Public Storage 2003 Annual Report Download - page 119

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PUBLIC STORAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
F-40
to them 1,439,765 shares of common stock (or a net of 1,138,733 shares, after taking into account 301,032
shares held by PSIC).
The shareholder has threatened litigation against the Hughes family and the directors of the Company
arising out of this transaction and alleged a pattern of deceptive disclosures with respect to PSIC since 1995. In
December 2002, the Board held a special meeting to authorize an inquiry by its independent directors to review
the fairness to the Companys shareholders of its acquisition of PSIC and the ability of the Company to have
started its own tenant reinsurance business in 1995. The Company believes that, prior to the effectiveness in
2001 of the federal REIT Modernization Act and corresponding California legislation that authorized the
creation and ownership of taxable REIT subsidiaries, the ownership by the Company of a reinsurance
business relating to its tenants would have jeopardized the Companys status as a REIT and that other REITs
faced similar concerns about tenant insurance programs.
In June 2003, the Hughes family filed a complaint for declaratory relief relating to the Companys
acquisition of PSIC naming the Company as defendant. The Hughes family is seeking that the court make (i) a
binding declaration that the Company either is not entitled to recover profits or other moneys earned by PSIC
from November 1995 through December 2001; or alternatively the amounts that the Hughes family should be
ordered to surrender to the Company if the court determines that the Company is entitled to recover any such
profits or moneys; and (ii) a binding declaration either that the Company cannot establish that the acquisition
agreement was not just and reasonable as to the Company at the time it was authorized, approved or ratified; or
alternatively the amounts that the Hughes family should surrender to the Company, if the court determines that
the agreement was not just and reasonable to the Company at that time. The Hughes family is not seeking any
payments from the Company. In the event of a determination that the Hughes family is obligated to pay certain
amounts to the Company, the complaint states that they have agreed to be bound by that determination to pay
such amounts to the Company.
In July 2003 the Company filed an answer to the Hughes familys complaint requesting a final judicial
determination of the Companys rights of recovery against the Hughes family in respect of PSIC. In September
2003, by order of the Superior Court, Malcolm Lucas, a former chief justice of the California Supreme Court,
was appointed to try the case. Discover is proceeding and it is expected that in mid-2004, Mr. Lucas will set a
trial date for the matter. The Company believes that the lawsuit by the Hughes family will ultimately resolve
matters relating to PSIC and will not have any financially adverse effect on the Company (other than the costs
and other expenses relating to the lawsuit).
Sale of Partnership Units
In February 2000, the Company entered into a settlement of litigation arising out of a 1997 tender offer
for limited partnership units in two affiliated partnerships. Under the settlement agreement, the Company
agreed to sell to the plaintiff units representing a 4% interest in each of the partnerships for a total payment of
approximately $1,523,000. The plaintiff failed to tender the full purchase price at the scheduled closing, and
the settlement collapsed.
In September 2000, the plaintiff amended its complaint to add a claim for breach of the settlement
agreement seeking specific enforcement and a claim seeking damages for unfair and deceptive trade practices in
connection with the alleged breach. By amending the complaint the Company believes the plaintiff elected to
abandon its underlying claims in the litigation. The Company asserted affirmative defenses including the
material breach by the plaintiff. Cross motions for summary judgment were filed by the parties. In July 2002,
the court granted plaintiffs motion for summary judgment as to its claim for breach of the settlement agreement
and granted the Companys motion for summary judgment to dismiss plaintiffs claim for unfair and deceptive
trade practices.