-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OCPzXxJIre+s/3DIMYBsZ+Wmp8fdLphCmqSdOFFMU2dz/ijguhK/iE/MdUZikzJZ pDnwdCI+p5iki6VUl15b5g== 0000866368-97-000002.txt : 19970329 0000866368-97-000002.hdr.sgml : 19970329 ACCESSION NUMBER: 0000866368-97-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC STORAGE PROPERTIES XIV INC CENTRAL INDEX KEY: 0000869624 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 954300884 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10792 FILM NUMBER: 97566829 BUSINESS ADDRESS: STREET 1: 701 WESTERN AVE STREET 2: SUITE 200 CITY: GLENDALE STATE: CA ZIP: 91201-2397 BUSINESS PHONE: 8182448080 MAIL ADDRESS: STREET 1: 701 WESTERN AVE STREET 2: SUITE 200 CITY: GLENDALE STATE: CA ZIP: 91201 10-K405 1 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to ---- ------ Commission File Number 1-10792 ------- PUBLIC STORAGE PROPERTIES XIV, INC. ----------------------------------- (Exact name of registrant as specified in its charter) California 95-4300884 - --------------------------------- -------------------------------------- (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 701 Western Avenue Glendale, California 91201-2349 - --------------------------------- -------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 244-8080 -------------- Securities registered pursuant to Section 12(b) of the Act Common Stock Series A, $.01 par value American Stock Exchange - -------------------------------------- -------------------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act None -------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X -- The aggregate market value of the voting stock held by non-affiliates of the Company as of February 28, 1997: Common Stock Series A, $.01 Par Value-$43,098,169 (computed on the basis of $21-1/8 per share which was the reported closing sale price of the Company's Common Stock Series A on the American Stock Exchange on February 28, 1997). The number of shares outstanding of the Company's classes of common stock as of February 28, 1997: Common Stock, $.01 Par Value - Series A 2,263,218 shares Common Stock, $.01 Par Value - Series B 232,762 shares Common Stock, $.01 Par Value - Series C 659,494 shares ------------------------------------------------------ DOCUMENTS INCORPORATED BY REFERENCE (a) Information required by Part III will be included in an amendment to this Form 10-K under cover of a Form 10-K/A filed within 120 days of the Company's 1996 fiscal year, which information is incorporated by reference into Part III. PUBLIC STORAGE PROPERTIES XIV, INC. PART I. ITEM 1. BUSINESS -------- General - ------- Public Storage Properties XIV, Inc. (the "Company") is a real estate investment trust ("REIT") organized as a California corporation that was formed to succeed to the business of Public Storage Properties XIV, Ltd., a California limited partnership (the "Partnership"), in a reorganization transaction completed on June 3, 1991. The Partnership offered 106,000 units of limited partnership interest (the "Units") to the public in May 1985. The Partnership's general partners were PSI Associates II, Inc. ("PSA"), a California corporation, and B. Wayne Hughes ("Hughes"). PSA was an affiliate of Public Storage Management, Inc., a California corporation (see below). Effective June 3, 1991, the Partnership transferred all of its assets and liabilities to the Company pursuant to a plan of Reorganization approved by a majority of the limited partners. In exchange for the Partnership's assets and liabilities, the Company issued 2,676,768 shares of common stock Series A ("Series A shares"), 232,762 shares of common stock Series B ("Series B shares") and 659,494 shares of common stock Series C ("Series C shares") of the Company to the Partnership. The Partnership then made a liquidating distribution to the limited partners by distributing 99 percent of the Series A shares (on the basis of 25 Series A shares for each Unit). The remaining 1 percent of the Series A shares and all of the Series B shares and Series C shares were distributed to the general partners in respect of their interests in the Partnership. Subsequent thereto, the Partnership was dissolved. The Company has elected to be taxed as a REIT for Federal income tax purposes. The Company is a finite life REIT, with a term until December 31, 2038 (the same as the predecessor Partnership). However, pursuant to the Company's by-laws, in 1997 the Company will be required to present the shareholders with a proposal for the sale or financing of the properties and, in the case of a sale, a liquidation of the Company, unless the properties have already been sold or financed. See " Sale or Financing" below. The Company's investment objectives are (as were the Partnership's) to maximize cash flow from operations and to maximize capital appreciation. The Company has acquired 14 properties, all of which are in operation. The Company believes that its mini-warehouses have attractive operating characteristics. The Company's senior officers have been responsible for the acquisition of more than 350 mini-warehouses, the development of more than 650 mini-warehouses and the management of more than 1,000 mini-warehouses during their average 18 years of experience with the Public Storage organization. In 1995, there were a series of mergers among Public Storage Management, Inc. (which was the Company's mini-warehouse operator), Public Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc., a REIT listed on the New York Stock Exchange. In the PSMI Merger, Storage Equities, Inc. was renamed Public Storage, Inc. ("PSI") and PSI acquired substantially all of PSMI's United States real estate operations and became the operator of the Company's mini-warehouse properties. Hughes, the Company's Chief Executive Officer, and members of his family (the "Hughes Family") are the major shareholders of PSI. As a result of the PSMI Merger, PSI owns all of the shares of the Company's common stock that was owned by PSMI or its affiliates, and PSI has an option to acquire all of the shares of the Company's common stock owned by Hughes. Investments in Facilities - ------------------------- At December 31, 1996, the Company owned 14 facilities located in 7 states: California (5), Colorado (1), Indiana (2), New York (1), South Carolina (1), Texas (2) and Virginia (2). These facilities consist of 12 mini-warehouses and two business park facilities. 2 The Company believes that its operating results have benefited from favorable industry trends and conditions. Notably, the level of new mini-warehouse construction has decreased while consumer demand has increased. In addition, the Company's mini-warehouses are characterized by a low level of capital expenditures to maintain their condition and appearance. MINI-WAREHOUSES Mini-warehouses, which comprise the majority of the Company's investments (approximately 82% of the Company's revenues for the twelve months ended December 31, 1996), are designed to offer accessible storage space for personal and business use at a relatively low cost. A user rents a fully enclosed space which is for the user's exclusive use and to which only the user has access on an unrestricted basis during business hours. On-site operation is the responsibility of resident managers who are supervised by area managers. Some mini-warehouses also include rentable uncovered parking areas for vehicle storage. Leases for mini-warehouse space may be on a long-term or short-term basis, although typically spaces are rented on a month-to-month basis. Rental rates vary according to the location of the property and the size of the storage space. Users of space in mini-warehouses include both individuals and large and small businesses. Individuals usually employ this space for storage of, among other things, furniture, household appliances, personal belongings, motor vehicles, boats, campers, motorcycles and other household goods. Businesses normally employ this space for storage of excess inventory, business records, seasonal goods, equipment and fixtures. Mini-warehouses in which the Company has invested generally consist of three to seven buildings containing an aggregate of between 350 to 750 storage spaces, most of which have between 25 and 400 square feet and an interior height of approximately 8 to 12 feet. The Company experiences minor seasonal fluctuations in the occupancy levels of mini-warehouses with occupancies higher in the summer months than in the winter months. The Company believes that these fluctuations result in part from increased moving activity during the summer. The Company's mini-warehouses are geographically diversified and are generally located in heavily populated areas and close to concentrations of apartment complexes, single family residences and commercial developments. However, there may be circumstances in which it may be appropriate to own a property in a less populated area, for example, in an area that is highly visible from a major thoroughfare and close to, although not in, a heavily populated area. Moreover, in certain population centers, land costs and zoning restrictions may create a demand for space in nearby less populated areas. As with most other types of real estate, the conversion of mini-warehouses to alternative uses in connection with a sale or otherwise would generally require substantial capital expenditures. However, the Company does not intend to convert its mini-warehouses to other uses. COMMERCIAL PROPERTIES The Company's non-mini-warehouse investments are business parks and low-rise office buildings. The business parks include both industrial and office space. Industrial space may be used for, among other things, light manufacturing and assembly, storage and warehousing, distribution and research and development activities. The Company believes that most of the office space is occupied by tenants who are also renting industrial space. The remaining office space is used for general office purposes. A business park may also include facilities for commercial uses such as banks, travel agencies, restaurants, office supply shops, professionals or other tenants providing services to the public. A business park property is typically divided into units ranging in size from 600 to 5,000 square feet. Parking is open or covered, and the ratio of spaces to rentable square feet ranges from one to four per thousand square feet, depending upon the use of the property and its location. Office space generally requires a greater parking ratio than most industrial uses. 3 Operating Strategies - -------------------- The Company's mini-warehouses are operated by PSI under the "Public Storage" name, which the Company believes is the most recognized name in the mini-warehouse industry. The major elements of the Company's operating strategies are as follows: * CAPITALIZE ON "PUBLIC STORAGE'S" NAME RECOGNITION. PSI, together with its predecessor, has more than 20 years of operating experience in the mini-warehouse business, and is the largest operator of mini-warehouses in the United States. PSI believes that its marketing and advertising programs improve its competitive position in the market. PSI's in-house Yellow Pages staff designs and places advertisements in approximately 700 directories. Commencing in early 1996, PSI began to experiment with a telephone reservation system designed to provide added customer service. Customers calling either PSI's toll-free telephone referral system, (800) 44-STORE, or a mini-warehouse facility are directed to PSI's reservation system where a trained representative discusses with the customer space requirements, price and location preferences and also informs the customer of other products and services provided by PSI. As of December 31, 1996, the telephone reservation system was supporting rental activity at all of the Company's properties. PSI's toll-free telephone referral system services approximately 120,000 calls per month from potential customers inquiring as to the nearest Public Storage mini-warehouse. * MAINTAIN HIGH OCCUPANCY LEVELS AND INCREASE REALIZED RENTS. Subject to market conditions, the Company generally seeks to achieve average occupancy levels in excess of 90% and to eliminate promotions prior to increasing rental rates. Average occupancy for the Company's mini-warehouses has increased from 93% in 1995 to 94% in 1996. Realized monthly rents per occupied square foot increased from $.82 in 1995 to $.86 in 1996. The Company has increased rental rates in many markets where it has achieved high occupancy levels and eliminated or minimized promotions. * SYSTEMS AND CONTROLS. PSI has an organizational structure and a property operation system, "CHAMP" (Computerized Help and Management Program), which links its corporate office with each mini-warehouse. This enables PSI to obtain daily information from each mini-warehouse and to achieve efficiencies in operations and maintain control over its space inventory, rental rates, promotional discounts and delinquencies. Expense management is achieved through centralized payroll and accounts payable systems and a comprehensive property tax appeals department, and PSI has an extensive internal audit program designed to ensure proper handling of cash collections. * PROFESSIONAL PROPERTY OPERATION. In addition to the approximately 150 support personnel at the Public Storage corporate offices, there are approximately 2,700 on-site personnel who manage the day-to-day operations of the mini-warehouses in the Public Storage system. These on-site personnel are supervised by 110 district managers, 15 regional managers and three divisional managers (with an average of 13 years' experience in the mini-warehouse industry) who report to the president of the mini-warehouse property operator (who has 12 years of experience with the Public Storage organization). PSI carefully selects and extensively trains the operational and support personnel and offers them a progressive career path. See "Property Operators." Property Operators - ------------------ The Company's mini-warehouse properties are managed by PSI (as successor to PSMI) pursuant to a Management Agreement. Through 1996, the Company's commercial properties were managed by Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a Management Agreement. PSI has a 95% economic interest in PSCPG (represented by nonvoting preferred stock) and the Hughes Family had a 5% economic interest in PSCPG (represented by voting common stock) until December 1996, when the Hughes Family sold its interest to Ronald L. Havner, Jr., formerly Senior Vice President and Chief Financial Officer of PSI, who became the Chief Executive Officer of PSCPG. PSCPG issued additional voting common stock to two other unaffiliated investors. In January 1997, American Office Park Properties, L.P. ("AOPPLP") became the manager of the Company's commercial properties pursuant to the Management Agreement. AOPPLP is an operating partnership formed to own and operate business parks in which PSI has an approximate 85% economic interest. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. Under the supervision of the Company, PSI and AOPPLP coordinate the operation of the facilities, establish rental policies and rates, direct marketing activity, and direct the purchase of equipment and supplies, maintenance activity, and the selection and engagement of all vendors, supplies and independent contractors. 4 PSI and AOPPLP engage, at the expense of the Company, employees for the operation of the Company's facilities, including resident managers, assistant managers, relief managers, and billing and maintenance personnel. Some or all of these employees may be employed on a part-time basis and may also be employed by other persons, partnerships, REITs or other entities owning facilities operated by PSI or AOPPLP. In the purchasing of services such as advertising (including broadcast media advertising) and insurance, PSI and AOPPLP attempt to achieve economies by combining the resources of the various facilities that they operate. Facilities operated by PSI and AOPPLP have historically carried comprehensive insurance, including fire, earthquake, liability and extended coverage. PSI has developed systems for space inventory, accounting and handling delinquent accounts, including a computerized network linking PSI operated facilities. Each project manager is furnished with detailed operating procedures and typically receives facilities management training from PSI. Form letters covering a variety of circumstances are also supplied to the project managers. A record of actions taken by the project managers when delinquencies occur is maintained. The Company's facilities are typically advertised via signage, yellow pages, flyers and broadcast media advertising (television and radio) in geographic areas in which many of the Company's facilities are located. Broadcast media and other advertising costs are charged to the Company's facilities located in geographic areas affected by the advertising. From time to time, PSI or AOPPLP adopt promotional programs, such as temporary rent reductions, in selected areas or for individual facilities. For as long as the respective Management Agreement is in effect, PSI has granted the Company a non-exclusive license to use two PSI service marks and related designs (and AOPPLP has granted the Company a non-exclusive license to use a PSI service mark and related designs), including the "Public Storage" name, in conjunction with rental and operation of facilities managed pursuant to the Management Agreement. Upon termination of the respective Management Agreement, the Company would no longer have the right to use the service marks and related designs except as described below. Management believes that the loss of the right to use the service marks and related designs could have a material adverse effect on the Company's business. Each Management Agreement, as amended in February 1995, provides that (i) the Management Agreement will expire in February 2002 provided that in February of each year it shall be automatically extended for one year (thereby maintaining a seven-year term) unless either party notifies the other that the Management Agreement is not being extended, in which case it expires on the first anniversary of its then scheduled expiration date. Each Management Agreement may also be terminated by either party for cause, but if terminated for cause by the Company, the Company retains the rights to use the service marks and related designs until the then scheduled expiration date, if applicable, or otherwise a date seven years after such termination. Certain of the directors and officers of the Company are also directors and officers of PSI. Competition - ----------- Competition in the market areas in which the Company operates is significant and affects the occupancy levels, rental rates and operating expenses of certain of the Company's facilities. Competition may be accelerated by any increase in availability of funds for investment in real estate. Recent increases in plans for development of mini-warehouses is expected to further intensify competition among mini-warehouse operators in certain market areas. In addition to competition from mini-warehouses operated by PSI, there are three other national firms and numerous regional and local operators. The Company believes that the significant operating and financial experience of its executive officers and directors, PSI, AOPPLP and the "Public Storage" name, should enable the Company to continue to compete effectively with other entities. Other Business Activities - ------------------------- A corporation owned by the Hughes Family reinsures policies against losses to goods stored by tenants in the Company's mini-warehouses. The Company believes that the availability of insurance reduces the potential liability of the Company to tenants for losses to their goods from theft or destruction. This corporation receives the premiums and bears the risks associated with the insurance. 5 A corporation, in which PSI has a 95% economic interest and the Hughes Family has a 5% economic interest, sells locks, boxes and tape to tenants to be used in securing their spaces and moving their goods. PSI believes that the availability of locks, boxes and tape for sale promotes the rental of spaces. Sale or Financing - ----------------- The by-laws of the Company provide that, during 1997, unless shareholders have previously approved such a proposal, the shareholders will be presented with a proposal to approve or disapprove (a) the sale or financing of all or substantially all of the properties and (b) the distribution of the proceeds from such transaction and, in the case of a sale, the liquidation of the Company. Employees - --------- As of December 31, 1996, the Company had 54 employees, 18 persons who render services on behalf of the Company on a full-time basis and 36 persons who render services on a part-time basis (5 of whom were executive officers). These persons include resident managers, assistant managers, relief managers, district managers, and administrative and maintenance personnel. Federal Income Tax - ------------------ The Company intends to continue to operate in a manner so as to qualify as a REIT under the Internal Revenue Code of 1986, as amended, but no assurance can be given that the Company will be able to continue to qualify at all times. By qualifying as a REIT, the Company can deduct dividend distributions to its shareholders for Federal income tax purposes, thus effectively eliminating the "double taxation" (at the corporate and shareholder levels) that typically applies to corporate dividends. The Company believes it is in compliance with these requirements and, accordingly, no provision for income taxes has been made. Proposed Merger - --------------- In December 1996, the Company and Public Storage, Inc. ("PSI") agreed, subject to certain conditions, to merge. Upon the merger, each outstanding share of the Company's common stock series A (other than shares held by PSI or by holders of the Company's common stock series A ("Series A Shareholders") who have properly exercised dissenters' rights under California law ("Dissenting Shares")) will be converted into the right to receive cash, PSI common stock or a combination of the two, as follows: (i) with respect to a certain number of shares of the Company's common stock series A (not to exceed 20% of the outstanding common stock series A of the Company, less any Dissenting Shares), upon a Series A Shareholder's election, $21.73 in cash, subject to reduction as described below or (ii) that number (subject to rounding) of shares of PSI common stock determined by dividing $21.73, subject to reduction as described below, by the average of the per share closing prices on the New York Stock Exchange of PSI common stock during the 20 consecutive trading days ending on the fifth trading day prior to the special meeting of the Company's shareholders. The consideration paid by PSI to the Series A Shareholders in the merger will be reduced by the amount of cash distributions required to be paid to the Series A Shareholders by the Company prior to completion of the merger (estimated at $1.18 per share) in order to satisfy the Company's REIT distribution requirements ("Required REIT Distributions"). The consideration received by the Series A Shareholders in the merger, however, along with any Required REIT Distributions, will not be less than $21.73 per share of the Company's common stock series A, which amount represents the market value of the Company's real estate assets at October 31, 1996 (based on an independent appraisal) and interest of the Series A Shareholders in the estimated net asset value of its other assets at March 31, 1997. Additional distributions will be made to the Series A Shareholders to cause the Company's estimated net asset value allocable to the Series A Shareholders as of the date of the merger to be substantially equivalent to $21.73 per share. Upon the merger, each share of the Company's common stock series B and common stock series C (other than shares held by PSI) would be converted into the right to receive $16.07 in PSI common stock (valued as in the case of the Company's common stock series A) plus (i) any additional distributions equal to the amount by which the Company's estimated net asset value allocable to the holders of the Company's common stock series B and C as of the date of the merger exceeds $16.07 per share and (ii) the estimated Required REIT Distributions payable to the holders of the Company's common stock series B of $1.18 per share. The common stock of the Company held by PSI will be canceled in the merger. The merger is conditioned on, among other requirements, approval by the Company's shareholders. It is expected that the merger will close in the first half of 1997. PSI is the Company's mini-warehouse operator and owns 33.27% of the total combined shares of the Company's common stock series A, B and C. 6 ITEM 2. PROPERTIES. ---------- The following table sets forth information as of December 31, 1996 about properties owned by the Company:
Net Number Size of Rentable of Completion Location Parcel Area Spaces Date - --------------------------------- -------------- --------------- ------------ -------------- CALIFORNIA Campbell, State Hwy 17 (a) 2.71 acres 86,000 sq. ft. 742 Aug. 1985 Fountain Valley, Newhope (a) 2.78 acres 71,000 sq. ft. 521 Feb. 1986 Santa Cruz, Soquel Ave. (a) 1.59 acres 43,000 sq. ft. 404 Nov. 1985 So. San Francisco, Airport (b) 2.43 acres 51,000 sq. ft. 40 Dec. 1986 Torrance, Crenshaw Blvd. (b) 6.52 acres 111,000 sq. ft. 60 Jan. 1986 COLORADO Aurora, Mississippi Ave. (a) 3.37 acres 72,000 sq. ft. 489 Sept. 1985 INDIANA Indianapolis, Hwy 31 4.22 acres 59,000 sq. ft. 505 Sept. 1985 Indianapolis, Lafayette Rd 3.60 acres 60,000 sq. ft. 501 Sept. 1985 NEW YORK Farmingdale, Broad Hollow Rd. 2.96 acres 52,000 sq. ft. 517 Apr. 1986 SOUTH CAROLINA Columbia, Broad River Rd. .79 acres 14,000 sq. ft. 159 Jul. 1985 TEXAS Dallas, Winsted Rd. 1.73 acres 71,000 sq. ft. 866 Feb. 1986 Fort Worth, Interstate 30 2.49 acres 62,000 sq. ft. 569 Jul. 1985 VIRGINIA Fairfax, Backlick Rd. 2.35 acres 42,000 sq. ft. 383 Sept. 1985 Fairfax County, Tyson's Corner (a) 3.57 acres 116,000 sq. ft. 1,219 Nov. 1986
- ------------- (a) This property's rentable area contains office or retail space or a combination of office or light industrial space. (b) This property has been developed as a business park. The Company, in connection with a proposed merger described in Item 1, obtained an appraisal which stated the value of the Company's properties were, on a portfolio, $62,000,000 as of October 31, 1996. Substantially all of the Company's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, the Company completed environmental assessments of its properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. These assessments were performed by an independent environmental consulting firm. Based on the assessments, the Company expensed $244,000 in 1995 for known environmental remediation requirements. 7 The Company's properties are operated to maximize cash flow through the regular review of and, when warranted by market conditions, adjustments to scheduled rents. Approximately 82% of the Company's portfolio (based on revenues for 1996) are mini-warehouses and the balance consists of commercial properties. As reflected in the table below, the Company has experienced improved property operations:
For the year ended December 31, ----------------------------------------- 1996 1995 1994 --------- --------- ---------- Weighted average occupancy level (1) 94% 93% 93% Realized monthly rent per occupied square foot (1) (2) $.86 $.82 $.81 Operating margin: (3) Before reduction for depreciation expense 68% 68% 68% After reduction for depreciation expense 51% 51% 52%
- --------------- (1) Mini-warehouse facilities only. (2) Realized rent per square foot represents the actual revenue earned per occupied square foot. Management believes this is a more relevant measure than the posted rental rates, since posted rates can be discounted through the use of promotions. Includes administrative and late fees. (3) Operating margin (before reduction for depreciation expense) is computed by dividing rental income less cost of operations by rental income. Operating margin (after reduction for depreciation expense) is computed by dividing rental income less cost of operations and depreciation expense by rental income. Additional information is set forth below with respect to the Campbell/State Highway 17, Torrance/Crenshaw Blvd. and Fairfax County/Tyson's Corner properties, because they are the only properties with a book value of at least 10% of the total assets of the Company or that have accounted for gross revenues of at least 10% of the aggregate gross revenues of the Company. CAMPBELL/STATE HIGHWAY 17. This mini-warehouse property is located in Campbell, California, approximately three miles from downtown Campbell. The site is situated along State Highway 17 near the San Tomas Expressway. Both of these thoroughfares link Campbell with San Jose. The site is visible and accessible from State Highway 17. The local businesses consist of commercial and retail establishments. The surrounding residential neighborhood consists of single and multi-family developments. The 2.71-acre property, which was completed in 1985, consists of seven buildings of approximately 86,000 square feet of net rentable area divided into 742 units. No tenant occupies 10% or more of the rentable area. As of December 31, 1996, the property was 99% occupied by 740 tenants. Set forth below is a schedule showing the occupancy rate and the rent per square foot for the property at the dates indicated: Annual Scheduled Rent Per Date Occupancy Rate Square Foot - ----------------------- ------------------------ --------------------- December 31, 1996 99% $13.92 December 31, 1995 99 12.24 December 31, 1994 99 11.16 TORRANCE/CRENSHAW BOULEVARD. This property, a business park, is located in Torrance, California, approximately 13 miles from Los Angeles. The business park offers office space which is suitable for general management use and interaction with customers. The business park is in a business community which includes commercial, industrial and research and development establishments. The residential market in the immediate area consists of single and multi-family developments. The property is visible and accessible from Crenshaw Boulevard, a major north/south artery. Situated on 6.52 acres, the business park contains 8 approximately 111,000 square feet of net rentable area divided into 60 units. The property, which opened in 1986, was 88% occupied at December 31, 1996, by 53 tenants. No tenant occupies 10% or more of the rentable area. Set forth below is a schedule showing the occupancy rate and the rent per square foot for the property at the dates indicated: Annual Realized Rent Per Date Occupancy Rate Square Foot - -------------------------- -------------------- -------------------- December 31, 1996 88% $10.08 December 31, 1995 77 9.72 December 31, 1994 85 11.40 A schedule showing total annual base rent and percentage of total income relating to leases according to their expiration dates is set forth below: Year of Total Amt. Percentage of Expiration* Base Rent Total Income -------------- ---------------- ---------------- 1997 $664,000 52.91% 1998 336,000 26.77 1999 156,000 12.43 2000 67,000 5.34 2001 32,000 2.55 ---------------- ---------------- Total $1,255,000 100.00% ================ ================ -------------- * Assumes that none of the renewal options included in the leases will be exercised. FAIRFAX COUNTY/TYSON'S CORNER. This mini-warehouse property is located in Fairfax County, Virginia, approximately three miles from the Fairfax central business district. The site is surrounded by industrial developments, condominiums and high-rise office buildings. The 3.57-acre property, which was completed in 1986, consists of two four-story buildings containing approximately 116,000 square feet of net rentable area divided into 1,219 units. No tenant occupies 10% or more of the rentable area. As of December 31, 1996, the property was 94% occupied by 1,151 tenants. Set forth below is a schedule showing the occupancy rate and the rent per square foot for the property at the dates indicated: Annual Scheduled Rent Per Date Occupancy Rate Square Foot --------------------- ------------------- ---------------- December 31, 1996 94% $15.84 December 31, 1995 94 14.16 December 31, 1994 95 13.32 ITEM 3. LITIGATION. ----------- None. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ---------------------------------------------------- The Company held an annual meeting of shareholders on December 17, 1996. Proxies for the annual meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934. The annual meeting involved the election of directors, and the vote was as follows (the common Stock Series A, Series B and Series C vote together as a single class):
Number of Shares of Number of Shares of Common Stock Series A Common Stock Series B ------------------------------- ------------------------------- Name Voted For Withheld Voted For Withheld - -------------------- ------------- ------------ ------------- ------------ B. Wayne Hughes 1,629,125 26,682 232,762 - ------------- ------------ ------------- ------------ Vern O. Curtis 1,629,025 26,782 232,762 - ------------- ------------ ------------- ------------ Jack D. Steele 1,628,725 27,082 232,762 - ------------- ------------ ------------- ------------ Number of Shares of Common Stock Series C Total Common Stock ------------------------------- ------------------------------- Name Voted For Withheld Voted For Withheld - ------------------- ------------- ------------ ------------- ------------ B. Wayne Hughes 659,494 - 2,521,381 26,682 ------------- ------------ ------------- ------------ Vern O. Curtis 659,494 - 2,521,281 26,782 ------------- ------------ ------------- ------------ Jack D. Steele 659,494 - 2,520,981 27,082 ------------- ------------ ------------- ------------
PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. --------------------------------------------------------------------- The Company's Series A shares are registered under Section 12(b) of the Securities Exchange Act of 1934 on the American Stock Exchange ("AMEX"), and commenced trading on July 8, 1991 under the symbol PSP. The Series B and Series C shares were not registered under Section 12 of the Securities Exchange Act of 1934 and no public trading market exists for the Series B and Series C shares. The Company's Articles of Incorporation provide that the Series B shares and Series C shares will convert automatically into Series A shares on a share-for-share basis (the "Conversion") when (A) the sum of (1) all cumulative dividends and other distributions from all sources paid with respect to the Series A shares (including liquidating distributions, but not including payments made to redeem such stock other than in liquidation) and (2) the cumulative Partnership distributions from all sources with respect to all Units (including the General Partners' 1% interest) equals (B) the product of $20 multiplied by the number of the then outstanding "Original Series A shares". The term "Original Series A shares" means the Series A shares issued in the Reorganization. In general, the Series A shares, Series B shares and Series C shares have equal voting rights. The Company's bylaws provide that during the period prior to the conversion of the Series B and Series C shares into Series A shares, in all shareholder matters voted on by the Partnership's general partners (the "General Partners") or their successors in interest as holders of Series B and Series C shares, other than the election and removal of directors and other proposals relating to the control of the Company and its business, the General Partners and any successors in interest have agreed to vote their Series B and Series C shares with the holders of a majority of the outstanding unaffiliated Series A shares entitled to vote. 10 Market Prices and Dividends - --------------------------- The following table sets forth the high and low sales prices on the AMEX composite tape per Series A share and dividends per Series A share and Series B share for fiscal 1995 and 1996:
Sales Price ------------------- Cash Dividends Year Quarter Ended High Low Declared* - ----------- ------------------------------------- ------- ------- --------------- 1995 March 31 $17-1/4 $15-1/4 $0.34 June 30 17-3/8 15-5/8 0.34 September 30 17-7/8 16-3/8 0.34 December 31 18-1/2 17-1/4 0.34 1996 March 31 $19-1/2 $17-3/8 $0.34 June 30 19-1/4 17-5/8 0.34 September 30 19-3/4 18 0.34 December 31 21-1/8 19-1/4 0.34
* No dividends were declared on the Series C shares. As of December 31, 1996, there were approximately 1,272 holders of record of the Company's Series A shares. Holders of Series A shares are entitled to receive distributions when, as and if declared by the Board of Directors out of any funds legally available for that purpose. The Company, as a REIT, is required to distribute, prior to filing its tax return, at least 95% of its "real estate investment trust taxable income," which, as defined by the relevant tax statutes and regulations, is generally equivalent to net taxable ordinary income. Under certain circumstances, the Company can rectify a failure to meet this distribution requirement by paying dividends after the close of a particular taxable year. A principal policy of the Company is to make quarterly cash distributions. The Company intends to make quarterly cash distributions out of funds legally available, as determined by the Company's Board of Directors. For Federal income tax purposes, distributions to shareholders are treated as ordinary income, capital gains, return of capital or a combination thereof, and for the past three years all distributions have been classified as ordinary income. Under generally accepted accounting principles, the amount of distributions declared to shareholders was less than income by $964,000, $353,000 and $391,000 during 1996, 1995 and 1994, respectively. Series A shares are entitled to participate equally in distributions when declared by the Board of Directors and in the Company's net assets upon dissolution and liquidation after repayment of the Company's liabilities. The Series B shares (prior to conversion into Series A shares) are not entitled to participate in distributions attributable to sales or financings of the properties or the liquidation of the Company, but will participate in other distributions on the same basis as the Series A shares. The Series C shares (prior to conversion into Series A shares) are not entitled to participate in any distributions, including liquidating distributions. Repurchase of Company's common stock - ------------------------------------ If considered to be an attractive investment opportunity or in other appropriate circumstances, the Company may repurchase its Series A shares out of legally available funds, if approved by the Board of Directors. As of February 27, 1997, the Board of Directors has authorized the Company to repurchase up to 600,000 Series A shares. From July 8, 1991 through February 28, 1997, the Company has repurchased 413,550 Series A shares. The Company repurchased 41,000 Series A shares during 1996 and no additional Series A shares between January 1, 1997 and February 28, 1997. 11 ITEM 6. SELECTED FINANCIAL DATA. ------------------------ The following selected historical financial information has been derived from the audited financial statements of the Company.
Years Ended December 31, ------------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- (In thousands, except per share data) Operating data: - --------------- REVENUES: Rental income $8,811 $8,448 $8,206 $7,749 $7,573 Interest and other income 51 52 25 15 39 ----------- ----------- ----------- ----------- ----------- 8,862 8,500 8,231 7,764 7,612 ----------- ----------- ----------- ----------- ----------- EXPENSES: Cost of operations 2,381 2,251 2,155 2,141 2,037 Management fees paid to affiliates 475 491 476 449 438 Depreciation 1,421 1,403 1,338 1,264 1,253 General and administrative 217 241 241 252 328 Environmental cost - 244 - - - Interest expense paid to affiliate - - 8 - - ----------- ----------- ----------- ----------- ----------- 4,494 4,630 4,218 4,106 4,056 ----------- ----------- ----------- ----------- ----------- NET INCOME $4,368 $3,870 $4,013 $3,658 $3,556 =========== =========== =========== =========== =========== Net income per Series A share: Primary $1.78 $1.50 $1.52 $1.34 $1.27 Fully diluted $1.38 $1.19 $1.21 $1.08 $1.03 Dividends declared per share: Series A $1.36 $1.36 $1.36 $1.36 $1.36 Series B $1.36 $1.36 $1.36 $1.36 $1.36 Weighted average Common shares outstanding: Primary- Series A 2,274 2,362 2,431 2,491 2,558 Fully diluted- Series A 3,166 3,254 3,323 3,383 3,450 Other data: - ----------- Net cash provided by operating activities $5,826 $5,394 $5,200 $4,972 $4,708 Net cash used in investing activities (450) (370) (331) (433) (309) Net cash used in financing activities (4,189) (5,615) (3,874) (4,948) (5,326) Funds from operations (1) 5,789 5,517 5,351 4,922 4,809 Capital expenditures to maintain facilities (450) (370) (331) (433) (309) Balance sheet data: - ------------------- Total assets $38,787 $38,794 $40,091 $40,097 $41,357 Shareholders' equity 36,978 36,785 38,489 38,345 39,611
12 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED) ---------------------------------- (1) Funds from operations (FFO) is defined by the Company, consistent with the definition of FFO by the National Association of Real Estate Investment Trusts (NAREIT), as net income (loss) (computed in accordance with generally accepted accounting principles) before depreciation and extraordinary or non-recurring items. FFO is presented because the Company, as well as many industry analysts, consider FFO to be one measure of the performance of the Company, ie, one that generally reflects changes in the Company's net operating income. FFO does not take into consideration scheduled principal payments on debt and capital improvements. Accordingly, FFO is not necessarily a substitute for the Company's cash flow or net income as a measure of the Company's liquidity or operating performance or ability to pay distributions. Furthermore, the NAREIT definition of FFO does not address the treatment of certain items and all REITs do not treat items the same way in computing FFO. Accordingly, comparisons of levels of FFO among REITs may not necessarily be meaningful. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ---------------------------------------------------------------- Results of Operations. - ---------------------- YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995. Net income in 1996 was $4,368,000 compared to $3,870,000 in 1995, representing an increase of $498,000 or 13%. Net income per fully diluted Series A share was $1.38 in 1996 compared to $1.19 in 1995, representing an increase of $.19 or 16%. These increases are primarily the result of an increase in property net operating income combined with the favorable impact of comparing to expenses for 1995 which included a non-recurring charge for environmental assessments and provision for future remediation costs. During 1996, property net operating income (rental income less cost of operations, management fees paid to affiliates and depreciation expense) increased $231,000 from $4,303,000 in 1995 to $4,534,000 in 1996. This increase is attributable to an increase in rental income at the Company's mini-warehouse and business park operations. Rental income for the mini-warehouse operations increased $330,000 or 5% from $6,893,000 in 1995 to $7,223,000 in 1996. Cost of operations (including management fees paid to an affiliate of the Company) increased $96,000 or 5% from $2,084,000 in 1995 to $2,180,000 in 1996. The results of these changes was a net increase in property net operating income before depreciation expense of $234,000 or 5% from $4,809,000 in 1995 to $5,043,000 in 1996. The increase in rental income is primarily due to an increase in rental rates and occupancy levels at a majority of the Company's mini-warehouse operations. The increase in cost of operations is primarily due to increases in payroll, repairs and maintenance, advertising and property tax expense. Repairs and maintenance increased due primarily to increases in snow removal and landscaping costs. Snow removal costs increased due to the higher than normal snow levels experienced at the Company's mini-warehouse properties in the eastern states. Property net operating income before depreciation expense with respect to the Company's business park operations increased by $15,000 or 2% from $897,000 in 1995 to $912,000 in 1996. This increase is primarily due to an increase in rental income combined with an increase in cost of operations. The Company's San Francisco, California business park generated the increase in rental income due to an increase in rental rates. The increase in cost of operations is mainly due to an increase in payroll expense. Weighted average occupancy levels were 94% for the mini-warehouse facilities and 93% for the business park facilities in 1996 compared to 93% for the mini-warehouse facilities and 94% for the business park facilities in 1995. In 1995, the Company prepaid eight months of 1996 management fees on its mini-warehouse operations (based on the management fees for the comparable period during the calendar year immediately preceding the prepayment) discounted at the rate of 14% per year to compensate for early payment. In 1996, the Company expensed the prepaid management fees. The amount is included in management fees paid to affiliates in the statements of income. As a result of the prepayment, the Company saved approximately $37,000 in management fees, based on the management fees that would have been payable on rental income generated in 1996 compared to the amount prepaid. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. Net income in 1995 was $3,870,000 compared to $4,013,000 in 1994, representing a decrease of $143,000 or 4%. Net income per fully diluted Series A share was $1.19 in 1995 compared to $1.21 in 1994, representing a decrease of $.02 or 2% per share. This decrease is primarily due to a decrease in property net operating income at the Company's business park facilities in 1995 compared to 1994 and environmental costs incurred on the Company's properties in the fourth quarter of 1995 (see discussion below). During 1995, property net operating income (rental income less cost of operations, management fees paid to affiliates and depreciation expense) increased $66,000 from $4,237,000 in 1994 to $4,303,000 in 1995. This increase is attributable to an increase in rental income at the Company's mini-warehouse operations. Rental income for the mini-warehouse operations increased $298,000 or 5% from $6,595,000 in 1994 to $6,893,000 in 1995. Cost of operations (including management fees paid to an affiliate of the Company) increased $98,000 or 5% from $1,986,000 in 1994 to $2,084,000 in 1995. The results of these changes was a net increase in property net operating income before depreciation expense of $200,000 or 4% from $4,609,000 in 1994 to $4,809,000 in 1995. The increase in rental income is primarily due to an increase in rental rates at a majority of 14 the Company's mini-warehouse operations. The increase in cost of operations is primarily due to increases in payroll, repairs and maintenance and property tax expense. Repairs and maintenance increased due to an increase in painting costs, sign, and roof repairs. Property net operating income before depreciation expense with respect to the Company's business park operations decreased by $69,000 or 7% from $966,000 in 1994 to $897,000 in 1995. This decrease is primarily due to a decrease in rental income combined with an increase in cost of operations. The decrease in rental income is due to a decrease in rental rates at the Company's Torrance, California business park. On new and renewal leases, the Company has lowered its rates in response to lower current market rates. The increase in cost of operations is due to an increase in repairs and maintenance offset by a decrease in property tax expense. The increase in repairs and maintenance is due to storm damage sustained at the Torrance, California facility in early 1995. The decrease in property taxes is primarily due to a tax refund received from appealing a prior period tax assessment on the Torrance facility. Substantially all of the Company's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, the Company completed environmental assessments of its properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. These assessments were performed by an independent environmental consulting firm. Based on the assessments, the Company expensed $244,000 in 1995 for known environmental remediation requirements. Although there can be no assurance, the Company is not aware of any environmental contamination of any of its property sites which individually or in the aggregate would be material to the Company's overall business, financial condition, or results of operations. Weighted average occupancy levels were 93% for the mini-warehouse facilities and 94% for the business park facilities in 1995 and 1994. Mini-warehouse Operating Trends. - -------------------------------- The following table illustrates the operating trends for the Company's 12 mini-warehouses:
For the year ended December 31, ----------------------------------------------------- 1996 1995 1994 ------------ ---------------- ---------- Weighted average occupancy level 94% 93% 93% Realized monthly rent per occupied square foot (1) $.86 $.82 $.81 Operating margin: (2) Before reduction for depreciation expense 70% 70% 70% After reduction for depreciation expense 58% 57% 57%
- -------- (1) Realized rent per square foot represents the actual revenue earned per occupied square foot. Management believes this is a more relevant measure than the posted rental rates, since posted rates can be discounted through the use of promotions. Includes administrative and late fees. (2) Operating margin (before reduction for depreciation expense) is computed by dividing rental income less cost of operations by rental income. Operating margin (after reduction for depreciation expense) is computed by dividing rental income less cost of operations and depreciation by rental income. LIQUIDITY AND CAPITAL RESOURCES. - -------------------------------- CAPITAL STRUCTURE. The Company's financial profile has been characterized by increasing cash provided by operating activities and increasing funds from operations ("FFO"). NET CASH PROVIDED BY OPERATING ACTIVITIES AND FUNDS FROM OPERATIONS. The Company believes that important measures of its performance as well as liquidity are net cash provided by operating activities and FFO. 15 Net cash provided by operating activities (net income plus depreciation) reflects the cash generated from the Company's business before distributions to shareholders and capital expenditures. Net cash provided by operating activities has increased over the past years from $5,200,000 in 1994 to $5,826,000 in 1996. FFO is defined by the Company, consistent with the definition of FFO by the National Association of Real Estate Investment Trusts (NAREIT), as net income (loss) (computed in accordance with generally accepted accounting principles) before depreciation and extraordinary or non-recurring items. FFO for the years ended December 31, 1996 and 1995 was $5,789,000 and $5,517,000, respectively. FFO is presented because the Company, as well as many industry analysts, consider FFO to be one measure of the performance of the Company, i.e., one that generally reflects changes in the Company's net operating income. FFO does not take into consideration scheduled principal payments on debt and capital improvements. Accordingly, FFO is not necessarily a substitute for the Company's cash flow or net income, as a measure of the Company's liquidity or operating performance or ability to pay distributions. Furthermore, the NAREIT definition of FFO does not address the treatment of certain items and all REITs do not treat items the same way in computing FFO. Accordingly, comparisons of levels of FFO among REITs may not necessarily be meaningful. In February 1996, the Company's Board of Directors authorized the Company to obtain a line of credit facility for a maximum of $2,500,000 for working capital purposes, including the repurchase of the Company's stock. In March 1996, the Company obtained an unsecured revolving credit facility with a bank for borrowings up to $2,500,000. Outstanding borrowings on the credit facility which, at the Company's option, bear interest at either the bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%, will convert to a term loan on December 31, 1998. Interest is payable monthly. Commencing on January 31, 1999, principal will be payable monthly in eleven installments equal to one-forty eighth of the outstanding principal amount of the line of credit on December 31, 1998. On December 31, 1999, the remaining unpaid principal and interest is due and payable. At December 31, 1996, there was no outstanding balance on the credit facility. The following table summarizes the Company's ability to make capital improvements to maintain its facilities through the use of cash provided by operating activities. The remaining cash flow is available to the Company to pay distributions to shareholders and repurchase its stock.
Years ended December 31, ---------------------------------------------- 1996 1995 1994 ------------ ------------- ----------- Net income $4,368,000 $3,870,000 $4,013,000 Depreciation 1,421,000 1,403,000 1,338,000 Environmental cost - 244,000 - ------------ ------------- ----------- Funds from operations (Net cash provided by operating activities before changes in working capital components) 5,789,000 5,517,000 5,351,000 Capital improvements to maintain facilities (450,000) (370,000) (331,000) ------------ ------------- ----------- Funds available for distributions to shareholders and repurchase of stock 5,339,000 5,147,000 5,020,000 Cash distributions to shareholders (3,418,000) (3,558,000) (3,627,000) ------------ ------------- ----------- Excess funds available for cash distributions to shareholders and repurchase of stock $1,921,000 $1,589,000 $1,393,000 ============ ============ ===========
The Company believes that its rental revenues and interest and other income will be sufficient over at least the next twelve months to meet the Company's operating expenses, capital improvements and distributions to shareholders. For 1997, the Company anticipates expending approximately $549,000 for capital improvements. During 1995, the Company's property operator commenced a program to enhance the visual appearance of the mini-warehouse facilities operated by it. Such enhancements include new signs, exterior color schemes, and improvements to the rental offices. The vast majority of the costs associated with these enhancements were incurred in 1995 and 1996. 16 In January 1994, the Company borrowed $750,000 from an affiliate for working capital purposes. The advance, which was repaid in June 1994, bore interest at the prime rate plus .25%. Interest expense of $8,000 was charged to income in 1994 with respect to this advance. On November 12, 1996, the Company's Board of Directors declared a regular quarterly distribution per share of $0.34 payable on January 15, 1997 to shareholders of record on December 31, 1996. The Company believes its geographically diverse portfolio has resulted in a relatively stable and predictable investment portfolio. In August 1995, the Management Agreement for the mini-warehouse facilities was amended to provide that upon demand from PSI made prior to December 15, 1995, the Company agreed to prepay (within 15 days after such demand) up to 12 months of management fees (based on the management fees for the comparable period during the calendar year immediately preceding such prepayment) discounted at the rate of 14% per year to compensate for early payment. In November 1995, the Company prepaid, to PSI, 8 months of 1996 management fees at a cost of $248,000. The amount has been expensed as management fees paid to affiliate during 1996. Distributions - ------------- The Company has established a conservative distribution policy. The aggregate amount of dividends paid or accrued to the shareholders in each year since inception of the Company were as follows: Series A Series B Total ------------ ----------- ------------ 1984 $17,000 $1,000 $18,000 1985 897,000 78,000 975,000 1986 1,071,000 93,000 1,164,000 1987 1,306,000 114,000 1,420,000 1988 1,775,000 154,000 1,929,000 1989 2,944,000 256,000 3,200,000 1990 3,480,000 303,000 3,783,000 1991 4,546,000 399,000 4,945,000 1992 3,459,000 317,000 3,776,000 1993 3,381,000 317,000 3,698,000 1994 3,305,000 317,000 3,622,000 1995 3,201,000 316,000 3,517,000 1996 3,088,000 316,000 3,404,000 ------------- ----------- ------------ Total $32,470,000 $2,981,000 $35,451,000 ============= =========== ============ The Convertible Series B shares and Convertible Series C shares will convert automatically into Series A shares on a share-for-share basis (the "Conversion") when (A) the sum of (1) all cumulative dividends and other distributions from all sources paid with respect to the Series A shares (including liquidating distributions, but not including payments made to redeem such stock other than in liquidation) and (2) the cumulative Partnership distributions from all sources with respect to all units equals (B) the product of $20 multiplied by the number of the then outstanding "Original Series A shares". The term "Original Series A shares" means the Series A shares issued in the Reorganization. Through December 31, 1996, the Company has made and declared cumulative cash distributions of approximately $32,470,000 with respect to the Series A shares. Accordingly, assuming no repurchases or redemptions of Series A shares after December 31, 1996, Conversion will occur when $12,794,000 in additional distributions with respect to the Series A shares have been made. REIT DISTRIBUTION REQUIREMENT - ----------------------------- The Company has elected and intends to continue to qualify as REIT for Federal income tax purposes. As a REIT, the Company must meet, among other tests, sources of income, share ownership, and certain asset tests. As a REIT, the Company is not taxed on that portion of its taxable income which is 17 distributed to its shareholders provided that at least 95% of its taxable income is so distributed to its shareholders prior to filing the Company's tax return. Under certain circumstances, the Company can rectify a failure to meet the 95% distribution test by making distributions after the close of a particular taxable year and attributing those distributions to the prior year's taxable income. The Company has satisfied the REIT distribution requirement for 1995 and 1996 by attributing distributions in 1996 and 1997 to the prior year's taxable income. The extent to which the Company will be required to attribute distributions to the prior year will depend on the Company's operating results (taxable income) and the level of distributions as determined by the Board of Directors. The primary difference between book income and taxable income is depreciation expense. In 1996, the Company's Federal tax depreciation was $1,444,000. The Company's Board of Directors has authorized the Company to purchase up to 600,000 shares of Series A common stock. As of December 31, 1996, the Company had purchased and retired 413,550 shares of Series A common stock. PROPOSED MERGER - --------------- In December 1996, the Company and Public Storage, Inc. ("PSI") agreed, subject to certain conditions, to merge. Upon the merger, each outstanding share of the Company's common stock series A (other than shares held by PSI or by holders of the Company's common stock series A ("Series A Shareholders") who have properly exercised dissenters' rights under California law ("Dissenting Shares")) will be converted into the right to receive cash, PSI common stock or a combination of the two, as follows: (i) with respect to a certain number of shares of the Company's common stock series A (not to exceed 20% of the outstanding common stock series A of the Company, less any Dissenting Shares), upon a Series A Shareholder's election, $21.73 in cash, subject to reduction as described below or (ii) that number (subject to rounding) of shares of PSI common stock determined by dividing $21.73, subject to reduction as described below, by the average of the per share closing prices on the New York Stock Exchange of PSI common stock during the 20 consecutive trading days ending on the fifth trading day prior to the special meeting of the Company's shareholders. The consideration paid by PSI to the Series A Shareholders in the merger will be reduced by the amount of cash distributions required to be paid to the Series A Shareholders by the Company prior to completion of the merger (estimated at $1.18 per share) in order to satisfy the Company's REIT distribution requirements ("Required REIT Distributions"). The consideration received by the Series A Shareholders in the merger, however, along with any Required REIT Distributions, will not be less than $21.73 per share of the Company's common stock series A, which amount represents the market value of the Company's real estate assets at October 31, 1996 (based on an independent appraisal) and interest of the Series A Shareholders in the estimated net asset value of its other assets at March 31, 1997. Additional distributions will be made to the Series A Shareholders to cause the Company's estimated net asset value allocable to the Series A Shareholders as of the date of the merger to be substantially equivalent to $21.73 per share. Upon the merger, each share of the Company's common stock series B and common stock series C (other than shares held by PSI) would be converted into the right to receive $16.07 in PSI common stock (valued as in the case of the Company's common stock series A) plus (i) any additional distributions equal to the amount by which the Company's estimated net asset value allocable to the holders of the Company's common stock series B and C as of the date of the merger exceeds $16.07 per share and (ii) the estimated Required REIT Distributions payable to the holders of the Company's common stock series B of $1.18 per share. The common stock of the Company held by PSI will be canceled in the merger. The merger is conditioned on, among other requirements, approval by the Company's shareholders. It is expected that the merger will close in the first half of 1997. PSI is the Company's mini-warehouse operator and owns 33.27% of the total combined shares of the Company's common stock series A, B and C. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------------------------------------------- Company's financial statements are included elsewhere herein. Reference is made to the Index to Financial Statements and Financial Statement Schedule in Item 14(a). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ---------------------------------------------------------------- None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. ------------------------------------------------ Incorporated by reference herein is information required by this item, which is to be included in an amendment on Form 10-K/A to this Form 10-K filed within 120 days of the end of the Registrant's 1996 fiscal year. ITEM 11. EXECUTIVE COMPENSATION. ---------------------- Incorporated by reference herein is information required by this item, which is to be included in an amendment on Form 10-K/A to this Form 10-K filed within 120 days of the end of the Registrant's 1996 fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. -------------------------------------------------------------- Incorporated by reference herein is information required by this item, which is to be included in an amendment on Form 10-K/A to this Form 10-K filed within 120 days of the end of the Registrant's 1996 fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ----------------------------------------------- Incorporated by reference herein is information required by this item, which is to be included in an amendment on Form 10-K/A to this Form 10-K filed within 120 days of the end of the Registrant's 1996 fiscal year. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. --------------------------------------------------------------- (a) List of Documents filed as part of the Report. 1. Financial Statements: See Index to Financial Statements and Financial Statement Schedule. 2. Financial Statement Schedules: See Index to Financial Statements and Financial Statement Schedule. 3. Exhibits: See Exhibit Index contained herein. (b) Reports on Form 8-K filed during the last quarter of the period ended December 31, 1996: A form 8-K dated December 5, 1996 was filed on December 6, 1996, which reported that the Company and PSI had agreed, subject to certain conditions, to merge. (c) Exhibits: See Exhibit Index contained herein. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. PUBLIC STORAGE PROPERTIES XIV, INC. Dated: March 27, 1997 By:/s/ Harvey Lenkin ------------------------- Harvey Lenkin, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Capacity Date - ------------------------- --------------------------------------- ------------------- /s/ B. Wayne Hughes Chairman of the Board, Chief Executive March 27, 1997 - ------------------------- Officer and Director B. Wayne Hughes (Principal Executive Officer) /s/ Vern O. Curtis Director March 27, 1997 - ------------------------- Vern O. Curtis /s/ Jack D. Steele Director March 27, 1997 - ------------------------- Jack D. Steele /s/ David P. Singelyn Vice President and Chief Financial Officer March 27, 1997 - --------------------- (Principal Financial Officer and David P. Singelyn Principal Accounting Officer)
PUBLIC STORAGE PROPERTIES XIV, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE (Item 14 (a)) Page References ---------- Report of Independent Auditors F-1 Financial Statements and Schedule: Balance Sheets as of December 31, 1996 and 1995 F-2 For each of the three years in the period ended December 31, 1996: Statements of Income F-3 Statements of Shareholders' Equity F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-6 - F-11 Schedule for the years ended December 31, 1996, 1995 and 1994: III Real Estate and Accumulated Depreciation F-12 - F-13 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto. Report of Independent Auditors The Board of Directors and Shareholders Public Storage Properties XIV, Inc. We have audited the accompanying balance sheets of Public Storage Properties XIV, Inc. as of December 31, 1996 and 1995, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the schedule listed in the index at item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Public Storage Properties XIV, Inc. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP February 18, 1997 Los Angeles, California F-1
PUBLIC STORAGE PROPERTIES XIV, INC. BALANCE SHEETS December 31, 1996 and 1995 1996 1995 ----------- ----------- ASSETS ------ Cash and cash equivalents $2,136,000 $949,000 Rent and other receivables 57,000 98,000 Prepaid expenses 147,000 329,000 Real estate facilities at cost: Building, land improvements and equipment 30,936,000 30,575,000 Land 18,712,000 18,712,000 ----------- ----------- 49,648,000 49,287,000 Less accumulated depreciation (13,201,000) (11,869,000) ----------- ----------- 36,447,000 37,418,000 ----------- ----------- Total assets $38,787,000 $38,794,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Accounts payable $645,000 $824,000 Dividends payable 849,000 863,000 Advance payments from renters 315,000 322,000 Shareholders' equity: Series A common, $.01 par value, 3,569,024 shares authorized, 2,263,218 shares issued and outstanding (2,304,218 shares issued and outstanding in 1995) 23,000 23,000 Convertible Series B common, $.01 par value, 232,762 shares authorized, issued and outstanding 2,000 2,000 Convertible Series C common, $.01 par value, 659,494 shares authorized, issued and outstanding 7,000 7,000 Paid-in-capital 40,170,000 40,941,000 Cumulative net income 32,227,000 27,859,000 Cumulative distributions (35,451,000) (32,047,000) ----------- ----------- Total shareholders' equity 36,978,000 36,785,000 ----------- ----------- Total liabilities and shareholders' equity $38,787,000 $38,794,000 =========== ===========
See accompanying notes. F-2
PUBLIC STORAGE PROPERTIES XIV, INC. STATEMENTS OF INCOME For each of the three years in the period ended December 31, 1996 1996 1995 1994 ------------ ----------- ---------- REVENUES: Rental income $8,811,000 $8,448,000 $8,206,000 Interest income 51,000 52,000 25,000 ------------ ----------- ---------- 8,862,000 8,500,000 8,231,000 ------------ ----------- ---------- COSTS AND EXPENSES: Cost of operations 2,381,000 2,251,000 2,155,000 Management fees paid to affiliates 475,000 491,000 476,000 Depreciation 1,421,000 1,403,000 1,338,000 Administrative 217,000 241,000 241,000 Environmental cost - 244,000 - Interest expense paid to affiliate - - 8,000 ------------ ----------- ---------- 4,494,000 4,630,000 4,218,000 ------------ ----------- ---------- NET INCOME $4,368,000 $3,870,000 $4,013,000 ============ ============ ========== Primary earnings per share-Series A $1.78 $1.50 $1.52 ============ ============ ========== Fully diluted earnings per share-Series A $1.38 $1.19 $1.21 ============ ============ ========== Dividends declared per share: Series A $1.36 $1.36 $1.36 ============ ============ ========== Series B $1.36 $1.36 $1.36 ============ ============ ========== Weighted average Common shares outstanding: Primary- Series A 2,274,160 2,361,951 2,430,935 ============ ============ ========== Fully diluted- Series A 3,166,416 3,254,207 3,323,191 ============ ============ ==========
See accompanying notes. F-3
PUBLIC STORAGE PROPERTIES XIV, INC. STATEMENTS OF SHAREHOLDERS' EQUITY For each of the three years in the period ended December 31, 1996 Convertible Convertible Series A Series B Series C Shares Amount Shares Amount Shares Amount --------- ------- ------- ------ ------- ------ Balances at December 31, 1993 2,438,868 $24,000 232,762 $2,000 659,494 $7,000 Net income Repurchase of shares (15,250) - Cash distributions declared: $1.36 per share - Series A $1.36 per share - Series B --------- ------- ------- ------ ------- ------ Balances at December 31, 1994 2,423,618 24,000 232,762 2,000 659,494 7,000 Net income Repurchase of shares (119,400) (1,000) Cash distributions declared: $1.36 per share - Series A $1.36 per share - Series B --------- ------- ------- ------ ------- ------ Balances at December 31, 1995 2,304,218 23,000 232,762 2,000 659,494 7,000 Net income Repurchase of shares (41,000) - Cash distributions declared: $1.36 per share - Series A $1.36 per share - Series B --------- ------- ------- ------ ------- ------ Balances at December 31, 1996 2,263,218 $23,000 232,762 $2,000 659,494 $7,000 ========= ======= ======= ====== ======== ======
Cumulative Total Paid-in Net Cumulative Shareholders' Capital Income Distributions Equity ----------- ----------- ------------ ----------- Balances at December 31, 1993 $43,244,000 $19,976,000 ($24,908,000) $38,345,000 Net income 4,013,000 4,013,000 Repurchase of shares (247,000) (247,000) Cash distributions declared: $1.36 per share - Series A (3,305,000) (3,305,000) $1.36 per share - Series B (317,000) (317,000) ----------- ----------- ------------ ----------- Balances at December 31, 1994 42,997,000 23,989,000 (28,530,000) 38,489,000 Net income 3,870,000 3,870,000 Repurchase of shares (2,056,000) (2,057,000) Cash distributions declared: $1.36 per share - Series A (3,201,000) (3,201,000) $1.36 per share - Series B (316,000) (316,000) ----------- ----------- ------------ ----------- Balances at December 31, 1995 40,941,000 27,859,000 (32,047,000) 36,785,000 Net income 4,368,000 4,368,000 Repurchase of shares (771,000) (771,000) Cash distributions declared: $1.36 per share - Series A (3,088,000) (3,088,000) $1.36 per share - Series B (316,000) (316,000) ----------- ----------- ------------ ----------- Balances at December 31, 1996 $40,170,000 $32,227,000 ($35,451,000) $36,978,000 =========== =========== ============= ===========
See accompanying notes. F-4
PUBLIC STORAGE PROPERTIES XIV, INC. STATEMENTS OF CASH FLOWS For each of the three years in the period ended December 31, 1996 1996 1995 1994 ---------- ---------- ---------- Cash flows from operating activities: Net income $4,368,000 $3,870,000 $4,013,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,421,000 1,403,000 1,338,000 Decrease (increase) in rent and 41,000 (78,000) (6,000) other receivables Increase in prepaid expenses (66,000) (1,000) - Amortization (payment) of prepaid management fees 248,000 (248,000) - (Decrease) increase in accounts payable (179,000) 475,000 (78,000) Decrease in advance payments from renters (7,000) (27,000) (67,000) ---------- ---------- ---------- Total adjustments 1,458,000 1,524,000 1,187,000 ---------- ---------- ---------- Net cash provided by operating activities 5,826,000 5,394,000 5,200,000 ---------- ---------- ---------- Cash flows from investing activities: Additions to real estate facilities (450,000) (370,000) (331,000) ---------- ---------- ---------- Net cash used in investing activities (450,000) (370,000) (331,000) ---------- ---------- ---------- Cash flows from financing activities: Distributions paid to shareholders (3,418,000) (3,558,000) (3,627,000) Advances from affiliate - - 750,000 Repayment of advances from affiliate - - (750,000) Purchase of Company Series A common stock (771,000) (2,057,000) (247,000) ---------- ---------- ---------- Net cash used in financing activities (4,189,000) (5,615,000) (3,874,000) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,187,000 (591,000) 995,000 Cash and cash equivalents at the beginning of the year 949,000 1,540,000 545,000 ---------- ---------- ---------- Cash and cash equivalents at the end of the year $2,136,000 $949,000 $1,540,000 ========== ========= ==========
See accompanying notes. F-5 PUBLIC STORAGE PROPERTIES XIV, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. DESCRIPTION OF BUSINESS Public Storage Properties XIV, Inc. (the "Company") is a California corporation which has elected to qualify as a real estate investment trust ("REIT") for Federal income tax purposes. The Company succeeded to the business of Public Storage Properties XIV, Ltd. (the "Partnership") in a reorganization transaction which was effective June 3, 1991 (the "Reorganization"). The Company owns and operates primarily self-storage facilities and, to a lesser extent, business park facilities containing commercial or industrial spaces. The term of the Company is until all properties have been sold and, in any event, not later than December 31, 2038. The bylaws of the Company provide that, during 1997, unless shareholders have previously approved such a proposal, the shareholders will be presented with a proposal to approve or disapprove (a) the sale or financing of all or substantially all of the properties and (b) the distribution of the proceeds from such transaction and, in the case of a sale, the liquidation of the Company. See Proposed Merger-Note 7. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: Certain prior year amounts have been reclassified in order to conform with the 1996 presentation. Income Taxes: The Company has and intends to continue to qualify as a REIT, as defined in Section 856 of the Internal Revenue Code (the Code). As a REIT, the Company is not taxed on that portion of its taxable income which is distributed to its shareholders provided that the Company meets the requirements of the Code. The Company believes it is in compliance with these requirements and, accordingly, no provision for income taxes has been made. Statements of Cash Flows: For purposes of financial statement presentation, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Real Estate Facilities: Cost of land includes appraisal and legal fees related to acquisition and closing costs. Buildings, land improvements and equipment reflect costs incurred through December 31, 1996 and 1995 to develop primarily mini-warehouse facilities and to a lesser extent, business park facilities. The mini-warehouse facilities provide self-service storage spaces for lease, usually on a month-to-month basis, to the general public. The buildings and equipment are depreciated on the straight-line basis over estimated useful lives of 25 and 5 years, respectively. Included in depreciation is depreciation of tenant improvements on the Company's business park facilities of $150,000, $117,000 and $85,000 in 1996, 1995, and 1994, respectively. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement 121 in 1996 and based on current circumstances, such adoption did not have any effect on the financial statements. F-6 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Real Estate Facilities (continued): At December 31, 1996, the basis of real estate facilities (excluding land) for Federal income tax purposes (after adjustment for accumulated depreciation of $16,014,000) is $13,698,000. Revenue Recognition: Property rents are recognized as earned. Net Income Per Share: Net income per share is based on net income attributable to each series of common shares and the weighted average number of such shares outstanding during the periods presented. Net income per share is presented on a primary and fully diluted basis. Primary earnings per share represents the Series A shareholders' rights to distributions out of the respective period's net income, which is calculated by dividing net income after reduction for distributions to the Convertible Series B shareholders (Series C shareholders are not entitled to cash distributions) by the weighted average number of outstanding Series A shares (Note 4). Fully diluted earnings per share assumes conversion of the Convertible Series B and Series C shares into Series A shares. Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Environmental Cost: Substantially all of the Company's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, the Company completed environmental assessments of its properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. These assessments were performed by an independent environmental consulting firm. Based on the assessments, the Company expensed $244,000 in 1995 for known environmental remediation requirements. Although there can be no assurance, the Company is not aware of any environmental contamination of any of its property sites which individually or in the aggregate would be material to the Company's overall business, financial condition, or results of operations. 3. RELATED PARTY TRANSACTIONS The Company has a Management Agreement with Public Storage, Inc. ("PSI") pursuant to which PSI operates the Company's mini-warehouse facilities for a fee equal to 6% of the facilities' monthly gross revenue (as defined). Through 1996, the Company's commercial properties were operated by Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a Management Agreement which provides for a fee equal to 5% of the facilities' monthly gross revenue (as defined). PSI has a 95% economic interest in PSCPG (represented by nonvoting preferred stock) and B. Wayne Hughes, the Company's Chief Executive Officer, and members of his family (the "Hughes Family") had a 5% economic interest in PSCPG (represented by voting common stock) until December 1996 when the Hughes Family sold its interest to Ronald L. Havner, Jr., formerly Senior Vice President and Chief Financial Officer of PSI, who became the Chief Executive Officer of PSCPG. PSCPG issued additional voting common stock to two other unaffiliated investors. In January 1997, American Office Park Properties, L.P. ("AOPPLP") became the operator of the Company's commercial properties pursuant to the Management Agreement. AOPPLP is an operating partnership formed to own and operate business parks in which PSI has an approximate 85% economic interest. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. F-7 3. RELATED PARTY TRANSACTIONS (CONTINUED) Each Management Agreement, as amended in February 1995, provides that the agreement will expire in February 2002 provided that in February of each year it shall be automatically extended for one year (thereby maintaining a seven-year term) unless either party notifies the other that the Management Agreement is not being extended, in which case it expires, on the first anniversary of its then scheduled expiration date. Each Management Agreement may also be terminated by either party for cause, but if terminated for cause by the Company, the Company retains the rights to use the service marks and related designs until the then scheduled expiration date, if applicable, or otherwise a date seven years after such termination. In August 1995, the Management Agreement for the mini-warehouse facilities was amended to provide that upon demand from PSI made prior to December 15, 1995, the Company agreed to prepay (within 15 days after such demand) up to 12 months of management fees (based on the management fees for the comparable period during the calendar year immediately preceding such prepayment) discounted at the rate of 14% per year to compensate for early payment. In November 1995, the Company prepaid, to PSI, 8 months of 1996 management fees at a cost of $248,000. The amount has been expensed as management fees paid to affiliate during 1996. In January 1994, the Company borrowed $750,000 from an affiliate for working capital purposes. The advance, which was repaid in June 1994, bore interest at the prime rate plus .25%. Interest expense of $8,000 was charged to income in 1994 with respect to this advance. 4. Shareholders' Equity Series A shares are entitled to all distributions of cash from sale or refinancing and participate ratably with the Convertible Series B shares in distributions of cash flow from operations. The Convertible Series C shares (prior to conversion into Series A shares) will not participate in any distributions. The Convertible Series B shares and Convertible Series C shares will convert automatically into Series A shares on a share-for-share basis (the "Conversion") when (A) the sum of (1) all cumulative dividends and other distributions from all sources paid with respect to the Series A shares (including liquidating distributions, but not including payments made to redeem such stock other than in liquidation) and (2) the cumulative Partnership distributions from all sources with respect to all units equals (B) the product of $20 multiplied by the number of the then outstanding "Original Series A shares". The term "Original Series A shares" means the Series A shares issued in the Reorganization. Through December 31, 1996, the Company has made and declared cumulative cash distributions of approximately $32,470,000 with respect to the Series A shares. Accordingly, assuming no repurchases or redemptions of Series A shares after December 31, 1996, Conversion will occur when $12,794,000 in additional distributions with respect to the Series A shares have been made. Assuming liquidation of the Company at its net book value at December 31, 1996 and 1995, each Series of common shares would receive the following as a liquidating distribution: 1996 1995 ------------- ------------- Series A $30,139,000 $31,178,000 Convertible Series B 1,784,000 1,463,000 Convertible Series C 5,055,000 4,144,000 ------------- ------------- Total $36,978,000 $36,785,000 ============= ============= The Series A shares, Convertible Series B shares and Convertible Series C shares have equal voting rights. The holders of the Convertible Series B and Convertible Series C shares have agreed to vote along with the majority of the unaffiliated Series A shareholders on matters other than control of the Company and its business. F-8 4. SHAREHOLDERS' EQUITY (CONTINUED) The Company's Board of Directors has authorized the Company to purchase up to 600,000 shares of the Company's Series A common stock. As of December 31, 1996, the Company had purchased and retired 413,550 shares of Series A common stock, of which 41,000 and 119,400 were purchased and retired in 1996 and 1995, respectively. For Federal income tax purposes, all distributions declared by the Board of Directors in 1996, 1995 and 1994 were ordinary income. 5. NOTE PAYABLE TO BANK In February 1996, the Company's Board of Directors authorized the Company to obtain a line of credit facility for a maximum of $2,500,000 for working capital purposes, including the repurchase of the Company's stock. In March 1996, the Company obtained an unsecured revolving credit facility with a bank for borrowings up to $2,500,000. Outstanding borrowings on the credit facility which, at the Company's option, bear interest at either the bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%, will convert to a term loan on December 31, 1998. Interest is payable monthly. Commencing on January 31, 1999, principal will be payable monthly in eleven installments equal to one forty-eighth of the outstanding principal amount of the line of credit on December 31, 1998. On December 31, 1999, all unpaid principal and accrued interest is due and payable. At December 31, 1996, there was no outstanding balance on the credit facility. Under covenants of the credit facility, the Company is (1) required to maintain a ratio of advances to assets (as defined) of not more than .15 to 1.0, (2) required to maintain a debt to equity ratio (as defined) of not more than .20 to 1.0 and (3) required to maintain a fixed charge coverage ratio (as defined) of not less than 1.0 to 1.0. 6. LEASE AGREEMENTS The Company has invested primarily in mini-warehouses which are operated as self-storage facilities. Leases for such space are generally on a month-to-month basis. The Company has also invested in office and industrial properties which are operated as business parks. Leases for such space are generally long-term non-cancelable operating leases. At December 31, 1996, the minimum amounts receivable under these non-cancelable leases were as follows: Year Amount ----- ---------- 1997 $1,014,000 1998 369,000 1999 156,000 2000 67,000 2001 31,000 ---------- Total $1,637,000 =========== F-9 7. PROPOSED MERGER In December 1996, the Company and Public Storage, Inc. ("PSI") agreed, subject to certain conditions, to merge. Upon the merger, each outstanding share of the Company's common stock series A (other than shares held by PSI or by holders of the Company's common stock series A ("Series A Shareholders") who have properly exercised dissenters' rights under California law ("Dissenting Shares")) will be converted into the right to receive cash, PSI common stock or a combination of the two, as follows: (i) with respect to a certain number of shares of the Company's common stock series A (not to exceed 20% of the outstanding common stock series A of the Company, less any Dissenting Shares), upon a Series A Shareholder's election, $21.73 in cash, subject to reduction as described below or (ii) that number (subject to rounding) of shares of PSI common stock determined by dividing $21.73, subject to reduction as described below, by the average of the per share closing prices on the New York Stock Exchange of PSI common stock during the 20 consecutive trading days ending on the fifth trading day prior to the special meeting of the Company's shareholders. The consideration paid by PSI to the Series A Shareholders in the merger will be reduced by the amount of cash distributions required to be paid to the Series A Shareholders by the Company prior to completion of the merger (estimated at $1.18 per share) in order to satisfy the Company's REIT distribution requirements ("Required REIT Distributions"). The consideration received by the Series A Shareholders in the merger, however, along with any Required REIT Distributions, will not be less than $21.73 per share of the Company's common stock series A, which amount represents the market value of the Company's real estate assets at October 31, 1996 (based on an independent appraisal) and interest of the Series A Shareholders in the estimated net asset value of its other assets at March 31, 1997. Additional distributions will be made to the Series A Shareholders to cause the Company's estimated net asset value allocable to the Series A Shareholders as of the date of the merger to be substantially equivalent to $21.73 per share. Upon the merger, each share of the Company's common stock series B and common stock series C (other than shares held by PSI) would be converted into the right to receive $16.07 in PSI common stock (valued as in the case of the Company's common stock series A) plus (i) any additional distributions equal to the amount by which the Company's estimated net asset value allocable to the holders of the Company's common stock series B and C as of the date of the merger exceeds $16.07 per share and (ii) the estimated Required REIT Distributions payable to the holders of the Company's common stock series B of $1.18 per share. The common stock of the Company held by PSI will be canceled in the merger. The merger is conditioned on, among other requirements, approval by the Company's shareholders. It is expected that the merger will close in the first half of 1997. PSI is the Company's mini-warehouse operator and owns 33.27% of the total combined shares of the Company's common stock series A, B and C. 8. QUARTERLY RESULTS (UNAUDITED) The following is a summary of unaudited quarterly results of operations:
Three months ended --------------------------------------------------------- March 1996 June 1996 Sept. 1996 Dec. 1996 ---------- ----------- ------------- ------------ Revenues $2,120,000 $2,204,000 $2,275,000 $2,263,000 ---------- ----------- ------------- ------------ Expenses 1,112,000 1,110,000 1,052,000 1,220,000 ---------- ----------- ------------- ------------ Net income $1,008,000 $1,094,000 $1,223,000 $1,043,000 ========== =========== ============= ============ Primary earnings per share- Series A $0.41 $0.44 $0.51 $0.42 ========== =========== ============= ============ Fully diluted earnings per share- Series A $0.32 $0.34 $0.39 $0.33 ========== =========== ============= ============
F-10
8. QUARTERLY RESULTS (UNAUDITED) (CONTINUED) Three months ended ---------------------------------------------------------- March 1995 June 1995 Sept. 1995 Dec. 1995 ---------- ----------- ------------- ------------ Revenues $2,074,000 $2,136,000 $2,167,000 $2,123,000 ---------- ----------- ------------- ------------ Expenses 1,086,000 1,103,000 1,037,000 1,404,000 ---------- ----------- ------------- ------------ Net income $988,000 $1,033,000 $1,130,000 $719,000 ========== =========== ============= ============= Primary earnings per share- Series A $0.38 $0.40 $0.45 $0.27 ========== =========== ============= ============= Fully diluted earnings per share- Series A $0.30 $0.32 $0.34 $0.23 ========== =========== ============= ============= F-11
PUBLIC STORAGE PROPERTIES XIV, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Initial Cost ----------------------- Costs Bldg., Land subsequent to Date Imp & construction Completed Description Encumbrances Land Equipment (Improvements) - ---------------------------------------------------------------------------------------------------------- Mini-warehouses: 9/85 Annandale / Backlick - $1,109,000 $1,305,000 $71,000 7/85 Ft Worth / West Freeway - 436,000 1,117,000 142,000 8/85 Campbell / S Curtner - 1,923,000 2,062,000 67,000 9/85 Aurora / S Idalia - 1,237,000 1,849,000 228,000 11/85 Santa Cruz / Soquel Ave - 762,000 1,296,000 56,000 9/85 Indianapolis / Lafayette - 306,000 1,195,000 41,000 Road 9/85 Indianapolis / Route 31 - 388,000 1,087,000 74,000 4/86 Farmingdale/ Broad Hollow - 636,000 1,953,000 171,000 11/86 Tyson's Corner / Springhill - 3,777,000 4,248,000 93,000 2/86 Fountain Valley / Newhope - 1,329,000 1,850,000 82,000 2/86 Dallas / Winsted - 993,000 1,828,000 52,000 7/85 Columbia / Broad River Rd - 53,000 324,000 32,000 Business parks: 1/86 Torrance II - 4,212,000 5,660,000 1,044,000 12/86 S San Francisco / Airport - 1,551,000 2,642,000 367,000 ------------------------------------------------------------ - $18,712,000 $28,416,000 $2,520,000 ==================================================+=========
At December 31, 1996 Life on Which ------------------------------------------- Depreciation in Bldg., Land Latest Income Date Imp Accumulated Statements is Completed Description Land & Equipment Total Depreciation Computed - ---------------------------------------------------------------------------------------------------------------------------- Mini-warehouses: 9/85 Annandale / Backlick $1,109,000 $1,376,000 $2,485,000 ($605,000) 5-25 Years 7/85 Ft Worth / West Freeway 436,000 1,259,000 1,695,000 (563,000) 5-25 Years 8/85 Campbell / S Curtner 1,923,000 2,129,000 4,052,000 (963,000) 5-25 Years 9/85 Aurora / S Idalia 1,237,000 2,077,000 3,314,000 (986,000) 5-25 Years 11/85 Santa Cruz / Soquel Ave 762,000 1,352,000 2,114,000 (586,000) 5-25 Years 9/85 Indianapolis / Lafayette 306,000 1,236,000 1,542,000 (536,000) 5-25 Years Road 9/85 Indianapolis / Route 31 388,000 1,161,000 1,549,000 (513,000) 5-25 Years 4/86 Farmingdale/ Broad Hollow 636,000 2,124,000 2,760,000 (908,000) 5-25 Years 11/86 Tyson's Corner / Springhill 3,777,000 4,341,000 8,118,000 (1,695,000) 5-25 Years 2/86 Fountain Valley / Newhope 1,329,000 1,932,000 3,261,000 (825,000) 5-25 Years 2/86 Dallas / Winsted 993,000 1,880,000 2,873,000 (806,000) 5-25 Years 7/85 Columbia / Broad River Rd 53,000 356,000 409,000 (168,000) 5-25 Years Business parks: 1/86 Torrance II 4,212,000 6,704,000 10,916,000 (2,762,000) 5-25 Years 12/86 S San Francisco / Airport 1,551,000 3,009,000 4,560,000 (1,285,000) 5-25 Years -------------------------------------------------------------- $18,712,000 $30,936,000 $49,648,000 ($13,201,000) ==============================================================
F-12
PUBLIC STORAGE PROPERTIES XIV, INC. REAL ESTATE RECONCILIATION SCHEDULE III (CONTINUED) (a) The following is a reconciliation of costs and related accumulated depreciation. COSTS RECONCILIATION Years Ended December 31, --------------------------------------------------------------- 1996 1995 1994 --------------------------------------------------------------- Balance at the beginning of the period $49,287,000 $48,992,000 $48,724,000 Additions during the period: Improvements 450,000 370,000 331,000 Deductions during the period (89,000) (75,000) (63,000) --------------------------------------------------------------- Balance at the close of the period $49,648,000 $49,287,000 $48,992,000 =============================================================== ACCUMULATED DEPRECIATION RECONCILIATION Years Ended December 31, --------------------------------------------------------------- 1996 1995 1994 --------------------------------------------------------------- Balance at the beginning of the period $11,869,000 $10,541,000 $9,266,000 Additions during the period: Depreciation 1,419,000 1,403,000 1,338,000 Deductions during the period (87,000) (75,000) (63,000) --------------------------------------------------------------- Balance at the close of the period $13,201,000 $11,869,000 $10,541,000 =============================================================== (b) The aggregate depreciable cost of real estate (excluding land) for Federal income tax purposes is $29,712,000.
F-13 PUBLIC STORAGE PROPERTIES XIV, INC. EXHIBIT INDEX (Item 14(c)) 2 Agreement and Plan of Reorganization among PSI, the Company and Public Storage Properties XV, Inc. dated December 5, 1996. Filed with PSI's Registration Statement No. 333-22665 and incorporated herein by reference. 3.1 Articles of Incorporation. Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 3.2 Certificate of Amendment of Articles of Incorporation. Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference. 3.3 Amended and Restated Bylaws. Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 3.4 Amendments to Bylaws Adopted on July 30, 1992. Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference. 10.1 Amended Management Agreement dated February 21, 1995 between the Company and Public Storage Management, Inc. Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 10.2 Amended Management Agreement dated February 21, 1995 between the Company and Public Storage Commercial Properties Group, Inc. Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 10.3 Amendment to Amended Management Agreement dated August 8, 1995 between the Company, Public Storage Management, Inc. and Storage Equities, Inc. Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1995 and incorporated herein by reference. 10.4 Line of Credit Agreement between the Company and Sanwa Bank California dated as of March 26, 1996. Filed herewith. 27 Financial Data Schedule. Filed herewith. EX-99 2 EXHIBIT 10.4-CREDIT AGREEMENT LINE OF CREDIT AGREEMENT THIS LINE OF CREDIT AGREEMENT (the "Agreement") is made and entered into this 26th day of March, 1996 by and between SANWA BANK CALIFORNIA (the "Bank") and PUBLIC STORAGE PROPERTIES XIV, INC. (the "Borrower"). SECTION 1 AGREEMENT TO LEND 1.01 COMMITMENT TO LEND. Subject to the terms and conditions of this Agreement and so long as no Event of Default occurs, the Bank agrees to extend to the Borrower the credit accommodations that follow. 1.02 LINE OF CREDIT. The Bank agrees to make loans and advances ("Advances") to the Borrower, upon the Borrower's request therefor made prior to the Expiration Date, up to a total principal amount from time to time outstanding of not more than $2,500,000 (the "Line of Credit"); provided that any sums repaid under the Line of Credit may be reborrowed. A. PURPOSE. Advances made under the Line of Credit shall be used for general working capital purposes and for stock repurchases. B. LINE ACCOUNT. The Bank shall maintain on its books a record of account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the Line of Credit the ("Line Account"). The Bank shall provide the Borrower with a monthly statement of the Borrower's Line Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower's receipt of any such statement which it deems to be incorrect. C. INTEREST. Interest shall accrue from the date of each Advance under the Line of Credit at one of the following rates, as quoted by the Bank and as elected by the Borrower pursuant to paragraph 1.02 C 1 or paragraph 1.02 C 2 below: 1. VARIABLE RATE ADVANCES: A variable rate per annum equivalent to an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate (the "Reference Rate") and as to which loans may be made by the Bank at, below or above such reference rate plus .25% (the "Variable Rate"). Interest shall be adjusted concurrently with any change in the Reference Rate. An Advance based upon the Variable Rate is hereinafter referred to as a "Variable Rate Advance". 2. LIBOR ADVANCES: A fixed rate quoted by the Bank for 1, 2, 3, or 6 months or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond the Expiration Date) [the "LIBOR Interest Period"] for Advances in the minimum amount of $100,000 and in $10,000 increments thereafter. Such interest rate shall be a percentage approximately equivalent to 2.25% in excess of the Bank's LIBOR Rate which is that rate determined by the Bank's Treasury Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1//16%)) of the U.S. dollar London Interbank Offered Rates for such period appearing on page 3750 (or such other page as may replace page 3750 of the Telerate screen at or about 11:00 a.m. (London time) on the second Business Day prior to the first days of such period (adjusted for any and all assessments, surcharges and reserve requirements) [the "LIBOR Rate"]. An Advance based upon the LIBOR Rate is hereinafter referred to as the "LIBOR Advance". Interest on any Advance shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed. 1 Interest on Variable Rate Advances and LIBOR Advances shall be paid in monthly installments commencing on the first day of the month following the date of the first such Advance and continuing on the first day of each month thereafter. If interest is not paid as and when it is due, it shall be added to the principal, become and be treated as a part thereof, and shall thereafter bear like interest. D. NOTICE OF ELECTION TO ADJUST INTEREST RATE. The Borrower may elect: 1. That interest on a Variable Rate Advance shall be adjusted to accrue at the LIBOR Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the day (which shall be a business day) on which the Borrower requests that interest be adjusted to accrue at the LIBOR Rate. 2. That interest on a LIBOR Advance shall continue to accrue at a newly quoted LIBOR Rate or shall be adjusted to commence to accrue at the Variable Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the last day of the LIBOR Interest Period pertaining to such LIBOR Advance. If the Bank shall not have received notice (as prescribed herein) of the Borrower's election that interest on any LIBOR Advance shall continue to accrue at the newly quoted LIBOR Rate, the Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the LIBOR Interest Period pertaining to such Advance. E. PREPAYMENT. The Borrower may prepay any Advance in whole or in part, at any time and without penalty, provided, however, that: (i) any partial prepayment shall first be applied, at the Bank's option, to accrued and unpaid interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the LIBOR Rate, no prepayment shall be made except on a day which is the last day of the LIBOR Interest Period pertaining thereto. If the whole or any part of any LIBOR Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the Bank's request, promptly pay to and indemnify the Bank for all costs and any loss (including interest) actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) sustained by the Bank as a consequence of such prepayment. F. INDEMNIFICATION FOR LIBOR RATE COSTS. During any period of time in which interest on any Advance is accruing on the basis of LIBOR Rate, the Borrower shall, upon the Bank's request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the LIBOR Rate. G. CONVERSION FROM LIBOR RATE TO VARIABLE RATE. In the event that the Bank shall at any time determine that the accrual of interest on the basis of the LIBOR Rate (i) is infeasible because the Bank is unable to determine the LIBOR Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to relevant LIBOR Interest Period or (ii) is or has become unlawful or infeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonic notice thereof (confirming in writing) to the Borrower, in which event the LIBOR Advance, shall be deemed to be a Variable Rate Advance and interest shall thereupon immediately accrue at the Variable Rate. H. PRINCIPAL. Unless sooner due in accordance with the terms of this Agreement, on the Expiration Date, the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal amount of all Advances then outstanding, together with all accrued and unpaid interest thereon. 2 I. EXPIRATION OF LINE OF CREDIT. Unless earlier terminated in accordance with the terms of this Agreement, the Bank's commitment to make Advances to the Borrower hereunder shall automatically expire on December 31, 1998 (the "Expiration Date"). J. DISBURSEMENT OF PROCEEDS FROM ADVANCES. Any Advance made hereunder shall be conclusively presumed to have been made to and for the Borrower's benefit when the proceeds of such Advance are disbursed in accordance with the Borrower's instructions or deposited into a checking account of the Borrower maintained at the Bank. 1.03 TERM LOAN. The Bank agrees to lend to the Borrower on the Expiration Date, upon the Borrower's request therefore, up to the maximum amount of $2,500,000 (the "Term Loan"). A. PURPOSE. Proceeds from the Term Loan shall be used to refinance the Line of Credit. B. TERM LOAN ACCOUNT. The Bank shall maintain on its books a record of account in which the Bank shall make entries setting forth all payments made, the application of such payments to interest and principal, accrued and unpaid interest (if any) and the outstanding principal balance under the Term Loan (the "Term Loan Account"). The Bank shall provide the Borrower with a monthly statement of the Borrower's Term Loan Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower's receipt of any such statement which deems to be incorrect. C. INTEREST. Interest shall accrue at one of the following rates as elected by Borrower: a. VARIABLE RATE BALANCES. The outstanding principal balance of the Term Loan ("Term Balance") shall bear interest at a rate per annum equal to Bank's Reference Rate, as it may change from time to time, plus .25% ("Variable Rate Balances"). The rate of interest shall be adjusted concurrently with any change in Bank's Reference Rate. b. FIXED RATE BALANCES. In addition to Variable Rate Balances, the Bank hereby agrees to make the Term Balance or a portion thereof, accrue interest at a fixed rate quoted by the Bank for 1, 2, 3, or 6 months or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend maturity date hereof) [the "Interest Period"] for Term Balances in the minimum amount of $100,000 and in $10,000 increments thereafter. Such interest rate shall be a percentage approximately equivalent to 2.25% in excess of the Bank's LIBOR Rate which is that rate determined by the Bank's Treasury Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16%) of the U.S. dollar London Interbank Offered Rates for such period appearing on page 3750 (or such other page as may replace page 3750 of the Telerate screen at or about 11:00 a.m. (London time) on the second Business Day prior to the first days of such period (adjusted for any and all assessments, surcharges and reserve requirements) [the "Fixed Rate"]. Term Balances based upon the Fixed Rate are hereinafter referred to as "Fixed Rate Balances". Borrower hereby promises and agrees to pay interest on any Fixed Rate Balances and Variable Rate Balances monthly in arrears on the 1st calendar day of each month. Interest shall be calculated on a year of 360 days for actual days elapsed. c. NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a business day, the Borrower may elect: 3 (1) That interest on a Variable Rate Balance shall be adjusted to accrued at the Fixed Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the day (which shall be a business day) on which Borrower requests that interest be adjusted to accrue at the Fixed Rate. (2) That interest on a Fixed Rate Balance shall continue to accrue at a newly quoted Fixed Rate or shall be adjusted to commence to accrue at the Variable Rate; provided, however that such notice shall be received by the Bank no later than two business days prior to the last day of the Interest Period pertaining to such Fixed Rate Balance. If the Bank shall not have received notice as prescribed herein of Borrower's election that interest on any Fixed Rate Balance shall continue to accrue at the Fixed Rate, Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the Interest Period pertaining to such Term Balance. d. PROHIBITION AGAINST PREPAYMENT OF FIXED RATE BALANCES. Notwithstanding anything to the contrary in the Agreement, no prepayment shall be made on any Fixed Rate Balance except on a day which is the last day of the Interest Period pertaining thereto. If the whole or any part of any Fixed Rate Balance is prepaid by reason of acceleration or otherwise, the Borrower shall upon the Bank's request, promptly pay to and indemnify the Bank for all costs and any loss (including interest) actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) sustained by the Bank as a consequence of such prepayment. Any prepayment shall first be applied to pay accrued interest, then be applied to reduce the principal balance payable on the date set forth in numbered subparagraph D hereinbelow, and the remaining portion (if any) of such prepayment shall then be applied to pay the principal installment(s) of latest maturity under the Note. e. INDEMNIFICATION FOR FIXED RATE COSTS. During any period of time in which interest on any Term Balance is accruing on the Fixed Rate, the Borrower shall, upon the Bank's request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve deposit or similar requirements or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the Fixed Rate. f. CONVERSION FROM FIXED RATE TO VARIABLE RATE. In the event that the Bank shall at any time determine that the accrual of interest on the basis of the Fixed Rate (i) is infeasible because the Bank is unable to determine the Fixed Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Balance and for a period of time approximately equal to the relevant Interest Period; or (ii) is or has become unlawful or infeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation guideline or order, then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Fixed Rate Balance shall be deemed to be a Variable Rate Balance and interest shall thereupon immediately accrue at the Variable Rate. D. Principal. The Borrower hereby promises and agrees to pay principal in 11 equal monthly installments in an amount equal to 1/48th of the outstanding principal amount of the Line of Credit on December 31, 1998, commencing on January 31, 1999. On December 31, 1999, the Borrower hereby promises and agrees to pay the Bank the entire unpaid principal balance, together with accrued and unpaid interest. 1.04 Late Payment: If any payment of principal or interest, or any portion thereof, under this Agreement is not paid within (10) ten calendar days after it is due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable. 1.05 Account Debit. Borrower hereby authorizes Bank to charge, from time to time, against any or all of any Borrower's deposit accounts with Bank any amount due under this Agreement. 4 Each payment received by the Bank shall, at the Bank's option, be applied to pay interest then due and unpaid and the remainder thereof (if any) shall be applied to pay principal. SECTION II CONDITIONS PRECEDENT 2.01 CONDITIONS PRECEDENT TO FIRST ADVANCE. Prior to the first Advance hereunder the Borrower shall deliver or cause to be delivered to the Bank, in form and substance satisfactory to the Bank: A. AUTHORITY TO BORROW. Evidence relating to the duly given approval and authorization of the execution, delivery and performance of this Agreement, all other documents, instruments and agreements required under this Agreement and all other actions to be taken by the Borrower hereunder or thereunder. B. LOAN DOCUMENTS. The documents described herein, as applicable, and all other documents, instruments and agreements required or necessary to consummate the transactions contemplated under this Agreement (collectively the "Loan Documents"), all fully executed. C. LOAN FEES. A loan fee of $6,250. D. MISCELLANEOUS DOCUMENTS. Such other documents and opinions as the Bank may require with respect to the transactions described in this Agreement. 2.02 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the Bank to make each Advance (including the first Advance) is subject to the further conditions precedent that, as of the date of each Advance and after the making of such Advance: A. REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in Section III hereof and in any other document, instrument agreement or certificate delivered to the Bank hereunder are true and correct. B. EVENT OF DEFAULT. No event has occurred and is continuing which constitutes, or, with the lapse of time or giving of notice or both, would constitute an Event of Default as defined in Section V hereof. For the purposes hereof, the Borrower's acceptance of the proceeds of any Advance shall be deemed to constitute the Borrower's representation and warranty that the statements set forth in section 2.02 A and 2.02 B above are true and correct. SECTION III REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing: 3.01 STATUS. The Borrower is a corporation, duly organized and validly existing under the laws of the State of California and is properly licensed, qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business. 5 3.02 AUTHORITY. The execution, delivery and performance by the Borrower of this Agreement and the Loan Documents have been duly authorized and do not and will not: (i) violate any provision of any law, rule regulation, writ, judgment or injunction presently in effect affecting the Borrower; (ii) result in a breach of or constitute a default under any material agreement to which the Borrower is a party or by which it or its properties may be bound of affected; (iii) require any consent or approval of its stockholders or violate any provision of its articles of incorporation or by-laws. 3.03 LEGAL EFFECT. This Agreement constitutes, and any document, instrument or agreement required hereunder when delivered will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. 3.04 FICTITIOUS TRADE STYLES. There are no fictitious trade styles used by the Borrower in connection with its business operations, other than the following service marks: "Public Storage" and "PS: Public Storage Rental Spaces". The Borrower shall notify the Bank not less than 30 days prior to effecting any change in the matters described herein or prior to using any other fictitious trade style at any future date, indicating the trade style and state(s) of its use. 3.05 FINANCIAL STATEMENTS. All financial statements, information and other data which may have been or which may hereafter be submitted by the Borrower to the bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the Borrower's financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of any such financial statement, information or other data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing. 3.06 LITIGATION. Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower's financial condition or operations. 3.07 TITLE TO ASSETS; PERMITTED LIENS. The Borrower has good and marketable title to all of its assets and the same are not subject to any security interest, encumbrance, lien or claim of any third person other than: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges either not yet due or being duly contested in good faith; (iii) liens of mechanics, materialmen, warehousemen or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (iv) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Bank in writing; (v) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the ordinary course of business to secure indebtedness outstanding on the date hereof or permitted to be incurred hereunder; and (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower's assets (collectively "Permitted Liens"). 3.08 ERISA. If the Borrower has a pension, profit sharing or retirement plan subject the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder ("ERISA"), such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA. 3.09 TAXES. The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 3.10 ENVIRONMENTAL COMPLIANCE. The Borrower has implemented and complied in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or environmental conditions. There are not suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or its property claiming violations of any federal, state or local law, ordinance, statute or regulation relating to hazardous or toxic wastes, substances or related materials. 6 3.11 MARGIN STOCK. The proceeds of any Advance under the Line of Credit will not be used to purchase or carry margin stock as such term in defined under Regulation U of the Board of Governors of the Federal Reserve System. SECTION IV COVENANTS The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower shall, unless the Bank otherwise consents in writing: 4.01 COMPLIANCE WITH APPLICABLE LAWS. Maintain and preserve all rights and privileges now enjoyed; and conducts its business in accordance with all applicable laws, rules and regulations. 4.02 MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. 4.03 PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all assessments and taxes and all of its liabilities and obligations unless the same are being contested in good faith. 4.04 INSPECTION RIGHTS. At any reasonable time and from time to time permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and to discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower now or at any time hereafter maintains any records (including, but not limited to, computer generated records and computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable time and to provide the Bank with copies of any records it may request, all at the Borrower's expense, the amount of which shall be payable immediately upon demand. 4.05 REPORTING REQUIREMENTS. Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank: A. ANNUAL STATEMENTS. Not later than 90 days after the end of each of the Borrower's fiscal years, a copy of the annual audited financial report of the Borrower for such year, which report shall be prepared by a firm of certified public accountants acceptable to Bank, and a copy of the Borrower's Form 10-K filed with the Securities and Exchange Commission. B. INTERIM STATEMENTS. Not later than 45 days after the end of each fiscal quarter, the Borrower's financial statement as of the end of such quarter and a copy of the Borrower's Form 10-Q filed with the Securities and Exchange Commission. 7 C. COMPLIANCE CERTIFICATE. Not later than 90 days after the end of each fiscal year and 45 days after the end of each fiscal quarter, a certificate signed by the chief financial officer or other financial officer of the Borrower stating that the representations and warranties contained herein and in any other document, instrument or certificate delivered to the Bank hereunder are correct and that no event has occurred and is continuing which constitutes, or, with the lapse of time or giving of notice or both, would constitute an Event of Default hereunder, substantially in the form attached hereto. D. OTHER INFORMATION. Promptly upon the Bank's request, such other information pertaining to the Borrower as the Bank may reasonably request. 4.06 ADDITIONAL INDEBTEDNESS. Not, after the date hereof, create, incur or assume, directly or indirectly, any liability or indebtedness other than (i) indebtedness owed or to be owed to the Bank or (ii) indebtedness to trade creditors incurred in the ordinary course of the Borrower's business. 4.07 LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust or other lien including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any such properties, except for Permitted Liens and as otherwise provided in this Agreement. 4.08 CHANGE IN THE NATURE OF BUSINESS. Not make any material change in its financial structure or in the nature of its business as existing or conducted as of the date of this Agreement. 4.09 FINANCIAL CONDITION. Maintain at all times: A. ADVANCES TO ASSETS. A ratio of the aggregate Advances outstanding hereunder to total assets of not more than .15 to 1. B. DEBT TO EQUITY. A debt to shareholders equity ratio of not more than .20 to 1. C. FIXED CHARGE COVERAGE RATIO. A ratio of the sum of net profit plus depreciation and amortization expense plus non-cash charges plus interest expense to sum of the current portion of long term debt plus interest expense, plus dividends plus capital expenditures of not less than 1 to 1 at the end of each fiscal quarter for the immediately preceding four fiscal quarters. For purposes of the foregoing, the term "debt" shall mean all of the Borrower's liabilities excluding indebtedness subordinated (by its terms or by written agreement) to indebtedness owed by the Borrower to the Bank. 4.10 NOTICES. Give prompt written notice to the Bank of any and all Events of Default and litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $100,000. 4.11 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain and preserve existence and all rights and privileges now enjoyed; not liquidate or dissolve, merge or consolidate with or into, or acquire any other business organization; and conduct its business in accordance with all applicable laws, rules and regulations. 4.12 TRANSFER ASSETS. Not sell, contract for sale, transfer, convey, assign, lease or sublet any of its assets except in the ordinary course of business as presently conducted by the Borrower, and then, only for full, fair and reasonable consideration. 8 4.13 ENVIRONMENTAL COMPLIANCE. The Borrower shall: A. Implement and comply in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or to environmental conditions. B. Not own, use, generate, manufacture, store, handle, treat, release or dispose of any hazardous or toxic wastes, substances or related materials. C. Give prompt written notice of any discovery of or suit, proceeding, claim, dispute, threat, inquiry or filing respecting hazardous or toxic wastes, substances or related materials. D. At all times indemnify and hold harmless Bank from and against any and all liability arising out of the use, generation, manufacture, storage, handling, treatment, disposal or presence of hazardous or toxic wastes, substances or related materials. SECTION V EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default (an "Event of Default") under this Agreement: 5.01 NON-PAYMENT. The Borrower shall fail to pay any payment of principal or interest or any other sum referred to in this Agreement within 10 days of when due. 5.02 PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Borrower shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement evidencing or relating to any indebtedness of the Borrower (whether owed to the Bank or third persons), and any such failure (exclusive of the payment of money to the Bank under this Agreement or under any other document, instrument or agreement, which failure shall constitute and be an immediate Event of Default if not paid when due or when demanded to be due) shall continue for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default. 5.03 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any Guarantor shall prove to have been incorrect in any material respect when made or given when deemed to have been made or given. 5.04 INSOLVENCY. The Borrower or any Guarantor shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties or assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee for itself or any of its properties, assets or businesses; or (vii) any receiver, custodian or trustee shall have been appointed for all or a substantial part of its properties, assets or businesses and shall not be discharged within 30 days after the date of such appointment. 5.05 EXECUTION. Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 30 days after the issuance or attachment of such writ or lien. 5.06 SUSPENSION. The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower's business as now conducted. 9 5.07 MANAGEMENT AGREEMENT. Any breach of or termination of that certain management agreement by and between Borrower and Public Storage Management, Inc. SECTION VI REMEDIES OF DEFAULT Upon the occurrence of any Event of Default, the Bank may, at its sole election, without demand any upon only such notice may be required by law: 6.01 ACCELERATION. Declare any or all of the Borrower's indebtedness owing to the Bank, whether under this Agreement or under any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 6.02 CEASE EXTENDING CREDIT. Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank. 6.03 TERMINATION. Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's obligations to the Bank or the Bank's rights and remedies under this Agreement or under any other document, instrument or agreement. 6.04 NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. SECTION VII MISCELLANEOUS PROVISIONS 7.01 AMOUNTS PAYABLE ON DEMAND. If the Borrower fails to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower's failure to pay such amount, create an Advance in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided under the Line of Credit. 7.02 DEFAULT INTEREST RATE. If an Event of Default, or an event which , with notice or passage of time could become an Event of Default, has occurred or is continuing, the Borrower shall pay to the Bank interest on any indebtedness or amount payable under this Agreement at a rate which is 3% in excess of the rate or rates then in effect under this Agreement. 7.03 ACCOUNTING AND OTHER TERMS. All references to financial statements, assets, liabilities and similar accounting terms not specifically defined in this Agreement shall mean such financial statements prepared and such terms determined in accordance with generally accepted accounting principles consistently applied. Except where otherwise specified in this Agreement, all financial data submitted or to be submitted to the Bank pursuant to this Agreement shall be prepared in accordance with generally accepted accounting principles consistently applied. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the California Uniform Commercial Code. 10 7.04 RELIANCE. Each warranty, representation, covenant and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants or agreements which the Borrower shall now or hereafter give or cause to be given, to the Bank. 7.05 ATTORNEY'S FEES. Borrower shall pay to the Bank all costs and expenses, including but not limited to reasonable attorneys fees, incurred by Bank in connection with the administration, enforcement, or any refinancing or restructuring in the nature of a "work-out", of this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder. 7.06 NOTICES. All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by Western Union telegram, addressed to the address set forth below such party's signature to this Agreement or to such other address as may be specified from time to time in writing by either party to the other. 7.07 WAIVER. Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any right or default hereunder or under any other document, instrument or agreement mentioned herein constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision. 7.08 CONFLICTING PROVISIONS. To the extent that any of the terms or provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 7.09 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the Bank's prior written consent. The Bank may sell, assign or grant participations in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower. 7.10 JURISDICTION. This Agreement, any notes issued hereunder, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby submit. 7.11 DISPUTE RESOLUTION. It is understood and agreed that upon the request of any party to this agreement any dispute, claim, or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereinafter arising between the parties in any way arising out of, pertaining to or in connection with: (1) this Agreement, or any related agreements, documents, or instruments, (2) all past and present loans, credits, accounts, deposit accounts (whether demand deposits or time deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods or services, or other transactions, contracts or agreements of any kind, (3) any incidents, omissions, acts, practices, or occurrences causing injury to either party whereby the other party or its agents, employees or representatives may be liable, in whole or in part, or (4) any aspect of the past or present relationships of the parties, shall be resolved through a two-step dispute resolution process administered by Judicial Arbitration & Mediation Services, Inc. ("J.A.M.S.") as follows: 11 a) STEP I - MEDIATION: At the request of any party to the dispute, claim or controversy of the matter shall be referred to the nearest office of J.A.M.S. for mediation, that is, an informal, non-binding conference or conferences between the parties in which a retired judge or justice for the J.A.M.S. panel will seek to guide the parties to a resolution of the case. b) STEP II - UNSECURED CONTRACTS - ARBITRATION: Should any dispute, claim or controversy remain unresolved at the conclusion of the Step I Mediation Phase then all such remaining matters shall be resolved by final and binding arbitration before a different judicial panelist, unless the parties shall agree to have the mediator panelist act as arbitrator. The hearing shall be conducted at a location determined by the arbitrator in Los Angeles County and shall be administered by and in accordance with the then existing Rules of Practice and Procedure of Judicial Arbitration & Mediation Services, Inc. and judgment upon any award rendered by the arbitrator may be entered by any State or Federal Court having jurisdiction thereof. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorneys fees and costs. This subparagraph (b) shall apply only if, at the time of the submission of the matter to J.A.M.S., the dispute(s) or issue(s) do(es) not arise out of a transaction(s) which is/are secured by real property collateral or, if so secured, all parties consent to such submission. As soon as practicable after selection of the arbitrator, the arbitrator or his/her designated representative shall determine a reasonable estimate of anticipated fees and costs of the Arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter each party shall, within 10 days of receipt of said statement, deposit said sum with the Arbitrator. Failure of any party to make such a deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the arbitration proceedings. c) Provisional Remedies, Self Help and Foreclosure: No provision of, or the exercise of any right(s) under subparagraph (b), nor any other provision of this Dispute Resolution Provision, shall limit the right of any party to exercise self help remedies such as set off, to foreclose against any real or personal property collateral, or obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from any court having jurisdiction before, during or after the pendency of any arbitration. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for provisional remedies pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration. 7.12 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND OTHER LOAN DOCUMENTS. 7.13 HEADINGS. The headings set forth herein are solely for the purpose of identification and have no legal significance. 12 7.12 ENTIRE AGREEMENT. This Agreement and the Loan Documents shall constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties or pertaining to the transactions contemplated hereunder that are not incorporate or referenced in this Agreement or the Loan Documents are superseded hereby. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA PUBLIC STORAGE PROPERTIES XIV, INC. By:/s/ John F. Marder By:/s/ David P. Singelyn -------------------------- ------------------------------ Vice President Controller - ----------------------------- --------------------------------- (Name/Title) (Name/Title) Address: 601 So. Figueroa Address: 600 N. Brand Blvd. --------------------- ------------------------ Los Angeles, California 90017 Glendale , California 91203 - ----------------------------- --------------------------------- 13 EX-27 3 FDS --ARTICLE 5
5 0000869624 PUBLIC STORAGE PROPERTIES XIV, INC 1 US 12-Mos Dec-31-1996 Jan-01-1996 Dec-31-1996 1 2,136,000 0 204,000 0 0 2,340,000 49,648,000 (13,201,000) 38,787,000 1,809,000 0 0 0 32,000 36,946,000 38,787,000 0 8,862,000 0 4,277,000 217,000 0 0 4,368,000 0 4,368,000 0 0 0 4,368,000 1.78 1.38
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