<PAGE> 1
As Filed with the Securities and Exchange Commission on June 4, 1999
Registration No. 333-78479
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
LIBERTY SELF-STOR, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND
(State or other jurisdiction
of incorporation or organization)
94-6542723 *
(I.R.S. Employer
Identification Number)
6798
(Primary Standard Industrial
Classification Code Number)
8500 STATION STREET, SUITE 100
MENTOR, OHIO 44060
(440) 974-3770
(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive offices)
RICHARD M. OSBORNE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
8500 STATION STREET, SUITE 100
MENTOR, OHIO 44060
(440) 974-3770
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
MARC C. KRANTZ, ESQ.
KOHRMAN JACKSON & KRANTZ P.L.L.
1375 E. NINTH STREET, 20TH FLOOR
CLEVELAND, OHIO 44114
(216) 736-7204
* I.R.S. Employee Identification Number of Meridian Point Realty Trust
'83, the predecessor to the Registrant prior to the Reorganization described
herein.
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______________
<PAGE> 2
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ______________
------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum
Class Of Offering Aggregate Amount of
Securities To Be Amount To Be Price Per Offering Registration
Registered (1) Registered Share Price Fee
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, 3,031,618 (2) $0.5625 (4) $1,705,285 $ 474.07
$0.001 par value
- --------------------------------------------------------------------------------------------------------------
Common Stock, 6,776,269 (3) $0.5625 (4) $3,811,651 $1,059.64
$0.001 par value
- --------------------------------------------------------------------------------------------------------------
Total 9,807,887 $5,516,936 $1,533.71
- --------------------------------------------------------------------------------------------------------------
<FN>
(1) This Registration Statement relates to the securities of Liberty
Self-Stor, Inc. (the "Registrant") (a) issuable to holders of shares of
beneficial interest, $1.00 stated value, of Meridian Point Realty Trust
'83, a California business trust (the "Company"), in the proposed
Reorganization described herein whereby the Company will be reorganized
from a California business trust to a corporation incorporated in
Maryland, and (b) issuable upon the conversion of Class A limited
partnership interests of LSS I Limited Partnership, a Delaware limited
partnership of which the Registrant is the sole general partner and a
Class B limited partner ("LSS I").
(2) Represents the number of shares of beneficial interest of the Company
outstanding as of the close of business on May 11, 1999. Such shares
will be exchanged in the Reorganization for shares of common stock of
the Registrant on a one-for-one basis.
(3) Represents the number of shares of common stock of the Registrant
issuable upon the conversion of Class A limited partnership interests
of LSS I.
(4) Pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended,
the registration fee was computed on the basis of the average of the
bid and ask prices for the shares of beneficial interest of the Company
reported on the Over-the-Counter Bulletin Board Market of the Nasdaq
Stock Market on May 11, 1999 ($0.5625).
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall hereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- 2 -
<PAGE> 3
MERIDIAN POINT REALTY TRUST `83
8500 STATION STREET, SUITE 100
MENTOR, OHIO 44060
June __, 1999
Dear Shareholder:
You are cordially invited to the annual meeting (the "Annual Meeting")
of shareholders of Meridian Point Realty Trust `83 (the "Company") to be held on
August __, 1999 at 10:00 a.m., local time, at 1375 East Ninth Street, 20th
Floor, One Cleveland Center, Cleveland, Ohio 44114.
As you may recall, in September 1998, we solicited your votes on behalf
of the Meridian `83 Shareholders' Committee for Growth. At that time, we
informed you that, if elected, we would seek your vote to amend the Company's
Amended and Restated Declaration of Trust to eliminate the Company's current
self-liquidating, finite-life policy. In addition, we informed you that, if
elected, we would most likely seek to merge the Company with another real estate
entity or with a real estate company that owns self-storage facilities. Since
our election at the September 1998 meeting, we have been evaluating a
transaction that involves an Ohio limited liability company that owns
self-storage facilities. This company is controlled by me. We are asking for
your vote at the Annual Meeting, among other things, to approve the
reorganization of the Company into a Maryland corporation, to be known as
Liberty Self-Stor, Inc. ("Liberty"), in order to eliminate the self-liquidating
policy (the "Reorganization) and to approve the "Formation Transactions" which
will result in the formation of a limited partnership by Liberty to own and
operate self-storage facilities.
Upon completion of the Reorganization and the Formation Transactions:
- The Company's successor will be incorporated in the State of
Maryland as a corporation with the name Liberty Self-Stor, Inc.
("Liberty").
- Liberty will have perpetual existence, allowing for the
acquisition of new properties and the reinvestment of proceeds
from the future sale or refinancing of any properties.
- Liberty intends to continue to operate and be taxed as a real
estate investment trust.
- Holders of the Company's outstanding shares of beneficial interest
will have each share of beneficial interest converted into one
share of common stock of Liberty.
- Liberty will be a fully-integrated, internally-advised real estate
entity.
By presenting the Reorganization and the Formation Transactions to you
for approval, we are fulfilling the promises we made to you when we took control
of the Company to increase the opportunities for success for the Company.
Consequently, we believe the proposed transactions
<PAGE> 4
are very important to your Company and to you as a shareholder. Therefore,
whether or not you plan to attend the Annual Meeting, we urge you to give your
immediate attention to the proposals. Please review the enclosed materials, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope. We appreciate your support.
Very truly yours,
/s/ Richard M. Osborne
Richard M. Osborne
Chairman of the Board and Chief
Executive Officer
-2-
<PAGE> 5
MERIDIAN POINT REALTY TRUST `83
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on August __, 1999
To the Shareholders of Meridian Point Realty Trust `83:
Notice is hereby given that the 1999 annual meeting of shareholders of
Meridian Point Realty Trust `83, a California business trust (the "Company"),
will be held at 1375 East Ninth Street, 20th Floor, One Cleveland Center,
Cleveland, Ohio 44114 on August __, 1999 at 10:00 a.m., local time (the "Annual
Meeting"), for the following purposes:
(1) To consider and vote upon a proposal to approve an amendment to the
Company's Amended and Restated Declaration of Trust (the "Declaration
Amendment"), which is necessary to reorganize the Company from a California
common law business trust into a Maryland corporation (the "Reorganization"), as
set forth and included in the accompanying Proxy Statement/Prospectus.
(2) To consider and vote upon a proposal to approve the Reorganization.
The Reorganization is governed by the Agreement and Plan of Merger, dated as of
June __, 1999, among the Company, Liberty Self-Stor, Inc., a Maryland
corporation and a wholly-owned subsidiary of the Company ("Liberty"), and
Liberty Self-Stor Limited Partnership, a Maryland limited partnership and an
indirect wholly-owned subsidiary of the Company (the "Partnership"), whereby (i)
the Company will merge with and into the Partnership and (ii) the Partnership
will merge with and into Liberty as set forth and included in the accompanying
Proxy Statement/Prospectus.
(3) To consider and vote upon a proposal to approve the "Formation
Transactions" as set forth and included in the accompanying Proxy
Statement/Prospectus. The Formation Transactions will result in the formation of
a limited partnership by Liberty and the members of Liberty Self-Stor, Ltd., an
Ohio limited liability company, which is 98.4% owned by Richard M. Osborne,
Chairman of the Board and Chief Executive Officer of the Company, and his
affiliate (the "Ohio LLC"). The newly-formed limited partnership will be LSS I
Limited Partnership, a Delaware limited partnership ("LSS I"). Each member of
the Ohio LLC will exchange his or her membership interests in the Ohio LLC for
limited partnership interests in LSS I. Liberty will contribute cash and
securities to LSS I in exchange for the general partnership interest and limited
partnership interests in LSS I. As a result of the contribution, LSS I will hold
cash and securities and own all of the interests in the Ohio LLC, which owns
15 self-storage facilities (the "Properties"). For purposes of determining the
ownership of LSS I, the value of the contribution of the membership interests
of the Ohio LLC will be the net asset value of the Properties and other Ohio
LLC assets contributed.
(4) To consider and vote upon a proposal to elect five trustees of the
Company (who will, if the Reorganization is approved, serve as directors of
Liberty) to serve until the next annual meeting of shareholders or until such
trustees' successors are elected and shall have been duly qualified.
<PAGE> 6
(5) To consider and vote upon a proposal to approve Liberty's 1999
Stock Option Plan, as set forth and included in the accompanying Proxy
Statement/Prospectus.
(6) To consider and vote upon a proposal to approve Liberty's lease for
its executive offices.
(7) To consider and vote upon a proposal to ratify the appointment of
Arthur Andersen LLP as independent auditors of the Company (and Liberty as
successor thereto if the Reorganization is approved) for the fiscal year ending
December 31, 1999.
(8) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Trustees of the Company has fixed the close of business on
May __, 1999 as the record date for the Annual Meeting. Only shareholders of
record at the close of business on that date are entitled to notice of, and to
vote at, the Annual Meeting and any adjournment or postponement thereof.
Dissenting shareholders will not have appraisal rights in connection
with the Reorganization and the Formation Transactions.
YOUR VOTE IS IMPORTANT!
Adoption of the Declaration Amendment and the Reorganization Proposal
requires the affirmative vote of 50% of the outstanding shares of the Company.
Adoption of the Formation Transactions Proposal requires the affirmative vote of
a majority of the votes cast at the Annual Meeting. The approval of the other
Proposals, with the exception of the election of trustees which requires a
plurality vote, requires the affirmative vote of a majority of votes cast by
shareholders at the Annual Meeting. However, shares owned by Mr. Osborne and his
affiliates will not be voted with respect to the Formation Transactions Proposal
and the Lease Proposal. Because of the high voting requirements, your vote is
extremely important! Accordingly, no matter how many or how few shares you own,
we ask that you sign, date and mail your enclosed proxy card as soon as
possible. Remember, failure to vote is the equivalent of a vote against each of
the proposals. Your cooperation is appreciated and will assist in minimizing the
Company's solicitation costs.
On behalf of the Trustees, thank you for your cooperation and support.
By Order of the Board of Trustees
/s/ Marc C. Krantz
Marc C. Krantz
Secretary
Date: June __, 1999
THIS IS AN IMPORTANT MEETING AND YOUR VOTE IS IMPORTANT! YOU ARE URGED TO VOTE
BY SIGNING, DATING AND RETURNING THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO
WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
-2-
<PAGE> 7
PROXY STATEMENT/PROSPECTUS
------------------------
MERIDIAN POINT REALTY TRUST `83
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST __, 1999
--------------------
<PAGE> 8
MERIDIAN POINT REALTY TRUST `83
PROXY STATEMENT/PROSPECTUS
--------------------
This Proxy Statement/Prospectus is being furnished to the shareholders
of Meridian Point Realty Trust `83, a California business trust ("Meridian" or
the "Company"), in connection with the solicitation of proxies by the board of
trustees of the Company (the "Board of Trustees") for use at the Company's 1999
annual meeting of shareholders (the "Annual Meeting"), to be held on June __,
1999 at 10:00 a.m., local time, at 1375 East Ninth Street, 20th Floor, One
Cleveland Center, Cleveland, Ohio 44114.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND THE "RISK
FACTORS" BEGINNING ON PAGE 17 BEFORE YOU VOTE.
- If Liberty is not successful in its business plan,
stockholders may never realize as much as they would have if
the Company had liquidated.
- Liberty will have perpetual-life and will continue to be an
operating company beyond the time period at which the Company
would have otherwise liquidated and distributed net
liquidation proceeds to shareholders.
- Your rights as a shareholder of the Company will change as a
result of the change from a California common law
self-liquidating, finite-life trust to a perpetual-life
Maryland corporation.
- Liberty Stock may not trade at market values as high as the
valuations placed on the assets to be contributed to LSS I,
which equals $0.66 per share.
- The major policies of Liberty, including its policies with
respect to acquisitions, financing, growth, debt,
capitalization and distributions, will be determined by
Liberty's Board of Directors, and, therefore, the stockholders
will have no direct control over future changes in the
policies of Liberty.
- If Liberty cannot obtain adequate financing needed to grow,
Liberty will not be able to acquire additional properties,
expand its existing properties or develop new properties.
- Liberty will have substantial debt following the consummation
of the Formation Transactions and may incur additional debt in
the future that may reduce funds available for operations.
The Company Shares are traded on the Over-the-Counter Bulletin Board
Market ("OTCBB") of The Nasdaq Stock Market ("Nasdaq") under the symbol "MPTBS."
Liberty Stock will be traded on the OTCBB under the symbol "LSSI." On June __,
1999, the closing price for the Company Shares as reported by the OTCBB was
$0.__. The principal executive offices of the Company and Liberty are both
located at 8500 Station Street, Suite 100, Mentor, Ohio 44060, telephone number
(440) 974-3770.
THE REORGANIZATION AND THE STOCK OF LIBERTY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE FAIRNESS OF THIS TRANSACTION OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF
APPROVAL OF EACH OF THE PROPOSALS THAT WILL BE CONSIDERED AT THE ANNUAL MEETING.
The date of this Proxy Statement/Prospectus is June __, 1999. This
Proxy Statement/Prospectus is first being mailed to shareholders of the Company
on or about June __, 1999.
<PAGE> 9
INTRODUCTION
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to approve an amendment, necessary to implement the Reorganization, to
the Company's Amended and Restated Declaration of Trust, dated as of May 12,
1992 and as amended July 23, 1993 and February 14, 1995 (the "Declaration
Amendment") ("Proposal 1").
You will also consider and vote upon a proposal to reorganize the
Company from a California common law business trust into a Maryland corporation
(the "Reorganization"). The Reorganization is governed by the Agreement and Plan
of Merger, dated June __, 1999 (the "Merger Agreement"), among the Company,
Liberty Self-Stor, Inc., a Maryland corporation and a wholly-owned subsidiary of
the Company ("Liberty") and Liberty Self-Stor Limited Partnership, a Maryland
limited partnership and indirect wholly-owned subsidiary of the Company (the
"Partnership"), whereby (i) the Company will merge with and into the Partnership
and (ii) the Partnership will merge with and into Liberty (the "Mergers"). At
the effective time of the Mergers, each outstanding share of beneficial
interest, $1.00 stated value (the "Company Shares"), of the Company will be
converted into one share of common stock, $0.001 par value (the "Liberty
Stock"), of Liberty. Cash will be paid in lieu of fractional shares ("Proposal
2").
The Reorganization of the Company from a California common law business
trust into a Maryland corporation will be accomplished by the Mergers, pursuant
to which Liberty shall be the surviving entity and the separate legal existence
of the Company shall terminate. This Proxy Statement/Prospectus also serves as
the Prospectus of Liberty filed under the Securities Act of 1933, as amended
(the "Securities Act"), for use in connection with the offer and issuance of
shares of Liberty Stock into which Company Shares will be converted upon
consummation of the Mergers.
At the Annual Meeting, you will also be asked to approve the "Formation
Transactions." The Formation Transactions will result in the formation of a
limited partnership by Liberty and the members of Liberty Self-Stor, Ltd., an
Ohio limited liability company, which is 98.4% owned by Richard M. Osborne,
Chairman of the Board and Chief Executive Officer of the Company, and his
affiliate (the "Ohio LLC"). The newly-formed limited partnership will be LSS I
Limited Partnership, a Delaware limited partnership ("LSS I"). Each member of
the Ohio LLC will exchange his, her or its membership interests in the Ohio LLC
for limited partnership interests in LSS I. Liberty will contribute cash and
securities to LSS I in exchange for its general partnership interest and limited
partnership interests. As a result of the contribution, LSS I will own cash and
all of the interests in the Ohio LLC, which owns 15 self-storage facilities (the
"Properties"). The value of the contribution of the membership interests of the
Ohio LLC will be the net asset value of the Properties contributed for purposes
of determining the ownership of LSS I ("Proposal 3").
At the Annual Meeting, you will also be asked to consider and vote upon
proposals to (1) elect Steven A. Calabrese, Mark D. Grossi, Marc C. Krantz,
Richard M. Osborne and Thomas J. Smith (the "Nominees") as trustees of the
Company (who will, if the Reorganization is approved, serve as directors of
Liberty) ("Proposal 4"), (2) approve Liberty's (if the Reorganization is
approved) 1999 Stock Option Plan ("Proposal 5"), (3) approve Liberty's lease for
its executive offices ("Proposal 6"), and (4) ratify the appointment of Arthur
Andersen LLP as independent auditors of the Company (and Liberty, if the
Reorganization is approved) for the fiscal year ending December 31, 1999
("Proposal 7") and to transact such other business as may properly come before
the Annual Meeting or any adjournment thereof. Proposals 1 through 7 are
referred collectively herein as the "Proposals."
-ii-
<PAGE> 10
The form of the Declaration Amendment is included as Annex A hereto, a
conformed copy of the Merger Agreement (including the forms of the charter and
by-laws of Liberty as exhibits thereto) is included as Annex B hereto, the form
of the Formation Agreement is included as Annex C hereto, the form of the
Partnership Agreement is included as Annex D hereto, the Fairness Opinion is
included as Annex E hereto, the form of the Stock Option Plan is included as
Annex F hereto, and the form of the Lease is included as Annex G hereto.
Under California and Maryland law, you are not entitled to any
dissenters' appraisal rights in connection with the Reorganization and the
Formation Transactions.
THE BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED THE DECLARATION
AMENDMENT, THE REORGANIZATION AND THE FORMATION TRANSACTIONS, AND BELIEVES THAT
THE REORGANIZATION AND FORMATION TRANSACTIONS ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS.
The affirmative vote of the holders of a majority of the outstanding
Company Shares is required to approve the Declaration Amendment and the
Reorganization. The election of the Nominees requires a plurality of the votes
cast at the Annual Meeting. The approval of the Formation Transactions
(excluding shares held by Richard M. Osborne and his affiliates), the approval
of New Company's 1999 Stock Option Plan, the approval of the lease for the
executive offices (excluding shares held by Richard M. Osborne and his
affiliates), and the ratification of the appointment of independent auditors
requires a majority of votes cast by shareholders at the Annual Meeting. The
consummation of the Reorganization is contingent upon the approval of the
Declaration Amendment and the approval of the Formation Transactions. Likewise,
the consummation of the Formation Transactions is contingent upon approval of
the Declaration Amendment and the Reorganization.
All shares represented by properly executed proxies will be voted in
accordance with the instructions on the enclosed proxy card. If no instructions
are indicated, such proxies will be voted in favor of the Proposals described
herein. The enclosed proxy card is solicited on behalf of the Company's Board of
Trustees. You may revoke or change your proxy at any time prior to its use at
the Annual Meeting by giving the Company written direction to revoke your proxy,
by giving the Company a new proxy or by attending the meeting and voting in
person.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL
OF THE DOCUMENTS INCORPORATED BY REFERENCE (OTHER THAN EXHIBITS NOT SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE TEXTS OF SUCH DOCUMENTS). REQUESTS FOR SUCH
DOCUMENTS SHOULD BE DIRECTED TO: CHIEF FINANCIAL OFFICER, MERIDIAN POINT REALTY
TRUST `83, 8500 STATION STREET, SUITE 100, MENTOR, OHIO 44060 (TELEPHONE:
440-974-3770).
-iii-
<PAGE> 11
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected at and, upon payment of the
SEC's customary charges, copies obtained from, the Public Reference Section of
the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy
statements and other information are also available for inspection and copying
at prescribed rates at the SEC's regional offices in New York, New York (Seven
World Trade Center, Suite 1300, New York, New York 10048), and in Chicago,
Illinois (500 West Madison Street, Suite 1400, Chicago, Illinois 60661). The SEC
maintains a web site (http://www.sec.gov) that also contains reports, proxy
statements and other information concerning the Company. In addition, the
Company Shares are traded on the OTCBB under the symbol "MPTBS" and similar
information concerning the Company can be inspected and copied at the offices of
The Nasdaq Stock Market, 1735 K Street NW, Washington, D.C. 20006-1500.
Liberty has filed with the SEC a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act with respect to Liberty
Stock to be issued in the Reorganization and with respect to Liberty Stock to be
issued upon conversion of the Class A limited partnership interests in LSS I in
connection with the Formation Transactions. This Proxy Statement/Prospectus
constitutes the Prospectus of Liberty filed as part of the Registration
Statement. As permitted by the rules and regulations of the SEC, this Proxy
Statement/Prospectus omits certain information contained in the Registration
Statement. Reference is made to the Registration Statement and the exhibits
listed therein, which can be inspected at the public reference facilities of the
SEC noted above, and copies of which can be obtained from the SEC at prescribed
rates as indicated above.
YOU CAN ONLY RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
INFORMATION TO WHICH WE HAVE REFERRED. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH ANY DIFFERENT INFORMATION. NEITHER THE DELIVERY HEREOF NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE
THE DATE HEREOF. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
-iv-
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Summary..................................................................................................1
Overview............................................................................................1
Risks and Other Adverse Factors.....................................................................1
Benefits of the Reorganization and Formation Transactions...........................................2
Fairness............................................................................................3
Independent Appraisals and Fairness Opinion.........................................................3
Meridian............................................................................................4
Liberty.............................................................................................4
The Annual Meeting..................................................................................5
The Proposals.......................................................................................5
Recommendation of the Board of Trustees............................................................11
No Appraisal Rights................................................................................11
Forwarding-Looking Statements......................................................................12
Selected Financial Data............................................................................13
Risk Factors............................................................................................17
Stockholders May Never Realize as Much as in Liquidation...........................................17
Uncertainty Regarding Trading Price for Liberty Stock..............................................17
Board of Directors Ability to Effect Changes.......................................................17
Additional Financing May Not Be Available..........................................................17
Liberty Will Be More Highly-Leveraged Than the Company.............................................17
Stockholders' Rights Will Change...................................................................17
Acquisition and Development Activities Risks.......................................................18
Self-Storage Industry Risks........................................................................19
Real Estate Investment Risks.......................................................................19
Real Estate Financing Risks........................................................................21
Income Tax Risks...................................................................................21
Limitations on Ability to Change Control...........................................................22
Control by Significant Shareholders................................................................24
Conflicts of Interest..............................................................................25
No Assurance of Tax-Free Reorganization............................................................25
No Appraisal Rights................................................................................25
Possible Future Dilution...........................................................................25
Absence of Market for Company Shares and Liberty Stock.............................................25
Effect of Market Interest Rates on Price of Shares.................................................25
Year 2000 Compliance...............................................................................25
Shares Available for Future Sale...................................................................26
Pro Forma Capitalization................................................................................27
Business................................................................................................28
The Annual Meeting......................................................................................29
Introduction.......................................................................................29
Matters to be Considered at Annual Meeting.........................................................29
Voting Rights and Vote Required....................................................................29
Voting of Proxies; Solicitation....................................................................30
No Appraisal Rights................................................................................31
Proposal 1 -- Approval of Declaration Amendment.........................................................32
Proposal 2 -- Approval of the Reorganization............................................................32
Principal Reasons for the Reorganization...........................................................33
Term of Existence..................................................................................34
Terms of the Reorganization........................................................................36
Certain Changes in the Rights of Shareholders Resulting from the Reorganization....................37
Description of Authorized Stock of Liberty.........................................................46
Federal Income Tax Matters.........................................................................46
Proposal 3 -- Approval of the Formation Transactions....................................................47
Overview of the Formation Transactions.........................................................47
Background of the Formation Transactions.......................................................49
The Formation Agreement........................................................................52
Formation of LSS I Limited Partnership.........................................................53
The Properties.................................................................................57
Plans for Liberty..................................................................................59
Business Objectives............................................................................59
Anticipated Dividend Policy....................................................................61
Composition of the Board of Directors and Management...............................................61
Selected Historical and Pro Forma Financial........................................................61
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company...................................................................68
Year 2000 Compliance...........................................................................69
Liquidity and Capital Resources................................................................69
Material Changes in Results of Operations......................................................70
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998................70
1998 Compared to 1997..........................................................................70
Election for REIT Status.......................................................................71
Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Ohio LLC..........................................................72
Introduction and Discussion of Known Trends, Events and Uncertainties..........................72
Year 2000 Compliance...........................................................................72
Liquidity and Capital Resources................................................................72
Material Changes in Results of Operations......................................................73
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998................73
1998 Compared to 1997..........................................................................73
Forward-Looking Statements.....................................................................75
Interests of Certain Persons in the Formation Transactions.........................................75
Benefits to Certain Trustees...................................................................75
Lack of Independent Representation of Shareholders.............................................75
Non-Arm's Length Agreements....................................................................75
Compensation...................................................................................75
Distributions..................................................................................75
Purpose of the Solicitation........................................................................75
Fairness of the Formation Transactions.............................................................75
Conclusions of the Board of Trustees...........................................................75
Determination of Allocation of Interests in LSS I..............................................76
Fairness of the Formation Transactions to the Stockholders.....................................77
Portfolio Appraisal & Fairness Opinion.............................................................79
Real Estate Portfolio Appraisal................................................................79
Fairness Opinion...............................................................................82
Summary of Analysis............................................................................84
Consequences if Reorganization and Formation Transactions Are Not Approved.........................86
Costs and Expenses.................................................................................86
Accounting Treatment of the Formation Transactions.................................................86
Federal Income Tax Consequences....................................................................86
General........................................................................................87
Taxation of Liberty as a REIT..................................................................87
Requirements for Qualification as a REIT.......................................................88
Tax Aspects of Liberty's Investment in LSS I.......................................................91
Entity Classification..........................................................................91
Tax Allocation with respect to the Properties..................................................92
Basis in Partnership Interest..................................................................92
Proposal 4 -- Election of Trustees......................................................................93
Nominees for Election as Trustees..................................................................94
Board of Trustees; Committees......................................................................95
Compensation of Trustees...........................................................................95
Officers...........................................................................................96
Executive Compensation.............................................................................96
Employment Agreements..............................................................................96
Compliance with Section 16(a)......................................................................96
Security Ownership of Certain Beneficial Owners and Management.....................................97
Certain Relationships and Related Transactions.....................................................97
Proposal 5 -- Approval of the 1999 Stock Option Plan....................................................98
Purpose............................................................................................98
Administration.....................................................................................99
Available Shares...................................................................................99
Restrictions.......................................................................................99
Amendment/Termination.............................................................................100
Description of Awards.............................................................................100
Summary of Federal Income Tax Consequences........................................................101
Proposal 6 -- Approval of Lease for Executive Offices..................................................103
Terms of Lease....................................................................................103
Proposal 7 -- Ratification of Independent Auditors.....................................................103
Experts................................................................................................104
Legal Matters..........................................................................................104
Reports to Shareholders................................................................................105
Other Matters..........................................................................................105
Shareholder Proposals..................................................................................105
</TABLE>
-v-
<PAGE> 13
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and the Annexes hereto. This summary is
qualified in its entirety by the more detailed information and financial
statements incorporated by reference in this Proxy Statement/Prospectus. YOU
SHOULD READ THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE ANNEXES ATTACHED
HERETO CAREFULLY BEFORE YOU DECIDE HOW TO VOTE.
OVERVIEW
At the September 22, 1998 annual meeting of shareholders of the
Company, the shareholders rejected the plan of liquidation and dissolution
proposed by the former Board of Trustees of the Company. The former Board
indicated, in its proxy statement for the 1998 annual meeting, that "after
careful consideration of the various proposals, the Trustees have concluded that
liquidation is the most expedient and most practicable means of maximizing
shareholder value." At the meeting, the shareholders elected the current Board
of Trustees that had, through its proxy statement, indicated its intent, if
elected, to seek shareholder approval of an amendment to the Amended and
Restated Declaration of Trust to eliminate the Company's self-liquidating,
finite-life policy and to seek a merger with a real estate company that owns
self-storage facilities. Based on the results of the September 1998 election,
the current Board did not consider any other alternatives.
Accordingly, the Board of Trustees approved and is seeking shareholder
approval of a number of proposals, including the Reorganization of the Company
in Maryland resulting in the elimination of the self-liquidating policy and the
Formation Transactions. The Board of Trustees believes that the Reorganization
and Formation Transactions are fair to, and in the best interests of, the
Company and its shareholders. In addition, the Board retained the services of an
investment banker, Robert A. Stanger & Co., Inc., to render an opinion as to the
fairness from a financial point of view to the Company's shareholders of the
allocation of interests in LSS I between the Company and the members of the Ohio
LLC pursuant to the Formation Transactions.
RISKS AND OTHER ADVERSE FACTORS
The following is a summary of the potential disadvantages, adverse
consequences and risks of the Reorganization and the Formation Transactions.
This summary is qualified in its entirety by the more detailed discussion in the
section entitled "RISK FACTORS" contained in this Proxy Statement/Prospectus
beginning on page 17.
- If Liberty is not successful in its business plan,
stockholders may never realize as much as they would have if
the Company had liquidated.
- Liberty will have perpetual-life and will continue to be an
operating company beyond the time period at which the Company
would have otherwise liquidated and distributed net
liquidation proceeds to shareholders.
- Your rights as a shareholder of the Company will change as a
result of the change from a California common law
self-liquidating, finite-life trust to a perpetual-life
Maryland corporation.
- Liberty Stock may not trade at market values as high as the
valuations that were placed on the assets to be contributed by
the Ohio LLC to LSS I, which equals $0.66 per share
(determined by dividing the net asset value of the contributed
assets by the number of Class A limited partnership interests
that are convertible into Liberty Stock).
- The major policies of Liberty, including its policies with
respect to acquisitions, financing, growth, debt,
capitalization and distributions, will be determined by
Liberty's Board of Directors, and, therefore, the stockholders
will have no direct control over changes in the policies of
Liberty.
- If Liberty cannot obtain adequate financing needed to grow,
Liberty will not be able to acquire additional properties,
expand its existing properties or develop new properties.
- Liberty will have substantial debt following the consummation
of the Formation Transactions and may incur additional debt in
the future that may reduce funds available for operations.
- Liberty will be subject to the risks normally associated with
debt financing, including the risk that Liberty's cash
available for debt service will be insufficient to meet
required payments of principal and interest, the risk that
existing indebtedness will not be able to be refinanced or
that the terms of such refinancing will not be as favorable as
the terms of such indebtedness, and the risk that necessary
capital expenditures for such purposes as renovations and
other improvements will not be able to be financed on
favorable terms at all.
<PAGE> 14
- Because Liberty's current strategy is to acquire and develop
interests in self-storage facilities, Liberty is subject to
risks inherent in investments in a single industry, including
ease of entry, decreases in demand, changes in supply or
demand for competing facilities, changes in market rental
rates and inability to collect rents.
- Liberty's investments are subject to varying degrees of risks
incident to the ownership of real property, including changes
in market conditions, changes in governmental rules and fiscal
policies, changes in zoning laws, illiquidity, uninsured and
underinsured losses, and environmental matters.
- If Liberty failed to qualify as a real estate investment trust
under the Internal Revenue Code of 1986 in any taxable year,
Liberty would not be allowed a deduction for distributions to
stockholders in computing its taxable income and would be
subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular
corporate rates.
- Liberty's Articles of Incorporation limit ownership of Liberty
Stock by any single stockholder, except for Richard M.
Osborne, Chairman of the Board and Chief Executive Officer of
the Company, and his affiliates, to 9.8% of the Liberty's
outstanding stock, except that the ownership by certain
entities is limited to 15%. This ownership limit may have the
effect of precluding acquisition of control of Liberty by a
third party without consent of the Board of Directors even if
a change in control were in the interest of stockholders, and
it may limit the opportunity for stockholders to receive a
premium for their Liberty Stock that might otherwise exist
without the ownership limit.
- The anti-takeover provisions of the Maryland General
Corporation Law could have the effect of delaying or
preventing a change of control of Liberty.
- If Mr. Osborne's limited partnership interests in LSS I were
converted into Liberty Stock, Mr. Osborne would control 71% of
Liberty.
- The terms of the Formation Transactions between Liberty and
the Ohio LLC was not determined on an arm's-length basis.
- Mr. Osborne, as the Chairman of the Board and Chief Executive
Officer of Liberty and a limited partner of LSS I, will face
conflicts of interest in making determinations regarding LSS
I.
- Shareholders of the Company do not have any statutory
appraisal rights under California or Maryland law to chose to
have the fair value of their Company Shares judicially
appraised and paid in connection with or as a result of the
Reorganization or the Formation Transactions.
- As a result of growth relating to acquisitions financed with
the issuance of additional Liberty Stock or interests in LSS I
or any similar entity of Liberty, stockholders of Liberty
could experience significant future dilution.
- There is currently no formal trading market for the Company
Shares which are currently traded on the OTCBB. Therefore, the
price at which Liberty Stock may trade may fluctuate and the
market for Liberty Stock may be subject to disruptions that
could make it difficult or impossible for the holders of
Liberty Stock to sell shares in a timely manner, if at all.
BENEFITS OF THE REORGANIZATION AND FORMATION TRANSACTIONS
The following is a summary of the potential benefits that could be
achieved by consummation of the Reorganization and the Formation Transactions.
For a more comprehensive discussion of the potential benefits of the
Reorganization, see "PROPOSAL 2 -- Principal Reasons for the Reorganization."
For a more comprehensive discussion of the potential benefits of the Formation
Transactions, see "PROPOSAL 3 -- Fairness of the Formation Transactions."
- The elimination of the self-liquidating policy will facilitate
growth by giving management the opportunity to seek new
investments which may result in greater returns to
shareholders and reinvest proceeds from the future sale or
refinancing of any properties.
- The well-developed Maryland General Corporation Law, together
with Liberty's Articles of Incorporation and Bylaws, will
modernize the Company's governance procedures and provide the
Company with a greater degree of flexibility in planning and
implementing corporate action that is currently unavailable to
the Company as a California common law business trust.
- Because corporations are far more numerous than business
trusts and are more familiar to the investor community, the
Reorganization is likely to enhance the liquidity and
marketability of the Company's securities, providing
potentially greater access to capital markets.
-2-
<PAGE> 15
- The Maryland General Corporation Law provides certain
protections designed to encourage a person seeking control of
Liberty to negotiate with the Board of Directors.
- The Formation Transactions will provide Liberty with greater
access to capital and opportunity for potential growth.
- The individuals who currently manage the Properties for the
Ohio LLC will continue in that capacity as Liberty's
management and, therefore, will provide Liberty with
experienced management that will enable Liberty to grow.
- The Formation Transactions present a more attractive
opportunity for the realization of value by the Company's
shareholders than liquidation.
FAIRNESS
The Board of Trustees believes the terms of the Reorganization and
Formation Transactions are fair to, and in the best interests of, the Company
and its shareholders. The Board has based its determination on a variety of
factors, including, but not limited to, (1) information relating to the
business, assets, management, competitive position and prospects of the Company
if it were to continue, including the substantial likelihood that the Company
will be forced to liquidate absent the consummation of the Reorganization and
Formation Transactions, (2) the general strategies and other benefits of the
Formation Transactions, (3) the judgment and advice of the Company's management,
(4) the Fairness Opinion and the appraisals of the Properties, (5) the financial
condition and results of operations of the Company and the Ohio LLC, on both a
historical and a prospective basis, (6) the percentage of equity in LSS I to be
received by Liberty in relation to the relative contribution of the Company and
the Ohio LLC to LSS I and the other benefits to be received by the Company
pursuant to the Formation Transactions, including the Ohio LLC's agreement to
fund $650,000 of transaction costs, (7) the potential increased liquidity,
capacity for growth and access to capital that Liberty expects to be realized as
a result of the Reorganization and Formation Transactions, (8) the terms and
conditions of the Formation Agreement and Partnership Agreement (as defined and
discussed in "PROPOSAL 3"), (9) the potential significant enhancement of the
strategic and market position of Liberty beyond that achievable by the Company
prior to the consummation of the Formation Transactions, and (10) the interest
of certain members of the Board of Trustees in the Formation Transactions, as
described in detail in "PROPOSAL 3 -- Interests of Certain Persons in the
Formation Transactions." See, also, "PROPOSAL 3 -- Background of the Formation
Transactions."
INDEPENDENT APPRAISALS AND FAIRNESS OPINION
Robert A. Stanger & Co., Inc. ("Stanger") was engaged by the Company
and the Ohio LLC to appraise the Properties to be contributed in the Formation
Transactions by the Ohio LLC. Stanger has delivered a written summary of its
analysis, based upon the review, analysis, scope and limitations described
therein, as to the fair market value of the Properties as of March 31, 1999 (the
"Portfolio Appraisal"). The Portfolio Appraisal is attached to the Registration
Statement of which this Proxy Statement/Prospectus is a part and is incorporated
herein by reference. Copies of the Portfolio Appraisal are available upon
request to the Company at its principal place of business, 8500 Station Street,
Suite 100, Mentor, Ohio 44060. See "PROPOSAL 3 -- PORTFOLIO APPRAISAL AND
FAIRNESS OPINION -- Real Estate Portfolio Appraisal."
Stanger was also engaged by the Company to deliver, and has delivered,
a written summary of its opinion, based on the review, assumptions,
qualifications and limitations described therein, as to the fairness from a
financial point of view to the public stockholders of the Company of the
allocations of the interest in LSS I between the Company and the members of the
Ohio LLC pursuant to the Formation Transactions (the "Fairness Opinion"). The
full text of the Fairness Opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on
review and analysis, is set forth in Annex E to this Proxy Statement/Prospectus
and should be read in its entirety.
Stanger was not requested to and did not: (1) select the method of
determining the allocation for the interests in LSS I or establish the
allocations; (2) make any recommendations to the shareholders of the Company or
members of the Ohio LLC with respect to whether to approve or reject the
Reorganization or Formation Transactions; or (3) express any opinion as to (a)
the fact that the members of the Ohio LLC could, as a result of the Formation
Transactions, be in a position to control voting decisions of Liberty, (b) the
tax consequences of the Reorganization and Formation Transactions for the
shareholders and the Company, (c) the potential impact of conversion of the
interests of the members of the Ohio LLC in LSS I to shares of Liberty, (d)
whether or not alternative methods of determining the relative interests in LSS
I to be issued would have also provided fair results or results substantially
similar to those of the allocation methodology used, and (e) the potential
impact on the fairness of the allocations of any subsequently discovered
environmental or contingent liabilities.
Further, Stanger did not express any opinion as to (1) the fairness of
any terms of the Reorganization and Formation Transactions (other than the
fairness of the allocations) or the amounts or allocations of transaction costs;
(2) the relative value of Liberty's Stock and the partnership interests to be
issued in the Formation Transactions; (3) the prices at which Liberty Stock may
trade following the Reorganization and Formation Transactions or the trading
value of the Liberty Stock to be received compared with the current fair market
value of the Company's assets if liquidated under current market conditions; and
(4) alternatives to the Reorganization and Formation Transactions.
-3-
<PAGE> 16
MERIDIAN
The Company was organized as a common law business trust under the laws
of the State of California pursuant to a Declaration of Trust, dated June 24,
1982, and commenced operation on April 12, 1983. The Company was originally
known as "Sierra Real Estate Equity Trust '83." On October 11, 1991, the Company
changed its name to "Meridian Point Realty Trust '83." The Amended and Restated
Declaration of Trust of the Company was filed on May 12, 1992 and amended on
July 23, 1993 and February 14, 1995 (the "Current Declaration of Trust"). The
Company was formed to invest in income-producing commercial and industrial real
estate located primarily in selected areas of projected growth in the United
States.
The Company was formed to operate as a self-liquidating, finite-life
real estate investment trust ("REIT"). As such, it was formed to hold its
investment in properties for approximately seven to ten years and then, provided
markets were favorable and properties were ready for sale, liquidate its
portfolio properties. Since the Company's sale of its last remaining property in
August 1997, the former Board of Trustees investigated a variety of alternatives
to maximize the value of the Company Shares. At the September 22, 1998 annual
meeting, the former Board proposed complete dissolution and liquidation of the
Company. This plan of dissolution and liquidation was not approved by the
shareholders and the current Board of Trustees was elected. In its proxy
statement, the current Board indicated that, if elected, it would seek to
eliminate the self-liquidating policy and would consider merging with a real
estate company that owns self-storage facilities. Based on the results of the
September 1998 election, the current Board did not consider any other
alternatives. Accordingly, the Board of Trustees has approved and is seeking
shareholder approval of a number of proposals, including the Reorganization of
the Company in Maryland resulting in the elimination of the self-liquidating
policy and the Formation Transactions. For more discussion regarding the
alternatives considered by the former Board, see "PROPOSAL 3 -- Background of
Formation Transactions."
LIBERTY
Liberty was organized on May 12, 1999 as a Maryland corporation and as
a wholly-owned subsidiary of the Company. Liberty was organized by the Company
to acquire, succeed to, and continue the business of the Company upon the
consummation of the Mergers. Liberty has had no activities to date other than
those incident to the Reorganization. Liberty has perpetual existence and
intends to operate and be taxed as a REIT. Liberty will invest in self-storage
facilities, including the 15 self-storage facilities in connection with the
Formation Transactions. The people who are currently managing the self-storage
facilities will after the Mergers continue to operate the facilities as
employees of Liberty.
The principal executive offices of both the Company and Liberty are
located at 8500 Station Street, Suite 100, Mentor, Ohio 44060.
- -------------------------------------------------------------------------------
-4-
<PAGE> 17
- -------------------------------------------------------------------------------
THE ANNUAL MEETING
Meeting Date and Record Date; Proxies. The Annual Meeting will be held
on August __, 1999 at 10:00 a.m., local time, at 1375 East Ninth Street, 20th
Floor, One Cleveland Center, Cleveland, Ohio 44114. The Board of Trustees fixed
the close of business on June __, 1999 as the record date for the Annual
Meeting (the "Record Date").
Matters to be Considered. The purposes of the Annual Meeting are to
consider and vote upon the Declaration Amendment, the Reorganization, the
Formation Transactions, the election of the Nominees as trustees, the adoption
of the 1999 Stock Option Plan, the approval of the lease for the executive
offices and the ratification of the appointment of the Company's independent
auditors and such other business as may properly come before the Annual Meeting
or any adjournment or postponement thereof.
THE PROPOSALS
- - PROPOSAL 1 -- APPROVAL OF THE DECLARATION AMENDMENT. At the Annual Meeting,
you will be asked to approve the Declaration Amendment in the form attached
hereto as Annex A. The Declaration Amendment would amend the Company's Current
Declaration of Trust to (1) expressly permit the Company to merge or consolidate
with and into a domestic or foreign limited partnership and (2) set forth
procedures pursuant to which such merger or consolidation would take place. The
Declaration Amendment is described more specifically herein under "PROPOSAL 1 --
APPROVAL OF DECLARATION AMENDMENT."
- - PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION. At the Annual Meeting, you will
be asked to approve the Reorganization, whereby the Company will be reorganized
into a Maryland corporation.
Principal Reasons for the Reorganization. The purpose of the
Reorganization is to reorganize the Company from a California common law
business trust to a Maryland corporation. The Board of Trustees believes that
the elimination of the Company's self-liquidating policy is in your best
interest because it will give management the opportunity to seek new investments
which may result in greater returns to shareholders and reinvest proceeds from
the future sale or refinancing of any properties. If the Reorganization is not
approved, the Company would maintain its self-liquidation policy and would be
unable to enter into new investments, and the Company will be forced to
liquidate.
The Board of Trustees also believes that the well-developed Maryland
General Corporation Law ("MGCL"), together with Liberty's Articles of
Incorporation (the "Articles") and Bylaws (the "Bylaws"), will modernize the
Company's governance procedures and provide the Company with a greater degree of
certainty and flexibility in planning and implementing corporate action than is
currently available to the Company as a California common law business trust.
- -------------------------------------------------------------------------------
-5-
<PAGE> 18
- -------------------------------------------------------------------------------
In addition, Liberty will be subject to certain provisions of the MGCL,
which are designed to encourage a person seeking control of a Maryland
corporation to negotiate with its board of directors.
Liberty's stock will be exchanged on the basis of each Company Share
for one share of Liberty Stock.
Given the more certain and flexible legal environment under which the
Company's successor will operate as a Maryland corporation, the Board of
Trustees has determined the Reorganization is in the best interests of the
Company and its shareholders.
Term of Existence. The Reorganization would result in the elimination
of the Company's self-liquidating, finite-life policy, which requires the
Company to distribute to its shareholders the proceeds from the sale or
refinancing of its properties. Liberty would have perpetual-life and would be
able to acquire new properties and reinvest proceeds from the sale of future
properties. See "PROPOSAL 2 -- APPROVAL OF REORGANIZATION -- Term of Existence"
for a more detailed discussion of the effects of the change from finite-life to
perpetual-life.
Terms of the Reorganization. The Reorganization will be effected
through the Mergers. Upon the consummation of the Mergers, Liberty will be the
surviving entity, the separate existence of the Company will terminate and each
outstanding Company Share will be converted into one share of Liberty Stock.
Cash will be paid in lieu of fractional shares. At the effective time of the
Mergers, all properties, assets, liabilities and obligations of the Company will
become properties, assets, liabilities and obligations of Liberty. Liberty and
its stockholders will be governed by the MGCL and by Liberty's Articles and
Bylaws, which will include a number of provisions which are not currently in the
Company's Current Declaration of Trust. These provisions of the Articles and
Bylaws of Liberty, together with certain provisions of the MGCL, may delay,
defer or prevent a change in control of Liberty or other transaction that might
be in the best interests of the stockholders. See "PROPOSAL 2 -- APPROVAL OF THE
REORGANIZATION -- Certain Changes in the Rights of Shareholders Resulting from
the Reorganization."
The Reorganization has been unanimously approved by the Board of
Trustees, who believe the Reorganization to be in the best interest of the
Company and its shareholders. The Mergers will become effective upon the
acceptance for recording of each respective Articles of Merger by the
appropriate state agencies. The Company anticipates that the Mergers will become
effective as promptly as practicable following shareholder approval of the
Reorganization at the Annual Meeting.
At the effective time of the Mergers, each of the persons who is then a
trustee or executive officer of the Company will become a director or executive
officer, respectively, of Liberty. At the effective time of the Mergers, the
Company anticipates that the shares of Liberty Stock will be listed on the OTCBB
under the symbol "LSSI" in accordance with the applicable rules of The Nasdaq
Stock Market.
-6-
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<PAGE> 19
- -------------------------------------------------------------------------------
The Reorganization is subject to certain conditions, including approval
by the shareholders of the Company.
Certain Changes in the Rights of Shareholders Resulting from the
Reorganization. Your rights as a shareholder of the Company are currently
governed by the Company's Current Declaration of Trust and current Amended and
Restated Trustees' Regulations (the "Current Regulations"), California common
law, the California General Corporation Law (the "CGCL") and the rules of
Nasdaq. If the Reorganization is approved by the shareholders of the Company and
the Mergers are consummated, Liberty will be the surviving entity, the separate
existence of the Company will terminate, each outstanding Company Share will be
converted into one share of Liberty Stock and your rights as stockholders of
Liberty will be governed by Liberty's Articles and Bylaws, Maryland law,
including the MGCL, and the rules of Nasdaq.
While a number of the Company's current governance provisions will be
included in Liberty's Articles and Bylaws and, therefore, will not be affected
by the Reorganization and the consummation of the Mergers, differences between
the Current Declaration of Trust and the Current Regulations and Liberty's
Articles and Bylaws will result in material differences between your rights as a
shareholder of the Company and your rights as a stockholder of Liberty.
Therefore, you should carefully consider the changes in your rights that will
result from the approval of the Reorganization and the consummation of the
Mergers. See "PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION -- Certain Changes in
the Rights of Shareholders Resulting from the Reorganization."
The following table compares certain of your existing rights as a
shareholder of the Company with those as a stockholder of Liberty, if the
Reorganization is approved and the Mergers are consummated.
<TABLE>
<CAPTION>
- --------------------------- --------------------------------------- ---------------------------------------
COMPANY LIBERTY
- --------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C>
TERM OF EXISTENCE The Company was formed as a Liberty is a perpetual-life
self-liquidating, finite-life corporation operating as a real
business trust operating as a real estate investment trust and may
estate investment trust whereby the acquire new properties and reinvest
proceeds of the sale or refinancing the proceeds of the future sale or
of any property have to be refinancing of any property.
distributed to shareholders.
- --------------------------- --------------------------------------- ---------------------------------------
ELECTION OF Trustees are elected by the vote of a Directors are elected by a vote of a
TRUSTEES/DIRECTORS plurality of the voting shares plurality of the shares eligible to
present in person or represented by vote present in person or represented
proxy. by proxy.
- --------------------------- --------------------------------------- ---------------------------------------
REMOVAL OF A trustee may be removed from office Under the MGCL, unless the charter
TRUSTEES/DIRECTORS at any time either (1) with or provides otherwise, directors may be
without cause by the vote or written removed from office, with or without
consent of either (a) a majority of cause, by the affirmative vote of the
the trustees then in office and a holders of at least a majority of
majority of the outstanding voting votes entitled to be cast in the
shares or (b) 66 2/3% of the election of directors. Liberty's
outstanding voting shares, or (2) Articles provide that directors may
with cause by the vote or written be removed from office, but only for
consent of a majority of the trustees "cause" by the affirmative votes of
then in office. the holders of at least two-thirds of
the outstanding shares entitled to
vote.
</TABLE>
- -------------------------------------------------------------------------------
-7-
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------- --------------------------------------- ---------------------------------------
COMPANY LIBERTY
- --------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C>
Ownership Limit The Current Declaration of Trust The Articles provide that no
provides that no person may own in person (except Mr. Osborne and his
excess of 9.8% of the outstanding affiliates) may own more than 9.8%
Company Shares. Any acquisition (or 15% for certain entities) of
above 9.8% shall be null and void and the outstanding Liberty Stock.
any excess shares shall be deemed to Any acquisition above 9.8% (or 15%
have been acquired and held on behalf for certain entities) shall be
of the Company. void ab initio and any excess
shall be automatically transferred
to the Share Trust.
- --------------------------- --------------------------------------- ---------------------------------------
Operating Expense The Current Declaration of Trust Liberty's Articles place no limit on
Limitation provides that operating expenses (as Liberty's operating expenses.
defined) of the Company cannot exceed
the greater of (1) 2% of the book
value of invested assets or (2) 25%
of the net income of the Company
without adjustment for depreciation,
amortization or extraordinary items;
provided that in no event can the
operating expenses exceed 2% of the
total assets of the Company under
management, less cash, cash items and
unsecured indebtedness.
- --------------------------- --------------------------------------- ---------------------------------------
Distributions Subject to any preferences which may Dividends and other distributions on
be granted to holders of preferred the stock of Liberty may be
shares, the Board of Trustees may authorized and declared by the Board
cause dividends to be declared and of Directors out of assets legally
paid on outstanding Company Shares available therefor. Dividends and
out of funds legally available other distributions may be paid in
therefor, at such times, in such cash, property or stock of Liberty.
amounts and from such sources,
whether income, surplus, capital or
any combination thereof, as they in
their discretion may determine.
- --------------------------- --------------------------------------- ---------------------------------------
Voting by Written Consent Shareholders' action may be taken Under the MGCL, any action that may
without a meeting by written consent be taken at a shareholders' meeting
if such consent is signed by the may be taken by written consent if
holders of outstanding voting shares such consent is (1) a unanimous
having a majority of all voting written consent setting forth the
shares entitled to vote thereon. action is signed by each stockholder
entitled to vote on the matter; (2) a
written waiver of any right to
dissent is signed by each stockholder
entitled to notice of the meeting but
not entitled to vote at it; and (3)
consent and waiver are filed with the
records of stockholders meetings.
Thus, stockholders of Liberty will be
effectively prevented from taking
action by written consent.
- --------------------------- --------------------------------------- ---------------------------------------
Amendment of Charter Any amendment to the Current Any amendment to the Articles (with
Documents Declaration of Trust must be in certain minor exceptions) requires
writing and, subject to the changes approval of the board of directors
required by law, requires the and stockholder approval by a
affirmative vote or written consent majority of the aggregate votes
of either (1) a majority of the entitled to be cast. The Board of
trustees and a majority of the Directors has the exclusive power to
outstanding voting shares or adopt, alter or repeal any provision
(2) 66 2/3% of the outstanding of the Bylaws.
voting shares.
- --------------------------- --------------------------------------- ---------------------------------------
Voting on Other Matters The approval of all other matters Subject to the special voting rights
brought before the shareholders of any preferred stock, a majority of
requires the affirmative vote of a the votes cast in person or
majority of voting shares present in represented by proxy needed to
person or represented by proxy, approve all other matters brought
unless otherwise required by law or before the stockholders unless
the Current Declaration of Trust. otherwise required by the MGCL or the
Articles.
- --------------------------- --------------------------------------- ---------------------------------------
Preferred Stock The Company does not have preferred Liberty will have preferred stock,
stock the terms of which may be designated
by the Board of Directors.
- --------------------------- --------------------------------------- ---------------------------------------
</TABLE>
-8-
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------- --------------------------------------- ---------------------------------------
COMPANY LIBERTY
- --------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C>
Shareholders' Right to The Board of Trustees shall cause a A special meeting of stockholders
Call Special Meeting special meeting to be called upon may be called by the president, the
request of the holder or holders of chief executive officer or by the
10% of the outstanding voting shares Board of Directors and, under the
entitled to vote on any matter to be MGCL, must be called by the
voted on at such special meeting. Secretary upon the written request
of the stockholder entitled to cast
not less than 25% of all the votes
entitled to be cast at the meeting.
- --------------------------- --------------------------------------- ---------------------------------------
Cumulative Voting The Current Declaration of Trust does The Articles do not provide for
not provide for cumulative voting. cumulative voting.
- --------------------------- --------------------------------------- ---------------------------------------
Exculpation of Trustees, The Current Bylaws provide that no Under the MGCL and the Articles,
Officers and Others, trustee, officer, employee or agent directors and officers are not liable
Fidelity Bond of the Company is liable to the to Liberty or its stockholders for
Company or any other person for any money damages (with limited
act or omission except for his own exceptions).
willful misfeasance, bad faith, gross
negligence or reckless disregard of
duty or his failure to act in good
faith in the reasonable belief that
his actions are in the Company's best
interests. The Current Bylaws
further provide that the above named
individuals when acting in connection
with the Company are deemed to be
acting for the Company and not as
individuals, that they are not liable
for actions taken or omitted for or
on behalf of the Company, and that
resort must be to the assets of the
Company for payment or performance.
- --------------------------- --------------------------------------- ---------------------------------------
</TABLE>
Material Federal Income Tax Consequences. Kohrman Jackson & Krantz
P.L.L. has delivered its opinion to the Company that, on the basis of facts,
representations and assumptions set forth in such opinion, the Reorganization
will be treated for United States federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code. Accordingly,
(1) no gain or loss will be recognized by the Company as a result of the
Reorganization, and (2) no gain or loss will be recognized by any shareholder of
the Company who receives Liberty Stock in exchange for Company Shares. However,
an opinion of counsel is not binding on the Internal Revenue Service or the
courts. The federal income tax consequences of the Reorganization to the Company
and its shareholders will be materially different from those described herein if
a determination were made that the Reorganization did not constitute a
reorganization under the Code. See "PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION
- -- Federal Income Tax Matters."
Tax Status of Liberty. Liberty intends to continue to be taxed as a
REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"). As a REIT, Liberty generally will not be subject to
federal income tax, with certain exceptions, if its REIT taxable income (which
does not include capital gain) is distributed annually to its stockholders. The
REIT provisions of the Code generally allow a REIT to deduct dividends paid to
its stockholders. This deduction for dividends paid to stockholders
substantially eliminates the federal "double taxation" on earnings (once at the
corporate level and again at the stockholder level) that generally results from
an investment in a corporation.
-9-
<PAGE> 22
REITs are subject to a number of organizational and operational
requirements. If Liberty fails to qualify as a REIT in any taxable year, or if
the Company failed to qualify as a REIT in prior years, Liberty will be subject
to federal income tax on its taxable income at regular corporate rates. Even if
Liberty qualifies for taxation as a REIT, the Company may be subject to certain
state and local taxes on its income and property and to federal income and
excise taxes on its undistributed income.
Regulatory Requirements. The Board of Trustees is not aware of any
license, regulatory permit or any approval by any domestic or foreign
governmental or administrative agency that would be required to effect the
Reorganization.
The Reorganization, the Merger Agreement, Liberty Articles and Bylaws
are described more specifically herein under "PROPOSAL 2 -- APPROVAL OF THE
REORGANIZATION." A conformed copy of the Merger Agreement (including Liberty's
Articles and Bylaws) is attached hereto as Annex B.
- - PROPOSAL 3 -- APPROVAL OF THE FORMATION TRANSACTIONS. At the Annual Meeting,
you will be asked to approve the Formation Transactions. The Formation
Transactions will result in the formation of a limited partnership by Liberty
and the members of Liberty Self-Stor, Ltd., an Ohio limited liability company
which is 98.4% owned by Richard M. Osborne, Chairman of the Board and Chief
Executive of the Company, and his affiliates (the "Ohio LLC"). The newly-formed
limited partnership will be LSS I Limited Partnership, a Delaware limited
partnership ("LSS I"). The Ohio LLC owns 15 self-storage facilities (the
"Properties"). Each member of the Ohio LLC will contribute his or her membership
interests in the Ohio LLC to LSS I in exchange for limited partnership interests
in LSS I which, subject to the restrictions described in this Proxy
Statement/Prospectus, are redeemable for cash or, at the election of Liberty,
convertible into Liberty Stock, on a one-for-one basis. For purposes of
determining the ownership of LSS I, the value of the contribution of the
membership interests of the Ohio LLC will be the net asset value of the
Properties and other Ohio LLC assets contributed. After the contribution of
all of the membership interests in the Ohio LLC, LSS I will be the sole member
of the Ohio LLC and the indirect owner of the Properties. Liberty will
contribute cash and securities to LSS I in exchange for the general partnership
interest and limited partnership interests. Such cash and securities
contribution will be funded from the Company's available cash and securities
owned as of the date of the consummation of the Formation Transactions.
A chart setting forth the ownership structure of Liberty, LSS I and the
Properties, and the other entities to be formed as a result of the Formation
Transactions is as follows:
- -----------------
Liberty
(successor to
Meridian)
- -----------------
GP/Class B LP
- ----------------- -------------------------
LSS I Class A LP Osborne and other
(the Operating ---------- members of Ohio LLC
Partnership)
- ----------------- -------------------------
Sole Member
- ----------------- --------------------------
100%
Ohio LLC --------- Properties
- ----------------- --------------------------
-10-
<PAGE> 23
The Formation Transactions are described more specifically herein under
"PROPOSAL 3 -- APPROVAL OF THE FORMATION TRANSACTIONS."
- - PROPOSAL 4 -- ELECTION OF TRUSTEES. At the Annual Meeting, you will be asked
to elect the Company's Nominees (Steven A. Calabrese, Mark D. Grossi, Marc C.
Krantz, Richard M. Osborne and Thomas J. Smith) as trustees of the Company to
hold office until the next annual meeting of shareholders and until their
successors have been duly elected and qualified. If the Reorganization is
approved and the Mergers are consummated, the trustees of the Company at the
time of the consummation of the Mergers will become the directors of Liberty
serving for the same terms with Liberty as such persons are then serving with
the Company. The Nominees are discussed more specifically herein under "PROPOSAL
4 -- ELECTION OF TRUSTEES."
- - PROPOSAL 5 -- APPROVAL OF THE 1999 STOCK OPTION PLAN. At the Annual Meeting,
you will be asked to approve the 1999 Stock Option Plan. The 1999 Stock Option
Plan will allow Liberty to grant incentive stock options, non-statutory stock
options and restricted stock to employees and directors of Liberty. The 1999
Stock Option Plan is described more specifically herein under "PROPOSAL 5 --
APPROVAL OF THE 1999 STOCK OPTION PLAN."
- - PROPOSAL 6 -- APPROVAL OF THE LEASE FOR THE EXECUTIVE OFFICES. At the Annual
Meeting, you will be asked to approve the lease for the executive offices of
Liberty. The lease for the executive offices is described more specifically
herein under "PROPOSAL 6 -- APPROVAL OF LEASE FOR EXECUTIVE OFFICES."
- - PROPOSAL 7 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. At the
Annual Meeting, you will be asked to ratify the appointment by the Board of
Trustees of Arthur Andersen LLP as the independent auditors of the Company (and
Liberty as successor thereto if the Reorganization is approved) for the fiscal
year ending December 31, 1999. The appointment of Arthur Andersen LLP is
discussed more specifically under "PROPOSAL 7 -- RATIFICATION OF INDEPENDENT
AUDITORS."
RECOMMENDATION OF THE BOARD OF TRUSTEES
The Board of Trustees unanimously recommends a vote in favor of each of
the Proposals. The Board of Trustees has unanimously approved each of the
Proposals, subject to shareholder approval, and believes that each Proposal is
in the best interest of the Company and its shareholders.
NO APPRAISAL RIGHTS
Under California and Maryland law, you will not have any appraisal
rights to elect to have the fair value of your shares judicially appraised and
paid to you in cash in connection with or as a result of the Reorganization and
the Formation Transactions.
-11-
<PAGE> 24
- -------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements are indicated by words or phrases such as "anticipate,"
"estimate," "projects," "believes," and similar words and phrases. Such
statements are subject to certain risks, uncertainties or assumptions, and are
based on management's current expectations. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or believed.
-12-
- ------------------------------------------------------------------------------
<PAGE> 25
Selected Financial Data
The following tables present selected financial data covering the five
years ended December 31, 1998, and the three months ended March 31, 1998 and
1999 for the Company, and for the three years ended December 31, 1998, and the
three months ended March 31, 1998 and 1999 for the Properties. The selected
financial data for the Properties is presented since 1996 which was the first
year the properties were acquired. Such data has been derived from, and should
be read in conjunction with, the audited financial statements and notes thereto
for each of the five years ended December 31, 1998 for the Company, and for
each of the two years ended December 31, 1998 for the Properties as well as
the unaudited pro forma financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included herein.
<TABLE>
<CAPTION>
The Company Years ended December 31, Three months ended March 31
------------------------------------------ ------------------------
Unaudited
STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1997 1998 1998 1999
--------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues $ 6,578,302 $ 6,146,126 $ 2,291,763 $ 1,180,360 $ 101,893 $ 35,992 $ 28,114
Operating expenses 7,058,194 6,680,602 2,194,595 1,133,151 914,718 102,250 43,266
---------------------------------------------------------------- -----------------------
(Loss) income before gain (479,892) (534,476) 97,168 47,209 (812,825) (66,258) (15,152)
on sale of property and
extraordinary item
Gain on sale of properties 58,977 - 2,582,606 4,528,701 - - -
---------------------------------------------------------------- -----------------------
(Loss) income before (420,915) (534,476) 2,679,774 4,575,910 (812,825) (66,258) (15,152)
extraordinary item
Extraordinary item - - - (189,070) - - -
---------------------------------------------------------------- -----------------------
Net (loss) income $ (420,915) $ (534,476) $ 2,679,774 $ 4,386,840 $ (812,825) $ (66,258) $ (15,152)
Per common share
Net (loss) income-Basic and Diluted
Before extraordinary item $ (0.14) $ (0.18) $ 0.88 $ 1.51 $ (0.27) $ (0.02) $ (0.01)
Net income (loss) (0.14) (0.18) 0.88 1.45 (0.27) (0.02) (0.01)
Distributions declared
Cash - - 0.33 3.00 - - -
Shares of MIT stock - - 0.1287 - - - -
</TABLE>
-13-
<PAGE> 26
<TABLE>
<CAPTION>
BALANCE SHEET DATA (END OF PERIOD)
<S> <C> <C> <C> <C> <C> <C> <C>
Rental properties, net $ 29,346,374 $ 28,780,485 $ 6,191,573 - - - -
Cash equivalents and investments 2,884,667 3,744,112 6,017,561 2,886,339 2,163,623 2,764,915 2,125,148
Total assets 36,422,599 34,053,336 12,345,964 2,907,391 2,178,076 2,764,915 2,168,865
Total liabilities 23,661,970 21,827,183 4,832,616 102,057 185,567 25,839 191,508
Mortgage notes payable, net 22,626,668 20,873,011 4,627,123 - - - -
Shareholders' equity 12,760,629 12,226,153 7,513,348 2,805,334 1,992,509 2,739,076 1,977,357
OTHER FINANCIAL DATA
Earnings to fixed charges (a) .8x .8x 5.1x 17.7x n/a n/a n/a
Net cash from operations 1,029,276 622,124 (413,104) 1,602,571 (1,067,427) (121,424) (44,733)
Net cash from investing (519,137) (1,238,384) (116,461) 10,757,393 (1,218,739) - 15,178
Net cash from financing 1,943,398 (1,842,785) 2,441,069 (13,911,047) - - -
Distributions n/a n/a 1,000,434 9,094,854 n/a n/a n/a
Increase (decrease) in cash and 2,453,537 (2,459,045) 1,911,504 (1,551,083) (2,286,166) (121,424) (29,555)
cash equivalents
Net asset value to be contributed n/a n/a n/a n/a n/a n/a $1,992,509
</TABLE>
(a) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as net income (loss) plus fixed charges. Fixed charges consist of
interest expense and amortization of debt discount. For the year ended December
31, 1998 and the three months ended March 31, 1998 and 1999, earnings were
insufficient to cover fixed charges in the amount of $812,825, $66,258 and
$15,152, respectively.
-14-
<PAGE> 27
<TABLE>
<CAPTION>
The Properties Years ended December 31 Three months ended March 31
---------------------------------- ----------------------------
Unaudited
STATEMENT OF OPERATIONS DATA: 1996 1997 1998 1998 1999
-------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenues $ 47,119 $ 1,918,159 $ 2,465,981 $ 416,857 $ 743,310
Operating expenses 61,377 3,856,678 3,309,813 757,478 912,660
-------------------------------------------- ------------ ------------
(Loss) income before gain (14,258) (1,938,519) (843,832) (340,621) (169,350)
on sale of property and
extraordinary item
Gain on sale of properties - 3,380,262 - - -
Other - 69,482 1,322 86 122
-------------------------------------------- ------------ ------------
(Loss) income before (14,258) 1,511,225 (842,510) (340,535) (169,228)
extraordinary item
Extraordinary item - - (64,499) - -
-------------------------------------------- ------------ ------------
Net (loss) income $ (14,258) $ 1,511,225 $ (907,009) $ (340,535) $ (169,228)
Per common share
Net (loss) income-Basic and Diluted
Before extraordinary item n/a n/a n/a n/a n/a
Net income (loss) n/a n/a n/a n/a n/a
Distributions declared
Cash n/a n/a n/a n/a n/a
Shares of MIT stock n/a n/a n/a n/a n/a
BALANCE SHEET DATA (END OF PERIOD)
Rental properties, net $ 1,818,599 $ 7,786,571 $ 12,271,222 $ 10,321,108 $ 12,159,016
Cash equivalents and investments 11,937 27,410 77,393 54,415 68,896
Total assets 2,236,968 9,776,680 13,617,161 11,718,361 13,550,939
Total liabilities 998,797 12,715,277 17,218,673 14,431,153 17,252,161
Total debt 977,257 12,279,081 16,668,800 13,905,611 16,515,482
Members' equity(deficit) 1,238,171 (2,938,597) (3,601,512) (2,712,792) (3,701,222)
Net asset value to be contributed n/a n/a n/a n/a $ 5,103,635
<CAPTION>
OTHER FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Earnings to fixed charges (a) .4x 2.2x .4x n/a .5x
Net cash from operations 6,899 (1,323,041) (355,644) (172,628) 45,302
Net cash from investing (27,790) 2,301,696 (1,597,978) (365,911) (58,636)
Net cash from financing 32,828 (1,016,955) 2,003,605 565,544 4,837
Distributions -- 6,058,495 138,171 50,000 50,000
Increase(decrease) in cash and 11,937 (38,300) 49,983 27,005 (8,497)
cash equivalents
</TABLE>
-15-
<PAGE> 28
(a) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as net income (loss) plus fixed charges. Fixed charges consist of
interest expense and amortization of debt discount and the interest portion of
rent. For the years ended December 31, 1996 and 1998, the three months ended
March 31, 1998 and March 31, 1999, earnings were insufficient to cover fixed
charges in the amounts of $14,618, $842,510, $340,535, and $169,228
respectively.
-16-
<PAGE> 29
RISK FACTORS
You should carefully consider the following information in conjunction
with the other information contained in the Proxy Statement/Prospectus before
voting on the Proposals.
STOCKHOLDERS MAY NEVER REALIZE AS MUCH AS IN LIQUIDATION
The Company is a self-liquidating, finite-life real estate investment
trust which means that the net proceeds from the sale of property owned by the
Company may not be reinvested but must be distributed to you as a
shareholder after payment of indebtedness relating to such property and other
obligations. This self-liquidating policy essentially precludes the Company
from reinvesting proceeds from the sale of future properties and from making
new investments. Liberty will have perpetual-life and continue to be an
operating company beyond the time period at which the Company would have
otherwise liquidated and distributed net liquidation proceeds to shareholders.
The net proceeds from the sale of properties owned by Liberty can be reinvested
into new assets, including property. If the Reorganization is not approved, the
Company will be forced to liquidate. If Liberty is not successful in its
business plan, stockholders may never realize as much as they would have if the
Company had liquidated. See "PROPOSAL 2 -- Term of Existence."
UNCERTAINTY REGARDING TRADING PRICE FOR LIBERTY STOCK
It is possible that Liberty Stock may not trade at market prices as
high as the valuation placed on the assets to be contributed by the Ohio LLC to
LSS I, $0.66 per share (determined by dividing the net asset value of the
contributed assets by the number of Class A limited partnership interests that
are convertible into Liberty Stock). The market price of Liberty Stock may be
subject to significant volatility after the Reorganization and the Formation
Transactions. See "PROPOSAL 3 -- Fairness of the Formation Transactions" and
"PROPOSAL 3 -- Portfolio Appraisal and Fairness Opinion."
THE BOARD OF DIRECTORS' ABILITY TO EFFECT CHANGES
The major policies of Liberty, including its policies with respect to
acquisitions, financing, growth, debt capitalization and distributions will be
determined by Liberty's Board of Directors. Although the Board of Directors
intends to implement the business plan set forth herein and has no present
intent to change such business plan, the Board may amend or revise these and
other policies from time to time without the vote of the stockholders.
Accordingly, the stockholders will have no direct control over changes in the
policies of Liberty, and changes in Liberty's policies may not fully serve the
interests of all of the stockholders. See "PROPOSAL 3 -- Plans for Liberty."
ADDITIONAL FINANCING MAY NOT BE AVAILABLE
Liberty needs additional equity and debt financing to grow. Additional
financing may have unacceptable terms or may not be available at all for
reasons relating to:
- Liberty's inability to meet its business plan, or
- Changes in lenders' or investors' view of the self-storage
industry or small capitalization companies.
If adequate financing is not available, Liberty may not be able to
acquire additional properties, expand its existing properties or develop new
properties. See "PROPOSAL 3-- Plans for Liberty."
LIBERTY WILL BE MORE HIGHLY-LEVERAGED THAN THE COMPANY
Liberty, following the consummation of the Formation Transactions, will
have substantial debt. Liberty's debt to equity ratio (including minority
interest) will be 3 to 1. In addition, Liberty anticipates obtaining a $50
million line of credit. However, there can be no assurance that Liberty will be
able to obtain such line of credit. In the future, Liberty may incur additional
indebtedness to finance acquisitions and development. Liberty's debt service
requirements may reduce funds available for operations and future business
opportunities and increase Liberty's vulnerability to adverse general economic
and industry conditions and competition. In addition, Liberty will have no
limitation on the amount of debt that it may incur in the purchase, sale,
development or expansion of any property, whereas the Current Declaration of
Trust provides that the Company may not borrow more than 80% of the purchase
price of any property. See "PROPOSAL 3-- The Properties-- Mortgages."
STOCKHOLDERS' RIGHTS WILL CHANGE
The legal form of organization by which the Company conducts its
business, holds its assets and is obligated for its liabilities will be changed
from a common law business trust to a corporation, incorporated in the State of
Maryland. Differences between the Company's organizational documents and
governing law and Liberty's organizational documents and governing law will
result in material differences between your rights as a shareholder of the
Company and your rights as a stockholder of Liberty. In addition to the change
from a self-liquidating, finite-life REIT, the following are examples of
changes:
- The Bylaws of Liberty contain provisions that require advance
notice of stockholder proposals and director nominations that
could have the effect of precluding a contest for the election of
directors or stockholder proposals if the proper procedures are
not followed, and of delaying or deferring a third party from
conducting a solicitation of proxies to elect its own slate of
directors or to have its own proposals approved.
- Unlike the right of shareholders of the Company, pursuant to the
provisions of the MGCL, the stockholders of Liberty may act by
written consent only with the consent of all stockholders, which
requirement could have the effect of delaying or hindering efforts
of stockholders to change Liberty's Board of Directors.
- As a Maryland corporation, Liberty will be subject to the
anti-takeover provisions of the MGCL. These provisions, which are
designed to encourage a person seeking a change in control of a
Maryland corporation to negotiate with the board of directors,
could delay, defer or prevent a transaction or a change in control
of Liberty that might involve a premium price for holders of
Liberty Stock or contrary to the judgment of Liberty's Board of
Directors otherwise be in their best interest.
See "Proposal 2--Certain Changes in the Rights of Shareholders Resulting from
the Reorganization."
-17-
<PAGE> 30
ACQUISITION AND DEVELOPMENT ACTIVITIES RISKS
Liberty's strategy will be to grow by acquiring and developing
additional self-storage facilities. Acquisitions entail risks that investments
will fail to perform in accordance with expectations and that judgments with
respect to the prices paid for acquired properties and the costs of any
improvements required to bring an acquired property up to Liberty's standards
will prove inaccurate, as well as general investment risks associated with any
new real estate investment. In the case of an unsuccessful acquisition, Liberty
may not be able to recover its investment. In addition, acquisitions require a
significant amount of management's time which could divert management's
attention away from the daily operation of the business.
Liberty anticipates that its new acquisitions will be financed by a
combination of equity and debt. Because Liberty must distribute 95% of its
taxable income in order to maintain its qualification as a REIT, Liberty's
ability to rely upon income from operations or cash flow from operations to
finance new acquisitions will be limited. If the necessary financing is not
available, further development activities or acquisitions will be curtailed
and cash available for distributions will be adversely affected.
-18-
<PAGE> 31
SELF-STORAGE INDUSTRY RISKS
The Properties are subject to all operating risks common to the
self-storage industry. These risks include:
- Ease of entry by any competitor into an area where Liberty
operates a self-storage facility;
- Decreases in demand for rental spaces in a particular locale;
- Changes in supply of or demand for similar or competing facilities
in an area;
- Changes in market rental rates; and
- Inability to collect rents from customers.
Liberty's current strategy is to acquire and develop interests in
self-storage facilities. Consequently, Liberty is subject to risks inherent in
investments in a single industry. The Properties compete with other self-storage
facilities in their geographic markets. In the event of adverse changes in
competition, the Properties could experience a decrease in occupancy levels and
rental rates, which could decrease the cash available for distribution. Liberty
competes in operations and for acquisition opportunities with entities that have
substantial financial resources. Competition may reduce the number of suitable
acquisition opportunities offered to Liberty and increase the bargaining power
of property owners seeking to sell. The self-storage industry has at times
experienced overbuilding in response to perceived increases in demand. A
recurrence of such overbuilding might cause Liberty to experience a decrease in
occupancy levels, limit Liberty's ability to increase rents, and compel Liberty
to offer discounted rents.
REAL ESTATE INVESTMENT RISKS
General Risks. Liberty's investments are subject to varying degrees of
risk generally incident to the ownership of real property. The underlying value
of Liberty's real estate investments and Liberty's income and ability to make
future distributions to its stockholders are dependent upon Liberty's ability to
operate the properties in a manner sufficient to maintain or increase cash
available for distribution.
- Income from the properties may be adversely affected by changes in
national economic conditions;
- Changes in local market conditions due to changes in general or
local economic conditions and neighborhood characteristics;
- Changes in interest rates and in the availability, cost and terms
of mortgage funds;
-19-
<PAGE> 32
- Impact of present or future environmental legislation and
compliance with environmental laws; the ongoing need for capital
improvements, particularly in older facilities;
- Changes in real estate tax rates and other operating expenses;
- Costs may increase faster than rent;
- Adverse changes in governmental rules and fiscal policies;
- Uninsured losses resulting from casualties associated with civil
unrest, acts of God, including natural disasters, and acts of war;
- Adverse changes in zoning laws; and
- Other factors which are beyond the control of Liberty.
Illiquidity of Real Estate May Limit its Value. Real estate investments
are relatively illiquid. The ability of Liberty to vary its portfolio in
response to changes in economic and other conditions is limited. In addition,
provisions of the Code may limit Liberty's ability to profit on the sale of
properties held for fewer than four years. There can be no assurance that
Liberty will be able to dispose of a property when it finds disposition
advantageous or necessary or that the sale price of any disposition will recoup
or exceed the amount of Liberty's investment.
Uninsured and Underinsured Losses Could Result in Loss of Value of
Properties. There are certain types of losses, generally of a catastrophic
nature, that may be uninsurable or not economically insurable, as to which the
properties are at risk in their particular locales. Liberty's management will
use its discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to acquiring appropriate insurance on
Liberty's investments at a reasonable cost and on suitable terms. This may
result in insurance coverage that in the event of a substantial loss would not
be sufficient to pay the full current market value or current replacement cost
of Liberty's lost investment. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it
infeasible to use insurance proceeds to replace a property after it has been
damaged or destroyed. Under such circumstances, the insurance proceeds received
by Liberty might not be adequate to restore its economic position with respect
to such property.
Possible Liability Relating to Environmental Matters. Under various
federal, state, and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability whether or not the owner or
operator caused or knew of the presence of such hazardous or toxic substances
and whether or not the storage of such substances was in violation of a tenant's
lease. The owner or operator is not in a position to know what a tenant stores
at its self-storage facility. In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property, may adversely affect the
owner's ability to borrow using such real property as collateral. In
-20-
<PAGE> 33
connection with the ownership of the Properties, Liberty may be potentially
liable for any such costs.
Americans with Disabilities Act. The Americans with Disabilities Act of
1990 (the "ADA") generally requires that buildings be made accessible to persons
with disabilities. A determination that Liberty is not in compliance with the
ADA could result in imposition of fines or an award of damages to private
litigants. If Liberty were required to make modifications to comply with the
ADA, Liberty's results of operations and ability to make expected distributions
to its stockholders could be adversely affected.
Environmental Holdback. In connection with the Company's sale of its
last property, the Charleston property, in August 1997, $1.35 million was
held-back from the $13.0 million sale price for estimated remediation work. In
the late 1980s, the San Francisco Bay Region of the California Regional Water
Quality Control Board (the "RWQCB") requested that the Company investigate and
characterize soil and groundwater contamination of the Charleston property. The
Company engaged an environmental engineering firm that discovered the presence
of trichloroethylene and other solvent chemicals in the groundwater. The RWQCB
deferred issuing a Site Cleanup Requirements ("SCRs") in order to give the
Company time to complete the pending sale of the Charleston property. As part of
the sale, the purchaser agreed to indemnify the Company broadly against the
pending SCRs and other types of environmental claims. Its indemnity is backed by
an environmental insurance policy. It is possible that the RWQCB could still
name the Company as a potentially responsible party when it ultimately issues
its SCRs order for the property based on the Company's former ownership.
REAL ESTATE FINANCING RISKS
Liberty will be subject to the risks normally associated with debt
financing, including the risk that Liberty's cash available for debt service
will be insufficient to meet required payments of principal and interest, the
risk that existing indebtedness will not be able to be refinanced or that the
terms of such refinancing will not be as favorable as the terms of such
indebtedness and the risk that necessary capital expenditures for such purposes
as renovations and other improvements will not be able to be financed on
favorable terms or at all. If one of Liberty's properties is mortgaged to secure
payment of indebtedness and Liberty is unable to meet mortgage payments, the
property could be foreclosed with a consequent loss of income and asset value to
Liberty.
INCOME TAX RISKS
Liberty intends to operate so as to qualify as a REIT under the Code.
Qualification as a REIT involves the application of highly technical and complex
Code provisions for which there are only limited judicial and administrative
interpretations. Continued qualification as a REIT depends upon Liberty's
continuing ability to meet various requirements concerning, among other things,
the ownership of the outstanding stock, the nature of its assets, the sources of
its income and the amount of its distributions to its stockholders. If Liberty
were to fail to qualify as a REIT in any taxable year, Liberty would not be
allowed a deduction for distributions to stockholders in computing its taxable
income and would be subject to Federal income tax (including any
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applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under certain Code provisions, Liberty also
would be ineligible for qualification as a REIT for the four taxable years
following the year during which qualification was lost. As a result,
distributions to the stockholders would be reduced for each of the years
involved. Although Liberty currently intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Directors to revoke the REIT
election.
In addition, as a result of the Company's sale of its last real estate
property in August 1997, the Company's status as a REIT for 1997 and 1998 is
dependent, in part, upon tax rules regarding investments by REITs in certain
types of non-real estate assets. The current Board of Trustees is reviewing with
legal counsel the Company's status as a REIT for the years ended December 31,
1998 and 1997. If the Company failed to qualify as a REIT for either the fiscal
year ended December 31, 1998 or 1997 it would be taxed as a regular corporation,
and distributions to shareholders would not be deductible in computing the
Company's taxable income. The resulting corporate tax liabilities, estimated to
be approximately $170,000, could materially reduce the funds available for
distribution to the Company's shareholders or for reinvestment. If the Company
failed to qualify as a REIT, distributions to shareholders would no longer be
required. In addition, distributions in 1997 originally treated as capital gain
distributions could be re-characterized as ordinary dividend distributions to
shareholders. Moreover, the Company might not be able to elect to be treated as
a REIT for the four taxable years after the year during which the Company ceased
to qualify as a REIT which would apply to Liberty if the Reorganization is
approved. If the Company or Liberty later re-qualified as a REIT, it might be
required to pay full corporate-level tax on any unrealized gain associated with
its assets as of the date of re-qualification and to make distributions equal to
any earnings accumulated during the period of non-REIT status. See "PROPOSAL 3--
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Election for REIT Status."
LIMITATIONS ON ABILITY TO CHANGE CONTROL
Limitation on Ownership of Shares. In order to maintain its
qualification as a REIT, not more than 50% in value of the outstanding Liberty
Stock may be owned, directly or indirectly, by five or fewer individuals (the
"Five or Fewer Test"). See "PROPOSAL 2-- Certain Changes in the Rights of
Shareholders Resulting from the Reorganization -- Ownership Limit/Excess Shares"
and the Articles attached as Exhibit A to Annex B.
- Liberty's Articles limit ownership of the issued and outstanding
Liberty Stock by any single stockholder, except for Mr. Osborne
and his affiliates (directly or by virtue of the attribution
provisions of the Code) to 9.8% of the aggregate value of
Liberty's outstanding stock, except that the ownership by certain
entities is limited to 15% (the "Ownership Limit").
- The Ownership Limit may (1) have the effect of precluding
acquisition of control of Liberty by a third party without consent
of the Board of Directors even if a change in control were in the
interest of stockholders, and (2) limit the opportunity for
stockholders to receive a premium for their Liberty Stock that
might otherwise exist if an investor were attempting to assemble a
block of Liberty Stock in excess of 9.8% or 15%, as the case may
be, of the outstanding Liberty Stock or to otherwise effect a
change of control of Liberty.
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<PAGE> 35
- The Board of Directors, in its sole discretion, may waive the
Ownership Limit if it is satisfied that ownership by such
stockholders in excess of such limits will not jeopardize
Liberty's status as a REIT under the Code or in the event it
determines that it is no longer in the best interests of Liberty
to be a REIT.
- A transfer of shares of Liberty Stock to a person who, as a result
of the transfer, violates the Ownership Limit will not be
effective under some circumstances.
Other Limitations. Certain other limitations could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of the outstanding Liberty Stock might receive a premium for their
Liberty Stock over the then prevailing market price or which such holders might
believe to be otherwise in their best interest:
- The issuance of preferred stock could have the effect of delaying
or preventing a change in control of Liberty even if a change in
control were in the stockholders' interest.
- The MGCL imposes certain restrictions and requires certain
procedures with respect to the acquisition of certain levels of
share ownership and business combinations, including combinations
with interested stockholders. These provisions of the MGCL could
have the effect of delaying or preventing a change in control of
the Company even if a change in control were in the stockholders'
interest. See "PROPOSAL 2 -- Certain Changes in the Rights of
Shareholders Resulting from the Reorganization -- Certain Business
Combinations" and "-- Control Share Acquisitions."
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<PAGE> 36
CONTROL BY SIGNIFICANT SHAREHOLDERS
If Richard M. Osborne exercised his right to redeem his limited
partnership interests in LSS I, and Liberty elected to convert such interests
into shares of Liberty Stock, in lieu of cash, Mr. Osborne would own
approximately 71% of Liberty. However, no such conversion will be permitted if
Liberty determines that such conversion might disqualify Liberty as a REIT. See
"PROPOSAL 3 -- Overview of the Formation Transactions -- Certain Conflicts of
Interest."
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<PAGE> 37
CONFLICTS OF INTEREST
The terms of the Formation Transactions, including the allocation of
ownership interests between Liberty and the members of the Ohio LLC, were not
determined on an arm's-length basis. Richard M. Osborne is the Chief Executive
Officer and Chairman of the Board of both Liberty and the Company. After the
Formation Transactions, Mr. Osborne will have limited partnership interests
totaling 67.98% of LSS I. Because Liberty will be the general partner of LSS I
and Mr. Osborne will be a limited partner of LSS I, he will face conflicts of
interest in making determinations regarding LSS I. See "PROPOSAL 3 -- Interests
of Certain Persons in the Formation Transactions."
NO ASSURANCE OF TAX-FREE REORGANIZATION
The Company has received an opinion of counsel that the Reorganization
will constitute a tax-free reorganization for federal income tax purposes,
within the meaning of Section 368 of the Code. If there were a determination
that the Reorganization was not a tax-free reorganization, the Company and you
as a shareholder would experience different tax consequences from those
attendant to a tax-free reorganization. In particular, you would be required to
recognize gain upon the deemed exchange of your Company Shares for shares of
Liberty Stock to the extent that the fair market value of any Liberty Stock you
receive exceeded the basis of your Company Shares deemed exchanged therefor.
Recognition of loss on such deemed exchange might not be allowed until you
dispose of some or all of your Liberty Stock. The Company would be required to
recognize gain on its disposition and distribution of property in connection
with the Reorganization and any loss on such disposition or distribution may be
required to be deferred until Liberty were to sell the assets to an unrelated
third party; and, to the extent the Company's tax attributes were not used to
offset any gain, Liberty would not succeed to them. See "PROPOSAL 2 -- Federal
Income Tax Matters."
NO APPRAISAL RIGHTS
You do not have any statutory appraisal rights under California or
Maryland law to choose to have the fair value of your Company Shares judicially
appraised and paid to you in connection with or as a result of the
Reorganization or the Formation Transactions.
POSSIBLE FUTURE DILUTION
As a result of growth relating to acquisitions financed with the
issuance of additional Liberty Stock or interests in LSS I or any similar entity
of Liberty, stockholders of Liberty could experience significant future
dilution.
ABSENCE OF MARKET FOR COMPANY SHARES AND LIBERTY STOCK
There is currently no formal trading market for the Company Shares.
Currently, the Company Shares trade only on the OTCBB and, as a result, the
market for the Company Shares is not particularly liquid. Therefore, the price
at which Liberty Stock may trade may fluctuate and the market for Liberty Stock
may be subject to disruptions that could make it difficult or impossible for the
holders of Liberty Stock to sell shares in a timely manner, if at all. In
addition, if trading markets do develop, they may be unstable and illiquid for
an indeterminate period of time.
EFFECT OF MARKET INTEREST RATES ON PRICE OF SHARES
One of the factors that may influence the price of Liberty Stock in
public trading markets is the annual yield on Liberty Stock as compared to
yields on other financial instruments. Thus, an increase in market interest
rates will result in higher yields on other financial instruments, which could
adversely affect the market price of Liberty Stock.
YEAR 2000 COMPLIANCE
The Company is continuing its efforts to assess issues caused by the
inability of its information systems to properly process transactions using
dates beginning in the Year 2000. The Company is attempting to identify affected
software and develop a plan for correcting that software in the most effective
manner. Remediation of any potential issues regarding Year 2000 compliance will
likely include the upgrading or replacement of older software with new programs
and systems, which will handle the Year 2000 and beyond. The Company anticipates
that most of the necessary upgrades and replacements will be in place before
mid-1999. The process of physically upgrading the software has already begun.
Because the Company's assets are in financial institutions and
brokerage houses and that the current operations, and consequently its computer
needs, are limited, the Company does not
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<PAGE> 38
expect that Year 2000 compliance costs will have any material adverse effect on
the Company's liquidity or ongoing results of operations. Such costs are
expected to be less than $5,000. However, there can be no assurance that the
Company will be successful in implementing its Year 2000 remediation according
to the anticipated schedule or that compliance costs will not have a material
adverse effect on the Company's future liquidity or ongoing results of
operations. See "PROPOSAL 3 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company -- Year 2000 Compliance" and
"-- Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Ohio LLC -- Year 2000 Compliance."
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of Liberty's securities, or the perception
that such sales could occur, could adversely affect prevailing market prices for
Liberty Stock.
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<PAGE> 39
PRO FORMA CAPITALIZATION
The following table sets forth certain pro forma consolidated
short-term and long-term obligations and the pro forma consolidated
capitalization of Liberty as of March 31, 1999 that give pro forma effect to the
Reorganization and Formation Transactions. The information set forth in the
table below should be read in conjunction with the Company's consolidated
historical and pro forma financial statements and related notes included
elsewhere herein.
<TABLE>
<CAPTION>
March 31, 1999
Pro Forma
-----------------
<S> <C>
Short Term Debt
Current maturities of long term notes payable (1) ............. $ 352,912
Other
500,000
Total short term debt ......................................... $ 852,912
============
Long Term Debt
Long Term notes payable (1) ................................... $ 17,112,750
Total long term debt .......................................... $ 17,112,750
============
Minority interest (2).............................................. 4,481,293
Stockholders' Equity
Preferred stock, $0.001 par value; 2,000,000 shares authorized,
0 shares issued and outstanding ........................... $ -
Common Stock, $0.001 par value: 50,000,000 shares authorized,
3,031,618 issued and outstanding........................... 3,032
Paid in capital................................................ 25,784,280
Distributions in excess of income.............................. (23,809,955)
------------
Total Stockholders' Equity .................................... 1,977,357
------------
Total Capitalization............................................... $ 24,424,132
============
</TABLE>
(1) Adjusted for an additional $950,000 in long-term borrowings for the
purchase of Riverhead and $500,000 in additional long-term borrowings for
Southold. For a description of the long term debt, see Note 3 to the
Financial Statements of the Initial Properties. See "PROPOSAL 3 --
Properties -- Mortgages" for a description of the Riverhead and Southold
long-term borrowings.
(2) Represents minority interest in LSS I applicable to the limited partners
therein, excluding the limited partnership interest held by Liberty.
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<PAGE> 40
BUSINESS
Liberty will succeed to, and continue, the business of the Company upon
consummation of the Reorganization under the direction of the Company's current
management team, which will succeed to the management of Liberty. Liberty's
management team will be composed of the same individuals who are currently
managing the self-storage facilities owned by the Ohio LLC. These individuals
have substantial experience in managing, acquiring, developing, expanding and
operating self-storage facilities.
The Company was organized as a business trust under the laws of the
State of California pursuant to a Declaration of Trust, dated June 24, 1982, and
commenced operation on April 12, 1983. The Company was originally known as
"Sierra Real Estate Equity Trust '83." On October 11, 1991, the Company changed
its name to "Meridian Point Realty Trust '83." The Amended and Restated
Declaration of Trust of the Company was filed on May 12, 1992 and amended on
July 23, 1993 and February 14, 1995 (the "Current Declaration of Trust"). The
Company was formed as a real estate investment trust to invest in
income-producing commercial and industrial real estate located in selected areas
of projected growth in the United States.
The investment policy of the Company as contained in the Current
Declaration of Trust is a so-called "self-liquidating/finite-life" policy, which
states that the net proceeds from the sale of a property owned by the Company
may not be reinvested but shall be distributed to shareholders after payment of
indebtedness relating to such property and other obligations. However, the
proceeds of a sale need not be distributed if they are used to purchase land
underlying any of the Company's other properties, to finance improvements or
additions to any of the properties, to protect or enhance the Company's
investments in any of its properties, to buy out leases or to increase revenues.
This "self-liquidating" policy essentially precludes the Company from acquiring
new properties and reinvesting the proceeds from the disposition of future
properties into new assets. The Company sold its last remaining property in
August 1997 and the "self-liquidating" policy precludes it from acquiring new
properties. The Reorganization would change the Company from a
self-liquidating/finite-life business trust into a corporation of perpetual-life
and allow it to continue as a going concern. If the Reorganization and Formation
Transactions are not approved, the Company will be forced to liquidate.
Further information regarding the Company, including the audited
historical financial statements of the Company, supplementary financial
information and management's discussion and analysis of the Company's financial
condition and results of operations, is contained in the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1998, which report is
being mailed with this Proxy Statement/Prospectus.
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<PAGE> 41
THE ANNUAL MEETING
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the shareholders
as of the Record Date in connection with the Annual Meeting to be held on August
__, 1999 at 10:00 a.m., local time, at 1375 East Ninth Street, One Cleveland
Center, Cleveland, Ohio 44114, and any adjournment or postponement thereof.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals:
- Proposal 1: A proposal to approve the Declaration Amendment.
- Proposal 2: A proposal to approve the Reorganization.
- Proposal 3: A proposal to approve the Formation Transactions.
- Proposal 4: A proposal to elect the five Nominees as trustees.
- Proposal 5: A proposal to approve the 1999 Stock Option Plan for
Liberty.
- Proposal 6: A proposal to approve the lease of the executive offices
of Liberty.
- Proposal 7: A proposal to ratify the appointment of Arthur Andersen
LLP as the independent auditors of the Company for
fiscal year ending December 31, 1999.
You also will consider and vote upon such other matters as may properly
come before the Annual Meeting.
VOTING RIGHTS AND VOTE REQUIRED
Only holders of record of Company Shares issued and outstanding as of
the close of business on the Record Date will be entitled to vote at the Annual
Meeting, or any adjournment or postponement thereof. As of the Record Date,
there were 3,031,618 Company Shares issued and outstanding held by approximately
2,200 holders of record.
Holders of record of Company Shares at the close of business on the
Record Date are entitled to one vote per share upon each matter submitted to a
vote of the shareholders of the Company at the Annual Meeting or any adjournment
or postponement thereof. The presence, in person or by proxy, of the holders of
a majority of the outstanding Company Shares entitled to vote at the meeting is
necessary to constitute a quorum to transact business at the Annual Meeting.
Shareholders voting or abstaining from voting on any issue will be counted as
present
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for purposes of constituting a quorum. If a quorum is not present at the
Annual Meeting, the holders of a majority of the Company Shares present in
person or by proxy and entitled to vote at the Annual Meeting may, by majority
vote, adjourn the Annual Meeting from time to time.
Pursuant to the Current Declaration of Trust, the affirmative vote of
the holders of a majority of the outstanding Company Shares is required to
approve the Declaration Amendment and the Reorganization. The election of each
of the Nominees as trustees requires a plurality of the votes cast at the Annual
Meeting. The approval of the Formation Transactions, the 1999 Stock Option Plan
and the lease for Liberty's executive offices and the ratification of the
appointment of independent auditors each requires a majority of the votes cast
by shareholders, in person or by proxy, at the Annual Meeting. Shares owned by
Mr. Osborne and his affiliates will not be entitled to vote on the Formation
Transactions Proposal and the Lease Proposal. The consummation of the
Reorganization is contingent upon the approval by the shareholders of the
Declaration Amendment and the Formation Transactions and, conversely, the
consummation of the Formation Transactions is contingent upon the approval by
the shareholders of the Declaration Amendment and the Reorganization.
Under the rules of the principal stock exchanges, brokers who hold
Company Shares in street name for customers will not have authority to vote such
Company Shares on the proposals to approve the Declaration Amendment, the
Reorganization, the Formation Transactions and the 1999 Stock Option Plan unless
they have received written instructions from beneficial owners. Abstentions and
broker "non-votes" will be considered in determining the presence of a quorum at
the Annual Meeting, but will not be counted as votes cast on any matter
presented for a vote at the meeting. Because approval of the Declaration
Amendment and the Reorganization each require the affirmative vote of a
specified percentage of the holders of the Company Shares outstanding on the
Record Date, abstentions and broker "non-votes," as the case may be, will have
the same effect as votes against such matters. Since the election of trustees
requires a plurality of the votes cast and the approval of the Formation
Transactions, the 1999 Stock Option Plan, and the lease for Liberty's executive
offices and the ratification of the appointment of Arthur Andersen LLP require a
majority of the votes cast at the Annual Meeting at which a quorum is present,
abstentions and broker "non-votes" will have no effect on the result of the vote
on such matters.
VOTING OF PROXIES; SOLICITATION
All Company Shares which are entitled to vote and are represented at
the Annual Meeting by properly executed proxies received prior to or at the
Annual Meeting and not revoked will be voted at the Annual Meeting in accordance
with the instructions indicated on such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED IN FAVOR OF THE PROPOSALS DESCRIBED
HEREIN. The Board of Trustees knows of no matters to be presented at the Annual
Meeting other than those described in this Proxy Statement/Prospectus. If any
other matters are properly presented at the Annual Meeting for consideration,
including, among other things, consideration of a motion to adjourn the Annual
Meeting to another time and/or place, the persons named in the enclosed form of
proxies and acting thereunder will vote on such matters in their discretion. The
Current Regulations provide that the Annual Meeting may be adjourned by an
affirmative
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<PAGE> 43
vote of a majority of the Company Shares entitled to vote and represented in
person or by proxy at the meeting from day to day or time to time.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. You may revoke your proxy by
(1) filing with the Company, at or before the taking of the vote at the Annual
Meeting, a written notice of revocation bearing a later date than the proxy, (2)
duly executing a later-dated proxy relating to the same shares and delivering it
to the Company before the taking of the vote at the Annual Meeting or (3)
attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not in and of itself constitute a revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to the
Company c/o Secretary, 8500 Station Street, Suite 100, Mentor, Ohio 44060 or
hand delivered to the Company c/o Secretary, 8500 Station Street, Suite 100,
Mentor, Ohio 44060, so as to be delivered at or before the taking of the vote at
the Annual Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing of this Proxy Statement/Prospectus, will be paid by the Ohio LLC up to
$650,000 and thereafter by the Company. In addition to solicitation by use of
the mails, proxies may be solicited by trustees, officers and employees of the
Company in person or by telephone, telegram or other means of communication.
Such trustees, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. The Company has retained Beacon Hill Partners, 90 Broad Street,
New York, New York 10004, for their customary fees, plus reimbursement of
expenses, to assist in its solicitation of proxies from brokers, nominees,
institutions and individuals. Arrangements will also be made with brokerage
firms and other custodians, nominees and fiduciaries for the forwarding of proxy
solicitation material to certain beneficial owners of the Company Shares, and
the Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
NO APPRAISAL RIGHTS
Under California and Maryland law, you will not be entitled to any
dissenters' appraisal rights in connection with the Reorganization and the
Formation Transactions.
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<PAGE> 44
PROPOSAL 1 - APPROVAL OF DECLARATION AMENDMENT
CERTAIN ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. BECAUSE THIS IS
A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU.
YOU SHOULD READ THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE COMPLETE TEXT OF
THE DECLARATION AMENDMENT ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX A
CAREFULLY BEFORE YOU DECIDE HOW TO VOTE.
The Board of Trustees has determined that the Declaration Amendment is
necessary in order to permit the Company to implement the Reorganization. The
Declaration Amendment would amend the Company's Current Declaration of Trust to
(i) expressly permit the Company to merge or consolidate with and/or into a
domestic or foreign limited partnership and (ii) set forth the procedures
pursuant to which such merger or consolidation would take place. The proposed
Declaration Amendment is intended to allow the Company to comply with the
provisions of Section 23006 of the California Corporations Code, which expressly
permits REITs to merge with limited partnerships or other REITs provided the
merger is specifically permitted by the declaration of trust and the procedure
is detailed in the declaration.
Section 3.5 of the Current Declaration of Trust sets forth the approval
requirement for the incorporation of the Company into another entity (i.e., the
approval of the holders of a majority of the outstanding Company Shares).
However, the provisions of Section 3.5 of the Current Declaration of Trust do
not expressly authorize the merger or consolidation of the Company with or into
a foreign or domestic limited partnership and do not set forth the procedures by
which such a merger or consolidation would take place, as required by Section
23006 of the California Corporations Code. The Declaration Amendment (i)
explicitly permits the Company to merge or consolidate with and/or into a
domestic or foreign limited partnership and (ii) sets forth the procedures
pursuant to which such merger would take place. Upon approval of the Declaration
Amendment by the shareholders, the Company will be able to implement the
Reorganization.
The Declaration Amendment will be filed with the office of the
Assessor-Recorder of the County of San Francisco, California, when approved by
the shareholders.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE DECLARATION
AMENDMENT.
PROPOSAL 2 - APPROVAL OF THE REORGANIZATION
CERTAIN ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. BECAUSE THIS IS
A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU.
YOU SHOULD READ THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE COMPLETE TEXT OF
THE MERGER AGREEMENT, INCLUDING THE ARTICLES AND BYLAWS OF LIBERTY ATTACHED TO
THIS PROXY STATEMENT/PROSPECTUS AS ANNEX B CAREFULLY BEFORE YOU DECIDE HOW TO
VOTE.
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<PAGE> 45
PRINCIPAL REASONS FOR THE REORGANIZATION
The Company was organized in 1982 and commenced operations in 1983 as a
California common law business trust, operating as a REIT. The Company now seeks
to be reorganized into a Maryland corporation (1) to change from a
self-liquidating, finite-life entity to one with perpetual-life with the ability
to reinvest proceeds from the sale of properties, (2) to facilitate a growth
objective which will enable the Company to attract capital, and (3) to take
advantage of the more well-developed MGCL which provides greater certainty and
flexibility in planning and implementing corporate action than is otherwise
available for a common law business trust. Given the more certain and flexible
legal environment under which the Company's successor will operate as a
corporation, the Board of Trustees has unanimously determined the Reorganization
is desirable and in the best interest of the Company and its shareholders.
Facilitate Growth. The Reorganization will give management the
opportunity to seek new investments, which may result in greater returns to
shareholders, and reinvest proceeds from the future sale of or refinancing of
any properties.
Certainty/Flexibility. The MGCL is a modern, well-developed general
corporation statute. Maryland also has an extensive body of case law
interpreting its corporation statute. The existence of such a statute and case
law allows a corporation to plan the legal aspects of its future activities with
more certainty and flexibility than do the provisions of the Current Declaration
of Trust, the common law of the State of California currently applicable to the
Company and the CGCL. A modern corporate charter also allows corporations to
determine and change business strategies on an ongoing basis as circumstances
warrant, whereas such flexibility is, at times, unavailable to trusts, which may
be restricted by the more specific provisions of their governing instruments.
Investor Perception. Corporations are far more numerous than business
trusts and are more familiar to the investor community. This familiarity and
favorable perception is considered by the Board of Trustees as likely to enhance
the liquidity and marketability of the Company's securities, providing
potentially greater access for the Company to capital markets.
Protections Afforded by Maryland Law Against Hostile/Unsolicited
Takeovers. Liberty is subject to certain provisions of the MGCL which are
designed to encourage a person seeking control of a Maryland corporation to
negotiate with the board of directors. See "Certain Changes in the Rights of
Shareholders Resulting from the Reorganization -- Shareholder Approval of
Certain Business Combination Transactions." The Board of Trustees believes that
the reorganization of the Company into a Maryland corporation will allow Liberty
to avail itself of these provisions of the MGCL and will provide Liberty with a
certain amount of flexibility in the face of any future takeover attempts by
encouraging the potential acquiror to negotiate directly with Liberty's Board of
Directors, as well as facilitating Liberty's growth objective, which will enable
Liberty to attract capital.
Unsolicited or hostile takeover attempts are frequently structured in
ways that may not be in the best interest of all stockholders. Because of
Liberty's aggressive growth plans, a hostile takeover attempt could have the
effect of depriving stockholders of the full potential appreciation
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<PAGE> 46
of Liberty's growth. Although a takeover attempt may be made at a price
substantially above the then current market price for a target company's shares,
such offers are sometimes made for less than all of the outstanding shares of
the target company. As a result, stockholders may be presented with the
alternative of either partially liquidating their investment at a time which may
be disadvantageous or retaining their investment as minority stockholders in an
enterprise which is controlled by persons whose objectives may be different from
those of the remaining minority stockholders. Furthermore, hostile takeover
attempts are sometimes timed and designed to foreclose or minimize the
possibility of more favorable competing bids which frequently may result in
stockholders losing the opportunity to receive and consider alternative and
possibly more attractive proposals. On the other hand, transactions negotiated
and approved by a target company's board of directors can be more carefully
planned and undertaken at an opportune time in order to obtain maximum value for
the company and all of its stockholders.
The Board of Trustees recognizes that takeover attempts which have not
been negotiated with and approved by a target company's board of directors or
other managerial body do not always have the unfavorable consequences or effects
described above. However, the Board of Trustees believes that the potential
disadvantages of unapproved takeover attempts are sufficiently great that the
protections afforded by the MGCL against hostile or unsolicited takeover
attempts are in the best interest of the Company and its shareholders.
Other Considerations. In addition to the foregoing, there are certain
other factors that have caused the Board of Trustees to view a Maryland
corporation as a desirable form of organization into which the Company should be
reorganized, including the more flexible distribution provisions of the MGCL.
TERM OF EXISTENCE
The Company was organized to operate as a self-liquidating, finite-life
REIT. Under this self-liquidating policy, the Company was required to distribute
to shareholders the net proceeds of the sale or refinancing of each property
owned by the Company and was prohibited from reinvesting proceeds into the
acquisition of new properties. Because of this self-liquidating policy, it was
initially anticipated that the Company would have a duration of seven to ten
years.
The Company must change this self-liquidating, finite-life policy in
order to pursue a growth strategy. Because of this policy, the Company cannot
invest its remaining cash in real estate and, because the Company sold its last
property in August 1997, it currently holds no real estate. If the Company does
not eliminate this self-liquidating, finite-life policy, the Company will be
forced to liquidate. The elimination of the self-liquidating, finite-life policy
through the Reorganization will make Liberty a reinvesting entity with
perpetual-life and will expose Liberty to all risks normally associated with the
ownership and operation of real estate. Liberty will attempt to grow through the
acquisition and development of additional self-storage properties and the
expansion of its existing properties. See "RISK FACTORS -- Real Estate
Investment Risks" and "RISK FACTORS -- Self-Storage Industry Risks."
The following are several of the possible benefits and detriments
associated with eliminating the self-liquidating, finite-life policy of the
Company:
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Possible Benefits:
- Eliminating the Company's self-liquidating, finite-life policy
could present Liberty with new capital opportunities because the
policy restricts the Company's ability to pursue available
investment opportunities.
- Eliminating the Company's self-liquidating, finite-life policy
could enable Liberty to raise capital through the issuance of
additional securities in the capital markets.
- Eliminating the Company's self-liquidating, finite-life policy
would allow Liberty to enter into the Formation Transactions which
will allow Liberty to (1) acquire a diversified portfolio of
self-storage properties, (2) become a fully-integrated,
self-advised, self-managed real estate entity, (3) increase
capital, and (4) make use of experienced management. See "PROPOSAL
3 -- FORMATION TRANSACTIONS."
Possible Detriments:
- Eliminating the Company's self-liquidating, finite-life policy may
have an adverse effect on any shareholder who purchased their
Company Shares in anticipation of receiving a liquidating
distribution from the Company in accordance with the
self-liquidating policy because the elimination of the
self-liquidating policy will result in the continuation of the
Company beyond the time period within which the Company would have
been liquidated. Any liquidating distributions that would have
otherwise been paid at that time in connection with the
liquidation of the Company will not be made, and you, as a
shareholder, will have to rely on the securities market in order
to liquidate your investment.
- Eliminating the Company's self-liquidating, finite-life policy
through the Reorganization would make Liberty a reinvesting
entity, exposing it to all risks normally associated with the
ownership and operation of real estate. See "RISK FACTORS -- Real
Estate Investment Risks."
- Eliminating the Company's self-liquidating, finite-life policy
will result in potential dilution if Liberty were to issue
additional securities to raise capital to acquire new properties.
In determining that the elimination of the Company's self-liquidating,
finite-life policy is in the best interest of the Company and its shareholders,
the Board of Trustees considered the following factors: (1) the ability of
internally advised and managed growth-oriented, perpetual-life REITs to pursue a
growth objective and obtain equity and debt financing from capital markets on
attractive terms; (2) the ability to enter into the Formation Transactions; (3)
the substantial experience of the management of the Ohio LLC in managing,
acquiring, developing, expanding and operating self-storage facilities and the
continuation of that management as Liberty's management team; (4) the possible
dilution to stockholders in the event that Liberty is successful in raising
additional capital in the future through the issuance of additional securities;
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(5) reliance on the stock market by stockholders who desire to liquidate their
investment in the Company and the possible volatility in stock market prices of
the shares in the future; and (6) access to capital markets may be adversely
affected in the future due to economic or other conditions in the capital
markets.
The Board of Trustees believes that if Liberty was free of its
self-liquidating, finite-life policy Liberty would have greater flexibility to
maximize the value of its shares and it would be able to grow through the
acquisition and development of new properties. The Reorganization, which
includes the elimination of the self-liquidating, finite-life policy, will
permit the Company through Liberty to focus its investment direction on
self-storage facilities, specifically in connection with the Formation
Transactions. See "PROPOSAL 3 -- FORMATION TRANSACTIONS" for a detailed
discussion of the business and operating strategies of Liberty.
If you vote FOR the Reorganization Proposal, you will be voting FOR the
elimination of the Company's self-liquidating, finite-life policy because
Liberty will have perpetual-life. If the Reorganization Proposal is not
approved, the Company will be forced to liquidate.
TERMS OF THE REORGANIZATION
The Merger Agreement is set forth in its entirety as Annex B to this
Proxy Statement/Prospectus. The information set forth below is only a summary of
its principal provisions and is qualified in its entirety by reference to Annex
B.
The Reorganization will be effected pursuant to the Mergers whereby (i)
the Company will be merged with and into the Partnership and (ii) the
Partnership will be merged with and into Liberty. Liberty will be the surviving
entity in the Mergers, the separate existence of the Company will terminate,
each outstanding Company Share will be converted into one share of Liberty Stock
and the shares of Liberty Stock held by the Company will be canceled and retired
and will cease to exist. At the effective time of the Mergers, all properties,
assets, liabilities and obligations of the Company will become properties,
assets, liabilities and obligations of Liberty. For federal income tax and
financial reporting purposes, Liberty will be considered to be the same entity
as the Company.
The Mergers will become effective upon the filing and acceptance for
record of each of the Articles of Merger by the appropriate state agencies,
including, without limitation, the State Department of Assessments and Taxation
of the State of Maryland. The Company anticipates that the Mergers will become
effective as promptly as practicable following shareholder approval of the
Reorganization at the Annual Meeting.
Upon consummation of the Mergers, Liberty and its stockholders will be
governed by Liberty's Articles and Bylaws, which will include a number of
provisions which are not in the Current Declaration of Trust and Regulations.
See "Certain Changes in the Rights of Shareholders Resulting from the
Reorganization." These provisions of the Articles and Bylaws of Liberty,
together with certain provisions of the MGCL, may have certain antitakeover
effects. A copy of the proposed Articles and Bylaws of Liberty are set forth in
their entirety as exhibits to the Merger Agreement attached hereto as Annex B.
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At the effective time of the Mergers, each of the persons then serving
as trustees and officers of the Company will become the directors and officers,
respectively, of Liberty. For information concerning the trustees and officers
of the Company, see "PROPOSAL 4 -- Election of Trustees."
At the effective time of the Mergers, it is anticipated that Liberty
Stock will thereafter continue to be listed on the OTCBB in accordance with the
applicable rules of Nasdaq under the symbol "LSSI."
At the effective time of the Mergers, each certificate representing one
Company Share will be deemed for all purposes to represent one share of Liberty
Stock. Cash will be paid in lieu of fractional shares. The registered owner of
any certificates representing Company Shares shall, until such certificates have
been surrendered for transfer, have and be entitled to exercise any voting or
other rights with respect to and to receive any dividends and other
distributions upon the shares of Liberty Stock. Liberty's stockholders are not
requested or obligated to surrender in exchange for certificates representing
shares of Liberty Stock their Company Share certificates.
Upon closing, the expenses associated with the Reorganization of the
Company into Liberty pursuant to the Mergers and the Formation Transactions will
be paid by the Ohio LLC up to $650,000 and thereafter by the Company.
CERTAIN CHANGES IN THE RIGHTS OF SHAREHOLDERS RESULTING FROM THE REORGANIZATION
Your rights as a shareholder of the Company are currently governed by
the Company's Current Declaration of Trust, Current Regulations, California
common law, the CGCL and the rules of Nasdaq. If the Reorganization is approved
by the shareholders of the Company and the Mergers are consummated, Liberty will
be the surviving entity in the Mergers, the separate existence of the Company
will terminate, each outstanding Company Share will be converted into one share
of Liberty Stock and the rights of Liberty Stockholders will be governed by the
MGCL, Liberty's Articles and Bylaws and the rules of Nasdaq. While a number of
the Company's current corporate governance provisions will be included in
Liberty's Articles and Bylaws and, therefore, will not be affected by the
approval of the Reorganization and the consummation of the Mergers, certain
differences between the Company's Current Declaration of Trust and Current
Regulations and Liberty's Articles and Bylaws will result in certain material
differences between your rights as a shareholder of the Company and your rights
as a stockholder of Liberty. Accordingly, you should carefully consider the
changes in your rights that will result from the approval of the Reorganization
and the consummation of the Mergers.
Set forth below is a summary of the principal material differences in
this respect. Because this is a summary, it does not contain all the information
that may be important to you. You should carefully read this Proxy
Statement/Prospectus and the Current Declaration of Trust and Current
Regulations of the Company, copies of which are incorporated herein by reference
to the Company's filings with the SEC, and to the Articles and the Bylaws of
Liberty, copies of which are included as exhibits to the Merger Agreement
attached hereto as Annex B.
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Term of Existence. The Company has a self-liquidating, finite-life
policy which precludes it from acquiring new properties and reinvesting proceeds
from the future sale or refinancing of any properties. The proceeds must be
distributed to shareholders. Liberty will have perpetual-life and will be able
to acquire new properties and reinvest proceeds from the sale of future
properties. See "PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION -- Term of
Existence" above for detailed information on the significance of the
elimination of the self-liquidating, finite-life policy.
General/Authorized Shares. The Company was organized as a common law
business trust under the laws of the State of California pursuant to a
declaration of trust dated June 24, 1982. The Company's declaration of trust was
last amended and restated in the form of the Current Declaration of Trust on May
12, 1992 and amended on July 23, 1993 and February 14, 1995. Liberty was
organized on May 12, 1999 by the Company to acquire, succeed to, and continue
the business of, the Company upon the consummation of the Mergers and has had no
activities to date other than those incident to the Reorganization.
Under the Current Declaration of Trust, the authorized capital shares
of the Company consist of an unlimited number of Company Shares. As of June __,
1999, there were 3,031,618 Company Shares issued and outstanding. The Current
Declaration of Trust permits the Board of Trustees to authorize and issue
additional Company Shares from time to time.
Under its Articles, Liberty has authority to issue up to 50,000,000
shares of Liberty Stock.
Except as described below, all shares of Liberty Stock will have equal
dividend, distribution, liquidation and other rights. Holders of Liberty Stock
have no sinking fund or redemption rights, or any preemptive rights to subscribe
for any securities of Liberty.
The Board of Directors of Liberty generally will have the power to
issue shares of authorized stock without stockholder approval. Other than the
1,000 shares of Liberty Stock owned by the Company which will be canceled in the
Mergers, there are currently no shares of any class of stock of Liberty issued
or outstanding. The Articles authorize the Board of Directors to classify any
unissued shares of Liberty Stock and to reclassify any previously classified but
unissued shares of such stock from time to time, in one or more classes or
series of preferred stock or stock issued from time to time, as authorized by
the Board of Directors. Prior to the issuance of shares of each class or series,
the Board of Directors is required by the MGCL and the Articles to set for each
series the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, as permitted by Maryland law. Such
rights, powers, restrictions and limitations could include the right to receive
specified dividend payments and payments on liquidation prior to any such
payments being made to the holders of the shares of Liberty Stock. The Board of
Directors could authorize the issuance of shares of preferred stock with terms
and conditions that could have the effect of delaying, deferring or preventing a
transaction or a change of control of Liberty that might involve a premium price
for holders of shares of Liberty Stock over the then market price of such shares
or otherwise be in the best interests of such stockholders.
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Since the MGCL requires that the Articles fix the maximum number of
shares that are authorized for issuance by the Board of Directors without
further amendment by the stockholders of Liberty, the authorized capital of
Liberty authorizes a significantly greater number of shares than will be issued
upon the Mergers in order to anticipate current and future needs for
acquisitions, financings, employee benefit plans, stock dividends and splits and
for other corporate purposes. In the event of an unsolicited tender offer or
takeover proposal, the increased number of authorized shares could give the
Board of Directors of Liberty the ability to issue shares in one or more
transactions, which might impede or deter such offer or proposal. Similarly,
shares of preferred stock could also be issued in a manner or with such terms,
provisions and rights including, but not limited to, extraordinary voting,
dividend, redemption or conversion rights that could make more difficult, and
therefore less likely, a change of control of Liberty.
The transfer agent and registrar for Liberty Stock will be EquiServe,
the Company's current transfer agent.
Meetings of Shareholders. The Current Declaration of Trust and Current
Regulations provide for an annual meeting of shareholders to be held each year
on the fourth Tuesday of April in each of the Company's calendar years at the
hour of 2:00 p.m., or such other date and/or time as is fixed by the Board of
Trustees and at the Company's principal offices or at such other location as the
Board shall select. Special meetings of shareholders may be called at any time
by the Chairman of the Board, President or by the Trustees or by any two or more
Trustees or by one or more shareholders holding not less than 10% of the
outstanding Company shares.
The Bylaws of Liberty provide for annual meetings of stockholders to be
held at such time on such day as shall be set by the Board of Directors. Special
meetings of stockholders may be called by the chief executive officer, the
president or the Board of Directors and must be called by the secretary upon the
written request of the stockholders entitled to cast not less than 25% of all
the votes entitled to be cast at the meeting. Under the MGCL, unless requested
by the stockholders entitled to cast a majority of all the votes entitled to be
cast at such meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding twelve months.
Advance Notice of Stockholder Proposals and Director Nominations.
Neither the Current Declaration of Trust nor the Current Regulations contains
any provisions allowing or detailing the process for a shareholder to propose
business to be considered at an annual meeting or for the nomination of
trustees.
Liberty's Bylaws, in contrast, contain detailed provisions concerning
stockholder nominations and stockholder business. Pursuant to the Bylaws, in
order to have a stockholder proposal not more than 120 days prior to the
anniversary date of the immediately preceding annual meeting (the "Anniversary
Date") or for director nomination considered at an annual meeting of
stockholders, stockholders are generally required to deliver certain information
concerning themselves and their stockholder proposal or director nomination;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed
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by more than 60 days from the Anniversary Date, notice by the stockholder to be
timely must be delivered not later than the close of business on the later of
the 120th day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Failure to
comply with such timing and informational requirements will result in such
proposal or director nomination not being considered at the annual meeting. The
purpose of requiring stockholders to give Liberty advance notice of nominations
and other business, and certain information relating thereto, is to ensure that
Liberty and its stockholders have sufficient time and information to consider
any matters that are proposed to be voted on at an annual meeting, thus
promoting orderly and informed stockholder voting. Such Bylaw provisions could
have the effect of precluding a contest for the election of directors or the
stockholder proposals if the proper procedures are not followed, and of delaying
or deferring a third party from conducting a solicitation of proxies to elect
its own slate of directors or to have its own proposals approved.
Action by Consent of Stockholders. The Current Declaration of Trust
provides that any action which may be taken at any meeting of shareholders may
be taken without a meeting, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding Company Shares having a majority or such larger portion thereof as
would be required for a vote of shareholders at a meeting.
In contrast, the MGCL provides that any action required or permitted to
be taken by stockholders of Liberty may be effected by a consent in writing only
if signed by the holders of all of the outstanding Liberty Stock entitled to
vote on the matter.
Elimination of Limitation on Operating Expenses. The Current
Declaration of Trust provides that operating expenses of the Company cannot
exceed the greater of (1) 2% of the book value of invested assets or (2) 25% of
the net income of the Company without adjustment for depreciation, amortization
or extraordinary items; provided that in no event can the operating expenses
exceed 2% of the total assets of the Company under management, less cash, cash
items and unsecured indebtedness.
Liberty will be an internally advised and managed REIT. As such,
Liberty's Articles place no limit on Liberty's operating expenses.
Board of Trustees of the Company Compared to Board of Directors of
Liberty. The Current Regulations provide that the number of trustees shall be
five. Pursuant to the Current Declaration of Trust, a trustee may be removed
with or without cause by the vote or written consent of the holders of a
majority of outstanding Company Shares entitled to vote thereon or by a majority
of the remaining Trustees. Vacancies in the office of a trustee may be filled by
the remaining trustees then in office or by the vote or consent of holders of a
majority of the outstanding Company Shares entitled to vote thereon. Trustees
are elected for one year terms.
Liberty's Articles provide that the number of directors of Liberty
initially shall be five, which number may thereafter be increased or decreased
from time to time by the directors pursuant to Liberty's Bylaws; provided,
however, that the total number of directors shall not be fewer than three,
unless there are less than three stockholders, nor greater than fifteen. The
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directors of Liberty will serve one year terms. The MGCL provides that any
director may be removed from office, with or without cause, by the affirmative
vote of a majority of all the votes entitled to be cast for the election of
directors. However, the Articles contain a provision which permits stockholders
to remove directors from office only for cause. The MGCL also provides that any
vacancy occurring on the Board of Directors may be filled by the affirmative
vote of a majority of the remaining directors, except that a vacancy resulting
from an increase in the number of directors must be filled by a majority of the
entire Board of Directors. By the vote required to elect a director, the
stockholders may fill any vacancy on the Board of Directors resulting from the
removal of a director.
Amendment of Organic Documents of the Company and Liberty. Any
amendment to the Current Declaration of Trust requires the affirmative vote or
written consent of a majority of the outstanding Company Shares.
Pursuant to the MGCL, the approval of the Board of Directors and the
affirmative vote of the holders of shares entitled to cast not less than
two-thirds of the aggregate votes entitled to be cast thereon (considered for
this purpose as a single class) are required to amend the Articles, except that
the Articles provide for a lesser vote requirement (a majority) for amendments
to certain provisions of the Articles.
The Current Regulations of the Company may be amended either by the
vote or written consent of a majority of the Company Shares or by the vote or
written consent of the Board of Trustees.
The Bylaws of Liberty may be amended only by the Board of Directors.
Ownership Limit/Excess Shares. The Current Declaration of Trust
provides that no person may own in excess of 9.8%, or 15% for certain entities,
of the outstanding Company Shares. Any acquisition of Company Shares that is in
excess of the 9.8% (or 15%) ownership limit shall be null and void. Any excess
shares shall be deemed to have been acquired and held on behalf of the Company.
Liberty's Articles provide that no person (except for Mr. Osborne and
his affiliates) may own more than 9.8% of the outstanding Liberty Stock. Any
acquisition of Liberty Stock that is in excess of the 9.8% ownership limit shall
be void AB INITIO. Any excess shares shall be automatically transferred to a
separate trust.
Consolidation, Merger or Sale of Assets. The Current Declaration of
Trust does not expressly provide for the merger, consolidation, reorganization,
liquidation or dissolution and sale, exchange or other disposition of 50% or
more of the assets of the Company upon the affirmative vote or written consent
of a majority of the outstanding Company Shares entitled to vote thereon.
The MGCL generally provides that a consolidation, merger, share
exchange or transfer of all or substantially all of Liberty's assets not in the
ordinary course of business must first be approved by the board of directors and
thereafter by the stockholders by the affirmative vote of
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two-thirds of all the votes entitled to be cast on the matter, except that the
Articles may provide for a greater or lesser percentage of votes, but not less
than a majority of all the votes entitled to be cast on the matter. Liberty's
Articles provide that any consolidation, merger, share exchange or transfer of
all or substantially all of the assets must first be approved by the affirmative
vote of at least two-thirds of the Board of Directors of Liberty and thereafter
must be approved by the vote of a majority of all the votes entitled to be cast
on such matter at a meeting of the stockholders.
Dissolution/Termination. The Company's Current Declaration of Trust
provides that the Company may be terminated or dissolved only upon the
affirmative vote of the holders of a majority of all outstanding Company Shares
entitled to vote thereon at any meeting of shareholders.
The MGCL generally permits the dissolution of a corporation if approved
(1) first by the affirmative vote of a majority of the entire Board of Directors
declaring such dissolution to be advisable and directing that the proposed
dissolution be submitted for consideration at an annual or special meeting of
stockholders and (2) after proper notice as to the purpose of the meeting, by
the stockholders of Liberty by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter.
Limitations on Dissenters' Appraisal Rights. Generally, so long as the
shares of Liberty Stock are listed on a national stock exchange, holders of such
shares who dissent from certain corporate transactions have no right under the
MGCL to an appraisal and payment of the fair value of their shares, except to
the limited extent set forth below. Absent such listing, as a general matter,
the MGCL provides that a dissenting stockholder of a Maryland corporation has
the right to demand and receive the fair value of such holder's stock (so long
as it is not the stock of the successor in a merger), subject to complying with
specified procedures, if the corporation consolidates or merges with another
corporation, engages in a share exchange, transfers all or substantially all of
its assets in a manner requiring stockholder approval, or amends its Articles in
a way that alters the contract rights as expressly set forth in the Articles of
any outstanding stock and substantially adversely affects the stockholders'
rights (unless the Articles reserve the right to make such an amendment, which
Liberty's Articles do).
Certain Business Combinations. Under the MGCL, certain business
combinations, including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities, between a Maryland corporation and an interested stockholder who
beneficially owns 10% or more of the voting power of such corporation's shares
or an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then outstanding voting stock of the corporation or an
affiliate thereof are prohibited for five years after the most recent date on
which the interested stockholder becomes an interested stockholder. Thereafter,
any such business combination must be recommended by the board of directors of
the corporation and approved by the affirmative vote of at least (1) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation and (2) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
interested stockholder with whom (or with whose
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affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's stockholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form as previously paid by the interested stockholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations
that are approved or exempted by the board of directors of the corporation prior
to the time that the interested stockholder becomes an interested stockholder or
that are exempted in a corporation's original articles of incorporation. Liberty
is subject to these provisions of the MGCL, except that Liberty's Articles
contain a provision that exempts Mr. Osborne and his affiliates from the
application of this statute.
Control Share Acquisitions. The MGCL provides that "control shares" of
a Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror, by officers or by directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror, or in respect of which
the acquiror is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (1) one-fifth or more but less than one-third; (2) one-third or more but
less than a majority; or (3) a majority of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses and delivery of an "acquiring person statement"), may compel the
corporation's board of directors to call a special meeting of stockholders to be
held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, the corporation may itself present the question
at any stockholders meeting.
Unless the articles or bylaws provide otherwise, if voting rights are
not approved at the meeting or if the acquiring person does not deliver an
acquiring person statement within ten days following a control share acquisition
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition or of any meeting of stockholders at which the voting
rights of such shares are considered and not approved. Moreover, unless the
articles or bylaws provide otherwise, if voting rights for control shares are
approved at a stockholders' meeting and the acquiror becomes entitled to
exercise or direct the exercise of a majority or more of all voting power, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
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The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction, or to acquisitions approved or exempted by the articles or
bylaws of the corporation. Stockholders of Liberty are subject to the terms of
the control share acquisition statute, except that Liberty's Articles contain a
provision that exempts Mr. Osborne and his affiliates from the application of
the statute.
Limitation of Liability and Indemnification of Trustees and Directors.
Directors of a corporation are generally not responsible for its debts and
obligations. The MGCL permits a Maryland corporation to include in its Articles
a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (1) actual receipt of an improper benefit or profit in money,
property or services or (2) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. Liberty's Articles
contain such a provision which eliminates such liability to the maximum extent
permitted by Maryland law. The Company's Current Declaration of Trust contains a
provision authorizing the Company to indemnify and hold harmless trustees and
officers involved in an action, suit or proceeding.
The Articles authorize Liberty, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to, (1) any present or
former director or officer or (2) any individual who, while a director of
Liberty and at the request of Liberty, serves or has served another corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or trustee
of such corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his or her status as a present or former director or officer of
Liberty. The Bylaws of Liberty obligate it, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (1) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (2) any individual who, while a director of Liberty
and at the request of Liberty, serves or has served another corporation, real
estate investment trust, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Articles and Bylaws
also permit Liberty to indemnify and advance expenses to any person who served a
predecessor of Liberty in any of the capacities described above and to any
employee or agent of Liberty or a predecessor of Liberty.
The MGCL requires a corporation (unless its articles provide
otherwise, which Liberty's Articles do not) to indemnify a director or officer
who has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (1)
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the act or omission of the director or officer was material to the matter giving
rise to the proceeding and (a) was committed in bad faith or (b) was the result
of active and deliberate dishonesty, (2) the director or officer actually
received an improper personal benefit in money, property or services or (3) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (1) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (2) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Inspection Rights. The Current Declaration of Trust, in accordance with
the CGCL, provides that shareholders are entitled to inspect the books of
account of the Company and the share register at any reasonable time upon
written demand for a purpose reasonably related to his or her interests as a
shareholder.
Under the MGCL, Liberty's stockholders have the right to inspect and
copy during usual business hours the Bylaws, minutes of the proceedings of
stockholders, annual statements of affairs and voting trust agreements on file
at Liberty's principal offices. In addition, any stockholder may request in
writing a statement of all stock and securities issued by Liberty during a
specified period of not more than twelve months before the date of such request.
The MGCL also provides additional inspection rights for stockholders who
individually or together are and for at least six months have been stockholders
of record of at least 5% of the outstanding stock of any class of Liberty. These
rights include (1) the right upon written request to inspect and copy during
usual business hours Liberty's books of account and its stock ledger; (2) the
right to require Liberty to produce a statement of affairs verified under oath
by an officer that sets forth in reasonable detail Liberty's assets and
liabilities of a reasonably current date; and (3) if Liberty does not maintain
the original or duplicate stock ledger at its principal office, the right to
obtain from Liberty a list of stockholders setting forth the name and address of
each stockholder and the number of shares of each class that the stockholder
holds, verified under oath by an officer of Liberty or its transfer agent or
registrar.
Trustees' and Directors' Duties. The Current Regulations of the Company
provide that no trustee shall be liable to the Company for any act or omission
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of duty or for the failure to act in good faith in the reasonable
belief that his or her actions are in the best interests of the Company. Under
the MGCL, a director of a Maryland corporation must perform his duties in good
faith, in a manner that he reasonably believes to be in the best interests of
the corporation and with the care of an ordinarily prudent person in a like
position under similar circumstances. Directors of Liberty who act in such a
manner generally will not be liable to Liberty for monetary damages arising from
their activities.
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DESCRIPTION OF AUTHORIZED STOCK OF LIBERTY
The following is a summary description of the authorized and
outstanding stock of Liberty following the Reorganization:
Liberty Stock. Liberty will have 50,000,000 authorized shares of
Liberty Stock.
Distributions. Directors of Liberty may authorize dividends payable in
cash, property or stock as long as, after payment of the dividend, (1) Liberty
is able to pay its debts as they become due in the usual course of business and
(2) Liberty's total assets are at least equal to the sum of its total
liabilities plus, unless the articles permit otherwise (which Liberty Articles
do), the amount necessary, if Liberty were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights on dissolution are superior to those
receiving the dividend. After provisions with respect to preferential dividends
on any then outstanding classes of preferred stock, if any, fixed by the Board
of Directors pursuant to the Articles have been satisfied, and after
satisfaction of any other requirements including with respect to redemption
rights and preferences, of any such classes of Preferred Stock, including with
respect to redemption rights and preferences, then and thereafter the holders of
Liberty Stock will be entitled to receive, pro rata in relation to the number of
shares of Liberty Stock held by them, such dividends or other distributions as
may be authorized from time to time, by the Board of Directors out of assets
legally available therefor.
Liquidation Rights. In the event of the liquidation of Liberty and the
distribution of its assets, after the payment in full or the setting apart for
payment to all creditors of Liberty of the amounts to which they shall be
entitled and subject to such preferential amounts to which the holders of
outstanding preferred stock, if any, shall be entitled, the remaining assets of
the company available for payment and distribution to holders of shares of
Liberty Stock shall, subject to any participating or similar rights of preferred
stock at the time outstanding, be distributed ratably, in accordance with the
number of shares of Liberty Stock held by each such holder, among the holders of
outstanding shares of Liberty Stock.
Voting Rights. Each holder of Liberty Stock is entitled to one vote per
share on all matters to be voted upon by Liberty's stockholders.
Preferred Stock. Liberty will have 2,000,000 authorized shares of
preferred stock. The Board of Directors will have the power to authorize the
issuance of shares of preferred stock with such terms and conditions as
permitted by Maryland law.
FEDERAL INCOME TAX MATTERS
Federal Income Tax Consequences of the Reorganization. The Board of
Trustees intends the Reorganization to qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Code, with the result that no gain
or loss will be recognized by the Company, Liberty or the shareholders of the
Company. The basis of your shares of Liberty Stock received in exchange for your
Company Shares, and the holding period for such shares of Liberty Stock, will be
the same as your basis in, and holding period for (assuming that you hold the
Company
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Shares as capital assets), your Company Shares. The basis and holding period for
the properties of the Company acquired by Liberty upon the consummation of the
Mergers will be the same in the hands of Liberty as they were in the hands of
the Company.
As a condition to the consummation of the Mergers, Kohrman Jackson &
Krantz P.L.L., as counsel to the Company and to Liberty, will render an opinion
to the Company and to Liberty to the effect that the Mergers will qualify as a
tax-free reorganization within the meaning of the Code. Such opinion will be
based on certain factual assumptions regarding the Mergers. In the event that
any of such assumptions or representations are incorrect, the treatment of the
Mergers as a tax-free reorganization under the Code may be adversely affected.
State Taxes. You are encouraged to check with your own tax advisor to
determine whether the tax consequences of the Mergers to you are the same under
applicable income tax laws of the state in which you reside as the tax
consequences to you under the Code.
You are urged to consult your own tax advisors with respect generally
to the tax consequences arising under Federal law and the laws of any state,
municipality or other taxing jurisdiction, including tax consequences resulting
from your own tax characteristics and situation.
The consummation of the Reorganization is contingent upon the approval
of the Declaration Amendment (Proposal 1) and the approval of the Formation
Transactions (Proposal 3).
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
REORGANIZATION.
PROPOSAL 3 -- APPROVAL OF THE FORMATION TRANSACTIONS
OVERVIEW OF THE FORMATION TRANSACTIONS
Overview. The following discussion assumes that the Reorganization has
been consummated. Proposal 3 seeks shareholder approval of the Formation
Transactions, as described more fully below. The effect of the Formation
Transactions would be to redirect the investment focus of the Company from its
prior investment strategy of acquiring mostly commercial and industrial
properties located in selected areas of projected growth in the United States,
to an investment strategy of operating, managing, acquiring, developing,
expanding and investing in self-storage facilities.
The Trustees believe that this restructuring, and the potential
increased liquidity, capacity for growth, and access to capital which Liberty
expects to realize as a result of the restructuring, present an opportunity for
the realization of value to Liberty's stockholders through potential increases
in cash flow available for distribution and through potential appreciation in
the value of Liberty Stock.
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In general terms, the Formation Transactions will result in the
formation of a Delaware limited partnership by Liberty ("LSS I") and the members
of Liberty Self-Stor, Ltd., an Ohio limited liability company (the "Ohio LLC"),
which owns 15 self-storage facilities (the "Properties"). Richard M. Osborne,
the Chairman of the Board and Chief Executive Officer of the Company
("Osborne"), is the sole Manager and owns, with an affiliate, approximately
98.4% of the Ohio LLC. The remaining 1.6% is owned by Thomas J. Smith, the
President and a Trustee of the Company ("Smith"), and Diane Osborne, the wife
of Mr. Osborne. Following the Formation Transactions, Liberty will be the
general partner owning approximately 1% of LSS I and a limited partner owning
approximately 29.91%, and Mr. Osborne and his affiliate, Mr. Smith and Mrs.
Osborne will be the limited partners, owning approximately 69.09% of the limited
partnership. The limited partnership interests of LSS I will be divided into two
classes: Class A and Class B. The members of the Ohio LLC will receive Class A
limited partnership interests and Liberty will receive Class B limited
partnership interests. The Class A limited partnership interests will be
redeemable for cash or, at the election of Liberty, convertible into Liberty
Stock on a one-for-one basis. The effect of the Formation Transactions will be
to restructure the Company into an "umbrella partnership REIT" or "UPREIT." LSS
I will be the sole owner of the Ohio LLC which owns the Properties. The
individuals that currently manage the Properties will continue in that capacity
as the management of Liberty. These individuals have substantial experience in
managing, acquiring, developing, expanding and operating self-storage
facilities. See "The Formation Transactions -- Formation of LSS I Limited
Partnership -- Capital Structure."
The Company will use its best efforts to assure that, following
consummation of the Reorganization and the Formation Transactions, Liberty Stock
will be listed with the OTCBB and be freely-tradeable, and that you will
continue to have the option to hold Liberty Stock or trade it in the open
market. Subsequent to the Formation Transactions and the Reorganization, the
Company's shareholders will own one share of Liberty Stock for each Company
Share. Cash will be paid in lieu of fractional shares. No changes in the rights
of the holders of the Company Shares will be effected by the Formation
Transactions. The Formation Transactions will be accounted for using the
purchase method of accounting. See "ACCOUNTING TREATMENT OF THE FORMATION
TRANSACTIONS" below. The Company and the Ohio LLC believe that the Formation
Transactions will not affect the qualification of Liberty as a Areal estate
investment trust" under Sections 856 through 860 of the Code. LSS I will be
taxed as a partnership (rather than an association taxable as a corporation) for
federal income tax purposes. See "FEDERAL INCOME TAX CONSEQUENCES" and "TAX
ASPECTS OF LIBERTY'S INVESTMENT IN LSS I."
Absent approval and consummation of the Formation Transactions, the
Trustees believe that the Company will be forced to liquidate and you will
realize only your ratable portion of any net liquidation proceeds.
Certain Conflicts of Interest. In considering the recommendation of the
Trustees in respect of the Formation Transactions, you should be aware that
certain of the Trustees have interests in the Formation Transactions that are in
addition to the interests of the Company's shareholders generally and that
certain conflicts of interest may arise from the consummation of the Formation
Transactions.
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Mr. Osborne, through Turkey Vulture Fund XIII, Ltd., an Ohio limited
liability company of which Mr. Osborne is sole Manager (the "Fund"), owns 9.8%
of the outstanding Company Shares. Mr. Osborne and his affiliate own 98.4% of
the Ohio LLC and will receive limited partnership interests in LSS I in exchange
for his membership interests in the Ohio LLC. Mr. Osborne and the other Ohio LLC
members will receive 6,776,269 limited partnership interests in LSS I in
exchange for their membership interests in the Ohio LLC. Therefore, Mr. Osborne
and his affiliate will receive 98.4% of the Class A limited partnership
interests, or 6,667,849 limited partnership interests. Mr. Osborne and the other
limited partners will own 69.09% of LSS I, with Liberty owning the remaining
30.91%. The Class A limited partnership interests in LSS I owned by the members
of the Ohio LLC are redeemable for cash or, at the election of Liberty,
convertible into Liberty Stock, on a one-for-one basis. Including 297,344 shares
of Liberty Stock that will be held by an affiliate of Mr. Osborne upon
completion of the Formation Transactions, Mr. Osborne would, upon conversion,
own 6,965,193 shares of Liberty Stock, or approximately 71% of Liberty Stock
then outstanding. No such conversion into Liberty Stock will be permitted if
Liberty and its independent directors determine that such conversion would be
likely to disqualify Liberty as a REIT. Because Liberty is the general partner
of LSS I and because Mr. Osborne and his affiliates limited partnership
interests amount to 67.98% of LSS I, Mr. Osborne, Chairman of the Board and
Chief Executive Officer, will face conflicts of interest in making
determinations regarding LSS I.
Payment of Expenses. Upon closing the Ohio LLC will pay the costs of
the Reorganization and Formation Transactions up to $650,000 and thereafter
Liberty will pay all costs. See "INTERESTS OF CERTAIN PERSONS IN THE FORMATION
TRANSACTIONS."
BACKGROUND OF THE FORMATION TRANSACTIONS
The Company was organized as a business trust under the laws of the
State of California pursuant to a declaration of trust, dated June 24, 1982, and
commenced operations on April 12, 1983. The Company's original name was "Sierra
Real Estate Equity Trust '83." On October 11, 1991, the Company changed its name
to "Meridian Point Realty Trust '83." The Amended and Restated Declaration of
Trust of the Company was filed on May 12, 1992 and amended on July 23, 1993 and
February 14, 1995.
The Company is a self-liquidating, finite-life business trust which
elected to operate as a REIT for federal income tax purposes. Pursuant to the
Company's self-liquidating, finite-life policy as set forth in the Current
Declaration of Trust, net proceeds from the sale or refinancing of the Company's
properties were distributed to shareholders rather than reinvested in additional
properties. As a result of this self-liquidating policy, at the time the Company
commenced operations its anticipated life-span was seven to ten years, although
the exact timing and extent of liquidating distributions were subject to various
factors, including the real estate market and general economic conditions.
The Company's original objective was to make equity investments in
income-producing industrial and commercial real estate in selected areas of
projected growth in the United States. Prior to February 23, 1996, the Company
had an interest in ten properties, all but one of which (the Charleston
property) were sold on that date to Meridian Industrial Trust, Inc. ("MIT"). As
a result of this sale, the Company paid a dividend on March 22, 1996 of
$1,000,434 in cash (or $0.33 per share) and 390,360 shares of MIT common stock
(or 0.1287 of a share of MIT per Company Share) to shareholders of record on
March 12, 1996. At that time, the Company stated
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that its principal objective was to sell the Charleston property, adopt a plan
of liquidation, distribute its net assets to its shareholders and then
liquidate.
In November 1996, the former Board of Trustees engaged in a discussion
about the possibility of selling the Company after the sale of the Charleston
property. An investment banker was interviewed who offered to locate a purchaser
for the Company and negotiate and handle the sale. As the prospect of selling
the Charleston property improved in mid-1997, the former Board consulted further
with the investment banker regarding the process of selling the Company and
considered whether this should be pursued. On July 8, 1997, the investment
banker was engaged to seek potential buyers of the Company.
During this period, Mr. Osborne was making requests that the Company
hold an annual meeting and provide him with a shareholders' list. Mr. Osborne
had also indicated, in an amendment to his Schedule 13D filing with the SEC, his
intent to work together with Mr. Calabrese (a current Trustee of the Company),
Meredith Partners (a former shareholder of the Company) and the Company's
management at the time to create value for shareholders. The stated intent was
to try to convince management to take steps to have the shareholders convert the
Company to a perpetual-life REIT.
When the sale of the Charleston property became imminent, the former
Board of Trustees discussed the progress being made to explore selling the
Company as an alternative to liquidation and dissolution. On August 14, 1997,
the former President of the Company, set October 9, 1997 as the date for a
special meeting of shareholders.
On August 21, 1997, the Company sold the Charleston property which
consisted of six research and light industrial buildings, totaling 119,041
square feet of space on an eight-acre site adjacent to the Bayshore Freeway in
Mountain View, California. The total sale price was $13 million less a $1.35
million credit for estimated environmental remediation work and related costs
resulting in a net sale price of $11.65 million. The Company realized a gain of
approximately $4.349 million on the sale. The Company announced at the time of
the sale that the Board of Trustees was in the process of evaluating the options
available to the Company, including sale or liquidation of the Company.
Following the sale of the Charleston property, the Company's assets consisted
mostly of cash and cash equivalents and its only income was from investment of
its remaining funds. Accordingly, the former Board of Trustees declared a
dividend in the amount of $3.00 cash per share, which was paid on September 12,
1997 to shareholders of record on September 2, 1997. The remainder of the
proceeds from the sale of the Charleston property were held pending a decision
by the former Board as to the best course of action for the Company to pursue.
In connection with the Company's sale of its last property, the
Charleston property, in August 1997, $1.35 million was held-back from the $13.0
million sale price for estimated remediation work. In the late 1980s, the San
Francisco Bay Region of the California Regional Water Quality Control Board (the
"RWQCB") requested that the Company investigate and characterize soil and
groundwater contamination of the Charleston property. The Company engaged an
environmental engineering from that discovered the presence of trichloroethylene
and other solvent chemicals in the groundwater. The RWQCB deferred issuing a
Site Cleanup
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Requirements ("SCRs") order to give the Company time to complete the pending
sale of the Charleston property. As part of the sale, the purchaser agreed to
indemnify the Company broadly against the pending SCRs and other types of
environmental claims. Its indemnity is backed by an environmental insurance
policy. It is possible that the RWQCB could still name the Company as a
potentially responsible party when it ultimately issues its SCRs order for the
property based on the Company's former ownership. If that occurs the Company
could tender the SCRs order to the purchaser for compliance. Similarly, the
Company would tender any environmental claim brought against it to the purchaser
pursuant to the indemnity.
During this period, the investment banker was making inquiries and
seeking indications of interest from various parties, including Mr. Osborne, in
purchasing the Company. The investment banker presented the former Board of
Trustees with the status of his inquiries, including details on those expressing
interest, his evaluation of the prospects and the results of his due diligence.
Negotiations ensued with one of the prospects for a transaction where the
proposed structure included the issuance of additional stock by the Company for
cash, the issuance of warrants and the allocation of values in connection with
the contribution of the properties for shares. The former Board was not
agreeable to such issuance because it believed that such an issuance appeared to
be inconsistent with the self-liquidating policy.
After reviewing and rejecting another potential prospect, the former
Board of Trustees concluded that the alternatives to proceeding with liquidation
were not as likely to assure greater value for shareholders. On December 16,
1997, the former Board announced the adoption of a plan of liquidation and
dissolution for the Company and proposed that the plan be submitted to the vote
of the shareholders at an annual meeting to be held in 1998.
Between December 15, 1997 and January 8, 1998, two of the prospects
revised their proposals and another party expressed interest in exploring an
offer. The former Board of Trustees, in analyzing these proposals, was concerned
over the risk to shareholders as compared to liquidation, but determined that
management should look into these proposals. However, the former Board continued
to move forward with their plans to hold an annual meeting.
The former Board of Trustees rejected proposals submitted by several
prospects during the first part of 1998 and discussions with others dissipated.
There were, at the time of the annual meeting in September 1998, no open offers
being considered by the former Board and there were no ongoing purchase-related
discussions between the Company and third parties since mid-July 1998.
On July 1, 1998, the former Board of Trustees adopted resolutions to
hold the annual meeting of shareholders to consider and vote on, among other
things, the election of trustees and the approval of a plan of liquidation and
dissolution. The current members of the Board of Trustees formed the "Meridian
'83 Shareholders' Committee for Growth" (the "Committee") and filed a proxy
statement in opposition to the then trustees to elect their own nominees as
trustees of the Company and to oppose the approval of the plan of liquidation
and dissolution presented by the former Board of Trustees. Because the Committee
was aware that the former Board had explored other alternatives, in the
Committee's proxy statement, the Committee indicated that it would seek
conversion of the Company's self-liquidation policy to a perpetual-life policy,
that it
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had identified self-storage facilities as one possible type of
investment that may be suitable for the Company and that it would consider a
merger with a real estate company that owns self-storage facilities including
merging with an entity controlled by Mr. Osborne.
In its proxy statement for the September 1998 meeting, the former Board
proposed a plan of liquidation and dissolution. It estimated that the Company's
operating costs in anticipation of liquidation (including extended insurance
coverage) would increase to about $377,000 for four months and $437,000 for six
months and that the costs of the September 1998 annual meeting, liquidation and
dissolution would range from $165,000 to $200,000. Therefore, the former Board
estimated that the total costs for the plan of liquidation and dissolution to be
$542,000 to $637,000, before taking into account the establishment of any
reserves. Assuming net assets of $2,500,000 (at June 30, 1998), the former Board
estimated that as much as $1,940,000, or $0.63 per share, or, assuming a
$350,000 reserve, as little as $1,513,000, or $0.50 per share, could be
available for distribution to shareholders. The liquidation value, if calculated
today, would be significantly less based on the Company's net asset value of
$1,992,509 as of March 31, 1999. Assuming net assets of $1,992,509 (at March 31,
1999) and based on the former Board's estimated operating, meeting, liquidation
and dissolution costs, the amount available for distribution to shareholders
currently ranges from as much as $1,450,509, or $0.48 per share, to, assuming a
$350,000 reserve, as little as $1,005,509, or $0.33 per share.
The annual meeting of shareholders of the Company was held on September
22, 1998. The shareholders of the Company elected the Committee's nominees and
the plan of liquidation and dissolution was not approved. The final vote was
certified by the inspector of elections on September 28, 1998 and the
Committee's nominees became the members of the Board of Trustees of the Company.
Because the Company ceased to own any properties in August 1997 and the
Current Declaration of Trust forbids the Company from investing the cash in
additional properties, the current Board of Trustees was faced with few
opportunities, not already explored by the former Trustees, to enhance
shareholder value. The current Board decided, as it had indicated in their proxy
statement, that the merger of the Company with a limited liability company
controlled by Mr. Osborne that owns self-storage facilities was the best option
for the Company and its shareholders. Based on the results of the September 1998
election, the current Board did not consider any other alternatives.
The current Board of Trustees has retained the investment banking firm
of Robert A. Stanger & Co., Inc. ("Stanger") to render a fairness opinion (the
"Fairness Opinion") in connection with the Formation Transactions.
The remaining documentation needed to implement the Formation
Transactions was finalized to the extent practicable by the date hereof; on the
date hereof Stanger delivered its Fairness Opinion to the Board of Trustees as
to the fairness, from a financial point of view, to the Company's shareholders
of the allocation of interests in LSS I in connection with Formation
Transactions, and the Trustees approved the execution of the final
documentation, subject to the receipt of shareholder approval. See "PORTFOLIO
APPRAISAL & FAIRNESS OPINION" below.
THE FORMATION AGREEMENT
The Company has agreed to the Formation Transactions pursuant to a
Formation Agreement, dated as of May 12, 1999, among the Company, Liberty, the
Ohio LLC and the members of the Ohio LLC (the "Formation Agreement"). The
Formation Agreement provides the framework for the Formation Transactions, sets
forth certain representations, warranties and covenants made by the parties in
connection with its execution, and provides for indemnification and the
termination of the agreements among the parties upon the occurrence of certain
events, all as set forth more fully below.
The following is a summary of the material terms of the Formation
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
Annex C, the Partnership Agreement (as defined below), a copy of which is
attached to this Proxy Statement/Prospectus as Annex D, and of certain other
agreements to be entered into pursuant thereto. YOU ARE ENCOURAGED TO READ THE
ENTIRE FORMATION AGREEMENT AND THE PARTNERSHIP AGREEMENT AS WELL AS THIS PROXY
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STATEMENT/PROSPECTUS AND THE OTHER DOCUMENTS REFERRED TO HEREIN PRIOR TO MAKING
ANY DECISION AS TO WHETHER TO VOTE IN FAVOR OF THIS PROPOSAL.
FORMATION OF LSS I LIMITED PARTNERSHIP
Overview. The Formation Agreement provides for the organization of LSS
I Limited Partnership, a Delaware limited partnership ("LSS I"), in which
Liberty will be the general partner and a Class B limited partner and Mr.
Osborne and his affiliate and the other members of the Ohio LLC (Mr. Smith and
Mrs. Osborne) will be the Class A limited partners. LSS I will be organized
pursuant to a limited partnership agreement (the "Partnership Agreement" and
together with the Formation Agreement, the "Formation Documents"). The
Partnership Agreement provides that each member of the Ohio LLC will exchange
his, her or its membership interests in the Ohio LLC for Class A limited
partnership interests in LSS I, at net asset value. Liberty will assume the debt
of the Ohio LLC at the time of contribution of the membership interests. The
Ohio LLC will remain an obligor of the debt of the Ohio LLC, and Mr. Osborne
will remain a guarantor. After the contribution, LSS I will be the sole member
of the Ohio LLC. Liberty will contribute cash and securities, net of any
liabilities, to LSS I in exchange for its general partnership interest and Class
B limited partnership interests. The Company presently estimates the amount of
the net assets to be contributed to be approximately $2.0 million; however, the
actual amount of net assets to be contributed may vary based upon the level of
expenses incurred by the Company through the date of consummation of the
Formation Transactions. Such contribution will be funded from the Company's
available net assets as of the date of consummation of the Formation
Transactions.
Capital Structure. LSS I will have one general partner, Liberty. The
limited partnership interests of LSS I will be divided into two classes: Class A
and Class B. The Class A limited partnership interests, which will be owned by
the members of the Ohio LLC, will be redeemable for cash or, at the election of
Liberty, convertible into shares of Liberty Stock, on a one-for-one basis. No
such conversion will be permitted for a particular Class A limited partner if
Liberty determines that such conversion might disqualify Liberty as a REIT.
The Class B limited partnership interests in LSS I will be held by
Liberty and will not be entitled to redemption or a preferred return.
The Partnership Agreement also provides for the issuance of additional
classes of limited partnership interests.
If all of the Class A limited partnership interests were converted into
Liberty Stock, Mr. Osborne and his affiliates, based on the 98.4% ownership
interest in the Ohio LLC and the 297,344 shares of Liberty Stock that will be
held by an affiliate of Mr. Osborne upon completion of the Formation
Transactions, would hold 6,965,193 shares of Liberty Stock, or
approximately 71% of the total number of shares of Liberty Stock then
outstanding. No conversion of Class A limited partnership interests will be
permitted if Liberty determines that such conversion might disqualify Liberty
as a REIT.
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Ownership Percentages. Based on net asset value, Liberty's general
partnership interest in LSS I will be 1% and its limited partnership interest
will be 29.91% and Mr. Osborne and the other limited partners' ownership
interest will be 69.09%. Based on such percentages, LSS I will issue to (1)
Liberty 98,079 general partnership interests and 2,933,539 Class B limited
partnership interests, and (2) Mr. Osborne and the other limited partners
6,776,269 Class A limited partnership interests. These percentages are based
on the Net Asset Value (as calculated below) to be contributed by Liberty and
the members of the Ohio LLC. See page 63 for "Calculations of Net Asset Value
to be Contributed in the Formation Transactions."
Maryland Law. As a condition to the contribution of the membership
interests in the Ohio LLC, Liberty will waive the requirements of, or provide an
exemption with respect to, Subtitles 6 and 7 of Title 3 of the MGCL as they may
relate to Mr. Osborne and his affiliates and, to the extent necessary, the other
limited partners. Subtitle 6 of Title 3 of the MGCL prohibits a Maryland
corporation from engaging in business combinations with stockholders who control
10% or more of the voting power of such corporation for a period of five years
following the date such stockholder became a 10% stockholder, except for certain
limited exemptions. Subtitle 7 of Title 3 of the MGCL states that "control
shares" of a Maryland corporation acquired in a "control share acquisition" have
no voting rights except to the extent approved by two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror, by officers or directors who are employees of the corporation.
Liberty's Articles provide that Mr. Osborne and his affiliates are not subject
to these provisions. See "Proposal 2 -- Certain Changes in the Rights of
Shareholders Resulting from the Reorganization -- Certain Business Combinations"
and "Control Share Acquisitions."
Representations and Warranties. The Ohio LLC and Mr. Osborne as its
managing member will make certain representations and warranties to the Company
and Liberty, including representations and warranties as to the material
accuracy of all information furnished to the Company and Liberty with respect to
the Ohio LLC and the Properties, the Ohio LLC's title to the Properties, the
compliance by the Properties with all applicable laws and regulations, certain
environmental, zoning and similar matters, the absence of litigation or
regulatory proceedings in respect of the Properties and other customary matters.
Transferability of Interests. Liberty will be not be able to withdraw
voluntarily from LSS I or transfer or assign its interest in LSS I except under
certain limited agreed upon circumstances. With certain agreed upon limited
exceptions, the limited partners will not be able to transfer their interests in
LSS I without the consent of Liberty.
Capital Contributions. If LSS I requires additional funds in excess of
funds available to it from borrowings or capital contributions, Liberty may
borrow those funds and lend those funds to LSS I on the same terms and
conditions as are applicable to Liberty's borrowing. As an alternative to
borrowing funds required by LSS I, Liberty may issue additional shares of
Liberty ("Additional Securities") and contribute the proceeds from such issuance
to LSS I. If Liberty so
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<PAGE> 67
contributes the proceeds, LSS I shall issue to Liberty partnership interests
with rights substantially similar to those of the Additional Securities. The
partnership interests of the limited partners will be correspondingly decreased
or adjusted in connection with the issuance by LSS I.
No Sale of Properties. The Partnership Agreement provides that the
Properties cannot be sold by LSS I for ten years from the date of execution of
the Partnership Agreement, except that LSS I is permitted to enter into a
like-kind exchange (as defined in Section 1031 of the Code) with respect to any
portion or all of the Properties to the extent that such exchange will not cause
a recognition of gain under Section 704(c) to the members of the Ohio LLC.
Rights, Powers and Duties of Partners. Liberty, as the sole general
partner of LSS I, will have full, exclusive and complete responsibility for and
discretion in the management and control of LSS I, and the limited partners will
have no authority to transact business for, or to participate in the management
activities or decisions of, LSS I. However, any amendment to the Partnership
Agreement that would (1) seek to impose additional personal liability on the
limited partners, (2) affect the allocation of profits and losses and
distributions between the partners, or (3) impose on the limited partners any
obligation to make additional contributions to the capital of LSS I, would
require the consent of limited partners holding more than 65% of the limited
partnership interests.
LSS I will be operated in a manner that will enable Liberty to satisfy
the requirements for being classified as a REIT and to avoid any federal income
tax liability, unless Liberty determines no longer to seek classification as a
REIT.
Termination of Partnership. LSS I will continue for perpetuity, or
until sooner dissolved upon (1) the bankruptcy, dissolution or withdrawal of
Liberty (unless the limited partners elect to continue LSS I), (2) the 90th day
following the sale or other disposition of all or substantially all the assets
of LSS I, (3) the redemption of all Class A limited partnership interests in LSS
I, or (4) the election of Liberty (but only in accordance with and as permitted
by applicable law).
Distributions; Allocations of Profits and Losses; Tax Matters.
Distributions from LSS I will be made at the discretion of Liberty as the sole
general partner of LSS I. Generally, all distributions from LSS I will be made
to Liberty and the limited partners concurrently, and will be allocated to
Liberty, on the one hand, and to the limited partners, on the other, on a pro
rata basis by reference to their respective percentage interests in LSS I.
Accordingly, the income and expenses of Liberty that will be reflected in the
financial information to be provided to the stockholders of Liberty will be the
income and expenses of LSS I, adjusted to deduct the interests of the partners
other than Liberty.
LSS I will make cash distributions from cash from operations (including
net sale or refinancing proceeds that are not reinvested, but excluding net
proceeds from the sale of LSS I's property in connection with the liquidation of
LSS I) quarterly, in amounts determined by Liberty in its sole discretion, to
the partners in accordance with their respective percentage interests in LSS I.
Liberty intends to make any distributions necessary to comply with the income
distribution requirements of the REIT rules. Upon liquidation of LSS I, after
payment
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<PAGE> 68
of, or adequate provision for, debts and obligations of LSS I (including
any partner loans), any remaining assets of LSS I will be distributed to all
partners with positive capital accounts in accordance with their respective
positive capital account balances.
Profits, losses and other items of income, gain, loss and credit of LSS
I generally will be allocated among the partners in accordance with their
respective interests in LSS I pursuant to Section 704(b) of the Code, except to
the extent that LSS I is required, pursuant to Section 704(c) of the Code, to
allocate depreciation deductions relating to, or gain on sale of, the Properties
in a different manner.
Liberty will be the tax matters partner of LSS I and, accordingly, will
have authority to make tax elections under the Code on behalf of LSS I.
Additional Capital Sources. The Company will use its best efforts to
locate additional financing sources. In addition, the Company will use its best
efforts to obtain a line of credit in an amount up to $50 million. There is no
assurance that the Company will be able to obtain additional financial sources
on terms favorable to the Company.
Management. The Company intends that Liberty will be self-managed after
completion of the Formation Transactions. The individuals that currently manage
the Properties for the Ohio LLC will manage the Properties for Liberty. These
individuals have substantial experience in managing, acquiring, developing,
expanding and operating self-storage facilities. Thomas J. Smith will remain as
President and Chief Operating Officer and Ronald L. Ramer will continue as Chief
Financial Officer. Upon completion of the Formation Transactions, Liberty will
hire the appropriate additional staff. If necessary to comply with REIT
requirements, concurrently with the completion of the Formation Transactions or
in future, Liberty would form a subsidiary to hold non-real estate assets. The
subsidiary's ownership structure will comply with all technical REIT
requirements and the economic structure will result in Liberty receiving
substantially all the economic benefits of the operation of the subsidiary.
Representations and Warranties. Each party to the Formation Agreement
has made representations and warranties to the other parties thereto as to the
consents and approvals necessary for its consummation of the transactions
contemplated by the Formation Agreement, its legal existence, maintenance of
insurance, ownership of its respective assets, and certain other matters.
Termination. The Formation Agreement provides that it may be terminated
if the transactions contemplated by the Formation Agreement have not been
consummated by October 31, 1999, and the Formation Transactions may be abandoned
at any time thereafter by any party by written notice to the other parties.
Conditions. The Formation Transactions are subject to the following:
- Approval by an affirmative vote of 50% of the votes cast by
Meridian shareholders (other than Mr. Osborne or his affiliates);
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<PAGE> 69
- Compliance with Nasdaq Marketplace Rules to the extent applicable;
- The absence of any order, decree or injunction of a court, agency
or tribunal of competent jurisdiction that enjoins or prohibits
the consummation of the Formation Transactions.
THE PROPERTIES
As of June ___, 1999, the Ohio LLC owns and operates the fifteen (15)
Properties containing an aggregate of 565,640 square feet. Twelve of the
Properties are located in Ohio and the other three Properties are located in New
York. The Ohio LLC owns 100% fee interest in each of the Properties. The
following table provides an overview of certain information regarding the
Properties:
<TABLE>
<CAPTION>
YEAR BUILT/ RENTABLE OCCUPANCY
LOCATION EXPANDED SQUARE FT. AT 12/31/98 ACRES UNITS CONSTRUCTION
- -------- -------- ---------- ----------- ----- ----- ------------
OHIO:
<S> <C> <C> <C> <C> <C> <C>
Avon 19811986/1998 67,423 70.50% 6.1225 495 Masonry & Steel
Canton 1979-87 41,175 50.80% 11.1533 388 Concrete
Catawba 1988/1998 43,052 51.30% 7.57 302 Steel
Cleveland 1997 40,150 98.20% 3.6801 278 Steel
Dayton 1989 19,550 92.70% 5.001 206 Concrete
East Canton 1997 26,700 69.50% 12.6298 177 Steel
East Liverpool 19861996 29,990 93.20% 11.49 222 Steel
Louisville 19881990 53,060 75.80% 6.828 364 Masonry
Mentor 1983 20,382 4.70% 6.000 204 Masonry
Perry 1992/1997 63,950 69.00% 6.194 397 Steel
Ravenna 1988 16,950 84.70% 1.785 150 Steel
Willoughby 1997 33,998 68.10% 2.37 276 Masonry
NEW YORK:
Endicott 1989 35,580 73.70% 4.993 297 Concrete/Steel Roof
Southold 1989 53,055 88.90% 6.949 552 Steel
Riverhead 1985-1986 20,625 90.00% 3.045 183 Steel
----------------------------------------------------
TOTAL/AVERAGE 565,640 72.07% 95.8107 4,491
=====================================================
</TABLE>
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<PAGE> 70
In the course of due diligence in connection with the Formation
Transactions, the Company conducted Phase I environmental audits of each of the
Properties and appraisals of the Properties were conducted by Stanger. The Phase
I environmental audits showed no environmental contamination, and, therefore, no
need for remediation.
Mortgages. The Willoughby, Perry, Canton, Catawba, East Canton,
Louisville, Ravenna, East Liverpool, Dayton, and Endicott Properties are all
encumbered by mortgages which secure a $10,300,000 loan from The Provident Bank
("Provident") to the Ohio LLC. The loan is at a variable rate of interest equal
to 2.25% over the average yield on United States Treasury Securities adjusted
to a constant maturity of three years. The rate for the initial three-years was
fixed at 7.72% and will adjust on June 1, 2001 for the final two years with
maturity to occur on June 1, 2003. The loan is amortized over 20 years. Current
monthly payments are $84,367 per month. The loan is personally guaranteed by
Richard M. Osborne.
The Catawba Property is further encumbered by a mortgage securing a
$265,087 construction and development loan from Provident to the Ohio LLC. The
loan has an initial interest rate equal to the prime rate, which as of July 1,
1999 converts to a rate equal to 2.25% over the average yield on U.S. Treasury
Securities adjusted to a constant maturity of two years. The interest rate will
be re-adjusted as of June 1, 2001 for determining the payments during the last
two years of the loan, which matures June 2003. Payments are interest only
through May 31, 1999 and thereafter convert to the variable rate discussed
above, using a 23-year amortization period. This note is personally guaranteed
by Richard M. Osborne.
The Avon Property is encumbered by a mortgage securing a $554,704
construction and development loan from Provident. The terms of this loan are
identical to those for the $262,977 loan encumbering the Catawba facility,
except that the variable rate is 2.25% over the average yield on U.S. Treasury
Securities adjusted to a constant maturity of three years. The Avon Property is
also encumbered by a $940,000 loan, maturing October 31, 2002, from Provident,
guaranteed by Richard M. Osborne. The loan has an interest rate of 8.02%.
Current monthly payments are $7,268 per month, with a 25 year amortization
period.
The Mentor Property is encumbered by a mortgage securing a $1,200,000
loan from First Merit Bank, N.A. The interest rate on the loan is fixed at 8%
and the loan matures March 30, 2003. The loan provides for 59 monthly payments
of $11,579.09 each and a final balloon payment of $960,871.21, equal to the
remaining principal balance and accrued interest due at maturity. The note is
personally guaranteed by Richard M. Osborne.
The Southold Property is encumbered by a mortgage with Provident in the
amount of $2,500,000, which matures June 2003. Current monthly payments are
$17,296. The initial interest rate is prime which converts on June 30, 2000 to
2.50%, the average yield on U.S. Treasury securities adjusted to a constant
maturity of three years. The loan provides for interest only payments through
June 30, 2000 and thereafter converts to the variable rate discussed above,
using a 20-year amortization. This note is guaranteed by Richard M. Osborne.
The East Liverpool Property is encumbered by a $250,000 second mortgage
with Rt. 11 Storage Park, Inc. Current monthly payments are $2,000. This note is
guaranteed by Richard M. Osborne.
-58-
<PAGE> 71
The Cleveland Property is encumbered by a mortgage with Shore Bank in
the amount of $1,271,237, maturing on May 20, 2002. Current monthly payments are
$9,695 with an interest rate of 6.8538%, using a 20-year amortization. This note
is guaranteed by Richard M. Osborne.
The Riverhead Property is encumbered by a mortgage with James R. Stark
and Patricia Stark in the amount of $600,000, maturing May 2004. Current monthly
payments are $5,207, with an interest rate of 8.50%, using a 20-year
amortization. This note is personally guaranteed by Thomas J. Smith. The
Riverhead Property is encumbered by a second mortgage with Provident in the
amount of $350,000, maturing in May 2003. Current monthly payments are $2,260.
Interest is at prime rate until May 31, 2000 when it converts to 2.50% over
the average yield on U.S. Treasury securities adjusted to a constant maturity
of three years. The loan provides for interest only payments through May 31,
2000, and thereafter converts to the variable rate discussed above, using a
20-year amortization. This note is guaranteed by Richard M. Osborne.
PLANS FOR LIBERTY
BUSINESS OBJECTIVES
Liberty was organized to acquire, succeed to, and continue the business
of the Company following the Mergers. Liberty has had no activities to date
other than those incident to the Reorganization. Liberty intends to operate and
be taxed as a REIT. Liberty will operate and manage the 15 self-storage
Properties, as the general partner of LSS I. Liberty will be managed by the
individuals who currently manage the Properties for the Ohio LLC. These
individuals have substantial experience in managing, acquiring, developing,
expanding and operating self-storage facilities. Although Liberty presently
intends to focus its investment strategy on self-storage facilities, the Board
of Directors, in its sole discretion, may change or modify Liberty's investment
objective.
Niche Self-Storage Strategy. Liberty will focus on the acquisition,
expansion and development of a portfolio of self-storage facilities. Liberty
seeks to capitalize on several types of opportunities in self-storage market.
- ACQUISITION PROPERTIES -- Liberty will seek properties in locations
with desirable supply and demand characteristics, with the potential for
higher occupancy rates and nonprofessional management/ownership. Liberty
will seek to acquire such properties at an attractive price and where
appropriate average down its cost by expanding the property to add
additional rental units and incremental, high margin revenues. Liberty
will seek to acquire such properties based on rents and expenses in place
and then undertake a program of cost control and revenue enhancement. To
reduce competition for its acquisitions, Liberty will seek individual
properties (versus bulk acquisitions) and properties which do not meet
the typical size requirements of the major national self-storage
companies (generally below 45,00050,000 square feet). Liberty believes
opportunities
-59-
<PAGE> 72
exist to acquire such properties, and is engaged in discussions with
potential sellers. At this time, Liberty has no outstanding letters of
intent or purchase agreements to acquire any additional properties.
- DEVELOPMENT -- Liberty will have inhouse development/construction
capability and will selectively develop properties in attractive markets.
Liberty intends to focus in geographic areas where the Ohio LLC had
existing real estate relationships or has previously conducted business and
owned properties, including Ohio, New York, North Carolina, New Jersey, Florida,
Indiana, Pennsylvania and Michigan. To promote management efficiency, Liberty
will seek to concentrate acquisitions in each area into "regional clusters."
Upside From Contribution of the Properties. Most of the Properties have
been acquired within the past two years and the Ohio LLC's management is
continuing to upgrade their operations and management. Liberty believes that the
Properties have the potential for cash flow increases from three sources (1)
increasing occupancies to "stabilized" occupancy rates; (2) increasing rental
rates; and (3) planned expansions. The average portfolio occupancy of
approximately 73% reflects 7 unstabilized Properties which the Ohio LLC is in
the process of obtaining additional renters. In addition, approximately 111,000
square feet of expansions, representing a 20% increase in the size of the
Properties, have been planned. These expansions are expected to increase cash
flow due to the low incremental costs associated with their operation.
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<PAGE> 73
ANTICIPATED DIVIDEND POLICY
Liberty will comply with the dividend rules with respect to REITs and
will distribute at least 95% of its REIT taxable income to its stockholders.
COMPOSITION OF THE BOARD OF DIRECTORS AND MANAGEMENT
Upon the consummation of the Formation Transactions, each of the
current Trustees of the Company will become a director of Liberty and each of
the current executive officers of the Company will become an executive officer
of Liberty with the same title. Mr. Osborne will be Chairman of the Board and
Chief Executive Officer, Mr. Smith will be President and Chief Operating Officer
and Mr. Ramer will be Chief Financial Officer of Liberty. In addition, the
individuals who currently manage the Properties for the Ohio LLC will continue
in that capacity as Liberty's management. These individuals have substantial
experience in managing, acquiring, developing, expanding and operating
self-storage facilities. Information about each of the Trustees and Executive
Officers of the Company is set forth under "PROPOSAL 4 -- Election of Trustees."
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
(UNAUDITED)
The unaudited pro forma condensed consolidated balance sheet of Liberty
as of March 31, 1999, set forth below, gives effect to the Reorganization and
the Formation Transactions as if they had been consummated on such date. The
unaudited pro forma condensed consolidated statements of operations and the
unaudited condensed consolidated statements of cash flows for the year ended
December 31, 1998 and for the three months ended March 31, 1999 give effect to
the Reorganization and Formation Transactions as if all such transactions had
been consummated on January 1, 1998. These pro forma statements have been
prepared based on estimates of accounting adjustments and, therefore, are
subject to change.
The following unaudited pro forma financial information has been
prepared from, and should be read in conjunction with, the historical financial
statements and related notes thereto of the Company and the Ohio LLC which are
included elsewhere herein. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Reorganization and Formation Transactions been consummated on
the date as of which, or at the beginning of the period for which, these
transactions are being given effect, nor is it necessarily indicative of future
financial positions or operating results.
LIBERTY
PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
---------------------------------------
PRO FORMA
MERIDIAN OHIO LLC SUBTOTAL ADJUSTMENTS PRO FORMA
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents $ 570,618 $ 68,896 $ 639,514 $ 500,000 B $ (10,486)
(650,000) C
(500,000) D
Investment in Mortgage-Related Assets 1,193,152 - 1,193,152 - 1,193,152
Accounts Receivable - 34,835 34,835 - 34,835
Restricted Cash 361,378 - 361,378 - 361,378
Property, Plant and Equipment (Net) - 12,159,016 12,159,016 10,510,984 E 23,620,000
950,000 F
Goodwill - 911,656 911,656 (911,656) G -
Other 43,717 376,536 420,253 (266,813) H 153,440
------------------------------------------------------- ------------
TOTAL ASSETS $ 2,168,865 $ 13,550,939 $ 15,719,804 $ 9,632,515 $ 25,352,319
=========== ============ ============ =========== ============
LIABILITIES:
Accounts Payable $ 191,508 $ 274,875 $ 466,383 - $ 466,383
Notes Payable - 16,515,482 16,515,482 500,000 B 17,965,482
950,000 F
</TABLE>
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<PAGE> 74
<TABLE>
<CAPTION>
HISTORICAL (A)
---------------------------------------
PRO FORMA
MERIDIAN OHIO LLC SUBTOTAL ADJUSTMENTS PRO FORMA
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accrued Liabilities and Other - 461,804 461,804 - 461,804
Minority Interest - - - 4,481,293 I 4,481,293
------------------------------------------------------- ------------
TOTAL LIABILITIES 191,508 17,252,161 17,443,669 5,931,293 23,374,962
EQUITY 1,977,357 (3,701,222) (1,723,865) (500,000) D 1,977,357
(911,656) G
10,510,984 E
(650,000) C
(266,813) H
(4,481,293) I
------------------------------------------------------- ------------
TOTAL LIABILITIES AND EQUITY $ 2,168,865 $ 13,550,939 $ 15,719,804 $ 9,632,515 $ 25,352,319
=========== ============ ============ =========== ============
Shares Outstanding 3,031,618 3,031,618
Net book value per share $ 0.65 $ 0.65
</TABLE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
A Derived from the historical condensed balance sheets as of March 31,
1999 of the Company and the Ohio LLC.
B Reflects the borrowing of $500,000 by the Ohio LLC against the Southold
property.
C Represents payment of the transaction costs by the Ohio LLC.
D Represents the distribution to the members of the Ohio LLC of the loan
proceeds discussed in B.
E Represents the purchase accounting adjustment to the historical
carrying value of the Ohio LLC's property, plant and equipment. LSS I
will acquire the membership interests in the Ohio LLC in exchange for
limited partnership interests. This transaction will be accounted for
as a purchase, with LSS I as the acquiror. The value of the limited
partnership interests issued as consideration will be based upon the
net asset value of the assets acquired from the Ohio LLC. The only
asset acquired or liability assumed for which the net asset value
exceeds historical carrying value is property, plant and equipment.
Also see notes G and H.
<TABLE>
<CAPTION>
<S> <C>
Appraised value of properties acquired $ 23,620,000
Historical carrying value of property, plant and equipment (12,159,016)
Purchase price of Riverhead property included in
appraised value (950,000)
------------
Purchase price adjustment to property, plant and equipment $ 10,510,984
</TABLE>
F Represents the purchase price of the Riverhead property, all of which
will be acquired with proceeds from long-term borrowings. The long-term
borrowings will bear interest at 8.5% to the extent of $600,000 of
principal, and 7.75% (prime) on the remaining $350,000 of principal.
G Represents the writeoff of the historical goodwill of the Ohio LLC in
the application of purchase accounting.
H Represents the writeoff of the carrying values of other intangible
assets of the Ohio LLC, including deferred financing costs and
noncompete agreements, which will be of no value to Liberty.
I Represents minority interest in LSS I applicable to the limited
partners therein, excluding the limited partnership interest held by
Liberty. The calculation of minority interest is presented below.
<TABLE>
<CAPTION>
<S> <C>
Historical equity (deficit) of the Ohio LLC $(3,701,222)
Writeoff of historical goodwill of the Ohio LLC (911,656)
Payment of transaction costs by the Ohio LLC (650,000)
Writeoff of historical intangible assets
of the Ohio LLC (266,813)
Distribution by the Ohio LLC to its members (500,000)
Purchase accounting adjustment to
property, plant and equipment 10,510,984
Contribution to LSS I by Liberty of its net assets
in exchange for limited and general partnership
interests in LSS I 1,977,357
-----------
Adjusted Equity of LSS I $ 6,458,650
===========
Liberty's interest $ 1,977,357
Minority Interest 4,481,293
-----------
Total equity of LSS I $ 6,458,650
===========
</TABLE>
The above interests of Liberty and the minority interest holders are
based upon the relative values of their contributed interests as of
March 31, 1999, which differs from the values set forth in the
Formation Agreement and may differ from those as of the date of actual
consummation of the Formation Transactions.
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<PAGE> 75
LIBERTY
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
--------------------------------------
PRO FORMA
MERIDIAN OHIO LLC SUBTOTAL ADJUSTMENTS PRO FORMA
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Revenues $ - $ 2,465,981 $ 2,465,981 $ 2,465,981
Interest Income 101,893 1,322 103,215 103,215
------------------------------------------------------ -----------
Total Revenues 101,893 2,467,303 2,569,196 2,569,196
Interest Expense - 1,270,140 1,270,140 47,027 B 1,317,167
Depreciation and Amortization 13,017 423,436 436,453 447,681 C 884,134
General and Administrative 801,701 611,014 1,412,715 1,412,715
Property Operating Expense 100,000 1,005,223 1,105,223 1,105,223
------------------------------------------------------ -----------
Total Expenses 914,718 3,309,813 4,224,531 494,708 4,719,239
Income (Loss) Before Minority Interest and
Extraordinary Item (812,825) (842,510) (1,655,335) (494,708) (2,150,043)
Minority Interest - - - 1,491,700 D 1,491,700
------------------------------------------------------ -----------
Income (Loss) Before Extraordinary Item $ (812,825) $ (842,510) $ (1,655,335) $ 996,992 $ (658,343)
========== =========== ============ =========== ===========
Weighted Average Shares Outstanding 3,031,618 3,031,618
Earnings (loss) Per Share -- Basic and Diluted $ (0.27) $ (0.22)
Ratio of Earnings to Fixed Charges N/A .4x N/A
</TABLE>
LIBERTY
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
-----------------------------------
PRO FORMA
MERIDIAN OHIO LLC SUBTOTAL ADJUSTMENTS PRO FORMA
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Revenues $ - $ 743,310 $ 743,310 $ 743,310
Interest Income 28,114 122 28,236 28,236
-------------------------------------------------- -----------
Total Revenues 28,114 743,432 771,546 771,546
Interest Expense - 308,011 308,011 27,833 B 335,844
Depreciation and Amortization - 117,245 117,245 100,534 C 217,779
General and Administrative 43,266 209,152 252,418 252,418
Property Operating Expense - 278,252 278,252 278,252
-------------------------------------------------- -----------
Total Expenses 43,266 912,660 955,926 128,367 1,084,293
Income (Loss) Before Minority Interest and
Extraordinary Item (15,152) (169,228) (184,380) (128,367) (312,747)
Minority Interest - - - 216,984 D 216,984
-------------------------------------------------------- ----------
Income (Loss) Before Extraordinary Items $(15,152) $(169,228) $(184,380) $ 88,617 $ (95,763)
============ ========== ========== ========= ==========
Weighted Average Shares Outstanding 3,031,618 3,031,618
Earnings Per Share -- Basic and Diluted $ - $ (0.03)
Ratio of Earnings to Fixed Charges E N/A .5x .1x
</TABLE>
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<PAGE> 76
NOTES TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
A Derived from the historical financial statements of the Company and the
Ohio LLC for the year ended December 31, 1998 and the quarter ended
March 31, 1999.
B Represents pro forma interest expense on the $500,000 of borrowings
against the Southold property and the $950,000 of borrowings used to
fund the Riverhead acquisition, net of the elimination of historical
amortization of deferred financing costs.
<TABLE>
<CAPTION>
Year Ended Quarter Ended
Amount Interest 12/31/98 3/31/99
Borrowed Rate Expense Expense
-------- ---- ------- -------
<S> <C> <C> <C> <C>
Southold debt $ 500,000 7.75% $ 38,750 $ 9,688
Riverhead acquisition debt:
Fixed rate 600,000 8.50% 51,000 12,750
Prime rate 350,000 7.75% 27,125 6,781
-------- --------
116,875 29,219
Less amortization of historical
deferred financing costs (69,848) (1,386)
-------- --------
Pro Forma Adjustment $ 47,027 $ 27,833
======== ========
</TABLE>
C Represents additional pro forma depreciation on property, plant and
equipment acquired from the Ohio LLC net of the elimination of
historical amortization of intangible assets. Depreciation is computed
using the straight-line method and is based upon useful lives of 25
years for buildings and improvements and 5 years for personal property.
The purchase price allocations related to the acquired property, plant
and equipment and the related pro forma depreciation is as follows:
<TABLE>
<CAPTION>
Year Ended Quarter Ended
Allocated Estimated 12/31/98 3/31/99
Cost Life Depreciation Expense
--------- --------- ------------- --------------
<S> <C> <C> <C> <C>
Land $ 2,528,966 $ - $ -
Buildings and Improvements 20,919,313 25 836,773 209,193
Furniture, fixtures and other 171,721 5 34,344 8,586
------------ --------- -----------
$ 23,620,000 871,117 217,779
Historical depreciation and
amortization (423,436) (117,245)
--------- -----------
Pro Forma Adjustment $ 447,681 $ 100,534
========= ===========
</TABLE>
D Represents the minority interest in the pro forma net loss of LSS I as
calculated below:
<TABLE>
<CAPTION>
Year Ended Quarter Ended
12/31/98 3/31/99
---------- -------------
<S> <C> <C>
Pro forma net loss of LSS I $ (2,150,043) $ (312,747)
Minority interest ownership 69.38% 69.38%
------------ ----------
Pro Forma Adjustment $ (1,491,700) $ (216,984)
============ ==========
</TABLE>
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<PAGE> 77
E The calculations of earnings to fixed charges are as follows:
Year ended December 31, 1998:
<TABLE>
<CAPTION>
Meridian Ohio LLC Pro Forma
-------- -------- ---------
<S> <C> <C> <C>
Income before minority interest $ (812,825) $ (842,510) $ (2,150,043)
Interest Expense - 1,270,140 1,317,167
Interest component of rent - 53,988 53,988
---------------------------------------
Earnings (812,825) 481,618 (778,888)
Interest Expense - 1,270,140 1,317,167
Interest component of rent - 53,988 53,988
---------------------------------------
Fixed charges $ - $ 1,324,128 $ 1,371,155
Ratio N/A .4x N/A
=======================================
Earnings less than fixed charges $ 812,825 $ 842,510 $ 2,150,043
Quarter ended March 31, 1999:
Meridian Ohio LLC Pro Forma
-------- -------- ---------
Income before minority interest $ (15,152) $ (169,228) $ (312,747)
Interest Expense - 308,011 335,844
Interest component of rent - 13,497 13,497
---------------------------------------
Earnings (15,152) 152,280 36,594
Interest Expense - 308,011 335,844
Interest component of rent - 13,497 13,497
---------------------------------------
Fixed charges $ - $ 321,508 $ 349,341
Ratio N/A .5x .1x
=======================================
Earnings less than fixed charges $ 15,152 $ 169,228 $ 312,747
</TABLE>
The Ohio LLC estimates that 33% of its rental expense represents
interest expense for purposes of the above calculations.
-65-
<PAGE> 78
LIBERTY
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
----------------------------------------
PRO FORMA
MERIDIAN OHIO LLC SUBTOTAL ADJUSTMENTS PRO FORMA
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (812,825) $ (907,009) $ (1,719,834) $ 996,992 B $ (722,842)
Depreciation and amortization - 557,783 557,783 383,182 C 940,965
and extraordinary charge
Minority interest - - - (1,491,700) D (1,491,700)
(Inc.) dec. in accounts receivable - (369) (369) - (369)
Inc. (dec.) in other assets (338,112) (119,726) (457,838) - (457,838)
Inc. (dec.) in payables and accrued
liabilities 83,510 113,677 197,187 - 197,187
-------------------------------------------------------- ------------
Cash flows from operating activities (1,067,427) (355,644) (1,423,071) (111,526) (1,534,597)
-------------------------------------------------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets - (1,597,978) (1,597,978) - (1,597,978)
Proceeds from disposal of fixed assets - - - - -
Investment in mortgage-related assets (2,019,460) - (2,019,460) - (2,019,460)
Return of principal from mortgage-
related assets 800,721 - 800,721 - 800,721
-------------------------------------------------------- ------------
Cash flows from investing activities (1,218,739) (1,579,978) (2,816,717) - (2,816,717)
-------------------------------------------------------- ------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Capital Contributions - 1,063,593 1,063,593 (1,063,593) E -
Distributions - (138,171) (138,171) 138,171 F -
Repayments of debt - (208,186) (208,186) - (208,186)
Proceeds from borrowings - 1,286,369 1,286,369 - 1,286,369
-------------------------------------------------------- ------------
Cash flows from financing activities - 2,003,605 2,003,605 (925,422) 1,078,183
-------------------------------------------------------- ------------
INCREASE (DECREASE) IN CASH (2,286,166) 49,983 (2,236,183) (1,036,948) (3,273,131)
CASH AT BEGINNING OF PERIOD 2,886,339 27,410 2,913,749 (650,000) G 2,263,749
-------------------------------------------------------- ------------
CASH AT END OF PERIOD $ 600,173 $ 77,393 $ 677,566 $ (1,686,948) $ (1,009,382)
=========== =========== ============ ============ ============
</TABLE>
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<PAGE> 79
LIBERTY
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
-------------------------------------
PRO FORMA
MERIDIAN OHIO LLC SUBTOTAL ADJUSTMENTS PRO FORMA
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (15,152) $ (169,228) $ (184,380) $ 88,617 B $ (95,763)
Depreciation and amortization - 118,631 118,631 101,920 C 220,551
Minority interest - - - (216,984) D (216,984)
Gain on disposal of fixed assets - (30,107) (30,107) - (30,107)
(Inc.) dec. in accounts receivable - 1,585 1,585 - 1,585
Inc. (dec.) in other assets (35,522) (62,385) (97,907) - (97,907)
Inc. (dec.) in payables and accrued
liabilities 5,941 186,806 192,747 - 192,747
---------------------------------------------------- -----------
Cash flows from operating activities (44,733) 45,302 569 (26,447) (25,878)
---------------------------------------------------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets - (107,653) (107,653) - (107,653)
Proceeds from disposal of fixed assets - 49,017 49,017 - 49,017
Investment in mortgage-related assets (601,124) - (601,124) - (601,124)
Return of principal from mortgage-
related assets 616,302 - 616,302 - 616,302
---------------------------------------------------- -----------
Cash flows from investing activities 15,178 (58,636) (43,458) - (43,458)
---------------------------------------------------- -----------
CASH FLOW FROM FINANCING
ACTIVITIES:
Capital Contributions - 128,155 128,155 (128,155) E -
Distributions - (50,000) (50,000) 50,000 F -
Repayments of debt - (73,318) (73,318) - (73,318)
---------------------------------------------------- -----------
Cash flows from financing activities - 4,837 4,837 (78,155) (73,318)
---------------------------------------------------- -----------
INCREASE (DECREASE) IN CASH (29,555) (8,497) (38,052) (104,602) (142,654)
CASH AT BEGINNING OF PERIOD 600,173 77,393 677,566 (650,000) G 27,566
---------------------------------------------------- -----------
CASH AT END OF PERIOD $ 570,618 $ 68,896 $ 639,514 $ (754,602) $ (115,088)
========== ========== ========== =========== ===========
</TABLE>
NOTES TO PRO FORMA CONDENSED STATEMENTS OF CASH FLOWS
A Derived from the historical statements of cash flows of the Company and
the Ohio LLC for the year ended December 31, 1998 and the quarter ended
March 31, 1999, as applicable.
B Represents the net effect of pro forma adjustments included in the pro
forma income statement for the relevant period.
C Represents the pro forma adjustment for depreciation and amortization
for the applicable period, consistent with such adjustments included in
the pro forma income statement for the corresponding period.
D Represents the pro forma adjustment for minority interest for the
applicable period, consistent with such adjustments included in the pro
forma income statement for the corresponding period.
E Represents the elimination of historical capital contribution to LSS I
as on a pro forma basis, assuming that no such contributions are made.
F Represents the elimination of historical distributions as on a pro
forma basis, assuming that no distributions to partners or dividends to
shareholders are paid.
G Represents the pro forma use of cash by LSS I to fund transaction
costs, consistent with the adjustment reflected in the pro forma
balance sheet.
-67-
<PAGE> 80
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE COMPANY
The following discussion should be read in conjunction with the
Company's Balance Sheets and Statements of Operations and Cash Flows and the
notes thereto. Unless otherwise defined in this report, or unless the context
otherwise requires, the capitalized words or phrases referred to in this section
either: (1) describe accounting terms that are used as line items in such
financial statements, or (2) have the meanings ascribed to them in such
financial statements and the notes thereto.
-68-
<PAGE> 81
YEAR 2000 COMPLIANCE
The Company is continuing its efforts to assess issues relating to the
capability of its information systems to properly process transactions using
dates beginning in the Year 2000. The Company is attempting to identify affected
software and develop a plan for correcting that software in the most effective
manner. Remediation of any potential issues regarding year 2000 compliance will
likely include the upgrading or replacement of older software with new programs
and systems, which will handle the Year 2000 and beyond. The Company anticipates
that most of the necessary upgrades and replacements will be in place before
mid-1999. The process of physically upgrading the software has already begun.
Because the Company's assets are in financial institutions and
brokerage houses and that the current operations, and consequently its computer
needs, are limited, the Company does not expect that Year 2000 compliance costs
will have any material adverse effect on the Company's liquidity or ongoing
results of operations. Such costs are expected to be less than $5,000. However,
there can be no assurance that the Company will be successful in implementing
its Year 2000 remediation according to the anticipated schedule or that
compliance costs will not have a material adverse effect on the Company's future
liquidity or ongoing results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have changed dramatically
as a result of the February 23, 1996 and August 22, 1997 asset sales and the
June 1998 and March 1999 investment of approximately $2,000,000 in shortterm
mortgage investments. The Company's source of near-term liquidity is its
unrestricted cash, which at March 31, 1999 totaled $570,618 as compared to
$600,173 at December 31, 1998 as compared to $2,886,339 for the same period in
1997, a decrease of 79.2%. These funds are expected to be adequate to satisfy
the Company's overhead and operating expenses in the short term.
An annual meeting of shareholders of the Company was held on September
22, 1998, at which time a proposed plan of liquidation was defeated by
shareholders and a new Board of Trustees was elected. The vote was declared
official on September 28, 1998. Before leaving office, the former Board
purchased additional Directors' and Officers' indemnity insurance at a cost of
$135,000. The former Trustees also created the Meridian Indemnity Trust (the
"Indemnity Trust") to pay for the expenses of defending themselves against
potential litigation. The Indemnity Trust was funded with $350,000 of Company
funds, which along with interest is reflected as "Restricted Cash" on the
Company's accompanying Balance Sheet. Current management is attempting to
negotiate the release of these funds from the Indemnity Trust.
During the three months ended March 31, 1999 and 1998, the Company had
no cash distributions. During the twelve months ended December 31, 1998, the
Company had no cash distributions. In the quarter ended September 30, 1997, the
Company paid a cash dividend of $3.00 per Company Share.
-69-
<PAGE> 82
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
Revenues. Interest and Other Revenues were $28,114 and $35,992 in the
three months ended March 31, 1999 and 1998, respectively, a decrease of $7,878,
or 21.9%. The change was due primarily to the decrease in the Company's average
cash balances available for investment.
Expenses. Legal costs for the three months ended March 31, 1999 and
1998 were comparable at $10,580 and $9,851, respectively.
General and Administrative expenses were $32,686 and $92,399 in the
three months ended March 31, 1999 and 1998, respectively, a decrease of $59,713,
or 64.6%. The decrease was primarily due to the elimination of management fees
paid to E & L and the fact that no fees were paid to trustees in the three
months ended March 31, 1999.
Net Loss. As a result of the factors noted above, net loss was $15,152
or $.01 per share, and $66,258, or $.02 per share, for the three months ended
March 31, 1999 and 1998, respectively. The reduction was primarily due to the
decrease in general and administrative expenses.
1998 COMPARED TO 1997
- ---------------------
Revenues. Rentals from Real Estate Investments totaled $0 and $907,831
for the years ended December 31, 1998 and 1997, respectively. The decrease is
the result of the sale of the Charleston property, the Company's last remaining
property, in August 1997.
Interest and Other Revenues were $101,893 and $272,529 for the years
ended December 31, 1998 and 1997, respectively. The decrease of $170,636, or 63%
from 1998 to 1997 was primarily due to the sale of the Charleston property in
August 1997 and the decreased Company's average cash balances available for
investment following distribution to the shareholders of the proceeds of the
Charleston sale.
Expenses. Interest and Amortization of Debt Discounts totaled $0 and
$262,771 for the years ended December 31, 1998 and 1997, respectively. The
decrease during 1998 was due to the sale of Charleston and the corresponding
payment of its mortgage note payable on August 22, 1997.
Property Taxes for the years ended December 31, 1998 and 1997 were $0
and $79,234, respectively. The decrease was due to the sale of the Charleston
property on August 22, 1997.
Property Operating Costs totaled $100,000 and $318,079 for the years
ended December 31, 1998 and 1997 respectively. The decrease of $218,079, or 69%,
was primarily due to the sale of Charleston on August 22, 1997. The 1998 costs
represent fees paid to E & L.
Legal Costs for the years ended December 31, 1998 and 1997 were
$226,240 and $102,229, respectively. The increase in 1998 of $124,011, or 121%,
was due to costs incurred by the Company prior to the current Trustees taking
office in September 1998 arising from the proposed plan of dissolution and
liquidation, the proxy contest, and the defense of the Fund's lawsuit.
General and Administrative Expenses were $575,461 and $354,684 for the
years ended December 31, 1998 and 1997, respectively. The increased expenditures
of $220,777, or 62%, were primarily incurred prior to September 1998 when the
current Trustees took office and related to former Board of Trustees' evaluation
of the Company's future options, the charges related to the reimbursement of
proxy solicitation costs of $102,613, which reimbursement is conditioned upon
the authorization by the Company's shareholders of the conversion of the Company
to a perpetual-life REIT through an amendment to the Declaration of Trust, and
the purchase by former trustees of the additional Directors' and Officers'
indemnity insurance of $219,143.
For the years ended December 31, 1998 and 1997, Depreciation,
Amortization and Other totaled $13,017 and $16,154, respectively. The 1998
expense represents an unrealized loss on investment in Mortgage-Related Assets.
The 1997 expense represents amortization expense related to the lease
commissions on the Charleston property. Upon entering into an exclusive listing
agreement for the sale of the Charleston property on June 27, 1996, the Company
ceased to depreciate the property. Therefore, the Company did not record any
depreciation expense in
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<PAGE> 83
1997, and recorded only $16,154 of amortization expenses related lease
commissions on the Charleston property.
Net Income (Loss). As a result of the factors noted above, net loss was
$812,825 for the year ended December 31, 1998 compared to net income of
$4,386,840 for the same period of 1997. The 1997 net income is primarily a
result of the gain on the sale of the Charleston property of $4,528,701.
ELECTION FOR REIT STATUS
The Company has previously elected to be taxed as a REIT pursuant to
Section 856(c)(1) of the Code and intends to be taxed as a REIT under the Code
for the fiscal year ended December 31, 1998. The REIT provisions of the Code
generally allow a REIT to deduct dividends paid to shareholders in computing the
Company's taxable income. No provisions for federal or state income taxes have
been made in the accompanying Statements of Operations.
To qualify for REIT status, the Company must meet a number of highly
technical organizational and operations requirements on a continuing basis.
Those requirements seek to ensure, among other things, that the gross income and
investments of a REIT are largely real estate related, with certain other
permitted assets, that a REIT distributes substantially all its ordinary taxable
income to shareholders on a current basis and that the REIT's ownership is not
overly concentrated. Due to the complex nature of these rules, the limited
available guidance concerning interpretation of the rules, the importance of
ongoing factual determinations and the possibility of adverse changes in or
interpretations of the law, administrative interpretations of the law and
development at the Company, no assurance can be given regarding the Company's
qualification as a REIT for any particular year. As a result of the Company's
sale of its last real estate property in August 1997, the Company's status as a
REIT for 1997 and 1998 is dependent, in part, upon tax rules regarding
investments by REITs in certain types of non-real estate assets. The current
Board of Trustees is reviewing with legal counsel the Company's status as a REIT
for the years ended December 31, 1998 and 1997.
If the Company failed to qualify as a REIT for either the fiscal year
ended December 31, 1998 or 1997, it would be taxed as a regular corporation, and
distributions to shareholders would not be deductible in computing the Company's
taxable income. The resulting corporate tax liabilities, estimated to be
approximately $170,000, could materially reduce the funds available for
distribution to the Company's shareholders or for reinvestment. If the Company
failed to qualify as a REIT, distributions to shareholders would no longer be
required. In addition, distributions in 1997 originally treated as capital gain
distributions could be re-characterized as ordinary dividend distributions to
shareholders. Moreover, the Company might not be able to elect to be treated as
a REIT for the four taxable years after the year during which the Company ceased
to qualify as a REIT. If the Company later requalified as a REIT, it might be
required to pay a full corporate-level tax on any unrealized gain associated
with its assets as of the date of requalification and-to make distributions
equal to any earnings accumulated during the period of non-REIT status.
-71-
<PAGE> 84
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OF THE OHIO LLC
INTRODUCTION AND DISCUSSION OF KNOWN TRENDS, EVENTS AND UNCERTAINTIES
The Ohio LLC was formed as an Ohio limited liability company in 1996.
The purpose of this entity was to purchase and operate self-storage facilities
with an emphasis in equity growth potential.
During 1998, the members of the Ohio LLC determined that future growth
in its portfolio would require capital infusion from outside investors. To
position itself for this possibility, the management of the Ohio LLC identified
individual properties that fit its current and future growth strategy and agreed
to exchange their membership interests in the Ohio LLC for limited partnership
interests in LSS I that includes Liberty, a perpetual-life REIT, as the general
partner and a limited partner.
The following discussion should be read in conjunction with the Ohio
LLC's Balance Sheets and Statements of Operations and Cash Flows and the notes
thereto. Unless otherwise defined in this report, or unless the context
otherwise requires, the capitalized words or phrases referred to in this section
either: (1) describe accounting terms that are used as line items in such
financial statements, or (2) have the meanings ascribed to them in such
financial statements and the notes thereto.
YEAR 2000 COMPLIANCE
The Ohio LLC is continuing its efforts to assess issues relating to
the capability of its information systems to properly process transactions using
dates beginning in the Year 2000. The Ohio LLC believes that to the best of its
knowledge, it has taken the necessary action to upgrade their software to be
Year 2000 compliant. The Ohio LLC will continue to search for any other affected
software and develop a plan for correcting that software in the most effective
manner. Such costs are expected to be less than $5,000. However, there can be no
assurance that the Ohio LLC will be successful in implementing its Year 2000
remediation according to the anticipated schedule or that compliance costs will
not have a material adverse effect on the Ohio LLC's future liquidity or ongoing
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Ohio LLC's source of near-term liquidity is its cash, which at
March 31, 1999 was $68,896 as compared to $54,415 at March 31, 1998, an increase
of $14,481, and at December 31, 1998 was $77,393 as compared to $27,410 at
December 31, 1997, an increase of $49,983. The increase in both periods was
primarily a result of improved cash flows from operations. The Ohio LLC believes
that with this continuing improvement in cash flows from operations along with
its ability to
-72-
<PAGE> 85
procure additional financing if necessary, the Ohio LLC will have sufficient
funds for operations.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
Revenues. Revenues were $743,310 and $416,857 for the three months
ended March 31, 1999 and 1998, respectively, an increase of 78.3%. The increase
was due primarily to the acquisition of a new facility during June 1998 with
revenues for the three months ended March 31, 1999 of approximately $140,000. In
addition, three other facilities had substantial occupancy increases due to
building additions in the later part of 1998 and general increases of rates from
1998 to 1999 at most facilities.
Operating Expenses. Interest Expense totaled $306,625 and $271,694 for
the three months ended March 31, 1999 and 1998, respectively, an increase of
12.9%. The difference was due to higher borrowing levels and interest rates in
1998.
Depreciation and Amortization were $118,631 and $138,366 for the three
months ended March 31, 1999 and 1998, respectively, a decrease of 14.3%. The
difference was due primarily to amortization of loan fees on the
newly-refinanced debt, the June 1998 acquisition and improvements at other
facilities.
For the three months ended March 31, 1999 and 1998, Salaries and Wages
were $140,692 and $110,028, respectively. The increase of $30,664, or 27.9%, was
due primarily to additional salaries at the new facilities and other general
wage increases.
Property Taxes and Insurance for the three months ended March 31, 1999
and 1998 were $98,178 and $50,201, respectively. The increase of $47,977, or
95.6%, was due primarily to the facility acquired during June 1998 and
additional construction during 1998.
General and Administrative expenses were $124,910 and $58,737 for the
three months ended March 31, 1999 and 1998, respectively. The increase of
$66,173, or 112.7%, is attributable to several factors, including an increase in
the number of temporary employees in 1999, an increase in snow removal fees in
1999 and an increase in variable operating expenses due to increased revenues.
For the three months ended March 31, 1999 and 1998, Rent was $32,813
and $48,275, respectively. The decrease of $15,462, or 32.0%, was primarily the
result of a different mix of equipment and vehicle leases between the two years.
Professional Fees for the three months ended March 31, 1999 and 1998
were $9,395 and $425,303, respectively, a decrease of 62.9%. The difference was
primarily the result of a decrease in legal fees during 1999.
Utilities for the three months ended March 31, 1999 and 1998 were
$28,835 and $22,968, respectively. The increase of $5,869, or 25.5%, was the
result of rates charged for operating consumption due to increased occupancy and
revenues and the acquisition of additional facilities.
For the three months ended March 31, 1999 and 1998, Advertising was
$28,587 and $20,772, respectively, an increase of 37.6%. The increase was
primarily the result of additional facilities that were acquired after the first
quarter of 1998.
Repairs and Maintenance were $10,547 and $4,191 for the three months
ended March 31, 1999 and 1998, respectively, an increase of 151.7%. The increase
was due primarily to the increase in facilities operating in 1999.
Bad Debts for the three months ended March 31, 1999 and 1998 were
$13,447 and $6,943, respectively, an increase of 93.7%. This percentage increase
is consistent with the percentage increase of revenues.
Net Loss. As a result of the factors noted above, net loss for the
three months ended March 31, 1999 and 1998 was $169,228 and $340,535,
respectively, a decrease of 50.3%.
1998 COMPARED TO 1997
- ---------------------
Revenues. Revenues were $2,465,981 and $1,918,159 for the years ended
December 31, 1998 and 1997, respectively, an increase of 28.6%. The increase was
due primarily to the acquisition of two new facilities during 1998 along with
revenues from a full year of operation from several facilities purchased during
1997 and, to a lesser extent, higher occupancy levels.
Operating Expenses. Interest Expense totaled $1,200,292 and $1,185,629
for the years ended December 31, 1998 and 1997, respectively, an increase of
1.2%. The difference was due to an increase in borrowing in 1998 coupled with a
decrease in the interest rates obtained with the new borrowing.
Depreciation and Amortization were $493,284 and $499,683 for the years
ended December 31, 1998 and 1997, respectively, a decrease of 1.3%.
For the years ended December 31, 1998 and 1997, the Salaries and Wages
were $519,585 and $856,863, respectively. The decrease of $337,278, or 39.4%,
was the result of a reduction in the staff in 1998 along with additional
compensation paid during 1997 associated with the sale of certain facilities.
Property Taxes and Insurance for the years ended December 31, 1998 and
1997 were $337,663 and $206,031, respectively. The increase of $131,632, or
63.4%, was due primarily to the two additional facilities acquired during 1998
and certain existing facilities that had building additions made to them.
General and Administrative expenses were $207,619 and $452,749 for the
years ended December 31, 1998 and 1997, respectively. The decrease of $245,130,
or 54.1%, can be attributed to several factors. First, a reduction in the number
of employees in 1998 as explained in the "Salaries and Wages" paragraph caused a
decrease in payroll taxes expense in 1998. Second, there was a substantial
decrease in workers' compensation rates along with a workers' compensation
rebate received in 1998, including the rebate, workers' compensation expense
decreased approximately $50,000 in 1998. In addition, temporary agency labor was
required in 1997 at an expense of approximately $40,000 compared to
approximately $6,500 in 1998. Travel expenses also decreased in 1998 by
approximately $16,500 due to the sale of several of the Ohio LLC's out of state
facilities in 1997.
For the years ended December 31, 1998 and 1997, Rent was $170,777 and
$185,528, respectively. The decrease of $14,751, or 8.0%, was primarily the
result of a different mix of equipment and vehicle leases between the two years.
Professional Fees for the years ended December 31, 1998 and 1997 were
$102,862 and $121,482, respectively, a decrease of 15.3%. The difference was
primarily the result of a decrease in legal fees, partially offset by an
increase in accounting fees during 1998.
-73-
<PAGE> 86
Utilities for the years ended December 31, 1998 and 1997 were $94,620
and $105,985, respectively. The decrease of $11,365, or 10.7%, was the result of
lower rates charged for operating consumption.
For the years ended December 31, 1998 and 1997, Advertising was $90,576
and $74,816, respectively, for an increase of $15,760, or 21.1%. The increase
was the result of a full year of operations of the facilities that were acquired
during 1997, along with the two facilities acquired during 1998.
Repairs and Maintenance were $53,355 and $58,998 for the years ended
December 31, 1998 and 1997, respectively, a decrease of 1.2%.
Bad Debts for the years ended December 31, 1998 and 1997 were $39,180
and $55,437, respectively, for a decrease of $16,257, or 29.3%. This decrease
can be attributed to the recognition of bad debts upon the sale of several
facilities in 1997 and bad debts arising from some of the facilities sold in
1997 being higher than bad debts recognized on existing properties as of
December 31, 1998.
For the years ended December 31, 1998 and 1997, Management fees were $0
and $53,477, respectively. The decrease is because the Ohio LLC no longer
engaged the services of a management company.
Other Income. Gain on Sale of Property was $0 and $3,380,262 for the
years ended December 31, 1998 and 1997, respectively. The amount in 1997
represents gains recognized on the sale of 17 facilities at selling prices in
excess of the book value of the assets sold.
Gain on Sale of Securities was $0 and $59,100 for the years ended
December 31, 1998 and 1997, respectively. The gain in 1997 resulted from
transactions involving the acquisition and subsequent short term sale of puts in
marketable equity securities.
For the years ended December 31, 1998 and 1997, Interest Income was
$1,322 and $10,382, respectively. The decrease of $9,060, or 87.3%, was due to a
reduction of available funds for investment.
Extraordinary Charge. In 1998, the Ohio LLC refinanced several of its
debt obligations with one obligation to a bank. The unamortized deferred loan
cost of $64,499 was charged to current operations and reported as an
"Extraordinary charge."
Net Income (Loss). As a result of the factors noted above, net loss for
the year ended December 31, 1998 was $907,009 and net income for the year ended
December 31, 1997 was $1,511,225. The gain on sale of property in 1997 was the
biggest factor in the shift from net income to net loss.
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FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about
the Company's and the Ohio LLC's confidence in its prospects and strategies and
its expectations about growth, are forwardlooking statements that involve risks
and uncertainties. These risks and uncertainties include, but are not limited to
(1) the Company's continued tax status as a REIT, (2) the Company's inability to
execute its business plan involving a conversion from a selfliquidating,
finitelife REIT to a perpetual-life REIT, (3) changes in general economic
conditions, (4) changes in local real estate conditions, (5) the inability to
generate sufficient revenues to meet operating expenses; and (6) the failure to
manage growth effectively. Any investor or potential investor in the Company or
Liberty must consider these risks and others that are detailed in other filings
by the Company with the Securities and Exchange Commission. These risks and
others should cause actual results to differ materially from those in the
forward-looking statements.
INTERESTS OF CERTAIN PERSONS
IN THE FORMATION TRANSACTIONS
In considering the recommendation of the Board of Trustees with respect
to the approval of the Formation Transactions, you should be aware that certain
of the Trustees have interests in the Formation Transactions that are in
addition to the interests of the Company's shareholders generally.
Benefits to Certain Trustees. Mr. Osborne owns approximately 9.8% of
the outstanding Company Shares and is Chairman of the Board and Chief Executive
Officer of the Company. Mr. Osborne and his affiliate own 98.4% of the Ohio LLC
and by his contribution of his membership interests in the Ohio LLC, he will
receive Class A limited partnership interests equal to 67.98% of LSS I. Because
Liberty is the general partner of LSS I and because Mr. Osborne and his
affiliate through his Class A limited partnership interests own 67.98% of LSS I,
Mr. Osborne will face conflicts of interest in making determinations on behalf
of Liberty in his capacity as Chairman of the Board and Chief Executive Officer.
In addition, Mr. Osborne's Class A limited partnership interests in LSS I are
redeemable for cash or, at the election of Liberty, convertible into 6,667,849
shares of Liberty Stock, and after such conversion into Liberty Stock, Mr.
Osborne would own approximately 71% of Liberty.
Lack of Independent Representation of Shareholders. While Stanger has
provided the Fairness Opinion, the Company has not retained any outside
representatives to act on behalf of the shareholders in negotiating the terms
and conditions of the Formation Transactions. An independent representative was
not engaged because the Board of Trustees believes that it can fairly represent
the interests of the shareholders and, because if an independent representative
had been retained for the shareholders, the fees and expenses of the Formation
Transactions would have been higher. The Board of Trustees has been the party
responsible for structuring all the terms and conditions of the Formation
Transactions. Legal counsel engaged to assist with the preparation of the
documentation for the Formation Transactions, including this Proxy
Statement/Prospectus, was engaged by the Board and did not serve, or purport to
serve, as legal counsel to the shareholders. If another representative had been
retained for the shareholders, the terms of the Formation Transactions might
have been different and, possibly, more favorable to the shareholders. While
independent representatives were not engaged to represent the interests of the
shareholders in structuring the Formation Transactions, the Board of Trustees
believes the procedures used to protect the financial interests of the
shareholders are fair. For example, the Board agreed that up to $650,000 in
transaction costs will be paid by the Ohio LLC and the partnership interests in
LSS I will be allocated in accordance with respective net asset values
contributed by the members of the Ohio LLC and by the Company according to the
provisions of the Partnership Agreement.
Non-Arm's Length Agreements. All agreements and arrangements in
connection with the Formation Transactions were not the result of arm's-length
negotiations.
Compensation. When the new officers of the Company took office on
September 28, 1998, they agreed to serve without salaries until the
Reorganization was approved. Following the consummation of the Reorganization
and the Formation Transactions, Richard M. Osborne, the Company's Chairman of
the Board and Chief Executive Officer, will continue to serve Liberty in the
same capacity without compensation. Thomas J. Smith, the Company's Chief
Operating Officer, will continue to serve Liberty in the same capacity and will
receive a salary from Liberty after the Reorganization pursuant to an employment
agreement. See "PROPOSAL 4 -- Employment Agreements."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CURRENT SALARY SALARY FROM
NAME POSITION FROM THE COMPANY LIBERTY *
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard M. Osborne Chairman of the $ -0- $-0-
Board and Chief
Executive Officer
- --------------------------------------------------------------------------------------------
Thomas J. Smith President and Chief $ -0- $125,000
Operating Officer
- --------------------------------------------------------------------------------------------
</TABLE>
* If the Reorganization and the Formation Transactions are approved by
shareholders at the Annual Meeting.
Distributions. As a shareholder of the Company, Mr. Osborne is entitled
to receive his pro rata share of any dividends declared by the Company. The
Company has not paid any dividends since the declaration of a special dividend
of $3.00 per share that was paid in September 1997 following the Company's sale
of its last property. Upon the completion of the Reorganization and the
Formation Transactions, Liberty will comply with the dividend rules with respect
to REIT's and will distribute at least 95% of its REIT taxable income to
stockholders. As a stockholder of Liberty, Mr. Osborne will continue to be
entitled to receive his pro rata share of any dividends declared by Liberty. In
addition, under the terms of its Partnership Agreement, LSS I is required to
make distributions to enable Liberty to comply with the REIT dividend rules,
unless Liberty acting as general partner of LSS I determines that such a
distribution would not be in the best interests of LSS I. As limited partners of
LSS I, Mr. Osborne and Mr. Smith will be entitled to receive distribution from
LSS I on a pro rata basis by reference to their respective percentage interests
in LSS I. Therefore, completion of the Reorganization and the Formation
Transactions will not change any Liberty stockholders or Mr. Osborne's or Mr.
Smith's rights to receive their respective pro rata distributions, if any.
PURPOSE OF THE SOLICITATION
Approval of the Formation Transactions is being sought in accordance
with the Marketplace Rules of Nasdaq, which requires shareholder approval when
common shares or securities convertible into common shares are issued other than
in a public offering for cash, if the common shares to be issued (or into which
such securities may be converted) have or will have upon issuance voting power
equal to or in excess of 20% of the voting power outstanding prior to the
issuance of such common shares or convertible securities.
IN THE EVENT THAT THE COMPANY IS UNABLE TO CONSUMMATE THE
REORGANIZATION AND THE FORMATION TRANSACTIONS, THE COMPANY WILL BE FORCED TO
LIQUIDATE.
FAIRNESS OF THE FORMATION TRANSACTIONS
CONCLUSIONS OF THE BOARD OF TRUSTEES
The Board of Trustees believes that the terms of the Formation
Transactions, including the allocation of interests in LSS I between Liberty and
the members of the Ohio LLC, when
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considered as a whole, are fair to the Company's shareholders. This section
discusses the factors upon which the Board has based conclusions as to the
fairness of the Formation Transactions and should be carefully reviewed by you.
The Board did not find it practicable to, and did not attempt to, quantify the
relative importance of these factors, but has, where appropriate, noted which of
the factors support or detract from its belief as to the fairness of the
Formation Transactions to stockholders.
DETERMINATION OF ALLOCATION OF INTERESTS IN LSS I
The Board of Trustees believes that the method used to allocate
interests in LSS I between Liberty and the members of the Ohio LLC and the
resulting allocations (the "Allocations") is fair to the Liberty stockholders.
For each contributor to LSS I (Liberty and the members of the Ohio LLC), the
percentage interest in LSS I to be received in connection with the Formation
Transactions is derived by dividing the Net Asset Value to be contributed by
such contributor by the sum of (1) the net asset value of the cash and other
assets to be contributed to LSS I by Liberty, and (2) the net asset value of the
assets and liabilities to be contributed to LSS I by the membership interests in
the Ohio LLC.
The Board of Trustees believes that basing the allocation of interests
in LSS I on the Net Asset Value contributed by each participating entity, which
in the case of the Ohio LLC is based in part on an independent appraisal of the
Properties, is fair to shareholders.
The following table sets forth the calculation of the Net Asset Value
of the contribution by Liberty and the members of the Ohio LLC. The calculation
was made on May 12, 1999 at the time of the signing of the Formation Agreement
and was based on the December 31, 1998 financial statements of the Company and
the Ohio LLC and the Portfolio Appraisal, which was made as of March 31, 1999.
<TABLE>
<CAPTION>
CALCULATIONS OF NET ASSET VALUE TO BE CONTRIBUTED
IN THE FORMATION TRANSACTIONS
COMBINED
LIBERTY OHIO LLC TOTAL
------- -------- -----
<S> <C> <C> <C>
Cash and cash equivalents $ 2,163,623 $ 77,393 $ 2,163,623
Appraised value of real estate assets -- 23,620,000 23,620,000
Other assets (1) 14,453 74,915 89,368
Mortgages, lines of credit and other liabilities (2) -- (18,118,800) (18,118,800)
Accounts Payable and other payables (185,567) (549,873) (735,440)
---------------------------------------------------------
Total Net Asset Value $ 1,992,509 $ 5,103,635 $ 7,096,144
Payment of Transaction Cost -0- (650,000) (650,000)
---------------------------------------------------------
Net Asset Value Contributed to LSS I $ 1,992,509 $ 4,453,635 $ 6,446,144
============ ============ ============
Percentage of Net Asset Value Contributed 30.91% 69.09% 100.0%
Allocation of Ownership Interests In LSS I 30.91% 69.09% 100.0%
<FN>
(1) For the Ohio LLC, excludes Goodwill of $917,656 and other assets of
$275,975 leaving accounts receivable of $36,420 and inventory and other
assets of $38,495.
(2) For the Ohio LLC, includes an additional $950,000 in longterm
borrowings for the purchase of Riverhead and $500,000 in additional
longterm borrowings for Southold.
</TABLE>
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<PAGE> 89
FAIRNESS OF THE FORMATION TRANSACTIONS TO THE SHAREHOLDERS
Comparison of Certain Benefits and Detriments of Alternatives to the
Formation Transactions. Prior to concluding that the Formation Transactions
should be proposed to stockholders, the Board of Trustees considered several
alternatives to the Formation Transactions, including liquidation of the Company
and continuation of the Company under the current Declaration of Trust. See
"Background of the Formation Transactions." To determine whether the Formation
Transactions or one of the alternatives would be more attractive to the
stockholders, the Board compared certain potential benefits and detriments of
the Formation Transactions with certain potential benefits and detriments of the
alternatives. Based upon this comparison, the Board believes the Formation
Transactions are more attractive than the alternatives.
Fairness in View of Conflicts of Interest. Certain members of the Board
of Trustees and their affiliates have significant conflicts of interest in
connection with the Formation Transactions, and no unaffiliated representatives
were appointed to negotiate the terms of the Formation Transactions on behalf of
Liberty. The conflicts of interest arise because, among other factors, certain
representatives of the Board are also owners of interests in the Ohio LLC. See
"Conflicts of Interest." The Board believes, however, that its recommendation
results from a determination that the Formation Transactions are more attractive
to stockholders than any of the alternatives considered by the Board, and that
this determination results from the Board's discharge of its fiduciary duties to
the stockholders. The Board has based its conclusions regarding the fairness of
the Formation Transactions to stockholders on the factors discussed in this
section. The Board believes that the evaluation of the Formation Transactions
was performed in a good faith exercise of its fiduciary duties, unaffected by
these conflicts of interest.
Fairness Opinion. The Board of Trustees believes the Fairness Opinion
supports its conclusion that the allocation of interests in LSS I between
Liberty and the members of the Ohio LLC is fair to the stockholders. Subject to
the assumptions, qualifications and limitations set forth in the Fairness
Opinion, Stanger concluded that, as of the date of the Fairness Opinion, the
allocation of interests in LSS I between Liberty and the members of the Ohio LLC
was fair to the public stockholders of Liberty from a financial point of view.
The Fairness Opinion does not address the fairness of any of the terms of the
Formation Transactions other than the allocation of interests in LSS I . The
Fairness Opinion is based upon business, economic, real estate and securities
markets, and other conditions as of the date of the Fairness Opinion, and does
not reflect any changes in those conditions that may occur subsequent to that
date. See "Portfolio Appraisals and Fairness Opinion."
Allocation of Formation Transactions Expenses. The Board of Trustees
believes the procedures for allocating the expenses of the Formation
Transactions are fair to the stockholders, inasmuch as the Ohio LLC will pay the
expenses of the Formation Transactions up to $650,000 and thereafter Liberty
will pay the expenses.
Greater Access to Capital and Potential for Growth. As discussed above
under "APPROVAL OF THE FORMATION TRANSACTIONS - Background of the Formation
Transactions," the Company has been unable to access additional capital, in part
due to the
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Company's selfliquidating policy. Without the availability of additional
capital, the Company has been unable to make any significant new investments.
The Board of Trustees believe that the Company and/or LSS I will be in a
substantially better position to access capital upon consummation of the
Formation Transactions. With the availability of sources of capital, with
enhanced management capability, and with the added flexibility for acquisitions
provided by the UPREIT structure, Liberty intends to seek additional selfstorage
facilities complementary to the Properties.
Experienced Management. The individuals who currently manage the
Properties for the Ohio LLC will continue in that capacity as Liberty's
management. These individuals have substantial experience in managing,
acquiring, developing, expanding and operating selfstorage facilities. The Board
of Trustees believes that their track record and experience will enable Liberty
to grow.
Enhance Value as Compared to Liquidation. The Formation Transactions,
in the best judgment of the Board of Trustees, present a more attractive
opportunity for the realization of value by the Company's shareholders than does
the liquidation of the Company, which would be the outcome if this Proposal is
not approved by the Company's shareholders. The Board believes that the
strategies outlined in "PLANS FOR LIBERTY" above present a realistic opportunity
for the growth and viability of the Company as an ongoing entity. Were the
Company to liquidate, the Company would cease to operate and shareholders would
realize only their ratable portions of any net liquidation proceeds.
THE BOARD OF TRUSTEES UNANIMOUSLY BELIEVES THAT THE TERMS AND
CONDITIONS OF THE FORMATION TRANSACTIONS ARE IN THE BEST INTEREST OF THE COMPANY
AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
In reaching this conclusion, the Trustees considered, among other
things: (1) information relating to the business, assets, management,
competitive position and prospects of the Company if it were to continue,
including the substantial likelihood that the Company will be forced to
liquidate absent the consummation of the Reorganization and the Formation
Transactions; (2) the general strategies and other benefits of the Formation
Transactions; (3) the judgment and advice of the Company's management; (4) the
Fairness Opinion and the appraisals of the Properties conducted by Stanger; (5)
the financial condition and results of operations of the Company and the Ohio
LLC, on both a historical and a prospective basis; (6) the percentage of equity
in LSS I to be received by Liberty in relation to the relative contribution of
the Company and the Ohio LLC to LSS I, and the other benefits to be received by
the Company pursuant to the Reorganization and the Formation Transactions,
including the Ohio LLC's agreement to fund $650,000 of transaction costs; (7)
the potential increased liquidity, capacity for growth and access to capital
that Liberty expects to be realized as a result of the Formation Transactions;
(8) the terms and conditions of the Formation Agreement and the Partnership
Agreement; (9) the potential significant enhancement of the strategic and market
position of Liberty beyond that achievable by the Company prior to the
consummation of the Formation Transactions; and (10) the interest of certain
members of the Board of Trustees in the Formation Transactions, as described in
detail in "INTERESTS OF CERTAIN PERSONS IN THE FORMATION TRANSACTIONS."
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<PAGE> 91
The foregoing discussion of the information and factors considered by
the Board of Trustees is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the Formation
Transactions, the Trustees did not, as a group, find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching their determination.
After considering, among other things, the foregoing factors, the Board
of Trustees unanimously adopted and approved the Formation Agreement and the
transactions contemplated thereby and recommend that you vote FOR this Proposal.
PORTFOLIO APPRAISAL AND FAIRNESS OPINION
REAL ESTATE PORTFOLIO APPRAISAL
Stanger was engaged by the Company and the Ohio LLC to appraise
Properties to be contributed in the Formation Transactions by the Ohio LLC and
has delivered a written summary of its analysis, based upon the review,
analysis, scope and limitations described therein, as to the fair market value
of the Properties as of March 31, 1999 (the "Portfolio Appraisal"). Stanger was
selected to provide the Portfolio Appraisal because of its experience and
reputation in connection with appraising selfstorage properties in particular,
and with real estate investment trusts, partnerships and real estate assets, in
general. The Portfolio Appraisal, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, should be read in its entirety. The Portfolio Appraisal is
attached to the Registration Statement of which this Proxy Statement/Prospectus
is a part and is incorporated herein by reference. Copies of the Portfolio
Appraisal are available upon request to the Company at its principal place of
business, 8500 Station Street, Suite 100, Mentor, Ohio 44060. Certain of the
material assumptions, qualifications and limitations to the Portfolio Appraisal
are described below. In addition, appraisals are simply estimates of value and
may not correspond to realizable value.
Summary of Methodology. At the request of the Company and the Ohio LLC,
Stanger evaluated the Properties to be contributed to LSS I in the Formation
Transactions by the Ohio LLC on a limited scope basis utilizing the income
approach and sales comparison approach to valuation. Appraisers typically use up
to three approaches in valuing real property: the cost approach, the income
approach and the sales comparison approach. The type and age of a property,
market conditions and the quantity and quality of data affect the applicability
of each approach in a specific appraisal situation. The value estimated by the
cost approach incorporates separate estimates of the value of the unimproved
site and the value of improvements, less observed physical wear and tear and
functional or economic obsolescence. The income approach estimates a property's
capacity to produce income through an analysis of the rental stream, operating
expenses and net income. Net income may then be processed into a value through
either (or a combination of) two methods: direct capitalization or discounted
cash flow analysis. The sales comparison approach involves a comparative
analysis of the subject property with other similar properties that have sold
recently or that are currently offered for sale in the market. Given the primary
criteria used by buyers of the type of property appraised, the cost approach was
considered to be less reliable than the income or sales comparison approaches.
In addition, primary consideration was given to the income approach, based on
the income producing nature of the Properties, the primary criteria employed by
buyers of selfstorage properties and the fact
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that several of the Properties have not yet achieved fully stabilized
operations, i.e., an occupancy rate of 85%.
In conducting the Portfolio Appraisal, representatives of Stanger
reviewed and relied upon, without independent verification, certain information
supplied by the property managers, the Company and the Ohio LLC, including, but
not limited to: financial schedules of current rental rates, income, occupancy,
expenses, capital expenditures, cash flow and related financial information;
property description information including unit configurations and rentable
square footage; information relating to the condition of each Property,
including any deferred maintenance, planned capital expenditures, status of
ongoing or newly planned property additions, reconfigurations, improvements and
other factors affecting the physical condition of the property improvements.
While the Portfolio Appraisal was prepared for the Properties, Stanger
analyzed the individual Properties by (1) reviewing each Property's available
historical operating statements, (2) reviewing information regarding rents,
expenses, area competition and physical descriptions for each Property provided
by the Company and the Ohio LLC, (3) developing information from a variety of
sources about market conditions for each individual Property, and (4)
considering the financial performance for each Property.
Representatives of Stanger performed site inspections of the Properties
during March 1999. During these site visits, Stanger inspected the physical
facilities, obtained current rental and occupancy information, and gathered
information on the local market and competing properties. Stanger also discussed
with property management information relating to performance of the subject
property, competitive conditions, area trends and property improvements.
Stanger also interviewed home office personnel responsible for the
Properties to discuss competitive conditions, area economic trends affecting the
Properties, historical and budgeted operating revenues and expenses and
occupancies. Such inquiries included ascertaining for each individual Property
any deferred maintenance, capital expenditures, environmental conditions, status
of ongoing or planned buildouts, reconfigurations, improvements and other
factors affecting the physical condition of the property improvements. Stanger
also reviewed available historical operating statements and 1999 operating
budgets for the Properties, and reviewed surveys of local selfservice storage
markets conducted by property management.
To define the occupancy, rental rate and expense escalators to be used
in estimating the Properties' operating results, Stanger reviewed the
acquisition criteria and parameters in use in the marketplace by major
selfstorage investors, owners and operators. In addition, Stanger reviewed other
published information concerning acquisition criteria in use by real estate
investors during the first quarter of 1999. Further, Stanger interviewed various
sources in local markets to identify sales of selfservice storage properties and
derive certain valuation indicators.
Stanger then estimated the value of the Properties using the income
approach. Stanger estimated the Properties' income and expenses during the year
ending March 31, 2000 after reviewing historical and budgeted operating results
for each property, discussions with property
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management and other pertinent information. Stanger estimated each Property's
income for the year ending March 31, 2000 based upon the review of current rent
rolls, an analysis of historical budgeted income from rents and ancillary
sources, surveys of comparable properties and consideration of competitive
conditions in local markets. Expenses were estimated based on historical and
budgeted operating expenses and certain industry expense guidelines. Estimated
expenses were then deducted from income to arrive at estimated net operating
income. Expenses relating solely to investor reporting and accounting were
excluded.
Stanger then employed direct capitalization and/or discounted cash flow
analysis to estimate the value of the Properties. The direct capitalization
rates used by Stanger for stabilized properties ranged from 9.50% to 9.75% and
were based on current acquisition criteria among selfstorage investors. Where
appropriate, the capitalization rate used for an individual Property was
adjusted to reflect valuation factors unique to the Property, such as overall
quality, location, and competitive position, recent or planned buildouts and
other unique valuation factors. For Properties which had not yet achieved fully
stabilized operations, capitalization rates deemed appropriate to reflect
leaseup risk and timing were applied to projected stabilized net operating
income.
In applying discounted cash flow analysis, cash flows from each
Property (assuming no indebtedness thereon) were developed for a ten year period
ending March 31, 2009. Income and expense escalators used in developing the
projections were based on acquisition parameters currently in use by property
investors, occupancy, market factors, historical and budgeted financial results
and inflation rates. The resulting net operating income was adjusted to reflect
estimated capital expenditures for each property.
Stanger then capitalized, at terminal capitalization rates generally
ranging from 9.75% to 10.0%, the estimated net operating income of each Property
for the 12 months ending March 31, 2010 to determine residual value. Where
appropriate, the terminal capitalization rate used for an individual Property
was adjusted to reflect valuation factors unique to the Property. The residual
value was discounted after appropriate expenses of sale to the present value
using the same discount rate applied to the stream of annual cash flows. The
discount rates used, which ranged from 11.75% to 12.25%, were based on
consideration of current acquisition criteria among selfstorage property
investors and real estate investors' target rates for return, and rates of
return available from alternative investments under current market conditions.
In the course of performing the Portfolio Appraisal, Stanger compiled
data on actual transactions involving properties similar in type to the
Properties. To gather such data, Stanger interviewed various sources in local
markets to identify recent sales of selfstorage properties, reviewed available
information on acquisitions of selfstorage properties and portfolios, reviewed
information provided by management, and contacted various industry sources for
data.
Utilizing such data, an index of value was derived based upon price per
square foot. The index of value was applied to each property to estimate value.
Price per square foot as estimated by reference to comparable sales transactions
was multiplied by the rentable square footage of each property to derive an
estimated range of value.
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Stanger then correlated the values resulting from each method (the
income approach and the sales comparison approach) to arrive at a final
valuation, giving primary emphasis to the income approach (utilizing the
discounted cash flow method), an emphasis Stanger deemed appropriate based
on the income producing nature of the Properties, primary acquisition criteria
currently employed in selfstorage property markets, and the fact that several of
the Properties have not yet achieved fully stabilized operations.
Conclusion as to Value. Based on the review and valuation methodology
described above, and subject to the assumptions, limitations, and qualifications
contained in the Portfolio Appraisal, Stanger estimated the market value of the
Properties as of March 31, 1999 to be $23,620,000.
Assumptions, Limitations and Qualifications of Portfolio Appraisal.
Stanger utilized certain assumptions, limitations, and departure provisions to
determine the appraised value of the portfolio. See the Portfolio Appraisal for
a discussion of the specific assumptions, limitations and qualifications.
The Portfolio Appraisal represents Stanger's opinion of the value of
the Properties to be contributed by the Ohio LLC in the Formation Transactions
as of March 31, 1999 in the context of the information available on such date.
Events occurring after March 31, 1999 and before the closing of the Formation
Transactions could affect the properties or assumptions used in preparing the
Portfolio Appraisal. Stanger has no obligation to update the Portfolio Appraisal
on the basis of subsequent events. In connection with preparing the Portfolio
Appraisal, Stanger was not engaged to, and consequently did not, prepare any
written report or compendium of its analysis for internal or external use beyond
the analysis set forth in the Portfolio Appraisal. Stanger will not deliver any
additional written summary of the analysis.
Compensation and Material Relationships. The Company and the Ohio LLC
paid Stanger a total fee of $56,000 to prepare the Portfolio Appraisal. In
addition, Stanger is entitled to reimbursement for reasonable travel and
outofpocket expenses incurred in making site visits and preparing the appraisal
and is entitled to indemnification against certain liabilities, including
certain liabilities under federal securities laws. The fees were negotiated
between the Company, the Ohio LLC and Stanger and payment thereof is not
dependent upon completion of the Formation Transactions. Except as noted in
"Fairness Opinion" below, the Company and the Ohio LLC have not engaged Stanger
to render other consulting or related services prior to the present engagement.
In addition, Stanger has been engaged by the Company and the Ohio LLC to perform
certain investment banking services in connection with the solicitation of
capital from prospective investors. Such engagements were made by the Company
and the Ohio LLC pursuant to separate agreements with Stanger and are distinct
from the engagements to render the Portfolio Appraisal and Fairness Opinion.
FAIRNESS OPINION
Stanger was also engaged by the Company to deliver a written summary of
its opinion, the Fairness Opinion, based on the review, assumptions,
qualifications and limitations described therein, as to the fairness from a
financial point of view to the public stockholders of the
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Company of the allocations of interests in LSS I between the Company and the
members of the Ohio LLC (the "Allocations") pursuant to the Formation
Transactions. The full text of the Fairness Opinion, which contains a
description of the assumptions and qualifications made, matters considered and
limitations on the review and analysis, is set forth in Annex E and should be
read in its entirety. Certain of the material assumptions, qualifications and
limitations to the fairness opinion are described below. The summary set forth
below does not purport to be a complete description of the analyses used by
Stanger in rendering the fairness opinion. Arriving at a Fairness Opinion is a
complex analytical process not necessarily susceptible to partial analysis or
amenable to summary description.
Except for certain assumptions described more fully below which the
Company and the Ohio LLC advised Stanger that it would be reasonable to make,
the Company imposed no conditions or limitations on the scope of Stanger's
investigation or the methods and procedures to be followed in rendering the
Fairness Opinion. The Company has agreed to indemnify Stanger against certain
liabilities arising out of Stanger's engagement to prepare and deliver the
fairness opinion.
Experience of Stanger. Since its founding in 1978, Stanger has provided
information, research, investment banking, appraisal and consulting services to
clients throughout the United States, including major member firms of the New
York Stock Exchange and insurance companies and over 70 companies engaged in the
management and operation of partnerships. The investment banking activities of
Stanger include financial advisory services, asset and securities valuations,
industry and company research and analysis, litigation support and expert
witness services, and due diligence investigations in connection with both
publicly registered and privately placed securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
Formation Transactions, acquisitions, reorganizations and for estate, tax,
corporate and other purposes. Stanger's valuation practice principally involves
real estate investment trusts, partnerships, partnership securities and the
assets typically held through partnerships, such as real estate, oil and gas,
cable television systems and equipment leasing assets. The Company selected
Stanger because of its experience in providing similar services to other parties
in connection with Formation Transactions and Stanger's reputation in connection
with real estate partnerships, real estate investment trusts and real estate
assets.
Summary of Materials Considered. In the course of Stanger's analysis to
render its opinion regarding the Formation Transactions, Stanger: (1) reviewed
drafts of this Proxy Statement/Prospectus and the Formation Agreement in
substantially the forms intended to be finalized and filed with the SEC; (2)
reviewed reports filed with the SEC by the Company on Form 10K and 10KSB for the
fiscal years ending December 31, 1996, 1997, and 1998 and Form 10-QSB for the
quarter ending March 31, 1999 and reviewed the financial statements of the Ohio
LLC for the fiscal years ending December 31, 1998 and the quarter ending March
31, 1999; (3) reviewed of the pro forma financial statements for the Company and
the Ohio LLC included in the Proxy Statement/Prospectus for year ending December
31, 1998 and the quarter ending March 31, 1999; (4) performed the Portfolio
Appraisal of the Properties owned by the Ohio LLC, interests in which will be
contributed to LSS I in connection with the Formation Transactions; (5) reviewed
certain
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operating and financial information relating to the business, financial
condition and results of operations of the Company and the Ohio LLC, and
discussed with management of the Company and the Ohio LLC the operations,
business plan and current conditions in the selfstorage industry (including
market conditions for sales or acquisitions of properties of the type owned by
the Ohio LLC), and the historical financial statements, budgets and future
prospects of the Company and the Ohio LLC; (6) reviewed schedules prepared by
the Company showing the determination of the net asset value contribution to LSS
I of the Company and the Ohio LLC, and the methodology used to determine the
allocation of interests in LSS I between the Company and the members of the Ohio
LLC; and (7) conducted such other studies, analyses, and inquiries as Stanger
deemed appropriate.
SUMMARY OF ANALYSIS
The following is a summary of certain financial and comparative
analyses reviewed by Stanger in connection with and in support of its Fairness
Opinion. The summary of the Fairness Opinion and analysis of Stanger set forth
in this Proxy Statement/Prospectus is qualified in its entirety by reference to
the full text of such opinion, which is attached to this Proxy
Statement/Prospectus as Annex E.
Portfolio Appraisal. In preparing its opinion, Stanger performed an
independent appraisal of the Properties to be contributed to LSS I by the Ohio
LLC. Stanger performed site inspections of each Property during March 1999,
conducted inquires into local market conditions affecting each Property,
reviewed historical and budgeted operating statements of each Property,
conducted interviews with management personnel, reviewed acquisition criteria in
use in the marketplace by selfstorage property investors and owners and other
real estate investors, reviewed information concerning transactions involving
selfstorage properties, and estimated the market value of the Properties
utilizing the income approach to value. (For a more complete description of the
Portfolio Appraisal, see "Portfolio Appraisals and Fairness Opinion - Portfolio
Appraisals.")
Review of Relative Net Asset Values. In its evaluation of the fairness
of the allocations, Stanger observed that the net asset values were assigned to
Company and the Ohio LLC by management as of March 31, 1999 based on: (1) an
appraisal provided by Stanger of the estimated value of the Properties as of
March 31, 1999; (2) valuations made by the management of the Ohio LLC and the
Company of other assets and liabilities which will be contributed by the Company
and the Ohio LLC or assumed by the Company in the Formation Transactions; (3)
adjustments made by management to the foregoing values to reflect costs of the
Reorganization and Formation Transactions. Relying on these Net Asset Values,
Stanger observed that the allocation of ownership interests in LSS I offered to
each entity reflects the net value of the assets contributed to LSS I by each
entity after deducting the costs associated with the Formation Transactions.
Stanger believes that basing such allocations on the value of net assets
contributed to LSS I is fair from a financial point of view.
Based upon the above considerations, Stanger concluded that the
allocation of interests in LSS I between the Company and the members of the Ohio
LLC is fair to the shareholders of the
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Company because the allocation reflects the current practical economic interests
of the parties in each entity's net assets.
Conclusions. Based on the foregoing, Stanger concluded that, based upon
its analysis and assumptions, and as of the date of the information considered
in the Fairness Opinion, the allocation of interests in LSS I between the
Company and the members of the Ohio LLC (considered as a group) pursuant to the
Formation Transactions is fair, from a financial point of view, to the
shareholders of the Company.
Assumptions. In rendering its opinion, Stanger relied, without
independent verification, on the accuracy and completeness of all financial and
other information contained in this Proxy Statement/Prospectus or that was
otherwise publicly available or furnished or otherwise communicated to Stanger.
Stanger has not made an independent evaluation or appraisal of the
determinations of the nonreal estate assets and liabilities of the Company or
the Ohio LLC. Stanger relied upon the balance sheet value determinations for the
Company and the Ohio LLC and the adjustments made by management to arrive at the
Net Asset Values. Stanger also relied upon the assurance of the Company and the
Ohio LLC that any financial information or pro forma statements or adjustments
provided to Stanger were reasonably prepared and adjusted on bases consistent
with actual historical experience and reflect the best currently available
estimates and good faith judgments, that no material changes have occurred in
the Company's or the Ohio LLC's asset or liability values subsequent to the
valuation dates cited above, or in the real estate portfolio value subsequent to
March 31, 1999, which are not reflected in the net asset values, and that the
Company and the Ohio LLC is not aware of any information or facts regarding the
Company, the Ohio LLC or their assets that would cause the information supplied
to Stanger to be incomplete or misleading.
Limitations and Qualifications of Fairness Opinion. Stanger was not
requested to and did not: (1) select the method of determining the allocation
for the interests in LSS I or establish the allocations; (2) make any
recommendations to the shareholders of the Company or members of the Ohio LLC
with respect to whether to approve or reject the Reorganization or Formation
Transactions; or (3) express any opinion as to (a) the fact that the members of
the Ohio LLC could, as a result of the Formation Transaction, be in a position
to control voting decisions of Liberty, (b) the tax consequences of the
Reorganization and Formation Transactions for the shareholders and the Company,
(c) the potential impact of conversion of the interests of the members of the
Ohio LLC in LSS I to shares of Liberty, (d) whether or not alternative methods
of determining the relative interests in LSS I to be issued would have also
provided fair results or results substantially similar to those of the
allocation methodology used, and (e) the potential impact on the fairness of the
allocations of any subsequently discovered environmental or contingent
liabilities.
Further, Stanger did not express any opinion as to (1) the fairness of
any terms of the Reorganization and Formation Transactions (other than the
fairness of the allocations) or the amounts or allocations of transaction costs;
(2) the relative value of Liberty's Stock and the partnership interests to be
issued in the Formation Transactions; (3) the prices at which Liberty Stock may
trade following the Reorganization and Formation Transactions or the trading
value of the Liberty Stock to be received compared with the current fair market
value of the
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Company's assets if liquidated under current market conditions; and (4)
alternatives to the Reorganization and Formation Transactions.
Compensation and Material Relationships. Stanger has been paid a fee of
$75,000 by the Company for preparing the Fairness Opinion. In addition, Stanger
will be reimbursed for all reasonable outofpocket expenses, including legal
fees, up to a maximum of $5,000 and indemnified against certain liabilities,
including certain liabilities under the federal securities laws. The fee was
negotiated between the Company and Stanger. Payment of the fee to Stanger is not
dependent upon completion of the Formation Transactions. Stanger has been
compensated for preparing the Portfolio Appraisal and the compensation for such
services is summarized above under "Real Estate Portfolio Appraisal by Stanger -
Compensation and Material Relationships." In addition, Stanger has been engaged
by the Company and the Ohio LLC to perform certain investment banking services
in connection with the solicitation of capital from prospective investors. Such
engagements were made by the Company and the Ohio LLC pursuant to separate
agreements with Stanger.
CONSEQUENCES IF REORGANIZATION AND FORMATION
TRANSACTIONS ARE NOT APPROVED
If the Reorganization and the Formation Transactions are not approved
and consummated for any reason, the Company will be forced to liquidate.
COSTS AND EXPENSES
The costs and expenses of the Reorganization and the Formation
Transactions will be paid by the Ohio LLC up to $650,000. The Company will be
responsible for paying the expenses if the Reorganization and the Formation
Transactions are not consummated. The following is a statement of certain
estimated costs and expenses incurred in connection with the Reorganization and
Formation Transactions:
<TABLE>
<S> <C>
SEC Registration Fee $1,534
Legal Fees and Expenses
Fairness Opinion
Accounting Fees and Expenses
Solicitation Fees and Expenses
Blue Sky Fees and Expenses
Printing Expenses
Miscellaneous
------
Total $
</TABLE>
ACCOUNTING TREATMENT OF THE FORMATION TRANSACTIONS
In accordance with generally accepted accounting principles, the
consummation of the Formation Transactions will be accounted for utilizing the
purchase method of accounting with LSS I being the acquiror. As such, the
historical net carrying values of the assets and liabilities of the Ohio LLC
will be adjusted to their fair values. No adjustments will be made to the
historical net carrying values of the assets and liabilities of the Company.
Pursuant to the terms of the partnership agreement of LSS I, Liberty, as sole
general partner, will control LSS I. Accordingly, Liberty will account for its
investment in LSS I utilizing the consolidation method, recognizing "minority
interest" to the extent of the limited partnership interests issued to the
members of the Ohio LLC in the Formation Transactions. The reported income of
Liberty in the first reporting period following the consummation of the
Formation Transactions will include results of operations of LSS I from the
date of consummation forward.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the federal income tax consequences
that materially affect a prospective shareholder (including individual
retirement accounts). The discussion is general in nature and not exhaustive of
all possible tax considerations, nor does the discussion give a detailed
description of any state, local, or foreign tax consequences. The discussion
does not address all aspects of federal income tax law that may be relevant to a
prospective shareholder of Liberty in light of his or her particular
circumstances or to certain types of shareholders (including insurance
companies, financial institutions or brokerdealers, and foreign corporations and
persons who are not citizens or resident of the United States) subject to
special treatment under the federal income tax laws.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING AND EACH STOCKHOLDER OF LIBERTY IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
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GENERAL
The Company has made an election to be taxed as a REIT for federal
income tax purposes and the Company intends to operate in such a manner in the
future. No assurance can be given, however, that Liberty will operate in a
manner so as to remain qualified as a REIT. It should be noted that Liberty's
continued qualification as a REIT in current and future taxable years will
depend upon whether Liberty and LSS I continue to meet the various qualification
tests imposed under the Code (discussed below). See "Requirements for
Qualification as a REIT--Failure to Qualify," below.
In addition, as a result of the Company's sale of its last real estate
property in August 1997, the Company's status as a REIT for 1997 and 1998 is
dependent, in part, upon tax rules regarding investments by REITs in certain
types of nonreal estate assets. The current Board of Trustees is reviewing with
legal counsel the Company's status as a REIT for the years ended December 31,
1998 and 1997. If the Company failed to qualify as a REIT for either the fiscal
year ended December 31, 1997 or 1998, it would be taxed as a regular
corporation, and distributions to shareholders would not be deductible in
computing the Company's taxable income. The resulting corporate tax liabilities,
estimated to be approximately $170,000 could materially reduce the funds
available for distribution to the Company's shareholders or for reinvestment. If
the Company failed to qualify as a REIT, distributions to shareholders would no
longer be required. In addition, distributions in 1997 originally treated as
capital gain distributions could be recharacterized as ordinary dividend
distributions to shareholders. Moreover, the Company might not be able to elect
to be treated as a REIT for the four taxable years after the year during which
the Company ceased to qualify as a REIT which would apply to Liberty if the
Reorganization is approved. If the Company or Liberty later requalify as a REIT
and reelect REIT status at that time, it might be required to pay full
corporate-level tax on any unrealized gain associated with its assets as of the
date of requalification and to make distributions equal to any earnings
accumulated during the period of nonREIT status.
TAXATION OF LIBERTY AS A REIT
If Liberty continues to qualify for taxation as a REIT and distributes
to its stockholders at least 95% of its REIT taxable income (excluding net
capital gain), it generally will not be subject to federal corporate income tax
on the portion of its ordinary income or capital gain that is timely distributed
to its shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. If Liberty were to fail to qualify as a REIT, it
would be taxed at rates applicable to corporations on all of its income, whether
or not distributed to its shareholders. Even if Liberty continually qualifies as
a REIT, it may be subject to federal income or excise tax as follows:
(1) Liberty will be taxed at regular corporate rates on REIT taxable
income and net capital gains not distributed to its shareholders.
(2) Under certain circumstances, Liberty may be subject to the
"alternative minimum tax" on its items of tax preference, if any.
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(3) If Liberty has net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property, other than
foreclosure property, held primarily for sale to customers in the ordinary
course of business) such income will be subject to a 100% tax.
(4) If Liberty should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), and has nonetheless maintained
its qualification as a REIT because certain other requirements have been
met, it will be subject to a 100% tax on the net income attributable to the
greater of the amount by which Liberty fails the 75% or 95% test,
multiplied by a fraction intended to reflect Liberty's profitability for
such year.
(5) If Liberty should fail to distribute during each calendar year at
least the sum of (A) 85% of its REIT ordinary income for such year, (B) 95%
of its REIT capital gain net income for such year and (C) any undistributed
taxable income from prior years, it would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed.
(6) If Liberty has (A) net income from the sale or other disposition
of "foreclosure property" (which is, in general, property acquired by
Liberty by foreclosure or otherwise on default on a loan secured by the
property) which is held primarily for sale to customers in the ordinary
course of business or (B) other nonqualifying income from foreclosure
property, it will be subject to tax on such income at the highest corporate
rate.
(7) If Liberty acquires assets from a C corporation (i.e., generally a
corporation subject to tax at the corporate level) in a transaction in
which the bases of the acquired assets in Liberty's hands are determined by
reference, in whole or in part, to the bases of the assets (or any other
property) in the hands of the C corporation, and Liberty recognizes net
gain on the disposition of such assets in any taxable year during the
10 year period (the "Restriction Period") beginning on the date on which
such assets were acquired by Liberty then, pursuant to guidelines issued by
the IRS, the excess of the fair market value of such property at the
beginning of the applicable Restriction Period over Liberty's adjusted
basis in such property as of the beginning of such Restriction Period will
be subject to a tax at the highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION AS A REIT.
General. The Code defines a REIT as a corporation, trust or association:
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(3) which would be taxable as a domestic corporation but for Sections
856 through 859 of the Code;
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(4) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(5) which has the calendar year as its taxable year;
(6) the beneficial ownership of which is held by 100 or more persons;
(7) during the last half of each taxable year not more than 50% in
value of the outstanding shares of which is owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
exempt entities);
(8) which makes an election to be a REIT (or made such an election in
a previous taxable year that is still valid) and satisfies all relevant
filing and other administrative requirements that must be met in order to
maintain REIT status; and
(9) which meets certain income and asset tests, described below.
Conditions (1) through (5), inclusive, must be met during the entire
taxable year and condition (6) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a taxable year of less than
12 months. However, conditions (6) and (7) will not apply until after the first
taxable year for which an election is made to be taxed as a REIT. Liberty's
taxable year will be the calendar year. Following the consummation of the
Formation Transactions, Liberty will have satisfied the share ownership
requirements set forth in (6) and (7) above (respectively, the "100 shareholder
requirement" and "five or fewer requirement"). In order to ensure continuing
compliance with the share ownership requirements, Liberty has placed certain
restrictions on the transfer of Liberty Stock to prevent further concentration
of share ownership. Moreover, to evidence compliance with these requirements,
Liberty must maintain records which disclose the actual ownership of outstanding
Liberty Stock. In fulfilling its obligation to maintain these records, Liberty
must, and will, demand written statements each year from the record holders of
designated percentages of Liberty Stock disclosing the actual owners of such
Liberty Stock. A list of those persons failing or refusing to comply with such
demand must be maintained as a part of Liberty's records. A stockholder failing
or refusing to comply with Liberty's written demand must submit with his or her
tax return a similar statement and certain other information.
Asset Tests. In order for Liberty to maintain its qualification as a
REIT, at the close of each quarter of its taxable year, it must satisfy three
tests relating to the nature of its assets:
(1) At least 75% of the value of Liberty's total assets must be
represented by any combination of interests in real property, interests in
mortgages on real property, shares in other REITs, cash, cash items, and
certain government securities.
(2) Not more than 25% of Liberty's total assets may be represented by
securities other than those in the 75% asset class.
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(3) Of the investments included in the 25% asset class, the value of
any one issuer's securities owned by Liberty may not exceed 5% of the value
of Liberty's total assets, and Liberty may not own more than 10% of any one
issuer's outstanding voting securities (excluding securities of a qualified
REIT subsidiary (as defined in the Code) or another REIT).
Where Liberty owns an interest in a partnership, it will be treated for
purposes of the asset tests as owning a proportionate part of the partnership's
assets. See "Tax Aspects of Liberty's Investment in LSS I." Liberty's investment
through its interest in LSS I will constitute qualified assets for purposes of
the 75% asset test. As such, Liberty expects that more than 75% of the value of
its assets will be real estate assets.
Liberty does not expect to hold any securities representing more than
10% of any one issuer's voting securities nor does Liberty expect to hold
securities of any one issuer exceeding 5% of the value of Liberty's gross
assets.
If Liberty inadvertently fails one or more of the asset tests at the
end of a calendar quarter, such a failure would not cause it to lose its REIT
status, provided that (1) it satisfied all of the asset tests at the close of a
preceding calendar quarter, and (2) the discrepancy between the values of
Liberty's assets and the standards imposed by the asset test either did not
exist immediately after the acquisition of any particular asset or was not
wholly or partly caused by such an acquisition. If the condition described in
clause (2) of the preceding sentence was not satisfied, Liberty could still
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.
Income Tests. In order for Liberty to maintain its qualification as a
REIT, it must satisfy two separate percentage tests relating to the source of
its gross income in each taxable year. For purposes of these tests, where
Liberty invests in a partnership, Liberty will be treated as receiving its
proportionate share of the gross income of the partnership, and such gross
income will retain the same character in the hands of Liberty as it had in the
hands of the partnership. See "Tax Aspects of Liberty's Investment in LSS I."
(1) The 75% Test. At least 75% of Liberty's gross income
(excluding gross income from prohibited transactions) for each taxable
year must be derived from specified real estate sources, including
rents from real property and interest and certain other income
earned from mortgages on real property, gain from the sale of real
property or mortgages (other than in prohibited transactions),
dividends, distributions and gains realized from other REIT equity
interests or income from qualified types of temporary investments.
(2) The 95% Test. At least 95% of Liberty's gross income
(excluding gross income from prohibited transactions) for each taxable
year must be derived from the same items which qualify under the 75%
income test or from dividends, interest and gain from the sale or
disposition of stock or securities, or from any combination of the
foregoing.
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Rents received by Liberty will qualify as "rents from real property"
for purposes of the 75% and 95% income tests if the following requirements are
met:
(1) The amount of rent received must generally not be based in
whole or in part on the income or profits derived by any person from
such property. However, amounts received or accrued generally will not
be excluded from the term "rents from real property" solely by reason
of being based on a fixed percentage or percentages of receipts or
sales, or if they are based on the net income or profits of the tenant
and the tenant derives substantially all of its income with respect to
such property from the leasing or subleasing of substantially all of
such property and such tenant receives from subtenants only amounts
which would be treated as rents from real property if received
directly by Liberty.
(2) Rents must not be received from a tenant in which Liberty or
a direct or indirect owner of 10% or more of Liberty, owns directly or
constructively a 10% or greater interest in the assets or net profits
of such tenant (a "Related Party Tenant").
(3) Liberty must not operate or manage its property or furnish or
render directly services to its tenants unless such services are of a
type that a tax-exempt organization can provide its tenants without
causing its rental income to be unrelated business taxable income
under the Code ("Qualifying Services"). If such services are not
Qualifying Services, such services must be rendered by an "independent
contractor" that is adequately compensated and from whom Liberty
derives no income. Receipts for services furnished (whether or not
rendered by an independent contractor) that are not customarily
provided to tenants of properties of a similar class in the geographic
market in which Liberty's property is located ("Noncustomary
Services") will not qualify as rents from real property.
(4) Rent attributable to personal property leased in connection
with a lease of real property will not qualify as "rents from real
property" if such rent is greater than 15% of the total rent received
under the lease.
TAX ASPECTS OF LIBERTY'S INVESTMENT IN LSS I
ENTITY CLASSIFICATION
Liberty will hold a direct interest in LSS I. In general, a partnership
is not subject to federal income tax. Rather, each partner includes in the
partner's taxable income or loss its allocable share of the partnership's items
of income, gain, loss, deduction and credit, without regard to whether the
partner receives a distribution from the partnership. Liberty will include its
proportionate share of the foregoing items of LSS I for purposes of the various
REIT income tests and in the computation of its REIT taxable income. See
"Requirements for Qualification as a REIT--Income Tests." Any resultant
increase in Liberty's REIT taxable income will increase
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its distribution requirements, but will not be subject to federal income tax in
the hands of Liberty provided that such income is distributed by Liberty to its
shareholders. Moreover, for purposes of the REIT asset tests, Liberty will
include its proportionate share of assets held by LSS I.
TAX ALLOCATION WITH RESPECT TO THE PROPERTIES
Pursuant to regulations issued by the Internal Revenue Service, LSS I
shall be taxed as a partnership for federal income tax purposes, unless it
elects otherwise. LSS I does not intend to elect to be taxed other than as a
partnership.
BASIS IN PARTNERSHIP INTEREST
LSS I initially will acquire a tax basis in each of the Properties
acquired by it equal to the adjusted tax basis of such asset in the hands of the
Ohio LLC, increased by any gain realized by the Ohio LLC on the transfer. For
purposes of determining the percentage interests of the contributing partners,
the members of the Ohio LLC will be credited with having contributed to LSS I
interests in the Ohio LLC in an amount equal to the agreed value of the
contributed assets. The difference between the agreed value of a contributed
asset and its adjusted tax basis is referred to as the book-tax difference (the
"Book-Tax Difference"). It is expected that the agreed value of most of the
Properties acquired by LSS I substantially will exceed their tax basis, so that
there will be substantial Book-Tax Differences at the time of contribution.
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to property contributed by a partner in exchange for a partnership
interest, must be allocated so that the contributing partner is charged with, or
benefits from, respectively, any Book-Tax Difference associated with the
property at the time of the contribution. Such allocations are solely for
federal income tax purposes and do not affect the book capital accounts or
other economic arrangements among the partners. The Partnership Agreement will
require such allocations to be made in a manner consistent Section 704(c) of
the Code.
In general, LSS I's Section 704(c) allocations allocate to Liberty the
same amounts of depreciation deductions attributable to the Properties and other
assets acquired by LSS I and taxable gain or loss upon sale of such assets as
Liberty would have received had it purchased its interest in such assets at
their agreed value. To accomplish this, the existing members of the Ohio LLC
will generally be allocated lower amounts of depreciation deductions for tax
purposes and increased taxable gain (or less loss) on sale by LSS I of such
Properties than their allocations of depreciation deductions and income or gain
for book purposes. This will tend to eliminate the Book-Tax Difference over the
life of LSS I. However, the special allocation rules of Section 704(c) do not
always entirely rectify the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands of LSS I in some cases may cause
Liberty to be allocated lower depreciation and other deductions, and possibly
greater amounts of taxable gain in the event of a sale of the Properties
acquired by LSS I in excess of the economic or book income allocated to it as a
result of such sale. This might adversely affect Liberty's ability to distribute
sufficient dividends to comply with the REIT distribution requirements. The
foregoing principles also apply in
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determining the earnings and profits of Liberty for purposes of determining the
portion of distributions taxable as dividend income. The application of these
rules over time may result in a higher portion of distributions being taxed as
dividends than would have occurred had Liberty purchased its interest in such at
their agreed value.
Treasury Regulations under Section 704(c) of the Code allow
partnerships to use any reasonable method of accounting for Book-Tax Differences
for contributions of property so that a contributing partner receives the tax
benefits and burdens of any builtin gain or loss associated with contributed
property. LSS I currently intends to account for Book-Tax Differences using the
traditional method provided for in the regulations.
With respect to any property purchased by LSS I subsequent to the
formation of Liberty, such property will initially have a tax basis equal to its
purchase price and Section 704(c) of the Code will not apply.
The consummation of the Formation Transactions is contingent upon
approval of the Declaration Amendment and the Reorganization.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE FORMATION
TRANSACTIONS.
PROPOSAL 4 -- ELECTION OF TRUSTEES
All of the Company's trustees will be elected at the Annual Meeting to
serve as trustees until the next succeeding annual meeting of shareholders (or
stockholders of Liberty if the Reorganization is approved) and until their
successors are elected and shall have qualified. The Nominees are all currently
members of the Board of Trustees. All Nominees, if elected, are expected to
serve until the next succeeding annual meeting of shareholders.
The Board of Trustees has been informed that all of the Nominees are
willing to serve as trustees but, if any of them should decline or be unable to
act as a trustee, the individuals named in the proxies will vote for the
election of such other person or persons as they, in their discretion, may
choose. The Board of Trustees has no reason to believe that any such Nominees
will be unable or unwilling to serve.
The election to the Board of Trustees of each of the five Nominees
identified in this Proxy Statement/Prospectus will require the affirmative vote
of the holders of a plurality of the Company Shares present in person or
represented by proxy at the Annual Meeting and entitled to vote.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ELECTION TO THE BOARD OF TRUSTEES OF EACH OF THE FIVE NOMINEES IDENTIFIED BELOW.
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NOMINEES FOR ELECTION AS TRUSTEES
The name, age as of June __, 1999, and existing office(s) and/or
trustee positions with the Company of each of the Nominees for election as a
trustee are as follows:
<TABLE>
<CAPTION>
Name Age Office or Position Held
---- --- -----------------------
<S> <C> <C>
Richard M. Osborne 53 Chairman of the Board, Chief Executive
Officer and Trustee
Thomas J. Smith 55 President, Chief Operating Officer and Trustee
Steven A. Calabrese 37 Trustee
Mark D. Grossi 43 Trustee
Marc C. Krantz 38 Secretary and Trustee
</TABLE>
The name, principal occupation for the last five years and selected
biographical information of each of the Nominees for trustees are set forth
below. Each of the Nominees has served as a Trustee of the Company since
September 22, 1998.
Richard M. Osborne has been Chairman of the Board and Chief Executive
Officer of the Company since September 1998. He is also President and Chief
Executive Officer of OsAir, Inc., a company he founded in 1963. OsAir, Inc. is a
manufacturer of industrial gases for pipeline delivery and a real property
developer. Mr. Osborne is the sole Manager of Turkey Vulture Fund XIII, Ltd.
(the "Fund") which began operations in January 1995. The Fund acquires, holds,
sells or otherwise invests in all types of securities and other instruments. Mr.
Osborne is a Director of Ceres Group, Inc., a publicly-held insurance holding
company, a Director and Chairman of the Board of Pacific Gateway Properties,
Inc., a publicly-held real estate company ("Pacific Gateway"), a Director of
NuMED Home Health Care Inc., a publicly held home health care company ("NuMED"),
a Director of USP Real Estate Investment Trust, a publicly-held real estate
investment trust, and a Director and Vice Chairman of the Board of GLB Bancorp,
Inc., a publicly-held bank holding company. Mr. Osborne is the managing member
of the Ohio LLC.
Thomas J. Smith has been President and Chief Operating Officer of the
Company since September 1998. Since April 1, 1996, Mr. Smith has served as the
Executive Operating Manager of the Ohio LLC. He has also been the President of
Retirement Management Company, a company owned by Mr. Osborne and engaged in
retirement facility management since 1992. Mr. Smith is also a Director of GLB
Bancorp, Inc. and NuMED.
Steven A. Calabrese has been a Trustee since September 1998. He serves
as managing partner of Calabrese, Racek and Markos, Inc., CRM Construction Inc.,
and CRM Environmental Services, Inc., firms which specialize in evaluations,
management, construction and environmental assessment services for commercial
and industrial real estate. Mr. Calabrese is also a Director of Pacific Gateway.
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<PAGE> 107
Mark D. Grossi has been a Trustee since September 1998. He is currently
Executive Vice President and a Director of Charter One Financial, Inc., a
publicly-traded bank holding company, and Executive Vice President and Chief
Retail Banking Officer of its subsidiary, Charter One Bank. Mr. Grossi also
serves as a Director of Pacific Gateway and JB Oxford Holdings, Inc., a
publicly-held securities brokerage company. Since prior to 1993, Mr. Grossi has
held various senior executive positions with Charter One Bank and its
predecessor.
Marc C. Krantz has been Secretary of the Company since September 1998.
He is the managing partner of the law firm of Kohrman Jackson & Krantz P.L.L.
and has been with that firm for the last five years.
BOARD OF TRUSTEES; COMMITTEES
The Board of Trustees is currently comprised of Messrs. Calabrese,
Grossi, Krantz, Osborne and Smith. The Board of Trustees has two standing
committees: an Audit Committee and Compensation Committee.
Audit Committee: The Audit Committee is currently comprised of Messrs.
Grossi and Krantz. The Audit Committee makes recommendations to the Board of
Trustees regarding the selection of the Company's independent auditors, reviews
the plan, scope and results of the audit, reviews with the independent auditors
and management the Company's policies and procedures with respect to internal
accounting and financial controls, changes in accounting policy and the scope of
the nonaudit services which may be performed by the independent auditors.
Compensation Committee. The Compensation Committee is currently
comprised of Messrs. Calabrese and Grossi. The Compensation Committee
establishes the compensation of the Company's executive officers and will
administer Liberty's 1999 Stock Option Plan if approved by shareholders.
During 1998, the former Board of Trustees (the Board in place prior to
the September 1998 election of the current Board) held three meetings and the
current Board of Trustees held one meeting. During 1998, each of the current
Trustees attended 100 percent of the number of meetings of the Board (while they
were members).
COMPENSATION OF TRUSTEES
Beginning in 1999, the Company will pay each Trustee, other than
Messrs. Osborne, Smith and Krantz, an annual fee of $5,000 in shares of the
Company. In addition, the Company will pay each such Trustee $250 in cash for
each board meeting that such Trustee participates in. The current Board of
Trustees received no compensation as Trustees in 1998.
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Members of the former Board of Trustees were paid the following amounts
for their services in 1998:
Herbert E. Stansbury $ 14,700
Robert E. Morgan $ 4,900
Peter O. Hanson $ 5,200
James M. Pollak $ 5,200
Lorraine O. Legg was not paid for her services as a Trustee during
1998.
OFFICERS
The following sets forth the positions with the Company and selected
biographical information for the officers of the Company who are not Trustees:
Ronald L. Ramer, 33, has been the Chief Financial Officer and Assistant
Secretary of the Company since September 1998. Mr. Ramer has been the
Financial Manager of Liberty Self-Stor, Ltd. since April 1, 1996. He has been
the controller of Retirement Management Company since 1993.
EXECUTIVE COMPENSATION
From February 23, 1996 until September 28, 1998, the Company had no
employees and no compensation was paid to its executive officers. On February
23, 1996, the Company entered into an agreement with E & L Associates, to
provide the Company with asset management and certain other administrative
services. Lorraine O. Legg, the Company's former President, Chief Executive
Officer and a Trustee, has an ownership interest in a company which is the
parent company of E & L. The agreement with E & L was terminated by the current
Trustees on September 22, 1998. The Company paid E & L a total of $100,000 in
1998, $120,000 in 1997 and $95,000 in 1996.
The new officers of the Company, who took office on September 28,
1998, have agreed to serve without salaries until the Reorganization is
approved.
EMPLOYMENT AGREEMENTS
Liberty is a party to an employment agreement with Mr. Smith. The
employment agreement provides for a two year term commencing on June __, 1999,
with automatic one-year renewal periods. Mr. Smith will receive an annual
salary of $125,000 and will receive bonuses at the discretion of Liberty's
Board of Directors.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Exchange Act requires the Company's officers and
trustees, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and Nasdaq. Officers, trustees and greater than ten
percent shareholders are required by regulation of the SEC to furnish the
Company with copies of all Section 16(a) forms they file.
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Based solely on its review of Forms 3, 4 and 5 and amendments thereto
available to the Company and written representations from certain of the
trustees, officers and 10% shareholders that no form is required to be filed,
the Company believes that no trustee, officer or beneficial owner of more than
10% of its Company Shares failed to file on a timely basis reports required
pursuant to Section 16(a) of the Exchange Act with respect to 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June __, 1999 certain information
with respect to the beneficial ownership of Company Shares by (1) each person
known to the Company to be the beneficial owner of more than 5% of each of the
outstanding Company Shares, (2) each trustee and executive officer of the
Company who is a beneficial owner of any Company Shares, and (3) all trustees
and executive officers of the Company as a group. Such information (other than
with respect to trustees and officers of the Company) is based on a review of
statements filed with the SEC pursuant to Sections 13(d), 13(f) and 13(g) of the
Exchange Act with respect to the Company Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
NAME OWNERSHIP PERCENT
- ---- --------- -------
<S> <C> <C>
Richard M. Osborne 297,344(1) 9.8%
Steven A. Calabrese 290,265 9.5%
Mark D. Grossi 0 0%
Marc C. Krantz 0 0%
Ronald L. Ramer 0 0%
Thomas J. Smith 0 0%
All Trustees and Officers as a group
(6 persons) 587,609 19.4%
- ------------
<FN>
1 Shares held by Turkey Vulture Fund XIII, Ltd., an Ohio limited
liability company, of which Mr. Osborne is the sole Manager.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective February 24, 1996, the Company entered into an agreement with
E&L Associates, Inc. ("E&L") to provide asset management and certain other
administrative services to the Company. E&L received a monthly fee of $10,000
plus reimbursement for other expenses incurred on behalf of the Company. During
1998, E&L received management fees of $100,000. In connection with the sale of
the Charleston property, the Company's last property, the former
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Board of Trustees adopted an incentive payment plan for E&L for arranging,
structuring, negotiating and closing the transaction. Under this plan, E&L
received a fee of $233,000 in September 1997. E&L is a wholly-owned subsidiary
of a company in which Lorraine O. Legg, the Company's former Chief Executive
Officer and a former Trustee, has an ownership interest. The agreement between
the Company and E&L was terminated by the current Board of Trustees on September
22, 1998.
Before leaving office, the former Board of Trustees created the
Meridian Indemnity Trust (the "Trust") to pay for the expense of defending
themselves against potential litigation. The Trust was funded with $350,000 of
Company funds.
In connection with the proxy solicitation by Meridian '83 Shareholders'
Committee for Growth in September 1998, the Fund incurred expenses of $102,613.
The current Board of Trustees authorized the expense reimbursement because of
the benefit to the Company of the proxy solicitation. The reimbursement is
conditioned upon the approval of the Declaration Amendment and the
Reorganization. Richard M. Osborne, the Company's Chairman of the Board and
Chief Executive Officer, is the sole Manager of the Fund.
PROPOSAL 5 -- APPROVAL OF THE 1999 STOCK OPTION PLAN
CERTAIN ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. BECAUSE THIS IS
A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU.
YOU SHOULD READ THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE COMPLETE TEXT OF
THE 1999 STOCK OPTION PLAN ATTACHED TO THIS PROXY STATEMENT/ PROSPECTUS AS ANNEX
F IN THEIR ENTIRETY BEFORE YOU DECIDE HOW TO VOTE ON THIS PROPOSAL. ALL
CAPITALIZED TERMS WHICH ARE NOT DEFINED HEREIN ARE DEFINED IN THE 1999 STOCK
OPTION PLAN.
Set forth herein is a description of the terms of Liberty's 1999 Stock
Option Plan (the "Plan"). The Plan is effective upon shareholder approval of
each of the Plan, the Declaration Amendment, the Reorganization and the
Formation Transactions. The Plan permits the grant of NonStatutory Stock Options
("NSSOs"), Incentive Stock Options ("ISOs" and together with NSSOs, "Options"),
and Restricted Shares.
PURPOSE
The Plan was adopted to attract and retain qualified and competent
persons who are key to Liberty, including key employees, officers and directors,
and upon whose efforts and judgment the success of Liberty is largely dependent,
by encouraging such persons to own stock in Liberty. The Plan provides for the
grant to employees of ISOs within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), for the grant of NSSOs to
eligible employees (including officers and directors) and non-employee directors
and for the grant of restricted share awards.
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ADMINISTRATION
The Plan will be administered by the Compensation Committee of the
Board of Directors, which will be charged with designating those persons to whom
options or restricted share awards are to be granted and determining the terms
of such awards, including the exercise price of options, the number of shares
subject to an option, the time of the exercise of an option and the number of
shares of, and the restrictions placed on, a restricted share award. In granting
awards, the Compensation Committee will take into consideration the past
performance and anticipated future contribution of the potential grant recipient
and such other considerations the Compensation Committee deems relevant.
AVAILABLE SHARES
Liberty may grant up to 300,000 Options or Restricted Shares pursuant
to the Plan.
RESTRICTIONS
Options granted under the Plan are subject to the following
restrictions, among others: (1) the per share exercise price for ISOs must be
equal to or greater than 100% of the fair market value of Liberty Stock on the
date of grant of the option; (2) no Option may be exercisable after the
expiration of ten years from the date of its grant; and (3) Options granted
under the Plan are subject to transfer restrictions as follows:
(a) No ISO shall be transferable by the Optionee other than by will,
the laws of descent and distribution, and each ISO shall be exercisable during
the Optionee's lifetime only by the Optionee; and
(b) No NSSO may be sold, exchanged, pledged, transferred, assigned or
otherwise encumbered or disposed of, except as follows: (1) to the spouse or any
children or grandchildren of the holder; (2) as a charitable contribution or
gift to or for the use of any person or entity described in Section 170(c) of
the Code; (3) to any Controlled Entity (as such term is defined in the Code); or
(4) by will or the laws of intestate succession.
If the optionee ceases to be employed by Liberty because he or she is
terminated for Cause (as defined in the Plan), any Options held by the
terminated employee will automatically expire. If an optionee's employment by
Liberty is terminated by reason of a mental or physical disability or death,
then his or her Options will expire one year after the date of termination. If
an optionee's employment is terminated for any other reason, then his or her
Options will terminate three months from the date of termination. Options become
immediately exercisable in the event of a change in control of Liberty or other
similar event.
The Plan authorizes Liberty to make loans to optionees to enable them
to exercise their Options. Such loans must (1) provide for recourse to the
optionee, (2) bear interest at a rate no
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less than the prime rate of interest of Liberty's principal lender, and (3) be
secured by the Liberty Stock purchased.
An award of Restricted Shares constitutes an immediate transfer of
ownership to the recipient in consideration of the performance of services.
Awards of Restricted Shares may be made for no additional consideration or for
consideration of a payment by the participant that is less than the current fair
market value. The participant has immediate dividend and voting rights on the
shares but the shares will be subject to a "substantial risk of forfeiture,"
within the meaning of Section 83 of the Code, for a period of at least one year,
as determined by the Compensation Committee. In order to enforce these
forfeiture provisions, the transferability of restricted shares granted under
the Plan will be prohibited or restricted in the manner prescribed by the
Committee on the date of the grant. The Committee may provide for the earlier
termination of the forfeiture provisions in the event of a change in control of
Liberty, retirement, death or disability of the recipient, or other similar
event.
AMENDMENT/TERMINATION
Either the Board or the Compensation Committee has the authority to
amend or terminate the Plan, provided that no such action impairs the rights of
the holder of any outstanding option or restrictive stock without the written
consent of such holder, and provided further that certain amendments of the Plan
are subject to stockholder approval. Unless terminated sooner, the Plan will
terminate ten years from its effective date.
DESCRIPTION OF AWARDS
Options. The Plan permits the award of ISOs and NSSOs. Each Option
granted under the Plan must be evidenced by an Option Agreement specifying
terms, including the type, the number of shares covered, the exercise price,
when it is exercisable, any restrictions on transferability of the Option or the
shares obtained upon exercise and duration of the Option. The purchase price per
share of Liberty Stock covered by an Option shall be determined by the Committee
but may not be less than the fair market value of the underlying Liberty Stock
on the date of grant. ISOs may only be granted to employees of the Company. All
ISOs must be granted at fair market value or at 110% of fair market value in the
case of grants to 10% stockholders. No ISOs shall be exercisable more than ten
years after their date of grant and five years after grant in the case of a 10%
stockholder. Payment of an Option may be made with cash, with previously owned
Liberty Stock, by foregoing compensation in accordance with Committee rules or
by a combination of these. NSSOs may be exercisable for up to ten years at such
exercise and upon such terms and conditions as the Committee may determine.
Restricted Shares. The Plan authorizes the Committee to grant
Restricted Shares to individuals with such Periods of Restriction as the
Committee may designate. In the case of Covered Employees, the Committee may
also condition the vesting or lapse of such Periods of Restriction upon the
attainment of one or more Performance Goals established by the Committee within
the time period prescribed by Section 162(m) of the Code. These Performance
Goals
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must be based on the attainment, by the Company, of certain objective and/or
subjective performance measures, which may include one or more of the following:
total shareholder return, return on equity, return on capital, earnings per
share, cash flow per share, market share, share price, revenues, costs, net
income, cash flow and retained earnings. Such Performance Goals may also be
based upon the attainment of specified levels of performance of Liberty relative
to the performance of other corporations. With respect to Covered Employees, all
Performance Goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code.
Each grant of Restricted Shares will be evidenced by a Restricted Share
Agreement that shall specify the Period of Restriction, the number of Restricted
Shares granted and such other provisions determined by the Committee. During the
Period of Restriction, Participants holding Restricted Shares may exercise full
voting rights with respect to those shares and are entitled to all dividends and
other distributions paid on Liberty Stock.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
Non-Statutory Stock Options.
Generally. An optionee generally will not recognize income
upon the grant of a NSSO. If an optionee receives unrestricted Liberty Stock
upon the exercise of a NSSO, he will normally recognize ordinary income at the
time of exercise equal to the excess of the fair market value, at the time of
exercise, of the optioned Liberty Stock received over the exercise price. When
the optionee disposes of the shares, capital gain will be recognized, either
long or short term depending on the holding period beginning on the date the
shares are acquired.
Tax Consequences to Liberty. To the extent that an optionee
recognizes ordinary income, Liberty or the subsidiary for which the optionee
performs services will generally be entitled to a corresponding deduction. The
deduction is allowed in the tax year in which the optionee is required to
include the amount in income.
Incentive Stock Options
Generally. An optionee will not recognize income upon the
grant of an ISO. In addition, an optionee will not recognize income upon the
exercise of an ISO if he or she satisfies certain employment and holding period
requirements. To satisfy the employment requirement, an optionee generally must
exercise the option not later than three months after he ceases to be an
employee of Liberty or a subsidiary of Liberty (one year if he ceases to be an
employee due to disability). To satisfy the holding period requirement, an
optionee must hold the optioned Liberty Stock for more than two years from the
grant of the option and more than one year after Liberty Stock is transferred to
him. If these requirements are satisfied, upon the sale of Liberty Stock, the
optionee will be taxed at long-term capital gains rates on any gain, measured by
the difference between his or her basis in Liberty Stock and the net proceeds of
the sale.
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Disqualifying Disposition. If Liberty Stock acquired upon the
timely exercise of an ISO is sold, exchanged or otherwise disposed of without
satisfying the holding period requirement (a "Disqualifying Disposition"), the
optionee will usually recognize ordinary income at the time of disposition equal
to the amount of the excess of the fair market value of the optioned Liberty
Stock on the date of the exercise of the ISO over the exercise price.
Alternative Minimum Tax. An optionee generally must include in
alternative minimum taxable income the amount by which the amount paid for the
Option is exceeded by the Option's fair market value at the time the rights to
the stock are freely transferable or not subject to a substantial risk of
forfeiture.
Tax Consequences to Liberty. The granting of an ISO, or the
exercise thereof, will generally not result in a deduction for Liberty. However,
to the extent that an optionee recognizes ordinary income as the result of a
Disqualifying Disposition, Liberty will generally be entitled to a corresponding
deduction.
Restricted Share Awards
The recipient of Restricted Share awards generally will be subject to
tax at ordinary income rates on the fair market value of the Restricted Shares
reduced by any amount paid by the participant at such time as the shares are no
longer subject to forfeiture or restrictions on transfer for purposes of Section
83 of the Code ("Restrictions"). However, a recipient who so elects under
Section 83(b) of the Code within 30 days of the date of transfer of the shares
with Restrictions will have taxable ordinary income on the date of transfer of
the shares equal to the excess of the fair market value of such shares
(determined without regard to the Restrictions) over the purchase price, if any,
of such restricted stock. If a Section 83(b) election has not been made, any
dividends received with respect to restricted stock subject to Restrictions
generally will be treated as compensation that is taxable as ordinary income to
the recipient.
The following table sets forth certain Options under the Plan that were
granted (subject to approval of the Plan) on May 6, 1999 to executive officers
and nonexecutive officer employees as a group. Each of the options set forth
below vest over three years beginning on May 6, 2000. The exercise price for all
of the following options is $0.5625 per share.
<TABLE>
<CAPTION>
Number of Shares
Name Underlying Options
---- ------------------
<S> <C>
Thomas J. Smith 100,000
Ronald L. Ramer 25,000
NonExecutive Officer Employees as a Group 55,000
</TABLE>
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE APPROVAL OF THE PLAN.
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PROPOSAL 6 -- APPROVAL OF LEASE FOR EXECUTIVE OFFICES
CERTAIN ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. BECAUSE THIS IS
A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU.
YOU SHOULD READ THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE COMPLETE TEXT OF
THE LEASE ATTACHED TO THIS PROXY STATEMENT/ PROSPECTUS AS ANNEX G IN THEIR
ENTIRETY BEFORE YOU DECIDE HOW TO VOTE ON THIS PROPOSAL.
Set forth below is a description of the terms of Liberty's lease for
its executive offices (the "Lease"). The Lease is effective upon shareholder
approval of each of the Lease, the Declaration Amendment, the Reorganization and
the Formation Transactions.
Liberty's principal executive offices will be at 8500 Station Street,
Suite 100, Mentor, Ohio 44060. Liberty will lease these executive offices from
OsAir, Inc., a company owned by Richard M. Osborne, the Chairman of the Board
and Chief Executive Officer of the Company and Liberty, pursuant to the Lease
attached hereto as Annex G. Liberty believes that the terms of the Lease are at
least as favorable as those which it could otherwise have obtained from
unrelated parties.
TERMS OF THE LEASE
The Lease provides that Liberty will lease approximately 6,000 square
feet of space formerly occupied by the Ohio LLC. The Lease is for an initial
term of five (5) years commencing on the date of shareholder approval of the
Lease, the Declaration Amendment, the Reorganization and the Formation
Transactions. Liberty has the option to renew the lease for five years. Rent for
the initial term is $4,000 per month (approximately $8 per square foot per year)
and $5,000 per month for the renewal term.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE APPROVAL OF THE LEASE.
PROPOSAL 7 -- RATIFICATION OF INDEPENDENT AUDITORS
The Board of Trustees of the Company has appointed Arthur Andersen LLP
("Arthur Andersen") as independent auditors of the Company for the fiscal year
ending December 31, 1999, and has further directed that the appointment of such
auditors be submitted for ratification by the shareholders at the Annual
Meeting. The Company has been advised by Arthur Andersen that neither that firm
nor any of its associates has any relationship with the Company other than the
usual relationship that exists between independent certified public accountants
and clients. Arthur Andersen will have a representative at the Annual Meeting
who will have an opportunity
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to make a statement, if he or she so desires, and who will be available to
respond to appropriate questions.
Shareholder ratification of the appointment of Arthur Andersen as the
Company's independent auditors is not required by the Current Declaration of
Trust or otherwise. However, the Board of Trustees is submitting the appointment
of Arthur Andersen to the shareholders for ratification as a matter of what it
considers to be good corporate practice. Even if the appointment is ratified,
the Board of Trustees in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Trustees determines that such a change would be in the best interest of the
Company and its shareholders.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1998 and for the two years ended December 31,1998, appearing elsewhere in this
Proxy Statement/Prospectus and Registration Statement have been audited by
Arthur Andersen LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement and are included in
reliance upon such report, given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and schedule of the Initial
Properties (as defined in Note 1 thereto) as of December 31, 1998 and for the
two years ended December 31, 1998, appearing elsewhere in this Proxy
Statement/Prospectus and Registration Statement have been audited by Tischler,
Beard, Wallace & Co., Ltd., independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement and are
included in reliance upon such report, given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of Liberty Stock being issued in connection with the
Reorganization has been passed upon by Kohrman Jackson & Krantz P.L.L. ("KJK"),
Cleveland, Ohio, counsel to Liberty. KJK has passed upon the federal income tax
consequences of the Reorganization to the holders of Company Shares. Marc C.
Krantz, who is a Trustee and Secretary of the Company, is also the managing
partner of KJK.
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REPORTS TO SHAREHOLDERS
The Company, or if the Reorganization is approved, Liberty, will
continue to provide you with annual reports containing financial statements
reported upon by independent auditors, as well as unaudited quarterly statements
of operations.
OTHER MATTERS
The management of the Company does not know of any other matters to
come before the Annual Meeting. However, if any other matters come before the
Annual Meeting, it is the intention of the persons designated as proxies to vote
in accordance with their discretion on such matters.
SHAREHOLDER PROPOSALS
Any stockholder of Liberty, if the Reorganization is approved, who
wishes to submit a proposal for presentation at the Company's 2000 annual
meeting of stockholders, must submit such proposal to the Company at its office
at 8500 Station Street, Suite 100, Mentor, Ohio 44060, Attention: Secretary, no
later than _____________, 2000 in order to be considered for inclusion, if
appropriate, in Liberty's proxy statement and form of proxy relating to its 2000
annual meeting of stockholders.
You are urged to sign and return your proxy promptly to make certain
your shares will be voted at the Annual Meeting. For your convenience, a return
envelope is enclosed requiring no additional postage if mailed in the United
States.
By order of the Board of
Trustees
/s/ Marc C. Krantz
Marc C. Krantz
Secretary
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<PAGE> 118
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
MERIDIAN POINT REALTY TRUST '83
Report of Independent Public Accountants........................................................................F-1
Balance Sheets as of December 31, 1998 and 1997 and March 31, 1999 (Unaudited)..................................F-2
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
and the quarters ended March 31, 1999 and 1998 (Unaudited)...................................................F-3
Statements of Shareholders' Equity for the years ended December 31, 1998, 1997
and 1996 and the quarter ended March 31, 1999 (Unaudited)....................................................F-4
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 and the quarters ended
March 31, 1999 and 1998 (Unaudited)..........................................................................F-5
Notes to Financial Statements ..................................................................................F-7
INITIAL PROPERTIES
Independent Auditors' Report ..................................................................................F-13
Balance Sheets as of December 31, 1998 and 1997 and March 31, 1999 (Unaudited).................................F-14
Statements of Members' Deficit for the years ended December 31, 1998 and 1997 and the quarter ended
March 31, 1999 (Unaudited)..................................................................................F-16
Statements of Operations for the years ended December 31, 1998 and 1997 and the quarters ended
March 31, 1999 and 1998 (Unaudited).........................................................................F-17
Statements of Cash Flows for the years ended December 31, 1998 and 1997 and the quarters ended
March 31, 1999 and 1998 (Unaudited).........................................................................F-18
Notes to Financial Statements .................................................................................F-20
MARBLEHEAD, OHIO PROPERTY
Report of Independent Public Accountants ......................................................................F-30
Balance Sheet as of June 29, 1997 .............................................................................F-31
Statement of Income and Retained Earnings for the period January 1, 1997
to June 29, 1997 ...........................................................................................F-32
Statement of Cash Flows for the period January 1, 1997 to June 29, 1997 .......................................F-33
Notes to Financial Statements .................................................................................F-34
EAST CANTON AND LOUISVILLE, OHIO PROPERTIES
Report of Independent Public Accountants ......................................................................F-36
Combined Balance Sheet as of May 29, 1997 .....................................................................F-37
Combined Statement of Income and Proprietors' Capital for the period
ended May 29, 1997 .........................................................................................F-38
Combined Statements of Cash Flows for the period ended May 29, 1997 ...........................................F-39
Notes to Combined Financial Statements ........................................................................F-40
AVON, OHIO PROPERTY
Report of Independent Public Accountants ......................................................................F-43
Balance Sheet as of November 26, 1997 .........................................................................F-44
Statement of Income and Proprietors' Capital for the period ended November 26, 1997 ...........................F-45
Statement of Cash Flows for the period ended November 26, 1997 ................................................F-46
Notes to Financial Statements .................................................................................F-47
CANTON, OHIO PROPERTY
Report of Independent Public Accountants ......................................................................F-49
Balance Sheet as of April 21, 1997 ............................................................................F-50
Statement of Income and Proprietors' Deficit for the period ended April 21, 1997 ..............................F-51
Statement of Cash Flows for the period ended April 21, 1997 ...................................................F-52
Notes to Financial Statements .................................................................................F-53
RIVERHEAD, NEW YORK PROPERTY
Report of Independent Public Accountants ......................................................................F-55
Balance Sheets as of December 31, 1998 and 1997 ...............................................................F-56
Statements of Income and Retained Earnings for the years ended December 31, 1998 and 1997 .....................F-57
Statements of Cash Flows for the years ended December 31, 1998 and 1997 .......................................F-58
Notes to Financial Statements .................................................................................F-59
</TABLE>
<PAGE> 119
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
Meridian Point Realty Trust '83:
We have audited the accompanying balance sheets of Meridian Point Realty Trust
'83 as of December 31, 1998 and 1997, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Meridian Point Realty Trust '83
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cleveland, Ohio,
February 2, 1999.
F-1
<PAGE> 120
MERIDIAN POINT REALTY TRUST '83
-------------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
ASSETS
------ December 31,
------------------------------- March 31,
1998 1997 1999
--------------- -------------- ---------------
(Unaudited)
ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 600,173 $ 2,886,339 $ 570,618
Investments in mortgage-related assets, at market value
1,205,722 - 1,193,152
Restricted cash 357,728 - 361,378
Other assets, net 14,453 21,052 43,717
--------------- -------------- --------------
Total assets $ 2,178,076 $ 2,907,391 $ 2,168,865
=============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Accounts payable $ 185,567 $ 102,057 $ 191,508
--------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY:
Shares of beneficial interest - $1.00 stated value:
Authorized - Unlimited; 3,031,618 shares issued and
outstanding 3,031,618 3,031,618 3,031,618
Paid-in capital 22,755,694 22,755,694 22,755,694
Distributions in excess of income (23,794,803) (22,981,978) (23,809,955)
--------------- -------------- --------------
Total shareholders' equity 1,992,509 2,805,334 1,977,357
--------------- -------------- --------------
Total liabilities and shareholders' equity $ 2,178,076 $ 2,907,391 $ 2,168,865
=============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
F-2
<PAGE> 121
<TABLE>
<CAPTION>
MERIDIAN POINT REALTY TRUST '83
-------------------------------
STATEMENTS OF OPERATIONS
------------------------
Quarters Ended
Year Ended December 31, March 31,
----------------------------------------- -------------------------
1998 1997 1996 1999 1998
------------ ------------- ------------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
GROSS REVENUES:
Rentals from real estate investments $ - $ 907,831 $2,026,861 $ - $ -
Interest and other 101,893 272,529 264,902 28,114 35,992
------------ ------------- ------------- ----------- ----------
Total revenues 101,893 1,180,360 2,291,763 28,114 35,992
------------ ------------- ------------- ----------- ----------
OPERATING EXPENSES:
Interest and amortization of debt discount - 262,771 651,111 - -
Property taxes - 79,234 183,136 - -
Property operating costs, including amounts
paid to related parties of $100,000,
$120,000, $236,000, $0 and $0 respectively 100,000 318,079 664,101 - -
Legal costs 226,240 102,229 47,724 10,580 9,851
General and administrative, including
amounts paid to related parties of
$133,000, $75,000, $56,000, $0 and $30,000
respectively 575,461 354,684 276,283 32,686 92,399
Depreciation, amortization and other 13,017 16,154 372,240 - -
------------ ------------- ------------- ----------- ----------
Total expenses 914,718 1,133,151 2,194,595 43,266 102,250
------------ ------------- ------------- ----------- ----------
(Loss) income before gain on sale of property
and extraordinary item (812,825) 47,209 97,168 (15,152) (66,258)
Gain on sales of properties - 4,528,701 2,582,606 - -
------------ ------------- ------------- ----------- ----------
(Loss) income before extraordinary item (812,825) 4,575,910 2,679,774 (15,152) (66,258)
Extraordinary item -
Prepayment penalty on paydown of debt - (189,070) - - -
------------ ------------- ------------- ----------- ----------
Net (loss) income $(812,825) $4,386,840 $2,679,774 $ (15,152) $ (66,258)
============ ============= ============= =========== ==========
NET (LOSS) INCOME PER COMMON SHARE - BASIC AND
DILUTED:
(Loss) income before extraordinary item $ (.27) $ 1.51 $ .88 $ (.01) $ (.02)
Extraordinary item-
Prepayment penalty - (.06) - - -
------------ ------------- ------------- ----------- ----------
Net (loss) income per common share
$ (.27) $ 1.45 $ .88 $ (.01) $ (.02)
============ ============= ============= =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-3
<PAGE> 122
<TABLE>
<CAPTION>
MERIDIAN POINT REALTY TRUST '83
-------------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
Distributions
Paid-in in excess
Shares Amount capital of income
----------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996 3,031,618 $3,031,618 $22,755,694 $(19,953,304)
Net income - - - 2,679,774
Distributions - - - (1,000,434)
----------- ------------ -------------- ----------------
BALANCE, December 31, 1996 3,031,618 3,031,618 22,755,694 (18,273,964)
Net income - - - 4,386,840
Distributions - - - (9,094,854)
----------- ------------ -------------- ----------------
BALANCE, December 31, 1997 3,031,618 3,031,618 22,755,694 (22,981,978)
Net loss - - - (812,825)
----------- ------------ -------------- ----------------
BALANCE, December 31, 1998 3,031,618 3,031,618 22,755,694 (23,794,803)
Net loss (unaudited) - - - (15,152)
----------- ------------ -------------- ----------------
BALANCE, March 31, 1999 (unaudited) 3,031,618 $3,031,618 $22,755,694 $(23,809,955)
=========== ============ ============== ================
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-4
<PAGE> 123
<TABLE>
<CAPTION>
MERIDIAN POINT REALTY TRUST '83
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Quarters Ended
Year Ended December 31, March 31,
------------------------------------------------- -------------------------
1998 1997 1996 1999 1998
-------------- --------------- ---------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (812,825) $ 4,386,840 $ 2,679,774 $ (15,152) $ (66,258)
Adjustments to reconcile net (loss) income
to net cash provided (used) in operating
activities -
Depreciation and amortization - 20,994 389,265 - -
Unrealized loss (gain) on investments in
mortgage-related assets 13,017 - - (2,608) -
Gain on sale of properties - (4,528,701) (2,582,606) - -
Loss on early retirement of debt - 189,070 - - -
Changes in operating assets and
liabilities-
Restricted cash (357,728) 1,580,139 (361,945) (3,650) -
Accounts receivable - 32,353 161,443 - -
Other assets, net 6,599 25,312 (129,724) (29,264) 21,052
Accounts payable 83,510 88,918 (243,400) 5,941 (76,218)
Other liabilities - (192,354) (325,911) - -
-------------- --------------- ---------------- ------------ -----------
Net cash provided (used) in
operating activities (1,067,427) 1,602,571 (413,104) (44,733) (121,424)
-------------- --------------- ---------------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of properties - 11,650,000 3,603,849 - -
Closing costs on disposition of assets - (891,504) - - -
Improvements to existing real estate and
other - (1,103) (116,461) - -
Investments in mortgage-related assets (2,019,460) - - (601,124) -
Return of principal from mortgage-related
assets 800,721 - - 616,302 -
-------------- --------------- ---------------- ------------ -----------
Net cash provided (used) in
investing activities (1,218,739) 10,757,393 3,487,388 15,178 -
-------------- --------------- ---------------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes - (4,627,123) (162,346) - -
Payment on early extinguishment of debt - (189,070) - - -
Cash distributions paid - (9,094,854) (1,000,434) - -
-------------- --------------- ---------------- ------------ -----------
Net cash provided (used) in
financing activities - (13,911,047) (1,162,780) - -
-------------- --------------- ---------------- ------------ -----------
</TABLE>
F-5
<PAGE> 124
<TABLE>
<CAPTION>
Quarters ended
Year Ended December 31, March 31,
------------------------------------------------ -------------------------
1998 1997 1996 1999 1998
-------------- --------------- ---------------- ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS $(2,286,166) $ (1,551,083) $ 1,911,504 $ (29,555) $(121,424)
-------------- --------------- ---------------- ----------- -----------
CASH AND CASH EQUIVALENTS,
beginning of period 2,886,339 4,437,422 2,525,918 600,173 2,886,339
-------------- --------------- ---------------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 600,173 $ 2,886,339 $ 4,437,422 $ 570,618 $ 2,764,915
============== =============== ================ =========== ===========
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Proceeds from sale of assets-
Shares of stock $ - $ - $ 6,392,145 $ - $ -
Mortgages assumed - - 16,334,297 - -
Disposition of properties, net - (6,192,676) (22,343,329) - -
Reduction in other assets related to
properties sold - (37,118) (1,403,250) - -
Distributions paid in shares of stock - - (6,392,145) - -
Redemption of investment - - (79,500) - -
SUPPLEMENTAL INFORMATION:
Interest paid $ - $ 257,930 $ 634,087 $ - $ -
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-6
<PAGE> 125
MERIDIAN POINT REALTY TRUST '83
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND MARCH 31, 1999 (Unaudited)
------------------------------------------------
1. GENERAL:
-------
Meridian Point Realty Trust '83 (the "Company") is a business trust organized
under the laws of the State of California for the purpose of acquiring,
operating, holding for investment and ultimately selling income-producing
commercial and industrial real estate. The Company was formed as a
self-liquidating/finite-life real estate investment trust ("REIT"). Under this
self-liquidating policy, the Company may not invest net proceeds from sales or
refinancings in additional properties. The Company was formed on June 24, 1982
and commenced operations on April 12, 1983. On February 23, 1996, the Company
sold all of its real estate properties except for the Charleston Business Park
("Charleston") (Note 8). On August 22, 1997, the Company sold the Charleston
property. Following the sale, the Company's assets have consisted almost
entirely of cash and cash equivalents and investments in mortgage-related
assets. An annual meeting of shareholders was held on September 22, 1998, for
the purpose of electing trustees and approving and adopting a plan of
liquidation. The proposed plan of liquidation was defeated by shareholders and a
new Board of Trustees was elected. The vote was declared official on September
28, 1998.
2. ESTIMATES, RISKS AND UNCERTAINTIES:
----------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
From time to time, the Company is subject to legal claims arising in the
ordinary course of business in connection with the Company's prior ownership of
real estate and leasing of such real estate to tenants. The Company maintains
liability insurance, subject to customary deductibles and, accordingly,
management does not believe the ultimate resolution of such matters will have a
material effect in the Company's financial position or results of operations.
3. RECLASSIFICATIONS:
------------------
Certain amounts for the years ended December 31, 1997 and 1996 have been
reclassified to conform with the current year presentation.
4. CASH AND CASH EQUIVALENTS:
--------------------------
The Company considers all investments with an original maturity of three months
or less to be cash equivalents.
F-7
<PAGE> 126
5. INVESTMENTS IN MORTGAGE-RELATED ASSETS:
--------------------------------------
On June 29, 1998 and March 17, 1999, the Company purchased four Real Estate
Mortgage Investment Conduits ("REMICs"). The Company has classified these
investments as trading securities under Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, the unrealized loss on these investments of $13,017
has been included in other expenses in the accompanying statement of operations
for the year ended December 31, 1998 and for the quarter ended March 31, 1999
(unaudited). Presented in the following table is a schedule of the REMIC's
purchased by the Company and their fair market values as of December 31, 1998
and March 31, 1999.
<TABLE>
<CAPTION>
Fair Market Value Fair Market Value
Stated as of as of
REMIC Series Interest Rate Maturity December 31, 1999 March 31, 1999
------------ --------------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
FHLMC 1458 GA 6.750% 05/15/04 $ 263,381 $ 131,774
FNMA 96-2 B 7.500% 10/22/09 296,085 172,445
FHLMC 1432 E 6.750% 01/15/06 289,053 288,283
FHLMC 1472 E 6.250% 02/15/05 357,203 600,650
------------ ------------
$1,205,722 $ 1,193,152
============ ============
</TABLE>
6. RENTALS FROM REAL ESTATE INVESTMENTS:
------------------------------------
Certain of the Company's leases required lessees to pay all or a portion of real
estate taxes, insurance and operating costs ("Expense Recaptures"). Expense
Recaptures of $233,540 and $351,186 for the years ended December 31, 1997 and
1996, respectively, have been included in rentals from real estate investments.
All leases were classified as operating leases. The Company recognized rental
income on the straight-line basis over the terms of the leases.
7. INVESTMENTS IN REAL ESTATE AND DEPRECIATION METHODS:
----------------------------------------------------
Depreciation and amortization were calculated under the straight-line method,
based upon the 35 year estimated lives of property and property additions.
Expenditures for maintenance, repairs and improvements which did not materially
prolong the normal useful life of an asset were charged to operations as
incurred. Leasing commissions and tenant improvements were amortized under the
straight-line method over the terms of the related leases.
8. SALES OF PROPERTIES:
-------------------
On August 22, 1997, the Company sold the Charleston property, the last property
remaining in its portfolio. The total sales price for the property was
$13,000,000 less a $1,350,000 credit for estimated remediation work (see Note
12) and related costs, resulting in a net sales price of $11,650,000. The sales
price was paid entirely in cash. Out of escrow, the Company used $4,557,500 of
the sales proceeds to pay off the then outstanding principal on the mortgage
note payable. The Company also paid $891,504 in closing costs and $189,070 in
mortgage prepayment penalties. In connection with the sale, the Company
recognized a gain on sale of property of $4,528,701.
F-8
<PAGE> 127
On February 23, 1996, the Company sold all of its real estate assets except
Charleston to Meridian Industrial Trust, Inc. ("MIT") for approximately $3.6
million in cash, 390,360 shares of MIT common stock, and the assumption of
certain mortgage notes and other liabilities aggregating approximately $16.3
million by MIT (collectively referred to as the "Asset Sale"). The MIT common
stock was valued at $6,392,145. The Company also paid approximately $1.4 million
in closing and other transaction costs. The gain recognized in the sale was
$2,582,606.
If the sale of the properties and investments had occurred on January 1, 1997,
the Company's unaudited pro forma results of operations for 1997 would have
been:
Revenues $ 272,529
Expenses - Legal, general and
administrative 456,914
------------
Net loss $(184,385)
============
Basic net loss per share $ (0.06)
============
9. EARNINGS PER SHARE:
------------------
Basic earnings per share of beneficial interest is determined by dividing net
income (loss) by the weighted average number of shares of beneficial interest
outstanding during the period. Weighted average number of shares outstanding was
3,031,618 for each of the three years in the period ended December 31, 1998 and
the quarters ending March 31, 1999 and 1998. During the three years ended
December 31, 1998 and the quarters ending March 31, 1999 and 1998, the Company
had no dilutive securities outstanding.
During the year ended December 31, 1998 and the quarters ending March 31, 1999
and 1998, the Company paid no cash distributions. During the year ended
December 31, 1997, the Company distributed $9,094,854, or $3.00 per share of
beneficial interest to shareholders of record as of the close of business on
September 2, 1997.
During the year ended December 31, 1996, the Company distributed cash of
$1,000,434 or $.33 per share of beneficial interest, and all of the 390,360
shares of MIT common stock (or 0.1287 of a share of MIT common stock per share
of beneficial interest in the Company) to shareholders of record at the close of
business on March 12, 1996.
The analysis below presents the amount of distributions paid to shareholders and
the percentage which the Company estimated to be taxable/nontaxable for 1997. In
1997, the Company also elected to distribute its capital gains to its
shareholders and a portion of the 1997 distribution was so designated.
Total distribution $9,094,854
=============
Capital gains distributions-
Taxable at 25% rate 30.04%
Taxable at 20% rate 22.34%
Nontaxable distributions 47.62%
-------------
100.0%
=============
F-9
<PAGE> 128
10. INCOME TAXES:
-------------
The Company has previously elected to be taxed as a REIT pursuant to Section
856(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), and
intends to be taxed as a REIT under the Code for the fiscal year ended December
31, 1998. The REIT provisions of the Code generally allow a REIT to deduct
dividends paid to shareholders in computing the Company's taxable income. No
provisions for federal or state income taxes have been made in the accompanying
statements of operations.
To qualify for REIT status, the Company must meet a number of highly technical
organizational and operations requirements on a continuing basis. Those
requirements seek to ensure, among other things, that the gross income and
investments of a REIT are largely real estate related, with certain other
permitted assets, that a REIT distributes substantially all its ordinary taxable
income to shareholders on a current basis and that the REIT's ownership is not
overly concentrated. Due to the complex nature of these rules, the limited
available guidance concerning interpretation of the rules, the importance of
ongoing factual determinations and the possibility of adverse changes in or
interpretations of the law, administrative interpretations of the law and
developments at the Company, no assurance can be given regarding the Company's
qualification as a REIT for any particular year. As a result of the Company's
sale of its last real estate property in August 1997, the Company's status as a
REIT for 1997 and 1998 is dependent, in part, upon tax rules regarding
investments by REITs in certain types of non-real estate assets. The current
Board of Trustees is reviewing with legal counsel the Company's status as a REIT
for the years ended December 31, 1998 and 1997.
If the Company failed to qualify as a REIT for either the year ended December
31, 1998 or 1997, it would be taxed as a regular corporation, and distributions
to shareholders would not be deductible in computing the Company's taxable
income. The resulting corporate tax liabilities, estimated to be approximately
$170,000, could materially reduce the funds available for distribution to the
Company's shareholders or for reinvestment. If the Company failed to qualify as
a REIT, distributions to shareholders would no longer be required. In addition,
distributions in 1997 originally treated as capital gain distributions could be
recharacterized as ordinary dividend distributions to shareholders. Moreover,
the Company might not be able to elect to be treated as a REIT for the four
taxable years after the year during which the Company ceased to qualify as a
REIT. If the Company later requalified as a REIT, it might be required to pay a
full corporate-level tax on any unrealized gain associated with its assets as of
the date of requalification and to make distributions equal to any earnings
accumulated during the period of non-REIT status.
11. RELATED PARTIES:
----------------
From April 1, 1991 to February 23, 1996, the Company operated under a
self-administered management structure in conjunction with other
commonly-sponsored real estate companies (collectively, the Companies). Under
this management structure, Meridian Point Properties, Inc. ("MPP"), a captive
company controlled by the Companies, leased employees to the Companies at cost
to perform the administrative, accounting, asset management and property
management functions. The reimbursements made to MPP were allocated among the
Companies in accordance with agreements between MPP and the Companies. Cost
reimbursements made to MPP pursuant to this management structure amounted to
$140,000 in 1996 and are included in property operating costs in the
accompanying statements of operations. There were no cost reimbursements in 1997
or 1998.
F-10
<PAGE> 129
Effective February 24, 1996, the Company entered into an agreement with E&L
Associates, Inc. ("E&L") under which E&L provided asset management and certain
other administrative services to the Company. E&L received a monthly fee of
$10,000 plus reimbursement for other expenses incurred on behalf of the Company.
During the three years ended December 31, 1998, 1997 and 1996, E&L received
management fees of $100,000, $120,000 and $95,000, respectively, all of which is
included in property operating costs in the accompanying statements of
operations. E&L is a wholly-owned subsidiary of a company in which Lorraine O.
Legg (the Company's former President, Chief Executive Officer and a former
Trustee) has an ownership interest. The agreement between the Company and E&L
was terminated by the current Board of Trustees on September 22, 1998.
In connection with the sale of the Charleston property, the Board of Trustees
adopted an incentive payment plan for E&L for arranging, structuring,
negotiating and closing the transaction. Under this plan, E&L received a fee of
$233,000 in September 1997. This amount was netted against the gain on sale of
the property.
Before leaving office, the previous Board created the Meridian Indemnity Trust
(the "Trust") to pay for the expense of defending themselves against potential
litigation. The Trust was funded with $350,000 of Company funds which have been
reflected as restricted cash in the accompanying balance sheets as of December
31, 1998, along with the applicable related interest income.
In connection with the proxy solicitation by Meridian '83 Shareholders'
Committee for Growth, Turkey Vulture Fund XIII, Ltd. (the "Fund"), a
shareholder of the Company, incurred expenses of $102,613 which is included in
general and administrative expenses in the accompanying statement of operations
for the year ended December 31, 1998 and is included in accounts payable in the
accompanying balance sheets as of March 31, 1999 and December 31, 1998. The
Board of Trustees authorized the expense reimbursement because of the benefit
to the Company of the proxy solicitation. The reimbursement is conditioned upon
the authorization by the Company's shareholders of the conversion of the
Company to a perpetual-life REIT through an amendment to the Declaration of
Trust. Richard M. Osborne, the Company's Chairman of the Board and Chief
Executive Officer, is the sole manager of the Fund.
At December 31, 1998, the Company has $600,173 of cash and cash equivalents at a
financial institution which is partially owned by a group controlled by the
Chairman and Chief Executive Officer of the Company.
For the years ended December 31, 1998, 1997 and 1996 and the quarters ended
March 31,1999 and 1998, the Company incurred fees and expenses for services
rendered by the Trustees of the Company totaling $30,000, $75,000 and $56,000,
and $0 and $30,000, respectively.
12. COMMITMENTS AND CONTINGENCIES:
------------------------------
The ownership of real estate entails environmental risks and potential liability
to owners, including former owners. Environmental investigation at the Golden
Cove property sold to Meridian Industrial Trust ("MIT") in 1996 indicated that
soil at the property contained volatile organic compounds in concentrations that
exceeded the clean-up goals typically cited by the California Regional Water
Quality Control Board (the "RWQCB"). As part of the sale transaction, the
Company was obligated to fully fund the remediation costs, for which it had
previously accrued $140,000 in 1994. Approximately $95,000 had been expended by
the Company for remediation costs through December 1998, and it does not believe
that any additional costs will be incurred, however there can be no assurance to
that effect. The Company may be entitled to seek contribution and indemnity for
the remediation costs against other potentially responsible parties who may have
caused the contamination at the property.
F-11
<PAGE> 130
In the late 1980's, the San Francisco Bay Region of the RWQCB requested that the
Company investigate and characterize soil and groundwater contamination of the
Charleston property. The Company engaged an environmental engineering firm that
discovered the presence of trichloroethlylene and other solvent chemicals in the
groundwater. The RWQCB deferred issuing a Site Cleanup Requirements ("SCRs")
order to give the Company time to complete the pending sale of the Charleston
property. As part of the sale, the purchaser agreed to indemnify the Company
broadly against the pending SCRs and other types of environmental claims. Its
indemnity is backed by an environmental insurance policy placed with Reliance
Insurance Company of Illinois. It is possible that the RWQCB could still name
the Company when it ultimately issues its SCRs order for the property based on
the Company's former ownership. If that occurs, the Company would tender the
SCRs order to the purchaser for compliance. Similarly, the Company would tender
any other environmental claim brought against it to the purchaser pursuant to
the indemnity.
F-12
<PAGE> 131
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Members
LIBERTY SELF-STOR, LTD.
Mentor, Ohio
We have audited the accompanying balance sheets of the Initial Properties, as
defined in Note 1 of the financial statements, as of December 31, 1997 and 1998,
and the related statements of operations, members' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Initial Properties as of
December 31, 1997 and 1998, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of the financial
statements and included on pages F-28 and F-29 of these financial statements is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. The schedule has not been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
March 15, 1999
F-13
<PAGE> 132
<TABLE>
<CAPTION>
INITIAL PROPERTIES
BALANCE SHEETS
===================================================================================================================================
ASSETS
December 31,
------------------------------------------ March 31,
1997 1998 1999
----------------- ------------------ -----------------
(Unaudited)
<S> <C> <C> <C>
CURRENT
Cash $27,410 $77,393 $68,896
Accounts receivable 36,051 36,420 34,835
Inventory, at cost 21,787 30,670 21,339
Other 10,820 7,825 88,384
----------------- ------------------ -----------------
TOTAL CURRENT ASSETS 96,068 152,308 213,454
PROPERTY AND EQUIPMENT
Land 1,282,890 1,888,297 1,875,524
Buildings and improvements 6,069,168 10,351,583 10,374,273
Furniture and equipment 544,476 568,374 556,165
Vehicles and trailers 156,627 156,627 156,627
----------------- ------------------ -----------------
8,053,161 12,964,881 12,962,589
Less: Accumulated depreciation 266,590 693,659 803,573
----------------- ------------------ -----------------
7,786,571 12,271,222 12,159,016
OTHER
Construction in progress 683,535 - - - -
Goodwill, net of amortization 941,656 917,656 911,656
Other 268,850 275,975 266,813
----------------- ------------------ -----------------
1,894,041 1,193,631 1,178,469
----------------- ------------------ -----------------
TOTAL ASSETS $9,776,680 $13,617,161 $13,550,939
================= ================== =================
</TABLE>
The accompanying notes are a part of the financial statements.
F-14
<PAGE> 133
<TABLE>
<CAPTION>
INITIAL PROPERTIES
BALANCE SHEETS
===================================================================================================================================
LIABILITIES
December 31,
------------------------------------------ March 31,
1997 1998 1999
----------------- ------------------ -----------------
(Unaudited)
<S> <C> <C> <C>
CURRENT
Notes payable $2,222,203 $500,000 $500,000
Current maturities of long-term debt 200,094 330,928 352,912
Accounts payable 111,736 84,360 274,875
Accrued liabilities:
Real estate taxes 145,172 224,780 178,026
Other 64,915 49,678 89,689
Prepaid rent 83,181 143,900 150,203
----------------- ------------------ -----------------
TOTAL CURRENT LIABILITIES 2,827,301 1,333,646 1,545,705
LONG-TERM
Notes payable, net of current portion 9,856,784 15,837,872 15,662,570
Security deposits 31,192 47,155 43,886
----------------- ------------------ -----------------
TOTAL LIABILITIES 9,887,976 15,885,027 15,706,456
----------------- ------------------ -----------------
12,715,277 17,218,673 17,252,161
MEMBERS' DEFICIT
MEMBERS' DEFICIT (2,938,597) (3,601,512) (3,701,222)
----------------- ------------------ -----------------
TOTAL LIABILITIES AND
MEMBERS' DEFICIT $9,776,680 $13,617,161 $13,550,939
================= ================== =================
</TABLE>
The accompanying notes are a part of the financial statements.
F-15
<PAGE> 134
<TABLE>
<CAPTION>
INITIAL PROPERTIES
STATEMENTS OF MEMBERS' DEFICIT
================================================================================
MEMBERS' CAPITAL ACCOUNTS
<S> <C>
Balance at January 1, 1997 ($252,706)
Contributions to capital - 1997 1,861,379
Withdrawals from capital - 1997 (6,058,495)
Net income - 1997 1,511,225
-----------
Balance at December 31, 1997 (2,938,597)
Contributions to capital - 1998 382,265
Withdrawals from capital - 1998 (138,171)
Net loss - 1998 (907,009)
-----------
Balance at December 31, 1998 (3,601,512)
Contributions to capital - January 1, 1999 through March 31, 1999 119,518
Withdrawals from capital - January 1, 1999 through March 31, 1999 (50,000)
Net loss - March 31, 1999 (169,228)
-----------
Balance at March 31, 1999 ($3,701,222)
===========
</TABLE>
The accompanying notes are a part of the financial statements.
F-16
<PAGE> 135
<TABLE>
<CAPTION>
INITIAL PROPERTIES
STATEMENTS OF OPERATIONS
===================================================================================================================================
Three Months
Years ended December 31, Ended March 31,
------------------------------------- ------------------------------------
1997 1998 1998 1999
---------------- ---------------- ------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES $1,918,159 $2,465,981 $416,857 $743,310
OPERATING EXPENSES
Interest 1,185,629 1,200,292 271,694 306,625
Depreciation and amortization 499,683 493,284 138,366 118,631
Salaries and wages 856,863 519,585 110,028 140,692
Property taxes and insurance 206,031 337,663 50,201 98,178
General and administrative 452,749 207,619 58,737 124,910
Rent 185,528 170,777 48,275 32,813
Professional fees 121,482 102,862 25,303 9,395
Utilities 105,985 94,620 22,968 28,835
Advertising 74,816 90,576 20,772 28,587
Repairs and maintenance 58,998 53,355 4,191 10,547
Bad debts 55,437 39,180 6,943 13,447
Management fee 53,477 - - - - - -
---------------- ---------------- --------------- ---------------
3,856,678 3,309,813 757,478 912,660
---------------- ---------------- --------------- ---------------
(1,938,519) (843,832) (340,621) (169,350)
OTHER INCOME
Gain on sale of property 3,380,262 - - - - - -
Gain on sale of securities 59,100 - - - - - -
Interest 10,382 1,322 86 122
---------------- ---------------- --------------- ---------------
3,449,744 1,322 86 122
---------------- ---------------- --------------- ---------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 1,511,225 (842,510) (340,535) (169,228)
EXTRAORDINARY CHARGE
Loss recognized from
extinguishment of debt - - (64,499) - - - -
---------------- ---------------- --------------- ---------------
NET INCOME (LOSS) $1,511,225 ($907,009) ($340,535) ($169,228)
================ ================ =============== ===============
</TABLE>
The accompanying notes are a part of the financial statements.
F-17
<PAGE> 136
<TABLE>
<CAPTION>
INITIAL PROPERTIES
STATEMENTS OF CASH FLOWS
===================================================================================================================================
Three Months
Years ended December 31, Ended March 31,
------------------------------------- -----------------------------------
1997 1998 1998 1999
----------------- ---------------- -----------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $1,511,225 ($907,009) ($340,535) ($169,228)
Adjustments to reconcile net income (loss) to net
cash used in operating
activities:
Depreciation 362,665 427,070 119,448 112,312
Amortization 137,018 66,214 18,918 6,319
Extraordinary charge - - 64,499 - - - -
Gain on marketable securities, net (59,100) - - - - - -
Gain on disposal of fixed assets, net (3,380,262) - - - - (30,107)
(Increase) decrease in accounts receivable 15,234 (369) 4,100 1,585
(Increase) decrease in inventories (8,758) (8,883) (5,843) 9,331
(Increase) decrease in other assets 148,407 (110,843) (58,062) (71,716)
Increase (decrease) in accounts payable (92,296) (27,376) 87,881 190,515
Increase (decrease) in accrued taxes and other 42,826 141,053 1,465 (3,709)
----------------- ---------------- ---------------- ---------------
Total adjustments (2,834,266) 551,365 167,907 214,530
----------------- ---------------- ---------------- ---------------
NET CASH - OPERATING ACTIVITIES (1,323,041) (355,644) (172,628) 45,302
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (2,464,662) (1,597,978) (365,911) (107,653)
Proceeds from sale of marketable securities 371,981 - - - - - -
Proceeds from disposal of fixed assets 4,707,259 - - - - 49,017
Purchase of marketable securities (312,882) - - - - - -
----------------- ---------------- ---------------- ---------------
NET CASH - INVESTING ACTIVITIES 2,301,696 (1,597,978) (365,911) (58,636)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions from member 821,661 1,063,593 225,500 128,155
Distributions to member (5,965,020) (138,171) (50,000) (50,000)
Issuance of additional debt 4,799,559 1,286,369 425,664 - -
Repayments of debt (673,155) (208,186) (35,620) (73,318)
----------------- ---------------- ---------------- ---------------
NET CASH - FINANCING ACTIVITIES (1,016,955) 2,003,605 565,544 4,837
----------------- ---------------- ---------------- ---------------
NET DECREASE IN CASH (38,300) 49,983 27,005 (8,497)
CASH AT BEGINNING OF YEAR 65,710 27,410 27,410 77,393
----------------- ---------------- ---------------- ---------------
CASH AT END OF YEAR $27,410 $77,393 $54,415 $68,896
================= ================ ================ ===============
</TABLE>
The accompanying notes are a part of the financial statements.
F-18
<PAGE> 137
<TABLE>
<CAPTION>
INITIAL PROPERTIES
STATEMENTS OF CASH FLOWS
===================================================================================================================================
Three Months
Years ended December 31, Ended March 31,
------------------------------------- -----------------------------------
1997 1998 1998 1999
----------------- ---------------- -----------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Contribution of property by a member $712,954 $2,802,651 $1,602,651 - -
================= ================ ================ ===============
Debt assumed on property contributed by a member - - $3,200,000 $1,200,000 - -
================= ================ ================ ===============
Purchase of property and equipment (net of cash
paid) for notes $10,423,022 $1,430,207 - - - -
================= ================ ================ ===============
Payment of obligations from like-kind exchange
proceeds $21,546,600 - - - - - -
================= ================ ================ ===============
Payment on note from property sale proceeds $5,714,918 - - - - $80,000
================= ================ ================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the period:
Interest $1,189,234 $1,215,361 $271,694 $312,417
================= ================ ================ ===============
</TABLE>
The accompanying notes are a part of the financial statements.
F-19
<PAGE> 138
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of March 31, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The initial properties consist of the following self-storage facilities:
<TABLE>
<CAPTION>
NUMBER OF
LOCATION DATE OF PURCHASE STORAGE UNITS
-------- ---------------- -------------
Excludable
- ----------
<S> <C> <C>
Cleveland, Ohio 12/31/96 278
Dayton, Ohio 5/20/97 206
Mentor, Ohio 3/20/98 207
Willoughby, Ohio 9/30/96 227
East Liverpool, Ohio 10/31/96 222
Ravenna, Ohio 4/30/97 150
Perry, Ohio 1/10/97 433
Endicott, New York 11/30/96 297
Long Island, New York 1/1/98 556
Non-Excludable
- --------------
Avon, Ohio 11/26/97 597
Canton, Ohio 4/22/97 399
Catawba, Ohio 6/30/97 472
East Canton, Ohio 5/30/97 187
Louisville, Ohio 5/30/97 386
</TABLE>
Liberty Self-Stor, Ltd. (the Company), a limited liability company organized in
1996 under the laws of the State of Ohio, purchased and currently operates each
of the facilities listed above. Each facility rents storage units to customers
on a month-to-month basis. In addition, the Company sells moving and packing
supplies, including security locks. The facilities also have trucks and trailers
available for rent.
The initial properties have been divided into two categories to differentiate
the presentation requirements of the properties. The properties listed under the
"Excludable" category have been included from the date of purchase to March 31,
1999, only. The properties listed under the "Non-Excludable" category have also
been included in the accompanying statements from the date of purchase to March
31, 1999, but a separate set of financial statements have been presented to show
the financial position, results of operations, and cash flows from January 1,
1997 to date of purchase by the Company in accordance with regulations
promulgated by the Securities and Exchange Commission.
It is proposed that as a part of this reorganization, the members of the Company
will contribute their respective membership interests into a newly formed
limited partnership in exchange for a limited partner interest.
Management believes that these financial statements result in a more meaningful
presentation of the Initial Properties to be acquired by the newly formed
limited partnership and thus appropriately reflect the historical financial
position and results of operations of those properties.
F-20
<PAGE> 139
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of March 31, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
Interim Unaudited Financial Information
- ---------------------------------------
The financial statements as of and for the three months ended March 31, 1998 and
1999 are unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
representation of the financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
- ----
The Company considers amounts deposited in commercial checking and savings
accounts, cash on hand, and certificates of deposits with maturity periods of
six months or less to be cash.
Accounts receivable
- -------------------
The Company uses the direct write-off method to account for sales on credit
which become uncollectible. An allowance for doubtful accounts is considered
unnecessary by management because all significant accounts expected to become
uncollectible have been written off as of year-end.
Property and equipment
- ----------------------
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using accelerated methods for financial reporting purposes
over the following estimated useful lives:
Buildings and improvements 15-39 years
Furniture and equipment 5-7 years
Vehicles and trailers 5-7 years
Maintenance and repairs are charged to operations as incurred; major renewals
and betterments that extend the useful lives of assets are capitalized.
Depreciation expense totaled $362,665, $427,070, $119,448, and $112,312 for the
years ended December 31, 1997 and 1998 and the three months ended March 31, 1998
and 1999, respectively.
For the year ended December 31, 1997, the Company had adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Accordingly, the
members of the Company review the facilities for impairment when events or
changes in circumstances indicate the carrying amount of the facilities may not
be recoverable. When such conditions exist, management estimates the future cash
flows from operations and dispositions of the facilities. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to the related estimated fair market value would be recorded and
an impairment loss would be recognized. No such impairment losses have been
recognized.
F-21
<PAGE> 140
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of March 31, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other assets
- ------------
Goodwill, which represents the excess of the cost of purchased properties over
the fair value of their net assets at the dates of acquisition, is being
amortized on the straight-line method over a term of forty years. Amounts
charged to operations in the accompanying statements of operations was $67,565,
$24,000, $6,000, and $6,000 for the years ended December 31, 1997 and 1998 and
the three month periods ended March 31, 1998 and 1999, respectively. Accumulated
amortization of goodwill was $18,344, $42,344 and $48,344 at December 31, 1997
and 1998 and at March 31, 1999, respectively.
Noncompetition agreements represent a portion of the purchase price of various
properties whereby the seller agreed not to compete with the Company for a
determined period of time. The costs are being amortized on the straight-line
method over the terms of the respective agreements. The amortization of
noncompetition agreements of $11,078, $34,745, $9,236, and $8,253 for the years
ended December 31, 1997 and 1998 and for the three month periods ended March 31,
1998 and 1999, respectively has been charged to current operations included in
"Depreciation and amortization" expense. Accumulated amortization of
noncompetition agreements was $10,540, $45,285 and $53,538 at December 31, 1997
and 1998 and at March 31, 1999, respectively.
Deferred loan costs are being amortized on the straight-line basis over the
terms of the respective loan agreements. The amortization of deferred loan costs
of $56,255, $69,848, $3,682, and $1,386 for the years ended December 31, 1997
and 1998 and for the three month periods ended March 31, 1998 and 1999,
respectively, has been included in "Depreciation and amortization" expense in
the accompanying statements of operations. Accumulated amortization of deferred
loan costs was $13,934, $9,035, and $9,260 at December 31, 1997 and 1998 and
March 31, 1999, respectively.
In 1998 the Company refinanced several of its debt obligations with one
obligation to a bank. The prior, unamortized deferred loan costs of $64,499 were
charged to current operations and reported as an "Extraordinary charge" in the
accompanying statement of operations for the year ended December 31, 1998.
Use of estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience. Due to their prospective nature, actual results could
differ from those estimates.
Federal income taxes
- --------------------
The Company has elected to be taxed under the provision of Subchapter K of the
Internal Revenue Code. The net operations of the Company is taxable to the
individual members. Accordingly, no provision for federal income taxes has been
provided in these financial statements.
F-22
<PAGE> 141
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of March 31, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- MARCH 31,
NOTE 3 - MORTGAGES AND NOTES PAYABLE 1997 1998 1999
----------- ---------- ------------
<S> <C> <C> <C>
Long-term debt consisted of the following:
Mortgage note payable to a bank in initial monthly installments of $84,367
including interest at a current rate of 7.72%; See note (a) below,
amortized over a twenty-year period with a maturity date of June 1, 2003,
secured by certain real property having a net aggregate book value of
$5,721,014 at December 31, 1998,
personally guaranteed by a member of the Company $ -- $9,728,525 $9,592,746
Note payable to member, non-interest bearing, unsecured, and not
expected to be repaid within the following year -- 2,000,000 2,000,000
Mortgage note payable to a bank in monthly installments of $9,695 including
interest at a current rate of 6.8538%; See note (b) below, amortized over a
twenty-year period with a maturity date of May 20, 2002, secured by certain
real property having a net aggregate book value of $1,222,053 at December
31, 1998, personally guaranteed by a member of the
Company 1,031,027 1,263,684 1,258,285
Mortgage note payable to a bank in monthly installments of $11,579
including interest at a current rate of 8.0%; See note (b) below, amortized
over a twenty year period with a maturity date of March 30, 2003 secured by
certain real property having a net aggregate book value of $1,583,140 at
December 31, 1998,
personally guaranteed by a member of the Company -- 1,171,143 1,163,580
Mortgage note payable to a bank in monthly installments of $7,268 including
interest at a current rate of 8.02%; See note (e) below, amortized over a
twenty-five year period with a maturity date of October 31, 2002 secured by
certain real property having a net aggregate book value of $1,380,168 at
December 31, 1998,
personally guaranteed by a member of the Company 939,135 926,787 923,289
Mortgage note payable to a bank for construction and term financing of real
property, interest currently at the bank's prime rate of 7.75%; See note
(c) below, amortized over a twenty-three year period with a maturity date
of June 1, 2003 secured by certain real property having a net aggregate
book value of $466,740 at December 31, 1998, personally guaranteed by a
member of the Company -- 262,977 262,977
</TABLE>
F-23
<PAGE> 142
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- MARCH 31,
NOTE 3 - MORTGAGES AND NOTES PAYABLE 1997 1998 1999
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage note payable to a bank for construction and term financing of real
property, interest currently at the bank's prime rate of 7.75%; See note
(d) below, amortized over a twenty-three year period with a maturity date
of October 31, 2002 secured by certain real property having a net aggregate
book value of $1,380,168 at December 31, 1998, personally guaranteed by a
member of the Company -- 554,704 554,704
Note payable to a corporation, due in 1,188 months, monthly interest
payments of $2,000, secured by certain real property, having a net
aggregate book value of $815,758, personally
guaranteed by a member of the Company 250,000 250,000 250,000
Note payable to a bank in monthly installments including interest
of $381 through 2001, secured by certain equipment 14,540 10,980 9,901
Note payable to a bank in monthly installments including interest of
$15,621, unpaid principle due May, 2002, interest at 8.50%, secured by
certain real property, guaranteed by a
member of the Company (f) 1,786,617 -- --
Mortgage payable to a bank in monthly installments including interest of
$13,000, unpaid principle due May, 2002, interest at 9.00%, secured by
certain real property, guaranteed by a
member of the Company (f) 1,417,962 -- --
Construction loan payable to bank in monthly interest installments at 8.35%
secured by certain real property, guaranteed by a
member of the Company (f) 1,049,394 -- --
Mortgage payable to a bank in monthly installments including interest of
$6,326 through 2016, interest at 8.5%, secured by
certain real property, guaranteed by a member of the Company (f) 712,590 -- --
Construction loan payable to bank in monthly interest installments at 8.5%,
secured by certain real property, guaranteed by a member
of the Company (f) 709,138 --
</TABLE>
F-24
<PAGE> 143
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of March 31, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- MARCH 31,
NOTE 3 - MORTGAGES AND NOTES PAYABLE - (CONTINUED) 1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage payable to a bank in monthly installments including interest of
$5,965, unpaid principle due July, 2007, interest at 9.0%, secured by
certain real property, guaranteed by a
member of the Company (f). 668,626 -- --
Mortgage payable to a bank in monthly installments including interest of
$5,483, unpaid principle due January, 2002, interest at 8.75%, secured by
certain real property, guaranteed by a
member of the Company (f). 601,173 -- --
Mortgage payable to a bank in monthly installments including interest of
$4,321, unpaid principle due May, 2002, interest at 9.00%, secured by
certain real property, guaranteed by
a member of the Company (f). 474,599 -- --
Mortgage payable to a bank in monthly installments including
interest of $2,672 unpaid principle due 2014, interest at 8.75%
secured by certain real property (f). 268,577 -- --
Note payable to an individual in one payment of $150,000
including interest of $16,500 (6%), payable on
April 29, 1999 (f). 133,500 -- --
----------- ----------- -----------
10,056,878 16,168,800 16,015,482
Less current maturities 200,094 330,928 352,912
----------- ----------- -----------
$ 9,856,784 $15,837,872 $15,662,570
=========== =========== ===========
</TABLE>
As of December 31, 1998, long-term debt matures as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31, 2000 $ 366,295
2001 393,963
2002 2,911,585
2003 9,916,029
2004 --
Thereafter 2,250,000
------------
$ 15,837,872
============
</TABLE>
F-25
<PAGE> 144
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of March 31, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - MORTGAGES AND NOTES PAYABLE - (CONTINUED)
(a) The interest rate shall be computed as follows: For the first three years
of this note commencing May 21, 1998 interest is at a variable rate equal
to two and one quarter percent plus the then current weekly average yield
on United States Treasury Securities adjusted to a constant maturity of
three years, as made available by the Federal Reserve Board. The rate as of
the first adjustment date (June 1, 2001) shall be equal to two and one
quarter percent plus the then current weekly yield on United States
Treasury Securities adjusted to a constant maturity of two years, as made
available by the Federal Reserve Board. This rate as of June 1, 2001 shall
remain in effect for the remaining two years of the loan until the June 1,
2003 maturity date.
(b) The interest rate shall be based on a fixed rate relating to five year
treasuries plus 230 basis points pursuant to the agreement.
(c) The interest rate shall be computed as follows: For the real property
construction phase of this note commencing June 1, 1998 interest is at the
prime rate of the bank, subject to change upon any change in the prime rate
of the bank. The rate commencing on the completion of the construction
phase (May 31, 1999) is a variable rate equal to two and one quarter
percent plus the then current weekly average yield on United States
Treasury Securities adjusted to the constant maturity of two years, as made
available by the Federal Reserve Board, computed monthly on the basis of a
year consisting of 360 days. During the last twenty-four months of the
loan, the interest rate shall be computed at a rate equal to two and one
quarter percent plus the then current weekly average yield on United States
Treasury Securities adjusted to the constant maturity of two years, as made
available by the Federal Reserve Board. Pursuant to the note agreement, the
maturity date of this note is to be co-terminus with the note with balance
due of $9,728,525 at December 31, 1998.
(d) The interest rate shall be computed as follows: For the real property
construction phase of this note commencing June 1, 1998 interest is at the
prime rate of the bank, subject to change upon any change in the prime rate
of the bank. The rate commencing on the completion of the construction
phase (May 31, 1999) is a variable rate equal to two and one quarter
percent plus the then current weekly average yield on United States
Treasury Securities adjusted to the constant maturity of three years, as
made available by the Federal Reserve Board, computed monthly on the basis
of a year consisting of 360 days. The maturity date of this note (October
31, 2002) is to be co-terminus with the first mortgage note with a balance
due of $926,787 as of December 31, 1998, pursuant to the note agreement.
(e) The interest rate shall be computed as follows: The rate is variable and
equal to two and one quarter percent plus the then current weekly average
yield on United States Treasury Securities adjusted to the constant
maturity of three years, as made available by the Federal Reserve Board,
computed monthly on the basis of a year consisting of 360 days. The
maturity date of this note (October 31, 2002) is to be co-terminus with the
second mortgage note with a balance due of $554,704 as of December 31,
1998.
(f) This mortgage note and the other notes indicated were refinanced with a
bank on May 26, 1998. The total amount refinanced for this and the
aforementioned notes was $10,300,000.
F-26
<PAGE> 145
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of March 31, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1997 and 1998 and March 31, 1999. Considerable judgment is
necessary to interpret market data and to develop estimated fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts which could be realized on disposition of the financial instruments.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
Long-term debt
- --------------
Management estimates that the fair value of mortgage debt approximates carrying
value based upon the Company's effective borrowing rate for issuance of debt
with similar terms and remaining maturities.
NOTE 5 - LEASES
The Company leases trucks, trailers and other equipment from a bank under a
noncancellable operating master lease agreement. This master lease contains four
separate property addendums having various lease terms (from forty-eight to
sixty months each) and varying monthly payments. Contained in the lease
agreement are certain conditions and covenants including a debt to net worth
ratio covenant. As of December 31, 1998, the Company is in compliance with all
conditions and covenants. Total rental payments under these operating leases was
approximately $115,600 in the year ended December 31, 1998.
Future minimum payments under noncancellable operating leases are as follows:
1999 $ 110,103
2000 110,103
2001 107,608
2002 4,435
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company leases its headquarter's office space from a corporation in which
the managing member is a majority shareholder. The space is rented on a
month-to-month basis at a rate of $4,000 per month. Total annual rents were
$48,000 in both 1998 and 1997 and $12,000 for the both the three month periods
ended March 31, 1999 and 1998, respectively.
The company engaged the services of a management company in which the managing
member is the sole shareholder. Total fees paid to the management company were
$53,477 in 1997.
As disclosed in Note 3, the Company assumed a $2,000,000 obligation from a
member in 1998. This note is non-interest bearing, unsecured, and is not
expected to be repaid within the following year.
F-27
<PAGE> 146
<TABLE>
<CAPTION>
SCHEDULE 1
LIBERTY SELF-STOR LTD.
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
GROSS AMOUNTS AT WHICH
COSTS CAPITALIZED SUBSEQUENT CARRIED AT CLOSE
INITIAL COST TO ACQUISITION OF PERIOD
---------------------------- --------------------------- --------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
------------ ------------ -------- ------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIBERTY SELF-STOR,
CLEVELAND,OHIO $ 1,263,684 $ 251,836 -- -- $ 1,032,316 $ 251,836 $ 1,032,316
AVON, OHIO 1,481,492 86,462 778,001 -- 547,052 86,462 1,325,053
MENTOR, OHIO 1,171,143 320,500 1,289,267 -- -- 320,500 1,289,267
EAST CANTON, OHIO 489,343 35,249 71,566 -- 2,449 35,249 74,015
WILLOUGHBY, OHIO 1,511,525 300,000 -- 850 1,053,721 300,850 1,053,721
CATAWBA, OHIO 1,142,805 98,683 106,907 -- 268,591 98,683 375,498
CANTON, OHIO 1,102,256 38,425 285,764 -- 15,018 38,425 300,782
EAST LIVERPOOL, OHIO 970,668 99,980 758,740 -- -- 99,980 758,740
LOUISVILLE, OHIO 1,244,610 52,732 328,999 -- 7,236 52,732 336,235
RAVENNA, OHIO 444,857 37,899 268,264 103,894 -- 141,793 268,264
PERRY, OHIO 1,983,073 101,706 490,652 -- 710,259 101,706 1,200,911
DAYTON, OHIO 622,800 60,815 497,393 -- 11,874 60,815 509,267
ENDICOTT, NEW YORK 729,565 117,710 723,478 -- 7,305 117,710 730,783
LONG ISLAND, NEW YORK -- 181,556 1,018,445 -- 13,545 181,556 1,031,990
HEADQUARTERS,
MENTOR, OHIO -- -- -- -- 64,741 -- 64,741
---------- ----------- ----------- ----------- ----------- ----------- --------------
TOTAL $14,157,821 $ 1,783,553 $ 6,617,476 $ 104,744 $ 3,734,107 $ 1,888,297 $ 10,351,583
=========== =========== =========== =========== =========== =========== ==============
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
LIFE ON WHICH
ACCUMULATED DEPRECIATION
DEPRECIATION NET BOOK VALUE STATEMENTS IN
BUILDINGS AND BUILDINGS AND DATE OF DATE OF OPERATIONS
DESCRIPTION TOTAL IMPROVEMENTS IMPROVEMENTS CONSTRUCTION ACQUISITION IS COMPUTED
----------- ------------ -------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
LIBERTY SELF-STOR,
CLEVELAND,OHIO $ 1,284,152 $62,099 $1,222,053 N/A 1996 15-39 YEARS
AVON, OHIO 1,411,515 31,347 1,380,168 1998 1997 39 YEARS
MENTOR, OHIO 1,609,767 26,627 1,583,140 N/A 1998 7-39 YEARS
EAST CANTON, OHIO 109,264 3,932 105,332 N/A 1997 7-39 YEARS
WILLOUGHBY, OHIO 1,354,571 38,348 1,316,223 N/A 1996 7-39 YEARS
CATAWBA, OHIO 474,181 7,441 466,740 1997 1997 39 YEARS
CANTON, OHIO 339,207 17,849 321,358 N/A 1997 7-39 YEARS
EAST LIVERPOOL, OHIO 858,720 42,962 815,758 N/A 1996 39 YEARS
LOUISVILLE, OHIO 388,967 15,113 373,854 N/A 1997 7-39 YEARS
RAVENNA, OHIO 410,057 12,773 397,284 1997 1997, 1998 7-39 YEARS
PERRY, OHIO 1,302,617 24,476 1,278,141 N/A 1997 39 YEARS
DAYTON, OHIO 570,082 22,137 547,945 N/A 1997 7-39 YEARS
ENDICOTT, NEW YORK 848,493 39,855 808,638 N/A 1996 15-39 YEARS
LONG ISLAND, NEW YORK 1,213,546 14,355 1,199,191 N/A 1998 39 YEARS
HEADQUARTERS,
MENTOR, OHIO 64,741 2,974 61,767 N/A 1997 39 YEARS
----------- -------- -----------
TOTAL $12,239,880 $362,288 $11,877,592
=========== ======== ===========
</TABLE>
F-28
<PAGE> 147
SCHEDULE I (CONTINUED)
INITIAL PROPERTIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1998 1997
Reconciliation of land, buildings and improvements: ------------ ------------
<S> <C> <C>
Balance at beginning of period $ 7,352,058 $ 11,487,852
Additions - improvements 4,902,822 13,697,730
Retirements (15,000) (17,833,524)
------------ ------------
Balance at end of period $ 12,239,880 $ 7,352,058
============ ============
Reconciliation of accumulated depreciation:
Balance at beginning of period $ 108,627 $ 425,792
Depreciation expense 253,661 203,419
Retirements -- (520,584)
------------ ------------
Balance at end of period $ 362,288 $ 108,627
============ ============
</TABLE>
F-29
<PAGE> 148
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Aqua Marine Custom Canvas, Inc.
Marblehead, Ohio
We have audited the accompanying balance sheet of the Aqua Marine Custom Canvas,
Inc., d.b.a., Aqua Marine Mini-Storage (an Ohio corporation) as of June 29,
1997, and the related statements of income and retained earnings, and cash flows
for the period from January 1, 1997 to June 29, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Aqua Marine Custom Canvas,
Inc., d.b.a., Aqua Marine Mini-Storage as of June 29, 1997, and the results of
its operations and its cash flows for the period then ended in conformity with
generally accepted accounting principles.
/s/ Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
February 5, 1999
F-30
<PAGE> 149
<TABLE>
<CAPTION>
AQUA MARINE CUSTOM CANVAS, INC.,
D.B.A., AQUA MARINE MINI-STORAGE
BALANCE SHEET
JUNE 29, 1997
============================================================================================================
ASSETS
<S> <C>
PROPERTY AND EQUIPMENT
Land $ 49,815
Buildings and improvements 634,556
Furniture and equipment 43,829
--------
728,200
Less accumulated depreciation 315,261
--------
412,939
CASH AND CASH EQUIVALENTS 30,990
ADVANCES TO SHAREHOLDER 17,574
OTHER ASSETS 521
TOTAL ASSETS $462,024
========
LIABILITIES AND SHAREHOLDER'S EQUITY
MORTGAGE NOTES PAYABLE $198,673
ACCRUED EXPENSES AND OTHER LIABILITIES
Security deposits and prepaid rent 20,948
Other 7,321
--------
TOTAL LIABILITIES 226,942
COMMON STOCK
$1 par value, 500 shares authorized, issued
and outstanding 500
ADDITIONAL PAID-IN CAPITAL 184,206
RETAINED EARNINGS 50,376
TOTAL SHAREHOLDER'S EQUITY 235,082
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $462,024
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-31
<PAGE> 150
AQUA MARINE CUSTOM CANVAS, INC.,
D.B.A., AQUA MARINE MINI-STORAGE
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE PERIOD JANUARY 1, 1997 TO JUNE 29, 1997
================================================================================
<TABLE>
<CAPTION>
<S> <C>
RENTAL INCOME $70,676
OPERATING EXPENSES:
Depreciation 13,842
Interest expense 8,919
Administrative 5,257
Repairs and maintenance 4,989
Employee benefits 4,755
Professional fees 4,593
Real estate taxes 2,933
Utilities 2,351
Advertising 2,122
Other 869
-------
50,630
-------
NET INCOME 20,046
RETAINED EARNINGS - JANUARY 1, 1997 30,330
-------
RETAINED EARNINGS - JUNE 29, 1997 $50,376
=======
</TABLE>
The accompanying notes are a part of the financial statements.
F-32
<PAGE> 151
<TABLE>
<CAPTION>
AQUA MARINE CUSTOM CANVAS, INC.,
D.B.A., AQUA MARINE MINI-STORAGE
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1997 TO JUNE 29, 1997
=============================================================================================================
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,046
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 13,842
Decrease in other assets 1,370
Decrease in accrued expenses and other liabilities (992)
--------
Total adjustments 14,220
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,266
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to shareholder (17,574)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage notes payable (10,029)
--------
NET INCREASE IN CASH 6,663
CASH AT JANUARY 1, 1997 24,327
--------
CASH AT JUNE 29, 1997 $ 30,990
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year - Interest $ 7,471
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-33
<PAGE> 152
AQUA MARINE CUSTOM CANVAS, INC.,
D.B.A., AQUA MARINE MINI-STORAGE
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 1997
================================================================================
NOTE 1 - BASIS OF PRESENTATION
Business Activity
- -----------------
Aqua Marine Custom Canvas, Inc., d.b.a., Aqua Marine Mini-Storage (the Company)
operates a self-storage facility in Marblehead, Ohio.
Basis of Presentation
- ---------------------
The accompanying financial statements reflect the entire operations of the
self-storage facility prepared on the accrual basis of accounting. The real
estate is owned personally by the Company's shareholder and his wife and rented
to the Company. These financial statements have been presented to assist the
reader in evaluating the facility's entire operations. Thus the real estate has
been reflected as contributed into Company net of mortgage obligations. Rent
payments made by the Company during the period January 1, 1997 to June 29, 1997
have been reclassified as shareholder advances while mortgage payments and real
estate taxes paid by the Company's shareholder during the same period have been
reflected as repayments against those advances.
Liberty Self-Stor, Ltd. (Liberty) is a recently organized Ohio Limited Liability
Company which has been established to acquire and operate self-storage
facilities . On June 30, 1997 Liberty entered into a contract to purchase real
estate and certain equipment from the Company for total consideration of
$900,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using accelerated and straight-line methods for financial
and tax reporting purposes at rates based on the following estimated useful
lives:
Buildings and improvements 10 to 39 years
Furniture and equipment 3 to 7 years
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Revenue Recognition
- -------------------
Revenue is recognized when earned. Amounts deemed uncollectible from tenants are
written off when that determination is made. As such, no allowance for doubtful
accounts is provided in the financial statements. Furthermore, amounts earned
but not collected from tenants at June 29, 1997 were deemed immaterial for
inclusion in the accompanying financial statements.
F-34
<PAGE> 153
AQUA MARINE CUSTOM CANVAS, INC.,
D.B.A., AQUA MARINE MINI-STORAGE
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 1997
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
- -------------------------
All highly liquid investments with an original maturity date of three months or
less when purchased are considered to be cash equivalents.
Income Taxes
- ------------
For purposes of this presentation, no provision for income tax has been made on
these financial statements. Any amounts due were not deemed material.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on the management's
knowledge and experience. Due to their prospective nature, actual results could
differ from those estimates.
NOTE 3 - MORTGAGE NOTES PAYABLE
At June 29, 1997, the mortgage notes payable consisted of the following:
<TABLE>
<S> <C>
Mortgage note payable to a bank, with principal and
interest payments of $1,081, interest at 8.25%,
secured by real property $ 67,961
Mortgage note payable to a bank, with principal and
interest payments of $1,584, interest at 9.00%,
secured by real property 130,712
----------
$ 198,673
==========
</TABLE>
On June 30,1997, Liberty Self-Stor, Ltd. purchased the Company for total
consideration of $900,000. A portion of those proceeds was used to retire the
above mortgages.
NOTE 4 - RELATED PARTY TRANSACTIONS
During the period from January 1, 1997 to June 29, 1997, the Company advanced
$17,574 to its shareholder. These amounts are non-interest bearing and due on
demand.
F-35
<PAGE> 154
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kenneth & Janet Schalmo
East Canton, Ohio
We have audited the accompanying combined balance sheet of the Schalmo
Properties (as defined in Note 1 to the combined financial statements) as of May
29, 1997, and the related combined statements of operations and proprietors'
capital, and cash flows for the period from January 1, 1997 to May 29, 1997.
These combined financial statements are the responsibility of the properties'
proprietors. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
owners, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Schalmo
Properties as of May 29, 1997, and the combined results of their operations and
their cash flows for the period then ended in conformity with generally accepted
accounting principals.
/s/ Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
January 19, 1999
F-36
<PAGE> 155
<TABLE>
<CAPTION>
SCHALMO PROPERTIES
COMBINED BALANCE SHEET
MAY 29, 1997
=================================================================================================================
ASSETS
<S> <C>
PROPERTY AND EQUIPMENT
Land $ 143,154
Buildings 869,790
Equipment 28,296
----------
1,041,240
Less accumulated depreciation 97,042
----------
944,198
OTHER ASSETS 1,932
----------
TOTAL ASSETS $ 946,130
==========
LIABILITIES AND PROPRIETORS' CAPITAL
MORTGAGE NOTES PAYABLE $ 909,222
ACCRUED EXPENSES AND OTHER LIABILITIES 31,992
----------
941,214
PROPRIETORS' CAPITAL 4,916
----------
TOTAL LIABILITIES AND PROPRIETORS' CAPITAL $ 946,130
==========
</TABLE>
The accompanying notes are a part of the financial statements.
F-37
<PAGE> 156
<TABLE>
<CAPTION>
SCHALMO PROPERTIES
COMBINED STATEMENT OF INCOME AND PROPRIETORS' CAPITAL
FOR THE PERIOD ENDED MAY 29, 1997
===================================================================================================
<S> <C>
RENTAL INCOME $ 90,751
OPERATING EXPENSES:
Interest 34,169
Depreciation and amortization 12,815
Real estate taxes 11,343
Wages 5,150
Office expense 2,980
Repairs and maintenance 1,954
Utilities 1,906
Advertising 1,370
Other 3,272
--------
74,959
--------
NET INCOME 15,792
PROPRIETORS' DEFICIT - JANUARY 1, 1997 (6,371)
CAPITAL DISTRIBUTIONS (4,505)
--------
PROPRIETORS' CAPITAL - MAY 29, 1997 $ 4,916
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-38
<PAGE> 157
<TABLE>
<CAPTION>
SCHALMO PROPERTIES
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED MAY 29, 1997
=================================================================================================================
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,792
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,815
Increase in accrued expenses and other liabilities 3,178
--------
Total adjustments 15,993
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,785
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage notes payable (27,280)
Capital distributions (4,505)
NET CASH USED IN FINANCING ACTIVITIES (31,785)
--------
NET CHANGE IN CASH --
CASH AT JANUARY 1, 1997 --
--------
CASH AT MAY 29, 1997 $ --
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year - Interest $ 34,302
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-39
<PAGE> 158
SCHALMO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 29, 1997
================================================================================
NOTE 1 - BASIS OF PRESENTATION
Organization
- ------------
The Schalmo Properties consist of two self-storage facilities. One is located in
East Canton, Ohio and the other in Louisville, Ohio.
Basis of Presentation
- ---------------------
Liberty Self-Stor, Ltd. (Liberty) is a recently organized Ohio Limited Liability
Company which has been established to acquire and operate self-storage
facilities . On May 30, 1997, Liberty entered into a contract to purchase the
Schalmo Properties for total consideration of $1,800,000.
The accompanying combined financial statements are prepared on the accrual basis
of accounting and include all the accounts relating to the Schalmo Properties
using their historical cost basis.
The owners believe that these combined financial statements result in a more
meaningful presentation of the self-storage facilities acquired by Liberty and
thus appropriately reflect the historical financial position and results of
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using accelerated and straight-line methods for financial
and tax reporting purposes at rates based on the following estimated useful
lives:
Buildings 39 years
Equipment 6 years
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
F-40
<PAGE> 159
SCHALMO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 29, 1997
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
- -------------------
Revenue is recognized when earned. Amounts deemed uncollectible from tenants are
written off when that determination is made. As such, no allowance for doubtful
accounts is provided in these combined financial statements. Furthermore,
amounts earned but not collected from tenants at May 29 ,1997 were deemed
immaterial for inclusion in the accompanying combined financial statements.
Cash and Cash Equivalents
- -------------------------
All highly liquid investments with an original maturity date of three months or
less when purchased are considered to be cash equivalents. The owners of these
facilities did not maintain separate checking accounts for these rental
operations. As such, the accompanying combined financial statements do not
present a separate cash balance. Cash deficiencies are shown as capital
contributions and cash surpluses are shown as capital distributions.
Income Taxes
- ------------
The operating results of the Schalmo Properties are included with all other
sources of taxable income and deductible expense of the owners. As such, no
provision for income tax has been made on these financial statements.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on the owner's
knowledge and experience. Due to their prospective nature, actual results could
differ from those estimates.
F-41
<PAGE> 160
<TABLE>
<CAPTION>
SCHALMO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 29, 1997
===============================================================================================================================
NOTE 3 - MORTGAGE NOTES PAYABLE
At May 29, 1997, mortgage notes payable consisted of the following:
<S> <C>
Mortgage note payable to a bank, with principal and interest payments of
$4,322 through July, 2011
interest at 9.25%, secured by real property $409,865
Mortgage note payable to a bank, with principal and
interest payments of $1,400 through September,
1999, interest at 8.75%, secured by real property 103,658
Mortgage note payable to a bank, with principal and interest payments of
$2,585 through July, 1999 interest at 8.75%, secured by real property 168,250
Mortgage note payable to a bank, with principal and interest payments of
$4,322 through March, 2003 interest at 8.75%, secured by real property 227,449
--------
$909,222
========
</TABLE>
On May 29, 1997, Liberty Self-Stor, Ltd. purchased the Schalmo Properties for
total consideration of $1,800,000. A portion of those proceeds were used to
retire the above mortgages.
F-42
<PAGE> 161
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kenneth and Margaret Loeser
Avon, Ohio
We have audited the accompanying balance sheet of the Stor-N-Loc Property (as
defined in Note 1 to the financial statements) as of November 26, 1997, and the
related statements of income and proprietors' capital, and cash flows for the
period from January 1, 1997 to November 26, 1997. These financial statements are
the responsibility of the property's proprietors. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Stor-N-Loc Property as of
November 26, 1997, and the results of its operations and its cash flows for the
period then ended in conformity with generally accepted accounting principles.
/s/ Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
January 14, 1999
F-43
<PAGE> 162
<TABLE>
<CAPTION>
STOR-N-LOC PROPERTY
BALANCE SHEET
NOVEMBER 26, 1997
==============================================================================================================
ASSETS
<S> <C>
PROPERTY AND EQUIPMENT
Land $ 8,500
Buildings and improvements 386,081
Furniture and equipment 32,351
--------
426,932
Less accumulated depreciation 341,170
--------
85,762
CASH AND CASH EQUIVALENTS 54,120
OTHER ASSETS 566
--------
TOTAL ASSETS $140,448
========
LIABILITIES AND PROPRIETORS' CAPITAL
MORTGAGE NOTE PAYABLE $ 14,438
ACCRUED EXPENSES AND OTHER LIABILITIES
Real estate taxes 11,531
Security deposits 8,850
Other 7,926
--------
TOTAL LIABILITIES 42,745
PROPRIETORS' CAPITAL 97,703
--------
TOTAL LIABILITIES AND PROPRIETORS' CAPITAL $140,448
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-44
<PAGE> 163
<TABLE>
<CAPTION>
STOR-N-LOC PROPERTY
STATEMENT OF INCOME AND PROPRIETORS' CAPITAL
FOR THE PERIOD ENDED NOVEMBER 26, 1997
=========================================================================================================
<S> <C>
RENTAL INCOME $ 150,048
OPERATING EXPENSES:
Wages 20,179
Depreciation 12,182
Real estate taxes 11,531
Repairs and maintenance 10,533
Utilities 9,111
Advertising 8,261
Administrative 7,696
Supplies 4,039
Other 4,097
---------
87,629
---------
NET INCOME 62,419
PROPRIETORS' CAPITAL - JANUARY 1, 1997 69,806
CAPITAL DISTRIBUTIONS (34,522)
---------
PROPRIETORS' CAPITAL - NOVEMBER 26, 1997 $ 97,703
=========
</TABLE>
The accompanying notes are a part of the financial statements.
F-45
<PAGE> 164
<TABLE>
<CAPTION>
STOR-N-LOC PROPERTY
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED NOVEMBER 26, 1997
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 62,419
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 12,182
Increase in other assets (213)
Decrease in accrued expenses and other liabilities (383)
Total adjustments --------
11,586
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 74,005
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,131)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage notes payable (10,768)
Capital distributions (34,522)
--------
NET CASH USED IN FINANCING ACTIVITIES (45,290)
--------
NET INCREASE IN CASH 26,584
CASH AT JANUARY 1, 1997 27,536
--------
CASH AT NOVEMBER 26, 1997 $ 54,120
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year - Interest $ 1,253
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-46
<PAGE> 165
STOR-N-LOC PROPERTY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 26, 1997
================================================================================
NOTE 1 - BASIS OF PRESENTATION
Organization
- ------------
The Stor-N-Loc Property consists of a self-storage facility in Avon, Ohio. The
owners, Kenneth & Margaret Loeser operate the facility as a proprietorship.
Basis of Presentation
- ---------------------
Liberty Self-Stor, Ltd. (Liberty) is a recently organized Ohio Limited Liability
Company which has been established to acquire and operate self-storage
facilities . On November 27, 1997, Liberty entered into a contract to purchase
the Stor-N-Loc Property for total consideration of $1,175,000.
The accompanying financial statements are prepared on the accrual basis of
accounting and include all the accounts relating to the Stor-N-Loc Property
using its historical cost basis.
The owners believe that these financial statements result in a more meaningful
presentation of the self-storage facilities acquired by Liberty and thus
appropriately reflect the historical financial position and results of
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using accelerated and straight-line methods for financial
and tax reporting purposes at rates based on the following estimated useful
lives:
Buildings and improvements 15 to 39 years
Furniture and equipment 3 to 5 years
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Revenue Recognition
- -------------------
Revenue is recognized when earned. Amounts deemed uncollectible from tenants are
written off when that determination is made. As such, no allowance for doubtful
accounts is provided in these financial statements.
F-47
<PAGE> 166
STOR-N-LOC PROPERTY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 26, 1997
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
- -------------------------
All highly liquid investments with an original maturity date of three months or
less when purchased are considered to be cash equivalents.
Income Taxes
- ------------
The operating results of the Stor-N-Loc Property are included with all other
sources of taxable income and deductible expense of the owners. As such, no
provision for income tax has been made on these financial statements.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on the owner's
knowledge and experience. Due to their prospective nature, actual results could
differ from those estimates.
NOTE 3 - MORTGAGE NOTES PAYABLE
At November 26, 1997, the mortgage note payable consisted of the following:
<TABLE>
<S> <C>
Mortgage note payable to a bank, with principle and interest payments of
$1,082 through January, 1999
interest at 7.69%, secured by real property $ 14,438
========
</TABLE>
On November 27, 1997, Liberty Self-Stor, Ltd. purchased the Stor-N-Loc Property
for total consideration of $1,175,000. A portion of those proceeds was used to
retire the above mortgage.
F-48
<PAGE> 167
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To John & Nancy Boger
Canton, Ohio
We have audited the accompanying balance sheet of the Better Lock Self-Service
Storage Property (as defined in Note 1 to the financial statements) as of April
21, 1997, and the related statements of income and proprietors' deficit, and
cash flows for the period from January 1, 1997 to April 21, 1997. These
financial statements are the responsibility of the property's proprietors. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
owners, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Better Lock Self-Storage
Property as of April 21, 1997, and the results of its operations and its cash
flows for the period then ended in conformity with generally accepted accounting
principles.
Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
February 2, 1999
F-49
<PAGE> 168
<TABLE>
<CAPTION>
BETTER LOCK SELF-SERVICE
STORAGE PROPERTY
BALANCE SHEET
APRIL 21, 1997
==========================================================================================================
ASSETS
<S> <C>
PROPERTY AND EQUIPMENT
Land $ 50,000
Buildings and improvements 401,288
Equipment 918
---------
452,206
Less accumulated depreciation 149,596
---------
302,610
OTHER ASSETS 765
---------
TOTAL ASSETS $ 303,375
=========
LIABILITIES AND PROPRIETORS' DEFICIT
MORTGAGE NOTE PAYABLE $ 305,198
ACCRUED EXPENSES AND OTHER LIABILITIES 21,678
---------
326,876
PROPRIETORS' DEFICIT (23,501)
---------
TOTAL LIABILITIES AND PROPRIETORS' DEFICIT $ 303,375
=========
</TABLE>
The accompanying notes are a part of the financial statements.
F-50
<PAGE> 169
<TABLE>
<CAPTION>
BETTER LOCK SELF-SERVICE
STORAGE PROPERTY
STATEMENT OF INCOME AND PROPRIETORS' DEFICIT
FOR THE PERIOD ENDED APRIL 21, 1997
==========================================================================================
<S> <C>
RENTAL INCOME $ 39,518
OPERATING EXPENSES:
Interest 8,011
Depreciation 3,722
Real estate taxes 2,770
Advertising 2,649
Administrative 2,370
Supplies 1,147
Repairs and maintenance 716
Utilities 125
--------
21,510
--------
NET INCOME 18,008
PROPRIETORS' DEFICIT - JANUARY 1, 1997 (26,122)
CAPITAL DISTRIBUTIONS (15,387)
--------
PROPRIETORS' DEFICIT - APRIL 21, 1997 $(23,501)
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-51
<PAGE> 170
<TABLE>
<CAPTION>
BETTER LOCK SELF-SERVICE
STORAGE PROPERTY
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED APRIL 21, 1997
===========================================================================================================
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,008
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,722
Decrease in other assets 500
Decrease in accrued expenses and other liabilities (552)
--------
Total adjustments 3,670
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,678
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage note payable (6,291)
Capital distributions (15,387)
--------
NET CASH USED IN FINANCING ACTIVITIES (21,678)
--------
NET CHANGE IN CASH --
CASH AT JANUARY 1, 1997 --
--------
CASH AT APRIL 21, 1997 $ --
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year - Interest $ 6,571
========
</TABLE>
The accompanying notes are a part of the financial statements.
F-52
<PAGE> 171
BETTER LOCK SELF-SERVICE
STORAGE PROPERTY
NOTES TO FINANCIAL STATEMENTS
APRIL 21, 1997
================================================================================
NOTE 1 - BASIS OF PRESENTATION
Organization
- ------------
The Better Lock Self-Service Storage Property consists of a self-storage
facility in Canton, Ohio. The owners, John and Nancy Boger operate the facility
as a proprietorship.
Basis of Presentation
- ---------------------
Liberty Self-Stor, Ltd. (Liberty) is a recently organized Ohio Limited Liability
Company which has been established to acquire and operate self-storage
facilities . On April 22, 1997, Liberty entered into a contract to purchase the
Better Lock Self-Service Storage Property for total consideration of $1,233,500.
The accompanying financial statements are prepared on the accrual basis of
accounting and include all the accounts relating to the Better Lock Self-Service
Storage Property using their historical cost basis.
The owners believe that these financial statements result in a more meaningful
presentation of the self-storage facility acquired by Liberty and thus
appropriately reflect the historical financial position and results of
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using accelerated and straight-line methods for financial
and tax reporting purposes at rates based on the following estimated useful
lives:
Buildings and improvements 20 - 40 years
Equipment 10 years
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
F-53
<PAGE> 172
BETTER LOCK SELF-SERVICE
STORAGE PROPERTY
NOTES TO FINANCIAL STATEMENTS
APRIL 21, 1997
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
- -------------------
Revenue is recognized when earned. Amounts deemed uncollectible from tenants are
written off when that determination is made. As such, no allowance for doubtful
accounts is provided in these financial statements.
Cash and Cash Equivalents
- -------------------------
All highly liquid investments with an original maturity date of three months or
less when purchased are considered to be cash equivalents. The owners of this
facility did not maintain a separate checking account for this rental operation.
As such, the accompanying financial statements do not present a separate cash
balance. Cash deficiencies are shown as capital contributions and cash surpluses
are shown as capital distributions.
Income Taxes
- ------------
The operating results of the Better Lock Self-Service Storage Property are
included with all other sources of taxable income and deductible expense of the
owners. As such, no provision for income tax has been made on these financial
statements.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on the owners'
knowledge and experience. Due to their prospective nature, actual results could
differ from those estimates.
NOTE 3 - MORTGAGE NOTE PAYABLE
At April 21, 1997, the mortgage note payable consisted of the following:
<TABLE>
<S> <C>
Mortgage note payable to a bank, with principal and interest payments of
$4,287 through June, 2005
interest at 8.61%, secured by real property $ 305,198
=========
</TABLE>
On April 22, 1997, Liberty Self-Stor, Ltd. purchased the Better Lock
Self-Service Storage Property for total consideration of $1,233,500. A portion
of those proceeds were used to retire the above mortgage.
F-54
<PAGE> 173
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
-------------------------------------------------
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
STORAGETOWN EAST, INC.
Riverhead, New York
We have audited the accompanying balance sheets of Storagetown East, Inc. (a New
York "S"corporation) as of December 31, 1998 and 1997, and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Storagetown East, Inc., as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
May 6, 1999
F-55
<PAGE> 174
STORAGETOWN EAST, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
1998 1997
---------- ---------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Land $113,107 $113,107
Buildings and improvements 424,120 424,120
-------- --------
537,227 537,227
Less accumulated depreciation 269,240 248,033
-------- --------
267,987 289,194
CASH 10,578 2,203
TRADE ACCOUNTS RECEIVABLE 8,143 8,391
ADVANCES TO SHAREHOLDER -- 21,161
PREPAID EXPENSES 1,824 9,438
-------- --------
TOTAL ASSETS $288,532 $330,387
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
MORTGAGE NOTES PAYABLE $220,968 $282,886
ACCRUED EXPENSES AND OTHER LIABILITIES
Security deposits 9,910 8,954
Other 5,148 3,706
-------- --------
15,058 12,660
-------- --------
TOTAL LIABILITIES 236,026 295,546
COMMON STOCK
No par value, 500 shares authorized, issued
and outstanding 10,000 10,000
RETAINED EARNINGS 42,506 24,841
-------- --------
TOTAL SHAREHOLDERS' EQUITY 52,506 34,841
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $288,532 $330,387
======== ========
</TABLE>
The accompanying notes are a part of the financial statements.
F-56
<PAGE> 175
STORAGETOWN EAST, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
RENTAL INCOME $ 174,950 $ 175,601
OPERATING EXPENSES:
Wages 27,344 29,544
Depreciation 21,207 20,968
Interest expense 20,656 22,548
Real estate taxes 18,404 18,299
Administrative 9,353 9,014
Utilities 7,011 5,810
Repairs and maintenance 4,263 3,298
Advertising 2,256 2,492
--------- ---------
110,494 111,973
--------- ---------
NET INCOME 64,456 63,628
RETAINED EARNINGS - BEGINNING OF YEAR 24,841 13,984
DISTRIBUTIONS (46,791) (52,771)
--------- ---------
RETAINED EARNINGS - END OF YEAR $ 42,506 $ 24,841
========= =========
</TABLE>
The accompanying notes are a part of the financial statements.
F-57
<PAGE> 176
STORAGETOWN EAST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 64,456 $ 63,628
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 21,207 20,968
Decrease (increase) in accounts receivable and prepaid expenses 7,862 (12,924)
Increase (decrease) in accrued expenses and other liabilities 2,398 (930)
--------- --------
Total adjustments 31,467 7,114
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 95,923 70,742
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of building improvements -- (9,450)
Repayment of shareholder advances 21,161 --
--------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,161 (9,450)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage notes payable (61,918) (15,405)
Distributions paid (46,791) (52,771)
--------- --------
NET CASH USED IN FINANCING ACTIVITIES (108,709) (68,176)
--------- --------
NET INCREASE (DECREASE) IN CASH 8,375 (6,884)
CASH - BEGINNING OF YEAR 2,203 9,087
--------- --------
CASH - END OF YEAR $ 10,578 $ 2,203
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year - Interest $ 20,846 $ 22,735
========= ========
</TABLE>
The accompanying notes are a part of the financial statements.
F-58
<PAGE> 177
STORAGETOWN EAST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
Business Activity
- -----------------
Storagetown East, Inc. (the Company) operates a self-storage facility in
Riverhead, New York.
Basis of Presentation
- ---------------------
The accompanying financial statements reflect the entire operations of the
self-storage facility prepared on the accrual basis of accounting.
Liberty Self-Stor, Ltd. (Liberty) is a recently organized Ohio Limited Liability
Company which has been established to acquire and operate self-storage
facilities . On May 26, 1999, Liberty entered into a contract to purchase real
estate and certain equipment from the Company for total consideration of
$900,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes at rates based on the following estimated useful life:
Buildings and improvements 20 years
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Revenue Recognition
- -------------------
Revenue is recognized when earned. Amounts deemed uncollectible from tenants are
written off when that determination is made. As such, no allowance for doubtful
accounts is provided in the financial statements.
Cash and Cash Equivalents
- -------------------------
All highly liquid investments with an original maturity date of three months or
less when purchased are considered to be cash equivalents.
Income Taxes
- ------------
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay federal
corporate taxes on its taxable income. Instead, the shareholders are liable for
individual federal taxes on the Company's taxable income.
F-59
<PAGE> 178
STORAGETOWN EAST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on the management's
knowledge and experience. Due to their prospective nature, actual results could
differ from those estimates.
NOTE 3 - MORTGAGE NOTES PAYABLE
At December 31, 1998 and 1997, notes payable consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Mortgage note payable to a bank, with principal and
interest payments of $3,131, interest at 9%,
secured by real property $220,968 $237,886
Mortgage note payable to an individual, due on demand,
non-interest bearing, secured by real property -- 45,000
-------- --------
$220,968 $282,886
======== ========
</TABLE>
Liberty Self-Stor, Ltd. purchased the Company for total consideration of
$900,000. A portion of those proceeds was used to retire the above mortgages.
F-60
<PAGE> 179
ANNEX A
CERTIFICATE OF THIRD AMENDMENT
TO
AMENDED AND RESTATED DECLARATION OF TRUST
OF
MERIDIAN POINT REALTY TRUST '83
Pursuant to Section 8.3 of the Amended and Restated Declaration of
Trust of Meridian Point Realty Trust '83, recorded as Document No. F117320 (Reel
F625 Image 0486) Official Records, City and County of San Francisco, State of
California on May 12, 1992, as amended by the First Amendment to the Amended and
Restated Declaration of Trust of Meridian Point Realty Trust '83 recorded as
Document No. F401320 (Reel F927 Image 0650), Official Records, City and County
of San Francisco, State of California on July 23, 1993 and by the Second
Amendment to the Amended and Restated Declaration of Trust of Meridian Point
Realty Trust '83 recorded as Document No. F754953 (Reel G318 Image 0109),
Official Records, City and County of San Francisco on February 14, 1995
(hereinafter collectively referred to as the "Amended and Restated Declaration
of Trust"), the undersigned hereby state and certify:
1. Article III of the Amended and Restated Declaration of Trust is
hereby amended to include Section 3.6 as follows:
"3.6. CONSOLIDATION, MERGER. Upon the vote of two-thirds (2/3)
of the Trustees, and with the approval of the holders of a majority of the
Shares, the Trust may merge or be consolidated with or into one or more limited
partnerships of any state or states of the United States or the District of
Columbia, which permits such merger or consolidation. Such merger or
consolidation shall be made pursuant to an agreement of merger or consolidation,
as the case may be, complying and approved in accordance with this Section 3.6.
The Board of Trustees shall adopt a resolution approving an
agreement of merger or consolidation. The agreement shall state: (1) the terms
and conditions of the merger or consolidation; (2) the mode of carrying the same
into effect; (3) the manner of converting the trust interests or partnership
interests of each of the constituent entities into trust interests or
partnership interests or other securities of the entity surviving or resulting
from such merger or consolidation, and if any trust interests or partnership
interests are not to be converted solely into trust interests, partnership
interests or other securities of the entity surviving or resulting from such
merger or consolidation, the cash, property, rights or securities of any other
partnership, corporation or entity which the holders of such trust interests or
partnership interests are to receive in exchange for, or upon conversion of such
trust interests or partnership interests and the surrender of any certificates
evidencing them, which cash, property, rights or securities of any other
partnership, corporation or entity may be in addition to or in lieu of trust
interests, partnership interests or other securities of the entity surviving or
resulting from such merger or consolidation; and (4) such other details or
provisions as are deemed desirable, including, without limiting the generality
of the foregoing, a provision for payment of cash in lieu of the issuance of
fractional trust interests, partnership interests or other securities of the
entity surviving or resulting from the merger or consolidation or other
partnership, corporation or other entity. Any of the terms of the agreement of
merger or consolidation may be made dependent upon facts ascertainable outside
of such agreement, provided that the manner in which such facts shall operate
upon the terms of the agreement is clearly and expressly set forth in the
agreement
<PAGE> 180
of merger or consolidation. The term "facts," as used in the preceding sentence,
includes, but is not limited to, the occurrence of any event, including a
determination or action by any person or body, including the constituent
entities subject of the merger or consolidation.
The agreement required by this Section 3.6 of this Article shall be
adopted, approved, certified, executed and acknowledged by each of the
constituent entities in accordance with the laws under which it was formed or,
in the case of the Trust, in the manner provided in this Declaration whereupon
it shall become effective."
2. This amendment to the Amended and Restated Declaration of Trust was
approved at the annual meeting of shareholders on _________, ____ by the
affirmative votes of __________ shares. The total number of shares outstanding
was 3,031,618, all of which were entitled to vote. The number of shares voting
for the amendment exceeded the vote required.
The vote required was more than 50% of the outstanding shares.
IN WITNESS WHEREOF, the undersigned, constituting all of the members of
the Board of Trustees, have executed this __ day of _________, ____.
------------------------------
STEVEN A. CALABRESE
------------------------------
MARK D. GROSSI
------------------------------
MARC C. KRANTZ
------------------------------
RICHARD M. OSBORNE
------------------------------
THOMAS J. SMITH
- 2 -
<PAGE> 181
ANNEX B
FORM OF
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made as of
April __, 1999, by and among Meridian Point Realty Trust '83, a California
business trust (the "Company"), Liberty Self-Stor Limited Partnership, a
Maryland limited partnership (the "Limited Partnership"), and Liberty Self-Stor,
Inc., a Maryland corporation (the "New Company").
PRELIMINARY STATEMENT
The Board of Trustees of the Company has determined that it is
advisable and in the best interest of the Company to reorganize from a business
trust organized under the laws of the State of California into a corporation
incorporated under the laws of the State of Maryland. In connection with the
foregoing reorganization, the Company has formed the Limited Partnership and the
New Company as direct or indirect wholly-owned subsidiaries of the Company. The
parties hereto desire to effect the Mergers (as defined in Section 1.2) upon the
terms and subject to the conditions set forth herein.
Accordingly, in consideration of these premises, the covenants and
agreements made herein and for other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the parties hereto adopt the
plan of merger encompassed by this Agreement and agree as follows:
ARTICLE I
THE MERGERS; CLOSING; EFFECTIVE TIME
1.1. THE LIMITED PARTNERSHIP MERGER. Subject to the terms and
conditions of this Agreement, at the Effective Time (as defined in Section 1.4),
the Company shall be merged with and into the Limited Partnership and the
separate existence of the Company shall thereupon cease (the "Limited
Partnership Merger"). The Limited Partnership shall be the surviving entity in
the Limited Partnership Merger (sometimes hereinafter referred to as the
"Surviving Limited Partnership"), shall continue to be governed by the laws of
the State of Maryland and the separate existence of the Limited Partnership with
all its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Limited Partnership Merger.
The Limited Partnership Merger shall have the effects specified in the
Maryland Revised Uniform Limited Partnership Act (the "MRULPA").
1.2. THE COMPANY MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.4), the Surviving
Limited Partnership
<PAGE> 182
shall be merged with and into the New Company and the separate existence of the
Surviving Limited Partnership shall thereupon cease (the "Company Merger" and,
together with the Limited Partnership Merger, the "Mergers"). The New Company
shall be the surviving entity in the Company Merger (sometimes hereinafter
referred to as the "Surviving Corporation") and shall continue to be governed by
the laws of the State of Maryland and the separate existence of the New Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Mergers.
The Company Merger shall have the effects specified in the Maryland
General Corporation Law (the "MGCL").
The parties intend that the Mergers qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended.
1.3. CLOSING. The closing of the Mergers (the "Closing") shall take
place (i) at the offices of the Kohrman Jackson & Krantz P.L.L., 1375 East Ninth
St., 20th Floor, Cleveland, Ohio 44114 at 10:00 a.m. local time the first
business day on which the last to be fulfilled or waived of the conditions set
forth in Section 5.1 hereof shall be fulfilled or waived or (ii) at such other
place and time and/or on such other date as the Company, the Limited Partnership
and the New Company may agree.
1.4. EFFECTIVE TIME. Following the fulfillment or waiver of the
conditions set forth in Section 5.1 hereof, and provided that this Agreement has
not been terminated or abandoned pursuant to Article VI hereof, the Company and
the Limited Partnership will, at such time as they deem advisable, cause
Articles of Merger (the "Partnership Articles of Merger") to be filed with the
State Department of Assessments and Taxation of Maryland (the "SDAT") as
provided in Section 10-208(d) of the MRULPA. Following the fulfillment or waiver
of the conditions set forth in Section 5.1 hereof, provided that this Agreement
shall not have been terminated or abandoned pursuant to Article VI hereof, the
Surviving Limited Partnership and the New Company will, at such time as they
deem advisable, cause Articles of Merger (the "Company Articles of Merger") to
be filed with the SDAT as provided in Section 3-107 of the MGCL. The Mergers
shall become effective upon the acceptance for record of the Partnership
Articles of Merger and the Company Articles of Merger by the SDAT (the
"Effective Time"). The parties hereto intend the Mergers to become effective
simultaneously.
ARTICLE II
CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP
OF THE SURVIVING LIMITED PARTNERSHIP AND THE
CHARTER AND BYLAWS OF THE SURVIVING CORPORATION
2.1. SURVIVING LIMITED PARTNERSHIP. The certificate of limited
partnership and agreement of limited partnership, if any, of the Limited
Partnership, as in effect at the Effective Time, shall be the certificate of
limited partnership and agreement of limited partnership of the Surviving
Limited Partnership, until duly amended in accordance with the terms thereof and
the MRULPA.
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2.2. SURVIVING CORPORATION. The Articles of Incorporation of the New
Company, as in effect at the Effective Time, attached hereto as Exhibit A, shall
be the Articles of Incorporation of the Surviving Corporation, until duly
amended in accordance with the MGCL. The Bylaws of the New Company, as in effect
at the Effective Time, attached hereto as Exhibit B, shall be the Bylaws of the
Surviving Corporation, until duly amended in accordance with the MGCL.
ARTICLE III
DIRECTORS AND EXECUTIVE OFFICERS AND
COMMITTEES OF THE BOARD OF DIRECTORS
OF THE SURVIVING CORPORATION
3.1. DIRECTORS AND OFFICERS. At or before the Effective Time, the
following persons shall be elected or appointed as the executive officers and
directors of the Surviving Corporation and such officers and directors shall
thereafter serve until their successors have been duly elected and qualified or
until their earlier death, resignation or removal in accordance with the charter
of the Surviving Corporation:
NAME OFFICE
Richard M. Osborne Chairman of the Board, Chief Executive
Officer and Director
Steven A. Calabrese Director
Mark D. Grossi Director
Marc C. Krantz Secretary and Director
Thomas J. Smith President, Chief Operating Officer and
Director
Ronald L. Ramer Chief Financial Officer and Assistant
Secretary
3.2. COMMITTEES OF THE BOARD OF DIRECTORS. At or before the
Effective Time, the Board of Directors of the Surviving Corporation shall create
and constitute the following committees and each member of such committee shall
thereafter serve until his successor shall have been duly appointed in
accordance with the Bylaws of the Surviving Corporation:
AUDIT COMMITTEE
---------------
Mark D. Grossi
Marc C. Krantz
COMPENSATION COMMITTEE
----------------------
Steven A. Calabrese
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Mark D. Grossi
The foregoing committees shall have the same functions and powers delegated to
the same committees of the board of trustees of the Company as set forth in the
minutes of the board of trustees of the Company, as may be revised from time to
time by the Board of Directors of the New Company.
ARTICLE IV
EFFECT OF THE MERGER
ON SHARES OF BENEFICIAL INTEREST;
EXCHANGE OF CERTIFICATES
4.1. EFFECT ON STOCK. At the Effective Time, by virtue of the Mergers
and without any action on the part of the holders thereof:
(a) Every two shares of beneficial interest, $1.00 par value, of the
Company (the "Shares") issued and outstanding immediately prior to the Effective
Time shall be converted into, and shall become, one validly issued, fully paid
and nonassessable share of common stock, $0.001 par value per share ("Common
Stock"), of the New Company. At the Effective Time, all Shares shall no longer
be outstanding and shall be canceled and retired and shall cease to exist.
(b) Each Share issued and held in the Company's treasury at the
Effective Time shall, by virtue of the Mergers and without any action on the
part of the holder thereof, cease to be outstanding, shall be canceled and
retired without payment of any consideration therefor and shall cease to exist.
(c) At the Effective Time, each partnership interest in the Limited
Partnership existing immediately prior to the Effective Time shall, by virtue of
the Mergers and without any action on the part of the Limited Partnership or the
holder of such interests, be canceled and retired without payment of any
consideration therefor.
(d) At the Effective Time, each share of Common Stock of the New
Company issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Mergers and without any action on the part of the New Company or
the holder thereof, be canceled and retired without payment of any consideration
therefor, and such shares shall have the status of unauthorized and unissued
shares of Common Stock.
4.2. STOCK CERTIFICATES. From and after the Effective Time, (i) each
certificate which immediately prior to the Effective Time represented two Shares
(each, a "Certificate") shall be deemed for all purposes to represent ownership
of one share of Common Stock. The registered owner on the books and records of
the Company or its transfer agent of any Certificate shall, until such
Certificate shall have been surrendered for transfer or otherwise accounted for
to the Surviving Corporation or its transfer agent, have and be entitled to
exercise any voting or other rights with respect to and to receive any dividends
and other distributions upon the shares of Common Stock represented by any such
outstanding Certificate as provided
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above. Nothing contained herein shall be deemed to require the holder of any
Shares to surrender any Certificate(s) representing such shares in exchange for
a certificate or certificates representing shares of Common Stock.
ARTICLE V
CONDITIONS
5.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of the Company, the Limited Partnership and the New
Company to consummate the Mergers are subject to the fulfillment of each of the
following conditions:
(a) The registration statement on Form S-4 to be filed by the New
Company, which will include the proxy statement of the Company soliciting
proxies to approve the Mergers, shall have been declared effective in accordance
with the Securities Act of 1933, as amended, by the Securities and Exchange
Commission and no stop order shall have been issued or threatened.
(b) This Agreement shall have been duly approved by (i) the requisite
vote of holders of the Shares in accordance with applicable law and the Amended
and Restated Declaration of Trust and Trustee By-laws of the Company, (ii) the
New Company as the general partner of the Limited Partnership, and (iii) the
Company, as the sole stockholder of the New Company.
(c) No order to restrain, enjoin or otherwise prevent the consummation
of this Agreement or either of the Mergers shall have been entered by any court
or administrative body and shall remain in full force and effect.
(d) The obligations to consummate the Mergers contemplated hereby shall
not have been terminated or abandoned pursuant to Article VI hereof.
(e) All consents and approvals, if any, necessary for the transactions
contemplated hereby shall have been obtained and be in full force and effect.
ARTICLE VI
TERMINATION
6.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and the Mergers may be abandoned at any time prior to the Effective
Time, before or after the approval by holders of the Shares, by the mutual
consent of the Board of Trustees of the Company and the general partner of the
Limited Partnership and the Board of Directors of the New Company.
6.2. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and abandonment of the Mergers pursuant to this Article VI, no
party hereto (or any of its directors, trustees or officers) shall have any
liability or further obligation to any other party to this Agreement.
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ARTICLE VII
MISCELLANEOUS AND GENERAL
7.1. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. From and
after the Effective Time, the Surviving Corporation will indemnify, and pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to, (i) any individual who is a present or former trustee or officer of the
Company or the Limited Partnership or its general partner or (ii) any individual
who, while a trustee of the Company and at the request of the Company, serves or
has served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or trustee
of such corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent required or permitted by
Maryland Law.
7.2. MODIFICATION OR AMENDMENT. Subject to the applicable provisions of
the MRULPA and the MGCL, at any time prior to the Effective Time, the parties
hereto may amend or modify this Agreement by written agreement, executed and
delivered by duly authorized officers of the respective parties; provided,
however, that after the Mergers have been approved by the Company's
shareholders, no amendment or modification may change the amount or form of the
consideration to be received by such shareholders in the Mergers.
7.3. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the relevant Merger are for the sole benefit of such
party and may be waived by such party in whole or in part to the extent
permitted by applicable law.
7.4 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original, and all of which shall constitute one and the same
agreement.
7.5. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California and Maryland in the case of
the Limited Partnership Merger, and in accordance with the laws of the State of
Maryland in the case of the Company Merger.
7.6. NO THIRD PARTY BENEFICIARIES. Except as provided in Section 7.1,
no provision of this Agreement is intended, nor shall it be interpreted, to
provide or create any third party beneficiary rights or any other rights of any
kind in any client, customer, affiliate, stockholder, partner or employee or any
other person or entity.
7.7. HEADINGS. The Article, Section and Paragraph headings herein are
for convenience of reference only and shall have no effect on the construction
or meaning of this Agreement.
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7.8. SERVICE OF PROCESS. The New Company may be served with process in
the State of Maryland in any proceeding for the enforcement of any obligation of
the Company or the Limited Partnership, as well as for enforcement of any
obligations of the New Company arising from the Mergers, and the agreement for
services of process of the New Company is CSC-Lawyers Incorporating Services
Company, 11 East Chase Street, Baltimore, MD 21202.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto on the date first
hereinabove written.
LIBERTY SELF-STOR, INC.
By:
--------------------------------
Name: Thomas J. Smith
Title: President
LIBERTY SELF-STOR LIMITED
PARTNERSHIP
By: LIBERTY SELF-STOR, INC.,
its general partner
By:
------------------------
Name: Thomas J. Smith
Title: President
MERIDIAN POINT REALTY TRUST '83
By:
--------------------------------
Name: Thomas J. Smith
Title: President
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<PAGE> 188
EXHIBIT A
FORM OF
ARTICLES OF INCORPORATION
OF
LIBERTY SELF-STOR, INC.
ARTICLE I
INCORPORATION
1600 CNB Corp., whose address is 1375 East Ninth Street, 20th Floor,
Cleveland, Ohio 44114, does hereby serve as incorporator and form a corporation
(the "Corporation") under the general laws of the State of Maryland.
ARTICLE II
NAME
The name of the Corporation is Liberty Self-Stor, Inc.
ARTICLE III
PURPOSE
3.1 General Purposes. The Corporation is formed for the purpose of
engaging in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Maryland as it presently
exists or may be amended in the future (the "Maryland General Corporation Law").
3.2 Operation as REIT. Without limiting the generality of the foregoing
purpose, at such time or times as the Board of Directors of the Corporation
determines that it is in the interest of the Corporation and its stockholders
that the Corporation engage in the business of, and conduct its business and
affairs so as to qualify as a real estate investment trust (as that phrase is
defined in the Internal Revenue Code of 1986, as amended, the purpose of the
Corporation shall include engaging in the business of a real estate investment
trust. This reference to such purpose shall not make unlawful or unauthorized
any otherwise lawful act or activity that the Corporation may take that is
inconsistent with such purpose.
ARTICLE IV
PRINCIPAL OFFICE ADDRESS
The address of the principal office of the Corporation in the State of
Maryland is c/o CSC Lawyers Incorporating Services Company, 11 East Chase
Street, Baltimore, MD 21202.
ARTICLE V
RESIDENT AGENT
The Resident Agent of the Corporation is CSC - Lawyers Incorporating
Services Company, 11 East Chase Street, Baltimore, MD 21202. Said Resident Agent
is a Maryland corporation.
<PAGE> 189
ARTICLE VI
CAPITAL STRUCTURE
6.1 Authorized Capital Stock. The aggregate number of shares of
all classes of stock that the Corporation is authorized to issue is 52,000,000
shares, consisting of:
(a) 50,000,000 shares of Common Stock, par value $0.001 per
share (the "Common Stock"); and
(b) 2,000,000 shares of Serial Preferred Stock, par value
$0.001 per share (the "Preferred Stock").
The Common Stock and the Preferred Stock are collectively
referred to herein as the "Equity Shares."
6.2 REIT-Related Restrictions and Limitations on the Equity Shares
of the Corporation.
From the date hereof and until the "Restriction Termination Date," as
defined below, all Equity Shares of the Corporation shall be subject to the
following restrictions and limitations intended to preserve the Corporation's
status as a REIT:
6.2.1 DEFINITIONS. The following terms shall have the
following meanings:
"Acquire" shall mean the acquisition of Beneficial or
Constructive Ownership of Equity Shares, whether by a Transfer,
Non-Transfer Event or by any other means, including, without
limitation, acquisition pursuant to the exercise of any option,
warrant, pledge or other security interest or similar right to acquire
Equity Shares, but shall not include the acquisition of any such
rights, unless, as a result, the acquiror would be considered a
Beneficial Owner, as defined below.
"Beneficial Ownership" shall mean ownership of Equity Shares
by a person who would be treated as an owner of Equity Shares either
directly or indirectly under Section 542(a)(2) of the Code, taking into
account, for this purpose, constructive ownership determined under
Section 544 of the Code, as modified by section 856(h)(1)(B) of the
Code (except where expressly provided otherwise). The terms "Beneficial
Owner," "Beneficially Owns" and "Beneficially Owned" shall have the
correlative meanings.
"Beneficiary" shall mean, with respect to any Share Trust, one
or more organizations described in each of Section 170(b)(1)(A) (other
than clauses (vii) or (viii) thereof) and Section 170(c)(2) of the Code
named by the Share Trust as the beneficiary or beneficiaries of such
Share Trust, in accordance with the provisions of Section 6.4.1.
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended and in effect from time to time, or any successor statute
thereto, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be
deemed to include a reference to any corresponding provision of future
law.
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<PAGE> 190
"Constructive Ownership" shall mean ownership of Equity Shares
by a person who would be treated as an owner of such Equity Shares
either directly or constructively through the application of Section
318 of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructively Own," "Constructively Owned" and "Constructive
Owner" shall have the correlative meanings.
"Exempt Party" shall mean (1) Turkey Vulture Fund XIII, Ltd.,
(2) Richard M. Osborne and all members of Osborne's immediate family,
as such term is defined in Section 544(a)(2) of the Code, and (3) any
Section 544 Subsidiary of the entity or individuals described in
clauses (1) and (2) above (the entities and individuals described in
clauses (1) and (2) above being collectively referred to herein as the
"Osborne Affiliates").
"Market Price" shall mean the average closing price for the
ten (10) consecutive Trading Days immediately preceding such date. The
market price for each such Trading Day shall be: (i) if the Equity
Shares are listed or admitted to trading on any national securities
exchange or the Nasdaq National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day,
the average of the closing bid and asked prices on such day; (ii) if
the Equity Shares are not listed or admitted to trading on any national
securities exchange or the Nasdaq National Market System, the last
reported sale price on such day or, if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the Corporation,
or (iii) if the Equity Shares are not listed or admitted to trading on
any national securities exchange or the Nasdaq National Market System
and no such last reported sale price or closing bid and asked prices
are available, the average of the reported high bid and low asked
prices on such day, as reported by a reliable quotation source
designated by the Corporation, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than ten (10) days
prior to the date in question) for which prices have been so reported;
provided, however, that if there are no bid and asked prices reported
during the ten (10) days prior to the date in question, the Market
Price of the Equity Shares shall be determined by the Corporation
acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
In the event the Equity Shares includes rights that a holder of Equity
Shares would be entitled to receive, and the Corporation acting in good
faith determines that the value of such rights is not reflected in the
Market Price of the Equity Shares determined as aforesaid, then the
Market Price of such rights shall be determined by the Corporation
acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
"Non-Transfer Event" shall mean an event other than a
purported Transfer that would cause any Person to Beneficially Own or
Constructively Own Equity Shares in excess of the Ownership Limit (or
would cause the Corporation to fail to qualify as a REIT), including,
without limitation, a change in the capital structure of the
Corporation.
"Ownership Limit" shall mean 9.8% of the aggregate value of
all outstanding Equity Shares; provided, however, with respect to any
entity, the ownership of whose Equity Shares is attributable to the
owners of such entity under Sections 544 and 856(h) of the
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<PAGE> 191
Code and which will be "looked through" for the purposes of applying
Section 856(a)(6) and (h) of the Code, the Ownership Limit shall mean
15% of the aggregate value of all outstanding Equity Shares.
"Partnership" shall mean LSS I Limited Partnership, a Delaware
limited partnership any successor thereto and any other similar
partnership formed by the Corporation or any successor to such similar
partnership.
"Permissible Ownership Threshold" shall mean as to the Osborne
Affiliates __%; provided that once an Exempt Party transfers such
Equity Shares such that such Exempt Party following such transfer
Beneficially Owns and Constructively Owns less in value than the
Ownership Limit, then such Exempt Party's Permissible Ownership
Threshold shall equal the Ownership Limit; provided, further, however,
that the foregoing proviso shall not restrict the Osborne Affiliates
from acquiring Equity Shares upon the redemption of Class A limited
partnership interests and preferred limited partnership interests of
the Partnership if such acquisition would not result in the Osborne
Affiliates exceeding __% as specified above.
"Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Section 6.4.5
hereof.
"Person" shall mean an individual, corporation, partnership,
limited liability company, estate, trust (including a trust qualified
under section 401(a) or 501(e)(17) of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the purposes
described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint
stock company or other entity and also includes a group as that term is
used for purposes of Section 13(d)(3)of the Securities Exchange Act of
1934, as amended, but does not include an underwriter who participates
in any public offering of Equity Shares and/or securities convertible
into or exchangeable for Equity Shares (a "Secondary Offering") for a
period of sixty (60) days following the purchase by such underwriter of
the Equity Shares and/or securities convertible into or exchangeable
for Equity Shares in such Secondary Offering.
"Purported Beneficial Transferee" shall mean, with respect to
any purported Transfer that results in Shares-In-Trust as defined below
in section 6.4 hereof, the purported beneficial transferee for whom the
Purported Record Transferee would have Acquired Equity Shares of the
Corporation if such Transfer had been valid under Section 6.2.2 hereof.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Shares-in-Trust, the Person who
would have been the record holder of the Equity Shares of the
Corporation if such Transfer had been valid under Section 6.2.2 hereof.
"REIT" shall mean a real estate investment trust under Section
856 ET. SEQ. of the code.
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<PAGE> 192
"Restriction Termination Date" shall mean the day on which the
Corporation determines pursuant to Section 6.2.8 that it is no longer
in the best interests of the Corporation to attempt to, or continue to,
qualify as a REIT.
"Share Trust" shall mean any separate trust created pursuant
to Section 6.4.1 hereof and administered in accordance with the terms
of Section 6.4 hereof, for the exclusive benefit of any Beneficiary.
"Shares-in-Trust" shall mean any Equity Shares designated
Shares-in-Trust pursuant to Section 6.4.1 hereof.
"Share Trustee" shall mean the trustee of the Share Trust,
which is selected by the Corporation but not affiliated with the
Corporation, the Partnership or the Beneficiary, and any successor
trustee appointed by the Corporation.
"Section 544 Subsidiary" of any individual or entity shall
mean any entity, over 50% of the ownership interest in which is owned,
directly or indirectly (applying the principles of Section 544 of the
Code), by the individual or entity in question.
"Trading Day" shall mean a day on which the principal national
securities exchange on which such Equity Shares are listed or admitted
to trading is open for the transaction of business, or, if such Equity
Shares are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of Equity Shares or the right
to vote or receive dividends on Equity Shares (including without
limitation (i) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of Equity Shares
or the right to vote or receive dividends on Equity Shares or (ii) the
sale, transfer, assignment or other disposition or grant of any
securities or rights convertible into or exchangeable for Equity
Shares, or the right to vote or receive dividends on Equity Shares),
whether voluntary or involuntary, whether of record or beneficially and
whether by operation or law or otherwise. "Transfer" (as a verb) shall
have a correlative meaning.
6.2.2 OWNERSHIP LIMITATION AND TRANSFER RESTRICTIONS.
(i) Except as provided in Section 6.2.6 hereof, from the date
hereof and prior to the Restriction Termination Date: (w) no Person
(other than an Exempt Party) shall Beneficially Own or Constructively
Own Equity Shares in excess of the Ownership Limit; (x) no Person shall
Acquire Equity Shares if, as a result of such acquisition, the Equity
Shares would be beneficially owned by fewer then 100 Persons
(determined without reference to any rules of attribution under the
Code); (y) no Person shall Acquire Equity Shares or any interest
therein if, as a result of such acquisition, the Corporation would be
"closely held" within the meaning of Section 856(h) of the Code or
would otherwise fail to
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<PAGE> 193
qualify as a REIT, as the case may be; and (z) no Person shall Acquire
Equity Shares or any interest therein if, as a result of such
acquisition, the Corporation would Constructively Own 10% or more of
the ownership interest in a tenant of the Corporation's or the
Partnership's real property, within the meaning of Section 856(d)(2)(B)
of the Code, or would otherwise fail to qualify as a REIT, as the case
may be.
(ii) Any Transfer (other than a Transfer to an Exempt Party)
that would result in a violation of the restrictions in Section
6.2.2(i) above shall be void ad initio as to the purported Transfer of
such number of Equity Shares that would cause the violation of the
applicable restriction in Section 6.2.2(i), and the Purported Record
Transferee (other than an Exempt Party) and the Purported Beneficial
Transferee, if different, shall acquire no rights in such Equity
Shares.
6.2.3 AUTOMATIC TRANSFER IO SHARE TRUST.
(i) If, notwithstanding the other provisions contained in this
Article VI, at any time from the date hereof and prior to the
Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event such that any Person (other than an Exempt Party)
would either Beneficially Own or Constructively Own Equity Shares in
excess of the Ownership Limit, then, except as otherwise provided in
Section 6.2.6 hereof (x) the Purported Record Transferee and the
Purported Beneficial Transferee, if different, shall acquire no right
or interest (or in the case of a Non-Transfer Event, the person holding
record title to the Equity Shares Beneficially Owned or Constructively
Owned by such Beneficial Owner or Constructive Owner, shall cease to
own any right or interest) in such number of Equity Shares which would
cause such Purported Record Transferee and Purported Beneficial
Transferee, if different, to Beneficially Own or Constructively Own
Equity Shares in excess of the Ownership Limit (rounded up to the
nearest whole share), (y) such number of Equity Shares in excess of the
Ownership Limit (rounded up to the nearest whole share) shall be
designated Shares-in-Trust and, in accordance with the provisions of
Section 6.4.1 hereof, transferred automatically and by operation of law
to the Share Trust to be held in accordance with Section 6.4.1 hereof
and (z) such Purported Record Transferee and the Purported Beneficial
Transferee, if different, shall submit such number of Equity Shares to
the Share Trust for registration in the name of the Share Trustee. Any
Purported Record Transferee and Purported Beneficial Transferee, if
different, shall acquire no right or interest (or, in the case of a
Non-Transfer Event, the person holding record title to the Equity
Shares Beneficially Owned or Constructively Owned by such Beneficial
Owner or Constructive Owner, shall cease to own any right or interest)
in such number of Equity Shares which would cause such Person to own
Equity Shares in excess of the Ownership Limit. Such transfer to a
Share Trust and the designation of shares as Shares-in-Trust shall be
effective as of the close of business on the business day prior to the
date of the Transfer or Non-Transfer Event, as the case may be.
(ii) If, notwithstanding the other provisions contained in
this Article VI, at any time from the date hereof and prior to the
Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event that, if effective, would (i) result in the Equity
Shares being beneficially owned by fewer that 100 Persons (determined
without reference to any rules
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<PAGE> 194
of attribution), (ii) result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code, (iii) cause the
Corporation to Constructively Own 10% or more of the ownership
interests in a tenant of the Corporation's or the Partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Code, or
(iv) cause the Corporation to otherwise fail to qualify as a REIT, as
the case may be, then (x) the Purported Record Transferee and the
Purported Beneficial Transferee, if different, shall acquire no right
or interest (or, in the case of a Non-Transfer Event, the person
holding record title to the Equity Shares Beneficially Owned or
Constructively Owned by such Beneficial Owner or Constructive Owner,
shall cease to own any right or interest) in such number of Equity
Shares, the ownership of which by such Purported Record Transferee and
Purported Beneficial Transferee, if different, would (A) result in the
Equity Shares being beneficially owned by fewer than 100 Persons
(determined without reference to any rules of attribution), (B) result
in the Corporation being "closely held" within the meaning of Section
856(b) of the Code, (C) cause the Corporation to Constructively Own 10%
or more of the ownership interests in a tenant of the Corporation's or
the Partnership's property, within the meaning of Section 856(d)(2)(B)
of the Code, or (D) would otherwise cause the Corporation to fail to
qualify as a REIT, as the case may be, (y) such number of Equity Shares
(rounded up to the nearest whole share) shall be designated
Shares-in-Trust and, in accordance with the provisions of Section 6.4.1
hereof, transferred automatically and by operation of law to the Share
Trust to be held in accordance with Section 6.4.1 hereof and (z) the
Purported Record Transferee and the Purported Beneficial Transferee, if
different, shall submit such number of Equity Shares to the Share Trust
for registration in the name of the Share Trustee. Any Purported Record
Transferee and Purported Beneficial Transferee, if different, shall
acquire no right or interest (or, in the case of a Non-Transfer Event,
the person holding record title to the Equity Shares Beneficially Owned
or Constructively Owned by such Beneficial Owner or Constructive Owner,
shall cease to own any right or interest) in such number of Equity
Shares which would cause such Person to own Equity Shares that would
(A) result in the Equity Shares being beneficially owned by fewer than
100 Persons (determined without reference to any rules of attribution),
(B) result in the Corporation being "closely held" within the meaning
of Section 856(h) of the Code, (C) cause the Corporation to
Constructively Own 10% or more of the ownership interests in a tenant
of the Corporation's or the Partnership's property, within the meaning
of Section 856(d)(2)(B) of the Code, or (D) would otherwise cause the
Corporation to fail to qualify as a REIT. Such transfer to a Share
Trust and the designation of Equity Shares as Shares-in-Trust shall be
effective as of the close of business on the business day prior to the
date of the Transfer or Non-Transfer Event, as the case may be.
6.2.4 REMEDIES FOR BREACH.
If the Board of Directors of the Corporation or its designee
shall at any time determine in good faith that a purported Transfer of
Equity Shares has taken place in violation of Section 6.2.2 hereof or
that a Person intends to acquire or has attempted to acquire
(determined without reference to any rules of attribution) Beneficial
Ownership or Constructive Ownership of any Equity Shares of the
Corporation in violation of Section 6.2.2 hereof, the Board of
Directors of the Corporation or its designee shall take such action as
it deems advisable to refuse to give effect to or to prevent such
Transfer or acquisition,
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including but not limited to, refusing to give effect to such Transfer
or acquisition on the books of the Corporation or instituting
proceedings to enjoin such Transfer or acquisition; PROVIDED HOWEVER,
that any Transfer, attempted Transfer, acquisition or attempted
acquisition in violation of Section 6.2.2(i) hereof shall automatically
result in the Transfer described in Section 6.2.3 hereof, irrespective
of any action (or non-action) by the Board of Directors, except as
provided in Section 6.2.6 hereof.
6.2.5 Notice of Restricted Transfer.
------------------------------
(i) Any Person who acquires or attempts to acquire Equity
Shares in violation of Section 6.2.2, and any Person who is a Purported
Record Transferee or a Purported Beneficial Transferee of Equity Shares
that are transferred to a Share Trust under Section 6.2.3 hereof, shall
immediately give written notice to the Corporation of such event, shall
submit to the Corporation such number of Equity Shares to be
transferred to the Share Trust and shall provide to the Corporation
such other information as the Corporation may request in order to
determine the effect, if any, of such Transfer or attempted Transfer or
such Non-Transfer Event on the Corporation's status as REIT;
(ii) From the date hereof and prior to the Restriction
Termination Date every Beneficial Owner or Constructive Owner of more
than 5% (or such other percentage as provided in the pertinent income
tax regulations promulgated under the Code) of the number or value of
the outstanding Equity Shares of the Corporation shall, within 30 days
after January 1 of each year, give written notice to the Corporation
stating the name and address of such Beneficial Owner or Constructive
Owner, the number of Equity Shares Beneficially or Constructively
Owned, and a description of how such shares are held. Each such
Beneficial Owner or Constructive Owner shall provide to the Corporation
such additional information that the Corporation may reasonably request
in order to determine the effect, if any, of such Beneficial or
Constructive Ownership on the Corporation's status as a REIT and to
ensure compliance with the Ownership Limit; and
(iii) From the date hereof and prior to the Restriction
Termination Date, each Person who is a Beneficial Owner or Constructive
Owner of Equity Shares of the Corporation and each Person (including
the stockholder of record) who is holding Equity Shares of the
Corporation for a Beneficial Owner or Constructive Owner shall provide
the Corporation such information as the Corporation may reasonably
request in order to determine the Corporation's status as a REIT, to
comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance and to ensure compliance
with the Ownership Limit.
6.2.6 EXCEPTION. The Board of Directors, in its sole
discretion, may, but shall in no case be required to, exempt a Person
(an "Exempted Holder") from the Ownership Limit if no Person who is an
individual as defined in Section 542(a)(2) of the Code will, as the
result of the ownership of Equity Shares by the Exempted Holder, be
considered to have Beneficial Ownership or Constructive Ownership of an
amount of Equity Shares that will violate the restrictions contained in
Section 6.2.2(i)(x), (y) or (z) hereof; PROVIDED that (i) the Board of
Directors obtains such representations and undertakings from such
Person as
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are reasonably necessary to ascertain that no individual's Beneficial
Ownership or Constructive Ownership of an amount of Equity Shares will
violate the Ownership Limit or the restrictions contained in Section
6.2.2(i)(x)(y) and (z) hereof, and (ii) such Person agrees that any
violation or attempted violation will result in a Transfer to the Share
Trust of Equity Shares pursuant to Section 6.2.3 hereof. Prior to
granting any exception pursuant to this Section 6.2.6, the Board of
Directors may require a ruling from the Internal Revenue Service, or an
opinion of counsel, in either case in form and substance satisfactory
to the Board of Directors, in its sole discretion, as it may deem
necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any
ruling or opinion, the Board of Directors may impose such conditions or
restrictions as it deems appropriate in connection with granting such
exception.
6.2.7. LEGEND. Each certificate for shares of Equity Shares
shall bear substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE
INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"). EXCEPT AS OTHERWISE PROVIDED PURSUANT TO
THE CHARTER OF THE CORPORATION, NO PERSON MAY BENEFICIALLY OWN
OR CONSTRUCTIVELY OWN (1) EQUITY SHARES IN EXCESS OF 9.8% (OR
15% IN THE CASE OF AN ENTITY, THE OWNERSHIP OF WHOSE EQUITY
SHARES IS ATTRIBUTABLE TO THE OWNERS OF SUCH ENTITY UNDER
SECTIONS 544 AND 856(h) OF THE CODE AND WHICH WILL BE "LOOKED
THROUGH" FOR THE PURPOSES OF APPLYING SECTION 856(a)(6) AND
(h) OF THE CODE) OF THE AGGREGATE VALUE OF THE OUTSTANDING
EQUITY SHARES, (2) EQUITY SHARES THAT WOULD RESULT IN THE
TRUST BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE,
(3) EQUITY SHARES THAT WOULD RESULT IN THE EQUITY SHARES BEING
BENEFICIALLY OWNED BY FEWER THAN 100 PERSONS (DETERMINED
WITHOUT REFERENCE TO ANY RULES OF ATTRIBUTION) OR (4) EQUITY
SHARES THAT WOULD CAUSE THE CORPORATION TO CONSTRUCTIVELY OWN
10% OR MORE OF THE OWNERSHIP INTERESTS IN A TENANT OF THE REAL
PROPERTY OF THE CORPORATION OR THE PARTNERSHIP, WITHIN THE
MEANING OF SECTION 856(d)(2)(B) OF THE CODE, WITH FURTHER
RESTRICTIONS AND EXCEPTIONS SET FORTH IN THE CORPORATION'S
CHARTER. ANY PERSON WHO ATTEMPTS OR PROPOSES TO BENEFICIALLY
OWN OR CONSTRUCTIVELY OWN EQUITY SHARES IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION IN
WRITING. IF AN ATTEMPT IS MADE TO VIOLATE OR THERE IS A
VIOLATION OF THESE RESTRICTIONS (1) ANY PURPORTED TRANSFER
WILL BE VOID AB INITIO AND WILL NOT BE RECOGNIZED BY THE
CORPORATION, (2) THE EQUITY SHARES IN VIOLATION OF THESE
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RESTRICTIONS, WHETHER AS A RESULT OF A TRANSFER OR NONTRANSFER
EVENT, WILL BE TRANSFERRED AUTOMATICALLY AND BY OPERATION OF
LAW TO A SHARE TRUST AND SHALL BE DESIGNATED SHARES-IN-TRUST.
ALL TERMS USED IN THIS LEGEND AND DEFINED IN THE CORPORATION'S
CHARTER HAVE THE MEANINGS DEFINED IN THE CORPORATION'S
CHARTER, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY
OF WHICH, INCLUDING THE RESTRICTIONS ON OWNERSHIP AND
TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH STOCKHOLDER WHO
SO REQUESTS."
6.2.8 REIT QUALIFICATIONS. The Board of Directors shall use
its reasonable best efforts to cause the Corporation to qualify for
United States Federal income tax treatment as a REIT in accordance with
the provisions of the Code applicable to a REIT and shall not take any
action which could adversely affect the ability of the Corporation to
qualify as a REIT. In furtherance of the foregoing, the Board of
Directors shall use its reasonable best efforts to take such actions as
are necessary, and may take such actions as in its sole judgment and
discretion are desirable to preserve the status of the Corporation as a
REIT; provided, however, that if the Board of Directors determines in
its sole judgment and discretion it is no longer in the best interests
of the Corporation to continue to have the Corporation qualify as a
REIT, the Board of Directors may terminate the Corporation's REIT
election.
6.2.9 REMEDIES NOT LIMITED. Nothing contained in this Article
VI shall limit the authority of the Board of Directors to take such
other action as it deems necessary or advisable to protect the
Corporation and the interests of its stockholders in preserving the
Corporation's status as a REIT.
6.2.10 AMBIGUITY. In the case of an ambiguity in the
application of any of the provisions of this Article VI, including any
definition contained in Section 6.2.1, the Board of Directors shall
have the power to determine the application of the provisions of this
Article VI with respect to any situation based on the facts known to
it.
6.2.11 SEVERABILITY. If any provision of this Article VI or
any application of any such provision is determined to be invalid by a
federal or state court having jurisdiction over the issue, the validity
of the remaining provisions shall not be affected and other
applications of such provision shall be affected only to the extent
necessary to comply with the determination of such court.
6.3 Common Stock.
(a) Powers, Preferences and Rights. Except as may otherwise be
provided by these Articles of Incorporation, as may be amended from time to time
by resolutions of the Board of Directors designating a class or series of
Preferred Stock pursuant to Section 6.5 hereof (these "Articles of
Incorporation"), or by the Maryland General Corporation Law, the powers,
preferences and rights of the Common Stock, and the qualifications, limitations
or restrictions thereof, shall be in all respects identical.
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<PAGE> 198
(b) Voting Rights. Except as may otherwise be provided by
these Articles of Incorporation or by the Maryland General Corporation Law, (i)
all rights to vote and all voting power shall be vested exclusively in the
holders of the Common Stock and (ii) each holder of Common Stock shall be
entitled to one vote for each share held of record on the applicable record date
on all matters presented for a vote of the stockholders of the Corporation,
including, without limitation, the election of directors.
(c) Dividends; Recapitalizations. Except as may otherwise be
provided by these Articles of Incorporation or by the Maryland General
Corporation Law, if, as and when dividends on the Common Stock are declared
payable from time to time by the Board of Directors as provided in this Section
6.3(c), whether payable in cash, property, stock or other securities, the
holders of Common Stock shall be entitled to share equally, on a per share
basis, in such dividends.
(d) Liquidating Distributions. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
or upon any sale or conveyance of all or substantially all of the assets of the
Corporation, after payment or provision for payment of all the liabilities of
the Corporation and the expenses of liquidation, and after the holders of the
Preferred Stock shall have been paid in full the amounts, if any, to which they
are entitled or a sum sufficient for such payment in full shall have been set
aside, the remaining assets of the Corporation available for distribution shall
be distributed ratably to the holders of the Common Stock in accordance with
their respective rights and interests.
6.4 Shares-in Trust.
6.4.1 SHARE TRUST. Any Equity Shares transferred to a Share
Trust and designated Shares-in-Trust pursuant to Section 6.2.3 hereof
shall be held for the exclusive benefit of the Beneficiary. The
Corporation shall name a Beneficiary and Share Trustee of each Share
Trust within 30 days after discovery of the existence thereof. Any
transfer to a Share Trust, and subsequent designation of Equity Shares
as Shares-in-Trust, pursuant to Section 6.2.3 hereof shall be effective
as of the close of business on the business day prior to the date of
the Transfer or Non-Transfer Event that results in the transfer to the
Share Trust. Shares-inTrust shall remain issued and outstanding Equity
Shares of the Corporation and shall be entitled to the same rights and
privileges on identical terms and conditions as are all other issued
and outstanding Equity Shares of the same class and series. When
transferred to a Permitted Transferee in accordance with the provisions
of Section 6.4.3 hereof, such Sharesin-Trust shall cease to be
designated as Shares-in-Trust.
6.4.2 DIVIDEND RIGHTS. The Share Trustee, as record holder of
Shares-in-Trust, shall be entitled to receive all dividends and
distributions as may be declared by the Board of Directors on such
Equity Shares and shall hold such dividends or distributions in trust
for the benefit of the Beneficiary. The Purported Record Transferee or
Purported Beneficial Transferee, if different, with respect to
Shares-in-Trust shall repay to the Share Trustee the amount of any
dividends or distributions received by it that (i) are attributable to
any Equity Shares designated as Shares-in-Trust and (ii) the record
date of which was on or after the date that such shares became
Shares-in-Trust. The Corporation shall take all measures that it
determines reasonably necessary to recover the amount of any such
dividend or
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distribution paid to the Purported Record Transferee or Purported
Beneficial Transferee, if different, including, if necessary,
withholding any portion of future dividends or distributions payable on
Equity Shares Beneficially Owned or Constructively Owned by the Person
who, but for the provisions of Section 6.2.3 hereof, would
Constructively Own or Beneficially Own the Shares-in-Trust; and, as
soon as reasonably practicable following the Corporation's receipt or
withholding thereof, shall pay over to the Share Trustee for the
benefit of the Beneficiary the dividends so received or withheld, as
the case may be.
6.4.3 RIGHTS UPON LIQUIDATION. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of the Corporation (other than a dividend),
each Share Trustee shall be entitled to receive, ratably with each
other holder of Equity Shares of the same class or series, that portion
of the assets of the Corporation which is available for distribution to
the holders of such class and series of Equity Shares. The Share
Trustee shall distribute to the Purported Record Transferee the amounts
received upon such liquidation, dissolution, winding up, or
distribution; PROVIDED, HOWEVER, that the Purported Record Transferee
shall not be entitled to receive amounts pursuant to this Section 6.4.3
in excess of, in the case of a purported Transfer in which the
Purported Record Transferee gave value for Equity Shares and which
Transfer resulted in the transfer of the shares to the Share Trust, the
price per share, if any, such Purported Record Transferee paid for the
Equity Shares and, in the case of a Non-Transfer Event or Transfer in
which the Purported Record Transferee did not give value for such
shares (e.g., if the shares were received through a gift or devise) and
which Non-Transfer Event or Transfer, as the case may be, resulted in
the transfer of shares to the Share Trust, the price per share equal to
the Market Price on the date of such Non-Transfer Event or Transfer.
Any remaining amount in such Share Trust shall be distributed to the
Beneficiary.
6.4.4 VOTING RIGHTS. The Share Trustee shall be entitled to
vote all Shares-inTrust. Any vote by a Purported Record Transferee as a
holder of Equity Shares prior to the discovery by the Corporation that
the Equity Shares are Shares-in-Trust shall, subject to applicable law,
be rescinded and shall be void AB INITIO with respect to such
Shares-in-Trust and the Purported Record Transferee shall be deemed to
have given, as of the close of business on the business day prior to
the date of the purported Transfer or Non-Transfer Event that results
in the transfer to the Share Trust of Equity Shares under Section 6.2.3
hereof, an irrevocable proxy to the Share Trustee to vote the
Shares-in-Trust in the manner in which the Share Trustee, in its sole
and absolute discretion, desires.
6.4.5 DESIGNATION OF PERMITTED TRANSFEREE. The Share Trustee
shall have the exclusive and absolute right to designate a Permitted
Transferee of any and all Shares-inTrust. In an orderly fashion so as
not to materially adversely affect the Market Price of the Shares-in
Trust, the Share Trustee shall designate any Person as Permitted
Transferee; PROVIDED, HOWEVER, that (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or
private sale), at a price set forth in Section 6.4.7 hereof, the
Shares-in-Trust, and (ii) the Permitted Transferee so designated may
acquire such Shares-in-Trust without such acquisition resulting in a
transfer to a Share Trust and the redesignation of such Equity Shares
so acquired as Shares-in-Trust under Section 6.2.3 hereof. Upon the
designation by the Share Trustee of a Permitted Transferee in
accordance
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with the provisions of this Section 6.4.5, the Share Trustee shall (i)
cause to be transferred to the Permitted Transferee that number of
Shares-in-Trust acquired by the Permitted Transferee, (ii) cause to be
recorded on the books of the Corporation that the Permitted Transferee
is the holder of record of such number of Equity Shares, (iii) cause
the Shares-in-Trust to be canceled, and (iv) distribute to the
Beneficiary any and all amounts held with respect to the
Shares-in-Trust after making the payment to the Purported Record
Transferee pursuant to Section 6.4.6 hereof.
6.4.6 COMPENSATION TO RECORD HOLDER OF EQUITY SHARES THAT
BECOME SHARES-IN-TRUST. Any Purported Record Transferee shall be
entitled (following discovery of the Shares-in-Trust and subsequent
designation of the Permitted Transferee in accordance with Section
6.4.5 hereof) to receive from the Share Trustee upon the sale or other
disposition of such Shares-in-Trust the lesser of (i) in the case of
(a) a purported Transfer in which the Purported Record Transferee, or
Purported Beneficial Transferee, if different, gave value for Equity
Shares and which Transfer resulted in the transfer of the shares to the
Share Trust, the price per share, if any, such Purported Record
Transferee or Purported Beneficial Transferee, if different, paid for
the Equity Shares, or (b) a Non-Transfer Event or Transfer in which the
Purported Record Transferee or Purported Beneficial Transferee, if
different, did not give value for such shares (e.g., if the shares were
received through a gift or devise) and which Non-Transfer Event or
Transfer, as the case may be, resulted in the transfer of shares to the
Share Trust, the price per share equal to the Market Price on the date
of such Non-Transfer Event or Transfer, and (ii) the price per share
received by the Share Trustee of the Share Trust from the sale or other
disposition of such Shares-in-Trust in accordance with Sections 6.4.5
or 6.4.7 hereof. Any amounts received by the Share Trustee in respect
of such Shares-in-Trust and in excess of such amounts to be paid the
Purported Record Transferee pursuant to this Section 6.4.6 shall be
distributed to the Beneficiary in accordance with the provisions of
Section 6.4.5 hereof. Each Beneficiary and Purported Record Transferee
and Purported Beneficial Transferee, if different, waives any and all
claims that each may have against the Share Trustee and the Share Trust
arising out of the disposition of the Shares-in-Trust, except for
claims arising out of the gross negligence or willful misconduct of, or
any failure to make payments in accordance with this Section 6.4, by
such Share Trustee or the Corporation.
6.4.7 PURCHASE RIGHT IN SHARES-IN-TRUST. Shares-in-Trust shall
be deemed to have been offered for sale to the Corporation, or its
designee, at a price per share equal to the lesser of (i) the price per
share in the transaction that created such Shares-in-Trust (or, in the
case of devise, gift or Non-Transfer Event, the Market Price at the
time of such devise, gift or Non-Transfer Event) and (ii) the Market
Price on the date the Corporation, or its designee, accepts such offer.
The Corporation shall have the right to accept such offer for a period
of ninety days after the later of (i) the date of the Non-Transfer
Event or purported Transfer which resulted in such Shares-in-Trust and
(ii) the date the Corporation determines in good faith that a Transfer
or Non-Transfer Event resulting in Shares-in-Trust has occurred, if the
Corporation does not receive a notice of such Transfer or Non-Transfer
Event pursuant to Section 6.2.5 hereof.
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6.5 Preferred Stock.
(a) Designations by Board of Directors. The Preferred
Stock may be issued from time to time in one or more classes or series with such
voting rights, full or limited, or without voting rights, and with such
designations, preferences and relative, participating, optional or special
rights, and qualifications, limitations or restrictions as are stated herein and
as shall be stated and expressed in the resolution or resolutions providing for
the issue of such stock adopted by the Board of Directors as hereinafter
prescribed.
(b) Terms of the Preferred Stock. Subject to the rights
of the holders of the Common Stock, authority is hereby expressly granted to and
vested in the Board of Directors or any designated committee thereof to
authorize the issuance of the Preferred Stock from time to time in one or more
classes or series, to determine and take necessary proceedings to fully
effectuate the issuance and redemption of any such Preferred Stock and, with
respect to each class or series of Preferred Stock, to fix and state from time
to time, by resolution or resolutions providing for the issuance thereof, the
following:
(i) the number of shares to constitute the class or
series and the designations thereof;
(ii) whether the class or series is to have voting
rights, full or limited, or to be without voting rights;
(iii) the preferences and relative, participating,
optional or special rights, if any, and qualifications, limitations or
restrictions thereof, if any, of the class or series;
(iv) whether the shares of the class or series will
be redeemable and, if redeemable, the redemption price or prices and
the time or times at which, and the terms and conditions upon which,
such shares will be redeemable and the manner of redemption;
(v) whether the shares of the class or series will
be subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for retirement
and, if such retirement or sinking funds are to be established, the
annual amount thereof and the terms and conditions relative to the
operation thereof;
(vi) the dividend rate, whether dividends are payable
in cash, stock or otherwise, the conditions upon which and the times
when such dividends are payable, the preference or relation to the
payment of dividends on any other class or series of stock, whether or
not such dividends will be cumulative or noncumulative and, if
cumulative, the date or dates from which such dividends will
accumulate;
(vii) the preferences, if any, and the amounts
thereof that the holders of the class or series will be entitled to
receive upon the voluntary or involuntary dissolution, liquidation or
winding up of, or upon any distribution of the assets of, the
Corporation;
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(viii) whether the shares of the class or series will
be convertible into, or exchangeable for, the shares of any other class
or classes, or of any other series of the same or any other class or
classes, of stock of the Corporation and the conversion price or
prices, or ratio or ratios, or rate or rates, at which such conversion
or exchange may be made, with such adjustments, if any, as shall be
expressed or provided for in such resolution or resolutions; and
(ix) such other special rights and protective
provisions with respect to the class or series as the Board of
Directors or any designated committee thereof may deem advisable.
The shares of each class or series of Preferred Stock may vary
from the shares of any other class or series thereof in any or all of the
foregoing respects. The Board of Directors or any designated committee thereof
may from time to time increase the number of shares of Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized but unissued shares of Preferred Stock not designated for
any other class or series thereof. The Board of Directors or any designated
committee thereof may from time to time decrease the number of shares of
Preferred Stock designated for any existing class or series by a resolution
subtracting from such class or series any unissued shares of Preferred Stock
designated for such class or series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of Preferred Stock.
6.6 ISSUANCE OF EQUITY SHARES. The Board of Directors may authorize the
issuance from time to time of Equity Shares of any class, whether now or
hereafter authorized, or securities or rights convertible into Equity Shares,
for such consideration as the Board of Directors may deem advisable (or without
consideration in the case of a share split or dividend), subject to such
restrictions or limitations, if any, as may be set forth in the Bylaws of the
Corporation or the MGCL, and without any action by the stockholders.
6.7 DIVIDENDS OR DISTRIBUTIONS. Subject to the requirements of the
MGCL, the Board of Directors may from time to time declare and pay to
stockholders such dividends or distributions in cash, property or other assets
of the Corporation or in securities of the Corporation or from any other source
as the Board of Directors in their discretion shall determine.
6.8 PREEMPTIVE RIGHTS. No holder of any shares of any class or any
other securities of the Corporation, whether now or hereafter authorized, shall
have any preemptive rights to subscribe for or purchase any shares of any class
or any other securities of the Corporation other than such rights, if any, as
the Board of Directors, in its sole discretion, may fix; and any shares of any
class or other securities which the Board of Directors may determine to offer
for subscription may, within the Board of Directors' sole discretion, be offered
to the holders of any class, series or type of shares of any class or other
securities at the time outstanding to the exclusion of holders of any or all
other classes, series or types of shares of any class or other securities at the
time outstanding.
6.9 SETTLEMENT. Nothing in this Article VI shall preclude settlement of
any transaction entered into through the facilities of the New York Stock
Exchange or any other national securities exchange or the Nasdaq National Market
System. Despite the fact that settlement of any transaction
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is permitted, any transferee in such a transaction shall be subject to all of
the provisions and limitations set forth in this Article VI.
6.10 LIMITED LIABILITY. Notwithstanding the foregoing, no director or
officer of the Corporation shall be liable to the Corporation for any damages,
costs or expenses arising from any dividend or other distribution paid by the
Corporation to a Purported Record Transferee or Purported Beneficial Transferee
prior to the discovery by such director or officer that such Purported Record
Transferee or Purported Beneficial Transferee was not entitled to receive such
dividend or distribution by virtue of the provisions of Section 6.4.2, and no
corporate action authorized by the stockholders of the Corporation prior to the
discovery that a Purported Record Transferee or Purported Beneficial Transferee
is not entitled to vote Equity Shares shall be void or voidable as a result of
the inclusion of the vote of such Purported Record Transferee or Purported
Beneficial Transferee in approving a Corporation action or in determining the
presence of a quorum prior to the discovery that such Purported Record
Transferee or Purported Beneficial Transferee was not entitled to vote by virtue
of the provisions of Section 6.4.4.
6.11 Amendment and Waiver. No amendment, modification or waiver of any
provisions of Sections 6.1, 6.2, 6.3 or 6.4 hereof or of this Section 6.11 that
adversely affects the rights, preferences or privileges of the Common Stock
shall be effective without the affirmative vote of the holders of at least 51%
of the outstanding shares of Common Stock entitled to vote at a meeting of the
holders of Common Stock duly called for such purpose.
ARTICLE VII
BOARD OF DIRECTORS
7.1 Number and Term of Directors. The Board of Directors shall consist
of not less than three nor more than fifteen members, with the exact number to
be fixed from time to time by resolution of the Board of Directors in accordance
with the Bylaws of the Corporation. No decrease in the number of directors shall
have the effect of shortening the term of any incumbent director. The directors
shall serve until their respective successors are duly elected and qualified or
until their earlier resignation, death or removal from office. Except as may
otherwise be provided by these Articles of Incorporation, the stockholders may
remove a director, but only for cause, from office prior to the expiration of
his or her term by an affirmative vote of two-thirds of the outstanding shares
of all capital stock entitled to vote at a stockholders' meeting duly called for
such purpose. For purposes of this section, "cause" shall mean that the director
has (a) acted with gross negligence or willful misconduct in connection with the
performance of his material duties to the Corporation; (b) acted against the
best interests of the Corporation, which act has had a material and adverse
impact on the financial affairs of the Corporation; or (c) been convicted of a
felony or committed a material act of common law fraud against the Corporation
or its employees and such act or conviction has or will have a material adverse
effect on the interests of the Corporation.
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The following five individuals shall act as Directors until the first
annual meeting of stockholders of the Corporation or until their successors are
duly elected and qualified:
Steven A. Calabrese
Mark D. Grossi
Marc C. Krantz
Richard M. Osborne
Thomas J. Smith
7.2 Director Vacancies. Except as may otherwise be provided by these
Articles of Incorporation, (i) whenever any vacancy on the Board of Directors
occurs because of death, resignation, retirement, disqualification, removal,
increase in the number of directors or otherwise, a majority of the directors
then in office, although less than a majority of the entire Board of Directors,
may fill the vacancy or vacancies for the balance of the unexpired term or
terms, at which time a successor or successors shall be duly elected by the
stockholders and qualified, and (ii) only the remaining directors of the
Corporation shall have the authority, in accordance with the foregoing
procedure, to fill any vacancy that exists on the Board of Directors.
7.3 Amendment of Bylaws. In furtherance and not in limitation of the
power conferred upon the Board of Directors by the MGCL, the Board of Directors
shall have the power to make, adopt, alter, amend and repeal from time to time
the Bylaws of the Corporation without any action on the part of the stockholders
except as otherwise specifically provided in the Bylaws of the Corporation.
ARTICLE VIII
INDEMNIFICATION RIGHTS AND LIMITATION OF LIABILITY
8.1 Indemnification Rights. The Corporation shall indemnify (i) its
directors and officers, whether serving the Corporation or at its request any
other entity, to the fullest extent required or permitted by MGCL or decisional
law, now or hereafter in force, including the advance of expenses under the
procedures and to the fullest extent permitted by MGCL, and (ii) other employees
and agents of the Corporation whether serving the Corporation or at its request
any other entity, to such extent as shall be authorized by the directors or the
Bylaws and as permitted by law. The directors may take such action as is
necessary to carry out these indemnification provisions and are expressly
empowered to adopt, approve and amend from time to time such Bylaws, resolutions
or contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law.
8.2 Limitation on Liability. To the maximum extent permitted under the
MGCL or decisional law, as amended or interpreted, no director or officer of the
Corporation shall be liable to the Corporation or its stockholders for monetary
damages for the breach of his or her fiduciary duty as an officer or director.
8.3 Nonexclusivity and Benefit. The indemnification rights granted
pursuant to this Article VIII shall not be exclusive of other indemnification
rights, if any, granted to such person and shall inure to the benefit of the
heirs and legal representatives of such person.
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8.4 Effect of Repeal, Amendment or Termination. To the maximum extent
permitted under the MGCL, no repeal of or restrictive amendment of this Article
VIII and no repeal, restrictive amendment or termination of effectiveness of any
law authorizing this Article VIII shall apply to or affect adversely any right
or protection of any director, officer, employee or agent of the Corporation,
for or with respect to any acts or omissions of such person occurring prior to
such repeal, amendment or termination of effectiveness.
8.5 Retroactive Effect. To the maximum extent permitted under the MGCL,
the indemnification and advancement of expenses provided by this Article VIII
shall apply with respect to acts or omissions occurring prior to the adoption of
this Article VIII.
ARTICLE IX
STOCKHOLDERS
9.1 Special Meetings. Except as otherwise required by the MGCL, special
meetings of holders of the Common Stock may be called only by (i) the Board of
Directors pursuant to a resolution approved by a majority of the entire Board of
Directors, (ii) the Chief Executive Officer, (iii) the President, or (iv) the
holders of at least 25% of the outstanding shares of Common Stock entitled to
vote at the special meeting. The business transacted at any special meeting
shall be limited to the purposes stated in the notice of such meeting.
ARTICLE X
CONTROL SHARES AND BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
10.1 The provisions of Subtitle 7 of Title 3 of the MGCL are by this
reference incorporated herein as if set forth in their entirety; provided
however that such provision shall not apply to the Osborne Affiliates. The Board
of Directors in its sole judgment and discretion may in accordance with Subtitle
7 of Title 3 of the MGCL amend the Bylaws to exclude any other Person from the
application of Subtitle 7 of Title 3 of the MGCL.
10.2 The provisions of Subtitle 6 of Title 3 of the MGCL are by this
reference incorporated herein as if here set forth in their entirety; provided,
however that such provision shall not apply to the Osborne Affiliates.
ARTICLE XI
CONFLICTS OF INTEREST
Any director or officer individually, or any entity of which any
director or officer may be a member, or any corporation or association of which
any director or officer may be a director or officer or in which any director or
officer may be interested as the holder of any amount of its capital stock or
otherwise, may be a party to, or may be pecuniarily or otherwise interested in,
any contract or transaction of the Corporation, and, in the absence of fraud, no
contract or other transaction shall be thereby affected or invalidated;
provided, however, that (a) such fact shall have been disclosed or shall have
been known to the Board of Directors, or the committee thereof that approved
such contract or transaction, and such contract or transaction shall have been
approved or satisfied by the affirmative vote of a majority of the disinterested
directors, (b) such fact shall
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have been disclosed or shall have been known to the stockholders entitled to
vote, and such contract or transaction shall have been approved or ratified by a
majority of the votes cast by the stockholders entitled to vote, other than the
votes of shares owned of record or beneficially by the interested director,
officer or corporation, firm or other entity, or (c) the contract or transaction
is fair and reasonable to the Corporation. Any director of the Corporation who
is also a member of such other entity so interested, or who is also a director
or officer of or interested in such other corporation or association, may be
counted in determining the existence of a quorum at any meeting of the Board of
Directors of the Corporation which shall authorize any such contract or
transaction, with like force and effect as if he were not such a director or
officer of such other corporation or association or were not so interested or
were not a member of an entity so interested.
ARTICLE XII
PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS
(a) The provisions of these Articles are severable, and if the
directors shall determine that any one or more of such provisions are in
conflict with the REIT provisions of the Code, or other applicable federal or
state laws, the conflicting provisions shall be deemed never to have constituted
a part of these Articles, even without any amendment of these Articles;
provided, however, that such determination by the directors shall not affect or
impair any of the remaining provisions of these Articles or render invalid or
improper any action taken or omitted prior to such determination. No director
shall be liable for making or failing to make such a determination.
(b) If any provisions of these Articles or any application of such
provision shall be held invalid or unenforceable by any federal or state court
having jurisdiction, such holding shall not in any manner affect or render
invalid or uneforceable such provision in any other jurisdiction, and the
validity of the remaining provisions of these Articles shall not be affected.
Other applications of such provision shall be affected only to the extent
necessary to comply with the determination of such court. Moreover, if the
transfer restrictions regarding Shares-In-Trust set forth in Article VI hereof
are determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee or issuee of any Shares may be
deemed, at the option of the Board of Directors, to have acted as an agent on
behalf of the Corporation in acquiring any Equity Shares that would otherwise
result in the issuance of Shares-In-Trust and to hold such Equity Shares on
behalf of the Corporation.
ARTICLE XIII
DURATION
The duration of the Corporation shall be perpetual.
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Exhibit B
FORM OF
BYLAWS
OF
LIBERTY SELF-STOR, INC.
ARTICLE I
STOCKHOLDERS
1.1. Annual Meetings. An annual meeting of stockholders shall be held
for the election of directors at such date, time and place, either within or
outside the State of Maryland, as may be designated by resolution of the Board
of Directors (the "Board") of Liberty Self-Stor, Inc. (the "Corporation"). Any
other proper business may be transacted at the annual meeting.
1.2. Special Meetings. Except as otherwise required by the Maryland
General Corporation Law ("MGCL"), special meetings of holders of shares of
common stock, $0.001 par value per share, of the Corporation ("Common Stock")
may be called only by (i) the Board pursuant to a resolution approved by a
majority of the entire Board, (ii) the Chief Executive Officer, (iii) the
President, or (iv) the holders of at least 25% of the outstanding shares of
Common Stock entitled to vote at the special meeting. The business transacted
at any special meeting shall be limited to the purposes stated in the notice of
such meeting.
1.3. Notice of Meetings. Written notice of every meeting of
stockholders shall be given not less than ten nor more than ninety days before
the date of the meeting by or at the direction of the Secretary or such other
person as the Board may appoint, to each stockholder entitled to vote at such
meeting. The notice shall include the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. If mailed, notice shall be deemed to be given when deposited in the
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation.
1.4. Waiver of Notice of Meetings of Stockholders. Any written waiver
of notice, signed by a stockholder entitled to notice, shall be deemed
equivalent to notice. Attendance of a stockholder at a meeting constitutes a
waiver of notice of such meeting, except when the stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise required by the MGCL, neither the business to be
transacted at, nor the purpose of any meeting of the stockholders, need be
specified in any written waiver of notice.
1.5. Adjournments. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such reconvened meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
reconvened meeting, the Corporation may transact any business which could have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
reconvened meeting, a notice of the reconvened meeting shall be given to each
stockholder of record entitled to vote at the meeting.
<PAGE> 208
1.6. Quorum. Except as otherwise provided by the MGCL, the Articles of
Incorporation or these Bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to constitute
a quorum. Shares of stock of the Corporation belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, will neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing does not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
In the absence of a quorum, the stockholders so present may,
by majority vote, adjourn the meeting from time to time in the manner provided
in Section 1.5 of these Bylaws until a quorum is in attendance.
1.7. Organization of Meetings. Meetings of stockholders shall be
presided over by the Chairman of the Board or, if the Chairman of the Board is
not present, by the President or, in the absence of the foregoing persons,
by a chairman chosen by the stockholders at the meeting. The Secretary shall
act as secretary of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
1.8. Action by Vote. Except as otherwise provided by the Articles of
Incorporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by him which has
voting power upon the matter in question.
Except as otherwise provided by the Articles of Incorporation,
at all meetings of stockholders for the election of directors, a plurality of
the votes cast shall be sufficient to elect directors. Unless otherwise provided
by the MGCL, the Articles of Incorporation or these Bylaws, all other elections,
proposals and questions shall be determined by the vote of the holders of shares
of stock having a majority of the votes which could be cast by the holders of
all shares of stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.
Voting at stockholder meetings need not be by written ballot.
1.9. Representation by Proxy. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for him
by proxy. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary prior to the taking of a vote.
1.10. Inspectors of Election. The Board in advance of any meeting of
stockholders may appoint one or more inspectors of election ("Inspectors of
Election") to act at the meeting or any adjournment of the meeting. Each
Inspector of Election, before entering upon the discharge of his duties, must
take and sign an oath faithfully to execute the duties of Inspector of Election
at such
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meeting with strict impartiality and according to the best of his ability.
Inspectors of Election shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken and of such
other facts as may be required by the MGCL. The Inspectors of Election may
appoint or retain other persons or entities to assist them in the performance of
their duties as inspectors.
1.11. Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board and which record
date:
(a) in the case of determination of stockholders entitled
to notice of or to vote at any meeting of
stockholders or adjournment thereof, shall, unless
otherwise required by the MGCL, not be more than
ninety nor less than ten days before the date of such
meeting; and
(b) in the case of any other action, shall not be more
than ninety days prior to such other action.
If no record date is fixed:
(a) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders
shall be the latter of: the close of business on the
day next preceding the day on which notice is mailed,
or, the thirtieth day before the meeting; and
(b) the record date for determining stockholders for any
other purpose shall be at the close of business on
the day on which the Board adopts the resolution
relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
reconvened meeting.
1.12. Advance Notice of Stockholder Proposed Business. At a meeting of
the holders of the Common Stock, only such business may be conducted as is
properly brought before the meeting. To be properly brought before a meeting,
business must be either (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board, (ii) otherwise
properly brought before the meeting by or at the direction of the Board, or
(iii) otherwise properly brought before the meeting by a holder of Common Stock.
In addition to any other applicable requirements, for business to be properly
brought before a meeting of the holders of the Common Stock, the stockholder
must have given timely notice thereof in writing to the Secretary. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices
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of the Corporation not less than 120 days before the date of the Corporation's
proxy statement released to stockholders in connection with the previous year's
annual meeting in accordance with Rule 14a-8, as amended from time to time,
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
addition to the requirements of Rule 14a-8 under the Exchange Act, a
stockholder's notice to the Secretary must set forth as to each matter the
stockholder proposes to bring before the meeting (i) a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of
the stockholder proposing such business, (iii) the class and number of shares
of Common Stock that are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting of the holders of the Common Stock
except in accordance with the procedures set forth in this Section 1.12;
provided, however, that nothing in this Section 1.12 shall be deemed to preclude
discussion by any stockholder of any business properly brought before such
meeting in accordance with said procedure.
The chairman at a meeting of the holders of the Common Stock
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting in accordance with the provisions of
this Section 1.12, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
1.13. Elimination of Action By Written Consent of
Stockholders. Any action required to be taken or which may be taken at any
annual or special meeting of holders of the Common Stock may be taken if an
unanimous written consent which sets forth the action is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice but not entitled to vote
is filed with the records of stockholder meetings.
ARTICLE II
BOARD OF DIRECTORS
2.1. Powers. Subject to applicable provisions of the MGCL and any
limitations in the Articles of Incorporation or these Bylaws, the Board shall
manage the business and affairs of the Corporation and exercise all corporate
powers.
2.2. Number and Term. The number of directors of the Corporation shall
be fixed from time to time by resolution of the Board in accordance with the
Articles of Incorporation. The terms of office of such directors shall be as
set forth in the Articles of Incorporation.
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2.3. Election; Removal; Vacancies; Resignation. The election and
removal of directors and the filling of vacancies on the Board shall be as set
forth in the Articles of Incorporation. Any director may resign at any time upon
written notice to the Corporation. Such resignation shall take effect on the
date of receipt of such notice or at any later time set forth in such notice
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
2.4. Regular Meetings. The Board shall hold a regular meeting
immediately after each annual meeting of stockholders. Other regular meetings of
the Board may be held at such places within or outside the State of Maryland and
at such times as the Board may determine. Notice of a regular meeting need not
be given.
2.5. Special Meetings. Special meetings of the Board may be held at any
time or place within or without the State of Maryland whenever called by the
Chairman of the Board. Notice of a special meeting of the Board shall be given
by the officer calling the meeting at least twenty-four hours before the special
meeting.
2.6. Waiver of Notice of Meetings of Directors. Any written waiver of
notice, signed by a director entitled to notice, shall be deemed equivalent to
notice. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except when the director attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the directors, need be specified in any written
waiver of notice.
2.7. Quorum; Vote Required for Action. At all meetings of the Board, a
majority of the whole Board shall constitute a quorum for the transaction of
business. In the absence of a quorum, the directors present at the meeting may
adjourn the meeting until a majority attends. Except in cases in which the
Articles of Incorporation or these Bylaws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board.
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2.8. Organization of Meetings. Meetings of the Board shall be presided
over by the Chairman of the Board or, if the Chairman of the Board is not
present, by a chairman chosen by the directors at the meeting. The Secretary
shall act as secretary of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
2.9. Telephonic Meetings Permitted. Members of the Board, or any
committee designated by the Board, may participate in meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meetings can hear each other, and participation in
meetings pursuant to this Section shall constitute presence in person at such
meetings.
2.10. Action by Written Consent of Directors. Unless otherwise
restricted by the Articles of Incorporation or these Bylaws, any action required
or permitted to be taken at any meeting of the Board, or of any committee
thereof, may be taken without a meeting if all members of the Board or such
committee, as the case may be, consent in writing, and the writing or writings
are filed with the minutes of proceedings of the Board or such committee.
2.11. Compensation of Directors. In the discretion of the Board, the
Corporation may pay each director such fees for his services as director and
reimburse him for his reasonable expenses incurred in the performance of his
duties as director, as determined by the Board. Nothing contained in this
Section may be construed to preclude any director from serving the Corporation
in any other capacity and receiving reasonable compensation for such service.
Members of any special or standing committees may be allowed like compensation
for attending committee meetings.
2.12. Committees. The Board may, by resolution, designate, change the
membership of or terminate the existence of any committee or committees. Each
committee shall consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members of the committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in place of any such
absent or disqualified member. Any such committee, to the extent permitted by
the MGCL and to the extent provided in the resolution of the Board, shall have
and
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may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation.
2.13. Committee Rules. Unless the Board otherwise provides, each
committee designated by the Board may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these Bylaws.
2.14. Stockholder Nominations for Director Candidates. Except as may
otherwise be provided in the Articles of Incorporation, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board may be
made at a meeting of stockholders only (i) by or at the direction of the Board,
(ii) by any nominating committee or person appointed by the Board or (iii) by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2.14. Such nominations, other than those made by or at the
direction of the Board, must be made pursuant to timely notice in writing to the
Secretary. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
sixty days nor more than ninety days prior to the meeting; provided, however,
that in the event that less than seventy days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first. Such stockholder's notice to the Secretary must set forth: (i) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (a) the name, age, business address and residence address of the
person, (b) the principal occupation or employment of the person, (c) the class
and number of shares of capital stock of the Corporation that are beneficially
owned by the person, and (d) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14a, as amended from time to time, under the Exchange
Act; and (ii) as to the stockholder giving the notice, (a) the name and record
address of the stockholder, and (b) the class and number of shares of capital
stock of the Corporation that are beneficially owned by the stockholder. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. No person shall
be eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure and, if he should so determine and
declare, the defective nomination shall be disregarded.
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ARTICLE III
OFFICERS
3.1. Enumeration; Appointment. The Board shall appoint a Chief
Executive Officer, President, Secretary and Treasurer, and it may, if it so
determines, elect a Chairman of the Board from among its members. The Board may
also appoint, or empower the Chairman of the Board, or the President, to
appoint, such other officers and agents as the business of the Corporation may
require. Any number of offices may be held by the same person. The Board may
require any officer, agent or employee to give security for the faithful
performance of his duties.
3.2. Term of Office; Resignation; Removal; Vacancies. Each officer
shall hold office until his successor is appointed and qualified or until his
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Corporation. The Board may, when in its judgment the best
interests of the Corporation will be served, remove any officer with or without
cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board.
3.3. Powers and Duties. The officers of the Corporation shall have such
powers and duties in the management of the Corporation as may be prescribed in
these Bylaws and by the Board and, to the extent not so provided, as generally
pertain to their respective offices, subject to the control of the Board.
3.4. Compensation of Officers. The Board shall determine the officers'
salaries, and no officer shall be prevented from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
ARTICLE IV
CAPITAL STOCK
4.1. Stock Certificates. Every stockholder, upon written request, shall
be entitled to a certificate signed by or in the name of the Corporation by the
President or Chairman of the Board, and counter-signed by the Secretary, an
Assistant Secretary, the Treasurer, or an Assistant Treasurer, certifying the
number of shares owned by him in the Corporation. Any or all of the signatures
on the certificate may be by facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
4.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. Upon written request by a stockholder, the Corporation may issue a
new certificate of stock in the place of any certificate previously issued by
the Corporation, alleged to have been lost, stolen or destroyed. The Corporation
may require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may
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be made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
4.3. Transfer on Books. Subject to the restrictions, if any, stated or
noted on the stock certificate, shares of stock may be transferred on the books
of the Corporation by the surrender to the Corporation or its transfer agent of
the stock certificate properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with any necessary transfer stamps
affixed and with such proof of the authenticity of signature as the Board or the
transfer agent of the Corporation may reasonably require.
4.4. Registered Stockholders. Except as may be otherwise required by
the MGCL, by the Articles of Incorporation or by these Bylaws, the Corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to receive notice and to vote or to give any consent with respect to
such stock and to be held liable for such calls and assessments, if any, as may
lawfully be made on such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been properly transferred on the
books of the Corporation. It shall be the duty of each stockholder to notify the
Corporation of his current mailing address.
ARTICLE V
INDEMNIFICATION
5.1. Indemnification to the Extent Permitted by Law. Unless the Board
otherwise determines prospectively in the case of any one or more specified
individuals, the Corporation shall indemnify, to the full extent permitted by
the MGCL, any person who is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise (an
"Indemnified Person"), including the advancement of expenses under procedures
provided under such law; provided, however, that no indemnification shall be
provided for expenses relating to any willful or grossly negligent act by any
director or officer. The provisions of this Section 5.1 shall constitute a
contract with each Indemnified Person who serves at any time while these
provisions are in effect and may be modified adversely only with the consent of
affected Indemnified Persons and each such Indemnified Person shall be deemed to
be serving as such in reliance on these provisions.
5.2 Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any Indemnified Person against any liability,
whether or not the Corporation would have the power to indemnify him or her
against such liability.
5.3 Non-Exclusive Right to Indemnify; Heirs and Personal
Representatives. The rights of indemnification set forth in this Article V are
in addition to all rights which any Indemnified Person may be entitled as a
matter of law, and shall inure to the benefit of the heirs and personal
representatives of each Indemnified Person. The Corporation shall indemnify any
Indemnified Person's spouse (whether by statute or at common law and without
regard to the location of the governing jurisdiction) and children to the same
extent and subject to the same limitations applicable to any Indemnified Person
hereunder for claims arising out of the same of such person as a spouse or child
of such Indemnified Person, including claims seeking damages from marital
property
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<PAGE> 216
(including community property) or property held by such Indemnified Person and
such spouse or property transferred to such spouse or child.
5.4 No Limitation. In addition to any indemnification permitted by
these Bylaws, the Board shall, in its sole discretion, have the power to
grant such indemnification as it deems in the interest of the Corporation to
the full extent permitted by law. This Article shall not limit the Corporation's
power to indemnify against liabilities other than those arising from a person's
serving the Corporation a director or officer.
ARTICLE VI
MISCELLANEOUS
6.1. Articles of Incorporation. These Bylaws are subject to the
Articles of Incorporation and, in the case of any conflict with the Articles of
Incorporation, the Articles of Incorporation shall control.
6.2. Amendment of Bylaws. The Board shall have the exclusive power to
make, adopt, alter, amend and repeal from time to time these Bylaws without any
action on the part of the stockholders.
6.3. Location of Records. The books and records of the Corporation may
be kept outside of the State of Maryland at such location or locations as may be
designated from time to time by the Board.
6.4. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year, unless otherwise fixed by resolution of the Board.
6.5. Corporate Seal. The Corporation shall not have a corporate seal.
*
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Annex C
FORMATION AGREEMENT
This Formation Agreement is made and entered into this 12th day of May,
1999, by and among Meridian Point Realty Trust '83, a California business trust
("Meridian"), Liberty Self-Stor, Inc., a Maryland corporation ("Liberty"),
Liberty Self-Stor, Ltd., an Ohio limited liability company (the "Ohio LLC"),
Richard M. Osborne ("R. M. Osborne"), Thomas J. Smith ("Smith"), Diane Osborne
("D. Osborne") and Retirement Management Company, an Ohio corporation ("RMC").
RECITALS:
A. Meridian was organized in 1983 and has qualified as a real estate
investment trust ("REIT") for federal income tax purposes since its
organization. Meridian's shares of beneficial interest, $1.00 stated value
("Meridian Shares"), currently are listed for trading on the Over-the-Counter
Bulletin Board Market of the Nasdaq Stock Market ("OTCBB") under the symbol
"MPTBS."
B. Liberty is a wholly-owned subsidiary of Meridian which shall ultimately
merge with Meridian and be the surviving entity following the merger. Each
Meridian Share shall be converted into one share of common stock, $0.001 par
value, of Liberty ("Liberty Shares").
C. The Ohio LLC owns, or will at the time of the mergers own, fifteen
self-storage facilities identified on Schedule I hereto (the "Self-Storage
Facilities"). R. M. Osborne is the Manager of the Ohio LLC and the sole
shareholder of RMC and, therefore, owns or will own 98.4% of the membership
interests in the Ohio LLC. Smith and D. Osborne own the remaining membership
interests in the Ohio LLC.
D. Liberty intends to contribute cash and securities for the general
partnership interest and for Class B limited partnership interests in LSS I
Limited Partnership, a to-be-formed Delaware limited partnership ("LSS I"), and
each of R. M. Osborne, Smith, D. Osborne and RMC (each, a "Member" and
collectively the "Members" of the Ohio LLC) intends to exchange his, her or its
membership interests in the Ohio LLC for Class A limited partnership interests
in LSS I.
E. The parties hereto desire that the transactions contemplated herein
regarding the merger of Meridian and Liberty, the organization of LSS I and the
exchange by each Member of the Ohio LLC of his or her membership interests for
limited partnership interests in LSS I (such transactions, collectively, the
"Formation") be implemented through the timely execution and closing of the
transactions contemplated by this Agreement and of the agreements contemplated
hereby (this Agreement and all other agreements and instruments contemplated
hereby which are required to be executed at or prior to the closing of the
Formation pursuant to this Agreement (such date, the "Closing Date") hereinafter
are referred to collectively as the "Transaction Agreements").
NOW THEREFORE, in consideration of the premises and the mutual agreements
contained herein, and for other good, valuable and binding consideration, the
receipt and sufficiency of which hereby are acknowledged, and subject to the
terms hereof, the parties hereto, intending legally to be bound, hereby agree as
follows:
<PAGE> 218
SECTION 1. TRANSACTION AGREEMENTS.
Subject to the fulfillment or waiver of the conditions specified in Section
6, below, and pursuant to and in accordance with the Transaction Agreements, at
or prior to the Closing Date:
(a) Merger Agreement. Meridian will form a Maryland limited
partnership, Liberty Self-Stor Limited Partnership (the "Partnership") in which
Meridian will be the general partner. Meridian will enter into a Merger
Agreement with the Partnership and Liberty, pursuant to which (i) Meridian will
cease to exist as a separate legal entity and the Partnership by operation of
law, will succeed to all the assets, rights, obligations and liabilities of
Meridian, and (ii) immediately thereafter, the Partnership and Liberty will
Merge and the Partnership will cease to exist as a separate legal entity and
Liberty, by operation of law, will succeed to all the assets, rights,
obligations and liabilities of Partnership (the "Mergers"). Liberty will take
all appropriate steps to qualify as a REIT for federal income tax purposes.
(b) Partnership Agreement. Liberty, R. M. Osborne, Smith, D. Osborne
and RMC shall execute and enter into an Agreement of Limited Partnership of LSS
I (the "Partnership Agreement"). The Partnership Agreement will provide, inter
alia, for (1) the contribution by Liberty of cash and securities constituting
approximately all of Liberty's assets for the sole general partnership interest
and Class B limited partnership interests in LSS I and (2) the exchange by the
Members of the Ohio LLC of their membership interests in the Ohio LLC for Class
A limited partnership interests in LSS I. The Class A limited partnership
interests shall be redeemable for cash or, at the election of Liberty,
convertible into Liberty Shares, on a one-for-one basis. No such conversion will
be permitted for a specific limited partner if Liberty determines that such
conversion would be likely to disqualify Liberty as a REIT. The Ohio LLC and R.
M. Osborne will make certain representations and warranties to Liberty
including, without limitation, as to the material accuracy of all information
furnished as to the Self-Storage Facilities and as to customary real estate
matters. The Partnership Agreement will specify that the aggregate ownership
interests of Liberty, R. M. Osborne, Smith and D. Osborne will be based on the
relative net asset value of the cash and securities contributed by Liberty and
the net asset value of the Self-Storage Facilities owned by the Ohio LLC. The
value of the Self-Storage Facilities has been determined by independent
appraisal conducted by an appraiser or appraisers satisfactory to Liberty and
its independent directors. LSS I will issue to Liberty 98,079 general
partnership interests and 2,933,539 Class B limited partnership interests and to
R. M. Osborne, Smith, D. Osborne and RMC 6,776,269 Class A limited partnership
interests. The number of partnership interests is based on the relative
percentage of the Net Asset Value (as shown on the chart below) of the
contributions by Liberty and the Members of the Ohio LLC.
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<TABLE>
<CAPTION>
CALCULATIONS OF NET ASSET VALUE TO BE CONTRIBUTED
IN THE FORMATION TRANSACTIONS
COMBINED
LIBERTY OHIO LLC TOTAL
------- -------- -----
<S> <C> <C> <C>
Cash and cash equivalents $2,163,623 $ 77,393 $ 2,241,016
Appraised value of real estate assets -- 23,620,000 23,620,000
Other assets (1) 14,453 74,915 89,368
Mortgages, lines of credit and other liabilities (2) -- (18,118,800) (18,118,800)
Accounts Payable and other payables (185,567) (549,873) (735,440)
---------- ------------- ------------
Total Net Asset Value $1,992,509 $ 5,103,635 $ 7,096,144
Payment of Transaction Cost -0- (650,000) (650,000)
---------- ------------- ------------
Net Asset Value Contributed to LSS I $1,992,509 $ 4,453,635 $ 6,446,144
========== ============= ============
Percentage of Net Asset Value Contributed 30.91% 69.09% 100.0%
Allocation of Ownership Interests In LSS I 30.91% 69.09% 100.0%
</TABLE>
- -------------
(1) For the Ohio LLC, excludes Goodwill of $917,656 and other assets of
$298,724 leaving accounts receivable of $36,420 and inventory and other
assets of $38,495.
(2) For the Ohio LLC, includes an additional $950,000 in long-term borrowings
for the purchase of Riverhead and $500,000 in additional long-term
borrowings for Southold.
SECTION 2. MANAGEMENT OF LIBERTY. Meridian's existing trustees shall
continue to serve on Liberty's Board of Directors until the 2000 Annual Meeting
of stockholders of Liberty.
SECTION 3. MERIDIAN APPROVALS. Meridian shall prepare, and submit to its
shareholders, as promptly as may be practicable, proxy materials soliciting the
approval of such shareholders for the transactions comprising the Formation. The
parties hereto acknowledge that Meridian will be required to submit such proxy
materials to the Securities and Exchange Commission (the "SEC") and may be
required to submit such proxy materials to Nasdaq and to certain state
securities divisions for their respective comment and approval prior to the
distribution of such materials to shareholders. The Ohio LLC and R. M. Osborne
and their respective affiliates, attorneys, accountants and other advisors each
shall cooperate fully in the preparation of said proxy materials and shall
furnish such assistance as Meridian reasonably may request in connection
therewith.
Meridian shall use all reasonable efforts to obtain SEC and, as may be
required, Nasdaq and state securities division clearance of the proxy
statement/prospectus and, to the extent required, approval of the transactions
comprising the Formation. The Ohio LLC and the Members of the Ohio LLC shall
furnish all information concerning themselves and the Self-Storage Facilities
and Meridian shall furnish all information concerning it and its shareholders,
as may be required by the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or the regulations promulgated thereunder, or as the other may reasonably
request in connection with such actions. As promptly as practicable after
clearance of the proxy statement/prospectus, Meridian shall mail the proxy
statement to its shareholders. The proxy statement/prospectus shall include the
recommendation of Meridian's Board of Trustees in favor of shareholder approval
of the transactions comprising the Formation.
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Meridian shall, promptly after the date of this Agreement, take all action
necessary to convene a meeting of Meridian's shareholders to act on approval of
the transactions comprising the Formation, and shall consult with the Ohio LLC
and R. M. Osborne in connection therewith. Meridian shall use its reasonable
best efforts to solicit from its shareholders proxies in favor of the approval
of the transactions comprising the Formation and to secure the vote or consent
of shareholders required to approve the transactions comprising the Formation.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
(a) Organization and Good Standing. Meridian, Liberty and the Ohio LLC
each represents and warrants to each of the other parties hereto that it has
been duly organized and is validly existing in good standing under the laws of
its respective jurisdiction of organization.
(b) Authority. Each party hereto represents and warrants to each of the
other parties hereto that, subject only to the receipt of the approvals
described in Section 3 above, as applicable, such party has the power and
authority to execute, deliver and perform this Agreement and the Transaction
Agreements to be executed by such party and to consummate the transactions
contemplated hereby and thereby; that this Agreement has been (or, upon the
receipt of such approvals, will be) duly and validly executed and delivered on
such party's behalf; that each of such Transaction Agreements to be executed by
such party, when executed and delivered, will be duly authorized, executed and
delivered on its behalf; and that this Agreement is, and when executed and
delivered by such party each of the Transaction Agreements will be, upon the due
execution and delivery thereof by each of the other parties thereto, the legal,
valid and binding obligation of such party, enforceable against such party in
accordance with the respective terms thereof, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement thereof or relating to creditors' rights
generally.
(c) Consents. Each party hereto represents and warrants to each of the
other parties hereto that, except as set forth in Section 3 above, as applicable
and the approvals from mortgage lenders (the "Lender Approvals") which have a
right to approve the transactions contemplated hereby, as referred to in Section
5(g) below, no consent, approval, permit or order of, nor filing with, any
individual, partnership, corporation, trust or other entity, government agency
or political subdivision, is required in connection with: (i) the execution,
delivery and performance of this Agreement or the Transaction Agreements by such
party or (ii) the consummation by such party of the transactions contemplated
hereby or thereby (including, without limitation, any required consent of the
spouse of any natural person who is a party hereto and is subject to the
community property laws of any jurisdiction), other than any such consent,
approval, permit or order obtained, or filing made, prior to the Closing Date in
a form reasonably satisfactory to the other parties hereto. Meridian represents
and warrants to each of the other parties that the transactions contemplated
hereby will not result in the triggering of any "poison pill" or similar
shareholder rights plan in respect of its securities.
(d) No Violation. Each party hereto represents and warrants to each of
the other parties hereto that, upon receipt of the approvals contemplated by
Section 3 above and the Lender Approvals, none of the execution, delivery and
performance by such party of this Agreement or the execution, delivery or
performance by such party of the Transaction Agreements to be executed by
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such party, nor the consummation by such party of the transactions contemplated
hereby or thereby, will violate any provision of the organizational documents of
such party or violate or be in conflict with, or constitute a default (or an
event or condition which, with notice or lapse of time or both, would constitute
a default) under, or result in the termination or acceleration of, or result in
the creation or imposition of any lien or encumbrance under, any agreement,
note, mortgage or other instrument to which such party is a party or by which
such party may be bound or subject, or violate any statutes, orders, rules and
regulations promulgated by any governmental body, or violate any court order or
decree binding upon such party.
(e) Brokers'/Finders' Fees. Each party hereto represents and warrants
to each of the other parties hereto that it has not employed a broker or finder
in connection with any transactions contemplated by the Formation other than.
Each party ("First Party") agrees to indemnify and hold harmless any other party
hereto from and against any claim asserted against any such other party for a
brokerage, agent's, finder's or originator's commission or other similar
compensation in respect of the transaction contemplated by this Agreement by any
person purporting to act on behalf of First Party.
(f) Ownership and Operation of the Self-storage Facilities. The Ohio
LLC represents and warrants to Meridian and Liberty that, subject to required
Lender Approvals, it has or will have as of the Closing Date good and marketable
title to each Self-Storage Facility listed on Schedule I hereto, free and clear
of any liens, encumbrances, equities, restrictions and claims of every kind and
nature whatsoever except those items shown on Schedule II attached hereto (the
"Permitted Encumbrances to the Self-Storage Facilities"), and that it has or
will have full right, power and authority to transfer title to such Self-Storage
Facilities as contemplated by the Partnership Agreement. The Ohio LLC represents
and warrants to Meridian and Liberty that the Self-Storage Facilities are being
operated in a manner commensurate with relevant industry standards and there
have not been any changes in basic operating procedures.
(g) Investment Intent. Liberty and each of the Members of the Ohio LLC,
severally and not jointly, represents and warrants to each other, that each is
acquiring its respective general and/or limited partnership interests in LSS I
for its own account for purposes of investment and not with a view to effecting
a public distribution thereof, subject to its respective rights under the
Partnership Agreement to sell or otherwise transfer such limited partnership
interests pursuant to an exemption from registration under applicable securities
laws.
(h) Ownership of Assets of Meridian. Meridian hereby represents and
warrants to the Members of the Ohio LLC that it is the lawful owner of each and
every asset to be transferred to LSS I as contemplated by Section 1(b), above,
and has and will have good and marketable title to such assets, free and clear
of any liens, encumbrances, equities, restrictions and claims of every kind and
nature whatsoever, except as set forth on Schedule III hereto (the "Permitted
Encumbrances to the Meridian Assets"), and that it has and will have full right,
power and authority to transfer such interests as contemplated by the Formation,
subject to the receipt of the shareholder approval specified in Section 3,
above.
(i) Insurance. The Ohio LLC hereby represents and warrants to Liberty,
that the Self-Storage Facilities as of the date hereof are and as of the Closing
Date will be fully insured against
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casualty loss and that the Ohio LLC is the owner and primary beneficiary of such
policies of insurance.
(j) Financial Information. Meridian, Liberty and the Ohio LLC, jointly
and severally, represent to each other that the financial information furnished
or to be furnished by any one of them is true and correct in all material
respects as of the date thereof and that there has been no, and as of the
Closing Date there will not have been any, material adverse change in the
financial condition or results of operations of any such party or of any
Self-Storage Facility since the dates of any of such financial information which
previously has not been disclosed to the any such party.
(k) OTCBB Listing. Meridian represents to the Members of the Ohio LLC
that the Meridian Shares are listed on the OTCBB and that Meridian has received
no notice from the OTCBB terminating or proposing to terminate or otherwise
limit the trading of Meridian shares on the OTCBB and has no notice that any
such termination or limitation is pending or threatened other than as
publicly-disclosed by Meridian in its filings with the SEC.
The representations and warranties set forth in this Section 4 shall be
deemed to be repeated on and as of the Closing Date.
SECTION 5. COVENANTS AND OTHER AGREEMENTS.
(a) Further Assurances; Additional Documentation. From time to time
upon request, and without the granting of further consideration, each of the
parties hereto agrees to execute, deliver and acknowledge any and all such
further instruments and do such further acts as any other party hereto
reasonably may require to evidence or effectuate more fully the transactions
contemplated by this Agreement, the Transaction Agreements and the Formation.
The parties hereto acknowledge and agree that this Agreement sets forth the
documentary framework and the principal terms of the understandings of the
parties in respect of the Formation, that it would be impracticable for this
Agreement to set forth all of the terms to be contained in the Transaction
Agreements, and that each party hereto will negotiate in good faith such terms
of the Transaction Agreements as are not expressly set forth herein.
(b) The Formation. The parties hereto agree that the sequence of events
constituting the Formation shall be effected as substantially concurrently as
possible on the earliest date as may be practicable following the receipt of the
approvals specified in Section 3 above and the Lender Approvals, but not later
than October 31, 1999.
(c) Conduct of Business. Each party hereto covenants and agrees to each
of the other parties hereto that, between the date hereof and the Closing Date,
its respective business will continue to be operated in the regular and ordinary
course thereof commensurate with relevant industry standards, and in connection
therewith each such party shall not, without the prior consent of the other
parties hereto:
(i) Sell or transfer any assets other than in the regular and
ordinary course of business or encumber any assets, whether or not in
the regular and ordinary course of business; provided, however, it is
expressly agreed that in order to continue to qualify as a
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real estate investment trust that under the Internal Revenue Code of
1986, as amended, Meridian shall be entitled to declare and pay regular
dividends to its shareholders in accordance with its past practice in
the sole discretion of its Board of Trustees.
(ii) Terminate or cause or permit the termination of, any
contract, lease or other agreement which in any case either
individually or in the aggregate has a materially adverse effect on the
assets, operations or prospects of such covenanting party.
(iii) Agree to do any of the things specified in (i) or (ii)
above.
Between the date hereof and the Closing Date, each party hereto shall use its
respective best efforts to keep the services of its respective present employees
and preserve their respective present relations with suppliers and other
vendors.
(d) Meridian Information in Proxy Statement/Prospectus. None of the
information to be supplied by Meridian or any of its accountants, counsel or
other authorized representatives for inclusion in the proxy statement/prospectus
will, at the time of the mailing of the proxy statement/prospectus, as the case
may be, and any amendments or supplements thereto, contain any untrue statement
of a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, or, at the time of the shareholders' meeting, omit to state any
material fact necessary to correct any statement that has become false or
misleading. No representation or warranty is made by Meridian with respect to
any information supplied by the Ohio LLC or the Members of the Ohio LLC or their
accountants, counsel or other authorized representatives. If at any time prior
to the Closing Date any event with respect to Meridian shall occur which is or
should be described in an amendment of or supplement to the proxy
statement/prospectus such event shall be so described and the presentation in
such amendment or supplement will not contain any statement which, at the time
and in light of the circumstances under which it is made, is false or misleading
in any material respect or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading. The proxy
statement/prospectus will comply as to form in all material respects with all
applicable laws, including the provisions of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder.
(e) Ohio LLC Information in Proxy Statement/Prospectus. None of the
information to be supplied by the Members of the Ohio LLC or the Ohio LLC or any
of their accountants, counsel or other authorized representatives for inclusion
in the proxy statement/prospectus will, at the time of the mailing of the Proxy
Statement, as the case may be, and any amendments or supplements thereto,
contain any untrue statement of a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, or, at the time of the shareholders'
meeting omit to state any material fact necessary to correct any statement that
has become false or misleading. No representation or warranty is made by any of
the Members of the Ohio LLC or the Ohio LLC with respect to any information
supplied by Meridian or its accountants, counsel or other authorized
representatives. If at any time prior to the Closing Date any event with respect
to any of the Members of the Ohio LLC, the Ohio LLC or the Self-Storage
facilities shall occur which is or should be described in an amendment of or
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supplement to the proxy statement/prospectus, such event shall be so described
and the presentation in such amendment or supplement will not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading in any material respect or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading.
(f) Lender Approvals. The Ohio LLC will use its commercially reasonable
best efforts to obtain the Lender Approvals as promptly as practicable and, in
any event, prior to the mailing by Meridian to its shareholders of the proxy
statement/prospectus.
(g) Capital Source. Meridian will use its best efforts to locate
additional financing sources, including obtaining a line of credit in an amount
up to $50 million.
SECTION 6. CONDITIONS PRECEDENT AND TERMINATION.
(a) Conditions Precedent. The obligations of each of the parties hereto
to consummate the transactions contemplated hereunder are subject to the
satisfaction or waiver of the following conditions at or prior to the Closing
Date:
(i) each of the Transaction Agreements shall be duly executed
and acknowledged by all of the parties thereto;
(ii) any further instruments and acts properly requested
pursuant hereto shall have been executed and delivered or done, as the
case may be;
(iii) the approvals required by Section 3 above, shall have
been obtained;
(iv) the representations and warranties contained in Section 4
hereof shall be true and correct in all material respects on the date
hereof and on the Closing Date with the same effect as though such
representations and warranties had been made or given on the Closing
Date;
(v) all of the parties to all of the Transaction Agreements
shall have performed all of their obligations under the Transaction
Agreements to be performed at or prior to the closing of the Formation;
(vi) the following legal opinions and memorandum shall have
been delivered by and to the parties specified below, and such legal
opinions and memorandum shall be reasonably satisfactory in form and
substance to the respective addressees thereof:
(A) counsel for Meridian and Liberty shall have delivered
its opinion to the Ohio LLC and the Members of the Ohio LLC in
respect of the matters relating to Meridian and Liberty set
forth in Sections 4(a), (b), (c) and (d), above;
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(B) counsel for the Ohio LLC and the Members of the Ohio
LLC shall have delivered its opinion to Meridian and Liberty
in respect of the matters set forth in Sections 4(a), (b),
(c), (d) above; and
(vii) there shall not be pending an injunction or order or
decree of a court of competent jurisdiction restraining or prohibiting
the consummation of the Formation.
(b) Termination.
(i) This Agreement shall automatically terminate on October
31, 1999 if the Closing Date shall not have occurred on or before such
date, unless otherwise extended by mutual written agreement of each and
every party hereto. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to
the Closing Date by any party by the delivery of written notice of
termination to each other party hereto, subject to the expense
reimbursement provisions of Section 7(h), below.
(ii) In the event of the termination of this Agreement, this
Agreement forthwith shall become void and of no further force and
effect and there shall be no liability hereunder or thereunder on the
part of any party hereto or any of its affiliates, directors, officers,
partners or shareholders; provided, however, that nothing herein shall
relieve any party from liability for any breach hereof or thereof or
from such party's obligations in respect of reimbursement of expenses
set forth in Section 7(h), below.
SECTION 7. MISCELLANEOUS.
(a) Waiver. Any failure of any of the parties hereto to comply with any
obligation, covenant, agreement or condition herein may be waived by the parties
entitled to the benefit thereof only by a written instrument signed by each such
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, representation, warranty, covenant, agreement
or condition shall not operate as a waiver of or estoppel in respect of any
subsequent or other failure.
(b) GOVERNING LAW. THIS FORMATION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF OHIO REGARDLESS OF THE
LAWS THAT WOULD OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS. The parties hereto consent to personal jurisdiction in the Court of Common
Pleas for Cuyahoga County, Ohio, or the United States District Court for the
Northern District of Ohio, in connection with any claim, allegation, cause of
action or legal proceeding relating in any way to this Agreement. The parties
hereto agree, to the fullest extent permitted by law, to venue in such court, to
waive any claim that such court is an inconvenient forum and to accept service
of process in any such claim, action or proceeding in the manner set forth in
Section 7(f) (in addition to any other means of service permitted by law).
(c) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, and
delivered by means of facsimile transmission
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or otherwise, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same agreement.
(d) Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations herein shall be
assigned or delegated by any party hereto without the prior written consent of
the other parties hereto.
(e) Amendment. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(f) Notices. All notices and other communications hereunder must be in
writing and will be deemed to have been duly given when personally delivered or
on the date of receipt or refusal indicated on the return receipt if mailed
(registered or certified mail, postage prepaid, return receipt requested) or
sent by express courier service to the addresses set forth below:
Meridian Point Realty Trust '83
8500 Station St., Suite 100
Mentor, Ohio 44060
Attn: Thomas J. Smith, President
Telephone: 440-974-3770
Fax: 440-974-0844
Liberty Self-Stor, Inc.
8500 Station St., Suite 100
Mentor, Ohio 44060
Attn: Thomas J. Smith, President
Telephone: 440-974-3770
Fax: 440-974-0844
Liberty Self-Stor, Ltd.
8500 Station St., Suite 100
Mentor, Ohio 44060
Attn: Richard M. Osborne, Managing Member
Telephone: 440-974-3770
Fax: 440-974-0844
Retirement Management Company
7001 Center Street
Mentor, Ohio 44060
Attn: Richard M. Osborne
Telephone: 440-951-1111
Fax: 440-255-8645
10
<PAGE> 227
Richard M. Osborne
7001 Center Street
Mentor, Ohio 44060
Telephone: 440-951-1111
Fax: 440-255-8645
Thomas J. Smith
8500 Station St., Suite 100
Mentor, Ohio 44060
Attn: Thomas J. Smith, President
Telephone: 440-974-3770
Fax: 440-974-0844
Diane M. Osborne
7001 Center Street
Mentor, Ohio 44060
Telephone: 440-951-1111
Fax: 440-255-8645
(g) Severability. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Agreement. Such
provision shall be deemed to be modified to the extent necessary to render it
legal, valid and enforceable, and if no such modification shall render it legal,
valid and enforceable, then this Agreement shall be construed as if not
containing the provision held to be invalid, and the rights and obligations of
the parties shall be construed and enforced accordingly.
(h) Expenses. The Ohio LLC shall bear the costs and expenses up to
$650,000, incurred by Meridian, Liberty and the Ohio LLC in connection with this
Agreement, the Transaction Agreements and the transactions contemplated hereby
and thereby, including but not limited to the reasonable fees and expenses of
each of their counsel, and thereafter the costs and expenses shall be borne by
Meridian.
(i) Publicity. Meridian and Liberty, on the one hand, and the Ohio LLC
and the Members of the Ohio LLC, on the other hand, agree that neither will make
any public statement or issue any press release disclosing the existence of this
Agreement or the terms hereof without the prior consent of the other, which
consent shall not be unreasonably withheld or delayed.
(j) Meridian Disclaimer; Personal Liability. As provided in the Amended
and Restated Declaration of Trust establishing Meridian, no trustee, officer,
shareholder, employee or agent of Meridian shall be held to any personal
liability, jointly or severally, for any obligation of, or claim against,
Meridian. All persons dealing with Meridian in any way shall look only to the
assets of Meridian for the payment of any sum or the performance of any
obligation. R.M. Osborne and any other officers of the Ohio LLC executing this
Agreement shall not be held personally liable solely for having so executed this
Agreement in a representative capacity and all persons dealing with the Ohio LLC
shall only look to the assets of the Ohio LLC for the payment of any sum or the
11
<PAGE> 228
performance of any obligation by the Ohio LLC. It is further agreed that the
respective personal liability of R.M. Osborne for any breach of any
representation, warranty or covenant made by such person in his individual
capacity shall be limited to, and recourse shall be had solely against the
assets of the Ohio LLC; it being understood that none of the aforesaid persons
shall have any personal liability in respect of any such breach made by an
entity for which such person has signed in a representative capacity.
(l) No Solicitation. Meridian agrees that it will not, after the date
hereof and prior to the date of termination of this Agreement, seek, directly or
through agents, representatives or affiliates, or permit any of its officers or
trustees to seek (whether in their capacity as officers or trustees or in their
individual capacities) or otherwise solicit or encourage the initiation of
inquiries or proposals from any person or persons to purchase all or a
substantial portion of the assets of Meridian or all or a substantial portion of
the capital stock or other securities of Meridian, or for Meridian to purchase
in one or more related transactions the capital stock or other securities or
assets of persons whereby Meridian would issue (or commit to issue) shares or
its capital stock or other securities or to effect a consolidation or merger or
other business combination or recapitalization (other than the transactions
comprising the Formation) (an "Acquisition Proposal"). Meridian shall
immediately cease and cause to be terminated all existing discussion and
negotiations, if any, with any parties conducted heretofore with respect to an
Acquisition Proposal. Nothing contained in this Section 7(l) shall prevent the
Board of Trustees of Meridian from considering, negotiating, approving and
recommending to the shareholders of Meridian a bona fide Acquisition Proposal
not solicited, directly or indirectly, in violation of this Agreement, provided
that the Board of Trustees determines in good faith that it is required to do so
in order to discharge properly its fiduciary duties. Meridian shall immediately
notify the Ohio LLC and the Members of the Ohio LLC after receipt of any
Acquisition Proposal (whether written or oral), or any modification of or
amendment to any Acquisition Proposal, or any request for any nonpublic
information relating to Meridian in connection with any Acquisition Proposal or
for access to the properties, books or records of Meridian by any person or
entity that informs the Board of Trustees or management of Meridian that it is
considering making or had made an Acquisition Proposal. Such notices to the Ohio
LLC and the Members of the Ohio LLC shall be made orally and in writing and
shall indicate whether Meridian is providing or intends to provide the person
making the Acquisition Proposal with access to information concerning Meridian,
the identity of the person making the Acquisition Proposal and the terms and
conditions of the transaction contemplated by the Acquisition Proposal.
Notwithstanding the foregoing, Meridian shall not be obligated to inform the
Ohio LLC and the Members of the Ohio LLC of any unsolicited inquiry received by
it in respect of an Acquisition Proposal if such inquiry is preliminary in
nature and Meridian responds to such inquiry by advising the inquiring party
that Meridian is in exclusive negotiations regarding the transaction
contemplated by this Agreement.
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<PAGE> 229
IN WITNESS WHEREOF, the undersigned have executed this Agreement this
12th day of May, 1999.
MERIDIAN POINT REALTY TRUST '83,
a California business trust
By: /s/ THOMAS J. SMITH
-------------------------------------
Title: President
LIBERTY SELF-STOR, INC.
a Maryland corporation
By: /s/ RICHARD M. OSBORNE
-------------------------------------
Title: Chairman and Chief Executive
Officer
RETIREMENT MANAGEMENT COMPANY
an Ohio corporation
By: /s/ RICHARD M. OSBORNE
-------------------------------------
Title: Sole Shareholder
LIBERTY SELF-STOR, LTD.,
an Ohio limited liability company
By: /s/ RICHARD M. OSBORNE
-------------------------------------
Title: Managing Member
/s/ RICHARD M. OSBORNE
-----------------------------------------
Richard M. Osborne
/s/ THOMAS J. SMITH
-----------------------------------------
Thomas J. Smith
/s/ DIANE M. OSBORNE
-----------------------------------------
Diane M. Osborne
13
<PAGE> 230
<TABLE>
<CAPTION>
SCHEDULE I
SCHEDULE OF SELF-STORAGE FACILITIES
YEAR BUILT/ RENTABLE
LOCATION EXPANDED SQUARE FT. ACRES UNITS CONSTRUCTION
-------- -------- ---------- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
OHIO:
Avon 1981- 67,423 6.1225 495 Masonry & Steel
998 Avon Belden Road 1986/1998
Avon, Ohio 44011
Canton 1979-87 41,175 11.1533 388 Concrete
3700 Fohl Road, S.W.
Canton, Ohio 44706
Catawba 1988/1998 43,052 7.57 302 Steel
5681 East Harbor Road
Marblehead, Ohio 43440
Cleveland 1997 40,150 3.6801 278 Steel
5440 S. Marginal Road
Cleveland, Ohio 44114
Dayton 1989 19,550 5.001 206 Concrete
3785 Shiloh Springs Rd.
Dayton, Ohio 45426
East Canton 1997 26,700 12.6298 177 Steel
5136 Lincoln Street
East Canton, Ohio 44730
East Liverpool 1986-1996 29,990 11.49 222 Steel
15031 Strader Road
East Liverpool, Ohio
43920
Louisville 1988-1990 53,060 6.828 364 Masonry
7100 Columbus Road
Louisville, Ohio 44641
Mentor 1983 20,382 6.000 204 Masonry
6784 Hopkins Road
Mentor, Ohio 44060
Perry 1992/1997 63,950 6.194 397 Steel
4376 North Ridge Road
Perry, Ohio 44081
Ravenna 1988 16,950 1.785 150 Steel
111 Loomis Parkway
Ravenna, Ohio 44266
</TABLE>
<PAGE> 231
SCHEDULE II
PERMITTED ENCUMBRANCES TO THE SELF-STORAGE FACILITIES
The Willoughby, Perry, Canton, Catawba, East Canton, Louisville,
Ravenna, East Liverpool, Dayton, and Endicott Properties are all encumbered by
mortgages which secure a $10,300,000 loan from The Provident Bank ("Provident")
to the Ohio LLC. The loan is at a variable rate of interest equal to 2.25% over
the average yield on United States Treasury Securities adjusted to a constant
maturity of three years. The rate for the initial three-years was fixed at 7.72%
and will adjust on June 1, 2001 for the final two years with maturity to occur
on June 1, 2003. The loan is amortized over 20 years. Current monthly payments
are $84,367 per month. The loan is personally guaranteed by Richard M. Osborne.
The Catawba Property is further encumbered by a mortgage securing a
$265,087 construction and development loan from Provident to the Ohio LLC. The
loan has an initial interest rate equal to the prime rate, which as of July 1,
1999 converts to a rate equal to 2.25% over the average yield on U.S. Treasury
Securities adjusted to a constant maturity of two years. The interest rate will
be re-adjusted as of June 1, 2001 for determining the payments during the last
two years of the loan, which matures June 2003. Payments are interest only
through May 31, 1999 and thereafter convert to the variable rate discussed
above, using a 23-year amortization period. This note is personally guaranteed
by Richard M. Osborne.
The Avon Property is encumbered by a mortgage securing a $554,704
construction and development loan from Provident. The terms of this loan are
identical to those for the $262,977 loan encumbering the Catawba facility,
except that the variable rate is 2.25% over the average yield on U.S. Treasury
Securities adjusted to a constant maturity of three years. The Avon Property is
also encumbered by a $940,000 loan, maturing October 31, 2002, from Provident,
guaranteed by Richard M. Osborne. The loan has an interest rate of 8.02%.
Current monthly payments are $7,268 per month, with a 25- year amortization
period.
The Mentor Property is encumbered by a mortgage securing a $1,200,000
loan from First Merit Bank, N.A. The interest rate on the loan is fixed at 8%
and the loan matures March 30, 2003. The loan provides for 59 monthly payments
of $11,579.09 each and a final balloon payment of $960,871.21, equal to the
remaining principal balance and accrued interest due at maturity. This note
is guaranteed by Richard M. Osborne
The Southold Property is encumbered by a mortgage with Provident in the
amount of $2,500,000, which matures June 2003. Current monthly payments are
$16,176. The initial interest rate is prime which converts on June 30, 2000 to
2.50% over the average yield on U.S. Treasury securities adjusted to a constant
maturity of three years. The loan provides for interest only payments through
June 30, 2000 and thereafter converts to the variable rate discussed above,
using a 20-year amortization. This note is guaranteed by Richard M. Osborne.
The East Liverpool Property is encumbered by a $250,000 second mortgage
with Rt. 11 Storage Park, Inc. Current monthly payments are $2,000. This note is
guaranteed by Richard M. Osborne.
<PAGE> 232
The Cleveland Property is encumbered by a mortgage with Shore Bank in
the amount of $1,271,237, maturing on May 20, 2002. Current monthly payments are
$9,695 with an interest rate of 6.8538%, using a 20-year amortization. This note
is guaranteed by Richard M. Osborne.
The Riverhead Property is encumbered by a mortgage with James R. Stark
and Patricia Stark in the amount of $600,000, maturing May 2004. Current monthly
payments are $5,027 with an interest rate of 8.5%, using a 20-year amortization.
This note is personally guaranteed by Thomas J. Smith. The Riverhead Property is
encumbered by a second mortgage with Provident in the amount of $350,000,
maturing in May 2003. Current monthly payments are $2,260. Interest is at prime
rate until May 31, 2000 when it converts to 2.50% over the average yield on U.S.
Treasury Securities adjusted to a constant maturity of three years. The loan
provides for interest only payments through May 31, 2000, and thereafter
converts to the variable rate discussed above, using a 20-year amortization.
This note is guaranteed by Richard M. Osborne.
<PAGE> 233
SCHEDULE III
PERMITTED ENCUMBRANCES TO THE MERIDIAN ASSETS
1. Meridian Point Realty Trust '83 Indemnity Trust Agreement, as of September
2, 1998, by and between Meridian and U.S. Trust Company, N.A.
<PAGE> 234
Annex D
FORM OF
AGREEMENT OF LIMITED PARTNERSHIP
OF
LSS I LIMITED PARTNERSHIP
Dated: , 1999
<PAGE> 235
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINED TERMS; EXHIBITS.................................................................1
Section 1.1 Defined Terms.............................................................1
Section 1.2 Exhibits, Schedules, Etc..................................................6
ARTICLE II FORMATION; ADMISSION OF LIMITED PARTNERS; NAME;
PLACE OF BUSINESS AND REGISTERED AGENT..................................................6
Section 2.1 Certificate of Limited Partnership; Other Filings.........................6
Section 2.2 Limited Partners; Additional Limited Partners.............................7
Section 2.3 Name; Principal Place of Business.........................................7
Section 2.4 Registered Agent and Registered Office....................................7
ARTICLE III BUSINESS AND TERM OF PARTNERSHIP........................................................7
Section 3.1 Business..................................................................7
Section 3.2 Term......................................................................8
ARTICLE IV CAPITAL CONTRIBUTIONS...................................................................8
Section 4.1 General Partner...........................................................8
Section 4.2 Limited Partners..........................................................8
Section 4.3 Additional Capital Contributions and Issuances of
Additional Partnership Interests..........................................8
Section 4.4 Additional Funding.......................................................10
Section 4.5 Equity Plan..............................................................10
Section 4.6 Dividend Reinvestment Plan...............................................10
Section 4.7 Interest.................................................................11
Section 4.8 Return of Capital........................................................11
ARTICLE V PROFITS, LOSSES AND ACCOUNTING.........................................................11
Section 5.1 Profits .................................................................11
Section 5.2 Accounting...............................................................11
Section 5.3 Partners' Accounts.......................................................12
Section 5.4 Section 754 Elections....................................................13
ARTICLE VI POWERS, DUTIES, LIABILITIES, COMPENSATION AND VOTING
OF GENERAL PARTNER.....................................................................13
Section 6.1 Powers of General Partner................................................13
Section 6.2 Delegation of Authority..................................................15
Section 6.3 Duties of General Partner................................................15
Section 6.4 Liabilities of General Partner; Indemnification..........................16
Section 6.5 Compensation of General Partner; Reimbursement...........................18
Section 6.6 Reliance on Act of General Partner.......................................18
</TABLE>
i
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<TABLE>
<S> <C> <C>
Section 6.7 Outside Services; Dealings with Affiliates;
Outside Activities.......................................................19
Section 6.8 General Partner Participation............................................19
ARTICLE VII RIGHTS, PROHIBITIONS AND REPRESENTATIONS WITH
RESPECT TO LIMITED PARTNERS............................................................20
Section 7.1 Rights of Limited Partners...............................................20
Section 7.2 Prohibitions with Respect to the Limited Partners........................20
Section 7.3 Ownership by Limited Partner of Corporate General
Partner or Affiliate.....................................................20
Section 7.4 Grant of Redemption Rights...............................................21
Section 7.5 Warranties and Representations of the Limited Partners...................21
Section 7.6 Indemnification by Limited Partners......................................22
Section 7.7 Limited Partner Guarantees...............................................22
Section 7.8 No Sale of Property......................................................22
ARTICLE VIII DISTRIBUTIONS AND PAYMENTS TO PARTNERS.................................................23
Section 8.1 Distributions of Cash Flow...............................................23
Section 8.2 REIT Distribution Requirements...........................................23
Section 8.3 No Right to Distributions in Kind........................................23
Section 8.4 Disposition Proceeds.....................................................23
Section 8.5 Withdrawals..............................................................23
Section 8.6 Amounts Withheld.........................................................23
ARTICLE IX TRANSFERS OF INTERESTS.................................................................24
Section 9.1 General Partner..........................................................24
Section 9.2 Admission of a Substitute or Additional General Partner..................24
Section 9.3 Effect of Bankruptcy, Withdrawal, Death or Dissolution
of a General Partner.....................................................24
Section 9.4 Removal of a General Partner.............................................25
Section 9.5 Restrictions on Transfer of Limited Partnership Interests................25
Section 9.6 Admission of Substitute Limited Partner..................................26
Section 9.7 Rights of Assignees of Partnership Interests.............................27
Section 9.8 Effect of Bankruptcy, Death, Incompetence or
Termination of a Limited Partner.........................................27
Section 9.9 Joint Ownership of Interests.............................................27
Section 9.10 Transferees..............................................................28
Section 9.11 Absolute Restriction.....................................................28
ARTICLE X TERMINATION OF THE PARTNERSHIP.........................................................28
Section 10.1 Termination..............................................................28
Section 10.2 Payment of Debts.........................................................29
Section 10.3 Debts to Partners........................................................29
Section 10.4 Remaining Distribution...................................................29
Section 10.5 Reserve..................................................................29
Section 10.6 Final Accounting.........................................................29
</TABLE>
ii
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<TABLE>
<S> <C> <C>
ARTICLE XI AMENDMENTS.............................................................................29
Section 11.1 Authority to Amend.......................................................29
Section 11.2 Notice of Amendments.....................................................30
ARTICLE XII POWER OF ATTORNEY......................................................................30
Section 12.1 Power....................................................................30
Section 12.2 Survival of Power........................................................31
ARTICLE XIII CONSENTS, APPROVALS, VOTING AND MEETINGS...............................................31
Section 13.1 Method of Giving Consent or Approval.....................................31
Section 13.2 Meetings of Limited Partners.............................................32
Section 13.3 Opinion..................................................................32
Section 13.4 Submissions to Partners..................................................32
ARTICLE XIV MISCELLANEOUS..........................................................................32
Section 14.1 Governing Law............................................................32
Section 14.2 Agreement for Further Execution..........................................32
Section 14.3 Entire Agreement.........................................................32
Section 14.4 Severability.............................................................32
Section 14.5 Notices..................................................................33
Section 14.6 Mediation/Arbitration of Disputes........................................33
Section 14.7 Titles and Captions......................................................33
Section 14.8 Counterparts.............................................................33
Section 14.9 Pronouns.................................................................33
Section 14.10 Survival of Rights.......................................................34
Section 14.11 Personal Liability.......................................................34
</TABLE>
iii
<PAGE> 238
AGREEMENT OF LIMITED PARTNERSHIP
OF
LSS I LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP made as of the day of ,
1999, by and among LIBERTY SELF-STOR, INC., an Ohio corporation, having an
address at Suite 100, 8500 Station Street, Mentor, Ohio 44060, the general
partner ("General Partner"), and the limited partners listed on Exhibit A
attached hereto ("Limited Partners"), is intended to evidence the mutual
agreement of the General Partner and the Limited Partners to form a limited
partnership pursuant to Title 6, Chapter 17 of the Delaware Code (the "Act")
for the purposes and upon the terms and conditions hereinafter set forth.
ARTICLE I
DEFINED TERMS; EXHIBITS
Section 1.1 DEFINED TERMS. Whenever used in this Agreement, the
following terms shall have the meanings respectively assigned to them in this
Article I, unless otherwise expressly provided herein or unless the context
otherwise requires:
"Additional Funds" has the meaning set forth in Section 4.4 hereof.
"Additional Limited Partner" shall mean a Person admitted to this
Partnership as a Limited Partner pursuant to and in accordance with
Section 2.2(b) of this Agreement.
"Additional Securities" shall mean any additional REIT Shares (other
than REIT Shares issued in connection with an exchange pursuant to
Section 7.4 and Exhibit D hereof) or rights, options, warrants or
convertible or exchangeable securities containing the right to
subscribe for or purchase REIT Shares, as set forth in Section
4.3(a)(ii).
"Affiliate" of another Person shall mean (a) any Person directly or
indirectly owning, controlling or holding with power to vote ten
percent (10%) or more of the outstanding voting securities of such
other Person; (b) any Person ten percent (10%) or more of whose
outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such other Person; (c) any
Person directly or indirectly controlling, controlled by, or under
common control with, such other Person; (d) any officer, director,
member or partner of such other Person; and (e) if such other Person is
an officer, director, member or partner in a company, the company for
which such Person acts in any such capacity.
"Agreed Value" shall mean the fair market value of Contributed Property
as agreed to by the Contributing Partner and the Partnership, using any
reasonable method as they may adopt and the fair market value of the
Partnership Properties after being adjusted in accordance with Part B
of Exhibit B.
1
<PAGE> 239
"Agreement" shall mean this Agreement of Limited Partnership of LSS I
Limited Partnership, as amended, modified, supplemented or restated
from time to time, as the context requires.
"Articles of Incorporation" shall mean that certain Articles of
Incorporation, dated ____________, 1999, of the General Partner, as
amended, modified, supplemented or restated from time to time, as the
context requires.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, as
amended, 11 U.S.C. sec. 101 et seq., and as hereafter amended from time
to time.
"Business Day" shall mean any day when the New York Stock Exchange is
open for trading.
"Capital Account" shall mean, as to any Partner, the account
established and maintained for such Partner pursuant to Section 5.3
hereof.
"Capital Contribution" shall mean the amount in cash or the Agreed
Value of Contributed Property contributed by each Partner (or his
original predecessor in interest) to the capital of the Partnership for
his interest in the Partnership.
"Cash Flow" shall mean the excess of cash revenues actually received by
the Partnership in respect of Partnership operations for any period,
less Operating Expenses for such period. Cash Flow shall not include
Disposition Proceeds.
"Class A Limited Partners" shall mean those persons listed under the
heading "Class A Limited Partners" on the signature pages hereto.
"Class B Limited Partners" shall mean those persons listed under the
heading "Class B Limited Partners" on the signature pages hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular
provision of the Code shall mean that provision in the Code at the date
hereof and any succeeding provision of the Code.
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Computation Date" shall mean the date on which an Redemption Exercise
Notice is delivered to the General Partner.
"Contributed Entities" shall mean the various limited partnerships
and/or limited liability companies that own the Initial Properties
prior to the formation transaction.
"Contributed Property" shall mean a Partner's interest in property or
other consideration (excluding services and cash) contributed to the
Partnership by such Partner.
2
<PAGE> 240
"Disposition Proceeds" shall mean the net cash proceeds from all sales
and other dispositions (other than in the ordinary course of business)
and all refinancings of Property, less any portion thereof used to
establish reserves or reinvested by the General Partner, all as
determined by the General Partners(s). Disposition Proceeds shall
include all principal and interest payments with respect to any note or
other obligation received by the Partnership in connection with sales
and other dispositions (other than in the ordinary course of business)
of Property.
"Equity Plan" shall mean the General Partner's 1999 Stock Option Plan,
as the same may be amended from time to time.
"Event of Bankruptcy" shall mean as to any Person the filing of a
petition for relief as to such Person as debtor or bankrupt under the
Bankruptcy Code or similar provision of law of any jurisdiction (except
if such petition is contested by such Person and has been dismissed
within ninety (90) days of the filing thereof); insolvency of such
Person as finally determined by a court of competent jurisdiction;
filing by such Person of a petition or application to accomplish the
same or for the appointment of a receiver or a trustee for such Person
or a substantial part of such Person's assets; commencement of any
proceedings relating to such Person as a debtor under any other
reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or
hereinafter in effect, either by such Person or by another; provided,
however, that if such proceeding is commenced by another, such Person
indicates his approval of such proceeding, consents thereto or
acquiesces therein, or such proceeding is contested by such Person and
has not been finally dismissed within ninety (90) days. The term "Event
of Bankruptcy" as defined in this Agreement and as used herein, is
intended and shall be deemed to supersede and replace the events of
withdrawal described in Sections 17-402(a)(4) and (5) of the Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"General Partner" shall mean Liberty Self-Stor, Inc. and any Person who
becomes a substitute or additional General Partner as provided herein,
and any of their successors as General Partner.
"General Partnership Interest" shall mean the ownership interest of a
General Partner in the Partnership.
"Indemnitee" shall mean (i) any Person made a party to a proceeding by
reason of its status as (A) the General Partner, or (B) a trustee,
director or officer of the General Partner, and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the
General Partner may designate from time to time, in its sole and
absolute discretion.
"Initial Properties" shall mean those Properties listed on Exhibit C
hereto.
"IRS" shall mean the Internal Revenue Service.
3
<PAGE> 241
"Limited Partners" shall mean the Class A Limited Partners and the
Class B Limited Partners in their respective capacities as limited
partners of the Partnership, their permitted successors or assigns who
have been admitted to the Partnership as limited partners of the
Partnership, or any Person who, at the time of reference thereto, is a
limited partner of the Partnership.
"Limited Partnership Interest" shall mean the ownership interest of a
Limited Partner in the Partnership at any particular time, including
the right of such Limited Partner to any and all benefits to which such
Limited Partner may be entitled as provided in this Agreement and in
the Act, together with the obligations of such Limited Partner to
comply with all the provisions of this Agreement and of the Act.
"Majority-In-Interest of the Limited Partners" shall mean Limited
Partner(s) who hold in the aggregate more than fifty percent (50%) of
the Percentage Interests then allocable to and held by the Limited
Partners, as a class.
"Operating Expenses" shall mean (i) all administrative and operating
costs and expenses incurred by the Partnership, (ii) those
administrative costs and expenses of the General Partner, including any
salaries or other payments to trustees, officers or employees of the
General Partner, and any accounting and legal expense of the General
Partner, which expenses the Partners have agreed, are expenses of the
Partnership and not the General Partner, and (iii) to the extent not
included in clause (ii) above, REIT Expenses; provided, however, that
Operating Expenses shall not include any administrative costs and
expenses incurred by the General Partner that are attributable to
properties or partnership interests in a Subsidiary that are owned by
the General Partner directly.
"Partner" shall mean the General Partner or any Limited Partner.
"Partnership" shall mean LSS I Limited Partnership, a Delaware limited
partnership.
"Partnership Interest" shall mean an ownership interest in the
Partnership representing a Capital Contribution by either a Limited
Partner or the General Partner and includes any and all benefits to
which the holder of such an ownership interest may be entitled as
provided in this Agreement or the Act, together with all obligations of
such Person to comply with the terms and provisions of this Agreement
and the Act.
"Partnership Record Date" shall mean the record date established by the
General Partner for the distribution of Cash Flow pursuant to Sections
8.1 and 8.2 hereof, which record date shall be the same as the record
date established by the General Partner for a distribution to its
shareholders of some or all of its portion of such distribution.
"Partnership Unit" shall mean a unit of interest in the Partnership
issued under this Agreement. The initial issuance of Partnership Units
to each Partner is as set forth on Exhibit A hereto.
4
<PAGE> 242
"Percentage Interest" shall mean the percentage ownership interest in
the Partnership of each Partner, as determined by dividing the
Partnership Units owned by a Partner by the total number of Partnership
Units then outstanding.
"Person" shall mean any individual, partnership, corporation, limited
liability company, trust or other entity.
"Profits" and "Losses" shall have the meaning set forth in Section
5.2(c) hereof.
"Property" shall mean any self-storage property or other investment in
which the Partnership holds an ownership interest.
"REIT" shall mean a real estate investment trust under Sections 856
through 860, inclusive, of the Code.
"REIT Expenses" means (i) costs and expenses relating to the formation
and continuity of existence of the General Partner and any Subsidiaries
thereof (which Subsidiaries shall, for purposes hereof, be included
within the definition of General Partner), including taxes, fees and
assessments associated therewith, any and all costs, expenses or fees
payable to any trustee, director, officer, or employee of the General
Partner, (ii) costs and expenses relating to a public offering and
registration of securities or private offering of securities by the
General Partner and all statements, reports, fees and expenses
incidental thereto, including underwriting discounts and selling
commissions applicable to any such offering of securities, (iii) costs
and expenses associated with the preparation and filing of any periodic
reports by the General Partner under federal, state or local laws or
regulations, including filings with the Commission, (iv) costs and
expenses associated with compliance by the General Partner with laws,
rules and regulations promulgated by any regulatory body, including the
Commission, and (v) all other operating or administrative costs of the
General Partner, including, without limitation, insurance premiums, and
legal, accounting and trustees fees, incurred in the ordinary course of
its business on behalf of or in connection with the Partnership.
"REIT Share" shall mean one share of common stock, $0.001 par value, of
the General Partner.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting
equity securities, or (ii) the outstanding equity interests, are owned,
directly or indirectly, by such Person.
"Substitute General Partner" has the meaning set forth in Section 9.2.
"Substitute Limited Partner" shall mean any Person admitted to the
Partnership as a Limited Partner pursuant to Section 9.6 hereof.
"Transfer" has the meaning set forth in Section 9.5(a) hereof.
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"Value" shall mean, with respect to a REIT Share, the average of the
daily market price for the ten (10) consecutive trading days
immediately preceding the Valuation Date. The market price for each
such trading day shall be: (i) if the REIT Shares are listed or
admitted to trading on any national securities exchange or the NASDAQ
National Market System, the closing price, regular way, on such day, or
if no such sale takes place on such day, the average of the closing bid
and asked prices on such day; (ii) if the REIT Shares are not listed or
admitted to trading on any national securities exchange or the NASDAQ
National Market System, the last reported sale price on such day or, if
no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reliable quotation source
designated by the General Partner; or (iii) if the REIT Shares are not
listed or admitted to trading on any national securities exchange or
the NASDAQ National Market System and no such last reported sale price
or closing bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or if
there shall be no bid and asked prices on such day, the average of the
high bid and low asked prices, as so reported, on the most recent day
(not more than ten (10) days prior to the date in question) for which
prices have been so reported; provided, however, that if there are no
bid and asked prices reported during the ten (10) days prior to the
date in question, the Value of the REIT Shares shall be determined by
the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event the REIT Shares includes rights
that a holder of REIT Shares would be entitled to receive, and the
General Partner acting in good faith determines that the value of such
rights is not reflected in the Value of the REIT Shares determined as
aforesaid, then the Value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations
and other information as it considers, in its reasonable judgment,
appropriate.
Section 1.2 EXHIBITS, SCHEDULES, ETC. References to "Exhibit" or to a
"Schedule" are, unless otherwise specified, to one of the Exhibits or Schedules
attached to this Agreement, and references to an "Article" or a "Section" are,
unless otherwise specified, to one of the Articles or Sections of this
Agreement. Each Exhibit and Schedule attached hereto and referred to herein is
hereby incorporated herein by reference.
ARTICLE II
FORMATION; ADMISSION OF LIMITED PARTNERS;
NAME; PLACE OF BUSINESS AND REGISTERED AGENT
Section 2.1 CERTIFICATE OF LIMITED PARTNERSHIP; OTHER FILINGS. The
General Partner shall prepare (or caused to be prepared), execute, acknowledge,
record and file at the expense of the Partnership, a Certificate of Limited
Partnership and all requisite fictitious name statements and notices in such
places and jurisdictions as may be required by the Act or necessary to cause the
Partnership to be treated as a limited partnership under, and otherwise to
comply with, the laws of each state or other jurisdiction in which the
Partnership conducts business.
Section 2.2 LIMITED PARTNERS; ADDITIONAL LIMITED PARTNERS. (a) The
Limited Partners shall be those Persons identified as Limited Partners on
Exhibit A attached hereto, as amended from time
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to time pursuant to the terms of this Agreement, and such Persons are hereby
admitted to the Partnership as Limited Partners.
(b) The General Partner shall in timely fashion amend this
Agreement and, if required by the Act, the Certificate of Limited Partnership to
reflect the admission pursuant to the terms of this Agreement of a Person as a
Limited Partner.
Section 2.3 NAME; PRINCIPAL PLACE OF BUSINESS. The name of the
Partnership shall be LSS I Limited Partnership. The principal place of business
of the Partnership shall be at 8500 Station Street, Mentor, Ohio. The General
Partner may at any time change the location of such office, provided the General
Partner gives notice to the Partners of any such change.
Section 2.4. REGISTERED AGENT AND REGISTERED OFFICE. The registered
agent of the Partnership shall be Corporation Service Company, a Delaware
corporation, located at 1013 Centre Road, Wilmington, New Castle County,
Delaware 19805-1265, or such other Person as the General Partner may select in
its sole discretion. The registered office of the Partnership shall be
Corporation Service Company, a Delaware corporation, located at 1013 Centre
Road, Wilmington, New Castle County, Delaware 19805-1265, or such other location
as the General Partner may select in its sole and absolute discretion.
ARTICLE III
BUSINESS AND TERM OF PARTNERSHIP
Section 3.1 BUSINESS. The purpose and nature of the business of the
Partnership is to conduct any business that may lawfully be conducted by a
limited partnership organized pursuant to the Act, provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT, unless the Board of
Trustees of the General Partner determines to cease to maintain the
qualification of the General Partner as a REIT. To consummate the foregoing and
to carry out the obligations of the Partnership in connection therewith or
incidental thereto, the General Partner shall have the authority, in accordance
with and subject to the limitations set forth elsewhere in this Agreement, to
make, enter into, perform and carry out any arrangements, contracts or
agreements of every kind for any lawful purpose, without limit as to amount or
otherwise, with any corporation, association, partnership, limited liability
company, firm, trustee, syndicate, individual or any political or governmental
division, subdivision or agency, domestic or foreign, and generally to make and
perform agreements and contracts of every kind and description and to do any and
all things necessary or incidental to the foregoing for the protection and
enhancement of the assets of the Partnership.
Section 3.2 TERM. The Partnership as herein constituted shall continue
for perpetuity, unless earlier dissolved or terminated pursuant to law or the
provisions of this Agreement.
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ARTICLE IV
CAPITAL CONTRIBUTIONS
Section 4.1 GENERAL PARTNER. The General Partner has contributed cash
and certain other assets to the capital of the Partnership in the amount set
forth opposite the name of the General Partner on Exhibit A attached hereto.
Section 4.2 LIMITED PARTNERS. The Limited Partners have contributed
their respective ownership interests in the Contributed Entities and cash and
certain other assets to the capital of the Partnership. The Agreed Values of the
Limited Partners' proportionate ownership interests in the Contributed Entities
are set forth on Exhibit A attached hereto.
Section 4.3 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF
ADDITIONAL PARTNERSHIP INTERESTS. Except as provided in this Section 4.3 or in
Section 4.4, the Partners shall have no right or obligation to make any
additional Capital Contributions or loans to the Partnership. The General
Partner may contribute additional capital to the Partnership, from time to time,
and receive additional Partnership Interests in respect thereof, in the manner
contemplated in this Section 4.3.
(a) Issuances of Additional Partnership Interests.
(i) General. The General Partner is hereby authorized to
cause the Partnership to issue such additional Partnership
Interests in the form of Partnership Units for any
Partnership purpose at any time or from time to time, to
the Partners or to other Persons for such consideration and
on such terms and conditions as shall be established by the
General Partner in its sole and absolute discretion, all
without the approval of any of the Limited Partners. Any
additional Partnership Interest issued thereby may be
issued in one or more classes, or one or more series of any
of such classes, with such designations, preferences and
relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties
senior to Limited Partnership Interests, all as shall be
determined by the General Partner in its sole and absolute
discretion and without the approval of any Limited Partner,
subject to Delaware law, including, without limitation, (i)
the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of
Partnership Interests; (ii) the right of each such class or
series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each class or series
of Partnership Interests upon dissolution and liquidation
of the Partnership; provided, however, that no additional
Partnership Interests shall be issued to the General
Partner unless:
(1) The additional Partnership Interests are issued in
connection with an issuance of Additional Securities
as permitted under clause (ii) below, or
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(2) the additional Partnership Interests are issued to
all Partners in proportion to their respective
Percentage Interests.
Without limiting the foregoing, the General Partner is
expressly authorized to cause the Partnership to issue
Partnership Interests for less than fair market value, so long
as the General Partner concludes in good faith that such
issuance is in the best interests of the General Partner and
the Partnership.
(ii) Upon Issuance of Additional Securities. The General
Partner shall not issue any additional REIT Shares (other
than REIT Shares issued in connection with an exchange
pursuant to Section 7.4 hereof) or rights, options,
warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT
Shares (collectively, "Additional Securities") other than
to all holders of REIT Shares, unless (A) the General
Partner shall cause the Partnership to issue to the
General Partner Partnership Interests or rights, options,
warrants or convertible or exchangeable securities of the
Partnership having designations, preferences and other
rights, all such that the economic interests are
substantially similar to those of the Additional
Securities, and (B) the General Partner contributes the
proceeds from the issuance of such Additional Securities
and from any exercise of rights contained in such
Additional Securities to the Partnership. Without limiting
the foregoing, the General Partner is expressly authorized
to issue Additional Securities for less than fair market
value, and to cause the Partnership to issue to the
General Partner corresponding Partnership Interests, so
long as (x) the General Partner concludes in good faith
that such issuance is in the best interests of the General
Partner and the Partnership, and (y) the General Partner
contributes all proceeds from such issuance to the
Partnership. For example, in the event the General Partner
issues REIT Shares for a cash purchase price and
contributes all of the proceeds of such issuance to the
Partnership as required hereunder, the General Partner
shall be issued a number of additional Partnership Units
equal to the product of (A) the number of such REIT Shares
issued by the General Partner, the proceeds of which were
so contributed, multiplied by (B) a fraction, the
numerator of which is 100%, and the denominator of which
is the Exchange Factor (as defined in Exhibit D hereto) in
effect on the date of such contribution.
(b) Certain Deemed Contributions of Proceeds of Issuance of
REIT Shares. In connection with any and all issuances of REIT Shares, the
General Partner shall contribute all of the proceeds raised in connection with
such issuance to the Partnership as Capital Contributions, provided that if the
proceeds actually received and contributed by the General Partner are less than
the gross proceeds of such issuance as a result of any underwriter's discount or
other expenses paid or incurred in connection with such issuance, then the
General Partner shall be deemed to have made Capital Contributions to the
Partnership in the aggregate amount of the gross proceeds of such issuance and
the Partnership shall be deemed simultaneously to have paid such offering
expenses in connection with the required issuance of additional Partnership
Units to the General Partner for such Capital Contributions pursuant to Section
4.3(a) hereof.
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Section 4.4 ADDITIONAL FUNDING. If the General Partner determines that
it is in the best interests of the Partnership to provide for additional
Partnership funds ("Additional Funds") for any Partnership purpose, the General
Partner may (i) cause the Partnership to obtain such funds from outside
borrowings, or (ii) elect to borrow such funds itself and lend these funds to
the Partnership on the same terms and conditions as applicable to its
borrowings.
Section 4.5 EQUITY PLAN. If at any time or from time to time stock
options or other equity compensation granted in connection with the General
Partner's Equity Plan or other compensation programs are exercised in accordance
with the terms of such agreements:
(a) the General Partner shall, as soon as practicable after
such exercise, contribute to the capital of the Partnership an amount equal to
the exercise price paid to the General Partner by such exercising party in
connection with the exercise of the stock option;
(b) the Partnership shall issue and the General Partner shall
receive the number of Partnership Units corresponding to the number of REIT
Shares delivered by the General Partner to such exercising party multiplied by a
fraction the numerator of which is 100% and the denominator of which is the
Exchange Factor (as defined in Exhibit D hereto) in effect on the date of such
contribution;
(c) after the issuance of such Partnership Units to the General
Partner, the Percentage Interest of each Limited Partner shall be adjusted such
that the Percentage Interest of the Limited Partner shall be equal to a
fraction, the numerator of which is the number of Partnership Units owned by
such Limited Partner and the denominator of which is the total number of issued
and outstanding Partnership Units on such date. The General Partner shall
promptly give each Limited Partner written notice of its Percentage Interest, as
adjusted; and
(d) after the issuance of such Partnership Units to the General
Partner, the Percentage Interest of the General Partner shall be adjusted such
that it equals 100% minus the sum of the Percentage Interests of all Limited
Partners immediately after being adjusted pursuant to paragraph (c) of this
Section 4.5.
Section 4.6 DIVIDEND REINVESTMENT PLAN. All amounts received by the
General Partner in respect of its dividend reinvestment plan, if any, shall be
contributed by the General Partner to the Partnership in exchange for additional
Partnership Units as follows:
(a) the Partnership shall issue and the General Partner shall
receive the number of Partnership Units corresponding to the number of REIT
Shares delivered by the General Partner to such exercising party multiplied by a
fraction the numerator of which is 100% and the denominator of which is the
Exchange Factor (as defined in Exhibit D hereto) in effect on the date of such
contribution;
(b) after the issuance of such Partnership Units to the General
Partner, the Percentage Interest of each Limited Partner shall be adjusted such
that the Percentage Interest of the Limited Partner shall be equal to a
fraction, the numerator of which is the number of Partnership
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Units owned by such Limited Partner and the denominator of which is the total
number of issued and outstanding Partnership Units on such date. The General
Partner shall promptly give each Limited Partner written notice of its
Percentage Interest, as adjusted; and
(c) after the issuance of such Partnership Units to the General
Partner, the Percentage Interest of the General Partner shall be adjusted such
that it equals 100% minus the sum of the Percentage Interests of all Limited
Partners immediately after being adjusted pursuant to paragraph (b) of this
Section 4.6.
Section 4.7 INTEREST. No interest shall be paid on the Capital
Contribution or Capital Account of any Partner.
Section 4.8 RETURN OF CAPITAL. Except as expressly provided in this
Agreement, no Partner shall be entitled to demand or receive the return of his
Capital Contribution.
ARTICLE V
PROFITS, LOSSES AND ACCOUNTING
Section 5.1 PROFITS. After giving effect to the special allocations
set forth in Part A of Exhibit B hereof, Profits and Losses shall be allocated
among the Partners in accordance with their respective Percentage Interests.
Section 5.2 ACCOUNTING. (a) The books of the Partnership shall be kept
on the accrual basis and in accordance with generally accepted accounting
principles consistently applied.
(b) The fiscal year of the Partnership shall be the calendar
year.
(c) The terms "Profits" and "Losses," as used herein, shall
mean all items of income, gain, expense or loss as determined utilizing federal
income tax accounting principles and shall also include each Partner's share of
income described in Section 705(a)(1)(B) of the Code, any expenditures described
in Section 705(a)(2)(B) of the Code, any expenditures described in Section
709(a) of the Code which are not deducted or amortized in accordance with
Section 709(b) of the Code, losses not deductible pursuant to Sections 267(a)
and 707(b) of the Code and adjustments made pursuant to Exhibit B attached
hereto.
(d) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the IRS, and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Operating Expenses of the
Partnership. In the event the General Partner receives notice of a final
Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner
shall either (i) file a court petition for judicial review of such final
adjustment within the period provided under Section 6226(a) of the Code, a copy
of which petition shall be mailed to each Limited Partner on the
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date such petition is filed, or (ii) mail a written notice to each Limited
Partner, within such period, that describes the General Partner's reasons for
determining not to file such a petition.
(e) Except as specifically provided herein, all elections
required or permitted to be made by the Partnership under the Code shall be made
by the General Partner in its sole discretion.
(f) Any Partner shall have the right to a private audit of the
books and records of the Partnership, provided such audit is made at the expense
of the Partner desiring it, and it is made during normal business hours.
Section 5.3 PARTNERS' ACCOUNTS. (a) There shall be maintained a Capital
Account for each Partner in accordance with this Section 5.3 and the principles
set forth in Exhibit B attached hereto and made a part hereof. The amount of
cash and the net fair market value of property contributed to the Partnership by
each Partner, net of liabilities assumed by the Partnership, shall be credited
to its Capital Account, and from time to time, but not less often than annually,
the share of each Partner in Profits, Losses and fair market value of
distributions shall be credited or charged to its Capital Account. The
determination of Partners' Capital Accounts, and any adjustments thereto, shall
be made consistent with tax accounting and other principles set forth in Section
704(b) of the Code and applicable regulations thereunder and Exhibit B attached
hereto.
(b) Except as otherwise specifically provided herein or in a
guarantee of a Partnership liability, signed by a Limited Partner, no Limited
Partner shall be required to make any further contribution to the capital of the
Partnership to restore a loss, to discharge any liability of the Partnership or
for any other purpose, nor shall any Limited Partner personally be liable for
any liabilities of the Partnership or of the General Partner except as provided
by law or this Agreement. All Limited Partners hereby waive their right of
contribution which they may have against other Partners in respect of any
payments made by them under any guarantee of Partnership debt.
(c) Immediately following the transfer of any Partnership
Interest, the Capital Account of the transferee Partner shall be equal to the
Capital Account of the transferor Partner attributable to the transferred
interest, and such Capital Account shall not be adjusted to reflect any basis
adjustment under Section 743 of the Code.
(d) For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
purposes, taking into account any adjustments required pursuant to Section
704(b) of the Code and the applicable regulations thereunder as more fully
described in Exhibit B attached hereto.
Section 5.4 SECTION 754 ELECTIONS. The General Partner shall elect,
pursuant to Section 754 of the Code, to adjust the basis of the Partnership's
assets for all transfers of Partnership interests if such election would benefit
any Partner or the Partnership.
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ARTICLE VI
POWERS, DUTIES, LIABILITIES, COMPENSATION
AND VOTING OF GENERAL PARTNER
Section 6.1 POWERS OF GENERAL PARTNER. Notwithstanding any provision of
this Agreement to the contrary, the General Partner's discretion and authority
are subject to the limitations imposed by law, by the General Partner's Articles
of Incorporation and By-Laws. Subject to the foregoing and to other limitations
imposed by this Agreement, the General Partner shall have full, complete and
exclusive discretion to manage and control the business and affairs of the
Partnership and make all decisions affecting the business and assets of the
Partnership. Without limiting the generality of the foregoing (but subject to
the restrictions specifically contained in this Agreement), the General Partner
shall have the power and authority to take the following actions on behalf of
the Partnership:
(a) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner determines
are necessary or appropriate or in the best interests of conducting the business
of the Partnership;
(b) to construct buildings and make other improvements
(including renovations) on or to the properties owned or leased by the
Partnership;
(c) to borrow money for the Partnership, issue evidences of
indebtedness in connection therewith, refinance, guarantee, increase the amount
of, modify, amend or change the terms of, or extend the time for the payment of,
any indebtedness or obligation of or to the Partnership, and secure such
indebtedness by mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(d) to pay, either directly or by reimbursement, for all
Operating Expenses to third parties or to the General Partner (as set forth in
this Agreement);
(e) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the termination
date of the Partnership and whether or not any portion of the Partnership's
assets so leased are to be occupied by the lessee, or, in turn, subleased in
whole or in part to others, for such consideration and on such terms as the
General Partner may determine;
(f) to prosecute, defend, arbitrate, or compromise any and all
claims or liabilities in favor of or against the Partnership, on such terms and
in such manner as the General Partner may reasonably determine, and similarly to
prosecute, settle or defend litigation with respect to the Partners, the
Partnership, or the Partnership's assets; provided, however, that the General
Partner may not, without the consent of all of the Partners, confess a judgment
against the Partnership;
(g) to file applications, communicate, and otherwise deal with
any and all governmental agencies having jurisdiction over, or in any way
affecting, the Partnership's assets or any other aspect of the Partnership
business;
(h) to make or revoke any election permitted or required of the
Partnership by any taxing authority;
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(i) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the protection of the
Partnership, for the conservation of Partnership assets, or for any other
purpose convenient or beneficial to the Partnership, in such amounts and such
types as the General Partner shall determine from time to time;
(j) to determine whether or not to apply any insurance proceeds
for any Property to the restoration of such Property or to distribute the same;
(k) to retain providers of services of any kind or nature in
connection with the Partnership business and to pay therefor such reasonable
remuneration as the General Partner may deem proper;
(l) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority conferred
upon the General Partner, including, without limitation, management agreements,
franchise agreements, agreements with federal, state or local liquor licensing
agencies and agreements with operators of restaurants and bars;
(m) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of the
Partnership;
(n) to form or acquire an interest in, and contribute property
to, any further limited or general partnerships, joint ventures or other
relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity interest from time
to time);
(o) to distribute Partnership cash or other Partnership assets
in accordance with this Agreement;
(p) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities or any other valid Partnership
purpose;
(q) to take whatever action the General Partner deems
appropriate to maintain an equivalency of Partnership Units and REIT Shares; and
(r) to take such other action, execute, acknowledge, swear to
or deliver such other documents and instruments, and perform any and all other
acts the General Partner deems necessary or appropriate for the formation,
continuation and conduct of the business and affairs of the Partnership
(including, without limitation, all actions consistent with qualification of the
General Partner as a REIT) and to possess and enjoy all of the rights and powers
of a general partner as provided by the Act.
Except as otherwise provided herein, to the extent the duties of the
General Partner require expenditures of funds to be paid to third parties, the
General Partner shall not have any obligations hereunder except to the extent
that Partnership funds are reasonably available to it for the performance of
such duties, and nothing herein contained shall be deemed to authorize or
require
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the General Partner, in its capacity as such, to expend its individual funds for
payment to third parties or to undertake any individual liability or obligation
on behalf of the Partnership.
Section 6.2 DELEGATION OF AUTHORITY. The General Partner may delegate
any or all of its powers, rights and obligations hereunder, and may appoint,
employ, contract or otherwise deal with any Person for the transaction of the
business of the Partnership, which Person may, under supervision of the General
Partner, perform any acts or services for the Partnership as the General Partner
may approve.
Section 6.3 DUTIES OF GENERAL PARTNER. (a) The General Partner, subject
to the limitations contained elsewhere in this Agreement, shall manage or cause
to be managed the affairs of the Partnership in a prudent and businesslike
manner and shall devote sufficient time and effort to the Partnership affairs.
(b) In carrying out its obligations, the General Partner shall:
(i) Render annual reports to all Partners with respect to
the operations of the Partnership;
(ii) On or before April 30th of every year, mail to all
persons who were Partners at any time during the
Partnership's prior fiscal year an annual report of the
Partnership, including all necessary tax information, and
any other information regarding the Partnership and its
operations during the prior fiscal year deemed by the
General Partner to be material;
(iii) Maintain complete and accurate records of all
business conducted by the Partnership and complete and
accurate books of account (containing such information as
shall be necessary to record allocations and
distributions), and make such records and books of account
available for inspection and audit by any Partner or such
Partner's duly authorized representative (at the sole
expense of such Partner) during regular business hours and
at the principal office of the Partnership; and
(iv) Cause to be filed such certificates and do such other
acts as may be required by law to qualify and maintain the
Partnership as a limited partnership under the laws of the
State of Delaware.
(c) The General Partner shall take such actions as it deems
appropriate to maintain an equivalency of Partnership Units and REIT Shares.
Section 6.4 LIABILITIES OF GENERAL PARTNER; INDEMNIFICATION. (a) The
General Partner shall not be liable for the return of all or any part of the
Capital Contributions of the Limited Partners. Any returns shall be made solely
from the assets of the Partnership according to the terms of this Agreement.
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(b) In carrying out its duties hereunder, the General Partner
shall not be liable to the Partnership or to any other Partner for any actions
taken in good faith and reasonably believed to be in the best interests of the
Partnership, or for errors of judgment, but shall be liable only for fraud or
gross negligence. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, the General Partner and the
General Partner's shareholders collectively, and that the General Partner is
under no obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners) in
deciding whether to cause the Partnership to take (or decline to take) any
actions. In the event of a conflict between the interests of the shareholders of
the General Partner on one hand and the Limited Partners on the other, the
General Partner shall endeavor in good faith to resolve the conflict in a manner
not adverse to either the shareholders of the General Partner or the Limited
Partners; provided, however, that for so long as the General Partner has
securities registered pursuant to Section 12 or Section 15 of the Exchange Act,
any such conflict that cannot be resolved in a manner not adverse to either the
shareholders of the General Partner or the Limited Partners shall be resolved in
favor of the shareholders. The General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith. Any amendment, modification or repeal of this
Section 6.4 or any provision hereof shall be prospective only and shall not in
any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 6.4 as in effect
immediately prior to such amendment, modification or repeal with respect to
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when claims relating to such matters may arise or be
asserted.
(c) The Partnership shall indemnify and defend an Indemnitee to
the fullest extent permitted by law, and save and hold it harmless from and
against, and in respect of, all: (i) fees, costs and expenses (including
reasonable attorney fees) incurred in connection with or resulting from any
claim, action or demand against any Indemnitee or the Partnership that arises
out of or in any way relates to the Partnership, and (ii) claims, actions and
demands arising out of or in any way related to the Partnership, and any losses
or damages resulting from such claims, actions and demands, including, without
limitation, reasonable costs and expenses of litigation and appeal and amounts
paid in settlement or compromise of any such claim, action or demand; provided,
however, that this indemnification shall not apply if: (A) the act or omission
of the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (B) the Indemnitee actually received an improper personal benefit in
money, property or services; or (C) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.4(c). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.4(c). Any indemnification pursuant to this Section 6.4 shall be
made only out of the assets of the Partnership.
(d) The Partnership may reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the
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Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 6.4 has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
(e) The indemnification provided by this Section 6.4 shall be
in addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity.
(f) The Partnership may purchase and maintain insurance on
behalf of the Indemnities, and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(g) For purposes of this Section 6.4, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by the Indemnitee of its duties to the
Partnership also imposes duties on, or otherwise involves services by the
Indemnitee, to the plan or participants or beneficiaries of the plan; excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 6.4; and actions taken or omitted by the Indemnitee with respect to an
employee benefit plan in the performance of its duties for a purpose reasonably
believed by the Indemnitee to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Partnership.
(h) In no event may an Indemnitee subject the Limited Partners
to personal liability by reason of the indemnification provisions set forth in
this Agreement.
(i) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 6.4 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(j) The provisions of this Section 6.4 are for the benefit of
the Indemnities, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other persons.
(k) Notwithstanding any other provisions of this Agreement or
the Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner to continue to qualify as a REIT, or (ii) to prevent the General Partner
from incurring any taxes under Section 857 or Section 4981 of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners. Further, any provision of this Agreement that might jeopardize
the General Partner's REIT status shall be (i) void and of no effect, or (ii)
reformed, as
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necessary, to avoid the General Partner's loss of REIT status, unless the Board
of Trustees of the General Partner shall determine not to maintain the General
Partner's REIT status.
Section 6.5 COMPENSATION OF GENERAL PARTNER; REIMBURSEMENT. The General
Partner, as such, shall not receive any compensation for services rendered to
the Partnership. Notwithstanding the preceding sentence, the General Partner
shall be entitled to its allocable share of the profits and distributable Cash
Flow of the Partnership and shall be entitled, in accordance with the provisions
of Section 6.7 below, to pay reasonable compensation to its Affiliates and other
entities with which it may be associated for services performed. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all REIT
Expenses.
Section 6.6 RELIANCE ON ACT OF GENERAL PARTNER. No financial
institution or any other person, firm or corporation dealing with the General
Partner or the Partnership shall be required to ascertain whether the General
Partner is acting in accordance with this Agreement, but such financial
institution or such other person, firm or corporation shall be protected in
relying solely upon the assurance of and the execution of any instrument or
instruments by the General Partner.
Section 6.7 OUTSIDE SERVICES; DEALINGS WITH AFFILIATES; OUTSIDE
ACTIVITIES. (a) Notwithstanding any provision of this Article VI to the
contrary, the General Partner may employ such agents, accountants, attorneys and
others as it shall deem advisable, including its trustees, directors, officers,
shareholders, and its Affiliates and entities with which the General Partner,
any Limited Partner or their respective Affiliates may be associated, and may
pay them reasonable compensation from Partnership funds for services performed,
which compensation shall be reasonably believed by the General Partner to be
comparable to and competitive with fees charged by unrelated Persons who render
comparable services which could reasonably be made available to the Partnership.
The General Partner shall not be liable for the neglect, omission or wrongdoing
of any such Person so long as it was not grossly negligent in appointing such
Person.
(b) The Partnership may lend or contribute to its Subsidiaries
or other Persons in which it has an equity investment Partnership funds on terms
and conditions established in the sole and absolute discretion of the General
Partner. The foregoing authority shall not create any right or benefit in favor
of any Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint ventures,
other partnerships, corporations or other business entities in which it is or
thereby becomes a participant upon such terms and subject to such conditions
consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither
the General Partner nor any of its Affiliates nor any Limited Partner shall
sell, transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are on
terms that are fair and reasonable to the Partnership.
(e) Subject to the Articles of Incorporation, By-laws and any
agreements entered into by the General Partner or its Affiliates with the
Partnership or a Subsidiary, any officer, director, employee, agent, trustee,
Affiliate or shareholder of the General Partner shall be entitled to and may
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have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities
substantially similar or identical to those of the Partnership. Neither the
Partnership nor any of the Limited Partners shall have any rights by virtue of
this Agreement in any business ventures of such person.
(f) In the event the General Partner exercises its rights under
its Articles of Incorporation to redeem REIT Shares, then the General Partner
shall cause the Partnership to purchase from it a number of Partnership Units as
determined based on the application of the Exchange Factor on the same terms
that the General Partner redeemed such REIT Shares.
Section 6.8 GENERAL PARTNER PARTICIPATION. The General Partner agrees
that all business activities of the General Partner, including activities
pertaining to the acquisition, development and ownership of Properties, shall be
conducted through the Partnership. Without the Consent of the Limited Partners,
the General Partner shall not, directly or indirectly, participate in or
otherwise acquire any interest in any real or personal property. The General
Partner agrees that all borrowings for the purpose of making distributions to
its shareholders will be incurred by the Partnership.
ARTICLE VII
RIGHTS, PROHIBITIONS AND REPRESENTATIONS
WITH RESPECT TO LIMITED PARTNERS
Section 7.1 RIGHTS OF LIMITED PARTNERS. (a) The Partnership may engage
the Limited Partners or persons or firms associated with them for specific
purposes and may otherwise deal with such Partners on terms and for compensation
to be agreed upon by any such Partner and the Partnership; provided, however,
that no Limited Partner shall be entitled to participate in the management or
control of the business of the Partnership.
(b) Each Limited Partner shall be entitled to have the
Partnership books kept at the principal place of business of the Partnership and
at all times, during reasonable business hours and at such Partner's sole
expense, shall be entitled to inspect and copy any of them and have on demand
true and full information of all things affecting the Partnership and a formal
accounting of Partnership affairs whenever circumstances render it just and
reasonable.
(c) No Limited Partner shall be liable for any debts,
liabilities, contracts or obligations of the Partnership. A Limited Partner
shall be liable to the Partnership only to make payments of its Capital
Contribution, if any, as and when due hereunder. After its Capital Contribution
is fully paid, no Limited Partner shall, except as otherwise required by the
Act, be required to make any further Capital Contributions or other payments or
lend any funds to the Partnership.
Section 7.2 PROHIBITIONS WITH RESPECT TO THE LIMITED PARTNERS. No
Limited Partner shall have the right:
(a) To take part in the control or management of the
Partnership business, to transact business for or on behalf of the Partnership
or to sign for or to bind the Partnership, such powers being vested solely in
the General Partner as set forth herein;
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(b) To have such Partner's Capital Contributions repaid except
to the extent provided in this Agreement;
(c) To require partition of Partnership property or to compel
any sale or appraisement of Partnership assets or sale of a deceased Partner's
interests therein, notwithstanding any provisions of law to the contrary; or
(d) To sell or assign all or any portion of such Partner's
Limited Partnership Interest in the Partnership or to constitute the vendee or
assignee thereunder a Substitute Limited Partner, except as provided in Article
IX hereof.
Section 7.3 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER
OR AFFILIATE. No Limited Partner shall at any time, either directly or
indirectly, own any shares or other interest in the General Partner or in any
Affiliate thereof if such ownership by itself or in conjunction with other
shares or other interests owned by other Limited Partners would, in the opinion
of counsel for the Partnership, jeopardize the classification of the General
Partner as a REIT for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section 7.3 and the Limited Partners shall promptly and fully respond to such
inquiries.
Section 7.4 GRANT OF REDEMPTION RIGHTS. (a) The Partnership hereby
grants to each Class A Limited Partners and each such Limited Partner does
hereby accept the right, but not the obligation (such rights hereinafter
sometimes referred to as the "Redemption Rights"), to redeem all or a portion of
the Partnership Units held by such Limited Partner (as a Class A Limited
Partner) to the Partnership (or its designee), at any time or from time to time
prior to the time the Partnership is dissolved, on the terms and subject to the
conditions and restrictions contained in Exhibit D hereto. The Redemption Rights
granted hereunder may be exercised by any one or more of such Limited Partners,
on the terms and subject and to the conditions and restrictions contained in
Exhibit D hereto, upon delivery to the General Partner of an Exercise Notice in
the form of Schedule 1 attached to Exhibit D, which notice shall specify the
Partnership Units to be redeemed by such Limited Partner. Once delivered, the
Redemption Exercise Notice shall be irrevocable, subject to payment by the
Partnership of the Purchase Price in respect of such Partnership Units in
accordance with the terms hereof.
(b) The terms and provisions applicable to the Redemption
Rights shall be as set forth in attached Exhibit D.
(c) Any Partnership Units acquired by the General Partner in
accordance with Exhibit D hereto pursuant to an exercise by any Class A Limited
Partner of the Redemption Rights shall be deemed to be acquired by and
reallocated or reissued to the General Partner. The General Partner shall amend
Exhibit A hereto to reflect each such conversion and reallocation or reissuance
of Partnership Units and each corresponding recalculation of the Partnership
Units of the Partners.
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(d) No Class B Limited Partner shall be entitled to the
Redemption Rights unless and until the Board of Trustees of the General Partner
agrees to reclassify the Class B Limited Partner as a Class A Limited Partner.
Section 7.5 WARRANTIES AND REPRESENTATIONS OF THE LIMITED PARTNERS. (a)
Each Class A Limited Partner hereby warrants and represents to and for the
benefit of the General Partner and the Partnership that such Limited Partner
owns good, valid and marketable title to the ownership interests in the
Contributed Entities being contributed to the capital of the Partnership by such
Limited Partner (the "Ownership Interests") and that such Ownership Interests
are free and clear of all mortgages, pledges, liens, security interests,
encumbrances and restrictions of any nature whatsoever. Each Limited Partner
further warrants and represents to and for the benefit of the General Partner
and the Partnership that such Limited Partner has all necessary power and
authority to transfer the Ownership Interests to the Partnership without the
consent or authorization of, or notice to, any third party, except those third
parties from whom such consents or authorizations have been obtained. Each Class
A Limited Partner also represents and warrants to and for the benefit of the
General Partner and the Partnership those matters set forth on Exhibit E hereto.
(b) Each Class B Limited Partner hereby warrants and represents
to and for the benefit of the General Partner and the Partnership that such
Limited Partner owns good, valid and marketable title to the interests in the
property being contributed to the capital of the Partnership by such Limited
Partner (the "Other Interests") and that such Other Interests are free and clear
of all mortgages, pledges, liens, security interests, encumbrances and
restrictions of any nature whatsoever. Each Limited Partner further warrants and
represents to and for the benefit of the General Partner and the Partnership
that such Limited Partner has all necessary power and authority to transfer the
Other Interests to the Partnership without the consent or authorization of, or
notice to, any third party, except those third parties from whom such consents
or authorizations have been obtained.
Section 7.6 INDEMNIFICATION BY LIMITED PARTNERS. Each Limited Partner
hereby agrees to indemnify and defend the General Partner and the Partnership
and hold the General Partner, its shareholders, officers and trustees and the
Partnership and its partners and each of their respective representatives,
successors and assigns harmless from and against any and all claims, demands,
losses, liabilities, damages and expenses (including reasonable attorneys' fees)
arising out of or in connection with (i) the inaccuracy of the warranties and
representations made by such Limited Partner under Section 7.5 above, or (ii)
the ownership of the Ownership Interests by such Limited Partner.
Section 7.7 LIMITED PARTNER GUARANTEES. Upon the request of the General
Partner, or upon its own election, a Limited Partner (the "Initiating Limited
Partner") from time to time, may, but shall not be required to, guarantee or
otherwise provide credit support for Partnership indebtedness as such Limited
Partner may elect; provided, however, that the Limited Partner shall be entitled
to take such action(s) only if the General Partner determines that any such
action would not have a material adverse effect on the tax position of the
General Partner. All Partners are entitled to notice of any such guarantee(s) or
credit support, and shall have the right to provide guarantees or credit support
on the same terms and conditions as the Initiating Limited Partner does, and all
Limited Partners interested in providing such guarantee or credit support shall
cooperate with the General
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Partner and each other in considering any guarantee or credit support proposal,
and the General Partner will cooperate in permitting or obtaining any consents
for such guarantees or credit support.
Section 7.8 NO SALE OF PROPERTY. (a) Notwithstanding any other
provision to the contrary, except Section 7.8(b) below, the Partnership agrees
not to sell or exchange or offer for sale or exchange the Contributed Entities
and/or Initial Properties or any portion thereof during the ten (10) year period
following the date of this Agreement.
(b) The Partnership shall have the authority to enter into a
like-kind exchange as defined in Section 1031 of the Code with respect to all or
any portion of the Initial Properties to the extent that such an exchange will
not cause recognition of gain under Section 704(c) to any Class A Limited
Partner with respect to the Contributed Entities and/or the Initial Properties.
To the extent any property is received in a like-kind exchange as provided in
this section, such property received will be considered to be one of the Initial
Properties.
ARTICLE VIII
DISTRIBUTIONS AND PAYMENTS TO PARTNERS
Section 8.1 DISTRIBUTIONS OF CASH FLOW. (a) The General Partner shall
distribute on a quarterly basis such portion of the Cash Flow of the Partnership
as the General Partner shall determine in its sole discretion. All such
distributions of Cash Flow shall be made to Partners who are Partners on the
Partnership Record Date in accordance with each Partner's respective Percentage
Interest on such Partnership Record Date.
(b) In no event may a Partner receive a distribution with
respect to a Partnership Unit if such Partner is entitled to receive a
distribution from the General Partner with respect to a REIT Share for which all
or part of such Partnership Unit has been exchanged.
Section 8.2 REIT DISTRIBUTION REQUIREMENTS. Unless the General Partner
determines that such a distribution would not be in the best interests of the
Partnership, the Partnership shall make a distribution of Cash Flow for each
fiscal year of the Partnership to enable the General Partner (i) to meet its
distribution requirement for qualification as a REIT as set forth in Section
857(a)(1) of the Code, and (ii) to avoid the excise tax imposed by Section 4981
of the Code.
Section 8.3 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be
entitled to demand property other than cash in connection with any distribution
by the Partnership.
Section 8.4 DISPOSITION PROCEEDS. Disposition Proceeds shall be
distributed to the Partners at such time as the General Partner may determine in
accordance with each Partner's respective Percentage Interest on such
Partnership Record Date.
Section 8.5 WITHDRAWALS. No Partner shall be entitled to make
withdrawals from its Capital Account except as provided herein.
Section 8.6 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code
or any provision of any state or local tax law with respect to any payment
distribution, or allocations to the
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Partnership, the General Partner, or the Limited Partners shall be treated as
amounts distributed to the General Partner and the Limited Partners pursuant to
this Article VIII for all purposes under this Agreement. The General Partner is
authorized to withhold from distributions, or with respect to allocations, to
the General Partner and Limited Partners and to pay over to any federal, state,
or local government any amounts required to be so withheld pursuant to the Code
or any provisions of any other federal, state, or local law and shall allocate
such amounts to the General Partner and Limited Partners with respect to which
such amount was withheld.
ARTICLE IX
TRANSFERS OF INTERESTS
Section 9.1 GENERAL PARTNER. The General Partner shall not withdraw
from the Partnership and shall not sell, assign, pledge, encumber or otherwise
dispose of all or any portion of its interest in the Partnership. In the event
the General Partner withdraws from the Partnership, in violation of this
Agreement or otherwise, or dissolves, terminates or upon an Event of Bankruptcy
of the General Partner, then the Partnership shall be dissolved and terminated
unless a Majority-In-Interest of the Limited Partners elect to continue the
Partnership business by selecting a substitute general partner.
Section 9.2 ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER. A
Person shall be admitted as a Substitute or Additional General Partner of the
Partnership only if the transaction giving rise to such substitution or
admission is otherwise permitted under this Agreement and the following terms
and conditions are satisfied:
(a) the Person to be admitted as a Substitute or Additional
General Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by the Act in connection with such
admission shall have been performed;
(b) if the Person to be admitted as a Substitute or Additional
General Partner is a corporation or a partnership, it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from counsel in the state or any other jurisdiction as
may be necessary) that the admission of the Person to be admitted as a
Substitute or Additional General Partner is in conformity with the Act and that
none of the actions taken in connection with the admission of such Person as a
Substitute or Additional General Partner will cause the termination of the
Partnership under Section 708 of the Code or will result in the loss of any
Limited Partner's limited liability status.
Section 9.3 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A
GENERAL PARTNER. (a) Upon the occurrence of an Event of Bankruptcy as to a
General Partner or the withdrawal, removal or dissolution of a General Partner
(except that, if a General Partner is on the date of such
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occurrence a partnership, the withdrawal, death, dissolution, Event of
Bankruptcy as to or removal of a partner in such partnership shall be deemed not
to be a dissolution of such General Partner if the business of such General
Partner is continued within ninety (90) days by the remaining general partners
or all remaining members of such partnership), the Partnership shall be
dissolved and terminated unless the Partnership is continued pursuant to Section
9.3(b).
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner or the withdrawal, removal or dissolution of a General Partner
(except that, if a General Partner is on the date of such occurrence a
partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or
removal of a partner in such partnership shall be deemed not be a dissolution of
such General Partner if the business of such General Partner is continued within
ninety (90) days by the remaining general partners or all remaining members of
such partnership), persons holding at least a majority of the Limited
Partnership Interests, within ninety (90) days after such occurrence, may elect
to continue the business of the Partnership for the balance of the term
specified in Section 3.2 by selecting, subject to Section 9.2 and any other
provisions of this Agreement, a Substitute General Partner. If the Limited
Partners elect to reconstitute the Partnership and admit a Substitute General
Partner, the relationship between the Partners and any Person who has acquired
an interest of a Partner in the Partnership shall be governed by this Agreement.
Section 9.4 REMOVAL OF A GENERAL PARTNER. (a) Upon the occurrence of an
Event of Bankruptcy as to, or the dissolution of, a General Partner, such
General Partner shall be deemed to be removed automatically; provided, however,
that if a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a
partner in such partnership shall be deemed not to be a dissolution of the
General Partner if the business of such General Partner is continued within
ninety (90) days by the remaining general partners or all remaining members of
such Partnership.
(b) If a General Partner has been removed pursuant to this
Section 9.4 and the Partnership is not continued pursuant to Section 9.3(b), the
Partnership shall be dissolved.
Section 9.5 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
(a) Except as otherwise provided in this Article IX, no Limited Partner may
offer, sell, assign, hypothecate, pledge or otherwise transfer its Limited
Partnership Interest, in whole or in part, whether voluntarily or by operation
of law or at judicial sale or otherwise (collectively, a "Transfer"), without
the written consent of the General Partner, which consent may be withheld in the
sole and absolute discretion of the General Partner. The General Partner may
require, as a condition of any Transfer, that the transferor assume all costs
incurred by the Partnership in connection therewith.
(b) No Limited Partner may effect a Transfer of its Limited
Partnership Interest if, in the opinion of legal counsel for the Partnership,
such proposed Transfer would require the registration of the Limited Partnership
Interest under the Securities Act of 1933, as amended, or would otherwise
violate any applicable federal or state securities or "Blue Sky" law (including
investment suitability standards).
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(c) No Transfer by a Limited Partner of its Partnership
Interest may be made to any Person if (i) in the opinion of legal counsel for
the Partnership, the Transfer would result in the Partnership's being treated as
an association taxable as a corporation (other than a qualified REIT subsidiary
within the meaning of Section 856(i) of the Code), (ii) such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code, or (iii) the Transfer would create a risk that the General Partner
would not be taxed as a REIT for federal income tax purposes.
(d) Section 9.5(a) shall not prevent any donative Transfer by
an individual Limited Partner to his immediate family members or any trust in
which the individual or his immediate family members own, collectively, one
hundred percent (100%) of the beneficial interests, provided that the transferor
assumes all costs of the Partnership in connection therewith and any such
transferee shall not have the rights of a Substitute Limited Partner (unless and
until admitted as a Substitute Limited Partner pursuant to this Section 9.5 and
Section 9.6 of this Agreement).
(e) Any Transfer in contravention of any of the provisions of
this Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
Section 9.6 ADMISSION OF SUBSTITUTE LIMITED PARTNER. (a) Subject to the
other provisions of this Article IX (including, without limitation, the
provisions of Section 9.5(a) regarding consent of the General Partner), an
assignee of the Limited Partnership Interest of a Limited Partner (including,
without limitation, any purchaser, transferee, donee, or other recipient of any
disposition of such Limited Partnership Interest) shall be deemed admitted as a
Limited Partner of the Partnership only upon the satisfactory completion of the
following:
(i) the assignee shall have accepted and agreed to be bound
by the terms and provisions of this Agreement by executing
a counterpart or an amendment thereof, including a revised
Exhibit A, and such other documents or instruments as the
General Partner may require in order to effect the
admission of such Person as a Limited Partner;
(ii) to the extent required, an amended certificate of
limited partnership evidencing the admission of such Person
as a Limited Partner shall have been signed, acknowledged
and filed for record in accordance with the Act;
(iii) the assignee shall have delivered a letter containing
the representations and warranties and agreements set forth
in Section 9.12;
(iv) if the assignee is a corporation, partnership or
trust, the assignee shall have provided the General Partner
with evidence satisfactory to counsel for the Partnership
of the assignee's authority to become a Limited Partner
under the terms and provisions of this Agreement;
(v) the assignee shall have executed a power of attorney
containing the terms and provisions set forth in Article
XII; and
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(vi) the assignee shall have paid all reasonable legal fees
of the Partnership and the General Partner and all filing
and publication costs incurred in connection with its
substitution as a Limited Partner.
(b) For the purpose of allocating profits and losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the certificate described in
Section 9.6(a)(ii) or, if no such filing is required, the later of the date
specified in the transfer documents, or the date on which the General Partner
has received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking
to become a Substitute Limited Partner by preparing the documentation required
by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to effectuate the admission of
such Person as a Limited Partner of the Partnership.
Section 9.7 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS. (a) Subject
to the provisions of Sections 9.5 and 9.6 hereof, except as required by
operation of law, the Partnership shall not be obligated for any purposes
whatsoever to recognize the assignment by any Limited Partner of his Partnership
Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article IX
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of its Limited Partnership Interest.
Section 9.8 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF
A LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall include, but not be limited to,
insanity) shall not cause the termination or dissolution of the Partnership, and
the business of the Partnership shall continue. If an order for relief in a
bankruptcy proceeding is entered against an individual Limited Partner, the
trustee or receiver of his estate or, if he dies, his executor, administrator or
trustee, or, if he is finally adjudicated incompetent, his committee, guardian
or conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate property and such power as the bankrupt,
deceased or incompetent Limited Partner possessed to assign all or any part of
his Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.
Section 9.9 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be
acquired by two (2) individuals as joint tenants with right of survivorship (but
not as tenants in common), provided that such individuals either are married or
are related. The written consent or vote of both owners of any such jointly held
Partnership Interest shall be required to constitute the action of the owners of
such Partnership Interest; provided, however, that the written consent of only
one (1) joint owner
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will be required if the Partnership has been provided with evidence satisfactory
to counsel for the Partnership that the actions of a single joint owner can bind
both owners under the applicable laws of the state of residence of such joint
owners. Upon the death of one (1) owner of a Partnership Interest held in a
joint tenancy with a right of survivorship, the Partnership Interest shall
become owned solely by the survivor as a Limited Partner and not as an assignee.
The Partnership need not recognize the death of one (1) of the owners of a
jointly held Partnership Interest until it shall have received notice of such
death. Upon notice to the General Partner from either owner prior to the death
of either owner, the General Partner shall cause the Partnership Interest to be
divided into two (2) equal Partnership Interests, which shall thereafter be
owned separately by each of the former owners.
Section 9.10 TRANSFEREES. Any Partnership Interests owned by the
Partners and transferred pursuant to this Article IX shall be and remain subject
to all of the provisions of this Agreement.
Section 9.11 ABSOLUTE RESTRICTION. Notwithstanding any provision of
this Agreement to the contrary, the sale or exchange of any interest in the
Partnership will not be permitted if the interest sought to be sold or
exchanged, when added to the total of all other interests sold or exchanged
within the period of twelve (12) consecutive months ending with the proposed
date of the sale or exchange, would result in the termination of the Partnership
under Section 708 of the Code, if such termination would materially and
adversely affect the Partnership or any Partner.
Section 9.12 INVESTMENT REPRESENTATION. Each Limited Partner hereby
represents and warrants to the General Partner and to the Partnership that the
acquisition of his Partnership Interest is made as a principal for his account
for investment purposes only and not with a view to the resale or distribution
of such Partnership Interest. Each Limited Partner agrees that he will not sell,
assign or otherwise transfer his Partnership Interest or any fraction thereof,
whether voluntarily or by operation of law or at judicial sale or otherwise, to
any Person who does not similarly represent and warrant and similarly agree not
to sell, assign or transfer such Partnership Interest or fraction thereof to any
Person who does not similarly represent, warrant and agree.
ARTICLE X
TERMINATION OF THE PARTNERSHIP
Section 10.1 TERMINATION. The Partnership shall be dissolved upon (i)
an Event of Bankruptcy as to the General Partner or the dissolution or
withdrawal of the General Partner unless the Limited Partners elect to
reconstitute the partnership in accordance with Article IX, (ii) ninety (90)
days following the sale of all or substantially all of the Partnership's assets
(provided that if the Partnership receives an installment obligation as
consideration for such sale or other disposition, the Partnership shall
continue, unless sooner dissolved under the provisions of this Agreement, until
such time as such note or notes are paid in full), (iii) the expiration of the
term specified in Section 3.2, if any, (iv) the redemption of all Limited
Partnership Interests (other than any of such interests held by the General
Partner), or (v) the election by the General Partner (but only in accordance
with and as permitted by applicable law) that the Partnership should be
dissolved. Upon dissolution of the Partnership (unless the business of the
Partnership is continued as set forth above), the General Partner (or its
trustee, receiver, successor or legal representative) shall proceed with the
winding up of the Partnership, and its assets shall be applied and distributed
as herein provided.
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Section 10.2 PAYMENT OF DEBTS. The assets shall first be applied to the
payment of the liabilities of the Partnership (other than any loans or advances
that may have been made by Partners to the Partnership) and the expenses of
liquidation. A reasonable time shall be allowed for the orderly liquidation of
the assets of the Partnership and the discharge of liabilities to creditors so
as to enable the General Partner to minimize any losses resulting from
liquidation.
Section 10.3 DEBTS TO PARTNERS. The remaining assets shall next be
applied to the repayment of any loans made by any Partner to the Partnership.
Section 10.4 REMAINING DISTRIBUTION. The remaining assets shall then be
distributed to the Partners in accordance with the Partners' positive Capital
Account balances, after making the adjustments for allocations under Article V
hereof.
Section 10.5 RESERVE. Notwithstanding the provisions of Sections 10.3
and 10.4, the General Partner may retain such amount as it deems necessary as a
reserve for any contingent liabilities or obligations of the Partnership, which
reserve, after the passage of a reasonable period of time, shall be distributed
pursuant to the provisions of this Article X.
Section 10.6 FINAL ACCOUNTING. Each of the Partners shall be furnished
with a statement examined by the Partnership's independent accountants, which
shall set forth the assets and liabilities of the Partnership as of the date of
the complete liquidation. Upon the compliance by the General Partner with the
foregoing distribution plan, the Limited Partners shall cease to be such, and
the General Partner, as the sole remaining Partner of the Partnership, shall
execute and cause to be filed a Certificate of Cancellation of the Partnership
and any and all other documents necessary with respect to termination and
cancellation of the Partnership.
ARTICLE XI
AMENDMENTS
Section 11.1 AUTHORITY TO AMEND. (a) This Agreement may be amended by
the General Partner without the approval of any other Partner if such amendment
is solely for the purpose of clarification and does not change the substance
hereof and the Partnership has obtained an opinion of counsel to that effect.
(b) This Agreement may be amended by the General Partner
without the approval of any other Partner if such amendment is for the purpose
of adding or substituting Limited Partners.
(c) This Agreement may be amended by the General Partner
without the approval of any other Partner if such amendment is, in the opinion
of counsel for the Partnership, necessary or appropriate to satisfy requirements
of the Code with respect to partnerships or REITs or of any federal or state
securities laws or regulations. Any amendment made pursuant to this Section
11.1(c) may be made effective as of the date of this Agreement.
(d) Notwithstanding any contrary provision of this Agreement,
any amendment to this Agreement or other act which would (i) adversely affect
the limited liability of the Limited
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Partners, (ii) change the method of allocation of Profits and Losses as provided
in Article V or the distribution provisions of Articles VIII or X hereof, or
(iii) seek to impose an obligation for additional contributions by the Limited
Partners shall require the consent and approval of Limited Partners holding more
than 65% of the Percentage Interests of the Limited Partners. Notwithstanding
any contrary provision of this Agreement, any amendment to this Agreement that
would affect the operation of the Redemption Rights set forth in Section 7.4
hereof shall require the consent and approval of Class A Limited Partners
holding more than sixty-five percent (65%) of the Percentage Interests of the
Class A Limited Partners.
(e) Except as otherwise specifically provided in this Section
11.1, amendments to this Agreement shall require the approval of the General
Partner and Majority-in-Interest of the Limited Partners.
Section 11.2 NOTICE OF AMENDMENTS. A copy of any amendment to be
approved by the Partners pursuant to Sections 11.1(d) or 11.1(e) shall be mailed
in advance to such Partners. Partners shall be notified as to the substance of
any amendment pursuant to Sections 11.1(a), (b) or (c), and upon request shall
be furnished a copy thereof.
ARTICLE XII
POWER OF ATTORNEY
Section 12.1 POWER. Each of the Limited Partners irrevocably
constitutes and appoints the General Partner as such Limited Partner's true and
lawful attorney in such Limited Partner's name, place and stead to make,
execute, swear to, acknowledge, deliver and file:
(a) Any certificates or other instruments which may be required
to be filed by the Partnership under the laws of the State of Delaware or of any
other state or jurisdiction in which the General Partner shall deem it advisable
to file;
(b) Any documents, certificates or other instruments,
including, but not limited to, any and all amendments and modifications of this
Agreement or of the instruments described in Section 12.1(a) which may be
required or deemed desirable by the General Partner to effectuate the provisions
of any part of this Agreement and, by way of extension and not in limitation, to
do all such other things as shall be necessary to continue and to carry on the
business of the Partnership; and
(c) All documents, certificates or other instruments which may
be required to effectuate the dissolution and termination of the Partnership, to
the extent such dissolution and termination is authorized hereby. The power of
attorney granted hereby shall not constitute a waiver of, or be used to avoid,
the rights of the Partners to approve certain amendments to this Agreement
pursuant to Sections 11.1 (d) and 11.1 (e) or be used in any other manner
inconsistent with the status of the Partnership as a limited partnership or
inconsistent with the provisions of this Agreement.
Section 12.2 SURVIVAL OF POWER. It is expressly intended by each of the
Partners that the foregoing power of attorney is coupled with an interest, is
irrevocable and shall survive the death, incompetence, dissolution, liquidation
or adjudication of insanity or bankruptcy or insolvency of
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each such Partner. The foregoing power of attorney shall survive the delivery of
an assignment by any of the Partners of such Partner's entire interest in the
Partnership, except that where an assignee of such entire interest has become a
substitute Limited Partner, then the foregoing power of attorney of the assignor
Partner shall survive the delivery of such assignment for the sole purpose of
enabling the General Partner to execute, acknowledge and file any and all
instruments necessary to effectuate such substitution.
ARTICLE XIII
CONSENTS, APPROVALS, VOTING AND MEETINGS
Section 13.1 METHOD OF GIVING CONSENT OR APPROVAL. Any consent or
approval required by this Agreement may be given as follows:
(a) by a written consent given by the consenting Partner and
received by the General Partner at or prior to the doing of the act or thing for
which the consent is solicited, provided that such consent shall not have been
nullified by:
(i) Notice to the General Partner of such nullification by
the consenting Partner prior to the doing of any act or
thing, the doing of which is not subject to approval at a
meeting called pursuant to Section 13.2, or
(ii) Notice to the General Partner of such nullification by
the consenting Partner prior to the time of any meeting
called pursuant to Section 13.2 to consider the doing of
such act or thing, or
(iii) The negative vote by such consenting Partner at any
meeting called pursuant to Section 13.2 to consider the
doing of such act or thing;
(b) by the affirmative vote by the consenting Partner to the
doing of the act or thing for which the consent is solicited at any meeting
called pursuant to Section 13.2 to consider the doing of such act or thing; or
(c) by the failure of the Partner to respond or object to a
request from the General Partner for such Partner's consent within thirty (30)
days from its receipt of such request (or such shorter period of time as the
General Partner may indicate in such request in order to ensure that the General
Partner has sufficient time to respond, if required, to any third party with
respect to the subject matter of such request).
Section 13.2 MEETINGS OF LIMITED PARTNERS. Any matter requiring the
consent or vote of all or any of the Partners may be considered at a meeting of
the Partners held not less than five (5) nor more than sixty (60) days after
notice thereof shall have been given by the General Partner to all Partners.
Such notice (i) may be given by the General Partner, in its discretion, at any
time, or (ii) shall be given by the General Partner within fifteen (15) days
after receipt from Limited Partners holding more than fifty percent (50%) of the
Percentage Interests of the Limited Partners of a request for such meeting.
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Section 13.3 OPINION. Except for Consents obtained pursuant to Sections
13.1 or 13.2, no Limited Partner shall exercise any consent or voting rights
unless either (a) at the time of the giving of consent or casting of any vote by
the Partners hereunder, counsel for the Partnership or counsel employed by the
Limited Partners (and reasonably satisfactory to the General Partner) shall have
delivered to the Partnership an opinion satisfactory to the Partners to the
effect that such conduct (i) is permitted by the Act, (ii) will not impair the
limited liability of the Limited Partners, and (iii) will not adversely affect
the classification of the Partnership as a partnership for federal income tax
purposes, or (b) irrespective of the delivery or nondelivery of such opinion of
counsel, Limited Partners holding more than seventy-five percent (75%) of the
Percentage Interests of the Limited Partners determine to exercise their consent
and/or voting rights.
Section 13.4 SUBMISSIONS TO PARTNERS. The General Partner shall give
the Partners notice of any proposal or other matter required by any provision of
this Agreement, or by law, to be submitted for consideration and approval of the
Partners. Such notice shall include any information required by the relevant
provision or by law.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 GOVERNING LAW. The Partnership and this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
Section 14.2 AGREEMENT FOR FURTHER EXECUTION. At any time or times upon
the request of the General Partner, the Limited Partners hereby agree to sign,
swear to, acknowledge and deliver all further documents and certificates
required by the laws of Delaware, or any other jurisdiction in which the
Partnership does, or proposes to do, business, or which may be reasonable,
necessary, appropriate or desirable to carry out the provisions of this
Agreement or the Act. This Section 14.2 shall not prejudice or affect the rights
of the Limited Partners to approve certain amendments to this Agreement pursuant
to Sections 11.1(d) and 11.1(e).
Section 14.3 ENTIRE AGREEMENT. This Agreement and the exhibits attached
hereto contain the entire understanding among the parties and supersede any
prior understandings or agreements among them respecting the within subject
matter. There are no representations, agreements, arrangements or
understandings, oral or written, between or among the parties hereto relating to
the subject matter of this Agreement which are not fully expressed herein.
Section 14.4 SEVERABILITY. This Agreement is intended to be performed
in accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations of the jurisdictions in which the Partnership
does business. If any provision of this Agreement, or the application thereof to
any person or circumstance, shall, for any reason and to any extent, be invalid
or unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
Section 14.5 NOTICES. Notices to Partners or to the Partnership shall
be deemed to have been given when personally delivered or mailed, by prepaid
registered or certified mail, addressed
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as set forth in Exhibit A attached hereto, unless a notice of change of address
has previously been given in writing by the addressee to the addressor, in which
case such notice shall be addressed to the address set forth in such notice of
change of address.
Section 14.6 MEDIATION/ARBITRATION OF DISPUTES. None of the parties
(including any Partner and the Partnership) shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within three weeks after a demand
for direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, either party may
request the Court of Common Pleas of Lake County, Ohio, to appoint a mediator
certified by the Supreme Court of Ohio. The fees and expenses of the mediator
shall be paid equally by each party. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined by
the mediator, the mediator shall issue a written statement to the parties to
that effect and the aggrieved party may then seek relief through arbitration in
Cleveland, Ohio, administered by the American Arbitration Association, under its
commercial arbitration rules and its supplementary procedures for larger,
complex disputes, provided that persons eligible to be selected as arbitrators
shall be limited to attorneys-at-law who (i) are on the AAA's Large Complex Case
panel and (ii) who have practiced law for at least 15 years specializing in
either general commercial litigation or general corporate and commercial
matters. The arbitrators shall base their award on applicable laws and judicial
precedent and include in such award a statement of the reasons upon which the
award is based. Judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof and shall be final, binding and
non-appealable. The obligation herein to mediate and/or arbitrate shall not
prevent any party from seeking temporary restraining orders, preliminary
injunctions or other procedures in a court of competent jurisdiction to obtain
interim relief when deemed necessary by such court to preserve the status quo or
prevent irreparable injury pending resolution by arbitration of the actual
dispute.
Section 14.7 TITLES AND CAPTIONS. All titles and captions are for
convenience only, do not form a substantive part of this Agreement, and shall
not restrict or enlarge any substantive provisions of this Agreement.
Section 14.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each one of which shall constitute an original executed copy of
this Agreement.
Section 14.9 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or persons may require.
Section 14.10 SURVIVAL OF RIGHTS. Subject to the provisions hereof
limiting transfers, this Agreement shall be binding upon and inure to the
benefit of the Partners and the Partnership and their respective legal
representatives, successors, transferees and assigns.
Section 14.11 PERSONAL LIABILITY. As provided in the Articles of
Incorporation establishing the General Partner, no trustee, officer,
shareholder, employee or agent of the General Partner shall be held to any
personal liability, jointly or severally, for any obligation of, or claim
against, the General Partner.
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IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
day and year first above written.
GENERAL PARTNER:
LIBERTY SELF-STOR, INC.,
an Ohio corporation
By:
------------------------------------------
LIMITED PARTNERS:
(See attached limited partner signature pages)
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LIMITED PARTNERSHIP SIGNATURE PAGE
The undersigned, desiring to become a Limited Partner of LSS I Limited
Partnership, hereby agrees to all of the terms of the Agreement of Limited
Partnership of LSS I Limited Partnership and agrees to be bound by the terms and
provisions thereof.
Executed by the undersigned as a Class A Limited Partner of LSS I Limited
Partnership.
LIMITED PARTNER:
By:
--------------------------------------
(Signature of Class A Limited Partner)
- -------------------------------------------
(Residence Street Address)
- -------------------------------------------
(City State Zip Code)
- -------------------------------------------
(Taxpayer Identification or Social
Security Number)
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LIMITED PARTNERSHIP SIGNATURE PAGE
The undersigned, desiring to become a Limited Partner of LSS I Limited
Partnership, hereby agrees to all of the terms of the Agreement of Limited
Partnership of LSS I Limited Partnership and agrees to be bound by the terms and
provisions thereof.
Executed by the undersigned as a Class A Limited Partner of LSS I Limited
Partnership.
LIMITED PARTNER:
By:
------------------------------------
(Signature of Class A Limited Partner)
- ---------------------------------------
(Residence Street Address)
- ---------------------------------------
(City State Zip Code)
- ---------------------------------------
(Taxpayer Identification or Social
Security Number)
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<PAGE> 273
LIMITED PARTNERSHIP SIGNATURE PAGE
The undersigned, desiring to become a Limited Partner of LSS I Limited
Partnership, hereby agrees to all of the terms of the Agreement of Limited
Partnership of LSS I Limited Partnership and agrees to be bound by the terms and
provisions thereof.
Executed by the undersigned as a Class A Limited Partner of LSS I Limited
Partnership.
LIMITED PARTNER:
By:
------------------------------------
(Signature of Class A Limited Partner)
- ---------------------------------------
(Residence Street Address)
- ---------------------------------------
(City State Zip Code)
- ---------------------------------------
(Taxpayer Identification or Social
Security Number)
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<PAGE> 274
LIMITED PARTNERSHIP SIGNATURE PAGE
The undersigned, desiring to become a Limited Partner of LSS I Limited
Partnership, hereby agrees to all of the terms of the Agreement of Limited
Partnership of LSS I Limited Partnership and agrees to be bound by the terms and
provisions thereof.
Executed by the undersigned as a Class A Limited Partner of LSS I Limited
Partnership.
LIMITED PARTNER:
By:
--------------------------------------
(Signature of Class A Limited Partner)
- -----------------------------------------
(Residence Street Address)
- -----------------------------------------
(City State Zip Code)
- -----------------------------------------
(Taxpayer Identification or Social
Security Number)
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LIMITED PARTNERSHIP SIGNATURE PAGE
The undersigned, desiring to become a Limited Partner of LSS I Limited
Partnership, hereby agrees to all of the terms of the Agreement of Limited
Partnership of LSS I Limited Partnership and agrees to be bound by the terms and
provisions thereof.
Executed by the undersigned as a Class B Limited Partner of LSS I Limited
Partnership.
LIMITED PARTNER:
By:
--------------------------------------
(Signature of Class B Limited Partner)
- -----------------------------------------
(Residence Street Address)
- -----------------------------------------
(City State Zip Code)
- -----------------------------------------
(Taxpayer Identification or Social
Security Number)
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EXHIBIT A
LIST OF PARTNERS
AGREED VALUE
OF CAPITAL PERCENTAGE PARTNERSHIP
PARTNERS CONTRIBUTION INTEREST UNITS
- --------------------------------- ------------- ------------ ---------------
GENERAL PARTNER:
Liberty Self-Stor, Inc............ ............% --------------
8500 Station Street
Mentor, Ohio 44060
CLASS A LIMITED PARTNERS.......... ............% --------------
Liberty Self-Stor, Ltd.
8500 Station Street
Mentor, Ohio 44060
CLASS B LIMITED PARTNERS.......... ............% --------------
Liberty Self-Stor, Inc.
8500 Station Street
Mentor, Ohio 44060
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EXHIBIT B
FEDERAL INCOME TAX MATTERS
For purposes of interpreting and implementing Article V of the
Partnership Agreement, the following rules shall apply and shall be treated as
part of the terms of the Partnership Agreement:
A. Special Allocation Provisions.
1. For purposes of determining the amount of gain or loss to
be allocated pursuant to Article V of the Partnership Agreement, any basis
adjustments permitted pursuant to Section 743 of the Code shall be disregarded.
2. When Partnership Interests are transferred during any
taxable year, the General Partner intends to allocate Partnership Profits and
Losses and other items of income, loss, deductions and credits using the closing
of the books method.
3. Notwithstanding any other provision of the Partnership
Agreement, to the extent required by law, income, gain, loss and deduction
attributable to property contributed to the Partnership by a Partner shall be
shared among the Partners so as to take into account any variation between the
basis of the property and the fair market value of the property at the time of
contribution in accordance with the requirements of Section 704(c) of the Code
and the applicable regulations thereunder as more fully described in Part B
hereof. Treasury regulations under Section 704(c) of the Code allow partnerships
to use any reasonable method for accounting for Book-Tax Differences for
contributions of property so that a contributing partner receives the tax
benefits and burdens of any built-in gain or loss associated with contributed
property. The Operating Partnership shall account for Book-Tax Differences using
a method specifically approved in the regulations, the traditional method. An
allocation of remaining built-in gain under Section 704(c) will be made when
Section 704(c) property is sold.
4. Notwithstanding any other provision of the Partnership
Agreement, in the event the Partnership is entitled to a deduction for interest
imputed under any provision of the Code on any loan or advance from a Partner
(whether such interest is currently deducted, capitalized or amortized), such
deduction shall be allocated solely to such Partner.
5. Notwithstanding any provision of the Partnership Agreement
to the contrary, to the extent any payments in the nature of fees made to a
Partner or reimbursements of expenses to any Partner are finally determined by
the Internal Revenue Service to be distributions to a Partner for federal income
tax purposes, there will be a gross income allocation to such Partner in the
amount of such distribution.
6. (a) Notwithstanding any provision of the Partnership
Agreement to the contrary and subject to the exceptions set forth in Section
1.704-2(f)(2)-(5) of the Treasury Regulations, if there is a net decrease in
Partnership Minimum Gain during any Partnership fiscal year, each Partner shall
be specially allocated items of Partnership income and gain for such year (and,
if necessary, subsequent years) in an amount equal to such Partner's share of
the net decrease in Partnership Minimum Gain determined in accordance with
Section 1.704-2(g)(2) of the Treasury Regulations. Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so
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allocated shall be determined in accordance with Section 1.704-2(f) of the
Treasury Regulations. This paragraph 6(a) is intended to comply with the minimum
gain chargeback requirement in such Section of the Regulations and shall be
interpreted consistently therewith. To the extent permitted by such Section of
the Regulations and for purposes of this paragraph 6(a) only, each Partner's
Adjusted Capital Account Balance shall be determined prior to any other
allocations pursuant to Article V of the Partnership Agreement with respect to
such fiscal year and without regard to any net decrease in Partner Minimum Gain
during such fiscal year.
(b) Notwithstanding any provision of the Partnership
Agreement to the contrary, except paragraph 6(a) of this Exhibit and subject to
the exceptions set forth in Section 1.704-2(i)(4) of the Treasury Regulations,
if there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any
Partnership fiscal year, each Partner who has a share of the Partner Nonrecourse
Debt Minimum Gain, determined in accordance with Section 1.704-2(i)(3) of the
Treasury Regulations, shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in an amount equal
to such Partner's share of the net decrease in Partner Nonrecourse Debt Minimum
Gain, determined in accordance with Section 1.704-2(i)(5) of the Treasury
Regulations. Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Section 1.704-2(i)(4) of the Treasury Regulations. This paragraph 6(b) is
intended to comply with the minimum gain chargeback requirement in such Section
of the Treasury Regulations and shall be interpreted consistently therewith.
Solely for purposes of this paragraph 6(b), each Partner's Adjusted Capital
Account Balance shall be determined prior to any other allocations pursuant to
Article V of the Partnership Agreement with respect to such fiscal year, other
than allocations pursuant to paragraph 6(a) hereof.
7. Notwithstanding any provision of the Partnership Agreement
to the contrary, in the event any Partners unexpectedly receive any adjustments,
allocations or distributions described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704- 1(b)(2)(ii)(d)(6),
items of Partnership income and gain shall be specially allocated to such
Partners in an amount and manner sufficient to eliminate the deficits in their
Adjusted Capital Account Balances created by such adjustments, allocations or
distributions as quickly as possible.
8. No Losses shall be allocated to any Partner to the extent
that such allocation would result in a deficit in its Adjusted Capital Account
Balance while any other Partner continues to have a positive Adjusted Capital
Account Balance; in such event, Losses shall first be allocated to any Partners
with positive Adjusted Capital Account Balances, and in proportion to such
balances, to the extent necessary to reduce their positive Adjusted Capital
Account Balances to zero. Any excess shall be allocated to the General Partner.
To the extent that any Losses are allocated pursuant to this paragraph, Profits
shall thereafter be allocated in reverse order of such allocations of Losses to
the extent of such Losses.
9. Any special allocations of items pursuant to this Part A
shall be taken into account in computing subsequent allocations so that the net
amount of any items so allocated and the Profits, Losses and all other items
allocated to each such Partner pursuant to Article V of the Partnership
Agreement shall, to the extent possible, be equal to the net amount that would
have been allocated to each such Partner pursuant to the provisions of Article V
of the Partnership Agreement if such special allocations had not occurred.
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10. Notwithstanding any provision of the Partnership Agreement
to the contrary, Nonrecourse Deductions for any fiscal year or other period
shall be specially allocated to the Partners in the manner and in accordance
with the percentages set forth in Section 5.2(d) of the Partnership Agreement.
11. Notwithstanding any provision of the Partnership Agreement
to the contrary, any Partner Nonrecourse Deduction for any fiscal year or other
period shall be specially allocated to the Partner who bears the economic risk
of loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i) of
the Treasury Regulations.
12. The allocation of Profits and Losses to any Partner shall
be deemed to be an allocation to that Partner of the same proportionate part of
each separate item of taxable income, gain, loss, deduction or credit that
comprises such Profits and Losses.
B. Capital Account Adjustments and 704(c) Tax Allocations.
1. For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in the Partners' capital accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
purposes; provided, however, that:
(a) Any income, gain or loss attributable to the taxable
disposition of any property shall be determined by the Partnership as
if the adjusted basis of such property as of such date of disposition
was equal in amount to (i) the Agreed Value less book depreciation in
the case of the Initial Properties or other contributed properties, or
(ii) the Carrying Value with respect to property subsequently
purchased.
(b) The computation of all items of income, gain, loss and
deduction shall be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or Section 705(a)(2)(B) of the Code,
without regard to the fact that such items are not includable in gross
income or are neither currently deductible nor capitalizable for
federal income tax purposes.
2. A transferee of a Partnership interest will succeed to the
capital account relating to the Partnership interest transferred; provided,
however, that if the transfer causes a termination of the Partnership under
Section 708(b)(1)(B) of the Code, the Partnership properties shall be deemed to
have been distributed in liquidation of the Partnership to the Partners
(including the transferee of a Partnership interest) and recontributed by such
Partners and transferees in reconstitution of the Partnership. The capital
accounts of such reconstituted Partnership shall be maintained in accordance
with the principles set forth herein.
3. Upon an issuance of additional Partnership interests for
cash, the capital accounts of all Partners (and the Agreed Values of all
Partnership properties) shall, immediately prior to such issuance, be adjusted
(consistent with the provisions hereof) upward or downward to reflect any
unrealized gain or unrealized loss attributable to each Partnership property (as
if such unrealized gain or unrealized loss had been recognized upon an actual
sale of such property at the fair market value thereof, immediately prior to
such issuance, and had been allocated to the Partners, at such time, pursuant to
Article V of the Partnership Agreement). In determining such unrealized
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gain or unrealized loss attributable to the properties, the fair market value of
Partnership properties shall be determined by the General Partner using such
reasonable methods of valuation as it may adopt.
4. Immediately prior to the distribution of any Partnership
property in liquidation of the Partnership, the capital accounts of all Partners
shall be adjusted (consistent with the provisions hereof and Section 704 of the
Code) upward or downward to reflect any unrealized gain or unrealized loss
attributable to the Partnership property (as if such unrealized gain or
unrealized loss had been recognized upon an actual sale of each such property,
immediately prior to such distribution, and had been allocated to the Partners,
at such time, pursuant to Article V of the Partnership Agreement). In
determining such unrealized gain or unrealized loss attributable to property,
the fair market value of Partnership property shall be determined by the General
Partner using such reasonable methods of valuation as it may adopt.
5. In accordance with Section 704(c) of the Code and the
regulations thereunder, income, gain, loss and deduction with respect to any
property shall, solely for tax purposes, and not for capital account purposes,
be allocated among the Partners so as to take account of any variation between
the adjusted basis of such property to the Partnership for federal income tax
purposes.
6. In the event the Agreed Value of any Partnership asset is
adjusted as described in paragraph 3 above, subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Agreed Value in the same manner as under Section 704(c) of the
Code and the regulations thereunder.
7. Any elections or other decisions relating to such
allocations shall be made by the General Partner in any manner that reasonably
reflects the purpose and intention of this Agreement.
C. Definitions. For the purposes of this Exhibit, the following terms
shall have the meanings indicated unless the context clearly indicates
otherwise:
"Adjusted Capital Account Balance": means the balance in the capital
account of a Partner as of the end of the relevant fiscal year of the
Partnership, after giving effect to the following: (i) credit to such
capital account any amounts the Partner is obligated to restore,
pursuant to the terms of this Agreement or otherwise, or is deemed
obligated to restore pursuant to the penultimate sentences of Sections
1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations, and (ii)
debit to such capital account the items described in Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
"Carrying Value": means the adjusted basis of such property for federal
income tax purposes as of the time of determination.
"Nonrecourse Deductions": shall have the meaning set forth in Section
1.704-2(b)(1) of the Treasury Regulations. The amount of Nonrecourse
Deductions for a Partnership fiscal year equals the excess, if any, of
the net increase, if any, in the amount of Partnership Minimum Gain
during that fiscal year over the aggregate amount of any distributions
during that fiscal year of proceeds of a Nonrecourse Liability, that
are allocable to an increase in Partnership
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Minimum Gain, determined according to the provisions of Section
1.704-2(c) of the Treasury Regulations.
"Nonrecourse Liability": shall have the meaning set forth in Section
1.704-2(b)(3) of the Treasury Regulations.
"Partner Nonrecourse Debt Minimum Gain": means an amount, with respect
to each Partner Nonrecourse Debt, determined in accordance with Section
1.704-2(i) of the Treasury Regulations.
"Partner Nonrecourse Debt": shall have the meaning set forth in Section
1.704-2(b)(4) of the Treasury Regulations.
"Partner Nonrecourse Deductions": shall have the meaning set forth in
Section 1.704-2(i)(2) of the Treasury Regulations. For any Partnership
taxable year, the amount of Partner Nonrecourse Deductions with respect
to a Partner Nonrecourse Debt equal the net increase during the year,
if any, in the amount of Partner Nonrecourse Debt Minimum Gain reduced
(but not below zero) by proceeds of the liability that are both
attributable to the liability and allocable to an increase in the
Partner Nonrecourse Debt Minimum Gain.
"Partnership Agreement": shall mean this Agreement of Limited
Partnership Agreement of LSS I Limited Partnership.
"Partnership Minimum Gain": shall have the meaning set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.
For purposes of this Exhibit, all other capitalized terms will have the same
definition as in the Partnership Agreement.
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EXHIBIT C
INITIAL PROPERTIES
<TABLE>
<CAPTION>
YEAR BUILT/ RENTABLE
LOCATION EXPANDED SQUARE FT. ACRES UNITS CONSTRUCTION
-------- -------- ---------- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
OHIO:
Avon 1981- 67,423 6.1225 495 Masonry & Steel
998 Avon Belden Road 1986/1998
Avon, Ohio 44011
Canton 1979-87 41,175 11.1533 388 Concrete
3700 Fohl Road, S.W.
Canton, Ohio 44706
Catawba 1988/1998 43,052 7.57 302 Steel
5681 East Harbor Road
Marblehead, Ohio 43440
Cleveland 1997 40,150 3.6801 278 Steel
5440 S. Marginal Road
Cleveland, Ohio 44114
Dayton 1989 19,550 5.001 206 Concrete
3785 Shiloh Springs Rd.
Dayton, Ohio 45426
East Canton 1997 26,700 12.6298 177 Steel
5136 Lincoln Street
East Canton, Ohio 44730
East Liverpool 1986-1996 29,990 11.49 222 Steel
15031 Strader Road
East Liverpool, Ohio
43920
Louisville 1988-1990 53,060 6.828 364 Masonry
7100 Columbus Road
Louisville, Ohio 44641
Mentor 1983 20,382 6.000 204 Masonry
6784 Hopkins Road
Mentor, Ohio 44060
Perry 1992/1997 63,950 6.194 397 Steel
4376 North Ridge Road
Perry, Ohio 44081
Ravenna 1988 16,950 1.785 150 Steel
111 Loomis Parkway
Ravenna, Ohio 44266
Willoughby 1997 33,998 2.37 276 Masonry
38255 St. Clair Street
Willoughby, Ohio 44094
</TABLE>
- --------------------------------------------------------------------------------
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EXHIBIT C
INITIAL PROPERTIES
<TABLE>
<CAPTION>
YEAR BUILT/ RENTABLE
LOCATION EXPANDED SQUARE FT. ACRES UNITS CONSTRUCTION
-------- -------- ---------- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
NEW YORK:
Endicott 1989 35,580 4.993 297 Concrete/Steel
1400 Campville Road Roof
Endicott, NY 13760
Southold 1989 53,055 6.949 552 Steel
1040 Hortons Lane
Southold, NY 11971
Riverhead 1985-1986 20,625 3.045 183 Steel
99 Mill Road
Riverhead, NY
------------------------------------------
TOTAL/AVERAGE 565,640 95.8107 4,491
==========================================
</TABLE>
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EXHIBIT D
REDEMPTION RIGHTS TERMS
The Redemption Rights granted by the Partnership to the Class A Limited
Partners pursuant to Section 7.4 hereof shall be subject to the following terms
and conditions:
1. Definitions. The following terms and phrases shall, for purposes of
this Exhibit D and the Agreement, have the meanings set forth below:
"Cash Purchase Price" shall have the meaning set forth in Paragraph 4
hereof.
"Computation Date" shall mean the date on which an Redemption Exercise
Notice is delivered to the General Partner.
"Exchange Factor" shall mean 100%, provided that such factor shall be
adjusted in accordance with the Antidilution Provisions of Paragraph 7
hereof.
"Exercising Partner" shall have the meaning set forth in Paragraph 2
hereof.
"Offered Partnership Units" shall mean the Partnership Units of the
Exercising Partner(s) identified in a Redemption Exercise Notice which,
pursuant to the exercise of Redemption Rights, can be redeemed by the
Partnership or acquired by the General Partner under the terms hereof.
"Purchase Price" shall mean the Cash Purchase Price or the Stock
Purchase Price, or a combination thereof.
"Redemption Date" shall mean the tenth (10th) Business Day after
receipt by the General Partner of a Redemption Exercise Notice.
"Redemption Exercise Notice" shall have the meaning set forth in
Paragraph 2 hereof.
"Redemption Rights" shall have the meaning set forth in Paragraph 2
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor statute.
"Stock Purchase Price" shall have the meaning set forth in Paragraph 4
hereof.
2. Grant of Redemption Rights. The Partnership does hereby grant to
each Class A Limited Partner and each such Limited Partner does hereby accept
the right, but not the obligation (hereinafter such right sometimes referred to
as the "Redemption Rights"), to require the Partnership to redeem on the
Redemption Date, all or any portion of the Units held by such Limited Partner
(as a Class A Limited Partner) at a redemption price equal to the Cash Purchase
Price. The Redemption Rights of a Limited Partner may be exercised on one or
more occasions by the Limited Partner. The Redemption Rights shall be exercised
pursuant to a written notice (the "Redemption Exercise Notice") in the form set
forth in
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<PAGE> 285
Schedule 1 attached hereto. The Redemption Exercise Notice shall be given by the
Partner who is exercising the Redemption Rights ("Exercising Partner") to the
General Partner. A Limited Partner may not exercise the Redemption Rights as to
fewer Partnership Units than the number of such Partnership Units that is equal
to the lesser of (a) 1,000 Partnership Units or (b) all of the Units held by
such Class A Limited Partner (as a Class A Limited Partner). Neither the
Electing Partner nor any assignee of any Limited Partner shall have any right
with respect to any Partnership Units so redeemed to receive any distributions
from the Partnership made after the Redemption Date. The assignee of any Limited
Partner may exercise the rights of such Limited Partner pursuant to this Section
2, and such Limited Partner shall be deemed to have assigned such rights to such
assignee and shall be bound by the exercise of such rights by such Limited
Partner's assignee. In connection with any exercise of such rights by such
assignee on behalf of such Limited Partner, the Cash Purchase Price shall be
paid by the Partnership directly to such assignee and not to such Limited
Partner.
3. General Partner Exchange.
(a) Notwithstanding the provisions of Section 2, if a Limited
Partner elects to exercise the Redemption Rights, the General Partner may, in
its sole and absolute discretion, elect to assume directly and satisfy the
Redemption Rights by paying to the Electing Partner either the Cash Purchase
Price and/or the Stock Purchase Price for each Partnership Unit redeemed, as
elected by the General Partner (in its sole and absolute discretion) on the
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the Electing Partner and shall be treated for
all purposes of this Agreement as the owner of such Partnership Interests.
(b) In the event that the Partnership shall fail to pay the Cash
Purchase Price to any Exercising Partner pursuant to Paragraph 2, and the
General Partner shall not have elected pursuant to Paragraph 3(a) to assume the
obligations of the Partnership with respect thereto, the General Partner shall
on the Redemption Date contribute to the capital of the Partnership in cash (or,
at its election, pay directly to the Exercising Partner the full Cash Purchase
Price and/or Stock Purchase Price) the full amount necessary to permit the
Partnership to satisfy its obligations to pay to the Exercising Partner the Cash
Purchase Price on the Redemption Date, and the Partnership shall thereupon
immediately pay to such Exercising Partner such Cash Purchase Price.
(c) In the event that the General Partner satisfies the Redemption
Rights in the manner described in Paragraphs 3(a) or (b), each of the Exercising
Partner, the Partnership, and the General Partner shall treat the transaction
between the General Partner and the Exercising Partner for federal income tax
purposes as a sale of the Exercising Partner's Partnership Units to the General
Partner.
(d) Each Exercising Partner shall execute such documents as the
General Partner may reasonably require in connection with the issuance of REIT
Shares in the event that the General Partner satisfies the Redemption Rights in
the manner described in Paragraphs 3(a).
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<PAGE> 286
(e) If the Redemption Rights are satisfied by the delivery of REIT
Shares, the Exercising Partner shall be deemed to become a holder of REIT Shares
as of the close of business on the closing date.
4. Computation of Purchase Price/Form of Payment. The Cash Purchase
Price shall mean an amount of cash equal to the product of (i) the number of
shares of the REIT Shares that would be issued to the Exercising Partner if the
Stock Purchase Price were paid for such Offered Partnership Units (taking into
account the adjustments required pursuant to the definition of "Exchange
Factor") multiplied by (ii) the REIT Share Value computed as of the Computation
Date. The Cash Purchase Price shall be paid in the form of cash, or cashier's
check, or by wire transfer to the Exercising Partner's designated account. The
Stock Purchase Price shall mean the number of REIT Shares equal to the product,
expressed as a whole number, of (i) the number of Class A Units being exchanged,
multiplied by (ii) the Exchange Factor.
5. Closing Deliveries. On the Redemption Date, payment of the Purchase
Price shall be accompanied by proper instruments of transfer and assignment and
by the delivery of (i) representations and warranties of (A) the Exercising
Partner with respect to its due authority to sell all of the right, title and
interest in and to such Offered Partnership Units and with respect to the status
of the Offered Partnership Units being sold, free and clear of all liens, and
(B) the Partnership or General Partner with respect to due authority for the
purchase of such Offered Partnership Units, and (ii) to the extent that REIT
Shares are issued in payment of the Stock Purchase Price, (A) an opinion of
counsel for the General Partner reasonably satisfactory to the Exercising
Partner(s), to the effect that such REIT Shares have been duly authorized, are
validly issued, fully-paid and non-assessable, and have been duly registered
under the Securities Act, and (B) a stock certificate or certificates evidencing
the REIT Shares to be issued and registered in the name of the Exercising
Partner(s) or its (their) designee.
6. Term of Rights. Unless sooner terminated, the rights of the parties
with respect to the Redemption Rights shall commence as of the date hereof and
lapse for all purposes and in all respects on the date that the Partnership is
dissolved; provided, however, that the parties hereto shall continue to be bound
by a Redemption Exercise Notice delivered to the General Partner prior to such
date.
7. Antidilution Provisions.
(a) The Exchange Factor shall be subject to adjustment from time to
time effective upon the occurrence of the following events and shall be
expressed as a percentage, calculated to the nearest one-thousandth of one
percent (.001%):
(i) In case the General Partner shall pay or make a dividend or
other distribution on any class of shares of the General Partner in
REIT Shares, the Exchange Factor in effect at the opening of
business on the day following the date fixed for the determination
of stockholders entitled to receive such dividend or other
distribution shall be increased in proportion to the increase in
outstanding REIT Shares resulting from such dividend or other
distribution, such increase to become effective immediately after
the
D-3
<PAGE> 287
opening of business on the day following the record date fixed
for such dividend or other distribution.
(ii) In case outstanding REIT Shares shall be subdivided into a
greater number of shares, the Exchange Factor in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased,
and, conversely, in case the outstanding REIT Shares shall be
combined into a smaller number of shares, the Exchange Factor in
effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately
reduced, such increase or reduction, as the case may be, to become
effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
(b) In case the General Partner shall issue rights, options or
warrants to all holders of its REIT Shares entitling them to subscribe for or
purchase REIT Shares at a price per share less than the current market price per
share (as determined in the next sentence), each holder of a Partnership Unit
shall be entitled to receive such number of rights or warrants, as the case may
be, as he would have been entitled to receive had he exchanged his Partnership
Units immediately prior to the record date for such issuance by the General
Partner. For the purpose of any computation pursuant to the next sentence, the
current market price per share of REIT Shares on any date shall be deemed to be
the average of the daily closing prices for the five consecutive Trading Days
selected by the General Partner commencing not more than twenty (20) Trading
Days before, and ending not later than, the earlier of the day in question and
the day before the "ex" date with respect to the issuance or distribution
requiring such computation. For purposes of this Exhibit D, the term "Trading
Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, other than
any day which securities are not traded on such exchange or in such market and
the term "'ex' date", when used in respect of any issuance or distribution,
shall mean the first date on which the shares trade regular way on such exchange
or in such market without the right to receive such issuance or distribution.
(c) In case the REIT Shares shall be changed into the same or a
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification, or otherwise (other than subdivision or
combination of shares or a stock dividend described in subparagraph (a)(ii) of
this Paragraph) then and in each such event the Limited Partners shall have the
right thereafter to exchange their Partnership Units for the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification or other change by holders of the number
of shares into which the Partnership Units might have been exchanged immediately
prior to such reorganization, reclassification or change.
(d) The General Partner may, but shall not be required to, make such
adjustments to the number of REIT Shares issuable upon exchange of a Partnership
Unit, in addition to those required by this Paragraph 7, as the General
Partner's board of trustees considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of stock or stock rights
shall not be taxable to the recipients. The General Partner's board of trustees
shall have the power to resolve any ambiguity or correct any error
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<PAGE> 288
in the adjustments made pursuant to this Paragraph and its actions in so doing
shall be final and conclusive.
8. Fractions of Shares. No fractional REIT Shares shall be issued upon
exchange of Partnership Units. If more than one Partnership Unit shall be
surrendered for exchange at one time by the same Exercising Partner, the number
of full REIT Shares which shall be issuable upon exchange thereof (or the cash
equivalent amount thereof if the Cash Purchase Price is paid) shall be computed
on the basis of the aggregate amount of Partnership Units so surrendered.
Instead of any fractional REIT Share which would otherwise be issuable upon
exchange of any Partnership Unit or Partnership Units, the General Partner shall
pay a cash adjustment in respect of such fraction in an amount equal to the same
fraction of the Value of a REIT Share on the Redemption Date.
9. Notice of Adjustments of Exchange Factor. Whenever the Exchange
Factor is adjusted as herein provided:
(a) the General Partner shall compute the adjusted Exchange Factor
in accordance with Paragraph 7 hereof and shall prepare a certificate signed by
the chief financial officer or the Treasurer of the General Partner setting
forth the adjusted Exchange Factor and showing in reasonable detail the facts
upon which such adjustment is based; and
(b) a notice stating that the Exchange Factor has been adjusted and
setting forth the adjusted Exchange Factor shall forthwith be mailed by the
General Partner to all holders of Redemption Rights at their last addresses on
record under this Agreement.
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SCHEDULE 1
REDEMPTION EXERCISE NOTICE
TO: LIBERTY SELF-STOR, INC.
Reference is made to that certain Agreement of Limited Partnership, dated ,
1999 (the "Partnership Agreement"), pursuant to which Liberty Self-Stor, Inc.,
an Ohio corporation, and certain other persons, including the undersigned,
formed a Delaware limited partnership known as LSS I Limited Partnership (the
"Partnership"). Capitalized terms used but not defined herein shall have the
meanings set forth in the Partnership Agreement. Pursuant to Section 7.4 and
Paragraph 2 of Exhibit D of the Partnership Agreement, each of the undersigned,
being a Class A Limited Partner of the Partnership (an "Exercising Partner"),
hereby elects to exercise its Redemption Rights as to the number of Offered
Partnership Units specified opposite its name below:
Dated:
EXERCISING PARTNER PARTNERSHIP UNITS NUMBER OF OFFERED
- ------------------ ----------------- -----------------
EXERCISING PARTNER
- -----------------------
- -----------------------
Schedule 1
<PAGE> 290
EXHIBIT E
REPRESENTATIONS AND WARRANTIES OF WARRANTING PARTNERS
Each of [___________________________________________________________]
(collectively, the "Warranting Partners"), jointly and severally, represents to
the Partnership that, except as set forth on the Disclosure Schedule delivered
to the General Partner in connection with the execution of this Agreement, as
follows:
(a) ORGANIZATION; AUTHORITY. Each of the Contributed Entities is a
Partnership or limited liability company duly formed, validly existing and in
good standing (to the extent applicable) under the laws of its jurisdiction of
formation. Each Warranting Partner has the requisite power and authority to
enter into and perform this Agreement.
(b) AUTHORIZATION; BINDING AGREEMENT. The execution, delivery and
performance of this Agreement by each Warranting Partner has been duly and
validly authorized by all necessary action of such Warranting Partner. This
Agreement has been duly executed and delivered by each Warranting Partner and
constitutes the legal, valid and binding obligation of such Warranting Partner,
enforceable against such Warranting Partner in accordance with the terms hereof.
(c) CONSENTS AND APPROVALS. Except for those obtained prior to the date
hereof, no consent, waiver, approval or authorization of, or filing,
registration or qualification with or notice to, any governmental unit or any
other person is required to be made, obtained or given by any of the Warranting
Partners or the Contributed Entities in connection with the execution, delivery
and performance of this Agreement.
(d) NO VIOLATION. None of the execution, delivery or performance of
this Agreement by any Warranting Partner does, or with the giving of notice,
lapse of time or both, will (1) violate, conflict with or constitute a default
under any term or condition of (A) the organizational documents of such
Warranting Partner or any of the Contributed Entities, or (B) any term or
provision of any judgment, decree, order, statute, injunction, rule or
regulation of a governmental unit applicable to such Warranting Partner or any
of the Contributed Entities, or (C) any agreement, instrument or document to
which such Warranting Partner or any of the Contributed Entities is a party or
by which any of them is bound or to which their assets or properties is subject
or bound or (2) result in the creation of any lien, claim, equity, security
interest or other encumbrance ("Lien") upon the Contributed Property of such
Warranting Partner or the assets or properties of such Warranting Partner or the
Contributed Entities.
(e) COMPLIANCE WITH LAWS. To the Warranting Partners' best knowledge,
each of the Contributed Entities is in compliance in all material respects with
all private restrictions and laws, ordinances and regulations applicable to the
conduct of the business of such Contributed Entities and the ownership, use and
operation of their properties and each has obtained all licenses, permits and
other governmental approvals for the conduct thereof, which licenses and permits
are in full force and effect, and the Contributed Entities have not taken (or
failed to take) any action that would result in the revocation of such licenses
or permits nor have the Contributed Entities received any notice of violation
from
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any federal, state or municipal or other governmental or quasi-governmental
authority or notice of an intention by any such authority to revoke any
certificate of occupancy or other certificate, license or permit issued by it in
connection with the use of any such Contributed Entities' properties.
(f) ENVIRONMENTAL MATTERS. To the Warranting Partners' best knowledge,
(1) the Contributed Entities and their respective properties are in compliance,
and heretofore have complied, with all Environmental Laws (as hereinafter
defined); (2) none of the Contributed Entities has received any written notice
from any governmental or quasi-governmental authority or other person that it,
its current or former operations, or its properties now or heretofore owned,
leased or used by it or any of its predecessors, are not or have not been in
compliance with any Environmental Laws or that it has any material liability in
respect thereof; and (3) there are no administrative, regulatory or judicial
proceedings pending or threatened against any Contributed Entity pursuant to, or
alleging any violation of or liability under, any Environmental Laws. To the
Warranting Partners' best knowledge, all of the properties now or heretofore
owned, leased or used by any of the Contributed Entities are free of all
Hazardous Materials, and, to the best knowledge of Warranting Partners, no
Hazardous Materials have ever been located on any of the properties now or
heretofore owned, leased or used by any of the Contributed Entities.
The term "Hazardous Materials" shall mean any substance, material,
waste, gas or particulate matter which is regulated by any local governmental
authority, the state in which any real property of the Contributed Entities is
situated, or the United States Government, including but not limited to, any
material or substance which is (i) defined as a "hazardous waste", "hazardous
material", "hazardous substance", "extremely hazardous waste" or "restricted
hazardous waste" under any provision of law of the state in which any real
property of the Contributed Entities is situated, (ii) petroleum or petroleum
based, (iii) asbestos, (iv) polychlorinated biphenyl, (v) radioactive material,
(vi) designed a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1317), (vii) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conversation and
Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903) or (viii)
defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601
et seq. (42 U.S.C. Section 9601). The term "Environmental Laws" shall mean all
statutes specifically described in the foregoing sentence and all federal, state
and local environmental health and safety statutes, ordinances, codes, rules,
regulations, orders and decrees regulating, relating to or imposing liability or
standards concerning or in connection with Hazardous Materials.
(g) OWNERSHIP OF PROPERTIES. Each of the Contributed Entities (i) is
the sole owner of its respective properties and (ii) has good, valid and
marketable title to such properties, free and clear of all Liens other than
Permitted Exceptions (as hereafter defined).
The term "Permitted Exceptions" shall mean in respect of real property
or any interest or estate therein: (1) zoning laws and ordinances; (2) any deeds
of trust or mortgages listed as exceptions to title in the most recent title
commitments to insure title issued by _____________ relating to the properties
of the Contributed Entities and delivered to the General Partner in connection
with the execution of this Agreement (the "Title Commitments"); (3) any laws,
ordinances, Liens, easements, rights of way, restrictions,
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exemptions, reservations, conditions, limitations, covenants, adverse rights or
interests described as exceptions on Schedule B (or any other applicable
Schedule) of the Title Commitments; provided that any Contributed Partnership's
property is not in violation thereof or, if in violation, provided that the same
do not require the demolition, vacation or cessation of the present use of any
portion of the improvements material to such property or require the
discontinuance of the use of all or any material portion of such property for
its present use; (4) any other easements, restrictions, reservations and
encumbrances which do not individually or in the aggregate (A) impair the use of
any such property in the operation of the business of the respective Contributed
Partnership or (B) detract from the value of such property for the purpose of
such business; and (5) taxes and assessments, both general and special, which
are a lien but not yet due and payable.
(h) ABSENCE OF UNDISCLOSED LIABILITIES AND CONTRACTUAL OBLIGATIONS.
Except for liabilities arising in the ordinary course of business since the date
of the Contributed Entities' financial statements as of and for the period ended
December 31, 1998, the Contributed Entities have no liabilities of any nature,
whether matured or unmatured, fixed or contingent (regardless of whether the
disclosure thereof otherwise would be required by generally accepted accounting
principles) which could have, individually or in the aggregate, a material
adverse effect upon such Contributed Partnership or the Partnership. There are
no Significant Agreements (as hereinafter defined) of a Contributed Partnership
other than as previously disclosed to the General Partner.
For purposes hereof, "Significant Agreement" of a Contributed
Partnership means and includes any of the following to which such entity is a
party or by which it or any of its assets or properties may be subject or bound:
(1) all agreements, instruments and documents evidencing, securing or pertaining
to contractual obligations of a Contributed Partnership that involve annual
payments or receipts in excess of $50,000.00; (2) all leases involving real
property; and (3) all mortgages and deeds of trust encumbering any real
property.
(i) SIGNIFICANT AGREEMENTS; BINDING AGREEMENTS. Each of the Significant
Agreements is valid and binding and in full force and effect, enforceable
against the Contributed Partnership which is a party thereto in accordance with
its terms, subject to the bankruptcy or insolvency of such parties, similar laws
of general applicability relating to or affecting creditors' rights generally,
to general equity principles and to the discretion of any court in granting any
relief or issuing any order and to the unenforceability of attorneys' fees
provisions. Such Contributed Partnership is not in default in the performance of
any obligation thereunder, and no event has occurred which, with the giving of
notice or lapse of time or both, would constitute a default thereunder or permit
the other party to terminate the rights of such Contributed Partnership
thereunder.
(j) LITIGATION. There are no claims, actions, suits, proceedings or
investigations pending, or, to the Warranting Partners' knowledge, threatened,
before any court, governmental unit or any arbitrator in respect of any
Contributed Partnership or its assets.
(k) TRANSFER TAXES. There are no transfer taxes payable, accruing or
otherwise arising out of the transfer of the Contributed Partnership Interests
or the Contributed Property to the Partnership, the admission of the General
Partner to this Partnership or arising out of any of the transactions specified
in this Agreement that are expected to occur
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<PAGE> 293
contemporaneously or concurrent with or immediately after the execution hereof,
which shall not have been paid by the Limited Partners.
(l) PROJECT IMPROVEMENTS. To the Warranting Partners' best knowledge,
all buildings and improvements on the property owned by each Contributed
Partnership, and all tangible personal property, equipment and fixtures
constituting a part thereof, are in good condition and repair, and the roofs,
walls and foundations of the buildings are free from leaks and seepage of
moisture. To the best knowledge of the Warranting Partners, there is no
defective condition (latent or otherwise) in respect of the buildings and
improvements on the property owned by any Contributed Partnership.
(m) PROJECT EQUIPMENT; UTILITIES. The equipment located at the property
owned by each Contributed Entity is sufficient to permit the full operation of
the improvements for their respective intended purposes. All water, sewer, gas,
electric, telephone and drainage facilities and all of the utilities required by
law for the normal operation of the property owned by the Contributed Entities
are installed to the property line and are connected with valid permits, are in
good working order and are adequate to serve such property in full compliance
with law.
(n) CONDEMNATION PROCEEDINGS. No proceedings have been commenced or
threatened by any authority having the power of eminent domain to condemn any
part of the land or improvements relating to any of the properties owned by the
Contributed Entities.
(o) INSURANCE. The Warranting Partners have not received any notices
from any insurance company of any defects or inadequacies in any property owned
by a Contributed Entity or any part thereof which would affect adversely the
insurability of such property, and each such property complies with the
requirements of all insurance carriers providing insurance therefor.
(p) ACCURACY OF INFORMATION. All of the information provided to the
General Partner by the Warranting Partners and/or the Contributed Entities
(and/or the affiliates, agents, and advisors of any of them) in respect of the
Contributed Entities and/or the Initial Properties is complete and accurate in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make such
Information, in light of the circumstances under which such Information was
provided, not misleading.
For the purposes of the representations and warranties made pursuant to
this Exhibit E, a statement that a fact is true to "the Warranting Partner's
best knowledge" means that, after due investigation, none of the following
Persons actually knows such statement to be untrue: _______________________.
E-4
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ANNEX E
DRAFT FORM OF OPINION
Board of Trustees
Meridian Point Realty Trust '83
8500 Station Street, Suite 100
Mentor, Ohio 44060
Gentlemen:
You have requested that Robert A. Stanger & Co., Inc. ("Stanger")
provide an opinion to the Board of Trustees of Meridian Point Realty Trust '83
("Meridian") as to the fairness from a financial point of view to the public
shareholders of Meridian (the "Shareholders") of the allocation of interests in
an affiliated operating partnership, LSS I Limited Partnership ("LSS I" or the
"Operating Partnership") which would be formed in connection with the approval
by the Shareholders of a proposed reorganization of Meridian (the
"Reorganization") and a merger (the "Formation Transactions"). We have been
advised that in connection with the Reorganization, Meridian will, through a
series of transactions, be merged with and into Liberty Self-Stor, Inc.
("Liberty"), a newly-formed Maryland corporation which intends to operate as a
real estate investment trust, and that in connection with the Formation
Transactions Liberty will contribute approximately $2 million of cash and
marketable securities to LSS I in exchange for the general partnership interest
and Class B limited partnership interests in LSS I, and the members of Liberty
Self-Stor, Ltd., an Ohio limited liability company affiliated with certain
officers and trustees of Meridian which owns 15 self-storage properties (the
"Ohio LLC"), will contribute all of their ownership interests in the Ohio LLC
subject to existing debt of approximately $18 million, and approximately
[$2,500,000] of cash, to LSS I in exchange for Class A limited partnership
interests in LSS I.
We have been further advised by Meridian and the Ohio LLC that the
percentage economic interest of Liberty in LSS I will be 30.91% and the
percentage economic interest of the current members of the Ohio LLC in LSS I
will be 69.09% as a result of such allocations, subject to certain closing
adjustments.
Stanger, founded in 1978, provides information, research, investment
banking and consulting services to clients throughout the United States,
including major New York Stock Exchange member firms and insurance companies and
over seventy companies engaged in the management and operation of partnerships
and real estate investment trusts. The investment banking activities of Stanger
include financial advisory services, asset and securities valuations, industry
and company research and analysis, litigation support and expert witness
services, and due diligence investigations in connection with both publicly
registered and privately placed securities transactions.
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Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, and reorganizations and for estate, tax, corporate and
other purposes. In particular, Stanger's valuation practice principally involves
real estate investment trusts, partnerships, partnership securities and assets
typically owned through partnerships including, but not limited to, real estate,
mortgages secured by real estate, oil and gas reserves, cable television
systems, and equipment leasing assets.
In arriving at the opinion set forth below, we have:
o Reviewed a draft of the Proxy Statement/Prospectus, Agreement and Plan
of Merger, and Formation Agreement in substantially the forms intended
to be finalized and filed with the Securities & Exchange Commission
(the "SEC") and provided to Shareholders by Meridian;
o Performed appraisals of the portfolio of real properties owned by the
Ohio LLC, interests in which will be contributed to LSS I in connection
with the Formation Transactions (pursuant to a separate engagement
between Stanger, Meridian and the Ohio LLC);
o Reviewed the financial statements of Meridian contained in Form 10-K
filed with the SEC for the fiscal years ending December 31, 1997 and
1998;
o Reviewed the financial statements of the Ohio LLC for the fiscal year
ending December 1998;
o Reviewed certain operating and financial information relating to the
business, financial condition and results of operations of Meridian and
the Ohio LLC, and discussed with management the operations, business
plan, and current conditions in the self-storage industry, and the
historical financial statements, budgets and future prospects of
Liberty and the Ohio LLC;
o Reviewed schedules prepared by Meridian showing the determination of
the Net Asset Value contribution to LSS I of Meridian and the Ohio LLC,
and the methodology used to determine the allocation of interests in
LSS I between Meridian and the members of the Ohio LLC; and
o Conducted such other studies, analyses and inquiries as deemed
appropriate.
To evaluate the fairness, from a financial point of view, of the
allocation of interests in LSS I, Stanger observed that the Net Asset Values
were assigned to the Company and the Ohio LLC by management as of March 31, 1999
based on: (i) an appraisal provided by Stanger of the estimated value of the
real estate portfolio of the Ohio LLC as of March 31, 1999; (ii) valuations made
by the management of the Ohio LLC and the Company of other assets and
liabilities which will be contributed by the Company and the members of the Ohio
LLC or assumed by Liberty in the Formation Transaction (iii) adjustments made by
management to the foregoing values to reflect costs of the consolidation.
Relying on these Net Asset Values, Stanger observed that the allocation of
ownership interests in LSS I offered to each entity reflects the net value of
the assets contributed to LSS I by each entity after deducting the costs
associated with the Reorganization and Formation
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Transactions. Stanger believes that basing such allocations on the value of net
assets contributed to LSS I is fair from a financial point of view. [We further
observed that management intends to make such pre-merger adjustments as may be
necessary to cause the relative Net Asset Value contributed to LSS I by Liberty
and the members of the Ohio LLC as of the closing date to be substantially
equivalent to the Net Asset Values as of March 31, 1999.] Relying on these Net
Asset Values, we observed that the allocation of ownership interests in LSS I
offered to Liberty and the members of the Ohio LLC reflects the net value of
assets contributed by each entity.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all financial and other
information contained in the Proxy Statement/Prospectus or that was otherwise
publicly available or furnished or otherwise communicated to us. We have not
made an independent audit, evaluation or appraisal of the determinations of the
non-real estate assets and liabilities of Meridian or the Ohio LLC. We have
relied upon the balance sheet value determinations for Meridian and the Ohio LLC
and the adjustments made by management to arrive at the Net Asset Values. We
have also relied upon the assurance of Meridian and the Ohio LLC that any
financial information or pro forma statements or adjustments provided to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments, that no material changes have occurred in Meridian's or the Ohio
LLC's asset or liability values subsequent to the valuation dates cited above or
in the real estate portfolio values subsequent to March 31, 1999 which are not
reflected in the Net Asset Values, and that Meridian and the Ohio LLC are not
aware of any information or facts regarding Meridian or the Ohio LLC or their
assets that would cause the information supplied to us to be incomplete or
misleading.
We were not requested to and therefore did not: (a) select the method
of determining the allocation of the interests in LSS I or establish the
allocations; (b) make any recommendations to the Shareholders or members of the
Ohio LLC with respect to whether to approve or reject the Reorganization or
Formation Transactions; or (c) express any opinion as to (i) the fact that the
members of the Ohio LLC could as a result of the Formation Transactions be in a
position to control voting decisions of Liberty; (ii) the tax consequences of
the Reorganization and Formation Transactions for the Shareholders or for
Meridian; (iii) the potential impact of conversion of the interests of the
members of the Ohio LLC in LSS I to the shares of Liberty; (iv) whether or not
alternative methods of determining the relative interests in LSS I to be issued
would have also provided fair results or results substantially similar to those
of the allocation methodology used; and (v) the potential impact on the fairness
of the allocations of any subsequently discovered environmental or contingent
liabilities.
Further, we are not expressing any opinion as to (a) the fairness of
any terms of the Reorganization and Formation Transactions (other than the
fairness of the Allocations) or the amounts or allocations of transaction costs;
(b) the relative value of the shares of Liberty and the partnership interests to
be issued in the Formation Transactions; (c) the prices at which the shares of
Liberty may trade following the Reorganization and Formation Transactions or the
trading value of the shares of Liberty compared with the current fair market
value of Meridian's assets if liquidated under current market conditions; and
(d) alternatives to the Reorganization and Formation Transactions.
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Based upon and subject to the foregoing, it is our opinion that the
allocation of interests in LSS I between Liberty and the members of the Ohio LLC
pursuant to the Formation Transactions is fair to the public Shareholders of
Meridian from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. We have
advised Meridian that our entire analysis must be considered as a whole and that
selecting portions of analyses and the factors considered, without considering
all analyses and factors, could create an incomplete view of the evaluation
process underlying this opinion.
Our opinion is based on business, economic, real estate market, and
other conditions as of the date of our analysis and addresses the Formation
Transactions in the context of information available as of the date of our
analysis. Events occurring after that date could affect the value of the assets
of Meridian and the Ohio LLC or the assumptions used in preparing the opinion.
Very truly yours,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
_____________, 1999
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ANNEX F
LIBERTY SELF-STOR, INC.
1999 STOCK OPTION AND AWARD PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of
LIBERTY SELF- STOR, INC., a Maryland corporation (the "Company"), by providing
additional incentive to attract and retain qualified and competent persons who
are key to the Company, including key employees, Officers and Directors, and
upon whose efforts and judgment the success of the Company is largely dependent,
by encouraging such persons to own stock in the Company.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change of Control" shall mean the occurrence of any of
the following:
(i) any transaction (which shall include a series of
transactions occurring within sixty days or occurring pursuant to a plan) that
has the result that shareholders of the Company immediately before such
transaction cease to own at least 51% of the voting stock of the Company or of
any entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) the stockholders of the Company approving a
plan of merger, consolidation, reorganization, liquidation or dissolution in
which the Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or
(iii) the stockholders of the Company approving a
plan for the sale, lease, exchange, transfer, assignment or other disposition of
all or substantially all the property and assets of the Company (unless such
plan is subsequently abandoned).
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the compensation committee
appointed by the Board pursuant to Section 15 hereof or, if not appointed, the
full Board.
(e) "Common Stock" shall mean the Company's Common Stock, par
value $0.01 per share.
(f) "Controlled Entity" shall mean any trust, partnership,
limited liability company or other entity in which such person that receives
Options or Restricted Shares under this Plan acts as trustee, managing partner,
managing member or otherwise controls; provided that, to the extent any such
Option or Restricted Shares received under this Plan is awarded to a spouse
<PAGE> 299
pursuant to any divorce proceeding, such interest shall be deemed to be
terminated and forfeited notwithstanding any vesting provisions or other terms
herein or in the agreement evidencing such Option.
(g) "Director" shall mean a member of the Board.
(h) "Effective Date" shall mean [__________, 1999].
(i) "Fair Market Value" of a Share on any date of reference
shall be the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding such date, unless the Committee in its sole
discretion shall determine otherwise in a fair and consistent manner. For the
purpose of determining Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be the average of the average bid and ask prices
of the Common Stock on the National Association of Securities Dealers Automated
Quotation System -- SmallCap Market for the five business days preceding such
day.
(j) "Incentive Stock Option" shall mean an incentive stock
option as defined in ss.422 of the Code.
(k) "Non-Employee Director" shall mean a Director who: (i) is
not an Officer or employee of the Company or any Subsidiary; (ii) does not (A)
receive compensation, directly or indirectly, from the Company or any Subsidiary
for services rendered as a consultant or in any other capacity other than as a
Director, except for an amount that does not exceed the dollar amount for which
disclosure would be required under Item 404(a) of Regulation S-K, 17 C.F.R.
ss.229.404(a), or (B) possess an interest in any transaction for which
disclosure would be required under Item 404(a) of Regulation S-K, 17 C.F.R.
ss.229.404(a); and (iii) is not engaged in a business relationship for which
disclosure would be required under Item 404(b) of Regulation S-K, 17 C.F.R.
ss.229.404(b).
(l) "Non-Statutory Stock Option" shall mean an Option which is
not an Incentive Stock Option.
(m) "Officer" shall mean the Company's Chairman, Chief
Financial Officer, principal accounting officer (or, if there is no such
accounting officer, the controller), any vice president of the Company in charge
of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy-making
function, or any other person who performs similar policy-making functions for
the Company. Officers of Subsidiaries shall be deemed Officers of the Company if
they perform such policy-making functions for the Company. As used in this
paragraph, the phrase "policy-making function" does not include policy-making
functions that are not significant.
(n) "Option" (when capitalized) shall mean any option granted
under this Plan.
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(o) "Optionee" shall mean a person to whom an Option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of a transfer made pursuant to Section 13 hereof.
(p) "Participant" shall mean either a person to whom
Restricted Shares are granted under this Plan, an Optionee or any person who
succeeds to the rights of either such person under this Plan by reason of the
death of such person.
(q) "Plan" shall mean this 1999 Stock Option and Award Plan of
the Company.
(r) "Restricted Shares" shall mean Shares granted or sold
pursuant to Section 10 of this Plan as to which neither the substantial risk of
forfeiture nor the prohibition on transfers referred to in such Section 10 has
expired.
(s) "Restricted Share Agreement" shall mean the agreement
entered into between the Company and the Participant who is to receive
Restricted Shares at the time of any Restricted Share grant.
(t) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(u) "Share(s)" shall mean a share or shares of the Common
Stock.
(v) "Subsidiary" shall mean a "subsidiary corporation" as
defined in ss.424(f) of the Code.
3. AVAILABLE SHARES. The Company may grant to Participants from time to
time an aggregate of up to 300,000 Restricted Shares or Options from Shares held
in the Company's treasury or from authorized and unissued Shares. If any Option
granted under this Plan shall terminate, expire, or be canceled or surrendered
as to any Shares, or if any Restricted Shares are forfeited by the holder
thereof, new Options or Restricted Shares may thereafter be granted covering
such Shares.
4. OPTION GRANTS. An Option granted hereunder shall be either an
Incentive Stock Option or a Non-Statutory Stock Option as determined by the
Committee at the time of grant of such Option and shall clearly state whether it
is an Incentive Stock Option or a Non-Statutory Stock Option. All Incentive
Stock Options shall be granted within ten years from the date this Plan is
adopted by the Board or the date this Plan is approved by the stockholders of
the Company, whichever is later.
5. DOLLAR LIMITATION. Options otherwise qualifying as Incentive Stock
Options hereunder will not be treated as Incentive Stock Options to the extent
that the aggregate Fair Market Value (determined at the time the Option is
granted) of the Shares, with respect to which Options meeting the requirements
of Code ss.422(b) are exercisable for the first time by any individual during
any calendar year (under all plans of the Company and any Subsidiary), exceeds
$100,000.
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6. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by a written agreement that
may contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law. Optionees
shall be those persons selected by the Committee from the class of all
Directors, Officers and regular employees of the Company or its Subsidiaries.
Any person who files with the Committee, in a form satisfactory to the
Committee, a written waiver of eligibility to receive any Option under this Plan
shall not be eligible to receive any Option under this Plan for the duration of
such waiver.
(b) In granting Options to Directors, Officers and employees
of the Company or its Subsidiaries, the Committee shall take into consideration
the contribution the person has made to the success of the Company or its
Subsidiaries and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Options to Directors, Officers and employees of the Company or its
Subsidiaries under this Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
(i) prescribing the date or dates on which the Option becomes exercisable, (ii)
providing that the Option rights accrue or become exercisable in installments
over a period of years, or upon the attainment of stated goals or both, or (iii)
relating an Option to the continued employment of the Optionee for a specified
period of time, provided that such terms and conditions are not more favorable
to an Optionee than those expressly permitted herein.
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither this
Plan nor any Option granted under this Plan shall confer upon any person any
right to employment or continuance of employment by the Company or its
Subsidiaries.
7. OPTION PRICE. The Committee shall establish, at the time any Option
is granted, the price per Share for which the Shares covered by the option may
be purchased; provided, however, that if the option is an Incentive Option, such
price shall not be less than 100% of the Fair Market Value of the Shares on the
date on which the option is granted; provided, further, that with respect to an
Incentive Option granted to a Participant who at the time of the grant owns
(after applying the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting stock of the Corporation or of any parent
corporation (as defined in Section 424(e) of the Code) or Subsidiary, the option
price shall not be less than 110% of the fair market value of the Shares subject
to the Incentive Option on the date such Option is granted.
8. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Optionee's payment to the Company of an amount that is sufficient to satisfy
all
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applicable federal or state tax withholding requirements relating to exercise of
the Option, if any. Unless further limited by the Committee in any Option, the
option price of any Shares purchased shall be paid in cash, by certified or
official bank check, by money order, with Shares or by a combination of the
above; provided further, however, that the Committee in its sole discretion may
accept a personal check in full or partial payment of any Shares. If the
exercise price is paid in whole or in part with Shares, the value of the Shares
surrendered shall be their Fair Market Value on the date the Option is
exercised. The Company in its sole discretion may, on an individual basis or
pursuant to a general program established in connection with this Plan, lend
money to an Optionee, guarantee a loan to an Optionee, or otherwise assist an
Optionee to obtain the cash necessary to exercise all or a portion of an Option
granted hereunder or to pay any tax liability of the Optionee attributable to
such exercise. If the exercise price is paid in whole or in part with an
Optionee's promissory note, such note shall (i) provide for full recourse to the
maker, (ii) be collateralized by the pledge of the Shares that the Optionee
purchases upon exercise of such Option, (iii) bear interest at the base lending
rate of the Company's principal lender, and (iv) contain such other terms as the
Committee in its sole discretion shall reasonably require. No Optionee shall be
deemed to be a holder of any Shares subject to an Option unless and until a
stock certificate or certificates for such Shares are issued to such person(s)
under the terms of this Plan. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 12
hereof.
9. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee shall
provide in such Option, except as otherwise provided in this Section 9.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall (i) an Option be
exercisable after the expiration of ten years from the date of grant of the
Option or (ii) an Incentive Option granted to a Participant, who at the time of
the grant owns (after applying the attribution rules of Section 424(d) of the
Code) more than 10% of the total combined voting stock of the Corporation or of
any parent corporation (as defined in Section 424(e) of the Code) or Subsidiary,
be exercisable after the expiration of five years from the date of grant of the
Incentive Option.
(b) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable upon any Change in Control.
(c) The Committee may in its sole discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to any Option or previously acquired by the exercise of any
Option.
10. TERMINATION OF OPTION PERIOD.
(a) The unexercised portion of any Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:
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(i) three months after the date on which the
Optionee's employment is terminated for any reason other than by reason of (A)
Cause, which, solely for purposes of this Plan, shall mean the termination of
the Optionee's employment by reason of the Optionee's willful misconduct or
gross negligence, (B) a mental or physical disability (within the meaning of
ss.22(e) of the Code) as determined by a medical doctor satisfactory to the
Committee, or (C) death;
(ii) immediately upon the termination of the
Optionee's employment for Cause;
(iii) one year after the date on which the Optionee's
employment is terminated by reason of a mental or physical disability (within
the meaning of ss.22(e) of the Code) as determined by a medical doctor
satisfactory to the Committee; or
(iv) (A) one year after the date of termination of
the Optionee's employment by reason of death of the Optionee, or (B) three
months after the date on which the Optionee dies if the Optionee dies during the
one year period specified in Section 9(a)(iii) hereof.
(b) The Committee in its sole discretion may, by giving
written notice (a "cancellation notice"), cancel, effective upon the date of the
consummation of any corporate transaction described in Sections 2(b)(ii) or
(iii) hereof, any Option that remains unexercised on such date. Such
cancellation notice shall be given a reasonable period of time prior to the
proposed date of such cancellation and may be given either before or after
approval of such corporate transaction.
11. RESTRICTED SHARES. The Committee may also authorize the grant or
sale to Directors, Officers and employees of the Company or its subsidiaries of
Restricted Shares. Each such grant or sale may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(a) Each such grant or sale shall constitute an immediate
transfer of the ownership of Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer referred to in the Restricted Share Agreement.
(b) In granting Restricted Share awards to Directors, Officers
and employees of the Company or its Subsidiaries, the Committee shall take into
consideration the contribution the person has made to the success of the Company
or its Subsidiaries and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Restricted Share awards to Directors, Officers and employees of the
Company or its Subsidiaries under this Plan prescribe such other terms and
conditions concerning such grants as it deems appropriate.
(c) Each Restricted Share grant or sale may be made without
additional consideration or in consideration of a payment by the Participant
that is less than Fair Market Value per Share at the date of grant.
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(d) Each such grant or sale shall be subject to a Restricted
Share Agreement, which shall provide that the Restricted Shares covered by such
grant or sale shall be subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code for a period of not less than one (1) year to
be determined by the Committee at the date of grant, and any grant or sale may
provide for the earlier termination of such period in the event of a Change in
Control, retirement, or death or disability of the Participant or other similar
transaction or event as approved by the Committee.
(e) Each Restricted Share Agreement shall provide that during
the period for which such substantial risk of forfeiture is to continue, and any
other period prescribed by law, the transferability of the Restricted Shares
shall be prohibited or restricted in the manner and to the extent prescribed by
the Committee or law, as the case may be, at the date of grant (which
restrictions may include, without limitation, prohibitions on transfer, rights
of repurchase or first refusal in the Company or provisions subjecting the
Restricted Shares to a continuing substantial risk of forfeiture in the hands of
any transferee).
(f) Any grant or sale of Restricted Shares may require that
any or all dividends or other distributions paid thereon during the period of
such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be subject to the same restrictions as the
underlying award.
12. ADJUSTMENT OF SHARES.
(a) If at any time while this Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant to Participants under this Plan, so
that the same percentage of the Company's issued and outstanding Shares shall
continue to be subject to being so granted; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, with respect to the
option price or the number of Shares subject to the Options, or both, when, in
the Committee's sole discretion, such adjustments become appropriate by reason
of any corporate transaction described in Sections 2(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any
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class, either in connection with direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to the number of
or exercise price of Shares then subject to outstanding Options granted under
this Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under this Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, lease, exchange, transfer, assignment or other disposition of all or any
part of the assets or business of the Company; or (vi) any other corporate act
or proceeding, whether of a similar character or otherwise.
13. TRANSFERABILITY OF OPTIONS AND RESTRICTED SHARES.
(a) No Incentive Stock Option shall be transferable by the
Optionee other than by will, the laws of descent and distribution, and each
Incentive Stock Option shall be exercisable during the Optionee's lifetime only
by the Optionee.
(b) A person that receives Non-Statutory Stock Options under
this Plan or such person's beneficiary shall have the power or right to sell,
exchange, pledge, transfer, assign or otherwise encumber or dispose of such
person's or beneficiary's Non-Statutory Stock Options received under this Plan
only as follows: (i) to the spouse or any children or grandchildren of such
person that receives Non-Statutory Stock Options under this Plan; (ii) as a
charitable contribution or gift to or for the use of any person or entity
described in ss.170(c) of the Code; (iii) to any Controlled Entity; or (iv) by
will or the laws of intestate succession.
(c) Restricted Shares may be transferred only as set forth in
the applicable Restricted Share Agreement.
14. ISSUANCE OF SHARES. As a condition of any sale or issuance of
Shares upon exercise of any Option or Restricted Share award grant, the
Committee may require such agreements or undertakings (in an Option Agreement or
Restricted Share Agreement), if any, as the Committee may deem necessary or
advisable to assure compliance with any such federal or state securities or
other law or regulation including, but not limited to, the following:
(i) a representation and warranty by the Participant to the
Company, at the time any Option is exercised or Restricted Share granted, that
he is acquiring the Shares to be issued to him for investment and not with a
view to, or for sale in connection with, the distribution of any such Shares;
and
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(ii) a representation, warranty and/or agreement by the
Participant to the Company to be bound by any legends that are, in the opinion
of the Committee or counsel to the Company, necessary or appropriate to comply
with the provisions of any securities law deemed by the Committee or counsel to
the Company to be applicable to the issuance of the Shares and are endorsed upon
the Share certificates.
15. ADMINISTRATION OF THE PLAN.
(a) This Plan shall be administered by the Committee, which
shall consist of not less than two Directors. The Committee shall have all of
the powers of the Board with respect to this Plan; provided that if any member
of the Committee is not a Non-Employee Director, then the Board shall approve
any Option or Restricted Share that the Committee proposes to grant hereunder.
The Board may change the membership of the Committee at any time and fill any
vacancy occurring in the membership of the Committee by appointment.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of this Plan. The Committee's
determinations and its interpretation and construction of any provision of this
Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written consent of the
members of the Committee.
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16. INTERPRETATION.
(a) The Plan shall be administered and interpreted so that all
Incentive Stock Options granted under this Plan will qualify as Incentive Stock
Options under ss.422 of the Code. If any provision of this Plan should be held
invalid for the granting of Incentive Stock Options or illegal for any reason,
such determination shall not affect the remaining provisions hereof, but instead
this Plan shall be construed and enforced as if such provision had never been
included in this Plan.
(b) This Plan shall be governed by the laws of the State of
Ohio.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
17. AMENDMENT AND DISCONTINUATION OF THE PLAN.
(a) Either the Board or the Committee may from time to time
amend this Plan or any Option; provided, however, that, except to the extent
provided in Section 12, no such amendment may, without approval by the
stockholders of the Company, (i) materially increase the benefits accruing to
participants under this Plan, (ii) materially increase the number of securities
which may be issued under this Plan, or (iii) materially modify the requirements
as to eligibility for participation in this Plan; and provided further, that
except to the extent provided in Section 10, no amendment or suspension of this
Plan or any Option issued hereunder shall substantially impair any Option
previously granted to any Optionee without the consent of such Optionee.
(b) Notwithstanding anything herein to the contrary, the
provisions of this Plan which govern the exercise price per Share under each
such Option, when and under what circumstances such Option will be granted and
the period within which each such Option may be exercised, shall not be amended
more than once every six months (even with stockholder approval) other than to
conform to changes to (i) the Code or the rules promulgated thereunder, (ii) the
Employee Retirement Income Security Act of 1974, as amended, or the rules
promulgated thereunder, or (iii) rules promulgated by the Securities and
Exchange Commission.
18. EFFECTIVE DATE AND TERMINATION DATE. The Plan shall be effective
upon the Effective Date and shall terminate on the tenth anniversary of the
Effective Date.
*
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ANNEX G
FORM OF
LEASE AGREEMENT
THIS LEASE made this ____________ day of _____________, 1999, Mentor,
Ohio by and between OSAIR, INC. an Ohio Corporation, owner of THE MATCH WORKS,
(hereinafter called "Landlord"), and LIBERTY SELF-STOR, INC., a Maryland
corporation (hereinafter called "Tenant").
WITNESSETH, that Landlord hereby leases to Tenant and Tenant hereby
hires and takes from Landlord certain premises, being Suite No. 100 and
containing approximately 6,000 square feet of space of The Match Works. Said
premises are hereinafter sometimes referred to as the "Demised Premises."
Landlord excepts and reserves hallways, stairways, shaftways, elevators and
other common areas and common facilities, and the right to maintain, use, repair
and replace pipes, ducts, wires, meters and any other equipment, machinery,
apparatus and fixtures serving other parts of the said building, including such
of them as may occur above the finished ceiling of the Demised Premises or
elsewhere within the Demised Premises.
1. LEASE TERM Landlord leases the Demised Premises to Tenant and Tenant
Leases and agrees to take possession of the same form Landlord, for a term
commencing on the date set forth above (the "Commencement Date") and ending on
the last day of the sixtieth (60th) full month following the Commencement Date.
2. RENT Tenant shall pay to Landlord without demand, deduction or
setoff rent in the aggregate amount of Four Thousand Dollars ($4,000.00) per
month, in advance on the first day of each month during the Lease Term. Said
rent sum shall include electricity charges.
3. PERMITTED USE The Demised Premises may be used only for the purpose
of general office space all in accordance with Landlord's Rules and Regulations.
Tenant specifically acknowledges that the Demised Premises shall not be used for
any use other than those indigenous to Tenant's anticipated use, unless approved
by Landlord.
4. POSSESSION The taking of possession of the Demised Premises by the
Tenant shall be conclusive evidence of its acceptance thereof and approval of
any and all construction.
5. IMPROVEMENTS BY TENANT Tenant shall not make any additions,
improvements or modifications of the Demised Premises, including decorations,
without the written consent of Landlord, which shall not be unreasonably
withheld. The improvements set forth in Exhibit "A", if any, shall be
constructed by Landlord at its sole expense. All other additions, improvements
or modifications (hereinafter referred to as "Improvements by Tenant") shall be
constructed at Tenant's sole expense upon approval by landlord. Work will be
commenced upon Improvements by Tenant, if any, within fifteen (15) days after
the last to occur to the following: (1) Landlord's approval of plans and
specifications, or (2) Landlord's notice to Tenant that the Demised Premises are
ready for the commencement of Tenant's work. Improvements by Tenant, which shall
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include the removal by Tenant of any debris resulting from said work, shall be
completed within thirty (30) days, except for delays due to casualties or other
causes beyond Tenant's reasonable control, and Tenant shall open the Demised
Premises for the permitted uses upon such completion. In all events, the Lease
Term shall commence upon the earlier to occur of fourteen (14) business days
after the work should be commenced upon the Improvements by Tenant, except for
such delays caused by neglect or omission of Landlord, its agents and employees,
or upon the date specified in Section 1 hereof.
6. SECURITY DEPOSIT
THIS SECTION INTENTIONALLY LEFT BLANK
7. LANDLORD'S COVENANTS Subject to Section 9 of this Lease, Landlord
covenants that it shall perform or furnish, or cause to be performed or
furnished, the following:
(a) Such heat and air conditioning to maintain the Demised Premises at
comfortable temperatures during the hours of the day between 8:00 a.m.
and 6:00 p.m. Mondays through Fridays inclusive, and 9:00 a.m. to 1:00
p.m. Saturdays, all days observed by the New York Stock Exchange as
legal holidays excepted.
(b) Common rest rooms, as required by local applicable code.
(c) Hot and cold water in reasonable amounts to the aforesaid common
washrooms and to the Demised Premises.
(d) Adequate janitorial services to common areas.
(e) Window washing service as reasonably required.
(f) Reasonable adequate parking spaces on the grounds appurtenant to
The Match Works for the use, in common, with the other Tenants of said
building and their employees and invitees.
(g) Adequate snow removal service for the aforementioned parking spaces
and for all approaches thereto.
(h) During business hours, reasonable illumination for all parking
areas and footways appurtenant to The Match Works.
(i) A Tenant directory in the lobby of the building. Landlord will
supply a sign at the door to the Demised Premises which will identify
the suite number and the identity of the Tenant. Said signs shall be of
uniform appearance and design throughout the building, as determined by
Landlord. Tenant will not place any sign, marking or designation on the
doorway to the Demised Premises, the building corridors, or on the
windows, or on the exterior of the Demised Premises.
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8. TENANT'S COVENANTS Tenant covenants to and with Landlord as follows:
(a) Except for damage by fire or other unavoidable casualty and
reasonable use and wear, Tenant shall keep the Demised Premises in as
good order, repair and condition as the same are at the commencement of
the Lease Term, or may be put in thereafter, and at the termination of
the Lease Term, peaceably yield up and surrender the Demised Premises
and all additions thereto and permanent installations therein in good
order, repair and condition, first removing all goods and effects,
except those of Landlord, and making any repairs made necessary by such
removal, and leaving the Demised Premises clean and tenantable.
(b) Tenant covenants that it shall not injure, overload, deface or
commit waste in the Demised Premises or any part of The Match Works,
shall not permit therein any auction sale; shall not permit the
occurrence of any nuisance therein or the emission therefrom of any
objectionable noise, odor or effect; shall not use or permit the use of
the Demised Premises for any purpose other than the permitted uses as
herein specified; and shall not use or permit any use of the Demised
Premises which is improper, offensive, contrary to law or ordinance, or
which is liable to invalidate or increase the premium for any insurance
on The Match Works or its contents or which is liable to render
necessary any alterations or additions to the building.
(c) Tenant covenants that it shall not obstruct in any manner any
portion of the building, or the approaches to said building, or any
windows or doors.
(d) Tenant covenants that it shall conform to all reasonable rules and
regulations now or hereafter promulgated by Landlord ("Landlord's Rules
and Regulations") or applicable governmental authorities for the care
and use of the building, its facilities and approaches.
(e) Tenant covenants that it shall keep the Demised Premises equipped
with all safety appliances and permits required by law or ordinance or
any order or regulation of any public authority or insurer because of
the use made of the Demised Premises by Tenant, and, if requested by
Landlord, shall make all repairs, alterations, replacements or
additions so required in the Demised Premises.
(f) Tenant covenants that it shall save Landlord harmless and
indemnified from any injury, loss, claim or damage to any person or
property while on or in said Demised Premises and to any person or
property anywhere occasioned by any omission, neglect or default of
Tenant or of employees, agents, contractors or officers of Tenant.
(g) Tenant covenants that, except for the negligence of Landlord, its
agents and employees, Landlord and Landlord's agents and employees
shall not be liable for, and Tenant waives all claims for, damage to
person or property sustained by Tenant or any person claiming through
Tenant resulting from any accident or occurrence in or upon the Demised
Premises or the building of which they shall be a part, or the land
appurtenant thereto, including, but not limited to, claims for damage
resulting from: (1) any equipment or appurtenances becoming
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out of repair; (2) injury done or occasioned by wind, rain or other
force of nature; (3) any defect in or failure of plumbing, heating or
air conditioning equipment, electric wiring or installation thereof,
gas, water, compressed air and steam pipes, stairs, porches, railing or
walks; (4) broken glass; (5) the backing up on any sewer pipe or
downspout; (6) the bursting, leaking or running of any tank, tub,
washstand, water closet, waste pipe, drain or any other pipe or tank
in, upon or about such building or Demised Premises; (7) the escape of
steam, compressed air, natural gas or hot water; (8) water, snow or ice
being upon or coming through the rood, skylight, trapdoor, stairs,
doorways, walks or any other place upon or near such building or the
Demised Premises or otherwise; (9) falling of any fixture, plaster,
tile or stucco; and (10) any act, omission or negligence of co-tenants,
licensees or of any other persons or occupants of said building or of
persons, occupants and/or owners of adjoining or contiguous property.
(h) Tenant covenants that it shall permit the Landlord and the
Landlord's agents to enter and examine the Demised Premises at
reasonable times and, if the Landlord shall so elect to make any
repairs or additions the Landlord may reasonable deem necessary and ,
at the Tenant's expense, to remove any alterations, additions, signs,
antennas or the like, not consented to by the Landlord in writing.
(i) Tenant covenants that it shall pay the Landlord's expenses,
including reasonable attorney's fees incurred in enforcing any
obligations of Tenant under this Lease which are not complied with.
(j) Tenant covenants that it shall not knowingly permit any employee or
visitor of the Tenant to violate any covenant or obligation of the
Tenant hereunder.
(k) Tenant covenants that, in case the Tenant takes possession of the
Demised Premises prior to the commencement of said term, it shall
perform and observe all of the Tenant's covenants from and after the
date upon which the Tenant takes possession.
(l) Tenant covenants that it shall not assign this Lease or sublet any
portion of the Demised Premises or enter into a space-sharing agreement
without prior written consent of Landlord, such consent not to be
unreasonable withheld, or mortgage or hypothecate this lease or license
the Demised Premises or any portion thereof. No operation of law,
including merger or consolidation, shall be effective to create an
assignment or transfer without the written consent of Landlord, which
shall not be unreasonably withheld.
(m) Tenant covenants that it shall not make any alterations or
additions in or to the Demised Premises without the prior written
consent of Landlord.
(n) Tenant covenants that it shall not erect or paint on any sign or
other identification on any exterior window, any corridor or door to
the exterior or door to a corridor or other common area.
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(o) Tenant covenants that it shall not misuse or abuse the plumbing
system in the Demised Premises and shall be responsible for the cost of
clearing discharge lines of objects or other material causing stoppage
thereof, if such stoppage shall have been caused by Tenant or any of
tenant's invitees, agents or employees.
(p) Tenant shall maintain, in responsible companies approved by
Landlord, liability insurance insuring Landlord and Tenant as their
interest may appear against all claims, demands or actions for injury
to or death of any one person in an amount of not less than One Hundred
Thousand Dollars ($100,000) arising from one occurrence, and for injury
to and/or death of more than one person arising from one occurrence in
an amount of not less the Three Hundred Thousand Dollars ($300,000.),
and for damage to property in an amount of not less than Fifty Thousand
Dollars ($50,000.), made by or on behalf of any person or persons, firm
or corporation, arising from, related to or connected with the conduct
and operation of Tenant's business in the Demised Premises. Landlord
may require copies of said insurance policies to be filed with it.
(q) Tenant shall supply all light bulbs and fluorescent lights for the
Demised Premises other than the initial light bulbs and fluorescent
lights for the fixtures installed by Landlord, which initial lighting
shall be furnished by Landlord at no expense to Tenant.
9. FORCE MAJEURE Landlord shall not be liable to anyone for the
cessation of or interruption of any service, including public utility services,
rendered to Tenant pursuant to the Lease due to accident, or due to the making
of repairs, alterations or improvements, or due to labor difficulties, or due to
inability to obtain fuel, electricity, services or supplies from the sources
from which they are usually obtained for the Match Works, or for any other
reason whatsoever. Any such interruption of any of the above services shall
never be deemed in eviction or disturbance of the Tenant's use of the Demised
Premises or any part thereof, or render the Landlord liable to the Tenant for
damage, or relieve the Tenant from performance of the Tenant's obligations under
this Lease. Landlord, however, shall promptly take the necessary steps to
terminate such interruptions as expeditiously as possible under the
circumstances.
10. DISPLAY OF PREMISES Tenant covenants and agrees that, for the
period of three months prior to the expiration of the term of this lease,
Landlord may show the Demised Premises and all parts thereof to prospective
tenants between the hours of 9:00 a.m. and 6:00 p.m. on any day.
11. SUBORDINATION This Lease shall be subject to and subordinate to any
mortgages, easements or trust deeds that may hereafter be placed upon The Match
Works and/or the land thereunder and all advances to be made under such
mortgages or trust deeds and to the interest thereon, and all renewals,
extensions and consolidations thereof. Tenant covenants that it shall execute
and deliver whatever instruments may be required to acknowledge such
subordination in recordable form, and in the event Tenant fails to do so within
ten (10) day after demand in writing, Tenant does hereby make, constitute and
irrevocably appoint Landlord as its attorney in fact and in its name, place and
stead so to do. Tenant acknowledges that said power of attorney is irrevocable
and coupled with an interest. No easement created by Landlord shall in any way
interfere with or disturb Tenants right of quiet enjoyment of the premises as
hereinafter set forth.
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12. ESTOPPEL CERTIFICATES At any time and from time to time, Tenant
agrees, upon request in writing from Landlord, to execute, acknowledge and
deliver to Landlord a statement in writing certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force as modified and stating the modifications) and
the dates to which the rent and other charges have been paid.
13. BROKERAGE Tenant warrants that it has had no dealings with any
broker or agent other than Landlord's representative in connection with this
Lease and covenants to pay, hold harmless and indemnify Landlord from and
against any and all cost, expense or liability for any compensation, commissions
and charges claimed by any broker or agent other than Landlord's personnel with
respect to this Lease or the negotiation thereof.
14. POSSESSION If the Landlord shall be unable to give possession of
the Demised Premises on the date of the commencement of the term hereof by
reason of substantial in completion of the construction of the Demised Premises
or the holding over of any tenant or tenants or for any other reason beyond the
control of the Landlord, then the rent shall not commence until possession of
the premises is given or is available and the Tenant agrees to accept such
allowance and abatement of rent as liquidated damages in full satisfaction for
the failure of the Landlord to give possession of said premises on the
commencement date and to the exclusion of all claims and rights which the Tenant
may otherwise have by reason of possession of the Demised Premises not being
given on the commencement date of the term hereof. No such failure to give
possession on the date of the commencement of the term, shall in any event,
extend or be deemed to extend, the term of this Lease. In the event that Tenant
shall occupy the Demised Premises or a portion thereof prior to the term of this
Lease with the Landlord's consent, all the provisions of this Lease shall be in
full force and effect as soon as the Tenant occupies the said premises, and rent
shall be charged on a per diem basis at the rates specified in Section 2. hereof
for the period prior to the commencement date of this Lease.
15. HOLDING OVER Should the Tenant remain in possession of said
premises after the date of the expiration of this Lease with or without the
consent of the Landlord, then unless a new written lease agreement shall have
been entered into between the parties hereto, the Tenant shall be a tenant from
month-to-month, and such tenancy shall be otherwise subject to all the covenants
and conditions of this Lease, except that the rent shall be at one hundred
twenty-five percent (125%) of the monthly rate set forth in this Lease, unless
otherwise agreed upon.
16. UNTENANTABILITY If the Demised Premises or the building in which
they are located are made unfit for occupancy by the elements, fire or other
cause, the Landlord may elect to terminate this Lease as of the time when the
premises or building are made unfit for occupancy, by notice to the Tenant
within ninety (90) days after that occurrence. In the alternative, Landlord may
elect to repair the building or the premises at the Landlord's expense within
one hundred eighty (180) days after the Landlord is enabled to take possession
of the damaged premises and undertake reconstruction or repairs, in which event
this Lease shall not terminate, but rent shall be abated on a per diem basis,
prorata, for the portion of the Demised Premises rendered unfit for occupancy.
If the Landlord elects to so repair, restore or rehabilitate the building or the
premises and does not substantially compete the work within said one hundred
eighty (180) days period, excluding from
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said period loss of time caused by the delay beyond the control of the Landlord,
then either party may terminate this Lease as of the time when the premises or
the building were made unfit for occupancy, by notice to the other party not
later than thirty (30) days after expiration of said one hundred eighty (180)
day period, as so computed. In the event of termination of the Lease pursuant to
this section, rent, including any escalation thereof, shall be apportioned on a
per diem basis and shall be paid to the date of termination.
Anything herein stated to the contrary notwithstanding, in the event
that the building in which the Demised Premises are located shall be damaged in
any way whatsoever, and the estimated cost of repairing such damage shall exceed
one-half (1/2) of the value of the building at the time of the happening of such
damage by reason of such damage, the Landlord may decide to demolish said
building and rebuild the same and, in such event, the Landlord shall have the
right to terminate this Lease by giving to the Tenant thirty (30) days' written
notice of such termination.
17. FIRE AND CASUALTY INSURANCE Insofar as it is able to do so without
invalidating the fire and extended coverage insurance on the Demised Premises,
Landlord agrees to and does hereby waive all rights of recovery and causes of
action against Tenant, its employees, servants, agents and all parties claiming
through or under the Tenant for any damage to the Demised Premises and the
building in which they are located, caused by any of the perils covered by fire
and extended coverage insurance policies, notwithstanding the fact that said
damage to or destruction of said building and the Demised Premises by fire or
other casualty shall be due to the negligence of Tenant. If the premium paid by
the Landlord for said fire and extended coverage insurance during the term of
this Lease are increased by reason of the foregoing, then Tenant has the option
to pay said increase. Tenant's failure to pay said increase in insurance
premiums, if any, after reasonable notice of Tenant, shall render the Landlord's
waiver, as contained in this section, null and void.
Landlord and Tenant agree to and do hereby waive all rights of recovery
and causes of action against the other party and all parties claiming through or
under such other party by reason of any fire and extended coverage insurance
policies, for any damage to the Demised Premises, leasehold improvements or
personal property contained therein, notwithstanding the fact that said damage
to or destruction of Landlord's or Tenant's property by fire or other casualty
shall be due to the negligence of the other party. Said waiver is and shall
continue in full force and effect, irrespective of an increase in either party's
fire and extended coverage insurance. Each party shall cause an appropriate
rider to be affixed to its fire and extended coverage insurance policies,
whereby such party's insurer shall waive all rights of recovery or causes of
action against the other party arising from the payment of any damage or loss
sustained by such party.
18. EMINENT DOMAIN If the whole or any part of the Demised Premises
shall be condemned or taken for any public or quasi public use or conveyed to a
public authority or quasi public authority under threat of condemnation, and
such taking and conveyance shall render the Demised Premises untenantable, this
Lease shall wholly expire on the date that title shall vest in the condemning
authority. In no event whatsoever shall Tenant have any claim against Landlord
by reason of condemnation or taking or by reason of a conveyance under threat of
condemnation or by taking of the whole or any part of the building or parking
areas or associated facilities. Tenants shall not have any claim to the amount
or any portion thereof which shall be awarded or paid to Landlord
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as a result of any condemnation or taking. Tenant hereby irrevocably assigns to
Landlord all Tenant's right, title and interest in and to all amounts awarded or
paid by reason of any condemnation or taking or any conveyance under thereat
thereof.
19. OPTION TO RENEW Landlord hereby grants to Tenant the option to
renew this Lease for One (1) additional term of five (5) years ("Extended Term")
commencing upon the expiration of the original Lease Term. The Extended Term
shall be subject to all of the covenants, agreements, provisions, terms and
conditions of this Lease, except that the monthly rental shall be $5,000 per
month.
Written notice of the exercise of this option shall be given by Tenant
to Landlord by registered mail at least ninety (90) days before the expiration
of the original term of this Lease and provided further that all rents have been
fully paid and that all covenants, agreements, provisions, terms and conditions
of this Lease to be performed by Tenant have been fully and faithfully
performed, kept and observed.
20. LANDLORD'S REMEDIES All rights and remedies of the Landlord herein
set forth are in addition to any and all rights and remedies allowed by law and
equity.
(a) If any voluntary or involuntary petition or similar pleading under
any Act of Congress relating to bankruptcy shall be filed by or against
Tenant or if any voluntary or involuntary proceedings in any court or
tribunal shall be instituted by or against Tenant to declare Tenant
insolvent or unable to pay Tenant's debts, then and in any such event,
Landlord may, if Landlord so elects, with or without notice of such
election and with or without entry or other action by Landlord,
forthwith terminate this Lease and, notwithstanding any other
provisions of this Lease, Landlord shall forthwith upon termination be
entitled to recover damages in an amount equal to the then present
value of the rent reserved in this Lease for the entire residue of the
stated term hereof, less the fair rental value of the premises for the
residue of the stated term hereof.
(b) If the Tenant is (i) in default in the payment of rent for ten (10)
days, or is (ii) in default of the prompt or full performance of any
other provisions of this Lease after thirty (30) days' written notice
sent to the Tenant by the Landlord; or if the leasehold interest of the
tenant be levied upon under execution or be attached or if the Tenant
makes an assignment for the benefit of creditors, or if a receiver be
appointed by or for the Tenant or if the Tenant abandons the Demised
Premises, then and in any such event, the Landlord may, if the Landlord
so elects, with or without notice of such election, except as herein
provided, with or without demand, forthwith terminate this Lease and
the Tenant's right to possession of the Demised Premises and retake
possession of the Demised Premises by self-help or other summary
proceeding; provided, however, that if the Landlord has notified the
Tenant to cure non-monetary defaults by thirty (30) days notice as
above provided and the curing of such defaults cannot be effected
within said thirty (30) day period but has been commenced during said
thirty (30) day period, and provided that once begun the Tenant
proceeds diligently and in good faith to complete the necessary work to
cure said defaults, then the Landlord shall not exercise the rights
otherwise contained in this section.
8
<PAGE> 316
(c) If the Tenant abandons the Demised Premises or if the Landlord
elects to terminate the Tenant's right to possession only without
terminating the Lease as above provided, the Landlord may remove from
the premises any and all property found therein and such repossession
shall not release the Tenant from Tenant's obligation to pay the rent
herein reserved. After any such repossession by Landlord without
termination of the Lease, the Landlord may, but need not, relet the
Demised Premises or any part thereof as agent of the Tenant to any
person, firm or corporation and for such time and upon such terms as
the Landlord, in the Landlord's sole discretion may determine; the
Landlord may make repairs, alterations and additions in and to the
Demised Premises and redecorate the same to the extent deemed by the
Landlord reasonably necessary or desirable and the Tenant, upon demand
in writing, shall pay the cost thereof, together with the costs of such
repairs, alterations, additions, redecorating and expenses. The Tenant
shall pay to the Landlord the amount of each monthly deficiency, upon
demand in writing, and if the rent so collected from any such reletting
is more than sufficient to pay the full amount of the rent reserved
herein, together with such costs and expenses of Landlord, the Landlord
at the end of the stated term of this Lease shall account for any
surplus to the Tenant, upon demand in writing.
(d) Any and all property which may be removed from the Demised Premises
by the Landlord, in accordance with the terms of this Lease, may be
handled, removed, stored or otherwise disposed of by the Landlord at
the risk and expense of the Tenant; the Landlord in no event shall be
responsible for the preservation or safekeeping of, or damage to,
Tenant's property.
Tenant shall pay all expenses incurred with such removal and all
storage charges against such property. If any property shall remain upon the
Demised Premises or in the possession of the Landlord and shall not be retaken
by the Tenant within a period of thirty (30) days from and after the time when
the Demised Premises are either abandoned by the Tenant or repossessed by the
Landlord under terms of this Lease, said property shall conclusively be deemed
to have been forever abandoned by the Tenant.
21. QUIET ENJOYMENT So long as the Tenant pays the rent and all charges
to be paid by the Tenant and performs and observes all of the covenants and
provisions herein, the Tenant shall quietly enjoy the Demised Premises subject,
however, to the terms of this Lease, to the underlying leases, if any, leasehold
mortgage and other mortgages herein mentioned and provided for or any defaults
thereunder.
22. WAIVER No consent or waiver, express or implied, by Landlord to or
of any breach of any covenant, condition or duty of Tenant shall be construed as
a consent or waiver to or of any other breach of the same or any other covenant,
condition or duty to be observed by Tenant or co-tenant.
23. NOTICE Any notice required or permitted to be given to either party
hereunder shall be sufficiently given, if in writing, addressed to such party,
and personally delivered or sent by nationally recognized overnight delivery
service or mailed certified mail, return receipt requested, to such address as
either party may from time to time designate for that purpose, which address
9
<PAGE> 317
initially is: 7001 Center Street, Mentor, Ohio 44060 for Tenant and 8500 Station
Street, Mentor, Ohio 44060 for Landlord.
24. SUCCESSORS AND ASSIGNS This lease and the covenants and conditions
herein contained shall inure to the benefit of and be binding upon Landlord, its
successors and assigns, and shall be binding upon Tenant, its successors and
assigns, and shall inure to the benefits of Tenant and only such assignees of
Tenant to whom an assignment by Tenant has been consented to in writing by
Landlord.
25. ENTIRE AGREEMENT This Lease contains the entire agreement between
the parties hereto; any agreement hereafter or heretofore made shall not operate
to change, modify, terminate or discharge this Lease, in whole or in part,
unless such agreement is in writing and signed by each of the parties hereto.
Landlord has made no representations or warranties with respect to the Demised
Premises, except as herein expressly set forth.
26. RECORDING Tenant agrees not to record this Lease. At the request of
either party, a memorandum form of this Lease will be prepared in the form
approved by Landlord and Tenant, executed and filed with the Recorder of Lake
County, Ohio. The party requesting the memorandum form shall pay the cost of
recording.
27. TERMS Whenever herein the singular number is used, the same shall
include the plural; and the neuter gender shall include the masculine and
feminine genders.
This Lease Agreement is executed as of the date and at the place first
above written.
Signed and Acknowledged LANDLORD:
in the Presence of: OSAIR, INC.
BY:
- ----------------------------- -------------------------------
(Signature of Witness)
ITS:
- ----------------------------- ---------------------
(Printed Name of Witness)
- -----------------------------
(Signature of Witness)
- -----------------------------
(Printed Name of Witness)
TENANT:
LIBERTY SELF-STOR, INC.
BY:
- ----------------------------- -------------------------------
(Signature of Witness)
ITS:
- ----------------------------- ---------------------
10
<PAGE> 318
(Printed Name of Witness)
- -----------------------------
(Signature of Witness)
- -----------------------------
(Printed Name of Witness)
11
<PAGE> 319
STATE OF OHIO )
) SS.
COUNTY OF ___________ )
BEFORE ME, a Notary Public in and for said county and State personally
appeared the above-named OSAIR, INC. by _________________, its
____________________ , who acknowledged that he did sign the foregoing
instrument and that the same is the free act and deed of said corporation and
his free act and deed personally and as such officer.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal at
_____________, Ohio, this _______, day of _______________, 19 _____.
----------------------------
Notary Public
STATE OF OHIO )
) SS.
COUNTY OF ___________ )
BEFORE ME, a Notary Public in and for said county and State personally
appeared the above-named LIBERTY SELF-STOR, INC. by ______________________, its
______________________ , who acknowledged that he did sign the foregoing
instrument and that the same is his free and voluntary act and deed.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal at
___________, Ohio, this ________ , day of _____________, 19 _____.
----------------------------
Notary Public
12
<PAGE> 320
11
EXHIBIT "A"
NONE
13
<PAGE> 321
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Maryland General Corporation Law ("MGCL") permits a Maryland
corporation to include in its Articles a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Articles of Liberty Self-Stor, Inc. ("Liberty") contain a provision which
eliminates such liability to the maximum extent permitted by Maryland law.
The Articles of Liberty authorize it, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director, officer, agent and employee of Liberty or (b) any
individual who, at the request of Liberty, serves or has served in any of these
capacities another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise. The Bylaws of Liberty obligate it, to the
maximum extent permitted by Maryland law, to indemnify (which, consistent with
the provisions of the Articles, Liberty considers to include the obligation to
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding) (a) any present or former director or officer of Liberty or (b) any
individual who, at the request of Liberty, serves or has served another
corporation, partnership, joint venture, trust or other enterprise as a director
or officer.
The MGCL requires a corporation (unless its Articles provides
otherwise, which Liberty's Articles do not) to indemnify a director or officer
who has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However under the MGCL, a Maryland
corporation may not indemnify a director or officer for an adverse judgment in
a suit by or in the right of the corporation or for a judgment of liability on
the basis that a personal benefit was improperly received, unless in either case
a court orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation's receipt of (a) a written affirmation by the director or
officer of his good
II-1
<PAGE> 322
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation, and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Liberty will attempt to obtain claims made directors and officers
liability insurance policy that insures the directors and officers of Liberty
against loss from claimed insured wrongful acts and insures Liberty for
indemnifying the trustees and officers against such loss.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 Form of Agreement and Plan of Merger, dated as of June __,
1999, by and among Meridian Point Realty Trust '83,
Liberty Self-Stor Limited Partnership, and Liberty
Self-Stor, Inc. (attached to this Proxy
Statement/Prospectus as Annex B)
3.1 Form of Articles of Incorporation (attached to this Proxy
Statement/Prospectus as Annex B)
3.2 Form of Bylaws (attached to this Proxy
Statement/Prospectus as Annex B)
4.1 1999 Stock Option and Award Plan (attached to this Proxy
Statement/Prospectus as Annex F)
5.1 Opinions of Kohrman Jackson & Krantz P.L.L.
10.1 Form of Lease Agreement, dated as of June __, 1999, by and
between OsAir, Inc. and Liberty Self-Stor, Inc. (attached
to this Proxy Statement/Prospectus as Annex G)
10.2 Formation Agreement, dated as of May 12, 1999 by and among
Meridian Point Realty Trust '83, Liberty Self-Stor, Inc.,
Liberty Self-Stor, Ltd., Richard M. Osborne, Thomas J.
Smith, Diane Osborne, and Retirement Management Company
(attached to this Proxy Statement/Prospectus as Annex C)
10.3 Form of Agreement of Limited Partnership of LSS I Limited
Partnership, dated as of ________, 1999, by and among
Liberty Self-Stor, Inc., the general partner and the
limited partners listed on Exhibit A attached thereto
(attached to this Proxy Statement/Prospectus as Annex D)
10.4 Employment Agreement, dated as of _________, 1999, between
Liberty Self-Stor, Inc. and Thomas J. Smith
II-2
<PAGE> 323
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Tischler, Beard, Wallace & Co., Ltd.
99.1 Appraisals by Robert A. Stanger & Co., Inc.
(b) Financial Statement Schedules
All schedules are omitted as inapplicable.
(c) Appraisals
Filed as Exhibit 99.1
Item 22. Undertakings
(a)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through the use
of a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned registrant undertakes that every prospectus: (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 (the "Act") and is used in connection with an offering of securities
subject to Rule 415, will be filed as part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Act, each such posteffective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described under Item 20 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 324
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
II-4
<PAGE> 325
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Amendment No. 1 to Registration Statement on Form S-4 to be
signed on its behalf by the undersigned hereunto duly authorized in the City of
Cleveland, State of Ohio on June 4, 1999.
LIBERTY SELF-STOR, INC.
/s/ Richard M. Osborne
-------------------------------
By: Richard M. Osborne
Its: Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Thomas J. Smith and Marc C. Krantz
his true and lawful attorneys-in-fact, each acting alone, with full powers of
substitution, and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<S> <C> <C>
/s/ Richard M. Osborne Chairman of the Board and Chief June 4, 1999
- -------------------------- Executive Officer
Richard M. Osborne
/s/ Ronald L. Ramer Chief Financial Officer June 4, 1999
- --------------------------
Ronald L. Ramer
/s/ Thomas J. Smith President and Trustee June 4, 1999
- --------------------------
Thomas J. Smith
/s/ Steven A. Calabrese Trustee June 4, 1999
- --------------------------
Steven A. Calabrese
/s/ Mark D. Grossi Trustee June 4, 1999
- --------------------------
Mark D. Grossi
/s/ Marc C. Krantz Secretary and Trustee June 4, 1999
- ---------------------------
Marc C. Krantz
</TABLE>
II-5
<PAGE> 326
EXHIBIT INDEX
No. Description
- --- -----------
2.1 * Form of Agreement and Plan of Merger, dated as of June __, 1999,
by and among Meridian Point Realty Trust '83, Liberty Self-Stor
Limited Partnership, and Liberty Self-Stor, Inc. (attached to this
Proxy Statement/Prospectus as Annex
B)
3.1 * Form of Articles of Incorporation (attached to this Proxy
Statement/Prospectus as Exhibit A to Annex B)
3.2 * Form of Bylaws (attached to this Proxy Statement/Prospectus as
Exhibit B to Annex B)
4.1 * 1999 Stock Option and Award Plan (attached to this Proxy
Statement/Prospectus as Annex F)
5.1 Opinions of Kohrman Jackson & Krantz P.L.L.
10.1 * Form of Lease Agreement, dated as of June __, 1999, by and
between OsAir, Inc. and Liberty Self-Stor, Inc. (attached to this
Proxy Statement/Prospectus as Annex G)
10.2 * Formation Agreement, dated as of May 12, 1999 by and among
Meridian Point Realty Trust '83, Liberty Self-Stor, Inc., Liberty
SelfStor, Ltd., Richard M. Osborne, Thomas J. Smith, Diane
Osborne, and Retirement Management Company (attached to this
Proxy Statement/Prospectus as Annex C)
10.3 * Form of Agreement of Limited Partnership of LSS I Limited
Partnership, dated as of ________, 1999, by and among Liberty
Self-Stor, Inc., the general partner and the limited partners
listed on Exhibit A attached thereto (attached to this Proxy
Statement/Prospectus as Annex D)
10.4 Form of Employment Agreement, dated as of _________, 1999, between
Liberty Self-Stor, Inc. and Thomas J. Smith
23.1 ** Consent of Arthur Andersen LLP
23.2 ** Consent of Tischler, Beard, Wallace & Co., Ltd.
99.1 ** Appraisals by Robert A. Stanger & Co., Inc.
- -----------
* Previously filed
** Filed herewith
<PAGE> 1
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of
Amendment No. 1 to this Registration Statement and related Proxy
Statement/Prospectus of Liberty Self-Stor, Inc.
/s/ Arthur Andersen LLP
Cleveland, Ohio
June 4, 1999
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports on the financial statements of the Initial Properties
dated December 31, 1998, the financial statements of Aqua Marine Custom Canvas,
Inc., d.b.a. Aqua Marine Mini-Storage (Marblehead, Ohio) dated June 29, 1997,
the financial statements of the Schlamo Properties (East Canton and Louisville,
Ohio) dated May 29, 1997, the financial statements of the Stor-N-Loc Property
(Avon, Ohio) dated November 26, 1997, the financial statements of the Better
Lock Self-Service Storage Property (Canton, Ohio) dated April 27, 1997, and the
financial statements of Storagetown East, Inc. (Riverhead, New York) as of
December 31, 1998 and 1997 in Amendment No. 1 to the Registration Statement
(Form S-4, Reg. No. 333-78479) and related Proxy Statement/Prospectus of
Liberty Self-Stor, Inc. for the registration of 9,807,887 shares of its common
stock.
/s/ Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
June 4, 1999
<PAGE> 1
Exhibit 99.1
SUMMARY PORTFOLIO APPRAISAL REPORT
LIBERTY SELF-STOR
FIFTEEN PROPERTY PORTFOLIO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Letter of Transmittal....................................................... 1
Identification of Subject Portfolio......................................... 3
Property Ownership and History.............................................. 3
Purpose of Appraisal........................................................ 4
Function of Appraisal....................................................... 4
Scope of Appraisal.......................................................... 4
Date of Valuation........................................................... 4
Value Definition............................................................ 5
Valuation Methodology....................................................... 6
Site Inspections and Data Gathering................................ 7
Income and Expense Analysis....................................... 8
Income Approach Analysis........................................... 8
Sales Comparison Analysis.......................................... 9
Reconciliation.....................................................10
Portfolio Value Conclusion..................................................11
Portfolio Summary...........................................................12
Assumptions and Limiting Conditions.........................................13
</TABLE>
<PAGE> 3
May 24, 1999
Meridian Point Realty Trust `83
Liberty Self-Stor, Ltd.
8500 Station Street, Suite 100
Mentor, OH 44060
Gentlemen:
Meridian Point Realty Trust `83 ("Meridian") and Liberty Self-Stor,
Ltd. ("Liberty") have engaged Robert A. Stanger & Co., Inc. ("Stanger") to
estimate the market value of a portfolio of fifteen self-storage facilities (the
"Portfolio"). Such appraisal reflects the estimated market value of the fee
simple interests in the Portfolio as of March 31, 1999, assuming the Portfolio
to be free and clear of any existing debt or other encumbrances (the "Portfolio
Valuation").
This summary appraisal report is prepared in accordance with an
agreement between Robert A. Stanger & Co., Inc. and Meridian and Liberty dated
March 11, 1999. In accordance with the agreement, Stanger has been engaged to
perform the appraisal on a limited scope basis in conformity with the departure
provisions of the Uniform Standards of Professional Appraisal Practice as they
relate to limited scope appraisal reports. We have relied upon the Income
Approach and Sales Comparison Approach to value and have been engaged to deliver
a summary appraisal report that is not designed to meet the requirements of
Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA").
The Portfolio Valuation is based in part upon information supplied to
us by Meridian and Liberty and the property managers, including, but not limited
to, descriptions of the subject properties (the "Properties"), ownership
interests in the subject properties, unit mix, operating statements of the
Properties, property tax bills, expense details, occupancy reports, rent rolls,
information relative to the condition of each Property, including, but not
limited to, any deferred maintenance, planned capital expenditures, and status
of ongoing or newly planned property additions, reconfigurations and
improvements, and other supporting data. We have also received information from
interviews of property and company management personnel. We have relied upon
such information and have assumed that the information provided is accurate and
complete. We have not attempted to independently verify such information.
We are advised by Meridian and Liberty that the purpose of the
appraisal is to estimate the value of the fee interests in the Portfolio under
market conditions as of the appraisal date, and that the Portfolio Valuation
will be used solely in connection with the possible merger of certain interests
in or assets of Meridian and Liberty. Stanger understands that the Portfolio
Valuation will be
-1-
<PAGE> 4
reviewed and utilized by the management of Meridian and Liberty in connection
with the above transaction, and Stanger agrees to the use of the Portfolio
Valuation for this purpose subject to the terms and conditions of the agreements
related thereto. For these purposes, this summary appraisal report was prepared
stating our opinion as to the aggregate fair market value of the Portfolio as of
March 31, 1999. The attached summary appraisal report should be reviewed in its
entirety and is subject to the assumptions and limiting conditions contained
herein. Background information and analysis upon which value conclusions are
based has been retained in our files.
Our review was undertaken solely for the purpose of providing an
opinion of market value, and we make no representation as to the adequacy of
such review for any other purpose. Our opinion is expressed with respect to the
market value of the Portfolio. Neither Stanger nor the undersigned have any
present or contemplated future financial or ownership interest in the
Properties, Meridian or Liberty.
The appraisal is only an estimate of the market value of the fee simple
interests in the Portfolio as of the date of valuation and should not be relied
upon as being the equivalent of the price that would necessarily be received in
the event of a sale or other disposition of the Portfolio. Changes in corporate
financing rates or changes in real estate property markets may result in higher
or lower values of real property. The use of other valuation methodologies might
produce a higher or lower value. Our opinion is subject to the assumptions and
limiting conditions set forth herein. We have used methods and assumptions
deemed appropriate in our professional judgment; however, future events may
demonstrate that the assumptions were incorrect or that other, different methods
or assumptions may have been more appropriate.
This summary appraisal report provides our value conclusion with
respect to the Portfolio, definitions of value, discussions of the valuation
methodology employed, assumptions, and limiting conditions. The attached
exhibits are an integral part of this report.
Based upon the review described herein, it is our opinion that the
market value of the fee simple interests in the Portfolio of properties as of
March 31, 1999 is:
$23,620,000
TWENTY THREE MILLION, SIX HUNDRED AND TWENTY THOUSAND DOLLARS
--------------------
Sincerely,
/s/ Robert A. Stanger & Co., Inc.
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
2
<PAGE> 5
IDENTIFICATION OF SUBJECT PORTFOLIO
-----------------------------------
The subject of this summary appraisal report is the portfolio of real
properties (the "Portfolio") owned by Liberty Self-Stor, Ltd. The Portfolio is
comprised of fifteen self-storage properties, aggregating approximately 576,038
square feet, located in two states. A summary description of the Portfolio is
provided elsewhere in this report.
PROPERTY OWNERSHIP AND HISTORY
------------------------------
All the properties in the Portfolio are owned by Liberty Self-Stor,
Ltd.. All of the properties were developed or acquired by Liberty between 1996
and 1998. The table below shows the ownership history of each of the properties.
<TABLE>
<CAPTION>
DATE
PROPERTY ACQUIRED/DEVELOPED
- -------- ------------------
<S> <C>
East Liverpool 10/31/96
Endicott 11/20/96
Downtown 55th 12/3/96
Perry 1/10/97
Ravenna 3/31/97
Canton 4/22/97
Louisville 5/30/97
East Canton 5/30/97
Catawba 6/30/97
Dayton 5/22/97
Avon 10/31/97
Willoughby - Lost Nation 10/4/96
Mentor 3/20/98
Southold 6/1/97
Riverhead 4/30/99
</TABLE>
PURPOSE OF APPRAISAL
--------------------
The purpose of the appraisal is to estimate the market value of the fee
simple interests in the Portfolio under market conditions as of March 31, 1999.
FUNCTION OF APPRAISAL
---------------------
The function of the appraisal is to provide a current estimate of
market value of the fee simple interests in the Portfolio for use solely by the
management of Meridian and Liberty in connection with the possible merger of
interests in or assets of Meridian and Liberty. No representation is made as to
the adequacy of this appraisal for any other purpose.
-3-
<PAGE> 6
SCOPE OF APPRAISAL
------------------
The Portfolio Valuation has been prepared on a limited scope basis in
conformity with the departure provisions of the Uniform Standards of
Professional Appraisal Practice of the Appraisal Institute, in accordance with
an agreement between Robert A. Stanger & Co., Inc. and Meridian and Liberty
dated March 11, 1999. Pursuant to that agreement, Stanger has relied upon the
Income Approach and Sales Comparison Approach to value and did not employ the
Cost Approach (as described below).
In estimating the value of a property, appraisers typically consider
three approaches to value: the Cost Approach; the Sales Comparison Approach; and
the Income Approach. The type and age of a property, market conditions and the
quantity and quality of data affect the applicability of each approach in a
specific appraisal situation. The value estimated by the Cost Approach
incorporates separate estimates of the value of the unimproved site under its
highest and best use and the value of the improvements, less observed accrued
depreciation resulting from physical wear and tear and functional and/or
economic obsolescence. The Market Data or Sales Comparison Approach involves a
comparative analysis of the subject property with other similar properties that
have sold recently or that are currently offered for sale in the market. The
Income Approach involves an economic analysis of the property based on its
potential to provide future net annual income.
Pursuant to the terms of our engagement, the Portfolio Valuation was
performed using the Income Approach and Sales Comparison Approach. Since a
primary buyer group for the type of property appraised herein is investors, the
Income Approach and Sales Comparison Approach were deemed appropriate valuation
methodologies. Further, given the primary criteria used by buyers of the type of
property appraised herein, the Cost Approach was considered less reliable than
either of the Income Approach or Sales Comparison Approach.
Changes in corporate financing rates or in real estate property markets
may result in higher or lower values of real property. The use of other
valuation methodologies might produce a higher or lower value. Our opinion is
subject to the assumptions and limiting conditions set forth herein.
Departures - Uniform Standards of Professional Practice -- With respect to the
limited appraisal, the departure provisions of the Uniform Standards of
Professional Appraisal Practice permit departures from the specific guidelines
of Standard 1. In this report the following departures were taken:
Standard Rule 1-4 (b) Details relating to comparable sales and rental
data and reconciliations of value for each
property are not specifically described or set
forth in this report but have been retained in
our files.
DATE OF VALUATION
-----------------
The date of valuation for the Portfolio is March 31, 1999.
-4-
<PAGE> 7
VALUE DEFINITION
----------------
Market value, as used in this report and defined by the Appraisal
Institute, is the most probable price as of a specified date, in cash, in terms
equivalent to cash, or in other precisely revealed terms, for which the
specified property rights should sell after reasonable exposure in a competitive
market under all conditions requisite to a fair sale, with the buyer and seller
each acting prudently, knowledgeably and for self-interest, and assuming that
neither is under undue duress.
Implicit in this definition is the consummation of a sale as of a
specified date and the passing of title from seller to buyer under conditions
whereby:
(a) buyer and seller are typically motivated;
(b) both parties are well informed or well advised, and each acts in a
manner he considers in his own best interest;
(c) a reasonable time is allowed for exposure in the open market;
(d) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(e) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
(Source: The Appraisal of Real Estate, Tenth Edition.)
The property rights appraised in this report consist of fee simple
interests. Due to the generally short-term, month to month tenancies in
self-storage facilities, a fee simple interest was deemed appropriate for such
facilities. Fee simple interest is defined as absolute ownership unencumbered by
any other interest or estate subject only to the limitations of eminent domain,
escheat, police power and taxation.
The appraisal includes the value of land, land improvements such as
paving, fencing, on-site sewer and water lines, and the buildings as of March
31, 1999. The appraisal does not include supplies, materials on hand,
inventories, furniture, equipment or other personal property, company records,
or current or intangible assets that may exist. The appraisal pertains only to
items considered as real estate.
-5-
<PAGE> 8
VALUATION METHODOLOGY
---------------------
Pursuant to the terms of this engagement, Stanger has estimated the
value of the fee simple interests in the Portfolio's Properties based on the
Income Approach and Sales Comparison Approach to valuation.
The Income Approach is based on the assumption that the value of a
property or portfolio of properties is dependent upon the property's or
portfolio's ability to produce income. The Income Approach estimates a
property's capacity to produce income through an analysis of the rental market,
operating expenses and net operating income. Net income may then be processed
into value through either (or a combination of) two methods: direct
capitalization or discounted cash flow analysis. In this Portfolio Valuation,
direct capitalization analysis and/or discounted cash flow ("DCF") analysis is
used to determine the value of the fee simple interests or, where appropriate,
leased fee interests in each Property. The indicated value by the Income
Approach represents the amount an investor may pay for the expectation of
receiving the net cash flow from the Properties and proceeds from the ultimate
sale of the Properties.
The direct capitalization analysis is based upon the estimated net
operating income of each Property capitalized at an appropriate capitalization
rate based upon property characteristics and competitive position and market
conditions as of the date of the appraisal.
In applying the DCF analysis, Stanger utilized pro forma statements of
operations for each Portfolio Property including revenues and expenses projected
over a ten-year period. Each Portfolio Property is assumed to be sold at the end
of the ten-year holding period. The reversion value of each Portfolio Property
which can be realized upon sale is estimated based on capitalization of the
estimated net income of the property in the year following the year sale,
utilizing a capitalization rate deemed appropriate in light of the age,
anticipated functional and economic obsolescence and estimated competitive
position of the property at the time of sale. Net proceeds to owners are
determined by deducting appropriate costs of sale. The discount rate selected
for the DCF analysis is based upon estimated target rates of return for buyers
of self-storage properties. Total estimated value for the Portfolio Properties
is arrived at by summing the discounted present value of the cash flow stream
from operations and net proceeds from sale for each property.
The Sales Comparison Approach utilizes indices of value derived from
actual or proposed sales of comparable properties to estimate the value of the
Portfolio Property. Price per square foot, a unit of comparison typically
analyzed for self-storage facilities, was utilized in applying the Sales
Comparison Approach to the Portfolio Properties.
The following describes more fully the steps involved in the valuation
methodology utilized.
-6-
<PAGE> 9
SITE INSPECTIONS & DATA GATHERING
- ---------------------------------
In conducting the Portfolio Valuation, representatives of Stanger
performed a site inspection of each Portfolio Property during March 1999. In the
course of these site visits, the physical facilities of each property were
inspected, current rental and occupancy information for the property was
obtained, current market rental rates for competing properties were
investigated, primary competing properties were identified, information on the
local market was gathered, and the on-site manager or assistant manager was
interviewed concerning the property and other factors. Where appropriate,
information gathered during the site inspection was supplemented by a review of
published information concerning economic, demographic and/or real estate trends
in local, regional or national markets.
In conducting the appraisal, Stanger also interviewed and relied upon
Meridian, Liberty and property management personnel to obtain information
relating to the condition of each property, including any deferred maintenance,
capital budgets, known environmental conditions, status of on-going or newly
planned property additions, reconfigurations, improvements, and other factors
affecting the physical condition of the property improvements.
In addition, interviews of Liberty management personnel included
discussions of competitive conditions in local markets, area economic and
development trends affecting the subject properties, historical and budgeted
operating revenues and expenses and occupancies. Stanger also reviewed available
historical operating statements, year-to-date 1999 operating statements and 1999
operating budgets for each Portfolio Property, and reviewed surveys of local
self-storage markets conducted by property management personnel.
To define the occupancy, rental rate and expense escalators to be used
in developing operating projections, Stanger reviewed the projection parameters
in use in the marketplace by major self-storage investors, owners and operators.
In addition, Stanger reviewed other published information concerning acquisition
criteria in use by real estate investors at or around the valuation date.
Further, Stanger interviewed various sources in local markets to identify recent
sales of self-storage properties and to derive certain valuation indicators.
In addition, Stanger reviewed the acquisition criteria and parameters
used by self-storage real estate investors. Such review included a search of
real estate data sources and publications concerning real estate buyer's
criteria, and direct telephonic interviews with major national investors,
owners, managers, brokers and appraisers of self-storage property portfolios.
Stanger also compiled data on actual transactions involving
self-storage properties from which acquisition criteria and parameters were
extracted. Stanger reviewed publicly available information on acquisitions of
self-storage properties by certain publicly owned real estate companies and
contacted various industry sources for relevant data.
-7-
<PAGE> 10
INCOME AND EXPENSE ANALYSIS
- ---------------------------
During the course of the site inspections, competing properties were
identified and data on local market rental rates and occupancy were obtained.
Such data was compared to posted rental rates, the rent roll and occupancy
reports for each subject property, as available. Historical and budgeted
effective gross income and income from ancillary sources was also reviewed for
each subject property. In addition, discussions were conducted with management
personnel concerning property and market trends and competitive conditions.
After assessing the above factors, an effective gross income estimate was
prepared for each property based upon the unit configuration, market rental
rates, market occupancy rate and estimates of ancillary income.
Historical and budgeted data on expenses were obtained from Liberty for
each property. In addition, property tax bills were obtained and tax assessments
were confirmed with local municipalities. Expenses for each individual property
were estimated based on historical and budgeted operating expenses, discussions
with management and certain industry expense guidelines.
Estimated expenses were then deducted from estimated income for each
property to arrive at each properties' estimated net operating income. Any
expenses relating solely to investor reporting and accounting were excluded.
During the course of the site inspections, any deferred maintenance was
observed. Historical and budgeted capital expenditures were reviewed and
discussed with management, and appropriate capital expenditures were considered
in the analysis.
INCOME APPROACH ANALYSIS
- ------------------------
Stanger then employed direct capitalization and discounted cash flow
analyses to estimate the value of the subject properties. The direct
capitalization rate used was based on current acquisition criteria among
self-storage investors and reflected in specific sales transactions. Where
appropriate, the capitalization rate used for an individual property was
adjusted to reflect valuation factors unique to the property, such as overall
quality, recent buildouts, and other unique valuation facts affecting the
individual properties. Where deferred maintenance or extraordinary capital
expenditures were required the capitalized value was adjusted accordingly.
- DIRECT CAPITALIZATION ANALYSIS -- Based upon the net operating income
estimated in accordance with the analyses of effective gross income and expenses
described above, an estimate of value was derived for each Portfolio Property by
capitalizing the estimated net operating income at a rate determined in
accordance with surveys of buyers of self-storage properties, as confirmed by a
review of comparable sales transactions, and deemed appropriate given the
characteristics of each property. Capitalization rates ranging from 9.50% to
9.75% were applied to the projected net operating income from each of the
Portfolio Properties which were considered to be at stabilized occupancy during
the twelve-month period following the valuation date. For unstabilized
properties, capitalization rates deemed appropriate to reflect leaseup risk and
timing were applied to projected stabilized net operating income.
-8-
<PAGE> 11
- DISCOUNTED CASH FLOW ANALYSIS -- In applying discounted cash flow
analysis, projections of cash flows from each property (assuming no indebtedness
thereon) for a ten-year period were developed. The base year projection of net
operating income was prepared consistent with the direct capitalization analysis
based upon the analysis of effective gross income and expenses described above.
Income and expense escalators used in developing the projections were based on
projection parameters in use as of the Valuation Date by property investors,
market factors, historical and budgeted financial results for each property, and
inflation rates. In highly competitive markets or where a property's operations
were below stabilized levels, income and/or occupancy escalators were adjusted
as deemed appropriate or until stabilized operations were achieved. Costs of any
scheduled extraordinary capital improvements or deferred maintenance were taken
into account based on estimated amounts and timing provided by management.
To determine the residual value for each property at the end of the
projection period, the estimated net operating income of the property in the
eleventh year was capitalized at a rate deemed appropriate for the property.
Terminal capitalization rates generally ranged from 9.75% to 10.0%. The residual
value was discounted to a present value after deducting appropriate sales
expenses using the same discount rate applied to the stream of annual cash
flows. The discount rate employed was based primarily on current acquisition
criteria among self-storage investors, commercial/industrial property investors'
target rates of return, and rates of return available from alternative
investments under current market conditions. Discount rates utilized ranged from
11.75% to 12.25%.
The results of each analysis (direct capitalization and discounted cash
flow) then were correlated to arrive at a final income approach value
determination.
SALES COMPARISON ANALYSIS
- -------------------------
In the course of performing the Portfolio Valuation, Stanger compiled
data on actual transactions involving properties similar in type to the
Portfolio Properties. To gather such data, Stanger interviewed various sources
in local markets to identify recent sales of self-storage properties, reviewed
publicly available information on acquisitions of self-storage properties and
portfolios by certain publicly owned real estate companies, reviewed information
provided by management, and contacted various industry sources for data.
Utilizing such data, an index of value was derived based upon price per
square foot. The index of value was applied to each property to estimate value.
Price per square foot as estimated by reference to comparable sales transactions
was multiplied by the rentable square footage of each property to derive an
estimated range of value.
-9-
<PAGE> 12
SALES COMPARISON APPROACH AND INCOME APPROACH RECONCILIATION
- ------------------------------------------------------------
The estimated values resulting from the Sales Comparison Approach were
reconciled with the values estimated resulting from the Income Approach (direct
capitalization and/or discounted cash flow analyses) for each Portfolio
Property, and the resulting values were summed to determine the estimated value
of the Portfolio.
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject Portfolio Properties are
typically purchased and sold based upon their income characteristics. The Income
Approach was given primary consideration based upon the income producing nature
of the Portfolio Properties, the primary criteria used by buyers of self-storage
properties, and the fact that several of the Portfolio Properties have not yet
achieved fully stabilized operations. The Sales Comparison Approach was given
secondary consideration.
Where necessary, Stanger adjusted the value conclusion for each
Portfolio Property to reflect any deferred maintenance items or excess land
associated with the Property.
-10-
<PAGE> 13
PORTFOLIO VALUE CONCLUSION
--------------------------
Based upon the review as described above, it is our opinion that the
market value of the fee simple interests in the Portfolio as of March 31, 1999
is:
$23,620,000
TWENTY THREE MILLION, SIX HUNDRED AND TWENTY THOUSAND DOLLARS
-----------------
-11-
<PAGE> 14
PORTFOLIO SUMMARY
LIBERTY SELF-STOR FACILITIES - MARCH 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPERTY ADDRESS RENTABLE SQ. FT.
- -------- ------- ----------------
<S> <C> <C>
East Liverpool 16031 Strader Road 29,990
East Liverpool, OH
Endicott 1400 Campville Road 35,580
Edicott, NY
Downtown 55th 5440 S. Marginal 46,650
Cleveland, OH
Perry 4376 North Ridge Road 63,950
Perry, OH
Ravenna 111 Loomis Parkway 16,950
Ravenna, OH
Canton 3700 Fohl Road, S.W. 41,145
Canton, OH
Louisville 7100 Columbus Road 54,060
Louisville, OH
East Canton 5136 Lincoln Street 26,700
East Canton, OH
Catawba 5681 East Harbor Road 49,570
Marblehead, OH
Dayton 3785 Shillow Springs Road 19,550
Dayton, OH
Avon 988 Avon Belden Road 63,725
Avon, OH
Willoughby - Lost Nation 38255 St. Clair Street 35,306
Willoughby, OH
Mentor 6784 Hopkins Road 19,182
Mentor, OH
Southold 1040 Hortons Land 53,055
Southold, NY
Riverhead 99 Mill Road 20,625
Riverhead, NY
TOTALS 576,038
=======
</TABLE>
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<PAGE> 15
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
This summary appraisal report is subject to the assumptions and
limiting conditions as set forth below.
1. No responsibility is assumed for matters of a legal nature affecting
the Portfolio Properties or the titles thereto. Titles to the properties are
assumed to be good and marketable and the properties are assumed free and clear
of all liens unless otherwise stated.
2. The Portfolio Valuation assumes (a) responsible ownership and
competent management of the properties; (b) there are no hidden or unapparent
conditions of the properties' subsoil or structures that render the properties
more or less valuable (no responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover them); (c)
full compliance with all applicable federal, state and local zoning, access and
environmental regulations and laws, unless noncompliance is stated, defined and
considered in the Appraisal; and (d) all required licenses, certificates of
occupancy and other governmental consents have been or can be obtained and
renewed for any use on which the value estimate contained in the Portfolio
Valuation is based.
3. The Appraiser shall not be required to give testimony or appear in
court because of having made the appraisal with reference to the portfolio in
question, unless arrangements have been previously made therefore.
4. The information contained in the Portfolio Valuation or upon which
the Portfolio Valuation is based has been provided by or gathered from sources
assumed to be reliable and accurate. Some of such information has been provided
by the owner of the properties. The Appraiser shall not be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, exhibits and other factual matters. The
Portfolio Valuation and the opinion of value stated herein are as of the date
stated in the Portfolio Valuation. Changes since that date in property, external
and market factors can significantly affect portfolio value.
5. Disclosure of the contents of the appraisal report is governed by
the Bylaws and Regulations of the professional appraisal organization with which
the Appraiser is affiliated.
6. Neither all, nor any part of the content of the report, or copy
thereof (including conclusions as to the portfolio's value, the identity of the
Appraiser, professional designations, reference to any professional appraisal
organizations, or the firm with which the Appraiser is connected) shall be used
for any purpose by anyone other than the client specified in the report,
including, but not limited to, the mortgagee or its successors and assignees,
mortgage insurers, consultants, professional appraisal organizations, any state
or federally approved financial institution, any department, agency or
instrumentality without the previous written consent of the Appraiser; nor shall
it be conveyed by anyone to the public through advertising, public relations,
news sales or other media, without the written consent and approval of the
Appraiser.
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<PAGE> 16
ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
-----------------------------------------------
7. On all appraisals subject to completion, repairs or alterations, the
appraisal report and value conclusions are contingent upon completion of the
improvements in a workmanlike manner.
8. The physical condition of the improvements considered by the
Portfolio Valuation is based on visual inspection by the Appraiser or other
representatives of Stanger and on representations by the owner. Stanger assumes
no responsibility for the soundness of structural members or for the condition
of mechanical equipment, plumbing or electrical components. The Appraiser has
made no surveys of the Portfolio Properties.
9. The projections of income and expenses and the valuation parameters
utilized are not predictions of the future. Rather, they are the Appraiser's
best estimate of current market thinking relating to future income and expenses.
The Appraiser makes no warranty or representations that these projections will
materialize. The real estate market is constantly fluctuating and changing. It
is not the Appraiser's task to predict or in any way warrant the conditions of a
future real estate market; the Appraiser can only reflect what the investment
community, as of the date of the Appraisal, envisions for the future in terms of
rental rates, expenses, supply and demand. We have used methods and assumptions
deemed appropriate in our professional judgment; however, future events may
demonstrate that the assumptions were incorrect or that other different methods
or assumptions may have been more appropriate.
10. The Portfolio Valuation represents normal consideration for the
Portfolio's Properties based on a cash purchase and unaffected by special terms,
services, fees, costs, or credits incurred in the transaction.
11. Unless otherwise stated in the report, the existence of hazardous
materials, which may or may not be present on the Portfolio Properties, was not
disclosed to the Appraiser by the owner. The Appraiser has no knowledge of the
existence of such materials on or in the Portfolio Properties. However, the
Appraiser is not qualified to detect such substances. The presence of substances
such as asbestos, ureaformaldehyde foam insulation, oil spills, or other
potentially hazardous materials may affect the value of the Portfolio. The
Portfolio Value estimate is predicated on the assumption that there is no such
material on or in the Portfolio Properties that would cause a loss of value. No
responsibility is assumed for such conditions, or for any expertise or
engineering knowledge required to discover them. The client is urged to retain
an expert in this field, if desired.
12. For purposes of this report, it is assumed that each Portfolio
Property is free of any negative impact with regard to the Environmental Cleanup
Responsibility Act (ECRA) or any other environmental problems or with respect to
non-compliance with the Americans with Disabilities Act (ADA). No investigation
has been made by the Appraiser with respect to any potential environmental or
ADA problems. Environmental and ADA compliance studies are not within the scope
of this report.
-14-
<PAGE> 17
ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
-----------------------------------------------
13. Pursuant to the Engagement Agreement, the Portfolio Valuation has
been prepared on a limited scope basis using a summary report format in
conformity with the departure provisions of the Uniform Standards of
Professional Appraisal Practice and the Standards of Professional Appraisal
Practice of the Appraisal Institute, relying on the income approach and sales
comparison approach to value. Further, the engagement calls for delivery of a
summary appraisal report in which the content has been limited to that data
presented herein. As such, the summary appraisal report is not designed to meet
the requirements of Title XI of the Federal Financial Institutions Reform,
Recovery and Enforcement Act of 1989. Therefore, federally regulated
institutions should not rely on this report for financing purposes.
14. The appraisal is solely for the purpose of providing our opinion of
the value of the Portfolio, and we make no representation as to the adequacy of
such review for any other purpose. The owner has directed that the Portfolio
Properties be valued assuming the properties are free and clear of any debt. The
use of other valuation methodologies might produce a higher or lower value.
15. In addition to these general assumptions and limiting conditions,
any assumptions or conditions applicable to specific properties have been
retained in our files.
-15-
