Exhibit 10.44
LIMITED PARTNERSHIP AGREEMENT
OF
PSAF ACQUISITION PARTNERS, L.P.
BETWEEN
PS TEXAS HOLDINGS, LTD.
AND
[LIMITED PARTNER]
DATED AS OF DECEMBER 18, 2003
Exhibits to this Agreement will be furnished to the
Securities and Exchange Commission upon request.
TABLE OF CONTENTS
Page
1. Formation; Purposes; Term.................................................1
1.1 Formation..........................................................1
1.2 Name...............................................................1
1.3 Purposes and Powers................................................1
1.4 Principal Executive Office.........................................2
1.5 Term...............................................................2
1.6 Filings; Agent for Service of Process..............................2
1.7 Other Activities...................................................2
1.8 Definitions........................................................3
2. Partners; Capital Contributions...........................................13
2.1 Partners...........................................................13
2.2 Capital Contributions..............................................13
2.3 Extent of Liability................................................15
2.4 Other Matters......................................................16
3. Allocations...............................................................16
3.1 Profits............................................................16
3.2 Losses.............................................................17
3.3 Certain Special Allocations........................................17
3.4 Gain from Sale.....................................................17
3.5 Regulatory Special Allocations.....................................18
3.6 Other Allocations Rules............................................20
3.7 Tax Allocations: Code Section 704(c)...............................21
4. Distributions.............................................................21
4.1 Operating Cash.....................................................21
4.2 Capital Proceeds...................................................22
4.3 Amounts Withheld...................................................23
5. Management................................................................23
5.1 Managing Partner; Standard of Care.................................23
5.2 Authority of Managing Partner......................................24
5.3 Limitations on Rights and Powers...................................24
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5.4 Project Acquisition................................................25
5.5 Compensation and Reimbursement.....................................28
5.6 Hazardous Materials................................................29
6. Action by Partners; Investment Committee..................................30
6.1 Action by Partners.................................................30
6.2 Investment Committee...............................................30
7. Books and Records; Fiscal Matters.........................................32
7.1 Books and Records..................................................32
7.2 Reports............................................................32
7.3 Tax Information....................................................33
7.4 Fiscal Year........................................................33
7.5 Tax Matters Partner................................................33
7.6 Tax Elections Made by Managing Partner.............................33
7.7 Taxation as a Partnership..........................................33
7.8 Avoidance of Unrelated Business Taxable Income.....................33
8. Transfer of Interests.....................................................34
8.1 Transfer of Interest of General Partner............................34
8.2 Transfer of Interest of Limited Partner............................34
8.3 Prohibited Transfers...............................................35
8.4 Representations; Legend............................................35
8.5 Distributions and Allocations in Respect to Transferred Interests..36
8.6 Right to Transfer to Affiliates....................................36
9. Options to Purchase.......................................................37
9.1 General Partner's Option to Purchase...............................37
9.2 Consideration......................................................37
9.3 Determination of Net Equity........................................37
9.4 Determination of Fair Market Value.................................37
9.5 Closing............................................................39
9.6 Limited Partner's Option to Purchase...............................39
10. Dissolution and Winding up................................................39
10.1 Liquidating Events.................................................39
10.2 Winding Up.........................................................40
10.3 Shortfall..........................................................41
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10.4 Compliance with Timing Requirements of Regulations.................41
10.5 Rights of Partners.................................................41
11. Indemnification...........................................................41
11.1 Indemnification....................................................41
11.2 Expenses...........................................................42
11.3 Indemnification Rights Nonexclusive................................42
11.4 Errors and Omissions Insurance.....................................42
11.5 Assets of the Partnership..........................................42
12. Defaulting Event Remedies.................................................42
12.1 Election to Purchase Defaulting Partner's Interest.................42
12.2 Purchase Price of Defaulting Partner's Interest....................43
12.3 Remedies Nonexclusive..............................................43
13. Representations and Warranties............................................44
13.1 Representations and Warranties of the General Partner..............44
13.2 Representations and Warranties of the Limited Partner..............45
13.3 Agreements of the General Partner..................................45
14. Miscellaneous.............................................................46
14.1 Notices............................................................46
14.2 Binding Effect.....................................................48
14.3 Construction.......................................................48
14.4 Time...............................................................48
14.5 Headings...........................................................48
14.6 Severability.......................................................48
14.7 Incorporation by Reference.........................................48
14.8 Further Action.....................................................48
14.9 Variation of Pronouns..............................................48
14.10 Governing Law......................................................49
14.11 Waiver of Action for Partition.....................................49
14.12 Counterparts.......................................................49
14.13 Sole and Absolute Discretion.......................................49
14.14 Entire Agreement...................................................49
14.15 Attorneys' Fees....................................................49
14.16 Third Parties......................................................49
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14.17 Waiver.............................................................49
14.18 Amendment and Modification.........................................49
14.19 Dispute Resolution.................................................49
14.20 Confidentiality....................................................50
14.21 Guarantees.........................................................51
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LIMITED PARTNERSHIP AGREEMENT
OF
PSAF ACQUISITION PARTNERS, L.P.
This LIMITED PARTNERSHIP AGREEMENT OF PSAF ACQUISITION PARTNERS, L.P.
is entered into as of December 18, 2003, and shall be effective as of January 1,
2004 (the "Effective Date"), by and between PS TEXAS HOLDINGS, Ltd., a Texas
limited partnership, as the General Partner, and [LIMITED PARTNER], pursuant to
the provisions of the Act.
WHEREAS, the General Partner and the Limited Partner propose to form a
limited partnership to pursue the acquisition and ownership of a number of
well-located self-storage facilities in the United States for income and capital
appreciation;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Partners hereby covenant and agree among themselves as
follows:
1. FORMATION; PURPOSES; TERM
1.1 Formation. The Partners hereby form the Partnership as a limited
partnership pursuant to the provisions of the Act and upon the terms and
conditions set forth in this Agreement.
1.2 Name. The name of the Partnership shall be PSAF Acquisition
Partners, L.P. and all business of the Partnership shall be conducted in such
name or in the name "Public Storage."
1.3 Purposes and Powers.
(a) The Partnership is formed for the object and purpose of, and the
nature of the business to be conducted and promoted by the Partnership is,
directly and indirectly, acquiring, owning, renovating, leasing and otherwise
operating and dealing with, and selling or otherwise disposing of, the Projects
as self-storage facilities, and conducting any and all activities as may be
necessary or incidental to the foregoing.
(b) The Partnership is empowered to do any and all things necessary,
appropriate or convenient for the furtherance and accomplishment of its
purposes, and for the protection and benefit of the Partnership and its
Property, including but not limited to the following:
(i) Entering into and performing contracts of any kind;
(ii) Acquiring, renovating, operating, maintaining, owning,
transferring, renting, leasing, selling or otherwise disposing of any
property, real, personal or mixed;
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(iii) Applying for and obtaining governmental authorizations and
approvals; and
(iv) Bringing and defending actions at law or in equity.
(c) Except as otherwise provided in this Agreement, the Partnership
shall not engage in any other activity or business. No Partner shall have any
authority to hold itself out as a general agent of another Partner in any other
business or activity.
1.4 Principal Executive Office. The principal executive office of the
Partnership shall be at 701 Western Avenue, Glendale, California 91201-2349. The
principal executive office may be changed from time to time by the General
Partner.
1.5 Term. The term of the existence of the Partnership shall commence
on the Effective Date and shall continue until the winding up and liquidation of
the Partnership and its business is completed following a Liquidating Event, as
provided in Section 10.
1.6 Filings; Agent for Service of Process.
(a) The General Partner has caused a Certificate of Limited
Partnership on Form LP-1 to be filed with the California Secretary of State in
accordance with the Act. The Partnership shall take any and all actions
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership under the laws of the State of California and under the laws
of any other states or jurisdictions in which the Partnership engages in
business.
(b) To the extent required pursuant to the Act or the applicable
laws of any other state or jurisdiction, the name and address of the agent for
service of process shall be Harvey Lenkin, 701 Western Avenue, Glendale,
California 91201-2349, or any successor as appointed by the General Partner.
(c) Upon the dissolution of the Partnership, the Partnership shall
promptly execute and cause to be filed any necessary certificates of dissolution
and cancellation in accordance with the Act and the applicable laws of any other
state or jurisdiction in which the Partnership has engaged in business.
1.7 Other Activities.
(a) The Limited Partner acknowledges that the PSA Affiliates are
engaged in the business, directly and indirectly, of acquiring, owning,
renovating, developing, leasing, managing and operating self-storage facilities.
The Limited Partner understands that the PSA Affiliates may be involved,
directly or indirectly, in various other projects and businesses not included in
the Partnership. The Partners hereby agree that the creation of the Partnership
and involvement herein by each of the Partners shall not prejudice their rights
(or the rights of their Affiliates) to have such other interests and activities
and to enjoy profits or other benefits therefrom, and each Partner waives any
rights it might otherwise have to share or participate in such other interests
or activities of the other Partners or their Affiliates. Except as otherwise
provided in this Agreement, the Partners and their Affiliates may engage in or
possess any interest in any
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other business venture of any nature or description, independently or with
others, including without limitation, the acquisition, ownership, development,
leasing, managing and operation of self-storage facilities or other real
property, and neither the Partnership nor any Partner shall have any right by
virtue of this Agreement in and to such venture or the income or profits derived
therefrom.
(b) Notwithstanding the provisions of Section 1.7(a) above, so long
as the General Partner is required to afford the Partnership the first right to
acquire and own a Qualifying Project pursuant to Section 6.2, no PSA Affiliate
(other than a Hughes Affiliate) shall acquire a Qualifying Project without
complying with the provisions of Section 6.2.
1.8 Definitions. Capitalized words and phrases used in this Agreement
have the meanings set forth in this Section 1.8 or elsewhere in this Agreement:
(a) "Act" means the California Revised Limited Partnership Act as
set forth in Title 2 (commencing with Section 15611) of the Corporations Code of
the State of California, as amended from time to time (or any corresponding
provisions of succeeding law), provided that the substantive rights of the
Partners under this Agreement shall not be adversely affected by any such
amendment.
(b) "Acquisition Costs" means the third party costs incurred by the
Partnership or any PSA Affiliate to acquire a Qualifying Project which has been
approved for acquisition by the Investment Committee in accordance with Section
5.4 (regardless of whether such Qualifying Project is actually acquired by the
Partnership), including any and all third party costs of closing such
acquisition (e.g., transfer tax, title insurance, escrow charges, recording
fees, legal fees, commissions, brokerage, finders' or similar fees and other
charges of third party vendors incurred in connection with the evaluation,
negotiation and closing of a Project) and any and all rebranding costs (e.g.,
changing signs, painting); provided, however that such costs shall not exceed
the amounts set forth on the Acquisition Pro-Forma Budget; and provided further
that, such costs shall not include costs attributable to properties considered
for acquisition by the Partnership but not approved for acquisition by the
Investment Committee in accordance with Section 5.4. Acquisition Costs shall
include a reserve established by the General Partner, as set forth in the
Acquisition Pro-Forma Budget, to pay for the (1) deferred maintenance, if any,
of a Project and (2) costs, if any, of initial operations and lease up until a
Project has achieved three consecutive months of positive Net Operating Income.
(c) "Acquisition Period" means the period commencing on the
Effective Date and continuing until the earlier to occur of (i) the date which
is nine months after the Effective Date or (ii) the date on which the
Partnership has acquired or committed to acquire Projects that require or would
require total Capital Contributions from Partners in excess of $125,000,000.
(d) "Acquisition Pro-Forma Budget" means the pro-forma budget in the
form attached as Exhibit F, prepared by the General Partner and approved by the
Investment Committee as set forth in Section 5.4(a). The Acquisition Pro-Forma
Budget shall identify with specificity the nature, amount and payee of all
payments proposed to be made to PSA Affiliates for Acquisition Costs.
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(e) "Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Partner is
obligated to restore pursuant to any provision of this Agreement or is
deemed to be obligated to restore pursuant to the penultimate sentences
of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
(f) "Adjusted Capital Contributions" means, as of any day with
respect to a Partner, such Person's Capital Contributions, adjusted as follows:
(i) Increased by the amount of any Partnership liabilities which, in
connection with distributions to such Person pursuant to Sections 4.1,
4.2, and 10.2(c), are assumed by such Person or are secured by any
Property distributed to such Person; and
(ii) Reduced by the amount of cash and the Gross Asset Value of any
Property distributed to such Person pursuant to Sections 2.2(d),
4.2(b), 4.2(d) and 10.2(c) and the amount of any liabilities of such
Person assumed by the Partnership or which are secured by any Property
contributed by such Person to the Partnership.
In the event such Person Transfers all or any portion of its Interest in
accordance with the terms of this Agreement, its transferee shall succeed to its
Adjusted Capital Contribution to the extent it relates to the transferred
Interest.
(g) "Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling 10% or more of the
outstanding voting interests of such Person, (iii) any officer, director or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee or holder of 10% or more of the voting interests of any
Person described in clauses (i) through (iii) of this sentence.
(h) "Agreement" means this Limited Partnership Agreement of PSAF
Acquisition Partners, L.P. and the exhibits hereto, as amended from time to
time. Words such as "herein," "hereinafter," "hereof," "hereto" and "hereunder"
refer to this Agreement as a whole, unless the context otherwise requires.
(i) "Appraiser" means a disinterested entity that is experienced in
valuing real estate portfolios and (a) is a M.A.I. appraiser that is a member of
the American Institute of Real Estate Appraisers, any organization successor
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thereto, or other nationally recognized organization of real estate appraisers,
with at least five years' experience in the case of the First and Second
Appraisers and ten years' experience in the case of the Third Appraiser in
conducting appraisals in the commercial real estate industry, and is qualified
and experienced in appraising self-storage facilities similar to the Property,
or (b) that works in conjunction with another disinterested entity with the
qualifications described in (a) and both such entities sign the report. "First
Appraiser," "Second Appraiser" and "Third Appraiser" shall have the meanings set
forth in Section 9.4.
(j) "Appraised Value" means the amount that a third party buyer
would reasonably be expected to pay for all of the Property, on a portfolio
basis, in a cash purchase, taking into account the current condition, use and
zoning of the Property, net of a provision for all normal costs of sale,
including a real estate commission at prevailing rates.
(k) "Business Day" means Monday through Friday of each week, except
that a legal holiday recognized as such by the United States Government shall
not be regarded as a Business Day.
(l) "Business Plans" means the "Initial Business Plan" attached
hereto as Exhibit G and "Annual Business Plans" in the form attached hereto as
Exhibit H.
(m) "Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Person in accordance with the following
provisions:
(i) To each Person's Capital Account there shall be credited such
Person's Capital Contributions, such Person's distributive share of
Profits under Section 3.1 and any items in the nature of income or gain
that are specially allocated pursuant to Sections 3.4 or 3.5, and the
amount of any Partnership liabilities assumed by such Person or that
are secured by any Property distributed to such Person.
(ii) To each Person's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Property distributed to
such Person pursuant to Sections 2.2(d), 4.1, 4.2, 4.3 and 10.2, such
Person's distributive share of Losses under Section 3.2 and any items
in the nature of expenses or losses that are specially allocated
pursuant to Sections 3.3 or 3.5, and the amount of any liabilities of
such Person assumed by the Partnership or that are secured by any
property contributed by such Person to the Partnership.
(iii) In the event any Interest is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the
transferred Interest.
(iv) In determining the amount of any liabilities for purposes of
the definitions of "Adjusted Capital Contributions" and "Capital
Accounts," there shall be taken into account Code Section 752(c) and
any other applicable provisions of the Code and Regulations.
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The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations. In the event the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property or that are
assumed by the Partnership or the Partners), are computed in order to comply
with such Regulations, the General Partner may make such modification, provided
that it is not likely to have a material effect on the amounts distributable to
any Partner pursuant to Section 10 upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(g), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
(n) "Capital Contributions" means, with respect to any Partner, the
amount of money and the Gross Asset Value at the time of contribution of any
property (other than money) contributed to the Partnership with respect to the
interest in the Partnership held by such Partner.
(o) "Capital Proceeds" means the gross cash proceeds of sales and
financings of the Partnership's Properties, less the portion thereof used to pay
or establish reserves for all Partnership expenses, any debt payments, capital
improvements and other costs of renovations, replacements and contingencies, all
as determined in accordance with the terms hereof.
(p) "Capital Reserve" means a reserve for capital expenditures of
2.3% of annual gross revenue.
(q) "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law).
(r) "Defaulting Event" means (i) a Partner's withdrawal as a Partner
from the Partnership in breach of Section 2.4(a), (ii) the Transfer by a Partner
of all or any part of its Interest in the Partnership (or such Partner's right
to receive distributions) in breach of Section 8, (iii) a Partner's failure to
make one or more capital contributions pursuant to Section 2.2 which in the
aggregate exceed $100,000, which failure continues ten Business Days after
written demand by the General Partner or any Partner; (iv) the General Partner
taking any unilateral action which requires the unanimous consent of the
Partners without first securing such consent in accordance with the terms hereof
and (v) a violation of Section 1.7(b) or Section 13.3 (to the extent the
circumstances giving rise to such violation are within the control of the
General Partner or a PSA Affiliate), provided, however, that in the case of (iv)
or (v) the action taken would prejudice the Limited Partner in a materially
adverse manner and such default or prejudice is not cured or eliminated or in
the process of being cured or eliminated in good faith within ten days after
giving of notice by the Limited Partner to the General Partner specifying the
nature of such default.
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(s) "Defaulting Partner" means a Partner with respect to which a
Defaulting Event occurs.
(t) "Depreciation" means, for each Fiscal Year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
(u) "Fair Market Value" shall have the meaning set forth in Section
9.4.
(v) "Fiscal Year" shall have the meaning set forth in Section 7.4.
(w) "Gain from Sale" shall mean any gain recognized for federal
income tax purposes from the sale or other disposition of the Partnership's
assets computed by reference to the Gross Asset Value of the Property disposed
of, notwithstanding that the adjusted tax basis of such Property differs from
its Gross Asset Value.
(x) "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the Partners (as described below the Partners
have agreed that the gross fair market value of Projects contributed by
the General Partner to the Partnership at the time of contribution will
be based on the cost of those Projects as set forth in Section 2.2);
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Partners, as of the following times: (A) the
acquisition of an additional Interest by any new or existing Partner in
exchange for more than a de minimis Capital Contribution; (B) the
distribution by the Partnership to a Partner of more than a de minimis
amount of Property as consideration for an Interest; and (C) the
liquidation of the Partnership within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g); provided, however that the adjustments
pursuant to clauses (A) and (B) above shall be made only if the
Partners reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Partners
in the Partnership;
(iii) The Gross Asset Value of any Partnership asset distributed to
any Partner shall be the gross fair market value of such asset on the
date of distribution; and
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(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only
to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m) and Sections 1.8(uu) and 3.5(g); provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
Section 1.8(x)(iv) to the extent the Partners determine that an
adjustment pursuant to Section 1.8(x)(ii) is necessary or appropriate
in connection with a transaction that would otherwise result in an
adjustment pursuant to this Section 1.8(x)(iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 1.8(x)(i), 1.8(x)(ii) or 1.8(x)(iv), such Gross Asset Value shall
thereafter be adjusted by Depreciation taken into account with respect to such
asset for purposes of computing Profits and Losses.
(y) "Hazardous Materials" means any toxic, reactive, corrosive,
ignitable or flammable chemical compound or hazardous substance, material or
waste, whether solid, liquid or gas, that is regulated by any federal or state
law or regulation.
(z) "Hazardous Materials Claims" shall have the meaning set forth in
Section 5.6.
(aa) "Hazardous Materials Laws" means all federal, state or local
laws or regulations which regulate or relate to the use, treatment, storage,
transportation, generation, handling or disposal of, or emission, discharge or
other release or threatened release of, any Hazardous Materials.
(bb) "Hughes Affiliate" shall mean: (x) B. Wayne Hughes or (y)
members of his immediate family or (z) any of their Affiliates, other than PSA
and other PSA Affiliates.
(cc) "Indemnitee" shall have the meaning set forth in Section 11.1.
(dd) "Interest" means an interest, whether as a general partner or
limited partner, in the Partnership representing the rights and obligations
under the Agreement of the Partner who holds such Interest.
(ee) "Investment Committee" shall have the meaning set forth in
Section 6.2(a).
(ff) "Liquidating Event" shall have the meaning set forth in Section
10.1.
(gg) "Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d).
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(hh) "Net Equity" of a Partner's Interest as of a specified date
means the amount that would be distributed to such Partner in liquidation of the
Partnership pursuant to Sections 10.2 and 10.3 as of that date if (1) all of the
Partnership's Property were sold for its Fair Market Value, (2) the Partnership
paid its accrued, but unpaid, liabilities, and established reserves pursuant to
this Agreement for the payment of reasonably anticipated contingent or unknown
liabilities, and (3) the Partnership distributed the remaining proceeds to the
Partners in liquidation.
(ii) "Net Operating Income" means all income from a Project or
Projects, as the case may be, less the costs of operations, including property
management fees and a Capital Reserve. Net Operating Income shall be computed on
an accrual basis consistent with PSA Affiliates' prior practice. Net Operating
Income will not be reduced by depreciation, amortization, cost recovery
deductions or similar non-cash allowances.
(jj) "Nonrecourse Deductions" shall have the meaning set forth in
Section 1.704-2(b)(1) of the Regulations.
(kk) "Nonrecourse Liability" shall have the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
(ll) "Operating Cash" means the gross cash proceeds of the
Partnership from all operating sources (not including amounts taken into account
in determining Capital Proceeds) less the portion thereof used to establish
reserves for, or pay (except to the extent paid from reserves previously
deducted from Operating Cash), any debt payments, all Partnership expenses,
capital improvements and other costs of renovations, replacements and
contingencies, all as determined by the Partners. "Operating Cash" shall not be
reduced by depreciation, amortization, cost recovery deductions or similar
allowances, but shall be increased by any reductions of reserves previously
established.
(mm) "Partner Nonrecourse Debt" shall have the meaning set forth in
Section 1.704-2(b)(4) of the Regulations.
(nn) "Partner Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
(oo) "Partner Nonrecourse Deductions" has the meaning set forth in
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
(pp) "Partners" means the General Partner and the Limited Partner,
collectively, and reference to a "Partner" shall be to any one of the Partners.
The "General Partner" and "Limited Partner" are as set forth in Section 2.1.
(qq) "Partnership" means the limited partnership formed pursuant to
this Agreement.
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(rr) "Person" means any individual, partnership, corporation, trust
or other entity.
(ss) "Percentage Interest" means, subject to the provisions of the
next sentence, with respect to the Limited Partner, 70%, and with respect to the
General Partner, 30%. In the event any Interest is transferred in accordance
with the provisions of this Agreement, the transferee of such Interest shall
succeed to the Percentage Interest of its transferor to the extent it relates to
the transferred Interest.
(tt) "Priority Return" means, as to each Partner, a cumulative
return on (i) that Partner's Adjusted Capital Contributions and (ii) accrued and
unpaid Priority Returns, computed using monthly compounding at a monthly rate of
one twelfth of 8%, provided that, in the case of the General Partner, any
Capital Contribution made pursuant to Sections 2.2(a)(v) and 10.3 shall not be
taken into account in computing the General Partner's Priority Return.
(uu) "Profits" and "Losses" means, for each Fiscal Year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section 1.8(uu) shall be added to such taxable income
or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this
Section 1.8(uu) shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Section 1.8(x)(ii) or Section 1.8(x)(iii), the
amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Profits or
Losses;
(iv) Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
Property disposed of, notwithstanding that the adjusted tax basis of
such Property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Fiscal
Year or other period, computed in accordance with Section 1.8(t);
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(vi) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a
Partner's interest in the Partnership, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of
the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Profits or Losses; and
(vii) Notwithstanding any other provision of this Section 1.8(uu),
any items which are specially allocated pursuant to Sections 3.3, 3.4
or 3.5 (including Depreciation, deductions attributable to "guaranteed
payments" and Gain from Sale) shall not be taken into account in
computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specifically allocated pursuant to Sections 3.3, 3.4 and 3.5
shall be determined by applying rules analogous to those set forth in Sections
1.8(x)(i) through 1.8(x)(vi) above.
(vv) "Projects" means the Qualifying Projects which have been
acquired by the Partnership pursuant to Section 5.4.
(ww) "Property" means all real, personal and other property or
assets acquired by the Partnership, and shall include the Projects and both
tangible and intangible property.
(xx) "PSA" means Public Storage, Inc., a California corporation.
(yy) "PSA Affiliate" means PSA and/or any Affiliate of PSA (other
than the Partnership). The General Partner shall be responsible for all
activities performed hereunder by PSA Affiliates.
(zz) "PSA Affiliates Operating Costs" means that portion of (i)
compensation and other personnel costs incurred by PSA Affiliates in the
employment of their employees and (ii) all other overhead and general and
administrative costs of all PSA Affiliates, which, in either case, is reasonably
allocable to the performance of services referred to in Section 5.4 with respect
to Qualifying Projects; provided, however, that with respect to any Qualifying
Project, such costs shall not exceed the amounts set forth on the Acquisition
Pro-Forma Budget for such Qualifying Project. "PSA Affiliates Operating Costs"
shall include any costs which are reasonably allocable to Qualifying Projects
which are approved for acquisition by the Partnership, but not actually
acquired; provided, however, that "PSA Affiliates Operating Costs" shall not
include, and the Partnership shall not, under any circumstances, be responsible
for, any costs attributable to properties considered for acquisition by the
Partnership but not approved for acquisition.
(aaa) "Purchase Notice" shall have the meaning set forth in Section
9.1 with respect to the "General Partner Purchase Notice" and Section 9.6 with
respect to the "Limited Partner Purchase Notice."
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(bbb) "Purchase Notice Date" shall have the meaning set forth in
Section 9.1.
(ccc) "Qualifying Project" means any real estate acquisition project
located in the United States of which 90% or more of the net rentable square
footage will consist of self-storage facilities and no part of the project would
generate for the Limited Partner more than a de minimis amount of unrelated
business taxable income under Section 511 of the Code (the Partners acknowledge
that the latter requirement will exclude projects involving containerized,
portable self-storage activities). A Qualifying Project shall not include (1)
the acquisition of a self-storage facility owned by a PSA Affiliate on the
Effective Date, or the renovation, expansion or replacement (i.e. tear-down and
rebuild) of a self-storage facility owned by a PSA Affiliate, (2) a real estate
development project, including the conversion of other types of improvements
into self-storage, (3) a real estate project that requires significant expansion
or renovation, the costs of which are estimated by the General Partner to be in
excess of 10% of the Acquisition Costs of the Project, (4) a real estate project
proposed to be acquired by any PSA Affiliate in a merger or similar transaction
or in a transaction in which the prospective seller will not accept all cash,
(5) the acquisition of less than 100% of the ownership interests in a
partnership or other entity that owns self-storage facilities, (6) a portfolio
of self-storage facilities with a purchase price that exceeds (A) $125,000,000
less (B) the aggregate amount of Capital Contributions contributed or committed
to the Partnership for other Qualifying Projects, (7) a real estate project that
is encumbered by debt that cannot be prepaid or that may only be prepaid with a
prepayment penalty that, if paid, would cause the Yield of the project to be
less than 8% or (8) a real estate project the acquisition of which is under
consideration by [XYZ Company] or any of its controlled Affiliates or any of
their respective clients or funds (solely to the extent such client or fund is
being advised with respect to the acquisition of such real estate project by
[XYZ Company] or its controlled Affiliates; the Limited Partner will use its
reasonable best efforts to cause [XYZ Company] to notify the General Partner of
its involvement with any such project at the time at which a project is formally
submitted to [XYZ Company] by or on behalf of such a client or fund).
(ddd) "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such Regulations may be
amended from time to time (or any corresponding provisions of succeeding
regulations).
(eee) "Regulatory Allocations" shall have the meaning set forth in
Section 3.5(h).
(fff) "Securities Act" means the Securities Act of 1933, as amended
(or any corresponding provisions of succeeding law).
(ggg) "Shortfall" shall be determined upon the liquidation of the
Partnership or upon an election by the General Partner to exercise its option to
purchase all of the Interest of the Limited Partner pursuant to Section 9.1, by
first calculating the monthly internal rate of return, using monthly
compounding, earned with respect to the Limited Partner's contributions to the
Partnership, taking into account all distributions previously received, or to be
received in the liquidation or sale pursuant to the option, including amounts
received as guaranteed payments, without regard to whether a Shortfall exists
(that rate of return shall be the "Realized Rate of Return").
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If the Realized Rate of Return is equal to or in excess of one twelfth of 8.5%,
the Shortfall shall be zero. If the Realized Rate of Return is less than one
twelfth of 8.5%, but more than or equal to one twelfth of 6.5%, the Shortfall
shall be the amount that, when added to the distribution of Capital Proceeds or
to the Net Equity, would increase the Realized Rate of Return to equal one
twelfth of 8.5%. If the Realized Rate of Return is less than one twelfth of
6.5%, the Shortfall shall be the amount that, when added to the distribution of
Capital Proceeds or to the Net Equity, would increase the calculated Realized
Rate of Return by one twelfth of 2.0%. The calculations set forth in Exhibit I
illustrate how the Shortfall is to be calculated.
(hhh) "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, assignment, pledge, hypothecation or other disposition and, as a
verb, voluntarily or involuntarily to transfer, sell, assign, pledge,
hypothecate or otherwise dispose of.
(iii) "Working Capital" means the sum of the initial contributions
made under Sections 2.2(a)(i) and 2.2(b)(i), as may be increased, reduced, or
replenished from time to time, the outstanding balance of which shall at all
times be invested in instruments backed by the United States Government.
(jjj) "Yield" means the Net Operating Income of a Qualifying Project
or Qualifying Projects for the most recently available twelve-month period (or
in the case of a Qualifying Project which has not yet obtained stabilization,
the reasonably projected annual income for the one-year period commencing on the
first anniversary of the acquisition of such Qualifying Project by the
Partnership) divided by its or their total cost, as determined in accordance
with the financial criteria and employing the same underwriting criteria and
methodology used in generating the yields as pursuant to Exhibit F (Pro Forma
Acquisition Budgets).
2. PARTNERS; CAPITAL CONTRIBUTIONS
2.1 Partners. The names and initial addresses of the Partners are as
follows:
General Partner:
PS Texas Holdings, Ltd.
c/o Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201
Limited Partner:
[LIMITED PARTNER]
address of Limited Partner
2.2 Capital Contributions. The Capital Contributions of the Partners
shall be as follows:
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(a) Subject to Section 2.2(f), the Capital Contributions of the
General Partner shall be as follows:
(i) On the Effective Date, the General Partner shall make an initial
cash Capital Contribution of $300.
(ii) From time to time, the General Partner shall contribute or
cause to be contributed to the Partnership additional cash equal to 30%
of the sum of the Acquisition Costs and PSA Affiliates Operating Costs
(but only to the extent such PSA Affiliates Operating Costs do not
exceed 1% of the cumulative sum of the Acquisition Costs incurred to
that date) incurred by or on behalf of the Partnership related to each
acquired Project.
(iii) From time to time, the General Partner shall contribute or
cause to be contributed to the Partnership Qualifying Projects and the
General Partner's Capital Account shall be credited with the amount of
the expenditures made with respect to such Qualifying Projects by PSA
Affiliates (to the extent not previously reimbursed from Working
Capital) for Acquisition Costs and PSA Affiliates Operating Costs (but
only to the extent such PSA Affiliates Operating Costs do not exceed 1%
of the cumulative sum of the Acquisition Costs incurred to that date).
The parties agree that any such Capital Account credits represent the
agreed fair market value of those contributed assets.
(iv) The General Partner may, but shall not be obligated to, make
Capital Contributions from time to time in order to pay any accrued but
unpaid Priority Returns to the Limited Partner hereunder, which amounts
will be distributed to the Limited Partner pursuant to Section 2.2(e)
below.
(v) In the circumstances described in Section 10.3 below, the
General Partner shall make a contribution as set forth in Section 10.3.
(b) Subject to Section 2.2(f), the Capital Contributions of the
Limited Partner shall be as follows:
(i) On the Effective Date, the Limited Partner shall make an initial
cash Capital Contribution of $700.
(ii) From time to time, the Limited Partner shall make additional
Capital Contributions in cash equal to two and one third (2 1/3) times
the amount of the Capital Contributions made by the General Partner
from time to time pursuant to Section 2.2(a)(ii) above.
(iii) The Limited Partner shall make additional Capital
Contributions in cash equal to 70% of the amount of the General
Partner's Capital Contributions from time to time pursuant to Section
2.2(a)(iii) above, which amounts will be distributed to the General
Partner pursuant to Section 2.2(d) below.
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(c) Any Capital Contributions required of Partners pursuant to
Sections 2.2(a)(ii), 2.2(b)(ii) and 2.2(b)(iii) above shall be set forth in
written notices from the General Partner to the Partners in the form attached as
Exhibit K hereto. Such notices shall contain a breakdown and supporting evidence
of Acquisition Costs and PSA Affiliates Operating Costs, and a breakdown by
Project (with such supporting evidence as requested by the Limited Partner).
Such notices shall be delivered not less than ten (10) Business Days prior to
the date such Capital Contribution is required to be made. Notwithstanding
anything herein to the contrary, (i) the Limited Partner's obligation to make
Capital Contributions shall be limited to 70% of the aggregate amount of
Acquisition Costs and PSA Affiliates Operating Costs contained in the applicable
Acquisition Pro-Forma Budget and (ii) the General Partner's obligation to make
Capital Contributions in respect of Acquisition Costs and PSA Affiliates
Operating Costs shall be limited to 30% of the aggregate amount of Acquisition
Costs and PSA Affiliates Operating Costs contained in the applicable Acquisition
Pro-Forma Budget; provided, however, that clause (ii) above is not intended to
(x) modify any legal requirement that the General Partner may be generally
liable for recourse obligations of the Partnership to the extent such
obligations are not otherwise able to be satisfied out of the assets (including
commitments that are considered assets) of the Partnership or (y) imply that the
Limited Partner is obligated to reimburse or indemnify the General Partner if,
notwithstanding clause (ii) above, the General Partner is obligated to make a
Capital Contribution in order for the Partnership to satisfy the claims of
Partnership's creditors.
(d) Promptly following the Capital Contributions by the Limited
Partner pursuant to Section 2.2(b)(iii) above, the General Partner shall cause
an amount equal to such Capital Contributions to be distributed by the
Partnership to the General Partner as a reduction in its Capital Contributions.
The Partners acknowledge that these amounts will be treated as contributed to
the Partnership and then distributed by the Partnership for purposes of this
Agreement, notwithstanding that for federal income tax purposes the amounts
perhaps could be recharacterized as if paid by the Limited Partner to the
General Partner for an interest in the Properties which the Limited Partner then
would be treated as contributing to the Partnership. Such a recharacterization,
in the Partnership's circumstances, is not expected to produce materially
differing consequences. (e) Promptly following any Capital Contributions by the
General Partner pursuant to Sections 2.2(a)(iv) and (v) above, the General
Partner shall cause an amount equal to such Capital Contributions to be
distributed by the Partnership to the Limited Partner and such distributions
shall be treated as deductible "guaranteed payments" for the use of capital for
income tax purposes.
(f) Notwithstanding anything herein to the contrary, except (i) to
the extent set forth in the Acquisition Pro-Forma Budgets, (ii) as otherwise
approved by the Investment Committee or (iii) as set forth in Sections
2.2(a)(iv) and (v), under no circumstances will the Partners be required to make
any Capital Contributions after the expiration of the Acquisition Period.
2.3 Extent of Liability. Except as otherwise provided by this Agreement
or as required by applicable law:
15
(a) A Partner shall not be liable for the debts, liabilities,
contracts or any other obligations of the Partnership; and
(b) A Partner shall be liable only to make the Capital Contributions
provided in Section 2.2 for Qualifying Projects approved under Section 6.2(b)
and shall not be required to lend any funds to the Partnership.
Performance of any one or more of the acts specifically authorized for
performance by the Limited Partner under this Agreement shall not in any way
constitute the Limited Partner a general partner or impose any personal
liability on the Limited Partner. The General Partner shall have no personal
liability for the repayment of any Capital Contributions of the Limited Partner.
2.4 Other Matters.
(a) Except as otherwise provided in this Agreement, no Partner shall
demand or receive a return of its Capital Contributions or withdraw as a Partner
from the Partnership without the consent of the General Partner and the
Partners. Under circumstances requiring a return of any Capital Contributions,
no Partner shall have the right to receive property other than cash except as
may be specifically provided herein.
(b) No Partner shall receive any interest, salary or draw with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Partnership or otherwise in its capacity as a Partner,
except as otherwise provided in this Agreement.
3. ALLOCATIONS
3.1 Profits. After giving effect to the special allocations set forth
in Sections 3.3, 3.4 and 3.5, Profits for any Fiscal Year or other period shall
be allocated to the Partners in the following order and priority:
(a) First, to the Limited Partner until the cumulative Profits
allocated pursuant to this Section 3.1(a) and Gain from Sale allocated pursuant
to Section 3.4(a) for the current and all prior Fiscal Years or other periods
are equal to the cumulative Priority Return accrued for the Limited Partner from
the Effective Date to the end of such Fiscal Year or other period less the
amount of any guaranteed payments made pursuant to Section 2.2(e);
(b) Second, to the Limited Partner until the cumulative Profits
allocated pursuant to this Section 3.1(b) and Gain from Sale allocated pursuant
to Section 3.4(b) for the current and all prior Fiscal Years or other periods
are equal to the cumulative Losses allocated to the Limited Partner pursuant to
Section 3.2 for all prior Fiscal Years or other periods;
(c) Third, to the General Partner until the cumulative Profits
allocated pursuant to this Section 3.1(c) and Gain from Sale allocated pursuant
to Section 3.4(c) for the current and all prior Fiscal Years or other periods
are equal to the cumulative Losses allocated to the General Partner pursuant to
Section 3.2 for all prior Fiscal Years or other periods;
16
(d) Fourth, to the General Partner until the cumulative Profits
allocated pursuant to this Section 3.1(d) for the current and all prior Fiscal
Years or other periods are equal to the cumulative distributions received by the
General Partner pursuant to Section 4.1(b) from the Effective Date to the end of
such Fiscal Year or other period; and
(e) Fifth, the remaining balance, if any, shall be allocated among
the Partners in proportion to their Percentage Interests.
3.2 Losses. After giving effect to the special allocations set forth in
Sections 3.3, 3.4 and 3.5, Losses for any Fiscal Year or other period shall be
allocated in the following order and priority:
(a) First, to the General Partner until any additional allocation
would cause the General Partner to have an Adjusted Capital Account Deficit at
the end of any Fiscal Year;
(b) Second, to the Limited Partner until any additional allocation
would cause the Limited Partner to have an Adjusted Capital Account Deficit at
the end of any Fiscal Year; and
(c) Third, any remaining Losses to the General Partner.
3.3 Certain Special Allocations. The following special allocations
shall be made:
(a) All Depreciation shall be specially allocated to the General
Partner, except to the extent that the General Partner elects not to be
allocated all or any portion of the Depreciation for any particular period, in
which case the designated portion of the Depreciation will be allocated to the
Limited Partner; provided, however, that the Limited Partner shall not be
allocated more than 70% of the total Depreciation for any Fiscal Year.
(b) All deductions for any guaranteed payments made to the Limited
Partner pursuant to Section 2.2(e) shall be specially allocated to the General
Partner.
3.4 Gain from Sale. All Gain from Sale shall be allocated in the
following order:
(a) First, to the Limited Partner until the cumulative Gain from
Sale allocated pursuant to this Section 3.4(a) and Profits allocated pursuant to
Section 3.1(a) for the current and all prior Fiscal Years or other periods are
equal to the cumulative Priority Return accrued for the Limited Partner from the
Effective Date to the end of such Fiscal Year or other period less the amount of
any guaranteed payments made pursuant to Section 2.2(e);
(b) Second, to the Limited Partner until the cumulative Gain from
Sale allocated pursuant to this Section 3.4(b) and Profits allocated pursuant to
Section 3.1(b) for the current and all prior Fiscal Years or other periods are
equal to the cumulative Losses allocated to the Limited Partner pursuant to
Section 3.2 for all prior Fiscal Years or other periods;
17
(c) Third, to the Limited Partner until the cumulative Gain from
Sale allocated pursuant to this Section 3.4(c) for the current and all prior
Fiscal Years or other periods is equal to the cumulative Depreciation allocated
to the Limited Partner pursuant to Section 3.3(a) for all prior Fiscal Years or
other periods;
(d) Fourth, to the General Partner until the cumulative Gain from
Sale allocated pursuant to this Section 3.4(d) and Profits allocated pursuant to
Section 3.1(c) for the current and all prior Fiscal Years or other periods are
equal to the cumulative Losses allocated to the General Partner pursuant to
Section 3.2 for all prior Fiscal Years or other periods;
(e) Fifth, to the General Partner until the cumulative Gain from
Sale allocated pursuant to this Section 3.4(e) is equal to the cumulative
allocations of Depreciation and deductions for guaranteed payments made pursuant
to Section 3.3(a) and (b), excluding any guaranteed payments deductions
attributable to Capital Contributions made pursuant to Section 2.2(a)(v);
(f) Sixth, to the General Partner until the cumulative Gain from
Sale allocated pursuant to this Section 3.4(f) and Profits allocated pursuant to
Section 3.1(d) for the current and all prior Fiscal Years or other periods are
equal to the cumulative Priority Return accrued for the General Partner from the
Effective Date to the end of such Fiscal Year or other period;
(g) Seventh, 70% to the Limited Partner and 30% to the General
Partner until the cumulative Gain from Sale allocated to the Limited Partner
pursuant to this Section 3.4(g) for the current and all prior Fiscal Years or
other periods is equal to the cumulative distributions made (or expected by the
Partners to be made) to the Limited Partner pursuant to Section 4.2(e);
(h) Eighth, 40% to the Limited Partner and 60% to the General
Partner until the cumulative Gain from Sale allocated to the Limited Partner
pursuant to this Section 3.4(h) for the current and all prior Fiscal Years or
other periods is equal to the cumulative distributions made (or expected by the
Partners to be made) to the Limited Partner pursuant to Section 4.2(f);
(i) Ninth, 10% to the Limited Partner and 90% to the General Partner
until the cumulative Gain from Sale allocated to the Limited Partner pursuant to
this Section 3.4(i) for the current and all prior Fiscal Years or other periods
is equal to the cumulative distributions made (or expected by the Partners to be
made) to the Limited Partner pursuant to Section 4.2(g); and
(j) Finally, 100% to the General Partner.
Sections 3.4(g) - (i) shall be applied based on the assumption that all Capital
Proceeds will be distributed pursuant to Section 4.2, rather than Section
10.2(c).
3.5 Regulatory Special Allocations. The following special allocations
shall be made in the following order:
18
(a) Minimum Gain Chargeback. Except as provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Section 3, if there is a net decrease in Minimum Gain during any Fiscal Year,
each Partner shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to the
portion of such Partner's share of the net decrease in Minimum Gain, determined
in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2)
of the Regulations. This Section 3.5(a) is intended to comply with the minimum
gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall
be interpreted consistently therewith.
(b) Partner Nonrecourse Debt Minimum Gain Chargeback. Except as
otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding
any other provision of this Section 3 except Section 3.5(a), if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner
Nonrecourse Debt during any Fiscal Year, each Partner who has a share of the
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Partner's share of the
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section
3.5(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Partnership
income and gain shall be specially allocated to each such Partner in an amount
and manner sufficient to eliminate, to the extent required by the Regulations,
the Adjusted Capital Account Deficit of such Partner as quickly as possible,
provided that an allocation pursuant to this Section 3.5(c) shall be made only
if and to the extent that such Partner would have an Adjusted Capital Account
Deficit after all other allocations provided for in this Section 3 have been
tentatively made as if this Section 3.5(c) were not in this Agreement.
(d) Gross Income Allocation. In the event any Partner has a deficit
Capital Account at the end of any Partnership Fiscal Year which is in excess of
the sum of (i) the amount such Partner is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Partner is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially
allocated items of Partnership income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this Section 3.5(d)
shall be made if and only to the extent that such Partner would have a deficit
Capital Account in excess of such sum after all other allocations provided for
19
in this Section 3 have been tentatively made as if Section 3.5(c) and this
Section 3.5(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
Year or other period shall be specially allocated to the General Partner.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Fiscal Year or other period shall be specially allocated to
the Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Section 1.704-2(i)(1).
(g) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of its interest in the
Partnership, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their interests in the
Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Partners to whom such distribution was made in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) Curative Allocations. The allocations set forth in Sections
3.5(a) through (g) (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations. It is the intent of the Partners that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Partnership income, gain, loss or deduction pursuant to this Section 3.5(h).
Therefore, notwithstanding any other provision of this Section 3 (other than the
Regulatory Allocations), the General Partner shall make such offsetting special
allocations of Partnership income, gain, loss or deduction in whatever manner
the Partners determine appropriate so that, after such offsetting allocations
are made, each Partner's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Partner would have had if the
Regulatory Allocations were not part of the Agreement. In exercising its
discretion under this Section 3.5(h), the Partners shall take into account
future Regulatory Allocations under Sections 3.5(a) and 3.5(b) that, although
not yet made, are likely to offset other Regulatory Allocations previously made
under Sections 3.5(e) and 3.5(f).
3.6 Other Allocations Rules.
(a) Except as otherwise provided, all Profits and Losses allocated
to the Partners shall be allocated among them in proportion to their Percentage
Interests.
(b) For purposes of determining the Profits, Losses or any other
items allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partner using any permissible method under Code Section 706 and the Regulations
thereunder.
20
(c) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss, deduction, credit and any other allocations not
otherwise provided for shall be divided among the Partners in the same
proportions as they share Profits or Losses, as the case may be, for the year.
(d) Solely for purposes of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Partnership within the
meaning of Regulations Section 1.752-3(a)(3), any such liabilities shall be
allocated solely to the General Partner, consistent with the General Partner's
share of profits pursuant to Section 3.4(i).
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the General Partner shall endeavor to treat distributions of
Operating Cash as having been made from the proceeds of a Nonrecourse Liability
or a Partner Nonrecourse Debt only to the extent that such distributions would
cause or increase an Adjusted Capital Account Deficit for any Partner.
3.7 Tax Allocations: Code Section 704(c). In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss and deduction
with respect to any property contributed to the capital of the Partnership
shall, solely for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its initial Gross Asset Value
(computed in accordance with Section 1.8(x)(i)).
In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Section 1.8(x)(ii), subsequent allocations of income, gain,
loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall
be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
3.7 are solely for purposes of federal, state and local taxes and shall not
affect, or in any way be taken into account in computing, any Partner's Capital
Account or share of Profits, Losses other items or distributions pursuant to any
provision of this Agreement.
4. DISTRIBUTIONS
4.1 Operating Cash. Except as otherwise provided in Section 10,
Operating Cash, if any, shall be distributed to the Partners monthly, on the
15th day of each month or next Business Day if the 15th day is not a Business
Day, for the preceding month, or at such other times as the Partners may
determine. The General Partner shall provide notice to the Limited Partner of
any anticipated or proposed distributions of Operating Cash, including the
amount thereof, not less than five days prior to such distribution. Operating
Cash shall be distributed in the following order and priority:
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(a) First, to the Limited Partner in an amount equal to the excess
of (i) the aggregate Priority Return of the Limited Partner accrued from the
Effective Date to the end of the calendar month immediately preceding the date
of distribution pursuant to this Section 4.1(a), over (ii) the sum of all prior
distributions to the Limited Partner pursuant to this Section 4.1(a) and
Sections 4.1(c), 4.2(a) and 2.2(e) (including analogous distributions made
pursuant to Sections 10.2 and 10.3);
(b) Second, to the General Partner in an amount equal to the
Priority Return of the General Partner accrued for the calendar month
immediately preceding the date of distribution pursuant to this Section 4.1(b);
and
(c) Third, the balance, if any, to the Partners in proportion to
their Percentage Interests.
4.2 Capital Proceeds. Capital Proceeds, if any, shall be distributed to
the Partners on the third Business Day after a sale or financing (if permitted
under Section 5.3(c)) or at such other times as the Partners may determine in
the following order and priority:
(a) First, to the Limited Partner in an amount equal to the excess
of (i) the aggregate Priority Return of the Limited Partner accrued from the
Effective Date to the end of the calendar month immediately preceding the date
of distribution pursuant to this Section 4.2(a), over (ii) the sum of all prior
distributions to the Limited Partner pursuant to Sections 4.1(a), 4.1(c), 4.2(a)
and 2.2(e) (including analogous distributions made pursuant to Sections 10.2 and
10.3);
(b) Second, to the Limited Partner in an amount equal to the excess
of (i) the Limited Partner's Capital Contributions over (ii) the sum of all
prior distributions to the Limited Partner pursuant to this Section 4.2(b)
(including analogous distributions made pursuant to Sections 10.2 and 10.3);
(c) Third, to the General Partner in an amount equal to the excess
of (i) the aggregate Priority Return of the General Partner accrued from the
Effective Date to the end of the calendar month immediately preceding the date
of distribution pursuant to this Section 4.2(c), over (ii) the sum of all prior
distributions to the General Partner pursuant to Sections 4.1(b), 4.1(c) and
4.2(c) (including analogous distributions made pursuant to Section 10.2);
(d) Fourth, to the General Partner in an amount equal to the excess
of (i) the General Partner's Capital Contributions, other than pursuant to
Section 2.2(a)(v), over (ii) the sum of all prior distributions to the General
Partner pursuant to Sections 4.2(d) and 2.2(d) (including analogous
distributions made pursuant to Section 10.2);
(e) Fifth, 70% to the Limited Partner and 30% to the General Partner
until all amounts distributed to the Limited Partner pursuant to this Agreement
(including any guaranteed payments made pursuant to Section 2.2(e)) equal the
sum of the Limited Partner's Capital Contributions and the aggregate Priority
Return of the Limited Partner accrued from the Effective Date to the end of the
calendar month immediately preceding the date of distribution pursuant to this
Section 4.2(e), with the Priority Return for purposes of this Section 4.2(e)
computed using monthly compounding at the monthly rate of one twelfth of 9%;
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(f) Sixth, 40% to the Limited Partner and 60% to the General Partner
until all amounts distributed to the Limited Partner pursuant to this Agreement
(including any guaranteed payments made pursuant to Section 2.2(e)) equal the
sum of the Limited Partner's Capital Contributions and the aggregate Priority
Return of the Limited Partner accrued from the Effective Date to the end of the
calendar month immediately preceding the date of distribution pursuant to this
Section 4.2(f), with the Priority Return for purposes of this Section 4.2(f)
computed using monthly compounding at the monthly rate of one twelfth of 9.5%;
(g) Seventh, 10% to the Limited Partner and 90% to the General
Partner until all amounts distributed to the Limited Partner pursuant to this
Agreement (including any guaranteed payments made pursuant to Section 2.2(e))
equal the sum of the Limited Partner's Capital Contributions and the aggregate
Priority Return of the Limited Partner accrued from the Effective Date to the
end of the calendar month immediately preceding the date of distribution
pursuant to this Section 4.2(g), with the Priority Return for purposes of this
Section 4.2(g) computed using monthly compounding at the monthly rate of one
twelfth of 10%; and
(h) Finally, 100% to the General Partner.
4.3 Amounts Withheld. If required by applicable law, the General
Partner shall cause the Partnership to withhold such amounts as may be required
from any payment or distribution from the Partnership to a Partner, and the
General Partner shall remit such amounts on a timely basis to the tax authority
or other entity entitled to them. Any (a) amounts so withheld or (b) estimated
or other payments to tax authorities with respect to any Profits or other items
allocable to the Partners, shall be treated as amounts distributed to the
Partners pursuant to this Section 4 for all purposes. The General Partner shall
allocate any such amounts among the Partners in accordance with applicable law.
5. MANAGEMENT
5.1 Managing Partner; Standard of Care.
(a) The Partnership shall be managed by the General Partner. The
Limited Partner shall not participate in the management of the Partnership's
business, and shall have no power to bind or act on behalf of the Partnership.
(b) The General Partner agrees to discharge its duties as general
partner of the Partnership with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent Person acting in the like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. The parties acknowledge that
while the General Partner has agreed to abide by this standard of care as a
result of its contractual agreement in this Section 5.1(b), the General Partner
is not accepting and will not be subject to any fiduciary status under laws that
might be applicable to those responsible for or involved with the investment,
management, etc., of assets of pension plans or governmental plans, such as the
Employee Retirement Income Security Act of 1974 or [law of Limited Partner's
state of incorporation](and particularly any duties of loyalty or
diversification imposed by those provisions), or any other similar or related
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law or regulatory authority of any state or other governmental authority.
Notwithstanding the foregoing sentence, the General Partner acknowledges it will
be subject to the fiduciary duties it owes to the Partnership under applicable
California partnership law. The General Partner further agrees that it will
continue at all times during the term of this Agreement to discharge its duties
as the general partner of the Partnership as above described, and that it will
comply with all laws, rules, and regulations of any governmental authority or
agency materially applicable to the transactions contemplated by this Agreement,
and that it will perform in accordance with the standards of care set forth in
this Section 5.1(b) and in this Agreement.
5.2 Authority of Managing Partner. The General Partner shall have,
subject to the control of the Partners to the extent (and only the extent)
provided herein, supervision, direction and control of the business of the
Partnership. Subject to the limitations and restrictions set forth in this
Agreement, the General Partner shall act on behalf of the Partnership in all
matters affecting the management and supervision of the Partnership and its
business affairs, and shall have all rights and powers generally conferred by
law or otherwise necessary, advisable or consistent therewith. Without limiting
the scope of the foregoing, the Partners agree and acknowledge that it is their
intention and desire to confer upon the General Partner, to the fullest extent
permissible under the Act and other provisions of applicable law, and subject
only to the express limitations set forth in Section 5.3, full power and
authority relative to any and all matters relating to or affecting the
Partnership and its affairs.
Notwithstanding any provision of this Agreement, including without
limitation Section 5.3, any Person dealing with the Partnership may rely
(without duty of further inquiry) upon a certificate signed by the General
Partner as to:
(a) The identity of the General Partner or any Partner;
(b) The existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by the General Partner or which are in
any other manner germane to the affairs of the Partnership;
(c) The Persons who are authorized to execute and deliver any
instrument or document of the Partnership; or
(d) Any act or failure to act by the Partnership or any other matter
whatsoever involving the Partnership or any Partner.
5.3 Limitations on Rights and Powers. Except by the unanimous consent
of the Partners, the General Partner shall not have authority to:
(a) Require additional Capital Contributions to be made to the
Partnership in addition to the Capital Contributions required to be made
pursuant to Section 2.2;
(b) Enter into or commit to any agreement, contract, commitment or
obligation on behalf of the Partnership obligating the Limited Partner to
contribute additional capital, to make or guarantee a loan or to increase the
Partner's liability either to the Partnership or to third parties;
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(c) Cause the Partnership to make any borrowings, incur any debt
(except for liabilities, other than borrowings, incurred in the ordinary course
of business), or assume, guarantee, endorse or otherwise become liable (whether
directly, contingently or otherwise) for obligations of any other Person;
(d) Receive or permit any Partner or Affiliate of a Partner to
receive any fee or rebate except as set forth in Section 5.5, or to participate
in any reciprocal business arrangements that would have the effect of
circumventing any of the provisions of this Agreement;
(e) Materially alter the business of the Partnership;
(f) Do any act in contravention of this Agreement;
(g) Possess Property, or assign rights in specific Property, for
other than a Partnership purpose; or
(h) Admit any Person as a Partner, except pursuant to Sections 8.1,
8.2, 8.6, 9.1 or 9.5.
Except as expressly provided in this Agreement, no action specified on the
attached Exhibit B shall be taken by the General Partner without the prior
written approval of the Partners.
5.4 Project Acquisition.
(a) In order for any Qualifying Project to be contributed to or
acquired by the Partnership, and before the Limited Partner shall be required to
make any Capital Contribution for such a Qualifying Project under Section
2.2(b), the General Partner shall submit to the Investment Committee for its
approval (i) all of the items listed on the acquisition checklist attached as
Exhibit C, to the extent reasonably available, and (ii) a pro-forma budget in
the form attached as Exhibit F (as so approved, the "Acquisition Pro-Forma
Budget"). The General Partner's proposal shall include a recommendation whether
the Partnership should acquire the Qualifying Project directly or through a
subsidiary at least 99% of which is owned directly or indirectly by the
Partnership, and the reasons why, together with draft documentation for the
organization of the proposed subsidiary, if applicable. The structure, ownership
and documentation of the subsidiary, if applicable, shall be subject to approval
by the Limited Partner, not to be unreasonably withheld. The Investment
Committee may also determine to acquire a Qualifying Project or Qualifying
Projects through the use of subsidiaries of the Partnership; provided, however,
that the General Partner must approve in advance the structure, ownership and
documentation of such subsidiaries.
(b) If a Qualifying Project is submitted to the Investment Committee
for approval for acquisition prior to the receipt by the Investment Committee of
all of the items on the Acquisition Checklist, or prior to the satisfaction of
the conditions set forth in Section 5.4(a) above, the Qualifying Project may be
acquired by a single member limited liability company formed by a PSA Affiliate
that is treated for income tax purposes as a disregarded entity and has no
assets, liabilities or business, other than its ownership of such Qualifying
Project. The Investment Committee may approve the Qualifying Project for
acquisition no later than the earlier to occur of thirty (30) days (as such date
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may be extended with the consent of all members of the Investment Committee and
provided that such date, in any event, is within the Acquisition Period) after:
(i) the receipt by the Investment Committee of any insufficient or previously
omitted items in the Acquisition Checklist and the satisfaction of the other
conditions set forth in Section 5.4(a) above and (ii) the receipt by the
Investment Committee of written notice from the General Partner that the
insufficient or previously omitted items in the Acquisition Checklist are not
reasonably available. If the Investment Committee approves the Qualifying
Project for acquisition during such period, then the Partnership shall accept,
in lieu of a deed, a transfer of all ownership interests in that limited
liability company, provided that the General Partner and PSA, jointly and
severally, agree to indemnify the Limited Partner against any loss or liability
to the Partnership that is attributable to that limited liability company and
that would not have been incurred by the Partnership if the Qualifying Project
had been acquired and held directly by the Partnership, rather than through the
limited liability company, and provided further that the transfer is effected
pursuant to an agreement in form and substance satisfactory to the Limited
Partner. If the Investment Committee does not approve the Qualifying Project for
acquisition during such period, or if the Qualifying Project is not acquired by
the Partnership during such period, despite the exercise by General Partner of
its reasonable best efforts to provide such missing or insufficient items or
satisfy such conditions, the General Partner shall be deemed to have rejected
such Qualifying Project and the Partnership shall have no interest in such
Qualifying Project or in such single member limited liability company; provided,
however, that if the General Partner delivers notice to the Investment Committee
pursuant to clause (ii) above, the rejection of, or the failure to acquire, such
Qualifying Project shall not constitute a rejection for purposes of Section
6.2(c) below.
(c) An environmental assessment report for each Qualifying Project
shall be prepared by a third-party consultant acceptable to the Partners and, if
such Qualifying Project is approved for acquisition by the Investment Committee,
shall be paid for by the Partnership under a scope of work acceptable to the
Partnership. In addition, a physical inspection report for each Qualifying
Project shall be prepared by PSA under a scope of work acceptable to the
Partnership; provided, however, that (i) upon the request of the Limited
Partner, the physical inspection report shall be prepared by a third-party
consultant acceptable to the Partners and, if such Qualifying Project is
approved for acquisition by the Investment Committee, such third-party
consultant shall be paid by the Partnership; provided, however, that the
Partnership shall only be responsible for the costs of the physical inspection
report up to $5,000, with any excess being paid for by the Limited Partner; or
(ii) upon the request of the General Partner, the physical inspection report
shall be prepared by a third-party consultant acceptable to the Partners and
such third party consultant shall be paid by the Partnership. The General
Partner shall provide to the Limited Partner's advisor and attorneys, promptly
upon receipt by the General Partner drafts of the acquisition agreement, title
commitment, an ALTA as-built survey, documents of record and all other items set
forth on Exhibit C. The General Partner shall use its reasonable best efforts to
deliver such items to the Limited Partner's advisor and attorneys at least 15
days prior to the expiration of the due diligence period with respect to such
Qualifying Project.
(d) Draft copies of the deed into the Partnership and the closing
statement shall be furnished to the Limited Partner promptly upon receipt. A
copy of the final closing statement for the acquisition and the final deed into
the Partnership shall be furnished to the Limited Partner's advisor and
26
attorneys within three days and 30 days, respectively, after payment of the
Capital Contribution for a Project. Copies of the final title policy in the
amount of the purchase price of a Project shall be furnished promptly after
receipt from the title company, and, in any event, within thirty (30) days of
closing.
(e) All phases of selection and acquisition of Qualifying Projects,
and renovation or repair of Projects shall be carried out by employees of PSA
Affiliates and independent contractors engaged by the General Partner for and on
behalf of the Partnership. The General Partner and the Limited Partner shall
attempt, to the extent feasible, to develop an approved list of engineers,
environmental and other consultants for the Qualifying Projects. PSA Affiliates
shall be responsible for arranging, supervising and coordinating all activities,
purchases and services associated with the acquisition of each Qualifying
Project which is or is to become a Project including, without limitation, the
following:
(i) Review and analysis of the suitability for the Partnership of
each Qualifying Project;
(ii) Negotiation and documentation of the terms of each acquisition
of a Qualifying Project;
(iii) Conduct of such "due diligence" and obtaining of such studies,
reports and approvals as are required in connection with the
prospective acquisition of each property, including a review and
studies, reports and approvals, as required, as to soils, environmental
issues, including mold, seismic issues, flood zone, permits and
licenses, title and survey matters, zoning and other land use issues,
the physical condition of the improvements and review of the standard
lease form and construction and operating history;
(iv) Negotiation and closing of the acquisition of each Qualifying
Project;
(v) Coordination with contractors regarding costs and performance of
renovations;
(vi) Negotiation and preparation for execution by the Partnership,
or for the account of the Partnership, by PSA Affiliates of contracts
for renovation and other contracts for the supply of services and/or
materials necessary to perform and complete the renovation of each
Project;
(vii) Negotiation, preparation and execution of all change orders
relating to renovation work;
(viii) Review and approval of applications for payment submitted by
contractors in connection with the renovation of each Project and
maintenance of accurate and complete books of account and other records
relating thereto;
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(ix) Performance of normal business functions of an owner of
property in administering all aspects of the renovation, maintenance
and repair of each Project (including property acquisition);
(x) The engagement of such independent contractors and professional
firms including, but not limited to, inspectors, construction firms,
architects, environmental and other consultants, engineers and
attorneys, as may be required or appropriate in connection with the
foregoing, it being understood and agreed that virtually all of the
activity described above in this Section 5.4 will be undertaken by
independent contractors and firms whose charges will be borne as
provided in this Agreement.
(f) In the event that a Qualifying Project is contributed to the
Partnership by a PSA Affiliate, such PSA Affiliate shall assign all of its
rights under the acquisition agreement relating to such Qualifying Project, and
any related agreements, to the Partnership in connection with such contribution.
5.5 Compensation and Reimbursement. Subject to the limitations provided
herein, PSA Affiliates shall be entitled to receive the following compensation
and reimbursement from the Partnership:
(a) The Partnership shall enter into the Management Agreement in the
form attached as Exhibit D (provided that in the event of any conflict between
the Management Agreement and this Agreement, this Agreement shall prevail)
relative to the operation and management of each Project, pursuant to which PSA
Affiliates shall be entitled to receive a management fee equal to 6% of gross
operating revenues received by the Partnership from each Project (not including
revenue earned pursuant to the Master Lease Agreement referred to in Section
5.5(e) below or any revenue earned with respect to truck rental operations
undertaken at the Projects) and to the reimbursement of costs in accordance with
Section 13.3(c) of this Agreement;
(b) In connection with the acquisition of each Qualifying Project,
PSA Affiliates shall be entitled to reimbursement for Acquisition Costs and PSA
Affiliates Operating Costs as and to the extent provided in Section 2.2;
(c) PSA Affiliates shall be entitled to reimbursement, on submission
of an itemized account, of all sums paid to unaffiliated Persons for goods and
materials for the direct benefit of the Partnership;
(d) PSA Affiliates shall be entitled to reimbursement for the direct
personnel cost (without overhead) for tax preparation and other services
provided for the conduct of the Partnership's affairs, including preparation of
reports to the Limited Partner, as distinguished from acquisition, development,
operation and management of the Projects, provided such cost does not exceed the
amount the Partnership would be required to pay other Persons not affiliated
with the General Partner for comparable services; and
28
(e) The Partnership shall enter into the Master Lease Agreement in
the form attached as Exhibit E relative to the lease of space to the General
Partner or its Affiliate in the Projects for retail storage related uses
involving the general public and self-storage tenants.
Except as expressly provided for in this Section 5.5 or otherwise approved by
the Partners, no payment shall be made by the Partnership to a PSA Affiliate for
services of such PSA Affiliate or any officer or employee thereof.
5.6 Hazardous Materials.
(a) The General Partner shall use its reasonable best efforts to
keep and maintain the Property in compliance with, and to not cause, and shall
use its reasonable efforts to not permit, the Property to be in violation of,
any Hazardous Materials Laws. The General Partner shall not use, generate,
manufacture, store or dispose of on, under or about the Property or transport to
or from the Property (and shall use its reasonable efforts not to permit anyone
else to do any of the foregoing) in violation of any Hazardous Material Laws.
(b) The General Partner shall immediately advise the Partners in
writing of (i) any and all enforcement, cleanup, removal, or other governmental
or regulatory actions instituted, completed or threatened pursuant to any
Hazardous Materials Laws of which actions the General Partner has actual
knowledge; (ii) all claims made or threatened by any third party against the
Partnership or any Partner or the Property relating to damage, loss or injury
resulting from, or contribution, cost recovery or compensation for, any
Hazardous Materials, of which claims the General Partner has actual knowledge
(the matters set forth in clauses (i) and (ii) above are collectively referred
to in this Agreement as "Hazardous Materials Claims"); and (iii) the General
Partner's actual knowledge of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that the General Partner knows
could cause the Property or any part thereof to be subject to any restrictions
on the ownership, occupancy, transferability or use of the Property under any
Hazardous Materials Laws.
(c) Without the prior written approval of all Partners, the General
Partner shall not take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Property, nor enter into any
settlement agreement, consent decree other compromise in respect to any
Hazardous Materials Claims; provided, however, that the prior approval of all
Partners shall not be necessary in the event that the presence of Hazardous
Materials on, under or about the Property or if an imminent threat of material
contamination to the Property exists which can only be prevented by immediate
action, in the reasonable belief of the General Partner, either poses an
immediate threat to the health, safety or welfare of any individual or is of
such a nature that an immediate remedial response is necessary and it is not
possible to obtain such Partners' approval before taking such action, provided
that in such event the General Partner shall notify all Partners as soon as
practicable of any action so taken. All Partners agree not to withhold their
approval, where approval is required under this Agreement, if either (i) a
particular remedial action is ordered by a court of competent jurisdiction, or
(ii) the General Partner establishes to the satisfaction of the Partners that
there is no reasonable alternative to such remedial action which would result in
less impairment of the value of the Property.
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6. ACTION BY PARTNERS; INVESTMENT COMMITTEE
6.1 Action by Partners. No annual or regular meetings of the Partners
are required to be held. However, meetings of the Partners may be held if called
by the General Partner or any Partner upon at least four Business Days' prior
written notice. Any consents required of the Partners hereunder shall be in
writing and shall be filed by the General Partner with the books and records of
the Partnership.
6.2 Investment Committee.
(a) The Partnership shall have an investment committee (the
"Investment Committee") which shall consist of three members, two of whom shall
be appointed by the Limited Partner as its representatives and one of whom shall
be appointed by the General Partner as its representative. Initially, the
Limited Partner appoints [Person A] and [Person B] and the General Partner
appoints Harvey Lenkin, as the members of the Investment Committee. In the event
of the death or resignation of any member of the Investment Committee or the
removal of any member of the Investment Committee by the Partner who appointed
the same, the Partner originally appointing such member of the Investment
Committee shall have the right to appoint his or her successor as its
representative.
Meetings of the members of the Investment Committee shall be held by
conference telephone or at the principal executive office of the Partnership or
another appropriate and convenient location designated by the General Partner.
Meetings may be called at any time by the General Partner or by any member of
the Investment Committee upon at least seven Business Days' prior written
notice. Alternatively, any action requiring approval or consent of the
Investment Committee may be taken in writing, executed by any two of the three
members of the Investment Committee, provided one of the two members is the
General Partner's representative. Any action requiring approval or consent of
the Investment Committee will be deemed to mean approval or consent by a
majority of the Investment Committee members.
(b) Subject to Section 6.2(c), in the event that any PSA Affiliate
(other than a Hughes Affiliate) desires to acquire a Qualifying Project during
the Acquisition Period, then the General Partner shall afford the Partnership
the first right and opportunity to acquire and own the proposed Qualifying
Project on the terms and conditions set forth in this Agreement. During the
Acquisition Period, neither the Limited Partner, nor any of its Affiliates,
shall directly or indirectly acquire a Qualifying Project, other than (i)
through the Partnership; (ii) through open-ended co-mingled funds with a primary
focus that is not self-storage where neither the Limited Partner nor any of its
Affiliates has investment discretion; (iii) through an investment in a portfolio
that, in the form it is offered to the Limited Partner, includes no more than
10% self-storage properties by value; or (iv) through noncontrolling interests
in publicly-traded securities.
(i) In such case, the General Partner shall provide to the members
of the Investment Committee a detailed description of the Qualifying
Project, including the materials described in Section 5.4(a), any costs
for which the General Partner's Capital Account is to be credited under
Section 2.2(a)(iii), an Acquisition Pro-Forma Budget in the form
attached as Exhibit F and such other pertinent information as the
30
Investment Committee shall reasonably request. Upon receipt thereof,
the Investment Committee shall have the option, to be exercised within
30 days, to give approval for the Qualifying Project to be acquired by
the Partnership as a Project; provided that if the materials provided
by the General Partner are incomplete or conditions remain unsatisfied,
the Investment Committee shall proceed in accordance with Section
5.4(b).
(ii) In the event the Investment Committee shall not timely elect
to, or elects not to, have the Qualifying Project included as a Project
subject to the terms of this Agreement, PSA Affiliates shall be free to
acquire such Qualifying Project outside of the Partnership, in which
event the Partnership and the Limited Partner shall have no further
rights or interests therein. In the event there shall be a 10% or
greater reduction in the aggregate costs of such Qualifying Project (as
compared to the information submitted under Section 6.2(b)(i)) or any
other material change in the information submitted under Section
6.2(b)(i), then the Qualifying Project shall be resubmitted to the
Investment Committee pursuant to this Section 6.2(b).
(c) The Partnership's first right to acquire Qualifying Projects
under Sections 1.7(b) and 6.2(b) shall terminate if the General Partner shall
have presented to the Investment Committee three or more consecutive submissions
of Qualifying Projects (or portfolios of Qualifying Projects) that involve
aggregate Acquisition Costs of $50,000,000 or more, each of which has a Yield of
8% per year or more, and the Investment Committee shall have elected not to
approve such Qualifying Projects (or portfolios) as Projects pursuant to this
Agreement. Notwithstanding the foregoing, in the event that (i) the Investment
Committee rejects a Qualifying Project proposed by the General Partner because
the General Partner failed to provide certain items on the Acquisition Checklist
which the Limited Partner determined to be material, or (ii) the Qualified
Project is not acquired by the Partnership from a PSA Affiliate under Section
5.4(b) because of the General Partner's failure to provide (or the insufficiency
of) items on the Acquisition Checklist, or to otherwise satisfy the conditions
of Section 5.4(a), all as provided in Section 5.4(b), then such Qualifying
Project shall be excluded from the determination in the preceding sentence.
(d) The General Partner shall prepare and submit a Business Plan to
the Investment Committee on or before November 15 of each Fiscal Year that shall
apply to the twelve-month period beginning on January 1 of the subsequent Fiscal
Year. The Annual Business Plan shall include an estimated budget for each
Project for the subsequent Fiscal Year and a report aggregating all such
information for all Projects.
(e) The General Partner shall provide to the Investment Committee
any report that any member might reasonably request, if available without
significant cost or effort, including, but not limited to, analyses of the
Properties and the market, market rent surveys, tenant traffic reports, tenant
turnover statistics, tenant demographic profiles, projected market values,
projected income and expense statements, projected cost breakdowns and cash flow
analyses, summaries of the overall plan of operations and contemplated
transactions, insurance coverages and the like applicable to the Properties.
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7. BOOKS AND RECORDS; FISCAL MATTERS
7.1 Books and Records. The Partnership shall keep adequate financial
books and records in accordance with generally accepted accounting principles.
The books and records shall be kept at the principal executive office of the
Partnership and shall set forth a true and accurate account of all business
transactions arising out of and in connection with the conduct of the
Partnership. Any Partner or its designated representative shall have the right,
at any reasonable time during ordinary business hours, to have access to and
inspect and copy the contents of any of the Partnership's books and records
(financial or otherwise) and records of any PSA Affiliates relating to the
Projects. The Partnership shall not, without the consent of the Partners, which
shall not be unreasonably withheld or delayed, vary the Partnership's accounting
methods, change its Fiscal Year or make other major decisions with respect to
treatment of various transactions for bookkeeping or accounting purposes.
7.2 Reports. The General Partner shall furnish to each Partner, at the
expense of the Partnership, such statements and reports of the Partnership as
the Partners may determine or which may be required under the Act, including the
following:
(a) within 25 days of the end of each month, operating statements
for each of the Projects for such month, including occupancy reports, a
consolidated operating statement of the Projects for that month and a statement
detailing Partnership investment of funds;
(b) within 40 days of the end of each of the fiscal quarters of each
Fiscal Year, a balance sheet, a profit and loss statement, a statement of cash
flows and a statement of changes in partner's capital accounts, which statements
need not be audited but shall be prepared in accordance with generally accepted
accounting principles (except that quarterly statements need not include
footnotes), and shall be certified as fairly presenting the financial results by
the chief financial officer of the General Partner;
(c) within 40 days of the end of each of the fiscal quarters of each
Fiscal Year, a report setting forth the variance between the Project operating
budget and actual results on a Project and consolidated basis;
(d) within 90 days of the end of each Fiscal Year, audited financial
statements of the Partnership for such Fiscal Year certified by such so-called
"Big Four" firm of independent public accountants as may be approved by the
Investment Committee for the term of the Partnership, provided that the
Partnership shall only pay such firm an amount equal to what would be charged by
Ernst & Young LLP for comparable services with the balance, if any, paid by the
Limited Partner which shall receive no credit in connection with the Partnership
for such payment; and
(e) within 40 days of the end of each of the fiscal quarters of each
Fiscal Year, (1) a quarterly trial balance report for each Project individually
and on a consolidated basis and (2) an electronic report of quarterly activity
for each Project.
Examples of the reports required by Section 7.2(a), (b), (c) and (e)
are attached hereto as Exhibit M.
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7.3 Tax Information. The General Partner shall cause the Partnership
accountants to prepare and file on a timely basis all income and other tax
returns of the Partnership. The General Partner shall have the accounting firm
that audits the Partnership's financial statements review and sign as preparer
the Partnership's Federal and state income tax returns; provided that the
Partnership shall only pay such firm an amount equal to what would be charged by
Ernst & Young LLP for comparable services with the balance, if any, paid by the
Limited Partner which shall receive no credit in connection with the Partnership
for such payment. The General Partner shall submit such Federal income tax
returns to the Limited Partner for the Limited Partner's review at least ten
Business Days before filing such returns. The General Partner shall furnish to
the Limited Partner a copy of such return, together with any schedules or other
information which each Partner may reasonably require in connection with such
Partner's own tax affairs within 90 days of the end of each Fiscal Year.
7.4 Fiscal Year. The Fiscal Year of the Partnership shall be the
calendar year.
7.5 Tax Matters Partner. The General Partner is hereby designated by
the Partners as, and shall be specifically authorized to act as, the "Tax
Matters Partner" under the Code and in any similar capacity under state or local
law, and to expend Partnership funds for professional services and costs
associated therewith.
7.6 Tax Elections Made by Managing Partner. The General Partner on
behalf of the Partnership may make any and all elections for tax purposes with
respect to the Partnership, with the consent of the Limited Partner, which
consent will not be unreasonably withheld or delayed. At the request of any
Partner, the Partnership will make an election under Code Section 754
7.7 Taxation as a Partnership. The Partners will use their reasonable
best efforts to cause the Partnership to be treated as a partnership for income
tax purposes.
7.8 Avoidance of Unrelated Business Taxable Income. The General Partner
acknowledges that the Limited Partner generally expects to be exempt from
federal income taxes, and wishes to avoid receipt of income that otherwise would
be considered unrelated business taxable income. Accordingly, the General
Partner shall use its reasonable best efforts to conduct the Partnership's
operations at all times in a manner that will avoid subjecting the Limited
Partner or any Affiliate to regular corporate income tax or to tax on "unrelated
business taxable income" under Section 511 of the Code. In furtherance of the
foregoing (and not in limitation thereof), notwithstanding any other provision
herein to the contrary, absent specific written approval of the Limited Partner,
the Partnership shall conduct its operations in accordance with the following
provisions at all times:
(a) The Partnership's business shall be limited to owning,
operating, and disposing of the Projects. The Partnership shall not engage in
any other business activities.
(b) The Partnership shall not incur or continue any "acquisition
indebtedness" as defined in Section 514 of the Code.
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(c) The Partnership shall be a lessor of personal property only if
the rents attributable to such personal property are an incidental amount of the
total rents received or accrued under a lease of real property within the
meaning of Section 512(b)(3)(A)(ii) of the Code.
(d) The Partnership's lease agreements shall not provide for rents
that depend in whole or in part on the income or profits derived by any Person
from the leased property.
(e) The Partnership shall not provide services to lessees of the
Property, other than services that are usually or customarily rendered in
connection with the rental of space for occupancy only.
(f) The Partnership shall not hold property primarily for sale to
customers in the ordinary course of business or hold stock in trade or property
of a kind which would be included in inventory if on hand at the close of its
taxable year.
(g) Any sales of locks, boxes, packing or other such materials at
any Project, or any trucks rentals from any Project, will be performed by a PSA
Affiliate under the Master Lease Agreement (and a PSA Affiliate will reinsure
policies issued to tenants to protect goods stored by the tenants); no such
revenue will be earned by or reported by the Partnership.
8. TRANSFER OF INTERESTS
8.1 Transfer of Interest of General Partner. The General Partner shall
not Transfer all or any portion of its Interest in the Partnership except in
connection with the merger or reorganization of the General Partner into another
entity or the transfer of all or substantially all the assets of, or ownership
in, the General Partner or the assumption of the rights and obligations of the
General Partner by another entity in connection with any such transaction.
Notwithstanding the foregoing, the General Partner, shall, at all times, be
controlled by PSA. As used in this Section 8.1, the term "control" (including
the term "controlled by") means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
8.2 Transfer of Interest of Limited Partner. The Limited Partner shall
not Transfer all or any portion of its Interest unless all of the following
conditions are satisfied, in which event the transferee of such Interest shall
be admitted as a Limited Partner:
(a) Such transfer is approved by the General Partner and each
Partner.
(b) The transferor and transferee shall execute and deliver to the
Partnership such documents and instruments of transfer as may be necessary or
appropriate in the opinion of counsel to the Partnership to effect such Transfer
and to confirm the agreement of the transferee to be bound by the provisions of
this Agreement as a Partner and that the Transfer shall not constitute a default
under any other agreement to which the Partnership is a party. In all cases, the
Partnership shall be reimbursed by the transferor and/or transferee for all
costs and expenses that it reasonably incurs in connection with such Transfer.
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(c) The transferor shall furnish to the Partnership an opinion of
counsel, which counsel and opinion shall be reasonably satisfactory to the
Partnership, that the Transfer will not cause the Partnership to terminate for
federal income tax purposes or result in a "change of ownership" as that term is
defined by applicable property tax law, and that such a termination or change in
ownership will not have a significant adverse effect on the Partnership or its
remaining Partners.
(d) The transferor and transferee shall furnish the Partnership with
the transferee's taxpayer identification number, sufficient information to
determine the transferee's initial tax basis in the Interest transferred, and
any other information reasonably necessary to permit the Partnership to file all
required federal and state tax returns and other legally required information
statements or returns. Without limiting the generality of the foregoing, the
Partnership shall not be required to make any distribution otherwise provided
for in this Agreement with respect to any transferred Interest until it has
received such information. (e) Either (i) such Transfer shall be registered
under the Securities Act of 1933, as amended, and any applicable state
securities laws, or (ii) the transferor shall provide an opinion of counsel,
which opinion and counsel shall be satisfactory to the Partnership, to the
effect that such Transfer is exempt from all applicable registration and
qualification requirements and that such Transfer will not violate any
applicable laws regulating the sale of securities.
8.3 Prohibited Transfers. Any purported Transfer of an Interest not
satisfying the requirements of Section 8.1 (in the case of the General Partner)
or of Section 8.2 (in the case of the Limited Partner) shall be null and void
and of no effect whatever; provided that, if the Partnership is required by
proper authority to recognize a Transfer not satisfying the requirements of
Section 8.1 (in the case of the General Partner) or Section 8.2 (in the case of
the Limited Partner), the Interest transferred shall be strictly limited to the
transferor's rights to allocations and distributions as provided by this
Agreement with respect to the transferred Interest, which allocations and
distributions may be applied (without limiting any other legal or equitable
rights of the Partnership) to satisfy any debts, obligations or liabilities for
damages that the transferor or transferee of such Interest may have to the
Partnership. Except as otherwise required under the Act, such transferee shall
have no right to any information or accounting of the affairs of the
Partnership, shall not be entitled to inspect the books or records of the
Partnership, and shall not have any of the rights of a Partner under the Act or
this Agreement until such time, if at all, that it is admitted as a Partner. In
the case of a Transfer or attempted Transfer of an Interest that is not a
permitted Transfer, the parties engaging or attempting to engage in such
Transfer shall indemnify and hold harmless the Partnership and all Partners from
all cost, liability and damage that any of such indemnified Persons may incur
(including, without limitation, incremental tax liability and attorneys' fees
and expenses) as a result of such Transfer or attempted Transfer and efforts to
enforce the indemnity granted hereby.
8.4 Representations; Legend. Each Partner hereby represents and
warrants to the Partnership and the Partners that such Partner's acquisition of
an Interest hereunder is made as principal for such Partner's own account and
not for resale or distribution of such Interest. Each Partner further hereby
agrees that the following legend may be placed upon any counterpart of this
Agreement, or any other document or instrument evidencing ownership of
Interests:
35
The Interest represented by this document has not
been registered under any securities laws and the transferability of
such Interest is restricted. Such Interest may not be sold, assigned or
transferred, nor will any assignee, vendee, transferee or endorsee
thereof be recognized as having acquired any such Interest by the
issuer for any purposes, unless (i) a registration statement under the
Securities Act of 1933, as amended, with respect to the transfer of
such Interest shall then be in effect and such transfer has been
qualified under all applicable state securities laws, or (ii) the
availability of an exemption from such registration and qualification
shall be established to the satisfaction of counsel to the Partnership.
The Interest represented by this document is subject
to restriction as to its sale, transfer, hypothecation or assignment as
set forth in the Limited Partnership Agreement of PSAF Acquisition
Partners, L.P. and agreed to by each Partner. Said provision restricts,
among other things, the right of any transferee to become a Partner.
Said Agreement further provides for an option to purchase the Interest
represented by this document under certain circumstances described
therein.
8.5 Distributions and Allocations in Respect to Transferred Interests.
If any Interest is sold, assigned or transferred during any accounting period in
compliance with the provisions of this Section 8, Profits, Losses, each item
thereof and all other items attributable to the transferred Interest for such
period shall be divided and allocated between the transferor and the transferee
by taking into account their varying interests during the period in accordance
with Code Section 706(d), using any conventions permitted by law and selected by
the transferring Partners. All distributions on or before the date of such
transfer shall be made to the transferor, and all distributions thereafter shall
be made to the transferee. Solely for purposes of making such allocations and
distributions, the Partnership shall recognize such transfer not later than the
end of the calendar month during which it is given notice of such transfer,
provided that if the Partnership does not receive a notice stating the date such
Interest was transferred and such other information as the General Partner may
reasonably require within 30 days after the end of the accounting period during
which the transfer occurs, then all of such items shall be allocated, and all
distributions shall be made, to the Person who, according to the books and
records of the Partnership, on the last day of the accounting period during
which the transfer occurs, was the owner of the Interest. Neither the
Partnership, the General Partner nor the Partners shall incur any liability for
making allocations and distributions in accordance with the provisions of this
Section 8.5, whether or not the Partnership, the General Partner or the Partners
have knowledge of any transfer of ownership of any Interest.
8.6 Right to Transfer to Affiliates. Notwithstanding anything herein to
the contrary, both the General Partner and Limited Partner shall have the right
to Transfer their Interests to an Affiliate, provided that such Transfer shall
not relieve such Partner of its obligations under this Agreement, and in the
case of such a Transfer by the General Partner, the successor Affiliate may, at
the General Partner's election, be admitted as a replacement or additional
general partner upon complying with the requirements of Section 8.2(b)-(e).
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9. OPTIONS TO PURCHASE
9.1 General Partner's Option to Purchase. The General Partner shall
have the right and option (but not the obligation) to purchase all (but not less
than all) of the Interest of the Limited Partner on the terms and conditions set
forth in this Section 9 (or cause the Partnership to make such purchase and, in
that case, to supply or arrange for the required funding to permit such
purchase). The option granted pursuant to this Section may be exercised by the
General Partner by delivery of a notice (the "General Partner Purchase Notice")
to the Limited Partner at any time within the six month period commencing on the
date 54 months after the Effective Date (the date the General Partner Purchase
Notice is delivered will be the "Purchase Notice Date"). If the General Partner
exercises its option and the General Partner determines that it does not wish to
continue to hold an ownership interest in certain of the Projects, the Partner
agree to cooperate to have the Partnership dispose of those Projects.
9.2 Consideration. The purchase consideration payable by the General
Partner to the Limited Partner shall be the Net Equity of the Limited Partner's
Interest determined as set forth in Section 9.3 and shall be payable in cash. If
the Limited Partner's Net Equity with respect to the Interest purchased,
combined with all prior distributions received by the Limited Partner, would
produce a Shortfall, the General Partner shall contribute cash equal to the
amount of the Shortfall to the Partnership, which the Partnership shall
distribute to the Limited Partner as a guaranteed payment as provided in Section
10.3.
9.3 Determination of Net Equity. The Net Equity of the Limited
Partner's Interest to be purchased shall be determined, without audit or
certification, from the books and records of the Partnership by the firm of
independent public accountants regularly employed by the Partnership. The Net
Equity of the Limited Partner's Interest to be purchased shall be determined
within 15 days after such accountants are apprised in writing of the Fair Market
Value of the Property, and the amount of such Net Equity shall be disclosed to
the Partners by written notice. The Net Equity determination of such accountants
shall be final and binding in the absence of manifest error.
9.4 Determination of Fair Market Value. The Fair Market Value of the
Property shall be determined as follows:
(a) The General Partner shall provide the Limited Partner its
estimate of the value of the Property with the General Partner Purchase Notice.
If the Limited Partner does not provide the General Partner with an approval of
the estimate of value within 45 days of receiving the General Partner's estimate
of value of the Property, then such value shall be deemed to be rejected as its
Fair Market Value.
(b) If the Limited Partner rejects or, pursuant to clause (a) above,
is deemed to reject the General Partner's estimate of value, then the General
Partner shall engage an Appraiser (the "First Appraiser"). The First Appraiser's
engagement shall require the Appraiser to determine the Appraised Value of the
Property, and to submit such appraisal and determination to each of the General
Partner and the Limited Partner within 60 days of engagement.
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(c) Within 20 days after receipt of such appraisal and
determination, the Limited Partner shall notify the General Partner and the
First Appraiser as to whether it accepts or rejects the Appraised Value of the
Property. If the Limited Partner rejects the Appraised Value of the First
Appraiser, it shall engage another Appraiser (the "Second Appraiser") and
include its name in the notice of rejection. In the absence of acceptance of the
Appraised Value prepared by the First Appraiser, the Limited Partner shall be
deemed to have rejected the Appraised Value as determined by the First
Appraiser. If the Limited Partner accepts the Appraised Value of the First
Appraiser, then such value shall be deemed the Fair Market Value.
(d) The Second Appraiser's engagement shall require the Appraiser to
determine the Appraised Value of the Property, and to submit such appraisal and
determination to each of the General Partner and the Limited Partner within 60
days of engagement.
(e) If the lower of the Appraised Values determined by the First and
Second Appraisers is at least 90% of the higher of those two Appraised Values,
then the Fair Market Value shall be the average of those two Appraised Values.
If the difference between the Appraised Values is greater than 10%, then the
First Appraiser and the Second Appraiser shall engage another Appraiser (the
"Third Appraiser") to determine the Appraised Value of the Property, and to
submit such appraisal and determination to each of the General Partner and the
Limited Partner within 60 days of engagement.
(f) If a Third Appraiser is so engaged, the average of the highest
Appraised Value and the lowest Appraised Value shall be determined. If the
remaining Appraised Value (the Appraised Value that is in between the highest
and the lowest) is no more than 5% greater than, and no more than 5% less than,
the average of the highest and the lowest, the Fair Market Value shall be the
average of the highest and lowest Appraised Values. If the middle Appraised
Value is outside of that range, the Fair Market Value shall be the average of
the two Appraised Values that are closest to each other.
(g) All costs of any appraisal process shall be borne 50% by the
General Partner and 50% by the Limited Partner.
(h) Notwithstanding anything in this Section 9.4 to the contrary,
the Fair Market Value of the Property shall be deemed to be the General
Partner's estimate of the value of the Property in the General Partner Purchase
Notice, provided (i) such estimate of value will result in amounts distributed
to the Limited Partner under this Agreement (including any guaranteed payments
made under Section 2.2(e)) equal to the sum of the Limited Partner's Capital
Contributions and the aggregate Priority Return of the Limited Partner accrued
from the Effective Date to a date 20 days after the General Partner Purchase
Notice with the Priority Return for purposes of this Section 9.4(h) and Section
12.1 computed using monthly compounding at the monthly rate of one twelfth of
10% (the "Maximum Return") and (ii) the Limited Partner agrees that the General
Partner's estimate of value will result in the Limited Partner receiving the
Maximum Return, which agreement will not be unreasonably denied or delayed. If
the parties are unable to reach such agreement, the matter will be arbitrated in
accordance with Section 14.19.
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9.5 Closing. The closing of the purchase and sale of the Limited
Partner's Interest shall occur at the principal executive office of the
Partnership on a date and time mutually agreeable to the General Partner and the
Limited Partner, which shall not be later than 20 days following the
determination of the Fair Market Value. At the closing, the Limited Partner will
deliver or cause to be delivered to the General Partner (i) appropriate
assignments or other documents sufficient to transfer good and valid title to
the Interest to be purchased, free and clear of all liens and encumbrances; and
(ii) such other documents as the General Partner or its counsel may reasonable
request. At the closing, the General Partner will deliver or cause to be
delivered to the Limited Partner, a wire transfer or bank cashier's check in the
amount to which it is entitled hereunder.
9.6 Limited Partner's Option to Purchase. In the event the General
Partner shall fail to timely exercise the option to purchase set forth in
Section 9.1 above, the Limited Partner shall have the option to purchase from
the Partnership any or all of the Properties on the terms and conditions set
forth herein. The option granted pursuant to this Section may be exercised by
the Limited Partner by delivery of a notice (the "Limited Partner Purchase
Notice") to the General Partner at any time within the 180-day period commencing
on the earlier to occur of (i) the day immediately following the expiration of
the period during which the General Partner was entitled to exercise the option
set forth in Section 9.1 or (ii) the day immediately following delivery of
written notice from the General Partner to the Limited Partner waiving the
General Partner's option. Such Limited Partner Purchase Notice shall specify
those Properties which the Limited Partner elects to purchase. The Limited
Partner shall not be entitled to deliver more than one Limited Partner Purchase
Notice. In the event the Limited Partner Purchase Notice is delivered, the
Properties designated therein shall be purchased by the Limited Partner on the
terms and conditions of this Section 9, modified and supplemented as follows:
(a) The purchase price of the designated Properties shall be their
Fair Market Values;
(b) The purchase price for the designated Properties shall be paid
in cash, by wire transfer or bank cashier's check, at the closing; and
(c) Closing costs and expenses shall be allocated 50% to the Limited
Partner and 50% to the General Partner and items of income and expense shall be
appropriately prorated as of the date of closing.
At any time during such 180-day period, the Limited Partner may deliver written
notice to the General Partner of its intent not to exercise its option to
purchase from the Partnership any or all of the Properties as provided herein.
Upon receipt of such notice by the General Partner, the Partnership shall
dissolve and commence winding-up and liquidating as set forth in Section 10.1.
10. DISSOLUTION AND WINDING UP
10.1 Liquidating Events. The Partnership shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following (a
"Liquidating Event"):
(a) The sale of all or substantially all of the Property;
39
(b) The vote by the General Partner and 100% in Percentage Interest
of the Partners to dissolve, wind up and liquidate the Partnership;
(c) The failure of the General Partner to exercise the option to
purchase provided in Section 9.1 by the end of the six-month period specified
therein and the first to occur of (i) receipt by the General Partner of written
notice from the Limited Partner of its intent not to exercise its option to
purchase from the Partnership any or all of the Properties provided in Section
9.6 and (ii) the failure of the Limited Partner to exercise its option to
purchase from the Partnership any or all of the Properties provided in Section
9.6 by the end of the 180-day period specified therein;
(d) The occurrence of any of the events specified in Section 15681
of the Act; or
(e) 5:00 p.m., Pacific time, December 31, 2018.
The Partners hereby agree that, notwithstanding any provision of
applicable law, the Partnership shall not dissolve prior to the occurrence of a
Liquidating Event.
10.2 Winding Up. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of its
creditors and Partners. In such event, no Partner shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no General Partner, any Person elected by a majority in Percentage Interest
of the Partners) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and Property and the Property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom, to
the extent sufficient therefor, shall be applied and distributed in the
following order:
(a) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(b) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the Partners; and
(c) The balance, if any, to the Partners in accordance with their
Capital Accounts, after giving effect to all contributions, distributions and
allocations for all periods (other than distributions and contributions made
pursuant to this Section 10.2(c) and deductions attributable thereto); provided,
however, that if, prior to making distributions pursuant to this Section
10.2(c), the General Partner has a positive Capital Account and if the
cumulative allocations to the Limited Partner, pursuant to Sections 3.1(a),
3.1(b), 3.4(a), and 3.4(b), were less than the sum of (A) the cumulative
Priority Return accrued for the Limited Partner from the Effective Date to the
date of liquidation less the amount of any guaranteed payments made pursuant to
Section 2.2(e), and (B) the cumulative Losses allocated to the Limited Partner
pursuant to Section 3.2, an amount otherwise distributable to the General
Partner pursuant to this Section 10.2(c) equal to the amount of such shortfall
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shall be deemed recontributed by the General Partner to the Partnership and
shall be distributed to the Limited Partner as a guaranteed payment pursuant to
Section 2.2(e).
10.3 Shortfall. If the distribution pursuant to Section 10.2 (or the
purchase consideration payable pursuant to Section 9.2) would cause a Shortfall,
the General Partner shall contribute cash equal to the amount of the Shortfall
to the Partnership, the Partnership shall distribute that amount to the Limited
Partner as a guaranteed payment.
10.4 Compliance with Timing Requirements of Regulations. In the event
the Partnership is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Section
10 (taking into account Section 10.2) to the Partners who have positive Capital
Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (b)
if a Partner's Capital Account has a deficit balance (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs and including contributions
required pursuant to Section 10.3), such Person shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership or any
other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the Partners pursuant to this Section 10 may be:
(a) Distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets, collecting amounts
owed to the Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of the Partners arising out of or in
connection with the Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable discretion of
the General Partner, in the same proportions as the amount distributed to such
trust by the Partnership would otherwise have been distributed to the Partners
pursuant to this Agreement; or
(b) Withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the Partners as soon as practicable.
10.5 Rights of Partners. Except as otherwise provided in this Agreement
each Partner shall look solely to the assets of the Partnership for the return
of its Capital Contribution and shall have no right or power to demand or
receive property other than cash from the Partnership.
11. INDEMNIFICATION
11.1 Indemnification. The Partnership shall indemnify and hold harmless
the Partners, their Affiliates, the Limited Partner's advisor, and their
respective officers, directors, employees, agents and principals (individually,
an "Indemnitee") from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
reasonable attorneys' fees and disbursements), judgments, fines, settlements and
other amounts (collectively, "Losses") incurred or suffered by them (solely to
the extent that such Losses do not arise or result from the negligence or fault
41
of such Indemnitee) arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
the Indemnitee was involved or may be involved, or threatened to be involved, as
a party or otherwise, arising out of or incidental to the business of the
Partnership, excluding liabilities to any Partner, regardless of whether the
Indemnitee continues to be a Partner, an Affiliate, or an officer, director,
employee, agent or principal of the Partner at the time any such liability or
expense is paid or incurred, to the fullest extent permitted by the Act and all
other applicable laws; provided that such indemnity shall not extend to: (i)
actions not taken by such Indemnitee in accordance with the standard of care in
Section 5.1(b) hereof, if applicable to such Indemnitee; (ii) actions not taken
in good faith by any such Indemnitee and (iii) actions taken by the property
manager (which is indemnified under the Management Agreement) in its capacity as
such pursuant to the Management Agreement.
11.2 Expenses. Expenses incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to Section 11.1 shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Partnership
of an undertaking by or on behalf of the Indemnitee to repay such amount if it
shall be determined that such Person is not entitled to be indemnified as
authorized in Section 11.1.
11.3 Indemnification Rights Nonexclusive. The indemnification provided
by Section 11.1 shall be in addition to any other rights to which those
indemnified may be entitled under any agreement, vote of the Partners, as a
matter of law or equity or otherwise, both as to action in the Indemnitee's
capacity as a Partner, the General Partner, an Affiliate or an officer,
director, employee, agent or principal of a Partner and as to any action in
another capacity, and shall continue as to an Indemnitee who has ceased to serve
in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee.
11.4 Errors and Omissions Insurance. The Partnership may purchase and
maintain insurance, at the Partnership's expense, on behalf of the General
Partner, the Partners and such other Persons as the General Partner shall
determine, against any liability that may be asserted against, or any expense
that may be incurred by, such Person in connection with the activities of the
Partnership and/or the General Partner's or the Partners' acts or omissions as
the General Partner and Partners of the Partnership regardless of whether the
Partnership would have the power to indemnify such Person against such liability
under the provisions of this Agreement.
11.5 Assets of the Partnership. Any indemnification under Section 11.1
shall be satisfied solely out of the assets of the Partnership. No Partner shall
be subject to personal liability or required to fund or to cause to be funded
any obligation by reason of these indemnification provisions.
12. DEFAULTING EVENT REMEDIES
12.1 Election to Purchase Defaulting Partner's Interest. In the event
that a Partner becomes a Defaulting Partner, the nondefaulting Partner shall
have the option to purchase the Interest of the Defaulting Partner in the
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Partnership, with any such election to be made by the nondefaulting Partner
giving notice of such election to the Defaulting Partner within 30 days after
the nondefaulting Partner first discovers that the other Partner has become a
Defaulting Partner (and so notifies the Defaulting Partner in writing). In the
event that the General Partner is the Defaulting Partner and shall at that time
be able to exercise the option to purchase the Interest of the Limited Partner
under Section 9.1, then the General Partner can exercise its Section 9.1 option
within 30 days after such notice, provided that (i) the consideration for the
Limited Partner's Interest shall be an amount that, when taken into account with
all prior distributions to the Limited Partner (including guaranteed payments),
will cause the Limited Partner to have received the return of its Capital
Contributions and an aggregate return accrued from the Effective Date to the
date of payment computed at the Maximum Return (as defined in Section 9.4(h)),
and (ii) the closing under Section 9.5 shall take place within 20 days following
the date of exercise of such option.
12.2 Purchase Price of Defaulting Partner's Interest. If either Partner
becomes a Defaulting Partner, in the event that the nondefaulting Partner elects
under Section 12.1 to purchase the Defaulting Partner's Interest, the purchase
price of such Interest shall be 100% of the Adjusted Capital Contribution of the
Defaulting Partner; provided, however, that the nondefaulting Partner shall
receive a credit against such purchase price in the amount of any delinquent
capital contributions due from the Defaulting Partner and any expenses of
closing such purchase. This option to purchase the interest of the Defaulting
Partner is deemed reasonable by the Partners and is intended to serve as agreed
upon liquidated damages and not as a penalty, the amount of the actual damages
suffered by the nondefaulting partner being difficult if not impossible to
ascertain. In the event that the nondefaulting Partner elects under Section 12.1
to purchase the Defaulting Partner's Interest, then the Partnership shall not
make any distributions on or before the closing of the purchase of such
Interest, and any such distributions which would have been made to the
Defaulting Partner shall be distributed to the nondefaulting Partner on or after
the closing. At such time as the purchase price of the Defaulting Partner's
Interest has been determined, the nondefaulting Partner shall give notice of the
amount thereof to the Defaulting Partner and the closing shall be held on a date
selected by the nondefaulting Partner within ten Business Days thereafter.
12.3 Remedies Nonexclusive. The option of the nondefaulting Partner to
purchase the Interest of the Defaulting Partner under Section 12.1 is not the
exclusive remedy of the nondefaulting Partner, but it is merely cumulative of,
and in addition to, any rights or remedies which the nondefaulting Partner or
the Partnership may have at law or in equity against or with respect to such
Defaulting Partner, provided that any recovery under this Agreement against a
Defaulting Partner shall be limited to the Defaulting Partner's interest in the
Partnership. Without limiting its right to seek and recover damages for the
Defaulting Event, a nondefaulting Partner may at its option: (i) replace the
Defaulting Partner's representative(s) on the Investment Committee with its own
representative(s), provided that no purchase, sale or financing of Property,
other than pursuant to Section 12.2, shall be taken except with the consent of
the Partners, (ii) remove the General Partner, (iii) terminate the Management
Agreement (Exhibit D) or (iv) apply to any Capital Contribution with respect to
which the General Partner is in default the management fees otherwise payable to
PSA Affiliates under the Management Agreement for a period of up to 120 days,
during which the PSA Affiliates shall not terminate the Management Agreement for
nonpayment of such management fees.
43
13. REPRESENTATIONS AND WARRANTIES
13.1 Representations and Warranties of the General Partner . The
General Partner hereby represents and warrants to the Limited Partner and the
Partnership that:
(a) The General Partner is a duly organized and validly existing
limited partnership in good standing under the laws of the State of Texas, duly
qualified to do business in all states in which the General Partner is required
to so qualify in order to legally perform its obligations hereunder, and has the
requisite power and authority to enter into and carry out the terms of this
Agreement;
(b) All action required to be taken by the General Partner to
consummate this Agreement has been taken by the General Partner and no further
approval of any board, court or other body is necessary in order to permit the
General Partner to consummate this Agreement;
(c) Neither the execution and delivery of, nor the performance of,
nor the compliance with, this Agreement has resulted (or will result) in any
violation of, be in conflict with, invalidate, cancel or make inoperative
interfere with, or constitute a default under, or result in the creation of any
lien, encumbrance or any other charge upon the Partnership pursuant to any
charter, bylaw, venture agreement, partnership agreement, trust agreement,
mortgage, deed of trust, indenture, contract, agreement, permit, judgment,
decree or order to which the General Partner is a party or by which the
Partnership is bound, and there is no default and no event or omission has
occurred which, but for the passing of time or the giving of notice, or both,
would constitute a default on the part of the General Partner under this
Agreement;
(d) The General Partner has not received notice of any, and to the
General Partner's actual knowledge there is no, action, proceeding or
investigation pending or threatened (nor any basis therefor) which questions,
directly or indirectly, the validity or enforceability of this Agreement as to
the General Partner or which would materially and adversely affect the
Partnership, and, to the General Partner's actual knowledge, no lien against the
Project has arisen or exists under Federal or state tax or other laws, other
than liens for current real property taxes and assessments not yet due and
payable;
(e) No representation, warranty or covenant of the General Partner
in this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements or facts contained therein not misleading.
(f) This Agreement has been duly executed by the General Partner and
is and will remain a valid and binding agreement, enforceable in accordance with
its terms;
(g) (1) The General Partner has not received notice of any, and to
the General Partner's actual knowledge there are no, judgments or decrees of
$100,000 or more individually or in the aggregate of any kind against the
General Partner unpaid or unsatisfied of record in any court of any city,
county, state or of the United States; (2) the General Partner is not in the
hands of a receiver and has not committed an act of bankruptcy and an order for
relief has not been entered with respect to the General Partner; (3) there are
44
no due and unpaid business license taxes of the General Partner; (4) there are
no due and unpaid income, property or sales taxes of the General Partner which
constitute a lien against the Partnership or any Project or could, with the
passage of time, constitute such a lien, except the lien of any such taxes which
are not yet due and payable; (5) the General Partner has received no notice of
any alleged violation of, and, to the General Partner's knowledge, there is no
violation by the General Partner of any Federal, state or local law, rule or
regulation; except, in the case of (3), (4) or (5), where the existence of such
condition, conditions, or violations, individually or in the aggregate, would
have no material adverse effect on the business operations, assets or financial
condition of the General Partner or Partnership; and
(h) To the actual knowledge of the General Partner, the information
provided to the Investment Committee by the PSA Affiliates with respect to each
Qualifying Project is true, correct and complete in all material respects and
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading.
13.2 Representations and Warranties of the Limited Partner. The Limited
Partner hereby represents and warrants to the General Partner and the
Partnership that:
(a) The Limited Partner is duly formed, validly existing and in good
standing under the laws of the [State of Incorporation of Limited Partner]; that
it is not subject to any involuntary proceeding for the dissolution or
liquidation thereof; that it has all requisite authorizations to enter into this
Agreement with the General Partner and to consummate the transactions
contemplated hereby; and that the parties executing this Agreement on behalf of
the Limited Partner are duly authorized to so do.
(b) No representation, warranty or covenant of the Limited Partner
in this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements or facts contained therein not misleading.
13.3 Agreements of the General Partner.
(a) During the term of the Partnership, the Projects shall be
operated and managed as an integral part of the PSA network of self-storage
facilities, subject to the terms of the Management Agreement. Without limiting
the foregoing, the General Partner covenants and agrees that the Projects will
be managed in a reasonable commercial manner consistent with the management of
other self-storage projects owned by PSA Affiliates; this will include (i)
causing all rents and other charges with respect to the Projects to be at
competitive rates within the local market, taking into account occupancy,
location, the quality of the Project and all other relevant factors; (ii)
operating the Projects in a manner so as to minimize expenses applicable thereto
to the extent appropriate in the operation and promotion of first class
self-storage projects and maximizing the long term net profits therefrom and the
value thereof; and (iii) operating the Projects in a prudent and first class
manner, with all appropriate action being taken to protect and preserve them
(including appropriate repairs, maintenance, insurance coverage and the like).
45
(b) The General Partner will insure and keep insured at all times
all of the Projects (including the Partnership as a named insured) against loss
or damage by fire and from other causes customarily insured against by companies
engaged in similar businesses in such amounts as are usually insured against by
such companies, and in any case as are adequate to provide reasonable protection
against such loss or damage to the Projects. The General Partner also will
maintain at all times (including the Partnership as a named insured) with
financially sound and reputable insurers adequate insurance against loss or
damage from such hazards and risks to the person and property of others as are
usually insured against by companies operating businesses similar to the
businesses of the Partnership. All such insurance shall be carried with
financially sound and reputable insurers accorded a rating of "A-VI" or better
by A.M. Best Company, Inc. (or a comparable rating by any comparable rating
agency), provided that at least 75% of all coverage and the insurer with the
risk of first loss in each category shall have a rating of "A-IX" or better. If
the Partnership cannot obtain sufficient insurance which meets the above
criteria, the General Partner will provide the Limited Partner with notice and
will demonstrate that insurance cannot be obtained in accordance with the above
criteria, in which case the requirement shall be reduced to "A-V" and "A-VIII,"
respectively. The sum of the deductible limit of all insurance coverage plus any
amounts of self-insurance will not exceed $5,000,000 in the aggregate. A summary
of insurance presently in force has been provided to the Limited Partner and is
attached hereto as Exhibit L.
(c) Expenses incurred in operating the Projects shall be allocated
among the Projects on the same basis on which such expenses are allocated among
all other projects owned by PSA Affiliates and in a manner generally consistent
with prior practice as reflected in Exhibit J.
(d) The General Partner shall allocate to the Partnership only such
amount of the compensation of each project manager of a Project as is comparable
to the compensation of project managers of similar sized self storage facilities
in the same or similar market areas that do not include retail stores.
14. MISCELLANEOUS
14.1 Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this Agreement shall be in writing and
shall be delivered personally to the Person or to an officer of the Person to
whom the same is directed, or sent by facsimile transmission, by nationally
recognized courier service or by first class mail, registered or certified,
addressed as follows, or to such other address as such Person may from time to
time specify by notice to the Partners:
(a) If to the Partnership, to the Partnership's principal executive
office set forth in Section 1.4;
46
(b) If to the Limited Partner, to:
[addresses for notices to Limited Partner and representatives]
47
(c) If to the General Partner, to:
PS Texas Holdings, Ltd.
c/o Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201
Attn: Mr. Harvey Lenkin
Fax: (818) 241-0627
Any such notice shall be deemed to be delivered, given and received for
all purposes as of (i) the first Business Day after it is so delivered or sent,
if delivered personally or sent by facsimile transmission (with transmission
confirmed), (ii) the first Business Day after delivered to a nationally
recognized courier service, if sent by overnight delivery through such a courier
service, or (ii) three Business Days after being deposited in the United States
mail, if sent by registered or certified mail, postage and charges prepaid. Any
Person may from time to time specify a different address by notice to the
Partnership and the Partners.
14.2 Binding Effect. Except as otherwise provided in this Agreement,
every covenant, term and provision of this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective successors and
permitted transferees and assigns.
14.3 Construction. Every covenant, term and provision of this Agreement
shall be construed simply according to its fair meaning and not strictly for or
against any Partner. References in this Agreement to Sections are to Sections of
this Agreement unless expressly indicated otherwise. "Including" means
"including without limitation." "Or" is inclusive and includes "and."
14.4 Time. Time is of the essence with respect to this Agreement.
14.5 Headings. Section and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
14.6 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
14.7 Incorporation by Reference. Every exhibit attached to this
Agreement and referred to herein is hereby incorporated in this Agreement by
reference.
14.8 Further Action. Each Partner, upon the request of the General
Partner, agrees to perform all further acts and execute, acknowledge and deliver
any documents which may be reasonably necessary, appropriate or desirable to
carry out the provisions of this Agreement.
14.9 Variation of Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine or neuter, singular or plural,
as the identity of the Person or Persons may require.
48
14.10 Governing Law. The laws of the State of California shall govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the Partners.
14.11 Waiver of Action for Partition. Each Partner irrevocably waives
any right that it may have to maintain any action for partition with respect to
any of the Property.
14.12 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all of the Partners had signed the same
document. All counterparts shall be construed together and shall constitute one
agreement.
14.13 Sole and Absolute Discretion. Except as otherwise provided in
this Agreement, all actions which the Partners may take and all determinations
which the Partners may make pursuant to this Agreement may be taken and made in
their sole and absolute discretion.
14.14 Entire Agreement. This Agreement and the exhibits hereto, which
are incorporated herein by reference, constitute the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written.
14.15 Attorneys' Fees. Should any litigation, arbitration or other
action or proceeding be commenced among the parties hereto, the party or parties
prevailing in such litigation, arbitration or other action or proceeding shall
be entitled, in addition to such other relief as may be granted, to a reasonable
sum as and for its or their attorneys' fees and costs in such litigation,
arbitration or other action or proceeding which shall be determined by the court
or arbitral tribunal therein or in a separate action brought for that purpose.
14.16 Third Parties. Nothing in this Agreement, expressed or implied,
is intended to confer upon any Person other than the parties hereto any rights
or remedies under or by reason of this Agreement.
14.17 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
14.18 Amendment and Modification. This Agreement may be amended or
modified by unanimous consent of the Partners.
14.19 Dispute Resolution. If any dispute or controversy among the
parties hereto arises out of or relating to this Agreement or the enforcement,
interpretation, performance or breach of this Agreement or as to any matters
related to but not covered by this Agreement, the parties shall first consult
together, at both the working and senior management levels, in good faith to
find an amicable resolution of the dispute or controversy. If the parties cannot
resolve the dispute or controversy by such consultation, it shall be finally
resolved by binding arbitration to be held in the County of Los Angeles, State
of California, under auspices of, and in accordance with, the Commercial
Arbitration Rules (the "Rules") of the American Arbitration Association.
49
There shall be an arbitral tribunal consisting of three neutral arbitrators
selected according to the procedures set forth in the Rules and this Section,
one of which shall be selected by the General Partner, one of which shall be
selected by the Limited Partner, and the two arbitrators so selected shall
mutually appoint a third arbitrator. If either of the first two arbitrators is
not appointed within thirty (30) days of delivery of notice of demand for
arbitration, the other party (or parties) shall select the arbitrator that was
to be selected by such delinquent party (or parties). If the first two
arbitrators fail to select the third arbitrator within thirty (30) days of their
selection then, at the request of any party, the third arbitrator shall be
selected by the Chief Judge of the United States District Court for the Central
District of California (the "Court"). In any such arbitration proceedings, the
arbitrators shall adopt and apply the provisions of the Federal Rules of Civil
Procedure relating to discovery so that each party shall allow and may obtain
discovery of any matter not privileged that is relevant to the subject matter
involved in the arbitration to the same extent as if such arbitration were a
civil action pending in the Court. The arbitrators may proceed to an award
notwithstanding the failure of any party to participate in the proceedings. The
arbitrators may issue decisions for interim, interlocutory, provisional or
partial relief (e.g., temporary restraining orders, preliminary injunctions,
orders to compel discovery, orders of attachment or protective orders) during
the arbitration proceedings which may be enforced in any court of competent
jurisdiction. The arbitrators may also grant appropriate relief at law or in
equity, including removing the General Partner, in the event the General Partner
(with the participation or acquiescence of its senior management) has been
guilty of fraud, gross negligence, abuse of authority or misappropriation or
waste of Partnership assets. The decision of a majority of the arbitrators shall
constitute an arbitral award which is final, conclusive and binding on each
party, and may be entered and shall be enforceable in any court of competent
jurisdiction.
14.20 Confidentiality. The Partners agree that the terms of this
Agreement, any other agreements entered into in connection with the transactions
contemplated hereby and the identities of the parties hereto and their parent
companies are confidential and shall not be disclosed to any third party without
the other party's prior written consent. The Partners also acknowledge that all
information to be supplied by or on behalf of the General Partner to the
Investment Committee or the Limited Partner about Qualifying Projects is
confidential, and shall not be disclosed to any third party (other than advisors
to the Limited Partner for the sole purpose of advising the Limited Partner, but
only to the extent that such advisors provide advance written acknowledgement
and agreement satisfactory to the General Partner as to the confidential nature
of the information) without the General Partner's prior written consent, which
may be withheld in its sole discretion. The information referred to in the
foregoing two sentences shall be collectively referred to herein as the
"Confidential Information." Notwithstanding the limitations in the first two
sentences of this Section 14.20, (1) any party may disclose Confidential
Information if so required by law (including, without limitation, [law of
Limited Partner's state of incorporation] or to such party's attorneys,
accountants and other professionals, subject to the professional duty not to
disclose such Confidential Information unless required by law; provided however,
that such party shall use reasonable best efforts to provide a copy of any such
written request to the other party prior to such disclosure; and (2) each
Partner (and each employee, representative, or other agent of such Partner) may
disclose to any and all Persons, without limitation of any kind, the tax
treatment and tax structure of (i) the Partnership and (ii) any transactions
described herein, and all materials of any kind (including opinions or other tax
analyses) that are provided to the Partner relating to
50
such tax treatment and tax structure. The authorization in clause (2) of the
preceding sentence is not intended to permit disclosure of any other
Confidential Information unrelated to the tax treatment and tax structure of the
Partnership including (without limitation) (x) any portion of the Partnership
documents or related materials to the extent not related to the tax treatment or
tax structure of the Partnership, (y) the existence or status of any
negotiations unrelated to the tax issues, or (z) any other term or detail not
relevant to the tax treatment or the tax structure of the Partnership.
14.21 Guarantees.
(a) PSA hereby absolutely, irrevocably and unconditionally
guarantees the due and punctual payment of any and all Capital Contributions
required to be made by the General Partner hereunder, and the due and punctual
performance and observance of and compliance with the covenants, agreements and
obligations of the General Partner in Section 5.1(b) above.
(b) The [Limited Partner affiliate], as agent for the System Trust
Fund, a body corporate and govermental agency of the Limited Partner hereby
absolutely, irrevocably and unconditionally guarantees the due and punctual
payment of any and all Capital Contributions required to be made hereunder.
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IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
of the date first above set forth.
GENERAL PARTNER:
PS TEXAS HOLDINGS, LTD.
By: PS GPT Properties, Inc.
Its: General Partner
By: /s/ John Reyes
------------------------------
Name: John Reyes
Its: Senior Vice President
LIMITED PARTNER:
[SIGNATURE OF LIMITED PARTNER]
------------------------------
For purposes of Section 14.21 only:
PUBLIC STORAGE, INC.
By: /s/ John Reyes
------------------------
Name: John Reyes
Its: Senior Vice President
LIMITED PARTNER:
[SIGNATURE OF LIMITED PARTNER affiliate]
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