PARTNERSHIP AGREEMENT
by and between
SHURGARD DEVELOPMENT I, INC.
and
FREMONT STORAGE PARTNERS I, L.P.
creating
SHURGARD/FREMONT PARTNERS I
April 28, 1998
CONTENTS
ARTICLE I. GENERAL PROVISIONS 1
1.1 Formation and Name 1
1.2 Business of the Partnership 2
1.3 Place of Business of the Partnership 2
1.4 Duration of the Partnership 2
1.5 Partners' Names and Addresses 2
1.6 Title to Partnership Property 2
1.7 Registered Office and Registered Agent 3
1.8 Partnership Activity Prior to Operative Date 3
ARTICLE II. CAPITAL CONTRIBUTIONS; PROFITS AND LOSSES 3
2.1 Anticipated Capital Requirements 3
2.2 Capital Contributions by Partners 4
2.3 Capital Accounts 5
2.4 Profits and Losses 6
2.5 Allocations of Income and Loss for Federal
Income Tax Purposes; Curative Tax
Allocations 8
2.6 Tax Status and Returns 8
ARTICLE III. CASH DISTRIBUTIONS 9
3.1 Definitions 9
3.2 Distributions of Net Cash Flow 10
ARTICLE IV. CONTRIBUTION OF PROPERTIES 10
4.1 Identification of Properties to Be
Contributed 10
4.2 Closing of Property Contributions 10
ARTICLE V. MANAGEMENT OF THE PARTNERSHIP 11
5.1 Management of the Partnership 11
5.2 Designation of Representatives 11
5.3 Partnership Meetings 11
5.4 Engagement of Property Manager 11
5.5 Partnership Decisions 12
5.6 Appointment of Administrative Partner 13
5.7 Partnership Expenses 14
5.8 Liability of Partners; Indemnification 14
ARTICLE VI. OTHER AGREEMENTS OF THE PARTNERS 15
6.1 Provision of Information by Shurgard
Relating to Trade Area Properties 15
6.2 No Restrictions on Competitive Business
Activities 15
6.3 Acquisition and Development of Competitive
Properties by Shurgard and Its Affiliates 16
6.4 Financing Fees 16
ARTICLE VII. SSCI PURCHASE OPTION 16
7.1 Purchase Option 16
ARTICLE VIII. SALE, ASSIGNMENT OR TRANSFER OF PARTNERSHIP
INTEREST 17
8.1 Prohibited Transfers 17
8.2 Permitted Transfers 17
8.3 Change of Control of Shurgard 17
8.4 Other Transfers 18
ARTICLE IX. TERM, DISSOLUTION AND TERMINATION,
VOLUNTARY WITHDRAWAL AND DEFAULT 19
9.1 Term and Dissolution 19
9.2 Termination and Distributions 20
9.3 Distribution Upon Liquidation 21
9.4 Prohibition Against Withdrawal and Voluntary
Withdrawal 21
9.5 Default 21
ARTICLE X. BOOKS, RECORDS AND BANK ACCOUNTS 22
10.1 Books and Records 22
10.2 Accounting Basis and Fiscal Year 22
10.3 Reports 22
10.4 Bank Accounts 23
ARTICLE XI. REPRESENTATIONS AND WARRANTIES 23
11.1 Representations and Warranties by Each
Partner 23
11.2 Shurgard's Representations and Warranties 24
11.3 Fremont's Representations and Warranties 24
ARTICLE XII. MISCELLANEOUS 24
12.1 Notices 24
12.2 Successors and Assigns 25
12.3 Partition 25
12.4 Entire Agreement; Amendments 25
12.5 No Waiver 25
12.6 Foreign Status 26
12.7 Captions 26
12.8 Counterparts 26
12.9 Applicable Law 26
12.10 Proprietary Control; Confidentiality 26
12.11 Affiliate 27
12.12 Covenant of Good Faith 27
12.13 Severability 27
EXHIBITS
A. List of Properties
B. List of Trade Area Properties
INDEX OF DEFINED TERMS
A
Act 1
Adjusted Deficit 7
Administrative Partner 13
Affiliate 27
Agreement 1
Annual Plan 12
B
Bankrupt Partner 19
C
Capital Account 5
Capital Budget 10
Carrying Value 10
Change of Control 17
Code 5
Confidential Partnership Information 26
Contribution Agreement 10
Credit Facility 3
D
Defaulting Partner 22
Designated Representatives 11
E
Event of Bankruptcy 19
Event of Dissolution 19
F
FRC 1
Fremont 1
L
Liquidator 20
M
Major Decisions 12
Management Agreement 11
N
Net Cash Flow 9
Net Losses 6
Net Profits 6
Non-Defaulting Partner 22
Nonrecourse deductions 7
O
Operative Date 3
P
Partner 1
partner nonrecourse debt minimum gain 7
Partner nonrecourse deductions 7
Partners 1
Partnership 1
partnership minimum gain 7
Priority Return 9
Properties 10
Property 10
Purchase Option 16
Purchase Option Agreement ▇▇
▇
▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ Property 15
▇▇▇▇ ▇
▇
▇▇▇▇▇ ▇▇▇▇ ▇▇
transfer 17
U
Unreturned Capital 9
PARTNERSHIP AGREEMENT
This PARTNERSHIP AGREEMENT (this "Agreement") is made and
entered into as of April 28, 1998, by and between SHURGARD
DEVELOPMENT I, INC., a Washington corporation ("Shurgard"), and
FREMONT STORAGE PARTNERS I, L.P., a California limited
partnership ("Fremont"). Shurgard and Fremont may each be
referred to herein individually as a "Partner" and collectively
as the "Partners."
RECITALS
A. Shurgard is a wholly owned subsidiary of Shurgard
Storage Centers, Inc., a Washington corporation ("SSCI"), and
Fremont is an affiliate of Fremont Realty Capital, L.L.C., a
Delaware LLC ("FRC").
B. SSCI is a developer and manager of real estate with
extensive experience related to locating, purchasing, developing,
leasing, financing and selling facilities used principally for
self-service storage of property and with extensive experience in
operating such facilities and providing equipment and services
related thereto.
C. Shurgard and Fremont desire to form the Partnership (as
defined in Section 1.1(c)) on the terms set forth herein to
acquire certain self-service storage properties recently
developed by SSCI and to operate such properties.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing, the
mutual promises of the parties hereto, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I. GENERAL PROVISIONS
1.1 Formation and Name
(a) Shurgard and Fremont hereby enter into and form a
partnership for the purposes and with the scope, restrictions and
limitations set forth herein.
(b) Except as provided herein to the contrary, the rights
and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the
Washington Uniform Partnership Act (the "Act").
(c) The name of the partnership established pursuant to
this Agreement (the "Partnership") is SHURGARD/FREMONT PARTNERS
I, and such name will be used at all times in connection with the
Partnership's business and affairs.
1.2 Business of the Partnership
(a) The business of the Partnership shall be to operate
certain newly constructed self-service storage facilities (as
defined in Section 4.1(a), the "Properties") contributed by
Shurgard, to operate such facilities for use by members of the
public (including corporate entities), to sell and lease personal
property, including vehicles, storage containers and other
property, used or useful to the users of such facilities in
connection with such storage (including the hauling of property
to and from such facilities), to engage in any and all general
business activities not inconsistent with the operation of such
facilities and to sell such self-service storage facilities. In
furtherance of the Partnership's purpose and subject to the
limitations set forth in this Agreement, the Partnership shall
have the power to enter into and perform contracts, to own,
mortgage, pledge or otherwise deal in property, real or personal,
to exercise all rights, powers, and privileges and other
incidents of ownership with respect to assets or investments, to
borrow money and issue notes, drafts and bills of exchange, to
lend any of its assets or funds, and to carry on any other
activities necessary to, in connection with or incidental to, the
foregoing.
(b) The investment objective of the Partners is the long-
term appreciation in the value of the Properties and the
provision by the Partnership of quarterly distributions,
beginning at such time as there is sufficient cash from
operations to make such distributions after satisfaction of the
Partnership's working capital requirements.
1.3 Place of Business of the Partnership
The principal place of business of the Partnership will be
located in the same place as Shurgard's principal place of
business, as the same may change from time to time. The Partners
may, by mutual agreement at any time and from time to time,
change the location of the Partnership's principal place of
business to a location other than Shurgard's principal place of
business. The Partnership shall take all actions required under
the laws of the states in which it carries on business or owns
its properties to qualify the Partnership to so carry on its
business, or own its properties and enforce its contracts as is
contemplated hereby.
1.4 Duration of the Partnership
The Partnership will commence on the date of this Agreement
and will continue until terminated in accordance with Article IX.
1.5 Partners' Names and Addresses
The name, business address, telephone number, electronic
facsimile number and taxpayer identification number of each
Partner are as set forth in Section 12.1 or the signature page
hereto, as applicable. A Partner may change its address by
giving written notice to the other Partner in accordance with
Section 12.1.
1.6 Title to Partnership Property
All property owned by the Partnership, whether real or
personal, tangible or intangible, will be deemed to be owned by
the Partnership as an entity, and neither Partner, individually,
will have any ownership interest in such property. Except as
otherwise provided herein or agreed by the Partners, the
Partnership will hold all of its assets in its own name.
1.7 Registered Office and Registered Agent
The address of the registered office of the Partnership in
the State of Washington is ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. The registered agent for service of process
on the Partnership is ▇▇▇▇▇▇▇ ▇. ▇▇▇▇. Such place or agent may
be changed from time to time, as the Partners may mutually agree.
1.8 Partnership Activity Prior to Operative Date
The Partners hereby acknowledge that although they have
formed the Partnership and entered into this Agreement on the
date hereof, the Partners have not yet finalized certain
documents referred to herein relating to the operation of the
Partnership's business and other matters. Such documents are
expected to be finalized and executed on or before May 31, 1998.
As used in this Agreement, the "Operative Date" of the
Partnership is May 31, 1998, or such earlier date as the Partners
may mutually agree. If the documents referred to herein that are
to be executed on or prior to the Operative Date have not been so
executed as of such date, then either Partner may unilaterally
terminate this Partnership in accordance with Section 9.1(a)
hereof.
Prior to the Operative Date, the activities of the
Partnership shall be limited to performing administrative
functions, such as applying for business licenses and
qualifications, establishing bank accounts, and the performance
of such other activities as the Partners may mutually agree.
Unless the Partners otherwise mutually agree, neither Partner
shall have any obligation to make capital contributions prior to
the Operative Date.
ARTICLE II. CAPITAL CONTRIBUTIONS; PROFITS AND LOSSES
2.1 Anticipated Capital Requirements
(a) The total capital needs of the Partnership to fund the
development, operation (including operating losses), maintenance
and sale of self-service storage facilities of the Partnership
and the administration of the Partnership's business and affairs
are estimated to total approximately $73,000,000. Of the
Partnership's total capital needs, 30% are to be funded through
capital contributions by the Partners as provided in Section 2.2.
Any remaining amounts of Partnership capital needs will be funded
through a credit facility obtained by the Partnership (the
"Credit Facility"), such that of the Partnership's total
estimated capital needs, the capital contributions of the
Partners and the Credit Facility fund 30% and 70%, respectively.
The Partnership shall not enter into the Credit Facility unless
the terms thereof are mutually agreeable to each of the Partners.
The Partners currently contemplate that the Credit Facility will
be obtained from a third-party lender; however, if the
Partnership has not obtained a Credit Facility from a third-party
lender on or prior to May 31, 1998, then Shurgard shall, itself
or through SSCI, provide the Credit Facility to the Partnership
on the terms set forth in Section 2.1(b).
(b) If the Partnership has not obtained a Credit Facility
from a third party lender on or prior to May 31, 1998, then
Shurgard shall, itself or through SSCI, provide a $51,100,000 non-
revolving line of credit to the Partnership on the following
terms: (i) the term of the loan shall be for 48 months with an
18 month drawdown period; (ii) the rate on amounts outstanding
shall be LIBOR plus 150 basis points for the first six months
following commitment, and thereafter shall be LIBOR or treasuries
plus 350 basis points; (iii) the loan may be refinanced without
penalty at any time during its term; (iv) a commitment fee of 100
basis points on the commitment amount shall be due on the six
month anniversary of the commitment unless the loan is refinanced
prior to that date; and (v) the loan shall be non-recourse to the
Partners, subject to a negative pledge and, if necessary, a first
deed of trust on all real property of the Partnership.
2.2 Capital Contributions by Partners
(a) Subject to Section 2.2(c), Fremont shall contribute to
the Partnership 90% of all capital contributions and Shurgard
shall contribute 10% of all capital contributions, with such
capital contributions by Fremont and Shurgard funding 30% of the
total estimated capital needs of the Partnership. Any and all
capital contributions made by Fremont and Shurgard shall be made
in cash, except those contributions made by Shurgard as
contemplated in Section 4.1. All capital contributions shall be
made from time to time pursuant to a Capital Budget (as defined
in Section 4.1(b)) or an Annual Budget (as defined in
Section 5.4) as funds are needed by the Partnership and requested
by Shurgard in accordance with the procedures described below.
(b) Shurgard shall contribute the Properties listed on
Exhibit A attached hereto pursuant to the terms of Article IV and
the Contribution Agreement (as defined in Section 4.1(a)) as
contemplated and described therein. To effect such contribution,
Shurgard may direct title to such properties to be transferred
directly from SSCI to the Partnership; provided, however, that
for purposes of this Agreement, Shurgard shall be treated as
having made such contribution directly. In exchange for such
capital contribution, Shurgard shall be reimbursed pursuant to
Section 4.3 for certain costs incurred by it and SSCI in
connection with the development of such Properties, all in
accordance with the Contribution Agreement.
(c) The maximum amounts of capital contributions that may
be required from Fremont and Shurgard (net of any reimbursements
received by Shurgard pursuant to Section 4.3) pursuant to this
Agreement are $19,710,000 and $2,190,000, respectively. If
additional capital is required, the Partners shall mutually agree
as to the source of such capital, giving consideration to the
availability of third-party loans, loans from the Partners, and
additional capital contributions.
(d) Fremont and Shurgard shall make capital contributions
upon 10 business days' written notice from Shurgard of the need
for such funds, which notice shall be consistent with the
applicable Capital Budget or Annual Budget, and shall contain
such additional documentation, explanation and certification as
Fremont may reasonably require. No more than one such
contribution by Fremont shall be required during any 30-day
period.
(e) The Partnership shall use its best efforts to operate
the Properties in accordance with budgets contained in the
applicable Annual Budgets. The Partners hereby acknowledge and
agree that these budgets will have been prepared for planning
purposes and to permit the Partners to monitor the costs and the
success of the Partnership's operations. Neither Shurgard nor
any Affiliate (as defined in Section 12.11) thereof has, however,
guaranteed that the Properties will perform as favorably as
budgeted in the applicable Annual Budget.
(f) No interest shall accrue on any contribution to the
capital of the Partnership. No Partner shall have the right to
withdraw, or to be repaid, any capital contributed by it, except
as specifically provided in this Agreement.
(g) Except as set forth in this Article II and Article IV,
no Partner has any obligation to make any capital contributions
or to extend any loans to the Partnership.
2.3 Capital Accounts
(a) There shall be established for each Partner on the
books of the Partnership a "Capital Account," which shall be
maintained and adjusted as provided in this Section 2.3. The
Capital Account of a Partner shall be initially credited by the
amount of cash and the fair market value of any property
contributed by such Partner to the Partnership (net of any
liabilities secured by such property that the Partnership is
considered to assume or take subject to under Section 752 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any
reimbursements due such Partner pursuant to Section 4.3). For
purposes of the foregoing sentence, the parties agree that the
fair market value of the Properties contributed by Shurgard
pursuant to Article IV shall be such Properties' Carrying Value
(as defined in Section 4.1). The Capital Account of a Partner
shall be further increased by any additional capital
contributions to the Partnership and the amount of Net Profits
(as defined in Section 2.4(a)) (or items of gross income)
allocated to such Partner pursuant to Section 2.4. The Capital
Account of a Partner shall be decreased by (i) the amount of any
Net Losses (or items of loss or deduction) allocated to such
Partner pursuant to Section 2.4, (ii) the amount of any cash
distributed to such Partner pursuant to Article III, and
(iii) the fair market value of any property distributed to such
Partner by the Partnership (net of any liabilities secured by
such property that the Partner is considered to assume or take
subject to under Section 752 of the Code). The Capital Account
of each Partner shall be adjusted appropriately to reflect any
other adjustment required pursuant to Treasury Regulations
Section 1.704-1 or 1.704-2.
(b) Upon the occurrence of any event specified in Treasury
Regulations Section 1.704-1(b)(2)(iv)(f), the Partnership may
cause the Capital Accounts of the Partners to be adjusted to
reflect the fair market value of the Partnership's assets at such
time in accordance with such Treasury Regulation.
(c) If any assets of the Partnership are distributed in
kind pursuant to this Agreement, the amount of Net Profits or Net
Losses that would have been realized had such assets been sold at
their fair market value, as determined by the Partners'
Designated Representatives (as defined in Section 5.1), shall be
allocated to the Partners pursuant to Section 2.4 immediately
prior to such distribution.
(d) If any interest in the Partnership is transferred in
accordance with the terms of this Agreement, the transfer shall
succeed to the capital account of the transferor to the extent it
relates to the transferred interest.
2.4 Profits and Losses
(a) The terms "Net Profits" and "Net Losses", as
appropriate, mean, for any period, the taxable income or tax loss
of the Partnership for such period as determined for federal
income tax purposes taking into account any separately stated
items, increased by the amount of any tax-exempt income of the
Partnership during such period and decreased by the amount of any
Code Section 705(a)(2)(B) expenditures (within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(iv)(i)) of the
Partnership; provided, however, that (i) Net Profits or Net
Losses of the Partnership shall be computed without regard to the
amount of any items of gross income, gain, loss or deduction that
are specially allocated pursuant to any of the provisions of
Section 2.4(e) and (ii) the Net Profits or Net Losses of the
Partnership (and the constituent items of income, gain, loss and
deduction) realized with respect to Section 704(c) Property (as
defined in Section 2.5) shall be computed in accordance with the
principles of Treasury Regulations Section 1.704-1(b)(2)(iv)(g).
(b) Except as provided in Sections 2.4(e) and (f), Net
Profits (including Net Profits from sales of Properties) shall be
allocated as follows:
(i) first, 90% to Fremont and 10% to Shurgard until
the cumulative Net Profits allocated the Partners pursuant to
this Section 2.4(b)(i) for the current and all prior periods
equal the cumulative Net Losses allocated to the Partners
pursuant to Section 2.4(c)(ii) for all prior periods;
(ii) second, 90% to Fremont and 10% to Shurgard until
the cumulative Net Profits allocated to Fremont pursuant to this
Section 2.4(b)(ii) equal the Priority Return (as defined in
Section 3.1) payable to them under Section 3.2(a)(i); and
(iii) third, 80% to Fremont and 20% to Shurgard.
(c) Except as provided in Sections 2.4(e) and (f) and
subject to the limitation provided in Section 2.4(d), Net Losses
(including Net Losses from sales of Properties) shall be
allocated as follows:
(i) first, 80% to Fremont and 20% to Shurgard until
the cumulative amount of Net Losses allocated to the Partners
pursuant to this Section 2.4(c)(i) for the current and all prior
periods equals the cumulative amount of Net Profits allocated to
the Partners pursuant to Section 2.4(b)(iii) for all prior
periods; and
(ii) thereafter, 90% to Fremont and 10% to Shurgard.
(d) Notwithstanding the allocation of Net Losses pursuant
to subsection (c), the amount of Net Losses allocated to any
Partner shall not exceed the maximum amount of Net Losses that
can be so allocated without causing such Partner to have an
Adjusted Deficit at the end of any fiscal year. In the event one
but not both of the Partners would have Adjusted Deficits as a
consequence of an allocation of Net Losses pursuant to subsection
(c), the limitation set forth in this subsection (d) shall be
applied on a Partner-by-Partner basis so as to allocate the
maximum permissible Net Losses to each Partner under Treasury
Regulations Section 1.704-1(b)(2)(ii)(d). For purposes of this
subsection (d) the term "Adjusted Deficit" shall mean, 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) The Capital Account shall be increased by any
amounts that such Partner is obligated to restore pursuant to any
provision of this Agreement or is deemed to be obligated to
restore pursuant to the next to the last sentences of Treasury
Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) The Capital Account shall be decreased by the
items described in Treasury Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-
1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-
1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(e) Notwithstanding the provisions of Sections 2.4(b) and
(c), special allocations of income, gain, loss or deduction may
be required for any fiscal year (or other period) as follows:
(i) If there is a decrease in the Partnership's
"partnership minimum gain," as defined in and determined under
Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d), the
minimum gain chargeback provisions of Treasury Regulations
Section 1.704-2(f), which are hereby incorporated into this
Agreement by this reference, shall be applied.
(ii) If there is a decrease in any Partner's share of
"partner nonrecourse debt minimum gain," as defined in and
determined under Treasury Regulations Section 1.704-2(i), the
partner nonrecourse debt minimum gain chargeback provisions of
Treasury Regulations Section 1.704-2(i)(4), which are hereby
incorporated into this Agreement by this reference, shall be
applied.
(iii) In the event that any Partner unexpectedly
receives any adjustments or allocations or distributions
described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and
gain shall be specially allocated to such Partner in accordance
with Treasury Regulations Section 1.704-1(b)(2)(ii)(d).
(iv) "Nonrecourse deductions," as defined in and
determined under Treasury Regulations Sections 1.704-2(b)(1) and
(c), shall be allocated among the Partners in proportion to their
capital contributions.
(v) "Partner nonrecourse deductions," as defined in
and determined under Treasury Regulations Sections 1.704-2(i)(1)
and (2), shall be specially allocated among the Partners in
accordance with Treasury Regulations Section 1.704-2(1).
(f) The allocations set forth in Sections 2.4(d) and 2.4(e)
are intended to comply with certain regulatory requirements under
Code Section 704(b). The Partners intend that, to the extent
possible, all allocations made pursuant to such Section of the
Code will, over the term of the Partnership, be offset either
with other allocations pursuant to Sections 2.4(d) and 2.4(e) or
with special allocations of other items of Partnership income,
gain, loss or deduction pursuant to this Section 2.4(f).
Accordingly, Shurgard is authorized and directed to make
offsetting allocations of Partnership income, gain, loss or
deduction under this Section 2.4(f) in whatever manner it
reasonably determines is appropriate so that, after such
offsetting special allocations are made (and taking into account
the reasonably anticipated future allocations of income and gain
pursuant to Sections 2.4(e)(i) and (ii) that are likely to offset
allocations previously made under Sections 2.4(e)(iv) and (v),
the Capital Accounts of the Partners are, to the extent possible,
equal to the Capital Accounts each would have if the provisions
of Sections 2.4(d) and 2.4(e) were not contained in this
Agreement and all Partnership income, gain, loss and deduction
were instead allocated in accordance with the provisions of
Sections 2.4(b) and (c).
2.5 Allocations of Income and Loss for Federal Income Tax
Purposes; Curative Tax Allocations
(a) The Partnership's ordinary income and losses and
capital gains and losses as determined for federal income tax
purposes (and each item of income, gain, loss or deduction
entering into the computation thereof) shall be allocated to the
Partners in the same proportions as the corresponding "book"
items are allocated pursuant to Section 2.4. Notwithstanding the
foregoing sentence, federal income tax items relating to any
"Section 704(c) Property" (as defined in Treasury Regulations
Section 1.704-3(a)(3)) shall be allocated among the Partners in
accordance with Section 704(c) of the Code and Treasury
Regulations Section 1.704-1(b)(2)(iv)(g) to take into account the
difference between the fair market value and the tax basis of
such Section 704(c) Property as of the date of contribution (with
respect to contributed property having book value differing from
tax basis) or its revaluation pursuant to Section 2.3(b) (in the
case of revalued property). Items described in this Section 2.5
shall neither be credited nor charged to the Partners' Capital
Accounts.
(b) In the event the adjusted tax basis of a Property
contributed by Shurgard to the Partnership pursuant to Article IV
differs from its Carrying Value, solely for income tax purposes,
allocations of income, gain, loss and deduction attributable to
such Property shall be specially allocated among the Partners so
as to take into account such difference in a manner consistent
with the principles of Section 704(c) of the Code so that the
aggregate allocations of taxable income or loss allocated to each
Partner for any fiscal year of the Partnership is, to the extent
possible, equal to the amount of taxable income or loss each
would have been allocated had the tax basis of such Property been
equal to its Carrying Value.
2.6 Tax Status and Returns
(a) Any provision hereof to the contrary notwithstanding,
the Partnership shall be subject, solely for federal income tax
purposes, to all provisions of Subchapter K of Chapter 1 of
Subtitle A of the Code; provided, however, that the filing of
U.S. Partnership Returns of Income shall not be construed to
extend the purposes of the Partnership. At the request of any
Partner, the Partnership shall file an election under Section 754
of the Code and under the corresponding sections of applicable
state laws. Any costs or expenses associated with making such
elections shall be paid by the Partner requesting the election in
accordance with Section 8.2(d).
(b) The Partnership shall prepare or cause to be prepared
by the principal certified public accountant for the Partnership
not later than thirty (30) days prior to the date of required
filing thereof (including extensions) all tax returns and
statements, if any, that must be filed on behalf of the
Partnership with any taxing authority, and shall submit such
returns and statements to all the Partners for their approval
prior to filing, and when approved by the Partners, or when due,
if necessary, without approval, make timely filing thereof.
Shurgard shall provide preliminary tax information with respect
to the Partnership's immediately preceding taxable year (which
will be based on unaudited financial information) to Fremont not
later than forty-five (45) days prior to the required filing date
of the Partnership's tax returns (without extensions).
(c) Shurgard shall act as the "tax matters partner" of the
Partnership within the meaning of Section 6231(a)(7) of the Code
and in any similar capacity under applicable state or local tax
law. Shurgard shall keep the other Partners fully informed and
consult with them regarding matters for which it is responsible
while acting in such capacity. All expenses incurred by Shurgard
while acting in such capacity shall be paid or reimbursed by the
Partnership. Notwithstanding the foregoing, Shurgard shall not
have the authority to make elections or settle any tax-related
disputes with respect to the Partnership without the prior
written agreement of Fremont.
ARTICLE III. CASH DISTRIBUTIONS
3.1 Definitions
"Net Cash Flow" means cash funds received by the Partnership
from Partnership operations or sale or refinancing of Partnership
assets in excess of amounts reasonably required for the repayment
of Partnership borrowings (including loans made by the Partners,
if any) then due and payable and interest thereon, the payment of
other liabilities and cash expenditures, and working capital and
reserves that are required for the proper operation of business
of the Partnership during the next fiscal quarter pursuant to the
Annual Budget. "Net Cash Flow" shall not include capital
contributions and shall not be reduced by depreciation,
amortization, cost recovery deductions or similar noncash
allowances.
"Priority Return" means, with respect to the date of
computation, an amount equal to a cumulative 9% per annum return,
compounded quarterly, on the outstanding Unreturned Capital of
each Partner, computed for the period commencing on the date such
Unreturned Capital was originally contributed to the Partnership
and ending with the close of the fiscal period as to which the
Priority Return relates.
"Unreturned Capital" means, for any Partner, (a) the amount
of cash and the agreed value of any property actually contributed
by the Partner to the capital of the Partnership (net of any
reimbursements owed to Shurgard pursuant to Section 4.3) less
(b) the sum of all distributions previously made by the
Partnership to such Partner under Section 3.2(b).
3.2 Distributions of Net Cash Flow
Except as provided in Section 9.3 with respect to
distributions to be made upon dissolution of the Partnership, all
Net Cash Flow shall be distributed by the Partnership 60 days
after the end of each fiscal quarter in the following order of
priority:
(a) First, 90% to Fremont and 10% to Shurgard until the
cumulative distributions to each of the Partners during the term
of the Partnership equal the Priority Return;
(b) Second, 90% to Fremont and 10% to Shurgard until the
cumulative distributions to each of the Partners during the term
of the Partnership equals the aggregate capital contributions of
each Partner; and
(c) Third, 80% to Fremont and 20% to Shurgard.
ARTICLE IV. CONTRIBUTION OF PROPERTIES
4.1 Identification of Properties to Be Contributed
(a) Exhibit A hereto sets forth a list of certain self-
service storage facilities owned or leased and recently
constructed or currently under construction by SSCI (each, a
"Property" and, together, the "Properties"). Also set forth on
Exhibit A is the radius of the relevant trade area for each
Property (a "Trade Area"). On or following the Operative Date,
Shurgard will cause each of such Properties to be contributed to
the Partnership following the completion of construction of such
Property by SSCI pursuant to a Contribution Agreement (the
"Contribution Agreement") between the Partnership and Shurgard
dated on or prior to the Operative Date (except for any such
Property whose contribution is excluded under the terms of the
Contribution Agreement).
(b) On or prior to the Operative Date, the Partners shall
prepare a Capital Budget (the "Capital Budget") that sets forth
the estimated Carrying Value (as defined below) of each Property.
The Carrying Value shown on the Capital Budget for each Property
as to which construction has not been completed or as to which
final construction costs have not been determined is an estimate,
and the Capital Budget shall be revised to reflect the actual
Carrying Value of each such Property determined pursuant to the
terms of the Contribution Agreement. "Carrying Value" as used
herein shall mean the Final Carrying Value as defined in the
Contribution Agreement.
4.2 Closing of Property Contributions
In connection with the closing of Shurgard's contribution of
each Property to the Partnership, in accordance with the
Contribution Agreement, the Partnership shall reimburse Shurgard
for 97% of the Carrying Value of such Property at the time such
Property is contributed to the Partnership (or, with respect to
certain adjustments to Carrying Value contemplated by the
Contribution Agreement, following the contribution of such
Property to the Partnership), with reimbursement funded through
the Credit Facility and capital contributions by Fremont in
proportion to the funding percentages described in Sections
2.1(a) and 2.2. The remaining 3% of Carrying Value will
constitute a net capital contribution by Shurgard to the
Partnership and appropriately be credited to Shurgard's Capital
Account. For example, if Shurgard contributes a Property having
a Carrying Value of $5,000,000, the Partnership shall reimburse
Shurgard for $4,850,000 funded by $3,500,000 from the Credit
Facility (70% of the Carrying Value) and $1,350,000 from Fremont
capital contributions (90% of the Carrying Value remaining after
reimbursement from the Credit Facility). Shurgard's capital
account would accordingly be credited for $150,000 (reflecting
10% of such remaining Carrying Value).
ARTICLE V. MANAGEMENT OF THE PARTNERSHIP
5.1 Management of the Partnership
The Partners shall have exclusive management and control
over the affairs of the Partnership. The Partners shall have all
rights and powers of Partners as provided in the Act and as
otherwise provided by law, except that unless as expressly
provided in this Agreement, no Partner shall have any authority
to act for, or assume any obligations or responsibility on behalf
of, the other Partner. The Partners shall exercise their
management responsibilities through their designated
representatives (the "Designated Representatives"), through the
appointment of an administrative partner and through the
engagement of a property manager, all as more fully set forth in
this Article V. The business of the Partnership shall be
conducted in accordance with this Agreement and with the
policies, decisions, guidelines and budgets made or approved by
the Partners through their respective Designated Representatives.
5.2 Designation of Representatives
Each Partner shall designate at least two individuals as
such Partner's Designated Representatives. Each Partner shall
authorize each of its Designated Representatives, acting
individually, to take all actions and approve all matters that
such Partner is entitled or required to act upon in accordance
with this Agreement (subject to such Designated Representative's
delegated authority within its Partner's governance structure),
and the other Partner shall be entitled to rely upon all such
actions taken and matters approved by a Designated
Representative. Fremont's initial Designated Representatives are
▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and Shurgard's initial
Designated Representatives are ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇
▇▇▇▇▇. A Partner may at any time replace one or more of its
Designated Representatives by giving written notice of the
replacement to the other Partner.
5.3 Partnership Meetings
The Partnership shall hold regular quarterly meetings,
following distribution of the financial statements with respect
to the prior quarter. Unless otherwise agreed by the Partners,
such meetings shall be held at Shurgard's principal place of
business.
5.4 Engagement of Property Manager
On or prior to the Operative Date, the Partnership shall
engage SSCI to act as property manager of the Properties acquired
by Partnership, on the terms set forth in a Management Services
Agreement (the "Management Agreement"). Pursuant to the
Management Agreement and as more fully described therein, SSCI
will prepare for approval by the Partners annual budgets (each,
an "Annual Budget") relating to the operation of the Properties.
"Annual Budget," as used herein, unless the context clearly
indicates to the contrary, means the applicable Annual Budget as
approved by the Partners.
5.5 Partnership Decisions
(a) Subject to, and without limiting, the delegation of
authority to SSCI under the Management Agreement or the
delegation of authority to the administrative partner under
Section 5.6, and subject to Section 5.5(f), all decisions
pertaining to the business, affairs and operations of the
Partnership must be approved by each Partner. Except as provided
in Section 5.5(f), each Partner, acting through one or more of
its Designated Representatives, is entitled to one vote on all
matters presented to the Partners for approval. Requests for
approvals may be made by either Partner (i) at a Partnership
meeting, (ii) by written request, or (iii) orally. Required
approval may be given (i) by a vote taken at a Partnership
meeting, (ii) by a written approval, or (iii) as provided in
Section 5.5(d), by the absence of written disapproval or written
request for additional information.
(b) Except as otherwise expressly contemplated by this
Agreement, no action may be taken by either Partner with respect
to any matter that is a Major Decision unless the Major Decision
is approved by both Partners in accordance with Section 5.5(a)(i)
or (ii). The following are "Major Decisions":
(i) Approving the Annual Budget;
(ii) Entering into any amendment to the Management
Agreement or permitting the manager under the Management
Agreement to do any act that represents a material departure from
the Management Agreement;
(iii) Making any amendment to any Annual Budget
previously approved by the Partners;
(iv) Except for insured claims (including those settled
within the deductible or self-insured retention), compromising,
settling or adjusting claims, liabilities or causes of action of
or against the Partnership or a Property;
(v) Purchasing any real property other than as
specifically contemplated and identified by the Capital Budget;
(vi) Selling, exchanging or mortgaging a Property or
any interest in a Property, or any other assets of a Property,
except as specifically set forth in an Annual Budget;
(vii) Admitting any additional partners to the
Partnership;
(viii) Causing the Partnership to invest in or
become a partner, participant, venturer or shareholder, in any
other partnership, venture, corporation, business, enterprise or
the like;
(ix) Taking any action that would have a material
adverse impact upon the viability of allocations of Net Profits
and Net Losses under Section 704(b) of the Code;
(x) Taking any action that would be an Event of
Bankruptcy (as defined in Section 9.16(b));
(xi) Filing or revoking any election or otherwise
causing the Partnership to be characterized other than as a
partnership for federal, state, local or other tax purposes;
(xii) With respect to each Property owned by the
Partnership, causing the Partnership to perform any services or
enter into any lease or other contract that would cause any or
all of the gross income received by the Partnership attributable
to such Property to be treated as other than "rents from real
property" as defined in Section 856(d) of the Code; and
(xiii) Performing any act that would adversely
affect the qualification of SSCI as a real estate investment
trust pursuant to Sections 856-860 of the Code; and
(xiv) Approving the Partnership's attorneys and
certified public accountants.
(c) Action on all Major Decisions submitted to the Partners
for approval in accordance with Section 5.5(a) shall be taken by
the Partners as soon as reasonably practicable, and in any event
within 15 days of the date such Major Decision was submitted for
approval, except with respect to these Major Decisions described
in Section 5.5(b)(iv) and (xiv), as to which action shall be
taken within 5 business days of the date such Major Decision was
submitted for approval.
(d) With respect to all Partnership decisions other than
Major Decisions, such matter will be deemed approved within
5 business days after it is submitted to a Partner for approval,
unless prior to the expiration of such period such Partner in
writing indicates its disapproval or requests further information
reasonably necessary to make such decision.
(e) The written approval by a Partner's Designated
Representative of an Annual Budget shall constitute for all
purposes that Partner's written consent to each specific item
expressly set forth in the Annual Budget.
(f) In the event that SSCI fails to timely exercise its
Purchase Option (as defined in Section 7.1), then after such date
the Partners shall be entitled to vote on all matters pertaining
to the business, affairs and operations of the Partnership,
including Major Decisions, in proportion to their respective
Capital Accounts at the time the vote is taken, rather than on
the basis of one vote per Partner, and the vote of the Partner
whose Capital Account constitutes a majority of the total Capital
Accounts at such time of both Partners shall prevail.
5.6 Appointment of Administrative Partner
Shurgard is hereby appointed as the administrative partner
(the "Administrative Partner") and as such is hereby authorized
and directed to implement the decisions of the Partners taken in
accordance with this Agreement, including disbursing Partnership
funds in accordance with such decisions, and to take such other
actions on behalf of the Partnership as it deems necessary and
advisable to implement such decisions, including executing in the
name of and behalf of the Partnership all agreements, consents,
certificates and other documents reasonably necessary or
advisable to implement such decisions.
5.7 Partnership Expenses
(a) Subject to the limitations of Section 5.7(c), the
Partnership shall pay and be responsible for all reasonable costs
and expenses incurred by or on behalf of the Partnership. To the
extent practicable, all Partnership expenses shall be billed
directly to and paid by the Partnership. If, however, acting
with the scope of such Partner's authority as granted by this
Agreement, a Partner should incur any of those expenses the
Partnership shall promptly reimburse such person for such
expenses upon receipt of satisfactory evidence of such payment.
(b) By way of illustration, and not in limitation upon the
scope of Section 5.7(a), the Partnership shall pay the following
costs and expenses:
(i) All state and local filing or similar expenses
incurred by the Partners in connection with the formation of the
Partnership;
(ii) All costs and expenses incurred by or on behalf of
SSCI in accordance with the Management Agreement that are
allocable to and are to be borne by the Partnership pursuant to
the terms of the Management Agreement; and
(iii) The actual out-of-pocket expenses incurred by
a Partner for goods, materials and services used for or by the
Partnership (provided any such services performed by a Partner
must be approved in advance to be eligible for reimbursement).
(c) Except as expressly provided for herein or in the
Management Agreement or as hereafter approved by the Partners, no
payment will be made to any Partner for the services of such
Partner or of any member, director, officer or employee of such
Partner rendered in connection with the business or affairs of
the Partnership.
5.8 Liability of Partners; Indemnification
The Partnership shall (to an extent not in excess of the net
assets of the Partnership, without additional contribution or
loan by any Partner) indemnify and hold harmless each Partner and
each member, partner or shareholder of any Partner and each of
their respective officers and directors and the successors,
heirs, executors and administrators of each of them and each
Designated Representative (herein "Indemnified Parties"), from
and against any loss, expense, damage or injury suffered or
sustained by such Indemnified Party by reason of any act,
omission or alleged act or omission arising in connection with
the business of the Partnership, including, but not limited to,
any judgment, fine, penalty, award, settlement, reasonable
attorneys' fees and other costs or expenses incurred in
connection with the defense or prosecution of any actual or
threatened action, suit, proceeding, appeal, investigation or
claim, be it civil, criminal, administrative, legislative or
other, or any appeal relating thereto that is brought or
threatened by any person, entity, governmental authority or
instrumentality, provided that the act, omission or alleged act
or omission upon which such actual or threatened action, suit,
proceeding, investigation or claim is based (a) is within the
scope of authority granted to such person pursuant to the terms
of this Agreement, (b) was performed or omitted in good faith in
what the Indemnified Party believed to be in the best interests
of the Partnership and (c) was not performed fraudulently or as a
result of gross negligence or willful malfeasance by such
Indemnified Party. The Partnership shall advance to any
Indemnified Party its expenses incurred in connection with such
defense or prosecution so long as net assets of the Partnership
are available therefor, the Partnership has no reason to believe
the Indemnified Party is not in fact entitled to indemnification
pursuant to this Section 5.8 and the Indemnified Party agrees in
writing to return the funds so advanced if it is subsequently
determined that such Indemnified Party was not entitled to
indemnification hereunder. To the extent that an Indemnified
Party has been successful on the merits in defense of any such
proceeding or in defense of any claim or matter therein, it shall
be deemed that the applicable criteria established in clauses (a)
and (b) have been satisfied. The indemnification provided
hereunder shall not be deemed exclusive of any other rights to
which the Indemnified Parties may be entitled under any
applicable statute, agreement, vote of the Partners or otherwise.
ARTICLE VI. OTHER AGREEMENTS OF THE PARTNERS
6.1 Provision of Information by Shurgard Relating to Trade
Area Properties
Attached hereto as Exhibit B is a list of all self-service
storage facilities currently owned or operated by Shurgard or its
Affiliates and located within the applicable Trade Area of each
Property. To the extent such information is not listed on
Exhibit B as of the date of this Agreement, on or prior to the
Operative Date Shurgard shall also provide to Fremont an addendum
to Exhibit B listing all such facilities that Shurgard or its
Affiliates are currently actively contemplating developing or
acquiring and that are located within the applicable Trade Area
of a Property (each such existing or currently contemplated
property, together with any facility located within any such
Trade Area which hereafter may be actively contemplated for
development or acquisition by Shurgard, a "Shurgard Trade Area
Property.") For purposes of this Section 6.1, Shurgard shall be
deemed to be actively contemplating developing or acquiring a
facility when the acquisition or development of such facility has
received final approval from SSCI's real estate committee.
Shurgard agrees to promptly inform Fremont of any additional
Shurgard Trade Area Properties not listed on Exhibit B hereto,
and upon request by Fremont from time to time, to provide Fremont
with detailed property operating data (similar to the monthly
operating reports furnished by SSCI to the Partnership under the
Management Agreement) for each Shurgard Trade Area Property owned
or managed by Shurgard. All such information is confidential and
is subject to Section 12.10.
6.2 No Restrictions on Competitive Business Activities
Except as expressly provided in this Agreement, each Partner
and its Affiliates shall be free to engage in any and all
business activities whatsoever, including activities that compete
with the Partnership's business.
6.3 Acquisition and Development of Competitive Properties
by Shurgard and Its Affiliates
Shurgard shall promptly notify Fremont if it or any of its
Affiliates commences operation of a self-service storage facility
within the applicable Trade Area of any Property owned by the
Partnership prior to the expiration of the Purchase Option. In
such event, Fremont may require Shurgard to purchase such
Property from the Partnership. The purchase price for such
Property shall be determined utilizing a 9-1/4% capitalization
rate applied to the Property's net operating income assuming pro
forma occupancy and rents at the stabilization date anticipated
in the Property's initial pro forma budget. For purposes of this
Section 6.3, Shurgard or its applicable Affiliate shall be deemed
to have commenced operations of a self-service storage facility
upon the earlier to occur of (a) receipt of a certificate of
occupancy or temporary certificate of occupancy from the
applicable governmental entity with respect to all or a portion
of such facility, and (b) the signing of any lease for the rental
of one or more storage units with respect to such Property. In
order to exercise the foregoing right, Fremont must notify
Shurgard of its election to require the Property to be purchased
within 60 days after the later of (y) the commencement of
operations of the competing property (as defined in clause (a) or
(b) above) and (z) the date on which Shurgard notifies Fremont
that a competing property has commenced operations. The closing
of the sale of such Property to Shurgard or an Affiliate
designated by Shurgard shall occur as soon as reasonably possible
after Fremont notifies Shurgard that it is requiring Shurgard to
purchase the Property from the Partnership.
6.4 Financing Fees
If either Partner (or an Affiliate thereof) secures third-
party financing on behalf of the Partnership, in connection
therewith the Partnership shall pay to such Partner (or
Affiliate) a fee equal to 1% of the amount of the financing so
secured. Such 1% fee shall be payable at the closing of the
financing. The Partnership hereby acknowledges that FRC is
acting on the Partnership's behalf in attempting to secure a
Credit Facility from Bankers' Trust for the Partnership, and
accordingly a fee equal to 1% of the amount of the Credit
Facility will payable to FRC upon the closing of such Credit
Facility in accordance with this Section 6.4. The Partnership
shall have the sole right to accept or reject any financing
proposal brought to it by either Partner, and this Section 6.4 in
no way obligates the Partnership to accept any financing
proposal. Except for the commitment fee provided in 2.1(b)(iv),
no financing fee shall be payable under this Section 6.4 to
either Partner in connection with any Credit Facility provided by
Shurgard or SSCI under Section 2.1(b).
ARTICLE VII. SSCI PURCHASE OPTION
7.1 Purchase Option
On or prior to the Operative Date, Fremont and the
Partnership shall enter into a Purchase Option Agreement with
SSCI (the "Purchase Option Agreement") pursuant to which they are
granting to SSCI an option to acquire all Properties owned or
leased by the Partnership or, at SSCI's option, to acquire
Fremont's entire interest in the Partnership (the "Purchase
Option").
ARTICLE VIII. SALE, ASSIGNMENT OR TRANSFER OF
PARTNERSHIP INTEREST
8.1 Prohibited Transfers
Except as specifically permitted in this Article VIII and as
contemplated by the Purchase Option Agreement with respect to the
transfer of Fremont's partnership interest to Shurgard, no
Partner may sell, assign, transfer, pledge, encumber, or ▇▇▇▇▇ ▇
▇▇▇▇ or security interest in, or make a gift of (any such
transaction being generically referred to as a "transfer" in this
Agreement) all or any part of its interest in the Partnership or
in its rights to profits, losses or cash distributions of the
Partnership, either as an owner or a creditor. Any such transfer
prohibited by this Article VIII shall be ineffective, null and
void.
8.2 Permitted Transfers
A Partner may transfer an interest in itself without
obtaining any prior consent from the other Partner, so long as
the following conditions are satisfied: (a) all voting and other
Partnership management rights (including, without limitation, all
rights to receive information, to give and receive notices, etc.)
are not in any way affected by the transfer of the interest,
(b) the Partnership does not bear any of the costs and expenses
of any such transfer, (c) any such transfer complies with all
state and federal laws applicable thereto and does not constitute
a sale or transfer of an interest in the Partnership that could
or might result in a termination of the Partnership within the
meaning of Section 708 of the Code, as determined by counsel for
the Partnership, (d) the transferring Partner shall first
indemnify the other Partner and the Partnership against any and
all loss, damage, liability, claim, demand and expense (including
increased or accelerated income or property tax expense) arising
from or in any way connected with the Partner's transfer pursuant
to a written indemnity in form and substance reasonably
satisfactory to the nontransferring Partner, (e) the transfer
does not in any way limit the transferring Partner's obligation
to make capital contributions or to satisfy any of its other
obligations under this Agreement, and (f) the transfer does not
result in a default under or breach of any material agreement to
which the Partnership is a party.
8.3 Change of Control of Shurgard
(a) A "Change of Control" (as defined in Section 8.3(d)
below) of SSCI shall be considered a transfer of Shurgard's
interest in the Partnership. If the transaction resulting in the
Change of Control has been approved by no less than a majority of
the members of SSCI's board of directors as of the date of this
Agreement or directors who were subsequently elected to SSCI's
board of directors following the nomination by at least a
majority of the then-current members of SSCI's board of directors
(an "Approved Change of Control"), then Shurgard may not transfer
its interest in the Partnership without the prior written consent
of Fremont, which consent may not be unreasonably withheld. Any
Change of Control of SSCI which is not an Approved Change of
Control shall be an "Unapproved Change of Control," and in such
event Fremont shall have the rights set forth in Section 8.3(c).
(b) In the case of an Approved Change of Control occurring
prior to December 31, 1999, if Fremont reasonably withholds its
consent to such transfer then Fremont may, in its sole
discretion, require Shurgard to acquire its interest in the
Partnership at a price equal to Fremont's Unreturned Capital plus
that amount which would result in Fremont receiving a 7% return
on Fremont's capital contributions to the Partnership, and in the
case of an Approved Change of Control occurring after December
31, 1999, if Fremont reasonably withholds its consent to such
transfer then Fremont may required Shurgard to acquire the all of
the Properties then owned by the Partnership at the price
provided below with respect to an Unapproved Change of Control.
In calculating the price payable to Fremont under this Section
8.3(b), definitions and other calculations used pursuant to the
Purchase Option Agreement for purposes of calculating the "Base
Purchase Price" thereunder, including the definition of net
operating income, shall be utilized to the extent appropriate.
(c) In the case of an Unapproved Change of Control, Fremont
may at any time following such Unapproved Change of Control
require Shurgard to purchase all of the Properties from the
Partnership, with the purchase price for each Property determined
by utilizing a 9-1/4% capitalization rate applied to the greater
of (i) such Property's net operating income assuming pro forma
occupancy and rents at the stabilization date anticipated in the
such Property's initial pro forma budget or (ii) such Property's
actual annualized net operating income based on the three months
of operations prior to the date Fremont exercises its rights
under this Section 8.3(c). In calculating the purchase price of
the Properties under this Section 8.3(c), definitions and other
calculations used pursuant to the Purchase Option Agreement for
purposes of calculating the Purchase Price (as defined in the
Purchase Option Agreement) of the Properties under Article I of
that Agreement, including the definition of net operating income,
shall be utilized to the extent appropriate.
(d) As used herein, a "Change of Control" of SSCI shall
mean any sale of assets or stock, merger, tender offer, proxy
contest, business combination or other similar transaction (or
any of the foregoing in a related series of transactions, which
shall be deemed a single transaction) whereby (i) the persons who
held the voting and economic interests in SSCI prior to such
transaction do not hold at least 50% of the voting and economic
interests in SSCI or a successor entity following such
transaction; or (ii) if the persons who served as members of
SSCI's board of directors prior to the transaction do not
constitute a majority of the members of the board of directors of
SSCI or a successor entity following the transaction.
8.4 Other Transfers
Transfers, other than those expressly permitted by
Sections 8.1 and 8.2 and transfers by Shurgard as a result of a
Change of Control of Shurgard contemplated by Section 8.3, shall
be permitted only with the prior written consent of the
nontransferring Partner, which consent may be withheld in the
sole discretion of such Partner.
ARTICLE IX. TERM, DISSOLUTION AND TERMINATION,
VOLUNTARY WITHDRAWAL AND DEFAULT
9.1 Term and Dissolution
(a) In the event the Contribution Agreement, Management
Agreement, Purchase Option Agreement and documents relating to
the Credit Facility referred to in Sections 4.1(a), 5.4, 7.1 and
2.1, respectively, have not been executed by the parties thereto
on or prior to the Operative Date, then either Partner may
unilaterally terminate the Partnership by notice to the other
Partner, and the Partnership will be dissolved.
(b) Following the Operative Date, the Partnership will
continue until the happening of any of the following events
(individually referred to as an "Event of Dissolution") at which
time, subject to the rights contained herein of the Partners to
continue the Partnership, the Partnership will be dissolved:
(i) Both of the Partners have mutually agreed in
writing that the Partnership will be dissolved;
(ii) The sale or other disposition of all or
substantially all the assets of the Partnership and the
collection of all proceeds therefrom;
(iii) The occurrence of an Event of Bankruptcy (as
defined below) with respect to any Partner or the attempt by any
Partner to cause the Property to be partitioned in violation of
Section 12.3, unless within 90 days after such event the other
Partner elects not to treat such event as an Event of
Dissolution;
(iv) The tenth anniversary date of this Agreement; or
(v) A Partner causes a dissolution of the Partnership
in contravention of Section 9.4.
(c) A Partner to whom an Event of Bankruptcy has occurred
is referred to herein as a "Bankrupt Partner." A Bankrupt
Partner shall have no right to participate in the management and
control of the Partnership (including, without limitation, the
approval or disapproval of a Major Decision) and shall have no
authority to legally bind the Partnership. The term "Event of
Bankruptcy" as used herein means any one or more of the
following:
(i) If a Partner files a voluntary petition in
bankruptcy, or files any petition or answer seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under the
present or any future Federal Bankruptcy Code or any other
present or future applicable federal, state or other statute or
law relating to bankruptcy, insolvency or other relief for
debtors, or seeks or consents to or acquiesces in the appointment
of any trustee, receiver, custodian, conservator or liquidator of
the Partner or of all or any substantial part of such Partner's
properties or such Partner's interest in the Partnership (the
term "acquiesces" as used in this Article IX includes, but is not
limited to, the failure to file a petition or motion to vacate or
discharge any order, judgment or decree within 15 business days
after the date of such order, judgment or decree); or
(ii) If a court of competent jurisdiction enters an
order, judgment or decree approving a petition filed against a
Partner seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under
the present or any future Federal Bankruptcy Code or any other
present or future applicable federal, state or other statute or
law relating to bankruptcy, insolvency or other relief for
debtors, and such Partner acquiesces in the entry of such order,
judgment or decree, or such order, judgment or decree remains
unvacated and unstayed for an aggregate of 60 days (whether or
not consecutive) from the date of entry thereof, or any trustee,
receiver, custodian, conservator or liquidator of such Partner or
of all or any substantial part of such Partner's properties or
interest in the Partnership is appointed without the consent or
acquiescence of such party and such appointment remains unvacated
and unstayed for an aggregate of 60 days (whether or not
consecutive); or
(iii) If a Partner is unable to pay its debts as
they become due or mature; or
(iv) If a Partner makes an assignment (other than
assignments solely for security purposes) of all or substantially
all its assets for the benefit of creditors or takes any other
similar action for the protection or benefit of creditors.
(d) Dissolution of the Partnership shall be effective on
the day on which the event giving rise to the dissolution occurs,
but the Partnership shall not terminate until the assets of the
Partnership have been distributed as provided in Section 9.2.
Notwithstanding the dissolution of the Partnership, prior to the
termination of the Partnership the business of the Partnership
and the affairs of the Partners will continue to be governed by
this Agreement.
9.2 Termination and Distributions
(a) Upon the occurrence of an Event of Dissolution,
Shurgard shall act as the liquidating partner on the terms set
forth in this Section 9.2, unless Shurgard has caused the Event
of Dissolution under Section 9.1(b)(iii), (iv) or (v), in which
case Fremont shall act as the liquidating partner. Any Partner
who caused the Event of Dissolution shall have no authority or
power to bind the Partnership or the other Partners, but such
Partner shall be obligated to assist the liquidating partner (the
"Liquidator") in the dissolution and winding-up of the
Partnership and the assets thereof.
(b) The Liquidator shall undertake to wind up and liquidate
the assets of the Partnership as promptly as business
circumstances and orderly business practices will permit. During
the period of such winding-up, the Partnership's business and
affairs shall be conducted in a manner to maintain and to
preserve the value of its assets, consistent with the winding-up
of the affairs thereof, and no further business shall be
undertaken except for the completion of any incomplete
transactions that may be necessary to wind up the affairs of the
Partnership in an orderly manner and except that the Properties
may be operated in the ordinary course of business if the Partner
not causing the Event of Dissolution so elects.
9.3 Distribution Upon Liquidation
(a) The Liquidator shall apply and distribute the proceeds
of the liquidation of the assets of the Partnership (to the
extent available) in the following order of priority:
(i) To the payment of the debts and liabilities of the
Partnership (other than those to Partners) in the order of
priority provided by law; provided, however, that the Liquidator
shall first pay, to the extent permitted by law, liabilities with
respect to which any Partner is or may be personally liable;
(ii) To the payment of the expenses of liquidation of
the Partnership in the order of priority provided by law;
provided, however, the Liquidator shall first pay, to the extent
permitted by law, expenses with respect to which any Partner is
or may be personally liable;
(iii) To the setting up of such reserves as the
Liquidator may deem reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Partnership arising
out of or in connection with its business; provided, however,
that any such reserves will be held by the Liquidator for the
purposes of (A) disbursing such reserves in payment of any of
such contingencies and (B) at the expiration of such period as
the Liquidator deems advisable, distributing the balance
thereafter remaining in the manner and in the priority provided
below;
(iv) To the payment of any loans from the Partners to
the Partnership; and
(v) To and among the Partners in accordance with the
positive Capital Account balances of the Partners, as determined
after taking into account all Capital Account adjustments for the
taxable year of the Partnership's liquidation. If any part of
the Partnership's assets consists of notes, accounts receivable
or other noncash assets, the Liquidator shall take whatever steps
it deems appropriate to convert such assets into cash or into any
other form that would facilitate the distribution thereof. No
assets of the Partnership may be distributed in kind to any
Partner without the prior written consent of the other Partner.
(b) If distributions pursuant to Section 9.3(a)(v) are
insufficient to return to any Partner the full amount of such
Partner's Capital Account or Unreturned Capital, such Partner
shall have no recourse against any other Partner. No Partner
shall have any obligation to restore a deficit in such Partner's
Capital Account either on liquidation of the Partnership or
liquidation of such Partner's interest in the Company.
9.4 Prohibition Against Withdrawal and Voluntary Withdrawal
Neither Partner may withdraw from the Partnership without
the prior written consent of the other Partner. No Partner shall
have the right to voluntarily cause the dissolution of the
Partnership in any manner or for any reason whatsoever.
9.5 Default
If any Partner fails to perform in any material respect any
of its obligations hereunder or violates the terms of this
Agreement in any material respect (such Partner being referred to
as the "Defaulting Partner"), any other Partner (a
"Non-Defaulting Partner") shall have the right to give the
Defaulting Partner a default notice specifically setting forth
the nature of the default and stating that the Defaulting Partner
has a period of 10 days to cure such default, if it is a default
in payment of money to the Partnership or the Non-Defaulting
Partner pursuant to this Agreement, or a period of 30 days to
cure such default, if it is any other default hereunder. If the
Defaulting Partner does not cure such default in payment of money
within such 10-day period, or in the case of any other default
the Defaulting Partner has not cured such default within such
30-day period, or if such other default cannot be cured within
such 30-day period the Defaulting Partner has not commenced in
good faith the curing of such default within such 30-day period
or does not prosecute diligently, expeditiously and continuously
the completion of such cure, a Non-Defaulting Partner shall, in
addition to other rights and remedies it may have hereunder or at
law or in equity, have the right to bring any proceeding in the
nature of specific performance, injunction or other equitable
remedy, it being acknowledged by each of the Partners that
damages at law may be an inadequate remedy for a default or
threatened breach of this Agreement; and to bring any action at
law by or on behalf of the Partnership as may be permitted by
applicable law, in order to recover damages. In addition to and
without limiting the foregoing, if the Defaulting Partner does
not cure a default in the payment of money within such 10-day
period, the Non-Defaulting Partner shall also be entitled, in its
sole discretion, (a) to provide such funds to the Partnership,
either in the form of a loan (which loan shall be secured by an
interest in the Defaulting Partner's interest in the Partnership)
or as a capital contribution (which capital contribution shall be
property reflected in the Capital Account of the Non-Defaulting
Partner) or (b) to not make any further capital contributions to
the Partnership until such monetary default has been cured by the
Defaulting Partner.
ARTICLE X. BOOKS, RECORDS AND BANK ACCOUNTS
10.1 Books and Records
The Partners shall keep or cause to be kept complete and
accurate books and records reflecting all financial activities of
the Partnership. The books and records shall be maintained at
the principal place of business of the Partnership, or at such
other place as the Partners may mutually agree, and shall be
available for examination and duplication by each Partner or its
duly authorized representative, at such Partner's expense, at any
and all reasonable times.
10.2 Accounting Basis and Fiscal Year
The books and records of the Partnership for financial
accounting purposes shall be maintained in accordance with the
accrual method of accounting and in accordance with generally
accepted accounting principles. The fiscal year of the
Partnership will be concurrent with the calendar year.
10.3 Reports
Within 35 days of the end of each fiscal quarter and within
90 days after the end of each fiscal year of the Partnership, the
Partners shall cause the property manager and/or the certified
public accountants for the Partnership to prepare and distribute
to each of the Partners financial reports of the Partnership,
including a balance sheet, an income statement, and a statement
of cash flows or source and application of funds statement. The
financial information included in the year-end report shall be
accompanied by an audit report issued by Deloitte & Touche
L.L.P., or such other independent certified public accountant as
may be mutually selected by the Partners. Within 90 days after
the end of each fiscal year, the Partners shall cause the
property manager and/or the certified public accountants for the
Partnership to furnish to each Partner such information as may be
needed to enable such Partner to file its federal income tax
return, any required state income tax return and any other
reporting or filing requirements imposed by any governmental
agency or authority. The cost of all such reporting and audits
shall be paid by the Partnership as a partnership expense. Any
Partner may, at any time, at its own expense, cause an audit of
the Partnership books to be made by a certified public accountant
of such Partner's own selection.
10.4 Bank Accounts
The bank accounts of the Partnership will be maintained in
such banking institutions as the Partners may determine. Such
accounts may be used for the payment of the expenditures incurred
in connection with the business of the Partnership and for
payments to the Partners in accordance with this Agreement. Any
and all cash receipts of the Partnership shall be deposited in
such accounts. All such amounts shall be and remain the property
of the Partnership, and shall be received, held and disbursed by
the Partners for the purposes specified in this Agreement. There
may not be deposited in any of said accounts any funds other than
funds belonging to the Partnership, and no other funds may in any
way be commingled with such funds. This Section 10.4 is not
intended to in anyway limit or define SSCI's rights and
obligations to establish and maintain accounts pursuant to the
Management Agreement.
ARTICLE XI. REPRESENTATIONS AND WARRANTIES
11.1 Representations and Warranties by Each Partner
Each Partner hereby represents and warrants to the other
Partner the following:
(a) It has the legal power, right and authority to
consummate the transactions contemplated hereby. All actions
required to be taken by it to consummate the transactions
contemplated hereby have been taken.
(b) This Agreement and all other documents that have been
executed and delivered by such Partner pursuant to this Agreement
constitute valid and binding obligations of such Partner,
enforceable against such Partner in accordance with their
respective terms.
(c) The execution and delivery of this Agreement by such
Partner, the incurrence by it of the obligations herein set
forth, the consummation of the transactions contemplated hereby,
the compliance by such Partner with the terms of this Agreement
and the operation by it of the business of the Partnership do not
and will not conflict with or result in a breach of any of the
terms, conditions or provisions of, or do not and will not
constitute a default under, (i) any bond, note or other evidence
of indebtedness or other contract, indenture, mortgage, deed of
trust, loan agreement, lease or other instrument to which such
Partner is a party or by which it is bound or (ii) any order,
finding or decree of any court or governmental authority having
jurisdiction.
11.2 Shurgard's Representations and Warranties
Shurgard hereby represents and warrants to Fremont that it
is a corporation duly organized and validly existing under the
laws of the state of Washington and that the individuals who
executed this Agreement on behalf of Shurgard have full power and
authority to enter into this Agreement. For all purposes Fremont
is entitled to rely on the approval by either of Shurgard's
Designated Representatives, acting individually, as to all
matters relating to or arising out of this Agreement and the
transactions contemplated hereby.
11.3 Fremont's Representations and Warranties
Fremont hereby represents and warrants to Shurgard that it
is a limited partnership duly organized and validly existing
under the laws of the state of California and that the
individuals who executed this Agreement on behalf of Fremont have
full power and authority to enter into this Agreement. For all
purposes Shurgard is entitled to rely on the approval by either
of Fremont's Designated Representatives, acting individually, as
to all matters relating to or arising out of this Agreement and
the transactions contemplated hereby.
ARTICLE XII. MISCELLANEOUS
12.1 Notices
Any and all notices, elections or demands permitted or
required to be made under this Agreement must be in writing,
signed by the Partner giving such notice, election or demand, and
must be delivered personally, transmitted by electronic facsimile
with receipt confirmed or sent by nationally reputed courier
service that provides verification of delivery, to the other
Partner, at the address set forth below, or at such other address
as may be supplied by written notice given in conformity with the
terms of this Section 12.1. The date of personal delivery or the
date of refusal or receipt, as the case may be, is the date such
notice is effective.
If a Shurgard: If to Fremont:
Shurgard Development I, Inc. Fremont Storage Partners I, L.P.
Attn: Chief Executive
Officer c/o Fremont Realty Capital
Suite 2200, 1201 Third Attn: President
Avenue ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Suite 3500
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: with a copy to:
Shurgard Storage Centers, Fremont Group, L.L.C.
Inc. Attn: General Counsel
Attn: General Counsel ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
12.2 Successors and Assigns
Subject to the restrictions on transfer set forth in Article
VIII, this Agreement shall be binding on and shall inure to the
benefit of the respective parties hereto and their permitted
successors and assigns.
12.3 Partition
The Partners hereby agree that no Partner or any
successor-in-interest to any Partner will have the right while
this Agreement remains in effect to have the Property of the
Partnership partitioned, or to file a complaint or institute any
proceeding at law or in equity to have the Property of the
Partnership partitioned, and each Partner, on behalf of its
successors and assigns, hereby waives any such right. It is the
intention of the Partners that, during the term of this
Agreement, the rights of the Partners and their
successors-in-interest, as among themselves, shall be governed by
the terms of this Agreement and the Act and that the right of any
Partner or its successor-in-interest to transfer its interest in
the Property shall be subject to the limitations and restrictions
of this Agreement. Any attempt by a Partner to have the Property
partitioned will, unless the other Partner elects otherwise,
constitute an Event of Dissolution in accordance with Section 9.2
(a)(iii).
12.4 Entire Agreement; Amendments
This Agreement, together with the agreements expressly
contemplated hereby, constitutes the full and complete agreement
of the parties hereto with respect to the subject matter hereof,
and expressly supersedes the provisions of that certain letter
agreement between the parties dated November 25, 1997. This
Agreement may be amended, modified or otherwise changed only in
writing signed by both Partners hereto. Without limiting the
generality of the foregoing, no amendment to this Agreement may
be effected nor may any other action be taken that would result
in the admission of additional partners to the Partnership,
except by the specific written agreement of both Partners.
12.5 No Waiver
The failure of any Partner to insist on strict performance
of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure
continues, will not be a waiver of such Partner's rights to
demand strict compliance in the future. No consent or waiver,
express or implied, to or of any breach or default in the
performance of any obligation hereunder will constitute a consent
or waiver to or of any other breach or default in the performance
of the same or any other obligation hereunder.
12.6 Foreign Status
By executing this Agreement, each Partner declares under
penalties of perjury that, for purposes of Section 1446 of the
Code, it is not a foreign person, that its name, office address
and tax identification number are accurately set forth herein and
that it will notify the Partnership within 60 days of any change
to foreign status.
12.7 Captions
Titles or captions of Articles or Sections contained in this
Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend or describe the
scope of this Agreement or the intent of any provision hereof.
12.8 Counterparts
This Agreement and any amendments hereto may be executed in
any number of counterparts, all of which together for all
purposes constitute one agreement, binding on both the Partners
notwithstanding that both Partners have not signed the same
counterpart.
12.9 Applicable Law
This Agreement and the rights and obligations of the parties
hereunder shall be governed by and interpreted, construed and
enforced in accordance with the laws of the state of Washington.
References in this Agreement to provisions of the Code and
Treasury Regulations thereunder shall apply to corresponding
successor provisions.
12.10 Proprietary Control; Confidentiality
Fremont agrees that certain information prepared or to be
prepared by or on behalf of the Partnership is of a competitively
sensitive and proprietary nature and is intended solely for use
in official business of the Partnership (the "Confidential
Partnership Information"), and may not be otherwise disseminated
in any form to any third, unrelated person or entity, except with
the prior written consent of Shurgard, and, in that circumstance,
only subject to an agreement ensuring the confidentiality and
establishing the proprietary nature of the materials so
disseminated. Notwithstanding the foregoing, Fremont may,
without the prior written consent of Shurgard, disclose
Confidential Partnership Information, subject to an agreement
ensuring the confidentiality and establishing the proprietary
nature of the materials so disseminated (and providing Shurgard
with the right to enforce such agreement), to potential investors
in Fremont and their advisors and to Fremont's financial
consultants and other advisors, provided that Fremont promptly
informs Shurgard of what Confidential Partnership Information has
been disclosed and to whom and provides Shurgard with a copy of
the executed confidentiality agreement. The Confidential
Partnership Information includes (a) identification of sites or
facilities which are potentially competitive with the Properties,
including information regarding Shurgard Trade Area Properties
provided to Fremont pursuant to Section 6.1; (b) financial
information relating to a single Property or group of Properties
(as contrasted with summary financial information relating to the
Properties in the aggregate, which does not constitute
Confidential Partnership Information); and (c) such other
proprietary information as Shurgard or SSCI reasonably identifies
as Confidential Partnership Information (through the placement of
an appropriate legend on the information or other written notice)
at the time such information is provided to the Partnership.
Notwithstanding the foregoing, Confidential Partnership
Information shall not include (i) information in the public
domain, (ii) information known to Fremont prior to November 25,
1997, (iii) information disclosed to Fremont from a source
Fremont reasonably believes has no obligation of confidentiality
to Shurgard or its Affiliates, or (iv) information disclosed to
Fremont more than two years prior to its disclosure by Fremont.
It is further understood and agreed by Fremont that money
damages may not be a sufficient remedy for any breach of this
Section 12.10 and that Shurgard shall be entitled to equitable
relief, including injunction and specific performance, as a
remedy for any such breach. Such remedies shall not be deemed to
be the exclusive remedies for a breach of this Section 12.10 but
shall be in addition to all other remedies available at law or
equity. In the event of litigation relating to this Section
12.10, the prevailing party shall be entitled to recover all its
costs and expenses in connection therewith (including without
limitation court costs and reasonable attorneys' fees and
expenses) from the unsuccessful party, whether or not the action
is prosecuted to judgment or other final determination.
12.11 Affiliate
The term "Affiliate" means any person or entity owning,
directly or indirectly, a 10% or greater legal or beneficial
interest in such entity or any entity in which such person or
entity, directly or indirectly, owns a 10% or greater legal or
beneficial interest or is serving as an executive officer
thereof.
12.12 Covenant of Good Faith
Each Partner covenants and agrees that whenever it is
authorized by this Agreement to take or omit to take any action,
or to give or withhold any approval or consent, whether or not in
its sole discretion, it will take or omit to take such action, or
give or withhold such approval or consent, in good faith and not
in an arbitrary or capricious manner.
12.13 Severability
If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and
the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced
to the greatest extent permitted by law.
IN WITNESS WHEREOF, this Agreement has been duly executed,
effective as of the date first set forth above.
SHURGARD DEVELOPMENT I, INC.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
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By: ▇▇▇▇▇▇▇ ▇▇▇▇
Its: Senior Vice President
Taxpayer I.D. No. ▇▇-▇▇▇▇▇▇▇
FREMONT STORAGE PARTNERS I, L.P.
By: Fremont Resources, Inc.
Its: General Partner
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
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By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
Its: Executive Vice President
Taxpayer I.D. No. ▇▇-▇▇▇▇▇▇▇