions on transferability should be
disregarded for purposes of determining the transferability of REIT shares.
NATURE OF ASSETS. On the last day of each calendar quarter, at least 75% of
the value of the Shurgard REIT's total assets must consist of (i) real estate
assets (including interests in real property interest and mortgages on loans
secured by real property), (ii) cash and cash items (including receivables), and
(iii) government securities (collectively, the "real estate assets"). In
addition, no more than 25% of the value of the Shurgard REIT's assets may
consist of securities (other than government securities). Finally, except for
certain "qualified REIT subsidiaries," as described below, the securities of any
one nongovernmental issuer may not represent more than 5% of the value of the
Shurgard REIT's total assets or 10% of the outstanding voting securities of any
one issuer. There are no investment restrictions on the remainder of the
Shurgard REIT's assets.
While, as noted above, a REIT cannot own more than 10% of the outstanding
voting securities of any single nongovernmental issuer, an exception to this
rule permits REITs to own "qualified REIT subsidiaries." A "qualified REIT
subsidiary" is any corporation in which 100% of its stock is owned by the REIT
at all times during which the corporation was in existence. The Shurgard REIT
currently has three wholly owned corporate subsidiaries that were formed and
owned at all times during their existence by the Shurgard REIT. These
corporations should be treated as "qualified REIT subsidiaries" and should not
adversely affect the Shurgard REIT's qualification as a REIT.
INCOME TESTS. To maintain its qualification as a REIT, the Shurgard REIT
must meet three gross income requirements that must be satisfied annually.
First, at least 75% of the REIT's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the REIT's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived from such real property investments, and
from
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dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain from the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by the Shurgard REIT on the lease of self-storage facilities
will qualify as "rents from real property" in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts of sales. Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income test if the Shurgard REIT, or an
owner of 10% or more of the Shurgard REIT, directly or constructively owns 10%
or more of such tenant (a "Related-Party Tenant"). Third, if rent attributable
to personal property leased in connection with the lease of real property is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." The Shurgard REIT does not anticipate charging rent for any portion
of any property that is based in whole or in part on the income or profits of
any person and the Shurgard REIT does not anticipate receiving rents in excess
of a de minimis amount from Related-Party Tenants. Furthermore, the Shurgard
REIT does not lease personal property in connection with its rental of
self-storage facilities.
Finally, for rents to qualify as "rents from real property," the Shurgard
REIT must not operate or manage the property or furnish or render services to
tenants other than through an "independent contractor" from whom the Shurgard
REIT derives no revenue. As described above, the "independent contractor"
requirement does not apply to the extent that services provided by the Shurgard
REIT are usually and customarily rendered in connection with the rental of space
for occupancy only and are not otherwise considered "rendered to the occupant."
The Management Company has, on behalf of the Shurgard REIT, obtained a private
letter ruling from the IRS ruling that the management services provided by the
Shurgard REIT for its own properties after the Merger will not cause the rents
received by the Shurgard REIT to be treated as other than "rents from real
property." See "-- Consequences of the Merger on the Shurgard REIT's
Qualification as a REIT -- The Shurgard REIT's Self-Administration of Management
Services." The Shurgard REIT may, however, receive fees and consideration for
performance of management and administrative services with respect to properties
that are not owned entirely by the Shurgard REIT. Such income will not qualify
under either the 75% or 95% gross income test and, if it exceeds 5% of the
Shurgard REIT's total gross income, may adversely affect the Shurgard REIT's
continued qualification as a REIT. See "-- Consequences of the Merger on the
Shurgard REIT's Qualification as a REIT -- Nonqualifying Income."
If the Shurgard REIT fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the Shurgard REIT's
failure to meet such test was due to reasonable cause and not willful neglect
and the Shurgard REIT attaches a schedule of its income sources to its tax
return that does not fraudulently or intentionally exclude any income sources.
As discussed above, even if these relief provisions apply, a tax would be
imposed with respect to such excess income. See "-- Consequences of the Merger
on the Shurgard REIT's Qualification as a REIT -- Nonqualifying Income."
ANNUAL DISTRIBUTION REQUIREMENTS. Each year, the Shurgard REIT must have a
deduction for dividends paid (determined under Section 561 of the Code) to its
shareholders in an amount equal to (i) 95% of the sum of (a) its "REIT taxable
income" as defined below and (b) any net income from foreclosure property less
the tax on such income, minus (ii) any "excess noncash income," as defined
below. "REIT taxable income" is the taxable income of a REIT computed without a
deduction for
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dividends paid and excluding any net capital gain. REIT taxable income is
further adjusted by certain items, including, without limitation, an exclusion
for net income from foreclosure property, a deduction for the excise tax on the
greater of the amount by which the REIT fails the 75% or the 95% income test,
and an exclusion for an amount equal to any net income derived from prohibited
transactions. "Excess noncash income" means the excess of certain amounts that
the REIT is required to recognize as income in advance of receiving cash, such
as original issue discount on purchase money debt, over 5% of the REIT taxable
income before deducting for dividends paid and excluding any net capital gain.
Such distributions must be made in the taxable year to which they relate, or
in the following taxable year if declared before the REIT timely files its tax
return for such year and is paid on or before the first regular dividend payment
after such declaration. To the extent that the Shurgard REIT does not distribute
all of its net capital gain or distributes at least 95%, but less than 100%, of
its REIT taxable income, as adjusted, it will be subject to tax on the
undistributed amount based on regular corporate tax rates. Furthermore, if the
Shurgard REIT should fail to distribute during such calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, the Shurgard REIT would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Under certain circumstances, the Shurgard REIT may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year that may be included in the Shurgard
REIT's deduction for dividends paid for the earlier year. Thus, the Shurgard
REIT may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Shurgard REIT will be required to pay to the IRS
interest based on the amount of any deduction taken for deficiency dividends.
FAILURE OF THE SHURGARD REIT TO QUALIFY AS A REIT. If the Shurgard REIT
fails to qualify for taxation as a REIT in any taxable year, and the relief
provisions do not apply, the Shurgard REIT would be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which the Shurgard
REIT fails to qualify would not be deductible by the Shurgard REIT nor would
they be required to be made. In such an event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders would be
taxable as ordinary income and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory relief provisions, the
Shurgard REIT would also be disqualified from taxation as a REIT for the four
taxable years following the year during which such qualification was lost. It is
not possible to state whether in all circumstances the Shurgard REIT would be
entitled to such statutory relief.
FEDERAL INCOME TAXATION OF SHURGARD REIT SHAREHOLDERS. As long as the
Shurgard REIT qualifies for federal income taxation as a REIT, distributions
made to the Shurgard REIT shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be recognized by
the shareholders as ordinary income for federal income tax purposes. None of
these distributions will be eligible for the dividends received deduction for
corporate shareholders. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed the Shurgard REIT's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held his or her stock in the
Shurgard REIT. Shurgard REIT shareholders, however, may be required to treat up
to 20% of certain capital gain dividends as ordinary income.
Distributions in excess of current or accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares. Shareholders will be required to
reduce the tax basis of their shares by the amount of such distributions until
such basis has been reduced to zero, after which such distributions will be
taxable as capital gain (ordinary income in the case of a shareholder who holds
his or her shares as a dealer). The tax
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basis as so reduced will be used in computing the capital gain or loss, if any,
realized on the sale of the shares. Any loss upon a sale or exchange of shares
by a shareholder who held such shares for six months or less (after applying
certain holding period rules) will generally be treated as long-term capital
loss to the extent such shareholder previously received capital gain
distributions with respect to such shares.
Shareholders may not include in their individual federal income tax returns
any net operating losses or capital losses of the Shurgard REIT. In addition,
any distribution declared by the Shurgard REIT in October, November or December
of any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Shurgard REIT and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Shurgard REIT no later than January 31 of the following year. The
Shurgard REIT may contemplate making such a year-end distribution to rid itself
of accumulated earnings and profits acquired from the Management Company that
are attributable to non-REIT years. See "-- Consequences of the Merger on the
Shurgard REIT's Qualification as a REIT -- Distributions of Accumulated Earnings
and Profits Attributable to Non-REIT Years."
BACKUP WITHHOLDING. Distributions from the Shurgard REIT will ordinarily
not be subject to withholding of federal income taxes. However, the Shurgard
REIT will be required to withhold tax at the rate of 31% from distributions paid
to those shareholders who (i) have failed to furnish their taxpayer
identification number ("TIN") to the Shurgard REIT; (ii) have, according to the
IRS, furnished an incorrect TIN to the Shurgard REIT; (iii) have, according to
the IRS, underreported interest, dividends or patronage dividend income in the
past; or (iv) have failed to satisfy the payee certification requirements of
Section 3406 of the Code. Each shareholder will be required to provide and
certify his or her correct TIN and to certify that he or she is an exempt
recipient. Furthermore, the Shurgard REIT may be required to withhold a portion
of capital gain distributions to any shareholder who fails to certify his or her
nonforeign status to the Shurgard REIT.
STATE AND LOCAL TAXES
The Shurgard REIT or its shareholders, or both, may be subject to state or
local taxes in other jurisdictions such as those in which the Shurgard REIT may
be deemed to be engaged in activities or in which shareholders reside or own
property or other interests. Such tax treatment of the Shurgard REIT and its
shareholders in states having taxing jurisdiction over them may differ from the
federal income tax treatment described in this Proxy Statement/Prospectus. Each
shareholder should consult his or her tax advisor as to the status of the
Shurgard Class A Common Stock under the respective state laws applicable to him
or her.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
APPOINTMENT OF OFFICERS AND A DIRECTOR OF THE SHURGARD REIT
As a result of the Merger, Charles K. Barbo will be appointed as the
Shurgard REIT's Chairman of the Board, President and Chief Executive Officer.
Mr. Barbo will serve in such capacities until his successor has been duly
elected or appointed. Mr. Barbo is a co-founder of the Management Company, and
currently serves as its Chairman of the Board and President. As of December 31,
1994, Mr. Barbo beneficially owned 1,724,600 shares of Management Company Common
Stock, constituting a 41% beneficial ownership interest in the Management
Company. Upon completion of the Merger, Mr. Barbo will beneficially own 730,853
shares of Shurgard REIT Common Stock, constituting a 3.5% ownership interest in
the Shurgard REIT. As a condition to the Closing, Mr. Barbo will enter into a
noncompetition agreement with the Shurgard REIT, but will otherwise have no
written employment contract or formal arrangements concerning his title, powers,
compensation or tenure.
In addition, the Merger Agreement provides that Harrell L. Beck and Kristin
H. Stred will each be appointed as a Senior Vice President of the Shurgard REIT.
Mr. Beck will also retain his current positions of Treasurer and Chief Financial
Officer of the Shurgard REIT, and Ms. Stred will retain her current positions of
Secretary and General Counsel of the Shurgard REIT. Michael Rowe, Executive
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Vice President and Director of Storage Operations of the Shurgard REIT, and
David K. Grant, Executive Vice President and Director of Real Estate Investment
of the Shurgard REIT, currently hold similar positions with the Management
Company. They will remain in their positions on behalf of the Shurgard REIT
after the Merger.
ACCELERATION OF THE MANAGEMENT COMPANY STOCK OPTIONS
Holders of outstanding options to purchase shares of Management Company
Common Stock will have the right to exercise such options immediately prior to
the closing of the Merger, whether or not the vesting requirements for such
options have been satisfied. The executive officers of the Shurgard REIT hold
options to purchase an aggregate of 74,500 shares of Management Company Common
Stock, the vesting of 61,168 of which will be accelerated. All outstanding
options to purchase shares of Management Company Common Stock that are not
exercised prior to the Closing will terminate.
INDEMNIFICATION OF DIRECTORS AND OFFICERS PURSUANT TO THE MERGER AGREEMENT
Under the Merger Agreement, the Shurgard REIT has agreed to keep in effect
provisions in its Certificate of Incorporation and By-Laws providing for
limitation of director liability and indemnification of directors, officers,
employees and agents at least to the extent such persons are entitled thereto
under the Articles of Incorporation and By-Laws of the Management Company as of
December 19, 1994, subject to Delaware law. To the extent the Shurgard REIT's
Certificate of Incorporation and By-Laws do not provide for indemnification of
directors or officers of predecessor corporations, the Shurgard REIT will,
subject to Delaware law, contractually assume the indemnification obligations
under the Management Company's By-Laws. In addition, such provisions will not be
amended, repealed or otherwise modified in any manner that would adversely
affect the rights of individuals who at any time prior to the Effective Time
were directors, officers, employees or agents of the Management Company in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement), unless such modification is required by law.
The Merger Agreement provides that if an officer, director or affiliate of
the Management Company (collectively, the "Litigation Parties") is involuntarily
made a party to a lawsuit in connection with the Merger, the Shurgard REIT will
defend, indemnify and pay the costs associated with the defense of such
Litigation Parties. In addition, if it is deemed appropriate, such Litigation
Parties may retain separate legal counsel to defend actions brought in
connection with the Merger and the Shurgard REIT will likewise pay the
associated costs. Further, the Management Company and the Shurgard REIT have
each agreed in the Merger Agreement not to enter into settlement proceedings
without the consent of the other. The Shurgard REIT will have no duty to
indemnify any of the Litigation Parties for any liability imposed under a final
judgment to the extent such judgment has been finally adjudicated and determined
to have been the result of an untrue statement or an omission of a material fact
made by the Management Company in certain sections of the Registration Statement
or this Proxy Statement/Prospectus, or as a result of fraud, intentional
misconduct or knowing violation of the law by such Litigation Parties.
CONTINGENT SHARES
Contingent Shares will be issued based on the future transactions relating
to interests in or assets of the Partnerships or the appraised value of such
assets, including transactions with the Shurgard REIT. See "THE MERGER --
Contingent Shares." The general partner of the Partnerships will manage and
control the disposition of such Partnerships and their assets. Mr. Barbo is one
of the general partners of five of the Partnerships. He also has the right to
receive Contingent Shares, if any, arising from such transactions. Therefore,
his interests may conflict with those of the Shurgard REIT in connection with
transactions resulting in the issuance of Contingent Shares.
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COMPARATIVE PER SHARE MARKET INFORMATION
THE SHURGARD REIT
Market prices for the shares of Shurgard Class A Common Stock are reported
on the Nasdaq National Market. The table below sets forth for the fiscal periods
indicated the high and low sale prices per share of Shurgard Class A Common
Stock on the Nasdaq National Market as reported in published financial sources,
and distributions declared. For current price information, the Shurgard REIT
shareholders and the Management Company shareholders are urged to consult
publicly available sources.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
SHURGARD CLASS A DISTRIBUTIONS
COMMON STOCK DECLARED (1)
------------------ ------------
HIGH LOW
------ ------
<S> <C> <C> <C>
1994
First Quarter (beginning March 28,
1994)................................. $23.75 $22.00 $--
Second Quarter......................... 24.25 21.00 .14
Third Quarter.......................... 23.25 20.50 .44
Fourth Quarter......................... 23.00 17.75 .44
1995
First Quarter (through January 20,
1995)................................. 23.75 19.50
<FN>
- ------------------------
(1) Distributions are declared quarterly by the Shurgard REIT Board based on
financial results for the prior quarter.
</TABLE>
On December 19, 1994, the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported Nasdaq National Market closing
price per share of Shurgard Class A Common Stock was $18.75. On February ,
1995, the most recent available date prior to printing this Proxy
Statement/Prospectus, the reported Nasdaq National Market closing price per
share of Shurgard Class A Common Stock was $ .
Holders of shares of Shurgard REIT Common Stock are entitled to receive
distributions when, as and if declared by the Shurgard REIT Board out of any
assets legally available for payment. The Shurgard REIT is required to
distribute annually to its shareholders at least 95% of its "REIT taxable
income," which, as defined by the relevant tax statutes and regulations, is
generally equivalent to net taxable ordinary income. See "POLICIES REGARDING
INVESTMENT AND CERTAIN OTHER ACTIVITIES -- Policies With Respect to Dividends
and Certain Other Activities -- Dividend Policy."
THE MANAGEMENT COMPANY
There is no public market for shares of Management Company Common Stock.
There were 25 holders of record of shares of Management Company Common Stock as
of December 31, 1994. The Management Company has not paid any cash distributions
since its inception.
DESCRIPTION OF SHURGARD REIT CAPITAL STOCK
GENERAL
The authorized capital stock of the Shurgard REIT is divided into four
classes: 120,000,000 shares of Class A Common Stock, par value $.001 per share,
500,000 shares of Class B Common Stock, par value $.001 per share, 40,000,000
shares of Preferred Stock, par value $.001 per share, and 160,000,000 shares of
Excess Stock, par value $.001 per share.
COMMON STOCK
The two classes of authorized Common Stock of the Shurgard REIT have
substantially similar rights. Except as provided below, all shares of Class A
Common Stock and Class B Common Stock are entitled to share equally in all
distributions and in the assets available for distribution upon liquidation,
subject to repayment of the Indebtedness of the Shurgard REIT and the prior
rights of the
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Preferred Stock. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive distributions as declared by the Shurgard REIT Board out of
any assets of the Shurgard REIT legally available for payment. There are no
preemptive rights or other rights to subscribe for any shares associated with
the Class A Common Stock and the Class B Common Stock. The transfer agent and
registrar for the Class A Common Stock and the Class B Common Stock is Gemisys
Corporation.
Holders of Class A Common Stock and Class B Common Stock are entitled to one
vote per share. Each holder of Class B Common Stock was entitled to a loan from
the Shurgard REIT in an amount necessary to satisfy the holder's general partner
capital obligation to certain Partnerships that were acquired by the Shurgard
REIT in the Consolidation. Each loan is secured by a pledge of the Class B
Common Stock held by the borrowing shareholder. Upon repayment of a portion of
the loan, that portion of the Class B Common Stock equal to the percentage of
the loan principal repaid is released from the pledge and is convertible, on a
share-for-share basis, into shares of Class A Common Stock. Class B Common Stock
is not publicly traded but is transferable upon its release from the pledge.
PREFERRED STOCK
The Shurgard REIT Board is authorized, without further action of the
shareholders of the Shurgard REIT, to issue up to 40,000,000 shares of Preferred
Stock in one or more classes or series and to fix the number of shares
constituting any such series, the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights, dividend rate,
terms of redemption (including sinking fund provisions), redemption price or
prices, conversion rights and liquidation preferences of the shares constituting
any class or series. For example, the Shurgard REIT Board is authorized to issue
a series of Preferred Stock that would have the right to vote, separately or
with any other series of Preferred Stock, on any proposed amendment to the
Certificate of Incorporation or any other proposed corporate action, including
business combinations or other transactions. Except as described below with
respect to the Rights Agreement, the Shurgard REIT Board does not presently
contemplate the issuance of any Preferred Stock and is not aware of any pending
or proposed transactions that would be affected by such issuance.
One of the effects of undesignated Preferred Stock may be to enable the
Shurgard REIT Board to render more difficult or to discourage an attempt to
obtain control of the Shurgard REIT by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Shurgard
REIT's management. The issuance of the shares of Preferred Stock pursuant to the
Shurgard REIT Board's authority described above may adversely affect the rights
of the holders of the Shurgard REIT Common Stock. For example, Preferred Stock
issued by the Shurgard REIT after the Consolidation may rank prior to the
Shurgard REIT Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of the Shurgard REIT Common Stock.
EXCESS STOCK
The Certificate of Incorporation provides that the Shurgard REIT may prevent
the transfer and/ or call for redemption of shares of the Shurgard REIT (whether
Common or Preferred Stock) if more than 50% of the outstanding shares would be
owned, directly or indirectly, by five or fewer individuals, if one person would
own, directly or indirectly, more than 9.8% of the total outstanding shares (or
such higher percentage as may be determined by the Shurgard REIT Board (the
"Ownership Limit")). In addition, the Shurgard REIT may prevent such transfers
and/or call for redemption of such shares if the Shurgard REIT Board determines
in good faith that the shares have or may become concentrated to the extent that
may prevent the Shurgard REIT from qualifying as a REIT. See "FEDERAL INCOME TAX
CONSEQUENCES -- Tax Consequences to Management Company Shareholders Receiving
Shurgard Class A Common Stock -- Share Ownership." Any class or series of
Preferred Stock may be subject to these restrictions if so stated in the
resolutions providing for the issuance of such Preferred Stock. Any corporate
investor wishing to acquire or own more than 9.8% of the total outstanding
shares may petition the Shurgard REIT Board in writing for approval. The
Shurgard
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REIT Board will grant such request unless it determines in good faith that the
acquisition or ownership of such shares would jeopardize the Shurgard REIT's
qualification as a REIT under existing federal tax laws and regulations. Any
corporate investor intending to acquire shares in excess of the Ownership Limit
must given written notice to the Shurgard REIT of the proposed acquisition no
later than the date on which the transaction occurs and must furnish such
opinions of counsel, affidavits, undertakings, agreements and information as may
be required by the Shurgard REIT Board to evaluate or to protect against any
adverse effect of the transfer. Notwithstanding the foregoing, the Shurgard REIT
Board is not required to grant a request to adjust the Ownership Limit if the
Shurgard REIT Board believes, based on advice from legal counsel, that the
granting of such request would cause the Shurgard REIT Board to breach its
fiduciary duties to the shareholders of the Shurgard REIT.
If, despite the restrictions noted above, any person acquires shares in
excess of the Ownership Limit (applying certain constructive ownership
provisions), the shares most recently acquired by such person in excess of the
limit will be automatically exchanged for an equal number of shares of Excess
Stock. Shares of Excess Stock have the following characteristics: (i) owners of
Excess Stock are not entitled to exercise voting rights with respect to the
Excess Stock; (ii) Excess Stock shall not be deemed outstanding for purposes of
determining a quorum at any annual or special meeting of shareholders; and (iii)
Excess Stock will not be entitled to any dividends or other distributions. Any
person who becomes an owner of Excess Stock is obligated to immediately give the
Shurgard REIT written notice of such fact and certain information required by
the Certificate of Incorporation. Excess Stock is also deemed to have been
offered for sale to the Shurgard REIT or its designee for a period of 120 days
from the later of (a) the date of the transfer that created the Excess Stock if
the Shurgard REIT has actual notice that such transfer created the Excess Stock
and (b) the date on which the Shurgard REIT Board determines in good faith that
the transfer creating the Excess Stock has occurred. The Shurgard REIT has the
right during such time period to accept the deemed offer or, in the Shurgard
REIT Board's discretion, the Shurgard REIT may acquire and sell, or cause the
owner to sell, the Excess Stock. The price for the Excess Stock will be the
lesser of (i) the closing price of the shares exchanged into Excess Stock on the
national stock exchange on which the shares are listed as of the date the
Shurgard REIT or its designee acquires the Excess Stock or, if no such price is
available, as determined in good faith by the Shurgard REIT Board and (ii) the
price per share paid by the owner of the shares that were exchanged into Excess
Stock or, if no purchase price was paid, the fair market value of such shares on
the date of acquisition as determined in good faith by the Shurgard REIT Board.
Upon such transfer or sale, the Excess Stock will automatically convert to
Shurgard Class A Common Stock with all voting and dividend rights effective as
of the date of such conversion; provided, however, that the owner will not be
entitled to receive dividends payable with respect to Shurgard Class A Common
Stock for the period during which the shares were Excess Stock. All certificates
of Shurgard Class A Common Stock and Shurgard Class B Common Stock, any other
series of Common Stock, and any class or series of Preferred Stock that is made
subject to the restrictions outlined above will bear a legend referring to the
restrictions.
SHAREHOLDER RIGHTS PLAN
Pursuant to the Rights Agreement dated as of March 17, 1994, between the
Shurgard REIT and Gemisys Corporation, as Rights Agent (the "Rights Agreement"),
holders of shares of Shurgard Class A Common Stock have certain rights to
purchase shares of Shurgard REIT Series A Junior Participating Preferred Stock
(the "Preferred Shares") exercisable only in certain circumstances (the
"Rights"). The Rights, which are represented by certificates for the Shurgard
Class A Common Stock, trade together with the Shurgard Class A Common Stock
until a Distribution Date (as defined below). Each Right, when it becomes
exercisable as described below, will entitle the registered holder to purchase
one one-hundredth of a Preferred Share at a price of $65 per one one-hundredth
of a Preferred Share (subject to adjustment, the "Purchase Price").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 10% or
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more of the outstanding Shurgard Class A Common Stock and (ii) 10 business days
(or such later date as may be determined by action of the Shurgard REIT Board
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person or group of 10% or more of such
outstanding Shurgard Class A Common Stock (the earlier of such dates being
called the "Distribution Date"), the Rights will be evidenced, with respect to
any of the Shurgard Class A Common Stock certificates outstanding as of March
25, 1994 (the "Rights Record Date"), by such Shurgard Class A Common Stock
certificate, with a copy of a Summary of Rights to Purchase Preferred Shares
(the "Summary of Rights") attached thereto.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Shurgard Class A Common Stock. Until the Distribution Date (or
earlier redemption or expiration of the Rights), new Shurgard Class A Common
Stock certificates issued after the Rights Record Date upon transfer or new
issuance of Shurgard Class A Common Stock will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for Shurgard Class A Common Stock outstanding as of the Rights
Record Date, even without such notation or a copy of the Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the Shurgard Class A Common Stock represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Shurgard Class A Common Stock as of the close of business on the Distribution
Date, and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on March 17, 2004 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Shurgard REIT, in each case as described below.
The Purchase Price payable and the number of Preferred Shares or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares, or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right is also subject to
adjustment in the event of a stock split of the Shurgard Class A Common Stock or
a dividend on the Shurgard Class A Common Stock payable in Shurgard Class A
Common Stock or subdivisions, consolidations or combinations of the Shurgard
Class A Common Stock occurring, in any such case, prior to the Distribution
Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each holder of Preferred Shares will be entitled to a minimum
preferential quarterly dividend payment of the greater of $1 per share and a per
share dividend of 100 times the aggregate dividends declared per share of
Shurgard Class A Common Stock. In the event of liquidation, the holders of
Preferred Shares will be entitled to a minimum preferential liquidation payment
of $100 per share or, if greater, to an aggregate per share payment of 100 times
the aggregate payment made per share of Shurgard Class A Common Stock. Each
Preferred Share will have 100 votes, voting together with the Shurgard Class A
Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which shares
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of Shurgard Class A Common Stock are exchanged, each Preferred Share will be
entitled to receive 100 times the amount received per share of Shurgard Class A
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
share of Shurgard Class A Common Stock.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision will be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Shurgard Class A Common Stock having a market value of
two times the exercise price of the Right. If the Shurgard REIT is acquired in a
merger or other business combination transaction, or 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each holder of a Right will thereafter have the right to receive, upon the
exercise thereof at the then-current exercise price of the Right, that number of
shares of common stock of the acquiring company that at the time of such
transaction will have a market value of two times the exercise price of the
Right.
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Shurgard
Class A Common Stock, the Shurgard REIT Board may exchange the Rights (other
than Rights owned by such person or group that have become void), in whole or in
part, at an exchange ratio of one share of Shurgard REIT Common Stock, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Shurgard REIT's Preferred Stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions that are integral multiples of one one-hundredth of a Preferred Share,
which may, at the election of the Shurgard REIT, be evidenced by depositary
receipts) and, in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to any person becoming an Acquiring Person, the Shurgard
REIT Board may redeem the Rights in whole, but not in part, at the price of
$.0001 per Right, with adjustments for stock splits, stock dividends or other
similar transactions (the "Redemption Price"). The redemption of the Rights may
be made effective at such time, on such basis and with such conditions as the
Shurgard REIT Board in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Shurgard REIT Board without
the consent of the holders of the Rights, including an amendment to lower
certain 10% thresholds described above to not less than the greater of (i) the
sum of .001% and the largest percentage of the outstanding Shurgard Class A
Common Stock then known to the Shurgard REIT to be beneficially owned by any
person or group of affiliated persons and (ii) 9.8%, except that, from and after
such time as any person or group of affiliated or associated persons becomes an
Acquiring Person, no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Shurgard REIT, including, without limitation, the right
to vote or to receive dividends.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Shurgard
REIT without conditioning the offer on substantially all the Rights being
acquired. The Rights will not interfere with any merger or other
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business combination approved by the Shurgard REIT Board since the Shurgard REIT
Board may, at its option, at any time prior to any person becoming an Acquiring
Person, redeem all but not less than all the then-outstanding Rights at the
Redemption Price.
DESCRIPTION OF MANAGEMENT COMPANY CAPITAL STOCK
The following description is summarized from the provisions of the
Management Company's Articles of Incorporation.
The Management Company's authorized capital consists of 10,000,000 shares of
Management Company Common Stock. All shares of Management Company Common Stock
are entitled to participate equally in dividends. Each shareholder has one vote
for each share registered in such shareholder's name as of the applicable record
date for any matter presented to shareholders. All shares of Management Company
Common Stock rank equally on liquidation. Holders of shares of Management
Company Common Stock have no preemptive rights and are not entitled to cumulate
their votes in the election of directors.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE
SHURGARD REIT AND OF THE MANAGEMENT COMPANY
If the Merger is consummated, holders of shares of Management Company Common
Stock will become holders of shares of Shurgard Class A Common Stock and the
rights of the former Management Company shareholders will be governed by the
laws of the state of Delaware and by the Shurgard REIT's Certificate of
Incorporation and By-Laws. The rights of the Shurgard REIT shareholders under
the Certificate of Incorporation and By-Laws differ in certain respects from the
rights of the Management Company shareholders under the Management Company's
Articles of Incorporation and By-Laws. Certain differences between the rights of
the Shurgard REIT shareholders and the Management Company shareholders are
summarized below. This summary is qualified in its entirety by reference to the
full text of such documents. For information as to how such documents may be
obtained, see "AVAILABLE INFORMATION."
GENERAL
Upon consummation of the Merger, the shareholders of the Management Company
will become shareholders of the Shurgard REIT. Accordingly, the rights of the
Management Company shareholders following the Merger will, subject to the
limitations set forth in the following paragraph, be governed by Delaware law,
as well as by the Shurgard REIT's Certificate of Incorporation and its By-Laws.
While it is not practical to discuss all changes in the rights of the
Management Company shareholders as a result of the application of Delaware law
in lieu of Washington law, the following is a summary of material differences.
As indicated in the following discussion, the DGCL contains certain provisions
applicable only to "registered corporations," which in essence are publicly held
corporations such as the Shurgard REIT that have a class of voting shares
registered under the Exchange Act.
CHANGES PRINCIPALLY ATTRIBUTABLE TO DIFFERENCES BETWEEN THE DGCL AND THE WBCA
AMENDMENT OF ARTICLES/CERTIFICATE OF INCORPORATION. The WBCA authorizes a
corporation's board of directors to make various changes of an administrative
nature to the corporation's articles of incorporation, including changes of
corporate name, changes to the number of outstanding shares in order to
effectuate a stock split or stock dividend in the corporation's own shares, and
changes to or elimination of provisions with respect to the corporation's
stock's par value. Other amendments to a corporation's articles of incorporation
must be recommended to the shareholders by the board of directors, unless the
board determines that because of a conflict of interest or other special
circumstances, it should make no recommendation, and must be approved by
two-thirds (if the corporation is not a public company) of all votes entitled to
be cast by each voting group that has a right to vote on the amendment. The
articles of incorporation of a corporation other than a public company may
provide
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for a lower percentage of shareholder approval (but not less than a majority of
the votes entitled to be cast). The Management Company's Articles of
Incorporation do not specify a different proportion. Under the DGCL, all
amendments to a corporation's certificate of incorporation require the approval
of shareholders holding a majority of the voting power of the corporation unless
a different proportion is specified in the certificate of incorporation. The
Shurgard REIT's Certificate of Incorporation does not specify a different
proportion.
PROVISIONS AFFECTING ACQUISITIONS AND BUSINESS COMBINATIONS. The WBCA
imposes restrictions on certain transactions between a corporation and certain
significant shareholders. First, under Section 23.17.020 of the WBCA, subject to
certain exceptions, a merger, share exchange, sale of assets other than in the
regular course of business, or dissolution involving an "Interested Shareholder"
(i.e., a shareholder owning beneficially 20% or more of the corporation's voting
securities) must be approved by the holders of two-thirds of the outstanding
voting securities, other than those of the Interested Shareholder, of each
voting group entitled to vote separately on the transaction. This restriction
does not apply if the consideration received as a result of the transaction by
noninterested shareholders is not less than the highest consideration paid by
the Interested Shareholder for shares of the corporation's stock during the
preceding two years, if the transaction is approved by a majority of directors
who are not affiliated with the Interested Shareholder or if the corporation has
fewer than 300 shareholders. A Washington corporation may, in its articles of
incorporation, exempt itself from coverage of this provision; the Management
Company has not done so.
Second, Chapter 23B.19 of the WBCA prohibits a "target corporation," with
certain exceptions, from engaging in certain "significant business transactions"
with an "Acquiring Person" who acquires 10% or more of the voting securities of
a target corporation for a period of five years after such acquisition, unless
the transaction or acquisition of shares is approved by a majority of the
members of the target corporation's board of directors prior to the date of the
acquisition. The prohibited transactions include, among others, merger or
consolidation with, disposition of assets to, or issuance or redemption of stock
to or from, the Acquiring Person, termination of 5% or more of the employees of
the target corporation as a result of the Acquiring Person's acquisition of 10%
or more of the shares of the corporation, or allowing the Acquiring Person to
receive any disproportionate benefit as a shareholder. Target corporations
include domestic corporations with their principal executive offices in
Washington and either a majority of or over 1,000 of their employees resident in
Washington. Foreign corporations that meet additional requirements are also
subject to the statute. The Shurgard REIT does not currently employ, and will
not employ immediately following the Merger, that number of Washington residents
that would require compliance with this statute. A corporation may not "opt out"
of this statute. However, corporations such as the Management Company that do
not have a class of voting stock registered pursuant to Section 12 of the
Exchange Act are not subject to Chapter 23B.19.
Delaware has enacted a business combination statute that is contained in
Section 203 of the DGCL providing that any person who acquires 15% or more of a
corporation's voting stock (thereby becoming an "interested shareholder") may
not engage in certain "business combinations" with the target corporation for a
period of three years following the date the person became an interested
shareholder, unless (i) the corporation's board of directors has approved, prior
to that acquisition date, either the business combination or the transaction
that resulted in the person becoming an interested shareholder, (ii) upon
consummation of the transaction that resulted in the person becoming an
interested shareholder, that person owns at least 85% of the corporation's
voting stock outstanding at the time the transaction is commenced (excluding
shares owned by persons who are both directors and officers and shares owned by
employee stock plans in which participants do not have the right to determine
confidentially whether shares will be tendered in a tender or exchange offer),
or (iii) the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting and not by
written consent) of at least 66 2/3% of the outstanding voting stock not owned
by the interested shareholder.
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For purposes of determining whether a person is the "owner" of 15% or more
of a corporation's voting stock for purposes of Section 203, ownership is
defined broadly to include the right, directly or indirectly, to acquire the
stock or to control the voting or disposition of the stock. A "business
combination" is also defined broadly to include (i) mergers and sales or other
dispositions of 10% or more of the assets of a corporation with or to an
interested shareholder, (ii) certain transactions resulting in the issuance or
transfer to the interested shareholder of any stock of the corporation or its
subsidiaries, (iii) certain transactions that would result in increasing the
proportionate share of the stock of a corporation or its subsidiaries owned by
the interested shareholder, and (iv) receipt by the interested shareholder of
the benefit (except proportionately as a shareholder) of any loans, advances,
guarantees, pledges or other financial benefits.
These restrictions placed on interested shareholders by Section 203 do not
apply under certain circumstances, including, but not limited to, the following:
(i) if the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203 or (ii) if the
corporation, by action of its shareholders, adopts an amendment to its by-laws
or certificate of incorporation expressly electing not to be governed by Section
203, provided that such an amendment is approved by the affirmative vote of not
less than a majority of the outstanding shares entitled to vote and that such an
amendment will not be effective until 12 months after its adoption and will not
apply to any business combination with a person who became an interested
shareholder at or prior to such adoption. The Shurgard REIT has expressly
elected in its original Certificate of Incorporation to take itself outside of
the coverage of Section 203.
MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS. Under the WBCA, a merger,
consolidation, sale of substantially all of a corporation's assets other than in
the regular course of business, or dissolution of a public corporation must be
approved by the affirmative vote of a majority of directors when a quorum is
present, and by two-thirds of all votes entitled to be cast by each voting group
entitled to vote as a separate group, unless another proportion (but not less
than a majority of all votes entitled to be cast) is specified in the articles
of incorporation. The Management Company's Articles of Incorporation provide
that all corporate transactions may be approved by a majority of a quorum of the
outstanding shares entitled to vote; provided, however, the Management Company's
Articles of Incorporation do not expressly state that a merger may be approved
with less than a two-thirds vote of all votes entitled to be cast. Under the
DGCL, a merger, consolidation, sale of all or substantially all of a
corporation's assets other than in the regular course of business or dissolution
of a corporation must be approved by a majority of the outstanding shares
entitled to vote.
ACTION WITHOUT A MEETING. Under the WBCA, shareholder action may be taken
without a meeting if written consents setting forth such action are signed by
all holders of outstanding shares entitled to vote thereon. Unless otherwise
provided in the certificate of incorporation, the DGCL authorizes shareholder
action without a meeting if consents are received from holders of a majority of
the outstanding shares entitled to vote. The Shurgard REIT's Certificate of
Incorporation, however, requires written consents signed by all shareholders
entitled to vote on the proposed subject matter.
CLASS VOTING. Under the WBCA, the articles of incorporation may authorize
one or more classes of shares that have special, conditional or limited voting
rights, including the right to vote on certain matters as a group. The articles
of incorporation may not limit the rights of holders of a class to vote as a
group with respect to certain amendments to the articles of incorporation and
certain mergers that adversely affect the rights of holders of that class. The
Management Company has one authorized class of stock. See "DESCRIPTION OF
MANAGEMENT COMPANY CAPITAL STOCK." The DGCL requires voting by separate classes
only with respect to amendments to the certificate of incorporation that
adversely affect the holders of those classes or that increase or decrease the
aggregate number of authorized shares or the par value of the shares of any of
those classes. The Shurgard REIT has four classes of stock. See "DESCRIPTION OF
SHURGARD REIT CAPITAL STOCK."
TRANSACTIONS WITH OFFICERS OR DIRECTORS. The WBCA sets forth a safe harbor
for transactions between a corporation and one or more of its directors. A
conflicting interest transaction may not be
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enjoined, set aside or give rise to damages if: (i) it is approved by a majority
of qualified directors; (ii) it is approved by the affirmative vote of a
majority of all qualified shares; or (iii) at the time of commitment, the
transaction was fair to the corporation. For purposes of this provision, a
"qualified director" is one who does not have (a) a conflicting interest
respecting the transaction or (b) a familial, financial, professional or
employment relationship with a second director, which relationship would
reasonably be expected to exert an influence on the first director's judgment
when voting on the transaction. "Qualified shares" are defined generally as
shares other than those beneficially owned, or the voting of which is
controlled, by a director who has a conflicting interest respecting the
transaction.
The DGCL provides that contracts or transactions between a corporation and
one or more of its officers or directors or an entity in which they have an
interest is not void or voidable solely because of such interest or the
participation of the director or officer in a meeting of the board or a
committee that authorizes the contract or transaction if: (i) the material facts
as to the relationship or interest and as to the contract or transaction are
disclosed or are known to the board or the committee, and the board or the
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of disinterested directors; (ii) the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by a vote of the
shareholders; or (iii) the contract or transaction is fair to the corporation as
of the time it is authorized, approved or ratified by the board of directors, a
committee thereof or the shareholders.
APPRAISAL OR DISSENTERS' RIGHTS. Under the WBCA, a shareholder is entitled
to dissent from and, upon perfection of his or her appraisal rights, to obtain
fair value of his or her shares in the event of certain corporate actions,
including certain mergers, consolidations, share exchanges, sales of
substantially all the assets of the corporation, and amendments to the
corporation's articles of incorporation that materially and adversely affect
shareholder rights.
Under the DGCL, appraisal rights are available only in connection with
certain mergers or consolidations, unless otherwise provided in the
corporation's certificate of incorporation. Even in the event of those mergers
or consolidations, unless the certificate of incorporation otherwise provides,
the DGCL does not provide appraisal rights if (i) the shares of the corporation
are listed on a national securities exchange, designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 shareholders
(as long as in the merger the shareholders receive shares of the surviving
corporation or any other corporation the shares of which are listed on a
national securities exchange, designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 shareholders) or (ii) the
corporation is the surviving corporation and no vote of its shareholders is
required for the merger. Because the Shurgard REIT is currently listed on the
Nasdaq National Market and has over 2,000 shareholders of record, shareholders
currently would not have statutory appraisal rights under the DGCL in such
mergers.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under the WBCA, if authorized by
the articles of incorporation, a bylaw adopted or ratified by shareholders, or a
resolution adopted or ratified, before or after the event, by the shareholders,
a corporation has the power to indemnify a director or officer made a party to a
proceeding, or advance or reimburse expenses incurred in a proceeding, under any
circumstances, except that no such indemnification shall be allowed on account
of: (i) acts or omissions of a director or officer finally adjudged to be
intentional misconduct or a knowing violation of the law; (ii) conduct of a
director or officer finally adjudged to be an unlawful distribution; or (iii)
any transaction with respect to which it was finally adjudged that such director
or officer personally received a benefit in money, property or services to which
the director or officer was not legally entitled. Unless limited by the
corporation's articles of incorporation, Washington law requires indemnification
if the director or officer is wholly successful on the merits of the action or
otherwise. Any indemnification of a director in a derivative action must be
reported to the shareholders in writing. Written commentary by the drafters of
the WBCA, which has the status of legislative history,
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specifically indicates that a corporation may indemnify its directors and
officers for amounts paid in settlement of derivative actions, provided that the
director's or officer's conduct does not fall within one of the categories set
forth above. The Management Company's Articles of Incorporation provide for the
limitation of director liability to the full extent permitted by the WBCA.
Under the DGCL, indemnification of directors and officers is authorized to
cover judgments, amounts paid in settlement, and expenses arising out of
nonderivative actions where the director or officer acted in good faith and in
or not opposed to the best interests of the corporation. Indemnification is
required to the extent of a director's or officer's successful defense.
Additionally, under the DGCL, a corporation may reimburse directors and officers
for expenses incurred in a derivative action. While the DGCL provides that these
indemnification provisions are not exclusive, which, in the Shurgard REIT's
opinion, indicates that a corporation may provide for broad indemnification in
its charter documents, including circumstances not specifically authorized under
the DGCL, there is some uncertainty as to the extent to which a corporation may
indemnify its directors and officers for judgments and amounts paid in
settlement of derivative actions. There are no definitive decisions and this
uncertainty exists because certain legal commentators have argued that such
indemnification would be circular and thus against public policy. Also, a
proposal to permit such indemnification was specifically rejected by the General
Corporation Law Section of the Delaware Bar Association. This uncertainty may
adversely affect the Shurgard REIT's ability to recruit and retain highly
qualified directors and officers in the future.
DIVIDENDS. Under the WBCA, a corporation may make a distribution in cash or
in property to its shareholders upon the authorization of its board of directors
unless, after giving effect to such distribution, (i) the corporation would be
unable to pay its debts as they become due in the usual course of business or
(ii) the corporation's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights of
shareholders whose preferential rights are superior to those receiving the
distribution.
A Delaware corporation may pay dividends out of any surplus and, if it has
no surplus, out of any net profits for the fiscal year in which the dividend was
declared or for the preceding fiscal year (provided that such payment will not
reduce capital below the amount of capital represented by all classes of shares
having a preference upon the distribution of assets).
MANAGEMENT OF THE SHURGARD REIT
It is currently anticipated that the following persons will serve as the
directors and executive officers of the Shurgard REIT following the Closing. As
a result of the Merger, Charles K. Barbo will be appointed as the Shurgard
REIT's Chairman of the Board, President and Chief Executive Officer; Harrell L.
Beck will be appointed as Senior Vice President, Chief Financial Officer and
Treasurer; and
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Kristin H. Stred will be appointed as Senior Vice President, General Counsel and
Secretary. At the Effective Time, all the officers and other employees of the
Management Company will become direct employees of the Shurgard REIT.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE SHURGARD REIT FOLLOWING THE MERGER
- -------------------------- --- -------------------------------------------------------------------------
<S> <C> <C>
Charles K. Barbo 53 Chairman of the Board, President and Chief Executive Officer
Harrell L. Beck 37 Director, Senior Vice President, Chief Financial Officer and Treasurer
Dan Kourkoumelis (1) 43 Director
Donald W. Lusk (1)(2) 66 Director
Wendell J. Smith (2) 61 Director
Michael Rowe 37 Executive Vice President
David K. Grant 41 Executive Vice President
Kristin H. Stred 35 Senior Vice President, Secretary and General Counsel
<FN>
- ------------------------
(1) Member of the Compensation Committee of the Shurgard REIT Board.
(2) Member of the Audit Committee of the Shurgard REIT Board.
</TABLE>
CHARLES K. BARBO has been involved as a principal in the real estate
investment industry since 1969. Mr. Barbo is one of the co-founders of the
Management Company, which was organized in 1972 to provide property management
services for self-storage facilities and other real estate and commercial
ventures. He currently serves as the Chairman of the Board and President of the
Management Company. Mr. Barbo is a graduate of the Owner/President Management
Program of Harvard Business School, has a Bachelor of Arts degree in history
from the University of Washington, and is a licensed real estate broker and a
licensed securities principal and salesman. He is an alumnus of the Young
Presidents Organization.
HARRELL L. BECK will serve as Senior Vice President, Treasurer and Chief
Financial Officer of the Shurgard REIT following the Merger. Prior to the
Merger, Mr. Beck also served as President of the Shurgard REIT. He is a member
of the Shurgard REIT Board. Mr. Beck is also the Treasurer and Chief Financial
Officer of the Management Company. He joined the Management Company in April
1986 as the Eastern Regional Vice President and, in 1990, became its Chief
Financial Officer and, in 1992, its Treasurer. His responsibilities include
supervising all accounting and overseeing the financial and banking
relationships for the Shurgard REIT and the Management Company. Mr. Beck was
previously a manager with Touche Ross & Co., where he was employed for
approximately six years providing services primarily to clients in the real
estate and aerospace industries. His clients included the Management Company and
the Partnerships that were consolidated to form the Shurgard REIT. Mr. Beck has
a Bachelor of Arts degree in Business Administration from Washington State
University and is a member of the American Institute of Certified Public
Accountants and the Washington Society of Certified Public Accountants.
DAN KOURKOUMELIS is the President, Chief Operating Officer and a director of
Quality Food Centers, Inc. ("QFC"), a publicly held corporation that operates
the largest independent supermarket chain in the Seattle area. Mr. Kourkoumelis
joined QFC in 1967 and has held a variety of positions since then. He served as
Executive Vice President from 1983 to 1987, when he also became Chief Operating
Officer, and became President in 1989 and a director in 1991. Mr. Kourkoumelis
has a Bachelor of Arts degree in Marketing from the University of Washington.
DONALD W. LUSK is the President of Lusk Consulting Group, which is engaged
in general management consulting, as well as the formation and delivery of
management development programs in Western Canada. From 1974 to 1991, Mr. Lusk
was Regional Managing Partner of Management Action Programs, Inc. in the Pacific
Northwest. Mr. Lusk has a Bachelor of Arts degree from Pomona
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<PAGE>
College. He currently serves as director of Robert E. Bayley Construction
Company and G.T. Development Corporation. He has previously served as a director
of Management Action Programs, Inc., The Bekins Company, California Pacific
National Bank, I.C.X. Corporation, Laguna Manufacturing Company, Ormand
Industries and Pacific United Services Corporation and was Chairman of the Board
of the School of Business and Economics Advisory Board of Seattle Pacific
University.
WENDELL J. SMITH retired in 1991 from the State of California Public
Employees Retirement System ("Calpers") after 27 years of employment, the last
21 in charge of all real estate equities and mortgage acquisitions for Calpers.
During those 21 years, Calpers invested over $8,000,000,000 in real estate and
mortgages. In 1991, Mr. Smith established W.J.S. & Associates, which provides
advisory and consulting services for pension funds and pension fund advisors.
MICHAEL ROWE is currently an Executive Vice President and the Director of
Storage Operations of the Shurgard REIT. He is also currently the Executive Vice
President and Director of Storage Operations of the Management Company. Prior to
his employment with the Management Company, he was employed with Touche Ross &
Co., where he participated in independent audits of major real estate
syndication, development and management companies in the Pacific Northwest. His
clients included the Management Company and the Partnerships that were
consolidated to form the Shurgard REIT. He became Controller of the Management
Company in 1982 and Vice President and Treasurer in 1983. In 1987, Mr. Rowe was
named Director of Operations of the Management Company. He also was the first
Regional Vice President for the Management Company's Southwest Region. Mr.
Rowe's responsibilities include supervising the Management Company's property
management services. Mr. Rowe has a Bachelor of Arts degree in Business
Administration from Washington State University.
DAVID K. GRANT is currently an Executive Vice President and the Director of
Real Estate Investment of the Shurgard REIT. Mr. Grant joined the Management
Company in November 1985 as Director of Real Estate Investment and continues to
serve in that capacity. He is also an Executive Vice President of the Management
Company. Mr. Grant is responsible for overseeing the acquisition, development
and disposition of real estate investments for the Shurgard REIT and the
Management Company. He is a licensed securities principal and salesperson. Mr.
Grant was previously a manager with Touche Ross & Co., where he was employed for
approximately 10 years providing financial consulting, accounting and auditing
services primarily to clients in the real estate, construction and engineering
industries. His clients included the Management Company and the Partnerships
that were consolidated to form the Shurgard REIT. Mr. Grant has a Bachelor of
Arts degree in Business Administration and a Bachelor of Science degree in
Accounting, both from Washington State University.
KRISTIN H. STRED serves as Secretary and General Counsel of the Shurgard
REIT. She will also serve as Senior Vice President of the Shurgard REIT
following the Merger. Ms. Stred joined the Management Company in July 1992 as
Secretary and General Counsel. She was previously an attorney with The Boeing
Company from October 1991 to July 1992 and Assistant General Counsel with King
Broadcasting Company from July 1987 to September 1991. Ms. Stred has a Bachelor
of Arts degree with honors in general studies from Harvard University and a J.D.
from Harvard Law School. She is a member of the Washington State Bar
Association, is a former president of Washington Women Lawyers and is a member
of the Executive Committee of the Corporate Counsel Section of the Washington
State Bar Association.
COMMITTEES OF THE SHURGARD REIT BOARD
AUDIT COMMITTEE. The Audit Committee of the Shurgard REIT Board recommends
to the Board the independent public accountants to be selected to audit the
Shurgard REIT's annual financial statements and approve any special assignments
given to such accountants. The Audit Committee also reviews the planned scope of
the annual audit and the independent accountants' letter of
103
<PAGE>
comments and management's responses thereto, any major accounting changes made
or contemplated and the effectiveness and efficiency of the Shurgard REIT's
internal accounting staff. The Audit Committee is comprised solely of
independent directors.
COMPENSATION COMMITTEE. The Compensation Committee of the Shurgard REIT
Board establishes remuneration levels for officers of the Shurgard REIT, reviews
management organization and development, reviews significant employee benefits
programs and establishes and administers executive compensation programs,
including bonus plans, stock option and other equity-based programs, deferred
compensation plans and any other cash or stock incentive programs.
The Shurgard REIT Board may from time to time establish certain other
committees to facilitate the management of the Shurgard REIT.
COMPENSATION TO THE SHURGARD REIT'S DIRECTORS AND OFFICERS
Directors who are not officers of the Shurgard REIT receive an annual fee of
$12,000 for serving on the Shurgard REIT Board. Such directors also receive fees
of $1,000 for attending each Board meeting and $500 for attending each Board
committee meeting (in person or by telephone). In addition, the Shurgard REIT
reimburses such directors for travel expenses incurred in connection with their
activities on behalf of the Shurgard REIT. Each member of the Shurgard REIT
Board who is not an employee or officer of the Shurgard REIT receives an annual
stock option grant to purchase 400 shares of Shurgard Class A Common Stock
pursuant to the Stock Option Plan for Nonemployee Directors. The members of the
Special Committee each received $6,000 in fees for their services on the Special
Committee.
Prior to the consummation of the Merger, no officer of the Shurgard REIT
received cash compensation for serving on the Shurgard REIT Board or on any of
its committees. The officers of the Shurgard REIT received no remuneration for
their services to the Shurgard REIT but were compensated by the Management
Company in their capacities as officers and employees of the Management Company,
except to the extent that certain stock options may be granted to such officers
by the Shurgard REIT Board.
104
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth the compensation for services rendered during
the fiscal years ended December 31, 1994 and 1993, for Charles K. Barbo, who
will be appointed Chairman of the Board, President and Chief Executive Officer
of the Shurgard REIT in connection with the Merger, and for the four other most
highly compensated executive officers of the Shurgard REIT following the Merger.
Although certain of the individuals named below served as directors or officers
of the Shurgard REIT prior to the Merger, they did not receive any cash
compensation for such services from the Shurgard REIT but instead were
compensated by the Management Company. Accordingly, all dollar amounts shown
were paid by the Management Company and, except as indicated otherwise, all
options shown are options to purchase shares of Management Company Common Stock.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
ANNUAL COMPENSATION SHARES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (#) COMPENSATION ($)(2)
- ------------------------------------------ --------- ----------- ------------ -------------- -------------------
<S> <C> <C> <C> <C> <C>
Charles K. Barbo.......................... 1994 $ 155,000 $ 30,000 -- $ 200
Chairman, President and Chief Executive 1993 $ 150,000 $ 25,000 -- $ 2,316
Officer
Michael Rowe.............................. 1994 $ 103,000 $ 24,000 2,000(3) $ 5,888
Executive Vice President and Director of 1993 $ 100,000 $ 30,340 10,000 $ 7,844
Storage Operations
David K. Grant............................ 1994 $ 103,000 $ 24,000 2,000(3) $ 5,888
Executive Vice President and Director of 1993 $ 100,000 $ 15,000 10,000 $ 7,844
Real Estate Investment
Harrell L. Beck........................... 1994 $ 80,000 $ 24,000 2,000(3) $ 200
Director, Senior Vice President, Chief 1993 $ 75,000 $ 15,000 10,000 $ 200
Financial Officer and Treasurer
Kristin H. Stred.......................... 1994 $ 80,000 $ 24,000 2,000(3) $ 200
Senior Vice President, General Counsel 1993 $ 75,000 $ 15,000 7,500 $ 200
and Secretary
<FN>
- ------------------------
(1) Includes bonus awards earned pursuant to the terms of discretionary bonus,
incentive compensation and profit-sharing arrangements.
(2) For the year ended December 31, 1994, includes employer matching
contributions made by the Management Company under its Employee Retirement
Savings Plan of $200 per person and, with respect to each of Messrs. Rowe
and Grant, $5,688 relating to interests in Management Company cash
distributions from investments in certain Partnerships.
(3) Represents options to purchase shares of Shurgard Class A Common Stock
granted by the Shurgard REIT.
</TABLE>
105
<PAGE>
OPTION GRANTS
The following table sets forth certain information regarding options to
purchase shares of Shurgard Class A Common Stock granted during the fiscal year
ended December 31, 1994, to the individuals for whom compensation is reported in
this Proxy Statement/Prospectus. Such individuals were not granted any options
to purchase shares of Management Company Common Stock during the fiscal year
ended December 31, 1994.
OPTION GRANTS IN FISCAL 1994
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
- ---------------------------------------------------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE ($/ EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL YEAR (2) SHARE) DATE 5%($) 10%($)
- ----------------------------------- --------------- ----------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles K. Barbo................... -- -- -- -- -- --
Michael Rowe....................... 2,000 25% $ 18.90 3/17/04 $ 23,772 $ 60,243
David K. Grant..................... 2,000 25% $ 18.90 3/17/04 $ 23,772 $ 60,243
Harrell L. Beck.................... 2,000 25% $ 18.90 3/17/04 $ 23,772 $ 60,243
Kristin H. Stred................... 2,000 25% $ 18.90 3/17/04 $ 23,772 $ 60,243
<FN>
- ------------------------
(1) Options are granted at the fair market value on the date of grant, which
was the per share value of the assets of the 17 Partnerships included in
the Consolidation, less liabilities. Each option vests in annual
installments of 20%, commencing on the first anniversary of the date of
grant.
(2) The Shurgard REIT did not have any employees during the fiscal year ended
December 31, 1994. As shown in this table, option grants were made to
officers of the Shurgard REIT.
(3) The dollar amounts under these columns are the result of calculations at
assumed rates of appreciation of 5% and 10% and are not intended to
forecast future appreciation. No value will be realized if the stock price
does not exceed the exercise price of the options.
</TABLE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information as of December 31, 1994,
regarding options to purchase shares of Management Company Common Stock held by
the individuals for whom compensation is reported in this Proxy
Statement/Prospectus. None of such individuals exercised any options during the
fiscal year ended December 31, 1994.
AGGREGATED FISCAL 1994 YEAR-END VALUES
FOR MANAGEMENT COMPANY OPTIONS
<TABLE>
<CAPTION>
TOTAL NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END (#) AT FISCAL YEAR-END ($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles K. Barbo.......................................... -- -- -- --
Michael Rowe.............................................. 5,333 18,667 $ 25,904 $ 74,796
David K. Grant............................................ 2,666 17,334 $ 12,681 $ 68,179
Harrell L. Beck........................................... 5,333 17,667 $ 25,904 $ 70,956
Kristin H. Stred.......................................... -- 7,500 -- $ 28,875
<FN>
- ------------------------
(1) The value was calculated by multiplying the number of shares of Management
Company Common Stock issuable upon exercise of the options by the number of
shares of Shurgard Class A Common Stock each share of Management Company
Common Stock will be converted into in the Merger
</TABLE>
106
<PAGE>
<TABLE>
<S> <C>
(assuming 1,400,000 shares of Shurgard Class A Common Stock are issued at
the Closing), and multiplying the result by the closing price of the
Shurgard Class A Common Stock on December 31, 1994, and deducting the
aggregate exercise price of the options from the result.
</TABLE>
The following table sets forth certain information as of December 31, 1994,
regarding options to purchase shares of Shurgard Class A Common Stock held by
the individuals for whom compensation is reported in this Proxy
Statement/Prospectus. None of such individuals exercised any options during the
fiscal year ended December 31, 1994.
AGGREGATED FISCAL 1994 YEAR-END VALUES
FOR SHURGARD REIT OPTIONS
<TABLE>
<CAPTION>
TOTAL NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END (#) AT FISCAL YEAR-END ($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles K. Barbo.......................................... -- -- -- --
Michael Rowe.............................................. -- 2,000 -- $ 3,700
David K. Grant............................................ -- 2,000 -- $ 3,700
Harrell L. Beck........................................... -- 2,000 -- $ 3,700
Kristin H. Stred.......................................... -- 2,000 -- $ 3,700
<FN>
- ------------------------
(1) This amount is the aggregate number of outstanding options multiplied by
the difference between the closing price of Shurgard Class A Common Stock
as of December 31, 1994, minus the exercise price of such options.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 1, 1994, the Shurgard REIT made a $1,981,000 interest-free loan to
Mr. Barbo to enable him to make certain capital contributions that were required
in connection with the Consolidation. Mr. Barbo's Shurgard Class B Common Stock
has been pledged as collateral for the loan. Upon repayment of the loan, a
percentage of the Shurgard Class B Common Stock will be released from the pledge
equal to the percentage of the loan principal being repaid, and Mr. Barbo will
then have the option to convert his Shurgard Class B Common Stock, on a
share-for-share basis, into Shurgard Class A Common Stock. The terms of this
loan to Mr. Barbo will not be affected by the Merger.
107
<PAGE>
PRINCIPAL SHURGARD REIT SHAREHOLDERS
The following table sets forth, as of December 31, 1994, certain information
with respect to the beneficial ownership of shares of Shurgard REIT Common Stock
by (i) each shareholder who is the beneficial owner of more than 5% of the
shares of Shurgard Class B Common Stock, (ii) each director and director nominee
of the Shurgard REIT, (iii) each of the Shurgard REIT's executive officers for
whom compensation is reported in this Proxy Statement/Prospectus, and (iv) all
directors and executive officers of the Shurgard REIT as a group. Except as
otherwise noted, the Shurgard REIT believes that the beneficial owners of the
shares of Shurgard REIT Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares. As of December 31, 1994, no shareholder beneficially owned more
than 5% of the shares of Shurgard Class A Common Stock.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF SHURGARD REIT SHURGARD SHARES OF SHURGARD REIT
COMMON STOCK BENEFICIALLY CLASS A COMMON COMMON STOCK BENEFICIALLY
OWNED PRIOR TO MERGER (1) STOCK TO BE OWNED AFTER MERGER (1)
---------------------------------- ISSUED ----------------------------------
TITLE OF PERCENT OF IN CONNECTION TITLE OF PERCENT OF
NAME AND ADDRESS CLASS (3) NUMBER CLASS WITH MERGER(1)(2) CLASS (3) NUMBER CLASS
- ---------------------------------- --------- --------- ------------ ----------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles K. Barbo.................. Class A 34,137 * 620,187 Class A 654,324 3.6%
1201 Third Avenue, Ste 2200 Class B 76,529 49.5% Class B 76,529 49.5%
Seattle, WA 98101
Arthur W. Buerk................... Class A 6,692 * 375,685 Class A 382,377 2.0 %
3831 49th N.E. Class B 76,529 49.5% Class B 76,529 49.5 %
Seattle, WA 98105
David K. Grant.................... Class A 3,647 * 47,069 Class A 50,716 *
Michael Rowe...................... Class A 1,322 * 65,269 Class A 66,591 *
Dan Kourkoumelis.................. -- -- -- -- --
Donald W. Lusk.................... -- -- -- -- --
Wendell J. Smith.................. -- -- -- -- --
Harrell L. Beck................... Class A 159 * 13,815 Class A 13,974 *
Kristin H. Stred.................. Class A 300 * 2,697 Class A 2,997 *
All directors and executive Class A 39,565 * 749,037 Class A 788,602 4.3 %
officers as a group (8 Class B 76,529 49.5% Class B 76,529 49.5 %
persons).........................
<FN>
- ------------------------
* Less than one percent.
(1) The shares of Shurgard REIT Common Stock reported in this table as
beneficially owned prior to the Merger by the named persons do not include
282,572 shares of Shurgard Class A Common Stock owned by the Management
Company, which shares increase the Share Consideration and are included in
shares of Shurgard Class A Common Stock to be issued in connection with the
Merger and in the number of shares beneficially owned after the Merger. See
"THE MERGER -- Adjustments to Share Consideration."
(2) Assumes 1,400,000 shares of Shurgard Class A Common Stock are issued at the
Closing. Does not include any Contingent Shares that may subsequently be
issued to Management Company shareholders pursuant to the Merger Agreement.
(3) See "DESCRIPTION OF SHURGARD REIT CAPITAL STOCK -- Common Stock" for a
description of the Shurgard Class A Common Stock and the Shurgard Class B
Common Stock.
</TABLE>
108
<PAGE>
PRINCIPAL MANAGEMENT COMPANY SHAREHOLDERS
The following table sets forth as of December 31, 1994 certain information
with respect to the beneficial ownership of shares of Management Company Common
Stock and shares of Shurgard REIT Common Stock by (i) each person known by the
Management Company to beneficially own more than 5% of the shares of Management
Company Common Stock, (ii) each director of the Management Company, (iii) the
Management Company's chief executive officer and each other executive officer
for whom compensation is reported in this Proxy Statement/Prospectus, and (iv)
all directors and executive officers of the Management Company as a group.
Except as otherwise noted, the Management Company believes that the beneficial
owners of shares of Management Company Common Stock listed below, based on
information furnished by such owners, have sole voting and investment power with
respect to such shares. Except as otherwise noted, all shares of Shurgard REIT
Common Stock included in the following table are shares of Shurgard Class A
Common Stock.
<TABLE>
<CAPTION>
SHARES OF
SHURGARD REIT
SHARES OF MANAGEMENT SHARES OF SHARES OF COMMON STOCK
COMPANY COMMON STOCK SHURGARD REIT SHURGARD REIT BENEFICIALLY
BENEFICIALLY OWNED COMMON STOCK COMMON STOCK OWNED AFTER MERGER (2)
PRIOR TO MERGER (1) BENEFICIALLY TO BE ISSUED IN
------------------------------- OWNED PRIOR CONNECTION -------------------------
NAME AND ADDRESS NUMBER PERCENT TO MERGER (2) WITH MERGER(2)(3) NUMBER PERCENT
- ------------------------------------- ------------------ ----------- -------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles K. Barbo..................... 1,724,600(4) 36.9 % 110,666(5) 620,187 730,853 4.0%
1201 Third Avenue, Suite 2200
Seattle, WA 98101
Arthur W. Buerk...................... 1,044,696 22.3 83,221(6) 375,685 458,906 2.5
3831 49th N.E.
Seattle, WA 98105
Donald B. Daniels.................... 538,124 11.5 10,589 193,516 204,105 *
1601 Sylvester St. S.W.
P.O. Box 7046
Olympia, WA 98501
Ronald C. Knutzen (7)................ 297,399 6.4 -- 106,948 106,948 *
1462 Allen West Road
Bow, Washington
Michael Rowe......................... 181,498 (8) 3.9 1,322 65,269 66,591 *
David K. Grant....................... 130,887 (9) 2.8 3,647 47,009 50,716 *
Harrell L. Beck...................... 38,416 10) * 159 13,815 13,974 *
Kristin H. Stred..................... 7,500 11) * 300 2,697 2,997 *
All directors and executive officers
as a group
(7 persons)......................... 3,665,721 78.35 209,904 1,318,237 1,528,141 8.3
<FN>
- ------------------------
* Less than one percent.
(1) Does not include allocation of 175,000 shares of Management Company Common
Stock that has been reserved for distribution as a stock bonus to employees
of the Management Company prior to the Closing. None of such shares will be
issued to Messrs. Barbo, Buerk or Daniels. Includes shares of Management
Company Common Stock subject to issuance upon the exercise of outstanding
stock options, all of which are expected to be exercised prior to the
Closing.
(2) The shares of Shurgard REIT Common Stock reported in this table as
beneficially owned by the named persons prior to the Merger do not include
282,572 shares of Shurgard Class A Common Stock owned by the Management
Company, which shares increase the Share Consideration and
</TABLE>
109
<PAGE>
<TABLE>
<S> <C>
are included in shares of Shurgard Class A Common Stock to be issued in
connection with the Merger and in the number of shares beneficially owned
after the Merger. See "THE MERGER -- Adjustments to Share Consideration."
(3) Assumes 1,400,000 shares of Shurgard Class A Common Stock are issued at the
Closing. Does not include any Contingent Shares that may subsequently be
issued to Management Company shareholders pursuant to the Merger Agreement.
(4) Includes 8,007 shares of Management Company Common Stock held for Mr.
Barbo's individual account under the Management Company's Employee
Retirement Savings Plan.
(5) Shares of Shurgard REIT Common Stock reported as beneficially owned by Mr.
Barbo prior to and after the Merger include 76,529 shares of Shurgard Class
B Common Stock.
(6) Shares of Shurgard REIT Common Stock reported as beneficially owned by Mr.
Buerk prior to and after the Merger include 76,529 shares of Shurgard Class
B Common Stock.
(7) Mr. Knutzen holds his shares as trustee for the Charles K. and Linda K.
Barbo Trust, a trust created for the benefit of Mr. Barbo's three children.
Mr. Knutzen has sole dispositive and voting power over the shares of
Management Company Common Stock held in the trust.
(8) Includes 24,000 shares of Management Company Common Stock issuable upon the
exercise of 10,000 vested and 14,000 unvested options. Vesting of such
options will be accelerated in connection with the Merger. In addition,
includes 7,498 shares of Management Company Common Stock held for Mr.
Rowe's individual account under the Management Company's Employee
Retirement Savings Plan.
(9) Includes 20,000 shares of Management Company Common Stock issuable upon
exercise of 6,000 vested and 14,000 unvested options. Vesting of such
options will be accelerated in connection with the Merger. In addition,
includes 5,887 shares of Management Company Common Stock held for Mr.
Grant's individual account under the Management Company's Employee
Retirement Savings Plan.
(10) Includes 23,000 shares of Management Company Common Stock issuable upon the
exercise of 9,667 vested and 13,333 unvested options. Vesting of such
options will be accelerated in connection with the Merger. In addition,
includes 5,416 shares of Management Company Common Stock held for Mr.
Beck's individual account under the Management Company's Employee
Retirement Savings Plan.
(11) Includes 7,500 shares of Management Company Common Stock issuable upon the
exercise of unvested options. Vesting of such options will be accelerated
in connection with the Merger.
</TABLE>
LEGAL OPINION
The legality of the shares of Shurgard Class A Common Stock to be issued in
connection with the Merger is being passed upon for the Shurgard REIT by Perkins
Coie, Seattle, Washington.
TAX OPINION
Certain of the tax consequences of the Merger to the Shurgard REIT and the
Management Company is being passed upon by Perkins Coie, counsel to the Shurgard
REIT. See "FEDERAL INCOME TAX CONSEQUENCES -- Tax Treatment of the Management
Company and the Shurgard REIT in the Merger."
EXPERTS
The financial statements of Shurgard Storage Centers, Inc. as of December
31, 1993 and for the period then ended, the financial statements of the
Management Company of Shurgard Incorporated as of December 31, 1993 and for the
year then ended, and the combined financial statements of the 17 partnerships as
of December 31, 1993 and 1992 and for each of the three years in the period
ended December 31, 1993 included in this Proxy Statement/Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the Registration Statement, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at December 31, 1993 and September 30,
1994................................................................... F-3
Consolidated Statements of Income for the period from July 23, 1993
(inception) through December 31, 1993 and the nine months ended
September 30, 1994..................................................... F-4
Consolidated Statements of Shareholders' Equity for the period from July
23, 1993 (inception) through December 31, 1993 and the nine months
ended
September 30, 1994..................................................... F-5
Consolidated Statements of Cash Flows for the period from July 23, 1993
(inception) through December 31, 1993 and the nine months
ended September 30, 1994............................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Pro Forma Consolidated Statements of Income for the nine months ended
September 30, 1993 and 1994............................................ F-13
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
Independent Auditors' Report............................................ F-14
Statements of Assets and Liabilities at December 31, 1992 and 1993 and
September 30, 1994..................................................... F-15
Statements of Revenues and Expenses for the years ended December 31,
1991,
1992 and 1993 and the nine months ended September 30, 1994............. F-16
Notes to Financial Statements........................................... F-17
COMBINED PREDECESSOR PARTNERSHIPS
Independent Auditors' Report............................................ F-22
Combined Balance Sheets at December 31, 1992 and 1993 and March 1,
1994................................................................... F-23
Combined Statements of Earnings for the years ended December 31, 1991,
1992 and 1993 and the period ended March 1, 1994....................... F-24
Combined Statements of Partners' Equity (Deficit)....................... F-25
Combined Statements of Cash Flows for the years ended December 31, 1991,
1992 and 1993 and the period ended March 1, 1994....................... F-26
Notes to Combined Financial Statements.................................. F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Directors and Shareholders
Shurgard Storage Centers, Inc.
Seattle, Washington
We have audited the accompanying balance sheet of Shurgard Storage Centers,
Inc. (the "Company") as of December 31, 1993, and the related statement of
earnings, shareholders' equity and cash flows for the period from July 23, 1993
(inception) to December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shurgard Storage Centers,
Inc. as of December 31, 1993 and the results of its operations and its cash
flows for the period from July 23, 1993 to December 31, 1993 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
December 16, 1994
F-2
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------ SEPTEMBER 30,
1994
-------------
(UNAUDITED)
<S> <C> <C>
Storage centers:
Land........................................... $-- $ 87,908
Buildings and equipment, net................... 363,891
------ -------------
451,799
Cash and cash equivalents........................ 1 15,982
Restricted cash.................................. 2,717
Investment in joint ventures..................... 3,050
Other assets..................................... 11,226
------ -------------
Total assets................................. $ 1 $484,774
------ -------------
------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities........... $ 1 $ 10,539
Line of credit................................... 30,000
Notes payable.................................... 125,121
------ -------------
Total liabilities............................ 1 165,660
Commitments (Note E)
Shareholders' equity:
Class A common stock, $0.001 par value;
120,000,000 shares authorized; 16,829,283 and
5 shares issued and outstanding,
respectively.................................. 317,434
Class B convertible common stock, $0.001 par
value; 500,000 shares authorized; 154,604
shares issued and outstanding at September 30,
1994; net of loans to shareholders of
$4,002........................................ (1,086)
Retained earnings................................ 2,766
------ -------------
Total shareholders' equity................... 319,114
------ -------------
Total liabilities and shareholders' equity... $ 1 $484,774
------ -------------
------ -------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23,
1993
(INCEPTION)
THROUGH
DECEMBER 31,
1993
------------ NINE MONTHS
ENDED
SEPTEMBER 30,
1994
-------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental revenue................................. $-- $45,701
Income from joint ventures..................... 109
Interest income................................ 473
------ -------------
Total revenue.............................. 46,283
Expenses
Operating expense.............................. 10,567
Management fees................................ 2,739
Depreciation and amortization.................. 7,594
Real estate taxes.............................. 4,083
General and administrative..................... 1,517
Interest....................................... 5,814
Other.......................................... 172
------ -------------
Total expenses............................. -- 32,486
------ -------------
Income before extraordinary item................. 13,797
Extraordinary item -- loss on retirement of
debt............................................ (1,180)
------ -------------
Net income....................................... $-- $12,617
------ -------------
------ -------------
Net income per share:
Income before extraordinary item............... $-- $0.81
Extraordinary item -- loss on retirement of
debt.......................................... (0.07)
------------
Net income..................................... $ -- $0.74
------------
------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK LOANS TO
-------------------- --------------- CLASS B RETAINED
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS EARNINGS TOTAL
---------- -------- ------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 23, 1993 (inception)
and December 31, 1993.............. 5 $ -- -- $ -- $-- $ -- $ --
Issuance of common stock............ 16,829,278 317,434 154,604 2,916 (4,002) 316,348
Net income.......................... 12,617 12,617
Dividends........................... (9,851) (9,851)
---------- -------- ------- ------ ------------ -------- --------
Balance, September 30, 1994
(unaudited)........................ 16,829,283 $317,434 154,604 $2,916 $(4,002) $ 2,766 $319,114
---------- -------- ------- ------ ------------ -------- --------
---------- -------- ------- ------ ------------ -------- --------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1993
(INCEPTION) NINE MONTHS
THROUGH ENDED
DECEMBER 31, SEPTEMBER 30,
1993 1994
------------- --------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ -- $ 12,617
Adjustments to reconcile earnings to net cash
provided by operating activities:
Depreciation and amortization.............. 7,594
Extraordinary loss on retirement of debt... 1,180
Earnings in excess of distributions from
joint venture............................. (29)
Changes in operating accounts:
Restricted cash.......................... (2,717)
Other assets............................. (474)
Accounts payable and other liabilities... 1 874
------ --------------
Net cash provided by operating
activities............................ 1 19,045
------ --------------
INVESTING ACTIVITIES
Investment in joint venture.................. (600)
Acquisition of and improvements to storage
centers..................................... (100,875)
------ --------------
Net cash used in investing
activities............................ (101,475)
------ --------------
FINANCING ACTIVITIES
Dividends paid............................... (9,851)
Proceeds from line of credit................. 30,000
Proceeds from notes payable.................. 227,180
Payment of financing costs................... (8,088)
Payment of assumed consolidation
liabilities................................. (11,662)
Principal payments on notes payable.......... (129,168)
------ --------------
Net cash provided by financing
activities............................ 98,411
------ --------------
Increase in cash and short-term investments.... 1 15,981
Cash and short-term investments at beginning of
period........................................ 1
------ --------------
Cash and short-term investments at end of
period........................................ $ 1 $ 15,982
------ --------------
------ --------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for interest..... $ -- $ 5,631
------ --------------
------ --------------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JULY 23, 1993 (INCEPTION) TO DECEMBER 31, 1993 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE A -- ORGANIZATION
Shurgard Storage Centers, Inc. (the "Company") was organized under the laws
of the state of Delaware on July 23, 1993, to serve as a vehicle for investments
in, and ownership of, a professionally managed real estate portfolio consisting
primarily of self-service storage properties that provide month-to-month leases
for business and personal use.
On March 1, 1994, the Company completed the acquisition of 17 publicly held
limited partnerships (the "Partnerships") administered by Shurgard Incorporated
("Shurgard") as a means for assembling an initial portfolio of real estate
investments (Note E).
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company, SSC Property Holdings, Inc., SSC Acquisitions, Inc. and
Capitol Hill Partners. SSC Property Holdings, Inc. was established as a wholly
owned subsidiary to hold all storage centers that secure the note payable to a
financial services company (Note G). SSC Acquisitions, Inc. was established as a
wholly owned subsidiary to hold all storage centers that will secure the line of
credit with the same financial service company (Note F). The Company holds a 90%
ownership interest in Capitol Hill Partners, a joint venture with an
unaffiliated party, which joint venture owns one storage center. All
intercompany balances and transactions have been eliminated upon consolidation.
Prior to February 1994, the Company had no subsidiaries; therefore, the December
31, 1993 financial statements are not consolidated.
The consolidated interim financial statements included in this report are
unaudited. In the opinion of the Company, 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. Operating activity began March 1, 1994;
the Company was inactive prior to that date.
STORAGE CENTERS: Storage centers are recorded at cost. Depreciation on
buildings and equipment is recorded on a straight-line basis over their
estimated useful lives, which range from three to 30 years.
INVESTMENT IN JOINT VENTURES: The Company consolidates the accounts of
those joint ventures in which the Company has effective control. Minority
interest of $477,000 is included in other liabilities at September 30, 1994. All
other investments in joint ventures or participating mortgages are accounted for
on the equity method. Investments accounted for on the equity method include a
67% interest in Shurgard-Freeman Medical Center Joint Venture, a 50% interest in
Shurgard Freeman Hermitage Joint Venture and two participating mortgages (Note
E).
CASH EQUIVALENTS: Cash equivalents consist of money market instruments and
securities with original maturities of 90 days or less. Financing costs:
Financing costs are included in other assets and are amortized on the effective
interest method over the life of the related debt.
FEDERAL INCOME TAXES: The Company intends to qualify as a real estate
investment trust ("REIT") as defined in Section 856 of the Internal Revenue Code
of 1986, as amended. As a REIT, the Company will not be subject to federal
income taxes provided that it distributes annually at least 95% of its taxable
income and meets certain other requirements. As a result, no provision for
federal income taxes has been made in the Company's consolidated financial
statements.
F-7
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JULY 23, 1993 (INCEPTION) TO DECEMBER 31, 1993 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION: Revenue is recognized when earned under accrual
accounting principles.
NET INCOME PER SHARE: Net income per share is calculated based on the
weighted average shares outstanding during the periods presented. No per share
data for 1993 has been included as such is de minimis.
FINANCIAL INSTRUMENTS: The carrying values reflected in the balance sheet
at September 30, 1994, reasonably approximate the fair value of cash and cash
equivalents, other assets, and notes payable. The Company estimates that the
fair value of its notes from shareholders is $2.2 million.
NOTE C -- ADVISORY AND MANAGEMENT AGREEMENTS
The Company has entered into advisory and management agreements under which
Shurgard advises the Company with respect to its investments, manages the
Company's day-to-day operations, and provides property management services. The
agreements provide for an annual advisory fee, incentive advisory fees,
reimbursement for certain costs and expenses, and property management fees. The
property management fee is equal to 6% of gross storage center revenues and 5%
of office and business park revenues. The annual advisory fee is equal to 0.5%
of the fair market value of new properties acquired after the initial
acquisition (Note E), mortgage loans receivable held and the average daily cash
equivalents invested in excess of cash equivalents acquired from the
Partnerships. The incentive advisory fee equals 10% of realized gain on sale or
refinancing of properties acquired after the initial acquisition. During the
period ended September 30, 1994, $2,753,000 was paid under these agreements.
NOTE D -- STORAGE CENTERS
Storage centers at September 30, 1994 consist of the following (in
thousands):
<TABLE>
<S> <C>
Land.............................................. $ 87,908
Buildings......................................... 366,966
Equipment......................................... 4,526
--------
459,400
Less accumulated depreciation..................... (7,601)
--------
$451,799
--------
--------
</TABLE>
NOTE E -- ACQUISITIONS
On March 1, 1994, the Company acquired the assets, subject to existing
liabilities, of each of the Partnerships for $387 million. A summary of the
assets and liabilities assumed in this transaction are as follows (in
thousands):
<TABLE>
<S> <C>
Real estate....................................... $417,218
Interest in joint ventures........................ 7,074
Cash, receivables and other assets................ 10,642
Notes payable..................................... (26,192)
Other liabilities................................. (21,326)
--------
$387,416
--------
--------
</TABLE>
F-8
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JULY 23, 1993 (INCEPTION) TO DECEMBER 31, 1993 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE E -- ACQUISITIONS (CONTINUED)
The acquisition was funded by the issuance of 16,983,728 shares of common
stock and $67,074,813 in proceeds from a note payable to a financial services
company. Real estate assets acquired in the acquisition consisted of 134
self-service storage centers and two business parks located in 17 states, as
well as an interest in two joint ventures owning an additional five storage
centers.
The following unaudited pro forma financial information represents the
results of operations of the Company as if the acquisition had occurred on
January 1, 1993. The pro forma results do not necessarily indicate the actual
results that would have been obtained, nor are they necessarily indicative of
the future operations of the combined companies.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1993 SEPTEMBER 30, 1994
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Revenues............................... $72,900 $58,777
Expenses
Operating............................ 16,840 13,530
Property management fees............. 4,317 3,480
Depreciation and amortization........ 12,887 9,740
Real estate taxes.................... 7,068 5,250
Interest............................. 10,303 7,931
General, administrative and other.... 2,390 2,133
-------- --------
53,805 42,064
-------- --------
Income before extraordinary item....... $19,095 $16,713
-------- --------
-------- --------
</TABLE>
On September 1, 1994, the Company purchased 20 storage centers for $34
million from an unaffiliated seller. These centers, located in Maryland,
Virginia and North Carolina, were financed through a $30 million draw on the
Company's credit facility, a $1 million note to the seller and approximately $3
million from cash reserves. The note to the seller is due in two $500,000
installments in September 1995 and 1996, which installments include accrued
interest. The discounted value of these notes is estimated to be $917,000.
In July 1994, the Company entered into a joint venture with a storage
operator and developer to develop a property in Nashville, Tennessee. The
Company will have a 67% interest in this project, which will initially have
59,700 net rentable square feet and is expected to be complete in early 1995.
The Company's investment in this project is $600,000. The Company has guaranteed
repayment of $833,500 of the joint venture's construction loan.
In November 1994, the Company entered into a second joint venture with the
same developer to develop a second property in Nashville, Tennessee. The Company
will have a 50% interest in this project, which will initially have 67,700 net
rentable square feet and is expected to be complete in early 1995. The Company's
investment in this project is $640,000. The Company has guaranteed repayment of
$1,110,700 of the joint venture's construction loan.
F-9
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JULY 23, 1993 (INCEPTION) TO DECEMBER 31, 1993 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE E -- ACQUISITIONS (CONTINUED)
In January 1995, the Company entered into a third joint venture the same
developer to develop a third property in Nashville, Tennessee. The Company will
have a 91.2% interest in this project, which will initially have 55,000 net
rentable square feet and is expected to be complete in late 1995. The Company's
investment in this project is $2,500,000.
In October 1994, the Company entered into a commitment to invest up to $3
million in a Belgian partnership that will own and operate storage centers in
the Benelux region of Europe.
As of December 14, 1994, the Company has paid $12 million and committed an
additional $1 million for investment in two 10-year participating mortgage
loans, which are nonrecourse to the borrower and are secured by real estate,
including four storage centers and office/warehouse space. The Company will
receive interest at 8% per annum plus 50% of both operating cash flow and
distributions from the sale of real property. The Company has options to
purchase the properties at established prices, generally exercisable in five
years and extending until maturity of the loans.
The Company is currently negotiating with a committee of independent
directors of Shurgard to merge the management, acquisition, development, and
advisory business of Shurgard into the Company. The potential merger is subject
to a vote of the shareholders of the Company and Shurgard.
NOTE F -- LINES OF CREDIT
In August 1994, the Company established a $50 million revolving two-year
credit facility with a commercial bank group. This credit facility is secured by
real estate and accrues interest at 7.33% for the first six months, and
thereafter at either the banks' prime rate or LIBOR plus 200 basis points (at
the Company's option). The commitment fee for the revolving period was 75 basis
points of the commitment amount. Upon the expiration of the revolving period,
the Company can extend any outstanding balance for a one-year term for an
additional fee of 37.5 basis points of the amount outstanding. At December 16,
1994, $42 million was outstanding on this credit facility; outstanding balances
are payable upon expiration of the line in August 1996.
Additionally, in August 1994, the Company executed a commitment letter with
Nomura Asset Capital Corp., a subsidiary of Nomura Securities International,
Inc., to provide a second $50 million two-year revolving credit facility. This
credit facility will be secured by real estate, bear interest at LIBOR plus 175
basis points, and require a draw fee equal to 25 basis points of the amount
drawn. The commitment fee for the revolving period will be 100 basis points of
the commitment amount. The commitment is subject to customary contingencies and
due diligence.
NOTE G -- NOTES PAYABLE
Notes payable at September 30, 1994 consist of the following (in thousands):
<TABLE>
<S> <C>
Note payable to financial services company........ $122,580
Mortgage note payable............................. 1,468
Other notes payable............................... 1,073
--------
$125,121
--------
--------
</TABLE>
On June 9, 1994, the Company refinanced substantially all of its existing
debt with Nomura Asset Capital Corp., a subsidiary of Nomura Securities
International, Inc., through a debt purchase transaction. The $122.58 million
loan provides the Company with funds for seven years at a fixed rate equal to
8.28% and requires monthly payments of interest only until maturity. The
refinancing of existing debt
F-10
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JULY 23, 1993 (INCEPTION) TO DECEMBER 31, 1993 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE G -- NOTES PAYABLE (CONTINUED)
resulted in a loss on early retirement of $1.18 million, consisting of
unamortized loan fees. As required by the loan agreement, the Company deposited
cash into restricted accounts to fund certain expenses, including real estate
taxes and insurance.
The mortgage note is secured by a deed of trust on a storage center. It is
due in monthly installments of $13,441, including principal and interest at
10.25%, and matures April 2001. Other notes payable consists of local
improvement district warrants and a note taken in connection with a real estate
acquisition. The approximate maturities of principal over the next five fiscal
years range from $20,000 to $516,000.
NOTE H -- SHAREHOLDERS' EQUITY
In addition to the rights, privileges and powers of Class A common stock,
Class B common shareholders received loans from the Company to fund certain
obligations to the Partnerships. The loans are due between 2001 and 2003 and are
secured by the Class B common stock. Class B common stock is convertible to
Class A common stock at a one-to-one ratio as the loans are repaid.
The Company has authorized 40,000,000 shares of preferred stock, of which
2,800,000 shares have been designated Series A Junior Participating Preferred
Stock. No shares of preferred stock are issued and outstanding at September 30,
1994. The Company's Board of Directors is authorized to determine the rights,
preferences and privileges of the preferred stock, including the number of
shares constituting any such series, and the designation thereof.
NOTE I -- STOCK OPTIONS
The Company has established the 1993 Stock Option Plan (the "Plan") for the
purpose of attracting and retaining the Company's directors, executive officers
and other employees. The Plan provides for the granting of options for up to 3%
of the Company's outstanding shares of Class A common stock at the end of each
year, limited in the aggregate to 5,000,000 shares. In general, the options vest
ratably over five years and must be exercised within 10 years from date of
grant. The exercise price for qualified incentive options under the Plan must be
at least equal to fair market value at date of grant and at least 85% of fair
market value at date of grant for nonqualified options. The Plan expires in
2003. At September 30, 1994, 8,000 options had been granted under the Plan at an
exercise price of $18.90 per share. No options had been granted at December 31,
1993.
The Company also has established the Stock Option Plan for Nonemployee
Directors (the "Nonemployee Plan") for the purpose of attracting and retaining
the services of experienced and knowledgeable outside directors. The Nonemployee
Plan provides for the annual grant of options to purchase 400 shares of Class A
common stock. Such options vest upon continued service until the next annual
meeting of the Company's shareholders. A total of 20,000 shares are reserved
under the Nonemployee Plan. The exercise price for options granted under the
Nonemployee Plan is equal to fair market value at date of grant. At September
30, 1994, options for 1,200 shares had been granted under the Nonemployee Plan
at an exercise price of $22.93 per share.
NOTE J -- SHAREHOLDER RIGHTS PLAN
In March 1994, the Company adopted a Shareholder Rights Plan and declared a
dividend distribution of one Right for each outstanding share of common stock.
Under certain conditions, each Right may be exercised to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock at a
purchase price of $65, subject to adjustment. The Rights will be exercisable
only if a person or group has acquired 10% or more of the outstanding shares of
common stock, or following the
F-11
<PAGE>
SHURGARD STORAGE CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JULY 23, 1993 (INCEPTION) TO DECEMBER 31, 1993 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE J -- SHAREHOLDER RIGHTS PLAN (CONTINUED)
commencement of a tender or exchange offer for 10% or more of such outstanding
shares of common stock. If a person or group acquires more than 10% of the
then-outstanding shares of common stock, each Right will entitle its holder to
receive, upon exercise, common stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
the exercise price of the Right. In addition, if the Company is acquired in a
merger or other business combination transaction, each Right will entitle its
holder to purchase that number of the acquiring company's common shares having a
market value of twice the Right's exercise price. The Company will be entitled
to redeem the Rights at $.0001 per Right at any time prior to the earlier of
expiration of the Rights in March 2004 and the time that a person has acquired a
10% position. The Rights do not have voting or dividend rights, and, until they
become exercisable, have no dilutive effect on the Company's earnings.
F-12
<PAGE>
SHURGARD STORAGE CENTERS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1993 (1) 1994 (2)
------------- -------------
<S> <C> <C>
Rental revenue.................................. $53,969 $58,029
Income from joint venture....................... 68 140
Interest income................................. 196 608
Litigation settlement........................... 317
------------- -------------
Total revenues................................ 54,550 58,777
Operating expense............................... 12,793 13,530
Management fees................................. 3,502 3,480
Depreciation and amortization................... 10,420 9,740
Real estate taxes............................... 5,257 5,250
General and administrative...................... 1,786 1,950
Other........................................... 132 183
Interest........................................ 1,716 7,931
------------- -------------
Total expenses................................ 35,606 42,064
------------- -------------
Income before extraordinary item................ $18,944 $16,713
------------- -------------
------------- -------------
Income before extraordinary item per common and
common equivalent share (3).................... $0.92 $0.98
------------- -------------
------------- -------------
<FN>
- ------------------------
(1) Amounts represent the combined results of operations of each of the 17
partnerships consolidated into the Shurgard REIT on March 1, 1994 (the
"Consolidation").
(2) Amounts represent pro forma results of operations as if the Consolidation
had occurred and the current debt structure existed on January 1, 1994.
(3) Pro forma per share data is based on the outstanding common and common
equivalent shares of the Shurgard REIT at September 30, 1994 (16,989,739
shares). Historical 1993 per share data is based on the equivalent number
of shares assuming all unit holders elected to receive shares in the
Consolidation (20,500,000 shares).
</TABLE>
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Shurgard Incorporated
Seattle, Washington
We have audited the accompanying statement of assets and liabilities of the
property management, acquisition, development and advisory business of Shurgard
Incorporated (the "Management Company") as of December 31, 1993, and the related
statement of revenues and expenses of the Management Company for the year ended
December 31, 1993. These financial statements are the responsibility of Shurgard
Incorporated's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the assets and liabilities of the Management Company of Shurgard
Incorporated as of December 31, 1993, and the revenues and expenses of the
Management Company for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
December 16, 1994
F-14
<PAGE>
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1992 1993 1994
---------- ------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............... $1,349 $ 53 $ 888
Due from affiliates..................... 671 839 1,404
Partnership consolidation costs
receivable............................. 1,546 4,447
Other................................... 40 90 85
---------- ------- -------------
Total................................. 3,606 5,429 2,377
FIXED ASSETS, net of accumulated
depreciation of $949, $1,063 and
$1,226................................... 462 7,612 7,570
OTHER..................................... 364 1,154 1,506
---------- ------- -------------
$4,432 $14,195 $11,453
---------- ------- -------------
---------- ------- -------------
CURRENT LIABILITIES
Lines of credit......................... $ 299 $ 50
Accounts payable........................ 289 256 $ 286
Accrued salaries and expenses........... 513 808 563
Accrued partnership consolidation
costs.................................. 728 2,520
Accrued profit sharing.................. 281 226 430
---------- ------- -------------
Total................................. 2,110 3,860 1,279
LONG-TERM DEBT............................ -- 7,275 7,275
COMMITMENTS AND CONTINGENCIES (Notes H and
J)
MANAGEMENT COMPANY EQUITY................. 2,322 3,060 2,899
---------- ------- -------------
$4,432 $14,195 $11,453
---------- ------- -------------
---------- ------- -------------
</TABLE>
See notes to financial statements
F-15
<PAGE>
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
STATEMENTS OF REVENUES AND EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------- SEPTEMBER 30,
1991 1992 1993 1994
----------- ----------- ------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Management fees........................... $4,606 $5,630 $6,448 $5,419
Acquisition and development fees.......... 611 473 86 26
Reimbursements from affiliates............ 1,201 1,086 1,466 1,798
Rental revenues........................... 48 776
----------- ----------- ------ -------------
Total................................. 6,418 7,189 8,048 8,019
EXPENSES
Personnel................................. 3,760 4,348 4,803 3,942
General and administrative................ 918 1,218 1,353 1,167
Travel.................................... 369 399 507 388
Rent...................................... 350 359 410 301
----------- ----------- ------ -------------
Total................................. 5,397 6,324 7,073 5,798
----------- ----------- ------ -------------
EXCESS FROM MANAGEMENT COMPANY OPERATIONS... 1,021 865 975 2,221
OTHER INCOME (EXPENSE)
Interest expense.......................... (55) (8) (36) (528)
Equity in earnings of affiliated
partnerships............................. 163 160 243 226
Interest income........................... 37 43 124 81
Gain on sale of land...................... 337
----------- ----------- ------ -------------
Total................................. 145 532 331 (221)
----------- ----------- ------ -------------
EXCESS FROM MANAGEMENT COMPANY.............. $1,166 $1,397 $1,306 $2,000
----------- ----------- ------ -------------
----------- ----------- ------ -------------
</TABLE>
See notes to financial statements
F-16
<PAGE>
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements have been
prepared in connection with the Agreement and Plan of Merger (the "Merger
Agreement") between Shurgard Incorporated ("Shurgard") and Shurgard Storage
Centers, Inc. ("SSCI") under which SSCI would effectively acquire Shurgard's
property management, acquisition, development and advisory business (the
"Management Company") in exchange for common stock of SSCI. The merger is
subject to the approval of the shareholders of SSCI and Shurgard.
The accompanying financial statements have been prepared from the books and
records of Shurgard and present the assets and liabilities of the Management
Company as of December 31, 1993 and 1992 and September 30, 1994, and the related
revenues and expenses for the years ended December 31, 1993, 1992 and 1991 and
the period ended September 30, 1994. Accordingly, these statements do not
purport to represent the financial position or results of operations of Shurgard
or any of its subsidiaries.
The statement of revenues and expenses of the Management Company to be
merged into SSCI may not necessarily be indicative of the revenues and expenses
that would have resulted had the operations of the Management Company functioned
as a stand-alone entity. The financial statements exclude the effects of income
taxes, and, in accordance with the Agreement, to the extent that an asset or
liability for income taxes of the Management Company exists at the closing date
of the Merger, such amounts will be added to or deducted from the purchase price
as such taxes are intended to be neutral to SSCI.
The statements of assets and liabilities as of December 31, 1992 and 1991
and September 30, 1994 and the statements of revenues and expenses for the years
ended December 31, 1992 and 1991 and the nine months ended September 30, 1994,
which are included in this report, are unaudited. In the opinion of Shurgard's
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.
BUSINESS: The Management Company includes the ownership, operation and
management of storage centers, as well as acquisition, development and advisory
services. The Management Company earns revenues, fees and reimbursements for:
- Management of property operations. The Management Company generally
earns a monthly management fee based on a percentage of gross revenues.
- Acquisition and development of self-storage properties. The Management
Company is generally compensated for these services when provided to
affiliates based on a fixed percentage of gross proceeds from the offering
of partnership interests or of invested capital.
- Reimbursement of allowable costs. Under the terms of the affiliated
partnership and SSCI agreements, certain costs are reimbursable to the
Management Company for services, such as construction management, legal
services, computer support and national marketing programs.
- Advisory services. Under agreements with SSCI, the Management Company
provides certain advisory services with respect to SSCI's investments and
provides the day-to-day administrative functions of SSCI. The Management
Company is compensated for these services based on the value of certain
assets acquired after March 1, 1994.
F-17
<PAGE>
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS: Cash equivalents consist of money market instruments with
original maturities of 90 days or less.
LAND, BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS: The Management
Company owns and operates a storage center located in Daly City, California.
Depreciation is provided for on the straight-line method over the estimated
useful lives of the building, furniture and fixtures, equipment and vehicles as
follows:
<TABLE>
<S> <C>
Building...................................... 39 years
Furniture and fixtures........................ 5 to 7 years
Equipment and vehicles........................ 3 to 7 years
</TABLE>
Leasehold improvements are depreciated over the life of the related lease.
Land includes $206,364 of excess land held for sale.
NOTE B -- TRANSACTIONS WITH AFFILIATES
Prior to March 1, 1994, substantially all of the Management Company's fees
and reimbursements were generated from services performed for affiliated
partnerships in which the majority shareholders of Shurgard held limited
partnership or general partnership interests. The Management Company provides a
variety of services for the partnerships as discussed in Note A.
On March 1, 1994, 17 of the affiliated partnerships were consolidated into
SSCI. At that time Shurgard signed various agreements with SSCI, which will be
included in the Management Company, under which agreements the Management
Company manages and advises SSCI. For the period ended September 30, 1994, 47%
of total revenues was earned from SSCI; 53% was earned from the remaining
affiliated partnerships.
Due from affiliates consists of property management fees, cost
reimbursements and acquisition fees payable by affiliated partnerships or by
SSCI; such amounts are payable on demand.
NOTE C -- ACQUISITION
On December 16, 1993, the Management Company purchased the Daly City storage
center, located near San Francisco, California, from a nonaffiliated entity for
$7,200,000 plus closing costs. The purchase was funded with proceeds of a
$7,275,000 nonrecourse mortgage note payable to a commercial insurance company
and cash. This loan is a participating mortgage, which is nonamortizing and
matures January 1, 2004. The loan requires: (a) monthly fixed interest only
payments at 8% per annum and (b) quarterly additional interest payments of 90%
of net cash flow, as defined in the loan agreement. Additional interest of
$99,353 was paid for the nine months ended September 30, 1994. No additional
interest was paid in 1993. The loan is secured by a deed of trust on the
property and an assignment of leases.
The acquisition was accounted for as a purchase, and, accordingly, the cost
was allocated based on fair value as follows (in thousands):
<TABLE>
<S> <C>
Land.............................................. $1,713
Buildings......................................... 5,428
Furniture, fixtures and equipment................. 24
Intangible assets................................. 73
------
$7,238
------
------
</TABLE>
F-18
<PAGE>
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE C -- ACQUISITION (CONTINUED)
The following is unaudited pro forma combined revenues, expenses and excess
from Management Company operations for the year as if the property had been
acquired on January 1, 1992:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1992 1993
------ ------
<S> <C> <C>
Revenues.......................................... $8,132 $8,969
Expenses.......................................... (7,400) (7,587)
------ ------
Excess from Management Company operations......... (732) (1,382)
Other Income (Expense)............................ 532 (221)
------ ------
Excess from Management Company.................... $1,264 $1,161
------ ------
------ ------
</TABLE>
The pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted for the full year and is not intended to be a projection of future
results.
NOTE D -- PARTNERSHIP CONSOLIDATION COSTS RECEIVABLE
Partnership consolidation costs receivable consist of direct out-of-pocket
costs such as appraisals and legal fees incurred in connection with the
consolidation of 17 affiliated public limited partnerships into SSCI. The
consolidation closed in March 1994 and partnership consolidation costs were paid
to the Management Company on March 4, 1994.
NOTE E -- OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS
------------ ENDED
1992 1993 SEPTEMBER 30, 1994
---- ------ ------------------
<S> <C> <C> <C>
Storage center management system... $101 $ 835 $1,017
Other.............................. 263 319 489
---- ------ -------
$364 $1,154 $1,506
---- ------ -------
---- ------ -------
</TABLE>
The storage center management system represents costs incurred in the
development of software, the cost of which, beginning in 1995, will be
reimbursed to the Management Company by affiliated entities after the system is
fully installed.
NOTE F -- LINE OF CREDIT AND LONG-TERM DEBT
The Management Company's line of credit agreement with a commercial bank
provides for borrowings of up to $5,000,000 and expires in June 1995. The
agreement requires monthly payments of interest at the bank's prime rate plus
0.5% (8.0% at September 30, 1994) and is secured by accounts receivable,
equipment and other assets of the Management Company. The agreement contains
restrictive covenants that, among others, (a) require that the Management
Company maintain minimum levels of working capital and tangible net worth and
(b) prohibit the declaration or payment of dividends to shareholders without
prior consent.
Long-term debt is comprised of the $7,275,000 mortgage note payable
described in Note C.
F-19
<PAGE>
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE G -- FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS
-------------- ENDED
1992 1993 SEPTEMBER 30, 1994
------ ------ ------------------
<S> <C> <C> <C>
Land............................. $ 205 $1,919 $1,919
Buildings........................ 5,460 5,460
Furniture, fixtures and
equipment....................... 1,034 1,131 1,262
Leasehold improvements........... 172 165 165
------ ------ -------
1,411 8,675 8,806
Less accumulated depreciation.... 949 1,063 1,236
------ ------ -------
$ 462 $7,612 $7,570
------ ------ -------
------ ------ -------
</TABLE>
NOTE H -- COMMITMENTS
Shurgard has entered into several operating leases for district offices,
which leases continue through 1998. Monthly lease payments are based on fixed
rates adjusted by negotiated periodic increases. Future minimum payments under
these noncancellable operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1994.............................................. $ 367
1995.............................................. 371
1996.............................................. 324
1997.............................................. 250
1998.............................................. 176
------
$1,488
------
------
</TABLE>
Shurgard has entered into buy-sell agreements with certain Management
Company employees under which the employees purchased 561,174 shares of
Shurgard's stock. Shurgard is obligated to repurchase such stock upon
termination of employment or certain other conditions. The repurchase price will
be determined in accordance with a formula in the buy-sell agreements that is
based on fair value as determined by annual independent valuation. These
agreements will be cancelled prior to the Merger.
In October 1994, the Management Company signed a letter of intent to invest
in a Belgian company that will develop and operate storage centers in the
Benelux region of Europe. Pursuant to that letter, the Management Company has
made a $250,000 working capital loan to Shurgard Benelux SA and has committed to
loan an additional $500,000.
In conjunction with the Merger, the Management Company committed to fund one
of its subsidiaries. At December 16, 1994, $1.6 million of this commitment
remained.
NOTE I -- EMPLOYEE BENEFIT PLANS
The Management Company employees participate in Shurgard's employee stock
ownership ("ESOP") and incentive savings ("401(k)") plans that cover
substantially all employees of the Management Company. Under the ESOP, Shurgard,
at the discretion of its Board of Directors, may contribute a portion of the
employee profit-sharing awards to the ESOP in cash or in qualified securities of
Shurgard. Under the 401(k) plan, each year employees may contribute between 1%
and
F-20
<PAGE>
MANAGEMENT COMPANY OF SHURGARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
15% of their annual compensation to the plan. Shurgard, at its sole discretion,
may match a portion of the employees' contribution. In the years ended December
31, 1992 and 1993 and the nine months ended September 30, 1994, Shurgard made
contributions to the ESOP on behalf of Management Company employees of
approximately $16,000, $39,000 and $37,000, respectively; no contribution was
made in 1991. Under the Merger Agreement, the ESOP and 401(k) plan will be
continued by SSCI.
NOTE J -- CONTINGENCIES
Shurgard is the general partner of Shurgard Limited Edition I, a partnership
which owns a storage center. The Management Company has guaranteed 20% of the
outstanding long-term debt, which total debt was $1,211,000 at September 30,
1994, and is secured by real estate.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
Entities Listed in Note A
Seattle, Washington
We have audited the accompanying combined balance sheets of 17 limited
partnerships (the "Partnerships") described in Note A, as of December 31, 1993
and 1992, and the related combined statements of earnings, partners' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Partnerships as of December 31,
1993 and 1992, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
December 16, 1994
F-22
<PAGE>
THE PARTNERSHIPS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1992 1993 MARCH 1, 1994
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................. $ 9,859 $ 9,057 $ 76,546
Stock in Shurgard Storage Centers, Inc.... 315,007
Storage centers........................... 382,494 375,035
Other assets.............................. 7,829 9,890 132
-------- -------- -------------
Total assets.......................... $400,182 $393,982 $391,685
-------- -------- -------------
-------- -------- -------------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued expenses... $ 3,598 $ 5,407 $ --
Accrued consolidation expense........... 3,879
Unearned rent and tenant deposits....... 2,291 2,188
Accrued real estate taxes............... 2,134 2,330
Distributions payable................... 391,685
Lines of credit......................... 1,570 4,190
Notes payable........................... 22,795 21,826
-------- -------- -------------
Total liabilities..................... 32,388 39,820 391,685
-------- -------- -------------
Partners' equity (deficit):
Limited partners........................ 368,292 354,787
General partners........................ (498) (625)
-------- -------- -------------
Total partners' equity................ 367,794 354,162
-------- -------- -------------
Total liabilities and partners'
equity............................. $400,182 $393,982 $391,685
-------- -------- -------------
-------- -------- -------------
</TABLE>
See notes to combined financial statements
F-23
<PAGE>
THE PARTNERSHIPS
COMBINED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------- JANUARY 1, 1994 TO
1991 1992 1993 MARCH 1, 1994
------- ------- ------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
RENTAL REVENUE
Rental........................ $59,142 $66,994 $72,217 $12,348
Other......................... 1,625 79 93 15
------- ------- ------- --------
Total....................... 60,767 67,073 72,310 12,363
EXPENSES
Operating..................... 13,847 15,554 16,843 2,956
Property management fees...... 3,695 4,145 4,695 733
Depreciation.................. 12,987 13,311 13,665 2,347
Real estate taxes............. 6,216 7,067 7,066 1,170
Amortization.................. 455 246 258 43
Administrative................ 2,206 2,359 2,390 1,232
------- ------- ------- --------
Total....................... 39,406 42,682 44,917 8,481
------- ------- ------- --------
EARNINGS FROM OPERATIONS........ 21,361 24,391 27,393 3,882
------- ------- ------- --------
OTHER INCOME AND EXPENSES
Interest and other income..... 649 317 590 188
Gain on sale of real estate... 946
Interest expense.............. (2,545) (2,347) (2,288) (487)
Loss on condemnation.......... (306)
Incentive management fees..... (5,340)
Gain on consolidation......... 48,223
Litigation, hostile takeover
defense and consolidation
expenses..................... (7,411) (12,180)
------- ------- ------- --------
(950) (2,336) (9,109) 30,404
------- ------- ------- --------
EARNINGS........................ $20,411 $22,055 $18,284 $34,286
------- ------- ------- --------
------- ------- ------- --------
EARNINGS PER UNIT OF LIMITED
PARTNERSHIP INTEREST........... $38.08 $41.15 $34.08 $63.97
------- ------- ------- --------
------- ------- ------- --------
DISTRIBUTIONS PER UNIT OF
LIMITED PARTNERSHIP INTEREST... $60.45 $56.71 $59.57 $732.05
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
See notes to combined financial statements
F-24
<PAGE>
THE PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Balance, January 1, 1991........................ $ 388,417 $ (317) $ 388,100
Distributions................................... (32,075) (313) (32,388)
Earnings........................................ 20,207 204 20,411
--------- -------- ---------
Balance, December 31, 1991...................... 376,549 (426) 376,123
Distributions................................... (30,092) (293) (30,385)
Earnings........................................ 21,835 221 22,056
--------- -------- ---------
Balance, December 31, 1992...................... 368,292 (498) 367,794
Distributions................................... (31,606) (310) (31,916)
Earnings........................................ 18,101 183 18,284
--------- -------- ---------
Balance, December 31, 1993...................... 354,787 (625) 354,162
Distributions................................... (388,432) (4,018) (392,450)
Contribution.................................... 4,002 4,002
Earnings........................................ 33,645 641 34,286
--------- -------- ---------
Balance, March 1, 1994 (unaudited).............. $ -- $ -- $ --
--------- -------- ---------
--------- -------- ---------
</TABLE>
See notes to combined financial statements
F-25
<PAGE>
THE PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
---------------------------- JANUARY 1, 1994
1991 1992 1993 TO MARCH 1, 1994
-------- -------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Earnings......................................... $ 20,411 $ 22,055 $ 18,284 $ 34,286
Adjustments to reconcile earnings to net cash
provided by operating activities:
Depreciation and amortization.................. 13,442 13,557 13,923 2,679
Gain on consolidation.......................... (48,223)
Loss on condemnation........................... 306
Gain on sale of real estate.................... (946)
Changes in operating accounts:
Other assets................................. (191) (431) (2,594) 6,314
Accounts payable and accrued expenses........ 644 22 2,135 (1,565)
Accrued real estate taxes.................... 423 (89) 235 (1,119)
Accrued consolidation expense................ 3,879 10,387
Unearned rent and tenant deposits............ 296 (50) (102) 249
-------- -------- -------- ----------------
Net cash provided by operating activities...... 34,079 35,370 35,760 3,008
-------- -------- -------- ----------------
INVESTING ACTIVITIES
Purchase of and improvements to storage
centers......................................... (4,084) (5,364) (5,888) (905)
Proceeds from sale of real estate and
equipment....................................... 7,696
Proceeds from consolidation...................... 65,945
Consideration for amortizable assets............. (393)
Improvements to real estate held for resale...... (188)
Distributions in excess of earnings from
investment in joint partnership................. 224 306
-------- -------- -------- ----------------
Net cash provided by (used in) investing
activities.................................... 3,031 (5,140) (5,582) 65,040
-------- -------- -------- ----------------
FINANCING ACTIVITIES
Distributions to partners........................ (32,388) (30,384) (31,916) (764)
Distributions to minority interest in joint
partnership..................................... (279) (577) (711)
Proceeds from lines of credit.................... 2,620 680
Proceeds from notes payable...................... 5,325 2,125 350
Payment of loan costs............................ (167) (26) (4)
Payments on notes payable........................ (6,106) (2,756) (969) (825)
-------- -------- -------- ----------------
Net cash used in financing activities.......... (33,615) (31,618) (30,980) (559)
-------- -------- -------- ----------------
Increase (decrease) in cash and short-term
investment...................................... 3,495 (1,388) (802) 67,489
Cash and cash equivalents at beginning of
period.......................................... 7,752 11,247 9,859 9,057
-------- -------- -------- ----------------
Cash and cash equivalents at end of period....... $ 11,247 $ 9,859 $ 9,057 $ 76,546
-------- -------- -------- ----------------
-------- -------- -------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during year for interest............... $ 2,619 $ 2,349 $ 2,287 $--
-------- -------- -------- ----------------
-------- -------- -------- ----------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES
Liabilities incurred in connection with the
construction of storage centers................. $ 3,130 $ 973 $ 206 $--
-------- -------- -------- ----------------
-------- -------- -------- ----------------
Liabilities assumed by purchaser in connection
with the sale of real estate.................... $ 183 $ -- $ -- $--
-------- -------- -------- ----------------
-------- -------- -------- ----------------
Receivables netted against the final payment for
the purchase of a storage center................ $ 1,328 $ -- $ -- $--
-------- -------- -------- ----------------
-------- -------- -------- ----------------
</TABLE>
See notes to combined financial statements
F-26
<PAGE>
THE PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD ENDED MARCH 1, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: These combined financial statements include the
accounts of the 17 publicly held limited partnerships sponsored by Shurgard
Incorporated ("Shurgard") as follows:
Shurgard Mini-Storage Limited Partnership I
Shurgard Income Properties II
Shurgard Income Properties III, a Real Estate Limited Partnership
Shurgard Income Properties IV, a Real Estate Limited Partnership
Shurgard Income Properties Five, a Real Estate Limited Partnership
Shurgard Income Properties Six, a Real Estate Limited Partnership
Shurgard Income Properties Seven, a Real Estate Limited Partnership
Shurgard Income Properties Eight, a Real Estate Limited Partnership
Shurgard Income Properties Nine, a Real Estate Limited Partnership
Shurgard Income Properties Ten, a Real Estate Limited Partnership
Shurgard Income Properties Eleven, a Real Estate Limited Partnership
Shurgard Income Properties Twelve, a Real Estate Limited Partnership
Shurgard Income Properties -- Fund 14 Limited Partnership
Shurgard Growth Capital -- Fund 15 Limited Partnership
Shurgard Income Properties -- Fund 16 Limited Partnership
Shurgard Growth Capital -- Fund 17 Limited Partnership
Shurgard Income Properties -- Fund 18 Limited Partnership
Each partnership is hereinafter referred to as "Shurgard 1," "Shurgard 2,"
etc., and collectively as the "Partnerships."
The combined statements include the accounts of Shurgard 1 and Shurgard 5
through Shurgard 18 for each of the three years ended December 31, 1993 and the
accounts of Shurgard 2, Shurgard 3 and Shurgard 4 for each of the three years in
the period ended September 30, 1993, as these partnerships have September 30
fiscal year-ends.
The financial statements for the period ended March 1, 1994, which are
included in this report, are unaudited. In the opinion of management, all
adjustments necessary for the fair presentation of such financial statements
have been included, which adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
On March 1, 1994, the Partnerships were consolidated into Shurgard Storage
Centers, Inc. ("SSCI") through a roll-up transaction approved by the partners.
Each of the Partnerships received stock in SSCI or cash for its units of
partnership interest. Such cash and stock were distributed to the partners in
March 1994, at which time the Partnerships ceased to exist. In conjunction with
this transaction the Partnerships recognized a gain on consolidation of $48.2
million. Additionally, the Partnerships paid $5.3 million of incentive
management fees to Shurgard and incurred $12 million of costs for litigation,
hostile takeover defense and other professional fees related to the
consolidation.
All interpartnership balances and transactions have been eliminated upon
combination.
CASH EQUIVALENTS: Cash equivalents consist of money market instruments with
maturities of 30 days or less.
F-27
<PAGE>
THE PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD ENDED MARCH 1, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STORAGE CENTERS: Storage centers, including land, buildings and equipment,
are recorded at cost. Depreciation on buildings and equipment is recorded on a
straight-line basis over their estimated useful lives, which range from three to
thirty-one years.
RENTAL REVENUE: Rental revenue is recognized as earned under accrual
accounting principles.
TAXES ON INCOME: The financial statements do not reflect a provision for
federal income taxes because such taxes are the responsibility of the individual
partners.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST: Earnings per unit of
limited partnership interest is based on earnings allocated to the limited
partners divided by the number of limited partnership units outstanding during
the year (530,607 for the years ended December 31, 1991, 1992 and 1993 and the
period ended March 1, 1994).
DISTRIBUTIONS PER UNIT OF LIMITED PARTNERSHIP INTEREST: Distributions per
unit of limited partnership interest is based on the total amount distributed to
the limited partners divided by the number of limited partnership units
outstanding during the year (530,607 for the years ended December 31, 1991, 1992
and 1993 and the period ended March 1, 1994).
NOTE B -- STORAGE CENTERS
Storage centers consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1992 1993
-------- --------
<S> <C> <C>
Land.................................... $ 91,467 $ 91,868
Buildings............................... 358,119 363,918
Equipment............................... 12,521 13,612
-------- --------
462,107 469,398
Less accumulated depreciation........... (80,700) (94,363)
-------- --------
381,407 375,035
Construction in progress................ 1,087
-------- --------
$382,494 $375,035
-------- --------
-------- --------
</TABLE>
F-28
<PAGE>
THE PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD ENDED MARCH 1, 1994
NOTE C -- NOTES PAYABLE
Notes payable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1992 1993
------- -------
<S> <C> <C>
11% note, secured by real estate,
payable in monthly installments of
$68,608, including principal and
interest. This note was repaid on March
1, 1994................................ $ 5,778 $ 5,580
Adjustable note payable to a commercial
bank, secured by a deed of trust on a
storage center. Payable in monthly
installments of $17,434, including
principal and interest, due June 1998.
Interest rate at December 31, 1993 was
5.96%. The note was assumed by SSCI on
March 1, 1994.......................... 2,339 2,270
Fixed rate mortgage notes payable,
interest rates range from 9.25% to 11%,
with a weighted average rate of 10.38%
at December 31, 1993. Notes were either
repaid or assumed by SSCI on March 1,
1994................................... 6,841 6,586
Variable rate mortgage notes payable,
interest rates at December 31, 1993
ranged from 5.96% to 10.69%, with a
weighted average rate of 8.38%. Notes
were either repaid or assumed by SSCI
on March 1, 1994....................... 7,656 7,222
Other................................... 181 168
------- -------
$22,795 $21,826
------- -------
------- -------
</TABLE>
NOTE D -- LINES OF CREDIT
The Partnerships had various lines of credit totaling $5,675,000, secured by
real estate, that bore interest at .5% above the prime rate (6.5% at December
31, 1993) due monthly. The lines of credit were assumed by SSCI in connection
with the consolidation.
NOTE E -- TRANSACTIONS WITH AFFILIATES
In connection with the management of the storage centers, the Partnerships
have paid to Shurgard a property management fee of 6% of rental revenues.
F-29
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF MERGER
BETWEEN
SHURGARD STORAGE CENTERS, INC.,
a Delaware corporation,
and
SHURGARD INCORPORATED,
a Washington corporation,
dated as of
December 19, 1994
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 DEFINITIONS..................................................... 1
ARTICLE 2 THE MERGER; EFFECTIVE TIME; CLOSING............................. 6
2.1 The Merger....................................................... 6
2.2 Closing.......................................................... 6
2.3 Effective Time................................................... 6
ARTICLE 3 TERMS OF MERGER................................................. 7
3.1 Certificate of Incorporation..................................... 7
3.2 By-laws.......................................................... 7
3.3 Directors........................................................ 7
3.4 Officers......................................................... 7
ARTICLE 4 MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES;
ADJUSTMENTS............................................................... 7
4.1 Share Consideration; Conversion or Cancellation of Shares........ 7
4.2 Payment for Shares in the Merger................................. 9
4.3 Fractional Shares................................................ 10
4.4 Transfer of Shares After the Effective Time...................... 10
4.5 Lost, Stolen or Destroyed Certificates........................... 10
4.6 Dissenters' Rights............................................... 10
4.7 Additional Consideration......................................... 11
4.8 Indemnification Shares; Claims Against the Escrow................ 14
4.9 Appointment of Shareholders' Representatives..................... 16
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF MANAGEMENT COMPANY............
17
5.1 Organization, Etc. of Management Company......................... 17
5.2 Partnerships..................................................... 18
5.3 Agreement........................................................ 18
5.4 Capital Stock.................................................... 18
5.5 Litigation....................................................... 19
5.6 Compliance With Other Instruments, Etc........................... 19
5.7 Compensation and Employee Matters................................ 19
5.8 Employee Benefit Plans........................................... 19
5.9 Labor Matters.................................................... 21
5.10 Taxes............................................................ 21
5.11 Intellectual Property............................................ 21
5.12 Financial Statements............................................. 22
5.13 Absence of Certain Changes or Events............................. 22
5.14 Books and Records................................................ 23
5.15 Contracts and Leases............................................. 23
5.16 Title to Properties; Encumbrances................................ 23
5.17 Real Property.................................................... 23
5.18 Environmental Laws and Regulations............................... 24
5.19 Affiliated Transactions.......................................... 24
5.20 Brokers and Finders.............................................. 24
5.21 S-4 Registration Statement and Proxy Statement/Prospectus........ 25
5.22 Insurance........................................................ 25
5.23 Disclosure....................................................... 26
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SHURGARD REIT................. 26
6.1 Organization, Etc. of Shurgard REIT.............................. 26
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
6.2 Subsidiaries..................................................... 26
6.3 Agreement........................................................ 27
6.4 Capital Stock.................................................... 27
6.5 Authorization for Shurgard REIT Common Shares.................... 27
6.6 Litigation....................................................... 27
6.7 Compliance With Other Instruments, Etc........................... 28
6.8 Reports and Financial Statements................................. 28
6.9 Brokers and Finders.............................................. 29
6.10 S-4 Registration Statement and Proxy Statement/Prospectus........ 29
6.11 Disclosure....................................................... 29
ARTICLE 7 ADDITIONAL COVENANTS AND AGREEMENTS............................. 29
7.1 Conduct of Business of Management Company........................ 29
7.2 Other Transactions............................................... 31
7.3 Meetings of Shareholders and Stockholders........................ 32
7.4 Registration Statement/Proxy Materials........................... 32
7.5 Filings; Other Action............................................ 33
7.6 Access to Information............................................ 33
7.7 Listing Application.............................................. 33
7.8 Affiliates of Management Company................................. 33
7.9 Tax Matters...................................................... 34
7.10 InterMation Spin-Off............................................. 35
7.11 Shurgard Realty Advisors......................................... 35
7.12 Management and Advisory Agreements............................... 36
7.13 Intellectual Property Rights..................................... 36
7.14 Employees........................................................ 36
7.15 Reorganization................................................... 36
7.16 Public Statements................................................ 36
7.17 ESOP............................................................. 36
7.18 Letter of Shurgard's Accountants................................. 37
7.19 Opinion of Financial Advisor..................................... 37
7.20 Notice of Certain Events......................................... 37
7.21 Director and Officer Indemnification............................. 37
7.22 Working Capital.................................................. 37
7.23 Contingent Shares................................................ 37
7.24 Further Action................................................... 38
ARTICLE 8 CONDITIONS...................................................... 38
8.1 Conditions to Each Party's Obligations........................... 38
Conditions to Obligations of Management Company to Effect the
8.2 Merger.......................................................... 40
8.3 Conditions to Obligation of Shurgard REIT to Effect the Merger... 40
ARTICLE 9 TERMINATION..................................................... 41
9.1 Termination by Mutual Consent.................................... 41
9.2 Termination by Either Shurgard REIT or Management Company........ 41
9.3 Effect of Termination and Abandonment............................ 42
ARTICLE 10 MISCELLANEOUS AND GENERAL...................................... 42
10.1 Expenses......................................................... 42
10.2 Survival......................................................... 43
10.3 Amendments, Waivers, Etc......................................... 43
10.4 No Assignment.................................................... 43
10.5 Entire Agreement................................................. 43
10.6 Specific Performance............................................. 44
10.7 Remedies Cumulative.............................................. 44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
10.8 No Waiver........................................................ 44
10.9 No Third-Party Beneficiaries..................................... 44
10.10 Jurisdiction..................................................... 44
10.11 Governing Law.................................................... 44
10.12 Name, Captions, Etc.............................................. 44
10.13 Severability..................................................... 44
10.14 Counterparts..................................................... 45
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December 19,
1994, by and between Shurgard Storage Centers, Inc., a Delaware corporation
("Shurgard REIT"), and Shurgard Incorporated, a Washington corporation
("Management Company").
RECITALS
WHEREAS, the respective Boards of Directors of Shurgard REIT and Management
Company have determined that it is in the best interests of their respective
stockholders and shareholders for Management Company to merge with and into
Shurgard REIT (the "Merger"), upon the terms and subject to the conditions of
this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties desire to make certain representations, warranties, and
agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
and agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below:
"Acquisition Proposal": As defined in Section 7.2.
"Adjustment Indemnification Period": As defined in Section 4.8(c).
"Adjustment Indemnification Shares": As defined in Section 4.8(c).
"Affiliate": As defined in Rule 12b-2 under the Exchange Act.
"Affiliate Letter": As defined in Section 7.8(a).
"Alex. Brown": Alex. Brown & Sons Incorporated.
"Appraised Amount": As defined in Section 4.7.
"Articles of Merger": The articles of merger with respect to the Merger
containing the provisions required by, and executed in accordance with, RCW
23B.11.050.
"Associates": As defined in Section 4.9(b).
"Audit": As defined in Section 4.1(d).
"Authorization": Any consent, approval or authorization of, expiration or
termination of any waiting period requirement (including pursuant to the HSR
Act) by, or filing, registration, qualification, declaration or designation
with, any Governmental Body.
"Barbo": Charles K. Barbo.
"Barbo Trust": Charles K. and Linda K. Barbo Trust dated December 10, 1991.
"Benefit Arrangement": As defined in Section 5.8(a).
"Benelux": Shurgard Benelux SA, a Belgian corporation.
"Benelux SCS": a Belgian Societe en Commandite Simple.
1
<PAGE>
"Buerk": Arthur W. Buerk.
"Business Combination": As defined in Section 4.1(a).
"Certificate of Merger": The certificate of merger with respect to the
Merger containing the provisions required by, and executed in accordance with,
DGCL Section 252.
"Certificates": As defined in Section 4.1(b).
"Change in Control": For purposes of this Agreement, a change in control
shall be deemed to occur on the earlier of (i) first date of public announcement
by Shurgard REIT or an Acquiring Person (as such term is defined in the Rights
Agreement) that an Acquiring Person has become such; or (ii) the first date on
which Shurgard REIT or any other Person publicly announces (a) the agreement by
Shurgard REIT to consolidate with, or merge with and into any other person (b)
the agreement of any Person to consolidate with Shurgard REIT, or merge with and
into Shurgard REIT and in connection with such merger all or part of the
Shurgard REIT Common Shares are to be changed into or exchanged for stock or
other securities of any other Person (or Shurgard REIT) or cash or any other
property, or (c) Shurgard REIT's agreement to sell or otherwise transfer, in one
or more transactions, assets or earning power aggregating 50% or more of the
assets or earning power of Shurgard REIT and its subsidiaries (taken as a whole)
to any other Person other than Shurgard REIT or one or more of its wholly-owned
subsidiaries.
"Change in Control Date": The date a Change in Control shall be deemed to
occur.
"Closing": The closing of the Merger.
"Closing Date": The date on which the Closing occurs.
"Closing Statement": As defined in Section 4.1(d).
"Closing Statement Date": As defined in Section 4.1(d).
"Code": The Internal Revenue Code of 1986, as amended.
"Contingent Amount": As defined in Section 4.7(e).
"Contingent Partnerships": As defined in Section 4.7(a).
"Contingent Share Closing Date": As defined in Section 4.7(c).
"Contingent Share Period": As defined in Section 4.7(d).
"Contingent Shares": As defined in Section 4.7(a).
"Contingent Shares Agreement": As defined in Section 4.7(g).
"DGCL": The Delaware General Corporation Law.
"Damages": "Damages" means any provable or ascertainable loss, liability,
damage, cost, obligation or expense (including reasonable costs of
investigation, defense and prosecution of litigation and attorneys' fees)
incurred by Shurgard REIT, net of any tax benefits and insurance or
indemnification recoveries (other than those received pursuant to this
Agreement) received or entitled to be received by Shurgard REIT with respect
thereto, after reasonable efforts to mitigate such loss, liability, damages,
cost, obligation or expense.
"Daniels": Donald B. Daniels.
"Deemed Distribution": As defined in Section 4.7.
"Disposition": As defined in Section 4.7(a).
"Distribution": As defined in Section 4.7(a).
"Effective Time": As defined in Section 2.3.
2
<PAGE>
"Employee Plan": As defined in Section 5.8(a).
"Employees": As defined in Section 5.8(a).
"ERISA": The Employee Retirement Income Security Act of 1974, as amended,
and all regulations promulgated thereunder, as in effect from time to time.
"ERISA Affiliates": Any trade or business, whether or not incorporated, that
is now or has at any time in the past been treated as a single employer with
Management Company or any of its Subsidiaries under Section 414(b) or (c) of the
Code and the Treasury Regulations thereunder.
"ESOP": As defined in Section 5.8(f).
"Excess Stock": As defined in the Shurgard REIT Restated Certificate of
Incorporation.
"Exchange": Either the National Association of Securities Automated
Quotations National Market or the national securities exchange (as defined in
Section 12(b) of the Exchange Act) upon which the Shurgard REIT Common Shares
are then listed for trading.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Final Determination": (a) (i) A decision of the United States Tax Court,
which has become final and non-appealable, or (ii) a judgment, decree, or other
order by another court or other tribunal with appropriate jurisdiction, which
has become final and non-appealable; (b) a final and binding settlement or
compromise with the Internal Revenue Service or another administrative agency
with appropriate jurisdiction, including, but not limited to, a closing
agreement under Section 7121 of the Code; (c) a deficiency assessment or other
determination which is not protested or appealed by the taxpayer within the
appropriate period for protest or appeal and which therefore has become final
and non-appealable; or (d) any final disposition by reason of the expiration of
all applicable statutes of limitations.
"Final Statement": As defined in Section 4.1(d).
"Governmental Body": Any federal, state, municipal, political subdivision or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"HSR Act": The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Increase": As defined in Section 4.1(d).
"Indemnification Escrow Agent": As defined in Section 4.8(a).
"Indemnification Escrow Agreement": As defined in Section 4.8(a).
"Indemnification Period": As defined in Section 4.8(b).
"Indemnification Shares": As defined in Section 4.8(a).
"Independent Expert": As defined in Section 4.1(d).
"InterMation": InterMation, Inc., a Washington corporation and subsidiary of
Management Company.
"InterMation Spin-Off": As defined in Section 7.10.
"InterMation Spin-Off Opinion": As defined in Section 8.2(b).
"Knowledge": The term "knowledge" or "best knowledge" and any derivatives
thereof when applied to any party to this Agreement shall refer to the knowledge
which such party or any director, officer of senior manager thereof has or could
reasonably be expected to have as a result of the conduct of its business or the
performance of his or her duties in the ordinary course, but no information
known by any other employee, or any attorney, accountant or other
representative, of such party shall be imputed to such party.
3
<PAGE>
"Litigation Parties": As defined in Section 10.1.
"Majority Interest": As defined in Section 4.9.
"Management Company": Shurgard Incorporated, a Washington corporation.
"Management Company Common Stock": Common Stock, par value $.01 per share,
of Management Company.
"Management Company Disclosure Statement": The disclosure statement dated
the date of this Agreement delivered by Management Company to Shurgard REIT.
"Management Company Equity": As defined in Section 4.1(d).
"Management Company Financial Statements": As defined in Section 5.12.
"Management Company Intellectual Property Rights": All intellectual property
rights in the United States of America or abroad, including, but not limited to,
patents, patent applications, trademarks, trademark applications and
registrations, service marks, service mark applications and registrations,
tradenames, tradename applications and registrations, copyrights, copyright
applications and registrations, licenses, logos, corporate and partnership names
and customer lists, proprietary processes, formulae, inventions, trade secrets,
know-how, development tools and other proprietary rights used by Management
Company, pertaining to any product, software, system or service manufactured,
marketed, licensed, sublicensed, used or sold by Management Company in the
conduct of their business or used, employed or exploited in the development,
license, sale, marketing, distribution or maintenance thereof, and all
documentation and media constituting, describing or relating to the above,
including, but not limited to, manuals, memoranda, know-how, notebooks,
software, records and disclosures.
"Management Company Material Adverse Effect": As defined in Section 5.1.
"Management Company Option Plan": As defined in Section 4.1(c).
"Management Company Proxy Materials": As defined in Section 7.4.
"Management Company Shareholders Meeting": As defined in Section 7.3(a).
"Market Value": For purposes of this Agreement, the per-share value of
Shurgard REIT Common Shares, which shall be the average of its daily closing
price on the Exchange for each of the thirty (30) trading days on which shares
of Shurgard REIT Common Shares were traded immediately preceding (i) the Closing
Date, for purposes of the adjustment, if any, to the Share Consideration (as set
forth in Section 4.1(d) hereof), and the payment of cash, if any, in lieu of
issuance of fractional Shurgard REIT Common Shares (as set forth in Section 4.3
hereof), (ii) the last business day of the relevant fiscal quarter, for purposes
of the calculation of the Contingent Shares (as set forth in Section 4.7(a)
hereof), (iii) the Contingent Share Closing Date, for purposes of the final
calculation of Contingent Shares (as set forth in Section 4.7(b) hereof), or
(iv) the Closing Date for purposes of calculating the amount of Adjustment
Indemnification Shares or Indemnification Shares, if any, to be withheld (as set
forth in Section 4.8 hereof).
"Material Agreements": As defined in Section 515.
"Merged Plan": As defined in Section 7.17.
"Merger": The merger of Management Company with and into Shurgard REIT as
contemplated by Section 2.1.
"Minimum Working Capital": As defined in Section 7.22.
"NASD": The National Association of Securities Dealers, Inc.
"Nomura": Nomura Securities International, Inc.
4
<PAGE>
"October 31 Statement": As defined in Section 4.1(d).
"Option": As defined in Section 4.1(c).
"Over-Statement": As defined in Section 4.1(d).
"Partnerships": As defined in Section 5.2.
"Partnership Facilities": As defined in Section 4.7(a).
"Permitted Liens": As defined in Section 5.16.
"Person": Any individual or corporation, company, partnership, trust,
incorporated or unincorporated association, joint venture or other entity of any
kind.
"Profits": As defined in Section 4.7(b).
"Project Partnerships": As defined in Section 4.7(a).
"Proxy Statement/Prospectus": As defined in Section 7.4.
"Qualified Appraiser": As defined in Section 4.7(d).
"RCW": The Revised Code of Washington.
"Reduction": As defined in Section 4.1(d).
"Representatives": As defined in Section 4.9(a).
"Riddell": Riddell, Williams, Bullitt & Walkinshaw.
"Rights Agreement": The Rights Agreement dated as of March 17, 1994 between
Shurgard REIT and Gemisys Corporation, as Rights Agent.
"Rule 145 Affiliates": As defined in Section 7.8(a).
"S-4 Registration Statement": As defined in Section 7.4.
"SEC": The Securities and Exchange Commission.
"Securities Act": The Securities Act of 1933, as amended.
"Share Consideration": As defined in Section 4.1(a).
"Shareholders Voting Agreement": As defined in Section 7.3(a).
"Shares": Collectively, the shares of Management Company Common Stock.
"Shurgard Realty Advisors": Shurgard Realty Advisors, Inc., a Washington
corporation and wholly-owned subsidiary of Management Company.
"Shurgard REIT": Shurgard Storage Centers, Inc., a Delaware corporation.
"Shurgard REIT Common Shares": Shares of Class A common stock, $0.001 par
value per share, of Shurgard REIT (including any associated purchase rights
pursuant to the Rights Agreement).
"Shurgard REIT Disclosure Statement": The disclosure statement dated the
date of this Agreement delivered by Shurgard REIT to Management Company.
"Shurgard REIT Financial Statements": The financial statements included in
the Shurgard REIT SEC Reports.
"Shurgard REIT Material Adverse Effect": As defined in Section 6.1.
"Shurgard REIT SEC Reports": As defined in Section 6.8.
"Shurgard REIT Stockholders Meeting": As defined in Section 7.3(b).
5
<PAGE>
"Special Committee": The Special Committee of independent members of the
Board of Directors of Shurgard REIT, appointed specifically for the purpose of
negotiating the terms of any proposed merger with Management Company and any
alternatives to such transaction and to make recommendations to the Shurgard
REIT Board of Directors and stockholders with respect to same.
"SRA Letter": As defined in Section 7.11.
"Subsidiary": As to any Person, any other Person of which at least 10% of
the equity or voting interests are owned, directly or indirectly, by such first
Person. Notwithstanding the foregoing, the term "Subsidiary" shall not include
InterMation, Shurgard Realty Advisors, Benelux, Benelux SCS or any Partnership.
"Surviving Corporation": The surviving corporation in the Merger.
"Tax" or "Taxes": Any federal, state, local or foreign income, excise,
sales, capital stock, license, franchise, property, use, gross receipts,
payroll, employment, windfall profits, environmental, holding, social security,
unemployment, estimated, or other tax of any kind whatsoever, including any
interest penalty in addition thereto, whether disputed or not.
"Tax Return": Any return, declaration of estimated tax, tax report, customs
declaration, claim for refund or information return relating to Taxes, including
any amendment thereto.
"Under-Statement": As defined in Section 4.1(d).
"Upper Limit": As defined in Section 4.1(d).
"WBCA": The Washington Business Corporation Act.
"1983 Agreements": The Redemption Agreement, 1983 Shareholder Agreement and
Business Agreement entered into by and between the Management Company, Barbo,
Daniels and Buerk as of July 1, 1983.
ARTICLE 2
THE MERGER; EFFECTIVE TIME; CLOSING
2.1 THE MERGER
Subject to the terms and conditions of this Agreement, at the Effective
Time, Management Company shall be merged with and into Shurgard REIT in
accordance with the provisions of the DGCL and the WBCA and with the effect
provided in Section 259 of the DGCL and RCW 23B.11.060. The separate corporate
existence of Management Company shall thereupon cease and Shurgard REIT shall be
the Surviving Corporation and shall continue to be governed by the laws of the
State of Delaware.
2.2 CLOSING
Subject to Article 9 hereof and the fulfillment or waiver of the conditions
set forth in Article 8, the Closing shall take place at (i) the offices of
Perkins Coie, 1201 Third Avenue, Seattle, Washington on March 3, 1995, or (ii)
such other place and/or time and/or on such other date as Shurgard REIT and
Management Company may agree or as may be necessary to permit the fulfillment or
waiver of the conditions set forth in Article 8.
2.3 EFFECTIVE TIME
The Merger shall become effective on the date and at the time (the
"Effective Time") that the Certificate of Merger and Articles of Merger shall
have been accepted for filing by the Secretary of State of the State of Delaware
and the Secretary of State of the State of Washington, respectively (or such
later date and time as may be specified in the Certificate of Merger and
Articles of Merger), which shall occur on the Closing Date or as soon as
practicable thereafter.
6
<PAGE>
ARTICLE 3
TERMS OF MERGER
3.1 CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of Shurgard REIT as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation, until duly amended in accordance with the terms thereof
and the DGCL.
3.2 BY-LAWS
The By-laws of Shurgard REIT in effect at the Effective Time shall be the
By-laws of the Surviving Corporation, until duly amended in accordance with the
terms thereof, the Certificate of Incorporation of the Surviving Corporation and
the DGCL.
3.3 DIRECTORS
As a result of the Merger, from and after the Effective Time, the directors
of the Surviving Corporation shall be the directors of Shurgard REIT immediately
prior to the Effective Time and Charles K. Barbo ("Barbo"), each to serve until
his successor has been duly elected or appointed and qualified or until his
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-laws.
3.4 OFFICERS
As a result of the Merger, from and after the Effective Time, the officers
of the Surviving Corporation shall be the officers of Shurgard REIT immediately
prior to the Effective Time, except that Barbo shall serve as Chairman of the
Board, President and Chief Executive Officer, Harrell L. Beck shall serve as
Senior Vice-President, Chief Financial Officer and Treasurer, and Kristin H.
Stred shall serve as Senior Vice-President, Secretary and General Counsel, each
to serve until his or her successor has been duly elected or appointed and
qualified or until his or her earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
By-laws.
ARTICLE 4
MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES; ADJUSTMENTS
4.1 SHARE CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES
Subject to the provisions of this Article 4, at the Effective Time, by
virtue of the Merger and without any action by holders thereof, the Shares shall
be converted as follows:
(a) All of the Shares issued and outstanding immediately prior to the
Effective Time (other than Shares as to which dissenters' rights have been
duly exercised and are not subsequently withdrawn) shall be converted into:
(i) an aggregate of 1,400,000 Shurgard REIT Common Shares, reduced
pro rata in the proportion that the number of Shares as to which
dissenters' rights have been duly exercised and not subsequently
withdrawn bears to the number of Shares issued and outstanding
immediately prior to the Effective Time, and adjusted in accordance with
Section 4.1(d) (the "Share Consideration"), and
(ii) the right to receive Contingent Shares pro rata in the
proportion set forth in, and to be distributed in accordance with the
terms of, Section 4.7. The right to receive Contingent Shares shall be
nonassignable except by operation of law or by will.
The Share Consideration shall, subject to Section 4.8, be distributed
pro rata to the Management Company shareholders in the proportion that the
number of Shares issued and outstanding in the name of a Management Company
shareholder immediately prior to the Effective Time bears to the total
number of Shares issued and outstanding immediately prior to the Effective
Time. If, prior to the Effective Time, Shurgard REIT should split or combine
the Shurgard REIT
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Common Shares, or pay a stock dividend or other stock distribution in
Shurgard REIT Common Shares, or otherwise change the Shurgard REIT Common
Shares into, or exchange Shurgard REIT Common Shares for, any other
securities (whether pursuant to or as part of a merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation
of Shurgard REIT as a result of which the Shurgard REIT stockholders receive
cash, stock or other property in exchange for, or in connection with, their
Shurgard REIT Common Shares (a "Business Combination")), or make any other
dividend or distribution on the Shurgard REIT Common Shares, then the Share
Consideration will be appropriately adjusted to reflect such split,
combination, dividend, distribution, Business Combination or change.
(b) All Shares to be converted into Shurgard REIT Common Shares pursuant
to this Section 4.1 shall cease to be outstanding, shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such Shares (the "Certificates") shall
thereafter cease to have any rights with respect to such Shares, except the
right to receive for each of the Shares, upon the surrender of such
Certificate in accordance with Section 4.2, the Shurgard REIT Common Shares
specified above, the right to Contingent Shares (and cash in lieu of
fractional Contingent Shares) as contemplated by Section 4.7, and cash in
lieu of fractional Shurgard REIT Common Shares as contemplated by Section
4.3 (in each case subject to the provisions of Section 4.8).
(c) The Management Company shall take all requisite action so that, by
their terms, all options (individually an "Option" and collectively, the
"Options") to purchase Shares outstanding at the Effective Time which were
issued pursuant to Management Company's Amended and Restated Stock Option
Plan (the "Management Company Option Plan") shall terminate.
(d) The Share Consideration shall be calculated and subject to
adjustment as follows:
(i) First, in the event that, as of the Closing Date, the product
obtained by multiplying the Share Consideration by the then Market Value
shall equal or exceed $31,165,000 (such dollar number, the "Upper
Limit"), the Share Consideration shall be adjusted and reduced to that
number of Shurgard REIT Common Shares obtained by dividing the Upper
Limit by the Market Value as of the Closing Date.
(ii) Following any adjustment to the Share Consideration as set forth
in subsection (d)(i) above, the Share Consideration shall be subject to
further adjustment, as follows:
(A) Within five (5) days prior to the Closing Date, Management
Company will deliver to Shurgard REIT a statement of assets and
liabilities of the Management Company (the "Closing Statement") dated
as of the Closing Date or a date within five (5) days prior to the
Closing Date (the "Closing Statement Date"), prepared in a manner
consistent with the accounting methodology described in Section
5.12(b) and the accounting methodology described in the statement of
assets and liabilities of the Management Company dated October 31,
1994 (the "October 31 Statement"), attached hereto as Exhibit A.
(B) In the event that there has been a reduction in Management
Company Equity as set forth in the Closing Statement when compared to
Management Company Equity as set forth in the October 31 Statement (a
"Reduction"), the Share Consideration shall be reduced by the
quotient obtained by dividing such Reduction by the Market Value as
of the Closing Date. In the event there has been an increase in
Management Company Equity as set forth in the Closing Statement when
compared to the October 31 Statement (an "Increase"), subject to the
following sentence, the Share Consideration shall be increased by the
quotient obtained by dividing such Increase by the Market Value as of
the Closing Date. Notwithstanding the foregoing (1) any adjustment to
the Share Consideration resulting from an Increase shall be limited
in amount to $1,500,000 and
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(2) in calculating the amount of any Increase, solely for purposes of
this sentence, any Shurgard REIT Common Shares held by Management
Company as of the Closing Date shall not be included in the
calculation of the $1,500,000 limitation.
(C) Within thirty (30) days following the Closing Date, the
former directors and officers of Management Company shall cause
Deloitte & Touche, LLP to audit (at Shurgard REIT's sole expense)
such Closing Statement (the "Audit") and deliver the revised and
audited Closing Statement (the "Final Statement") to the
Representatives (as defined below) and Shurgard REIT. The Final
Statement shall be prepared in prepared in a manner consistent with
the methodology described in Section 5.12(b) and the accounting
methodology described in the October 31 Statement.
(D) In the event that the Final Statement reflects Management
Company Equity in an amount less than that reflected on the Closing
Statement (an "Over-Statement"), subject to subsection (E) below, the
amount of such Over-Statement shall be deemed conclusively to
constitute Damages for purposes of Section 4.8 hereof and Shurgard
REIT shall be entitled to recover from the Adjustment Indemnification
Shares (as defined below) and, to the extent necessary, the
Indemnification Shares, that number of Adjustment Indemnification
Shares or Indemnification Shares, as the case may be, determined by
dividing the Over-Statement by the Market Value as of the Closing
Date, in accordance with the provisions of Section 4.8 and the
Indemnification Escrow Agreement (as defined below). In the event
that the Final Statement reflects Management Company Equity in an
amount greater than that reflected on the Closing Statement (an
"Under-Statement"), subject to subsection (E) below, Shurgard REIT
shall promptly issue such number of additional Shurgard REIT Common
Shares to the Management Company shareholders obtained by dividing
such Under-Statement by the Market Value as of the Closing Date. Such
additional shares shall be distributed pro rata in proportion that
the number of Shares formerly held by a Management Company
shareholder immediately prior to the Effective Time bears to the
total number of Shares issued and outstanding immediately prior to
the Effective Time (other than Shares as to which dissenters' rights
have been duly exercised and not subsequently withdrawn).
(E) In the event that either party hereto shall dispute the
results of the Audit, such party (in the case of Management Company,
acting through the Representatives) may, within ten (10) days
following receipt of the Final Statement, engage such firm of
certified public accountants (the "Independent Expert") as selected
by Deloitte & Touche, LLP. The costs and expenses of such Independent
Expert shall be borne by Shurgard REIT. The Independent Expert shall
perform an audit of the Closing Statement (independent of the Audit)
and shall deliver its audited Closing Statement to Shurgard REIT and
the Representatives no later than thirty (30) days following
appointment. The decision of the Independent Expert shall be final
and binding upon the parties.
(F) For purposes of this Agreement and this Section 4.1(d),
"Management Company Equity" shall mean the consolidated stockholders
equity of Management Company and its consolidated subsidiaries as of
the close of business on the relevant statement date prepared in a
manner consistent with the methodology described in Section 5.12(b)
and the accounting methodology described in the October 31 Statement.
4.2 PAYMENT FOR SHARES IN THE MERGER
Shurgard REIT shall deliver to each holder of record of a Certificate or
Certificates (a) a form of letter of transmittal (which shall provide
acknowledgement that (i) the Representatives are authorized to act on behalf of
the Management Company shareholders with respect to the Agreement, the
Indemnification Escrow Agreement and the Contingent Shares Agreement (as defined
below) as set forth in Section 4.9 hereof, (ii) such shareholder agrees to be
bound by the personal indemnification under Section 4.8(b) and (iii) delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to Shurgard REIT at the Closing)
and
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(b) instructions for use in effecting the surrender of the Certificates for
payment therefor. Except as provided in Section 4.8 below, at or after the
Effective Time, upon surrender of Certificates for cancellation to Shurgard
REIT, together with such letter of transmittal duly executed and any other
required documents, the holder of such Certificates shall receive for each of
the Shares represented by such Certificates (i) his, her or its pro rata portion
of the Share Consideration, (ii) the right to receive Contingent Shares and cash
in lieu of fractional Contingent Shares as contemplated by Section 4.7, and
(iii) cash in lieu of fractional Shurgard REIT Common Shares as contemplated by
Section 4.3, and the Certificates so surrendered shall forthwith be canceled.
Until surrendered, each outstanding Certificate shall, upon and after the
Effective Time, be deemed for all purposes (other than to the extent provided in
the following sentence) to evidence ownership of the number of shares of
Shurgard REIT Common Shares into which such Shares have been converted pursuant
to Section 4.1 hereof and the other rights contemplated in the preceding
sentence. Unless and until such outstanding Certificates are so surrendered, the
holders thereof shall not be entitled to receive any dividends or distributions
of any kind payable to the holders of record of Shurgard REIT Common Shares.
Upon the surrender of any such Certificate, however, there shall be paid to the
record holder thereof the aggregate amount of dividends and distributions, if
any, which theretofore became payable in respect of the Shurgard REIT Common
Shares into which the Shares represented by such Certificate have been
converted, and such surrendered Certificate shall be duly cancelled. No interest
shall be payable on or in respect of such deferred dividends or distributions
until surrender of such outstanding Certificates.
4.3 FRACTIONAL SHARES
No fractional Shurgard REIT Common Shares shall be issued in the Merger. In
lieu of any such fractional securities, each holder of Shares who would
otherwise have been entitled to a fraction of a Shurgard REIT Common Share upon
surrender of Certificates for exchange pursuant to this Article 4 will be paid
an amount in cash (without interest) equal to the Market Value of one Shurgard
REIT Common Share as of the Closing Date, multiplied by such fraction.
4.4 TRANSFER OF SHARES AFTER THE EFFECTIVE TIME
No transfers of Shares shall be made on the stock transfer books of
Management Company after the close of business on the day prior to the date of
the Effective Time.
4.5 LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and, if required by the Surviving Corporation,
the posting of such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Surviving Corporation will issue in
exchange for such lost, stolen or destroyed Certificate Shurgard REIT Common
Shares, cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Shurgard REIT Common Shares as provided in Section
4.2, deliverable in respect thereof pursuant to this Agreement.
4.6 DISSENTERS' RIGHTS
Notwithstanding anything in this Agreement to the contrary, Shares which are
issued and outstanding immediately prior to the Effective Time and which are
held by holders of record of such Shares who have properly exercised dissenters'
rights with respect thereto in accordance with RCW 23B.13.010 ET SEQ. shall not
be converted into or be exchangeable for the right to receive the consideration
paid in the Merger, and holders of such Shares shall be entitled to receive
payment of the fair value of such Shares in accordance with the provisions of
the WBCA unless and until such holders fail to perfect or shall have effectively
withdrawn or lost their rights to receive fair value under the WBCA. If, after
the Effective Time, any such holder fails to perfect or shall have effectively
withdrawn or lost such right, such Shares shall thereupon be treated as if they
had been converted into and become exchangeable for, at the Effective Time, the
right to receive consideration paid in the Merger to which the holder of such
Shares is entitled (including that portion of the Share Consideration and right
to receive Contingent Shares as determined pursuant to Section 4.1(a) hereof),
without any interest thereon. Management Company shall give Shurgard REIT prompt
notice of any demands
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received by Management Company for the receipt of fair value for Shares and,
prior to the Effective Time, Shurgard REIT shall have the right to participate
in all negotiations and proceedings with respect to such demands. Prior to the
Effective Time, Management Company shall not, except with the prior written
consent of Shurgard REIT, make any payment with respect to, or settle or offer
to settle, any such demands.
4.7 ADDITIONAL CONSIDERATION
(a) As set forth in Section 4.1(a)(ii), in addition to the Share
Consideration, the Management Company shareholders will receive additional
consideration in the form of contingent shares ("Contingent Shares") to be
issued by the Shurgard REIT based on the Profits (as calculated below), if any,
received by the Shurgard REIT from its interests in certain limited partnerships
set forth in the Management Company Disclosure Statement (the "Contingent
Partnerships"). The Contingent Partnerships own either self-storage centers (the
"Partnership Facilities") or direct or indirect interests (through one or more
tiers of partnership entities) in several limited and general partnerships as
set forth in the Management Company Disclosure Statement (the "Project
Partnerships") that themselves own Partnership Facilities. Contingent Shares
shall be issued pursuant to the terms of this Section 4.7 by the Shurgard REIT
to the Management Company shareholders based on Profits (as calculated below)
realized by Shurgard REIT as a result of any of the following events: (i) the
receipt of proceeds by the Shurgard REIT from the sale or other disposition by
the Shurgard REIT of all or any part of its interest in the Contingent
Partnerships (a "Disposition"); (ii) the receipt by the Shurgard REIT of any
distribution from any Contingent Partnership attributable either to the sale,
refinancing, liquidation or other disposition by a Contingent Partnership or a
Project Partnership of one or more of its Partnership Facilities or to the sale
by a Contingent Partnership (or by any Project Partnership that is itself an
owner of an interest in a Project Partnership) of all or any part of its
interest in a Project Partnership (a "Distribution"); or (iii) a deemed
liquidating distribution from the Contingent Partnership to the Shurgard REIT as
described in Section 4.7(d) (as defined therein a "Deemed Distribution"). The
jurisdiction of organization and description of the equity interests held by the
Management Company with respect to each Contingent Partnership and Project
Partnership is as set forth in the Management Company Disclosure Statement.
(b) Profits ("Profits") with respect to the Contingent Partnerships shall be
calculated as follows:
(i) The Profits pursuant to a Disposition shall consist of the gross
proceeds received by Shurgard REIT from such Disposition, net of the
carrying value of the respective Contingent Partnership interest on the
Final Statement and Shurgard REIT's reasonable costs and legal and
accounting expenses incurred in connection with such Disposition, provided
that, in the event of a Disposition to an Affiliate of the Shurgard REIT,
the gross proceeds received by Shurgard REIT, for purposes of calculating
Profits, will be deemed to be the greater of (x) the portion of the
Appraised Amount (as established in accordance with Subsection 4.7(d)) that
would have been distributed to the Shurgard REIT had there been a Deemed
Distribution as of the date of such Disposition, or (y) the actual gross
proceeds received by Shurgard REIT with respect to such Disposition.
(ii) The Profits received upon a Distribution shall be calculated with
reference to the amounts actually received by Shurgard REIT with respect to
such Distribution, provided that in the event a Partnership Facility, or
interest in a Project Partnership is acquired directly by the Shurgard REIT
or an Affiliate thereof, the amount received by Shurgard REIT for purposes
of calculating Profits will be deemed to be the greater of (x) the portion
of the Appraised Amount (as established in accordance with subsection
4.7(d)) that would have been distributed to the Shurgard REIT had there been
a Deemed Distribution as of the date of such acquisition; (y) the actual
amount received by the Shurgard REIT with respect to such Distribution or
(z) the amount of any credit towards the purchase price for the Partnership
Facility afforded the Shurgard REIT in exchange for cancellation of its
interest in the Contingent Partnership.
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(iii) The Profits received upon a Deemed Distribution shall be calculated
with reference to the amounts Shurgard REIT would have received pursuant to
the terms of the respective Contingent Partnership agreement had such
Contingent Partnership and the Project Partnership, if any, in which such
Contingent Partnership may hold an interest, liquidated the Partnership
Facilities for the Appraised Amount, as described below, less reasonable
costs and legal, accounting and appraisal expenses incurred pursuant to and
as provided in Section 4.7(d).
(c) The number (if any) of Contingent Shares to be issued by Shurgard REIT
pursuant to this Section 4.7 shall be determined for each fiscal quarter ending
after the Effective Time through and including the fifth anniversary of the
Effective Time (the "Contingent Share Closing Date"), as follows:
(i) The Contingent Amount (as defined below), if any, shall be computed
as promptly as practicable but in no event later than forty-five (45) days
after the end of each fiscal quarter;
(ii) The number of Contingent Shares, if any, to be issued for each
fiscal quarter shall be determined by dividing the Contingent Amount by the
Market Value as of the last business day of such fiscal quarter.
(iii) The number of Contingent Shares so determined shall be issued pro
rata to the holders of rights to Contingent Shares in the proportion that
the number of Shares issued and outstanding in the name of a Management
Company shareholder immediately prior to the Effective Time bears to the
total number of Shares issued and outstanding immediately prior to the
Effective Time.
(iv) No fractional Contingent Shares shall be issued. In lieu of any
such fractional securities, each holder of rights to Contingent Shares who
would otherwise have been entitled to a fraction of a Contingent Share will
be paid an amount in cash (without interest) equal to the Market Value (as
calculated above), multiplied by such fraction.
(v) The Contingent Shares shall be issued by Shurgard REIT to the
holders of the right to receive Contingent Shares as promptly as practicable
but in no event later than forty-five (45) days after (1) the close of each
of Shurgard REIT's fiscal quarters during the Contingent Share Period (as
defined in Section 4.7(d) below), (2) the final resolution of a disputed
Profit (which dispute shall be settled by the procedures set forth in the
Contingent Shares Agreement (as defined below), or, (3) in the event of a
Distribution or Deemed Distribution to the Shurgard REIT or an Affiliate
thereof, the determination of the Appraised Amount, whichever is later.
(vi) All distributions or other payments, to the extent such
distributions or other payments do not constitute a Distribution, and all
voting rights and other indicia of beneficial ownership with respect to the
Contingent Partnerships shall inure to the benefit of Shurgard REIT.
Dividends or other distributions and all voting rights and other indicia of
beneficial ownership with respect to Contingent Shares shall inure to the
benefit of the former Management Company shareholders only when and from the
time that such Contingent Shares are issued or are required to be issued, if
ever, in accordance with the provisions of this Section 4.7.
(d) The period during which Contingent Shares may be earned shall begin at
the Effective Time and shall continue through the Contingent Share Closing Date
(the "Contingent Share Period"). To the extent that (1) a Change in Control of
the Shurgard REIT shall occur at any time during the Contingent Share Period, or
(2) the Shurgard REIT shall continue to hold, at the Contingent Share Closing
Date, any residual interest in any of the Contingent Partnerships, the Project
Partnerships, in which such Contingent Partnerships continue to hold interests,
and any Contingent Partnership owning Partnership Facilities shall be deemed to
have sold all of their Partnership Facilities for the Appraised Amount (as
defined below) and to have distributed the Appraised Amount in liquidation of
the Project Partnerships or the Contingent Partnerships, as the case may be,
pursuant to the terms of their respective partnership agreement. Any portion of
the Appraised Amounts deemed to have been
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received by the Contingent Partnerships shall be deemed to have been distributed
(the "Deemed Distribution") to the Shurgard REIT pursuant to the terms of the
Contingent Partnership's partnership agreement.
(i) Pursuant to this Section 4.7(d), the parties hereto agree to submit
for appraisal the valuation of the Partnership Facilities (the "Appraised
Amount") by an independent appraiser with self-storage industry valuation
experience (a "Qualified Appraiser") and mutually acceptable to and
appointed by Shurgard REIT and the Representatives within thirty (30) days
after the Change in Control Date or the Contingent Share Closing Date, as
the case may be.
(ii) If Shurgard REIT and the Representatives cannot agree on a
Qualified Appraiser within such period, the Appraised Amount shall be
determined jointly by a Qualified Appraiser appointed by Shurgard REIT and a
Qualified Appraiser appointed by the Representatives, each to be appointed
within such thirty (30) day period. Such Qualified Appraisers shall complete
their respective valuations within forty-five (45) days of their
appointment. If the higher of the values determined by either of the initial
Qualified Appraisers is not in excess of 115% of the value determined by the
other Qualified Appraiser, the initial Qualified Appraisers shall be deemed
to have agreed upon a value equal to the average of the two determinations.
If the higher of the values determined by either of the initial Qualified
Appraisers exceeds 115% of the value determined by the other Qualified
Appraiser, such Qualified Appraisers shall (within 60 days after their
appointment) select a third Qualified Appraiser who shall determine (within
45 days after his or her appointment) the Appraised Amount for the purposes
hereof by arriving at a valuation either equal to that determined by one of
the initial two Qualified Appraisers or intermediate between such two
initial valuations. If the two initial Qualified Appraisers are unable to
agree upon a third appraiser, he or she shall be selected by the presiding
judge of the Superior Court for King County, Washington.
(iii) Shurgard REIT shall bear the cost and expense of any appraisals,
provided, however, that Shurgard REIT shall be entitled to include the cost
of any Qualified Appraiser appointed by the Representatives, and one-half
the cost of the initial and third Qualified Appraiser (if any), as an
expense for purposes of calculating Profits pursuant to 4.7(b)(iii).
(iv) The Appraised Amount, as determined by the Qualified Appraiser(s)
pursuant to this Section 4.7, shall be final and binding on all the parties.
(v) The number of Contingent Shares to be issued as a result of any such
valuation shall be determined by dividing the amount of the Contingent
Amount computed thereby by the Market Value as of the Contingent Share
Closing Date or Change in Control Date, as the case may be, and such
Contingent Shares (and cash in lieu of fractional shares) shall be issued to
the holders of the right to receive Contingent Shares as set forth in
subsections (c)(iii) and (c)(iv) above as promptly as practicable but in no
event later than twenty (20) days after the close of business on the day
such Appraised Amount is determined.
(e) For purposes of this Agreement and this Section 4.7, the "Contingent
Amount" shall be equal to the product obtained by multiplying the dollar amount
of Profits by .95.
(f) The number of Contingent Shares to be issued to the Management Company
shareholders hereunder shall be reduced by that number of Contingent Shares
having an aggregate Market Value equal to the reasonable expenses incurred by
the Representatives in carrying out their obligations hereunder. Such Contingent
Shares shall be issued to the Representatives as reimbursement for such
expenses.
(g) The foregoing shall be reflected in an agreement (the "Contingent Shares
Agreement"), substantially in the form attached hereto as Exhibit B, to be
entered into by Shurgard REIT and the Representatives on or prior to the Closing
Date.
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(h) The Management Company shareholders shall, by virtue of their collective
approval of this Agreement, be deemed to have agreed to, and be bound by, the
terms of the Contingent Shares Agreement.
4.8 INDEMNIFICATION SHARES; CLAIMS AGAINST THE ESCROW
(a) At the Closing, ten percent (10%) of the shares received as part of the
Share Consideration (net of any Shurgard REIT Common Shares held by Management
Company as of the Closing Date (the "Indemnification Shares"), shall be
deposited in escrow with Seattle First National Bank, as escrow agent, or such
other party as may be agreed upon by the parties prior to Closing (the
"Indemnification Escrow Agent"), to be held and administered in accordance with
the terms and conditions of an Indemnification Escrow Agreement, substantially
in the form attached hereto as Exhibit C (the "Indemnification Escrow
Agreement"). The Indemnification Shares shall be deducted pro rata from that
portion of the Share Consideration, as adjusted, otherwise issuable to each of
the Management Company shareholders. Fractional Shurgard REIT Common Shares
shall not be deposited in escrow. In lieu thereof, each Management Company
shareholder shall round up such fractional share to the nearest whole number and
deposit in escrow an additional Shurgard REIT Common Share. The Indemnification
Shares shall be registered in the name of the respective Management Company
shareholders and shall be accompanied by stock powers endorsed in blank.
Shurgard REIT shall be entitled to recover from the Indemnification Shares
the full dollar amount of any Damages that may be suffered by Shurgard REIT by
reason of (i) any breach of representation or warranty made by Management
Company in Article 5, (ii) any breach by Management Company of any covenant or
agreement on its part contained in this Agreement, (iii) any liability for Taxes
assessed against Shurgard REIT (including penalties and interest) as successor
to Management Company (irrespective of which party is primarily or solely liable
under the laws of the applicable taxing authority) resulting from a
determination by an applicable taxing authority that the InterMation Spin-Off
does not qualify under Section 355(a)(1) of the Code; (iv) any Over-Statement in
the amount of Management Company Equity reflected in the Final Statement as
compared with the Closing Statement (including any overstatement of any Tax
refund due Management Company as a result of its short taxable year ending as of
the Effective Time (the "Refund")), subject to Section 4.1(d)(ii)(E); or (v) any
liability or out-of-pocket expenses suffered by Shurgard REIT in its capacity as
general partner of any of the Partnerships to the extent such liability or
expense arises out of facts or circumstances (other than the legal status as a
general partner) in existence prior to the Closing Date (provided, however, that
such liabilities or expenses shall be calculated net of distributions received
by Shurgard REIT from such Partnership which are not included in the calculation
of Profits under Section 4.7). No claims for indemnification hereunder shall be
made by Shurgard REIT until Damages (arising from a single claim or in the
aggregate from multiple claims) equal or exceed $50,000, in which case the full
dollar amount of any Damages shall be recoverable. Notwithstanding the
foregoing, Shurgard REIT shall not be entitled to indemnification or to seek
Damages for any (x) liability with respect to which Shurgard REIT would have
been obligated to indemnify Shurgard, if such liability had arisen prior to the
Effective Time, or (y) Tax liabilities resulting from or arising in connection
with the transactions effected by this Agreement (except as specifically set
forth in subsection (a)(iii) hereof).
(b) For purposes of this Section 4.8, the "Indemnification Period" shall
begin as of the Closing Date and shall continue through the third anniversary
thereof. The period during which claims may be made from the Indemnification
Shares for Damages shall begin as of the Closing Date and shall continue through
the second anniversary of the Closing Date except with respect to (i) any tax
liability assessed against Shurgard REIT (including penalties and interest) as
successor to Management Company if the InterMation Spin Off does not qualify
under Section 355 of the Code, (ii) any breach of representation or warranty
made by Management Company in Sections 5.8 or 5.10, or (iii) any breach of
covenant made by Management Company in Section 7.10 or 7.17, which shall
continue for the full term of the Indemnification Period. Nevertheless, any
covenant, agreement, representation or warranty in respect of which indemnity
may be sought pursuant to this Section 4.8 shall survive the time
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at which it would otherwise terminate if written notice of the inaccuracy or
breach thereof specifying the Damages (including the amount thereof) giving rise
to such right to indemnity shall have been delivered to the Representatives
prior to such time.
At the termination of the Indemnification Period, Indemnification Shares not
required to reimburse Shurgard REIT for any Damages which constitute an
indemnifiable claim, or which are not pending determination as an
indemnification claim, shall be returned by the Indemnification Escrow Agent to
the Management Company shareholders, pro rata in the same proportion as
originally deducted from the portion of the Share Consideration otherwise
issuable to each Management Company shareholder. Notwithstanding the foregoing,
Shurgard REIT shall be entitled to continuing indemnification from the
Management Company shareholders, personally and severally (not jointly), pro
rata in the same proportion as Indemnification Shares originally were deducted
from the portion of the Share Consideration otherwise issuable to each
Management Company shareholder, with respect to the matters set forth in
subsections (a)(iii) above, which indemnification obligation shall continue
until the expiration of the applicable statutory period of limitations. Such
continuing right to indemnification beyond the Indemnification Period shall be
limited to the recovery of Damages, in the aggregate, in an amount equal to the
product obtained by multiplying the number of Indemnification Shares returned to
the Management Company shareholders by the Market Value of the Shurgard REIT
Common Shares as of the Closing Date.
(c) At the Closing, an additional five percent (5%) of the shares received
as part of the Share Consideration (net of any Shurgard REIT Common Shares held
by Management Company as of the Closing Date (the "Adjustment Indemnification
Shares") shall be deposited with the Indemnification Escrow Agent to be held and
administered in accordance with the terms and conditions of the Indemnification
Escrow Agreement. The Adjustment Indemnification Shares shall be deducted pro
rata from that portion of the Share Consideration, as adjusted, otherwise
issuable to each of the Management Company shareholders. Fractional Shurgard
REIT Common Shares shall not be deposited in escrow. In lieu thereof, each
Management Company shareholder shall round up such fractional share to the
nearest whole number and deposit in escrow an additional Shurgard REIT Common
Share. The Adjustment Indemnification Shares shall be registered in the name of
the respective Management Company shareholders and shall be accompanied by stock
powers endorsed in blank. Shurgard REIT's only rights with respect to the
Adjustment Indemnification Shares shall be to recover from the Adjustment
Indemnification Shares (i) the full dollar amount of any Over-Statement in the
amount of Management Company Equity reflected in the Final Statement as compared
with the Closing Statement, subject to Section 4.1(d)(ii)(E), and (ii) the
difference between the dollar amount of any Refund claimed as set forth in the
Closing Statement and the actual amount received by the Shurgard REIT. Any
amount defined in subsection (c)(i) and (ii) hereof over and above the value of
the Adjustment Indemnification Shares (as calculated above) shall be deemed
conclusively to constitute Damages for purposes of subsection (a) hereof and
Shurgard REIT shall be entitled to recover from the Indemnification Shares the
full dollar amount calculated by subtracting from the dollar value of such
Damages the value of the Adjustment Indemnification Shares, as calculated in
subsection (a) hereof. The indemnification period with respect to the Adjustment
Indemnification Shares shall begin as of the Closing Date and shall continue for
a period lasting ten (10) days following the later of (i) delivery to the
Representatives and Shurgard REIT of the Final Statement or, if an Independent
Expert is appointed, upon delivery to the Representatives and Shurgard REIT of
its report and (ii) the date on which the Refund is received by the Shurgard
REIT or the date on which the Shurgard REIT receives notice that the Refund will
not be paid (the "Adjustment Indemnification Period"). At the termination of the
Adjustment Indemnification Period, Adjustment Indemnification Shares (x) not
required to reimburse Shurgard REIT for any Over-Statement; (y) not required to
reimburse Shurgard REIT for any difference between the Refund actually received
and the amount of the Refund as set forth on the Final Statement; and (z) which
are not pending determination as an indemnification claim shall be returned by
the Indemnification Escrow Agent to the Management Company shareholders, pro
rata in the same proportion as originally deducted from the portion of the Share
Consideration otherwise issuable to each Management Company shareholder.
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(d) Notwithstanding the escrow of the Adjustment Indemnification Shares and
Indemnification Shares, dividends or other distributions declared and paid on
such shares shall continue to be paid by Shurgard REIT to the Management Company
shareholders and all voting rights with respect to such shares shall inure to
the benefit of and be enjoyed by the Management Company shareholders. Any
securities received by the Indemnification Escrow Agent in respect of any
Adjustment Indemnification Shares or Indemnification Shares held in escrow as a
result of stock split or combination of Shurgard REIT Common Shares, payment of
a stock dividend or other stock distribution in or on Shurgard REIT Common
Shares, or change of Shurgard REIT Common Shares into any other securities
pursuant to or as part of a Business Combination or otherwise, shall be held by
the Indemnification Escrow Agent as, and shall be included within the definition
of, Adjustment Indemnification Shares or Indemnification Shares, as the case may
be. Indemnification procedures shall be as stipulated in the Indemnification
Escrow Agreement.
(e) For purposes of this Section 4.8, the satisfaction of any Damages owed
hereunder shall be made by delivery by the Indemnification Escrow Agent to
Shurgard REIT of that number of Indemnification Shares calculated by dividing
the dollar amount of any Damages by the Market Value as of the Closing Date. Any
Adjustment Indemnification Shares or Indemnification Shares, as the case may be,
returned to Shurgard REIT hereunder shall be treated, to the extent permitted by
law, by the Management Company shareholders and Shurgard REIT as a purchase
price adjustment. The number of Indemnification Shares to be released to the
Management Company shareholders at the termination of the Indemnification Period
shall be reduced by the number of Indemnification Shares having an aggregate
Market Value equal to the reasonable expenses incurred by the Representatives in
carrying out their obligations hereunder. Such Indemnification Shares shall be
released to the Representatives as reimbursement for such expenses.
(f) The Management Company shareholders shall, by virtue of their collective
approval of this Agreement, be deemed to have agreed to, and be bound by, the
terms of the Indemnification Escrow Agreement.
4.9 APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVES
(a) (i) The Management Company shareholders hereby appoint and authorize
Barbo, Donald B. Daniels ("Daniels") and Arthur W. Buerk ("Buerk") (the
"Representatives") as their agents to deal with Shurgard REIT on behalf of the
Management Company shareholders regarding all matters arising under this
Agreement, the Contingent Shares Agreement and the Indemnification Escrow
Agreement.
(ii) Unless and until Shurgard REIT and the Indemnification Escrow Agent
shall have received a written revocation of such appointment signed by
Management Company shareholders who received a majority of the Share
Consideration in the Merger (a "Majority Interest"), together with a written
appointment of successor Representatives for the Management Company
shareholders, Shurgard REIT and the Indemnification Escrow Agent shall be
entitled to rely upon, and shall be fully protected in relying upon, the
power and authority of the Representatives to act on behalf of the
Management Company shareholders.
(iii) If any of the Representatives or any successor shall die, refuse
or become unable to act, resign or otherwise terminate his or her status as
one of the Representatives, a replacement shall promptly be appointed by a
writing signed by Management Company shareholders holding a Majority
Interest, and Shurgard REIT and the Indemnification Escrow Agent shall be
notified of such appointment forthwith. If a replacement shall not be
appointed within thirty (30) days of a Representative's termination of his
or her status as a Representative, Shurgard REIT and the Indemnification
Escrow Agent shall be authorized to act upon written instructions received
from the remaining Representatives until such time as a replacement shall be
appointed.
(b) (i) By virtue of their collective approval of this Agreement, each of
the Management Company shareholders shall be deemed to agree that the
Representatives, acting by majority vote, (1) have
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full power and authority to take such action on behalf of the Management Company
shareholders with respect to the Contingent Shares, the Adjustment
Indemnification Shares and the Indemnification Shares as the Representatives in
their sole discretion may determine and (2) shall represent the Management
Company shareholders for all purposes of this Agreement, including the receipt
of notices and the exercise of any rights with respect to Shurgard REIT's
obligations under this Agreement, the Contingent Shares Agreement and the
Indemnification Escrow Agreement and the modification or amendment of the terms
of such agreements and the waiver of conditions, and resolution of disputes or
uncertainties arising thereunder. The Management Company shareholders, by virtue
of their collective approval of this Agreement, also shall be deemed to agree
that such Management Company shareholder shall be bound by all decisions of the
Representatives pursuant to the authority granted hereunder, and that, except as
set forth in subsection (a) hereof, such authority may not be revoked during the
term of this Agreement.
(ii) The Representatives, acting by majority vote, shall have sole
discretion with respect to the administration of the distribution of the
Contingent Shares, Indemnification Shares and Adjustment Indemnification
Shares and shall discharge their duties in good faith, with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances and in a manner the Representatives reasonably believe to be
in the best interests of the Shurgard shareholders.
(iii) None of the Representatives nor any of their respective employees,
employers, partners, or agents, or any corporation of which he or she is an
officer, director, or agent (collectively, "Associates") shall be liable for
any action taken or not taken in connection herewith in his or her capacity
as Representative (whether or not pursuant to this Agreement) in the absence
of his or her own gross negligence, bad faith or willful misconduct.
(iv) None of the Representatives nor any of his or her respective
Associates shall be responsible for or have any duty to ascertain, inquire
into, or verify, in his or her capacity as Representative (1) any statement,
warranty, or representation made in connection with this Agreement (2) the
performance or observance of any of the covenants or agreements pursuant to
this Agreement or (3) the validity, effectiveness, or genuineness of this
Agreement or any other instrument or writing furnished in connection with
this Agreement. None of the Representatives nor any of his or her Associates
shall incur any liability by reason of such Representative having acted
pursuant to this Agreement in reliance upon any oral or written request,
notice, consent, certificate, statement, or other writing (which may be a
facsimile transmission, telex, or similar writing) reasonably believed by
such Representative to be genuine or signed by the proper party or parties.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MANAGEMENT COMPANY
Except as set forth on the Management Company Disclosure Statement,
Management Company hereby represents and warrants to Shurgard REIT that as of
the date hereof:
5.1 ORGANIZATION, ETC. OF MANAGEMENT COMPANY
Management Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Washington and has all requisite
corporate power and authority to own, lease and operate its properties, to carry
on its business as now conducted and proposed by Management Company to be
conducted, to enter into this Agreement and to carry out the provisions of this
Agreement and consummate the transactions contemplated hereby. Management
Company is duly qualified and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary and where the failure to be so
qualified has or would be reasonably expected (so far as can be foreseen at the
time) to
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have a material adverse effect on the business, properties, operations,
condition (financial or other) or prospects of Management Company (taking into
account any tax, insurance or indemnification benefits received or to be
received) (a "Management Company Material Adverse Effect").
Management Company has obtained from the appropriate Governmental Bodies all
approvals and licenses necessary for the conduct of its business and operations
as currently conducted, which approvals and licenses are valid and remain in
full force and effect, except where the failure to have obtained such approvals
or licenses or the failure of such licenses and approvals to be valid and in
full force and effect does not have and would not be reasonably expected (so far
as can be foreseen at the time) to have a Management Company Material Adverse
Effect. Management Company's Articles of Incorporation and Bylaws are listed in
the Management Company Disclosure Statement, and true and correct copies of such
documents have been made available to Shurgard REIT.
5.2 PARTNERSHIPS; SUBSIDIARIES
The Management Company Disclosure Statement sets forth a true and complete
list, including the name and jurisdiction of organization, of each general
partnership and limited partnership of which Management Company is, directly or
indirectly, a partner (a "Partnership") and the nature and extent of its equity
interest therein. The Partnership agreements are listed in the Management
Company Disclosure Statement and true and correct copies have been made
available to Shurgard REIT. Management Company owns the percentages of each
class of equity interest of each Partnership as set forth in its respective
Partnership agreement, free and clear of all liens, security interests, charges
and encumbrances. With respect to such Partnerships, Management Company's rights
and interests as a partner as identified in the respective Partnership
agreements are unimpaired and in full force and effect. Management Company does
not own, directly or indirectly, any capital stock or other equity or ownership
or proprietary interest in any Subsidiary.
5.3 AGREEMENT
This Agreement and the consummation of the transactions contemplated hereby
have been approved by the Board of Directors of Management Company and have been
duly authorized by all other necessary corporate action on the part of
Management Company (except for the approval of Management Company's shareholders
contemplated by Section 7.3(a)). This Agreement has been duly executed and
delivered by a duly authorized officer of Management Company and, subject to
Management Company shareholder approval, constitutes a valid and binding
agreement of Management Company, enforceable against Management Company in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application that may affect the enforcement of creditors' rights generally and
by general equitable principles. Management Company has delivered to Shurgard
REIT true and correct copies of resolutions adopted by the Board of Directors of
Management Company approving this Agreement and the transactions contemplated
hereby.
5.4 CAPITAL STOCK
The authorized capital stock of Management Company consists of ten million
(10,000,000) Shares, of which 4,203,854 shares are outstanding as of the date
hereof. All outstanding Shares are duly authorized, validly issued, fully paid
and nonassessable, and no class of capital stock of Management Company is
entitled to preemptive or cumulative voting rights. There are outstanding on the
date hereof no options, warrants, calls, rights, commitments or any other
agreements of any character to which Management Company is a party or by which
it may be bound, requiring it to issue, transfer, sell, purchase, redeem or
acquire any shares of capital stock or any securities or rights convertible
into, exchangeable for or evidencing the right to subscribe for or acquire any
shares of capital stock, except Options (vested or unvested) representing in the
aggregate the right to purchase up to 295,300 Shares pursuant to the Management
Company Option Plan. The following summary of all such Options outstanding as of
the date hereof is set forth on the Shurgard Disclosure Statement: date of
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issuance, vesting schedule, exercise price, expiration date and number of Shares
issuable upon exercise. No Person has any right to require Management Company to
repurchase or otherwise acquire any of such Person's outstanding securities.
5.5 LITIGATION
There are no actions, suits, investigations or proceedings (adjudicatory,
rulemaking or otherwise) pending or, to the knowledge of Management Company,
threatened against Management Company (or any Employee Plan or Benefit
Arrangement), or any property (including intellectual property) of Management
Company, in any court or before any arbitrator of any kind or before or by any
Governmental Body, except actions, suits, investigations or proceedings that, in
the aggregate, do not have and would not be reasonably expected (so far as can
be foreseen at the time) to have (a) a Management Company Material Adverse
Effect or (b) a material adverse effect on the ability of Management Company to
perform its obligations under this Agreement.
5.6 COMPLIANCE WITH OTHER INSTRUMENTS, ETC.
Management Company is not in violation of any term of (a) its charter,
bylaws or other organizational documents, (b) any Material Agreement, (c) any
applicable law, ordinance, rule or regulation of any Governmental Body, or (d)
any applicable order, judgment or decree of any court, arbitrator or
Governmental Body, except, as to subsections (a) through (d) of this Section,
where such violation, individually or in the aggregate, does not have and would
not be reasonably expected (so far as can be foreseen at the time) to have a
Management Company Material Adverse Effect or a material adverse effect on the
ability of Management Company to perform its obligations under this Agreement.
The execution, delivery and performance of this Agreement by Management Company
will not result in any violation of or conflict with, constitute a default
under, or require any consent under any term of the charter or bylaws of
Management Company or any Material Agreement, instrument, permit, license, law,
ordinance, rule, regulation, order, judgment or decree to which Management
Company is a party or to which Shurgard or any of their material assets are
subject, or result in the creation of (or impose any obligation on Management
Company to create) any mortgage, lien, charge, security interest or other
encumbrance upon any of the properties or assets of Management Company pursuant
to any such term, except where such violation, conflict or default, or the
failure to obtain such consent or the creation of such encumbrances,
individually or in the aggregate, does not have and would not be reasonably
expected (so far as can be foreseen at the time) to have a Management Company
Material Adverse Effect or a material adverse effect on the ability of
Management Company to perform its obligations under this Agreement.
5.7 COMPENSATION AND EMPLOYEE MATTERS
A true, correct and complete list of all directors, officers and key
personnel of Management Company, and the current annual salary, bonuses paid or
accrued for the year ending December 31, 1994 and any commitments to pay any
further bonuses for each such person is set forth on the Management Company
Disclosure Statement. The aggregate accrued vacation pay, if any, of the
employees of Management Company is accurately reflected in the Management
Company Financial Statements consistent with Management Company's employee
policies as in effect on the date of the Management Company Financial
Statements. The Management Company Disclosure Statement also includes a true and
accurate statement of the proposed salaries for officers and key personnel for
the fiscal year ending December 31, 1995.
5.8 EMPLOYEE BENEFIT PLANS
(a) The Management Company Disclosure Statement sets forth a true and
complete list of all the following: (i) each "employee benefit plan," as such
term is defined in Section 3(3) of ERISA (each, together with the Management
Company Option Plan, an "Employee Plan"), and (ii) each other plan, program,
policy, contract or arrangement providing for bonuses, pensions, deferred pay,
stock or stock-related awards, severance pay, salary continuation or similar
benefits, hospitalization, medical, dental or disability benefits, life
insurance or other employee benefits, or contract or agreement for compensation
to or for any current or former employees, agents, directors or independent
contractors of
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Management Company ("Employees") or any beneficiaries or dependents of any
Employee, whether or not insured or funded, (A) pursuant to which Management
Company has any liability or (B) constituting an employment or severance
agreement or arrangement with any officer or director of Management Company
(each, a "Benefit Arrangement"). Management Company has made available to
Shurgard REIT with respect to each Employee Plan and Benefit Arrangement: (i) a
true and complete copy of all written documents comprising such Employee Plan or
Benefit Arrangement or, if there is no such written document, an accurate and
complete description of such Employee Plan or Benefit Arrangement; (ii) the most
recent Form 5500 or Form 5500-C (including all schedules thereto), if
applicable; (iii) the most recent financial statements and actuarial reports, if
any; (iv) the summary plan description currently in effect and all material
modifications thereof, if any; and (v) the most recent Internal Revenue Service
determination letter, if any. All material contributions required to be made as
of the date hereof to the Employee Plans and Benefit Arrangements have been made
or provided for. Neither Management Company nor any Management Company entity
under "common control" with Management Company within the meaning of ERISA
Section 4001 has contributed to, or been required to contribute to, any
"multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA).
Management Company does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance, medical or other
employee welfare benefits to any employee or former employee upon his or her
retirement or termination of employment and Management Company has not ever
represented, promised or contracted (whether in oral or written form) to any
employee or former employee that such benefits would be provided.
(b) Each Employee Plan and Benefit Arrangement has been established and
maintained in all material respects in accordance with its terms and in material
compliance with all applicable laws, including, but not limited to, ERISA and
the Code. Neither Management Company nor any of their current or former
directors, officers or employees, nor, to the knowledge of Management Company,
any other disqualified Person or party-in-interest with respect to any Employee
Plan, has engaged directly or indirectly in any "prohibited transaction," as
such term is defined in Section 4975 of the Code or Section 406 of ERISA.
(c) Management Company does not have an Employee Plan that is subject to
Title IV of ERISA and Management Company has not had an ERISA Affiliate at any
time since the earlier of its inception and September 2, 1974.
(d) Neither the execution or delivery of this Agreement nor the consummation
of the transactions contemplated hereby (either alone or together with any
additional or subsequent events) constitutes an event under any Employee Plan,
Benefit Arrangement or loan to, or individual agreement or contract with, an
Employee that may result in any payment (whether severance pay or otherwise),
restriction or limitation upon the assets of any Employee Plan or Benefit
Agreement, acceleration of payment or vesting, increase in benefits or
compensation, or required funding, with respect to any Employee, or the
forgiveness of any loan or other commitment of any Employees.
(e) All contributions required under applicable law or the terms of any
Employee Plan or other agreement relating to an Employee Plan to be paid by
Management Company have been completely and timely made to each Employee Plan
when due, and Management Company has established adequate reserves on its books
to meet liabilities for contributions accrued but that have not been made
because they are not yet due and payable.
(f) The Shurgard Incorporated Employee Stock Ownership Plan ("ESOP") is duly
organized and existing under applicable law, is a stock bonus plan qualified
under Section 401(a) of the Code and is an "employee stock ownership plan" as
defined in Section 4975(e)(7) of the Code. The trust under the ESOP is a duly
established and existing trust under applicable law. Management Company has duly
and validly reserved the right to terminate the ESOP in its entirety at any
time.
(g) No amounts paid or payable by Management Company to or with respect to
any Employee will fail to be deductible for federal income tax purposes by
reason of Section 280G of the Code.
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(h) No Employees and no beneficiaries or dependents of Employees are or may
become entitled under any Employee Plan or Benefit Arrangement to
post-employment welfare benefits of any kind, including, without limitation,
death or medical benefits, other than coverage mandated by Section 4980B of the
Code.
5.9 LABOR MATTERS
Management Company is not a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to the knowledge of Management Company, threatened
against Management Company relating to their business. To the knowledge of
Management Company, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of Management Company.
5.10 TAXES
Management Company has (i) timely filed all Tax Returns required to be filed
by it and all such Tax Returns are true, correct and complete in all respects,
(ii) paid all Taxes due or claimed to be due by any federal state, local or
foreign taxing or customs authority and (iii) properly accrued all such Taxes
for such periods subsequent to the periods covered by such returns. There are no
liens for Taxes on any property or assets of Management Company other than liens
for current property taxes not yet due. The Tax Returns of Management Company
are not being and have not been examined by any taxing authority. Management
Company has not executed or filed with the IRS or any taxing authority any
agreement extending the limitations period of any Taxes. Management Company is
not a party to any pending action or proceeding by any taxing authority for
assessment or collection of Taxes, and no claim for assessment or collection of
Taxes has been asserted against it, including claims by an authority in a
jurisdiction where it does not file Tax Returns that it is or may be subject to
taxation in that jurisdiction. True, correct and complete copies of all Tax
Returns filed by Management Company and all examination reports, statements of
deficiencies assessed and communications from any taxing authority relating
thereto have been made available to Shurgard REIT.
Management Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party. Management
Company is not the beneficiary of any extension of time within which to file any
Tax Return. Management Company (i) has not filed a consent under Section 341(f)
of the Code concerning collapsible corporations; (ii) has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(2)(i)
of the Code; (iii) is not a party to any Tax allocation or sharing agreement;
and (iv) has no liability for Taxes of any Person under Section 1.1592-6 of the
Treasury Regulations (or any similar provision of state, local or foreign law)
as a transferor or successor by contract or otherwise. Management Company has
established (and until the Closing shall establish) on its books and records
reserves that are adequate for the payment of all Taxes not yet due and payable.
All federal, state and local Tax Returns required to be filed with respect
to the short taxable year of the Management Company as of the Effective Time,
will, when filed, be true, correct and complete in all respects.
5.11 INTELLECTUAL PROPERTY
(a) The Management Company Disclosure Statement sets forth a complete list
of the trademarks registered by Management Company and a list of all licenses,
sublicenses and agreements to which Management Company is a party regarding
Management Company Intellectual Property Rights material to Management Company's
business.
(b) To its knowledge, Management Company has not infringed upon or
misappropriated any intellectual property rights of third parties, and
Management Company has not received any charge,
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complaint, claim or notice alleging any such interference, infringement,
misappropriation or violation. To the knowledge of Management Company, no third
party has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Management Company Intellectual Property Rights except
for any such interference, infringement, misappropriation or violation which has
not had, and is not likely to have, a Management Company Material Adverse
Effect.
(c) Management Company has the right to transfer and assign all of the
Management Company Intellectual Property Rights set forth under Section 5.11(a).
To the knowledge of the Management Company, none of such Management Company
Intellectual Property is subject to any lien, encumbrance or claim of
infringement or otherwise, nor requires any consent, approval or waiver to be
conveyed to Shurgard REIT by way of the Merger.
5.12 FINANCIAL STATEMENTS
(a) Management Company has provided to Shurgard REIT true and correct copies
of its (i) audited consolidated balance sheets as of December 31, 1991, 1992 and
1993, and related audited statements of income and cash flows for the fiscal
years then ended, and (ii) unaudited consolidated balance sheets as of March 31,
June 30, September 30 and October 31, 1994 and related unaudited statements of
income and other statements for the fiscal quarters or month then ended
(collectively, the "Management Company Financial Statements"). Each of such
balance sheets (including the related notes) referred to in subsection (i)
hereof presents fairly, in all material respects, the consolidated financial
position of Management Company and its subsidiaries as of the respective dates
thereof, and the other related statements (including the related notes) included
therein present fairly, in all material respects, the results of their
operations and their cash flows for the respective periods or as of the
respective dates set forth therein, all in conformity with generally accepted
accounting principles consistently applied during the periods involved, except
as otherwise noted in the auditor's report. Each of such balance sheets referred
to in subsection (ii) hereof presents fairly, in all material respects, the
assets, liabilities, and shareholders' equity of Management Company and its
subsidiaries as of the respective dates thereof, and the other related
statements included therein present fairly, in all material respects, the
results of their operations for the respective periods or as of the respective
dates set forth therein, all on a basis consistent with Management Company's
internal monthly financial statements.
(b) The October 31 Statement, the Closing Statement and the Final Statement
has been or will be prepared in accordance with generally accepted accounting
principles on a going concern basis with the following exceptions: (i) European
investment is accounted for on the equity method, (ii) investment in affiliated
partnerships are accounted for based on the related 1993 K-1, and (iii)
administrative real estate department reimbursements are accounted for on the
cash basis. This basis is consistent with the audited and unaudited consolidated
financial statements of the Management Company described in (a) and (b) in the
preceding paragraph except for the following items: elimination of InterMation,
elimination of Shurgard Realty Advisors, elimination of incentive management
fees, treatment of administrative real estate reimbursements on a cash basis and
elimination of insurance payments related to buy-sell agreements.
As to the Closing Statement, as such will be prepared in advance of the
Closing Date, it may include management's good faith estimates of certain items
as to the Closing Date. As to the Closing Statement and the Final Statement, (a)
to the extent that Shurgard REIT Common Shares are included, such stock will be
valued at Market Value as of the Closing Date and (b) no liability for payments
related to dissenting shareholders will be accrued, and no such liability shall
constitute Damages, or be the basis for an adjustment of the Share
Consideration.
5.13 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as otherwise contemplated or as permitted herein in Section 7.1 or
elsewhere, during the period since October 31, 1994 (a) the business of
Management Company has been conducted only in the ordinary course, (b)
Management Company has not entered into any material transaction other
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than in the ordinary course, and (c) there has not been any change in the
business, financial condition, results of operations, properties, assets,
liabilities or prospects of Management Company which, in the aggregate, would
have a Management Company Material Adverse Effect.
5.14 BOOKS AND RECORDS
(a) The books of account and other financial records of Management Company
are in all material respects true, complete and correct, and are accurately
reflected in all material respects in the Management Company Financial
Statements.
(b) The minute books and other records of Management Company have been made
available to Shurgard REIT, contain in all material respects accurate records of
all meetings and accurately reflect in all material respects all other corporate
action of the shareholders and directors and any committees of the Board of
Directors of Management Company.
5.15 CONTRACTS AND LEASES
The Management Company Disclosure Statement contains an accurate and
complete listing of all material contracts, leases, agreements or
understandings, whether written or oral, of Management Company (the "Material
Agreements"). A contract, lease, agreement or understanding is "material" if it
involves (i) obligations (contingent or otherwise) of, or payments to Management
Company in excess of $100,000 per annum, (ii) partnership, management or
advisory agreements in excess of $100,000 per annum, or (iii) the license of any
patent, copyright, trade secret or other proprietary right (A) to Management
Company which is necessary for Management Company to carry on its business or
(B) from Management Company which materially limits the ability of Management
Company to carry on its business. Each Material Agreement is in full force and
effect and (a) neither Management Company nor, to the knowledge of Management
Company, any other party thereto has breached any of the above or is in material
default thereunder, (b) no event has occurred which, with the passage of time or
the giving of notice, or both, would constitute such a breach or default, (c) no
claim of material default thereunder has been asserted or threatened, and (d)
neither Management Company nor, to the best knowledge of Management Company, any
other party thereto is seeking the renegotiation thereof or substitute
performance thereunder.
5.16 TITLE TO PROPERTIES; ENCUMBRANCES
Except for properties and assets reflected in the unaudited consolidated
balance sheet as of October 31, 1994 or acquired since such balance sheet date
which have been sold or otherwise disposed of in the ordinary course of
business, Management Company has good, valid and marketable title to (a) all of
its material properties and assets (real and personal, tangible and intangible),
reflected in such balance sheet, except as indicated in the notes thereto, and
(b) all of the properties and assets purchased by Management Company since such
balance sheet date in each case subject to no encumbrance, lien, charge or other
restriction of any kind or character, except for (i) liens reflected in such
balance sheet, (ii) liens consisting of zoning restrictions or limitations on
the use of real property or irregularities in title thereto which do not
materially detract from the value of, or impair the use of, such property by
Management Company in the operation of its business, (iii) liens for current
taxes, assessments or governmental charges or levies on property not yet due and
delinquent and (iv) liens described in the Management Company Disclosure
Statement (liens of the type described in clauses (i), (ii) and (iii) above are
hereinafter sometimes referred to as "Permitted Liens").
5.17 REAL PROPERTY
The Management Company Disclosure Statement contains an accurate and
complete list of all real property owned in whole or in part by Management
Company and includes the name of the record title holder thereof and a list of
all indebtedness secured by a lien, mortgage or deed of trust thereon.
Management Company has good and marketable title in fee simple to all the real
property owned by it as reflected in the unaudited consolidated balance sheet as
of October 31, 1994, free and clear of all encumbrances, liens, charges or other
restrictions of any kind or character, except for Permitted Liens. All of the
buildings, structures and appurtenances situated on the real property owned in
whole
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or in part by Management Company are in good operating condition and in a state
of good maintenance and repair, are adequate and suitable for the purposes for
which they are presently being used and, with respect to each, Management
Company has adequate rights of ingress and egress for operation of the business
of Management Company or such Subsidiary in the ordinary course. None of such
buildings, structures or appurtenances (or any equipment therein), nor the
operation or maintenance thereof, to the knowledge of Management Company,
violates any restrictive covenant or any provision of federal, state or local
law, ordinance, rule or regulation, or encroaches on any property owned by
others, except for such violations or encroachments which do not have a
Management Company Material Adverse Effect. No condemnation proceeding is
pending or threatened which would preclude or impair the use of any such
property by Management Company for the purposes for which it is currently used.
5.18 ENVIRONMENTAL LAWS AND REGULATIONS
Management Company has made available to Shurgard REIT information relating
to the following items: (a) the nature and quantities of any Hazardous Materials
(as defined below) generated, treated, stored, handled, transported, disposed of
or released, to the knowledge of Management Company, by Management Company
during the past three years, together with a description of the location of each
such activity, and (b) a summary of the nature and quantities of any Hazardous
Materials that, to the knowledge of Management Company, have been disposed of or
found at any site or facility owned or operated presently or at any previous
time by Management Company. To the knowledge of Management Company, Management
Company is in compliance in all material respects with all applicable federal,
state and local laws and regulations relating to product registration, pollution
control and environmental contamination including, but not limited to, all laws
and regulations governing the generation, use, collection, discharge, or
disposal of Hazardous Materials and all laws and regulations with regard to
record keeping, notification and reporting requirements respecting Hazardous
Materials. Management Company has not been alleged to be in violation of, or has
been subject to any administrative or judicial proceeding pursuant to, such laws
or regulations either now or at any time during the past three years. Management
Company has no knowledge of any facts which Management Company considers likely
to form the basis for any Claim (as defined below) against Management Company
relating to environmental matters including, but not limited to, any Claim
arising from past or present environmental practices asserted under CERCLA (as
defined below) and RCRA (as defined below), or any other federal, state or local
environmental statute, which Management Company considers likely to have a
Management Company Material Adverse Effect.
For purposes of this representation the following terms shall have the
following meanings: (A) "Hazardous Materials" shall mean materials defined as
"hazardous substances," "hazardous wastes" or "solid wastes" in (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. SectionSection9601-9657, and any amendments thereto ("CERCLA"), (ii) the
Resource Conservation and Recovery Act, 42 U.S.C. SectionSection6901-6987 and
any amendments thereto ("RCRA"), and (iii) any similar federal, state or local
environmental statute; and (B) "Claim" shall mean any and all claims, demands,
causes of actions, suits, proceedings, administrative proceedings, losses,
judgments, decrees, debts, damages, liabilities, court costs, attorneys' fees
and any other expenses incurred, assessed or sustained by or against Shurgard.
5.19 AFFILIATED TRANSACTIONS
Set forth in the Management Company Disclosure Statement is a list of all
current material arrangements, agreements and contracts, written or oral,
entered into by Shurgard with any person who is an officer, director or
Affiliate of Management Company (other than Shurgard REIT), any relative of any
of the foregoing or any entity of which any of the foregoing is an Affiliate.
True and correct copies of all such documents have previously been delivered or
made available to Shurgard REIT.
5.20 BROKERS AND FINDERS
Except for the fees and expenses paid or payable to Nomura, which fees are
reflected in its agreement with Management Company, Management Company has not
entered into any contract,
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arrangement or understanding with any person or firm which may result in the
obligation of Management Company or Shurgard REIT to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby. Except for the fees and expenses paid or payable by
Shurgard REIT to Alex. Brown and to Nomura by Management Company, Management
Company is not aware of any claim for payment of any investment banking fees,
finder's fees, brokerage or agent's commissions or other payments in connection
with the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
5.21 S-4 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS
None of the information supplied or to be supplied by Management Company for
inclusion in the S-4 Registration Statement as set forth in the Sections titled
"SUMMARY -- The Companies -- Shurgard Incorporated," "SUMMARY -- Action Taken by
Management Company Prior to the Merger," "SUMMARY -- Unaudited Pro Forma
Combined Financial Statements" (Post Merger Consolidation financial statements,
amounts in columns designated Management Company Core Business), "SUMMARY --
COMPARATIVE PER SHARE DATA" (amounts designated Management Company), "SHURGARD
INCORPORATED," "COMPARATIVE PER SHARE MARKET INFORMATION -- THE MANAGEMENT
COMPANY," "DESCRIPTION OF MANAGEMENT COMPANY CAPITAL STOCK," "EXECUTIVE
COMPENSATION," "PRINCIPAL MANAGEMENT COMPANY SHAREHOLDERS," "FINANCIAL
STATEMENTS -- MANAGEMENT COMPANY OF SHURGARD INCORPORATED", the Proxy
Statement/Prospectus or the Management Company Proxy Materials will (a) in the
case of the S-4 Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (b) in the case of the Proxy Statement/Prospectus, at the time of
mailing the Proxy Statement/Prospectus and at the time of the Shurgard REIT
Stockholders Meeting, and in the case of the Management Company Proxy Materials,
at the time of mailing the Management Company Proxy Materials and at the time of
the Management Company Shareholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to Management Company or its officers
and directors shall occur that is required to be described in an amendment of,
or a supplement to, the Proxy Statement/Prospectus, the S-4 Registration
Statement or the Management Company Proxy Materials, Management Company shall
notify Shurgard REIT thereof by reference to this Section 5.21 and, in the case
of the Proxy Statement/ Prospectus or the S-4 Registration Statement, cooperate
with Shurgard REIT in preparing and filing an amendment or supplement with the
SEC and, as required by law, disseminating to the stockholders of Shurgard REIT
and/or the shareholders of Management Company an amendment or supplement which
accurately describes such event or events in compliance with all provisions of
applicable law.
5.22 INSURANCE
The Management Company Disclosure Statement contains an accurate list of all
insurance policies of Shurgard, and each such insurance policy is in full force
and effect and issued by a reputable insurer. All premiums due with respect to
such policies have been paid, and no notice of premium increase, cancellation or
termination has been received with respect to any such policy. Such policies (i)
are sufficient for compliance with requirements of law and with agreements to
which Management Company is a party, (ii) are valid, outstanding and
enforceable, (iii) provide insurance coverage for the assets and operations of
Management Company to the extent and in the manner that Management Company
considers reasonable for companies engaged in business similar to that of
Management Company, (iv) will remain in full force and effect through at least
the Closing Date and (v) will not be modified as a result of, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. Management
Company has not been refused any insurance with respect to its assets or
operations, nor has its coverage been materially limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last three years.
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5.23 DISCLOSURE
The representations and warranties contained in this Agreement, in the
Management Company Disclosure Statement, or in any written certificate or
related agreement furnished or to be furnished to Shurgard REIT by Management
Company in connection with the Closing pursuant to this Agreement do not contain
any untrue statement of a fact or omit to state any material fact necessary to
make the statements and information contained herein or therein, in light of the
circumstances in which they are made, not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHURGARD REIT
Except as set forth in the Shurgard REIT SEC Reports and the Shurgard REIT
Disclosure Statement, Shurgard REIT hereby represents and warrants to Management
Company that, as of the date hereof:
6.1 ORGANIZATION, ETC. OF SHURGARD REIT
Shurgard REIT is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties, to carry
on its business as now conducted and proposed by Shurgard REIT to be conducted,
to enter into this Agreement and to carry out the provisions of this Agreement
and consummate the transactions contemplated hereby. Shurgard REIT is duly
qualified and in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary and where the failure to be so qualified has or
would be reasonably expected (so far as can be foreseen at the time) to have a
material adverse effect on the business, properties, operations, condition
(financial or other) or prospects of Shurgard REIT and its Subsidiaries taken as
a whole (taking into account any tax, insurance or indemnification benefits
received or to be received) (a "Shurgard REIT Material Adverse Effect").
Shurgard REIT has obtained from the appropriate Governmental Bodies all
approvals and licenses necessary for the conduct of its business and operations
as currently conducted, which approvals and licenses are valid and remain in
full force and effect, except where the failure to have obtained such approvals
or licenses or the failure of such approvals and licenses to be valid and in
full force and effect does not have and would not be reasonably expected (so far
as can be foreseen at the time) to have a Shurgard REIT Material Adverse Effect.
Shurgard REIT's and its Subsidiaries' Certificate of Incorporation, By-laws,
organizational documents and partnership agreements are listed in the Shurgard
REIT Disclosure Statement, and true and correct copies of such documents have
been made available to Management Company.
6.2 SUBSIDIARIES
The Shurgard REIT Disclosure Statement sets forth a true and complete list
of each of Shurgard REIT's Subsidiaries (the "Shurgard REIT Subsidiaries"). Each
Shurgard REIT Subsidiary (a) is a corporation or other legal entity duly
incorporated, validly existing and (if applicable) in good standing under the
laws of the jurisdiction of its incorporation or organization and has the full
power and authority to own its properties and conduct its business and
operations as currently conducted, except where the failure to be duly
incorporated or organized, validly existing and in good standing does not have,
and would not be reasonably expected (so far as can be foreseen at the time) to
have, a Shurgard REIT Material Adverse Effect, (b) is duly qualified and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified does not have and would
not be reasonably expected (so far as can be foreseen at the time) to have an
Shurgard REIT Material Adverse Effect, and (c) has obtained from the appropriate
Governmental Bodies all approvals and licenses necessary for the conduct of its
business and operations as currently conducted, which approvals and licenses are
valid and remain in full force and effect, except where the failure to have
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obtained such approvals and licenses or the failure of such approvals and
licenses to be valid and in full force and effect does not have and would not be
reasonably expected (so far as can be foreseen at the time) to have a Shurgard
REIT Material Adverse Effect.
All outstanding shares of capital stock of each Shurgard REIT Subsidiary are
duly authorized, validly issued, fully paid and nonassessable, and are owned, of
record and beneficially, by Shurgard REIT, free and clear of any liens,
encumbrances, equities, options or claims whatsoever. No shares of capital stock
of any Shurgard REIT Subsidiary are reserved for issuance. There are outstanding
no options, warrants or other rights to acquire capital stock from any Shurgard
REIT Subsidiary. Neither Shurgard REIT nor any Shurgard REIT Subsidiary owns,
directly or indirectly, any capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity, except as set forth in the Shurgard REIT Disclosure
Statement.
6.3 AGREEMENT
This Agreement and the consummation of the transactions contemplated hereby
have been approved by the Board of Directors of Shurgard REIT, and have been
duly authorized by all other necessary corporate action on the part of Shurgard
REIT (except for the approval of Shurgard REIT's stockholders contemplated by
Section 7.3(b)). This Agreement has been duly executed and delivered by a duly
authorized officer of Shurgard REIT and, subject to Shurgard REIT stockholder
approval, constitutes a valid and binding agreement of Shurgard REIT,
enforceable against Shurgard REIT in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application that may affect the enforcement of
creditors' rights generally and by general equitable principles. Shurgard REIT
has delivered to Management Company true and correct copies of resolutions
adopted by the Board of Directors of Shurgard REIT approving this Agreement and
the transactions contemplated hereby.
6.4 CAPITAL STOCK
The authorized capital stock of Shurgard REIT consists of (a) 120,000,000
shares of Shurgard REIT Common Shares, (b) 500,000 shares of Class B Common
Stock, $0.001 par value per share, (c) 160,000,000 shares of Excess Stock,
$0.001 par value per share, and (d) 80,000,000 shares of preferred stock, $0.001
par value per share. All outstanding Shurgard REIT Common Shares are duly
authorized, validly issued, fully paid and nonassessable, and no class of
capital stock of Shurgard REIT is entitled to preemptive or cumulative voting
rights. As of the date hereof, 16,829,283 Shurgard REIT Common Shares, 154,604
shares of Class B Common Stock, no shares of Excess Stock, and no shares of
preferred stock were issued and outstanding. Except as disclosed in the Shurgard
REIT SEC Reports, all outstanding shares of capital stock of the Subsidiaries of
Shurgard REIT are owned by Shurgard REIT or a direct or indirect wholly-owned
Subsidiary of Shurgard REIT, free and clear of all liens, charges, encumbrances,
claims and options of any nature.
6.5 AUTHORIZATION FOR SHURGARD REIT COMMON SHARES
Prior to the Effective Time, Shurgard REIT will have taken all necessary
action to permit it to issue the number of Shurgard REIT Common Shares required
to be issued pursuant to Article 4 and to reserve for issuance a sufficient
number of Shurgard REIT Common Shares for delivery upon determination of the
Contingent Shares (as contemplated in Section 4.7 above). The Share
Consideration and Contingent Shares will, when issued, be duly authorized,
validly issued, fully paid and nonassessable, and no shareholder of Shurgard
REIT will have any preemptive right of subscription or purchase in respect
thereof. The Share Consideration and Contingent Shares will, when issued, be
registered under the Securities Act and the Exchange Act and will be registered
or exempt from registration under all applicable state securities laws.
6.6 LITIGATION
There are no actions, suits, investigations or proceedings (adjudicatory,
rulemaking or otherwise) pending or, to the knowledge of Shurgard REIT,
threatened against Shurgard REIT or any of its
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Subsidiaries, or any property (including intellectual property) of Shurgard REIT
or any such Subsidiary, in any court or before any arbitrator of any kind or
before or by any Governmental Body, except actions, suits, investigations or
proceedings that, in the aggregate, do not have and would not be reasonably
expected (so far as can be foreseen at the time) to have (a) a Shurgard REIT
Material Adverse Effect or (b) a material adverse effect on the ability of
Shurgard REIT to perform its obligations under this Agreement.
6.7 COMPLIANCE WITH OTHER INSTRUMENTS, ETC.
Neither Shurgard REIT nor any Subsidiary of Shurgard REIT is in violation of
any term of (a) its charter, by-laws or other organizational documents, (b) any
agreement or instrument related to indebtedness for borrowed money or any other
agreement to which it is a party or by which it is bound, (c) any applicable
law, ordinance, rule or regulation of any Governmental Body, or (d) any
applicable order, judgment or decree of any court, arbitrator or Governmental
Body, except, as to subsections (a) through (d) of this Section, where such
violation, individually or in the aggregate, does not have and would not be
reasonably expected (so far as can be foreseen at the time) to have a Shurgard
REIT Material Adverse Effect or a material adverse effect on the ability of
Shurgard REIT to perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement by Shurgard REIT will not result in
any violation of or conflict with, constitute a default under, require any
consent under or result in the creation or issuance of Excess Stock under any
term of the charter or by-laws of Shurgard REIT (or any of its Subsidiaries) or
any agreement, instrument, permit, license, law, ordinance, rule, regulation,
order, judgment or decree to which Shurgard REIT (or any of its Subsidiaries) is
a part or to which Shurgard REIT (or any of its Subsidiaries) or any of their
material assets are subject, or result in the creation of (or impose any
obligation on Shurgard REIT to create) any mortgage, lien, charge, security
interest or other encumbrance upon any of the properties or assets of Shurgard
REIT or any of its Subsidiaries pursuant to any such term, except where such
violation, conflict or default, or the failure to obtain such consent or the
creation of such encumbrance, individually or in the aggregate, does not have
and would not be reasonably expected (so far as can be foreseen at the time) to
have (a) a Shurgard REIT Material Adverse Effect or (b) a material adverse
effect on the ability of Shurgard REIT to perform its obligations under this
Agreement.
6.8 REPORTS AND FINANCIAL STATEMENTS
Shurgard REIT has filed all reports required to be filed with the SEC since
February 28, 1994 (collectively, the "Shurgard REIT SEC Reports"), and has
previously furnished or made available to Management Company true and complete
copies of all Shurgard REIT SEC Reports. None of the Shurgard REIT SEC Reports,
as of their respective dates (as amended through the date hereof), contained any
untrue statement of material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each of the
balance sheets (including the related notes) included in the Shurgard REIT SEC
Reports presents fairly, in all material respects, the consolidated financial
position of Shurgard REIT and its Subsidiaries as of the respective dates
thereof, and the other related statements (including the related notes) included
therein present fairly, in all material respects, the results of operations and
the changes in financial position of Shurgard REIT and its Subsidiaries for the
respective periods or as of the respective dates set forth therein, all in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as otherwise noted therein and subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments and any other adjustments described therein. All the Shurgard REIT
SEC Reports, as of their respective dates (as amended through the date hereof),
complied in all material respects with the requirements of the Exchange Act and
the applicable rules and regulations thereunder.
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6.9 BROKERS AND FINDERS
Except for the fees and expenses paid to Alex. Brown with respect to the
delivery of a fairness opinion to the Special Committee, which fees are
reflected in its agreement with the Special Committee, Shurgard REIT has not
employed any investment banker, broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement which would be
entitled to any investment banking, brokerage, finder's or similar fee or
commission in connection with this Agreement or the transactions contemplated
hereby.
6.10 S-4 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS
None of the information supplied or to be supplied by Shurgard REIT for
inclusion or incorporation by reference in the S-4 Registration Statement, the
Proxy Statement/Prospectus or the Management Company Proxy Materials will (a) in
the case of the S-4 Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (b) in the case of the Proxy Statement/Prospectus, at
the time of mailing the Proxy Statement/ Prospectus and at the time of the
Shurgard REIT Stockholders Meeting, and in the case of the Management Company
Proxy Materials, at the time of mailing the Management Company Proxy Materials
and at the time of the Management Company Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to Shurgard REIT, its
officers and directors or any of its Subsidiaries shall occur that is required
to be described in an amendment of, or a supplement to, the Proxy
Statement/Prospectus, the S-4 Registration Statement or the Management Company
Proxy Materials, Shurgard REIT shall notify Management Company thereof by
reference to this Section 6.10 and, in the case of the Proxy
Statement/Prospectus or the S-4 Registration Statement, such event shall be so
described, and an amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of Shurgard REIT
and/or the shareholders of Management Company, and such amendment or supplement
shall comply with all provisions of applicable law. The S-4 Registration
Statement will comply (with respect to Shurgard REIT) as to form in all material
respects with the provisions of the Securities Act. The Proxy
Statement/Prospectus will comply (with respect to Shurgard REIT) in all material
respects with the requirements of the Exchange Act and the applicable rules and
regulations thereunder.
6.11 DISCLOSURE
The representations and warranties contained in this Agreement, in the
Shurgard REIT Disclosure Statement or in any written certificate or related
agreement furnished or to be furnished to Management Company by Shurgard REIT in
connection with the Closing pursuant to this Agreement do not contain any untrue
statement of a fact or omit to state any material fact necessary to make the
statements and information contained herein or therein, in light of the
circumstances in which they are made, not misleading.
ARTICLE 7
ADDITIONAL COVENANTS AND AGREEMENTS
7.1 CONDUCT OF BUSINESS OF MANAGEMENT COMPANY
Except as contemplated by this Agreement or as set forth in the Management
Company Disclosure Statement, during the period from the date of this Agreement
to the Effective Time, Management Company will pursue its business in the
ordinary course, with no less diligence and effort than would be applied in the
absence of this Agreement; will seek to preserve intact its current business
organization, keep available the service of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it with the objective that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time; and will not, without the
prior written consent of Shurgard REIT:
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(a) except for Shares issuable upon exercise of Options outstanding as
of the date hereof under the Management Company Option Plan, issue, deliver,
sell, dispose of, pledge or otherwise encumber, or authorize or propose the
issuance, delivery, sale, disposition or pledge or other encumbrances of (i)
any additional shares of its capital stock of any class (including the
Shares), or any securities or rights convertible into, exchangeable for or
evidencing the right to subscribe for any shares of its capital stock, or
any rights, warrants, options, calls, commitments or any other agreements of
any character to purchase or acquire any shares of its capital stock or any
securities or rights convertible into, exchangeable for or evidencing the
right to subscribe for any shares of its capital stock, or (ii) any other
securities in respect of, in lieu of or in substitution for Shares
outstanding on the date hereof;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities (including
the Shares);
(c) split, combine, subdivide or reclassify any shares of its capital
stock or declare, set aside for payment or pay any dividend, or make any
other actual, constructive or deemed distribution in respect of any shares
of its capital stock or otherwise make any payments to shareholders in their
capacity as such;
(d) (i) grant any increases in the compensation of any of its directors,
officers or employees, except in the ordinary course of business consistent
with past practice (except within the parameters noted on the Management
Company Disclosure Statement by virtue of Section 5.7 hereof), (ii) pay or
agree to pay any pension, retirement allowance or other material employee
benefit not required or contemplated by any Employee Plan or Benefit
Arrangement as in effect on the date hereof to any such director, officer or
employee, whether past or present, (iii) enter into any new or amend any
existing employment or severance agreement with any such director, officer
or employee, except (1) as required for the termination of such agreement
(2) in the ordinary course and under $10,000 with respect to any employee or
(3) as required for the assumption of such agreement by Shurgard REIT, or as
otherwise approved by Shurgard REIT in its sole discretion, (iv) pay or
agree to pay any bonus to any director, officer or employee (whether in the
form of cash, capital stock or otherwise), or (v) except as may be required
to comply with applicable law, amend any existing, or become obligated under
any new, Employee Plan or Benefit Arrangement;
(e) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization (other than the Merger);
(f) make any acquisition, by means of merger, consolidation or
otherwise, of (i) any direct or indirect ownership interest in or assets
comprising any business enterprise or operation or (ii) except in the
ordinary course and consistent with past practice, any other assets;
(g) adopt any amendments to its charter or bylaws;
(h) other than borrowings under existing credit facilities, or other
borrowing in the ordinary course, incur any indebtedness for borrowed money
or guarantee any such indebtedness or, except in the ordinary course
consistent with past practice, make any loans, advances or capital
contributions to, or investments in, any Partnership or other Person;
(i) engage in the conduct of any business the nature of which is
materially different than the business Management Company is currently
engaged in;
(j) enter into any agreement providing for acceleration of payment or
performance or other consequence as a result of a change of control of
Management Company;
(k) enter into any contract, arrangement or understanding requiring the
purchase of equipment, materials, supplies or services over a period greater
than 12 months and for the expenditure of greater than $75,000 per year,
which is not cancelable without penalty on 30 days' or less notice, except
in the ordinary course of business;
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(l) forgive any indebtedness owed to Management Company or convert or
contribute by way of capital contribution any such indebtedness owed;
(m) authorize or enter into any agreement providing for property
management services to be provided by Management Company to third-party
property owners or an increase in management fees paid by third-party
property owners under existing property management agreements;
(n) authorize or enter into any agreement that would jeopardize the
qualification of Shurgard REIT as a real estate investment trust pursuant to
Section 856 of the Code if such agreement had been entered into by Shurgard
REIT; or
(o) authorize or announce an intention to do any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of
the foregoing.
7.2 OTHER TRANSACTIONS
Prior to the Effective Time, Shurgard REIT and Management Company each agree
(a) that neither of them shall, and each of them shall direct and use its best
efforts to cause its respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) not to, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders
or shareholders, respectively) with respect to a merger, acquisition, tender
offer, exchange offer, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, such party, other than the transactions contemplated by this
Agreement (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and each will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
Section 7.2; and (c) that it will notify the other party immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it; provided, however, that nothing contained in this Section 7.2 shall
prohibit the Board of Directors of such party from (i) furnishing information to
or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide Acquisition Proposal, if, and only to the extent
that, (A) the Board of Directors of such party determines in good faith that
such action is required for the Board of Directors to comply with its fiduciary
duties to stockholders or shareholders, as the case may be, imposed by law, (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such Person or entity, such party provides written notice to
the other party to this Agreement to the effect that it is furnishing
information to, or entering into discussions with, such person or entity, and
(C) subject to any confidentiality agreement with such person (which such party
determined in good faith was required to be executed in order for the Board of
Directors to comply with its fiduciary duties to stockholders or shareholders,
as the case may be, imposed by law), such party keeps the other party to this
Agreement informed of the status (not the terms) of any such discussions or
negotiations; and (ii) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
Nothing in this Section 7.2 shall (x) permit any party to terminate this
Agreement, (y) permit any party to enter into any agreement with respect to an
Acquisition Proposal during the term of this Agreement (it being agreed that
during the term of this Agreement, no party shall enter into any agreement with
any person that provides for, or in any way facilitates, an Acquisition Proposal
(other than a confidentiality agreement in customary form)), or (z) affect any
other obligation of any party under this Agreement.
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7.3 MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS
(a) Management Company will take all action necessary in accordance with
applicable law and its Articles of Incorporation and Bylaws to convene a meeting
of its shareholders (the "Management Company Shareholders Meeting") as promptly
as practicable to consider and vote upon the approval of the Merger. Subject to
the fiduciary duties of Management Company's Board of Directors under applicable
law as advised by counsel, the Board of Directors of Management Company shall
recommend and declare advisable such approval and Management Company shall take
all lawful action to solicit, and use all reasonable efforts to obtain, such
approval. Prior to the Closing Date, the Management Company shall take all
reasonable steps to cause Barbo, Buerk, Daniels and R. Knutzen (as Trustee for
the Barbo Trust) to enter into an agreement with Shurgard REIT (the
"Shareholders Voting Agreement"), pursuant to which each of such shareholders
shall agree to vote all Shares owned by them or to which they have the right to
vote in favor of approval of the Merger at the Management Company Shareholders
Meeting.
(b) Shurgard REIT will take all action necessary in accordance with
applicable law and Shurgard REIT's Certificate of Incorporation and By-laws to
convene a meeting of its stockholders (the "Shurgard REIT Stockholders Meeting")
as promptly as practicable to consider and vote upon the approval of the Merger
and the issuance of Shurgard REIT Common Shares in the Merger. Subject to the
fiduciary duties of Shurgard REIT's Board of Directors under applicable law as
advised by counsel, the Board of Directors of Shurgard REIT shall recommend and
declare advisable such approval and Shurgard REIT shall take all lawful action
to solicit, and use all reasonable efforts to obtain, such approval.
7.4 REGISTRATION STATEMENT/PROXY MATERIALS
After the date hereof, Shurgard REIT and Management Company shall cooperate
and promptly prepare and Shurgard REIT shall file with the SEC as soon as
practicable a registration statement on Form S-4 (the "S-4 Registration
Statement"), containing a proxy statement/prospectus, in connection with the
registration under the Securities Act of the Share Consideration and the
Contingent Shares issuable upon conversion of the Shares and the other
transactions contemplated hereby. Shurgard REIT will also, as promptly as
practicable, prepare and file with the SEC a proxy statement that will be the
same proxy statement/prospectus contained in the S-4 Registration Statement and
a form of proxy, in connection with the vote of Shurgard REIT's stockholders
with respect to the Merger (such proxy statement/prospectus, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to Shurgard REIT's stockholders, is herein called the "Proxy
Statement/Prospectus"). Management Company will, as promptly as practicable,
prepare a notice of the Management Company Shareholders Meeting and a form of
proxy and such other written materials as may be required by the WBCA or other
applicable law in connection with the vote of Management Company's shareholders
with respect to the Merger (such materials, together with any amendments thereof
or supplements thereto, in each case in the form or forms mailed to Management
Company's shareholders, is herein called the "Management Company Proxy
Materials"). Shurgard REIT and Management Company will use all reasonable
efforts to have the S-4 Registration Statement, or cause it to be, declared
effective as promptly as practicable, and also will take any other action
required to be taken under federal or state securities laws, and will use all
reasonable efforts to cause the Proxy Statement/Prospectus to be mailed to
stockholders of Shurgard REIT and the Management Company Proxy Materials to be
mailed to shareholders of Management Company at the earliest practicable date.
If at any time prior to the Effective Time any event relating to it or affecting
Management Company or Shurgard REIT shall occur as a result of which it is
necessary, in the opinion of counsel for Management Company or of counsel for
Shurgard REIT, to supplement or amend the S-4 Registration Statement in order to
make such document not misleading in light of the circumstances existing at the
time approval of the shareholders of Management Company is sought, Management
Company and Shurgard REIT forthwith will prepare and file with the SEC an
amendment or supplement to the S-4 Registration Statement so that such document,
as so supplemented or
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amended, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances existing at such time, not misleading.
7.5 FILINGS; OTHER ACTION
Management Company and Shurgard REIT shall: (a) to the extent required,
promptly make all filings and thereafter make any other required submissions
under the HSR Act with respect to the Merger; (b) use all reasonable efforts to
cooperate with one another to (i) determine which Authorizations are required to
be made or obtained prior to the Effective Time in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and
(ii) timely make and seek all such Authorizations; (c) use all reasonable
efforts to obtain in writing any consents required from third parties in form
reasonably satisfactory to Shurgard REIT and Management Company necessary to
effectuate the Merger; (d) use all reasonable efforts to promptly take, or cause
to be taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to satisfy the conditions set forth in Article
8 and to consummate and make effective the transactions contemplated by this
Agreement on the terms and conditions set forth herein as soon as practicable
(including seeking to remove promptly any injunction or other legal barrier that
may prevent such consummation); and (e) not take any action which might
reasonably be expected to impair the ability of the parties to consummate the
Merger at the earliest possible time.
7.6 ACCESS TO INFORMATION
From the date hereof until the Effective Time, Management Company will give
Shurgard REIT, its counsel, financial advisors, auditors and other authorized
representatives full access to the offices, properties, books and records of
Management Company, will furnish to Shurgard REIT, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such persons may reasonably request and
will instruct Management Company's employees, counsel and financial advisors to
cooperate with Shurgard REIT in its investigation of the business of Management
Company; provided that no investigation pursuant to this Section shall affect
any representation or warranty given by Management Company to Shurgard REIT
hereunder.
7.7 LISTING APPLICATION
Shurgard REIT promptly shall prepare and submit to the Exchange a listing
application covering the Shurgard REIT Common Shares issuable in the Merger, and
shall use its reasonable efforts to obtain, prior to the Effective Time,
approval for the listing of such Shurgard REIT Common Shares, subject to
official notice of issuance.
7.8 AFFILIATES OF MANAGEMENT COMPANY
(a) Set forth in the Management Company Disclosure Statement are the persons
who may be deemed to be "affiliates" of Management Company for purposes of Rule
145 under the Securities Act ("Rule 145 Affiliates") or who may otherwise be
deemed to be Affiliates of Management Company. By agreement dated the date
hereof, each of the Rule 145 Affiliates has delivered a letter (each, an
"Affiliate Letter") to Shurgard REIT indicating that such Rule 145 Affiliate
will not sell, pledge, transfer or otherwise dispose of any Shurgard REIT Common
Shares issued to such Rule 145 Affiliate pursuant to the Merger, except (i)
pursuant to an effective registration statement, (ii) in compliance with Rule
145 or (iii) pursuant to a transaction exempt from, or otherwise not subject to,
the registration requirements of the Securities Act (provided, however, that any
transferee pursuant to a transaction described in (iii) shall agree in writing
to hold the Shurgard REIT Common Shares subject to the restrictions set forth in
the Affiliate Letter). Shurgard REIT shall be entitled to place legends as
specified in such Affiliate Letters on the certificates evidencing any Shurgard
REIT Common Shares to be received by such Affiliates pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Shurgard REIT Common Shares, consistent with the terms of
such Affiliate Letters.
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(b) Shurgard REIT shall file the reports required to be filed by it under
the Exchange Act and the rules and regulations adopted by the SEC thereunder,
and it will take such further action as any Rule 145 Affiliate may reasonably
request, all to the extent required from time to time to enable such Rule 145
Affiliate to sell Shurgard REIT Common Shares received by such Rule 145
Affiliate in the Merger without registration under the Securities Act pursuant
to Rule 145(d)(1) under the Securities Act, as such Rule may be amended from
time to time.
7.9 TAX MATTERS
(a) Each of Management Company and Shurgard REIT agrees to report the Merger
on all Tax Returns and other filings as a tax-free reorganization under Section
368(a)(1) of the Code. Furthermore, notwithstanding the terms and provisions of
Sections 4.1(a)(ii) and 4.7 hereof, the parties hereby agree that the aggregate
number of Shurgard REIT Common Shares issued (a) as Contingent Shares pursuant
to Sections 4.1(a)(ii) and 4.7 and (b) as additional Shurgard REIT Common Shares
issued as a result of any Under-Statement pursuant to Section 4.1(d)(ii)(D)
shall not exceed the aggregate number of Shurgard REIT Common Shares issued as
Share Consideration at the Effective Time pursuant to Sections 4.1(a)(i), as
adjusted pursuant to Section 4.1(d), excluding any additional Shurgard REIT
Common Shares issued as a result of any Under-Statement pursuant to Section
4.1(d)(ii)(D). The parties understand that this limitation is necessary to
support the opinion to be provided by counsel to Shurgard REIT pursuant to
Section 8.3(b) that the Merger qualifies as a reorganization pursuant to Section
368(a)(1) of the Code.
(b) The Representatives shall prepare or cause to be prepared and filed on
behalf of the Management Company, but at the sole cost and expense of the
Shurgard REIT, all federal, state, and local Tax Returns required to be filed
with respect to the short taxable year of the Management Company ending as of
the Effective Time. Shurgard REIT and its personnel will cooperate with the
Representatives in the preparation and filing of all such Tax Returns, shall
provide reasonable access to the books and records of the Management Company for
such purposes, and shall make available its personnel, counsel, accountants, and
other resources as shall be reasonably necessary to enable the Representatives
to prepare or cause to be prepared and filed in a timely manner all such Tax
Returns. In connection with the filing of the federal income Tax Return of the
Management Company for its short taxable year ending as of the Effective Time,
the InterMation Spin-Off shall be reported in all respects as a transaction
qualifying under Section 355(a)(1) of the Code. The Representatives will
promptly update their study of accumulated earnings and profits to include the
year ended December 31, 1994 and the short period ending on the Effective Time.
In addition, to the extent that the Management Company incurs a net operating
loss ("NOL") for its short taxable year ending as of the Effective Time, the
Representatives shall prepare or cause to be prepared and filed with the
Internal Revenue Service Form 1139 and shall take such other action as shall be
necessary or appropriate to carry back such NOL to a prior taxable year of the
Management Company so that a refund of federal income tax can be claimed for
such taxable year and a "tentative carry-back adjustment", in the amount of such
claimed refund, can be obtained pursuant to Section 6411 of the Code.
(c) If the Internal Revenue Service or any other taxing authority initiates
an audit or examination of any Tax Return of the Management Company or denies or
disputes payment, or the amount, of the Refund (a "Tax Audit"), the Shurgard
REIT shall give prompt notice thereof to the Representatives, and the
Representatives shall have the sole and exclusive right to manage and control
such Tax Audit and to contest, settle, or compromise any issues raised during
the course of such Tax Audit. In handling any such Tax Audit the Representatives
may engage counsel, accountants, or other advisors reasonably acceptable to the
Shurgard REIT and shall keep management of the Shurgard REIT regularly advised
of the course of such Tax Audit. If it elects to do so, the Shurgard REIT also
may engage counsel, accountants, or other advisors reasonably acceptable to the
Representatives to monitor the progress of any such Tax Audit. All costs and
expenses incurred either by the Representatives or by the Shurgard REIT in
connection with any such Tax Audit, including the fees and expenses of counsel,
accountants, and other advisors selected either by the Representatives or the
Shurgard REIT shall be borne by the Shurgard REIT, without reimbursement.
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(d) If, at the conclusion of a Tax Audit or otherwise, the Internal Revenue
Service or any other taxing authority should assert a deficiency or claim an
underpayment of Tax (including interest and penalties, if any) against either
the Management Company or the Shurgard REIT with respect to any Tax Return of
the Management Company for any taxable year ending on or before the Effective
Time (a "Tax Claim"), and if the payment of such Tax Claim by the Shurgard REIT,
as successor in interest to the Management Company, would constitute Damages for
which the Shurgard REIT is entitled to indemnification pursuant to Section 4.8,
then the Representatives shall have the sole and exclusive right to defend and
contest such Tax Claim through such administrative or judicial proceedings as
they may elect (a "Tax Contest"), until a Final Determination is made with
respect to such Tax Claim. The Representatives may engage counsel, accountants,
and other advisors reasonably acceptable to the Shurgard REIT to assist them in
handling the Tax Contest. All costs and expenses incurred by the Representatives
in handling such Tax Contest, if finally resulting in such Damages, including
the fees and costs of counsel, accountants, and other advisors, shall be paid by
the Shurgard REIT and shall constitute additional Damages for which the Shurgard
REIT shall be entitled to indemnification pursuant to Section 4.8. The Shurgard
REIT and its personnel will cooperate with the Representatives and their
advisors in the defense of any such Tax Claim and in the handling of any such
Tax Contest. The Shurgard REIT also may elect to engage, at its own cost and
expense, counsel, accountants, or other advisors reasonably acceptable to the
Representatives to monitor the progress of the Tax Contest and to assist the
Representatives and their advisors as appropriate. The Representatives shall
have the sole and exclusive right to settle any Tax Contest and compromise any
Tax Claim made against the Management Company or the Shurgard REIT which is
subject to indemnification pursuant to Section 4.8, provided, however, that the
Representatives shall not settle any such Tax Contest or compromise any such Tax
Claim without the consent of the Shurgard REIT, to the extent such settlement or
compromise would result in any Tax liability or other claim (including any
pending or reasonably foreseeable claim) in excess of the amount of Damages that
may then be available for indemnification under Section 4.8 hereunder.
7.10 INTERMATION SPIN-OFF
Prior to the Closing, Management Company shall distribute all of the shares
of capital stock of InterMation held by Management Company to its shareholders
pro rata in a transaction intended to qualify for tax-free treatment under
Section 355(a)(1) of the Code pursuant to the terms of an Agreement and Plan of
Corporate Separation between Management Company and InterMation in form and
substance acceptable to Shurgard REIT, acting reasonably (the "InterMation
Spin-Off"). Management Company agrees to report the InterMation Spin-Off on all
Tax Returns and other filings as a tax-free distribution pursuant to Section
355(a)(1) of the Code. Shurgard REIT will not take any position on any Tax
Return or other filing or in connection with any audit or examination of any Tax
Return which is inconsistent with the qualification of the InterMation Spin-Off
as a tax-free distribution pursuant to Section 355(a)(i) of the Code. In the
event that there is a determination or a claim by an applicable taxing authority
that the InterMation Spin-Off does not qualify under Section 355(a)(1) of the
Code Shurgard REIT will promptly notify its stockholders regarding the ability
to file protective refund claims and will take all reasonable actions to assist
its stockholders in filing and prosecuting such refund claims.
7.11 SHURGARD REALTY ADVISORS
Prior to the Closing (a) the sale or other disposition of Shurgard Realty
Advisors to such purchaser and for such consideration as the Board of Directors
of Management Company deems appropriate shall have occurred and (b) Shurgard
Realty Advisors shall have entered into an agreement with Shurgard REIT
providing that so long as (i) Shurgard Realty Advisors shall be maintained as a
legal entity licensed as a broker-dealer and (ii) Shurgard REIT shall reimburse
Shurgard Realty Advisors for the costs of maintaining its licenses as a
broker-dealer, Shurgard Realty Advisors shall grant Shurgard REIT broker-dealer
services on financial terms substantially similar to those provided to Shurgard
REIT in connection with the consolidation of Shurgard REIT; provided that
Shurgard
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Realty Advisors shall have the right, upon thirty (30) days' notice to Shurgard
REIT, to allow Shurgard Realty Advisors' broker-dealer licenses to lapse and/or
to dissolve Shurgard Realty Advisors (the "SRA Letter").
7.12 MANAGEMENT AND ADVISORY AGREEMENTS
Prior to the Closing, Management Company shall use all reasonable efforts to
cause the owners of all properties managed and of all partnerships advised by
Management Company to consent to the management of such properties and
assumption of such advisory functions by the Surviving Corporation to the extent
required by the existing management and advisory agreements relating thereto.
7.13 INTELLECTUAL PROPERTY RIGHTS
Prior to the Closing, Management Company shall use all reasonable efforts to
obtain all assignments or other consents necessary with respect to the
Management Company Intellectual Property Rights listed on the Management Company
Disclosure Statement.
7.14 EMPLOYEES
Shurgard REIT agrees to employ at the Effective Time all employees of
Management Company who are employed on the Closing Date on terms consistent with
Management Company's current employment practices and at comparable levels of
compensation and positions, except that such employment shall be at will and
Shurgard REIT shall be under no obligation to continue to employ any of such
individuals for more than thirty (30) days after Closing. For purposes of this
Section 7.14, the term "employees" shall mean all current employees of
Management Company and its Subsidiaries (including those on disability or leave
of absence, paid or unpaid). Notwithstanding the foregoing, the terms of (a)
that certain Employee Employment Agreement between Management Company and Allyn
Finch dated as of September 1, 1994, (b) that certain Employee Agreement between
Management Company and Kim Kimbrell dated as of September 1, 1994, and (c) that
certain memorandum dated November 3, 1994 regarding a long term incentive
compensation plan for Ron Newhouse (to the extent executed by same) shall
expressly be assumed by Shurgard REIT.
7.15 REORGANIZATION
From and after the date hereof and prior to the Effective Time, except for
the transactions contemplated or permitted herein, neither Management Company
nor Shurgard REIT shall knowingly take any action that would be inconsistent
with the representations and warranties made by them herein, including, but not
limited to knowingly taking any action, or knowingly failing to take any action
that is known to cause disqualification of (A) the Merger as a reorganization
within the meaning of Section 368(a)(1) of the Code, or (B) the InterMation
Spin-Off as a qualified distribution under Section 355(a)(1) of the Code.
Furthermore, from and after the date hereof and prior to the Effective Time,
except for the transactions contemplated or permitted herein, Management Company
shall use its best efforts to conduct its business and file Tax Returns in a
manner that would not jeopardize the qualification of Shurgard REIT after the
Effective Time as a real estate investment trust as defined within Section 856
of the Code.
7.16 PUBLIC STATEMENTS
The parties shall consult with each other prior to issuing any public
announcement or statement with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such public announcement or
statement prior to such consultation, except as may be required by law or by the
rules of the NASD.
7.17 ESOP
(a) Management Company shall take all reasonable steps toward the end that
(i) any merger of Management Company's qualified retirement plans prior to the
transactions that are contemplated hereby will comply with applicable law and
the resulting merged plan ("Merged Plan") will continue to be qualified under
Code Section 401(a); (ii) the transactions contemplated hereby as they relate to
the ESOP or Merged Plan (including, but not limited to, the exchange of Shares
and the redemption of InterMation shares held by the ESOP) will not result in a
prohibited transaction under ERISA or the
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Code, or otherwise violate applicable law, nor will they result in the
imposition of any state, federal or local excise tax on Management Company or
any other person; and (iii) following the Merger, InterMation shall offer to
repurchase from the Merged Plan any shares of InterMation capital stock so held
at a price per share reflective of the then fair market value thereof.
(b) Shurgard REIT agrees to take all appropriate and necessary steps to
adopt the Merged Plan as the successor employer thereunder.
7.18 LETTER OF SHURGARD'S ACCOUNTANTS
The Management Company shall use its best efforts to cause to be delivered
to Shurgard REIT an "agreed-upon procedures" report of Deloitte & Touche LLP,
dated a date within two business days before the date on which the S-4
Registration Statement shall become effective and addressed to Shurgard REIT, in
form and substance reasonably satisfactory to Shurgard REIT and customary in
scope and substance for reports delivered by independent public accountants in
connection with registration statements similar to the S-4 Registration
Statement.
7.19 OPINION OF FINANCIAL ADVISOR
Shurgard REIT shall use its best efforts to cause Alex. Brown to provide its
opinion, as to the fairness, from a financial point of view, of the
consideration payable in connection with the Merger, and shall include such
opinion in the Proxy Statement/Prospectus.
7.20 NOTICE OF CERTAIN EVENTS
Each party hereto shall promptly notify the other party of (i) any notice or
other communication from any Person alleging that the consent of such Person is
or may be required in connection with the transactions contemplated by this
Agreement; (ii) any notice or other communication from any Governmental Body in
connection with the transactions contemplated by this Agreement; and (iii) any
actions, suits, claims, investigations or proceedings commenced or, to its
knowledge threatened against, relating to or involving or otherwise affecting
either party or any of its Subsidiaries which, if pending on the date of this
Agreement, would have been required to have been disclosed in the Management
Company Disclosure Statement pursuant to Section 5.5 or in the Shurgard REIT
Disclosure Statement pursuant to Section 6.6 or which relate to the consummation
of the transactions contemplated by this Agreement.
7.21 DIRECTOR AND OFFICER INDEMNIFICATION
From and after the Effective Date, Shurgard REIT shall keep in effect
provisions in its Certificate of Incorporation and By-laws providing for
limitation of director liability and indemnification of directors, officers,
employees and agents at least to the extent that such persons are entitled
thereto under the Articles of Incorporation and Bylaws of Management Company on
the date hereof, subject to Delaware law (and, to the extent that the Shurgard
REIT By-laws do not provide for indemnification of directors or officers of
predecessor corporations, shall contractually assume the indemnification
obligations under Management Company's Bylaws, subject to Delaware law), which
provisions shall not be amended, repealed or otherwise modified in any manner
that would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors, officers, employees or agents of
Management Company in respect of actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the transactions contemplated
by this Agreement), unless such modification is required by law.
7.22 WORKING CAPITAL
Management Company agrees that as of the Closing Date, there shall be an
aggregate amount of (i) cash and short-term investments and (ii) fees and
reimbursable receivables of not less than $1,060,700 ("Minimum Working
Capital").
7.23 CONTINGENT SHARES
Shurgard REIT agrees to act in good faith with respect to the Contingent
Partnerships and the right of the Management Company shareholders to receive
Contingent Shares and further agrees not to take any action, or fail to take any
action, that reasonably could be anticipated to adversely affect
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the Contingent Partnerships, the Project Partnerships, or the value of the
Partnership Facilities or the right of the Management Company shareholders to
receive Contingent Shares, including, without limitation, voting or failing to
vote with respect to any matter submitted to a vote of the partners of any
Contingent Partnership or Project Partnership, or amending the partnership
agreements of any Contingent Partnership or Project Partnership in which
Shurgard REIT is a partner.
7.24 FURTHER ACTION
Each party hereto shall, subject to the fulfillment or waiver at or before
the Effective Time of each of the conditions of performance set forth herein,
perform such further acts and execute such documents as may reasonably be
required to effect the Merger.
ARTICLE 8
CONDITIONS
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS
(a) The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Closing Date of each of the following conditions, which conditions may not be
waived:
(i) Management Company Shareholder Approval
This Agreement and the transactions contemplated hereby shall have been
duly approved or ratified by the requisite holders of Shares in accordance
with applicable provisions of the WBCA (including, without limitation, RCW
23B.08.730), the Articles of Incorporation and Bylaws of Shurgard.
(ii) Shurgard REIT Stockholder Approval
The Agreement and the transactions contemplated hereby shall have been
duly approved by the requisite holders of Shurgard REIT capital stock in
accordance with applicable provisions of the DGCL and the Certificate of
Incorporation and By-laws of Shurgard REIT.
(iii) HSR Act
The waiting period applicable to the consummation of the Merger under
the HSR Act, if applicable, shall have expired or been terminated.
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(iv) Contingent Shares Agreement
The Contingent Shares Agreement described in Section 4.7 above shall
have been executed and delivered by all requisite parties thereto.
(v) Indemnification Escrow Agreement
The Indemnification Escrow Agreement described in Section 4.8 above
shall have been executed and delivered by all requisite parties thereto.
(vi) No Injunction or Proceedings
There shall not be in effect any judgment, writ, order, injunction or
decree of any court or Governmental Body of competent jurisdiction
restraining, enjoining or otherwise preventing consummation of the
transactions contemplated by this Agreement or permitting such consummation
only subject to any condition or restriction unacceptable to either of
Shurgard REIT or Management Company, each in its reasonable judgment, nor
shall there be pending or threatened by any Governmental Body any suit,
action or proceeding, and there shall not be pending by any other Person any
suit, action or proceeding seeking to restrain or restrict the consummation
of the Merger or seeking damages in connection therewith, which, in the
reasonable judgment of either Shurgard REIT or Management Company could have
(a) a Shurgard REIT Material Adverse Effect or a Management Company Material
Adverse Effect, respectively, or (b) a material adverse effect on the
ability of Shurgard REIT or Management Company, respectively, to perform its
obligations under this Agreement.
(vii) Registration Statement
The S-4 Registration Statement shall have been declared effective and
shall be effective at the Effective Time, and no stop order suspending
effectiveness shall have been issued; no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing; and all necessary approvals under state
securities laws or the Securities Act or Exchange Act relating to the
issuance or trading of the Shurgard REIT Common Shares shall have been
received.
(b) The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to
Closing Date of each of the following conditions, which conditions may only be
waived by mutual agreement of the parties hereto:
(i) Consents
All Authorizations and other third-party consents required in connection
with the execution and delivery of this Agreement and the performance of the
obligations hereunder shall have been made or obtained.
(ii) Employment, Non-Competition and Other Agreements
(A) The existing employment agreements by and between each of Barbo and
Daniels, on the one hand, and Management Company, on the other, shall have
been terminated, (B) the 1983 Agreements shall have been terminated, and (C)
and Barbo shall have entered into a noncompetition agreement with Shurgard
REIT, substantially in the form attached hereto as Exhibit D.
(iii) Exchange Listing
The approval for the listing on the Exchange of the Shurgard REIT Common
Shares issuable in the Merger, subject to official notice of issuance, shall
have been obtained.
(iv) Restrictions on Resale of Share Consideration and Contingent Shares
Barbo, Buerk, Daniels, Michael Rowe, David K. Grant, and R. Knutzen, as
Trustee of the Barbo Trust, each shall have entered into an agreement with
Shurgard REIT pursuant to which they each shall have agreed not to sell,
pledge on a non-recourse basis, transfer and otherwise
39
<PAGE>
dispose of (except by operation of law) more than 40% of the Share
Consideration or the Contingent Shares received for a two-year period
commencing upon the Closing Date, without the written consent of Shurgard
REIT and the Representatives. Such agreement shall provide that the
certificates reflecting such Share Consideration and Contingent Shares
issued to such Management Company shareholders pursuant to this Agreement,
or any securities that may be paid as a dividend or otherwise distributed
thereon or with respect thereto or issued or delivered in exchange or
substitution therefor, shall bear a legend reflecting such restrictions on
transfer, provided, that certificates issued after the two-year period has
expired need not bear such legend.
8.2 CONDITIONS TO OBLIGATIONS OF MANAGEMENT COMPANY TO EFFECT THE MERGER
The obligation of Management Company to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions,
unless waived in writing by Management Company:
(a) Shurgard REIT shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Shurgard REIT contained in this Agreement
shall be true and correct in all material respects as of the Closing Date as
if made on the Closing Date (except for changes therein contemplated or
permitted by this Agreement), and Management Company shall have received a
certificate of the President of Shurgard REIT, dated the Closing Date,
certifying to such effect.
(b) Management Company shall have received the opinion of Riddell,
Williams, Bullitt & Walkinshaw ("Riddell") addressed to Management Company
and dated the effective date of the InterMation Spin-Off, to the effect that
the InterMation Spin-Off more likely than not qualifies for tax-free
treatment under Section 355 of the Code, in form and substance reasonably
acceptable to counsel for Shurgard REIT (the "InterMation Spin-Off
Opinion"). Such opinion shall provide that Management Company and its
successors, including Shurgard REIT, shall be entitled to rely on such
opinion.
(c) Management Company shall have received from Perkins Coie, an
opinion, dated the Closing Date as to the matters set forth on Exhibit E.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of Shurgard REIT and its Subsidiaries, taken as a whole, that
would have or would be reasonably likely to have a Shurgard REIT Material
Adverse Effect.
(e) Any sums then due and owing to Management Company by Shurgard REIT
as a result of obligations arising out of (i) that certain Management
Services Agreement dated as of March 1, 1994 between Management Company and
Shurgard REIT and (ii) that certain Advisory Agreement dated as of March 1,
1994 between Management Company and Shurgard REIT shall have been paid.
8.3 CONDITIONS TO OBLIGATION OF SHURGARD REIT TO EFFECT THE MERGER
The obligations of Shurgard REIT to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions,
unless waived in writing by Shurgard REIT:
(a) Management Company shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Shurgard REIT contained in this
Agreement shall be true and correct in all material respects as of the
Closing Date as if made on the Closing Date (except for changes therein
contemplated or permitted by this Agreement), and Shurgard REIT shall have
received a certificate of the President of Management Company, dated the
Closing Date, certifying to such effect.
(b) Shurgard REIT shall have received the opinion of Perkins Coie, in
form and substance reasonably acceptable to counsel for the Special
Committee, to the effect that the Merger will be
40
<PAGE>
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code and each of Shurgard REIT and
Management Company will be a party to that reorganization within the meaning
of Section 368(b) of the Code such that Management Company will not
recognize gain as a result of the Merger.
(c) The InterMation Spin-Off Opinion shall have been delivered.
(d) Shurgard REIT shall have received from Riddell an opinion, dated the
Closing Date, as to the matters set forth on Exhibit F.
(e) Shurgard REIT shall have received an "agreed-upon procedures" report
from Deloitte & Touche LLP, independent public accountants for Management
Company, dated as of a date within two business days before the date on
which the S-4 Registration Statement shall become effective, with respect to
the financial statements of Management Company included in the Proxy
Statement/Prospectus, in form and substance reasonably satisfactory to
Shurgard REIT, and customary in scope and substance for "agreed-upon
procedures" reports delivered by independent public accountants in
connection with registration statements and proxy statements similar to the
S-4 Registration Statement and the Proxy Statement/Prospectus.
(f) Shurgard REIT shall have received the Closing Statement, conforming
to the requirements of Section 4.1(d)(ii)(A) hereof, within five (5) days
prior to the Closing Date.
(g) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of Management Company and its Subsidiaries, taken as a whole,
that would have or would be reasonably likely to have a Management Company
Material Adverse Effect.
(h) Holders in excess of 10% of the Shares outstanding immediately prior
to the Closing shall not have exercised dissenters' rights under applicable
law.
(i) The InterMation Spin-Off described in Section 7.10 above shall have
occurred.
(j) The disposition of Shurgard Realty Advisors described in Section
7.11 above shall have occurred.
(k) Shurgard Realty Advisors shall have executed and delivered the SRA
Letter.
(l) All assignments or other consents necessary to transfer to the
Surviving Corporation the Management Company Intellectual Property Rights
set forth on the Management Company Disclosure Statement shall have been
obtained.
(m) The Closing Statement shall reflect ownership by Management Company
of the Minimum Working Capital.
ARTICLE 9
TERMINATION
9.1 TERMINATION BY MUTUAL CONSENT
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, before or after the approval by shareholders or
stockholders of Management Company or Shurgard REIT, respectively, either by the
mutual written consent of Shurgard REIT and Management Company, or by mutual
action of their respective Boards of Directors.
9.2 TERMINATION BY EITHER SHURGARD REIT OR MANAGEMENT COMPANY
This Agreement may be terminated and the Merger may be abandoned by action
of the Board of Directors of Management Company or Shurgard REIT if (a) the
Merger shall not have been consummated by May 25, 1995, (b) the Management
Company Shareholders Meeting duly shall have been
41
<PAGE>
convened and held and the approval of Management Company's shareholders required
by Section 7.3(a) shall not have been obtained at such meeting or at any
adjournment thereof, (c) the Shurgard REIT Stockholders Meeting duly shall have
been convened and held and the approval of Shurgard REIT's stockholders required
by Section 7.3(b) shall not have been obtained at such meeting or at any
adjournment thereof, or (d) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable,
provided, that the party seeking to terminate this Agreement pursuant to this
clause (d) shall have used all reasonable efforts to remove such order, decree,
ruling or injunction; and provided, in the case of a termination pursuant to
clause (a) above, that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the occurrence of the failure referred to in
said clause.
9.3 EFFECT OF TERMINATION AND ABANDONMENT
In the event of termination of this Agreement and abandonment of the Merger
pursuant to this Article 9, no party hereto (or any of its directors or offices)
shall have any liability or further obligation to any other party to this
Agreement, except that nothing herein will relieve any party from liability for
any breach of this Agreement.
ARTICLE 10
MISCELLANEOUS AND GENERAL
10.1 EXPENSES
Each party shall bear its own expenses, including the fees and expenses of
any attorneys, accountants, investment bankers, brokers, finders or other
intermediaries or other Persons engaged by it, incurred in connection with this
Agreement and the transactions contemplated hereby. Notwithstanding the
immediately preceding sentence, in the event that one or more of Management
Company, its officers, directors or Affiliates shall be involuntarily be made
party (collectively, the "Litigation Parties") to any suit, action or proceeding
commenced by any Governmental Body or by any Shurgard REIT stockholder or other
person and seeking to restrain restrict or impede the consummation of the Merger
or seeking damages or other relief in, connection therewith, Shurgard REIT shall
defend, indemnify and hold all such Litigation Parties harmless from all costs,
expenses, losses and liabilities incurred in connection with any such suit,
action or proceeding, including, without limitation, advancement of all legal
and other costs associated with the defense thereof and all liabilities incurred
by way of settlement or final judgment or decree, provided that: (a) each of
such Litigation Parties shall, in the event that it deems conflict or fiduciary
considerations make such necessary or advisable, have the right to retain
separate counsel and to conduct and control its own defense in such suit, action
or proceeding, and all legal and other costs associated with such separate
defense shall likewise be paid in full by Shurgard REIT by advancement or by
reimbursement promptly after submission of invoices relating thereto to Shurgard
REIT; (b) no settlement of any such suit, action or proceeding shall be entered
into by Shurgard REIT without the express written consent of each of the
Litigation Parties, which consent, in the case of any proposed settlement
imposing solely monetary sanctions which are to be paid in full on the
settlement date by Shurgard REIT and releasing the Litigation Parties from any
further liability or participation in such suit, action or proceeding, shall not
be unreasonably withheld; (c) no Litigation Party shall enter into any
settlement of any such suit, action or proceeding for which settlement such
Litigation Party intends to seek indemnification from Shurgard REIT hereunder,
without the express written consent of Shurgard REIT; and (d) Shurgard REIT
shall have no duty to indemnify any Litigation Party for any liability imposed
under any final judgment or decree to the extent that such liability has been
finally adjudicated to have been the result of (i) an untrue statement of or
omission of material fact by Management Company in those sections of the S-4
42
<PAGE>
Registration Statement or the Proxy Statement/Prospectus specified in Section
5.21 hereof, in violation of said Section 5.21, or (ii) fraud, intentional
misconduct or knowing violation of law by such Litigation Party."
10.2 NOTICES, ETC.
All notices, requests, demands or other communications required by or
otherwise with respect to this Agreement shall be in writing and shall be deemed
to have been duly given to any party when delivered personally (by courier
service or otherwise), when delivered by facsimile and confirmed by return
facsimile, or seven days after being mailed by first-class mail, postage prepaid
and return receipt requested in each case to the applicable addresses set forth
below:
<TABLE>
<S> <C>
If to Management Company: with a copy to:
Shurgard Incorporated Riddell, Williams, Bullitt & Walkinshaw
Suite 2200 1001 4th Avenue Plaza,
1201 Third Avenue Suite 4400
Seattle, WA 98101 Seattle, WA 98104
Attention: Charles K. Barbo Attention: John M. Steel
Facsimile: (206) 624-1645 Facsimile: (206) 389-1708
If to Shurgard REIT: with a copy to:
Shurgard Storage Centers, Inc. Perkins Coie
Suite 2200 1201 Third Avenue, Suite 4000
1201 Third Avenue Seattle, WA 98104
Seattle, WA 98101 Attention: Michael E. Stansbury
Attention: Harrell Beck Facsimile: (206) 583-8500
Facsimile: (206) 624-1645
</TABLE>
or to such other address as such party shall have designated by notice so given
to each other party.
10.2 SURVIVAL
The covenants, agreements, representations and warranties of the parties
hereto contained in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith shall survive the Closing
through the second anniversary of the Closing Date, except in the case of
Sections 5.8, 5.10, and 7.17, which in each such case shall survive through the
fourth anniversary of the Closing Date. Notwithstanding the preceding sentence,
any covenant, agreement, representation or warranty in respect of which
indemnity may be sought pursuant to Section 4.8 shall survive the time at which
it would otherwise terminate pursuant to the preceding sentence, if written
notice of the inaccuracy or breach thereof, specifying Damages (including the
amount thereof) giving rise to such right to indemnity shall have been given to
the party against whom such indemnity may be sought prior to such time.
10.3 AMENDMENTS, WAIVERS, ETC.
This Agreement may not be amended, changed, supplemented, waived or
otherwise modified except by an instrument in writing signed by the party
against whom enforcement is sought.
10.4 NO ASSIGNMENT
This Agreement shall be binding upon and shall inure to the benefit of and
be enforceable by the parties and their respective successors and assigns;
provided that, except as otherwise expressly set forth in this Agreement,
neither the rights nor the obligations of any party may be assigned or delegated
without the prior written consent of the other party.
10.5 ENTIRE AGREEMENT
Except as otherwise provided herein, this Agreement embodies the entire
agreement and understanding between the parties relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. There are no representations, warranties
43
<PAGE>
or covenants by the parties hereto relating to such matter other than those
expressly set forth in this Agreement (including the Management Company
Disclosure Statement and the Shurgard REIT Disclosure Statement) and any
writings expressly required hereby.
10.6 SPECIFIC PERFORMANCE
The parties acknowledge that money damages are not an adequate remedy for
violations of this Agreement and that any party may, in its sole discretion,
apply to a court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper to
enforce this Agreement or to prevent any violation hereof.
10.7 REMEDIES CUMULATIVE
All rights, powers and remedies provided under this Agreement or otherwise
available in respect hereof at law or in equity shall be cumulative and not
alternative, and the exercise or beginning of the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
10.8 NO WAIVER
The failure of any party hereto to exercise any right, power or remedy
provided under this Agreement or otherwise available in respect hereof at law or
in equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
10.9 NO THIRD-PARTY BENEFICIARIES
This Agreement is not intended to be for the benefit of and shall not be
enforceable by any Person or entity who or which is not a party hereto.
10.10 JURISDICTION
Each party hereby irrevocably submits to the exclusive jurisdiction of the
United States District Court for the Western District of Washington or any court
of the state of Washington located in the City of Seattle in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); PROVIDED, HOWEVER, that such consent to jurisdiction is solely for the
purpose referred to in this Section 10.10 and shall not be deemed to be a
general submission to the jurisdiction of said courts or in the state of
Washington other than for such purpose. Each of the parties hereby waives any
right to a trial by jury in connection with any such action, suit or proceeding.
10.11 GOVERNING LAW
This Agreement and all disputes hereunder shall be governed by and construed
and enforced in accordance with the internal laws of the state of Washington,
without regard to principles of conflict of laws.
10.12 NAME, CAPTIONS, ETC.
The name assigned to this Agreement and the section captions used herein are
for convenience of reference only and shall not affect the interpretation or
construction hereof. Unless otherwise specified (a) the terms "hereof," "herein"
and similar terms refer to this Agreement as a whole and (b) references herein
to Articles or Sections refer to articles or sections of this Agreement.
10.13 SEVERABILITY
If any term of this Agreement or the application thereof to any party or
circumstance shall be held invalid or unenforceable to any extent, the remainder
of this Agreement and the application of such term to the other parties or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by applicable law, provided that in such event the
parties shall negotiate in
44
<PAGE>
good faith in an attempt to agree to another provision (in lieu of the term or
application held to be invalid or unenforceable) that will be valid and
enforceable and will carry out the parties' intentions hereunder.
10.14 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies, each signed
by less than all, but together signed by all, the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties set forth below.
SHURGARD STORAGE CENTERS, INC., a
Delaware Corporation
By: /s/ HARRELL L. BECK
------------------------------------
Harrell L. Beck, President
SHURGARD INCORPORATED,
a Washington Corporation
By: /s/ CHARLES K. BARBO
------------------------------------
Charles K. Barbo, President
45
<PAGE>
APPENDIX II
DECEMBER 19, 1994
Special Committee of the Board of Directors
of Shurgard Storage Centers, Inc.
c/o Bogle & Gates
Two Union Square
601 Union Street
Seattle, Washington 98101-2346
Dear Sirs:
Shurgard Storage Centers, Inc. ("SSCI") and Shurgard Incorporated
("Shurgard") have entered into an Agreement and Plan of Merger, dated as of
December 19, 1994 (the "Agreement"). Pursuant to the Agreement, Shurgard will be
merged with SSCI (the "Merger"), the consideration for which will be primarily
the issuance of shares of common stock of SSCI. Additional consideration, in the
form of additional shares of common stock of SSCI, may be issued based upon the
profits realized, if any, by SSCI with respect to Shurgard's interest in certain
limited partnerships. You have requested our opinion as to whether the
consideration to be paid for the acquisition of Shurgard is fair, from a
financial point of view, to SSCI.
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes. We have
acted as financial advisor to the Special Committee of the Board of Directors of
SSCI in connection with the Merger and have received a fee for our services.
Alex. Brown & Sons Incorporated regularly publishes research reports regarding
the real estate and real estate investment trust industries and the businesses
and securities of publicly owned companies in those industries.
In connection with our opinion, we have: (i) reviewed certain publicly
available information regarding SSCI, (ii) reviewed certain internal financial
analyses and other information furnished to us by SSCI, (iii) discussed the
business of and prospects for SSCI with management of SSCI, (iv) reviewed the
price and trading volume of the common stock of SSCI, (v) reviewed certain
internal financial analyses and other information furnished to us by Shurgard,
(vi) discussed the business of and prospects for Shurgard with management of
Shurgard, (vii) reviewed valuations of Shurgard provided to us, (viii) compared
certain financial information of Shurgard with similar information of certain
private and public companies engaged in the real estate management or financial
services industries, (ix) reviewed the financial terms of certain other business
combinations, (x) reviewed certain pro forma analyses and held discussions with
the management of SSCI and Shurgard regarding the business and prospects of SSCI
after the completion of the Merger, (xi) visited certain Shurgard-managed
self-storage centers, and (xii) performed such other studies and analyses and
considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
the purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of SSCI
after the Merger, we have assumed that such information reflects the best
currently available estimates and judgments of the managements of SSCI and
Shurgard as to the likely future financial performance of SSCI. In addition, we
have not made an independent evaluation or appraisal of the assets of SSCI, the
assets of Shurgard or reviewed environmental or other potential contingent
issues relating to SSCI, Shurgard or the Merger. Our opinion is based on market,
economic and other conditions as they exist and can be evaluated as of the date
of this letter.
<PAGE>
Special Committee of the Board of Directors
of Shurgard Storage Centers, Inc.
December 19, 1994
Page 2
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be paid for the acquisition of
Shurgard is fair, from a financial point of view, to SSCI.
Very truly yours
ALEX. BROWN & SONS INCORPORATED
By: Alex. Brown & Sons Incorporated
------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 21. Exhibits and Financial Statement Schedules.
(a) EXHIBITS
2.1* Agreement and Plan of Merger dated as of
December 19, 1994 (included as Appendix I to
the Proxy Statement/Prospectus)
3.1 Amended and Restated Certificate of
Incorporation of the Registrant (A)
3.2 Restated By-Laws of the Registrant (A)
4.1 Rights Agreement between the Registrant and
Gemisys Corporation dated as of March 17,
1994 (B)
5.1* Opinion of Perkins Coie as to the legality of
the securities being registered
8.1 Opinion of Perkins Coie as to certain federal
income tax consequences
10.1* Advisory Agreement between Shurgard Storage
Centers, Inc. and Shurgard Incorporated dated
as of March 1, 1994
10.2* Management Services Agreement between
Shurgard Storage Centers, Inc. and Shurgard
Incorporated dated as of March 1, 1994
10.3 Loan Agreement among Shurgard Storage
Centers, Inc., Seattle-First National Bank,
Key Bank of Washington and West One Bank
dated August 19, 1994
10.4 Amended and Restated Loan Agreement between
Nomura Asset Capital Corp., as Lender, and
SSC Property Holdings, Inc., as Borrower,
dated as of June 8, 1994
10.5 Amended and Restated Collection Account and
Servicing Agreement among SSC Property
Holdings, Inc., Pacific Mutual Life Insurance
Company, LaSalle National Bank and Nomura
Asset Capital Corp. dated as of June 8, 1994
10.6 Revolving Loan Agreement among Shurgard
Storage Centers, Inc., SSC Acquisitions, Inc.
and Normura Asset Capital Corp. dated as of
December 23, 1994
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP (see page II-5)
23.2* Consent of Alex. Brown & Sons Incorporated
23.3 Consent of Riddell, Williams, Bullitt & Walkinshaw
23.4 Consent of Bogle & Gates
23.5 Consent of Perkins Coie (also contained in the opinions
filed as Exhibits 5.1 and 8.1 hereto)
24.1* Power of Attorney
99.1 Form of Proxy for special meeting of shareholders of the
Registrant
_________________
* Previously filed
II-1
<PAGE>
(A) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-4, Amendment
No. 8 (Post-Effective Amendment No. 4), filed with the
Securities and Exchange Commission on February 2, 1994
(B) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form 8-A filed with
the Securities and Exchange Commission on March 17, 1994
(b) SCHEDULES
Not applicable
(c) REPORTS, OPINIONS AND APPRAISALS
Opinion of Alex. Brown & Sons Incorporated (included as Appendix II to the
Proxy Statement/Prospectus)
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 25th day of January, 1995.
SHURGARD STORAGE CENTERS, INC.
By Harrell L. Beck
-----------------------------------------
Harrell L. Beck, President, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 25th day of January, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------- --------------------------------------
<C> <S>
President, Treasurer, Chief Financial
Harrell L. Beck Officer and Director (Principal
- -------------------------------------- Executive Officer and Principal
Harrell L. Beck Financial and Accounting Officer)
Dan Kourkoumelis*
- -------------------------------------- Director
Dan Kourkoumelis
Donald W. Lusk*
- -------------------------------------- Director
Donald W. Lusk
W.J. (Jim) Smith*
- -------------------------------------- Director
W.J. (Jim) Smith
By: Harrell L. Beck
----------------------------------
Harrell L. Beck, Attorney-In-Fact
</TABLE>
II-3
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Amendment No. 1 to Registration Statement No.
33-57047 of Shurgard Storage Centers, Inc. of our report dated December 16, 1994
on the financial statements of Shurgard Storage Centers, Inc. as of and for the
period ended December 31, 1993, our report dated December 16, 1994 on the
financial statements of the Management Company as of and for the year ended
December 31, 1993, and our report dated December 16, 1994 on the combined
financial statements of 17 limited partnerships therein described as of December
31, 1993 and 1992 and for each of the three years in the period ended December
31, 1993, appearing in the Proxy Statement/Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Proxy Statement/Prospectus.
DELOITTE & TOUCHE LLP
Seattle, Washington
January 24, 1995
II-4
<PAGE>
EXHIBIT INDEX
2.1* Agreement and Plan of Merger dated as of December 19, 1994 (included as
Appendix I to the Proxy Statement/Prospectus)
3.1 Amended and Restated Certificate of Incorporation of the Registrant (A)
3.2 Restated By-Laws of the Registrant (A)
4.1 Rights Agreement between Shurgard Storage Centers, Inc. and Gemisys
Corporation dated as of March 17, 1994 (B)
5.1* Opinion of Perkins Coie as to the legality of the securities being
registered
8.1 Opinion of Perkins Coie as to certain federal income tax consequences
10.1* Advisory Agreement between Shurgard Storage Centers, Inc. and Shurgard
Incorporated dated as of March 1, 1994
10.2* Management Services Agreement between Shurgard Storage Centers, Inc.
and Shurgard Incorporated dated as of March 1, 1994
10.3 Loan Agreement among Shurgard Storage Centers, Inc. and Seattle-First
National Bank, Key Bank of Washington and West One Bank dated August 19,
1994
10.4 Amended and Restated Loan Agreement between Nomura Asset Capital Corp.,
as Lender, and SSC Property Holdings, Inc., as Borrower, dated as of
June 8, 1994
10.5 Amended and Restated Collection Account and Servicing Agreement among
SSC Property Holdings, Inc., Pacific Mutual Life Insurance Company,
LaSalle National Bank and Nomura Asset Capital Corp. dated as of June 8,
1994
10.6 Revolving Loan Agreement among Shurgard Storage Centers, Inc., SSC
Acquisitions, Inc. and Normura Asset Capital Corp. dated December 23,
1994
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP (see page II-5)
23.2* Consent of Alex. Brown & Sons Incorporated
23.3 Consent of Riddell, Williams, Bullitt & Walkinshaw
23.4 Consent of Bogle & Gates
23.5 Consent of Perkins Coie (also contained in the opinions filed as
Exhibits 5.1 and 8.1 hereto)
24.1* Power of Attorney
99.1 Form of Proxy for special meeting of shareholders of the Registrant
______________
* Previously filed
(A) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-4, Amendment No. 8 (Post-Effective
Amendment No. 4), filed with the Securities and Exchange Commission on
February 2, 1994
(B) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on March 17, 1994
<PAGE>
PERKINS COIE
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
1201 THIRD AVENUE, 40TH FLOOR SEATTLE, WASHINGTON 98101-3099
TELEPHONE (206) 583-8888 FACSIMILE (206) 583-8500
January 25, 1995
Shurgard Storage Centers, Inc.
1201 Third Ave., Suite 2200
Seattle, WA 98101
RE: MERGER OF THE MANAGEMENT COMPANY INTO THE SHURGARD REIT
Ladies and Gentlemen:
We have been asked as counsel to Shurgard Storage Centers,
Inc., a Delaware corporation (the "Shurgard REIT"), to render this
opinion pursuant to the Agreement and Plan of Merger, dated as of
December 19, 1994, including all amendments relating thereto (the
"Agreement"), by and among the Shurgard REIT and Shurgard
Incorporated, a Washington corporation (the "Management Company").
Capitalized terms not otherwise defined herein shall have the same
meanings given to them in the Proxy Statement/Prospectus (the
"Proxy Statement") that is part of the Registration Statement on
Form S-4 of Shurgard covering the shares of Shurgard REIT Class A
Common Stock to be issued in the Merger.
In connection with this opinion, we have examined the
originals, photocopies or certified copies of the Agreement, and
all such other documents we have deemed necessary or appropriate as
a basis for the opinions hereinafter set forth. In such
examination, we have assumed the genuineness of all signatures and
the authenticity of all documents submitted to us as originals and
the conformity to the original documents of all documents submitted
to us as photocopies or certified copies. We have relied, as to
matters of fact, solely upon statements and representations by
officers and representatives of the Shurgard REIT and the
Management Company, including those statements and representations
contained in that certain Shurgard REIT Officers' Certificate,
dated as of the date hereof, and that certain Shurgard Management
Company Officers' Certificate, dated as of dated as of the date
hereof, as well as those statements and representations made by
Charles K. Barbo, Arthur W. Buerk, Donald B. Daniels, Michael Rowe,
David K. Grant, the Barbo Trust), dated as of the date hereof
(collectively, the "Significant Management Company Shareholders"),
in those certain Management Company Significant Shareholder's
Certificates (such certificates collectively referred to as the
"Certificates"), and the assumptions stated therein. Without the
Certificates we would not render this opinion.
In rendering this opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended to the
date hereof (the "Code"), and other U.S. federal tax statutes, the
Treasury Regulations promulgated thereunder, and administrative and
judicial interpretations thereof.
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 2
I. DESCRIPTION OF THE MERGER
Our opinion is based upon the following facts as more fully
described in the Proxy Statement. In the Merger, the Management
Company will be merged with and into the Shurgard REIT. The
separate corporate existence of the Management Company will
terminate and the Shurgard REIT will be the surviving corporation.
Management Company shareholders owning 100% of the shares of the
Management Company Common Stock outstanding immediately prior to
the Effective Time of the Merger, other than Management Company
shareholders exercising their appraisal rights, will exchange their
shares of Management Company Common Stock for Shurgard REIT Class A
Common Stock.
II. FACTUAL ASSUMPTIONS
For purposes of this opinion, we have assumed the following:
A. At the Effective Time of the Merger, the Shurgard REIT
does not own, beneficially or of record, any stock or securities of
the Management Company;
B. The Shurgard REIT Class A Common Stock to be issued to
the Management Company shareholders in the Merger and pursuant to
the Agreement will be voting stock and will not be subject to a put
or call;
C. There is no plan or intention by the shareholders of the
Management Company to sell, exchange or otherwise dispose of a
number of shares of the Shurgard REIT Class A Common Stock received
in the Merger that would reduce the Management Company
shareholders' ownership of the Shurgard REIT Class A Common Stock
to a number of shares having a value, as of the Effective Time of
the Merger, of less than 50% of the value of all the formerly
outstanding shares of the Management Company Common Stock as of the
same date. For purposes of this assumption, shares of Management
Company Common Stock exchanged for cash or other property,
surrendered by dissenters, or exchanged for cash in lieu of
fractional shares of the Shurgard REIT Class A Common Stock will be
treated as outstanding Management Company Common Stock on the date
of the Merger. Moreover, shares of Management Company Common Stock
and shares of the Shurgard REIT Class A Common Stock held by the
Management Company shareholders and otherwise sold, redeemed or
disposed of prior or subsequent to the Merger will be considered in
making this assumption. Finally, shares of Shurgard REIT Class A
Common Stock exchanged for shares of Management Company Common
Stock received upon the exercise of options to purchase Management
Company Common Stock after February 23, 1994 are ignored for
purposes of this assumption.
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 3
D. The Shurgard REIT has no plan or intention to liquidate
or to sell or otherwise dispose of any of the assets of the
Management Company acquired in the Merger, except in the ordinary
course of business or pursuant to transfers described in
section 368(a)(2)(C) of the Code, and intends to continue after the
Merger, in a substantially unchanged manner, each line of business
the Management Company conducted prior to the Merger other than
those lines of business disposed of in the InterMation Spin-off;
E. The Shurgard REIT, the Management Company, the Shurgard
REIT stockholders and the Management Company shareholders will pay
their respective expenses incurred in connection with the Merger
and the other transactions contemplated by the Agreement;
F. Less than 80% of the total value of the assets of the
Management Company assets is attributable to assets held for
investment within the meaning of section 368(a)(2)(F) of the Code
and less than 50% of the total value of the assets of the
Management Company are "stock and securities" within the meaning of
section 368(a)(2)(F) of the Code, including as "stock and
securities" for these purposes the Shurgard REIT Class A Common
Stock held by the Management Company and the Contingent
Partnerships;
G. The aggregate number of shares of Shurgard REIT Class A
Common Stock issued (a) as Contingent Shares under Sections
4.1(a)(ii) and 4.7 of the Agreement and (b) as a result of any
Under-Statement pursuant to Section 4.1(d)(ii)(D) of the Agreement
shall not exceed the aggregate number of shares of Shurgard REIT
Class A Common Stock issued as Share Consideration at the Effective
Time pursuant to Section 4.1(a)(i) of the Agreement, as adjusted
pursuant to Section 4.1(d) of the Agreement, excluding any
additional shares of Shurgard REIT Class A Common Stock issued as a
result of an Under-Statement pursuant to Section 4.1(d)(ii)(D) of
the Agreement;
H. The Merger will qualify as a merger effected pursuant to
the corporation laws of the States of Washington and Delaware, as
described in Section 2.1 of the Agreement; and
I. Such other matters set forth in the Certificates.
III. DISCUSSION
A. STATUTORY REQUIREMENTS FOR REORGANIZATION STATUS
In order for tax-free treatment to apply to the Shurgard REIT
Class A Common Stock received by shareholders of the Management
Company in the Merger, the Merger must qualify as a reorganization
under section 368(a) of the Code.
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 4
1. STATUTORY MERGER
A "statutory merger or consolidation" is included within the
meaning of a "reorganization" by virtue of section 368(a)(1)(A) of
the Code. Treasury Regulations section 1.368-2(b)(1) provides that
"[i]n order to qualify as a reorganization under Section
368(a)(1)(A) the transaction must be a merger or consolidation
effected pursuant to the corporation laws of the United States or a
State or Territory or the District of Columbia." For purposes of
this opinion, we are assuming that the Merger will be effected
pursuant to the corporation laws of the State of Washington and the
State of Delaware, which assumption is consistent with Section 2.1
of the Agreement. Accordingly, we are satisfied that the Merger
will be a merger or consolidation under section 368(a)(1)(A) of the
Code.
2. INVESTMENT COMPANIES
Section 368(a)(2)(F) of the Code provides that a Merger will
not qualify as a reorganization under section 368(a)(1) of the Code
if two or more parties to the transaction are investment companies.
Section 368(a)(2)(F)(iii) of the Code defines an investment company
to be any of (a) a regulated investment company, (b) a real estate
investment trust or (c) a corporation 50% or more of the value of
whose total assets are stock and securities and 80% or more of the
value of whose total assets are assets "held for investment."
Because it is a real estate investment company, the Shurgard REIT
is an investment company within the meaning of section 368(a)(2)(F)
of the Code. Nevertheless, the management of the Management
Company has represented that less than 80% of the total value of
the assets of the Management Company assets is attributable to
assets held for investment within the meaning of
section 368(a)(2)(F) of the Code and less than 50% of the total
value of the assets of the Management Company are "stock and
securities" within the meaning of section 368(a)(2)(F) of the Code,
including as "stock and securities" for these purposes the interest
of the Management Company in the Shurgard REIT Class A Common Stock
and the Contingent Partnerships. Therefore, we are satisfied that
the Merger will not contain two or more parties that are investment
companies, and that no party to the reorganization will recognize
gain under this rule.
B. JUDICIAL, ADMINISTRATIVE AND REGULATORY REQUIREMENTS
In addition to the statutory requirements, the Merger must
also satisfy several judicial, administrative and regulatory
requirements to qualify as a reorganization under section 368(a) of
the Code.
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 5
1. CONTINUITY OF INTEREST
First among these nonstatutory requirements is the judicial
continuity of interest doctrine, which concerns itself with the
character and extent of the continuing relationship of the former
shareholders of the acquired company to the corporation acquiring
their interests. While no precise formula has been expressed for
determining whether there has been retention of the requisite
interest, it seems clear that there must be a showing: (i) that
the transferor corporation or its shareholders retained a
substantial proprietary stake in the enterprise represented by a
material interest in the affairs of the transferee corporation and
(ii) that such retained interest represents a substantial part of
the value of the property transferred. SOUTHWEST NATURAL GAS CO.
V. COMMISSIONER, 189 F.2d 332 (5th Cir. 1951), CERT. DENIED, 342
U.S. 860 (1951). As to the nature of the consideration, after
having reviewed the material terms of the Shurgard REIT Class A
Common Stock, we are satisfied that such stock interest will
constitute a qualifying proprietary interest in the Shurgard REIT
for purposes of this requirement.
In regard to the substantiality of that interest, the
continuity of interest test has usually focused on the percentage
of the total consideration received and retained by the historic
shareholders of the acquired corporation that represents an equity
interest in the acquiring corporation. In NELSON V. HELVERING, 296
U.S. 374 (1935), the Supreme Court held that requisite continuity
was found where that percentage was approximately 38%. This
standard is the most authoritative precedent on this issue to date.
For purposes of issuing a favorable advance ruling, the Internal
Revenue Service (the "IRS") imposes a more stringent standard,
namely, that the stock of the acquiring corporation used as
consideration be "equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all the
formerly outstanding stock of the acquired or transferor
corporation as of the same date." Rev. Proc. 77-37, 1977-2 C.B.
568, Section 3.02. For purposes of this standard, stock
surrendered by dissenters or exchanged for cash in lieu of
fractional shares is to be treated as outstanding stock of the
acquired corporation on the date of the transaction. ID. We have
considered the following issues with respect to the percentage of
Shurgard REIT Class A Common Stock received and retained by the
Management Company shareholders as a result of the Merger.
a. MANAGEMENT COMPANY OPTIONS. Immediately prior
to the Effective Time all the unvested Management Company Options
will vest, enabling holders to exercise such options in exchange
for shares of Management Company Common Stock and to then exchange
their Management Company Common Stock for Shurgard REIT Class A
Commons Shares in the Merger. Under the federal income tax laws it
is unclear to what extent shares of the Management Company Common
Stock issued with respect to options exercised after February 23,
1994 (the final day of the voting period regarding the formation of
the Shurgard REIT) can be considered to have been held by historic
Management Company
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 6
Shareholders. Nevertheless, because such shares would constitute
less than 10% of the total number of shares of Management Company
Common Stock (assuming exercise of all Management Company Options
described in the Proxy Statement), their existence should not
prevent the Merger from meeting the continuity of shareholder
interest requirement.
b. CONTINGENT SHARES. Under the Agreement, the
Shurgard REIT may issue a number of shares of Shurgard REIT Class A
Common Stock (the "Contingent Shares") to the Management Company
Shareholders as Merger consideration for the first five years
ending after the Effective Time. The IRS will rule that the
subsequent delivery of additional shares through contingent stock
arrangements will not adversely affect a reorganization otherwise
qualifying under section 368(a) of the Code, including the
continuity of shareholder interest requirement, provided that the
following requirements (the "Contingent Stock Guidelines") are met:
(i) the contingent stock will settle within five years; (ii) there
is a valid business purpose for the arrangement; (iii) the maximum
number of Contingent Shares will not exceed the number of shares
issued in the initial distribution; (iv) the number of Contingent
Shares is based upon an objective and readily ascertainable
formula; (v) the triggering event for payment of the contingent
shares is not within the control of recipient shareholders; (vi)
the arrangement limits the maximum number of contingent shares that
may be issued, (vii) such stock issuance is not triggered by the
payment of additional tax or reduction in tax paid as a result of
an IRS audit either (A) related to the reorganization or (B) when
the reorganization involves persons related within the meaning of
section 267(c)(4) of the Code; (viii) the rights to the Contingent
Shares are not assignable, other than by operation of law, or,
alternatively, the right to the contingent shares is not evidenced
by negotiable instruments of any kind, and (ix) such right can give
rise only to the receipt of additional stock of the corporation
making the underlying distribution. See Rev. Proc. 84-42, 1981-1
C.B. 521.
The Contingent Share arrangement offered to the Management
Company shareholders meets all of the Contingent Stock Guidelines,
with two exceptions. First, the period during which Contingent
Shares may be issued may extend for between five and six years (and
possibly a greater period if the parties are unable to agree on an
appraiser so that the matter is before the presiding judge of the
Superior Court in King County Washington). This contradicts
requirement (i) of the Contingent Stock Guidelines, which mandates
that the period not exceed five years. Nonetheless, the case law is
considered more lenient in this regard, and supports the use of a
contingent share period in excess of five years. SEE CARLBERG V.
UNITED STATES, 281 F.2d 507, 60-2, U.S. Tax Cas. (CCH) PARA 9647, at
77,739 (8th Cir. 1960) (six-year pay-out); HAMRICK V. COMMISSIONER,
43 T.C. 21, 23 (1964) (seven-year pay-out). Furthermore, the fact
that the pay-out period could, in theory, continue indefinitely when
the matter is before a King County Superior Court judge should not
change this result. AGREEMENT Section 4.7(d)(ii). This will occur
only if the parties are unable to agree on an appraiser, and
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 7
furthermore, if it does occur, control over the Contingent Share pay-
out period will be entirely outside the control of the parties. Such
an agreement presents no opportunity for an abuse of the five year
limit. CF. Rev. Proc. 84-42, 1981-1 C.B. 521 at Section 2.02(b)
(exercise arrangement may exceed five years due to a "bona fide
dispute as to when the stock should be released").
Second, the Contingent Share arrangement provides for the
issuance of cash in lieu of fractional shares in contrast to
requirement (ix). Nevertheless, the case law in this area is more
lenient than the IRS ruling requirements. SEE CARLBERG, SUPRA, at
77,741 (after 10 years, shareholders who have not collected
contingent shares due will receive cash with an equivalent value).
Furthermore, the IRS has ruled favorably in reorganizations
qualifying under section 368(a) of the Code that utilized cash in
lieu of fractional shares when the cash did not represent
separately bargained-for consideration. Rev. Rul. 66-635, 1966-1
C.B. 116 (cash in lieu of fractional shares did not violate "solely
for voting stock" requirement of section 368(a)(1)(B) of Code when
not separately bargained-for consideration). Each of the
Management Company Officer's Certificate and the Certificates
contains a representation that the cash in lieu of fractional
shares received under the Agreement does not represent separately
bargained-for consideration. Finally, the amount of cash issued in
lieu of functional shares of Shurgard REIT Class A Common Stock is
nominal. Accordingly, the issuance of cash in lieu of functional
shares of Shurgard REIT Class A Common Stock both at the Effective
Time and with respect to the Contingent Shares should not prevent
the reorganization from qualifying under section 368(a) of the
Code. Furthermore, we believe the Contingent Shares should be
treated as Shurgard REIT Class A Common Shares issued in the
Merger, and not as "other property" under section 356(a) of the
Code, and should not adversely affect the tax-free nature of the
Merger for any party thereto.
c. ESCROW SHARES. Fifteen percent of the
aggregate number of Shares being issued at the Effective Time of
the Merger (the "Indemnification Shares") will be deposited into an
escrow account at the Effective Time to allow the Shurgard REIT to
recover from the Indemnification Shares costs or expenses arising
from certain events. The IRS will rule that an escrow arrangement
does not adversely affect a reorganization otherwise qualifying
under section 368(a) of the Code, including the continuity of
shareholder interest requirement, provided that the following
requirements are met (the "Escrow Stock Guidelines"): (i) the
escrowed stock will be released within five years (except when
there is a bona fide dispute as to whom the stock should be
released); (ii) there is a valid business purpose for the
arrangement; (iii) at least 50% of the number of shares issued
initially to the shareholders (excluding shares issued under a
contingent stock arrangement as set forth above) are not subject to
the arrangement; (iv) the triggering event for return of the escrow
shares is not within the control of recipient shareholders; (v) the
stock subject to such arrangement appears as issued and outstanding
on the balance sheet of the issuing corporation and such stock is
legally outstanding under applicable state law; (vi) all dividends
paid on such stock
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 8
will be distributed currently to the exchanging shareholders;
(vii) all voting rights of such stock (if any) are exercisable by
or on behalf of the shareholders or their authorized agent;
(viii) no shares of such stock are subject to restrictions
requiring their return to the issuing corporation because of death,
failure to continue employment, or similar restrictions; (ix) the
mechanism for the calculation of the number of escrow shares to be
returned is based upon an objective and readily ascertainable
formula; and (x) the return of such stock is not triggered by the
payment of additional tax or reduction in tax paid as a result of
an IRS audit either (A) related to the reorganization or (B) when
the reorganization involves persons related within the meaning of
section 267(c)(4) of the Code. See Rev. Proc. 84-42, SUPRA.
The escrow arrangement for the Indemnification Shares meets
the Escrow Stock Guidelines, other than requirement (x). The
indemnification arrangement provides for damages in the event that
the InterMation Spin-off does not qualify under section 355 of the
Code, or in the event that the representations and warranties or
covenants and agreements of the Management Company in the Agreement
are incorrect or untrue. AGREEMENT Section 4.8(a) (i)-(iii).
Depending on the circumstances, this could contradict requirement
(x)'s prohibition against using escrow stock to pay an IRS audit
tax liability "related to" the reorganization. For example, the
failure of the Merger to qualify as a reorganization under section
368(a) of the Code may disqualify the qualification of the
InterMation Spin-off under section 355 of the Code, causing
Indemnification Shares to be issued to the Shurgard REIT.
Nevertheless, the purpose of the escrow arrangement is not merely
to guard against the characterization of the Agreement as tax-free,
but instead to protect against a number of liabilities that may
arise and that are typically covered in merger agreement
indemnification provisions. Tech. Adv. Mem. 7408289000A (Aug. 28,
1974) (escrow arrangement to "insure performance of certain terms
and provisions" of agreement); KINGSLEY V. COMMISSIONER, 662 F.2d
531, 81-2 U.S. Tax Cas. (CCH) PARA 9785 at 88,612 (9th Cir. 1981)
(escrow for warranties regarding "financial statements, tax
liabilities and insurance claims"). Because of the bona fide
business purpose for the escrow arrangement, we conclude that the
Indemnification Shares should be treated as Shurgard REIT Class A
Common Shares issued in the Merger, and not as "other property"
under section 356 of the Code, and should not adversely affect the
tax-free nature of the Merger for the Management Company or the
Shurgard REIT.
d. RECHARACTERIZATION AS INTEREST INCOME. A
portion of the Contingent Shares issued to Management Company
shareholders will be recharacterized as interest income and taxed
to the Management Company shareholders upon their receipt thereof.
Rev. Rul. 70-300, 1970-1 C.B. 123. The portion of the Contingent
Shares that are not so recharacterized will be treated as Shurgard
REIT Class A Common Stock issued in the Merger. Neither the
portion of the Contingent Shares recharacterized as interest or the
remaining portion of the Contingent Shares will constitute "other
property" under section 356(a) of the Code. ID. Therefore, the
interest recharacterization should not diminish
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 9
the percentage value of Shurgard REIT Class A Common Stock deemed
received by the Management Company shareholders in the Merger, and
should not adversely impact the continuity of shareholder interest
requirement.
e. SUMMARY OF CONTINUITY OF INTEREST ANALYSIS.
Each of the management of the Management Company and the
Significant Management Company shareholders has represented that
there is no plan or intention by the shareholders of the Management
Company who own 1% or more of the Management Company Common Stock,
and to the best of their knowledge, there is no plan or intention
on the part of the remaining Management Company shareholders to
sell, exchange or otherwise dispose of a number of shares of the
Shurgard REIT Class A Common Stock received in the Merger that
would reduce the Management Company shareholders' ownership of the
Shurgard REIT Class A Common Stock to a number of shares having a
value, as of the Effective Time of the Merger, of less than 50% of
the value of all the formerly outstanding shares of the Management
Company Common Stock as of the same date. Based on this and the
analysis set forth above regarding the character of the Shurgard
REIT Class A Common Stock issued in the Merger, we believe that the
continuing interests of the Management Company shareholders who
receive the Shurgard REIT Class A Common Stock in the Merger should
be deemed sufficient for purposes of the continuity of shareholder
interest requirement.
2. CONTINUITY OF BUSINESS ENTERPRISE
Treasury Regulations section 1.368-1 provides that for a
reorganization to qualify under section 368(a) of the Code it must
also satisfy a so-called "continuity of business enterprise" test.
The regulation provides that the acquiring corporation must either
continue the historic business of the acquired corporation or use a
significant portion of the historic business assets of the acquired
corporation in its business. The preamble to the final Treasury
Regulations acknowledges that the exact formulation of the
continuity of business enterprise test in the regulation has been
criticized and is not supported by all of the judicial precedents
that previously interpreted the continuity of business enterprise
requirement. T.D. 7745, 1981-1 C.B. 134.
Notwithstanding such equivocation, management of the Shurgard
REIT has represented that the Shurgard REIT will continue after the
Merger the historic business of the Management Company or use a
significant portion of the Management Company's historic business
assets in a business of the Shurgard REIT. It has also represented
that it does not intend for the Shurgard REIT to liquidate, sell or
otherwise dispose of any of the Management Company's assets after
the Merger, except in the ordinary course of business or in
transfers described in section 368(a)(2)(C) of the Code (transfers
to wholly-owned subsidiaries).
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 10
Accordingly, we are of the opinion that the continuity of business
enterprise test will be satisfied.
3. BUSINESS PURPOSE
Judicial and regulatory authorities also require a
reorganization qualifying under section 368(a) of the Code be
undertaken for a bona fide business purpose. SEE GREGORY V.
HELVERING, 293 U.S. 465 (1935); Treas. Reg. Section 1.368-1(b),
(c), -2(g). Regulations explain that "the transaction, or series
of transactions, embraced in a plan of reorganization must not only
come within the specific language of section 368(a) of the Code,
but the readjustments involved in the exchanges or distributions
must be undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization." Treas.
Reg. Section 1.368-2(g).
Management of the Shurgard REIT and of the Management Company
have represented that the Merger is being undertaken by the
Shurgard REIT and the Management Company for reasons germane to
their businesses, including, but not limited to the following:
(a) the proven expertise and substantial experience of the
employees of the Management Company, who will become employees of
the Shurgard REIT through the Merger, in the development,
acquisition and management of self-storage properties;
(b) to enable the Shurgard REIT to internalize the successful
capital markets experience of the Management Company;
(c) to enable the Shurgard REIT to realize certain
efficiencies arising from a self-managed structure in that it will
pay for management and advisory services directly and will not be
paying a third party for such services;
(d) to align the interests of the Management Company with
those of the Shurgard REIT;
(e) to acquire the "Shurgard" name and goodwill associated
with that name; and
(f) to enable the Shurgard REIT to be a self-managed and self-
administered REIT, thereby making the Shurgard REIT more attractive
to investors and enabling it to enjoy enhanced market perception.
Accordingly, we are of the opinion that the business purpose
requirement will be satisfied.
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 11
4. BUILT-IN GAIN RULES
Under Notice 88-19, 1988-1 C.B. 486 (the "Built-in Gain
Rules"), the Management Company will be taxed at the Effective Time
on the excess of (a) the fair market value of its assets over (b)
the tax basis of those assets, unless the Shurgard REIT makes an
election pursuant to the Built-in Gain Rules or applicable future
administrative rules or Treasury Regulations. The management of
the Shurgard REIT has represented that it will make this election.
Accordingly, we are satisfied Shurgard will not recognize gain
under the Built-in Gain Rules at the Effective Time in the Merger.
IV. OPINION
Based upon the foregoing, we render the following opinions for
federal income tax purposes:
A. The Merger will qualify as a reorganization under
section 368(a) of the Code;
B. Each of the Management Company and the Shurgard REIT will
be a "party to the reorganization" under section 368(b) of the
Code;
C. no gain or loss will be recognized by the Shurgard REIT
or the Management Company and the Shurgard REIT in the Merger;
D. Immediately following the Effective Time, the assets of
the Management Company in the hands of the Shurgard REIT will have
the same adjusted tax basis as they had in the hands of the
Management Company immediately before the Effective Time; and
E. The holding period for each of the assets of the
Management Company in the hands of the Shurgard REIT following the
Effective Time will include the period each asset was held by the
Management Company immediately prior to the Effective Time.
V. LIMITATIONS
A. Our opinion is limited to the specific matters described
above and in the Agreement. We give no opinion with respect to
other tax matters, whether federal, state, local or foreign, that
may relate to the Merger, including, without limitation, any
opinion regarding the consequences of the Merger for the Management
Company shareholders or the consequences of the InterMation Spin-
off.
B. We caution that our opinion is based on the federal
income tax laws as they exist on the date hereof. It is possible
that subsequent changes in the tax law could be enacted
<PAGE>
Shurgard Storage Centers, Inc.
January 25, 1995
Page 12
and applied retroactively to the Merger and that such changes could
affect the opinions contained herein.
C. This opinion is furnished to you solely in connection
with the Merger and is intended for your use. It may be provided
as an exhibit to the Proxy Statement and, therefore, may be used by
your shareholders in deciding whether to approve the Merger. Any
other use is not permitted and this opinion shall not be relied
upon by any person other than you without our express written
consent. We hereby consent to the use of our name in the Proxy
Statement under the headings "RISK FACTORS--Merger as a Taxable
Event," "THE MERGER--Conditions to Consummation of the Merger--
Conditions to the Obligations of the Shurgard REIT," "FEDERAL
INCOME TAX CONSEQUENCES--Tax Treatment of the Merger" and "TAX
OPINION."
Very truly yours,
/s/ Perkins Coie
PERKINS COIE
<PAGE>
LOAN AGREEMENT
Among
SHURGARD STORAGE CENTERS, INC.
as Borrower,
and
SEATTLE-FIRST NATIONAL BANK
KEY BANK OF WASHINGTON
and
WEST ONE BANK, WASHINGTON
as Lenders
and
SEATTLE-FIRST NATIONAL BANK
as Agent for Lenders
________________________________________
Dated as of August 19, 1994
________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . 1
Section 1.2 General Principles Applicable to Definitions . . . . . . . 16
Section 1.3 Accounting Terms . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 2 THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.1 The Loans. . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Pro Rata Revolving Credit . . . . . . . . . . . . . . . . . . 16
(b) Supplemental Revolving Loans. . . . . . . . . . . . . . . . . 17
(c) Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.2 Notice of Borrowing. . . . . . . . . . . . . . . . . . . . 18
Section 2.3 Agent's Right to Fund. . . . . . . . . . . . . . . . . . . 18
Section 2.4 Repayment of Principal . . . . . . . . . . . . . . . . . . 19
(a) Scheduled Repayments. . . . . . . . . . . . . . . . . . . . . 19
(b) Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . 19
Section 2.5 Interest on Loans. . . . . . . . . . . . . . . . . . . . . 20
(a) General Provisions. . . . . . . . . . . . . . . . . . . . . . 20
(b) Selection of Alternative Rates. . . . . . . . . . . . . . . . 20
(c) Unavailable Adjusted LIBOR Rate . . . . . . . . . . . . . . . 21
(d) Compensation for Increased Costs. . . . . . . . . . . . . . . 22
Section 2.6 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.7 Manner of Payments . . . . . . . . . . . . . . . . . . . . 24
(a) Place and Form of Payments. . . . . . . . . . . . . . . . . . 24
(b) Payments on Non-business Days . . . . . . . . . . . . . . . . 24
(c) Order of Application. . . . . . . . . . . . . . . . . . . . . 25
Section 2.8 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Conversion Fee. . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.9 Sharing of Payments, Etc.. . . . . . . . . . . . . . . . . 26
Section 2.10 Prepayments . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 3 SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.1 Initial Grant of Security. . . . . . . . . . . . . . . . . 27
Section 3.2 Additions to Collateral. . . . . . . . . . . . . . . . . . 27
Section 3.3 Release of Secured Properties. . . . . . . . . . . . . . . 28
(a) Release With Outstanding Obligations. . . . . . . . . . . . . 28
(b) Release Without Outstanding Obligations . . . . . . . . . . . 28
Section 3.4 Effect of Release of Secured Property. . . . . . . . . . . 29
ARTICLE 4 NEGATIVE PLEDGE AND ELIGIBLE PROPERTIES . . . . . . . . . . . . . 29
Section 4.1 Additions to Negative Pledge Properties. . . . . . . . . . 29
Section 4.2 Removal of Negative Pledge or Eligible Properties. . . . . 29
ARTICLE 5 CONDITIONS TO LOANS . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.1 Conditions to Initial Revolving Loan . . . . . . . . . . . 30
i
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(a) Initial Loan Documents. . . . . . . . . . . . . . . . . . . . 30
(b) Corporate Certificates. . . . . . . . . . . . . . . . . . . . 30
(c) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 31
(d) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 31
(f) Environmental Information . . . . . . . . . . . . . . . . . . 31
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(h) Designated Negative Pledge or Eligible Property . . . . . . . 32
(i) Ground Lease. . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.2 Conditions to All Loans. . . . . . . . . . . . . . . . . . 32
(a) Prior Conditions. . . . . . . . . . . . . . . . . . . . . . . 32
(b) Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . 32
(c) No Default. . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Other Information . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.3 Conditions to Initial Revolving Loans After Collateral
Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Satisfaction of Real Property Conditions. . . . . . . . . . . 32
Section 5.4 Conditions to Conversion to Term Loan. . . . . . . . . . . 33
(a) Request for Conversion. . . . . . . . . . . . . . . . . . . . 33
(b) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) No Default. . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 6 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . 33
Section 6.1 Corporate Existence and Power. . . . . . . . . . . . . . . 33
Section 6.2 Corporate Authorization. . . . . . . . . . . . . . . . . . 33
Section 6.3 Government Approvals, Etc. . . . . . . . . . . . . . . . . 34
Section 6.4 Binding Obligations, Etc.. . . . . . . . . . . . . . . . . 34
Section 6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.6 Financial Condition. . . . . . . . . . . . . . . . . . . . 34
Section 6.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.8 Laws, Orders; Other Agreements . . . . . . . . . . . . . . 35
Section 6.9 Federal Reserve Regulations. . . . . . . . . . . . . . . . 35
Section 6.10 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.11 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.12 Lien Creation and Priority; No Encumbrances. . . . . . . . 36
Section 6.13 Investment Company; Other Regulations . . . . . . . . . . 37
Section 6.14 Delinquent Property Liens . . . . . . . . . . . . . . . . 37
Section 6.15 Improvements. . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.16 Casualty; Condemnation. . . . . . . . . . . . . . . . . . 37
Section 6.17 Assessments . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.18 Rights of Others to Purchase Property . . . . . . . . . . 38
Section 6.19 Partnership Debt. . . . . . . . . . . . . . . . . . . . . 38
Section 6.20 Representations as a Whole. . . . . . . . . . . . . . . . 38
ARTICLE 7 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.1 Use of Proceeds from Loans . . . . . . . . . . . . . . . . 38
Section 7.2 Preservation of Corporate Existence, Etc.. . . . . . . . . 39
Section 7.3 Visitation Rights. . . . . . . . . . . . . . . . . . . . . 39
Section 7.4 Keeping of Books and Records . . . . . . . . . . . . . . . 39
Section 7.5 Maintenance of Property, Etc.. . . . . . . . . . . . . . . 39
ii
<PAGE>
Section 7.6 Compliance With Laws, Etc. . . . . . . . . . . . . . . . . 39
Section 7.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 40
(a) Property Insurance. . . . . . . . . . . . . . . . . . . . . . 40
(b) Liability Insurance . . . . . . . . . . . . . . . . . . . . . 41
(c) Certain Terms of Policy . . . . . . . . . . . . . . . . . . . 41
(d) Evidence of Payment . . . . . . . . . . . . . . . . . . . . . 41
(e) Approval Not Warranty . . . . . . . . . . . . . . . . . . . . 42
Section 7.8 Financial Information. . . . . . . . . . . . . . . . . . . 42
(a) Annual Audited Financial Statements . . . . . . . . . . . . . 42
(b) Quarterly Unaudited Financial Statements. . . . . . . . . . . 42
(c) Quarterly Compliance Certificates . . . . . . . . . . . . . . 42
(d) Annual Budget . . . . . . . . . . . . . . . . . . . . . . . . 43
(e) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.9 Notification . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.10 Additional Payments; Additional Acts . . . . . . . . . . . 43
(a) Taxes on or Expenses Incurred In Preparation of Loan
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Expenses of Administering Loan. . . . . . . . . . . . . . . . 44
(c) Expenses In Changing Classification of Property . . . . . . . 44
(d) Expenses of Enforcement . . . . . . . . . . . . . . . . . . . 44
(e) Evidence of Government Approvals. . . . . . . . . . . . . . . 44
(f) Additional Instruments and Acts . . . . . . . . . . . . . . . 45
Section 7.11 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.12 Ratio of Total Debt to Net Worth . . . . . . . . . . . . . 45
Section 7.13 Minimum Interest Coverage. . . . . . . . . . . . . . . . . 45
Section 7.14 Fixed Charge Coverage. . . . . . . . . . . . . . . . . . . 45
Section 7.15 Capital Expenditure Reserve. . . . . . . . . . . . . . . . 45
Section 7.16 Compliance With Environmental Due Diligence Standards . . 46
Section 7.17 REIT Status . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.18 Insurance and Condemnation Proceeds . . . . . . . . . . . 46
(a) Deposit and Investment of Proceeds. . . . . . . . . . . . . . 46
(b) Disbursement of Proceeds. . . . . . . . . . . . . . . . . . . 47
(c) Obligation to Repair, Replace or Restore. . . . . . . . . . . 47
(d) Procedures for Disbursement of Proceeds; Application. . . . . 48
(e) Substitution in Lieu of Repair. . . . . . . . . . . . . . . . 48
Section 7.19 Indemnification . . . . . . . . . . . . . . . . . . . . . 49
(a) General Indemnity . . . . . . . . . . . . . . . . . . . . . . 49
(b) Environmental Indemnity . . . . . . . . . . . . . . . . . . . 49
(c) Building Law Indemnity. . . . . . . . . . . . . . . . . . . . 50
(d) Indemnification Procedures. . . . . . . . . . . . . . . . . . 50
Section 7.20 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.21 Other Agreements. . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 8 NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.1 Liquidation, Merger, Sale of Assets. . . . . . . . . . . . 51
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.3 Sale of Property . . . . . . . . . . . . . . . . . . . . . 51
Section 8.4 Operations . . . . . . . . . . . . . . . . . . . . . . . . 51
iii
<PAGE>
Section 8.5 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . 52
Section 8.6 Transactions With Affiliates . . . . . . . . . . . . . . . 52
ARTICLE 9 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.1 Events of Default. . . . . . . . . . . . . . . . . . . . . 52
(a) Payment Default . . . . . . . . . . . . . . . . . . . . . . . 52
(b) Breach of Warranty. . . . . . . . . . . . . . . . . . . . . . 53
(c) Breach of Certain Covenants . . . . . . . . . . . . . . . . . 53
(d) Breach of Other Covenants . . . . . . . . . . . . . . . . . . 53
(e) Cross-default . . . . . . . . . . . . . . . . . . . . . . . . 53
(f) Voluntary Bankruptcy, Etc . . . . . . . . . . . . . . . . . . 54
(g) Involuntary Bankruptcy, Etc . . . . . . . . . . . . . . . . . 54
(h) Insolvency, Etc . . . . . . . . . . . . . . . . . . . . . . . 54
(i) Judgment. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(j) Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . 55
(k) Governmental Approvals. . . . . . . . . . . . . . . . . . . . 55
(l) Other Government Action . . . . . . . . . . . . . . . . . . . 55
(m) Stock Listing . . . . . . . . . . . . . . . . . . . . . . . . 55
(n) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(p) Property Management . . . . . . . . . . . . . . . . . . . . . 56
Section 9.2 Consequences of Default. . . . . . . . . . . . . . . . . . 56
ARTICLE 10 AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.1 Authorization and Action. . . . . . . . . . . . . . . . . 56
Section 10.2 Duties and Obligations. . . . . . . . . . . . . . . . . . 57
Section 10.3 Dealings Between Agent and Borrower . . . . . . . . . . . 58
Section 10.4 Lender Credit Decision. . . . . . . . . . . . . . . . . . 58
Section 10.5 Indemnification . . . . . . . . . . . . . . . . . . . . . 59
Section 10.6 Successor Agent . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 11 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.1 No Waiver; Remedies Cumulative. . . . . . . . . . . . . . 60
Section 11.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.3 Consent to Jurisdiction; Waiver of Immunities . . . . . . 60
Section 11.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . . 61
(a) Assignments by Borrower . . . . . . . . . . . . . . . . . . . 61
(b) Assignments by Lender . . . . . . . . . . . . . . . . . . . . 61
(c) Sale of Participations by Lender. . . . . . . . . . . . . . . 61
Section 11.6 Severability. . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.7 Survival. . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.8 Executed in Counterparts. . . . . . . . . . . . . . . . . 62
Section 11.9 Entire Agreement; Amendment, Etc. . . . . . . . . . . . . 62
SCHEDULES
- ---------
SCHEDULE 1 DESIGNATED SECURED PROPERTIES
SCHEDULE 2 DESIGNATED NEGATIVE PLEDGE PROPERTIES
SCHEDULE 3 PREPAYMENT FEES
iv
<PAGE>
SCHEDULE 4 CONDITIONS TO PROPERTY BECOMING SECURED PROPERTY
SCHEDULE 5 CONDITIONS TO PROPERTY BECOMING NEGATIVE PLEDGE
PROPERTY OR ELIGIBLE PROPERTY
LITIGATION
SCHEDULE 7 SUBSIDIARIES
SCHEDULE 8 PERMITTED ENCUMBRANCES
SCHEDULE 9 DESIGNATED ELIGIBLE PROPERTIES
EXHIBITS
EXHIBIT A REVOLVING PROMISSORY NOTE
EXHIBIT B TERM PROMISSORY NOTE
EXHIBIT C NOTICE OF BORROWING/INTEREST RATE NOTICE
EXHIBIT D LEGAL OPINION OF BORROWER'S GENERAL COUNSEL
EXHIBIT E WASHINGTON DEED OF TRUST
EXHIBIT F CALIFORNIA DEED OF TRUST
EXHIBIT G CALIFORNIA LEASEHOLD DEED OF TRUST
EXHIBIT H ARIZONA DEED OF TRUST
EXHIBIT I TEXAS DEED OF TRUST
EXHIBIT J TEXAS LEASEHOLD DEED OF TRUST
EXHIBIT K INITIAL ENVIRONMENTAL AGREEMENT
EXHIBIT L INITIAL BUILDING LAW COMPLIANCE AGREEMENT
EXHIBIT M LEGAL OPINION OF BORROWER'S CALIFORNIA COUNSEL
EXHIBIT N LEGAL OPINION OF BORROWER'S ARIZONA COUNSEL
EXHIBIT O LEGAL OPINION OF BORROWER'S TEXAS COUNSEL
v
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of the 19th day of August,
1994, by and among SEATTLE-FIRST NATIONAL BANK, a national banking association,
KEY BANK OF WASHINGTON, a Washington corporation, and WEST ONE BANK, WASHINGTON
a state-chartered commercial bank (each individually a "Lender" and collectively
the "Lenders"), SEATTLE-FIRST NATIONAL BANK as agent for Lenders (the "Agent")
and SHURGARD STORAGE CENTERS, INC., a Delaware corporation (the "Borrower").
AGREEMENT
ARTICLE 1
DEFINITIONS
SECTION 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings:
"ADJUSTED LIBOR RATE" means two percent (2.00%) per annum plus a
fraction whose numerator is the applicable LIBOR Rate and whose denominator is
one minus the aggregate of the reserve percentages (including, without
limitation, any basic, supplemental, marginal or emergency reserves) expressed
as a decimal established by the Board for Governors of the Federal Reserve
System or other banking authority to which Lenders are subject for Eurocurrency
Liability (as defined in Regulation D of such Board of Governors). For purposes
of this definition, each LIBOR Loan shall be deemed to constitute a Eurocurrency
Liability and be subject to the reserve requirements of Regulation D, except
that, in no event, shall any adjustment be made to the Adjusted LIBOR Rate for
any such reserve requirement unless the affected Lender provides Borrower with
an Officer's Certificate stating that the amount of the adjustment to the
Adjusted LIBOR Rate applicable to such Lender's LIBOR Loans is not greater than
Borrower's pro rata share of such Lender's total reserve requirement for all its
Eurocurrency Liabilities (such pro rata share equaling a fraction whose
numerator is the aggregate amount of Borrower's LIBOR Loans from such Lender and
whose denominator is the total amount of such Lender's Eurocurrency
Liabilities).
"ADJUSTED PRO RATA SHARE" means, with respect to any given Funding
Lender and any given request for a Supplemental Revolving Loan, a fraction whose
numerator is such Lender's Pro Rata Share and whose denominator is the sum of
the Pro Rata Shares of all Funding Lenders for such Supplemental Revolving Loan.
"AFFILIATE" means, as to any person (i) any other Person controlling,
controlled by, or under direct or indirect
1
<PAGE>
common control with, such Person, and (ii) any limited partner of such Person if
such Person is a limited partnership, or any shareholder of such Person if such
Person is a corporation. For purposes of this definition, "control," when used
with respect to a specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"AGENT" means Seattle-First National Bank and any successor agent
selected pursuant to Section 10.6.
"AGREEMENT" means this Loan Agreement as it may be amended from time
to time.
"APPLICABLE AVAILABILITY PERIOD" means each full fiscal quarter of
Borrower prior to the Term Loan Maturity Date except that (a) if the date of
this Agreement is not the last day of any such fiscal quarter, then the portion
of the fiscal quarter immediately following the date hereof shall be an
Applicable Availability Period; and (b) if the conversion of the Revolving Loans
into the Term Loan occurs on a date which is not the last day of a fiscal
quarter, then the portions of the fiscal quarter in which such conversion occurs
immediately preceding and immediately following such conversion shall each be an
Applicable Availability Period.
"APPLICABLE COLLATERAL" means all of the property (real or personal)
in which any of the Deeds of Trust creates or purports to create a Lien,
including fixtures but excluding all other goods (as that term is defined in the
Washington Uniform Commercial Code).
"APPLICABLE INTEREST PERIOD" means, with respect to any portion of the
Loan that bears interest at a particular Applicable Interest Rate, the period
commencing on the effective date of an Interest Rate Notice provided in respect
of such portion of the Loan pursuant to Section 2.5(b) and ending:
(a) One, two, three or six months thereafter in the case of a
LIBOR Loan as specified in the Interest Rate Notice given by Borrower in respect
of such LIBOR Loan;
(b) On the Revolving Loan Maturity Date (or, if the Revolving
Loans are converted into the Term Loan, on the Term Loan Maturity Date) in the
case of a Prime Rate Loan;
PROVIDED, HOWEVER, that no Applicable Interest Period may end later than the
Term Loan Maturity Date.
2
<PAGE>
"APPLICABLE INTEREST RATE" means the Adjusted LIBOR Rate or the Prime
Rate.
"APPLICABLE PROPERTIES" means the Secured Properties, the Negative
Pledge Properties and the Eligible Properties.
"ARIZONA DEED OF TRUST" means a Deed of Trust executed by Borrower in
favor of Agent and Lenders in substantially the form of Exhibit H hereto
covering one or more of the Secured Properties located in Arizona.
"AVAILABLE AMOUNT" means, with respect to any Applicable Availability
Period, the maximum principal amount of the Loan that may be outstanding as of
any given date during such Applicable Availability Period, calculated in the
following manner:
(a) With respect to any Applicable Availability Period in the
Revolving Commitment Period, the "Available Amount" shall be the lesser of
the Available Amount determined by the Secured NOI formula or the Available
Amount determined by the Total NOI formula each set forth below (PROVIDED,
HOWEVER, that in no event shall the "Available Amount" exceed $35,000,000
prior to the expiration of the Collateral Grace Period):
(i) For any such Applicable Availability Period, the
Secured NOI formula is as follows:
NOI from the Secured Properties for the fiscal quarter
immediately preceding such Applicable Availability Period divided
by the Applicable Quarterly Debt Service Payment = 1.5
"Applicable Quarterly Debt Service Payment" means, for purposes
of the Secured NOI formula set forth in this clause (i), the
quarterly interest payments that would accrue during the
Applicable Availability Period if the Available Amount bore
interest at a per annum rate equal to 10%.
Alternatively stated, the Available Amount for any such
Applicable Availability Period determined by the Secured NOI
formula is that principal amount in respect of which the
Applicable Quarterly Debt Service Payment equals NOI from the
Secured Properties divided by 1.5.
(ii) For any such Applicable Availability Period, the Total
NOI formula is as follows:
3
<PAGE>
NOI from both Secured Properties and Negative Pledge Properties
for the immediately preceding such Applicable Availability Period
fiscal quarter divided by the Applicable Quarterly Debt Service
Payment = 1.8
"Applicable Quarterly Debt Service Payment" means, for purposes
of the Total NOI formula set forth in this clause (ii), the
quarterly principal and interest payments that would accrue
during such Applicable Availability Period if the Available
Amount were amortized over 25 years in equal quarterly
installments of principal and interest accrued at a per annum
rate equal to the seven year Treasury Rate for the last week of
the fiscal quarter immediately preceding such Applicable
Availability Period plus 200 basis points.
Alternatively stated, the Available Amount for any such
Applicable Availability Period determined by the Total NOI
formula is that principal amount in respect of which the
Applicable Quarterly Debt Service Payment equals NOI from both
the Secured Properties and the Negative Pledge Properties divided
by 1.8.
(b) With respect to any Applicable Availability Period in the
Term Loan Period, the "Available Amount" shall be the Available Amount
determined by the Secured NOI formula set forth below:
NOI from Secured Properties for the fiscal quarter immediately
preceding such Applicable Availability Period divided by the
Applicable Quarterly Debt Service Payment = 1.8.
"Applicable Quarterly Debt Service Payment" means, for purposes
of the Secured NOI formula set forth in this paragraph (c), the
quarterly principal and interest payments that would accrue
during such Applicable Availability Period if the Available
Amount were amortized over 25 years in equal quarterly
installments of principal and interest accrued at a per annum
rate equal to the seven year Treasury Rate for the last week of
the fiscal quarter immediately preceding such Applicable
Availability Period plus 200 basis points.
Alternatively stated, the Available Amount for such Applicable
Availability Period determined by the Secured NOI formula is that
principal amount in respect of which the Applicable Quarterly
Debt
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Service Payment equals NOI from the Security Properties divided
by 1.8.
"AVAILABLE AMOUNT DEFICIENCY" has the meaning set forth in
Section 2.4(b).
"BORROWER" means Shurgard Storage Centers, Inc., a Delaware
corporation, and any Successor.
"BORROWER'S BANK ACCOUNT" means Account No. 67539510 maintained by
Borrower with Agent.
"BORROWER'S KNOWLEDGE," "BEST KNOWLEDGE OF BORROWER," or "BEST OF
BORROWER'S KNOWLEDGE" (or equivalent phrase) means the knowledge of the chief
executive officer, the chief financial officer, the treasurer, any vice
president, any secretary or other officer of Borrower appointed by Borrower's
board of directors or any "reporting person" as that term is used in Section 16
of the Securities Exchange Act of 1934, as amended.
"BUILDING LAW COMPLIANCE AGREEMENTS" means the Initial Building Law
Compliance Agreement together with any similar agreements executed from time to
time by Borrower in favor of Agent and Lenders with respect to any real property
designated by Borrower as one of the Secured Properties pursuant to Section 3.2
or the Negative Pledge Properties pursuant to Section 4.1.
"BUILDING LAWS" means all federal, state and local laws, regulations,
ordinances and requirements applicable to the development and operation of any
Property, including without limitation all building, zoning, planning,
subdivision, fire, traffic, safety, air quality, wetlands, shoreline, and flood
plain laws, regulations and ordinances. The Building Laws shall include without
limitation, all applicable requirements of the Fair Housing Act of 1968, as
amended by the Fair Housing Amendments Act of 1988, 42 U.S.C. Section 3601 et
seq.; the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 et
seq.; and all government and private covenants, conditions and restrictions
applicable to any Property.
"BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which banks are authorized or obligated to close in Seattle, Washington.
"CALIFORNIA DEED OF TRUST" means a Deed of Trust executed by Borrower
in favor of Agent and Lenders in substantially the form of Exhibit F hereto
covering one or more of the Secured Properties located in California or, in the
case of the Secured Property located in Solana Beach, California, a Deed of
Trust in substantially the form of the California Leasehold Deed of Trust.
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"CALIFORNIA LEASEHOLD DEED OF TRUST" means a Deed of Trust executed by
Borrower in favor of Agent and Lenders in substantially the form of Exhibit G
hereto.
"CAPITAL RESERVE ACCOUNT" has the meaning set forth in Section 7.15.
"CASUALTY LOSS PROPERTY" has the meaning set forth in Section 7.18(c).
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL GRACE PERIOD" means the period commencing on the date of
this Agreement and ending on the earlier of 60 days after the date hereof or the
first date when all conditions set forth in Schedule 4 have been satisfied with
respect to the Designated Secured Properties.
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower, are treated as a single employer
under Section 414(b) or 414(c) of the Code.
"DEBT" means (i) indebtedness for borrowed money or for the deferred
purchase price of property or services, other than trade accounts payable on
customary terms in the ordinary course of business, (ii) financial obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii)
financial obligations as lessee under leases which shall have been or should be,
in accordance with generally accepted accounting principles, recorded as capital
leases, and (iv) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
financial obligations of others of the kinds referred to in clauses (i) through
(iii) above.
"DEEDS OF TRUST" means the Initial Deeds of Trust together with any
mortgages, deeds of trust or other real property collateral documents executed
from time to time by Borrower in favor of Agent as security for any or all of
Borrower's obligations under the Loan Documents (other than the Environmental
Agreements) (but not including any such Deeds of Trust or subsequent collateral
documents to the extent released by Agent from time to time).
"DEFAULT" means any event which but for the passage of time, the
giving of notice, or both would be an Event of Default but not including,
however, the occurrence of an Available Amount Deficiency prior to the
expiration of the Deficiency Cure Period.
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"DEFICIENCY CURE PERIOD" has the meaning set forth in Section 2.4(b).
"DESIGNATED APPLICABLE PROPERTIES" means the Designated Secured
Properties, the Designated Negative Pledge Properties, and the Designated
Eligible Properties.
"DESIGNATED ELIGIBLE PROPERTIES" means all of the real property
identified in Schedule 9, including, without limitation, the land, buildings,
fixtures and improvements located thereon.
"DESIGNATED NEGATIVE PLEDGE PROPERTIES" means all of the real property
identified in Schedule 2, including, without limitation, the land, buildings,
fixtures and other improvements located thereon.
"DESIGNATED SECURED PROPERTIES" means all of the real property
identified in Schedule 1, including, without limitation, the land, buildings,
fixtures and other improvements located thereon.
"ELIGIBLE PROPERTIES" means the Designated Eligible Properties,
together with any additional real property designated by Borrower in accordance
with Section 4.1 as constituting one of the Eligible Properties, but not
including any of the Designated Eligible Properties or any subsequently
designated real property which no longer constitutes Eligible Property in
accordance with Section 4.2.
"ENVIRONMENTAL AGREEMENTS" means the Initial Environmental Agreement
together with any similar environmental agreements executed by Borrower in favor
of Agent and Lenders with respect to any other real property designated by
Borrower as Secured Properties pursuant to Section 3.2 or Negative Pledge
Properties or Eligible Properties pursuant to Section 4.1 (but not including the
Initial Environmental Agreement or any such subsequent agreements to the extent
they apply to any real property that no longer constitutes either an Applicable
Property).
"ENVIRONMENTAL LAW" means and includes the Comprehensive Environmental
Response, Compensation, and liability Act of 1980 ("CERCLA" or the Federal
Superfund Act), as amended by the Superfund Amendments and Reauthorization Act
of 1986 ("SARA"), 42 U.S.C. Sections 9601-9675; the Resource Conservation and
Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq.; The Clean Water
Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Section 7401
et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
Section 136 et seq.; the Toxic Substances Control Act, 15 U.S.C. Sections
2601-2671; all as the same may be from time to time amended and any
regulations now or hereafter
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promulgated thereunder; and any and all other federal, state, county, municipal,
local and other statutes, laws, ordinances, rules, regulations, judgments,
orders, decrees, permits, licenses, or other governmental restrictions or
requirements and the common law which may from time to time relate to or deal
with protection of human health, pollution or the environment, including,
without limitation, all regulations promulgated by a regulatory body pursuant to
any such statute, law or ordinance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EVENT OF DEFAULT" has the meaning given in Section 9.1.
"FEDERAL FUNDS RATE" has the meaning given in Section 2.3.
"FULL INSURABLE VALUE" means the actual cost of replacing the property
in question, without allowance for depreciation, as determined from time to time
(but not more often than once every calendar year) by Agent.
"FUNDED ADJUSTED PRO RATA SHARE" means, with respect to any Funding
Lender, a fraction whose numerator is the unpaid principal amount of such
Lender's Supplemental Loans and whose denominator is the unpaid principal amount
of all Supplemental Loans.
"FUNDED DEBT" means the Debt evidenced by the Notes, and all other
Debt which matures more than one year from the date of determination or matures
within one year from such date but is renewable or extendible, at the option of
the debtor, to a date more than one year from such date or arises under a
revolving credit or similar agreement which obligates the lender or lenders to
extend credit during a period of more than one year from such date, excluding,
however, all amounts of Funded Debt (other than Debt evidenced by the Notes
which shall in all events be Funded Debt required to be paid or prepaid within
one year from the date of determination).
"FUNDED PRO RATA SHARE" means, with respect to any Lender, a fraction
whose numerator is the outstanding principal amount of such Lender's Loans
(including such Lender's Supplemental Loans, if any) and whose denominator is
the total outstanding principal amount of the Loan.
"FUNDING LENDER" means, as of any given time, any Lender that is then
making a Supplemental Revolving Loan or, if the context so indicates, any Lender
that then has one or more Supplemental Loans outstanding.
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"GOVERNMENT APPROVAL" means an approval, permit, license,
authorization, certificate, or consent of any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means the government of the United States or
any State or any foreign country or any political subdivision of any thereof or
any branch, department, agency, instrumentality, court, tribunal or regulatory
authority which constitutes a part or exercises any sovereign power of any of
the foregoing.
"GROSS REVENUES" means, with respect to any given Secured Properties
or Negative Pledge Properties, all payments and other revenues (exclusive of any
payments attributable to sales taxes) received by Borrower or Borrower's
property manager from all sources related to the operation of such Property
including, without limitation, rental of such Property, storage rentals, late
fees, security deposits (if any, unless required to be segregated), receipts
from sales of goods, billboard rentals and other advertising revenue, and tenant
reimbursements of expenses.
"HAZARDOUS MATERIAL" means asbestos, urea formaldehyde, PCBs, nuclear
fuel or materials, chemical waste, radon, radioactive materials, explosives,
known carcinogens, petroleum products (including crude oil) and any other
dangerous, toxic, or hazardous pollutant, contaminant, chemical, material or
substance defined as hazardous or as a pollutant or contaminant in, or the
release or disposal of which is regulated by, any Environmental Law.
"INDEBTEDNESS" means for any person (i) all items of indebtedness or
liability which would be included in determining total liabilities as shown on
the liability side of a balance sheet as of the date as of which indebtedness is
determined; (ii) indebtedness secured by any Lien, whether or not such
indebtedness shall have been assumed; (iii) any other indebtedness or liability
for borrowed money or for the deferred purchase price of property or services
for which such person is directly or contingently liable as obligor, guarantor,
or otherwise, or in respect of which such person otherwise assures a creditor
against loss (but not including any such indebtedness or liability resulting
from any merger of Shurgard, Inc., into Borrower, if such merger occurs prior to
the Term Loan Maturity Date); and (iv) all other obligations of such person
under leases which shall have been or should have been recorded as capital
leases.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 7.19.
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"INITIAL BUILDING LAW COMPLIANCE AGREEMENT" means a Certificate and
Indemnity Agreement Regarding Compliance with Building Laws executed by Borrower
in favor of Agent and Lenders in substantially the form of Exhibit L hereto
covering the Designated Applicable Properties.
"INITIAL DEEDS OF TRUST" means the (a) Washington Deeds of Trust
covering the Designated Secured Properties located in Washington; (b) the
California Deeds of Trust covering the Designated Secured Properties located in
California; (c) the Arizona Deeds of Trust covering the Designated Secured
Properties located in Arizona; and (d) the Texas Deeds of Trust covering the
Designated Secured Properties located in Texas.
"INITIAL ENVIRONMENTAL AGREEMENT" means an Environmental Agreement and
Indemnity executed by Borrower in favor of Agent and Lenders in substantially
the form of Exhibit K hereto covering the Designated Applicable Properties.
"INITIAL LOAN DOCUMENTS" means this Agreement, the Revolving Notes,
the Initial Deeds of Trust, the Initial Environmental Agreement and the Initial
Building Law Compliance Agreement.
"INSURANCE AND CONDEMNATION PROCEEDS" has the meaning set forth in
Section 7.18.
"INTEREST RATE NOTICE" shall have the meaning given in Section 2.5(b).
"LENDERS" means Seattle-First National Bank, Key Bank of Washington,
and West One Bank, Washington and their Successors, and any additional lenders
to whom an original Lender assigns its interest in the Loan Documents pursuant
to this Agreement.
"LIBOR BUSINESS DAY" means any Business Day when the London Interbank
Market is open for business.
"LIBOR LOAN" means any portion of the Loan that bears interest at the
Adjusted LIBOR Rate or, if the context so indicates, that portion of a Revolving
Loan advance that bears interest at the Adjusted LIBOR Rate.
"LIBOR RATE" shall mean, with respect to any LIBOR Loan for any
Applicable Interest Period, an interest rate per annum equal to the offered rate
for deposits in U.S. Dollars for the Applicable Interest Period commencing on
the first day of such Applicable Interest Period (the "Reset Date") which
appears on the display designated as the "LIBO" page in the Reuter Monitor Money
Rates Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London inter-
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bank offered rates of major banks) as of 11:00 a.m., London time, on the day
that is two Business Days preceding the Reset Date. If at least two such
offered rates appear on such Reuter's screen LIBO page, the LIBOR Rate in
respect of that Reset Date will be the arithmetic mean of such offered rates.
In the event such Reuters screen LIBO page is not published, the LIBOR Rate
shall be determined from an alternate, generally-recognized source mutually
agreeable to Agent and Borrower, and, in the absence of such agreement, Borrower
shall not have an option to select the Adjusted LIBOR Rate.
"LIEN" means, for any person, any security interest, pledge, mortgage,
charge, assignment, hypothecation, encumbrance, attachment, garnishment,
execution or other voluntary or involuntary lien upon or affecting the revenues
of such person or any real or personal property in which such person has or
hereafter acquires any interest.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Deeds of Trust,
the Environmental Agreements and the Building Law Compliance Agreements.
"LOAN" means, during the Revolving Commitment Period, the Revolving
Loans and, during the Term Loan Period, the Term Loan; or, when used in the
context of a particular Lender, the amounts advanced by such Lender.
"LOSSES" has the meaning set forth in Section 7.19.
"MAJORITY LENDERS" means Lenders having sixty percent (60%) or more of
the Loan or, if no portion of the Loan is outstanding, of the commitment to make
Revolving Loans.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on or
material adverse change in (a) (i) the business, operations, property, financial
condition, liabilities (absolute, accrued, contingent or otherwise) or assets of
Borrower, and (ii) the ability of Borrower to perform its obligations under this
Agreement, the Notes or any other Loan Documents; or (b) the rights or remedies
of Agent, any Lender or the holder of any Note under this Agreement or any of
the other Loan Documents upon the occurrence of an Event of Default.
"NEGATIVE PLEDGE DESIGNATION NOTICE" has the meaning set forth in
Section 4.1.
"NEGATIVE PLEDGE PROPERTIES" means the Designated Negative Pledge
Properties together with any additional real property designated by Borrower in
accordance with Section 4.1 as constituting one of the Negative Pledge
Properties, but not including any of the Designated Negative Pledge Properties
or any such subsequently designated real property which no longer
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constitutes Negative Pledge Property in accordance with Section 4.2.
"NEGATIVE PLEDGE REMOVAL REQUEST" has the meaning set forth in Section
4.2.
"NET WORTH" means the excess of total assets over total Indebtedness,
but not including, however, in the determination of total assets (a) treasury
stock, (b) cash held in a sinking or other similar fund established for the
purpose of redemption or other retirement of capital stock, (c) to the extent
not already deducted from total assets, reserves for depreciation, depletion,
obsolescence or amortization of properties and other reserves or appropriations
of retained earnings which have been or should be established in connection with
the business conducted by the relevant corporation, and (d) any re-evaluation or
other write-up in book value of assets subsequent to the fiscal year of Borrower
ending immediately prior to the date hereof.
"NOI" means, with respect to any of the Secured Properties or Negative
Pledge Properties for any fiscal quarter of Borrower, the Gross Revenues from
such Property for such fiscal quarter less (i) usual and customary operating
expenses for such Property for such fiscal quarter, (ii) real estate taxes with
respect to such Property for such fiscal quarter, (iii) property management
fees, and (iv) a capital expenditure reserve for such Property quarter in the
amount of $.17 per square foot divided by four.
"NON-FUNDING LENDER" means, as of any given date (a) a Lender that has
failed to make its Pro Rata Share of a requested Pro Rata Revolving Loan or its
Adjusted Pro Rata Share of a requested Supplemental Revolving Loan, under
circumstances which give Borrower a right to request that other Lenders make
Supplemental Revolving Loans pursuant to Section 2.1(b); or (b) if the context
so indicates, any Lender that has no outstanding Supplemental Loans at a time
when any other Lender has any Supplemental Loans outstanding.
"NOTES" means the Term Notes and the Revolving Notes.
"NOTICE OF BORROWING" means a request for a Revolving Loan from
Borrower delivered to Agent in the manner, at the time and containing the
information required under Section 2.2.
"OFFICER'S CERTIFICATE" means a certificate executed and delivered on
behalf of Borrower by its Chief Financial Officer or his designee.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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"PENSION PLAN" means an "employee pension benefit plan" (as such term
is defined in Section 3(a) of ERISA) from time to time maintained by Borrower or
a member of a Controlled Group.
"PERMITTED ENCUMBRANCES" means (a) Liens for taxes, assessments, and
other governmental charges not then delinquent; (b) any mechanic's, laborer's,
materialmen's, supplier's or vendor's lien or other similar statutory lien
arising in the ordinary course of business but only if (i) such lien is
subordinate to the liens created by the Deed of Trust and payment is not yet due
under the contract giving rise to such lien or (ii) such lien is subject to a
bona fide dispute and Borrower has taken whatever actions may be reasonably
necessary to prevent a foreclosure of such lien and the resulting sale of any of
the Secured Properties or Negative Pledge Properties and, if such lien has
priority over the lien of the Deeds of Trust, Borrower causes to be posted a
bond equal to one and a half times the amount of such lien; (c) with respect to
any given Applicable Property, the Liens identified on Schedule 8 as being
Permitted Encumbrances for such Property; (d) nonmonetary encumbrances,
restrictions, covenants, conditions, easements, rights-of-way, encroachments,
reservations and other similar matters affecting title which, in the aggregate
do not materially impair Borrower's use of the Applicable Properties and its
operation thereon or materially reduce the fair market value thereof; and
(e) any other Liens expressly approved by Agent in writing with the consent of
Majority Lenders.
"PERSON" means any individual, partnership, corporation, business
trust, unincorporated organization, joint venture, association, joint stock
company, estate, limited liability company, or any governmental entity,
department, agency or political subdivision thereof.
"PLAN" shall mean, at any time, an employee pension benefit plan which
is covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code and is either (a) maintained by Borrower or any
member of a Controlled Group for employees of Borrower or any member of a
Controlled Group or (b) maintained pursuant to a collective bargaining agreement
or any other arrangement under which more than one employer makes contributions
and to which Borrower or any member of a Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
(5) plan years made contributions.
"PRIME RATE" means, on any day, Agent's publicly announced prime rate
of interest at its principal office (which prime rate is a reference rate and
not necessarily the lowest rate of interest charged by Agent to its prime
customers), changing as such prime rate changes.
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"PRIME RATE LOAN" means any portion of a Loan that bears interest at
the Prime Rate.
"PRO RATA REVOLVING LOANS" has the meaning given in Section 2.1(a).
"PRO RATA SHARE" means, with respect to each Lender, the percentage
set forth opposite such Lender's signature on the signature pages at the end of
this Agreement.
"PRO RATA TERM LOAN" means that portion of the Term Loan that
constitutes the unpaid principal amount of the Pro Rata Revolving Loans that
were converted into the Term Loan.
"PROCEEDS ESCROW" has the meaning set forth in Section 7.18(a).
"PROCEEDS TRUSTEE" has the meaning set forth in Section 7.18(a).
"PROPERTY" means any real or personal property in which Borrower now
or hereafter holds an ownership or leasehold interest.
"QUARTERLY COMPLIANCE CERTIFICATE" has the meaning given in
Section 7.8(c).
"REQUIRED RESERVE" shall mean the reserve for Capital Expenditures
described in Section 7.15.
"REVOLVING COMMITMENT" means Fifty Million Dollars ($50,000,000).
"REVOLVING COMMITMENT PERIOD" has the meaning given in Section 2.1.
"REVOLVING LOANS" means the Pro Rata Revolving Loans and the
Supplemental Revolving Loans.
"REVOLVING LOAN MATURITY DATE" means August 18, 1996.
"REVOLVING NOTES" has the meaning given in Section 2.6.
"SECURED PROPERTIES" means (a) during the Collateral Grace Period, the
Designated Secured Properties; (b) thereafter, the Designated Secured Properties
together with any additional real property which becomes one of the Secured
Properties pursuant to Section 3.2 (but not including any Designated Secured
Property or any such additional real property that is no longer subject to the
lien of the Deeds of Trust as a result of having been released in accordance
with Section 3.3).
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"SECURED PROPERTY DESIGNATION NOTICE" has the meaning set forth in
Section 3.2.
"SECURED PROPERTY RELEASE REQUEST" has the meaning set forth in
Section 3.3.
"SUBSIDIARY" shall mean any corporation directly or indirectly
controlled by Borrower. For the purposes of this definition, "controlled by"
shall mean the possession, directly or indirectly of the power to direct or
cause the direction of the management or policies of such Subsidiary, whether
through the ownership of voting securities, by contract, or otherwise.
"SUCCESSOR" means, for any corporation or banking association, any
successor by merger or consolidation, or by acquisition of substantially all of
the assets of the predecessor.
"SUPPLEMENTAL LOANS" means the Supplemental Revolving Loans and the
Supplemental Term Loan.
"SUPPLEMENTAL REVOLVING LOANS" has the meaning defined in Section
2.1(b).
"SUPPLEMENTAL TERM LOAN" means, as of any given date, that portion of
the Term Loan that constitutes the unpaid principal amount of the Supplemental
Revolving Loans that were converted into the Term Loan.
"TAX" means, for any person, any tax, assessment, duty, levy, impost
or other charge imposed by any Governmental Authority on such person or on any
property, revenue, income, or franchise of such person and any interest or
penalty with respect to any of the foregoing.
"TERM LOAN" has the meaning given in Section 2.1(c).
"TERM LOAN MATURITY DATE" means August 18, 1997.
"TERM LOAN PERIOD" means the period that begins on the conversion of
the Revolving Loans to the Term Loan and ends on the Term Loan Maturity Date.
"TERM NOTES" has the meaning given in Section 2.6.
"TEXAS DEED OF TRUST" means a Deed of Trust executed by Borrower in
favor of Lenders in substantially the form of Exhibit I hereto covering one or
more of the Secured Properties located in Texas or, in the case of the Secured
Property located in Hillcroft, Texas, a Deed of Trust in substantially the form
of the Texas Leasehold Deed of Trust.
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"TEXAS LEASEHOLD DEED OF TRUST" means a Deed of Trust executed by
Borrower in favor of Lenders in substantially the form of Exhibit J hereto.
"TREASURY RATE" means, with respect to any given maturity, the
bond-equivalent yield as reported in Federal Reserve Statistical Release
(Publication H.15) -- Selected Interest Rates under the heading "U.S. Government
Securities/Treasury Constant Maturities" (for the week ending prior to the
applicable measurement date) of U.S. Treasury Constant Maturities as displayed
on page 119 of Dow Jones Telerate Service (or such other page or service as may
replace that page or service for the purpose of displaying rates comparable to
such U.S. Treasury Rates) with a maturity equal to the applicable maturity and,
if the applicable maturity is not reported, the linear interpolation of such
bond-equivalent yields with maturities (one longer and one shorter) most nearly
approximating the applicable maturity. If such Federal Reserve Statistical
Release is no longer available, the Treasury Rate shall be determined in the
same manner, but by reference to such other reasonably comparable index as is
commonly used for determining such rates.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (a) the present value of all vested non
forfeitable benefits under such Plan exceeds (b) the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of Borrower or any member of a Controlled Group
to the PBGC or the Plan under Title IV of ERISA.
"WASHINGTON DEED OF TRUST" means a Deed of Trust executed by Borrower
in favor of Agent and Lenders in substantially the form of Exhibit E hereto
covering one or more of the Secured Properties located in Washington.
SECTION 1.2 GENERAL PRINCIPLES APPLICABLE TO DEFINITIONS. Definitions
given herein shall be equally applicable to both singular and plural forms of
the terms therein defined and references herein to "he" or "it" shall be
applicable to persons whether masculine, feminine or neuter. References herein
to any document including, but without limitation, this Agreement shall be
deemed a reference to such document as it now exists, and as, from time to time
hereafter, the same may be amended. References herein to a "person" or
"persons" shall be deemed to be references to an individual, corporation,
partnership, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or agency or any other entity. References herein to any section, subsection,
schedule or exhibit shall, unless
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otherwise indicated, be deemed a reference to sections and subsections within
and schedules and exhibits to this Agreement.
SECTION 1.3 ACCOUNTING TERMS. Except as otherwise provided herein,
accounting terms not specifically defined shall be construed, and all accounting
procedures shall be performed, in accordance with generally accepted United
States accounting principles.
ARTICLE 2
THE LOANS
SECTION 2.1 THE LOANS.
(a) PRO RATA REVOLVING CREDIT. Subject to the terms and conditions
of this Agreement, each Lender hereby severally agrees during the period from
the date of this Agreement until the Revolving Loan Maturity Date (the
"Revolving Commitment Period") to make loans duly requested hereunder (the "Pro
Rata Revolving Loans") to Borrower in amounts equal to such Lender's Pro Rata
Share of each requested Pro Rata Revolving Loan provided that, after giving
effect to any requested Pro Rata Revolving Loan (i) the aggregate of all
Revolving Loans outstanding from such Lender will not exceed such Lender's Pro
Rata Share of the Revolving Commitment; and (ii) the aggregate of all Revolving
Loans outstanding from such Lender will not exceed such Lender's Pro Rata Share
of the Available Amount. The commitment set forth in this Section 2.1(a) is for
a revolving credit, and within the amounts and times specified herein, Borrower
may pay, repay and reborrow.
(b) SUPPLEMENTAL REVOLVING LOANS. In the event that (A) any Lender
fails to make its Pro Rata Share of any properly requested Pro Rata Revolving
Loan on or before 9:00 a.m. (Seattle time) on the date of any requested
borrowing, and (B) Agent determines in good faith that such Lender's failure to
make its Pro Rata Share of such Pro Rata Revolving Loan constitutes a violation
of such Lender's commitment to lend under this Agreement, then Agent shall
promptly notify Borrower and each Lender of such determination. In each such
case, Borrower shall have the right, notwithstanding the notice requirement set
forth in Section 2.2, to give telephonic notice to Agent requesting that each of
the Lenders (other than the Lender whose failure to lend gave rise to such
notice), make a supplemental revolving loan in an amount equal to the amount of
such Lender's Adjusted Pro Rata Share of the Non-Funding Lender's Pro Rata Share
of the initially requested Pro Rata Revolving Loan, provided that, after giving
effect to such supplemental revolving loan (a) the aggregate of all Revolving
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Loans outstanding from such Funding Lender will not exceed such Funding Lender's
Pro Rata Share of the Revolving Commitment; and (b) the aggregate of all
Revolving Loans outstanding from such Funding Lender will not exceed such
Funding Lender's Pro Rata Share of the Available Amount. Each such supplemental
revolving loan shall be referred to in this Agreement as a "Supplemental
Revolving Loan." Each Supplemental Revolving Loan shall be a Prime Rate Loan
unless and until all or any portion of such Supplemental Revolving Loan has been
converted to a LIBOR Loan pursuant to Section 2.5(b). In the event that a
judicial determination is made that any Non-Funding Lender's failure to make its
Pro Rata Share of any requested Pro Rata Revolving Loan constituted a breach of
such Lender's commitment to lend under Section 2.1(a), then the Funding Lenders
shall be entitled to repayment from such Non-Funding Lender of the unpaid
principal amount of the Supplemental Loans that resulted from such Non-Funding
Lender's breach, together with interest thereon at the Applicable Interest Rate
(reduced by any amounts such Funding Lenders have already received in respect of
such Supplemental Loans from Borrower) and such Non-Funding Lender shall, to the
extent of such repayment, become a Funding Lender in respect of the amount of
such repayment. The Revolving Loans described in Section 2.1(a) and in this
Section 2.1(b) constitute a revolving credit and, subject to the limits set
forth in this Agreement, Borrower may pay, prepay and reborrow.
(c) TERM LOAN. Subject to the terms and conditions of this
Agreement, each Lender agrees that, on the Revolving Loan Maturity Date,
Borrower may convert the principal balance of the Revolving Loans outstanding as
of such date to a term loan (the "Term Loan") having the terms set forth in this
Agreement. The Term Loan described in this Section 2.1(c) may not be reborrowed
once paid.
SECTION 2.2 NOTICE OF BORROWING. For each requested Revolving Loan,
Borrower shall give Agent prior notice (a "Notice of Borrowing") specifying the
date of a requested borrowing (which must be a Business Day), the amount thereof
and, in the case of any Revolving Loan requested during a Deficiency Cure
Period, the manner in which the proceeds of such Revolving Loan will be used.
Each Notice of Borrowing shall be in writing except that, in the case of a
Supplemental Revolving Loan, such notice may be oral so long as it is promptly
confirmed in writing in a form acceptable to Agent. Each such written Notice of
Borrowing shall be in substantially the form of Exhibit C hereto. Except as
otherwise required in Section 2.5(b) with respect to LIBOR Loans or as otherwise
permitted with respect to Supplemental Revolving Loans, Borrower may give a
Notice of Borrowing prior to 12:00 noon (Seattle time) on the any Business Day
at least two (2) Business Days prior to the Business Day that Borrower requests
that the Pro Rata Revolving Loan be made. Each Notice of Borrowing shall be
irrevocable and shall be deemed to constitute a representation and warranty by
Borrower that, as of the date of such notice (a) the statements set forth in
Article 6 are true and correct; and (b) no Default or Event of Default has
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occurred and is continuing or will result from disbursement of the requested
Revolving Loan. Each Pro Rata Revolving Loan requested by Borrower under this
Section 2.2 shall be in an amount of not less than $250,000. On receipt of a
Notice of Borrowing, Agent shall promptly notify each Lender by telephone, telex
or telefax of the date of the requested borrowing and the amount thereof. Each
Lender shall before 9:00 a.m. (Seattle time) on the date of the requested
borrowing, pay such Lender's Pro Rata Share of the aggregate principal amount of
the requested borrowing in immediately available funds to Agent at its
Commercial Loan Service Center, Seattle, Washington. Upon fulfillment to
Agent's satisfaction of the applicable conditions set forth in Article 5, and
after receipt by Agent of such funds, Agent will promptly make such funds
available to Borrower by depositing them to Borrower's Bank Account and any
funds so deposited shall be presumed to be for the benefit of Borrower.
SECTION 2.3 AGENT'S RIGHT TO FUND. In the event that, prior to making the
requested borrowing available to Borrower, Agent has received from any Lender a
confirmation that such Lender's Pro Rata Share of the requested Pro Rata
Revolving Loan (or, in the case of a requested Supplemental Revolving Loan, a
confirmation that such Lender's Adjusted Pro Rata Share of the requested
Supplemental Revolving Loan) has been sent to Agent by wire transfer together
with the wire transfer sequencing numbers related thereto, Agent may assume that
such Lender has made such funds available on the date such Revolving Loan is to
be made in accordance with Section 2.2 and Agent may, in reliance upon such
assumption, make available to Borrower on such date a corresponding amount. If
and to the extent that Agent has not, for any reason, received such
corresponding amount by the close of business on the day such amount was to be
made available, such Lender shall pay to Agent forthwith on demand such
corresponding amount, together with interest thereon for each day from the date
such amount is made available to Borrower until the date such amount is repaid
to Agent, at the Federal Funds Rate. Until such Lender has made such payment to
Agent, such Lender shall be a Non-Funding Lender with respect to such Revolving
Loan. In the event Agent does not receive such amount from such Lender within
one (1) Business Day after Agent's demand therefor, then Borrower agrees to pay
Agent forthwith on demand such corresponding amount, together with interest
thereon for each day from the date such amount is made available to the Borrower
until the date such amount is repaid to Agent, at the Applicable Interest Rate.
Borrower may, to the extent otherwise permitted by Section 2.1(b) repay such
corresponding amount by requesting Supplemental Revolving Loans from the Funding
Lenders. Any such repayment by Borrower shall be without prejudice to any
rights it may have against the Lender that has failed to make available its
funds for any requested borrowing. As used herein "Federal Funds Rate" means,
for any period, a fluctuating interest rate per annum equal for each day during
such period to the weighted average of
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the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on
transactions received by Agent from three federal funds brokers of recognized
standing selected by Agent.
SECTION 2.4 REPAYMENT OF PRINCIPAL.
(a) SCHEDULED REPAYMENTS. Unless the Revolving Loans are converted
to the Term Loan pursuant to Section 2.1(c), Borrower shall repay the principal
amount of the Revolving Loans on or before the Revolving Maturity Date. If the
Revolving Loans are converted to the Term Loan, Borrower shall repay the full
outstanding principal amount of the Term Loan on or before the Term Loan
Maturity Date.
(b) MANDATORY PREPAYMENTS. If at any time or for any reason, the
Available Amount is less than the outstanding principal amount of the Loan (such
shortfall being referred to as an "Available Amount Deficiency"), then Borrower
shall, within 90 days of the date such deficiency occurs ("Deficiency Cure
Period"), cause the outstanding principal amount of the Loan to be less than or
equal to the Available Amount by (i) making one or more principal repayments of
the Loan and/or (ii) causing one or more mini-storage facilities of Borrower to
become Secured Property in accordance with Section 3.2 or additional Negative
Pledge Property in accordance with Section 4.1.
SECTION 2.5 INTEREST ON LOANS.
(a) GENERAL PROVISIONS. Borrower agrees to pay to Lenders interest
on the unpaid principal amount of the Loan from the date hereof until the Loan
shall be due and payable at a per annum rate equal to the Applicable Interest
Rate. Interest on any past due amount of the Loan (whether at maturity, upon
acceleration, mandatory prepayment or otherwise) shall accrue, at a per annum
rate equal to three percent (3%) above the Prime Rate. Accrued but unpaid
interest on the LIBOR Loan shall be paid in arrears on the last day of the
Applicable Interest Period and, in addition, for each LIBOR Loan having an
Applicable Interest Period longer than three months, at the end of the first
three months of such Applicable Interest Period. Accrued but unpaid interest on
the Prime Rate Loan shall be paid in arrears on the first Business Day of each
calendar month and at the Revolving Loan Maturity Date. Notwithstanding the
foregoing, accrued interest on the Loan shall be payable on demand after the
occurrence of an Event of Default. Computations of interest shall be made on
the basis of a year of 360 days for LIBOR Loans and for Prime Rate Loans, for
the actual number of days
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(including the first day but excluding the last day) occurring in the period for
which such interest is payable.
(b) SELECTION OF ALTERNATIVE RATES.
(1) Borrower may, on at least three LIBOR Business Days' prior
notice, elect to have interest accrue on any Revolving Loan or any portion
thereof or on all or any portion of the Loan already outstanding at the Adjusted
LIBOR Rate for an Applicable Interest Period. Such notice (herein, an "Interest
Rate Notice") shall be given in writing and shall be deemed delivered when
received by Agent except that an Interest Rate Notice received by Agent after
10:00 a.m., Seattle time, on any Business Day, shall be deemed to have been
delivered or received on the next Business Day. Each written Interest Rate
Notice shall be in substantially the form of Exhibit C hereto. Any such
Interest Rate Notice shall be irrevocable and shall constitute a representation
and warranty by Borrower that as of the date of such Interest Rate Notice, the
statements set forth in Article 6 are true and correct and that no Default or
Event of Default has occurred and is continuing.
(2) The ability of Borrower to select the Adjusted LIBOR Rate to
apply to the Loan or any portion thereof shall be subject to the following
conditions: (i) no more than ten LIBOR Loans may be outstanding at any single
time; (ii) the Adjusted LIBOR Rate may not be selected for any portion of the
Loan which is already accruing interest at the Adjusted LIBOR Rate unless such
selection is only to become effective at the maturity of the Applicable Interest
Period then in effect; (iii) Agent shall not have given notice pursuant to
Section 2.5(c) that the Adjusted LIBOR Rate selected by Borrower is not
available; (iv) no Default or Event of Default shall have occurred and be
continuing; and (v) if Borrower elects to have some portion (but less than all)
of the Loan accrue interest at the Adjusted LIBOR Rate, such election shall
cause a portion of each Lender's outstanding Loan to accrue interest at such
rate in proportion to their respective Funded Pro Rata Shares.
(3) In the absence of an effective request for the application
of the Adjusted LIBOR Rate, the Loan or the remaining portions thereof shall
accrue interest at the Prime Rate.
(4) The Interest Rate Notice may be given with and contained in
any Notice of Borrowing provided that the requisite number of days for prior
notice for both the borrowing and the selection of the Adjusted LIBOR Rate shall
be satisfied.
(5) If Borrower delivers an Interest Rate Notice with any Notice
of Borrowing for a Revolving Loan and Borrower thereafter declines to take such
Revolving Loan or a condition
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precedent to the making of such Revolving Loan is not satisfied or waived,
Borrower shall indemnify Agent and each Lender for all losses and any costs
which Agent or any Lender may sustain as a consequence thereof including,
without limitation, the costs of reemployment of funds at rates lower than the
cost to Lenders of such funds. A certificate of Agent or any Lender setting
forth the amount due to it pursuant to this Section 2.5(b)(5) and the basis for,
and the calculation of, such amount shall be prima facie evidence of the amount
due to it hereunder, absent a showing by Borrower of manifest error. Payment of
the amount owed shall be due within 15 days after Borrower's receipt of such
certificate.
(c) UNAVAILABLE ADJUSTED LIBOR RATE. If, for any reason, any Lender
determines that a fair and adequate means does not exist for establishing the
Adjusted LIBOR Rate or that the making or continuation of any LIBOR Loan by such
Lender has become unlawful, then such Lender may give notice of that fact to
Agent and Borrower and such determination shall become conclusive and binding
absent manifest error. After such notice has been given and until the Lender
notifies Borrower and Agent that the circumstances giving rise to such notice no
longer exist, such rate shall no longer be available. Any subsequent request by
Borrower to have interest accrue at such rate shall be deemed to be a request
for interest to accrue at the Prime Rate unless Borrower elects to select
another Applicable Interest Rate which is not unavailable and gives the
requisite number of days notice to select such rate. If the Lender shall
thereafter determine to permit borrowing at such rate, the Lender shall notify
Borrower and Agent in writing of that fact, and Borrower shall then once again
become entitled to request that such rate apply to the Loans in accordance with
Section 2.5(b) hereof.
(d) COMPENSATION FOR INCREASED COSTS. In the event that after the
date hereof any change occurs in any applicable law, regulation, treaty or
directive or interpretation thereof by any Governmental Authority charged with
the administration or interpretation thereof, or any condition is imposed by any
Governmental Authority after the date hereof or any change occurs in any
condition imposed by any Governmental Authority on or prior to the date hereof
which:
(i) Subjects any Lender to any Tax (other than any Tax measured
by a Lender's net income or gross revenues), or changes the basis of taxation of
any payments to any Lender on account of principal of or interest on any LIBOR
Loan, the Notes (to the extent the Notes evidence a LIBOR Loan) or fees in
respect of the Lender's obligation to make LIBOR Loans or other amounts payable
with respect to its LIBOR Loans; or
(ii) Imposes, modifies or determines to be applicable any
reserve, deposit or similar requirements against
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any assets held by, deposits with or for the account of, or loans or commitments
by, any office of the Lender in connection with its LIBOR Loans to the extent
the amount of which is in excess of, or was not applicable at the time of
computation of, the amounts provided for in the definition of such LIBOR Loan;
or
(iii) Affects the amount of capital required to be maintained by
banks generally or corporations controlling banks and any Lender determines the
amount by which the Lender or any corporation controlling the Lender is required
to maintain or increase its capital is increased by, or based upon, the
existence of this Agreement or of the Lender's LIBOR Loans or commitment to make
LIBOR Loans hereunder;
(iv) Imposes upon any Lender any other condition with respect to
its LIBOR Loans or its commitment to make LIBOR Loans;
which, as a result thereof, (1) increases the cost to any Lender of making or
maintaining its Loans or its commitment to lend hereunder, or (2) reduces the
net amount of any payment received by any Lender in respect of its Loans
(whether of principal, interest, commitment fees or otherwise), or (3) requires
the Lender to make any payment on or calculated by reference to the gross amount
of any sum received by it in respect of its LIBOR Loans, in each case by a
material amount, then and in any such case Borrower shall pay to Agent for the
account of such Lender on demand such amount or amounts as will compensate such
Lender for any increased cost, deduction or payment actually incurred or made by
such Lender. The demand for payment by any Lender shall be delivered to both
Agent and Borrower and shall state the subjection or change which occurred or
the Tax, reserve, deposit or capital requirements or other conditions which have
been imposed upon such Lender or the request, direction or requirement with
which it has complied, together with the date thereof, the amount of such cost,
reduction or payment and the manner in which such amount has been calculated.
Any such demand for payment shall be accompanied by an Officer's Certificate
from the affected Lenders stating that the amount assessed against Borrower with
respect to such Lender's LIBOR Loans is not greater than Borrower's pro rata
share of the amount assessed against all such Lender's LIBOR Loans (such pro
rata share equaling a fraction whose numerator is the aggregate amount of
Borrower's LIBOR Loans from such Lender and whose denominator is total amount of
all such Lender's LIBOR Loans that are subject to the increased costs, reduction
in payment or additional payment referred to in clauses (1), (2) or (3) above).
The statement of any Lender as to the additional amounts payable pursuant to
this Section 2.5(d) shall be, absent manifest error, prima facie evidence of the
amounts due hereunder.
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The protection of this Section 2.5(d) shall be available to each Lender
regardless of any possible contention of invalidity or inapplicability of the
relevant law, regulation, treaty, directive, condition or interpretation thereof
provided that no amount shall be owing under this Section 2.5(d) to the extent
it is caused or triggered by such Lender's negligence or willful misconduct. In
the event that Borrower pays any Lender the amount necessary to compensate such
Lender for any charge, deduction or payment incurred or made by such Lender as
provided in this Section 2.5(d) and such charge, deduction or payment or any
part thereof is subsequently returned to the Lender as a result of the final
determination of the invalidity or inapplicability of the relevant law,
regulation, treaty, directive or condition, then such Lender shall remit to
Borrower the amount paid by Borrower which has actually been returned to the
Lender (together with any interest actually paid to the Lender on such returned
amount). Borrower shall not be obligated to pay any amount under this Section
2.5(d) with respect to any Applicable Interest Period prior to the Applicable
Interest Period during which the affected Lender provides notice to Borrower
that such additional payment shall be assessed.
SECTION 2.6 NOTES. Each Lender's Revolving Loans shall be evidenced by a
promissory note of Borrower substantially in the form attached hereto as
Exhibit A-1, A-2 or A-3, as applicable, payable to the order of such Lender,
dated as of the date hereof, in the face amount of such Lender's Pro Rata Share
of the Revolving Commitment (the "Revolving Notes"). If the Revolving Loans are
converted into the Term Loan, each Lender's portion of the Term Loan shall be
evidenced by a promissory note of Borrower substantially in the form attached
hereto as Exhibit B-1, B-2 or B-3, as applicable, payable to the order of such
Lender, dated as of the date of such conversion, in the face amount of such
Lender's Funded Pro Rata Share of the aggregate principal amount of the
Revolving Loans outstanding as of the date of such conversion (the "Term
Notes"). Agent shall have possession of the original Revolving Notes and, if
the Revolving Loans are converted into the Term Loan, the original Term Notes.
Agent is hereby authorized to record the date and amount of the Revolving Loans
each Lender makes, the Applicable Interest Rate, the Applicable Interest Period
and the date and amount of each payment of principal and interest thereon on a
schedule annexed to or kept in respect of the Revolving Notes. Agent is also
hereby authorized to record the Applicable Interest Rate, the Applicable
Interest Period and the date and amount of each payment of principal and
interest on the Term Notes on a schedule annexed to or kept in respect of the
Term Notes. Any such recordation by Agent shall constitute prima facie evidence
of the accuracy of the information so recorded; PROVIDED, HOWEVER, that the
failure to make any such recordation or any error in any such recordation shall
not affect the obligations of Borrower
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hereunder or under the Revolving Notes or the Term Notes (collectively, the
"Notes").
SECTION 2.7 MANNER OF PAYMENTS.
(a) PLACE AND FORM OF PAYMENTS. All payments of principal and
interest on the Loan and all other amounts payable hereunder or under any other
Loan Document by Borrower to Agent or any Lender shall be made by paying the
same in United States Dollars and in immediately available funds to Agent at its
Commercial Loan Service Center, Seattle, Washington not later than 12:00 noon,
Seattle time, on the date on which such payment shall become due.
(b) PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment hereunder or
under any other Loan Document shall be stated to be due or whenever the last day
of any Applicable Interest Period would otherwise occur on a day other than a
Business Day, such payment shall be made and the last day of such Applicable
Interest Period shall occur on the next succeeding Business Day and such
extension of time shall in such case be included in the computation and payment
of interest or commitment fees, as the case may be, unless, in the case of an
Applicable Interest Period with respect to a LIBOR Loan, such extension would
cause such payment to be made or the last date of such Applicable Interest
Period to occur in the next following calendar month, in which case such payment
shall be made and the last day of such Applicable Interest Period shall occur on
the next preceding Business Day.
(c) ORDER OF APPLICATION. Any payment or other amount received by
Agent in respect of the Loan (including, without limitation, any payment
received as the result of realization on the lien of the Deeds of Trust) shall
be applied in the following order (i) first, to any fees, expenses or
indemnities then due and owing to Agent pursuant to the terms hereof; (ii)
second, to any fees, expenses or indemnities owing to any Lender pursuant to the
terms hereof (if such payment or other amount is insufficient to satisfy all
such fees, expenses and indemnities, then each Lender shall receive its pro rata
share of such amounts calculated in accordance with the amount of such fees,
expenses and indemnities owing to each Lender); (iii) third, to accrued and
unpaid interest on any Supplemental Loans then due and owing (to be distributed
by Agent to each of the Funding Lenders in accordance with their respective
Funded Adjusted Pro Rata Shares); (iv) fourth, to accrued and unpaid interest
then due and owing on, during the Revolving Commitment Period, the Pro Rata
Revolving Loans, and during the Term Loan Period, the Pro Rata Term Loan (to be
distributed by Agent to the Lenders in accordance with their respective Funded
Pro Rata Shares); (v) fifth, to the unpaid principal amount of any Supplemental
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Revolving Loans (to be distributed by Agent to Lenders in accordance with their
respective Funded Adjusted Pro Rata Shares); (vi) sixth, to the remaining unpaid
principal amount of the Loan (to be distributed by Agent to Lenders in
accordance with their respective Funded Pro Rata Shares; (vii) seventh, to any
other amounts owing under the Loan Documents (to be distributed by Agent to
Lenders in accordance with their respective Funded Pro Rata Shares).
SECTION 2.8 FEES.
(a) COMMITMENT FEE. Borrower agrees to pay to Agent for the account
of Lenders in accordance with their Pro Rata Shares a commitment fee of $375,000
payable upon execution of this Agreement.
(b) AGENT'S FEE. Borrower agrees to pay Agent for Agent's own
account an agency fee of $31,250 for each year of the Revolving Commitment
Period. The first $31,250 payment shall be paid upon execution and delivery of
this Agreement, and the second $31,250 payment shall be paid one year following
such execution and delivery. Borrower also agrees to pay Agent for Agents's own
account an agency fee for the Term Loan Period in an amount equal to one-
sixteenth of one percent (1/16%) of the principal amount of the Revolving Loans
that is converted into the Term Loan.
(c) CONVERSION FEE. Borrower agrees to pay Agent for the account of
Lenders in accordance with their Funded Pro Rata Shares a conversion fee of
three-eighths (3/8%) of one percent of the amount of the Term Loan upon
conversion of the Revolving Loans to the Term Loan. Such conversion fee shall
be payable in four equal quarterly installments beginning on the first day of
the Term Loan Period and three, six and nine months thereafter. In the event
that Borrower repays the full amount of the Term Loan during the second, third
or fourth three-month periods of the Term Loan Period, each Lender will refund
to Borrower a prorated amount of such Lender's Funded Pro Rata Share of such
conversion fee for the three-month period during which such full repayment
occurred. (Such prorated amount shall equal a fraction whose numerator is the
number of days remaining during such three-month period and whose denominator is
the total number of days during such three-month period.) Borrower shall not be
entitled to receive any refund of the conversion fee paid for the first three-
month period of the Term Loan Period even if the Loan is repaid in full prior to
the end of such three-month period.
SECTION 2.9 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment in respect of the obligations under the Loan Documents (whether
voluntary or involuntary, through the exercise of any right of setoff or
otherwise) in excess of the amount it would have received if all payments had
been made directly to
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Agent and apportioned in accordance with the terms of Section 2.7(c)(iii)
through 2.7(c)(vii), such Lender shall forthwith purchase from the other Lenders
such participations in the Loans made by them to Borrower as may be necessary to
cause such excess payment to be apportioned in accordance with the terms of
Section 2.7(c)(iii) through 2.7(c)(vii); PROVIDED, HOWEVER, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender the purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered by the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.9 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
setoff) with respect to such participation as fully as if such Lender were the
direct creditor of Borrower in the amount of such participation. Agent's books
and records shall constitute prima facie evidence of the accuracy of the
information recorded therein and any statement by Agent calculating the amount
due from any Lender shall be prima facie evidence thereof absent a showing by
such Lender of manifest error.
SECTION 2.10 PREPAYMENTS. Prime Rate Loans may be repaid at any time
without penalty or premium. If a LIBOR Loan is paid prior to the end of the
Applicable Interest Period, a prepayment fee calculated in the manner set forth
in Schedule 3 shall be assessed and paid at the time of such payment. Such fee
shall be calculated by Agent, and such calculation shall be binding evidence of
the amount due hereunder absent a showing by Borrower of manifest error. Such
fee shall apply in all circumstances where a LIBOR Loan is paid prior to the end
of the Applicable Interest Period, regardless of whether such payment is
voluntary, mandatory (including, without limitation, payments required pursuant
to Section 2.4(b)) or the result of Agent's or Lenders' collection efforts.
ARTICLE 3
SECURITY
SECTION 3.1 INITIAL GRANT OF SECURITY. On or before 60 days after the
date hereof, Borrower shall grant to Agent for the ratable benefit of Lenders a
lien on all of the Designated Secured Properties as security for the full and
prompt payment and performance of all amounts and obligations now or hereafter
owing by Borrower under or in connection with any of the Loan Documents (other
than the Environmental Agreements). The grant
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of such liens shall be effected through the execution and delivery of the
Initial Deeds of Trust, the Initial Environmental Agreement and the Initial
Building Law Compliance Agreement and by satisfaction, with respect to each of
the Designated Secured Properties, of all of the conditions set forth on
Schedule 4.
SECTION 3.2 ADDITIONS TO COLLATERAL. Borrower may, from time to time,
give written notice to Agent of Borrower's intent that one or more of the
Negative Pledge Properties or the Eligible Properties will become Secured
Properties. In connection with such notice, Borrower shall provide Agent a
preliminary commitment for title insurance in the amount and of the type
required by Schedule 4. Within 15 days of its receipt of such notice and
preliminary commitment, Agent shall notify Borrower of the Liens that Agent
requires to be removed from such preliminary commitment before such proposed
Negative Pledge Property or Eligible Property may qualify as a Secured Property;
PROVIDED, HOWEVER, that Agent may not require the removal of any Lien that
constitutes a Permitted Encumbrance. The proposed Negative Pledge Property or
Eligible Property shall constitute a Secured Property from and after the later
of (i) the date specified in a written notice (a "Secured Property Designation
Notice") from Borrower to Agent as the date upon which such proposed Negative
Pledge Property or Eligible Property shall become one of the Secured Properties;
and (ii) the date that all conditions set forth on Schedule 4 shall have been
satisfied with respect to such proposed Negative Pledge Property or Eligible
Property. Each Secured Property Designation Notice shall be deemed to
constitute a representation and warranty by Borrower that, as of the date of and
upon giving effect to such requested designation (a) the statements set forth in
Article 6 are true and correct; and (b) no Default or Event of Default has
occurred and is continuing. Borrower may also, from time to time, give written
notice to Agent of Borrower's intent that one or more other additional mini-
storage facilities which are neither Negative Pledge Properties nor Eligible
Properties will become Secured Properties. Agent shall be entitled to obtain
such information with respect to such proposed mini-storage facilities as it may
deem appropriate and shall require such information as Majority Lenders may
direct. In the event that Agent (with the consent of Majority Lenders)
determines any such additional facility to be eligible to become a Secured
Property, then Agent may require that all conditions set forth in Schedule 4 be
satisfied with respect to such facility, together with such additional
conditions as Agent may (with the consent of Majority Lenders) deem appropriate.
SECTION 3.3 RELEASE OF SECURED PROPERTIES.
(a) RELEASE WITH OUTSTANDING OBLIGATIONS. Borrower may, from time to
time, provide written notice to Agent (a "Secured Property Release Request")
requesting the release of one
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or more of the Secured Properties from the lien of the Deeds of Trust. In the
event that, at the time of Agent's receipt of such request and on the effective
date of the release requested thereby, any amounts are owing under any of the
Loan Documents (other than contingent indemnification or hold harmless
obligations of which Borrower has not received notice from Agent), then Agent
shall, upon receipt of such Secured Property Release Request, release from the
lien of the Deeds of Trust the Secured Properties identified in such Secured
Property Release Request, but only if (i) at no time between Agent's receipt of
such Secured Property Release Request and the effective date of such release
does any Default or Event of Default occur or exist (other than a Default or an
Event of Default which will cease to exist upon giving effect to such release);
(ii) giving effect to such release would not cause a Default or an Event of
Default to occur or exist; and (iii) the outstanding principal amount of the
Loan does not then exceed the Available Amount and giving effect to such release
would not cause the outstanding principal amount of the Loan to exceed the
Available Amount. Each Secured Property Release Request shall be deemed to
constitute a representation and warranty by Borrower that, as of the date of and
upon giving effect to such requested release (a) the statements set forth in
Article 6 are true and correct; and (b) no Default or Event of Default has
occurred and is continuing.
(b) RELEASE WITHOUT OUTSTANDING OBLIGATIONS. In the event that, at
the time of Agent's receipt from Borrower of a Secured Property Release Request
and on the effective date of release requested thereby, no amounts are owing
under any of the Loan Documents (other than contingent indemnification or hold
harmless obligations of which Borrower has not received notice from Agent), then
Agent shall, upon receipt of such Secured Property Release Request, release from
the lien of the Deeds of Trust the Secured Properties identified in such Secured
Property Release Request.
SECTION 3.4 EFFECT OF RELEASE OF SECURED PROPERTY. In the event that, at
the time of Agent's receipt of a Secured Property Release Request from Borrower
or the effective date of such release, the Available Amount as determined based
on the Secured NOI formula is, or as a result of the requested release would
become, less than $20,000,000, then the Lender's commitment to make Revolving
Loans shall immediately terminate.
ARTICLE 4
NEGATIVE PLEDGE AND ELIGIBLE PROPERTIES
SECTION 4.1 ADDITIONS TO NEGATIVE PLEDGE PROPERTIES. Borrower may, from
time to time, give written notice (a "Negative Pledge Designation Notice") to
Agent of Borrower's intent that
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one or more of the Eligible Properties will become Negative Pledge Properties.
In connection with such request, Borrower shall provide Agent with a current
preliminary commitment for title insurance of the type required by Schedule 4 or
other title report showing the Liens to which such Eligible Property is then
subject. The proposed Eligible Property shall constitute a Negative Pledge
Property from and after the later of (i) the date specified in the applicable
Negative Pledge Designation Notice as the date upon which such Eligible Property
shall become one of the Negative Pledge Properties; and (ii) the date when all
of the conditions set forth in Schedule 5 have been satisfied. Each Negative
Pledge Designation Notice shall constitute a representation and warranty by
Borrower that, as of the date of such notice, no Default or Event of Default has
occurred and is continuing. Borrower may also, from time to time, give written
notice to Agent of Borrower's intent that one or more other additional mini-
storage facilities which are not Eligible Properties will become Negative Pledge
Properties or Eligible Properties. Agent shall be entitled to obtain such
information with respect to such proposed mini-storage facilities as it may deem
appropriate and shall acquire such information as Majority Lenders may direct.
In the event that Agent (with the consent of Majority Lenders) determines any
such additional facility to be eligible to become a Negative Pledge Property or
an Eligible Property, then Agent may require the satisfaction of such conditions
as Agent may (with the consent of the Majority Lenders) deem appropriate,
including, without limitation, the conditions set forth in Schedule 5.
SECTION 4.2 REMOVAL OF NEGATIVE PLEDGE OR ELIGIBLE PROPERTIES.
(A) REMOVAL WITH OUTSTANDING OBLIGATIONS. Agent shall, from time to
time upon Borrower's written request therefor (a "Negative Pledge Removal
Request"), remove one or more of the Negative Pledge Properties from their
status as Negative Pledge Properties provided that (i) at no time between
Agent's receipt of such Negative Pledge Removal Request and the effective date
of such removal does a Default or Event of Default occur or exist (other than a
Default or an Event of Default which will cease to exist upon giving effect to
such removal); and (ii) the outstanding principal amount of the Loan does not
then exceed the Available Amount and giving effect to such removal would not
cause the outstanding principal amount of the Loan to exceed the Available
Amount. Each Negative Pledge Removal Request shall constitute a representation
and warranty by Borrower that, as of the date of and upon giving effect to such
request, no Default or Event of Default has occurred and is continuing. Unless
a Negative Pledge Removal Request expressly provides otherwise, any Negative
Pledge Property whose removal from such status is requested shall not, upon
giving effect to such removal, constitute either Negative Pledge Property or
Eligible Property.
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Agent shall, from time to time upon Borrower's written request therefor, remove
one or more Eligible Properties from their status as Eligible Properties.
(B) REMOVAL WITHOUT OUTSTANDING OBLIGATIONS. In the event that, at
the time of Agent's receipt from Borrower of a Negative Pledge Removal Request
and on the effective date of removal requested thereby, no amounts are owing
under any of the Loan Documents (other than contingent indemnification or hold
harmless obligations of which Borrower has not received notice from Agent), then
Agent shall, upon receipt of such Negative Pledge Removal Request, remove from
the status of Negative Pledge Properties the Negative Pledge Properties
identified in such Negative Pledge Removal Request.
ARTICLE 5
CONDITIONS TO LOANS
SECTION 5.1 CONDITIONS TO INITIAL REVOLVING LOAN. In addition to the
conditions set forth in Section 5.2, the obligation of each Lender to make the
initial Revolving Loan on or after the date of this Agreement, and the
obligation of Agent on or after the date of this Agreement to disburse the
proceeds of such Revolving Loan, are subject to fulfillment of the following
conditions precedent prior to the initial Revolving Loan:
(a) INITIAL LOAN DOCUMENTS. The Initial Loan Documents shall have
each been duly executed and delivered by the respective parties thereto.
(b) CORPORATE CERTIFICATES. Agent shall have received all of the
following, each reasonably satisfactory to it in form and substance:
(i) The Articles of Incorporation of Borrower certified as of a
recent date by the Secretary of State of Delaware;
(ii) The Bylaws of Borrower certified by an authorized officer of
Borrower;
(iii) Certified copies of the resolutions adopted by the board of
directors of Borrower authorizing the execution, delivery and performance of the
Loan Documents;
(iv) An incumbency certificate describing the office and
identifying the specimen signatures of the individuals authorized to sign the
Loan Documents on behalf of Borrower; and
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(v) A Certificate of Good Standing dated as of a recent date
issued by the Secretary of State of the State of Delaware in respect of
Borrower.
(c) LEGAL OPINION. Agent shall have received the legal opinion of
the law firm of Perkins Coie, as counsel to Borrower addressed to Agent and
Lenders in substantially the form of Exhibit D hereto.
(d) CERTIFICATE. Agent shall have received an Officer's Certificate
from Borrower as to the accuracy of Borrower's representations and warranties
set forth in Article 6 and as to the absence of any Default or Event of Default.
(e) FEES AND EXPENSES. Agent shall have received from Borrower all
amounts due under this Agreement on or prior to the date of such initial
Revolving Loan, including, without limitation, the commitment fee owing under
Section 2.8(a), the Agent's fee for the first year of the Revolving Commitment
Period owing under Section 2.8(b), and, if requested by Agent, legal fees and
expenses as specified in Section 7.10.
(f) ENVIRONMENTAL INFORMATION. Agent shall have received with
respect to each of the Designated Applicable Properties: (i) a phase one
environmental assessment; (ii) a phase two environmental assessment for each of
the Properties with respect to which the applicable phase one environmental
assessment recommended a phase two environmental assessment; and (iii) an
Officer's Certificate stating that, to the best of such officer's knowledge and
after reasonable inquiry, the environmental information provided to Agent with
respect to each such Property is all of the information in the possession or
control of Borrower relating to environmental matters for such Property. Such
certificate shall further state that Borrower and each of its Subsidiaries has
complied with the standards and procedures set forth in Section 7.16 in
connection with all other real property acquired by Borrower and its
Subsidiaries since the date hereof.
(g) INSURANCE. Agent shall have received evidence reasonably
satisfactory to it that all insurance required by Section 7.7 of this Agreement
or by any of the Initial Deeds of Trust is in full force and effect.
(h) DESIGNATED NEGATIVE PLEDGE OR ELIGIBLE PROPERTY. Each of the
conditions set forth in Schedule 5 shall have been satisfied with respect to
each of the Designated Negative Pledge Properties and each of the Designated
Eligible Properties.
(i) GROUND LEASE. Agent shall have received and approved a copy of
the ground lease covering the Designated
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Secured Properties located in Solana Beach, California and Hillcroft, Texas.
SECTION 5.2 CONDITIONS TO ALL LOANS. The obligation of each Lender to
make any Revolving Loan (including the initial Revolving Loan) on or after the
date of this Agreement, and the obligation of Agent on or after the date of this
Agreement to disburse Loan proceeds, are subject to fulfillment of the following
conditions precedent:
(a) PRIOR CONDITIONS. All of the conditions set forth in Section 5.1
shall have been satisfied.
(b) NOTICE OF BORROWING. Agent shall have received the Notice of
Borrowing in respect of such Loan.
(c) NO DEFAULT. At the date of such Revolving Loan, no Default or
Event of Default shall have occurred and be continuing or will have occurred as
the result of the making of such Revolving Loan; and the representations and
warranties of Borrower in Article 6 shall be true on and as of such date with
the same force and effect as if made on and as of such date.
(d) OTHER INFORMATION. Agent and each Lender shall have received
such other statements, opinions, certificates, documents and information as it
may reasonably request in order to satisfy itself that the conditions set forth
in this Section 5.2 have been fulfilled.
SECTION 5.3 CONDITIONS TO INITIAL REVOLVING LOANS AFTER COLLATERAL GRACE
PERIOD. The obligation of each Lender to make the initial Revolving Loan after
the expiration of the Collateral Grace Period, and the obligation of Agent on or
after such date to disburse proceeds of such Revolving Loan, are subject to
fulfillment of the following conditions precedent:
(a) SATISFACTION OF REAL PROPERTY CONDITIONS. All conditions set
forth in Schedule 4 shall have been satisfied with respect to the Designated
Secured Properties and all conditions set forth in Schedule 5 shall have been
satisfied with respect to the Designated Negative Pledge Properties.
SECTION 5.4 CONDITIONS TO CONVERSION TO TERM LOAN. The conversion of the
Revolving Loans into the Term Loan is subject to the fulfillment of the
following conditions precedent:
(a) REQUEST FOR CONVERSION. Agent shall have received written notice
from Borrower requesting that the Revolving Loans be converted to the Term Loan.
Such written Notice shall be irrevocable and shall be deemed to constitute a
representation and warranty by Borrower that, as of the date of such notice
(i) the statements set forth in Article 6 hereof are true and
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correct; and (ii) no Default or Event of Default has occurred and is continuing
or will result from the requested conversion.
(b) CERTIFICATE. Agent shall have received an Officer's Certificate
from Borrower as to the accuracy of Borrower's representations and warranties
set forth in Article 6 and as to the absence of any Default or any Event of
Default.
(c) NO DEFAULT. At the date of such conversion, no Default or Event
of Default shall have occurred and be continuing or will have occurred as a
result of such conversion (including, without limitation, as a result of the
change in the method for calculating Available Amount for the Term Loan Period)
and the representations and warranties of Borrower in Article 6 shall be true on
and as of such date with the same force and effect as if made on and as of such
date.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and Lenders as follows:
SECTION 6.1 CORPORATE EXISTENCE AND POWER. Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is qualified to do business in each and every state where any of
the Applicable Properties is located. Borrower is also duly qualified to do
business in each other jurisdiction where the nature of its activities or the
ownership of its properties requires such qualification except where the failure
to be qualified would not have a Material Adverse Effect. Borrower has full
corporate power, authority and legal right to carry on its business as presently
conducted, to own and operate its properties and assets and to execute, deliver
and perform each of the Loan Documents.
SECTION 6.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Borrower of the Loan Documents and any borrowing hereunder, have
been duly authorized by all necessary corporate action of Borrower, and do not
require any shareholder approval or the approval or consent of any trustee or
the holders of any Indebtedness of Borrower except such as have been obtained
(certified copies thereof having been delivered to Agent), do not contravene any
law, regulation, rule or order binding on it or its Articles of Incorporation or
Bylaws and do not contravene the provisions of or constitute a default under any
indenture, mortgage, contract or other agreement or instrument to which Borrower
is a party or by which Borrower, or any of its properties, may be bound or
affected.
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SECTION 6.3 GOVERNMENT APPROVALS, ETC. No Government Approval or filing
or registration with any Governmental Authority is required for the making and
performance by Borrower of the Loan Documents or in connection with any of the
transactions contemplated hereby or thereby, except such as have been heretofore
obtained and are in full force and effect (certified copies thereof having been
delivered to Agent).
SECTION 6.4 BINDING OBLIGATIONS, ETC. The Initial Loan Documents have
been duly executed and delivered by Borrower and constitute, and the other Loan
Documents when duly executed and delivered by the parties thereto will
constitute, the legal, valid and binding obligations of Borrower enforceable
against it in accordance with the terms thereof, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar
laws of general application relating to or affecting the rights and remedies of
creditors and by general equitable principles, regardless of whether enforcement
is sought in equity or at law.
SECTION 6.5 LITIGATION. There are no actions, proceedings,
investigations, or claims against or affecting Borrower now pending before any
court, arbitrator or Governmental Authority (nor to the knowledge of Borrower
has any thereof been threatened nor does any basis exist therefor) which might
reasonably be determined adversely to Borrower and which, if determined
adversely, would have a Material Adverse Effect, except as described on
Schedule 6 hereto.
SECTION 6.6 FINANCIAL CONDITION. The consolidated balance sheet of
Borrower and its Subsidiaries as of March 1, 1994, copies of which have been
furnished to Agent, fairly present the consolidated financial condition of
Borrower and its Subsidiaries at such date, all in conformity with generally
accepted accounting principles. In all material respects, the consolidated
financial statements of Borrower and its Subsidiaries as of March 31, 1994,
copies of which have been furnished to Agent, fairly present the consolidated
financial condition of Borrower and its Subsidiaries as of such date. Since
March 31, 1994, there has been no material adverse change in the financial
condition or operations of Borrower or its Subsidiaries that is not reflected in
the March 31, 1994 financial statements and, since March 31, 1994, there has
been no material adverse change in the financial condition or operations of
Borrower and its Subsidiaries, taken as a whole.
SECTION 6.7 TAXES. Borrower has filed all material tax returns and
reports required of it, has paid all Taxes which are shown to be due and payable
on such returns and reports, and has provided adequate reserves for payment of
any Tax whose payment is being contested. The charges, accruals and reserves on
the books of Borrower in respect of Taxes for all fiscal periods to
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date are accurate and to the best of Borrower's knowledge after due
investigation there are no questions or disputes between Borrower and any
Governmental Authority with respect to any Taxes except as disclosed in the
balance sheet referred to in Section 6.6 or otherwise disclosed to Agent in
writing prior to the date of this Agreement.
SECTION 6.8 LAWS, ORDERS; OTHER AGREEMENTS. Other than where failure to
so conduct, use, or comply would not have a Material Adverse Effect (i) the
business and operations of Borrower and the Subsidiaries have been and are being
conducted in substantial compliance with all applicable laws, rules and
regulations including but not limited to those relating to the environment; and
(ii) all properties of Borrower and each of its Subsidiaries and the use thereof
by Borrower and each of its Subsidiaries comply in all material respects with
applicable zoning and use restrictions. Neither Borrower nor any of its
Subsidiaries is in material breach of or default under any material agreement to
which it is a party or which is binding on it or any of its assets.
SECTION 6.9 FEDERAL RESERVE REGULATIONS. Borrower is not engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Federal Reserve Regulation U), and no part of the proceeds of the
Loan will be used to purchase or carry any such margin stock or to extend credit
to others for the purpose of purchasing or carrying any such margin stock or for
any other purpose that violates the applicable provisions of any Federal Reserve
Regulation. Borrower will furnish to Agent on request a statement conforming
with the requirements of Regulation U.
SECTION 6.10 ERISA.
(a) The present value of all benefits vested under all Pension Plans,
if any, did not, as of the most recent valuation date of any such Pension Plans,
exceed the value of the assets of any such Pension Plans allocable to such
vested benefits by an amount which would represent a potential liability of
Borrower in excess of $1,000,000 or affect the ability of Borrower to perform
this Agreement.
(b) No Plan, if any, or trust created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975(c)(1) of the Code) which
could subject Borrower to any tax or penalty in excess of $1,000,000 on
prohibited transactions imposed by Section 502 of ERISA or Section 4975 of the
Code.
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(c) No Plan, if any, or trust created thereunder has been terminated,
the termination of which had a Material Adverse Effect, and there have been no
"reportable events" as that term is defined in Section 4043 of ERISA (which are
required to be reported) since the effective date of ERISA.
(d) No Plan, if any, or trust created thereunder has incurred any
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA) whether or not waived, since the effective date of ERISA.
(e) The required allocations and contributions to any Pension Plans
will not violate Section 415 of the Code in any material respect.
(f) Neither Borrower nor any of the Subsidiaries participates in any
multi-employer plan (as defined in Section 4001(a)(3) of ERISA).
SECTION 6.11 SUBSIDIARIES. Schedule 7 to this Agreement sets forth as of
the date of this Agreement the authorized capitalization of each Subsidiary, the
number of shares of each class of capital stock issued and outstanding of each
Subsidiary, and the number and percentage of outstanding shares of each such
class of capital stock owned by Borrower or by any Subsidiary. The outstanding
shares of each Subsidiary have been duly authorized and validly issued and are
fully paid and nonassessable. Borrower and each Subsidiary own beneficially and
of record and have good title to all the shares each is listed as owning on
Schedule 7.
SECTION 6.12 LIEN CREATION AND PRIORITY; NO ENCUMBRANCES. On the first day
following the expiration of the Collateral Grace Period and on each day
thereafter when the representations and warranties in this Article 6 are
repeated or deemed repeated (a) the Borrower is the sole fee simple owner of all
of the Property that then constitutes Applicable Property except that, in the
case of the Designated Secured Properties located in Solana Beach, California,
and Hillcroft, Texas, Borrower is the sole owner of leasehold estates therein
under ground leases approved by Agent; (b) all liens created or purported to be
created by any of the Deeds of Trust constitute valid, enforceable and perfected
liens on all of the Property on which any of the Deeds of Trust purport to
create a lien; and (c) all of the Property that then constitutes Secured
Property or Negative Pledge Property is free and clear of any other Liens other
than Permitted Encumbrances.
SECTION 6.13 INVESTMENT COMPANY; OTHER REGULATIONS. Borrower is not an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act. Borrower is not subject to
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regulation by any federal or state statute or regulation (other than margin
regulations) which limits its ability to incur indebtedness. Borrower is not
subject to any federal or state law or regulation limiting its ability to issue
and perform its obligations under the Notes and any other Loan Documents.
SECTION 6.14 DELINQUENT PROPERTY LIENS. To the best of Borrower's
knowledge, there is no delinquent tax, sewer, rent, water charge, assessment, or
other outstanding charge against any of the Secured Properties or Negative
Pledge Properties, or any part thereof, and there are no mechanics' or similar
Liens, or to Borrower's knowledge, significant, valid, undisputed claims for
overdue payment for work performed by or on behalf of Borrower, labor or
material affecting any of the Secured Properties or Negative Pledge Properties
which are or could become Liens prior to, or equal with, the lien of the
applicable Deed of Trust and there are no mechanics' or similar Liens (other
than Permitted Encumbrances) affecting any of the Secured Properties or Negative
Pledge Properties which have not been insured or indorsed over by title policies
provided in compliance with Schedule 4.
SECTION 6.15 IMPROVEMENTS. Except as disclosed in any title policies,
reports, preliminary commitments, surveys, appraisals or other documents
provided to Agent, to the best of Borrower's knowledge, all buildings,
structures and other improvements located on any of the Secured Properties or
Negative Pledge Properties lie wholly within the boundary and building
restriction lines of such Properties and no buildings, structures or other
improvements on adjoining property encroach upon any of the Secured Properties
or Negative Pledge Properties in any respect so as to materially and adversely
affect the market value of such Property.
SECTION 6.16 CASUALTY; CONDEMNATION. To the best of Borrower's knowledge,
each of the Secured Properties and Negative Pledge Properties is free of
material damage and waste, and there is no proceeding pending or, to the best of
Borrower's knowledge, threatened, for the total or partial condemnation or
taking by eminent domain of any of the Secured Properties or any of the Negative
Pledge Properties.
SECTION 6.17 ASSESSMENTS. Borrower has not received any notice of actual
or pending special assessments or reassessments of any of the Secured Properties
or any of the Negative Pledge Properties which, taken together, would have a
Material Adverse Effect other than such assessments or reassessments as have
been disclosed to Agent in writing.
SECTION 6.18 RIGHTS OF OTHERS TO PURCHASE PROPERTY. Borrower has not
entered into any contracts for the sale of any of the Secured Properties or any
of the Negative Pledge Properties, nor any rights of first refusal or options to
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purchase any of the Secured Properties or any of the Negative Pledge Properties.
SECTION 6.19 PARTNERSHIP DEBT. Shurgard, Inc. is a general partner in
Shurgard Limited Edition I, a Washington limited partnership, and in Shurgard
Evergreen Limited Partnership, a Delaware limited partnership. As of the date
of this Agreement, the total indebtedness of Shurgard Limited Edition I Limited
Partnership is $1,400,000 and the total indebtedness of Shurgard Evergreen
Limited Partnership is zero.
SECTION 6.20 REPRESENTATIONS AS A WHOLE. This Agreement, the other Loan
Documents, the financial statements referred to in Section 6.6, and all other
instruments, documents, certificates and statements furnished to Agent or any
Lender by Borrower, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading. Without limiting the foregoing, each of
the representations and warranties made by Borrower in the other Loan Documents
is true and correct on and as of the date when made, on and as of the date
hereof, and on and as of each date this representation is deemed made hereunder
with the same force and effect as if made on and as of such dates.
ARTICLE 7
AFFIRMATIVE COVENANTS
So long as Agent or any Lender shall have any commitment to lend hereunder
and until payment in full of the Loan and performance of all other obligations
of Borrower under this Agreement and the other Loan Documents, Borrower agrees
to do all of the following unless Agent (with the approval of Majority Lenders)
shall otherwise consent in writing.
SECTION 7.1 USE OF PROCEEDS FROM LOANS. The proceeds of the Loan may be
used only for predevelopment costs, development costs acquisition of mini-
storage facilities, capital expenditures, costs of buildouts, dividends and
expenses related to closing and administering the Loan; provided, however, that
after the occurrence of an Available Amount Deficiency and prior to the
correction of such deficiency, none of the proceeds of any Revolving Loan made
during that period may be used to fund dividend payments or the costs of any
development projects commenced by Borrower after the occurrence of such
Available Amount Deficiency.
SECTION 7.2 PRESERVATION OF CORPORATE EXISTENCE, ETC. Borrower will, and
will cause each Subsidiary to, preserve and maintain its corporate existence and
all material rights,
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franchises and privileges in the jurisdiction of its incorporation and will, and
will cause each Subsidiary to, qualify and remain qualified as a foreign
corporation in each jurisdiction where qualification is necessary or advisable
in view of its business and operations or the ownership of its properties;
provided, however, that Borrower may, or permit any Subsidiary to, change the
state of its incorporation, but only if, prior to doing so, Borrower has
provided to Agent a legal opinion in form and substance satisfactory, and from
legal counsel acceptable, to Agent to the effect that such reincorporation shall
have no adverse legal effect on any of Agent's or any Lender's rights or
remedies under any of the Loan Documents, together with such other evidence as
Agent may reasonably require relating to the effect of any such reincorporation.
Borrower shall cause each Subsidiary to observe all material corporate
formalities applicable to such Subsidiary.
SECTION 7.3 VISITATION RIGHTS. At any reasonable time, and from time to
time during usual business hours on usual business days, upon reasonable prior
notice, Borrower will permit Agent and Lenders to examine and make copies of and
abstracts from the records and books of account of and to visit the properties
of Borrower and its Subsidiaries, to review all environmental and other reports
relating to such properties and to discuss the affairs, finances and accounts of
Borrower and its Subsidiaries with any of their respective employees, officers
or directors.
SECTION 7.4 KEEPING OF BOOKS AND RECORDS. Borrower will, and will cause
each of its Subsidiaries to, keep adequate records and books of account in which
complete entries will be made, reflecting all financial transactions of Borrower
and each of its Subsidiaries.
SECTION 7.5 MAINTENANCE OF PROPERTY, ETC. Borrower will, and will cause
each of its Subsidiaries to, maintain and preserve in good working order and
condition, ordinary wear and tear excepted, all of the Applicable Properties and
Applicable Collateral and all of its other properties which are necessary in the
ordinary course of business.
SECTION 7.6 COMPLIANCE WITH LAWS, ETC. Borrower will, and will cause each
of its Subsidiaries and each of the Applicable Properties to, comply in all
material respects with all laws, regulations, rules, and orders of Governmental
Authorities applicable to Borrower or to any of its Subsidiaries or to the
operations or property of any of them or to any of the Applicable Properties,
unless the validity of such law, regulation, rule or order is being contested in
good faith by appropriate proceedings upon stay of execution of the enforcement
thereof or unless failure to comply with such law, regulation, rule or order
would not, taken together with all such other noncompliance by Borrower, have a
Material Adverse Effect.
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SECTION 7.7 INSURANCE. Borrower will, and will cause each of its
Subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance with
prevailing market conditions and availability. Borrower will on request furnish
to Agent certificates of insurance evidencing such coverage. Without limiting
the generality of the foregoing, Borrower shall also comply with the following
requirements:
(a) PROPERTY INSURANCE. Borrower will keep the Property insured as
follows:
(i) against property damage or loss by such risks as are covered
by an "all risk" replacement cost policy including earthquake if available
at a commercially reasonable cost in an amount not less than the Full
Insurable Value of the improvements and personal property, with a
deductible or self-insured retention amount not to exceed a reasonable
amount;
(ii) business interruption/rent loss insurance in an amount equal
to six months proforma stabilized rent for all perils for the Property;
(iii) against any damage or loss by flood if the Property is
located in an area identified by the Secretary of Housing and Urban
Development or any successor thereof as an area within a 100 year flood
plain or having special flood hazards and in which flood insurance has been
made available under the National Flood Insurance Act of 1968 or the Flood
Disaster Protection Act of 1973, as amended, modified, supplemented or
replaced from time to time, as may be available under such Acts;
(iv) against damage or loss from (i) sprinkler system leakage and
(ii) boilers, boiler tanks, heating and air conditioning equipment,
pressure vessels, auxiliary piping and similar apparatus, if applicable;
(v) during the period of any construction or replacement of
improvements to the Property, for losses insured under an "all risk"
replacement cost completed value builder's risk coverage form of insurance
policy. The policy providing such coverage shall contain the "permission
to occupy upon completion of work or occupancy" provision; and
(vi) each insurance policy shall bear a Lenders' loss payable
endorsement to the extent of Lenders' interest in the insurance proceeds
payable under the policy.
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(b) LIABILITY INSURANCE. Borrower shall procure and maintain:
(i) commercial general liability insurance covering Borrower,
Agent and Lenders against claims for bodily injury or death or property
damage occurring in, upon or about the Property or resulting from or
involving the Property, in standard form, which insurance shall include
blanket contractual liability coverage (but such coverage or the amount
thereof shall in no way limit the indemnification set forth in Section
7.19); and
(ii) during the period of any construction, restoration or
replacement of improvements to the Property, Borrower shall insure against
loss from damage or injury caused by such construction, restoration or
replacement with additional coverage by obtaining (1) commercial public
liability insurance (including coverage for elevators and escalators, if
any) on an "occurrence and in the aggregate basis," for personal injury
claims, including, without limitation, bodily injury, death or property
damage occurring in, upon, or about the improvements being constructed,
restored or replaced, such insurance to afford immediate minimum protection
with a commercially reasonable limit with respect to personal injury or
death to any one or more persons or damage to property; and (2) worker's
compensation insurance (including employer's liability insurance if
requested by Agent) for all employees of Borrower engaged in construction
on or with respect to the Property and improvements to the Property in such
amounts as are established by law or otherwise are reasonable under the
circumstances.
(c) CERTAIN TERMS OF POLICY. All insurance required under this
Section 7.7 shall provide that the same shall not be cancelled, amended or
materially altered (including by reduction in the scope or limits of coverage)
without at least forty-five (45) days' prior written notice to the Lender. The
policies required under Section 7.7(a) shall contain a minimum of 80% of value
coinsurance clause or a "stipulated value" or "agreed amount" provision.
(d) EVIDENCE OF PAYMENT. Borrower will deliver to Agent receipts
evidencing payment of all premiums thereon. Upon renewal of any of the
insurance policies required by this Section 7.7, Borrower shall, upon Agent's
request therefor, cause to be provided to Agent a copy of such renewal policy
or, at Agent's option, a certificate of renewal for such policy.
(e) APPROVAL NOT WARRANTY. No approval by Agent or any Lender of any
insurer shall be construed to be a
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representation, certification or warranty of its solvency and no approval by
Agent or any Lender as to the amount, type or form of any insurance shall be
construed to be a representation, certification or warranty of its sufficiency.
SECTION 7.8 FINANCIAL INFORMATION. Borrower will deliver to Agent:
(a) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as available and in
any event within 120 days after the end of each fiscal year of Borrower, the
consolidated financial statements of Borrower and its Subsidiaries as of the end
of such fiscal year, accompanied by the audit report thereon by independent
certified public accountants selected by Borrower and reasonably satisfactory to
Agent (which reports shall be prepared in accordance with generally accepted
accounting principles and shall not be qualified by reason of restricted or
limited examination of any material portion of the records of Borrower or its
Subsidiaries and shall contain no disclaimer of opinion or adverse opinion).
(b) QUARTERLY UNAUDITED FINANCIAL STATEMENTS. As soon as available
and in any event within 45 days after the end of each fiscal quarter, the
unaudited consolidated financial statements of Borrower and its Subsidiaries as
of the end of such fiscal quarter (including the fiscal year to the end of such
quarter) and operating statements for each of the Applicable Properties,
accompanied by an Officer's Certificate of Borrower certifying that such
unaudited financial and operating statements have been prepared in conformity
with generally accepted accounting principles and, in all material respects,
present fairly the consolidated financial position and the results of operations
of Borrower and its Subsidiaries and of the Applicable Properties as at the end
of and for such quarter and identifying any material adverse changes that have
occurred since the fiscal year-end report referred to in clause (a) in the
consolidated financial condition or operations of Borrower and its Subsidiaries
as shown on the financial statements as of said date.
(c) QUARTERLY COMPLIANCE CERTIFICATES. Within 45 days after the end
of Borrower's fiscal quarter, an Officer's Certificate (the "Quarterly
Compliance Certificate") from Borrower to the effect that as of the close of
such fiscal quarter no Event of Default or Default had occurred and was
continuing and demonstrating through appropriate calculations that Borrower was
in compliance with the covenants in Sections 7.11, 7.12, 7.13, 7.14, 8.8 and 8.9
hereof (to extent tested on a quarterly basis) and setting forth the calculation
of the Available Amount based on the NOI for the Secured Properties and, during
the Revolving Loan Period, for the Negative Pledge Properties during the fiscal
quarter then ended.
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(d) ANNUAL BUDGET. On or before February 1 of each year, an annual
budget for such year prepared by Borrower covering all of the Applicable
Properties.
(e) OTHER. All other statements, reports and other information as
Agent or any Lender may reasonably request concerning the financial condition
and business affairs of Borrower or any Subsidiary.
SECTION 7.9 NOTIFICATION. Promptly after learning thereof, Borrower shall
notify Agent of (a) any action, proceeding, investigation or claim against or
affecting Borrower or any of its Subsidiaries instituted before any court,
arbitrator or Governmental Authority or, to Borrower's knowledge, threatened to
be instituted, which, if determined adversely to Borrower or any Subsidiary,
would have a Material Adverse Effect, or to result in a judgment or order
against Borrower or any of its Subsidiaries for more than $1,000,000 (in excess
of coverage) or, when combined with all other pending or threatened claims
against Borrower or any of its Subsidiaries, more than $1,000,000 (in excess of
insurance coverage); (b) any substantial dispute between Borrower or any of its
Subsidiaries and any Governmental Authority; (c) any labor controversy which has
resulted in or, to Borrower's knowledge, threatens to result in a strike which
would materially affect the business operations of Borrower or any of its
Subsidiaries, taken as a whole; (d) if Borrower or any of its Subsidiaries or
any member of a Controlled Group gives or is required to give notice to the PBGC
of any "reportable event" (as defined in subsections (b)(1), (2), (5) or (6) of
Section 4043 of ERISA) with respect to any Plan (or the Internal Revenue Service
gives notice to the PBGC of any "reportable event" as defined in subsection
(c)(2) of Section 4043 of ERISA and Borrower obtains knowledge thereof) which
might constitute grounds for a termination of such Plan under Title IV of ERISA,
or knows that the plan administrator of any Plan has given or is required to
give notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; and (e) the
occurrence of any Event of Default or Default. In the case of the occurrence of
an Event of Default or Default, Borrower will deliver to Agent an Officer's
Certificate specifying the nature thereof, the period of existence thereof, and
what action Borrower or its affected Subsidiary proposes to take with respect
thereto.
SECTION 7.10 ADDITIONAL PAYMENTS; ADDITIONAL ACTS. From time to time,
Borrower will pay the following amounts and take the following actions.
(a) TAXES ON OR EXPENSES INCURRED IN PREPARATION OF LOAN DOCUMENTS.
Borrower will pay or reimburse Agent and Lenders on request for all Taxes (other
than Taxes imposed on the net
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income or gross revenues of Agent or Lenders) imposed on any Loan Document or
payment and for all expenses, including legal fees including allocated costs of
in-house counsel incurred by Agent in connection with the preparation of the
Loan Documents or the making of the Loan (provided, however, that Borrower will
not be obligated to reimburse Agent for legal fees, excluding costs and
disbursements, incurred in connection with the preparation of the Initial Loan
Documents or the making of any Revolving Loans through the expiration of the
Collateral Grace Period in excess of $50,000).
(b) EXPENSES OF ADMINISTERING LOAN. Borrower will pay or reimburse
Agent for all out-of-pocket expenses reasonably incurred by Agent in connection
with administration of the Loan, including the costs of any site visits deemed
necessary by Agent (provided, however, that Borrower shall not be obligated to
reimburse Agent for any such expenses in excess of $15,000 for either of the 12-
month periods of the Revolving Commitment Period or the Term Loan Period except
that such limit shall not apply to any expenses or costs incurred after the
occurrence and during the continuation of an Event of Default).
(c) EXPENSES IN CHANGING CLASSIFICATION OF PROPERTY. Borrower will
pay or reimburse Agent for all out-of-pocket expenses reasonably incurred by
Agent in connection with the designation of any Property as a Secured Property,
the release of any Secured Property from the lien of the Deeds of Trust pursuant
to Article 3, the designation of any Property as a Negative Pledge Property or
as an Eligible Property (which expenses may include legal fees including
allocated costs of in-house counsel and, in the case of designation of any
Property not then constituting an Applicable Property as a Secured Property, a
Negative Pledge Property or an Eligible Property, the reasonable costs of
retaining an outside environmental consultant).
(d) EXPENSES OF ENFORCEMENT. Borrower will pay or reimburse Agent
and any Lender for all reasonable expenses, including legal fees including
allocated costs for in-house counsel, incurred by Agent or any Lender in
connection with the enforcement by judicial proceedings or arbitration or other
alternative dispute resolution proceeding or otherwise of any of the rights of
Agent or any Lender under the Loan Documents following a Default or an Event of
Default (including, without limitation, any reasonable legal fees or expenses
incurred by Agent or any Lender in connection with enforcing or protecting the
rights of Agent or such Lender in any bankruptcy or insolvency proceeding.
(e) EVIDENCE OF GOVERNMENT APPROVALS. Borrower will, if requested by
Agent, obtain and promptly furnish to Agent evidence of all such Government
Approvals as may be required to
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enable Borrower to comply with its obligations under the Loan Documents.
(f) ADDITIONAL INSTRUMENTS AND ACTS. Borrower will execute and
deliver all such instruments and perform all such other acts as Agent may
reasonably request to carry out the transactions contemplated by the Loan
Documents.
SECTION 7.11 NET WORTH. Borrower shall have (a) as of June 1, 1995, a Net
Worth of not less than $310,000,000, plus 90% of the net cash proceeds received
by Borrower from the sale of any of its equity securities during such 12-month
period, plus 90% of the market value of any equity securities of Borrower issued
in exchange for contributed properties during such 12-month period, minus the
amount, if any, by which dividends paid by Borrower during such 12-month period
exceeded Borrower's net income during such period; and (b) as of June 1 of each
succeeding year, a Net Worth of not less than the minimum Net Worth required as
of June 1 of the immediately preceding year, plus 90% of the net cash proceeds
received by Borrower from the sale of any of its equity securities during the
12-month period immediately preceding the applicable measurement date, plus 90%
of the market value of any equity securities of Borrower issued in exchange for
contributed properties during such 12-month period, minus the amount, if any, by
which dividends paid during such 12-month period exceeded Borrower's net income
such period.
SECTION 7.12 RATIO OF TOTAL DEBT TO NET WORTH. Borrower shall maintain a
ratio of total Indebtedness to Net Worth of not more than 1.0 to 1 measured as
of the end of each fiscal quarter of Borrower on a consolidated basis.
SECTION 7.13 MINIMUM INTEREST COVERAGE. Borrower shall maintain, measured
as of the end of each fiscal quarter on a consolidated basis, a ratio of (a) net
earnings before interest expense plus non-cash expenses plus up to $375,000 in
interest expense on development projects (excluding gain or loss from
nonrecurring items and sales of assets) to (b) interest on Funded Debt of not
less than 2.5 to 1.
SECTION 7.14 FIXED CHARGE COVERAGE. Borrower shall maintain, measured as
of the end of each fiscal quarter using the actual results for the immediately
preceding three months and on a consolidated basis, a ratio of (a) net earnings
before interest expense plus non-cash expenses (not including gain or loss from
nonrecurring items or sales of assets) to (b) dividends paid plus interest
expense plus a capital expenditure reserve equal to $0.17 per square foot on all
Borrower's real property plus principal amortization of debt minus up to
$375,000 of interest expense on development projects of not less than 1.0 to 1.
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SECTION 7.15 CAPITAL EXPENDITURE RESERVE. In the event that, at the end of
any month, an Event of Default has occurred and is continuing, Borrower shall
deposit into an account maintained by Borrower with Agent (any and all of such
accounts being referred to herein as the "Capital Reserve Account") an amount
equal to the product of $0.17 multiplied by the number of rental square feet of
all mini-storage facilities which then constitute one of the Secured Properties
or Negative Pledge Properties divided by twelve. Borrower hereby grants Agent
for the ratable benefit of Lenders a security interest in the Capital Reserve
Account in all amounts and investments from time to time contained therein to
secure the full and timely payment and performance of all amounts and
obligations now or hereafter owing by Borrower under any of the Loan Documents
and agrees to execute such additional documents and take such additional acts as
may be deemed necessary or advisable by Agent to create, perfect or ensure the
first priority of such security interest. Borrower will be permitted at any
time to make withdrawals from the Capital Reserve Account in amounts sufficient
to pay for capital expenditures with respect to the Secured Properties or the
Negative Pledge Properties. No other withdrawals may be made by Borrower from
the Capital Reserve Account.
SECTION 7.16 COMPLIANCE WITH ENVIRONMENTAL DUE DILIGENCE STANDARDS.
Borrower shall exercise reasonable diligence in conducting environmental
assessments of properties to be acquired by it after the date of this Agreement
and shall exercise reasonable prudence in determining whether to purchase any
properties that have material environmental problems. Borrower shall not
acquire any such properties without the prior approval of the Real Estate
Committee of Shurgard, Inc. Borrower shall provide Agent with copies of any and
all environmental reports relating to any such newly acquired properties
promptly after such reports have been prepared.
SECTION 7.17 REIT STATUS. Borrower shall apply for status as a qualified
"real estate investment trust" under the Code when it files its 1994 federal
income tax return and Borrower shall, both before and after filing such tax
return, use its best efforts not to take any actions inconsistent with obtaining
or retaining such REIT status.
SECTION 7.18 INSURANCE AND CONDEMNATION PROCEEDS.
(a) DEPOSIT AND INVESTMENT OF PROCEEDS. If all or any part of any
Secured Property shall be damaged or destroyed by an insured risk; or if all or
any part of the Secured Property shall be taken by eminent domain (or conveyed
in lieu of such taking) then the proceeds of either such event ("Insurance and
Condemnation Proceeds"): (i) if such proceeds in respect of a single Property
are less than $500,000, shall be paid to Borrower for application by Borrower in
accordance with Section 7.18(c),
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or (ii) if such proceeds in respect of a single Property are equal to or greater
than $500,000, shall promptly be deposited by Borrower into a separate Proceeds
Escrow Account ("Proceeds Escrow") to be established by Borrower with a title
insurance company licensed to do business in the State where such Property is
located, or with a national banking association or state chartered trust company
having authority to hold funds in trust (the "Proceeds Trustee") and held in
such Proceeds Escrow pending application in accordance with this Section 7.18.
Borrower shall be entitled to direct the investment of such Insurance
Condemnation Proceeds, and income earned from such investment shall be added to
the Proceeds Escrow. Borrower hereby grants to Agent for the ratable benefit of
Lenders a security interest in each and every Proceeds Escrow formed pursuant to
this Section 7.18 and in all amounts and investments from time to time contained
therein to secure the full and timely payment and performance of all obligations
and amounts now or hereafter owing by Borrower under any the Loan Documents and
agrees to execute such additional documents and take such additional steps as
may be deemed necessary or advisable by Agent to create, perfect or insure the
first priority of such security interest. If Borrower shall fail to pursue
collection of, and to deposit, any Insurance and Condemnation Proceeds in a
Proceeds Escrow as provided in this Section 7.18, Agent shall be authorized and
empowered (but not obligated or required) to make proof of loss, to settle,
adjust or compromise any claims for loss, damage or destruction or condemnation
and to collect and receive all Insurance and Condemnation Proceeds on behalf of
Borrower and deposit them into the Proceeds Escrow.
(b) DISBURSEMENT OF PROCEEDS. All Insurance and Condemnation
Proceeds shall be disbursed by the Proceeds Trustee (i) first to pay or
reimburse Agent and Lenders for all costs and expenses, including but not
limited to court costs and attorneys' fees (including allocated costs of in-
house counsel), incurred by any of them in connection with the collection,
investment and disbursement of the Insurance and Condemnation Proceeds;
(ii) second, to pay the cost and expenses of the Proceeds Trustee; (iii) third,
to pay the costs of repair, replacement or restoration of such Applicable
Property to the extent permitted or required hereunder; and (iv) fourth, any
excess of the Insurance and Condemnation Proceeds over the sum of amounts
disbursed pursuant to clauses (i), (ii) and (iii) of this sentence shall be
retained in the Proceeds Escrow as additional collateral to secure the amounts
and obligations now or hereafter due under or in connection with any of the Loan
Documents; provided, however, upon the completion of the repair, restoration or
replacement of the Casualty Loss Property (defined below) in accordance with
Section 7.18(c), any such excess Insurance and Condemnation Proceeds shall be
paid to Borrower.
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(c) OBLIGATION TO REPAIR, REPLACE OR RESTORE. Except if and to the
extent Borrower has substituted additional collateral for the Casualty Loss
Property pursuant to Section 7.18(e), Borrower shall be required to repair,
replace or restore any Secured Property which has been damaged or destroyed or
taken by eminent domain (or conveyed in lieu of such taking) (a "Casualty Loss
Property") to substantially the same income producing potential as existing
immediately prior to the damage, destruction or condemnation if permitted by
applicable law.
(d) PROCEDURES FOR DISBURSEMENT OF PROCEEDS; APPLICATION. Any
Insurance and Condemnation Proceeds disbursed pursuant to clause (iii) of
Section 7.18(b) to pay the costs of repair, replacement or restoration of a
Casualty Loss Property shall be so disbursed from time to time pursuant to
written authorization from Agent only after Borrower shall have certified to
Agent and Lenders that all such repair and restoration has been completed, that
the Casualty Loss Property so damaged has been restored to substantially the
same income producing potential as existed prior to damage, destruction or
condemnation and that all bills for such costs have been paid in full. If
Borrower shall (i) fail to commence to repair, replace or restore a Casualty
Loss Property within a reasonable period after damage or destruction of such
Casualty Loss Property, or (ii) shall notify Lender that pursuant to Section
7.18(e) it will not repair, replace or restore such Casualty Loss Property, or
(iii) shall fail to give, or shall notify Agent that it will not give, the
certification described in the preceding sentence of this Section 7.18(d), then
no portion of the Insurance and Condemnation Proceeds shall be disbursed to
Borrower pursuant to clause (iii) of Section 7.18(b), but instead the full
amount of such Insurance and Condemnation Proceeds (other than amounts disbursed
pursuant to clauses (i) and (ii) of Section 7.18(b)) shall be retained in the
Proceeds Escrow as additional collateral to secure the amounts and obligations
now or hereafter due under or in connection with any of the Loan Documents.
Agent and the Proceeds Trustee shall have the right to require proof of payment
to third parties, including waivers of any mechanics or materialmen liens.
(e) SUBSTITUTION IN LIEU OF REPAIR. Anything to the contrary in this
Section 7.18 notwithstanding, in the event of any damage, destruction or taking
with respect to a particular Secured Property such that either (i) the estimated
cost to repair, replace or restore such Property exceeds $500,000 or
(ii) Borrower shall not be able to certify that upon completion of all repair
and restoration the Casualty Loss Property will have been restored to
substantially the same income producing potential as existed prior to damage,
destruction or condemnation and that all bills for such costs have been paid in
full, then in lieu of repair, replacement or restoration of such Property
Borrower shall have the right to provide, in substitution for
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such Casualty Loss Property, additional collateral for the Loan acceptable to
the Agent, which acceptance shall not be unreasonably withheld, having value and
NOI substantially comparable to the Casualty Loss Property; provided, however,
no such substitution of additional collateral shall be permitted unless all
conditions set forth or referred to in Section 3.2 shall have been satisfied
with respect to such substituted collateral. Upon the provision of additional
collateral meeting the foregoing requirements, the Lender shall release from the
lien of the Deeds of Trust the Casualty Loss Property in respect of which
substitution is being made in accordance with the procedures set forth in
Section 3(d) and any Insurance and Condemnation Proceeds held in any Proceeds
Escrow with respect to such Casualty Loss Property shall be released from such
Proceeds Escrow and paid to Borrower.
SECTION 7.19 INDEMNIFICATION.
(a) GENERAL INDEMNITY. Borrower shall indemnify and hold harmless
Agent and each Lender and each of their directors, officers, employees,
attorneys, agents, successors and assigns (the "Indemnified Parties") from and
against all damages and liabilities (collectively and severally, "Losses")
assessed against any such Indemnified Party in respect of any of their
respective capacities as Agent or Lender under this Agreement or the other Loan
Documents, as the case may be, or as a director, officer, employee, attorney,
agent, successor or assign of Agent or any Lender in any of their respective
capacities thereunder, as the case may be, resulting from the claims of any
party relating to or arising out of the Loan Documents except for (i) Losses
caused by the negligence or willful misconduct of such Indemnified Party and
(ii) Losses resulting from the noncompliance (consistent with the standards for
performance in any applicable Loan Document) by such Indemnified Party with any
of the terms of, or any misrepresentation by such Indemnified Party contained
in, any applicable Loan Document, and Borrower shall 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 requests or
subpoenas), regardless of whether the Lender or such other Indemnified Person is
a party thereto.
(b) ENVIRONMENTAL INDEMNITY. Without limiting the generality of any
other portion of this Section 7.19 and subject to the exceptions set forth in
clauses (i) and (ii) of Section 7.19(a), Borrower shall defend, indemnify,
exonerate and hold harmless the Indemnified Parties from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
which accrue to or are made against
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or incurred by Indemnified Parties prior to transfer of any such Applicable
Property pursuant to foreclosure or deed in lieu of foreclosure, including, but
not limited to, reasonable attorney's (including allocated costs of in-house
counsel) and consultant's fees, investigation and laboratory fees, removal,
remedial, response and corrective action costs, court costs and litigation
expenses, of whatever kind or nature known or unknown, contingent or otherwise,
based on or arising under any Environmental Laws, including, without limitation,
those enacted hereafter, and pertaining to or attributable in any way to the
business, operations, properties, assets, acts or omissions of Borrower, any of
Borrower's tenant or subtenant occupants of any Applicable Property or any
predecessor in interest thereof or to any past, present or future Applicable
Property.
(c) BUILDING LAW INDEMNITY. Without limiting the generality of any
other portion of this Section 7.19 and subject to the exceptions set forth in
clauses (i) and (ii) of Section 7.19(a), Borrower shall defend, indemnify,
exonerate and hold harmless the Indemnified Parties from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
made against or suffered by Indemnified Parties (prior to transfer of any such
Applicable Property pursuant to foreclosure or deed in lieu of foreclosure) by
reason of breach of any of the representations, warranties and covenants of the
Borrower set forth in any of the Building Law Compliance Agreements.
(d) INDEMNIFICATION PROCEDURES. Any Indemnified Party seeking
indemnification under this Section 7.19 in respect of any claim shall notify
Borrower of the assertion of any such claim within a reasonable time after such
Indemnified Party has knowledge of such claim. With reference to the provisions
set forth in this Section 7.19 for payment by Borrower of attorneys fees
incurred by the Indemnified Parties in any action or claim brought by a third
party, Borrower shall diligently defend such Indemnified Party and diligently
conduct the defense. If the Indemnified Party desires to engage separate
counsel, it may do so at its own expense; provided, however, that such
limitation on the obligation of Borrower to pay the fees of separate counsel for
such Indemnified Party shall not apply if such Indemnified Party has retained
said separate counsel because Borrower is not diligently defending it or not
diligently conducting the defense and the Indemnified Party so notifies
Borrower. Anything to the contrary contained herein or any other Loan Documents
notwithstanding, the Loan shall not be considered to have been paid in full
unless all obligations of Borrower under this Section 7.19 shall have been fully
performed (except for contingent indemnification obligations for which no claim
has actually been made pursuant to this Agreement).
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SECTION 7.20 TAXES. Borrower shall promptly pay and discharge all lawful
taxes, sewer rents, water charges, assessments and other governmental charges or
levies imposed upon Borrower or upon its income or profits or upon any of the
Secured Properties or any of the Negative Pledge Properties, other than those
being contested in good faith by appropriate proceedings.
SECTION 7.21 OTHER AGREEMENTS. Borrower shall comply with all other
agreements to which Borrower is a party, whether related to any of the Secured
Properties or any of the Negative Pledge Properties, the Loan Documents or
otherwise, other than (a) agreements or obligations thereunder being contested
in good faith or (b) agreements non-compliance with which would not have a
Material Adverse Effect.
ARTICLE 8
NEGATIVE COVENANTS
So long as Agent or any Lender shall have any commitment to lend hereunder
or until payment in full of the Loan and performance of all other obligations of
Borrower under this Agreement and the other Loan Documents, Borrower agrees that
it will not do any of the following unless Agent acting (with the approval of
Majority Lenders) shall otherwise consent in writing.
SECTION 8.1 LIQUIDATION, MERGER, SALE OF ASSETS. Except as otherwise
expressly permitted hereunder, Borrower shall not liquidate, dissolve or enter
into any joint venture, partnership or other combination (other than any joint
venture, partnership or other combination established in connection with
Borrower's operation of its mini-storage business) or sell, lease, or dispose of
all or any substantial portion of its business or assets (other than the sale of
inventory in the ordinary course of business), or enter into any merger or
consolidation unless Borrower is the surviving entity. Borrower shall not
permit any of its Subsidiaries to liquidate, dissolve or enter into any joint
venture, partnership or other combination or sell, lease, or dispose of all or
any substantial portion of its business or assets (other than the sale of
inventory in the ordinary course of business) or enter into any merger or
consolidation unless such Subsidiary is the surviving entity if any of the
foregoing actions would have a Material Adverse Effect.
SECTION 8.2 LIENS. Borrower shall not create, assume or suffer to exist
any Lien (other than Permitted Encumbrances) on any of the Secured Properties or
Negative Pledge Properties.
SECTION 8.3 SALE OF PROPERTY. Borrower shall not sell, transfer, lease
(other than in the ordinary course of business and as expressly permitted by the
Loan Documents), assign, exchange, contribute, abandon or otherwise dispose of,
directly
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or indirectly (a) any of the Applicable Properties or any interest therein,
other than in accordance with Section 3.3 or 4.2; or (b) any of the Applicable
Collateral.
SECTION 8.4 OPERATIONS. Borrower shall not, and shall not permit any of
its Subsidiaries or any joint venture to which it is a party or of which it is
an owner to, engage in any material activity or introduce any major product
which is substantially different from or unrelated to the moving and storage
business or products of Borrower or its subsidiaries.
SECTION 8.5 ERISA COMPLIANCE. Neither Borrower nor any member of a
Controlled Group nor any Plan will:
(a) Engage in any "prohibited transaction" (as such term is defined
in Section 406 of ERISA or Section 4975(c)(1) of the Code) which could
reasonably be expected to result in a liability to Borrower in excess of
$1,000,000;
(b) Incur any "accumulated funding deficiency" (as such term is
defined in Section 302 of ERISA) whether or not waived which could reasonably be
expected to result in a liability to Borrower in excess of $1,000,000;
(c) Terminate any Pension Plan in a manner which could reasonably be
expected to result in a liability to Borrower in excess of $1,000,000 or could
reasonably be expected to result in the imposition of a Lien in excess of
$1,000,000 on any property of Borrower pursuant to Section 4068 of ERISA;
(d) Violate state or federal securities laws applicable to any Plan
in any material respect; or
(e) Participate in any multi-employer plan (as defined in
Section 4001(3) of ERISA).
SECTION 8.6 TRANSACTIONS WITH AFFILIATES. Borrower shall not 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 other than those approved from
time to time by a majority of Borrower's independent directors.
ARTICLE 9
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EVENTS OF DEFAULT
SECTION 9.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" hereunder.
(a) PAYMENT DEFAULT. Borrower shall fail to pay when due any amount
of principal of or interest on the Loan (other than any mandatory principal
prepayment required under Section 2.4(b)) or any other amount payable by it
hereunder or under any other Loan Document, and such failure shall continue for
a period of three days after Borrower's receipt of written notice thereof from
Agent; or
(b) BREACH OF WARRANTY. Any representation or warranty made or
deemed made by Borrower under or in connection with any Loan Document shall
prove to have been incorrect in any material respect when made and if
(i) (A) such representation or warranty is capable of being made accurate and
complete, and (B) the inaccuracy or incompleteness of such representation or
warranty does not have a Material Adverse Effect, Borrower fails to make such
representation or warranty accurate and complete within 30 days after written
notice thereof from Agent, or (ii) (1) such representation or warranty is
capable of being made accurate and complete and (2) the inaccuracy or
incompleteness of such representation or warranty results in a Material Adverse
Effect, Borrower fails to make such representation or warranty accurate and
complete within 10 days after written notice thereof from Agent.
(c) BREACH OF CERTAIN COVENANTS. Borrower shall have failed to
maintain in effect insurance substantially in compliance with Sections 7.7(a) or
7.7(b); or Borrower shall have failed to comply with Section 7.9 of this
Agreement and, in the case of Section 7.9, such failure continues for a period
of ten days and the event in respect of which the applicable notice was not
given thereunder has a Material Adverse Effect; or Borrower shall fail to
correct any Available Amount Deficiency within the applicable Deficiency Cure
Period in the manner required by Section 2.4(b); or
(d) BREACH OF OTHER COVENANTS. Borrower shall have failed to perform
or observe in any material respect any of its other covenants, obligations or
agreements in any of the Loan Documents; provided, however, that if such failure
can be cured in a manner which eliminates any Material Adverse Effect resulting
from such failure and Borrower is making diligent efforts to effect such cure,
then such event shall not constitute an Event of Default unless such event
continues for forty-five (45) days after written notice thereof from Agent; or
(e) CROSS-DEFAULT. (i) Borrower or any Subsidiary shall fail to pay
when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) any Indebtedness or any interest or premium thereon in a
cumulative amount in excess of
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$1,000,000 and such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness, or
(ii) Borrower or any Subsidiary shall fail to perform any term or covenant on
its part to be performed under any agreement or instrument relating to any such
Indebtedness and required to be performed or a default or event of default
(however defined) shall occur under any such agreement or instrument and such
failure or default shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such failure to
perform or default is to accelerate or to permit the acceleration of the
maturity of such Indebtedness, or (iii) any such Indebtedness shall be declared
to be due and payable or required to be prepaid (other than by regularly
scheduled required prepayment) prior to the stated maturity thereof; or
(f) VOLUNTARY BANKRUPTCY, ETC. Borrower, Shurgard, Inc. or any
Subsidiary shall: (i) file a petition seeking relief for itself under Title 11
of the United States Code, as now constituted or hereafter amended, or file an
answer consenting to, admitting the material allegations of or otherwise not
controverting, or fail timely to controvert a petition filed against it seeking
relief under Title 11 of the United State Code, as now constituted or hereafter
amended; or (ii) file such petition or answer with respect to relief under the
provisions of any other now existing or future applicable bankruptcy,
insolvency, or other similar law of the United States of America or any State
thereof or of any other country or jurisdiction providing for the
reorganization, winding-up or liquidation of corporations or an arrangement,
composition, extension or adjustment with creditors; or
(g) INVOLUNTARY BANKRUPTCY, ETC. An order for relief shall be
entered against Borrower, Shurgard, Inc. or any Subsidiary under Title 11 of the
United States Code, as now constituted or hereafter amended, which order is not
stayed; or upon the entry of an order, judgment or decree by operation of law or
by a court having jurisdiction in the premises which is not stayed adjudging it
a bankrupt or insolvent under, or ordering relief against it under, or approving
as properly filed a petition seeking relief against it under the provisions of
any other now existing or future applicable bankruptcy, insolvency or other
similar law of the United States of America or any State thereof or of any other
country or jurisdiction providing for the reorganization, winding-up or
liquidation of corporations or any arrangement, composition, extension or
adjustment with creditors; or appointing a receiver, liquidator, assignee,
sequestrator, trustee or custodian of Borrower or any Subsidiary or of any
substantial part of any of their property, or ordering the reorganization,
winding-up or liquidation of any of their affairs; or upon the expiration of 90
days after the filing of any involuntary petition against Borrower or any
Subsidiary seeking any of the relief specified in Section 9.1(f) or this
Section 9.1(g) without the petition being dismissed prior to that time; or
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(h) INSOLVENCY, ETC. Borrower, Shurgard, Inc. or any Subsidiary
shall (i) make a general assignment for the benefit of its creditors or
(ii) consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, or custodian of all or a substantial part of the
property of Borrower or any Subsidiary, as the case may be, or (iii) admit its
insolvency or inability to pay its debts generally as they become due, or
(iv) fail generally to pay its debts as they become due, or (v) take any action
(or suffer any action to be taken by its directors or shareholders) looking to
the dissolution or liquidation of Borrower or, looking to the dissolution or
liquidation of any Subsidiary if such dissolution or liquidation would have a
Material Adverse Effect.
(i) JUDGMENT. A final judgment or order shall have been entered
against Borrower, Shurgard, Inc. or any Subsidiary (by a court or other tribunal
having jurisdiction) for the payment of money in excess of the lesser of
$5,000,000.00 or such amount as would have a Material Adverse Effect if paid and
such judgment or order shall not have been vacated, discharged, stayed,
satisfied or bonded pending appeal; or a final judgement in an amount which, if
paid, would have a Material Adverse Effect and such judgment or order shall not
have been vacated, discharged or satisfied for a period of 30 consecutive days;
provided, however, that no judgment or order referred to in this Section 9.1(i)
shall constitute an Event of Default if such judgment or order is covered by
insurance with respect to which no subrogation right exists against Borrower,
Shurgard, Inc. or any Subsidiary; or
(j) CONDEMNATION. A substantial portion of the properties of
Borrower shall be condemned, seized or appropriated and such action will have a
Material Adverse Effect; or
(k) GOVERNMENTAL APPROVALS. Any Government Approval or registration
or filing with any Governmental Authority now or hereafter required in
connection with the performance by Borrower of its obligations set forth in the
Loan Documents shall be revoked, withdrawn or withheld or shall fail to remain
in full force and effect unless such revocation, withdrawal or withholding does
not have a Material Adverse Effect; or
(l) OTHER GOVERNMENT ACTION. Any act of any Governmental Authority
shall deprive Borrower, Shurgard, Inc. or any of Borrower's Subsidiaries of any
right, privilege, or franchise or restrict the exercise thereof and such act is
not revoked or rescinded within 60 days after it becomes effective or within 30
days after notice from Agent, whichever first occurs unless such act does not
have a Material Adverse Effect; or
(m) STOCK LISTING. Borrower's common stock shall not be listed on at
least one major United States stock exchange.
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(n) ERISA. Borrower or any member of a Controlled Group shall fail
to pay when due an amount or amounts which it shall have become liable to pay to
the PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA other than
premiums under Section 4007 of ERISA unless such failure would not have a
Material Adverse Effect; or notice of intent to terminate a Plan or Plans (other
than a multi-employer plan, as defined in Section 4001(a)(3) of ERISA) having
aggregate Unfunded Vested Liabilities in excess of $1,000,000 shall be filed
under Title IV of ERISA by Borrower, any member of a Controlled Group, any plan
administrator or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate any Plan or Plans which could
result in liability of Borrower unless such termination would not have a
Material Adverse Effect.
(o) REIT. Borrower shall not be granted the status of for tax year
1994, or shall cease to be qualified as, a "real estate investment trust" under
the Code or to be entitled to receive the tax benefits resulting from such
qualification.
(p) PROPERTY MANAGEMENT. Shurgard, Inc. shall, for any reason, cease
to be the principal property manager for all or substantially all of the Secured
Properties and the Negative Pledge Properties.
SECTION 9.2 CONSEQUENCES OF DEFAULT. If an Event of Default described in
Section 9.1(f) or 9.1(g) shall occur and be continuing, then in any such case,
each Lender's commitment to lend under this Agreement shall be immediately
terminated and, if any amount of the Loan is then outstanding, the principal of
and interest on the Loan, and all other sums payable by Borrower under the Loan
Documents shall become immediately due and payable all without notice or demand
of any kind. If any other Event of Default shall occur and be continuing, then
in any such case and at any time thereafter so long as any such Event of Default
shall be continuing, Agent may, and at the direction of Majority Lenders shall,
immediately terminate each Lender's commitment to lend under this Agreement and,
if any amount of the Loan is then outstanding, Agent may, and at the direction
of Majority Lenders shall, declare the principal of and the interest on the
Loan, and all other sums payable by Borrower under the Loan Documents
immediately due, whereupon the same shall become immediately due and payable
without protest, presentment, notice or demand, all of which Borrower expressly
waives the rights and remedies referred to. The rights and remedies referred to
in this Section 9.2 shall be in addition to all of the rights and remedies of
Agent and Lenders in the other Loan Documents.
ARTICLE 10
AGENT
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SECTION 10.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement. The duties of Agent shall be mechanical and administrative in
nature; Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender; and nothing in this Agreement or the
other Loan Documents, expressed or implied, is intended to or shall be so
construed as to impose upon Agent any obligations in respect of this Agreement
or the other Loan Documents except as expressly set forth herein. As to any
matters not expressly provided for by this Agreement, including enforcement or
collection of the Loan, Agent shall not be required to exercise any discretion
or take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining) upon the instructions of
the Majority Lenders, and such instructions shall be binding upon all Lenders,
provided that Agent shall not be required to take any action which exposes Agent
to personal liability or which is contrary to the Loan Documents or applicable
law and provided, further, that without the consent of all Lenders, Agent shall
not change or modify the Commitment, any Lender's Pro Rata Share, Funded Pro
Rata Share, Adjusted Pro Rata Share, or Funded Adjusted Pro Rata Share of the
Commitment, the definition of "Majority Lenders," the timing or rates of
interest payments, the timing or amount of facility fees, the timing or amounts
of principal payments due in respect of the Loan, and provided, further, that
the terms of Section 2.3, Section 2.8(b) and this Article 10 shall not be
amended without the prior written consent of Agent (acting for its own account).
In the absence of instructions from the Majority Lenders, Agent shall have
authority (but no obligation), in its sole discretion, to take or not to take
any action, unless this Agreement specifically requires the consent of Lenders
or the consent of the Majority Lenders and any such action or failure to act
shall be binding on all Lenders and holders of the Notes. Each Lender shall
execute and deliver such additional instruments, including powers of attorney in
favor of Agent, as may be necessary or desirable to enable Agent to exercise its
powers hereunder.
SECTION 10.2 DUTIES AND OBLIGATIONS.
(a) Neither Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
any of them under or in connection with this Agreement except for its or their
own gross negligence or willful misconduct. Without limiting the generality of
the foregoing, Agent (i) may treat each Lender which is a party hereto as the
party entitled to receive payments hereunder until Agent receives written notice
of the assignment of such Lender's interest herein signed by such Lender and
made in accordance with the terms hereof and a
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written agreement of the assignee that it is bound hereby as it would have been
had it been an original party hereto, in each case in form satisfactory to
Agent; (ii) may consult with legal counsel (including counsel for Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement, the other Loan Documents or in any instrument or document furnished
pursuant hereto or thereto; (iv) shall not have any duty to ascertain or to
inquire as to the performance of any of the terms, covenants, or conditions of
the Loan Documents on the part of Borrower or as to the use any of the proceeds
of the Loan or as to the existence or possible existence of any Default or Event
of Default; (v) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, effectiveness, or value of this
Agreement or of any instrument or document furnished pursuant hereto; and
(vi) shall incur no liability under or in respect to this Agreement by acting
upon any oral or written notice, consent, certificate or other instrument or
writing (which may be by telegram, facsimile transmission, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties
or by acting upon any representation or warranty of Borrower made or deemed to
be made hereunder.
(b) Agent will account to each Lender in accordance with Section
2.7(c) for payments of principal of, and interest on, the Loan which are
received by Agent from Borrower and will promptly remit to Lenders entitled
thereto all such payments. Agent will transmit to each Lender copies of all
documents received from Borrower pursuant to the requirements of this Agreement
other than documents which by the terms of this Agreement Borrower is obligated
to deliver directly to Lenders. Agent will give written notice to all Lenders
of any matter requiring approval by all Lenders or by the Majority Lenders, and
Agent will use its best efforts to give such notice sufficiently in advance of
the time at which action must be taken so as to afford the Lenders a chance to
review and consider the matter; provided, however, that this notice requirement
shall not modify or affect the right or obligation of Agent to act or refrain
from acting upon the instructions or with the consent of all Lenders or Majority
Lenders, as applicable, pursuant to this Article 10.
(c) Each Lender or its assignee organized outside of the United
States shall furnish to Agent in a timely fashion such documentation (including,
but not by way of limitation, IRS Forms Nos. 1001 and 4224) as may be required
by applicable law or regulation to establish such Lender's status for tax
withholding purposes.
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SECTION 10.3 DEALINGS BETWEEN AGENT AND BORROWER. With respect to its
commitment to lend under this Agreement and the portion of the Loan made by it,
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any other Lender and may exercise the same as though it were
not Agent, and the term "Lender" shall unless otherwise expressly indicated
include Agent in its individual capacity. Agent may accept deposits from, lend
money to, act and generally engage in any kind of business with Borrower and any
person which may do business with Borrower, all as if Agent were not Agent
hereunder and without any duty to account therefor to Lenders.
SECTION 10.4 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon Agent or any other Lender and based
upon such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon Agent or any
other Lender and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 10.5 INDEMNIFICATION. Lenders agree to indemnify Agent (to the
extent not reimbursed by Borrower) ratably according to their respective Pro
Rata Shares from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Agent in any way relating to or arising out of this Agreement
or any other Loan Document or any action taken or omitted by Agent under this
Agreement or any other Loan Document, except any such as result from Agent's
gross negligence or willful misconduct. Without limiting the foregoing, each
Lender agrees to reimburse Agent promptly on demand in proportion to its Pro
Rata Shares for any out-of-pocket expenses, including legal fees (including
reasonable allocated costs of in-house counsel), incurred or advances made by
Agent in connection with the administration or enforcement of or the
preservation or protection of the lien of Deeds of Trust or any of the
Applicable Collateral or of any rights under this Agreement or any other Loan
Document (to the extent that Agent is not reimbursed for such expenses by
Borrower).
SECTION 10.6 SUCCESSOR AGENT. Agent may give written notice of
resignation at any time to Lenders and Borrower and may be removed at any time
with cause by the Majority Lenders. Upon any such resignation or removal, the
Majority Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Majority Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of Lenders, appoint a
successor Agent, which shall be a bank
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organized under the laws of the United States or of any state thereof, or any
affiliate of such bank, and having a combined capital and surplus of at least
Five Hundred Million Dollars ($500,000,000). Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement. Until the acceptance by
such a successor Agent, the retiring Agent shall continue as "Agent" hereunder.
Notwithstanding any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article 10 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
SECTION 10.7 APPLICATION OF ARTICLE 10. The provisions set forth in this
Article 10 are intended to address the relationship between Agent and Lenders,
and shall not affect any of the rights and obligations of Borrower set forth
elsewhere in this Agreement.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 NO WAIVER; REMEDIES CUMULATIVE. No failure by Agent or
Lenders to exercise, and no delay in exercising, any right, power or remedy
under any Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or remedy under any Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power, or remedy. The exercise of any right, power, or remedy shall in
no event constitute a cure or waiver of any Event of Default or prejudice the
rights of Agent or Lenders in the exercise of any right hereunder or thereunder.
The rights and remedies provided herein and therein are cumulative and not
exclusive of any right or remedy provided by law.
SECTION 11.2 GOVERNING LAW. This Agreement and the other Loan Documents
(other than the Deeds of Trust covering real property not located in Washington
state) shall be governed by and construed in accordance with the laws of the
State of Washington without regard to principles of conflicts of laws.
SECTION 11.3 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. Borrower,
Agent and Lenders hereby irrevocably submit to the nonexclusive jurisdiction of
any state or federal court sitting in Seattle, King County, Washington, in any
action or proceeding brought to enforce or otherwise arising out of or relating
to any Loan Document and irrevocably waive to the fullest extent permitted by
law any objection which they may now or hereafter have to the laying of venue in
any such action or proceeding in any such forum,
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and hereby further irrevocably waive any claim that any such forum is an
inconvenient forum. Borrower agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in any other jurisdiction by
suit on the judgment or in any other manner provided by law. Nothing in this
Section 11.3 shall impair the right of Agent or a Lender or the holder of any
Note to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction, and Borrower irrevocably submits to the
nonexclusive jurisdiction of the appropriate courts of the jurisdiction in which
Borrower is incorporated or sitting and any place where property or an office of
Borrower is located.
SECTION 11.4 NOTICES. All notices and other communications provided for
in any Loan Document shall be in writing (unless otherwise specified) and shall
be mailed (with first class postage prepaid) or sent or delivered to each party
by telefax or courier service at the address or telefax number set forth under
its name on the signature page hereof, or at such other address as shall be
designated by such party in a written notice to the other parties. Except as
otherwise specified all notices and communications if duly given or made shall
be effective upon receipt. Neither Agent nor any Lender shall incur any
liability to Borrower for actions taken in reliance on any telephonic notice
referred to in this Agreement which Agent believes in good faith to have been
given by a duly authorized officer or other person authorized to borrow or give
such telephonic notice hereunder on behalf of Borrower.
SECTION 11.5 ASSIGNMENT.
(a) ASSIGNMENTS BY BORROWER. This Agreement and each of the other
Loan Documents shall be binding upon and inure to the benefit of the parties and
their respective Successors and assigns, provided that Borrower may not assign
or otherwise transfer all or any part of its rights or obligations hereunder or
under any other Loan Document without the prior written consent of Agent acting
on behalf of all Lenders.
(b) ASSIGNMENTS BY LENDER. Any Lender may at any time assign all or
any portion of its interest under the Loan Documents with the prior written
consent of Borrower and Agent (which may not be unreasonably withheld). Any
Lender may at any time after the occurrence and during the continuation of a
Default or Event of Default assign all or any portion of its interest under the
Loan Documents with or without the prior written consent of Borrower (but not
without the prior written consent of Agent, which may not be unreasonably
withheld).
(c) SALE OF PARTICIPATIONS BY LENDER. Any Lender may sell
participations in any portion of its Loans or commitment to lend or of its
right, title and interest therein or thereto or in or to this Agreement to any
other person without obtaining Borrower's or Agent's consent provided that such
Lender notifies Agent and
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Borrower of the sale. In the case of any sale of a participation by any Lender
hereunder (as distinguished from an assignment), such Lender shall remain fully
liable hereunder, the participant shall not acquire any direct rights against
Borrower, Agent or any Lender under any Loan Document, Agent and Borrower shall
continue to deal exclusively with such Lender and shall not have any obligations
whatsoever to such participant.
SECTION 11.6 SEVERABILITY. Any provision of any Loan Document which is
prohibited or unenforceable in any jurisdiction shall as to such jurisdiction be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
SECTION 11.7 SURVIVAL; DISCHARGE. The representations, warranties and
indemnities of Borrower in the Loan Documents in favor of Agent and Lenders
shall survive the execution and delivery of the Loan Documents and the making of
any Revolving Loans until the Loan is paid and performed in full and Lenders
have no further commitment to lend under this Agreement, except in the case of
the indemnities set forth in Section 7.19 which shall survive indefinitely. At
such time as the Loan is paid and performed in full and Lenders have no further
commitment to lend under this Agreement, Agent and Lenders, as the case may be,
shall execute and deliver to Borrower such releases and other documentation
reasonably requested by Borrower to effect the release of the Secured Properties
and any other collateral from the Liens created under this Agreement and the
other Loan Documents.
SECTION 11.8 EXECUTED IN COUNTERPARTS. The Loan Documents may be executed
in any number of counterparts and by different parties in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
SECTION 11.9 ENTIRE AGREEMENT; AMENDMENT, ETC. The Loan Documents
comprise the entire agreement of the parties and may not be amended or modified
except by written agreement of Borrower and Agent executed in conformance with
the terms of Section 10.1. No provision of this Agreement or any other Loan
Document may be waived except in writing and then only in the specific instance
and for the specific purpose for which given.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT,
OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or agents thereunto duly authorized as of
the date first above written.
BORROWER:
SHURGARD STORAGE CENTERS, INC.
By /s/ Harrell L. Beck
-----------------------------------------------
Its President and CFO
-------------------------------------------
Address: 1201 Third Avenue
Suite 2200
Seattle, WA 98101
Attn: Kristin Stred
Telephone: (206) 624-8100
Telefax: (206) 624-1645
LENDERS:
Pro Rata
Commitment Share
- ---------- --------
$25,000,000 50% SEATTLE-FIRST NATIONAL BANK
By /s/ Robert Peters
-----------------------------------------------
Its Vice President
-----------------------------------------
Address: Columbia Seafirst Center
Floor 11
701 Fifth Avenue
Seattle, WA 98104
Attn: Robert Peters
Metropolitan Commercial Banking Division
Telephone: (206) 358-3133
Telefax: (206) 258-3124
$15,000,000 30% KEY BANK OF WASHINGTON
By /s/ James Scroggs
-----------------------------------------------
Its Vice President
-----------------------------------------
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Address: 700 Fifth Avenue
Seattle, WA 98111
Attn: James Scroggs
Telephone: (206) 689-5444
Telefax: (206) 684-6247
$10,000,000 20% WEST ONE BANK, WASHINGTON
By /s/ Matt Rudolf
-----------------------------------------------
Its Vice President
-----------------------------------------
Address: 1301 Fifth Avenue, Floor 21
Seattle, WA 98111
Attn: Matt Rudolf
Telephone: (206) 585-2283
Telefax: (206) 343-8809
AGENT:
SEATTLE-FIRST NATIONAL BANK
By /s/ Dara A. Brown
-----------------------------------------------
Its Assistant Vice President
-----------------------------------------
Address: Seattle-first National Bank
701 Fifth Ave., Floor 16
Seattle, WA 98124
Attn: Seafirst Agency Services
Telephone: (206) 358-0101
Telefax: (206) 358-0971
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REVOLVING PROMISSORY NOTE
$15,000,000 Date: August 19, 1994
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Delaware corporation ("Borrower"), hereby promises to pay to the order of KEY
BANK OF WASHINGTON ("Lender"), the unpaid principal balance of all Revolving
Loans evidenced by this Note in a maximum amount not to exceed Fifteen Million
Dollars ($15,000,000), together with interest thereon from the date advanced
until due as hereinafter provided. This Note is one of the Revolving Notes
issued by the Borrower pursuant to that certain Loan Agreement of even date
herewith (as the same may be amended, renewed, modified or supplemented from
time to time, the "Loan Agreement") by and among Lender, Seattle-First National
Bank, and West One Bank, Washington, as Lenders, Seattle-First National Bank, as
Agent for the Lenders, and Borrower. Capitalized terms not otherwise defined in
this Note shall have the meanings set forth in the Loan Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to the Borrower from
Lender and, subject to the terms and conditions of the Loan Agreement, Borrower
may borrow, repay and reborrow up to the maximum principal amount of Fifteen
Million Dollars ($15,000,000), at any time on or before the Revolving Loan
Maturity Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all Revolving
Loans evidenced by this Note from the date hereof until due at a per annum rate
equal to the Applicable Interest Rate, and if default shall occur in the payment
when due of principal of any such Loan, from maturity until it is paid in full
at a per annum rate equal to three percent (3%) above the Prime Rate (changing
as the Prime Rate changes). Notwithstanding anything herein to the contrary, in
no event shall interest accrue at a rate which exceeds the maximum rate
permitted by applicable law. Accrued but unpaid interest shall be payable on
dates set forth in Section 2.5(a) of the Loan Agreement.
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
1
<PAGE>
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. This Note has been executed and delivered in and shall be governed by
and construed in accordance with the laws of the State of Washington, U.S.A.
The Borrower hereby irrevocably submits to the jurisdiction of any state or
federal court sitting in Seattle, King County, Washington, U.S.A., in any action
or proceeding brought to enforce or otherwise arising out of or relating to this
Note and hereby waives any objection to venue in any such court and any claim
that such forum is an inconvenient forum.
10. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
11. This Note is issued in connection with and is subject to the terms of
the Loan Agreement. This Note is secured by the Deeds of Trust.
SHURGARD STORAGE CENTERS, INC.
By
-------------------------------------
Its
2
<PAGE>
REVOLVING PROMISSORY NOTE
$25,000,000 Date: August 19, 1994
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Delaware corporation ("Borrower"), hereby promises to pay to the order of
SEATTLE-FIRST NATIONAL BANK ("Lender"), the unpaid principal balance of all
Revolving Loans evidenced by this Note in a maximum amount not to exceed Twenty
Five Million Dollars ($25,000,000), together with interest thereon from the date
advanced until due as hereinafter provided. This Note is one of the Revolving
Notes issued by the Borrower pursuant to that certain Loan Agreement of even
date herewith (as the same may be amended, renewed, modified or supplemented
from time to time, the "Loan Agreement"), by and among Lender, Key Bank of
Washington, and West One Bank, Washington, as Lenders, Seattle-First National
Bank, as Agent for the Lenders, and Borrower. Capitalized terms not otherwise
defined in this Note shall have the meanings set forth in the Loan Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from Lender
and, subject to the terms and conditions of the Loan Agreement, Borrower may
borrow, repay and reborrow up to the maximum principal amount of Twenty Five
Million Dollars ($25,000,000), at any time on or before the Revolving Loan
Maturity Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all Revolving
Loans evidenced by this Note from the date hereof until due at a per annum rate
equal to the Applicable Interest Rate, and if default shall occur in the payment
when due of principal of any such Loan, from maturity until it is paid in full
at a per annum rate equal to three percent (3%) above the Prime Rate (changing
as the Prime Rate changes). Notwithstanding anything herein to the contrary, in
no event shall interest accrue at a rate which exceeds the maximum rate
permitted by applicable law. Accrued but unpaid interest shall be payable on
dates set forth in Section 2.5(a) of the Loan Agreement.
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
1
<PAGE>
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. This Note has been executed and delivered in and shall be governed by
and construed in accordance with the laws of the State of Washington, U.S.A.
The Borrower hereby irrevocably submits to the jurisdiction of any state or
federal court sitting in Seattle, King County, Washington, U.S.A., in any action
or proceeding brought to enforce or otherwise arising out of or relating to this
Note and hereby waives any objection to venue in any such court and any claim
that such forum is an inconvenient forum.
10. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
11. This Note is issued in connection with and is subject to the terms of
the Loan Agreement. This Note is secured by the Deeds of Trust.
SHURGARD STORAGE CENTERS, INC.
By
-------------------------------------
Its
2
<PAGE>
REVOLVING PROMISSORY NOTE
$10,000,000 Date: August 19, 1994
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Delaware corporation ("Borrower"), hereby promises to pay to the order of WEST
ONE BANK, WASHINGTON ("Lender"), the unpaid principal balance of all Revolving
Loans evidenced by this Note in a maximum amount not to exceed Ten Million
Dollars ($10,000,000), together with interest thereon from the date advanced
until due as hereinafter provided. This Note is one of the Revolving Notes
issued by the Borrower pursuant to that certain Loan Agreement of even date
herewith (as the same may be amended, renewed, modified or supplemented from
time to time, the "Loan Agreement"), by and among Lender, Seattle-First National
Bank, and Key Bank of Washington, as Lenders, Seattle-First National Bank, as
Agent for the Lenders, and Borrower. Capitalized terms not otherwise defined in
this Note shall have the meanings set forth in the Loan Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from Lender
and, subject to the terms and conditions of the Loan Agreement, Borrower may
borrow, repay and reborrow up to the maximum principal amount of Ten Million
Dollars ($10,000,000), at any time on or before the Revolving Loan Maturity
Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all Revolving
Loans evidenced by this Note from the date hereof until due at a per annum rate
equal to the Applicable Interest Rate, and if default shall occur in the payment
when due of principal of any such Loan, from maturity until it is paid in full
at a per annum rate equal to three percent (3%) above the Prime Rate (changing
as the Prime Rate changes). Notwithstanding anything herein to the contrary, in
no event shall interest accrue at a rate which exceeds the maximum rate
permitted by applicable law. Accrued but unpaid interest shall be payable on
dates set forth in Section 2.5(a) of the Loan Agreement.
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
1
<PAGE>
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. This Note has been executed and delivered in and shall be governed by
and construed in accordance with the laws of the State of Washington, U.S.A.
The Borrower hereby irrevocably submits to the jurisdiction of any state or
federal court sitting in Seattle, King County, Washington, U.S.A., in any action
or proceeding brought to enforce or otherwise arising out of or relating to this
Note and hereby waives any objection to venue in any such court and any claim
that such forum is an inconvenient forum.
10. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
11. This Note is issued in connection with and is subject to the terms of
the Loan Agreement. This Note is secured by the Deeds of Trust.
SHURGARD STORAGE CENTERS, INC.
By
-------------------------------------
Its
2
<PAGE>
(EXECUTION COPY)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
LOAN AGREEMENT
DATED AS OF JUNE 8, 1994
BETWEEN
NOMURA ASSET CAPITAL CORPORATION,
AS LENDER,
AND
SSC PROPERTY HOLDINGS, INC.,
AS BORROWER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.2 Accounting Terms and Definitions. . . . . . . . . . . . 15
ARTICLE II THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.1 The Closing . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III INTEREST RATE PROVISIONS . . . . . . . . . . . . . . . . . . . 17
SECTION 3.1 Monthly Interest Payment. . . . . . . . . . . . . . . . 17
SECTION 3.2 Default Interest. . . . . . . . . . . . . . . . . . . . 17
SECTION 3.3 Administrative Expenses . . . . . . . . . . . . . . . . 17
SECTION 3.4 Maximum Rate of Interest. . . . . . . . . . . . . . . . 17
ARTICLE IV PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.1 Payments Required by Collection Account Agreement . . . 18
SECTION 4.2 Payment Due on Maturity Date. . . . . . . . . . . . . . 18
SECTION 4.3 Prepayment; Release . . . . . . . . . . . . . . . . . . 19
ARTICLE V MISCELLANEOUS LENDING PROVISIONS . . . . . . . . . . . . . . . . 21
SECTION 5.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.2 Manner of Payment . . . . . . . . . . . . . . . . . . . 21
SECTION 5.3 Nature of the Obligations . . . . . . . . . . . . . . . 22
SECTION 5.4 Servicer to Act on Behalf of Lender . . . . . . . . . . 22
ARTICLE VI COLLATERAL DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.1 Collateral Documents. . . . . . . . . . . . . . . . . . 23
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<PAGE>
SECTION 6.2 Further Documents . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII CONDITIONS PRECEDENT TO THE CLOSING. . . . . . . . . . . . . . 23
SECTION 7.1 Conditions to the Lender's Obligations as to
the Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF THE BORROWER. . . . . . . . 28
SECTION 8.1 Due Authorization . . . . . . . . . . . . . . . . . . . 28
SECTION 8.2 Financial Condition . . . . . . . . . . . . . . . . . . 29
SECTION 8.3 Litigation. . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.4 No Defaults . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.5 Ownership and Sufficiency of Property and
Services; Liens. . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.6 Utilities and Access. . . . . . . . . . . . . . . . . . 31
SECTION 8.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 8.8 Federal Regulations . . . . . . . . . . . . . . . . . . 32
SECTION 8.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 8.10 Investment Company Act; Other Regulations . . . . . . . 32
SECTION 8.11 No Subsidiaries . . . . . . . . . . . . . . . . . . . . 32
SECTION 8.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 32
SECTION 8.13 Environmental Matters . . . . . . . . . . . . . . . . . 32
SECTION 8.14 Accuracy and Completeness of Information. . . . . . . . 34
SECTION 8.15 Security Interests. . . . . . . . . . . . . . . . . . . 35
SECTION 8.16 Authorization and Execution . . . . . . . . . . . . . . 35
SECTION 8.17 Governmental and Regulatory Authorization . . . . . . . 36
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SECTION 8.18 Contravention . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.19 Representations in Other Loan Documents . . . . . . . . 36
SECTION 8.20 Solvency. . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.21 Delinquent Property Liens . . . . . . . . . . . . . . . 37
SECTION 8.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.23 Improvements. . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.24 Casualty; Condemnation. . . . . . . . . . . . . . . . . 38
SECTION 8.25 Zoning and Other Laws . . . . . . . . . . . . . . . . . 38
SECTION 8.26 Permits . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.27 Certificates of Occupancy . . . . . . . . . . . . . . . 38
SECTION 8.28 Assessments . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.29 Rights of Others to Purchase Property . . . . . . . . . 39
SECTION 8.30 Corporate Activities. . . . . . . . . . . . . . . . . . 39
ARTICLE IX AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9.1 Financial Statements; Other Information . . . . . . . . 39
SECTION 9.2 Maintenance of Existence and Property . . . . . . . . . 41
SECTION 9.3 Inspection of Property; Books and Records; Discussions. 41
SECTION 9.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.5 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.6 Loan Documents. . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.8 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . 45
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SECTION 9.9 Compliance with Laws. . . . . . . . . . . . . . . . . . 45
SECTION 9.10 Cooperation . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.11 Property Management Agreement . . . . . . . . . . . . . 46
SECTION 9.12 Liens . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.14 Other Agreements. . . . . . . . . . . . . . . . . . . . 47
SECTION 9.15 Special Assessments . . . . . . . . . . . . . . . . . . 47
SECTION 9.16 Insurance and Condemnation Proceeds . . . . . . . . . . 47
SECTION 9.17 Prior Knowledge . . . . . . . . . . . . . . . . . . . . 50
ARTICLE X NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.1 Negative Covenants. . . . . . . . . . . . . . . . . . . 50
ARTICLE XI EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.1 Events of Default . . . . . . . . . . . . . . . . . . . 52
ARTICLE XII [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 13.1 No Assignment . . . . . . . . . . . . . . . . . . . . . 55
SECTION 13.2 Cumulative Rights: No Waiver. . . . . . . . . . . . . . 55
SECTION 13.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . 56
SECTION 13.4 Survival; Discharge . . . . . . . . . . . . . . . . . . 56
SECTION 13.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 13.6 Governing Law . . . . . . . . . . . . . . . . . . . . . 57
SECTION 13.7 Indemnification . . . . . . . . . . . . . . . . . . . . 58
SECTION 13.8 Expenses; Documentary Taxes . . . . . . . . . . . . . . 59
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SECTION 13.9 Severability. . . . . . . . . . . . . . . . . . . . . . 59
SECTION 13.10 Counterparts; Effectiveness . . . . . . . . . . . . . . 59
SECTION 13.11 Conflicts . . . . . . . . . . . . . . . . . . . . . . . 59
EXHIBITS
Exhibit A - Description of Properties; Mortgage Amount; Release Amount
Exhibit B - Environmental Reports
Exhibit C - Form of Advance Note
Exhibit D - Form of Note
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<PAGE>
THIS AMENDED AND RESTATED LOAN AGREEMENT is made and dated as of the 8th
day of June, 1994, between NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation (the "Lender"), and SSC PROPERTY HOLDINGS, INC., a Delaware
corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower and Cargill Financial Services Corporation ("CFSC")
entered into that certain Loan Agreement dated March 1, 1994 (the "Prior Loan
Agreement") pursuant to which CFSC made a loan to the Borrower in the principal
amount of $104,600,000 (the "Original Loan").
WHEREAS, concurrently herewith, CFSC sold and assigned to the Lender all of
its right, title and interest in and to the Prior Loan Agreement, the related
Promissory Note and the other Loan Documents (as defined in the Prior Loan
Agreement).
WHEREAS, the Borrower has requested that the Lender increase the amount of
the Original Loan to the Borrower by the principal amount of $17,980,000, such
that the aggregate principal amount of the loan hereunder shall be $122,580,000
(the Original Loan, as amended and modified hereby, the "Loan").
WHEREAS, the obligation of the Borrower to repay the Loan is and will be
secured by, among other items, liens upon certain fee interests in certain real
property owned by the Borrower and a collateral assignment of certain leases,
rents and related collateral. The real property which is collateral for the
Loan (including the fee and/or leasehold interests of Borrower therein and all
improvements and personal property located thereon), together with all leases,
rents and proceeds therefrom, are referred to herein as the "Properties" and
collectively as the "Property," and is further described in the Mortgages.
WHEREAS, concurrently herewith, the Lender, the Borrower, the Account Agent
(as such term is hereinafter defined), the Account Bank (as such term is
hereinafter defined) and Shurgard Incorporated, a Washington corporation (the
"Property Manager"), as property manager, are entering into an Amended and
Restated Collection Account and Servicing Agreement, dated as of the date hereof
(the "Collection Account Agreement"), pursuant to which, among other things, the
Borrower has agreed to initially deposit into a restricted access deposit
account (the "Deferred Maintenance and Reserve Account") the amount of $389,900
to provide for funding of, among other things, the costs of certain deferred
maintenance with respect to the Property.
<PAGE>
WHEREAS, the Lender and the Borrower contemplate that concurrently herewith
Shurgard Pass-Through Certificates Trust (the "Issuer") will be established, the
Lender will deposit with and assign to the Issuer the Loan, and the Issuer will
issue certain Commercial Mortgage Modified Pass-Through Certificates (the
"Certificates") pursuant to a Trust and Servicing Agreement (the "Trust
Agreement") to be dated as of the date hereof among LaSalle National Bank (the
"Trustee"), the Servicer and the Lender.
WHEREAS, pursuant to the Trust Agreement, the Servicer will establish and
maintain on behalf of the Trustee the Mortgage Payment Account (the "Mortgage
Payment Account") and will, except as otherwise provided herein, deposit into
the Mortgage Payment Account, as and when received, all payments of principal
and interest on the Loan.
WHEREAS, the Borrower has entered into a Management Services Agreement and
an Advisory Agreement (the "Property Management Agreement" and the "Advisory
Agreement", respectively), with Shurgard, pursuant to which the Property Manager
is providing property management services for the Property and may, under
certain conditions set forth herein, be removed at the direction of the Lender.
WHEREAS, concurrently herewith, Shurgard Storage Centers, Inc. ("SSCI") has
entered into an Amended and Restated Guaranty and Indemnification Agreement (the
"Guaranty and Indemnification Agreement") in favor of the Lender and the other
indemnified parties named therein, whereby, among other things, SSCI will
guaranty certain of the Borrower's obligations hereunder.
WHEREAS, as additional security for the repayment of interest on and
principal of (and all other amounts due under) the Loan, the Borrower has,
pursuant to an Amended and Restated Security Agreement dated as of the date
hereof, assigned to the Lender certain additional Collateral, including all of
the Borrower's rights and privileges under the Property Management Agreement and
the Advisory Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree that the Prior Loan Agreement shall be
and is hereby amended and restated in its entirety as follows:
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<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS
For purposes of this Agreement, the terms set forth below shall have the
following meanings:
"ACCOUNT AGENT" shall mean Pacific Mutual Life Insurance Company, as
Account Agent under the Collection Account Agreement.
"ACCOUNT BANK" shall mean LaSalle National Bank, as Account Bank under the
Collection Account Agreement.
"ADMINISTRATIVE EXPENSES" shall mean, without duplication, the sum of
(a) if a Default or an Event of Default occurs, all out-of-pocket expenses
incurred by the Trustee, Account Agent and Servicer, including fees and
disbursements of counsel, in connection with such Default or Event of Default
and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom (including, without limitation, all such out-of-pocket
expenses incurred by the Servicer pursuant to Section 6.11 or 6.14 of the Trust
Agreement), (b) to the extent not paid at the Closing, and subject to caps or
limitations set forth in the Commitment Letter or otherwise in writing, all
reasonable, costs and expenses of the Trustee, Account Agent and Servicer, in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the other Loan Documents and the Trust Agreement, (c) indemnities
payable to the Trustee, Account Agent, Servicer and Account Bank (and other
indemnified Persons) under Section 13.7 of this Agreement, and (d) indemnities
payable to the Trustee, Account Agent, Servicer and Account Bank (and other
indemnified Persons) under Section 4 of the Representations Agreement. It is
understood and agreed that ongoing fees for the services of the Servicer and
Trustee shall be paid to the Servicer pursuant to Section 4.6 of the Trust
Agreement.
"ADVISORY AGREEMENT" shall have the meaning given such term in the Recitals
hereto and shall include any amendments and replacements thereof and supplements
thereto.
"AFFILIATE" shall mean, as to any Person, (i) any other Person controlling,
controlled by or under direct or indirect common control with, such Person, and
(ii) any limited partner of such Person if such Person is a limited partnership,
or any shareholder of such Person if such Person is a corporation. For purposes
of this Agreement, "control", when used with respect to any specified Person,
means the
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<PAGE>
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"AGREEMENT" shall mean this Agreement, as the same may be amended, replaced
or supplemented from time to time.
"APPLICABLE INTEREST RATE" shall mean, for any Monthly Interest Payment
Period (or portion thereof), an interest rate per annum equal to 8.28%.
"BEST KNOWLEDGE" (or equivalent phrase) shall mean the knowledge of a
Responsible Officer of the Borrower or such other Person as the context may
require.
"BORROWER" shall have the meaning given such term in the introductory
paragraph of this Agreement and shall include any permitted successor in
interest.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day
on which banks in (i) New York, New York, (ii) the city where the corporate
trust office of the Trustee is located or (iii) the city where the principal
corporate office of the Servicer is located are authorized or obligated to close
their regular banking business.
"CAPITAL EXPENDITURES" shall mean, for any Person, expenditures which, in
accordance with GAAP, are or would be included in "additions to property, plant
or equipment" (or specifically in the case of Borrower, "storage centers") or
similar items reflected in the statement of cash flows of such Person.
"CERTIFICATES" shall mean certain Commercial Mortgage Modified Pass-Through
Trust Certificates to be issued by the Issuer pursuant to the Trust Agreement,
together with any Certificates issued in replacement or exchange therefor.
"CERTIFICATEHOLDER" shall mean the holders from time to time of the
Certificates.
"CFSC" shall mean Cargill Financial Services Corporation.
"CLOSING" shall have the meaning given such term in Section 2.1(b).
"CLOSING DATE" shall mean the date on which the increase in the principal
amount of the Original Loan is funded, which is June 8, 1994.
"COLLATERAL" shall mean (i) the Properties subject to the Mortgage,
(ii) the Pledged Collateral from time to time pledged pursuant to the Security
Agreement (including, without limitation, Borrower's rights under the Property
Management
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Agreement and the Advisory Agreement), (iii) the Collection Account, the
Deferred Maintenance and Reserve Account, the Lock-Box Account, the Tax and
Insurance Reserve Account, all proceeds and products thereof and all related
property pledged pursuant to the Collection Account Agreement, and (iv) any
additional Government Obligations or other collateral which may be pledged as
additional Collateral pursuant to Article IV or Article IX hereof.
"COLLATERAL DOCUMENTS" shall mean the Mortgage and any related collateral
assignment of leases and/or subleases and rents, the Security Agreement, and
such additional financing statements, documents, instruments and agreements as
the Lender may reasonably request to obtain for the Lender first priority,
perfected liens on and security interests in the Collateral.
"COLLECTION ACCOUNT" shall have the meaning given such term in the
Collection Account Agreement.
"COLLECTION ACCOUNT AGREEMENT" shall have the meaning given such term in
the Recitals hereto, together with all amendments and replacements thereof and
supplements thereto.
"COMMITMENT LETTER" shall mean that certain Commitment Letter and related
Summary of Terms dated April 11, 1994 between Nomura Asset Capital Corporation
and the Borrower.
"CONTINGENT OBLIGATIONS" means, as to any Person, any direct or indirect
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, capital lease or operating lease, dividend or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent, (a) to purchase any such
primary obligation or the Property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation or
(d) otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof. Contingent Obligations shall include, without
limitation, (a) any direct or indirect liability, contingent or otherwise, of
that Person (i) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation of another if the primary purpose or intent thereof
by the Person incurring the Contingent Obligation is to provide assurance to the
obligee of such obligation of another that
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such obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof or
(ii) under any letter of credit, performance bond, surety bond or similar
obligation issued for the account of that Person or for which that Person is
otherwise liable for reimbursement thereof, (b) the direct or indirect
guarantee, endorsement (otherwise than for collection or deposit in the ordinary
course of business), comaking, discounting with recourse or sale with recourse
by such Person of the obligation of another and (c) any liability of such Person
for the obligations of another through any agreement (contingent or otherwise)
(i) to purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), (ii) to maintain the solvency or any balance sheet item, level of
income or financial condition of another, or (iii) to make take-or-pay or
similar payments if required regardless of non-performance by any other party or
parties to an agreement."
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"DEFAULT" shall mean an event or condition which, but for the lapse of time
or the giving of notice, or both, would, unless cured or waived, constitute an
Event of Default.
"DEFAULT RATE" shall have the meaning given such term in Section 3.2.
"DEFEASANCE ACCOUNT" shall have the meaning given such term in Section 4.3.
"DEFERRED MAINTENANCE AND RESERVE ACCOUNT" shall mean the account described
in Recitals to this Agreement.
"ENVIRONMENTAL INDEMNITY AGREEMENT" shall mean the Amended and Restated
Environmental Indemnity Agreement dated the date hereof executed by the Borrower
in favor of the Lender and the other indemnified parties named therein, together
with all amendments and replacements thereof and supplements thereto.
"ENVIRONMENTAL LAW" shall have the meaning given such term in Section 8.13.
"ENVIRONMENTAL REPORTS" shall mean the environmental assessment reports and
supplemental correspondence relating to the Property, listed on Exhibit B
hereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended form time to time and any successor statute.
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"EVENT OF DEFAULT" shall have the meaning given such term in Section 11.1.
"FIRST SUBJECT DATE" shall mean the first Business Day of the 72nd month
following the Closing Date (I.E., June, 2000).
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect at the Closing Date.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state or other political
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"GOVERNMENT OBLIGATIONS" shall mean obligations issued by, or fully and
unconditionally guaranteed by, the United States of America, and which do not
permit the redemption or prepayment thereof prior to their stated maturity at
the option of the issuer.
"GROSS REVENUES" shall mean all payments and other revenues (exclusive of
any payments attributable to sales taxes) received by the Property Manager or
the Borrower from all sources related to the operation (including, without
limitation, rental) of the Properties, including but not limited to, storage
rentals, truck rentals, late fees, security deposits (if any, unless required to
be segregated), receipts from sales of goods, billboard rentals and other
advertising revenue, and tenant reimbursements of expenses.
"GUARANTY AND INDEMNIFICATION AGREEMENT" shall have the meaning given such
term in the Recitals hereto.
"HAZARDOUS MATERIAL" shall have the meaning given such term in
Section 8.13.
"INDEBTEDNESS" of any Person shall mean all items of indebtedness which, in
accordance with GAAP, would be included in determining liabilities and
obligations as shown on the liability side of a statement of financial condition
of such Person as of the date as of which indebtedness is to be determined,
including, without limitation, all obligations for money borrowed and
obligations which are or should be capitalized in accordance with GAAP, and
shall also include all Contingent Obligations and any obligation under any
letter of credit, performance bond, surety bond or similar obligation issued for
the account of such Person or under any interest rate swap, interest rate cap or
similar agreement.
"INSURANCE AND CONDEMNATION PROCEEDS" shall have the meaning given such
term in Section 9.16.
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"LENDER" shall have the meaning given such term in the introductory
paragraph of this Agreement, and shall include the Lender's permitted successors
and assigns.
"LIBOR" shall mean the 30-day London Interbank Offered Rate for United
States dollar deposits as of 11:00 a.m. (London time) on the date on which LIBOR
is to be determined as quoted on Telerate page 3750; provided however that if
Telerate page 3750 is no longer available, then the rate for deposits in United
States Dollars as appears on the Reuters Screen of 11:00 a.m., London time; and
provided further that if neither Telerate page 3750 nor the Reuters Screen is
available, then on such replacement system as is then customarily used to quote
LIBOR. If at least two such rates appear on Telerate page 3750 or associated
pages, the LIBOR rate will be the arithmetic mean of such offered rates.
"LIEN" shall mean any lien, mortgage, pledge, security interest or other
encumbrance of any nature upon the Property, including any mechanic's lien,
materialmen's lien, conditional sale or other title retention agreement or lease
in the nature thereof.
"LOAN" shall have the meaning given such term in the Recitals hereto.
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the Collateral
Documents, the Collection Account Agreement, the Guaranty and Indemnification
Agreement, the Environmental Indemnity Agreement, the Representations Agreement,
the Subordination Agreement, the Property Management Agreement, the Advisory
Agreement, any side letter agreements or certificates delivered by the Borrower
in connection with the closing of the Loan, and any other document, instrument
or agreement executed by Borrower and evidencing, securing or relating to the
Loan, as any of the same may be amended, extended or replaced from time to time.
Reference to any specific Loan Document in this Agreement or in any other Loan
Document shall be deemed to include any amendment and replacement thereof and
supplement thereto.
"LOAN PURCHASE AGREEMENT" shall mean the Loan Purchase Agreement of even
date herewith between CFSC, as seller, and the Lender, as purchaser.
"LOCK-BOX ACCOUNT" shall have the meaning given such term in the Collection
Account Agreement.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on or
material adverse change in (a) (i) the business, operations, property, financial
condition, liabilities (absolute, accrued, contingent or otherwise) or assets of
the Borrower, and (ii) the ability of the Borrower to perform its obligations
under any of this Agreement,
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the Note or the other Loan Documents, or (b) the rights or remedies of the
Lender or the holder of the Note under this Agreement, the Note or any of the
other Loan Documents upon the occurrence of an Event of Default.
"MATURITY DATE" shall mean the first Business Day of the 84th month
following the Closing Date (i.e., June 2001).
"MONTHLY INTEREST PAYMENT" shall mean, for any Monthly Interest Payment
Period, the interest payable on the Loan during such Monthly Interest Payment
Period in accordance with Section 3.1.
"MONTHLY INTEREST PAYMENT DATE" shall mean the first (1st) day of each
calendar month following the Closing Date so long as the Loan remains unpaid,
commencing the first day of July, 1994, provided that if any such day is not a
Business Day then the Monthly Interest Payment Date shall be the next succeeding
Business Day.
"MONTHLY INTEREST PAYMENT PERIOD" shall mean the period from (and
including) the first day of each calendar month to (and including) the last day
of each calendar month except that the Initial Monthly Interest Payment Period
shall be the period from (and including) the Closing Date to (and including)
June 30, 1994.
"MORTGAGE" shall mean all those certain Mortgages, Deeds of Trust,
Assignments of Leases and Rents, Security Agreements and Fixtures Financing
Statements, dated March 1, 1994 and which were previously delivered to CFSC and
will be assigned to the Lender and amended and restated by the Borrower and the
Lender, all of which relate to the Properties and are for the benefit of the
Lender or its designee, as mortgagee or grantee, assignee and secured party, as
the same may at any time be further amended, modified or supplemented in
accordance with the terms thereof and hereof.
"MORTGAGE AMOUNT" shall mean, in the case of any Property, the portion of
the principal amount of the Loan which is deemed allocated to such Property,
which is set forth in Exhibit A hereto.
"MORTGAGE PAYMENT ACCOUNT" shall have the meaning given such term in the
Recitals hereto.
"MORTGAGED PROPERTY" shall have the meaning given such term in the Mortgage
relating to the Property.
"NET OPERATING INCOME" shall mean, for any period, with respect to any
Property or Properties, the Gross Revenues from operations of such Property or
Properties for such period less (i) usual and customary operating expenses of
such
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Property or Properties (but not including property management fees), (ii) real
estate taxes with respect to such Property or Properties, and (iii) property
management fees equal to 6% of such Gross Revenues, calculated in accordance
with GAAP on an accrual basis.
"NOTE" shall have the meaning given such term in Section 2.1 and shall
include any amendments and replacements thereof and supplements thereto.
"NSI" shall mean Nomura Securities International, Inc.
"PERMITTED LIENS" means:
(a) Liens for Taxes not yet due and payable or which are being
contested in good faith by appropriate proceedings diligently prosecuted and as
to which enforcement proceedings have not been instituted or, if instituted,
have been stayed, provided that adequate reserves with respect to contested
taxes are maintained on the books of the Borrower in conformity with GAAP;
(b) landlords', carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
relate to obligations that are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings diligently
prosecuted and as to which enforcement proceedings by creditors have not been
instituted or, if instituted, have been stayed;
(c) pledges or deposits in connection with workers compensation,
unemployment insurance and other social security or employee benefit
legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business and Liens securing reimbursement obligations
with respect to letters of credit posted for the purposes described in
clause (c) or this clause (d);
(e) easements, rights-of-way, charges, covenants, restrictions and
matters of public record, survey defects and encroachments, and other similar
encumbrances which, in the aggregate, do not have a Material Adverse Effect on
the current use of the asset which is the subject of such Lien and which were
disclosed in the preliminary title commitments for the Properties whether or not
insured over;
(f) any attachment or judgment Lien, if the judgment it secures
shall, within 90 days after the entry thereof, have been discharged or execution
thereof
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stayed pending appeal, or shall have been discharged within 90 days after the
expiration of any such stay;
(g) unperfected purchase money Liens on inventory incurred in the
ordinary course of business for a period not to exceed 60 days from the date of
such purchase;
(h) Liens securing reimbursement obligations with respect to trade
letters of credit which encumber documents and other property relating to such
trade letters of credit and the products and proceeds thereof; provided that no
such Lien shall cover the Property other than property that is acquired with the
proceeds of such trade letters of credit;
(i) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Borrower in the ordinary course of business in
accordance with past practices;
(j) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases of personal property that
are otherwise permitted under this Agreement and under which the Borrower is
lessee;
(k) any Leases (as such term is defined in the Mortgage) which have
not been, or by their terms are not automatically, subordinated to the Lien of
the Mortgage;
(l) Liens arising from filing UCC financing statements under which
tenants of the Properties are named as the debtors;
(m) Rights of parties under the unrecorded leases and rental
agreements; and
(n) Liens arising from the Collateral Documents.
"PERSON" shall mean any corporation, natural person, firm, joint venture,
limited partnership, partnership, trust, unincorporated organization, government
or any department or agency of any government.
"PLEDGED COLLATERAL" shall have the meaning given such term in the Security
Agreement.
"PRE-RELEASE DSCR" means, as of any date of calculation and with respect to
any release of Discharged Property or Properties pursuant to Section 4.3(d) or
(e) hereof, the ratio of (i) Net Operating Income of all Properties subject to
the Liens
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created hereunder and under the Loan Documents immediately prior to such release
of a particular Discharged Property or Properties for the twelve (12) calendar
months immediately preceding the date of submission of the applicable Release
Notice or Defeasance Notice under Section 4.3(d) or (e), as the case may be, to
(ii) interest which was due and payable on the entire principal amount of the
Loan for the same twelve-month period and without regard to any prepayment or
defeasance of the principal amount of such Loan being effected in conjunction
with such release, as certified to the Lender by a Responsible Officer of the
Borrower.
"POST-RELEASE DSCR" means, as of any date of calculation and with respect
to any release of or Discharged Property or Properties pursuant to
Section 4.3(d) or (e) hereof, the ratio of (i) Net Operating Income of all
Properties subject to the Lien created hereunder and under the Loan Documents
immediately prior to such release, but excluding the Property or Properties to
be so released, for the twelve (12) calendar months immediately preceding the
date of submission of the applicable Release Notice or Defeasance Notice under
Section 4.3(d) or (e), as the case may be, to (ii) interest which was due and
payable on the entire principal amount of the Loan other than that portion of
the principal amount of the Loan being prepaid or defeased pursuant to
Section 4.3(d) or (e), for the same twelve-month period, as certified to the
Lender by a Responsible Officer of the Borrower.
"PRIOR MONTHLY INTEREST PAYMENT DATE" shall mean, with respect to any
Monthly Interest Payment Period, the date on which such Monthly Interest Payment
Period commences.
"PROPERTY" or "PROPERTIES" shall have the meaning given such term in the
Recitals hereto and shall include, without limitation, the fee interests in all
improvements and all real and personal property owned by the Borrower, and
located thereon, and related rents, leases and proceeds.
"PROPERTY MANAGEMENT AGREEMENT" shall have the meaning given such term in
the Recitals hereto and shall include any amendments and replacements thereof
and supplements thereto.
"PROPERTY MANAGER" shall have the meaning given such term in the Recitals
hereto and shall include any permitted successors in interest.
"RATING AGENCY" shall mean Fitch Investors Service, Inc.
"REGISTRATION STATEMENT" shall have the meaning given such term in
Section 8.2(a) hereof.
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"RELEASE AMOUNT" shall mean, in the case of any Property, the principal
amount of the Loan which is required to be prepaid or defeased by the Borrower
to the Lender pursuant to Section 4.3(a) and (d) or Section 4.3(e) in order to
obtain the release of the Property from the Liens created hereunder and/or under
the Collateral Documents equal to the greater of (x) the amount set forth
opposite the name of such Property in Exhibit A hereto, or (y) that amount of
principal of the Loan which is necessary to assure that, following such partial
prepayment (and simultaneous release of a Discharged Property) pursuant to
Section 4.3(a) and (d) or such partial defeasance (and simultaneous release of a
Discharged Property) pursuant to Section 4.3(e), as the case may be, the Post-
Release DSCR is at least equal to the greater of (x) 2.47 or (y) the Pre-Release
DSCR.
"REPLACEMENT RESERVES" shall mean an amount per annum as reasonably
determined by the Servicer equal to the product of (i) $0.17 times (ii) the
number of rentable square feet of all storage facilities located on the
Properties which are subject to the Lien of the Mortgage as certified by the
Property Manager on May 1 of each calendar year commencing May 1, 1995;
provided, however, that the amount set forth in the preceding clause (i) shall
be adjusted as reasonably determined by the Servicer on June 1 of each calendar
year commencing June 1, 1995 to reflect changes in the United States consumer
price index (or other similar index from time to time published by the United
States Bureau of Labor Statistics) during the immediately preceding calendar
year.
"REPRESENTATIONS AGREEMENT" shall mean the Representations Agreement of
even date herewith by the Borrower in favor of NACC, NSI and the other parties
named therein.
"REQUIRED RATING" shall have the meaning given such term in the Trust
Agreement.
"REQUIREMENTS OF LAW" shall mean, as to any Person, the Certificate of
Incorporation and By-laws (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 of such Person; 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 any
private covenant, condition or restriction in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
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"RESPONSIBLE OFFICER" of any Person means the chief executive officer, the
president, the chief financial officer, the treasurer or any vice president of
such Person or, if such Person is a partnership, of the general partner of such
Person.
"SSCI" shall mean Shurgard Storage Centers, Inc., a Delaware corporation
and sole shareholder of the Borrower.
"SECURITY AGREEMENT" shall mean the Amended and Restated Security Agreement
dated as of the date hereof executed by the Borrower in favor of Lender creating
first priority liens on and security interests in certain Collateral, including
Borrower's rights under the Property Management Agreement and the Advisory
Agreement, together with all amendments and replacements thereof and supplements
thereto.
"SERVICER" shall mean Pacific Mutual Life Insurance Company, as Servicer
under the Trust Agreement, and shall include any permitteed successor(s) under
the Trust Agreement.
"SHURGARD" shall mean Shurgard Incorporated, a Washington corporation.
"SUBORDINATION AGREEMENT" shall have the meaning given such term in
Section 7.1(s) hereof.
"TAX" means all income, gross receipts, alternative or added on minimum,
gains, sales, use, employment, franchise, profits, excise, payroll, social
security (or similar), property (real or personal, including current
installments of real property assessments), value added, license, registration
or other taxes, fees, stamp taxes and duties assessments or charges of any kind
whatsoever (whether payable directly or by withholding), together with any
interest and penalties, additions to tax or additional amounts imposed by any
federal, state, local, foreign or other taxing authority with respect thereto.
"TAX AND INSURANCE RESERVE ACCOUNT" shall have the meaning given such term
in the Collection Account Agreement.
"TITLE COMPANY" means Transamerica Title Insurance Company and/or
Commonwealth Land Title Insurance Company or such other title insurance or
abstract company as shall be reasonably approved by the Lender.
"TITLE POLICIES" shall have the meaning given such term in
Section 7.1(m)(v) hereof.
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"TRUST AGREEMENT" shall mean that certain Trust and Servicing Agreement to
be dated as of the date hereof among the Lender (as the Depositor), the Trustee,
and the Servicer.
"TRUSTEE" shall mean LaSalle National Bank, as Trustee and shall include
any permitted successor trustee(s) under the Trust Agreement.
"YIELD MAINTENANCE PREMIUM" shall mean, with respect to any portion of the
principal of the Loan which is prepaid prior to the Maturity Date, an amount
(calculated as of the second Business Day preceding the date of such prepayment)
equal to the greater of (i) .30% per annum on the principal amount of the Loan
so prepaid for the period from the date of such prepayment to the Maturity Date,
or (ii) the present value (calculated as of the second Business Day preceding
the date of such prepayment) of the Calculated Payments (as defined below) made
monthly on each Monthly Interest Payment Date from the Monthly Interest Payment
Date immediately following the date of such prepayment through the Maturity Date
discounted at the Discount Rate (as defined below). For these purposes, the
term "Calculated Payments" means the product of (x) the principal amount of the
Loan being prepaid divided by 12, and (y) the positive difference between
(a) 8.42% per annum, and (b) the Treasury Rate as defined below.
For these purposes, the term "Discount Rate" means the Treasury Rate expressed
as a monthly rate; and the term "Treasury Rate" is the linear interpolation of
the bond equivalent yields as reported in Federal Reserve Statistical Release H.
15-Selected Interest Rates under the heading "U.S. Government Securities/
Treasury Constant Maturities" (for the week ending prior to the date of such
prepayment) of U.S. Treasury constant maturities with maturity dates (one longer
and one shorter) most nearly approximating the Maturity Date. If such Federal
Reserve Statistical Release is no longer available, the Treasury Rate shall be
determined in the same manner, but by reference to such other reasonably
comparable index as is commonly used for determining such rates.
"ZONING CERTIFICATES" shall mean, as to the Properties, the Uniform Land
Use Confirmation Forms issued by the relevant government subdivisions.
SECTION 1.2 ACCOUNTING TERMS AND DEFINITIONS
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP.
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ARTICLE II
THE CLOSING
SECTION 2.1 THE CLOSING
(a) On the terms and subject to the conditions set forth herein, the
Lender agrees that it shall, on the Closing Date, disburse the sum of
$17,980,000 (the "Advance") to the Borrower to be used by the Borrower for the
purposes described in Section 5.1. Simultaneously with the disbursement of the
Advance, the Borrower shall deliver to the Lender a Promissory Note payable to
Lender substantially in the form attached hereto as Exhibit C (the "Advance
Note"). Immediately thereafter, the Borrower shall deliver to the Lender an
Amended, Restated and Consolidated Promissory Note in the aggregate principal
amount equal to the principal amount of the Prior Promissory Note, plus the
principal amount of the Advance Note payable to the Lender substantially in the
form attached hereto as Exhibit D (the Note"), (which Note shall amend, restate,
consolidate and renew the Advance Note and the Prior Promissory Note), and the
Lender shall deliver to the Borrower the Promissory Note (the "Prior Promissory
Note") dated March 1, 1994, and the Advance Note, each marked "Amended, Restated
and Consolidated Pursuant to Amended, Restated and Consolidated Promissory Note
dated the Closing Date." The term "Note" shall include the Prior Promissory
Note and the Advance Note until such time as the Note is executed and delivered
to the Lender on the Closing Date.
(b) The making of the Advance and the issuance of the Advance Note and the
Note will take place at a closing (the "Closing") at the offices of Perkins Coie
in Seattle, Washington at 10:00 a.m. (Seattle time) on June 8, 1994 or such
other date and in such other place as the parties hereto may agree.
(c) Except as expressly set forth in this Agreement, the Mortgages, or the
other Loan Documents, the Liens arising from the Collateral Documents executed
and delivered in connection with the Original Loan shall continue in full force
and effect without interruption, change in priority, amendment or modification
to secure the Loan as amended and modified pursuant to this Agreement.
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ARTICLE III
INTEREST RATE PROVISIONS
SECTION 3.1 MONTHLY INTEREST PAYMENT
The Loan shall bear interest during any Monthly Interest Payment Period at
the Applicable Interest Rate for such period. Accrued interest shall be due and
payable in arrears by the Borrower to the Lender (or as otherwise provided in
the Collection Account Agreement) on each Monthly Interest Payment Date during
the term hereof in an amount equal to the Applicable Interest Rate for the
applicable Monthly Interest Payment Period multiplied by the weighted average
daily principal balance of the Loan during such Monthly Interest Payment Period.
For the initial Monthly Interest Payment Period, interest shall be computed in
like manner, as if such period consisted of a full month of thirty (30) days,
but then multiplied by a fraction, the numerator of which is the number of days
in such initial Monthly Interest Payment Period and the denominator of which is
thirty (30). All computations of interest payable hereunder shall be on the
basis of a 360-day year and actual days elapsed during the applicable Monthly
Interest Payment Period.
SECTION 3.2 DEFAULT INTEREST
Upon the occurrence and during the continuance of an Event of Default,
until the Loan is paid in full, the Borrower shall pay interest on the unpaid
principal amount of the Loan, together with all accrued and unpaid interest
thereon, on the dates referred to in Section 3.1 above on demand, at a rate per
annum equal at all times to 3% above the greater of (i) the Applicable Interest
Rate or (ii) LIBOR determined as of the date of the occurrence of the Event of
Default (the "Default Rate").
SECTION 3.3 ADMINISTRATIVE EXPENSES
Simultaneously with each payment of accrued interest pursuant to
Section 3.1 above, the Borrower shall pay all Administrative Expenses then due
and payable. The Lender shall give the Borrower not less than 10 days prior
written notice of the amount of Administrative Expenses to become due and
payable on each Monthly Interest Payment Date.
SECTION 3.4 MAXIMUM RATE OF INTEREST
The Borrower and the Lender agree that no payment of interest, charges in
the nature of interest, or other consideration made or agreed to be made by the
Borrower
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to the Lender pursuant to this Agreement, the Note, the Mortgage or any other
Loan Document shall, at any time, be deemed to have been computed at an interest
rate in excess of the lesser of (i) twenty-five percent (25%) per annum simple
interest, or (ii) the maximum rate of interest permissible by the law of the
State of Washington, if any. In the event such payments of interest or other
consideration provided for in this Agreement, the Note, the Mortgage or any
other Loan Document shall result in payment of an effective rate of interest
which, for any period of time, is in excess of the limit of the usury law or any
other law applicable to the Loan, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further
agreement or notice between or by any party or parties hereto, be applied to the
principal balance of the Loan immediately upon receipt of such monies by the
Lender with the same force and effect as though the Borrower had specifically
designated, and the Lender had agreed to accept, such extra payments as a
principal payment, without premium or penalty. If principal has been fully
paid, any such excess amount shall be refunded to the Borrower. This provision
shall control over every other obligation of the Borrower and Lender hereunder,
under the Mortgage, under the Note, and under every other Loan Document.
ARTICLE IV
PAYMENTS
SECTION 4.1 PAYMENTS REQUIRED BY COLLECTION ACCOUNT AGREEMENT
The Borrower shall make or cause to be made all payments required to be
made by it hereunder, and shall otherwise comply with all provisions in the
Collection Account Agreement strictly in accordance with the terms thereof. At
least one (1) Business Day prior to the due date therefor, the Borrower shall
deposit directly in the Collection Account an amount, if any, which, together
with the amounts, if any, to be applied from the Defeasance Account pursuant to
Section 4.3 of this Agreement and the balance then in the Collection Account,
shall be sufficient to make, among other payments to be made to or on behalf of
the Lender, payments for Administrative Expenses and accrued interest on the
Loan. All such deposits shall be credited as provided in the Collection Account
Agreement.
SECTION 4.2 PAYMENT DUE ON MATURITY DATE
On the Maturity Date, Borrower shall deposit, or cause to be deposited,
directly into the Mortgage Payment Account an amount, which, together with the
amounts, if any, applied from the Defeasance Account pursuant to Section 4.3 of
this Agreement and the balance then in the Collection Account and transferred
into the Mortgage Payment Account in accordance with the Collection Account
Agreement,
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shall equal the then outstanding principal balance of the Loan, if any, plus
interest accrued and unpaid thereon plus any other amounts then due and unpaid
by the Borrower under any Loan Document. Upon such payment in full of all
amounts described in the preceding sentence, the Lender shall execute or cause
to be executed such documents as may be necessary to release and assign to the
Borrower all of the Collateral for the Loan.
SECTION 4.3 PREPAYMENT; RELEASE
(a) On any Monthly Interest Payment Date from and after the First Subject
Date or on any of the ten (10) Business Days preceding the Maturity Date, the
Loan may be prepaid at the option of the Borrower, in whole or in part (but, if
in part, in a principal amount of at least $1,000,000 and in integral multiples
of $500,000 in excess thereof), in an amount equal to the principal amount of
the Loan being prepaid, together with (i) all accrued but unpaid interest
thereon to the Monthly Interest Payment Date on which such principal will be
paid to the Lender, (ii) if the date of prepayment is other than one of the ten
(10) Business Days preceding the Maturity Date, the Yield Maintenance Premium
with respect to any such prepayment, and (iii) any other amounts then due and
unpaid by the Borrower under any of the Loan Documents. The Loan may not be
prepaid prior to the First Subject Date.
(b) All optional prepayments made by the Borrower pursuant to this
Section 4.3 may be made only if the Lender shall have received written notice of
such prepayment from the Borrower at least 15 days prior to the Monthly Interest
Payment Date on which such prepayment is to occur (unless a shorter period is
acceptable to the Lender).
(c) Any prepayments of principal shall be made into the Mortgage Payment
Account.
(d) Subject to Section 4.3(a), (b) and (c), the Borrower shall be entitled
to a simultaneous release of the Lien created hereunder or under the Loan
Documents (the "Release") with respect to any particular Property (the
"Discharged Property") only if the amount of principal of the Loan so prepaid by
the Borrower (and disregarding for these purposes clauses (i), (ii) and (iii) of
Section 4.3(a) hereof) equals or exceeds the Release Amount applicable to such
Property. The Borrower shall exercise its rights under this Section 4.3(d) by
delivering to the Lender a notice (each, a "RELEASE NOTICE"), executed by a
Responsible Officer of the Borrower and prepared and submitted not earlier than
30 days, nor later than 15 days, prior to the proposed release date, which
Release Notice shall refer to this Section 4.3(d), describing with particularity
the Discharged Property proposed to be covered by the Release, and which Release
Notice shall be accompanied by (A) a counterpart of the Release fully
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executed and acknowledged by all parties thereto other than the Lender, and in
form for execution by the Lender, and (B) a calculation describing with
particularity the Release Amount (and including therein a calculation of Pre-
Release DSCR and Post-Release DSCR) and the Yield Maintenance Premium (including
a calculation made in accordance with clause (ii) of the definition of that
term) payable with respect to the prepayment of the portion of the Loan being
made simultaneously with such release. At the Borrower's request (made a
reasonable time in advance of the giving of the Release Notice) and expense, the
Lender shall furnish the form of Release with respect to the Discharged Property
and any related documentation reasonably necessary to document the Release.
Notwithstanding the foregoing, no release of the Lien created hereunder or under
the Loan Documents with respect to the Loan shall be made if at the time of the
payment of the Release Amount, there shall exist an Event of Default hereunder
or under any other Loan Document, unless by the making such prepayment, such
Event of Default would be cured.
(e) The Borrower shall have the right at any time to cause the release of
a Discharged Property by partially defeasing the Loan as more particularly
described below. The Borrower shall exercise its rights under this
Section 4.3(e) by delivering to the Lender a notice (each, a "Defeasance
Notice"), executed by a Responsible Officer of the Borrower and prepared and
submitted not earlier than 30 days nor later than 15 days, prior to the proposed
release date, which Defeasance Notice shall refer to this Section 4.3(e)
describing with particularity the Discharged Property proposed to be covered by
the Defeasance Notice, and which Defeasance Notice shall be accompanied by (A) a
counterpart of the Release fully executed and acknowledged by all parties
thereto other than the Lender, and in a form for execution by the Lender, (B) a
calculation describing with particularity the Release Amount (and including
therein a calculation of Pre-Release DSCR and Post-Release DSCR) and (C) the
Government Obligations to be deposited with the Lender under this
Section 4.3(e). Simultaneously with the receipt of the Government Obligations
satisfying the criteria below, the Discharged Property shall be released from
the Lien of the Collateral Documents in accordance with the procedures set forth
at Section 4(d) and any Insurance and Condemnation Proceeds held in any Proceeds
Escrow (as defined in Section 9.16) with respect to such Discharged Property
shall be released from such Proceeds Escrow and paid to the Borrower. No such
partial defeasance and release of a Discharged Property shall be permitted,
however, unless (i) the sum of (x) the aggregate interest payments to be
received with respect to such Government Obligations and (y) the scheduled
principal payments to be received on such Government Obligations is sufficient
to pay (a) on the Maturity Date a portion of the principal amount of the Loan
which is equal to the Release Amount applicable to the Discharged Property to be
released (the "Applicable Principal Portion"), and (b) on each Monthly Interest
Payment Date through and including the Maturity Date, the
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interest which will be due and payable on such Applicable Principal Portion,
(ii) the Lender shall have received an opinion of independent legal counsel
acceptable to the Lender to the effect that the proposed defeasance and release,
if consummated, will not be deemed to result in an exchange of the Note or any
portion thereof for other property differing materially either in kind or in
extent within the meaning of Section 1001 of the Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations thereunder, and (iii) the Lender
shall have received a report of a firm of independent certified public
accountants (which firm and report shall be reasonably satisfactory to the
Lender) concluding that such Government Obligations so deposited with the Lender
are sufficient to effect the required defeasance described in clause (i) above.
All such Government Obligations shall be deposited in an account (the
"Defeasance Account") established by the Borrower with a National Bank or State
Chartered Trust Company having authority to hold funds in trust and pledged as
additional Collateral to secure the amounts due under this Agreement and the
Note, and from and after the date of such deposit of such Government
Obligations, the Borrower shall receive a credit on the amounts payable on the
Loan hereunder equal to the interest and principal payments on such Government
Obligations actually received by the Trustee and deposited in the Mortgage
Payment Account in accordance with the Trust Agreement.
ARTICLE V
MISCELLANEOUS LENDING PROVISIONS
SECTION 5.1 USE OF PROCEEDS
The proceeds of the Loan shall be utilized by or on behalf of the Borrower
for any purpose permitted under the Borrower's organizational documents. The
proceeds of the Loan shall be disbursed in accordance with a letter of direction
delivered by the Borrower to the Lender.
SECTION 5.2 MANNER OF PAYMENT
All payments made hereunder or under the Collection Account Agreement shall
be made in accordance with the provisions hereof or thereof without setoff or
counterclaim against the Lender and its successors and assigns, in lawful money
of the United States of America, free and clear of and without deduction for any
taxes, fees or other charges of any nature whatsoever imposed by any taxing
authority. Notwithstanding anything to the contrary contained herein, if any
U.S. federal, state or local taxes are required by law to be withheld from any
payment made hereunder or in respect hereof, the Borrower may withhold from such
payment any such taxes without a requirement to make an additional payment in
respect thereof hereunder;
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PROVIDED, that if the payee provides satisfactory evidence of its exemption from
tax (E.G., by providing the Borrower with an IRS Form W-8, W-9, 1001 or 4224
where appropriate), the Borrower will not withhold any such amounts. Pursuant
to the intent of this Section 5.2 that payments made hereunder will not be
subject to reduction for U.S. withholding taxes, the Lender shall request each
Certificateholder to deliver to the Lender two accurate duly completed copies of
Forms 1001 and 4224 and W-8 or W-9, as appropriate to establish complete
exemption from U.S. withholding tax (including backup withholding tax).
SECTION 5.3 NATURE OF THE OBLIGATIONS
Anything contained herein to the contrary notwithstanding, no recourse
shall be had for the payment of the principal of or interest or premium, if any,
or other amounts due on the Note or for any claim based thereon or otherwise in
respect thereof against (i) the Borrower or (ii) any officer, director or
shareholder of the Borrower, or any of their respective assets, provided, that
the foregoing provisions of this paragraph shall not (A)revent recourse to the
Collateral or constitute a waiver, release or discharge of any indebtedness or
obligation evidenced by the Note or any other Loan Document or secured by any
Loan Document, and the same shall continue until paid or discharged; (B limit
the right of any person to name Borrower or any successor or assign of Borrower
as a party defendant in any action or suit for judicial foreclosure of or in the
exercise of any other remedy under the Note or under any other Loan Document, so
long as no monetary judgment or judgment seeking personal liability, the
expenditure of money or the performance of any act requiring the expenditure of
money shall be asked for against Borrower or any of its successors or assigns;
(C limit or impair, in any manner, any right, remedy or recourse the Lender may
have against the Borrower for (i) enforcement of the environmental indemnity set
forth in the Environmental Indemnity Agreement, (ii) enforcement of the
Representations Agreement, (iii) material misrepresentation or fraud by the
Borrower in connection with any Loan Document or in any certificate or other
instrument delivered hereunder or thereunder, or (iv) the misappropriation by
the Borrower of rents, profits, insurance or condemnation proceeds. Provided,
however, that the foregoing subparagraph (B) shall not limit the right to seek a
monetary judgment, including a deficiency judgment, or the expenditure of money
so long as the enforcement of such judgment and expenditure of such money is
limited to rights against the Collateral, and not the Borrower.
SECTION 5.4 SERVICER TO ACT ON BEHALF OF LENDER
The Borrower and the Lender acknowledge that the rights and obligations of
the Lender hereunder and any other Loan Document shall be exercised on behalf of
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the Lender by the Servicer, and the Borrower shall be entitled to deal with the
Servicer in connection with the transactions contemplated by this Agreement. The
Servicer shall have the right hereunder to make demands, to give notices, to
exercise or refrain from exercising any rights, and to take or refrain from
taking action (including, without limitation, the release or substitution of
Collateral), in accordance with this Agreement. The Servicer may resign and a
successor Servicer may be appointed in accordance with the terms of the Trust
Agreement. Upon the acceptance of any appointment of such a successor to the
Servicer, that successor Servicer shall thereupon succeed to and become vested
with all the rights, powers and privileges of the Servicer.
ARTICLE VI
COLLATERAL DOCUMENTS
SECTION 6.1 COLLATERAL DOCUMENTS
As collateral security for all amounts payable under the Loan Documents,
the Borrower shall execute and deliver to the Lender the Collateral Documents
necessary in order to establish for the Lender first priority, perfected liens
upon and security interests in the Collateral.
SECTION 6.2 FURTHER DOCUMENTS
The Borrower agrees to execute and deliver and cause to be executed and
delivered to Lender from time to time such confirmatory or supplementary
security agreements, financing statements, reaffirmations and consents and such
other documents, instruments or agreements as the Lender may reasonably request,
to obtain for the Lender the benefit of the Loan Documents and the Collateral.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING
SECTION 7.1 CONDITIONS TO THE LENDER'S OBLIGATIONS AS TO THE CLOSING
The obligation of the Lender to make the Advance at the Closing is subject
to the satisfaction of the following conditions contemporaneously with the
Closing:
(a) The Borrower shall have delivered or caused to be delivered to the
Lender, in form and substance satisfactory to the Lender and its counsel, a duly
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executed original of this Agreement, the Note and each of the other Loan
Documents, each of which shall be in full force and effect;
(b) The Lender shall have received appropriate organizational documents
for the Borrower, SSCI and the Property Manager in form and substance acceptable
to the Lender, authorizing the execution and delivery of all Loan Documents
required to be delivered by the Borrower and all related documents required to
be delivered by SSCI or the Property Manager, as the case may be, and including
copies of the organizational documents for the Borrower, SSCI and the Property
Manager, certified to be accurate and complete as amended to the Closing Date,
(c) The Lender shall have received good-standing certificates for the
Borrower, SSCI and the Property Manager, in each case certifying that such
entity is duly qualified to do business and is in good standing under the laws
of each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, except for those
jurisdictions where the failure to so qualify would not have a Material Adverse
Effect;
(d) The Lender shall have received a legal opinion or legal opinions of
counsel to the Borrower, SSCI and the Property Manager, in form and substance
reasonably acceptable to Lender and its counsel and covering such matters as the
Lender and its counsel may reasonably request;
(e) The Lender shall have received certificates evidencing insurance for
the Property in amount and scope and with loss payment provisions as required by
Section 9.7 hereof;
(f) The Lender shall have received the financial statements referred to in
Section 8.2 and such financial statements shall not have been modified,
supplemented, restated or reclassified since the respective dates thereof;
(g) The Lender shall have received, in form and substance satisfactory to
it solvency letters and solvency certificates (including fair saleable value
balance sheets), dated as of the Closing Date attesting to the solvency of the
Borrower on a stand-alone basis, the adequacy of its capital, in each such case,
and its ability to pay its debts, in each such case, as they become due,
including Contingent Obligations reasonably expected to come due, in each case
after giving effect to the transactions contemplated hereby, from a Responsible
Officer of the Borrower;
(h) The Lender shall have received evidence satisfactory to it in its
reasonable discretion that all governmental, shareholder, if any, and third
party consents and approvals, necessary in connection with the transactions
contemplated
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by the Loan Documents have been received without any action being taken or
threatened by any competent authority that could restrain, prevent or impose any
materially adverse conditions upon such transactions or that could seek or
threaten any of the foregoing, and no law or regulation shall be applicable
which in the judgment of the Lender could have any such effect;
(i) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in writing in any court or before any
arbitrator or governmental instrumentality that purports to affect any of the
transactions contemplated by the Loan Documents and that could have a Material
Adverse Effect on the Note or any of the transactions contemplated by the Loan
Documents;
(j) All expenses payable to the Lender, NSI and their Affiliates in
connection with the transactions contemplated hereby shall have been paid or
duly provided for in full;
(k) The representations and warranties of each of the Borrower, SSCI and
the Property Manager contained herein and in each of the other Loan Documents to
which each is a party, as the case may be, shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of such
time, and each of the Borrower, SSCI and the Property Manager shall have
performed and complied with all covenants and agreements required by this
Agreement and the other Loan Documents to which each is a party to be performed
or complied with at or prior to the Closing Date. The Lender shall have
received certificates from a Responsible Officer of each of the Borrower, SSCI
and the Property Manager, dated the Closing Date, to the effect that the
conditions specified in this clause (k) with respect to the Borrower, SSCI and
the Property Manager have been satisfied;
(l) The Borrower shall have taken or caused to be taken such actions as
may be necessary to issue the endorsements to previous Title Policies and issue
new Title Policies each insuring that the Lender has a valid and perfected first
priority security interest in the Collateral, subject to no Liens other than
Liens which would be permitted pursuant to any of the Collateral Documents. Such
actions shall include, without limitation, the delivery pursuant to the Mortgage
of UCC financing statements (which shall name the Lender as secured party, in
form and substance satisfactory to the Lender) filed to perfect a security
interest in all the Mortgaged Property in each office where filing is necessary
or appropriate and as otherwise contemplated by the opinions of counsel
described in Section 7.1(n); provided, however, that anything contained in this
clause (l) to the contrary notwithstanding, it shall not be deemed a failure of
the conditions set forth in this clause (l) if any filing or recording shall not
have been made provided that, as of the Closing Date, proper financing
statements
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(Form UCC-1 or equivalent statements on Forms UCC-2), in each case in proper
form for filing or recording, have been delivered to the Lender at the Closing;
(m) The Borrower shall have caused to be delivered to the Lender the
following documents and instruments relating to the Collateral Documents to
which the Borrower is a party:
(i) a duly executed counterpart of the Mortgage encumbering the
Property, duly executed by the Borrower and acknowledged by the owner or holder
of the fee or leasehold estate constituting the Property and otherwise in form
for recording in the recording office of each political subdivision where the
Property is situated, together with such certificates, affidavits,
questionnaires or returns as shall be required in connection with the recording
or filing thereof, including such UCC-1 financing statements described in
Section 7.1(m)(ii). The Borrower shall cause the Mortgage to be recorded in the
appropriate recording office as soon as practicable after the Closing;
(ii) proper financing statements (Forms UCC-1 or equivalent statements
on Forms UCC-2) executed and otherwise in form for filing under the UCC in all
jurisdictions as may be necessary or, in the reasonable opinion of the Lender,
desirable to perfect the Lien created, or purported or intended to be created,
by the Mortgage, the Security Agreement and the Collection Account Agreement;
(iii) evidence of the completion of all recordings and filings of each
Mortgage and delivery of such other security and other documents and all other
Loan Documents duly executed and in proper statutory form for recording as may
be necessary or, in the opinion of the Lender, desirable to perfect the Liens
created, or purported or intended to be created, by the Mortgage; provided,
however, that (a) with respect to the Property, the Mortgage need not be
recorded as of the Closing if the Title Company has issued or committed to issue
in respect of the Property the Title Policies and (b) with respect to Collateral
other than the Property, delivery to the Lender of proper financing statements
(Forms UCC-1 or equivalent statements on Forms UCC-2) in each case in proper
form for recording, shall be deemed to be in satisfaction of the provision of
this Section 7.1(m)(iii);
(iv) with respect to the Property of the Borrower, such consents,
approvals, amendments, supplements, or other instruments as shall reasonably be
deemed necessary or appropriate by the Lender in order for the owner or holder
of the fee or leasehold interest, as applicable, to grant the Lien contemplated
by the Mortgage with respect to the Property;
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(v) with respect to the Mortgage, policies of title insurance (the
"Title Policies") endorsed to show the interest of Lender (or a commitment,
dated, recertified and effective as of the Closing) each insuring the Lien of
the Mortgage as a valid first mortgage Lien on the Property in amount, form and
substance accepted by the Lender at Closing and subject only to Permitted Liens;
(vi) with respect to the Property, policies or certificates of insurance
required by Section 9.7 hereof, which policies or certificates shall bear
mortgagee endorsements reasonably satisfactory to the Lender;
(vii) with respect to the Property, evidence of payment to the Title
Company of such title premiums and other charges (including, without limitation,
the payment of any and all mortgage recording fees and taxes or intangibles or
other fees or taxes) required to be paid in connection with issuance of any
title insurance policy and the recording of the Mortgage; and
(viii) unless the Properties are otherwise acceptable to the Lender,
evidence reasonably acceptable to Lender of appropriate zoning classifications
of the Properties (or issuance of zoning endorsements on the Title Policies) and
that no municipal or Code violations exist;
(n) The Lender shall have received copies of one or more favorable written
opinions of counsel with respect to the enforceability and perfection of the
security interests contemplated by the Collateral Documents and certain related
matters as accepted by the Lender on the Closing Date, dated the date of
Closing, which opinions shall cover such other matters as the Lender may
reasonably request;
(o) All acts and conditions (including, without limitation, the obtaining
of any necessary regulatory approvals and the making of any required filings,
recordings or registrations) required to be done and performed and to have
happened prior to or simultaneously with the execution, delivery and performance
of the Loan Documents and to constitute the same legal, valid and binding
obligations of the parties thereto, enforceable in accordance with their
respective terms, shall have been done and performed and shall have happened in
compliance with all applicable laws;
(p) All opinions, certificates and other instruments required hereunder or
under any other Loans Document, and all proceedings in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
form and substance to the Lender and its counsel. The Lender shall have
received copies of all instruments and other evidence as it may reasonably
require, with respect to such transactions and the taking of all corporate or
partnership proceedings in connection therewith. If any provision of this
Agreement requires the certification of the
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existence or nonexistence of any particular fact or implies as a condition the
existence or nonexistence of such fact, then the Lender shall be free to
establish to its reasonable satisfaction the existence or nonexistence of any
such fact;
(q) The Lender shall have received all copies of all Environmental Reports
described in Section 8.13 and all other documents, assessments or reports
prepared by or in possession of the Borrower relating to the Property; provided,
however, that the Lender's receipt of such Environmental Reports and other
documents shall not be deemed to limit or otherwise adversely affect Borrower's
indemnities set forth in this Agreement or in the Environmental Indemnity
Agreement;
(r) SSCI shall have delivered to the Lender the duly executed Guaranty and
Indemnification Agreement, which shall be in full force and effect;
(s) Shurgard shall have delivered to the Lender a duly executed agreement
(the "Subordination Agreement") in form and substance satisfactory to the Lender
subordinating its rights during the continuance of an Event of Default to
receive a portion of its management fees to the payment of amounts due hereunder
on the Loan; and
(t) All conditions precedent to the closing of the transactions
contemplated by the Loan Purchase Agreement shall have been satisfied or waived
in writing by the party entitled to the benefit thereof, and the closings of the
transactions contemplated thereby shall occur simultaneously with the Closing
hereunder.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
As an inducement to the Lender to enter into the Loan Documents and to make
the Advance as provided herein, the Borrower represents and warrants to the
Lender, as of the date hereof, that:
SECTION 8.1 DUE AUTHORIZATION
The Borrower is a limited purpose corporation duly organized and validly
existing under the laws of the State of Delaware, with the authority to own and
operate its properties, including the Property, enter into the Loan Documents
and consummate the transactions contemplated thereby and is qualified to do
business under the laws of each jurisdiction in which the ownership, lease or
operation of its property or the conduct of its business requires such
qualification.
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SECTION 8.2 FINANCIAL CONDITION
(a) The audited statements of earnings and cash flows for the year ended
December 31, 1993 (or with respect to the Properties heretofore owned by the
partnerships designated No. 2, No. 3 and No. 4 in the Registration Statement
(defined below) (the "Fiscal Year Partnerships") the year ended September 30,
1993) (the "Audited Statements") of the Properties reported on by Deloitte &
Touche, present fairly, in all material respects, the earnings and cash flows of
the Properties for the year ended December 31, 1993 (or September 30, 1993,
respectively). The Audited Statements, including the related schedules thereto
(if any), have been prepared in accordance with GAAP. There did not exist as of
December 31, 1993 (or September 30, 1993, respectively) any Contingent
Obligation, or any long-term lease or unusual forward or long-term commitment,
with respect to the Properties which is not reflected in the Audited Statements
and which has any reasonable likelihood of resulting in a material cost or loss.
Except for the transactions described in SSCI's Registration Statement on
Form S-4 (the "Registration Statement"), filed with the Securities and Exchange
Commission registering certain shares of Class A common stock and Class B common
stock offered by SSCI in connection with the proposed exchange of such shares
and cash for all of the assets, subject to the liabilities of, certain limited
partnerships sponsored by Shurgard, during the period from December 31, 1993 to
and including the date hereof, there has been no sale, transfer or other
disposition of any material part of the Property and no purchase or other
acquisition of any business or property by the Borrower (including any capital
stock of any other Person) material in relation to the financial condition of
the Borrower.
(b) To the best knowledge of the Borrower, since December 31, 1993, there
has been no development or event, which has had a Material Adverse Effect.
(c) The unaudited statements of earnings and cash flows for the three-
month period ended March 31, 1994 (or the six-month period then ended with
respect to the Fiscal Year Partnerships) (the "Unaudited Statements") of the
Properties, certified by a Responsible Officer of the Borrower have been
prepared in accordance with past accounting practices and methods applied with
respect to the Properties and in accordance with GAAP and subject to normally
recurring year- end adjustments described therein (with no deviations from past
accounting practices and methods applied with respect to the Properties and only
such deviations from GAAP as are described in such financial statements). There
did not exist, as of March 31, 1994, and there does not exist as of the date of
this Agreement, any Contingent Obligation which is not reflected in notes to the
Unaudited Statements or in the Registration Statement and which would, when
aggregated with all Contingent Obligations not so reflected, reasonably have a
Material Adverse Effect.
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SECTION 8.3 LITIGATION
No action, arbitration, inquiry, litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or against any
of its assets or properties (a) with respect to this Agreement, the Note, any of
the other Loan Documents or any of the transactions contemplated hereby or
thereby, or (b) which would have a Material Adverse Effect. Neither the
Borrower nor any of its assets or properties is subject to any order, writ,
judgment, injunction, decree, detention or award having a Material Adverse
Effect.
SECTION 8.4 NO DEFAULTS
The Borrower is not in default under or with respect to its organizational
documents or any of its Contractual Obligations (including without limitation
any obligation under leases of all or any part of the Properties) in any respect
which would have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing. To the best knowledge of the Borrower, there are no
defaults existing by tenants under leases of all or any part of the Properties
which would have a Material Adverse Effect.
SECTION 8.5 OWNERSHIP AND SUFFICIENCY OF PROPERTY AND SERVICES; LIENS
(i) Except as previously disclosed in writing to the Lender, the Borrower
has good title in fee simple to the Property, and the Property is all of the
real property leased or owned, respectively, by the Borrower, (ii) the Borrower
has good title to or the right to use all its other material property to the
extent sufficient to conduct its business as now being conducted and (iii) none
of the Borrower's interests in the Property is subject to any Lien, except
Permitted Liens. Without limiting the foregoing, the Borrower has title to, or
a valid and enforceable right to use, all the Collateral and each item of
Collateral is, as of the Closing, subject to no Liens other than Permitted
Liens. The Borrower holds all material licenses, permits, authorizations,
certificates of occupancy or operation and similar material certificates and
clearances of municipal and other authorities necessary to own and operate its
business and the Property in the manner and for the purposes currently operated
by such Person other than where the failure to hold any such items would not in
the aggregate, have a Material Adverse Effect. Each Property is suitable for
its intended purposes and is served by such utilities as are necessary for the
proper and efficient operation thereof. There are no actual or, to the best
knowledge of the Borrower, threatened or alleged defaults with respect to any
material leases of Property under which the Borrower is lessor, sublessor,
lessee or sublessee which, singly or in the
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aggregate, would have a Material Adverse Effect. Borrower has not voluntarily
created any lien charge or encumbrance against any Property since March 1, 1994
and to the best of Borrower's knowledge no involuntary lien, charge or
encumbrance has been filed, other than the lien of nondelinquent taxes and
assessments.
SECTION 8.6 UTILITIES AND ACCESS
The Property fronts on, is contiguous to, or has access to a physically
open all-weather street and is serviced by public or private water and sewer
services (or septic tank), electrical power and telephone systems, and access to
such street and service by such systems, and any other utility services or other
amenities necessary to the operation of the Property are under the direct
control of the Borrower, are public property or are available and reach the
Property directly, or if property owned by another Person must be crossed to
obtain such access or services, there is a valid and enforceable easement (which
constitutes part of the Property) permitting such crossing for the benefit of
the Property, or the Borrower has a valid and enforceable contractual right
(which constitutes part of the Property and which right Borrower will maintain
in full force during the term of the Mortgage) to cross the Property for such
access or services.
SECTION 8.7 TAXES
The Borrower has filed or been included in, or caused to be filed all Tax
returns which are required to be filed with respect to Taxes for any period on
or before the Closing, taking into account any extension of time to file granted
to the Borrower, and has paid or caused to be paid all Taxes shown to be due and
payable on said returns or on any assessments, proposed assessments or proposed
deficiencies made or assessed against it or any of its property and all other
Taxes, assessments, fees and other charges that have been asserted by any
Governmental Authority (other than any Taxes, assessments, fees or other charges
the amount or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of the Borrower, as the case may be);
provided, however, notwithstanding the foregoing, it is understood that in
respect of ad valorem Taxes and other similar local real estate Taxes imposed on
the Borrower for periods prior to the Closing, the Borrower (i) has paid such
Taxes prior to the delinquency thereof or (ii) will have paid such Taxes as of
the Closing. There are no Tax Liens on the Borrower's assets as a result of any
Tax liabilities except for Taxes not yet due and payable.
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SECTION 8.8 FEDERAL REGULATIONS
No part of the proceeds of the Loan have been or will be used for any
purpose which violates the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
SECTION 8.9 ERISA
The Borrower is not a party to any pension or other retirement plan or
Multiemployer Plan.
SECTION 8.10 INVESTMENT COMPANY ACT; OTHER REGULATIONS
The Borrower is not an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act. The
Borrower is not subject to regulation under any Federal or State statute or
regulation (other than margin regulations) which limits its ability to incur
Indebtedness. Except as required pursuant to the Securities Act, the Exchange
Act and State securities laws, the Borrower is not subject to any Federal or
State law or regulation limiting its ability to issue and perform its
obligations under the Note or the other Loan Documents.
SECTION 8.11 NO SUBSIDIARIES
The Borrower does not own, directly or indirectly, any stock, partnership
interest, joint venture or other security, investment or interest in any other
corporation, organization or entity.
SECTION 8.12 USE OF PROCEEDS
The proceeds from the Loan have been and will be utilized by or on behalf
of Borrower only for purposes permitted under the Borrower's organizational
documents, which purposes are contemplated to be as set forth on Schedule 5.1.
SECTION 8.13 ENVIRONMENTAL MATTERS
Except to the extent specifically disclosed in the Environmental Reports,
(a) (i) the Borrower is in compliance with the provisions of all
Environmental Laws relating to its business, operations, properties, assets, the
Property, and the ownership, use, control, management, operation or occupancy
thereof, where the failure to be in such compliance would have, singly or in the
aggregate, a Material Adverse Effect; (ii) neither the Borrower, nor to the best
knowledge of the Borrower any of the Properties has violated or, to the best
knowledge of the Borrower, has been alleged by any Governmental Authority or, to
the best
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knowledge of the Borrower, by any third party to be in violation of, or has been
subject to any administrative or judicial proceeding pursuant to, any applicable
Environmental Law, which would have, singly or in the aggregate, a Material
Adverse Effect; (iii) the Borrower is not subject to any liability under any
Environmental Law, which liability could reasonably be expected to have, singly
or in the aggregate, a Material Adverse Effect; (iv) to the best knowledge of
Borrower, there are no facts or circumstances which could form the basis for the
assertion of any claim against the Borrower relating to any Environmental Law
including, but not limited to, any claim arising from past or present practices
on, at or from the Borrower's business, operations, property, assets, the
Property, and the ownership, use, control, management, operation or occupancy
thereof, asserted under any Environmental Law, which would have, singly or in
the aggregate, a Material Adverse Effect; (v) there is no asbestos contained in
or forming part of any building component, structure or office space at any of
the Properties, where the presence of such asbestos would have, singly or in the
aggregate, a Material Adverse Effect; and (vi) no polychlorinated biphenyls
("PCBs") are used, stored or released at any of the Properties where the
presence of such PCBs would have, singly or in the aggregate, a Material Adverse
Effect. "Environmental Law" means and includes the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA" or the Federal
Superfund Act), as amended by the Superfund Amendments and Reauthorization Act
of 1986 ("SARA"), 42 U.S.C. Section Section 9601-9675; the Resource Conservation
and Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq.; The Clean
Water Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Section
7401 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
Section 136 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section Section
2601-2671; all as the same may be from time to time amended and any regulations
now or hereafter promulgated thereunder; and any and all other federal, state,
county, municipal, local and other statutes, laws, ordinances, rules,
regulations, judgments, orders, decrees, permits, licenses, or other
governmental restrictions or requirements and the common law which may from time
to time relate to or deal with protection of human health, pollution or the
environment, including without limitation all regulations promulgated by a
regulatory body pursuant to any such statute, law or ordinance. "Hazardous
Material" means asbestos, urea formaldehyde, PCBs, nuclear fuel or materials,
chemical waste, radon, radioactive materials, explosives, known carcinogens,
petroleum products (including crude oil) and any other dangerous, toxic, or
hazardous pollutant, contaminant, chemical, material or substance defined as
hazardous or as a pollutant or contaminant in, or the release or disposal of
which is regulated by, any Environmental Law.
(b) There have been no discharges, emissions or releases of Hazardous
Material at, on, upon, under, into or from the Borrower's business, operations,
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properties, assets, the Property and the ownership, use, control, management,
operation or occupancy thereof, which would have, singly or in the aggregate, a
Material Adverse Effect.
(c) To the Best Knowledge of the Borrower, there have been no discharges,
emissions or releases of Hazardous Material at, on, upon, under, into or from
any business, operations or real property in the vicinity of any Property which
would have, singly or in the aggregate, a Material Adverse Effect.
(d) To the best knowledge of the Borrower, there are no underground or
aboveground storage tanks located at the Property, nor have any such storage
tanks been removed or decommissioned from or at the Property, nor, to the best
knowledge of the Borrower, are there any said tanks located in the vicinity of
the Property from which there has been a release or threatened release. To the
extent storage tanks exist on or under the Property, such storage tanks have
been duly registered with all appropriate regulatory and governmental bodies and
otherwise are in compliance with applicable Federal, state and local statutes,
regulations, ordinances and other regulatory requirements.
(e) The Property is not listed or proposed for listing on the National
Priorities List or the Comprehensive Environmental Response, Compensation, and
Liability Information System, both as promulgated under CERCLA, or on any
comparable state or local list, and neither the Borrower nor any of its
Affiliates has received any notification of potential or actual liability or any
request for information pursuant to any Environmental Law, including, without
limitation, CERCLA or RCRA, or any comparable state or local Environmental Law.
(f) The Borrower has made available to the Lender true, complete and
correct copies or results of any reports, studies, analyses, tests or monitoring
prepared since August 1993 in the possession of or initiated by the Borrower
pertaining to the existence of Hazardous Materials or any other concerns under
the Environmental Laws relating to the Property, or pertaining to compliance
with or liability under the Environmental Laws, including, without limitation,
the Environmental Reports set forth in Exhibit B.
SECTION 8.14 ACCURACY AND COMPLETENESS OF INFORMATION
All information heretofore or contemporaneously furnished by or on behalf
of the Borrower (including, without limitation, all information contained in any
of the Loan Documents and the annexes and schedules thereto) is true and
accurate in all material respects (or, in the case of any material containing
projections of future performance, have been prepared in good faith based on
assumptions believed to be
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reasonable) on the date as of which such information is dated or certified and
not incomplete by omitting to state anything material which was necessary to
make such information not misleading at such time taken together with all other
information provided to the Lender.
SECTION 8.15 SECURITY INTERESTS
On and after the date of execution and delivery thereof, each of the
Collateral Documents creates or will create, as security for the obligations
purported to be secured thereby, a valid and enforceable perfected security
interest in and Lien on all of the Collateral, which Lien, upon the filing or
recording with the appropriate offices or agencies of the financing statements
referred to in the proviso to the next following sentence, shall be a first
priority Lien subject only to Permitted Liens. No filings or recordings are or
will be required in order to perfect the Liens created under the Collateral
Documents except for filings or recordings which on or before the date of
execution and delivery of any of such Collateral Documents will have been made;
provided, however, that (a) with respect to the Property, no failure to record
any Mortgage as of the Closing shall be deemed a breach of this Section 8.15 if
the Title Company has issued or committed to issue in respect of the Property a
policy of title insurance complying with the provisions of Section 7.1(m)(v) and
(b) with respect to Collateral other than Property, no failure to record or file
any financing statement as of the Closing shall be deemed a breach of this
Section 8.15 if proper financing statements (Forms UCC-1 or equivalent
statements on Forms UCC-2), in proper Form for recording, have been delivered to
the Lender at the Closing.
SECTION 8.16 AUTHORIZATION AND EXECUTION
The execution, delivery and performance by the Borrower of each of the Loan
Documents and the issuance by the Borrower of the Note have been duly and
validly authorized and are within the corporate powers of the Borrower. Each of
the Loan Documents has been duly executed and delivered by it and, assuming due
authorization, execution and delivery thereof by the other parties thereto,
constitutes its legal, valid and binding agreement, enforceable against it in
accordance with it terms, except that rights to indemnity and contribution
thereunder may be limited by federal or state law and such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and similar laws
of general application relating to or affecting the rights and remedies of
creditors and by general equitable principles (regardless of whether enforcement
is sought in equity or at law). When executed and delivered by the Borrower
against payment therefor in accordance with the terms hereof, the Note will
constitute a valid and binding obligation of the Borrower, enforceable against
it in accordance with its terms, except that such enforceability
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may be limited by bankruptcy, insolvency, reorganization, moratorium and similar
laws of general application relating to or affecting the rights and remedies of
creditors and by general equitable principles (regardless of whether enforcement
is sought in equity or at law).
SECTION 8.17 GOVERNMENTAL AND REGULATORY AUTHORIZATION
The execution and delivery by the Borrower of each of the Loan Documents
did not and will not, and the consummation and performance of the transactions
contemplated hereby and thereby will not, require any consent, approval,
authorization or other action by or in respect of, or filing with, any
Governmental Authority except (i) such actions or filings that have been
undertaken or made prior to the Closing and that will be in full force and
effect on and as of the Closing or which are not required to be filed on or
prior to the Closing and (ii) where failure to obtain such consent, approval,
authorization or other action or to make such filing would not have a Material
Adverse Effect.
SECTION 8.18 CONTRAVENTION
The execution and delivery by the Borrower of the Loan Documents did not
and will not, the issuance of the Note by the Borrower will not, and the
consummation and performance of the transactions contemplated hereby and thereby
will not, contravene or constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default) under or violation of,
or with respect to clauses (ii) and (iii), below, require the consent of any
Person (other than consents already obtained or consents not required to be
obtained prior to the Closing) under or, in the case of clause (iii) below, give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of any Lien, charge or other encumbrance on the assets
or properties of the Borrower pursuant to (i) any provision of applicable law or
regulation, (ii) the organizational documents of the Borrower or (iii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, judgment, injunction, order, decree or other instrument binding upon
it or any of its assets or properties, the violation of which would have a
Material Adverse Effect or result in the creation or imposition of any material
Lien on any asset of the Borrower except pursuant to or as permitted or
contemplated by the terms hereof.
SECTION 8.19 REPRESENTATIONS IN OTHER LOAN DOCUMENTS
Each of the representations and warranties of the Borrower set forth in any
of the other Loan Documents is true and correct on the date hereof and will be
true and correct at the Closing as if made on and as of the date hereof, or, at
and as of the
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Closing, and are hereby incorporated herein by this reference with the same
effect as though set forth in their entirety herein.
SECTION 8.20 SOLVENCY
None of the transactions contemplated hereby will be or have been made with
an actual intent to hinder, delay or defraud any present or future creditors of
the Borrower, and the Borrower, on the Closing Date, will have received fair and
reasonably equivalent value in good faith for the grant of the liens or security
interests effected by the Collateral Documents. On the Closing Date, the
Borrower will be solvent and will not be rendered insolvent by any of the
transactions contemplated hereby. The Borrower is able to pay its debts as they
become due, in each case after giving effect to the transactions contemplated
hereby, including Contingent Obligations reasonably likely to come due.
SECTION 8.21 DELINQUENT PROPERTY LIENS
Except as shown in the Title Policies, to the Best Knowledge of the
Borrower there is no delinquent tax, sewer rent, water charge, assessment or
other outstanding charge against the Property, or any part thereof, and there
are no mechanics' or similar Liens or, to the Borrower's knowledge, claims for
overdue payment for work performed by or on behalf of the Borrower, labor or
material affecting the Property which are or could become Liens prior to, or
equal with, the Lien of the applicable Mortgage and, except as previously
disclosed in writing to the Lender or as set forth in the Title Policies, there
are no mechanics' or similar Liens affecting the Property which have not been
insured or endorsed over by the Title Company issuing the Title Policies.
SECTION 8.22 INSURANCE
All buildings constituting part of the Property are insured in accordance
with the terms of this Agreement and the Borrower is as of the date hereof not
in default under any such policy and the Borrower has not as of the date hereof
received any notice of the cancellation or termination thereof.
SECTION 8.23 IMPROVEMENTS
Except as disclosed in the Title Policies and surveys delivered to the
Lender, to the best knowledge of the Borrower all Improvements (as such term is
defined in the Mortgage) lie wholly within the boundary and building restriction
lines of the Property and no improvements on adjoining property encroach upon
the Property in any respect so as to materially and adversely affect the market
value of the Property.
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SECTION 8.24 CASUALTY; CONDEMNATION
The Property is free of material damage and waste and, except as set forth
in the Title Policies, there is no proceeding pending or, to the best of the
Borrower's knowledge, threatened, for the total or partial condemnation or
taking by eminent domain thereof.
SECTION 8.25 ZONING AND OTHER LAWS
Except as disclosed in the Title Policies or Zoning Certificates,
heretofore delivered to the Lender, to the best knowledge of the Borrower, the
Property and the use thereof, separate and apart from any other property,
constitutes a legal and conforming use under applicable zoning regulations and
complies in all material respects with all applicable Requirements of Law and
with all applicable covenants, conditions and restrictions, the non-compliance
with which could materially and adversely affect the marketability of the
Property. Since March 1, 1994, the Borrower has not initiated or otherwise
sought any, and to the Best Knowledge of the Borrower there has been no, change
in building or zoning laws and regulations which could have a material adverse
effect on the value or marketability of any Property affected thereby.
SECTION 8.26 PERMITS
Except as disclosed in the Zoning Certificates, to the best knowledge of
the Borrower, the Borrower has received all permits and governmental approvals
necessary or required to own and operate the Property in the manner currently
operated, including permits relating to Hazardous Substances, other than any
such permit or approval for which the failure to obtain would not have a
Material Adverse Effect on the ownership, operation or market value of the
Property. Each such permit is in full force and effect and the Borrower has not
received any notice of violation or revocation thereof. No other permits are
required from any governmental entity in order to operate the Property as they
are now operated.
SECTION 8.27 CERTIFICATES OF OCCUPANCY
The Borrower has not received any notice of actual or threatened
cancellation or suspension of any certificates of occupancy for any portion of
the Property.
SECTION 8.28 ASSESSMENTS
The Borrower has not received any notice of actual or pending special
assessments or reassessments of the Property, which is not reflected in the
Title
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Policies or in financial information previously provided to the Lender and which
would have a Material Adverse Effect.
SECTION 8.29 RIGHTS OF OTHERS TO PURCHASE PROPERTY
The Borrower has not entered into any contracts for the sale of the
Property, nor are there any rights of first refusal or options to purchase the
Property.
SECTION 8.30 CORPORATE ACTIVITIES
The Borrower (i) has at least one director who is not an Affiliate and is
otherwise independent of the Borrower and its Affiliates (but who may also be an
independent director of SSCI), (ii) observes all corporate formalities,
including keeping its own separate books and records, having its own bank
accounts and keeping its funds separate from the funds of its sole shareholder,
holding periodic meetings of its Board of Directors, and having officers who
(when acting in their capacity as officers of such corporation) act in such
corporation's best interest, (iii) is able to fund from its own assets
(including its initial working capital reserve) all of its activities and
expenses, and (iv) has no authority to borrow (except as permitted hereby). The
Certificate of Incorporation and Bylaws of the Borrower provide that the Board
of Directors of the Borrower will at all times consist of at least one
(1) director who is not an Affiliate and is otherwise independent of the
Borrower and its Affiliates (but who may also be an independent director of
SSCI) (the "Independent Director"). The Certificate of Incorporation and Bylaws
of the Borrower also provide that a majority vote of all of the directors
(including the vote of the Independent Director) of the Borrower is necessary
for (x) any merger or consolidation, (y) any voluntary bankruptcy filing and any
declaration of insolvency for any purpose for the Borrower, or (z) any amendment
of the Borrower's Certificate of Incorporation or Bylaws. The Certificate of
Incorporation and the Bylaws of the Borrower provide that the election of the
Independent Director is subject to the Lender's approval.
ARTICLE IX
AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that, so long as the Loan remains
unpaid or any other amount is owing to the Lender, it shall:
SECTION 9.1 FINANCIAL STATEMENTS; OTHER INFORMATION
Furnish or cause to be furnished to the Lender and the Servicer:
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(a) a year-end balance sheet and statement of net operating income for the
Borrower (including the Properties owned by the Borrower) audited by Deloitte &
Touche or another independent public accounting firm reasonably acceptable to
the Lender not later than ninety (90) days after the end of the Borrower's
fiscal year;
(b) an unaudited balance sheet and statement of net operating income for
the Borrower (including the Properties owned by the Borrower) as of the end of
each quarter other than the last fiscal quarter in any fiscal year, certified by
the President or Chief Financial Officer of the Borrower and by the President or
Chief Financial Officer of SSCI to be accurate and complete and to reflect
fairly the financial condition and results of operations of the Borrower for the
relevant period in accordance with GAAP consistently applied, as soon as
available and in any event not later than forty-five (45) days after the end of
each calendar quarter;
(c) unaudited year-end individual Property-by-Property statements of net
operating income (including occupancy rates and the number of rentable square
feet at year-end and as of the date of furnishing such information) certified by
the President or Chief Financial Officer of the Borrower and by the President or
Chief Financial Officer of SSCI to be accurate and complete not later than the
date by which the year-end financial information described in clause (a) above
is due;
(d) for so long as any of the Certificates remain outstanding and are
"restricted securities" as defined in Rule 144(a)(3) under the Securities Act of
1933, as amended (the "Securities Act"), furnish to any Certificateholder or any
prospective purchaser of Certificates designated by such Certificateholder, upon
request, the information applicable to an issuer of securities specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Securities Act;
(e) promptly, such additional financial and other information, including,
without limitation, information regarding the Property as the Lender may from
time to time reasonably request; provided, however, that any such information
(i) shall be provided on a confidential basis, and/or (ii) need not be provided
if to do so would violate any Requirement of Law;
(f) promptly upon submission to the Securities and Exchange Commission any
public filings relating to the Borrower or SSCI; and
(g) promptly upon any officer of the Borrower obtaining knowledge (i) of
any condition or event which constitutes an Event of Default, (ii) that any
Person has given notice to the Borrower or taken any other action with respect
to a claimed Default or Event of Default or (iii) of a Material Adverse Effect,
a certificate specifying the nature and period of existence of any such
condition or event, or
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specifying the notice given or action taken by such Person and the nature of
such claimed Default or Event of Default, or Material Adverse Effect, and what
action the Borrower has taken, is taking and proposes to take with respect
thereto;
provided, however, that the Borrower shall continue to furnish the information
described in this Section 9.1 to Nomura Asset Capital Corporation ("NACC")
notwithstanding any sale or assignment of NACC's right, title and interest in
the Loan or this Agreement to the Trustee.
SECTION 9.2 MAINTENANCE OF EXISTENCE AND PROPERTY
Preserve and maintain its existence, its business as presently conducted
and all other rights, privileges and franchises necessary in the normal conduct
of said business, keep its properties useful or necessary in its business in
good working order and condition, and from time to time make all needed repairs,
renewals and replacements thereto, maintain the Property in substantially the
same condition, ordinary wear and tear excepted, as they are in at the date of
this Agreement, and operate the Property in substantially the same manner as
they are being operated at the date of this Agreement; provided, that (i) to the
extent the Property Manager performs these obligations pursuant to the terms of
the Property Management Agreement, such performance shall be deemed to satisfy
the Borrower's obligations under this Section 9.2 and (ii) in the event and to
the extent the Property suffers an insured loss, application of insurance
proceeds related thereto in accordance with the terms of this Agreement shall be
deemed to satisfy the Borrower's obligations under this Section.
SECTION 9.3 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS
(i) 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 (ii) upon reasonable notice, permit representatives of the Lender and its
respective agents and regulatory authorities to visit and inspect the Property
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired by the Lender and to
discuss the business, operations, properties and financial and other conditions
of the Borrower with the Responsible Officers of the Borrower and with its
independent certified public accountants; provided, that the Lender receiving
any such information shall be bound by appropriate confidentiality requirements;
and to the extent the Property Manager performs the obligations set forth in
clause (i) pursuant to the terms of the Property Management Agreement, such
performance shall be deemed to satisfy the Borrower's obligations under
clause (i) of this Section 9.3.
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SECTION 9.4 NOTICES
Give prompt written notice to the Lender of (a) any claims, proceedings or
disputes (whether or not purportedly on behalf of the Borrower) against, or to
the Borrower's knowledge, threatened or affecting the Borrower which, if
adversely determined, would have a Material Adverse Effect or which involve in
the aggregate monetary amounts in excess of $1,000,000 other than claims fully
covered by insurance; (b) any proposal by any public authority to acquire the
Property or any portion thereof; and (c) the occurrence of any Default or Event
of Default.
SECTION 9.5 [RESERVED]
SECTION 9.6 LOAN DOCUMENTS
Comply with and observe all terms and conditions of the Loan Documents.
SECTION 9.7 INSURANCE
(a) CASUALTY INSURANCE. The Borrower will keep the Property insured for
the benefit of the Lender as follows:
(i) against damage or loss by fire and such other hazards (including,
without limitation, earthquake, lightning, windstorm, hail, explosion, riot,
riot attending a strike, civil commotion, vandalism, malicious mischief,
aircraft, vehicle and smoke) as are covered by the broadest form of extended
coverage endorsement available from time to time, in an amount not less than the
Full Insurable Value (as defined in subsection (h) of this Section 9.7) of the
Improvements and personal property, with a deductible or self-insured retention
amount not to exceed $50,000;
(ii) business interruption/rent loss insurance in an amount equal to
twelve months proforma stabilized rent for all perils for the Property;
(iii) against any damage or loss by flood if the Property is located in
an area identified by the Secretary of Housing and Urban Development or any
successor thereof as an area within a 100 year flood plain or having special
flood hazards and in which flood insurance has been made available under the
National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of
1973, as amended, modified, supplemented or replaced from time to time, on such
basis and in such amounts as shall be required by the Lender;
(iv) against damage or loss from (i) sprinkler system leakage and
(ii) boilers, boiler tanks, heating and air conditioning equipment, pressure
vessels,
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auxiliary piping and similar apparatus, on such basis and in such amounts as
shall be required by the Lender; and
(v) during the period of any construction or replacement of
improvements to the Property, builder's completed value risk insurance coverage
insuring against all risks of physical loss, including collapse and transit
coverage, during construction of any improvements, in non-reporting form,
covering the total value of work performed and to be performed and equipment,
supplies and materials furnished or to be furnished. The policy providing such
coverage shall contain the "permission to occupy upon completion of work or
occupancy" endorsement.
(b) LIABILITY INSURANCE. The Borrower shall procure and maintain:
(i) comprehensive general liability insurance covering the Borrower
and the Lender against claims for bodily injury or death or property damage
occurring in, upon or about the Property or resulting from or involving the
Property, or any street, drive, sidewalk, curb or passageway adjacent to the
Property, in standard form and with such company or companies and in such
amounts as may be acceptable to the Lender, which insurance shall include
blanket contractual liability coverage which insures contractual liability under
the indemnification set forth in Section 13.7 hereof (but such coverage or the
amount thereof shall in no way limit such indemnification); and
(ii) during the period of any construction, restoration or replacement
of improvements to the Property, the Borrower shall insure against loss from
damage or injury caused by such construction, restoration or replacement with
additional coverage by obtaining (1) comprehensive public liability insurance
(including coverage for elevators and escalators, if any) on an "occurrence
basis," for personal injury claims, including, without limitation, bodily
injury, death or property damage occurring in, upon, or about the improvements
being constructed, restored or replaced and the adjoining streets, sidewalks and
passageways, such insurance to afford immediate minimum protection with a limit
satisfactory to the Lender with respect to personal injury or death to any one
or more persons or damage to property; and (2) worker's compensation insurance
(including employer's liability insurance if requested by the Lender) for all
employees of the Borrower and any employees of any contractor, materialman or
other person or firm engaged in construction on or with respect to the Property
and improvements to the Property in such amount as is satisfactory to the
Lender, or, if such amounts are established by law, in such amounts.
(c) OTHER INSURANCE. The Borrower shall procure and maintain such other
insurance or such additional amount of insurance as may be required under any
lease
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or agreement affecting the Property and, at the Lender's request, will procure
and maintain such other insurance or such additional amounts of insurance,
covering the Borrower or the Property, as Lender shall from time to time
require, in the exercise of its reasonable business judgment in light of the
commercial real estate practices existing at the time the insurance is issued
and in the place where the Property is located.
(d) FORM OF POLICY. All insurance required under this Section 9.7 shall
contain a noncontributory standard mortgage clause in favor of the Lender, shall
be fully paid for, nonassessable and the policies therefor shall contain such
provisions, endorsements and expiration dates, as the Lender shall from time to
time request, and shall be in such form, content and amounts, and be issued by
such insurance companies doing business in the respective states where the
Properties are located as are satisfactory to the Lender. Without limiting the
foregoing, all such policies shall contain a waiver of subrogation endorsement
and a replacement cost endorsement. All such policies shall provide that the
same shall not be cancelled, amended or materially altered (including by
reduction in the scope or limits of coverage) without at least thirty (30) days'
prior written notice to the Lender. If a policy required under this Section 9.7
contains a coinsurance clause, such policy shall include a "stipulated value" or
"agreed amount" endorsement.
(e) DUPLICATE ORIGINALS OR CERTIFICATES. Duplicate original policies
evidencing the insurance required under this Section and any additional
insurance which shall be taken out on the Property by or on behalf of the
Borrower shall be deposited with and held by the Lender and, in addition, the
Borrower will deliver to the Lender (i) receipts evidencing payment of all
premiums thereon and (ii) duplicate original renewal policies or a binder
thereof with evidence satisfactory to the Lender of payment of all premiums
thereon, at least thirty (30) days prior to the expiration of each such policy.
In lieu of the duplicate original policies provided herein to be delivered to
the Lender, the Borrower may deliver an underlier of any blanket policy together
with original certificates from the issuing insurance company evidencing that
such policy is in full force and effect and containing information which, in the
Lender's reasonable judgment, is sufficient to allow the Lender to determine
whether such policy complies with the requirements of this Section.
(f) NO SEPARATE INSURANCE. The Borrower shall not carry separate or
additional insurance concurrent in form or contributing in the event of loss
with that required under this Section 9.7 unless endorsed in favor of the Lender
in accordance with the requirements of this Section 9.7 and otherwise approved
of the Lender in all respects.
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(g) TRANSFER OF TITLE. In the event of foreclosure or other transfer of
title or assignment of the Property in extinguishment, in whole or in part, of
Borrower's obligations hereunder and under the Note and other Loan Documents,
all right, title and interest of the Borrower in and to all policies of
insurance required under this Section 9.7 or otherwise then in force with
respect to the Property and all proceeds payable thereunder and the unearned
premiums thereon shall immediately vest in the purchaser or other transferee of
the Property.
(h) REPLACEMENT COST. For purposes of this Section 9.7, the term "Full
Insurable Value" shall mean the actual cost of replacing the property in
question, without allowance for depreciation, as determined from time to time
(but not more often than once every calendar year) by the Lender.
(i) APPROVAL NOT WARRANTY. No approval by the Lender of any insurer shall
be construed to be a representation, certification or warranty of its solvency
and no approval by the Lender as to the amount, type or form of any insurance
shall be construed to be a representation, certification or warranty of its
sufficiency.
SECTION 9.8 [RESERVED]
SECTION 9.9 COMPLIANCE WITH LAWS
Comply and cause the Property to comply with all Requirements of Law, other
than those which are being contested in good faith by appropriate proceedings,
and as to which the Borrower has notified the Lender and as to those which would
have a Material Adverse Effect, the Borrower has posted a good and sufficient
irrevocable surety bond with no recourse to the Collateral. To the extent the
Property Manager performs these obligations pursuant to the terms of the
Property Management Agreement, such performance shall be deemed to satisfy the
Borrower's obligations under this Section 9.9.
SECTION 9.10 COOPERATION
Execute and deliver to the Lender upon reasonable request, 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 the
Lender to effectuate the provisions and purposes of the Loan Documents.
SECTION 9.11 PROPERTY MANAGEMENT AGREEMENT
Observe and perform all terms and conditions of the Property Management
Agreement on Borrower's part to be performed, and take all other actions
necessary to
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keep the Property Management Agreement in full force and effect, provided,
however that (x) (i) upon the occurrence and during the continuation of an Event
of Default, or (ii) in the event that Net Operating Income for any four
consecutive fiscal quarters following the Closing Date is less than $15,030,600
(the "Trigger Amount"), and (y) if the Lender shall instruct the Borrower to
terminate the Property Management Agreement and/or Advisory Agreement in respect
of the Properties and remove the Property Manager and designate a replacement
Property Manager, then the Borrower shall so terminate the Property Management
Agreement and/or Advisory Agreement in respect of the Properties and remove the
Property Manager and appoint such replacement; provided, however, that the
Trigger Amount shall be reduced in the event any Property is released from the
Lien of the Mortgage, by an amount equal to the Trigger Amount multiplied by a
fraction, the numerator of which is the Mortgage Amount of the Property so
released and the denominator of which is $122,580,000. The Lender's right, but
not obligation, to give a termination instruction described in clause (y) above
shall be exercisable in its sole discretion after taking into consideration,
among other things, the extent to which any such decline in Net Operating Income
is attributable to general market conditions and/or management by the Property
Manager. If the Property Management Agreement is terminated in respect of the
Properties for any reason, the replacement property management company shall be
selected by the Lender, and the senior manager(s) thereof shall have had not
less than five (5) years' experience in the management of properties in the
nature of the Property and shall be reasonably acceptable to the Lender. The
property management agreement for such replacement property manager shall be
reasonably acceptable to the Lender and said replacement property manager shall
assume all of the obligations of the Property Manager under the Collection
Account Agreement and all other documents to which the original Property Manager
was a party, pursuant to an assumption agreement in Form and substance
satisfactory to the Lender.
SECTION 9.12 LIENS
Remove or cause to be removed all Liens on the Property, with the exception
of Permitted Liens and any other Liens permitted under this Agreement, other
than those which are being contested in good faith by appropriate proceedings,
and as to which the Borrower has notified the Lender and as to which, if
required by the Lender in its reasonable discretion, the Borrower has posted a
good and sufficient irrevocable surety bond without recourse to the Collateral.
SECTION 9.13 TAXES
Promptly pay and discharge all lawful taxes, sewer rents, water charges,
assessments and other governmental charges or levies imposed upon the Borrower
or
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upon its income or profit or upon the Property, either real, personal or mixed,
other than those which are being contested in good faith by appropriate
proceedings and as to which the Borrower has notified the Lender and as to
which, if required by the Lender in its reasonable discretion, the Borrower has
posted a good and sufficient irrevocable surety bond without recourse to the
Collateral.
SECTION 9.14 OTHER AGREEMENTS
Comply with all other agreements to which the Borrower is a party, whether
related to the Property, the Loan Documents or otherwise, other than
(i) agreements or obligations thereunder being contested in good faith by
appropriate proceedings and for which appropriate provision has been made or
(ii) agreements the non-compliance with which would not have a Material Adverse
Effect.
SECTION 9.15 SPECIAL ASSESSMENTS
Use its best efforts to cause all payment obligations for real property
special assessments to be spread over the maximum terms permissible.
SECTION 9.16 INSURANCE AND CONDEMNATION PROCEEDS
(a) If all or any part of any Property shall be damaged or destroyed by an
insured risk; or if all or any part of any Property shall be taken by eminent
domain (or conveyed in lieu of such taking) then the proceeds of either such
event ("Insurance and Condemnation Proceeds"): (i) if such proceeds in respect
of a single Property are less than $300,000, shall be paid to the Borrower for
application by the Borrower in accordance with Section 9.16(c), or (ii) if such
proceeds in respect of a single Property are equal to or greater than $300,000,
shall promptly be deposited by the Borrower into a separate Proceeds Escrow
Account ("Proceeds Escrow") to be established by the Borrower with a title
insurance company licensed to do business in the State where such Property is
located, or with a National Bank or State Chartered Trust Company having
authority to hold funds in trust (the "Proceeds Trustee") and held in such
Proceeds Escrow pending application in accordance with this Section 9.16. The
Proceeds Escrow shall be pledged as additional Collateral to secure the amounts
due under this Agreement and the Note. If the Borrower shall fail to deposit
any Insurance and Condemnation Proceeds in a Proceeds Escrow as provided in this
Section 9.16, the Lender shall be authorized and empowered (but not obligated or
required) to make proof of loss, to settle, adjust or compromise any claims for
loss, damage or destruction or condemnation and to collect and receive all
Insurance and Condemnation Proceeds on behalf of the Borrower and deposit them
into the Proceeds Escrow.
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(b) All Insurance and Condemnation Proceeds shall be disbursed by the
Proceeds Trustee (i) first to pay or reimburse the Lender and the Servicer for
all costs and expenses, including but not limited to court costs and attorneys'
fees, incurred by the Lender and the Servicer in connection with the collection,
investment and disbursement of the Insurance and Condemnation Proceeds;
(ii) second, to pay the cost and expenses of the Proceeds Trustee; (iii) third,
to pay the costs of repair, replacement or restoration of such Property to the
extent permitted or required hereunder; and (iv) fourth, any excess of the
Insurance and Condemnation Proceeds over the sum of amounts disbursed pursuant
to clauses (i), (ii) and (iii) of this sentence shall be retained in the
Proceeds Escrow as additional Collateral to secure the amounts due under this
Agreement and the Note; provided, however, upon the completion of the repair,
restoration or replacement of the Casualty Loss Property (defined below) in
accordance with Section 9.16(c), any such excess Insurance and Condemnation
Proceeds shall be paid to the Borrower.
(c) Except if and to the extent the Borrower has substituted additional
collateral for the Casualty Loss Property pursuant to Section 9.16(f), the
Borrower shall be required to repair, replace or restore any Property which has
been damaged or destroyed or taken by eminent domain (or conveyed in lieu of
such taking) (a "Casualty Loss Property") to the same income producing potential
as existing immediately prior to the damage, destruction or condemnation.
(d) Any Insurance and Condemnation Proceeds disbursed pursuant to
clause (iii) of Section 9.16(b) to pay the costs of repair, replacement or
restoration of a Casualty Loss Property shall be so disbursed pursuant to
written authorization from the Servicer only after the Borrower shall have
certified to the Lender and the Servicer that all such repair and restoration
has been completed, that the Casualty Loss Property so damaged has been restored
to substantially the same income producing potential as existed prior to damage,
destruction or condemnation and that all bills for such costs have been paid in
full. If the Borrower shall (i) fail to commence to repair, replace or restore
a Casualty Loss Property within a reasonable period after damage or destruction
of such Casualty Loss Property, or (ii) shall notify Lender that pursuant to
Section 9.16(f) it will not repair, replace or restore such Casualty Loss
Property, or (iii) shall fail to give, or shall notify Lender that it will not
give, the certification described in the preceding sentence of this
Section 9.16(d), then no portion of the Insurance and Condemnation Proceeds
shall be disbursed to the Borrower pursuant to clause (iii) of Section 9.16(b),
but instead the full amount of such Insurance and Condemnation Proceeds (other
than amounts disbursed pursuant to clauses (i) and (ii) of Section 9.16(b))
shall be retained in the Proceeds Escrow as additional Collateral to secure the
amounts due under this Agreement and the Note. The Lender and the
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Proceeds Trustee shall have the right to require proof of payment to third
parties, including waivers of any mechanics or materialmen liens.
(e) Any proceeds of rent loss or business interruption insurance shall not
constitute Insurance and Condemnation Proceeds, but shall be deposited into the
Collection Account.
(f) Anything to the contrary in this Section 9.16 notwithstanding, in the
event of any damage, destruction or taking with respect to a particular Property
such that either (i) the estimated cost to repair, replace or restore such
Property exceeds $500,000 or (ii) the Borrower shall not be able to certify that
upon completion of all repair and restoration the Casualty Loss Property will
have been restored to substantially the same income producing potential as
existed prior to damage, destruction or condemnation and that all bills for such
costs have been paid in full, then in lieu of repair, replacement or restoration
of such Property the Borrower shall have the right to provide, in substitution
for such Casualty Loss Property, additional collateral for the Loan acceptable
to the Lender and the Servicer, which acceptance shall not be unreasonably
withheld, having value and Net Operating Income comparable to the Casualty Loss
Property; provided, however, no such substitution of additional collateral shall
be permitted unless (I) no Default or Event of Default shall have occurred and
then be continuing, (II) the Borrower shall have delivered to the Trustee and
the Servicer written certification from the Rating Agency that the ratings then
in effect with respect to the Certificates shall not be lowered or withdrawn as
a result of the substitution of the additional collateral, (III) the Borrower
shall have obtained an opinion of independent legal counsel acceptable to the
Lender to the effect that the substitution of such additional collateral will
not be deemed to result in an exchange of the Note or any portion thereof for
other property differing materially either in kind or in extent within the
meaning of Section 1001 of the Code and the regulations thereunder, and (IV) the
Borrower shall have satisfied the requirements of Section 7.1(m) and (q) of this
Agreement with respect to such Property. Such additional collateral and the
requirements for securing the same shall be subject to the consent of the Lender
and the Servicer, which may not be unreasonably withheld. Upon the provision of
additional collateral meeting the foregoing requirements, the Lender shall
release from the Lien of the Collateral Documents the Casualty Loss Property in
respect of which substitution is being made in accordance with the procedures
set forth in Section 4(d) and any Insurance and Condemnation Proceeds held in
any Proceeds Escrow with respect to such Casualty Loss Property shall be
released from such Proceeds Escrow and paid to the Borrower.
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SECTION 9.17 PRIOR KNOWLEDGE
The Borrower shall fully perform all of its obligations under Sections 9.9
and 9.13 hereof irrespective of any lack of knowledge as of the date of this
Agreement of any noncompliance with or other unperformed obligation under such
Sections.
ARTICLE X
NEGATIVE COVENANTS
SECTION 10.1 NEGATIVE COVENANTS
The Borrower hereby agrees that, as long as the Loan remains unpaid or any
other amount is owing to the Lender under any of the Loan Documents, the
Borrower shall not, directly or indirectly:
(a) LIENS. Create, incur, assume or suffer to exist any Lien upon the
Collateral except: (i) as contemplated by the Collateral Documents in favor of
the Lender and (ii) Permitted Liens.
(b) INDEBTEDNESS. Create, incur or assume any Indebtedness except for:
(i) the Loan; (ii) trade accounts payable arising in the ordinary course of
business; (iii) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), statutory obligations, surety bonds and
performance bonds incurred in the ordinary course of business and on a basis
consistent with customary practice at properties used as self-service storage
facilities; (iv) the obligations of the Borrower under the Property Management
Agreement; and (v) non-delinquent taxes and assessments.
(c) CONSOLIDATION AND MERGER. Liquidate or dissolve or enter into any
consolidation, merger, partnership, joint venture, syndicate or other
combination.
(d) SALE OF ASSETS. Sell, transfer, lease (other than as permitted hereby
or by the Collateral Documents), assign, exchange, contribute, abandon or
otherwise dispose of, directly or indirectly, the Property or any interest
therein, except for (i) leases entered into in the ordinary course of business,
(ii) dispositions of personal property disposed of in the ordinary course of
business, (iii) dispositions in accordance with Section 4.3(e) and
(iv) dispositions in the nature of furniture, furnishings, equipment and
supplies which are worn or obsolete or otherwise not needed in the running of
the business and which are replaced with like kind items (unless failure to
replace such furniture, furnishings, equipment or supplies would not have a
Material Adverse Effect).
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(e) CHANGES IN PROPERTY OR BUSINESS. (i) Make or allow any changes to be
made in the nature of the use of the Property except in a manner which is
consistent with the use of such Property as a self-service storage center;
(ii) voluntarily sell, transfer, assign or otherwise discontinue any truck
rental, retail sales or other material revenue-producing business operations
conducted in connection with the use and operation of the Properties as self-
service storage centers, unless such retail sales or other business operations
is replaced with a comparable operation; (iii) initiate or acquiesce in any
change in any zoning or other land use classification now or hereafter in effect
and affecting the Property or any part thereof if such changes are likely to
have a material adverse effect on the Net Operating Income or Gross Revenues
generated by the Properties; (iv) voluntarily become subject to any Requirement
of Law if, as a result of complying with any provision of any Loan Document,
such compliance would result in a violation of such Requirement of Law;
(v) purchase any properties other than the Property or conduct any other
business other than related to the Properties; or (vi) violate any of the
provisions of the Borrower's Certificate of Incorporation or Bylaws, including,
without limitation, the provisions thereof referred to in Section 8.30.
(f) MODIFICATIONS TO THE SUBORDINATION AGREEMENT PROPERTY MANAGEMENT
AGREEMENT. Amend, modify, terminate or waive any of the provisions of (i) the
Subordination Agreement or (ii) the Property Management Agreement in respect of
the Properties other than in accordance with its terms, or enter into any
replacement thereto, or consent to any delegation of duties by the Property
Manager thereunder (other than by reason of a merger or consolidation of the
Property Manager and SSCI), without the prior written consent of the Lender,
which consent shall not be unreasonably withheld; provided, however, that any
increase in the compensation paid or payable to the Property Manager shall be
subject to the approval of the Lender in its sole and absolute discretion.
(g) TRANSACTIONS WITH AFFILIATES. Purchase, acquire or lease the Property
from, or sell, transfer or lease the 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 other than arm's-length commercially reasonable terms, except
for any of the following: (i) transactions relating to the sharing of actual
overhead expenses, including, without limitation, managerial, payroll and
accounting and legal expenses, for which charges assessed
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against the Borrower are not greater than would be incurred by the Borrower in
similar arm's-length transactions with non-Affiliates; (ii) the transactions
under the Property Management Agreement and the Advisory Agreement; (iii) the
transactions described in the Registration Statement; and (iv) the transactions
contemplated hereby.
(h) ACTIONS REQUIRING LENDER'S APPROVAL. Without in each case obtaining
the prior written consent of the Lender, enter into any amendment, extension
(other than extensions of the term of the Property Management Agreement) or
waiver of any of the terms of the Property Management Agreement in respect of
the Properties or any of the other Loan Documents, or any agreement for the
postponement of the date for performance of, or forgiveness of, any of the
indebtedness thereunder; or enter into any subordination agreement affecting the
Loan Documents; or amend the Borrower's Certificate of Incorporation or Bylaws,
except as permitted hereunder.
(i) RESTRICTED ACTIVITIES. Conduct any other business other than that
related to the Properties or as contemplated hereby, or violate any Requirements
of Law, other than any violations which, singly or in the aggregate, would not
have a Material Adverse Effect.
(j) LIMITATION ON SECURITY. Use (voluntarily or involuntarily) the
Property as security for any Indebtedness (or other obligation) other than the
Loan.
(k) WAIVER OF STAY; EXTENSION OR USURY LAWS. At any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of any
stay or extension law or any usury law or other law, which would prohibit or
forgive the Borrower from paying all or any portion of the principal of and/or
interest on the Note, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Agreement;
furthermore, the Borrower hereby expressly waives, to the full extent permitted
by applicable law, all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted to
the holder of the Note but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.1 EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" hereunder:
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(a) After application of any funds from the Defeasance Account pursuant to
Section 4.3 and any funds then on deposit in the Collection Account in the
manner set forth in the Collection Account Agreement, the Borrower shall fail to
make any payment due under the Note and such failure continues three (3) days
after written notice from the Lender;
(b) Any representation, warranty or certification made by the Borrower
under any Loan Document or by the Borrower in any report, certificate or
financial statement furnished in connection with any Loan Document shall be
materially inaccurate or incomplete as of the date made and, if (i) (w) such
representation, warranty or certification is capable of being so made accurate
and complete and (x) the inaccuracy or incompleteness of such representation,
warranty or certification did not result in a Material Adverse Effect, the
Borrower fails to make such representation, warranty or certification accurate
and complete within forty-five (45) days after written notice thereof from the
Lender, or (ii) (y) such representation, warranty or certification is capable of
being so made accurate and complete and (z) the inaccuracy or incompleteness of
such representation, warranty or certification results in a Material Adverse
Effect, the Borrower fails to make such representation, warranty or
certification accurate and complete within ten (10) days after written notice
thereof from the Lender; or
(c) The Borrower shall fail to perform or observe in any material respect
any of its covenants, obligations or agreements contained in the Loan Documents
(other than those referred to in subparagraphs (a) and (b)); provided, however,
that if such failure can be cured and the Borrower is making diligent efforts to
effect such cure, then such event shall not constitute an Event of Default
unless such event continues for forty-five (45) days after written notice
thereof from the Lender; or
(d) Any representation or warranty made by SSCI under the Guaranty and
Indemnification Agreement shall be materially inaccurate or incomplete as of the
date made, and if (i) (w) such representation, warranty or certification is
capable of being so made accurate and complete and (x) the inaccuracy or
incompleteness of such representation or warranty did not result in a Material
Adverse Effect, SSCI fails to make such representation or warranty accurate and
complete within forty- five (45) days after written notice thereof from the
Lender, or (ii) (y) such representation, warranty or certification is capable of
being so made accurate and complete and (z) the inaccuracy or incompleteness of
such representation, warranty or certification results in a Material Adverse
Effect, SSCI fails to make such representation, warranty or certification
accurate and complete within ten (10) days after written notice thereof from the
Lender; or
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(e) If SSCI shall fail to perform or observe in any material respect any
of its covenants, obligations or agreements contained in the Guaranty and
Indemnification Agreement; PROVIDED, HOWEVER, that if such failure can be cured
and SSCI is making diligent efforts to effect such cure, then such event shall
not constitute an Event of Default unless such event continues for forty-five
(45) days after written notice thereof from the Lender; or
(f) (i) The Borrower or SSCI shall 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 the Borrower or SSCI shall make a general
assignment for the benefit of its creditors; or (ii) there shall be commenced
against the Borrower or SSCI 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, and (B) remains undismissed,
undischarged or unbonded for a period of ninety (90) days; or (iii) there shall
be commenced against the Borrower or SSCI 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 pending appeal within ninety (90) days
from the entry thereof; or (iv) the Borrower or SSCI shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in
(other than in connection with a final settlement), any of the acts set forth in
clause (i), (ii) or (iii) above; or (v) the Borrower or SSCI shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) One or more judgments or decrees in an aggregate amount exceeding
$5,000,000 and not covered by insurance shall be entered against the Borrower
and all such judgments or decrees shall not have been vacated, discharged,
stayed, satisfied or bonded pending appeal within ninety (90) days from the
entry thereof, provided that the portion of the cost of such bond borne by the
Borrower shall not exceed $5,000,000; or
(h) The Borrower defaults in the performance of any of its obligations
under the Mortgage with respect to the payment of Taxes within any applicable
grace period and/or the maintenance of insurance.
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Automatically upon the occurrence of an Event of Default under
Section 11.1(f) and, with respect to all other Events of Default, at the option
and upon declaration of the Lender, the principal balance of the Loan, interest,
Yield Maintenance Premium with respect to the entire principal balance of the
Loan and any other charges accrued but unpaid thereon shall become immediately
due and payable, and the Lender may exercise all rights and remedies available
to it under the Loan Documents.
No delay or omission of the Lender to exercise any right or remedy accruing
upon any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article or by law to the Lender may be exercised from time
to time, and as often as may be deemed expedient by the Lender.
ARTICLE XII
[RESERVED]
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 NO ASSIGNMENT
The Borrower may not assign its rights or obligations under the Loan
Documents. All provisions contained in the Loan Documents shall inure to the
benefit of the Lender and its successors and assigns, and shall be binding upon
the Borrower and its successors and assigns.
SECTION 13.2 CUMULATIVE RIGHTS: NO WAIVER
The rights, powers and remedies of the Lender hereunder are cumulative and
in addition to all rights, powers and remedies provided under any and all
agreements between the Borrower and the Lender relating hereto, at law, in
equity or otherwise. Any delay or failure by the Lender to exercise any right,
power or remedy shall not constitute a waiver thereof by the Lender and no
single or partial exercise by the Lender of any right, power or remedy shall
preclude other or further exercise thereof or any exercise of any other rights,
powers or remedies.
-55-
<PAGE>
SECTION 13.3 ENTIRE AGREEMENT
This Agreement and the documents and agreements referred to herein embody
the entire agreement and understanding between the parties hereto and supersede
all prior agreements and understandings relating to the subject matter hereof
and thereof. Upon funding of the Advance on the Closing Date, the provisions of
the Commitment Letter (other than those pertaining to (i) the payment of fees
and expenses as provided therein, and (ii) matters pertaining to fees or
commissions payable to third parties as provided therein, all of which shall
survive the Closing Date and the funding of the Advance) shall be and are hereby
terminated.
SECTION 13.4 SURVIVAL; DISCHARGE
All representations and warranties herein contained on the part of the
Borrower shall be made on and as of the dates specifically provided herein, but
shall survive the Closing until the Loan is paid and performed in full. At such
time as the Loan is paid and performed in full, the Lender shall execute and
deliver to the Borrower such releases and other documentation reasonably
requested by the Borrower to effect the release of the Collateral from the Liens
created under this Agreement and the other Loan Documents.
SECTION 13.5 NOTICES
All notices given by either party to the other shall be in writing unless
otherwise provided for herein, delivered by facsimile transmission (confirmed in
writing) or delivered personally or by mailing the same by registered or
certified mail, return receipt requested, as follows:
(i) if to the Lender:
Nomura Asset Capital Corporation
Two World Financial Center
Building B, 21st Floor
New York, New York 10281-1198
Attention: Mr. Perry Gershon
-and-
Ms. Sheryll McAffee
Facsimile: (212) 667-1022
-56-
<PAGE>
and to the Trustee (an assignee of the Lender):
LaSalle National Bank
135 South LaSalle Street
Suite 200
Chicago, Illinois 60603
(ii) if to the Borrower:
SSC Property Holdings, Inc.
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Attention: Kristin Stred, Esq.
Facsimile: (206) 624-1645
with a copy to:
Perkins Coie
Attention: Dennis Bekemeyer, Esq.
1201 Third Avenue
Seattle, Washington 98101
Facsimile: (206) 287-3267
or to such other address of which the Lender or the Borrower shall have given
notice as herein provided. All such notices, requests or other communications
shall be deemed to have been sufficiently given for all purposes hereof on the
date of receipt or refusal to accept delivery.
SECTION 13.6 GOVERNING LAW
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF WASHINGTON WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW
YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND THE PARTIES HERETO HEREBY AGREE AND CONSENT THAT, TO THE EXTENT
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING IN ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY
OF NEW YORK MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO THE PARTIES HERETO AT THE ADDRESSES INDICATED ABOVE, AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME SHALL HAVE BEEN
SO MAILED.
-57-
<PAGE>
SECTION 13.7 INDEMNIFICATION
The Borrower shall indemnify and hold harmless the Lender, the Account
Agent, the Trustee, the Servicer, the Account Bank and each of their Affiliates,
directors, officers, employees, attorneys, agents, successors and assigns (the
"Indemnified Parties") from and against all damages and liabilities
(collectively and severally, "Losses") assessed against any such Indemnified
Party in respect of any of their respective capacities as the Lender, the
Account Agent, the Trustee, the Servicer or the Account Bank under this
Agreement or the other Loan Documents, as the case may be, or as an Affiliate,
director, officer, employee, attorney, agent, successor or assign of the Lender,
Account Agent, Trustee, Servicer or Account Bank in any of their respective
capacities thereunder, as the case may be, resulting from the claims of any
party relating to or arising out of the Loan Documents, (expressly excluding,
however, the claims of any party that (i) are not related to or arise out of the
Loan Documents and (ii) that relate to or arise out of the assignment of the
Loan by the Lender to the Trustee or the issuance by the Trustee, or the sale by
any Indemnified Party, of any of the Certificates (whether or not the Borrower
is separately required to indemnify for any such claim, it being understood that
any indemnity by the Borrower for any such claim would be pursuant to the terms
and conditions of the Representations Agreement)) except for (i) Losses caused
by the negligence or willful misconduct of such Indemnified Party or any of its
Affiliates and (ii) Losses resulting from the noncompliance (consistent with the
standards for performance in any applicable Loan Document) by such Indemnified
Party or any of its Affiliates with any of the terms of, or any
misrepresentation by such Indemnified Party contained in, any applicable Loan
Document, and the Borrower shall 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 requests or subpoenas),
regardless of whether the Lender or such other Indemnified Person is a party
thereto. With reference to the provisions set forth in this Section 13.7 for
payment by the Borrower of attorneys fees incurred by the Indemnified Parties in
any action or claim brought by a third party, the Borrower shall diligently
defend such Indemnified Party and diligently conduct the defense. If the
Indemnified Party desires to engage separate counsel, it may do so at its own
expense; provided, however, that such limitation on the obligation of the
Borrower to pay the fees of separate counsel for such Indemnified Party shall
not apply if such Indemnified Party has retained said separate counsel because
the Borrower is not diligently defending it or not diligently conducting the
defense and the Indemnified Party so notifies the Borrower. Anything to the
contrary contained herein or any other Loan Documents notwithstanding, the Loan
shall not be considered to have been paid in full unless all obligations of
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<PAGE>
Borrower under this Section 13.7 shall have been fully performed (except for
contingent indemnification obligations for which no claim has actually been made
pursuant to this Agreement).
SECTION 13.8 EXPENSES; DOCUMENTARY TAXES
Subject to any limitations or caps previously agreed to in the Commitment
Letter or otherwise in writing, the Borrower agrees to pay all reasonable out-
of-pocket costs, expenses and other payments in connection with the preparation
for and closing of the transactions contemplated by this Agreement including
without limitation fees and disbursements of special counsel for the Lender, the
Trustee, the Servicer and the Account Agent, incurred in connection with the
preparation of this Agreement and the other Loan Documents. In addition, the
Borrower agrees to pay any and all stamp and other similar documentary taxes,
assessments or charges payable in connection with the execution and delivery of,
and enforcement of the obligations under, this Agreement.
SECTION 13.9 SEVERABILITY
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
SECTION 13.10 COUNTERPARTS; EFFECTIVENESS
This Agreement may executed in counterparts each of which shall be an
original with the same effect as if the signatures thereto and hereto were upon
the same instrument.
SECTION 13.11 CONFLICTS
In the event of any conflict between the terms of this Agreement and the
terms of any of the other Loan Documents, the terms of this Agreement shall
govern.
-59-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
NOMURA ASSET CAPITAL CORPORATION
By: /s/ Perry Gershon
----------------------------------------
Title: Vice President
--------------------------------
SSC PROPERTY HOLDINGS, INC.
By: /s/ Harrell L. Beck
----------------------------------------
Title: President
--------------------------------
-60-
<PAGE>
LOAN AGREEMENT
EXHIBIT C
PROMISSORY NOTE
(NON-RECOURSE)
$17,980,000 June 8, 1994
FOR VALUE RECEIVED, SSC PROPERTY HOLDINGS, INC., a Delaware corporation
("Borrower"), hereby unconditionally promises to pay, in United States Dollars
in immediately available funds, to the order of NOMURA ASSET CAPITAL CORPORATION
("Lender"), at its offices at Two World Financial Center, Building B,
21st Floor, New York, New York 10281-1198 (or at such other office or bank
account as the Lender may from time to time designate in writing), the principal
sum of Seventeen Million Nine Hundred Eighty Thousand Dollars ($17,980,000) and
to pay interest on the unpaid principal balance hereof from time to time
outstanding at the rates and times provided for in the Loan Agreement (defined
below).
This Note is the Advance Note described in, and is subject to the terms and
provisions of, the Amended and Restated Loan Agreement, dated as of June __,1994
(herein, as the same may at any time be amended or modified and in effect,
called the "Loan Agreement"), between the Borrower and the Lender. Reference is
hereby made to the Loan Agreement for a statement of its terms and provisions,
including without limitation (i) those under which this Note is to be paid from
the Collateral (as defined in the Loan Agreement), (ii) those under which the
due date of this Note may or shall be accelerated if an Event of Default has
occurred and is continuing, and (iii) those describing the security for this
Note.
If any amount payable for interest hereunder or under the Loan Agreement
exceeds the amount permitted by applicable law, such amount payable shall be
applied as provided in Section 3.4 of the Loan Agreement.
This Note has been delivered and shall be deemed to be a contract made
under the laws of the State of Washington and for all purposes shall be governed
by and construed in accordance with the laws of the State of Washington, without
giving effect to principles of conflicts of law.
-61-
<PAGE>
In addition to and not in limitation of the foregoing and the provisions of
the Loan Agreement, the Borrower further agrees, subject only to any limitation
imposed by applicable law, to pay all expenses, including attorneys' fees and
legal expenses, incurred by the holder of this Note in endeavoring to collect
any amounts payable hereunder that are not paid when due, whether by
acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest, and notice of dishonor.
SSC PROPERTY HOLDINGS, INC.
By:
------------------------------------
Title:
---------------------------------
Address:
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
-62-
<PAGE>
LOAN AGREEMENT
EXHIBIT D
AMENDED, RESTATED AND CONSOLIDATED
PROMISSORY NOTE (NON-RECOURSE)
$122,580,000 June 8, 1994
FOR VALUE RECEIVED, SSC PROPERTY HOLDINGS, INC., a Delaware corporation
("Borrower"), hereby unconditionally promises to pay, in United States Dollars
in immediately available funds, to the order of NOMURA ASSET CAPITAL CORPORATION
("Lender"), at its offices at Two World Financial Center, Building B,
21st Floor, New York, New York 10281-1198 (or at such other office or bank
account as the Lender may from time to time designate in writing), the principal
sum of One Hundred Twenty Two Million Five Hundred Eighty Thousand Dollars
($122,580,000) and to pay interest on the unpaid principal balance hereof from
time to time outstanding at the rates and times provided for in the Loan
Agreement (defined below).
This Note is the Advance Note described in, and is subject to the terms and
provisions of, the Amended and Restated Loan Agreement, dated as of June __,
1994 (herein, as the same may at any time be amended or modified and in effect,
called the "Loan Agreement"), between the Borrower and the Lender. This Note
amends, restates, consolidates and renews (i) the Promissory Note dated March 1,
1994 in the original principal amount of $104,600,000 made payable by SSC
Property Holdings, Inc. to Cargill Financial Services Corporation and
subsequently assign to the Lender and (ii) the Promissory Note of even date
herewith in the original principal amount of $17,980,000 made payable by
Borrower to Lender. Reference is hereby made to the Loan Agreement for a
statement of its terms and provisions, including without limitation (i) those
under which this Note is to be paid from the Collateral (as defined in the Loan
Agreement), (ii) those under which the due date this Note may or shall be
accelerated if an Event of Default has occurred and is continuing, and
(iii) those describing the security for this Note.
-63-
<PAGE>
If any amount payable for interest hereunder or under the Loan Agreement
exceeds the amount permitted by applicable law, such amount payable shall be
applied as provided in Section 3.4 of the Loan Agreement.
This Note has been delivered and shall be deemed to be a contract made
under the laws of the State of Washington and for all purposes shall be governed
by and construed in accordance with the laws of the State of Washington, without
giving effect to principles of conflicts of law.
In addition to and not in limitation of the foregoing and the provisions of
the Loan Agreement, the Borrower further agrees, subject only to any limitation
imposed by applicable law, to pay all expenses, including attorneys' fees and
legal expenses, incurred by the holder of this Note in endeavoring to collect
any amounts payable hereunder that are not paid when due, whether by
acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest, and notice of dishonor.
SSC PROPERTY HOLDINGS, INC.
By:
------------------------------------
Title:
---------------------------------
Address:
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
-64-
<PAGE>
EXHIBIT A
MORTGAGE VALUES
<TABLE>
<CAPTION>
ALLOCATED MINIMUM
MORTGAGE RELEASE
STORE NAME STATE VALUE AMOUNT
- ---------- ----- --------- -------
<S> <C> <C> <C>
Chandler AZ 1,662,840 2,078,550
Mesa AZ 1,119,838 1,399,798
Phoenix AZ 1,703,490 2,129,363
Phoenix East AZ 1,376,281 1,720,351
Scottsdale AZ 1,042,991 1,303,739
Colton CA 683,748 854,685
Fontana Sierra CA 960,775 1,200,969
Hayward CA 810,338 1,012,923
Kearny-Balboa CA 2,111,145 2,638,931
La Habra CA 1,804,153 2,255,191
Mountain View CA 1,135,017 1,418,771
Palo Alto CA 1,809,787 2,262,234
South San Francisco CA 1,855,240 2,319,050
Union City CA 721,036 901,295
Northglenn CO 1,337,615 1,672,019
Tamarac CO 490,523 613,154
Thornton CO 591,423 739,279
Windermere CO 1,656,906 2,071,133
Military Trail FL 2,905,030 3,631,288
Oakland Park FL 6,195,398 7,744,238
Seminole FL 835,237 1,044,046
West Palm Beach FL 3,378,112 4,222,640
Alsip IL 603,860 754,825
Bridgeview IL 1,201,490 1,501,863
Dolton IL 855,239 1,069,049
Lisle IL 1,476,318 1,845,398
Lombard IL 988,492 1,235,615
Rolling Meadows IL 720,980 901,225
Schaumburg IL 1,110,251 1,387,814
Willowbrook IL 1,051,139 1,313,924
Clinton MD 774,428 968,035
Crofton MD 959,943 1,198,804
Laurel MD 1,007,826 1,259,783
<PAGE>
<CAPTION>
ALLOCATED MINIMUM
MORTGAGE RELEASE
STORE NAME STATE VALUE AMOUNT
- ---------- ----- --------- -------
<S> <C> <C> <C>
Lansing MI 292,289 365,361
Southfield MI 1,787,578 2,234,473
Troy East MI 1,400,769 1,750,961
Troy West MI 1,620,464 2,025,580
Walled Lake MI 890,499 1,113,124
Beaverton (Cornell) OR 547,420 684,275
Denny Road OR 1,510,084 1,887,605
King City OR 1,277,321 1,596,651
Portland OR 965,630 1,207,038
Salem OR 1,457,417 1,821,771
Arlington TX 672,567 840,709
Bandera Road TX 1,172,027 1,465,034
Beltline Road TX 1,018,660 1,273,325
Blanco Road TX 2,057,668 2,572,085
Cook Road TX 842,178 1,052,723
Federal TX 1,411,344 1,764,180
Fredericksburg Rd TX 1,633,410 2,041,763
Greenbriar TX 2,908,377 3,635,471
Hill Country Village TX 1,725,066 2,156,333
Hurst (Euless Blvd) TX 900,116 1,125,145
Imperial Valley TX 1,172,001 1,465,001
Irving TX 764,049 955,061
MacArthur Blvd TX 894,944 1,118,680
Medical Center TX 1,895,969 2,369,961
North Austin TX 1,543,264 1,929,080
NW Houston TX 1,377,430 1,721,788
San Antonio NE TX 1,008,682 1,260,853
Sugarland TX 1,927,193 2,408,991
Thousand Oaks TX 1,065,584 1,331,980
Westheimer TX 1,550,282 1,937,853
Woodlands TX 1,890,851 2,363,564
Fairfax VA 2,947,600 3,684,500
Falls Church VA 3,652,105 4,565,131
Herndon VA 1,502,400 1,878,000
Kempsville VA 708,943 886,179
Manassas East VA 865,115 1,081,394
Manassas West VA 802,476 1,003,095
Newport News South VA 1,269,202 1,586,503
North Richmond VA 876,126 1,095,158
Aurora North WA 1,589,285 1,986,606
Bellevue east WA 2,384,345 2,980,431
-2-
<PAGE>
<CAPTION>
ALLOCATED MINIMUM
MORTGAGE RELEASE
STORE NAME STATE VALUE AMOUNT
- ---------- ----- --------- -------
<S> <C> <C> <C>
Bellevue west WA 2,384,345 2,980,431
East Lynnwood WA 1,205,149 1,506,436
Factoria WA 1,510,156 1,887,695
Federal Way WA 2,160,641 2,700,801
Issaquah WA 1,575,634 1,969,543
North Spokane WA 1,469,715 1,837,144
Renton WA 1,583,055 1,978,819
Seattle WA 2,244,075 2,805,094
Smokey Point WA 582,765 728,456
Tacoma South WA 793,441 991,801
Vancouver Mall WA 920,915 1,151,144
West Seattle WA 1,435,390 1,794,238
------------ ------------
TOTAL $122,580,000 $153,225,000
------------ ------------
------------ ------------
</TABLE>
-3-
<PAGE>
EXHIBIT B - ENVIRONMENTALS
PROPERTIES AS LISTED FINAL COLLATERAL POOL DATED 3/1/94
<TABLE>
<CAPTION>
PROPERTY PHASE I PHASE II ADDITIONAL INFORMATION
-------- ------- -------- ----------------------
<S> <C> <C> <C>
Chandler, AZ 8/26/93
Phoenix, AZ 8/25/93 10/28/93
Phoenix East, AZ 8/26/93
Scottsdale, AZ 8/26/93 SG ltr 2/11/94 #16
Colton, CA Aug 93 EMG letter 2/3/94 #14
Fontana Sierra, CA Aug 93 EMG letter 2/3/94 #24
Hayward, CA 8/27/93 Alameda County ltr 1/25/94 & 2/8/94, SG ltr 2/9/94 & 2/25/94; EMG 3/3/94
Kearney-Balboa, CA Aug 93 EMG 11/2/93
La Habra, CA Aug 93 10/28/93 EMG Phase II 11/29/93
Mountain View, CA Aug 93 EMG ltr 10/28/93, 3/3/94
Palo Alto, CA Aug 93 EMG letter 2/3/94 #25, 3/3/94; SG ltr 2/11/94 #16
South San Francisco, CA 8/25/93 EMG 2/25/94 Pg. 2
Union City, CA 8/26/93
Northglenn, CO 8/26/93
Tamarac, CO 8/27/93 EMG 2/25/94, Pg. 2
Thornton, CO 8/26/93
Windermere, CO 8/27/93 EMG letter 2/3/94 #29
Military Trail, FL 8/26/93 EMG ltr 11/30/93, 2/3/94 #9, 3/3/94
Oakland Park, FL 8/25/93 11/19/93
Seminole, FL 8/25/93 EMG ltr 9/16/93, ATEC ltr 10/8/93
West Palm Beach, FL 9/20/93 EMG ltr 10/14/93, 11/12/93, 11/23/93, 2/3/94 #6, SB ltr 2/11/94 #8
Alsip, IL 8/27/93 EMG ltr 2/25/94 Pg. 1
Bridgeview, IL 8/27/93
Dolton, IL 8/27/93 EMG ltr 12/30/93, 2/3/94 #16 & #18, 2/24/94, SG ltr 3/1/94
Lisle, IL 8/27/93 EMG ltr 3/3/94, 3/15/94
Lombard, IL 8/26/93
Rolling Meadows, IL 8/27/93
Schaumburg, IL 8/27/93
Willowbrook, IL 8/25/93 SG ltr 1/7/94 #2A
Page 1
<PAGE>
<CAPTION>
PROPERTY PHASE I PHASE II ADDITIONAL INFORMATION
-------- ------- -------- ----------------------
<S> <C> <C> <C>
Clinton, MD 8/24/93
Crofton, MD 8/26/93
Laurel, MD 8/24/93 EMG letter 2/8/94 #7, 2/11/94 #5, 2/25/94 Pg. 1
Lansing, MI 8/26/93
Southfield, MI 8/26/93 SG 11/10/93, EMG ltr 2/3/94 #4 & #21, 2/25/94 Pg. 2
Troy - East, MI 8/27/93
Troy - West, MI 8/26/93
Walled Lake, MI 8/26/93 SG ltr 2/11/94 #7, EMG ltr 2/3/94 #5, 2/8/94 #10, 2/25/94 Pg. 2
Beaverton, OR Aug 93
Denny Road, OR Aug 93
King City/Tigard, OR Aug 93 EMG letter 12/29/93
Portland, OR Aug 93
Salem, OR Aug 93
Arlington, TX 8/26/93 10/14/93 ATEC letter 9/1/93, EMG letter 2/3/94 #3
Bandera Road, TX 8/26/93
Beltline Road, TX 8/26/93 EMG ltr 2/3/94 #17, 2/25/94 Pg. 1
Blanco Road, TX 8/27/93
Cook Road, TX 8/26/93
Euless Blvd. (Hurst), TX 8/25/93 SG ltr 2/11/94 #20; ATEC ltr 3/9/94
Federal Road, TX 8/25/93
Fredricksburg, TX 8/27/93
Greenbriar, TX 8/24/93
Hill Country Village, TX 8/26/93 EMG ltr 3/3/94
Imperial Valley, TX 8/25/93
Irving, TX 8/26/93 10/14/93 ATEC 10/12/93, EMG ltr 10/29/93, 3/3/94
MacArthur Blvd., TX 8/26/93 ATEC ltr 10/12/93
North Austin, TX 8/26/93 EMG ltr 3/3/94
NW Houston, TX 8/27/93 EMG ltr 11/2/93, 2/3/94 #10
Page 2
<PAGE>
<CAPTION>
PROPERTY PHASE I PHASE II ADDITIONAL INFORMATION
-------- ------- -------- ----------------------
<S> <C> <C> <C>
San Antonio NE, TX 8/25/93
South Main, TX 8/26/93 EMG ltr 2/3/94 #11
Sugarland, TX 8/25/93
Thousand Oaks, TX 8/26/93
Westheimer, TX 8/26/93
Woodlands, TX 8/26/93
Fairfax, VA 8/24/93
Falls Church, VA 8/25/93 EMG ltr 2/25/94 Pg. 3, 3/15/94
Herndon, VA 8/26/93 EMG ltr 2/25/94 Pg. 1, 3/15/94
Kempsville, VA 8/24/93 EMG ltr 3/3/94
Manassas East, VA 8/24/93
Manassas West, VA 8/24/93
Newport News South, VA 8/24/93
North Richmond, VA 8/26/93
Aurora North, WA Aug 93 EMG ltr 10/14/93, 2/3/94 #17, 2/11/94 #2
Bellevue East, WA 8/25/93 11/10/93 EMG ltr 2/3/94 #7, 2/11/94 #7, 2/25/94 Pg. 2
E. Lynnwood, WA Aug 93 EMG ltr 3/15/94
Factoria, WA Aug 93 EMG ltr 10/28/93, 11/11/93
Federal Way, WA Aug 93
North Spokane, WA Aug 93 EMG 2/11/94 #6, 2/17/94
Renton, WA Aug 93
Seattle, WA Aug 93 EMG ltr 2/8/94 #9, 3/3/94
Smokey Point, WA Aug 93
South Tacoma, WA Aug 93 EMG ltr 2/25/94 Pg. 3, 3/15/94
Vancouver Mall, WA Aug 93
West Seattle, WA Aug 93
Mesa, AZ Aug 93
Page 3
<PAGE>
<CAPTION>
PROPERTY PHASE I PHASE II ADDITIONAL INFORMATION
-------- ------- -------- ----------------------
<S> <C> <C> <C>
Issaquah, WA Aug 93 EMG ltr 2/8/94, 3/22/94
Bellevue West, WA Aug 93 12/24/93 EMG ltr 2/03/94, 2/11/94, 2/25/94, 5/26/94
</TABLE>
Page 4
<PAGE>
$50,000,000
REVOLVING LOAN AGREEMENT
Dated as of December 23, 1994
Among
SHURGARD STORAGE CENTERS, INC.,
as Guarantor;
SSC ACQUISITIONS, INC.,
as Borrower;
NOMURA ASSET CAPITAL CORPORATION,
as Agent;
and
THE LENDERS PARTY HERETO,
as Lenders
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. FACILITY. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Loan Commitment. . . . . . . . . . . . . . . . . . . . . . 1
1.2 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Changes of Commitment. . . . . . . . . . . . . . . . . . . 2
1.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Prepayments; Repayments. . . . . . . . . . . . . . . . . . 3
SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST. . . . . . . . . . 4
2.1 Repayment of Loans . . . . . . . . . . . . . . . . . . . . 4
2.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3. PAYMENTS; COMPUTATIONS; ETC.. . . . . . . . . . . . . 4
3.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Computations . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 4. YIELD PROTECTION; LIBOR UNAVAILABILITY. . . . . . . . 5
4.1 Compensation for Increased Costs . . . . . . . . . . . . . 5
4.2 Limitation on Types of Loans . . . . . . . . . . . . . . . 6
4.3 Compensation . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Additional Interest on LIBOR Rate Loans. . . . . . . . . . 7
SECTION 5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . 8
5.1 Conditions Precedent to Closing. . . . . . . . . . . . . . 8
5.2 Conditions Precedent to Loans. . . . . . . . . . . . . . . 9
SECTION 6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . 12
6.1 Corporate Existence and Power. . . . . . . . . . . . . . . 12
6.2 Corporate Authorization; No Violation or Breach. . . . . . 12
6.3 Government Approvals . . . . . . . . . . . . . . . . . . . 12
6.4 Binding Obligations. . . . . . . . . . . . . . . . . . . . 13
6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 13
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6.6 Financial Condition. . . . . . . . . . . . . . . . . . . 13
6.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.8 Laws, Orders; Other Agreements.. . . . . . . . . . . . . 13
6.9 Margin Stock . . . . . . . . . . . . . . . . . . . . . . 14
6.10 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.11 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . 14
6.12 Lien Creation and Priority; No Encumbrances. . . . . . . 15
6.13 Investment Company Act; Other Regulations. . . . . . . . 15
6.14 Delinquent Property Liens. . . . . . . . . . . . . . . . 15
6.15 Improvements . . . . . . . . . . . . . . . . . . . . . . 15
6.16 Casualty; Condemnation . . . . . . . . . . . . . . . . . 15
6.17 Assessments. . . . . . . . . . . . . . . . . . . . . . . 16
6.18 Rights of Others to Purchase Property. . . . . . . . . . 16
6.19 Environmental Matters. . . . . . . . . . . . . . . . . . 16
6.20 Zoning Compliance, Etc.. . . . . . . . . . . . . . . . . 16
6.21 Solvency . . . . . . . . . . . . . . . . . . . . . . . . 17
6.22 Permits. . . . . . . . . . . . . . . . . . . . . . . . . 17
6.23 Other Representations and Warranties . . . . . . . . . . 17
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . 17
7.1 Preservation of Corporate Existence, Etc.. . . . . . . . 17
7.2 Books and Records; Inspection. . . . . . . . . . . . . . 18
7.3 Maintenance of Property. . . . . . . . . . . . . . . . . 18
7.4 Compliance With Laws.. . . . . . . . . . . . . . . . . . 18
7.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 Financial Statements . . . . . . . . . . . . . . . . . . 20
7.7 Notification.. . . . . . . . . . . . . . . . . . . . . . 22
7.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.9 Environmental Matters. . . . . . . . . . . . . . . . . . 23
7.10 Other Agreements . . . . . . . . . . . . . . . . . . . . 23
SECTION 8. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . 23
8.1 Liquidation; Merger; Sale of Assets. . . . . . . . . . . 23
8.2 Limitation on Liens. . . . . . . . . . . . . . . . . . . 24
8.3 Sale of Property . . . . . . . . . . . . . . . . . . . . 24
8.4 Operations . . . . . . . . . . . . . . . . . . . . . . . 24
8.5 Transactions with Affiliates . . . . . . . . . . . . . . 24
8.6 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 25
8.7 ERISA Compliance . . . . . . . . . . . . . . . . . . . . 25
8.8 Environmental Compliance . . . . . . . . . . . . . . . . 25
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SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . 26
SECTION 10. COLLATERAL PROPERTIES; SPRINGING LIEN PROPERTIES . . 29
10.1 Additions to Collateral. . . . . . . . . . . . . . . . . 29
10.2 Release of Collateral Properties . . . . . . . . . . . . 30
10.3 Additions to Springing Lien Properties . . . . . . . . . 30
10.4 Removal of Springing Lien Properties . . . . . . . . . . 30
10.5 Collateralization Enhancement. . . . . . . . . . . . . . 31
SECTION 11. THE AGENT. . . . . . . . . . . . . . . . . . . . . . 31
11.1 Authorization and Action . . . . . . . . . . . . . . . . 31
11.2 Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . 31
11.3 Rights as Lender . . . . . . . . . . . . . . . . . . . . 32
11.4 Lender Credit Decision . . . . . . . . . . . . . . . . . 32
11.5 Indemnification. . . . . . . . . . . . . . . . . . . . . 33
11.6 Successor Agent. . . . . . . . . . . . . . . . . . . . . 33
11.7 Collateral Matters . . . . . . . . . . . . . . . . . . . 33
11.8 Sharing of Payments, Etc.. . . . . . . . . . . . . . . 34
11.9 Application of Section 11. . . . . . . . . . . . . . . 34
SECTION 12. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 34
12.1 Waiver . . . . . . . . . . . . . . . . . . . . . . . . 34
12.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . 35
12.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . 36
12.4 Indemnification. . . . . . . . . . . . . . . . . . . . 37
12.5 Amendments, Etc. . . . . . . . . . . . . . . . . . . . 38
12.6 Successors and Assigns . . . . . . . . . . . . . . . . 39
12.7 Assignments. . . . . . . . . . . . . . . . . . . . . . 39
12.8 Survival; Discharge. . . . . . . . . . . . . . . . . . 40
12.9 Captions . . . . . . . . . . . . . . . . . . . . . . . 40
12.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . 40
12.11 Governing Law; Submission to Jurisdiction . . . . . . . 40
12.12 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . 41
12.13 Limitation of Liability . . . . . . . . . . . . . . . . 41
12.14 Marshalling; Recapture. . . . . . . . . . . . . . . . . 41
12.15 Rights and Remedies . . . . . . . . . . . . . . . . . . 41
12.16 Third Party Beneficiaries . . . . . . . . . . . . . . . 41
12.17 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . 42
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SECTION 13. GUARANTY . . . . . . . . . . . . . . . . . . . . 42
13.1 The Guaranty.. . . . . . . . . . . . . . . . . . . . . . 42
13.2 Bankruptcy.. . . . . . . . . . . . . . . . . . . . . . . 42
13.3 Nature of Liability. . . . . . . . . . . . . . . . . . . 42
13.4 Independent Obligation.. . . . . . . . . . . . . . . . . 43
13.5 Authorization. . . . . . . . . . . . . . . . . . . . . . 43
13.6 Reliance.. . . . . . . . . . . . . . . . . . . . . . . . 43
13.7 Subordination. . . . . . . . . . . . . . . . . . . . . . 43
13.8 Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . 44
13.9 Reinstatement. . . . . . . . . . . . . . . . . . . . . . 44
13.10 Limitation on Enforcement. . . . . . . . . . . . . . . . 45
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EXHIBITS AND SCHEDULES
EXHIBITS
- --------
Exhibit A Definitions and Accounting Matters
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Revolving Note
Exhibit D Form of Opinion of Counsel
SCHEDULES
- ---------
Schedule I Initial Properties
Schedule 6.5 Litigation
Schedule 6.11 Subsidiaries
Schedule 6.19 Environmental Matters
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REVOLVING LOAN AGREEMENT dated as of December 23, 1994 (the
"AGREEMENT") among SHURGARD STORAGE CENTERS, INC., a corporation organized under
the laws of the State of Delaware (the "GUARANTOR"), SSC ACQUISITIONS, INC., a
corporation organized under the laws of the State of Delaware (the "BORROWER"),
NOMURA ASSET CAPITAL CORPORATION, a corporation organized under the laws of the
State of Delaware ("NACC"), as agent for the Lenders (the "AGENT"), and NACC and
the other financial institutions from time to time party hereto (the "LENDERS").
RECITALS
A. The Borrower has requested that the Lenders make loans to the
Borrower in an aggregate principal amount not exceeding $50,000,000 at any one
time outstanding, and the Lenders are prepared to make the requested loans upon
the terms and conditions hereof.
B. To induce the Lenders to extend such credit, the Guarantor, the
owner of all of the issued and outstanding capital stock of the Borrower, is
willing to guarantee all obligations of the Borrower to the Lenders under this
Agreement.
C. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth on EXHIBIT A hereto, which exhibit also sets forth
certain accounting conventions and other matters that apply to this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
SECTION 1. FACILITY.
1.1 LOAN COMMITMENT. Each Lender severally agrees, on the terms of
this Agreement, to make loans to the Borrower (the "LOANS") in an aggregate
principal amount at any one time outstanding of up to $50,000,000 (the
"COMMITMENT AMOUNT") multiplied by the Pro Rata Share of such Lender. The Loans
shall be available during the period from and including the date hereof to but
not including the Business Day falling on or nearest and prior to the date two
years after the Closing Date, or such earlier date, if any, on which the
Commitment is terminated pursuant to the terms of this Agreement (the
"TERMINATION DATE"). During such period, the Borrower may borrow, repay and
reborrow up to the Commitment Amount subject to the terms and conditions of this
Agreement.
1.2 BORROWINGS.
(a) NOTICE OF BORROWING. The Borrower shall give the Agent at
least five Business Days' prior written notice of a request for a borrowing of
Loans, in the form attached hereto as EXHIBIT B ("NOTICE OF BORROWING"), which
notice (i) shall be irrevocable and (ii) shall not request Loans in an amount
less than $1,000,000.
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(b) LOANS. On the date specified for each borrowing hereunder,
the Lenders shall, subject to the terms and conditions of this Agreement, make
available the amount of the requested Loan to the Borrower by depositing the
same, in immediately available funds, in an account of the Borrower designated
by the Borrower in writing.
(c) FAILURE OF LENDER TO FUND. All obligations of the Lenders
hereunder shall be several, but not joint. The failure of any Lender to make
the Loan to be made by it as part of any borrowing hereunder shall not relieve
any other Lender of its obligation, if any, hereunder to make its Loan on the
date of such borrowing, but no Lender shall be responsible for the failure of
any other Lender to make the Loan to be made by such other Lender on the date of
any borrowing.
1.3 CHANGES OF COMMITMENT. The Borrower shall have the right to
terminate the Commitment or reduce the Commitment Amount at any time or from
time to time, provided that: (i) the Borrower gives irrevocable notice to the
Agent of the amount and date of each termination or reduction and such notice is
received by the Agent not later than 11:00 a.m. New York time at least 15
Business Days prior to the effective date of such termination or reduction; (ii)
each partial reduction is in an amount at least equal to $10,000,000; (iii) any
termination of the Commitment is made in accordance with SECTION 1.6(c) below;
and (iv) after giving effect to any reduction of the Commitment Amount, the
aggregate outstanding principal amount of the Loans does not exceed the
Commitment Amount as so reduced. The Commitment once terminated may not be
reinstated and the Commitment Amount once reduced may not be increased. Upon
the termination of the Commitment and the payment in full of all amounts owing
under the Basic Documents, the Agent shall execute or cause to be executed such
documents as may be necessary to release all of the Collateral from the Liens of
the Security Documents.
1.4 FEES.
(a) INVESTMENT BANKING FEE. On the Closing Date, the Borrower
shall pay to Nomura Securities International, Inc., a New York corporation
("NSI"), a non-refundable investment banking fee of $250,000. On the date the
first Loan is made hereunder, the Borrower shall pay NSI an additional, non-
refundable investment banking fee equal to $250,000.
(b) DRAW FEE. In connection with the funding of each Loan, the
Borrower shall pay to NSI on the date of such funding a non-refundable draw fee
equal to 0.25% of the amount of such Loan, by way of a deduction from the
proceeds of such Loan.
1.5 NOTES. The Loans shall be evidenced by a promissory note or
notes of the Borrower in the form of EXHIBIT C hereto. The date and amount of
each Loan made to the Borrower by the Lender holding such Note, and each payment
made on account of the principal thereof, shall be recorded by the Lender on its
books and records, which books and records shall constitute prima facie evidence
of the accuracy of the information contained therein, but the failure of the
Lender to make any such notation shall not affect the
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obligations of the Borrower hereunder or under the Note or expose any Lender to
any liability.
1.6 PREPAYMENTS; REPAYMENTS.
(a) MANDATORY PREPAYMENTS. The Borrower shall prepay any Loans
if and to the extent required by SECTION 8.7(b) hereof.
(b) PERMITTED PREPAYMENTS. The Borrower shall have the right to
prepay some or all of the Loans at any time or from time to time, if: (i) the
Borrower gives the Agent irrevocable notice of the amount and date of each
prepayment and such notice is received by the Agent not later than 11:00 a.m.
New York time at least five Business Days prior to the date of such prepayment;
(ii) each prepayment of principal is in an amount not less than $1,000,000 (or
the outstanding balance of all Loans, if lower); (iii) each prepayment (other
than a prepayment in full) is made on the Interest Payment Date(s) for the
Loan(s) being prepaid; (iv) in connection with a prepayment in full of LIBOR
Rate Loans on a date other than an Interest Payment Date, the Borrower promptly
thereafter pays to the Lenders any expenses payable under SECTION 4.3 hereof;
and (v) if applicable, the Borrower pays the fee provided for in SECTION 1.6(c)
below.
(c) REPAYMENTS; REFINANCINGS. The Borrower may repay the Loans,
in whole or in part, whether at or prior to maturity, without penalty to the
extent that the source of the funds used for the repayment is any of the
following:
(i) a public equity or unsecured debt offering, provided
that NSI shall act as an equal co-manager on the same terms and conditions
applicable to other co-managers if the Borrower, in its sole discretion,
chooses to appoint co-managers for such offering;
(ii) a public offering or private placement of secured
debt in which NSI or one of its affiliates acts as lead manager or
arranger; if the Borrower seeks a commitment from a third party for such
third party to act as lead manager or arranger in any such offering or
placement, then the Borrower shall provide NSI with a copy of any firm,
written commitment of such third party and shall give NSI 10 Business Days
thereafter in which to agree to act as lead manager or arranger on the same
terms and conditions as such proposed third party, and if NSI does not
agree in writing within such 10 Business Day period to so act, then the 1%
fee referred to below shall not be payable to NSI;
(iii) a private placement of equity; or
(iv) internally generated funds from the on-going business
operations of the Guarantor, the Borrower or any of their respective
Subsidiaries.
If any repayment is from a source other than those listed above, the Borrower
shall pay to NSI a fee in an amount equal to 1.0% of the principal amount of the
Loans being repaid.
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SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST.
2.1 REPAYMENT OF LOANS. The Borrower will pay to the Agent for
account of the Lenders the principal of the outstanding Loans, and each Loan
shall mature, on the Termination Date.
2.2 INTEREST.
(a) The Borrower will pay to the Agent for account of the
Lenders, on each Interest Payment Date, interest on the unpaid principal amount
of each Loan for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the LIBOR Rate (as in
effect from time to time) plus the Applicable Margin, unless and to the extent
that the Loans are Base Rate Loans as provided for herein, in which case such
payment of interest shall be at the Base Rate plus the Applicable Margin. In no
event shall the interest charged hereunder exceed the maximum amount permitted
under applicable law.
(b) Each Loan shall be a Base Rate Loan from the date such Loan
is made (unless such Loan is made on the first day of an Interest Period) until
the next succeeding Interest Payment Date, whereupon such Loan shall convert to
a LIBOR Rate Loan UNLESS the LIBOR Rate is unavailable under SECTION 4.2 below.
(c) After the occurrence and during the continuance of any Event
of Default, the Borrower will pay to the Lenders interest at a rate per annum
equal to 3.0% plus the rate otherwise payable pursuant to this SECTION 2.2 and
SECTION 4.
(d) Accrued interest on each Loan shall be payable (i) on the
Interest Payment Dates and (ii) upon repayment of such Loan (but only on the
principal amount so repaid), except that interest payable after the occurrence
and during the continuance of an Event of Default shall be payable from time to
time on demand.
SECTION 3. PAYMENTS; COMPUTATIONS; ETC.
3.1 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments
of principal, interest and other amounts to be made by the Borrower under this
Agreement and the Note shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Agent for the account of the
Lenders at the account of the Agent maintained with Mellon Bank, N.A. (or such
other account as may be specified by the Agent from time to time), not later
than 2:00 p.m. New York time on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day).
(b) If the due date of any payment under this Agreement or the
Note would otherwise fall on a day which is not a Business Day such date shall
be extended
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to the next succeeding Business Day and interest shall be payable for any
principal so extended for the period of such extension.
3.2 COMPUTATIONS. Interest on the Loans shall be computed on the
basis of a year of 360 days in the case of LIBOR Rate Loans, and on the basis of
a year of 364 or 365 days, as the case may be, in the case of Base Rate Loans,
in each case for the actual days elapsed (including the first day but excluding
the last day) occurring in the period for which payable. Each determination of
the LIBOR Rate or the Base Rate shall constitute prima facie evidence of the
accuracy of such determination.
SECTION 4. YIELD PROTECTION; LIBOR UNAVAILABILITY.
4.1 COMPENSATION FOR INCREASED COSTS.
(a) If after the date hereof any change occurs in any applicable
law, regulation, treaty or directive or interpretation thereof by any
Governmental Authority charged with the administration or interpretation
thereof, or any condition is imposed by any Governmental Authority after the
date hereof or any change occurs in any condition imposed by any Governmental
Authority on or prior to the date hereof which:
(i) subjects any Lender to any Tax (other than any
Tax measured by a Lender's net income or gross revenues), or changes
the basis of taxation of any payments to any Lender on account of
principal of or interest on any LIBOR Rate Loan, the Notes (to the
extent the Notes evidence a LIBOR Rate Loan) or fees in respect of the
Lender's obligation to make LIBOR Rate Loans or other amounts payable
with respect to its LIBOR Rate Loans;
(ii) imposes, modifies or determines to be applicable
any reserve, deposit or similar requirements against any assets held
by, deposits with or for the account of, or loans or commitments by,
any office of any Lender in connection with its LIBOR Rate Loans to
the extent the amount of which is in excess of, or was not applicable
at the time of computation of, the amounts provided for in the
definition of such LIBOR Rate Loan;
(iii) affects the amount of capital required to be
maintained by banks generally or corporations controlling banks and
any Lender determines the amount by which the Lender or any
corporation controlling the Lender is required to maintain or increase
its capital is increased by, or based upon, the existence of this
Agreement or of the Lender's LIBOR Rate Loans or commitment to make
LIBOR Rate Loans hereunder; or
(iv) imposes upon any Lender any other condition with
respect to its LIBOR Rate Loans or its commitment to make LIBOR Rate
Loans;
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which, as a result thereof, (1) increases the cost to any Lender of making or
maintaining its Loans or its commitment to lend hereunder, or (2) reduces the
net amount of any payment received by any Lender in respect of its Loans
(whether of principal, interest, fees or otherwise), or (3) requires the Lender
to make any payment on or calculated by reference to the gross amount of any sum
received by it in respect of its LIBOR rate loans, in each case by a material
amount, then and in any such case Borrower shall pay to the Agent for the
account of such Lender on demand such amount or amounts as will compensate such
Lender for any increased cost, deduction or payment actually incurred or made by
such Lender. The demand for payment by any Lender shall be delivered to both
the Agent and Borrower and shall state the subjection or change which occurred
or the Tax, reserve, deposit or capital requirements or other conditions which
have been imposed upon such Lender or the request, direction or requirement with
which it has complied, together with the date thereof, the amount of such cost,
reduction or payment and the manner in which such amount has been calculated.
Any such demand for payment shall be accompanied by an certificate from the
affected Lender stating that the amount assessed against the Borrower with
respect to such Lender's LIBOR Rate Loans is not greater than Borrower's pro
rata share of the amount assessed against all such Lender's LIBOR rate loans
(such pro rata share equaling a fraction whose numerator is the aggregate amount
of the Borrower's LIBOR Rate Loans from such Lender and whose denominator is
total amount of all such Lender's LIBOR rate loans that are subject to the
increased costs, reduction in payment or additional payment referred to in
clauses (1), (2) or (3) above). The statement of any Lender as to the
additional amounts payable pursuant to this SECTION 4.1 shall be, absent
manifest error, prima facie evidence of the amounts due hereunder.
(b) The protection of this SECTION 4.1 shall be available to
each Lender regardless of any possible contention of invalidity or
inapplicability of the relevant law, regulation, treaty, directive, condition or
interpretation thereof, provided that no amount shall be owing under this
SECTION 4.1 to the extent it is caused or triggered by such Lender's negligence
or willful misconduct. If the Borrower pays any Lender the amount necessary to
compensate such Lender for any charge, deduction or payment incurred or made by
such Lender as provided in this SECTION 4.1 and such charge, deduction or
payment or any part thereof is subsequently returned to the Lender as a result
of the final determination of the invalidity or inapplicability of the relevant
law, regulation, treaty, directive or condition, then such Lender shall remit to
the Borrower the amount paid by the Borrower which has actually been returned to
the Lender (together with any interest actually paid to the Lender on such
returned amount). Borrower shall not be obligated to pay any amount under this
SECTION 4.1 with respect to any Interest Period prior to the Interest Period
during which the affected Lender provides notice to the Borrower that such
additional payment shall be assessed.
4.2 LIMITATION ON TYPES OF LOANS.
(a) If, for any reason, any Lender determines that a fair and
adequate means does not exist for establishing the LIBOR Rate or that the making
or continuation of any LIBOR Rate Loan by such Lender has become unlawful, then
such Lender may give notice of that fact to the Agent and the Borrower and such
determination shall become conclusive and binding absent manifest error. After
such notice has been given
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and until the Lender notifies the Borrower and the Agent that the circumstances
giving rise to such notice no longer exist, such rate shall no longer be
available, and each LIBOR Rate Loan will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Rate Loan. Any
subsequent request by the Borrower to have interest accrue at the LIBOR Rate
plus the Applicable Margin shall be deemed to be a request for interest to
accrue at the Base Rate plus the Applicable Margin. If the Lender shall
thereafter determine to permit borrowing at the LIBOR Rate, the Lender shall
notify the Borrower and the Agent in writing of that fact, and the Borrower
shall become entitled to request that the LIBOR Rate plus the Applicable Margin
apply to the Loans.
(b) After the occurrence and during the continuance of an Event
of Default, each LIBOR Rate Loan will automatically convert into a Base Rate
Loan, with interest payable as provided in clauses (c) and (d) of SECTION 2.2
hereof, and all subsequent Loans (if the Lenders elect to make any such Loans)
shall be Base Rate Loans.
4.3 COMPENSATION. The Borrower shall pay to a Lender, upon the
request of such Lender, such amount or amounts as shall be sufficient to
compensate it (and any participant) for any actual loss, cost or expense which
the Lender reasonably determines are attributable to:
(a) any repayment of a Loan for any reason (including, without
limitation, the acceleration of the Loans pursuant to SECTION 9 hereof) on a
date other than the last day of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any of the conditions precedent specified in
SECTION 5 hereof to be satisfied) to borrow a Loan on the date for such
borrowing specified in the relevant Notice of Borrowing given pursuant to
SECTION 1.2(A) hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so repaid or not
borrowed for the period from the date of such repayment or failure to borrow to
the last day of the then current Interest Period for such Loan (or, in the case
of a failure to borrow, the Interest Period for such Loan which would have
commenced on the date specified for such borrowing) at the applicable rate of
interest for such Loan provided for herein over (ii) the cost of funds to the
Lender of making such Loan (as reasonably determined by the Lender).
4.4 ADDITIONAL INTEREST ON LIBOR RATE LOANS. The Borrower shall pay
to each Lender additional interest on the unpaid principal amount of each Loan
of such Lender during such periods as such Loan is a LIBOR Rate Loan, from the
date of such Loan until such principal amount is paid in full, at an interest
rate per annum equal at all times to the remainder obtained by subtracting (i)
the LIBOR Rate for such Interest Period for such LIBOR Rate Loan from (ii) the
rate obtained by dividing such LIBOR Rate by a percentage equal to 100% minus
the LIBOR Rate Reserve Percentage of such Lender for such Interest Period,
payable on each date on which interest is payable on such LIBOR Rate Loan. Such
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additional interest shall be determined by such Lender and notified to the
Borrower through the Agent. Upon the written request of the Borrower, such
Lender shall provide the Borrower through the Agent a certificate setting forth
the calculation and supporting information for such additional interest.
SECTION 5. CONDITIONS PRECEDENT.
5.1 CONDITIONS PRECEDENT TO CLOSING. On the Closing Date, the Agent
and the Lenders shall receive the following documents, each of which shall be
reasonably satisfactory to the Agent in form and substance:
(a) CORPORATE ACTION. Certified copies of (1) the charter and
bylaws of the Guarantor and all corporate action taken by the Guarantor
approving this Agreement and all other Basic Documents to which the Guarantor is
a party (including, without limitation, a certificate setting forth the
resolutions of the Board of Directors of the Guarantor adopted in respect of the
transactions contemplated hereby) and (2) the charter and bylaws of the Borrower
and all corporate action taken by the Borrower approving the Basic Documents to
which the Borrower is a party (including, without limitation, a certificate
setting forth the resolutions of the Board of Directors of the Borrower adopted
in respect of the transactions contemplated thereby).
(b) INCUMBENCY. A certificate of (1) the Guarantor in respect
of each of the officers (i) who is authorized to sign on its behalf this
Agreement and all other Basic Documents to which the Guarantor is a party and
(ii) who will, until replaced by another officer or officers duly authorized for
that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with the Basic
Documents and the transactions contemplated thereby (and the Agent and the
Lenders may conclusively rely on such certificate until they receive notice in
writing from the Guarantor to the contrary) and (2) the Borrower in respect of
each of the officers (i) who is authorized to sign on its behalf the Basic
Documents to which the Borrower is a party and (ii) who will, until replaced by
another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with the Basic Documents and the transactions
contemplated thereby (and the Agent and the Lenders may conclusively rely on
such certificate until they receive notice in writing from the Borrower to the
contrary).
(c) OFFICER'S CERTIFICATE. A certificate of a senior officer of
the Borrower confirming the satisfaction of the conditions set forth in clauses
(b), (c), (d), (e) and (f) of SECTION 5.2 hereof.
(d) OPINION OF COUNSEL. An opinion of counsel to the Borrower
and the Guarantor in the form attached hereto as EXHIBIT D.
(e) BASIC DOCUMENTS. This Agreement, the Note, the Security
Documents and all other documents and agreements executed and delivered to the
Agent and
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Lenders by the Guarantor or the Borrower in connection with any of the foregoing
documents (collectively, the "BASIC DOCUMENTS"), each duly executed by the
parties thereto.
(f) PERFECTION OF SECURITY INTERESTS. Evidence satisfactory to
the Agent that all actions necessary or, in the opinion of the Agent, desirable
to perfect and protect the security interests created by the Security Documents
in favor of the Agent for the benefit of the Lenders have been taken.
(g) VALUE OF INITIAL PROPERTIES. A certificate of a senior
officer of the Borrower stating that the aggregate value of the Initial
Properties on the date thereof is no less than $40,000,000, and detailing the
calculation thereof.
(h) FEES AND EXPENSES. Evidence (including, without limitation,
payment instructions given by the Borrower) that all fees and expenses payable
to the Agent or the Lenders, including without limitation, the fees and expenses
referred to in SECTION 12.3 hereof, to the extent then due and payable, have
been paid in full.
(i) FINANCIALS. For the most recent calendar quarter, balance
sheets of the Guarantor and its Consolidated Subsidiaries as of the end of such
quarter and statements of income and retained earnings of the Guarantor and its
Consolidated Subsidiaries for the period commencing at the end of the previous
calendar year and ending with the end of such quarter, certified by a senior
officer of the Borrower.
(j) OTHER DOCUMENTS. Such other documents relating to the
transactions contemplated hereby as the Agent or counsel to the Agent may
reasonably request.
5.2 CONDITIONS PRECEDENT TO LOANS. The obligation of the Lenders to
make any Loan to the Borrower upon the occasion of any borrowing hereunder is
subject, in addition to the continued satisfaction of the conditions in SECTION
5.1 above and, in the case of the conditions set forth in clauses (g) through
(q) below, only to the extent not previously satisfied in respect of an
applicable Borrower Property, to (i) the receipt by the Agent of the following
documents, each of which shall be reasonably satisfactory to the Agent in form
and substance, and (ii) the fulfillment of the following conditions, which shall
be satisfied both immediately prior and after giving effect to such Loan:
(a) NOTICE OF BORROWING. The receipt by the Agent of a Notice
of Borrowing in accordance with SECTION 1.2(A) hereof.
(b) DEFAULT. No Default shall have occurred and be continuing.
(c) REPRESENTATIONS. Except for representations and warranties
expressly made or deemed made as of a specific date, which shall be true and
correct as of the date made or deemed made again on the date of the making of a
Loan, the representations and the warranties made by the Guarantor and the
Borrower in SECTION 6
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hereof shall be true and complete in all material respects on and as of the date
of the making of such Loans with the same force and effect as if made on and as
of such date.
(d) MATERIAL ADVERSE CHANGE. Since September 30, 1994, there
has been no Material Adverse Change.
(e) [RESERVED].
(f) DEBT SERVICE COVERAGE RATIOS. The Debt Service Coverage
Ratio of the Collateral Properties at the end of the immediately preceding
calendar quarter shall not be less than 1.35 to 1.00 and the Debt Service
Coverage Ratio for the Borrower Properties at the end of the immediately
preceding calendar quarter shall not be less than 1.80 to 1.00.
(g) SECURITY DOCUMENTS. Duly recorded first Mortgages which
shall constitute valid first mortgage liens on the fee simple title to, or, if
acceptable to the Agent, on the Borrower's interest as a tenant under the ground
lease of, the Collateral Properties (other than the Springing Lien Properties)
which shall secure all of the Obligations (as defined in the Mortgages), subject
only to Permitted Encumbrances; and UCC-1 financing statements covering fixtures
owned by the Borrower and affixed to, or used in connection with each Collateral
Property, in each case appropriately completed and duly executed and delivered
to the Agent for filing in the appropriate county land offices.
(h) TITLE INSURANCE. Policies of title insurance on forms of
and issued by one or more title companies satisfactory to the Agent (the "TITLE
COMPANIES"), showing fee simple title vested in the Borrower or, if acceptable
to the Agent, showing the Borrower's interest as a tenant under the ground lease
of any Collateral Property and insuring the first priority of the Liens created
under the Mortgages in an amount satisfactory to the Agent, subject only to
Permitted Encumbrances, together with, as may be reasonably required by the
Agent, such reinsurance schedules and agreements in respect of all then existing
title insurance policies for the Collateral Properties in amounts and otherwise
in form and substance reasonably satisfactory to the Agent and executed by the
Title Companies. Such policies shall also contain such endorsements and
affirmative insurance provisions as the Agent may reasonably require. In
addition, the Borrower shall have paid to the Title Companies all expenses and
premiums of the Title Companies in connection with the issuance of such policies
and an amount equal to the recording and stamp taxes (including mortgage
recording taxes) payable in connection with recording the Mortgages in the
appropriate county land offices.
(i) ENVIRONMENTAL AUDIT. A certificate from a senior officer of
the Borrower stating that, to the best knowledge of the Guarantor and the
Borrower, except as otherwise described therein: (a) there are no pending or
threatened claims, suits, actions or proceedings arising out of or relating to
the existence of any Hazardous Materials at, in, on or under any Borrower
Property, (b) each Borrower Property is in full compliance with all applicable
Environmental Laws with respect to such Borrower Property, and (c) all required
approvals from all governmental and quasi-governmental authorities having
jurisdiction with
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respect to the Borrower Properties, if any, have been obtained. In addition,
the Borrower shall provide a comprehensive environmental audit dated not earlier
than 18 months prior to delivery to the Agent (which shall include, without
limitation, a visual survey, a record review and an area reconnaissance and a
Phase I environmental study and, if recommended by the environmental consultant,
a Phase II environmental study), conducted and certified by a qualified,
independent environmental consultant licensed by the relevant state(s) in which
the relevant Borrower Property is located and otherwise reasonably satisfactory
to the Agent. All such audits, approvals, reports, inspections and
investigations shall be paid for by the Borrower.
(j) INSURANCE. Certificates of insurance evidencing the
existence of all insurance required to be maintained by the Borrower pursuant to
the Basic Documents and the designation of the Lender as the loss payee
thereunder to the extent required by the Basic Documents, such certificates to
be in such form and contain such information as is specified in the Basic
Documents.
(k) OPERATING STATEMENTS; BUDGETS. To the extent available,
operating statements for each Borrower Property for the one-year period most
recently ended prior to the Closing Date or prior to a property becoming a
Borrower Property pursuant to SECTION 10 hereof, as applicable, and an itemized
budget for the operation of each Borrower Property for the remaining calendar
year.
(l) SEARCHES. Copies of the UCC filing searches, tax lien
searches, judgment searches and real estate tax searches in each county where a
Collateral Property is located demonstrating as at a recent date the existence
of no other financing statements (except to the extent such other financing
statements have been released or relate to Liens permitted under SECTION 8.2
hereof), together with evidence that all filing fees or recording taxes payable
in connection with any such searches have been paid.
(m) SURVEY. To the extent available, a survey with respect to
each Collateral Property
(n) GROUND LEASES. Certified copies of all ground leases
affecting each Borrower Property, including all amendments and modifications
thereto, and a ground lessor estoppel and consent.
(o) MATERIAL CONTRACTS. Certified copies of (i) all contracts
and agreements relating to each Collateral Property if the payment obligations
of the Guarantor or any of its Affiliates under such contracts and agreements
exceeds $500,000 in the aggregate and (ii) any contract or agreement which has a
remaining term of one year or greater and under which the Guarantor or any of
its Affiliates has a remaining liability in excess of $500,000.00.
(p) PROPERTY CONDITION REPORT. To the extent available, reports
covering the structural condition of each Collateral Property.
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(q) LOCAL COUNSEL OPINIONS. An opinion of local counsel in the
state in which each Collateral Property is located.
(r) OTHER DOCUMENTS. Such other documents relating to the
making of the Loans hereunder as the Agent or counsel to the Agent may
reasonably request, which shall not be unduly burdensome on the Guarantor or the
Borrower.
Each Notice of Borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in the above clauses (b)
through (f) of this SECTION 5.2 (both as of the date of such notice and, unless
the Borrower otherwise notifies the Agent prior to the date of such borrowing,
as of the date of such borrowing).
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Guarantor and the
Borrower jointly and severally represent and warrant to the Agent and each
Lender that, as of the Closing Date and as of the date of each borrowing of
Loans hereunder:
6.1 CORPORATE EXISTENCE AND POWER. Each of the Guarantor and the
Borrower is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business
in each and every state where any of the Borrower Properties is located. Each
of the Guarantor and the Borrower is duly qualified to do business in each other
jurisdiction where the nature of its activities or the ownership of its
Properties requires such qualification except where the failure to be qualified
would not result in a Material Adverse Change. Each of the Guarantor and the
Borrower has full corporate power, authority and legal right to carry on its
businesses as presently conducted, to own and operate its Properties and assets
and to execute, deliver and perform each of the Basic Documents.
6.2 CORPORATE AUTHORIZATION; NO VIOLATION OR BREACH. The execution,
delivery and performance by each of the Guarantor and the Borrower of the Basic
Documents to which each is party, and any borrowing hereunder, have been duly
authorized by all necessary corporate action of the Guarantor and the Borrower,
and do not require any shareholder approval or the approval or consent of any
trustee or the holders of any Indebtedness of the Guarantor or the Borrower
except such as have been obtained (certified copies thereof having been
delivered to the Agent), do not contravene any law, regulation, rule or order
binding on the Guarantor or the Borrower or their respective Certificates of
Incorporation or Bylaws, do not contravene the provisions of or constitute a
default under any indenture, mortgage, contract or other agreement or instrument
to which the Guarantor or the Borrower is a party or by which the Guarantor or
the Borrower, or any of their respective Properties, may be bound or affected
and will not (except for the Lien arising under the Security Documents) result
in the creation or imposition of any Lien upon any of the revenues or assets of
the Guarantor or any of its Subsidiaries pursuant to the terms of any such
agreement or instrument.
6.3 GOVERNMENT APPROVALS. No Government Approval or filing or
registration with any Governmental Authority is required for the making and
performance by each of the Guarantor and the Borrower of the Basic Documents or
in connection with any of
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the transactions contemplated hereby or thereby, except such as have been
heretofore obtained and are in full force and effect (certified copies thereof
having been delivered to the Agent).
6.4 BINDING OBLIGATIONS. The Basic Documents when duly executed and
delivered by the parties thereto will constitute the legal, valid and binding
obligations of each of the Guarantor and the Borrower enforceable against each
in accordance with the terms thereof, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application relating to or affecting the rights and remedies of
creditors and by general equitable principles, regardless of whether enforcement
is sought in equity or at law.
6.5 LITIGATION. There are no actions, proceedings, investigations,
or claims against or affecting the Guarantor or any of its Subsidiaries now
pending before any court, arbitrator or Governmental Authority (nor to the best
knowledge of the Guarantor or the Borrower has any thereof been threatened nor
does any basis exist therefor) which might reasonably be determined adversely to
the Guarantor or any of it Subsidiaries and which, if determined adversely,
would result in a Material Adverse Change, except as described on SCHEDULE 6.5
hereto.
6.6 FINANCIAL CONDITION. The consolidated balance sheet of Guarantor
and its Subsidiaries as of September 30, 1994, copies of which have been
furnished to Agent, fairly present the consolidated financial condition of the
Guarantor and its Subsidiaries at such date, all in conformity with generally
accepted accounting principles. In all material respects, the consolidated
financial statements of the Guarantor and its Subsidiaries as of September 30,
1994, copies of which have been furnished to Agent, fairly present the
consolidated financial condition of the Guarantor and its Subsidiaries as of
such date. Since September 30, 1994, there has been no Material Adverse Change.
6.7 TAXES. Each of the Guarantor and its Subsidiaries has filed all
material tax returns and reports required of it, has paid all Taxes which are
shown to be due and payable on such returns and reports, and has provided
adequate reserves for payment of any Tax whose payment is being contested. The
charges, accruals and reserves on the books of the Guarantor and its
Subsidiaries in respect of Taxes for all fiscal periods to date are accurate and
to the best knowledge of each of the Guarantor or the Borrower after due
investigation there are no questions or disputes between the Guarantor or any of
its Subsidiaries and any Governmental Authority with respect to any Taxes except
as disclosed in the balance sheet referred to in SECTION 6.6 or otherwise
disclosed to the Agent in writing prior to the date of this Agreement.
6.8 LAWS, ORDERS; OTHER AGREEMENTS. Other than where failure to so
conduct, use or comply would not result in a Material Adverse Change (i) the
business and operations of the Guarantor and any of its Subsidiaries have been
and are being conducted in substantial compliance with all applicable laws,
rules and regulations; and (ii) all Properties of the Guarantor and any of its
Subsidiaries and the use thereof by the Guarantor and any of its Subsidiaries
comply in all material respects with applicable zoning and use restrictions.
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Neither the Guarantor nor any of its Subsidiaries is in material breach of or
default under any material agreement to which it is a party or which is binding
on it or any of its assets.
6.9 MARGIN STOCK. Neither the Guarantor nor any of its Subsidiaries
is engaged principally or as one of its important activities in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Federal Reserve Regulation U), and no part of the
proceeds of the Loan will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock or for any other purpose that violates the applicable provisions of
any Federal Reserve Regulation. Each of the Guarantor and the Borrower will
furnish to the Agent on request a statement conforming with the requirements of
Regulation U.
6.10 ERISA.
(a) The present value of all benefits vested under all Plans, if
any, did not, as of the most recent valuation date of any such Plans, exceed the
value of the assets of any such Plans allocable to such vested benefits by an
amount which would represent a potential liability of the Guarantor or any of
its Subsidiaries in excess of $1,000,000 or affect the ability of each of the
Guarantor or Borrower to perform this Agreement.
(b) No Plan, if any, or trust created thereunder, or any trustee
or administrator thereof, has engaged in a "prohibited transaction" (as such
term is defined in Section 406 of ERISA or Section 4975(c)(1) of the Code) which
could subject the Guarantor or any of its Subsidiaries to any tax or penalty in
excess of $1,000,000 on prohibited transactions imposed by Section 502 of ERISA
or Section 4975 of the Code.
(c) No Plan, if any, or trust created thereunder has been
terminated, the termination of which resulted in a Material Adverse Change, and
there have been no "reportable events" as that term is defined in Section 4043
of ERISA (which are required to be reported) since the effective date of ERISA.
(d) No Plan, if any, or trust created thereunder has incurred
any "accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA) whether or not waived, since the effective date of ERISA.
(e) The required allocations and contributions to any Plans
will not violate Section 415 of the Code in any material respect.
(f) Neither the Guarantor nor any of the Subsidiaries
participates in any multi-employer plan (as defined in Section 4001(a)(3) of
ERISA).
6.11 SUBSIDIARIES. SCHEDULE 11 to this Agreement sets forth as of the
date of this Agreement the authorized capitalization of each Subsidiary of the
Guarantor, the number of shares of each class of capital stock issued and
outstanding of each Subsidiary, and the number and percentage of outstanding
shares of each such class of capital stock owned by the
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Guarantor or by any Subsidiary. The outstanding shares of each Subsidiary have
been duly authorized and validly issued and are fully paid and nonassessable.
The Guarantor and each Subsidiary own beneficially and of record and have good
title to all the shares each is listed as owning on SCHEDULE 6.11.
6.12 LIEN CREATION AND PRIORITY; NO ENCUMBRANCES. The Borrower is the
sole fee simple owner, or the sole owner of leasehold estates under ground
leases approved by the Agent, of all of the Borrower Properties. All liens
created or purported to be created by any of the Mortgages constitute valid,
enforceable and perfected liens on all of the Property on which any of the
Mortgages purport to create a lien. All of the Borrower Properties are free and
clear of any other Liens other than Permitted Encumbrances.
6.13 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Neither the Guarantor
nor any of its Subsidiaries is an "investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act. Neither the Guarantor nor the Borrower is subject to regulation by
any federal or state statute or regulation (other than margin regulations) which
limits its ability to incur indebtedness. Neither the Guarantor nor the
Borrower is subject to any federal or state law or regulation limiting its
ability to issue and perform its obligations under the Notes and any other Basic
Documents.
6.14 DELINQUENT PROPERTY LIENS. To the best knowledge of each of the
Guarantor and the Borrower, there is no delinquent tax, sewer, rent, water
charge, assessment or other outstanding charge against any of the Borrower
Properties, or any part thereof, and there are no mechanics' or similar Liens,
significant, valid, undisputed claims for overdue payment for work performed by
or on behalf of the Guarantor or the Borrower, labor or material affecting any
of the Borrower Properties which are or could become Liens prior to, or equal
with, the lien of the applicable Mortgage and there are no mechanics' or similar
Liens (other than Permitted Encumbrances) affecting any of the Borrower
Properties which have not been insured or indorsed over by title policies.
6.15 IMPROVEMENTS. Except as disclosed in any title policies,
reports, preliminary commitments, surveys, appraisals or other documents
provided to the Agent, to the best knowledge of each of the Guarantor and the
Borrower, all buildings, structures and other improvements located on any of the
Borrower Properties lie wholly within the boundary and building restriction
lines of such Borrower Properties and no buildings, structures or other
improvements on adjoining property encroach upon any of the Borrower Properties
in any respect so as to materially and adversely affect the market value of such
Property.
6.16 CASUALTY; CONDEMNATION. To the best knowledge of each of the
Guarantor and the Borrower, each of the Borrower Properties is free of material
damage and waste, and there is no proceeding pending or, threatened, for the
total or partial condemnation or taking by eminent domain of any of the Borrower
Properties.
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6.17 ASSESSMENTS. Neither the Guarantor nor any of its Subsidiaries
has received any notice of actual or pending special assessments or
reassessments of any of the Borrower Properties which, taken together, would
result in a Material Adverse Change other than such assessments or reassessments
as have been disclosed to the Agent in writing.
6.18 RIGHTS OF OTHERS TO PURCHASE PROPERTY. Neither the Guarantor nor
any of its Subsidiaries has entered into any contracts for the sale of any of
the Borrower Properties, nor any rights of first refusal or options to purchase
any of the Borrower Properties.
6.19 ENVIRONMENTAL MATTERS.
(a) To the best knowledge of the Guarantor and the Borrower, the
Guarantor and each of its Subsidiaries has obtained all permits, licenses and
other authorizations which it or any of them is required to obtain under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization would not result in a Material Adverse Change or have a
material adverse effect on any Borrower Property. To the best knowledge of the
Guarantor and the Borrower, the Guarantor and each of its Subsidiaries is in
compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance in all material respects with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply would not result in a
Material Adverse Change or have a material adverse effect on any Borrower
Property.
(b) Other than as set forth in SCHEDULE 6.19 hereto, to the best
knowledge of the Guarantor and the Borrower, neither the Guarantor nor any of
its Subsidiaries has received, and is not otherwise aware, of any current
notification or demand from, or any complaint filed, penalty assessed or
investigation or review pending or threatened by, any governmental or other
entity in connection with the conduct of the business of the Guarantor or any of
its Subsidiaries or with respect to any generation, treatment, storage,
recycling, transportation, release or disposal by it or any of them of any
substance regulated under Environmental Laws ("HAZARDOUS MATERIALS"), and
neither the Guarantor nor any of its Subsidiaries has engaged in, suffered or
permitted any activity which is likely to give rise to such notification,
demand, complaint, penalty, investigation or review.
(c) To the best knowledge of the Guarantor and the Borrower,
neither the Guarantor nor any of its Subsidiaries has handled any Hazardous
Material, other than as a generator, on any Property now or previously owned or
leased by the Guarantor or any of its Subsidiaries to an extent that it may
reasonably be expected to result in a Material Adverse Change or have a material
adverse effect on any Borrower Property.
6.20 ZONING COMPLIANCE, ETC.. To the best knowledge of the Guarantor
and the Borrower, all improvements have been constructed and are being used and
operated in
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material compliance with (i) all applicable zoning, subdivision and other laws,
orders, rules, regulations and requirements of all governmental or quasi-
governmental authorities having jurisdiction with respect to the Collateral
Properties.
6.21 SOLVENCY. None of the transactions contemplated by the Basic
Documents will be or have been made with an actual intent to hinder, delay or
defraud any present or future creditors of the Guarantor or any of its
Subsidiaries, and neither the Guarantor nor any of its Subsidiaries is or will
be rendered insolvent by such transactions, and the Guarantor and its
Subsidiaries will have received fair and reasonably equivalent value in good
faith for the grant of the Liens created by the Security Documents. The
Guarantor and each of its Subsidiaries is able to pay its debts as they become
due, including contingent obligations reasonably likely to become due.
6.22 PERMITS. To the best knowledge of the Guarantor and the
Borrower, the Borrower has all material permits, approvals and licenses
necessary for the operation of each Collateral Property.
6.23 OTHER REPRESENTATIONS AND WARRANTIES. This Agreement, the other
Basic Documents, the financial statements referred to in SECTION 6.6, and all
other instruments, documents, certificates and statements furnished to the Agent
or any Lender by either the Guarantor or the Borrower, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. Without
limiting the foregoing, each of the representations and warranties made by
either the Guarantor or the Borrower in the other Basic Documents is true and
correct on and as of the date when made, on and as of the date hereof, and on
and as of each date this representation is deemed made hereunder with the same
force and effect as if made on and as of such dates.
SECTION 7. AFFIRMATIVE COVENANTS. The Guarantor and the Borrower
jointly and severally agree that, so long as the Commitment is in effect and
until repayment in full of all Loans hereunder, all interest thereon and all
other amounts payable to the Agent and the Lenders under the Basic Documents:
7.1 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Guarantor will,
and will cause each Subsidiary to, preserve and maintain its corporate existence
and all material rights, franchises and privileges in the jurisdiction of its
incorporation and will, and will cause each Subsidiary to, qualify and remain
qualified as a foreign corporation in each jurisdiction where qualification is
necessary or advisable in view of its business and operations or the ownership
of its Properties; provided, however, that the Guarantor may, or permit any
Subsidiary to, change the state of its incorporation, but only if, prior to
doing so, the Guarantor has provided to the Agent a legal opinion in form and
substance satisfactory, and from legal counsel acceptable, to the Agent to the
effect that such reincorporation shall have no adverse legal effect on any of
the Agent's or any Lender's rights or remedies under any of the Basic Documents,
together with such other evidence as the Agent may reasonably require relating
to the effect of any such reincorporation. The Guarantor shall cause each
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Subsidiary to observe all material corporate formalities applicable to such
Subsidiary. The Guarantor will, and will cause each Subsidiary to, comply with
the requirements of all applicable laws, rules, regulations and orders of
governmental or regulatory authorities if failure to comply with such
requirements would materially and adversely affect the financial condition,
operations, business or prospects taken as a whole of the Guarantor, any
Subsidiary or any Borrower Property; pay and discharge all taxes, assessments
and governmental charges or levies imposed on it or on its income or profits or
on any of its Property prior to the date on which penalties attach thereto; and
maintain all of its Properties used or useful in its business in good working
order and condition, ordinary wear and tear excepted.
7.2 BOOKS AND RECORDS; INSPECTION.
(a) The Guarantor will, and will cause each of its Subsidiaries
to, keep adequate records and books of account in which true and correct entries
in conformity with GAAP consistently applied will be made, reflecting all
financial transactions of the Guarantor and each of its Subsidiaries.
(b) At any reasonable time, and from time to time during usual
business hours on usual business days, upon reasonable prior notice, the
Guarantor will permit the Agent and the Lenders to examine and make copies of
and abstracts from the records and books of account of and to visit the
Properties of the Guarantor and its Subsidiaries, to review all environmental
and other reports relating to such Properties and to discuss the affairs,
finances and accounts of the Guarantor and its Subsidiaries with any of their
respective employees, officers or directors.
7.3 MAINTENANCE OF PROPERTY. The Guarantor will, and will cause each
of its Subsidiaries to, maintain and preserve in good working order and
condition, ordinary wear and tear excepted, all of the Collateral and all of the
other Properties of the Guarantor and any of its Subsidiaries which are
necessary in the ordinary course of business.
7.4 COMPLIANCE WITH LAWS. The Guarantor will, and will cause each of
its Subsidiaries to, comply in all material respects with all laws, regulations,
rules, and orders of Governmental Authorities applicable to the Guarantor or to
any of its Subsidiaries or to the operations or Property of any of them, unless
the validity of such law, regulation, rule or order is being contested in good
faith by appropriate proceedings upon stay of execution of the enforcement
thereof or unless failure to comply with such law, regulation, rule or order
would not, taken together with all such other noncompliance by the Guarantor or
its Subsidiaries, result in a Material Adverse Change.
7.5 INSURANCE. The Guarantor will, and will cause each of its
Subsidiaries to, keep in force upon all of its Properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance with
prevailing market conditions and availability. The Guarantor will on request
furnish to the Agent certificates of insurance evidencing such coverage.
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Without limiting the generality of the foregoing, the Borrower shall also comply
with the following requirements:
(a) PROPERTY INSURANCE. The Borrower will keep the Borrower
Property insured as follows:
(i) against property damage or loss by such risks as are
covered by an "all risk" replacement cost policy including earthquake if
available at a commercially reasonable cost in an amount not less than the
actual cost of replacing the Property in question, without allowance for
depreciation, as determined from time to time (but not more often than once
every calendar year) by the Agent, of the improvements and personal
property, with a deductible or self-insured retention amount not to exceed
a reasonable amount;
(ii) business interruption/rent loss insurance in an amount
equal to six months pro forma stabilized rent for all perils for the
Borrower Property;
(iii) against any damage or loss by flood if the Borrower
Property is located in an area identified by the Secretary of Housing and
Urban Development or any successor thereof as an area within a 100 year
flood plain or having special flood hazards and in which flood insurance
has been made available under the National Flood Insurance Act of 1968 or
the Flood Disaster Protection Act of 1973, as amended, modified,
supplemented or replaced from time to time, as may be available under such
Acts;
(iv) against damage or loss from (i) sprinkler system
leakage and (ii) boilers, boiler tanks, heating and air conditioning
equipment, pressure vessels, auxiliary piping and similar apparatus, if
applicable;
(v) during the period of any construction or replacement of
improvements to the Borrower Property, for losses insured under an "all
risk" replacement cost completed value builder's risk coverage form of
insurance policy. The policy providing such coverage shall contain the
"permission to occupy upon completion of work or occupancy" provision; and
(vi) each insurance policy shall bear a Lenders' loss
payable endorsement to the extent of Lenders' interest in the insurance
proceeds payable under the policy.
(b) LIABILITY INSURANCE. The Borrower shall procure and
maintain:
(i) commercial general liability insurance covering the
Borrower, the Agent and the Lenders against claims for bodily injury or
death or property damage occurring in, upon or about the Borrower Property
or resulting from or involving the Borrower Property, in standard form,
which insurance shall include
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blanket contractual liability coverage (but such coverage or the amount
thereof shall in no way limit the indemnification set forth in SECTION 12.4
hereof); and
(ii) during the period of any construction, restoration or
replacement of improvements to the Property, the Borrower shall insure
against loss from damage or injury caused by such construction, restoration
or replacement with additional coverage by obtaining: (1) commercial public
liability insurance (including coverage for elevators and escalators, if
any) on an "occurrence and in the aggregate basis," for personal injury
claims, including, without limitation, bodily injury, death or property
damage occurring in, upon or about the improvements being constructed,
restored or replaced, such insurance to afford immediate minimum protection
with a commercially reasonable limit with respect to personal injury or
death to any one or more persons or damage to property; and (2) worker's
compensation insurance (including employer's liability insurance if
requested by the Agent) for all employees of the Borrower engaged in
construction on or with respect to the Borrower Property and improvements
to the Borrower Property in such amounts as are established by law or
otherwise are reasonable under the circumstances.
(c) CERTAIN TERMS OF POLICY. All insurance required under this
SECTION 7.4 shall provide that the same shall not be cancelled, amended or
materially altered (including by reduction in the scope or limits of coverage)
without at least forty-five (45) days' prior written notice to the Lender. The
policies required under SECTION 7.4(a) shall contain a minimum of 80% of value
coinsurance clause or a "stipulated value" or "agreed amount" provision.
(d) EVIDENCE OF PAYMENT. The Borrower will deliver to the Agent
receipts evidencing payment of all premiums thereon. Upon renewal of any of the
insurance policies required by this SECTION 7.4, the Borrower shall, upon the
Agent's request therefor, cause to be provided to the Agent a copy of such
renewal policy or, at the Agent's option, a certificate of renewal for such
policy.
(e) APPROVAL NOT WARRANTY. No approval by the Agent or any
Lender of any insurer shall be construed to be a representation, certification
or warranty of its solvency and no approval by the Agent or any Lender as to the
amount, type or form of any insurance shall be construed to be a representation,
certification or warranty of its sufficiency.
7.6 FINANCIAL STATEMENTS. The Guarantor will deliver or cause to be
delivered to the Agent and the Lenders:
(a) as soon as available and in any event within 120 days after
the end of each fiscal year of the Guarantor, the consolidated financial
statements of the Guarantor and its Consolidated Subsidiaries as of the end of
such fiscal year, accompanied by the audit report thereon by independent
certified public accountants selected by the Guarantor and reasonably
satisfactory to the Agent (which reports shall be prepared in accordance with
generally accepted accounting principles and shall not be qualified by reason of
restricted or
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limited examination of any material portion of the records of the Guarantor or
its Subsidiaries and shall contain no disclaimer of opinion or adverse opinion);
(b) as soon as available and in any event within 45 days after
the end of each fiscal quarter, the unaudited consolidated financial statements
of the Guarantor and its Consolidated Subsidiaries as of the end of such fiscal
quarter (including the fiscal year to the end of such quarter) and operating
statements for each of the Borrower Properties, accompanied by a certificate of
the Guarantor (i) certifying that such unaudited financial statements have been
prepared in conformity with generally accepted accounting principles and present
fairly, in all material respects, the consolidated financial position of the
Guarantor and its Consolidated Subsidiaries and that such operating statements
present fairly, in all material respects, the results of operations of the
Borrower Properties, as at the end of and for such quarter, and (ii) identifying
any material adverse changes that have occurred since the fiscal year-end report
referred to in clause (a) in the consolidated financial condition or operations
of the Guarantor and its Consolidated Subsidiaries as shown on the financial
statements as of said date;
(c) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, a certificate of a senior financial
officer of the Guarantor or the Borrower to the effect that (i) no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Guarantor or the Borrower has taken and proposes to take with respect thereto)
and (ii) after the Guarantor has qualified as a Real Estate Investment Trust
under the Code, the Guarantor continues to be so qualified; and, in connection
with the delivery of financial and operating statements pursuant to paragraph
(b) above, a certificate of a senior financial officer of the Guarantor or the
Borrower setting forth a detailed calculation of the financial tests set forth
in paragraphs (o) through (r) of SECTION 9 hereof;
(d) promptly upon their becoming available, and in any event
before January 31 of each year, a preliminary itemized budget for the operation
of each Borrower Property for the one-year period commencing January 1, and
promptly upon their becoming available, and in any event before March 31 of each
year, a final itemized budget for the operation of each Borrower Property for
the one-year period commencing January 1 of such year;
(e) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, filed by the
Guarantor or any of its Subsidiaries with the Securities and Exchange Commission
(or any governmental agency substituted therefor) or any national securities
exchange;
(f) promptly upon the mailing thereof to the shareholders of the
Guarantor generally, copies of all financial statements, reports and proxy
statements so mailed, if any; and
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(g) from time to time, all other statements, reports and other
information as the Agent or any Lender may reasonably request concerning the
financial condition and business affairs of the Guarantor or any Subsidiary.
7.7 NOTIFICATION. Promptly after learning thereof, the Borrower
shall notify the Agent of:
(a) any action, proceeding, investigation or claim against or
affecting the Guarantor or any of its Subsidiaries instituted before any court,
arbitrator or Governmental Authority or, to the best knowledge of the Guarantor
or the Borrower, threatened to be instituted, which, if determined adversely to
the Guarantor or any Subsidiary, could result in a Material Adverse Change, or
result in a judgment or order against the Guarantor or any of its Subsidiaries
for more than $1,000,000 (in excess of insurance coverage) or, when combined
with all other pending or threatened claims against the Guarantor or any of its
Subsidiaries, for more than $1,000,000 (in excess of insurance coverage);
(b) any substantial dispute between the Guarantor or any of its
Subsidiaries and any Governmental Authority;
(c) any labor controversy which has resulted in or, to the best
knowledge of the Guarantor or the Borrower, threatens to result in a strike
which would materially affect the business operations of Guarantor or any of its
Subsidiaries, taken as a whole;
(d) if Borrower or any of its Subsidiaries or any member of a
Controlled Group gives or is required to give notice to the PBGC of any
"reportable event" (as defined in subsections (b)(1), (2), (5) or (6) of Section
4043 of ERISA) with respect to any Plan (or the Internal Revenue Service gives
notice to the PBGC of any "reportable event" as defined in subsection (c)(2) of
Section 4043 of ERISA and Borrower obtains knowledge thereof) which might
constitute grounds for a termination of such Plan under Title IV of ERISA, or
knows that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such reportable
event given or required to be given to the PBGC; and
(e) the occurrence of any Event of Default or Default, in which
the Borrower will deliver to the Agent a certificate specifying the nature
thereof, the period of existence thereof and what action the Borrower proposes
to take with respect thereto.
7.8 TAXES. Each of the Guarantor and the Borrower shall promptly pay
and discharge all lawful taxes, sewer rents, water charges, assessments and
other governmental charges or levies imposed upon each or upon the income or
profits of each or upon any of the Borrower Properties, other than those being
contested in good faith by appropriate proceedings and as to which reserves are
being maintained by the Guarantor to the extent material and required by GAAP.
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7.9 ENVIRONMENTAL MATTERS.
(a) The Guarantor shall, and shall cause each of its
Subsidiaries to, (i) comply in all material respects with all Environmental Laws
applicable to it or any of them, and (ii) ensure that all operations, businesses
and activities conducted by the Guarantor or any of its Subsidiaries are in
material compliance with all Environmental Laws.
(b) If the Guarantor or any of its Subsidiaries receives any
notice or other communication from any Person concerning any actual, alleged,
suspected or threatened material violation of or liability under any
Environmental Laws or any Environmental Condition, or that any representation or
warranty herein relating to Hazardous Materials is not or is no longer accurate
in any material respect, including, without limitation, any notice or other
communication from any Governmental Authority concerning any actual or
threatened Environmental Claim, then the Guarantor or the Borrower shall deliver
to the Lender, within 10 days after receipt of such notice or other
communication, a copy thereof or a written description of such violation,
liability, or actual or threatened event or condition. Receipt of such notice
shall not be deemed to create any obligation on the part of the Lender to defend
or otherwise respond to such notification. The Guarantor or such Subsidiary, as
applicable, shall promptly take all actions in response to any such notification
as it deems appropriate, in its reasonable discretion, including actions to
defend or settle such notification of Environmental Claim or clean up or remedy
such Environmental Condition in compliance with all Environmental Laws.
(c) Upon the Agent's reasonable request, the Guarantor and its
Subsidiaries shall, at their sole cost and expense, take all actions necessary
to ensure that there is no Hazardous Material at, on or under any of the
Properties of the Guarantor or any of its Subsidiaries in quantities or
concentrations other than those permitted by applicable Environmental Laws. The
Guarantor or the Borrower shall promptly provide to the Agent copies of all
environmental site assessments or environmental audit reports, or updates of
such assessments or reports that are generated in connection with the above
activities.
7.10 OTHER AGREEMENTS. Each of the Guarantor and the Borrower shall
comply with all other agreements to which each is a party, whether related to
any of the Borrower Properties, the Basic Documents or otherwise, other than (a)
agreements or obligations thereunder being contested in good faith or (b)
agreements non-compliance with which would not result in a Material Adverse
Change.
SECTION 8. NEGATIVE COVENANTS. The Guarantor and the Borrower agree
that, so long as the Commitment is in effect and until repayment in full of all
Loans hereunder, all interest thereon and all other amounts payable to the Agent
and the Lenders hereunder:
8.1 LIQUIDATION; MERGER; SALE OF ASSETS. Except as otherwise
expressly permitted hereunder, neither the Guarantor nor the Borrower shall:
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(a) liquidate, dissolve or enter into any joint venture,
partnership or other combination (other than any joint venture, partnership or
other combination established in connection with the operation of the mini-
storage business of the Guarantor or the Borrower) or sell, lease or dispose of
all or substantially all of its business or assets, or enter into any merger or
consolidation unless the Guarantor or the Borrower, as applicable, is the
surviving entity; or
(b) permit any of its Subsidiaries (other than, in the case of
the Guarantor, the Borrower, which is restricted by the preceding sentence) to
liquidate, dissolve or enter into any joint venture, partnership or other
combination or sell, lease or dispose of all or substantially all of its
business or assets or enter into any merger or consolidation, if any of the
foregoing actions would result in a Material Adverse Change.
8.2 LIMITATION ON LIENS. The Borrower shall not create, assume or
suffer to exist any Lien (other than Permitted Encumbrances) on any Borrower
Property.
8.3 SALE OF PROPERTY. The Borrower shall not sell, transfer, lease
(other than in the ordinary course of business and as expressly permitted by the
Basic Documents), assign, exchange, contribute, abandon or otherwise dispose of,
directly or indirectly, any Borrower Property or interest therein, unless: (A)
the Borrower complies with Section 10.2 or Section 10.4 hereof; (B) no
Collateralization Enhancement is then or, as a result of such sale, would be
required under SECTION 10 below; and (C) the sale, combined with similar sales
by the Guarantor or its Subsidiaries, does not exceed the maximum amount of
property sales that can be effected without impairing or jeopardizing the status
of the Guarantor as a Real Estate Investment Trust.
8.4 OPERATIONS. The Guarantor shall not, and shall not permit any of
its Subsidiaries or any joint venture to which it or any of them is a party or
of which it or any of them is an owner to, engage in any material activity or
introduce any major product which is substantially different from or unrelated
to the storage and moving business, as described in SECTION 8.6 hereof, or
products of the Guarantor or any of its Subsidiaries.
8.5 TRANSACTIONS WITH AFFILIATES. The Guarantor shall not, and shall
not cause or permit any Subsidiary to, 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 other than those approved from time to time by a majority of
the Guarantor's independent directors. Notwithstanding the foregoing, the
Guarantor shall not, and shall not cause or permit any Subsidiary to, enter into
any transaction described in the preceding sentence of this SECTION 8.5 if the
value of the consideration for such transaction (including any other
transactions in a related series) exceeds $10,000,000, unless the Agent shall
otherwise consent in writing;
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provided that the merger of the Guarantor with Shurgard, Inc. shall not require
the consent of the Agent.
8.6 USE OF PROCEEDS. The proceeds of the Loans may be used only for
pre-development costs, development costs, acquisition of Self-Storage
Facilities, capital expenditures and costs of buildouts, all in connection with
the Borrower's storage and moving business, and for secured loans to third
parties engaged in the self-storage business for similar types of expenditures,
as well as for expenses related to closing and administering the Loans and for
any other general corporate purpose of the Borrower; provided, however, that any
time a Collateral Enhancement is required by SECTION 10 none of the proceeds of
any Loan made during that period may be used to fund the costs of any
development projects commenced by the Borrower after the commencement of the
Collateral Enhancement requirement; and provided further that neither the Agent
nor any Lender shall have any responsibility as to the use of any such proceeds.
8.7 ERISA COMPLIANCE. Neither the Guarantor nor any ERISA Affiliate
nor any Plan will:
(a) engage in any "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975(c)(1) of the Code) which could
reasonably be expected to result in a liability to the Guarantor or any of its
Subsidiaries in excess of $1,000,000;
(b) incur any "accumulated funding deficiency" (as such term is
defined in Section 302 of ERISA) whether or not waived which could reasonably be
expected to result in a liability to the Guarantor or any of its Subsidiaries in
excess of $1,000,000;
(c) terminate any Pension Plan in a manner which could
reasonably be expected to result in a liability to the Guarantor or any of its
Subsidiaries in excess of $1,000,000 or could reasonably be expected to result
in the imposition of a Lien in excess of $1,000,000 on any property of the
Guarantor or any of its Subsidiaries pursuant to Section 4068 of ERISA;
(d) violate state or federal securities laws applicable to any
Plan in any material respect; or
(e) participate in any multi-employer plan (as defined in
Section 4001(3) of ERISA).
8.8 ENVIRONMENTAL COMPLIANCE. The Guarantor shall not knowingly
cause, or permit or suffer the existence or the commission by the Guarantor, its
Subsidiaries, its agents, employees, contractors, invitees, Tenants or any other
person of, any material violation of any applicable Environmental Laws at, on or
under any of the Properties of the Guarantor or any of its Subsidiaries.
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SECTION 9. EVENTS OF DEFAULT. If one or more of the following events
(herein called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) (1) The Borrower shall default in the payment when due of
any principal of or interest on any Loan on the Termination Date or (2) the
Borrower shall default in the payment when due of any principal of or interest
on any Loan on the due date therefor (other than the Termination Date) and such
default shall continue for a period of more than three days after notice thereof
to the Borrower by the Agent or (3) the Borrower shall default in the payment
when due of any other amount payable by it hereunder or under the other Basic
Documents and such default shall continue for a period of more than 10 days
after notice thereof to the Borrower by the Agent; or
(b) (1) The Guarantor or any of its Subsidiaries shall default
in the payment when due (after the lapse of any applicable grace period) of any
principal of or interest on any of their other Indebtedness aggregating
$1,000,000 or more; or (2) any event specified in any note, agreement, indenture
or other document evidencing or relating to any Indebtedness of the Guarantor or
any of its Subsidiaries aggregating $1,000,000 or more shall occur if the effect
of such event is to cause or permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause such
Indebtedness to become due, or to be prepaid in full (whether by redemption,
purchase or otherwise), prior to its stated maturity; or
(c) Any representation, warranty or certification made or deemed
made herein or in any other Basic Document by the Guarantor or the Borrower, or
in any certificate furnished to the Agent or the Lenders pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading in
any material respect as of the time made or furnished; or
(d) (1) Either the Guarantor or the Borrower shall default in
the performance of any of its obligations under SECTION 7.7(e), SECTION 8.1,
SECTION 8.3, SECTION 8.5 or SECTION 8.7 hereof; (2) the Guarantor or the
Borrower shall default in the performance of any of its obligations under
SECTION 8.2, SECTION 8.4 or SECTION 8.6, provided that if any such default does
not result in a Material Adverse Change, the Guarantor and the Borrower shall
have a period of 10 Business Days after notice of such default to the Borrower
by the Agent in which to cure such default; or (3) the Guarantor or the Borrower
shall default in the performance of any of its other obligations in this
Agreement or any other Basic Document and such default shall continue unremedied
for a period of 30 days after notice thereof to the Borrower by the Agent; or
(e) The Guarantor or any of its Subsidiaries shall admit in
writing its inability, or be generally unable, to pay its debts as such debts
become due; or
(f) The Guarantor or any of its Subsidiaries shall (i) apply for
or consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its Property, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the United
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States Bankruptcy Code (as now or hereafter in effect), (iv) file a petition as
debtor seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment of debts,
(v) fail to respond in a timely and appropriate manner, or acquiesce in writing,
to any petition filed against it in an involuntary case under the United States
Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting
any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Guarantor or any of the its Subsidiaries, in any
court of competent jurisdiction, seeking (i) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a trustee, receiver, custodian, liquidator or the like of the
Guarantor or such Subsidiary or of all or any substantial part of its assets, or
(iii) similar relief in respect of the Guarantor or such Subsidiary under any
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a period of
sixty (60) or more days; or an order for relief against the Guarantor or such
Subsidiary shall be entered in an involuntary case under the United States
Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in
excess of the lesser of (1) $5,000,000 in the aggregate or (2) such amount as
would result in a Material Adverse Change if paid shall be rendered by a court
or courts against the Guarantor or any of its Subsidiaries and the same shall
not be discharged (or provision shall not be made for such discharge), or a stay
of execution thereof shall not be procured, within sixty (60) days from the date
of entry thereof and the Guarantor or the relevant Subsidiary shall not, within
said period of sixty (60) days, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; provided, however, that no judgment
referred to in this SECTION 9(h) shall constitute an Event of Default if such
judgment is covered by insurance with respect to which no subrogation right
exists against the Guarantor or the Borrower; or
(i) The Guarantor or any ERISA Affiliate shall fail to pay when
due an amount or amounts which it shall have become liable to pay to the PBGC or
to a Plan under Section 515 of ERISA or Title IV of ERISA other than premiums
under Section 4007 of ERISA unless such failure would not result in a Material
Adverse Change; or notice of intent to terminate a Plan or Plans (other than a
multi-employer plan, as defined in Section 4001(a)(3) of ERISA) having aggregate
Unfunded Vested Liabilities in excess of $1,000,000 shall be filed under Title
IV of ERISA by the Guarantor, any ERISA Affiliate, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate any Plan or Plans which could result in liability
of the Guarantor unless such termination would not result in a Material Adverse
Change;
(j) Except for expiration or termination in accordance with its
terms, any of the Security Documents shall be terminated or shall cease to be in
full force
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and effect, for whatever reason; or any of the Security Documents shall fail to
create the Liens, rights, powers and privileges purported to be created thereby
(including, without limitation, a perfected security interest in and Lien on all
of the Collateral), subject to no equal or prior Lien other than Liens permitted
under SECTION 8.2 hereof; or
(k) The Guarantor or any of its Subsidiaries shall contest the
validity or enforceability of any material provision of any Basic Document, or
the validity or perfection of any Lien in favor of the Agent upon any material
portion of the Collateral; or
(l) The Guarantor shall own less than 100% of the issued and
outstanding shares of capital stock of the Borrower; or
(m) The Guarantor shall fail or cease to qualify, or be unable
to certify to the Agent its continuing status, as a Real Estate Investment Trust
pursuant to Sections 856 through 860 of the Code; or the Borrower shall fail to
qualify as a "qualified REIT subsidiary" under the Code; or
(n) A Change of Control occurs; or
(o) The Net Worth of the Guarantor and its Consolidated
Subsidiaries shall be less than (i) as of June 1, 1995, $310,000,000, plus 90%
of the net cash proceeds received by the Guarantor from the sale of any of its
equity securities during the immediately preceding 12-month period, plus 90% of
the market value of any equity securities of the Guarantor issued in exchange
for contributed properties during such 12-month period, minus the amount, if
any, by which dividends paid by the Guarantor during such 12-month period
exceeded the Guarantor's net income during such period; and (ii) as of each
succeeding December 1 and June 1, the minimum Net Worth required as of the
immediately preceding measurement date, plus 90% of the net cash proceeds
received by the Guarantor from the sale of any of its equity securities during
the 6-month period immediately preceding the applicable measurement date, plus
90% of the market value of any equity securities of the Guarantor issued in
exchange for contributed properties during such 6-month period, minus the
amount, if any, by which dividends paid during such 6-month period exceeded the
Guarantor's net income during such period; or
(p) The Consolidated Fixed Charge Coverage Ratio shall be less
than 2.00 to 1.00, measured as of the end of each fiscal quarter of the
Guarantor; or
(q) The ratio of (i) the Indebtedness of the Guarantor and its
Consolidated Subsidiaries to (ii) Net Worth shall be greater than 1.00 to 1.00,
measured as of the end of each fiscal quarter of the Guarantor; or
(r) If required by the terms hereof, the Guarantor or the
Borrower shall fail to complete the Collateralization Enhancement in the time
and manner provided for in SECTION 10.5 hereof;
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THEN: (i) upon the occurrence of any Event of Default described in clause (f),
(g) or (h) above with respect to the Guarantor or the Borrower, the Commitment
shall immediately terminate and the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts payable by the Borrower
hereunder (including, without limitation, any amounts payable under SECTIONS 1.6
AND 4.3 hereof) and under the Notes and the other Basic Documents shall
automatically become due and payable, and (ii) upon the occurrence of any other
Event of Default, the Agent may, and upon the request of the Requisite Lenders
shall, by notice to the Borrower, terminate the Commitment and declare the
principal amount then outstanding of, and the accrued interest on, the Loans and
all other amounts payable by the Borrower hereunder (including, without
limitation, any amounts payable under SECTIONS 1.6 AND 4.3 hereof) and under the
Note and the other Basic Documents to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable. Except as expressly provided
in this SECTION 9, presentment, demand, protest, notice or other formalities of
any kind are hereby expressly waived by the Guarantor and the Borrower.
SECTION 10. COLLATERAL PROPERTIES; SPRINGING LIEN PROPERTIES.
10.1 ADDITIONS TO COLLATERAL.
(a) The Borrower may, from time to time, give written notice to
the Agent of the Borrower's intent that one or more of the Springing Lien
Properties will become Collateral Properties. In connection with such notice,
the Borrower shall provide the Agent a preliminary commitment for title
insurance in the amount and of the type required by SECTION 5.2(h). Within 15
days of its receipt of such notice and preliminary commitment, the Agent shall
notify the Borrower of the Liens that the Agent requires to be removed from such
preliminary commitment before such proposed Springing Lien Property may qualify
as a Collateral Property; PROVIDED, HOWEVER, that the Agent may not require the
removal of any Lien that constitutes a Permitted Encumbrance. The proposed
Springing Lien Property shall constitute a Collateral Property from and after
the later of (i) the date specified in a written notice (a "COLLATERAL PROPERTY
DESIGNATION NOTICE") from the Borrower to the Agent as the date upon which such
proposed Springing Lien Property shall become one of the Collateral Properties
and (ii) the date that all conditions set forth on SECTION 5.2 shall have been
satisfied with respect to such proposed Collateral Property (the related
Mortgages being substantially the same in form and substance to the Mortgages
delivered in respect of the Initial Properties). Each Collateral Property
Designation Notice shall be deemed to constitute a representation and warranty
by the Borrower that, as of the date of and upon giving effect to such requested
designation, (a) the statements set forth in SECTION 6 are true and correct and
(b) no Default has occurred and is continuing.
(b) The Borrower may also, from time to time, give written
notice to the Agent of the Borrower's intent that one or more Self-Storage
Facilities which are not Springing Lien Properties will become Collateral
Properties. The Agent shall be entitled to obtain such information with respect
to such Self-Storage Facilities as it may reasonably deem appropriate. In the
event that the Agent determines any such additional Self-Storage
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Facility to be eligible to become a Collateral Property, then the Agent may
require that all conditions set forth in SECTION 5.2 be satisfied with respect
to such facility, together with such additional conditions as the Agent may deem
appropriate.
10.2 RELEASE OF COLLATERAL PROPERTIES. The Borrower may, from time
to time, provide written notice to Agent (a "COLLATERAL PROPERTY RELEASE
REQUEST") requesting the release of one or more of the Collateral Properties
from the lien of the Mortgages. On the effective date of the release requested
thereby, the Agent shall release from the lien of the Mortgages the Collateral
Properties identified in such Collateral Property Release Request, but only if
(i) at no time between Agent's receipt of such Collateral Property Release
Request and the effective date of such release does any Default occur or exist
(other than a Default which will cease to exist upon giving effect to such
release), and (ii) giving effect to such release would not cause a Default to
occur or exist. Each Collateral Property Release Request shall be deemed to
constitute a representation and warranty by Borrower that, as of the date of and
upon giving effect to such requested release, (a) the statements set forth in
SECTION 6 are true and correct and (b) no Default has occurred and is
continuing.
10.3 ADDITIONS TO SPRINGING LIEN PROPERTIES. The Borrower may, from
time to time, give written notice (a "SPRINGING LIEN DESIGNATION NOTICE") to the
Agent of the Borrower's intent that one or more Self-Storage Facilities will
become Springing Lien Properties. In connection with such request, the Borrower
shall provide the Agent with a current preliminary commitment for title
insurance of the type required by SECTION 5.2(h) or other title report showing
the Liens to which such Self-Storage Facility is then subject. The proposed
Self-Storage Facility shall constitute a Springing Lien Property from and after
the later of (i) the date specified in the applicable Springing Lien Designation
Notice as the date upon which such Self-Storage Facility shall become one of the
Springing Lien Properties and (ii) the date when all of the conditions set forth
in SECTION 5.2 have been satisfied. Each Springing Lien Designation Notice
shall constitute a representation and warranty by the Borrower that, as of the
date of such notice, no Default has occurred and is continuing. The Agent shall
be entitled to obtain such information with respect to such proposed Self-
Storage Facilities as it may reasonably deem appropriate. In the event that the
Agent determines any such additional Self-Storage Facility to be eligible to
become a Springing Lien Property, then the Agent may require the satisfaction of
such conditions as the Agent may deem appropriate, including, without
limitation, the conditions set forth in SECTION 5.2.
10.4 REMOVAL OF SPRINGING LIEN PROPERTIES. The Agent shall, from
time to time upon Borrower's written request therefor (a "SPRINGING LIEN REMOVAL
REQUEST"), remove one or more of the Springing Lien Properties from their status
as Springing Lien Properties provided that at no time between the Agent's
receipt of such Springing Lien Removal Request and the effective date of such
removal does a Default occur or exist (other than a Default which will cease to
exist upon giving effect to such removal). Each Springing Lien Removal Request
shall constitute a representation and warranty by Borrower that, as of the date
of and upon giving effect to such request, no Default has occurred and is
continuing. Unless a Springing Lien Removal Request expressly provides
otherwise, any Springing Lien Property whose removal from such status is
requested shall not, upon giving effect to such removal, constitute a Springing
Lien Property. Notwithstanding the foregoing, if at the time
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of the Agent's receipt of a Springing Lien Removal Request, and on the effective
date of the removal requested thereby, no amounts are owing hereunder (other
than contingent indemnification or hold harmless obligations of which the
Borrower has not received notice from the Agent), the Agent shall, upon receipt
of such Springing Lien Removal Request, remove the Springing Lien Properties
described therein from their status as Springing Lien Properties without further
conditions.
10.5 COLLATERALIZATION ENHANCEMENT. If the Debt Service Coverage
Ratio of the Borrower Properties as of the end of any fiscal quarter is less
than 1.50 to 1.00, the Guarantor and the Borrower shall immediately commence and
pursue diligently until completion, which shall occur within forty-five (45)
days of commencement, the process (collectively, the "COLLATERALIZATION
ENHANCEMENT") of (i) contributing additional Self-Storage Facilities to the
Borrower that satisfy all of the funding conditions contained in SECTION 5 below
for Collateral Properties and (ii) recording Mortgages and otherwise perfecting
Liens with respect to the Springing Lien Properties. Upon completion of the
Collateralization Enhancement, the Debt Service Coverage Ratio of the Borrower
Properties shall be not less than 1.80 to 1.00.
SECTION 11. THE AGENT.
11.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no duties or responsibilities except those expressly set forth
in this Agreement. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender; and nothing in this Agreement
or the other Basic Documents, expressed or implied, is intended to or shall be
so construed as to impose upon the Agent any obligations in respect of this
Agreement or the other Basic Documents except as expressly set forth herein. As
to any matters not expressly provided for by this Agreement, including
enforcement or collection of the Loan, the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining)
upon the instructions of the Requisite Lenders, and such instructions shall be
binding upon all the Lenders, provided that the Agent shall not be required to
take any action which exposes the Agent to personal liability or which is
contrary to the Basic Documents or applicable law. In the absence of
instructions from the Requisite Lenders, the Agent shall have authority (but no
obligation), in its sole discretion, to take or not to take any action, unless
this Agreement specifically requires the consent of Lenders or the consent of
the Requisite Lenders and any such action or failure to act shall be binding on
all Lenders and holders of the Notes. Each Lender shall execute and deliver
such additional instruments, including powers of attorney in favor of the Agent,
as may be necessary or desirable to enable the Agent to exercise its powers
hereunder.
11.2 AGENT'S RELIANCE, ETC.. Neither the Agent nor any of its
directors, officers, attorneys, agents or employees shall be liable for any
action taken or omitted to be
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taken by it or them under or in connection with this Agreement, except to the
persons and to the extent provided by law for its or their own gross negligence
or willful misconduct. Without limiting the generality of the foregoing, the
Agent: (i) may treat the payee of any Note as the holder thereof until the Agent
receives written notice of the assignment or transfer thereof signed by such
payee and including the agreement of the assignee or transferee to be bound
hereby as it would have been if it had been an original Lender party hereto, in
form satisfactory to the Agent; (ii) may consult with legal counsel (including
counsel for the Guarantor or the Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (iii) makes no warranty or representation to
any Lender and shall not be responsible to any Lender for any statements,
warranties or representations (whether written or oral) made in or in connection
with this Agreement; (iv) shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions of
this Agreement on the part of the Guarantor or the Borrower or to inspect the
Property (including the books and records) of the Guarantor or any of its
Subsidiaries; (v) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto, or the
creation, perfection or priority of any Lien on any Collateral; and (vi) shall
incur no liability under or in respect of this Agreement by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telecopier, telegram, cable or telex) believed by it in good faith to be genuine
and signed or sent by the proper party or parties.
11.3 RIGHTS AS LENDER. With respect to the Commitment and the Loans
made by it and the Note issued to it, NACC shall have the same rights and powers
under this Agreement as any other Lender and may exercise the same as though it
were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include NACC in its individual capacity. NACC and its
Affiliates may lend money to and generally engage in any kind of business with
the Guarantor, any of its Subsidiaries and any Person who may do business with
or own securities of the Guarantor or any such Subsidiary, all as if NACC were
not the Agent and without any duty to account therefor to the Lenders. Any
Lender and its respective affiliates may accept deposits from, lend money to,
act as trustee under indentures of, and generally engage in any kind of business
with, the Guarantor, any of its Subsidiaries and any Person who may do business
with or own securities of the Guarantor or any such Subsidiary, all as if such
Lender were not a Lender hereunder and without any duty to account therefor to
the other Lenders.
11.4 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements referred to in SECTION 5.1 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement.
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11.5 INDEMNIFICATION. The Lenders agree to indemnify the Agent,
ratably according to their then outstanding principal amount of Loans or, if no
Loans are outstanding, their share of the Commitment, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of this Agreement or the other Basic Documents or any
action taken or omitted by the Agent under this Agreement or the other Basic
Documents, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. Without limiting the foregoing, each Lender agrees to pay
or reimburse the Agent promptly upon demand for its ratable share of any
reasonable out-of-pocket expenses (including reasonable fees and expenses of
counsel) incurred by the Agent in connection with the preparation, execution,
delivery, modification, amendment or enforcement (whether through negotiations,
legal proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement or the other Basic Documents, to the
extent that the Agent is not reimbursed for such expenses by the Guarantor or
the Borrower.
11.6 SUCCESSOR AGENT. The Agent may give written notice of
resignation at any time to the Lenders, the Guarantor and the Borrower and may
be removed at any time with cause by the Requisite Lenders. Upon any such
resignation or removal, the Requisite Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within thirty (30)
days after the retiring Agent's giving of notice of resignation or the Requisite
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which shall be a bank organized under
the laws of the United States or of any state thereof, or any affiliate of such
bank, and having a combined capital and surplus of at least Five Hundred Million
Dollars ($500,000,000). Upon the acceptance of any appointment as the Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. Until the acceptance by such a successor
Agent, the retiring Agent shall continue as the "Agent" hereunder.
Notwithstanding any retiring Agent's resignation or removal hereunder as the
Agent, the provisions of this Article 10 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Agent under this
Agreement.
11.7 COLLATERAL MATTERS.
(a) The Agent is authorized on behalf of all the Lenders,
without the necessity of any notice to or further consent from the Lenders, from
time to time to take any action with respect to any Collateral or Security
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Security
Documents.
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(b) The Lenders irrevocably authorize the Agent, at its option
and in its discretion, to release any Lien granted to or held by the Agent upon
(i) any and all Collateral upon termination of the Commitment and payment in
full of all Loans; (ii) any Collateral constituting Property sold or to be sold
or disposed of as part of or in connection with any disposition permitted under
SECTION 8.7(b) hereof; (iii) any Collateral constituting Property in which the
Borrower owned no interest at the time the Lien was granted or at any time
thereafter; (iv) any Collateral constituting Property leased to the Guarantor or
any of its Subsidiaries under a lease which has expired or been terminated in a
transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Guarantor or the relevant Subsidiary to be,
renewed or extended; (v) any Collateral consisting of an instrument evidencing
Indebtedness or other debt instrument, if the Indebtedness evidenced thereby has
been paid in full; or (vi) any Collateral if approved, authorized or ratified in
writing by the Lenders, as provided in SECTION 12.5 hereof. Upon request by the
Agent at any time, the Lenders will confirm in writing the Agent's authority to
release particular types or items of Collateral pursuant to this subsection (b).
11.8 SHARING OF PAYMENTS, ETC.. If any Lender shall obtain any
payment in respect of the obligations under the Basic Documents (whether
voluntary or involuntary, through the exercise of any right of setoff or
otherwise) in excess of the amount it would have received if all payments had
been made directly to the Agent, such Lender shall forthwith purchase from the
other Lenders such participations in the Loans made by them to the Borrower as
the Agent shall direct; provided, however, that if all or any portion of such
excess payment is thereafter recovered from such purchasing Lender the purchase
from each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of (i) the amount of such Lender's required repayment to (ii) the total amount
so recovered by the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this SECTION 11.8 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of setoff) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation. The Agent's books
and records shall constitute prima facie evidence of the accuracy of the
information recorded therein and any statement by the Agent calculating the
amount due from any Lender shall be prima facie evidence thereof absent a
showing by such Lender of manifest error.
11.9 APPLICATION OF SECTION 11. The provisions set forth in this
SECTION 11 are intended to address the relationship between the Agent and the
Lenders and shall not affect, except as expressly provided herein, any of the
rights and obligations of the Guarantor or the Borrower set forth elsewhere in
this Agreement.
SECTION 12. MISCELLANEOUS.
12.1 WAIVER. No failure on the part of the Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or
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privilege under this Agreement or the Note shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement or the Note preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
12.2 NOTICES. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made in writing (including
telecopier, telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or otherwise delivered as follows:
If to the Guarantor:
Shurgard Storage Centers, Inc.
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Telecopier: (206) 624-1645
Attention: Harrell L. Beck
With a copy to:
Shurgard Storage Centers, Inc.
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Telecopier: (206) 624-1645
Attention: Kristin H. Stred, Esq.
If to the Borrower:
SSC Acquisitions, Inc.
c/o Shurgard Storage Centers, Inc.
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Telecopier: (206) 624-1645
Attention: John L. Lamb
With a copy to:
Perkins Coie
1201 Third Avenue
Seattle, Washington 98101
Telecopier: (206) 583-8500
Attention: Dennis L. Bekemeyer, Esq.
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If to the Agent:
Nomura Asset Capital Corporation
2 World Financial Center
New York, New York 10281
Telecopier: (212) 667-1174
Attention: Sheryl McAfee
Vice President
With a copy to:
Nomura Asset Capital Corporation
633 West Fifth Street, Suite 6800
Los Angeles, California 90071
Telecopier: (213) 243-1622
Attention: Richard A. Magnuson
and to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Telecopier: (213) 891-8763
Attention: David B. Rogers, Esq.
or, as to any party (including any Lender), at such address as shall be
designated by such party in a notice to each other party. All such notices and
communications shall be deemed effective upon receipt by the party to whom it
is given or made.
12.3 EXPENSES. Subject to the limitations set forth herein, the
Guarantor and the Borrower jointly and severally agree to pay or reimburse the
Agent and the Lenders, as applicable, for paying:
(a) all reasonable out-of-pocket expenses (including, without
limitation, the reasonable fees and expenses of legal counsel to the Agent) in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Basic Documents, the making of the Loans hereunder and
the addition, release or removal of Collateral Properties or Springing Lien
Properties pursuant to SECTION 10 hereof (except that the reimbursable expenses
of the Lender in connection with the diligence performed by the Agent in
connection with SECTION 10.1 or SECTION 10.3 hereof shall not exceed $10,000 per
Borrower Property);
(b) all reasonable costs and expenses (including, without
limitation, reasonable fees and expenses of legal counsel) in connection with
any Default and any enforcement or collection proceedings resulting therefrom
including, without limitation, in connection with any bankruptcy, insolvency,
liquidation, reorganization, moratorium or other
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similar proceedings involving the Guarantor or the Borrower or a "workout" of
the Loans, as applicable;
(c) all Taxes, and all transfer, stamp, documentary or other
similar taxes, assessments or charges levied by any governmental or revenue
authority in respect of this Agreement, the other Basic Documents or any other
document referred to herein or therein, and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
this Agreement, the other Basic Documents or any document referred to therein;
and
(d) all taxes and assessments, recording fees, registration
taxes, title insurance premiums, appraisal fees, costs of surveys, fees of
third-party consultants and all other fees and expenses reasonably incurred by
the Agent or the Lenders in connection with any Collateral.
Notwithstanding the foregoing, the reimbursable expenses of the Lender
(including the fees and expenses of its legal counsel) in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
Basic Documents (including diligence with respect to the Initial Properties)
shall not exceed $150,000.
12.4 INDEMNIFICATION.
(a) GENERAL INDEMNITY. The Guarantor and the Borrower hereby
jointly and severally agree to indemnify the Agent and the Lenders, and their
respective directors, officers, employees, attorneys, agents, successors and
assigns (the "INDEMNIFIED PARTIES") from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses incurred
by any of them arising out of or by reason of any claim of any Person relating
to or arising out of any Basic Document or the transactions contemplated therein
or resulting from the ownership or financing of any Borrower Property or any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to this Agreement or
the Loans or the actual or proposed use of the proceeds of the Loans by the
Borrower, including, without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Indemnified Party).
(b) ENVIRONMENTAL INDEMNITY. Without limiting the generality of
any other portion of this SECTION 12.4 and subject to the exception set forth in
12.4(a) regarding gross negligence or willful misconduct, the Guarantor and the
Borrower jointly and severally agree to defend, indemnify, exonerate and hold
harmless the Indemnified Parties from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses which
accrue to or are made against or incurred by Indemnified Parties prior to
transfer of any such Borrower Property pursuant to foreclosure or deed in lieu
of foreclosure, including, but not limited to, reasonable attorney's (including
allocated costs of in-house counsel) and consultant's fees, investigation and
laboratory fees, removal, remedial,
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response and corrective action costs, court costs and litigation expenses, of
whatever kind or nature known or unknown, contingent or otherwise, based on or
arising under any Environmental Laws, including, without limitation, those
enacted hereafter, and pertaining to or attributable in any way to the business,
operations, properties, assets, acts or omissions of the Borrower, any of
Borrower's Tenants or subtenants of any Borrower Property or any predecessor in
interest thereof or to any past, present or future Borrower Property.
(c) INDEMNIFICATION PROCEDURES. Any Indemnified Party seeking
indemnification under this SECTION 12.4 in respect of any claim shall notify the
Guarantor and the Borrower of the assertion of any such claim within a
reasonable time after such Indemnified Party has knowledge of such claim. With
reference to the provisions set forth in this SECTION 12.4 for payment by the
Guarantor and the Borrower of attorneys fees incurred by the Indemnified Parties
in any action or claim brought by a third party, the Guarantor and the Borrower
shall diligently defend such Indemnified Party and diligently conduct the
defense. If the Indemnified Party desires to engage separate counsel, it may do
so at its own expense; provided, however, that such limitation on the obligation
of the Guarantor and the Borrower to pay the fees of separate counsel for such
Indemnified Party shall not apply if such Indemnified Party has retained said
separate counsel because the Guarantor and the Borrower are not diligently
defending it or not diligently conducting the defense and the Indemnified Party
so notifies the Guarantor or the Borrower. Anything to the contrary contained
herein or any other Basic Documents notwithstanding, the Loan shall not be
considered to have been paid in full unless all obligations of the Guarantor and
the Borrower under this SECTION 12.4 shall have been fully performed (except for
contingent indemnification obligations for which no claim has actually been made
pursuant to this Agreement).
12.5 AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement or the Notes, nor consent to any departure by the Guarantor or the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Requisite Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following:
(a) change the Commitments of the Lenders or subject the Lenders
to any additional obligations;
(b) reduce the principal of, or interest on, the Notes or any
fees or other amounts payable hereunder or under any other Basic Document
(other than the interest payable pursuant to SECTION 2.2(b));
(c) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder or
under any other Basic Document;
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(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, which shall
be required for the Lenders or any of them to take any action hereunder;
(e) amend the definition of "Requisite Lenders";
(f) waive any Event of Default which occurs under SECTION
9.1(a);
(g) release any Collateral other than in accordance with the
terms of this Agreement;
(h) amend SECTION 4.3 or SECTION 6.1; or
(i) amend this SECTION 12.5;
and provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Lenders required above to
take such action, affect the rights or duties of the Agent under this Agreement
or any Note.
12.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. In connection with any assignment of the Loans pursuant to
SECTION 12.6(b) hereof, each Lender may, subject to SECTION 12.6(b), assign or
otherwise transfer all of its rights and remedies under this Agreement to the
assignee, and such assignee shall thereupon become vested with all of the rights
and obligations in respect thereof granted to the Lender herein or otherwise.
Each representation and agreement made by the Guarantor or the Borrower in this
Agreement shall be deemed to run to and each reference to the Lenders herein
shall be deemed to refer to the Lenders and all of its successors and permitted
assigns.
12.7 ASSIGNMENTS.
(a) ASSIGNMENTS BY THE GUARANTOR AND THE BORROWER. This
Agreement and each of the other Basic Documents shall be binding upon and inure
to the benefit of the parties and their respective Successors and assigns,
provided that neither the Guarantor nor the Borrower may assign or otherwise
transfer all or any part of its rights or obligations hereunder or under any
other Basic Document without the prior written consent of the Agent acting on
behalf of all Lenders.
(b) ASSIGNMENTS BY THE LENDERS. Any Lender may at any time
assign all or any portion of its interest under the Basic Documents with the
prior written consent of the Guarantor, the Borrower and the Agent (which may
not be unreasonably withheld). Any Lender may at any time after the occurrence
and during the continuation of a Default or Event of Default assign all or any
portion of its interest under the Basic Documents with or without the prior
written consent of the Guarantor or the Borrower (but not without the prior
written consent of the Agent, which may not be unreasonably withheld).
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(c) SALE OF PARTICIPATIONS BY THE LENDERS. Any Lender may sell
participations in any portion of its Loans or commitment to lend or of its
right, title and interest therein or thereto or in or to this Agreement to any
other person without obtaining the consent of the Guarantor, the Borrower or the
Agent provided that such Lender notifies the Agent, the Guarantor and the
Borrower of the sale. In the case of any sale of a participation by any Lender
hereunder (as distinguished from an assignment), such Lender shall remain fully
liable hereunder, the participant shall not acquire any direct rights against
the Guarantor, the Borrower, the Agent or any Lender under any Basic Document,
the Agent, the Guarantor and the Borrower shall continue to deal exclusively
with such Lender and shall not have any obligations whatsoever to such
participant.
12.8 SURVIVAL; DISCHARGE. The obligations of the Borrower under
SECTIONS 1.6, 4.1, 4.3, 4.4, 12.3 AND 12.4 hereof shall survive the repayment of
the Loans and the termination or expiration of the Commitment and any release of
the Collateral pursuant to the Basic Documents. In addition, each
representation and warranty made, or deemed to be made by a Notice of Borrowing
of any Loan, hereunder shall survive the making of such Loan and neither the
Agent nor the Lenders shall be deemed to have waived, by reason of making such
Loan, any Default or Event of Default which may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that the Agent or the Lenders may have had notice or knowledge
or reason to know that such representation or warranty was false or misleading
at the time such Loan was made. At such time as the Loans are paid and
performed in full and the Lender has no further commitment to lend under this
Agreement, the Lender shall execute and deliver to the Guarantor and the
Borrower such releases and other documentation reasonably requested by the
Guarantor or the Borrower to effect the release of the Collateral from the Liens
created under this Agreement and the other Basic Documents.
12.9 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.11 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
the Note shall be governed by, and construed in accordance with, the law of the
State of New York. Each of the Guarantor and the Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State Court sitting in New York City
for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each of the Guarantor and
the Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
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12.12 WAIVER OF JURY TRIAL. THE GUARANTOR, THE BORROWER, THE AGENT
AND THE LENDERS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.13 LIMITATION OF LIABILITY. No claim may be made by the
Guarantor, any Subsidiary of the Guarantor, any Lender, the Agent or any other
Person against the Agent or any Lender or the Affiliates, directors, officers,
employees, attorneys or agents of any of them for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or any other theory of liability arising out of or related to the transactions
contemplated by this Agreement, or any act, omission or event occurring in
connection therewith, and the Guarantor, each Subsidiary of the Guarantor, the
Agent and each Lender hereby waives, releases and agrees not to sue upon any
claim for any such damages, whether or not occurred and whether or not known or
suspected to exist in its favor.
12.14 MARSHALLING; RECAPTURE. Neither the Agent nor the Lenders
shall be under any obligation to marshall any assets in favor of the Guarantor
or the Borrower. To the extent any Lender receives any payment by or on behalf
of the Guarantor or the Borrower, which payment or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to the Guarantor or the Borrower or their respective
estate, trustee, receiver, custodian or any other party under any bankruptcy
law, state or federal law, common law or equitable cause, then to the extent of
such payment or repayment the obligation or part thereof which has been paid,
reduced or satisfied by the amount so repaid shall be reinstated by the amount
so repaid and shall be included within the liabilities of the Guarantor or the
Borrower to the Lender as of the date such initial payment, reduction or
satisfaction occurred.
12.15 RIGHTS AND REMEDIES. To the extent the Guarantor and the
Borrower may so agree under applicable law, each of the Guarantor and the
Borrower represents, warrants and covenants that in the case of an Event of
Default (i) the Agent and the Lenders shall have the right to pursue all of
their rights and remedies in one proceeding, or separately and independently in
separate proceedings from time to time, as the Agent, in its sole and absolute
discretion, shall determine from time to time, (ii) neither the Agent nor any
Lender is required to either marshall assets, sell Collateral in the inverse
order of alienation, or be subject to any "one action" or "election of remedies"
law or rule, (iii) the exercise by the Agent or any Lender of any remedies
against any one item of Collateral will not impede the Agent or any Lender from
subsequently or simultaneously exercising remedies against any other item of
Collateral, and (iv) all Liens and other rights, remedies or privileges provided
to the Agent or the Lenders shall remain in full force and effect until each of
the Agent and the Lenders has exhausted all of its remedies against the
Collateral and all Collateral has been foreclosed, sold or otherwise realized
upon in satisfaction of the Loans.
12.16 THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto, NSI and their respective successors and assigns,
and no other party is intended to be a third party beneficiary hereunder or to
have any right, benefit, priority or
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interest under, or because of the existence of, or shall have any right to
enforce, this Agreement.
12.17 SETOFF. The Borrower agrees that, in addition, to (and without
limitation of) any right of set-off or counterclaim the Lenders may otherwise
have, each Lender shall be entitled, at its option, to offset balances held by
it or any of its Affiliates for the account of the Borrower at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on any of the Loans, or any other amount payable to such Lender
hereunder, which is not paid when due (regardless of whether such balances are
then due to the Borrower), in which case it shall promptly notify the Agent and
the Borrower thereof, but the Lender's failure to give such notice shall not
affect the validity thereof or expose such Lender to any liability.
SECTION 13. GUARANTY.
13.1 THE GUARANTY. In order to induce the Lenders to enter into this
Agreement and to extend credit hereunder and in recognition of the direct and
indirect benefits to be received by the Guarantor from the proceeds of the
Loans, the Guarantor hereby agrees with the Lenders as follows: the Guarantor
hereby unconditionally and irrevocably guarantees as primary obligor and not
merely as surety the full and prompt payment when due, whether upon maturity, by
acceleration or otherwise, of any and all indebtedness and other obligations
owed to the Agents or the Lenders under the Basic Documents (the "OBLIGATIONS").
If any of the Obligations become due and payable hereunder, the Guarantor
unconditionally promises to pay such Obligations to the Lenders. The word
"indebtedness" is used in this SECTION 13 in the most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of the
Borrower arising in connection with this Agreement or any other Basic Document,
in each case, heretofore, now, or hereafter made, incurred or created, whether
voluntary or involuntary, absolute or contingent, liquidated or unliquidated,
determined or undetermined, whether or not such indebtedness is from time to
time reduced, or extinguished and thereafter increased or incurred, whether the
Borrower may be liable individually or jointly with others, whether or not
recovery upon such indebtedness may be or hereinafter become barred by any
statute of limitations, and whether or not such indebtedness may be or hereafter
become otherwise unenforceable.
13.2 BANKRUPTCY. Additionally, the Guarantor unconditionally and
irrevocably, guarantees the payment of any of the Obligations whether or not due
or payable by the Borrower upon the occurrence in respect of the Borrower of any
of the events specified in subsection (f) or (g) of SECTION 9, and
unconditionally, promises to pay such Obligations to the Lenders, or order, on
demand, in lawful money of the United States.
13.3 NATURE OF LIABILITY. The liability of the Guarantor hereunder
is exclusive and independent of any security for or other guaranty of the
Obligations whether executed by the Guarantor, or by any other party, and the
liability of the Guarantor hereunder shall not be affected or impaired by (a)
any direction as to application of payment by the Borrower or by any other
party, or (b) any other continuing or other guaranty,
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undertaking or maximum liability of any other party as to the Obligations, or
(c) any payment on or in reduction of any such other guaranty or undertaking, or
(d) any dissolution, termination or increase, decrease or change in personnel by
the Borrower, or (e) any payment made to the Agent or the Lenders on the
Obligations which the Agent or such Lenders repay the Borrower or the estate
thereof pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and the Guarantor waives any
rights to the deferral or modification of its obligations hereunder by reason of
any such proceeding. No payment or payments made by the Borrower or any other
Person or received or collected by the Agent or the Lenders from the Borrower or
any other Person by virtue of any action or proceeding or any setoff or
appropriation or application, at any time or from time to time, in reduction of
or in payment of the Obligations, shall be deemed to modify, reduce, release or
otherwise affect the liability of the Guarantor under this SECTION 13 which
shall, notwithstanding any such payment or payments, remain liable for the
amount of the Obligations until the Obligations are paid in full.
13.4 INDEPENDENT OBLIGATION. The obligations of the Guarantor
hereunder are independent of the obligations of any other guarantor or the
Borrower, and a separate action or actions may be brought and prosecuted against
the Guarantor whether or not action is brought against any other guarantor or
the Borrower and whether or not any other guarantor or the Borrower be joined in
any such action or actions. The Guarantor waives, to the fullest extent
permitted by law, the benefit of any statue of limitations affecting its
liability hereunder or the enforcement thereof. Any payment by the Borrower or
other circumstances which operated to toll any statute of limitations as to the
Borrower shall operate to toll the statute of limitations as to the Guarantor.
13.5 AUTHORIZATION. The Guarantor authorizes the Agent and the
Lenders without notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to (a) renew, compromise, extend, increase,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of, the Obligations or any part thereof in accordance with this Agreement,
including any increase or decrease of the rate of interest thereon, (b) take and
hold security from any party for the payment of this Guaranty or the Obligations
and exchange, enforce, waive and release any such security, (c) apply such
security and direct the order or manner of sale thereof as the Agent and the
Lenders in their discretion may determine and (d) release or substitute any one
or more endorsers, guarantors, the Borrower or other obligor.
13.6 RELIANCE. It is not necessary for the Agent or the Lenders to
inquire into the capacity or powers of the Borrower or the officers, directors,
parties or agents acting or purporting to act on its behalf, and any Obligations
made or created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
13.7 SUBORDINATION. Any indebtedness of the Borrower now or hereafter
held by the Guarantor is hereby subordinated to the Obligations; and such
indebtedness of the Borrower to the Guarantor, if the Agent, after an Event of
Default has occurred, so requests,
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shall be collected, enforced and received by the Guarantor as trustee for the
Lenders and be paid over to the Lenders on account of the Obligations, but
without affecting or impairing in any manner the liability of the Guarantor
under the other provisions of this Guaranty. Prior to the transfer by the
Guarantor of any note or negotiable instrument evidencing any indebtedness of
the Borrower to the Guarantor, the Guarantor shall mark such note or negotiable
instrument with a legend that the same is subject to this subordination.
13.8 WAIVER.
(a) The Guarantor waives the right (except as shall be required
by applicable law and cannot be waived) to require the Agent or the Lenders to
(a) proceed against the Borrower or any other party, (b) proceed against or
exhaust any security held from the Borrower or any other party or (c) pursue any
other remedy in the Agent's or the Lenders' power whatsoever. The Guarantor
waives any defense based on or arising out of any defense of the Borrower or any
other party other than payment in full of the Obligations, including without
limitation any defense based on or arising out of the disability of the Borrower
or any other party, or the unenforceability of the Obligations or any part
thereof from any cause, or the cessation from any cause of the liability of the
Borrower other than payment in full of the Obligations. The Agent and the
Lenders may, at their election, foreclose on any security held by the Agent or
the Lenders by one or more judicial or non-judicial sales (to the extent such
sale is permitted by applicable law), or exercise any other right or remedy the
Agent and the Lenders may have against the Borrower or any other party, or any
security, without affecting or impairing in any way the liability of any
Guarantor hereunder except to the extent the Obligations have been paid. The
Guarantor waives any defense arising out of any such election by the Agents and
the Lenders, even though such election operates to impair or extinguish any
right of reimbursement or subrogation or other right or remedy of the Guarantor
against the Borrower or any other party or any security. Until all the
Obligations shall have been paid in full, the Guarantor shall not have any right
of subrogation, and waives any right to enforce any remedy which the Agent and
the Lenders now have or may hereafter have against the Borrower, and waives any
benefit of, and any right to participate in, and security now or hereafter held
by the Agent and the Lenders.
(b) The Guarantor waives all presentments, demands for
performance, protests and notices, including without limitation notices of
nonperformance, notice of dishonor, notices of acceptance of this guaranty, and
notices of the existence, creation or incurring of new or additional
indebtedness. The Guarantor assumes all responsibility for being and keeping
itself informed of the Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Obligations and
the nature, scope and extent of the risks which the Guarantor assumes and incurs
hereunder, and agrees that the Agent and the Lenders shall have no duty to
advise the Guarantor of information known to them regarding such circumstances
or risks.
13.9 REINSTATEMENT. The guarantee contained in this SECTION 13 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Obligations is rescinded or must
otherwise be restored or returned
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by the Agent or the Lenders upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or any substantial part of its Property, or otherwise,
all as though such payments had not been made.
13.10 LIMITATION ON ENFORCEMENT. The Lenders agree that this
Guaranty may be enforced only by the action of the Agent and that no Lender
shall have any right individually to seek to enforce or to enforce this Guaranty
or to realize upon the security to be granted by the applicable Security
Documents, it being understood and agreed that such rights and remedies may be
exercised by the Agent for the benefit of the Lenders upon the terms of this
Agreement and the applicable Security Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
SHURGARD STORAGE CENTERS, INC.,
as Guarantor
By: /s/ Harrell Beck
Harrell Beck
President
SSC ACQUISITIONS, INC.,
as Borrower
By: /s/ Harrell Beck
Harrell Beck
President
Pro
Commitment Rata Share
- ---------- ----------
$50,000,000 100% NOMURA ASSET CAPITAL CORPORATION, as the
Agent and as a Lender
By: /s/ Richard Magnuson
Name: Richard A. Magnuson
Title: Vice President
<PAGE>
EXHIBIT A
DEFINITIONS AND ACCOUNTING MATTERS
Part I. CERTAIN DEFINED TERMS. As used in that certain Revolving
Loan Agreement dated as of December 23, 1994 (the "AGREEMENT") among the
Guarantor, the Borrower, the Agent and the Lenders, including this EXHIBIT A
thereto, the following terms shall have the following meanings (all terms
defined herein in the singular to have the same meanings when used in the plural
and VICE VERSA):
"AFFILIATE" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person and, if such Person is an individual, any member of
the immediate family (including parents, spouses and children) of such
individual and any trust whose principal beneficiary is such individual or one
or more members of such immediate family and any Person who is controlled by
such member or trust. As used in this definition, "CONTROL" (including, with
its correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall
mean possession directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event, any Person which owns directly or indirectly 5% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person.
Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate
of a corporation solely by reason of his or her being an officer or director of
such corporation.
"AGENT" shall have the meaning assigned to such term in the preamble.
"APPLICABLE MARGIN" shall mean (a) with respect to Base Rate Loans,
minus 0.50% per annum, and (b) with respect to LIBOR Rate Loans, plus 1.75% per
annum.
"BASE RATE" shall mean, for any day, a fluctuating interest rate per
annum equal to the then effective rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s
prime or reference rate.
"BASE RATE LOANS" shall mean Loans which bear interest at the Base
Rate plus the Applicable Margin.
"BASIC DOCUMENTS" shall have the meaning assigned to such term in
SECTION 5.1(e) of the Agreement.
"BEST KNOWLEDGE" shall mean, with respect to the Guarantor or the
Borrower, as applicable, the knowledge of the chief executive officer, the chief
financial officer, the treasurer, any vice president, any secretary or other
officer appointed by the board of
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directors, or any "reporting person" as that term is used in Section 16 of the
Securities Exchange Act of 1934, as amended.
"BORROWER" shall have the meaning assigned to such term in the
preamble to the Agreement.
"BORROWER PROPERTIES" shall mean the Collateral Properties and the
Springing Lien Properties.
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in New York City and, for purposes of
determining the LIBOR Rate, which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period as to any Person,
expenditures (including the aggregate amount of Capital Lease Obligations
incurred during such period) made by such Person or any of its Consolidated
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board).
"CHANGE OF CONTROL" shall mean (i) a transaction or series of
transactions whereby any Person or group (within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "1934 ACT")) shall acquire beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Guarantor (or other securities convertible into
such securities) representing 30% of the combined voting power of all securities
of the Guarantor entitled to vote in the election of directors (for purposes of
this definition, a "Controlling Person") or (ii) at any time, a majority of the
Guarantor's directors are persons who were not (A) in office on the Closing
Date or (B) initially nominated by directors who were in office on the Closing
Date or by successor directors elected or appointed upon the initial nomination
of such directors or successor directors. In connection with clause (i) above,
a Person or group shall not be a "Controlling Person" if such Person or group
holds voting power in good faith and not for the purpose of circumventing the
effect of the occurrence of a Change of Control as an agent, bank, broker,
nominee, trustee or holder of revocable proxies given in response to a
solicitation pursuant to the 1934 Act, for one or more beneficial owners who do
not individually, or, if they are a group acting in concert, as a group, have
the voting power specified in the previous sentence.
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"CLOSING DATE" shall mean the date on which the conditions set forth
in SECTION 5.1 of the Agreement shall have been fulfilled.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" shall mean any and all Property of the Guarantor or the
Borrower from time to time subject to the Lien of the Security Documents.
"COLLATERAL PROPERTIES" shall mean the Properties that are subject to
the lien of a Mortgage.
"COLLATERALIZATION ENHANCEMENT" shall have the meaning assigned to
such term in SECTION 10 of the Agreement.
"COMMITMENT" shall mean the obligation of the Lenders to make Loans to
the Borrower in an aggregate amount at any one time outstanding up to but not
exceeding the Commitment Amount.
"COMMITMENT AMOUNT" shall have the meaning assigned to such term in
SECTION 1.1 of the Agreement.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" shall mean, as of any date
of determination, for the Guarantor and its Consolidated Subsidiaries, the ratio
of (i) four times the Operating Cash Flow for the immediately preceding calendar
quarter to (ii) the sum of (A) cash interest payable on all Indebtedness of the
Guarantor and its Consolidated Subsidiaries during such period PLUS (B)
principal amounts of all Indebtedness of the Guarantor and its Consolidated
Subsidiaries (including the principal portion of rentals payable under Capital
Lease Obligations) payable during such period.
"CONSOLIDATED SUBSIDIARY" shall mean, as to any Person, each
Subsidiary of such Person (whether then existing or thereafter created or
acquired) the financial statements of which are (or should have been)
consolidated with the financial statements of such Person in accordance with
GAAP.
"DEBT SERVICE COVERAGE RATIO" shall mean the ratio of (i) four times
the aggregate Property Cash Flow, for all of the Collateral Properties or
Borrower Properties, as applicable, for the immediately preceding calendar
quarter to (ii) interest expense of the Borrower for such period, assuming that
all interest is payable at a rate per annum equal to (A) for calculations made
during the twelve months following the Closing Date, 10.5% and (B) thereafter,
the then current (as of the end of such quarter) United States Treasury Rate for
a ten year maturity PLUS 3%.
"DEFAULT" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
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"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"ENVIRONMENTAL CLAIM" shall mean any claim, investigation, proceeding,
action, order, directive, summons, complaint, citation, notice or inquiry from
any governmental authority which could or does result in any Environmental
Damages.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to
soil, surface water, groundwater, land, stream sediments, surface or subsurface
strata or ambient air, whether or not yet discovered, at, on or under the
Borrower Properties, which could or does result in any Environmental Damages.
"ENVIRONMENTAL DAMAGES" shall mean all claims, judgments, damages
(including punitive damages), losses, penalties, fines, liabilities,
encumbrances, liens, costs and expenses of investigation and defense of any
Environmental Claim which are incurred by the Agent, any Lender, the Guarantor
or the Borrower in respect of the Borrower Properties as a result of (i) the
existence of Hazardous Materials at, on, under or off the Borrower Properties,
or (ii) the violation or threatened violation of any Environmental Law by the
Borrower or any of its Tenants on any of the Borrower Properties.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the soil,
surface water, groundwater, land, stream sediments, surface or subsurface strata
or ambient air, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Guarantor or is under common
control (within the meaning of Section 414(c) of the Code) with the Guarantor.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
SECTION 9 of the Agreement.
"GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may
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be in general use by significant segments of the United States accounting
profession, which are applicable to the facts and circumstances on the date of
determination.
"GOVERNMENT APPROVAL" shall mean an approval, permit, license,
authorization, certificate or consent of any Governmental Authority.
"GOVERNMENTAL AUTHORITY" shall mean the government of the United
States or any state or any foreign country or any political subdivision of any
thereof or any branch, department, agency, instrumentality, court, tribunal or
regulatory authority which constitutes a part or exercises any sovereign power
of any of the foregoing.
"GUARANTY" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock of any corporation, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of his, her or its
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank to open a letter of credit for the benefit of
another Person, but excluding endorsements for collection or deposit in the
ordinary course of business. The term "GUARANTEED" used as a verb shall have a
correlative meaning.
"HAZARDOUS MATERIALS" shall have the meaning assigned to such term in
SECTION 6.19 of the Agreement.
"INDEBTEDNESS" shall mean, as to any Person: (a) indebtedness
created, issued or incurred by such Person for borrowed money (whether by loan
or the issuance and sale of debt securities); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within ninety (90) days of the date the respective
goods are delivered or respective services rendered; (c) Indebtedness of others
secured by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for the account of such Person; (e)
Capital Lease Obligations of such Person; (f) obligations (contingent or
otherwise) to purchase, retire or redeem any capital stock or any other equity
interest of such Person; (g) monetary obligations measured by, or determined on
the basis of, the value of any capital stock of such Person; and (h)
Indebtedness of others Guaranteed by such Person.
"INITIAL PROPERTIES" shall mean the Self-Storage Facilities and up to
2 business parks listed on SCHEDULE I to the Agreement, which shall be
identified thereon as Collateral Properties or Springing Lien Properties.
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<PAGE>
"INTEREST PAYMENT DATES" shall mean, with respect to any LIBOR Rate
Loan (and any concurrently outstanding Base Rate Loan), the last day of the
applicable Interest Period, and with respect to any Base Rate Loan while no
LIBOR Rate Loans are outstanding, the last Business Day of each calendar month.
"INTEREST PERIOD" shall mean, with respect to any LIBOR Rate Loan,
each one-month period commencing on the Business Day such Loan is made as or
converted into a LIBOR Rate Loan and ending on the numerically corresponding day
in the first and each succeeding calendar month thereafter, except that each
Interest Period which commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no
Interest Period may end after the Termination Date; (ii) each Interest Period
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (or if such next succeeding Business Day falls in
the next succeeding calendar month on the next preceding Business Day); (iii)
notwithstanding clauses (i) and (ii) above, if the Interest Period for any Loan
would have a duration of less than one month, such Loan shall not be available
as a LIBOR Rate Loan; and (iv) the Borrower may not have more than one Interest
Period in effect at any time.
"INVESTMENT" in any Person shall mean: (a) the acquisition (whether
for cash, property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of such Person; and (b) any deposit with, or advance, loan or other
extension of credit to, such Person (other than any such advance, loan or
extension of credit having a term not exceeding ninety (90) days representing
the purchase price of inventory or supplies purchased in the ordinary course of
business) or Guaranty of, or other contingent obligation with respect to,
Indebtedness or other liability of such Person and (without duplication) any
amount committed to be advanced, lent or extended to such Person.
"LEASE" shall mean any lease, sublease, license, franchise, concession
or other agreement, whether written or oral, permitting another to use, occupy
or possess all or any portion of a Borrower Property.
"LEASE OBLIGATIONS" shall mean the obligations of the Guarantor and
its Consolidated Subsidiaries to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real or personal property which
obligations are required to be classified and accounted for as an operating or
capital lease on a balance sheet of such Person under GAAP (including Statement
of Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board).
"LENDERS" shall have the meaning assigned to such term in the preamble
to the Loan Agreement.
"LIBOR RATE" shall mean, with respect to any Interest Period for any
Loan, the 30-day London interbank offered rate for Dollar deposits as of 11:00
a.m. (London time)
A-6
<PAGE>
on the date which is two Business Days prior to the first day of such Interest
Period, as quoted on Telerate page 3750 or on such replacement system as is then
customarily used to quote the London interbank offered rate. If two or more
such rates appear on Telerate page 3750 or associated pages, the rate in respect
of such Interest Period shall be the arithmetic mean of such offered rates.
"LIBOR RATE LOANS" shall mean Loans which bear interest at the LIBOR
Rate plus the Applicable Margin.
"LIBOR RATE RESERVE PERCENTAGE" of any Lender for the Interest Period
for any LIBOR Rate Loan shall mean the reserve percentage applicable during such
Interest Period (or if more than one such percentage shall be so applicable, the
daily average of such percentages for those days in such Interest Period during
which any such percentage shall be so applicable) under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, any
emergency, supplemental or other marginal reserve requirement) for such Lender
with respect to liabilities or assets consisting of or including "Eurocurrency
Liabilities" (as such term is defined in Regulation D of the Board of Governors
of the Federal Reserve System) having a term equal to such Interest Period.
"LIEN" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For purposes of this Agreement, the Guarantor and each of its
Subsidiaries shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"LOANS" shall mean loans made by the Lenders to the Borrower pursuant
to the Agreement.
"MATERIAL ADVERSE CHANGE" shall mean any materially adverse change in
(i) the condition (financial or otherwise), assets, liabilities, business,
operations or prospects of the Guarantor and its Subsidiaries, (ii) the
enforceability of any Basic Document or (iii) the ability of either the
Guarantor or the Borrower to perform its obligations under the Basic Documents.
"MORTGAGE" shall mean a mortgage, deed of trust, assignment of leases
and rents, security agreement and fixture filing in form and substance
satisfactory to the Agent, executed by Borrower in favor of the Agent, or a
trustee acting for the benefit of the Agent, in connection with a Loan.
"NET WORTH" shall mean, for the Guarantor and its Consolidated
Subsidiaries and calculated in accordance with GAAP as of any date of
determination, the then total stockholders' equity MINUS the then book value of
all assets properly classified as intangible assets under GAAP, including
goodwill, patents, copyrights, trademarks, trade names, franchises, licenses,
organization costs, deferred charges and deferred pre-opening costs, but
A-7
<PAGE>
excluding all intangible assets classified as such under the provisions of
Statements 87, 88 and 106 of the Financial Accounting Standards Board relating
to Accounting for Pensions and Post-Retirement Benefits other than Pensions, so
long as such intangible asset has a related liability under GAAP of equal or
substantially equal amount on the balance sheet of the Guarantor and its
Consolidated Subsidiaries as of the date of determination.
"NOTE" shall mean the promissory note or notes provided for in SECTION
1.5 of the Agreement and substantially in the form of EXHIBIT C to the
Agreement.
"NOTICE OF BORROWING" shall have the meaning assigned to such term in
SECTION 1.2(A) of the Agreement.
"NSI" shall have the meaning assigned to such term in SECTION 1.4(A)
of the Agreement.
"OPERATING CASH FLOW" shall mean, for the Guarantor and its
Consolidated Subsidiaries for any period, (i) net income (or loss) after taxes
(excluding gain or loss from nonrecurring items and sales of assets) PLUS (ii),
to the extent net income has been reduced thereby, (A) depreciation and
amortization expense and (B) all interest in respect of Indebtedness accrued or
accreted during such period (whether or not capitalized or paid during such
period).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PENSION PLAN" shall mean an "employee pension benefit plan" (as such
term is defined in Section 3(a) of ERISA) from time to time maintained by the
Guarantor or an ERISA Affiliate.
"PERMITTED ENCUMBRANCES" shall mean (a) Liens for taxes, assessments,
and other governmental charges not then delinquent or which are being contested
in good faith by appropriate proceedings diligently pursued and as to which
enforcement proceedings have not been instituted or, if instituted, have been
stayed, provided that adequate reserves with respect thereto are maintained by
the Borrower in conformity with GAAP; (b) any mechanic's, laborer's,
materialmen's, supplier's or vendor's lien or other similar statutory lien
arising in the ordinary course of business but only if (i) such lien is
subordinate to the liens created by the Security Documents and payment is not
yet due under the contract giving rise to such lien or (ii) such lien is subject
to a bona fide dispute and the Borrower has taken whatever actions may be
reasonably necessary to prevent a foreclosure of such lien and the resulting
sale of any of the Borrower Properties and, if such lien has priority over the
lien of the Mortgages, the Borrower causes to be posted a bond equal to one and
a half times the amount of such lien; (c) nonmonetary encumbrances,
restrictions, covenants, conditions, easements, rights-of-way, encroachments,
reservations and other similar matters affecting title which, in the aggregate
do not materially impair the Borrower's use of the Borrower Properties and its
operation thereon or materially reduce the fair market value thereof; (d) any
attachment or judgment lien which is being contested in good faith by
appropriate
A-8
<PAGE>
proceedings diligently pursued and as to which enforcement proceedings have not
been instituted or, if instituted, have been stayed, provided that adequate
reserves with respect thereto are maintained by the Borrower in conformity with
GAAP; (e) liens arising under UCC financing statements in which Tenants of any
Borrower Property are named as debtors or which are notice filings of leased
property; (f) ground leases; (g) rights of tenants to occupy the Borrower
Properties in the ordinary course of the Borrower's business; and (h) any other
Liens expressly approved by the Agent in writing with the consent of Requisite
Lenders.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"PLAN" shall mean, at any time, an employee pension benefit plan which
is covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code and is either (a) maintained by the Guarantor or
an ERISA Affiliate for employees of the Guarantor or an ERISA Affiliate or (b)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
the Guarantor or an ERISA Affiliate is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions.
"PRINCIPAL OFFICE" shall mean the principal office of each Lender, as
designated in writing by such Lender.
"PRO RATA SHARE" means, with respect to each Lender, the percentage
set forth opposite such Lender's signature on the signature pages at the end of
this Agreement, as such amount may be amended from time to time.
"PROPERTY" shall mean assets and properties, whether real, personal or
mixed, tangible or intangible.
"PROPERTY CASH FLOW" shall mean, for any period (without duplication),
all gross revenue payable to the Borrower from the ownership and operation of
the Collateral Properties or the Borrower Properties, as applicable, including
amounts the Tenants are contractually obligated to pay under Leases and revenues
from truck rentals and sales of moving and storage related items, MINUS (i) all
property expenses (including for real estate taxes and property insurance), (ii)
a management fee equal to 5% of gross revenues and (iii) an annual capital
expenditure reserve equal to $.17 per square foot.
"REAL ESTATE INVESTMENT TRUST" shall mean the classification for
federal tax purposes as a real estate investment trust pursuant to Part II,
Subchapter M of Chapter 1 of the Code.
"REQUISITE LENDERS" shall mean at any time Lenders holding more than
66-2/3% of the then aggregate outstanding principal amount of the Commitment.
A-9
<PAGE>
"SECURITY DOCUMENTS" shall mean, collectively, the Mortgages and all
Uniform Commercial Code financing statements to be filed in connection with the
foregoing, and all other documents and agreements executed or delivered to the
Agent by the Guarantor or the Borrower in connection with any of the foregoing
documents.
"SELF-STORAGE FACILITY" shall mean the fee or ground lease interest in
the land and improvements comprising a facility of the type owned by the
Guarantor as of the date of the Agreement.
"SPRINGING LIEN PROPERTIES" shall mean Initial Properties that are not
subject to the lien of a Mortgage.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation
of which at least a sufficient number of the outstanding shares of stock having
by the terms thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the time stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person and/or one or more of
the Subsidiaries.
"TAX" means, for any person, any tax, assessment, duty, levy, impost
or other charge imposed by any Governmental Authority on such person or on any
property, revenue, income or franchise of such person and any interest or
penalty with respect to any of the foregoing.
"TENANTS" shall mean any and all tenants, licensees, occupants,
concessionaires or other Person or Persons possessing, occupying or otherwise
using or having a right to use any space at any Borrower Property and giving or
paying rent or other consideration, whether under written agreement or
otherwise.
"TERMINATION DATE" shall mean the Business Day falling on or nearest
and prior to the date two (2) years after the Closing Date, or such earlier
date, if any, on which the Commitment is terminated or cancelled pursuant to the
terms of the Agreement.
"TOTAL MARKET CAPITALIZATION" shall mean, as at any date of
determination, the sum of (i) the current trading price of the Guarantor's
capital stock TIMES the number of issued and outstanding shares of such capital
stock PLUS (ii) the outstanding principal amount of the Guarantor's debt
securities.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (a) the present value of all vested non-
forfeitable benefits under such Plan exceeds (b) the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of the Guarantor or any ERISA Affiliate to the
PBGC or the Plan under Title IV of ERISA.
A-10
<PAGE>
Part II. ACCOUNTING TERMS AND DETERMINATIONS.
A. Except as otherwise expressly provided in the Agreement, all
accounting terms used in the Agreement shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Lenders pursuant to the Agreement shall (unless otherwise
disclosed to the Lenders in writing at the time of delivery thereof in the
manner described in subsection (B) below) be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the latest financial statements furnished to
the Lenders pursuant to the Agreement after the date of the Agreement. All
calculations made for the purposes of determining compliance with the terms of
this Agreement shall (except as otherwise expressly provided in the Agreement)
be made by application of generally accepted accounting principles applied on a
basis consistent with those used in the preparation of the annual or quarterly
financial statements furnished to the Lenders pursuant to SECTION 7.6 of the
Agreement unless (i) the Guarantor shall have objected to determining such
compliance on such basis at the time of delivery of such financial statements or
(ii) the Lenders shall so object in writing within 30 days after delivery of
such financial statements, in either of which events such calculations shall be
made on a basis consistent with those used in the preparation of the latest
financial statements as to which such objection shall not have been made (which,
if objection is made in respect of the first financial statements delivered
under SECTION 7.6 of the Agreement, shall mean the financial statements referred
to in SECTION 6.6 of the Agreement).
B. The Guarantor shall deliver to the Lenders at the same time
as the delivery of any annual or quarterly financial statement under SECTION 7.6
of the Agreement a description in reasonable detail of any material variation
between the application of accounting principles employed in the preparation of
such statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (A) above, and reasonable estimates of the difference between such
statements arising as a consequence thereof.
C. To enable the ready and consistent determination of
compliance with the conditions and covenants set forth in this Agreement, the
Guarantor will not change the last day of its fiscal year from December 31, or
the last days of the first three fiscal quarters in each of its fiscal years
from March 31, June 30 and September 30, respectively.
A-11
<PAGE>
EXHIBIT B
FORM OF
NOTICE OF BORROWING
[DATE]
Nomura Asset Capital Corporation
2 World Financial Center
New York, New York 10281
Attention: Ms. Sheryl McAfee
Re: NOTICE OF BORROWING
Ladies and Gentlemen:
The undersigned, SSC ACQUISITIONS, INC. (the
"BORROWER"), refers to that certain Revolving Loan Agreement,
dated as of December ___, 1994, among the Borrower, Shurgard
Storage Centers, Inc., as guarantor, Nomura Asset Capital
Corporation, as agent, and the financial institutions from time
to time party thereto (as amended, modified and supplemented
from time to time, the "LOAN AGREEMENT").
Pursuant to SECTION 1.2(a) and SECTION 5.2(a) of the
Loan Agreement, the Borrower hereby gives you irrevocable notice
that the Borrower requests a Loan under the Loan Agreement,
and in connection therewith sets forth below the information
relating to such Loan, as required by the Loan Agreement:
(i) The Business Day of such Loan is ___________ ___,
19___ (the "BORROWING DATE").
(ii) The aggregate amount of such Loan is
$____________.(1)
The undersigned hereby certifies that the following
statements are true on the date hereof, and will be true on the
Borrowing Date (after giving effect to the making of the Loan
and the application of the proceeds therefrom):
- ----------------------------
(1) Must be equal to or greater than $1,000,000.
B-1
<PAGE>
(1) the representations and warranties contained in
SECTION 6 of the Loan Agreement are correct and complete;
(2) no event has occurred and is continuing which
constitutes a Default; and
(3) since the date of the most recent financial
statements delivered pursuant to [SECTION 5.1(i)] [SECTION 7.6]
of the Loan Agreement, there has been no Material Adverse Change.
Very truly yours,
SSC ACQUISITIONS, INC.
By: _______________________________
Name:
Title:
B-2
<PAGE>
EXHIBIT C
FORM OF
REVOLVING NOTE
$50,000,000.00 December ___, 1994
Seattle, Washington
FOR VALUE RECEIVED, SSC ACQUISITIONS, INC., a Delaware corporation
(the "BORROWER"), hereby promises to pay to NOMURA ASSET CAPITAL CORPORATION
(the "LENDER"), at the office of the Agent located at 2 World Financial Center,
New York, New York 10281, or at such other place designated by the Lender, in
lawful money of the United States of America and in immediately available funds,
the principal amount of FIFTY MILLION DOLLARS ($50,000,000.00), or such lesser
amount as shall equal the aggregate unpaid principal amount of the Loans made by
the Lender to the Borrower under that certain Revolving Loan Agreement dated as
of December 23, 1994 among the Borrower, Shurgard Storage Centers, Inc., as
guarantor, Nomura Asset Capital Corporation, as Agent for the Lenders, and the
other financial institutions party thereto (as amended, modified or supplemented
from time to time, the "LOAN AGREEMENT"). Capitalized terms used in this Note
have the meanings assigned to such terms in the Loan Agreement.
The principal amount hereof is payable in accordance with the Loan
Agreement, and such principal amount may be prepaid solely in accordance with
the Loan Agreement, including without limitation any prepayment fees and
premiums provided for therein. The Borrower further promises to pay, in lawful
money of the United States of America and in immediately available funds,
interest from the date hereof on the unpaid and outstanding principal amount
hereof until such principal amount is paid in full, at such interest rates and
at such times as are specified in the Loan Agreement.
This Note is one of the "Notes" referred to in the Loan Agreement,
evidences Loans made by the Lender thereunder and is subject to all terms,
provisions and conditions of the Loan Agreement. The Loan Agreement provides
for the acceleration of the maturity of this Note upon the occurrence of certain
events and for prepayments of Loans upon the terms and conditions specified
therein.
The Borrower agrees to pay all costs and expenses, including without
limitation reasonable attorneys' fees and expenses, incurred in connection with
the enforcement of this Note.
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<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
and delivered by its duly authorized officer, as of the day and year and at the
place first above written.
SSC ACQUISITIONS, INC.
By: ______________________________
Name:
Title:
C-2
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made to the Borrower under the Loan
Agreement, on the dates, in the principal amounts and bearing interest at the
rates set forth below, subject to the payments and prepayments of principal set
forth below:
Principal Amount Unpaid
Date Amount of Interest Paid or Principal
Made Loan Rate Prepaid Amount
- ---- --------- -------- ------- ---------
C-3
<PAGE>
REVOLVING NOTE
$50,000,000.00 December 30, 1994
Seattle, Washington
FOR VALUE RECEIVED, SSC ACQUISITIONS, INC., a Delaware corporation
(the "BORROWER"), hereby promises to pay to NOMURA ASSET CAPITAL CORPORATION
(the "LENDER"), at the office of the Agent located at 2 World Financial Center,
New York, New York 10281, or at such other place designated by the Lender, in
lawful money of the United States of America and in immediately available funds,
the principal amount of FIFTY MILLION DOLLARS ($50,000,000.00), or such lesser
amount as shall equal the aggregate unpaid principal amount of the Loans made by
the Lender to the Borrower under that certain Revolving Loan Agreement dated as
of December 23, 1994 among the Borrower, Shurgard Storage Centers, Inc., as
guarantor, Nomura Asset Capital Corporation, as Agent for the Lenders, and the
other financial institutions party thereto (as amended, modified or supplemented
from time to time, the "LOAN AGREEMENT"). Capitalized terms used in this Note
have the meanings assigned to such terms in the Loan Agreement.
The principal amount hereof is payable in accordance with the Loan
Agreement, and such principal amount may be prepaid solely in accordance with
the Loan Agreement, including without limitation any prepayment fees and
premiums provided for therein. The Borrower further promises to pay, in lawful
money of the United States of America and in immediately available funds,
interest from the date hereof on the unpaid and outstanding principal amount
hereof until such principal amount is paid in full, at such interest rates and
at such times as are specified in the Loan Agreement.
This Note is one of the "Notes" referred to in the Loan Agreement,
evidences Loans made by the Lender thereunder and is subject to all terms,
provisions and conditions of the Loan Agreement. The Loan Agreement provides
for the acceleration of the maturity of this Note upon the occurrence of certain
events and for prepayments of Loans upon the terms and conditions specified
therein.
The Borrower agrees to pay all costs and expenses, including without
limitation reasonable attorneys' fees and expenses, incurred in connection with
the enforcement of this Note.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
and delivered by its duly authorized officer, as of the day and year and at the
place first above written.
SSC ACQUISITIONS, INC.
1
<PAGE>
By: ______________________________
Name:
Title:
SCHEDULE OF LOANS
This Note evidences Loans made to the Borrower under the Loan
Agreement, on the dates, in the principal amounts and bearing interest at the
rates set forth below, subject to the payments and prepayments of principal set
forth below:
Principal Amount Unpaid
Date Amount of Interest Paid or Principal
Made Loan Rate Prepaid Amount
- ---- --------- -------- ------- ---------
2
<PAGE>
AMENDED AND RESTATED
COLLECTION ACCOUNT AND SERVICING AGREEMENT
DATED AS OF JUNE 8, 1994,
BY AND AMONG
SSC PROPERTY HOLDINGS, INC.,
THE MORTGAGOR,
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
THE ACCOUNT AGENT,
LASALLE NATIONAL BANK,
THE ACCOUNT BANK,
SHURGARD INCORPORATED,
THE PROPERTY MANAGER,
AND
NOMURA ASSET CAPITAL CORPORATION,
THE LENDER
<PAGE>
CONTENTS
1. Definitions 2
2. Lock-Box Account and Collection Account 6
3. Withdrawals from Collection Account 7
4. Tax and Insurance Reserve Account; Deferred
Maintenance and Reserve Account 8
5. Withdrawals from Tax and Insurance Reserve
Account and Deferred Maintenance and Reserve Account 10
6. [Reserved] 11
7. Mortgagor Payments 11
8. Grant of Security Interest 12
9. Investment of Funds in Accounts 13
10. Account Bank to Act Upon Instructions Upon any
Event of Default 15
11. Representations and Warranties of Account Agent
and Account Bank 15
12. Indemnification 16
13. The Account Agent and the Account Bank 16
14. Miscellaneous Provisions 21
EXHIBIT A - Schedule of Encumbered Properties
EXHIBIT B - Lock-Box Deposit Report
EXHIBIT C - Officers' Certificate
<PAGE>
AMENDED AND RESTATED
COLLECTION ACCOUNT AND SERVICING AGREEMENT
This AMENDED AND RESTATED COLLECTION ACCOUNT AND SERVICING AGREEMENT is
made as of June 8, 1994, by and among SSC PROPERTY HOLDINGS, INC., a limited
purpose Delaware corporation and a wholly-owned subsidiary of Shurgard Storage
Centers, Inc. ("SSC") (together with its successors in interest, the
"Mortgagor"), PACIFIC MUTUAL LIFE INSURANCE COMPANY, a life insurance company
organized under the laws of the State of California (together with any successor
thereto, the "Account Agent"), LaSALLE NATIONAL BANK, (such bank or any
successor thereto, the "Account Bank"), SHURGARD INCORPORATED, a Washington
corporation (the "Property Manager") and NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation ( the "Lender").
RECITALS
WHEREAS, the Mortgagor has obtained, or is concurrently herewith obtaining,
a loan in the aggregate principal amount equal to $122,580,000 from the Lender
(the "Mortgage Loan") pursuant to an Amended and Restated Loan Agreement dated
as of the date hereof between the Mortgagor and the Lender (as the same may be
amended, restated, supplemented or modified from time to time, the "Loan
Agreement"). The Mortgagor's obligation to repay the Mortgage Loan is secured
by, among other things, a lien upon the Encumbered Properties (as defined below)
owned or leased by the Mortgagor.
WHEREAS, the parties hereto desire to set forth herein certain agreements
regarding, among other things, (i) the application by the Account Agent of funds
on deposit in the Collection Account to interest and principal payments on the
Mortgage Loan and (ii) the deposit of additional funds into a Tax and Insurance
Reserve Account and a Deferred Maintenance and Reserve Account and the release
by the Account Agent of funds on deposit in such Accounts to the Mortgagor for
the payment of certain expenses incurred in connection with the Encumbered
Properties.
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows. The Lender hereby appoints
the Account Agent as its agent, and the Account Agent agrees that it is acting
hereunder as agent and custodian of the Lender, and that it is also
contractually obligated to other parties as set forth herein, with respect to
this Agreement and with respect to all monies and Eligible Investments and the
proceeds held in any Account hereunder.
<PAGE>
1. DEFINITIONS
Except as otherwise specified herein or as the context may otherwise
require, the following terms have the respective meanings set forth below for
all purposes of this Agreement, and the definitions of such terms are equally
applicable both to the singular and plural forms of such terms and to the
masculine, feminine, and neuter genders of such terms.
"Account Agent" shall mean Pacific Mutual Life Insurance Company or any
successor account agent appointed under Section 13 hereof.
"Account Bank" shall mean LaSalle National Bank, or any successor account
bank appointed under Section 13 hereof.
"Accounts" shall mean, collectively, the Lock-Box Account, the Collection
Account, the Tax and Insurance Reserve Account and the Deferred Maintenance and
Reserve Account.
"Administrative Expenses" shall have the meaning given such term in the
Loan Agreement.
"Advance" shall have the meaning given such term in the Trust Agreement.
"Advance Interest Amount" shall have the meaning given such term in the
Trust Agreement.
"Affiliate" of any specified Person shall mean (i) any other Person
controlling or controlled by or under common control with such specified Person
and (ii) any limited partner of such specified Person if such specified Person
is a limited partnership, or any shareholder of such specified Person if such
specified Person is a corporation. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such specified Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" shall mean this Amended and Restated Collection Account and
Servicing Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks in (i) the City of New York or (ii) the city in which the
principal corporate office of the Account Agent is located are authorized or
obligated to close their regular banking business.
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"Capital Expenditures" shall mean, for any Person, expenditures which, in
accordance with GAAP, are or would be included in "additions to property, plant
or equipment" (or specifically, in the case of the Mortgagor, "storage centers")
or similar items reflected in the statement of cash flows of such Person.
"Closing Date" shall have the meaning given such term in the Loan
Agreement.
"Collateral" shall have the meaning given such term in the Loan Agreement.
"Collection Account" shall have the meaning given such term in Section 2(b)
hereof.
"Deferred Maintenance and Reserve Account" shall have the meaning given
such term in Section 4 hereof.
"Default" shall have the meaning given such term in the Loan Agreement.
"Eligible Account" shall mean either (i) an account maintained with a
federal or state chartered depository institution or trust company, the long
term unsecured debt obligations of which (or of such institution's parent
holding company) are rated "AA" or better by Standard & Poor's or Fitch
Investors Service, Inc. at any time funds are on deposit therein, or (ii) a
trust account or accounts maintained with the trust department of a federally
chartered depository institution or trust company acting in its fiduciary
capacity or (iii) a trust account or accounts maintained with the trust
department of a state chartered depository institution or trust company acting
in its fiduciary capacity and subject to regulations regarding fiduciary funds
on deposit therein substantially similar to 12 CFR Section 9.10(b).
"Eligible Investments" shall have the meaning given such term in the Trust
Agreement.
"Encumbered Properties" shall mean all properties that are collateral for
the Mortgage Loan (including the fee and leasehold interest in all improvements
and real and personal property owned by the Mortgagor and located thereon,
together with all leases, rents and proceeds thereof). The property
identification number of each Encumbered Property that is to be encumbered as
lien security for the Mortgage Loan is shown on Exhibit A hereto.
"Event of Default" shall have the meaning given to such term in the Loan
Agreement.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect on the Closing Date.
"Gross Revenues" shall have the meaning given such term in the Loan
Agreement.
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"Indemnified Parties" shall have the meaning given such term in Section 12.
"Insurance and Condemnation Proceeds" shall have the meaning given such
term in the Loan Agreement.
"Interest Accrual Period" shall have the meaning given such term in the
Loan Agreement.
"Lender" shall have the meaning given such term in the first full paragraph
of this Agreement.
"Lender Order" or "Lender Request" shall mean a written order or request
dated and signed by a Responsible Officer of the Lender and delivered to the
Account Agent.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatever.
"Loan Agreement" shall have the meaning given such term in the first
Recital above.
"Loan Documents" shall have the meaning given such term in the Loan
Agreement.
"Loan Prepayments" shall mean any payment of principal on the Mortgage Loan
made before the Maturity Date and any other payments, proceeds, or other amounts
applied to the reduction of principal of the Mortgage Loan.
"Lock-Box Account" shall have the meaning specified in Section 2(a) hereof.
"Maturity Date" shall have the meaning given such term in the Loan
Agreement.
"Monthly Calendar Period" shall mean a calendar month provided that the
first Monthly Calendar Period shall commence on the Closing Date and shall end
on June 30, 1994.
"Monthly Interest Payment Period" shall have the meaning given such term
in the Loan Agreement.
"Mortgage" shall have the meaning given such term in the Loan Agreement.
"Mortgage Amount" shall have the meaning given such term in the Loan
Agreement.
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"Mortgage Loan" shall have the meaning given such term in the first Recital
above.
"Mortgage Payment Account" shall mean the account owned by the Trustee and
maintained by the Servicer pursuant to the Trust Agreement.
"Mortgagor" shall mean SSC Property Holdings, Inc., a Delaware corporation,
and its successors in interest.
"Mortgagor Order" shall mean a written order or request delivered to the
Account Agent dated and signed in the name of the Mortgagor by a Responsible
Officer of the Mortgagor.
"Officer's Certificate" shall mean a certificate signed on behalf of a
Person by a Responsible Officer of such Person.
"Opinion of Counsel" shall mean an opinion of independent legal counsel
acceptable to the Account Agent.
"Person" shall mean any corporation, natural person, firm, joint venture,
partnership, trust, unincorporated organization, government or any department or
agency of any government.
"Property" shall have the meaning given such term in the Loan Agreement.
"Property Manager" shall mean Shurgard Incorporated, a Washington
corporation, and its successors in interest.
"Property Management Agreement" shall have the meaning given such term in
the Loan Agreement.
"Rating Agency" shall have the meaning given such term in the Loan
Agreement.
"Replacement Reserve" shall have the meaning given such term in the Loan
Agreement.
"Required Ratings" means a long term unsecured debt rating equal to "AA" or
better by Standard & Poor's Corporation and, if rated by Fitch Investors
Service, Inc., "AA" or better by Fitch Investors Service, Inc. and a short term
unsecured debt rating of "A-1+" or better by Standard & Poor's Corporation and,
if rated by Fitch Investors Service, Inc., "F-1+" or better by Fitch Investors
Service, Inc.
"Responsible Officer" shall mean, when used with respect to the Account
Agent, the Account Bank or the Lender, any officer, including any president, any
vice president, assistant vice president, assistant secretary or any other
officer of the Account Agent, the
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Asset-Backed Securities Trust Service Department of the Account Bank or the
Lender, as applicable, customarily performing functions similar to those
performed by the persons who at the time shall be such officers.
"Secured Party" shall mean the Lender.
"Servicer" shall mean Pacific Mutual Life Insurance Company, as Servicer
under the Trust Agreement, and shall include any permitted successor(s) under
the Trust Agreement.
"Subordination Agreement" shall have the meaning given such term in the
Loan Agreement.
"Tax Adjustment Amount" shall mean, with respect to any Tax Adjustment
Determination Date, the positive or negative difference between (i) the balance
in the sub-account established for Taxes under the Tax and Insurance Reserve
Account pursuant to Section 4(a) hereof, minus (ii) one-half (1/2) of the
estimated annual amount of Taxes in respect of the Properties for the succeeding
calendar year as reasonably determined by the Servicer.
"Tax Adjustment Determination Date" shall mean the first Business Day of
June in each calendar year commencing June 1, 1995.
"Tax and Insurance Reserve Account" shall have the meaning given such term
in Section 4 hereof.
"Transfer Date" shall have the meaning specified in Section 3 hereof.
"Trust Agreement" shall have the meaning given such term in the Loan
Agreement.
"Trustee" shall mean LaSalle National Bank, as Trustee under the Trust
Agreement, and shall include any permitted successor(s) under the Trust
Agreement.
2. LOCK-BOX ACCOUNT AND COLLECTION ACCOUNT
(a) LOCK-BOX ACCOUNT. The Mortgagor shall establish a trust account
with the Account Bank entitled "SSC Property Holdings, Inc. Lock-Box Account" to
hold funds and investments (the "Lock-Box Account"), into which the Mortgagor or
the Property Manager shall deposit on the first Business Day of each calendar
week all Gross Revenues, less the amount of cash payments for usual and
customary operating expenses (including Taxes as defined in Section 4(a) below)
in respect of the Encumbered Properties (but without deduction for or payment of
(i) property management or advisory fees due the Property Manager,
(ii) Insurance (as defined in Section 4(a) below), (iii) Replacement Reserves,
or (iv) Capital Expenditures), without regard to the Encumbered Property or
other source in respect of or from which the funds are received.
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The Lock-Box Account shall at all times be maintained as an Eligible Account.
The Mortgagor hereby agrees that the Account Agent shall have full power and
authority to transfer, or to cause to be transferred, funds held in the Lock-Box
Account in accordance with the terms hereof. The Mortgagor hereby further
agrees that the Account Agent shall have full power and authority to direct the
Account Bank to convert any instruments held in the Lock-Box Account to cash as
necessary to make such transfer of funds. Only the Account Agent shall be
entitled to withdraw funds from the Lock-Box Account and only the Account Agent
shall be an authorized signatory to the Lock-Box Account. The Mortgagor or the
Property Manager shall notify the Account Agent and the Lender by a Lock-Box
Deposit Report in the form of Exhibit B hereto, concurrently with each deposit
to the Lock-Box Account, of the amount thereof for each Property.
(b) COLLECTION ACCOUNT. On the second Business Day of each calendar
week prior to 1:00 p.m. New York City time, or more frequently in the Account
Agent's discretion, the Account Agent shall withdraw all funds on deposit in the
Lock-Box Account, if any, and deposit such funds into a trust account
established by the Mortgagor with the Account Bank entitled "SSC Property
Holdings, Inc. Collection Account to hold funds and investments (the "Collection
Account"), and into which (i) the Mortgagor shall deposit, or cause to be
deposited, such additional funds as are necessary for the payment of interest on
the Mortgage Loan and other amounts due under the Loan Agreement, and
(ii) certain other amounts as specified in the Loan Documents shall be
deposited. The Mortgagor shall make all such deposits of such additional funds
at least one (1) Business Day prior to the Transfer Date (as defined below).
The Collection Account shall at all times be maintained as an Eligible Account.
The Mortgagor hereby agrees that the Account Agent shall have full power and
authority to transfer, or to cause to be transferred, funds held in the
Collection Account in accordance with the terms hereof. The Mortgagor hereby
further agrees that the Account Agent shall have full power and authority to
convert any investments held in the Collection Account to cash and to convert
investments then held in the Collection Account to cash as necessary to make
such transfer of funds. Only the Account Agent shall be entitled to withdraw
funds from the Collection Account and only the Account Agent shall be an
authorized signatory to the Collection Account. At the direction of the Account
Agent, ledger sub-accounts for bookkeeping purposes may be established under the
Collection Account.
3. WITHDRAWALS FROM COLLECTION ACCOUNT
On the first Business Day of each Monthly Interest Payment Period and the
Maturity Date (a "Transfer Date"), the Account Agent shall withdraw amounts from
the funds on deposit in the Collection Account, and deposit in the Mortgage
Payment Account, for application to the Mortgage Loan and the other obligations
under the Loan Documents and the Trust Agreement in the following order and
priority (the payment of such amounts from the Mortgage Payment Account being
governed by the Trust Agreement and not this Agreement): first Administrative
Expenses certified by the
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Lender, the Account Agent, the Account Bank or the Servicer (with a copy of such
certifications to the Mortgagor) to be due and owing; second, an amount equal to
the interest, if any, previously due and unpaid on the Mortgage Loan; third, an
amount equal to the principal, if any, previously due and unpaid on the Mortgage
Loan; fourth, an amount equal to the principal and interest payments then due
with respect to the Mortgage Loan on such Transfer Date; and fifth, any other
amounts due and owing under the Loan Agreement. Excess funds remaining in the
Collection Account after such withdrawals shall be applied in the following
order and priority: first, for deposit in the Tax and Insurance Reserve Account
to the extent of the deposit required under Section 4(b) hereof, plus the amount
of any withdrawals previously made by the Servicer from such Account to pay
Taxes; and second, for deposit in the Deferred Maintenance and Reserve Account
to the extent of the deposit required under Section 4(d) hereof. If the Account
Agent determines that the amounts on deposit in the Collection Account exceed
the amount necessary to make in full the payments and withdrawals specified in
clause first through fifth of the first sentence of this Section 3(a) and in
clauses first and second of the second sentence of this Section 3(a) due on the
next succeeding Transfer Date, the Account Agent shall pay to the Mortgagor,
within two (2) Business Days after the receipt thereof, any excess funds in the
Collection Account after provision for all such payments and withdrawals to be
made on the next succeeding Transfer Date under this Section 3(a), and the
Mortgagor shall pay to the Property Manager from such funds all property
management and advisory fees due to the Property Manager. The Account Agent
shall determine on a daily basis the amounts to be withdrawn from the Collection
Account pursuant to this Section 3(a); provided, however, that at any time
during the continuance of an Event of Default described under Section 11.1 of
the Loan Agreement no funds on deposit in the Collection Account shall be
returned to the Mortgagor and the Account Agent shall pay to the Property
Manager on each Transfer Date from excess funds in the Collection Account the
property management and advisory fees then due to the Property Manager in
accordance with the terms of the Property Management Agreement, the Advisory
Agreement and the Subordination Agreement.
4. TAX AND INSURANCE RESERVE ACCOUNT; DEFERRED MAINTENANCE AND
RESERVE ACCOUNT
(a) ESTABLISHMENT OF TAX AND INSURANCE RESERVE ACCOUNT; INITIAL
FUNDING. The Mortgagor shall establish a trust account with the Account Bank
entitled "SSC Property Holdings, Inc. Tax and Insurance Reserve Account" to hold
funds and investments (the "Tax and Insurance Reserve Account"), into which the
Mortgagor shall deposit (i) $2,046,000 on the date hereof, to secure the full
and timely performance by the Mortgagor of its obligation to pay all real estate
taxes, assessments and other similar charges ("Taxes") in respect of the
Properties, and (ii) $197,497 on the date hereof, for the purposes of funding
premiums for insurance required under Section 9.7 of the Loan Agreement
("Insurance"). The Tax and Insurance Reserve Account shall at all times be
maintained as an Eligible Account; provided, however, at the direction of the
Account
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Agent, (x) the balances held in the Tax and Insurance Reserve Account with
respect to Taxes and Insurance shall be maintained as ledger sub-accounts for
bookkeeping purposes under the Tax and Insurance Reserve Account, and (y) the
Tax and Insurance Reserve Account (and the balances held on deposit for Taxes
and Insurance) shall be established, not as a separate deposit account, but as a
ledger sub-account established for bookkeeping purposes under the Collection
Account subject to all of the terms and conditions otherwise applicable to the
Tax and Insurance Reserve Account.
(b) ADDITIONAL FUNDING - TAX AND INSURANCE RESERVE ACCOUNT. The
Mortgagor shall, in addition to any amounts on deposit in the Tax and Insurance
Reserve Account as a result of Section 4(a), deposit into the Tax and Insurance
Reserve Account (i) on each Transfer Date an amount equal to one-twelfth
(1/12th) of the estimated annual amount of Insurance relating to the Properties
for the succeeding calendar year, as reasonably determined by the Servicer, such
that the entire premium for the Insurance shall be on deposit in the Tax and
Insurance Reserve Account at least thirty (30) days prior to the due date
therefor, and (ii) on each Tax Adjustment Determination Date upon written
request from the Servicer or Account Agent, the negative amount, if any, of the
Tax Adjustment Amount; provided, however, that at any time during the
continuance of an Event of Default described under Section 11.1 of the Loan
Agreement, the Mortgagor shall also deposit on each Transfer Date an amount
equal to one-twelfth (1/12) of the estimated annual amount of Taxes relating to
the Properties for the succeeding calendar year, as reasonably determined by the
Servicer. The Mortgagor or the Property Manager shall provide the Servicer with
a copy of every tax bill relating to the Properties upon receipt thereof. In
addition, on each Transfer Date, the Mortgagor shall deposit into the Tax and
Insurance Reserve Account the amount of all previous withdrawals from such
Account by the Servicer to fund payments of Taxes.
(c) ESTABLISHMENT OF DEFERRED MAINTENANCE AND RESERVE ACCOUNT;
INITIAL FUNDING. The Mortgagor shall establish a trust account with the Account
Bank entitled "SSC Property Holdings, Inc. Deferred Maintenance and Reserve
Account" to hold funds and investments (the "Deferred Maintenance and Reserve
Account"), into which the Mortgagor shall deposit $439,900 (the "Initial Funding
Amount") on the date hereof, for the purpose of funding the costs of Capital
Expenditures relating to the Properties (the "Permitted Expenditures"). The
Deferred Maintenance and Reserve Account shall at all times be maintained as an
Eligible Account; provided, however, at the direction of the Account Agent, the
Deferred Maintenance and Reserve Account shall be established not as a separate
deposit account, but as a ledger sub-account established for bookkeeping
purposes under the Collection Account subject to all of the terms and conditions
otherwise applicable to the Deferred Maintenance and Reserve Account.
(d) ADDITIONAL FUNDING - DEFERRED MAINTENANCE AND RESERVE ACCOUNT.
The Mortgagor shall, in addition to any amounts on deposit in the Deferred
Maintenance and Reserve Account as a result of Section 4(c), deposit into the
Deferred Maintenance
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and Reserve Account on each Transfer Date an amount equal to (i) one-twelfth
(1/12) of the Replacement Reserve relating to the Properties for the then
current calendar year, plus (ii) an amount equal to any previous withdrawals
pursuant to Section 5 (b) which have not theretofore been replaced in the
Deferred Maintenance and Reserve Account.
(e) ADMINISTRATIVE POWERS. The Mortgagor hereby agrees that the
Account Agent shall have full power and authority to transfer, or to cause to be
transferred, funds held in the Tax and Insurance Reserve Account and the
Deferred Maintenance and Reserve Account in accordance with the terms hereof.
The Mortgagor hereby further agrees that the Account Agent shall have full power
and authority to convert any investments held in the Tax and Insurance Reserve
Account and the Deferred Maintenance and Reserve Account to cash and to convert
investments then held in the Deferred Maintenance and Reserve Account to cash as
necessary to make such transfer of funds. Only the Account Agent shall be
entitled to withdraw funds from the Tax and Insurance Reserve Account and the
Deferred Maintenance and Reserve Account and only the Account Agent shall be an
authorized signatory to the Tax and Insurance Reserve Account and the Deferred
Maintenance and Reserve Account. The Account Agent may rely exclusively on
information contained in any Officer's Certificate relating to deposits to and
withdrawals from the Tax and Insurance Reserve Account and the Deferred
Maintenance and Reserve Account.
(f) CALCULATION OF TAX ADJUSTMENT AMOUNT. The Account Agent, in its
capacity as Servicer under the Trust Agreement, shall calculate the Tax
Adjustment Amount on each Tax Adjustment Determination Date and notify the
Mortgagor of the amount thereof.
5. WITHDRAWALS FROM TAX AND INSURANCE RESERVE ACCOUNT AND DEFERRED
MAINTENANCE AND RESERVE ACCOUNT
(a) WITHDRAWALS FOR TAXES, INSURANCE, PERMITTED EXPENDITURES AND TAX
ADJUSTMENT AMOUNT. In the event that the Account Agent receives from the
Mortgagor an Officer's Certificate in the form of Exhibit C attached hereto
stating that Mortgagor has expended funds in an amount and in accordance with a
schedule set out in such Officer's Certificate in connection with Permitted
Expenditures with respect to a Property, then the Account Agent shall withdraw
from the Deferred Maintenance and Reserve Account, and deliver to the Mortgagor
the amount specified in such Officer's Certificate; provided, however,
withdrawals from the Deferred Maintenance and Reserve Account shall not be made
more frequently than once each calendar month and the amount of each withdrawal
shall not be less than $25,000. A copy of such Officer's Certificate shall be
delivered by the Mortgagor to the Lender concurrently with the delivery to the
Account Agent, and the Account Agent shall provide notice to the Lender of any
action taken by the Account Agent with respect thereto. The Mortgagor shall
attach to such Officer's Certificate evidence of such payments for Permitted
Expenditures. In addition, the Account Agent
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shall withdraw from the Tax and Insurance Reserve Account and pay (i) to the
Servicer upon request the amount of Insurance and Taxes certified by the
Servicer to be due and owing; and (ii) to the Mortgagor on each Tax Adjustment
Determination Date the positive amount, if any, of the Tax Adjustment Amount;
provided, however, the Account Agent shall make no payment for Taxes under the
preceding clause (i) unless it shall have given the Mortgagor ten Business Days
prior notice of the Servicer's request for payment.
(b) WITHDRAWALS FOR DEBT SERVICE. If the Account Agent determines
that on any Transfer Date the amount on deposit in the Collection Account is not
sufficient to make in full the payments specified in clauses first through fifth
of the first sentence of Section 3(a) of this Agreement, the Account Agent shall
promptly, but in no event later than the Transfer Date, transfer from the
Deferred Maintenance and Reserve Account to the Collection Account an amount
equal to such shortfall. No Default or Event of Default shall be cured or
avoided by reason of any such transfer.
6. [RESERVED]
7. MORTGAGOR PAYMENTS
(a) MORTGAGOR DEPOSITS INTO THE ACCOUNTS. The Mortgagor has agreed
pursuant to the Loan Agreement and agrees hereby to make the payments required
hereunder strictly in accordance with the terms hereof with respect to the
Mortgage Loan. The Mortgagor and the Property Manager hereby agree: (i) to
deposit or cause to be deposited into the Lock-Box Account all Gross Revenues
less the amount of cash payments for usual and customary operating expenses
(including Taxes) in respect of the Encumbered Properties (but without deduction
for or payment of (A) property management or advisory fees due the Property
Manager, (B) Insurance (as defined in Section 4(a) above), (C) Replacement
Reserves or (D) Capital Expenditures) as and when received by the Mortgagor and
the Property Manager (without regard to the Encumbered Property or other source
in respect of or from which the funds are received); (ii) to deposit or cause to
be deposited into the Tax and Insurance Reserve Account and the Deferred
Maintenance and Reserve Account the amounts specified herein; (iii) to deposit
or cause to be deposited into the Collection Account all payments of interest on
the Mortgage Loan and all other amounts required by the Loan Agreement to be
deposited therein; (iv) that the funds deposited in the Collection Account will
be applied by the Account Agent and the Lender to payments in accordance with
the order of priorities set forth in Section 3; and (v) that any funds and
investments held in the Collection Account that are applied by the Account Agent
and the Lender to pay principal and/or interest on the Mortgage Loan will be so
paid without regard to the Encumbered Property from which such amounts were
received.
(b) INTEREST. The aggregate amount of funds transferred from the
Collection Account for payment to the Lender or transfer to the Mortgage Payment
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Account on each Transfer Date in respect of interest payable on the Mortgage
Loan, in accordance with the priority of application set forth in Section 3 (but
only to the extent of interest due on the Mortgage Loan), shall be credited by
the Lender as interest payments on the Mortgage Loan as of such date at the
applicable interest rate specified in the Loan Agreement.
(c) PRINCIPAL. The aggregate amount of funds, if any, which may be
deposited directly into the Collection Account on any day in respect of Loan
Prepayments shall be credited by the Servicer and the Lender as principal
payments on the Mortgage Loan as of the Transfer Date next following the date on
which such funds are so deposited.
(d) DEFERRED MAINTENANCE AND RESERVE ACCOUNT. If, with respect to
any Transfer Date, the Account Agent causes funds to be withdrawn from the
Deferred Maintenance and Reserve Account and to be deposited into the Collection
Account pursuant to Section 5 to cover a shortfall in funds, (i) the amount of
such funds so transferred from the Deferred Maintenance and Reserve Account to
the Collection Account, when paid to the Lender or deposited in the Mortgage
Payment Account, as the case may be, shall be credited by the Lender as payments
on the Mortgage Loan, allocated, to the extent of the amount so transferred in
the order and priority set forth in clauses first through fifth of the first
sentence of Section 3(a) hereof, and (ii) no Default or Event of Default shall
have been avoided or cured by reason of any such transfer.
8. GRANT OF SECURITY INTEREST
(a) ACCOUNTS. As security for the payment when due of all
obligations of the Mortgagor to the Lender in respect of the Mortgage Loan and
under the Loan Documents, the Mortgagor hereby pledges and assigns to the
Lender, and grants to the Lender a general lien on and first priority security
interest in (i) all of such Mortgagor's right, title, and interest in and to the
Accounts including, without limitation, all funds on deposit therein, all
investments made with such funds, all dividends, interest and other earnings on
such investments, all claims thereunder or in connection therewith, and all
cash, instruments, securities, rights and other property at any time and from
time to time received, receivable, or otherwise distributed in respect of such
Accounts, such funds, or such investments, and all money now or at any time in
the possession or under the control of, or in transit to, the Account Bank, the
Account Agent or the Trustee, or any bailee, agent or custodian of the Account
Bank, the Account Agent or the Trustee, and (ii) any and all Proceeds of any of
the foregoing. Proceeds shall have the meaning assigned that term under the
Uniform Commercial Code as in effect in any relevant jurisdiction or under other
relevant law and, in any event, shall include, but not be limited to, any and
all (i) proceeds of any insurance, except payments made to one not a party to
this Agreement, indemnity, warranty or guarantee payable to the Lender or to the
Mortgagor from time to time with respect to any of the Accounts, (ii) payments
(in any form
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whatsoever) made or due and payable to the Mortgagor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of any Account by any governmental authority (or
any Person acting under color of governmental authority), (iii) instruments
representing obligations to pay amounts in respect of any Accounts,
(iv) products of any Accounts and (v) other amounts from time to time paid or
payable under or in connection with any Accounts.
The Account Bank shall, as agent for the Lender, take such actions as the
Account Agent shall prescribe for the purpose of perfecting the Lender's lien
and security interest in all property described in Section 8(a) above, provided
that the Account Bank shall have no responsibility to determine the requirements
to achieve such perfection and in the event the Account Agent does not provide
such direction or the directions are incorrect, the Account Bank shall have no
liability. The Account Bank hereby acknowledges, for itself, receipt of notice
under the applicable section of the Uniform Commercial Code for the state in
which it maintains Accounts, of the security interest in and pledge of, in favor
of the Lender, the respective Accounts, all funds on deposit therein, all
investments made with such funds, and all dividends, interest and other earnings
on such investments, in accordance with the terms and provisions of this
Agreement.
(b) WITHDRAWALS BY MORTGAGOR. The Mortgagor will not at any time
make any withdrawal from the Accounts.
(c) NO LIEN. The Mortgagor has not created or granted, nor shall it
create or grant or permit to be created or granted, other than in favor of the
Lender, any Lien or any other transfer or disposition of the Accounts, or any
rights of the Mortgagor therein.
(d) ACCOUNTS; AGREEMENT. The Mortgagor acknowledges that, pursuant
to the terms of this Section 8, the Mortgagor has assigned its rights, title and
interest in and to the Accounts and in this Agreement to the Lender as security
for the Mortgage Loan.
(e) DURATION. This Section 8 creates a continuing security interest
in each of the Accounts, and shall terminate only upon termination of the Loan
Agreement.
9. INVESTMENT OF FUNDS IN ACCOUNTS
(a) INVESTMENT AND REINVESTMENT. So long as no Event of Default has
occurred and is continuing, all or a portion of the monies in the Accounts shall
be invested and reinvested at the Mortgagor's direction pursuant to a Mortgagor
Order in one or more Eligible Investments maturing no later than the Business
Day prior to the immediately following Transfer Date. All such Eligible
Investments shall be registered in the name of the Account Bank, in its capacity
as such. The Account Bank shall, by book entry or otherwise, identify such
Eligible Investments as having been pledged to the
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Lender and shall send to the Lender and the Account Agent a confirmation of such
pledge. If no Mortgagor Order has been received by the Account Bank, the
Account Bank shall invest and reinvest such monies in instruments described in
sub-clause (a)(i) of the definition of the Eligible Investments. After an Event
of Default, monies in the Accounts shall be invested and reinvested in
instruments described in sub-clause (a)(i) of the definition of the Eligible
Investments. All interest, income, earnings or other gain from such investments
shall be credited to the respective Account, net of any service charges to such
Account, and any loss resulting from such investments shall be charged to the
respective Account. The Mortgagor shall bear the risk of all losses with
respect to all such investments and the Account Bank shall not in any way be
held liable by reasons of any insufficiency in any Account resulting from any
loss on any Eligible Investment. The Account Agent is hereby authorized and
empowered at any time and from time to time, without notice to the Mortgagor or
any other person, to direct the Account Bank to sell or convert to cash, all
such Eligible Investments to make the disbursements to be made from each Account
in accordance with the terms of this Agreement, whether or not at the time of
such sale or conversion, such investment shall be matured. The Account Bank may
cause any such sale to be transacted through any lawful medium, including the
Account Bank's own facilities, and the Account Bank may pay the reasonable
expenses of such sale out of the proceeds thereof. The Mortgagor authorizes and
directs the Account Bank, without notice to the Mortgagor, to make any
investments and reinvestments in Eligible Investments that are consistent with
the most recently delivered Mortgagor Order, and to collect and receive any
interest, income, earnings or gain on such Eligible Investments, which interest,
income, earnings and gain shall be deposited in the related Account.
(b) PERFECTION. The Mortgagor shall not direct the Account Bank to
make any investment of any funds or to sell any investment held in an Account
unless the security interest granted in such Account and the funds and
investments held therein and the further assignments acknowledged pursuant to
Section 8(d) will continue to be perfected in such investment or the proceeds of
such sale, in either case without any further action by the Mortgagor, the
Account Agent, the Account Bank or any other Person, and, in connection with any
direction to the Account Agent, the Account Bank or the Lender to make any such
investment or sale, if requested by the Account Agent, the Account Bank or the
Lender, the Mortgagor shall deliver to the Account Agent, the Account Bank and
the Lender an Opinion of Counsel, acceptable to the Account Agent, the Account
Bank and the Lender, to such effect.
(c) DIRECTIONS. If the Mortgagor shall have failed to give
investment directions to the Account Bank pursuant to a Mortgagor Order by 12:00
p.m. New York time on any Business Day (or shall have failed to give investment
directions to the Account Bank pursuant to a Mortgagor Order in the form of
standing instructions for the selection of Eligible Investments), or if, after
an Event of Default has occurred and is continuing, the Lender shall not have
given directions otherwise for the selection of
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<PAGE>
Eligible Investments, any such investment made by the Account Bank pursuant to
this Section 9 shall mature on the next Business Day after the date of such
investment.
10. ACCOUNT BANK TO ACT UPON INSTRUCTIONS UPON ANY EVENT OF DEFAULT
Notwithstanding anything to the contrary, upon the occurrence of an Event
of Default, the Account Bank will act upon the written instructions of the
Lender (and not the Mortgagor or any other Person) and shall take such actions
as the Lender may direct with respect to the Accounts and the funds and
investments then held therein, including but not limited to (i) selling or
otherwise converting to cash all or any portion of the investments then held in
the Accounts, (ii) delivering to the Lender all or any portion of the funds and
investments then held in the Accounts and/or (iii) transferring all or any
portion of the funds and investments then held in the Accounts to different
accounts at the Account Bank, the Lender or such other financial institution as
the Lender may direct.
11. REPRESENTATIONS AND WARRANTIES OF ACCOUNT AGENT AND ACCOUNT BANK
Each of the Account Agent and the Account Bank, severally and not jointly,
as to itself represents and warrants that:
(a) Each of the Account Agent and the Account Bank has been duly
organized, and is validly existing and in good standing under the laws of the
jurisdiction of its organization, and has the power to conduct the business in
which it is engaged.
(b) Each of the Account Agent and the Account Bank has the corporate
power and authority to perform its duties and obligations under this Agreement.
Each of the Account Agent and the Account Bank has taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement.
Upon execution and delivery by the other parties hereto, this Agreement will
constitute the legal, valid and binding obligation of the Account Agent and the
Account Bank enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights generally (including, without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances or preferential transfers), from time to time in effect. The
enforceability of the Account Agent's and the Account Bank's obligations under
this Agreement is subject to general principles of equity regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(c) No consent, approval, authorization or order of, giving of notice
to, registration with, or taking of any other action with respect to, any court
or governmental agency or body is required for the execution, delivery or
performance by the Account Agent or the Account Bank of this Agreement in its
capacity as Account Agent or
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<PAGE>
Account Bank, respectively, or the consummation by the Account Agent or the
Account Bank of the transactions provided for in this Agreement, except such as
have been made or obtained, if any.
(d) The execution and delivery by the Account Agent or the Account
Bank of this Agreement and compliance with the terms hereof in its capacity as
Account Agent or Account Bank, respectively, will not (A) conflict with or
violate any term or provision of the charter or bylaws of the Account Agent or
the Account Bank, or, to the best of its knowledge, any statute, order or
regulation applicable to the Account Agent or the Account Bank of any court,
regulatory body administrative agency or governmental body having jurisdiction
over the Account Agent or the Account Bank, or (B) conflict with, result in a
breach, violation or the acceleration of or constitute a default under the terms
of any indenture or other agreement or instrument to which the Account Agent or
the Account Bank is a party or by which it is bound.
(e) No actions, proceedings or investigations are pending or, to the
best of its knowledge, threatened before any court, administrative agency or
other tribunal with respect to the Account Agent or the Account Bank, which
would affect the existence of the Account Agent or the Account Bank or in any
way contest or affect the validity or enforceability of this Agreement or
contest the powers of the Account Agent or the Account Bank or either of their
authority to enter into and perform their obligations under this Agreement as
Account Agent or Account Bank
12. INDEMNIFICATION
The Mortgagor shall indemnify and hold harmless the Account Agent, the
Account Bank, the Lender, the Trustee, the Servicer, and each of their
respective Affiliates, directors, officers, employees, attorneys and agents
(each, an "Indemnified Party," collectively, the "Indemnified Parties") in
accordance with and pursuant to the terms of Section 13.7 of the Loan Agreement.
13. THE ACCOUNT AGENT AND THE ACCOUNT BANK
(a) APPOINTMENT OF ACCOUNT AGENT AND ACCOUNT BANK. The Lender
initially appoints the Account Agent and the Account Bank as agents for the
Lock-Box Account, the Tax and Insurance Reserve Account, the Collection
Account and the Deferred Maintenance and Reserve Account, as provided herein.
(b) CERTAIN DUTIES AND RESPONSIBILITIES OF THE ACCOUNT AGENT AND THE
ACCOUNT BANK.
(i) Each of the Account Agent and the Account Bank undertakes to
perform such duties and only such duties as are specifically set forth in
this
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<PAGE>
Agreement, and no implied covenants, functions, responsibilities or
obligations shall be read into this Agreement against the Account Agent or
the Account Bank.
(ii) In the absence of bad faith on its part, each of the Account
Agent and the Account Bank may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Account Agent and the Account
Bank conforming to the requirements of this Agreement; provided, however,
that ii the case of any such certificates or opinions that by any
provisions hereof are specifically required to be furnished to the Account
Agent or the Account Bank, each of them shall be under a duty to examine
the same to determine whether or not they conform to the requirements of
this Agreement and shall promptly notify the party delivering the same if
such certificate or opinion does not conform. If a corrected form shall
not have been delivered to the Account Agent or the Account Bank, as the
case may be, within fifteen (15) days after such notice from the Account
Agent or the Account Bank, the Account Agent or the Account Bank, as the
case may be, shall so notify the Lender.
(iii) Each of the Account Agent and the Account Bank shall
exercise such of the rights and powers vested in it by this Agreement, and
use the same degree of care and skill in its exercise as a prudent person
would exercise or use under the circumstances in the conduct of such
person's own affairs. Notwithstanding anything in this Agreement to the
contrary, neither the Account Agent nor the Account Bank shall have any
liability to any Person except for its own grossly negligent action or
failure to act or its own willful misconduct.
(iv) No provision of this Agreement shall be construed to relieve
the Account Agent or the Account Bank from liability for its own grossly
negligent action, its own grossly negligent failure to act, or its own
willful misconduct, except that: (A) this clause (iv) shall not be
construed to limit the effect of clause (i) of this Section 13(b);
(B) neither the Account Agent nor the Account Bank shall be liable for any
error of judgment made in good faith by a Responsible Officer, unless it
shall be proven that the Account Agent or the Account Bank was grossly
negligent in ascertaining the pertinent facts; (C) neither the Account
Agent nor the Account Bank shall be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Lender or the Mortgagor relating to exercising any power conferred
upon the Account Agent or the Account Bank under this Agreement; and (D) no
provision of this Agreement shall require the Account Agent or the Account
Bank to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it; provided,
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however, that the Account Agent or the Account Bank shall immediately give
notice to the Lender of any decision by it not to expend or risk its funds
or incur financial liability as permitted hereby.
(v) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the
liability of or affording protection to the Account Agent or the Account
Bank shall be subject to the provisions of this Section 13.
(c) CERTAIN RIGHTS OF ACCOUNT AGENT AND ACCOUNT BANK. Except as
otherwise provided in Section 13(b) and in this Section 13(c):
(i) Each of the Account Agent and the Account Bank may rely and
shall be protected in acting or refraining from acting upon any report,
notice, request, direction, order, Lender Order, Lender Request, Mortgagor
Order, Officer's Certificate, Opinion of Counsel or other paper or document
believed by it to be genuine and correct and to have been signed of
presented by the proper party or parties and the Account Agent or the
Account Bank, as the case may be, shall have no duty hereunder to
independently verify whether any person is a Responsible Officer;
(ii) any request or direction of the Lender mentioned herein
shall be sufficiently evidenced by a Lender Request or Lender Order unless
otherwise waived by the Account Agent or the Account Bank, as the case may
be;
(iii) whenever in the administration of this Agreement the Account
Agent or the Account Bank shall deem it desirable that a matter be proved
or established prior to taking, suffering, or omitting any action
hereunder, the Account Agent or the Account Bank (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officer's Certificate;
(iv) neither of the Account Agent nor the Account Bank shall be
under any obligation to exercise any of the rights or powers vested in it
by this Agreement or to honor the request or direction of the Lender
pursuant to this Agreement, unless the Lender or another Person shall have
offered to the Account Agent or the Account Bank reasonable security or
indemnity against all costs, expenses, and liabilities that might be
incurred by it in compliance with such request or direction;
(v) neither of the Account Agent nor the Account Bank shall not
be bound to make any investigation into the facts or matters stated in any
report (including the Lock-Box Deposit Report), notice, request, direction,
order, or other paper or document, but either the Account Agent or the
Account Bank may, in its
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<PAGE>
discretion, and shall, upon the request of the Lender, make such further
inquiry or investigation into such facts or matters as it may see fit;
(vi) neither the Account Agent nor the Account Bank shall have
any liability for losses on investments made in accordance with this
Agreement or any investment instructions it receives from the proper party;
and
(vii) neither the Account Agent nor the Account Bank shall be
required to monitor the performance of the Mortgagor, the Lender, the
Property Manager or any other Person pursuant to this Agreement.
(d) MONEY HELD BY THE ACCOUNT BANK. All monies held by, or deposited
with the Account Bank in the Accounts, pursuant to the provisions of this
Agreement, and not invested in Eligible Investments as provided in Section 9
shall be deposited in one or more segregated trust accounts for the benefit of
the Lender. To the extent monies deposited in any trust account exceed the
Federal Deposit Insurance Corporation insured amounts, such account shall be
invested in Eligible Investments as provided in Section 9. The Account Bank
shall be under no liability for interest on any money received or held by it
hereunder except to the extent of income or other gain on investments that are
deposits in or certificates of deposit of the institution, acting not as Account
Bank but in its individual commercial capacity.
(e) ELIGIBILITY OF ACCOUNT AGENT AND ACCOUNT BANK. There shall at
all times be (i) an Account Bank hereunder which shall be a corporation
organized and doing business under the laws of the United States of America or
of any state, authorized under such laws to exercise corporate trust powers,
having, or being a member of a bank holding company having, a combined capital
and surplus of at least $100,000,000, subject to supervision or examination by
federal or state authority; and (ii) an Account Agent meeting the eligibility
requirements for the Servicer set forth in Section 4.15 of the Trust Agreement.
If the Account Bank publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 13(e), the combined capital and
surplus of the Account Bank shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Account Bank or the Account Agent, as the case may be, shall cease
to be eligible in accordance with the provisions of this Section 13(e), it shall
resign as soon as practicable in the manner and with the effect hereinafter
specified in this Agreement.
(f) RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. The Account
Agent or the Account Bank may resign at any time by giving written notice
thereof to the Lender. The Account Agent or the Account Bank may be removed and
a successor appointed at any time by the Lender or a Majority of the
Certificateholders (as such term is defined in the Trust Agreement ) following
written notice to the Account Agent or
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<PAGE>
Account Bank, as the case may be, of its material breach of the provisions
hereof which is not cured within ninety (90) days following such notice. No
resignation or removal of the Account Agent or Account Bank and no appointment
of a successor Account Agent or Account Bank pursuant to this Agreement shall
become effective until the acceptance of appointment by the successor Account
Agent or Account Bank under Section 13(g); PROVIDED, HOWEVER, in the event a
successor Account Agent or Account Bank is not appointed within thirty (30) days
of such resignation or removal, the Account Agent or Account Bank may petition a
court for its removal and the appointment of a successor Account Agent or
Account Bank, as the case may be.
(g) ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every successor Account
Agent or Account Bank appointed hereunder shall execute, acknowledge and deliver
to the Lender and the retiring Account Agent or Account Bank, as the case may
be, an instrument accepting such appointment, with a copy thereto to the
Mortgagor and the Lender and thereupon the resignation or removal of the
retiring Account Agent or Account Bank, as the case may be, shall become
effective and such successor Account Agent or Account Bank, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts, duties, and obligations of the retiring Account Agent or Account Bank,
as the case may be; but, on request of the Lender or the successor Account Agent
or Account Bank, such retiring Account Agent or Account Bank shall execute and
deliver an instrument transferring to such successor Account Agent or Account
Bank all the rights, powers, and trusts of the retiring Account Agent or Account
Bank, as the case may be, and shall duly assign, transfer and deliver to such
successor Account Agent or Account Bank all property and money held by such
retiring Account Agent or Account Bank, as the case may be, hereunder.
No successor Account Agent or Account Bank shall accept its
appointment unless at the time of such acceptance such successor shall be
qualified and eligible under this Agreement.
(h) MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF
ACCOUNT AGENT. Any corporation into which the Account Agent or the Account Bank
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion, or consolidation to which the
Account Agent or the Account Bank shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Account Agent or the Account Bank, shall be the successor of the Account Agent
or the Account Bank, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Agreement, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
(i) COMPENSATION. The Account Agent and the Account Bank acknowledge
and agree that, pursuant to separate agreement, the Servicer shall be
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responsible for all compensation due to the Account Agent and Account Bank for
services rendered hereunder.
14. MISCELLANEOUS PROVISIONS
(a) NO OTHER ASSIGNMENT; NO DELEGATION BY MORTGAGOR. The Mortgagor
may not assign its rights or delegate its obligations under this Agreement other
than pursuant to the assignment for security set forth in Section 8. Except as
set forth in Sections 13(g) and 13(h) hereof, neither the Account Agent nor the
Account Bank may assign its rights or delegate its obligations under this
Agreement
(b) LEGAL HOLIDAYS. If the date of any payment, distribution,
investment, notice or other event under this Agreement shall be a day which is
not a Business Day, then such payment, distribution, investment, notice or other
such event may be made or permitted to occur on the next succeeding Business Day
with the same force and effect as if made on the nominal date thereof, and no
additional interest shall accrue for the period from and after any such nominal
date.
(c) SUCCESSORS AND ASSIGNS. Subject to Section 14(a), all provisions
contained herein shall inure to the benefit of the parties hereto, and their
respective successors and assigns, and shall be binding upon each party, its
successors and assigns. It is expressly understood and agreed that the Lender
may assign its rights and interest in this Agreement to the Trustee for the
benefit of the Certificateholders under the Trust Agreement. After such
assignment, all actions which may be taken or performed by the Lender shall be
taken or performed by the Servicer, on behalf of the Trustee, and all rights and
privileges in favor of the Lender shall extend to the Trustee. The Servicer
shall be deemed a third party beneficiary hereof with respect to the power and
rights granted to it hereunder.
(d) CUMULATIVE RIGHTS; NO WAIVER. The rights, powers and remedies of
the parties hereunder are cumulative and in addition to all rights, powers and
remedies provided under any and all agreements between or among the Mortgagor,
the Lender, the Account Agent, the Account Bank and the Servicer relating hereto
and all agreements between the other parties hereto, at law, in equity or
otherwise. Any delay or failure by any party to exercise any right, power or
remedy shall not constitute a waiver thereof by such party, and no single or
partial exercise by such party of any right, power or remedy shall preclude
other or further exercise thereof or any exercise of any other rights, powers or
remedies.
(e) NONRECOURSE. Anything contained herein to the contrary
notwithstanding, no recourse shall be had for the payment of any amounts due
hereunder or for any claim based thereon or otherwise in respect thereof or for
the performance of any other obligation based on or in respect of this Agreement
against (i) the Mortgagor, or (ii) any officer, director or shareholder of the
Mortgagor, provided, that the foregoing
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<PAGE>
provisions of this Section 14(e) shall not (A) prevent recourse to the
Collateral or constitute a waiver, release or discharge of any indebtedness or
obligation evidenced by the Mortgage Loan or any Loan Document or secured by any
Loan Document, and the same shall continue until paid or discharged; (B) limit
the right of any Person to name the Mortgagor or any successor or assign of the
Mortgagor as a party defendant in any action or suit for judicial foreclosure of
or in the exercise of any other remedy under the Loan Agreement or under any
Loan Document, so long as no monetary judgment or judgment seeking personal
liability, the expenditure of money or the performance of any act requiring the
expenditure of money shall be asked for against the Mortgagor or any of its
successors or assigns; or (C) limit, in any manner, any right, remedy or
recourse the Lender may have against the Mortgagor for (i) enforcement of the
environmental indemnity set forth in the Environmental Indemnity Agreement,
(ii) enforcement of the Representations Agreement, (iii) material
misrepresentation or fraud by the Mortgagor in any Loan Document executed by
Mortgagor or in any certificate delivered by the Mortgagor hereunder or
thereunder, or (iv) the misappropriation of rents, profits, insurance or
condemnation proceeds; and provided further, however, that the foregoing
subparagraph (B) shall not limit the right to seek a monetary judgment,
including a deficiency judgment, or the expenditure of money so long as the
enforcement of such judgment and expenditure of such money is limited to rights
against the Collateral, and not the Mortgagor.
(f) ENTIRE AGREEMENT. This Agreement and the documents and
agreements referred to herein embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof.
(g) SURVIVAL. All representations, warranties, covenants and
agreements herein contained on the part of the Mortgagor, the Property Manager,
the Account Bank and the Account Agent shall survive the termination of this
Agreement and shall be effective until the latest of (i) the date on which the
Mortgage Loan is paid and performed in full, or (ii) such later date as is
expressly provided herein.
(h) NOTICES. All notices given by any party to the others shall be
in writing unless otherwise provided for herein, delivered by facsimile
transmission (confirmed in writing) or delivered personally or by depositing the
same in the United States mail, registered, with postage prepaid, addressed to
the parties at the address set forth below. Any party may change the address to
which notices are to be sent by notice of such change to the other parties given
as provided herein. Such notices shall be effective on the date received or, if
mailed, on the third Business Day following the date mailed. Addresses for
notices are as follows:
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If to the Mortgagor:
SSC Property Holdings, Inc.
1201 Third Avenue
Suite 2200
Seattle, Washington 981201
Attention: General Counsel
Facsimile: (206) 624-1645
with a copy to:
Perkins Coie
1201 Third Avenue
Seattle, Washington 98101
Attention: Dennis Bekemeyer, Esq.
Facsimile: (206) 287-3267
If to the Account Agent:
Pacific Mutual Life Insurance Company
700 Newport Center
Newport Beach, California 92660
Attention: Real Estate Investments
Facsimile: (714) 721-5174
If to the Account Bank:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Corporate Trust Department
Facsimile: (312) 443-2079
If to the Property Manager:
Shurgard Incorporated
1201 Third Avenue
Suite 2200
Seattle, Washington 98101
Attention: General Counsel
Facsimile: (206) 624-1645
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If to the Lender:
Nomura Asset Capital Corporation
Two World Financial Center
Building B, 21st Floor
New York, New York 10281-1198
Attention: Mr. Perry Gershon and Ms. Sheryll McAfee
Facsimile: (212) 667-1022
(i) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF WASHINGTON WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT (I) THE RIGHTS AND OBLIGATIONS OF THE
ACCOUNT BANK SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS, AND (II) TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF ANY SECURITY
INTEREST GRANTED HEREUNDER OR REMEDIES HEREUNDER IN RESPECT OF ANY PARTICULAR
PROPERTY ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
WASHINGTON. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW
YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND THE PARTIES HERETO HEREBY AGREE AND CONSENT THAT, TO THE EXTENT
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING IN ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY
OF NEW YORK MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO THE PARTIES HERETO AT THE ADDRESSES INDICATED ABOVE, AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME SHALL HAVE BEEN
SO MAILED.
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<PAGE>
(j) COUNTERPARTS. This Agreement may be executed in counterparts
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Account Agent: PACIFIC MUTUAL LIFE INSURANCE
COMPANY,
By:/s/ C.S. Dillon
-----------------------------
Name:
--------------------------
Title:Assistant Vice President
And by: /s/ Penny S. Sparks
--------------------------
Name:
----------------------------
Title:Assistant Secretary
Lender NOMURA ASSET CAPITAL CORPORATION
By:/s/ Perry Gershon
------------------------------
Name: Perry Gershon
Title:Vice President
Mortgagor: SSC PROPERTY HOLDINGS, INC.
By:/s/ Kristin H. Stred
----------------------------
Name: Kristin H. Stred
Title:Secretary
Property Manager: SHURGARD INCORPORATED
By:/s/ Harrell Beck
------------------------------
Name: Harrell Beck
Title:Treasurer and CEO
Account Bank: LaSALLE NATIONAL BANK
By:/s/ Russell M. Goldenberg
------------------------------
Name: Russell M. Goldenberg
Title:Vice President
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COLLECTION ACCOUNT AND SERVICING AGREEMENT
EXHIBIT A
ENCUMBERED PROPERTIES
ATTACHED
<PAGE>
SHURGARD-NOMURA COLLATERAL POOL
PROJECT STATE PROJECT
NO.
1 Alsip Illinois 1021401
2 Arlington Texas 1084406
3 Aurora North Washington 1094834
4 Bandara Texas 1164420
5 Beaverton Oregon 1073803
6 Bellevue East Washington 1044807
7 Beltline Road Texas 1104410
8 Blanco Road Texas 1154419
9 Bridgeview Illinois 1061406
10 Candler Arizona 1081303
11 Clinton Maryland 1092004
12 Colton California 1070511
13 Cook Road Texas 1144417
14 Crofton Maryland 1162005
15 Denny Road Oregon 1173807
16 Dolton Illinois 1021402
17 East Lindwood Washington 1104835
18 Euless Blvd. Texas 1114412
(Hurst)
19 Factoria Washington 1034806
20 Fairfax Virginia 1104701
21 Falls Church Virginia 2024702
22 Federal Road Texas 1124426
23 Federal Way Washington 1044809
24 Fontana Sierra California 1140518
25 Fredricksburg Texas 1114414
26 Greenbriar Texas 1174427
27 Hayward California 1080502
28 Herndon Virginia 1184708
29 Hill County Texas 1074403
30 Imperial Valley Texas 1144421
31 Irving Texas 1074402
32 lssaquah Washington 1074833
33 Kearney-Balboa California 1120513
34 Kempsville Virginia 1144713
<PAGE>
35 King City/Tigardl Oregon 1103804
36 La Habra California 1090505
37 Lansing Michigan 1032304
38 Laurel Maryland 1162003
39 Lisle Illionis 1111408
40 Lombard Illionis 1021403
41 Manassas East Virginia 1164704
42 Mannasus West Virginia 1164703
43 McArthur Blvd. Texas 1094411
44 Mesa Arizona 1140315
45 Militery Trail Florida 1141003
46 Mountain View California 1160519
47 N.W. Houston Texas 1074405
48 Newport News South Virginia 1184709
49 North Austin Texas 1084407
50 North Richmond Virginia 1184711
51 North Spokane Washington 1054813
52 Northglenn Colorado 1060605
53 Oakland Park Florida 1081001
54 Palo Alto California 1100508
55 Phoenix Arizona 1070304
56 Phoenix East Arizona 1140314
57 Portland Oregon 1153806
58 Renton Washington 1044810
59 Rolling Meadows Illinois 1021404
60 Salem Oregon 1033801
61 San Antonio NE Texas 1074404
62 Schaumburg Illinois 1021405
63 Scottsdale Arizona 1060302
64 Seattle Washington 1044811
65 Seminole Florida 1081002
66 Smokey Point Washington 1144841
67 South Main (Med. Texas 2024428
Center)
68 South San Francisco California 1140516
69 South Tacoma Washington 1124840
70 Southfield Michigan 1032305
71 Sugarland Texas 1184422
72 Tamarac Colorado 1050601
73 Thornton Colorado 1050604
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<PAGE>
74 Thousand Oaks Texas 1084409
75 Troy East (Maple) Michigan 1012302
76 Troy West (Oakland) Michigan 1032306
77 Union City California 1070503
78 Vancouver Mall Washington 1014802
79 Walled Lake Michigan 1072309
80 West Palm Beach Florida 1161004
81 West Seattle Washington 1014804
82 Westheimer Texas 1084408
83 Willowbrook Illinois 1121409
84 Windermere Colorado 1050602
85 Woodlands Texas 1164423
86 Bellevue West Washington 1044808
-3-
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AMENDED AND RESTATED
COLLECTION ACCOUNT AND SERVICING AGREEMENT
EXHIBIT B
FORM OF LOCK-BOX DEPOSIT REPORT
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
-and
LaSalle National Bank,
as Trustee of the Shurgard Securities Trust
135 South LaSalle Street
Chicago, Illinois 60603
In accordance with Section 2(b) of the Amended and Restated Collection
Account and Servicing Agreement dated as of June __, 1994, by and among SSC
Property Holdings, Inc., Pacific Mutual Life Insurance Company, Chase Manhattan
Bank, N.A., Shurgard Incorporated and LaSalle National Bank (as successor-in-
interest to Nomura Asset Capital Corporation), we the undersigned hereby notify
you that SSC Property Holdings, Inc. has today deposited into the Lock-Box
Account (account number ______________) the sum of $__________ in respect of the
Encumbered Properties (as defined in the Amended and Restated Collection Account
and Servicing Agreement). The amount of such aggregate deposit in respect of
each of the Encumbered Properties is as set forth on the Schedule A attached
hereto.
Very truly yours,
Shurgard Incorporated
By:
------------------------
Its:
---------------------
SSC Property Holdings, Inc.
By:
------------------------
Its:
--------------------
AMENDED AND RESTATED
COLLECTION ACCOUNT AND SERVICING AGREEMENT
EXHIBIT C
OFFICERS' CERTIFICATE
Regarding Capital Expenditures for the period from _____ to ______
The undersigned officers hereby request payment of a total of $___________
from that certain Deferred Maintenance and Reserve Account created pursuant to
Section 4(c) of the Amended and Restated Collection Account and Servicing
Agreement dated as of June __ 1994 ("Agreement") between SSC Property Holdings
Inc. ("Mortgagor"), Pacific Mutual Life Insurance Company ("Account Agent"),
Shurgard Incorporated ("Property Manager"), Chase Manhattan Bank, N.A.,
("Account Bank") and LaSalle National Bank (as successor-in-interest to Nomura
Asset Capital Corporation) and certify that:
1. The attached invoices, detailing the work performed, are for work
performed at each Encumbered Property identified in the attached
summary;
2. The work was for Capital Expenditures (as defined in the Agreement)
for such Encumbered Property;
3. The work has been completed and was performed in a workmanlike manner;
and
4. The attached invoices have been paid in full and, if appropriate, full
and unconditional lien releases have been obtained.
PROPERTY MANAGER:
Shurgard Incorporated
By:
-------------------------
Title:
MORTGAGOR:
SSC Property Holdings, Inc.
By:
-------------------------
Title:
<PAGE>
June 14, 1994
LaSalle National Bank, as Account Bank
135 South LaSalle Street
Suite 200
Chicago, IL 60603
Attention: Asset Backed Securities Trust Services
Ladies and Gentlemen:
LaSalle National Bank as Trustee (in such capacity, the "Trustee") under
the Trust and Savings Agreement, dated June 8, 1994, between Nomura Asset
Capital Corporation, a Delaware corporation, as Depositor ("Nomura"), and the
Trustee, hereby gives notice pursuant to 810 ILCS Section 5/9-302 (l) (h) (ii),
of the security interest granted to it by SSC Property Holdings, Inc., a
Delaware corporation (the "Mortgagor"), under the Amended and Restated
Collection Account and Servicing Agreement, dated as of June 8, 1994, by and
among the Mortgagor, Pacific Mutual Life Insurance Corporation, a life insurance
company organized under the laws of the State of California, LaSalle National
Bank, in its capacity as Account Bank (the "Account Bank"), Shurgard
Incorporated, a Washington corporation, and Nomura. Please sign in the
appropriate place below indicating that the Account Bank acknowledges and
consents to this notice under 810 ILCS Section 5/9-302(l)(h)(ii).
Very truly yours,
LaSALLE NATIONAL BANK, as Trustee
By: /s/ Russell M. Goldenberg
-----------------------------
Name: Russell M. Goldenberg
Title: Vice President
Pursuant to 810 ILCS Section 5/9-302 (1) (h) (ii), the undersigned hereby
acknowledges and consents to the notice of the security interest of the Trustee
described above.
LaSALLE NATIONAL BANK,
as Account Bank
By: /s/ Michael B. Evans
------------------------------
Name: Michael B. Evans
Title: Vice President
<PAGE>
CONSENT OF RIDDELL, WILLIAMS, BULLITT & WALKINSHAW
We consent to the references to our firm in the Registration Statement of
Shurgard Storage Centers, Inc. on Form S-4 (File No. 33-57047).
RIDDELL, WILLIAMS, BULLITT & WALKINSHAW
Seattle, Washington
January 25, 1995
<PAGE>
CONSENT OF BOGLE & GATES
We consent to the reference to our firm in the Registration Statement of
Shurgard Storage Centers, Inc. on Form S-4 (File No. 33-57047).
BOGLE & GATES
Seattle, Washington
January 25, 1995
<PAGE>
CONSENT OF PERKINS COIE
We consent to the reference to our firm in the Registration Statement of
Shurgard Storage Centers, Inc. on Form S-4 (File No. 33-57047).
PERKINS COIE
Seattle, Washington
January 25, 1995
<PAGE>
EXHIBIT 99.1
[Front of Proxy Card]
SHURGARD STORAGE CENTERS, INC.
---------------------------
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 2, 1995
---------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harrell L. Beck and Donald W. Lusk, and
each of them, as Proxies with full power of substitution and hereby authorizes
them to represent and to vote as designated below all the shares of Class A
Common Stock, par value $.001 per share (the "Class A Common Stock") of Shurgard
Storage Centers, Inc. (the "Shurgard REIT") held of record by the undersigned on
January 20, 1995 at the Special Meeting of Shareholders to be held on March 2,
1995 or any adjournment or postponement thereof as follows:
To approve the merger of Shurgard Incorporated with and into the Shurgard
REIT (the "Merger") pursuant to an Agreement and Plan of Merger dated as of
December 19, 1994.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED ON REVERSE SIDE)
[BACK OF PROXY CARD]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly be brought before the meeting or any adjournment or
postponement thereof. This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE PROPOSITION ON THE REVERSE SIDE.
The undersigned acknowledges receipt from the Shurgard REIT prior to the
execution of this Proxy of a Notice of Special Meeting of Shareholders and a
Proxy Statement/Prospectus dated February [ ], 1995.
Please sign below exactly as your name appears on
your stock certificate. When shares are held
jointly, each person must sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. An
authorized person should sign on behalf of
corporations, partnerships and associations and
give his or her title.
Dated:___________________________________, 1995
_______________________________________________
Signature
_______________________________________________
Signature if held jointly
YOUR VOTE IS IMPORTANT, PROMPT RETURN OF THIS PROXY CARD WILL
HELP SAVE THE EXPENSE OF ADDITIONAL SOLICITATION EFFORTS.
