Public Storage 2003 Annual Report Download - page 32

Download and view the complete annual report

Please find page 32 of the 2003 Public Storage annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 169

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169

22
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. Discovery 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.
In March 2003, the court granted plaintiffs motion to compel the sale of the units to the plaintiff. On
December 31, 2003, the Company sold the units to the plaintiff for a total of $1,000,000. This amount reflects the
$1,523,000 original agreement with a credit to the plaintiff of a portion of the partnerships distributions received by
the Company with respect to the units.