-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Di4CJ5FxZERphh/u1b4Q0fuCqTRufTIb3AX+Gg28YQtA18XDDRmmVFeR3rvqlApV Y+S6K5n4ML9Td/4EkFypBg== 0000950153-02-000576.txt : 20020415 0000950153-02-000576.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950153-02-000576 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERCO /NV/ CENTRAL INDEX KEY: 0000004457 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 880106815 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11255 FILM NUMBER: 02589693 BUSINESS ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STE 100 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7756886300 MAIL ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STREET 2: SUITE 100 CITY: RENO STATE: NV ZIP: 89502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO DATE OF NAME CHANGE: 19770926 10-Q/A 1 p66363ae10-qa.txt 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________
Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. ================================================================================ 1-11255 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Ste. 100 Reno, Nevada 89502-3239 Telephone (775) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. 21,399,237 shares of AMERCO Common Stock, $0.25 par value were outstanding at March 25, 2002. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at March 25, 2002. U-Haul International, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. 1 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements a) Report of independent accountants......................................... 4 b) Condensed Consolidated Balance Sheets as of December 31, 2001 (unaudited) and March 31, 2001 (unaudited)............................................ 5 c) Condensed Consolidated Statements of Earnings for the Nine months ended December 31, 2001 and 2000 (unaudited).............................. 7 d) Condensed Consolidated Statements of Comprehensive Income for the Nine months ended December 31, 2001 and 2000 (unaudited).................. 8 e) Condensed Consolidated Statements of Earnings for the Quarters ended December 31, 2001 and 2000 (unaudited).................................... 9 f) Condensed Consolidated Statements of Comprehensive Income for the Quarters ended December 31, 2001 and 2000 (unaudited)..................... 10 g) Condensed Consolidated Statements of Cash Flows for the Nine months ended December 31, 2001 and 2000 (unaudited).............................. 11 h) Notes to Condensed Consolidated Financial Statements - December 31, 2001 (unaudited), March 31, 2001 (unaudited) and December 31, 2000 (unaudited)............................................. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 31 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 41 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................. 42 Item 6. Exhibits and Reports on Form 8-K.............................................. 43
2 INTRODUCTORY NOTE This amendment to Form 10-Q is being filed to restate the interim financial statements previously filed for the quarter ended December 31, 2001, as well as for the year ended March 31, 2001 presented herein, to reflect the consolidation of SAC Holding Corporation and its consolidated subsidiaries (SAC Holdings or SAC) with AMERCO and its consolidated subsidiaries (AMERCO or the Company) due to a revised interpretation of EITF 90-15 by the Company's independent public accountants. The Company concurs with this revised interpretation. AMERCO has no ownership interest in SAC, nor does it guarantee the debt of SAC. Further, the holders of such SAC notes have no recourse to the assets of AMERCO. The condensed consolidated financial statements presented herein include the accounts of AMERCO and SAC Holdings. All material intercompany accounts and transactions have been eliminated in consolidation. 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of AMERCO: We have reviewed the accompanying condensed consolidated balance sheet of AMERCO and its subsidiaries and SAC Holding Corporation and its subsidiaries as of December 31, 2001, and the related condensed consolidated statements of earnings and of comprehensive income for each of the three-month and nine-month periods ended December 31, 2001 and 2000 and the condensed consolidated statement of cash flows for the nine-month periods ended December 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of AMERCO at March 31, 2001, and the related consolidated statements of earnings, of comprehensive income, and of cash flows for the year then ended (not presented herein), and in our report dated June 29, 2001 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2001, as it relates to AMERCO, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. However, we did not audit the consolidated financial statements of SAC at March 31, 2001, whose results are consolidated with AMERCO's as of a result of transactions between AMERCO and SAC in which SAC was deemed not to be independent, which statements reflect total assets of $520,108,566 as of March 31, 2001, and total revenues of $104,819,103 for the year then ended. Those statements were audited by other auditors whose report thereon has been furnished to us. The accompanying financial statements of AMERCO have been restated at December 31, 2001 and for the three-month and nine-month periods ended December 31, 2001, to consolidate the financial statements of SAC, which is owned by a related party. PricewaterhouseCoopers LLP Phoenix, Arizona March 27, 2002 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Balance Sheets
December 31, March 31, Assets 2001 2001 ---------- ---------- (Unaudited) (in thousands) Cash and cash equivalents $ 35,726 52,788 Inventories, net 81,266 85,330 Prepaid expenses 18,324 14,416 Investments, fixed maturities 986,698 952,482 Investments, other 536,386 454,542 Other assets 220,666 192,473 Minority interest assets 17,311 17,907 ---------- ---------- Property, plant and equipment, at cost: Buildings and improvements 1,108,397 1,068,956 Rental trucks 1,069,769 1,037,653 Other property, plant, and equipment 831,420 834,463 ---------- ---------- 3,009,586 2,941,072 Less accumulated depreciation 1,240,057 1,187,103 ---------- ---------- Total property, plant and equipment 1,769,529 1,753,969 ---------- ---------- Total Assets $3,665,906 3,523,907 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 5 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Balance Sheets, Continued
Liabilities and December 31, March 31, Stockholders' Equity 2001 2001 ----------- ---------- (Unaudited) (in thousands) Liabilities: AMERCO's notes and loans payable $ 1,132,612 1,156,848 SAC Holdings' notes and loans payable, non-recourse to AMERCO 306,606 257,109 Policy benefits and losses, claims and loss expenses payable 705,745 668,830 Liabilities from premium deposits 548,948 522,207 Deferred income 15,424 24,546 Deferred income taxes 139,541 96,598 Other liabilities 245,879 262,439 ----------- ---------- Total liabilities 3,094,755 2,988,577 Contingent liabilities and commitments Stockholders' equity: Serial preferred stock - Series A preferred stock -- -- Series B preferred stock -- -- Serial common stock - Series A common stock 1,441 1,441 Common stock 9,122 9,122 Additional paid-in capital 233,325 236,002 Accumulated other comprehensive income (30,681) (40,709) Retained earnings 791,930 755,174 Cost of common shares in treasury, net (419,834) (410,527) Unearned ESOP shares (14,152) (15,173) ----------- ---------- Total stockholders' equity 571,151 535,330 Total Liabilities and Stockholders' Equity $ 3,665,906 3,523,907 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 6 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Earnings Nine months ended December 31, (Unaudited)
2001 2000 ------------ ------------ (in thousands, except share and per share data) Revenues Rental revenue $ 1,052,222 1,009,726 Net sales 175,411 166,592 Premiums 308,261 210,102 Net investment and interest income 46,449 50,559 ------------ ------------ Total revenues 1,582,343 1,436,979 Costs and expenses Operating expenses 821,569 775,297 Cost of sales 97,503 94,785 Benefits and losses 276,260 170,678 Amortization of deferred policy acquisition costs 32,346 25,112 Lease expense 133,694 132,865 Depreciation, net 72,359 73,347 ------------ ------------ Total costs and expenses 1,433,731 1,272,084 Earnings from operations 148,612 164,895 Interest expense 76,268 81,437 ------------ ------------ Pretax earnings 72,344 83,458 Income tax expense (28,277) (34,312) ------------ ------------ Earnings before minority interest and extraordinary loss on early extinguishment of debt 44,067 49,146 Minority interest 2,410 10,528 ------------ ------------ Earnings before extraordinary loss on early extinguishment of debt 46,477 59,674 Extraordinary loss on early extinguishment of debt, net of tax of $1,160 -- (2,121) ------------ ------------ Net earnings $ 46,477 57,553 ============ ============ Basic and diluted earnings per common share: Earnings before extraordinary loss on early extinguishment of debt 1.74 2.32 Extraordinary loss on early extinguishment of debt, net -- (0.10) ------------ ------------ Net earnings $ 1.74 2.22 ============ ============ Basic and diluted average common shares outstanding: 21,092,225 21,539,821 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 7 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income Nine months ended December 31, (Unaudited)
2001 2000 -------- -------- (in thousands) Comprehensive income: Net earnings $ 46,477 57,553 Changes in other comprehensive income: Foreign currency translation (3,647) (4,683) Fair market value of cash flow hedge 153 (861) Unrealized gain on investments 13,522 3,033 -------- -------- Total comprehensive income $ 56,505 55,042 ======== ========
The accompanying notes are an integral part of these Consolidated financial statements. 8 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Earnings Quarters ended December 31, (Unaudited)
2001 2000 ------------ ------------ (in thousands, except share and per share data) Revenues Rental revenue $ 302,123 292,412 Net sales 44,818 44,717 Premiums 105,381 88,607 Net investment and interest income 15,088 18,884 ------------ ------------ Total revenues 467,410 444,620 Costs and expenses Operating expenses 269,688 270,148 Cost of sales 26,390 24,397 Benefits and losses 95,487 74,863 Amortization of deferred policy acquisition costs 11,413 8,554 Lease expense 43,080 46,052 Depreciation, net 29,494 26,792 ------------ ------------ Total costs and expenses 475,552 450,806 Loss from operations (8,142) (6,186) Interest expense 23,727 28,222 ------------ ------------ Pretax loss (31,869) (34,408) Income tax benefit 9,480 9,669 ------------ ------------ Loss before minority interest and extraordinary loss on early extinguishment of debt (22,389) (24,739) Minority interest 2,177 5,568 ------------ ------------ Loss before extraordinary loss on early extinguishment of debt (20,212) (19,171) Extraordinary loss on early extinguishment of debt, net of tax of $1,160 -- (2,121) ------------ ------------ Net loss $ (20,212) (21,292) ============ ============ Basic and diluted loss per common share: Loss before extraordinary loss on early extinguishment of debt $ (1.12) (1.05) Extraordinary loss on early extinguishment of debt, net -- (0.10) ------------ ------------ Net loss $ (1.12) (1.15) ============ ============ Basic and diluted average common shares outstanding: 20,892,342 21,406,688 ============ ============
The accompanying notes are an integral part of these Consolidated financial statements. 9 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income Quarters ended December 31, (Unaudited)
2001 2000 -------- -------- (in thousands) Comprehensive income: Net loss $(20,212) (21,292) Changes in other comprehensive income: Foreign currency translation (527) (1,098) Fair market value of cash flow hedge 443 (679) Unrealized gain on investments 9,107 7,074 -------- -------- Total comprehensive loss $(11,189) (15,995) ======== ========
The accompanying notes are an integral part of these Consolidated financial statements. 10 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Nine months ended December 31, (Unaudited)
2001 2000 --------- --------- (in thousands) Net cash provided by operating activities $ 118,434 100,575 Cash flows from investing activities: Purchases of investments: Property, plant and equipment (143,142) (374,458) Fixed maturities (140,695) (84,808) Real estate (65,436) -- Mortgage loans (561) (21,654) Proceeds from sale of investments: Property, plant and equipment 56,641 141,789 Fixed maturities 117,356 89,583 Mortgage loans 10,039 19,187 Changes in other investments (18,359) (120,313) --------- --------- Net cash used by investing activities (184,157) (350,674) --------- --------- Cash flows from financing activities: Net change in short-term borrowings 81,743 169,281 Principal payments on notes (45,086) 66,272 Investment contract deposits 107,855 62,947 Investment contract withdrawals (83,224) (55,763) Proceeds from minority interest -- -- Changes in other financing activities (12,627) (16,026) --------- --------- Net cash provided by financing activities 48,661 226,711 Decrease in cash and cash equivalents (17,062) (23,388) Cash and cash equivalents at beginning of period 52,788 48,445 --------- --------- Cash and cash equivalents at end of period $ 35,726 25,057 ========= =========
The accompanying notes are an integral part of these Consolidated financial statements. 11 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements December 31, 2001, March 31, 2001 and December 31, 2000 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (AMERCO), is the parent company for U-Haul International, Inc. (U-Haul), which conducts moving and storage operations, Amerco Real Estate Company (Real Estate), which conducts real estate operations, Republic Western Insurance Company (RepWest), which conducts property and casualty insurance operations, and Oxford Life Insurance Company (Oxford), which conducts life insurance operations. As of December 31, 2001, SAC Holding Corporation (SAC Holdings), a Nevada corporation, is owned by Mark V. Shoen. Mark V. Shoen is the beneficial owner of 15.6% of AMERCO's common stock and is an executive officer of AMERCO. This amendment is being filed and the accounts of AMERCO and SAC Holdings are presented as consolidated due to a revised interpretation of EITF 90-15 by AMERCO's independent public accountants. AMERCO agrees with this interpretation. The accompanying condensed consolidated financial statements as of and for the periods ending March 31, 2001 and December 31, 2001 have been restated to reflect such consolidation. The following table presents the impact of such consolidation on the dates presented:
December 31, 2001 March 31, 2001 ----------------- -------------- As reported(1)As restated As reported(1)As restated (Unaudited) (Unaudited) (in thousands) (in thousands) Assets 3,491,346 3,665,906 3,384,064 3,523,907 Liabilities 2,828,579 3,094,755 2,768,698 2,988,577 Stockholders' equity 662,767 571,151 615,366 535,330
The consolidation of AMERCO with SAC Holdings had no impact on the consolidated net earnings. The reduction in stockholders' equity is due to the elimination of gains previously recorded in connection with sales of properties from AMERCO to SAC Holdings. Such gains had been previously recognized as a component of stockholders' equity. See Note 11. (1) As reported in the Company's December 31, 2001 form 10-Q filed on February 19, 2002 and March 31, 2001 form 10-K, filed on July 2, 2001, respectively, prior to the consolidation of SAC Holdings described above. During fiscal year 2002, based on in-depth market analysis, U-Haul increased the estimated salvage value of certain rental trucks. The effect of the changes increased net earnings by $2,284,000 ($0.11 per share) for the nine months ended December 31, 2001. The adjustment reflects management's best estimate, based on information available, of the estimated salvage value of these rental trucks. PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements presented here include the accounts of AMERCO and its wholly owned subsidiaries and SAC Holdings and its consolidated subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. AMERCO has not (and has never had any) ownership interest in SAC Holdings or any of SAC Holdings' subsidiaries, nor does it guarantee any of the debt of SAC Holdings. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q/A and do not contain certain information included in AMERCO's annual financial statements and notes. For a more detailed breakout of the accounts of AMERCO, refer to AMERCO's Form 10-K. The condensed consolidated balance sheet as of December 31, 2001 and the related condensed consolidated statements of earnings and the condensed consolidated statements of comprehensive income for the three and nine months ended December 31, 2001 and 2000 and the condensed consolidated cash flows for the nine months ended December 31, 2001 and 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such condensed consolidated financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. 12 The operating results and financial position of RepWest and Oxford have been consolidated on the basis of a calendar year, and accordingly, are determined on a one quarter lag for financial reporting purposes. There were no effects related to intervening events, which would materially affect the consolidated financial position or results of operations for the financial statements presented herein. Certain reclassifications have been made to the financial statements for the three and nine months ended December 31, 2000 to conform with the current year's presentation. 13 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 2. INVESTMENTS A comparison of amortized cost to market for fixed maturities is as follows:
September 30, 2001 Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ---------------- --------- ---- ----- ------ ----- (in thousands) U.S. treasury securities and government obligations $ 4,100 $ 3,626 252 -- 3,878 U.S. government agency mortgage- backed securities $ 10,048 10,005 432 -- 10,437 Corporate securities $ 44,522 42,758 1,791 (164) 44,385 Mortgage-backed securities $ 30,334 29,831 1,379 (35) 31,175 Redeemable preferred stocks 114,784 114,674 373 (2,988) 112,059 --------- ----- ------- ------- 200,894 4,227 (3,187) 201,934 --------- ----- ------- -------
September 30, 2001 Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------ --------- ---- ----- ------ ----- (in thousands) U.S. treasury securities and government obligations $ 42,260 $ 42,737 2,610 -- 45,347 U.S. government agency mortgage- backed securities $ 27,531 27,324 1,209 (2) 28,531 Obligations of states and political subdivisions $ 15,910 16,039 698 (26) 16,711 Corporate securities $ 630,723 622,584 19,629 (17,162) 625,051 Mortgage-backed securities $ 31,300 31,238 1,205 (364) 32,079 Redeemable preferred stocks 1,228 31,022 304 (565) 30,761 Redeemable common stocks 657 8,625 -- (1,301) 7,324 --------- ------ ------- ------- 779,569 25,655 (19,420) 785,804 --------- ------ ------- ------- Total $ 980,463 29,882 (22,607) 987,738 ========= ====== ======= =======
14 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized condensed consolidated balance sheet for RepWest is presented below:
September 30, ------------- 2001 2000 -------- -------- (in thousands) Investments, fixed maturities $391,507 413,149 Investments, other 84,379 27,823 Receivables 223,740 147,143 Due from affiliate 53,042 28,905 Other assets 54,277 48,528 -------- -------- Total assets $806,945 665,548 ======== ======== Policy liabilities and accruals $406,072 309,887 Unearned premiums 105,120 81,679 Other policyholders' funds and liabilities 57,713 61,908 -------- -------- Total liabilities 568,905 453,474 Stockholder's equity 238,040 212,074 -------- -------- Total liabilities and stockholder's equity $806,945 665,548 ======== ========
A summarized condensed consolidated income statement for RepWest is presented below:
Quarter ended Nine months ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands) Premiums $ 64,717 63,386 192,982 135,718 Net investment income 8,102 7,966 23,967 23,718 -------- -------- -------- -------- Total revenue 72,819 71,352 216,949 159,436 Benefits and losses 65,618 56,331 188,256 116,432 Amortization of deferred policy acquisition costs 6,207 3,770 17,837 10,130 Operating expenses 13,782 18,055 42,556 37,783 -------- -------- -------- -------- Total expenses 85,607 78,156 248,649 164,345 Loss from operations (12,788) (6,804) (31,700) (4,909) Income tax benefit 4,522 2,379 11,209 1,789 -------- -------- -------- -------- Net loss $ (8,266) (4,425) (20,491) (3,120) ======== ======== ======== ========
15 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized condensed consolidated balance sheet for Oxford is presented below:
September 30, ------------- 2001 2000 -------- -------- (in thousands) Investments, fixed maturities $595,191 470,772 Investments, other 198,668 167,208 Receivables 31,123 19,564 Other assets 89,865 84,626 -------- -------- Total assets $914,847 742,170 ======== ======== Policy liabilities and accruals $191,104 152,358 Premium deposits 548,948 469,393 Other policyholders' funds and liabilities 50,739 30,501 -------- -------- Total liabilities 790,791 652,252 Stockholder's equity 124,056 89,918 -------- -------- Total liabilities and stockholder's equity $914,847 742,170 ======== ========
A summarized condensed consolidated income statement for Oxford is presented below:
Quarter ended Nine months ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands) Premiums $ 42,198 26,750 119,736 78,274 Net investment income 5,791 5,807 18,975 18,170 -------- -------- -------- -------- Total revenue 47,989 32,557 138,711 96,444 Benefits and losses 29,869 18,532 88,004 54,246 Amortization of deferred policy acquisition costs 5,217 4,784 14,509 14,982 Operating expenses 10,771 6,626 30,207 19,857 -------- -------- -------- -------- Total expenses 45,857 29,942 132,720 89,085 Income from operations 2,132 2,615 5,991 7,359 Income tax expense (555) (753) (1,787) (1,878) -------- -------- -------- -------- Net income $ 1,577 1,862 4,204 5,481 ======== ======== ======== ========
16 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 4. CONTINGENT LIABILITIES AND COMMITMENTS During the nine months ended December 31, 2001, a subsidiary of U-Haul entered into five transactions whereby the subsidiary sold rental trucks to an unrelated third party, which were subsequently leased back. AMERCO has guaranteed $13,571,000 of residual values at December 31, 2001 for these assets at the end of the respective lease terms. Following are the lease commitments for the leases executed during the nine months ended December 31, 2001, and subsequently which have a term of more than one year (in thousands):
Net activity Year ended Lease subsequent to March 31, Commitments period end Total -------------------------------------------------------- 2002 $ 657 - 657 2003 2,625 - 2,625 2004 2,625 - 2,625 2005 2,300 - 2,300 2006 2,192 - 2,192 Thereafter 7,305 - 7,305 -------------------------------------- $ 17,704 - 17,704 ======================================
In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or clean-up of underground fuel storage tanks. It is the opinion of management that none of such suits, claims or proceedings involving AMERCO, individually, or in the aggregate, are expected to result in a material loss. 5. SUPPLEMENTAL CASH FLOWS INFORMATION OF AMERCO The (increase) decrease in cash flow for receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows:
Nine months ended December 31, 2001 2000 -------- -------- (in thousands) Receivables $(14,911) 9,686 ======== ======== Inventories $ 4,064 3,221 ======== ======== Accounts payable and accrued expenses $(20,730) (30,618) ======== ========
17 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 6. EARNINGS PER SHARE OF AMERCO The following table reflects the calculation of the earnings per share:
Weighted Average Common Shares Income Outstanding Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ (in thousands, except share and per share data) Quarter ended December 31, 2001: Net loss $(20,212) Less: preferred stock dividends 3,241 -------- Basic and diluted loss per common share (23,453) 20,892,342 $ (1.12) ======== =========== ======== Quarter ended December 31, 2000: Loss before extraordinary loss on early extinguishment of debt $(19,171) Less: preferred stock dividends 3,241 -------- Loss before extraordinary loss on early extinguishment of debt available to common stockholders (22,412) 21,406,688 $ (1.05) Extraordinary loss on early extinguishment of debt, net (2,121) (0.10) --------- -------- Basic and diluted loss per common share (24,533) 21,406,688 $ (1.15) ======== =========== ======== Nine months ended December 31, 2001: Net earnings $ 46,477 Less: preferred stock dividends 9,722 -------- Basic and diluted earnings per common share 36,755 21,092,225 $ 1.74 ======== =========== ======== Nine months ended December 31, 2000: Earnings before extraordinary loss on early extinguishment of debt $ 59,674 Less: preferred stock dividends 9,722 -------- Earnings before extraordinary loss on early extinguishment of debt available to common stockholders 49,952 21,539,821 $ 2.32 Extraordinary loss on early extinguishment of debt, net (2,121) (0.10) -------- -------- Basic and diluted earnings per common share 47,831 21,539,821 $ 2.22 ======== =========== ========
18 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 7. RELATED PARTY TRANSACTIONS During September 2001 the Company consummated a transfer of cash in the amount of $7.5 million and real estate properties in the amount of $65.5 million from Real Estate and other subsidiaries to Oxford and RepWest. The transferred assets were recorded by RepWest and Oxford at their original book value and no gain or loss was recorded. Sales of properties from AMERCO to SAC Holdings have been eliminated in consolidation, as presented in note 11. 19 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 8. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations", and No. 142 (SFAS 142), "Goodwill and Other Intangible Assets". SFAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations". The most significant changes made by SFAS 141 are: (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) establishing specific criteria for the recognition of intangible assets separately from goodwill, and (3) requiring unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized). SFAS 142 supercedes APB 17, "Intangible Assets". SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The provisions of SFAS 142 will be effective for fiscal years beginning after December 15, 2001. The most significant changes made by SFAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. SFAS No. 141 and 142 are not expected to affect the consolidated financial position or results of operations. SFAS No. 143, Accounting for Asset Retirement Obligations, requires recognition of the fair value of liabilities associated with the retirement of long-lived assets when a legal obligation to incur such costs arises as a result of the acquisition, construction, development and/or the normal operation of a long-lived asset. Upon recognition of the liability, a corresponding asset is recorded at present value and accreted over the life of the asset and depreciated over the remaining life of the long-lived asset. The Statement defines a legal obligation as one that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. SFAS 143 is effective for fiscal years beginning after June 15, 2002. Management has not yet determined the effects of adopting this Statement on the financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses issues relating to the implementation of FASB Statement No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and develops a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. The Company is in the process of determining the extent to which this statement will impact its results of operations or financial position. 20 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Information concerning operations by industry segment follows:
Moving and Property/ Adjustments AMERCO Storage Real Casualty Life and and Operations Estate Insurance Insurance Eliminations SAC Holdings ---------- ------ --------- --------- ------------ ------------ (in thousands) Quarter ended December 31, 2001 Revenues: Outside $ 340,516 7,619 71,692 47,583 -- 467,410 Intersegment -- 11,947 1,127 406 (13,480) -- ----------- -------- -------- -------- -------- ---------- Total revenues $ 340,516 19,566 72,819 47,989 (13,480) 467,410 Depreciation/ amortization $ 28,975 2,985 6,322 5,241 -- 43,523 Interest expense $ 23,727 8,229 -- -- (8,229) 23,727 Pretax earnings (loss) $ (29,640) 8,427 (12,788) 2,132 -- (31,869) Income tax benefit (expense) $ 8,462 (2,949) 4,522 (555) -- 9,480 Identifiable assets $ 1,667,602 714,819 806,945 914,847 (438,307) 3,665,906 Quarter ended December 31, 2000 Revenues: Outside $ 339,215 3,025 70,191 32,189 -- 444,620 Intersegment -- 17,754 1,161 368 (19,283) -- ----------- -------- -------- -------- -------- ---------- Total revenues $ 339,215 20,779 71,352 32,557 (19,283) 444,620 Depreciation/ amortization $ 31,260 2,760 3,453 4,824 -- 42,297 Interest expense $ 28,222 10,626 -- -- (10,626) 28,222 Pretax earnings (loss) $ (32,574) 2,355 (6,804) 2,615 -- (34,408) Income tax benefit (expense) $ 8,867 (824) 2,379 (753) -- 9,669 Extraordinary loss on early extinguishment of debt, net $ (2,121) -- -- -- -- (2,121) Identifiable assets $ 1,609,308 761,149 665,548 731,627 (338,700) 3,428,932
21 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments AMERCO and Storage Real Casualty Life and and Operations Estate Insurance Insurance Eliminations SAC Holdings ---------- ------ --------- --------- ------------ ------------ (in thousands) Nine months ended December 31, 2001 Revenues: Outside $ 1,220,154 10,986 213,677 137,526 -- 1,582,343 Intersegment -- 48,264 3,272 1,185 (52,721) -- ----------- -------- -------- -------- -------- ---------- Total revenues $ 1,220,154 59,250 216,949 138,711 (52,721) 1,582,343 Depreciation/ amortization $ 85,529 8,535 18,584 14,652 -- 127,300 Interest expense $ 76,268 27,953 -- -- (27,953) 76,268 Pretax earnings (loss) $ 66,933 31,120 (31,700) 5,991 -- 72,344 Income tax benefit (expense) $ (26,807) (10,892) 11,209 (1,787) -- (28,277) Identifiable assets $ 1,667,602 714,819 806,945 914,847 (438,307) 3,665,906 Nine months ended December 31, 2000 Revenues: Outside $ 1,175,646 9,343 156,609 95,381 -- 1,436,979 Intersegment -- 52,599 2,827 1,063 (56,489) -- ----------- -------- -------- -------- -------- ---------- Total revenues $ 1,175,646 61,942 159,436 96,444 (56,489) 1,436,979 Depreciation/ amortization $ 83,016 8,144 10,208 15,449 -- 116,817 Interest expense $ 81,437 32,870 -- -- (32,870) 81,437 Pretax earnings (loss) $ 70,553 10,455 (4,909) 7,359 -- 83,458 Income tax benefit (expense) $ (30,564) (3,659) 1,789 (1,878) -- (34,312) Extraordinary loss on early extinguishment of debt, net $ (2,121) -- -- -- -- (2,121) Identifiable assets $ 1,609,308 761,149 665,548 731,627 (338,700) 3,428,932
22 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Geographic Area Data - AMERCO AMERCO (All amounts are in United and United and U.S. $'s) States Canada SAC Holdings States Canada SAC Holdings --------- ------ ------ ------------ ------ ------ ------------ Quarter ended Nine months ended ------------------------------------- ------------------------------------ (in thousands) December 31, 2001 Total revenues $ 459,482 7,928 467,410 1,550,833 31,510 1,582,343 Depreciation/ amortization $ 42,581 942 43,523 124,609 2,691 127,300 Interest expense $ 23,807 (80) 23,727 76,309 (41) 76,268 Pretax earnings (loss) $ (31,233) (636) (31,869) 67,162 5,182 72,344 Income tax benefit (expense) $ 9,480 -- 9,480 (28,277) -- (28,277) Identifiable assets $ 3,606,959 58,947 3,665,906 3,606,959 58,947 3,665,906 December 31, 2000 Total revenues $ 437,064 7,556 444,620 1,406,142 30,837 1,436,979 Depreciation/ amortization $ 41,189 1,108 42,297 113,539 3,278 116,817 Interest expense $ 28,216 6 28,222 81,424 13 81,437 Pretax earnings (loss) $ (33,420) (988) (34,408) 79,231 4,227 83,458 Income tax benefit (expense) $ 9,669 -- 9,669 (34,306) (6) (34,312) Extraordinary loss, net $ (2,121) -- (2,121) (2,121) -- (2,121) Identifiable assets $ 3,378,349 50,583 3,428,932 3,378,349 50,583 3,428,932
10. SUBSEQUENT EVENTS OF AMERCO In January 2002, Real Estate completed the sale of thirty-seven storage properties to Twenty SAC Self-Storage Corporation, Twenty-One SAC Self-Storage Corporation, Twenty-Two SAC Self-Storage Corporation and Twenty-Three SAC Self-Storage Corporation, subsidiaries of SAC Holdings, for $93,679,000. Real Estate received cash and notes from the sale. Such gain will be eliminated in consolidation. On February 6, 2002, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of February 18, 2002. 23 NOTE 11 - CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
AMERCO AND CONSOLIDATED SAC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED SUBSIDIARIES (AMERCO) (SAC HOLDINGS) -------------------------- --------------------------- DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, 2001 2001 2001 2001 ---------- ---------- ---------- ---------- (IN THOUSANDS) (IN THOUSANDS) ASSETS Cash and cash equivalents $ 35,716 $ 52,778 $ 10 $ 10 Inventories, net 79,941 84,005 1,325 1,325 Prepaid expenses 18,324 14,416 -- -- Investments, fixed maturities 986,698 952,482 -- -- Investments, other 545,919 464,958 3,910 3,910 Other assets 485,785 452,781 13,496 8,991 Minority interest assets -- -- -- -- ---------- ---------- ---------- ---------- Property, plant and equipment, at cost: Buildings and improvements 826,126 832,372 417,849 355,531 Rental trucks 1,069,769 1,037,653 -- -- Other property, plant and equipment 661,294 660,802 170,126 173,661 ---------- ---------- ---------- ---------- 2,557,189 2,530,827 587,975 529,192 ---------- ---------- ---------- ---------- Less accumulated depreciation 1,218,226 1,168,183 29,431 23,320 ---------- ---------- ---------- ---------- Total property, plant and equipment 1,338,963 1,362,644 558,544 505,872 ---------- ---------- ---------- ---------- Total assets $3,491,346 $3,384,064 $ 577,285 $ 520,108 ========== ========== ========== ==========
ADJUSTMENTS AND ELIMINATIONS ---------------------------- DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, 2001 2001 2001 2001 ------------ ------------ ---------- ---------- (IN THOUSANDS) (IN THOUSANDS) ASSETS Cash and cash equivalents $ -- $ -- $ 35,726 $ 52,788 Inventories, net -- -- 81,266 85,330 Prepaid expenses -- -- 18,324 14,416 Investments, fixed maturities -- -- 986,698 952,482 Investments, other (13,443)a) (14,326)a) 536,386 454,542 Other assets (278,615)b) (269,299)b) 220,666 192,473 Minority interest assets 17,311 c) 17,907 c) 17,311 17,907 ------------ ------------ ---------- ---------- Property, plant and equipment, at cost: Buildings and improvements (135,578)d) (118,947)d) 1,108,397 1,068,956 Rental trucks -- -- 1,069,769 1,037,653 Other property, plant and equipment -- -- 831,420 834,463 ------------ ------------ ---------- ---------- (135,578) (118,947) 3,009,586 2,941,072 ------------ ------------ ---------- ---------- Less accumulated depreciation (7,600)d) (4,400)d) 1,240,057 1,187,103 ------------ ------------ ---------- ---------- Total property, plant and equipment (127,978) (114,547) 1,769,529 1,753,969 ------------ ------------ ---------- ---------- Total assets $ (402,725) $ (380,265) $3,665,906 $3,523,907 ============ ============ ========== ==========
See accompanying notes. -24- NOTE 11 - CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED), CONTINUED
AMERCO AND CONSOLIDATED SAC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED SUBSIDIARIES (AMERCO) (SAC HOLDINGS) --------------------------- ---------------------------- DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, 2001 2001 2001 2001 ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY AMERCO's notes and loans payable $ 1,132,612 $ 1,156,848 $ -- $ -- SAC Holdings' notes and loans payable, non-recourse to AMERCO -- -- 561,602 504,157 Policy benefits and losses, claims and loss expenses payable 705,745 668,830 -- -- Liabilities from premium deposits 548,948 522,207 -- -- Deferred income 15,424 24,546 -- -- Deferred income taxes 187,413 139,419 -- -- Other liabilities 238,437 256,848 31,061 27,842 ----------- ----------- ----------- ----------- Total liabilities 2,828,579 2,768,698 592,663 531,999 Minority interest -- -- 9,533 10,416 Contingent liabilities and commitments Stockholders' equity: Serial preferred stock - Series A preferred stock -- -- -- -- Series B preferred stock -- -- -- -- Serial common stock - Series A common stock 1,441 1,441 -- -- Common stock 9,122 9,122 -- -- Additional paid-in capital 321,031 312,128 5,912 3,312 Accumulated other comprehensive income (30,681) (40,709) (3,031) (1,398) Retained earnings 791,930 755,174 (27,792) (24,221) Cost of common shares in treasury, net (415,924) (406,617) -- -- Unearned ESOP shares (14,152) (15,173) -- -- ----------- ----------- ----------- ----------- Total stockholders' equity 662,767 615,366 (24,911) (22,307) ----------- ----------- ----------- ----------- Total liabilities and stock stockholders' equity $ 3,491,346 $ 3,384,064 $ 577,285 $ 520,108 =========== =========== =========== ===========
ADJUSTMENTS AND ELIMINATIONS ----------------------------- DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, 2001 2001 2001 2001 ------------ ------------ ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY AMERCO's notes and loans payable $ -- $ -- $ 1,132,612 $ 1,156,848 SAC Holdings' notes and loans payable, non-recourse to AMERCO (254,996)b) (247,048)b) 306,606 257,109 Policy benefits and losses, claims and loss expenses payable -- -- 705,745 668,830 Liabilities from premium deposits -- -- 548,948 522,207 Deferred income -- -- 15,424 24,546 Deferred income taxes (47,872)d) (42,821)d) 139,541 96,598 Other liabilities (23,619)b) (22,251)b) 245,879 262,439 ------------ ------------ ----------- ----------- Total liabilities (326,487) (312,120) 3,094,755 2,988,577 Minority interest (9,533)c) (10,416)c) -- -- Contingent liabilities and commitments Stockholders' equity: Serial preferred stock - Series A preferred stock -- -- -- -- Series B preferred stock -- -- -- -- Serial common stock - Series A common stock -- -- 1,441 1,441 Common stock -- -- 9,122 9,122 Additional paid-in capital (93,618)d) (79,438)d) 233,325 236,002 Accumulated other comprehensive income 3,031 a) 1,398 a) (30,681) (40,709) Retained earnings 27,792 a,d) 24,221 a,d) 791,930 755,174 Cost of common shares in treasury, net (3,910)a) (3,910)a) (419,834) (410,527) Unearned ESOP shares -- -- (14,152) (15,173) ------------ ------------ ----------- ----------- Total stockholders' equity (66,705) (57,729) 571,151 535,330 ------------ ------------ ----------- ----------- Total liabilities and stock stockholders' equity $ (402,725) $ (380,265) $ 3,665,906 $ 3,523,907 ============ ============ =========== ===========
See accompanying notes. -25- NOTE 11 - CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS NINE MONTHS ENDED DECEMBER 31 (UNAUDITED)
AMERCO AND CONSOLIDATED SAC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED SUBSIDIARIES (AMERCO) (SAC HOLDINGS) ---------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) Revenues: Rental revenue $ 980,095 $ 951,058 $ 77,816 $ 63,191 Net sales 158,556 155,078 16,855 11,514 Premiums 308,261 210,102 -- -- Net investment and interest income 68,101 72,082 -- -- ----------- ----------- ----------- ----------- Total revenues 1,515,013 1,388,320 94,671 74,705 ----------- ----------- ----------- ----------- Costs and expenses: Operating expenses 783,219 745,039 44,039 34,781 Cost of sales 89,116 87,600 8,387 7,185 Benefits and losses 276,260 170,678 -- -- Amortization of deferred policy acquisition costs 32,346 25,112 -- -- Lease expense 133,130 132,395 564 470 Depreciation, net 68,754 69,552 6,705 5,295 ----------- ----------- ----------- ----------- Total costs and expenses 1,382,825 1,230,376 59,695 47,731 ----------- ----------- ----------- ----------- Earnings from operations 132,188 157,944 34,976 26,974 ----------- ----------- ----------- ----------- Interest expense 58,842 65,287 39,078 37,673 ----------- ----------- ----------- ----------- Pretax earnings (loss) 73,346 92,657 (4,102) (10,699) ----------- ----------- ----------- ----------- Income tax expense (26,869) (32,983) (308) (804) Earnings (loss) from operations before minority interest and extraordinary loss on early extinguishment of debt 46,477 59,674 (4,410) (11,503) Minority interest -- -- -- -- ----------- ----------- ----------- ----------- Earnings (loss) before extraordinary loss on early extinguishment of debt 46,477 59,674 (4,410) (11,503) ----------- ----------- ----------- -----------
ADJUSTMENTS AND ELIMINATIONS ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Revenues: Rental revenue $ (5,689)e) $ (4,523)e) $ 1,052,222 $ 1,009,726 Net sales -- -- 175,411 166,592 Premiums -- -- 308,261 210,102 Net investment and interest income (21,652)f) (21,523)f) 46,449 50,559 --------- --------- ----------- ----------- Total revenues (27,341) (26,046) 1,582,343 1,436,979 --------- --------- ----------- ----------- Costs and expenses: Operating expenses (5,689)e) (4,523)e) 821,569 775,297 Cost of sales -- -- 97,503 94,785 Benefits and losses -- -- 276,260 170,678 Amortization of deferred policy acquisition costs -- -- 32,346 25,112 Lease expense -- -- 133,694 132,865 Depreciation, net (3,100)d) (1,500)d) 72,359 73,347 --------- --------- ----------- ----------- Total costs and expenses (8,789) (6,023) 1,433,731 1,272,084 --------- --------- ----------- ----------- Earnings from operations (18,552) (20,023) 148,612 164,895 --------- --------- ----------- ----------- Interest expense (21,652)f) (21,523)f) 76,268 81,437 --------- --------- ----------- ----------- Pretax earnings (loss) 3,100 1,500 72,344 83,458 --------- --------- ----------- ----------- Income tax expense (1,100) (525) (28,277) (34,312) Earnings (loss) from operations before minority interest and extraordinary loss on early extinguishment of debt 2,000 975 44,067 49,146 Minority interest 2,410 10,528 2,410 10,528 --------- --------- ----------- ----------- Earnings (loss) before extraordinary loss on early extinguishment of debt 4,410 11,503 46,477 59,674 --------- --------- ----------- -----------
See accompanying notes. -26- NOTE 11 - CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS,CONTINUED NINE MONTHS ENDED DECEMBER 31 (UNAUDITED)
AMERCO AND CONSOLIDATED SAC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED SUBSIDIARIES (AMERCO) (SAC HOLDINGS) ---------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) Extraordinary loss on early extinguishment of debt, net of tax of $1,160 -- (2,121) -- -- ----------- ----------- ----------- ----------- Net earnings $ 46,477 $ 57,553 $ (4,410) $ (11,503) =========== =========== =========== =========== Basic and diluted earnings per common share: Earnings before extraordinary loss on early extinguishment of debt Extraordinary loss on early extinguishment of debt, net Net earnings Basic and diluted average common shares outstanding
ADJUSTMENTS AND ELIMINATIONS ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Extraordinary loss on early extinguishment of debt, net of tax of $1,160 -- -- -- (2,121) ----------- ----------- ----------- ----------- Net earnings $ 4,410 $ 11,503 $ 46,477 $ 57,553 =========== =========== =========== =========== Basic and diluted earnings per common share: Earnings before extraordinary loss on early extinguishment of debt 1.74 2.32 Extraordinary loss on early extinguishment of debt, net -- (0.10) ----------- ----------- Net earnings $ 1.74 $ 2.22 =========== =========== Basic and diluted average common shares outstanding 21,092,225 21,539,821 =========== ===========
See accompanying notes. -27- NOTE 11 - CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS QUARTERS ENDED DECEMBER 31 (UNAUDITED)
AMERCO AND CONSOLIDATED SAC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED SUBSIDIARIES (AMERCO) (SAC HOLDINGS) ------------------------ ------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- (IN THOUSANDS) (IN THOUSANDS) Revenues: Rental revenue $ 279,114 $ 270,775 $ 24,810 $ 23,292 Net sales 40,284 41,117 4,534 3,600 Premiums 105,381 88,607 -- -- Net investment and interest income 21,142 25,478 -- -- --------- --------- --------- --------- Total revenues 445,921 425,977 29,344 26,892 --------- --------- --------- --------- Costs and expenses: Operating expenses 256,496 258,200 14,993 13,603 Cost of sales 23,950 21,626 2,440 2,771 Benefits and losses 95,487 74,863 -- -- Amortization of deferred policy acquisition costs 11,413 8,554 -- -- Lease expense 42,905 45,859 175 193 Depreciation, net 27,923 25,067 2,571 2,225 --------- --------- --------- --------- Total costs and expenses 458,174 434,169 20,179 18,792 --------- --------- --------- --------- Earnings (loss) from operations (12,253) (8,192) 9,165 8,100 --------- --------- --------- --------- Interest expense 17,986 21,235 11,795 13,581 --------- --------- --------- --------- Pretax loss (30,239) (29,427) (2,630) (5,481) --------- --------- --------- --------- Income tax benefit (expense) 10,027 10,256 (197) (412) Earnings (loss) from operations before minority interest and extraordinary loss on early extinguishment of debt (20,212) (19,171) (2,827) (5,893) Minority interest -- -- -- -- --------- --------- --------- --------- Net loss before extraordinary loss on early extinguishment of debt (20,212) (19,171) (2,827) (5,893) --------- --------- --------- ---------
ADJUSTMENTS AND ELIMINATIONS ------------------------ --------- --------- 2001 2000 2001 2000 --------- --------- --------- --------- (IN THOUSANDS) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Revenues: Rental revenue $ (1,801)e) $ (1,655)e) $ 302,123 $ 292,412 Net sales -- -- 44,818 44,717 Premiums -- -- 105,381 88,607 Net investment and interest income (6,054)f) (6,594)f) 15,088 18,884 --------- --------- ---------- --------- Total revenues (7,855) (8,249) 467,410 444,620 --------- --------- ---------- --------- Costs and expenses: Operating expenses (1,801)e) (1,655)e) 269,688 270,148 Cost of sales -- -- 26,390 24,397 Benefits and losses -- -- 95,487 74,863 Amortization of deferred policy acquisition costs -- -- 11,413 8,554 Lease expense -- -- 43,080 46,052 Depreciation, net (1,000)d) (500)d) 29,494 26,792 --------- --------- ----------- --------- Total costs and expenses (2,801) (2,155) 475,552 450,806 --------- --------- ----------- --------- Earnings (loss) from operations (5,054) (6,094) (8,142) (6,186) --------- --------- ----------- --------- Interest expense (6,054)f) (6,594)f) 23,727 28,222 --------- --------- ----------- --------- Pretax loss 1,000 500 (31,869) (34,408) --------- --------- ----------- --------- Income tax benefit (expense) (350) (175) 9,480 9,669 Earnings (loss) from operations before minority interest and extraordinary loss on early extinguishment of debt 650 325 (22,389) (24,739) Minority interest 2,177 5,568 2,177 5,568 --------- --------- ----------- --------- Net loss before extraordinary loss on early extinguishment of debt 2,827 5,893 (20,212) (19,171) --------- --------- ----------- ---------
See accompanying notes. -28- NOTE 11 - CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS, CONTINUED QUARTERS ENDED DECEMBER 31 (UNAUDITED)
AMERCO AND CONSOLIDATED SAC HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED SUBSIDIARIES (AMERCO) (SAC HOLDINGS) ------------------------ ------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- (IN THOUSANDS) (IN THOUSANDS) Extraordinary loss on early extinguishment of debt, net of tax of $1,160 -- (2,121) -- -- --------- --------- --------- --------- Net loss $ (20,212) $ (21,292) $ (2,827) $ (5,893) ========= ========= ========= ========= Basic and diluted earnings per common share: Earnings before extraordinary loss on early extinguishment of debt Extraordinary loss on early extinguishment of debt, net Net loss Basic and diluted average common shares outstanding
ADJUSTMENTS AND ELIMINATIONS ------------------------ --------- --------- 2001 2000 2001 2000 --------- --------- --------- --------- (IN THOUSANDS) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Extraordinary loss on early extinguishment of debt, net of tax of $1,160 -- -- -- (2,121) --------- --------- --------- --------- Net loss $ 2,827 $ 5,893 $ (20,212) $ (21,292) ========= ========= ========== =========== Basic and diluted earnings per common share: Earnings before extraordinary loss on early extinguishment of debt (1.12) (1.05) Extraordinary loss on early extinguishment of debt, net -- (0.10) ----------- ---------- Net loss $ (1.12) $ (1.15) =========== =========== Basic and diluted average common shares outstanding 20,892,342 21,406,688 =========== ===========
See accompanying notes. -29- AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES Note 11 - Notes to Consolidating Information December 31, 2001 and 2000 a) To eliminate the investment of AMERCO stock held by SAC Holdings. b) To eliminate notes payable and other liabilities payable to AMERCO from SAC Holdings. c) To eliminate minority interest investment held by RepWest and Oxford. d) To eliminate the gain on sale of assets and related deferred taxes from AMERCO to SAC Holdings e) To eliminate management fees received by AMERCO from SAC Holdings. f) To eliminate interest income received by AMERCO from SAC Holdings. 30 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Quarterly report on Form 10-Q/A contains forward-looking statements. Additional written or oral forward-looking statements may be made by AMERCO or the consolidated group from time to time in filings with the Securities and Exchange Commission or otherwise. Management believes such forward-looking statements are within the meaning of the safe-harbor provisions. Such statements may include, but are not limited to, projections of revenues, income or loss, estimates of capital expenditures, the anticipated results of legal proceedings against the Company, plans for future operations, products or services and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe", "expect", "anticipate", "estimate", "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from our expectations are: fluctuations in our costs to maintain and update our fleet and facilities; changes in government regulations, particularly environmental regulations; our credit ratings; changes in demand for our products; changes in the general domestic economy; degree and nature of our competition; and other factors described in this Quarterly Report on Form 10-Q/A or the other documents we file with the Securities and Exchange Commission. As a result of these factors AMERCO's stock price may fluctuate dramatically. GENERAL Information on industry segments is incorporated by reference from "Item 1. Financial Statements - Notes 1, 3 and 9 of Notes to Condensed Consolidated Financial Statements". The notes discuss the principles of combination and consolidation, summarized consolidated financial information and industry segment and geographical area data, respectively. In consolidation, all intersegment premiums are eliminated and the benefits, losses and expenses are retained by the insurance companies. For a discussion of new accounting standards please refer to Note 8 of the Consolidated Financial Statements. 31 RESULTS OF OPERATIONS NINE MONTHS ENDED DECEMBER 31, 2001 VERSUS NINE MONTHS ENDED DECEMBER 31, 2000 MOVING AND STORAGE OPERATIONS
Adjustments and AMERCO SAC Holdings Eliminations Total ----------------------------------------------------------------- (in thousands) Nine months ended December 31, 2001 Revenues: Outside $ 1,152,824 94,671 (27,341) 1,220,154 Intersegment -- -- -- -- ----------- ------- -------- --------- Total revenues $ 1,152,824 94,671 (27,341) 1,220,154 Depreciation/amortization $ 78,824 6,705 (3,100) 82,429 Interest expense $ 58,842 39,078 (21,652) 76,268 Pretax earnings (loss) $ 67,935 (4,102) 3,100 66,933 Income tax expense $ (25,399) (308) (1,100) (26,807) Identifiable assets $ 1,493,042 577,285 (402,725) 1,667,602
Adjustments and AMERCO SAC Holdings Eliminations Total ----------------------------------------------------------------- (in thousands) Nine months ended December 31, 2000 Revenues: Outside $ 1,126,987 74,705 (26,046) 1,175,646 Intersegment -- -- -- -- ----------- ------- -------- --------- Total revenues $ 1,126,987 74,705 (26,046) 1,175,646 Depreciation/amortization $ 77,721 5,295 (1,500) 81,516 Interest expense $ 65,287 37,673 (21,523) 81,437 Pretax earnings (loss) $ 79,752 (10,699) 1,500 70,553 Income tax expense $ (29,235) (804) (525) (30,564) Extraordinary loss on early extinguishment of debt $ (2,121) -- -- (2,121) Identifiable assets $ 1,451,906 522,839 (365,437) 1,609,308
AMERCO Revenues consist of rental revenues and net sales. Total rental revenue was $976.1 million and $949.6 million for the nine months ended December 31, 2001 and 2000, respectively. Net revenues from the rental of moving equipment increased by $18.9 million. The increase was primarily attributable to higher truck and trailer rental revenues and storage revenues, caused by increases in prices and improvements in fleet utilization and storage occupancy. Net sales revenues were $158.5 million and $155.0 million for the nine months ended December 31, 2001 and 2000, respectively. Revenue growth resulted from an increase in the sale of moving support items and an increase in the sale of propane. Cost of sales was $89.1 million and $87.6 million for the nine months ended December 31, 2001 and 2000, respectively. Operating expenses before intercompany eliminations were $768.0 million and $743.8 million for the nine months ended December 31, 2001 and 2000, respectively. Increased expenditure levels for personnel and rental equipment maintenance, due to an increase in truck rental transactions, were primarily responsible. Net depreciation expense was $73.1 million and $59.8 million for the nine months ended December 31, 2001 and 2000, respectively. The increase reflects depreciation on the rental truck fleet. Operating profit before tax and intercompany elimination was $94.2 million and $102.5 million for the nine months ended December 31, 2001 and 2000, respectively. 32 SAC HOLDINGS Rental revenues of $77.8 million and $63.2 million were recognized during the nine months ended December 31, 2001 and 2000, respectively. Increased facility capacity through the acquisition of new locations and increased storage rates accounted for the increase. The occupancy of existing storage locations has remained stable. Net sales revenue was $16.9 million and $11.5 million for the nine months ended December 31, 2001 and 2000, respectively. The growth is related to the acquisition of new locations. Operating expense were $44.0 million and $34.8 million for the nine months ended December 31, 2001 and 2000, respectively. Personnel costs, liability insurance, property taxes and utility expenses all increased proportionately in relation to the increased revenues from the acquisition of new locations. Net depreciation expense was $6.7 million and $5.3 million for the nine months ended December 31, 2001 and 2000, respectively. The increase is attributed to the acquisition of new locations. Operating profit before interest and tax were $35.0 million and $27.0 million for the nine months ended December 31, 2001 and 2000, respectively. AMERCO'S REAL ESTATE OPERATIONS Rental revenue before intercompany eliminations was $52.3 million and $54.1 million for the nine months ended December 31, 2001 and 2000, respectively. Intercompany revenue was $48.3 million and $52.6 million for the nine months ended December 31, 2001 and 2000, respectively. Net investment and interest income was $6.9 million and $7.8 million for the nine months ended December 31, 2001 and 2000, respectively. Net depreciation expense (income) was $(4.3) million and $9.7 million for the nine months ended December 31, 2001 and 2000, respectively. The decrease is due to an increase in the gain from the sale of property plant and equipment. Operating profit before tax and intercompany elimination was $31.1 million and $10.5 million for the nine months ended December 31, 2001 and 2000, respectively. The increase mainly reflects a gain of $12.5 million on sales of property plant and equipment and a decrease in net lease cost. PROPERTY AND CASUALTY RepWest's premiums were $193.0 million and $135.7 million for the nine months ended September 30, 2001 and 2000, respectively. General agency premiums were $86.5 million and $37.5 million for the nine months ended September 30, 2001 and 2000, respectively. The change from 2000 to 2001 was the result of two agency programs, Non-Standard Auto and Transportation, which are responsible for $35.7 million of the increase. In addition, commercial agency business increased by $11.7 million for the same period. Assumed treaty reinsurance premium was $52.0 million and $50.5 million for the nine months ended September 30, 2001 and 2000, respectively. Of this increase, $8.1 million is associated with two Non-Standard Auto treaties, offset by a $5.1 million decrease in Crop Hail Premiums along with an additional $1.4 million decrease resulting from the non-renewal of numerous treaties in 2001. Direct Multiple Peril premiums were $26.0 million and $19.5 million for the nine months ended September 30, 2001 and 2000, respectively. The change from 2000 is a result of rate increases across the entire book of business. Rental industry revenue was $28.5 million and $28.2 million for the nine months ended September 30, 2001 and 2000, respectively. Net investment income was $24.0 million and $23.7 million for the nine months ended September 30, 2001 and 2000, respectively. Benefits and losses were $188.3 million and $116.4 million for the nine months ended September 30, 2001 and 2000, respectively. This increase is due to the Non-Standard Auto, Transportation and commercial agency programs, as well as to the assumed treaty reinsurance and Direct Multiple Peril business. The amortization of deferred acquisition costs (DAC) was $17.8 million and $10.1 million for the nine months ended September 30, 2001 and 2000, respectively. The increase is mainly due to the premium growth and resultant deferral of acquisition expenses in 2000 for the assumed treaty and general agency programs. 33 Operating expenses were $42.6 million and $37.8 million for the nine months ended September 30, 2001 and 2000, respectively. The increase is a result of commissions on new agency business premium and premium taxes resulting from increased premium writings. Operating loss before tax and intercompany elimination was $31.7 million and $4.9 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease is mainly attributable to a significant increase in incurred losses associated with Direct Multiple Peril, assumed treaty business and increased operating expense, offset by an increase in earned premiums. LIFE INSURANCE Net premiums were $119.7 million and $78.3 million for the nine months ended September 30, 2001 and 2000, respectively. Medicare Supplement premiums increased by $41.3 million; driven by new business, rate increases, and the acquisition of Christian Fidelity Life Insurance Company (CFLIC). Net investment income before intercompany eliminations was $19.0 million and $18.2 million for the nine months ended September 30, 2001 and 2000, respectively. The increase was primarily due to realized gains, offset by decreasing market interest rates. Benefits incurred were $88.0 million and $54.2 million for the nine months ended September 30, 2001 and 2000, respectively. This increase is primarily due to a greater volume of Medicare supplement business in force from the acquisition of CFLIC and new business, which accounts for $27.2 million and $6.2 million, respectively. Amortization of DAC and the value of business acquired (VOBA) was $14.5 million and $15.0 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease is primarily due to a smaller volume of credit insurance written. Operating expenses were $30.2 million and $19.9 million for the nine months ended September 30, 2001 and 2000, respectively. Commissions and premium taxes have increased $7.0 million and personnel and other operating expenses, net of fees collected, increased by $2.8 million primarily due to the increase in Medicare supplement business, of which the acquisition of CFLIC accounts for the majority of the increase. Operating profit before tax and intercompany eliminations was $6.0 million and $7.4 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease is primarily due to smaller spreads from the deferred annuity business and higher loss ratios for the credit insurance business; offset by loss ratio improvements in Medicare supplement. INTEREST EXPENSE AMERCO Interest expense was $58.8 million and $65.3 million for the nine months ended December 31, 2001 and 2000, respectively. The decrease can be attributed to lower cost of funds on borrowed money. SAC HOLDINGS Interest expense was $39.1 million and $37.7 million for the nine months ended December 31, 2001 and 2000, respectively. The increase is due to higher amounts of debt outstanding due to the acquisition of new locations. CONSOLIDATED GROUP As a result of the foregoing, pretax earnings totaled $72.3 million and $83.5 million for the nine months ended December 31, 2001 and 2000, respectively. After providing for income taxes, net earnings were $44.1 million and $49.1 million for the nine months ended December 31, 2001 and 2000, respectively. Following adjustments for an extraordinary loss from the early extinguishment of debt of $2.1 million for the nine months ended December 31, 2000 and elimination of SAC Holdings, net earnings were $46.5 and $57.6 for the nine months ended December 31, 2001 and 2000, respectively. The net earnings of SAC Holdings are completely eliminated because AMERCO does not have an equity interest in SAC Holdings. The presentation of consolidated statements is due to a revised interpretation of ETIF 90-15 by the AMERCO's independent public accountants. AMERCO agrees with this interpretation. 34 QUARTER ENDED DECEMBER 31, 2001 VERSUS QUARTER ENDED DECEMBER 31, 2000 MOVING AND STORAGE OPERATIONS
Adjustments and AMERCO SAC Holdings Eliminations Total ----------------------------------------------------------------- (in thousands) Quarter ended December 31, 2001 Revenues: Outside $ 319,027 29,344 (7,855) 340,516 Intersegment -- -- -- -- ----------- ------- -------- --------- Total revenues $ 319,027 29,344 (7,855) 340,516 Depreciation/amortization $ 26,404 2,571 (1,000) 27,975 Interest expense $ 17,986 11,795 (6,054) 23,727 Pretax loss $ (28,010) (2,630) 1,000 (29,640) Income tax benefit (expense) $ 9,009 (197) (350) 8,462 Identifiable assets $ 1,493,042 577,285 (402,725) 1,667,602
Adjustments and AMERCO SAC Holdings Eliminations Total ----------------------------------------------------------------- (in thousands) Quarter ended December 31, 2000 Revenues: Outside $ 320,572 26,892 (8,249) 339,215 Intersegment -- -- -- -- ----------- ------- -------- --------- Total revenues $ 320,572 26,892 (8,249) 339,215 Depreciation/amortization $ 29,035 2,225 (500) 30,760 Interest expense $ 21,235 13,581 (6,594) 28,222 Pretax loss $ (27,593) (5,481) 500 (32,574) Income tax benefit (expense) $ 9,454 (412) (175) 8,867 Extraordinary loss on early extinguishment of debt $ (2,121) -- -- (2,121) Identifiable assets $ 1,451,906 522,839 (365,437) 1,609,308
AMERCO Revenues consist of rental revenues and net sales. Total rental revenue was $273.7 million and $270.5 million for the quarters ended December 31, 2001 and 2000, respectively. Net revenues from the rental of moving related equipment increased by $2.8 million. This increase is primarily attributable to higher truck and trailer rental revenues and storage revenues, caused by increases in prices and improvements in fleet utilization and storage occupancy. Net sales revenues were $40.3 million and $41.0 million for the quarters ended December 31, 2001 and 2000, respectively. Cost of sales was $23.9 million and $21.6 million for the quarters ended December 31, 2001 and 2000, respectively. Operating expenses before intercompany elimination were $247.0 million and $252.0 million for the quarters ended December 31, 2001 and 2000, respectively. The decrease reflects lower rental equipment and building maintenance expenditures. Net depreciation expense was $26.2 million and $20.7 million for the quarters ended December 31, 2001 and 2000, respectively. The increase reflects an increase in depreciation recognized on the rental truck fleet. Operating loss before tax and intercompany elimination was $18.0 million and $19.1 million for the quarters ended December 31, 2001 and 2000, respectively. The increase reflects increases in revenues over increases in operating expenses. SAC HOLDINGS Rental revenues of $24.8 million and $23.3 million were recognized during the quarters ended December 31, 2001 and 2000, respectively. Increased facility capacity through the acquisition of new locations and increased storage rates accounted for the increase. The occupancy of existing storage locations has remained stable. 35 Net sales revenue was $4.5 million and $3.6 million for the quarters ended December 31, 2001 and 2000, respectively. The growth is related to the acquisition of new locations. Operating expense were $15.0 million and $13.6 million for the quarters ended December 31, 2001 and 2000, respectively. Personnel costs, liability insurance, property taxes and utility all increased proportionately in relation to the increased revenues from acquisition of new locations. Net depreciation expense was $2.6 million and $2.2 million for the quarter ended December 31, 2001 and 2000, respectively. The increase is attributed to acquisition of new locations. Operating profit before interest and tax were $9.2 million and $8.1 million for the quarters ended December 31, 2001 and 2000, respectively. AMERCO'S REAL ESTATE OPERATIONS Rental revenue before intercompany eliminations was $17.4 million and $18.0 million for the quarters ended December 31, 2001 and 2000, respectively. Intercompany revenue was $12.0 million and $17.8 million for the quarters ended December 31, 2001 and 2000, respectively. Net investment and interest income was $2.1 million and $2.7 million for the quarters ended December 31, 2001 and 2000, respectively. Net depreciation expense was $1.7 million and $4.4 million for the quarters ended December 31, 2001 and 2000, respectively. The decrease reflects the gain realized from the sale of property plant and equipment. Operating profit before tax and intercompany elimination was $8.4 million and $2.4 million for the quarters ended December 31, 2001 and 2000, respectively. The increase reflects increases in the sale of property plant and equipment and a decrease in net lease cost. PROPERTY AND CASUALTY RepWest's premiums were $64.7 million and $63.4 million for the quarters ended September 30, 2001 and 2000, respectively. General agency premiums were $23.7 million and $17.3 million for the quarters ended September 30, 2001 and 2000, respectively. The change from 2000 to 2001 was the result of Non-Standard Auto, Transportation and commercial agency programs, which are responsible for $6.0 million of the increase. Assumed treaty reinsurance premium were $20.3 million and $27.5 million for the quarters ended September 30, 2001 and 2000, respectively. This decrease is mainly attributable to a $4.4 million decrease in Crop Hail premiums from 2000 to 2001. Direct Multiple Peril Premiums were $10.0 million and $7.4 million for the quarters ended September 30, 2001 and 2000, respectively. This increase is a result of rate increases that took effect in the third quarter of 2001. Net investment income was $8.1 million and $8.0 million for the quarters ended September 30, 2001 and 2000, respectively. Benefits and losses incurred were $65.6 million and $56.3 million for the quarters ended September 30, 2001 and 2000, respectively. The increase is a result of Non-Standard Auto and Transportation general agency and Direct Multiple Peril programs, offset by a decrease in Crop Hail business. The amortization of DAC was $6.2 million and $3.8 million for the quarters ended September 30, 2001 and 2000, respectively. The increase is due to the increase in premium writings. Operating expenses were $13.8 million and $18.0 million for the quarters ended September 30, 2001 and 2000, respectively. The change is due to decreased commission expense resulting from a commission cap that was reached on Non-Standard Auto business, the non-renewal of numerous assumed reinsurance treaties and a decrease in DAC, offset by an increase in general and administrative expenses resulting from taxes associated with increased premium writings. 36 Operating loss before tax and intercompany elimination was $12.8 million and $6.8 million for the quarters ended September 30, 2001 and 2000, respectively. The decrease is mainly attributable to an increase in incurred losses associated with Direct Multiple Peril business, along with a decrease in the capitalization of DAC, offset by an increase in earned premiums and a decrease in operating expenses. LIFE INSURANCE Net premiums were $42.2 million and $26.8 million for the quarters ended September 30, 2001 and 2000, respectively. Medicare Supplement premiums increased by $15.0 million from new business, rate increases and the acquisition of CFLIC. Net investment income before intercompany eliminations was $5.8 million for the quarters ended September 30, 2001 and 2000. Benefits were $29.9 million and $18.5 million for the quarters ended September 30, 2001 and 2000, respectively. $11.7 million of the increase is due to a greater volume of Medicare supplement business in force, of which the acquisition of CFLIC accounts for the majority. Amortization of DAC and VOBA was $5.2 million and $4.8 million for the quarters ended September 30, 2001 and 2000, respectively. The increase is due primarily to annuity DAC amortization. Operating expenses were $10.8 million and $6.6 million for the quarters ended September 30, 2001 and 2000, respectively. Commissions and premium taxes have increased by $2.4 million primarily due to the increase in Medicare supplement premiums. Personnel and other operating expenses, net of fees collected, increased by $1.2 million primarily from the acquisition of CFLIC. Operating profit before tax and intercompany eliminations was $2.1 million and $2.6 million for the quarters ended September 30, 2001 and 2000, respectively. The decrease is primarily due to smaller spreads on the deferred annuity business and higher loss ratios on the credit disability business offset by improved loss ratios for the Medicare supplement business. INTEREST EXPENSE AMERCO Interest expense was $18.0 million and $21.2 million for the quarters ended December 31, 2001 and 2000, respectively. The decrease can be attributed to lower cost of funds on borrowed money. SAC HOLDINGS Interest expense was $11.8 million and $13.6 million for the quarters ended December 31, 2001 and 2000, respectively. The decrease is due to lower cost of funds on borrowed money. CONSOLIDATED GROUP As a result of the foregoing, pretax loss was $31.9 million and $34.4 million for the quarters ended December 31, 2001 and 2000, respectively. After providing for income taxes, net loss was $22.4 million and $24.7 million for the quarters ended December 31, 2001 and 2000, respectively. Following adjustments for an extraordinary loss from the early extinguishment of debt of $2.1 million for the quarter ended December 31, 2000 and the elimination of SAC Holdings, the net loss was $20.2 million and $21.3 million for the quarters ended December 31, 2001 and 2000, respectively. 37 LIQUIDITY AND CAPITAL RESOURCES AMERCO'S MOVING AND STORAGE OPERATIONS To meet the needs of its customers, U-Haul maintains a large inventory of rental items. In the nine months ended December 31, 2001 and 2000, capital expenditures were $144.1 million and $280.3 million, respectively (See note 7 for additional discussion). These expenditures primarily reflect the renewal of the rental truck fleet. The capital required to fund these acquisitions was obtained through internally generated funds from operations and through lease financings. Cash provided by operating activities was $82.3 million and $27.5 million for the nine months ended December 31, 2001 and 2000, respectively. The increase resulted primarily from a decrease in accounts receivable and an increase in accrued liabilities. At December 31, 2001, total outstanding notes and loans payable was $1,132.6 million as compared to $1,156.8 million at March 31, 2001. AMERCO'S REAL ESTATE OPERATIONS Cash provided (used) by operating activities was $(36.4) million and $77.6 million for the nine months ended December 31, 2001 and 2000, respectively. The decrease resulted from a decrease in accrued liabilities. PROPERTY AND CASUALTY Cash provided (used) by operating activities was $(32.0) million and $20.3 million for nine months ended September 30, 2001 and 2000, respectively. This change resulted from increased accounts receivable, other assets, unearned premium reserve and decreased net income from December 2000 to September 2001, offset by an increase in loss and loss adjusting expense reserves and reinsurance payables from December 2000 to September 2001. RepWest's cash and cash equivalents and short-term investment portfolio were $6.3 million and $12.0 million at September 30, 2001 and 2000, respectively. The decrease is a result of an increase in claim payments. RepWest maintains a diversified securities investment portfolio, primarily in bonds, at varying maturity levels with 87.0% of the fixed-income securities consisting of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity remains strong with current invested assets equal to 83.7% of total liabilities. The liability for reported and unreported losses is based upon company historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. Unpaid loss and loss expenses are not discounted. LIFE INSURANCE Oxford's primary sources of cash are premiums, receipts from interest-sensitive products and investment income. The primary uses of cash are operating costs and benefit payments to policyholders. Matching the investment portfolio to the cash flow demands of the types of insurance being written is an important consideration. Benefit and claim statistics are continually monitored to provide projections of future cash requirements. Cash provided (used) by operating activities was $4.8 million and $(0.3) million for the nine months ended September 30, 2001 and 2000, respectively. The increase in cash flows from operating activities relates to increased premium writings and the timing of a settlement offset by higher claim payments. Cash provided by financing activities was $32.1 million and $7.2 million for the nine months ended September 30, 2001 and 2000, respectively. Cash flows from deferred annuity sales increase investment contract deposits, which are a component of financing activities. The increase in investment contract deposits over 2000 is due to growth in new deposits offset by withdrawals and terminations of existing deposits. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. Short-term investments were $74.0 million and $59.7 million for the nine months ended September 30, 2001 and 2000, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. SAC HOLDINGS Cash used by operating activities was $12.7 million and $0.3 million for the nine months ended December 31, 2001 and 2000, respectively. At December 31, 2001, total outstanding notes and mortgages payable were $561.6 million compared to $504.2 million at March 31, 2001. 38 The SAC Holdings intends to meet its current debt obligations through cash flows, generated from its operating activities. CONSOLIDATED GROUP At December 31, 2001, total outstanding notes and mortgages payable for AMERCO and consolidated subsidiaries was $1,132.6 million compared to $1,156.8 million at March 31, 2001. At December 31, 2001, total outstanding notes and mortgages payable for SAC Holdings and consolidated subsidiaries was $561.6 million compared to $504.2 million at March 31, 2001. SAC Holdings loan agreements have no guarantees, or triggers that could create a guarantee, from AMERCO. SAC Holdings' creditors have no recourse to AMERCO. AMERCO is not liable for the debts of SAC Holdings. Further, there are no cross default provisions on indebtedness between AMERCO and SAC Holdings. AMERCO has no (and has never had any) ownership interest in SAC Holdings or its subsidiaries. The presentation of the consolidated statements has no bearing or consideration to the credit agreements or the operations of each. The accounts of AMERCO and SAC Holdings are presented as consolidated due to a revised interpretation of EITF 90-15 by the Company's independent public accountants. During each of the fiscal years ended March 31, 2002, 2003 and 2004, AMERCO estimates gross capital expenditures will average approximately $200 million primarily reflecting rental fleet rotation. This level of capital expenditures, consolidated with a potential range of $150 - $300 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $350 - $500 million. The Company plans to meet these needs through the cash flows, asset sales and various current and future sources of credit (See Credit Agreements discussion below). AMERCO has historically enjoyed a substantial and predictable level of cashflow (EBITDAR) from its non-insurance subsidiaries. These cashflows are dependent on revenues and expenses that can be impacted by economic trends. In the past, the Company has not been as affected by these economic trends as other businesses. Cashflow (defined as EBITDAR) is anticipated to range approximately from $400 million to $425 million annually. The sale of assets is less predictable and substantially lower than the cashflows. The sale of assets is dependant upon economic conditions, the amount and nature of sale and leaseback transactions and AMERCO's fleet rotation program. In many cases, a decline in asset sales is accompanied by a decrease in capital expenditures. The Company intends to meet these needs through cash flows, existing lines of credit, additional borrowings and sale of assets. We may be unable to secure such additional borrowings on satisfactory terms or in a timely manner. Depending on the results of our operations, and general and economic competitive conditions, many of which we cannot control, we may take certain actions, including delaying or reducing capital expenditures. From time to time, Real Estate sells storage properties to SAC Holdings. These sales have in the past provided significant cash flows to the Company. The ability of the Company to engage in similar transactions in the future is dependent to a large degree on the ability of SAC Holdings to obtain third party financing for its acquisition of the properties from Real Estate and in general, its willingness to engage in such transactions. CREDIT AGREEMENTS AMERCO's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes, revolving lines of credit with banks and operating leases. The operating leases are primarily used to finance the Company's fleet of trucks and trailers. As of December 31, 2001, AMERCO had $1,132.6 million in total notes and loans payable outstanding and total unutilized lines of credit of approximately $95.0 million. The Company is in the process of refinancing its' $400 million revolving credit facility. The Company is also in the process of completing a private unsecured debt placement. In addition to the economic pressures, there has been a reduction in the number of leasing companies and banks, which has had a negative impact on the financial markets. This has led to less availability and higher prices. Management of AMERCO believes there are enough leasing companies and banks to meet Company's financing needs. Certain of AMERCO's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, making third party guarantees, entering into contingent obligations, maintaining certain financial ratios and placing certain additional liens on its properties, assets and restricting the issuance of certain types of preferred stock. At December 31, 2001, AMERCO was in compliance with these covenants. AMERCO's various credit and financing arrangements are affected by its credit ratings such that were AMERCO to experience a credit downgrade, the interest rates that it is charged might be increased, which would result in an increase in the Company's interest expense and its ability to obtain additional financing. 39 SAC Holdings' operations are funded by various mortgage loans and unsecured notes, with interest rates ranging from 8.0% to 13.0%. SAC does not utilize revolving lines of credit or leasing facilities to finance its operations or acquisitions. Certain of SAC's agreements contain restrictive covenants including coverage ratios and incurring additional subsidiary indebtedness. At December 31, 2001 SAC Holdings was in compliance with all of these covenants. Reference is made to Note 5 of Notes to Consolidated Financial Statements in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2001 for additional information about AMERCO's credit agreements. CRITICAL ACCOUNTING POLICIES PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and are depreciated on the straight-line and accelerated methods over the estimated useful lives of the assets. Building and non-rental equipment have estimated lives ranging from three to fifty-five years, while rental equipment have estimated lives ranging from one to twenty years. Maintenance is charged to operating expenses as incurred, while renewals and betterments are capitalized. Major overhaul costs are amortized over the estimated period benefited. Gains and losses on dispositions are netted against depreciation expense when realized. Interest costs incurred as part of the initial construction of assets are capitalized. During fiscal year 2002, based on in-depth market analysis, U-Haul increased the estimated salvage value of certain rental trucks. The effect of the changes increased net earnings by $2,284,000 ($0.11 per share) for the nine months ended December 31, 2001. The adjustment reflects management's best estimate, based on information available, of the estimated salvage value of these rental trucks. AMERCO reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable through expected undiscounted future operating cash flows. The carrying value of AMERCO's real estate that is no longer necessary for use in its current operations, and available for sale/lease, at March 31, 2001 and 2000, was approximately $27,691,000 and $27,732,000, respectively. Such properties available for sale are carried at cost, less accumulated depreciation, which is less than fair market value. POLICY BENEFITS AND LOSSES, CLAIMS AND LOSS EXPENSES PAYABLE Liabilities for policy benefits payable on traditional life and certain annuity policies are established in amounts adequate to meet estimated future obligations on policies in force. These liabilities are computed using mortality and withdrawal assumptions which are based upon recognized actuarial tables and contain margins for adverse deviation. The liability for annuity contracts, which are accounted for as investment contract deposits, consists of contract account balances that accrue to the benefit of the policyholders, excluding surrender charges. Carrying value of investment contract deposits were $522,207,000 and $461,673,000 at December 31, 2000 and 1999, respectively. Liabilities for health and disability and other policy claims and benefits payable represent estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred but not yet reported. These estimates are based on past claims experience and consider current claim trends as well as social and economic conditions. RepWest's liability for reported and unreported losses is based on RepWest's historical and industry averages. The liability for unpaid loss adjustment expenses is based on historical ratios of loss adjustment expenses paid to losses paid. Amounts recoverable from reinsurers on unpaid losses are estimated in a manner consistent with the claim liability associated with the reinsured policy. Adjustments to the liability for unpaid losses and loss expenses as well as amounts recoverable from reinsurers on unpaid losses are charged or credited to expense in periods in which they are made. LEASE EXPENSE AMERCO uses certain equipment and occupies certain facilities under operating lease commitments. The majority of the equipment leases are "sale and leaseback transactions". Certain leases contain renewal and fair market value purchase options. The leases contain various restrictions similar to the Company's notes payable and loan agreements. The treatment of these leases is governed by various accounting pronouncements that include FAS 13, FAS 66 and FAS 98. Any changes in the treatment of operating leases could have a material impact on the financial statements AMERCO. At March 31, 2001 the total lease commitments were approximately $691.7 million. 40 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2001. 41 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of the suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss. 42 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation (1) 3.2 Restated By-Laws of AMERCO as of August 27, 1997 (2) 10.1 Management Agreement between Eighteen SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.2 Management Agreement between Twenty SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.3 Management Agreement between Twenty-One SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.4 Management Agreement between Twenty-Two SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.5 Management Agreement between Twenty-Three SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.6 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.7 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.8 Promissory note between SAC Holding Corporation and Oxford Life Insurance Company. 10.9 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.10 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.11 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.12 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.13 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.14 Management Agreement between Securespace Limited Partnership and a subsidiary of AMERCO. 10.15 Purchase and sale agreement between Eighteen SAC Self-Storage Corporation subsidiaries of AMERCO 10.16 Purchase and sale agreement between Twenty SAC Self-Storage Corporation, Twenty-One SAC Self-Storage Corporation, Twenty-Two SAC Self-Storage Corporation, Twenty-Three SAC Self-Storage Corporation and subsidiaries of AMERCO
(b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended December 31, 2001. (1) Filed with the original Form 10-Q filing for the quarter ended December 31, 2001, file no. 1-11255. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. 43 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERCO ------------------------------------ (Registrant) Dated: March 27, 2002 By: /S/ GARY B. HORTON ------------------------------------ Gary B. Horton, Treasurer (Principal Financial Officer)
44 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation (1) 3.2 Restated By-Laws of AMERCO as of August 27, 1997 (2) 10.1 Management Agreement between Eighteen SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.2 Management Agreement between Twenty SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.3 Management Agreement between Twenty-One SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.4 Management Agreement between Twenty-Two SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.5 Management Agreement between Twenty-Three SAC Self Storage Corporation and subsidiaries of AMERCO(1) 10.6 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.7 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.8 Promissory note between SAC Holding Corporation and Oxford Life Insurance Company. 10.9 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.10 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.11 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.12 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.13 Promissory note between SAC Holding Corporation and a subsidiary of AMERCO. 10.14 Management Agreement between Securespace Limited Partnership and a subsidiary of AMERCO. 10.15 Purchase and sale agreement between Eighteen SAC Self-Storage Corporation subsidiaries of AMERCO 10.16 Purchase and sale agreement between Twenty SAC Self-Storage Corporation, Twenty-One SAC Self-Storage Corporation, Twenty-Two SAC Self-Storage Corporation, Twenty-Three SAC Self-Storage Corporation and subsidiaries of AMERCO
- ------------ (1) Filed with the original Form 10-Q filing for the quarter ended December 31, 2001, file no. 1-11255. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. EX-10.6 3 p66363aex10-6.txt EX-10.6 Exhibit 10.6 PROMISSORY NOTE Maximum principal amount of dated as of May 7, 1999 $30,000,000 FOR VALUE RECEIVED, the undersigned SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ---- ----------- U-Haul International, Inc., a Nevada corporation, ("Payee"), at the principal ----- office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Thirty Million Dollars ($20,000,000), or, if less, the aggregate unpaid principal amount of the Loan made by Payee to Maker, with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of eight and one- ------------ half percent (8.5%). "Additional Interest": shall mean and include both Cash Flow --------------------- Contingent Interest and Capital Proceeds Contingent Interest. "Adjusted Operating Expenses": shall mean Operating Expenses (i) to ----------------------------- account for all actual or required Operating Expenses as opposed to escrowed or estimated payments made pursuant to the Senior Loans and (ii) such other adjustments to Operating Expenses to adjust for seasonal, extraordinary or non-customary expenses and costs and other abnormalities. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ------------ 2(b) below. ---- "Borrowers": collectively, are the following: Six-A SAC Self-Storage ----------- Corporation, Six-B SAC Self-Storage Corporation, Six-C SAC Self-Storage Corporation ,Eight SAC Self-Storage Corporation, Nine SAC Self-Storage Corporation, Ten SAC Self-Storage Corporation and Eleven SAC Self-Storage Corporation, each Nevada corporations. "Capital Proceeds Contingent Interest": shall have the meaning given -------------------------------------- it in Section 2(h)(i) below. --------------- "Cash Flow Contingent Interest": shall have the meaning given it in ------------------------------- Section 2(e) below. ------------ "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Debt Papers": shall mean the documents and instruments included ------------- within the definition of the term "Debt Papers" as provided in Section 14 ----------- ---------- below. "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ------------ "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Income": shall equal Gross Receipts for the applicable twelve -------------- (12) month period less (i) sale tax and other similar taxes, (ii) condemnation awards, (iii) casualty or other insurance proceeds, (iv) proceeds of any borrowing, (v) proceeds of any or sale of any Mortgaged Properties, (vi) proceeds of any sale of assets outside the ordinary course of business, (vii) revenues relating to equipment or vehicle rentals and (vii) any revenue generated other than in connection with the use of the Mortgaged Properties. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and the Borrower during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Borrowers' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Senior Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. for the rental of its equipment (whether or not such equipment is owned by the Owner of the Mortgaged Property) at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. For the purpose of calculating the permitted Management Fee and the Capital Expenditure Reserve Deposit, Gross Receipts shall also exclude sales taxes collected by the Maker in connection with the operation of the Project and held in trust for payment to the taxing authorities. Further, in calculating the Management Fee, Gross Receipts shall be further modified as provided for in the Property Management Agreement. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall be counted twice). ---- "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person which is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the mortgage loan in the amount of up to ----- $20,000,000.00 made by Payee to Maker and evidenced by the Note or up to such amount as may have been advanced by Payee to Maker from time to time. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance with the terms of the Debt Papers. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgage": shall mean collectively the Deeds of Trust (and ---------- Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement securing the promissory note representing the Senior Loans, as the same may be amended, modified or restated from time to time and together with all replacements and substitutions therefor. The Mortgage is more fully identified in Section 14 below. ---------- "Mortgaged Properties": shall mean the properties of the Borrowers ---------------------- encumbered by the Senior Loan Documents. "Net Capital Proceeds": shall have the meaning given it in Section ---------------------- ------- 2(h)(iv) below. -------- "Net Cash Flow": shall mean, for any period, the amount by which the --------------- Gross Receipts for such period exceed the sum of Interest paid during such period, Operating Expenses paid for and with respect to such period, and interest paid under and on account of the Senior Loans during such period; but Net Cash Flow for any period shall not be less than zero. "Net Cash Flow Before Debt Service": shall mean, for any period, the ----------------------------------- amount by which the Gross Receipts for such period exceed the Operating Expenses for and with respect to such period. "Net Operating Income": shall mean the "Gross Income" generated by ---------------------- the Project less Adjusted Operating Expenses, adjusted to reflect a ninety- five (95%) percent occupancy on a per Mortgaged Property basis for of the Project. "Note": shall mean this Promissory Note as it may be amended, ----- modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Operating Expenses": shall mean, for any period, all cash -------------------- expenditures of Maker or the Borrowers actually paid (and properly payable) during such period for (i) payments into escrow pursuant to the Debt Papers for real and personal property taxes; (ii) real and personal property taxes on the Project (except to the extent paid from escrowed funds); (iii) premiums for liability, property and other insurance on the Project; (iv) the Capital Expenditure Reserve Deposit; (v) the Management Fee; (vi) sales and rental taxes relating to the Project (except to the extent paid from the Tax and Insurance Escrow Account); and (vii) normal, reasonable and customary operating expenses of the Project. In no event shall Operating Expenses include amounts distributed to the partners or shareholder's of Maker or the Borrowers, payments to Affiliates not permitted under Section ------- 7(c) below, any payments made on the Loan or any other loan obtained by ---- Maker, amounts paid out of any funded reserve expressly approved by Holder, non-cash expenses such as depreciation, or any cost or expense related to the restoration of the Project in the event of a casualty or eminent domain taking paid for from the proceeds of insurance or an eminent domain award or any reserve funded by insurance proceeds or eminent domain awards. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- ------- 4(c) below. ---- "Project": shall mean the real estate, the improvements and the --------- personal property encumbered pursuant to the Senior Loan Documents, taken together collectively. "Project Manager": shall have the meaning given it in Section 6(j) ----------------- ------------ below. "Property Management Agreement": shall have the meaning given such ------------------------------- term in Section 6(j) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) or 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Security Documents": shall mean the documents and instruments -------------------- included within the definition of the term "Security Documents" as provided ------------------ in Section 14 below. ---------- "Senior Loan Documents": shall mean and include, at any time, all ----------------------- promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Senior Loans. "Senior Lender" shall mean Wells Fargo Bank, N.A. ("Wells"), GE --------------- Capital Corporation ("GE") and/or First Union National Bank, N.A. ("First Union"), as the context may so require, in their respective capacities as the lenders under the Senior Loans. "Senior Loans": shall mean, collectively, (i) that certain loan in -------------- the amount of $32,100,000.00 made by the Wells to the Eleven SAC Self Storage Corporation; (ii) that certain loan in the amount of $9,626,000.00 made by the GE to the Eight SAC Self Storage Corporation; (iii) that certain loan in the amount of $8,945,000.00 made by the GE to the Nine SAC Self Storage Corporation; (iv) that certain loan in the amount of $10,272,000.00 made by the GE to the Ten SAC Self Storage Corporation; (v) that certain loan in the amount of $9,675,000.00 made by the First Union to the Six-A SAC Self Storage Corporation; (vi) that certain loan in the amount of $9,423,000.00 made by the First Union to the Six-B SAC Self Storage Corporation; and (vii) that certain loan in the amount of $10,513,000.00 made by the First Union to the Six-C SAC Self Storage Corporation. "Stated Maturity Date": shall mean May 7, 2019, or the date on which ---------------------- all of the Property Management Agreements are terminated in accordance with Section 6 thereof, or on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Senior Loans, or any of them. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid as follows: quarterly in arrears, on the ____________________. Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such quarter through the last day of such quarter ("Deferred -------- Interest") shall be deferred, shall be payable as and at the time provided -------- in Section 2(d) below, and commencing on the day payment of Basic Interest ------------ at the Pay Rate is due for such quarter, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each quarterly date for the payment of Basic Interest, Maker shall pay an amount (the "Catch-Up Payment") equal to the lesser ---------------- of (i) the aggregate outstanding Deferred Interest on the last day of the quarter for which such payment is being made and (ii) ninety percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans by the borrowers thereunder for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Cash Flow Contingent Interest. In addition to Basic Interest and ----------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent -------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans for such period plus an additional amount equal to twice the Pay Rate Interest for such period each calculated as of that date exceeds the Catch-Up Payment paid on that date by Maker to Holder. Additionally, at the time of the closing of any impound accounts established pursuant to the Senior Loan Documents, deposits into which are considered Operating Expenses, Cash Flow Contingent Interest shall be due to the Holder on the balances in those accounts except to the extent such balances are paid to the Senior Lender. (f) Quarterly Statements; Adjustment of Payments. On the due date for -------------------------------------------- each payment of Basic Interest, Maker shall deliver to Holder a certified statement of operations of the Project for the calendar quarter or other period with respect to which such Basic Interest is due, showing in reasonable detail and in a format approved by Holder respective amounts of, and the method of calculating, the Gross Receipts, Gross Income, Operating Expenses, Net Cash Flow, Catch-Up Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as well as (if requested by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five years after the end of the calendar quarter to which they relate. Holder shall have the right to inspect, copy and audit such books of account and records during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any payments made on account of Cash Flow Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (g) Prorations of Cash Flow Contingent Interest. Cash Flow Contingent ------------------------------------------- Interest shall be equitably prorated on the basis of a 365-day year for any partial calendar quarter in which the term of the Loan commences or in which the Note is paid in full. If the payment of Cash Flow Contingent Interest due on the Maturity Date is made before the delivery to Holder of the quarterly statement for the then current calendar quarter, then Maker shall pay to Holder on Maturity Date an estimate of such amount. Maker shall subsequently deliver to Holder an operating statement as required by Section 2(f) for the quarter in which the Maturity Date occurred, and an ------------ appropriate adjustment of the estimated amount previously paid by Maker shall be made by the parties within ten (10) days after the operating statement for such final quarter is delivered to Holder. (h) Capital Proceeds Contingent Interest. ------------------------------------ (i) Capital Proceeds Contingent Interest Defined. Maker shall -------------------------------------------- pay to Holder, in addition to Basic Interest, Deferred Interest and Cash Flow Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of the Net Capital Proceeds resulting from, or determined at the time of, any of the Triggering Events described below (collectively, "Capital Proceeds ---------------- Contingent Interest"). ------------------- (ii) Events Triggering Payment of Net Capital Proceeds. Capital ------------------------------------------------- Proceeds Contingent Interest shall be due and payable concurrently with the occurrence of each and every one of the following events (collectively "Triggering Events", and individually, a "Triggering Event"): ----------------- ---------------- (A) Project Sale or Financing. The closing of any Sale of ------------------------- the Project (any such event is hereinafter collectively referred to as a "Sale or Financing"); ----------------- (B) Default Occurrence. The occurrence of any Event of ------------------ Default which is not fully cured within the period of time, if any, expressly provided for cure herein, and the acceleration of the maturity of the Loan on account thereof (hereinafter collectively referred to as a "Default Occurrence"); and ------------------ (C) Maturity Occurrence. The occurrence of the Maturity ------------------- Date or the prepayment by Maker (if permitted hereunder) of all principal and accrued Basic Interest (including, without limitation, Deferred Interest) and Cash Flow Contingent Interest outstanding on the Loan (the "Maturity Occurrence"). ------------------- (iii) Notice of Triggering Event: Time for Payment of Capital ------------------------------------------------------- Proceeds Contingent Interest. Maker shall notify Holder of the occurrence ---------------------------- of a Triggering Event, and shall pay Holder the full amount of any applicable Capital Proceeds Contingent Interest which is payable in connection therewith, as follows: (A) In the case of any Sale or Financing or the Maturity Occurrence, Maker shall give Holder written notice of any such Triggering Event not less than seventy five (75) days before the date such Triggering Event is to occur. Any Capital Proceeds Contingent Interest due Holder on account of any Sale or Financing or the Maturity Occurrence shall be paid to Holder on the date such Triggering Event occurs. (B) In the case of a Default Occurrence, no notice of such a Triggering Event need be given by Maker. In such event, payment of any and all Capital Proceeds Contingent Interest on account of the Default Occurrence shall be immediately due and payable upon acceleration of the maturity of the Loan. (iv) Determination of Net Capital Proceeds. Prior to the ------------------------------------- occurrence of a Triggering Event (or, in the event of a Default Occurrence, within a reasonable time thereafter), the "Net Capital Proceeds" resulting -------------------- from such Triggering Event shall be determined as follows: (A) Net Capital Proceeds From Sale or Financing. Except as ------------------------------------------- provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing, ------------------- "Net Capital Proceeds" shall be the amount which is equal to: (I) either -------------------- (x) the Gross Capital Proceeds (as hereinafter defined) realized from the Project, or (y) the fair market value of the Project determined pursuant to Section 2(h)(v) below, if Holder in its discretion requires such a --------------- determination, minus (II) the sum of: (aa) reasonable brokerage commissions ----- (excluding any payments to any Affiliate of Maker to the extent such payments exceed those which would have been due as commissions to a non- Affiliate broker rendering identical services), title insurance premiums, documentary transfer taxes, escrow fees and recording charges, appraisal fees, reasonable attorneys' fees and costs, and sales taxes (if any), in each case actually paid or payable by Maker in connection with the Sale or Financing, plus (bb) all payments of principal and Deferred Interest paid to Holder an account of this Note from the proceeds of such Sale or Financing, plus (cc) an amount equal to all payments of principal and interest on the Senior Loans made from the proceeds of such Sale or Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result of such Sale or Financing. For purposes of this Section 2(h), ------------ "Gross Capital Proceeds" shall mean the gross proceeds of whatever form or ---------------------- nature payable directly or indirectly to or for the benefit or account of Maker in connection with such Sale or Financing, including, without limitation: cash; the outstanding balance of any financing which will remain as a lien or encumbrance against the Project or any portion thereof following such Sale or Financing (but only in the case of a Sale, and not in the case of an encumbrance); and the cash equivalent of the fair market value of any non-cash consideration, including the present value of any promissory note received as part of the proceeds of such Sale or Financing (valued at a market rate of interest, as determined by an independent investment banker designated by Holder). (B) Net Capital Proceeds In Connection With a Default or ---------------------------------------------------- Maturity Occurrence. In the event of a Default Occurrence or the Maturity ------------------- Occurrence when no Sale or Financing has occurred, the "Net Capital ----------- Proceeds" shall equal: (I) the fair market value of the Project determined ------- as of the date of such Triggering Event in accordance with Section 2(h)(v) --------------- below, minus (II) the sum of (aa) the outstanding principal balance plus Deferred Interest on the Note plus (bb) the outstanding principal balance of, and accrued but unpaid interest on, the Senior Loans. (v) Determination of Fair Market Value. The fair market value ---------------------------------- of the Project shall be determined for purposes of this Note as follows: (A) Partial Sale. In the event of a Sale of a portion of ------------ the Project, Holder shall select an experienced and reputable appraiser to prepare a written appraisal report of the fair market value of the Project in accordance with clause (C) below, and the appraised fair market value submitted to Holder by such appraiser shall be conclusive for purposes of this Note. (B) Other Occurrences. In all other circumstances the fair ----------------- market value of the Project shall be deemed to equal the result of dividing the Net Cash Flow Before Debt Service for the immediately preceding fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt Service for the immediately preceding fiscal year has been lowered because of unusually high Operating Expenses during such fiscal year the fair market value of the Project may, at the option of the Maker be determined by dividing by ten percent (10%) the mean average of the Net Cash Flow Before Debt Service of the Project for the 3 immediately preceding fiscal years of the Project. (C) Appraisal Standards and Assumptions. In making any ----------------------------------- determination by appraisal of fair market value, the appraiser(s) shall assume that the improvements then located on the Project constitute the highest and best use of the property. If the Triggering Event is a Sale or Financing, the appraiser(s) shall take the sales price into account, although such sales price shall not be determinative of fair market value. Each appraiser selected hereunder shall be an independent MAI-designated appraiser with not less than ten years' experience in commercial real estate appraisal in the general geographical area where the Project is located. (vi) Effect on Holder's Approval Rights. Nothing contained in ---------------------------------- this Section 2(h) shall be deemed or construed to waive, restrict, impair, or in any manner affect Holder's rights hereunder or under any provisions of the Debt Papers to consent (or withhold its consent) to: any prepayment of the Loan in whole or in part; sales or other transfers of all or any portion of the Project or any interest therein; sales or other transfers of any ownership interests in Maker; any refinancing of all or any portion of the Loan; any junior financing; or, any other matters which require Holder's consent. (vii) Statement, Books and Records. With each payment of ---------------------------- Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement setting forth Maker's proposed calculation of Net Capital Proceeds and Capital Proceeds Contingent Interest and shall provide a detailed breakdown of all items necessary for such calculation. For a period of five years after each payment of Capital Proceeds Contingent Interest, Maker shall keep and maintain full and accurate books and records adequate to correctly reflect each such item. Said books and records shall be available for Holder's inspection, copying and audit during reasonable business hours following reasonable notice for the purpose of verifying the accuracy of the payments made on account of Capital Proceeds Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (viii) Negative Capital Proceeds Contingent Interest. --------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Capital Proceeds Contingent Interest. If at any time it is calculated, Capital Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Capital Proceeds Contingent Interest shall be subsequently calculated. (ix) No payment of Capital Proceeds Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest and Principal. Maker promises to pay to the Holder ---------------------- hereof Basic Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 --------- hereinabove. Maker also agrees that, on the anniversary date of this note, Maker will pay to the Holder one-twentieth of the principal of this Note ($_____________), together with all Basic Interest (and on the twentieth anniversary, including without limitation, Deferred Interest and Additional Interest accrued hereunder and not theretofore paid). Each payment of principal of, Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Eastern Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section ------- 8(a). Maker recognizes that in the event any payment secured hereby (other ---- than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker shall without prejudicing or affecting any other rights or remedies of the trustee under those certain Junior Deeds of Trust (or Junior Mortgages, or Junior Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement, Financing Statement and Fixture Filing of even date herewith or Holder pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by Holder's application of any condemnation or insurance proceeds to amounts due under the Note, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent ------------ any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after June 1, 2005. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after June 1, 2005, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. Notwithstanding the foregoing, or anything else in this Note to the contrary, it is agreed that in the event this Note becomes due and payable as a result of the termination of all of the Property Management Agreements, Maker shall not be subject to the Yield Maintenance Premiums or other prepayment premiums contemplated herein and Maker shall only be required to repay the outstanding principal balance of this Note and accrued but unpaid Basic Interest and Deferred Interest through the date of such prepayment, it being agreed that in such event, Maker shall not be required to pay any Capital Proceeds Contingent Interest or Cash Flow Contingent Interest. Maker's Initials:_____ 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to own the Project and enter into the Debt Papers and consummate the transactions contemplated thereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Debt Papers do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations under the Debt Papers that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Debt Papers are valid, binding and -------------- enforceable in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally. (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Zoning and Other Laws. The Project and the use thereof as a --------------------- self-storage facility, separate and apart from any other properties, constitutes a legal and conforming use under applicable zoning regulations and each such Project is in compliance in all material respects with all applicable Requirements of Law; (g) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (h) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; (i) Easements. Maker has obtained and has encumbered in favor of --------- Holder pursuant to the Mortgage all easements, appurtenances and rights of way necessary for access to and the normal uses of the Project; and (i) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210, and that address is its only place of business or its chief executive office. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to repay certain --------------- indebtedness presently outstanding against the Project and held by Payee. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. In addition, on the last day of each calendar month on which an Interest payment is due, Maker shall furnish to Holder a certified statement of operations of the Project for the calendar month in which such Interest payment is due, showing in reasonable detail and in a format approved by Holder the Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $15,000 not fully covered by insurance shall be deemed to be material, exclusive of deductibles in an amount not to exceed $1,000), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals relating to the Debt Papers and the protection of the rights of Holder under the Debt Papers whether by judicial proceedings or otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving Maker or a "workout" of the Loan. The obligations of Maker under this Section 6(e) ------------ shall survive repayment of the Loan. (f) Debt Papers. Comply with and observe all terms and conditions of ----------- the Debt Papers. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ---------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS ------ OF ANY PARTY RELATING TO OR ARISING OUT OF THE DEBT PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND AGREED BY MAKER ---------------- THAT THE INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION ------- 6(g) FOR PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED ---- PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER ------------ SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. MAKER'S INITIALS _____ (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of the Debt Papers. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by a subsidiary of U-Haul International, Inc. and to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. The Maker agrees, upon request of the Holder, to exercise its right to terminate any Project Manager upon the occurrence and continuance of (i) an Event of Default, (ii) a Sale of U-Haul International, Inc. or such Project Manager, (iii) a breach by such Project Manager of its respective Property Management Agreement, or (iv) the Net Cash Flow prior to subtracting Interest shall fall twenty percent (20%) or more for one complete Loan Year. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Senior Loans; (iii) for non-delinquent taxes; and (iv) unsecured debt incurred in the ordinary course of business. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, or (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Debt Papers, Maker shall not make any distributions to any of its partners, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Debt Papers, taking the actions required to be performed under the Debt Papers and operating the Mortgaged Properties. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the undersigned to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to the Collection Account Agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of the Collection Account Agreement; (c) Any representation, warranty or certification made by Maker under any Debt Paper or in any report, certificate or financial statement delivered to the Holder under or in connection with any Debt Paper is materially inaccurate or incomplete as of the date made; provided, however, that such inaccurate or incomplete representation, warranty or certification is material and cannot be cured without material prejudice to the Holder within 30 days written notice thereof to the Maker; (d) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (e) The occurrence of any Default under the Mortgage, under the Security Agreement and Assignment (Management Agreement), or under any of the other Debt Papers; (f) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; (g) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or (h) The occurrence of a Event of Default under the Promissory Notes evidencing the Senior Loans. Upon the occurrence of any Event of Default hereunder: the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, and other charges payable pursuant to the Debt Papers shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (e) of this Section 8, without further action or decision by Holder) ; and the Holder shall have and may exercise any and all rights and remedies available at law or in equity and also any and all rights and remedies provided in the Mortgage and any of the other Security Documents. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note or in the Security Documents) and the undersigned --------- agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Debt Papers. This Note is unsecured. The Senior Loans are --------------- secured by, inter alia, certain Deeds of Trust (and Mortgages, and Deeds to ----- ---- Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by subsidiaries of Maker to or for the benefit of the Senior Holders, respectively, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Senior Holders as security under the Senior Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor, are sometimes referred to collectively herein as the "Security Documents"). Reference should be made to the Mortgage ------------------ and the other Security Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. This Note, the Security Documents and all other documents executed in connection with the Note and the Security Documents are sometimes referred to collectively herein as the "Debt Papers". This Note, the Mortgage, and the other Debt Papers (if any) are ----------- hereby incorporated by reference into this Note in their entirety, as though the complete text of each of them were set out in full here in the body of this Note. Notwithstanding anything to the contrary set forth herein, this Note is not indebtedness of, and is not secured, whether directly or indirectly, by any collateral or property owned or operated by the Borrowers, or any of them. 15. Notices. All notices, demands and other communications hereunder to ------- either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 If to the Holder: U-Haul International, Inc.. 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Donald Murney or Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder or under the other Debt Papers, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. Limitation of Personal Liability. Except for fraud or knowing -------------------------------- misrepresentations, neither Maker nor any partner in Maker shall be liable personally to pay this Note or the indebtedness evidenced hereby, and the Holder shall not seek any personal or deficiency judgment on this Note except for fraud or knowing misrepresentations, and the sole remedy of the Holder hereunder or under any of the other Debt Papers shall (except for fraud, misappropriation of funds or knowing misrepresentations) be under the Security Documents for enforcement thereof or shall otherwise be against the Collateral (defined for purposes hereof as defined in the Mortgage) and any other property at any time securing any or all of the Liabilities (defined for purposes hereof as defined in the Mortgage); provided, however, that the foregoing shall not in any way diminish or affect (i) any rights the Holder may have (as a secured party or otherwise) to, against or with respect to the Collateral or any other property at any time securing any of the liabilities, (ii) any rights of the Holder against the Maker with respect to any fraud, misappropriation of funds or knowing misrepresentation, or (iii) any rights of the Holder under or with respect to any guaranty at any time furnished to the Holder relating to or concerning any of the Liabilities. 21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Entire Agreement. This Note and the other Security Documents ---------------- constitute the entire agreement between Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note or the Security Documents. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ---------------------------------- Its: President ----------------------------------- EX-10.7 4 p66363aex10-7.txt EX-10.7 Exhibit 10.7 PROMISSORY NOTE Maximum principal amount of dated as of May 7, 1999 $50,000,000 FOR VALUE RECEIVED, the undersigned SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ----- ----------- Nationwide Commercial Company, an Arizona corporation, ("Payee"), at the ----- principal office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Fifty Million Dollars ($50,000,000), or, if less, the aggregate unpaid principal amount of the Loan made by Payee to Maker, with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of eight and one- ------------ half percent (8.5%). "Additional Interest": shall mean and include both Cash Flow --------------------- Contingent Interest and Capital Proceeds Contingent Interest. "Adjusted Operating Expenses": shall mean Operating Expenses (i) to ----------------------------- account for all actual or required Operating Expenses as opposed to escrowed or estimated payments made pursuant to the Senior Loans and (ii) such other adjustments to Operating Expenses to adjust for seasonal, extraordinary or non-customary expenses and costs and other abnormalities. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ------------ 2(b) below. ---- "Borrowers": collectively, are the following: Six-A SAC Self-Storage --------- Corporation, Six-B SAC Self-Storage Corporation, Six-C SAC Self-Storage Corporation ,Eight SAC Self-Storage Corporation, Nine SAC Self-Storage Corporation, Ten SAC Self-Storage Corporation and Eleven SAC Self-Storage Corporation, each Nevada corporations. "Capital Proceeds Contingent Interest": shall have the meaning given -------------------------------------- it in Section 2(h)(i) below. --------------- "Cash Flow Contingent Interest": shall have the meaning given it in ------------------------------- Section 2(e) below. ------------ "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Debt Papers": shall mean the documents and instruments included ------------ within the definition of the term "Debt Papers" as provided in Section 14 ----------- ---------- below. "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ----------- "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Income": shall equal Gross Receipts for the applicable twelve -------------- (12) month period less (i) sale tax and other similar taxes, (ii) condemnation awards, (iii) casualty or other insurance proceeds, (iv) proceeds of any borrowing, (v) proceeds of any or sale of any Mortgaged Properties, (vi) proceeds of any sale of assets outside the ordinary course of business, (vii) revenues relating to equipment or vehicle rentals and (vii) any revenue generated other than in connection with the use of the Mortgaged Properties. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and the Borrower during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Borrowers' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Senior Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. for the rental of its equipment (whether or not such equipment is owned by the Owner of the Mortgaged Property) at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. For the purpose of calculating the permitted Management Fee and the Capital Expenditure Reserve Deposit, Gross Receipts shall also exclude sales taxes collected by the Maker in connection with the operation of the Project and held in trust for payment to the taxing authorities. Further, in calculating the Management Fee, Gross Receipts shall be further modified as provided for in the Property Management Agreement. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall be counted twice). ---- "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person which is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the mortgage loan in the amount of up to ------ $50,000,000.00 made by Payee to Maker and evidenced by the Note or up to such amount as may have been advanced by Payee to Maker from time to time. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance with the terms of the Debt Papers. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgage": shall mean collectively the Deeds of Trust (and ---------- Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement securing the promissory note representing the Senior Loans, as the same may be amended, modified or restated from time to time and together with all replacements and substitutions therefor. The Mortgage is more fully identified in Section ------- 14 below. -- "Mortgaged Properties": shall mean the properties of the Borrowers ---------------------- encumbered by the Senior Loan Documents. "Net Capital Proceeds": shall have the meaning given it in Section ---------------------- ------- 2(h)(iv) below. -------- "Net Cash Flow": shall mean, for any period, the amount by which the --------------- Gross Receipts for such period exceed the sum of Interest paid during such period, Operating Expenses paid for and with respect to such period, and interest paid under and on account of the Senior Loans during such period; but Net Cash Flow for any period shall not be less than zero. "Net Cash Flow Before Debt Service": shall mean, for any period, the ----------------------------------- amount by which the Gross Receipts for such period exceed the Operating Expenses for and with respect to such period. "Net Operating Income": shall mean the "Gross Income" generated by ---------------------- the Project less Adjusted Operating Expenses, adjusted to reflect a ninety- five (95%) percent occupancy on a per Mortgaged Property basis for of the Project. "Note": shall mean this Promissory Note as it may be amended, ------ modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Operating Expenses": shall mean, for any period, all cash -------------------- expenditures of Maker or the Borrowers actually paid (and properly payable) during such period for (i) payments into escrow pursuant to the Debt Papers for real and personal property taxes; (ii) real and personal property taxes on the Project (except to the extent paid from escrowed funds); (iii) premiums for liability, property and other insurance on the Project; (iv) the Capital Expenditure Reserve Deposit; (v) the Management Fee; (vi) sales and rental taxes relating to the Project (except to the extent paid from the Tax and Insurance Escrow Account); and (vii) normal, reasonable and customary operating expenses of the Project. In no event shall Operating Expenses include amounts distributed to the partners or shareholder's of Maker or the Borrowers, payments to Affiliates not permitted under Section ------- 7(c) below, any payments made on the Loan or any other loan obtained by ---- Maker, amounts paid out of any funded reserve expressly approved by Holder, non-cash expenses such as depreciation, or any cost or expense related to the restoration of the Project in the event of a casualty or eminent domain taking paid for from the proceeds of insurance or an eminent domain award or any reserve funded by insurance proceeds or eminent domain awards. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- ------- 4(c) below. --- "Project": shall mean the real estate, the improvements and the --------- personal property encumbered pursuant to the Senior Loan Documents, taken together collectively. "Project Manager": shall have the meaning given it in Section 6(j) ----------------- ------------ below. "Property Management Agreement": shall have the meaning given such ------------------------------- term in Section 6(j) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) or 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Security Documents": shall mean the documents and instruments -------------------- included within the definition of the term "Security Documents" as provided -------------------- in Section 14 below. ---------- "Senior Loan Documents": shall mean and include, at any time, all ----------------------- promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Senior Loans. "Senior Lender" shall mean Wells Fargo Bank, N.A. ("Wells"), GE --------------- Capital Corporation ("GE") and/or First Union National Bank, N.A. ("First Union"), as the context may so require, in their respective capacities as the lenders under the Senior Loans. "Senior Loans": shall mean, collectively, (i) that certain loan in -------------- the amount of $32,100,000.00 made by the Wells to the Eleven SAC Self Storage Corporation; (ii) that certain loan in the amount of $9,626,000.00 made by the GE to the Eight SAC Self Storage Corporation; (iii) that certain loan in the amount of $8,945,000.00 made by the GE to the Nine SAC Self Storage Corporation; (iv) that certain loan in the amount of $10,272,000.00 made by the GE to the Ten SAC Self Storage Corporation; (v) that certain loan in the amount of $9,675,000.00 made by the First Union to the Six-A SAC Self Storage Corporation; (vi) that certain loan in the amount of $9,423,000.00 made by the First Union to the Six-B SAC Self Storage Corporation; and (vii) that certain loan in the amount of $10,513,000.00 made by the First Union to the Six-C SAC Self Storage Corporation. "Stated Maturity Date": shall mean May 7, 2019, or the date on which ---------------------- all of the Property Management Agreements are terminated in accordance with Section 6 thereof, or on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Senior Loans, or any of them. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid as follows: quarterly in arrears, on the ____________________. Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such quarter through the last day of such quarter ("Deferred -------- Interest") shall be deferred, shall be payable as and at the time provided -------- in Section 2(d) below, and commencing on the day payment of Basic Interest ------------ at the Pay Rate is due for such quarter, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each quarterly date for the payment of Basic Interest, Maker shall pay an amount (the "Catch-Up Payment") equal to the lesser ---------------- of (i) the aggregate outstanding Deferred Interest on the last day of the quarter for which such payment is being made and (ii) ninety percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans by the borrowers thereunder for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Cash Flow Contingent Interest. In addition to Basic Interest and ----------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent -------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans for such period plus an additional amount equal to twice the Pay Rate Interest for such period each calculated as of that date exceeds the Catch-Up Payment paid on that date by Maker to Holder. Additionally, at the time of the closing of any impound accounts established pursuant to the Senior Loan Documents, deposits into which are considered Operating Expenses, Cash Flow Contingent Interest shall be due to the Holder on the balances in those accounts except to the extent such balances are paid to the Senior Lender. (f) Quarterly Statements; Adjustment of Payments. On the due date for -------------------------------------------- each payment of Basic Interest, Maker shall deliver to Holder a certified statement of operations of the Project for the calendar quarter or other period with respect to which such Basic Interest is due, showing in reasonable detail and in a format approved by Holder respective amounts of, and the method of calculating, the Gross Receipts, Gross Income, Operating Expenses, Net Cash Flow, Catch-Up Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as well as (if requested by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five years after the end of the calendar quarter to which they relate. Holder shall have the right to inspect, copy and audit such books of account and records during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any payments made on account of Cash Flow Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (g) Prorations of Cash Flow Contingent Interest. Cash Flow Contingent ------------------------------------------- Interest shall be equitably prorated on the basis of a 365-day year for any partial calendar quarter in which the term of the Loan commences or in which the Note is paid in full. If the payment of Cash Flow Contingent Interest due on the Maturity Date is made before the delivery to Holder of the quarterly statement for the then current calendar quarter, then Maker shall pay to Holder on Maturity Date an estimate of such amount. Maker shall subsequently deliver to Holder an operating statement as required by Section 2(f) for the quarter in which the Maturity Date occurred, and an ------------ appropriate adjustment of the estimated amount previously paid by Maker shall be made by the parties within ten (10) days after the operating statement for such final quarter is delivered to Holder. (h) Capital Proceeds Contingent Interest. ------------------------------------ (i) Capital Proceeds Contingent Interest Defined. Maker shall -------------------------------------------- pay to Holder, in addition to Basic Interest, Deferred Interest and Cash Flow Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of the Net Capital Proceeds resulting from, or determined at the time of, any of the Triggering Events described below (collectively, "Capital Proceeds ---------------- Contingent Interest"). ------------------- (ii) Events Triggering Payment of Net Capital Proceeds. Capital ------------------------------------------------- Proceeds Contingent Interest shall be due and payable concurrently with the occurrence of each and every one of the following events (collectively "Triggering Events", and individually, a "Triggering Event"): ----------------- ---------------- (A) Project Sale or Financing. The closing of any Sale of ------------------------- the Project (any such event is hereinafter collectively referred to as a "Sale or Financing"); ----------------- (B) Default Occurrence. The occurrence of any Event of ------------------ Default which is not fully cured within the period of time, if any, expressly provided for cure herein, and the acceleration of the maturity of the Loan on account thereof (hereinafter collectively referred to as a "Default Occurrence"); and ------------------ (C) Maturity Occurrence. The occurrence of the Maturity ------------------- Date or the prepayment by Maker (if permitted hereunder) of all principal and accrued Basic Interest (including, without limitation, Deferred Interest) and Cash Flow Contingent Interest outstanding on the Loan (the "Maturity Occurrence"). ------------------- (iii) Notice of Triggering Event: Time for Payment of Capital ------------------------------------------------------- Proceeds Contingent Interest. Maker shall notify Holder of the occurrence ---------------------------- of a Triggering Event, and shall pay Holder the full amount of any applicable Capital Proceeds Contingent Interest which is payable in connection therewith, as follows: (A) In the case of any Sale or Financing or the Maturity Occurrence, Maker shall give Holder written notice of any such Triggering Event not less than seventy five (75) days before the date such Triggering Event is to occur. Any Capital Proceeds Contingent Interest due Holder on account of any Sale or Financing or the Maturity Occurrence shall be paid to Holder on the date such Triggering Event occurs. (B) In the case of a Default Occurrence, no notice of such a Triggering Event need be given by Maker. In such event, payment of any and all Capital Proceeds Contingent Interest on account of the Default Occurrence shall be immediately due and payable upon acceleration of the maturity of the Loan. (iv) Determination of Net Capital Proceeds. Prior to the ------------------------------------- occurrence of a Triggering Event (or, in the event of a Default Occurrence, within a reasonable time thereafter), the "Net Capital Proceeds" resulting -------------------- from such Triggering Event shall be determined as follows: (A) Net Capital Proceeds From Sale or Financing. Except as ------------------------------------------- provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing, ------------------- "Net Capital Proceeds" shall be the amount which is equal to: (I) either -------------------- (x) the Gross Capital Proceeds (as hereinafter defined) realized from the Project, or (y) the fair market value of the Project determined pursuant to Section 2(h)(v) below, if Holder in its discretion requires such a --------------- determination, minus (II) the sum of: (aa) reasonable brokerage commissions ----- (excluding any payments to any Affiliate of Maker to the extent such payments exceed those which would have been due as commissions to a non- Affiliate broker rendering identical services), title insurance premiums, documentary transfer taxes, escrow fees and recording charges, appraisal fees, reasonable attorneys' fees and costs, and sales taxes (if any), in each case actually paid or payable by Maker in connection with the Sale or Financing, plus (bb) all payments of principal and Deferred Interest paid to Holder an account of this Note from the proceeds of such Sale or Financing, plus (cc) an amount equal to all payments of principal and interest on the Senior Loans made from the proceeds of such Sale or Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result of such Sale or Financing. For purposes of this Section 2(h), ------------ "Gross Capital Proceeds" shall mean the gross proceeds of whatever form or ---------------------- nature payable directly or indirectly to or for the benefit or account of Maker in connection with such Sale or Financing, including, without limitation: cash; the outstanding balance of any financing which will remain as a lien or encumbrance against the Project or any portion thereof following such Sale or Financing (but only in the case of a Sale, and not in the case of an encumbrance); and the cash equivalent of the fair market value of any non-cash consideration, including the present value of any promissory note received as part of the proceeds of such Sale or Financing (valued at a market rate of interest, as determined by an independent investment banker designated by Holder). (B) Net Capital Proceeds In Connection With a Default or ---------------------------------------------------- Maturity Occurrence. In the event of a Default Occurrence or the Maturity ------------------- Occurrence when no Sale or Financing has occurred, the "Net Capital ----------- Proceeds" shall equal: (I) the fair market value of the Project determined -------- as of the date of such Triggering Event in accordance with Section 2(h)(v) --------------- below, minus (II) the sum of (aa) the outstanding principal balance plus Deferred Interest on the Note plus (bb) the outstanding principal balance of, and accrued but unpaid interest on, the Senior Loans. (v) Determination of Fair Market Value. The fair market value ---------------------------------- of the Project shall be determined for purposes of this Note as follows: (A) Partial Sale. In the event of a Sale of a portion of ------------ the Project, Holder shall select an experienced and reputable appraiser to prepare a written appraisal report of the fair market value of the Project in accordance with clause (C) below, and the appraised fair market value submitted to Holder by such appraiser shall be conclusive for purposes of this Note. (B) Other Occurrences. In all other circumstances the fair ----------------- market value of the Project shall be deemed to equal the result of dividing the Net Cash Flow Before Debt Service for the immediately preceding fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt Service for the immediately preceding fiscal year has been lowered because of unusually high Operating Expenses during such fiscal year the fair market value of the Project may, at the option of the Maker be determined by dividing by ten percent (10%) the mean average of the Net Cash Flow Before Debt Service of the Project for the 3 immediately preceding fiscal years of the Project. (C) Appraisal Standards and Assumptions. In making any ----------------------------------- determination by appraisal of fair market value, the appraiser(s) shall assume that the improvements then located on the Project constitute the highest and best use of the property. If the Triggering Event is a Sale or Financing, the appraiser(s) shall take the sales price into account, although such sales price shall not be determinative of fair market value. Each appraiser selected hereunder shall be an independent MAI-designated appraiser with not less than ten years' experience in commercial real estate appraisal in the general geographical area where the Project is located. (vi) Effect on Holder's Approval Rights. Nothing contained in ---------------------------------- this Section 2(h) shall be deemed or construed to waive, restrict, impair, ------------ or in any manner affect Holder's rights hereunder or under any provisions of the Debt Papers to consent (or withhold its consent) to: any prepayment of the Loan in whole or in part; sales or other transfers of all or any portion of the Project or any interest therein; sales or other transfers of any ownership interests in Maker; any refinancing of all or any portion of the Loan; any junior financing; or, any other matters which require Holder's consent. (vii) Statement, Books and Records. With each payment of ---------------------------- Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement setting forth Maker's proposed calculation of Net Capital Proceeds and Capital Proceeds Contingent Interest and shall provide a detailed breakdown of all items necessary for such calculation. For a period of five years after each payment of Capital Proceeds Contingent Interest, Maker shall keep and maintain full and accurate books and records adequate to correctly reflect each such item. Said books and records shall be available for Holder's inspection, copying and audit during reasonable business hours following reasonable notice for the purpose of verifying the accuracy of the payments made on account of Capital Proceeds Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (viii) Negative Capital Proceeds Contingent Interest. --------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Capital Proceeds Contingent Interest. If at any time it is calculated, Capital Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Capital Proceeds Contingent Interest shall be subsequently calculated. (ix) No payment of Capital Proceeds Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest and Principal. Maker promises to pay to the Holder ---------------------- hereof Basic Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 --------- hereinabove. Maker also agrees that, on the anniversary date of this note, Maker will pay to the Holder one-twentieth of the principal of this Note ($_____________), together with all Basic Interest (and on the twentieth anniversary, including without limitation, Deferred Interest and Additional Interest accrued hereunder and not theretofore paid). Each payment of principal of, Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Eastern Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section ------- 8(a). Maker recognizes that in the event any payment secured hereby (other ---- than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker shall without prejudicing or affecting any other rights or remedies of the trustee under those certain Junior Deeds of Trust (or Junior Mortgages, or Junior Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement, Financing Statement and Fixture Filing of even date herewith or Holder pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by Holder's application of any condemnation or insurance proceeds to amounts due under the Note, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent ------------ any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after June 1, 2005. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after June 1, 2005, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. Notwithstanding the foregoing, or anything else in this Note to the contrary, it is agreed that in the event this Note becomes due and payable as a result of the termination of all of the Property Management Agreements, Maker shall not be subject to the Yield Maintenance Premiums or other prepayment premiums contemplated herein and Maker shall only be required to repay the outstanding principal balance of this Note and accrued but unpaid Basic Interest and Deferred Interest through the date of such prepayment, it being agreed that in such event, Maker shall not be required to pay any Capital Proceeds Contingent Interest or Cash Flow Contingent Interest. Maker's Initials:_____ 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to own the Project and enter into the Debt Papers and consummate the transactions contemplated thereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Debt Papers do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations under the Debt Papers that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Debt Papers are valid, binding and -------------- enforceable in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally. (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Zoning and Other Laws. The Project and the use thereof as a --------------------- self-storage facility, separate and apart from any other properties, constitutes a legal and conforming use under applicable zoning regulations and each such Project is in compliance in all material respects with all applicable Requirements of Law; (g) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (h) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; (i) Easements. Maker has obtained and has encumbered in favor of --------- Holder pursuant to the Mortgage all easements, appurtenances and rights of way necessary for access to and the normal uses of the Project; and (i) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210, and that address is its only place of business or its chief executive office. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to repay certain --------------- indebtedness presently outstanding against the Project and held by Payee. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. In addition, on the last day of each calendar month on which an Interest payment is due, Maker shall furnish to Holder a certified statement of operations of the Project for the calendar month in which such Interest payment is due, showing in reasonable detail and in a format approved by Holder the Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $15,000 not fully covered by insurance shall be deemed to be material, exclusive of deductibles in an amount not to exceed $1,000), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals relating to the Debt Papers and the protection of the rights of Holder under the Debt Papers whether by judicial proceedings or otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving Maker or a "workout" of the Loan. The obligations of Maker under this Section 6(e) ------------ shall survive repayment of the Loan. (f) Debt Papers. Comply with and observe all terms and conditions of ----------- the Debt Papers. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ----------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS OF ANY PARTY RELATING TO OR ARISING OUT OF THE DEBT PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND AGREED BY MAKER ---------------- THAT THE INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION ------- 6(g) FOR PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED ---- PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER ------------ SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. MAKER'S INITIALS_____ (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of the Debt Papers. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by a subsidiary of U-Haul International, Inc. and to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. The Maker agrees, upon request of the Holder, to exercise its right to terminate any Project Manager upon the occurrence and continuance of (i) an Event of Default, (ii) a Sale of U-Haul International, Inc. or such Project Manager, (iii) a breach by such Project Manager of its respective Property Management Agreement, or (iv) the Net Cash Flow prior to subtracting Interest shall fall twenty percent (20%) or more for one complete Loan Year. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Senior Loans; (iii) for non-delinquent taxes; and (iv) unsecured debt incurred in the ordinary course of business. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, or (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Debt Papers, Maker shall not make any distributions to any of its partners, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Debt Papers, taking the actions required to be performed under the Debt Papers and operating the Mortgaged Properties. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the undersigned to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to the Collection Account Agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of the Collection Account Agreement; (c) Any representation, warranty or certification made by Maker under any Debt Paper or in any report, certificate or financial statement delivered to the Holder under or in connection with any Debt Paper is materially inaccurate or incomplete as of the date made; provided, however, that such inaccurate or incomplete representation, warranty or certification is material and cannot be cured without material prejudice to the Holder within 30 days written notice thereof to the Maker; (d) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (e) The occurrence of any Default under the Mortgage, under the Security Agreement and Assignment (Management Agreement), or under any of the other Debt Papers; (f) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; (g) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or (h) The occurrence of a Event of Default under the Promissory Notes evidencing the Senior Loans. Upon the occurrence of any Event of Default hereunder: the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, and other charges payable pursuant to the Debt Papers shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (e) of this Section 8, without further action or decision by Holder) ; and the Holder shall have and may exercise any and all rights and remedies available at law or in equity and also any and all rights and remedies provided in the Mortgage and any of the other Security Documents. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note or in the Security Documents) and the undersigned --------- agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Debt Papers. This Note is unsecured. The Senior Loans are --------------- secured by, inter alia, certain Deeds of Trust (and Mortgages, and Deeds to ----- ---- Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by subsidiaries of Maker to or for the benefit of the Senior Holders, respectively, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Senior Holders as security under the Senior Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor, are sometimes referred to collectively herein as the "Security Documents"). Reference should be made to the Mortgage ------------------ and the other Security Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. This Note, the Security Documents and all other documents executed in connection with the Note and the Security Documents are sometimes referred to collectively herein as the "Debt Papers". This Note, the Mortgage, and the other Debt Papers (if any) are ----------- hereby incorporated by reference into this Note in their entirety, as though the complete text of each of them were set out in full here in the body of this Note. Notwithstanding anything to the contrary set forth herein, this Note is not indebtedness of, and is not secured, whether directly or indirectly, by any collateral or property owned or operated by the Borrowers, or any of them. 15. Notices. All notices, demands and other communications hereunder to ======= either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 If to the Holder: Nationwide Commercial Company 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder or under the other Debt Papers, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. Limitation of Personal Liability. Except for fraud or knowing -------------------------------- misrepresentations, neither Maker nor any partner in Maker shall be liable personally to pay this Note or the indebtedness evidenced hereby, and the Holder shall not seek any personal or deficiency judgment on this Note except for fraud or knowing misrepresentations, and the sole remedy of the Holder hereunder or under any of the other Debt Papers shall (except for fraud, misappropriation of funds or knowing misrepresentations) be under the Security Documents for enforcement thereof or shall otherwise be against the Collateral (defined for purposes hereof as defined in the Mortgage) and any other property at any time securing any or all of the Liabilities (defined for purposes hereof as defined in the Mortgage); provided, however, that the foregoing shall not in any way diminish or affect (i) any rights the Holder may have (as a secured party or otherwise) to, against or with respect to the Collateral or any other property at any time securing any of the liabilities, (ii) any rights of the Holder against the Maker with respect to any fraud, misappropriation of funds or knowing misrepresentation, or (iii) any rights of the Holder under or with respect to any guaranty at any time furnished to the Holder relating to or concerning any of the Liabilities. 21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Entire Agreement. This Note and the other Security Documents ---------------- constitute the entire agreement between Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note or the Security Documents. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ---------------------------------- Its: President ----------------------------------- EX-10.8 5 p66363aex10-8.txt EX-10.8 Exhibit 10.8 PROMISSORY NOTE Maximum principal amount of dated as of May 7, 1999 $10,000,000 FOR VALUE RECEIVED, the undersigned SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ----- ----------- Oxford Life Insurance Company, an Arizona corporation, ("Payee"), at the ----- principal office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Ten Million Dollars ($10,000,000), or, if less, the aggregate unpaid principal amount of the Loan made by Payee to Maker, with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of eight and one- ------------ half percent (8.5%). "Additional Interest": shall mean and include both Cash Flow --------------------- Contingent Interest and Capital Proceeds Contingent Interest. "Adjusted Operating Expenses": shall mean Operating Expenses (i) to ----------------------------- account for all actual or required Operating Expenses as opposed to escrowed or estimated payments made pursuant to the Senior Loans and (ii) such other adjustments to Operating Expenses to adjust for seasonal, extraordinary or non-customary expenses and costs and other abnormalities. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ------------ 2(b) below. ---- "Borrowers": collectively, are the following: Six-A SAC Self-Storage ----------- Corporation, Six-B SAC Self-Storage Corporation, Six-C SAC Self-Storage Corporation ,Eight SAC Self-Storage Corporation, Nine SAC Self-Storage Corporation, Ten SAC Self-Storage Corporation and Eleven SAC Self-Storage Corporation, each Nevada corporations. "Capital Proceeds Contingent Interest": shall have the meaning given -------------------------------------- it in Section 2(h)(i) below. --------------- "Cash Flow Contingent Interest": shall have the meaning given it in ------------------------------- Section 2(e) below. ------------ "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Debt Papers": shall mean the documents and instruments included ------------- within the definition of the term "Debt Papers" as provided in Section 14 ----------- ---------- below. "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ------------ "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Income": shall equal Gross Receipts for the applicable twelve -------------- (12) month period less (i) sale tax and other similar taxes, (ii) condemnation awards, (iii) casualty or other insurance proceeds, (iv) proceeds of any borrowing, (v) proceeds of any or sale of any Mortgaged Properties, (vi) proceeds of any sale of assets outside the ordinary course of business, (vii) revenues relating to equipment or vehicle rentals and (vii) any revenue generated other than in connection with the use of the Mortgaged Properties. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and the Borrower during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Borrowers' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Senior Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. for the rental of its equipment (whether or not such equipment is owned by the Owner of the Mortgaged Property) at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. For the purpose of calculating the permitted Management Fee and the Capital Expenditure Reserve Deposit, Gross Receipts shall also exclude sales taxes collected by the Maker in connection with the operation of the Project and held in trust for payment to the taxing authorities. Further, in calculating the Management Fee, Gross Receipts shall be further modified as provided for in the Property Management Agreement. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall be counted twice). ---- "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person which is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the mortgage loan in the amount of up to ------ $10,000,000.00 made by Payee to Maker and evidenced by the Note or up to such amount as may have been advanced by Payee to Maker from time to time. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance with the terms of the Debt Papers. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgage": shall mean collectively the Deeds of Trust (and ---------- Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement securing the promissory note representing the Senior Loans, as the same may be amended, modified or restated from time to time and together with all replacements and substitutions therefor. The Mortgage is more fully identified in Section ------- 14 below. -- "Mortgaged Properties": shall mean the properties of the Borrowers ---------------------- encumbered by the Senior Loan Documents. "Net Capital Proceeds": shall have the meaning given it in Section ---------------------- ------- 2(h)(iv) below. -------- "Net Cash Flow": shall mean, for any period, the amount by which the --------------- Gross Receipts for such period exceed the sum of Interest paid during such period, Operating Expenses paid for and with respect to such period, and interest paid under and on account of the Senior Loans during such period; but Net Cash Flow for any period shall not be less than zero. "Net Cash Flow Before Debt Service": shall mean, for any period, the ----------------------------------- amount by which the Gross Receipts for such period exceed the Operating Expenses for and with respect to such period. "Net Operating Income": shall mean the "Gross Income" generated by ---------------------- the Project less Adjusted Operating Expenses, adjusted to reflect a ninety- five (95%) percent occupancy on a per Mortgaged Property basis for of the Project. "Note": shall mean this Promissory Note as it may be amended, ------ modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Operating Expenses": shall mean, for any period, all cash -------------------- expenditures of Maker or the Borrowers actually paid (and properly payable) during such period for (i) payments into escrow pursuant to the Debt Papers for real and personal property taxes; (ii) real and personal property taxes on the Project (except to the extent paid from escrowed funds); (iii) premiums for liability, property and other insurance on the Project; (iv) the Capital Expenditure Reserve Deposit; (v) the Management Fee; (vi) sales and rental taxes relating to the Project (except to the extent paid from the Tax and Insurance Escrow Account); and (vii) normal, reasonable and customary operating expenses of the Project. In no event shall Operating Expenses include amounts distributed to the partners or shareholder's of Maker or the Borrowers, payments to Affiliates not permitted under Section ------- 7(c) below, any payments made on the Loan or any other loan obtained by ---- Maker, amounts paid out of any funded reserve expressly approved by Holder, non-cash expenses such as depreciation, or any cost or expense related to the restoration of the Project in the event of a casualty or eminent domain taking paid for from the proceeds of insurance or an eminent domain award or any reserve funded by insurance proceeds or eminent domain awards. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- ------- 4(c) below. ---- "Project": shall mean the real estate, the improvements and the --------- personal property encumbered pursuant to the Senior Loan Documents, taken together collectively. "Project Manager": shall have the meaning given it in Section 6(j) ----------------- ------------ below. "Property Management Agreement": shall have the meaning given such ------------------------------- term in Section 6(j) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) or 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Security Documents": shall mean the documents and instruments -------------------- included within the definition of the term "Security Documents" as provided ------------------ in Section 14 below. ---------- "Senior Loan Documents": shall mean and include, at any time, all ----------------------- promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Senior Loans. "Senior Lender" shall mean Wells Fargo Bank, N.A. ("Wells"), GE --------------- Capital Corporation ("GE") and/or First Union National Bank, N.A. ("First Union"), as the context may so require, in their respective capacities as the lenders under the Senior Loans. "Senior Loans": shall mean, collectively, (i) that certain loan in -------------- the amount of $32,100,000.00 made by the Wells to the Eleven SAC Self Storage Corporation; (ii) that certain loan in the amount of $9,626,000.00 made by the GE to the Eight SAC Self Storage Corporation; (iii) that certain loan in the amount of $8,945,000.00 made by the GE to the Nine SAC Self Storage Corporation; (iv) that certain loan in the amount of $10,272,000.00 made by the GE to the Ten SAC Self Storage Corporation; (v) that certain loan in the amount of $9,675,000.00 made by the First Union to the Six-A SAC Self Storage Corporation; (vi) that certain loan in the amount of $9,423,000.00 made by the First Union to the Six-B SAC Self Storage Corporation; and (vii) that certain loan in the amount of $10,513,000.00 made by the First Union to the Six-C SAC Self Storage Corporation. "Stated Maturity Date": shall mean May 7, 2019, or the date on which ---------------------- all of the Property Management Agreements are terminated in accordance with Section 6 thereof, or on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Senior Loans, or any of them. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid as follows: quarterly in arrears, on the ____________________. Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such quarter through the last day of such quarter ("Deferred -------- Interest") shall be deferred, shall be payable as and at the time provided -------- in Section 2(d) below, and commencing on the day payment of Basic Interest ------------ at the Pay Rate is due for such quarter, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each quarterly date for the payment of Basic Interest, Maker shall pay an amount (the "Catch-Up Payment") equal to the lesser ---------------- of (i) the aggregate outstanding Deferred Interest on the last day of the quarter for which such payment is being made and (ii) ninety percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans by the borrowers thereunder for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Cash Flow Contingent Interest. In addition to Basic Interest and ----------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent -------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans for such period plus an additional amount equal to twice the Pay Rate Interest for such period each calculated as of that date exceeds the Catch-Up Payment paid on that date by Maker to Holder. Additionally, at the time of the closing of any impound accounts established pursuant to the Senior Loan Documents, deposits into which are considered Operating Expenses, Cash Flow Contingent Interest shall be due to the Holder on the balances in those accounts except to the extent such balances are paid to the Senior Lender. (f) Quarterly Statements; Adjustment of Payments. On the due date for -------------------------------------------- each payment of Basic Interest, Maker shall deliver to Holder a certified statement of operations of the Project for the calendar quarter or other period with respect to which such Basic Interest is due, showing in reasonable detail and in a format approved by Holder respective amounts of, and the method of calculating, the Gross Receipts, Gross Income, Operating Expenses, Net Cash Flow, Catch-Up Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as well as (if requested by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five years after the end of the calendar quarter to which they relate. Holder shall have the right to inspect, copy and audit such books of account and records during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any payments made on account of Cash Flow Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (g) Prorations of Cash Flow Contingent Interest. Cash Flow Contingent ------------------------------------------- Interest shall be equitably prorated on the basis of a 365-day year for any partial calendar quarter in which the term of the Loan commences or in which the Note is paid in full. If the payment of Cash Flow Contingent Interest due on the Maturity Date is made before the delivery to Holder of the quarterly statement for the then current calendar quarter, then Maker shall pay to Holder on Maturity Date an estimate of such amount. Maker shall subsequently deliver to Holder an operating statement as required by Section 2(f) for the quarter in which the Maturity Date occurred, and an ------------ appropriate adjustment of the estimated amount previously paid by Maker shall be made by the parties within ten (10) days after the operating statement for such final quarter is delivered to Holder. (h) Capital Proceeds Contingent Interest. ------------------------------------ (i) Capital Proceeds Contingent Interest Defined. Maker shall -------------------------------------------- pay to Holder, in addition to Basic Interest, Deferred Interest and Cash Flow Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of the Net Capital Proceeds resulting from, or determined at the time of, any of the Triggering Events described below (collectively, "Capital Proceeds ---------------- Contingent Interest"). ------------------- (ii) Events Triggering Payment of Net Capital Proceeds. Capital ------------------------------------------------- Proceeds Contingent Interest shall be due and payable concurrently with the occurrence of each and every one of the following events (collectively "Triggering Events", and individually, a "Triggering Event"): ----------------- ---------------- (A) Project Sale or Financing. The closing of any Sale of ------------------------- the Project (any such event is hereinafter collectively referred to as a "Sale or Financing"); ----------------- (B) Default Occurrence. The occurrence of any Event of ------------------ Default which is not fully cured within the period of time, if any, expressly provided for cure herein, and the acceleration of the maturity of the Loan on account thereof (hereinafter collectively referred to as a "Default Occurrence"); and ------------------ (C) Maturity Occurrence. The occurrence of the Maturity ------------------- Date or the prepayment by Maker (if permitted hereunder) of all principal and accrued Basic Interest (including, without limitation, Deferred Interest) and Cash Flow Contingent Interest outstanding on the Loan (the "Maturity Occurrence"). ------------------- (iii) Notice of Triggering Event: Time for Payment of Capital ------------------------------------------------------- Proceeds Contingent Interest. Maker shall notify Holder of the occurrence ---------------------------- of a Triggering Event, and shall pay Holder the full amount of any applicable Capital Proceeds Contingent Interest which is payable in connection therewith, as follows: (A) In the case of any Sale or Financing or the Maturity Occurrence, Maker shall give Holder written notice of any such Triggering Event not less than seventy five (75) days before the date such Triggering Event is to occur. Any Capital Proceeds Contingent Interest due Holder on account of any Sale or Financing or the Maturity Occurrence shall be paid to Holder on the date such Triggering Event occurs. (B) In the case of a Default Occurrence, no notice of such a Triggering Event need be given by Maker. In such event, payment of any and all Capital Proceeds Contingent Interest on account of the Default Occurrence shall be immediately due and payable upon acceleration of the maturity of the Loan. (iv) Determination of Net Capital Proceeds. Prior to the ------------------------------------- occurrence of a Triggering Event (or, in the event of a Default Occurrence, within a reasonable time thereafter), the "Net Capital Proceeds" resulting -------------------- from such Triggering Event shall be determined as follows: (A) Net Capital Proceeds From Sale or Financing. Except as ------------------------------------------- provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing, ------------------- "Net Capital Proceeds" shall be the amount which is equal to: (I) either -------------------- (x) the Gross Capital Proceeds (as hereinafter defined) realized from the Project, or (y) the fair market value of the Project determined pursuant to Section 2(h)(v) below, if Holder in its discretion requires such a --------------- determination, minus (II) the sum of: (aa) reasonable brokerage commissions ----- (excluding any payments to any Affiliate of Maker to the extent such payments exceed those which would have been due as commissions to a non- Affiliate broker rendering identical services), title insurance premiums, documentary transfer taxes, escrow fees and recording charges, appraisal fees, reasonable attorneys' fees and costs, and sales taxes (if any), in each case actually paid or payable by Maker in connection with the Sale or Financing, plus (bb) all payments of principal and Deferred Interest paid to Holder an account of this Note from the proceeds of such Sale or Financing, plus (cc) an amount equal to all payments of principal and interest on the Senior Loans made from the proceeds of such Sale or Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result of such Sale or Financing. For purposes of this Section 2(h), ------------ "Gross Capital Proceeds" shall mean the gross proceeds of whatever form or ---------------------- nature payable directly or indirectly to or for the benefit or account of Maker in connection with such Sale or Financing, including, without limitation: cash; the outstanding balance of any financing which will remain as a lien or encumbrance against the Project or any portion thereof following such Sale or Financing (but only in the case of a Sale, and not in the case of an encumbrance); and the cash equivalent of the fair market value of any non-cash consideration, including the present value of any promissory note received as part of the proceeds of such Sale or Financing (valued at a market rate of interest, as determined by an independent investment banker designated by Holder). (B) Net Capital Proceeds In Connection With a Default or ---------------------------------------------------- Maturity Occurrence. In the event of a Default Occurrence or the Maturity ------------------- Occurrence when no Sale or Financing has occurred, the "Net Capital ----------- Proceeds" shall equal: (I) the fair market value of the Project determined -------- as of the date of such Triggering Event in accordance with Section 2(h)(v) --------------- below, minus (II) the sum of (aa) the outstanding principal balance plus Deferred Interest on the Note plus (bb) the outstanding principal balance of, and accrued but unpaid interest on, the Senior Loans. (v) Determination of Fair Market Value. The fair market value ---------------------------------- of the Project shall be determined for purposes of this Note as follows: (A) Partial Sale. In the event of a Sale of a portion of ------------ the Project, Holder shall select an experienced and reputable appraiser to prepare a written appraisal report of the fair market value of the Project in accordance with clause (C) below, and the appraised fair market value submitted to Holder by such appraiser shall be conclusive for purposes of this Note. (B) Other Occurrences. In all other circumstances the fair ----------------- market value of the Project shall be deemed to equal the result of dividing the Net Cash Flow Before Debt Service for the immediately preceding fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt Service for the immediately preceding fiscal year has been lowered because of unusually high Operating Expenses during such fiscal year the fair market value of the Project may, at the option of the Maker be determined by dividing by ten percent (10%) the mean average of the Net Cash Flow Before Debt Service of the Project for the 3 immediately preceding fiscal years of the Project. (C) Appraisal Standards and Assumptions. In making any ----------------------------------- determination by appraisal of fair market value, the appraiser(s) shall assume that the improvements then located on the Project constitute the highest and best use of the property. If the Triggering Event is a Sale or Financing, the appraiser(s) shall take the sales price into account, although such sales price shall not be determinative of fair market value. Each appraiser selected hereunder shall be an independent MAI-designated appraiser with not less than ten years' experience in commercial real estate appraisal in the general geographical area where the Project is located. (vi) Effect on Holder's Approval Rights. Nothing contained in ---------------------------------- this Section 2(h) shall be deemed or construed to waive, restrict, impair, ------------ or in any manner affect Holder's rights hereunder or under any provisions of the Debt Papers to consent (or withhold its consent) to: any prepayment of the Loan in whole or in part; sales or other transfers of all or any portion of the Project or any interest therein; sales or other transfers of any ownership interests in Maker; any refinancing of all or any portion of the Loan; any junior financing; or, any other matters which require Holder's consent. (vii) Statement, Books and Records. With each payment of ---------------------------- Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement setting forth Maker's proposed calculation of Net Capital Proceeds and Capital Proceeds Contingent Interest and shall provide a detailed breakdown of all items necessary for such calculation. For a period of five years after each payment of Capital Proceeds Contingent Interest, Maker shall keep and maintain full and accurate books and records adequate to correctly reflect each such item. Said books and records shall be available for Holder's inspection, copying and audit during reasonable business hours following reasonable notice for the purpose of verifying the accuracy of the payments made on account of Capital Proceeds Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (viii) Negative Capital Proceeds Contingent Interest. --------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Capital Proceeds Contingent Interest. If at any time it is calculated, Capital Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Capital Proceeds Contingent Interest shall be subsequently calculated. (ix) No payment of Capital Proceeds Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest and Principal. Maker promises to pay to the Holder ---------------------- hereof Basic Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 --------- hereinabove. Maker also agrees that, on the anniversary date of this note, Maker will pay to the Holder one-twentieth of the principal of this Note ($_____________), together with all Basic Interest (and on the twentieth anniversary, including without limitation, Deferred Interest and Additional Interest accrued hereunder and not theretofore paid). Each payment of principal of, Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Eastern Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section 8(a). Maker recognizes that in the event any payment secured hereby (other than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker shall without prejudicing or affecting any other rights or remedies of the trustee under those certain Junior Deeds of Trust (or Junior Mortgages, or Junior Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement, Financing Statement and Fixture Filing of even date herewith or Holder pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by Holder's application of any condemnation or insurance proceeds to amounts due under the Note, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent ------------ any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after June 1, 2005. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after June 1, 2005, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. Notwithstanding the foregoing, or anything else in this Note to the contrary, it is agreed that in the event this Note becomes due and payable as a result of the termination of all of the Property Management Agreements, Maker shall not be subject to the Yield Maintenance Premiums or other prepayment premiums contemplated herein and Maker shall only be required to repay the outstanding principal balance of this Note and accrued but unpaid Basic Interest and Deferred Interest through the date of such prepayment, it being agreed that in such event, Maker shall not be required to pay any Capital Proceeds Contingent Interest or Cash Flow Contingent Interest. Maker's Initials:_____ 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to own the Project and enter into the Debt Papers and consummate the transactions contemplated thereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Debt Papers do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations under the Debt Papers that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Debt Papers are valid, binding and -------------- enforceable in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally. (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Zoning and Other Laws. The Project and the use thereof as a --------------------- self-storage facility, separate and apart from any other properties, constitutes a legal and conforming use under applicable zoning regulations and each such Project is in compliance in all material respects with all applicable Requirements of Law; (g) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (h) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; (i) Easements. Maker has obtained and has encumbered in favor of --------- Holder pursuant to the Mortgage all easements, appurtenances and rights of way necessary for access to and the normal uses of the Project; and (i) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210, and that address is its only place of business or its chief executive office. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to repay certain --------------- indebtedness presently outstanding against the Project and held by Payee. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. In addition, on the last day of each calendar month on which an Interest payment is due, Maker shall furnish to Holder a certified statement of operations of the Project for the calendar month in which such Interest payment is due, showing in reasonable detail and in a format approved by Holder the Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $15,000 not fully covered by insurance shall be deemed to be material, exclusive of deductibles in an amount not to exceed $1,000), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals relating to the Debt Papers and the protection of the rights of Holder under the Debt Papers whether by judicial proceedings or otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving Maker or a "workout" of the Loan. The obligations of Maker under this Section 6(e) ------------ shall survive repayment of the Loan. (f) Debt Papers. Comply with and observe all terms and conditions of ----------- the Debt Papers. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ----------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS ------ OF ANY PARTY RELATING TO OR ARISING OUT OF THE DEBT PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND AGREED BY MAKER ---------------- THAT THE INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION ------- 6(g) FOR PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED ---- PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER ------------ SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. MAKER'S INITIALS_____ (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of the Debt Papers. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by a subsidiary of U-Haul International, Inc. and to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. The Maker agrees, upon request of the Holder, to exercise its right to terminate any Project Manager upon the occurrence and continuance of (i) an Event of Default, (ii) a Sale of U-Haul International, Inc. or such Project Manager, (iii) a breach by such Project Manager of its respective Property Management Agreement, or (iv) the Net Cash Flow prior to subtracting Interest shall fall twenty percent (20%) or more for one complete Loan Year. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Senior Loans; (iii) for non-delinquent taxes; and (iv) unsecured debt incurred in the ordinary course of business. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, or (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Debt Papers, Maker shall not make any distributions to any of its partners, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Debt Papers, taking the actions required to be performed under the Debt Papers and operating the Mortgaged Properties. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the undersigned to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to the Collection Account Agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of the Collection Account Agreement; (c) Any representation, warranty or certification made by Maker under any Debt Paper or in any report, certificate or financial statement delivered to the Holder under or in connection with any Debt Paper is materially inaccurate or incomplete as of the date made; provided, however, that such inaccurate or incomplete representation, warranty or certification is material and cannot be cured without material prejudice to the Holder within 30 days written notice thereof to the Maker; (d) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (e) The occurrence of any Default under the Mortgage, under the Security Agreement and Assignment (Management Agreement), or under any of the other Debt Papers; (f) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; (g) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or (h) The occurrence of a Event of Default under the Promissory Notes evidencing the Senior Loans. Upon the occurrence of any Event of Default hereunder: the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, and other charges payable pursuant to the Debt Papers shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (e) of this Section 8, without further action or decision by Holder) ; and the Holder shall have and may exercise any and all rights and remedies available at law or in equity and also any and all rights and remedies provided in the Mortgage and any of the other Security Documents. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note or in the Security Documents) and the undersigned --------- agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Debt Papers. This Note is unsecured. The Senior Loans are --------------- secured by, inter alia, certain Deeds of Trust (and Mortgages, and Deeds to ----- ---- Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by subsidiaries of Maker to or for the benefit of the Senior Holders, respectively, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Senior Holders as security under the Senior Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor, are sometimes referred to collectively herein as the "Security Documents"). Reference should be made to the Mortgage ------------------ and the other Security Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. This Note, the Security Documents and all other documents executed in connection with the Note and the Security Documents are sometimes referred to collectively herein as the "Debt Papers". This Note, the Mortgage, and the other Debt Papers (if any) are ----------- hereby incorporated by reference into this Note in their entirety, as though the complete text of each of them were set out in full here in the body of this Note. Notwithstanding anything to the contrary set forth herein, this Note is not indebtedness of, and is not secured, whether directly or indirectly, by any collateral or property owned or operated by the Borrowers, or any of them. 15. Notices. All notices, demands and other communications hereunder to ------- either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 If to the Holder: Oxford Life Insurance Company 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder or under the other Debt Papers, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. Limitation of Personal Liability. Except for fraud or knowing -------------------------------- misrepresentations, neither Maker nor any partner in Maker shall be liable personally to pay this Note or the indebtedness evidenced hereby, and the Holder shall not seek any personal or deficiency judgment on this Note except for fraud or knowing misrepresentations, and the sole remedy of the Holder hereunder or under any of the other Debt Papers shall (except for fraud, misappropriation of funds or knowing misrepresentations) be under the Security Documents for enforcement thereof or shall otherwise be against the Collateral (defined for purposes hereof as defined in the Mortgage) and any other property at any time securing any or all of the Liabilities (defined for purposes hereof as defined in the Mortgage); provided, however, that the foregoing shall not in any way diminish or affect (i) any rights the Holder may have (as a secured party or otherwise) to, against or with respect to the Collateral or any other property at any time securing any of the liabilities, (ii) any rights of the Holder against the Maker with respect to any fraud, misappropriation of funds or knowing misrepresentation, or (iii) any rights of the Holder under or with respect to any guaranty at any time furnished to the Holder relating to or concerning any of the Liabilities. 21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Entire Agreement. This Note and the other Security Documents ================ constitute the entire agreement between Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note or the Security Documents. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ----------------------------------- Its: President ----------------------------------- EX-10.9 6 p66363aex10-9.txt EX-10.9 Exhibit 10.9 PROMISSORY NOTE Maximum principal amount of dated as of August 20, 2001 $5,000,000.00 (U.S. Dollars) FOR VALUE RECEIVED, the undersigned SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ----- ----------- U-Haul International, Inc., a Nevada corporation, ("Payee"), at the principal ----- office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Five Million Dollars ($5,000,000), or, if less, the aggregate unpaid principal amount of the Loan made by Payee to Maker, with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of eight percent ------------ (8.0%). "Additional Interest": shall mean and include both Cash Flow --------------------- Contingent Interest and Capital Proceeds Contingent Interest. "Adjusted Operating Expenses": shall mean Operating Expenses (i) to ----------------------------- account for all actual or required Operating Expenses as opposed to escrowed or estimated payments made pursuant to the Senior Loans or otherwise and (ii) such other adjustments to Operating Expenses to adjust for seasonal, extraordinary or non-customary expenses and costs and other abnormalities. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ------------ 2(b) below. ---- "Borrowers": collectively, are the entities that own fee title to the ----------- properties identified by their respective street address on Schedule A hereto. "Capital Proceeds Contingent Interest": shall have the meaning given -------------------------------------- it in Section 2(h)(i) below. --------------- "Cash Flow Contingent Interest": shall have the meaning given it in ------------------------------- Section 2(e) below. ------------ "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Debt Papers": shall mean the documents and instruments included ------------- within the definition of the term "Debt Papers" as provided in Section 14 ----------- ---------- below. "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ------------ "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Income": shall equal Gross Receipts for the applicable twelve -------------- (12) month period less (i) sale tax and other similar taxes, (ii) condemnation awards, (iii) casualty or other insurance proceeds, (iv) proceeds of any borrowing, (v) proceeds of any or sale of any Mortgaged Properties, (vi) proceeds of any sale of assets outside the ordinary course of business, (vii) revenues relating to equipment or vehicle rentals and (vii) any revenue generated other than in connection with the use of the Mortgaged Properties. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and the Borrower during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Borrowers' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Senior Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. for the rental of its equipment (whether or not such equipment is owned by the Owner of the Mortgaged Property) at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall ---- be counted twice). "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person that is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the unsecured loan in the amount of up to ------ $5,000,000.00 made by Payee to Maker and evidenced by this Note or up to such amount as may have been advanced by Payee to Maker from time to time. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance with the terms of the Debt Papers. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgage": shall mean collectively the Deeds of Trust (and ---------- Mortgages, Hypothecs and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement securing the promissory note representing the Senior Loans, as the same may be amended, modified or restated from time to time and together with all replacements and substitutions therefor. The Mortgage is more fully identified in Section ------- 14 below. -- "Mortgaged Properties": shall mean the properties of the Borrowers ---------------------- identified on Schedule A hereto. "Net Capital Proceeds": shall have the meaning given it in Section ---------------------- ------- 2(h)(iv) below. -------- "Net Cash Flow": shall mean, for any period, the amount by which the --------------- Gross Receipts for such period exceed the sum of Interest paid during such period, Operating Expenses paid for and with respect to such period, and interest paid under and on account of the Senior Loans during such period; but Net Cash Flow for any period shall not be less than zero. "Net Cash Flow Before Debt Service": shall mean, for any period, the ----------------------------------- amount by which the Gross Receipts for such period exceed the Operating Expenses for and with respect to such period. "Net Operating Income": shall mean the "Gross Income" generated by ---------------------- the Project less Adjusted Operating Expenses, adjusted to reflect a ninety- five (95%) percent occupancy on a per Mortgaged Property basis for of the Project. "Note": shall mean this Promissory Note as it may be amended, ------ modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Operating Expenses": shall mean, for any period, all cash -------------------- expenditures of Maker or the Borrowers actually paid (and properly payable) during such period for (i) payments into escrow pursuant to the Debt Papers for real and personal property taxes; (ii) real and personal property taxes on the Project (except to the extent paid from escrowed funds); (iii) premiums for liability, property and other insurance on the Project; (iv) the Management Fee; (v) sales and rental taxes relating to the Project (except to the extent paid from the Tax and Insurance Escrow Account); and (vi) normal, reasonable and customary operating expenses of the Project. In no event shall Operating Expenses include amounts distributed to the partners or shareholder's of Maker or the Borrowers, payments to Affiliates not permitted under Section 7(c) below, any payments made on the Loan or ------------ any other loan obtained by Maker, amounts paid out of any funded reserve expressly approved by Holder, non-cash expenses such as depreciation, or any cost or expense related to the restoration of the Project in the event of a casualty or eminent domain taking paid for from the proceeds of insurance or an eminent domain award or any reserve funded by insurance proceeds or eminent domain awards. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- ------- 4(c) below. ---- "Project": shall mean the real estate, the improvements and the --------- personal property identified on Schedule A hereto, taken together collectively. "Project Manager": shall have the meaning given it in Section 6(j) ----------------- ------------ below. "Property Management Agreement": shall have the meaning given such ------------------------------ term in Section 6(j) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases or licenses of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) of 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Security Documents": shall mean the documents and instruments -------------------- included within the definition of the term "Security Documents" as provided ------------------ in Section 14 below. ---------- "Senior Loan Documents": shall mean and include, at any time, all ----------------------- promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Senior Loans. "Senior Lender" shall mean Montreal Trust Company of Canada and/or --------------- such other Person who may extend a senior loan with respect to the Project or any portion thereof, as the context may so require, in its capacity as the lender under the Senior Loans. "Senior Loans": shall mean, collectively, the sixteen separate loans -------------- from Senior Lender to CST Nominee, Inc. in the aggregate amount of $37 million (Canadian dollars) and any other senior loan secured by the Project or any portion thereof. "Stated Maturity Date": shall mean the earlier of August 1, 2020 and ---------------------- the date on which all of the Property Management Agreements are terminated in accordance with Section 6 thereof, or on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Senior Loans, or any of them, and may include without limitation, impounds for capital repairs and replacements. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid as follows: quarterly in arrears, on the first business day of each calendar quarter. Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such quarter through the last day of such quarter ("Deferred -------- Interest") shall be deferred, shall be payable as and at the time provided -------- in Section 2(d) below, and commencing on the day payment of Basic Interest ------------ at the Pay Rate is due for such quarter, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each quarterly date for the payment of Basic Interest, Maker shall pay an amount (the "Catch-Up Payment") equal to the lesser ---------------- of (i) the aggregate outstanding Deferred Interest on the last day of the quarter for which such payment is being made and (ii) ninety percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans by the borrowers thereunder for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Cash Flow Contingent Interest. In addition to Basic Interest and ----------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent -------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans for such period plus an additional amount equal to twice the Pay Rate Interest for such period each calculated as of that date exceeds the Catch-Up Payment paid on that date by Maker to Holder. Additionally, at the time of the closing of any impound accounts established pursuant to the Senior Loan Documents, deposits into which are considered Operating Expenses, Cash Flow Contingent Interest shall be due to the Holder on the balances in those accounts except to the extent such balances are paid to the Senior Lender. (f) Quarterly Statements; Adjustment of Payments. On the due date for -------------------------------------------- each payment of Basic Interest, Maker shall deliver to Holder a certified statement of operations of the Project for the calendar quarter or other period with respect to which such Basic Interest is due, showing in reasonable detail and in a format approved by Holder respective amounts of, and the method of calculating, the Gross Receipts, Gross Income, Operating Expenses, Net Cash Flow, Catch-Up Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as well as (if requested by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five years after the end of the calendar quarter to which they relate. Holder shall have the right to inspect, copy and audit such books of account and records during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any payments made on account of Cash Flow Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (g) Prorations of Cash Flow Contingent Interest. Cash Flow Contingent ------------------------------------------- Interest shall be equitably prorated on the basis of a 365-day year for any partial calendar quarter in which the term of the Loan commences or in which the Note is paid in full. If the payment of Cash Flow Contingent Interest due on the Maturity Date is made before the delivery to Holder of the quarterly statement for the then current calendar quarter, then Maker shall pay to Holder on Maturity Date an estimate of such amount. Maker shall subsequently deliver to Holder an operating statement as required by Section 2(f) for the quarter in which the Maturity Date occurred, and an ------------ appropriate adjustment of the estimated amount previously paid by Maker shall be made by the parties within ten (10) days after the operating statement for such final quarter is delivered to Holder. (h) Capital Proceeds Contingent Interest. ------------------------------------ (i) Capital Proceeds Contingent Interest Defined. Maker shall -------------------------------------------- pay to Holder, in addition to Basic Interest, Deferred Interest and Cash Flow Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of the Net Capital Proceeds resulting from, or determined at the time of, any of the Triggering Events described below (collectively, "Capital Proceeds ---------------- Contingent Interest"). ------------------- (ii) Events Triggering Payment of Net Capital Proceeds. Capital ------------------------------------------------- Proceeds Contingent Interest shall be due and payable concurrently with the occurrence of each and every one of the following events (collectively "Triggering Events", and individually, a "Triggering Event"): ----------------- ---------------- (A) Project Sale or Financing. The closing of any Sale of ------------------------- the Project (any such event is hereinafter collectively referred to as a "Sale or Financing"); ----------------- (B) Default Occurrence. The occurrence of any Event of ------------------ Default which is not fully cured within the period of time, if any, expressly provided for cure herein, and the acceleration of the maturity of the Loan on account thereof (hereinafter collectively referred to as a "Default Occurrence"); and ------------------ (C) Maturity Occurrence. The occurrence of the Maturity ------------------- Date or the prepayment by Maker (if permitted hereunder) of all principal and accrued Basic Interest (including, without limitation, Deferred Interest) and Cash Flow Contingent Interest outstanding on the Loan (the "Maturity Occurrence"). ------------------- (iii) Notice of Triggering Event: Time for Payment of Capital ------------------------------------------------------- Proceeds Contingent Interest. Maker shall notify Holder of the occurrence ---------------------------- of a Triggering Event, and shall pay Holder the full amount of any applicable Capital Proceeds Contingent Interest which is payable in connection therewith, as follows: (A) In the case of any Sale or Financing or the Maturity Occurrence, Maker shall give Holder written notice of any such Triggering Event not less than seventy five (75) days before the date such Triggering Event is to occur. Any Capital Proceeds Contingent Interest due Holder on account of any Sale or Financing or the Maturity Occurrence shall be paid to Holder on the date such Triggering Event occurs. (B) In the case of a Default Occurrence, no notice of such a Triggering Event need be given by Maker. In such event, payment of any and all Capital Proceeds Contingent Interest on account of the Default Occurrence shall be immediately due and payable upon acceleration of the maturity of the Loan. (iv) Determination of Net Capital Proceeds. Prior to the ------------------------------------- occurrence of a Triggering Event (or, in the event of a Default Occurrence, within a reasonable time thereafter), the "Net Capital Proceeds" resulting -------------------- from such Triggering Event shall be determined as follows: (A) Net Capital Proceeds From Sale or Financing. Except as ------------------------------------------- provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing, ------------------- "Net Capital Proceeds" shall be the amount which is equal to: (I) either -------------------- (x) the Gross Capital Proceeds (as hereinafter defined) realized from the Project, or (y) the fair market value of the Project determined pursuant to Section 2(h)(v) below, if Holder in its discretion requires such a --------------- determination, minus (II) the sum of: (aa) reasonable brokerage commissions ----- (excluding any payments to any Affiliate of Maker to the extent such payments exceed those which would have been due as commissions to a non- Affiliate broker rendering identical services), title insurance premiums, documentary transfer taxes, escrow fees and recording charges, appraisal fees, reasonable attorneys' fees and costs, and sales taxes (if any), in each case actually paid or payable by Maker in connection with the Sale or Financing, plus (bb) all payments of principal and Deferred Interest paid to Holder an account of this Note from the proceeds of such Sale or Financing, plus (cc) an amount equal to all payments of principal and interest on the Senior Loans made from the proceeds of such Sale or Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result of such Sale or Financing. For purposes of this Section 2(h), ------------ "Gross Capital Proceeds" shall mean the gross proceeds of whatever form or ---------------------- nature payable directly or indirectly to or for the benefit or account of Maker in connection with such Sale or Financing, including, without limitation: cash; the outstanding balance of any financing which will remain as a lien or encumbrance against the Project or any portion thereof following such Sale or Financing (but only in the case of a Sale, and not in the case of an encumbrance); and the cash equivalent of the fair market value of any non-cash consideration, including the present value of any promissory note received as part of the proceeds of such Sale or Financing (valued at a market rate of interest, as determined by an independent investment banker designated by Holder). (B) Net Capital Proceeds In Connection With a Default or ---------------------------------------------------- Maturity Occurrence. In the event of a Default Occurrence or the Maturity ------------------- Occurrence when no Sale or Financing has occurred, the "Net Capital ----------- Proceeds" shall equal: (I) the fair market value of the Project determined -------- as of the date of such Triggering Event in accordance with Section 2(h)(v) --------------- below, minus (II) the sum of (aa) the outstanding principal balance plus Deferred Interest on the Note plus (bb) the outstanding principal balance of, and accrued but unpaid interest on, the Senior Loans. (v) Determination of Fair Market Value. The fair market value ---------------------------------- of the Project shall be determined for purposes of this Note as follows: (A) Partial Sale. In the event of a Sale of a portion of ------------ the Project, Holder shall select an experienced and reputable appraiser to prepare a written appraisal report of the fair market value of the Project in accordance with clause (C) below, and the appraised fair market value submitted to Holder by such appraiser shall be conclusive for purposes of this Note. (B) Other Occurrences. In all other circumstances the fair ----------------- market value of the Project shall be deemed to equal the result of dividing the Net Cash Flow Before Debt Service for the immediately preceding fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt Service for the immediately preceding fiscal year has been lowered because of unusually high Operating Expenses during such fiscal year the fair market value of the Project may, at the option of the Maker be determined by dividing by ten percent (10%) the mean average of the Net Cash Flow Before Debt Service of the Project for the 3 immediately preceding fiscal years of the Project. (C) Appraisal Standards and Assumptions. In making any ----------------------------------- determination by appraisal of fair market value, the appraiser(s) shall assume that the improvements then located on the Project constitute the highest and best use of the property. If the Triggering Event is a Sale or Financing, the appraiser(s) shall take the sales price into account, although such sales price shall not be determinative of fair market value. Each appraiser selected hereunder shall be an independent MAI-designated appraiser with not less than ten years' experience in commercial real estate appraisal in the general geographical area where the Project is located. (vi) Effect on Holder's Approval Rights. Nothing contained in ---------------------------------- this Section 2(h) shall be deemed or construed to waive, restrict, impair, ------------ or in any manner affect Holder's rights hereunder to consent (or withhold its consent) to: any prepayment of the Loan in whole or in part; sales or other transfers of all or any portion of the Project or any interest therein; sales or other transfers of any ownership interests in Maker; any refinancing of all or any portion of the Loan; any junior financing; or, any other matters which require Holder's consent. (vii) Statement, Books and Records. With each payment of ---------------------------- Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement setting forth Maker's proposed calculation of Net Capital Proceeds and Capital Proceeds Contingent Interest and shall provide a detailed breakdown of all items necessary for such calculation. For a period of five years after each payment of Capital Proceeds Contingent Interest, Maker shall keep and maintain full and accurate books and records adequate to correctly reflect each such item. Said books and records shall be available for Holder's inspection, copying and audit during reasonable business hours following reasonable notice for the purpose of verifying the accuracy of the payments made on account of Capital Proceeds Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (viii) Negative Capital Proceeds Contingent Interest. --------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Capital Proceeds Contingent Interest. If at any time it is calculated, Capital Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Capital Proceeds Contingent Interest shall be subsequently calculated. (ix) No payment of Capital Proceeds Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest. Maker promises to pay to the Holder hereof Basic -------- Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 hereinabove. No --------- principal payments shall be due hereunder except at the Stated Maturity Date or as otherwise provided herein in the event of default. Each payment of Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Pacific Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section ------- 8(a). Maker recognizes that in the event any payment secured hereby (other ---- than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by Holder's application of any condemnation or insurance proceeds to amounts due under the Note, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent ------------ any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after January 1, 2008. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after January 1, 2008, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. Notwithstanding the foregoing, or anything else in this Note to the contrary, it is agreed that in the event this Note becomes due and payable as a result of the termination of all of the Property Management Agreements, Maker shall not be subject to the Yield Maintenance Premiums or other prepayment premiums contemplated herein and Maker shall only be required to repay the outstanding principal balance of this Note and accrued but unpaid Basic Interest and Deferred Interest through the date of such prepayment, it being agreed that in such event, Maker shall not be required to pay any Capital Proceeds Contingent Interest or Cash Flow Contingent Interest. Maker's Initials: 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to consummate the transactions contemplated hereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Debt Papers do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations hereunder that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Note is valid, binding and enforceable in -------------- accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally. (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Zoning and Other Laws. The Project and the use thereof as a --------------------- self-storage facility, separate and apart from any other properties, constitutes a legal and conforming use under applicable zoning regulations and each such Project is in compliance in all material respects with all applicable Requirements of Law; (g) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (h) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; (i) Intentionally omitted; and (j) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to repay certain --------------- indebtedness presently outstanding against the Project and held by Payee or to capitalize the Borrowers. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. In addition, on the last day of each calendar month on which an Interest payment is due, Maker shall furnish to Holder a certified statement of operations of the Project for the calendar month in which such Interest payment is due, showing in reasonable detail and in a format approved by Holder the Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $500,000 not fully covered by insurance shall be deemed to be material), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals of this Note. (f) Debt Papers. Comply with and observe all terms and conditions of ----------- the Debt Papers to which it is subject. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ----------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS ------ OF ANY PARTY RELATING TO OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND AGREED BY MAKER THAT THE ---------------- INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION 6(g) FOR ------------ PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER ------------ SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. MAKER'S INITIALS (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of this Note. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by subsidiaries of U-Haul International, Inc. or to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. The Maker agrees, upon request of the Holder, to exercise its right to terminate any Project Manager upon the occurrence and continuance of (i) an Event of Default, (ii) a Sale of U-Haul International, Inc. or such Project Manager, (iii) a breach by such Project Manager of its respective Property Management Agreement, or (iv) the Net Cash Flow prior to subtracting Interest shall fall twenty percent (20%) or more for one complete Loan Year. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Senior Loans; (iii) non-delinquent taxes; (iv) unsecured debt incurred in the ordinary course of business and (v) other indebtedness owed to Payee and its affiliates. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, or (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Debt Papers, Maker shall not make any distributions to any of its partners, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Debt Papers, taking the actions required to be performed under the Debt Papers and operating the Mortgaged Properties. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the undersigned to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to any collection account agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of such collection account agreement; (c) Any representation, warranty or certification made by Maker under any Debt Paper or in any report, certificate or financial statement delivered to the Holder under or in connection with any Debt Paper is materially inaccurate or incomplete as of the date made; provided, however, that such inaccurate or incomplete representation, warranty or certification is material and cannot be cured without material prejudice to the Holder within 30 days written notice thereof to the Maker; (d) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (e) The occurrence of any Default under the Debt Papers; (f) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; (g) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or (h) The occurrence of a Event of Default under the promissory notes evidencing the Senior Loans. Upon the occurrence of any Event of Default hereunder: the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, and other charges payable pursuant to the Debt Papers shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (e) of this Section 8, without further action or decision by Holder); and the Holder shall have and may exercise any and all rights and remedies available at law or in equity and also any and all rights and remedies provided in the Mortgage and any of the other Security Documents. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note or in the Security Documents) and the undersigned --------- agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Debt Papers. This Note is unsecured. The Senior Loans are --------------- secured by, inter alia, certain Deeds of Trust (and Mortgages, Hypothecs and ----- ---- Deeds to Secure Debt, as applicable), Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by an affiliate of Maker to or for the benefit of the Senior Holders, respectively, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Senior Holders as security under the Senior Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor, are sometimes referred to collectively herein as the "Security Documents"). Reference should be made to ------------------ the Security Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. The Security Documents and all other documents executed in connection with the Senior Loans are referred to collectively herein as the "Debt Papers". Notwithstanding anything to the ----------- contrary set forth or implied herein, this Note is not indebtedness of the Borrowers, and is not secured, whether directly or indirectly, by the Project or any collateral or property owned or operated by the Borrowers, or any of them. 15. Notices. All notices, demands and other communications hereunder to ------- either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 Attention: President If to the Holder: U-Haul International, Inc. 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder or under the other Debt Papers, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. Intentionally omitted. --------------------- 21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Entire Agreement. This Note and the other Security Documents ---------------- constitute the entire agreement between Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note or the Security Documents. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ---------------------------------- Its: ---------------------------------- Schedule A Description of the Project
Center # Property Name Street Address City / Province Loan Amt 886020 Cremazie 306 Cremazie Ouest, Montreal, Quebec 2,750,000.00 886021 Dollard Des Ormeaux 65 Brunswick Boul. Dollard des Ormeaux, Quebec 3,600,000.00 886022 Jean Talon 3850 Jean Talon West Montreal, Quebec 2,300,000.00 886023 St. Leonard 4949 Metropolitan Est St. Leonard, Quebec 2,250,000.00 886024 St. Jacques 7350 Boul. St. Anne de Bellevue Montreal, Quebec 3,800,000.00 886025 Quebec City 5000 Armand Viau Quebec City, Quebec 2,000,000.00 886026 Ottawa 2720 Queensview Ottawa, Ontario 3,600,000.00 886027 Sidney 10201 MacDonald Park Road Sidney, British Columbia 1,850,000.00 886028 Victoria 644 Queens Avenue Victoria, British Columbia 1,350,000.00 886029 Abbotsford 33966 Hazelwood Avenue RR # 3 Abbotsford, British Columbia 2,000,000.00 886030 Clearbrook 30618 South Fraser Way Abbotsford, British Columbia 1,300,000.00 886031 Langley 9316 - 56 Avenue Langley, British Columbia 1,750,000.00 886032 Richmond 4511 Shell Road Surrey, British Columbia 2,550,000.00 886033 Surrey 18590 - 96 Avenue Surrey, British Columbia 2,450,000.00 886034 West Surrey 13554 - 84 Avenue Surrey, British Columbia 2,100,000.00 886035 West Edmonton 10210 - 218th Street Edmonton, Alberta 1,350,000.00
EX-10.10 7 p66363aex10-10.txt EX-10.10 Exhibit 10.10 PROMISSORY NOTE Maximum principal amount of dated as of March 22, 2001 $30,000,000.00 FOR VALUE RECEIVED, the undersigned SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ---- ----------- Nationwide Commercial Co., an Arizona corporation, ("Payee"), at the principal ----- office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Thirty Million ($30,000,000), or, if less, the aggregate unpaid principal amount of the Loan made by Payee to Maker, with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of eight percent ------------ (8.0%). "Additional Interest": shall mean and include both Cash Flow --------------------- Contingent Interest and Capital Proceeds Contingent Interest. "Adjusted Operating Expenses": shall mean Operating Expenses (i) to ----------------------------- account for all actual or required Operating Expenses as opposed to escrowed or estimated payments made pursuant to the Senior Loans or otherwise and (ii) such other adjustments to Operating Expenses to adjust for seasonal, extraordinary or non-customary expenses and costs and other abnormalities. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ------------ 2(b) below. ---- "Borrowers": collectively, Twelve SAC Self-Storage Corporation, a --------- Nevada corporation, and Thirteen SAC Self-Storage Corporation, a Nevada corporation. "Capital Proceeds Contingent Interest": shall have the meaning given -------------------------------------- it in Section 2(h)(i) below. --------------- "Cash Flow Contingent Interest": shall have the meaning given it in ------------------------------- Section 2(e) below. ------------ "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Debt Papers": is defined in Section 14 below. ------------- ---------- "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ------------ "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Income": shall equal Gross Receipts for the applicable twelve -------------- (12) month period less (i) sale tax and other similar taxes, (ii) condemnation awards, (iii) casualty or other insurance proceeds, (iv) proceeds of any borrowing, (v) proceeds of any or sale of any Mortgaged Properties, (vi) proceeds of any sale of assets outside the ordinary course of business, (vii) revenues relating to equipment or vehicle rentals and (vii) any revenue generated other than in connection with the use of the Mortgaged Properties. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and the Borrower during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Borrowers' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Senior Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. for the rental of its equipment (whether or not such equipment is owned by the Owner of the Mortgaged Property) at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall ---- be counted twice). "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person that is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the unsecured loan in the amount of up to ------ $30,000,000.00 made by Payee to Maker and evidenced by this Note or up to such amount as may have been advanced by Payee to Maker from time to time. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance with the terms of the Debt Papers. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgage": shall mean collectively the Deeds of Trust (and ---------- Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement securing the promissory note representing the Senior Loans, as the same may be amended, modified or restated from time to time and together with all replacements and substitutions therefor. The Mortgage is more fully identified in Section ------- 14 below. -- "Mortgaged Properties": shall mean the properties of the Borrowers ---------------------- identified on Schedule A hereto. "Net Capital Proceeds": shall have the meaning given it in Section ---------------------- ------- 2(h)(iv) below. -------- "Net Cash Flow": shall mean, for any period, the amount by which the --------------- Gross Receipts for such period exceed the sum of Interest paid during such period, Operating Expenses paid for and with respect to such period, and interest paid under and on account of the Senior Loans during such period; but Net Cash Flow for any period shall not be less than zero. "Net Cash Flow Before Debt Service": shall mean, for any period, the ----------------------------------- amount by which the Gross Receipts for such period exceed the Operating Expenses for and with respect to such period. "Net Operating Income": shall mean the "Gross Income" generated by ---------------------- the Project less Adjusted Operating Expenses, adjusted to reflect a ninety- five (95%) percent occupancy on a per Mortgaged Property basis for of the Project. "Note": shall mean this Promissory Note as it may be amended, ------ modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Operating Expenses": shall mean, for any period, all cash -------------------- expenditures of Maker or the Borrowers actually paid (and properly payable) during such period for (i) payments into escrow pursuant to the Debt Papers for real and personal property taxes; (ii) real and personal property taxes on the Project (except to the extent paid from escrowed funds); (iii) premiums for liability, property and other insurance on the Project; (iv) the Management Fee; (v) sales and rental taxes relating to the Project (except to the extent paid from the Tax and Insurance Escrow Account); and (vi) normal, reasonable and customary operating expenses of the Project. In no event shall Operating Expenses include amounts distributed to the partners or shareholder's of Maker or the Borrowers, payments to Affiliates not permitted under Section 7(c) below, any payments made on the Loan or ------------ any other loan obtained by Maker, amounts paid out of any funded reserve expressly approved by Holder, non-cash expenses such as depreciation, or any cost or expense related to the restoration of the Project in the event of a casualty or eminent domain taking paid for from the proceeds of insurance or an eminent domain award or any reserve funded by insurance proceeds or eminent domain awards. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- ------- 4(c) below. ---- "Project": shall mean the real estate, the improvements and the --------- personal property identified on Schedule A hereto, taken together collectively. "Project Manager": shall have the meaning given it in Section 6(j) ----------------- ------------ below. "Property Management Agreement": shall have the meaning given such ------------------------------- term in Section 6(j) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases or licenses of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) of 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Security Documents": shall mean the documents and instruments -------------------- included within the definition of the term "Security Documents" as provided ------------------ in Section 14 below. ---------- "Senior Loan Documents": shall mean and include, at any time, all ----------------------- promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Senior Loans. "Senior Lender" shall mean First Union National Bank or designee --------------- and/or such other Person who may extend a senior loan with respect to the Project or any portion thereof, as the context may so require, in its capacity as the lender under the Senior Loans. "Senior Loans": shall mean, collectively, (i) that certain loan in -------------- the amount of $16,113,000.00 made by Senior Lender to the Twelve SAC Self Storage Corporation; (ii) that certain loan in the amount of $14,887,000.00 made by Senior Lender to the Thirteen SAC Self Storage Corporation; and/or (viii) any other senior loan secured by the Project or any portion thereof. "Stated Maturity Date": shall mean the earlier of January 1, 2021 and ---------------------- the date on which all of the Property Management Agreements are terminated in accordance with Section 6 thereof, or on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Senior Loans, or any of them, and may include without limitation, impounds for capital repairs and replacements. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid as follows: quarterly in arrears, on the first business day of each calendar quarter. Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such quarter through the last day of such quarter ("Deferred -------- Interest") shall be deferred, shall be payable as and at the time provided -------- in Section 2(d) below, and commencing on the day payment of Basic Interest ------------ at the Pay Rate is due for such quarter, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each quarterly date for the payment of Basic Interest, Maker shall pay an amount (the "Catch-Up Payment") equal to the lesser ---------------- of (i) the aggregate outstanding Deferred Interest on the last day of the quarter for which such payment is being made and (ii) ninety percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans by the borrowers thereunder for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Cash Flow Contingent Interest. In addition to Basic Interest and ----------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent -------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans for such period plus an additional amount equal to twice the Pay Rate Interest for such period each calculated as of that date exceeds the Catch-Up Payment paid on that date by Maker to Holder. Additionally, at the time of the closing of any impound accounts established pursuant to the Senior Loan Documents, deposits into which are considered Operating Expenses, Cash Flow Contingent Interest shall be due to the Holder on the balances in those accounts except to the extent such balances are paid to the Senior Lender. (f) Quarterly Statements; Adjustment of Payments. On the due date for -------------------------------------------- each payment of Basic Interest, Maker shall deliver to Holder a certified statement of operations of the Project for the calendar quarter or other period with respect to which such Basic Interest is due, showing in reasonable detail and in a format approved by Holder respective amounts of, and the method of calculating, the Gross Receipts, Gross Income, Operating Expenses, Net Cash Flow, Catch-Up Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as well as (if requested by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five years after the end of the calendar quarter to which they relate. Holder shall have the right to inspect, copy and audit such books of account and records during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any payments made on account of Cash Flow Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (g) Prorations of Cash Flow Contingent Interest. Cash Flow Contingent ------------------------------------------- Interest shall be equitably prorated on the basis of a 365-day year for any partial calendar quarter in which the term of the Loan commences or in which the Note is paid in full. If the payment of Cash Flow Contingent Interest due on the Maturity Date is made before the delivery to Holder of the quarterly statement for the then current calendar quarter, then Maker shall pay to Holder on Maturity Date an estimate of such amount. Maker shall subsequently deliver to Holder an operating statement as required by Section 2(f) for the quarter in which the Maturity Date occurred, and an ------------ appropriate adjustment of the estimated amount previously paid by Maker shall be made by the parties within ten (10) days after the operating statement for such final quarter is delivered to Holder. (h) Capital Proceeds Contingent Interest. ------------------------------------ (i) Capital Proceeds Contingent Interest Defined. Maker shall -------------------------------------------- pay to Holder, in addition to Basic Interest, Deferred Interest and Cash Flow Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of the Net Capital Proceeds resulting from, or determined at the time of, any of the Triggering Events described below (collectively, "Capital Proceeds ---------------- Contingent Interest"). ------------------- (ii) Events Triggering Payment of Net Capital Proceeds. Capital ------------------------------------------------- Proceeds Contingent Interest shall be due and payable concurrently with the occurrence of each and every one of the following events (collectively "Triggering Events", and individually, a "Triggering Event"): ----------------- ---------------- (A) Project Sale or Financing. The closing of any Sale of ------------------------- the Project (any such event is hereinafter collectively referred to as a "Sale or Financing"); ----------------- (B) Default Occurrence. The occurrence of any Event of ------------------ Default which is not fully cured within the period of time, if any, expressly provided for cure herein, and the acceleration of the maturity of the Loan on account thereof (hereinafter collectively referred to as a "Default Occurrence"); and ------------------ (C) Maturity Occurrence. The occurrence of the Maturity ------------------- Date or the prepayment by Maker (if permitted hereunder) of all principal and accrued Basic Interest (including, without limitation, Deferred Interest) and Cash Flow Contingent Interest outstanding on the Loan (the "Maturity Occurrence"). ------------------- (iii) Notice of Triggering Event: Time for Payment of Capital ------------------------------------------------------- Proceeds Contingent Interest. Maker shall notify Holder of the occurrence ---------------------------- of a Triggering Event, and shall pay Holder the full amount of any applicable Capital Proceeds Contingent Interest which is payable in connection therewith, as follows: (A) In the case of any Sale or Financing or the Maturity Occurrence, Maker shall give Holder written notice of any such Triggering Event not less than seventy five (75) days before the date such Triggering Event is to occur. Any Capital Proceeds Contingent Interest due Holder on account of any Sale or Financing or the Maturity Occurrence shall be paid to Holder on the date such Triggering Event occurs. (B) In the case of a Default Occurrence, no notice of such a Triggering Event need be given by Maker. In such event, payment of any and all Capital Proceeds Contingent Interest on account of the Default Occurrence shall be immediately due and payable upon acceleration of the maturity of the Loan. (iv) Determination of Net Capital Proceeds. Prior to the ------------------------------------- occurrence of a Triggering Event (or, in the event of a Default Occurrence, within a reasonable time thereafter), the "Net Capital Proceeds" resulting -------------------- from such Triggering Event shall be determined as follows: (A) Net Capital Proceeds From Sale or Financing. Except as ------------------------------------------- provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing, ------------------- "Net Capital Proceeds" shall be the amount which is equal to: (I) either -------------------- (x) the Gross Capital Proceeds (as hereinafter defined) realized from the Project, or (y) the fair market value of the Project determined pursuant to Section 2(h)(v) below, if Holder in its discretion requires such a --------------- determination, minus (II) the sum of: (aa) reasonable brokerage commissions ----- (excluding any payments to any Affiliate of Maker to the extent such payments exceed those which would have been due as commissions to a non- Affiliate broker rendering identical services), title insurance premiums, documentary transfer taxes, escrow fees and recording charges, appraisal fees, reasonable attorneys' fees and costs, and sales taxes (if any), in each case actually paid or payable by Maker in connection with the Sale or Financing, plus (bb) all payments of principal and Deferred Interest paid to Holder an account of this Note from the proceeds of such Sale or Financing, plus (cc) an amount equal to all payments of principal and interest on the Senior Loans made from the proceeds of such Sale or Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result of such Sale or Financing. For purposes of this Section 2(h), ------------ "Gross Capital Proceeds" shall mean the gross proceeds of whatever form or ---------------------- nature payable directly or indirectly to or for the benefit or account of Maker in connection with such Sale or Financing, including, without limitation: cash; the outstanding balance of any financing which will remain as a lien or encumbrance against the Project or any portion thereof following such Sale or Financing (but only in the case of a Sale, and not in the case of an encumbrance); and the cash equivalent of the fair market value of any non-cash consideration, including the present value of any promissory note received as part of the proceeds of such Sale or Financing (valued at a market rate of interest, as determined by an independent investment banker designated by Holder). (B) Net Capital Proceeds In Connection With a Default or ---------------------------------------------------- Maturity Occurrence. In the event of a Default Occurrence or the Maturity ------------------- Occurrence when no Sale or Financing has occurred, the "Net Capital ----------- Proceeds" shall equal: (I) the fair market value of the Project determined -------- as of the date of such Triggering Event in accordance with Section 2(h)(v) --------------- below, minus (II) the sum of (aa) the outstanding principal balance plus Deferred Interest on the Note plus (bb) the outstanding principal balance of, and accrued but unpaid interest on, the Senior Loans. (v) Determination of Fair Market Value. The fair market value ---------------------------------- of the Project shall be determined for purposes of this Note as follows: (A) Partial Sale. In the event of a Sale of a portion of ------------ the Project, Holder shall select an experienced and reputable appraiser to prepare a written appraisal report of the fair market value of the Project in accordance with clause (C) below, and the appraised fair market value submitted to Holder by such appraiser shall be conclusive for purposes of this Note. (B) Other Occurrences. In all other circumstances the fair ----------------- market value of the Project shall be deemed to equal the result of dividing the Net Cash Flow Before Debt Service for the immediately preceding fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt Service for the immediately preceding fiscal year has been lowered because of unusually high Operating Expenses during such fiscal year the fair market value of the Project may, at the option of the Maker be determined by dividing by ten percent (10%) the mean average of the Net Cash Flow Before Debt Service of the Project for the 3 immediately preceding fiscal years of the Project. (C) Appraisal Standards and Assumptions. In making any ----------------------------------- determination by appraisal of fair market value, the appraiser(s) shall assume that the improvements then located on the Project constitute the highest and best use of the property. If the Triggering Event is a Sale or Financing, the appraiser(s) shall take the sales price into account, although such sales price shall not be determinative of fair market value. Each appraiser selected hereunder shall be an independent MAI-designated appraiser with not less than ten years' experience in commercial real estate appraisal in the general geographical area where the Project is located. (vi) Effect on Holder's Approval Rights. Nothing contained in ---------------------------------- this Section 2(h) shall be deemed or construed to waive, restrict, impair, ------------ or in any manner affect Holder's rights hereunder to consent (or withhold its consent) to: any prepayment of the Loan in whole or in part; sales or other transfers of all or any portion of the Project or any interest therein; sales or other transfers of any ownership interests in Maker; any refinancing of all or any portion of the Loan; any junior financing; or, any other matters which require Holder's consent. (vii) Statement, Books and Records. With each payment of ---------------------------- Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement setting forth Maker's proposed calculation of Net Capital Proceeds and Capital Proceeds Contingent Interest and shall provide a detailed breakdown of all items necessary for such calculation. For a period of five years after each payment of Capital Proceeds Contingent Interest, Maker shall keep and maintain full and accurate books and records adequate to correctly reflect each such item. Said books and records shall be available for Holder's inspection, copying and audit during reasonable business hours following reasonable notice for the purpose of verifying the accuracy of the payments made on account of Capital Proceeds Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (viii) Negative Capital Proceeds Contingent Interest. --------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Capital Proceeds Contingent Interest. If at any time it is calculated, Capital Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Capital Proceeds Contingent Interest shall be subsequently calculated. (ix) No payment of Capital Proceeds Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest. Maker promises to pay to the Holder hereof Basic -------- Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 hereinabove. No --------- principal payments shall be due hereunder except at the Stated Maturity Date or as otherwise provided herein in the event of default. Each payment of Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Pacific Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section ------- 8(a). Maker recognizes that in the event any payment secured hereby (other ---- than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by Holder's application of any condemnation or insurance proceeds to amounts due under the Note, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after January 1, 2008. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after January 1, 2008, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. Notwithstanding the foregoing, or anything else in this Note to the contrary, it is agreed that in the event this Note becomes due and payable as a result of the termination of all of the Property Management Agreements, Maker shall not be subject to the Yield Maintenance Premiums or other prepayment premiums contemplated herein and Maker shall only be required to repay the outstanding principal balance of this Note and accrued but unpaid Basic Interest and Deferred Interest through the date of such prepayment, it being agreed that in such event, Maker shall not be required to pay any Capital Proceeds Contingent Interest or Cash Flow Contingent Interest. 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to consummate the transactions contemplated hereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Debt Papers do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations hereunder that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Note is valid, binding and enforceable in ------------- accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally. (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Zoning and Other Laws. The Project and the use thereof as a --------------------- self-storage facility, separate and apart from any other properties, constitutes a legal and conforming use under applicable zoning regulations and each such Project is in compliance in all material respects with all applicable Requirements of Law; (g) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (h) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; (i) Intentionally omitted; and (j) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to repay certain --------------- indebtedness presently outstanding against the Project and held by Payee or to capitalize the Borrowers. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. In addition, on the last day of each calendar month on which an Interest payment is due, Maker shall furnish to Holder a certified statement of operations of the Project for the calendar month in which such Interest payment is due, showing in reasonable detail and in a format approved by Holder the Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $500,000 not fully covered by insurance shall be deemed to be material), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals of this Note. (f) Debt Papers. Comply with and observe all terms and conditions of ----------- the Debt Papers to which it is subject. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ----------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS ------ OF ANY PARTY RELATING TO OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND AGREED BY MAKER THAT THE ---------------- INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION 6(g) FOR ------------ PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER ------------ SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of this Note. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by subsidiaries of U-Haul International, Inc. or to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. The Maker agrees, upon request of the Holder, to exercise its right to terminate any Project Manager upon the occurrence and continuance of (i) an Event of Default, (ii) a Sale of U-Haul International, Inc. or such Project Manager, (iii) a breach by such Project Manager of its respective Property Management Agreement, or (iv) the Net Cash Flow prior to subtracting Interest shall fall twenty percent (20%) or more for one complete Loan Year. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Senior Loans; (iii) non-delinquent taxes; (iv) unsecured debt incurred in the ordinary course of business and (v) other indebtedness owed to Payee and its affiliates. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, or (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Debt Papers, Maker shall not make any distributions to any of its partners, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Debt Papers, taking the actions required to be performed under the Debt Papers and operating the Mortgaged Properties. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the undersigned to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to any collection account agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of such collection account agreement; (c) Any representation, warranty or certification made by Maker under any Debt Paper or in any report, certificate or financial statement delivered to the Holder under or in connection with any Debt Paper is materially inaccurate or incomplete as of the date made; provided, however, that such inaccurate or incomplete representation, warranty or certification is material and cannot be cured without material prejudice to the Holder within 30 days written notice thereof to the Maker; (d) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (e) The occurrence of any Default under the Debt Papers; (f) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; (g) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or (h) The occurrence of a Event of Default under the promissory notes evidencing the Senior Loans. Upon the occurrence of any Event of Default hereunder: the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, and other charges payable pursuant to the Debt Papers shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (e) of this Section 8, without further action or decision by Holder); and the Holder shall have and may exercise any and all rights and remedies available at law or in equity and also any and all rights and remedies provided in the Mortgage and any of the other Security Documents. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note or in the Security Documents) and the undersigned --------- agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Debt Papers. This Note is unsecured. The Senior Loans are --------------- secured by, inter alia, certain Deeds of Trust (and Mortgages, and Deeds to ----- ---- Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by subsidiaries of Maker to or for the benefit of the Senior Holders, respectively, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Senior Holders as security under the Senior Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor, are sometimes referred to collectively herein as the "Security Documents"). Reference should be made to the Security ------------------ Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. The Security Documents and all other documents executed in connection with the Senior Loans are sometimes referred to herein collectively herein as the "Debt Papers". Notwithstanding anything to the ----------- contrary set forth or implied herein, THIS NOTE IS NOT INDEBTEDNESS OF THE BORROWERS OR ANY OF THEM, AND IS NOT SECURED, WHETHER DIRECTLY OR INDIRECTLY, by THE PROJECT OR ANY COLLATERAL OR PROPERTY OWNED OR OPERATED BY THE BORROWERS, or ANY OF THEM. 15. Notices. All notices, demands and other communications hereunder to ------- either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 Attention: President If to the Holder: U-Haul International, Inc. 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder or under the other Debt Papers, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. Intentionally omitted. --------------------- 21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Entire Agreement. This Note and the other Security Documents ---------------- constitute the entire agreement between Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note or the Security Documents. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ---------------------------------- Its: President ---------------------------------- Schedule A Description of the Project
Number Name Street Address City State 704027 U-HAUL CT OF TIGARD 11552 SW PACIFIC HWY TIGARD OR 710022 U-HAUL CENTER OF VACAVILLE 1240 E MONTE VISTA AVE VACAVILLE CA 713059 U-HAUL CTR COVINA 1040 NORTH AZUSA AVE COVINA CA 715059 U-HAUL LAMBERT ROAD 661 E LAMBERT LA HABRA CA 723031 U-HAUL CENTER HAYDEN ROAD 15455 NORTH 84TH STREET SCOTTSDALE AZ 744023 U-HAUL CENTER GRISSOM ROAD 5420 GRISSOM ROAD 215 SAN ANTONIO TX 745045 U-HAUL CENTER I-10 WEST 10220 OLD KATY ROAD HOUSTON NORTH TX 747055 U-HAUL CTR TULANE 2801 TULANE AVE NEW ORLEANS LA 747073 U-HAUL GAUSE BLVD 1685 GAUSE BOULEVARD SLIDELL LA 777024 U-HAUL CENTER OLD NATL HWY 5390 OLD NATL HWY COLLEGE PARK GA 779069 U-HAUL CENTER SAVANNAH 8810 ABERCORN EXPY SAVANNAH GA 785053 U-HAUL CENTER GOLDENROD 508 N GOLDENROD ROAD ORLANDO FL 788052 U-HAUL CTR BROWARD 2800 W BROWARD BLVD FORT LAUDERDALE FL 796067 U-HAUL OF HYANNIS 594 BEARSES WAY HYANNIS MA 811055 U-HAUL MECHANICSBRG 4725 OLD GETTYSBURG MECHANICSBURG PA 836042 U-HAUL CTR OF N RICHLAND 8221 GRAPEVINE HWY NORTH RICHLAND TX 884085 U-HAUL WORCESTER 495 SHREWSBURY STREET WORCESTER MA
EX-10.11 8 p66363aex10-11.txt EX-10.11 Exhibit 10.11 PROMISSORY NOTE Maximum principal amount of dated as of June 8, 2001 $25,000,000.00 FOR VALUE RECEIVED, the undersigned SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ----- ----------- Nationwide Commercial Co., an Arizona corporation, ("Payee"), at the principal ----- office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Twenty-Five Million ($25,000,000), or, if less, the aggregate unpaid principal amount of the Loan made by Payee to Maker, with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of eight percent ------------ (8.0%). "Additional Interest": shall mean and include both Cash Flow --------------------- Contingent Interest and Capital Proceeds Contingent Interest. "Adjusted Operating Expenses": shall mean Operating Expenses (i) to ----------------------------- account for all actual or required Operating Expenses as opposed to escrowed or estimated payments made pursuant to the Senior Loans or otherwise and (ii) such other adjustments to Operating Expenses to adjust for seasonal, extraordinary or non-customary expenses and costs and other abnormalities. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ------------ 2(b) below. ---- "Borrowers": collectively, Fourteen SAC Self-Storage Corporation, a --------- Nevada corporation, and Seventeen SAC Self-Storage Corporation, a Nevada corporation. "Capital Proceeds Contingent Interest": shall have the meaning given -------------------------------------- it in Section 2(h)(i) below. --------------- "Cash Flow Contingent Interest": shall have the meaning given it in ------------------------------- Section 2(e) below. ------------ "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Debt Papers": is defined in Section 14 below. ------------- ---------- "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ------------ "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Income": shall equal Gross Receipts for the applicable twelve -------------- (12) month period less (i) sale tax and other similar taxes, (ii) condemnation awards, (iii) casualty or other insurance proceeds, (iv) proceeds of any borrowing, (v) proceeds of any or sale of any Mortgaged Properties, (vi) proceeds of any sale of assets outside the ordinary course of business, (vii) revenues relating to equipment or vehicle rentals and (vii) any revenue generated other than in connection with the use of the Mortgaged Properties. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and the Borrower during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Borrowers' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Senior Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. for the rental of its equipment (whether or not such equipment is owned by the Owner of the Mortgaged Property) at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall ---- be counted twice). "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person that is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the unsecured loan in the amount of up to ------ $25,000,000.00 made by Payee to Maker and evidenced by this Note or up to such amount as may have been advanced by Payee to Maker from time to time. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance with the terms of the Debt Papers. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgage": shall mean collectively the Deeds of Trust (and ---------- Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement securing the promissory note representing the Senior Loans, as the same may be amended, modified or restated from time to time and together with all replacements and substitutions therefor. The Mortgage is more fully identified in Section ------- 14 below. -- "Mortgaged Properties": shall mean the properties of the Borrowers ---------------------- identified on Schedule A hereto. "Net Capital Proceeds": shall have the meaning given it in Section ---------------------- ------- 2(h)(iv) below. -------- "Net Cash Flow": shall mean, for any period, the amount by which the --------------- Gross Receipts for such period exceed the sum of Interest paid during such period, Operating Expenses paid for and with respect to such period, and interest paid under and on account of the Senior Loans during such period; but Net Cash Flow for any period shall not be less than zero. "Net Cash Flow Before Debt Service": shall mean, for any period, the ----------------------------------- amount by which the Gross Receipts for such period exceed the Operating Expenses for and with respect to such period. "Net Operating Income": shall mean the "Gross Income" generated by ---------------------- the Project less Adjusted Operating Expenses, adjusted to reflect a ninety- five (95%) percent occupancy on a per Mortgaged Property basis for of the Project. "Note": shall mean this Promissory Note as it may be amended, ------ modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Operating Expenses": shall mean, for any period, all cash -------------------- expenditures of Maker or the Borrowers actually paid (and properly payable) during such period for (i) payments into escrow pursuant to the Debt Papers for real and personal property taxes; (ii) real and personal property taxes on the Project (except to the extent paid from escrowed funds); (iii) premiums for liability, property and other insurance on the Project; (iv) the Management Fee; (v) sales and rental taxes relating to the Project (except to the extent paid from the Tax and Insurance Escrow Account); and (vi) normal, reasonable and customary operating expenses of the Project. In no event shall Operating Expenses include amounts distributed to the partners or shareholder's of Maker or the Borrowers, payments to Affiliates not permitted under Section 7(c) below, any payments made on the Loan or ------------ any other loan obtained by Maker, amounts paid out of any funded reserve expressly approved by Holder, non-cash expenses such as depreciation, or any cost or expense related to the restoration of the Project in the event of a casualty or eminent domain taking paid for from the proceeds of insurance or an eminent domain award or any reserve funded by insurance proceeds or eminent domain awards. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- ------- 4(c) below. ---- "Project": shall mean the real estate, the improvements and the --------- personal property identified on Schedule A hereto, taken together collectively. "Project Manager": shall have the meaning given it in Section 6(j) ----------------- ------------ below. "Property Management Agreement": shall have the meaning given such ------------------------------- term in Section 6(j) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases or licenses of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) of 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Security Documents": shall mean the documents and instruments -------------------- included within the definition of the term "Security Documents" as provided ------------------ in Section 14 below. ---------- "Senior Loan Documents": shall mean and include, at any time, all ----------------------- promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Senior Loans. "Senior Lender" shall mean UBS Warburg Real Estate Investments, Inc. --------------- or designee and/or such other Person who may extend a senior loan with respect to the Project or any portion thereof, as the context may so require, in its capacity as the lender under the Senior Loans. "Senior Loans": shall mean, collectively, (i) that certain loan in -------------- the amount of $13,515,000.00 made by Senior Lender to the Fourteen SAC Self Storage Corporation; (ii) that certain loan in the amount of $16,485,000.00 made by Senior Lender to the Seventeen SAC Self Storage Corporation; and/or (viii) any other senior loan secured by the Project or any portion thereof. "Stated Maturity Date": shall mean the earlier of January 1, 2021 and ---------------------- the date on which all of the Property Management Agreements are terminated in accordance with Section 6 thereof, or on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Senior Loans, or any of them, and may include without limitation, impounds for capital repairs and replacements. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid as follows: quarterly in arrears, on the first business day of each calendar quarter. Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such quarter through the last day of such quarter ("Deferred -------- Interest") shall be deferred, shall be payable as and at the time provided -------- in Section 2(d) below, and commencing on the day payment of Basic Interest ------------ at the Pay Rate is due for such quarter, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each quarterly date for the payment of Basic Interest, Maker shall pay an amount (the "Catch-Up Payment") equal to the lesser ---------------- of (i) the aggregate outstanding Deferred Interest on the last day of the quarter for which such payment is being made and (ii) ninety percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans by the borrowers thereunder for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Cash Flow Contingent Interest. In addition to Basic Interest and ----------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent -------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans for such period plus an additional amount equal to twice the Pay Rate Interest for such period each calculated as of that date exceeds the Catch-Up Payment paid on that date by Maker to Holder. Additionally, at the time of the closing of any impound accounts established pursuant to the Senior Loan Documents, deposits into which are considered Operating Expenses, Cash Flow Contingent Interest shall be due to the Holder on the balances in those accounts except to the extent such balances are paid to the Senior Lender. (f) Quarterly Statements; Adjustment of Payments. On the due date for -------------------------------------------- each payment of Basic Interest, Maker shall deliver to Holder a certified statement of operations of the Project for the calendar quarter or other period with respect to which such Basic Interest is due, showing in reasonable detail and in a format approved by Holder respective amounts of, and the method of calculating, the Gross Receipts, Gross Income, Operating Expenses, Net Cash Flow, Catch-Up Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as well as (if requested by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five years after the end of the calendar quarter to which they relate. Holder shall have the right to inspect, copy and audit such books of account and records during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any payments made on account of Cash Flow Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (g) Prorations of Cash Flow Contingent Interest. Cash Flow Contingent ------------------------------------------- Interest shall be equitably prorated on the basis of a 365-day year for any partial calendar quarter in which the term of the Loan commences or in which the Note is paid in full. If the payment of Cash Flow Contingent Interest due on the Maturity Date is made before the delivery to Holder of the quarterly statement for the then current calendar quarter, then Maker shall pay to Holder on Maturity Date an estimate of such amount. Maker shall subsequently deliver to Holder an operating statement as required by Section 2(f) for the quarter in which the Maturity Date occurred, and an ------------ appropriate adjustment of the estimated amount previously paid by Maker shall be made by the parties within ten (10) days after the operating statement for such final quarter is delivered to Holder. (h) Capital Proceeds Contingent Interest. ------------------------------------ (i) Capital Proceeds Contingent Interest Defined. Maker shall -------------------------------------------- pay to Holder, in addition to Basic Interest, Deferred Interest and Cash Flow Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of the Net Capital Proceeds resulting from, or determined at the time of, any of the Triggering Events described below (collectively, "Capital Proceeds ---------------- Contingent Interest"). ------------------- (ii) Events Triggering Payment of Net Capital Proceeds. Capital ------------------------------------------------- Proceeds Contingent Interest shall be due and payable concurrently with the occurrence of each and every one of the following events (collectively "Triggering Events", and individually, a "Triggering Event"): ----------------- ---------------- (A) Project Sale or Financing. The closing of any Sale of ------------------------- the Project (any such event is hereinafter collectively referred to as a "Sale or Financing"); ----------------- (B) Default Occurrence. The occurrence of any Event of ------------------ Default which is not fully cured within the period of time, if any, expressly provided for cure herein, and the acceleration of the maturity of the Loan on account thereof (hereinafter collectively referred to as a "Default Occurrence"); and ------------------ (C) Maturity Occurrence. The occurrence of the Maturity ------------------- Date or the prepayment by Maker (if permitted hereunder) of all principal and accrued Basic Interest (including, without limitation, Deferred Interest) and Cash Flow Contingent Interest outstanding on the Loan (the "Maturity Occurrence"). ------------------- (iii) Notice of Triggering Event: Time for Payment of Capital ------------------------------------------------------- Proceeds Contingent Interest. Maker shall notify Holder of the occurrence ---------------------------- of a Triggering Event, and shall pay Holder the full amount of any applicable Capital Proceeds Contingent Interest which is payable in connection therewith, as follows: (A) In the case of any Sale or Financing or the Maturity Occurrence, Maker shall give Holder written notice of any such Triggering Event not less than seventy five (75) days before the date such Triggering Event is to occur. Any Capital Proceeds Contingent Interest due Holder on account of any Sale or Financing or the Maturity Occurrence shall be paid to Holder on the date such Triggering Event occurs. (B) In the case of a Default Occurrence, no notice of such a Triggering Event need be given by Maker. In such event, payment of any and all Capital Proceeds Contingent Interest on account of the Default Occurrence shall be immediately due and payable upon acceleration of the maturity of the Loan. (iv) Determination of Net Capital Proceeds. Prior to the ------------------------------------- occurrence of a Triggering Event (or, in the event of a Default Occurrence, within a reasonable time thereafter), the "Net Capital Proceeds" resulting -------------------- from such Triggering Event shall be determined as follows: (A) Net Capital Proceeds From Sale or Financing. Except as ------------------------------------------- provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing, ------------------- "Net Capital Proceeds" shall be the amount which is equal to: (I) either -------------------- (x) the Gross Capital Proceeds (as hereinafter defined) realized from the Project, or (y) the fair market value of the Project determined pursuant to Section 2(h)(v) below, if Holder in its discretion requires such a --------------- determination, minus (II) the sum of: (aa) reasonable brokerage commissions ----- (excluding any payments to any Affiliate of Maker to the extent such payments exceed those which would have been due as commissions to a non- Affiliate broker rendering identical services), title insurance premiums, documentary transfer taxes, escrow fees and recording charges, appraisal fees, reasonable attorneys' fees and costs, and sales taxes (if any), in each case actually paid or payable by Maker in connection with the Sale or Financing, plus (bb) all payments of principal and Deferred Interest paid to Holder an account of this Note from the proceeds of such Sale or Financing, plus (cc) an amount equal to all payments of principal and interest on the Senior Loans made from the proceeds of such Sale or Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result of such Sale or Financing. For purposes of this Section 2(h), ------------ "Gross Capital Proceeds" shall mean the gross proceeds of whatever form or ---------------------- nature payable directly or indirectly to or for the benefit or account of Maker in connection with such Sale or Financing, including, without limitation: cash; the outstanding balance of any financing which will remain as a lien or encumbrance against the Project or any portion thereof following such Sale or Financing (but only in the case of a Sale, and not in the case of an encumbrance); and the cash equivalent of the fair market value of any non-cash consideration, including the present value of any promissory note received as part of the proceeds of such Sale or Financing (valued at a market rate of interest, as determined by an independent investment banker designated by Holder). (B) Net Capital Proceeds In Connection With a Default or ---------------------------------------------------- Maturity Occurrence. In the event of a Default Occurrence or the Maturity ------------------- Occurrence when no Sale or Financing has occurred, the "Net Capital ----------- Proceeds" shall equal: (I) the fair market value of the Project determined -------- as of the date of such Triggering Event in accordance with Section 2(h)(v) --------------- below, minus (II) the sum of (aa) the outstanding principal balance plus Deferred Interest on the Note plus (bb) the outstanding principal balance of, and accrued but unpaid interest on, the Senior Loans. (v) Determination of Fair Market Value. The fair market value ---------------------------------- of the Project shall be determined for purposes of this Note as follows: (A) Partial Sale. In the event of a Sale of a portion of ------------ the Project, Holder shall select an experienced and reputable appraiser to prepare a written appraisal report of the fair market value of the Project in accordance with clause (C) below, and the appraised fair market value submitted to Holder by such appraiser shall be conclusive for purposes of this Note. (B) Other Occurrences. In all other circumstances the fair ----------------- market value of the Project shall be deemed to equal the result of dividing the Net Cash Flow Before Debt Service for the immediately preceding fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt Service for the immediately preceding fiscal year has been lowered because of unusually high Operating Expenses during such fiscal year the fair market value of the Project may, at the option of the Maker be determined by dividing by ten percent (10%) the mean average of the Net Cash Flow Before Debt Service of the Project for the 3 immediately preceding fiscal years of the Project. (C) Appraisal Standards and Assumptions. In making any ----------------------------------- determination by appraisal of fair market value, the appraiser(s) shall assume that the improvements then located on the Project constitute the highest and best use of the property. If the Triggering Event is a Sale or Financing, the appraiser(s) shall take the sales price into account, although such sales price shall not be determinative of fair market value. Each appraiser selected hereunder shall be an independent MAI-designated appraiser with not less than ten years' experience in commercial real estate appraisal in the general geographical area where the Project is located. (vi) Effect on Holder's Approval Rights. Nothing contained in ---------------------------------- this Section 2(h) shall be deemed or construed to waive, restrict, impair, or in any manner affect Holder's rights hereunder to consent (or withhold its consent) to: any prepayment of the Loan in whole or in part; sales or other transfers of all or any portion of the Project or any interest therein; sales or other transfers of any ownership interests in Maker; any refinancing of all or any portion of the Loan; any junior financing; or, any other matters which require Holder's consent. (vii) Statement, Books and Records. With each payment of ---------------------------- Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement setting forth Maker's proposed calculation of Net Capital Proceeds and Capital Proceeds Contingent Interest and shall provide a detailed breakdown of all items necessary for such calculation. For a period of five years after each payment of Capital Proceeds Contingent Interest, Maker shall keep and maintain full and accurate books and records adequate to correctly reflect each such item. Said books and records shall be available for Holder's inspection, copying and audit during reasonable business hours following reasonable notice for the purpose of verifying the accuracy of the payments made on account of Capital Proceeds Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (viii) Negative Capital Proceeds Contingent Interest. --------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Capital Proceeds Contingent Interest. If at any time it is calculated, Capital Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Capital Proceeds Contingent Interest shall be subsequently calculated. (ix) No payment of Capital Proceeds Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest. Maker promises to pay to the Holder hereof Basic -------- Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 hereinabove. No --------- principal payments shall be due hereunder except at the Stated Maturity Date or as otherwise provided herein in the event of default. Each payment of Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Pacific Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section ------- 8(a). Maker recognizes that in the event any payment secured hereby (other ---- than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by Holder's application of any condemnation or insurance proceeds to amounts due under the Note, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent ------------ any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after January 1, 2008. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after January 1, 2008, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. Notwithstanding the foregoing, or anything else in this Note to the contrary, it is agreed that in the event this Note becomes due and payable as a result of the termination of all of the Property Management Agreements, Maker shall not be subject to the Yield Maintenance Premiums or other prepayment premiums contemplated herein and Maker shall only be required to repay the outstanding principal balance of this Note and accrued but unpaid Basic Interest and Deferred Interest through the date of such prepayment, it being agreed that in such event, Maker shall not be required to pay any Capital Proceeds Contingent Interest or Cash Flow Contingent Interest. 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to consummate the transactions contemplated hereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Debt Papers do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations hereunder that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Note is valid, binding and enforceable in -------------- accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally. (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Zoning and Other Laws. The Project and the use thereof as a --------------------- self-storage facility, separate and apart from any other properties, constitutes a legal and conforming use under applicable zoning regulations and each such Project is in compliance in all material respects with all applicable Requirements of Law; (g) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (h) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; (i) Intentionally omitted; and (j) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to repay certain --------------- indebtedness presently outstanding against the Project and held by Payee or to capitalize the Borrowers. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. In addition, on the last day of each calendar month on which an Interest payment is due, Maker shall furnish to Holder a certified statement of operations of the Project for the calendar month in which such Interest payment is due, showing in reasonable detail and in a format approved by Holder the Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $500,000 not fully covered by insurance shall be deemed to be material), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals of this Note. (f) Debt Papers. Comply with and observe all terms and conditions of ----------- the Debt Papers to which it is subject. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ----------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS ------ OF ANY PARTY RELATING TO OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND AGREED BY MAKER THAT THE ---------------- INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION 6(g) FOR ----------------- PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER ------------ SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of this Note. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by subsidiaries of U-Haul International, Inc. or to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. The Maker agrees, upon request of the Holder, to exercise its right to terminate any Project Manager upon the occurrence and continuance of (i) an Event of Default, (ii) a Sale of U-Haul International, Inc. or such Project Manager, (iii) a breach by such Project Manager of its respective Property Management Agreement, or (iv) the Net Cash Flow prior to subtracting Interest shall fall twenty percent (20%) or more for one complete Loan Year. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Senior Loans; (iii) non-delinquent taxes; (iv) unsecured debt incurred in the ordinary course of business and (v) other indebtedness owed to Payee and its affiliates. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, or (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Debt Papers, Maker shall not make any distributions to any of its partners, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Debt Papers, taking the actions required to be performed under the Debt Papers and operating the Mortgaged Properties. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the undersigned to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to any collection account agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of such collection account agreement; (c) Any representation, warranty or certification made by Maker under any Debt Paper or in any report, certificate or financial statement delivered to the Holder under or in connection with any Debt Paper is materially inaccurate or incomplete as of the date made; provided, however, that such inaccurate or incomplete representation, warranty or certification is material and cannot be cured without material prejudice to the Holder within 30 days written notice thereof to the Maker; (d) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (e) The occurrence of any Default under the Debt Papers; (f) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; (g) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or (h) The occurrence of a Event of Default under the promissory notes evidencing the Senior Loans. Upon the occurrence of any Event of Default hereunder: the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, and other charges payable pursuant to the Debt Papers shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (e) of this Section 8, without further action or decision by Holder); and the Holder shall have and may exercise any and all rights and remedies available at law or in equity and also any and all rights and remedies provided in the Mortgage and any of the other Security Documents. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note or in the Security Documents) and the undersigned agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Debt Papers. This Note is unsecured. The Senior Loans are --------------- secured by, inter alia, certain Deeds of Trust (and Mortgages, and Deeds to ----- ---- Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by subsidiaries of Maker to or for the benefit of the Senior Holders, respectively, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Senior Holders as security under the Senior Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor, are sometimes referred to collectively herein as the "Security Documents"). Reference should be made to the Security ------------------ Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. The Security Documents and all other documents executed in connection with the Senior Loans are sometimes referred to herein collectively herein as the "Debt Papers". Notwithstanding anything to the ----------- contrary set forth or implied herein, THIS NOTE IS NOT INDEBTEDNESS OF THE BORROWERS OR ANY OF THEM, AND IS NOT SECURED, WHETHER DIRECTLY OR INDIRECTLY, by THE PROJECT OR ANY COLLATERAL OR PROPERTY OWNED OR OPERATED BY THE BORROWERS, or ANY OF THEM. 15. Notices. All notices, demands and other communications hereunder to ------- either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 Attention: President If to the Holder: U-Haul International, Inc. 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder or under the other Debt Papers, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. Intentionally omitted. --------------------- 21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Entire Agreement. This Note and the other Security Documents ---------------- constitute the entire agreement between Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note or the Security Documents. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ---------------------------------- Its: President ---------------------------------- Schedule A Description of the Project Entity Name City St County # 734025 U-Haul Center of Olathe Olathe KS Johnson 736055 U-Haul Kingshighway Saint Louis MO St. Louis 737024 U-Haul Center of Round Rock Round Rock TX Williamson 737037 U-Haul CTR College Station College TX Brazos 746071 U-Haul CTR Breamont Beaumont TX Jefferson 758059 U-Haul Center New-Town Chicago North IL Cook 800057 U-Haul CTR Albany Albany NY Albany 806056 U-Haul Five Towns Inwood NY Nassau 806070 U-Haul Center Rockville Rockville NY Nassau 825053 U-Haul CTR Downtown Norfolk VA City of Richmond 837078 U-Haul of Medford Medford MA Middlesex 838054 U-Haul Center North Ranch Las Vegas NV Clark EX-10.12 9 p66363aex10-12.txt EX-10.12 Exhibit 10.12 PROMISSORY NOTE Maximum principal amount of dated as of January 29, 2001 $10,500,000.00 FOR VALUE RECEIVED, the undersigned SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ----- ----------- U-Haul International, Inc., a Nevada corporation, ("Payee"), at the principal ----- office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Ten Million Five Hundred Thousand Dollars ($10,500,000), or, if less, the aggregate unpaid principal amount of the Loan made by Payee to Maker, with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of eight percent ------------ (8.0%). "Additional Interest": shall mean and include both Cash Flow --------------------- Contingent Interest and Capital Proceeds Contingent Interest. "Adjusted Operating Expenses": shall mean Operating Expenses (i) to ----------------------------- account for all actual or required Operating Expenses as opposed to escrowed or estimated payments made pursuant to the Senior Loans or otherwise and (ii) such other adjustments to Operating Expenses to adjust for seasonal, extraordinary or non-customary expenses and costs and other abnormalities. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ----------- 2(b) below. ---- "Borrowers": collectively, are the entities that own fee title to the ----------- properties identified by their respective street address on Schedule A hereto. "Capital Proceeds Contingent Interest": shall have the meaning given -------------------------------------- it in Section 2(h)(i) below. --------------- "Cash Flow Contingent Interest": shall have the meaning given it in ------------------------------- Section 2(e) below. ------------ "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Debt Papers": shall mean the documents and instruments included ------------- within the definition of the term "Debt Papers" as provided in Section 14 ------------- ---------- below. "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ------------ "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Income": shall equal Gross Receipts for the applicable twelve -------------- (12) month period less (i) sale tax and other similar taxes, (ii) condemnation awards, (iii) casualty or other insurance proceeds, (iv) proceeds of any borrowing, (v) proceeds of any or sale of any Mortgaged Properties, (vi) proceeds of any sale of assets outside the ordinary course of business, (vii) revenues relating to equipment or vehicle rentals and (vii) any revenue generated other than in connection with the use of the Mortgaged Properties. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and the Borrower during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Borrowers' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Mortgage, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Senior Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. for the rental of its equipment (whether or not such equipment is owned by the Owner of the Mortgaged Property) at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall be counted twice). "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person that is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the unsecured loan in the amount of up to ------ $10,500,000.00 made by Payee to Maker and evidenced by this Note or up to such amount as may have been advanced by Payee to Maker from time to time. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance with the terms of the Debt Papers. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgage": shall mean collectively the Deeds of Trust (and ---------- Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement securing the promissory note representing the Senior Loans, as the same may be amended, modified or restated from time to time and together with all replacements and substitutions therefor. The Mortgage is more fully identified in Section ------- 14 below. -- "Mortgaged Properties": shall mean the properties of the Borrowers ---------------------- identified on Schedule A hereto. "Net Capital Proceeds": shall have the meaning given it in Section ---------------------- ------- 2(h)(iv) below. -------- "Net Cash Flow": shall mean, for any period, the amount by which the --------------- Gross Receipts for such period exceed the sum of Interest paid during such period, Operating Expenses paid for and with respect to such period, and interest paid under and on account of the Senior Loans during such period; but Net Cash Flow for any period shall not be less than zero. "Net Cash Flow Before Debt Service": shall mean, for any period, the ----------------------------------- amount by which the Gross Receipts for such period exceed the Operating Expenses for and with respect to such period. "Net Operating Income": shall mean the "Gross Income" generated by ---------------------- the Project less Adjusted Operating Expenses, adjusted to reflect a ninety- five (95%) percent occupancy on a per Mortgaged Property basis for of the Project. "Note": shall mean this Promissory Note as it may be amended, ------ modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Operating Expenses": shall mean, for any period, all cash -------------------- expenditures of Maker or the Borrowers actually paid (and properly payable) during such period for (i) payments into escrow pursuant to the Debt Papers for real and personal property taxes; (ii) real and personal property taxes on the Project (except to the extent paid from escrowed funds); (iii) premiums for liability, property and other insurance on the Project; (iv) the Management Fee; (v) sales and rental taxes relating to the Project (except to the extent paid from the Tax and Insurance Escrow Account); and (vi) normal, reasonable and customary operating expenses of the Project. In no event shall Operating Expenses include amounts distributed to the partners or shareholder's of Maker or the Borrowers, payments to Affiliates not permitted under Section 7(c) below, any payments made on the Loan or ------------ any other loan obtained by Maker, amounts paid out of any funded reserve expressly approved by Holder, non-cash expenses such as depreciation, or any cost or expense related to the restoration of the Project in the event of a casualty or eminent domain taking paid for from the proceeds of insurance or an eminent domain award or any reserve funded by insurance proceeds or eminent domain awards. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- ------- 4(c) below. ---- "Project": shall mean the real estate, the improvements and the --------- personal property identified on Schedule A hereto, taken together collectively. "Project Manager": shall have the meaning given it in Section 6(j) ----------------- ------------ below. "Property Management Agreement": shall have the meaning given such ------------------------------- term in Section 6(j) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases or licenses of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) of 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Security Documents": shall mean the documents and instruments -------------------- included within the definition of the term "Security Documents" as provided -------------------- in Section 14 below. ---------- "Senior Loan Documents": shall mean and include, at any time, all ----------------------- promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Senior Loans. "Senior Lender" shall mean Merrill Lynch Mortgage Lending, Inc., --------------- and/or such other Person who may extend a senior loan with respect to the Project or any portion thereof, as the context may so require, in its capacity as the lender under the Senior Loans. "Senior Loans": shall mean, collectively, (i) that certain loan in -------------- the amount of $18,524,000.00 made by Senior Lender to the Fifteen SAC Self Storage Corporation; (ii) that certain loan in the amount of $17,113,000.00 made by Senior Lender to the Sixteen SAC Self Storage Corporation; and/or (viii) any other senior loan secured by the Project or any portion thereof. "Stated Maturity Date": shall mean the earlier of January 1, 2021 and ---------------------- the date on which all of the Property Management Agreements are terminated in accordance with Section 6 thereof, or on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Senior Loans, or any of them, and may include without limitation, impounds for capital repairs and replacements. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid as follows: quarterly in arrears, on the first business day of each calendar quarter. Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such quarter through the last day of such quarter ("Deferred -------- Interest") shall be deferred, shall be payable as and at the time provided -------- in Section 2(d) below, and commencing on the day payment of Basic Interest ------------ at the Pay Rate is due for such quarter, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each quarterly date for the payment of Basic Interest, Maker shall pay an amount (the "Catch-Up Payment") equal to the lesser ---------------- of (i) the aggregate outstanding Deferred Interest on the last day of the quarter for which such payment is being made and (ii) ninety percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans by the borrowers thereunder for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Cash Flow Contingent Interest. In addition to Basic Interest and ----------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Cash Flow Contingent -------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of the result of subtracting from Net Cash Flow Before Debt Service for that quarter the sum of principal and interest paid on the Senior Loans for such period plus an additional amount equal to twice the Pay Rate Interest for such period each calculated as of that date exceeds the Catch-Up Payment paid on that date by Maker to Holder. Additionally, at the time of the closing of any impound accounts established pursuant to the Senior Loan Documents, deposits into which are considered Operating Expenses, Cash Flow Contingent Interest shall be due to the Holder on the balances in those accounts except to the extent such balances are paid to the Senior Lender. (f) Quarterly Statements; Adjustment of Payments. On the due date for -------------------------------------------- each payment of Basic Interest, Maker shall deliver to Holder a certified statement of operations of the Project for the calendar quarter or other period with respect to which such Basic Interest is due, showing in reasonable detail and in a format approved by Holder respective amounts of, and the method of calculating, the Gross Receipts, Gross Income, Operating Expenses, Net Cash Flow, Catch-Up Amount and Cash Flow Contingent Interest for the preceding calendar quarter, as well as (if requested by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five years after the end of the calendar quarter to which they relate. Holder shall have the right to inspect, copy and audit such books of account and records during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any payments made on account of Cash Flow Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (g) Prorations of Cash Flow Contingent Interest. Cash Flow Contingent ------------------------------------------- Interest shall be equitably prorated on the basis of a 365-day year for any partial calendar quarter in which the term of the Loan commences or in which the Note is paid in full. If the payment of Cash Flow Contingent Interest due on the Maturity Date is made before the delivery to Holder of the quarterly statement for the then current calendar quarter, then Maker shall pay to Holder on Maturity Date an estimate of such amount. Maker shall subsequently deliver to Holder an operating statement as required by Section 2(f) for the quarter in which the Maturity Date occurred, and an ------------ appropriate adjustment of the estimated amount previously paid by Maker shall be made by the parties within ten (10) days after the operating statement for such final quarter is delivered to Holder. (h) Capital Proceeds Contingent Interest. ------------------------------------ (i) Capital Proceeds Contingent Interest Defined. Maker shall -------------------------------------------- pay to Holder, in addition to Basic Interest, Deferred Interest and Cash Flow Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of the Net Capital Proceeds resulting from, or determined at the time of, any of the Triggering Events described below (collectively, "Capital Proceeds ---------------- Contingent Interest"). ------------------- (ii) Events Triggering Payment of Net Capital Proceeds. Capital ------------------------------------------------- Proceeds Contingent Interest shall be due and payable concurrently with the occurrence of each and every one of the following events (collectively "Triggering Events", and individually, a "Triggering Event"): ----------------- ---------------- (A) Project Sale or Financing. The closing of any Sale of ------------------------- the Project (any such event is hereinafter collectively referred to as a "Sale or Financing"); ----------------- (B) Default Occurrence. The occurrence of any Event of ------------------ Default which is not fully cured within the period of time, if any, expressly provided for cure herein, and the acceleration of the maturity of the Loan on account thereof (hereinafter collectively referred to as a "Default Occurrence"); and ------------------ (C) Maturity Occurrence. The occurrence of the Maturity ------------------- Date or the prepayment by Maker (if permitted hereunder) of all principal and accrued Basic Interest (including, without limitation, Deferred Interest) and Cash Flow Contingent Interest outstanding on the Loan (the "Maturity Occurrence"). ------------------- (iii) Notice of Triggering Event: Time for Payment of Capital ------------------------------------------------------- Proceeds Contingent Interest. Maker shall notify Holder of the occurrence ---------------------------- of a Triggering Event, and shall pay Holder the full amount of any applicable Capital Proceeds Contingent Interest which is payable in connection therewith, as follows: (A) In the case of any Sale or Financing or the Maturity Occurrence, Maker shall give Holder written notice of any such Triggering Event not less than seventy five (75) days before the date such Triggering Event is to occur. Any Capital Proceeds Contingent Interest due Holder on account of any Sale or Financing or the Maturity Occurrence shall be paid to Holder on the date such Triggering Event occurs. (B) In the case of a Default Occurrence, no notice of such a Triggering Event need be given by Maker. In such event, payment of any and all Capital Proceeds Contingent Interest on account of the Default Occurrence shall be immediately due and payable upon acceleration of the maturity of the Loan. (iv) Determination of Net Capital Proceeds. Prior to the ------------------------------------- occurrence of a Triggering Event (or, in the event of a Default Occurrence, within a reasonable time thereafter), the "Net Capital Proceeds" resulting -------------------- from such Triggering Event shall be determined as follows: (A) Net Capital Proceeds From Sale or Financing. Except as ------------------------------------------- provided in Section 2(h)(iv)(B) below, in the event of a Sale or Financing, ------------------- "Net Capital Proceeds" shall be the amount which is equal to: (I) either -------------------- (x) the Gross Capital Proceeds (as hereinafter defined) realized from the Project, or (y) the fair market value of the Project determined pursuant to Section 2(h)(v) below, if Holder in its discretion requires such a --------------- determination, minus (II) the sum of: (aa) reasonable brokerage commissions ----- (excluding any payments to any Affiliate of Maker to the extent such payments exceed those which would have been due as commissions to a non- Affiliate broker rendering identical services), title insurance premiums, documentary transfer taxes, escrow fees and recording charges, appraisal fees, reasonable attorneys' fees and costs, and sales taxes (if any), in each case actually paid or payable by Maker in connection with the Sale or Financing, plus (bb) all payments of principal and Deferred Interest paid to Holder an account of this Note from the proceeds of such Sale or Financing, plus (cc) an amount equal to all payments of principal and interest on the Senior Loans made from the proceeds of such Sale or Financing, plus (dd) any amount paid as Yield Maintenance Premium as a result of such Sale or Financing. For purposes of this Section 2(h), ------------ "Gross Capital Proceeds" shall mean the gross proceeds of whatever form or ---------------------- nature payable directly or indirectly to or for the benefit or account of Maker in connection with such Sale or Financing, including, without limitation: cash; the outstanding balance of any financing which will remain as a lien or encumbrance against the Project or any portion thereof following such Sale or Financing (but only in the case of a Sale, and not in the case of an encumbrance); and the cash equivalent of the fair market value of any non-cash consideration, including the present value of any promissory note received as part of the proceeds of such Sale or Financing (valued at a market rate of interest, as determined by an independent investment banker designated by Holder). (B) Net Capital Proceeds In Connection With a Default or ---------------------------------------------------- Maturity Occurrence. In the event of a Default Occurrence or the Maturity ------------------- Occurrence when no Sale or Financing has occurred, the "Net Capital ----------- Proceeds" shall equal: (I) the fair market value of the Project determined -------- as of the date of such Triggering Event in accordance with Section 2(h)(v) --------------- below, minus (II) the sum of (aa) the outstanding principal balance plus Deferred Interest on the Note plus (bb) the outstanding principal balance of, and accrued but unpaid interest on, the Senior Loans. (v) Determination of Fair Market Value. The fair market value ---------------------------------- of the Project shall be determined for purposes of this Note as follows: (A) Partial Sale. In the event of a Sale of a portion of ------------ the Project, Holder shall select an experienced and reputable appraiser to prepare a written appraisal report of the fair market value of the Project in accordance with clause (C) below, and the appraised fair market value submitted to Holder by such appraiser shall be conclusive for purposes of this Note. (B) Other Occurrences. In all other circumstances the fair ----------------- market value of the Project shall be deemed to equal the result of dividing the Net Cash Flow Before Debt Service for the immediately preceding fiscal year by ten percent (10%). However, if the Net Cash Flow Before Debt Service for the immediately preceding fiscal year has been lowered because of unusually high Operating Expenses during such fiscal year the fair market value of the Project may, at the option of the Maker be determined by dividing by ten percent (10%) the mean average of the Net Cash Flow Before Debt Service of the Project for the 3 immediately preceding fiscal years of the Project. (C) Appraisal Standards and Assumptions. In making any ----------------------------------- determination by appraisal of fair market value, the appraiser(s) shall assume that the improvements then located on the Project constitute the highest and best use of the property. If the Triggering Event is a Sale or Financing, the appraiser(s) shall take the sales price into account, although such sales price shall not be determinative of fair market value. Each appraiser selected hereunder shall be an independent MAI-designated appraiser with not less than ten years' experience in commercial real estate appraisal in the general geographical area where the Project is located. (vi) Effect on Holder's Approval Rights. Nothing contained in ---------------------------------- this Section 2(h) shall be deemed or construed to waive, restrict, impair, ------------ or in any manner affect Holder's rights hereunder to consent (or withhold its consent) to: any prepayment of the Loan in whole or in part; sales or other transfers of all or any portion of the Project or any interest therein; sales or other transfers of any ownership interests in Maker; any refinancing of all or any portion of the Loan; any junior financing; or, any other matters which require Holder's consent. (vii) Statement, Books and Records. With each payment of ---------------------------- Capital Proceeds Contingent Interest, Maker shall furnish to Holder a statement setting forth Maker's proposed calculation of Net Capital Proceeds and Capital Proceeds Contingent Interest and shall provide a detailed breakdown of all items necessary for such calculation. For a period of five years after each payment of Capital Proceeds Contingent Interest, Maker shall keep and maintain full and accurate books and records adequate to correctly reflect each such item. Said books and records shall be available for Holder's inspection, copying and audit during reasonable business hours following reasonable notice for the purpose of verifying the accuracy of the payments made on account of Capital Proceeds Contingent Interest. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by maker as being payable with respect thereto. (viii) Negative Capital Proceeds Contingent Interest. --------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Capital Proceeds Contingent Interest. If at any time it is calculated, Capital Proceeds Contingent Interest shall be a negative amount, no Capital Proceeds Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Capital Proceeds Contingent Interest shall be subsequently calculated. (ix) No payment of Capital Proceeds Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest. Maker promises to pay to the Holder hereof Basic -------- Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 hereinabove. No --------- principal payments shall be due hereunder except at the Stated Maturity Date or as otherwise provided herein in the event of default. Each payment of Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Pacific Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section ------- 8(a). Maker recognizes that in the event any payment secured hereby (other ---- than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by Holder's application of any condemnation or insurance proceeds to amounts due under the Note, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent ------------ any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after January 1, 2008. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after January 1, 2008, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. Notwithstanding the foregoing, or anything else in this Note to the contrary, it is agreed that in the event this Note becomes due and payable as a result of the termination of all of the Property Management Agreements, Maker shall not be subject to the Yield Maintenance Premiums or other prepayment premiums contemplated herein and Maker shall only be required to repay the outstanding principal balance of this Note and accrued but unpaid Basic Interest and Deferred Interest through the date of such prepayment, it being agreed that in such event, Maker shall not be required to pay any Capital Proceeds Contingent Interest or Cash Flow Contingent Interest. Maker's Initials: /S/ MVS ------- 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to consummate the transactions contemplated hereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Debt Papers do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations hereunder that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Note is valid, binding and enforceable in -------------- accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally. (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Zoning and Other Laws. The Project and the use thereof as a --------------------- self-storage facility, separate and apart from any other properties, constitutes a legal and conforming use under applicable zoning regulations and each such Project is in compliance in all material respects with all applicable Requirements of Law; (g) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (h) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; (i) Intentionally omitted; and (j) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to repay certain --------------- indebtedness presently outstanding against the Project and held by Payee or to capitalize the Borrowers. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. In addition, on the last day of each calendar month on which an Interest payment is due, Maker shall furnish to Holder a certified statement of operations of the Project for the calendar month in which such Interest payment is due, showing in reasonable detail and in a format approved by Holder the Gross Receipts, Operating Expenses, and Net Cash Flow, as well as (if required by Holder) all data necessary for the calculation of any such amounts. Maker shall keep and maintain at all times full and accurate books of account and records adequate to correctly reflect all such amounts. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $500,000 not fully covered by insurance shall be deemed to be material), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals of this Note. (f) Debt Papers. Comply with and observe all terms and conditions of ----------- the Debt Papers to which it is subject. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ----------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS ------ OF ANY PARTY RELATING TO OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. WITHOUT DEROGATING THE PROVISIONS OF SECTION 20 BELOW, IT IS ACKNOWLEDGED AND AGREED BY MAKER THAT THE ---------------- INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION 6(g) FOR ------------ PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE MAKER ------------ SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. MAKER'S INITIALS /S/ MVS ------- (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of this Note. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by subsidiaries of U-Haul International, Inc. or to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. The Maker agrees, upon request of the Holder, to exercise its right to terminate any Project Manager upon the occurrence and continuance of (i) an Event of Default, (ii) a Sale of U-Haul International, Inc. or such Project Manager, (iii) a breach by such Project Manager of its respective Property Management Agreement, or (iv) the Net Cash Flow prior to subtracting Interest shall fall twenty percent (20%) or more for one complete Loan Year. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Senior Loans; (iii) non-delinquent taxes; (iv) unsecured debt incurred in the ordinary course of business and (v) other indebtedness owed to Payee and its affiliates. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, or (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Debt Papers, Maker shall not make any distributions to any of its partners, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Debt Papers, taking the actions required to be performed under the Debt Papers and operating the Mortgaged Properties. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the undersigned to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to any collection account agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of such collection account agreement; (c) Any representation, warranty or certification made by Maker under any Debt Paper or in any report, certificate or financial statement delivered to the Holder under or in connection with any Debt Paper is materially inaccurate or incomplete as of the date made; provided, however, that such inaccurate or incomplete representation, warranty or certification is material and cannot be cured without material prejudice to the Holder within 30 days written notice thereof to the Maker; (d) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (e) The occurrence of any Default under the Debt Papers; (f) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; (g) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or (h) The occurrence of a Event of Default under the promissory notes evidencing the Senior Loans. Upon the occurrence of any Event of Default hereunder: the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, and other charges payable pursuant to the Debt Papers shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (e) of this Section 8, without further action or decision by Holder); and the Holder shall have and may exercise any and all rights and remedies available at law or in equity and also any and all rights and remedies provided in the Mortgage and any of the other Security Documents. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note or in the Security Documents) and the undersigned --------- agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Debt Papers. This Note is unsecured. The Senior Loans are --------------- secured by, inter alia, certain Deeds of Trust (and Mortgages, and Deeds to Secure Debt), Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by subsidiaries of Maker to or for the benefit of the Senior Holders, respectively, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Senior Holders as security under the Senior Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor, are sometimes referred to collectively herein as the "Security Documents"). Reference should be made to the Security ------------------ Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. The Security Documents and all other documents executed in connection with the Senior Loans are referred to collectively herein as the "Debt Papers". Notwithstanding anything to the ----------- contrary set forth or implied herein, this Note is not indebtedness of the Borrowers, and is not secured, whether directly or indirectly, by the Project or any collateral or property owned or operated by the Borrowers, or any of them. 15. Notices. All notices, demands and other communications hereunder to ------- either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 Attention: President If to the Holder: U-Haul International, Inc. 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder or under the other Debt Papers, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE OR THE OTHER DEBT PAPERS WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. Intentionally omitted. --------------------- 21. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR ANY DEBT PAPERS TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE OR ANY DEBT PAPERS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Entire Agreement. This Note and the other Security Documents ---------------- constitute the entire agreement between Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note or the Security Documents. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ---------------------------------- Its: President ---------------------------------- Schedule A Description of the Project 884015 U-HAUL STORAGE 1301 ALOSTA AVENUE GLENDORA CA 91740 GLENDORA 837025 U-HAUL CENTER OF 6 MERRILL STREET SALISBURY MA 01952 SALISBURY 882053 U-HAUL STORAGE IVAR 3527 IVAR AVENUE ROSEMEAD CA 91770 AVENUE 882079 U-HAUL STORAGE 5600 BUSINESS CLAY NY 13041 BUSINESS AVENUE AVENUE 882081 U-HAUL STORAGE 611 BLACKWOOD CLEMENTON NJ 08024 LAURELWOOD CLEMENTON 883002 U-HAUL STORAGE SOUTH 7225 SOUTH HULEN FORT WORTH TX 76133 HULEN 883082 U-HAUL STORAGE BLACK 3029 FAIRFIELD BRIDGEPORT CT 06605 ROCK AVENUE 884051 U-HAUL WAXAHACHIE 1103 WEST 287 BYPASS WAXHACHIE TX 75165 884074 U-HAUL STORAGE I-30 9302 INTERSTATE 30 LITTLE ROCK AR 72209 884076 U-HAUL STORAGE TARRANT 2455 TARRANT ROAD GRAND PRAIRIE TX 75050 ROAD 882061 U-HAUL RIO SALADO 500 NORTH SCOTTSDALE AZ 85281 SCOTTSDALE ROAD 882080 U-HAUL STORAGE 2055 RIDGEWAY GREECE NY 14616 RIDGEWAY AVENUE AVENUE 882083 U-HAUL STORAGE 94 CONNECTICUT BURLINGTON NJ 08016 BURLINGTON DRIVE 882089 U-HAUL STORAGE 36 NORTH SYCAMORE PASADENA CA 91107 SYCAMORE AVE AVENUE 88300 U-HAUL STORAGE RUFE 6404 BROWNING DRIVE FORT WORTH TX 76181 SNOW 884014 U-HAUL STORAGE ALMA 3401 ALMA DRIVE PLANO TX 75023 709022 U-HAUL CENTER WHITE 6201-6261 WHITE LANE BAKERSFIELD CA 93309 LANE 884025 U-HAUL STORAGE 1200 NEWFIELD MIDDLETOWN CT 06457 MIDDLETOWN STREET (RT 884061 U-HAUL STORAGE 7741-43 ECKHART SAN ANTONIO TX 78240 WESTCHASE ROAD 884063 U-HAUL STORAGE 2101 S KINGSHWY ST. LOUIS MO 63110 SOUTHSIDE BLVD EX-10.13 10 p66363aex10-13.txt EX-10.13 Exhibit 10.13 PROMISSORY NOTE Maximum principal amount of dated as of January 11, 2002 Up to $47,500,000.00 FOR VALUE RECEIVED, the undersigned, SAC Holding Corporation, a Nevada corporation (the "Maker" or the "undersigned"), promises to pay to the order of ----- ----------- U-Haul International, Inc., a Nevada corporation, ("Payee"), at the principal ----- office of the Payee at 2721 North Central Avenue, Phoenix, Arizona 85004 or at such other place or places as the holder hereof may from time to time designate in writing, the principal sum of up to Forty-Seven Million Five Hundred Thousand and no/100ths Dollars ($47,500,000), with Interest on the principal balance outstanding from time to time, all as hereinafter set forth. 1. Definitions. As used in this Note, each of the following terms shall ----------- have the following meanings, respectively: "Accrual Rate": shall mean the annual interest rate of nine percent ------------ (9.0%). "Additional Interest": shall mean and include both Dividend --------------------- Contingent Interest and Return of Investment Contingent Interest. "Affiliate": of any specified Person shall mean (i) any other Person ----------- controlling or controlled by or under common control with such specified Person and (ii) any limited partner of such Person if such Person is a limited partnership, any shareholder of such Person if such Person is a corporation, or any member of such Person if such Person is a limited liability company. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Basic Interest": shall have the meaning given it in Section 2(a) and ---------------- ------------ 2(b) below. ---- "Catch-Up Payment": shall have the meaning given it in Section 2(d). ------------------ ------------ "Deferred Interest": shall have the meaning given it in Section 2(a). ------------------- ------------ "Dividend Contingent Interest": shall have the meaning given it in ------------------------------ Section 2(e) below. ------------ "Dividend Income": shall mean the income in the form of dividends --------------- received by Maker from the Project Owners (or any of them). "GAAP": shall mean generally accepted accounting principles as used ------ and understood in the United States of America from time to time. "Gross Receipts": shall mean, for any period all gross receipts, ---------------- revenues and income of any and every kind collected or received by or for the benefit or account of Maker and/or the Project Owners during such period arising from the ownership, rental, use, occupancy or operation of the Project or any portion thereof. Gross Receipts shall include, without limitation, all receipts from all tenants, licensees and other occupants and users of the Project or any portion thereof, including, without limitation, rents, security deposits and the like, interest earned and paid or credited on all Maker's or the Project Owners' deposit accounts related to the Project, all proceeds of rent or business interruption insurance, and the proceeds of all casualty insurance or eminent domain awards to the extent not (i) applied, or reserved and applied within six (6) months after the creation of such reserve, to the restoration of the Project in accordance with the Project Loan Documents, (ii) paid to Holder to reduce the principal amount of the Loan or (iii) paid to reduce the principal amount of the Project Loans. Gross Receipts shall include the net commission payable from U-Haul International, Inc. or affiliates thereof for the rental of its equipment at any Mortgaged Property; provided however that such net commissions payable shall not be included in Gross Receipts until the 15th day of the month following the month in which such rental occurred, all in accordance with the customary procedure for the payment of net commission. Gross Receipts shall not include any capital contributed to Maker, whether in the form of a loan or equity, or any proceeds from any loan made to Maker. Any receipt included within Gross Receipts in one period shall not be included within Gross Receipts for any other period (i.e., no item of revenue or receipts shall be counted twice). ---- "Highest Lawful Rate": shall mean the maximum rate of interest which --------------------- the Holder is allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. "Holder": shall mean at any particular time, the Person that is then -------- the holder of this Note. "Interest": shall mean Additional Interest, Basic Interest and ---------- Deferred Interest. "Loan": shall mean the unsecured loan in the amount of up to ------ $47,500,000.00 made by Payee to Maker and evidenced by this Note. "Loan Year": shall mean a year commencing on the date of this Note, ----------- or an anniversary thereof, and ending 365 days (or 366 days in a leap year) thereafter. "Management Fee": shall mean the fee paid to the Project Manager ---------------- pursuant to the Property Management Agreement which fee shall in no event exceed six percent (6.0%) of Gross Receipts. "Material Adverse Effect": shall mean the likely inability or ------------------------- reasonably anticipated inability of Maker to pay the Loan and perform its other obligations in compliance this Note. "Maturity Date": shall mean the first to occur of the Stated Maturity --------------- Date and the earlier date (if any) on which the unpaid principal balance of, and unpaid Interest on, this Note shall become due and payable on account of acceleration by the Holder hereof. "Mortgaged Properties": shall mean the properties of the Project -------------------- Owners identified on Schedule A hereto. "Note": shall mean this Promissory Note as it may be amended, ------ modified, extended or restated from time to time, together with all substitutions and replacements therefor. "Pay Rate": shall mean the annual interest rate of two percent ---------- (2.0%). "Pay Rate Interest": shall mean for any period the amount of Basic ------------------- Interest payable for such period less the amount of Deferred Interest which accrued during such period. "Person": shall mean any corporation, natural person, firm, joint -------- venture, general partnership, limited partnership, limited liability company, trust, unincorporated organization, government or any department or agency of any government. "Present Value": shall have the meaning given such term in Section --------------- 4(c) below. "Project": shall mean the real estate, the improvements and the --------- personal property identified on Schedule A hereto, taken together collectively "Project Lender" shall mean UBS Warburg Real Estate Investments, Inc. ---------------- or designee and/or such other Person who may extend a loan with respect to the Project or any portion thereof, as the context may so require, in its capacity as the lender under the Project Loans. "Project Loan Documents": shall mean and include, at any time, all ------------------------ promissory notes, mortgages and other documents and instruments which create, evidence or secure all or any part of the Project Loans. "Project Loans": shall mean, collectively, (i) that certain loan in --------------- the amount of $12,966,000 made by Project Lender to the Twenty SAC Self Storage Corporation; (ii) that certain loan in the amount of $14,607,000 made by Project Lender to the Twenty-One SAC Self Storage Corporation; (iii) that certain loan in the amount of $11,416,000 made by Project Lender to Twenty-Two SAC Self-Storage Corporation; (iv) that certain loan in the amount of $11,511,000 made by Project Lender to Twenty-Three SAC Self- Storage Corporation, each dated as of the date hereof. "Project Manager": shall have the meaning given it in Section 6(i) ----------------- ------------ below. "Project Owners": shall mean, collectively, Twenty SAC Self-Storage -------------- Corporation, a Nevada corporation, Twenty-One SAC Self-Storage Corporation, a Nevada corporation, Twenty-Two SAC Self-Storage Corporation, a Nevada corporation, and Twenty-Three SAC Self-Storage Corporation, a Nevada corporation, each of which being wholly-owned subsidiaries of Maker. "Property Management Agreement": shall have the meaning given such ------------------------------- term in Section 6(i) below. ------------ "Requirements of Law": shall mean, as to any Person, requirements as --------------------- set out in the provisions of such Person's Articles of Incorporation and Bylaws (in the case of a corporation) partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents, or as set out in any law, treaty, rule or regulation, or final and binding determination of an arbitrator, or determination of a court or other federal, state or local governmental agency, authority or subdivision applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, or in any private covenant, condition or restriction applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Return of Investment": shall mean any return to Maker of its ---------------------- investment in the Project Owners (or any of them) following a Sale or Financing. "Return of Investment Contingent Interest": shall have the meaning ------------------------------------------ given it in Section 2(g) below. ------------ "Sale": shall mean any direct or indirect sale, assignment, transfer, ------ conveyance, lease (except for leases or licenses of terms not exceeding 1 year to tenants in the ordinary course of business complying with standards and in a form approved by Payee) or disposition of any kind whatsoever of the Project, or of any portion thereof or interest (whether legal, beneficial or otherwise) of 25% or more (in the aggregate of all such sales, transfers, assignments, etc., made at any time or from time to time, taken together) of all equity interests in Maker. "Stated Maturity Date": shall mean the earlier of (i) January 1, ---------------------- 2022, and (ii) from and after February 1, 2014, on demand by Payee. "Tax and Insurance Escrow Account": shall mean any impound account ---------------------------------- established pursuant to the Project Loans, or any of them, and may include without limitation, impounds for capital repairs and replacements. "Triggering Event": shall have the meaning given it in Section ------------------ ------- 2(h)(ii) below. -------- "Yield Maintenance Premium": shall have the meaning given such term --------------------------- in Section 4(b) below. ------------ 2. Interest. -------- (a) Basic Interest Rate Prior to Maturity. Prior to the Maturity ------------------------------------- Date, interest ("Basic Interest") shall accrue on the principal balance of -------------- the Note outstanding from time to time at the Accrual Rate. Such interest shall be paid monthly in arrears, on the first day of each month. Notwithstanding the foregoing, Maker shall pay to Holder an amount calculated by applying the Pay Rate to the principal balance outstanding hereunder; and, the remainder of the Basic Interest accrued hereunder at the Accrual Rate during such month through the last day of such month ("Deferred Interest") shall be deferred, shall be payable as and at the ----------------- time provided in Section 2(d) below, and commencing on the day payment of ------------ Basic Interest at the Pay Rate is due for such month, interest shall accrue on such Deferred Interest at the Accrual Rate (and any accrued interest thereon, shall be considered part of Deferred Interest). (b) Post-Maturity Basic Interest. From and after the Maturity Date ---------------------------- interest ("Post Maturity Basic Interest") shall accrue and be payable on ---------------------------- the outstanding principal balance hereof until paid in full at an annual rate equal to fifteen percent (15%) and such Post Maturity Basic Interest shall be payable upon demand. (c) Computations. All computations of interest and fees payable ------------ hereunder shall be based upon a year of 360 days for the actual number of days elapsed. (d) Deferred Interest. Deferred Interest shall be paid as follows: ----------------- (i) On each monthly date for the payment of Basic Interest, Maker shall also pay an amount (the "Catch-Up Payment") equal to the ---------------- lesser of (i) the aggregate outstanding Deferred Interest on the last day of the month for which such payment is being made and (ii) ninety percent (90%) of Maker's Dividend Income for such period plus an additional amount equal to twice the Pay Rate Interest for such period; (ii) All unpaid Deferred Interest shall be paid on the Maturity Date; and (iii) No payment of Deferred Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. (e) Dividend Contingent Interest. In addition to Basic Interest and ---------------------------- Deferred Interest, on each date on which Basic Interest is payable hereunder, Maker shall pay to Holder interest ("Dividend Contingent ------------------- Interest") in an amount equal to the amount (if any) by which ninety -------- percent (90%) of Maker's Dividend Income for that period plus an additional amount equal to twice the Pay Rate Interest for such period (each calculated as of that date) exceeds the Catch-Up Payment paid on that date by Maker to Holder. (f) Prorations of Dividend Contingent Interest. Dividend Contingent ------------------------------------------ Interest shall be equitably prorated on the basis of a 365-day year for any partial month in which the term of the Loan commences or in which the Note is paid in full. (g) Return of Investment Contingent Interest. ---------------------------------------- (i) Return of Investment Contingent Interest Defined. Maker ------------------------------------------------ shall pay to Holder, in addition to Basic Interest, Deferred Interest and Dividend Contingent Interest, at the time or times and in the manner hereinafter described, an amount equal to ninety percent (90%) of Maker's Return of Investment resulting following a Sale of the Project (or any portion thereof) (any such event is hereinafter collectively referred to as a "Sale or Financing") ("Return of Investment Contingent Interest"); ----------------- (ii) Notice of Sale or Financing; Time for Payment of Return of ---------------------------------------------------------- Investment Contingent Interest. Maker shall notify Holder of the ------------------------------ occurrence of a Sale or Financing, and shall pay Holder the full amount of any applicable Return of Investment Contingent Interest which is payable in connection therewith, as follows: (A) Maker shall give Holder written notice of any such Sale or Financing not less than seventy five (75) days before the date such event is to occur. Any Return of Investment Contingent Interest due Holder on account of any Sale or Financing shall be paid to Holder on the date such Triggering Event occurs. (iii) Negative Return of Investment Contingent Interest. ------------------------------------------------- Notwithstanding any other provision of this Agreement, Holder shall not be responsible or liable in any respect to Maker or any other Person for any reduction in the fair market value of the Project or for any contingency, condition or occurrence that might result in a negative number for Return of Investment Contingent Interest. If at any time it is calculated, Return of Investment Contingent Interest shall be a negative amount, no Return of Investment Contingent Interest shall at that time be payable to Holder, but Holder shall in no way be liable for any such negative amount and there shall be no deduction or offset for such negative amount at any time when Return of Investment Contingent Interest shall be subsequently calculated. (iv) Usury Savings. No payment of Return of Investment ------------- Contingent Interest may, when added to all other payments of interest or payments construed as interest, shall exceed the Highest Lawful Rate. 3. Usury Savings Clause. The provisions of this Section 3 shall govern -------------------- --------- and control over any irreconcilably inconsistent provision contained in this Note or in any other document evidencing or securing the indebtedness evidenced hereby. The Holder hereof shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section 3, the word "interest" shall be --------- deemed to include Basic Interest, Additional Interest and any other sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event the Holder ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker and the Holder shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note; provided, that if this Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, the Holder shall refund to Maker the amount of such excess or credit the amount of such excess against the principal of this Note, and, in such event, the Holder shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate. 4. Payments. -------- (a) Interest. Maker promises to pay to the Holder hereof Basic -------- Interest, Deferred Interest and Additional Interest as, in the respective amounts, and at the respective times provided in Section 2 hereinabove. No --------- principal payments shall be due hereunder except at the Stated Maturity Date or as otherwise provided herein in the event of default. Each payment of Basic Interest (including without limitation, Deferred Interest), and Additional Interest on, or any other amounts of any kind with respect to, this Note shall be made by the Maker to the Holder hereof at its office in Phoenix, Arizona (or at any other place which the Holder may hereafter designate for such purpose in a notice duly given to the Maker hereunder), not later than noon, Pacific Standard Time, on the date due thereof; and funds received after that hour shall be deemed to have been received by the Holder on the next following business day. Whenever any payment to be made under this Note shall be stated to be due on a date which is not a business day, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable at the applicable rate during such extension. (b) Late Payment Charges. If any amount of Interest, principal or -------------------- any other charge or amount which becomes due and payable under this Note is not paid and received by the Holder within five business days after the date it first becomes due and payable, Maker shall pay to the Holder hereof a late payment charge in an amount equal to five percent (5%) of the full amount of such late payment, whether such late payment is received prior to or after the expiration of the ten-day cure period set forth in Section ------- 8(a). Maker recognizes that in the event any payment secured hereby (other ---- than the principal payment due upon maturity of the Note, whether by acceleration or otherwise) is not made when due, Holder will incur extra expenses in handling the delinquent payment, the exact amount of which is impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment would be a reasonable estimate of the expenses so incurred. Therefore, if any such payment is not received when due and payable, Maker pay to Holder to cover expenses incurred in handling the delinquent payment, an amount calculated at five percent (5%) of the amount of the delinquent payment. (c) No Prepayment. Maker shall have the right to prepay this Note at ------------- any time, but only subject to the requirements and conditions set forth below. If under any circumstances whatsoever (other than pursuant to Section 3 above) this Note is paid in whole or in part, whether voluntarily, following acceleration after the occurrence of an Event of Default, with the consent of Holder, by operation of law or otherwise, and whether or not such payment prior to the Stated Maturity Date results from the Holder's exercise of its rights to accelerate the indebtedness evidenced hereby, then Maker shall pay to the Holder the Yield Maintenance Premium (defined hereinbelow) in addition to paying the entire unpaid principal balance of this Note and all Interest which has accrued but is unpaid except with the written consent of the Holder. A Yield Maintenance Premium in an amount equal to the grater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the positive excess of (1) the present value ("PV") of all future installments of principal and interest due pursuant to Section 4(a) of this Note absent ------------ any such prepayment including the principal amount due at the Stated Maturity Date (collectively, "All Future Payments"), discounted at an interest rate per annum equal to the sum of (a) the Treasury Constant Maturity Yield Index published during the second full week preceding the date on which such Yield Maintenance Premium is payable for instruments having a maturity coterminous with the remaining term of this Note, and (b) One Hundred Forty (140) basis points, over (2) the then outstanding principal balance hereof immediately before such prepayment [(PV of All Future Payments) (Principal balance at the time of prepayment) = Yield Maintenance Premium]. "Treasury Constant Maturity Yield Index" shall mean the average yield for "This Week" as reported by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If there is no Treasury Constant Maturity Yield Index for instruments having a maturity coterminous with the remaining term of this Note, then the index shall be equal to the weighted average yield to maturity of the Treasury Constant Maturity Yield Indices with maturities next longer and shorter than such remaining average life to the maturity, calculated by averaging (and rounding upward to the nearest 1/100 of 1% per annum, if the average is not such a multiple) the yields of the relevant Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward). In the event that any Yield Maintenance Premium is due hereunder, Holder shall deliver to Maker a statement setting forth the amount and determination of the Yield Maintenance Premium and, provided that Holder shall have in good faith applied the formula described above, Maker shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Holder on any day during the thirty (30) day period preceding the date of such prepayment. Holder shall not be obligated or required to have actually reinvested the prepaid principal balance at the Treasury Constant Maturity Yield Index or otherwise as a condition to receiving the Yield Maintenance Premium. No Yield Maintenance Premium or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by this Note made on or after any date after January 1, 2008. In addition to the aforesaid Yield Maintenance Premium if, upon any such prepayment (whether prior to or after any date that is after January 1, 2008, the aforesaid prior written notice has not been received by Holder, the Yield Maintenance Premium shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed in the outstanding principal balance of this Note, so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the otherwise Stated Maturity Date of this Note. Without limiting the scope of the foregoing provisions, the provisions of this paragraph shall constitute, within the meaning of any applicable state statute, both a waiver of any right Maker may have to prepay the Note, in whole or in part, without premium or charge, upon acceleration of the maturity of the Note, or otherwise, and an agreement by Maker to pay the prepayment charge described in this Note, whether such prepayment is voluntary or upon or following any acceleration of this Note, or otherwise, and for such purpose Maker has separately initialed this provision in the space provided below, and Maker hereby declares that Holder's agreement to make the Loan to Maker at the interest rate and for the term set forth in the Note constitutes adequate consideration, of individual weight, for this waiver and agreement by Maker. 5. Representations and Warranties of Maker. Maker represents and warrants --------------------------------------- to Payee, as of the date hereof, that: (a) Due Authorization. Maker is a corporation duly organized under ----------------- the laws of the state of its organization, with the authority to consummate the transactions contemplated hereby; (b) No Violation. Maker's execution, delivery and performance of its ------------ obligations under the Project Loan Documents to which it is a party do not and will not violate the articles of incorporation or by-laws of Maker and will not violate, conflict with or constitute a default under any agreement to which Maker is a party or by which the Project is bound or encumbered, or violate any Requirements of Law to which Maker or the Project is subject; (c) Consents. No consents, approvals, filings, or notices of, with -------- or to any Person are required on the part of Maker in connection with Maker's execution, delivery and performance of its obligations hereunder that have not been duly obtained, made or given, as the case may be; (d) Enforceability. The Note is valid, binding and enforceable in -------------- accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally; (e) Compliance with Laws. Each Mortgaged Property is in compliance -------------------- in all material respects with all applicable Requirements of Law; (f) Litigation. No litigation, investigation or proceeding or notice ---------- thereof before any arbitrator or governmental authority, agency or subdivision which would have a material adverse effect upon the Maker or the Project is pending or, to Maker's best knowledge, threatened, against Maker or the Project; (g) Utilities; Licenses. All utilities required by Requirements of ------------------- Law or by the normal and intended use of the Project are installed to the property line and connected by valid permits and the Maker possesses, or will possess as and when necessary, all patents, patent rights or licenses, trademarks, trade names, trade name right, service marks, copyrights, licenses, permits and consents (or rights thereto) which are required to conduct its business as it is now conducted or as it is presently proposed to be conducted, or which are required by any governmental entity or agency; and (h) Place of Business. Maker's principal place of business is ----------------- located at 715 South Country Club Drive, Mesa, AZ 85210. 6. Affirmative Covenants. Maker hereby covenants and agrees that, so long --------------------- as any indebtedness under the Note remains unpaid, Maker shall: (a) Use of Proceeds. Use the proceeds of the Loan to capitalize the --------------- Project Owners. (b) Financial Statements. Deliver or cause to be delivered to -------------------- Holder: (i) As soon as available and in any event within 90 days after the end of each calendar year, annual financial reports on the Project showing all income and expenses certified to be accurate and complete by an officer of the Maker; and (ii) As soon as available and in any event within 45 days after the end of each of the first three calendar quarters of each year, (1) a detailed comparative earnings statement for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (2) financial reports on the Project showing all income and expenses, certified to be accurate and complete by an officer of the managing general partner of Maker (or, if Maker is a corporation, of Maker); and (iii) Promptly, such additional financial and other information (including, without limitation, information regarding the Project) as Holder may from time to time reasonably request. (c) Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and, upon reasonable notice, permit representatives of Holder to examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Holder and to discuss the business, operations, properties and financial and other conditions of Maker with officers and employees of Maker and with its independent certified public accountants. Such books and records shall be available for at least five (5) years after the end of the relevant calendar month. Holder shall have the right to inspect, copy and audit such books of account and records at Holder's expense, during reasonable business hours, and upon reasonable notice to Maker, for the purpose of verifying the accuracy of any principal payments made. The costs of any such audit will be paid by Holder, except that Maker shall pay all reasonable costs and expenses of any such audit which discloses that any amount properly payable by Maker to Holder hereunder exceeded by five percent (5%) or more the amount actually paid and initially reported by Maker as being payable with respect thereto. (d) Notices. Give prompt written notice to Holder of (a) any claims, ------- proceedings or disputes (whether or not purportedly on behalf of Maker) against, or to Maker's knowledge, threatened or affecting Maker or the Project which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (without in any way limiting the foregoing, claims, proceedings, or disputes involving in the aggregate monetary amounts in excess of $500,000 not fully covered by insurance shall be deemed to be material), or (b) any proposal by any public authority to acquire the Project or any portion thereof. (e) Expenses. Pay all reasonable out-of-pocket expenses (including -------- fees and disbursements of counsel, including special local counsel) of Holder, incident to any amendments, waivers and renewals of this Note. (f) Project Loan Documents. Comply with and observe all terms and ---------------------- conditions of the Project Loan Documents to which it is subject. (g) INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS HOLDER AND ITS --------------- DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS AND AGENTS (THE "INDEMNIFIED ----------- PARTIES") FROM AND AGAINST ALL DAMAGES AND LIABILITIES (COLLECTIVELY AND ------- SEVERALLY, "LOSSES") ASSESSED AGAINST ANY OF THEM RESULTING FROM THE CLAIMS ------ OF ANY PARTY RELATING TO OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT FOR LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, AND REIMBURSE EACH INDEMNIFIED PARTY FOR ANY EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF LEGAL COUNSEL) REASONABLY INCURRED IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM (INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUEST OR SUBPOENAS), REGARDLESS OF WHETHER HOLDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO. IT IS ACKNOWLEDGED AND AGREED BY MAKER THAT THE INDEMNIFICATION RIGHTS OF THE INDEMNIFIED PARTIES HEREUNDER ARE IN ADDITION TO AND CUMULATIVE WITH ALL OTHER RIGHTS OF THE INDEMNIFIED PARTIES. WITH REFERENCE TO THE PROVISIONS SET FORTH ABOVE IN THIS SECTION ------- 6(g) FOR PAYMENT BY MAKER OF ATTORNEYS' FEES INCURRED BY THE INDEMNIFIED ---- PARTIES IN ANY ACTION OR CLAIM BROUGHT BY A THIRD PARTY, MAKER SHALL, IF IT ADMITS LIABILITY HEREUNDER TO ANY INDEMNIFIED PARTY, DILIGENTLY DEFEND SUCH INDEMNIFIED PARTY AND DILIGENTLY CONDUCT THE DEFENSE. IF HOLDER OR ANY OTHER SUCH INDEMNIFIED PARTY DESIRES TO ENGAGE SEPARATE COUNSEL, IT MAY DO SO AT ITS OWN EXPENSE; PROVIDED, HOWEVER, THAT SUCH LIMITATION ON THE OBLIGATION OF MAKER TO PAY THE FEES OF SEPARATE COUNSEL FOR SUCH INDEMNIFIED PARTY SHALL NOT APPLY IF SUCH INDEMNIFIED PARTY HAS RETAINED SAID SEPARATE COUNSEL BECAUSE OF A REASONABLE BELIEF THAT MAKER IS NOT DILIGENTLY DEFENDING IT AND/OR NOT DILIGENTLY CONDUCTING THE DEFENSE AND SO NOTIFIES MAKER. THE OBLIGATIONS OF MAKER UNDER THIS SECTION 6(g) SHALL ------------ SURVIVE REPAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED HEREBY. EXCEPT AS OTHERWISE PROVIDED HEREIN, IT IS THE INTENT OF THIS SECTION 6(g) THAT THE ------------ MAKER SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM LOSSES OCCASIONED BY THE ACTS OR OMISSIONS, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OF THE INDEMNIFIED PARTIES. (g) Co-operation. Execute and deliver to Holder any and all ------------ instruments, documents and agreements, and do or cause to be done from time to time any and all other acts, reasonably deemed necessary or desirable by Holder to effectuate the provisions and purposes of this Note. (h) Requirements of Law. Comply at all times with all Requirements ------------------- of Law. (i) Management Agreement. Cause or permit the Project to be -------------------- initially managed by subsidiaries of U-Haul International, Inc. or to be at all times managed by a nationally recognized self-storage property management company (the "Project Manager") approved by the Holder, which --------------- Project Manager shall be employed pursuant to an agreement (the "Property -------- Management Agreement") approved by the Holder. In no event shall the fees -------------------- paid (or required to be paid) to the Project Manager exceed six percent (6%) of Gross Receipts for any time period. 7. Negative Covenants. Maker hereby agrees that, as long as any ------------------ indebtedness under the Note remains unpaid, Maker shall not, directly or indirectly: (a) Indebtedness. Create, incur or assume any Indebtedness except ------------ for: (i) the Loan; (ii) Maker's contingent obligations under the Project Loans; (iii) non-delinquent taxes; (iv) unsecured debt incurred in the ordinary course of business and (v) other indebtedness owed to Payee and its affiliates. (b) Consolidation and Merger. Liquidate or dissolve or enter into ------------------------ any consolidation, merger, partnership, joint venture, syndicate or other combination (except for a merger or consolidation for the purpose of, and having the effect of changing Maker's jurisdiction of organization). (c) Transactions with Affiliates. Purchase, acquire or lease any ---------------------------- property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate, or enter into any other transaction or arrangement or make any payment to (including, without limitation, on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate on terms which are unreasonably burdensome or unfair, except (i) transactions relating to the sharing of overhead expenses, including, without limitation, managerial, payroll and accounting and legal expenses, for which charges assessed against Maker are not greater than would be incurred by Maker in similar transactions with non-Affiliates, (ii) fair and reasonable transactions between Maker and U-Haul International, Inc. and its related companies, and (iii) guarantees of the recourse obligations of Maker's subsidiaries in connection with any financing by such subsidiaries. (d) Sale of Interests in the Project or in the Maker. Without ------------------------------------------------ obtaining the prior written consent of Holder (which Holder may withhold or condition in its sole and absolute discretion), cause, permit or acquiesce in any Sale or Financing. (e) Distributions. Notwithstanding anything to the contrary ------------- contained in this Note or the Project Loan Documents, Maker shall not make any distributions to any of its partners or shareholders, except for distributions of amounts not in excess of (i) the Catch-Up Amount for any quarter, (ii) any Net Cash Flow for any quarter remaining after the payment to Holder of all Interest and the Catch-Up Amount payable for and with respect to such quarter, and (iii) upon the Sale or Financing any Net Sale or Financing proceeds remaining after payment to Holder of the amounts to which Holder is entitled hereunder in connection therewith. (f) Business. Engage, directly or indirectly, in any business other -------- than that arising out of the issuance of this Note, entering into the Project Loan Documents to which it is a party and any other loan documents with regard to financing by any of Maker's subsidiaries, and taking the actions required to be performed under the Project Loan Documents and under the loan documents under such other financings. (g) No Bankruptcy Filing. To the extent permitted by law, without -------------------- the unanimous consent of the Board of Directors of the Maker (for these purposes such Board of Directors will not include any committee thereof) voluntarily file any petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceeding. (h) No Joint Venture. Engage in a joint venture or become a partner ---------------- with any other Person. 8. Event of Default; Remedies. Any one of the following occurrences -------------------------- shall constitute an Event of Default under this Note: (a) The failure by the Maker to make any payment of principal, Interest or Yield Maintenance Premium upon this Note as and when the same becomes due and payable in accordance with the provisions hereof, and the continuation of such failure for a period of ten (10) days after notice thereof to the Maker; (b) The failure by the Maker to deposit in any account established and maintained pursuant to any collection account agreement any amount required to be deposited in such account within 2 days of when required pursuant to the terms of such collection account agreement; (c) The failure by Maker to perform any obligation under, or the occurrence of any other default with respect to any provision of, this Note other than as described in any of the other clauses of this Section 8, and the continuation of such default for a period of 30 days after written notice thereof to the Maker; (d) (i) Maker shall file, institute or commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Maker shall make a general assignment for the benefit of its creditors; or (ii) there shall be filed, instituted or commenced against Maker any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of any order for relief or any such adjudication or appointment, or (B) remains undismissed undischarged for a period of 60 days; or (iii) there shall be commenced against Maker any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal, within 60 days from the first entry thereof; or (iv) Maker shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts described in any of the preceding clauses (i) , (ii) or (iii); or (v) Maker shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or shall in writing admit that it is insolvent; or (e) One or more judgments or decrees in an aggregate amount exceeding $1,000,000.00 shall be entered against Maker and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied, or bonded to Holder's satisfaction pending appeal within 60 days from the first entry thereof; or Upon the occurrence of any Event of Default hereunder, the entire unpaid principal balance of, and any unpaid Basic Interest and Additional Interest then accrued on, this Note together with the Yield Maintenance Premium, if any, shall, at the option of the Holder hereof and without demand or notice of any kind to the undersigned or any other person, immediately become and be due and payable in full (except that such acceleration shall occur automatically upon the occurrence of any Event of Default described in the preceding clause (d) of this Section 8, without further action or decision by Holder); and the Holder shall have and may exercise any and all rights and remedies available at law or in equity. 9. Offset. In addition to (and not in limitation of) any rights of offset ------ that the Holder hereof may have under applicable law, upon the occurrence of any Event of Default hereunder the Holder hereof shall have the right, immediately and without notice, to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Maker then or thereafter with or held by the Holder hereof. Notwithstanding the foregoing, there shall be no offset against this Note any amounts otherwise payable to the Project Owners (or any of them), whether pursuant to any lease between the Project Owners and affiliates of Maker, or otherwise. 10. Allocation of Balances or of Payments. At any and all times until ------------------------------------- this Note and all amounts hereunder (including principal, Interest, and other charges and amounts, if any) are paid in full, all payments (whether of principal, Interest or other amounts) made by the undersigned or any other person (including any guarantor) to the Holder hereof may be allocated by the Holder to principal, Interest or other charges or amounts as the Holder may determine in its sole, exclusive and unreviewable discretion (and without notice to or the consent of any person). 11. Captions. Any headings or captions in this Note are inserted for -------- convenience of reference only, and they shall not be deemed to constitute a part hereof, nor shall they be used to construe or interpret the provisions of this Note. 12. Waiver. ------ (a) Maker, for itself and for its successors, transferees and assigns and all guarantors and endorsers, hereby waives diligence, presentment and demand for payment, protest, notice of protest and nonpayment, dishonor and notice of dishonor, notice of the intention to accelerate, notice of acceleration, and all other demands or notices of any and every kind whatsoever (except only for any notice of default expressly provided for in Section 8 of this Note) and the undersigned agrees that this Note and any or all payments coming due hereunder may be extended from time to time in the sole discretion of the Holder hereof without in any way affecting or diminishing their liability hereunder. (b) No extension of the time for the payment of this Note or any payment becoming due or payable hereunder, which may be made by agreement with any Person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability under this Note, either in whole or in part, of the Maker if it is not a party to such agreement. (c) No delay in the exercise of any right or remedy hereunder shall be deemed a waiver of such right or remedy, nor shall the exercise of any right or remedy be deemed an election of remedies or a waiver of any other right or remedy. Without limiting the generality of the foregoing, the failure of the Holder hereof promptly after the occurrence of any Event of Default hereunder to exercise its right to declare the indebtedness remaining unmatured hereunder to be immediately due and payable shall not constitute a waiver of such right while such Event of Default continues nor a waiver of such right in connection with any future Event of Default on the part of the undersigned. 13. Payment of Costs. The undersigned hereby expressly agrees that upon ---------------- the occurrence of any Event of Default under this Note, the undersigned will pay to the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof, on demand, all costs of collection or enforcement of every kind, including (but not limited to) all attorneys' fees, court costs, and other costs and expenses of every kind incurred by the Holder hereof in connection with the protection or realization of any or all of the security for this Note, whether or not any lawsuit is ever filed with respect thereto. 14. The Project Loan Documents. This Note is unsecured. The Project -------------------------- Loans are secured by, inter alia, certain Deeds of Trust, Mortgages, and Deeds ----- ---- to Secure Debt, Assignment of Leases and Rents, Security Agreement and Financing Statement, made and granted by subsidiaries of Maker to or for the benefit of the Project Lender, which create liens on real estate in the Project and which also creates a security interest in personal property located thereat or utilized in connection therewith, and each and every additional document or instrument which may at any time be delivered to the Project Lender as security under the Project Loans, as any of the same may at any time or from time to time be amended, modified or restated, and together with all substitutions and replacements therefor. Reference should be made to the Project Loan Documents for a description of the property encumbered thereby and the nature and extent of the security thereof. Notwithstanding anything to the contrary set forth or implied herein, this Note is not indebtedness of the Project Owners or any of them, and is not secured, whether directly or indirectly, by the Project or any collateral or property owned or operated by the Project Owners, or any of them. 15. Notices. All notices, demands and other communications hereunder to ------- either party shall be made in writing and shall be deemed to have been given when actually received or, if mailed, on the first to occur of actual receipt or the third business day after the deposit thereof in the United States mails, by registered or certified mail, postage prepaid, addressed as follows: If to the Maker: SAC Holding Corporation 715 South Country Club Drive Mesa, AZ 85210 Attention: President If to the Holder: U-Haul International, Inc. 2721 North Central Avenue Phoenix, Arizona 85004 Attention: Treasurer or to either party at such other address as such party may designate as its address for the receipt of notices hereunder in a written notice duly given to the other party. In addition, a copy of any notice of default sent to Maker shall also be sent to the following: Project Lender: UBS Warburg Real Estate Investments Inc. 1285 Avenue of the Americas, 11th Floor New York, New York 10019 Attention: Robert Pettinato, Director Telecopier: (212) 713-2099 with a copy to: Cadwalader, Wickersham & Taft 100 Maiden Lane New York, New York 10038 Attention: Fredric L. Altschuler, Esq. Telecopier: (212) 504-6666 16. Time of the Essence. Time is hereby declared to be of the essence of ------------------- this Note and of every part hereof. 17. Governing Law. This Note shall be governed by and construed in ------------- accordance with the internal laws of the State of Arizona. 18. Jurisdiction. In any controversy, dispute or question arising ------------ hereunder, the Maker consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the State of Arizona (whether it be a court of the State of Arizona, or a court of the United States of America situated in the State of Arizona), and in connection therewith, agrees to submit to, and be bound by, the jurisdiction of such court upon the Holder's mailing of process by registered or certified mail, return receipt requested, postage prepaid, within or without the State of Arizona, to the Maker at its address for receipt of notices under this Note. 19. HOLDER NOT PARTNER OF MAKER. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL --------------------------- THE HOLDER OF THIS NOTE BE DEEMED TO BE A PARTNER OR A CO-VENTURER WITH MAKER OR WITH ANY OTHER PERSON. MAKER SHALL NOT REPRESENT TO ANY PERSON THAT THE MAKER AND THE HOLDER HEREOF ARE PARTNERS OR CO-VENTURERS. ANY AND ALL ACTIONS BY THE HOLDER HEREOF IN EXERCISING ANY RIGHTS, REMEDIES OR PRIVILEGES HEREOF OR IN ENFORCING THIS NOTE WILL BE EXERCISED BY THE HOLDER SOLELY IN FURTHERANCE OF ITS ROLE AS A SECURED LENDER. 20. JURY TRIAL. THE MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 21. Entire Agreement. This Note constitutes the entire agreement between ---------------- Maker and Payee. No representations, warranties, undertakings, or promises whether written or oral, expressed or implied have been made by the Payee or its agent unless expressly stated in this Note. IN WITNESS WHEREOF, the undersigned has executed and delivered this Note, pursuant to proper authority duly granted, as of the date and year first above written. SAC HOLDING CORPORATION a Nevada corporation By: /S/ Mark V. Shoen ---------------------------------- Mark V. Shoen, President Schedule A Description of the Project
Number Name Street Address City State Zip 700026 U-HAUL CTR OF BEND 63370 N HWY 97 BEND OR 97701 707075 U-HAUL CTR THORNTON 4833 THORNTON AVE FREMONT CA 94536 708078 U-HAUL CTR BELMONT 554 EL CAMINO REAL BELMONT CA 94002 710077 U-HAUL OF FLORIN RD 3026 FLORIN RD SACRAMENTO WEST CA 95822 712032 U-HAUL CENTER DOWNTOWN 1836 S ARAPAHOE ST LOS ANGELES CA 90006 717068 U-HAUL LEMON GROVE 1805 MASSACHUSETT AV LEMON GROVE CA 91945 721021 U-HAUL CENTER 19TH & BELL 1935 WEST BELL ROAD PHOENIX WEST AZ 85023 721058 U-HAUL 51ST & GLENDALE 5024 WEST GLENDALE GLENDALE AZ 85301 AVENUE 723082 U-HAUL MAIN&LINDSAY 2947 E MAIN MESA AZ 85203 734024 U-HAUL STATE AVE 5200 STATE AVE KANSAS CITY KS 66102 736071 U-HAUL CT HAZELWOOD 8961 DUNN ROAD HAZELWOOD MO 63042 738057 U-HAUL DOWNTOWN 100 SE SECOND OKLAHOMA CITY OK 73129 741035 U-HAUL CENTER ADDISON 2735 BELT LINE ROAD CARROLLTON TX 75006 742054 U-HAUL KANIS ROAD 7618 KANIS ROAD LITTLE ROCK AR 72204 744068 U-HAUL AUSTIN HWY 2390 AUSTIN HIGHWAY SAN ANTONIO TX 78218 744070 U-HAUL NACO-PERRIN 12534 NACGODOCHES SAN ANTONIO TX 78217 744080 U-HAUL SAN PEDRO 5810 SAN PEDRO SAN ANTONIO TX 78212 747069 U-HAUL CAUSEWAY BLV 3800 N CAUSEWAY BLVD METAIRIE LA 70002 747074 U-HAUL CT GENTILLY 6210 CHEF MENTEUR HY NEW ORLEANS LA 70126 751022 U-HAUL JOLLY CEDAR 5020 S CEDAR LANSING MI 48910 752069 U-HAUL CAROUSEL MALL 29500 MICHIGAN AVE INKSTER MI 48141 770054 U-HAUL CTR METRO 1340 E THIRD STREET DAYTON OH 45403 772061 U-HAUL HENDERSONVIL 208 W MAIN ST HENDERSONVILLE TN 37075 776053 U-HAUL CT PETERS ST 300 PETERS ST SW ATLANTA EAST GA 30313 790066 U-HAUL CTR RT 295 411 MARGINAL WAY PORTLAND ME 4101 791023 U-HAUL SPRINGFIELD 914 BOSTON ROAD SPRINGFIELD MA 1101 795028 U-HAUL CENTER OF MANASSAS PARK 8537 CENTREVILLE ROAD MANASSAS VA 20111 796058 U-HAUL CTR WARWICK 279 OAKLAND BEACH AV WARWICK RI 2886 806024 U-HAUL CENTER CORAM 532 MDL COUNTRY ROAD CORAM NY 11727 813020 U-HAUL CENTER ROUTE 37 68 ROUTE 37 EAST TOMS RIVER NJ 8753 820022 U-HAUL CT PULASKI HY 4301 PULASKI HIGHWAY BALTIMORE MD 21224 825067 U-HAUL AIRLINE CTR 2855 AIRLINE BLVD PORTSMOUTH VA 23701 828059 U-HAUL CTR ORACLE 4655 N ORACLE TUCSON AZ 85705 828068 U-HAUL W INA RD 4040 W INA RD TUCSON AZ 85741 835081 U-HAUL NORTHWEST 9929 HARRY HINES BLVD DALLAS TX 75220 836033 WESTCREEK VILLAGE U-HAUL CTR 3019 ALTA MESA BLVD FORT WORTH TX 76133 836044 U-HAUL CENTER ARLINGTON 2315 WEST DIVISION ARLINGTON TX 76012
EX-10.14 11 p66363aex10-14.txt EX-10.14 Exhibit 10.14 PROPERTY MANAGEMENT AGREEMENT ----------------------------- THIS PROPERTY MANAGEMENT AGREEMENT (this "Agreement") is entered into as of August 28, 2000 between Securespace Limited Partnership, a Nevada limited partnership ("Owner"), and U-Haul Co. (Canada) Ltd., a Canadian corporation ("U-Haul"). RECITALS -------- A. Owner is the beneficial owner of the real property and self- storage related improvements thereon located at the street addresses identified on Exhibit A hereto (collectively the "Property"). --------- B. Owner intends that the Property be rented or licensed on a space-by-space retail basis to third parties for use by such third parties as self-storage facilities and, with respect to certain portions of the Property, as business center facilities. C. Owner desires that U-Haul manage the Property and U-Haul desires to act as the property manager for the Property, all in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Owner and U-Haul hereby agree as follows. 1. Employment. ---------- (a) Owner hereby retains U-Haul, and U-Haul agrees to act as manager of the Property upon the terms and conditions hereinafter set forth. (b) Owner acknowledges that U-Haul, and/or U-Haul affiliates, is in the business of managing self-storage facilities, both for its own account and for the account of others. It is hereby expressly agreed that notwithstanding this Agreement, U-Haul and such affiliates may continue to engage in such activities, may manage facilities other than those presently managed by U-Haul and its affiliates (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other business which may compete directly or indirectly with activities of Owner. (c) In the performance of its duties under this Agreement, U-Haul shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto partners or joint venturors, nor (except as expressly otherwise provided for herein) construed as making U-Haul an agent or employee of Owner. 2. Duties and Authority of U-Haul. ------------------------------ (a) GENERAL DUTIES AND AUTHORITY. Subject only to the restrictions and limitations provided in paragraphs (o) and (p) of this Section 2 and the right of Owner to terminate this Agreement as provided in Section 6 hereof, U-Haul shall have the sole and exclusive authority to fully manage the Property and supervise and direct the business and affairs associated or related to the daily operation thereof, and, to that end on behalf of Owner, to execute such documents and instruments as, in the sole judgment of U-Haul, are reasonably necessary or advisable under the circumstances in order to fulfill U-Haul's duties hereunder. Such duties and authority shall include, without limitation, those set forth below. (b) RENTING OF THE PROPERTY. U-Haul shall establish policies and procedures for the marketing activities for the Property, and may advertise the Property through such media as U-Haul deems advisable, including, without limitation, advertising with the Yellow Pages. U-Haul shall have the sole discretion, which discretion shall be exercised in good faith, to establish the terms and conditions of occupancy by the tenants of the Property, and U-Haul is hereby authorized to enter into rental agreements on behalf and for the account of Owner with such tenants and to collect rent from such tenants. U-Haul may jointly advertise the Property with other properties owned or managed by U-Haul, and in that event, U-Haul shall reasonably allocate the cost of such advertising among such properties. (c) REPAIR, MAINTENANCE AND IMPROVEMENTS. U-Haul shall make, execute, supervise and have control over the making and executing of all decisions concerning the acquisition of furniture, fixtures and supplies for the Property, and may purchase, lease or otherwise acquire the same on behalf of Owner. U-Haul shall make and execute, or supervise and have control over the making and executing of all decisions concerning the maintenance, repair, and landscaping of the Property. U-Haul shall, on behalf of Owner, negotiate and contract for and supervise the installation of all capital improvements related to the Property; provided, however, that U-Haul agrees to secure the prior written approval of Owner on all such expenditures in excess of $5,000.00 for any one item, except monthly or recurring operating charges and/or emergency repairs if in the opinion of U-Haul such emergency-related expenditures are necessary to protect the Property from damage or to maintain services to the tenants as called for in their respective leases. (d) PERSONNEL. U-Haul shall select all vendors, suppliers, contractors, subcontractors and employees with respect to the Property and shall hire, discharge and supervise all labor and employees required for the operation and maintenance of the Property. Any employees so hired shall be employees of U-Haul, and shall be carried on the payroll of U-Haul. Employees may include, but will not be limited to, on-site resident managers, on-site assistant managers, and relief managers located, rendering services, or performing activities on the Property in connection with its operation and management. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Property. (e) AGREEMENTS. U-Haul shall negotiate and execute on behalf of Owner such agreements which U-Haul deems necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Property and such other agreements which may benefit the Property or be incidental to the matters for which U-Haul is responsible hereunder. (f) OTHER DECISIONS. U-Haul shall make all decisions in connection with the daily operation of the Property. (g) REGULATIONS AND PERMITS. U-Haul shall comply in all material respects with any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body, having jurisdiction over the Property, respecting the use of the Property or the maintenance or operation thereof. U-Haul shall apply for and attempt to obtain and maintain, on behalf of Owner, all licenses and permits required or advisable (in the sole judgment of U-Haul) in connection with the management and operation of the Property. (h) RECORDS AND REPORTS OF DISBURSEMENTS AND COLLECTIONS. U-Haul shall establish, supervise, direct and maintain the operation of a system of record keeping and bookkeeping with respect to all receipts and disbursements in connection with the management and operation of the Property. The books, records and accounts shall be maintained at the U-Haul office or at such other location as U-Haul shall determine, and shall be available and open to examination and audit quarterly by Owner, its representatives, any mortgagee of the Property, and such mortgagee's representative. On or before thirty (30) days after the close of each quarter, U-Haul shall cause to be prepared and delivered to Owner, a monthly statement of receipts, expenses and charges, together with a statement of the disbursements made by U-Haul during such period on Owner's behalf. (i) [Reserved]. (j) COLLECTION. U-Haul shall be responsible for the billing and collection of all accounts receivable and for payment of all accounts payable with respect to the Property and shall be responsible for establishing policies and procedures to minimize the amount of bad debts. (k) LEGAL ACTIONS. U-Haul shall cause to be instituted, on behalf and in the name of Owner, any and all legal actions or proceedings U-Haul deems necessary or advisable to collect charges, rent or other income due to Owner with respect to the Property and to oust or dispossess tenants or other persons unlawfully in possession under any lease, license concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or occupant. (l) INSURANCE. U-Haul shall use its best efforts to assure that there is obtained and maintained in force, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities. U-Haul may in its discretion obtain employee theft or similar insurance in amounts and with such deductibles as U-Haul deems appropriate. U-Haul shall promptly provide Owner with such certificates of insurance as Owner may reasonably request in writing, evidencing such insurance coverage. (m) TAXES. During the term of this Agreement, U-Haul shall pay from Owner's funds, prior to delinquency, all real estate taxes, personal property taxes, and all other taxes assessed to, or levied upon, the Property. If required by the holder of any note secured by the Property, U-Haul will set aside, from Owner's funds, a reserve from each month's rent and other income collected, in an amount required by said holder for purposes of payment of real property taxes. (n) [Reserved]. (o) LIMITATIONS ON U-HAUL AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not, without obtaining the prior written consent of Owner, (i) rent storage space in the Property by written lease or agreement for a stated term in excess of one year, (ii) alter the building or other structures of the Property in any material manner; (iii) make any other agreements which exceed a term of one year and are not terminable on thirty day's notice at the will of Owner, without penalty, payment or surcharge; (iv) act in violation of any law; or (v) act in violation of any duty or responsibility of Owner under any mortgage loan secured by the Property. (p) SHARED EXPENSES. Owner acknowledges that certain economies may be achieved with respect to certain expenses to be incurred by U-Haul on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by U-Haul in quantity for use not only in connection with the Property but in connection with other properties owned or managed by U-Haul or its affiliates. U-Haul shall have the right to purchase such materials, supplies, insurance and/or services in its own name and charge Owner a pro rata allocable share of the cost of the foregoing; provided, however, that the pro rata cost of such purchase to Owner shall not result in expenses greater than would otherwise be incurred at competitive prices and terms available in the area where the Property is located; and provided further, U-Haul shall give Owner access to records so Owner may review any such expenses incurred. (q) DEPOSIT OF GROSS REVENUES. All Gross Revenues (as hereinafter defined) shall be deposited into a trust bank account maintained by U-Haul (or its parent company) as trustee for the benefit of the Owner. To the extent that the Gross Revenues are deposited into a collective trust account maintained by U-Haul (or its parent company) for the benefit of multiple property owners, such trust account will clearly identify the beneficiaries and U-Haul (or its parent company) shall reconcile such account daily and maintain such records as shall clearly identify each day the respective interest of each beneficiary in such collective trust account. Gross Revenues of the Owner shall be applied first to the repayment of Owner's senior debt with respect to the Property, and then to U-Haul in reimbursement of expenses and for management fees as provided under Section 4 below. 3. Duties of Owner. --------------- Owner hereby agrees to cooperate with U-Haul in the performance of U-Haul's duties under this Agreement and to that end, upon the request of U-Haul, to provide, at such rental charges, if any, as are deemed appropriate, reasonable office space for U-Haul employees on the premises of the Property and to give U-Haul access to all files, books and records of Owner relevant to the Property. Owner shall not unreasonably withhold or delay any consent or authorization to U-Haul required or appropriate under this Agreement. 4. Compensation of U-Haul. ---------------------- (a) MANAGEMENT FEE. Owner shall pay to U-Haul as the full amount due for the services herein provided a fee (the "Management Fee") equal to six percent (6%) of the "Gross Revenue" derived from or connected with the Property so managed by U-Haul hereunder. The term "Gross Revenue" shall mean all receipts (excluding security deposits unless and until Owner recognizes the same as income) of Owner (whether or not received by U-Haul on behalf or for the account of Owner) arising from the operation of the Property, including without limitation, rental payments of lessees or licensees of space in the Property, vending machine or concessionaire revenues, maintenance charges, if any, paid by the tenants of the Property in addition to basic rent, parking fees, if any, and all monies whether or not otherwise described herein paid for the use of the Property. "Gross Revenue" shall be determined on a cash basis. The Management Fee shall be paid promptly at the end of each calendar quarter and shall be calculated on the basis of the "Gross Revenue" of such preceding quarter. It is understood and agreed that the Management Fee will not be reduced by the cost to Owner of those employees and independent contractors engaged by or for Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 4, it is further understood and agreed that U-Haul shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement. (b) REIMBURSEMENT OF CERTAIN EXPENSES. In addition to the Management Fee described above, U-Haul shall be entitled to reimbursement from Owner, on a quarterly basis, for all out-of-pocket expenses incurred by U-Haul hereunder in connection with the management and operation of the Property, including, without limitation, taxes, insurance, operational expenses, overhead, litigation and dispute resolution related expenses, capital improvement expenses, and costs of sales. 5. Use of Trademarks, Service Marks and Related Items. -------------------------------------------------- Owner acknowledges the significant value of the "U-Haul" name in the operations of Owner's property and it is therefore understood and agreed that the name, trademark and service mark, "U-Haul", and related marks, slogans, caricatures, designs and other trade or service items shall be utilized for the non-exclusive benefit of Owner in the rental and operation of the Property, and in comparable operations elsewhere. It is further understood and agreed that this name and all such marks, slogans, caricatures, designs and other trade or service items shall remain and be at all times the property of U-Haul and its affiliates, and that, except during the term hereof and as expressly provided herein, Owner shall have no right whatsoever therein. Owner agrees that during the term of this agreement the sign faces at the property will or may have the name "U-Haul." The U-Haul sign faces (including the cost of any conversion of the existing sign faces to "U-Haul" sign faces) will be paid for by Owner. Upon termination of this agreement at any time for any reason, all such use by and for the benefit of Owner of any such name, mark, slogan, caricature, design or other trade or service item in connection with the Property shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. In addition, upon termination of this Agreement at any time for any reason, Owner shall not enter into any new leases of Property using the U-Haul lease form or use other forms prepared by U-Haul. It is understood and agreed that U-Haul will use and shall be unrestricted in its use of such name, mark, slogan, caricature, design or other trade or service item in the management and operation of other storage facilities both during and after the expiration or termination of the term of this Agreement. 6. Termination. ----------- Owner or U-Haul may terminate this Agreement with or without cause by giving not less than thirty days' written notice to the other party pursuant to Section 11 hereof. In addition, if Owner fails to pay U-Haul any amounts owed under this Agreement when due, U-Haul may terminate this Agreement by giving Owner not less than ten days written notice pursuant to Section 11 hereof. Notwithstanding the foregoing, however, U-Haul shall not resign as property manager of the Property until a nationally recognized and reputable successor property manager is available and prepared to assume property management responsibilities with respect to the Property in question. Upon termination of this Agreement, U-Haul shall promptly return to Owner all monies, books, records and other materials held by U-Haul for or on behalf of Owner. In addition, if U-Haul has contracted to advertise the Property in the Yellow Pages, Owner shall, at the option of U-Haul, continue to be responsible for the cost of such advertisement and shall either (i) pay U-Haul the remaining amount due under such contract in a lump sum; or (ii) pay U-Haul monthly for the amount due under such contract. 7. Indemnification. --------------- Owner hereby agrees to indemnify and hold each of U-Haul, all persons and companies affiliated with U-Haul, and all officers, shareholders, directors, employees and agents of U-Haul and of any affiliated companies or persons (collectively, the "Indemnified Persons") harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages, and claims in connection with the management of the Property (including the loss of use thereof following any damage, injury or destruction), arising from any cause except for the willful misconduct or gross negligence on the part of the Indemnified Persons. In addition, no Indemnified Person shall be liable for any error of judgment or for any mistake of fact or law, or for anything which it may do or refrain from doing hereafter, except in cases of willful misconduct or gross negligence. U-Haul hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the management of the Property arising from the willful misconduct of, gross negligence of, or breach of this Agreement by the Indemnified Persons. In addition, U-Haul shall not be liable to Owner for the acts or omissions of U-Haul's officers, shareholders, directors, employees, and agents except for U-Haul's own gross negligence or willful misconduct. 8. Assignment. ---------- This Agreement may be assigned by Owner in connection with any mortgage loan on the Property, whether pursuant to a conditional or unconditional, absolute assignment. U-Haul shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of U-Haul hereunder, Owner's rights hereunder will be enforceable against any such assignee and U-Haul shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing. 9. Headings. -------- The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10. Governing Law. ------------- The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of Arizona. 11. Notices. ------- Any notice required or permitted herein shall be in writing and shall be personally delivered or mailed first class postage prepaid or delivered by an overnight delivery service to the respective addresses of the parties set forth below their signatures on the signature page thereof, or to such other address as any party may give to the other in writing. Any notice required by this Agreement will be deemed to have been given when personally served or one day after delivery to an overnight delivery service or five days after deposit in the first class mail. 12. Severability. ------------ Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications. 13. Successors. ---------- This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest. 14. Attorneys' Fees. --------------- If it shall become necessary for any party hereto to engage attorneys to institute legal action for the purpose of enforcing their respective rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals). 15. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Scope of Property Manager Responsibility. ---------------------------------------- U-Haul shall perform its obligations hereunder according to reasonable industry standards, in good faith, and in a commercially reasonable manner. U-Haul agrees that, in discharging its duties hereunder, it will not have any relationship with any of its affiliates that would be less favorable to Owner than would reasonably be available in a transaction with an unaffiliated party. [Rest of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first above written. "Owner" ----- Securespace Limited Partnership, a Nevada limited partnership By: Seven SAC Self-Storage Corporation, a Nevada corporation Its: General partner By: /S/ Mark V. Shoen ----------------------------- Mark V. Shoen, President "U-Haul" ------ U-Haul Co. (Canada), Ltd., a Canadian corporation By: /S/ George R. Olds --------------------------- Its: Asst. Secretary -------------------------- CST Nominee, Inc., as registered owner of the Properties, hereby consents to all of the terms and provisions of this Agreement. CST Nominee, Inc. By: /S/ Mark V. Shoen --------------------------- Mark V. Shoen, President Exhibit A List of Properties Property Name Street Address, City / Province Cremazie 306 Cremazie Ouest, Montreal, Quebec Dollard Des Ormeaux 65 Brunswick Boul. Dollard des Ormeaux, Quebec Jean Talon 3850 Jean Talon West Montreal, Quebec St. Leonard 4949 Metropolitan Est St. Leonard, Quebec St. Jacques 7350 Boul. St. Anne de Bellevue Montreal, Quebec Quebec City 5000 Armand Viau Quebec City, Quebec Ottawa 2720 Queensview Ottawa, Ontario Sidney 10201 MacDonald Park Road Sidney, British Columbia Victoria 644 Queens Avenue Victoria, British Columbia Abbotsford 33966 Hazelwood Avenue RR # 3 Abbotsford, British Columbia Clearbrook 30618 South Fraser Way Abbotsford, British Columbia Langley 19316 B 56 Avenue Langley, British Columbia Richmond 4511 Shell Road Surrey, British Columbia Surrey 18590 B 96 Avenue Surrey, British Columbia West Surrey 13554 B 84 Avenue Surrey, British Columbia West Edmonton 10210 B 218th Street Edmonton, Alberta EX-10.15 12 p66363aex10-15.txt EX-10.15 Exhibit 10.15 PURCHASE AND SALE AGREEMENT --------------------------- THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made effective as of December 20, 2001 ("Agreement Date"), by and between Eighteen SAC Self-Storage Corporation, a Nevada corporation ("Buyer") and Amerco Real Estate Company ("AREC") and Amerco Real Estate Company of Texas, Inc. ("AREC of Texas" and, together with AREC, collectively, the "Seller"). RECITALS WHEREAS, Seller owns the real property and improvements thereon generally described on Exhibit A hereto, which property consists of fourteen self-storage facilities (including land and improvements thereon, all rights appurtenant thereto, and any incidental items of personal property used in connection therewith) (collectively, the "Property"); and WHEREAS, subject to the terms, covenants and conditions set forth herein, Seller desires to sell the Property to Buyer and Buyer desires to purchase the Property from Seller. NOW, THEREFORE, in consideration of the foregoing, and the terms, covenants and conditions contained herein and for other valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement of Purchase and Sale. At the closing hereunder (the ------------------------------ "Closing"), which Closing shall occur on or before December 20, 2001 (the "Closing"), subject to the terms, covenants and conditions of this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Property, as set forth on Exhibit A hereto. Buyer's obligation to purchase the Property shall be contingent upon the delivery of deeds for each Property; and in the event any one or more property is not conveyed hereunder, Buyer shall not be obligated to purchase any of the Properties. Prior to the Closing, legal descriptions for the Property shall be prepared and shall be mutually satisfactory to Buyer and Seller. 2. Purchase Price. Subject to adjustment as provided below, the -------------- aggregate purchase price to be paid for the Property (the "Purchase Price") shall be Forty-Three Million Seven Hundred and Eighty-Two Thousand and no/100ths Dollars ($43,782,000), to be disbursed to each Seller in accordance with its respective interest. 3. Buyer's Contingencies. Prior to the Closing, Buyer shall have --------------------- completed all due diligence with respect to the Property and upon Closing shall be deemed to have satisfied itself with respect to due diligence including title, survey, environmental conditions, engineering conditions, economic feasibility and the like. Notwithstanding the foregoing, however, each Seller shall be obligated to remove (regardless of whether Buyer objects thereto) all deeds of trust, mortgages, mechanics' liens, UCC filings, judgments and other monetary liens voluntarily imposed on the Property by Seller or arising against the Property as a result of Seller's (or its agents' or affiliates') actions or negligent or intentional omissions or improvements made to, or services rendered in connection with, the Property at the request of, or on behalf of, any Seller; it being the intent of the parties that the Property shall be conveyed to Buyer free and clear of all such monetary liens, and in no event shall any such monetary liens be deemed a permitted title exceptions hereunder. In addition, Buyer's obligation to purchase the Property is contingent upon Buyer obtaining financing upon terms satisfactory to Buyer, for a portion of the Purchase Price. 4. Title Insurance; Deed. --------------------- a. Owner's Insurance Policy. At the Closing, each Seller shall ------------------------ cause Fidelity National Title Insurance Company to deliver to Buyer, at Buyer's option, an extended coverage ALTA owner's policy of title insurance issued by such title insurance company or its principal, or the unconditional commitment of the title insurer to issue such policy, insuring title to the Property in Buyer in the amount of the Purchase Price; the policy to be subject to the usual printed exclusions, exceptions, conditions and stipulations set forth in the printed form policy, title exceptions permitted by the Buyer ("Permitted Title Exceptions") and such other matters approved in writing by Buyer or resulting from Buyer's actions (the "Title Policy"). Seller shall only be responsible for paying the portion of the title insurance premium relating to standard owner's coverage; if Buyer elects to obtain extended coverage, then Buyer shall pay the additional portion of the premium relating to extended coverage and the cost of any endorsements requested by Buyer. b. Deed. At the Closing, each Seller shall deliver to Buyer the ---- deed granting and conveying to Buyer the Property as identified on Exhibit A hereto, free and clear of all liens other than the Permitted Title Exceptions and free and clear of all monetary liens other than for taxes which are a lien but are not yet delinquent. 5. Closing. Except as otherwise provided below, the Closing shall occur ------- on the date (the "Closing Date") which is no later than December 20, 2001. The Closing shall take place at 10:00 a.m. on the Closing Date in the office of the title company, or at such other time and location as the parties may mutually agree. The parties hereto acknowledge and agree that time is of the essence with respect to the Closing Date. a. Action at the Closing by Seller. Upon the Closing, each Seller ------------------------------- shall deliver or cause to be delivered to Buyer all of the following instruments or documents dated as of the Closing, fully executed and, if appropriate, acknow ledged: (i) the Deed; (ii) an Affidavit of Property Value (or other similar instrument) if required in connection with the transfer of the Property; (iii) a Non-Foreign Person Affidavit; (iv) a bill of sale with respect to any personal property conveyed hereunder; (v) affidavits to the title company reasonably requested in connection with the issuance of the title policy hereunder (including, without limitation, a no-lien affidavit and a no parties-in- possession affidavit) and (vi) such other instruments or documents as may be reasonably necessary to fulfill the covenants and obligations to be performed by Seller pursuant to this Agreement. b. Action at the Closing by Buyer. At the Closing, as a condition ------------------------------ to Seller's obligations hereunder, Buyer shall deliver or cause to be delivered to Seller all funds required pursuant to the provisions of this Agreement. c. Closing Costs. All fees, recording costs, charges or expenses ------------- incidental to the sale, transfer and assignment of the Property to Buyer shall, except as otherwise herein expressly provided, be paid according to the then custom of real estate transactions consummated in the county in which the Property is located. d. Proration of Real Estate Taxes. All general or special ------------------------------ assessments by any governmental authority which are a lien on the Property as of the Closing Date shall be paid by Seller in full at the Closing. 6. Possession; Risk of Loss. Seller shall deliver possession of the ------------------------ Property to Buyer at the Closing, subject only to the Permitted Title Exceptions and in any event subject to self-storage customers in possession in the ordinary course of business. The risk of loss of any damage or destruction to the Property shall remain with Seller until the Closing. 7. Representations and Warranties of Seller. Except as otherwise ---------------------------------------- expressly provided herein, the Property is and shall be sold and conveyed to Buyer on an "AS IS" "WHERE IS" basis, subject to all faults and defects, whether latent or patent, and Buyer acknowledges that no warranty is made with respect to the Property, whether as to habitability, merchantability, fitness for a particular purpose or otherwise. Notwithstanding the foregoing, each Seller acknowledges, represents and warrants to Buyer that the following are true as of the date of this Agreement and will be true as of the Closing, and in entering into this Agreement Buyer is relying upon, the following: a. Due Organization, Etc. Each Seller is a duly organized, validly ---------------------- existing, and is in good standing under the laws of its respective jurisdiction of organization. The transactions contemplated by this Agreement and the execution and delivery of all documents required herein, and its performance hereunder, have been duly authorized by each Seller as necessary or appropriate. The execution and delivery of this Agreement and any other document required herein and the consummation of the transactions contemplated hereby and thereby will not result in any violation of, or default under, any term or provision of any organizational document, agreement, instrument, mortgage, loan, or similar documents to which any Seller is a party or by which any Seller is bound. b. No Condemnation. There are no existing, or, to each Seller's --------------- knowledge, pending or anticipated condemnation or similar proceedings against or involving the Property or any portion thereof. c. Agreements. To each Seller's knowledge, there are no options or ---------- rights of first refusal, recorded or unrecorded, affecting the Property, nor any other unrecorded agreements affecting the development or use of the Property. d. No Violations. To each Seller's knowledge, each such Seller has ------------- not received written notice of any violation of any applicable law pertaining to the Property, and neither any Seller nor the Property is in violation of any such applicable laws. e. Further Encumbrances. No Seller shall further encumber the -------------------- Property or allow an encumbrance upon the title to the Property, or modify the terms or conditions of any existing leases, contracts or encumbrances, if any, without the prior written consent of Buyer. 8. Notices. All notices or other communications required or provided to ------- be sent by either party or by Escrow Agent shall be in writing and shall be sent (i) by United States Postal Service, postage prepaid, certified, return receipt requested; or (ii) by any nationally known overnight delivery service; or (iii) by courier; or (iv) by facsimile transmission; or (v) in person; or (vi) by electronic mail. All notices shall be deemed to have been given forty-eight (48) hours following deposit in the United States Postal Service or upon personal delivery if sent by overnight delivery service, courier, facsimile transmission, electronic mail, or personally delivered. All notices shall be addressed to the party at the address below: If to Seller: c/o Amerco Real Estate Company 2727 North Central Avenue Phoenix, AZ 85004 Attn: Carlos Vizcarra Telephone No. (602) 263-6555 If to Buyer: Eighteen SAC Self-Storage Corporation 715 Country Club Drive Mesa, AZ 85210 Telephone No. (602) 263-6534 Any address or name specified above may be changed by notice given to the addressee by the other party in accordance with this paragraph. The inability to deliver because of a changed address of which no notice was given, or rejection or other refusal to accept any notice, shall be deemed to be the receipt of the notice as of the date of such inability to deliver or rejection or refusal to accept. Any notice to be given by any party hereto may be given by the counsel for such party. 9. Seller's Remedies. If Buyer shall materially breach any of the ----------------- material terms or provisions of this Agreement on or before the Closing, Seller may waive such breach and close the escrow in accordance with the terms hereof, or Seller may, as its exclusive remedy, terminate this Agreement and obtain Fifty Thousand Dollars as liquidated damages and as consideration for the acceptance of this Agreement and, if applicable, for taking the Property off the market, and not as a penalty. Buyer and each Seller acknowledge that it would be impractical and extremely difficult to estimate the actual damages which Seller may suffer as a result of a default by Buyer, and therefore, Buyer and Seller agree that the foregoing amount of liquidated damages is calculated as a reasonable estimate of the amount of damages likely to be suffered by Seller under the circumstances existing at the time this Agreement is entered into. 10. Buyer's Remedies. If any Seller materially breaches any of the ---------------- material terms or provisions of this Agreement, Buyer may either (i) terminate this Agreement by written notice to each Seller, whereupon Buyer shall have the right to pursue recovery of all actual out-of-pocket third party expenses suffered or incurred by Buyer (including, without limitation, costs incurred in connection with Buyer's or Buyer's proposed lender's feasibility, underwriting or due diligence studies of the Property and any deposits paid to proposed lenders) together with any other incidental, consequential or other monetary damages incurred as a result of such breach, and thereafter neither party shall have any further obligation or liability to the other; or (ii) waive such default and consummate the transaction contemplated hereby in accordance with the terms hereof; or (iii) seek specific performance or any other equitable remedy for any default of Seller. 11. Survival of Covenants, Agreements, Representations and Warranties. ----------------------------------------------------------------- Except as otherwise may be limited by the specific terms of this Agreement, all covenants, agreements, representations and warranties set forth in this Agreement shall survive the Closing and shall not merge into any deed or other instrument executed or delivered in connection with the transaction contemplated hereby. 12. Indemnification. Seller shall and does hereby agree to indemnify, --------------- defend and forever hold Buyer harmless of and from any and all liability, claim or damage attributable to a breach of representation or warranty herein or to the Property or any other property or interest acquired in this transaction or any contract assumed as part of this transaction arising prior to the Closing Date hereunder, including, without limitation, all reasonable attorney's fees and costs associated therewith. Buyer shall and does hereby agree to indemnify, defend and forever hold Seller harmless of and from any and all liability, claim or damage attributable to a breach of representation or warranty herein or to the Property or any other property or interest conveyed in this transaction or any contract assigned as part of this transaction arising on and after the Closing Date hereunder, including, without limitation, all reasonable attorney's fees and costs associated therewith. 13. Modification of Agreement. No modification of this Agreement shall be ------------------------- deemed effective unless in writing and signed by the parties hereto, and any waiver granted shall not be deemed effective except for the instance and in the circumstances particularly specified therein and unless in writing and executed by the party against whom enforcement of the waiver is sought. 14. Further Instruments. Each party, promptly upon the request of the ------------------- other or upon the request of any escrow agent involved in the Closing, shall execute and have acknowledged and delivered to the other or to such escrow agent, as may be appropriate, any and all further instruments reasonably requested or appropriate to evidence or give effect to the provisions of this Agreement and which are consistent with the provisions hereof. 15. Entire Contract. This Agreement (including the Exhibits hereto) --------------- constitutes the entire contract between the parties with regard to the Property. All terms and conditions contained in any other writings previously executed by the parties and all other discussions, understandings or agreements regarding the Property and the subject matter hereof shall be deemed to be superseded hereby. 16. Inurement. This Agreement shall be binding upon and inure to the --------- benefit of the successors and assigns, if any, of the respective parties hereto. 17. Applicable Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of Arizona. 18. Commissions. Each party warrants and represents to the other that no ----------- real estate sales or brokerage commissions or like commissions are or may be due in connection with this transaction as a result of the act of the party so warranting. Seller shall indemnify, defend and hold Buyer harmless from and against any claims by Broker and any other third parties made by or through the acts of Seller for real estate or brokerage commissions, or a finder's fee, in connection with the transactions provided for herein, and all costs and expenses incurred by Buyer in connection therewith including, but not limited to, reasonable attorneys' fees. Buyer shall indemnify, defend and hold Seller harmless from and against any claims by third parties other than Broker made by or through the acts of Buyer for real estate or brokerage commissions, or a finder's fee, in connection with the transactions provided for herein, and all costs and expenses incurred by Seller in connection therewith, including, but not limited to, reasonable attorneys' fees. 19. Condemnation. If, between the date of this Agreement and the Closing, ------------ any portion of the Property shall be taken or appropriated for public or quasi-public use by right of eminent domain, or if proceedings in condemnation or eminent domain shall be instituted or threatened, Buyer, at its option, may elect to (i) terminate this Agreement by written notice to each Seller within thirty (30) days following Buyer's receipt of written notice of such event, whereupon the Earnest Money Deposit shall be returned to Buyer, and thereafter neither party shall have any further obligation or liability hereunder, or (ii) proceed with the purchase of the Property, in which event Buyer shall be entitled to the condemnation proceeds relating to the Property. If prior to the Closing such proceeds are paid to any Seller, the amount of such proceeds paid to such Seller shall be applicable towards the Purchase Price of the Property. 20. Construction. The parties agree that each party and its counsel have ------------ reviewed and revised this Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement or any Addendum, amendments or Exhibits hereto. 21. Exhibits and Addenda. All Exhibits and Addenda attached hereto and -------------------- referred to in this Agreement are incorporated herein by this reference and are part of this Agreement. 22. Counterparts; Facsimile Signature. This Agreement may be executed --------------------------------- simultaneously or in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same Agreement. Facsimile signatures of this Agreement are valid. 23. Miscellaneous. The captions and paragraph headings used herein are ------------- for convenience and reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. When used herein, the terms "include" or "including" shall mean without limitation by reason of the enumeration. All grammatical usage herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require. The term "person" shall include an individual, corporation, partnership, trust, estate or any other entity. The words "herein," "hereof," "hereunder," and other similar compounds of the word "here" when used in this Agreement shall refer to the entire Agreement and not to any particular provision, section, exhibit or addenda. If the last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be extended so that it shall end on the next succeeding day which is not a Saturday, Sunday or legal holiday. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Agreement Date. BUYER: Eighteen SAC Self-Storage Corporation By: /S/ Mark V. Shoen ----------------------------- Its: President ----------------------------- SELLER: Amerco Real Estate Company, a Nevada corporation By: /S/ Gary Vance Klinefelter ------------------------------- Its: Secretary ------------------------------- SELLER: Amerco Real Estate Company of Texas, Inc., a Texas corporation By: /S/ Gary Vance Klinefelter ------------------------------- Its: Secretary ------------------------------- Exhibit A Centers Address City State and Name of Seller 706086 10400 S VIRGINA STREET RENO NV - AREC 717082 9650 CAMINO RUIZ SAN DIEGO CA - AREC 720059 55 EAST 3900 SOUTH SALT LAKE CITY UT - AREC 723030 6190 W CHANDLER BLVD CHANDLER AZ - AREC 741032 164 NORTH I-35 E DENTON TX - AREC of Texas 741034 1100 LOS RIOS PLANO TX - AREC of Texas 746072 11334 BELLAIRE BLVD HOUSTON SOUTH TX - AREC 796051 738 N BROADWAY EAST PROVIDENCE RI - AREC 803080 2800 WHITE PLAINS RD BRONX NY - AREC 810051 3001 MACARTHUR ROAD WHITEHALL PA - AREC 813047 2101 ROUTE 130 CINNAMINSON NJ - AREC 816075 68075 RAMON ROAD CATHEDRAL CITY CA - AREC 834044 615 S HAVANA AURORA SOUTH CO - AREC 837051 844 MAIN ST CAMBRIDGE MA - AREC EX-10.16 13 p66363aex10-16.txt EX-10.16 Exhibit 10.16 PURCHASE AND SALE AGREEMENT --------------------------- THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made effective as of December 31, 2001 ("Agreement Date"), by and between Twenty SAC Self-Storage Corporation, a Nevada corporation ("Twenty SAC"), Twenty-One SAC Self-Storage Corporation, a Nevada corporation ("Twenty-One SAC"), Twenty-Two SAC Self- Storage Corporation, a Nevada corporation ("Twenty-Two SAC") and Twenty-Three SAC Self-Storage Corporation, a Nevada corporation ("Twenty Three SAC", and, with Twenty SAC, Twenty-One SAC and Twenty-Two SAC, collectively, the "Buyer") and Amerco Real Estate Company ("AREC"), U-Haul Co. of Texas, Inc. ("UH Texas") and U-Haul Co. of Louisiana, Inc. ("UH Louisiana", and together with AREC and UH Texas, collectively, the "Seller"). RECITALS WHEREAS, Seller owns the real property and improvements thereon generally described on Exhibit A hereto, which property consists of thirty-seven self- storage facilities (including land and improvements thereon, all rights appurtenant thereto, and any incidental items of personal property used in connection therewith) (collectively, the "Property"); and WHEREAS, subject to the terms, covenants and conditions set forth herein, Seller desires to sell the Property to Buyer and Buyer desires to purchase the Property from Seller. NOW, THEREFORE, in consideration of the foregoing, and the terms, covenants and conditions contained herein and for other valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement of Purchase and Sale. At the closing hereunder (the ------------------------------ "Closing"), which Closing shall occur on or before January 14, 2002 (the "Closing"), subject to the terms, covenants and conditions of this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Property, as set forth on Exhibit A hereto. Buyer's obligation to purchase the Property shall be contingent upon the delivery of deeds for each Property; and in the event any one or more property is not conveyed hereunder, Buyer shall not be obligated to purchase any of the Properties. Prior to the Closing, legal descriptions for the Property shall be prepared and shall be mutually satisfactory to Buyer and Seller. The parties hereto intend that the conveyance hereunder be a sale and absolute conveyance of the Property from the Seller to Buyer and not a financing secured by such property; and the beneficial interest in and title to the Property shall not be a part of Seller's estate in the event of the filing of a bankruptcy petition by or against Seller under any bankruptcy law. 2. Purchase Price. Subject to adjustment as provided below, the -------------- aggregate purchase price to be paid for the Property (the "Purchase Price") shall be Ninety-Three Million, Six Hundred and Seventy-Eight Thousand and no/100ths Dollars ($93,678,000.00), to be disbursed to each Seller in accordance with its respective interest. 3. Buyer's Contingencies. Prior to the Closing, Buyer shall have --------------------- completed all due diligence with respect to the Property and upon Closing shall be deemed to have satisfied itself with respect to due diligence including title, survey, environmental conditions, engineering conditions, economic feasibility and the like. Notwithstanding the foregoing, however, each Seller shall be obligated to remove (regardless of whether Buyer objects thereto) all deeds of trust, mortgages, mechanics' liens, UCC filings, judgments and other monetary liens voluntarily imposed on the Property by Seller or arising against the Property as a result of Seller's (or its agents' or affiliates') actions or negligent or intentional omissions or improvements made to, or services rendered in connection with, the Property at the request of, or on behalf of, any Seller; it being the intent of the parties that the Property shall be conveyed to Buyer free and clear of all such monetary liens, and in no event shall any such monetary liens be deemed a permitted title exceptions hereunder. In addition, Buyer's obligation to purchase the Property is contingent upon Buyer obtaining financing upon terms satisfactory to Buyer, for a portion of the Purchase Price. 4. Title Insurance; Deed. --------------------- a. Owner's Insurance Policy. At the Closing, each Seller shall ------------------------ cause Fidelity National Title Insurance Company to deliver to Buyer, at Buyer's option, an extended coverage ALTA owner's policy of title insurance issued by such title insurance company or its principal, or the unconditional commitment of the title insurer to issue such policy, insuring title to the Property in Buyer in the amount of the Purchase Price; the policy to be subject to the usual printed exclusions, exceptions, conditions and stipulations set forth in the printed form policy, title exceptions permitted by the Buyer ("Permitted Title Exceptions") and such other matters approved in writing by Buyer or resulting from Buyer's actions (the "Title Policy"). Seller shall only be responsible for paying the portion of the title insurance premium relating to standard owner's coverage; if Buyer elects to obtain extended coverage, then Buyer shall pay the additional portion of the premium relating to extended coverage and the cost of any endorsements requested by Buyer. b. Deed. At the Closing, each Seller shall deliver to Buyer the ---- deed granting and conveying to Buyer the Property as identified on Exhibit A hereto, free and clear of all liens other than the Permitted Title Exceptions and free and clear of all monetary liens other than for taxes which are a lien but are not yet delinquent. 5. Closing. Except as otherwise provided below, the Closing shall occur ------- on the date (the "Closing Date") which is no later than January 14, 2002. The Closing shall take place at 10:00 a.m. on the Closing Date in the office of the title company, or at such other time and location as the parties may mutually agree. The parties hereto acknowledge and agree that time is of the essence with respect to the Closing Date. a. Action at the Closing by Seller. Upon the Closing, each Seller ------------------------------- shall deliver or cause to be delivered to Buyer all of the following instruments or documents dated as of the Closing, fully executed and, if appropriate, acknow ledged: (i) the Deed; (ii) an Affidavit of Property Value (or other similar instrument) if required in connection with the transfer of the Property; (iii) a Non-Foreign Person Affidavit; (iv) a bill of sale with respect to any personal property conveyed hereunder; (v) affidavits to the title company reasonably requested in connection with the issuance of the title policy hereunder (including, without limitation, a no-lien affidavit and a no parties-in- possession affidavit) and (vi) such other instruments or documents as may be reasonably necessary to fulfill the covenants and obligations to be performed by Seller pursuant to this Agreement. b. Action at the Closing by Buyer. At the Closing, as a condition ------------------------------ to Seller's obligations hereunder, Buyer shall deliver or cause to be delivered to Seller all funds required pursuant to the provisions of this Agreement. c. Closing Costs. All fees, recording costs, charges or expenses ------------- incidental to the sale, transfer and assignment of the Property to Buyer shall, except as otherwise herein expressly provided, be paid according to the then custom of real estate transactions consummated in the county in which the Property is located. d. Proration of Real Estate Taxes. All general or special ------------------------------ assessments by any governmental authority which are a lien on the Property as of the Closing Date shall be paid by Seller in full at the Closing. 6. Possession; Risk of Loss. Seller shall deliver possession of the ------------------------ Property to Buyer at the Closing, subject only to the Permitted Title Exceptions and in any event subject to self-storage customers in possession in the ordinary course of business. The risk of loss of any damage or destruction to the Property shall remain with Seller until the Closing. 7. Representations and Warranties of Seller. Except as otherwise ---------------------------------------- expressly provided herein, the Property is and shall be sold and conveyed to Buyer on an "AS IS" "WHERE IS" basis, subject to all faults and defects, whether latent or patent, and Buyer acknowledges that no warranty is made with respect to the Property, whether as to habitability, merchantability, fitness for a particular purpose or otherwise. Notwithstanding the foregoing, each Seller acknowledges, represents and warrants to Buyer that the following are true as of the date of this Agreement and will be true as of the Closing, and in entering into this Agreement Buyer is relying upon, the following: a. Due Organization, Etc. Each Seller is a duly organized, validly --------------------- existing, and is in good standing under the laws of its respective jurisdiction of organization. The transactions contemplated by this Agreement and the execution and delivery of all documents required herein, and its performance hereunder, have been duly authorized by each Seller as necessary or appropriate. The execution and delivery of this Agreement and any other document required herein and the consummation of the transactions contemplated hereby and thereby will not result in any violation of, or default under, any term or provision of any organizational document, agreement, instrument, mortgage, loan, or similar documents to which any Seller is a party or by which any Seller is bound. b. No Condemnation. There are no existing, or, to each Seller's --------------- knowledge, pending or anticipated condemnation or similar proceedings against or involving the Property or any portion thereof. c. Agreements. To each Seller's knowledge, there are no options or ---------- rights of first refusal, recorded or unrecorded, affecting the Property, nor any other unrecorded agreements affecting the development or use of the Property. d. No Violations. To each Seller's knowledge, each such Seller has ------------- not received written notice of any violation of any applicable law pertaining to the Property, and neither any Seller nor the Property is in violation of any such applicable laws. e. Further Encumbrances. No Seller shall further encumber the -------------------- Property or allow an encumbrance upon the title to the Property, or modify the terms or conditions of any existing leases, contracts or encumbrances, if any, without the prior written consent of Buyer. 8. Notices. All notices or other communications required or provided to ------- be sent by either party or by Escrow Agent shall be in writing and shall be sent (i) by United States Postal Service, postage prepaid, certified, return receipt requested; or (ii) by any nationally known overnight delivery service; or (iii) by courier; or (iv) by facsimile transmission; or (v) in person; or (vi) by electronic mail. All notices shall be deemed to have been given forty-eight (48) hours following deposit in the United States Postal Service or upon personal delivery if sent by overnight delivery service, courier, facsimile transmission, electronic mail, or personally delivered. All notices shall be addressed to the party at the address below: If to Seller: Amerco Real Estate Company 2727 North Central Avenue Phoenix, AZ 85004 Attn: Carlos Vizcarra Telephone No. (602) 263-6555 If to Buyer: c/o Twenty SAC Self-Storage Corporation 715 Country Club Drive Mesa, AZ 85210 Telephone No. (602) 263-6534 Any address or name specified above may be changed by notice given to the addressee by the other party in accordance with this paragraph. The inability to deliver because of a changed address of which no notice was given, or rejection or other refusal to accept any notice, shall be deemed to be the receipt of the notice as of the date of such inability to deliver or rejection or refusal to accept. Any notice to be given by any party hereto may be given by the counsel for such party. 9. Seller's Remedies. If Buyer shall materially breach any of the ----------------- material terms or provisions of this Agreement on or before the Closing, Seller may waive such breach and close the escrow in accordance with the terms hereof, or Seller may, as its exclusive remedy, terminate this Agreement and obtain Fifty Thousand Dollars as liquidated damages and as consideration for the acceptance of this Agreement and, if applicable, for taking the Property off the market, and not as a penalty. Buyer and each Seller acknowledge that it would be impractical and extremely difficult to estimate the actual damages which Seller may suffer as a result of a default by Buyer, and therefore, Buyer and Seller agree that the foregoing amount of liquidated damages is calculated as a reasonable estimate of the amount of damages likely to be suffered by Seller under the circumstances existing at the time this Agreement is entered into. 10. Buyer's Remedies. If any Seller materially breaches any of the ---------------- material terms or provisions of this Agreement, Buyer may either (i) terminate this Agreement by written notice to each Seller, whereupon Buyer shall have the right to pursue recovery of all actual out-of-pocket third party expenses suffered or incurred by Buyer (including, without limitation, costs incurred in connection with Buyer's or Buyer's proposed lender's feasibility, underwriting or due diligence studies of the Property and any deposits paid to proposed lenders) together with any other incidental, consequential or other monetary damages incurred as a result of such breach, and thereafter neither party shall have any further obligation or liability to the other; or (ii) waive such default and consummate the transaction contemplated hereby in accordance with the terms hereof; or (iii) seek specific performance or any other equitable remedy for any default of Seller. 11. Survival of Covenants, Agreements, Representations and Warranties. ----------------------------------------------------------------- Except as otherwise may be limited by the specific terms of this Agreement, all covenants, agreements, representations and warranties set forth in this Agreement shall survive the Closing and shall not merge into any deed or other instrument executed or delivered in connection with the transaction contemplated hereby. 12. Indemnification. Seller shall and does hereby agree to indemnify, --------------- defend and forever hold Buyer harmless of and from any and all liability, claim or damage attributable to a breach of representation or warranty herein or to the Property or any other property or interest acquired in this transaction or any contract assumed as part of this transaction arising prior to the Closing Date hereunder, including, without limitation, all reasonable attorney's fees and costs associated therewith. Buyer shall and does hereby agree to indemnify, defend and forever hold Seller harmless of and from any and all liability, claim or damage attributable to a breach of representation or warranty herein or to the Property or any other property or interest conveyed in this transaction or any contract assigned as part of this transaction arising on and after the Closing Date hereunder, including, without limitation, all reasonable attorney's fees and costs associated therewith. 13. Modification of Agreement. No modification of this Agreement shall be ------------------------- deemed effective unless in writing and signed by the parties hereto, and any waiver granted shall not be deemed effective except for the instance and in the circumstances particularly specified therein and unless in writing and executed by the party against whom enforcement of the waiver is sought. 14. Further Instruments. Each party, promptly upon the request of the ------------------- other or upon the request of any escrow agent involved in the Closing, shall execute and have acknowledged and delivered to the other or to such escrow agent, as may be appropriate, any and all further instruments reasonably requested or appropriate to evidence or give effect to the provisions of this Agreement and which are consistent with the provisions hereof. 15. Entire Contract. This Agreement (including the Exhibits hereto) --------------- constitutes the entire contract between the parties with regard to the Property. All terms and conditions contained in any other writings previously executed by the parties and all other discussions, understandings or agreements regarding the Property and the subject matter hereof shall be deemed to be superseded hereby. 16. Inurement. This Agreement shall be binding upon and inure to the --------- benefit of the successors and assigns, if any, of the respective parties hereto. 17. Applicable Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of Arizona. 18. Commissions. Each party warrants and represents to the other that no ----------- real estate sales or brokerage commissions or like commissions are or may be due in connection with this transaction as a result of the act of the party so warranting. Seller shall indemnify, defend and hold Buyer harmless from and against any claims by Broker and any other third parties made by or through the acts of Seller for real estate or brokerage commissions, or a finder's fee, in connection with the transactions provided for herein, and all costs and expenses incurred by Buyer in connection therewith including, but not limited to, reasonable attorneys' fees. Buyer shall indemnify, defend and hold Seller harmless from and against any claims by third parties other than Broker made by or through the acts of Buyer for real estate or brokerage commissions, or a finder's fee, in connection with the transactions provided for herein, and all costs and expenses incurred by Seller in connection therewith, including, but not limited to, reasonable attorneys' fees. 19. Condemnation. If, between the date of this Agreement and the Closing, ------------ any portion of the Property shall be taken or appropriated for public or quasi-public use by right of eminent domain, or if proceedings in condemnation or eminent domain shall be instituted or threatened, Buyer, at its option, may elect to (i) terminate this Agreement by written notice to each Seller within thirty (30) days following Buyer's receipt of written notice of such event, whereupon the Earnest Money Deposit shall be returned to Buyer, and thereafter neither party shall have any further obligation or liability hereunder, or (ii) proceed with the purchase of the Property, in which event Buyer shall be entitled to the condemnation proceeds relating to the Property. If prior to the Closing such proceeds are paid to any Seller, the amount of such proceeds paid to such Seller shall be applicable towards the Purchase Price of the Property. 20. Construction. The parties agree that each party and its counsel have ------------ reviewed and revised this Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement or any Addendum, amendments or Exhibits hereto. 21. Exhibits and Addenda. All Exhibits and Addenda attached hereto and -------------------- referred to in this Agreement are incorporated herein by this reference and are part of this Agreement. 22. Counterparts; Facsimile Signature. This Agreement may be executed --------------------------------- simultaneously or in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same Agreement. Facsimile signatures of this Agreement are valid. 23. Miscellaneous. The captions and paragraph headings used herein are ------------- for convenience and reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. When used herein, the terms "include" or "including" shall mean without limitation by reason of the enumeration. All grammatical usage herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require. The term "person" shall include an individual, corporation, partnership, trust, estate or any other entity. The words "herein," "hereof," "hereunder," and other similar compounds of the word "here" when used in this Agreement shall refer to the entire Agreement and not to any particular provision, section, exhibit or addenda. If the last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be extended so that it shall end on the next succeeding day which is not a Saturday, Sunday or legal holiday. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Agreement Date.
BUYERS: Twenty SAC Self-Storage Corporation Twenty-One SAC Self-Storage Corporation By: /S/ Mark V. Shoen By: /S/ Mark V. Shoen ----------------------------- --------------------------------- Its: President Its: President ----------------------------- --------------------------------- Twenty-Two SAC Self-Storage Corporation Twenty-Three SAC Self-Storage Corporation By: /S/ Mark V. Shoen By: /S/ Mark V. Shoen ----------------------------- ----------------------------------- Its: President Its: President ----------------------------- -----------------------------------
SELLERS: Amerco Real Estate Company By: /S/ Gary Vance Klinefelter -------------------------- Its: Secretary -------------------------- U-Haul Co. of Texas, Inc. By: /S/ Gary Vance Klinefelter -------------------------- Its: Secretary -------------------------- U-Haul Co. of Louisiana, Inc. By: /S/ Gary Vance Klinefelter -------------------------- Its: Secretary -------------------------- Exhibit A
Name of Grantor Sale Price 20 SAC 700026 U-HAUL CTR OF BEND BEND OR Amerco Real Estate Company 1,301,689 20 SAC 717068 U-HAUL LEMON GROVE LEMON GROVE CA Amerco Real Estate Company 1,993,146 20 SAC 723082 U-HAUL MAIN&LINDSAY MESA AZ Amerco Real Estate Company 2,074,771 20 SAC 744080 U-HAUL SAN PEDRO SAN ANTONIS TX Amerco Real Estate Company 4,164,177 20 SAC 776053 U-HAUL CT PETERS ST ATLANTA EAST GA Amerco Real Estate Company 5,980,905 20 SAC 796058 U-HAUL CTR WARWICK WARWICK RI Amerco Real Estate Company 1,252,288 20 SAC 813020 U-HAUL CENTER ROUTE 37 TOMS RIVER NJ Amerco Real Estate Company 2,784,538 20 SAC 825067 U-HAUL AIRLINE CTR PORTSMOUTH VA Amerco Real Estate Company 2,209,034 20 SAC 836044 U-HAUL CENTER ARLINGTON ARLINGTON TX U-Haul Co. of Texas, Inc. 1,187,279 Subtotal - Pool A: 22,947,826 21 SAC 707075 U-HAUL CTR THORNTON FREMONT CA Amerco Real Estate Company 3,773,641 21 SAC 708078 U-HAUL CTR BELMONT BELMONT CA Amerco Real Estate Company 4,077,996 21 SAC 712032 U-HAUL CENTER DOWNTOWN LOS ANGELES CA Amerco Real Estate Company 2,026,298 21 SAC 721058 U-HAUL 51ST & GLENDALE GLENDALE AZ Amerco Real Estate Company 918,922 21 SAC 744068 U-HAUL AUSTIN HWY SAN ANTONIO TX Amerco Real Estate Company 2,264,542 21 SAC 752069 U-HAUL CAROUSEL MALL INKSTER MI Amerco Real Estate Company 5,837,545 21 SAC 770054 U-HAUL CTR METRO DAYTON OH Amerco Real Estate Company 2,341,332 21 SAC 772061 U-HAUL HENDERSONVIL HENDERSONVILLE TN Amerco Real Estate Company 1,587,187 21 SAC 835081 U-HAUL NORTHWEST DALLAS TX U-Haul Co. of Texas, Inc. 3,924,376 Subtotal - Pool B: 26,751,840 22 SAC 734024 U-HAUL STATE AVE KANSAS KS Amerco Real Estate Company 2,826,794 22 SAC 747069 U-HAUL CAUSEWAY BLV METAIRIE LA U-Haul Co. of Louisiana, Inc. 2,804,407 22 SAC 751022 U-HAUL JOLLY CEDAR LANSING MI Amerco Real Estate Company 1,141.457 22 SAC 790066 U-HAUL CTR RT 295 PORTLAND ME Amerco Real Estate Company 3,674,231 22 SAC 791023 U-HAUL SPRINGFIELD SPRINGFIELD MA Amerco Real Estate Company 1,484,849 22 SAC 795028 U-HAUL CENTER OF MANASSAS PARK VA Amerco Real Estate Company 4,197,229 MANASSAS PARK 22 SAC 828059 U-HAUL CTR ORACLE TUCSON AZ Amerco Real Estate Company 1,213,274 22 SAC 828068 U-HAUL W INA RD TUCSON AZ Amerco Real Estate Company 1,983,141 22 SAC 836033 WESTCREEK VILLAGE FORT WORTH TX Amerco Real Estate Company 2,030,702 Subtotal - Pool C: 21,356,083 23 SAC 710077 U-HAUL OF FLORIN RD SACRAMENTO CA Amerco Real Estate Company 2,407,727 23 SAC 721021 U-HAUL CENTER PHOENIX WEST AZ Amerco Real Estate Company 1,360,632 23 SAC 736071 U-HAUL CT HAZELWOOD HAZELWOOD MO Amerco Real Estate Company 1,081,096 23 SAC 738057 U-HAUL DOWNTOWN OKLAHOMA CITY OK Amerco Real Estate Company 1,640,040 23 SAC 741035 U-HAUL CENTER ADDISON CARROLLTON TX Amerco Real Estate Company 4,895,236 23 SAC 742054 U-HAUL KANIS ROAD LITTLE ROCK AR Amerco Real Estate Company 2,804,721 23 SAC 744070 U-HAUL NACO-PERRIN SAN ANTONIO TX Amerco Real Estate Company 2,279,481 23 SAC 747074 U-HAUL CT GENTILLY NEW ORLEANS LA U-Haul Co. of Louisiana, Inc. 2,211,713 23 SAC 806024 U-HAUL CENTER CORAM CORAM NY Amerco Real Estate Company 2,704,466 23 SAC 820022 U-HAUL CT PULASKI HY BALTIMORE MD Amerco Real Estate Company 1,237,739 Subtotal - Pool D: 22,622,852 Total: 93,678,601
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