UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 1999
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number: 001-12910
STORAGE USA, INC.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of
incorporation or organization)
62-1251239
(IRS Employer
Identification Number)
165 Madison Avenue, Suite 1300, Memphis, TN
(Address of principal executive offices)
38103
(Zip Codes)
Registrant's telephone number, including area code: (901) 252-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ( X) Yes ( ) NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value, 27,991,405 shares outstanding at August 10, 1999.
<PAGE>
<TABLE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Storage USA, Inc.
Consolidated Statements of Operations
(unaudited)
(amounts in thousands, except per share data)
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Property Revenues:
Rental income $61,441 $52,717 $120,848 $99,869
Other income 2,654 1,337 4,265 2,688
----------------- ----------------- --------------- ---------------
Total property revenues 64,095 54,054 125,113 102,557
----------------- ----------------- --------------- ---------------
Property Expenses:
Cost of property operations & maintenance 15,990 13,246 31,790 25,560
Taxes 5,280 4,634 10,244 8,577
General & administrative 3,971 2,721 7,521 4,597
Depreciation & amortization 9,017 7,124 17,373 13,692
----------------- ----------------- --------------- ---------------
Total property expenses 34,258 27,725 66,928 52,426
----------------- ----------------- --------------- ---------------
Income from property operations 29,837 26,329 58,185 50,131
Other income (expense):
Interest expense, net (10,326) (8,773) (21,263) (16,797)
----------------- ----------------- --------------- ---------------
Income before minority interest
and gain/(loss) 19,511 17,556 36,922 33,334
Gain/(Loss) on sale of assets 441 (284) (137) (284)
----------------- ----------------- --------------- ---------------
Income before minority interest 19,952 17,272 36,785 33,050
Minority interest (3,420) (1,966) (6,498) (3,306)
----------------- ----------------- --------------- ---------------
Net income $16,532 $15,306 $30,287 $29,744
----------------- ----------------- --------------- ---------------
Basic net income per share $0.59 $0.55 $1.09 $1.07
----------------- ----------------- --------------- ---------------
Diluted net income per share $0.59 $0.55 $1.08 $1.07
----------------- ----------------- --------------- ---------------
See Notes to Consolidated Financial Statements
</TABLE>
2
<PAGE>
<TABLE>
Storage USA, Inc.
Consolidated Balance Sheets
(amounts in thousands, except share data)
<CAPTION>
as of as of
June 30, 1999 December 31, 1998
----------------------- ----------------------
(unaudited)
Assets
<S> <C> <C>
Investments in storage facilities, at cost:
Land $420,285 $429,723
Buildings and equipment 1,167,779 1,186,492
----------------------- ----------------------
1,588,064 1,616,215
Accumulated depreciation (78,127) (73,496)
----------------------- ----------------------
1,509,937 1,542,719
Cash & cash equivalents 3,456 2,823
Advances and investments in real estate 115,033 112,163
Other assets 113,936 47,922
----------------------- ----------------------
Total assets $1,742,362 $1,705,627
----------------------- ----------------------
Liabilities & shareholders' equity
Notes payable $600,000 $600,000
Line of credit borrowings 67,165 70,762
Mortgage notes payable 71,276 78,737
Other borrowings 47,531 47,625
Accounts payable & accrued expenses 25,511 22,658
Dividends payable 18,754 17,758
Rents received in advance 12,372 10,332
Other liabilities 43,670 -
----------------------- ----------------------
Total liabilities 886,279 847,872
----------------------- ----------------------
Minority interests:
Preferred units 65,000 65,000
Common units 92,813 94,213
----------------------- ----------------------
Total minority interests 157,813 159,213
----------------------- ----------------------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value, 150,000,000 shares
authorized, 27,990,527 and 27,727,560
shares issued and outstanding 280 277
Paid-in capital 756,112 749,093
Notes receivable - officers (11,335) (11,389)
Deferred compensation (213) -
Accumulated deficit (15,831) (15,831)
Distributions in excess of net income (30,743) (23,608)
----------------------- ----------------------
Total shareholders' equity 698,270 698,542
----------------------- ----------------------
Total liabilities & shareholders' equity $1,742,362 $1,705,627
----------------------- ----------------------
See Notes to Consolidated Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
Storage USA, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
<CAPTION>
Six months ended Six months ended
June 30, 1999 June 30, 1998
------------------------ ----------------------
<S> <C> <C>
Operating activities:
Net income $ 30,287 $ 29,744
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,373 13,692
Minority interest 6,498 3,306
Loss on exchange of self-storage facilities 137 284
Changes in assets and liabilities:
Other assets (7,703) (11,657)
Other liabilities 5,637 3,980
------------------------ ----------------------
Net cash provided by operating activities 52,229 39,349
------------------------ ----------------------
Investing activities:
Acquisition and improvements of storage facilities (15,606) (92,404)
Proceeds from sale/exchange of storage facilities 41,829 151
Development of storage facilities (29,062) (27,482)
Advances and investments in real estate (15,202) (50,504)
Proceeds from liquidation of advances and investments in real 16,607 -
estate
------------------------ ----------------------
Net cash used in investing activities (1,434) (170,239)
------------------------ ----------------------
Financing activities:
Net (repayments)/borrowings under line of credit (3,597) 146,887
Mortgage principal payments/payoffs (3,417) (620)
Mortgage principal borrowings - 145
Other borrowings principal payments/payoffs (1,102) -
Cash dividends (36,422) (17,715)
Preferred unit dividends (2,452)
Payments on notes receivable 54 3,065
Minority investor cash contribution - 39
Distribution to minority interest capital (233) (193)
Distribution to minority interests (4,869) (1,979)
Other financing transactions, net 1,876 1,255
------------------------ ----------------------
Net cash (used in)/provided by financing activities (50,162) 130,884
------------------------ ----------------------
Net increase/(decrease) in cash and equivalents 633 (6)
Cash and equivalents, beginning of period 2,823 1,172
------------------------ ----------------------
Cash and equivalents, end of period $ 3,456 $ 1,166
------------------------ ----------------------
Supplemental schedule of non-cash activities:
Disposition proceeds placed in escrow $ 95,301 $ 1,427
Funds in escrow used for acquisition of assets 43,101 1,427
Equity share of joint venture received for disposition of assets 5,900 -
Common Stock issued in exchange for notes receivable - 778
Shares issued to Directors 160 132
Mortgages assumed on storage facilities acquired - 14,081
Note received in consideration for facility sold 875 -
Storage facilities and development land acquired in exchange
for Partnership Units 4,238 27,545
Restricted stock issued 246 -
Partnership Units exchanged for shares of
common stock 5,717 211
Exchange of storage facilities (net) 137 284
------------------------ ----------------------
See Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(amounts in thousands, except share and per share data)
1. Unaudited Interim Financial Statements
References to the Company include Storage USA, Inc. ("the REIT") and
SUSA Partnership, L.P. (the "Partnership"), its principal operating
subsidiary. Interim consolidated financial statements of the Company
are prepared pursuant to the requirements for reporting on Form 10-Q.
Accordingly, certain disclosures accompanying annual financial
statements prepared in accordance with generally accepted accounting
principles are omitted. In the opinion of management, all adjustments,
consisting solely of normal recurring adjustments, necessary for the
fair presentation of consolidated financial statements for the interim
periods have been included. The current period's results of operations
are not necessarily indicative of results that ultimately may be
achieved for the year. The interim consolidated financial statements
and notes thereto should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for
the year ended December 31, 1998 as filed with the Securities and
Exchange Commission.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the financial
statements and accompanying notes. Actual results could vary from these
estimates.
2. Organization
Storage USA, Inc. (the "Company") a Tennessee corporation, was formed
in 1985 to acquire, develop, construct, franchise, own and operate
self-storage facilities throughout the United States. On March 23,
1994, the Company completed an initial public offering (the "IPO") of
6,325,000 shares of common stock at $21.75 per share. The Company is
structured as an umbrella partnership real estate investment trust
("UPREIT") in which substantially all of the Company's business is
conducted through the Partnership. Under this structure, the Company is
able to acquire self-storage facilities in exchange for units of
limited partnership interest in the Partnership ("Units"), permitting
the sellers to at least partially defer taxation of capital gains. At
June 30, 1999 and December 31, 1998, respectively, the Company owned
approximately 88.3% and 88.7% of the partnership interest in the
Partnership.
In 1996, the Company formed Storage USA Franchise Corp ("Franchise"), a
Tennessee corporation. The Partnership owns 100% of the non-voting
common stock of Franchise. The Partnership accounts for Franchise under
the equity method and includes its 97.5% share of the profit or loss of
Franchise in Other Income.
3. Reclassifications
Certain previously reported amounts have been reclassified to conform
with the current financial statement presentation.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
June 30, 1999
(amounts in thousands, except per share data)
4. Investment in Storage Facilities
The following table summarizes the activity in storage facilities
during the period:
Cost:
Balance on January 1, 1999 $ 1,616,215
Property acquisitions
47,344
Investment in development
29,062
Disposition of property
(112,188)
Improvements and other
7,631
-----------------
Balance on June 30, 1999 $ 1,588,064
=================
Accumulated Depreciation:
Balance on January 1, 1999 $ 73,496
Additions during the period
16,718
Disposition of property
(12,087)
-----------------
Balance on June 30, 1999 $ 78,127
=================
Construction in process of $61,179 at June 30, 1999 and
$65,716 at December 31, 1998 is included in investment in storage
facilities.
The following pro forma combined results of operations of the Company
for the six months ended June 30, 1999 has been prepared assuming that
the acquisition of the seven properties and the dispositions of the 36
properties transacted during the same six month period had been
completed as of January 1, 1999.
Pro forma for the
six months ended
June 30, 1999
------------------------
Revenues $ 19,881
Net income $ 27,686
Basic net income per share $ 0.99
Diluted net income per share $ 0.99
5. Investment in Joint Ventures
On June 7, 1999, the Company formed a joint venture (the "Joint
Venture") with a major institutional investor, Fidelity Management
Trust Company ("Fidelity"). The Joint Venture is owned 75% by Fidelity
and 25% by the Company. In accordance with the agreement, the Company
contributed 32 self-storage facilities with a book value of $91,216 to
the Joint Venture for $144,000. The Company will manage the Joint
Venture and continue to operate all of the Joint Venture's assets
under the Storage USA brand for a fee. This transaction generated
$128,958 of net cash proceeds for use in acquiring new self-storage
facilities in tax-free exchanges and paying down the lines of credit.
A $43,670 gain on the transaction was deferred and is included in
other liabilities until such time, if ever, the Company disposes of
its interest in the Joint Venture. As of June 30, 1999, $43,101 of the
proceeds had been used to acquire new facilities with additional
property acquisitions identified for the remaining $47,189, which is
included in other assets. The Company's investment in the Joint
Venture of $5,900 is included in advances and investments in real
estate and our proportionate share of the earnings of the Joint
Venture are recognized in other income for the quarter ended June 30,
1999.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
June 30, 1999
(amounts in thousands, except per share data)
6. Other Assets
As of As of
6/30/99 12/31/98
--------------------------
Restricted cash - escrow accounts 53,153 -
Deposits 5,599 5,048
Deferred costs of issuances of
unsecured notes 6,615 7,533
Accounts receivable 4,458 4,769
Mortgages receivable 5,385 3,624
Notes and other receivables 16,289 13,779
Other intangible 4,251 3,162
Other 18,186 10,007
--------------------------
Total Other Assets 113,936 47,922
--------------------------
7. Lines of credit, Mortgages payable, and Other borrowings
The Company can borrow under a $200,000 line of credit with a group of
commercial banks and under a $40,000 line of credit with a commercial
bank. The lines bear interest at various spreads of LIBOR. The
following table lists additional information about the lines of credit.
Line of Credit Borrowings as of 6/30/99
-----------------------------------------------------------
Total lines of credit $ 240,000
Borrowings outstanding $ 67,165
Weighted average daily interest
rate year-to-date 6.12%
The Company from time to time assumes mortgages on facilities acquired. The
following table provides information about the mortgages:
<TABLE>
Mortgage Notes Payable
as of June 30, 1999 Average
Interest Rate Interest Rate
Face Amount Maturity Range Range Year-to-Date
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed rate $58,878 2004-2016 6.5%-11.5% 9.97%
Variable rate 5,386 2007-2016 7.4%-9.0% 8.20%
----------------- ----------------
64,264 9.76%
Premiums 7,012
-----------------
Mortgage notes payable $ 71,276
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
June 30, 1999
(amounts in thousands, except per share data)
The Company has other borrowings used in the financing of property
acquisitions. The following table provides information about the other
borrowings.
<TABLE>
Other Borrowings
as of June 30, 1999
----------------------------------------------------------------------------------------
Face Amount Carry Value Imputed Rate
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-interest bearing notes $ 14,150 $ 12,975 7.50%
Deferred units $ 13,000 $ 10,786 7.50%
Capital Leases - $ 23,770 7.50%
---------------------------------------
$ 27,150 $ 47,531
</TABLE>
During the six months ended June 30, 1999, total interest paid on all
debt was $30,022 and total interest capitalized for construction costs
was $2,161.
8. Other Income
Other income for the six months ended June 30, 1999 and 1998 consisted
primarily of revenue from property specific activities (the sale of
locks and packaging materials, truck rentals and ground rents for
cellular telephone antenna towers and billboards), revenue for the
management of facilities owned by third parties, and the proportionate
share of net income of equity investments including joint ventures and
Franchise. A summary of these amounts is as follows:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Facility specific revenue $1,377 $1,022 $2,647 $2,003
Management fees 441 258 718 490
Share of net income of equity investments 836 57 900 195
-------------------------------------------------------------
Total other income $2,654 $1,337 $4,265 $2,688
</TABLE>
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
June 30, 1999
(amounts in thousands, except per share data)
9. Income per Share
Basic and diluted income per share is calculated as presented in the
following table:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic net income per share:
Net income $ 16,532 $ 15,306 $ 30,287 $ 29,744
Basic weighted average
common shares outstanding 27,924 27,688 27,881 27,689
--------------------------------------------------------------------------------------------------------------
Basic net income per share $ 0.59 $ 0.55 $ 1.09 $ 1.07
Diluted net income per share:
Net income $ 16,532 $ 15,306 $ 30,287 $ 29,744
Minority interest relating to limited
partners of the Partnership 2,138 1,977 3,933 3,337
Net income before minority interest relating
---------------------------------------------------------------
to limited partners of the Partnership $ 18,670 $ 17,283 $ 34,220 $ 33,081
Basic weighted average
common shares outstanding 27,924 27,688 27,881 27,689
Weighted average Partnership Units
outstanding 3,634 3,538 3,638 3,185
Basic weighted average common shares
and partnership units outstanding 31,558 31,226 31,519 30,874
Dilutive effect of stock options 122 167 81 183
---------------------------------------------------------------
Diluted weighted average common shares
and partnership units outstanding 31,680 31,393 31,600 31,057
---------------------------------------------------------------
Diluted net income per share $ 0.59 $ 0.55 $ 1.08 $ 1.07
10. Interest Expense, net
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
----------------------------------------------------------------------------
Interest expense $ 13,726 $ 10,477 $ 27,565 $ 19,742
Interest income (3,400) (1,704) (6,302) (2,945)
----------------------------------------------------------------------------
Interest expense, net $ 10,326 $ 8,773 $ 21,263 $ 16,797
</TABLE>
11. Commitments
The Company is committed to advance an additional $62,869 as of June
30, 1999 to franchisees of Franchise for the construction of franchised
self-storage facilities, collateralized by the facility. The Company is
a limited guarantor on $13,230 of loan commitments made by third party
lenders to franchisees of Franchise, of which $9,234 has been funded at
June 30, 1999.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
June 30, 1999
(amounts in thousands, except per share data)
12. Subsequent Events
From June 30, 1999 to August 10, 1999, the Company completed the
acquisition of three self-storage facilities for approximately $7.4
million. Of these facilities, two, with a total investment of $5.3
million, were Storage USA franchised facilities. These acquisitions
were financed primarily through the escrow proceeds from the joint
venture transaction described in Note 4, operating cash flows and
borrowings under the available lines of credit. The Company has also
entered into various property acquisition contracts with an aggregate
cost of approximately $13.1 million. These acquisitions are subject to
customary conditions to closing, including satisfactory due diligence,
and should close during the third and fourth quarters. Should these
contracts be terminated, the costs incurred by the Company would not be
material.
13. Legal Proceedings
On July 22, 1999, a purported State of Maryland class action was filed
against the Company in the Circuit Court of Montgomery County,
Maryland, under the style: Ralph Grunewald v. Storage USA, Inc. and
SUSA Partnership, L.P., Case No. 201546V, seeking recovery of certain
late fees paid by Company tenants and an injunction against further
assessment of similar fees. The Company has not yet filed a responsive
pleading, but believes that it has defenses to the claims in this suit
and intends to vigorously defend it. While the ultimate resolution of
this suit cannot currently be determined, management believes that the
loss or liability, if any, resulting from this suit will not have a
material adverse effect on its financial position. However, if during
any period the potential contingency should become probable, the
results of operations in such period could be materially affected.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial
condition and results of operations should be read together with the
Consolidated Financial Statements and Notes thereto. References to "we," "our"
or "the Company" include Storage USA, Inc. (the "REIT") and SUSA Partnership,
L.P., the principal operating subsidiary of the REIT (the "Partnership").
The following are definitions of terms used throughout this discussion that
will be helpful in understanding our business.
o Physical Occupancy means the total net rentable square feet rented as of
the date (or period if indicated) divided by the total net rentable square
feet available.
o Scheduled Rent Per Square Foot means the average market rate per square
foot of rentable space.
o Net Rental Income means income from self-storage rentals less discounts.
o Realized Rent Per Square Foot means the annualized result of dividing
rental income, less discounts by total square feet rented.
o Direct Property Operating Cost means the costs incurred in the operation of
a facility, such as utilities, real estate taxes, and on-site personnel.
Costs incurred in the management of all facilities, such as accounting
personnel and management level operations personnel are excluded.
o Net Operating Income ("NOI") means total property revenues less Direct
Property Operating Costs.
o Annual Capitalization Rate ("Cap Rate")/ Yield means NOI of a facility
divided by the total capitalized costs of the facility.
o Funds from Operations ("FFO") means net income, computed in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (losses)
from debt restructuring and sales of property, plus depreciation and
amortization of revenue-producing property, and after adjustments for
unconsolidated partnerships and joint ventures.
o Same-Store Facilities include all facilities that we owned for the entire
period of both comparison periods.
Internal Growth
The following table compares Same-Store Facilities for the quarter (298
properties owned since March 31, 1998) and for the first six months of 1999 (279
properties owned since December 31, 1997). Newly developed and expanded
facilities are removed from the same-store pool to avoid skewing the results.
<TABLE>
--------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
--------------------------------------------------------------------------------------------
Same-Store Results June 30, 1999 June 30, 1998 Growth % June 30, 1999 June 30, 1998 Growth %
- ---------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands except occupancy and per square foot figures)
<S> <C> <C> <C> <C> <C> <C>
Revenues $44,480 $42,252 5.30% $81,255 $76,796 5.80%
Operating Expenses 7,441 7,350 1.20% 14,097 13,653 3.30%
Property Tax & Other 4,651 4,977 (6.60%) 8,708 9,193 (5.30%)
--------------------------------------------------------------------------------------------
Total Expenses 12,092 12,327 (1.90%) 22,805 22,846 (0.20%)
--------------------------------------------------------------------------------------------
NOI $32,388 $29,925 8.20% $58,450 $53,950 8.30%
--------------------------------------------------------------------------------------------
Physical Occupancy 87% 87% - 86% 86% -
Scheduled Rent per Square Foot $10.87 $10.20 6.60% $10.79 $10.13 6.60%
Realized Rent per Square Foot $9.82 $9.27 5.90% $9.64 $9.08 6.20%
</TABLE>
11
<PAGE>
o Our Same-Store Facilities achieved 8.2% NOI growth in the second quarter of
1999 as compared to the same quarter in 1998. The growth resulted from
revenue increases of 5.3% combined with a reduction in expenses of 1.9%.
For the six months ended June 30, 1999, same-store NOI grew 8.3%, due to a
combination of revenue increases, 5.8%, and an expense reduction 0.2%.
o Our operating expenses grew 1.2% over the second quarter of 1998 and 3.3%
over the first six months of 1998. Meanwhile, property tax and other
expenses decreased 6.6% over the second quarter of 1998 and 5.3% over the
first six months of 1998, due primarily to significant reductions in
insurance costs.
o Scheduled Rent Per Square Foot increased 6.6% over the previous year for
both the quarter and year to date. These rent increases were not fully
realized as Realized Rent Per Square Foot grew 5.9% over the second quarter
of 1998 and 6.2% over the first six months of 1998. This occurred due to
higher discounting levels in 1999.
The following table lists changes in the 10 largest same-store markets on a rent
per square foot basis and occupied square feet basis and the resulting change in
net rental income for the second quarter 1999 and the six months ended June 30,
1999 over the corresponding periods in 1998.
<TABLE>
<CAPTION>
% of Change in Net Rental % Change in % Change in
# of YTD same- Income (1) Realized RPSF (2) Occupied sq. ft.
Market Facilities store NOI YTD QTD YTD QTD YTD QTD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Los Angeles-Riverside-Orange County, CA 45 20.2% 11.5% 11.7% 8.8% 8.6% 2.5% 2.9%
Washington-Baltimore, DC-MD-VA-WV 16 9.9% 4.7% 4.8% 5.6% 5.1% -0.8% -0.3%
New York-N. New Jersey-Long Island, NY 13 8.2% 2.8% 3.1% 3.5% 4.7% -0.7% -1.6%
Miami-Fort Lauderdale, FL 14 7.6% 4.0% 4.1% 5.5% 5.1% -1.4% -0.9%
San Francisco-Oakland-San Jose, CA 8 4.0% 3.3% 3.8% 8.8% 7.6% -5.0% -5.6%
Phoenix,-Mesa, AZ 14 3.9% 4.8% 3.6% 4.9% 5.0% -0.1% 0.2%
Philadelphia-WILM-Atlantic City, PA-NJ 11 3.7% 8.4% 8.1% 5.5% 4.9% 2.7% 3.1%
San Diego, CA 6 3.1% 13.3% 12.0% 11.9% 11.4% 1.2% 0.6%
Nashville, TN 8 2.9% -1.8% -2.4% 2.8% 2.6% -4.4% -4.8%
Dallas-Forth Worth, TX 6 2.7% 7.4% 7.2% 9.7% 10.3% -2.1% -2.8%
</TABLE>
(1) The percentage change in Realized Rent per Square Foot plus the percent
change in occupied square feet approximates the percentage change in net
rental income.
(2) Rent per square foot.
During the six months ended June 30, 1999, we also continued to make progress on
a number of strategic initiatives aimed at reaching new self-storage customers:
1. The implementation of our national reservation center is well underway. To
date, substantially all of our facilities in the eastern U.S. have been
added to the national reservation center network. We expect to have full
national coverage of all of our facilities in the third quarter of 1999.
2. We expect to close on our strategic alliance with Budget Group Inc. in the
third quarter of 1999. In early May, reservation agents at Budget's
national reservation center in Carrollton, TX began referring truck rental
customers with a stated interest in self-storage to our national
reservation center. A program for placing Budget/Ryder truck dealerships at
our facilities is in process and, by the end of the year 2000, we expect to
have about 75% of our facilities equipped with full Budget dealerships.
External Growth
Acquisitions
During the second quarter of 1999, we formed a joint venture with Fidelity
Management Trust Company (the "Venture"), to raise capital. We contributed 32
self-storage facilities for $144 million to the Venture, which is owned 75% by
Fidelity and 25% by us. We will manage the Venture and continue to operate all
of the Venture's assets under the Storage USA brand for a fee. This transaction
generated $129 million of net cash proceeds. Our intention is to use
approximately $90 million of these proceeds to acquire in tax-free exchanges new
self-storage facilities that have greater potential for growth than the
facilities that were disposed. As of June 30, 1999, $43 million had been used
for this purpose, with additional property acquisitions identified for the
remaining $47 million. The following table shows the facilities acquired during
the first and second quarters of 1999:
12
<PAGE>
Number of Total Net Rentable
Quarter ended Facilities Investment Square Feet
- -------------------------------------------------------------------------------
(amounts in thousands except number of facilities)
March 31, 1999 1 $2,761 70
June 30, 1999 7 43,692 507
---------------------------------------------------
Total year-to-date 8 $46,453 577
===================================================
Four of the properties acquired in the second quarter 1999 were in the metro New
York area; the other three were former Storage USA franchised facilities,
located in the Dallas area. We also acquired the minority interest in one joint
venture facility for approximately $2 million.
Based upon current conditions, we do not anticipate acquiring a significant
number of facilities in 1999 beyond those acquired with proceeds from the
Venture. For more details on the Venture see the "Liquidity and Capital
Resources" section.
New Development and Expansion
The following newly developed and expanded facilities were opened in the first
and second quarters of 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Developments Expansions
------------------------------------------------------------------------------------------------
Number of Expected Net Rentable Number of Expected Net Rentable
Quarter ended Facilities Investment Square Feet Facilities Investment Square Feet
- ----------------------------------------------------------------------------------------------------------------------------
(amounts in thousands except number of facilities)
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999 - - - 5 $5,466 129
June 30, 1999 5 $20,890 379 3 $2,791 65
------------------------------------------------------------------------------------------------
Total year-to-date 5 $20,890 379 8 $8,257 194
================================================================================================
The following chart details our facilities in the process of being developed or
expanded as of June 30, 1999:
<CAPTION>
Expected Investment Remaining
# of Prop. Square feet Investment to Date Investment
-----------------------------------------------------------------------
Total development in process 28 2,201 $ 145,617 $ 44,624 $ 100,993
Total expansions in process 32 650 $ 32,023 $ 7,968 $ 24,055
-----------------------------------------------------------------------
Total 60 2,851 $ 177,640 $ 52,592 $ 125,048
The following table presents the anticipated timing of completion and the total
expected dollar amounts invested in opening the facilities in the process of
being newly developed or expanded.
<CAPTION>
---------------------------------------------------------------------------------------
3rd Qtr 99 4th Qtr 99 1st Qtr 00 2nd Qtr 00 Thereafter Total
---------------------------------------------------------------------------------------
Development $ 18,229 $ 9,588 $ 20,924 $ 29,120 $ 67,756 $ 145,617
Expansions 3,472 5,629 4,049 2,561 16,312 32,023
---------------------------------------------------------------------------------------
Total $ 21,701 $ 15,217 $ 24,973 $ 31,681 $ 84,068 $ 177,640
=======================================================================================
</TABLE>
13
<PAGE>
Franchising
During the second quarter of 1999, Storage USA Franchise Corp. opened seven new
facilities, increasing the year to date total of newly opened facilities to
twelve. Eight facilities were sold by Franchise Corp., four to us and four to
third parties, and three contracts were terminated, bringing the total number of
franchised facilities to 41 as of June 30.
We have an equity interest in some of the franchised facilities, typically
ranging from 40% to 45%. We receive these equity interests in partial payment
for our extension of credit in the form of a construction loan to the
franchisee. The following table presents the status of our franchising program
as of June 30, 1999 and notes those projects in which we have or do not have an
equity interest.
<TABLE>
<CAPTION>
With Without
Equity Equity
Participation Participation Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Open and Operating 30 11 41
In Construction 12 10 22
In Design 6 7 13
Conditionally Approved 0 3 3
- --------------------------------------------------------------------------------
Total 48 31 79
- --------------------------------------------------------------------------------
Results of Operations
The following table reflects the profit and loss statement for the quarter ended
June 30, 1999 and June 30, 1998 based on a percentage of total revenues and is
used in the discussion that follows:
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
Revenue
Rental Income 91.6% 95.1% 92.3% 95.3%
Other Income 3.1% 1.6% 2.7% 1.8%
Interest Income 5.3% 3.3% 5.0% 2.9%
- --------------------------------------------------------------------------------------------------------------
Total Income 100.0% 100.0% 100.0% 100.0%
Expenses
Property Operations 23.7% 23.5% 24.2% 24.0%
Taxes 7.8% 8.3% 7.8% 8.2%
General and Administrative 5.9% 4.9% 5.7% 4.4%
Rental income increased $8.6 million, or 16.3% in the quarter ended June 30,
1999 and $20.7 million, or 20.7% for the six months ended June 30, 1999 compared
to the same periods in 1999. This increase is primarily a result of recognizing
a full year of rental income on the 1998 acquisitions and our internal growth,
as outlined in the section entitled, "Internal Growth." The primary contributors
to rental income growth are summarized in the table below.
<CAPTION>
Growth in 1999 over 1998 for comparable periods ended June 30 Quarter Year-to-Date
- ---------------------------------------------------------------------------------------------------------------
1998 acquisitions $6,900 $15,800
Same-store facilities 2,100 4,200
1999 acquisitions 510 677
</TABLE>
The remainder of the rental income growth, quarterly and year to date, is
attributed to newly developed and expanded facilities offset by the sale of
facilities to the Venture discussed in the section entitled "External
Growth-Acquisitions". The majority of the Same-Store Facilities' revenue growth
for the quarter was provided by an approximate 5.9% increase in realized rent
per square foot, from $9.27 per square foot in the second quarter of 1998 to
14
<PAGE>
$9.82 for the same period in 1999, amid physical occupancy of 87%, which
remained constant for the two periods. For the six months ended June 30, a
Realized Rent per Square Foot increase of 5.6%, from $9.08 to $9.64, contributed
to the bulk of the same-store rental income growth, with occupancy again
remaining constant between the two periods at 86%.
Other income grew $1.6 million in the second quarter of 1999 over the same
period in 1998. Other income consisted primarily of revenue from
facility-specific activities (the sale of locks and packaging materials, truck
rentals and ground rents for cellular telephone antenna towers and billboards),
revenue for the management of facilities owned by third parties, and the
proportionate share of net income of equity investments including joint ventures
and Franchise. A summary of these amounts is as follows:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Facility specific revenue $1,377 $1,022 $2,647 $2,003
Management fees 441 258 718 490
Share of net income of equity investments 836 57 900 195
-------------------------------------------------------------
Total other income $2,654 $1,337 $4,265 $2,688
</TABLE>
As a percentage of revenues, cost of property operations and maintenance showed
a small increase from the first quarter of 1998 to 1999, 23.5% to 23.7%, and for
the six months ended June 30, 1998 to 1999, 24.0% to 24.2%. The trend as a
percentage of revenues is for cost of property operations to decrease over time
due to Same-Store Facility revenue growth outpacing expense growth. This trend
was offset, both this quarter and year to date, from having a larger number of
newly developed facilities and facilities that were acquired during 1998 that
had recently been developed and had not yet reached a stable level of occupancy.
As these facilities have not reached their full revenue potential and expenses
are relatively fixed, the cost of property operations as a percentage of
revenues tends to be higher.
Tax expense as a percentage of revenues was 7.8% for both the second quarter
of 1999 and for the six months ended June 30, compared to 8.3% and 8.2% for the
same periods in 1998. Tax expense as a percentage of revenues trends down as a
result of Same-Store Facility revenue growth outpacing tax expense growth.
Tennessee recently enacted legislation that subjects limited partnerships and
limited liability corporations to the Tennessee Excise and Franchise taxes,
which will result in higher taxes on the Company. This new tax legislation is
not expected to have a material impact on the results of operations.
General and administrative expenses ("G&A") as a percentage of revenues
increased from 4.9% in the second quarter 1998 to 5.9% for the same period of
1999. This was indicative of a G&A expense increase from $2.7 to $4.0 million
between the two periods. For the six months ended June 30, 1999 G&A expenses as
a percentage of revenues increased from 4.4% to 5.7% from 1998 to 1999,
reflecting a dollar increase from $4.6 million to $7.5 million. This growth in
G&A is a result of the expansion throughout 1998 of our administration,
marketing, acquisition and development, management information systems, human
resources, and legal departments.
Depreciation and amortization expense increased from $7.1 million in the second
quarter 1998 to $9.0 million for the same period in 1999. It increased from
$13.7 million to $17.4 million for the six months ended June 30, 1999. This was
due to our acquisition and development of approximately $225 million in
depreciable assets since June 30, 1998 partially offset by the sale of $83
million of depreciable assets in 1999, mostly to form the Venture discussed in
the section entitled "External Growth-Acquisitions." Interest expense increased
from $10.5 million in the second quarter 1998 to $13.7 million during the same
period 1999. For the six months ended June 30, 1999 the expense rose from 1998
to 1999, from $19.7 million to $27.6 million. The interest expense increase was
primarily from the sources listed in the table below and was offset by
capitalized interest.
15
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
---------------------------------------------------------------------------------------------
W/A W/A W/A W/A
W/A Interest W/A Interest W/A Interest W/A Interest
Debt Borrowing Rate Borrowing Rate Borrowing Rate Borrowing Rate
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable $ 600,000 7.37% $400,000 7.46% $ 600,000 7.37% $400,000 7.46%
Lines of credit 101,385 6.03% 125500 6.70% 96,752 6.12% 93,600 6.70%
Mortgages payable 66,593 7.50% 53,000 10.81% 67,052 7.50% 49,071 10.41%
Leases & other borrowings 47,439 7.50% n/a n/a 47,578 7.50% n/a n/a
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
--------------------------------------------------------------------
Capitalized interest 1,029 638 2,161 1,400
</TABLE>
Interest expense will continue to rise in 1999 as the $200 million of notes
payable issued in mid-1998 will be outstanding for the entire year and
additional borrowings on our lines of credit may occur in the remaining year.
Interest income grew to $3.6 million in the second quarter 1999 from $1.8
million during the same period in 1998. Likewise, interest income increased to
$6.6 million for the six months ended June 30, 1999 from $3.1 million in the
corresponding period in 1998. Approximately $1.2 million of the second quarter
increase and $2.9 million of the year to date increase is due to the interest
earned on advances from us to Franchisees. We expect that this income will
continue to grow as we make further advances under this program. The remainder
of the increase is from interest earned on amounts outstanding under the 1995
Employee Stock Purchase and Loan Plan and earnings on overnight deposits.
As noted in the section entitled "External Growth - Acquisitions," during the
second quarter of 1999, we contributed 32 properties to a joint venture, with
Fidelity Management Trust Company, in which we own a 25% interest (the Venture).
The facilities were sold for $144 million and produced a $43 million deferred
gain, recorded in the other liabilities section of our balance sheet. No gain
can be recognized while we retain a 25% interest in the Venture. Only a sale to
an unrelated third party would allow us to recognize the accounting gain. In
addition to the properties sold to the Venture, we sold three facilities during
the second quarter of 1999, resulting in a $441 thousand accounting gain. These
transactions, coupled with the first quarter loss for the disposition of a
single New Mexico property, $578 thousand, result in a $137 thousand accounting
loss for the six months ended June 30, 1999.
Minority interest expense represents the portion of income allocable to holders
of limited partnership interest in the Partnership ("Units") and distributions
payable to holders of preferred units. The increase from 1998 to 1999, $1.4
million for the quarter and $3.2 million for the first six months, is primarily
the result of the issuance of $65 million of preferred units in the fourth
quarter of 1998. 328 thousand Units were also issued in connection with the
acquisition of facilities between June 30, 1998 and June 30, 1999.
Liquidity and Capital Resources
Cash provided by operating activities was $52.2 million during the six months
ended June 30, 1999 as compared to $39.3 million during the same period in 1998.
These increases are primarily a result of the significant expansion of our
property portfolio. The items affecting the operating cash flows are discussed
more fully in the "Results of Operations" section.
In the six months ended June 30, 1999, we received $138.0 million in proceeds
from the sale of self-storage facilities, including those 32 facilities involved
in the joint venture transaction described above. In order to redeploy these
proceeds in a tax efficient manner, $95.3 million of the total proceeds were
placed in escrow accounts. These proceeds will be used to acquire additional
properties in tax-free exchanges. As of June 30, 1999, $43.3 million of these
funds had been used for that purpose. We invested $62.9 million in the first six
months of 1999 in the acquisition and improvement of self-storage facilities
compared to $92.4 million during the same period 1998. These acquisitions and
improvements were financed through $15.6 million cash, $43.1 million cash from
the escrow account described above and $4.2 million in Units.
16
<PAGE>
In addition to acquisitions, we invested $29.7 million in the first six months
of 1999 and $27.5 million in the first six months of 1998 for land held for
development and construction of self-storage facilities. There were 28 newly
developed facilities and 32 expansions of existing facilities in process with
$52.5 million invested at June 30, 1999. The total budget for these facilities
is $177.6 million, of which $125.1 million remains to be invested. We also
provided $15.2 million in financing to franchisees of Franchise Corp. during the
six months ended June 30, 1999. Proceeds were also received from the
franchisees, as five repaid their loans during the period, generating $16.6
million in cash. We have $62.9 million of loan commitments to franchisees to
fund as of June 30, 1999.
Between November 1996 and July 1998, the Partnership issued $600 million of
notes payable. The notes are unsecured obligations of the Partnership, and may
be redeemed at any time at the option of the Partnership, subject to a premium
payment and other terms and conditions. The combined notes carry a weighted
average interest rate of 7.37% and were issued at a price to yield a weighted
average of 7.42%. The terms of the notes are staggered between seven and thirty
years, maturing between 2003 and 2027.
Sometimes we acquire facilities in exchange for Units. The Units are redeemable
after one year for cash or, at our option, shares of our common stock. Sellers
taking Units instead of cash are able to defer recognizing a taxable gain on the
sale of their facilities until they sell or redeem their Units. At June 30, 1999
we had 3.7 million Units outstanding, of which the following Units were
redeemable:
o 82 thousand Units for an amount equal to their fair market value ($2.6
million, based upon a price per Unit of $32.00 at June 30, 1999) payable in
cash or, at our option, by a promissory note payable in quarterly
installments over two years with interest at the prime rate.
o 3.3 million Units for amounts equal to the then fair market value of their
Units ($105.6 million, based upon a price per Unit of $32.00 at June 30,
1999) payable by us in cash or, at our option, in shares of our common stock
at the initial exchange ratio of one share for each Unit.
We anticipate that the source of funds for any cash redemption of Units will be
retained cash flow or proceeds from the future sale of our securities or other
indebtedness. We have agreed to register any shares of our common stock issued
upon redemption of Units under the Securities Act of 1933.
We initially fund our capital requirements primarily through the available lines
of credit with the intention of refinancing these with long-term capital in the
form of equity and debt securities when we determine that market conditions are
favorable. At June 30, 1999, we can issue under currently effective shelf
registration statements up to $650 million of common stock, preferred stock,
depositary shares and warrants and can also issue $250 million of unsecured,
non-convertible senior debt securities of the Partnership. The lines of credit
bear interest at various spreads over LIBOR. We had net repayments in the six
months ended June 30, 1999 of $3.6 million as $39.4 million of the disposition
proceeds were used to reduce the lines of credit. For the same period in 1998,
net borrowings totaled $146.7 million.
In order to fund our capital requirements in 1999 and 2000, we have taken the
following steps:
o On June 7, 1999, we closed the formation of a joint venture with Fidelity
Management Trust Company, described in the section entitled "External Growth
- Acquisitions." This transaction generated approximately $129 million of
net proceeds to us, $39 million of which was used to pay down the lines of
credit.
o On May 26, 1999, we closed on a $200 million unsecured revolving credit line
with a group of commercial banks, representing a $50 million increase from
the previous line of credit. The line will bear interest at a spread of 120
basis points over LIBOR based on our current debt rating. The maturity was
extended to March 31, 2002, and existing covenants were modified. The new
covenants are based on the market value of our assets and include limits on
investments, net worth, indebtedness, cash flow and debt service coverage.
Through 2000, we have committed to fund approximately $69.8 million of the
remaining $125.1 million to be invested in the development and expansion
pipeline and committed to provide financing to franchisees for approximately
$62.9 million. With the closing of the Venture and the $200 million line of
credit noted above, we believe that borrowings under our current credit
facilities combined with cash from operations will provide us with necessary
liquidity and capital resources to meet the funding requirements of our firm
commitments through the end of 2000.
17
<PAGE>
We expect to incur approximately $3.7 million for scheduled maintenance and
repairs during 1999 and approximately $9.7 million to conform facilities
acquired from 1994 to 1998 to our standards of which $1.4 million for scheduled
maintenance and $0.5 million for conforming facilities acquired has been
incurred to date.
Funds from Operations ("FFO")
We believe FFO should be considered in conjunction with net income and cash
flows to facilitate a clear understanding of our operating results. FFO should
not be considered as an alternative to net income, as a measure of our financial
performance or as an alternative to cash flows from operating activities as a
measure of liquidity. FFO does not represent cash generated from operating
activities in accordance with GAAP and is not necessarily indicative of cash
available to fund cash needs. We follow the National Association of Real Estate
Investment Trust's definition of FFO. Our FFO may not be comparable to similarly
titled measures of other REITs that calculate FFO differently. In calculating
FFO per share, we add back only depreciation and amortization of
revenue-producing property. As such, Our FFO and FFO per share may not be
comparable to other REITs that may add back total depreciation and amortization,
which may include, for example depreciation and amortization of office
equipment.
The following table illustrates the components of our FFO for the three months
and six months ended June 30, 1999 and June 30, 1998:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 16,532 $ 15,306 $ 30,287 $ 29,744
Loss/(Gain) on sale of assets (441) 284 137 284
Total depreciation and amortization 9,017 7,124 17,373 13,692
Depreciation from unconsolidated entities 49 49
Less depreciation of non-revenue producing property (592) (456) (1,164) (784)
-----------------------------------------------------------------
Consolidated FFO 24,565 22,258 46,682 42,936
Minority interest share of (loss)/gain on exchange of asset 51 (32) (15) (32)
Minority interest share of depreciation from unconsolidated
entities (6) - (6) -
Minority interest share of depreciation & amortization (969) (755) (1,869) (1,331)
-----------------------------------------------------------------
FFO available to shareholders $ 23,641 $ 21,471 $ 44,792 $ 41,573
=================================================================
</TABLE>
During the second quarter of 1999, we declared a dividend per share of $0.67,
which is an increase of 4.7% over the second quarter 1998 dividend of $0.64. To
date, $1.34 per share in dividends have been declared, compared to $1.28 in
1998, again a 4.7% increase. As a qualified REIT, we are required to distribute
a substantial portion of our net income as dividends to our shareholders. While
our goal is to generate and retain sufficient cash flow to meet our operating,
capital and debt service needs, our dividend requirements may require us to
utilize our bank lines of credit and other sources of liquidity to finance
property acquisitions and development, and major capital improvements. See
"Liquidity and Capital Resources" section.
18
<PAGE>
Year 2000 Compliance
We are carrying out our plan to ensure that all of the material aspects of our
operations are Year 2000 ("Y2K") compliant. As part of our Y2K planning and
readiness program, we have retained an outside consultant to assist us in our
assessment of potential Y2K issues and to assist in the development of a
strategy for testing such systems. There are three phases to our Y2K plan. Phase
one included determining the scope of the issue, assigning responsible parties
and proposing solutions to the issue. This phase was completed in July 1998.
Phase two includes researching and testing all of our systems and documenting
their Y2K compliance. We have substantially completed this phase and now
estimate finishing by the end of August of 1999. The third phase involves
implementing the necessary changes, if any, by the end of the third quarter of
1999. We have grouped all of our systems into three categories based on their
importance in operating our facilities: critical, moderate and minimal. All
critical, moderate and minimal systems have been documented as Y2K compliant
with the following exceptions:
o The job costing system that we used in 1997 was not Y2K compliant. However,
this system was phased out in the first quarter of 1999 for other reasons.
New construction projects are being accounted for on a product that is Y2K
compliant.
o The phone system in our Columbia, MD regional office was not Y2K compliant
but was replaced in March of 1999 primarily for reasons unrelated to the
Y2K issue.
o The gate and security systems at some of our self-storage facilities have
not yet been documented as being Y2K compliant. We have tested 60% of our
gate systems and have noted no problems that would affect our usage. The
remaining gate systems will be tested by the end of August of 1999. Any
non-compliant gate and security systems that have Y2K issues that will have
a material adverse affect on the operations of our facilities will be
scheduled for upgrade or replacement by the end of September. The cost of
replacement varies by facility and has not yet been determined.
We have solicited our key vendors, including financial institutions, to
determine their state of readiness with respect to Y2K issues and are currently
following up with vendors who did not reply. We anticipate completing this
process by the end of August. Those vendors who are not prepared for the Y2K
issues will be replaced.
In the worst case scenario, we expect that we would be required to operate our
facilities manually for a limited period of time. This would include operating
the gate systems manually and manually tracking customer information. We believe
we can operate in this manner for a limited period of time without suffering any
material adverse effect on operations. Because there are a limited number of
systems that we believe may have Y2K issues, we have restricted our contingency
plan to these systems.
Because we have invested in new technology over the past few years, most systems
were Y2K compliant at the onset of this plan. The costs that we have incurred to
date include $34 thousand for an outside consultant discussed above,
management's time spent time investigating the Y2K matter and minor expenses for
off-the-shelf software to aid in the testing. The systems we have found not to
be compliant are in the process of being replaced for operational reasons not
related to the Y2K issue. With the possible exception of the gate and security
systems, we do not anticipate incurring any additional costs outside of
personnel time directly related to the Y2K issue but will not know for certain
until all systems are documented. As such, with the information currently
available, we anticipate that conforming our systems to be Y2K compliant will
not have a material impact on our financial position or results of operation.
The preceding outline of our Y2K readiness is based on our best estimates of
matters such as our vendors' readiness, our ability to operate our facilities
manually and other such matters, which were derived utilizing assumptions of
future events including the availability of certain resources, dependence upon
third party modifications of our software and other factors. However, there can
be no assurances that these estimates will be achieved and actual results could
differ materially from those expected.
See the Qualitative and Quantitative Disclosure about Market Risk section
regarding steps taken to safeguard against interest rate volatility stemming
from Y2k issues.
Government Regulation
North Carolina recently enacted legislation, which provides for, among other
things, a limitation to 15% of the rental payment on late fees which may be
charged on self-storage rental contracts. The legislation is effective October
1, 1999 and applies to rental contracts entered into on or after that date. We
19
<PAGE>
do not expect that this legislation will have a material effect on our results
of operations. Although other states may enact similar legislation, we are
unable to determine whether or when such legislation may be enacted and, if
enacted, the impact that such legislation may have on our results of operations.
Based upon a recent Maryland Court of Appeals decision, United Cable Television
of Baltimore Limited Partnership V. Louis Burch et al., Case #95311038/CL204287,
we are evaluating our late fee charges in Maryland and may reduce such fees as a
result. Any effect on our results of operations as a result of any such change
will be immaterial. (see also, our discussion of pending litigation in MD&A Part
II, page 19)
Tennessee recently enacted legislation that subjects limited partnerships and
limited liability corporations to the Tennessee Excise and Franchise taxes,
which will result in higher taxes on the Company. This new tax treatment is
not expected to have a material impact on our results of operations.
Qualitative and Quantitative Disclosure About Market Risk
We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates. We monitor interest rate fluctuations as an
integral part of our overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on our results. The effect of interest rate fluctuations
historically has been small relative to other factors affecting operating
results, such as rental rates and occupancy.
Our operating results are affected by changes in interest rates primarily as a
result of borrowing under our lines of credit. If interest rates increased by 25
basis points, our interest expense for the six months ended June 30, 1999 would
have increased by approximately $121 thousand, based on average outstanding
balances during that period.
During July of 1999, we purchased an interest rate cap from a bank to protect us
from interest rate volatility, particularly as it pertains to Y2K issues. In
return for a $45 thousand upfront premium, we have protection if the 3-month
LIBOR rate moves above 6.0% during the period from November 5, 1999 through
February 5, 2000.
Legal Proceedings
On July 22, 1999, a purported State of Maryland class action was filed against
the Company in the Circuit Court of Montgomery County, Maryland, under the
style: Ralph Grunewald v. Storage USA, Inc. and SUSA Partnership, L.P., Case No.
201546V, seeking recovery of certain late fees paid by Company tenants and an
injunction against further assessment of similar fees. The Company has not yet
filed a responsive pleading, but believes that it has defenses to the claims in
this suit and intends to vigorously defend it. While the ultimate resolution of
this suit cannot currently be determined, management believes that the loss or
liability, if any, resulting from this suit will not have a material adverse
effect on its financial position. However, if during any period the potential
contingency should become probable, the results of operations in such period
could be materially affected.
Forward Looking Statements and Risk Factors
Certain information included in this Form 10-Q that is not historical fact is
based on our current expectations. This includes statements regarding: (a)
anticipated future development, acquisition and expansion activity, (b) the
impact of anticipated rental rate increases on our revenue growth, (c) our 1999
anticipated revenues, expenses and returns, (d) future capital requirements, (e)
sources of capital, and (f) sources of funds for payment of our indebtedness.
Words such as "believes", "expects", "anticipate", "intends", "plans" and
"estimates" and variations of such words and similar words also identify forward
looking statements. Such statements are forward looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. The
following factors, among others, could cause actual results to differ materially
from the forward-looking statements:
o Changes in the economic conditions in the markets in which we operate could
negatively impact the financial resources of our customers, impairing our
ability to raise rents.
o Certain of our competitors with substantially greater financial resources
than us could reduce the number of suitable acquisition opportunities
offered to us and increase the price necessary to consummate the acquisition
of particular facilities.
o Increased development of new facilities in our markets could result in
over-supply and lower rental rates,
o Amounts that we charge for late fees are under review, have been and are the
subject of litigation against us and are, in some states, the subject of
governmental regulation. Consequently, such amounts could change, materially
affecting the results of operations.
20
<PAGE>
o The conditions affecting the bank, debt and equity markets could adversely
change, making it difficult to obtain capital on satisfactory terms.
o Competition could increase, reducing occupancy.
o Costs related to compliance with laws, including environmental laws could
increase.
o General business and economic conditions could negatively change.
o Other risk factors exist as described in our Annual Report on Form 10-K for
the year ended December 31, 1998 and other reports filed from time to time
with the Securities and Exchange Commission.
We caution you not to place undue reliance on any such forward looking
statements. We assume no obligation to update any forward-looking statements as
a result of new information, subsequent events or any other circumstances. Such
statements speak only as of the date that they are made.
21
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
See disclosure in the section entitled "Qualitative and Quantitative Disclosure
About Market Risk" in Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 20.
22
<PAGE>
Part II- OTHER INFORMATION
Item 1. Legal Proceedings
See disclosure in the section entitled "Legal Proceedings" in Management's
Discussion and Analysis of Financial Condition and Results of Operations on page
20.
Item 2. Changes in Securities and Use of Proceeds
During the six months ended June 30, 1999, we issued units of limited
partnership interest in SUSA Partnership, L.P. ("Units") in exchange for
interest in self-storage facilities. The date, amount and value of the issuances
are summarized in the following table:
Date of Units Approximate
Issuance Issued Value
- --------------------------------------------------------
June 11, 1999 22,797 $ 763,000
June 15, 1999 43,908 $1,475,000
June 15, 1999 59,544 $2,000,000
- --------------------------------------------------------
Total 126,249 $4,238,000
The Units were issued in private placements exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 to various owners of self-storage
facilities. Beginning one year after their issuance, each Unit is redeemable for
cash equal to the market value of one share of Common Stock at the time of
redemption or, at our option, one share of Common Stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 5, 1999, we held our Annual Meeting of Shareholders. Three matters were
submitted to the shareholders for consideration:
1. election of nine Directors (being all of our Directors);
2. ratification of the selection of PricewaterhouseCoopers
LLP as our independent public accountants for the fiscal
year ending December 31, 1999; and
3. a proposal to approve an amendment to our 1995 Employee
Stock Purchase and Loan Plan, increasing the shares
available under the plan from 500,000 to 750,000.
1. Election of Nine Directors:
Director: For Withheld
-------- --- --------
C. Ronald Blankenship 25,637,209 18,964
Howard P. Colhoun 25,638,509 17,664
Alan B. Graf, Jr. 25,638,559 17,614
Dean Jernigan 25,638,509 17,664
Mark Jorgensen 25,639,014 17,159
Caroline S. McBride 25,638,914 17,259
John P. McCann 25,637,509 18,664
William D. Saunders 25,637,109 19,064
Harry J. Thie 25,638,409 17,764
23
<PAGE>
2. Ratification of the selection of PricewaterhouseCoopers LLP as our
independent public accountants for the fiscal year ending December 31,
1999.
For 25,443,190
Against 8,663
Abstain 204,320
3. Proposal to approve an amendment to our 1995 Employee Stock Purchase and Loan
Plan.
For 25,261,357
Against 165,506
Abstain 229,310
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit10.1 - Second Amended and Restated Unsecured Revolving Credit
Agreement, dated as of May 26, 1999
Exhibit 10.2 - Limited Liability Company Agreement of Storage Portfolio
I LLC, by and between SUSA Partnership, L.P. and FREAM No. 18, LLC,
dated May 13, 1999.
Exhibit 10.3 - First Amendment to Limited Liability Company Agreement
of Storage Portfolio I LLC, dated as of June 7, 1999
Exhibit 10.4 - Amendment No. 2 to 1995 Employee Stock Purchase and Loan
Plan Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 16, 1999
Storage USA, Inc.
By: /s/ Christopher P. Marr
------------------------------------
Christopher P. Marr
Chief Financial Officer
(Principal Financial and Accounting
Officer)
25
SECOND AMENDED AND RESTATED
UNSECURED REVOLVING CREDIT AGREEMENT
DATED AS OF MAY 26, 1999
AMONG
SUSA PARTNERSHIP, L.P.,
STORAGE USA, INC.
STORAGE USA TRUST
AND
BANC ONE CAPITAL MARKETS, INC.
AS LEAD BOOKRUNNER AND ARRANGER
THE FIRST NATIONAL BANK OF CHICAGO,
AS ADMINISTRATIVE AGENT,
AND LENDER
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS SYNDICATION AGENT AND LENDER
FIRST UNION NATIONAL BANK,
AS DOCUMENTATION AGENT AND LENDER
AMSOUTH BANK,
AS CO-AGENT AND LENDER
CRESTAR BANK, AS LENDER
NATIONAL BANK OF COMMERCE, AS LENDER
COMMERZBANK AG, NEW YORK BRANCH, AS LENDER
UNION PLANTERS BANK, NATIONAL ASSOCIATION, AS LENDER
AND
COMERICA BANK, AS LENDER
<PAGE>
SECOND AMENDED AND RESTATED
UNSECURED REVOLVING CREDIT AGREEMENT
This Second Amended and Restated Unsecured Revolving Credit Agreement
("Agreement"), dated as of May 26, 1999, is among SUSA Partnership L.P., a
Tennessee limited partnership (the "Borrower"), Storage USA, Inc., a Tennessee
corporation (the "General Partner," the "Guarantor" and the "REIT"), Storage USA
Trust, a Maryland business trust (the "Trust" and the "Guarantor"), The First
National Bank of Chicago, a national banking association ("First Chicago"),
Crestar Bank, First Union National Bank, Bank of America National Trust and
Savings Association, AmSouth Bank, National Bank of Commerce, Union Planters
Bank, National Association, and Comerica Bank (collectively, the "Lenders") and
The First National Bank of Chicago, as administrative agent ("Administrative
Agent") for the Lenders.
RECITALS
--------
1. The Borrower is primarily engaged in the business of purchasing,
developing, owning and operating storage properties.
2. The General Partner, the Borrower's sole general partner, is listed on
the New York Stock Exchange and is qualified as a real estate investment trust.
The General Partner owns approximately 0.9% of the total partnership interests
in Borrower, the Trust owns a 87.2% limited partnership interest in the
Borrower, and various limited partners in the Borrower own approximately 11.9%
of such partnership interests.
3. The Borrower, General Partner, the Administrative Agent, and certain
of the Lenders entered in an Unsecured Revolving Credit Agreement dated as of
February 8, 1995 as amended (the "Original Credit Agreement") pursuant to which
the Lenders that were parties thereto agreed to make loans to the Borrower in
the maximum aggregate amount of $75,000,000.
4. The original Credit Agreement was amended and restated by that certain
Amended and Restated Unsecured Revolving Credit Agreement by and between the
Borrower, the General partner, the Trust, the Administrative Agent and certain
of the Lenders dated as of December 23, 1997, as previously amended (the
"Existing Credit Agreement") to provide for, among other things, an increase in
the amount of loans available to the Borrower to $150,000,000 (the "Existing
Facility").
5. The Borrower has requested that the Lenders increase the amount of
loans that are available to the Borrower to the aggregate amount of $200,000,000
and otherwise amend and restate in its entirety the Existing Credit Agreement
and the Existing Facility pursuant to the terms of this Agreement (the
"Facility"), and that the Administrative Agent act as administrative agent for
the Lenders and that certain other changes be made to the Existing Facility. The
Administrative Agent and the Lenders have agreed to do so.
<PAGE>
6. Banc One Capital Markets, Inc. has arranged the Facility between the
Lenders and Borrower and coordinated the closing of the Facility.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Absolute Interest Period" means, with respect to a Competitive Bid Loan
made at an Absolute Rate, a period of up to 180 days as requested by Borrower in
a Competitive Bid Quote Request and confirmed by a Lender in a Competitive Bid
Quote but in no event extending beyond the Facility Termination Date. If an
Absolute Interest Period would end on a day which is not a Business Day, such
Absolute Interest Period shall end on the next succeeding Business Day.
"Absolute Rate" means a fixed rate of interest (rounded to the nearest
1/100 of 1%) for an Absolute Interest Period with respect to a Competitive Bid
Loan offered by a Lender and accepted by the Borrower at such rate.
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the General
Partner, the Borrower or any of their Subsidiaries (i) acquires any going
business or all or substantially all of the assets of any firm, corporation or
division thereof, whether through purchase of assets, merger or otherwise or
(ii) directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding partnership interests of a partnership.
"Administrative Agent" means The First National Bank of Chicago in its
capacity as administrative agent for the Lenders pursuant to Article XI, and not
in its individual capacity as a Lender, and any successor Administrative Agent
appointed pursuant to Article XI.
"Advance" means a borrowing hereunder consisting of the aggregate amount of
the several Loans made by the Lenders to the Borrower of the same Type
(including Swing Line Loans and Competitive Bid Loans) and, in the case of LIBOR
Advances, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power
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<PAGE>
to direct or cause the direction of the management or policies of the controlled
Person, whether through ownership of stock, by contract or otherwise.
"Aggregate Commitment" means the aggregate of the Commitments of all the
Lenders.
"Agreement" means this Second Amended and Restated Unsecured Revolving
Credit Agreement, as it may be amended or modified and in effect from time to
time.
"Annualized Consolidated Cash Flow" means Consolidated Cash Flow for the
four most recent fiscal quarters.
"Annualized Consolidated Unsecured Debt Service" means Consolidated Debt
Service attributable to Unsecured Indebtedness for the four most recent fiscal
quarters.
"Annualized Unencumbered Consolidated Cash Flow" means Consolidated Cash
Flow derived from Unencumbered Assets for the four most recent fiscal quarters.
"Assets Under Development" means, as of any date of determination, all
Properties and expansion areas of existing Properties owned by the Consolidated
Group and Investment Affiliates which are then treated as Assets Under
Development under GAAP and which have been designated by the Borrower as "Assets
Under Development" in its most recent compliance certificate.
"Applicable Margin" is defined in Section 2.4.
"Arranger" means Banc One Capital Markets, Inc.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the Chief Executive Officer, President or
Chief Financial Officer of the Borrower, acting singly.
"Borrower" means SUSA Partnership L.P., a Tennessee limited partnership,
and its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.11.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of LIBOR Advances, a day (other than a Saturday or Sunday) on which
banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
-3-
<PAGE>
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"Cash Equivalents" means, as of any date, (i) securities issued or directly
and fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than one year from such
date, (ii) time deposits and certificates of deposit having maturities of not
more than one year from such date and issued by any domestic commercial bank or
any Lender having (A) senior long-term unsecured debt rated at least A or the
equivalent thereof by S&P or A2 or the equivalent thereof by Moody's and (B)
capital and surplus in excess of $100,000,000, (iii) commercial paper rated at
least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by
Moody's and in either case maturing within 120 days from such date; and (iv)
shares of any money market mutual fund rated at least AAA or the equivalent
thereof by S&P or at least Aaa or the equivalent thereof by Moody's.
"CBR Advance" means an Advance which bears interest at the CBR Rate.
"CBR Applicable Margin" means, as of any date, the Applicable Margin in
effect on such date with respect to CBR Advances and CBR Loans, as determined in
accordance with Section 2.4.
"CBR Loan" means a Loan which bears interest at the CBR Rate.
"CBR Rate" means, for any day, a rate per annum equal to (i) the Corporate
Base Rate for such day plus (ii) CBR Applicable Margin for such day, in each
case changing when and as the Corporate Base Rate changes.
"Closing Date" means the date that all the conditions precedent to the
initial Advance, as specified in Section 4.1, have been satisfied, provided,
however, that the obligations of the Lenders to make Loans hereunder shall
automatically terminate if such date does not occur on or before May , 1999.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans not exceeding the amount set forth opposite its signature below or as set
forth in any Notice of Assignment relating to any assignment that has become
effective pursuant to Section 14.3.2, as such amount may be modified from time
to time pursuant to the terms hereof.
"Competitive Bid Borrowing Notice" is defined in Section 2.16(f).
"Competitive Bid Lender" means a Lender or Designated Lender which has a
Competitive Bid Loan outstanding.
-4-
<PAGE>
"Competitive Bid Loan" is a Loan made pursuant to Section 2.16 hereof.
"Competitive Bid Note" means the promissory note payable to the order of
the applicable Lender in the form attached hereto as Exhibit B-2 to be used to
evidence any Competitive Bid Loans which such Lender elects to make
(collectively, the "Competitive Bid Notes").
"Competitive Bid Quote" means a response submitted by a Lender to the
Administrative Agent or the Borrower, as the case may be with respect to an
Invitation for Competitive Bid Quotes in the form attached as Exhibit C-3.
"Competitive Bid Quote Request" means a written request from Borrower to
Administrative Agent in the form attached as Exhibit C-1.
"Competitive LIBOR Margin" means, with respect to any Competitive Bid Loan
for an Interest Period, the percentage established in the applicable Competitive
Bid Quote which is to be used to determine the interest rate applicable to such
Competitive Bid Loan.
"Condemnation" is defined in Section 9.8.
"Consolidated Cash Flow," for any period (a "Cash Flow Test Period"), means
an amount equal to (a) Funds From Operations for such period plus (b)
Consolidated Interest Expense for such period.
"Consolidated Debt Service," for any period of four consecutive fiscal
quarters (a "Debt Service Test Period"), means (a) Consolidated Interest Expense
for such period plus (b) the aggregate amount of scheduled principal payments of
Indebtedness (excluding optional prepayments and scheduled principal payments in
respect of any Indebtedness of the Consolidated Group which is payable in a
single installment at final maturity) required to be made during such period by
any member of the Consolidated Group plus (c) the Consolidated Group Pro Rata
Share of scheduled principal payments in respect of Indebtedness of Investment
Affiliates for such period, whether recourse or non-recourse.
"Consolidated Fixed Charges," with respect to any fiscal period of the
Borrower, means an amount determined on a consolidated basis equal to the sum of
(i) Consolidated Debt Service plus (ii) all distributions paid during such
period to the holders of any preferred shares or preferred units of Borrower and
the REIT, without duplication.
"Consolidated Group" means the Borrower, General Partner and all
Subsidiaries which are consolidated with it for financial reporting purposes
under GAAP.
"Consolidated Group Pro Rata Share," with respect to any Investment
Affiliate, means the percentage of the total equity ownership interest held by
the Consolidated Group in the aggregate, in such Investment Affiliate. The
percentage of total equity ownership interest held by the Consolidated Group
shall be the greater of: (i) the percentage of the issued and outstanding stock,
partnership interest or membership interest in such Investment Affiliate held by
the Consolidated Group in the aggregate, and (ii) the percentage of the total
book value of
-5-
<PAGE>
such Investment Affiliate that would be received by the Consolidated Group in
the aggregate, upon liquidation of such Investment Affiliate after repayment in
full of all indebtedness of such Investment Affiliate.
"Consolidated Interest Expense," for any period, means (a) the amount of
interest expense of the Consolidated Group for such period on the aggregate
principal amount of their Indebtedness, determined on a consolidated basis in
accordance with GAAP plus (b) any capitalized interest which accrued during such
period, plus (c) the Consolidated Group Pro Rata Share of any interest expense
and capitalized interest which accrued during such period of any Investment
Affiliate.
"Consolidated Net Income," for any period, means consolidated net income
(or loss) of the Consolidated Group for such period determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded (a) the
income (or deficit) of any other Person accrued prior to the date it becomes a
Subsidiary of the Borrower or is merged into or consolidated with the Borrower
or any of its Subsidiaries and (b) the undistributed earnings of any Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the terms of
any contractual obligation or requirement of law applicable to such Subsidiary.
"Consolidated Secured Indebtedness" as of any date of determination, means
without duplication, the sum of (a) the aggregate principal amount of all
Indebtedness of the Consolidated Group outstanding at such date which does not
constitute Unsecured Indebtedness and (b) the excess, if any, of (i) the
aggregate principal amount of all Unsecured Indebtedness of the Subsidiaries of
the Borrower over (ii) $10,000,000, determined on a consolidated basis in
accordance with GAAP, and (c) the Consolidated Group Pro Rata Share of all
Indebtedness of Investment Affiliates that does not constitute Unsecured
Indebtedness.
"Consolidated Senior Unsecured Indebtedness," as of any date of
determination, means the aggregate amount of all Indebtedness of the
Consolidated Group and the Consolidated Group Pro Rata Share of Indebtedness of
Investment Affiliates outstanding at such date which constitutes Unsecured
Indebtedness (excluding Indebtedness which is contractually subordinated to the
Indebtedness of the Consolidated Group under the Loan Documents on customary
terms acceptable to the Administrative Agent) determined on a consolidated basis
in accordance with GAAP.
"Consolidated Tangible Net Worth," at any date of determination, means an
amount equal to (a) Total Tangible Assets of the Consolidated Group and the
Consolidated Group Pro Rata Share of Total Tangible Assets of Investment
Affiliates as of such date minus (b) Consolidated Total Indebtedness as of such
date.
"Consolidated Total Indebtedness," as of any date of determination, means
the sum of (a) all Indebtedness of the Consolidated Group outstanding at such
date, determined on a consolidated basis in accordance with GAAP, plus (b) the
Consolidated Group Pro Rata Share of the Indebtedness of any Investment
Affiliate.
-6-
<PAGE>
"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 the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.12.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when and
as said corporate base rate changes.
"Current DSC Ratio" means, as of any date, the ratio calculated by dividing
Consolidated Cash Flow for the four most recently completed fiscal quarters by
Consolidated Debt Service for such four fiscal quarters.
"Default" means an event described in Article VIII.
"Defaulting Lender" means any Lender which fails or refuses to perform its
obligations under this Agreement within the time period specified for
performance of such obligation and such failure or refusal continues for one
Business Day after written notice from the Administrative Agent, or, if no time
frame is specified, if such failure or refusal continues for a period of five
Business Days after written notice from the Administrative Agent; provided that
if such Lender cures such failure or refusal, such Lender shall cease to be a
Defaulting Lender.
"Designated Lender" means any Person who has been designated by a Lender to
fund Competitive Bid Loans.
"Designation Agreement" means a designation agreement entered into by a
Lender (other than a Designated Lender) and a Designated Lender, and accepted
by the Administrative Agent and Borrower, in substantially the form of Exhibit H
hereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Facility Fee" is defined in Section 2.5.
"Facility Termination Date" means May 25, 2002.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately 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 at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by the
Administrative Agent in its sole discretion.
-7-
<PAGE>
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
"Fixed Rate" as defined in Section 2.17.
"Fixed Rate Advance" means an Advance which bears interest at a Fixed Rate.
"Funded Percentage" means, with respect to any Lender at any time, a
percentage equal to a fraction the numerator of which is the amount actually
disbursed and outstanding to Borrower by such Lender at such time (including
Swing Line Loans and Competitive Bid Loans), and the denominator of which is the
total amount disbursed and outstanding to Borrower by all of the Lenders at such
time (including Swing Line Loans and Competitive Bid Loans).
"Funds From Operations," for any period, means the sum of (i) Consolidated
Net Income for such period as adjusted by (A) excluding gains and losses from
property sales, debt restructurings and property write-downs and adjusted for
the non-cash effect of straight-lining of rents, (B) to the extent not already
accomplished under GAAP, straight-lining various ordinary operating expenses
which are payable less frequently than monthly (e.g. real estate taxes), and (C)
adding back depreciation, amortization and all non-cash items, plus (ii) the
Consolidated Group Pro Rata Share of funds from operations of each Investment
Affiliate with such funds from operations computed in a manner similar to the
computation contained herein.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 6.4.
"General Partner" means Storage USA, Inc., a Tennessee corporation, the
sole general partner of Borrower, and its successors and assigns.
"Guarantee Obligation" means, as to any Person (the "guaranteeing person"),
any obligation (determined without duplication) of (a) the guaranteeing person
or (b) another Person (including, without limitation, any bank under any letter
of credit) to induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or
other obligations (the "primary obligations") of any other third Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) 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
-8-
<PAGE>
obligor to make payment of such primary obligation or (iv) otherwise to assure
or hold harmless the owner of any such primary obligation against loss in
respect thereof; provided, however, that the term Guarantee Obligation shall not
include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the maximum stated amount of the primary obligation
relating to such Guarantee Obligation (or, if less, the maximum stated liability
set forth in the instrument embodying such Guarantee Obligation), provided, that
in the absence of any such stated amount or stated liability, the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.
"Guarantor" means the General Partner and the Trust and any Wholly-Owned
Subsidiary that is the owner of an Unencumbered Asset and hereafter executes a
Guaranty in connection therewith.
"Guaranty" means that certain Second Amended and Restated Guaranty of even
date herewith executed by the Guarantor in favor of the Administrative Agent,
for the ratable benefit of the Lenders, as it may be amended or modified and in
effect from time to time, and any additional guaranty hereafter delivered.
"Indebtedness" of any Person at any date, means without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), to the extent such obligations
constitute indebtedness for the purposes of GAAP, (c) any other indebtedness of
such Person which is evidenced by a note, bond, debenture or similar instrument,
(d) all obligations of such Person under Financing Leases, (e) all obligations
of such Person in respect of acceptances issued or created for the account of
such Person, (f) all Guarantee Obligations of such Person (excluding, in the
case of the Borrower, Guarantee Obligations of the Borrower in respect of
primary obligations of any Subsidiary), and (g) all liabilities secured by any
lien (other than liens for taxes not yet due and payable) on any property owned
by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Intangible Assets" of any Person at any date, that portion of the assets
of such Person which constitute intangible assets for the purposes of GAAP.
"Interest Period" means, with respect to a LIBOR Advance, a period of one,
two, three or six months commencing on a Business Day selected by the Borrower
pursuant to this Agreement. Such Interest Period shall end on (but exclude) the
day which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that is said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day. If Borrower and Lenders agree on a
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<PAGE>
Fixed Rate Advance then reference herein to Interest Period shall also include
the applicable interest period agreed upon among Borrower and Lenders for the
Fixed Rate Advance.
"Investment Affiliate" means any Person in which Borrower, General Partner,
or their Subsidiaries has an ownership interest, whose financial results are not
consolidated under GAAP with the financial results of the Borrower.
"Invitation for Competitive Bid Quotes" means a written notice to the
Lenders from the Administrative Agent in the form attached as Exhibit C-2 for
Competitive Bid Loans made pursuant to Section 2.14.
"Lease-Up Assets" means Properties (other than Assets Under Development)
which are not yet 85% leased.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement, their respective successors and assigns and any other lending
institutions that subsequently become parties to this Agreement.
"Lending Installation" means, with respect to a Lender, any office, branch,
subsidiary or affiliate of such Lender.
"LIBOR Advance" means an Advance which bears interest at a LIBOR Rate,
whether a ratable Advance based on the LIBOR Applicable Margin or a Competitive
Bid Loan based on a Competitive LIBOR Margin.
"LIBOR Applicable Margin" means, as of any date with respect to any
Interest Period, the Applicable Margin in effect for such Interest Period as
determined in accordance with Section 2.4 hereof.
"LIBOR Base Rate" means, with respect to a LIBOR Advance for the relevant
Interest Period, the rate determined by the Administrative Agent to be the rate
for which deposits in U.S. dollars are offered by the Administrative Agent to
first-class banks in the London interbank market at approximately 11 a.m.
(London time) two Business Days prior to the first day of such Interest Period,
in the approximate amount of the relevant LIBOR Advance and having a maturity
approximately equal to such Interest Period. The LIBOR Base Rate shall be
rounded to the next higher multiple of 1/100th of 1% if the rate is not a
multiple of 1/16th of 1% or 1/100th of 1%.
"LIBOR Loan" means a Loan which bears interest at a LIBOR Rate.
"LIBOR Rate" means, with respect to a LIBOR Advance for the relevant
Interest Period, the sum of (i) the quotient of (a) the LIBOR Base Rate
applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the LIBOR Applicable Margin in effect on the day that such LIBOR Base Rate
was determined. The LIBOR Rate shall be rounded to the next higher multiple of
1/16 of 1% if the rate is not such a multiple.
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"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, capitalized lease or other title retention
agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance.
"Loan Documents" means this Agreement, the Guaranty, the Notes and any
other document from time to time evidencing or securing indebtedness incurred by
the Borrower under this Agreement, as any of the foregoing may be amended from
time to time.
"Management Expense" means with respect to any Property, 3% of revenues
derived from the operation of such Property.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or business prospects of the Borrower and its Subsidiaries taken as a whole,
(ii) the ability of the Borrower or the Guarantor to perform its obligations
under the Loan Documents, or (iii) the validity or enforceability of any of the
Loan Documents or the rights or remedies of the Administrative Agent or the
Lenders thereunder.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Net Operating Income," with respect to any Property for any period, means
"property rental and other income" (as determined by GAAP) attributable to such
Property accruing for such period minus the amount of all expenses (as
determined in accordance with GAAP) incurred in connection with and directly
attributable to the ownership and operation of such Property for such period,
including, without limitation, Management Expense and amounts accrued for the
payment of real estate taxes and insurance premiums, but excluding interest
expense or other debt service charges and any non-cash charges such as
depreciation or amortization of financing costs.
"Note" means a new (in the case of Lenders not parties to the Existing
Credit Agreement) or an amended and restated (in the case of Lenders parties to
the Existing Credit Agreement) promissory note, in substantially the form of
Exhibit B-1 hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Commitment, including any amendment, modification,
renewal or replacement of such promissory note or a new (in the case of Lenders
not parties to the Existing Credit Agreement) or an amended and restated (in the
case of Lenders parties to the Existing Credit Agreement) competitive bid note,
in substantially the form of Exhibit B-2 hereto, duly executed by the Borrower
and payable to the order of a
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Competitive Bid Lender, including any amendment, modification, renewal or
replacement of such note.
"Notice of Assignment" is defined in Section 14.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Notes, all accrued and unpaid fees and all expenses, reimbursements,
indemnities and other obligations of the Borrower to the Lenders or to any
Lender, the Administrative Agent or any indemnified party hereunder arising
under the Loan Documents.
"Participants" is defined in Section 14.2.1.
"Payment Date" means, with respect to the payment of interest accrued on
any Advance, the first day of each calendar month and with respect to any LIBOR
Advance, the last day of any Interest Period as well.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Percentage" means for each Lender the percentage of the Aggregate
Commitment allocated to such Lender as set forth opposite its signature.
"Permitted Acquisitions" are defined in Section 8.16.
"Permitted Liens" are defined in Section 8.17.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" means 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 as to which the Borrower or any member of the Controlled Group may have any
liability.
"Property" means each parcel of real property (including the public storage
facility thereon).
"Purchasers" as defined in Section 14.3.1.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it
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be notified within 30 days of the occurrence of such event, provided, however,
that a failure to meet the minimum funding standard of Section 412 of the Code
and of Section 302 of ERISA shall be a Reportable Event regardless of the
issuance of any such waiver of the notice requirement in accordance with either
Section 4043(a) of ERISA or Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at lease 66-2/3%
of the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 66-2/3% of the aggregate unpaid
principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement on Eurocurrency liabilities.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Storage Property" means each parcel of real property owned by the
Borrower, the General Partner or any of their Subsidiaries and upon which there
is located a self-storage facility.
"Subsidiary," as to any Person, means a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a "Subsidiary" or
to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries
of the Borrower or the General Partner.
"Substantial Portion" means, with respect to the Property of the General
Partner, the Borrower and its Subsidiaries, Property which (i) represents more
than 15% of the consolidated assets disclosed on the most recently issued
quarterly consolidated financial statements of the General Partner and the
Borrower, or (ii) is responsible for more than 15% of the consolidated net sales
or of the consolidated net income of the General Partner, the Borrower and their
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Swing Line Lender" shall mean the Lender agreed upon by Borrower and the
designated Swing Line Lender to provide Swing Line Loans. The initial Swing Line
Lender is the Administrative Agents, in its capacity as a Lender.
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"Swing Line Loans" means Loans of up to $15,000,000 made by the Swing Line
Lender in accordance with Section 2.15 hereof.
"Total Asset Value" means the sum of the values of the following:
(i) Properties (other than Assets Under Development and Lease-Up
Properties) valued by determining Net Operating Income from such
Properties based on a trailing four quarter period and dividing
such Net Operating Income by .10 except that Properties that
are acquired and have not been owned by the Borrower for at
least four quarters shall be valued at the acquisition price of
such Properties during such first four quarter period of
ownership;
(ii) Lease-Up Assets valued at the higher of (A) cost provided that
cost shall be used only when such Properties are placed in
service for less than or equal to 18 months or (B) an amount
equal to the Net Operating Income from such Properties for the
"Applicable Period" (as hereinafter defined) divided by .10, and
provided further that the total value of all such Lease-Up Assets
shall not exceed more than 15% of Total Asset Value. As used
herein, Net Operating Income for the Applicable Period shall be
Net Operating Income for the most recent quarter multiplied by
four if the Property has been in service for less than or equal
to 27 months and Net Operating Income for the four most recent
fiscal quarters if the Property has been in service more than 27
months;
(iii) Assets Under Development valued at cost provided the total value
of Assets Under Development shall not exceed 10% of Total Asset
Value;
(iv) franchise loans valued at 50% of the outstanding balance of such
loan provided that the total value of such assets does not exceed
more than 5% of Total Asset Value and no value shall be
attributable to any such loan for which there is a payment more
than 31 days past due; and
(v) other tangible assets valued at book value in accordance with
GAAP provided that the total value of such other tangible assets
shall not exceed 5% of Total Asset Value.
Notwithstanding the sublimits of each of the asset categories as
specified above, the sum of categories (ii) through (v) shall not exceed 25% of
Total Asset Value.
"Total Tangible Assets," of any Person at any date, means the current
book value of the total assets of such Person other than that portion of such
Person's assets that constitute intangible assets as determined in accordance
with GAAP plus accumulated depreciation on the real estate assets from such
Person's original book value of such assets which is reflected in the current
book value of such assets.
"Transferee" is defined in Section 14.4.
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"Type" means, with respect to any Advance, its nature as a CBR Advance
or a LIBOR Advance.
"Unencumbered Asset," with respect to any asset, at any date of
determination, means the circumstance that such asset on such date (a) is not
subject to any Liens or claims (including restrictions on transferability or
assignability) of any kind (including any such Lien, claim or restriction
imposed by the organizational documents of any Subsidiary, but excluding
Permitted Liens), (b) is not subject to any agreement (including (i) any
agreement governing Indebtedness incurred in order to finance or refinance the
acquisition of such asset and (ii) if applicable, the organizational documents
of any Subsidiary) which prohibits or limits the ability of the Borrower, the
General Partner or any of their Subsidiaries to create, incur, assume or suffer
to exist any Lien upon any assets or Capital Stock of the Borrower, the General
Partner or any of their Subsidiaries (excluding any agreement which limits
generally the amount of secured Indebtedness which may be incurred by the
Borrower, the General Partner and their Subsidiaries and (c) is not subject to
any agreement (including any agreement governing Indebtedness incurred in order
to finance or refinance the acquisition of such asset) which entitles any Person
to the benefit of any Lien (other than Permitted Liens) on any assets or Capital
Stock of the Borrower, the General Partner or any of their Subsidiaries, or
would entitle any Person to the benefit of any Lien (other than Permitted Liens)
on such assets or Capital Stock upon the occurrence of any contingency
(including, without limitation, pursuant to an "equal and ratable" clause), and
(d) is wholly owned by Borrower or by a Wholly-Owned Subsidiary that is a
guarantor of Borrower's obligations under the Facility. For the purposes of this
Agreement, any Property of a Wholly-Owned Subsidiary shall not be deemed to be
unencumbered unless both (i) such Property and (ii) all Capital Stock of such
Subsidiary held by the Borrower and General Partner is unencumbered.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Unsecured Indebtedness" means all Indebtedness of any Person that is
not secured by a Lien on any income, Capital Stock, Property or any other asset
of such Person.
"Value of Unencumbered Assets," as of any date, means the sum of: (i)
the value of Unencumbered Assets (excluding Assets under Development and
Lease-Up Assets) determined by capitalizing Net Operating Income for the most
recent four quarters from such Properties at 10% if owned for more than twelve
(12) months and otherwise to be valued at its acquisition price, plus (ii) the
value of Unencumbered Assets which are Lease-Up Assets, determined in the same
manner that Lease-Up Assets are valued for purposes of determining Total Asset
Value (subject to the last sentence of this definition), provided that the Value
of Unencumbered Assets attributable to such Lease-Up Assets shall not exceed 15%
of the total Value of Unencumbered
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Assets. For purposes of determining Value of Unencumbered Assets only, in
computing Net Operating Income for a Property there shall be no deduction for
Management Expense.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (ii) any partnership, association, joint venture
or similar business organization 100% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
"Year 2000 Issues" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of the Borrower and its
Subsidiaries and of the Borrower's and its Subsidiaries' material customers,
suppliers and vendors.
"Year 2000 Program" is defined in Section 5.18.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDIT
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2.1. Commitment. From and including the date of this Agreement and
prior to the Facility Termination Date, each Lender severally agrees, on the
terms and conditions set forth in this Agreement, to make Loans to the Borrower
from time to time in amounts not to exceed in the aggregate at any one time
outstanding the amount of its Commitment. Subject to the terms of this
Agreement, the Borrower may borrow, repay and reborrow at any time prior to the
Facility Termination Date. The Commitments to lend hereunder shall expire on the
Facility Termination Date.
2.2. Final Principal Payment. Any outstanding Advances and all other
unpaid Obligations shall be paid in full by the Borrower on the Facility
Termination Date.
2.3. Ratable Loans. Each Advance hereunder shall consist of Loans made
from the several Lenders ratably in proportion to the ratio that their
respective Commitments bear to the Aggregate Commitment except for Swing Line
Loans which shall be made by the Swing Line Lender in accordance with Section
2.15 and Competitive Bid Loans made in accordance with Section 2.16. The
Advances may be CBR Advances or LIBOR Advances, or a combination thereof,
selected by the Borrower in accordance with Sections 2.11 and 2.12.
2.4. Applicable Margins. The CBR Applicable Margin and the LIBOR
Margin to be used in calculating the interest rate applicable to different
Types of Advances shall vary from time to time in accordance with the long-term
unsecured debt ratings from Moody's and S&P of
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the General Partner and the Borrower. The applicable debt ratings and the
Applicable Margins are set forth in the table attached as Exhibit A. All margins
and fees change as and when the rating classification changes. The Borrower
agrees to give Administrative Agent prompt notice of any rating change. In the
event the General Partner and the Borrower have different ratings, the rating
of the higher rated entity shall be used. In the event the rating agencies are
split on the rating for the higher rated entity, the lower rating for the higher
rated entity shall be deemed to be the applicable rating (e.g., if the higher
rated entity's Moody's debt rating is Baa1 and its S&P debt rating is BBB then
the Applicable Margins shall be computed based on the S&P rating), and the
Applicable Margins shall be adjusted effective on the next Business Day
following any change in the higher rated entity's Moody's debt rating and/or
S&P's debt rating, as the case may be. In the event that either S&P or Moody's
shall discontinue their ratings of the REIT industry or the Borrower, a
mutually agreeable substitute rating agency shall be selected by the Required
Lenders and the Borrower. If the Required Lenders and the Borrower cannot agree
on a substitute rating agency within thirty (30) days of such discontinuance, or
if both S&P and Moody's shall discontinue their ratings of the REIT industry or
Borrower, the Applicable Margin to be used for the calculation of interest on
Advances hereunder shall be the highest Applicable Margin for each Type.
2.5. Facility Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a per annum facility fee (the "Facility
Fee") on the amount of the Aggregate Commitment at the rate set forth in
Exhibit A. The Facility Fee varies according to the rating of the Borrower and
General Partner. The Facility Fee shall be payable quarterly in arrears on each
February 1, May 1, August 1 and November 1 and on the Facility Termination Date
commencing August 1, 1999, and shall be prorated for any partial quarter.
2.6. Other Fees. The Borrower agrees to pay all other fees payable to
the Administrative Agent and to Arranger pursuant to the Borrower's prior letter
agreements with them.
2.7. Reductions in Aggregate Commitment. The Borrower may permanently
reduce the Aggregate Commitment (and the Maximum Aggregate Commitment) in whole,
or in part ratably among the Lenders in integral multiples of $5,000,000, upon
at least ten Business Days' written notice to the Administrative Agent, which
notice shall specify the amount of any such reduction, provided, however, that
the amount of the Aggregate Commitment may not be reduced below the aggregate
principal amount of the outstanding Advances.
2.8. Intentionally Deleted.
2.9. Minimum Amount of Each Advance. Each LIBOR Advance shall be in
the minimum amount of $1,000,000 (and in multiples of $250,000 if in excess
thereof), and each CBR Advance shall be in the minimum amount of $1,000,000
(and in multiples of $250,000 if in excess thereof), provided, however, that
any CBR Advance may be in the amount of the unused Aggregate Commitment if less
than $1,000,000.
2.10. Optional Principal Payments. The Borrower may from time to time
pay, without penalty or premium, all outstanding CBR Advances, or, in a
minimum aggregate amount of
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$500,000 or any integral multiple of $250,000 in excess thereof, any portion of
the outstanding CBR Advances upon two Business Days' prior notice to the
Administrative Agent. Subject to the provisions of Section 3.4, a LIBOR Advance
may be paid prior to the last day of the applicable Interest Period upon three
Business Days' prior notice to the Administrative Agent.
2.11. Method of Selecting Types and Interest Periods for New Advances. The
Borrower shall select the Type of Advance and, in the case of each LIBOR
Advance, the Interest Period applicable to each Advance from time to time. The
Borrower shall give the Administrative Agent irrevocable notice (a "Borrowing
Notice") not later than (i) 10:00 a.m. (Chicago time) at least one Business Day
before the Borrowing Date of each CBR Advance, (ii) three Business Days before
the Borrowing Date for each LIBOR Advance, and (iii) 3:00 p.m. Chicago time) on
the Borrowing Date for each Swing Line Loan, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such
Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected (which must be a CBR Advance
for Swing Line Loans), and
(iv) in the case of each LIBOR Advance, the Interest Period
applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date (except for Swing
Line Loans which shall be funded as soon as practical after the Borrowing
Notice), each Lender shall make available its Loan or Loans, in funds
immediately available in Chicago to the Administrative Agent at its address
specified pursuant to Article IX. The Administrative Agent will make the funds
so received from the Lenders available to the Borrower at the Administrative
Agent's aforesaid address.
No Interest Period may end after the Facility Termination Date and, unless
the Lenders otherwise agree in writing, in no event may there be more than five
(5) different Interest Periods for LIBOR Advances outstanding at any one time.
2.12. Conversion and Continuation of Outstanding Advances. CBR Advances
shall continue as CBR Advances unless and until such CBR Advances are converted
into LIBOR Advances. Each LIBOR Advance shall continue as a LIBOR Advance until
the end of the then applicable Interest Period therefor, at which time such
LIBOR Advance shall be automatically converted into an CBR Advance unless the
Borrower shall have given the Administrative Agent a Conversion/Continuation
Notice requesting that, at the end of such Interest Period, such LIBOR Advance
continue as an LIBOR Advance for the same or another Interest Period. Subject to
the terms of Section 2.9, the Borrower may elect from time to time to convert
all or any part of an Advance of any Type into any other Type or Types of
Advances; provided that any conversion of any LIBOR Advance shall be made on,
and only on, the last day of the Interest Period applicable thereto. The
Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/
Continuation Notice") of each conversion of an Advance or continuation of a
LIBOR Advance not later than 10:00 a.m. (Chicago time) at least one Business
Day, in the case
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of a conversion into an CBR Advance, or three Business Days, in the case of a
conversion into or continuation of a LIBOR Advance, prior to the date of the
requested conversion or continuation, specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued; and
(iii) the amount and Type(s) of Advance(s) into which such
Advance is to be converted or continued and, in the case of
a conversion into or continuation of a LIBOR Advance, the
duration of the Interest Period applicable thereto.
2.13. Changes in Interest Rate, Etc. Each CBR Advance or part thereof shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a LIBOR Advance
into a CBR Advance pursuant to Section 2.12 to but excluding the date it becomes
due or is converted into a LIBOR Advance pursuant to Section 2.12 hereof, at a
rate per annum equal to the CBR Rate for such day. Changes in the rate of
interest on that portion of any Advance maintained as a CBR Advance will take
effect simultaneously with each change in the Corporate Base Rate. Each LIBOR
Advance shall bear interest from and including the first day of the Interest
Period applicable thereto to (but not including) the last day of such Interest
Period at the interest rate determined as applicable to such LIBOR Advance.
2.14. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.11 or 2.12, during the continuance of a Default
or Unmatured Default the Required Lenders may, at their option, by notice to the
Borrower (which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 10.2 requiring unanimous consent of
the Lenders to changes in interest rates), declare that no Advance may be made
as, converted into or continued (following the expiration of the then-current
Interest Period) as a LIBOR Advance. During the continuance of a Default the
Required Lenders may, at their option, by notice to the Borrower (which notice
may be revoked at the option of the Required Lenders notwithstanding any
provision of Section 10.2 requiring unanimous consent of the Lenders to changes
in interest rates), declare that (i) each LIBOR Advance shall bear interest for
the remainder of the applicable Interest Period at the rate otherwise applicable
to such Interest Period plus 2% per annum and (ii) each CBR Advance shall bear
interest at a rate per annum equal to the CBR Rate otherwise applicable to the
CBR Advance plus 2% per annum.
2.15. Swing Line Loans. In addition to the other options available to
Borrower hereunder, up to $15,000,000 of the Swing Line Lender's Commitment,
shall be available for Swing Line Loans subject to the following terms and
conditions. Swing Line Loans shall be made available for same day borrowings
provided that notice is given in accordance with Section 2.11 hereof. All Swing
Line Loans shall bear interest at the CBR Rate. In no event shall the Swing Line
Lender be required to fund a Swing Line Loan if it would increase the total
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aggregate outstanding Loans by Swing Line Lender hereunder to an amount in
excess of its Commitment. Upon request of the Swing Line Lender, each Lender
irrevocably agrees to purchase its Percentage of any Swing Line Loan made by the
Swing Line Lender regardless of whether the conditions for disbursement are
satisfied at the time of such purchase, including the existence of an Default
hereunder (provided Swing Line Lender had no knowledge of an Default at the time
the Swing Line Loan was funded) provided no Lender shall be required to have
total outstanding Loans in an amount greater than its Commitment. Such purchase
shall take place on the date of the request by Swing Line Lender so long as such
request is made by noon (Chicago time), otherwise on the Business Day following
such request. All requests for purchase shall be in writing. From and after the
date it is so purchased, each such Loan shall be treated as a Loan made by the
purchasing Lender and not by the selling Lender for all purposes under this
Agreement, and shall no longer be considered a Swing Line Loan except that all
interest accruing on or attributable to such Loan for the period prior to the
date of such purchase shall be paid when due by the Borrower to the
Administrative Agent for the benefit of the Swing Line Lender and all such
amounts accruing on or attributable to such Loans for the period from and after
the date of such purchase shall be paid when due by the Borrower to the
Administrative Agent for the benefit of the purchasing Lender. If prior to
purchasing its Percentage in a Swing Line Loan one of the events described in
Section 9.6 or 9.7 shall have occurred and such event prevents the consummation
of the purchase contemplated by preceding provisions, each Lender will purchase
an undivided participating interest in the outstanding Swing Line Loan in an
amount equal to its Percentage of such Swing Line Loan. From and after the date
of each Lender's purchase of its participating interest in a Swing Line Loan, if
the Swing Line Lender receives any payment on account thereof, the Swing Line
Lender will distribute to such Lender its participating interest in such amount
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participating interest was outstanding and
funded); provided, however, that in the event that such payment was received by
the Swing Line Lender and is required to be returned to the Borrower, each
Lender will return to the Swing Line Lender any portion thereof previously
distributed by the Swing Line Lender to it. No Swing Line Loan shall be
outstanding for more than five (5) days at a time and Swing Line Loans shall not
be outstanding for more than a total of ten (10) days during any month.
2.16. Competitive Bid Loans.
---------------------
a. Competitive Bid Option. In addition to ratable Advances pursuant
to Section 2.3, but subject to the terms and conditions of this Agreement
(including, without limitation the limitation set forth in Section 2.1 as to the
maximum amount of all Loans not exceeding the Aggregate Commitment), the
Borrower may, as set forth in this Section 2.16, request the Lenders, prior to
the Facility Termination Date, to make offers to make Competitive Bid Loans to
the Borrower. Each Lender may, but shall have no obligation to, make such offers
and the Borrower may, but shall have no obligation to, accept any such offers in
the manner set forth in this Section 2.16. Competitive Bid Loans shall be
evidenced by the Competitive Bid Notes. In no event shall the aggregate of all
Competitive Bid Loans outstanding at any time exceed 50% of the Aggregate
Commitment and when added to all outstanding Advances (including, without
limitation, LIBOR Advances, Fixed Rate Advances and CBR Advances) shall not
exceed the Aggregate Commitment.
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b. Competitive Bid Quote Request. When the Borrower wishes to
request offers to make Competitive Bid Loans under this Section 2.16, it shall
transmit to the Administrative Agent by telecopy a Competitive Bid Quote Request
substantially in the form of Exhibit C-1 hereto so as to be received no later
than (i) 10:00 a.m. (Chicago time) at least five Business Days prior to the
Borrowing Date proposed therein, in the case of a request for a Competitive
LIBOR Margin or (ii) 9:00 a.m. (Chicago time) at least one Business Day prior to
the Borrowing Date proposed therein, in the case of a request for an Absolute
Rate specifying:
(1) the proposed Borrowing Date for the proposed Competitive Bid
Loan,
(2) the requested aggregate principal amount of such Competitive
Bid Loan which must be at least $10,000,000 and an integral multiple
of $1,000,000,
(3) whether the Competitive Bid Quotes requested are to set
forth a Competitive LIBOR Margin or an Absolute Rate, or both, and
(4) the Interest Period, if a Competitive LIBOR Margin is
requested, or the Absolute Interest Period, if an Absolute Rate is
requested.
(5) whether the Competitive Bid Loan shall be subject to
prepayment.
The Borrower may request offers to make Competitive Bid Loans for more that one
(but not more than five) Interest Periods in a single Competitive Bid Quote
Request. No Competitive Bid Quote Request shall be given within five Business
Days (or such other number of days as the Borrower and the Administrative Agent
may agree) of any other Competitive Bid Quote Request. Competitive Bid requests
will be limited to a maximum of two bid auctions each 30 days. A Competitive Bid
Quote Request that does not conform substantially to the form of Exhibit C-1
hereto shall be rejected, and the Administrative Agent shall promptly notify the
Borrower of such rejection by telecopy.
c. Invitation for Competitive Bid Quotes. Promptly and in any event
before the close of business on the same Business Day of receipt of a
Competitive Bid Quote Request that is not rejected pursuant to Section
2.16(b), the Administrative Agent shall send to each of the Lenders by telecopy
an Invitation for Competitive Bid Quotes substantially in the form of Exhibit
C-2 hereto, which shall constitute an invitation by the Borrower to each Lender
to submit Competitive Bid Quotes offering to make the Competitive Bid Loans to
which such Competitive Bid Quote Request relates in accordance with this Section
2.16.
d. Submission and Contents of Competitive Bid Quotes.
--------------------------------------------------
(1) Each Lender may, in its sole discretion, submit a
Competitive Bid Quote containing an offer or offers to make
Competitive Bid Loans in response to any Invitation for Competitive
Bid Quotes. Each Competitive Bid
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Quote must comply with the requirements of this Section 2.16(d) and
must be submitted to the Administrative Agent by telex or telecopy at
its offices not later than (a) 2:00 p.m. (Chicago time) at least four
Business Days prior to the proposed Borrowing Date, in the case of a
request for a Competitive LIBOR Margin or (b) 9:00 a.m. (Chicago time)
on the proposed Borrowing Date, in the case of a request for an
Absolute Rate (or, in either case upon reasonable prior notice to the
Lenders, such other time and date as the Borrower and the
Administrative Agent may agree); provided that Competitive Bid Quotes
submitted by First Chicago may only be submitted if the
Administrative Agent or First Chicago notifies the Borrower of the
terms of the Offer or Offers contained therein no later than 30
minutes prior to the latest time at which the relevant Competitive Bid
Quotes must be submitted by the other Lenders. Subject to the
Borrower's compliance with all other conditions to disbursement
herein, any Competitive Bid Quote of a Lender so made shall be
irrevocable except with the written consent of the Administrative
Agent given on the instructions of the Borrower.
(2) Each Competitive Bid Quote shall be in substantially the
form of Exhibit C-3 hereto and shall in any case specify:
(1) the proposed Borrowing Date, which shall be the same as
that set forth in the applicable Invitation for Competitive Bid
Quotes,
(2) the principal amount of the Competitive Bid Loan for
which each such offer is being made, which principal amount (x)
may be greater than, less than or equal to the Commitment of the
quoting Lender, (y) must be at least $5,000,000 and an integral
multiple of $1,000,000, and (z) may not exceed the principal
amount of Competitive Bid Loans for which offers are requested,
(3) as applicable, the Competitive LIBOR Margin and
Absolute Rate offered for each such Competitive Bid Loan,
(4) the minimum amount, if any, of the Competitive Bid Loan
which may be accepted by the Borrower,
(5) the identity of the quoting Lender, provided that such
Competitive Bid Loan may be funded by such Lender's Designated
Lender as provided in Section 2.16(j), regardless of whether that
is specified in the Competitive Bid Quote,
(6) whether or not such Competitive Bid Loan shall be
subject to prepayment.
(3) The Administrative Agent shall reject any Competitive Bid
Quote that:
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(1) is not substantially in the form of Exhibit C-3 hereto
or does not specify all of the information required by Section
2.16(d)(2),
(2) contains qualifying, conditional or similar language,
other than any such language contained in Exhibit C-3 hereto,
(3) proposes terms other than or in addition to those set
forth in the applicable Invitation for Competitive Bid Quotes, or
(4) arrives after the time set forth in Section 2.16(d)(1).
If any Competitive Bid Quote shall be rejected pursuant to this
Section 2.16(d)(3), then the Administrative Agent shall notify
the relevant Lender of such rejection as soon as practical.
e. Notice to Borrower. The Administrative Agent shall promptly
notify the Borrower of the terms (i) of any Competitive Bid Quote submitted by a
Lender that is in accordance with Section 2.16(d) and (ii) of any Competitive
Bid Quote that amends, modifies or is otherwise inconsistent with a previous
Competitive Bid Quote submitted by such Lender with respect to the same
Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall
be disregarded by the Administrative Agent unless such subsequent Competitive
Bid Quote specifically states that it is submitted solely to correct a manifest
error in such former Competitive Bid Quote. The Administrative Agent's notice to
the Borrower shall specify the aggregate principal amount of Competitive Bid
Loans for which offers have been received for each Interest Period specified in
the related Competitive Bid Quote Request and the respective principal amounts
and Competitive LIBOR Margins or Absolute Rate, as the case may be, so offered.
f. Acceptance and Notice by Borrower. Not later than (i) 6:00 p.m.
(Chicago time) at least four Business Days prior to the proposed Borrowing Date
in the case of a request for a Competitive LIBOR Margin or (ii) 10:00 a.m.
(Chicago time) on the proposed Borrowing Date, in the case of a request for an
Absolute Rate (or, in either case upon reasonable prior notice to the Lenders,
such other time and date as the Borrower and the Administrative Agent may
agree), the Borrower shall notify the Administrative Agent of its acceptance or
rejection of the offers so notified to it pursuant to Section 2.16(e); provided,
however, that the failure by the Borrower to give such notice to the
Administrative Agent shall be deemed to be a rejection of all such offers. In
the case of acceptance, such notice (a "Competitive Bid Borrowing Notice") shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The Borrower may accept any Competitive Bid Quote in whole or in
part (subject to the terms of Section 2.16(d)(3)); provided that:
(1) the aggregate principal amount of all Competitive Bid Loans
to be disbursed on a given Borrowing Date may not exceed the
applicable amount set forth in the related Competitive Bid Quote
Request,
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(2) acceptance of offers may only be made on the basis of
ascending Competitive LIBOR Margins or Absolute Rates, as the case may
be, and
(3) the Borrower may not accept any offer that is described in
Section 2.16(d)(3) or that otherwise fails to comply with the
requirements of this Agreement.
g. Allocation by Administrative Agent. If offers are made by two or
more Lenders with the same Competitive LIBOR Margins or Absolute Rates, as the
case may be, for a greater aggregate principal amount than the amount in respect
of which offers are accepted for the related Interest Period, the principal
amount of Competitive Bid Loans in respect of which such offers are accepted
shall be allocated by the Administrative Agent among such Lenders as nearly as
possible (in such multiples, not greater than $1,000,000, as the Administrative
Agent may deem appropriate) in proportion to the aggregate principal amount of
such offers provided, however, that no Lender shall be allocated any Competitive
Bid Loan which is less than the minimum amount which such Lender has indicated
that it is willing to accept. Allocations by the Administrative Agent of the
amounts of Competitive Bid Loans shall be conclusive in the absence of manifest
error. The Administrative Agent shall promptly, but in any event on the same
Business Day, notify each Lender of its receipt of a Competitive Bid Borrowing
Notice and the principal amounts of the Competitive Bid Loans allocated to each
participating Lender.
h. Administration Fee. The Borrower hereby agrees to pay to the
Administrative Agent an administration fee of $2,500 per each Competitive Bid
Quote Request transmitted by the Borrower to the Administrative Agent pursuant
to Section 2.16(b). Such administration fee shall be payable monthly on the
earlier of (1) the first Business Day of the month following such Competitive
Bid Quote Request and (2) the Facility Termination Date (or such earlier date
on which the Aggregate Commitment shall terminate or be cancelled).
i. Other Terms. Any Competitive Bid Loan shall not reduce the
Commitment of the Lender making such Competitive Bid Loan, and each such Lender
shall continue to be obligated to fund its full Percentage of all pro rata
Advances under the Facility. In no event can the aggregate amount of all
Competitive Bid Loans at any time exceed fifty percent (50%) of the then
Aggregate Commitment and when added to all Advances (including, without
limitation, LIBOR Advances, Fixed Rate Advances and CBR Advances) shall not
exceed the Aggregate Commitment. Competitive Bid Loans shall not be prepaid
prior to the end of the applicable Interest Period unless the Competitive Bid
Lender consents. Competitive Bid Loans may not be continued and, if not repaid
at the end of the Interest Period applicable thereto, shall (subject to the
conditions set forth in this Agreement) be replaced by new Competitive Bid Loans
made in accordance with this Section 2.16 or by ratable Advances in accordance
with Section 2.3.
j. Designated Lenders. A Lender may designate its Designated Lender
to fund a Competitive Bid Loan on its behalf as described in Section
2.16(d)(2)(5). Any Designated Lender which funds a Competitive Bid Loan shall on
and after the time of such
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funding become the obligee under such Competitive Bid Loan and be entitled to
receive payment thereof when due. No Lender shall be relieved of its obligation,
to fund a Competitive Bid Loan, and no Designated Lender shall assume such
obligation, prior to the time such Competitive Bid Loan is funded.
2.17. Fixed Rate Loans. In addition to the other interest rate options
provided herein, the Borrower may request a fixed rate ("Fixed Rate") on any
ratable Advance for up to one (1) year. The Fixed Rate shall be as quoted by the
Administrative Agent, subject to the approval of all of the Lenders. If Borrower
and Lenders agree to a Fixed Rate for all or a portion of the advances
outstanding hereunder, all the provisions contained herein for LIBOR Advances
shall be applicable to such Fixed Rate Advances with the Interest Period being
the period of time agreed to by Borrower and Lenders and the LIBOR Rate being
equal to the Fixed Rate agreed to by Borrower and Lenders.
2.18. Method of Payment. All payments of the Obligations hereunder shall be
made without setoff, deduction, or counterclaim, in immediately available funds
to the Administrative Agent at the Administrative Agent's address specified
pursuant to Article IX, or at any other Lending Installation of the
Administrative Agent specified in writing by the Administrative Agent to the
Borrower, by noon (Chicago time) on the date when due and shall be applied
ratably by the Administrative Agent among the Lenders. Each payment delivered to
the Administrative Agent for the account of any Lender shall be delivered the
same business day if received by 1:00 p.m. Chicago time by the Administrative
Agent to such Lender in the same type of funds that the Administrative Agent
received at its address specified pursuant to Article IX or at any Lending
Installation specified in a notice received by the Administrative Agent from
such Lender. If the Administrative Agent fails to forward such payment by the
close of business on such Business Day, or, with respect to any other payment
received by the Administrative Agent after 1:00 p.m. Chicago time, on the same
Business Day as received by the Administrative Agent, the Administrative Agent
shall remit to each Lender its applicable Percentage of such payment on the
immediately following Business Day, together with interest thereon until payment
at the customary rate set by the Administrative Agent for the correction of
errors among banks for three Business Days and thereafter at the Corporate Base
Rate. The Administrative Agent is hereby authorized to charge the account of the
Borrower maintained with First Chicago for each payment of principal, interest
and fees as it becomes due hereunder.
2.19. Application of Moneys Received. All moneys collected or received by
the Administrative Agent on account of the Facility directly or indirectly,
shall be applied in the following order of priority:
(i) to the payment of all reasonable costs incurred in the collection
of such moneys of which the Administrative Agent shall have given
notice to the Borrower;
(ii) to the reimbursement of any amounts due to any of the Lenders in
accordance with Article III;
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(iii) to payment of the full amount of interest and principal on the
Swingline Loans;
(iv) first to interest until paid in full and then to principal for
all Lenders (i) as allocated by the Borrower (unless a Default
exists) between Competitive Bid Loans and ratable Advances (the
amount allocated to ratable Advances to be distributed in
accordance with the Percentage of the Lenders) or (ii) if a
Default exits, in accordance with the respective Funded
Percentage of the Lenders; and
(v) any other sums due to the Administrative Agent or any Lender
under any of the Loan Documents.
2.20. Notes; Telephonic Notices. Each Lender is hereby authorized to record
the principal amount of each of its Loans and each repayment on the schedule
attached to its Note, provided, however, that the failure to so record shall
not affect the Borrower's Obligations under such Note. The Borrower hereby
authorizes the Lenders and the Administrative Agent to extend, convert or
continue Advances, effect selections of Types of Advances and to transfer funds
based on telephonic notices made by any person or persons the Administrative
Agent or any Lender in good faith believes to be an Authorized Officer of the
Borrower. The Borrower agrees to deliver promptly to the Administrative Agent a
written confirmation, if such confirmation is requested by the Administrative
Agent or any Lender, of each telephonic notice signed by an Authorized Officer.
If the written confirmation differs in any material respect from the action
taken by the Administrative Agent and the Lenders, the records of the
Administrative Agent and the Lenders shall govern absent manifest error.
2.21. Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each CBR Advance shall be payable on each Payment Date, commencing with the
first such date to occur after the date hereof, and at maturity. Interest
accrued on each LIBOR Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof, on any date on which
such the LIBOR Advance is prepaid, whether by acceleration or otherwise, and at
maturity. Interest and facility fees shall be calculated for actual days elapsed
on the basis of a 360-day year. Interest shall be payable for the day an Advance
is made but not for the day of any payment on the amount paid if payment is
received prior to noon (local time) at the place of payment. If any payment of
principal of or interest on an Advance shall become due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and, in the case of a principal payment, such extension of time shall be
included in computing interest in connection with such payment.
2.22. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. Promptly after receipt thereof, but in no event later than 3:00 p.m.
Chicago time on the same Business Day it is received with respect to any
Borrowing Notice or Conversion/Continuation Notice, the Administrative Agent
will notify each Lender of the contents of each Aggregate Commitment reduction
notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice
received by it hereunder. The Administrative Agent will notify each Lender of
the interest rate applicable to each LIBOR
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<PAGE>
Advance promptly upon determination of such interest rate and will give each
Lender prompt notice of each change in the Corporate Base Rate and the
Applicable Margin.
2.23. Lending Installations. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Notes shall be deemed held by each Lender for the benefit
of such Lending Installation. Each Lender may, by written or telex notice to the
Administrative Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.24. Non-Receipt of Funds by the Administrative Agent. Unless the Borrower
or a Lender, as the case may be, notifies the Administrative Agent prior to the
date on which it is scheduled to make payment to the Administrative Agent of (i)
in the case of a Lender, the proceeds of a Loan or (ii) in the case of the
Borrower, a payment of principal, interest or fees to the Administrative Agent
for the account of the Lenders, that it does not intend to make such payment,
the Administrative Agent may assume that such payment will be made. The
Administrative Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Administrative Agent, the recipient of such payment shall, on
demand by the Administrative Agent, repay to the Administrative Agent the amount
so made available together with interest thereon in respect of each day during
the period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (ii) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
2.25. Withholding Tax Exemption. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Lender, each Lender that is not incorporated under the laws of the United
States of America, or a state thereof, agrees that it will deliver to each of
the Borrower and the Administrative Agent two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, certifying in either case
that such Lender is entitled to receive payments under this Agreement and the
Notes without deduction or withholding of any United States federal income
taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to
deliver to each of the Borrower and the Administrative Agent two additional
copies of such form (or a successor form) on or before the date that such form
expires (currently, three successive calendar years for Form 1001 and one
calendar year for Form 4224) or becomes obsolete or after the occurrence of any
event requiring a change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Administrative Agent, in each case certifying
that such Lender is entitled to receive payments under this Agreement and the
Notes without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in treaty, law
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms
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inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises the Borrower
and the Administrative Agent that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1. Yield Protection. If any law or any government or quasi-governmental
rule, regulation, policy, guideline or directive of a person with regulatory
powers over any Lender, or any interpretation thereof, or the compliance of any
Lender therewith,
(i) subjects any Lender or any applicable Lending Installation to any
tax, duty, charge or withholding on or from payments due from the
Borrower (excluding federal state or local taxation of the
overall net income of any Lender or applicable Lending
Installation), or changes the basis of taxation of payments to
any Lender in respect of its Loans or other amounts due it
hereunder, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit
extended by, any Lender or any applicable Lending Installation
(other than reserves and assessments taken into account in
determining the interest rate applicable to LIBOR Advances), or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of
making, funding or maintaining Loans or reduces any amount
receivable by any Lender or any applicable Lending Installation
in connection with Loans, or requires any Lender or any
applicable Lending Installation to make any payment calculated by
reference to the amount of Loans held or interest received by it,
by an amount deemed material by such Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or reduction in an amount
received which such Lender reasonably determines is attributable to making,
funding and maintaining its Loans and its Commitment.
3.2. Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change (as hereinafter defined), then, within 15
days of demand by such Lender, the Borrower shall pay such Lender the amount
necessary to compensate for any shortfall in the rate of return on the portion
of such increased capital which such Lender reasonably determines is
attributable to this
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Agreement, its Loans or its obligation to make Loans hereunder (after taking
into account such Lender's policies as to capital adequacy). "Change" means (i)
any change after the date of this Agreement in the Risk-Based Capital Guidelines
or (ii) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or
directive (whether or not having the force of law) after the date of this
Agreement which affects the amount of capital required or expected to be
maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based
capital guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing the
July 1988 report of the Authorized Committee on Banking Regulation and
Supervisory Practices Entitled "International Convergence of Capital
Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
3.3. Availability of LIBOR Advances. If any Lender determines that
maintenance of any of its LIBOR Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation or directive of a person with
regulatory powers over any Lender the Administrative Agent shall suspend the
availability of LIBOR Advances and require any LIBOR Advances to be repaid; or
if the Required Lenders determine that (i) by reasons of circumstances affecting
the relevant market, adequate and reasonable means do not exist for ascertaining
the LIBOR Rate, the Administrative Agent shall suspend the availability of LIBOR
Advances with respect to any LIBOR Advances made after the date of any such
determination, or (ii) an interest rate applicable to a LIBOR Advance does not
accurately reflect the cost of making a LIBOR Advance, then, if for any reason
whatsoever the provisions of Section 3.1 are inapplicable, the Administrative
Agent shall suspend the availability of LIBOR Advances with respect to any LIBOR
Advances made after the date of any such determination.
3.4. Funding Indemnification. If any payment of a LIBOR Advance occurs on a
date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a LIBOR Advance is not made
on the date specified by the Borrower for any reason other than default by the
Lenders, the Borrower will indemnify each Lender for any loss or cost incurred
by it resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits acquired to fund or maintain the LIBOR
Advance.
3.5. Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its LIBOR Loans to reduce any liability of the Borrower to such
Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a LIBOR
Advance under Section 3.3, so long as such designation is not materially
disadvantageous to such Lender. Each Lender shall deliver a written statement of
such Lender as to the amount due, if any, under Sections 3.1, 3.2 or 3.4. Such
written statement shall set forth in reasonable detail the calculations upon
which such Lender determined such amount and shall be final, conclusive and
binding on the Borrower in the absence of manifest error. Determination of
amounts payable under such Sections in connection with a LIBOR Loan shall be
calculated as though each Lender funded its LIBOR Loan through the purchase of a
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deposit of the type and maturity corresponding to the deposit used as a
reference in determining the LIBOR Rate applicable to such Loan, whether in fact
that is the case or not. Unless otherwise provided herein, the amount specified
in the written statement shall be payable on demand after receipt by the
Borrower of the written statement. The obligations of the Borrower under
Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and
termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Initial Advance. The Lenders shall not be required to make the initial
Advance hereunder unless the General Partner (in its capacity as the general
partner of the Borrower and as the Guarantor) and the Borrower have furnished to
the Administrative Agent, with sufficient copies for the Lenders, the following:
(i) The duly executed originals of the Loan Documents, including the
Notes, payable to the order of each of the Lenders, the Guaranty,
and this Agreement;
(ii) Copies of the certificate of limited partnership of the Borrower,
together with all amendments, and a certificate of good standing
or partnership qualification (if issued), both certified by the
appropriate governmental officer of the State of Tennessee, and
foreign qualification certificates, certified by the appropriate
governmental officer, for each jurisdiction where the failure to
so qualify or be licensed (if required) would have a Material
Adverse Effect;
(iii) Copies, certified by an officer of the General Partner of the
Borrower, of its Partnership Agreement, together with all
amendments;
(iv) Copies of the formation and organizational documents of the
Trust, together with all amendments, and a certificate of good
standing, both certified by the appropriate governmental officer
of the State of Maryland, and foreign qualification certificates,
including, but not limited to, a Certificate of Trust filed with
the Secretary of State of Maryland, certified by the appropriate
governmental officer, for each jurisdiction where the failure to
so qualify or be licensed (if required) would have a Material
Adverse Effect;
(v) An incumbency certificate, executed by an officer of the General
Partner, which shall identify by name and title and bear the
signature of the Persons authorized to sign the Loan Documents
and to make borrowings hereunder on behalf of the Borrower, upon
which certificate the Administrative Agent and the Lenders shall
be entitled to rely until informed of any change in writing by
the Borrower;
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(iv) Copies of the articles of incorporation of the General Partner,
together with all amendments, and a certificate of good
standing, both certified by the appropriate governmental officer
of the State of Tennessee, and foreign qualification
certificates, certified by the appropriate governmental officer,
for each jurisdiction where the failure to so qualify or be
licensed (if required) would have a Material Adverse Effect;
(vii) Copies, certified by the Secretary or Assistant Secretary of the
General Partner, of its by-laws, together with all amendments,
and of its Board of Directors' resolutions (and resolutions of
other bodies, if any are deemed necessary by counsel for any
Lender) authorizing the borrowing provided for herein and the
execution, delivery and performance of the Loan Documents by the
General Partner to be executed and delivered by it hereunder on
behalf of itself and the Borrower and of the Guaranty by the
General Partner and Trust in their capacity as the Guarantors;
(viii) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the General Partner and Trust, respectively, which
shall identify by name and title and bear the signature of the
officers of the General Partner and Trust authorized to sign this
Agreement and the Guaranty;
(ix) A written opinion of the Borrower, General Partner and Trust's
in-house general counsel, addressed to the Lenders in
substantially the form of Exhibit "D" hereto;
(x) A certificate, signed by an officer of the General Partner of the
Borrower, stating that on the initial Borrowing Date no Default
or Unmatured Default has occurred and is continuing and that all
representations and warranties of the Borrower and the General
Partner are true and correct as of the initial Borrowing Date;
(xi) The most recent financial statements of the General Partner and
the Borrower and a certificate from an officer of the General
Partner that no material adverse change in the Borrower's or
General Partner's financial condition has occurred since the date
of such statements;
(xii) UCC financing statement, judgment, and tax lien searches with
respect to the Borrower, General Partner and the Trust from
Maryland and Tennessee;
(xiii) Written money transfer instructions, in substantially the form of
Exhibit "G" hereto, addressed to the Administrative Agent and
signed by an Authorized Officer, together with such other related
money transfer authorizations as the Administrative Agent may
have reasonably requested;
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(xiv) Such other documents as any Lender or its counsel may have
reasonably requested, the form and substance of which documents
shall be acceptable to the parties and their respective counsel.
4.2. Each Advance. The Lenders shall not be required to make any Advance
(other than an Advance that, after giving effect thereto and to the application
of the proceeds thereof, does not increase the aggregate amount of outstanding
Advances), unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V and
Article VI are true and correct as of such Borrowing Date except
to the extent any such representation or warranty is stated to
relate solely to an earlier date, in which case such
representation or warranty shall be true and correct on and as of
such earlier date.
(iii) All legal matters incident to the making of such Advance shall be
satisfactory to the Lenders and their counsel.
Each Borrowing Notice with respect to each such Advance shall constitute a
representation and warranty by the General Partner and the Borrower that the
conditions contained in Sections 4.2(i) and (ii) have been satisfied. Any Lender
may require a duly completed compliance certificate in substantially the form of
Exhibit E hereto as a condition to making an Advance.
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
The Borrower represents and warrants to the Lenders that:
5.1. Existence. Borrower is a limited partnership duly organized and
validly existing under the laws of the State of Tennessee, with its principal
place of business in Memphis, Tennessee, and is duly qualified as a foreign
partnership, properly licensed (if required), and has all requisite authority to
conduct its business in each of the jurisdictions listed on Schedule 1, which
are the only jurisdictions in which the failure to so qualify would have a
Material Adverse Effect upon the Borrower. The Borrower's Subsidiaries are
corporations or limited partnerships duly organized and validly existing under
the laws of the state of their jurisdiction, and are duly qualified as a foreign
corporations/partnerships, properly licensed (if required), in good standing and
have all requisite authority to conduct their businesses in each jurisdiction in
which the failure to so qualify would have a Material Adverse Effect.
5.2. Authorization and Validity. The Borrower has the power and authority
and legal right to execute and deliver the Loan Documents and to perform its
obligations thereunder. The execution and delivery by the Borrower of the Loan
Documents to which it is a party and the
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performance of its obligations thereunder have been duly authorized by proper
proceedings, and such Loan Documents constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors' rights generally.
5.3. No Conflict; Government Consent. Neither the execution and delivery by
the Borrower of the Loan Documents, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will violate
any law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on the Borrower or any of its Subsidiaries or the Borrower's or any
Subsidiary's articles of incorporation/certificates of limited partnership or
by-laws/partnership agreements or the provisions of any indenture, instrument or
agreement to which the Borrower or any of its Subsidiaries is a party or is
subject, or by which the Borrower or any of its Subsidiaries or their respective
Property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the Property of
the Borrower or a Subsidiary pursuant to the terms of any such indenture,
instrument or agreement. No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with the execution, delivery
and performance of, or the legality, validity, binding effect or enforceability
of, any of the Loan Documents.
5.4. Material Adverse Change. Since December 31, 1998, there has been no
change in the business, Property, business prospects, condition (financial or
otherwise) or results of operations of the Borrower or its Subsidiaries which is
reasonably likely to have a Material Adverse Effect.
5.5. Taxes. The Borrower and its Subsidiaries have filed or caused to be
filed all United States federal tax returns and all other tax returns which are
required to be filed and have paid all taxes due pursuant to said returns or
pursuant to any assessment received by the Borrower or any of its Subsidiaries,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. No tax liens have been filed and no claims
are being asserted with respect to any such taxes. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of any
taxes or other governmental charges are adequate.
5.6. Litigation and Guarantee Obligations. Except as set forth in Schedule
4, there is no litigation, arbitration, governmental investigation, proceeding
or inquiry pending or, to the knowledge of any of their officers, threatened
against or affecting the Borrower or any of its Subsidiaries which if adversely
determined is reasonably likely to have a Material Adverse Effect. The Borrower
has no material contingent obligations not provided for or disclosed in the
financial statements referred to in Section 6.4.
5.7. Subsidiaries. Schedule 2 hereto contains an accurate list of all of
the presently existing Subsidiaries of the Borrower, setting forth, if such
Subsidiaries are corporations, their respective jurisdictions of incorporation
and the percentage of their respective Capital Stock
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owned by the Borrower or other Subsidiaries and, if such Subsidiaries are not
corporations, similar appropriate information for such Subsidiaries. All of the
issued and outstanding shares of Capital Stock of such corporate Subsidiaries
have been duly authorized and issued and are fully paid and non-assessable.
5.8. ERISA. The Unfunded Liabilities of all Single Employer Plans do not in
the aggregate exceed $100,000. Neither the Borrower nor any other member of the
Controlled Group has incurred, or is reasonably expected to incur, any
withdrawal liability to Multiemployer Plans in excess of $100,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of law and regulations, no Reportable Event has occurred with
respect to any Plan, neither the Borrower nor any other members of the
Controlled Group has withdrawn from any Plan or initiated steps to do so, and no
steps have been taken to reorganize or terminate any Plan.
5.9. Accuracy of Information. No information, exhibit or report furnished
by the Borrower or any of its Subsidiaries to the Administrative Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading.
5.10. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of those assets of the Borrower and its Subsidiaries which are
subject to any limitation on sale, pledge, or other restriction hereunder.
5.11. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could have a Material Adverse Effect. Neither the
Borrower nor any Subsidiary is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in (i)
any agreement to which it is a party, which default is reasonably likely to have
a Material Adverse Effect or (ii) any agreement or instrument evidencing or
governing Indebtedness.
5.12. Compliance With Laws. The Borrower and its Subsidiaries have complied
with all applicable statutes, rules, regulations, orders and restrictions of any
domestic or foreign government or any instrumentality or agency thereof, having
jurisdiction over the conduct of their respective businesses or the ownership of
their respective Property. Neither the Borrower nor any Subsidiary has received
any notice to the effect that its operations are not in material compliance with
any of the requirements of applicable federal, state and local environmental,
health and safety statutes and regulations or the subject of any federal or
state investigation evaluating whether any remedial action is needed to respond
to a release of any toxic or hazardous waste or substance into the environment,
which non-compliance or remedial action could have a Material Adverse Effect.
5.13. Ownership of Properties. Except as set forth on Schedule 3 hereto, on
the date of this Agreement, the Borrower and its Subsidiaries will have good
title, free of all Liens other
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than those permitted by Section 8.17, to all of the Property and assets
reflected in the financial statements as owned by it.
5.14. Investment Company Act. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
5.15. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.16. Solvency. (i) Immediately after the Closing Date and immediately
following the making of each Loan and after giving effect to the application of
the proceeds of such Loans, (a) the fair value of the assets of the Borrower and
its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the
debts and liabilities, subordinated, contingent or otherwise, of the Borrower
and its Subsidiaries on a consolidated basis; (b) the present fair saleable
value of the property of the Borrower and its Subsidiaries on a consolidated
basis will be greater than the amount that will be required to pay the probable
liability of the Borrower and its Subsidiaries on a consolidated basis on their
debts and other liabilities, subordinated, contingent or otherwise, as such
debts and other liabilities become absolute and matured; (c) the Borrower and
its Subsidiaries on a consolidated basis will be able to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) the Borrower and its
Subsidiaries on a consolidated basis will not have reasonably small capital with
which to conduct the businesses in which they are engaged as such businesses are
now conducted and are proposed to be conducted after the date hereof.
(ii) The Borrower does not intend to, does not intend to permit any of its
Subsidiaries to, and does not believe that it or any of its Subsidiaries will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by it or any such
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness or the Indebtedness of any such Subsidiary.
5.17. Insurance. The Borrower and each of its Subsidiaries carries
insurance on its Property, including its Storage Properties, with insurance
companies having Best ratings of A-VII or better in such amounts, with such
deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar Property in localities where
the Borrower operates, including, without limitation:
(i) Property and casualty insurance (including coverage for flood and
other water damage for any Storage Properties located within a
100-year flood plain) in the amount of the replacement cost of
the improvements at the Storage Properties;
(ii) Loss of rental income insurance in the amount not less than one
year's gross revenues from the Properties; and
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(iii) Comprehensive general liability insurance in the amount of
$5,000,000 per occurrence.
5.18. Year 2000. The Borrower has made a full and complete assessment of
the Year 2000 Issues and has a realistic and achievable program for remediating
the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such
assessment and on the Year 2000 Program the Borrower does not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
ARTICLE VI
GENERAL PARTNER'S REPRESENTATIONS AND WARRANTIES
------------------------------------------------
The General Partner represents and warrants to the Lenders that:
6.1. Corporate Existence and Standing. The General Partner is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite authority to conduct its
business in each jurisdiction in which the failure to qualify would have a
Material Adverse Effect.
6.2. Authorization and Validity. The General Partner has the corporate
power and authority and legal right to execute and deliver the Loan Documents
to which it is a party (including the Guaranty in its capacity as Guarantor) and
to perform its obligations thereunder. The execution and delivery by the General
Partner of the Loan Documents to which it is a party and the performance of its
obligations thereunder have been duly authorized by proper corporate
proceedings, and such Loan Documents constitute legal, valid and binding
obligations of the General Partner enforceable against the General Partner in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally.
6.3. No Conflict; Government Consent. Neither the execution and delivery by
the General Partner of the Loan Documents, to which it is a party nor the
consummation of the transactions therein contemplated, nor compliance with the
provisions thereof will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the General Partner or any of
its Subsidiaries or the General Partner's or any Subsidiary articles of
incorporation/certificates of limited partnership or by-laws/partnership
agreements or the provisions of any indenture, instrument or agreement to which
the General Partner or any of its Subsidiaries is a party or is subject, or by
which the General Partner's or any of its Subsidiaries' Property, is bound, or
conflict with or constitute a default thereunder, or result in the creation or
imposition of any Lien in, of or on the Property of the General Partner or a
Subsidiary pursuant to the terms of any such indenture, instrument or agreement.
No order, consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to authorize,
or is required in connection with the execution, delivery and performance of,
or the legality, validity, binding effect or enforceability of, any of the Loan
Documents to which the General Partner is a party.
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6.4. Financial Statements. The December 31, 1998 consolidated financial
statements and related reports of the General Partner and its Subsidiaries
heretofore delivered to the Lenders were prepared in accordance with generally
accepted accounting principles in effect on the date such statements were
prepared and fairly present the consolidated financial condition and operations
of the General Partner and its Subsidiaries at such date and the consolidated
results of their operations for the period then ended.
6.5. Material Adverse Change. Since December 31, 1998, there has been no
change in the business, Property, business prospects, condition (financial or
otherwise) or results of operations of the General Partner and its
Subsidiaries which is reasonably likely to have a Material Adverse Effect.
6.6. Taxes. The General Partner and its Subsidiaries have filed or caused
to be filed all United States federal tax returns and all other tax returns
which are required to be filed and have paid all taxes due pursuant to said
returns or pursuant to any assessment received by the General Partner or any of
its Subsidiaries, except such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided. No tax liens have
been filed and no claims are being asserted with respect to any such taxes. The
charges, accruals and reserves on the books of the General Partner and its
Subsidiaries in respect of any taxes or other governmental charges are adequate.
6.7. Litigation and Guarantee Obligations. Except as set forth in Schedule
4, there is no litigation, arbitration, governmental investigation, proceeding
or inquiry pending or, to the knowledge of any of their officers, threatened
against or affecting the General Partner or any of its Subsidiaries which if
adversely determined is reasonably likely to have a Material Adverse Effect. The
General Partner has no material contingent obligations not provided for or
disclosed in the financial statements referred to in Section 6.4.
6.8. Subsidiaries. Schedule 2 hereto contains an accurate list of all of
the presently existing Subsidiaries of the General Partner, setting forth, if
such Subsidiaries are corporations, their respective jurisdictions of
incorporation and the percentage of their respective Capital Stock owned by the
General Partner or other Subsidiaries and, if such Subsidiaries are not
corporations, similar appropriate information for such Subsidiaries. All of the
issued and outstanding shares of Capital Stock of such corporate Subsidiaries
have been duly authorized and issued and are fully paid and non-assessable.
6.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do not in
the aggregate exceed $100,000. Neither the General Partner nor any other member
of the Controlled Group has incurred, or is reasonably expected to incur, any
withdrawal liability to Multiemployer Plans in excess of $100,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of law and regulations, no Reportable Event has occurred with
respect to any Plan, neither the General Partner nor any other members of the
Controlled Group has withdrawn from any Plan or initiated steps to do so, and
no steps have been taken to reorganize or terminate any Plan.
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6.10. Accuracy of Information. No information, exhibit or report furnished
by the General Partner or any of its Subsidiaries to the Administrative Agent or
to any Lender in connection with the negotiation of, or compliance with, the
Loan Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading.
6.11. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of those assets of the General Partner and its Subsidiaries which
are subject to any limitation on sale, pledge, or other restriction hereunder.
6.12. Material Agreements. Neither the General Partner nor any Subsidiary
is a party to any agreement or instrument or subject to any charter or other
corporate restriction which could have a Material Adverse Effect. Neither the
General Partner nor any Subsidiary is in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in
(i) any agreement to which it is a party, which default is reasonably likely to
have a Material Adverse Effect or (ii) any agreement or instrument evidencing or
governing Indebtedness.
6.13. Compliance With Laws. The General Partner and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property. Neither the General
Partner nor any Subsidiary has received any notice to the effect that its
operations are not in material compliance with any of the requirements of
applicable federal, state and local environmental, health and safety statutes
and regulations or the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could have a Material Adverse Effect.
6.14. Ownership of Properties. Except as set forth on Schedule 3 hereto, on
the date of this Agreement, the General Partner and its Subsidiaries will have
good title, free of all Liens other than those permitted by Section 8.17, to all
of the Property and assets reflected in the financial statements as owned by it.
6.15. Investment Company Act. Neither the General Partner nor any
Subsidiary thereof is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
6.16. Public Utility Holding Company Act. Neither the General Partner nor
any Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
6.17. Insurance. The General Partner and each of its Subsidiaries, carries
insurance on its Property, including its Storage Properties, with insurance
companies having Best ratings of A-VII or better in such amounts, with such
deductibles and covering such risks as are customarily
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carried by companies engaged in similar businesses and owning similar Property
in localities where the General Partner operates, including, without
limitation:
(i) Property and casualty insurance (including coverage for flood and
other water damage for any Storage Properties located within a
100-year flood plain) in the amount of the replacement cost of
the improvements at the Storage Properties;
(ii) Loss of rental income insurance in the amount not less than one
year's gross revenues from the Properties; and
(iii) Comprehensive general liability insurance in the amount of
$5,000,000 per occurrence.
6.18. Solvency. (i) Immediately after the Closing Date and immediately
following the making of each Loan and after giving effect to the application of
the proceeds of such Loans, (a) the fair value of the assets of the General
Partner and its Subsidiaries on a consolidated basis, at a fair valuation, will
exceed the debts and liabilities, subordinated, contingent or otherwise, of the
General Partner and its Subsidiaries on a consolidated basis; (b) the present
fair saleable value of the property of the General Partner and its Subsidiaries
on a consolidated basis will be greater than the amount that will be required to
pay the probable liability of the General Partner and its Subsidiaries on a
consolidated basis on their debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured; (c) the General Partner and its Subsidiaries on a consolidated basis
will be able to pay their debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; and (d)
the General Partner and its Subsidiaries on a consolidated basis will not have
unreasonably small capital with which to conduct the businesses in which they
are engaged as such businesses are now conducted and are proposed to be
conducted after the date hereof.
(ii) The General Partner does not intend to, does not intend to permit any
of its Subsidiaries to, and does not believe that it or any of its Subsidiaries
will, incur debts beyond its ability to pay such debts as they mature, taking
into account the timing of and amounts of cash to be received by it or any such
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness or the Indebtedness of any such Subsidiary.
6.19. REIT Status. The General Partner's common stock is listed on the New
York Stock Exchange and the General Partner is qualified and will at all times
maintain its qualification as a real estate investment trust and comply with all
applicable provisions of the Code.
ARTICLE VII
TRUST'S REPRESENTATIONS AND WARRANTIES
--------------------------------------
The Trust represents and warrants to the Lender that:
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7.1. Corporate Existence and Standing. The Trust is a Maryland business
trust, duly organized, validly existing and in good standing under the laws of
the State of Maryland and has all requisite authority to conduct its business in
each jurisdiction in which the failure to qualify would have a Material Adverse
Effect.
7.2. Authorization and Validity. The Trust has the organizational power and
authority and legal right to execute and deliver the Loan Documents to which it
is a party, including without limitation the Guaranty, and to perform its
obligations thereunder. The execution and delivery by the Trust of the Loan
Documents to which it is a party and the performance of its obligations
thereunder have been duly authorized by the trustees thereof, and such Loan
Documents constitute legal, valid and binding obligations of the Trust
enforceable against the Trust in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
7.3 No Conflict; Government Consent. Neither the execution and delivery by
the Trust of the Loan Documents to which it is a party nor the consummation of
the transactions therein contemplated, nor compliance with the provisions
thereof will violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Trust or the Trust's organizational
documents or the provisions of any indenture, instrument or agreement to which
the Trust is a party or is subject, or by which the Trust's Property is bound,
or conflict with or constitute a default thereunder, or result in the creation
or imposition of any Lien in, of or on the Property of the Trust pursuant to the
terms of any such indenture, instrument or agreement. No order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, any of the Loan Documents to
which the Trust is a party.
ARTICLE VIII
COVENANTS
---------
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
8.1. Financial Reporting. The General Partner and the Borrower will
maintain, for themselves and each Subsidiary, a system of accounting established
and administered in accordance with GAAP, and furnish to the Administrative
Agent:
(i) Within 45 days after the close of each fiscal quarter, for the
General Partner consolidated with its Subsidiaries, an unaudited
balance sheet as of the close of each such period a statement of
operations and reconciliation of stockholders equity and a
statement of cash flows for the period from the beginning of the
fiscal year to the end of such quarter, all certified by the
General Partner's chief financial officer or chief accounting
officer;
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(ii) Together with the financial statements required hereunder, a
compliance certificate in substantially the form of Exhibit E
hereto signed by the General Partner's chief financial officer or
chief accounting officer showing the calculations necessary to
determine compliance with this Agreement and stating that no
Default or Unmatured Default exists, or if any Default or
Unmatured Default exists, stating the nature and status thereof;
(iii) Within 45 days after the close of each fiscal quarter, for
themselves and their Subsidiaries, related reports in form and
substance satisfactory to the Lenders, all certified by the
entity's chief financial officer or chief accounting officer,
including a statement of Funds From Operations, listing of
capital expenditures, report of newly acquired Properties,
including their net operating income, cost and mortgage debt, if
any, and summary Property information and other information as
may be reasonably requested;
(iv) As soon as possible and in any event within 10 days after the
Borrower knows that any Reportable Event has occurred with
respect to any Plan, a statement, signed by the chief financial
officer of the Borrower, describing said Reportable Event and the
action which the Borrower proposes to take with respect thereto;
(v) As soon as possible and in any event within 10 days after receipt
by the Borrower, a copy of (a) any notice or claim to the effect
that the Borrower or any of its Subsidiaries is or may be liable
to any Person as a result of the release by the Borrower, any of
its Subsidiaries, or any other Person of any toxic or hazardous
waste or substance into the environment, and (b) any notice
alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Borrower
or any of its Subsidiaries, which, in either case, is reasonably
likely to have a Material Adverse Effect;
(vi) Promptly upon the furnishing thereof to the shareholders of the
General Partner or the holder of the partnership interests in the
Borrower, copies of all financial statements, reports and proxy
statements or other information so furnished;
(vii) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other reports and
any other public information which the General Partner, the
Borrower or any of their Subsidiaries files with the Securities
and Exchange Commission;
(viii) Within 45 days after the close of each fiscal quarter,
information regarding the available sources (including debt,
equity, purchase commitments and any other source) to fund costs
to complete development and franchise
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commitments and sufficient detail shall be provided regarding the
time periods of expected availability of each funding source and
the time period when such funds will be required as required by
the form of Compliance Certificate attached as Exhibit E; and
(ix) Such other information (including, without limitation, financial
statements for the Borrower and non-financial information) as the
Administrative Agent may from time to time reasonably request.
8.2. Use of Proceeds. The General Partner and the Borrower will, and will
cause each of their Subsidiaries to, use the proceeds of the Advances for the
general business purposes in accordance with Section 8.4 of the Borrower,
including working capital needs and interim financing for property acquisitions,
and to repay outstanding Advances. The Borrower will not, nor will it permit any
Subsidiary to, use any of the proceeds of the Advances to purchase or carry any
"margin stock" (as defined in Regulation U) or to make any Acquisition other
than a Permitted Acquisition.
8.3. Notice of Default. The General Partner and the Borrower will, and will
cause each of their Subsidiaries to, give prompt notice in writing to the
Lenders of the occurrence of any Default or Unmatured Default and of any other
development, financial or otherwise, which is reasonably likely to have a
Material Adverse Effect.
8.4. Conduct of Business. The General Partner and the Borrower will, and
will cause each of their Subsidiaries to, do all things necessary to remain duly
incorporated or duly qualified as a limited partnership (as applicable), validly
existing and in good standing as a domestic corporation or limited partnership
in its jurisdiction of incorporation/formation and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted and to carry on and conduct their businesses in substantially the same
manner as they are presently conducted and, specifically, neither the Borrower,
the General Partner nor their respective Subsidiaries may undertake any business
other than the acquisition, development, franchising, ownership, management,
operation, and disposition of storage properties, and ancillary businesses
reasonably related to storage properties. The Borrower, General Partner and such
Subsidiaries may manage storage properties for third party accounts, provided
that if such third party management exceeds 15% of the annual Consolidated Cash
Flow, such excess amount shall be excluded for purposes of determining
compliance with the financial covenants set forth in this Agreement.
8.5. Taxes. The General Partner and the Borrower will, and will cause each
of their Subsidiaries to, pay when due all taxes, assessments and governmental
charges and levies upon them of their income, profits or Property, except those
which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been set aside.
8.6. Insurance. The General Partner and the Borrower will, and will cause
each of their Subsidiaries to, maintain with insurance companies having Best
ratings of A-VII or better insurance on all their Property in such amounts and
covering such risks as is consistent with
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sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
8.7. Compliance with Laws. The General Partner and the Borrower will, and
will cause each of their Subsidiaries to, comply with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
they may be subject unless the compliance with such laws, rules, regulations,
orders, writs, judgements, injunctions, decrees or awards is being diligently
contested in good faith and by appropriate proceedings, provided that such
action is not reasonably likely to result in a Material Adverse Effect.
8.8. Maintenance of Properties. The General Partner and the Borrower will,
and will cause each of their Subsidiaries to, do all things necessary to
maintain, preserve, protect and keep its Property in good repair, working order
and condition, and make all necessary and proper repairs, renewals and
replacements so that their businesses carried on in connection therewith may be
properly conducted at all times.
8.9. Inspection. The General Partner and the Borrower will, and will cause
each of their Subsidiaries to, permit the Administrative Agent, to inspect any
of the Property, corporate books and financial records of the General Partner,
the Borrower and each of their Subsidiaries, to examine and make copies of the
books of accounts and other financial records of the General Partner, the
Borrower and each of their Subsidiaries, and to discuss the affairs, finances
and accounts of the General Partner, the Borrower and each of their
Subsidiaries, and to be advised as to the same by the Administrative Agent at
such reasonable times and intervals as the Lenders may designate.
8.10. Maintenance of Status. The General Partner shall at all times (i)
maintain the listing of its common stock on the New York Stock Exchange, and
(ii) maintain its status as a real estate investment trust in compliance with
all applicable provisions of the Code.
8.11. Dividends. The General Partner will not, nor will it permit any
Subsidiary to, declare or pay any dividends on its Capital Stock if, in any
period of four fiscal quarters, such dividends, in the aggregate, would exceed
90% of the General Partner's Funds From Operations for such period, provided,
however, that unless a Default has occurred under Section 9.2, the General
Partner shall be permitted at all times to distribute whatever amount is
necessary to maintain its tax status as a real estate investment trust.
8.12. Merger. The General Partner and the Borrower will not, nor will they
permit any of their Subsidiaries to, enter into any merger, consolidation,
reorganization or liquidation or transfer or otherwise dispose of all or a
Substantial Portion of their Properties, except for such transactions that occur
between Wholly-Owned Subsidiaries or as otherwise approved in advance by the
Lenders, provided, however, that mergers shall be permitted as a means for the
Borrower or the General Partner or a Subsidiary to acquire additional Storage
Properties or ancillary businesses reasonably related to Storage Properties so
long as such merger is not accomplished through a hostile takeover and the
Borrower is the surviving entity.
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8.13. General Partner's Ownership and Control of Borrower. At all times
during the entire term of this Agreement (i) the REIT shall be the sole
beneficial owner of the Trust, (ii) the Trust shall not incur any indebtedness,
(iii) the Trust shall not suffer or permit to exist any Liens against its
Property, and (iv) the Trust shall not own any Property other than its interest
in the Borrower and (v) there will be no reduction in the General Partner's
ownership and control of Borrower (except as may result from the issuance of
additional partnership units by the Borrower). The General Partner will not
allow or suffer to exist any pledge, other encumbrance or the conversion to
limited partnership interests of any of the general partnership interests in the
Borrower without the prior written consent of the Lenders.
8.14. Sale of Accounts. The General Partner and the Borrower will not, nor
will they permit any of their Subsidiaries to, sell or otherwise dispose of any
notes receivable or accounts receivable, with or without recourse except for
sales in the ordinary course of business (including sales of receivables from a
Property in connection with the disposition of such Property) and sales of notes
receivable in connection with franchise loans made to franchisees.
8.15. Sale and Leaseback. The General Partner and the Borrower will not,
nor will they permit any of their Subsidiaries to, sell or transfer any of its
Property in order to concurrently or subsequently lease as lessee such or
similar Property.
8.16. Acquisitions and Investments. The General Partner and the Borrower
will not, nor will they permit any of their Subsidiaries to:
(i) make any Acquisition, except for (a) mergers permitted pursuant
to Section 8.12 and (b) other Acquisitions of additional Storage
Properties or ancillary businesses reasonably related to Storage
Properties not otherwise prohibited by this Section 8.16;
(ii) make any Acquisition of any single additional Storage Property if
the cost of such property would be more than $20,000,000;
(iii) make any investments in, or loans or advances to, any
unconsolidated Person to the extent such investments, loans and
advances in the aggregate would exceed on a consolidated basis
twelve percent (12%) of Total Asset Value;
(iv) make any investments (either by ownership or loan) in a property
that is not a storage property that would exceed five percent
(5%) of Total Asset Value or make any investments in vacant land
not under development that would exceed five percent (5%) of
Total Asset Value; or
(v) make investments in Assets Under Development greater than 15% of
Total Asset Value.
Acquisitions permitted pursuant to this Section 8.16 shall be deemed to be
"Permitted Acquisitions".
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8.17. Liens. The General Partner and the Borrower will not, nor will they
permit any of their Subsidiaries to, create, incur, or suffer to exist any Lien
in, of or on the Property of the Borrower or any of its Subsidiaries in an
aggregate consolidated amount greater than $50,000, except for:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings and for which adequate
reserves shall have been set aside on its books;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or which are being contested in good faith
by appropriate proceedings and for which adequate reserves shall
have been set aside on its books;
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or
other social security or retirement benefits, or similar
legislation;
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar
character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in
the business of the General Partner, the Borrower or their
Subsidiaries;
(v) Liens existing on the date hereof and described in Schedule 3
hereto; and
(vi) Liens arising in connection with any Indebtedness which does not
cause a violation of Section 8.21 hereof.
Liens permitted pursuant to this Section 8.17 shall be deemed to be "Permitted
Liens".
8.18. Affiliates. The General Partner and the Borrower will not, nor will
they permit any of their Subsidiaries to, enter into any transaction
(including, without limitation, the purchase or sale of any Property or service)
with, or make any payment or transfer to, any Affiliate except pursuant to the
reasonable requirements of the General Partner's, the Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the General Partner, the Borrower or such Subsidiary than the General Partner,
the Borrower or such Subsidiary would obtain in a comparable arms-length
transaction.
8.19. Current DSC Ratio. The Borrower and General Partner on a consolidated
basis with their respective Subsidiaries shall maintain a Current DSC Ratio of
not less than 2.5. Such
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test must be satisfied as of the end of each fiscal quarter, based on results
for the preceding four fiscal quarters.
8.20. Consolidated Tangible Net Worth. The Borrower and General Partner on
a consolidated basis with their respective Subsidiaries shall maintain a
Consolidated Tangible Net Worth of not less than the sum of (i) $850,000,000
plus (ii) fifty percent (50%) of the aggregate proceeds received by the General
Partner (net of customary related fees and expenses) in connection with any
offering of stock in the General Partner after the Closing Date.
8.21. Indebtedness and Cash Flow Covenants. The Borrower and General
Partner on a consolidated basis with their respective Subsidiaries shall not
permit:
(i) Consolidated Total Indebtedness to exceed fifty percent (50%) of
Total Asset Value at any time;
(ii) Consolidated Secured Indebtedness to exceed fifteen percent (15%)
of Total Asset Value at any time;
(iii) the Value of Unencumbered Assets to be less than 1.85 times the
Consolidated Senior Unsecured Indebtedness at any time;
(iv) Annualized Consolidated Cash Flow to be less than fifteen and
one-quarter percent (15.25%) of Consolidated Total Indebtedness
as of the last day of any fiscal quarter for each quarterly
period ending on or before June 30, 2000 and fifteen and
three-quarters percent (15.75%) as of the last day of each fiscal
quarter thereafter;
(v) Annualized Consolidated Cash Flow to be less than 1.90 times
Consolidated Fixed Charges as of the last day of any fiscal
quarter; or
(vi) Annualized Unencumbered Consolidated Cash Flow to be less than
2.5 times Annualized Consolidated Unsecured Debt Service as of
the last day of any fiscal quarter.
ARTICLE IX
DEFAULTS
--------
The occurrence of any one or more of the following events shall constitute
a Default:
9.1. Any representation or warranty made or deemed made by or on behalf of
the General Partner, the Borrower or any of their Subsidiaries to the Lenders or
the Administrative Agent under or in connection with this Agreement, any Loan,
or any certificate or information delivered in connection with this Agreement or
any other Loan Document shall be materially false on the date as of which made.
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9.2. Nonpayment of principal of any Note when due, or nonpayment of
interest upon any Note or of any commitment fee or other obligations under any
of the Loan Documents within five days after the same becomes due.
9.3. The breach of any of the terms or provisions of Sections 8.2 and 8.11
through 8.21.
9.4. The breach by the General Partner or the Borrower (other than a breach
which constitutes a Default under Section 9.1, 9.2, or 9.3) of any of the terms
or provisions of this Agreement which is not remedied within ten Business Days
after written notice from the Administrative Agent or any Lender provided,
however, that if such Default is not curable within such time period, it shall
not constitute a Default if the Borrower has commenced appropriate actions to
effect a cure within ten days and diligently proceeds thereafter to effect a
cure and cures such Default in no event later than 45 days after such written
notice.
9.5. Failure of the General Partner, the Borrower or any of their
Subsidiaries to pay when due any Indebtedness which is outstanding in an
aggregate amount of at least $10,000,000; or the default by the General Partner,
the Borrower or any of their Subsidiaries in the performance of any term,
provision or condition contained in any agreement under which such Indebtedness
was created or is governed, or any other event shall occur or condition exist,
the effect of which is to cause, or to permit the holder or holders of such
Indebtedness to cause, such Indebtedness to become due prior to its stated
maturity; or any such Indebtedness of the General Partner, the Borrower or any
of their Subsidiaries shall be declared to be due and payable or required to be
prepaid (other than by a regularly scheduled payment) prior to the stated
maturity thereof; or the General Partner, the Borrower or any of their
Subsidiaries shall not pay, or admit in writing its inability to pay, its debts
generally as they become due.
9.6. The General Partner, the Borrower or any of their Subsidiaries that
have more than $20,000,000 (in the aggregate) of Total Tangible Assets shall (i)
have an order for relief entered with respect to it under the Federal bankruptcy
laws as now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment
of a receiver, custodian, trustee, examiner, liquidator or similar official for
it or any Substantial Portion of its Property, (iv) institute any proceeding
seeking an order for relief under the Federal bankruptcy laws as now or
hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file an
answer or other pleading denying the material allegations of any such proceeding
filed against it, (v) take any corporate action to authorize or effect any of
the foregoing actions set forth in this Section 9.6 or (vi) fail to contest in
good faith any appointment or proceeding described in Section 9.7.
9.7. A receiver, trustee, examiner, liquidator or similar official shall be
appointed for the General Partner, the Borrower or any Subsidiaries that have
more than $20,000,000 (in the aggregate) of Total Tangible Assets or any
Substantial Portion of their Property, or a proceeding described in Section
9.6(iv) shall be instituted against the General Partner, the Borrower or any
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such Subsidiary and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 60 consecutive days.
9.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the General Partner, the Borrower and
their Subsidiaries which, when taken together with all other Property of the
General Partner, the Borrower and their Subsidiaries so condemned, seized,
appropriated, or taken custody or control of, during the twelve-month period
ending with the month in which any such Condemnation occurs, constitutes a
Substantial Portion of their Property.
9.9. The General Partner, the Borrower or any of their Subsidiaries shall
fail within 30 days to pay, bond or otherwise discharge any judgment or order
for the payment of money in excess of $5,000,000, which is not stayed on appeal
or otherwise being appropriately contested in good faith.
9.10. The Unfunded Liabilities of all Single Employer Plans shall exceed in
the aggregate $200,000 or any Reportable Event shall occur in connection with
any Plan.
9.11. The General Partner, the Borrower or any other member of the
Controlled Group shall have been notified by the sponsor of a Multiemployer Plan
that it has incurred withdrawal liability to such Multiemployer Plan in an
amount which, when aggregated with all other amounts required to be paid to
Multiemployer Plans by the General Partner, the Borrower or any other member of
the Controlled Group as withdrawal liability (determined as of the date of such
notification), exceeds $500,000 or requires payments exceeding $1,000,000 per
annum.
9.12. The General Partner, the Borrower or any other member of the
Controlled Group shall have been notified by the sponsor of a Multiemployer Plan
that such Multiemployer Plan is in reorganization or is being terminated, within
the meaning of Title IV or ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the General Partner, the
Borrower and the other members of the Controlled Group (taken as a whole) to all
Multiemployer Plans which are then in reorganization or being terminated have
been or will be increased over the amounts contributed to such Multiemployer
Plans for the respective plan years of each such Multiemployer Plan immediately
preceding the plan year in which the reorganization or termination occurs by an
amount exceeding $200,000.
9.13. Failure to remediate within the time period permitted by law or
governmental order (or within a reasonable time give the nature of the problem
if no specific time period has been given) material environmental problems
related to the Storage Properties whose aggregate book values are in excess of
$20,000,000 or where the estimated cost of remediation is in the aggregate in
excess of $100,000, in each case after all administrative and judicial hearings
and appeals have been concluded.
9.14. The Guaranty shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of the Guaranty, or the Guarantor shall fail to comply with any
of the terms or provisions of the Guaranty, or the
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Guarantor denies that it has any further liability under the Guaranty, or gives
notice to such effect.
9.15. The occurrence of any default under any Loan Document or the breach
of any of the terms or provisions of any Loan Document, which default or breach
continues beyond any period of grace therein provided.
ARTICLE X
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
---------------------------------------------
10.1. Acceleration. If any Default described in Section 9.6 or 9.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans
hereunder shall automatically terminate and the Obligations shall immediately
become due and payable without any election or action on the part of the
Administrative Agent or any Lender. If any other Default occurs, the Required
Lenders may terminate or suspend the obligations of the Lenders to make Loans
hereunder, or declare the Obligations to be due and payable, or both, whereupon
the Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives.
If, within 10 days after acceleration of the maturity of the Obligations or
termination of the obligations of the Lenders to make Loans hereunder as a
result of any Default (other than any Default as described in Section 9.6 or 9.7
with respect to the Borrower) and before any judgment or decree for the payment
of the Obligations due shall have been obtained or entered, the Required Lenders
(in their sole discretion) shall so direct, the Administrative Agent shall, by
notice to the Borrower, rescind and annul such acceleration and/or termination.
10.2. Amendments. Subject to the provisions of this Article IX, the
Required Lenders (or the Administrative Agent with the consent in writing of the
Required Lenders) and the General Partner, the Trust, and the Borrower may enter
into agreements supplemental hereto for the purpose of adding or modifying any
provisions to the Loan Documents or changing in any manner the rights of the
Lenders or the General Partner, the Trust, and the Borrower hereunder or
waiving any Default hereunder; provided, however, that no such supplemental
agreement shall, without the consent of each Lender affected thereby:
(i) Extend the maturity of any Loan or Note or forgive all or any
portion of the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon, or any
amounts payable under Article III hereof.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Extend the Facility Termination Date or reduce the amount or
extend the payment date for, the mandatory payments required
under Section 2.2 (other than as provided for under Section 2.2),
or increase the amount of
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the Commitment of any Lender hereunder, or permit the Borrower
to assign its rights under this Agreement.
(iv) Amend Section 2.19.
(v) Amend this Section 10.2.
(vi) Release the Guarantor.
No amendment of any provision of this Agreement relating to the Administrative
Agent shall be effective without the written consent of the Administrative
Agent.
10.3. Preservation of Rights. No delay or omission of the Lenders or the
Administrative Agent to exercise any right under the Loan Documents shall impair
such right or be construed to be a waiver of any Default or an acquiescence
therein, and the making of a Loan notwithstanding the existence of a Default or
the inability of the Borrower to satisfy the conditions precedent to such Loan
shall not constitute any waiver or acquiescence. Any single or partial exercise
of any such right shall not preclude other or further exercise thereof or the
exercise of any other right, and no waiver, amendment or other variation of the
terms, conditions or provisions of the Loan Documents whatsoever shall be valid
unless in writing signed by the Lenders required pursuant to Section 10.2, and
then only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative and all
shall be available to the Administrative Agent and the Lenders until the
Obligations have been paid in full.
ARTICLE XI
GENERAL PROVISIONS
------------------
11.1. Survival of Representations. All representations and warranties of
the General Partner and the Borrower contained in this Agreement shall survive
delivery of the Notes and the making of the Loans herein contemplated.
11.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
11.3. Taxes. Any taxes (excluding federal state or local income taxes on
the overall net income of any Lender) or other similar assessments or charges
made by any governmental or revenue authority in respect of the Loan Documents
shall be paid by the Borrower, together with interest and penalties, if any.
11.4. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
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11.5. Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Administrative Agent and the Lenders and
supersede all prior agreements and understandings among the Borrower, the
Administrative Agent and the Lenders relating to the subject matter thereof.
11.6. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Administrative Agent is authorized to act as such). The failure of any Lender to
perform any of its obligations hereunder shall not relieve any other Lender from
any of its obligations hereunder. This Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
11.7. Expenses; Indemnification. The Borrower shall reimburse the
Administrative Agent for any costs, internal charges and out-of-pocket expenses
(including, without limitation, all reasonable fees for consultants and fees and
reasonable expenses for attorneys for the Administrative Agent, which attorneys
may be employees of the Administrative Agent) paid or incurred by the
Administrative Agent in connection with the preparation, negotiation, execution,
delivery, review, amendment, modification, and administration of the Loan
Documents. The Borrower also agrees to reimburse the Administrative Agent and
the Lenders for any costs, internal charges and out-of-pocket expenses
(including, without limitation, all fees and reasonable expenses for attorneys
for the Administrative Agent and the Lenders, which attorneys may be employees
of the Administrative Agent or the Lenders) paid or incurred by the
Administrative Agent or any Lender in connection with the collection and
enforcement of the Loan Documents (including, without limitation, any workout).
The Borrower further agrees to indemnify the Administrative Agent and each
Lender, its directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Administrative Agent or any Lender is a party thereto) which any of them may
pay or incur arising out of or relating to this Agreement, the other Loan
Documents, the Properties, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Loan
hereunder, except as otherwise provided by this Section 11.7. The obligations of
the Borrower under this Section shall survive the termination of this Agreement.
11.8. Numbers of Documents. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Administrative Agent with
sufficient counterparts so that the Administrative Agent may furnish one to each
of the Lenders.
11.9. Accounting. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with GAAP, except that any calculation or
determination which is to be made on a consolidated basis shall be made for the
General Partner and the Borrower and all their Subsidiaries, including those
Subsidiaries, if any, which are unconsolidated on the General Partner's or
Borrower's official financial statements.
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11.10. Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
11.11. Nonliability of Lenders. The relationship between the General
Partner and the Borrower, on the one hand, and the Lenders and the
Administrative Agent, on the other, shall be solely that of borrower and lender.
Neither the Administrative Agent nor any Lender shall have any fiduciary
responsibilities to the General Partner or the Borrower. Neither the
Administrative Agent nor any Lender undertakes any responsibility to the General
Partner or the Borrower to review or inform the General Partner or the Borrower
of any matter in connection with any phase of the General Partner's or the
Borrower's business or operations.
11.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
11.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE
ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL
BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.
11.14. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND
EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
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ARTICLE XII
THE ADMINISTRATIVE AGENT
------------------------
12.1. Appointment. The First National Bank of Chicago is hereby appointed
Administrative Agent hereunder and under each other Loan Document, and each of
the Lenders irrevocably authorizes the Administrative Agent to act as the
administrative agent of such Lender. The Administrative Agent agrees to act as
such upon the express conditions contained in this Article XII. The
Administrative Agent shall administer this Agreement and service the Loans with
the same degree of care as Agent would use in servicing a loan of same size and
type for its own account. The Administrative Agent shall not have a fiduciary
relationship in respect of the Borrower or any Lender by reason of this
Agreement. The Co-Agents shall have no duties or responsibilities (other than as
a Lender) unless otherwise agreed to by such Co-Agent and the Administrative
Agent.
12.2. Powers. The Administrative Agent shall have and may exercise such
powers under the Loan Documents as are specifically delegated to the
Administrative Agent by the terms of each thereof, together with such powers as
are reasonably incidental thereto. The Administrative Agent shall have no
implied duties to the Lenders, or any obligation to the Lenders to take any
action thereunder except any action specifically provided by the Loan Documents
to be taken by the Administrative Agent.
12.3. General Immunity. Neither the Administrative Agent nor any of its
directors, officers, agents or employees shall be liable to the Borrower, the
Lenders or any Lender for (i) any action taken or omitted to be taken by it or
them hereunder or under any other Loan Document or in connection herewith or
therewith except for its or their own gross negligence or willful misconduct; or
(ii) any determination by the Administrative Agent that compliance with any law
or any governmental or quasi-governmental rule, regulation, order, policy,
guideline or directive (whether or not having the force of law) requires the
Advances and Commitments hereunder to be classified as being part of a "highly
leveraged transaction".
12.4. No Responsibility for Loans, Recitals, etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document,
including, without limitation, any agreement by an obligor to furnish
information directly to each Lender; (iii) the satisfaction of any condition
specified in Article IV, except receipt of items required to be delivered to the
Administrative Agent; (iv) the validity, effectiveness or genuineness of any
Loan Document or any other instrument or writing furnished in connection
therewith; or (v) the value, sufficiency, creation, perfection or priority of
any interest in any collateral security. Except to the extent expressly required
pursuant to the terms and provisions of the Agreement the Administrative Agent
shall have no duty to disclose to the Lenders information that is not required
to be furnished by the General Partner or the Borrower to the Administrative
Agent at such time, but is voluntarily furnished by the General Partner or the
Borrower to the
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<PAGE>
Administrative Agent (either in its capacity as Administrative Agent or in its
individual capacity).
12.5. Action on Instructions of Lenders. The Administrative Agent shall in
all cases act upon the written instructions of the Required Lenders or all
Lenders, as this Agreement may require, so long as such directions (i) are
consistent with the Lender's express obligations hereunder and (ii) in the
Administrative Agent's good faith judgment, do not expose the Administrative
Agent to any material risk or liability to the Borrowers as a result thereof.
The Administrative Agent shall be fully protected in so acting, or in refraining
from acting, hereunder and under any other Loan Document in accordance with
written instructions signed by the Required Lenders, and such instructions and
any action taken or failure to act pursuant thereto shall be binding on all of
the Lenders and on all holders of Notes. The Administrative Agent shall be fully
justified in failing or refusing to take any action hereunder and under any
other Loan Document unless it shall first be indemnified to its satisfaction by
the Lenders pro rata against any and all liability, cost and expense that it may
incur by reason of taking or continuing to take any such action.
12.6. Employment of Administrative Agents and Counsel. The Administrative
Agent may execute any of its duties as Administrative Agent hereunder and under
any other Loan Document by or through employees, agents, and attorney-in-fact
and shall not be answerable to the Lenders, except as to money or securities
received by it or its authorized agents, for the default or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. The
Administrative Agent shall be entitled to advice of counsel concerning all
matters pertaining to the agency hereby created and its duties hereunder and
under any other Loan Document.
12.7. Reliance on Documents; Counsel. The Administrative Agent shall be
entitled to rely upon any Note, notice, consent, certificate, affidavit,
letter, telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and,
in respect to legal matters, upon the opinion of counsel selected by the
Administrative Agent, which counsel may be employees of the Administrative
Agent.
12.8 Administrative Agent's Reimbursement and Indemnification. The Lenders
agree to reimburse and indemnify the Administrative Agent in its capacity as
Administrative Agent only and not as Lender, ratably in proportion to their
respective Commitments (i) for any amounts not reimbursed by the Borrower for
which the Administrative Agent is entitled to reimbursement by the Borrower
under the Loan Documents, (ii) for any other expenses incurred by the
Administrative Agent on behalf of the Lenders, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents and (iii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of the
Loan Documents or any other document delivered in connection therewith or the
transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the (a) gross negligence
or willful misconduct of the Administrative Agent or (b)
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matters particularly related to Administrative Agent in its capacity as a Lender
only and not related Borrower or another Lender (i.e., a violation of
Administrative Agent's legal lending limit). The obligations of the Lenders
under this Section 12.8 shall survive payment of the Obligations and termination
of this Agreement.
12.9. Rights as a Lender. In the event the Administrative Agent is a
Lender, the Administrative Agent shall have the same rights and powers hereunder
and under any other Loan Document as any Lender and may exercise the same as
though it were not the Administrative Agent, and the term "Lender" or "Lenders"
shall, at any time when the Administrative Agent is a Lender, unless the context
otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Administrative Agent, in its individual capacity, is not obligated to remain a
Lender.
12.10. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on the financial statements prepared by the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Administrative 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 and the other Loan Documents.
12.11. Successor Administrative Agent. The Administrative Agent may resign
at any time by giving written notice thereof to the Lenders and the Borrower,
such resignation to be effective upon the appointment of a successor
Administrative Agent or, if no successor Administrative Agent has been
appointed, forty-five days after the retiring Administrative Agent gives notice
of its intention to resign. If the Administrative Agent assigns or participates
its total Commitment, then Administrative Agent agrees to resign upon the
request of any Lender. Upon any such resignation, the Required Lenders shall
have the right to appoint, on behalf of the Borrower and the Lenders, a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Lenders within thirty days after the resigning
Administrative Agent's giving notice of its intention to resign, then the
resigning Administrative Agent may appoint, on behalf of the Borrower and the
Lenders, a successor Administrative Agent. If the Administrative Agent has
resigned and no successor Administrative Agent has been appointed, the Lenders
may perform all the duties of the Administrative Agent hereunder and the
Borrower shall make all payments in respect of the Obligations to the applicable
Lender and for all other purposes shall deal directly with the Lenders. No
successor Administrative Agent shall be deemed to be appointed hereunder until
such successor Administrative Agent has accepted the appointment. Any such
successor Administrative Agent shall be a commercial bank having capital and
retained earnings of at least
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$500,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the resigning Administrative Agent. Upon the
effectiveness of the resignation of the Administrative Agent, the resigning
Administrative Agent shall pro rate any agency fees it has already received with
the successor Administrative Agent, and the resigning Administrative Agent shall
be discharged from its duties and obligations hereunder as Administrative Agent
and under the Loan Documents arising or occurring after the effective date of
such resignation. After the effectiveness of the resignation of an
Administrative Agent, the provisions of this Article XI shall continue in effect
for the benefit of such Administrative Agent in respect of any actions taken or
omitted to be taken by it while it was acting as the Administrative Agent
hereunder and under the other Loan Documents.
12.12. Administrative Agent's Fee. The Borrower agrees to pay to the
Administrative Agent, for its own account, the fees agreed to by the
Borrower and the Administrative Agent pursuant to that certain letter agreement
dated April 22, 1999, or as otherwise agreed from time to time.
12.13. Notice of Defaults. If a Lender becomes aware of a Default or
Unmatured Default, such Lender shall notify the Administrative Agent of such
fact. Upon receipt of such notice that a Default or Unmatured Default has
occurred, the Administrative Agent shall notify each of the Lenders of such
fact.
12.14. Requests for Approval. If the Administrative Agent requests in
writing the consent or approval of a Lender, such Lender shall respond and
either approve or disapprove definitively in writing to the Administrative
Agent within ten Business Days (or sooner if such notice specifies a shorter
period, but in no event less than five Business Days, for responses based on
Administrative Agent's good faith determination that circumstances exist
warranting its request for an earlier response) after such written request from
the Administrative Agent. If the Lender does not so respond, that Lender shall
be deemed to have approved the request. Upon request, the Administrative Agent
shall notify the Lenders which Lenders, if any, failed to respond to a request
for approval.
12.15. Copies of Documents. Administrative Agent shall promptly deliver to
each of the Lenders copies of all notices of default and other formal notices
sent or received and according to Section 15.1 of this Agreement. Administrative
Agent shall deliver to Lenders within 10 Business Days following receipt, copies
of all financial statements and other financial reporting information,
certificates and notices received regarding the Borrower's ratings except to the
extent such items are required to be furnished directly to the Lenders by
Borrower hereunder. Within 10 Business Days after a request by a Lender to the
Administrative Agent for other documents furnished to the Administrative Agent
by the Borrower, the Administrative Agent shall provide copies of such documents
to such Lender except where this Agreement obligates Administrative Agent to
provide copies in a shorter period of time.
12.16. Defaulting Lenders. At such time as a Lender becomes a Defaulting
Lender, such Defaulting Lender's right to vote on matters which are subject to
the consent or approval of the
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Majority or Required Lenders or all Lenders, shall be immediately suspended
until such time as the Lender is no longer a Defaulting Lender and the
calculation of Required Lenders shall be made without reference to such
Defaulting Lender's Percentage. If a Defaulting Lender has failed to fund its
Percentage of any Advance and until such time as such Defaulting Lender
subsequently funds its Percentage of such Advance, all Obligations owing to such
Defaulting Lender hereunder shall be subordinated in right of payment, as
provided in the following sentence, to the prior payment in full of all
principal of, interest on and fees relating to the Loans funded by the other
Lenders in connection with any such Advance in which the Defaulting Lender has
not funded its Percentage (such principal, interest and fees being referred to
as "Senior Loans" for the purposes of this section). All amounts paid by the
Borrower in connection with ratable Loans and otherwise due to be applied to the
Obligations owing to such Defaulting Lender pursuant to the terms hereof shall
be distributed by the Administrative Agent to the other Lenders in accordance
with their respective Percentages (recalculated for the purposes hereof to
exclude the Defaulting Lender) until all Senior Loans have been paid in full. At
that point, the "Defaulting Lender" shall no longer be deemed a Defaulting
Lender and the remainder of the Advances due to such "Defaulting Lender" shall
no longer be subordinated but shall be payable on the same basis as payments to
the other Lenders. After the Senior Loans have been paid in full equitable
adjustments will be made in connection with future payments by the Borrower to
the extent a portion of the Senior Loans had been repaid with amounts that
otherwise would have been distributed to a Defaulting Lender but for the
operation of this Section 12.15. This provision governs only the relationship
among the Administrative Agent, each Defaulting Lender and the other Lenders;
nothing hereunder shall limit the obligation of the Borrower to repay all Loans
in accordance with the terms of this Agreement. The provisions of this Section
12.16 shall apply and be effective regardless of whether a Default occurs and is
continuing, and notwithstanding (i) any other provision of this Agreement to the
contrary, (ii) any instruction of the Borrower as to its desired application of
payments or (iii) the suspension of such Defaulting Lender's right to vote on
matters as provided above.
ARTICLE XIII
SETOFF; RATABLE PAYMENTS
------------------------
13.1. Setoff. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default or Unmatured Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Indebtedness at any time held or owing by
any Lender to or for the credit or account of the Borrower may be offset and
applied toward the payment of the Obligations owing to such Lender, whether or
not the Obligations, or any part hereof, shall then be due. Any Lender may, by
separate agreement with the Borrower, waive such set-off rights with respect to
deposits held by such Lender, which waiver shall be binding upon all other
Lenders as to deposits held by such Lender.
13.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon
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demand, to purchase a portion of the Loans held by the other Lenders so that
after such purchase each Lender will hold its ratable proportion of Loans. If
any Lender, whether in connection with setoff or amounts which might be subject
to setoff or otherwise, receives collateral or other protection for its
Obligations or such amounts which may be subject to setoff, such Lender agrees,
promptly upon demand, to take such action necessary such that all Lenders share
in the benefits of such collateral ratably in proportion to their Loans. In case
any such payment is disturbed by legal process, or otherwise, appropriate
further adjustments shall be made.
ARTICLE XIV
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
14.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 14.3. Notwithstanding clause (ii) of this Section, any Lender may
at any time, without the consent of the Borrower or the Administrative Agent,
assign all or any portion of its rights under this Agreement and its Notes to a
Federal Reserve Bank; provided, however, that no such assignment shall release
the transferor Lender from its obligations hereunder. The Administrative Agent
may treat the payee of any Note as the owner thereof for all purposes hereof
unless and until such payee complies with Section 13.3 in the case of an
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Administrative Agent. Any assignee or transferee
of a Note agrees by acceptance thereof to be bound by all the terms and
provisions of the Loan Documents. Any request, authority or consent of any
Person, who at the time of making such request or giving such authority or
consent is the holder of any Note, shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
14.2. Participations.
14.2.1 Permitted Participants; Effect. Any Lender, in the ordinary
course of its business and in accordance with applicable law, at any time
may sell to one or more financial institutions, pension funds, or any
other fund or entity that regularly makes or participates in real estate
loans as part of its business participating interests in any Loan owing to
such Lender, any Note held by such Lender, any Commitment of such Lender
or any other interest of such Lender under the Loan Documents. If a
Default has occurred and is continuing, a Lender shall not be restricted
as to whom it can sell such participating interests. Any Person to whom
such a participating interest is sold is a "Participant". In the event of
any such sale by a Lender of participating interests to a Participant,
such Lender's obligations under the Loan Documents shall remain unchanged,
such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, such Lender shall remain the
holder of any such Note for all purposes under the Loan Documents, all
amounts payable by the Borrower under this Agreement shall be determined
as if such Lender had not sold such participating
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<PAGE>
interests, and the Borrower and the Administrative Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under the Loan Documents.
14.2.2 Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than
any amendment, modification or waiver with respect to any Loan or
Commitment in which such Participant has an interest which forgives
principal, interest or fees or reduces the interest rate or fees payable
with respect to any such Loan or Commitment, postpones any date fixed for
any regularly-scheduled payment of principal of, or interest or fees on,
any such Loan or Commitment, releases any guarantor of any such Loan or
releases any substantial portion of collateral, if any, securing any such
Loan.
14.2.3 Benefit of Setoff. The General Partner and the Borrower agree
that each Participant shall be deemed to have the right of setoff provided
in Section 12.1 in respect of its participating interest in amounts owing
under the Loan Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under the
Loan Documents, provided that each Lender shall retain the right of setoff
provided in Section 13.1 with respect to the amount of participating
interests sold to each Participant. The Lenders agree to share with each
Participant, and each Participant, by exercising the right of setoff
provided in Section 13.1, agrees to share with each Lender, any amount
received pursuant to the exercise of its right of setoff, such amounts to
be shared in accordance with Section 13.2 as if each Participant were a
Lender.
14.3. Assignments.
14.3.1 Permitted Assignments. Any Lender, in the ordinary course of
its business and in accordance with applicable law, at any time may assign
to one or more Qualified Lenders (as hereinafter defined) all or any
portion (greater than or equal to $5,000,000 per assignee) of its rights
and obligations under the Loan Documents. As used herein "Qualified
Lender" shall mean an institution with assets over $5,000,000,000.00 that
is generally in the business of making loans comparable to the Loans made
under this Facility and that maintains an office in the United States. If
a Default has occurred and is continuing, a Lender shall not be restricted
as to whom it can assign such rights and obligations. Any Person to whom
such rights and obligations are assigned is a "Purchaser". Such assignment
shall be substantially in the form of Exhibit F hereto or in such other
form as may be agreed to by the parties thereto.
14.3.2 Effect; Effective Date. Upon (i) delivery to the Administrative
Agent of a notice of assignment, substantially in the form attached as
Exhibit I to Exhibit F hereto (a "Notice of Assignment"), and (ii) payment
of a $3,500 fee by the assigning Lender to the Administrative Agent for
processing such assignment (except for transfer to an Affiliate), such
assignment shall become effective on the effective date specified in such
Notice of Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment
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<PAGE>
and Loans under the applicable assignment agreement are "plan assets" as
defined under ERISA and that the rights and interests of the Purchaser in
and under the Loan Documents will not be "plan assets" under ERISA. On and
after the effective date of such assignment, such Purchaser shall for all
purposes be a Lender party to this Agreement and any other Loan Document
executed by the Lenders and shall have all the rights and obligations of a
Lender under the Loan Documents, to the same extent as if it were an
original party hereto, and no further consent or action by the Borrower,
the Lenders or the Administrative Agent shall be required to release the
transferor Lender with respect to the percentage of the Aggregate
Commitment and Loans assigned to such Purchaser. Upon the consummation of
any assignment to a Purchaser pursuant to this Section 14.3.2, the
transferor Lender, the Administrative Agent and the Borrower shall make
appropriate arrangements so that replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting
their Commitment, as adjusted pursuant to such assignment.
14.4 Designation of Lender to Make Competitive Loans. Any Lender (each a
"Designating Lender") may at any time designate one or more Designated Lenders
to fund Competitive Bid Loans which the Designating Lender is required to fund
subject to the terms of this Section 14.4 and the provisions in Section 14.3
shall not apply to such designation. No Lender shall be entitled to make more
than two such designations. The parties to each such designation shall execute
and deliver to the Administrative Agent, for its acceptance, a Designation
Agreement in the form of Exhibit H. Upon its receipt of an appropriately
completed Designation Agreement executed by a Designating Lender and a Designee
representing that it is a Designated Lender, the Administrative Agent will
accept such Designation Agreement and give prompt notice thereof to the
Borrower, whereupon, from and after the effective date specified in the
Designation Agreement, the Designated Lender shall become a party to this
Agreement with a right to make Competitive Bid Loans on behalf of its
Designating Lender pursuant to Section 2.16 after the Borrower has accepted a
Competitive Bid (or a portion thereof) of the Designating Lender. Each
Designating Lender shall serve as the agent for the Designated Lender and shall
on behalf of the Designated Lender give and receive all communications and
notices and take all actions hereunder, including without limitation votes,
approvals, waivers, consents and amendments under or relating to this Agreement
or the other Loan Documents. Any such notice, communications, vote approval,
waiver, consent or amendment shall be signed by the Designating Lender as agent
for the Designated Lender and shall not be signed by the Designated Lender. The
Borrower, the Administrative Agent and the Lenders may rely thereon without any
requirement that the Designated Lender sign or acknowledge the same, and without
any specific designation that the Designating Lender is signing in an agency
capacity. The parties hereto agree not to institute or join any other person in
instituting against any Designated Lender any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under any
federal or state bankruptcy or similar law, for one year and a day after the
Facility Termination Date. This Section 14.4 shall survive the termination of
this Agreement.
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14.5. Dissemination of Information. The General Partner and the Borrower
authorize each Lender to disclose to any Participant or Purchaser or any other
Person acquiring an interest in the Loan Documents by operation of law (each a
"Transferee") and any prospective Transferee any and all information in such
Lender's possession concerning the creditworthiness of the General Partner, the
Borrower and their Subsidiaries provided that such transferees shall be subject
to an obligation to keep all non-public information confidential.
14.6 Tax Treatment. If any interest in any Loan Document is transferred to
any Transferee which is organized under the laws of any jurisdiction other than
the United States or any State thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer, to comply with
the provisions of Section 2.19.
ARTICLE XV
NOTICES
-------
15.1. Giving Notice. Except as otherwise permitted by Section 2.16 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
15.2. Change of Address. The General Partner, the Trust, the Borrower, the
Administrative Agent and any Lender may each change the address for service of
notice upon it by a notice in writing to the other parties hereto.
ARTICLE XVI
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Administrative Agent
and the Lenders and each party has notified the Administrative Agent by telex or
telephone, that it has taken such action.
IN WITNESS WHEREOF, the Borrower, the General Partner, the Trust, the
Lenders and the Administrative Agent have executed this Agreement as of the date
first above written.
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<PAGE>
SUSA PARTNERSHIP, L.P.
By: STORAGE USA, INC.,
its General Partner
By: /s/ Chris P. Marr
----------------------------------
Print Name: Chris P. Marr
---------------------------
Title: Chief Financial Officer
--------------------------------
c/o Storage USA, Inc.
30 Corporate Center
10440 Little Patuxent Parkway
Suite 1100
Columbia, Maryland 21044
Attention: Christopher P. Marr
Telephone: (410) 730-9500
Facsimile: (410) 730-3426
With a copy to:
165 Madison Avenue
Suite 1300
Memphis, Tennessee 38103
Attention: General Counsel
Telephone: (901) 252-2000
Facsimile: (901) 252-2060
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<PAGE>
STORAGE USA, INC.
By: /s/ Chris P. Marr
------------------------------------
Print Name: Chris P. Marr
-----------------------------
Title: Chief Financial Officer
----------------------------------
c/o Storage USA, Inc.
30 Corporate Center
10440 Little Patuxent Parkway
Suite 1100
Columbia, Maryland 21044
Attention: Christopher P. Marr
Telephone: (410) 730-9500
Facsimile: (410) 730-3426
With a copy to:
165 Madison Avenue
Suite 1300
Memphis, Tennessee 38103
Attention: General Counsel
Telephone: (901) 252-2000
Facsimile: (901) 252-2060
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<PAGE>
STORAGE USA TRUST
By: /s/ Chris P. Marr
-------------------------------------
Print Name: Chris P. Marr
-----------------------------
Title: Chief Financial Officer
---------------------------------
c/o Storage USA, Inc.
30 Corporate Center
10440 Little Patuxent Parkway
Suite 1100
Columbia, Maryland 21044
Attention: Christopher P. Marr
Telephone: (410) 730-9500
Facsimile: (410) 730-3426
With a copy to:
165 Madison Avenue
Suite 1300
Memphis, Tennessee 38103
Attention: General Counsel
Telephone: (901) 252-2000
Facsimile: (901) 252-2060
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<PAGE>
Commitments:
- -----------
$33,000,000 THE FIRST NATIONAL BANK OF
CHICAGO, Individually and as
Administrative Agent
By: /s/ Patricia Leung
------------------------------------
Print Name: Patricia Leung
----------------------------
Title: Managing Director
----------------------------------
One First National Plaza
Chicago, Illinois 60670
Attention: Patricia Leung
Telephone: (312) 732-8619
Facsimile: (312) 732-1117
$29,000,000 BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
Individually and as Syndication Agent
By: /s/ Ronald B. Phemister
-------------------------------------
Print Name: Ronald B. Phemister
----------------------------
Title: Vice-President
---------------------------------
231 South LaSalle Street
Chicago, Illinois 60697-1516
Attention: Mickey Edwards
Telephone: (312) 828-5175
Facsimile: (312) 974-4970
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<PAGE>
Commitments:
- ------------
$29,000,000 FIRST UNION NATIONAL BANK,
Individually and as Documentation Agent
By: /s/ John A. Schissel
------------------------------------
Print Name: John A. Schissel
----------------------------
Title: Director
---------------------------------
One First Union Center, DC-6
Charlotte, NC 28288-0166
Attention: John A. Schissel
Telephone: (704) 383-1967
Facsimile: (704) 383-6205
$29,000,000 AMSOUTH BANK,
Individually and as Co-Agent
By: /s/ Lawrence Clark
------------------------------------
Print Name: Lawrence Clark
----------------------------
Title: VP
---------------------------------
1900 5th Avenue, North
Amsouth South Sonat Tower, 9th Floor
Birmingham, AL 35288
Attention: Lawrence Clark
Telephone: (205) 581-7493
Facsimile: (205) 326-4075
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Commitments:
- ------------
$20,000,000 CRESTAR BANK
By: /s/ Gregory T. Horstman
------------------------------------
Print Name: Gregory T. Horstman
----------------------------
Title: Vice President
---------------------------------
8245 Boone Boulevard, Suite 820
Vienna, Virginia 22182
Attention: Gregory T. Horstman
Telephone: (703) 902-9384
Facsimile: (703) 902-9190
$20,000,000 NATIONAL BANK OF COMMERCE
By: /s/ Michael Staid
------------------------------------
Print Name: Michael Staid
----------------------------
Title: Vice President
---------------------------------
One Commerce Square
Memphis, Tennessee 38150
Attention: Donald Abel
Telephone: (901) 523-3396
Facsimile: (901) 529-4653
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Commitments:
- -----------
$20,000,000 COMMERZBANK AG NEW YORK BRANCH
By: /s/ Ralph C. Marra
-------------------------------------
Name: Ralph C. Marra
Title: Vice President
By: /s/ E. Marcus Perry
-------------------------------------
Name: E. Marcus Perry
Title: Assistant Vice President
2 World Financial Center
New York, New York 10281
Attention: E. Marcus Perry
Telephone: 212-266-7646
Facsimile: 212-266-7565
<PAGE>
Commitments:
- ------------
$10,000,000 UNION PLANTERS BANK, NATIONAL
ASSOCIATION
By: /s/ Elizabeth Rouse
------------------------------------
Print Name: Elizabeth Rouse
Title: Vice President
6200 Poplar
Memphis, Tennessee 38119
Attention: Elizabeth Rouse
Telephone: (901) 580-5470
Facsimile: (901) 580-5451
$10,000,000 COMERICA BANK
By: /s/ Charles L. Weddell
------------------------------------
Print Name: Charles L. Weddell
Title: Vice President
---------------------------------
500 Woodward Avenue, MC 3256
Detroit, Michigan 48226
Attention: Charles L. Weddell
Telephone: (313) 222-3323
Facsimile: (313) 222-9295
-69-
LIMITED LIABILITY COMPANY AGREEMENT
OF
STORAGE PORTFOLIO I LLC
(A Delaware Limited Liability Company)
THESE MEMBERSHIP INTERESTS HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
NOR PURSUANT TO THE PROVISIONS OF ANY STATE SECURITIES ACT.
CERTAIN RESTRICTIONS ON TRANSFERS OF INTERESTS ARE SET FORTH HEREIN.
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TABLE OF CONTENTS
ARTICLE I.................................................................7
ARTICLE II...............................................................16
SECTION 2.1. NAME AND FORMATION..................................16
SECTION 2.2. PRINCIPAL PLACE OF BUSINESS.........................16
SECTION 2.3. ASSUMED NAME CERTIFICATE............................16
SECTION 2.4. REGISTERED OFFICE AND REGISTERED AGENT..............16
SECTION 2.5. TERM................................................17
SECTION 2.6. REGISTRATION........................................17
SECTION 2.7. PURPOSE, POWERS AND CHARACTER OF THE BUSINESS OF THE
COMPANY.....................................................17
SECTION 2.8. ADMISSION OF MEMBERS................................18
ARTICLE III..............................................................18
SECTION 3.1. CAPITAL OF COMPANY..................................18
SECTION 3.2. EXPENDITURES ON BEHALF OF THE COMPANY...............18
SECTION 3.3. CAPITAL CONTRIBUTIONS...............................18
SECTION 3.4. CAPITAL CONTRIBUTIONS FOR UNANTICIPATED NEEDS.......19
SECTION 3.5. COMPANY CAPITAL.....................................21
SECTION 3.6. LIABILITY OF MEMBERS................................22
SECTION 3.7. LOANS BY MEMBERS OR AFFILIATES......................22
SECTION 3.8. CAPITAL ACCOUNTS....................................22
SECTION 3.9. CAPITOL RATIOS......................................23
ARTICLE IV...............................................................23
SECTION 4.1. MANAGER'S POWERS AND RESPONSIBILITIES...............23
SECTION 4.2. ACTIONS REQUIRING CONSENT OF ALL MEMBERS............25
SECTION 4.3. OPERATION IN ACCORDANCE WITH PLANS..................27
SECTION 4.4. ERISA MATTERS.......................................27
SECTION 4.5. UBTI MATTERS; REIT REQUIREMENTS.....................27
SECTION 4.6. CONTRACTS WITH AFFILIATES...........................29
SECTION 4.7. EMPLOYEES AND CONTRACTORS...........................30
SECTION 4.8. FINANCING...........................................30
SECTION 4.9. COMPENSATION AND EXPENSE REIMBURSEMENT..............30
SECTION 4.10. CONTINUED INVOLVEMENT REQUIREMENTS.................31
SECTION 4.11. OPERATING BUDGET...................................31
SECTION 4.12. INSURANCE PROGRAM..................................33
SECTION 4.13. DELEGATION OF AUTHORITY............................33
SECTION 4.14. LIABILITY OF THE MANAGER...........................33
SECTION 4.15. INDEMNIFICATION....................................35
SECTION 4.16. RIGHTS OF COMPETITION..............................36
SECTION 4.17. RESIGNATION AND REMOVAL............................37
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ARTICLE V................................................................37
SECTION 5.1. PLACE OF MEETINGS...................................37
SECTION 5.2. MEETINGS OF MEMBERS.................................37
SECTION 5.3. NOTICE OF MEETINGS OF MEMBERS.......................37
SECTION 5.4. QUORUM..............................................37
SECTION 5.5. VOTING ON MATTERS...................................38
SECTION 5.6. LIST OF MEMBERS ENTITLED TO VOTE....................38
SECTION 5.7. REGISTERED MEMBERS..................................38
SECTION 5.8. ACTIONS WITH OR WITHOUT A MEETING AND TELEPHONE
MEETINGS....................................................38
SECTION 5.9. LIMITATIONS ON POWERS OF MEMBERS....................38
ARTICLE VI...............................................................39
SECTION 6.1. BOOKS AND RECORDS...................................39
SECTION 6.2. ACCOUNTING BASIS FOR TAX REPORTING PURPOSES; FISCAL
YEAR........................................................40
SECTION 6.3. REPORTS.............................................40
SECTION 6.4. RETURNS AND OTHER ELECTIONS.........................41
SECTION 6.5. TAX MATTERS PARTNER.................................41
SECTION 6.6. ACCOUNTANTS.........................................42
SECTION 6.7. ANNUAL APPRAISALS...................................42
SECTION 6.8. ENVIRONMENTAL INVESTIGATIONS........................42
ARTICLE VII..............................................................42
SECTION 7.1. OPERATING DISTRIBUTIONS.............................42
SECTION 7.2. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIVE
SHARES OF TAX ITEMS.........................................43
SECTION 7.3. CODE SECTION 704(B) AND 514(C)(9)(E) ALLOCATIONS....46
SECTION 7.4. RESTRICTED DISTRIBUTIONS............................46
SECTION 7.5. AMORTIZATION AND ALLOCATION OF ORGANIZATION AND
START-UP EXPENSES...........................................46
ARTICLE VIII.............................................................47
ARTICLE IX...............................................................47
SECTION 9.1. RESTRICTIONS ON TRANSFER OF INTEREST OF AND
IN A MEMBER.................................................47
SECTION 9.2. [RESERVED]..........................................48
SECTION 9.3. CONVERSION OPTION...................................48
SECTION 9.4. MARKETING RIGHT.....................................52
SECTION 9.5. INSOLVENCY OF A MEMBER..............................57
SECTION 9.6. ASSIGNEES...........................................60
SECTION 9.7. SUBSTITUTED MEMBERS.................................60
SECTION 9.8. MANAGEMENT PENDING SALE CLOSING.....................61
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ARTICLE X................................................................61
SECTION 10.1. ACQUISITION OF INTEREST FOR INVESTMENT.............61
SECTION 10.2. ACCESS TO INFORMATION..............................61
SECTION 10.3. NO REGISTRATION....................................61
SECTION 10.4. NO OBLIGATION TO REGISTER..........................62
SECTION 10.5. SUITABILITY OF INVESTMENT..........................62
SECTION 10.6. ACCREDITATION......................................62
SECTION 10.7. REPRESENTATIONS AND WARRANTIES REGARDING
MEMBERS.....................................................62
SECTION 10.8. FINANCIAL STATEMENTS AND OTHER DOCUMENTS...........63
SECTION 10.9. UBTI...............................................63
SECTION 10.10. ERISA.............................................64
SECTION 10.11. NO BROKERS........................................64
SECTION 10.12. YEAR 2000 COMPLIANCE..............................64
SECTION 10.13. QUALIFIED ORGANIZATION STATUS.....................64
SECTION 10.14. PARTNERSHIP ALLOCATIONS...........................65
ARTICLE XI...............................................................65
SECTION 11.1. EVENTS OF DEFAULT..................................65
SECTION 11.2. REMEDIES...........................................66
SECTION 11.3. EVENTS OF DISSOLUTION..............................68
SECTION 11.4. LIQUIDATION; SALE OF SUBSTANTIALLY ALL OF THE
ASSETS......................................................69
SECTION 11.5. DISTRIBUTIONS IN KIND..............................70
SECTION 11.6. DATE OF TERMINATION................................70
SECTION 11.7. WAIVER OF PARTITION................................71
SECTION 11.8. ARTICLES OF TERMINATION............................71
ARTICLE XII..............................................................71
SECTION 12.1. NOTICE.............................................71
SECTION 12.2. APPLICATION OF DELAWARE LAW........................71
SECTION 12.3. JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.......72
SECTION 12.4. NO PARTNERSHIP.....................................72
SECTION 12.5. EFFECT OF AGREEMENT................................72
SECTION 12.6. ENTIRE AGREEMENT...................................72
SECTION 12.7. AMENDMENT..........................................72
SECTION 12.8. COUNTERPARTS.......................................73
SECTION 12.9. SEVERABILITY.......................................73
SECTION 12.10. CAPTIONS..........................................73
SECTION 12.11. INTERPRETATION....................................73
SECTION 12.12. ADDITIONAL DOCUMENTS AND ACTS.....................73
SECTION 12.13. CONFIDENTIALITY...................................74
SECTION 12.14. CREDITORS NOT BENEFITED...........................75
SECTION 12.15. INVOLVEMENT OF THE COMPANY IN CERTAIN
PROCEEDINGS.................................................75
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SECTION 12.16. DISPUTE RESOLUTION AND ARBITRATION................75
SECTION 12.17. SECTIONS..........................................77
SECTION 12.18 NO WAIVER.........................................77
SECTION 12.19. ADDITIONAL REMEDIES...............................77
SECTION 12.20. U.S. DOLLARS......................................78
SECTION 12.21. APPROVALS.........................................78
SECTION 12.22. LIMITATION ON LIABILITY OF MEMBERS................78
EXHIBITS AND SCHEDULES...................................................80
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EXHIBITS
Exhibit A Form of Contribution Agreement
Exhibit B Form of Property Management Agreement
Exhibit C Form of Purchase Agreement (Net No Gain)
Exhibit D Form of Purchase Agreement (Gain)
Exhibit E Investor Pension Trusts
Exhibit F REIT Shares Amount Conditions
SCHEDULES
Schedule 1 Members' Names, Addresses, Primary Contact Person,
Capital Ratios
Schedule 3.2 Expenditures on Behalf of the Company
Schedule 4.5 Income From Other Than Rental of Storage Units
Schedule 4.9(a) Manager Expenses
Schedule 4.9(b) Member Expenses
Schedule 4.11 Initial Operating Budget
Schedule 4.12 Insurance Program
Schedule 4.16(a) Excluded Original Properties
Schedule 4.16(b) Development Properties
Schedule 6.3 Monthly Reports
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LIMITED LIABILITY
COMPANY AGREEMENT
OF
STORAGE PORTFOLIO I LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "AGREEMENT") of STORAGE
PORTFOLIO I LLC, a Delaware limited liability company (the "Company"), dated as
of May 13, 1999, by and between SUSA PARTNERSHIP, L.P., a Tennessee limited
partnership ("Storage"), as a Member and the Manager and FREAM No. 18 LLC, a
Delaware limited liability company ("Investor"), as a Member of the Company.
WHEREAS, the Members enter into this Agreement for the purpose of
acquiring, owning and managing certain self-storage facilities (the
"Properties") and engaging in such other business activity or activities as the
Members may determine are necessary or appropriate to accomplish the foregoing;
and
WHEREAS, for such purpose, the Members desire to operate a limited
liability company subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises made herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, each term set out below shall, unless the
context otherwise requires, have the meaning specified in the Article.
"ACT" means the Delaware Limited Liability Company Act, as amended from
time to time.
"ADDITIONAL CAPITAL CONTRIBUTION" means, with respect to any Member, any
amount contributed, required to be contributed or deemed to have been
contributed to the capital of the Company by any Member pursuant to Section 3.4.
"ADJUSTED CAPITAL ACCOUNT" means a Member's Capital Account balance
increased by such Member's obligation to restore a deficit balance in its
Capital Account, including any deemed obligation pursuant to the penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and
decreased by the amounts described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6).
"AFFILIATE" means, with respect to any Member, any Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with
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the Person to whom reference is made. The term "control" as used herein
(including the terms "controlling," "controlled by," and "under common control
with") means the possession, directly or indirectly, of the ability (a) to vote
ten percent (10%) or more of the outstanding voting securities of or voting
interest in a Person, or (b) otherwise to direct the management policies of such
Person, by contract or otherwise.
"AGREEMENT" means this Limited Liability Company Agreement, as amended,
restated or supplemented from time to time.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a holiday on
which national banking associations in New York, New York are closed.
"CAPITAL ACCOUNT" means, with respect to any Member, the account maintained
for such Member in accordance with Section 3.8.
"CAPITAL CALL NOTICE" has the meaning assigned to it in Section 3.4(a).
"CAPITAL CONTRIBUTIONS" means, with respect to any Member, the total of all
capital contributions made by that Member and, with respect to all of the
Members collectively, it means the total of all capital contributions made by
all of the Members, in all cases pursuant to Sections 3.3 and 3.4.
"CAPITAL EXPENDITURES AGREEMENT" means that Capital Expenditures
Reimbursement Agreement of even date herewith between Storage and the Company.
"CAPITAL PROCEEDS" means, with respect to any capital transaction (as
defined under generally accepted accounting principles), the following: (a) in
the case of a sale or disposition of all or any portion of the Properties of the
Company, an amount equal to the excess of the gross cash proceeds payable to or
received by the Company in exchange for such Properties less the Disposition
Cost of such Properties relating to such sale or disposition, (b) in the event
of casualty or condemnation involving all or any portion of the Properties, an
amount equal to the excess of the gross cash proceeds payable to or received by
the Company as a result of such casualty or condemnation less the Disposition
Cost of such Properties relating to such casualty or condemnation, and (c) in
the case of the re-financing of any mortgage loan encumbering the Properties, an
amount equal to the excess of the net proceeds of the new mortgage loan (net of
any costs of the refinancing) over the then unpaid principal amount of the
mortgage loan or loans then being refinanced thereby.
"CAPITAL RATIO" means, with respect to any Member at any time, the Capital
Ratio assigned to such Member as set forth under the column of the same name on
Schedule 1.
"CASH AMOUNT" with respect to any Membership Interest to be purchased,
means an amount, in cash, equal to the amount of cash that would be available
for distribution to the applicable Member of the Company if the Company sold all
of its assets for cash at a purchase price equal to the Fair Market Value of the
Properties, and all of such cash was paid or distributed in the following order:
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(a) first, to creditors other than Members and their Affiliates, in
the order of priority provided by law;
(b) then, to the Members and their respective Affiliates for any fees
or other compensation or unreimbursed costs or expenses owing to
the Members or their respective Affiliates in accordance with the
terms of this Agreement, and then to repayment of any loans (with
interest) made by any Member to the Company in accordance with
the terms of this Agreement;
(c) then, to reserves that the Members deem reasonably necessary for
any contingent or unforeseen liabilities or obligations of the
Company;
(d) then, to the Members in accordance with Section 7.6.
If the purchasing Member and the selling Member are unable to agree on the
Cash Amount within thirty (30) days after Manager's actual receipt of the
Conversion Notice or Marketing Notice, or within thirty (30) days after an
Insolvent Member's receipt of the Purchase Notice, the Cash Amount shall be
determined by a nationally recognized "Big Five" accounting firm selected by the
purchasing Member and selling Member, or if they cannot agree to such
appointment within fifteen (15) days after receipt of such notice, then by a Big
Five accounting firm selected at random after eliminating any such accounting
firms that have performed any material services for the Company or any Member
during the preceding three years. The accounting firm so appointed shall
determine the Cash Amount for the Membership Interest to be sold as provided
herein. The fees and expenses of such accounting firm shall be borne equally by
the purchasing Member and the selling Member.
"CERTIFICATE OF ORGANIZATION" means the certificate of organization of the
Company filed with the Office of the Delaware Secretary of State in accordance
with the Act.
"CHANGE OF CONTROL OF STORAGE OR STORAGE REIT" means any of the following:
(i) the sale of all or substantially all of Storage's or Storage REIT's assets
(other than (a) a sale or conveyance in which Storage or Storage REIT continues
as a holding company of an entity or entities that conduct the business or
businesses formerly conducted by Storage or Storage REIT, or (b) any transaction
undertaken for the purpose of reorganizing Storage or Storage REIT or
reincorporating Storage or Storage REIT under the laws of another jurisdiction
if such transaction does not materially affect the beneficial ownership of
Storage's or Storage REIT's securities, unless, in each of case (a) or (b),
immediately following and as a direct result of such transaction, two or more of
the Senior Managers (as defined below) no longer serve as executive officers of
the surviving entity); (ii) the merger or consolidation of Storage or Storage
REIT with any other entity, other than a merger or consolidation which would
result in the voting securities of Storage or Storage REIT outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 51% of the combined voting power of the voting securities of
Storage, Storage REIT or such surviving entity outstanding immediately after
such merger or consolidation; (iii) the transfer by the shareholders of Storage
REIT to any "Person" or "Group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) of an
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aggregate of 51% or more of the beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934) of the issued and outstanding
voting securities of Storage REIT; or (iv) the transfer by the general partner
of Storage to any "Person" or "Group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) of an aggregate of 51% or more
of the beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of the issued and outstanding general partnership
interests of Storage. Notwithstanding the foregoing, a Change of Control of
Storage or Storage REIT shall not occur if, regardless of the form of the
transaction, any two of the following executive officers of Storage REIT remain
as executive officers of the surviving entity in substantially similar or more
senior positions: (i) Dean Jernigan, (ii) Karl Haas or (iii) Christopher Marr
(the "Senior Managers").
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, together with all rules and regulations promulgated thereunder and
interpretations thereof by the Internal Revenue Service, or any successor
federal statute.
"COMPANY" means Storage Portfolio I LLC, a Delaware limited liability
company.
"COMPANY MINIMUM GAIN" shall have the meaning for partnership minimum gain
set forth in Treasury Regulations Section 1.704-2(b)(2), and any Member's share
of Company Minimum Gain shall be determined in accordance with Treasury
Regulations Section 1.704-2(g)(1).
"CONSUMER PRICE INDEX" shall mean the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor, U.S. City Average, all items, (1982-84=100), or any
successor or replacement index thereto. If the Consumer Price Index shall, after
the date hereof, be converted to a different standard reference base or shall
otherwise be revised, any determination hereunder which uses the Consumer Price
Index shall be made with the use of such conversion factor, formula or table for
converting the Index as may be published by the Bureau of Labor Statistics, or,
if said Bureau shall not publish the same, then with the use of such conversion
factor, formula or table as may be published by Prentice Hall, Inc., or, failing
such publication, by any other nationally recognized publisher of similar
statistical information. If the Consumer Price Index shall cease to be
published, then for the purpose of this Agreement there shall be substituted for
the Consumer Price Index such other similar index as the Manager shall
reasonably determine which measures changes in the relative purchasing power of
United States currency over the term of this Agreement.
"CONTRIBUTION AGREEMENT" means that Contribution Agreement between the
Company and Storage, in substantially the form attached hereto as Exhibit A.
"CONVERSION NOTICE" has the meaning assigned to it in Section 9.3(a).
"DISPOSE," "DISPOSING" OR "DISPOSITION" (whether the first letter of such
word is capitalized or is in lower case type) means, with respect to any asset
(including, without limitation, a Membership Interest or any portion thereof), a
sale, assignment, transfer,
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conveyance, gift, pledge, encumbrance, exchange or other disposition of such
asset; provided, however, such term does not refer to the lease of self-storage
units within the Properties in the ordinary course of the self-storage facility
business of the Company.
"DISPOSITION COST" refers to items paid or payable in cash and, in the case
of a sale, disposition or condemnation of or casualty involving all or any
portion of the Properties, means the sum of (a) all costs and expenses paid or
payable in cash by the Company in connection with such sale, disposition,
condemnation or casualty (including, without limitation, costs incurred by the
Manager and its Affiliates and properly allocated to the Company in accordance
with the terms of this Agreement), (b) all amounts required to be paid to any
lender in connection with such sale, disposition, condemnation, or casualty, (c)
any other amounts which the Members, collectively, reasonably determine are
required or advisable to pay to any person not a Member as a result of or in
connection with such sale, disposition, condemnation or casualty, and (d) in the
case of a condemnation or casualty involving all or any portion of the
Properties, all costs and expenses of restoration actually paid by the Company.
"DISTRIBUTABLE CASH FLOW" means, for any period, the amount by which the
Net Cash Flow for such period exceeds the Reserve Deduction for that period.
"ENTITY" (whether the first letter of the word is capitalized or in lower
case type) means any Person other than a natural person.
"FAIR MARKET VALUE" means with respect to the value of the Properties for
purposes of Sections 9.3, 9.4 or 9.5, the gross fair market value of the
Properties as determined by the unanimous agreement of the Members, or, if the
Members fail to agree on such a value, the fair market value of the Properties
as determined by the following appraisal method:
(e) Within five (5) days of the event triggering the valuation
process, each Member shall choose an independent appraiser with
at least ten years experience in the appraisal and valuation of
commercial real estate (the "Members' Appraisers") to value the
Properties;
(f) within thirty (30) days following its appointments, each
Members' Appraiser shall determine the gross fair market value
of the Properties, without taking into account any liabilities
associated with such Properties, and shall deliver to the
Members and the Manager its written report as to such fair
market value;
(g) if the highest valuation in such reports differs from the lowest
valuation in such reports by 5% or less, then the value of the
Properties shall be equal to the average of such highest and
lowest valuations;
(h) if the highest valuation differs from the lowest valuation by
more than 5%, then the Members' Appraisers shall jointly select
another independent appraiser with at least ten years
experience in the appraisal and valuation
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of commercial real estate (the "Independent Appraiser") to value
the Properties;
(i) within twenty-five (25) days following its appointment, the
Independent Appraiser shall determine the fair market value of
the Properties, without taking into account any liabilities
associated with such Properties, and shall deliver to the
Members and Manager its written report as to such fair market
value;
(j) if the fair market value of the Properties as determined by the
Independent Appraiser is within 5% of the average of the
valuations determined by the other two appraisers, the value of
the Properties shall be determined by averaging all three values.
Otherwise, the value of the Properties shall be determined by
calculating the average of the two numerically closest values
determined by the three appraisers.
"FINANCING DOCUMENTS" means documents executed by the Company in connection
with any financing or loan transaction, including the assumption by the Company
of any existing financing or loan, with respect to any Property or group of
Properties.
"FISCAL YEAR" means each fiscal year of the Company as provided in Section
6.2.
"FRANCHISE LEASES" has the meaning assigned to it in Section 4.6.
"INSOLVENT MEMBER" means any Member (A) who has voluntarily initiated
proceedings of any nature under the federal Bankruptcy Code, or any similar
state or federal law for the relief of debtors; (B) who has made a general
assignment for the benefit of creditors, (C) against whom a proceeding under the
federal Bankruptcy Code, or any similar federal or state law for the relief of
debtors, has been initiated, which proceeding is not dismissed or discharged
within sixty (60) days after the filing thereof; (D) who has admitted in writing
its inability to pay its debts as they mature; or (E) all or any substantial
part of whose assets, or whose interest in the Company or any part thereof, have
been the subject of attachment or other judicial seizure, which remains
undismissed or undischarged for a period of sixty (60) days after the levy
thereof.
"INSOLVENCY OPTION" has the meaning assigned to it in Section 9.5(b).
"INSURANCE PROGRAM" has the meaning assigned to it in Section 4.12.
"INVESTOR" means FREAM No. 18 LLC, a Delaware limited liability company.
"LETTER AGREEMENT" means the Letter Agreement between Investor and Storage,
dated April 1, 1999.
"MANAGER" means Storage or any person that is elected to act as Manager of
the Company as provided herein.
"MANAGER EXPENSES" has the meaning assigned to it in Section 4.9.
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"MARKET PRICE" means the mean average closing price per share of the REIT
Shares, as reported by the Wall Street Journal, Final Edition, for the thirty
(30) consecutive trading days immediately preceding the relevant valuation date,
or, if the REIT Shares have not traded for at least thirty (30) consecutive
trading days, then the average as aforesaid of the days on which the REIT Shares
have traded over the thirty (30) consecutive trading days preceding the relevant
valuation date; provided, however, that such average closing price shall be
appropriately adjusted to take into account any splits, combinations,
reclassifications or other similar changes in Storage REIT's capitalization that
occurred during such period.
"MARKETING NOTICE" has the meaning assigned to it in Section 9.4(a).
"MARKETING RIGHT" has the meaning assigned to it in Section 9.4(a).
"MEMBERS" means, collectively, at any time, the persons who are members of
the Company as provided in this Agreement and under the Act, such persons being,
on the date of this Agreement, the persons listed as Members on Schedule 1 of
this Agreement (or such persons' respective successors), and at any time
thereafter those persons (except for any thereof who cease to be members of the
Company) and any other person admitted as an additional member to the Company in
accordance with this Agreement and the Act, each in its capacity as a member of
the Company.
"MEMBER" means any one of such Members.
"MEMBER DEFAULT DAMAGES" shall mean any liquidated damages owed by Storage
to the Company pursuant to the Contribution Agreement or Purchase Agreements.
"MEMBER EXPENSES" has the meaning assigned to it in Section 4.9.
"MEMBER NONRECOURSE DEBT" shall have the meaning for partner nonrecourse
debt set forth in Treasury Regulations Section 1.704-2(b)(4).
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" shall have the meaning for partner
nonrecourse debt minimum gain set forth in Treasury Regulations Section
1.704-2(i)(2).
"MEMBERSHIP INTEREST" means, at any particular time, the entire limited
liability company interest of a Member in the Company at that time, including
the rights and obligations of such Member under this Agreement and the Act.
"NET CASH FLOW" means for any period the amount equal to:
(a) all cash receipts of the Company other than Capital Proceeds,
including, without limitation, amounts withdrawn from Reserves,
decreased by
(b) disbursements of the Company for operating expenses (including,
without limitation, amounts paid or payable under the Property
Management Agreement), expenditures for capital investments and
reinvestments, and principal payments on indebtedness, interest
and other expenses, required
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or elected to be made in connection with any financing,
refinancing, sale or other event to the extent such principal,
interest and other expenses are not properly included in the
determination of Capital Proceeds.
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1).
"NON-TRIGGERING MEMBER" has the meaning assigned to it in Section 9.4(b).
"OPERATING BUDGET" has the meaning assigned to it in Section 4.11.
"OPTIONAL FUNDING NOTICE" has the meaning assigned to it in Section 3.4(b).
"ORIGINAL PROPERTIES" means those self-storage facilities (including,
without limitation, all land, improvements and other property, and all fixtures
and personal property, comprising each such property, respectively) to be
transferred to the Company pursuant to the Contribution Agreement and the
Purchase Agreements.
"PERSON" (whether the initial letter of the word is capitalized or in lower
case type) means any individual, corporation, sole proprietorship, partnership,
limited liability company, association, trust, joint venture, or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"PERSONAL REPRESENTATIVE" has the meaning assigned to it in Section 9.5(a).
"PROPERTIES" means, collectively, the following: the Original Properties;
any future self-storage facilities which may be owned from time to time by the
Company; and any other real and personal property which is owned by the Company
at any time. The term "Property" shall refer to any of the Properties in the
singular.
"PROPERTY ACQUISITION EXPENSES" has the meaning assigned to it in Section
3.3.
"PROPERTY MANAGEMENT AGREEMENT" means that certain Property Management
Agreement to be entered into by and between the Company and Storage or its
Affiliate, in substantially the form attached as Exhibit B.
"PROPERTY MANAGER" means Storage or its Affiliate designated to manage the
Properties pursuant to the Property Management Agreement.
"PURCHASE AGREEMENTS" means, collectively, that Purchase and Sale Agreement
dated May 13, 1999 by and between the Company and Storage, in the form attached
as Exhibit C, and that Purchase and Sale Agreement dated May 13, 1999 by and
between the Company and Storage, in the form attached as Exhibit D.
"PURCHASE NOTICE" has the meaning assigned to it in Section 9.5(b).
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"REGULATORY ALLOCATIONS" has the meaning assigned to it in Section 7.2(f).
"REIT REQUIREMENTS" has the meaning assigned to it in Section 4.5(b).
"REIT SHARE" means a common share of beneficial interest in Storage REIT.
"REIT SHARES AMOUNT" means for purposes of determining the number of REIT
Shares payable in lieu of any Cash Amount, the number of REIT Shares determined
by dividing the Cash Amount being utilized in such calculation by an amount
equal to 97% of the Market Price. Any fractional number of REIT Shares shall be
rounded down to the nearest full share, and cash will be issued in lieu of any
fractional REIT Shares based upon the Market Price.
"RESERVES" means, at any time, the total amount of the reasonable reserves
established and maintained by the Company at that time, in amounts reasonably
determined in the annual Operating Budget or otherwise approved by all of the
Members to be adequate and appropriate for current and future operating and
working capital and for capital expenditures and other costs and expenses
incident to the Company's business.
"RESERVE DEDUCTION" means, with respect to any period, the amount set aside
in that period to be added to Reserves, as determined in the annual Operating
Budget for that period or as otherwise approved by all the Members.
"SECURED INDEBTEDNESS" means the approximately $93,600,000 of non-recourse,
secured cross-collateralized indebtedness incurred in connection with the
purchase of the Original Properties.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIFIED CAPITAL EXPENDITURES" means those potential capital expenditures
set forth on Exhibit A to the Capital Expenditures Agreement.
"STORAGE" means SUSA Partnership, L.P., a Tennessee limited partnership.
"STORAGE REIT" means Storage USA, Inc., a Tennessee corporation.
"TREASURY REGULATIONS" means the Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"TRIGGERING MEMBER" has the meaning assigned to it in Section 9.4(a).
"VALUATION DATE" means the date on which the Company finally determines the
Fair Market Value of the Properties pursuant to Sections 9.3 or 9.4.
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ARTICLE II
FORMATION OF THE COMPANY
------------------------
SECTION 2.1. NAME AND FORMATION.
The name of the Company is Storage Portfolio I LLC. The Certificate of
Organization of the Company was filed on behalf of the Company with the Delaware
Secretary of State pursuant to the Act by an authorized person on March 30,
1999, and the Company was formed as a Delaware limited liability company
pursuant to the Act. The rights and liabilities of the Members shall be as
provided in the Act, except as otherwise set forth herein. In the event that any
provision in this Agreement conflicts with the Act, such provision in this
Agreement shall control and govern to the extent permitted by applicable law.
SECTION 2.2. PRINCIPAL PLACE OF BUSINESS.
The principal place of business of the Company shall be c/o SUSA
Partnership, L.P., 165 Madison Avenue, Suite 1300, Memphis, Tennessee, 38103, or
such other address as may be designated from time to time by all the Members, or
by the Investor if the Investor has assumed the duties of the Manager pursuant
to Section 11.2.
SECTION 2.3. ASSUMED NAME CERTIFICATE.
The Company shall do business under the name set forth in Section 2.1 above
or under any name determined under the Property Management Agreement, or under
any other name or names which the Members shall agree upon from time to time. If
the Company does business under a name other than that set forth under Section
2.1 or under the Property Management Agreement, the Manager shall file or cause
to be filed an assumed name or fictitious name certificate or any other document
as required by applicable law in appropriate jurisdictions and the Members shall
execute such certificates, documents or other writings as may be reasonably
requested by the Manager in connection therewith.
SECTION 2.4. REGISTERED OFFICE AND REGISTERED AGENT.
The registered office of the Company in the State of Delaware shall be c/o
The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
The agent for service of process on the Company pursuant to the Act shall be The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The
Manager may, from time to time upon notice to each Member and without amending
this Agreement, change the Company's registered agent and the address of its
registered office.
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SECTION 2.5. TERM.
The Company shall commence to exist on the date of the filing of the
Certificate of Organization with the Secretary of State of Delaware and shall
have perpetual existence, unless terminated in accordance with the provisions of
this Agreement or the Act.
SECTION 2.6. REGISTRATION.
The Manager shall cause the Company to register to do business as a foreign
limited liability company in any jurisdiction where the Company will conduct its
business and where such registration is required.
SECTION 2.7 PURPOSE, POWERS AND CHARACTER OF THE BUSINESS OF THE COMPANY.
The purposes, powers and character of the business of the Company shall be
as follows:
(a) to acquire, hold and manage the Properties and any other real or
personal property and make any improvements thereon;
(b) to enter into the Property Management Agreement;
(c) to own, operate, manage, maintain, repair and otherwise deal with
the Properties and any other property owned by the Company and to
carry on any other business which may be favorable to an owner of
self-storage facilities;
(d) to acquire, hold, use, lease, own, develop, improve and otherwise
deal with all or any portion of the Properties;
(e) to mortgage, sell, lease, assign, transfer, exchange or otherwise
encumber or dispose of all of the Properties of the Company, or
any portion thereof or interest therein, including in connection
with the Secured Indebtedness;
(f) to obtain temporary or permanent financing in the form of
acquisition loans, construction loans, participating loans,
working capital loans, and intermediate and long-term debt for
the purposes recited in this Section 2.7;
(g) to make any investment and expenditure, to borrow money and to
take any and all other actions which are incidental or reasonably
related to any of the purposes recited in this Section 2.7;
(h) to do any other act or activity, and carry on any business,
related directly or indirectly to ownership in real property or
interests therein; and
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(i) to do any and all things necessary or desirable to carry out the
foregoing activities and any other activity contemplated by this
Agreement or the Act.
SECTION 2.8. ADMISSION OF MEMBERS.
Upon the execution of this Agreement, Storage and the Investor shall be
admitted to the Company as Members. The Members shall constitute a single class
or group of Members of the Company for all purposes of the Act, unless otherwise
explicitly provided herein. The Manager shall notify the Members of changes in
Schedule 1, which shall constitute the record list of the Members for all
purposes of this Agreement. Additional Members may be admitted at such time and
upon such terms and conditions as may be determined by the written act or
consent of all of the Members pursuant to Article 9.
ARTICLE III
CAPITAL
-------
SECTION 3.1. CAPITAL OF COMPANY.
The capital of the Company shall be the aggregate amount of cash and the
fair market value of property contributed to the Company in the manner
hereinafter set forth in this Article 3.
SECTION 3.2. EXPENDITURES ON BEHALF OF THE COMPANY.
Investor and Storage acknowledge that prior to the date of this Agreement
and thereafter, each has made and may make the expenditures set forth on
Schedule 3.2 on behalf of the Company. If the transactions contemplated by the
Contribution Agreement and the Purchase Agreements do not close on or before the
Closing Dates specified therein, then liability for the expenditures set forth
on Schedule 3.2 shall be governed by the terms of the Letter Agreement. If such
closings occur, the Members shall be reimbursed for such expenditures as
provided in Section 4.9.
SECTION 3.3. CAPITAL CONTRIBUTIONS.
(a) From time to time, upon five (5) Business Days advance written
notice by the Manager, Investor and Storage shall contribute, but
not before the closing of the Contribution Agreement and the
Purchase Agreements, to the capital of the Company, in proportion
to their Capital Ratios, an aggregate cash amount equal to,
without duplication, the expenses of the Company necessary to
borrow the Secured Indebtedness (including any commitment fees
associated with the Secured Indebtedness and any amounts to be
paid to third parties in connection with any "rate lock" or
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other interest rate risk management instrument entered into in
connection with the Secured Indebtedness), to consummate the
acquisition of the Properties pursuant to the Contribution
Agreement and the Purchase Agreements, and to reimburse the
Members as contemplated by Section 4.9 (collectively, the
"PROPERTY ACQUISITION EXPENSES"). An estimate of the Property
Acquisition Expenses is set forth on Schedule 3.2, which shall be
updated and replaced from time to time with the unanimous consent
of the Members.
(b) In the event that the Company is required to close under the
Contribution Agreement, Storage shall contribute certain
properties, pursuant to the terms and conditions of the
Contribution Agreement. The Members agree that the properties
contributed by Storage pursuant to the Contribution Agreement
have an aggregate fair market value of $12,600,000 at the time of
the contribution.
(c) In the event that the Company is required to close under the
Purchase Agreements, at the time of such closings, Investor shall
contribute to the capital of the Company a cash amount equal to
the amount required to fund such closings under the Purchase
Agreements, but not exceeding $37,800,000.
(d) In the event that the Company is required to pay damages, costs
or expenses as a result of the Company's default under the
Contribution Agreement or the Purchase Agreements, upon five (5)
days' written notice from the Manager, Storage and Investor shall
contribute to the capital of the Company, in proportion to their
Capital Ratios, an aggregate cash amount equal to the total of
all such damages, costs and expenses owed by the Company.
SECTION 3.4. CAPITAL CONTRIBUTIONS FOR UNANTICIPATED NEEDS.
(a) If the Company requires additional funds beyond funds made
available pursuant to Section 3.2 and 3.3 to meet its existing
obligations or to conduct its business in accordance with the
approved Operating Budget, and such funds are not available from
third party sources to which the Members agree, the Manager
promptly shall give written notice (a "CAPITAL CALL NOTICE") to
the Members indicating the amount required by the Company and the
purpose for which such funds are required. Within ten (10)
business days of receipt of such Capital Call Notice, each Member
shall give notice to the Manager indicating whether or not it
agrees to make an Additional Capital Contribution to the Company
in an amount equal to its pro rata share, based upon Capital
Ratios, of the required funds. If both parties elect to make such
Additional Capital Contributions in the amount of their pro rata
share of the required
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funds, then each Member shall make such capital contributions
within five (5) business days of the last such election.
(b) If either Member does not so elect to make such Additional
Capital Contributions, then neither Member shall make such
capital contributions, and either Member may at any time
thereafter as long as the Company continues to require such
additional funds indicated in the Capital Call Notice and without
the requirement that the Manager deliver another Capital Call
Notice with respect to such required funds, give written notice
(an "OPTIONAL FUNDING NOTICE") to the other that it is prepared
to make all or a portion of the required funds available to the
Company and stating the terms on which the Member is prepared to
provide funds, including the rate, priority of return, any
disproportionate dilution of the non-contributing Member and
whether the Member requires that the other Member provide a
portion of the funds. Any Member receiving an Optional Funding
Notice shall elect either (i) to permit the Company to accept
funds on the terms proposed in such Optional Funding Notice, in
which event such Member shall also have the right to provide up
to its pro rata share, based on Capital Ratios, of such funds on
such terms as set forth below, or (ii) to offer to provide the
required funds on terms more favorable to the Company (e.g., at a
lower rate of interest or return). Any such response shall be
delivered to the Member which delivered the Optional Funding
Notice within fifteen (15) days after receipt thereof and shall
state (i) if the Member delivering such notice offers to provide
the funds on terms more favorable to the Company, the terms on
which the Member delivering such notice is prepared to make the
required funds available to the Company or (ii) if such Member is
permitting the Company to accept funds on the terms proposed in
the Optional Funding Notice, the extent to which such Member will
provide any portion of such funds on such terms. If a Member
fails to respond to an Optional Funding Notice within fifteen
(15) days after receipt thereof, it shall be deemed to have
agreed to permit the Company to accept funds on the terms
proposed in the Optional Funding Notice. If the Member receiving
an Optional Funding Notice offers to provide the required funds
on terms more favorable to the Company, the Company shall accept
funds on such terms. In either event, each Member shall be
entitled to provide up to its pro rata share, based on Capital
Ratios, of the required funds by contributing such funds to the
Company not later than thirty (30) days after the later of the
Optional Funding Notice or the election by the Member who
received it to provide funds on terms more favorable to the
Company. If the Members provide the required funds on a pro rata
basis, then no Member's Membership Interest shall be diluted.
Each Member acknowledges that the failure to participate in any
funding pursuant to this Section 3.4 may result in a dilution of
its interest and rights in the Company. If funds are provided
pursuant to this Section 3.4, this Agreement shall be amended as
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required to implement the terms and conditions on which the
Members have agreed to provide new funds to the Company. No
Member shall be obligated to provide funds pursuant to this
Section 3.4. Notwithstanding anything to the contrary in this
Section 3.4, without the prior written consent of all of the
Members, no Member shall be entitled to require the Company to
accept funds, and the Company shall not accept funds, until the
Investor shall have determined to its reasonable satisfaction
that the terms on which such funds are provided do not cause the
Company's allocations to fail to comply with the requirements of
Code Section 514(c)(9)(E) and the Treasury Regulations
promulgated thereunder.
(c) If a Member makes a payment directly to a creditor or another
Member in satisfaction of any indebtedness of the Company
pursuant to any indemnity, guaranty or contribution obligation of
such Member in respect of Company indebtedness, or if any
collateral interest granted by such Member to such creditor or
other Member to secure any such indebtedness shall be foreclosed
and the proceeds of such foreclosure shall be applied to reduce
or satisfy such indebtedness and any foreclosure-related
expenses, such Member shall be deemed to have made an Additional
Capital Contribution equal to such amount, and shall receive a
credit to its Capital Account in the amount thereof.
(d) Notwithstanding any actual or implied provision to the contrary
in this Section 3.4, no Member shall be liable to make any
Additional Capital Contribution to the Company and no Member
shall have any obligation to make a payment of an amount due the
Company by another Member.
SECTION 3.5. COMPANY CAPITAL.
(a) Expect as may be otherwise specifically provided in this
Agreement, no Member shall be paid interest on any Capital
Contribution to the Company.
(b) No Member shall have the right to withdraw all or any part of its
Capital Contribution or to receive any return on any portion of
its Capital Contribution except as may be otherwise specifically
provided in this Agreement.
(c) When the Company is to return to any Member all or part of its
Capital Contribution or make any other distribution (whether in
liquidation or otherwise) to any Member, no Member shall have the
right to receive property other than cash. No distribution in
kind shall be made to any Member without the prior written
approval of all the Members.
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(d) All Capital Contributions must be made in cash unless, and only
to the extent, expressly provided otherwise herein, in any
Contribution Agreement or Purchase Agreement or in a written
instrument of approval or consent signed by all of the Members.
SECTION 3.6. LIABILITY OF MEMBERS.
No Member, in such capacity or as a Manager, shall (i) be liable for the
debts, liabilities, contracts or any other obligation of the Company, except to
the extent expressly provided herein or in the Act, (ii) be liable for the debts
or liabilities of any other Member, (iii) be required to contribute to the
capital of, or loan, the Company any funds other than as expressly required in
this Agreement, (iv) be liable for the return of all or any portion of the
Capital Contributions of any Member, or (v) except as otherwise expressly
provided herein, have any priority over any other Member as to the return of its
contributions to capital or as to compensation by way of income.
SECTION 3.7. LOANS BY MEMBERS OR AFFILIATES.
Any Member or Affiliate may (but shall not be obligated to) at any time
loan money or guarantee a loan to the Company to finance Company operations, to
finance or refinance any assets of the Company, to pay the debts and obligations
of the Company, or for any other Company purpose; provided, however, that unless
a loan or guarantee is specifically permitted pursuant to this Agreement, such
Member or Affiliate must first obtain the prior written approval of all of the
Members for such loan or guarantee. Except as otherwise provided herein or in
any other agreement between the Company and some or all of the Members which has
been approved by all of the Members, if any Member or its Affiliate lends funds
or guarantees a loan of funds to the Company, such Member or Affiliate shall be
entitled to receive interest on such loan, or a fee for guaranteeing any such
loan, at an interest rate or fee to be agreed upon by such Member or Affiliate
and all of the Members.
SECTION 3.8. CAPITAL ACCOUNTS.
A separate capital account (each, a "CAPITAL ACCOUNT") shall be maintained
for each Member in accordance with the rules of Treasury Regulations Section
1.704-1(b)(2)(iv), and this Section 3.8 shall be interpreted and applied in a
manner consistent therewith. Whenever the Company would be permitted to adjust
the Capital Accounts of the Members pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(f) to reflect revaluations of Company property, the Company
shall so adjust the Capital Accounts of the Members. In the event that the
Capital Accounts of the Members are adjusted pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of Company property, (i)
the Capital Accounts of the Members shall be adjusted in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of
depreciation, depletion, amortization and gain or loss, as computed for book
purposes, with respect to such property, (ii) the Members' distributive shares
of depreciation, depletion, amortization and gain or loss, as computed for tax
purposes, with respect to such
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property shall be determined so as to take account of the variation between the
adjusted tax basis and book value of such property in the same manner as under
Code Section 704(c) and (iii) the amount of upward and/or downward adjustments
the book value of the Company property shall be treated as income, gain,
deduction and/or loss for purposes of applying the allocation provisions of
Section 7.2. In the event that Code Section 704(c) applies to Company property,
the Capital Accounts of the Members shall be adjusted in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of
depreciation, depletion, amortization and gain and loss, as computed for book
purposes, with respect to such property. If, pursuant to the Capital
Expenditures Agreement or the Contribution Agreement, Storage is required to pay
to the Company cash for capital expenditures or remedial work relating to the
properties contributed to the Company pursuant to the Contribution Agreement,
Storage's Capital Account shall be decreased to reflect a negative adjustment
(in the amount of such payment) to the value of such properties as of the
contribution date and increased by an amount equal to such payment. If, pursuant
to the Capital Expenditures Agreement, the Company is required to repay to
Storage cash that Storage had previously paid to the Company for capital
expenditures relating to the properties contributed to the Company pursuant to
the Contribution Agreement, Storage's Capital Account shall be increased to
reflect a positive adjustment (in the amount of such repayment) to the value of
such properties as of the contribution date and decreased by an amount equal to
such repayment.
SECTION 3.9. CAPITAL RATIOS.
The Capital Ratio of each Member is set forth opposite its respective name
on Schedule 1, attached hereto and hereby made a part of this Agreement. The
Capital Ratios set forth on Schedule 1 may be amended from time to time by the
unanimous written consent of the Members.
ARTICLE IV
RIGHTS AND POWERS OF THE MANAGER
--------------------------------
SECTION 4.1. MANAGER'S POWERS AND RESPONSIBILITIES.
The Manager of the Company shall be Storage or such other person as may be
appointed to serve as Manager from time to time by agreement of all of the
Members or pursuant to the Investor's rights under Article XI. The Manager shall
manage the affairs of the Company as provided herein and shall carry out the
duties of the Manager, as such duties are described in the Act. Without
limiting the foregoing (but subject to and limited by the provisions of this
Agreement, including Section 4.2), the Manager shall have full power and
authority to do the following to the extent necessary for the conduct of the
Company's business:
(a) to supervise or arrange for the supervision of day-to-day
operations of the Company;
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(b) to institute, prosecute, defend or settle any legal,
arbitration or administrative actions or proceedings on behalf
of or against the Company, subject to the provisions of
Section 4.2(r);
(c) retain attorneys, consultants and other independent
contractors to the extent such professional services are
required to carry on the business of the Company;
(d) to collect all rents and other repayments due and owing to the
Company;
(e) to incur normal operating expenses of, and to pay the
obligations of, the Company, and to enter into, perform and
carry out contracts and agreements on behalf of the Company
for the conduct of the Company's business;
(f) subject to Investor's rights under Section 4.6, to perform, or
cause to be performed, all of the Company's obligations, and
to exercise or cause to be exercised all of Company's rights
under any agreement (including, without limitation, the
Financing Documents and any limited liability company
agreement, partnership agreement, joint venture agreement,
shareholder's agreement or other similar agreement) to which
the Company or any nominee of the Company is a party;
(g) to pay all taxes, assessments, rents and other impositions
applicable to Company assets and undertake when appropriate
any action or proceeding seeking to reduce such taxes,
assessments, rents or other imposition;
(h) to obtain, maintain or cancel any type of insurance coverage
on the Properties or other assets of the Company, including
any commercially reasonable and customary insurance to protect
the Manager against liability from third parties in such
amounts as are reasonably necessary and appropriate;
(i) to open or maintain bank accounts for the deposit of Company
funds, provided that withdrawals may be made only upon the
Manager's signature or any other signature that all of the
Members designate;
(j) to prepare and file tax returns on behalf of the Company in
any federal, state, local or foreign tax jurisdiction which
may apply;
(k) to do any and all acts which may be necessary or desirable for
the proper management and maintenance of the Properties,
including any matters provided for in the Property Management
Agreement;
(l) to execute and deliver such documents on behalf of the Company
as it reasonably deems necessary or desirable in connection
with the foregoing provisions; and
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(m) to do any act which is necessary or desirable to carry out any
of the foregoing.
SECTION 4.2. ACTIONS REQUIRING CONSENT OF ALL MEMBERS.
Notwithstanding the foregoing provisions of Section 4.1, unless the action
is provided for in the Operating Budget, is otherwise expressly permitted
pursuant to the terms of this Agreement (including Section 4.11) or the Manager
has obtained the written consent of all of the Members, the Manager shall not
cause the Company to do, nor shall the Manager have the power or authority to
cause or permit the Company to do, any of the following:
(a) to purchase or acquire, or contract or commit to purchase or
acquire, any property or asset;
(b) except in accordance with the provisions of Section 9.3, 9.4
or 9.5, to Dispose of all or any portion of, or any estate or
interest in, the Properties (other than leasehold interests to
third parties granted in the ordinary course of business) or
assets of the Company, including its goodwill;
(c) to enter into any contract; provided, however, that the
Manager shall have the authority to enter into the Property
Management Agreement without obtaining the written consent of
the Members;
(d) to borrow any money or enter into any financing, refinancing
or loan transaction, including the Secured Indebtedness, or
grant a security interest in all or any portion of the
Properties or amend the terms and conditions of any existing
financing or make elections with respect to interest periods,
interest rates, prepayment or other material provisions under
any financing;
(e) to lease any Property of the Company, except to third parties
in the ordinary course of the Company's business or in
accordance with the Property Management Agreement or the
Franchise Leases;
(f) to enter into, or amend, any contract between the Company and
a Member or an Affiliate of a Member;
(g) to hire any employee for the Company;
(h) to enter into any agreement restricting the Company or any
Member or Affiliate from competing with the business of any
Person in any manner;
(i) to enter into any agreement for, or to consummate, any merger,
consolidation, recapitalization, reorganization,
reconstitution or any similar rearrangement of the Company or
any of its equity, assets or liabilities;
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(j) to admit any Person to the Company as an additional or
substitute Member;
(k) to commit the Company to an assignment for the benefit of
creditors, commence (as the debtor) a case in bankruptcy, or
commence (as the debtor) any proceeding under any other
insolvency law, or consent to or acquiesce in the commencement
of any such proceeding against the Company, or admit or
confess the insolvency or bankruptcy of the Company;
(l) to settle any uninsured legal, arbitration or administrative
claim or proceeding asserted or brought against the Company,
or confess a judgment against the Company, at a cost to the
Company in excess of the lesser of $100,000 or the amount
therefor expressly provided in the Operating Budget as a
separate line item specifically identifying the particular
claim or proceeding;
(m) to dissolve or wind up the Company or cause or permit the
termination of its existence;
(n) to change the name of the Company;
(o) to commit the Company to any capital or operating expenditures
in excess of the Operating Budget except as otherwise
specified in Section 4.11;
(p) seek or consent to any material change in the zoning or other
land use regulations affecting any Properties or any permits
or approvals granted thereunder;
(q) rebuild or reconstruct the improvements on any Properties if
they are substantially damaged by a fire or other casualty;
(r) file or defend lawsuits or other proceedings, except for (1)
actions to recover rents (including the imposition and
execution of liens on tenants' property), (2) actions to
recover possession of the Properties and claims of tenants in
the ordinary course of business, (3) the defense by insurers
of insured claims or (4) other actions in the ordinary course
of business of operating an individual Property; provided,
however, that with respect to any such lawsuit or proceeding
involving a claim or series of related claims against the
Company totaling more than $250,000, the Manager shall give
the Members prompt notice of such lawsuit or proceeding and
all Members shall have the opportunity to consult with the
Manager regarding the Company's defense of the action;
(s) change the Company's accounting methods, either for financial
or tax reporting purposes; or
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(t) to do any act in contravention of this Agreement.
SECTION 4.3. OPERATION IN ACCORDANCE WITH PLANS.
The Manager shall exercise reasonable efforts to cause the Company to be
operated in compliance with the Operating Budget and to maintain in effect the
insurance required by the Insurance Program.
SECTION 4.4. ERISA MATTERS.
The Company shall use its best efforts to conduct its affairs so as to
constitute a "real estate operating company" as defined in the regulations
promulgated under the Employee Retirement Income Security Act of 1974 ("ERISA"),
as amended from time to time, at 29 C.F.R. 2510.3-101. For purposes of
determining that the Company so qualifies, the annual valuation period of the
Company for purposes of such regulation shall be the ninety (90)-day period
commencing each December 1. As long as Storage (or an Affiliate of Storage) is
the Manager, the Manager shall, if requested by the Investor, exercise diligent
efforts to obtain from any lender, tenant or other party with which the Company
does business such certificate or other evidence as the Investor may request in
order to determine that the transaction with such party does not constitute a
non-exempt prohibited transaction for purposes of ERISA.
SECTION 4.5. UBTI MATTERS; REIT REQUIREMENTS.
(a) UBTI Matters. Storage acknowledges that it has been advised
that certain indirect investors in the Investor are qualified
organizations within the meaning of Code Section 514(c)(9)(C)
which are not generally required to pay federal income tax on
interest, certain real property rents and certain other types
of income and agrees that the business and affairs of the
Company will be managed with a view to minimizing the amount
of income of the Company that will constitute unrelated
business taxable income ("UBTI") to a qualified organization
under Section 511 et seq. of the Code. Storage agrees that,
except to the extent that such action would cause Storage REIT
to be disqualified as a REIT and would be contrary to Section
4.5(b) below, the Investor shall be entitled to exercise any
consent, election or other right under this Agreement with a
view to avoiding any UBTI to the Investor or any of its
members and without regard to whether conducting the business
of the Company in such manner will maximize either pre-tax or
after-tax profit of the Company to a Member who is not such a
qualified organization. Without the prior written consent of
the Investor which specifically refers to the requirement of a
consent under this Section 4.5, the Company shall not (i)
obtain financing from the seller to the Company of the
Properties or any individual or entity who bears a
relationship described in Code Sections 267(b) or 707(b) to
such seller, excluding financing on commercially reasonable
terms, (ii) lease any of
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the Properties to such seller or to any individual or entity who
bears a relationship described in Code Sections 267(b) or 707(b)
to such seller, excluding leases to such persons if no more than
25% of the leasable floor space in a building (or complex of
buildings) is covered by such leases and if the leases are on
commercially reasonable terms, (iii) obtain any financing where
the amount of the indebtedness or any other amount payable with
respect to the financing, or the time for making any payment, is
dependent upon any revenue, income or profits derived from the
Properties, (iv) incur any indebtedness which would otherwise be
treated as "acquisition indebtedness" under Code Section 514(c),
(v) incur any indebtedness which would constitute "partner
nonrecourse debt" as defined in Treasury Regulations
ss.1.704-2(b)(4), (vi) enter into any lease which provides for
contingent rental payments unless based upon the tenant's gross
receipts, (vii) enter into any lease or other arrangement
pursuant to which it receives rents from personal property or
payment for the performance of services which would constitute
UBTI, except as provided on Schedule 4.5, (viii) invest or hold,
directly or through one or more entities, any interest in any
partnership if at any time it does not comply with Code Section
514(c)(9)(E) and the Treasury Regulations thereunder, or (ix)
otherwise engage in any transactions which would result in UBTI
for the Investor or any of the holders of direct or indirect
equity interests in the Investor. The provisions of this Section
4.5(a) shall not be interpreted to interfere with the exercise of
either party's rights under Sections 9.3, 9.4 or 9.5 of this
Agreement.
(b) REIT Requirements. Each Member understands and acknowledges that
Storage REIT is the general partner of Storage and that Storage
REIT has elected to be treated as a real estate investment trust
("REIT") under Code Section 856. Each Member further understands
and acknowledges that in order to maintain its status as a REIT,
Storage REIT must comply with numerous and complex rules and
regulations set forth in the Code and the Treasury Regulations,
many of which are applied on a quarterly and/or annual basis (the
"REIT REQUIREMENTS"), and that the management and operation of
the Company may have an effect on the ability of Storage REIT to
continue to maintain its status as a REIT. Accordingly, the
Company shall not take any action which (or fail to take any
actions, the omission of which) would cause Storage REIT to be
disqualified as a REIT, determined as if the Company were the
sole investment of Storage REIT. In addition, the business and
affairs of the Company will be managed with a view to minimizing
any additional taxes under Code Section 857 or Code Section 4981
or other potentially adverse consequences under the Code or which
otherwise could cause Storage REIT to violate the REIT
Requirements, each determined as if the Company were the sole
investment of Storage REIT. In addition, any action of the
Manager on behalf of the Company or any decision of the
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Manager to refrain from acting on behalf of the Company,
undertaken in the Manager's business judgment that such action or
omission is necessary to prevent the disqualification of Storage
REIT as a REIT, determined as if the Company were the sole
investment of Storage REIT, is expressly authorized under this
Agreement and is deemed approved by all of the Members. Subject
to Section 4.5(a) (but taking into account the limitation
provided therein where such action would cause Storage REIT to be
disqualified as a REIT and would be contrary to this Section
4.5(b)), Investor agrees that Storage shall be entitled to
exercise any consent, election or other right under this
Agreement with a view (i) to protecting Storage REIT's status as
a REIT, (ii) to avoid Storage REIT incurring any taxes under
Section 857 or Section 4981 of the Code or other potentially
adverse consequences under the Code or (iii) to avoid causing
Storage REIT to violate the REIT requirements, each determined as
if the Company were the sole investment of Storage REIT. The
provisions of this Section 4.5(b) shall not be interpreted to
interfere with the exercise of either party's rights under
Sections 9.3, 9.4 or 9.5 of this Agreement.
To the extent practicable, the Manager shall give the Members three
Business Days' notice of such action or failure to act.
SECTION 4.6. CONTRACTS WITH AFFILIATES.
The Company has entered or shall enter into the Contribution Agreement, the
Purchase Agreements and the Capital Expenditures Agreement. The Company shall
enter into the Property Management Agreement with Storage or its Affiliate in
the form approved by the Investor and attached hereto as Exhibit B. Subject to
Investor's prior approval of the terms and form of such leases, the Company
shall enter into leases with Storage USA Franchise Corp. for space at the
Properties for the purpose of selling locks and supplies (the "FRANCHISE
LEASES"). The Company shall enter into the Property Management Agreement and the
Franchise Leases promptly after the acquisition of the Properties. The Investor
shall have the sole and exclusive right to direct in good faith the Company's
actions with regard to such contracts and any other contracts between the
Company and Storage or any Affiliate of Storage, including proposing or
approving on behalf of the Company any amendment or modification of such
contracts, exercising on behalf of the Company any consent, waiver, approval or
election thereunder, enforcing on behalf of the Company any remedies, including
termination thereof and taking any and all other actions under or with respect
to such agreements as owner. Notwithstanding the foregoing, without the consent
of Storage, the Company shall not give notice preventing the automatic renewal
of the Property Management Agreement or terminate the Property Management
Agreement or the Franchise Leases, except pursuant to Article XI or at such time
that Storage is not longer a member of the Company. In any contractual dispute
between Storage or any Affiliate of Storage and the Company commenced while
Storage is a Member, Investor shall indemnify the Company against any and all
losses, damages, costs or expenses (including, without limitation, attorneys'
fees) incurred by the Company or owed by the Company to Storage or any Affiliate
of Storage pursuant to a final, non-appealable judgment or
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arbitration award. If the Company is the prevailing party in such dispute
pursuant to a final, non-appealable judgment or arbitration award, in lieu of
payment by Storage or such Affiliate of any losses, damages, costs or expenses
awarded to Company in such dispute, Investor and the Company agree that Storage
shall pay to the Company an amount equal to such losses, damages, costs or
expenses which the Company is entitled to receive from Storage or its Affiliate,
multiplied by the inverse of Investor's Capital Ratio (the "Member Dispute
Damages"). If Storage or Investor is no longer a Member at the time such dispute
is concluded, the parties shall make such payments to one another as shall be
necessary to reproduce as nearly as practicable the economic effects on each of
them that would have been produced pursuant to the preceding two sentences if
both had remained members until such conclusion. Except as otherwise expressly
provided herein, the Company shall not enter into any other contracts with a
Member or any Affiliate of a Member or modify, amend or terminate the
Contribution Agreement, the Purchase Agreements, the Capital Expenditures
Agreement, the Franchise Leases or the Property Management Agreement or any
other agreement between the Company and a Member or an Affiliate of a Member
without the specific prior written approval of all the Members.
SECTION 4.7. EMPLOYEES AND CONTRACTORS.
The Company shall conduct its business exclusively through independent
contractors and shall not hire any employees. The Manager shall supervise and
administer all services rendered to the Company by independent contractors. If
the Property Management Agreement shall be terminated, the Manager shall select
qualified contractors approved by the Investor which are unaffiliated with any
Member to perform the management, leasing and other services required by the
Company.
SECTION 4.8. FINANCING.
The Manager at its option our upon request by a Member shall use diligent
efforts to identify favorable financing for the Company. After the Members have
approved financing for the Company, the Manager shall use diligent efforts to
close such financing and to enter into all incidental arrangements relating
thereto, including satisfying the requirements of prospective lenders, and
entering into interest rate protection agreements and other ancillary
arrangements approved by the Members. The Manager shall not enter into any
arrangements for financing or pay any commitment or application or other fees
for financing without the prior written approval of the Members. The Manager
acknowledges that any Member may elect not to approve financing which would
adversely affect the Company's ability to dispose of the Properties or which
might require the Company to pay a prepayment premium at a time at which any
Member may desire to liquidate its interest in the Company.
SECTION 4.9. COMPENSATION AND EXPENSE REIMBURSEMENT.
(a) The Manager shall not receive any compensation for serving as
Manager. The Company, however, shall reimburse the Manager or its
reasonable, out-of-pocket expenses paid to third parties for
those items listed on
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Schedule 4.9(a) and incurred in carrying out its duties as
Manager (the "MANAGER EXPENSES").
(b) The Company shall reimburse the Members for their reasonable
out-of-pocket costs and expenses paid to third parties incurred
by them (i) in negotiating this Agreement and in facilitating the
Company's purchase and financing the Properties, including,
without limitation, the expenses described in the Letter
Agreement, fees of third-party attorneys and consultants, all of
which costs and expenses are set forth or estimated on Schedule
3.2, and (ii) for those items listed on Schedule 4.9(b) and
incurred in administering their investments in the Company
(collectively, the "MEMBER EXPENSES").
SECTION 4.10. CONTINUED INVOLVEMENT REQUIREMENTS.
The Company shall not enter into any agreement or other arrangement with
any third party requiring the continued ownership, control, employment, or other
involvement with the Company or the Properties of Storage or any Affiliate of
Storage without the specific prior written consent of the Investor. To the
extent that the Company does enter into any such agreement or arrangement,
Storage covenants not to take any action or refrain from taking any action which
would constitute a breach of such requirement or which would trigger any such
right or obligation.
SECTION 4.11. OPERATING BUDGET.
(a) The Members have approved the initial operating budget for the
Company (collectively, the "OPERATING BUDGET") for the partial
calendar year ending December 31, 1999. The initial Operating
Budget is more fully described on Schedule 4.11. The Operating
Budget for subsequent calendar years shall include, but not be
limited to, anticipated revenues, occupancies, rate increases,
capital improvements, financing needs, salaries and all other
operating expenditures of the Company, and shall separately set
forth all capital expenditures, identifying those items that are
Specified Capital Expenditures. No later than November 30 of each
calendar year, the Manager will present a proposed Operating
Budget for the following year to all of the Members for their
consideration and approval, which approval shall not be
unreasonably withheld or delayed. Following delivery of a
proposed Operating Budget, the Members shall approve and
disapprove the Operating Budget no later than twenty (20) days
after the date on which Manager has met with, or attempted in
good faith to meet with, each Member to discuss the proposed
Operating Budget. To be effective, any notice which disapproves a
proposed Operating Budget must contain specific line-item
objections thereto in reasonable detail. Any Member who fails to
provide any such written notice within the
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twenty-day period, shall be deemed to have (i) approved of all
items other than capital expenditure items included in the
Operating Budget as submitted and (ii) disapproved of the capital
expenditures items included in the Operating Budget as submitted.
Each Member shall review the Operating Budget as submitted. Each
Member shall review the Operating Budget on a line-by-line basis.
If a Member disapproves (or is deemed to disapprove) or raises
any objections to any line items contained in the proposed
Operating Budget or any revisions thereto, until otherwise
mutually agreed, the undisputed portions of the proposed
Operating Budget shall be deemed to be adopted and approved. For
all items except capital expenditure items, the item
corresponding to a disputed item and contained in the Operating
Budget for the preceding calendar year shall be substituted in
lieu of the disputed portions of the Operating Budget. In each
instance where portions of the Operating Budget for the preceding
calendar year are deemed to be part of the Operating Budget in
effect until a new Operating Budget is approved, the items
contained in the Operating Budget for the preceding calendar year
shall be automatically increased by a percentage equal to the
percent of increase in the Consumer Price Index during the
preceding calendar year, except for interest, taxes and
insurance, which shall be increased based on actual increases, if
any, in cost. If, notwithstanding such increase, the Members do
not reach agreement as to a mutually acceptable Operating Budget
within thirty (30) days after delivery of an objection by a
Member (or the deemed disapproval by a Member), the disputed line
items of the Operating Budget shall be submitted to and resolved
by arbitration in accordance with Section 12.16 of this
Agreement.
(b) Notwithstanding the foregoing, with respect to each Property and
without the consent of the Members, the Manager shall have the
right, in its reasonable discretion, to expend up to the greater
of (i) 10% or (ii) $6,000 more than the amount budgeted for each
operating expense line item (exclusive of capital expenditure
items) for each Property for any Fiscal Year, not to exceed in
the aggregate a maximum of the greater of (i) 5% of the total
operating budget or (ii) $30,000 for each Property for any Fiscal
Year.
(c) The Manager shall have the right, from time to time during each
calendar year, to submit a revision to the Operating Budget to
the Members for approval. The Members will review all proposed
revisions to the Operating Budget on a line by line basis in the
same manner as the Operating Budget. Following delivery of any
proposed revision to an Operating Budget, each Member shall be
required to approve or disapprove such proposed revision to the
Operating Budget no later than twenty (20) days after the date on
which the Manager has met with, or attempted in good faith to
meet with, each Member regarding the proposed revision. To be
effective, any notice which disapproves proposed revisions to the
Operating Budget must contain specific line item objections
thereto in reasonable detail. If a Member fails
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to provide such written notice to Manager of any specific
objections to proposed revisions to the Operating Budget within
such twenty (20) day period, such proposed revisions shall be
deemed to have (i) approved as submitted if they are items other
than capital expenditure items and (ii) disapproved as submitted
if they are capital expenditure items. If a Member shall
disapprove (or be deemed to disapprove) or raise any objections
to any items contained in revisions to the Operating Budget,
Manager shall continue to use all reasonable efforts to comply
with the Operating Budget in accordance with the foregoing
provisions until a proposed revision has been approved. If no
revision is approved before the expiration of thirty (30) days
after any revision is submitted to the Members for approval such
disapproval shall be resolved by arbitration in accordance with
Section 12.16 of this Agreement.
(d) The Manager shall not be deemed to have made any guarantee or
warranty of the fiscal estimations set forth in the Operating
Budget. The parties acknowledge that the Operating Budget is
intended to set forth objectives and goals based on the Manager's
best judgment of the facts and circumstances known by the Manager
at the time of preparation.
SECTION 4.12. INSURANCE PROGRAM.
"Insurance Program" means the program for insurance described in Schedule
4.12. It is the understanding of the Members that Storage shall include the
Company in Storage's insurance program. The Manager shall exercise its best
efforts to ensure that the Insurance Program continues to meet or exceed the
minimum standards set forth on Schedule 4.12, and the Manager shall obtain
Investor's prior written consent before making any modifications to the
Company's insurance program that would cause the program to no longer meet or
exceed the minimum standards set forth on Schedule 4.12.
SECTION 4.13. DELEGATION OF AUTHORITY.
The Manager may from time to time delegate in writing to one or more
Members or other Persons such authority as the Manager may deem advisable.
SECTION 4.14. LIABILITY OF THE MANAGER.
It is the intent of this Section 4.14 to restrict the nature of the
Manager's duties and liabilities hereunder to the maximum extent permitted under
applicable law. Neither the Company nor any Member shall have any claim against
the Manager by reason of any act or omission of such Manager performed by the
Manager in the good faith belief that it was acting within the scope of its
authority under this Agreement unless such act or omission involves the
Manager's bad faith, gross negligence, willful misconduct or fraud. Further, the
Manager shall have no liability hereunder for failing to act if such act
required the consent of some or all of the
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Members and the required consent to such action was requested by Manager but not
granted. However, the Manager will be liable to the Company for failing to do
any thing specifically required of it by this Agreement and for any act taken
without the consent or approval of the Members when such consent is required,
provided such failure to do anything specifically required of it by this
Agreement or act taken without the required consent or approval of Members (a)
involves the Manager's bad faith, gross negligence, willful misconduct or fraud,
or (b) resulted in actual, material damage to the Company or a Member. Any
amendment, modification or repeal of this Section 4.14 or any provision in this
Section 4.14 shall be prospective only and shall not in any way affect the
limitations on the Manager's liability to the Company and the Members under this
Section 4.14 as in effect immediately prior to such amendment, modification or
repeal with respect to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when claims relating to such
matters may arise or be asserted. In furtherance of this limitation of liability
and duties of the Manager, but not by way of limitation, the following
provisions shall apply:
(a) Subject to the limitations set forth in Section 4.16, it will not
constitute a breach of fiduciary or other duty for the Manager to
engage in activities of the type conducted by the Company, even
if in direct competition with the Company, including without
limitation, the purchase, sale and leasing of self-storage
facilities or the purchase and sale of any real property;
(b) It will not constitute a breach of fiduciary or other duty for
the Manager to resolve any conflicts of interest related to any
REIT Requirements, subject to the parameters set forth in Section
4.5(b) hereof;
(c) It will not constitute a breach of fiduciary or other duty for
the Manager to engage, as attorneys, accountants and other
advisors on behalf of the Company, persons who may also be
retained from time to time by the Manager or its Affiliates, or
any of their respective officers, directors or shareholders
(including without limitation engaging the auditors for Storage
to audit and certify the financial statements of the Company in
accordance with Section 6.3(a) hereof), and such persons may be
engaged by both the Company and the Manager or its Affiliates
with respect to any matter; provided, however, that unless
approved by all the Members after full disclosure of any conflict
of interest, such persons may not be engaged with respect to any
matter in which the interest of the Company and the Manager or
any of its Affiliates may conflict. The Manager shall not be
responsible for any misconduct or negligence on the part of any
such attorney, accountant or other advisor;
(d) It will not constitute a breach of fiduciary or other duty for a
Manager, or an Affiliate of a Manager, to contract or enter into
any agreement or arrangement with the Company with respect to any
aspect of the operations of the Company if approved by all of the
Members after full disclosure; and
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(e) It will not constitute a breach of fiduciary or other duty for
the Manager to devote time to other matters not related to the
operations of the Company, as long as the Manager devotes such
time and attention to the business and affairs of the Company as
is necessary to reasonably conduct the business and affairs of
the Company as set forth herein.
(f) It will not constitute a breach of fiduciary or other duty for
the Manager to lend funds to the Company to the extent permitted
hereunder, including, without limitation, pursuant to Section
3.4.
SECTION 4.15. INDEMNIFICATION.
The following provisions shall apply to the indemnification of the Members
and persons or entities affiliated with the Members:
(a) "Indemnified Parties" means the Members, any officer, director,
manager or other agent of a Member, any direct or indirect holder
of equity in the Members, Storage REIT, Fidelity Real Estate
Partners III Corp. ("FREP"), any entity controlling, controlled
by or under common control with FREP, any entity controlling
controlled by or under common control with Storage REIT, any
investment manager for any holder of equity in any Member, each
of the officers, directors and employees of any of the preceding
persons or entities, and any other person who serves at the
request of any of the preceding persons or entities as an
officer, director, trustee, manager or agent of any entity in
which the Company has an interest as an owner, security holder,
creditor or otherwise.
(b) Except as otherwise required by applicable law or specifically
provided in this Agreement, and subject to Section 4.14, no
Indemnified Party shall be liable to the Company or any person or
entity holding an equity interest in the Company for any loss
suffered by the Company or such person or entity which arises out
of any action or inaction of any Indemnified Party as long as
such Indemnified Party acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best
interests of the Company and which action or inaction does not
constitute a material breach of this Agreement.
(c) The Company shall indemnify, to the extent of its assets, each
Indemnified Party against all liabilities, losses and expenses
incurred by any of them in connection with any matter relating to
the Company or any entity in which the Company has any interest
as an owner, security holder, creditor or otherwise, including
but not limited to amounts paid in satisfaction of judgments,
settlements, fines, penalties and counsel fees reasonably
incurred in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal,
pending or threatened, before
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any court or administrative or legislative body, in which such
Indemnified Party may be or may have been involved as a party or
otherwise or with which such Indemnified Party may be or may have
been threatened. Notwithstanding the foregoing, indemnification
shall not be paid to any Indemnified Party with respect to any
matter as to which such Indemnified Party shall have been finally
adjudicated to have committed an act or omission involving
willful misconduct, fraud, gross negligence or bad faith or
material breach of this Agreement.
(d) Amounts required to be paid by the Company to an Indemnified
Party pursuant to this Section 4.15 in reimbursement of
judgments, settlements, fines, penalties, counsel fees and other
costs actually incurred by such Indemnified Party shall be paid
together with interest thereon at the "base rate" announced by
BankBoston, N.A. (or if such rate is no longer available, at such
other comparable prime or base lending rate announced from time
to time by an institutional lender selected by the Indemnified
Party) plus five percent (5%) per annum from the later of (i) the
date such amounts were paid by the Indemnified Party or (ii) the
date on which the Company received notice of such payment.
SECTION 4.16. RIGHTS OF COMPETITION.
Each Member or Manager, in its individual capacity or otherwise, and their
respective principals and Affiliates, shall be free to engage in, conduct or
participate in any business or activity whatsoever, including, without
limitation, the purchase, sale and lease of self-storage facilities, without any
accountability, liability, or obligation whatsoever to the Company or to any
other Member. Any competing business or activity of a Member or a Manager may be
undertaken with or without notice to or participation therein by any other
Member. Each Member and the Company hereby waives any right or claim it may have
against any Member or Manager with respect to any competing business or activity
or the income or profits therefrom. Notwithstanding the foregoing, Storage
agrees that, for so long as both Storage and Investor are Members of the
Company, neither Storage nor its Affiliates shall initiate directly or
indirectly the development of any new self-storage facilities within a three
mile radius of any of the Original Properties, except that the limitation shall
apply only within a one and one-half mile radius of the Original Properties,
listed on Schedule 4.16(a). If Storage or an Affiliate of Storage desires to
develop a new self-storage facility within the prohibited radius, Storage shall
obtain the prior written consent of Investor, which consent may be withheld in
Investor's sole discretion. The foregoing restrictions do not apply to any
development already planned by Storage or one of its Affiliates as of the date
of this Agreement, which development projects are set forth on Schedule 4.16(b).
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SECTION 4.17. RESIGNATION AND REMOVAL.
The Manager may resign (i) at any time after giving all of the Members at
least ninety (90) days' prior written notice of its intention to do so, which
notice shall set out the effective date of the resignation, or (ii) upon the
termination or non-renewal of the Property Management Agreement. The Manager may
be removed by the Members only after the Property Management Agreement is no
longer in effect or as otherwise permitted pursuant to Article XI of this
Agreement. Upon such resignation or removal, a replacement Manager shall be
appointed by all of the Members or by Investor pursuant to Article XI.
ARTICLE V
MEETINGS OF MEMBERS
-------------------
SECTION 5.1. PLACE OF MEETINGS.
All meetings of the Members shall be held at the principal office of the
Company or at such other place within or without the State of Delaware as may be
determined by all of the Members and set forth in the respective notice or
waivers of notice of such meeting.
SECTION 5.2. MEETINGS OF MEMBERS.
Meetings of the Members shall be held at least quarterly and may be called
by the Manager or any Member. The Manager will hold meetings with the Members to
review and discuss the Company and Property performance from time to time to
time as reasonably requested by any Member. The President of the Manager shall
serve as chairperson of the meetings unless all the Members determine otherwise.
SECTION 5.3. NOTICE OF MEETINGS OF MEMBERS.
Written or printed notice stating the place, day and hour of the meeting
shall be delivered not later than fourteen (14) nor earlier than sixty (60) days
before the date of the meeting, either personally or by mail, by or at the
direction of the Manager or Member calling the meeting, to each Member of record
entitled to vote at such meeting. Notice of any meeting may be waived by the
Members.
SECTION 5.4. QUORUM.
All of the Members shall constitute a quorum at all meetings of the
Members, except as otherwise required by law. Once a quorum is present at the
meeting of the Members, the subsequent withdrawal from the meeting of any Member
prior to adjournment or the refusal of any Member to vote shall not affect the
presence of a quorum at the meeting. If, however, such quorum shall not be
present at any meeting of the Members, the Members entitled to vote at such
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meeting shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until all of the Members shall be
present or represented.
SECTION 5.5 VOTING ON MATTERS.
At any meeting of the Members at which a quorum is present, the vote of all
of the Members shall be the act of the Members.
SECTION 5.6. LIST OF MEMBERS ENTITLED TO VOTE.
The Manager shall make, at least five (5) days before each meeting of
Members, a complete list of the Members entitled to vote at such meeting, or any
adjournment of such meeting, arranged in alphabetical order, with the address of
and the Capital Ratio held by each, which list, for a period of five (5) days
prior to such meeting, shall be kept on file at the principal office of the
Company and shall be subject to inspection by any Member at any time during
usual business hours. Such list also shall be produced and kept open at the time
and place of the meeting and shall be subject to inspection of any Member during
the whole time of the meeting. However, failure to comply with the requirements
of this Section shall not affect the validity of any action taken at such
meeting.
SECTION 5.7. REGISTERED MEMBERS.
The Company shall be entitled to treat the holder of record of any
Membership Interest as the holder in fact of such Membership Interest for all
purposes, and accordingly shall not be bound to recognize any equitable or other
claim to, or interest in, such Membership Interest on the part of any other
person, whether or not it shall have express or other notice of such claim or
interest, except as expressly provided by this Agreement or by applicable law.
SECTION 5.8. ACTIONS WITH OR WITHOUT A MEETING AND TELEPHONE MEETINGS.
Notwithstanding any provision contained in this Article, all actions of the
Members provided for herein shall be taken either at a meeting and evidenced by
written minutes thereof executed by an authorized Member or by written consent
without a meeting. Any meeting of the Members may be held by means of a
telephone conference. Any action which may be taken by the Members without a
meeting shall be effective only if the written consent (or consents) sets forth
the action so taken, and is signed by all of the Members.
SECTION 5.9. LIMITATIONS ON POWERS OF MEMBERS.
Except as expressly authorized by this Agreement, no Member shall, directly
or indirectly, do any of the following without the written consent or approval
of all of the other Members: (i) withdraw from the Company, (ii) voluntarily
dissolve, terminate or liquidate the
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Company, (iii) petition a court for the dissolution, termination or liquidation
of the Company, or (iv) cause any property of the Company to be subject to the
authority of any court, trustee or receiver (including suits for partition and
bankruptcy, insolvency and similar proceedings). Except for approvals of Members
or matters to be determined by Members as provided in this Agreement, no Member,
in such capacity, may (A) act for or on behalf of the Company or take part in
the operation, management or control of the Company's business, (B) transact any
business in the name of the Company, or (C) have the authority or power to sign
documents for or otherwise bind the Company; provided, however, such restriction
shall not apply to any action taken by a Member who is the Manager and takes
such action in its capacity as Manager.
ARTICLE VI
BOOKS AND RECORDS
-----------------
SECTION 6.1. BOOKS AND RECORDS.
At all times during the existence of the Company, the Manager shall keep or
cause to be kept at the Company's principal office true and complete books of
account, prepared on a consistent basis from year to year, including: (a) a
current list of the full name and business address of each Member, (b) a copy of
the Certificate of Organization and all certificates of amendment thereto, (c)
copies of the Company's federal, state and local income tax returns and reports
for the most recent five (5) years, (d) copies of the Agreement and any
financial statements of the Company for the five most recent years, and (e) all
documents and information required under the Act. The books of the Company shall
be kept on the accrual method of accounting (used for federal income tax
purposes) in accordance with the rules of Treasury Regulation Section
1.704-1(b)(2)(iv) (i.e., on the so-called "Section 704(b) book basis" which
takes into account the book value, rather than the adjusted tax basis, of
Company assets where there is a difference). Such books and records shall be
available for examination and copying (and the Company will, at its expense,
make such copies and deliver them to any Member who requests them at reasonable
intervals) at such office by any Member and its duly authorized representatives.
Such documents may also be examined at the Company's office by any potential
transferee of a Membership Interest or any portion thereof where a Member
authorizes such proposed transferee to examine the same in a writing addressed
to the Manager and copies of which are sent to all other Members and such
proposed transferee has executed and delivered to the Company a confidentiality
agreement substantially identical to the provisions set forth in Section 12.13.
Any Member, at its own expense, may cause an audit of the books and records of
the Company during regular business hours and shall furnish a written report
thereof to the other Members. The Manager shall promptly furnish to the Members
such other information bearing on the financial condition and operations of the
Company or the status of the Properties as any Member from time to time may
reasonably request.
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SECTION 6.2. ACCOUNTING BASIS FOR TAX REPORTING PURPOSES; FISCAL YEAR.
The books and records of the Company shall be kept on the accrual method of
reporting for tax and financial reporting purposes. The Fiscal Year ("FISCAL
YEAR") of the Company shall be the same as the taxable year of the Investor,
which taxable year currently ends on December 31. The Investor shall promptly
advise the Manager of any change in its taxable year.
SECTION 6.3. REPORTS.
(a) Not later than sixty (60) days after the end of each Fiscal Year,
the Manager shall cause the Company to prepare and send to each
Member an unaudited statement of operations, balance sheet,
statement of cash flows, statement of changes in Members' equity
for that Fiscal Year, schedule of capital expenditures
(indicating items which are Specified Capital Expenditures) and
calculation of capital expenditures per rentable square foot of
the Properties for that Fiscal Year. Not later than seventy-five
(75) days after the end of each Fiscal Year, the Manager shall
cause the Company to prepare and send to each Member a draft of
each federal and, if applicable, state and local income tax
return of the Company for that Fiscal Year, together with such
other tax information as shall be reasonably necessary for the
preparation by each Member of its federal, state and local income
tax returns. Not later than ninety (90) days after the end of
each Fiscal Year, the Manager shall cause the Company to prepare
and send to each Member a statement of operations, a balance
sheet, a statement of cash flows and a statement of changes in
Members' equity (which financial statements shall be audited and
certified by the auditors for Storage).
(b) Not later than twenty (20) days after the end of each month, the
Manager shall cause the Company to prepare and send to each
Member the items listed in Schedule 6.3 in the forms attached to
that Schedule. The Manager will promptly provide any additional
information that any Member may reasonably request so that it may
fully understand the financial performance of the Company and the
Properties. All such financial statements and other information
shall be certified as accurate in all material respects by the
Manager.
(c) As long as Storage (or an affiliate of Storage) is the Manager,
the Manager will report to Investor, with each monthly report
provided pursuant to Section 6.3(b), both the outstanding
principal amount and any accrued, but unpaid, interest with
respect to any indebtedness of the Company (broken down by
creditor), all calculated as of the first day of such calendar
month and done on a basis consistent with federal income tax
accounting rules. The Manager will also indicate the portion of
any indebtedness which is
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nonrecourse and/or recourse within the meaning of Code Section
752 and the portion of each such type of indebtedness allocable
to each Member.
(d) The Manager also agrees to provide Investor with all other
information, including, but not limited to, taxable income and
loss of the Company, the basis of property of the Company, and
the highest amount of acquisition indebtedness in the twelve-
month period preceding any sale or disposition of property of the
Company, which Investor believes it needs to calculate any UBTI
under Code Sections 511 et seq.
SECTION 6.4. RETURNS AND OTHER ELECTIONS.
The Manager shall cause the preparation and timely filing of all tax
returns required to be filed by the Company pursuant to the Code and all other
tax returns deemed necessary and required in each jurisdiction in which the
Company does business. The Members agree that the Company will be taxed as a
partnership, and the Manager shall use all reasonable efforts to insure that the
Company is treated as a partnership for tax purposes. Within seventy-five (75)
days after the end of each Fiscal Year, and in any event, at least fifteen (15)
days prior to the filing thereof, the Manager shall cause a draft of the
Company's tax return to be delivered to the Members for their approval. The
Members shall approve or disapprove of the Company's tax return no later than
ten (10) days after the date on which the draft tax return is delivered to the
Members by providing written notice to the Manager. To be effective, any notice
which disapproves a draft tax return must contain specific line item objections
thereto in reasonable detail. Any Member who fails to provide any such written
notice within the ten-day period shall be deemed to have approved the tax return
as submitted. The Manager shall have the right to cause the Company to withhold
and pay to any applicable governmental tax collecting authority or agency any
federal or state income or other tax required or permitted to be withheld by the
Company pursuant to any applicable law. Any such withheld amount shall be deemed
to have been distributed or paid to the Member with respect to whom such amounts
have been withheld.
SECTION 6.5. TAX MATTERS PARTNER.
The Manager shall be the "tax matters partner" of the Company pursuant to
Section 6231(a)(7) of the Code. The Manager shall take such action as may be
necessary to cause each Member to become a "notice partner" within the meaning
of Section 6231(a)(8) of the Code. The Manager shall inform each Member of all
significant matters that may come to its attention in its capacity as "tax
matters partner" by giving notice thereof within five (5) Business Days after
the Manager becomes aware thereof and, within that time, shall forward to each
Member copies of all significant written communications it may receive in that
capacity. The tax matters partner shall keep the Members fully apprised of any
action required to be taken or which may be taken by the tax matters partner for
the Company and shall not take any such action in contravention of Section 4.5.
With regard to any matter which could result in any direct or indirect holder of
an equity interest in the Investor being allocated income of the Company which
would constitute UBTI or in any manner affect the taxation of any direct or
indirect holder of any
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equity interest in the Investor with respect to any income, the tax matters
partner shall take such actions or omit to take such actions as the Investor may
direct, except to the extent that such action or the omission of such action
would cause Storage REIT to be disqualified as a REIT and would be contrary to
Section 4.5(b) hereof.
SECTION 6.6. ACCOUNTANTS.
The Company shall retain a firm of independent certified public accountants
satisfactory to the Members to perform the functions specified in this
Agreement. The Members hereby approve PricewaterhouseCoopers, LLP as the initial
accountants for the Company.
SECTION 6.7. ANNUAL APPRAISALS.
The Investor shall have the right from time to time, but in no event more
frequently then once in any twelve month period, unless there has been an Event
of Default on the part of Storage, to require that each Property be appraised by
an independent appraiser who is qualified to appraise properties of the type of
the Properties and is otherwise approved by Investor. The cost of any such
appraisals shall be born solely by Investor.
SECTION 6.8. ENVIRONMENTAL INVESTIGATIONS.
Manager shall promptly notify Investor if Manager becomes actually aware of
any discharge of contaminants at any Property or any other circumstances or
condition which indicates that any Property is not in compliance with all
applicable environmental laws and regulations. Manager shall require Property
Manager to notify Manager of any such discharges, circumstances or conditions of
which the Property Manager becomes actually aware. If Investor reasonably
determines, on the basis of such notice, that it is appropriate to undertake
investigations regarding the compliance of any Property and the activities at
the Property with applicable environmental laws, or the existence of and
potential for contamination, Investor may require that the Company conduct such
investigation. The results of any such investigation shall be provided to
Investor promptly after receipt by the Company.
ARTICLE VII
ALLOCATIONS AND DISTRIBUTIONS
-----------------------------
SECTION 7.1. OPERATING DISTRIBUTIONS.
Except as otherwise provided in Section 7.6 regarding liquidation proceeds,
Distributable Cash Flow and Capital Proceeds, if any, shall be distributed no
later than 45 days after the end of each fiscal quarter to each Member pro rata
in accordance with their respective Capital Ratios. All Member Default Damages
by the Company pursuant to the Contribution Agreement or the Purchase
Agreements, all Member Dispute Damages and all distributions received by the
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Company pursuant to the Capital Expenditures Agreement shall be distributed to
the Members no later than two (2) Business Days after receipt by the Company.
SECTION 7.2. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIVE SHARES OF
TAX ITEMS.
(a) Allocation of Net Income. After giving effect to the special
allocations set forth in Section 7.2(d) through 7.2(f), net
income for any Fiscal Year or portion thereof shall be allocated
among the Members in the following order and priority:
(1) First, to each Member until the aggregate allocations of net
income to each Member pursuant to this Section 7.2(a)(1) for
all Fiscal Years or portions thereof are equal to the
aggregate allocations of net loss to each Member pursuant to
Section 7.2(c) for all Fiscal Years or portions thereof, in
the reverse order of, and in proportion to, the prior
allocations of net loss to the Members pursuant to Section
7.2(c); and
(2) Thereafter, to the Members, pro rata in accordance with
their respective Capital Ratios.
(b) Allocation of Net Loss. After giving effect to the special
allocations set forth in Sections 7.2(d) through 7.2(f) and
subject to Section 7.2(c), net loss shall be allocated to the
Members, pro rata in accordance with their respective Capital
Ratios.
(c) Loss Limitation. Net loss allocated pursuant to Section 7.2(b)
shall not exceed the maximum amount of net loss that can be
allocated without causing or increasing a deficit balance in a
Member's Adjusted Capital Account. In the event that one but not
both of the Members would have a deficit balance in its Adjusted
Capital Account as a consequence of an allocation of net loss
pursuant to Section 7.2(b) in excess of the amount, if any,
permitted under the first sentence of this Section 7.2(c), the
limitation set forth in this Section 7.2(c) shall be applied by
allocating 100% of the remaining net loss to the other Member
until the Adjusted Capital Account of such other Member is zero.
(d) Minimum Gain Chargebacks and Nonrecourse Deductions.
(1) Company Minimum Gain Chargeback. Notwithstanding any other
provision of this Agreement, in the event there is a net
decrease in Company Minimum Gain during a Fiscal Year, the
Members shall be allocated items of income and gain in
accordance with Treasury Regulations Section 1.704-2(f).
This Section 7.2(d)(1) is intended to comply with the
minimum gain chargeback requirement of
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Treasury Regulations Section 1.704-2(f) and shall be
interpreted and applied in a manner consistent therewith.
(2) Nonrecourse Deductions. Notwithstanding any other provision
of this Agreement, Nonrecourse Deductions shall be allocated
to the Members pro rata in accordance with their respective
Capital Ratios. This Section 7.2(d)(2) is intended to comply
with Treasury Regulations Section 1.704-2(e) and shall be
interpreted and applied in a manner consistent therewith.
(3) Member Nonrecourse Debt. Notwithstanding any other provision
of this Agreement, to the extent required by Treasury
Regulations Section 1.704-2(i), any items of income, gain,
loss or deduction of the Company that are attributable to a
nonrecourse debt of the Company that constitutes Member
Nonrecourse Debt (including chargebacks of Member
Nonrecourse Debt Minimum Gain) shall be allocated in
accordance with the provisions of Treasury Regulations
Section 1.704-2(i). This Section 7.2(d)(3) is intended to
satisfy the requirements of Treasury Regulations Section
1.704-2(i) (including the partner nonrecourse debt minimum
gain chargeback requirement) and shall be interpreted and
applied in a manner consistent therewith.
(e) Qualified Income Offset. Any Member who unexpectedly receives an
adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) that
causes or increases a deficit balance in its Capital Account in
excess of any obligation to restore a deficit balance in its
Capital Account (including any deemed deficit restoration
obligation pursuant to the penultimate sentences of Treasury
Regulations Section 1.704-2(g)(1) and (i)(5), and adjusted as
provided in Treasury Regulations Section 1.704-1(b) (2)(ii)(d))
shall be allocated items of income and gain in an amount and a
manner sufficient to eliminate, to the extent required by the
Treasury Regulations, such excess deficit balance as quickly as
possible. This Section 7.2(e) is intended to comply with the
alternate test for economic effect set forth in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
and applied in a manner consistent therewith.
(f) Curative Allocations. The allocations set forth in Section 7.2(d)
and 7.2(e) (the "Regulatory Allocations") are intended to comply
with the requirements of Treasury Regulations Section 1.704-1(b)
and 1.704-2. Notwithstanding any other provisions of this Section
7.2 (other than the Regulatory Allocations), the Regulatory
Allocations shall be taken into account as provided for in the
following two sentences. Income, gain, loss and deduction shall
be reallocated to the extent that such reallocation causes the
net aggregate amount of allocations of income, gain, deduction
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and loss to each Member to be equal to or more closely
approximate the net aggregate amount of such items that would
have been allocated to each such Member if the Regulatory
Allocations had not occurred; provided, however, that such
reallocations shall be made only if and to the extent they are
consistent with the requirements of Code Section 514(c)(9)(E)
and Treasury Regulations Section 1.514(c)-2. This Section 7.2(f)
shall be interpreted and applied in such a manner and to such
extent as it reasonably necessary to eliminate, as quickly as
possible but consistent with the requirements of Code Section
514(c)(9)(E), permanent economic distortions that would otherwise
occur as a consequence of the Regulatory Allocations in the
absence of this Section 7.2(f).
(g) Other Allocation Provisions. In the event it becomes necessary
to make any other elections or decisions relating to the
allocations of Company items of income, gain, loss, deduction or
credit, as long as Storage (or an affiliate of Storage) is the
Manager, the Manager shall call such elections or decisions to
the attention of Investor and if any such matter could result in
Investor (or any direct or indirect investors in Investor) being
subject to tax on any income of the Company or affect the manner
in which Investor (or any direct or indirect investors in
Investor) is taxed on any such income, then Investor shall be
entitled to make such elections or decisions in such manner as
Investor determines to be necessary in order to comply with
requirements of Code Section 514(c)(9)(E) and otherwise reflect
the purpose and intention of this Agreement.
(h) Distributions of Nonrecourse Liability Proceeds. If, during a
Fiscal Year, the Company makes a distribution to any Member that
is allocable to the proceeds of any nonrecourse liability of the
Company that is allocable to an increase in Company Minimum Gain
pursuant to Treasury Regulations Section 1.704-2(h), then the
Company shall elect, to the extent permitted by Treasury
Regulations Section 1.704-2(h)(3), to treat such distribution as
a distribution that is not allocable to an increase in Company
Minimum Gain.
(i) Information as to Allocation of Debt. As long as Storage (or an
affiliate of Storage) is the Manager, the Manager will report to
Investor, with each monthly report provided pursuant to Section
6.3, both the outstanding principal amount and any accrued, but
unpaid, interest with respect to any indebtedness of the Company
(broken down by creditor), all calculated as of the first day of
such calendar month and done on a basis consistent with federal
income tax accounting rules. The Manager will also indicate the
portion of any indebtedness which is nonrecourse and/or recourse
within the meaning of Code Section 752 and the portion of each
such type of indebtedness allocable to each Member. Storage
agrees that indebtedness of the Company shall be allocated among
the Members, as reasonably approved by Investor, under Code
Section 752, and Investor shall have
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sole authority in its reasonable discretion as to all allocations
and/or decisions under Code Section 752, it being understood that
it is the intention of the Members to allocate as much debt as
possible to Storage to the extent that Investor is satisfied that
there is an adequate basis for such position under applicable
authority. The Manager also agrees to provide Investor with all
other information, including, but not limited to, taxable income
and loss of the Company, the basis of property of the Company,
and the highest amount of acquisition indebtedness in the twelve-
month period preceding any sale or disposition of property of the
Company, which Investor believes it needs to calculate any UBTI
under Code Sections 511 et seq.
SECTION 7.3. CODE SECTION 704(B) AND 514(C)(9)(E) ALLOCATIONS.
The allocation provisions contained in this Article VII are intended to
comply with Code Section 704(b) and the Treasury Regulations promulgated
thereunder, and shall be interpreted and applied in a manner consistent
therewith. Further, it is the intention of the Members that this Agreement
provide for allocations to comply with the requirements of Code Section
514(c)(9)(E) and the Treasury Regulations promulgated thereunder, and the
Members agree that all interpretations of this Agreement shall be made
accordingly.
SECTION 7.4. RESTRICTED DISTRIBUTIONS.
Notwithstanding any provision to the contrary contained in this Agreement,
the Company, and the Manager on behalf of the Company, shall not make a
distribution to any Member on account of its Membership Interest to the extent
(if any) that such distribution would violate Section 18-607 of the Act or other
applicable law.
SECTION 7.5. AMORTIZATION AND ALLOCATION OF ORGANIZATION AND START-UP
EXPENSES.
The Company shall elect to amortize the following over a period of 60
calendar months: (i) all organization expenses in accordance with the provisions
of Section 709(b) of the Code; and (ii) all start-up expenses in accordance with
the provisions of Section 195 of the Code. Subject to the terms of the Letter
Agreement, the Company shall pay all of its own legal fees and expenses (if any)
relating to the preparation of this Agreement, all third-party costs incurred by
its Members relating to its due diligence and its entering into this Agreement,
and all costs relating to the incurrence of the Secured Indebtedness.
SECTION 7.6 DISTRIBUTIONS UPON LIQUIDATION.
In the event the Company (or any Member's interest therein) is "liquidated"
within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), then
any distributions shall be made pursuant to this Section 7.6 to the Members (or
such Member, as appropriate) in
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accordance with their positive Capital Account balances in compliance with
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). Any distributions made
pursuant to this Section 7.6 shall be made by the end of the Company's taxable
year in which the liquidation occurs (or, if later, within 90 days after the
date of the liquidation).
SECTION 7.7 NO DEFICIT RESTORATION BY MEMBERS.
No Member shall be required to contribute capital to the Company to restore
a deficit balance in its Capital Account upon liquidation or otherwise.
SECTION 7.8 WITHHOLDING.
If the Company is required by law or regulation to withhold and pay to any
taxing or other governmental authority any amount otherwise distributable to a
Member, the Company shall be entitled to withhold such amount and the amount so
withheld shall for all purposes of this Agreement be treated as if distributed
to such Member.
ARTICLE VIII
[RESERVED]
----------
ARTICLE IX
TRANSFERABILITY OF MEMBERSHIP INTERESTS
---------------------------------------
SECTION 9.1. RESTRICTIONS ON TRANSFER OF INTEREST OF AND IN A MEMBER.
(a) Except as otherwise set forth in this Article IX, unless all of
the Members consent (which consent shall be in the sole
discretion of each Member), no Member shall withdraw or retire
from the Company, substitute any person in its stead or sell,
exchange, transfer, give, assign, pledge, hypothecate, mortgage
or dispose of all or any portion of or interest in its
Membership Interest, and any such prohibited sale, exchange,
transfer, gift, assignment, pledge, hypothecation, mortgage or
disposition shall be void.
(b) Notwithstanding anything to the contrary contained herein, any
holder of a direct or indirect interest in a Member shall be
permitted to transfer all or any portion of its direct or
indirect interest in such Member without the consent of any other
Member, provided, that, if there is a Change of Control of
Storage or Storage REIT, Investor shall have the rights described
in Section 9.4 hereof.
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(c) Notwithstanding anything to the contrary contained herein, unless all
of the Members consent (which consent shall be in the sole discretion
of each Member), no Member may sell, transfer or assign all or any
portion of its Membership Interest if such sale, transfer or
assignment.
(1) would cause the Company top lose its status as a partnership for
federal income tax purposes;
(2) would violate any federal securities laws or any applicable state
securities laws (including suitability standards);
(3) would cause Storage REIT to be disqualified as a REIT; or
(4) would cause the Company to qualify as a "publicly traded
partnership," as that term is defined in the Code.
(d) Notwithstanding anything to the contrary contained herein, a Member
may sell, exchange, transfer, give or assign all or any portion of or
interest in its Membership Interest to any wholly owned subsidiary
of such Member without complying with Section 9.1(a), provided that
transferring Member shall remain liable for all of its acquired
interest in the Company.
SECTION 9.2.[RESERVED]
SECTION 9.3. CONVERSION OPTION.
(a) At any time on or after the third anniversary of the effective date of
this Agreement and prior to the fourth anniversary of the effective
date of this Agreement, Investor may request that Storage purchase
all, but not less than all, of Investor's Membership Interest by
giving written notice (a "CONVERSION NOTICE") to Storage. Within sixty
(60) days after Storage's actual receipt of the Conversion Notice, the
Company shall establish the Fair Market Value of the Properties and
calculate the Cash Amount. Within two(2)Business Days after the
Valuation Date, the Company shall notify Investor of the Cash Amount
and the REIT Shares Amount and shall provide Investor with all
information necessary to review and understand the calculations of
such amounts. The Investor may rescind its Conversion Notice by
delivering a notice of rescission to Storage within two (2) Business
Days of its receipt of such information, in which event the Investor
shall reimburse the Company for any and all costs and expenses
incurred by the Company in connection with the determination of the
Fair Market Value of the Properties. The Investor
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shall be permitted to rescind only one Conversion Notice pursuant to
this subsection (a) during any twelve-month period.
(b) Storage shall have seven (7) Business Days after the Valuation Date to
determine, in its sole discretion, whether it will elect to (1)
purchase Investor's Membership Interest in exchange for the Cash
Amount or (2) market the Properties for sale to a third party. In the
alternative, Storage REIT may elect within such period of time to
purchase Investor's Membership Interest for the REIT Shares Amount. If
Storage or Storage REIT fails to respond within such time, Storage
will be deemed to have elected to market the Properties for sale to a
third party pursuant to Section 9.3(d). If Storage REIT elects to
purchase Investor's Membership Interest for the REIT Shares Amount and
if the Market Price calculated as of the Valuation Date differs by
more than five percent (5%) from the Market Price calculated as of the
date Investor issued the Conversion Notice. Investor shall have an
additional right to rescind its Conversion Notice by delivering notice
of rescission to Storage within five (5) Business Days of its receipt
of notice of Storage REIT's election to purchase Investor's
Membership Interest pursuant to this Section 9.3(b); provided,
however, that if Storage elects within five (5) Business Days of its
receipt of Investor's notice of rescission delivered pursuant to this
subsection (b) to purchase Investor's Membership Interest for the Cash
Amount, then Investor shall not have the right to rescind its
Conversion Notice. No rescission pursuant to this subsection (b) shall
have any effect on Investor's right to exercise its option under
Section 9.3(a) at any date thereafter.
(c) If Storage or Storage REIT elects to purchase Investor's
Membership Interest pursuant to Section 9.3(b), subject to Investor's
rescission right set forth in Section 9.3(b) above and in accordance
with and subject to the other provisions of this Section 9.3,
Storage or Storage REIT shall be irrevocably obligated to purchase
and Investor shall be irrevocably obligated to sell Investor's
Membership Interest with sixty (60) days from the election date.
(d) If neither Storage nor Storage REIT elects to purchase Investor's
Membership Interest pursuant to Section 9.3(b), then Investor may,
without the further consent of Storage, market or cause the Manager
to market the Properties with the intention of selling the Properties
to a third party and dissolving and liquidating the Company.
Investor agrees to exercise reasonable efforts to keep Storage
informed of the status of the marketing process, and each party agrees
to reasonably cooperate with the other in bringing about a sale of the
Properties as provided herein. All costs associated with the
marketing and sale of the Properties under this Section 9.3 shall be
divided among the Members in proportion to their Capital Ratios.
Investor, or the Manager if so directed by Investor, shall,
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in a commercially reasonable and reasonably effective manner, market
all of the Properties in a single portfolio sale or, with Investor's
approval, in pools of assets or individually, and may secure the
services of a third party to assist Investor (or the Manager) with the
marketing of the Properties; provided, however, that if the proposed
sale price to be accepted by Investor for the Properties (including
the amount of any indebtedness or other liabilities to be assumed by
the purchaser) is less that ninety-five percent (95%) of the Fair
Market Value on the Valuation Date, then (A) Storage shall have the
option to purchase the Properties for a cash amount equal to the
proposed sale price, or (B) Storage shall have the option to purchase
Investor's Membership Interest for cash, with the amount of such cash
calculated in the same manner as the Cash Amount, substituting the
proposed sale price for Fair Market Value, or (C)(i) if such purchase
is consummated prior to the fourth anniversary of the effective date
of this Agreement, Storage REIT may elect to purchase Investor's
Membership Interest for REIT Shares, with the number of REIT Shares
calculated in the same manner as the REIT Shares Amount, substituting
the cash amount calculated pursuant to the preceding clause and using
the date on which Storage REIT notifies Investor of its election to
purchase Investor's Membership Interest for REIT Shares as the
valuation date for purposes of computing the Market Price used in
` calculating the REIT Shares Amount and for purposes of determining
whether Investor may exercise its rescission right or (ii) if such
purchase is consummated on or after the fourth anniversary of the
effective date of this Agreement, Storage REIT may offer to purchase
Investor's Membership Interest for REIT shares, the price and terms
of any such offer to be acceptable to Investor in its sole
discretion. If Storage REIT elects pursuant to clause (C)(i) of the
preceding sentence to purchase Investor's Membership Interest in
exchange for REIT Shares and if the Market Price calculated as of the
Valuation Date differs by more than five percent (5%) from the Market
Price calculated as of the date Investor issued the Conversion Notice,
Investor shall have the right to rescind its Conversion Notice by
delivering notice of rescission to Storage within five (5) Business
Days of its receipt of notice of Storage REIT's election to purchase
Investor's Membership Interest pursuant to this Section 9.3(b);
provided, however, that if Storage elects within five (5) Business
Days of its receipt of Investor's notice of rescission to purchase
Investor's Membership Interest for the Cash Amount, then Investor
shall not have the right to rescind its Conversion Notice. No
rescission pursuant to this subsection (d) shall have any effect on
Investor's right to exercise its option under Section 9.3(a) at any
date thereafter.
e) It shall be a condition precedent of Investor's obligation to sell its
membership Interest to Storage REIT in exchange for REIT Shares and of
Storage REIT's obligation to purchase Investor's Membership Interest
for
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REIT Shares, that the conditions set forth on Exhibit F shall have
been satisfied by Storage REIT as of the closing date. If Storage
REIT elects to purchase or Investor agrees to sell Investor's
Membership Interest in exchange for REIT Shares, Storage REIT shall
exercise diligent efforts to perform its obligations under this
Section 9.3. If the conditions set forth on Exhibit F are not
satisfied as of the closing date, the closing date shall be entered
for up to 30 days in order to allow Storage REIT to satisfy those
conditions or to purchase Investor's Membership Interest in exchange
for the Cash Amount. Investor shall be entitled to receive, in cash,
interest on the applicable Cash Amount during such extension period at
a rate of 15% per annum.
(f) If Storage elects to purchase Investor's Membership for the Cash
Amount pursuant to this Section 9.3, the entire amount shall be
payable in cash, by wire transfer or other immediately available
funds, at the closing of such sale. If Storage REIT elects to
purchase Investor's Membership Interest for the REIT Shares Amount
pursuant to this Section 9.3, Storage REIT shall deliver to Investor
certificates representing the REIT Shares Amount at the closing of
such sale. At the closing of any sale of Investor's Membership
Interest pursuant to this Section 9.3, Investor shall assign and
deliver its Membership Interest to Storage or Storage REIT, as the
case may be, free and clear of all encumbrances and claims pursuant to
such documents or transfer as shall be reasonably requested by Storage
or Storage REIT. Any transfer or similar taxes and other expenses
related to the sale of Investor's Membership Interest to Storage or
Storage REIT shall be divided equally between Storage or Storage REIT
and Investor. Investor shall provide Storage or Storage REIT with
such evidence of Investor's authority to sell hereunder and such tax
lien waivers and similar instruments as Storage or Storage REIT may
reasonably request. If Storage or Storage REIT defaults on its
obligation to purchase Investor's Membership Interest pursuant to this
Section 9.3, Investor shall be entitled as its sole remedy for such
default to liquidated damages equal to 2% of the Fair Market Value and
to market the Properties on such terms and conditions as it determines
in its sole discretion. If Investor defaults on its obligation to sell
its Membership Interest pursuant to this Section 9.3, Storage or
Storage REIT, as applicable, shall be entitled as its sole remedy for
such default to liquidated damages equal to 2% of the Fair Market
Value and to market the Properties on such terms and conditions as it
determines in its sole discretion. Storage, Storage REIT and Investor
agree that the amount of damages incurred by any of them as a result
of a default pursuant to this Section 9.3 would be impracticable to
calculate and that the remedies provided in this subsection (f) are a
reasonable approximation of such damages.
(g) If Storage REIT purchases Investor's Membership Interest for REIT
shares and the closing date for such purchase is delayed pursuant to
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subsection (e) then simultaneously with Investor's Receipt of the
first dividend paid by Storage REIT with respect to such REIT Shares,
Investor shall pay to Storage REIT a cash amount equal to the product
of (A) the per share amount of the first dividend paid by Storage
REIT with respect to such REIT Shares, multiplied by (B) the number of
such REIT Shares multiplied by (C) a fraction, the numerator of which
is the number of days during the period commencing on the date on
which the closing of the purchase pursuant to this Section 9.3 was
originally scheduled and running through the day immediately prior to
the day on which the purchase actually closed (inclusive), provided,
that if a record date for a dividend with respect to REIT shares
occurs during such period, the numerator so calculated shall be
reduced by the number of days during the period from the date on which
such closing was originally scheduled and running through such record
(inclusive), and the denominator of which is the number of days during
the period commencing the day after the record date for the last
dividend paid by Storage REIT prior to the date of such closing and
running through the record date of the first dividend paid by Storage
REIT with respect to such REIT Shares (inclusive). Investor agrees
that Storage REIT may instruct its dividend paying agent to deduct
such amount from such dividend payment and pay it directly to Storage
REIT.
(h) In connection with the marketing of the Properties pursuant to
Section 9.3(d) hereof, the Investor may, by giving written notice to
Storage, elect to become an additional Manager of the Company,
whereupon Investor shall be admitted as an additional Manager. In such
event, Storage shall execute such amendments to this Agreement
and execute and file such amendments to the Certificate of
Organization as may be required to effect the admission of Investor as
an additional Manager of the Company. Investor agrees that so long as
Storage remains the Manager and no Event of Default by Storage shall
have occurred under Section 11.1, Investor's rights as an additional
Manager to act on behalf of the Company shall extend only to such
matters as are reasonably required to facilitate the marketing and
sale of the Properties. If within ten (10) days' written notice from
Investor, Storage fails to take all reasonably necessary action to
admit Investor as an additional Manager or to take all reasonably
necessary action to market the Properties, Storage agrees that
Investor shall be appointed Storage's attorney-in-fact, with full
power of substitution, to execute and deliver any such amendments and
other instruments as may be required in such circumstances.
SECTION 9.4. MARKETING RIGHT.
(a) At any time on or after the fourth anniversary of the effective date
of this Agreement, each Member shall have the right (the "MARKETING
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RIGHT") to market or require the Manager to market all of the
Properties for Disposition for the purposes of dissolving and
liquidating the Company upon such Disposition. A Member may exercise
its Marketing Right by sending the Manager a written notice (the
"MARKETING NOTICE") which states that the Member (the "TRIGGERING
MEMBER") has exercised its Marketing Right. If there is a Change of
Control of Storage or Storage REIT before the fourth anniversary of
the effective date of this Agreement, Storage or Storage REIT, as
applicable shall promptly notify Investor of the occurrence of such
Change of Control. Investor may exercise its Marketing Right by
providing the Marketing Notice to the Manager and to Storage within
thirty (30) days after the effective date of Change of Control of
Storage REIT (or, if later, within thirty (30) days after receipt of
notice of such Change of Control from Storage or Storage REIT). Within
(60) days after the Manager's actual receipt of the Marketing Notice,
the Company shall establish the Fair Market Value of the Properties.
Within two (2) Business Days after the Valuation Date, the Company
shall notify the Triggering Member of the Cash Amount and the REIT
Shares Amount and shall provide the Triggering Member with all
information necessary to review and understand the calculations of
such amounts. The Triggering Member may rescind its Marketing Notice
by delivering a notice of rescission to the Manager within two (2)
Business Days of its receipt of such information, in which event the
Triggering Member shall reimburse the Company for any and all costs
and expenses incurred by the Company in connection with the
determination of the Fair Market Value of the Properties. Storage and
Investor shall each be permitted to rescind only one Marketing Notice
pursuant to this subsection (a) during any twelve-month period.
(b) Any Member who has not elected to exercise its Marketing Right (a
"NON-TRIGGERING MEMBER") shall have sever (7) Business Days after the
Valuation Date to elect, in its sole discretion, to purchase the after
the Triggering Member's Membership Interest in exchange for the Cash
Amount. If Storage is a Non-Triggering Member, it may elect to
purchase the Triggering Member's Membership Interest for the Cash
Amount or Storage REIT may offer to purchase such Membership Interest
for REIT Shares. The price and terms of any offer to purchase for REIT
Shares pursuant to this Section 9.4 must be acceptable to Investor
in its sole discretion. If Investor and Storage REIT do not agree on
such terms within ten (10) Business Days after the Valuation Date,
Investor, or the Manager at the direction of Investor, shall market
the Properties as provided in Section 9.4(d) below, unless Storage
elects within two (2) Business Days to purchase Investor's
Membership Interest for the Cash Amount.
(c) If a Non-Triggering Member (which term shall include Storage REIT for
purposes of Sections 9.4(c),(d), and (f) elects to purchase the
Triggering
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Member's Membership Interest pursuant to Section 9.4(b), such Non-
Triggering Member shall be irrevocably obligated to purchase and the
Triggering Member shall be irrevocably obligated to sell, in
accordance with and subject to the provisions of this Section 9.4, the
Triggering Member's Membership Interest within (60) days from the
election date.
(d) If (i) no Non-Triggering Member elects to purchase the Triggering
Member's Membership Interest pursuant to Section 9.4(b) or (ii)
Storage REIT offers to purchase Investor's Membership Interest for
REIT Shares, and Investor and Storage REIT do not agree on such terms
within ten (10) Business Days after the Valuation Date and Storage
does not elect within the next two (2) Business Days to purchase
Investor's Membership Interest for the Cash Amount, then the
Triggering Member may, without the further consent of the
Non-Triggering Member, market or cause the Manager to market the
Properties with the intention of selling the Properties to a third
party and liquidating the Company. The Triggering Member agrees to
exercise reasonable efforts to keep the Non-Triggering Member informed
of the status of the marketing process, and each party agrees to
reasonably cooperate with the other in bringing about a sale of the
Properties as provided herein. All costs associated with the marketing
and sale of the Properties under Section 9.4 shall be divided among
the Members in proportion to their Capital Ratios. The Triggering
Member, or the Manager if so directed, shall, in a commercially
reasonable and reasonably effective manner, market all of the
Properties in a single portfolio sale or, with each Member's approval,
in pools of assets or individually, and may secure the services of a
third party to assist the Triggering Member and Manager with the
marketing of the Properties; provided, however, that if the proposed
sale price to be accepted by the Triggering Member for the Properties
(including the amount of any indebtedness or other liabilities to be
assumed by the purchaser) is less than ninety-five (95%) of the Fair
Market Value on the Valuation Date, then (A) the Non-Triggering Member
shall have the option to purchase the Properties for a cash amount
equal to the proposed sale price, or (B) if Storage is the
Non-Triggering Member, (i) Storage shall have the option to purchase
Investor's Membership Interest for cash, with the amount of such cash
calculated in the same manner as the Cash Amount, substituting the
proposed sale price for Fair Market Value, or (ii) Storage REIT may
offer to purchase Investor's Membership Interest for REIT Shares, with
the number of REIT Shares and all other terms of any such purchase for
REIT Shares remaining subject to Investor's approval in its sole
discretion.
(e) Investor's obligation to sell its Membership Interest to Storage REIT
in exchange for REIT Shares and of Storage REIT's obligation to
purchase Investor's Membership Interest for REIT Shares, shall be
subject to
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satisfaction by Storage REIT on the closing date of the terms agreed
upon by Investor pursuant to Section 9.4(b) or Section 9.4(d) above,
as applicable, and of the terms set forth on Exhibit F. If such terms
and conditions are not satisfied as of the closing date, the closing
date shall be extended for up to thirty (30) days in order to allow
Storage REIT to satisfy those conditions or to purchase Investor's
Membership Interest in exchange for the Cash Amount. Investor shall be
entitled to receive, in cash, interest on the applicable Cash Amount
during such extension period at a rate of 15% per annum.
(f) If the Triggering Member's Membership Interest is purchased for
the Cash Amount pursuant to this Section 9.4, that entire amount shall
be payable in cash, by wire transfer or other immediately available
funds, at the closing of such sale. If Investor agrees to sell
Investor's Membership Interest for REIT Shares pursuant to this
Section 9.4, Storage REIT shall deliver to Investor certificates
representing such REIT Shares at the closing of such sale. At the
closing of any sale of a Triggering Member's Membership Interest
pursuant to this Section 9.4, the Triggering Member shall assign and
deliver its Membership Interest to the purchaser free and clear of all
encumbrances and claims pursuant to such documents of transfer as
shall be reasonably requested by the purchaser. Any transfer or
similar taxes and other expenses related to the sale of the Triggering
Member's Membership Interest to the Non-Triggering Member shall be
divided equally between the Triggering Member and Non-Triggering
Member. The Triggering Member shall provide the Non-Triggering Member
with such evidence of the Triggering Member's authority to sell
hereunder and such tax lien waivers and similar instruments as the
Non-Triggering Member may reasonably request. If the Non-Triggering
Member defaults on its obligation to purchase the Triggering Member's
Membership Interest pursuant to this Section 9.4, the Triggering
Member shall be entitled as its sole remedy to damages equal to 2% of
the Fair Market Value, and the Triggering Member shall market the
Properties on such terms and conditions as it determines in its sole
discretion. If the Triggering Member defaults on its obligation to
sell its Membership Interest pursuant to this Section 9.4, the
Non-Triggering Member shall be entitled as its sole remedy to damages
equal to 2% of the Fair Market Value, and the Non-Triggering Member
shall be entitled to market the Properties on such terms and
conditions as its determines in its sole discretion. Storage, Storage
REIT and Investor agree that the amount of damages incurred by any of
them as a result of a default pursuant to this Section 9.4 would be
impracticable to calculate and that the remedies provided in this
subsection (f) are a reasonable approximation of such damages.
(g) If Storage REIT purchases Investor's Membership Interest for REIT
Shares and the closing date for such purchase is delayed pursuant to
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subsection (e), then simultaneously with Investor's receipt of the
first dividend paid by Storage REIT with respect to such REIT Shares,
Investor shall pay to Storage REIT a cash amount equal to the product
of (A) the per share amount of the first dividend paid by Storage REIT
with respect to such REIT Shares, multiplied by (B) the number of such
REIT Shares multiplied by (C) a fraction, the numerator of which is
the number of days during the period commencing on the date on which
the closing of the purchase pursuant to this Section 9.4 was
originally scheduled and running through the day immediately prior to
the day on which the purchase actually closed (inclusive), provided,
that if a record date for a dividend with respect to REIT shares
occurs during such period, the numerator so calculated shall be
reduced by the number of days during the period from the date on which
such closing was originally scheduled and running through such record
date (inclusive), and the denominator of which is the number of days
during the period commencing the day after the record date for the
last dividend pair by Storage REIT prior to the date of such closing
and running through the record date of the first dividend paid by
Storage REIT with respect to such REIT Shares (inclusive). Investor
agrees that Storage REIT may instruct its dividend paying agent to
deduct such amount from such dividend payment and pay it directly to
Storage REIT.
(h) If Investor is the Triggering Member and elects to market the
Properties pursuant to Section 9.4(d) hereof, the Investor may, by
giving written notice to Storage, elect to become an additional
Manager of the Company, whereupon Investor shall be admitted as an
additional Manager. In such event, Storage shall execute such
amendments to this Agreement and execute and file such amendments
to the Certificate of Organization as may be required to effect the
admission of Investor as an additional Manager of the Company.
Investor agrees that so long as Storage remains the Manager and no
Event of Default by Storage shall have occurred under Section 11.1,
Investor's rights as an additional Manager to act on behalf of the
Company shall extend only to such matters as are reasonably required
to facilitate the marketing and sale of the Properties. If within ten
(10) days' written notice from Investor, Storage fails to take all
reasonably necessary action to admit Investor as an additional Manager
or to take all reasonably necessary action to market the Properties
pursuant to this Section 9.4, Storage agrees that Investor shall be
appointed Storage's attorney-in-fact, with full power of substitution,
to execute and deliver any such amendments and other instruments as
may be required in such circumstances. If Storage is the Triggering
Member and within ten (10) days' written notice from Storage,
Investor fails to take all reasonably necessary action to market the
Properties pursuant to this Section 9.4, Investor agrees that Storage
shall be appointed Investor's attorney-in-fact, with full power of
substitution, to execute and deliver any such
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amendments and other instruments as may be required in such
circumstances.
SECTION 9.5. INSOLVENCY OF A MEMBER.
(a) If a Member becomes an Insolvent Member, the personal representative,
trustee or receiver of its estate (the "PERSONAL REPRESENTATIVE")
shall have only such rights of that Member as are necessary for the
purpose of settling or managing its estate and such power as the
Member possessed, if any, to assign all or any part of its interest
and to join with such assignee in satisfying conditions precedent to
such assignee's becoming a substituted Member. It shall not have any
rights of a Member to grant or withhold consents, or any other rights
except for those specified in the preceding sentence.
(b) If a Member becomes an Insolvent Member, the other Member shall have
the right (the "INSOLVENCY OPTION") to elect at any time during the
period that such Member remains an Insolvent Member (which election
may be changed or rescinded at any time prior to the closing of any of
the following transactions, provided that upon such change or
rescission, the changing or rescinding Member shall have no further
right to exercise the Insolvency Option so changed or rescinded (e.g.,
if the option to market the properties pursuant to clause (2) below is
changed or rescinded, that option may not be exercised subsequently,
but the option to purchase the Membership Interest of the Insolvent
Member would be retained)):
(1) to purchase the entire Membership Interest of the Insolvent
Member for cash equal to the Cash Amount; provided, however,
that prior to the fourth anniversary of this Agreement, if
Investor is the Insolvent Member, Storage REIT shall have the
additional option to purchase Investor's Membership Interest
for REIT Shares, calculated in the same manner as the REIT shares
Amount. If the other Member declines to purchase all of the
Membership Interest of the Insolvent Member in accordance with
this Section 9.5(b)(1), the option to purchase such Membership
Interest shall terminate, and the Personal Representative may
proceed, subject to the terms and provisions of this Agreement,
to distribute the Membership Interest of such Insolvent Member
to the successors entitled to receive the same, but such
distributions will only be effective as to such successors who
thereupon (by written supplement to this Agreement) become a
party to this Agreement and who thereby agree to hold all of the
Membership Interest transferred to such successor subject in all
respects to the terms and provisions of this Agreement.
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(2) to market or require the Manager to market the Properties
with the intention of selling them to a third party and
liquidating the Company. Such other Member, or the
Manager, if directed by such Member, shall, in a
commercially reasonable and reasonably effective manner,
market all of the Properties in a single portfolio sale
or in pools of assets or individually, and may secure the
services of a third party to assist the Member and
Manager with the marketing of the Properties on such
terms and conditions as such Member deems appropriate in
good faith.
The Insolvency Option shall be exercised by giving notice (the
"PURCHASE NOTICE") to the Personal Representative of the
Insolvent Member within the period permitted for the exercise
of the Insolvency Option. For purposes of this Section 9.5,
Storage shall be deemed to be an Insolvent Member if any event
occurs with respect to Storage REIT that, if it were a Member,
would cause it to become an Insolvent Member.
(c) The sales price of each Membership Interest to be sold
pursuant to this Section 9.5 shall be equal to the Cash Amount
for such Membership Interest. The Cash Amount shall be
determined as of a date as near as reasonably practicable to
the date of the occurrence of the event which results in the
sale of the Membership Interest hereunder and the closing of
the sale of the Membership Interest shall occur on the closing
date agreed upon the purchasing Member and Insolvent Member or
if there is no agreement among them as to the closing date,
then on the first Business Day following the day which is
thirty (30) days after the date on which the Cash Amount is
determined.
(d) At the closing of any sale of a Membership Interest to be sold
on the terms and conditions specified in this Section 9.5, the
Insolvent Member shall assign and deliver the Membership
Interest to the purchasing Member free and clear of all
encumbrances and claims, together with such documents of
transfer as shall be reasonably requested by the purchasing
Member, and the purchasing Member shall deliver or cause to be
delivered to the Insolvent Member the full consideration
therefor, payable in cash, by wire transfer or other
immediately available funds. Investor's obligation to sell its
Membership Interest to Storage REIT in exchange for REIT
Shares and of Storage REIT's obligation to purchase Investor's
Membership Interest for REIT Shares, shall be subject to
satisfaction by Storage REIT on the closing date of conditions
set forth on Exhibit F. If the conditions set forth on Exhibit
F are not satisfied as of the closing date, the closing date
shall be extended for up to thirty (30) days in order to allow
Storage REIT to satisfy those conditions or to purchase
Investor's Membership Interest in exchange for the Cash
Amount. Any transfer or similar taxes involved in such sale
shall be paid by the Insolvent Member, and the Insolvent
Member shall provide the purchasing Member with such evidence
of the
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Insolvent Member's authority to sell hereunder and such tax
lien waivers and similar instruments as the purchasing Member
may reasonably request.
(e) If Storage is the Insolvent Member, in addition to its other
remedies pursuant to this Section 9.5, Investor may elect:
(1) to assume the duties of Manager of the Company, or may
elect to transfer a portion of its interest in the
Company to an entity controlled by the Investor or
persons directly or indirectly owning the Investor, and
to designate such entity as a replacement Manager
hereunder. If the Investor exercises such right, Storage
(or any Affiliate of Storage which is serving as
Manager), shall automatically, without need for the
execution and delivery of any instrument other than
notice by the Investor to Storage that it has exercised
such right, cease to be the Manager and Investor or the
entity designated by the Investor shall become the sole
Manager with all rights and responsibilities of the
Manager set forth in this Agreement. Storage shall
execute such amendments to this Agreement and execute and
file such amendments to the Certificate as may be
required to effect such appointment of the Investor (or
its designated affiliate) as the Manager and hereby
appoints the Investor its attorney-in-fact, with full
power of substitution, to execute and deliver any such
amendments or other instruments; and/or
(2) cause the Company to immediately terminate the Property
Management Agreement; provided, however, that the Company
shall promptly engage a new property manager on terms
substantially equivalent to those prevailing in the
market for similar services at that time, and that
provided that Investor is able to engage another
management company acceptable to the lenders to the
Company, for so long as Storage is a Member of the
Company, the Company shall not engage any of the
following companies (or any affiliate of or successor in
interest to any of the following companies) to manage the
Properties, or engage or permit any other entity to
manage the Properties under brand names owned or used by
any of the following:
(A) Public Storage, Inc.
(B) Sovran Self Storage, Inc.,
(C) Shurgard Storage Centers, Inc., or
(D) AMERCO or U-Haul International, Inc.
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SECTION 9.6. ASSIGNEES.
(a) The Company shall not recognize for any purpose any purported
sale, assignment or transfer of all or any fraction of the
interest of a Member unless all provisions of this Agreement
relating thereto have been satisfied, all costs of such
assignment have been paid by the assigning Member, such sale,
assignment or transfer is exempt from registration under the
Securities Act of 1933, as amended, and any other applicable
state or federal securities act, and there is delivered to the
Company, upon request of the Manager or any Member, a written
opinion of counsel acceptable to the Manager or such
requesting Member with respect thereto, and there is filed
with the Company a written and dated notification of such
sale, assignment or transfer, in form satisfactory to the
Manager, executed by both the seller, assignor or transferor
and the purchaser, assignee or transferee and such
notification (1) contains the acceptance by the purchaser,
assignee or transferee of and agreement to be bound by all the
terms and provisions of this Agreement and (2) represents that
such sale, assignment or transfer was made in accordance with
all applicable securities laws and regulations (including
suitability standards). Any sale, assignment or transfer shall
be recognized by the Company as effective on the date of such
notification if the date of such notification is within
fifteen (15) days of the date on which such notification is
filed with the Company, and otherwise shall be recognized as
effective on the date such notification is filed with the
Company.
(b) Any Member who transfers or assigns its entire interest in the
Company shall cease to be a Member, except that, unless and
until a substituted Member has been admitted into the Company,
such assigning Member shall retain the statutory rights of the
assignor of a Member's interest under the Act.
(c) A person who is the assignee of all or any portion of the
interest of the Member but does not become a substituted
Member, and who desires to make a further assignment of such
interest it had acquired, shall be (and its proposed transfer
shall be) subject to all the provisions of this Agreement
relating to the Disposition of interests to the same extent
and in the same manner as any Member desiring to make an
assignment of its interest.
SECTION 9.7. SUBSTITUTED MEMBERS.
Except as set forth in Section 9.1(d), only upon the unanimous written
consent of all of the Members, which consent shall not be unreasonably withheld,
shall a purchaser, assignee, transferee, or other recipient of all or a portion
of a Membership Interest who was not previously admitted to the Company as a
Member may be admitted as a substituted Member to the extent of its acquired
interest in the Company. In the event that any such Person is admitted to the
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Company as a substituted Member, the Manager shall have the power and authority
to amend this Agreement to reflect the admission of such Person as a substituted
Member and such Person shall have all the rights, duties and obligations of a
Member under this Agreement. The Manager shall promptly deliver to each Member
(in any permissible manner further described in Section 12.1 hereof) a copy of
any amendments to this Agreement made by the Manager under this Section 9.7).
SECTION 9.8. MANAGEMENT PENDING SALE CLOSING.
From and after the date of delivery of a Conversion Notice pursuant to
Section 9.3 or a Marketing Notice pursuant to Section 9.4 and continuing through
the sooner to occur of the applicable closing date or the termination of such
sale right, each Member shall exercise best efforts to insure that the Company
is operated in the ordinary course of business and that no actions are taken by
or on behalf of the Company which are likely to impede the ability of the
Members to consummate the transactions contemplated herein.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
---------------------------------------------
SECTION 10.1. ACQUISITION OF INTEREST FOR INVESTMENT.
Each Member hereby represents and warrants to the Company and the other
Member(s) that its acquisition of its Membership Interest is made for its own
account for investment purposes only and not with a view toward the resale or
distribution of such Membership Interest.
SECTION 10.2. ACCESS TO INFORMATION.
Each Member has been afforded full opportunity to request any and all
relevant information and ask questions concerning the proposed purposes and
business of the Company, has been provided all information and copies of
documents it has requested and has received answers to such questions to its
full satisfaction. Each Member represents and warrants that such Member has not
relied upon any information relating to the Company other than information
supplied by the Company.
SECTION 10.3. NO REGISTRATION.
Each Member recognizes that the Membership Interests have not been
registered under the Securities Act, or applicable state securities laws and are
being sold pursuant to the exemptions from registration offered by Section 4(2)
of such Act and by applicable state law provisions. Each Member recognizes that,
as a consequence, its Membership Interest must be held indefinitely unless it is
subsequently registered under the Securities Act, and applicable state
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securities laws, or an exemption from such registration is available, so that
each Member must bear the economic risk of investment in its Membership Interest
for an indefinite period of time.
SECTION 10.4. NO OBLIGATION TO REGISTER.
Each Member acknowledges that neither the Company nor the Manager is under
any obligation to register the Membership Interests under any securities laws,
and neither of them has any present intention to do so. Each Member understands
that there is no established market for the Membership Interests, and it is
extremely unlikely that any public or private market will develop.
SECTION 10.5. SUITABILITY OF INVESTMENT.
Each Member understands the nature of the investment being made and that it
involves a high degree of risk. Each Member recognizes that the Company is a
newly organized entity and has no history of operations or earnings.
SECTION 10.6. ACCREDITATION.
Each member represents that it is a sophisticated investor, able and
accustomed to handling sophisticated financial matters for itself, particularly
real estate investments, and that it has a sufficiently high net worth that it
does not anticipate a need for the funds it has invested in the Company in what
it understands to be a highly speculative and illiquid investment. Each Investor
represents that it is an "accredited investor" as defined in Rule 501 under the
Securities Act.
SECTION 10.7. REPRESENTATIONS AND WARRANTIES REGARDING MEMBERS.
Each Member represents and warrants to the Manager and the other Members
concerning itself as follows:
(a) Organization. It is a limited liability company, partnership,
corporation, or other entity duly formed, validly existing and
in good standing under the laws of the jurisdiction of its
organization.
(b) Authorization. Its execution and delivery of this Agreement,
the performance by it of its obligations under this Agreement
and the consummation of this transactions contemplated hereby
and thereby have been duly authorized by all requisite
corporate or other action on its part.
(c) No Conflicting Agreements. Its execution and delivery of, and
its performance and compliance with the terms and provisions
of, this Agreement do not violate any of the terms, conditions
or provisions of (i)
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its Articles of Incorporation, Certificate of Incorporation,
Certificate of Formation or other applicable organizational
agreements or governing instruments, (ii) any judgment, order,
injunction, decree, regulation or ruling of any court or other
governmental authority to which it is subject or by which any
of its assets are bound, or (iii) any agreement or contract to
which the Member is a party or to which it or its property is
subject.
(d) Approvals. No Authorization, consent, order, approval or
license from filing with, or other act by any agency, bureau
or department of any federal, state or local government
authority or other Person is or will be necessary to permit
the valid execution and delivery by it of this Agreement or
the performance by it of the obligations to be performed by it
under this Agreement, or if any such authorizations, consents,
orders, approvals or licenses are required, they have been
obtained.
(e) Primary Contact Person. Each Member represents that the
Primary Contact Person listed opposite its name on Schedule 1
is authorized to act for and on behalf of such Member in all
matters relating to or arising in connection with this
Agreement, the Company and the Properties. The Manager is
entitled to rely on the actions of the Primary Contact Person
until otherwise notified by such Member.
SECTION 10.8. FINANCIAL STATEMENTS AND OTHER DOCUMENTS.
Each Member represents and warrants that financial statements of and all
other documents, certificates and statements submitted or delivered by or on
behalf of such Member in connection with the transactions contemplated by this
Agreement are true, complete and correct in all material respects. Each such
financial statement has been prepared in accordance with generally accepted
accounting practices and fairly represents the financial condition of the
subject thereof in all material respects. There has been no material adverse
change in any of such information from the date thereof until the date of this
Agreement.
SECTION 10.9 UBTI.
Storage represents and warrants that no portion of the Properties are
leased to the seller of the Properties or to any person who bears a relationship
to the seller of the Properties described in Section 267(b) or 707(b) of the
Code other than as described on Schedule 4.5, and Storage and Investor agree
that there is no plan to lease the Properties to any such party after the
Properties are acquired except as described on Schedule 4.5. To the knowledge of
Storage, no portion of the Properties is, or is planned to be, leased to any of
the pension trusts listed in Exhibit E or any participating employer in the
plans pursuant to which such trusts are maintained, nor is the seller an
affiliate or subsidiary of any of such parties. The Company will not, following
the acquisition of the Properties, have any arrangements in place that will
result in the receipt by the Company of rent from personal property or service
income other than as described in Schedule 4.5.
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SECTION 10.10. ERISA.
As of the date of this Agreement, the date of each transaction contemplated
under this Agreement and during the one (1) year period immediately preceding
any such date, neither Storage nor Storage REIT nor any "affiliate" of any of
them, as such term is defined in Part V(c) of Prohibited Transaction Class
Exemption 84-14, has the authority to (i) appoint or terminate Fidelity
Management Trust Company as investment manager with respect to the assets of any
of the ERISA pension trusts listed in Exhibit E or (ii) negotiate the terms of
the investment management agreement with Fidelity Management Trust Company on
behalf of any such trust.
SECTION 10.11. NO BROKERS.
Each Member represents and warrants that it has not dealt with any agent or
broker in connection with the transactions contemplated by this Agreement and
that no agent, broker, or other Person acting pursuant to express or implied
authority of such Member is entitled to a commission or finder's fee, or will be
entitled to recover on any claim against any other Member, the Manager or the
Company for a commission or finder's fee, in connection with the transactions
contemplated by this Agreement, other than Security Capital Markets Group,
Incorporated. Storage shall be responsible for any fees payable to Security
Capital Markets Group, Incorporated in connection with the transactions
contemplated by this Agreement.
SECTION 10.12. YEAR 2000 COMPLIANCE.
The Manager shall use its commercially reasonable efforts to be Year 2000
Compliant. As used in this paragraph, the term "Year 2000 Compliant" shall mean
that all software, hardware, equipment, goods or systems utilized by or material
to the physical operations, business operations, or financial reporting of such
property or entity (collectively the "systems") will (i) properly perform date
sensitive functions before, on and after January 1, 2000; (ii) accurately
perform leap year calculations; and (iii) will not cause any other information
technology to fail or generate errors related to any such dates.
SECTION 10.13. QUALIFIED ORGANIZATION STATUS.
Storage represents that it is not and agrees that it will not become, or
transfer any portion of its interest in the Company to, a "qualified
organization," within the meaning of Code Section 514(c)(9)(C).
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SECTION 10.14 PARTNERSHIP ALLOCATIONS.
Storage represents and warrants that each allocation provided for in this
Agreement either (i) has substantial economic effect within the meaning of
Treasury Regulations Section 1.704-1(b), or (ii) to the extent that an
allocation cannot have economic effect, is deemed to be in accordance with the
Members' Membership Interests pursuant to Treasury Regulations Section
1.704-1(b)(4), or (iii) if Treasury Regulations Section 1.704-1(b)(4) does not
provide a method for deeming the allocation to be in accordance with the
Members' Membership Interests, otherwise complies with the requirements of
Treasury Regulations Section 1.704-1(b)(4). Storage further represents and
warrants that each allocation attributable to nonrecourse liabilities or Member
nonrecourse debt complies with the requirements of Treasury Regulations Section
1.704-2(e) or 1.704-2(i).
ARTICLE XI
DEFAULTS; LIQUIDATION AND DISSOLUTION OF COMPANY
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SECTION 11.1. EVENTS OF DEFAULT.
The occurrence of any of the events set forth below shall constitute an
"Event of Default" on the part of any Member, if the default remains uncured
after ten (10) days after the non-defaulting Member gives notice of such default
to the defaulting Member; provided, however, that if such default cannot with
diligent efforts be cured within such ten (10)-day period but such Member (or
such Affiliate of such Member) commences such cure within such ten (10)-day
period, thereafter diligently and continuously prosecutes such cure, and such
default is reasonably susceptible to cure within sixty (60) days, such ten
(10)-day period shall be extended for the time reasonably required to effect
such cure, but in no event for more than an additional fifty (50) days (i.e. 60
days total):
(a) the occurrence, after the Closing of the Contribution Agreement
or Purchase Agreements, of any material default on the part of a
Member or an Affiliate of a Member pursuant to the terms of (i)
any of the Purchase Agreements or the Contribution Agreement
(considering, for purposes of determining the materiality of any
default under the Purchase Agreements or the Contribution
Agreement, all of such agreements and the transactions
represented by them as a whole) or (ii) any other material
agreement between the Company and a Member or an Affiliate of a
Member, other than the Property Management Agreement, in each
case without regard to any "grace" or cure period contained in
the applicable agreement;
(b) violation by or on behalf of a Member of the transfer
restrictions set forth in Article IX;
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(c) the breach or inaccuracy in any material respect of any
representation, warranty or statement made by or on behalf of a
Member in this Agreement, or in any certificate or statement
furnished pursuant thereto;
(d) any knowing or intentional act on the part of a Member which
gives rise to an event or circumstance which would permit any
lender to the Company to demand repayment of its loan prior to
maturity;
(e) any other material default in the performance of or failure to
comply with, any other agreements, obligations, or undertakings
of a Member contained herein (other than the obligations
described in Sections 3.3, 9.3, and 9.4, for which exclusive
remedies are otherwise provided therein);
(f) without regard to the periods provided for cure above, but
subject to the applicable cure period set forth in the Property
Management Agreement, any act or omission that would entitle the
Company to terminate the Property Management Agreement for Cause
(as "Cause" is defined in the Property Management Agreement);
and
(g) the delivery by Storage to the Company of a notice of non-renewal
of the Property Management Agreement.
SECTION 11.2. REMEDIES.
(a) During the continuance of any Event of Default by Storage,
Investor shall be entitled to:
(1) in its sole discretion, assume the duties of Manager
hereunder. If the Investor exercises such right, Storage (or
any Affiliate of Storage which is serving as Manager), shall
automatically, without need for the execution and delivery
of any instrument other than notice by the Investor to
Storage that it has exercised such right, cease to be the
Manager and Investor shall become the sole Manager with all
rights and responsibilities of the Manager set forth in this
Agreement. Storage shall execute such amendments to this
Agreement and execute and file such amendments to the
Certificate as may be required to effect such appointment of
the Investor (or its designated affiliate) as the Manager
and hereby appoints the Investor its attorney-in-fact, with
full power of substitution, to execute and deliver any such
amendments or other instruments; and/or
(2) market or require the Manager to market all of the
Properties pursuant to Section 9.4; provided, however, that
if Storage defaults before the fourth anniversary of this
Agreement, and Investor elects to market or require the
Manager to market all of
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the Properties, Storage shall pay to Investor liquidated
damages equal to the difference between the cash
distribution Storage would have received pursuant to Section
11.4(b)(4) upon the sale of the Properties and the amount it
would have so received if its Capital Ratio had been
reduced by the following amounts as of the date of such
calculation:
(A) If the default takes place before the first anniversary
of the date of this Agreement, two percentage points
(2%);
(B) If the default takes place on or after the first
anniversary of the date of this Agreement but before
the second anniversary of the date of this Agreement,
one and one-half percentage points (1.5%);
(C) If the default takes place on or after the second
anniversary of the date of this Agreement but before
the third anniversary of the date of this Agreement,
one percentage point (1%);
(D) If the default takes place on or after the third
anniversary of the date of this Agreement but before
the fourth anniversary of the date of this Agreement,
one-half of one percentage point (0.5%)
and/or
(3) cause the Company to immediately terminate the Property
Management Agreement; provided, however, that the Investor
shall be unilaterally entitled to and shall promptly engage
a new property manager on terms substantially equivalent to
those prevailing in the market for similar services at that
time, and that provided that Investor is able to engage
another management company acceptable to the lenders to the
Company, for so long as Storage is a Member of the Company,
the Company shall not engage any of the following companies
(or any affiliate of or successor in interest to any of the
following companies) to manage the Properties, or engage or
permit any other entity to manage the Properties under brand
names owned or used by any of the following:
(A) Public Storage, Inc.
(B) Sovran Self Storage, Inc.,
(C) Shurgard Storage Centers, Inc., or
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(D) AMERCO OR U-Haul International, Inc.
In addition to the above remedies, Investor may recover from
Storage any actual damages incurred by Investor as a result of
Storage's default under Section 11.1(b), (c), (d) or (e).
(4) During the continuance of any Event of Default by
Investor, Storage shall be entitled to require the
Manager to market all of the Properties pursuant to
Section 9.4; provided, however, that if Investor defaults
before the third anniversary of this Agreement, and
Storage elects to require the Manger to market all of the
Properties, Investor shall pay to Storage liquidated
damages equal to the difference between the cash
distribution Investor would have received pursuant to
Section 11.4(b)(4) upon the sale of the Properties and
the amount it would have so received if its Capital Ratio
had been reduced by the following amounts as of the date
of such calculation:
(A) If the default takes place before the first
anniversary of the date of this Agreement, two
percentage points (2%);
(B) If the default takes place on or after the first
anniversary of the date of this Agreement but
before the second anniversary of the date of this
Agreement, one and one-half percentage points
(1.5%);
(5) If the default takes place on or after the second
anniversary of the date of this Agreement but before the
third anniversary of the date of this Agreement, one
percentage point (1%).
In addition to the above remedies, Storage may recover from
Investor any actual damages incurred by Storage as a result of
Investor's default under Section 11.1(b), (c), (d) or (e).
(b) The remedies provided in this Section 11.2 shall be the
exclusive remedies of the parties with respect to an Event of
Default; provided, however, that unless otherwise expressly
provided herein, this Agreement shall not limit the rights of
any Member under any of the agreements referred to in Sections
11.1(a) and (f).
SECTION 11.3. EVENTS OF DISSOLUTION.
(a) The Company shall be dissolved upon the happening of any of
the following events:
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(1) upon the unanimous written agreement of all of the
Members;
(2) upon the failure of the Company to obtain the Secured
Indebtedness on or before June 30, 1999;
(3) upon the failure of the Company and Storage close on the
Contribution Agreement or the Purchase Agreements on or
before the respective closing dates set forth therein;
(4) upon the sale of all of the Properties pursuant to the
Conversion Option as described in Section 9.3, pursuant
to the Marketing Right as described in Section 9.4 or
pursuant to Section 11.2;
(5) upon the entry of a judgment, order or decree of a court
of competent jurisdiction adjudicating the Company to be
a bankrupt and the expiration without appeal of the
period, if any, allowed by applicable law in which to
appeal therefrom; or
(6) upon the entry of a decree of judicial dissolution under
Section 44 of the Act or any successor or similar
provision of applicable law.
(b) The events set forth in Section 11.3 (a) constitute the only
situations or events on which a dissolution of the Company
shall occur.
(c) Dissolution of the Company shall be effective as of the day on
which the event occurs giving rise to the dissolution, but the
Company shall not terminate until there has been a winding up
of the Company's business and affairs and the assets of the
Company have been distributed as provided in Section 11.4.
SECTION 11.4. LIQUIDATION; SALE OF SUBSTANTIALLY ALL OF THE ASSETS.
(a) Subject to the restrictions and limitations contained in this
Agreement, upon dissolution of the Company the Manager may
cause any part or all of the Company assets to be sold in such
manner as the Manager shall determine in an effort to obtain
the best prices for such assets (provided, however, that with
the approval of all of the Members the Manager may distribute
Company assets in kind to the Members on the basis approved by
the Members). During the liquidation period, the Manager shall
have the right to continue to operate and otherwise to deal
with Company property to the same extent the Manager has such
right prior to dissolution of the Company. In the event that
the Manager had dissolved, withdrawn or becomes bankrupt or
legally incapacitated, all of the Members may, within thirty
(30) days after any such occurrence, appoint a person to
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perform the functions of the Manager in liquidating the assets
of the Company and winding up its affairs.
(b) In settling accounts after dissolution, the assets of the
Company shall be paid or distributed in the following order:
(1) first, to creditors other than Members and their
Affiliates, in the order of priority provided by law;
(2) then, to the Members and their respective Affiliates for
any fees or other compensation or any unreimbursed costs
and expenses owing to the Members or their respective
Affiliates in accordance with the terms of this
Agreement, and then to the repayment of any loans (with
interest) made by any Member to the Company in accordance
with the terms of this Agreement;
(3) then, to reserves as the Members deem reasonably
necessary for any contingent or unforeseen liabilities or
obligations of the Company. Such reserves may be paid
over by the Manager to a bank, to be held in escrow for
the purpose of paying any contingent or unforeseen
liabilities or obligations and, at the expiration of such
period as the Members may deem advisable, such reserves
shall be distributed to the Members, pursuant to clause
(4); and
(4) then, to the Members in accordance with Section 7.6.
Notwithstanding the foregoing, no distributions shall be made pursuant to
this Section 11.4 before giving effect to the allocations of profits, losses and
other items, pursuant to Section 7.2.
SECTION 11.5. DISTRIBUTIONS IN KIND.
If any assets of the Company are distributed in kind pursuant to this
Agreement (which shall be done only with the approval of all of the Members),
such assets shall be distributed to the Members in the same proportions of value
as the Members would have been entitled to receive as cash distributions if such
property had been sold for cash at its fair market value and the net proceeds
thereof distributed to the Members.
SECTION 11.6. DATE OF TERMINATION.
The Company shall be terminated when all the cash or property available for
application and distribution under Section 11.4 hereof shall have been applied
and distributed in accordance therewith and Articles of Termination shall have
been filed pursuant to Section 11.8 hereof.
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SECTION 11.7. WAIVER OF PARTITION.
Each Member hereby irrevocably waives any right or power it may possess now
or hereafter to compel a partition or sale of any assets of the Company or to
compel a dissolution of the Company other than as expressly set forth in this
Agreement.
SECTION 11.8. ARTICLES OF TERMINATION.
Upon the dissolution and the completion and winding up of the Company, the
Manager shall cause to be filed with the Office of the Secretary of State of the
State of Delaware, Articles of Termination, pursuant to the requirements of the
Act, canceling the Certificate of Organization.
ARTICLE XII
MISCELLANEOUS
-------------
SECTION 12.1. NOTICE.
Any notice, demand or other communication required or permitted to be given
under this Agreement shall be in writing and shall be given to the Members at
their respective addresses and to the Primary Contact Person set forth on
Schedule 1 attached hereto or at such other address as any Member may hereafter
designate in a notice duly given to all the other Members, as its address for
receipt of notices hereunder. Such notices may be delivered by hand, by
electronic facsimile ("fax"), by overnight delivery service, by telegram or may
be mailed by U.S. certified or registered mail, return receipt requested.
All notices which are hand-delivered or given by telegram or fax shall be
deemed given on the date of delivery. All notices which are mailed by U.S.
certified or registered mail, return receipt requested, shall be deemed to have
been given on the third business day after being deposited in the United States
mails, proper postage prepaid. All notices which are sent by overnight delivery
shall be deemed given on Business Day after being deposited with such courier.
SECTION 12.2. APPLICATION OF DELAWARE LAW.
This Agreement and the application or interpretation hereof shall be
governed exclusively by, and construed exclusively in accordance with, the laws
of the State of Delaware, and specifically the Act, without regard to principles
of conflicts of laws.
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SECTION 12.3. JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
The provisions of this Section 12.3 shall apply to the extent that the
provisions of Section 12.16 are inapplicable. Any process against any Member in,
or in connection with, any suit, action of proceeding arising out of or relating
to this Agreement or any Member's performance hereof may be served personally
or, to the extent permitted by law, by certified mail at that Member's address
for receipt of notices hereunder with the same effect as though served on such
Members personally. Each Member hereby irrevocably submits in any suit, action
or proceeding arising out of or relating to this Agreement or any Member's
performance hereof or rights or obligations hereunder to the jurisdiction of the
federal and state courts of the State of Delaware and waives any and all
objections to the jurisdiction of, or venue in, such court that such Member may
have under applicable laws. Each of the parties hereto waives trial by jury in
any litigation, suit or proceeding between them in any court with respect to, in
connection with or arising out of this Agreement, or the validity,
interpretation, or enforcement thereof.
SECTION 12.4. NO PARTNERSHIP.
The Members intend that the Company not constitute or be deemed to be a
partnership (including, without limitation, a limited partnership) or joint
venture, and that no Member or Manager constitute or be deemed to be a partner,
agent or joint venturer of any other Member or Manager, for any purposes other
than federal and state income tax purposes, and this Agreement shall not be
construed, interpreted or applied to suggest otherwise.
SECTION 12.5. EFFECT OF AGREEMENT.
This Agreement shall be binding upon all Members and the Manager and their
respective assigns and successors.
SECTION 12.6. ENTIRE AGREEMENT.
This Agreement and the Schedules and Exhibits hereto, if any, together with
all other contracts and agreements which either are referred to herein or bear
even date herewith, contain all of the understandings and agreements of
whatsoever kind and nature existing between the Members with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings with respect thereto.
SECTION 12.7. AMENDMENT.
Except as otherwise expressly set forth in this Agreement, this Agreement
may be amended, supplemented or restated only by a written agreement executed by
each of the Members. Notwithstanding anything to the contrary in this Section
12.7, the Certificate of Organization and this Agreement may be amended,
supplemented or restated, for the following purposes only be the Manager without
the necessity of obtaining the written consent of any of the
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Members: the change of the registered agent, the address of the registered agent
or the address of the principal place of business of the Company.
SECTION 12.8. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original and shall be binding upon the Member who executed the
same, but all of such counterparts together shall constitute one and the same
agreement.
SECTION 12.9. SEVERABILITY.
Every provision hereof is intended to be severable and to be enforced to
the fullest extent permitted by applicable law, and if any term or provision
hereof is illegal or invalid for any reason whatsoever, such illegality or
invalidity shall not affect the validity of the remainder of this Agreement.
SECTION 12.10. CAPTIONS.
The title and captions contained herein are for convenience of reference
only and shall not be deemed part of the context of this Agreement.
SECTION 12.11. INTERPRETATION.
Where the context so indicates, the masculine shall include feminine and
neuter, the singular shall include the plural and the plural shall include the
singular. The term "including" wherever it appears in this Agreement is not
limiting and means "including without limitation." Unless otherwise expressly
provided herein, references to agreements (including this Agreement) and other
contractual instruments shall be deemed to include all subsequent amendments and
other modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of this Agreement. This Agreement
is the result of negotiations among and have been reviewed by counsel to the
other parties thereto and are the products of all parties. Accordingly, it shall
not be construed against any party merely because of such party's involvement in
its preparation.
SECTION 12.12. ADDITIONAL DOCUMENTS AND ACTS.
In connection with this Agreement, as well as all transactions contemplated
by this Agreement, the Members agree to execute such additional documents and
papers, and to perform and do such additional acts, as may be necessary and
proper to effectuate and carry out all of the provisions of this Agreement.
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SECTION 12.13. CONFIDENTIALITY.
(a) The provisions of this Agreement and of any other agreement
relating to the Company or its Properties to which the Company
or any Member is a party, the identity of any person with whom
the Company may be holding discussions with respect to any
investment, acquisition, Disposition, or other transaction or
in whom the Company may invest directly or indirectly, and all
other business, financial or other information relating
directly to the business or affairs of the Company or the
relative or absolute rights or interests of any of the Members
(collectively, the "INFORMATION") that has not been publicly
disclosed with the consent of all of the Members is
confidential and proprietary information of the Company the
disclosure of which could cause irreparable harm to the
Company and the Members. Accordingly, each Member represents
that it has not, and agrees that it will not and that it will
direct its shareholders, directors, officers, agents, advisors
(including, without limitation, any appraiser selected by or
on behalf of it, or by or on behalf of any appraiser selected
by it) and Affiliates not to, disclose to any person (except
to the extent, if any, it is required by applicable law to
make disclosure to a court or governmental authority) any
Information or confirm any statement made by any other person
regarding Information unless all of the Members consent
thereto or until the Company has publicly disclosed the
Information and has notified each Member that it has done so.
(b) The covenants and agreements contained in this Section will
continue to bind all Members and other parties to this
Agreement after they cease to be Members or hold any interest
in the Company and will survive the termination of the
Company.
(c) Notwithstanding any contrary provision in this Section, any
Member may, without breach of the covenants set forth in this
Section and without notice to or consent of the Manager,
disclose any Information to any potential transferee of a
Membership Interest if such transferee executes and delivers
to the Company a written confidentiality agreement in which it
agrees to be bound by the terms and provisions of this
Section 12.13 on the same basis and in the same manner as
would apply if it were a Member of the Company who had signed
this Agreement. The parties agree that if this Section 12.13
is breached the remedy at law may be inadequate, and
therefore, in addition to any other remedy to which a party
may be entitled, the non-breaching party shall be entitled to
an injunction or injunctions to prevent breaches of this
Section 12.13 and/or to compel specific performance of this
Section 12.13.
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SECTION 12.14. CREDITORS NOT BENEFITED.
No creditor of the Company or other Person not a Member shall have any
right or benefit under or in respect of this Agreement (and, without limiting
the generality of the foregoing, no such Person shall have any right to enforce
any obligation of any Member to make capital contributions or loans or to pursue
any other right or remedy hereunder or in respect hereof or at law or in
equity), it being understood and agreed that the provisions of this Agreement
shall be solely for the benefit of, and may be enforced solely by, the Members
and the Company and their respective successors and assigns. None of the rights
or obligations of the Members herein set forth to make capital contributions or
loans to the Company shall be deemed an asset of the Company for any purpose by
any creditor or other third party, nor may such rights or obligations be sold,
transferred or assigned by the Company or pledged or encumbered by the Company
to secure any debt or other obligation of the Company or of any of the Members.
In addition, it is the intent of the parties hereto that no distribution to any
Member shall be deemed a return of money or other property in violation of the
Act.
SECTION 12.15. INVOLVEMENT OF THE COMPANY IN CERTAIN PROCEEDINGS.
If any Member or any Affiliate of a Member becomes involved in legal
proceedings unrelated to the business of the Company in which the Company is
called upon to provide information, the Member will indemnify, defend and hold
harmless the Company against all costs and expenses (including, without
limitation, fees and expenses of attorneys and other advisors) paid or incurred
by the Company in preparing or producing the required information or in
resisting any request for production or obtaining a protective order limiting
the availability of the information provided by the Company or in otherwise
protecting its interests.
SECTION 12.16. DISPUTE RESOLUTION AND ARBITRATION.
(a) Any claim, action, dispute or controversy of any kind arising out
of or relating to this Agreement or concerning any aspect of
performance by any Member under the terms of this Agreement,
except those matters identified in Section 4 of the Capital
Expenditures Reimbursement Agreement and Section 20(a) of the
Property Management Agreement (which matters shall be resolved
pursuant to the procedures set forth in the Capital Expenditures
Reimbursement Agreement or the Property Management Agreement, as
applicable) ("DISPUTE") shall be resolved by mandatory and binding
arbitration administered by the American Arbitration Association
(the "AAA") pursuant to the Federal Arbitration Act (Title 9 of
the United States Code) in accordance with this Agreement and the
then-applicable Commercial Arbitration Rules of the AAA. The
Members acknowledge and agree that the transactions evidenced and
contemplated hereby involve "commerce" as contemplated in Section
2 of the Federal Arbitration Act. If Title 9 of the United States
Code is inapplicable to any such Dispute for any reason, such
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arbitration shall be conducted pursuant to the Massachusetts
Uniform Arbitration Act, this Agreement and the then-applicable
Commercial Arbitration Rules of the AAA. To the extent that any
inconsistency exists between this Agreement and the foregoing
statutes or rules, this Agreement shall control. Judgment upon the
award rendered by the arbitrator acting pursuant to this Agreement
may be entered in, and enforced by, any court having jurisdiction
absent manifest disregard by such arbitrator of applicable law;
provided, however, that the arbitrator shall not amend, supplement
or reform in any manner any of the rights or obligations of any
Member hereunder or the enforceability of any of the terms or
provisions of this Agreement. Any arbitration proceedings under
this Agreement shall be conducted in Boston, Massachusetts before
a single arbitrator who has no direct or indirect relationship
with any Member or any Member's Affiliate and who has recognized
expertise in the fields of commercial real estate investment and
limited liability company and partnership law and practice.
(b) Upon the request of any Member who is a party to such Dispute set
out in a written notice delivered in accordance with Section 12.1
hereof or to the other Members who are parties to such Dispute,
whether made before or after the institution of any legal
proceeding, but prior to the expiration of the statutory time
period within which any Member must respond upon receipt of valid
service of process in order to avoid a default judgment, any
Dispute shall be resolved by mandatory and binding arbitration in
accordance with the terms of this Agreement. Within ten (10) days
after a Member's receipt of such notice, the Members who are
parties to the Dispute shall agree upon a qualified arbitrator. If
the Members cannot agree within such 10-day period, an arbitrator
shall be appointed by the AAA. If a replacement arbitrator is
necessary for any reason, such replacement arbitrator shall be
appointed by the AAA.
(c) Any Member may bring summary proceedings (including, without
limitation, a plea in abatement or motion to stay further
proceedings) in court to compel arbitration of any Dispute in
accordance with this Agreement.
(d) All statutes of limitation that would otherwise be applicable
shall apply to any arbitration proceeding. Any attorney-client
privilege and other protection against disclosure of privileged or
confidential information (including, without limitation, any
protection afforded the work-product of any attorney) that could
otherwise be claimed by any Member shall be available to, and may
be claimed by, any such Member in any arbitration proceeding. No
Member waives any attorney-client privilege or any other
protection against disclosure of privileged or confidential
information by reason of anything contained in, or done pursuant
to, the arbitration provisions of this Agreement.
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(e) The arbitration shall be conducted and concluded as soon as is
reasonably practicable, based on a schedule established by the
arbitrator. Any arbitration award shall be based on and
accompanied by findings of fact and conclusions of law, shall be
conclusive as to the facts so found and shall be confirmable by
any court having jurisdiction over the Dispute, provided that such
award, findings and conclusions are not in manifest disregard of
applicable law.
(f) Each Member shall bear its own expenses of the arbitration,
including, without limitation, fees and expenses of counsel
incident to any mediation or arbitration. The fees and expenses of
the arbitrator and the AAA shall be borne equally by the Members.
The arbitrator shall have the power and authority to award
expenses to the prevailing Member if the arbitrator elects to do
so.
(g) In order for an arbitration award to be conclusive, binding and
enforceable under this Agreement, the arbitration must follow the
procedures set forth in the portions of this Agreement relating
to such arbitration and any award or determination shall not be in
manifest disregard of applicable law. The obligation to arbitrate
any Dispute shall be binding upon the successors and assigns of
each of the Members.
SECTION 12.17. SECTIONS.
Unless the context requires otherwise, all references in this Agreement to
Sections or Articles shall be deemed to mean and refer to Sections or Articles
of this Agreement.
SECTION 12.18. NO WAIVER.
No waiver, express or implied, by any Member of any obligation of, or any
breach or default by any other Member in the performance by the other Member of
its obligations, hereunder shall be (i) binding or enforceable except to the
extent (if any) set out in a writing signed by the Member sought to be charged
thereby or (ii) deemed or construed to be a waiver of any other breach or
default under this Agreement. Failure on the part of any Member to complain of
any act or omission of any other Member, or to declare such other Member in
default irrespective of how long such failure continues, shall not constitute a
waiver hereunder. No notice to or demand on a defaulting Member shall entitle
such defaulting Member to any other or further notice or demand in similar or
other circumstances.
SECTION 12.19. ADDITIONAL REMEDIES.
Unless the context requires otherwise, the rights and remedies of the
Members hereunder shall not be mutually exclusive so that the exercise of one or
more of the rights or remedies hereunder shall not preclude the exercise of any
other.
77
<PAGE>
SECTION 12.20. U.S. DOLLARS.
All references in this Agreement to dollar amounts shall refer to United
States currency.
SECTION 12.21. APPROVALS.
Except where otherwise expressly stated in this Agreement, all approval,
consent and other similar rights of the Manager or of the Members pursuant to
this Agreement (i) shall be set out in a writing signed by the person whose
approval, consent or exercise of any other right is required and (ii) may be
exercised by such parties, and such approvals and consents may be granted or
denied by such parties, in their sole and absolute discretion.
SECTION 12.22. LIMITATION ON LIABILITY OF MEMBERS.
The liability of each Member hereunder shall be limited solely to the
interest of such Member in the Company. The Members agree not to seek to recover
against any person or entity other than the other Members with respect to any
claim or circumstance arising out of or relating to the Company or the
Properties and not to seek to recover on any claim against such other Member
against any asset other than such Member's interest in the Company.
78
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date set
forth above.
SUSA PARTNERSHIP, L.P., as a Member
and as Manager
By STORAGE USA, INC., Its General
Partner
By:
/s/ Dean Jernigan
-----------------------------------
Name: Dean Jernigan
Title: Chief Executive Officer
FREAM No. 18 LLC,
a Delaware limited liability
company
By: Fidelity Management Trust
Company, as agent and not
individually
By: /s/ Thomas P. Lavin
-------------------------------
Thomas P. Lavin
Vice President
Storage USA, Inc. joins this
Agreement for purposes of
consenting to Sections 9.3, 9.4
and 9.5 herein.
STORAGE USA, INC.
By: /s/ Dean Jernigan
--------------------------------
Name: Dean Jernigan
Title: Chief Executive Officer
79
FIRST AMENDMENT
TO
LIMITED LIABILITY
COMPANY AGREEMENT
OF
STORAGE PORTFOLIO I LLC
THE FIRST AMENDMENT TO LIMITED LIABILITY COMPANY AGREEMENT (this "FIRST
AMENDMENT") of STORAGE PORTFOLIO I LLC, a Delaware limited liability company
(the "Company"), dated as of June 7, 1999, amends the Limited Liability Company
Agreement, dated as of May 13, 1999, by and between SUSA PARTNERSHIP, L.P., a
Tennessee limited partnership ("Storage"), as a Member and the Manager, and
FREAM No. 18 LLC, a Delaware limited liability company ("Investor"), as a Member
of the Company (the "LLC AGREEMENT").
WHEREAS, the Members have determined to amend certain provisions of the LLC
Agreement relating to capital expenditures, monthly reporting by the LLC and the
conversion rights of Investor.
NOW, THEREFORE, in consideration of the mutual promises made herein, the
parties agree as follows:
1. Section 6.3. Section 6.3(b) of the LLC Agreement is amended to add at
the end of the first sentence:
", provided, that the balance sheet and profit and loss statements
referred to on Schedule 6.3 shall be prepared on both a consolidated
and an individual Property basis."
2. Section 9.3(b). Section 9.3(b) of the LLC Agreement is amended by:
(a) striking the first clause of the fourth sentence (up to, but not
including the first comma) and substituting the following in its
place (additions are indicated by italics):
If Storage REIT elects to purchase Investor's Membership
Interest for the REIT Shares Amount and if (i) the Market
Price calculated as of the Valuation Date differs by more than
five percent (5%) from the Market Price Calculated as of the
date Investor issued the Conversion Notice or (ii) the
Investor determines in its reasonable discretion exercised in
good faith that its ownership of the REIT Shares would result
in a violation of internal stock ownership limits applicable
to Investor, any of its members or any Affiliates of such
entities,
(b) adding the following sentence to the end of Section 9.3(b):
<PAGE>
If Investor rescinds its Conversion Notice pursuant to clause
(ii) of the fourth sentence of this subparagraph, Investor
shall reimburse the Company for any and all costs and expenses
incurred by the Company in connection with such Conversion
Notice and such rescission, including, without limitation, the
determination of the Fair Market Value of the Properties; the
Investor shall be permitted to rescind only one Conversion
Notice pursuant to such clause (ii) during any twelve-month
period.
3. Section 9.3(d). Section 9.3(d) of the LLC Agreement is amended by
(a) striking the first clause of the fifth sentence (up to and
including the first comma) and substituting the following in its
place (additions are indicated by italics):
If Storage REIT elects pursuant to clause (C)(i) of the
preceding sentence to purchase Investor's Membership Interest
in exchange for REIT Shares and if (i) the Market Price
calculated as of the Valuation Date differs by more than five
percent (5%) from the Market Price calculated as of the date
Investor issued the Conversion Notice, or (ii) the Investor
determines in its reasonable discretion exercised in good
faith that its ownership of the REIT Shares would result in a
violation of internal stock ownership limits applicable to
Investor, any of its members or any Affiliates of such
entities,
(b) adding the following sentence to the end of Section 9.3(d):
If Investor rescinds its Conversion Notice pursuant to clause
(ii) of the fifth sentence of this subparagraph, Investor
shall reimburse the Company for any and all costs and expenses
incurred by the Company in connection such Conversion Notice
and such rescission, including, without limitation, with the
determination of the Fair Market Value of the Properties; the
Investor shall by permitted to rescind only one Conversion
Notice pursuant to such clause (ii) during any twelve-month
period.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been duly executed as of June
7, 1999.
STORAGE PORTFOLIO I LLC
By: SUSA PARTNERSHIP, L.P., Manager
By STORAGE USA, INC., Its General Partner
By:/s/ Morris J. Kriger
-------------------------------------
Name: Morris J. Kriger
Title: Executive Vice President
SUSA PARTNERSHIP, L.P., as a Member
By STORAGE USA, INC., Its General Partner
By: /s/ Morris J. Kriger
-------------------------------------
Name: Morris J. Kriger
Title: Executive Vice President
FREAM No. 18 LLC,
a Delaware limited liability company
By: Fidelity Management Trust Company,
as agent and not individually
By: /s/ Thomas P. Lavin
-------------------------------------
Thomas P. Lavin
Vice President
Storage USA, Inc. joins this Agreement for purposes of
consenting to the amendments to Section 9.4 herein.
STORAGE USA, INC.
By: /s/ Morris J. Kriger
-------------------------------------
Name: Morris J. Kriger
Title: Executive Vice President
STORAGE USA, INC.
AMENDMENT NO. 2 TO
1995 EMPLOYEE STOCK PURCHASE AND LOAN PLAN
This Amendment No. 2, dated as of May 5, 1999 to the Storage USA, Inc.
1995 Employee Stock Purchase and Loan Plan, recites and provides as follows:
At the annual meeting held on May 5, 1999 the shareholders of Storage USA,
Inc. (the "Company") voted to amend the Company's 1995 Employee Stock Purchase
and Loan Plan (the "Plan"), pursuant to Article XI of the Plan, to increase the
number of shares of the Company's Common Stock available under the Plan from
500,000 to 750,000.
NOW, THEREFORE, the following amendment to the Plan is hereby adopted:
Article V. The maximum aggregate number of shares of Common Stock that may
be issued under this Plan is 750,000 (subject, however, to adjustments as
provided in Article VIII).
IN WITNESS WHEREOF, the Company has caused this Amendment No. 2 to be
executed as of the date first above written.
STORAGE USA, INC.
By: /s/ John W. McConomy
---------------------------------
John W. McConomy
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's unaudited consolidated financial statements as of March 31, 1999,
and the nine months then ended, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,456
<SECURITIES> 0
<RECEIVABLES> 228,969
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 232,425
<PP&E> 1,588,064
<DEPRECIATION> 78,127
<TOTAL-ASSETS> 1,742,362
<CURRENT-LIABILITIES> 193,120
<BONDS> 785,972
0
65,000
<COMMON> 280
<OTHER-SE> 697,990
<TOTAL-LIABILITY-AND-EQUITY> 1,742,362
<SALES> 120,848
<TOTAL-REVENUES> 124,837
<CGS> 0
<TOTAL-COSTS> 66,928
<OTHER-EXPENSES> 6,635 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,987
<INCOME-PRETAX> 30,287
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,287
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.08
<FN>
Included in other expenses are minority interest expense and gain/(loss) on
exchange of self-storage facilities
</FN>
</TABLE>
