AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

 

BETWEEN

 

SHURGARD STORAGE CENTERS, INC.,

 

a Delaware corporation,

 

and

 

SHURGARD INCORPORATED,

 

a Washington corporation,

 

dated as of

 

December 19, 1994

 

 

CONTENTS

 

 

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AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (the “Agreement”), dated as of December 19, 1994, by and between Shurgard Storage Centers, Inc., a Delaware corporation (“Shurgard REIT”), and Shurgard Incorporated, a Washington corporation (“Management Company”).

 

RECITALS

 

WHEREAS, the respective Boards of Directors of Shurgard REIT and Management Company have determined that it is in the best interests of their respective stockholders and shareholders for Management Company to merge with and into Shurgard REIT (the “Merger”), upon the terms and subject to the conditions of this Agreement;

 

WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”); and

 

WHEREAS, the parties desire to make certain representations, warranties, and agreements in connection with the Merger.

 

NOW, THEREFORE, in consideration of the mutual representations, warranties, and agreements set forth herein, the parties hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

As used in this Agreement, the following terms shall have the respective meanings set forth below:

 

“Acquisition Proposal”: As defined in Section 7.2.

 

“Adjustment Indemnification Period”: As defined in Section 4.8(c).

 

“Adjustment Indemnification Shares”: As defined in Section 4.8(c).

 

“Affiliate”: As defined in Rule 12b-2 under the Exchange Act.

 

“Affiliate Letter”: As defined in Section 7.8(a).

 

“Alex. Brown”: Alex. Brown & Sons Incorporated.

 

“Appraised Amount”: As defined in Section 4.7.

 

“Articles of Merger”: The articles of merger with respect to the Merger containing the provisions required by, and executed in accordance with, RCW 23B.11.050.

 

“Associates”: As defined in Section 4.9(b).

 

“Audit”: As defined in Section 4.1(d).

 

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“Authorization”: Any consent, approval or authorization of, expiration or termination of any waiting period requirement (including pursuant to the HSR Act) by, or filing, registration, qualification, declaration or designation with, any Governmental Body.

 

“Barbo”: Charles K. Barbo.

 

“Barbo Trust”: Charles K. and Linda K. Barbo Trust dated December 10, 1991.

 

“Benefit Arrangement”: As defined in Section 5.8(a).

 

“Benelux”: Shurgard Benelux SA, a Belgian corporation.

 

“Benelux SCS”: a Belgian Societe en Commandite Simple.

 

“Buerk”: Arthur W. Buerk.

 

“Business Combination”: As defined in Section 4.1(a).

 

“Certificate of Merger”: The certificate of merger with respect to the Merger containing the provisions required by, and executed in accordance with, DGCL Section 252.

 

“Certificates”: As defined in Section 4.1(b).

 

“Change in Control”: For purposes of this Agreement, a change in control shall be deemed to occur on the earlier of (i) first date of public announcement by Shurgard REIT or an Acquiring Person (as such term is defined in the Rights Agreement) that an Acquiring Person has become such; or (ii) the first date on which Shurgard REIT or any other Person publicly announces (a) the agreement by Shurgard REIT to consolidate with, or merge with and into any other person (b) the agreement of any Person to consolidate with Shurgard REIT, or merge with and into Shurgard REIT and in connection with such merger all or part of the Shurgard REIT Common Shares are to be changed into or exchanged for stock or other securities of any other Person (or Shurgard REIT) or cash or any other property, or (c) Shurgard REIT’s agreement to sell or otherwise transfer, in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of Shurgard REIT and its subsidiaries (taken as a whole) to any other Person other than Shurgard REIT or one or more of its wholly-owned subsidiaries.

 

“Change in Control Date”: The date a Change in Control shall be deemed to occur.

 

“Closing”: The closing of the Merger.

 

“Closing Date”: The date on which the Closing occurs.

 

“Closing Statement”: As defined in Section 4.1(d).

 

“Closing Statement Date”: As defined in Section 4.1(d).

 

“Code”: The Internal Revenue Code of 1986, as amended.

 

“Contingent Amount”: As defined in Section 4.7(e).

 

“Contingent Partnerships”: As defined in Section 4.7(a).

 

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“Contingent Share Closing Date”: As defined in Section 4.7(c).

 

“Contingent Share Period”: As defined in Section 4.7(d).

 

“Contingent Shares”: As defined in Section 4.7(a).

 

“Contingent Shares Agreement”: As defined in Section 4.7(g).

 

“DGCL”: The Delaware General Corporation Law.

 

“Damages”: “Damages” means any provable or ascertainable loss, liability, damage, cost, obligation or expense (including reasonable costs of investigation, defense and prosecution of litigation and attorneys’ fees) incurred by Shurgard REIT, net of any tax benefits and insurance or indemnification recoveries (other than those received pursuant to this Agreement) received or entitled to be received by Shurgard REIT with respect thereto, after reasonable efforts to mitigate such loss, liability, damages, cost, obligation or expense.

 

“Daniels”: Donald B. Daniels.

 

“Deemed Distribution”: As defined in Section 4.7.

 

“Disposition”: As defined in Section 4.7(a).

 

“Distribution”: As defined in Section 4.7(a).

 

“Effective Time”: As defined in Section 2.3.

 

“Employee Plan”: As defined in Section 5.8(a).

 

“Employees”: As defined in Section 5.8(a).

 

“ERISA”: The Employee Retirement Income Security Act of 1974, as amended, and all regulations promulgated thereunder, as in effect from time to time.

 

“ERISA Affiliates”: Any trade or business, whether or not incorporated, that is now or has at any time in the past been treated as a single employer with Management Company or any of its Subsidiaries under Section 414(b) or (c) of the Code and the Treasury Regulations thereunder.

 

“ESOP”: As defined in Section 5.8(f).

 

“Excess Stock”: As defined in the Shurgard REIT Restated Certificate of Incorporation.

 

“Exchange”: Either the National Association of Securities Automated Quotations National Market or the national securities exchange (as defined in Section 12(b) of the Exchange Act) upon which the Shurgard REIT Common Shares are then listed for trading.

 

“Exchange Act”: The Securities Exchange Act of 1934, as amended.

 

“Final Determination”: (a) (i) A decision of the United States Tax Court, which has become final and non-appealable, or (ii) a judgment, decree, or other order by another court or other tribunal with appropriate jurisdiction, which has become final and non-appealable; (b) a final and binding settlement or compromise with the Internal Revenue Service or another administrative agency with appropriate jurisdiction, including, but not

 

 

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limited to, a closing agreement under Section 7121 of the Code; (c) a deficiency assessment or other determination which is not protested or appealed by the taxpayer within the appropriate period for protest or appeal and which therefore has become final and non-appealable; or (d) any final disposition by reason of the expiration of all applicable statutes of limitations.

 

“Final Statement”: As defined in Section 4.1(d).

 

“Governmental Body”: Any federal, state, municipal, political subdivision or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.

 

“HSR Act”: The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“Increase”: As defined in Section 4.1(d).

 

“Indemnification Escrow Agent”: As defined in Section 4.8(a).

 

“Indemnification Escrow Agreement”: As defined in Section 4.8(a).

 

“Indemnification Period”: As defined in Section 4.8(b).

 

“Indemnification Shares”: As defined in Section 4.8(a).

 

“Independent Expert”: As defined in Section 4.1(d).

 

“InterMation”: InterMation, Inc., a Washington corporation and subsidiary of Management Company.

 

“InterMation Spin-Off”: As defined in Section 7.10.

 

“InterMation Spin-Off Opinion”: As defined in Section 8.2(b).

 

“Knowledge”: The term “knowledge” or “best knowledge” and any derivatives thereof when applied to any party to this Agreement shall refer to the knowledge which such party or any director, officer of senior manager thereof has or could reasonably be expected to have as a result of the conduct of its business or the performance of his or her duties in the ordinary course, but no information known by any other employee, or any attorney, accountant or other representative, of such party shall be imputed to such party.

 

“Litigation Parties”: As defined in Section 10.1.

 

“Majority Interest”: As defined in Section 4.9.

 

“Management Company”: Shurgard Incorporated, a Washington corporation.

 

“Management Company Common Stock”: Common Stock, par value $.01 per share, of Management Company.

 

“Management Company Disclosure Statement”: The disclosure statement dated the date of this Agreement delivered by Management Company to Shurgard REIT.

 

“Management Company Equity”: As defined in Section 4.1(d).

 

“Management Company Financial Statements”: As defined in Section 5.12.

 

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“Management Company Intellectual Property Rights”: All intellectual property rights in the United States of America or abroad, including, but not limited to, patents, patent applications, trademarks, trademark applications and registrations, service marks, service mark applications and registrations, tradenames, tradename applications and registrations, copyrights, copyright applications and registrations, licenses, logos, corporate and partnership names and customer lists, proprietary processes, formulae, inventions, trade secrets, know-how, development tools and other proprietary rights used by Management Company, pertaining to any product, software, system or service manufactured, marketed, licensed, sublicensed, used or sold by Management Company in the conduct of their business or used, employed or exploited in the development, license, sale, marketing, distribution or maintenance thereof, and all documentation and media constituting, describing or relating to the above, including, but not limited to, manuals, memoranda, know-how, notebooks, software, records and disclosures.

 

“Management Company Material Adverse Effect”: As defined in Section 5.1.

 

“Management Company Option Plan”: As defined in Section 4.1(c).

 

“Management Company Proxy Materials”: As defined in Section 7.4.

 

“Management Company Shareholders Meeting”: As defined in Section 7.3(a).

 

“Market Value”: For purposes of this Agreement, the per-share value of Shurgard REIT Common Shares, which shall be the average of its daily closing price on the Exchange for each of the thirty (30) trading days on which shares of Shurgard REIT Common Shares were traded immediately preceding (i) the Closing Date, for purposes of the adjustment, if any, to the Share Consideration (as set forth in Section 4.1(d) hereof), and the payment of cash, if any, in lieu of issuance of fractional Shurgard REIT Common Shares (as set forth in Section 4.3 hereof), (ii) the last business day of the relevant fiscal quarter, for purposes of the calculation of the Contingent Shares (as set forth in Section 4.7(a) hereof), (iii) the Contingent Share Closing Date, for purposes of the final calculation of Contingent Shares (as set forth in Section 4.7(b) hereof), or (iv) the Closing Date for purposes of calculating the amount of Adjustment Indemnification Shares or Indemnification Shares, if any, to be withheld (as set forth in Section 4.8 hereof).

 

“Material

Agreements”: As defined in Section 515.

 

“Merged Plan”: As defined in Section 7.17.

 

“Merger”: The merger of Management Company with and into Shurgard REIT as contemplated by Section 2.1.

 

“Minimum Working Capital”: As defined in Section 7.22.

 

“NASD”: The National Association of Securities Dealers, Inc.

 

“Nomura”: Nomura Securities International, Inc.

 

“October 31 Statement”: As defined in Section 4.1(d).

 

“Option”: As defined in Section 4.1(c).

 

“Over-Statement”: As defined in Section 4.1(d).

 

“Partnerships”: As defined in Section 5.2.

 

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“Partnership Facilities”: As defined in Section 4.7(a).

 

“Permitted Liens”: As defined in Section 5.16.

 

“Person”: Any individual or corporation, company, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind.

 

“Profits”: As defined in Section 4.7(b).

 

“Project Partnerships”: As defined in Section 4.7(a).

 

“Proxy Statement/Prospectus”: As defined in Section 7.4.

 

“Qualified Appraiser”: As defined in Section 4.7(d).

 

“RCW”: The Revised Code of Washington.

 

“Reduction”: As defined in Section 4.1(d).

 

“Representatives”: As defined in Section 4.9(a).

 

“Riddell”: Riddell, Williams, Bullitt & Walkinshaw.

 

“Rights Agreement”: The Rights Agreement dated as of March 17, 1994 between Shurgard REIT and Gemisys Corporation, as Rights Agent.

 

“Rule 145 Affiliates”: As defined in Section 7.8(a).

 

“S-4 Registration Statement”: As defined in Section 7.4.

 

“SEC”: The Securities and Exchange Commission.

 

“Securities Act”: The Securities Act of 1933, as amended.

 

“Share Consideration”: As defined in Section 4.1(a).

 

“Shareholders Voting Agreement”: As defined in Section 7.3(a).

 

“Shares”: Collectively, the shares of Management Company Common Stock.

 

“Shurgard Realty Advisors”: Shurgard Realty Advisors, Inc., a Washington corporation and wholly-owned subsidiary of Management Company.

 

“Shurgard REIT”: Shurgard Storage Centers, Inc., a Delaware corporation.

 

“Shurgard REIT Common Shares”: Shares of Class A common stock, $0.001 par value per share, of Shurgard REIT (including any associated purchase rights pursuant to the Rights Agreement).

 

“Shurgard REIT Disclosure Statement”: The disclosure statement dated the date of this Agreement delivered by Shurgard REIT to Management Company.

 

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“Shurgard REIT Financial Statements”: The financial statements included in the Shurgard REIT SEC Reports.

 

“Shurgard REIT Material Adverse Effect”: As defined in Section 6.1.

 

“Shurgard REIT SEC Reports”: As defined in Section 6.8.

 

“Shurgard REIT Stockholders Meeting”: As defined in Section 7.3(b).

 

“Special Committee”: The Special Committee of independent members of the Board of Directors of Shurgard REIT, appointed specifically for the purpose of negotiating the terms of any proposed merger with Management Company and any alternatives to such transaction and to make recommendations to the Shurgard REIT Board of Directors and stockholders with respect to same.

 

“SRA Letter”: As defined in Section 7.11.

 

“Subsidiary”: As to any Person, any other Person of which at least 10% of the equity or voting interests are owned, directly or indirectly, by such first Person. Notwithstanding the foregoing, the term “Subsidiary” shall not include InterMation, Shurgard Realty Advisors, Benelux, Benelux SCS or any Partnership.

 

“Surviving Corporation”: The surviving corporation in the Merger.

 

“Tax” or “Taxes”: Any federal, state, local or foreign income, excise, sales, capital stock, license, franchise, property, use, gross receipts, payroll, employment, windfall profits, environmental, holding, social security, unemployment, estimated, or other tax of any kind whatsoever, including any interest penalty in addition thereto, whether disputed or not.

 

“Tax Return”: Any return, declaration of estimated tax, tax report, customs declaration, claim for refund or information return relating to Taxes, including any amendment thereto.

 

“Under-Statement”: As defined in Section 4.1(d).

 

“Upper Limit”: As defined in Section 4.1(d).

 

“WBCA”: The Washington Business Corporation Act.

 

“1983 Agreements”: The Redemption Agreement, 1983 Shareholder Agreement and Business Agreement entered into by and between the Management Company, Barbo, Daniels and Buerk as of July 1, 1983.

 

ARTICLE 2

THE MERGER; EFFECTIVE TIME; CLOSING

 

2.1 The Merger

 

Subject to the terms and conditions of this Agreement, at the Effective Time, Management Company shall be merged with and into Shurgard REIT in accordance with the provisions of the DGCL and the WBCA and with the effect provided in Section 259 of the DGCL and RCW 23B.11.060. The separate corporate existence of Management Company shall thereupon cease and Shurgard REIT shall be the Surviving Corporation and shall continue to be governed by the laws of the State of Delaware.

 

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2.2 Closing

 

Subject to Article 9 hereof and the fulfillment or waiver of the conditions set forth in Article 8, the Closing shall take place at (i) the offices of Perkins Coie, 1201 Third Avenue, Seattle, Washington on March 3, 1995, or (ii) such other place and/or time and/or on such other date as Shurgard REIT and Management Company may agree or as may be necessary to permit the fulfillment or waiver of the conditions set forth in Article 8.

 

2.3 Effective Time

 

The Merger shall become effective on the date and at the time (the “Effective Time”) that the Certificate of Merger and Articles of Merger shall have been accepted for filing by the Secretary of State of the State of Delaware and the Secretary of State of the State of Washington, respectively (or such later date and time as may be specified in the Certificate of Merger and Articles of Merger), which shall occur on the Closing Date or as soon as practicable thereafter.

 

ARTICLE 3

TERMS OF MERGER

 

3.1 Certificate of Incorporation

 

The Certificate of Incorporation of Shurgard REIT as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation, until duly amended in accordance with the terms thereof and the DGCL.

 

3.2 By-laws

 

The By-laws of Shurgard REIT in effect at the Effective Time shall be the By-laws of the Surviving Corporation, until duly amended in accordance with the terms thereof, the Certificate of Incorporation of the Surviving Corporation and the DGCL.

 

3.3 Directors

 

As a result of the Merger, from and after the Effective Time, the directors of the Surviving Corporation shall be the directors of Shurgard REIT immediately prior to the Effective Time and Charles K. Barbo (“Barbo”), each to serve until his successor has been duly elected or appointed and qualified or until his earlier death, resignation or removal in accordance with the Surviving Corporation’s Certificate of Incorporation and By-laws.

 

3.4 Officers

 

As a result of the Merger, from and after the Effective Time, the officers of the Surviving Corporation shall be the officers of Shurgard REIT immediately prior to the Effective Time, except that Barbo shall serve as Chairman of the Board, President and Chief Executive Officer, Harrell L. Beck shall serve as Senior Vice-President, Chief Financial Officer and Treasurer, and Kristin H. Stred shall serve as Senior Vice-President, Secretary and General Counsel, each to serve until his or her successor has been duly elected or appointed and qualified or until his or her earlier death, resignation or removal in accordance with the Surviving Corporation’s Certificate of Incorporation and By-laws.

 

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ARTICLE 4

MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF

SHARES; ADJUSTMENTS

 

4.1 Share Consideration; Conversion or Cancellation of Shares

 

Subject to the provisions of this Article 4, at the Effective Time, by virtue of the Merger and without any action by holders thereof, the Shares shall be converted as follows:

 

(a) All of the Shares issued and outstanding immediately prior to the Effective Time (other than Shares as to which dissenters’ rights have been duly exercised and are not subsequently withdrawn) shall be converted into:

 

(i) an aggregate of 1,400,000 Shurgard REIT Common Shares, reduced pro rata in the proportion that the number of Shares as to which dissenters’ rights have been duly exercised and not subsequently withdrawn bears to the number of Shares issued and outstanding immediately prior to the Effective Time, and adjusted in accordance with Section 4.1(d) (the “Share Consideration”), and

 

(ii) the right to receive Contingent Shares pro rata in the proportion set forth in, and to be distributed in accordance with the terms of, Section 4.7. The right to receive Contingent Shares shall be nonassignable except by operation of law or by will.

 

The Share Consideration shall, subject to Section 4.8, be distributed pro rata to the Management Company shareholders in the proportion that the number of Shares issued and outstanding in the name of a Management Company shareholder immediately prior to the Effective Time bears to the total number of Shares issued and outstanding immediately prior to the Effective Time. If, prior to the Effective Time, Shurgard REIT should split or combine the Shurgard REIT Common Shares, or pay a stock dividend or other stock distribution in Shurgard REIT Common Shares, or otherwise change the Shurgard REIT Common Shares into, or exchange Shurgard REIT Common Shares for, any other securities (whether pursuant to or as part of a merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation of Shurgard REIT as a result of which the Shurgard REIT stockholders receive cash, stock or other property in exchange for, or in connection with, their Shurgard REIT Common Shares (a “Business Combination”)), or make any other dividend or distribution on the Shurgard REIT Common Shares, then the Share Consideration will be appropriately adjusted to reflect such split, combination, dividend, distribution, Business Combination or change.

 

(b) All Shares to be converted into Shurgard REIT Common Shares pursuant to this Section 4.1 shall cease to be outstanding, shall be cancelled and retired and shall cease to exist, and each holder of a certificate or certificates representing any such Shares (the “Certificates”) shall thereafter cease to have any rights with respect to such Shares, except the right to receive for each of the Shares, upon the surrender of such Certificate in accordance with Section 4.2, the Shurgard REIT Common Shares specified above, the right to Contingent Shares (and cash in lieu of fractional Contingent Shares) as contemplated by Section 4.7, and cash in lieu of fractional Shurgard REIT Common Shares as contemplated by Section 4.3 (in each case subject to the provisions of Section 4.8).

 

(c) The Management Company shall take all requisite action so that, by their terms, all options (individually an “Option” and collectively, the “Options”) to purchase Shares outstanding at the Effective Time which were issued pursuant to Management Company’s Amended and Restated Stock Option Plan (the “Management Company Option Plan”) shall terminate.

 

(d) The Share Consideration shall be calculated and subject to adjustment as follows:

 

(i) First, in the event that, as of the Closing Date, the product obtained by multiplying the Share Consideration by the then Market Value shall equal or exceed $31,165,000 (such dollar number, the “Upper Limit”), the Share Consideration shall be adjusted and reduced to that number of Shurgard REIT Common Shares obtained by dividing the Upper Limit by the Market Value as of the Closing Date.

 

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(ii) Following any adjustment to the Share Consideration as set forth in subsection (d)(i) above, the Share Consideration shall be subject to further adjustment, as follows:

 

(A) Within five (5) days prior to the Closing Date, Management Company will deliver to Shurgard REIT a statement of assets and liabilities of the Management Company (the “Closing Statement”) dated as of the Closing Date or a date within five (5) days prior to the Closing Date (the “Closing Statement Date”), prepared in a manner consistent with the accounting methodology described in Section 5.12(b) and the accounting methodology described in the statement of assets and liabilities of the Management Company dated October 31, 1994 (the “October 31 Statement”), attached hereto as Exhibit A.

 

(B) In the event that there has been a reduction in Management Company Equity as set forth in the Closing Statement when compared to Management Company Equity as set forth in the October 31 Statement (a “Reduction”), the Share Consideration shall be reduced by the quotient obtained by dividing such Reduction by the Market Value as of the Closing Date. In the event there has been an increase in Management Company Equity as set forth in the Closing Statement when compared to the October 31 Statement (an “Increase”), subject to the following sentence, the Share Consideration shall be increased by the quotient obtained by dividing such Increase by the Market Value as of the Closing Date. Notwithstanding the foregoing (1) any adjustment to the Share Consideration resulting from an Increase shall be limited in amount to $1,500,000 and (2) in calculating the amount of any Increase, solely for purposes of this sentence, any Shurgard REIT Common Shares held by Management Company as of the Closing Date shall not be included in the calculation of the $1,500,000 limitation.

 

(C) Within thirty (30) days following the Closing Date, the former directors and officers of Management Company shall cause Deloitte & Touche, LLP to audit (at Shurgard REIT’s sole expense) such Closing Statement (the “Audit”) and deliver the revised and audited Closing Statement (the “Final Statement”) to the Representatives (as defined below) and Shurgard REIT. The Final Statement shall be prepared in prepared in a manner consistent with the methodology described in Section 5.12(b) and the accounting methodology described in the October 31 Statement.

 

(D) In the event that the Final Statement reflects Management Company Equity in an amount less than that reflected on the Closing Statement (an “Over-Statement”), subject to subsection (E) below, the amount of such Over-Statement shall be deemed conclusively to constitute Damages for purposes of Section 4.8 hereof and Shurgard REIT shall be entitled to recover from the Adjustment Indemnification Shares (as defined below) and, to the extent necessary, the Indemnification Shares, that number of Adjustment Indemnification Shares or Indemnification Shares, as the case may be, determined by dividing the Over-Statement by the Market Value as of the Closing Date, in accordance with the provisions of Section 4.8 and the Indemnification Escrow Agreement (as defined below). In the event that the Final Statement reflects Management Company Equity in an amount greater than that reflected on the Closing Statement (an “Under-Statement”), subject to subsection (E) below, Shurgard REIT shall promptly issue such number of additional Shurgard REIT Common Shares to the Management Company shareholders obtained by dividing such Under-Statement by the Market Value as of the Closing Date. Such additional shares shall be distributed pro rata in proportion that the number of Shares formerly held by a Management Company shareholder immediately prior to the Effective Time bears to the total number of Shares issued and outstanding immediately prior to the Effective Time (other than Shares as to which dissenters’ rights have been duly exercised and not subsequently withdrawn).

 

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(E) In the event that either party hereto shall dispute the results of the Audit, such party (in the case of Management Company, acting through the Representatives) may, within ten (10) days following receipt of the Final Statement, engage such firm of certified public accountants (the “Independent Expert”) as selected by Deloitte & Touche, LLP. The costs and expenses of such Independent Expert shall be borne by Shurgard REIT. The Independent Expert shall perform an audit of the Closing Statement (independent of the Audit) and shall deliver its audited Closing Statement to Shurgard REIT and the Representatives no later than thirty (30) days following appointment. The decision of the Independent Expert shall be final and binding upon the parties.

 

(F) For purposes of this Agreement and this Section 4.1(d), “Management Company Equity” shall mean the consolidated stockholders equity of Management Company and its consolidated subsidiaries as of the close of business on the relevant statement date prepared in a manner consistent with the methodology described in Section 5.12(b) and the accounting methodology described in the October 31 Statement.

 

4.2 Payment for Shares in the Merger

 

Shurgard REIT shall deliver to each holder of record of a Certificate or Certificates (a) a form of letter of transmittal (which shall provide acknowledgement that (i) the Representatives are authorized to act on behalf of the Management Company shareholders with respect to the Agreement, the Indemnification Escrow Agreement and the Contingent Shares Agreement (as defined below) as set forth in Section 4.9 hereof, (ii) such shareholder agrees to be bound by the personal indemnification under Section 4.8(b) and (iii) delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to Shurgard REIT at the Closing) and (b) instructions for use in effecting the surrender of the Certificates for payment therefor. Except as provided in Section 4.8 below, at or after the Effective Time, upon surrender of Certificates for cancellation to Shurgard REIT, together with such letter of transmittal duly executed and any other required documents, the holder of such Certificates shall receive for each of the Shares represented by such Certificates (i) his, her or its pro rata portion of the Share Consideration, (ii) the right to receive Contingent Shares and cash in lieu of fractional Contingent Shares as contemplated by Section 4.7, and (iii) cash in lieu of fractional Shurgard REIT Common Shares as contemplated by Section 4.3, and the Certificates so surrendered shall forthwith be canceled. Until surrendered, each outstanding Certificate shall, upon and after the Effective Time, be deemed for all purposes (other than to the extent provided in the following sentence) to evidence ownership of the number of shares of Shurgard REIT Common Shares into which such Shares have been converted pursuant to Section 4.1 hereof and the other rights contemplated in the preceding sentence. Unless and until such outstanding Certificates are so surrendered, the holders thereof shall not be entitled to receive any dividends or distributions of any kind payable to the holders of record of Shurgard REIT Common Shares. Upon the surrender of any such Certificate, however, there shall be paid to the record holder thereof the aggregate amount of dividends and distributions, if any, which theretofore became payable in respect of the Shurgard REIT Common Shares into which the Shares represented by such Certificate have been converted, and such surrendered Certificate shall be duly cancelled. No interest shall be payable on or in respect of such deferred dividends or distributions until surrender of such outstanding Certificates.

 

4.3 Fractional Shares

 

No fractional Shurgard REIT Common Shares shall be issued in the Merger. In lieu of any such fractional securities, each holder of Shares who would otherwise have been entitled to a fraction of a Shurgard REIT Common Share upon surrender of Certificates for exchange pursuant to this Article 4 will be paid an amount in cash (without interest) equal to the Market Value of one Shurgard REIT Common Share as of the Closing Date, multiplied by such fraction.

 

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4.4 Transfer of Shares After the Effective Time

 

No transfers of Shares shall be made on the stock transfer books of Management Company after the close of business on the day prior to the date of the Effective Time.

 

4.5 Lost, Stolen or Destroyed Certificates

 

In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting of such Person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Surviving Corporation will issue in exchange for such lost, stolen or destroyed Certificate Shurgard REIT Common Shares, cash in lieu of fractional shares, and unpaid dividends and distributions on shares of Shurgard REIT Common Shares as provided in Section 4.2, deliverable in respect thereof pursuant to this Agreement.

 

4.6 Dissenters’ Rights

 

Notwithstanding anything in this Agreement to the contrary, Shares which are issued and outstanding immediately prior to the Effective Time and which are held by holders of record of such Shares who have properly exercised dissenters’ rights with respect thereto in accordance with RCW 23B.13.010 et seq. shall not be converted into or be exchangeable for the right to receive the consideration paid in the Merger, and holders of such Shares shall be entitled to receive payment of the fair value of such Shares in accordance with the provisions of the WBCA unless and until such holders fail to perfect or shall have effectively withdrawn or lost their rights to receive fair value under the WBCA. If, after the Effective Time, any such holder fails to perfect or shall have effectively withdrawn or lost such right, such Shares shall thereupon be treated as if they had been converted into and become exchangeable for, at the Effective Time, the right to receive consideration paid in the Merger to which the holder of such Shares is entitled (including that portion of the Share Consideration and right to receive Contingent Shares as determined pursuant to Section 4.1(a) hereof), without any interest thereon. Management Company shall give Shurgard REIT prompt notice of any demands received by Management Company for the receipt of fair value for Shares and, prior to the Effective Time, Shurgard REIT shall have the right to participate in all negotiations and proceedings with respect to such demands. Prior to the Effective Time, Management Company shall not, except with the prior written consent of Shurgard REIT, make any payment with respect to, or settle or offer to settle, any such demands.

 

4.7 Additional Consideration

 

(a) As set forth in Section 4.1(a)(ii), in addition to the Share Consideration, the Management Company shareholders will receive additional consideration in the form of contingent shares (“Contingent Shares”) to be issued by the Shurgard REIT based on the Profits (as calculated below), if any, received by the Shurgard REIT from its interests in certain limited partnerships set forth in the Management Company Disclosure Statement (the “Contingent Partnerships”). The Contingent Partnerships own either self-storage centers (the “Partnership Facilities”) or direct or indirect interests (through one or more tiers of partnership entities) in several limited and general partnerships as set forth in the Management Company Disclosure Statement (the “Project Partnerships”) that themselves own Partnership Facilities. Contingent Shares shall be issued pursuant to the terms of this Section 4.7 by the Shurgard REIT to the Management Company shareholders based on Profits (as calculated below) realized by Shurgard REIT as a result of any of the following events: (i) the receipt of proceeds by the Shurgard REIT from the sale or other disposition by the Shurgard REIT of all or any part of its interest in the Contingent Partnerships (a “Disposition”); (ii) the receipt by the Shurgard REIT of any distribution from any Contingent Partnership attributable either to the sale, refinancing, liquidation or other disposition by a Contingent Partnership or a Project Partnership of one or more of its Partnership Facilities or to the sale by a Contingent Partnership (or by any Project Partnership that is itself an owner of an interest in a

 

 

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Project Partnership) of all or any part of its interest in a Project Partnership (a “Distribution”); or (iii) a deemed liquidating distribution from the Contingent Partnership to the Shurgard REIT as described in Section 4.7(d) (as defined therein a “Deemed Distribution”). The jurisdiction of organization and description of the equity interests held by the Management Company with respect to each Contingent Partnership and Project Partnership is as set forth in the Management Company Disclosure Statement.

 

(b) Profits (“Profits”) with respect to the Contingent Partnerships shall be calculated as follows:

 

(i) The Profits pursuant to a Disposition shall consist of the gross proceeds received by Shurgard REIT from such Disposition, net of the carrying value of the respective Contingent Partnership interest on the Final Statement and Shurgard REIT’s reasonable costs and legal and accounting expenses incurred in connection with such Disposition, provided that, in the event of a Disposition to an Affiliate of the Shurgard REIT, the gross proceeds received by Shurgard REIT, for purposes of calculating Profits, will be deemed to be the greater of (x) the portion of the Appraised Amount (as established in accordance with Subsection 4.7(d)) that would have been distributed to the Shurgard REIT had there been a Deemed Distribution as of the date of such Disposition, or (y) the actual gross proceeds received by Shurgard REIT with respect to such Disposition.

 

(ii) The Profits received upon a Distribution shall be calculated with reference to the amounts actually received by Shurgard REIT with respect to such Distribution, provided that in the event a Partnership Facility, or interest in a Project Partnership is acquired directly by the Shurgard REIT or an Affiliate thereof, the amount received by Shurgard REIT for purposes of calculating Profits will be deemed to be the greater of (x) the portion of the Appraised Amount (as established in accordance with subsection 4.7(d)) that would have been distributed to the Shurgard REIT had there been a Deemed Distribution as of the date of such acquisition; (y) the actual amount received by the Shurgard REIT with respect to such Distribution or (z) the amount of any credit towards the purchase price for the Partnership Facility afforded the Shurgard REIT in exchange for cancellation of its interest in the Contingent Partnership.

 

(iii) The Profits received upon a Deemed Distribution shall be calculated with reference to the amounts Shurgard REIT would have received pursuant to the terms of the respective Contingent Partnership agreement had such Contingent Partnership and the Project Partnership, if any, in which such Contingent Partnership may hold an interest, liquidated the Partnership Facilities for the Appraised Amount, as described below, less reasonable costs and legal, accounting and appraisal expenses incurred pursuant to and as provided in Section 4.7(d).

 

(c) The number (if any) of Contingent Shares to be issued by Shurgard REIT pursuant to this Section 4.7 shall be determined for each fiscal quarter ending after the Effective Time through and including the fifth anniversary of the Effective Time (the “Contingent Share Closing Date”), as follows:

 

(i) The Contingent Amount (as defined below), if any, shall be computed as promptly as practicable but in no event later than forty-five (45) days after the end of each fiscal quarter;

 

(ii) The number of Contingent Shares, if any, to be issued for each fiscal quarter shall be determined by dividing the Contingent Amount by the Market Value as of the last business day of such fiscal quarter.

 

(iii) The number of Contingent Shares so determined shall be issued pro rata to the holders of rights to Contingent Shares in the proportion that the number of Shares issued and outstanding in the name of a Management Company shareholder immediately prior to the Effective Time bears to the total number of Shares issued and outstanding immediately prior to the Effective Time.

 

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(iv) No fractional Contingent Shares shall be issued. In lieu of any such fractional securities, each holder of rights to Contingent Shares who would otherwise have been entitled to a fraction of a Contingent Share will be paid an amount in cash (without interest) equal to the Market Value (as calculated above), multiplied by such fraction.

 

(v) The Contingent Shares shall be issued by Shurgard REIT to the holders of the right to receive Contingent Shares as promptly as practicable but in no event later than forty-five (45) days after (1) the close of each of Shurgard REIT’s fiscal quarters during the Contingent Share Period (as defined in Section 4.7(d) below), (2) the final resolution of a disputed Profit (which dispute shall be settled by the procedures set forth in the Contingent Shares Agreement (as defined below), or, (3) in the event of a Distribution or Deemed Distribution to the Shurgard REIT or an Affiliate thereof, the determination of the Appraised Amount, whichever is later.

 

(vi) All distributions or other payments, to the extent such distributions or other payments do not constitute a Distribution, and all voting rights and other indicia of beneficial ownership with respect to the Contingent Partnerships shall inure to the benefit of Shurgard REIT. Dividends or other distributions and all voting rights and other indicia of beneficial ownership with respect to Contingent Shares shall inure to the benefit of the former Management Company shareholders only when and from the time that such Contingent Shares are issued or are required to be issued, if ever, in accordance with the provisions of this Section 4.7.

 

(d) The period during which Contingent Shares may be earned shall begin at the Effective Time and shall continue through the Contingent Share Closing Date (the “Contingent Share Period”). To the extent that (1) a Change in Control of the Shurgard REIT shall occur at any time during the Contingent Share Period, or (2) the Shurgard REIT shall continue to hold, at the Contingent Share Closing Date, any residual interest in any of the Contingent Partnerships, the Project Partnerships, in which such Contingent Partnerships continue to hold interests, and any Contingent Partnership owning Partnership Facilities shall be deemed to have sold all of their Partnership Facilities for the Appraised Amount (as defined below) and to have distributed the Appraised Amount in liquidation of the Project Partnerships or the Contingent Partnerships, as the case may be, pursuant to the terms of their respective partnership agreement. Any portion of the Appraised Amounts deemed to have been received by the Contingent Partnerships shall be deemed to have been distributed (the “Deemed Distribution”) to the Shurgard REIT pursuant to the terms of the Contingent Partnership’s partnership agreement.

 

(i) Pursuant to this Section 4.7(d), the parties hereto agree to submit for appraisal the valuation of the Partnership Facilities (the “Appraised Amount”) by an independent appraiser with self-storage industry valuation experience (a “Qualified Appraiser”) and mutually acceptable to and appointed by Shurgard REIT and the Representatives within thirty (30) days after the Change in Control Date or the Contingent Share Closing Date, as the case may be.

 

(ii) If Shurgard REIT and the Representatives cannot agree on a Qualified Appraiser within such period, the Appraised Amount shall be determined jointly by a Qualified Appraiser appointed by Shurgard REIT and a Qualified Appraiser appointed by the Representatives, each to be appointed within such thirty (30) day period. Such Qualified Appraisers shall complete their respective valuations within forty-five (45) days of their appointment. If the higher of the values determined by either of the initial Qualified Appraisers is not in excess of 115% of the value determined by the other Qualified Appraiser, the initial Qualified Appraisers shall be deemed to have agreed upon a value equal to the average of the two determinations. If the higher of the values determined by either of the initial Qualified Appraisers exceeds 115% of the value determined by the other Qualified Appraiser, such Qualified Appraisers shall (within 60 days after their appointment) select a third Qualified Appraiser who shall determine (within 45 days after his or her appointment) the Appraised Amount for the purposes hereof by arriving at a valuation either equal to that determined by one of the initial two Qualified Appraisers or intermediate between such two initial valuations. If the two initial Qualified Appraisers are unable to agree upon a third appraiser, he or she shall be selected by the presiding judge of the Superior Court for King County, Washington.

 

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(iii) Shurgard REIT shall bear the cost and expense of any appraisals, provided, however, that Shurgard REIT shall be entitled to include the cost of any Qualified Appraiser appointed by the Representatives, and one-half the cost of the initial and third Qualified Appraiser (if any), as an expense for purposes of calculating Profits pursuant to 4.7(b)(iii).

 

(iv) The Appraised Amount, as determined by the Qualified Appraiser(s) pursuant to this Section 4.7, shall be final and binding on all the parties.

 

(v) The number of Contingent Shares to be issued as a result of any such valuation shall be determined by dividing the amount of the Contingent Amount computed thereby by the Market Value as of the Contingent Share Closing Date or Change in Control Date, as the case may be, and such Contingent Shares (and cash in lieu of fractional shares) shall be issued to the holders of the right to receive Contingent Shares as set forth in subsections (c) (iii) and (c) (iv) above as promptly as practicable but in no event later than twenty (20) days after the close of business on the day such Appraised Amount is determined.

 

(e) For purposes of this Agreement and this Section 4.7, the “Contingent Amount” shall be equal to the product obtained by multiplying the dollar amount of Profits by .95.

 

(f) The number of Contingent Shares to be issued to the Management Company shareholders hereunder shall be reduced by that number of Contingent Shares having an aggregate Market Value equal to the reasonable expenses incurred by the Representatives in carrying out their obligations hereunder. Such Contingent Shares shall be issued to the Representatives as reimbursement for such expenses.

 

(g) The foregoing shall be reflected in an agreement (the “Contingent Shares Agreement”), substantially in the form attached hereto as Exhibit B, to be entered into by Shurgard REIT and the Representatives on or prior to the Closing Date.

 

(h) The Management Company shareholders shall, by virtue of their collective approval of this Agreement, be deemed to have agreed to, and be bound by, the terms of the Contingent Shares Agreement.

 

4.8 Indemnification Shares; Claims Against the Escrow

 

(a) At the Closing, ten percent (10%) of the shares received as part of the Share Consideration (net of any Shurgard REIT Common Shares held by Management Company as of the Closing Date (the “Indemnification Shares”), shall be deposited in escrow with Seattle First National Bank, as escrow agent, or such other party as may be agreed upon by the parties prior to Closing (the “Indemnification Escrow Agent”), to be held and administered in accordance with the terms and conditions of an Indemnification Escrow Agreement, substantially in the form attached hereto as Exhibit C (the “Indemnification Escrow Agreement”). The Indemnification Shares shall be deducted pro rata from that portion of the Share Consideration, as adjusted, otherwise issuable to each of the Management Company shareholders. Fractional Shurgard REIT Common Shares shall not be deposited in escrow. In lieu thereof, each Management Company shareholder shall round up such fractional share to the nearest whole number and deposit in escrow an additional Shurgard REIT Common Share. The Indemnification Shares shall be registered in the name of the respective Management Company shareholders and shall be accompanied by stock powers endorsed in blank.

 

Shurgard REIT shall be entitled to recover from the Indemnification Shares the full dollar amount of any Damages that may be suffered by Shurgard REIT by reason of (i) any breach of representation or warranty made by Management Company in Article 5, (ii) any breach by Management Company of any covenant or

 

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agreement on its part contained in this Agreement, (iii) any liability for Taxes assessed against Shurgard REIT (including penalties and interest) as successor to Management Company (irrespective of which party is primarily or solely liable under the laws of the applicable taxing authority) resulting from a determination by an applicable taxing authority that the InterMation Spin-Off does not qualify under Section 355(a)(1) of the Code; (iv) any Over-Statement in the amount of Management Company Equity reflected in the Final Statement as compared with the Closing Statement (including any overstatement of any Tax refund due Management Company as a result of its short taxable year ending as of the Effective Time (the “Refund”)), subject to Section 4.1(d)(ii)(E); or (v) any liability or out-of-pocket expenses suffered by Shurgard REIT in its capacity as general partner of any of the Partnerships to the extent such liability or expense arises out of facts or circumstances (other than the legal status as a general partner) in existence prior to the Closing Date (provided, however, that such liabilities or expenses shall be calculated net of distributions received by Shurgard REIT from such Partnership which are not included in the calculation of Profits under Section 4.7). No claims for indemnification hereunder shall be made by Shurgard REIT until Damages (arising from a single claim or in the aggregate from multiple claims) equal or exceed $50,000, in which case the full dollar amount of any Damages shall be recoverable. Notwithstanding the foregoing, Shurgard REIT shall not be entitled to indemnification or to seek Damages for any (x) liability with respect to which Shurgard REIT would have been obligated to indemnify Shurgard, if such liability had arisen prior to the Effective Time, or (y) Tax liabilities resulting from or arising in connection with the transactions effected by this Agreement (except as specifically set forth in subsection (a)(iii) hereof).

 

(b) For purposes of this Section 4.8, the “Indemnification Period” shall begin as of the Closing Date and shall continue through the third anniversary thereof. The period during which claims may be made from the Indemnification Shares for Damages shall begin as of the Closing Date and shall continue through the second anniversary of the Closing Date except with respect to (i) any tax liability assessed against Shurgard REIT (including penalties and interest) as successor to Management Company if the InterMation Spin Off does not qualify under Section 355 of the Code, (ii) any breach of representation or warranty made by Management Company in Sections 5.8 or 5.10, or (iii) any breach of covenant made by Management Company in Section 7.10 or 7.17, which shall continue for the full term of the Indemnification Period. Nevertheless, any covenant, agreement, representation or warranty in respect of which indemnity may be sought pursuant to this Section 4.8 shall survive the time at which it would otherwise terminate if written notice of the inaccuracy or breach thereof specifying the Damages (including the amount thereof) giving rise to such right to indemnity shall have been delivered to the Representatives prior to such time.

 

At the termination of the Indemnification Period, Indemnification Shares not required to reimburse Shurgard REIT for any Damages which constitute an indemnifiable claim, or which are not pending determination as an indemnification claim, shall be returned by the Indemnification Escrow Agent to the Management Company shareholders, pro rata in the same proportion as originally deducted from the portion of the Share Consideration otherwise issuable to each Management Company shareholder. Notwithstanding the foregoing, Shurgard REIT shall be entitled to continuing indemnification from the Management Company shareholders, personally and severally (not jointly), pro rata in the same proportion as Indemnification Shares originally were deducted from the portion of the Share Consideration otherwise issuable to each Management Company shareholder, with respect to the matters set forth in subsections (a)(iii) above, which indemnification obligation shall continue until the expiration of the applicable statutory period of limitations. Such continuing right to indemnification beyond the Indemnification Period shall be limited to the recovery of Damages, in the aggregate, in an amount equal to the product obtained by multiplying the number of Indemnification Shares returned to the Management Company shareholders by the Market Value of the Shurgard REIT Common Shares as of the Closing Date.

 

(c) At the Closing, an additional five percent (5%) of the shares received as part of the Share Consideration (net of any Shurgard REIT Common Shares held by Management Company as of the Closing Date (the “Adjustment Indemnification Shares”) shall be deposited with the Indemnification Escrow Agent to be held and administered in accordance with the terms and conditions of the Indemnification Escrow Agreement.

 

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The Adjustment Indemnification Shares shall be deducted pro rata from that portion of the Share Consideration, as adjusted, otherwise issuable to each of the Management Company shareholders. Fractional Shurgard REIT Common Shares shall not be deposited in escrow. In lieu thereof, each Management Company shareholder shall round up such fractional share to the nearest whole number and deposit in escrow an additional Shurgard REIT Common Share. The Adjustment Indemnification Shares shall be registered in the name of the respective Management Company shareholders and shall be accompanied by stock powers endorsed in blank. Shurgard REIT’s only rights with respect to the Adjustment Indemnification Shares shall be to recover from the Adjustment Indemnification Shares (i) the full dollar amount of any Over-Statement in the amount of Management Company Equity reflected in the Final Statement as compared with the Closing Statement, subject to Section 4.1(d)(ii)(E), and (ii) the difference between the dollar amount of any Refund claimed as set forth in the Closing Statement and the actual amount received by the Shurgard REIT. Any amount defined in subsection (c)(i) and (ii) hereof over and above the value of the Adjustment Indemnification Shares (as calculated above) shall be deemed conclusively to constitute Damages for purposes of subsection (a) hereof and Shurgard REIT shall be entitled to recover from the Indemnification Shares the full dollar amount calculated by subtracting from the dollar value of such Damages the value of the Adjustment Indemnification Shares, as calculated in subsection (a) hereof. The indemnification period with respect to the Adjustment Indemnification Shares shall begin as of the Closing Date and shall continue for a period lasting ten (10) days following the later of (i) delivery to the Representatives and Shurgard REIT of the Final Statement or, if an Independent Expert is appointed, upon delivery to the Representatives and Shurgard REIT of its report and (ii) the date on which the Refund is received by the Shurgard REIT or the date on which the Shurgard REIT receives notice that the Refund will not be paid (the “Adjustment Indemnification Period”). At the termination of the Adjustment Indemnification Period, Adjustment Indemnification Shares (x) not required to reimburse Shurgard REIT for any Over-Statement; (y) not required to reimburse Shurgard REIT for any difference between the Refund actually received and the amount of the Refund as set forth on the Final Statement; and (z) which are not pending determination as an indemnification claim shall be returned by the Indemnification Escrow Agent to the Management Company shareholders, pro rata in the same proportion as originally deducted from the portion of the Share Consideration otherwise issuable to each Management Company shareholder.

 

(d) Notwithstanding the escrow of the Adjustment Indemnification Shares and Indemnification Shares, dividends or other distributions declared and paid on such shares shall continue to be paid by Shurgard REIT to the Management Company shareholders and all voting rights with respect to such shares shall inure to the benefit of and be enjoyed by the Management Company shareholders. Any securities received by the Indemnification Escrow Agent in respect of any Adjustment Indemnification Shares or Indemnification Shares held in escrow as a result of stock split or combination of Shurgard REIT Common Shares, payment of a stock dividend or other stock distribution in or on Shurgard REIT Common Shares, or change of Shurgard REIT Common Shares into any other securities pursuant to or as part of a Business Combination or otherwise, shall be held by the Indemnification Escrow Agent as, and shall be included within the definition of, Adjustment Indemnification Shares or Indemnification Shares, as the case may be. Indemnification procedures shall be as stipulated in the Indemnification Escrow Agreement.

 

(e) For purposes of this Section 4.8, the satisfaction of any Damages owed hereunder shall be made by delivery by the Indemnification Escrow Agent to Shurgard REIT of that number of Indemnification Shares calculated by dividing the dollar amount of any Damages by the Market Value as of the Closing Date. Any Adjustment Indemnification Shares or Indemnification Shares, as the case may be, returned to Shurgard REIT hereunder shall be treated, to the extent permitted by law, by the Management Company shareholders and Shurgard REIT as a purchase price adjustment. The number of Indemnification Shares to be released to the Management Company shareholders at the termination of the Indemnification Period shall be reduced by the number of Indemnification Shares having an aggregate Market Value equal to the reasonable expenses incurred by the Representatives in carrying out their obligations hereunder. Such Indemnification Shares shall be released to the Representatives as reimbursement for such expenses.

 

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(f) The Management Company shareholders shall, by virtue of their collective approval of this Agreement, be deemed to have agreed to, and be bound by, the terms of the Indemnification Escrow Agreement.

 

4.9 Appointment of Shareholders’ Representatives

 

(a) (i) The Management Company shareholders hereby appoint and authorize Barbo, Donald B. Daniels (“Daniels”) and Arthur W. Buerk (“Buerk”) (the “Representatives”) as their agents to deal with Shurgard REIT on behalf of the Management Company shareholders regarding all matters arising under this Agreement, the Contingent Shares Agreement and the Indemnification Escrow Agreement.

 

(ii) Unless and until Shurgard REIT and the Indemnification Escrow Agent shall have received a written revocation of such appointment signed by Management Company shareholders who received a majority of the Share Consideration in the Merger (a “Majority Interest”), together with a written appointment of successor Representatives for the Management Company shareholders, Shurgard REIT and the Indemnification Escrow Agent shall be entitled to rely upon, and shall be fully protected in relying upon, the power and authority of the Representatives to act on behalf of the Management Company shareholders.

 

(iii) If any of the Representatives or any successor shall die, refuse or become unable to act, resign or otherwise terminate his or her status as one of the Representatives, a replacement shall promptly be appointed by a writing signed by Management Company shareholders holding a Majority Interest, and Shurgard REIT and the Indemnification Escrow Agent shall be notified of such appointment forthwith. If a replacement shall not be appointed within thirty (30) days of a Representative’s termination of his or her status as a Representative, Shurgard REIT and the Indemnification Escrow Agent shall be authorized to act upon written instructions received from the remaining Representatives until such time as a replacement shall be appointed.

 

(b) (i) By virtue of their collective approval of this Agreement, each of the Management Company shareholders shall be deemed to agree that the Representatives, acting by majority vote, (1) have full power and authority to take such action on behalf of the Management Company shareholders with respect to the Contingent Shares, the Adjustment Indemnification Shares and the Indemnification Shares as the Representatives in their sole discretion may determine and (2) shall represent the Management Company shareholders for all purposes of this Agreement, including the receipt of notices and the exercise of any rights with respect to Shurgard REIT’s obligations under this Agreement, the Contingent Shares Agreement and the Indemnification Escrow Agreement and the modification or amendment of the terms of such agreements and the waiver of conditions, and resolution of disputes or uncertainties arising thereunder. The Management Company shareholders, by virtue of their collective approval of this Agreement, also shall be deemed to agree that such Management Company shareholder shall be bound by all decisions of the Representatives pursuant to the authority granted hereunder, and that, except as set forth in subsection (a) hereof, such authority may not be revoked during the term of this Agreement.

 

(ii) The Representatives, acting by majority vote, shall have sole discretion with respect to the administration of the distribution of the Contingent Shares, Indemnification Shares and Adjustment Indemnification Shares and shall discharge their duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances and in a manner the Representatives reasonably believe to be in the best interests of the Shurgard shareholders.

 

(iii) None of the Representatives nor any of their respective employees, employers, partners, or agents, or any corporation of which he or she is an officer, director, or agent (collectively, “Associates”) shall be liable for any action taken or not taken in connection herewith in his or her capacity as Representative (whether or not pursuant to this Agreement) in the absence of his or her own gross negligence, bad faith or willful misconduct.

 

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(iv) None of the Representatives nor any of his or her respective Associates shall be responsible for or have any duty to ascertain, inquire into, or verify, in his or her capacity as Representative (1) any statement, warranty, or representation made in connection with this Agreement (2) the performance or observance of any of the covenants or agreements pursuant to this Agreement or (3) the validity, effectiveness, or genuineness of this Agreement or any other instrument or writing furnished in connection with this Agreement. None of the Representatives nor any of his or her Associates shall incur any liability by reason of such Representative having acted pursuant to this Agreement in reliance upon any oral or written request, notice, consent, certificate, statement, or other writing (which may be a facsimile transmission, telex, or similar writing) reasonably believed by such Representative to be genuine or signed by the proper party or parties.

 

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF MANAGEMENT COMPANY

 

Except as set forth on the Management Company Disclosure Statement, Management Company hereby represents and warrants to Shurgard REIT that as of the date hereof:

 

5.1 Organization, Etc. of Management Company

 

Management Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Washington and has all requisite corporate power and authority to own, lease and operate its properties, to carry on its business as now conducted and proposed by Management Company to be conducted, to enter into this Agreement and to carry out the provisions of this Agreement and consummate the transactions contemplated hereby. Management Company is duly qualified and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary and where the failure to be so qualified has or would be reasonably expected (so far as can be foreseen at the time) to have a material adverse effect on the business, properties, operations, condition (financial or other) or prospects of Management Company (taking into account any tax, insurance or indemnification benefits received or to be received) (a “Management Company Material Adverse Effect”).

 

Management Company has obtained from the appropriate Governmental Bodies all approvals and licenses necessary for the conduct of its business and operations as currently conducted, which approvals and licenses are valid and remain in full force and effect, except where the failure to have obtained such approvals or licenses or the failure of such licenses and approvals to be valid and in full force and effect does not have and would not be reasonably expected (so far as can be foreseen at the time) to have a Management Company Material Adverse Effect. Management Company’s Articles of Incorporation and Bylaws are listed in the Management Company Disclosure Statement, and true and correct copies of such documents have been made available to Shurgard REIT.

 

5.2 Partnerships; Subsidiaries

 

The Management Company Disclosure Statement sets forth a true and complete list, including the name and jurisdiction of organization, of each general partnership and limited partnership of which Management Company is, directly or indirectly, a partner (a “Partnership”) and the nature and extent of its equity interest therein. The Partnership agreements are listed in the Management Company Disclosure Statement and true and correct copies have been made available to Shurgard REIT. Management Company owns the percentages of each class of equity interest of each Partnership as set forth in its respective Partnership agreement, free and clear of all liens, security interests, charges and encumbrances. With respect to such Partnerships, Management Company’s rights and interests as a partner as identified in the respective Partnership agreements are unimpaired and in full force and effect. Management Company does not own, directly or indirectly, any capital stock or other equity or ownership or proprietary interest in any Subsidiary.

 

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5.3 Agreement

 

This Agreement and the consummation of the transactions contemplated hereby have been approved by the Board of Directors of Management Company and have been duly authorized by all other necessary corporate action on the part of Management Company (except for the approval of Management Company’s shareholders contemplated by Section 7.3(a)). This Agreement has been duly executed and delivered by a duly authorized officer of Management Company and, subject to Management Company shareholder approval, constitutes a valid and binding agreement of Management Company, enforceable against Management Company in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application that may affect the enforcement of creditors’ rights generally and by general equitable principles. Management Company has delivered to Shurgard REIT true and correct copies of r