<PAGE> 1
As Filed with the Securities and Exchange Commission on October 29, 1999
Registration No. 333-78479
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
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
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, in connection
with the solicitation of proxies by the board of trustees for use at the special
meeting of shareholders in lieu of the annual meeting of shareholders to be held
on Tuesday, December 28, 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 18 BEFORE YOU VOTE.
- Meridian's liquidation value may be higher than the market
price of Liberty's common stock.
- Liberty's stock may never trade as high as Liberty's pro forma
net asset value per share or the current market price of
Meridian's shares.
- Liberty will not have Meridian's liquidation exit strategy.
- Meridian may not have qualified, and Meridian's counsel cannot
opine as to whether Meridian qualified, as a REIT, and if
Meridian failed to qualify as a REIT, Liberty may be subject
to taxation as a regular corporation.
- Liberty has a negative book value and eight consecutive
quarters of net losses.
- Liberty will have substantial debt.
- Liberty may not be able to meet its debt obligations.
- Liberty needs additional financing which may reduce funds
available for operations.
- Richard M. Osborne will control Liberty.
- Richard M. Osborne, Meridian's and Liberty's Chairman of the
Board and Chief Executive Officer, controls the self-storage
company being acquired.
- Liberty's board of directors can change Liberty's policies
without stockholder input or approval.
- No independent representative was retained to act on behalf
of shareholders.
- Advance notice requirements in Liberty's bylaws could deter
proxy contests.
- Stockholders of Liberty need to act by unanimous written
consent.
There is no formal trading market for Meridian shares nor will there be
a formal trading market for the common stock of Liberty. Shares of beneficial
interest of Meridian are traded on the Over-the-Counter Bulletin Board Market of
The Nasdaq Stock Market under the symbol "MPTBS." Shares of Liberty's common
stock will be traded on the OTCBB under the symbol "LSSI," if available. On
October 27, 1999, the closing price for Meridian's shares as reported by the
OTCBB was $0.625. The principal executive offices of both Meridian and Liberty
are located at 8500 Station Street, Suite 100, Mentor, Ohio 44060, telephone
number (440) 974-3770.
THE REINCORPORATION INTO A MARYLAND CORPORATION AND THE COMMON 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 ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THE PROPOSED TRANSACTIONS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The date of this Proxy Statement/Prospectus is October 28, 1999. This
Proxy Statement/Prospectus is first being mailed to shareholders of Meridian on
or about October 28, 1999.
<PAGE> 3
MERIDIAN POINT REALTY TRUST '83
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
IN LIEU OF THE ANNUAL MEETING OF SHAREHOLDERS
To be held on December 28, 1999
To the Shareholders of Meridian Point Realty Trust '83:
Notice is hereby given that the special meeting of shareholders in lieu
of the annual meeting of shareholders of Meridian Point Realty Trust '83, a
California business trust, will be held at 1375 East Ninth Street, 20th Floor,
One Cleveland Center, Cleveland, Ohio 44114 on Tuesday, December 28, 1999 at
10:00 a.m., local time, for the following purposes:
(1) To consider and vote upon a proposal to approve an amendment to
Meridian's amended and restated declaration of trust which specifically states
that Meridian can merge with a limited partnership or real estate investment
trust organized in any state. Pursuant to the provisions of the California
Corporations Code, this amendment is necessary to allow Meridian to
reincorporate from a California common law business trust into a Maryland
corporation known as Liberty Self-Stor, Inc., as described in the accompanying
Proxy Statement/Prospectus.
(2) To consider and vote upon a proposal to approve the reincorporation
of Meridian from a California common law business trust into a Maryland
corporation. The reincorporation is governed by the Agreement and Plan of
Merger among Meridian, Liberty Self-Stor, Inc., a Maryland corporation and a
wholly-owned subsidiary of Meridian, and Liberty Self-Stor Limited Partnership,
a Maryland limited partnership and an indirect wholly-owned subsidiary of
Meridian, whereby (a) Meridian will merge with and into Liberty Self-Stor
Limited Partnership and (b) Liberty Self-Stor Limited Partnership will merge
with and into Liberty Self-Stor, Inc. as described in the accompanying Proxy
Statement/Prospectus.
(3) To consider and vote upon a proposal to approve the acquisition of
Liberty Self-Stor, Ltd., an Ohio limited liability company which owns 15
self-storage facilities, through the formation of an operating partnership,
known as LSS I Limited Partnership, a Delaware limited partnership, to own and
operate self-storage facilities contributed to the operating partnership by the
members of Liberty Self-Stor, Ltd. The members of Liberty Self-Stor, Ltd. are
Richard M. Osborne, Chairman of the Board and Chief Executive Officer of
Meridian and Liberty, Diane M. Osborne, his wife, Thomas J. Smith, Meridian's
and Liberty's President and Chief Operating Officer, and Retirement Management
Company, an Ohio corporation which is owned solely by Mr. Osborne. Mr. Osborne,
through his own membership interests and the membership interests of Retirement
Management Company, owns more than 98% of the self-storage company. Each member
of the self-storage company will exchange his, her or its membership interests
for limited partnership interests in the operating partnership. Liberty will
contribute cash and securities to the operating partnership in exchange for the
general partnership interests and limited partnership interests in the operating
partnership. As a result of the contribution, the operating partnership will
hold cash and securities and own all of the membership interests in Osborne's
self-storage company. For purposes of determining the ownership of the operating
partnership,
<PAGE> 4
the value of the contribution of the membership interests of Osborne's
self-storage company will be the net asset value of the 15 self-storage
facilities and other assets contributed.
(4) To consider and vote upon a proposal to elect five trustees of
Meridian, who will, if the reincorporation is approved, serve as directors of
Liberty, to serve until the next annual meeting of shareholders or until their
successors are elected and have been duly qualified.
(5) To consider and vote upon a proposal to approve Liberty's 1999
Stock Option Plan, as described in the accompanying Proxy Statement/Prospectus.
(6) To consider and vote upon a proposal to approve Liberty's lease for
its executive offices. We are seeking approval of this lease because OsAir,
Inc., the company that owns the building where the executive offices are
located, is owned by Mr. Osborne and in our September 1998 proxy statement, we
promised to put to a vote of the shareholders any transaction that involved Mr.
Osborne.
(7) To consider and vote upon a proposal to ratify the appointment of
Arthur Andersen LLP as independent auditors of Meridian, and Liberty as
Meridian's successor if the reincorporation is approved, for the fiscal year
ending December 31, 1999.
(8) To transact any other business that may properly come before the
special meeting or any adjournment thereof.
Meridian's board of trustees has fixed the close of business on
October 20, 1999 as the record date for the special meeting. Only shareholders
of record at the close of business on that date are entitled to notice of, and
to vote at, the special meeting and any adjournment or postponement thereof.
Dissenting shareholders will not have appraisal rights in connection
with the reincorporation into a Maryland corporation and the reorganization into
an UPREIT structure.
YOUR VOTE IS IMPORTANT!
Adoption of the amendment to the current declaration of trust and the
reincorporation into a Maryland corporation requires the affirmative vote of 50%
of the outstanding shares of Meridian. Adoption of the reorganization into an
UPREIT structure requires the affirmative vote of a majority of the votes cast
at the special meeting. The approval of the other proposals requires the
affirmative vote of a majority of votes cast by shareholders at the special
meeting. Mr. Calabrese, a trustee, owns 290,265 shares or 9.5% of Meridian's
outstanding shares. However, 297,344 shares, or 9.8%, of Meridian's outstanding
shares owned by Turkey Vulture Fund XIII, Ltd., an Ohio limited liability
company of which Mr. Osborne is the sole manager, will not be voted with respect
to the proposals regarding the reorganization of Meridian as an UPREIT and the
lease. 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
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<PAGE> 5
each of the proposals. Your cooperation is appreciated and will assist in
minimizing Meridian'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: October 28, 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.
- --------------------------------------------------------------------------------
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<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary..................................................................................................1
Overview............................................................................................1
Determination of Allocation of Interests in the Operating Partnership...............................2
Transaction Values..................................................................................3
Summary of Risks, Detriments and Other Adverse Factors..............................................3
Summary of Benefits of the Reincorporation into a Maryland
Corporation and Reorganization of Meridian as an UPREIT.............................................5
Fairness............................................................................................6
Independent Appraisal and Fairness Opinion..........................................................7
Meridian............................................................................................8
Liberty Self-Stor, Inc..............................................................................8
Liberty Self-Stor, Ltd..............................................................................9
The Special Meeting.................................................................................9
Recommendation of the Board of Trustees............................................................14
No Appraisal Rights................................................................................14
Selected Financial Data............................................................................15
Risk Factors............................................................................................18
Meridian's liquidation value may be higher than the market price of
Liberty's stock....................................................................................18
Liberty's stock may never trade as high as Liberty's pro forma net asset value per share
or the current market price of Meridian's shares...................................................18
Liberty will not have a liquidation exit strategy like Meridian....................................18
Meridian may not have qualified, and Meridian's counsel cannot opine as to
whether Meridian qualified, as a REIT and if Meridian failed to qualify as
a REIT, Liberty would not be able to elect to be treated as a REIT for the
four taxable years after the year during which Meridian ceased to qualify
as a REIT and may be subject to taxation as a regular cooperation..................................18
Osborne's self-storage company has a negative book value and has had
eight consecutive quarters of net losses...........................................................18
Liberty will have $18.3 million in debt after the reorganization...................................18
Liberty may not be able to meet its debt obligations as they become due............................19
Liberty needs additional funds to execute its business plan........................................19
Liberty may have difficulty raising needed capital in the future...................................19
Richard M. Osborne will control Liberty............................................................20
Richard M. Osborne and Thomas J. Smith, as officers and directors of
both Meridian and Liberty and members of the self-storage company, face
conflicts of interest in the proposed transactions.................................................20
Mr. Osborne was a party to all sides of the proposed transactions..................................20
The board of directors has the ability to effect changes to the major policies
of Liberty, including its investment policy, without the vote of stockholders......................21
No independent representative was retained by the board of trustees to act on
behalf of Meridian's shareholders..................................................................21
Advance notice requirements could deter proxy contests and thereby delay or hinder the efforts
of shareholders to change Liberty's board of directors or otherwise effect change at Liberty.......21
Stockholders need to act by unanimous written consent which could delay or hinder the efforts
as stockholders to change Liberty's board of directors.............................................21
Robert A. Sanger & Co., Inc.'s preparation of the appraisal of the 15 self-storage properties
and the fairness opinion which is based on its appraisal may present a conflict of interest........21
A partner of the law firm providing legal counsel to Meridian and Liberty is also a trustee
of Meridian and a director of Liberty which may present a conflict of interest.....................21
Self-Storage Industry Risks
Most of the self-storage facilities have lower occupancy rates than their
direct competitors.............................................................................22
Liberty faces ease of entry by any competitor into an area where Liberty
operates a self-storage facility...............................................................22
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Liberty will compete with other self-storage companies with greater resources..................22
Liberty may not be able to successfully acquire, develop and operate new
self-storage facilities........................................................................22
Real Estate Investment Risks
The self-storage facilities are subject to varying degrees of risk generally
incident to the ownership of real estate.......................................................23
Illiquidity of real estate investments could adversely affect Liberty's
ability to sell its properties.................................................................23
Liberty cannot sell the 15 self-storage facilities for ten years...............................24
Uninsured and underinsured losses could result in loss of value
of self-storage facilities.....................................................................24
Liability for environmental matters could adversely affect Liberty's
financial position.............................................................................24
If Liberty failed to qualify as a REIT, it would be subject to adverse tax
consequences.......................................................................................25
No single stockholder, other than Richard M. Osborne, can own more than 9.8% of the outstanding
shares of Liberty which may prevent an otherwise beneficial change of control......................25
The Maryland anti-takeover statute may restrict business combination
opportunities......................................................................................26
The issuance of preferred stock may prevent an otherwise beneficial
change of control..................................................................................26
If the Internal Revenue Service did not consider the reincorporation to be a
tax-free reorganization, Meridian's shareholders may experience adverse
tax consequences...................................................................................26
There is currently no formal trading market for Meridian's shares of beneficial
interest and Liberty's common stock................................................................27
You will not have any appraisal rights in connection with the reincorporation
and the reorganization.............................................................................27
Stockholders could experience possible future dilution through the issuance
of additional common stock or partnership interests................................................27
The annual yield on Liberty's common stock as compared to yields on other
financial instruments may influence the price of Liberty's common
stock in public trading markets....................................................................27
Shares eligible for sale in the future could affect the market prices of Liberty's
common stock.......................................................................................27
Failure to achieve Year 2000 compliance may adversely impact Meridian's
and Osborne's self-storage company's systems operations............................................27
Available Information...................................................................................29
Pro Forma Capitalization................................................................................30
Business................................................................................................31
The Special Meeting.....................................................................................33
Introduction.......................................................................................33
Matters to be Considered at Special Meeting........................................................33
Voting Rights and Vote Required....................................................................33
Voting of Proxies; Solicitation....................................................................34
No Appraisal Rights................................................................................35
Background of the Proposed Transactions.................................................................36
</TABLE>
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<TABLE>
<S> <C>
The Proposed Transactions...............................................................................42
Limited Life to Perpetual Life.....................................................................42
Material Changes in the Rights of Shareholders Resulting from the
Reincorporation....................................................................................42
Conflicts of Interest..............................................................................57
Compensation of Officers after the Reincorporation.................................................59
The Self-Storage Facilities........................................................................60
Fairness of the Reorganization.....................................................................65
Self-Storage Facilities Appraisal..................................................................69
Fairness Opinion...................................................................................73
Expenses...........................................................................................78
Selected Historical and Pro Forma Financial Data (Unaudited).......................................79
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Meridian.......................................................................88
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Osborne's Self-Storage Company.................................................93
Federal Income Tax Matters.........................................................................98
REIT Tax Considerations............................................................................99
The Proposals......................................................................................99
Proposal 1 -- Approval of the Amendment to the Declaration of Trust....................................102
Proposal 2 -- Approval of the Reincorporation..........................................................103
Principal Reasons for the Reincorporation into a Maryland corporation.............................103
Term of Existence.................................................................................104
Terms of the Reincorporation......................................................................106
Description of Authorized Stock of Liberty........................................................108
Proposal 3 -- Approval of the Acquisition of Osborne's Self-Storage Company............................109
Overview of the Acquisition of Osborne's Self-Storage Company
through the Reorganization of Meridian as an UPREIT............................................109
The Formation Agreement...........................................................................111
Formation of the Operating Partnership -- LSS I Limited Partnership...............................112
Purpose of the Solicitation.......................................................................117
Plans for Liberty -- Business Objectives..........................................................117
Anticipated Dividend Policy.......................................................................119
Composition of the Board of Directors and Management..............................................119
Accounting Treatment of the Reorganization........................................................120
Tax Aspects of Liberty's Investment in LSS I......................................................120
Proposal 4 -- Election of Trustees.....................................................................122
Nominees for Election as Trustees.................................................................122
Board of Trustees; Committees.....................................................................124
Compensation of Trustees..........................................................................124
Officers..........................................................................................125
Executive Compensation............................................................................125
Employment Agreements.............................................................................125
Compliance with Section 16(a).....................................................................125
</TABLE>
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<TABLE>
<S> <C>
Security Ownership of Certain Beneficial Owners and Management....................................126
Certain Relationships and Related Transactions....................................................126
Proposal 5 -- Approval of the 1999 Stock Option Plan...................................................127
Purpose...........................................................................................127
Administration....................................................................................127
Available Shares..................................................................................128
Restrictions......................................................................................128
Amendment/Termination.............................................................................129
Description of Awards.............................................................................129
Summary of Federal Income Tax Consequences........................................................130
Proposal 6 -- Approval of Lease for Executive Offices..................................................132
Terms of Lease....................................................................................132
Proposal 7 -- Ratification of Independent Auditors.....................................................133
Experts 133
Legal Matters..........................................................................................134
Reports to Shareholders................................................................................134
Other Matters..........................................................................................134
Shareholder Proposals..................................................................................134
ANNEXES
Amendment to Amended and Restated Declaration of Trust.................................................A-1
Agreement and Plan of Merger...........................................................................B-1
Amended and Restated Formation Agreement...............................................................C-1
Agreement of Limited Partnership of LSS I Limited Partnership..........................................D-1
Fairness Opinion.......................................................................................E-1
1999 Stock Option and Award Plan.......................................................................F-1
Lease Agreement........................................................................................G-1
</TABLE>
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SUMMARY
This summary contains the material terms of the proposed transactions
but does not contain all the information that you may consider important. IN
ADDITION TO THIS SUMMARY, WE URGE YOU TO READ THE ENTIRE PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES ATTACHED HERETO CAREFULLY, ESPECIALLY THE
RISKS INVOLVED IN THE PROPOSED TRANSACTIONS DISCUSSED UNDER THE SECTION
CALLED "RISK FACTORS," BEFORE YOU DECIDE HOW TO VOTE.
OVERVIEW
At the September 22, 1998 annual meeting of shareholders of Meridian
Point Realty Trust '83, the shareholders rejected the plan of liquidation and
dissolution proposed by the former board of trustees. 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 Meridian's limited life policy and to
seek a merger with a real estate company that owns self-storage facilities.
Following the September 1998 election, the current board did not consider any
other alternatives but moved forward to complete the proposed transactions.
Accordingly, the board of trustees approved and is seeking shareholder
approval of a number of proposals, including the reincorporation of Meridian
into a Maryland corporation, Liberty Self-Stor, Inc., which is a wholly-owned
subsidiary of Meridian, resulting in the elimination of Meridian's limited life
policy and the reorganization of Meridian through the formation of an operating
partnership, known as LSS I Limited Partnership, to own and operate self-storage
facilities contributed by the members of Liberty Self-Stor, Ltd. Liberty
Self-Stor, Inc. intends to operate as a real estate investment trust, or REIT,
at the conclusion of the proposed transactions. This structure is commonly known
as an umbrella partnership real estate investment trust, or UPREIT. In an UPREIT
structure, the publicly-held REIT is the general partner of an operating
partnership which owns the properties for the REIT. The members of Liberty
Self-Stor, Ltd. are Richard M. Osborne, Meridian's and Liberty's Chairman of the
Board and Chief Executive Officer, Diane M. Osborne, Mr. Osborne's wife, Thomas
J. Smith, Meridian's and Liberty's President and Chief Operating Officer, and
Retirement Management Company, a corporation owned solely by Mr. Osborne.
Liberty Self-Stor, Ltd. is 98.6% owned by Mr. Osborne through his own membership
interests and those of Retirement Management Company. The reorganization will
result in the acquisition of Osborne's self-storage company which will allow Mr.
Osborne's privately-held self-storage company to become part of a publicly-held
corporation.
The board of trustees believes that the reincorporation into a Maryland
corporation and the acquisition of Osborne's self-storage company through the
reorganization as an UPREIT with Osborne's self-storage company are fair to, and
in the best interests of, Meridian 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
Meridian's shareholders of the allocation of interests in the operating
partnership between Meridian and the members of Liberty Self-Stor, Ltd.,
collectively, Mr.
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<PAGE> 11
Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company, which is
also owned by Mr. Osborne, pursuant to the reorganization of Meridian as an
UPREIT.
DETERMINATION OF ALLOCATION OF INTERESTS IN THE OPERATING PARTNERSHIP
In addition to the board's belief that the reincorporation and the
reorganization are fair to, and in the best interests of, Meridian and its
shareholders, the board of trustees also believes that the method used to
allocate interests in the operating partnership between Liberty and the members
of Osborne's self-storage company, collectively, Mr. Osborne, Mrs. Osborne, Mr.
Smith and Retirement Management Company, and the resulting allocations are fair
to the Liberty stockholders. For each contributor to the operating partnership,
the percentage interest in the operating partnership to be received in
connection with the reorganization is determined by dividing the net asset value
to be contributed by that contributor by the sum of the net asset value of the
cash and other assets and liabilities to be contributed to the operating
partnership by Liberty, and the net asset value of the assets and liabilities to
be contributed to the operating partnership by Osborne's self-storage company.
The board of trustees believes that basing the allocation of interests
in the operating partnership on the net asset value contributed by each
participating entity, which in the case of Osborne's self-storage company is
based in part on an independent appraisal of 15 self-storage facilities, is fair
to shareholders.
The following table sets forth the calculation of the net asset value
of the contribution by Liberty and Osborne's self-storage company. The
calculation was based on the June 30, 1999 financial statements of Meridian and
Osborne's self-storage company and the appraisal of the 15 self-storage
facilities, which was made as of March 31, 1999.
CALCULATIONS OF NET ASSET VALUE TO BE CONTRIBUTED
IN THE REORGANIZATION
<TABLE>
<CAPTION>
SELF-
STORAGE COMBINED
LIBERTY COMPANY TOTAL
------- ------- ---------
<S> <C> <C> <C>
Cash and cash equivalents ......................... $ 1,910,044 $ 738,920 $ 2,648,964
Appraised value of the 15 self-storage facilities.. -- 23,620,000 23,620,000
Other assets (1) .................................. 220,960 118,384 339,344
Mortgages, lines of credit and other liabilities .. -- (18,347,235) (18,347,235)
Accounts payable and other payables ............... (204,460) (887,953) (1,092,413)
-----------------------------------------------
Total net asset value ............................. $ 1,926,544 $ 5,242,116 $ 7,168,660
Payment of transaction cost ....................... -0- (725,000) (725,000)
-----------------------------------------------
Net asset value contributed to the operating ...... $ 1,926,544 $ 4,517,116 $ 6,443,660
============ ============ ============
partnership
Percentage of net asset value contributed ........ 29.9% 70.1% 100.0%
Allocation of ownership interests in the operating 29.9% 70.1% 100.0%
partnership
</TABLE>
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<PAGE> 12
(1) For Osborne's self-storage company, excludes goodwill of $1,005,448 and
other assets of $376,444 leaving accounts receivable of $37,686 and
inventory and other assets of $80,698.
TRANSACTION VALUES
<TABLE>
<CAPTION>
Liquidation Value Pro Forma Net Asset Value Curret Market Price Average Closing Price
Per Share Per Share Per Share Per Share*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0.15 to $0.22 $0.64 $0.625 $0.56
</TABLE>
*For the 30-day period preceding the announcement of the proposed transactions.
Absent the consummation of the proposed transactions, Meridian will be
forced to liquidate. Based on Meridian's net assets of $2,131,004 at June 30,
1999, costs of liquidation of approximately $500,000 to $700,000, and including
the $725,000 in transaction costs which Meridian will have to pay if the
proposed transactions are not approved, the amount available for distribution to
shareholders, Meridian's liquidation value, currently ranges from as much as
$660,411, or $0.22 per share, to as little as $460,411, or $0.15 per share.
Upon completion of the proposed transactions, for each share held by a
Meridian shareholder, the shareholder will receive one share of common stock of
Liberty. Meridian believes that the value to be received by Meridian's
shareholders in the proposed transactions is the pro forma net asset value per
share of $0.64, which is determined by dividing Liberty's net asset value of
$1,926,544 by 3,031,618, the number of outstanding shares of beneficial
interest. Upon completion of the proposed transactions, the members of Osborne's
self-storage company will receive 7,107,573 Class A limited partnership
interests in the operating partnership that are convertible on a one-for-one
basis into common stock of Liberty. Osborne's self-storage company's net asset
value per share will also be $0.64, which is determined by dividing its net
asset value of $4,517,116 by 7,107,573, the number of Class A limited
partnership interests to be received by the members of the self-storage company
for the contribution of their membership interests.
SUMMARY OF RISKS, DETRIMENTS AND OTHER ADVERSE FACTORS
The following is a summary of the potential disadvantages, detriments,
adverse consequences and risks of the proposed transactions. The board of
trustees considered these risks, detriments and other adverse factors in
connection with the proposed transactions. This summary is qualified in its
entirety by the more detailed discussion in the section called "Risk Factors"
contained in this Proxy Statement/Prospectus beginning on page 18.
- If Liberty is not successful in its business plan, Liberty's
common stock may never trade at prices higher than the
liquidation value ranging from $0.15 per share to $0.22 per
share.
- Liberty's common stock may never trade as high as $0.64 per
share, which is the pro forma net asset value per share to be
received by Meridian's shareholders in the proposed
transactions, or $0.625, the current market price of
Meridian's shares.
- Liberty will have perpetual life and will not have the
liquidation exit strategy for investors that Meridian's
limited life policy provided.
- Meridian may not have qualified, and Meridian's counsel cannot
opine as to whether Meridian qualified, as a REIT and if
Meridian failed to qualify as a REIT, Liberty would not be
able to elect to be treated as a REIT for the four taxable
years after the year during which Meridian ceased to qualify
as a REIT and may be subject to taxation as a regular
corporation.
- Osborne's self-storage company has a negative book value of
approximately $3.8 million and has had eight consecutive
quarters of net losses and, therefore, may not be profitable
for the operating partnership and for Liberty.
- Liberty will have $18.3 million in debt following the
consummation of the reorganization and may incur additional
debt in the future that may reduce funds available for
operations and expansions.
- Liberty may not be able to meet its debt obligations as they
become due.
- If Liberty cannot obtain adequate financing needed to grow,
Liberty will not be able to acquire additional facilities,
expand its existing facilities or develop new facilities.
- 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 upon
maturity or that the terms of any refinancing will not be as
favorable as the terms of the indebtedness, and the risk that
necessary capital expenditures for renovations and other
improvements will not be able to be financed on favorable
terms or at all.
- If Mr. Osborne's limited partnership interests in the
operating partnership were converted into shares of Liberty's
common stock, Mr. Osborne would control 72% of Liberty and he
would have the ability to approve all matters requiring the
vote of Liberty's stockholders.
-3-
<PAGE> 13
- Mr. Osborne, as the Chairman of the Board and Chief Executive
Officer of Liberty, the general partner of the operating
partnership, and a limited partner of the operating
partnership, will face conflicts of interest in making
determinations regarding the operating partnership.
- Mr. Osborne has a conflict of interest because he is a party
to all sides of the proposed transactions as Meridian's and
Liberty's Chairman of the Board and Chief Executive Officer
and controlling member of his self-storage company.
- 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.
- No independent representative was retained by the board of
trustees to act on behalf of Meridian's shareholders.
- Your rights as a stockholder may be diminished or limited by
the reincorporation into a Maryland corporation due to
differences in each states' laws and each company's charter
documents.
- Robert A. Stranger & Co., Inc.'s preparation of the appraisal
of the 15 self-storage facilities and the fairness opinion
which is based on its appraisal may present a conflict of
interest.
- A partner of the law firm providing legal counsel to Meridian
and Liberty is also a trustee of Meridian and a director of
Liberty which may present a conflict of interest.
- Because Liberty's current strategy is to acquire and develop
interests in self-storage facilities, Liberty is subject to
risks inherent in investments in that industry, including
competition, ease of entry, decreases in demand, changes in
supply or demand for competing facilities, changes in market
rental rates and occupancy rates, and inability to collect
rents.
- Liberty's investments are subject to 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, the inability to sell the
15 self-storage facilities for 10 years, uninsured and
underinsured losses, and environmental matters.
- If in the future Liberty failed to qualify as a real estate
investment trust 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.
- No stockholder, with the exception of Richard M. Osborne,
Chairman of the Board and Chief Executive Officer of Meridian
and Liberty, and his affiliates including Turkey Vulture Fund
XIII, Ltd., Retirement Management Company and any member of
Mr. Osborne's immediate family who may own up to 75%, may own
more than 9.8% of Liberty's outstanding stock, or 15% for tax
pass-through entities. This ownership limitation may prevent a
change of control.
-4-
<PAGE> 14
- The anti-takeover provisions of Maryland law may restrict
business combination opportunities that may be beneficial to
shareholders.
- The issuance of preferred stock may prevent an otherwise
beneficial change of control.
- If the Internal Revenue Service did not consider the
reincorporation to be a tax-free reorganization, Meridian's
shareholders could experience adverse tax consequences.
- There is currently no formal trading market for the shares of
Meridian's common stock which are currently traded on the
OTCBB. Therefore, the price at which Liberty's common stock
may trade may fluctuate and the market for Liberty's common
stock may be subject to disruptions that could make it
difficult or impossible for the holders of Liberty's common
stock to sell shares when they desire, or at all.
- Shareholders of Meridian do not have any statutory appraisal
rights under Meridian's declaration of trust or California or
Maryland law to choose to have the fair value of their shares
of common stock judicially appraised and paid for in
connection with the reincorporation into a Maryland
corporation or the reorganization of Meridian as an UPREIT.
- As a result of growth relating to acquisitions financed with
the issuance of additional Liberty stock or interests in the
operating partnership or any similar entity of Liberty,
stockholders of Liberty could experience significant future
dilution.
SUMMARY OF BENEFITS OF THE REINCORPORATION INTO A MARYLAND CORPORATION AND
REORGANIZATION OF MERIDIAN AS AN UPREIT
The following is a summary of the material potential benefits that
could be achieved by consummation of the reincorporation into a Maryland
corporation and the reorganization as an UPREIT:
- The elimination of the limited life policy will give
management the opportunity to seek new investments and to
reinvest proceeds from the future sale or refinancing of any
properties, allowing for expansion of Liberty's portfolio.
- The expansion of Liberty's portfolio may result in greater
return to shareholders.
- The well-developed Maryland General Corporation Law, together
with Liberty's articles of incorporation and bylaws, will
modernize the governance procedures and provide the company
with a greater degree of flexibility in planning and
implementing corporate action that is currently unavailable to
Meridian as a California common law business trust.
- The reincorporation is likely to provide greater access to
capital markets because Liberty has the ability to issue new
stock whereas Meridian's declaration of trust prohibited the
exchange of shares for any investment.
-5-
<PAGE> 15
- The reorganization will provide Liberty the opportunity for
potential growth because future investors would be able to
contribute properties to the operating partnership in exchange
for limited partnership interests in a tax-free exchange
similar to the proposed contribution by the members of
Osborne's self-storage company.
- The individuals who currently manage the self-storage
facilities for Osborne's self-storage company will continue in
that capacity as Liberty's management and, therefore, will
provide Liberty with 17 years of collective experience in the
self-storage industry.
- The board of trustees believes that the reorganization
presents a more attractive opportunity for the realization of
value by you than liquidation.
FAIRNESS
The board of trustees believes the terms of the reincorporation into a
Maryland corporation and the reorganization of Meridian as an UPREIT are fair to
Meridian and its shareholders. The board of trustees based its determination on
a variety of factors, including:
- information relating to the business, assets, management, and
competitive position of Meridian if it were to continue,
including the substantial likelihood that Meridian will be
forced to liquidate, at a value between $0.15 and $0.22 per
share, absent the consummation of the proposed transactions;
- the lack of the same liquidation exit strategy;
- the potential that Liberty's stock may never trade as high as
the current market price of Meridian's shares;
- the control by Richard M. Osborne of 72% of Liberty's common
stock if his Class A limited partnership interests were
converted;
- unsuccessful attempts by the prior board of trustees to effect
an alternative transaction;
- the access to management with 17 years of collective
experience in the self-storage industry, an assembled
portfolio of self-storage facilities and the ability to obtain
capital provided by Osborne's self-storage company;
- the fairness opinion and the appraisal of 15 self-storage
properties;
- the financial condition and results of operations of Meridian
and Osborne's self- storage company, on both a historical and
a prospective basis;
-6-
<PAGE> 16
- the percentage of equity in the operating partnership to be
received by Liberty in relation to the relative contributions
of Meridian and Osborne's self-storage company to the
operating partnership and the other benefits to be received by
Meridian pursuant to the reorganization;
- the pro forma net asset value per share to be received by
Meridian's shareholders in the proposed transactions of $0.64
versus the average closing price of Meridian's shares of $0.56
for the 30 -day period preceding the announcement of the
proposed transactions;
- the potential increased liquidity, capacity for growth and
access to capital that Liberty expects to be realized as a
result of the proposed transactions;
- Osborne's self-storage company's agreement to fund $725,000 of
the transaction costs which is a term and condition of the
formation agreement and partnership agreement, as discussed
in "Proposal 3";
- because the proposed transactions provide a strategic
direction in the self-storage market and an immediate,
although small, presence in the self-storage market, Liberty's
strategic and market position could be enhanced beyond that
achievable by Meridian due to its limited life policy; and
- the interest of Mr. Osborne and Mr. Smith, members of the
board of trustees, in the reorganization.
Although the board considered the potential risks of the proposed
transactions, which are summarized on pages 3 to 5, the board believes that the
positive factors outweigh the negative and the terms of the proposed
transactions are fair to shareholders.
INDEPENDENT APPRAISAL AND FAIRNESS OPINION
Robert A. Stanger & Co., Inc. was engaged by Meridian and Osborne's
self-storage company to appraise 15 self-storage facilities to be contributed to
the operating partnership by the members of Osborne's self-storage company.
Stanger has delivered a written summary of its appraisal, based upon the review,
analysis, scope and limitations described therein, as to the fair market value
of the 15 self-storage facilities as of March 31, 1999. The appraisal is
attached to the Registration Statement of which this Proxy Statement/Prospectus
is a part. Copies of the appraisal are available, free of charge, upon request
to Meridian at its principal place of business, 8500 Station Street, Suite 100,
Mentor, Ohio 44060. For a more detailed discussion of the appraisal of the
self-storage facilities, see the section of this Proxy Statement/Prospectus
called "The Proposed Transactions -- Self-Storage Facilities Appraisal."
Stanger was also engaged by Meridian to deliver, and has delivered, a
written summary of its opinion, subject to the assumptions, qualifications and
limitations described therein, as to the fairness from a financial point of view
to the public shareholders of Meridian of the allocations of the interest in the
operating partnership between Meridian, or Liberty after the reincorporation,
and the members of Osborne's self-storage company, collectively, Mr. Osborne,
Mrs. Osborne, Mr. Smith and Retirement Management Company, pursuant to the
reorganization. Stanger concluded that the allocation of the interests in the
operating partnership
-7-
<PAGE> 17
between Meridian and the members of Osborne's self-storage company,
collectively, Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management
Company, pursuant to the reorganization as an UPREIT, is fair to the public
shareholders of Meridian from a financial point of view. 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.
MERIDIAN
Meridian 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 operations on April 12, 1983. Meridian 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 Meridian was filed on May 12, 1992 and amended on July
23, 1993 and again on February 14, 1995. Meridian was formed to invest in
income-producing commercial and industrial real estate located primarily in
selected areas of projected growth in the United States.
Meridian was formed to operate as a limited life REIT. As such, it was
formed to hold its investment in properties for approximately seven to ten years
and then, providing markets were favorable and properties were ready for sale,
liquidate its portfolio properties. Since Meridian'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 Meridian's shares. At the September 22,
1998 annual meeting, the former board proposed complete dissolution and
liquidation. 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 limited life 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 but
moved forward to complete the proposed transactions. Accordingly, the board of
trustees has approved and is seeking shareholder approval of a number of
proposals, including the reincorporation of Meridian into a Maryland corporation
resulting in the elimination of the limited life policy and the acquisition of
Osborne's self-storage company through the reorganization of Meridian as an
UPREIT. As of June 30, 1999, Meridian had assets of $2,131,004, consisting of
$235,324 in cash, $361,408 in the Indemnity Trust, $1,313,312 in real estate
securities, and $220,960 in other assets. For more discussion regarding the
alternatives considered by the former board, see the section of this Proxy
Statement/Prospectus called "Background of the Proposed Transactions."
LIBERTY SELF-STOR, INC.
Liberty Self-Stor, Inc. was organized on May 12, 1999 as a Maryland
corporation and as a wholly-owned subsidiary of Meridian. Liberty was organized
by Meridian to acquire, succeed to, and continue the business of Meridian upon
the consummation of the mergers through which Meridian will reincorporate as a
Maryland corporation. Liberty has had no activities to date other than those
incident to the reincorporation. Liberty has perpetual life and intends to
operate and be taxed as a REIT. Liberty will invest in self-storage facilities,
including the 15 self-storage
-8-
<PAGE> 18
facilities owned by Osborne's self-storage company. After the mergers, the
management of Osborne's self-storage company will continue to operate the
facilities as employees of Liberty.
The principal executive offices of both Meridian and Liberty are
located at 8500 Station Street, Suite 100, Mentor, Ohio 44060.
LIBERTY SELF-STOR, LTD.
Liberty Self-Stor, Ltd. is an Ohio limited liability company. Its
members are Richard M. Osborne, who owns 72.3%, Diane M. Osborne, who owns 0.7%,
Thomas J. Smith, who owns 0.7%, and Retirement Management Company, an Ohio
corporation owned solely by Mr. Osborne, which owns 26.3%. Liberty Self-Stor,
Ltd. currently owns 15 self-storage facilities located in Ohio and New York. In
connection with the reorganization of Meridian as an UPREIT, Mr. Osborne, Mrs.
Osborne, Mr. Smith and Retirement Management Company will contribute their
interests in the self-storage company to the operating partnership in exchange
for Class A limited partnership interests in the operating partnership. These
Class A limited partnership interests are redeemable at any time beginning one
year from the date of the consummation of the proposed transactions for cash, or
at the election of Liberty, convertible into the common stock of Liberty, on a
one-for-one basis. The Class A limited partnership interests are redeemable for
cash equal to the number of interests multiplied by the then 30-day average
market price of Liberty's stock. The Class B limited partnership interests are
identical in all material respects to the Class A interests except that the
Class B interests are not redeemable or convertible. Mr. Osborne, through Turkey
Vulture Fund XIII, Ltd., a limited liability company of which Mr. Osborne is the
sole manager, is currently the owner of 9.8% of Meridian's shares of beneficial
interest. If Liberty elected to convert Mr. Osborne's Class A limited
partnership interests into shares of Liberty's common stock, he would
beneficially own 72% of Liberty, including the shares he beneficially owns
through Retirement Management Company. However, Liberty will not elect to
convert the Class A limited partnership interests if it determines that the
conversion might disqualify Liberty as a REIT. If this conversion occurred, Mr.
Osborne would have the ability to approve all matters requiring the vote of
Liberty's stockholders.
THE SPECIAL MEETING
Meeting Date and Record Date; Proxies. The special meeting will be held
on Tuesday, December 28, 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 October 20, 1999 as the record date for
the special meeting.
-9-
<PAGE> 19
Matters to be Considered.
At the special meeting, you will be asked to approve the amendment to
the current declaration of trust in the form attached hereto as Annex A. The
amendment will amend Meridian's current declaration of trust to (1) expressly
permit Meridian to merge or consolidate with and into a domestic or foreign
limited partnership and (2) set forth procedures pursuant to which the merger or
consolidation would take place. This amendment is necessary to allow Meridian to
merge with Liberty, a Maryland corporation, because California law is unclear
with respect to whether or not a business trust can merge with a corporation.
At the special meeting, you will be asked to approve the
reincorporation in which Meridian would be reincorporated into a Maryland
corporation. The purpose of the reincorporation is to reincorporate Meridian
from a California common law business trust to a Maryland corporation and
eliminate the limited life policy. The elimination of the limited life policy
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 reincorporation in Maryland is not
approved, Meridian will maintain its limited life policy and will be unable to
enter into new investments, and Meridian will be forced to liquidate.
The board of trustees also believes that the well-developed Maryland
General Corporation Law, together with Liberty's articles of incorporation and
bylaws, will modernize the governance procedures and provide Liberty with a
greater degree of certainty and flexibility in planning and implementing
corporate action than is currently available to Meridian as a California common
law business trust. In addition, Liberty will be subject to the provisions of
Maryland law, 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 one share of
beneficial interest of Meridian for one share of Liberty's common stock.
The reorganization into Liberty will be effected through the two
mergers. Upon the consummation of the mergers, Liberty will be the surviving
entity, the separate existence of Meridian will terminate and each outstanding
share of beneficial interest of Meridian will be converted into one share of
common stock of Liberty. Cash will be paid for fractional shares. At the
effective time of the mergers, all properties, assets, liabilities and
obligations of Meridian will become properties, assets, liabilities and
obligations of Liberty. Liberty and its stockholders will be governed by
Maryland law and by Liberty's articles of incorporation and bylaws, which will
include a number of provisions which are not currently in Meridian's current
declaration of trust. These provisions of Liberty's articles and bylaws,
together with provisions of Maryland law, may delay or prevent a change in
control of Liberty or other transaction that might be in the best interests of
the stockholders. See "The Proposed Transactions -- Material Changes in the
Rights of Shareholders Resulting from the Reincorporation."
The following table shows (1) compensation for Mr. Osborne and Mr.
Smith at Meridian from 1997 to 1999 and at Liberty from 1997 to 1999 assuming
the proposed transactions had taken place three years ago, and (2) distributions
to all shareholders paid by Meridian from 1997 to 1999 and distributions by
Liberty from 1997 to 1999 assuming the proposed transactions had taken place
three years ago:
- ----------------------------------------------------------------
MERIDIAN LIBERTY
1997-1999 PRO FORMA 1997-1999
- ----------------------------------------------------------------
COMPENSATION $ -0- $ 375,000
- ----------------------------------------------------------------
DISTRIBUTIONS $9,094,854 $ 9,094,854
- ----------------------------------------------------------------
TOTAL $9,094,854 $ 9,469,854
- ----------------------------------------------------------------
COMPENSATION
The following table shows current annual salaries for Mr. Osborne and
Mr. Smith at Meridian and their proposed annual salaries at Liberty immediately
after the consummation of the proposed transactions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
MERIDIAN LIBERTY
- ------------------------------------------------------------------
<S> <C>
Mr. Osborne--$0 Mr. Osborne--$0
Mr. Smith--$0 Mr. Smith--$125,000
- ------------------------------------------------------------------
</TABLE>
Mr. Osborne has not received a salary at his self-storage company in the last
three years and Mr. Smith's annual salary of $125,000 is the same as it has been
at Retirement Management Company during each of the last three years. Retirement
Management Company is a member of Osborne's self-storage company.
DISTRIBUTIONS
The following table shows (1) the dividend paid by Meridian to its
shareholders in connection with the sale of its last property in August 1997,
and (2) the effect of that dividend if the proposed transactions had been
completed at the time of the sale of the Charleston property. The dividend paid
upon the sale of the Charleston property was the only dividend paid by Meridian
in the last three years.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- -------------------------------------------------------------------------------------------
<S> <C>
Meridian sold its last property, the If the proposed transactions had been
Charleston property, in August 1997, completed at the time of the sale of the
and, on September 12, 1997, Meridian Charleston property and Liberty was the
paid a dividend of $3.00 per share owner of the Charleston property at the
to each shareholder of record on time of the sale, Mr. Osborne would have
September 2, 1997. As the beneficial been entitled to his pro rata dividend
owner of 297,344 shares, Mr. Osborne, of $892,032 as a shareholder of Liberty
as a shareholder of Meridian, received based on his beneficial ownership of 297,344
a dividend of $892,032. shares.
- -------------------------------------------------------------------------------------------
</TABLE>
If the proposed transactions had taken place three years ago, no distributions,
other than the Charleston distribution, would have been made by Liberty to Mr.
Osborne, Mr. Smith or any stockholder of Liberty. Because of pro forma net
operating losses at Meridian and Osborne's self-storage company, Liberty would
not have been required under the REIT rules to make distributions to
stockholders.
The following table shows additional material changes that will effect
shareholders:
-10-
<PAGE> 20
<TABLE>
<CAPTION>
MERIDIAN LIBERTY
<S> <C> <C>
OSBORNE'S 9.8 % 72%-- if Class A limited
OWNERSHIP partnership interests are converted
- ---------------------------------------------------------------------------------------------------------------
RIGHT TO Under California law, a shareholder Under Maryland law, one or more
OBTAIN who owns 5% of the outstanding persons who together own at least
SHAREHOLDERS shares has the right to obtain a 5% of the outstanding stock have the
LIST shareholders' list. right to obtain a stockholders' list
upon written request with a statement
under oath verifying the stockholders'
names and share ownership.
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS The board of trustees may cause Dividends and other distributions on
dividends to be declared and paid on the stock of Liberty may be
outstanding shares out of funds authorized and declared by the board
legally available therefor, at such of directors out of assets legally
times, in such amounts and from such available for this purpose.
sources, whether income, surplus, Dividends and other distributions
capital or any combination thereof, may be paid in cash, property or
as they in their discretion may stock of Liberty. Generally, all
determine. distributions from the operating part-
nership will be made to Liberty and the
limited partners concurrently, and will
be allocated to Liberty, on one hand,
and to the limited partners, on the
other, on a pro rata basis by reference
to their respective percentage interests
in the operating partnership.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The reincorporation from a California business trust to a Maryland
corporation through the mergers has been unanimously approved by the board of
trustees. The mergers will become effective upon the acceptance for recording of
each respective articles of merger by the appropriate state agencies. Meridian
anticipates that the mergers will become effective as promptly as practicable
following shareholder approval of the proposed transaction at the special
meeting.
At the effective time of the mergers, each of the persons who is then a
trustee or executive officer of Meridian will become a director or executive
officer, respectively, of Liberty. At the effective time of the mergers,
Meridian anticipates that the shares of Liberty's common stock will be listed on
the OTCBB under the symbol "LSSI" in accordance with the applicable rules of
Nasdaq.
The reincorporation of Meridian into Liberty, a Maryland corporation,
is necessary to allow Meridian to enter into the transaction involving the
acquisition of Osborne's self-storage company through the reorganization of
Meridian as an UPREIT. At the special meeting, you will
-11-
<PAGE> 21
be asked to approve the reorganization of Meridian as an UPREIT. The
reorganization will result in the acquisition of Osborne's self-storage company
through the formation of an operating partnership by Liberty and the members of
Osborne's self-storage company, namely Richard M. Osborne, Diane M. Osborne,
Thomas J. Smith and Retirement Management Company. The operating partnership
will be known as LSS I Limited Partnership, a Delaware limited partnership.
Osborne's self-storage company owns 15 self-storage facilities. Each of Mr.
Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company will
contribute his, her or its membership interests in Osborne's self-storage
company to the operating partnership in exchange for Class A limited partnership
interests in the operating partnership which, subject to the restrictions
described in this Proxy Statement/Prospectus, are redeemable for cash or, at the
election of Liberty, convertible into shares of common stock of Liberty, on a
one-for-one basis. For purposes of determining the ownership of the operating
partnership, the value of the contribution of the membership interests of
Osborne's self-storage company will be the net asset value of the 15
self-storage facilities and other assets contributed. After the contribution of
all of the membership interests in Osborne's self-storage company, the operating
partnership will be the sole owner of the self-storage company and the indirect
owner of the 15 self-storage facilities. Liberty will contribute cash and
securities to the operating partnership in exchange for the general partnership
interests and Class B limited partnership interests. The cash and securities
contribution will be funded from Meridian's available cash and securities owned
as of the date of the consummation of the reorganization.
The reorganization allows Mr. Osborne, Mrs. Osborne, Mr. Smith and
Retirement Management Company to convert their membership interests in the
privately-held self-storage company into limited partnership interests that are
convertible into stock of a publicly-held corporation. The reorganization also
gives Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company the
benefit of transferring the self-storage facilities to the operating partnership
in a tax-free transaction. The reorganization gives Meridian access to an
existing portfolio of self-storage facilities, experienced management and
potential for growth.
Ownership structure of
Meridian prior to
proposed transactions
---------------------
---------------------
Public
Shareholders
---------------------
|
| 100%
\ /
---------------------
Meridian
---------------------
|
| 100%
\ /
---------------------
Liberty
---------------------
Ownership structure of
Osborne's self-storage company
------------------------------
-------------
Richard M.
Osborne
-------------
|
| 100%
\ /
- ---------- --------- ---------- --------------
Retirement
Richard M. Diane M. Thomas J. Management
Osborne Osborne Smith Company
- ---------- --------- ---------- --------------
\ /
\ 0.7% 0.7% /
72.3% \ | | / 26.3%
\ | | /
\ | | /
\ | | /
\ | | /
\ | | /
\ | | /
\ | | /
\ | | /
\ | | /
\ | | /
\ | | /
\ / \ / \ / \ /
--------------------------------
Liberty Self-Stor, Ltd.
(Osborne's self-storage
company)
--------------------------------
-12-
<PAGE> 22
UPREIT organization structure
following the proposed transactions
---------------------------------------
- ----------------------
Public
Stockholders
- ----------------------
|
|
\ /
- ----------------------
Liberty
(successor to
Meridian)
- ----------------------
|
1% GP/ 28.9% Class B LP(*)
|
\ /
- ---------------------- -----------------------------
LSS I 70.1% Class A LP(*) Richard M. Osborne, Diane M.
(the operating <------------------------- Osborne, Thomas J. Smith and
partnership) Retirement Management Company
- ---------------------- -----------------------------
|
| Sole Member
\ /
- ---------------------- -----------------------------
Osborne's 100% 15 self-storage
self-storage -------------------------> facilities
company
- ---------------------- -----------------------------
(*)The Class A limited partnership interests are redeemable for cash or, at the
election of Liberty, convertible for shares of common stock of Liberty on a
one-to-one basis. The Class B limited partnership interests are identical in all
material respects to the Class A interests except that the Class B interests are
not redeemable or convertible.
Richard M. Osborne's ownership
------------------------------
- ------------------ ------------------
Richard M. Osborne Richard M. Osborne
- ------------------ ------------------
| |
| 9.8% | 72%(*)
\ / \ /
- ------------------ ------------------
Meridian Liberty
- ------------------ ------------------
(*) Assuming conversion of his Class A limited partnership interests, which
conversion is subject to the limitations described in "Proposal 3 - Formation of
the Operating Partnership - Capital Structure."
The acquisition of Osborne's self-storage company through the reorganization as
an UPREIT is described in greater detail in the section of this Proxy
Statement/Prospectus called "Proposal 3."
At the special meeting, you will be asked to elect Meridian's nominees,
namely Steven A. Calabrese, Mark D. Grossi, Marc C. Krantz, Richard M. Osborne
and Thomas J. Smith, as trustees of Meridian to hold office until the next
annual meeting of shareholders and until their successors have been duly elected
and qualified. If the reincorporation is approved and the mergers are
consummated, the trustees of Meridian at the time of the consummation of the
mergers will become the directors of Liberty serving for the same terms with
Liberty as they are then serving with Meridian. Information about the nominees
is included in the section of this Proxy Statement/Prospectus called "Proposal 4
- -- Election of Trustees."
At the special meeting, you will be asked to approve the 1999 Stock
Option Plan. The 1999 Stock Option Plan will allow Liberty to grant stock
options and restricted stock to employees and directors of Liberty. The 1999
Stock Option Plan is described in the section of this Proxy Statement/Prospectus
called "Proposal 5 -- Approval of the 1999 Stock Option Plan."
At the special meeting, you will be asked to approve the lease for the
executive offices of Liberty because Mr. Osborne controls the company that owns
the building where the executive offices are located. The lease for the
executive offices is described in the section of this Proxy Statement/Prospectus
called "Proposal 6 -- Approval of Lease for Executive Offices."
-13-
<PAGE> 23
At the special meeting, you will be asked to ratify the appointment of
Arthur Andersen LLP as the independent auditors of Meridian, and Liberty as
Meridian's successor if the reincorporation is approved, for the fiscal year
ending December 31, 1999. The appointment of Arthur Andersen LLP is discussed in
the section of this Proxy Statement/Prospectus called "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 Meridian and its shareholders and that the proposed
transactions are fair to Meridian and its shareholders.
NO APPRAISAL RIGHTS
Under Meridian's declaration of trust and 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 reincorporation into a Maryland corporation or the reorganization
as an UPREIT.
-14-
<PAGE> 24
Selected Financial Data
The following tables present selected financial data covering the five
years ended December 31, 1998, and the six months ended June 30, 1998 and 1999
for Meridian, and for the three years ended December 31, 1998, and the six
months ended June 30, 1998 and 1999 for the 15 self-storage facilities. The
selected financial data for the 15 self-storage facilities 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, 1994
to 1998 for Meridian and for each of the three years ended December 31, 1996 to
1998 for the 15 self-storage facilities as well as the unaudited historical
financial statements of Meridian and the 15 self-storage facilities for the six
month periods ended June 30, 1998 and 1999, and the unaudited pro forma
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein.
<TABLE>
<CAPTION>
Meridian Years ended December 31, Six months ended June 30
------------------------------------------ ------------------------
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 $ 38,333 $ 44,652
Operating expenses 7,058,194 6,680,602 2,194,595 1,133,151 914,718 204,194 110,617
---------------------------------------------------------------- -----------------------
(Loss) income before gain (479,892) (534,476) 97,168 47,209 (812,825) (165,861) (65,965)
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) (165,861) (65,965)
extraordinary item
Extraordinary item - - - (189,070) - - -
---------------------------------------------------------------- -----------------------
Net (loss) income $ (420,915) $ (534,476) $ 2,679,774 $ 4,386,840 $ (812,825) $(165,861) $ (65,965)
Per common share
Net (loss) income-Basic and Diluted
Before extraordinary item $ (0.14) $ (0.18) $ 0.88 $ 1.51 $ (0.27) $ (0.05) $ (0.02)
Net income (loss) (0.14) (0.18) 0.88 1.45 (0.27) (0.05) (0.02)
Distributions declared
Cash - - 0.33 3.00 - - -
Shares of MIT stock - - 0.1287 - - - -
</TABLE>
-15-
<PAGE> 25
<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 2,593,447 1,910,044
Total assets 36,422,599 34,053,336 12,345,964 2,907,391 2,178,076 2,648,661 2,131,004
Total liabilities 23,661,970 21,827,183 4,832,616 102,057 185,567 9,188 204,460
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 2,639,473 1,926,544
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) (292,892) (255,983)
Net cash from investing (519,137) (1,238,384) (116,461) 10,757,393 (1,218,739) (2,019,461) (108,866)
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) (2,312,353) (364,849)
cash equivalents
Net asset value to be contributed n/a n/a n/a n/a n/a n/a $1,926,544
</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 six months ended June 30, 1998 and 1999, earnings were
insufficient to cover fixed charges in the amount of $812,825, $165,861 and
$65,965, respectively.
-16-
<PAGE> 26
<TABLE>
<CAPTION>
15 Self-Storage Facilities Years ended December 31 Six months ended June 30
---------------------------------- ----------------------------
Unaudited
STATEMENT OF OPERATIONS DATA: 1996 1997 1998 1998 1999
-------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenues $ 47,119 $ 1,918,159 $ 2,467,303 $ 1,022,386 $ 1,500,910
Operating expenses 61,377 3,856,678 3,374,312 1,563,711 1,770,024
-------------------------------------------- ------------ ------------
Loss before gain (14,258) (1,938,519) (907,009) (541,325) (269,114)
on sale of properties and
extraordinary item
Gain on sale of properties - 3,380,262 - - 30,107
Extraordinary item - 69,482 - - -
-------------------------------------------- ------------ ------------
Net (loss) income $ (14,258) $ 1,511,225 $ (907,009) $ (541,325) $ (239,007)
BALANCE SHEET DATA (END OF PERIOD)
Rental properties, net $ 1,818,599 $ 7,786,571 $ 12,271,222 $ 14,117,137 $ 13,244,323
Cash equivalents and investments 11,937 27,410 77,393 156,719 738,920
Total assets 2,236,968 9,776,680 13,617,161 15,683,895 15,483,519
Total liabilities 998,797 12,715,277 17,218,673 17,012,564 19,235,188
Total debt 977,257 12,279,081 16,668,800 16,548,190 18,347,235
Members' equity(deficit) 1,238,171 (2,938,597) (3,601,512) (1,328,669) (3,751,669)
Net asset value to be contributed n/a n/a n/a n/a $ 4,592,116
<CAPTION>
OTHER FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Earnings to fixed charges (a) .4x 2.2x .3x n/a .6x
Net cash from operations 6,899 (1,323,041) (355,644) (193,685) 255,508
Net cash from investing activities (27,790) 2,301,696 (1,597,978) (972,546) (437,634)
Net cash from financing activities 32,828 (1,016,955) 2,003,605 1,295,540 843,653
Distributions -- 6,058,495 138,171 76,940 57,500
Increase(decrease) in cash and 11,937 (38,300) 49,983 129,309 661,527
cash equivalents
</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 and the interest portion of
rent. For the years ended December 31, 1996 and 1998, the six months ended
June 30, 1998 and 1999, earnings were insufficient to cover fixed charges in the
amounts of $14,618, $842,510, $541,325, and $239,007 respectively.
-17-
<PAGE> 27
RISK FACTORS
You should carefully consider the risks described below before making a
decision on how to vote.
MERIDIAN'S LIQUIDATION VALUE MAY BE HIGHER THAN THE MARKET PRICE OF LIBERTY'S
STOCK
If Liberty is not successful in its business plan, stockholders may
never realize as much as they would have if Meridian had liquidated. The board
of trustees estimates the current liquidation value to be between $0.15 and
$0.22 per share.
LIBERTY'S STOCK MAY NEVER TRADE AS HIGH AS LIBERTY'S PRO FORMA NET ASSET VALUE
PER SHARE OR THE CURRENT MARKET PRICE OF MERIDIAN'S SHARES
Liberty's pro forma net asset value per share to be received by
Meridian's shareholders in the proposed transactions of $0.64, $1,926,544
divided by 3,031,618 shares, or the current market price of Meridian's shares of
$0.625, may be higher than the future trading price of Liberty's stock if the
proposed transactions are consummated.
LIBERTY WILL NOT HAVE A LIQUIDATION EXIT STRATEGY LIKE MERIDIAN
Liberty will have perpetual-life and continue to be an operating
company beyond the time period in which Meridian 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 reincorporation into a Maryland corporation is not
approved, Meridian will be forced to liquidate.
MERIDIAN MAY NOT HAVE QUALIFIED, AND MERIDIAN'S COUNSEL CANNOT OPINE AS TO
WHETHER MERIDIAN QUALIFIED, AS A REIT AND IF MERIDIAN FAILED TO QUALIFY AS A
REIT, LIBERTY WOULD NOT BE ABLE TO ELECT TO BE TREATED AS A REIT FOR THE FOUR
TAXABLE YEARS AFTER THE YEAR DURING WHICH MERIDIAN CEASED TO QUALIFY AS A REIT
AND MAY BE SUBJECT TO TAXATION AS A REGULAR CORPORATION
Meridian has previously elected to be taxed as a REIT pursuant to the
Internal Revenue Code and intends to be taxed as a REIT under the Code for the
taxable year ending December 31, 1999, as well as its prior taxable years.
However, if Meridian failed to qualify as a REIT in any taxable year, Liberty as
its successor would not be able to elect to be treated as a REIT for the four
taxable years after the year during which Meridian ceased to qualify as a REIT.
If Liberty later re-qualified 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 the re-qualification and to make distributions equal to any earnings
accumulated during the period of non-REIT status. If Meridian, and therefore
Liberty, failed to qualify as a REIT, distributions to shareholders would no
longer be required. In addition, distributions originally treated as capital
gain distributions could be re-characterized as ordinary dividend distributions
to shareholders and Meridian would lose the ability to deduct dividends paid to
shareholders in computing its taxable income. No provisions for federal or
state income taxes have been made in Meridian's financial statements.
As a result of Meridian's sale of its last real estate property in August
1997, Meridian's status as a REIT for 1997 and 1998 was dependent, in part,
upon tax rules regarding investments by REITs in specific types of non-real
estate assets. Meridian's investments were in mutual funds that owned
government and corporate securities. On June 9, 1999, Meridian entered into a
Closing Agreement with the Internal Revenue Service in which the IRS agreed to
accept Meridian's status as a REIT regarding these investments for 1997 and
1998.
However, in addition to requirements regarding investments in non-real
estate assets, Meridian must meet a number of highly technical organizational
and operational requirements on a continuing basis to qualify for REIT status,
including requirements 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, the possibility of adverse changes
in or interpretations of the laws, administrative interpretations of the law and
developments at Meridian, no assurance can be given regarding, and legal counsel
to Meridian is not opining to, Meridian's qualifications as a REIT for any
particular year.
OSBORNE'S SELF-STORAGE COMPANY HAS A NEGATIVE BOOK VALUE AND HAS HAD EIGHT
CONSECUTIVE QUARTERS OF NET LOSSES
Osborne's self-storage company has a negative book value of
approximately $3.8 million and has had eight consecutive quarters of net losses,
including a $239,007 net loss for the six months ended June 30, 1999. The
self-storage facilities may not be profitable for the operating partnership and,
therefore, for Liberty.
LIBERTY WILL HAVE $18.3 MILLION IN DEBT AFTER THE REORGANIZATION
Liberty, following the consummation of the reorganization, will have
substantial debt compared to Meridian which has no debt. 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, while the Meridian's current
declaration of trust provides that Meridian may not borrow more than 80% of the
purchase price of any property. In the future, Liberty may incur additional
indebtedness to finance acquisitions and development.
-18-
<PAGE> 28
LIBERTY MAY NOT BE ABLE TO MEET ITS DEBT OBLIGATIONS AS THEY BECOME DUE
Based on Osborne's self-storage company's financial statements for the
six months ended June 30, 1999, the self-storage company had cash flows from
operating activities, before principal and interest and giving pro forma effect
to the acquisition of Riverhead facility, of $891,229 versus required debt
payments during the same period, including principal and interest, of $736,442.
Liberty's debt to equity ratio, including minority interest, will be 3 to 1. For
a summary of the mortgages that encumber each facility, see the section of this
Proxy Statement/Prospectus called "The Proposed Transactions -- Self-Storage
Facilities -- Mortgages."
LIBERTY NEEDS ADDITIONAL FUNDS TO EXECUTE ITS BUSINESS PLAN
Liberty is seeking additional equity and debt financing, including a
line of credit in an amount up to $50 million. The proceeds of any financing
will be used to purchase additional self-storage facilities and expand Liberty's
operations. However, Liberty is unable to determine the likelihood that it will
be successful in obtaining the line of credit and Liberty may not be able to
obtain the additional financing. 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.
LIBERTY MAY HAVE DIFFICULTY RAISING NEEDED CAPITAL IN THE FUTURE
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:
- Limited operating history;
- Historical losses of Osborne's self-storage company;
- Liberty's inability to meet its business plan;
- Changes in lenders' or investors' view of the self-storage
industry or small capitalization companies; and
- Changes in capital market conditions.
If adequate financing is not available, Liberty may not be able to
acquire additional facilities, expand its existing facilities or develop new
facilities. See "Proposal 3 -- Plans for Liberty."
In addition, Liberty will be subject to risks normally associated with
debt financing, including the risk that:
- Liberty must generate cash to service its debt;
- Liberty may not be able to refinance existing indebtedness
upon maturity or the terms of any refinancing may not be as
favorable as the terms of the existing indebtedness;
- Liberty may not be able to finance necessary capital
expenditures for renovations and other improvements on
favorable terms or at all; and
- If one of Liberty's properties is mortgaged to secure payment
of indebtedness and Liberty is unable to meet
-19-
<PAGE> 29
mortgage payments, the property could be foreclosed with a
consequent loss of income and asset value to Liberty.
RICHARD M. OSBORNE WILL CONTROL LIBERTY
If Richard M. Osborne exercised his right to redeem his limited
partnership interests in the operating partnership, and Liberty elected to
convert such interests into shares of Liberty's common stock, Mr. Osborne would
own approximately 72% of Liberty and he would have the ability to approve all
matters requiring the vote of stockholders.
RICHARD M. OSBORNE AND THOMAS J. SMITH, AS OFFICERS AND DIRECTORS OF BOTH
MERIDIAN AND LIBERTY AND MEMBERS OF THE SELF-STORAGE COMPANY, FACE CONFLICTS OF
INTEREST IN THE PROPOSED TRANSACTIONS
The terms of the reorganization, including the allocation of ownership
interests between Liberty and Mr. Osborne, Mrs. Osborne, Mr. Smith and
Retirement Management Company, 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 Meridian and Liberty will be the general partner of the
operating partnership and will, therefore, control the operating partnership.
After the reorganization, Mr. Osborne will have limited partnership interests
totaling 69.1% of the operating partnership. Because Liberty will be the general
partner of the operating partnership, Mr. Osborne is the Chairman of the
Board and Chief Executive Officer of Liberty and Mr. Osborne will be a limited
partner of the operating partnership, he will face conflicts of interest in
making determinations regarding the operating partnership. Mr. Osborne's
interests may differ from the interests of Liberty's stockholders and the other
limited partners. For more information regarding these conflicts of interest,
see "The Proposed Transactions -- Conflicts of Interest."
MR. OSBORNE WAS A PARTY TO ALL SIDES OF THE PROPOSED TRANSACTIONS
In addition, as an officer and trustee of Meridian, as an officer and
director of Liberty and as the significant member of the self-storage company,
Mr. Osborne was a party to all sides of the negotiations regarding the
reincorporation and the reorganization. Mr. Osborne receives the benefit of the
contribution of the self-storage facilities in a tax-free transaction and the
opportunity to convert his privately-held self-storage company into a public
entity through the reorganization. Mr. Osborne faced these conflicts of interest
in his decision to proceed with the reincorporation and the reorganization for
each of Meridian, Liberty and the self-storage company.
-20-
<PAGE> 30
THE BOARD OF DIRECTORS HAS THE ABILITY TO EFFECT CHANGES TO THE MAJOR POLICIES
OF LIBERTY, INCLUDING ITS INVESTMENT POLICY, WITHOUT THE VOTE OF STOCKHOLDERS
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 included herein and has no present intent
to change the 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."
NO INDEPENDENT REPRESENTATIVE WAS RETAINED BY THE BOARD OF TRUSTEES TO ACT ON
BEHALF OF MERIDIAN'S SHAREHOLDERS
The board of trustees has been responsible for structuring all the
terms and conditions of the proposed transactions. While Robert A. Stanger &
Co., Inc. has provided a fairness opinion with respect to the allocation of
interests in the operating partnership, Meridian has not retained any outside
representatives to act on behalf of the shareholders in negotiating the terms
and conditions of the proposed transactions. Legal counsel engaged to assist
with the preparation of the documentation for the reorganization, 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 an independent
representative had been retained for the shareholders, the terms of the proposed
transactions may have been different and, possibly, more favorable to the
shareholders.
ADVANCE NOTICE REQUIREMENTS COULD DETER PROXY CONTESTS AND THEREBY DELAY OR
HINDER THE EFFORTS OF STOCKHOLDERS TO CHANGE LIBERTY'S BOARD OF DIRECTORS OR
OTHERWISE EFFECT CHANGE AT LIBERTY
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. These solicitations or proxy
contests could result in a change of the board of directors of Liberty that may
be beneficial to the stockholders.
Liberty's bylaws require a stockholder to submit a proposal to the company
for consideration at an annual meeting not less than 120 days prior to the
anniversary date of the immediately preceding annual meeting. Liberty's bylaws
require a stockholder wishing to nominate a director for consideration at an
annual meeting to submit information regarding such director to the company not
less than 60 days nor more than 90 days before the annual meeting. The bylaws
require stockholders to deliver information concerning themselves and their
proposal or director nomination. Failure to comply with these timing and
informational requirements will result in the proposal or director nomination
not being considered at the annual meeting.
STOCKHOLDERS NEED TO ACT BY UNANIMOUS WRITTEN CONSENT WHICH COULD DELAY OR
HINDER THE EFFORTS OF STOCKHOLDERS TO CHANGE LIBERTY'S BOARD OF DIRECTORS
Unlike the right of shareholders of Meridian, pursuant to the
provisions of Maryland law, 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.
ROBERT A. STANGER & CO., INC.'S PREPARATION OF THE APPRAISAL OF THE 15
SELF-STORAGE PROPERTIES AND THE FAIRNESS OPINION WHICH IS BASED ON ITS APPRAISAL
MAY PRESENT A CONFLICT OF INTEREST
Stanger rendered a fairness opinion to the board of trustees of Meridian
stating that the allocation of interests in the operating partnership between
Liberty and the members of Osborne's self-storage company is fair to Meridian's
shareholders from a financial point of view. The allocation of interests in the
operating partnership was determined by the net asset value of each of Meridian
and Osborne's self-storage company. The net asset value of Osborne's
self-storage company is based on the appraised value of the 15 self-storage
facilities being contributed by the self-storage company to the operating
partnership. The appraised value of $23,620,000 was determined by Stanger.
A PARTNER OF THE LAW FIRM PROVIDING LEGAL COUNSEL TO MERIDIAN AND LIBERTY IS
ALSO A TRUSTEE OF MERIDIAN AND A DIRECTOR OF LIBERTY WHICH MAY PRESENT A
CONFLICT OF INTEREST
Marc C. Krantz, a trustee of Meridian and a director of Liberty, is a
partner in Kohrman Jackson & Krantz P.L.L., the law firm that was engaged by the
board of trustees. Mr. Krantz's role as a trustee and a director and legal
counsel to Meridian and Liberty may present a conflict of interest.
-21-
<PAGE> 31
SELF-STORAGE INDUSTRY RISKS
MOST OF THE SELF-STORAGE FACILITIES HAVE LOWER OCCUPANCY RATES THAN THEIR DIRECT
COMPETITORS
Nine of the self-storage facilities being contributed by Osborne's
self-storage company had lower occupancy rates than their competitors within a
five mile radius of the facility as of June 30, 1999. These facilities need to
increase their occupancy rates to remain competitive.
LIBERTY FACES EASE OF ENTRY BY ANY COMPETITOR INTO AN AREA WHERE LIBERTY
OPERATES A SELF-STORAGE FACILITY
Because self-storage facilities require little capital and expense to
construct and operate, Liberty faces competition from new facilities due to ease
of entry into the self-storage industry.
LIBERTY WILL COMPETE WITH OTHER SELF-STORAGE COMPANIES WITH GREATER RESOURCES
The 15 self-storage facilities compete with other self-storage
facilities in their geographic markets. The facilities compete with a variety of
other self-storage companies, including national, regional and local companies.
Each of Osborne's self-storage company's facilities has at least two other
self-storage facilities within a five mile radius. If competition increases, the
self-storage facilities 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.
LIBERTY MAY NOT BE ABLE TO SUCCESSFULLY ACQUIRE, DEVELOP AND OPERATE NEW
SELF-STORAGE FACILITIES
Liberty's strategy will be to grow by acquiring and developing
additional self-storage facilities. Acquisitions may fail to perform in
accordance with expectations and 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 may prove inaccurate. Liberty will
also be subject to 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,
-22-
<PAGE> 32
further development activities or acquisitions will be curtailed and cash
available for distributions will be adversely affected.
REAL ESTATE INVESTMENT RISKS
THE SELF-STORAGE FACILITIES ARE SUBJECT TO VARYING DEGREES OF RISK GENERALLY
INCIDENT TO THE OWNERSHIP OF REAL ESTATE
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;
- Impact of present or future environmental legislation and
compliance with environmental laws;
- 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 INVESTMENTS COULD ADVERSELY AFFECT LIBERTY'S ABILITY
TO SELL ITS PROPERTIES
Liberty may not be able to dispose of a property when it finds
disposition advantageous or necessary in light of changing economic or other
conditions or the sale price of any disposition may not recoup or exceed the
amount of Liberty's investment. In addition, provisions of the Code may limit
Liberty's ability to profit on the sale of properties held for fewer than four
years because these provisions may apply a tax equal to 100% of the net income
from the sale of property by Liberty unless Liberty owned the property for at
least four years prior to sale.
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<PAGE> 33
LIBERTY CANNOT SELL THE 15 SELF-STORAGE FACILITIES FOR TEN YEARS
Liberty is precluded by the partnership agreement from selling any of
the 15 self-storage facilities contributed by the members of Osborne's
self-storage company for ten years following the consummation of the proposed
transactions without Mr. Osborne's consent. For additional information regarding
sale of the 15 self-storage facilities, including the permissibility of
like-kind exchanges, see the section called "Proposal 3 -- Formation of the
Operating Partnership -- No Sale of Properties."
UNINSURED AND UNDERINSURED LOSSES COULD RESULT IN LOSS OF VALUE OF SELF-STORAGE
FACILITIES
There are some 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. Each facility has a limit on
coverage determined by management and the insurance company and each policy
carries a $2,500 deductible. The facility's responsibility for losses extends
only to the actual property and not the property of tenants. Tenants are
responsible for insuring their own belongings stored at the facility.
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 these circumstances,
the insurance proceeds received by Liberty might not be adequate to restore its
economic position with respect to that property.
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT LIBERTY'S FINANCIAL
POSITION
Under various federal, state, and local environmental laws, 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 the
property. These laws often impose liability whether or not the owner or operator
caused or knew of the presence of the 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 the contaminated property as collateral. In
connection with the ownership of the self-storage facilities, Liberty may be
potentially liable for any cleanup costs.
Specifically, in connection with Meridian'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
requested that Meridian investigate and characterize soil and groundwater
contamination of the Charleston property. Meridian engaged an environmental
engineering firm that discovered the presence of trichloroethylene and other
solvent chemicals in the groundwater. The Regional Water Quality Control Board
deferred issuing a Site Cleanup
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<PAGE> 34
Requirements in order to give Meridian time to complete the pending sale of the
Charleston property. As part of the sale, the purchaser agreed to indemnify
Meridian broadly against the pending Site Cleanup Requirements and other types
of environmental claims. Its indemnity is backed by an environmental insurance
policy. It is possible that the Regional Water Quality Control Board could still
name Meridian as a potentially responsible party when it ultimately issues its
Site Cleanup Requirements order for the property based on Meridian's former
ownership.
IF LIBERTY FAILED TO QUALIFY AS A REIT, IT WOULD BE SUBJECT TO ADVERSE TAX
CONSEQUENCES
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 applicable alternative minimum tax, on its taxable income at
regular corporate rates. 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. Unless entitled to relief under provisions of the Code, Liberty
also would be ineligible for qualification as a REIT for the four taxable years
following the year in 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. See "The Proposed
Transactions -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of Meridian -- Election for REIT Status."
NO SINGLE STOCKHOLDER, OTHER THAN RICHARD M. OSBORNE, CAN OWN MORE THAN 9.8% OF
THE OUTSTANDING SHARES OF LIBERTY WHICH MAY PREVENT AN OTHERWISE BENEFICIAL
CHANGE OF CONTROL
In order to maintain its qualification as a REIT, not more than 50% in
value of Liberty's outstanding common stock may be owned, directly or
indirectly, by five or fewer individuals. This requirement is known as the "Five
or Fewer Test."
- Liberty's articles of incorporation limit ownership of the
issued and outstanding common stock by any single stockholder,
except for Mr. Osborne and his affiliates, including Turkey
Vulture Fund XIII, Ltd., Retirement Management Company and Mr.
Osborne's immediate family, directly or by virtue of the
attribution provisions of the Code, to 9.8% of the aggregate
value of Liberty's outstanding common stock, or 15% by tax
pass-through entities. Mr. Osborne and his affiliates are
subject to an ownership limit of 75% to permit the acquisition
of his self-storage company by Liberty.
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<PAGE> 35
- 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 limit the
opportunity for stockholders to receive a premium for their
common stock that might otherwise exist if an investor were
attempting to assemble a block of common stock in excess of
9.8% or 15%, as the case may be, of the outstanding common
stock or to otherwise effect a change of control of Liberty.
- A transfer of shares of common stock to a person who, as a
result of the transfer, violates the ownership limit will be
void.
THE MARYLAND ANTI-TAKEOVER STATUTE MAY RESTRICT BUSINESS COMBINATION
OPPORTUNITIES
Maryland law could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority, of the outstanding common
stock might receive a premium for their Liberty common stock over the then
prevailing market price or which such holders might believe to be otherwise in
their best interest. Maryland law prevents persons from acquiring more than 20%
of a company's outstanding stock without following statutory procedures. These
provisions of Maryland law could have the effect of delaying or preventing a
change in control of Meridian even if a change in control were in the
stockholders' interest. See "The Proposed Transactions -- Material Changes in
the Rights of Shareholders Resulting from the Reincorporation."
Mr. Osborne and his affiliates were exempted from the provisions of
Maryland's interested stockholder and control share statutes to permit the
acquisition of his self-storage company by Liberty.
THE ISSUANCE OF PREFERRED STOCK MAY PREVENT AN OTHERWISE BENEFICIAL CHANGE OF
CONTROL
The issuance of preferred stock could have the effect of delaying or
preventing a change of control of Liberty even if a change of control were in
the stockholders' best interest. Liberty's articles of incorporation allow the
board to issue up to 2,000,000 shares of preferred stock and to determine the
preferred stock's terms and conditions. However, the board has no current intent
to issue preferred stock.
IF THE INTERNAL REVENUE SERVICE DID NOT CONSIDER THE REINCORPORATION TO BE A
TAX-FREE REORGANIZATION, MERIDIAN'S SHAREHOLDERS MAY EXPERIENCE ADVERSE TAX
CONSEQUENCES
Meridian has received an opinion of counsel that the reincorporation
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 reincorporation was not a tax-free reorganization, Meridian 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 shares of beneficial interest for shares
of common stock of Liberty to the extent that the fair market value of any
common stock you receive exceeded the basis of your Meridian shares. Recognition
of loss on the deemed exchange might not be allowed until you dispose of some or
all of your common stock. Meridian would be required to recognize gain on its
disposition and distribution of property in connection with the reincorporation
and any loss on the disposition or distribution may be required to be deferred
until Liberty sells the assets to an unrelated third party. In addition, to the
extent Meridian's tax
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<PAGE> 36
attributes were not used to offset any gain, Liberty would not succeed to them.
See "The Proposed Transactions -- Federal Income Tax Matters."
THERE IS CURRENTLY NO FORMAL TRADING MARKET FOR MERIDIAN'S SHARES OF BENEFICIAL
INTEREST AND LIBERTY'S COMMON STOCK
Currently, Meridian's shares of beneficial interest trade only on the
OTCBB and, as a result, the market for the shares is not particularly liquid.
Liberty's shares of common stock will also trade on the OTCBB. Therefore, the
price at which Liberty's common stock may trade may fluctuate and the market for
the common stock may be subject to disruptions that could make it difficult or
impossible for the holders of common 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.
YOU WILL NOT HAVE ANY APPRAISAL RIGHTS IN CONNECTION WITH THE REINCORPORATION
AND THE REORGANIZATION
You do not have any statutory appraisal rights under Meridian's
declaration of trust and California or Maryland law to choose to have the fair
value of your shares of beneficial interest of Meridian judicially appraised and
paid to you in connection with or as a result of the reincorporation and the
reorganization.
STOCKHOLDERS COULD EXPERIENCE POSSIBLE FUTURE DILUTION THROUGH THE ISSUANCE OF
ADDITIONAL COMMON STOCK OR PARTNERSHIP INTERESTS
As a result of growth relating to acquisitions financed with the
issuance of additional common stock of Liberty or interests in the operating
partnership or any similar entity of Liberty, stockholders of Liberty could
experience significant future dilution.
THE ANNUAL YIELD ON LIBERTY'S COMMON STOCK AS COMPARED TO YIELDS ON OTHER
FINANCIAL INSTRUMENTS MAY INFLUENCE THE PRICE OF LIBERTY'S COMMON STOCK IN
PUBLIC TRADING MARKETS
An increase in market interest rates will result in higher yields on
other financial instruments, which could adversely affect the market price of
Liberty's common stock.
SHARES ELIGIBLE FOR SALE IN THE FUTURE COULD AFFECT THE MARKET PRICES OF
LIBERTY'S COMMON STOCK
Sales of substantial amounts of Liberty's securities, or the perception
that significant sales could occur, could adversely affect prevailing market
prices for Liberty's common stock.
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY ADVERSELY IMPACT MERIDIAN'S AND
OSBORNE'S SELF-STORAGE COMPANY'S SYSTEMS OPERATIONS
Meridian and Osborne's self-storage company have assessed the ability
of their information systems to properly process transactions using dates
beginning in the Year 2000.
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<PAGE> 37
Remediation of any potential issues regarding Year 2000 compliance has included
the upgrading or replacement of older software with new programs and
systems, which will handle the Year 2000 and beyond. Meridian and Osborne's
self-storage company believe that the necessary upgrades and replacements are
in place.
Because Meridian's assets are in financial institutions and brokerage
houses and that the current operations, and consequently its computer needs, are
limited, Meridian does not expect that Year 2000 compliance costs will have any
material adverse effect on Meridian's liquidity or ongoing results of
operations. These costs are expected to be less than $5,000 for each of Meridian
and Osborne's self-storage company. Meridian expects that it will be successful
in implementing its Year 2000 remediation according to the anticipated schedule
and that compliance costs will not have a material adverse effect on Meridian's
future liquidity or ongoing results of operations. See "The Proposed
Transactions -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of Meridian -- Year 2000 Compliance" and "-- Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Osborne's Self-Storage Company -- Year 2000 Compliance."
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<PAGE> 38
AVAILABLE INFORMATION
Meridian Point Realty Trust '83 is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and files,
reports, proxy statements and other information with the Securities and Exchange
Commission. Meridian's 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. Meridian's 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 at
http://www.sec.gov that also contains reports, proxy statements and other
information concerning Meridian. In addition, the shares of Meridian are traded
on the OTCBB under the symbol "MPTBS" and similar information concerning
Meridian 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
under the Securities Act with respect to shares of Liberty's common stock to be
issued in connection with the reincorporation into a Maryland corporation and
with respect to shares of Liberty's common stock to be issued upon conversion of
the Class A limited partnership interests in the operating partnership in
connection with the acquisition of Osborne's self-storage company through the
reorganization as an UPREIT. 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 OF THIS PROXY
STATEMENT/PROSPECTUS 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.
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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 June 30, 1999 that give pro forma effect to the
reincorporation into a Maryland corporation and the acquisition of Osborne's
self-storage company through the reorganization of Meridian as an UPREIT.
The information set forth in the table below should be read in
conjunction with Meridian's and the 15 self-storage facilities' consolidated
historical and pro forma financial statements and related notes set forth
elsewhere herein, including pages 75-77, F-7, F-20, and F-28-31.
<TABLE>
<CAPTION>
June 30, 1999
Pro Forma
-------------
<S> <C>
Short-Term Debt
Current maturities of long-term notes payable ................. $ 407,014
Other ......................................................... 500,000
------------
Total short-term debt ......................................... $ 907,014
============
Long-Term Debt
Long-Term notes payable ....................................... $ 17,440,221
------------
Total long-term debt .......................................... $ 17,440,221
============
Minority Interest * .................................................... 4,517,116
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 ............................. (23,860,768)
------------
Total Stockholders' Equity .................................... 1,926,544
------------
Total Capitalization ................................................... $ 24,790,895
============
</TABLE>
* Represents minority interest in the operating partnership applicable to
the limited partners therein, excluding the limited partnership
interests held by Liberty.
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<PAGE> 40
BUSINESS
Liberty Self-Stor, Inc., a Maryland corporation, will succeed to, and
continue, the business of Meridian Point Realty Trust '83 upon consummation of
the reincorporation under the direction of Meridian'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 Osborne's self-storage company. Thomas J. Smith is currently
the self-storage company's Chief Operating Officer, Ronald L. Ramer is Financial
Manager and Jeffrey J. Heidnik is Vice President of Operations. These
individuals have significant experience in managing, acquiring, developing,
expanding and operating self-storage facilities. Mr. Smith has been in the
self-storage industry for a total of three years, all with Osborne's
self-storage company, and also has over ten years of experience in the real
estate industry. Mr. Ramer has been in the self-storage industry for three
years, all with the self-storage company, and also has over seven years of
experience in the real estate industry. Mr. Heidnik has been in the self-storage
industry for 11 years, three of them with the self-storage company.
Meridian 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. Meridian 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 Meridian was filed on May 12, 1992 and amended on July 23, 1993 and
February 14, 1995. Meridian 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 Meridian as contained in the current
declaration of trust is a so-called "self-liquidating/finite-life" policy,
meaning that Meridian is intended to have limited life through provisions of its
declaration of trust which state that the net proceeds from the sale of a
property owned by Meridian may not be reinvested but must be distributed to
shareholders after payment of indebtedness relating to that property and other
obligations. However, the proceeds of a sale need not be distributed if they are
used to purchase land underlying any of Meridian's other properties, to finance
improvements or additions to any of the properties, to protect or enhance
Meridian's investments in any of its properties, to buy out leases or to
increase revenues. This limited life policy essentially precludes Meridian from
acquiring new properties and reinvesting the proceeds from the disposition of
future properties into new assets. Meridian sold its last remaining property in
August 1997 and the limited life policy precludes it from acquiring new
properties. The reincorporation into a Maryland corporation would change
Meridian from a limited life business trust into a corporation of perpetual-life
and allow it to continue as a going concern. If the reincorporation and the
reorganization of Meridian as an UPREIT are not approved, Meridian will be
forced to liquidate.
Further information regarding Meridian, including its audited
historical financial statements, supplementary financial information and
management's discussion and analysis of financial condition and results of
operations, is contained in Meridian's Annual Report on Form
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<PAGE> 41
10-KSB for the fiscal year ended December 31, 1998 and Quarterly Report on Form
10-QSB for the quarter ended June 30, 1999, which reports are being mailed with
this Proxy Statement/Prospectus.
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<PAGE> 42
THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the shareholders
in connection with the special meeting to be held on Tuesday, December 28, 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 SPECIAL MEETING
At the special meeting, you will be asked to consider and vote upon the
following proposals:
- Proposal 1: A proposal to approve the amendment to
Meridian's declaration of trust.
- Proposal 2: A proposal to approve the reincorporation
into a Maryland corporation.
- Proposal 3: A proposal to approve the acquisition of
Osborne's self-storage company.
- 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 for fiscal year ending December 31,
1999.
You also will consider and vote upon any other matters that may
properly come before the special meeting.
VOTING RIGHTS AND VOTE REQUIRED
Only holders of record of shares of beneficial interest of Meridian
issued and outstanding as of the close of business on October 20, 1999 will be
entitled to vote at the special meeting, or any adjournment or postponement
thereof. As of October 20, 1999, there were 3,031,618 shares of beneficial
interest issued and outstanding held by approximately 2,200 holders of record.
Holders of record of shares of beneficial interest at the close of
business on October 20, 1999 are entitled to one vote per share upon each matter
submitted to a vote of the shareholders of Meridian at the special meeting or
any adjournment or postponement thereof.
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<PAGE> 43
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of beneficial interest entitled to vote at the meeting is
necessary to constitute a quorum to transact business at the special meeting.
Shareholders voting or abstaining from voting on any issue will be counted as
present for purposes of constituting a quorum. If a quorum is not present at the
special meeting, the holders of a majority of the shares of beneficial interest
present in person or by proxy and entitled to vote at the special meeting may,
by majority vote, adjourn the special meeting from time to time.
Pursuant to the Meridian's current declaration of trust, the
affirmative vote of the holders of a majority of the outstanding shares of
beneficial interest is required to approve the amendment to the declaration of
trust and the reincorporation into a Maryland corporation. The approval of the
reorganization of Meridian as an UPREIT, the election of each of the nominees as
trustees, the 1999 Stock Option Plan, 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
special meeting. As promised, 297,344 shares, or approximately 9.8%, owned by
Turkey Vulture Fund XIII, Ltd., a limited liability company of which Mr. Osborne
is the sole manager, will not vote on the reorganization of Meridian as an
UPREIT proposal and the lease proposal. The consummation of the reincorporation
is contingent upon the approval by the shareholders of the amendment to the
declaration of trust and the reorganization of Meridian as an UPREIT and,
conversely, the consummation of the reorganization is contingent upon the
approval by the shareholders of the amendment to the declaration of trust and
the reincorporation into a Maryland corporation.
Under the rules of the principal stock exchanges, brokers who hold
Meridian's shares of beneficial interest in street name for customers will not
have authority to vote such shares on the proposals to approve the amendment to
the declaration of trust, the reincorporation, the reorganization as an UPREIT
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 special meeting, but will not be
counted as votes cast on any matter presented for a vote at the meeting. Because
approval of the amendment to the declaration of trust and the reincorporation
each require the affirmative vote of a specified percentage of the holders of
the shares of beneficial interest outstanding on October 20, 1999, abstentions
and broker "non-votes," as the case may be, will have the same effect as votes
against such matters. Since the approval of reorganization as an UPREIT, the
election of trustees, the 1999 Stock Option Plan, the lease for Liberty's
executive offices and the ratification of the appointment of Arthur Andersen LLP
each requires a majority of the votes cast at the special 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 shares of beneficial interest which are entitled to vote and are
represented at the special meeting by properly executed proxies received prior
to or at the special meeting and not revoked will be voted at the special
meeting in accordance with the instructions indicated on such proxies. IF NO
INSTRUCTIONS ARE INDICATED, THE PROXIES WILL BE VOTED IN FAVOR OF THE
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<PAGE> 44
PROPOSALS DESCRIBED HEREIN. The board of trustees knows of no matters to be
presented at the special meeting other than those described in this Proxy
Statement/Prospectus. If any other matters are properly presented at the special
meeting for consideration, the persons named in the enclosed form of proxies and
acting thereunder will vote on such matters in their discretion. Meridian's
trustees' regulations provide that the special meeting may be adjourned by an
affirmative vote of a majority of the shares of beneficial interest 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:
- filing with Meridian, at or before the taking of the vote at
the special meeting, a written notice of revocation bearing a
later date than the proxy;
- duly executing a later-dated proxy relating to the same shares
and delivering it to Meridian before the taking of the vote at
the special meeting; or
- attending the special meeting and voting in person, although
attendance at the special 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 Meridian
c/o Secretary, 8500 Station Street, Suite 100, Mentor, Ohio 44060 or hand
delivered to Meridian 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
special meeting.
All expenses of this solicitation and the proposed transactions,
including the cost of preparing and mailing of this Proxy Statement/Prospectus,
will be paid by Osborne's self-storage company up to $725,000 and thereafter by
Meridian. Costs are estimated at approximately $725,000. In addition to
solicitation by use of the mails, proxies may be solicited by trustees, officers
and employees of Meridian in person or by telephone, telegram or other means of
communication. The trustees, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with their solicitation. Meridian 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. Beacon Hill's fees are
estimated to be $35,000. 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 shares of beneficial
interest, and Meridian 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 Meridian's declaration of trust and California and Maryland law,
you will not be entitled to any dissenters' appraisal rights in connection with
the reincorporation or the reorganization as an UPREIT.
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<PAGE> 45
BACKGROUND OF THE PROPOSED TRANSACTIONS
Meridian is a limited life business trust which elected to operate as a
REIT for federal income tax purposes. Pursuant to the limited life policy as set
forth in the current declaration of trust, net proceeds from the sale or
refinancing of Meridian's properties were distributed to shareholders rather
than reinvested in additional properties. As a result of this policy, at the
time Meridian 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.
Meridian'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, Meridian had
an interest in ten properties, all but one of which, the Charleston property,
were sold on that date to Meridian Industrial Trust, Inc. As a result of this
sale, Meridian paid a dividend on March 22, 1996 of $1,000,434 in cash, or $0.33
per share, and 390,360 shares of Meridian Industrial Trust common stock, or
0.1287 of a share of Meridian Industrial Trust per share of Meridian, to
shareholders of record on March 12, 1996. At that time, Meridian stated 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 Meridian after the sale of the Charleston
property. An investment banker was interviewed who offered to locate a purchaser
for Meridian 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 Meridian and
considered whether this should be pursued. On July 8, 1997, the investment
banker was engaged to seek potential buyers of Meridian.
During this period, Meridian received from Turkey Vulture Fund XIII,
Ltd., of which Mr. Osborne is the sole manager, requests for a shareholder list,
for an annual meeting of shareholders, and for a special meeting of shareholders
for the removal and election of trustees. Turkey Vulture Fund had acquired a
significant number of shares in July 1996. In July 1997, Turkey Vulture Fund
contacted Steven A. Calabrese, a current trustee, and Meredith Partners, a
former shareholder, and filed an amended Schedule 13D Statement with the SEC
indicating that they intended to work together with Meridian's management to
create value for shareholders. The stated intent was to try to convince
management to take steps to have the shareholders convert Meridian 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 Meridian
as an alternative to liquidation and dissolution. On August 14, 1997, Meridian's
former president set October 9, 1997 as the date for a special meeting of
shareholders. The former trustees determined at that time that they would review
in mid-September 1997 the level of interest expressed by parties contacted by
the investment banker. The former trustees believed that then they could better
evaluate the alternatives of either selling or liquidating Meridian. The former
trustees weighed each of the alternatives presented against the relative
certainty of the shareholders receiving a cash distribution within an
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anticipated range in the near future. The former trustees also recognized that
the feasibility of implementing an alternative plan would depend to a great
extent upon the involvement or support of Turkey Vulture Fund.
On August 21, 1997, Meridian 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 $13.0 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. Meridian realized a gain of
approximately $4.349 million on the sale. Meridian announced at the time of the
sale that the board of trustees was in the process of evaluating the options
available, including sale or liquidation of Meridian. Following the sale of the
Charleston property, Meridian'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 Meridian to pursue. No separate valuations were
obtained by the former trustees in connection with making this decision.
In connection with Meridian'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 requested that
Meridian investigate and characterize soil and groundwater contamination of the
Charleston property. Meridian engaged an environmental engineering firm that
discovered the presence of trichloroethylene and other solvent chemicals in the
groundwater. The Regional Water Quality Control Board deferred issuing a Site
Cleanup Requirements order to give Meridian time to complete the pending sale of
the Charleston property. As part of the sale, the purchaser agreed to indemnify
Meridian broadly against the pending Site Cleanup Requirements and other types
of environmental claims. Its indemnity is backed by an environmental insurance
policy. It is possible that the Regional Water Quality Control Board could still
name Meridian as a potentially responsible party when it ultimately issues its
Site Cleanup Requirements order for the property based on Meridian's former
ownership. If that occurs Meridian could tender the Site Cleanup Requirement's
order to the purchaser for compliance. Similarly, Meridian 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 Meridian. At a meeting of the former board of trustees on September
19, 1997, the investment banker reported on the status of his inquiries. On
October 6, 1997, he provided the former trustees with details on those
expressing interest, his evaluation of the prospects and the results of his due
diligence. This was continued on October 8, 1997, at which time several trustees
arranged to meet with a few of the prospects. In view of this activity and the
expressions of interest, the special meeting of shareholders was not held on
October 9, 1997.
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Negotiations ensued with one of the prospects over a proposed structure
that included the issuance of additional stock by Meridian for cash, the
issuance of warrants and the allocation of values in connection with the
contribution of the properties for shares. In the next few weeks, the proposal
for issuance of shares and warrants was dropped and contact was made by the
prospect with Mr. Osborne about the possibility of purchasing his shares and
those of others associated with him. Since Mr. Osborne was then unwilling to
sell his shares, the issuance of stock by Meridian was again raised. The former
trustees were not agreeable to the issuance because it appeared that it was
inconsistent with the limited life policy. As a consequence, this proposal was
withdrawn on November 21, 1997.
The former trustees met on November 21, 1997, and subsequently the
investment banker was provided with a request for a proposal form that had been
developed by Meridian. The request for proposal asked for information geared to
evidencing the enhancement value to the shareholders and the protection of
Meridian's assets from being dissipated. On December 8, 1997, a response was
received from one prospect and the former trustees reviewed and rejected the
proposal at a meeting on December 12, 1997. The former trustees also reviewed
other alternatives, including the status of discussions with other parties who
had earlier expressed an interest, including Mr. Osborne. It did not appear to
the former trustees that any of these alternatives were promising under the
circumstances. Having concluded that the alternatives to proceeding with
liquidation of Meridian were not as likely to assure greater value for
shareholders, the former trustees adopted the plan of liquidation and
dissolution and determined to proceed with liquidation, including holding an
annual meeting of shareholders to elect trustees and to vote on the plan.
Meridian issued a press release on December 16, 1997, announcing the adoption of
a plan of liquidation and dissolution by the trustees and proposed that the plan
be submitted to the vote of the shareholders at an annual meeting to be held in
1998.
During this period, counsel for Meridian and counsel for Mr. Osborne
were working on an agreement to facilitate the holding of an annual meeting and
regulating the costs and the conduct of the respective parties in connection
with a meeting. At the end of September 1997, Meridian provided a shareholder
list to Mr. Osborne's counsel.
Between December 15, 1997 and January 8, 1998, two of the prospects
revised their proposals and another party from Portland, Oregon expressed
interest in exploring an offer. A meeting of the former board of trustees was
held on January 10, 1998, at which these proposals were considered. It was
pointed out that none of the proposals adequately addressed the issues covered
by the request for proposal. In analyzing these proposals, the former trustees
were concerned about the risk to shareholders in comparison to liquidation, but
determined that management should contact these parties to see whether a
transaction more favorable to the shareholders might be possible. In the
meantime, plans were proceeding to hold an annual meeting.
In subsequent conversations with the various parties, the interest of
all but the Portland group waned. On February 5, 1998, the Portland group
submitted a revised letter and term sheet to Meridian. Meridian also received a
copy of a letter of intent dated February 24, 1998 between Richard Osborne and
West Side Investors, Inc., an investor group in Atlanta, Georgia. This letter
contemplated financing provided by Mr. Osborne and West Side Investors in the
amount of $1.7 million in exchange for unsecured, convertible notes and warrants
of Meridian, the purchase of properties and formation
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of an UPREIT, conversion to a perpetual life REIT and the resignation of the
trustees. This proposed agreement would have been subject to shareholder
approval and Meridian's status as a REIT. On March 5, 1998, the former trustees
met to consider these new developments. The former trustees were informed that
representatives of the Portland group were discussing with Mr. Osborne a
purchase of the shares held by Turkey Vulture Fund and others. The consensus of
the former trustees was that nothing presented should cause Meridian to deviate
from its intention to proceed with an annual meeting and implement the plan of
liquidation and dissolution. The former trustees expressed concern over
endorsing anyone under circumstances where there was uncertainty about the
future of Meridian and whether the shareholders would benefit.
On March 10, 1998, the Portland group revised its proposed term sheet,
which called for a limited tender offer and declaration of a dividend, and later
made a request for due diligence materials. The former trustees met on March 12,
1998, and representatives of the Portland group explained to them the terms of
their proposal, as well as their discussions with Mr. Osborne. The former
trustees then went over the March 10 term sheet, discussed certain of the terms
with representatives of the Portland group and imposed outside dates by which
certain events, including the purchase by the Portland group of the shares held
by major shareholders, would have to occur if an agreement were to be reached
with Meridian.
Meridian was furnished a copy of a letter dated March 20, 1998,
providing for the sale by Turkey Vulture Fund, Mr. Calabrese and the Jerome T.
Osborne Trust of their shares at $2.50 per share to West Side Investors, Inc. On
March 25, 1998, Meridian entered into a confidentiality agreement with West Side
Investors. On March 30, 1998, Meridian was advised that West Side Investor's
purchase of shares owned by Turkey Vulture Fund, Mr. Calabrese and the Jerome T.
Osborne Trust would not be consummated. Meridian then entered into a
confidentiality agreement with the Portland group on March 31, 1998.
On April 3, 1998, Carstin Search Group, Inc., a group from Texas,
submitted a letter indicating a desire to explore a transaction and urged the
former trustees to hold off implementing the plan of liquidation and
dissolution. Another letter dated April 22, 1998, was received from Carstin,
which had been in contact with Mr. Osborne. Meridian was later informed that the
Portland group was no longer interested in pursuing a transaction with Meridian.
The interest of Carstin appeared to continue and it again affirmed discussions
with Mr. Osborne about the purchase of his shares. Meridian heard nothing from
Carstin after July 15, 1998, and it was assumed that it no longer had an
interest in a transaction with Meridian. 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 Meridian 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" and filed a proxy statement in
opposition to the then trustees to elect their own nominees as trustees of
Meridian and to oppose the approval of the plan of liquidation and dissolution
presented by the former board of trustees. Because the Committee for Growth was
aware that the former board had
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explored other alternatives, the Committee for Growth indicated in its proxy
statement that it would seek conversion of Meridian's limited life policy to a
perpetual-life policy, that it had identified self-storage facilities as one
possible type of investment that might be suitable for Meridian 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
of trustees proposed a plan of liquidation and dissolution. It estimated that
Meridian'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 Meridian's net asset
value of $1,926,544 as of June 30, 1999. Based on net assets of $2,131,004 at
June 30, 1999, costs of liquidation of approximately $500,000 to $700,000, and
including the $725,000 in transaction costs which Meridian will have to pay if
the reincorporation and the reorganization is not approved, the amount available
for distribution to shareholders currently ranges from as much as $660,411, or
$0.22 per share, to as little as $460,411, or $0.15 per share.
The annual meeting of shareholders of Meridian was held on September
22, 1998. The shareholders of Meridian 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.
Because Meridian ceased to own any properties in August 1997 and the
current declaration of trust forbids Meridian 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 its proxy
statement, that the merger of Meridian with a limited liability company
controlled by Mr. Osborne that owns self-storage facilities was the best option
for Meridian and its shareholders. The current board did not consider any other
alternatives.
In April 1999, the current board of trustees retained the investment
banking firm of Robert A. Stanger & Co., Inc. to render a fairness opinion in
connection with the reorganization.
From September 1998 to the original filing of this Proxy
Statement/Prospectus with the SEC in May 1999, the current board of trustees met
twice, on January 27, 1999 and May 6, 1999, to discuss the benefits and
detriments of the proposed transactions and the terms of the proposed
transactions. The board discussed with Mr. Osborne the terms of the
reorganization, the contribution of the self-storage facilities owned by his
self-storage company, the method by which to reincorporate, the determination of
net asset value and the fairness opinion. At the May 6, 1999 meeting, the board
discussed the proposed
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terms; including the terms of the partnership interests, the formation of
the operating partnership, and the presentation of the fairness opinion. The
board did not consider any alternative to the proposed transactions. In
addition, no other offers were received by the current board nor did the current
board pursue any other offer.
The board also met on August 11, 1999 and September 13, 1999 and acted
by written consent on October 12, 1999 to amend the formation agreement to
accurately reflect each parties' net asset value.
The board understood Osborne's self-storage company's reasons for
entering into the reorganization and the contribution of the self-storage
facilities. The reorganization of Meridian as an UPREIT presented Mr. Osborne
with the opportunity to convert his privately-held self-storage company into a
public entity. This UPREIT structure also enabled Mr. Osborne, Mrs. Osborne, Mr.
Smith and Retirement Management Company to contribute the 15 self-storage
facilities to the operating partnership in a tax-free transaction. Osborne's
self-storage company is seeking additional equity and debt financing to provide
cash to facilitate growth. The board of trustees believes that Meridian is in
turn receiving adequate consideration for its partnership interests in the
operating partnership based on the appraisal of 15 self-storage facilities, the
cash and securities being contributed by Meridian and the payment by Osborne's
self-storage company of the transaction costs of the reincorporation and the
reorganization. Mr. Osborne and the other members of the self-storage company
believe that the limited partnership interests that they will receive in
exchange for their membership interests are adequate because of the appraisal
and the ability of each to convert their limited partnership interests to shares
of a publicly-traded company.
The remaining documentation needed to implement the reorganization 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 Meridian's shareholders of the
allocation of interests in the operating partnership in connection with
reorganization.
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THE PROPOSED TRANSACTIONS
LIMITED LIFE TO PERPETUAL LIFE
Meridian was organized to operate as a limited life REIT. Under the
limited life policy, Meridian is required to distribute to shareholders the net
proceeds of the sale or refinancing of each property owned by Meridian and is
prohibited from reinvesting proceeds into the acquisition of new properties.
Because of this limited life policy, it was initially anticipated that Meridian
would have a duration of seven to ten years.
Meridian must change this limited life policy in order to pursue a
growth strategy. Because of this policy, Meridian cannot invest its remaining
cash in real estate and, because Meridian sold its last property in August 1997,
it currently holds no real estate. If Meridian does not eliminate this limited
life policy, Meridian will be forced to liquidate. The elimination of the
limited life policy through the reincorporation into a Maryland corporation 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 facilities and the expansion of its existing facilities.
There are risks in this change to a perpetual life and the ownership of
self-storage facilities. For a detailed discussion of the risks, see the
section of this Proxy Statement/Prospectus called "Risk Factors."
MATERIAL CHANGES IN THE RIGHTS OF SHAREHOLDERS RESULTING FROM THE
REINCORPORATION
Your rights as a shareholder of Meridian are governed by the current
declaration of trust, trustees' regulations, California common law, the
California statutes, and the rules of Nasdaq. If the reincorporation is approved
by the shareholders and the mergers are consummated, Liberty will be the
surviving entity in the mergers, the separate existence of Meridian will
terminate, each outstanding share of beneficial interest of Meridian will be
converted into one share of common stock of Liberty and the rights of Liberty's
stockholders will be governed by Maryland law, Liberty's articles of
incorporation and bylaws, and the rules of Nasdaq. While a number of Meridian's
current corporate governance provisions will be included in Liberty's articles
of incorporation and bylaws and, therefore, will not be affected by the approval
of the reincorporation and the consummation of the mergers, differences between
the current declaration of trust and trustees' regulations and Liberty's
articles of incorporation and bylaws will result in material differences between
your rights as a shareholder of Meridian 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 reincorporation and the consummation
of the mergers.
Set forth below is a summary of the material differences in this
respect. Because this is a summary, it does not contain all the information that
may be important to you.
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<TABLE>
<CAPTION>
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MERIDIAN LIBERTY
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<S> <C> <C>
TERM OF Meridian was formed as a limited Liberty is a perpetual-life Maryland
EXISTENCE life California unincorporated business corporation operating as a real estate
trust operating as a real estate investment trust and may acquire
investment trust whereby the proceeds new properties and reinvest the
of the sale or refinancing of any proceeds of the future sale or
property have to be distributed to refinancing of any property.
shareholders.
- --------------------------------------------------------------------------------------------------------------
AUTHORIZED The current declaration of trust The articles of incorporation
SHARES provides for an unlimited number of authorize 50,000,000 shares of
shares of beneficial interest, common stock, 1,000 of which are
3,031,618 of which are currently issued and outstanding to Meridian.
issued and outstanding.
- --------------------------------------------------------------------------------------------------------------
PREFERRED Meridian does not have any The board of directors will have the
STOCK preferred stock issued or authority to issue preferred stock.
outstanding. Liberty has 2,000,000 authorized
shares of preferred stock, the terms
of which may be designated by the
board of directors. None of these
shares of preferred stock are
presently issued or outstanding.
- --------------------------------------------------------------------------------------------------------------
INVESTMENT The current declaration of trust Liberty's charter documents do not
POLICY severely restricts the trustees in contain similar investment
the investment of Meridian's assets. restrictions. Liberty intends to
The trustees can only invest in: invest exclusively in self-storage
facilities. However, the board of
- obligations of, or guaranteed directors can change Liberty's
by, the U.S. Government or investment direction without a vote
any agencies or political of stockholders.
subdivisions thereof;
- obligations of, or guaranteed
by, any state, territory or
possession of the U.S. or any
agencies or political
subdivisions thereof; or
- evidences of deposits in, or
obligations of, banking
institutions, state and federal
savings and loan associations
and savings institutions
which are members of the
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</TABLE>
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<TABLE>
<CAPTION>
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MERIDIAN LIBERTY
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<S> <C> <C>
which are members of the
FDIC or the Federal Home
Loan Bank System.
- ------------------------------------------------------------------------------------------------------------
BORROWING Meridian's current declaration of Liberty will not have any limitations
trust limits the amount that Meridian on the amount it can borrow to
could borrow for the purchase of a purchase properties.
property to 80% of the property's
purchase price. In addition, Meridian
may not borrow on an unsecured basis
to the extent that the unsecured
indebtedness has an asset coverage of
less than 300%.
- ------------------------------------------------------------------------------------------------------------
ELECTION OF Trustees are elected by the vote of a Directors are elected by a vote of a
TRUSTEES/ majority of the votes cast by plurality of the shares eligible to
DIRECTORS shareholders, present in person or vote present in person or represented
represented by proxy. by proxy.
- ------------------------------------------------------------------------------------------------------------
REMOVAL OF A trustee may be removed from Under Maryland law, unless the
TRUSTEES/ office at any time either with or charter provides otherwise, directors
DIRECTORS without cause by the vote or written may be removed from office, with or
consent of either a majority of without cause, by the affirmative
the trustees then in office or a vote of the holders of at least a
majority of the outstanding voting majority of votes entitled to be cast
shares. Vacancies may be filled by in the election of directors.
the remaining trustees then in office However, Liberty's articles of
or by the vote or consent of holders incorporation provide that
of a majority of the outstanding stockholders may remove a director
shares entitled to vote. from office only for "cause" by the
affirmative votes of the holders of at
least two-thirds of the outstanding
shares entitled to vote. Pursuant to
Liberty's articles, vacancies
may be filled by the vote of a
majority of the remaining directors.
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OWNERSHIP The current declaration of trust The articles of incorporation provide
LIMIT provides that no individual, that no person, except Mr. Osborne
corporation, partnership, joint stock and his affiliates, may own more
company, trust, unincorporated than 9.8%, or 15% for tax pass-
association or other entity may own through entities, of the outstanding
in excess of 9.8% of the outstanding common stock. Any acquisition
shares. Any acquisition above 9.8% above 9.8%, or 15% for tax pass-
will be null and void and any excess through entities, will be void and
shares will be deemed to have been any excess will be automatically
acquired and held on behalf of transferred to a separate trust
Meridian. established to hold the shares. Mr.
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</TABLE>
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<TABLE>
<CAPTION>
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MERIDIAN LIBERTY
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<S> <C> <C>
Osborne and his affiliates were
excepted from this ownership limit
to permit the acquisition of the self-
storage company by Liberty and are
subject to an ownership limit of
75%.
- --------------------------------------------------------------------------------------------------------------
OPERATING The current declaration of trust Liberty's articles of incorporation
EXPENSE provides that operating expenses, as place no limit on operating
LIMITATION defined, cannot exceed the greater expenses.
of 2% of the book value of invested
assets or 25% of the net income
without adjustment for depreciation,
amortization or extraordinary items;
provided that in no event can the
operating expenses exceed 2% of
the total assets under management,
less cash, cash items and unsecured
indebtedness.
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DISTRIBUTIONS The board of trustees may cause Dividends and other distributions on
dividends to be declared and the stock of Liberty may be
paid on outstanding shares out authorized and declared by the board
of funds legally available of directors out of assets legally
therefor, at such times, in such available for this purpose.
amounts and from such sources, Dividends and other distributions
whether income, surplus, capital or may be paid in cash, property or
any combination thereof, as they in stock of Liberty. Generally, all
their discretion may determine. distributions from the operating
partnership will be made to Liberty
and the limited partners concurrently,
and will be allocated to Liberty, on
one hand, and to the limited partners,
on the other, on a pro rata basis by
reference to their respective percentage
interests in the operating partnership.
- --------------------------------------------------------------------------------------------------------------
VOTING BY Shareholders' action may be taken Under Maryland law, any action that
WRITTEN without a meeting by written may be taken at a stockholders'
CONSENT consent if such consent is signed by meeting may be taken by written
the holders of outstanding voting consent if:
shares having a majority of all
voting shares entitled to vote - a written consent setting
thereon. forth the action is signed by
every stockholder entitled to
vote on the matter;
- a written waiver of any right
to dissent is signed by each
stockholder entitled to notice
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</TABLE>
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<TABLE>
<CAPTION>
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MERIDIAN LIBERTY
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<S> <C> <C>
of the meeting but not
entitled to vote at it; and
- the 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 Any amendment to the current Any amendment to the articles of
CHARTER declaration of trust must be in incorporation requires approval of
DOCUMENTS writing and, subject to the changes the board of directors and
required by law, requires the stockholder approval by two-thirds
affirmative vote or written consent of the votes entitled to be cast.
of: The board of directors has the
exclusive power to adopt, alter or
- a majority of the trustees if repeal any provision of the bylaws.
necessary to conform it to the
REIT requirements;
- a majority of the outstanding
voting shares; or
- 66 2/3% of the outstanding
voting shares if such
amendment alters any rights
with respect to any outstanding
shares of Meridian, eliminates
any amount payable upon
liquidation or diminishes or
eliminates any voting rights.
The trustees' regulations may be
amended either by the vote or
written consent of a majority of
the shares or by the vote or
written consent of the board of
trustees.
- --------------------------------------------------------------------------------------------------------------
VOTING ON The approval of all other matters Subject to the special voting rights
OTHER MATTERS 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 are 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 Maryland law
or the articles of incorporation.
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SHAREHOLDERS' The board of trustees must cause a A special meeting of stockholders
RIGHT TO CALL special meeting to be called upon may be called by the president, the
SPECIAL request of the holder or holders of chief executive officer or by the
MEETING 10% of the outstanding voting board of directors and, under
shares entitled to vote on any matter Maryland law, must be called by the
to be voted on at the special secretary upon the written request of
meeting. the stockholders entitled to cast not
less than 25% of all the votes
entitled to be cast at the meeting.
- --------------------------------------------------------------------------------------------------------------
DISSOLUTION/ The current declaration of trust Maryland law generally permits the
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</TABLE>
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<TABLE>
<CAPTION>
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MERIDIAN LIBERTY
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<S> <C> <C>
TERMINATION provides that Meridian may be dissolution of a corporation if
terminated or dissolved only upon approved first by the affirmative
the affirmative vote of the holders of vote of a majority of the entire board
a majority of all outstanding shares of directors and then by the
entitled to vote thereon at any stockholders of Liberty by the
meeting of shareholders. affirmative vote of two-thirds of all
the votes entitled to be cast on the
matter at a meeting of the
stockholders.
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATION, The current declaration of trust Maryland law generally provides
MERGER OR SALE expressly provides for the that a consolidation, merger, share
OF ASSETS sale, lease, exchange or other exchange or transfer of all or
disposition of 50% or more of substantially all of Liberty's assets
the assets of Meridian upon the not in the ordinary course of
affirmative vote or written consent business must first be approved by
of a majority of the outstanding the board of directors and thereafter
shares entitled to vote thereon. by the stockholders by the
affirmative vote of two-thirds of all
the votes entitled to be cast on the
matter.
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</TABLE>
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<TABLE>
<CAPTION>
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MERIDIAN LIBERTY
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<S> <C> <C>
INTERESTED Pursuant to Meridian's declaration Maryland law establishes special
SHAREHOLDER of trust, transactions between requirements with respect to
TRANSACTIONS Meridian and its trustees and "business combinations," including
officers are not prohibited by a merger, consolidation, share
the declaration of trust provided that: exchange or, in certain
circumstances, an asset transfer or
- such interest or connection is issuance of reclassification of equity
disclosed or known to the trustees securities, between a Maryland
and thereafter the trustees authorize corporation and an "interested
such contract, act or other transaction stockholder." An "interested
by vote sufficient for such purpose by stockholder" is any person who is
an affirmative vote of the the beneficial owner, directly or
disinterested trustees: indirectly, of 10% or more of the
outstanding voting power of the
- such interest or connection is disclosed corporation's shares or is an affiliate
or known to the shareholders, and or associate of the corporation and
thereafter such contract, act or was, at any time during the two-year
transaction is approved by the period prior to the date in question,
shareholders; or the beneficial owner, either directly
or indirectly, of 10% or more of the
- such contract, act or transaction is outstanding voting power of the
fair and reasonable to Meridian at corporation's shares. In general, an
the time it is authorized by the interested stockholder or any
trustees or by the shareholders. "affiliate" thereof may not engage in
a "business combination" with the
corporation for a period of five years
following the date the interested
stockholder becomes an interested
stockholder. Thereafter, such
transactions must be recommended
by the board of directors of the
corporation and approved by the
affirmative vote of at least 80% of
the votes entitled to be cast by
holders of the outstanding voting
shares of the corporation and two-
thirds of the votes entitled to be cast
by holders of the outstanding voting
shares of the corporation other than
the shares held by the interested
stockholder who will, or whose
affiliate or associate will, be a party
to the business combination.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-48-
<PAGE> 58
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
These provisions of Maryland law
do not apply, however, to business
combinations where stockholders
receive certain statutorily
determined value for their shares or
business combinations that are
approved or exempted by the board
of directors of such corporation
prior to the time that the interested
stockholder becomes an interested
stockholder.
Liberty's articles of incorporation
contain a provision stating that these
provisions of Maryland law do not
apply to Richard M. Osborne,
Turkey Vulture Fund, Retirement
Management Company, Mr.
Osborne's immediate family or any
other of his affiliates, or to any other
stockholder that may be exempted
therefrom from time to time by the
board of directors. Mr. Osborne and
his affiliates were exempted from
these provisions to permit the
acquisition of his self-storage
company by Liberty.
- --------------------------------------------------------------------------------------------------------------
CONTROL SHARE California does not have a provision Maryland law provides that "control
ACQUISITIONS regarding control share acquisitions. 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 by stockholders,
excluding shares owned by the
acquirer and officers and directors
who are employees of the
corporation. "Control shares" are
shares which, if aggregated with all
other shares previously acquired
which the person is entitled to vote,
would entitle the acquirer to vote
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-49-
<PAGE> 59
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
20% or more but less than one-third;
one-third or more but less than a
majority; or a majority of the total
voting power of outstanding shares.
Control shares do not include shares
that the acquiring person is entitled
to vote on the basis of prior
stockholder approval. A "control
share acquisition" means the
acquisition of control shares.
Under Maryland law, a person who
has made or proposes to make a
control share acquisition, upon
satisfaction of certain conditions,
including an undertaking to pay
expenses, may compel the 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. If voting rights are not
approved at the meeting or if the
acquiring person does not deliver
any acquiring person statement as
required by the statute, then the
corporation may redeem any or all
of the control shares, except for
those for which voting rights have
previously been approved, for fair
value determined, without regard to
voting rights, as of the date of the
last control share acquisition or of
any meeting of stockholders at
which the voting rights of such are
considered and not approved. If
voting rights for control shares are
approved at a stockholders' meeting
and the acquirer becomes entitled to
vote a majority of the shares entitled
to vote, all other stockholders may
exercise appraisal rights. The fair
value of the shares as determined for
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-50-
<PAGE> 60
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
purposes of such appraisal rights
may not be less than the highest
price per share paid in the control
share acquisition, and certain
limitations and restrictions
otherwise applicable to the exercise
of dissenters' rights do not apply in
the context of a control share
acquisition.
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 charter or bylaws of the
corporation. Stockholders of
Liberty are subject to the terms of
this statue except that the articles of
incorporation contain a provision
exempting Mr. Osborne, Turkey
Vulture Fund, Retirement
Management Company, Mr.
Osborne's immediate family and any
other of his affiliates from the
application of the statute. Mr.
Osborne and his affiliates were
exempted from these provisions to
permit the acquisition of the self-
storage company by Liberty.
The control share acquisition statute
could have the effect of
discouraging offers to acquire
Liberty and of increasing the
difficulty of consummating any such
offers.
- --------------------------------------------------------------------------------------------------------------
LIMITATION ON Meridian's declaration of trust Generally, so long as the shares of
DISSENTERS' provides that shareholders are not common stock are listed on a
APPRAISAL entitled to appraisal rights. national stock exchange, holders of
RIGHTS such shares who dissent from
Generally, so long as the shares of specified corporate transactions
common stock are listed on a have no right under Maryland law to
national securities exchange or listed
on the list of OTC margin stocks,
holders of such shares who dissent
from reorganizations have no right
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-51-
<PAGE> 61
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
under California law to an appraisal an appraisal and payment of the fair
and payment of the fair value of value of their shares, except to the
their shares, except to the limited limited extent set forth below.
extent set forth below. Absent such Absent such listing, as a general
listing, as a general matter, matter, Maryland law provides that a
California law provides that a dissenting stockholder of a
dissenting shareholder of a Maryland corporation has the right
California corporation has the right to demand and receive the fair value
to demand and receive the fair value of such holder's stock, so long as it
of such holder's stock, so long as it is not the stock of the successor in a
is not the stock of the successor in a merger, subject to complying with
merger, subject to complying with specified procedures, if the
specified procedures, if the corporation consolidates or merges
corporation consolidates or merges with another corporation, engages in
with another corporation, engages in a share exchange, transfers all or
a share exchange, transfers all or substantially all of its assets in a
substantially all of its assets in a manner requiring stockholder
manner requiring stockholder approval, or amends its articles in a
approval, or engages in a tender way that alters the contract rights as
offer. 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 of incorporation do.
- --------------------------------------------------------------------------------------------------------------
ADVANCE Neither the current declaration of Liberty's bylaws, in contrast,
NOTICE OF trust nor the trustees' regulations contain detailed provisions
STOCKHOLDER contain any provisions allowing or concerning stockholder nominations
PROPOSALS AND detailing the process for a and stockholder business. Pursuant
DIRECTOR shareholder to propose business to to the bylaws, in order to submit
NOMINATIONS be considered at an annual meeting a proposal or nominate a director,
or for the nomination of trustees. stockholders are required, not less
than 120 days prior to the anniversary
date of the immediately preceding
annual meeting for proposals and not
less than 60 days nor more than 90 days for
director nominations considered at an
annual meeting of stockholders, to deliver
information concerning themselves and their
stockholder proposal or director nomination
to Liberty. Failure to comply with these
timing and informational requirements will
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-52-
<PAGE> 62
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
result in the proposal or director
nomination not being considered at
the annual meeting. These 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.
- --------------------------------------------------------------------------------------------------------------
CUMULATIVE The current declaration of trust does The articles of incorporation do not
VOTING not provide for cumulative voting. provide for cumulative voting.
- --------------------------------------------------------------------------------------------------------------
INSPECTION The current declaration of trust Under Maryland law, Liberty's
RIGHTS provides that shareholders are stockholders have the right to
entitled to inspect the books of inspect and copy during usual
account of Meridian and the share business hours the bylaws, minutes
register at any reasonable time upon of the proceedings of stockholders,
written demand for a purpose annual statements of affairs and
reasonably related to his or her voting trust agreements on file at
interests as a shareholder. California Liberty's principal offices. In
law provides that any shareholder addition, any stockholder may
who owns 5% or more of the outstanding request in writing a statement of all
shares of Meridian can obtain a stock and securities issued by
shareholders' list. Liberty during a specified period of
not more than twelve months before
the date of such request. Maryland
law 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:
- the right upon written
request to inspect and copy
during usual business hours
Liberty's books of account
and its stock ledger;
- the right to require Liberty to
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-53-
<PAGE> 63
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
produce a statement of
affairs verified under oath by
an officer that sets forth in
reasonable detail Liberty's
assets and liabilities as of a
reasonably current date; and
- 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 Meridian's declaration of trust Under Maryland law, a director of a
DIRECTORS' provides that no trustee shall be Maryland corporation must perform
DUTIES liable to Meridian for any act or his duties in good faith, in a manner
omission except for willful that he reasonably believes to be in
misfeasance, bad faith, gross the best interests of the corporation
negligence or reckless disregard of and with the care of an ordinarily
duty or for the failure to act in good prudent person in a like position
faith in the reasonable belief that his under similar circumstances.
or her actions are in the best Directors of Liberty who act in this
interests of Meridian. manner generally will not be liable
to Liberty for monetary damages
arising from their activities.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-54-
<PAGE> 64
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIMITATIONS ON Meridian's declaration of trust provides Liberty's articles of incorporation
LIABILITY that no trustee, officer, employee or protect directors and officers from
agent is liable to Meridian or any liability to the extent permissible
other person for any act or omission under Maryland law and specifically
except for his own willful provide that no director or officer
misfeasance, bad faith, gross will be liable to the company or to
negligence or reckless disregard of its stockholders for money damages.
duty or his failure to act in good Maryland law provides for
faith in the reasonable belief that his limitation on liability except for:
actions are in Meridian's best actual receipt of an improper
interests. The declaration of trust personal benefit in money, property
further provides that the above or service; and active and deliberate
named individuals when acting in dishonesty established by a final
connection with Meridian are judgment as being material to the
deemed to be acting for the cause of action. The articles provide
company and not as individuals, that that neither amendment nor repeal
they are not liable for actions taken of the liability limitation, nor
or omitted for or on behalf of the adoption of any charter or bylaw
company, and that resort must be to provision inconsistent with the
the assets of Meridian for payment liability limitation will apply to or
or performance. affect in any respect the applicability
of the liability limitation to any act
or omission which occurred prior to
the amendment, repeal or adoption.
- --------------------------------------------------------------------------------------------------------------
INDEMNIFICA- Meridian's declaration of trust Liberty's articles of incorporation
TION provides that Meridian will and the bylaws provide for
indemnify any person who was or is indemnification of directors,
a party, other than a party plaintiff officers, employees and agents of
suing on his own behalf or in the Liberty to the extent authorized by
right of Meridian, or who is applicable law, as currently in effect
threatened to be made such a party, and thereafter amended, and the
to any threatened, pending or articles of incorporation provide that
completed action, suit or neither amendment nor repeal of the
proceeding, whether civil, criminal, indemnification provision contained
administrative or investigative, therein, nor adoption of any charter
including, but not limited to, an or bylaw provision inconsistent with
action by or in the right of Meridian, that provision, will apply to or affect
by reason of the fact that he, his in any respect the indemnification
testator or intestate, is or was a right applicable to any act or
trustee, officer or employee of omission which occurred prior to the
Meridian, or is or was serving at the amendment, repeal or adoption. The
request of Meridian as a trustee, articles of incorporation and the
officer or employee of another bylaws state that the indemnification
</TABLE>
-55-
<PAGE> 65
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
corporation, partnership, joint provisions found in those documents
venture, trust or other enterprise, are nonexclusive. Maryland law
against expenses,including provides that a corporation may
attorneys' fees, judgments, fines and indemnify any director made a party
amounts paid in settlement actually to any proceeding by reason of
and reasonably incurred by him in service in that capacity against
connection with such action, suit or judgments, penalties, fines,
proceeding. However, no person settlements and reasonable expenses
shall be indemnified: actually incurred by the director in
connection with the proceeding
- except to the extent that the unless it is established that:
aggregate of losses to be
indemnified exceeds the - the act or omission of the
amount of such losses for director was material to the
which the trustee, officer or matter giving rise to the
employee is insured pursuant proceeding and was
to any directors and officers committed in bad faith or
liability insurance policy was the result of active and
maintained by Meridian; deliberate dishonesty; or
- in respect to remuneration - the director actually received
paid to such person if it shall an improper personal benefit
be finally adjudged that such in money, property or
remuneration was in services; or
violation of law;
- in the case of a criminal
- on account of any suit in proceeding, the director had
which judgment is rendered reasonable cause to believe
against such person for an that the act or omission was
accounting of profits made unlawful.
from the purchase or sale of
such person of securities of Maryland law also prohibits
Meridian pursuant to the indemnification if the person has
provisions of Section 16(b) been adjudged liable to the
of the Exchange Act and corporation in a proceeding
amendments thereto or brought by or in the right of the
similar provisions of any corporation. Maryland law
federal, state or local provides that the termination of
statutory law; any proceeding by judgment, order
or settlement does not create a
presumption that the director did
not meet the requisite standard
- on account of such person's of conduct to be indemnified, and
conduct which is finally the termination of any
determined to be an
omission or act committed in
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-56-
<PAGE> 66
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MERIDIAN LIBERTY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
bad faith or which involves proceeding by conviction or
intentional misconduct or a plea of no contest, or its
knowing violation of law, an equivalent, or an entry of an
omission or act that the order of probation prior
trustee believed to be judgment, creates a
contrary to or inconsistent rebuttable presumption that
with the best interests of the director did not meet the
Meridian or its shareholders, requisite standard of conduct
or a transaction from which to be indemnified. Maryland
the person seeking indemnity law and Liberty's bylaws
derived an improper personal provide for advancement of
economic benefit; and expenses actually and
reasonably incurred by an
- if it shall be finally adjudged indemnified person upon
that such indemnification is receipt of an undertaking by
not lawful. or on behalf of the
authorized representative to
No indemnity shall be provided under repay such amount if it shall
this provision for any liability ultimately be determined that
arising out of any act or omission such person is not entitled to
committed or occurring prior to the be indemnified by the
adoption of this amendment by corporation.
Meridian's shareholders. Indemnity for
any such acts or omissions committed or
occurring prior to the adoption of the
amendment shall be given, if at all, as
in force on the date of such act or
omission.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
CONFLICTS OF INTEREST
In considering the recommendation of the trustees in respect of the
acquisition of Osborne's self-storage company through the reorganization of
Meridian as an UPREIT, you should be aware that Mr. Osborne and Mr. Smith,
trustees and officers of Meridian, directors and officers of Liberty, and
members of the self-storage company, have interests in the reorganization that
are in addition to the interests of the shareholders generally and that
conflicts of interest may arise from the consummation of the reorganization.
Mr. Osborne, through Turkey Vulture Fund XIII, Ltd., an Ohio limited
liability company of which Mr. Osborne is sole manager, owns 297,344 shares, or
9.8% of the outstanding Meridian shares. Mr. Osborne and Retirement Management
Company, of which he is the sole shareholder, own 98.6% of the self-storage
company and will receive limited partnership interests in the operating
partnership in exchange for the membership interests in the self-storage
company. Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company
will
-57-
<PAGE> 67
receive 7,107,573 limited partnership interests in the operating partnership in
exchange for their membership interests in the self-storage company. Therefore,
Mr. Osborne, with Retirement Management Company, will receive 98.6% of the Class
A limited partnership interests, or 7,008,067 limited partnership interests. Mr.
Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company will own
70.1% of the operating partnership, with Liberty owning the remaining 29.9%. The
Class A limited partnership interests are redeemable for cash equal to the
number of limited partnership interests multiplied by the market price of
Liberty's stock or, at the election of Liberty, convertible into common stock,
on a one-for-one basis. Including 297,344 shares of common stock that will be
held by Turkey Vulture Fund, of which Mr. Osborne is the sole manager, upon
completion of the reorganization, Mr. Osborne would, upon conversion, own
7,305,411 shares of the common stock, or approximately 72% of the common stock
then outstanding. No such conversion into common stock will be permitted if
Liberty determines that such conversion would be likely to disqualify Liberty as
a REIT.
Because Liberty is the general partner of the operating partnership and
because Mr. Osborne's and Retirement Management Company's limited partnership
interests amount to 69.1% of the operating partnership, Mr. Osborne, as the
Chairman of the Board and Chief Executive Officer of Liberty, will face
conflicts of interest in making determinations regarding the operating
partnership. Mr. Osborne on behalf of Liberty as the general partner of the
operating partnership owes a fiduciary duty to the operating partnership's
limited partners, of which he is one. Mr. Osborne also owes a fiduciary duty to
the stockholders of Liberty as an officer and director. Mr. Osborne will face
conflicts of interest in making determinations on behalf of Liberty and the
operating partnership.
As an officer and trustee of Meridian, as an officer and
director of Liberty and as the significant member of his self-storage company,
Mr. Osborne was a party to all sides of the negotiations regarding the
reincorporation and the reorganization. Mr. Osborne receives the benefit of the
contribution of the self-storage facilities in a tax-free transaction and the
opportunity to convert his privately-held self-storage company into a public
entity through the reorganization. Mr. Osborne faced these conflicts of interest
in his decision to proceed with the reincorporation and the reorganization for
each of Meridian, Liberty and his self-storage company.
In addition, Robert A. Stanger & Co., Inc. rendered a fairness opinion
to the board of trustees of Meridian stating that the allocation of interests in
the operating partnership between Meridian and the members of Osborne's
self-storage company is fair to Meridian's shareholders from a financial point
of view. The allocation of interests in the operating partnership was
determined by the net asset value of each of Liberty and Osborne's self-storage
company. The net asset value of Osborne's self-storage company includes the
appraised value of the 15 self-storage facilities being contributed by the
self-storage company to the operating partnership. The appraised value of
$23,620,000 was determined by Stanger.
In addition, Marc C. Krantz, a trustee of Meridian and a director of
Liberty, is a partner in the law firm that was engaged by the board. Mr.
Krantz's role as a trustee and a director and legal counsel to Meridian and
Liberty may present a conflict of interest.
Lack of Independent Representation of Shareholders. The board of
trustees has been the party responsible for structuring all the terms and
conditions of the proposed transactions. While Robert A. Stanger & Co., Inc. has
provided a fairness opinion with respect to the allocation of interests in the
operating partnership, Meridian has not retained any outside representatives to
act on behalf of the shareholders in negotiating the terms and conditions of the
proposed 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 retaining an independent representative for the
shareholders would have increased the fees and expenses of the reorganization.
Legal counsel engaged to assist with the preparation of the documentation for
the reorganization, including this Proxy Statement/Prospectus, was engaged by
the board and did not serve, or purport to serve, as legal counsel to the
shareholders.
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<PAGE> 68
If an independent representative had been retained for the shareholders, the
terms of the proposed transactions may 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
reorganization, the board of trustees believes the procedures used to protect
the financial interests of the shareholders are fair. For example, the board
agreed that Osborne's self-storage company would fund up to $725,000 in
transaction costs and the partnership interests in the operating partnership
will be allocated in accordance with respective net asset values contributed by
the members of the self-storage company and by Meridian.
Non-Arm's Length Agreements. The agreements and arrangements in
connection with the reorganization were not the result of arm's-length
negotiations.
Distributions. As a shareholder of Meridian, Mr. Osborne is entitled to
receive his pro rata share of any dividends declared by Meridian. Meridian has
not paid any dividends since the declaration of a special dividend of $3.00 per
share that was paid in September 1997 following Meridian's sale of its last
property. Upon the completion of the reincorporation and the reorganization,
Liberty will comply with the dividend rules with respect to REITs 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, the operating partnership is required to
make distributions to enable Liberty to comply with the REIT dividend rules,
unless Liberty acting as general partner of the operating partnership determines
that such a distribution would not be in the best interests of the operating
partnership. As limited partners of the operating partnership, Mr. Osborne and
Mr. Smith will be entitled to receive distributions from the operating
partnership on a pro rata basis by reference to their respective percentage
interests. Therefore, completion of the reincorporation into a Maryland
corporation and the reorganization as an UPREIT will not change any Liberty
stockholders or Mr. Osborne's or Mr. Smith's rights to receive their respective
pro rata distributions, if any.
COMPENSATION OF OFFICERS AFTER THE REINCORPORATION.
When the new officers of Meridian took office on September 28, 1998,
they agreed to serve without salaries until the reincorporation was approved.
Following the consummation of the reincorporation and the reorganization,
Richard M. Osborne, Meridian's Chairman of the Board and Chief Executive
Officer, will continue to serve Liberty in the same capacity without
compensation. Thomas J. Smith, Meridian's President and Chief Operating Officer
and Osborne's self-storage company's Executive Operating Manager, will continue
to serve Liberty as President and Chief Operating Officer and will receive a
salary from Liberty after the reincorporation pursuant to an employment
agreement. For more detailed information on Mr. Smith's employment agreement,
see the section of this Proxy Statement/Prospectus called "Proposal 4 --
Employment Agreements." Ronald L. Ramer, Meridian's Chief Financial Officer and
Osborne's self-storage company's financial manager, will continue to serve
Liberty as Chief Financial Officer and will receive a salary from Liberty after
the reincorporation. Jeffrey J. Heidnik, Osborne's self-storage company's Vice
President of Operations, will serve Liberty as Vice President of Operations and
will receive a salary from Liberty after the reincorporation. The following
table represents Mr. Osborne's and Mr. Smith's salaries with Meridian before and
after the reincorporation and the reorganization.
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<PAGE> 69
<TABLE>
<CAPTION>
CURRENT SALARY FROM SALARY FROM
NAME POSITION MERIDIAN 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 reincorporation and the reorganization of Meridian as an UPREIT are
approved by shareholders at the special meeting.
THE SELF-STORAGE FACILITIES
As of October 20, 1999, Osborne's self-storage company owns and
operates 15 self-storage facilities containing an aggregate of 565,640 square
feet. Twelve of the self-storage facilities are located in Ohio and the other
three are located in New York. Osborne's self-storage company owns 100% fee
interest in each of the self-storage facilities. The following table provides an
overview of information regarding the self-storage facilities:
<TABLE>
<CAPTION>
YEAR RENTABLE
DATE BUILT/ SQUARE
LOCATION ACQUIRED EXPANDED FT. ACRES UNITS CONSTRUCTION
- -------- -------- -------- -------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
OHIO:
Avon 10/31/97 1981- 67,423 6.12 495 Masonry & Steel
1986/1998*
Canton 4/22/97 1979-87 41,175 11.15 388 Concrete
Catawba 6/30/97 1988/1998* 43,052 7.57 302 Steel
Cleveland 12/3/96 1997/1999* 40,150 3.68 278 Steel
Dayton 5/22/97 1989 19,550 5.00 206 Concrete
East Canton 5/30/97 1997 26,700 12.63 177 Steel
East Liverpool 10/31/96 1986-1996 29,990 11.49 222 Steel
Louisville 5/30/97 1988-1990 53,060 6.83 364 Masonry
Mentor 3/20/98 1983 20,382 6.00 204 Masonry
Perry 1/10/97 1992/1997* 63,950 6.19 397 Steel
</TABLE>
-60-
<PAGE> 70
<TABLE>
<CAPTION>
YEAR RENTABLE
DATE BUILT/ SQUARE
LOCATION ACQUIRED EXPANDED FT. ACRES UNITS CONSTRUCTION
- -------- -------- -------- -------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Ravenna 3/31/97 1988 16,950 1.79 150 Steel
Willoughby 10/4/96 1997 33,998 2.37 276 Masonry
NEW YORK:
Endicott 11/20/96 1989 35,580 4.99 297 Concrete/Steel
Roof
Southold 6/1/97 1989 53,055 6.95 552 Steel
Riverhead 5/26/99 1985-1986 20,625 3.05 183 Steel
----------------- ------------ -----------
TOTAL 565,640 95.81 4,491
================= ============ ===========
</TABLE>
* Year additional units were added by Osborne's self-storage company.
The following table shows the occupancy rates and annual rental rates
per square foot for each of the 15 self-storage facilities for the periods in
which they were owned by Osborne's self-storage company:
<TABLE>
<CAPTION>
ANNUAL
OCCUPANCY RATES RENTAL RATES
--------------------------------------------------- ----------------------------------------------------
LOCATION 12/31/96 12/31/97 12/31/98 6/30/99 12/31/96 12/31/97 12/31/98 6/30/99
- -------- -------- -------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OHIO:
Avon n/a 92.81% 72.56% 91.21% n/a $5.16 $5.40 $5.40
Canton n/a 53.18% 57.86% 58.01% n/a $4.92 $5.04 $5.04
Catawba n/a 86.64% 58.54%* 65.16% n/a $5.16 $5.04 $5.04
Cleveland n/a 31.32% 99.38% 99.03% n/a $6.84 $8.40 $9.24
Dayton n/a 95.40% 92.48% 94.55% n/a $6.60 $8.04 $8.04
East Canton n/a 59.75% 66.29% 81.27% n/a $4.44 $4.32 $4.92
East 84.70% 86.99% 95.07% 97.59% $4.44 $4.44 $5.04 $4.92
Liverpool
Louisville n/a 83.37% 60.20%* 86.02% n/a $4.44 $4.32 $4.56
-----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
ANNUAL
OCCUPANCY RATES RENTAL RATES
--------------------------------------------------- ----------------------------------------------------
LOCATION 12/31/96 12/31/97 12/31/98 6/30/99 12/31/96 12/31/97 12/31/98 6/30/99
- -------- -------- -------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mentor n/a n/a 13.60% 39.40% n/a n/a $14.04 $13.56
Perry n/a 45.35% 62.47% 62.86% n/a $5.64 $5.04 $5.28
Ravenna n/a 89.81% 90.12% 90.12% n/a $5.52 $6.12 $6.12
Willoughby n/a n/a 74.47% 79.81% n/a n/a $6.84 $8.04
NEW YORK:
Endicott 63.60% 63.65% 78.07% 90.37% $6.96 $6.96 $7.20 $7.56
Southold n/a n/a 89.79% 97.50% n/a n/a $11.16 $12.00
Riverhead n/a n/a n/a 91.39% n/a n/a n/a $12.48
-----------------------------------------------------------------------------------------------------------
AVERAGE 74.15% 71.66% 72.07% 81.62% $5.70 $5.47 $6.86 $7.48
</TABLE>
* Reflects expansion of these facilities from the prior year
In the course of due diligence in connection with the reorganization as
an UPREIT, Meridian conducted Phase I environmental audits of each of these
self-storage facilities and an appraisal of these self-storage facilities was
conducted by Stanger. The Phase I environmental audits showed no environmental
contamination, and, therefore, no need for remediation.
All 15 self-storage facilities are, operated under the "Liberty
Self-Stor, Ltd." trade name. All 15 facilities have on-site managers, five of
which have resident managers. All the managers report to Mr. Heidnik. The
facilities are open six to nine hours per day, seven days a week, with gate
access from 6 a.m. to 10 p.m. The facilities are located in a mix of urban,
suburban and rural locations.
Proposed Expansions. Osborne's self-storage company currently has the
following plans regarding expansion of the existing self-storage facilities:
<TABLE>
<CAPTION>
LOCATION ADDITIONAL SQUARE FEET COST OF EXPANSION
<S> <C> <C>
East Canton, Ohio 16,200 $380,000
East Liverpool, Ohio 9,300 $165,000
Dayton, Ohio 29,500 $650,000
Mentor, Ohio 39,700 $725,000
Riverhead, New York 18,900 $270,000
</TABLE>
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<TABLE>
<S> <C> <C>
Southold, New York 11,150 $182,000
</TABLE>
The self-storage company plans to finance these expansions with traditional bank
construction loans.
Competition. The facilities compete with a variety of other
self-storage companies including national, regional and local companies. Each
facility has at least two other self-storage facilities within a five mile
radius.
Leases. Space at each facility is leased on a monthly basis using the
same standard form of lease agreement. Attached to each lease agreement is a
lease addendum notifying lessees that they store goods at their own risk.
Mortgages. The Willoughby, Perry, Canton, Catawba, East Canton,
Louisville, Ravenna, East Liverpool, Dayton, and Endicott facilities are all
encumbered by mortgages which secure a $10,300,000 loan from Provident Bank to
Osborne's self-storage company. The loan is at a variable rate of interest equal
to 2.25% over the average yield on U.S. 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 payments
are $84,367 per month. The loan is personally guaranteed by Richard M. Osborne.
The Dayton facility is further encumbered by a mortgage securing a
$720,000 construction and development loan from Provident Bank. As of June 30,
1999, $100,448 has been drawn on the loan for construction expenditures.
Interest during the construction phase of the loan is at the prime rate of
Provident Bank. Upon completion of the construction phase, estimated to be
completed by July 1, 2000, the interest on the loan adjusts to 7.72%. Then the
loan will be adjusted to a variable rate equal to 2.25% above the then current
weekly average yield on U.S. Treasury Securities adjusted to the constant
maturity of two years. Monthly payments after the construction phase will be
amortized over an 18-year period. This note is personally guaranteed by Mr.
Osborne.
The Catawba facility is further encumbered by a mortgage securing a
$265,087 construction and development loan from Provident Bank to the
self-storage company. The loan has an initial interest rate equal to the prime
rate, which as of July 1, 1999 converted 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 Mr. Osborne.
The Avon facility is encumbered by a mortgage securing a $554,704
construction and development loan from Provident Bank. The terms of this loan
are identical to those for the
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$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 facility is also encumbered by a $940,000
loan, maturing October 31, 2002, from Provident Bank, guaranteed by Mr. 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 facility is encumbered by a mortgage securing a $1,884,000
construction and development loan from The Peoples Banking Company. As of June
30, 1999, $1,210,910 has been drawn on the loan for construction expenditures.
Interest during the construction phase of the loan is fixed at 8.0%. Upon
completion of the construction phase, estimated to be completed by December 4,
1999, the interest on the loan adjusts to a variable rate equal to 2.75% above
the then current weekly average yield on U.S. Treasury Securities adjusted to
the constant maturity of three years. Monthly payments after the construction
phase will be at $15,769 including interest amortized over a 20-year period.
This note is personally guaranteed by Mr. Osborne.
The Southold facility is encumbered by a mortgage with Provident Bank
in the amount of $2,675,000, which matures July 2002. Current monthly payments
are $17,296. 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 for 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 Mr. Osborne.
The East Liverpool facility is encumbered by a $250,000 mortgage with
Rt. 11 Storage Park, Inc. Current monthly payments are $2,000. This note is
guaranteed by Mr. Osborne.
The Cleveland facility 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 Mr. Osborne. The Cleveland facility is further encumbered by a
$300,000 construction loan with Shore Bank, Cleveland. As of June 30, 1999,
$136,155 has been drawn on the loan for construction expenditures. Interest is
payable monthly at 7.25%. The first monthly payment of $2,397 is due September
1, 1999 with 20 regular monthly payments following until a balloon payment of
$290,816 is due on May 1, 2001. This note is personally guaranteed by Mr.
Osborne.
The Riverhead facility is encumbered by a mortgage with James R. Stark
and Patricia Stark in the amount of $600,000, maturing June 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 facility is encumbered by a second mortgage with Provident Bank in the
amount of $345,000, maturing in June 2003. Current monthly payments are $2,260.
Interest is at prime rate until June 1, 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 18-year
amortization. This note is guaranteed by Mr. Osborne.
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<PAGE> 74
FAIRNESS OF THE REORGANIZATION
Conclusions of the Board of Trustees. The board of trustees believes
that the terms of the reincorporation of Meridian into Liberty, a Maryland
corporation, and the reorganization of Meridian as an UPREIT, including the
allocation of interests in the operating partnership between Liberty and Mr.
Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company, when
considered as a whole, are fair to Meridian's shareholders. This section
discusses the factors upon which the board has based conclusions as to the
fairness of the reorganization 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
reorganization as an UPREIT to stockholders.
Determination of Allocation of Interests in the Operating Partnership.
The board of trustees believes that the method used to allocate interests in the
operating partnership between Liberty and Mr. Osborne, Mrs. Osborne, Mr. Smith
and Retirement Management Company and the resulting allocations is fair to
Meridian's shareholders. For each contributor to the operating partnership, the
percentage interest in the operating partnership to be received in connection
with the reorganization is derived by dividing the net asset value to be
contributed by that contributor by the sum of (1) the net asset value of the
cash and other assets and liabilities to be contributed to the operating
partnership by Liberty, and (2) the net asset value of the assets and
liabilities to be contributed to the operating partnership by Mr. Osborne, Mrs.
Osborne, Mr. Smith and Retirement Management Company.
The board of trustees believes that basing the allocation of interests
in the operating partnership on the net asset value contributed by each
participating entity, which in the case of Osborne's self-storage company is
based in part on an independent appraisal of the 15 self-storage facilities, is
fair to shareholders.
In real estate consolidations where one or more of the combining
entities are not publicly-traded, it is common to base the allocation of
interests in the consolidated entity on net asset values determined based on the
fair market value of the assets of each entity. The book values of Meridian's
assets, none of which are real properties, are believed to reasonably represent
fair market value. In particular, these assets are comprised primarily of cash
and mortgage-backed securities or real estate mortgage investment conduits. The
cash requires no "fair market value" adjustments, and the mortgage-backed
securities are recorded at their estimated fair market value. In contrast, the
book value of Osborne's self-storage company's assets do not represent the
current fair market value of its real property assets due to a variety of
changes to each self-storage facility subsequent to each acquisition. For
example, capital improvements and additions have been made and operating
performance has improved. In some cases, Osborne's self-storage company
purchased raw land and built the facility. Therefore, the Meridian board engaged
an independent appraiser to estimate the fair market value of the properties
owned by Osborne's self-storage company. The non-property assets of Osborne's
self-storage company have been valued at book value, with the exception of
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intangible assets which were not included in the determination of the value of
Osborne's self-storage company. The balance sheet intangibles include goodwill,
non-compete arrangements and the amortization of prepaid financing costs. The
non-balance sheet intangibles include the value of the expertise of the
management of Osborne's self-storage company, the value of the existing
organization and property management structure and the value of the Liberty
Self-Stor trademark. For the foregoing reasons, the Meridian board believes the
valuations are fair.
The following table sets forth the calculation of the net asset value
of the contribution by Liberty and Osborne's self-storage company. The
calculation was based on the June 30, 1999 financial statements of Meridian and
Osborne's self-storage company, and the appraisal of the 15 self-storage
facilities, which was made as of March 31, 1999.
CALCULATIONS OF NET ASSET VALUE TO BE CONTRIBUTED
IN THE REORGANIZATION
<TABLE>
<CAPTION>
SELF-
STORAGE COMBINED
LIBERTY COMPANY TOTAL
------- ------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,910,044 $ 738,920 $ 2,648,964
Appraised value of the 15 self-storage facilities -- 23,620,000 23,620,000
Other assets (1) 220,960 118,384 339,344
Mortgages, lines of credit and other liabilities -- (18,347,235) (18,347,235)
Accounts payable and other payables (204,460) (887,953) (1,092,413)
---------------------------------------------------------
Total net asset value $ 1,926,544 $ 5,242,116 $ 7,168,660
Payment of transaction cost -0- (725,000) (725,000)
---------------------------------------------------------
Net asset value contributed to the operating $ 1,926,544 $ 4,517,116 $ 6,443,660
============ ================ ===============
partnership
Percentage of net asset value contributed 29.9% 70.1% 100.0%
Allocation of ownership interests in the operating 29.9% 70.1% 100.0%
partnership
</TABLE>
(1) For Osborne's self-storage company, excludes goodwill of $1,005,448 and
other assets of $376,444 leaving accounts receivable of $37,686 and
inventory and other assets of $80,698.
Comparison of Material Benefits and Detriments of Alternatives to the
Acquisition of Osborne's Self-Storage Company through the Reorganization as an
UPREIT. Prior to concluding that the reorganization should be proposed to
shareholders, the board of trustees considered several material alternatives to
the reorganization, including liquidation of Meridian and continuation of
Meridian under the current declaration of trust. To determine whether the
reorganization or one of the alternatives would be more attractive to the
shareholders, the board compared material potential benefits and detriments of
the reorganization with potential benefits and detriments of the alternatives.
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Fairness in View of Conflicts of Interest. Mr. Osborne and Mr. Smith
have significant conflicts of interest in connection with the reorganization,
and no unaffiliated representatives were appointed to negotiate the terms of the
reorganization on behalf of Meridian or the shareholders. The conflicts of
interest arise because, among other factors, Mr. Osborne and Mr. Smith are also
owners of interests in the self-storage company. The board believes, however,
that its recommendation results from a determination that the reorganization is
more attractive to shareholders than liquidation and that this determination
results from the board's discharge of its fiduciary duties to the shareholders.
The board has based its conclusions regarding the fairness of the
reorganization to shareholders on the factors discussed in this section. The
board believes that the evaluation of the reorganization was performed in a
good faith exercise of its fiduciary duties, unaffected by these conflicts of
interest.
Fairness Opinion. The board of trustees believes Stanger's fairness
opinion supports its conclusion that the allocation of interests in the
operating partnership between Liberty and the members of Osborne's self-storage
company, collectively, Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement
Management Company, is fair to the shareholders. 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 the operating partnership between Liberty and the members of
Osborne's self-storage company, collectively, Mr. Osborne, Mrs. Osborne, Mr.
Smith and Retirement Management Company, is fair to the public shareholders of
Meridian from a financial point of view. The fairness opinion does not address
the fairness of any of the terms of the reorganization other than the allocation
of interests in the operating partnership. 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.
Allocation of Reorganization Expenses. The board of trustees believes
the procedures for allocating the expenses of the reorganization are fair to the
shareholders, inasmuch as Osborne's self-storage company will fund the expenses
of the reorganization up to $725,000 and thereafter Liberty will pay the
expenses. Liberty estimates the costs to be approximately $725,000.
Greater Access to Capital and Potential for Growth. As discussed above
under "Background of the Proposed Transactions," Meridian has been unable to
access additional capital, in part due to Meridian's limited life policy.
Without the availability of additional capital, Meridian has been unable to make
any significant new investments. The board of trustees believes that Liberty
and/or the operating partnership will be in a substantially better position to
access capital upon consummation of the reorganization. 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 self-storage facilities.
Experienced Management. Mr. Smith, Mr. Ramer and Mr. Heidnik who
currently manage the self-storage facilities for Osborne's self-storage
company will continue in that same capacity as Liberty's management. These
individuals have significant experience in managing, acquiring, developing,
expanding and operating self-storage facilities. Mr. Smith has been in the
self-storage
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industry for three years, all with Osborne's self-storage company, and also has
over ten years of experience in the real estate industry. Mr. Ramer has been in
the self-storage industry for three years, all with the self-storage company,
and also has over seven years of experience in the real estate industry. Mr.
Heidnik has been in the self-storage industry for 11 years, three of them with
the self- storage company. The board of trustees believes that their experience
will enable Liberty to grow.
Transaction Values. The reorganization of Meridian as an UPREIT
presents a more attractive opportunity for the realization of value by
Meridian's shareholders than does the liquidation of Meridian, which would be
the outcome if this proposal is not approved by Meridian's shareholders. The
liquidation value is estimated to be as high as $0.22 per share and as low as
$0.15 per share as compared to the pro forma net asset value to be received by
Meridian's shareholders in the proposed transactions as of June 30, 1999 of
$0.64 per share. The pro forma net asset value per share compares favorably to
the average closing price of Meridian's shares of $0.56 per share for the 30-day
period preceding the announcement of the proposed transactions. The Board
believes that the strategies outlined in "Plans for Liberty" in Proposal 3
present a realistic opportunity for the growth and viability of Meridian as an
ongoing entity. Were Meridian to liquidate, Meridian 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 REORGANIZATION ARE FAIR TO MERIDIAN AND ITS SHAREHOLDERS AND
RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
In reaching this conclusion, the trustees considered the following
material factors:
- information relating to the business, assets, management,
competitive position and prospects of Meridian if it were to
continue, including the substantial likelihood that Meridian
will be forced to liquidate, at a value between $0.15 and
$0.22 per share, absent the consummation of the proposed
transactions;
- the lack of the same liquidation exit strategy;
- the potential that Liberty's stock may never trade as high as
the current market price of Meridian's shares;
- the control by Richard M. Osborne of 72% of Liberty's common
stock if his Class A limited partnership interests were
converted;
- unsuccessful attempts by the prior board of trustees to effect
an alternative transaction;
- the access to management with 17 years of collective
experience in the self-storage industry, an assembled
portfolio of self-storage facilities and the potential to
obtain capital provided by Osborne's self-storage company;
- the fairness opinion, and the appraisal of 15 self-storage
facilities conducted by Stanger;
- the financial condition and results of operations of Meridian
and Osborne's self- storage company, on both a historical and
a prospective basis;
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- the percentage of equity in the operating partnership to be
received by Liberty in relation to the relative contribution
of Meridian and the self-storage company to the operating
partnership, and the other benefits to be received by Meridian
pursuant to the reorganization;
- the pro forma net asset value per share to be received by
Meridian's shareholders in the proposed transactions of $0.64
versus the average closing price of Meridian's shares of $0.56
for the 30-day period preceding the announcement of the
proposed transactions;
- the potential increased liquidity, capacity for growth and
access to capital that Liberty expects to be realized as a
result of the proposed transactions;
- Osborne's self-storage company's agreement to fund $725,000 of
the transaction costs which is a term and condition of the
formation agreement and partnership agreement, as discussed
in "Proposal 3";
- because the proposed transactions provide a strategic
direction in the self-storage market and an immediate,
although small, presence in the self-storage market, Liberty's
strategic and market position could be enhanced beyond that
achievable by Meridian due to its limited life policy; and
- the interest of Mr. Osborne and Mr. Smith of the board of
trustees in the reorganization, as described in detail in
"Conflicts of Interest."
The foregoing is a discussion of the information and material factors
considered by the board of trustees and is not intended to be exhaustive.
Although the board considered the potential risks of the proposed transactions,
the board believes that the positive factors outweigh the negative. In view of
the variety of factors considered in connection with its evaluation of the
reorganization, 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 material factors,
the board of trustees unanimously adopted and approved the formation agreement
and the transactions contemplated thereby and recommends that you vote FOR this
proposal.
SELF-STORAGE FACILITIES APPRAISAL
Robert A. Stanger & Co., Inc. was engaged by Meridian and Osborne's
self-storage company to appraise 15 self-storage facilities to be contributed in
the reorganization of Meridian by the self-storage company 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 15
self-storage facilities as of March 31, 1999. Stanger was selected to provide
the appraisal of the 15 self-storage facilities because of its experience and
reputation in connection with appraising self-storage properties in particular,
and with real estate investment trusts, partnerships and real estate assets, in
general. The appraisal, which contains a description of the material assumptions
and qualifications made, matters considered and limitations on the review and
analysis, should be read in its entirety. The appraisal is attached to the
Registration Statement of which this Proxy Statement/Prospectus is a part.
Copies of the appraisal are available free of charge, upon request, to Marc C.
Krantz, Secretary of Meridian at its principal place of business, 8500 Station
Street, Suite 100, Mentor, Ohio 44060. The material assumptions, qualifications
and limitations to the appraisal are described below. In addition, appraisals
are simply estimates of value and may not correspond to realizable value.
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<PAGE> 79
Summary of Methodology. At the request of Meridian and Osborne's
self-storage company, Stanger evaluated the 15 self-storage facilities to be
contributed to the operating partnership 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, Meridian
and Stanger considered the cost approach to be less reliable than the income or
sales comparison approaches. In addition, primary consideration was given by
Stanger to the income approach, based on the income producing nature of the
self-storage facilities, the primary criteria employed by buyers of self-storage
properties and the fact that several of the self-storage facilities have not yet
achieved fully-stabilized operations.
In conducting the appraisal of the self-storage facilities,
representatives of Stanger reviewed and relied upon, without independent
verification, information supplied by the property managers, Meridian and
Osborne's self-storage company, 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; and
- information relating to the condition of each self-storage
facility, including any deferred maintenance, planned capital
expenditures, status of ongoing or newly- planned property
additions, re-configurations, improvements and other factors
affecting the physical condition of the property improvements.
While the appraisal was prepared for the portfolio of 15 self-storage
facilities, Stanger analyzed each individual self-storage facility by:
- reviewing each self-storage facility's available historical
operating statements;
- reviewing information regarding rents, expenses, area
competition and physical descriptions for each self-storage
facility provided by Meridian and Osborne's self-storage
company;
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- developing information from a variety of sources about market
conditions for each individual self-storage facility; and
- considering the financial performance for each self-storage
facility.
Representatives of Stanger performed site inspections of the
self-storage facilities 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
self-storage facilities to discuss competitive conditions, area economic trends
affecting the self-storage facilities, historical and budgeted operating
revenues and expenses and occupancies. Such inquiries included ascertaining for
each individual self-storage facility any deferred maintenance, capital
expenditures, environmental conditions, status of on-going or planned buildouts,
re-configurations, 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 self-storage
facilities, and reviewed surveys of local self-service storage markets conducted
by property management.
To define the occupancy, rental rate and expense escalators to be used
in estimating the self-storage facilities' operating results, Stanger reviewed
the acquisition criteria and 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 during the first quarter of 1999. Further, Stanger interviewed
various sources in local markets to identify sales of self-service storage
properties and derive certain valuation indicators.
Stanger then estimated the value of the self-storage facilities using
the income approach. Stanger estimated the facilities' income and expenses
during the year ending March 31, 2000 after reviewing historical and budgeted
operating results for each property, discussions with property management and
other pertinent information. Stanger estimated each self-storage facility'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 self-storage facilities. 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 self-storage
investors. Where appropriate, the capitalization rate used for an individual
facility was adjusted to reflect valuation factors unique to the self-storage
facility, such as overall quality, location, and competitive position, recent or
planned buildouts and other unique valuation factors.
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For self-storage facilities which had not yet achieved fully stabilized
operations, capitalization rates ranging from 9.75% to 11.0% were applied to
projected stabilized net operating income.
In applying discounted cash flow analysis, cash flows from each
self-storage facility, 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 facility.
Stanger then capitalized, at terminal capitalization rates generally
ranging from 9.75% to 10.0%, the estimated net operating income of each
self-storage facility for the 12 months ending March 31, 2010 to determine
residual value. Where appropriate, the terminal capitalization rate used for an
individual self-storage facility was adjusted to reflect valuation factors
unique to the facility. 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 self-storage 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 appraisal, Stanger compiled data on
actual transactions involving properties similar in type to the self-storage
facilities. To gather such data, Stanger interviewed various sources in local
markets to identify recent sales of self-storage properties, reviewed available
information on acquisitions of self-storage 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.
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 considered appropriate based on
the income producing nature of the self-storage facilities, primary acquisition
criteria currently employed in self-storage property markets, and the fact that
several of the self-storage facilities have not yet achieved fully stabilized
operations.
Conclusion as to Value. The indicated value for the self-storage
facilities utilizing the income approach was $23,620,0000 and utilizing the
sales comparison approach was $23,850,000. Based on its analysis and placing
primary reliance on the income approach to valuation, Stanger concluded a market
value of the 15 self-storage facilities as of March 31, 1999 of $23,620,000.
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<PAGE> 82
Assumptions, Limitations and Qualifications of Appraisal. Stanger
utilized certain assumptions, limitations, and departure provisions to determine
the appraised value of the portfolio.
The appraisal represents Stanger's opinion of the value of the 15
self-storage facilities 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 reorganization could affect the facilities or assumptions used in
preparing the appraisal. Stanger has no obligation to update the appraisal on
the basis of subsequent events. In connection with preparing the 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
included in the appraisal. Stanger will not deliver any additional written
summary of the analysis.
Compensation and Material Relationships. Meridian selected Stanger to
prepare the appraisal based on Stanger's experience and reputation with REITs
and real estate companies. Meridian and Osborne's self-storage company paid
Stanger a total fee of $56,000 to prepare the appraisal. In addition, Stanger is
entitled to reimbursement for reasonable travel and out-of-pocket 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 Meridian, the
self-storage company and Stanger and payment thereof is not dependent upon
completion of the reorganization. Except as noted in "Fairness Opinion" below,
Meridian and Osborne's self-storage company have not engaged Stanger to render
other consulting or related services prior to the present engagement. In
addition, Stanger has been engaged by Meridian and the self-storage company to
perform certain investment banking services in connection with the solicitation
of capital from prospective investors. These engagements were made by Meridian
and Osborne's self-storage company pursuant to separate agreements with Stanger
and are distinct from the engagements to render the appraisal and fairness
opinion.
FAIRNESS OPINION
Stanger was also engaged by Meridian to deliver a written summary of
its opinion, the fairness opinion, based on the review, material assumptions,
qualifications and limitations described therein, as to the fairness from a
financial point of view to the public stockholders of Meridian of the
allocations of interests in the operating partnership between Meridian and the
members of Osborne's self-storage company, collectively, Mr. Osborne, Mrs.
Osborne, Mr. Smith and Retirement Management Company, pursuant to the
reorganization. The full text of the fairness opinion, which contains a
description of the material 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. 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 material assumptions described more fully below which
Meridian and Osborne's self-storage company advised Stanger that it would be
reasonable to make, Meridian imposed no
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<PAGE> 83
conditions or limitations on the scope of Stanger's investigation or the methods
and procedures to be followed in rendering the fairness opinion. Meridian 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
acquisitions, mergers, 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. Meridian selected Stanger because of its
experience in providing similar services to other parties in connection with
real estate consolidations, mergers, reorganizations 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 reorganization, Stanger:
- reviewed drafts of this Proxy Statement/Prospectus and the
formation agreement in substantially the forms intended to be
finalized and filed with the SEC;
- reviewed reports filed with the SEC by Meridian on Form 10-K
and 10-KSB for the fiscal years ending December 31, 1996,
1997, and 1998 and Form 10-QSB for the quarters ending March
31, 1999 and June 30, 1999 and reviewed the financial
statements of Osborne's self-storage company for the fiscal
year ending December 31, 1998 and the quarters ending March
31, 1999 and June 30, 1999;
- reviewed the pro forma financial statements for Meridian and
Osborne's self-storage company included in the Proxy
Statement/Prospectus;
- performed the appraisal of the 15 self-storage facilities
owned by Osborne's self-storage company, interests in which
will be contributed to the operating partnership in connection
with the reorganization;
- reviewed certain operating and financial information relating
to the business, financial condition and results of operations
of Meridian and Osborne's self-storage
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<PAGE> 84
company, and discussed with management of Meridian and the
self-storage company the operations, business plan and current
conditions in the self-storage industry, including market
conditions for sales or acquisitions of properties of the type
owned by the self-storage company, and the historical
financial statements, budgets and future prospects of Meridian
and Osborne's self-storage company;
- reviewed schedules prepared by Meridian showing the
determination of the net asset value contribution to the
operating partnership of Meridian and Osborne's self- storage
company, and the methodology used to determine the allocation
of interests in the operating partnership between Meridian and
the members of Osborne's self- storage company, collectively,
Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management
Company; and
- conducted such other studies, analyses, and inquiries as
Stanger deemed appropriate.
The following is a summary of material 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.
Appraisal. In preparing its opinion, Stanger performed an independent
appraisal of the 15 self-storage facilities to be contributed to the operating
partnership by Osborne's self-storage company. Stanger performed site
inspections of each self-storage facility during March 1999, conducted inquires
into local market conditions affecting each self-storage facility, reviewed
historical and budgeted operating statements of each self-storage facility
conducted interviews with management personnel, reviewed acquisition criteria in
use in the marketplace by self-storage property investors and owners and other
real estate investors, reviewed information concerning transactions involving
self-storage properties, and estimated the market value of the self-storage
facilities utilizing the income approach and sales comparison approach to value.
The indicated value for the 15 self-storage facilities utilizing the income
approach was $23,620,000 and utilizing the sales comparison approach was
$23,850,000. Based on its analysis and placing primary reliance on the income
approach to valuation, Stanger concluded a market value of the 15 self-storage
facilities as of March 31, 1999 of $23,620,000.
Review of Relative Net Asset Values. In its evaluation of the fairness
of the allocations, Stanger reviewed the net asset values assigned to Meridian
and Osborne's self-storage company by management as of June 30, 1999 based on:
- an appraisal provided by Stanger of the estimated value of 15
self-storage facilities as of March 31, 1999;
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<PAGE> 85
- valuations made by the management of Osborne's self-storage
company and Meridian of other assets and liabilities which
will be contributed by Meridian and the self-storage company
or assumed by Liberty in the reorganization; and
- deduction of $725,000 from the net asset value of Osborne's
self-storage company for transaction costs which Osborne's
self-storage company has agreed to assume if the proposed
transactions are consummated.
A complete description of the analyses undertaken by Stanger in connection with
estimating the value of the 15 self-storage facilities is provided under the
caption "Self-Storage Facilities Appraisal."
Stanger also reviewed the balance sheets of Meridian and Osborne's
self-storage company as of June 30, 1999, as prepared by management. Stanger
then reconciled the value of the non-self- storage property assets and
liabilities on the financial statements with the values assigned to the other
assets and liabilities of Meridian and the self-storage company included in the
calculations of net asset value to be contributed in the reorganization and
merger. Stanger noted that the valuation assigned to the assets of the
self-storage company excluded goodwill and other intangible assets totaling
approximately $1.4 million, an exclusion which Stanger deemed appropriate. In
addition, Stanger noted that the valuation assigned to the net assets of the
self-storage company was reduced by $725,000 to reflect the estimated costs of
the reorganization and merger. Stanger compared the allocation of ownership
interests in the operating partnership between Meridian and the self-storage
company based on the above determinations of value and also on the assumption
that the estimated costs of the reorganization and merger were (1) allocated
between Meridian and the self-storage company based on relative net asset value
before such transaction costs; and (2) were shared equally by Meridian and the
self-storage company. Stanger noted that Meridian would have received an
ownership interest of 26.87% and 24.27%, respectively, under assumption (1) and
under assumption (2), compared with an ownership interest of 29.9% to be
allocated to the transaction.
Relying on these net asset values, Stanger concluded that the
allocation of ownership interests in the operating partnership offered to each
entity reflects the net value of the assets contributed to the operating
partnership by each entity after deducting the costs associated with the
reorganization. Stanger also concluded that basing such allocations on the value
of net assets contributed to the operating partnership is fair to Meridian's
shareholders from a financial point of view.
Based upon the above considerations, Stanger concluded that the
allocation of interests in the operating partnership between Meridian and the
members of Osborne's self-storage company, collectively, Mr. Osborne, Mrs.
Osborne, Mr. Smith and Retirement Management Company, is fair to the
shareholders of Meridian because the allocation reflects the current practical
economic interests of the parties in each entity's net assets.
-76-
<PAGE> 86
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 the operating
partnership between Meridian and the members of Osborne's self- storage company,
collectively, Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management
Company, pursuant to the reorganization is fair, from a financial point of view,
to the shareholders of Meridian.
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 non-real estate assets and liabilities of Meridian or
Osborne's self-storage company. Stanger relied upon the balance sheet value
determinations for Meridian and the self-storage company and the adjustments
made by management to arrive at the net asset values. Stanger also relied upon
the assurance of Meridian and Osborne's self-storage company 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 Meridian's or Osborne's
self-storage company'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 Meridian and
Osborne's self-storage company are not aware of any information or facts
regarding Meridian, the self-storage company 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:
- select the method of determining the allocation of the
interests in the operating partnership or establish the
allocations;
- make any recommendations to the shareholders of Meridian or
Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management
Company with respect to whether to approve or reject the
reincorporation or reorganization as an UPREIT; or
- express any opinion as to (1) the fact that Mr. Osborne could,
as a result of the reorganization, be in a position to control
voting decisions of Liberty, (2) the tax consequences of the
reincorporation into a Maryland corporation and the
reorganization of Meridian as an UPREIT for the shareholders
and Meridian, (3) the potential impact of conversion of the
interests of Mr. Osborne, Mrs. Osborne, Mr. Smith and
Retirement Management Company in the operating partnership to
shares of Liberty, (4) whether or not alternative methods of
determining the relative interests in the operating
partnership to be issued would have also provided fair results
or results substantially similar to those of the allocation
methodology used, and (5) the potential impact on the fairness
of the allocations of any subsequently discovered
environmental or contingent liabilities.
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<PAGE> 87
Further, Stanger did not express any opinion as to:
- the fairness of any other terms of the reincorporation into a
Maryland corporation and reorganization as an UPREIT,
including the amounts or allocations of transaction costs;
- the relative value of Liberty's common stock and the
partnership interests to be issued;
- the prices at which Liberty's common stock may trade following
the reincorporation and reorganization or the trading value of
the Liberty's common stock to be received by Meridian's
shareholders compared with the current fair market value of
Meridian's assets if liquidated under current market
conditions; and
- alternatives to the reincorporation and reorganization.
Compensation and Material Relationships. Meridian selected Stanger to
prepare the fairness opinion based on Stanger's experience and reputation with
REITs and real estate companies. Meridian had preliminary discussions regarding
the preparation of the fairness opinion with two other firms, Brown, Gibbons,
Lang & Company and Roney and Company. Discussions were not pursued with these
firms because of Stanger's experience. Stanger has been paid a fee of $75,000 by
Meridian for preparing the fairness opinion. In addition, Stanger will be
reimbursed for all reasonable out-of-pocket 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 Meridian and Stanger. Payment of the fee to Stanger is not dependent
upon completion of the proposed transactions. Stanger has been compensated for
preparing the appraisal and the compensation for such services is summarized
above under "Self-Storage Facilities Appraisal -- Compensation and Material
Relationships." In addition, Stanger has been engaged by Meridian and Osborne's
self-storage company to perform certain investment banking services in
connection with the solicitation of capital from prospective investors. These
engagements were made by Meridian and Osborne's self-storage company pursuant to
separate agreements with Stanger.
EXPENSES
Upon closing, Osborne's self-storage company will assume the costs of
the reincorporation and the reorganization up to $725,000 through a deduction to
its net asset value. The cash to pay the expenses will come from Liberty. In
addition, Liberty will pay all costs in excess of $725,000. However, costs are
estimated at approximately $725,000. Meridian will be responsible for paying the
expenses if the reincorporation and the reorganization are not consummated. The
following is a statement of estimated costs and expenses incurred in connection
with the reincorporation and the reorganization:
SEC Registration Fee $ 1,628
Legal Fees and Expenses 250,000
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<PAGE> 88
Fairness Opinion 75,000
Accounting Fees and Expenses 200,000
Solicitation Fees and Expenses 35,000
Blue Sky Fees and Expenses 10,000
Printing Expenses 70,000
Miscellaneous 83,372
----------
Total $725,000
==========
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA (UNAUDITED)
The unaudited pro forma condensed consolidated balance sheet of Liberty
as of June 30, 1999, set forth below, gives effect to the reincorporation into a
Maryland corporation and the reorganization of Meridian as an UPREIT as if they
had been consummated on that 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 six
months ended June 30, 1999 give effect to the reincorporation and the
reorganization, including the acquisition of the Riverhead facility, as if all
of these 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 of Meridian, Osborne's self-storage company and the
Riverhead facility which are included elsewhere in this Proxy
Statement/Prospectus. The following information is not necessarily indicative of
the financial position or operating results that would have occurred had the
reincorporation, the reorganization and the acquisition of the Riverhead
facility 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 JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
------------------------------------------
SELF-
STORAGE PRO FORMA
MERIDIAN COMPANY SUBTOTAL ADJUSTMENTS PRO FORMA
------------- -------------- ------------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents $ 235,324 $ 738,920 $ 974,244 $ (725,000) B $ 249,244
Investment in Mortgage-Related Assets 1,313,312 -- 1,313,312 -- 1,313,312
Accounts Receivable -- 37,686 37,686 -- 37,686
</TABLE>
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<TABLE>
<CAPTION>
HISTORICAL (A)
------------------------------------------
SELF-
STORAGE PRO FORMA
MERIDIAN COMPANY SUBTOTAL ADJUSTMENTS PRO FORMA
------------- -------------- ------------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Restricted Cash 361,408 -- 361,408 -- 361,408
Property, Plant and Equipment (Net) -- 13,244,323 13,244,323 10,375,677 C 23,620,000
Goodwill -- 1,005,448 1,005,448 (1,005,448) D --
Other 220,960 457,142 678,102 (376,444) E 301,658
------------ ------------ ------------ ------------ -------------
TOTAL ASSETS $ 2,131,004 $ 15,483,519 $ 17,614,523 $ 8,268,785 $ 25,883,308
============ ============ ============ ============ =============
LIABILITIES:
Accounts Payable $ 196,860 $ 384,624 $ 581,484 -- $ 581,484
Notes Payable -- 18,347,235 18,347,235 -- 18,347,235
Accrued Liabilities and Other 7,600 503,329 510,929 -- 510,929
Minority Interest -- -- -- 4,517,116 F 4,517,116
------------ ------------ ------------ ------------ -------------
TOTAL LIABILITIES 204,460 19,235,188 19,439,648 4,517,116 23,956,764
EQUITY 1,926,544 (3,751,669) (1,825,125) (1,005,448) D 1,926,544
10,375,677 C
(725,000) B
(376,444) E
(4,517,116) F
------------ ------------ ------------ ------------ -------------
TOTAL LIABILITIES AND EQUITY $ 2,131,004 $ 15,483,519 $ 17,614,523 $ 8,268,785 $ 25,883,308
============ ============ ============ ============ =============
Shares Outstanding 3,031,618 3,031,618
Net book value per share $ 0.64 $ 0.64
</TABLE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
A Derived from the historical condensed balance sheets as of June 30,
1999 of Meridian and Osborne's self-storage company.
B Represents payment of the transaction costs by Osborne's self-storage
company.
C Represents the purchase accounting adjustment to the historical
carrying value of Osborne's self-storage company's property, plant and
equipment. The operating partnership will acquire the membership
interests in Osborne's self-storage company in exchange for limited
partnership interests. This transaction will be accounted for as a
purchase, with the operating partnership 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 Osborne's
self-storage company. The only asset acquired or
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liability assumed for which the net asset value exceeds historical
carrying value is property, plant and equipment. Also see notes D and
E.
<TABLE>
<S> <C>
Appraised value of properties acquired $ 23,620,000
Historical carrying value of property, plant and equipment (13,244,323)
------------
Purchase price adjustment to property, plant and equipment $ 10,375,677
============
</TABLE>
Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company
will receive Class A limited partnership interests of the operating
partnership. The Class A limited partnership interests will be
redeemable for cash, or, at the election of Liberty, convertible into
shares of Liberty's common stock, on a one-for-one basis. No such
conversion will be permitted for a particular Class A limited partner
if Liberty determines that the conversion might disqualify Liberty as a
REIT. The Class B limited partnership interests in the operating
partnership will be held by Liberty and will not be entitled to
redemption or a preferred return. With agreed upon limitations, the
limited partners will not be able to transfer their interests in the
operating partnership without the consent of Liberty. The limited
partners will have no authority to transact business for, or to
participate in the management or decisions of, the operating
partnership. 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 the operating partnership would require the consent of the limited
partners holding more than 65% of the limited partnership interests.
D Represents the writeoff of the historical goodwill of Osborne's
self-storage company in the application of purchase accounting.
E Represents the writeoff of the carrying values of other intangible
assets of Osborne's self-storage company, including deferred financing
costs and noncompete agreements.
F Represents minority interest in the operating partnership applicable to
the limited partners excluding the limited partnership interest held by
Liberty. The calculation of minority interest is presented below.
<TABLE>
<S> <C>
Historical equity (deficit) of the self-storage company $ (3,751,669)
Writeoff of historical goodwill of the self-storage company (1,005,448)
Payment of transaction costs by the self-storage company (725,000)
Writeoff of historical intangible assets
of the self-storage company (376,444)
Purchase accounting adjustment to
property, plant and equipment 10,375,677
Contribution to the operating partnership by Liberty
of its net assets in exchange for limited and general
</TABLE>
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<PAGE> 91
<TABLE>
<S> <C>
partnership interests in the operating partnership 1,926,544
Adjusted equity of the operating partnership $ 6,443,660
----------------
Liberty's interest 29.9% $ 1,926,544
Minority Interest 70.1% 4,517,116
----------------
Total equity of the operating partnership $ 6,443,660
================
</TABLE>
The above interests of Liberty and the minority interest holders are
based upon the relative values of their contributed interests as of
June 30, 1999, which may differ from those as of the date of actual
consummation of the reorganization.
LIBERTY
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
------------------------------------------------------------
SELF-
STORAGE PRO FORMA PRO
MERIDIAN COMPANY RIVERHEAD SUBTOTAL ADJUSTMENTS FORMA
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenues $ -- $ 2,465,981 $ 174,950 $ 2,640,931 $ 2,640,931
Interest Income 101,893 1,322 -- 103,215 103,215
-----------------------------------------------------------------------------------------------
Total Revenues 101,893 2,467,303 174,950 2,744,146 2,744,146
Interest Expense -- 1,200,292 20,656 1,220,948 109,395 B 1,330,343
Depreciation and Amortization 13,017 557,783 21,207 592,007 292,127 C 884,134
General and Administrative 801,701 611,014 11,609 1,424,324 1,424,324
Property Operating Expense 100,000 1,005,223 57,022 1,162,245 1,162,245
-----------------------------------------------------------------------------------------------
Total Expenses 914,718 3,374,312 110,494 4,399,524 401,522 4,801,046
-----------------------------------------------------------------------------------------------
Income (Loss) Before Minority (812,825) (907,009) 64,456 (1,655,378) (401,522) (2,056,900)
Interest
Minority Interest -- -- -- -- 1,441,887 D 1,441,887
-----------------------------------------------------------------------------------------------
Net Income (Loss) $ (812,825) $ (907,009) $ 64,456 $ (1,655,378) $ 1,040,365 $ (615,013)
=============== ============= ============== ============= ============= =============
Weighted Average Shares 3,031,618 3,031,618
Outstanding
Earnings (Loss) Per Share -- $ (0.27) $ (0.20)
Basic and Diluted
Ratio of Earnings to Fixed N/A .4x 4.1x N/A
Charges
</TABLE>
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<PAGE> 92
LIBERTY
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
------------------------------------------------------------
SELF-
MERIDIAN STORAGE RIVERHEAD PRO FORMA PRO
COMPANY * SUBTOTAL ADJUSTMENTS FORMA
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenues $ -- $ 1,500,788 $ 70,401 $ 1,571,189 $ 1,571,189
Interest Income 44,652 122 -- 44,774 44,774
Gain on Sale of Property -- 30,107 -- 30,107 30,107
----------------------------------------------------------------------------------------------
Total Revenues 44,652 1,531,017 70,401 1,646,070 1,646,070
Interest Expense -- 585,818 8,432 594,250 48,820 B 643,070
Depreciation and Amortization -- 250,245 8,837 259,082 176,477 C 435,559
General and Administrative 110,617 364,702 25,136 500,455 500,455
Property Operating Expense -- 569,259 5,254 574,513 574,513
----------------------------------------------------------------------------------------------
Total Expenses 110,617 1,770,024 47,659 1,928,300 225,297 2,153,597
----------------------------------------------------------------------------------------------
Income (Loss) Before Minority (65,965) (239,007) 22,742 (282,230) (225,297) (507,527)
Interest
Minority Interest -- -- -- -- 355,776 D 355,776
----------------------------------------------------------------------------------------------
Net Income (Loss) $ (65,965) $ (239,007) $ 22,742 $ (282,230) $ 130,479 $ (151,751)
============ ============= =========== ============= ============ =============
Weighted Average Shares 3,031,618 3,031,618
Outstanding
Earnings Per Share -- Basic and $ (0.02) $ (0.05)
Diluted
Ratio of Earnings to Fixed N/A .6x 3.7x .2x
Charges E
</TABLE>
* From January 1, 1999 to May 26, 1999
NOTES TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
A Derived from the historical financial statements of Meridian and
Osborne's self-storage company for the year ended December 31, 1998 and
the six months ended June 30, 1999 and the Riverhead facility for the
year ended December 31, 1998 and the period ended May 26, 1999.
B Represents pro forma interest expense on the $675,000 of borrowings
against the Southold facility and the $945,000 of borrowings used to
fund the Riverhead acquisition,
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<PAGE> 93
net of the elimination of historical interest expense applicable to
Riverhead debt not assumed in that acquisition.
<TABLE>
<CAPTION>
Year Ended Six Months
Amount Interest 12/31/98 Ended 6/30/99
Borrowed Rate Expense Expense
-------- ---- ------- -------
<S> <C> <C> <C> <C>
Southold debt $ 675,000 7.75% $ 52,313 $ 26,157
Riverhead acquisition debt:
Fixed rate 600,000 8.50% 51,000 20,400
Prime rate 345,000 7.75% 26,738 10,695
----------- ----------------
130,051 57,252
Less Riverhead historical interest expense (20,656) (8,432)
----------- ----------------
Pro Forma Adjustment $ 109,395 $ 48,820
=========== ================
</TABLE>
C Represents additional pro forma depreciation on property, plant and
equipment acquired from Osborne's self-storage company 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 five
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 Six Months
Allocated Estimated 12/31/98 Ended 6/30/99
Cost Life Depreciation Expense
------------ --------- ------------- ------------------
<S> <C> <C> <C> <C>
Land $ 2,528,966 $ -- $ --
Buildings and Improvements 20,919,313 25 836,773 418,387
Furniture, fixtures and other 171,721 5 34,344 17,172
------------ ------------ -----------------
$ 23,620,000 871,117 435,559
Historical depreciation and
amortization of the self-storage
company and Riverhead (578,990) (259,082)
----------- -----------------
Pro Forma Adjustment $ 292,127 $ 176,477
=========== =================
</TABLE>
D Represents the minority interest in the pro forma net loss of the
operating partnership calculated below:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
12/31/98 6/30/99
------------- ------------
<S> <C> <C>
Pro forma net loss of the operating partnership $ (2,056,900) $ (507,527)
Minority interest ownership 70.1% 70.1%
------------- ------------
Pro Forma Adjustment $ (1,441,887) $ (355,776)
============= =============
</TABLE>
E The calculations of earnings to fixed charges are as follows:
Year ended December 31, 1998:
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<PAGE> 94
<TABLE>
<CAPTION>
Self-Storage
Meridian Company Riverhead Pro Forma
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Income before minority interest $ (812,825) $ (907,009) $ 64,456 $(2,056,900)
Interest Expense -- 1,200,292 20,656 1,330,343
Amortization of deferred financing -- 69,848 -- --
costs
-------------------------------------------------------
Interest component of rent -- 53,988 -- 53,988
-------------------------------------------------------
Earnings (812,825) 417,119 85,112 (672,569)
=========== =========== =========== ===========
Interest Expense -- 1,200,292 20,656 1,330,343
Amortization of deferred financing -- 69,848 -- --
costs
-------------------------------------------------------
Interest component of rent -- 53,988 -- 53,988
-------------------------------------------------------
Fixed charges $ -- $ 1,324,128 $ 20,656 $ 1,384,331
=========== =========== =========== ===========
Ratio N/A .3x 4.1x N/A
=======================================================
Earnings less than fixed charges $ 812,825 907,009 N/A $ 2,056,900
</TABLE>
Six Months ended June 30, 1999:
<TABLE>
<CAPTION>
Self-Storage
Meridian Company Riverhead Pro Forma
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Income before minority interest (65,965) (239,007) 22,742 $ (507,527)
Interest expense -- 585,818 8,432 643,070
Amortization of deferred financing -- 2,772 -- --
costs
Interest component of rent -- 26,994 -- 26,994
-------------------------------------------------------
Earnings (65,965) 376,577 31,174 162,537
=========== =========== =========== ===========
Interest expense -- $ 585,818 $ 8,432 $ 643,070
Amortization of deferred financing -- 2,772 -- --
costs
Interest component of rent -- 26,994 -- 26,994
-------------------------------------------------------
Fixed charges $ -- $ 615,584 $ 8,432 $ 670,064
=========== =========== =========== ===========
Ratio N/A .6x 3.7x .2x
=======================================================
Earnings less than fixed charges $ 65,965 239,007 N/A $ 507,527
</TABLE>
Osborne's self-storage company estimates that 33% of its rental expense
represents interest expense for purposes of the above calculations.
LIBERTY
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
----------------------------------------------------------
SELF-
STORAGE PRO FORMA PRO
MERIDIAN COMPANY RIVERHEAD SUBTOTAL ADJUSTMENTS FORMA
------------- ------------- --------------- ------------- ------------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (812,825) $ (907,009) 64,456 $(1,655,378) $ 1,040,365 B $ (615,013)
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
HISTORICAL (A)
----------------------------------------------------------
SELF-
STORAGE PRO FORMA PRO
MERIDIAN COMPANY RIVERHEAD SUBTOTAL ADJUSTMENTS FORMA
------------- ------------- --------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Depreciation and -- 557,783 21,207 578,990 292,127 C 871,117
amortization
Minority interest -- -- -- -- (1,441,887) D (1,441,887)
(Increase) decrease in -- (369) 7,862 7,493 -- 7,493
accounts receivable
Increase (decrease) in other (338,112) (119,726) -- (457,838) -- (457,838)
assets
Increase (decrease) in
payables and accrued
liabilities 83,510 113,677 2,398 199,585 -- 199,585
------------------------------------------------------------------------- -------------
Cash flows from operating (1,067,427) (355,644) 95,923 (1,327,148) (109,395) (1,436,543)
activities
------------------------------------------------------------------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets -- (1,597,978) (1,597,978) -- (1,597,978)
Investment in mortgage- (2,019,460) -- -- (2,019,460) -- (2,019,460)
related assets
Return of principal from
mortgage-related assets and
advances 800,721 -- 21,161 821,882 -- 821,882
------------------------------------------------------------------------- -------------
Cash flows from investing (1,218,739) (1,597,978) 21,161 (2,795,556) -- (2,795,556)
activities
------------------------------------------------------------------------- -------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Capital Contributions -- 1,063,593 -- 1,063,593 (1,063,593) E --
Distributions -- (138,171) (46,791) (184,962) 184,962 F --
Repayments of debt -- (208,186) (61,918) (270,104) -- (270,104)
Proceeds from borrowings -- 1,286,369 -- 1,286,369 -- 1,286,369
------------------------------------------------------------------------- -------------
Cash flows from financing -- 2,003,605 (108,709) 1,894,896 (878,631) 1,016,265
activities
------------------------------------------------------------------------- -------------
INCREASE (DECREASE) IN CASH (2,286,166) 49,983 8,375 (2,227,808) (988,026) (3,215,834)
CASH AT BEGINNING OF PERIOD 2,886,339 27,410 2,203 2,915,952 (725,000) G 2,190,952
------------------------------------------------------------------------- -------------
CASH AT END OF PERIOD $ 600,173 $ 77,393 $ 10,578 $ 688,144 $ (1,713,026) $(1,024,882)
============= ============== ============= ============ ============ ============
</TABLE>
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<PAGE> 96
LIBERTY
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
-----------------------------------------------------------
SELF-
STORAGE RIVERHEAD PRO FORMA PRO
MERIDIAN COMPANY * SUBTOTAL ADJUSTMENTS FORMA
--------------- ------------- -------------- ------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (65,965) $ (239,007) $ 22,742 $ (282,230) $ 130,479 B $ (151,751)
Depreciation and amortization -- 250,245 8,837 259,082 176,477 C 435,559
Minority interest -- -- -- -- (355,776) D (355,776)
Gain on disposal of fixed assets -- (30,107) -- (30,107) -- (30,107)
(Increase) decrease in accounts -- (1,266) 667 (599) -- (599)
receivable
Increase (decrease) in other (208,911) (62,437) 750 (270,598) -- (270,598)
assets
Increase (decrease) in payable
and accrued liabilities 18,893 338,080 8,475 365,448 -- 365,448
------------------------------------------------------------------------- -------------
Cash flows from operating (255,983) 255,508 41,471 40,996 (48,820) (7,824)
activities
------------------------------------------------------------------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets -- (486,651) -- (486,651) -- (486,651)
Proceeds from disposal of fixed -- 49,017 -- 49,017 -- 49,017
assets
Investment in mortgage-related (1,106,186) -- -- (1,106,186) -- (1,106,186)
assets
Return of principal from
mortgage-related assets 997,320 -- -- 997,320 -- 997,320
------------------------------------------------------------------------- -------------
Cash flows from investing (108,866) (437,634) -- (546,500) -- (546,500)
activities
------------------------------------------------------------------------- -------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Capital Contributions -- 146,350 -- 146,350 (146,350) E --
Distributions -- (57,500) (39,682) (97,182) 97,182 F --
Issuance of Debt -- 2,911,603 -- 2,911,603 -- 2,911,603
Repayments of debt -- (2,156,800) (7,412) (2,164,212) -- (2,164,212)
------------------------------------------------------------------------- -------------
Cash flows from financing -- 843,653 (47,094) 796,559 (49,168) 747,391
activities
------------------------------------------------------------------------- -------------
</TABLE>
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<PAGE> 97
<TABLE>
<CAPTION>
HISTORICAL (A)
-------------------------------------------------------------
SELF-
STORAGE RIVERHEAD PRO FORMA PRO
MERIDIAN COMPANY * SUBTOTAL ADJUSTMENTS FORMA
--------------- ------------- -------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH (364,849) 661,527 (5,623) 291,055 (97,988) 193,067
CASH AT BEGINNING OF PERIOD 600,173 77,393 10,578 688,144 (725,000) G (36,856)
------------------------------------------------------------------------- -----------
CASH AT END OF PERIOD $ 235,324 $ 738,920 $ 4,955 $ 979,199 $ (822,988) $ 156,211
============ ============ ============= ============= ============ ===========
</TABLE>
* From January 1, 1999 to May 26, 1999
NOTES TO PRO FORMA CONDENSED STATEMENTS OF CASH FLOWS
A Derived from the historical statements of cash flows of Meridian and
Osborne's self-storage company for the year ended December 31, 1998 and
the six months ended June 30, 1999, and the Riverhead facility for the
year ended December 31, 1998 and the period ended May 26, 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 contributions to the
operating partnership on a pro forma basis, assuming that no such
contributions are made.
F Represents the elimination of historical distributions 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 the operating partnership to
fund transaction costs, consistent with the adjustment reflected in the
pro forma balance sheet.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MERIDIAN
The following discussion should be read in conjunction with Meridian's
Balance Sheets and Statements of Operations and Cash Flows and the related
notes. Unless otherwise defined in
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<PAGE> 98
this Proxy Statement/Prospectus, or unless the context otherwise requires, the
capitalized words or phrases referred to in this section either: describe
accounting terms that are used as line items in these financial statements, or
have the meanings ascribed to them in these financial statements and the
related notes.
YEAR 2000 COMPLIANCE
Meridian has assessed issues relating to the capability of its
information systems to properly process transactions using dates beginning in
the Year 2000. Remediation of any potential issues regarding year 2000
compliance has included the upgrading or replacement of older software with new
programs and systems, which will handle the Year 2000 and beyond. Meridian
believes that the necessary upgrades and replacements are in place.
Because Meridian's assets are in financial institutions and brokerage
houses and that the current operations, and consequently its computer needs, are
limited, Meridian does not expect that Year 2000 compliance costs will have any
material adverse effect on Meridian's liquidity or ongoing results of
operations. Such costs are expected to be less than $5,000. However, there can
be no assurance that Meridian 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 Meridian's future liquidity or ongoing
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Meridian'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 and June 1999 investments of approximately $3.1 million in
short-term mortgage investments. Meridian's source of near-term liquidity is its
unrestricted cash, which at June 30, 1999 totaled $235,324 as compared to
$600,173 at December 31, 1998, a decrease of 60.1%, 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 Meridian's overhead and operating expenses in the short
term. Absent the consummation of the transactions discussed in this Proxy
Statement/Prospectus, Meridian will be forced to liquidate.
An annual meeting of shareholders of Meridian 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 to pay for the expenses of
defending themselves against potential litigation. The Indemnity Trust was
funded with $350,000 of Meridian's funds, which along with interest is reflected
as "Restricted Cash" on
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<PAGE> 99
Meridian's accompanying Balance Sheet. On September 3, 1999, Meridian reached a
settlement with the former trustees and $281,000 of the funds in the Indemnity
Trust were distributed to Meridian. The remaining funds were used to pay the
lawyers for the former trustees.
During the six months ended June 30, 1999 and 1998, Meridian made no
cash distributions. During the twelve months ended December 31, 1998, Meridian
made no cash distributions. In the quarter ended September 30, 1997, Meridian
paid a cash dividend of $3.00 per share of beneficial interest.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS AND QUARTER ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS AND QUARTER
- -----------------------------------------------------------------------------
ENDED JUNE 30, 1998
- -------------------
Revenues. Interest and Other Revenues were $44,652 and $38,333 in the
six months ended June 30, 1999 and 1998, respectively, an increase of $6,319, or
16.5%, and $16,538 and $2,341 for the three months ended June 30, 1999 and 1998,
respectively, an increase of $14,197, or 606.5%. The change was due primarily to
Meridian's average cash balances available for investment.
Expenses. Legal Costs were $54,602 and $40,913 in the six months ended
June 30, 1999 and 1998, respectively, an increase of $13,689, or 33.5%, and
$44,022 and $31,062 for the three months ended June 30, 1999 and 1998,
respectively, an increase of $12,960, or 41.7%.
General and Administrative expenses were $56,015 and $163,281 in the
six months ended June 30, 1999 and 1998, respectively, a decrease of $107,266,
or 65.7%, and $23,329 and $70,882 in the three months ended June 30, 1999 and
1998, respectively, a decrease of $47,553, or 67.1%. The decreased expenditures
were due to several factors, including the elimination of management fees paid
to E&L Associates, Inc., the lack of fees paid to trustees in the six months
ended June 30, 1999, and expenses related to the former board of trustees'
evaluation of Meridian's future options.
Net Loss. As a result of the factors noted above, net loss was $65,965
and $165,861 for the six months ended June 30, 1999 and 1998, respectively, a
decrease of $99,896, or 60.2%, and $50,813 and $99,603 for the three months
ended June 30, 1999 and 1998, respectively, a decrease of $48,790, or 48.9%. The
reduction in net loss was due primarily to the decrease in 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, Meridian's last remaining
property, in August 1997.
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<PAGE> 100
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 decrease in Meridian'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 Associates.
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 Meridian 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 Turkey Vulture 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 Meridian's future options, the charges related to the reimbursement of proxy
solicitation costs of $102,613, which reimbursement is conditioned upon the
authorization by Meridian's shareholders of the conversion of Meridian 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, Meridian
ceased to depreciate the property. Therefore, Meridian did not record any
depreciation expense in 1997, and recorded only $16,154 of amortization expenses
related lease commissions on the Charleston property.
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<PAGE> 101
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
Meridian 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, 1999. The REIT provisions of the Code
generally allow a REIT to deduct dividends paid to shareholders in computing
Meridian'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, Meridian 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 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 Meridian, no assurance can be given regarding Meridian's
qualification as a REIT for any particular year. If Meridian failed to qualify
as a REIT, distributions to shareholders would no longer be required. In
addition, distributions originally treated as capital gain distributions could
be re-characterized as ordinary dividend distributions to shareholders.
Moreover, Meridian might not be able to elect to be treated as a REIT for the
four taxable years after the year during which Meridian ceased to qualify as a
REIT. If Meridian later re-qualified 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 re-qualification and to make distributions equal to any earnings
accumulated during the period of non-REIT status.
As previously reported, as a result of Meridian's sale of its last real
estate property in August 1997, Meridian's status as a REIT for 1997 and 1998
was dependent, in part, upon tax rules regarding investments by REITs in
specific types of non-real estate assets. On June 8, 1999, Meridian entered into
a Closing Agreement with the Internal Revenue Service in which the IRS agreed to
accept Meridian's status as a REIT regarding these investments for 1997 and
1998.
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<PAGE> 102
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF OSBORNE'S SELF-STORAGE COMPANY
INTRODUCTION AND DISCUSSION OF KNOWN TRENDS, EVENTS AND UNCERTAINTIES
Liberty Self-Stor, Ltd. was formed as an Ohio limited liability company
in 1996. The purpose of this entity was to purchase, develop and operate
self-storage facilities with an emphasis in equity growth potential.
During 1998, the members of the self-storage company determined that
future growth in its portfolio would require capital infusion from outside
investors. To position itself for this possibility, the management of the
self-storage company identified individual properties that fit its current and
future growth strategy and Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement
Management Company agreed to exchange their membership interests in the
self-storage company for limited partnership interests in the operating
partnership 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
self-storage company's Balance Sheets and Statements of Operations and Cash
Flows and the related notes. Unless otherwise defined in this Proxy
Statement/Prospectus, 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 these financial statements, or (2) have the
meanings ascribed to them in these financial statements and the related notes.
YEAR 2000 COMPLIANCE
The self-storage 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 self-storage company
believes that to the best of its knowledge, it has taken the necessary action to
upgrade their software to be Year 2000 compliant with the exception of its
accounting software. Management is continuing to investigate alternative
accounting software programs and anticipates that replacement or upgrading of
its existing accounting software will occur by the end of the third quarter of
1999. Management does not believe that the accounting software is material to
its operations as it is able to manually keep track of its accounting. If the
accounting software has not been upgraded by December 1999, the self-storage
company will keep its accounting records on paper. The information systems,
excluding the accounting software, at its individual facilities have been
upgraded and replaced to make them Year 2000 compliant. These information
systems, including the gate systems and cash management systems at each
facility, have been tested and are Year 2000 compliant.
The self-storage company 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 self-storage company will be
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<PAGE> 103
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 self-storage company's future liquidity or ongoing results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The self-storage company's source of near-term liquidity is its cash,
which at June 30, 1999 was $738,920 as compared to $156,719 at June 30, 1998,
an increase of $582,201 or 371.5%, and at December 31, 1998 was $77,393 as
compared to $27,410 at December 31, 1997, an increase of $49,983 or 182.4%. The
increase at June 30 was primarily due to outside financing obtained in June
1999 at the Southold facility. The increase at year end was primarily a result
of improved cash flows from operations. The self-storage company believes that
with this continuing improvement in cash flows from operations along with its
ability to procure additional financing if necessary, the self-storage company
will have sufficient funds for operations in the short term. The self-storage
company believes that its cash flows from operating activities, before
principal and interest and giving pro forma effect to the acquisition of the
Riverhead facility, are sufficient to service its debt for the next 12 months.
However, the self-storage company has a history of eight consecutive quarters
of losses, and is currently seeking additional equity and debt financing. The
self-storage company needs this additional equity and debt financing for
long-term growth. There is no guarantee that it will be able to obtain the
necessary financing.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
- -------------------------------------------------------------------------
Revenues. Revenues were $1,500,788 and $1,021,944 for the six months
ended June 30, 1999 and 1998, respectively, an increase of $478,844 or 46.9%.
The increase was due primarily to the acquisition of a new facility in June
1998. The revenues from this facility during the six months ended June 30, 1999
were approximately $285,000 compared to $94,000 for the six months ended June
30, 1998. In addition, there were three other facilities which had substantial
occupancy increases due to building additions in the later part of 1998. There
were also general increases of rates from 1998 to 1999.
Operating Expenses. Interest Expense totaled $585,818 and $513,905 for
the six months ended June 30, 1999 and 1998, respectively, an increase of
$71,913 or 14.0%. The increase was due primarily to increased borrowings.
Depreciation and Amortization were $250,245 and $342,064 for the six
months ended June 30, 1999 and 1998, respectively, a decrease of $91,819 or
26.8%. The difference was due primarily to amortization of loan fees on the
newly refinanced debt.
For the six months ended June 30, 1999 and 1998, Salaries and Wages
were $304,766 and $244,430, respectively. The increase of $60,336, or 24.7%, was
due primarily to additional salaries at the new facilities and other general
wage increases.
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Property Taxes and Insurance for the six months ended June 30, 1999 and
1998 were $197,043 and $109,326, respectively. The increase of $87,717, or
80.2%, was due primarily to the additional facility acquired in June 1998 and
additional construction during 1998.
General and Administrative expenses were $207,352 and $92,339 for the
six months ended June 30, 1999 and 1998, respectively. The increase of $115,013,
or 124.6%, can be attributed to several factors including an increase in the
number of temporary employees in 1999, an increase of approximately $18,000 in
snow removal fees in 1999, and an increase in variable operating expenses due to
increased revenues.
For the six months ended June 30, 1999 and 1998, Rent was $77,340 and
$90,737, respectively. The decrease of $13,397, or 14.8%, was primarily the
result of a different mix of equipment and vehicle leases between the two
periods.
Professional Fees for the six months ended June 30, 1999 and 1998 were
$15,807 and $57,346, respectively, a decrease of $41,539 or 72.4%. The
difference was primarily the result of a decrease in legal fees during 1999.
Utilities for the six months ended June 30, 1999 and 1998 were $52,458
and $42,891, respectively. The increase of $9,567, or 22.3%, was the result of
rates charged for operating consumption due to increased revenues.
For the six months ended June 30, 1999 and 1998, Advertising was
$39,553 and $41,955, respectively, a decrease of $2,402 or 5.7%.
Repairs and Maintenance were $14,992 and $13,828 for the six months
ended June 30, 1999 and 1998, respectively, an increase of $1,164 or 8.4%. The
increase was due primarily to the increase in facilities operating in 1999.
Bad Debts for the six months ended June 30, 1999 and 1998 were $24,650
and $14,890, respectively, an increase of $9,760 or 65.5%. This percentage
increase is consistent with the percentage increase of revenues.
Other Income. Gain on Sale of Property was $30,107 and $0 for the six
months ended June 30, 1999 and 1998, respectively. The increase was due to the
sale of the car wash at one of the facilities.
For the six months ended June 30, 1999 and 1998, Interest Income was
$122 and $396, respectively, a decrease of $270.
Net Loss. As a result of the factors noted above, net loss for the six
months ended June 30, 1999 and 1998 was $239,007 and $541,325, respectively, a
decrease of $302,318 or 55.8%.
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1998 COMPARED TO 1997
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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 $557,783 and $499,683 for the years
ended December 31, 1998 and 1997, respectively, an increase of $58,100 or 11.6%.
The increase was primarily due to the loss recognized from extinguishment of
debt which was refinanced.
For the years ended December 31, 1998 and 1997, 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
63.9%, 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 self-storage company'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.
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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.
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 9.6%.
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 self-storage company 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.
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
most significant 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
Meridian's and the self-storage company's confidence in its prospects and
strategies and its expectations about growth, are forward-looking statements
that involve risks and uncertainties. These risks and uncertainties include, but
are not limited to:
- Meridian's continued tax status as a REIT;
- Meridian's inability to execute its business plan involving a
conversion from a limited life REIT to a perpetual-life REIT;
- changes in general economic conditions;
- changes in local real estate conditions;
- the inability to generate sufficient revenues to meet
operating expenses; and
- the failure to manage growth effectively.
Any investor or potential investor in Meridian or Liberty must consider these
risks and others that are detailed in other filings by Meridian with the SEC.
These risks and others should cause actual results to differ materially from
those in the forward-looking statements.
FEDERAL INCOME TAX MATTERS
Federal Income Tax Consequences of the Reincorporation. The board of
trustees intends the reincorporation to qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, with the
result that no gain or loss will be recognized by Meridian, Liberty or the
shareholders of Meridian. The basis of your shares of common stock of Liberty
received in exchange for your Meridian shares, and the holding period for such
shares of common stock, will be the same as your basis in, and holding period
for, assuming that you hold the shares as capital assets, your Meridian shares.
The basis and holding period for the properties of Meridian 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 Meridian.
Although Liberty does not intend to request a ruling from the IRS as to
its REIT status, Kohrman Jackson & Krantz P.L.L., Cleveland, Ohio, as counsel to
Meridian and to Liberty and as a condition to the consummation of the mergers,
will render an opinion to Meridian and to Liberty to the effect that:
- the mergers will qualify as a tax-free reorganization within the
meaning of the Code, and
- Liberty will qualify as a REIT under the Code for its first taxable
year upon consummation of the proposed transactions and its
organization and proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as
a REIT under the code.
However, the opinion will be based on certain factual assumptions
regarding the mergers, such as the consummation of the proposed transactions as
described in this Proxy Statement/Prospectus. Counsel cannot opine as to
Meridian's qualification as a REIT for any taxable year and, therefore, has
qualified its opinion regarding Liberty's REIT qualification because Liberty's
qualification as a REIT is dependent upon Meridian's prior qualification as a
REIT.
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In the event that Meridian failed to qualify as a REIT or 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 and Liberty may
be subject to taxation as a regular corporation. Any such corporate tax
liability could be substantial and would reduce the amount of cash available for
distribution to stockholders, which in turn could have an adverse impact on the
value of, and trading prices for, Liberty's common stock. In addition, investors
should be aware that opinions of counsel are not binding on the IRS or any
court. The REIT qualification opinion only represents the view of counsel as to
the status of Liberty based on the counsel's review and analysis of existing
law.
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.
REIT TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences that materially affect a prospective shareholder, including
individual retirement accounts. The discussion does not cover all possible tax
considerations or 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 stockholder of Liberty in light of his or her particular
circumstances or to specific types of shareholders, including insurance
companies, financial institutions or broker-dealers, and foreign corporations
and persons who are not citizens or residents 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.
General. Meridian has made an election to be taxed as a REIT under
Sections 856 through 860 of the Code and Liberty intends to operate in such a
manner in the future. However, Liberty may not be able to operate in a manner so
as to remain qualified as a REIT. Liberty's continued qualification as a REIT
in current and future taxable years will depend upon whether Liberty and the
operating partnership continue to meet the various qualification tests imposed
under the Code, as discussed below.
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
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
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eliminates the "double taxation" at the corporate and shareholder levels that
generally results from an 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 in some circumstances.
Requirements for Qualification as a REIT.
General. A REIT is a corporation, trust or association that meets the
following requirements:
(1) It is managed by one or more trustees or directors.
(2) Its ownership is evidenced by transferable shares or certificates.
(3) It would be taxable as a domestic corporation if it was not a REIT.
(4) It is neither a financial institution nor an insurance company.
(5) It has the calendar year as its taxable year.
(6) It is owned by 100 or more persons.
(7) During the last half of each taxable year not more than 50% in
value of its outstanding shares are owned by five or fewer individuals,
or specific exempt entities.
(8) It validly elects or has elected to be a REIT.
(9) It meets specified income and asset tests, described below.
In order to ensure continuing compliance with conditions (6) and (7),
Liberty must, and will, demand written statements each year from the record
holders of designated percentages of common stock disclosing the actual owners
of such stock. A stockholder failing to comply with Liberty's written demand
must submit with his or her tax return a similar statement and other
information.
Asset Tests. As noted in condition (9) above, Liberty must satisfy
three asset tests:
(1) At least 75% of the value of Liberty's total assets consist of real
property, mortgages on real property, shares in other REITs, cash, cash
items, and specified government securities.
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(2) Not more than 25% of Liberty's total assets are securities, other
than specified government securities.
(3) The value of any one issuer's securities does not exceed 5% of the
value of Liberty's total assets, and Liberty does not own more than 10%
of any one issuer's outstanding voting securities, this limitation does
not apply to the ownership of specified government securities and
securities of a qualified REIT subsidiary or another REIT.
Liberty's investment in the operating partnership will be treated as an
investment in the real property owned by the operating partnership. As such,
Liberty expects that more than 75% of the value of its assets will be real
estate assets. Liberty expects to meet all 3 asset tests set forth above.
Income Tests. As noted in condition (9) above, Liberty must satisfy two
separate income tests:
(1) The 75% Test. Generally, at least 75% of Liberty's annual gross
income must be derived from real estate sources, including rents,
mortgage interest, gains from the sale of real property or mortgages,
income realized from investments in other REITs or income from
qualified types of temporary investments.
(2) The 95% Test. Generally, at least 95% of Liberty's annual gross
income, must be derived from the same items which qualify under the 75%
income test and from dividends, interest and gain from the sale of
securities.
To be qualified rental income for purposes of the income tests, rents
must meet the following requirements:
(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.
(2) Rents must not be received from a "related party tenant." If 10% or
more of a tenant's assets or net profit is owned by Liberty or a 10%
shareholder of Liberty, the tenant is a "related party tenant."
(3) Liberty must not receive income from its tenants in exchange for
services, including management services, unless the services are
customarily provided to tenants of similar properties in the same
geographic market. If non-customary services are provided to a tenant,
none of the rental income paid by the tenant with respect to the leased
property will qualify.
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(4) Rent attributable to personal property leased in connection with a
lease of real property will qualify if such rent does not exceed 15% of
the total rent received under the lease.
THE PROPOSALS
The following is a description of each of the proposals that you are
being asked to approve at this special meeting. You should read each proposal
carefully before deciding how to vote.
PROPOSAL 1 -- APPROVAL OF AMENDMENT TO THE DECLARATION OF TRUST
ALL MATERIAL 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 AMENDMENT TO MERIDIAN'S CURRENT DECLARATION OF TRUST ATTACHED TO
THIS PROXY STATEMENT/PROSPECTUS AS ANNEX A CAREFULLY BEFORE YOU DECIDE HOW TO
VOTE.
The board of trustees has determined that an amendment to the current
declaration of trust is necessary in order to permit Meridian to implement the
reincorporation from a California business trust to a Maryland corporation. The
amendment to the declaration of trust (1) expressly permits Meridian to merge or
consolidate with and/or into a domestic or foreign limited partnership and (2)
sets forth the procedures pursuant to which the merger or consolidation would
take place. The amendment is intended to allow Meridian 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 Meridian into another entity, i.e., the
approval of the holders of a majority of the outstanding shares of beneficial
interest. However, the provisions of Section 3.5 of the current declaration of
trust do not expressly authorize the merger or consolidation of Meridian 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. Upon approval of the
amendment to the declaration of trust by the shareholders, Meridian will be able
to implement the reincorporation whereby it will become a Maryland corporation.
The 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 AMENDMENT TO
MERIDIAN'S CURRENT DECLARATION OF TRUST.
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PROPOSAL 2 -- APPROVAL OF THE REINCORPORATION
ALL MATERIAL 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 AGREEMENT AND PLAN OF MERGER, INCLUDING THE ARTICLES OF
INCORPORATION AND BYLAWS OF LIBERTY SELF-STOR, INC. ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX B CAREFULLY BEFORE YOU DECIDE HOW TO VOTE.
PRINCIPAL REASONS FOR THE REINCORPORATION INTO A MARYLAND CORPORATION
Meridian was organized in 1982 and commenced operations in 1983 as a
California common law business trust, operating as a REIT. Meridian now seeks to
be reincorporated into a Maryland corporation, Liberty Self-Stor, Inc., to:
- change from a limited life entity to one with perpetual-life
with the ability to reinvest proceeds from the sale of
properties;
- to facilitate a growth objective which will enable Meridian to
attract capital; and
- to take advantage of the more well-developed Maryland law
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 Meridian's
successor will operate as a corporation, the board of trustees has unanimously
determined the reincorporation into a Maryland corporation is desirable and is
fair to, and in the best interest of, Meridian and its shareholders.
Facilitate Growth. The reincorporation into a Maryland corporation 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.
Certainty/Flexibility. Maryland law includes 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
Meridian and the California general corporation statutes. 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.
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Investor Perception. Corporations are far more numerous than business
trusts and are more familiar to the investor community. The board of trustees
believes that this familiarity and favorable perception is likely to provide
potentially greater access for Meridian to capital markets.
Protections Afforded by Maryland Law Against Hostile/Unsolicited
Takeovers. Liberty is subject to provisions of Maryland law which are designed
to encourage a person seeking control of a Maryland corporation to negotiate
with the board of directors. The board of trustees believes that the
reincorporation of Meridian into a Maryland corporation will allow Liberty to
avail itself of these provisions of Maryland law 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 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 Maryland law against hostile or unsolicited takeover
attempts are in the best interest of Meridian and its shareholders.
TERM OF EXISTENCE
Reincorporating in Maryland would eliminate Meridian's limited life
policy because Liberty would have perpetual life. Liberty would not be required
to distribute the proceeds of the sale of its properties to its stockholders but
would instead be able to reinvest the proceeds in new properties.
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The following are the material possible benefits and detriments
associated with eliminating the limited life policy:
Possible Benefits:
- Eliminating the limited life policy could present Liberty with
new capital opportunities because the policy restricts its
ability to pursue available investment opportunities.
- Eliminating the limited life policy could enable Liberty to
raise capital through the issuance of additional securities in
the capital markets.
- Eliminating the limited life policy would allow Meridian to
enter into the reorganization as an UPREIT which will allow
Liberty to (1) acquire a diversified portfolio of self-storage
facilities, (2) have employees who manage the self-storage
facilities, not an outside adviser, (3) increase capital, and
(4) make use of experienced management.
Possible Detriments:
- Eliminating the limited life policy may have an adverse effect
on any shareholder who purchased its shares of beneficial
interest in anticipation of receiving a liquidating
distribution from Meridian in accordance with the limited life
policy because the elimination of the policy will result in
the continuation of Meridian beyond the time period within
which Meridian would have been liquidated. Any liquidating
distributions that would have otherwise been paid at that time
in connection with the liquidation of Meridian 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 limited life policy through the
reincorporation into a Maryland corporation would make Liberty
a reinvesting entity, exposing it to all risks normally
associated with the ownership and operation of real estate.
- Eliminating the limited 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 limited life policy is fair
to, and in the best interest of, Meridian and its shareholders, the board of
trustees considered the following factors:
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- the ability of self-managed, growth-oriented, perpetual-life
REITs to pursue a growth objective and obtain equity and debt
financing from capital markets on attractive terms;
- the ability to acquire Osborne's self-storage company;
- the ability to enter into the reorganization as an UPREIT;
- the substantial experience of the management of Osborne's
self-storage company in managing, acquiring, developing,
expanding and operating self-storage facilities and the
continuation of that management as Liberty's management team;
- 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;
- reliance on the stock market by stockholders who desire to
liquidate their investment in Liberty and the possible
volatility in stock market prices of the shares in the future;
and
- the possibility that 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 Meridian was free of its limited
life policy Meridian 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 reincorporation into a Maryland corporation, which includes
the elimination of the limited life policy, will permit Meridian through Liberty
to focus its investment direction on self-storage facilities, specifically in
connection with the reorganization of Meridian as an UPREIT. See "Proposal 3"
for a detailed discussion of the business and operating strategies of Liberty.
If you vote FOR the reincorporation proposal, you will be voting FOR
the elimination of the limited life policy because Liberty will have
perpetual-life. If the reincorporation proposal is not approved, Meridian will
be forced to liquidate.
TERMS OF THE REINCORPORATION
The reincorporation of Meridian will be effected pursuant to two
mergers whereby (1) Meridian will be merged with and into the Liberty Self-Stor
Limited Partnership, a Maryland limited partnership and an indirect wholly-owned
subsidiary, and (2) Liberty Self-Stor Limited Partnership will be merged with
and into Liberty Self-Stor, Inc., a Maryland corporation and wholly-owned
subsidiary of Meridian. Liberty will be the surviving entity in the mergers, the
separate existence of Meridian will terminate, each outstanding share of
beneficial interest will
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be converted into one share of common stock of Liberty and the shares of
Liberty's common stock held by Meridian will be canceled and will cease to
exist. At the effective time of the mergers, all properties, assets, liabilities
and obligations of Meridian 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 Meridian.
The mergers are governed by the Agreement and Plan of Merger which is
set forth in its entirety as Annex B to this Proxy Statement/Prospectus. The
following information is a summary of the material provisions of this agreement
and is qualified in its entirety by reference to Annex B.
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. Meridian anticipates that the mergers will become
effective as promptly as practicable following shareholder approval of the
reincorporation at the special meeting.
Upon consummation of the mergers, Liberty and its stockholders will be
governed by Liberty's articles of incorporation and bylaws, which will include a
number of provisions which are not in the current declaration of trust and
trustees' regulations of Meridian. See "The Proposed Transactions -- Material
Changes in the Rights of Shareholders Resulting from the Reincorporation." These
provisions of the articles of incorporation and bylaws of Liberty, together with
provisions of Maryland law, may have anti-takeover effects. A copy of the
proposed articles of incorporation and bylaws of Liberty are set forth in their
entirety as exhibits to the Agreement and Plan of Merger attached hereto as
Annex B.
At the effective time of the mergers, each of the persons then serving
as trustees and officers of Meridian will become the directors and officers,
respectively, of Liberty. For information concerning the trustees and officers
of Meridian, see the section of this Proxy Statement/Prospectus called "Proposal
4 -- Election of Trustees."
At the effective time of the mergers, it is anticipated that Liberty's
common 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
share of beneficial interest will be deemed for all purposes to represent one
share of Liberty's common stock. Cash will be paid in lieu of fractional shares.
The registered owner of any certificates representing shares of beneficial
interest 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 common stock.
Liberty's stockholders are not requested or obligated to surrender in exchange
for certificates representing shares of common stock their certificates for
shares of beneficial interest.
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The obligations of Meridian, Liberty and Liberty Self-Stor Limited
Partnership are subject to the following conditions:
- effectiveness of Liberty's Form S-4 Registration Statement;
- approval of shareholders of the reincorporation;
- no court or administrative order being in effect that
restrains or enjoins the consummation of the mergers;
- the merger agreement has not been terminated; and
- all necessary consents and approvals have been obtained.
The mergers may be abandoned at any time, before or after approval by the
shareholders, by mutual consent of Meridian, Liberty and Liberty Self-Stor
Limited Partnership.
Upon closing, Osborne's self-storage company will assume the costs of
the reincorporation and the reorganization up to $725,000 through a deduction to
its net asset value. The cash to pay the expenses will come from Liberty.
Liberty will pay all costs in excess of $725,000. Costs are estimated to be
approximately $725,000.
DESCRIPTION OF AUTHORIZED STOCK OF LIBERTY
The following is a summary description of the authorized and
outstanding stock of Liberty following the reincorporation:
Common Stock. Liberty will have 50,000,000 authorized shares of common
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. 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 common stock will be entitled to receive, pro rata in
relation to the number of shares of common 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
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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 common
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 common stock held by each such
holder, among the holders of outstanding shares of common stock.
Voting Rights. Each holder of common 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.
The transfer agent and registrar for Liberty will be EquiServe,
Meridian's current transfer agent.
The consummation of the mergers and reincorporation is contingent upon
the approval of the amendment to the declaration of trust and the approval of
the reorganization of Meridian as an UPREIT.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
REINCORPORATION OF MERIDIAN INTO LIBERTY, A MARYLAND CORPORATION.
PROPOSAL 3 -- APPROVAL OF THE ACQUISITION OF
OSBORNE'S SELF-STORAGE COMPANY
ALL MATERIAL 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 CAREFULLY BEFORE
YOU DECIDE HOW TO VOTE.
OVERVIEW OF THE ACQUISITION OF OSBORNE'S SELF-STORAGE COMPANY THROUGH THE
REORGANIZATION OF MERIDIAN AS AN UPREIT
Overview. The following discussion assumes that the reincorporation of
Meridian into Liberty has been consummated. Proposal 3 seeks shareholder
approval of the reorganization as an UPREIT, as described more fully below. The
effect of the reorganization of Meridian as an UPREIT would be to re-direct the
original investment focus of Meridian 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.
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The board of 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's common stock.
In general terms, the reorganization will result in the acquisition of
Osborne's self-storage company through the formation of an operating partnership
by Liberty and Richard M. Osborne, Diane M. Osborne, Thomas J. Smith and
Retirement Management Company, the members of Liberty Self-Stor, Ltd., an Ohio
limited liability company which owns 15 self-storage facilities. Mr. Osborne,
the Chairman of the Board and Chief Executive Officer of Meridian and Liberty,
is the sole manager and owns with Retirement Management Company, of which Mr.
Osborne is the sole shareholder, approximately 98.6% of Liberty Self-Stor, Ltd.
The remaining 1.4% is owned by Thomas J. Smith, the President, Chief Operating
Officer and a trustee of Meridian and Liberty, and Diane M. Osborne, the wife of
Mr. Osborne. Following the reorganization, Liberty will be the general partner
owning approximately 1% of the operating partnership and a limited partner
owning approximately 28.9%, and Mr. Osborne, Mrs. Osborne, Mr. Smith and
Retirement Management Company will be the limited partners, owning approximately
70.1% of the operating partnership. The limited partnership interests of the
operating partnership will be divided into two classes: Class A and Class B. Mr.
Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company 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 common
stock on a one-for-one basis. The Class B limited partnership interests are
identical to the Class A interests in all material respects except that the
Class B interests are not redeemable or convertible. The effect of the
reorganization will be to reorganize Meridian or Liberty into an umbrella
partnership REIT or UPREIT.
The operating partnership will be the sole owner of Osborne's
self-storage company which owns the 15 self-storage facilities. The
operating partnership will be the entity through which Liberty conducts
substantially all of its business and owns substantially of its assets, either
directly or through subsidiaries. Liberty's board of directors will manage the
affairs of the operating partnership by directing the affairs of Liberty as
general partner of the operating partnership. Liberty's general partnership
interests and Class B limited partnership interests will entitle it to share in
cash distributions from, and in the profits and losses of, the operating
partnership in proportion to its percentage interest therein and will entitle
Liberty to vote on all matters requiring a vote of the limited partners. Liberty
plans to make all future purchases of self-storage facilities through the
operating partnership.
The management of Osborne's self-storage company will continue in that
capacity as the management of Liberty. These individuals have significant
experience in managing, acquiring, developing, expanding and operating
self-storage facilities.
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Meridian will use its best efforts to assure that, following
consummation of the reincorporation and the reorganization, Liberty's common
stock will be listed with the OTCBB and be freely-tradeable, and that you will
continue to have the option to hold the common stock or trade it in the open
market. Subsequent to the reincorporation and the reorganization, you will own
one share of common stock for each share of Meridian you currently own. Cash
will be paid in lieu of fractional shares. No changes in the rights of the
holders of the shares will be effected by the reorganization. The reorganization
as an UPREIT will be accounted for using the purchase method of accounting.
Meridian and Osborne's limited liability company believe that the reorganization
will not affect the qualification of Liberty as a "real estate investment trust"
under Sections 856 through 860 of the Code. The operating partnership will be
taxed as a partnership, rather than an association taxable as a corporation, for
federal income tax purposes.
Absent approval and consummation of the reorganization of the company
as an UPREIT, the trustees believe that Meridian will be forced to liquidate and
you will realize only your ratable portion of any net liquidation proceeds.
THE FORMATION AGREEMENT
Meridian has agreed to the reorganization as an UPREIT pursuant to the
Formation Agreement, dated as of May 12, 1999, among Meridian, Liberty,
Osborne's self-storage company and Mr. Osborne, Mrs. Osborne, Mr. Smith and
Retirement Management Company. The formation agreement provides the framework
for the reorganization, sets forth 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 specified events, all as set forth more fully below. The formation
agreement was amended on August 11, 1999 to reflect the net asset values of
Meridian and Liberty based on the financial statements of each as of June 30,
1999 and the appraisals of the 15 self-storage facilities as of March 31, 1999,
and correct the permitted encumbrances on Schedule II. The formation agreement
was amended on September 13, 1999 to reflect the increase in costs of the
proposed transactions being funded by Osborne's self-storage company and to
change the termination date of the agreement. The Formation Agreement was
amended and restated on October 12, 1999 to amend the net asset value
calculation and to incorporate the first and second amendments. The amended and
restated Formation Agreement was restated again on October 27, 1999 to change
the termination date of the agreement to January 31, 2000.
The following is a summary of the material terms of the amended and
restated Formation Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Annex C, the Partnership Agreement for the operating
partnership, a copy of which is attached to this Proxy Statement/Prospectus as
Annex D, and other agreements to be entered into pursuant thereto. YOU ARE
ENCOURAGED TO READ THE ENTIRE AMENDED AND RESTATED FORMATION AGREEMENT AND THE
PARTNERSHIP AGREEMENT AS WELL AS THIS PROXY STATEMENT/PROSPECTUS AND THE OTHER
DOCUMENTS REFERRED TO HEREIN PRIOR TO MAKING ANY DECISION AS TO WHETHER TO VOTE
IN FAVOR OF THIS PROPOSAL.
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FORMATION OF THE OPERATING PARTNERSHIP -- LSS I LIMITED PARTNERSHIP
Overview. The formation agreement provides for the organization of an
operating partnership to be known as LSS I Limited Partnership, a Delaware
limited partnership, in which Liberty will be the general partner and a Class B
limited partner and Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement
Management Company will be the Class A limited partners. The operating
partnership will be organized pursuant to a limited partnership agreement. The
partnership agreement provides that each of Mr. Osborne, Mrs. Osborne, Mr. Smith
and Retirement Management Company will exchange his, her or its membership
interests in the self-storage company for Class A limited partnership interests
in the operating partnership, at net asset value. Liberty will assume the debt
of Osborne's self-storage company at the time of contribution of the membership
interests. Osborne's self-storage company will remain an obligor of its debt and
Mr. Osborne will remain a guarantor. After the contribution, the operating
partnership will be the sole member of the self-storage company. Liberty will
contribute cash and securities, net of any liabilities, to the operating
partnership in exchange for its general partnership interests and Class B
limited partnership interests. Meridian presently estimates the amount of the
net assets to be contributed to be approximately $1.9 million; however, the
actual amount of the net assets to be contributed may vary based upon the level
of expenses incurred by Meridian through the date of consummation of the
reorganization. Such contribution will be funded from Meridian's available net
assets as of the date of consummation of the reorganization.
Capital Structure. The operating partnership will have one general
partner, Liberty. The limited partnership interests of the operating partnership
will be divided into two classes: Class A and Class B. The Class A limited
partnership interests, which will be owned by Mr. Osborne, Mrs. Osborne, Mr.
Smith and Retirement Management Company, will be redeemable for cash or, at the
election of Liberty, convertible into shares of common stock, on a one-for-one
basis. The Class A limited partnership interests are redeemable for cash, at any
time beginning one year from the date of the consummation of the proposed
transactions, equal to the number of interests multiplied by the then 30-day
average market price of Liberty's stock. 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 the operating partnership
will be held by Liberty. The Class B limited partnership interests are identical
to the Class A interests in all material respects except that the Class B
interests are not redeemable or convertible.
The partnership agreement also provides for the issuance of additional
classes of limited partnership interests. This allows for additional limited
partners to be admitted to the operating partnership in exchange for the
contribution of properties in tax-free transactions. As additional limited
partners are added, Meridian's percentage ownership in the operating partnership
will decline.
If all of the Class A limited partnership interests were converted into
common stock, Mr. Osborne and Retirement Management Company, based on the 98.6%
ownership interest in the self-storage company and the 297,344 shares of common
stock that will be held by Turkey
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Vulture Fund upon completion of the reorganization, would hold 7,305,411 shares
of Liberty's common stock, or approximately 72% of the total number of shares of
common stock then outstanding.
Ownership Percentages. Based on net asset value, Liberty's general
partnership interest in the operating partnership will be 1% and its limited
partnership interest will be 28.9% and Mr. Osborne's, Mrs. Osborne's, Mr.
Smith's and Retirement Management Company's combined ownership interest will be
70.1%. Based on these percentages, the operating partnership will issue to (1)
Liberty 101,392 general partnership interests and 2,930,226 Class B limited
partnership interests, and (2) Mr. Osborne, Mrs. Osborne, Mr. Smith and
Retirement Management Company 7,107,573 Class A limited partnership interests.
These percentages are based on the net asset value to be contributed by Liberty
and Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management company. See
page 2 for "Calculations of Net Asset Value to be Contributed in the
Reorganization."
Maryland Law. As a condition to the contribution of the membership
interests in Osborne's self-storage company, Liberty will waive the requirements
of, or provide an exemption with respect to, Subtitles 6 and 7 of Title 3 of
Maryland law as they may relate to Mr. Osborne and his affiliates, including
Turkey Vulture Fund, Retirement Management Company and Mr. Osborne's immediate
family and, to the extent necessary, the other limited partners to permit the
acquisition of the self-storage company. Subtitle 6 of Title 3 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 the stockholder became a 10% stockholder, except
for limited exemptions. Subtitle 7 of Title 3 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 of
incorporation provide that Mr. Osborne and his affiliates, including Turkey
Vulture Fund, Retirement Management Company and Mr. Osborne's immediate family,
are not subject to these provisions to permit the acquisition of the
self-storage company.
Representations and Warranties. The self-storage company and Mr.
Osborne as its managing member will make representations and warranties to
Meridian and Liberty as to the material accuracy of all information furnished to
Meridian and Liberty with respect to the self-storage company and the 15
self-storage facilities, the self-storage company's title to the self-storage
facilities, the compliance by the self-storage facilities with all applicable
laws and regulations, certain environmental, zoning and similar matters, the
absence of litigation or regulatory proceedings in respect of the self-storage
facilities and other customary matters.
Transferability of Interests. Liberty will be not be able to withdraw
voluntarily as the general partner from the operating partnership or transfer or
assign its interest in the operating
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partnership. The limited partners will not be able to transfer their interests
in the operating partnership without the consent of Liberty or except for
transfers to a limited partner's immediate family or any trust in which the
limited partner or his immediate family members own, collectively 100% of the
beneficial interests.
Capital Contributions. If the operating partnership 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 the
operating partnership on the same terms and conditions as are applicable to
Liberty's borrowing. As an alternative to borrowing funds required by the
operating partnership, Liberty may issue additional shares of Liberty and
contribute the proceeds from the issuance to the operating partnership. If
Liberty so contributes the proceeds, the operating partnership will issue to
Liberty partnership interests with rights substantially similar to those of the
additional securities issued. The partnership interests of the limited partners
will be correspondingly decreased or adjusted in connection with the issuance by
the operating partnership.
No Sale of Properties. The partnership agreement provides that the 15
self-storage facilities cannot be sold by the operating partnership for ten
years from the date of execution of the partnership agreement, except that the
operating partnership is permitted to enter into a like- kind exchange with
respect to any portion or all of the 15 self-storage facilities to the extent
that the exchange will not cause a recognition of gain to Mr. Osborne, Mrs.
Osborne, Mr. Smith and Retirement Management Company. A like-kind exchange
includes, subject to Code restrictions, the exchange by the operating
partnership of any portion or all of the 15 self-storage facilities for
self-storage facilities of another company.
Rights, Powers and Duties of Partners. Liberty, as the sole general
partner of the operating partnership, will have full, exclusive and complete
responsibility for and discretion in the management and control of the operating
partnership, and the limited partners will have no authority to transact
business for, or to participate in the management activities or decisions of,
the operating partnership. However, any amendment to the partnership agreement
that would:
- seek to impose additional personal liability on the limited
partners;
- affect the allocation of profits and losses and distributions
between the partners, or
- impose on the limited partners any obligation to make
additional contributions to the capital of the operating
partnership, would require the consent of limited partners
holding more than 65% of the limited partnership interests.
The operating partnership 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 to no longer seek
classification as a REIT.
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Termination of Partnership. The operating partnership will continue for
perpetuity, or until sooner dissolved upon:
- the bankruptcy, dissolution or withdrawal of Liberty unless
the limited partners elect to continue the operating
partnership;
- the 90th day following the sale or other disposition of all or
substantially all the assets of the operating partnership;
- the redemption of all Class A limited partnership interests in
the operating partnership; or
- the election of Liberty but only in accordance with and as
permitted by applicable law.
Distributions; Allocations of Profits and Losses; Tax Matters.
Distributions will be made at the discretion of Liberty as the sole general
partner of the operating partnership. Generally, all distributions from the
operating partnership 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 the operating partnership. 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 the operating partnership, adjusted to deduct the interests of the
partners other than Liberty.
The operating partnership 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 the operating partnership's property
in connection with the liquidation of the operating partnership, quarterly, in
amounts determined by Liberty in its sole discretion, to the partners in
accordance with their respective percentage interests in the operating
partnership. Liberty intends to make any distributions necessary to comply with
the income distribution requirements of the REIT rules. Upon liquidation of the
operating partnership, after payment of, or adequate provision for, debts and
obligations of the operating partnership, including any partner loans, any
remaining assets of the operating partnership 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 the
operating partnership generally will be allocated among the partners in
accordance with their respective interests, except to the extent that the
operating partnership is required to allocate depreciation deductions relating
to, or gain on sale of, the self-storage facilities in a different manner.
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Liberty will be the tax matters partner of the operating partnership
and, accordingly, will have authority to make tax elections under the Code on
its behalf.
Additional Capital Sources. Meridian will use its best efforts to
locate additional equity and debt financing. Meridian will use its best
efforts to obtain a line of credit in an amount up to $50 million. There is no
assurance that Meridian will be able to obtain additional financing on
terms favorable to it.
Management. Meridian intends that Liberty will be self-managed after
completion of the reincorporation and reorganization. Liberty will manage the
operating partnership. Employees of Liberty, who are currently employees of
Osborne's self-storage company, will manage the self-storage facilities, not an
outside adviser. Thomas J. Smith is currently the self-storage company's Chief
Operating Officer, Ronald L. Ramer is Financial Manager and Jeffrey J. Heidnik
is Vice President of Operations. These individuals have significant experience
in managing, acquiring, developing, expanding and operating self-storage
facilities. Mr. Smith has been in the self-storage industry for a total of three
years, all with Osborne's self-storage company, and also has over ten years of
experience in the real estate industry. Mr. Ramer has been in the self-storage
industry for three years, all with the self-storage company, and also has over
seven years of experience in the real estate industry. Mr. Heidnik has been in
the self-storage industry for 11 years, three of them with the self-storage
company.
Upon completion of the reorganization as an UPREIT, Liberty may hire
any additional staff necessary to implement the growth plan. If necessary to
comply with REIT requirements, concurrently with the completion of the
reorganization 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 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 January 31, 2000, and the reorganization may be abandoned, at
any time thereafter by any party by written notice to the other parties.
Conditions. The reorganization of Meridian as an UPREIT is subject to
the following:
- Approval of the reincorporation into a Maryland corporation by
an affirmative vote of 50% of Meridian's outstanding shares by
Meridian shareholders;
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- Approval of the acquisition of Osborne's self-storage company
by an affirmative vote of 50% of the votes cast by Meridian
shareholders, other than shares held by Turkey Vulture Fund
XIII, Ltd.; and
- 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 reorganization.
The trustees will resolicit shareholder approval of the reincorporation and the
reorganization if any material conditions to the merger agreement and the
formation agreement are waived by the parties to those agreements.
PURPOSE OF THE SOLICITATION
Approval of the reorganization is being sought because the current
trustees' proxy statement in connection with their election in September 1998
indicated that the trustees would seek shareholder approval of any transaction
that involved Mr. Osborne or his related companies. That proxy statement
specifically referred to a merger or other combination with a self-storage
company controlled by Mr. Osborne. By putting the acquisition of Osborne's
self-storage company to the vote of shareholders, the trustees are fulfilling
the promises made in their September 1998 proxy statement. Mr. Osborne's shares
in Meridian held through Turkey Vulture Fund will not be voted in connection
with the reorganization because Mr. Osborne indicated in that same proxy
statement that his shares would not be voted in connection with any transaction
involving companies or properties that he controls.
IF MERIDIAN IS UNABLE TO CONSUMMATE THE REINCORPORATION AND THE
REORGANIZATION, MERIDIAN WILL BE FORCED TO LIQUIDATE.
PLANS FOR LIBERTY-BUSINESS OBJECTIVES
Liberty was organized to acquire, succeed to, continue and expand the
business of Meridian following the mergers and reincorporation. Liberty has had
no activities to date other than those incident to the reincorporation. Liberty
intends to operate and be taxed as a REIT. Liberty will operate and manage the
15 self-storage facilities, as the general partner of the operating partnership.
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.
Activities of Liberty. Liberty will have the ability to engage under
its articles and bylaws, subject to Maryland law, in the following activities:
- issue senior securities;
- borrow money;
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- make loans;
- underwrite securities of other issuers;
- engage in the purchase or sale of investments;
- offer securities in exchange for property;
- repurchase or otherwise reacquire its shares or other
securities; and
- make annual reports and other reports to stockholders
which contain annual audited financial statements.
Liberty could borrow money necessary to acquire properties, could offer
interests of the operating partnership in exchange for properties, and will make
annual reports with audited financials. Liberty has no current plans to engage
in any of the other listed activities. Meridian was limited by its declaration
of trust from engaging in some of the above activities. During the last three
years, Meridian did not engage in any of these activities with the exception of
making annual reports and other reports to shareholders containing audited
financial statements. During each of the last three years, Meridian filed annual
and quarterly reports with the SEC. Liberty's ability to engage in any of the
above activities is subject to change without the approval of stockholders.
Self-Storage Investment 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 it
believes are present in the 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
non-professional management/ownership. Liberty will seek to
acquire properties at an attractive price where appropriate
and expand the property to add additional rental units and
incremental, high margin revenues. Liberty will seek to
acquire 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 facilities which do not meet the typical
size requirements of the major national self-storage
companies, generally below 45,000-50,000 square feet. Liberty
believes opportunities exist to acquire such facilities, 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 facilities.
- DEVELOPMENT -- Messrs. Smith, Ramer and Heidnik have had
collectively 17 years of experience in the self-storage
industry and in the real estate industry. In addition to the
acquisition of 13 facilities and the development of two
facilities in the last three years, the self-storage company
has expanded approximately four of its facilities in that
period. Through these individuals, Liberty will have in-house
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development and expansion expertise and will selectively
develop facilities in attractive markets.
Liberty intends to focus in geographic areas where Osborne's
self-storage company has existing real estate relationships or has previously
conducted business and owned self-storage facilities, 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" in which regional managers will be
responsible for more than one facility and the individual location managers will
report to the regional manager. These "regional clusters" promote economies of
scale. Liberty plans to pay for acquisitions with cash, debt, the issuance of
equity securities and/or funds from operations. Liberty will acquire
additional self-storage facilities primarily for income.
Upside From Contribution of the 15 Self-Storage Facilities. Most of the
self-storage facilities have been acquired within the past two years, and
Osborne's self-storage company's management is continuing to upgrade their
operations and management. Liberty believes that the self-storage facilities
have the potential for cash flow increases from three sources:
- increasing occupancies;
- increasing rental rates; and
- planned expansions.
The average portfolio occupancy of approximately 72% at year-end 1998 reflects
six facilities which have either been expanded subsequent to purchase or are
currently operating at occupancy levels Liberty believes to be below stabilized
occupancy rates in the local market. The self-storage company is in the process
of obtaining additional renters. In addition, approximately 124,750 square feet
of expansions, representing a 22% increase in the size of the facilities, have
been planned. These expansions are expected to increase cash flow due to the low
incremental costs associated with expanded operation.
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 reorganization as an UPREIT, each of the
current trustees will become a director of Liberty and each of the current
executive officers 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, Mr. Ramer
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will be Chief Financial Officer, and Mr. Heidnik will be Vice President of
Operations, of Liberty. These same individuals currently manage the 15
self-storage facilities for Osborne's self-storage company and have significant
experience in managing, acquiring, developing, expanding and operating
self-storage facilities. Pursuant to Liberty's bylaws, the board of directors
has the power to appoint and remove the officers of Liberty. Information about
each of the trustees and executive officers of Meridian is set forth in the
section of this Proxy Statement/Prospectus called "Proposal 4 -- Election of
Trustees."
ACCOUNTING TREATMENT OF THE REORGANIZATION
In accordance with generally accepted accounting principles, the
consummation of the reorganization of Meridian as an UPREIT will be accounted
for utilizing the purchase method of accounting with the operating partnership
being the acquiror. As such, the historical net carrying values of the assets
and liabilities of Osborne's self-storage company will be adjusted to their fair
values. No adjustments will be made to the historical net carrying values of the
assets and liabilities of Meridian. Pursuant to the terms of the partnership
agreement of the operating partnership, Liberty, as sole general partner, will
control the operating partnership. Accordingly, Liberty will account for its
investment in the operating partnership utilizing the consolidation method,
recognizing "minority interest" to the extent of the limited partnership
interests issued to Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement
Management Company in the reorganization. The reported income of Liberty in the
first reporting period following the consummation of the reorganization will
include results of operations of the operating partnership from the date of
consummation forward.
TAX ASPECTS OF LIBERTY'S INVESTMENT IN THE OPERATING PARTNERSHIP
Entity Classification. Liberty will hold a direct interest in the
operating partnership. 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 the operating partnership for purposes of the various
REIT income tests and in the computation of its REIT taxable income. Any
resultant increase in Liberty's REIT taxable income will increase 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 the operating partnership.
Tax Allocation with respect to the Self-Storage Facilities. Pursuant to
regulations issued by the Internal Revenue Service, the operating partnership
shall be taxed as a partnership for federal income tax purposes, unless it
elects otherwise. The operating partnership does not intend to elect to be taxed
other than as a partnership.
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Basis in Partnership Interest. The operating partnership initially will
acquire a tax basis in each of the 15 self-storage facilities acquired by it
equal to the adjusted tax basis of such asset in the hands of Osborne's
self-storage company, increased by any gain realized by the self-storage company
on the transfer. For purposes of determining the percentage interests of the
contributing partners, Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement
Management Company will be credited with having contributed to the operating
partnership interests in the self-storage company 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. It is expected that the agreed value of most of the self-storage
facilities acquired by the operating partnership substantially will exceed their
tax basis, so that there will be substantial book-tax differences at the time of
contribution. Pursuant to 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 with the Code.
In general, the operating partnership's allocations allocate to Liberty
the same amounts of depreciation deductions attributable to the self-storage
facilities and other assets acquired by the operating partnership 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,
Mr. Osborne, Mrs. Osborne, Mr. Smith and Retirement Management Company will
generally be allocated lower amounts of depreciation deductions for tax purposes
and increased taxable gain, or less loss, on sale by the operating partnership
of such self-storage facilities 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 the operating partnership. However, the
special allocation rules of the Code 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 the operating partnership 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 self-storage facilities acquired by the
operating partnership 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 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 allow partnerships to use any reasonable method of
accounting for book-tax differences for contributions of property so that a
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contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with contributed property. The operating partnership
currently intends to account for book-tax differences using the traditional
method provided for in the regulations.
With respect to any property purchased by the operating partnership
subsequent to the formation of Liberty, such property will initially have a tax
basis equal to its purchase price and the special allocation provisions of the
Code will not apply.
The consummation of the acquisition of Osborne's self-storage company
through the reorganization of Meridian as an UPREIT is contingent upon approval
of the amendment to the current declaration of trust and the reincorporation of
Meridian into Liberty, a Maryland corporation.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ACQUISITION
OF OSBORNE'S SELF-STORAGE COMPANY THROUGH THE REORGANIZATION OF MERIDIAN AS AN
UPREIT.
PROPOSAL 4 -- ELECTION OF TRUSTEES
All of Meridian's trustees will be elected at the special meeting to
serve as trustees until the next succeeding annual meeting of shareholders, or
stockholders of Liberty if the reincorporation in Maryland is approved, and
until their successors are elected and shall have qualified. The nominees listed
below 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 nominee
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 majority of the votes cast by the holders of shares of
beneficial interest present in person or represented by proxy at the special
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.
NOMINEES FOR ELECTION AS TRUSTEES
The name, age as of October 20, 1999, and existing office(s) and/or
trustee positions with Meridian of each of the nominees for election as a
trustee are as follows:
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<TABLE>
<CAPTION>
Name Age Office or Position Held
---- --- -----------------------
<S> <C> <C>
Richard M. Osborne 54 Chairman of the Board, Chief Executive Officer
and Trustee
Thomas J. Smith 55 President, Chief Operating Officer and Trustee
Steven A. Calabrese 39 Trustee
Mark D. Grossi 46 Trustee
Marc C. Krantz 39 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.
Richard M. Osborne has been Chairman of the Board and Chief Executive
Officer of Meridian 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.
which began operations in January 1995. Turkey Vulture 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, a director of NuMED Home Health Care
Inc., a publicly-held home health care company, 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 Liberty Self-Stor, Ltd.,
the self-storage company.
Thomas J. Smith has been President and Chief Operating Officer of
Meridian since September 1998. Since April 1, 1996, Mr. Smith has served as the
Executive Operating Manager of Osborne's self-storage company. 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 Home Health Care.
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.
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.
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Marc C. Krantz has been Secretary of Meridian 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 independent auditors, reviews the plan,
scope and results of the audit, reviews with the independent auditors and
management the policies and procedures with respect to internal accounting and
financial controls, changes in accounting policy and the scope of the non-audit
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 executive officers and will administer
Liberty's 1999 Stock Option Plan if approved by the 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 all meetings of the board while they were members.
COMPENSATION OF TRUSTEES
Beginning in 1999, Meridian will pay each trustee, other than Messrs.
Osborne, Smith and Krantz, an annual fee of $5,000 in shares of beneficial
interest determined at the then closing price of the shares. In addition,
Meridian 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.
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
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Lorraine O. Legg was not paid for her services as a trustee during
1998.
OFFICERS
The following sets forth the positions and selected biographical
information for the officers who are not trustees:
Ronald L. Ramer, 34, has been the Chief Financial Officer and Assistant
Secretary of Meridian since September 1998. Mr. Ramer has been the Financial
Manager of Osborne's self-storage company 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, Meridian had no
employees and no compensation was paid to its executive officers. On February
23, 1996, Meridian entered into an agreement with E&L Associates, Inc., to
provide Meridian with asset management and other administrative services.
Lorraine O. Legg, Meridian'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. Meridian paid E&L a total of $100,000 in 1998, $120,000 in 1997 and
$95,000 in 1996.
The new officers, who took office on September 28, 1998, have agreed to
serve without salaries until the reincorporation in Maryland is approved. If the
reincorporation and reorganization are approved, Mr. Osborne will continue to
serve Liberty as Chairman of the Board and Chief Executive Officer without
salary. Mr. Smith will be the only officer of Liberty earning more than
$100,000.
EMPLOYMENT AGREEMENTS
Liberty is a party to an employment agreement with Mr. Smith. The
employment agreement provides for a two year term commencing upon approval by
shareholders of the reincorporation and the reorganization, with automatic
one-year renewal periods. Mr. Smith will receive an annual salary of $125,000,
bonuses at the discretion of Liberty's board of directors, and the use of a
company car.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Exchange Act requires Meridian's officers and
trustees, and persons who own more than 10% of a registered class of Meridian's
equity securities, to file reports of ownership and changes in ownership with
the SEC and Nasdaq. Officers, trustees and greater than 10% shareholders are
required by regulation of the SEC to furnish Meridian with copies of all Section
16(a) forms they file.
Based solely on its review of Forms 3, 4 and 5 and amendments thereto
available to Meridian and written representations from some of the trustees,
officers and 10% shareholders
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that no form is required to be filed, Meridian believes that no trustee, officer
or beneficial owner of more than 10% of its 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 October 20, 1999 information
with respect to the beneficial ownership of shares of beneficial interest by (1)
each person to be the beneficial owner of more than 5% of each of the
outstanding shares, (2) each trustee and executive officer who is a beneficial
owner of any shares, and (3) all trustees and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT
- ---- -------------------- -------
<S> <C> <C>
Richard M. Osborne 297,344* 9.8%
Steven A. Calabrese 290,265 9.5%
Mark D. Grossi 0 0%
Jeffrey J. Heidnik 0 0%
Marc C. Krantz 0 0%
Ronald L. Ramer 0 0%
Thomas J. Smith 0 0%
All Trustees and Officers as a 587,609 19.4%
group (6 persons)
- ------------
</TABLE>
* Shares held by Turkey Vulture Fund XIII, Ltd., an Ohio limited
liability company, of which Mr. Osborne is the sole manager.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective February 24, 1996, Meridian entered into an agreement with
E&L Associates, Inc. to provide asset management and other administrative
services to Meridian. E&L received a monthly fee of $10,000 plus reimbursement
for other expenses incurred on behalf of Meridian. During 1998, E&L received
management fees of $100,000. In connection with the sale of the Charleston
property, Meridian's last property, the former 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, Meridian's former President, Chief Executive Officer and a former
trustee, has an ownership interest. The agreement with E&L was terminated by the
current board of trustees on September 22, 1998.
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Before leaving office, the former board of trustees created the
Meridian Indemnity Trust to pay for the expense of defending themselves against
potential litigation. The Indemnity Trust was funded with $350,000 of Meridian
funds. On September 3, 1999, Meridian reached a settlement with the former
trustees and $281,000 of the funds in the Indemnity Trust was distributed to
Meridian. The remaining funds were used to pay the lawyers for the former
trustees.
In connection with the proxy solicitation by Meridian '83 Shareholders'
Committee for Growth in September 1998, Turkey Vulture Fund XIII, Ltd. incurred
expenses of $102,613. The current board of trustees authorized the reimbursement
of these expenses because of the benefit to Meridian of the proxy solicitation.
The reimbursement is conditioned upon the approval of the amendment to the
current declaration of trust and the reincorporation into a Maryland
corporation. Richard M. Osborne, Meridian's Chairman of the Board and Chief
Executive Officer, is the sole manager of the Turkey Vulture Fund.
PROPOSAL 5 -- APPROVAL OF THE 1999 STOCK OPTION PLAN
ALL MATERIAL 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 THIS PROXY STATEMENT/PROSPECTUS AND THE COMPLETE TEXT OF
THE 1999 STOCK OPTION PLAN ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX
F BEFORE YOU DECIDE HOW TO VOTE ON THIS PROPOSAL. ALL CAPITALIZED TERMS WHICH
ARE NOT DEFINED IN THIS PROPOSAL ARE DEFINED IN THE 1999 STOCK OPTION PLAN.
Set forth herein is a description of the material terms of Liberty's
1999 Stock Option Plan. The plan will be effective upon shareholder approval of
each of the plan, the amendment to the current declaration of trust, the
reincorporation into a Maryland corporation and the reorganization of Meridian
as an UPREIT. The plan permits the grant of non-statutory stock options,
incentive stock 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 incentive options within the meaning of Section 422 of the
Code, for the grant of non-statutory options to eligible employees, including
officers and directors, and non-employee directors and for the grant of
restricted share awards.
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
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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 incentive
options must be equal to or greater than 100% of the
fair market value of the common 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 incentive option shall be transferable by the optionee other
than by will, the laws of descent and distribution, and each incentive shall be
exercisable during the optionee's lifetime only by the optionee; and
(b) No non-statutory option may be sold, exchanged, pledged,
transferred, assigned or otherwise encumbered or disposed of, except as follows:
- to the spouse or any children or grandchildren of the
holder;
- as a charitable contribution or gift to or for the
use of any person or entity described in Section
170(c) of the Code;
- to any "controlled entity" as such term is defined in
the Code; or
- 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.
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The plan authorizes Liberty to make loans to optionees to enable them
to exercise their options. The loans must (1) provide for recourse to the
optionee, (2) bear interest at a rate no less than the prime rate of interest of
Liberty's principal lender, and (3) be secured by the common 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 of directors 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 specific
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 incentive and non-statutory
options. 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 common stock of Liberty covered by an option
shall be determined by the committee but may not be less than the fair market
value of the underlying common stock of Liberty on the date of grant. Incentive
options may only be granted to employees of Liberty. All incentive options must
be granted at fair market value or at 110% of fair market value in the case of
grants to 10% stockholders. No incentive options 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 common stock of Liberty, by foregoing compensation in accordance with
compensation committee rules or by a combination of these. Non-statutory options
may be exercisable for up to ten years at such exercise price and upon such
terms and conditions as the committee may determine.
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Restricted Shares. The plan authorizes the compensation 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 must be based on the attainment, by Liberty, of specific 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 compensation
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 the common stock of
Liberty.
SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Non-Statutory Stock Options.
Generally. An optionee generally will not recognize income
upon the grant of a non-statutory options. If an optionee receives unrestricted
common stock of Liberty upon the exercise of a non-statutory option, 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 common stock
of Liberty 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 incentive option. In addition, an optionee will not recognize income
upon the exercise of an incentive option if he or she satisfies specified
employment and holding period requirements. To satisfy the employment
requirement, an optionee generally must exercise the option not later than three
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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 common stock of
Liberty for more than two years from the grant of the option and more than one
year after the common stock of Liberty is transferred to him. If these
requirements are satisfied, upon the sale of common 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 common stock of Liberty and the net proceeds of the
sale.
Disqualifying Disposition. If common stock of Liberty acquired
upon the timely exercise of an incentive option is sold, exchanged or otherwise
disposed of without satisfying the holding period requirement, 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 common stock of Liberty
on the date of the exercise of the incentive option 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 incentive
option, 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. 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 options under the plan that were
granted, subject to approval of the Plan, on May 6, 1999 to executive officers
and non-executive 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.
-131-
<PAGE> 141
Number of Shares
Name Underlying Options
---- ------------------
Thomas J. Smith 100,000
Ronald L. Ramer 25,000
Jeffrey J. Heidnik 25,000
Non-Executive Officer Employees as a Group 30,000
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE APPROVAL OF LIBERTY'S 1999 STOCK
OPTION PLAN.
PROPOSAL 6 -- APPROVAL OF LEASE FOR EXECUTIVE OFFICES
ALL MATERIAL 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 BEFORE
YOU DECIDE HOW TO VOTE ON THIS PROPOSAL.
You are being presented with this proposal to vote on because the
current board, in its September 1998 proxy solicitation, promised to put to
a vote of shareholders any transaction that involved Mr. Osborne and his
companies. OsAir, Inc., the company that owns the building where the executive
offices are located, is owned by Mr. Osborne. Set forth below is a description
of the material terms of Liberty's lease for its executive offices. The lease is
effective upon shareholder approval of each of the lease, the amendment to the
current declaration of trust, the reincorporation into a Maryland corporation
and the reorganization of Meridian as an UPREIT.
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 Meridian and Liberty, pursuant to the lease
attached 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 Osborne's self-storage company. The lease is
for an initial term of five years commencing on the date of shareholder approval
of the lease, the amendment to the current declaration of trust, the
reincorporation into a Maryland corporation and the reorganization as an UPREIT.
Liberty has the option to renew the lease for five years. Rent for the initial
term is $4,000 per month, or approximately $8 per square foot per year, and
$5,000 per month for the renewal term.
-132-
<PAGE> 142
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE APPROVAL OF THE LEASE.
PROPOSAL 7 -- RATIFICATION OF INDEPENDENT AUDITORS
The board of trustees of Meridian has appointed Arthur Andersen LLP as
independent auditors of Meridian 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 special meeting. If the shareholders
ratify the appointment of Arthur Andersen and the reincorporation and the
reorganization of Meridian as an UPREIT is completed, Arthur Andersen will serve
as independent auditors of Liberty, as Meridian's successor. Meridian has been
advised by Arthur Andersen that neither it nor any of its associates has
any relationship with Meridian other than the usual relationship that exists
between independent certified public accountants and clients. Arthur Andersen
will have a representative at the special meeting who will have an opportunity
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
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
Meridian 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 Meridian as of December 31,
1998 and for the two years ended December 31,1998 and the balance sheet of
Liberty as of July 31, 1999, appearing elsewhere in this Proxy
Statement/Prospectus and Registration Statement have been audited by Arthur
Andersen LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere in this Proxy Statement/Prospectus and in the Registration
Statement and are included in reliance upon such reports, given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of the 15
self-storage facilities 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
-133-
<PAGE> 143
in this Proxy Statement/Prospectus 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 balance sheet of the Catawba, Ohio property as of June 29, 1997
and the related statements of income and retained earnings and cash flows for
the period January 1, 1997 to June 29, 1997 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 in this Proxy Statement/Prospectus 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 combined balance sheet of the East Canton and Louisville, Ohio
properties as of May 29, 1997 and the related combined statements of income and
proprietors' capital and cash flows for the period ended May 29, 1997 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 in this Proxy
Statement/Prospectus 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 balance sheet of the Avon, Ohio property as of November 26, 1997
and the related statements of income and proprietors' capital and cash flows
for the period ended November 26, 1997 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 in this Proxy Statement/Prospectus 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 balance sheet of the Canton, Ohio property as of April 21, 1997
and the related statements of income and proprietors' deficit and cash flows
for the period ended April 21, 1997 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 in this Proxy Statement/Prospectus 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 balance sheets of the Riverhead, New York property as of December
31, 1998 and 1997 and the related statements of income and retained earnings and
the statements of cash flows for years ended December 31, 1998 and 1997
appearing elsewhere in the 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 in this Proxy
Statement/Prospectus 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 the common stock of Liberty being issued in connection
with the reincorporation has been passed upon by Kohrman Jackson & Krantz
P.L.L., Cleveland, Ohio, counsel to Liberty. Kohrman Jackson & Krantz has passed
upon the federal income tax consequences of the reincorporation to the holders
of shares of beneficial interest of Meridian. Marc C. Krantz, who is a trustee
and Secretary of Meridian and a director and Secretary of Liberty, is also the
managing partner of Kohrman Jackson & Krantz.
REPORTS TO SHAREHOLDERS
Meridian, or if the reincorporation 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 Meridian does not know of any other matters to come
before the special meeting. However, if any other matters come before the
special 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 reincorporation is approved, who
wishes to submit a proposal for presentation at Liberty's 2000 annual
meeting of stockholders, must submit the proposal to Liberty at its office at
8500 Station Street, Suite 100, Mentor, Ohio 44060, Attention: Secretary, no
later than January 15, 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.
-134-
<PAGE> 144
You are urged to sign and return your proxy promptly to make certain
your shares will be voted at the special 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
-135-
<PAGE> 145
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
LIBERTY SELF-STOR, INC.
Report of Independent Public Accountants ......................................................................F-1
Balance Sheet as of July 31, 1999..............................................................................F-2
Notes to Balance Sheet ........................................................................................F-3
MERIDIAN POINT REALTY TRUST '83
Report of Independent Public Accountants.......................................................................F-6
Balance Sheets as of December 31, 1998 and 1997 and June 30, 1999 (Unaudited)..................................F-7
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
and the six months ended June 30, 1999 and 1998 (Unaudited).................................................F-8
Statements of Shareholders' Equity for the years ended December 31, 1998, 1997
and 1996 and the six months ended June 30, 1999 (Unaudited).................................................F-9
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 and the six months ended
June 30, 1999 and 1998 (Unaudited)..........................................................................F-10
Notes to Financial Statements .................................................................................F-12
INITIAL PROPERTIES
Independent Auditors' Report ..................................................................................F-18
Balance Sheets as of December 31, 1998 and 1997 and June 30, 1999 (Unaudited)..................................F-19
Statements of Members' Deficit for the years ended December 31, 1998 and 1997 and the six months ended
June 30, 1999 (Unaudited)...................................................................................F-21
Statements of Operations for the years ended December 31, 1998 and 1997 and the six months ended
June 30, 1999 and 1998 (Unaudited)..........................................................................F-22
Statements of Cash Flows for the years ended December 31, 1998 and 1997 and the six months ended
June 30, 1999 and 1998 (Unaudited)..........................................................................F-23
Notes to Financial Statements .................................................................................F-25
Schedule I ....................................................................................................F-35
CATAWBA, OHIO PROPERTY
Report of Independent Public Accountants ......................................................................F-37
Balance Sheet as of June 29, 1997 .............................................................................F-38
Statement of Income and Retained Earnings for the period January 1, 1997
to June 29, 1997 ...........................................................................................F-39
Statement of Cash Flows for the period January 1, 1997 to June 29, 1997 .......................................F-40
Notes to Financial Statements .................................................................................F-41
EAST CANTON AND LOUISVILLE, OHIO PROPERTIES
Report of Independent Public Accountants ......................................................................F-43
Combined Balance Sheet as of May 29, 1997 .....................................................................F-44
Combined Statement of Income and Proprietors' Capital for the period
ended May 29, 1997 .........................................................................................F-45
Combined Statements of Cash Flows for the period ended May 29, 1997 ...........................................F-46
Notes to Combined Financial Statements ........................................................................F-47
AVON, OHIO PROPERTY
Report of Independent Public Accountants ......................................................................F-50
Balance Sheet as of November 26, 1997 .........................................................................F-51
Statement of Income and Proprietors' Capital for the period ended November 26, 1997 ...........................F-52
Statement of Cash Flows for the period ended November 26, 1997 ................................................F-53
Notes to Financial Statements .................................................................................F-54
CANTON, OHIO PROPERTY
Report of Independent Public Accountants ......................................................................F-56
Balance Sheet as of April 21, 1997 ............................................................................F-57
Statement of Income and Proprietors' Deficit for the period ended April 21, 1997 ..............................F-58
Statement of Cash Flows for the period ended April 21, 1997 ...................................................F-59
Notes to Financial Statements .................................................................................F-60
RIVERHEAD, NEW YORK PROPERTY
Report of Independent Public Accountants ......................................................................F-62
Balance Sheets as of December 31, 1998 and 1997, and May 26, 1999 (Unaudited) .................................F-63
Statements of Income and Retained Earnings for the years ended December 31, 1998 and 1997,
the six months ended June 30, 1998 and the year ended May 26, 1999 (Unaudited) ............................F-64
Statements of Cash Flows for the years ended December 31, 1998 and 1997 .......................................F-65
Notes to Financial Statements .................................................................................F-66
</TABLE>
<PAGE> 146
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Liberty Self-Stor, Inc.:
We have audited the accompanying balance sheet of Liberty Self-Stor, Inc. (a
Maryland corporation) as of July 31, 1999. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. 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
audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Liberty Self-Stor, Inc. as of July
31, 1999, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cleveland, Ohio,
August 9, 1999.
F-1
<PAGE> 147
LIBERTY SELF-STOR, INC.
-----------------------
BALANCE SHEET
-------------
JULY 31, 1999
-------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------
CASH $100
----
SHAREHOLDER'S EQUITY
--------------------
SERIAL PREFERRED STOCK, par value $0.001, 2,000,000 shares authorized, no
shares issued and outstanding $ -
COMMON STOCK, par value $0.001, 50,000,000 shares authorized, 1,000 shares
issued and outstanding 1
ADDITIONAL PAID-IN CAPITAL 99
----
Total shareholder's equity $100
====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE> 148
LIBERTY SELF-STOR, INC.
-----------------------
NOTES TO BALANCE SHEET
----------------------
AS OF JULY 31, 1999
-------------------
1. ORGANIZATION AND FORMATION:
---------------------------
Liberty Self-Stor, Inc. ("Liberty") was incorporated May 12, 1999 for the
purpose of succeeding to and continuing the business of Meridian Point Realty
Trust '83 (the "Company"), a publicly-traded real estate investment trust
("REIT"), upon consummation of certain reorganization transactions (the
"Reorganization"). The Reorganization will be effected pursuant to mergers
whereby (i) the Company will be merged with and into Liberty Self-Stor Limited
Partnership, a Maryland limited partnership (the "Partnership"), and (ii) the
Partnership will be merged with and into Liberty. Liberty will be the surviving
entity after the mergers. The separate existence of the Company will terminate
and 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 cancelled 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 those
of Liberty. For federal income tax and financial reporting purposes, Liberty
will be considered to be the same entity as the Company.
Upon consummation of the Reorganization, Liberty and the members of Liberty
Self-Stor, Ltd., an Ohio limited liability company (the "Ohio LLC"), which will
own 16 self-storage facilities (the "Properties"), will form LSS I Limited
Partnership, a Delaware limited partnership ("LSS I"). Richard M. Osborne, the
Chairman of the Board and Chief Executive Officer of the Company ("Osborne")
owns with an affiliate, approximately 98.6% of the Ohio LLC; the remaining 1.4%
is owned by the President of the Company and the wife of Mr. Osborne.
The partnership agreement provides that each member of the Ohio LLC will
exchange his or her membership interest in the Ohio LLC for Class A limited
partnership interests in LSS I. Liberty will assume the debt of the Ohio LLC at
the time of contribution of the membership interests. 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 sole general
partnership interest and Class B limited partnership interests. The Class A
limited partnership interests will be redeemable for cash or, at the election of
Liberty, convertible into shares of Liberty stock, on a one-for-one basis. The
Class B limited partnership interests will not be entitled to redemption or a
preferred return. It is currently estimated that Liberty and the members of the
Ohio LLC will have 29.9% and 70.1% equity interests in LSS I, respectively.
After completion of the Reorganization and the formation transactions discussed
above, LSS I will own and operate the Properties.
F-3
<PAGE> 149
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Principles of Consolidation
- ---------------------------
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 Class A limited partnership interests issued to
the members of the Ohio LLC. The reported income of Liberty in the first
reporting period following consummation of the Reorganization and the formation
transactions will include the results of operations of LSS I from the date of
consummation forward.
Acquisition of Properties
- -------------------------
The consummation of the LSS I formation transactions discussed in Note 1 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 Company.
Federal Income Taxes
- --------------------
Upon consummation of the Reorganization, Liberty intends to be taxed as a REIT,
pursuant to section 856 (c)(1) of the Internal Revenue Code of 1986, as amended.
As Liberty had no operating results as of July 31, 1999, no accrued or deferred
tax liabilities are reflected in the accompanying balance sheet.
3. DESCRIPTION OF CAPITAL STOCK:
-----------------------------
Common Shares
- -------------
Holders of Liberty's common shares are entitled to receive dividends, when, as
and if declared by the Board of Directors, out of funds legally available
therefor. The common shares possess ordinary voting rights, each share entitling
the holder thereof to one vote. The holders of common shares, upon any
liquidation, dissolution, or winding-up of Liberty, are entitled to share
ratably in any assets remaining after payment in full of all liabilities of
Liberty and all preferences of the holders of any outstanding preferred shares.
Holders of common shares do not have cumulative voting rights in the election of
directors and do not have preemptive rights.
Preferred Shares
- ----------------
The Board of Directors is authorized to provide for the issuance of one or more
classes or series of preferred shares with such voting rights, full or limited,
or without voting rights, and with certain designations, preferences and
relative, participating, optional or special rights, and qualifications,
limitations or restrictions. An aggregate of two million preferred shares are
authorized.
F-4
<PAGE> 150
4. EMPLOYEE BENEFITS:
------------------
Long-Term Incentive Plan
- ------------------------
The 1999 Stock Option Plan (the "Plan") permits the grant of nonstatutory stock
options ("NSSOs"), incentive stock options ("ISOs" and together with NSSOs,
"Options"), and restricted shares. The Plan was adopted to attract and retain
qualified and competent persons who are key to Liberty, including key employees,
officers and directors. The Plan provides for the grant to employees of ISOs
within the meaning of Section 422 of the Code, for grant of NSSOs to eligible
employees (including officers and directors) and non-employee directors and for
the grant of restricted share awards. Liberty may grant up to 300,000 options or
restricted shares pursuant to the Plan. 180,000 options have been granted to
date.
The Plan will be administered by the Compensation Committee of the Board of
Directors, which will designate those persons to whom such options or restricted
share awards are to be granted and shall determine 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.
Options granted under the Plan are subject to certain restrictions, including:
(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 and
(2) no option may be exercisable after the expiration of ten years from the date
of its grant.
Liberty will follow the disclosure option in Statement of Financial Accounting
Standard No. 123, Accounting for Stock-Based Compensation, and accordingly, no
expense will be recognized for options granted.
Compensation of Directors
- -------------------------
Liberty will pay each Trustee (with the exception of three trustees) an annual
fee of $5,000 in shares of Liberty. In addition, Liberty will pay each Trustee
$250 in cash for each Board meeting the Trustee participates in.
Employment Contracts
- --------------------
Liberty is a party to an employment agreement with Mr. Thomas Smith, president
of Liberty. The employment agreement provides for a two year term commencing on
the date of approval by the shareholders of the reincorporation, with automatic
one-year renewal periods, and (i) base annual salary, and (ii) discretionary
bonus, as determined by the Board of Directors.
F-5
<PAGE> 151
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-6
<PAGE> 152
MERIDIAN POINT REALTY TRUST '83
-------------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
ASSETS
------ December 31,
------------------------------- June 30,
1998 1997 1999
--------------- -------------- ---------------
(Unaudited)
ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 600,173 $ 2,886,339 $ 235,324
Investments in mortgage-related assets, at market value
1,205,722 - 1,313,312
Restricted cash 357,728 - 361,408
Other assets, net 14,453 21,052 220,960
--------------- -------------- --------------
Total assets $ 2,178,076 $ 2,907,391 $ 2,131,004
=============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Accounts payable $ 185,567 $ 102,057 $ 196,860
Accrued liabilities -- -- 7,600
--------------- -------------- --------------
Total liabilities 185,567 102,057 204,460
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) (23,860,768)
--------------- -------------- --------------
Total shareholders' equity 1,992,509 2,805,334 1,926,544
--------------- -------------- --------------
Total liabilities and shareholders' equity $ 2,178,076 $ 2,907,391 $ 2,131,004
=============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
F-7
<PAGE> 153
<TABLE>
<CAPTION>
MERIDIAN POINT REALTY TRUST '83
-------------------------------
STATEMENTS OF OPERATIONS
------------------------
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------- -------------------------
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 44,652 38,333
------------ ------------- ------------- ----------- ----------
Total revenues 101,893 1,180,360 2,291,763 44,652 38,333
------------ ------------- ------------- ----------- ----------
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 54,602 40,913
General and administrative, including
amounts paid to related parties of
$133,000, $75,000, $56,000, $0 and $79,050
respectively 575,461 354,684 276,283 56,015 163,281
Depreciation, amortization and other 13,017 16,154 372,240 - -
------------ ------------- ------------- ----------- ----------
Total expenses 914,718 1,133,151 2,194,595 110,617 204,194
------------ ------------- ------------- ----------- ----------
(Loss) income before gain on sale of property
and extraordinary item (812,825) 47,209 97,168 (65,965) (165,861)
Gain on sales of properties - 4,528,701 2,582,606 - -
------------ ------------- ------------- ----------- ----------
(Loss) income before extraordinary item (812,825) 4,575,910 2,679,774 (65,965) (165,861)
Extraordinary item -
Prepayment penalty on paydown of debt - (189,070) - - -
------------ ------------- ------------- ----------- ----------
Net (loss) income $(812,825) $4,386,840 $2,679,774 $ (65,965) $(165,861)
============ ============= ============= =========== ==========
NET (LOSS) INCOME PER COMMON SHARE - BASIC AND
DILUTED:
(Loss) income before extraordinary item $ (.27) $ 1.51 $ .88 $ (0.02) $ (0.05)
Extraordinary item-
Prepayment penalty - (.06) - - -
------------ ------------- ------------- ----------- ----------
Net (loss) income per common share
$ (.27) $ 1.45 $ .88 $ (0.02) $ (0.05)
============ ============= ============= =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-8
<PAGE> 154
<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) - - - (65,965)
----------- ------------ -------------- ----------------
BALANCE, June 30, 1999 (unaudited) 3,031,618 $3,031,618 $22,755,694 $(23,860,768)
=========== ============ ============== ================
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-9
<PAGE> 155
<TABLE>
<CAPTION>
MERIDIAN POINT REALTY TRUST '83
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------- -------------------------
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 $ (65,965) $ (165,861)
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 - - 1,276 -
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) (3,680) -
Accounts receivable - 32,353 161,443 - -
Other assets, net 6,599 25,312 (129,724) (206,507) (34,162)
Accounts payable 83,510 88,918 (243,400) 11,293 (92,869)
Other liabilities - (192,354) (325,911) 7,600 -
-------------- --------------- ---------------- ------------ -----------
Net cash provided (used) in
operating activities (1,067,427) 1,602,571 (413,104) (255,983) (292,892)
-------------- --------------- ---------------- ------------ -----------
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) - - (1,106,186) (2,019,461)
Return of principal from mortgage-related
assets 800,721 - - 997,320 -
-------------- --------------- ---------------- ------------ -----------
Net cash provided (used) in
investing activities (1,218,739) 10,757,393 3,487,388 (108,866) (2,019,461)
-------------- --------------- ---------------- ------------ -----------
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-10
<PAGE> 156
<TABLE>
<CAPTION>
Six Months ended
Year Ended December 31, June 30,
------------------------------------------------ -------------------------
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 $ (364,849) $(2,312,353)
-------------- --------------- ---------------- ----------- -----------
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 $ 235,324 $ 573,986
============== =============== ================ =========== ===========
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-11
<PAGE> 157
MERIDIAN POINT REALTY TRUST '83
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND JUNE 30, 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-12
<PAGE> 158
5. INVESTMENTS IN MORTGAGE-RELATED ASSETS:
--------------------------------------
On June 29, 1998 and March 17 and June 21, 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 six months ended June 30, 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 June 30, 1999.
<TABLE>
<CAPTION>
Fair Market Value Fair Market Value
Stated as of as of
REMIC Series Interest Rate Maturity December 31, 1998 June 30, 1999
------------ --------------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
FHLMC 1458 GA 6.750% 05/15/04 $ 263,381 $ -
FNMA 96-2 B 7.500% 10/22/09 296,085 -
FHLMC 1432 E 6.750% 01/15/06 289,053 85,798
FHLMC 1472 E 6.250% 02/15/05 357,203 212,804
FHLMC 1732 E 6.500% 12/15/17 - 504,043
FNMA 93-250-A 6.150% 09/25/16 - 510,667
------------ ------------
$1,205,722 $ 1,313,312
============ ============
</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-13
<PAGE> 159
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 six months ending June 30, 1999 and 1998. During the three years ended
December 31, 1998 and the six months ending June 30, 1999 and 1998, the Company
had no dilutive securities outstanding.
During the year ended December 31, 1998 and the six months ending June 30, 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-14
<PAGE> 160
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 was dependent, in part, upon tax rules regarding
investments by REITs in certain types of non-real estate assets. On June 8,
1999, the Company entered into a Closing Agreement with the Internal Revenue
Service in which the IRS agreed to accept the Company's status as a REIT for
1997 and 1998.
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-15
<PAGE> 161
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 June 30, 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 six months ended
June 30, 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 $79,050, 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-16
<PAGE> 162
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-17
<PAGE> 163
[Letter head] Tischler, Beard, Wallace & Co., Ltd.
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' deficit, 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-18
<PAGE> 164
INITIAL PROPERTIES
BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
December 31,
------------------------- June 30,
1997 1998 1999
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT
Cash $ 27,410 $ 77,393 $ 738,920
Accounts receivable 36,051 36,420 37,686
Inventory, at cost 21,787 30,670 30,793
Other 10,820 7,825 49,905
----------- ----------- -----------
TOTAL CURRENT ASSETS 96,068 152,308 857,304
PROPERTY AND EQUIPMENT
Land 1,282,890 1,888,297 1,929,078
Buildings and improvements 6,069,168 10,351,583 11,501,475
Furniture and equipment 544,476 568,374 568,175
Vehicles and trailers 156,627 156,627 156,627
----------- ----------- -----------
8,053,161 12,964,881 14,155,355
Less: Accumulated depreciation 266,590 693,659 911,032
----------- ----------- -----------
7,786,571 12,271,222 13,244,323
OTHER
Construction in progress 683,535 -- --
Goodwill, net of amortization 941,656 917,656 1,005,448
Other 268,850 275,975 376,444
----------- ----------- -----------
1,894,041 1,193,631 1,381,892
----------- ----------- -----------
TOTAL ASSETS $ 9,776,680 $13,617,161 $15,483,519
=========== =========== ===========
</TABLE>
The accompanying notes are a part of the financial statements.
F-19
<PAGE> 165
INITIAL PROPERTIES
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
LIABILITIES
December 31,
---------------------------- June 30,
1997 1998 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT
Notes payable $ 2,222,203 $ 500,000 $ 500,000
Current maturities of long-term debt 200,094 330,928 407,014
Accounts payable 111,736 84,360 384,624
Accrued liabilities:
Real estate taxes 145,172 224,780 228,449
Other 64,915 49,678 51,352
Prepaid rent 83,181 143,900 173,719
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 2,827,301 1,333,646 1,745,158
LONG-TERM
Notes payable, net of current portion 9,856,784 15,837,872 17,440,221
Security deposits 31,192 47,155 49,809
------------ ------------ ------------
9,887,976 15,885,027 17,490,030
------------ ------------ ------------
TOTAL LIABILITIES 12,715,277 17,218,673 19,235,188
MEMBERS' DEFICIT
MEMBERS' DEFICIT (2,938,597) (3,601,512) (3,751,669)
------------ ------------ ------------
TOTAL LIABILITIES AND
MEMBERS' DEFICIT $ 9,776,680 $ 13,617,161 $ 15,483,519
============ ============ ============
</TABLE>
The accompanying notes are a part of the financial statements.
F-20
<PAGE> 166
INITIAL PROPERTIES
STATEMENTS OF MEMBERS' DEFICIT
================================================================================
MEMBERS' CAPITAL ACCOUNTS
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 June 30, 1999 146,350
Withdrawals from capital - January 1, 1999 through June 30, 1999 (57,500)
Net loss - June 30, 1999 (239,007)
-----------
Balance at June 30, 1999 ($3,751,669)
===========
The accompanying notes are a part of the financial statements.
F-21
<PAGE> 167
INITIAL PROPERTIES
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Six Months
Years ended December 31, Ended June 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 1,918,159 $ 2,465,981 $ 1,021,994 $ 1,500,788
OPERATING EXPENSES
Interest 1,185,629 1,200,292 513,905 585,818
Depreciation and amortization 499,683 557,783 342,064 250,245
Salaries and wages 856,863 519,585 244,430 304,766
Property taxes and insurance 206,031 337,663 109,326 197,043
General and administrative 452,749 207,619 92,339 207,352
Rent 185,528 170,777 90,737 77,340
Professional fees 121,482 102,862 57,346 15,807
Utilities 105,985 94,620 42,891 52,458
Advertising 74,816 90,576 41,955 39,553
Repairs and maintenance 58,998 53,355 13,828 14,992
Bad debts 55,437 39,180 14,890 24,650
Management fee 53,477 -- -- --
----------- ----------- ----------- -----------
3,856,678 3,374,312 1,563,711 1,770,024
----------- ----------- ----------- -----------
(1,938,519) (908,331) (541,717) (269,236)
OTHER INCOME
Gain on sale of property 3,380,262 -- -- 30,107
Gain on sale of securities 59,100 -- -- --
Interest 10,382 1,322 392 122
----------- ----------- ----------- -----------
3,449,744 1,322 392 30,229
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 1,511,225 ($ 907,009) ($ 541,325) ($ 239,007)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are a part of the financial statements.
F-22
<PAGE> 168
INITIAL PROPERTIES
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Six Months
Years ended December 31, Ended June 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,511,225 ($ 907,009) ($541,325) ($239,007)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation 362,665 427,070 240,161 217,373
Amortization 137,018 130,713 101,903 32,872
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) (4,213) (1,266)
(Increase) decrease in inventories (8,758) (8,883) (5,693) (123)
(Increase) decrease in other assets 148,407 (110,843) (12,696) (62,314)
Increase (decrease) in accounts payable (92,296) (27,376) (32,453) 300,264
Increase (decrease) in accrued taxes and other 42,826 141,053 60,631 37,816
----------- ----------- ----------- -----------
Total adjustments (2,834,266) 551,365 347,640 494,515
----------- ----------- ----------- -----------
NET CASH - OPERATING ACTIVITIES (1,323,041) (355,644) (193,685) 255,508
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (2,464,662) (1,597,978) (972,546) (486,651)
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) (972,546) (437,634)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions from member 821,661 1,063,593 453,440 146,350
Distributions to member (5,965,020) (138,171) (76,964) (57,500)
Issuance of additional debt 4,799,559 1,286,369 982,813 2,911,603
Repayments of debt (673,155) (208,186) (63,749) (2,156,800)
----------- ----------- ----------- -----------
NET CASH - FINANCING ACTIVITIES (1,016,955) 2,003,605 1,295,540 843,653
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (38,300) 49,983 129,309 661,527
CASH AT BEGINNING OF PERIOD 65,710 27,410 27,410 77,393
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 27,410 $ 77,393 $ 156,719 $ 738,920
=========== =========== =========== ===========
</TABLE>
The accompanying notes are a part of the financial statements.
F-23
<PAGE> 169
INITIAL PROPERTIES
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Six Months
Years ended December 31, Ended June 30,
------------------------- -------------------------
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 $ 2,802,651 $ -
=========== =========== =========== ===========
Debt assumed on property contributed by a member $ - $ 3,200,000 $ 3,200,000 $ -
=========== =========== =========== ===========
Purchase of property and equipment (net of cash
paid) for notes $10,423,022 $ 1,430,207 $ 1,430,207 $ 1,003,632
=========== =========== =========== ===========
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 $ 578,404 $ 585,818
=========== =========== =========== ===========
</TABLE>
The accompanying notes are a part of the financial statements.
F-24
<PAGE> 170
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 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:
NUMBER OF
LOCATION DATE OF PURCHASE STORAGE UNITS
-------- ---------------- -------------
Excludable
- ----------
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
Southold, 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
Riverhead, New York 5/26/99 183
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 June 30,
1999, only. The properties listed under the "Non-Excludable" category have also
been included in the accompanying statements from the date of purchase to June
30, 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-25
<PAGE> 171
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 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 six months ended June 30, 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 if 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, $240,161 , and $217,373 for the
years ended December 31, 1997 and 1998 and the six months ended June 30, 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-26
<PAGE> 172
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 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, $12,000, and $12,000 for the years ended December 31, 1997 and 1998 and
the six month periods ended June 30, 1998 and 1999, respectively. Accumulated
amortization of goodwill was $18,344, $42,344 and $54,344 at December 31, 1997
and 1998 and at June 30, 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, $18,472, and $17,538 for the
years ended December 31, 1997 and 1998 and for the six month periods ended June
30, 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 $62,823 at December 31, 1997
and 1998 and at June 30, 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, $66,855, and $2,772 for the years ended December 31, 1997
and 1998 and for the six month periods ended June 30, 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 $11,391 at December 31, 1997 and 1998 and
June 30, 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 "Amortization expense" 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-27
<PAGE> 173
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30,
NOTE 3 - MORTGAGES AND NOTES PAYABLE 1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<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 $9,535,411
Note payable to member, non-interest bearing, unsecured -- 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 1,248,272
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 --
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 939,135 926,787 920,370
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-28
<PAGE> 174
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- JUNE 30
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 8,948
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-29
<PAGE> 175
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
------------------ JUNE 30,
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 -- --
Mortgage note payable to a bank for construction and term financing of real
property, interest currently at a rate of 8.3%; See note (g) below,
amortized over a twenty year period with a maturity date of July 1, 2002
secured by certain real property, guaranteed by a member of the Company. -- -- 2,675,000
Mortgage note payable to a bank for construction and term financing of real
property, interest currently at a rate of 8.0%; See note (h) below, payable
monthly at $15,769 including interest following the construction phase,
amortized over a twenty year period with a maturity date of June 4, 2009,
secured by certain real property, guaranteed by a member of the Company. -- -- 1,210,907
Mortgage note payable to individuals in monthly installments of $5,207
including interest at 8.5%, payable on a conventional twenty year
amortization level, due June 2004, secured by certain real property. -- -- 599,043
</TABLE>
F-30
<PAGE> 176
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ JUNE 30,
NOTE 3 - MORTGAGES AND NOTES PAYABLE - (CONTINUED) 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 a rate of 8.3%; See note (i) below,
amortized over an eighteen year period with a maturity date of June 1,
2003, secured by certain real property, guaranteed by a member of the
Company. -- -- 345,000
Construction loan payable to a bank in monthly interest installments at
7.25%, with a maturity date of May 1, 2001, secured by certain real
property, guaranteed by a member of the Company. -- -- 136,155
Mortgage note payable to a bank for construction and term financing of real
property, interest currently at a rate of 8.3%; See note (j) below,
amortized over an eighteen year period with a maturity date of October 31,
2002 secured by certain real property, guaranteed by a member of the
Company. -- -- 100,448
----------- ------------ ------------
10,056,878 16,168,800 17,847,235
Less current maturities 200,094 330,928 407,014
----------- ------------ ------------
$ 9,856,784 $ 15,837,872 $ 17,440,221
=========== ============ ============
As of December 31, 1998, long-term debt matures as follows:
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-31
<PAGE> 177
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 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.
(g) The interest rate shall be computed as follows:
For the real property construction phase of this note commencing July 1,
1999 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 (July 1, 2000) is a variable rate equal to two
and one half 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.
F-32
<PAGE> 178
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 1998 and 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - MORTGAGES AND NOTES PAYABLE - (CONTINUED)
(h) The interest rate shall be computed as follows:
For the real property construction phase of this note commencing June 4,
1999 interest is at 8.0%. The rate commencing on the completion of the
construction phase (December 4, 1999) is a variable rate equal to two and
three quarters 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.
(i) The interest rate shall be computed as follows:
For the real property construction phase of this note commencing May 17,
1999 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 (June 1, 2000) is a variable rate equal to two
and one half 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.
(j) The interest rate shall be computed as follows:
For the real property construction phase of this note commencing July 1,
1999 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 (July 1, 2000) 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. The maturity date of this note
(October 31, 2002) is to be co-terminus with the first mortgage note,
pursuant to the note agreement.
F-33
<PAGE> 179
INITIAL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 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 June 30, 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 $24,000 for the both the six month periods
ended June 30, 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 and unsecured.
F-34
<PAGE> 180
SCHEDULE I
LIBERTY SELF-STOR LTD.
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
COSTS CAPITALIZED SUBSEQUENT GROSS AMOUNTS AT WHICH
INTITAL COST TO ACQUISITION CARRIED AT CLOSE OF PERIOD
--------------------- ---------------------------- ------------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ------------- ---- ------------ ---- ------------ ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIBERTY SELF-STOR,
CLEVELAND, OHIO $1,263,684 $ 251,836 $ 0 $ 0 $1,032,316 $ 251,836 $ 1,032,316 $ 1,284,152
AVON, OHIO 1,481,492 86,462 778,001 -- 547,052 86,462 1,325,053 1,411,515
MENTOR, OHIO 1,171,143 320,500 1,289,267 -- -- 320,500 1,289,267 1,609,767
EAST CANTON, OHIO 489,343 35,249 71,566 -- 2,449 35,249 74,015 109,264
WILLOUGHBY, OHIO 1,511,525 300,000 -- 850 1,053,721 300,850 1,053,721 1,354,571
CATAWBA, OHIO 1,142,805 98,683 106,907 -- 268,591 98,683 375,498 474,181
CANTON, OHIO 1,102,256 38,425 285,764 -- 15,018 38,425 300,782 339,207
EAST LIVERPOOL, OHIO 970,668 99,980 758,740 -- -- 99,980 758,740 858,720
LOUISVILLE, OHIO 1,244,610 52,732 328,999 -- 7,236 52,732 336,235 388,967
RAVENNA, OHIO 444,857 37,899 268,264 103,894 -- 141,793 268,264 410,057
PERRY, OHIO 1,983,073 101,706 490,652 -- 710,259 101,706 1,200,911 1,302,617
DAYTON, OHIO 622,800 60,815 497,393 -- 11,874 60,815 509,267 570,082
ENDICOTT, NEW YORK 729,565 117,710 723,478 -- 7,305 117,710 730,783 848,493
LONG ISLAND, NEW YORK -- 181,556 1,018,445 -- 13,545 181,556 1,031,990 1,213,546
HEADQUARTERS,
MENTOR, OHIO -- -- -- -- 64,741 -- 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 $12,239,880
=========== ========== ========== ======== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
ACCUMULATED DEPRECIATION IN
DEPRECIATION NET BOOK VALUE STATEMENTS OF
BUILDINGS AND BUILDINGS AND DATE OF DATE OF OPERATIONS
DESCRIPTION IMPROVEMENTS IMPROVEMENTS CONSTRUCTION ACQUISITION IS COMPUTED
----------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
LIBERTY SELF-STOR,
CLEVELAND, OHIO $ 62,099 $ 1,222,053 N/A 1996 15 - 39 YEARS
AVON, OHIO 31,347 1,380,168 1998 1997 39 YEARS
MENTOR, OHIO 26,627 1,583,140 N/A 1998 7 - 39 YEARS
EAST CANTON, OHIO 3,932 105,332 N/A 1997 7 - 39 YEARS
WILLOUGHBY, OHIO 38,348 1,316,223 N/A 1996 7 - 39 YEARS
CATAWBA, OHIO 7,441 466,740 1997 1997 39 YEARS
CANTON, OHIO 17,849 321,358 N/A 1997 7 - 39 YEARS
EAST LIVERPOOL, OHIO 42,962 815,758 N/A 1996 39 YEARS
LOUISVILLE, OHIO 15,113 373,854 N/A 1997 7 - 39 YEARS
RAVENNA, OHIO 12,773 397,284 1997 1997, 1998 7 - 39 YEARS
PERRY, OHIO 24,476 1,278,141 N/A 1997 39 YEARS
DAYTON, OHIO 22,137 547,945 N/A 1997 7 - 39 YEARS
ENDICOTT, NEW YORK 39,855 808,638 N/A 1996 15 - 39 YEARS
LONG ISLAND, NEW YORK 14,355 1,199,191 N/A 1998 39 YEARS
HEADQUARTERS,
MENTOR, OHIO 2,974 61,767 N/A 1997 39 YEARS
-------- ----------- ---- ---------- -------------
TOTAL $362,288 $11,877,592
======== ===========
</TABLE>
F-35
<PAGE> 181
SCHEDULE I (CONTINUED)
INITIAL PROPERTIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998
------------ ------------
Reconciliation of land, buildings and improvements:
<S> <C> <C>
Balance at beginning of period $ 11,487,852 $ 7,352,058
Additions - improvements 13,697,730 4,902,822
Retirements (17,833,524) (15,000)
------------ ------------
Balance at end of period $ 7,352,058 $ 12,239,880
============ ============
Reconciliation of accumulated depreciation:
Balance at beginning of period $ 425,792 $ 108,627
Depreciation expense 203,419 253,661
Retirements (520,584) --
------------ ------------
Balance at end of period $ 108,627 $ 362,288
============ ============
</TABLE>
F-36
<PAGE> 182
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Aqua Marine Custom Canvas, Inc.
Catawba, 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-37
<PAGE> 183
<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-38
<PAGE> 184
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-39
<PAGE> 185
<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-40
<PAGE> 186
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 Catawba, 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-41
<PAGE> 187
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-42
<PAGE> 188
[TISCHLER, BEARD, WALLACE & CO., LTD. LETTERHEAD]
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kenneth & Janet Schalmo
East Canton and Louisville, 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-43
<PAGE> 189
<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-44
<PAGE> 190
<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-45
<PAGE> 191
<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-46
<PAGE> 192
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-47
<PAGE> 193
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-48
<PAGE> 194
<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-49
<PAGE> 195
[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-50
<PAGE> 196
<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-51
<PAGE> 197
<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-52
<PAGE> 198
<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-53
<PAGE> 199
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-54
<PAGE> 200
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-55
<PAGE> 201
[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-56
<PAGE> 202
<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-57
<PAGE> 203
<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-58
<PAGE> 204
<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-59
<PAGE> 205
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-60
<PAGE> 206
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-61
<PAGE> 207
[Letter head] Tischler, Beard, Wallace & Co., Ltd.
--------------------------------------------------
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-62
<PAGE> 208
STORAGETOWN EAST, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
December 31,
------------------- May 26,
1997 1998 1999
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT
Land $113,107 $113,107 $113,107
Buildings and improvements 424,120 424,120 424,120
-------- -------- --------
537,227 537,227 537,227
Less: Accumulated depreciation 248,033 269,240 278,077
-------- -------- --------
289,194 267,987 259,150
CASH 2,203 10,578 4,955
TRADE ACCOUNTS RECEIVABLE 8,391 8,143 7,476
ADVANCES TO SHAREHOLDER 21,161 -- --
PREPAID EXPENSES 9,438 1,824 1,074
-------- -------- --------
TOTAL ASSETS $330,387 $288,532 $272,655
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
MORTGAGE NOTES PAYABLE $282,886 $220,968 $213,556
ACCRUED EXPENSES AND OTHER LIABILITIES
Security deposits 8,954 9,910 9,965
Other 3,706 5,148 13,568
-------- -------- --------
12,660 15,058 23,533
-------- -------- --------
TOTAL LIABILITIES 295,546 236,026 237,089
COMMON STOCK
No par value, 500 shares authorized, issued
and outstanding 10,000 10,000 10,000
RETAINED EARNINGS 24,841 42,506 25,566
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 34,841 52,506 35,566
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $330,387 $288,532 $272,655
======== ======== ========
</TABLE>
The accompanying notes are a part of the financial statements.
F-63
<PAGE> 209
STORAGETOWN EAST, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, Six Months Year
---------------------- Ended Ended
1997 1998 June 30, 1998 May 26, 1999
--------- --------- ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
RENTAL INCOME $ 175,601 $ 174,950 $ 86,726 $ 70,401
OPERATING EXPENSES
Wages 29,544 27,344 12,617 10,361
Depreciation 20,968 21,207 10,604 8,837
Interest expense 22,548 20,656 12,927 8,432
Real estate taxes 18,299 18,404 9,137 8,272
Administrative 9,014 9,353 4,946 4,474
Utilities 5,810 7,011 2,952 4,454
Repairs and maintenance 3,298 4,263 1,948 2,049
Advertising 2,492 2,256 1,062 780
--------- --------- --------- ---------
111,973 110,494 56,193 47,659
--------- --------- --------- ---------
NET INCOME 63,628 64,456 30,533 22,742
RETAINED EARNINGS - BEGINNING 13,984 24,841 24,841 42,506
DISTRIBUTIONS (52,771) (46,791) (8,236) (39,682)
--------- --------- --------- ---------
RETAINED EARNINGS - ENDING $ 24,841 $ 42,506 $ 47,138 $ 25,566
========= ========= ========= =========
</TABLE>
The accompanying notes are a part of the financial statements.
F-64
<PAGE> 210
STORAGETOWN EAST, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, Six Months Year
---------------------- Ended Ended
1997 1998 June 30, 1998 May 26, 1999
--------- --------- ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 63,628 $ 64,456 $ 30,533 $ 22,742
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 20,968 21,207 10,604 8,837
Increase (decrease) in accounts receivable
and prepaid expenses (12,924) 7,862 1,054 1,417
Increase (decrease) in accrued expenses
and other liabilities (930) 2,398 326 8,475
--------- --------- --------- ---------
Total adjustments 7,114 31,467 11,984 18,729
--------- --------- --------- ---------
NET CASH - OPERATING ACTIVITIES 70,742 95,923 42,517 41,471
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of building improvements (9,450) -- -- --
Repayment of shareholder advances -- 21,161 21,161 --
--------- --------- --------- ---------
NET CASH - INVESTING ACTIVITIES (9,450) 21,161 21,161 --
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages and notes (15,405) (61,918) (53,300) (7,412)
Distributions paid (52,771) (46,791) (8,236) (39,682)
--------- --------- --------- ---------
NET CASH - FINANCING ACTIVITIES (68,176) (108,709) (61,536) (47,094)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (6,884) 8,375 2,142 (5,623)
CASH AT BEGINNING 9,087 2,203 2,203 10,578
--------- --------- --------- ---------
CASH AT END $ 2,203 $ 10,578 $ 4,345 $ 4,955
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the periods:
Interest $ 22,735 $ 20,846 $ 13,020 $ 8,432
========= ========= ========= =========
</TABLE>
The accompanying notes are a part of the financial statements.
F-65
<PAGE> 211
STORAGETOWN EAST, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 1998 and
May 26, 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
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-66
<PAGE> 212
STORAGETOWN EAST, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of June 30, 1998 and
May 26, 1999
and for the periods then ended are unaudited)
- --------------------------------------------------------------------------------
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
Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------- May 26,
1997 1998 1999
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Mortgage note payable to a bank, with principal and
interest payments of $3,131, interest at 9%,
secured by real property $237,886 $220,968 $213,556
Mortgage note payable to an individual, due on demand,
non-interest bearing, secured by real property 45,000 -- --
-------- -------- --------
$282,886 $220,968 $213,556
======== ======== ========
</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-67
<PAGE> 213
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> 214
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> 215
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> 216
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.
2
<PAGE> 217
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
Jeffrey J. Heidnik Vice President of Operations
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) Each share 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 one Share
(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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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> 223
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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"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> 225
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 75%; 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 75% 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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"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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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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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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(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.
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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> 250
(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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<PAGE> 251
Annex C
AMENDED AND RESTATED
FORMATION AGREEMENT
This Amended and Restated Formation Agreement is made and entered into
this 27th day of October, 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 M. 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 98.6% 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> 252
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 cash, other assets and 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 101,392 general partnership interests and 2,930,226 Class B limited
partnership interests and to R. M. Osborne, Smith, D. Osborne and RMC 7,107,573
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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CALCULATIONS OF NET ASSET VALUE TO BE CONTRIBUTED
IN THE REORGANIZATION
<TABLE>
<CAPTION>
COMBINED
LIBERTY OHIO LLC TOTAL
------- -------- -----
<S> <C> <C> <C>
Cash and cash equivalents $ 1,910,044 $ 738,920 $ 2,648,964
Appraised value of the 15 self-storage facilities -- 23,620,000 23,620,000
Other assets (1) 220,960 118,384 339,344
Mortgages, lines of credit and other liabilities -- (18,347,235) (18,347,235)
Accounts payable and other payables (204,460) (887,953) (1,092,413)
-------------- ----------------- -----------------
Total net asset value $ 1,926,544 $ 5,242,116 $ 7,168,660
Payment of transaction cost -0- (725,000) (725,000)
-------------- ----------------- -----------------
Net asset value contributed to LSS I $ 1,926,544 $ 4,517,116 $ 6,443,660
============= ================= =================
Percentage of net asset value contributed 29.9% 70.1% 100.0%
Allocation of ownership interests in LSS I 29.9% 70.1% 100.0%
</TABLE>
(1) For the Ohio LLC, excludes goodwill of $1,005,448 and other assets of
$376,444 leaving accounts receivable of $37,686 and inventory and other
assets of $80,698.
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.
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
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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.
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(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 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 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 January 31, 2000.
(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:
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(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 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
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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 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;
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(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;
(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 January
31, 2000 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
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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 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
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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
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
$725,000, 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
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<PAGE> 262
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
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.
12
<PAGE> 263
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.
13
<PAGE> 264
IN WITNESS WHEREOF, the undersigned have executed this Agreement this
27th day of October, 1999.
MERIDIAN POINT REALTY TRUST `83,
a California business trust
By:
----------------------------------------
Title:
-------------------------------------
LIBERTY SELF-STOR, INC.
a Maryland corporation
By:
----------------------------------------
Title:
-------------------------------------
RETIREMENT MANAGEMENT COMPANY
an Ohio corporation
By:
----------------------------------------
Title:
-------------------------------------
LIBERTY SELF-STOR, LTD.,
an Ohio limited liability company
By:
----------------------------------------
Title:
-------------------------------------
---------------------------
RICHARD M. OSBORNE
---------------------------
THOMAS J. SMITH
---------------------------
DIANE M. OSBORNE
14
<PAGE> 265
SCHEDULE I
SCHEDULE OF SELF-STORAGE FACILITIES
<TABLE>
<CAPTION>
YEAR BUILT/ RENTABLE
LOCATION EXPANDED SQUARE FT. ACRES UNITS CONSTRUCTION
-------- -------- ---------- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
OHIO:
Avon 1981-1986/1998 67,423 6.1225 495 Masonry & Steel
998 Avon Belden Road
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> 266
<TABLE>
<CAPTION>
YEAR BUILT/ RENTABLE
LOCATION EXPANDED SQUARE FT. ACRES UNITS CONSTRUCTION
-------- -------- ---------- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Willoughby 1997 33,998 2.37 276 Masonry
38255 St. Clair Street
Willoughby, Ohio 44094
NEW YORK
Endicott 1989 35,580 4.993 297 Concrete/Steel Roof
1400 Campville Road
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>
<PAGE> 267
SCHEDULE II
PERMITTED ENCUMBRANCES TO THE SELF-STORAGE FACILITIES
The Willoughby, Perry, Canton, Catawba, East Canton, Louisville,
Ravenna, East Liverpool, Dayton, and Endicott facilities are all encumbered by
mortgages which secure a $10,300,000 loan from Provident Bank to the Ohio LLC.
The loan is at a variable rate of interest equal to 2.25% over the average yield
on U.S. 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 payments are $84,367 per month. The loan is
personally guaranteed by Richard M. Osborne.
The Dayton facility is further encumbered by a mortgage securing a
$720,000 construction and development loan from Provident Bank. As of June 30,
1999, $100,448 has been drawn on the loan for construction expenditures.
Interest during the construction phase of the loan is at the prime rate of
Provident Bank. Upon completion of the construction phase, estimated to be
completed by July 1, 2000, the interest on the loan adjusts to 7.72%. Then the
loan will be adjusted to a variable rate equal to 2.25% above the then current
weekly average yield on U.S. Treasury Securities adjusted to the constant
maturity of two years. Monthly payments after the construction phase will be
amortized over an 18-year period. This note is personally guaranteed by Mr.
Osborne.
The Catawba facility is further encumbered by a mortgage securing a
$265,087 construction and development loan from Provident Bank to the
self-storage company. The loan has an initial interest rate equal to the prime
rate, which as of July 1, 1999 converted 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 Mr. Osborne
The Avon facility is encumbered by a mortgage securing a $554,704
construction and development loan from Provident Bank. 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 facility is
also encumbered by a $940,000 loan, maturing October 31, 2002, from Provident
Bank, guaranteed by Mr. 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 facility is encumbered by a mortgage securing a $1,884,000
construction and development loan from The Peoples Banking Company. As of June
30, 1999, $1,210910 has been drawn on the loan for construction expenditures.
Interest during the construction phase of the loan is fixed at 8.0%. Upon
completion of the construction phase, estimated to be completed by December 4,
1999, the interest on the loan adjusts to a variable rate equal to 2.75% above
the then current weekly average yield on U.S. Treasury Securities adjusted to
the constant maturity
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<PAGE> 268
of three years. Monthly payments after the construction phase will be at $15,769
including interest amortized over a 20-year period. This note is personally
guaranteed by Mr. Osborne.
The Southold facility is encumbered by a mortgage with Provident Bank
in the amount of $2,675,000, which matures July 2002. Current monthly payments
are $17,296. 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 for 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 Mr. Osborne.
The East Liverpool facility is encumbered by a $250,000 mortgage with
Rt. 11 Storage Park, Inc. Current monthly payments are $2,000. This note is
guaranteed by Mr. Osborne.
The Cleveland facility 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 Mr. Osborne. The Cleveland facility is further encumbered by a
$300,000 construction loan with Shore Bank, Cleveland. As of June 30, 1999,
$136,155 has been drawn on the loan for construction expenditures. Interest is
payable monthly at 7.25%. The first monthly payment of $2,397 is due September
1, 1999 with 20 regular monthly payments following until a balloon payment of
$290,816 is due on May 1, 2001. This note is personally guaranteed by Mr.
Osborne.
The Riverhead facility is encumbered by a mortgage with James R. Stark
and Patricia Stark in the amount of $600,000, maturing June 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 facility is encumbered by a second mortgage with Provident Bank in the
amount of $345,000, maturing in June 2003. Current monthly payments are $2,260.
Interest is at prime rate until June 1, 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 18-year
amortization. This note is guaranteed by Mr. Osborne.
<PAGE> 269
SCHEDULE III
PERMITTED ENCUMBRANCES TO MERIDIAN
1. Meridian Point Realty Trust '83 Indemnity Trust Agreement, as of
September 1998, as amended, by and between Meridian and
U.S. Trust Company, N.A.
<PAGE> 270
Annex D
FORM OF
AGREEMENT OF LIMITED PARTNERSHIP
OF
LSS I LIMITED PARTNERSHIP
Dated: , 1999
<PAGE> 271
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
<PAGE> 272
<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
<PAGE> 273
<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> 274
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., a Maryland 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> 275
"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> 276
"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> 277
"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
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"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 thirty (30) 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
transfer 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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<PAGE> 301
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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<PAGE> 302
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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<PAGE> 303
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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<PAGE> 304
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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<PAGE> 307
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)
34
<PAGE> 308
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)
35
<PAGE> 309
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)
36
<PAGE> 310
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)
37
<PAGE> 311
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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<PAGE> 312
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
A-1
<PAGE> 313
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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<PAGE> 314
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.
B-2
<PAGE> 315
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. Beginning on [one year from the
consummation of the transactions], each Class A Limited Partner, 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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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) Unless the General Partner (in its sole and absolute
discretion) elects 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, the General Partner itself
shall have no obligation to the Redeeming Partner or to the Partnership with
respect to the Redeeming Partner's exercise of the Redemption Right.
(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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(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.
(f) Notwithstanding the provisions of Section 2 and this Section 3,
a Limited Partner shall not be entitled to receive REIT Shares if the delivery
of REIT Shares to such Partner on the Redemption Date by the General Partner
pursuant to this Section 3 would be prohibited under the Articles of
Incorporation. The Cash Purchase Price shall be paid in such instance in
accordance with the terms of Section 2.
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> 323
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
D-4
<PAGE> 324
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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<PAGE> 325
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> 326
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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<PAGE> 327
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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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: _______________________.
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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 reincorporation and reorganization of Meridian
(the "Reorganization"). 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 an umbrella partnership real estate
investment trust ("UPREIT") which will own interests in its affiliated operating
partnership, LSS I. We have been advised that Liberty will contribute
approximately [$1,926,000] of cash and marketable securities and other assets
(net of liabilities) 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 will own [fifteen] self-storage
properties at the time of closing of the Reorganization (the "Ohio LLC"), will
contribute all of their ownership interests in the Ohio LLC subject to existing
debt of approximately [$18,347,000] for which a principal of the Ohio LLC will
remain a guarantor, and approximately [$30,000] of other net liabilities to LSS
I in exchange for Class A limited partnership interests in LSS I. We have also
been advised that for the purpose of determining the allocation of interests in
LSS I, the net asset value of the Ohio LLC will be reduced by the costs of the
Reorganization, which management estimates will total approximately [$725,000].
We have been further advised by Meridian and the Ohio LLC that the
percentage economic interest of Liberty in LSS I will be [approximately 29.9%]
and the percentage economic interest of the current members of the Ohio LLC in
LSS I will be [approximately 70.1%] as a result of such allocations.
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 in substantially the
form 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 fifteen real properties owned
by the Ohio LLC, interests in which will be contributed to LSS I in
connection with the Reorganization (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 and Forms 10-QSB filed with the SEC for the quarters ending March
31, 1999 and June 30, 1999;
o Reviewed the financial statements of the Ohio LLC for the fiscal year
ending December 1998 and the quarters ending March 31, 1999 and June
30, 1999;
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 Liberty and the Ohio LLC,
and the methodology used to determine the allocation of interests in
LSS I between Liberty 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 Meridian and the Ohio LLC by management as of June 30, 1999
based on: (i) an appraisal provided by Stanger of the estimated value of the
portfolio of fifteen self-storage properties owned by the Ohio LLC as of March
31, 1999; (ii) valuations made by the management of the Ohio LLC and Meridian of
other assets and liabilities as of June 30, 1999 which will be contributed by
Meridian and the members of the Ohio LLC or assumed by Liberty in the
Reorganization; and (iii) adjustments made by management to the foregoing values
to reflect costs of the Reorganization. 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.
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Stanger believes that basing such allocations on the value of net
assets contributed to LSS I is fair from a financial point of view. 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 value of the portfolio of fifteen self-storage properties 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 (c)
express any opinion as to (i) the fact that the members of the Ohio LLC could as
a result of the Reorganization be in a position to control voting decisions of
Liberty; (ii) the tax consequences of the Reorganization for the Shareholders or
for Meridian or Meridian's qualifications as a REIT; (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 (other than the fairness of the allocations)
including, but not limited to, the provisions of Liberty's articles of
incorporation or LSS I's partnership agreement, or the amounts or allocations of
transaction costs; (b) the relative value of the shares of Meridian, Liberty and
the partnership interests to be issued in the Reorganization; (c) the prices at
which the shares of Liberty may trade following the Reorganization 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.
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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 Reorganization 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
Reorganization 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> 335
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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<PAGE> 346
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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<PAGE> 347
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> 352
(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> 353
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> 354
(Printed Name of Witness)
- -----------------------------
(Signature of Witness)
- -----------------------------
(Printed Name of Witness)
11
<PAGE> 355
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> 356
11
EXHIBIT "A"
NONE
13
<PAGE> 357
MERIDIAN POINT REALTY TRUST '83
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
FOR THE SPECIAL MEETING OF SHAREHOLDERS IN LIEU OF THE ANNUAL MEETING OF
SHAREHOLDERS ON DECEMBER 28, 1999
The undersigned hereby constitutes and appoints Thomas J. Smith and
Marc C. Krantz, and each of them, his true and lawful agents and proxies with
full power of substitution in each, to represent the undersigned at the Special
Meeting of Shareholders in lieu of the Annual Meeting of Shareholders of
Meridian Point Realty Trust '83 ("Meridian") to be held at 1375 East Ninth
Street, 20th Floor, One Cleveland Center, Cleveland, Ohio 44114 on Tuesday,
December 28, 1999, at 10:00 a.m., local time, and at any adjournments thereof,
on all matters coming before said meeting. Consummation of each of proposals 1,
2 and 3 is contingent upon approval of each.
THE BOARD RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 4
AND "FOR" PROPOSALS 1, 2, 3, 5, 6 AND 7.
1. Approval of the amendment to Meridian's Amended and Restated
Declaration of Trust.
FOR / / AGAINST / / ABSTAIN / /
2. Approval of the reincorporation of Meridian from a California common
law business trust into Liberty Self-Stor, Inc., a Maryland
corporation and wholly-owned subsidiary of Meridian.
FOR / / AGAINST / / ABSTAIN / /
3. Approval of the acquisition of Liberty Self-Stor, Ltd., a company
controlled by Richard M. Osborne, Meridian's and Liberty's Chairman of
the Board and Chief Executive Officer, through the reorganization of
Meridian as an umbrella partnership real estate investment trust.
FOR / / AGAINST / / ABSTAIN / /
<PAGE> 358
4. Election of trustees: Steven A. Calabrese, Mark D. Grossi, Marc C.
Krantz, Richard M. Osborne and Thomas J. Smith
FOR / / WITHHELD / /
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S): / /
---------------------------------------------------------------------
5. Approval of the 1999 Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
6. Approval of the lease with OsAir, Inc., a company owned by Richard M.
Osborne, Meridian's and Liberty's Chairman of the Board and Chief
Executive Officer, for Liberty Self-Stor, Inc.'s executive offices.
FOR / / AGAINST / / ABSTAIN / /
7. Ratification of Arthur Andersen LLP as Meridian's (and Liberty's, as
Meridian's successor) independent accountants for the fiscal year
ending December 31, 1999.
FOR / / AGAINST / / ABSTAIN / /
SEE REVERSE SIDE PROXY
<PAGE> 359
DETACH CARD
- --------------------------------------------------------------------------------
PROXY NO. SHARES
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
Dated ________________, 1999
----------------------------
Signature
----------------------------
Signature
----------------------------
Title
NOTE: Please sign as name
appears hereon. Joint owners
should each sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such.
<PAGE> 360
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Maryland General Corporation Law 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
incorporation of Liberty Self-Stor, Inc. contain a provision which eliminates
such liability to the maximum extent permitted by Maryland law.
The articles of incorporation 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 Maryland law requires a corporation, unless its articles of
incorporation 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 Maryland law 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
Maryland law, 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, Maryland law permits a
II-1
<PAGE> 361
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 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
_________ __, 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 Opinion of Kohrman Jackson & Krantz P.L.L.
8.1 Opinion of Kohrman Jackson & Krantz, P.L.L.
10.1 Form of Lease Agreement, dated as of _________ __, 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.
10.3 First Amendment to Formation Agreement, dated as of
August 11, 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.
10.4 Second Amendment to Formation Agreement, dated September
13, 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.
10.5 Form of Agreement of Limited Partnership of LSS I Limited
Partnership, dated as of ________, 1999, by and among
Liberty Self-Stor, Inc., the general
II-2
<PAGE> 362
partner and the limited partners listed on Exhibit A
attached thereto (attached to this Proxy
Statement/Prospectus as Annex D)
10.6 Employment Agreement, dated as of _________, 1999,
between Liberty Self-Stor, Inc. and Thomas J. Smith
10.7 Closing Agreement on Final Determination Covering Specific
Matters, dated June 8, 1999, between Meridian Point
Realty Trust '83 and the Internal Revenue Service
10.8 Amended and Restated Formation Agreement, dated as of
October 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 M.
Osborne, and Retirement Management Company (attached
to this Proxy Statement/Prospectus as Annex C).
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Tischler, Beard, Wallace & Co., Ltd.
99.1 Summary Portfolio Appraisal Report by Robert A. Stanger &
Co., Inc.
99.2 Limited Summary Real Estate Appraisal Report for the
Dayton, Ohio facility by Robert A. Stanger & Co., Inc.
prepared for Provident Bank
99.3 Limited Summary Real Estate Appraisal Report for the
Riverhead, New York facility by Robert A. Stanger & Co.,
Inc. prepared for Provident Bank
99.4 Limited Summary Real Estate Appraisal Report for the
Southold, New York facility by Robert A. Stanger & Co.,
Inc. prepared for Provident Bank
(b) Financial Statement Schedules
All schedules are omitted as inapplicable.
(c) Appraisal
Filed as Exhibits 99.1, 99.2, 99.3 and 99.4.
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 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 post-effective 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
II-3
<PAGE> 363
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.
(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> 364
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Amendment No. 5 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 October 28, 1999.
LIBERTY SELF-STOR, INC.
/s/ Thomas J. Smith
-------------------------------
By: Thomas J. Smith
Its: President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 5 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>
Richard M. Osborne* Chairman of the Board and
- ---------------------------- Chief Executive Officer
Richard M. Osborne
/s/ Ronald L. Ramer Chief Financial Officer October 28, 1999
- ------------------------------
Ronald L. Ramer
/s/ Thomas J. Smith President and Director October 28, 1999
- -------------------------------
Thomas J. Smith
Steven A. Calabrese* Director
- -----------------------------
Steven A. Calabrese
Mark D. Grossi* Director
- --------------------------------
Mark D. Grossi
Marc C. Krantz* Secretary and Director
- --------------------------------
Marc C. Krantz
*By: /s/ Thomas J. Smith October 28, 1999
----------------------------
Thomas J. Smith
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 365
EXHIBIT INDEX
No. Description
- --- -----------
2.1 * Form of Agreement and Plan of Merger, dated as of ______ __,
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 ** Opinion of Kohrman Jackson & Krantz P.L.L.
8.1 ** Opinion of Kohrman Jackson & Krantz P.L.L.
10.1 * Form of Lease Agreement, dated as of ______ __, 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
10.3 * First Amendment to Formation Agreement dated as of August 11,
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
10.4 * Second Amendment to Formation Agreement, dated September 13,
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
10.5 * 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)
10.6 * Form of Employment Agreement, dated as of _________, 1999,
between Liberty Self-Stor, Inc. and Thomas J. Smith
10.7 * Closing Agreement on Final Determination Covering Specific
Matters, dated June 8, 1999, between Meridian Point Realty
Trust '83 and the Internal Revenue Service
10.8 * Amended and Restated Formation Agreement, dated as of
October 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 M.
Osborne, and Retirement Management Company (attached to
this Proxy Statement/Prospectus as Annex C).
23.1 ** Consent of Arthur Andersen LLP
23.2 ** Consent of Tischler, Beard, Wallace & Co., Ltd.
99.1 * Summary Portfolio Appraisal Report by Robert A. Stanger & Co.,
Inc.
99.2 ** Limited Summary Real Estate Appraisal Report for the
Dayton, Ohio facility by Robert A. Stanger & Co., Inc.
prepared for Provident Bank
99.3 ** Limited Summary Real Estate Appraisal Report for the
Riverhead, New York facility by Robert A. Stanger & Co.,
Inc. prepared for Provident Bank
99.4 ** Limited Summary Real Estate Appraisal Report for the
Southold, New York facility by Robert A. Stanger & Co.,
Inc. prepared for Provident Bank
- -----------
*Previously filed
**Filed herewith
II-6
<PAGE> 1
[KOHRMAN JACKSON & KRANTZ LETTERHEAD]
Exhibit 5.1
October 28, 1999
Liberty Self-Stor, Inc.
8500 Station Street, Suite 100
Mentor, Ohio 44060
RE: ISSUANCE OF SHARES OF COMMON STOCK BY LIBERTY SELF-STOR, INC.
Dear Sir or Madam:
We have acted as counsel to Liberty Self-Stor, Inc., a Maryland
corporation ("Liberty"), in connection with the issuance of 3,031,618 shares of
its common stock, par value $0.001 per share (the "Shares"), in connection with
the merger between Liberty and Meridian Point Realty Trust '83, a
self-liquidating, finite-life California business trust ("Meridian"). Liberty
has filed a Registration Statement on Form S-4, as amended, under the Securities
Act of 1933, as amended (the "Securities Act") with respect to the shares to be
issued in connection with the merger (the "Registration Statement"). We are
delivering this opinion at the request of Liberty.
In connection herewith, we have examined and relied upon the original or a
copy, certified to our satisfaction, of: (i) the Articles of Incorporation and
the Bylaws of Liberty; (ii) the form of the Agreement and Plan of Merger by and
among Meridian, Liberty Self-Stor Limited Partnership, a Maryland limited
partnership, and Liberty (the "Agreement"); (iii) resolution of the Board of
Directors of Liberty authorizing the issuance of the Shares; and (iv) such other
documents and instruments as we have deemed necessary for the expression of the
opinion contained herein (collectively, the "Documents").
We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, and the conformity to original
documents of all documents submitted to us as certified or photostatic copies.
We have made such investigations of law as we deemed appropriate as a basis for
rendering the opinions expressed below. In addition, as to various questions of
fact material to the opinions, we have relied on instruments and other
certificates of public officials, representatives of Liberty, and such other
persons as we deem appropriate, and upon documents, records and instruments
furnished to us by Liberty, without independently checking or verifying the
accuracy of such instruments, certificates, documents and records.
One Cleveland, Center, 20th Floor 1375 East Ninth Street
Cleveland, Ohio 44114-1793
Voice 216-696-8700 Fax 216-621 6536
<PAGE> 2
KOHRMAN JACKSON & KRANTZ P.L.L.
Liberty Self-Stor, Inc.
Page 2
October 28, 1999
Based upon the foregoing examination and in reliance thereon, and subject
to the assumptions stated and in reliance on statements of fact contained in the
documents that we have examined, and subject to the receipt from the Securities
and Exchange Commission of an order declaring the Registration Statement
effective under the Securities Act and compliance with applicable state
securities laws, we are of the opinion that the Shares to be issued by Liberty
are duly and validly authorized and will, when issued in conformity with the
terms of the Agreement as described in the Registration Statement, be validly
issued, fully paid and non-assessable.
The foregoing opinions are limited to matters of federal law and the laws
of the State of Maryland. The information set forth herein is as of the date of
this opinion letter, and we disclaim any undertaking to advise you of any
changes which thereafter may be brought to our attention.
We bring to your attention that Marc C. Krantz, a partner of this firm, is
the Secretary of Meridian and Liberty, a trustee of Meridian and a director of
Liberty.
The opinion set forth herein is for the use and benefit of Liberty and its
stockholders in connection with the transactions contemplated by the
Registration Statement upon the understanding that we are not hereby assuming
any professional responsibility to any other person whatsoever, and are not to
be quoted in whole or in part or otherwise referred to in any documents or
instruments, or relied upon by any other person or entity, without our prior
written consent. We consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and the Prospectus that
forms a part thereof. In giving these consents, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act, or the rules and regulations of the Securities and Exchange
Commission.
Sincerely,
KOHRMAN JACKSON & KRANTZ P.L.L.
/s/ Kohrman Jackson & Krantz P.L.L.
<PAGE> 1
KOHRMAN [Logo] Celebrating Exhibit 8.1
JACKSON & 30 years of
KRANTZ P.L.L. Expertise
ATTORNEYS AT LAW Innovation
Excellence
October 28, 1999
Meridian Point Realty Trust `83,
Liberty Self-Stor, Inc. and
Liberty Self-Stor Limited Partnership
8500 Station Street, Suite 100
Mentor, Ohio 44060
Re: FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED MERGERS OF
MERIDIAN POINT REALTY TRUST `83, LIBERTY SELF-STOR, INC.
AND LIBERTY SELF-STOR LIMITED PARTNERSHIP
Gentlemen:
We have acted as your general counsel with respect to the
proposed mergers whereby (i) Meridian Point Realty Trust `83, a California
business trust ("Meridian"), will merge with and into Liberty Self-Stor Limited
Partnership, a Maryland limited partnership and an indirect wholly-owned
subsidiary of Meridian (the "Partnership"), and (ii) the Partnership will merge
with and into the Liberty Self-Stor, Inc., a Maryland corporation and a
wholly-owned subsidiary of Meridian ("Liberty"), pursuant to the Agreement and
Plan of Merger, by and among Meridian, the Partnership and Liberty (the "Merger
Agreement"). Furthermore, Liberty shall conduct its business as an umbrella
partnership real estate investment trust, or UPREIT, through the formation of an
operating partnership, known as LSS I Limited Partnership, a Delaware limited
partnership, to own and operate self-storage facilities contributed by members
of the Liberty Self-Stor, Ltd., (the proposed mergers and UPREIT formation are
together referred to as the "Reorganization"). You have requested our opinion
with respect to certain United States federal income tax consequences of the
Reorganization.
In connection with our opinion herein, we have examined the form of
the Merger Agreement, the Amended and Restated Formation Agreement, a form of
the Partnership Agreement for LSS I Limited Partnership, and the Registration
Statement on Form S-4, as amended (No. 333-78479) filed by Liberty with the
Securities and Exchange Commission with respect to the registration of the
common stock of Liberty to be issued in connection with the Reorganization (the
"Registration Statement" and, together with the other above-mentioned documents,
the "Reorganization Documents") and such other documents, records and matters of
law as we have deemed necessary or appropriate in connection with rendering this
opinion.
ONE CLEVELAND CENTER, 20TH FLOOR 1375 EAST NINTH STREET CLEVELAND, OHIO
44114-1793
VOICE 216 - 696 - 8700 FAX 216 - 621 - 6536
<PAGE> 2
KOHRMAN JACKSON & KRANTZ P.L.L.
Meridian Point Realty Trust '83
Liberty Self-Stor, Inc. and
Liberty Self-Stor Limited Partnership
October 28, 1999
Page 2
In opining herein, we have assumed the genuineness of all signatures
and the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or duplicate copies thereof. We have further assumed that the execution and
delivery of any of the Reorganization Documents, or that any unexecuted
Reorganization Documents have been or will be executed substantially in the
form and content reviewed by us, have been duly authorized by all necessary
action, and that they are the valid and legally binding obligations of the
parties thereto, enforceable in accordance with their terms, except as such
enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance,
fraudulent transfer, reorganization, moratorium or other similar laws, both
state and federal, affecting the enforcement of creditors' rights or remedies
in general from time to time in effect and the exercise by courts of their
equity powers or their application of principles of public policy.
In addition, we have made the following assumptions as to factual
matters in rendering the opinions set forth below:
(a) the representations and warranties of the parties contained in
the Reorganization Documents and in the certificate of
officers of Meridian ("Meridian Certificate") are true,
complete and correct in all respects as of the date hereof;
(b) the Reorganization, and all transactions related thereto or
contemplated by the Reorganization Documents, will be
consummated in accordance with the terms and conditions of the
Reorganization Documents and any other applicable documents;
(c) neither Meridan, Liberty nor the Partnership will make any
amendments to their organizational documents, the
Reorganization Documents or any other agreements, after the
date of this opinion that would affect their qualification as
a real estate investment trust (a "REIT") for U.S.
federal income tax purposes for any taxable year; and
(d) no action will be taken by Meridian, Liberty or the
Partnership after the date hereof that would have the effect
of altering the facts upon which the opinions set forth below
are based.
In opining herein, we have made no independent investigation of the
applicable facts other
<PAGE> 3
KOHRMAN JACKSON & KRANTZ P.L.L.
Meridian Point Realty Trust '83
Liberty Self-Stor, Inc. and
Liberty Self-Stor Limited Partnership
October 28, 1999
Page 3
than a review of (a) information in our files, (b) representations and
certificates of officers of the parties, and (c) warranties and
representations as to certain factual matters contained in the Reorganization
Documents and the Meridian Certificate.
Based on the documents and assumptions set forth above and the
discussion in the Prospectus under the caption "Federal Income Tax Matters"
(which is incorporated herein by reference) and subject to the qualifications
and exceptions set forth below, we are of the opinion that:
1. The mergers of Meridian with and into the Partnership and
the merger of the Partnership with and into Liberty, pursuant to the Merger
Agreement, will qualify as mergers under applicable state corporate, partnership
and business trust law;
2. For Liberty's first taxable year, Liberty will qualify to
be taxed as a REIT pursuant to ss. 856 through 860 of the Internal Revenue Code
of 1986, as amended (the "Code"), and Liberty's organization and proposed method
of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code;
3. The Reorganization will constitute a tax-free
reorganization within the meaning of s.368(a) of the Code.
4. No gain or loss will be recognized by Meridian as a result
of the Reorganization.
5. No gain or loss will be recognized by a shareholder of
Meridian who receives common stock of Liberty in exchange for shares of
beneficial interest of Meridian.
6. The aggregate tax basis of common stock of Liberty received
by shareholders of Meridian in the Reorganization will be the same as the
aggregate tax basis of the shares of beneficial interest of Meridian surrendered
in exchange therefor, reduced by any amount allocable to any fractional share
interest of shareholders of Meridian for which cash is received.
7. The holding period of the common stock of Liberty received
by each
<PAGE> 4
KOHRMAN JACKSON & KRANTZ P.L.L.
Meridian Point Realty Trust '83
Liberty Self-Stor, Inc. and
Liberty Self-Stor Limited Partnership
October 28, 1999
Page 4
shareholder of Meridian in the Reorganization will include the period for which
the shares of beneficial interest of Meridian surrendered in exchange therefor
was considered to be held, provided that the shares of beneficial interest of
Meridian so surrendered are held as capital assets at the time of the
Reorganization.
The foregoing opinions are subject to the following qualifications and
exceptions:
(a) Liberty's qualification and taxation as a REIT depends upon both
Meridian's satisfaction in the past, and Liberty's ability to meet on a
continuing basis in the future, through actual annual operating and other
results, the various requirements under the Code with respect to, among other
things, the sources of its gross income, the composition of its assets, the
levels of distributions to shareholders and the diversity of its stock
ownership. We have not reviewed, audited or opined as to Meridian's compliance
with these matters. Accordingly, no assurance can be given that Meridian
qualified as a REIT in any taxable year. In the event that Meridian failed to
qualify as a REIT in any taxable year, Liberty would not be able to elect to be
treated as a REIT for the four taxable years after the year during which
Meridian ceased to qualify as a REIT and would be subject to taxation as a
regular corporation during such period. In addition, we will not review or
audit on a continuing basis Liberty's compliance with these matters.
Accordingly, no assurance can be given that the actual results of Liberty's
operations for any given taxable year will satisfy the requirements for
qualification and taxation as a REIT.
(b) The opinions set forth above are based on and limited to
currently existing provisions of the Code, existing regulations thereunder
(including final, temporary or proposed), and current federal administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences
described herein. No opinion is rendered with respect to the effect, if any, of
any pending or future legislation or administrative regulation or ruling that
may have a bearing on any of the foregoing. The opinions represent only our best
judgment as to the federal income tax consequences of the proposed
reincorporation and are not binding on the Internal Revenue Service or the
courts.
(c) We have not been asked to render an opinion with respect
to any federal income tax matters except those set forth above, and we have not
been asked to render an opinion with respect to any foreign, state or local tax
consequences of the Reorganization. Accordingly, the opinions set forth herein
should not be construed as applying in any manner to any tax aspect of the
Reorganization other than as set forth above.
(d) The opinions set forth herein do not address all federal
income tax considerations that may be relevant to shareholders of Meridian in
light of their particular circumstances, such as shareholders who are dealers in
securities, who are subject to the alternative minimum tax provisions of the
Code, who are foreign persons or who acquired their shares in connection with
stock options or stock purchase plans or in other compensatory transactions.
<PAGE> 5
KOHRMAN JACKSON & KRANTZ P.L.L.
Meridian Point Realty Trust '83
Liberty Self-Stor, Inc. and
Liberty Self-Stor Limited Partnership
October 28, 1999
Page 5
(e) All factual assumptions set forth above are material to
all opinions rendered herein and have been relied upon by us in rendering such
opinions. Any material inaccuracy in any one or more of the assumed facts may
nullify some or all of the conclusions stated in such opinions.
We bring to your attention that Marc C. Krantz, a partner of this firm,
is the Secretary of Meridian and Liberty, a trustee of Meridian and a director
of Liberty.
This opinion is for the use and benefit of Meridian, the Partnership,
Liberty and their respective shareholders or partners in connection with the
transactions contemplated by the Registration Statement upon the understanding
that we are not hereby assuming any professional responsibility to any other
person whatsoever, and are not to be quoted in whole or in part or otherwise
referred to in any documents or instruments, or relied upon by any other person
or entity, without our prior written consent. The information set forth herein
is as of the date of this opinion letter, and we disclaim any undertaking to
advise you of any changes which thereafter may be brought to our attention. We
consent to the filing of this opinion as an exhibit to the Registration
Statement, and we further consent to the use of our name under the caption
"Legal Matters" in the Registration Statement and the Prospectus that forms a
part thereof. In giving these consents, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission.
Sincerely,
KOHRMAN JACKSON & KRANTZ P.L.L.
/s/ Kohrman Jackson & Krantz P.L.L.
<PAGE> 1
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
Amendment No. 5 to this Registration Statement (Registration No. 333-78479)
and related Proxy Statement/Prospectus of Liberty Self-Stor, Inc.
/s/ Arthur Andersen LLP
Cleveland, Ohio
October 28, 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 and May 26, 1999 in Amendment No. 5 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
10,259,283 shares of its common stock.
/s/ Tischler, Beard, Wallace & Co., Ltd.
Cleveland, Ohio
October 28, 1999
<PAGE> 1
EXHIBIT 99.2
LIMITED SUMMARY REAL ESTATE APPRAISAL REPORT
SELF-STORAGE FACILITY AND EXPANSION
LIBERTY SELF-STOR DAYTON
3785 SHILOH SPRINGS ROAD
TROTWOOD, OHIO 45426
<PAGE> 2
April 22, 1999
Provident Bank
1111 Superior Avenue
Cleveland, OH 44114-2522
RE: Limited summary appraisal of an existing
19,550 net rentable square foot self-
storage/warehouse facility known as
Liberty Self-Stor Dayton and a proposed
27,700 net rentable square foot expansion,
located at 3785 Shiloh Springs Road,
Trotwood, Ohio.
Gentlemen:
You have engaged Robert A. Stanger & Co., Inc. ("Stanger") to estimate
the market value of the above referenced property (the "Property") currently
owned by Liberty Self-Stor, Ltd. (hereafter referred to as "Liberty"). Such
appraisal reflects the estimated market value "As Is" of the fee simple interest
in the Property as of March 15, 1999. Additionally, we have been engaged to
provide value estimates "As Complete" (as of the anticipated construction
completion date) and "As Complete, As Stabilized". These estimates are included
in the Reconciliation of this report. The subject property presently consists of
a 19,550 net rentable square foot self-storage facility. A 27,700 square foot
addition is proposed. The "As Complete - As Stabilized" value assumes completion
of construction of the expansion and the lease up of the facility to market
occupancy on or before December 1, 2000. This limited summary appraisal report
is prepared in accordance with an agreement between Robert A. Stanger & Co.,
Inc., Provident Bank and Liberty Self-Stor dated April 16, 1999. Such agreement
is attached as an exhibit to this report.
Our valuation has been based in part upon information supplied to us by
Liberty including, but not limited to: descriptions of the subject property,
unit mix, site plans, statements of net operating income, proposed building or
expansion plans and other supporting data. We have relied upon such information
and have assumed that the information provided is accurate and complete. Our
value estimate is based upon the assumption that the improvements will be
constructed as per the specifications provided. We have not attempted to
independently verify such information.
i
<PAGE> 3
We are advised by Provident Bank that the purpose of the appraisal is
to estimate the value of the Property "As Is" under present market conditions
and prospective values "As Complete" and "As Complete, As Stabilized". Stanger
understands that the valuation may be reviewed and utilized in connection with a
proposed financing, and Stanger agrees to the use of this report for this
purpose subject to the terms and conditions of the agreement related thereto
dated April 16, 1999. However, the attached appraisal report should be reviewed
in its entirety and is subject to the assumptions and limiting conditions
contained herein.
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 total
market value of the Property, "As Is", "As Complete" and "As Complete, As
Stabilized." Neither Stanger nor the undersigned have any present or
contemplated future interest in the Property or in Liberty Self-Stor.
The appraisal is only an estimate of the market value of the Property
"As Is" 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 Property. 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 valuation report provides our value conclusion with respect to the
Property, definitions of value, and discussions of the valuation methodology
employed, assumptions, and limiting conditions. The attached exhibits are an
integral part of this report.
Sincerely,
/s/ Cornelius J. Guiney
Cornelius J. Guiney, MAI
General Real Estate Appraiser
Ohio Certificate Number 398544
/s/ Thad Q. Simmons
Thad Q. Simmons
Inspecting Appraiser
ii
<PAGE> 4
IDENTIFICATION OF SUBJECT PROPERTY
----------------------------------
The subject of this appraisal is the real property known as Liberty
Self-Stor Dayton, a 19,550 net rentable square foot self-storage facility
located at 3785 Shiloh Springs Road, Trotwood, Montgomery County, Ohio 45426.
Additions totaling 27,700 net rentable square feet of self storage space are
proposed for the subject. This assignment is to value the subject "As Is" and
prospective values "As Complete" (as of the anticipated construction completion
date) and "As Complete, As Stabilized".
PURPOSE OF APPRAISAL
--------------------
The purpose of this appraisal is to estimate the market value of the
fee simple interest in the Property "As Is" under market conditions as of March
15, 1999. The "As Complete" value is a prospective value as of the date of the
completion of the proposed additions, which is estimated by Liberty management
to be July 1, 1999. The "As Complete, As Stabilized" value assumes completion of
construction and lease up of the facility to market occupancy on or before
December 1, 2000.
Pursuant to the terms of our engagement, the property valuation was
performed using a limited summary format and should not be construed as a self
contained report. Summary appraisal reports are generally limited in scope and
constitute an informed assessment of a property's value. Effective July 1, 1994,
the Appraisal Standards Board revised the Departure Provision of the Uniform
Standards of Professional Appraisal Practice to permit three levels of written
reports, known as self-contained, summary and restricted appraisal reports.
These changes have been adopted to minimize the cost for banks and borrowers.
At the request of the client, therefore, the appraisal and some of the
information contained in the report is summarized. Precautions have been taken,
however, to insure that the report is not so limited as to mislead or confuse
the reader.
FUNCTION OF APPRAISAL
---------------------
The function of this appraisal is to provide a current estimate of
market value "As Is" of the fee simple interest in the Property for use by
Provident Bank in connection with a proposed financing of the Property.
Additionally, estimates of two prospective values, "As Complete" and "As
Complete, As Stabilized" have been requested and are included in the
Reconciliation of this report.
SCOPE OF APPRAISAL
------------------
1
<PAGE> 5
This limited summary appraisal report has been prepared in conformity
with the Uniform Standards of Professional Appraisal Practice of the Appraisal
Institute and in accordance with an agreement between Robert A. Stanger & Co.,
Inc., Provident Bank and Liberty Self-Stor dated April 16, 1999. Pursuant to
that agreement, Stanger has relied upon the Income Approach, Sales Comparison
Approach and Cost Approach to value the subject property.
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 estimate 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 property valuation was
performed using the Income Approach, Sales Comparison Approach and Cost
Approach. Since the primary buyer group for the type of property appraised
herein is investors, the Income Approach and Sales Comparison Approach were
considered the primary 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 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.
Unless otherwise stated in the report, the existence of hazardous
materials, which may or may not be present at the Property, was not disclosed to
the Appraiser by the owner. The Appraiser has no knowledge of the existence of
such materials on or in the Property, nor is the Appraiser qualified to detect
such hazardous substances. The presence of substances such as asbestos,
ureaformaldehyde foam insulation, oil spills, or other potentially hazardous
materials may affect the value of the Property. The Property value estimate is
predicated on the assumption that there is no such material on or in the
Property 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.
DATE OF VALUATION
-----------------
The date of valuation for the Property is March 15, 1999.
2
<PAGE> 6
MARKET VALUE DEFINITION
-----------------------
Market value shall mean, as used in this report and defined by the
Appraisal Standards Board:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is not
affected by undue stimulus. 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 acting in what they
consider their 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: Uniform Standards of Professional Appraisal Practice, Appraisal
Standards Board.)
The property rights appraised in this report consist of a fee simple
interest. Due to the short-term month-to-month tenancies in a self storage
facility, a fee simple interest was deemed appropriate. 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.
This appraisal includes the value of land, land improvements such as
paving, fencing, on-site sewer and water lines and the buildings. This 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. This appraisal pertains only to those items which are considered
real estate.
3
<PAGE> 7
HIGHEST AND BEST USE ANALYSIS
-----------------------------
The term "highest and best use," as used in this report, is defined as
follows:
"The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible and that results in the highest value."
(Source: Appraisal Institute, The Appraisal of Real Estate, Eleventh
Edition).
The four criteria that highest and best use must meet are legal
permissibility, physical possibility, financial feasibility, and maximum
productivity.
A full land use feasibility study was not performed. The highest and
best use conclusions are based on general observations in the market, land use
patterns, and prevailing economic conditions.
HIGHEST AND BEST USE "AS IF VACANT"
- -----------------------------------
Legally Permissible: Legal factors influencing the highest and best use
of the subject site are primarily related to governmental restrictions in the
form of zoning regulations. The subject site is zoned PUD, and self-storage is
the only permitted use. The subject was formerly zoned B-2 under the Madison
Township, a commercial designation that does not allow self storage. However,
the use was erroneously permitted by the township. When Trotwood incorporated
Madison Township, the use was allowed under the "grandfather clause." However,
when ownership applied for permits to expand, the local authorities indicated
that the zoning would have to be changed for approval. PUD is a special
designation that is applied to specific uses on a case-by-case basis, and the
subject was approved for self-storage only.
Physically Possible: The pertinent physical factors affecting the
highest and best use of the subject site fall under two categories: site
characteristics and location characteristics. Site characteristics include size,
dimensions, topography, soil conditions, and the availability of adequate
utilities. Location factors include access to transportation, availability of
labor and materials, proximity to markets, the impact of the surrounding
neighborhood, and conditions of the market within which the property will
operate. The subject site has adequate area (5.001 acres) and dimensions to
accommodate the development of the subject's permissible use of self storage.
The subject site is primarily at street grade, and is not subject to flooding.
The site's shape and topography are suitable for development.
Financially Feasible: As stated previously, the existing zoning
classification permits self-storage, and the site is physically suitable for
this type of development. The neighborhood is in a mature state of development,
with single-family residential and light commercial uses along Shiloh Springs
Road. The only new development consists of big box retail uses at Shiloh Springs
and
4
<PAGE> 8
Highway 49. There are also reports that a developer plans to build a golf course
community with multi- and single-family residential. This development will be
situated just north of the subject, and construction should begin within the
next 12-24 months. Shiloh Springs Road is a major east/west thoroughfare, but
traffic flow thins out near the subject. However, the subject is well supported
by surrounding residential. Overall, the subject has adequate visibility and
based on the surrounding development, self storage is considered a financially
feasible use.
Maximally Productive: The final determination in the highest and best
use analysis as if vacant is the maximally productive use of the site. The
maximally productive use of the site is the development of a self-storage
facility.
In our opinion, "as if vacant", the highest and best use of the site is
the development of a self-storage facility.
HIGHEST AND BEST USE "AS IMPROVED"
- ----------------------------------
The subject site is improved with a 206 unit self-storage facility,
which is a permitted use under current zoning. Based on the requirements of this
zone and other information provided to the appraisers, the subject is a legally
conforming use. The subject's design is compatible with the surrounding
improvements and land use pattern, and historical occupancy has been near or
above 90%. Occupancy is currently 90%. Given the Property's occupancy and
location, the building improvements significantly add to the property value as a
whole. No other use would warrant removing the existing improvements, bring a
higher return to the land and compensate for their removal.
Based on these factors, the existing improvements are recognized as the
highest and best use of the site "As Improved."
5
<PAGE> 9
VALUATION METHODOLOGY
---------------------
Pursuant to the terms of this engagement, Stanger has estimated the
value of the fee simple interest in the Property based on the Income Approach,
Sales Comparison Approach and the Cost Approach to valuation.
The Income Approach is based on the assumption that the value of a
property is dependent upon the Property's ability to produce income. In the
Income Approach, a direct capitalization analysis and a discounted cash flow
("DCF") analysis are used to determine the "As Is" value of the fee simple
interest in the 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 Property.
The direct capitalization analysis is based upon the net operating
income of the Property capitalized at an appropriate capitalization rate based
upon property characteristics and competitive position and market conditions at
the date of the appraisal.
In applying the DCF analysis, pro forma statements of operations for
the Property including revenues and expenses were analyzed and projected over a
ten-year period. The Property is assumed to be sold at the end of the ten-year
holding period. The reversion value of the Property which can be realized upon
sale at the end of the ten-year holding period is calculated based on
capitalization of the estimated net operating income of the Property in the year
of sale, utilizing a capitalization rate deemed appropriate in light of the age,
anticipated functional and economic obsolescence and 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.
The Sales Comparison Approach utilizes indices of value derived from
actual or proposed sales of comparable properties to estimate the value of the
subject Property. Two units of comparison typically analyzed for self-storage
facilities, price per square foot and capitalization rate, were utilized in
applying the Sales Comparison Approach to the subject Property.
The Cost Approach is based upon the principle of substitution, in that
no prudent investor would pay more for a property than the amount for which a
comparable site could be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay.
The following describes more fully the steps involved in the valuation
of the subject Property.
SITE INSPECTIONS & DATA GATHERING
- ---------------------------------
In conducting the property valuation, representatives of Stanger
performed a site inspection of the Property on March 15, 1999. In the course of
this site visit, the physical facilities of the Property were inspected, current
market rental rates for competing properties were obtained,
6
<PAGE> 10
information on the local market was gathered, and the on-site manager was
interviewed concerning the Property and other factors. Information gathered
during the site inspection was supplemented by a review of published information
concerning economic, demographic and real estate trends in local, regional and
national markets.
In conducting the property valuation, Stanger also interviewed Liberty
management personnel to obtain information relating to the condition of the
Property, including any deferred maintenance, capital budgets, 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, Stanger reviewed the acquisition criteria and parameters
used by self-storage real estate investors. Such reviews included a search of
real estate data sources and publications concerning real estate buyer's
criteria and direct interviews with sources deemed appropriate (major national
investors, owners, managers, brokers and appraisers of self-storage properties)
to investigate such factors as required rates of return, initial capitalization
rate requirements, and property type and geographical preferences. Stanger also
compiled data on actual transactions involving self-storage properties from
which acquisition criteria and parameters were extracted.
EFFECTIVE GROSS INCOME ANALYSIS
- -------------------------------
During the course of the site inspection, competing properties were
identified and data on local market rental rates and occupancy were obtained.
Such data was compared to available published regional or national averages for
self-storage properties and the Property's posted rental rates and occupancy
reports. The Property's recent historical effective gross income was also
reviewed. After assessing the above factors, an effective gross income estimate
was prepared based upon the unit configuration, market rental rates, market
occupancy rate and other income estimates.
EXPENSE ANALYSIS
- ----------------
Historical data provided to Stanger on expenses was reviewed and
property tax assessments were confirmed with local municipalities. Expenses were
estimated based upon this review, available published regional or national
averages and expenses observed at more than 200 self-storage properties reviewed
by Robert A. Stanger & Co., Inc.
SALES COMPARISON ANALYSIS
- -------------------------
Based upon actual and proposed sales transactions identified in the
Property's region and throughout the United States, indices of value for the
Property were derived considering the Property's age, location and other
factors. The indices of value included price per square foot and capitalization
rate. The indices of value were applied to the Property to estimate value in
accordance with the Sales Comparison Approach. Price per square foot as
estimated by reference to comparable sales transactions was multiplied by the
rentable square footage of the Property to derive an estimate of value. Net
operating income was capitalized at a capitalization rate estimated in
accordance with comparable sales transaction data.
7
<PAGE> 11
INCOME APPROACH ANALYSIS
- ------------------------
DIRECT CAPITALIZATION ANALYSIS
Based upon net operating income, estimated in accordance with the
analyses of effective gross income and expenses, and capitalization rates
determined in accordance with surveys of buyers of self-storage properties (as
confirmed by a review of comparable sales transactions) an estimate of value was
derived. This method is described in greater detail in Exhibit I.
DISCOUNTED CASH FLOW ANALYSIS
A ten year projection of net operating income was prepared based upon
net operating income estimated in accordance with the analysis of effective
gross income and expenses and escalation factors deemed appropriate for the
subject Property. The value of the Property at the end of the ten-year holding
period (the "reversion value") was based upon the capitalization of net
operating income in the eleventh year at a capitalization rate deemed
appropriate for the subject Property based upon its age and other market
factors. The reversion value was reduced for estimated selling expenses. The
estimated net cash flows from the Property for the ten-year period (including
the reversion value net of selling expenses) were discounted to present value at
a discount rate deemed appropriate for the subject Property based upon national
surveys of target rates of return for buyers of industrial properties, adjusted
for the incremental risk associated with self-storage properties. The discounted
cash flow analysis is outlined in Exhibit J of this Report.
COST APPROACH ANALYSIS
- ----------------------
The estimated value of the property under the Cost Approach was based
upon the construction cost per square foot for comparable self-storage
facilities as estimated and adjusted by reference to the Marshall & Swift
Valuation Service, construction cost data provided by Liberty, construction cost
data on comparable self-storage projects compiled by Robert A. Stanger & Co.,
Inc., the value of land as estimated by reference to comparable land sales
transactions, the costs associated with the lease-up of a newly constructed
project plus an estimated developer's profit. Such analysis is more fully
described in Exhibit K to this report.
RECONCILIATION AND FINAL VALUE ESTIMATE
- ---------------------------------------
The estimated value in accordance with the Cost Approach and Sales
Comparison Approach was reconciled with the estimated values in accordance with
the Income Approach (direct capitalization and discounted cash flow analyses).
8
<PAGE> 12
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject are typically purchased
and sold based upon their income characteristics. The Income Approach is given
primary consideration based upon the income producing nature of the Property and
its appeal to investors. The Sales Comparison Approach is given secondary
consideration. The Cost Approach is considered the least reliable indicator of
value.
Details of the estimates of the "As Complete, As Stabilized" and "As
Complete" values are located in Exhibit L of this report.
9
<PAGE> 13
PROPERTY VALUE CONCLUSIONS
--------------------------
Based upon the review as described above and detailed in the attached
exhibits, it is our opinion that the market value "AS IS" of the fee simple
interest in the Property, as of March 15, 1999 was:
NINE HUNDRED THIRTY THOUSAND DOLLARS
-----------------------------------------------------------
$930,000
---------
The subject property is presently improved with a 19,550 net rentable
square foot self-storage facility and a 27,700 net rentable square foot
expansion is planned. The following value estimates consider the value of the
subject after these additions are complete:
As of July 1, 1999, (the anticipated date of the completion of the
construction of the additions) the "AS COMPLETE" value, is estimated to be:
ONE MILLION EIGHT HUNDRED TWENTY THOUSAND DOLLARS
-----------------------------------------------------------
$1,820,000
----------
As of December 1, 2000, the "AS COMPLETE, AS STABILIZED" value is
estimated to be:
ONE MILLION NINE HUNDRED THOUSAND DOLLARS
-----------------------------------------------------------
$1,900,000
---------
Details of the determination of the "As Complete, As Stabilized" and
"As Complete" values can be found in Exhibit L of this report.
10
<PAGE> 14
MARKETING TIME
--------------
The requirements and guidelines of the Uniform Standards of
Professional Appraisal Practice (USPAP), Federal National Mortgage Association
(Fannie Mae), Federal Deposit Insurance Corporation (FDIC), Veterans
Administration (VA) and the Farm Home Administration (FHA) require the appraiser
to estimate a reasonable marketing period for the subject property.
Marketing Time (or Marketing Period) is defined as the time it takes an
interest in real property to sell on the open market subsequent to the date of
an appraisal.
Reasonable marketing time is an estimate of the amount of time it might
take to sell an interest in real property at its estimated market value during
the period immediately after the effective date of the appraisal; the
anticipated time required to expose the property to a pool of prospective
purchasers and to allow appropriate time for negotiation, the exercise of due
diligence, and the consummation of a sale at a price supportable by current
market conditions.
(Source: THE DICTIONARY OF REAL ESTATE APPRAISAL, Third Edition)
ESTIMATED MARKETING TIME
- ------------------------
The subject marketing time is estimated to be six months to one year.
This estimate assumes:
1. that the subject property is listed with a competent broker experienced
with similar type properties;
2. that the subject is offered for sale at no more than 110% of the
appraised value;
3. that mortgage money is available at the time of the listing at
competitive market interest rates; and 4. that there is not an
oversupply of similar properties offered on the market at reduced or
discounted prices.
11
<PAGE> 15
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
This 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
Property or the title thereto. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens unless
otherwise stated.
2. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the Property's
subsoil or structure that render the Property 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 Appraisal 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 Property in question,
unless arrangements have been previously made therefore.
4. The information contained in the Appraisal or upon which the Appraisal 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
Property or their representatives. Neither the Appraiser nor Stanger shall be
responsible for the accuracy or completeness of such information, including the
correctness of estimates, opinions, dimensions, exhibits and other factual
matters. The Appraisal and the opinion of value stated therein are as of the
date stated in the Appraisal. Changes since that date in market factors can
significantly affect property 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 property's values, 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.
12
<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 Appraisal is
based on visual inspection by the Appraiser or other representative 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 survey of the
property.
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 and Stanger make 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 Appraisal represents a normal consideration for the Property sold
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 at the Property was not disclosed to the
Appraiser by the owner. The Appraiser has no knowledge of the existence of such
materials on or in the Property. The Appraiser is not qualified to detect such
hazardous substances. The presence of substances such as asbestos,
urea-formaldehyde foam insulation, oil spills, or other potentially hazardous
materials may affect the value of the Property. The Property value estimate is
predicated on the assumption that there is no such material on or in the
Property 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 the 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.
13
<PAGE> 17
ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
-----------------------------------------------
13. The property valuation reported herein may not reflect the premium or
discount a potential buyer may assign to an assembled portfolio of properties or
to a group of properties in a particular local market which provides
opportunities for enhanced market presence and penetration.
14. The appraisal is solely for the purpose of providing our opinion of the
value of the Property, and we make no representation as to the adequacy of such
a review for any other purpose. The use of other valuation methodologies might
produce a higher or lower value.
15. At the request of the client the Appraiser has used a limited summary format
and invokes the Departure Provision of the Uniform Standard of Professional
Appraisal Practice. As such, information pertinent to the valuation may not have
been included in this report.
14
<PAGE> 18
CERTIFICATION OF APPRAISAL
--------------------------
The undersigned hereby certifies that to the best of his knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
3. We have no present or prospective interest in the Property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
Furthermore, this appraisal assignment was not based on a requested
minimum valuation, a specific valuation or the approval of a loan.
5. Our analyses, opinions and conclusions were developed, and this report
has been prepared using a limited summary report format, in conformity
with the Uniform Standards of Professional Appraisal Practice, as well
as the requirements of the Code of Professional Ethics of the Appraisal
Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. Pursuant to the terms of our engagement, a site inspection of the
Property has been performed by representatives of Robert A. Stanger &
Co., Inc. Cornelius J. Guiney, MAI, has not made a personal inspection
of the Property. However, Mr. Guiney has reviewed all pertinent data
and information contained in this report.
8. In addition to the undersigned, Robert Gagliano and Keith Allaire made
contributions to the preparation of the analysis, conclusions and
opinions contained in this appraisal report.
9. The Appraisal Institute conducts a program of continuing education for
its designated members. MAI's who meet the minimum standards of this
program are awarded periodic educational certification. Cornelius J.
Guiney, MAI, is currently certified under this program.
/s/ Cornelius J. Guiney /s/ Thad Q. Simmons
- ------------------------------- ------------------------------
Cornelius J. Guiney, MAI Thad Q. Simmons
General Real Estate Appraiser Inspecting Appraiser
Ohio Certificate Number 398544
15
<PAGE> 19
QUALIFICATIONS OF APPRAISER
---------------------------
ROBERT A. STANGER & CO., INC.
Robert A. Stanger & Co., Inc. ("Stanger") provides specialized
consulting and valuation services for real estate assets and investment
portfolios owned by individuals or institutions. These services relate
principally to real estate portfolio valuations, single property appraisals, and
the valuation of general partner or limited partner interests.
Stanger has valued over $12 billion of real estate assets and currently
provides confirming opinions or appraisals annually on over $2 billion of
properties. Properties reviewed are located throughout the United States and
include shopping centers, residential properties, office buildings, hotels, net
leased warehouse/industrial properties, free standing retail properties,
self-storage facilities and land.
Stanger maintains a wide range of industry contacts and an extensive
database of asset performance information, industry publications, and
information on real estate markets.
CORNELIUS J. GUINEY, MAI
Mr. Guiney began his real estate career in 1968. Since that time he has
achieved the esteemed designation of Member of the Appraisal Institute and has
valued more than $5 billion of real estate for the purpose of sales, mergers,
acquisitions, reorganizations, financings, investor reporting, and tax related
matters. Mr. Guiney has been involved in the appraisal of commercial, industrial
and residential properties and portfolios including: self-storage facilities,
shopping centers; multi-family apartment projects; industrial net lease
warehouse and manufacturing facilities; office buildings; hotels; free-standing
retail properties; nursing homes, land and other special use facilities.
Mr. Guiney has qualified as an expert before various courts and
administrative bodies including: Tax Court of the State of New Jersey; Superior
Courts of Monmouth, Warren, Morris and Bergen Counties, New Jersey; Monmouth
County Tax Board and various municipal committees and authorities.
Mr. Guiney is the founder and former president of the Monmouth County
Chapter of Independent Fee Appraisers.
16
<PAGE> 20
INDEX TO EXHIBITS
-----------------
A. Property Description, Photographs, Maps
B. Market Area Overview
C. Demographic Report
D. Real Estate Taxes and Zoning
E. Market Rental Rate and Effective Gross Income Calculation
F. Expense Analysis
G. Net Operating Income Calculation
H. Surveys of Buyers of Self-Storage Properties and Sales
Comparable Analysis
I. Direct Capitalization Analysis
J. Discounted Cash Flow Analysis
K. Cost Analysis
L. Valuation Reconciliation and Conclusion Determination of "As
Complete, As Stabilized" and "As Complete" Values
M. Agreement For Services
<PAGE> 21
EXHIBIT A
---------
PROPERTY DESCRIPTION
--------------------
PROPERTY NAME: Liberty Self-Stor Dayton
PROPERTY ADDRESS: 3785 Shiloh Springs Road
Trotwood, Montgomery County, Ohio 45426
EXISTING IMPROVEMENTS:
SIZE:
Existing Proposed
-------- --------
Rentable Square Feet: 19,550 27,700
Units: 206 162
RV Spaces: None
Land Size: 5.001 acres
IMPROVEMENTS:
Foundation: Concrete Slab
Exterior Walls: Concrete Block
Partitions: Wood
Roof: Pitched, Metal
No. of Floors: One
Parking Lot: Asphalt
Climate Control: None
Year Built: 1989
Condition: Average to Good
Deferred Maintenance: Inspection of the
property revealed two items of
deferred maintenance. First, the
paint on the exterior walls is
original, and is faded in several
places throughout the facility. New
exterior paint would greatly improve
curb appeal versus competition.
Second, the asphalt paving on the
access drives is cracked and broken
up throughout the facility. The
owners plan to address both of these
items as part of the expansion which
is to take place in 1999.
<PAGE> 22
EXHIBIT A
---------
PROPERTY DESCRIPTION (CONTINUED)
--------------------------------
SECURITY:
Managers Office: Yes
Managers Apartment: Yes
Perimeter Fencing/Walls: Yes
Controlled Access Gate: Yes
Video Monitors: No
ON-SITE MANAGER: Carol Fleenor (937)837-5777
OWNERSHIP HISTORY: The property was originally developed and
operated as Spare Closet Storage. Liberty
Self Stor purchased the property in May 1997
for a reported price of $600,000.
COMMENTS: As part of the 27,700 square foot
planned expansion, the owners will
construct a new office and manager
apartment building at the front of
the site. The existing buildings
will be repainted, the parking area
will be replaced with new asphalt,
and an underground storm drainage
system will be installed. The
expansion is expected to be
completed by July 1, 1999.
<PAGE> 23
EXHIBIT A
---------
UNIT CONFIGURATION
------------------
"AS IS"
-------
<TABLE>
<CAPTION>
EXISTING SPACE:
UNIT NUMBER
DIMENSIONS DESCRIPTION SIZE OF UNITS TOTAL S.F.
================================================================================
<S> <C> <C> <C> <C> <C> <C>
5 x 5 Non-Climate 25 32 800
5 x 8 Non-Climate 40 6 240
5 x 10 Non-Climate 50 41 2,050
5 x 15 Non-Climate 75 32 2,400
10 x 10 Non-Climate 100 39 3,900
10 x 12 Non-Climate 120 3 360
10 x 15 Non-Climate 150 31 4,650
10 x 20 Non-Climate 200 12 2,400
10 x 25 Non-Climate 250 5 1,250
10 x 30 Non-Climate 300 5 1,500
206 19,550
</TABLE>
<PAGE> 24
EXHIBIT A
---------
PROPERTY PHOTOGRAPHS
--------------------
<PAGE> 25
EXHIBIT A
---------
PROPERTY MAPS
-------------
<PAGE> 26
EXHIBIT B
---------
MARKET AREA OVERVIEW
--------------------
PROPERTY NAME: Liberty Self Stor Dayton
ADDRESS: 3785 Shiloh Springs Road
Trotwood, Ohio 45426
COUNTY: Montgomery
NEIGHBORHOOD: Trotwood is a small community in Montgomery County,
in southwestern Ohio. Trotwood is also part of the
Dayton Metropolitan area and the community is located
in the northwestern portion of the metro area. The
subject neighborhood is a mature section of the
Dayton area and is primarily residential in nature.
There are no major businesses in the neighborhood, as
most of the residents work in Dayton. As with many
midwestern U.S. cities, Dayton is heavily influenced
by manufacturing, particularly the automotive
industry. Typical of many Ohio neighborhoods on the
outskirts of cities, the area consists of mature
residences on large acreage lots. Most of the
commercial development is located along Salem Pike
(Highway 49) to the east, which consists of shopping
centers, auto dealerships, retail buildings, small
office, convenience stores, restaurants, self
storage, and other low density commercial buildings.
The subject site has frontage along the north line of
Shiloh Springs Road, and is bounded by Olive Road to
the east, Union Road to the west and Westbrook Road
to the north. Traffic flow along Shiloh Springs Road,
Union Road and Westbrook Road is low, while traffic
along Olive Road is somewhat heavier. Access
throughout the neighborhood is primarily via Salem
Pike (Highway 49), a high volume roadway, and to a
lesser degree by Olive Road.
The area is relatively stable and there has been a
modest amount of new construction in the past few
years. Recent development included a Target store,
Lowes Home Improvement Center, and a Kmart located
near the Shiloh Springs/Salem Pike intersection. The
most substantial new residential development is Moss
Springs, a golf course community which is planned to
include multi- and single-family residential uses.
This project is located just east of the subject, and
is planned to be completed in mid- to late 1999.
<PAGE> 27
EXHIBIT B
---------
MARKET AREA OVERVIEW (CONTINUED)
--------------------------------
The demographic analysis of the immediate area is summarized in market
areas at three levels: one-mile radius of the subject; three-mile radius of the
subject and five-mile radius of the subject. Owners and buyers of self-storage
properties consider these defined market areas as representing the primary
tenant prospects for a property. Selected demographic data is summarized in the
following tables.
<TABLE>
<CAPTION>
1 MILE 3 MILE 5 MILE
------ ------ ------
POPULATION: (1)
<S> <C> <C> <C>
2003 Projected 5,203 46,704 117,627
1998 Estimated 5,370 47,555 119,880
1990 6,132 49,035 124,287
% Change 1990-1998 -12.4% -3.0% -3.5%
% Change 1998-2003 -3.1% -1.8% -1.9%
HOUSEHOLDS: (1)
2003 Projected 2,276 18,481 47,976
1998 Estimated 2,324 18,607 48,338
1990 2,614 18,842 49,178
% Change 1990-1998 -11.1% -1.2% -1.7%
% Change 1998-2003 -2.1% -0.7% -0.7%
1990 HOUSING UNITS: (1)
Owner Occupied: 43.2% 68.7% 62.9%
Renter Occupied: 56.8% 31.3% 37.1%
Vacant: 6.3% 4.0% 6.1%
</TABLE>
(1) Source: CACI
The above data indicates that the local market declined within all
search areas in both population and households between 1990 and 1998. However,
this trend is expected to moderate over the next five years. The above
demographics should have a neutral overall influence on the performance of the
Property.
<PAGE> 28
EXHIBIT C
---------
DEMOGRAPHIC REPORT
------------------
<PAGE> 29
EXHIBIT D
---------
CURRENT REAL ESTATE TAXES AND ZONING
------------------------------------
TAXES: Assessed Value: $178,470 (35% of Assessor's Market Value)
City Reduction Ratio: 0.162296
State Reduction Ratio: 0.10
Tax Rate: $88.36 per $1,000
Special Assessments: $251
Real Estate Taxes: $12,141
Personal Property Taxes $0
Total Taxes $12,141 (a)
Date of Assessment 1998
ZONING: PUD (b)
(a) Taxes are calculated by multiplying the assessment by the tax rate,
discounted by the city and state reduction ratios. The special assessments must
be added to this amount for the total real estate taxes. The total taxes payable
include a special tax payment of $4,800 per half for ten halves or $9,600 per
year for five years, based on an agreement between Liberty and the municipality
to settle back taxes owed by the previous owner of the property. As of the date
of appraisal, five halves have been paid, two in 1997, two in 1998 and one in
1999. Five more payments remain.
(b) PUD is a Planned Unit Development district with no specifically permissible
or prohibited uses, as all uses must be submitted for approval to the Planning
Department. This zoning classification was approved by the city of Trotwood in
late 1998, and will allow the proposed expansion. According to Michael Davis of
the Planning and Zoning Department, the subject was formerly zoned B-2, which
does not permit self storage, but the subject was under the grandfather clause.
Under the new classification, the existing and proposed expansion are
permissible.
<PAGE> 30
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION
----------------------------------------------------------
"AS IS"
-------
<TABLE>
<CAPTION>
Comparable 1 Comparable 2 Comparable 3 Comparable 4
------------ ------------ ------------ ------------
====================================================================================================================================
NAME OF PROPERTY ENGLEWOOD VANDALIA UNCLE BOB'S STORAGEUSA
Ranking Similar Inferior Superior Superior
REPORTED OCCUPANCY RATE 60% 70% 78% 97%
-- SUBJECT --
=====================================
UNIT PER PER PER PER QUOTED
UNIT TYPE DESCRIPTION SIZE(S.F.) MO. PSF MO. PSF MO. PSF MO. PSF RATE/MO. USE PSF UNITS TOTAL
- --------- ----------- --------- --- ----- --- ---- ---- ---- ---- --- -------- --- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 Non-Climate 25 $26 $1.04 $32 $1.28 $30 $26 $1.04 32 $832
5 x 8 Non-Climate 40 40 35 0.88 6 210
5 x 10 Non-Climate 50 46 $0.92 30 0.60 45 0.90 69 1.38 45 40 0.80 41 1,640
5 x 15 Non-Climate 75 52 0.69 74 0.99 55 55 0.73 32 1,760
10 x 10 Non-Climate 100 64 $0.64 50 0.50 75 0.75 86 0.86 75 70 0.70 39 2,730
10 x 12 Non-Climate 120 80 75 0.63 3 225
10 x 15 Non-Climate 150 79 $0.53 65 0.43 86 0.57 113 0.75 85 80 0.53 31 2,480
10 x 20 Non-Climate 200 89 $0.45 75 0.38 99 0.50 131 0.66 100 90 0.45 12 1,080
10 x 25 Non-Climate 250 95 0.38 124 0.50 137 0.55 115 105 0.42 5 525
10 x 30 Non-Climate 300 115 $0.38 110 0.37 139 0.46 147 0.49 130 120 0.40 5 600
----
206 12,082
===
x 12
-----
GROSS POTENTIAL RENT 144,984
Note: Other Income includes apartment rent. VACANCY 5% (7,249)
-------
CONCESSIONS/BAD DEBT 2% (2,900)
-------
EFFECTIVE GROSS RENT 134,835
OTHER INCOME 13% 17,529
-------
EFFECTIVE GROSS INCOME 152,364
=======
</TABLE>
<PAGE> 31
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION (CONTINUED)
----------------------------------------------------------------------
COMPETITORS DESCRIPTION:
- ------------------------
<TABLE>
<CAPTION>
- -------- ---------------------------- --------------------------- -------- ------------- ------------------
APPROXIMATE
PHYSICAL DISTANCE FROM
NAME ADDRESS UNITS OCCUPANCY SUBJECT
---- ------- ----- --------- -------------
- ------------------------------------- --------------------------- -------- ------------- ------------------
<S> <C> <C> <C> <C>
1. Englewood Self Storage 7533 Salem Pike 339 60% (a) 2.5 miles
Englewood, Ohio
2. Vandalia Store and Lock 2750 West National Road 492 70% (b) 4 miles
Dayton, Ohio
3. Uncle Bob's Self Storage 1830 Needmore Road 640 78% (c) 5.5 miles
Dayton, Ohio
4. Storage USA 5520 Salem Bend 546 97% 1.5 miles
Trotwood, Ohio
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Englewood added 122 new units in October 1998, and is in the process of
lease-up. Occupancy is 83% in existing units and 18% in new portion.
(b) Vandalia is only 20 months old, and had reached stabilization at the end of
1998. 100 new units were added at the beginning of 1999. Occupancy dropped from
85% -90% to 70% as new units were added.
(c) Uncle Bob's occupancy was at 91%+ at year end, but rent rates were
increased, resulting in an unexpected amount of move-outs, which is reflected in
the current low occupancy.
RATING/COMMENTS ON COMPETITORS
- ------------------------------
Rent Comparable 1. Englewood Self Storage is located along Salem Pike within 2.5
miles of the subject. Salem Pike is the major roadway in the neighborhood with
very heavy traffic flow. Due to the heavy traffic volume, most of the
surrounding uses are commercial in nature. Most of the uses in the area are
mature, similar to the subject, but the density of development is much higher.
Demographics in the area appear to be low to moderate, similar to the subject.
The structure is of metal construction, the access drives are asphalt, and the
improvements are considered to be in good condition. Security at the complex
consists of perimeter fencing, a controlled access gate, onsite office, and the
manager lives onsite. The location at this site is superior to the subject, but
the overall quality of the facility is slightly inferior to the subject.
Overall, the comparable is similar to the subject.
Rent Comparable 2. Vandalia Store and Lock is located along West National Road
within 4 miles of the subject. West National Road is a major roadway in the
northern portion of the neighborhood, with moderate traffic flow. The area is on
the northern outskirts of the Dayton area, near the municipal airport. The site
benefits from good traffic flow and freeway access, but the area is very remote.
Most of the uses in the area are mature and the density of development is low,
similar to the subject. Demographics in the area appear to be low to moderate,
similar to the subject. The structure is of metal construction, the access
drives are asphalt, and the improvements are considered to be in excellent
condition. Security at the complex consists of perimeter fencing, a controlled
<PAGE> 32
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION (CONTINUED)
----------------------------------------------------------------------
access gate, onsite office, and cameras. The location at this site is similar to
the subject, but the overall quality of the facility is slightly superior to the
subject. However, it is reported that the facility's management keeps posted
rates low as they lease up, and then bump rates significantly once tenant has
moved in. Based on quality and location of site, this is a reasonable
explanation of the property's low rates. Overall, the comparable is superior to
the subject on a physical basis, but the rate strategy renders it inferior to
the subject overall.
Rent Comparable 3. Uncle Bob's Self Storage is located along Needmore Road
within 5.5 miles of the subject. Needmore Road is a major roadway in the
neighborhood with heavy traffic flow. Due to the heavy traffic volume, most of
the surrounding uses are commercial in nature. Most of the uses in the area are
mature, similar to the subject, but the density of development is much higher.
Demographics in the area appear to be low to moderate, similar to the subject.
The structure is of concrete tiltwall construction, the access drives are
asphalt, and the improvements are considered to be in good condition, as the
property received an exterior renovation at the end of 1997. Security at the
complex consists of perimeter fencing, a controlled access gate, onsite office,
and the manager lives onsite. The location at this site is superior to the
subject, but the overall quality of the facility is similar to the subject.
Overall, the comparable is considered superior to the subject.
Rent Comparable 4. Storage USA is the subject's nearest competitor, located
along Salem Bend within 1.5 miles. Salem Bend is a minor roadway in the
neighborhood with low traffic flow. However, the site benefits from being
adjacent to two large anchored shopping centers which front along Salem Pike,
the area's major roadway. Excluding the shopping centers, most of the other
surrounding development along Salem Bend is mature single family residences. Due
to the site's proximity to Salem Pike, density of development is much higher.
Demographics in the area appear to be low to moderate, similar to the subject.
The structure is of concrete brick and metal construction, the access drives are
asphalt, and the improvements are considered to be in good condition, as the
property received an exterior renovation in 1997. Security at the complex
consists of perimeter fencing, a controlled access gate, cameras, onsite office,
and the manager lives onsite. The location at this site is slightly superior to
the subject, and the overall quality of the facility is slightly superior to the
subject. Overall, the comparable is superior to the subject. However,
discussions with the subject's manager, as well as conversations with management
of the competition, indicate that most are suspicious of the rates quoted at the
facility. Most believe that the performance is inflated, as the occupancy
appears to be high considering that they quote highest rates in market by far,
particularly considering the rate sensitivity in this area. The property offers
a variety of rent specials, depending on length of use and other factors, so the
quoted rates are considered to be above market levels.
OCCUPANCY:
- ----------
The subject property had a reported physical occupancy of 93% as of the
date of the site inspection and the average physical occupancy is approximately
96%. Historical vacancy (per the financials) is based on physical vacancy plus
"lost" rents on those units not yet adjusted up to current street rents. Two of
the competing properties are in lease-up and one, Uncle Bob's, has low
<PAGE> 33
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION (CONTINUED)
----------------------------------------------------------------------
occupancy due to a recent rate increase. Similarly, the subject had a loss in
occupancy due to a late 1998 rate increase. Clearly, this is a rate-sensitive
market. In Exhibit E, the subject rental rates were reduced to
market/pre-increase levels and an occupancy rate of 95% is assumed for 1999,
consistent with 1998 historical occupancy.
CONCESSIONS/BAD DEBT:
- ---------------------
The Potential Gross Rent is adjusted by 2% based on historical
concessions/bad debt, which ranges from $8,566 to $2,830 or 6.69% to 2.05% of
Potential Gross Rents in prior years. Concessions/Bad Debt includes discounts,
(including settlements with non-paying tenants), bad debts, coupon specials and
other credits, such as waived application or late fees.
OTHER INCOME:
- -------------
The estimate of Effective Gross Income includes Other Income equal to
13% of Effective Gross Rent. This is consistent with historical data, which
indicates a range of 10.62% to 13.47% in 1997 and 1998. Other income represents
the collection of application fees, late fees, lien fees, forfeited security
deposits, truck and trailer rentals and the retail sale of locks and boxes.
<PAGE> 34
EXHIBIT F
---------
EXPENSE ANALYSIS
----------------
"AS IS"
-------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNUALIZED
6 MONTHS BUDGET
EXPENSES: 1997 1998 1999
- --------- ---------- ---- ------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PAYROLL & BENEFITS 11,050 16,061 16,600 (A)
MANAGEMENT FEES 0 0 7,618 (B)
ADVERTISING 1,292 3,326 3,400 (C)
OFFICE EXPENSE 6,592 6,015 6,000 (D)
UTILITIES 5,032 6,082 6,300 (E)
REPAIRS AND MAINTENANCE 3,032 4,226 4,300 (F)
INSURANCE 1,342 714 1,000 (G)
MISCELLANEOUS 7,340 6,979 7,200 (H)
REAL ESTATE TAXES 12,164 21,437 22,000 (I)
------ ------ ------ ---
TOTAL EXPENSES 47,844 64,840 74,418 (J)
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
"AS IS" EXPENSE NARRATIVE
- -------------------------
(A) Payroll and benefits were estimated at $16,600, representing a
cost-of-living increase over the 1998 expense. This expense includes
direct payroll, payroll taxes, medical insurance and management
incentives.
(B) Management fees were based upon 5% of effective gross income.
(C) Advertising cost was based upon the 1998 historical expense and was
increased slightly.
(D) Office expense was based upon an estimated charge equal to $6,000 or
$.31 per rentable square foot, consistent with historical, but well
above the 1998 $.14 per square foot average for all Liberty properties.
Expenses in this line include office supplies, postage, telephone,
licenses & fees, professional services, rent, equipment rental, travel,
legal, accounting and payroll service.
(E) Utilities expense was estimated at $6,300, slightly higher than 1998.
<PAGE> 35
(F) Repair and maintenance expenses were estimated at $4,300, slightly
above the 1998 expense, which was $4,226. This expense includes general
repairs and maintenance, casual labor, maintenance supplies and
security.
(G) Insurance expense was increased over the 1998 expense to $1,000 or $.05
per square foot, in line with the 1998 average per square foot for all
Liberty Self-Stor properties.
(H) Miscellaneous expenses were based upon the 1998 expense and includes an
inflation increase. This expense includes purchases for resale, the
lease, insurance, repair and maintenance expenses for the Liberty
Self-Stor rental trucks and auto expense reimbursements.
(I) Taxes were based on the 1998 expense, plus a small increase. This line
also includes personal property taxes. The tax expense includes an
additional special payment of $4,800 per half of taxes, which is the
result of a settlement with the municipality dating from the purchase
of the property, as the prior owner had unpaid taxes. Five halves are
already paid, two in 1997, two in 1998 and one in 1999. The special
payment ends as of the second half of 2001. This change is reflected in
the discounted cash flow analysis.
(J) We observe that total expenses approximate 49% of revenues.
Self-storage properties with stabilized occupancy typically have
expense ratios of 30% to 40%. The subject is at the high end of the
range due primarily to its small size and the relatively low rental
rates in the area.
<PAGE> 36
EXHIBIT G
---------
NET OPERATING INCOME CALCULATION
--------------------------------
The following summarizes the historical and current and projected net
operating income for the Property:
<TABLE>
<CAPTION>
- ------------------------------------------- ------------------------------------
ANNUALIZED
INCOME: 6 MONTHS 1997 1998 BUDGET 1999
- --------- -------------- ---- -----------
- ------------------------------------------------------------ -------------------
<S> <C> <C> <C>
Gross Potential Rent $128,100 $137,940 $144,984
Vacancy (14,776) (15,067) (7,249)
Concessions/Bad Debt (8,566) (2,830) 2,900
Gross Rent 104,758 120,043 134,835
Other Income 11,128 16,174 17,529
Effective Gross Income 115,886 136,217 152,364
Expenses:
Payroll & Benefits 11,050 16,061 16,600
Management Fees 0 0 7,618
Advertising 1,292 3,326 3,400
Office Expense 6,592 6,015 6,000
Utilities 5,032 6,082 6,300
Repairs and Maintenance 3,032 4,226 4,300
Insurance 1,342 714 1,000
Miscellaneous 7,340 6,979 7,200
Real Estate Taxes 12,164 21,437 22,000
------ ------ ------
Total Expenses 47,844 64,840 74,418
------ ------ ------
Net Operating Income $68,042 $71,377 $77,946
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
See Exhibit E and Exhibit F for details concerning Effective Gross
Income and Expenses, respectively.
<PAGE> 37
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS
-----------------------------
NATIONAL SURVEY
- ---------------
Buyers and appraisers of self-storage properties were surveyed during
the fourth quarter of 1998 to determine the parameters used in the determination
of value for self-storage properties. Uniformly, the participants in the survey
observed that self-storage properties were generally purchased based upon the
capitalization of current net operating income, as adjusted for any known or
expected changes in revenues or operating expenses. Additionally, purchase
prices are usually adjusted to reflect deferred maintenance items and other
non-recurring costs. The following summarizes primary acquisition criteria
observed in the market by survey participants.
<TABLE>
<CAPTION>
Primary
Acquisition Target Capitalization
Criteria Rate Range
-------- ----------
<S> <C> <C>
Shurgard Storage Centers, Inc. Cap Rate 9.0% - 10.0%
Storage USA Cap Rate 9.0% - 10.0%
Public Storage, Inc. Cap Rate 9.0% - 10.0%
Storage Trust Cap Rate 9.0% - 10.0%
</TABLE>
NATIONAL SALES TRANSACTION SUMMARY
- ----------------------------------
Since 1993, Robert A. Stanger & Co., Inc. has maintained a database of
self-storage transactions including transactions reported by publicly-traded
real estate investment trusts. Such database includes information on
transactions involving more than 1,300 properties with a reported purchase price
exceeding $3,197,000,000. The average capitalization rate for stabilized
properties (properties which have achieved stabilized levels of occupancy)
included in such database for the period 1993 to 1998 is 9.06%. More recent
transactions during 1997 and 1998 have been completed at comparable
capitalization rates, as summarized on the following page.
<PAGE> 38
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-----------------------------------------
1997-1998 BULK AND MULTI-PROPERTY TRANSACTION SUMMARY
<TABLE>
<CAPTION>
PRICE PER
NUMBER OF TRANSACTION AGGREGATE CAPITALIZATION SQUARE
BUYER PROPERTIES DATES PRICE RATE FOOT
- ----- ---------- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Sovran Self Storage 42 1/97-10/97 $100,800,000 9.62% $42.71
Storage USA 39 1/97-10/97 128,800,000 9.46% 50.72
Storage USA 13 3/97-10/97 25,900,000 8.10% 36.52
Storage USA 9 7/97-9/97 33,500,000 9.29% 69.15
Storage USA 45 11/97-1/98 117,300,000 8.02% 46.79
Storage USA 12 2/98-3/98 26,600,000 9.14% 36.90
Sovran Self Storage 24 11/97-4/98 74,000,000 8.59% 48.50
Sovran Self Storage 4 4/98 17,400,000 9.07% 57.47
Sovran Self Storage 6 4/98-6/98 20,100,000 9.43% 46.42
-- ---------- ----- -----
TOTAL/AVERAGE 194 $544,400,000 9.00% $48.35
=== ============ ===== ======
</TABLE>
<PAGE> 39
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
-------------------------------------------
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-----------------------------------------
IDENTIFIED REGIONAL TRANSACTIONS
- --------------------------------
The following summarizes selected data on self-storage properties
acquired throughout the region (certain data has been deleted at the request of
the respondent in order to maintain confidentiality).
<TABLE>
<CAPTION>
REGIONAL SIZE CAPITALI- PRICE PER
TRANSACTION TRANSACTION RENTABLE PURCHASE ZATION SQUARE
NUMBER LOCATION DATE (SF) PRICE RATE FOOT
------- --------------------------- -------------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. 1803 Branch Hill-Ginea Pike 7/98 35,250 $1,600,000 N/A $45.39
Milford, OH
2. 368 Enon Road 1/96 23,840 $550,000 N/A 23.07
Enon, OH
3. 38390 Chester Road 6/97 46,890 $1,420,000 10.8% 30.28
Avon, OH
4. 2250 West 117Th Street 12/98 69,975 $3,100,000 9.9% 44.30
Cleveland, OH
5. 1804 Dixie Highway 7/98 43,095 $1,750,000 N/A 40.61
Fairfield, OH
6. 5520 Salem Bend Drive 2/94 69,300 $2,100,000 N/A 30.30
Trotwood, OH
7. 1805 Westbourne Drive 7/98 41,476 $2,400,000 N/A 57.86
Cincinnati, OH ------ ------
10.35% $38.83
====== ======
</TABLE>
<PAGE> 40
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
-------------------------------------------
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-----------------------------------------
SALES COMPARABLE ANALYSIS
Based upon the above regional data, we observed that the capitalization
rate for self-storage properties ranges from 9.9% to 10.8% and averages 10.35%
and the cost per square foot ranges from $23.07 to $57.86 and averages $38.83.
The subject is presently encumbered by a special tax payment of $9,600
per year, based on back taxes owed by the previous owner at the time of closing.
Stabilized NOI is achieved by adding back $,9600 to the to the estimated NOI of
$77,946 for a total of $87,546. Based on this stabilized NOI, the subject
property would require a capitalization rate of 9.5% and a cost per square foot
of $47.00 due to its physical condition, location and other factors. The values
derived hereunder may be summarized as follows:
Value at 9.5% Capitalization Rate "As Is" (Rounded) $920,000
Value at $47.00 Per Square Foot "As Is" (Rounded) $920,000
Use $920,000
========
<PAGE> 41
EXHIBIT I
---------
DIRECT CAPITALIZATION ANALYSIS
------------------------------
The capitalization rates as summarized in Exhibit H for regional
transactions range from 9.9% to 10.8% and average 10.35%. Furthermore, the
capitalization rate derived from the review of national transactions involving
more than 1,300 properties with a value of approximately $3.2 billion was 9.06%.
Our survey of buyers of self-storage properties indicates that the target range
of capitalization rates on net operating income for purchases was 9.0% to 10.0%.
The subject is an operating 19,550 square foot facility. Due to the
condition and location of the facility a capitalization rate of 9.5% on the
stabilized NOI was deemed appropriate for the subject property. The stabilized
NOI is the 1999 Budget NOI plus the special tax payment of $9,600 for a total of
$87,546. The valuation may be summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 Budget Net Operating Income $ 77,946
Special Tax Payment + 9,600
---------
1999 Stabilized Net Operating Income $ 87,546
Capitalization Rate 9.50%
---------
Value Estimate $ 921,537
Use $ 920,000
=========
</TABLE>
<PAGE> 42
EXHIBIT J
---------
DISCOUNTED CASH FLOW ANALYSIS
-----------------------------
<TABLE>
The assumptions utilized in the discounted cash flow analysis are as
follows:
<S> <C>
PROJECTION PERIOD: 10 years
VACANCY: 5%
CONCESSIONS/BAD DEBT: 2%
INCOME AND EXPENSE GROWTH RATE: 3% annually. This growth rate
conforms to the 10-year
historical growth in the Consumer
Price index and to growth
parameters used by owners and
buyers of self-storage facilities,
adjusted for expectations based
upon demographic projections.
Real estate taxes include a special
payment of $4,800 per half ($9,600
per year) through the first half of
2001, per an agreement with the
municipality. Taxes are reduced by
this amount in the second half of
2001 and thereafter.
REVERSIONARY CAPITALIZATION RATE: 9.75%. A premium of 25 basis points
was added to the estimated direct
capitalization rate as described in
Exhibit I.
REVERSION SALES COSTS: 3%.
DISCOUNT RATE: 11.75%. The discount rate was based
upon target rates of return on
industrial properties based upon
surveys prepared by Real Estate
Research Corporation ("RERC") and
Peter F. Korpacz and Associates
("KORPACZ"). Due to the additional
risk of short-term leases on
self-storage properties versus
longer term leases on industrial
properties, a 75 basis point premium
was added to the average target rate
of return on industrial properties
pursuant to the surveys. A summary
of the target rates of return
pursuant to the surveys is as
follows:
</TABLE>
<PAGE> 43
EXHIBIT J
---------
DISCOUNTED CASH FLOW ANALYSIS (CONTINUED)
-----------------------------------------
<TABLE>
<S> <C> <C>
RERC 10.90%
KORPACZ 11.15%
------
Average 11.02%
Premium .75%
------
Total 11.77%
======
Use 11.75%
======
</TABLE>
VALUE CONCLUSION:
The market value of the Property, as summarized in the enclosed
discounted cash flow analysis is as follows:
Value Per Model $925,793
Use $930,000
========
<PAGE> 44
EXHIBIT K
---------
COST ANALYSIS
-------------
The Cost Approach is based upon the principle of substitution, in that
no prudent investor would pay more for a property than the amount for which a
comparable site could be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay. This approach
treats the property as a physical entity that can be separated for valuation
purposes into land and improvements.
In order to analyze the costs associated with the construction of
self-storage facilities, we consulted several sources, including but not limited
to : (i) Marshall & Swift Valuation Service; (ii) developers of self-storage
properties; (iii) published materials on self-storage construction, and (iv)
published materials on real estate markets. Our methodology may be summarized as
follows:
REVIEW OF MARSHALL & SWIFT DATA
Marshall & Swift provides a construction cost data collection service
for most property types, including self-storage facilities. Such service is
based upon data accumulated for actual development projects and is updated on a
monthly basis. The average construction cost per square foot for good quality
self-storage facilities in the C-Class (Masonry Construction) is $27.36. Such
average was utilized as the base building cost per square foot for the subject
facility's self-storage space.
The average base building cost per Marshall & Swift was adjusted for
two factors provided by Marshall & Swift. The average self-storage base building
cost was adjusted by the current cost multiplier, an index which updates the
reported averages for cost changes since the date of the Marshall & Swift study.
The current cost multiplier for the average self-storage building cost was 1.04.
Secondly, the average building costs (as adjusted by the current cost
multiplier) were adjusted by the local cost multiplier, a factor developed by
Marshall & Swift to recognize differences in local construction costs between
markets. The local cost multiplier for the Dayton areas was 1.00.
Utilizing this data, a construction cost per gross square foot of
$28.45 is derived. Applying this construction cost to the gross square footage
of the subject (estimated at 21,200 square feet) provides a construction cost
estimate of $603,140.
The subject also has an estimated 60,000 square feet of asphalt paving,
based on the site plan provided. Based on Marshall & Swift cost ranges, a cost
of $3.00 per square foot is considered reasonable for a total of $180,000.
The cost of construction of the self-storage buildings was estimated to
be $603,140. The cost of paving/drive areas is $180,000 for a total construction
cost of $783,140.
<PAGE> 45
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
ESTIMATED LAND COSTS
The subject property is located on a 5.001 acre site, with an irregular
shape, located at 3785 Shiloh Springs Road in Trotwood, Ohio. The site is
relatively level, and the shape does not negatively affect the development
potential of the site. The site is zoned PUD, and self storage is the only
permissible use.
Due to the lack of recent development activity in the immediate area
for similar-zoned sites, we have utilized sales of commercial or industrial
zoned property located throughout the area. The sales identified are summarized
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
SALE # SALE DATE LOCATION SIZE (ACRES) PRICE/SQ. FT. ZONING
- ---- --------- -------- ------------ ------------- ------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. 6/96 Taywood Road 7.258 $0.95 C-4 (Office/Industrial)
Englewood, OH
2. 3/96 Scholz Drive 1.98 $0.87 I (Industrial)
Vandalia, OH
3. 9/95 Old Barn Road 1.36 $0.55 B-3 (Community Business)
Trotwood, OH
4. 3/96 Nordic Road 7.3 $0.85 I-1 (Light Industrial)
Harrison Township, OH
- ------------------------------------------------------------------------------------------
</TABLE>
The sales range in price from $.55 to $.95 per square foot and average
$.81 per square foot.
Land Comparable 1: This 7.3 acre parcel was purchased in June 1996 at a price of
$0.95 per square foot. It is located on a similar street, approximately 2.5
miles northeast of the subject, in a superior area in terms of access and
surrounding development. The size is similar to the subject. Since the subject
is restricted to self storage use, this comparable's zoning (office/industrial)
is superior to the subject. The shape and all other physical factors are
considered similar to the subject. Overall, the comparable is superior to the
subject.
Land Comparable 2: This 1.98 acre site was purchased in March 1996 at a price of
$0.87 per square foot. It is located along an inferior location in terms of
traffic flow, approximately 7 miles northeast of the subject, in a superior
neighborhood. A size adjustment does not appear necessary, based on an analysis
of sale comparables. Since the subject is restricted to self storage use, this
comparable's zoning (industrial) is superior to the subject. The shape of the
parcel and all other physical factors are considered similar to the subject.
Overall, the comparable is superior to the subject.
Land Comparable 3: This 1.36 acre site was purchased in September 1995 at a
price of $0.55 per square foot. The site is situated on a quieter street,
approximately 3 miles east of the subject. The area is inferior in terms of
access and surrounding development. No adjustment for size appears
<PAGE> 46
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
necessary, based on an analysis of the land sales. Since the subject is
restricted to self storage use, this comparable's zoning (industrial) is
superior to the subject. The shape and all other physical factors are considered
similar to the subject. Overall, the comparable is inferior to the subject.
Land Comparable 4: This 7.3 acre site was purchased in March 1996 at a price of
$0.85 per square foot. It is located along a less heavily trafficked road
approximately 7 miles east of the subject. The neighborhood is generally
superior in access and in surrounding development. The comparable's size is
similar to the subject. Since the subject is restricted to self storage use,
this comparable's zoning (light industrial) is considered superior to the
subject. The shape and all other physical factors are considered similar to the
subject. Overall, the comparable is superior to the subject.
Based on the above information, discussions with real estate
professionals and considering the subject's zoning and size, we have estimated
the subject's land value at $0.75 per square foot, or $160,000 (rounded).
<PAGE> 47
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
LEASE UP COST FACTORS
A lease-up cost factor was developed to reflect the costs associated
with achieving projected full economic occupancy. The lease-up cost was based
upon (i) absorption of space at the rate of 2.5% to 5% per month; (ii)
management fees equal to 5% of gross revenues; (iii) other operating expenses
equal to 41% of Potential Gross Income plus Other Income; and (iv) a yield
requirement equal to 11.50% per annum on development cost. Details of the
analysis are on the following page.
<PAGE> 48
EXHIBIT K
LEASE-UP COST ANALYSIS
----------------------
"AS IS"
-------
<TABLE>
<CAPTION>
RENTAL & TOTAL
CUMULATIVE OTHER MANAGEMENT OTHER YIELD ON LEASE-UP
MONTH ABSORPTION INCOME (1) FEES (2) EXPENSES (3) COST (4) COST (5)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2.50% $ 339 ($17) ($5,553) ($9,038)
2 5.00% 677 (34) (5,553) (9,038)
3 7.50% 1,016 (51) (5,553) (9,038)
4 10.00% 1,354 (68) (5,553) (9,038)
5 12.50% 1,693 (85) (5,553) (9,038)
6 15.00% 2,031 (102) (5,553) (9,038)
7 20.00% 2,709 (135) (5,553) (9,038)
8 25.00% 3,386 (169) (5,553) (9,038)
9 30.00% 4,063 (203) (5,553) (9,038)
10 35.00% 4,740 (237) (5,553) (9,038)
11 40.00% 5,417 (271) (5,553) (9,038)
12 45.00% 6,094 (305) (5,553) (9,038)
13 50.00% 6,771 (339) (5,553) (9,038)
14 55.00% 7,448 (372) (5,553) (9,038)
15 60.00% 8,126 (406) (5,553) (9,038)
16 65.00% 8,803 (440) (5,553) (9,038)
17 70.00% 9,480 (474) (5,553) (9,038)
18 75.00% 10,157 (508) (5,553) (9,038)
19 77.50% 10,496 (525) (5,553) (9,038)
20 80.00% 10,834 (542) (5,553) (9,038)
21 82.50% 11,173 (559) (5,553) (9,038)
22 85.00% 11,511 (576) (5,553) (9,038)
23 87.50% 11,850 (592) (5,553) (9,038)
24 90.00% 12,188 (609) (5,553) (9,038)
------- -------- ---------- ----------
Totals $94,799 ($4,740) ($105,498) ($171,730) ($187,169)
======= ======== ========== ========== ==========
</TABLE>
<PAGE> 49
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
Lease-Up Analysis Footnotes:
- ---------------------------
(1) Potential Gross Rent was estimated earlier in this report at $144,984.
Other income is equal to $17,529 for a total of $162,513. This analysis
assumes that the subject is leased up at 2.5% to 5% per month, which
results in a 24 month lease-up to stabilized occupancy.
(2) Management fees represent 5% of the calculated income.
(3) Other expenses (excluding management fees) are based on 41% of the
Potential Gross Rent plus Other Income. These expenses are estimated at
$5,553 per month.
(4) The yield on cost is the expected return on both construction and land
costs at 11.50% per annum until stabilized occupancy is achieved. The
total construction cost of the improvements is estimated at $783,140. The
land cost estimate of $160,000 is added to achieve a total cost of
$943,140. A yield of 11.50% was applied to such cost to derive the yield
requirement of the developer of $9,038 per month.
(5) Lease-up cost represents the excess of management fees, other operating
expenses and yield on construction and land cost over revenues for the
period through stabilization.
<PAGE> 50
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
ENTREPRENEURIAL PROFIT
A developer's profit (entrepreneurial profit) equal to 15% of total
development cost (including lease-up cost) was deemed appropriate based upon our
survey of self-storage property developers. Such developers generally agreed
that the expected yield on cost, before developers entrepreneurial profit,
should approximate 12% to 12.5% of cost and further, that the stabilized value
of a property should approximate a minimum of 9.5% to 10.5% capitalization for a
newly completed property. The resulting range of developer's profit may be
summarized as follows:
<TABLE>
<S> <C> <C>
Range of Yield on Developers Cost(A) 12.00% to 12.50%
Range of Yield on Value 10.50 to 9.50
----- -----
Excess(B) 1.50 to 3.00
===== =====
Developers Profit Range (B divided by A) 12.50% to 24.00%
===== =====
Use 15%
==
</TABLE>
DEPRECIATION
The property was constructed in 1989 and has an actual age of
approximately 10 years. The effective age is estimated to be 10 years. The
effective age is estimated considering the actual age, reflecting the impact of
the overall maintenance and current condition of the property. Masonry
mini-storage buildings have an economic life of 45 years per Marshall & Swift.
Therefore, the depreciation factor applicable to the improvements is 8%, based
on tables published by Marshall & Swift. The remaining economic life of the
subject is 35 years.
Based upon a construction cost of the improvements of $783,140,
lease-up costs of $187,169 (see "Lease-Up Costs" above) and a developers profit
of 15% applied to the construction costs and lease-up costs, a total cost of the
improvements, excluding land, was estimated at $1,115,855. Depreciation was
estimated at $89,268.
The Cost Approach for the subject property is summarized on the
following page. It should be noted that the cost approach is not generally
utilized as a reliable indicator of value by owners and operators of
self-storage properties in the marketplace today. The primary emphasis is placed
upon the income approach and the direct capitalization of earnings, supported by
the sales comparison approach.
<PAGE> 51
EXHIBIT K
---------
COST ANALYSIS
-------------
"AS IS"
-------
<TABLE>
<S> <C>
Cost Per Square Foot per Marshall & Swift $ 27.36
Current Cost Multiplier 1.04
Local Cost Multiplier 1.00
---------
Adjusted Cost Per Square Foot 28.45
Gross Square Footage 21,200
---------
Construction Cost of Building(s) 603,140
Cost of Drive/Parking Areas 180,000
---------
Total Construction Cost 783,140
Lease Up Cost 187,169
Entrepeneurial Profit 15% 169,546
Depreciation 8% (89,268)
Land Value 160,000
---------
Total 1,210,587
Rounded 1,210,000
=========
</TABLE>
<PAGE> 52
EXHIBIT L
---------
RECONCILIATION
--------------
The indicated value "AS IS," in accordance with the direct
capitalization and discounted cash flow analysis may be summarized as follows:
Direct Capitalization Analysis $ 920,000
Discounted Cash Flow Analysis $ 930,000
Value Conclusion-Income Approach $ 930,000
The discounted cash flow analysis is given the greatest weight in the
Income Approach as it best reflects the decrease in taxes effect on value.
The indicated value "AS IS," in accordance with the Sales Comparison
and Cost Approach are as follows:
Sales Comparison Approach $ 920,000
Cost Approach $ 1,210,000
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject are typically purchased
and sold based upon their income characteristics. The Income Approach is given
primary consideration based upon the income-producing nature of the Property and
its appeal to investors. The Sales Comparison Approach is given secondary
consideration. The Cost Approach is considered the least reliable indicator of
value. In summary, we have the most confidence in the Income Approach based upon
the data available to estimate value.
In the final value conclusion, the fee simple market value of the
subject property "AS IS," as of March 15, 1999 is:
NINE HUNDRED THIRTY THOUSAND DOLLARS
----------------------------------------
$930,000
------------
The subject property is presently improved with a 19,550 net rentable
square foot self-storage facility. A four-building, 27,700 square foot
self-storage space addition is proposed. We have estimated two additional
values: the "As Complete" value, as of the date of the completion of
construction and the value "As Complete, As Stabilized". The development of
these values are described in the following pages.
<PAGE> 53
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
VALUE "AS COMPLETE, AS STABILIZED"
- ----------------------------------
The value of the subject "As Complete, As Stabilized" was determined
utilizing the direct capitalization method in the Income Approach, consistent
with the "As Is" value conclusion. In order to estimate Net Operating Income,
the following analyses were developed: (1) the subject Unit Configuration, "As
Complete, As Stabilized"; (2) Effective Gross Income for the subject "As
Complete, As Stabilized"; (3) expense analysis based on the subject "As
Complete, As Stabilized"; and (4) Net Operating Income Analysis "As Complete, As
Stabilized".
The estimated Net Operating Income "As Complete, As Stabilized" is
$180,975. A capitalization rate of 9.5%, consistent with the "As Is" value
estimate was utilized to estimate the value "As Complete, As Stabilized" as
follows:
Net Operating Income $ 180,975
Capitalization Rate 9.50%
----------
Value Estimate $1,905,000
Use $1,900,000
==========
A Lease-Up analysis included as part of the "As Complete" value was
completed. The additions total 27,700 square feet. Per Liberty management,
construction is expected to be completed in July 1999. A lease-up period of 17
months, assuming an absorption rate of approximately 1,500 net square feet per
month to stabilized occupancy (90% or 24,930 square feet) was projected. The
lease-up will be complete by December 1, 2000. Therefore, the above value "As
Complete, As Stabilized" is as of December 1, 2000.
<PAGE> 54
EXHIBIT L
---------
UNIT CONFIGURATION
"AS COMPLETE, AS STABILIZED"
UNIT NUMBER
DIMENSIONS DESCRIPTION SIZE OF UNITS TOTAL S.F.
================================================================================
5 x 5 Non-Climate 25 32 800
5 x 8 Non-Climate 40 6 240
5 x 10 Non-Climate 50 73 3,650
5 x 15 Non-Climate 75 32 2,400
10 x 10 Non-Climate 100 72 7,200
10 x 12 Non-Climate 120 3 360
10 x 15 Non-Climate 150 51 7,650
10 x 20 Non-Climate 200 56 11,200
10 x 25 Non-Climate 250 5 1,250
10 x 30 Non-Climate 300 27 8,100
10 x 40 Non-Climate 400 11 4,400
-- -----
368 47,250
=== ======
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT L
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION
----------------------------------------------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
Comparable 1 Comparable 2 Comparable 3 Comparable 4
------------ ------------ ------------ ------------
====================================================================================================================================
Name of Property Englewood Vandalia Uncle Bob's Storage USA
Ranking Similar Inferior Superior Superior
Reported Occupancy Rate 60% 70% 78% 97%
-- Subject --
=========================================
Unit Per Per Per Per Quoted
Unit Type Description Size (s.f.) Mo. PSF Mo. PSF Mo. PSF Mo. PSF Rate/Mo. Use PSF Units Total
- --------- ----------- ----------- --- --- --- --- --- --- --- --- ------- --- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 Non-Climate 25 $26 $1.04 $32 $1.28 $30 $26 $1.04 32 $832
5 x 8 Non-Climate 40 40 35 0.88 6 210
5 x 10 Non-Climate 50 46 $0.92 30 0.60 45 0.90 69 1.38 45 40 0.80 73 2,920
5 x 15 Non-Climate 75 52 0.69 74 0.99 55 50 0.67 32 1,600
10 x 10 Non-Climate 100 64 $0.64 50 0.50 75 0.75 86 0.86 75 70 0.70 72 5,040
10 x 12 Non-Climate 120 80 75 0.63 3 225
10 x 15 Non-Climate 150 79 $0.53 65 0.43 86 0.57 113 0.75 85 80 0.53 51 4,080
10 x 20 Non-Climate 200 89 $0.45 75 0.38 99 0.50 131 0.66 100 90 0.45 56 5,040
10 x 25 Non-Climate 250 95 0.38 124 0.50 137 0.55 115 105 0.42 5 525
10 x 30 Non-Climate 300 115 $0.38 110 0.37 139 0.46 147 0.49 130 120 0.40 27 3,240
10 x 40 Non-Climate 400 N/A 150 0.38 11 1,650
--- -----
368 25,362
===
x 12
-------
Gross Potential Rent 304,344
Vacancy 10% (30,434)
-------
Credit & Collection Los 2% (6,087)
-------
Effective Gross Rent 267,823
Other Income 10% 26,782
-------
Effective Gross Income 294,605
=======
</TABLE>
<PAGE> 56
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
OCCUPANCY "AS COMPLETE, AS STABILIZED":
- --------------------------------------
Overall economic vacancy was estimated to be 90%, higher than in the
"As Is" value estimate due to the substantially larger size of the subject after
expansion.
CONCESSIONS/BAD DEBT "AS COMPLETE, AS STABILIZED":
- -------------------------------------------------
The Potential Gross Rent is adjusted by 2%, the same percentage
utilized in the "As Is" value estimate.
OTHER INCOME "AS COMPLETE, AS STABILIZED":
- -----------------------------------------
The estimate of Effective Gross Income "As Complete, As Stabilized"
includes Other Income equal to 10% of Effective Gross Rent. Therefore, an
increase in gross Other Income from $17,529 to $26,782 is anticipated.
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT L
---------
EXPENSE ANALYSIS
-----------------
"AS COMPLETE, AS STABILIZED"
----------------------------
ANNUALIZED
6 MONTHS BUDGET
1997 1998 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Payroll & Benefits $11,050 $16,061 $25,000 (A)
Management Fees 0 0 14,730 (B)
Advertising 1,292 3,326 3,400 (C)
Office Expense 6,592 6,015 10,300 (D)
Utilities 5,032 6,082 10,800 (E)
Repairs & Maintenance 3,032 4,226 10,400 (F)
Insurance 1,342 714 1,700 (G)
Miscellaneous 7,340 6,979 8,000 (H)
Real Estate Taxes 12,164 21,437 29,300 (I)
------ ------ ------
Total Expenses $47,844 $64,840 $113,630 (J)
======= ======= ========
</TABLE>
<PAGE> 58
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
"AS COMPLETE, AS STABILIZED" EXPENSE FOOTNOTES:
- ----------------------------------------------
(A) Payroll and benefits were estimated at $25,000, representing a
substantial increase over the "As Is" expense to provide for a part-time
employee.
(B) Management fees were based upon 5% of effective gross income.
(C) Advertising cost was based upon the "As Is" expense.
(D) Office expense was increased to $10,300. This increase is based on 50% of
the "As Is" expense per square foot applied to the expansion square
footage. Expenses in this line include office supplies, postage,
telephone, licenses & fees, professional services, rent, equipment
rental, travel, legal, accounting and payroll service.
(E) Utilities expense was increased to $10,800 based on 50% of the "As Is"
expense per square foot applied to the expansion square footage.
(F) Repair and maintenance expenses were increased based on 100% of the "As
Is" expense per square foot applied to the expansion square footage.
(G) Insurance expense was increased to $1,700. The increase was based on 50%
of the "As Is" expense per square foot applied to the expansion square
footage.
(H) Miscellaneous expenses were based upon the 1999 "As Is" expense estimate.
This expense includes purchases for resale, the lease, insurance, repair
and maintenance expenses for the Liberty Self-Stor rental trucks and auto
expense reimbursements.
(I) Taxes were re-set based on the current assessment ($178,470/35%=$509,914)
plus the cost of the expansion ($722,000) for a total adjusted assessment
of $1,230,000 ($509,914 + $722,000=$1,231,914). The current ratios and
tax rate are applied to this new assessment to achieve a new tax amount
of $29,300.
(J) We observe that total expenses approximate 39% of revenues. Self-storage
properties with stabilized occupancy typically have expense ratios of 30%
to 40%.
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT L
---------
NET OPERATING INCOME CALCULATION
--------------------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
ANNUALIZED
6 MONTHS BUDGET
1997 1998 1999
- --------------------------------------------------------------------------------------------------
INCOME:
<S> <C> <C> <C>
Gross Potential Rent $128,100 $137,940 $304,344
Vacancy (14,776) (15,067) ($30,434)
Concessions/Bad Debt (8,566) (2,830) ($6,087)
------- ------- --------
Gross Rent 104,758 120,043 $267,823
Other Income 11,128 16,174 $26,782
------ ------ -------
Effective Gross Income 115,886 136,217 $294,605
EXPENSES:
Payroll & Benefits 11,050 16,061 25,000
Management Fees 14,730
Advertising 1,292 3,326 3,400
Office Expense 6,592 6,015 10,300
Utilities 5,032 6,082 10,800
Repairs & Maintenance 3,032 4,226 10,400
Insurance 1,342 714 2,400
Miscellaneous 7,340 6,979 8,000
Real Estate Taxes 12,164 21,437 29,300
------ ------ ------
Total Expenses 47,844 64,840 113,630
------ ------ -------
Net Operating Income $68,042 $71,377 $180,975
======= ======= ========
</TABLE>
<PAGE> 60
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
VALUE "AS COMPLETE"
- -------------------
The value "As Complete" is as of the date of the completion of
construction, which is estimated by Liberty management to be July 1, 1999.
The "As Complete" value is the "As Completed, As Stabilized" value
minus the cost of lease-up. The "As Complete, As Stabilized" value was
determined to be $1,900,000. In the following Lease-Up Cost Analysis, the cost
of lease-up was determined to be $75,674. The value "As Complete" as of July 1,
1999, after deduction of these lease-up costs and rounding is:
Value "As Complete" $1,820,000
==========
Details of the Lease-Up Cost Analysis are on the following pages.
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT L
---------
LEASE-UP COST ANALYSIS
----------------------
"AS COMPLETE"
-------------
RENTAL & TOTAL
MONTHLY CUMULATIVE OTHER MANAGEMENT OTHER YIELD ON LEASE-UP
MONTH ABSORPTION (S.F.) ABSORPTION (S.F.) INCOME (1) FEES (2) EXPENSES (3) COST (4) COST (5)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jul-99 1,500 1,500 $876 ($44) ($4,853) ($7,070)
Aug-99 1,500 3,000 1,752 (88) (4,853) (7,070)
Sep-99 1,500 4,500 2,628 (131) (4,853) (7,070)
Oct-99 1,500 6,000 3,504 (175) (4,853) (7,070)
Nov-99 1,500 7,500 4,380 (219) (4,853) (7,070)
Dec-99 1,500 9,000 5,256 (263) (4,853) (7,070)
Jan-00 1,500 10,500 6,132 (307) (4,853) (7,070)
Feb-00 1,500 12,000 7,008 (350) (4,853) (7,070)
Mar-00 1,500 13,500 7,884 (394) (4,853) (7,070)
Apr-00 1,500 15,000 8,760 (438) (4,853) (7,070)
May-00 1,500 16,500 9,636 (482) (4,853) (7,070)
Jun-00 1,500 18,000 10,512 (526) (4,853) (7,070)
Jul-00 1,500 19,500 11,388 (569) (4,853) (7,070)
Aug-00 1,500 21,000 12,264 (613) (4,853) (7,070)
Sep-00 1,500 22,500 13,140 (657) (4,853) (7,070)
Oct-00 1,500 24,000 14,016 (701) (4,853) (7,070)
Nov-00 930 24,930 14,559 (728) (4,853) (7,070)
--- ------ ----- ------- -------
Totals 24,930 133,694 (6,685) (82,501) (120,183) (75,674)
====== ======= ======= ======== ========= ========
</TABLE>
<PAGE> 62
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
"AS COMPLETE" LEASE-UP ANALYSIS FOOTNOTES:
- -----------------------------------------
(1) Potential Gross Rent was estimated earlier in the "As Complete, As
Stabilized" value at $304,344. Other Income is equal to $26,782, for
total gross revenue of $331,126, which equals $7.00 per square foot per
year or approximately $.58 per square foot per month. This analysis
assumes that the subject is leased up at 1,500 square feet per month to
24,930 square feet, which is 90% of the 27,700 square foot addition.
Based on this lease-up rate, the addition will be leased-up fully by
December 1, 2000.
(2) Management fees represent 5% of the calculated income.
(3) Other expenses (excluding management fees) are based on 30% of the
addition's proportionate share of Potential Gross Rent plus Other Income.
These expenses are estimated at $4,853 per month.
(4) The yield on cost is the expected return on construction cost at 11.75%
per annum until stabilized occupancy is achieved. Liberty estimates the
construction cost of the 27,700 gross square foot expansion to be
approximately $722,000. A yield of 11.75% was applied to such cost to
derive the yield requirement of the developer of $7,070 per month.
(5) Lease-up cost represents the excess of management fees, other operating
expenses and yield on construction and land cost over revenues for the
period through stabilization.
<PAGE> 63
EXHIBIT M
---------
AGREEMENT FOR SERVICES
----------------------
<PAGE> 64
AGREEMENT
---------
This Agreement is made as of April 16, 1999 by and between Robert A.
Stanger & Co., Inc., with offices at 1129 Broad Street, Shrewsbury, New Jersey
07702 ("Stanger"), and Provident Bank (collectively "the Company"), with offices
at 1111 Superior Avenue, Cleveland, Ohio 44114 and Liberty Self-Stor, Ltd.
("Liberty") with offices at 8500 Station Street, Suite 100, Mentor, Ohio 44060.
WHEREAS, the Company wishes to retain Stanger to appraise certain
self-storage facilities which are owned by or under contract of purchase by
Liberty and which may be financed by the Company;
WHEREAS, Stanger is willing to provide such services in accordance with
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties agree as follows:
1. APPRAISAL SERVICES: Subject to the provisions of this Agreement,
Stanger will furnish to the Company limited summary appraisal reports (the
"Reports") including certain modifications as requested by the Company for each
property identified in Exhibit A hereto (the "Properties"). The Reports shall be
addressed to the Company. Such Reports will be delivered on or before April 23,
1999.
Stanger's Reports will be certified by a Member of the Appraisal
Institute and will be based in part upon its review of the following
information, which has already been provided by Liberty:
(a) Property descriptive information (including age, size, unit
configurations, land area, etc.);
(b) Financial schedules detailing individual property operating
results and capital expenditures for 1996, 1997 and 1998,
current year operating budgets, year-to-date actual results
and capital budgets to the extent available;
(c) Property acquisition information, including date, price and
terms and available information on any sales transactions
involving the Properties occurring within the past three
years;
(d) Occupancy and rental rate information for each Property for
1996, 1997, 1998 and year to date 1999, and management surveys
as available of recent rental rates and occupancy among
properties which compete in local markets with the subject
Properties;
<PAGE> 65
(e) Available information on any purchases and/or sales of
self-storage properties transacted by the owner or manager of
the Properties over the past twelve months;
(f) Copies of all recent property site inspection reports prepared
by organizations other than Stanger;
(g) Information, as available, from current management of the
Properties concerning potentially competing properties planned
for construction or under development in the local market
where the Property is located; and
(h) Information provided by Liberty regarding subject properties
under construction, redevelopment or expansion including the
timing of expected construction, unit mix, and other features.
In addition to reviewing the above, Stanger representatives will
perform site inspections of each Property for each Report and gather
supplementary information on the local real estate markets as it deems
necessary.
In connection with Stanger's activities on behalf of the Company, the
Company agrees to furnish to Stanger, or request that Liberty furnish to
Stanger, all reasonably available information and data regarding the Properties
in its possession which Stanger reasonably deems appropriate (the
"Information").
2. SCOPE OF REPORTS: The purpose of the Reports referred to above is to
estimate the market value of the Properties "As Is". Additionally, value
estimates "As Complete" (as of the anticipated construction completion date) and
"As Complete, As Stabilized" will be included. Stanger will render to the
Company Reports which complies with USPAP and FIRREA for each property which
will include: a description of the purpose, scope and function of the Report, a
definition of market value, an explanation of the appraisal methodology used, a
description and market area overview, demographic analysis, real estate tax
analysis, market rental rate and gross potential income analysis, expense
analysis, net operating income analysis, survey of buyers of self storage
properties and sales comparable analysis, cost analysis, direct capitalization
analysis, discounted cash flow analysis, and a value reconciliation and
conclusion.
3. PAYMENT: The fee for each report shall be $4,500 for each property.
Such fee shall be paid by the Company to Stanger. However, payment for the
Riverhead, New York and Dayton, Ohio properties will be made directly to Stanger
by Liberty, based on previous agreements.
The Company shall also reimburse Stanger for any out-of-pocket expenses
incurred for travel, meals, lodging, data and communication. Such expenses shall
be billed with the appraisal fee.
4. CONFIDENTIALITY: Any information submitted by the Company or by
Liberty to Stanger
2
<PAGE> 66
in connection with its review and Reports as set forth in Section 1 which is not
otherwise publicly available shall be kept confidential by Stanger and shall not
be released to any other person, unless required by law, without the prior
written consent of the Company and Liberty.
5. USE OF REPORTS: The Reports to be provided by Stanger are intended
to be relied upon and utilized by the Company in connection with the financing
of such Properties. The Reports may be utilized by and relied on by other
lenders participating in such financing. The Reports shall not be reproduced or
excerpted in any securities offering document or used for any other purposes
without the prior written consent of Stanger.
6. RESPONSIBILITIES: Stanger assumes no responsibility under this
Agreement other than to render the services outlined in Section 1. Stanger shall
not be liable for any error in judgment or act or omission provided that it has
acted in good faith, with reasonable care and not in violation of applicable
law. Notwithstanding any provision hereof to the contrary, nothing herein shall
constitute a waiver by, or limitation of, the Company of any right or remedy
afforded by Federal or state securities laws. No third party shall have any
rights against Stanger by reason of this Agreement and Stanger's services in
connection herewith.
If Stanger personnel are requested by the Company to testify in any
proceeding relating to the Reports or the services rendered under this contract,
the Company agrees that it shall compensate Stanger at a rate equal to its then
customary hourly rate for such individual as a consultant and expert, for
whatever time such individual is requested by the Company or otherwise required
to devote to such work.
7. MISCELLANEOUS: This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and the terms
hereof shall not be waived, amended or modified in any respect except by written
agreement, signed by the parties hereto. No assignment of this Agreement or any
rights hereunder shall be effective without the prior written consent of all
parties. Nothing herein shall constitute either party as the agent or
representative of the other party. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of New Jersey
applicable to agreements made and to be performed in the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ROBERT A. STANGER & CO., INC. PROVIDENT BANK
BY:__________________________ BY:_____________________
Robert Gagliano (signature)
Vice President
3
<PAGE> 67
____________________________
(print name)
____________________________
(title)
LIBERTY SELF-STOR LTD.
BY:_______________________
__________________________
(print name)
__________________________
(title)
4
<PAGE> 68
EXHIBIT A
PROPERTY LIST
-------------
1. 1040 Horton's Lane 62,655 square foot self-storage/warehouse
Southold, New York 11971 facility. 11,610 square foot expansion
planned.
2. 99 Mill Road 20,625 square foot self-storage facility
Riverhead, New York 11901 known as Storage Town East, under contract
of purchase by Liberty. 18,150 square foot
expansion planned.
3. 3785 Shihloh Springs Road 19,550 square foot self-storage facility
Dayton, Ohio 45426 with 27,700 square foot expansion.
5
<PAGE> 1
Exhibit 99.3
LIMITED SUMMARY REAL ESTATE APPRAISAL REPORT
SELF-STORAGE FACILITY AND EXPANSION
STORAGE TOWN EAST
99 MILL ROAD
RIVERHEAD, SUFFOLK COUNTY, NEW YORK 11901
<PAGE> 2
April 16, 1999
Provident Bank
1111 Superior Avenue
Cleveland, OH 44114-2522
RE: Limited summary appraisal of an existing
20,625 net rentable square foot
self-storage facility known as Storage
Town East and a proposed 18,150 net
rentable square foot expansion, located
at 99 Mill Road, Riverhead, Suffolk
County, New York
Gentlemen:
You have engaged Robert A. Stanger & Co., Inc. ("Stanger") to estimate
the market value of the above referenced property (the "Property") currently
owned by James Stark. Liberty Self-Storage, Ltd. ("Liberty"), is presently
considering purchasing the Property. Such appraisal reflects the estimated
market value "As Is" of the fee simple interest in the Property as of March 5,
1999, additionally, value estimates "As Complete" (as of the anticipated
construction completion date) and "As Complete, As Stabilized" are included in
the Reconciliation of this report. The subject property consists of a 20,625 net
rentable square foot self-storage facility. In addition, an 18,150 square foot
expansion is proposed. The "As Complete - As Stabilized" value assumes
completion of construction of the expansion and the lease up of the facility to
market occupancy on or before July 1, 2000. This limited summary appraisal
report is prepared in accordance with an agreement between Robert A. Stanger &
Co., Inc., Provident Bank and Liberty Self-Stor dated April 16, 1999. Such
agreement is attached as an exhibit to this report.
Our valuation has been based in part upon information supplied to us by
Liberty and Mr. Stark including, but not limited to: descriptions of the subject
property, unit mix, site plans, statements of net operating income, proposed
building or expansion plans and other supporting data. We have relied upon such
information and have assumed that the information provided is accurate and
complete. Our value estimate is based upon the assumption that the improvements
will be constructed as per the specifications provided. We have not attempted to
independently verify such information.
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We are advised that the purpose of this limited summary appraisal is to
estimate the value of the Property "As Is" under present market conditions and
prospective values "As Complete" and "As Complete, As Stabilized". Stanger
understands that the valuation may be reviewed and utilized in connection with a
proposed financing, and Stanger agrees to the use of this report for this
purpose subject to the terms and conditions of the agreement related thereto
dated April 16, 1999. However, the attached appraisal report should be reviewed
in its entirety and is subject to the assumptions and limiting conditions
contained herein.
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 total
market value of the Property, "As Is", "As Complete" and "As Complete, As
Stabilized." Neither Stanger nor the undersigned have any present or
contemplated future interest in the Property or in Liberty Self-Stor.
The appraisal is only an estimate of the market value of the Property
"As Is" 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 Property. 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 valuation report provides our value conclusion with respect to the
Property, definitions of value, and discussions of the valuation methodology
employed, assumptions and limiting conditions. The attached exhibits are an
integral part of this report.
Sincerely,
/s/ Cornelius J. Guiney
Cornelius J. Guiney, MAI
General Real Estate Appraiser
New York State Certificate Number 46000015587
/s/ Robert Gagliano
Robert Gagliano
Inspecting Appraiser
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IDENTIFICATION OF SUBJECT PROPERTY
----------------------------------
The subject of this appraisal is the real property known as Storage
Town East, a 20,625 net rentable square foot self-storage facility located at 99
Mill Road, Riverhead, Suffolk County, New York. As of the inspection date, the
subject property was improved with a 183 unit, 20,625 net rentable square foot
self-storage facility. Additions totaling 18,150 net rentable square feet are
proposed for the subject. This assignment is to value the subject "As Is" and
prospective values "As Complete" (as of the anticipated construction completion
date) and "As Complete, As Stabilized".
PURPOSE OF APPRAISAL
--------------------
The purpose of this appraisal is to estimate the market value of the
fee simple interest in the Property "As Is" under market conditions as of March
5, 1999. The "As Complete" value is a prospective value as of the date of the
completion of the proposed additions, which is estimated by Liberty management
to be July 1, 1999. The "As Complete, As Stabilized" value assumes completion of
construction and lease up of the facility to market occupancy on or before July
1, 2000.
Pursuant to the terms of our engagement, the property valuation was
performed using a limited summary format and should not be construed as a self
contained report. Summary appraisal reports are generally limited in scope and
constitute an informed assessment of a property's value. Effective July 1, 1994,
the Appraisal Standards Board revised the Departure Provision of the Uniform
Standards of Professional Appraisal Practice to permit three levels of written
reports, known as self-contained, summary and restricted appraisal reports.
These changes have been adopted to minimize the cost for banks and borrowers.
At the request of the client, therefore, the appraisal and some of the
information contained in the report is summarized. Precautions have been taken,
however, to insure that the report is not so limited as to mislead or confuse
the reader.
FUNCTION OF APPRAISAL
---------------------
The function of this appraisal is to provide a current estimate of
market value "As Is" of the fee simple interest in the Property for use by
Liberty in connection with a proposed purchase and financing of the Property.
Additionally, estimates of two prospective values, "As Complete" and "As
Complete, As Stabilized" are included in the Reconciliation (Exhibit L) of this
report.
SCOPE OF APPRAISAL
------------------
This limited summary appraisal report has been prepared in conformity
with the Uniform Standards of Professional Appraisal Practice of the Appraisal
Institute and in accordance with an
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agreement between Robert A. Stanger & Co., Inc., Provident Bank and Liberty
Self-Stor dated April 16, 1999. Pursuant to that agreement, Stanger has relied
upon the Income Approach, Sales Comparison Approach and Cost Approach to value
the subject property.
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 estimate 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 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.
The property valuation was performed using the Income Approach, Sales
Comparison Approach and Cost Approach. Since the primary buyer group for the
type of property appraised herein is investors, the Income Approach and Sales
Comparison Approach were considered the primary 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 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.
Unless otherwise stated in the report, the existence of hazardous
materials, which may or may not be present at the Property, was not disclosed to
the Appraiser by the owner. The Appraiser has no knowledge of the existence of
such materials on or in the Property, nor is the Appraiser qualified to detect
such hazardous substances. The presence of substances such as asbestos,
ureaformaldehyde foam insulation, oil spills, or other potentially hazardous
materials may affect the value of the Property. The Property value estimate is
predicated on the assumption that there is no such material on or in the
Property 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.
DATE OF VALUATION
-----------------
The date of valuation for the Property is March 5, 1999.
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MARKET VALUE DEFINITION
-----------------------
Market value shall mean, as used in this report and defined by the
Appraisal Standards Board:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is not
affected by undue stimulus. 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 acting in what
they consider their 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: Uniform Standards of Professional Appraisal Practice, Appraisal
Standards Board.)
The property rights appraised in this report consist of a fee simple
interest. Due to the short-term month-to-month tenancies in a self storage
facility, a fee simple interest was deemed appropriate. 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.
This appraisal includes the value of land, land improvements such as
paving, fencing, on-site sewer and water lines and the buildings. This 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. This appraisal pertains only to those items which are considered
real estate.
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HIGHEST AND BEST USE ANALYSIS
-----------------------------
The term "highest and best use," as used in this report, is defined as
follows:
"The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible and that results in the highest value."
(Source: Appraisal Institute, The Appraisal of Real Estate, Eleventh
Edition).
The four criteria that highest and best use must meet are legal
permissibility, physical possibility, financial feasibility, and maximum
productivity.
A full land use feasibility study was not performed. The highest and
best use conclusions are based on general observations in the market, land use
patterns, and prevailing economic conditions.
HIGHEST AND BEST USE "AS IF VACANT"
- -----------------------------------
Physically Possible: The pertinent physical factors affecting the
highest and best use of the subject site fall under two categories: site
characteristics and location characteristics. Site characteristics include size,
dimensions, topography, soil conditions and the availability of adequate
utilities. Location factors include access to transportation, availability of
labor and materials, proximity to markets, the impact of the surrounding
neighborhood and conditions of the market within which the property will
operate. The subject site is located on the west side of Mill Road, between Main
Road (Route 25) and Old Country Road, two major commercial thoroughfares. Mill
Road is a secondary street that is developed with several light industrial uses,
small single family dwellings and a mobile home park. Main Road is the primary
commercial artery from the end of the Long Island Expressway to Riverhead, the
Suffolk County seat and Long Island's "North Fork". Old Country Road is rapidly
developing as a commercial center, as the Tanger Outlet Mall has created heavy
retail traffic in the area, which has attracted major retailers, such as Office
Max and Home Depot, which recently broke ground on a large site on the northeast
corner of Old Country Road and Mill Road, about 1/2 mile north of the subject.
The subject site has adequate area (3.045 acres based upon the site plan
provided), shape and dimensions to accommodate a number of uses.
Legally Permissible: Legal factors influencing the highest and best use
of the subject site are primarily related to governmental restrictions in the
form of zoning regulations. The subject site is zoned Industrial "A". The
permitted uses under this classification include agricultural, light industrial,
building trade shops, cold storage, greenhouses and nurseries, auto, trailer and
boat sales and rentals, offices, appliance repair, restaurants, trucking
stations, vehicle repair and warehouse. "Special Permit" uses include airports,
sports arenas, motels, wholesale businesses, dog and horse training, taverns,
outdoor theaters, driving ranges, lumberyards and body and fender shops. As
such, the Property's zoning permits a large variety of uses.
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Financially Feasible: Although numerous uses may be physically possible
and legally permissible, the character of the subject's immediate environment
favors some form of commercial development. The subject neighborhood is bounded
by the Calverton Naval Weapons Industrial Reserve Plant to the west, the Long
Island Sound to the north, the Town of Southold to the east and the Peconic
Hills County Park and the Hampton Hills Golf and Country Club to the south. The
subject neighborhood is still relatively sparsely developed and includes a large
amount of farmland. The balance of the development is primarily single family
residential with commercial development along Route 25 and Old Country Road. In
the immediate vicinity of the subject property are single-family residences and
a mobile home park to the north and east, a building supply center to the east
and light industrial uses to the south. A new postal distribution center is
under construction on the northwest corner of Main Road and Mill Road. The
subject site is not visible from either Main Road or Old Country Road, but is
located on a convenient access road between the two, and the traffic is
generally steady past the subject. As such, based on the subject's location and
development in the area, financially feasible uses would include warehouse
(including self-storage), lumberyard, nursery, building trade shop or auto or
equipment repair.
Maximally Productive: The final determination in the highest and best
use analysis as if vacant is the maximally productive use of the site. The site
has an Industrial "A", light industrial zoning designation that permits a
variety of agricultural, light industrial and commercial uses. Additionally, the
subject parcel is located in a neighborhood that is predominantly improved with
light industrial and small single-family residential and mobile home park uses,
but is located near a fast-growing commercial area. The neighborhood is
considered to be growing. As such, warehouse (including self-storage),
lumberyard, nursery, building trade shop or auto or equipment repair would be
maximally productive.
In our opinion, as if vacant, the highest and best use of the site
would be warehouse (including self-storage), lumberyard, nursery, building trade
shop or auto or equipment repair.
HIGHEST AND BEST USE "AS IMPROVED"
- ----------------------------------
The subject site is improved with a 20,625 net rentable square foot
self-storage facility which was determined to be a permitted use in the
Industrial "A" zone. Its design is compatible with the surrounding improvements
and land use pattern. The subject facility is currently approximately 92%
occupied. Competing self-storage facilities in the area have reported current
occupancy levels ranging from 85% to 95%. Given the subject property's occupancy
and reflecting its good location, the building improvements significantly add to
the property value as a whole. No other use would warrant removing the existing
improvements and bring a higher return to the land and compensate for their
removal.
Based on these factors, the existing improvements are recognized as the
highest and best use of the site as improved.
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VALUATION METHODOLOGY
---------------------
Pursuant to the appraisal requirements of Provident Bank, Stanger has
estimated the value of the fee simple interest in the Property based on the
Income Approach, Sales Comparison Approach and the Cost Approach to valuation.
The Income Approach is based on the assumption that the value of a
property is dependent upon the Property's ability to produce income. In the
Income Approach, a direct capitalization analysis and a discounted cash flow
("DCF") analysis are used to determine the "As Is" value of the fee simple
interest in the 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 Property.
The direct capitalization analysis is based upon the net operating
income of the Property capitalized at an appropriate capitalization rate based
upon property characteristics and competitive position and market conditions at
the date of the appraisal.
In applying the DCF analysis, pro forma statements of operations for
the Property including revenues and expenses were analyzed and projected over a
ten-year period. The Property is assumed to be sold at the end of the ten-year
holding period. The reversion value of the Property which can be realized upon
sale at the end of the ten-year holding period is calculated based on
capitalization of the estimated net operating income of the Property in the year
of sale, utilizing a capitalization rate deemed appropriate in light of the age,
anticipated functional and economic obsolescence and 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.
The Sales Comparison Approach utilizes indices of value derived from
actual or proposed sales of comparable properties to estimate the value of the
subject Property. Two units of comparison typically analyzed for self-storage
facilities, price per square foot and capitalization rate, were utilized in
applying the Sales Comparison Approach to the subject Property.
The Cost Approach is based upon the principle of substitution, in that
no prudent investor would pay more for a property than the amount for which a
comparable site could be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay.
The following describes more fully the steps involved in the valuation
of the subject Property.
SITE INSPECTIONS & DATA GATHERING
- ---------------------------------
In conducting the property valuation, representatives of Stanger
performed a site inspection of the Property on March 5, 1999. In the course of
this site visit, the physical facilities of the
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Property were inspected, current market rental rates for competing properties
were obtained, information on the local market was gathered, and the on-site
manager was interviewed concerning the Property and other factors. Information
gathered during the site inspection was supplemented by a review of published
information concerning economic, demographic and real estate trends in local,
regional and national markets.
In conducting the property valuation, Stanger also interviewed James
Stark and Liberty management personnel to obtain information relating to the
condition of the Property, including any deferred maintenance, capital budgets,
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, Stanger reviewed the acquisition criteria and parameters
used by self-storage real estate investors. Such reviews included a search of
real estate data sources and publications concerning real estate buyer's
criteria and direct interviews with sources deemed appropriate (major national
investors, owners, managers, brokers and appraisers of self-storage properties)
to investigate such factors as required rates of return, initial capitalization
rate requirements, and property type and geographical preferences. Stanger also
compiled data on actual transactions involving self-storage properties from
which acquisition criteria and parameters were extracted.
EFFECTIVE GROSS INCOME ANALYSIS
- -------------------------------
During the course of the site inspection, competing properties were
identified and data on local market rental rates and occupancy were obtained.
Such data was compared to available published regional or national averages for
self-storage properties and the Property's posted rental rates and occupancy
reports. The Property's recent historical effective gross income was also
reviewed. After assessing the above factors, an effective gross income estimate
was prepared based upon the unit configuration, market rental rates, market
occupancy rate and other income estimates.
EXPENSE ANALYSIS
- ----------------
Historical data provided to Stanger on expenses was reviewed and
property tax assessments were confirmed with local municipalities. Expenses were
estimated based upon this review, available published regional or national
averages and expenses observed at more than 200 self-storage properties reviewed
by Robert A. Stanger & Co., Inc.
SALES COMPARISON ANALYSIS
- -------------------------
Based upon actual and proposed sales transactions identified in the
Property's region and throughout the United States, indices of value for the
Property were derived considering the Property's age, location and other
factors. The indices of value included price per square foot and capitalization
rate. The indices of value were applied to the Property to estimate value in
accordance with the Sales Comparison Approach. Price per square foot as
estimated by reference to comparable
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sales transactions was multiplied by the rentable square footage of the Property
to derive an estimate of value. Net operating income was capitalized at a
capitalization rate estimated in accordance with comparable sales transaction
data.
INCOME APPROACH ANALYSIS
- ------------------------
Direct Capitalization Analysis
- ------------------------------
Based upon net operating income, estimated in accordance with the
analyses of effective gross income and expenses, and capitalization rates
determined in accordance with surveys of buyers of self-storage properties (as
confirmed by a review of comparable sales transactions) an estimate of value was
derived.
Discounted Cash Flow Analysis
- -----------------------------
A ten year projection of net operating income was prepared based upon
net operating income estimated in accordance with the analysis of effective
gross income and expenses and escalation factors deemed appropriate for the
subject Property. The value of the Property at the end of the ten-year holding
period (the "reversion value") was based upon the capitalization of net
operating income in the eleventh year at a capitalization rate deemed
appropriate for the subject Property based upon its age and other market
factors. The reversion value was reduced for estimated selling expenses. The
estimated net cash flows from the Property for the ten-year period (including
the reversion value net of selling expenses) were discounted to present value at
a discount rate deemed appropriate for the subject Property based upon national
surveys of target rates of return for buyers of industrial properties, adjusted
for the incremental risk associated with self-storage properties.
COST APPROACH ANALYSIS
- ----------------------
The estimated value of the property under the Cost Approach was based
upon the construction cost per square foot for comparable self-storage
facilities as estimated and adjusted by reference to the Marshall & Swift
Valuation Service, construction cost data provided by Liberty, construction cost
data on comparable self-storage projects compiled by Robert A. Stanger & Co.,
Inc., the value of land as estimated by reference to comparable land sales
transactions, the costs associated with the lease-up of a newly constructed
project plus an estimated developer's profit. Such analysis is more fully
described in Exhibit K to this report.
RECONCILIATION AND FINAL VALUE ESTIMATE
- ---------------------------------------
The estimated value in accordance with the Cost Approach and Sales
Comparison Approach was reconciled with the estimated values in accordance with
the Income Approach (direct capitalization and discounted cash flow analyses).
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject are typically purchased
and sold based upon their income characteristics. The Income Approach is given
primary consideration based upon the income producing nature of the Property and
its appeal to investors. The Sales Comparison Approach is given secondary
consideration. The Cost Approach is considered the least reliable indicator of
value.
Details of the estimates of the "As Complete, As Stabilized" and "As
Complete" values are located in Exhibit L of this report.
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PROPERTY VALUE CONCLUSIONS
--------------------------
Based upon the review as described above and detailed in the attached
exhibits, it is our opinion that the market value "AS IS" of the fee simple
interest in the Property, as of March 5, 1999 was:
ONE MILLION, FIVE HUNDRED, TWENTY THOUSAND DOLLARS
--------------------------------------------------
$1,520,000
----------
The subject property is presently improved with a 20,625 net rentable
square foot self-storage facility and is undergoing a 18,150 net rentable square
foot expansion. The following value estimates consider the value of the subject
after these additions are complete:
As of July 1, 2000, the "AS COMPLETE, AS STABILIZED" value is estimated
to be:
TWO MILLION, SEVEN HUNDRED, NINETY THOUSAND DOLLARS
---------------------------------------------------
$2,790,000
----------
As of July 1, 1999, (the anticipated date of the completion of the
construction of the additions) the "AS COMPLETE" value, is estimated to be:
TWO MILLION, SEVEN HUNDRED, FORTY THOUSAND DOLLARS
--------------------------------------------------
$2,740,000
----------
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MARKETING TIME
--------------
The requirements and guidelines of the Uniform Standards of
Professional Appraisal Practice (USPAP), Federal National Mortgage Association
(Fannie Mae), Federal Deposit Insurance Corporation (FDIC), Veterans
Administration (VA) and the Farm Home Administration (FHA) require the appraiser
to estimate a reasonable marketing period for the subject property.
Marketing Time (or Marketing Period) is defined as the time it takes an
interest in real property to sell on the open market subsequent to the date of
an appraisal.
Reasonable marketing time is an estimate of the amount of time it might
take to sell an interest in real property at its estimated market value during
the period immediately after the effective date of the appraisal; the
anticipated time required to expose the property to a pool of prospective
purchasers and to allow appropriate time for negotiation, the exercise of due
diligence, and the consummation of a sale at a price supportable by current
market conditions.
(Source: THE DICTIONARY OF REAL ESTATE APPRAISAL, Third Edition)
ESTIMATED MARKETING TIME
- ------------------------
The subject marketing time is estimated to be six months to one year.
This estimate assumes:
1. that the subject property is listed with a competent broker experienced
with similar type properties;
2. that the subject is offered for sale at no more than 110% of the
appraised value;
3. that mortgage money is available at the time of the listing at
competitive market interest rates; and
4. that there is not an oversupply of similar properties offered on the
market at reduced or discounted prices.
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ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
This 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
Property or the title thereto. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens unless
otherwise stated.
2. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the Property's
subsoil or structure that render the Property 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 Appraisal 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 Property in question,
unless arrangements have been previously made therefore.
4. The information contained in the Appraisal or upon which the Appraisal 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
Property or their representatives. Neither the Appraiser nor Stanger shall be
responsible for the accuracy or completeness of such information, including the
correctness of estimates, opinions, dimensions, exhibits and other factual
matters. The Appraisal and the opinion of value stated therein are as of the
date stated in the Appraisal. Changes since that date in market factors can
significantly affect property 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 property's values, 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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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 Appraisal is
based on visual inspection by the Appraiser or other representative 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 survey of the
property.
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 and Stanger make 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 Appraisal represents a normal consideration for the Property sold
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 at the Property was not disclosed to the
Appraiser by the owner. The Appraiser has no knowledge of the existence of such
materials on or in the Property. The Appraiser is not qualified to detect such
hazardous substances. The presence of substances such as asbestos,
urea-formaldehyde foam insulation, oil spills, or other potentially hazardous
materials may affect the value of the Property. The Property value estimate is
predicated on the assumption that there is no such material on or in the
Property 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 the 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.
-12-
<PAGE> 16
ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
-----------------------------------------------
13. The property valuation reported herein may not reflect the premium or
discount a potential buyer may assign to an assembled portfolio of properties or
to a group of properties in a particular local market which provides
opportunities for enhanced market presence and penetration.
14. The appraisal is solely for the purpose of providing our opinion of the
value of the Property, and we make no representation as to the adequacy of such
a review for any other purpose. The use of other valuation methodologies might
produce a higher or lower value.
15. At the request of the client the Appraiser has used a limited summary format
and invokes the Departure Provision of the Uniform Standard of Professional
Appraisal Practice. As such, information pertinent to the valuation may not have
been included in this report.
-13-
<PAGE> 17
CERTIFICATION OF APPRAISAL
--------------------------
The undersigned hereby certifies that to the best of his knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal, unbiased
professional analyses, opinions and conclusions.
3. We have no present or prospective interest in the Property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. Furthermore, this appraisal assignment was
not based on a requested minimum valuation, a specific valuation or the
approval of a loan.
5. Our analyses, opinions and conclusions were developed, and this report has
been prepared using a limited summary report format, in conformity with the
Uniform Standards of Professional Appraisal Practice, as well as the
requirements of the Code of Professional Ethics of the Appraisal Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. Pursuant to the terms of our engagement, a site inspection of the Property
has been performed by representatives of Robert A. Stanger & Co., Inc.
Cornelius J. Guiney, MAI, has not made a personal inspection of the
Property. However, Mr. Guiney has reviewed all pertinent data and
information contained in this report.
8. In addition to the undersigned, Robert Gagliano and Keith Allaire made
contributions to the preparation of the analysis, conclusions and opinions
contained in this appraisal report.
9. The Appraisal Institute conducts a program of continuing education for its
designated members. MAI's who meet the minimum standards of this program are
awarded periodic educational certification. Cornelius J. Guiney, MAI, is
currently certified under this program.
/s/ Cornelius J. Guiney /s/ Robert Gagliano
- ------------------------------- ---------------------------
Cornelius J. Guiney, MAI Robert Gagliano
General Real Estate Appraiser Inspecting Appraiser
New York State Certificate Number 46000015587
-14-
<PAGE> 18
QUALIFICATIONS OF APPRAISER
---------------------------
Robert A. Stanger & Co., Inc.
- -----------------------------
Robert A. Stanger & Co., Inc. ("Stanger") provides specialized
consulting and valuation services for real estate assets and investment
portfolios owned by individuals or institutions. These services relate
principally to real estate portfolio valuations, single property appraisals, and
the valuation of general partner or limited partner interests.
Stanger has valued over $12 billion of real estate assets and currently
provides confirming opinions or appraisals annually on over $2 billion of
properties. Properties reviewed are located throughout the United States and
include shopping centers, residential properties, office buildings, hotels, net
leased warehouse/industrial properties, free standing retail properties,
self-storage facilities and land.
Stanger maintains a wide range of industry contacts and an extensive
database of asset performance information, industry publications, and
information on real estate markets.
Cornelius J. Guiney, MAI
- ------------------------
Mr. Guiney began his real estate career in 1968. Since that time he has
achieved the esteemed designation of Member of the Appraisal Institute and has
valued more than $5 billion of real estate for the purpose of sales, mergers,
acquisitions, reorganizations, financings, investor reporting, and tax related
matters. Mr. Guiney has been involved in the appraisal of commercial, industrial
and residential properties and portfolios including: self-storage facilities,
shopping centers; multi-family apartment projects; industrial net lease
warehouse and manufacturing facilities; office buildings; hotels; free-standing
retail properties; nursing homes, land and other special use facilities.
Mr. Guiney has qualified as an expert before various courts and
administrative bodies including: Tax Court of the State of New Jersey; Superior
Courts of Monmouth, Warren, Morris and Bergen Counties, New Jersey; Monmouth
County Tax Board and various municipal committees and authorities.
Mr. Guiney is the founder and former president of the Monmouth County
Chapter of Independent Fee Appraisers.
-15-
<PAGE> 19
INDEX TO EXHIBITS
-----------------
A. Property Description, Photographs, Maps
B. Market Area Overview
C. Demographic Report
D. Real Estate Taxes and Zoning
E. Market Rental Rate and Effective Gross Income Calculation
F. Expense Analysis
G. Net Operating Income Calculation
H. Surveys of Buyers of Self-Storage Properties and Sales Comparable Analysis
I. Direct Capitalization Analysis
J. Discounted Cash Flow Analysis
K. Cost Analysis
L. Valuation Reconciliation and Conclusion
Determination of "As Complete, As
Stabilized" and "As Complete" Values
<PAGE> 20
EXHIBIT A
---------
PROPERTY DESCRIPTION
--------------------
PROPERTY NAME: Storage Town East
PROPERTY ADDRESS: 99 Mill Road
Riverhead, Suffolk County, New York 11901
EXISTING IMPROVEMENTS:
Rentable Square Feet: 20,625
There is presently a barn on the subject
property that is planned for demolition
and is not included in the value estimate
Units: 183
Land Size: 3.045 Acres (based a site plan provided by
Liberty Self-Stor)
Foundation: Poured Concrete Slab
Exterior Walls: Storage Buildings, Metal.
Office, Wood Frame.
Partitions: Metal.
Roof: Corrugated Metal.
Number of Floors: One.
Parking Lot: Asphalt paving
Climate Control: None.
Year Built: 1985-1986
Condition: The overall condition of the existing
improvements is good.
<PAGE> 21
EXHIBIT A
---------
PROPERTY DESCRIPTION (CONTINUED)
--------------------------------
PROPOSED IMPROVEMENT
Rentable Square Feet: 18,150
Units: 160
Foundation: Poured Concrete Slab
Exterior Walls: Metal.
Partitions: Metal.
Roof: Corrugated Metal.
Number of Floors: One.
Climate Control: None.
Year Built: Expected Completion July 1, 1999
Condition: New.
SECURITY:
Managers Office: Yes.
Managers Apartment: No.
Perimeter Fencing/Walls: Chain link fencing
Controlled Access Gate: No.
Video Monitors: No.
ON-SITE MANAGER: Patty Seamon (516)369-0755
OWNERSHIP HISTORY: Liberty Self-Stor has reportedly issued a
letter of intent to purchase the subject
property for $900,000. There have been no
other transfers of the subject property in
the past three years.
<PAGE> 22
EXHIBIT A
---------
UNIT CONFIGURATION
------------------
"AS IS"
-------
UNIT NUMBER
DIMENSIONS SIZE OF UNITS TOTAL S.F.
==============================================================
5 x 5 25 7 175
5 x 10 50 60 3,000
10 x 10 100 32 3,200
10 x 15 150 51 7,650
10 x 20 200 33 6,600
--- ------
183 20,625
<PAGE> 23
EXHIBIT A
---------
PROPERTY PHOTOGRAPHS
--------------------
<PAGE> 24
EXHIBIT A
PROPERTY MAPS
-------------
<PAGE> 25
EXHIBIT B
---------
MARKET AREA OVERVIEW
--------------------
PROPERTY NAME: Storage Town East
ADDRESS: 99 Mill Road
Riverhead, New York 11901
COUNTY: Suffolk
NEIGHBORHOOD:
The Property is located in Suffolk County, one of the two counties on
Long Island and the easternmost county on Long Island. In 1997, Suffolk County's
population was approximately 1,360,000, and the population is expected to grow
roughly 1.9% by 2002. Nassau-Suffolk is one of the largest metropolitan areas in
the United States, as well as one of the wealthiest.
The subject property is located in one of the easternmost areas on Long
Island, just west of Long Island's "forks". The "North Fork", made up
substantially of the Town of Southold, which encompasses the communities of
Greenport, Southold, Cutchogue, and Mattituck. The "South Fork" consists of the
Hamptons and Montauk. Access to eastern long Island is primarily from the Long
Island Expressway, although there are several small airports in the area and the
Long Island Railroad runs to the end of both of the North and South Forks.
The subject is located in Riverhead, the Suffolk County seat, east of
the end of the Long Island Expressway and west of downtown Riverhead. The
subject neighborhood is bounded by the Calverton Naval Weapons Industrial
Reserve Plant to the west, the Long Island Sound to the north, the Town of
Southold to the east and the Peconic Hills County Park and the Hampton Hills
Golf and Country Club to the south.
Access to the subject is via Main Road (Route 25) and Old Country Road,
which are the two main east-west arteries in the area. Main Road is the primary
road to the North Fork. Old Country Road, north of the subject, is the site of
extensive and rapid commercial development, as the Tanger Outlet Mall has
created heavy retail traffic and has acted as a magnet for additional large
retail development, including a new Office Max Plaza and a large shopping center
to be anchored by Home Depot currently under construction north of the subject
on the corner of Old Country Road and Mill Road.
Mill Road is a convenient access point between Main Road and Old
Country Road, and the surrounding development consists of small single family
residences, a mobile home park, a building supply complex, and other smaller
light industrial uses.
<PAGE> 26
EXHIBIT B
---------
MARKET AREA OVERVIEW (CONTINUED)
--------------------------------
SELF-STORAGE MARKET:
The self-storage market in the subject area is very limited. In fact,
the subject has only one competitor in a five mile radius.
There are approximately 21,712 people living withing a five mile radius
of the subject. The subject is 20,625 square feet in size and the competitor
within this radius, Peconic Mini Storage, is estimated to be 40,000 square feet
in size, for a total of 60,625 square feet in the market area. This indicates
that there is a saturation level of 2.79 square feet of self-storage space per
capita in this radius. This saturation level compares favorably to the U.S.
average of 3.95 square feet per capita.
One new facility is being proposed near the subject. The proposed
property will be located east of the subject in Southold and is planned to be
34,200 square feet in size and two stories in height. However, the developer of
the new site lost Southold Self Storage in foreclosure to Liberty Self-Stor in
June 1998, and his ability to get financing is uncertain. Second, there is a
building moratorium until June 9, 1999. Finally, the project is meeting a large
amount of local resistance, due to the two story configuration and a proposed
partially below-grade first floor, which would require substantial excavation.
Whether or not this facility will get approval is uncertain.
Overall, the neighborhood and the self-storage market is growing, and
growth is expected to continue in the next several years.
In order to assess the business prospects for the subject property, we
obtained a demographic analysis of the immediately surrounding area of the
Property from CACI, a copy of which is included as Exhibit C to this report. The
demographic analysis of the immediate area is summarized in market areas at
three levels: one-mile radius of the subject; three-mile radius of the subject
and five-mile radius of the subject. Based upon discussions with owners and
buyers of self-storage properties, these defined market areas represent the
primary tenant prospects for the subject property. Selected demographic data is
summarized as follows:
<PAGE> 27
EXHIBIT B
---------
MARKET AREA OVERVIEW (CONTINUED)
--------------------------------
1 MILE 3 MILE 5 MILE
------ ------ ------
POPULATION: (1)
2003 Projected 3,299 14,492 21,982
1998 Estimated 3,288 14,338 21,712
1990 3,439 14,439 21,721
% Change 1990-1998 -4.4% -0.7% 0.0%
% Change 1998-2003 0.3% 1.1% 1.2%
HOUSEHOLDS: (1)
2003 Projected 1,156 5,678 8,498
1998 Estimated 1,141 5,557 8,305
1990 1,149 5,452 8,120
% Change 1990-1998 -0.7% 1.9% 2.3%
% Change 1998-2003 1.3% 2.2% 2.3%
1990 HOUSING UNITS: (1)
% Owner Occupied: 77.1% 72.1% 75.0%
% Renter Occupied: 22.9% 27.9% 25.0%
(1) Source: CACI 1998 (Exhibit C).
The above data indicates that the local market is generally stable
within all search areas in both population and households. The above
demographics should have a neutral overall influence on the performance of the
Property.
<PAGE> 28
EXHIBIT C
---------
DEMOGRAPHIC REPORT
------------------
<PAGE> 29
EXHIBIT D
---------
CURRENT REAL ESTATE TAXES AND ZONING
------------------------------------
TAXES: Assessed Value: $205,000 (a)
Equalization Ratio: 30.87%
Real Estate Taxes: $ 19,852
Date of Assessment: 1998
ZONING: Industrial "A"
(a) Based on the current assessment and equalization ratio, the fair market
value is estimated to be $664,075.
<PAGE> 30
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION
----------------------------------------------------------
"AS IS"
-------
<TABLE>
<CAPTION>
Comparable 1 Comparable 2 Comparable 3 Comparable 4
------------ ------------ ------------ ------------
===================================================================================================================================
NAME OF PROPERTY PECONIC MINI QUICK STORAGE EAST MORICHES STORAGE USA
Ranking Superior Inferior Similar Superior
OCCUPANCY RATE I/N/A 95% 94% 85%
UNIT PER PER PER PER
UNIT TYPE SIZE (S.F.) MO. PSF MO. PSF MO. PSF MO. PSF
--------- ----------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 25 $50 $2.00 $40 $1.60 $40 $1.60 $47 $1.88
5 x 10 50 80 1.60 55 1.10 60 1.20 83 1.66
10 x 10 100 110 1.10 95 0.95 105 1.05 119 1.19
10 x 15 150 125 0.83 150 1.00 167 1.11
10 x 20 200 280 1.40 150 0.75 190 0.95 193 0.97
</TABLE>
<TABLE>
<CAPTION>
==========================================================
-- SUBJECT --
==========================================================
QUOTED
RATE/MO. USE PSF UNITS TOTAL
- -------- --- --- ----- -----
<S> <C> <C> <C> <C>
$45 $45 $1.80 7 $315
65 65 1.30 60 3,900
110 110 1.10 32 3,520
150 150 1.00 51 7,650
185 185 0.93 33 6,105
-- -----
183 21,490
=== x 12
----
GROSS POTENTIAL RENT 257,880
VACANCY 10% (25,788)
--------
EFFECTIVE GROSS RENT 232,092
OTHER INCOME 2% 4,642
-----
EFFECTIVE GROSS INCOME 236,734
-------
</TABLE>
<PAGE> 31
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION (CONTINUED)
----------------------------------------------------------------------
COMPETITORS DESCRIPTION:
- ------------------------
- --------------------------------------------------------------------------------
DISTANCE
PHYSICAL FROM
NAME/ADDRESS UNITS OCCUPANCY SUBJECT
------------ ----- --------- --------
- --------------------------------------------------------------------------------
1. Peconic Mini Storage 400+ I/N/A 2 miles SE
345 Flanders Road (Route 24)
Riverhead, NY
2. Quick Storage of Quogue 180 95% 8 miles SE
2 Old Country Road
Quogue, NY
3. East Moriches Self Storage 160 94% 9 miles S
130 Montauk Highway
East Moriches, NY
4. Storage USA 700+ 85% 10 miles W
14 Francis Mooney Drive
Ridge, NY
- --------------------------------------------------------------------------------
RATING/COMMENTS
- ---------------
Rent Comparable 1. Peconic Mini Storage is located south and east of the subject
on Flanders Road (Route 24), just south of downtown Riverhead. This facility is
generally newer and is in slightly better condition than the subject. Although
the neighborhood is generally inferior, the location is more visible than the
subject. The Competitor is considered overall superior.
Rent Comparable 2. Quick Storage of Quogue consists of three sites with a total
of approximately 180 units. The properties are similar in condition and quality
to the subject, and the location, in a quiet industrial neighborhood, is
inferior to the subject. The competitor is considered inferior overall.
Rent Comparable 3. 160 units in size, East Moriches Self-Storage is located
south of the subject behind a relatively new retail strip center. The facility's
office is the end unit in the center. The property is similar in condition and
quality to the subject. Although a highway location is considered superior, the
competitor's visibility is poor. Overall, the competitor is similar to the
subject.
Rent Comparable 4. Formerly Island Self Storage, this Storage USA site on
Francis Mooney Drive (a frontage road off of Route 25, west of the subject)
consists of 700+ units. The facility is located
<PAGE> 32
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION (CONTINUED)
----------------------------------------------------------------------
at the intersection of Route 25 and William Floyd Parkway, which is a major
north-south highway in the area, providing access south to the Long Island
Expressway and Route 27 (Montauk Highway). The site has very good visibility,
although the access off of Route 25 is less than ideal. The facility offers
climate controlled units and is considered overall superior to the subject. The
occupancy is reported by the manager to be 85%, lower than the other
competitors. However, the rates at this facility are the highest in the market
and occupancy appears to be lower due to the high rates.
OCCUPANCY:
- ----------
The subject property had a reported physical occupancy of 92% as of the
date of the site inspection and the current owner indicated that the average
occupancy is approximately 90%. Competing property managers reported physical
occupancy rates ranging from 85% to 95%, and averaging 91%. The estimate of
Effective Gross Income is based upon an physical occupancy of 92% consistent
with recent historical results. The occupancy is decreased by an additional 200
basis points to account for credit and collection losses, concessions and free
units. Therefore, the overall economic vacancy is estimated to be 90%.
OTHER INCOME:
- -------------
The estimate of Effective Gross Income includes Other Income equal to
2% of Effective Gross Rent. There is no historical data on other income at the
subject, but 2% of EGI represents $4,642 annually, which is appears reasonable
for the collection of application fees, late fees, lien fees and retail sales of
locks and boxes.
<PAGE> 33
EXHIBIT F
---------
EXPENSE ANALYSIS
----------------
"AS IS"
-------
PROJECTED
1995 1996 1997 FIRST YEAR
- ---------------------------------------------------------------------
Payroll & Benefits $ 0 $ 0 $ 0 $34,944 (A)
Management Fees 0 0 0 11,837 (B)
Advertising 4,147 4,956 4,533 2,328 (C)
Office Expense 18,425 18,345 15,317 2,100 (D)
Utilities 3,894 3,925 4,012 6,200 (E)
Repairs & Maintenance 10,994 10,887 10,069 4,100 (F)
Insurance 2,500 2,500 2,500 1,900 (G)
Miscellaneous 2,777 2,753 2,790 2,100 (H)
Real Estate Taxes 16,802 16,844 19,624 26,787 (I)
------- -------
Total Expenses $59,539 $60,210 $58,845 $92,296 (J)
------- ------- ------- -------
<PAGE> 34
EXHIBIT F
---------
EXPENSE ANALYSIS (CONTINUED)
----------------------------
Footnotes:
- ----------
(A) Payroll and benefits were estimated at $10 per hour for a full-time
manager at 40 hours per week and $8 per hour for a full-time assistant
manager at twenty hours per week plus benefits at 20%.
(B) Management fees were based upon 5% of effective gross income,
consistent with industry practice.
(C) Advertising cost was based upon the projected cost of Yellow Pages
advertisement for the area (projected at approximately $194 per month).
(D) Office expense was based upon an estimated charge equal to 10(cent) per
rentable square foot, consistent With expenditures at comparable
facilities. The prior year's expense included payroll for three
part-time employees ranging from $10.00 to $7.00 per hour. Two
employees work 12 hours per week and one works six hours per week.
These employees have no benefits. The remainder of the historical
expense is miscellaneous office supplies and telephone.
(E) Utilities expense were estimated at approximately 30(cent) per square
foot of storage space. Such amount is consistent with expenditures
incurred at comparable facilities.
(F) Repairs and maintenance expenses were estimated at 20(cent) per
rentable square foot consistent with expenditures incurred at
comparable facilities. The historical expense includes approximately
$4,000 per year for the salary of a part-time handy man who does all of
the basic repairs, maintenance, cleaning and landscaping at the subject
site. A neighbor is also paid roughly $1,300 per year to open and close
the gate to the facility daily. The balance of the historical expense
is maintenance supplies.
(G) Insurance expense was based on a projection provided by Liberty.
(H) Miscellaneous expenses were based upon 10(cent) per rentable square
foot consistent with expenditureS AT comparable facilities. The
historical expense includes professional (accounting) fees.
(I) Taxes were re-set based upon an effective tax rate of $2.9894 per $100
of assessed value and an assessment of $900,000, which is the proposed
purchase price of the facility. Taxes, therefore, conservatively assume
an immediate reset of the tax to the sale price, resulting in an
increase versus 1998 in excess of 35%.
<PAGE> 35
EXHIBIT F
---------
EXPENSE ANALYSIS (CONTINUED)
----------------------------
(J) We further observe that total expenses approximate 39% of revenues.
Self-storage properties with stabilized occupancy typically have
expense ratios of 30% to 40%. The subject is at the high end of the
range due primarily to its small size and the tax re-set.
<PAGE> 36
EXHIBIT G
---------
NET OPERATING INCOME CALCULATION
--------------------------------
"AS IS"
-------
The following summarizes annualized net operating income for the years
1995, 1996 and 1997 and the Appraiser's estimate of the first year's operating
income and expenses.
PROJECTED
1995 1996 1997 FIRST YEAR
---- ---- ---- ----------
INCOME:
- -------
Gross Potential Income $ 257,880
Vacancy & Credit Loss (25,788)
---------
Gross Rent 232,092
Other Income 4,642
---------
EFFECTIVE GROSS INCOME 157,769 170,725 171,647 236,734
EXPENSES:
- ---------
Payroll and Benefits 0 0 0 34,944
Management Fees 0 0 0 11,837
Advertising 4,147 4,956 4,533 2,328
Office Expense 18,425 18,345 15,317 2,100
Utilities 3,894 3,925 4,012 6,200
Repairs and Maintenance 10,994 10,887 10,069 4,100
Insurance 2,500 2,500 2,500 1,900
Miscellaneous 2,777 2,753 2,790 2,100
Real Estate Taxes 16,802 16,844 19,624 26,787
--------- --------- --------- ---------
TOTAL EXPENSES 59,539 60,210 58,845 92,296
--------- --------- --------- ---------
NET OPERATING INCOME $ 98,230 $ 110,515 $ 112,802 $ 144,438
========= ========= ========= =========
See Exhibit E and Exhibit F for details concerning Effective Gross
Income and Expenses, respectively.
<PAGE> 37
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS
-----------------------------
NATIONAL SURVEY
- ---------------
Buyers and appraisers of self-storage properties were surveyed during
the fourth quarter of 1998 to determine the parameters used in the determination
of value for self-storage properties. Uniformly, the participants in the survey
observed that self-storage properties were generally purchased based upon the
capitalization of current net operating income, as adjusted for any known or
expected changes in revenues or operating expenses. Additionally, purchase
prices are usually adjusted to reflect deferred maintenance items and other
non-recurring costs. The following summarizes primary acquisition criteria
observed in the market by survey participants.
Primary
Acquisition Target Capitalization
Criteria Rate Range
----------- ---------------------
Shurgard Storage Centers, Inc. Cap Rate 9.0% - 10.0%
Storage USA Cap Rate 9.0% - 10.0%
Public Storage, Inc. Cap Rate 9.0% - 10.0%
Storage Trust Cap Rate 9.0% - 10.0%
NATIONAL SALES TRANSACTION SUMMARY
- ----------------------------------
Since 1993, Robert A. Stanger & Co., Inc. has maintained a database of
self-storage transactions including transactions reported by publicly-traded
real estate investment trusts. Such database includes information on
transactions involving more than 1,300 properties with a reported purchase price
exceeding $3,197,000,000. The average capitalization rate for stabilized
properties (properties which have achieved stabilized levels of occupancy)
included in such database for the period 1993 to 1998 is 9.06%. More recent
transactions during 1997 and 1998 have been completed at comparable
capitalization rates, as summarized on the following page.
<PAGE> 38
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-----------------------------------------
1997-1998 BULK AND MULTI-PROPERTY TRANSACTION SUMMARY
<TABLE>
<CAPTION>
PRICE PER
NUMBER OF TRANSACTION AGGREGATE CAPITALIZATION SQUARE
BUYER PROPERTIES DATES PRICE RATE FOOT
- ----- ---------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Sovran Self Storage 42 1/97-10/97 $100,800,000 9.62% $42.71
Storage USA 39 1/97-10/97 128,800,000 9.46% 50.72
Storage USA 13 3/97-10/97 25,900,000 8.10% 36.52
Storage USA 9 7/97-9/97 33,500,000 9.29% 69.15
Storage USA 45 11/97-1/98 117,300,000 8.02% 46.79
Storage USA 12 2/98-3/98 26,600,000 9.14% 36.90
Sovran Self Storage 24 11/97-4/98 74,000,000 8.59% 48.50
Sovran Self Storage 4 4/98 17,400,000 9.07% 57.47
Sovran Self Storage 6 4/98-6/98 20,100,000 9.43% 46.42
--- ------------ ---- ------
TOTAL/AVERAGE 194 $544,400,000 9.00% $48.35
=== ============ ==== ======
</TABLE>
<PAGE> 39
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-----------------------------------------
IDENTIFIED REGIONAL TRANSACTIONS
- --------------------------------
The following summarizes selected data on self-storage properties
acquired throughout the region (certain data has been deleted at the request of
the respondent in order to maintain confidentiality).
<TABLE>
<CAPTION>
REGIONAL SIZE CAPITALI- PRICE PER
TRANSACTION TRANSACTION RENTABLE PURCHASE ZATION SQUARE
NUMBER LOCATION DATE (SF) PRICE RATE FOOT
------ ----------------------------- ----------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1. 14 Francis Mooney Drive 1/98 76,175 $5,000,000 I/N/A $66
Ridge, New York
2. 240 Bayshore Blvd. 4/98 34,423 2,749,093 9.7% 80
North Babylon, New York
3. 2025 Rte. 112 6/96 94,714 7,244,211 10.0% 76
Coram, New York
4. 3620 Northern Blvd. 9/98 140,323 15,648,000 I/N/A 112
Long Island City, New York
5. 270 South River Street 1/97 123,585 13,379,000 8.9% 108
Hackensack, New Jersey
6. 412 Harrison Avenue 1/97 28,533 2,953,000 9.5% 103
Harrison, New Jersey
7. 101 Paterson Plank Road 1/97 106,775 10,364,000 10.0% 97
Secaucus, New Jersey
LOW 8.9% 42
HIGH 10.0% 112
AVERAGE 9.6% 92
=== ==
</TABLE>
<PAGE> 40
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-----------------------------------------
SALES COMPARABLE ANALYSIS
- -------------------------
Based upon the above regional data, we observed that the capitalization
rate for self-storage properties ranges from 8.9% to 10.0% and averages 9.6% and
the cost per square foot ranges from $42 to $112 and averages $92. The subject
property, in our opinion, would require a capitalization rate of 9.5% and a cost
per square foot of $70 due to its physical condition, location and other
factors. The values derived hereunder may be summarized as follows:
Value at 9.5% Capitalization Rate "As Is" (Rounded) $1,520,000
==========
Value at $70 Per Square Foot "As Is" (Rounded) $1,440,000
==========
Use $1,500,000
==========
We note that the subject property commands an effective gross income
per square foot of $11.48 and has expenses per square foot of $4.48 providing
estimated stabilized net operating income per square foot of $7.00 per square
foot. In our view, a 9.5% capitalization rate and $70 per square foot value
appear reasonable.
<PAGE> 41
EXHIBIT I
---------
DIRECT CAPITALIZATION ANALYSIS
------------------------------
The capitalization rates as summarized in Exhibit H for regional
transactions range from 8.9% to 10.0% and average 9.6%. Furthermore, the
capitalization rate derived from the review of national transactions involving
more than 1,300 properties with a value of approximately $3.2 billion was 9.06%.
Our survey of buyers of self-storage properties indicates that the target range
of capitalization rates on net operating income for purchases was 9.0% to 10.0%.
The subject is an operating 20,625 square foot facility. Due to the
condition and location of the facility, and the conservative calculation of net
operating income, a capitalization rate of 9.5% was deemed appropriate for the
subject property. The valuation may be summarized as follows:
Net Operating Income $ 144,438
Capitalization Rate 9.50%
-----------
Value Estimate $ 1,520,400
Use $ 1,520,000
===========
<PAGE> 42
EXHIBIT J
---------
DISCOUNTED CASH FLOW ANALYSIS
-----------------------------
The assumptions utilized in the discounted cash flow analysis are as
follows:
PROJECTION PERIOD: 10 years
VACANCY & COLLECTION LOSS 10%
INCOME AND EXPENSE GROWTH RATE: 3% annually. This growth rate
conforms to the 10-year historical
growth in the Consumer Price index
and to growth parameters used by
owners and buyers of self-storage
facilities, adjusted for
expectations based upon demographic
projections.
REVERSIONARY CAPITALIZATION RATE: 10.0%. A premium of 50 basis points
was added to the estimated direct
capitalization rate as described in
Exhibit I.
REVERSION SALES COSTS: 3%.
DISCOUNT RATE: 12.0%. The discount rate was based
upon target rates of return on
industrial properties based upon
surveys prepared by Real Estate
Research Corporation ("RERC") and
Peter F. Korpacz and Associates
("KORPACZ"). Due to the additional
risk of short-term leases on
self-storage properties versus
longer term leases on industrial
properties, a 100 basis point
premium was added to the average
target rate of return on industrial
properties pursuant to the surveys.
A summary of the target rates of
return pursuant to the surveys is as
follows:
<PAGE> 43
EXHIBIT J
---------
DISCOUNTED CASH FLOW ANALYSIS (CONTINUED)
-----------------------------------------
RERC 10.90%
KORPACZ 11.15%
------
Average 11.02%
Premium 1.00%
------
Total 12.02%
======
Use 12.00%
======
It should be noted that buyers of
self-storage properties do not place
a primary emphasis on discounted
cash flow analysis.
VALUE CONCLUSION: The market value of the Property, as
summarized in the enclosed
discounted cash flow analysis is as
follows:
Value Per Model $1,516,677
Use $1,520,000
==========
<PAGE> 44
EXHIBIT K
---------
COST ANALYSIS
-------------
The Cost Approach is based upon the principle of substitution, in that
no prudent investor would pay more for a property than the amount for which a
comparable site could be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay. This approach
treats the property as a physical entity that can be separated for valuation
purposes into land and improvements.
In order to analyze the costs associated with the construction of
self-storage facilities, we consulted several sources, including but not limited
to : ( i) Marshall & Swift Valuation Service; (ii) developers of self-storage
properties; (iii) published materials on self-storage construction, and (iv)
published materials on real estate markets. Our methodology may be summarized as
follows:
REVIEW OF MARSHALL & SWIFT DATA
Marshall & Swift provides a construction cost data collection service
for most property types, including self-storage facilities. Such service is
based upon data accumulated for actual development projects and is updated on a
monthly basis. The average construction cost per square foot for good quality
self-storage facilities in the S-Class (Steel Construction) is $24.77. Such
average was utilized as the base building cost per square foot for the subject
facility's self-storage space.
The average base building cost per Marshall & Swift was adjusted for
two factors provided by Marshall & Swift. The average self-storage base building
cost was adjusted by the current cost multiplier, an index which updates the
reported averages for cost changes since the date of the Marshall & Swift study.
The current cost multiplier for the average self-storage building cost was 1.02.
Secondly, the average building costs (as adjusted by the current cost
multiplier) were adjusted by the local cost multiplier, a factor developed by
Marshall & Swift to recognize differences in local construction costs between
markets. The local cost multiplier for Suffolk County is 1.42.
Utilizing this data, a construction cost per gross square foot of
$35.88 is derived. Applying this construction cost to the gross square footage
of the subject (estimated at 21,425 square feet) provides a construction cost
estimate of $768,662. In addition to the self-storage buildings, there is a 500
square foot one story wood frame office building. The Base Cost for this type of
construction (assuming average quality) is $53.57. The current cost multiplier
is 1.06 and the local cost multiplier is 1.44. Therefore, the adjusted cost per
square foot for the office building is $81.77 and the total cost is $40,885
($81.77 x 500 square feet).
The subject also has an estimated 43,000 square feet of asphalt paving,
based on the site plan provided. Based on Marshall & Swift cost ranges, a cost
of $3.00 per square foot is considered reasonable for a total of $129,000.
The cost of construction of the self-storage buildings was estimated to
be $768,662. The cost of the office building was estimated to be $40,885. The
cost of paving/drive areas at $129,000 was
<PAGE> 45
added to the cost of the storage and office buildings for a total construction
cost of the improvements of $938,547.
<PAGE> 46
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
ESTIMATED LAND COSTS
The subject property is located on a 3.045 acre, irregularly-shaped
site located on Mill Road in Riverhead, New York.
Given the property's size, zoning and location, we utilized land sales
in the Riverhead area that are located in industrial and commercial zones. There
were few land sales available. The sales identified are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SALE # SALE DATE LOCATION SALE PRICE SIZE (ACRES) PRICE PER ACRE ZONING
------ --------- -------- ---------- ------------ -------------- ------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. 5/98 Commerce Avenue $255,000 1.08 $236,111 Industrial "A"
Riverhead, NY (Light Ind.)
2. 4/98 Old Country Road $601,500 4.06 $148,153 Business "B"
Riverhead, NY
3. 6/96 Commerce Drive $200,000 4.68 $42,735 Industrial "A"
Riverhead, NY (Light Ind.)
4. 6/96 Commerce Drive $150,000 3.09 $48,544 Industrial "A"
Riverhead, NY (Light Ind.)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The sales ranged in price per acre from $236,111 to $42,735, and
averaged $118,886 per acre.
Land Sale 1. This land sale comparable is similar to the subject as it is
located in the same zone as the subject. The 1.08 acre lot is located just north
of the subject, near the intersection of Old Country Road and Mill Road. The
location is superior, on the corner of Commerce Drive and the site is part of a
small industrial subdivision. The site is not yet developed. The comparable's
location is superior, and a downward adjustment is therefore required. A
downward adjustment is also needed for size, as the comparable is smaller than
the subject and as the number of units decrease, the value of each unit tends to
increase. Overall, this comparable is considered superior to the subject
primarily due to location and size.
Land Sale 2. Sold in April 1998, this 4.06 acre commercial property was
purchased for the development of a large shopping center anchored by Home
Deport. The parcel fronts Old Country Road, east of the intersection of Mill
Road. The lot is rectangular in shape. The location is superior to the subject,
as it fronts a major road, but the size is generally similar. Overall, the
comparable is considered superior to the subject due to location.
<PAGE> 47
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
Land Sale 3. Located on the same industrial subdivision as Land Sale 1, this
sale represents the purchase of two lots totaling 4.68 acres. The zone is the
same as the subject, but the sale is older, prior to the strong growth in the
neighborhood. A upward adjustment is therefore required for market conditions.
An upward adjustment is also required for size, because as the number of units
(acres) increases, the value of each unit tends to decrease. Overall, this
comparable sale is inferior to the subject due to market conditions and size.
Land Sale 4. Located adjacent to Land Sale 3, this sale was also of two lots in
the Commerce Drive (formerly Warsaw Drive) industrial subdivision. This sale
requires an upward adjustment for market conditions, but no adjustment for size,
as it is similar to the subject. Overall, this land sale is inferior to the
subject.
Given the above information and relying primarily on Land Sales 1, 3
and 4 (as adjusted for the factors mentioned above), and based on the overall
growth in the immediate area of the subject, we have estimated the subject's
land value at $100,000 per acre. The final value is therefore $304,500 or
$305,000, rounded.
<PAGE> 48
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
LEASE UP COST FACTORS
A lease-up cost factor was developed to reflect the costs associated
with achieving projected full economic occupancy. The lease-up cost was based
upon (i) absorption of space at the rate of 2.5% to 5% per month; (ii)
management fees equal to 5% of gross revenues; (iii) other operating expenses
equal to 31% of Potential Gross Income plus Other Income; and (iv) a yield
requirement equal to 12.0% per annum on development cost. Details of the
analysis are described on the following pages:
<PAGE> 49
EXHIBIT K
---------
LEASE-UP COST ANALYSIS
----------------------
"AS IS"
-------
<TABLE>
<CAPTION>
RENTAL & TOTAL
CUMULATIVE OTHER MANAGEMENT OTHER YIELD ON LEASE-UP
MONTH ABSORPTION INCOME (1) FEES (2) EXPENSES (3) COST (4) COST (5)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2.50% $547 ($27) ($6,782) ($12,435)
2 5.00% $1,094 ($55) ($6,782) ($12,435)
3 7.50% $1,641 ($82) ($6,782) ($12,435)
4 10.00% $2,188 ($109) ($6,782) ($12,435)
5 12.50% $2,735 ($137) ($6,782) ($12,435)
6 15.00% $3,282 ($164) ($6,782) ($12,435)
7 20.00% $4,375 ($219) ($6,782) ($12,435)
8 25.00% $5,469 ($273) ($6,782) ($12,435)
9 30.00% $6,563 ($328) ($6,782) ($12,435)
10 35.00% $7,657 ($383) ($6,782) ($12,435)
11 40.00% $8,751 ($438) ($6,782) ($12,435)
12 45.00% $9,845 ($492) ($6,782) ($12,435)
13 50.00% $10,938 ($547) ($6,782) ($12,435)
14 55.00% $12,032 ($602) ($6,782) ($12,435)
15 60.00% $13,126 ($656) ($6,782) ($12,435)
16 65.00% $14,220 ($711) ($6,782) ($12,435)
17 70.00% $15,314 ($766) ($6,782) ($12,435)
18 75.00% $16,408 ($820) ($6,782) ($12,435)
19 77.50% $16,955 ($848) ($6,782) ($12,435)
20 80.00% $17,501 ($875) ($6,782) ($12,435)
21 82.50% $18,048 ($902) ($6,782) ($12,435)
22 85.00% $18,595 ($930) ($6,782) ($12,435)
23 87.50% $19,142 ($957) ($6,782) ($12,435)
24 90.00% $19,689 ($984) ($6,782) ($12,435)
--------- -------- --------- ---------
Totals $153,138 ($7,657) ($128,854) ($236,274) ($219,648)
========= ======== ========= ========= ==========
</TABLE>
<PAGE> 50
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
Lease-Up Analysis Footnotes:
- ----------------------------
(1) Potential Gross Rent was estimated earlier in this report at $257,880.
Other income is equal to $4,642 for a total of $262,522. This analysis
assumes that the subject is leased up at 2.5% to 5% per month, which
results in a 24 month lease-up to stabilized occupancy.
(2) Management fees represent 5% of the calculated income.
(3) Other expenses (excluding management fees) are based on 31% of the
Potential Gross Rent plus Other Income, as calculated in Exhibit E. These
expenses are estimated at $6,782 per month.
(4) The yield on cost is the expected return on both construction and land
costs at 12% per annum until stabilized occupancy is achieved. The total
construction cost of the improvements is estimated at $938,547. The land
cost estimate of $305,000 is added to achieve a total cost of $1,243,547. A
yield of 12% was applied to such cost to derive the yield requirement of
the developer of $12,435 per month.
(5) Lease-up cost represents the excess of management fees, other operating
expenses and yield on construction and land cost over revenues for the
period through stabilization.
<PAGE> 51
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
ENTREPRENEURIAL PROFIT
A developer's profit (entrepreneurial profit) equal to 15% of total
development cost (including lease-up cost) was deemed appropriate based upon our
survey of self-storage property developers. Such developers generally agreed
that the expected yield on cost, before developers entrepreneurial profit,
should approximate 12% to 12.5% of cost and further, that the stabilized value
of a property should approximate a minimum of 9.5% to 10.5% capitalization for a
newly completed property. The resulting range of developer's profit may be
summarized as follows:
Range of Yield on Developers Cost (A) 12.00% to 12.50%
Range of Yield on Value 10.50 to 9.50
----- -----
Excess (B) 1.50 to 3.00
===== =====
Developers Profit Range (B/A) 12.50% to 24.00%
====== =====
Use 15%
======
DEPRECIATION
The property was constructed in 1985-1986 and has an actual age of
approximately 13 years. The effective age is estimated to be 10 years. The
effective age is estimated considering the actual age, reflecting the impact of
the overall maintenance and current condition of the property. Steel
mini-storage buildings have an economic life of 40 years per Marshall & Swift.
The depreciation factor applicable to the improvements is 11%, based on a
depreciation tables published by Marshall & Swift. The remaining economic life
of the subject is 30 years.
Based upon a construction cost of the improvements of $938,547,
lease-up costs of $219,648 (see "Lease-Up Costs" above) and a developers profit
of 15% applied to the construction costs and lease-up costs, the total cost of
the improvements, excluding land, was estimated at $1,331,924. Depreciation was
estimated at $146,512.
The Cost Approach for the subject property is summarized on the
following page. It should be noted that the cost approach is not generally
utilized as a reliable indicator of value by owners and operators of
self-storage properties in the marketplace today. The primary emphasis is placed
upon the income approach and the direct capitalization of earnings, supported by
the sales comparison approach.
<PAGE> 52
Exhibit K
---------
Cost Analysis
-------------
"As Is"
-------
<TABLE>
<S> <C> <C>
Cost Per Square Foot per Marshall & Swift $24.77
Current Cost Multiplier 1.02
Local Cost Multiplier 1.42
---------
Adjusted Cost Per Square Foot 35.88
Gross Square Footage 21,425
---------
Construction Cost of Building(s) 768,662
Construction Cost of Office Buildings 40,885
Cost of Drive/Parking Areas 129,000
---------
Total Construction Cost 938,547
Lease Up Cost 219,648
Entrepeneurial Profit 15% 219,479
Depreciation 11% (146,512)
Land Value 305,000
---------
Total 1,536,162
Rounded 1,540,000
---------
</TABLE>
<PAGE> 53
EXHIBIT L
---------
RECONCILIATION
--------------
The indicated value "AS IS," in accordance with the direct
capitalization and discounted cash flow analysis may be summarized as follows:
Direct Capitalization Analysis $ 1,520,000
Discounted Cash Flow Analysis $ 1,520,000
Value Conclusion-Income Approach $ 1,520,000
The indicated value "AS IS" in accordance with the Sales Comparison and
Cost Approach are as follows:
Sales Comparison Approach $ 1,500,000
Cost Approach $ 1,540,000
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject are typically purchased
and sold based upon their income characteristics. The Income Approach is given
primary consideration based upon the income-producing nature of the Property and
its appeal to investors. The Sales Comparison Approach is given secondary
consideration. The Cost Approach is considered the least reliable indicator of
value. In summary, we have the most confidence in the Income Approach based upon
the data available to estimate value.
In the final value conclusion, the fee simple market value of the
subject property "AS IS," as of March 5, 1999 is:
ONE MILLION, FIVE HUNDRED, TWENTY THOUSAND DOLLARS
--------------------------------------------------
$1,520,000
----------
The subject property is presently improved with a 20,625 net rentable
square foot self-storage facility. A 18,150 square foot self-storage space
addition is proposed. We have estimated two additional values: the "As Complete"
value, as of the date of the completion of construction, and the value "As
Complete, As Stabilized". The development of these values are described in the
following pages.
<PAGE> 54
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
VALUE "AS COMPLETE, AS STABILIZED"
- ----------------------------------
The value of the subject "As Complete, As Stabilized" was determined
utilizing the direct capitalization method in the Income Approach, consistent
with the "As Is" value conclusion. In order to estimate Net Operating Income,
the following analyses were developed: (i) the subject Unit Configuration, "As
Complete, As Stabilized"; (ii) Effective Gross Income for the subject "As
Complete, As Stabilized"; (iii) expense analysis based on the subject "As
Complete, As Stabilized"; and (iv) Net Operating Income "As Complete, As
Stabilized".
The estimated Net Operating Income "As Complete, As Stabilized" is
$231,332. A capitalization rate of 9.5%, consistent with the "As Is" value
estimate was utilized to estimate the value "As Complete, As Stabilized" as
follows:
Net Operating Income $ 265,406
Capitalization Rate 9.50%
----------
Value Estimate $2,793,747
Use $2,790,000
==========
A Lease-Up analysis included as part of the "As Complete" value was
completed. The additions total 18,150 square feet. Per Liberty management,
construction is expected to be completed by July 1, 1999. A lease-up period of
12 months, assuming an absorption rate of approximately 2,000 net square feet
per month for the first four months (July, August, September and October 1999),
1,500 square feet in November 1999 and 1,000 square feet per month thereafter to
stabilized occupancy (90% or 16,335 square feet) was projected. The lease-up
will be complete by July 1, 2000. Therefore, the above value "As Complete, As
Stabilized" is as of July 1, 2000.
<PAGE> 55
EXHIBIT L
---------
UNIT CONFIGURATION
------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
UNIT NUMBER
DIMENSIONS DESCRIPTION SIZE OF UNITS TOTAL S.F.
- -------------------------------------------------------------------------------
5 x 5 5 Foot Height 25 30 750
5 x 5 Standard 25 9 225
5 x 10 50 94 4,700
10 x 10 100 56 5,600
10 x 15 150 86 12,900
10 x 20 200 63 12,600
10 x 40 400 5 2,000
--- ------
343 38,775
<PAGE> 56
EXHIBIT L
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION
----------------------------------------------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
<TABLE>
<CAPTION>
COMPARABLE 1 COMPARABLE 2 COMPARABLE 3
------------ ------------ ------------
===================================================================================================================================
NAME OF PROPERTY PECONIC MINI QUICK STORAGE EAST MORICHES
Ranking Superior Inferior Similar
I/N/A 95% 94%
OCCUPANCY RATE
UNIT PER PER PER
UNIT TYPE DESCRIPTION SIZE (S.F.) MO. PSF MO. PSF MO. PSF
--------- ----------- ----------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 5 Foot Height 25
5 x 5 Standard 25 50 2.00 40 1.60 40 1.60
5 x 10 50 80 1.60 55 1.10 60 1.20
10 x 10 100 110 1.10 95 0.95 105 1.05
10 x 15 150 125 0.83 150 1.00
10 x 20 200 280 1.40 150 0.75 190
10 x 40 400
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE 4
------------
=================================================================================================================================
NAME OF PROPERTY STORAGE USA
Ranking Superior
85%
OCCUPANCY RATE
-- SUBJECT --
=================================================================
PER QUOTED
UNIT TYPE DESCRIPTION MO. PSF RATE/MO. USE PSF UNITS TOTAL
--------- ----------- --- --- -------- --- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 5 Foot Height $25 $25 $1.00 30 $750
5 x 5 Standard 47 1.88 45 45 1.80 9 405
5 x 10 83 1.66 65 65 1.30 94 6,110
10 x 10 119 1.19 110 110 1.10 56 6,160
10 x 15 167 1.11 150 150 1.00 86 12,900
10 x 20 193 185 185 0.93 63 11,655
10 x 40 350 350 0.88 5 1,750
--- -------
343 39,730
=== x 12
-------
GROSS POTENTIAL RENT 476,760
VACANCY 10% (47,676)
-------
EFFECTIVE GROSS RENT 429,084
OTHER INCOME 2% 8,582
-------
EFFECTIVE GROSS INCOME 437,666
-------
</TABLE>
<PAGE> 57
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
OCCUPANCY:
- ----------
Overall economic vacancy was estimated to be 90% in the "As Is" value
estimate. The same overall vacancy rate is utilized in the "As Complete, As
Stabilized" value estimate.
OTHER INCOME:
- -------------
The estimate of Effective Gross Income "As Complete, As Stabilized"
includes Other Income equal to 2% of Effective Gross Rent, consistent with the
"As Is" value estimate.
<PAGE> 58
EXHIBIT L
---------
EXPENSE ANALYSIS
----------------
"AS COMPLETE, AS STABILIZED"
----------------------------
<TABLE>
<CAPTION>
PROJECTED
1995 1996 1997 FIRST YEAR
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Payroll & Benefits $0 $0 $0 $34,944 (A)
Management Fees 0 0 0 21,883 (B)
Advertising 4,147 4,956 4,533 2,328 (C)
Office Expense 18,425 18,345 15,317 3,900 (D)
Utilities 3,894 3,925 4,012 11,600 (E)
Repairs & Maintenance 10,994 10,887 10,069 7,800 (F)
Insurance 2,500 2,500 2,500 2,500 (G)
Miscellaneous 2,777 2,753 2,790 3,900 (H)
Real Estate Taxes 16,802 16,844 19,624 83,405 (I)
------- --------
Total Expenses $59,539 $60,210 $58,845 $172,260 (J)
------- ------- ------- --------
</TABLE>
<PAGE> 59
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
Footnotes:
- ----------
(A) Payroll and benefits were estimated at $10 per hour for a full-time
manager at forty hours per week and $8 per hour for a part-time
assistant manager at twenty hours per week plus benefits at 20%.
(B) Management fees were based upon 5% of effective gross income,
consistent with industry practice.
(C) Advertising cost was based upon the projected cost of Yellow Pages
advertisement for the area (projected at approximately $194 per month).
(D) Office expense was based upon an estimated charge equal to 10(cent) per
rentable square foot, consistent With expenditures at comparable
facilities.
(E) Utilities expense were estimated at approximately 30(cent) per square
foot of storage space. Such amount is consistent with expenditures
incurred at comparable facilities.
(F) Repairs and maintenance expenses were estimated at 20(cent) per
rentable square foot consistent with expenditures incurred at
comparable facilities.
(G) Insurance expense was increased from the "As Is" value estimate to
$2,500.
(H) Miscellaneous expenses were based upon 10(cent) per rentable square
foot consistent with expenditures at comparable facilities.
(I) Taxes were re-set based upon an effective tax rate of $2.9894 per $100
of assessed value and an assessment equal to the "As Complete, As
Stabilized" value.
(J) We further observe that total expenses approximate 39% of revenues.
Self-storage properties with stabilized occupancy typically show
expense ratios of 30% to 40%. The subject is at the top end of the
range due primarily to the large tax re-set.
<PAGE> 60
EXHIBIT L
---------
NET OPERATING INCOME CALCULATION
--------------------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
<TABLE>
<CAPTION>
PROJECTED
1995 1996 1997 FIRST YEAR
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME:
- -------
Gross Potential Rent $476,760
Vacancy & Credit Loss (47,676)
--------
Gross Rent 429,084
Other Income 8,582
--------
Effective Gross Income 157,769 170,725 171,647 437,666
EXPENSES:
- ---------
Payroll & Benefits 34,944
Management Fees 21,883
Advertising 4,147 4,956 4,533 2,328
Office Expense 18,425 18,345 15,317 3,900
Utilities 3,894 3,925 4,012 11,600
Repairs & Maintenance 10,994 10,887 10,069 7,800
Insurance 2,500 2,500 2,500 2,500
Miscellaneous 2,777 2,753 2,790 3,900
Real Estate Taxes 16,802 16,844 19,624 83,405
------- -------- -------- --------
Total Expenses 59,539 60,210 58,845 172,260
------- -------- -------- --------
Net Operating Income $98,230 $110,515 $112,802 $265,406
------- -------- -------- --------
</TABLE>
<PAGE> 61
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
VALUE "AS COMPLETE"
- -------------------
The value "As Complete" is as of the date of the completion of
construction, which is estimated by Liberty management to be July 1, 1999.
The "As Complete" value is the "As Completed, As Stabilized" value
minus the cost of lease-up. The "As Complete, As Stabilized" value was
determined to be $2,790,000. In the following Lease-Up Cost Analysis, the cost
of lease-up is shown to be $48,516. The value "As Complete" as of July 1, 1999
after deduction of these lease-up costs and rounding is:
Value "As Complete" $2,740,000
==========
Details of the Lease-Up Cost Analysis are on the following pages.
<PAGE> 62
EXHIBIT L
---------
LEASE-UP COST ANALYSIS
----------------------
"AS COMPLETE"
-------------
<TABLE>
<CAPTION>
RENTAL & TOTAL
MONTHLY CUMULATIVE OTHER MANAGEMENT OTHER YIELD ON LEASE-UP
MONTH ABSORPTION (S.F.) ABSORPTION (S.F.) INCOME (1) FEES (2) EXPENSES (3) COST (4) COST (5)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jul-99 2,000 2,000 $2,086 ($104) ($5,869) ($8,400)
Aug-99 2,000 4,000 4,172 (209) (5,869) (8,400)
Sep-99 2,000 6,000 6,258 (313) (5,869) (8,400)
Oct-99 2,000 8,000 8,345 (417) (5,869) (8,400)
Nov-99 1,500 9,500 9,909 (495) (5,869) (8,400)
Dec-99 1,000 10,500 10,952 (548) (5,869) (8,400)
Jan-00 1,000 11,500 11,995 (600) (5,869) (8,400)
Feb-00 1,000 12,500 13,038 (652) (5,869) (8,400)
Mar-00 1,000 13,500 14,081 (704) (5,869) (8,400)
Apr-00 1,000 14,500 15,125 (756) (5,869) (8,400)
May-00 1,000 15,500 16,168 (808) (5,869) (8,400)
Jun-00 835 16,335 17,039 (852) (5,869) (8,400)
------ --------- -------- ------- --------
Totals 16,335 129,169 (6,458) (70,426) (100,800) (48,516)
====== ========= ======== ======= ======== =======
</TABLE>
<PAGE> 63
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
Lease-Up Analysis Footnotes:
- ----------------------------
(1) Potential Gross Rent was estimated earlier in the "As Complete, As
Stabilized" value at $476,760. Other Income is equal to $8,582 for
total gross revenue of $485,342, which equals $12.52 per square foot
per year or approximately $1.04 per square foot per month. This
analysis assumes that the subject is leased up at 2,000 square feet per
month for the first four months, 1,500 square feet for one month and
1,000 square feet thereafter to 16,335 square feet, which is 90% of the
18,150 square foot addition. Based on this lease-up rate, the addition
will be leased-up fully by July 1, 2000.
(2) Management fees represent 5% of the calculated income.
(3) Other expenses (excluding management fees) are based on 31% of the
addition's proportionate share of Potential Gross Rent plus Other
Income. These expenses are estimated at $5,869 per month.
(4) The yield on cost is the expected return on construction cost at 12%
per annum until stabilized occupancy is achieved. The total
construction cost of the addition is estimated as follows: $35.88
construction cost per square foot per Marshall & Swift, calculated the
Cost Approach earlier, plus 15% entrepreneurial profit, which increases
the cost per square foot to $41.26. The proposed construction is 20,275
gross square feet in size and the total construction cost is estimated
to be $836,547 rounded to $840,000. A yield of 12% was applied to such
cost to derive the yield requirement of the developer of $8,400 per
month.
(5) Lease-up cost represents the excess of management fees, other operating
expenses and yield on construction and land cost over revenues for the
period through stabilization.
<PAGE> 64
EXHIBIT M
---------
AGREEMENT FOR SERVICES
----------------------
<PAGE> 65
AGREEMENT
---------
This Agreement is made as of April 16, 1999 by and between Robert A.
Stanger & Co., Inc., with offices at 1129 Broad Street, Shrewsbury, New Jersey
07702 ("Stanger"), and Provident Bank (collectively "the Company"), with offices
at 1111 Superior Avenue, Cleveland, Ohio 44114 and Liberty Self-Stor, Ltd.
("Liberty") with offices at 8500 Station Street, Suite 100, Mentor, Ohio 44060.
WHEREAS, the Company wishes to retain Stanger to appraise certain
self-storage facilities which are owned by or under contract of purchase by
Liberty and which may be financed by the Company;
WHEREAS, Stanger is willing to provide such services in accordance with
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties agree as follows:
1. APPRAISAL SERVICES: Subject to the provisions of this Agreement,
Stanger will furnish to the Company limited summary appraisal reports (the
"Reports") including certain modifications as requested by the Company for each
property identified in Exhibit A hereto (the "Properties"). The Reports shall be
addressed to the Company. Such Reports will be delivered on or before April 23,
1999.
Stanger's Reports will be certified by a Member of the Appraisal
Institute and will be based in part upon its review of the following
information, which has already been provided by Liberty:
(a) Property descriptive information (including age, size, unit
configurations, land area, etc.);
(b) Financial schedules detailing individual property operating
results and capital expenditures for 1996, 1997 and 1998,
current year operating budgets, year-to-date actual results
and capital budgets to the extent available;
(c) Property acquisition information, including date, price and
terms and available information on any sales transactions
involving the Properties occurring within the past three
years;
(d) Occupancy and rental rate information for each Property for
1996, 1997, 1998 and year to date 1999, and management surveys
as available of recent rental rates and occupancy among
properties which compete in local markets with the subject
Properties;
<PAGE> 66
(e) Available information on any purchases and/or sales of
self-storage properties transacted by the owner or manager of
the Properties over the past twelve months;
(f) Copies of all recent property site inspection reports prepared
by organizations other than Stanger;
(g) Information, as available, from current management of the
Properties concerning potentially competing properties planned
for construction or under development in the local market
where the Property is located; and
(h) Information provided by Liberty regarding subject properties
under construction, redevelopment or expansion including the
timing of expected construction, unit mix, and other features.
In addition to reviewing the above, Stanger representatives will
perform site inspections of each Property for each Report and gather
supplementary information on the local real estate markets as it deems
necessary.
In connection with Stanger's activities on behalf of the Company, the
Company agrees to furnish to Stanger, or request that Liberty furnish to
Stanger, all reasonably available information and data regarding the Properties
in its possession which Stanger reasonably deems appropriate (the
"Information").
2. SCOPE OF REPORTS: The purpose of the Reports referred to above is to
estimate the market value of the Properties "As Is". Additionally, value
estimates "As Complete" (as of the anticipated construction completion date) and
"As Complete, As Stabilized" will be included. Stanger will render to the
Company Reports which complies with USPAP and FIRREA for each property which
will include: a description of the purpose, scope and function of the Report, a
definition of market value, an explanation of the appraisal methodology used, a
description and market area overview, demographic analysis, real estate tax
analysis, market rental rate and gross potential income analysis, expense
analysis, net operating income analysis, survey of buyers of self storage
properties and sales comparable analysis, cost analysis, direct capitalization
analysis, discounted cash flow analysis, and a value reconciliation and
conclusion.
3. PAYMENT: The fee for each report shall be $4,500 for each property.
Such fee shall be paid by the Company to Stanger. However, payment for the
Riverhead, New York and Dayton, Ohio properties will be made directly to Stanger
by Liberty, based on previous agreements.
The Company shall also reimburse Stanger for any out-of-pocket expenses
incurred for travel, meals, lodging, data and communication. Such expenses shall
be billed with the appraisal fee.
4. CONFIDENTIALITY: Any information submitted by the Company or by
Liberty to Stanger
2
<PAGE> 67
in connection with its review and Reports as set forth in Section 1 which is not
otherwise publicly available shall be kept confidential by Stanger and shall not
be released to any other person, unless required by law, without the prior
written consent of the Company and Liberty.
5. USE OF REPORTS: The Reports to be provided by Stanger are intended
to be relied upon and utilized by the Company in connection with the financing
of such Properties. The Reports may be utilized by and relied on by other
lenders participating in such financing. The Reports shall not be reproduced or
excerpted in any securities offering document or used for any other purposes
without the prior written consent of Stanger.
6. RESPONSIBILITIES: Stanger assumes no responsibility under this
Agreement other than to render the services outlined in Section 1. Stanger shall
not be liable for any error in judgment or act or omission provided that it has
acted in good faith, with reasonable care and not in violation of applicable
law. Notwithstanding any provision hereof to the contrary, nothing herein shall
constitute a waiver by, or limitation of, the Company of any right or remedy
afforded by Federal or state securities laws. No third party shall have any
rights against Stanger by reason of this Agreement and Stanger's services in
connection herewith.
If Stanger personnel are requested by the Company to testify in any
proceeding relating to the Reports or the services rendered under this contract,
the Company agrees that it shall compensate Stanger at a rate equal to its then
customary hourly rate for such individual as a consultant and expert, for
whatever time such individual is requested by the Company or otherwise required
to devote to such work.
7. MISCELLANEOUS: This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and the terms
hereof shall not be waived, amended or modified in any respect except by written
agreement, signed by the parties hereto. No assignment of this Agreement or any
rights hereunder shall be effective without the prior written consent of all
parties. Nothing herein shall constitute either party as the agent or
representative of the other party. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of New Jersey
applicable to agreements made and to be performed in the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ROBERT A. STANGER & CO., INC. PROVIDENT BANK
BY:__________________________ BY:_____________________
Robert Gagliano (signature)
Vice President
3
<PAGE> 68
____________________________
(print name)
____________________________
(title)
LIBERTY SELF-STOR LTD.
BY:_______________________
__________________________
(print name)
__________________________
(title)
4
<PAGE> 69
EXHIBIT A
PROPERTY LIST
-------------
1. 1040 Horton's Lane 62,655 square foot self-storage/warehouse
Southold, New York 11971 facility. 11,610 square foot expansion
planned.
2. 99 Mill Road 20,625 square foot self-storage facility
Riverhead, New York 11901 known as Storage Town East, under contract
of purchase by Liberty. 18,150 square foot
expansion planned.
3. 3785 Shihloh Springs Road 19,550 square foot self-storage facility
Dayton, Ohio 45426 with 27,700 square foot expansion.
5
<PAGE> 1
Exhibit 99.4
LIMITED SUMMARY REAL ESTATE APPRAISAL REPORT
SELF-STORAGE FACILITY AND EXPANSION
LIBERTY SELF-STOR
1040 HORTON'S LANE
SOUTHOLD, SUFFOLK COUNTY, NEW YORK 11971
<PAGE> 2
April 16, 1999
Provident Bank
1111 Superior Avenue
Cleveland, OH 44114-2522
RE: Limited summary appraisal of an
existing 62,655 net rentable square
foot self-storage/warehouse
facility known as Liberty Self-Stor
Southold and a proposed 11,610 net
rentable square foot expansion,
located at 1040 Horton's Lane,
Southold, Suffolk County, New York
Gentlemen:
You have engaged Robert A. Stanger & Co., Inc. ("Stanger") to estimate
the market value of the above referenced property (the "Property") currently
owned by Liberty Self-Stor, Ltd. (hereafter referred to as "Liberty"). Such
appraisal reflects the estimated market value "As Is" of the fee simple interest
in the Property as of March 4, 1999. Additionally, value estimates "As Complete"
(as of the anticipated construction completion date) and "As Complete, As
Stabilized" are included in the Reconciliation of this report. The subject
property presently consists of a 62,655 net rentable square foot self-storage
facility. In addition, an 11,610 square foot addition is proposed. The "As
Complete - As Stabilized" value assumes completion of construction of the
expansion and the lease up of the facility to market occupancy on or before
April 1, 2000. This limited summary appraisal report is prepared in accordance
with an agreement between Robert A. Stanger & Co., Inc., Provident Bank and
Liberty Self-Stor dated April 16, 1999. Such agreement is attached as an exhibit
to this report.
Our valuation has been based in part upon information supplied to us by
Liberty including, but not limited to: descriptions of the subject property,
unit mix, site plans, statements of net operating income, proposed building or
expansion plans and other supporting data. We have relied upon such information
and have assumed that the information provided is accurate and complete. Our
value estimate is based upon the assumption that the improvements will be
constructed as per the specifications provided. We have not attempted to
independently verify such information.
i
<PAGE> 3
We are advised by Provident Bank that the purpose of the appraisal is
to estimate the value of the Property "As Is" under present market conditions
and prospective values "As Complete" and "As Complete, As Stabilized". Stanger
understands that the valuation may be reviewed and utilized in connection with a
proposed financing, and Stanger agrees to the use of this report for this
purpose subject to the terms and conditions of the agreement related thereto
dated April 16, 1999. However, the attached appraisal report should be reviewed
in its entirety and is subject to the assumptions and limiting conditions
contained herein.
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 total
market value of the Property, "As Is", "As Complete" and "As Complete, As
Stabilized." Neither Stanger nor the undersigned have any present or
contemplated future interest in the Property or in Liberty Self-Stor.
The appraisal is only an estimate of the market value of the Property
"As Is" 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 Property. 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 valuation report provides our value conclusion with respect to the
Property, definitions of value, and discussions of the valuation methodology
employed, assumptions, and limiting conditions. The attached exhibits are an
integral part of this report.
Sincerely,
/s/ Cornelius J. Guiney
Cornelius J. Guiney, MAI
General Real Estate Appraiser
New York State Certificate Number 46000015587
/s/ Robert Gagliano
Robert Gagliano
Inspecting Appraiser
ii
<PAGE> 4
IDENTIFICATION OF SUBJECT PROPERTY
----------------------------------
The subject of this appraisal is the real property known as Liberty
Self-Stor Southold, a 62,655 net rentable square foot self-storage/warehouse
facility located at 1040 Horton's Lane, Southold, Suffolk County, New York. As
of the inspection date, the subject property is improved with a 556 unit, 53,055
net rentable square foot self-storage facility formerly known as Southold
Self-Storage and two "warehouse" buildings totaling 9,600 square feet. Additions
totaling 11,610 net rentable square feet of self storage space are proposed for
the subject. This assignment is to value the subject "As Is" and prospective
values "As Complete" (as of the anticipated construction completion date) and
"As Complete, As Stabilized".
PURPOSE OF APPRAISAL
--------------------
The purpose of this appraisal is to estimate the market value of the
fee simple interest in the Property "As Is" under market conditions as of March
4, 1999. The "As Complete" value is a prospective value as of the date of the
completion of the proposed additions, which is estimated by Liberty management
to be August 1, 1999. The "As Complete, As Stabilized" value assumes completion
of construction and lease up of the facility to market occupancy on or before
April 1, 2000.
Pursuant to the terms of our engagement, the property valuation was
performed using a limited summary format and should not be construed as a self
contained report. Summary appraisal reports are generally limited in scope and
constitute an informed assessment of a property's value. Effective July 1, 1994,
the Appraisal Standards Board revised the Departure Provision of the Uniform
Standards of Professional Appraisal Practice to permit three levels of written
reports, known as self-contained, summary and restricted appraisal reports.
These changes have been adopted to minimize the cost for banks and borrowers.
At the request of the client, therefore, the appraisal and some of the
information contained in the report is summarized. Precautions have been taken,
however, to insure that the report is not so limited as to mislead or confuse
the reader.
FUNCTION OF APPRAISAL
---------------------
The function of this appraisal is to provide a current estimate of
market value "As Is" of the fee simple interest in the Property for use by
Provident Bank in connection with a proposed financing of the Property.
Additionally, estimates of two prospective values, "As Complete" and "As
Complete, As Stabilized" are included in the Reconciliation of this report.
SCOPE OF APPRAISAL
------------------
1
<PAGE> 5
This limited summary appraisal report has been prepared in conformity
with the Uniform Standards of Professional Appraisal Practice of the Appraisal
Institute and in accordance with an agreement between Robert A. Stanger & Co.,
Inc., Provident Bank and Liberty Self-Stor dated April 16, 1999. Pursuant to
that agreement, Stanger has relied upon the Income Approach, Sales Comparison
Approach and Cost Approach to value the subject property.
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 estimate 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 property valuation was
performed using the Income Approach, Sales Comparison Approach and Cost
Approach. Since the primary buyer group for the type of property appraised
herein is investors, the Income Approach and Sales Comparison Approach were
considered the primary 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 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.
Unless otherwise stated in the report, the existence of hazardous
materials, which may or may not be present at the Property, was not disclosed to
the Appraiser by the owner. The Appraiser has no knowledge of the existence of
such materials on or in the Property, nor is the Appraiser qualified to detect
such hazardous substances. The presence of substances such as asbestos,
ureaformaldehyde foam insulation, oil spills, or other potentially hazardous
materials may affect the value of the Property. The Property value estimate is
predicated on the assumption that there is no such material on or in the
Property 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.
DATE OF VALUATION
-----------------
The date of valuation for the Property is March 4, 1999.
2
<PAGE> 6
MARKET VALUE DEFINITION
-----------------------
Market value shall mean, as used in this report and defined by the
Appraisal Standards Board:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is not
affected by undue stimulus. 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 acting in what they
consider their 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: Uniform Standards of Professional Appraisal Practice, Appraisal
Standards Board.)
The property rights appraised in this report consist of a fee simple
interest. Due to the short-term month-to-month tenancies in a self storage
facility, a fee simple interest was deemed appropriate. 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.
This appraisal includes the value of land, land improvements such as
paving, fencing, on-site sewer and water lines and the buildings. This 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. This appraisal pertains only to those items which are considered
real estate.
3
<PAGE> 7
HIGHEST AND BEST USE ANALYSIS
-----------------------------
The term "highest and best use," as used in this report, is defined as
follows:
"The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible and that results in the highest value."
(Source: Appraisal Institute, The Appraisal of Real Estate, Eleventh
Edition).
The four criteria that highest and best use must meet are legal
permissibility, physical possibility, financial feasibility, and maximum
productivity.
A full land use feasibility study was not performed. The highest and
best use conclusions are based on general observations in the market, land use
patterns, and prevailing economic conditions.
HIGHEST AND BEST USE "AS IF VACANT"
- -----------------------------------
Physically Possible: The pertinent physical factors affecting the
highest and best use of the subject site fall under two categories: site
characteristics and location characteristics. Site characteristics include size,
dimensions, topography, soil conditions, and the availability of adequate
utilities. Location factors include access to transportation, availability of
labor and materials, proximity to markets, the impact of the surrounding
neighborhood, and conditions of the market within which the property will
operate. The subject site is located on the east side of Horton's Lane, near the
intersection with Main Road (Route 25). Horton's Lane is a secondary street that
is only lightly developed and consists substantially of single family homes and
farmland in the vicinity of the subject. However, Horton's Lane is located
between Main Road and Middle Road, two commercial thoroughfares. Main Road is
the primary commercial artery on Long Island's "North Fork" and the subject is
part of the general commercial development in this area, although its visibility
is limited. The subject site has adequate area (6.944 acres based upon a site
plan provided), shape and dimensions to accommodate a number of uses.
Legally Permissible: Legal factors influencing the highest and best use
of the subject site are primarily related to governmental restrictions in the
form of zoning regulations. The subject site is zoned LI, Light Industrial. The
permitted uses under this classification include agricultural, wholesale,
warehouse, contractor's yards, cold storage, food processing, offices, wineries,
auto repair, equipment repair and other light industrial uses. "Special
Exception" uses include research and development, laundry and dry cleaning,
conference facilities and truck or bus terminals. As such, the Property's zoning
permits a large variety of uses.
Financially Feasible: Although numerous uses may be physically possible
and legally permissible, the character of the subject's immediate environment
favors some form of commercial
4
<PAGE> 8
development. The subject neighborhood is considered to be the entire Town of
Southhold, which includes most of the North Fork and the communities of
Mattituck, Cutchogue, Southold and Greenpoint. The area is bounded by the Great
Peconic Bay and the Little Peconic Bay to the south, the Long Island Sound to
the north, the City of Riverhead to the west and the Atlantic Ocean to the east.
This area is relatively sparsely developed and still includes a large amount of
farmland. The balance of the development is primarily single family residential
and farms with commercial development along Route 25. In the immediate vicinity
of the subject property are single-family residences, farmland, a converted
single family dwelling utilized as a church outreach center, Southhold Town Hall
and business offices. The subject site is located generally adjacent to, but not
visible from, the commercial uses on Route 25. As such, financially feasible
uses would include warehouse (including self-storage), contractor's yard, auto
or equipment repair, office, or winery.
Maximally Productive: The final determination in the highest and best
use analysis as if vacant is the maximally productive use of the site. The site
has a Light Industrial zoning designation that permits a variety of
agricultural, light industrial and commercial uses. Additionally, the subject
parcel is located in a neighborhood that is predominantly improved with
single-family residential uses and farms, but is adjacent to the major
commercial road in the area. The neighborhood is considered to be stable. As
such, warehouse, self-storage, contractor's yard, auto or equipment repair,
office, or winery would be maximally productive.
In our opinion, as if vacant, the highest and best use of the site
would be warehouse, self-storage, contractor's yard, auto or equipment repair,
office, or winery.
HIGHEST AND BEST USE "AS IMPROVED"
- ----------------------------------
The subject site is improved with a 62,655 net rentable square foot
self-storage/warehouse facility which was determined to be a permitted use in
the Light Industrial zone. Its design is compatible with the surrounding
improvements and land use pattern. The subject facility is subject to seasonal
fluctuations in occupancy and is currently approximately 88% occupied. However,
occupancy in the summer months can be as high as 97%. Competing projects in the
area typically feature occupancy levels in the mid-90% range. Given the subject
property's occupancy and reflecting its good location, the building improvements
significantly add to the property value as a whole. No other use would warrant
removing the existing improvements and bring a higher return to the land and
compensate for their removal.
Based on these factors, the existing improvements are recognized as the
highest and best use of the site as improved.
5
<PAGE> 9
VALUATION METHODOLOGY
---------------------
Pursuant to the terms of this engagement, Stanger has estimated the
value of the fee simple interest in the Property based on the Income Approach,
Sales Comparison Approach and the Cost Approach to valuation.
The Income Approach is based on the assumption that the value of a
property is dependent upon the Property's ability to produce income. In the
Income Approach, a direct capitalization analysis and a discounted cash flow
("DCF") analysis are used to determine the "As Is" value of the fee simple
interest in the 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 Property.
The direct capitalization analysis is based upon the net operating
income of the Property capitalized at an appropriate capitalization rate based
upon property characteristics and competitive position and market conditions at
the date of the appraisal.
In applying the DCF analysis, pro forma statements of operations for
the Property including revenues and expenses were analyzed and projected over a
ten-year period. The Property is assumed to be sold at the end of the ten-year
holding period. The reversion value of the Property which can be realized upon
sale at the end of the ten-year holding period is calculated based on
capitalization of the estimated net operating income of the Property in the year
of sale, utilizing a capitalization rate deemed appropriate in light of the age,
anticipated functional and economic obsolescence and 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.
The Sales Comparison Approach utilizes indices of value derived from
actual or proposed sales of comparable properties to estimate the value of the
subject Property. Two units of comparison typically analyzed for self-storage
facilities, price per square foot and capitalization rate, were utilized in
applying the Sales Comparison Approach to the subject Property.
The Cost Approach is based upon the principle of substitution, in that
no prudent investor would pay more for a property than the amount for which a
comparable site could be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay.
The following describes more fully the steps involved in the valuation
of the subject Property.
SITE INSPECTIONS & DATA GATHERING
- ---------------------------------
In conducting the property valuation, representatives of Stanger
performed a site inspection of the Property on March 4, 1999. In the course of
this site visit, the physical facilities of the Property were inspected, current
market rental rates for competing properties were obtained,
6
<PAGE> 10
information on the local market was gathered, and the on-site manager was
interviewed concerning the Property and other factors. Information gathered
during the site inspection was supplemented by a review of published information
concerning economic, demographic and real estate trends in local, regional and
national markets.
In conducting the property valuation, Stanger also interviewed Liberty
management personnel to obtain information relating to the condition of the
Property, including any deferred maintenance, capital budgets, 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, Stanger reviewed the acquisition criteria and parameters
used by self-storage real estate investors. Such reviews included a search of
real estate data sources and publications concerning real estate buyer's
criteria and direct interviews with sources deemed appropriate (major national
investors, owners, managers, brokers and appraisers of self-storage properties)
to investigate such factors as required rates of return, initial capitalization
rate requirements, and property type and geographical preferences. Stanger also
compiled data on actual transactions involving self-storage properties from
which acquisition criteria and parameters were extracted.
EFFECTIVE GROSS INCOME ANALYSIS
- -------------------------------
During the course of the site inspection, competing properties were
identified and data on local market rental rates and occupancy were obtained.
Such data was compared to available published regional or national averages for
self-storage properties and the Property's posted rental rates and occupancy
reports. The Property's recent historical effective gross income was also
reviewed. After assessing the above factors, an effective gross income estimate
was prepared based upon the unit configuration, market rental rates, market
occupancy rate and other income estimates.
EXPENSE ANALYSIS
- ----------------
Historical data provided to Stanger on expenses was reviewed and
property tax assessments were confirmed with local municipalities. Expenses were
estimated based upon this review, available published regional or national
averages and expenses observed at more than 200 self-storage properties reviewed
by Robert A. Stanger & Co., Inc.
SALES COMPARISON ANALYSIS
- -------------------------
Based upon actual and proposed sales transactions identified in the
Property's region and throughout the United States, indices of value for the
Property were derived considering the Property's age, location and other
factors. The indices of value included price per square foot and capitalization
rate. The indices of value were applied to the Property to estimate value in
accordance with the Sales Comparison Approach. Price per square foot as
estimated by reference to comparable sales transactions was multiplied by the
rentable square footage of the Property to derive an estimate of value. Net
operating income was capitalized at a capitalization rate estimated in
accordance with comparable sales transaction data.
7
<PAGE> 11
INCOME APPROACH ANALYSIS
- ------------------------
Direct Capitalization Analysis
- ------------------------------
Based upon net operating income, estimated in accordance with the
analyses of effective gross income and expenses, and capitalization rates
determined in accordance with surveys of buyers of self-storage properties (as
confirmed by a review of comparable sales transactions) an estimate of value was
derived.
Discounted Cash Flow Analysis
- -----------------------------
A ten year projection of net operating income was prepared based upon
net operating income estimated in accordance with the analysis of effective
gross income and expenses and escalation factors deemed appropriate for the
subject Property. The value of the Property at the end of the ten-year holding
period (the "reversion value") was based upon the capitalization of net
operating income in the eleventh year at a capitalization rate deemed
appropriate for the subject Property based upon its age and other market
factors. The reversion value was reduced for estimated selling expenses. The
estimated net cash flows from the Property for the ten-year period (including
the reversion value net of selling expenses) were discounted to present value at
a discount rate deemed appropriate for the subject Property based upon national
surveys of target rates of return for buyers of industrial properties, adjusted
for the incremental risk associated with self-storage properties.
COST APPROACH ANALYSIS
- ----------------------
The estimated value of the property under the Cost Approach was based
upon the construction cost per square foot for comparable self-storage
facilities as estimated and adjusted by reference to the Marshall & Swift
Valuation Service, construction cost data provided by Liberty, construction cost
data on comparable self-storage projects compiled by Robert A. Stanger & Co.,
Inc., the value of land as estimated by reference to comparable land sales
transactions, the costs associated with the lease-up of a newly constructed
project plus an estimated developer's profit. Such analysis is more fully
described in Exhibit K to this report.
RECONCILIATION AND FINAL VALUE ESTIMATE
- ---------------------------------------
The estimated value in accordance with the Cost Approach and Sales
Comparison Approach was reconciled with the estimated values in accordance with
the Income Approach (direct capitalization and discounted cash flow analyses).
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject are typically purchased
and sold based upon their income characteristics. The Income Approach is given
primary consideration based upon the income producing nature of the Property and
its appeal to investors. The Sales Comparison Approach is given secondary
consideration. The Cost Approach is considered the least reliable indicator of
value.
8
<PAGE> 12
Details of the estimates of the "As Complete, As Stabilized" and "As
Complete" values are located in Exhibit L of this report.
PROPERTY VALUE CONCLUSIONS
--------------------------
Based upon the review as described above and detailed in the attached
exhibits, it is our opinion that the market value "AS IS" of the fee simple
interest in the Property, as of March 4, 1999 was:
THREE MILLION, EIGHT HUNDRED, EIGHTY THOUSAND DOLLARS
-----------------------------------------------------------
$3,880,000
---------
The subject property is presently improved with a 62,655 net rentable
square foot self-storage/warehouse facility and is undergoing a 11,610 net
rentable square foot expansion. The following value estimates consider the value
of the subject after these additions are complete:
As of August 1, 1999, (the anticipated date of the completion of the
construction of the additions) the "AS COMPLETE" value, is estimated to be:
FOUR MILLION, SEVEN HUNDRED, SEVENTY FIVE THOUSAND DOLLARS
-----------------------------------------------------------
$4,775,000
---------
As of April 1, 2000, the "AS COMPLETE, AS STABILIZED" value is
estimated to be:
FOUR MILLION, SEVEN HUNDRED, NINETY THOUSAND DOLLARS
-----------------------------------------------------------
$4,790,000
---------
Details of the determination of the "As Complete, As Stabilized" and
"As Complete" values can be found in Exhibit L of this report.
9
<PAGE> 13
MARKETING TIME
--------------
The requirements and guidelines of the Uniform Standards of
Professional Appraisal Practice (USPAP), Federal National Mortgage Association
(Fannie Mae), Federal Deposit Insurance Corporation (FDIC), Veterans
Administration (VA) and the Farm Home Administration (FHA) require the appraiser
to estimate a reasonable marketing period for the subject property.
Marketing Time (or Marketing Period) is defined as the time it takes an
interest in real property to sell on the open market subsequent to the date of
an appraisal.
Reasonable marketing time is an estimate of the amount of time it might
take to sell an interest in real property at its estimated market value during
the period immediately after the effective date of the appraisal; the
anticipated time required to expose the property to a pool of prospective
purchasers and to allow appropriate time for negotiation, the exercise of due
diligence, and the consummation of a sale at a price supportable by current
market conditions.
(Source: The Dictionary of Real Estate Appraisal, Third Edition)
ESTIMATED MARKETING TIME
- ------------------------
The subject marketing time is estimated to be six months to one year.
This estimate assumes:
1. that the subject property is listed with a competent broker experienced
with similar type properties;
2. that the subject is offered for sale at no more than 110% of the
appraised value;
3. that mortgage money is available at the time of the listing at
competitive market interest rates; and
4. that there is not an oversupply of similar properties offered on the
market at reduced or discounted prices.
10
<PAGE> 14
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
This 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
Property or the title thereto. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens unless
otherwise stated.
2. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the Property's
subsoil or structure that render the Property 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 Appraisal 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 Property in question,
unless arrangements have been previously made therefore.
4. The information contained in the Appraisal or upon which the Appraisal 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
Property or their representatives. Neither the Appraiser nor Stanger shall be
responsible for the accuracy or completeness of such information, including the
correctness of estimates, opinions, dimensions, exhibits and other factual
matters. The Appraisal and the opinion of value stated therein are as of the
date stated in the Appraisal. Changes since that date in market factors can
significantly affect property 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 property's values, 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.
11
<PAGE> 15
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 Appraisal is
based on visual inspection by the Appraiser or other representative 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 survey of the
property.
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 and Stanger make 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 Appraisal represents a normal consideration for the Property sold
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 at the Property was not disclosed to the
Appraiser by the owner. The Appraiser has no knowledge of the existence of such
materials on or in the Property. The Appraiser is not qualified to detect such
hazardous substances. The presence of substances such as asbestos,
urea-formaldehyde foam insulation, oil spills, or other potentially hazardous
materials may affect the value of the Property. The Property value estimate is
predicated on the assumption that there is no such material on or in the
Property 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 the 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.
12
<PAGE> 16
ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
-----------------------------------------------
13. The property valuation reported herein may not reflect the premium or
discount a potential buyer may assign to an assembled portfolio of properties or
to a group of properties in a particular local market which provides
opportunities for enhanced market presence and penetration.
14. The appraisal is solely for the purpose of providing our opinion of the
value of the Property, and we make no representation as to the adequacy of such
a review for any other purpose. The use of other valuation methodologies might
produce a higher or lower value.
15. At the request of the client the Appraiser has used a limited summary format
and invokes the Departure Provision of the Uniform Standard of Professional
Appraisal Practice. As such, information pertinent to the valuation may not have
been included in this report.
13
<PAGE> 17
CERTIFICATION OF APPRAISAL
--------------------------
The undersigned hereby certifies that to the best of his knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
3. We have no present or prospective interest in the Property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
Furthermore, this appraisal assignment was not based on a requested
minimum valuation, a specific valuation or the approval of a loan.
5. Our analyses, opinions and conclusions were developed, and this report
has been prepared using a limited summary report format, in conformity
with the Uniform Standards of Professional Appraisal Practice, as well
as the requirements of the Code of Professional Ethics of the Appraisal
Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. Pursuant to the terms of our engagement, a site inspection of the
Property has been performed by representatives of Robert A. Stanger &
Co., Inc. Cornelius J. Guiney, MAI, has not made a personal inspection
of the Property. However, Mr. Guiney has reviewed all pertinent data
and information contained in this report.
8. In addition to the undersigned, Robert Gagliano and Keith Allaire made
contributions to the preparation of the analysis, conclusions and
opinions contained in this appraisal report.
9. The Appraisal Institute conducts a program of continuing education for
its designated members. MAI's who meet the minimum standards of this
program are awarded periodic educational certification. Cornelius J.
Guiney, MAI, is currently certified under this program.
/s/ Cornelius J. Guiney /s/ Robert Gagliano
- ------------------------------- ------------------------------
Cornelius J. Guiney, MAI Robert Gagliano
General Real Estate Appraiser Inspecting Appraiser
New York State Certificate Number 46000015587
14
<PAGE> 18
QUALIFICATIONS OF APPRAISER
---------------------------
Robert A. Stanger & Co., Inc.
- -----------------------------
Robert A. Stanger & Co., Inc. ("Stanger") provides specialized
consulting and valuation services for real estate assets and investment
portfolios owned by individuals or institutions. These services relate
principally to real estate portfolio valuations, single property appraisals, and
the valuation of general partner or limited partner interests.
Stanger has valued over $12 billion of real estate assets and currently
provides confirming opinions or appraisals annually on over $2 billion of
properties. Properties reviewed are located throughout the United States and
include shopping centers, residential properties, office buildings, hotels, net
leased warehouse/industrial properties, free standing retail properties,
self-storage facilities and land.
Stanger maintains a wide range of industry contacts and an extensive
database of asset performance information, industry publications, and
information on real estate markets.
Cornelius J. Guiney, MAI
- ------------------------
Mr. Guiney began his real estate career in 1968. Since that time he has
achieved the esteemed designation of Member of the Appraisal Institute and has
valued more than $5 billion of real estate for the purpose of sales, mergers,
acquisitions, reorganizations, financings, investor reporting, and tax related
matters. Mr. Guiney has been involved in the appraisal of commercial, industrial
and residential properties and portfolios including: self-storage facilities,
shopping centers; multi-family apartment projects; industrial net lease
warehouse and manufacturing facilities; office buildings; hotels; free-standing
retail properties; nursing homes, land and other special use facilities.
Mr. Guiney has qualified as an expert before various courts and
administrative bodies including: Tax Court of the State of New Jersey; Superior
Courts of Monmouth, Warren, Morris and Bergen Counties, New Jersey; Monmouth
County Tax Board and various municipal committees and authorities.
Mr. Guiney is the founder and former president of the Monmouth County
Chapter of Independent Fee Appraisers.
15
<PAGE> 19
INDEX TO EXHIBITS
-----------------
A. Property Description, Photographs, Maps
B. Market Area Overview
C. Demographic Report
D. Real Estate Taxes and Zoning
E. Market Rental Rate and Effective Gross Income Calculation
F. Expense Analysis
G. Net Operating Income Calculation
H. Surveys of Buyers of Self-Storage Properties and Sales
Comparable Analysis
I. Direct Capitalization Analysis
J. Discounted Cash Flow Analysis
K. Cost Analysis
L. Valuation Reconciliation and Conclusion
Determination of "As Complete, As Stabilized" and "As
Complete" Values
M. Agreement For Services
<PAGE> 20
EXHIBIT A
---------
PROPERTY DESCRIPTION
--------------------
<TABLE>
<S> <C>
PROPERTY NAME: Liberty Self-Stor Southold
PROPERTY ADDRESS: 1040 Horton's Lane
Southold, Suffolk County, New York 11971
EXISTING IMPROVEMENTS:
Rentable Square Feet: 62,655 square feet
Total square footage includes two 4,800 square foot
"warehouse" buildings located at the subject entrance.
Units: 556
Land Size: 6.944 Acres (based a site plan provided by Liberty Self-Stor)
Foundation: Poured Concrete Slab
Exterior Walls: Storage Buildings, Metal.
Office, Masonry.
Warehouses, Masonry.
Partitions: Metal.
Roof: Corrugated Metal.
Number of Floors: One.
Parking Lot: Asphalt paving
Climate Control: None.
Year Built: 1986-1987
Condition: The overall condition of the existing improvements is good.
</TABLE>
<PAGE> 21
EXHIBIT A
---------
PROPERTY DESCRIPTION (CONTINUED)
--------------------------------
PROPOSED IMPROVEMENTS:
Rentable Square Feet: 11,610
Units: 144
Foundation: Poured Concrete Slab
Exterior Walls: Metal.
Partitions: Metal.
Roof: Corrugated Metal.
Number of Floors: One.
Climate Control: None.
Year Built: Expected Completion August 1, 1999
Condition: New.
SECURITY:
Managers Office: Yes.
Managers Apartment: No.
Perimeter Fencing/Walls: Chain link fencing
Controlled Access Gate: No.
Video Monitors: No.
ON-SITE MANAGER: Tom Delpersio, Manager (temporary)
Agnes Healy, Assistant Manager (516)765-3267
OWNERSHIP HISTORY: The subject property was acquired in
foreclosure from Pudge Corp. (the original
developer of the Property) in June 1998. The
note was reportedly purchased for
approximately $2,000,000. There have been no
other transfers of the subject property in
the past three years.
<PAGE> 22
EXHIBIT A
---------
UNIT CONFIGURATION
------------------
"AS IS"
-------
<TABLE>
<CAPTION>
UNIT NUMBER
DESCRIPTION DIMENSIONS SIZE OF UNITS TOTAL S.F.
================================================================================
<S> <C> <C> <C> <C> <C> <C>
5 x 5 5 ft. Height 25 24 600
5 x 5 10 ft. Height 25 27 675
6 x 8 48 74 3,552
5 x 10 50 100 5,000
8 x 8 64 2 128
6 x 12 72 72 5,184
5 x 15 75 28 2,100
8 x 12 96 12 1,152
10 x 10 100 59 5,900
12 x 12 144 72 10,368
10 x 15 150 42 6,300
12 x 24 288 38 10,944
12 x 48 576 2 1,152
--- ------
552 53,055
Warehouse 1 2400 1 2,400
Warehouse 2 2400 1 2,400
Warehouse 3 2400 1 2,400
Warehouse 4 2400 1 2,400
--- ------
4 9,600
Total 556 62,655
=== ======
</TABLE>
Note: Warehouse rents included in Other Income.
<PAGE> 23
EXHIBIT A
---------
PROPERTY PHOTOGRAPHS
--------------------
<PAGE> 24
EXHIBIT A
---------
PROPERTY MAPS
-------------
<PAGE> 25
EXHIBIT B
---------
MARKET AREA OVERVIEW
--------------------
PROPERTY NAME: Liberty Self-Stor Southold
ADDRESS: 1040 Horton's Lane
Southold, New York 11971
COUNTY: Suffolk
NEIGHBORHOOD:
The Property is located in Suffolk County, one of the two counties on
Long Island and the easternmost county on Long Island. In 1997, Suffolk County's
population was approximately 1,360,000, and the population is expected to grow
roughly 1.9% by 2002. Nassau-Suffolk is one of the largest metropolitan areas in
the United States, as well as one of the wealthiest.
The subject property is located in one of the easternmost areas on Long
Island, known as the "North Fork", made up substantially of the Town of
Southold, which encompasses the communities of Greenport, Southold, Cutchogue,
and Mattituck. The "South Fork" consists of the Hamptons and Montauk. Access to
eastern long Island is primarily from the Long Island Expressway, although there
are several small airports in the area and the Long Island Railroad runs to the
end of both of the North and South Forks.
The North Fork is a peninsula surrounded by the Peconic Bays to the
south, the Atlantic Ocean to the east and the Long Island Sound to the north. To
the west, Southold borders Riverhead, the Suffolk County seat. The peninsula is
relatively narrow, and access along its length is limited to two major roads,
Route 25, also known as Main Road and Route 48, which is known as Middle Road.
The subject property is located just west of downtown Southold, off of
Main Road on Horton's Lane. Development near the subject on Horton's Lane is
limited to single family dwellings and farms. However, on Main Road there are
several small business offices and retail and eating establishments further
east. North of the subject, at the intersection of Horton's Lane and Middle
Road, there are several small commercial uses, including a diner-type restaurant
and a new auto dealership on Horton's Lane, north of Middle Road.
The area was farmland for many years and developed slowly into a summer
resort due to the area's substantial water frontage and access for boating and
bathing. More recently, it was discovered that the soil and climate in the area
was good for growing grapes, and a number of small commercial and "gentleman
farm" wineries have sprung up. The presence of wineries has tended to lengthen
the tourist season, as harvesting grapes and making wine is done in the autumn
months.
<PAGE> 26
EXHIBIT B
---------
MARKET AREA OVERVIEW (CONTINUED)
--------------------------------
SELF-STORAGE MARKET:
The self-storage market in the subject area is very limited. In fact,
the subject is the only self-storage facility in a ten miles radius. There are
properties within an 11 to 12 mile radius, but they are located in the Hamptons,
which can only be accessed by car by driving west to Riverhead and then south
and east to the Hamptons, approximately 25 to 30 miles.
There are approximately 12,444 people living withing a five mile radius
of the subject. The subject is the only self-storage facility in the area and is
53,055 square feet in size. This indicates that there are 4.26 square feet of
self-storage space per capita in this radius.
This saturation level compares favorably to the U.S. average of 3.95
square feet per capita in the context of the subject's limited competition on
the North Fork and in northeastern Long Island. The subject is presently the
only facility on the entire North Fork and is the only convenient facility for
virtually all of the residents in the area.
One new facility is being proposed near the subject. The proposed
property will be 34,200 square feet in size and two stories in height. However,
the developer of the new site also built the subject property, which he
ultimately lost in foreclosure to Liberty Self-Stor, and his ability to get
financing is uncertain. Second, there is a building moratorium until June 9,
1999. Finally, the project is meeting a large amount of local resistance, due to
the two story configuration and a proposed partially below-grade first floor,
which would require substantial excavation. Whether or not this facility will
get approval is uncertain.
Overall, the neighborhood and the self-storage market is stable, and
modest growth is expected in the next several years.
In order to assess the business prospects for the subject property, we
obtained a demographic analysis of the immediately surrounding area of the
Property from CACI, a copy of which is included as Exhibit C to this report. The
demographic analysis of the immediate area is summarized in market areas at
three levels: one-mile radius of the subject; three-mile radius of the subject
and five-mile radius of the subject. Based upon discussions with owners and
buyers of self-storage properties, these defined market areas represent the
primary tenant prospects for the subject property. Selected demographic data is
summarized as follows:
<PAGE> 27
EXHIBIT B
---------
MARKET AREA OVERVIEW (CONTINUED)
--------------------------------
<TABLE>
<CAPTION>
1 MILE 3 MILE 5 MILE
------ ------ ------
<S> <C> <C> <C>
POPULATION: (1)
2003 Projected 1,689 5,503 12,444
1998 Estimated 1,703 5,555 12,444
1990 1,810 5,932 12,957
% Change 1990-1998 -5.9% -6.4% -4.0%
% Change 1998-2003 -0.8% -0.9% 0.0%
HOUSEHOLDS: (1)
2003 Projected 816 2,442 5,341
1998 Estimated 813 2,439 5,291
1990 846 2,557 5,429
% Change 1990-1998 -3.9% -4.6% -2.5%
% Change 1998-2003 0.4% 0.1% 0.9%
1990 HOUSING UNITS: (1) 7677.898
% Owner Occupied: 75.9% 81.0% 77.6%
% Renter Occupied: 24.1% 19.0% 22.4%
</TABLE>
(1) Source: CACI 1998 (Exhibit C).
The above data indicates that the local market is generally stable
within all search areas in both population and households. The above
demographics should have a neutral overall influence on the performance of the
Property.
<PAGE> 28
EXHIBIT C
---------
DEMOGRAPHIC REPORT
------------------
<PAGE> 29
EXHIBIT D
---------
CURRENT REAL ESTATE TAXES AND ZONING
------------------------------------
TAXES: Assessed Value: $71,000 (a)
Equalization Ratio: 2.9%
Real Estate Taxes: $45,121
Date of Assessment: 1998
ZONING: LI, Light Industrial
(a) Based on the current assessment and equalization ratio, the fair market
value is estimated to be $2,448,276.
<PAGE> 30
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION
----------------------------------------------------------
"AS IS"
-------
<TABLE>
<CAPTION>
COMPARABLE 1 COMPARABLE 2 COMPARABLE 3 COMPARABLE 4
------------ ------------ ------------ ------------
====================================================================================================================================
NAME OF PROPERTY STORAGE TOWN EAST PECONIC MINI QUICK STORAGE EAST MORICHES
Ranking Superior Superior Similar Similar
OCCUPANCY RATE 92% I/N/A 95% 94%
UNIT PER PER PER PER
UNIT TYPE DESCRIPTION SIZE (S.F.) MO. PSF MO. PSF MO. PSF MO. PSF
--------- ----------- ----------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 5 ft. Height 25
5 x 5 10 ft. Height 25 45 $1.80 50 2.00 40 1.60 40 1.60
6 x 8 48
5 x 10 50 65 $1.30 80 1.60 55 1.10 60 1.20
8 x 8 64
6 x 12 72
5 x 15 75 90 1.20 90 1.20
8 x 12 96
10 x 10 100 110 $1.10 110 1.10 95 0.95 105 1.05
12 x 12 144
10 x 15 150 150 $1.00 125 0.83 150 1.00
12 x 24 288 269 0.93
12 x 48 576
Note: Some monthly rents are based on per square foot rates for similar-sized units.
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE 5
------------
================================================================================================================
NAME OF PROPERTY STORAGE USA
Ranking Superior
OCCUPANCY RATE 85%
-- SUBJECT --
=================================================================
PER QUOTED
UNIT TYPE MO. PSF RATE/MO. USE PSF UNITS TOTAL
--------- --- --- -------- --- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 $25 $25 $1.00 24 $600
5 x 5 47 1.88 35 40 1.60 27 1,080
6 x 8 50 58 1.21 74 4,292
5 x 10 83 1.66 60 60 1.20 100 6,000
8 x 8 65 70 1.09 2 140
6 x 12 70 75 1.04 72 5,400
5 x 15 75 1.00 70 75 1.00 28 2,100
8 x 12 100 96 1.00 12 1,152
10 x 10 100 1.00 100 100 1.00 59 5,900
12 x 12 125 125 0.87 72 9,000
10 x 15 150 1.00 130 130 0.87 42 5,460
12 x 24 233 0.81 225 225 0.78 38 8,550
12 x 48 325 325 0.56 2 650
--- --------
552 50,324
===
x 12
-------
GROSS POTENTIAL RENT 603,888
VACANCY 12% (72,467)
-------
EFFECTIVE GROSS RENT 531,421
OTHER INCOME 8% 42,514
-------
EFFECTIVE GROSS INCOME 573,935
=======
</TABLE>
<PAGE> 31
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION (CONTINUED)
----------------------------------------------------------------------
COMPETITORS DESCRIPTION:
- ------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DISTANCE
PHYSICAL FROM
NAME/ADDRESS UNITS OCCUPANCY SUBJECT
------------ ----- --------- -------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Storage Town East 183 92% 17 miles SW
99 Mill Road
Riverhead, NY
2. Peconic Mini Storage 400+ I/N/A 15 miles SW
345 Flanders Road (Route 24)
Riverhead, NY
3. Quick Storage of Quogue 180 95% 19 miles SW
2 Old Country Road
Quogue, NY
4. East Moriches Self Storage 160 94% 26 miles SW
130 Montauk Highway
East Moriches, NY
5. Storage USA 700+ 85% 26 miles W
14 Francis Mooney Drive
Ridge, NY
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
RATING/COMMENTS ON COMPETITORS
- ------------------------------
Rent Comparable 1. This 183 unit facility is presently being considered for
purchase by Liberty Self-Stor. Built in 1985-1986, the property is located on
Mill Road between Main Road (Route 25) and Old Country Road in Riverhead, the
Suffolk County seat. The area is growing quickly as the Tanger Outlet Mall
northwest of this competitor has drawn a number of large retailers to the area.
This competitor is similar in age, condition and quality to the subject, but is
in a generally superior location. Overall, the competitor is superior.
Rent Comparable 2. Peconic Mini Storage is located south and west of the subject
on Flanders Road (Route 24), just south of downtown Riverhead. This facility is
generally newer and in slightly better condition than the subject. Although the
neighborhood is generally inferior, the location is more visible than the
subject. The Competitor is considered overall superior.
<PAGE> 32
EXHIBIT E
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION (CONTINUED)
----------------------------------------------------------------------
Rent Comparable 3. Quick Storage of Quogue consists of three sites with a total
of approximately 180 units. The properties are similar in condition and quality
to the subject, and the location, in a quiet industrial neighborhood, is similar
to the subject. The competitor is considered similar overall.
Rent Comparable 4. 160 units in size, East Moriches Self-Storage is located
behind a relatively new retail strip center. The office is the end unit in the
center. The property is similar in condition and quality to the subject.
Although a highway location is considered superior, the competitor's visibility
is poor, like the subject's. Overall, the competitor is similar to the subject.
Rent Comparable 5. Formerly Island Self Storage, this Storage USA site on
Francis Mooney Drive (a frontage road off of Route 25, west of the subject)
consists of 700+ units. The facility is located at the intersection of Route 25
and William Floyd Parkway, which is a major north-south highway in the area,
providing access south to the Long Island Expressway and Route 27 (Montauk
Highway). The site has very good visibility, although the access off of Route 25
is less than ideal. The facility offers climate controlled units and is
considered overall superior to the subject. The occupancy is reported by the
manager to be 85%, lower than the other competitors. However, the rates at this
facility are the highest in the market and occupancy appears to be lower due to
the rates.
OCCUPANCY:
- ----------
The subject property had a physical occupancy of 88% as of the date of
the site inspection. In the summer months, the subject's occupancy is reportedly
in the 97% range. Competing property managers reported physical occupancy rates
ranging from 85% to 95%, and averaging 92%. The estimate of Effective Gross
Income is based upon an physical occupancy of 90% consistent with recent
historical results. The occupancy is decreased by an additional 200 basis points
to account for credit and collection losses, concessions and free units.
Therefore, the overall economic vacancy is estimated to be 88%. Economic vacancy
for the seven months ending December 31, 1998 was approximately 82%, but this
figure includes vacancy resulting from the foreclosure of the property, and
relatively high discounts offered to retain existing tenants.
OTHER INCOME:
- -------------
The estimate of Effective Gross Income includes Other Income equal to
8% of Effective Gross Rent. This figure is consistent with historical data, but
it is clear that the historical data includes some one-time income resulting
from aggressive collections when Liberty began managing the site. However, there
are four 2,400 square foot warehouse units on the site and the income from these
units is included in Other Income. Two of these warehouse units were rented in
1998 for $900 per month and $1,123 per month or $24,267 annually. Assuming that
one of the remaining units was rented for $1,000 per month (a lease of $1,670
per month is presently being negotiated), the Other Income attributable to these
units would be $36,276. At 8% of Effective Gross Rent, Other Income totals
$42,514, which indicates that $6,238 would be attributable to application fees,
late fees, liens fees, truck rentals and retail sales of locks and boxes.
<PAGE> 33
EXHIBIT F
---------
EXPENSE ANALYSIS
----------------
"AS IS"
-------
<TABLE>
<CAPTION>
ANNUALIZED
7 MONTHS PROJECTED
ENDING 12/31/98 FIRST YEAR
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Payroll & Benefits $43,715 $54,912 (A)
Management Fees 0 28,697 (B)
Advertising 2,011 2,328 (C)
Office Expense 21,972 6,300 (D)
Utilities 11,371 18,800 (E)
Repairs & Maintenance 18,609 12,500 (F)
Insurance 3,504 3,500 (G)
Miscellaneous 3,603 6,300 (H)
Real Estate Taxes 46,122 71,507 (I)
-------- --------
Total Expenses $150,906 $204,844 (J)
======== ========
</TABLE>
<PAGE> 34
EXHIBIT F
---------
EXPENSE ANALYSIS (CONTINUED)
----------------------------
Footnotes:
- ---------
(A) Payroll and benefits were estimated at $12 per hour for a full-time
manager and $10 per hour for a full-time assistant manager at forty hours
per week each plus benefits at 20%.
(B) Management fees were based upon 5% of effective gross income, consistent
with industry practice.
(C) Advertising cost was based upon the projected cost of Yellow Pages
advertisement for the area (projected at approximately $194 per month).
(D) Office expense was based upon an estimated charge equal to 10(cent) per
rentable square foot, consistent With expenditures at comparable
facilities. The in the seven months ending December 31, 1998, the office
expenses included $4,109 in travel expenses, $3,477 in legal expenses and
$1,500 in professional services, which total over $15,500 annualized.
Clearly these are one-time expenses resulting from the foreclosure and
transfer of management of the subject property.
(E) Utilities expense were estimated at approximately 30(cent) per square
foot of storage space. Such amount is consistent with expenditures
incurred at comparable facilities.
(F) Repairs and maintenance expenses were estimated at 20(cent) per rentable
square foot consistent with expenditures incurred at comparable
facilities. The annualized prior year expense exceeded this amount. While
this expense typically fluctuates, it is assumed that there were items of
deferred maintenance after the foreclosure.
(G) Insurance expense was based upon the historical expense provided by
Liberty, rounded.
(H) Miscellaneous expenses were based upon 10(cent) per rentable square foot
consistent with expenditureS AT comparable facilities.
(I) Taxes were re-set based upon an effective tax rate of $1.8430 per $100 of
assessed value and an assessment equal to the market value derived in
this report. Taxes, therefore, conservatively assume an immediate reset
of the tax to the derived market value, resulting in an increase versus
1998 in excess of 50%.
(J) We further observe that total expenses approximate 36% of revenues.
Self-storage properties with stabilized occupancy typically have expense
ratios of 30% to 40%.
<PAGE> 35
EXHIBIT G
---------
NET OPERATING INCOME CALCULATION
--------------------------------
The following summarizes annualized net operating income for the seven
months ending December 31, 1998 and the Appraiser's estimate of the first year's
operating income and expenses.
<TABLE>
<CAPTION>
ANNUALIZED
7 MONTHS PROJECTED
ENDING 12/31/98 FIRST YEAR
--------------- ----------
<S> <C> <C>
Gross Potential Income $ 569,269 $ 603,888
Vacancy (100,542) (72,467)
--------- ---------
Gross Income 468,727 531,421
Other Income 41,268 42,514
--------- ---------
EFFECTIVE GROSS INCOME 509,996 573,935
Expenses:
Payroll and Benefits 43,715 54,912
Management Fees 0 28,697
Advertising 2,011 2,328
Office Expense 21,972 6,300
Utilities 11,371 18,800
Repairs and Maintenance 18,609 12,500
Insurance 3,504 3,500
Miscellaneous 3,603 6,300
Real Estate Taxes 46,122 71,507
--------- ---------
TOTAL EXPENSES 150,906 204,844
--------- ---------
NET OPERATING INCOME $ 359,090 $ 369,091
========= =========
</TABLE>
See Exhibit E and Exhibit F for details concerning Effective Gross
Income and Expenses, respectively.
<PAGE> 36
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS
-------------------------------------------
NATIONAL SURVEY
- ---------------
Buyers and appraisers of self-storage properties were surveyed during
the fourth quarter of 1998 to determine the parameters used in the determination
of value for self-storage properties. Uniformly, the participants in the survey
observed that self-storage properties were generally purchased based upon the
capitalization of current net operating income, as adjusted for any known or
expected changes in revenues or operating expenses. Additionally, purchase
prices are usually adjusted to reflect deferred maintenance items and other
non-recurring costs. The following summarizes primary acquisition criteria
observed in the market by survey participants.
<TABLE>
<CAPTION>
Primary
Acquisition Target Capitalization
Criteria Rate Range
----------- ----------------------
<S> <C> <C>
Shurgard Storage Centers, Inc. Cap Rate 9.0% - 10.0%
Storage USA Cap Rate 9.0% - 10.0%
Public Storage, Inc. Cap Rate 9.0% - 10.0%
Storage Trust Cap Rate 9.0% - 10.0%
</TABLE>
NATIONAL SALES TRANSACTION SUMMARY
- ----------------------------------
Since 1993, Robert A. Stanger & Co., Inc. has maintained a database of
self-storage transactions including transactions reported by publicly-traded
real estate investment trusts. Such database includes information on
transactions involving more than 1,300 properties with a reported purchase price
exceeding $3,197,000,000. The average capitalization rate for stabilized
properties (properties which have achieved stabilized levels of occupancy)
included in such database for the period 1993 to 1998 is 9.06%. More recent
transactions during 1997 and 1998 have been completed at comparable
capitalization rates, as summarized on the following page.
<PAGE> 37
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-------------------------------------------
1997-1998 BULK AND MULTI-PROPERTY TRANSACTION SUMMARY
<TABLE>
<CAPTION>
PRICE PER
NUMBER OF TRANSACTION AGGREGATE CAPITALIZATION SQUARE
BUYER PROPERTIES DATES PRICE RATE FOOT
- ----- ---------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Sovran Self Storage 42 1/97-10/97 $100,800,000 9.62% $42.71
Storage USA 39 1/97-10/97 128,800,000 9.46% 50.72
Storage USA 13 3/97-10/97 25,900,000 8.10% 36.52
Storage USA 9 7/97-9/97 33,500,000 9.29% 69.15
Storage USA 45 11/97-1/98 117,300,000 8.02% 46.79
Storage USA 12 2/98-3/98 26,600,000 9.14% 36.90
Sovran Self Storage 24 11/97-4/98 74,000,000 8.59% 48.50
Sovran Self Storage 4 4/98 17,400,000 9.07% 57.47
Sovran Self Storage 6 4/98-6/98 20,100,000 9.43% 46.42
--- ------------ ---- ------
TOTAL/AVERAGE 194 $544,400,000 9.00% $48.35
=== ============ ==== ======
</TABLE>
<PAGE> 38
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-------------------------------------------
IDENTIFIED REGIONAL TRANSACTIONS
The following summarizes selected data on self-storage properties
acquired throughout the region (certain data has been deleted at the request of
the respondent in order to maintain confidentiality).
<TABLE>
<CAPTION>
REGIONAL SIZE PRICE PER
TRANSACTION TRANSACTION RENTABLE PURCHASE CAPITALIZATION SQUARE
NUMBER LOCATION DATE (SF) PRICE RATE FOOT
----------- --------------------------- ------------ --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1. 14 Francis Mooney Drive 1/98 76,175 $5,000,000 N/A $66
Ridge, New York
2. 240 Bayshore Blvd. 4/98 34,423 2,749,093 9.7% 80
North Babylon, New York
3. 2025 Rte. 112 6/96 94,714 7,244,211 10.0% 76
Coram, New York
4. 3620 Northern Blvd. 9/98 140,323 15,648,000 N/A 112
Long Island City, New York
5. 270 South River Street 1/97 123,585 13,379,000 8.9% 108
Hackensack, New Jersey
6. 412 Harrison Avenue 1/97 28,533 2,953,000 9.5% 103
Harrison, New Jersey
7. 101 Paterson Plank Road 1/97 106,775 10,364,000 10.0% 97
Secaucus, New Jersey
LOW 8.9% 42
HIGH 10.0% 112
AVERAGE 9.6% 92
==== ===
</TABLE>
<PAGE> 39
EXHIBIT H
---------
SURVEY OF BUYERS OF SELF-STORAGE PROPERTIES
AND SALES COMPARABLE ANALYSIS (CONTINUED)
-------------------------------------------
SALES COMPARABLE ANALYSIS
Based upon the above regional data, we observed that the capitalization
rate for self-storage properties ranges from 8.9% to 10.0% and averages 9.6% and
the cost per square foot ranges from $42 to $112 and averages $92. The subject
property, in our opinion, would require a capitalization rate of 9.5% and a cost
per square foot of $60 due to its physical condition, location and other
factors. The values derived hereunder may be summarized as follows:
Value at 9.5% Capitalization Rate "As Is" (Rounded) $3,880,000
==========
Value at $60 Per Square Foot "As Is" (Rounded) $3,760,000
==========
Use $3,820,000
==========
We note that the subject property commands an effective gross income
per square foot of $9.16 and has expenses per square foot of $3.27 providing
estimated stabilized net operating income per square foot of $5.89 per square
foot. In our view, a 9.5% capitalization rate and $60 per square foot value
appear reasonable.
<PAGE> 40
EXHIBIT I
---------
DIRECT CAPITALIZATION ANALYSIS
------------------------------
The capitalization rates as summarized in Exhibit H for regional
transactions range from 8.9% to 10.0% and average 9.6%. Furthermore, the
capitalization rate derived from the review of national transactions involving
more than 1,300 properties with a value of approximately $3.2 billion was 9.06%.
Our survey of buyers of self-storage properties indicates that the target range
of capitalization rates on net operating income for purchases was 9.0% to 10.0%.
The subject is an operating 62,655 square foot facility. Due to the
condition and location of the facility, and the conservative calculation of net
operating income, a capitalization rate of 9.5% was deemed appropriate for the
subject property. The valuation may be summarized as follows:
Net Operating Income $ 369,091
Capitalization Rate 9.50%
----------
Value Estimate $3,885,168
Use $3,880,000
==========
<PAGE> 41
EXHIBIT J
---------
DISCOUNTED CASH FLOW ANALYSIS
-----------------------------
The assumptions utilized in the discounted cash flow analysis are as
follows:
PROJECTION PERIOD: 10 years
VACANCY/COLLECTION LOSS: 12%
INCOME AND EXPENSE GROWTH RATE: 3% annually. This growth rate conforms to
the 10-year historical growth in the
Consumer Price index and to growth
parameters used by owners and buyers of
self-storage facilities, adjusted for
expectations based upon demographic
projections.
REVERSIONARY CAPITALIZATION RATE: 10%. A premium of 50 basis points was
added to the estimated direct
capitalization rate as described in
Exhibit I.
REVERSION SALES COSTS: 3%.
DISCOUNT RATE: 12.0%. The discount rate was based upon
target rates of return on industrial
properties based upon surveys prepared by
Real Estate Research Corporation ("RERC")
and Peter F. Korpacz and Associates
("KORPACZ"). Due to the additional risk
of short-term leases on self-storage
properties versus longer term leases on
industrial properties, a 100 basis point
premium was added to the average target
rate of return on industrial properties
pursuant to the surveys. A summary of the
target rates of return pursuant to the
surveys is as follows:
<PAGE> 42
EXHIBIT J
---------
DISCOUNTED CASH FLOW ANALYSIS (CONTINUED)
-----------------------------------------
RERC 10.90%
KORPACZ 11.15%
-----
Average 11.02%
Premium 1.00%
-----
Total 12.02%
=====
Use 12.00%
=====
It should be noted that buyers of self-storage
properties do not place a primary emphasis on
discounted cash flow analysis.
VALUE CONCLUSION: The market value of the Property, as summarized
in the enclosed discounted cash flow analysis
is as follows:
Value Per Model $3,875,644
Use $3,880,000
==========
<PAGE> 43
EXHIBIT K
---------
COST ANALYSIS
-------------
The Cost Approach is based upon the principle of substitution, in that
no prudent investor would pay more for a property than the amount for which a
comparable site could be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay. This approach
treats the property as a physical entity that can be separated for valuation
purposes into land and improvements.
In order to analyze the costs associated with the construction of
self-storage facilities, we consulted several sources, including but not limited
to : (i) Marshall & Swift Valuation Service; (ii) developers of self-storage
properties; (iii) published materials on self-storage construction, and (iv)
published materials on real estate markets. Our methodology may be summarized as
follows:
REVIEW OF MARSHALL & SWIFT DATA
Marshall & Swift provides a construction cost data collection service
for most property types, including self-storage facilities. Such service is
based upon data accumulated for actual development projects and is updated on a
monthly basis. The average construction cost per square foot for good quality
self-storage facilities in the S-Class (Steel Construction) is $24.77. Such
average was utilized as the base building cost per square foot for the subject
facility's self-storage space.
The average base building cost per Marshall & Swift was adjusted for
two factors provided by Marshall & Swift. The average self-storage base building
cost was adjusted by the current cost multiplier, an index which updates the
reported averages for cost changes since the date of the Marshall & Swift study.
The current cost multiplier for the average self-storage building cost was 1.02.
Secondly, the average building costs (as adjusted by the current cost
multiplier) were adjusted by the local cost multiplier, a factor developed by
Marshall & Swift to recognize differences in local construction costs between
markets. The local cost multiplier for Suffolk County is 1.42.
Utilizing this data, a construction cost per gross square foot of
$35.88 is derived. Applying this construction cost to the gross square footage
of the subject (estimated at 60,500 square feet) provides a construction cost
estimate of $2,170,551. In addition to the self-storage buildings, there are two
4,800 square foot C-Class (Masonry) storage warehouse buildings at the site
entrance. The Base Cost for this type of construction is $24.11. The current
cost multiplier is 1.03 and the local cost multiplier is 1.43. Therefore, the
adjusted cost per square foot for these warehouse buildings is $35.51 and the
total cost is $340,896 ($35.51 x 9,600 square feet).
The subject also has an estimated 209,142 square feet of asphalt
paving, based on the site plan provided. Based on Marshall & Swift cost ranges,
a cost of $3.00 per square foot is considered reasonable for a total of
$627,427.
The cost of construction of the self-storage buildings was estimated to
be $2,170,551. The cost of the warehouse buildings was estimated to be $340,896.
Added to the cost of paving/drive areas is $627,427 for a total construction
cost of $3,138,874.
<PAGE> 44
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
ESTIMATED LAND COSTS
The subject property is located on an approximately 6.944 acre,
irregularly-shaped site located in Horton's lane in Southold, New York.
Given the property's size, zoning and location, we utilized land sales
in the Southold town area that are located in industrial and commercial zones.
There were few land sales available. The sales identified are summarized below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SALE # SALE DATE LOCATION SALE PRICE SIZE (ACRES) PRICE PER ACRE ZONING
------ --------- -------- ---------- ------------ -------------- ------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. 7/98 6725 Cox Lane $165,000 2.42 $ 68,182 Light Ind.
Cutchogue, NY
2. 5/96 74610 Main Road $135,000 3.93 $ 34,351 Commercial
Greenport, NY
3. 8/97 48205 Main Road $ 21,500 .19 $113,158 Business
Southold, NY
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The sales range in price per acre from $34,351 to $113,158, and average
$71,897 per acre.
Land Sale 1. This land sale comparable is most similar to the subject as it is
located in the same zone as the subject. The location is inferior, far from a
major road, and the site is being utilized as a scrap yard. An upward adjustment
is therefore required for location. Conversely, a downward adjustment is needed
for size, as the comparable is smaller than the subject and as the number of
units decrease, the value of each unit tends to increase. Overall, this
comparable is considered superior to the subject primarily due to size.
Land Sale 2. Sold in mid-1996, this 3.93 acre commercial property is presently
still undeveloped. Generally rectangular in shape, this site is situated on Main
Road east of the subject in Greenport, which is part of Southold Town. The
property is smaller in size than the subject and therefore requires a downward
adjustment on a per square foot basis. Although the lot is situated on Main
Road, the location is generally inferior as it is located near the end of the
peninsula, and traffic is generally lighter. Overall, the comparable is
considered inferior to the subject due to location.
Land Sale 3. Located west of the subject on Main Road, this still undeveloped,
very small lot sold for $113,158 per acre in August 1997. The location is
superior to the subject, as is the size, which would require an downward
adjustment because as the number of units (acres) decreases, the value of each
unit tends to increase. Overall, this comparable is superior to the subject due
to in location and size.
<PAGE> 45
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
Given the above information and relying primarily on Land Sale 1 (as
adjusted for the factors mentioned above), we have estimated the subject's land
value at $60,000 per acre. The final value is therefore $416,640 or $415,000,
rounded.
<PAGE> 46
LEASE UP COST FACTORS
A lease-up cost factor was developed to reflect the costs associated
with achieving projected full economic occupancy. The lease-up cost was based
upon (i) absorption of space at the rate of 5% per month; (ii) management fees
equal to 5% of gross revenues; (iii) other operating expenses equal to 27% of
Potential Gross Income plus Other Income; and (iv) a yield requirement equal to
12.0% per annum on development cost. Details of the analysis are on the
following page.
LEASE-UP COST ANALYSIS
----------------------
"AS IS"
-------
<TABLE>
<CAPTION>
RENTAL & TOTAL
CUMULATIVE OTHER MANAGEMENT OTHER YIELD ON LEASE-UP
MONTH ABSORPTION INCOME (1) FEES (2) EXPENSES (3) COST (4) COST (5)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 2.50% $ 1,347 ($67) ($14,544) ($35,539)
2 5.00% $ 2,693 ($135) ($14,544) ($35,539)
3 7.50% $ 4,040 ($202) ($14,544) ($35,539)
4 10.00% $ 5,387 ($269) ($14,544) ($35,539)
5 12.50% $ 6,733 ($337) ($14,544) ($35,539)
6 15.00% $ 8,080 ($404) ($14,544) ($35,539)
7 20.00% $ 10,773 ($539) ($14,544) ($35,539)
8 25.00% $ 13,467 ($673) ($14,544) ($35,539)
9 30.00% $ 16,160 ($808) ($14,544) ($35,539)
10 35.00% $ 18,853 ($943) ($14,544) ($35,539)
11 40.00% $ 21,547 ($1,077) ($14,544) ($35,539)
12 45.00% $ 24,240 ($1,212) ($14,544) ($35,539)
13 50.00% $ 26,933 ($1,347) ($14,544) ($35,539)
14 55.00% $ 29,627 ($1,481) ($14,544) ($35,539)
15 60.00% $ 32,320 ($1,616) ($14,544) ($35,539)
16 65.00% $ 35,013 ($1,751) ($14,544) ($35,539)
17 70.00% $ 37,707 ($1,885) ($14,544) ($35,539)
18 75.00% $ 40,400 ($2,020) ($14,544) ($35,539)
19 77.50% $ 41,747 ($2,087) ($14,544) ($35,539)
20 80.00% $ 43,093 ($2,155) ($14,544) ($35,539)
21 82.50% $ 44,440 ($2,222) ($14,544) ($35,539)
22 85.00% $ 45,787 ($2,289) ($14,544) ($35,539)
23 87.50% $ 47,133 ($2,357) ($14,544) ($35,539)
24 90.00% $ 48,480 ($2,424) ($14,544) ($35,539)
-------- -------- --------- ---------
Totals $377,068 ($18,853) ($276,337) ($675,236) ($593,358)
======== ======== ========= ========= =========
</TABLE>
<PAGE> 47
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
Lease-Up Analysis Footnotes:
- ---------------------------
(1) Potential Gross Rent was estimated earlier in this report at $603,888.
Other income is equal to $42,514 for a total of $646,402. This analysis
assumes that the subject is leased up at 2.5% to 5% per month, which
results in a 24 month lease-up to stabilized occupancy.
(2) Management fees represent 5% of the calculated income.
(3) Other expenses (excluding management fees) are based on 27% of the
Potential Gross Rent plus Other Income. These expenses are estimated at
$14,544 per month.
(4) The yield on cost is the expected return on both construction and land
costs at 12% per annum until stabilized occupancy is achieved. The total
construction cost of the improvements is estimated at $3,138,874. The
land cost estimate of $415,000 is added to achieve a total cost of
$3,553,874. A yield of 12% was applied to such cost to derive the yield
requirement of the developer of $35,539 per month.
(5) Lease-up cost represents the excess of management fees, other operating
expenses and yield on construction and land cost over revenues for the
period through stabilization.
<PAGE> 48
EXHIBIT K
---------
COST ANALYSIS (CONTINUED)
-------------------------
ENTREPRENEURIAL PROFIT
A developer's profit (entrepreneurial profit) equal to 15% of total
development cost (including lease-up cost) was deemed appropriate based upon our
survey of self-storage property developers. Such developers generally agreed
that the expected yield on cost, before developers entrepreneurial profit,
should approximate 12% to 12.5% of cost and further, that the stabilized value
of a property should approximate a minimum of 9.5% to 10.5% capitalization for a
newly completed property. The resulting range of developer's profit may be
summarized as follows:
<TABLE>
<S> <C> <C>
Range of Yield on Developers Cost (A) 12.00% to 12.50%
Range of Yield on Value 10.50 to 9.50
----- -----
Excess (B) 1.50 to 3.00
===== =====
Developers Profit Range (B divided by A) 12.50% to 24.00%
===== =====
Use 15%
==
</TABLE>
DEPRECIATION
The property was constructed in 1986-1987 and has an actual age of
approximately 12 years. The effective age is estimated to be 10 years. The
effective age is estimated considering the actual age, reflecting the impact of
the overall maintenance and current condition of the property. Steel
mini-storage buildings have an economic life of 40 years per Marshall & Swift.
Therefore, the depreciation factor applicable to the improvements is 11%. This
depreciation percentage is based on tables published by Marshall & Swift. The
remaining economic life of the subject is 30 years.
Based upon a construction cost of the improvements of $3,138,874,
lease-up costs of $593,358 (see "Lease-Up Costs" above) and a developers profit
of 15% applied to the construction costs and lease-up costs, a total cost of the
improvements, excluding land, was estimated at $4,292,067. Depreciation was
estimated at $472,127.
The Cost Approach for the subject property is summarized on the
following page. It should be noted that the cost approach is not generally
utilized as a reliable indicator of value by owners and operators of
self-storage properties in the marketplace today. The primary emphasis is placed
upon the income approach and the direct capitalization of earnings, supported by
the sales comparison approach.
<PAGE> 49
EXHIBIT K
---------
COST ANALYSIS
-------------
"AS IS"
-------
<TABLE>
<S> <C>
Cost Per Square Foot per Marshall & Swift $ 24.77
Current Cost Multiplier 1.02
Local Cost Multiplier 1.42
----------
Adjusted Cost Per Square Foot $35.88
Gross Square Footage 60,500
----------
Construction Cost of Building(s) 2,170,551
Construction Cost of Warehouse Buildings 340,896
Cost of Drive/Parking Areas 627,427
----------
Total Construction Cost 3,138,874
Lease Up Cost 593,358
Entrepeneurial Profit 15% 622,085
Depreciation 11% (472,127)
Land Value 415,000
----------
Total 4,297,189
Rounded 4,300,000
==========
</TABLE>
<PAGE> 50
EXHIBIT L
---------
RECONCILIATION
--------------
The indicated value "AS IS," in accordance with the direct
capitalization and discounted cash flow analysis may be summarized as follows:
Direct Capitalization Analysis $ 3,880,000
Discounted Cash Flow Analysis $ 3,880,000
Value Conclusion-Income Approach $ 3,880,000
The indicated value "AS IS," in accordance with the Sales Comparison
and Cost Approach are as follows:
Sales Comparison Approach $ 3,820,000
Cost Approach $ 4,300,000
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject are typically purchased
and sold based upon their income characteristics. The Income Approach is given
primary consideration based upon the income-producing nature of the Property and
its appeal to investors. The Sales Comparison Approach is given secondary
consideration. The Cost Approach is considered the least reliable indicator of
value. In summary, we have the most confidence in the Income Approach based upon
the data available to estimate value.
In the final value conclusion, the fee simple market value of the
subject property "AS IS," as of March 4, 1999 is:
THREE MILLION, EIGHT HUNDRED, EIGHTY THOUSAND DOLLARS
------------------------------------------------
$3,880,000
----------
The subject property is presently improved with a 53,055 net rentable
square foot self-storage facility and two 9,600 square foot warehouse buildings.
A two-building, 11,610 square foot self-storage space addition is proposed. We
have estimated two additional values: the "As Complete" value, as of the date of
the completion of construction and the value "As Complete, As Stabilized". The
development of these values are described in the following pages.
<PAGE> 51
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
VALUE "AS COMPLETE, AS STABILIZED"
- ----------------------------------
The value of the subject "As Complete, As Stabilized" was determined
utilizing the direct capitalization method in the Income Approach, consistent
with the "As Is" value conclusion. In order to estimate Net Operating Income,
the following analyses were developed: (1) the subject Unit Configuration, "As
Complete, As Stabilized"; (2) Effective Gross Income for the subject "As
Complete, As Stabilized"; (3) expense analysis based on the subject "As
Complete, As Stabilized"; and (4) Net Operating Income Analysis "As Complete, As
Stabilized".
The estimated Net Operating Income "As Complete, As Stabilized" is
$455,195. A capitalization rate of 9.5%, consistent with the "As Is" value
estimate was utilized to estimate the value "As Complete, As Stabilized" as
follows:
Net Operating Income $ 455,195
Capitalization Rate 9.50%
----------
Value Estimate $4,791,526
Use $4,790,000
==========
A Lease-Up analysis included as part of the "As Complete" value was
completed. The additions total 11,610 square feet. Per Liberty management,
construction is expected to be completed in August 1999. A lease-up period of 8
months, assuming an absorption rate of approximately 2,000 net square feet per
month for the first three months (September, October and November 1999) and
1,000 square feet per month in the winter months to stabilized occupancy (88% or
10,216 square feet) was projected. The lease-up will be complete by April 1, 1
2000. Therefore, the above value "As Complete, As Stabilized" is as of April 1,
2000.
<PAGE> 52
EXHIBIT L
---------
EXHIBIT L
---------
UNIT CONFIGURATION
------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
<TABLE>
<CAPTION>
UNIT NUMBER
DIMENSIONS DESCRIPTION SIZE OF UNITS TOTAL s.f.
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5 x 5 5 ft. Height 25 82 2,050
5 x 5 10 ft. Height 25 35 875
6 x 8 48 74 3,552
5 x 10 50 133 6,650
8 x 8 64 2 128
6 x 12 72 72 5,184
5 x 15 75 28 2,100
8 x 12 96 12 1,152
10 x 10 100 59 5,900
10 x 12 120 14 1,680
12 x 12 144 72 10,368
10 x 15 150 42 6,300
10 x 17 170 14 2,380
10 x 25 250 17 4,250
12 x 24 288 38 10,944
12 x 48 576 2 1,152
-- -----
696 64,665
Warehouse 1 2400 1 2,400
Warehouse 2 2400 1 2,400
Warehouse 3 2400 1 2,400
Warehouse 4 2400 1 2,400
-- -----
4 9,600
TOTAL 700 74,265
=== ======
</TABLE>
Note: Warehouse rents included in Other Income.
<PAGE> 53
EXHIBIT L
---------
EXHIBIT L
---------
MARKET RENTAL RATES AND EFFECTIVE GROSS INCOME CALCULATION
----------------------------------------------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
<TABLE>
<CAPTION>
COMPARABLE 1 COMPARABLE 2 COMPARABLE 3 COMPARABLE 4 COMPARABLE 5
------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF PROPERTY STORAGE TOWN EAST PECONIC MINI QUICK STORAGE EAST MORICHES STORAGE USA
Ranking Superior Superior Similar Similar Superior
Occupancy Rate 92% I/N/A 95% 94% 85%
--SUBJECT--
-----------------------------------------
UNIT PER PER PER PER PER QUOTED
UNIT TYPE DESCRIPTION SIZE (s.f.) MO. PSF MO. PSF MO. PSF MO. PSF MO. PSF RATE/MO. USE PSF UNITS TOTAL
- --------- ---------------- ------ --- --- --- --- --- --- --- --- --- --- -------- --- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 x 5 5 ft. Height 25 $25 $25 $1.00 82 $2,050
5 x 5 l0 ft. Height 25 45 $1.80 50 2.00 40 1.60 40 1.60 47 1.88 35 40 1.60 35 1,400
6 x 8 48 50 58 1.21 74 4,292
5 x 10 50 65 $1.30 80 1.60 55 1.10 60 1.20 83 1.66 60 60 1.20 133 7,980
8 x 8 64 65 70 1.09 2 140
6 x 12 72 70 75 1.04 72 5,400
5 x 15 75 90 1.20 90 1.20 75 1.00 70 75 1.00 28 2,100
8 x 12 96 100 96 1.00 12 1,152
10 x 10 100 110 $1.10 110 1.10 95 0.95 105 1.05 100 1.00 100 100 1.00 59 5,900
10 x 12 120 115 115 0.96 14 1,610
12 x 12 144 150 $1.04 125 0.87 150 1.04 150 1.04 125 125 0.87 72 9,000
10 x 15 150 130 130 0.87 42 5,460
10 x 17 170 148 148 0.87 14 2,072
10 x 25 250 200 200 0.80 17 3,400
12 x 24 288 269 0.93 233 0.81 225 225 0.78 38 8,550
12 x 48 576 325 325 0.56 2 650
-- ---
696 61,156
=== x12
---
Note: Some monthly rents are based on per square foot rates for similar-sized units. GROSS POTENTIAL RENT 733,872
Note: Rents were not escalated through stabilization.
VACANCY 12% (88,065)
-------
EFFECTIVE GROSS RENT 645,807
OTHER INCOME 7% 45,207
------
EFFECTIVE GROSS INCOME 691,014
-------
</TABLE>
<PAGE> 54
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
OCCUPANCY:
- ----------
Overall economic vacancy was estimated to be 88% in the "As Is" value
estimate. The same overall vacancy rate is utilized in the "As Complete, As
Stabilized" value estimate.
OTHER INCOME:
- -------------
The estimate of Effective Gross Income "As Complete, As Stabilized"
includes Other Income equal to 7% of Effective Gross Rent. This represents a
reduction in percentage terms from the "As Is" value estimate, but a large
portion of the subject's Other Income is derived from the "warehouse" units, and
this income will not be affected by the construction of new self-storage space.
Therefore, a small increase in gross Other Income from $42,514 to $45,207 is
anticipated.
<PAGE> 55
EXHIBIT L
---------
EXHIBIT L
---------
EXPENSE ANALYSIS
----------------
"AS COMPLETE, AS STABILIZED"
----------------------------
<TABLE>
<CAPTION>
ANNUALIZED
7 MONTHS PROJECTED
ENDING 12/31/98 FIRST YEAR
- -------------------------------------------------------------
<S> <C> <C>
Payroll & Benefits $43,715 $54,912 (A)
Management Fees 0 34,551 (B)
Advertising 2,011 2,328 (C)
Office Expense 21,972 7,400 (D)
Utilities 11,371 22,300 (E)
Repairs & Maintenance 18,609 14,900 (F)
Insurance 3,504 3,750 (G)
Miscellaneous 3,603 7,400 (H)
Real Estate Taxes 46,122 88,278 (1)
------ ------
Total Expenses $150,906 $235,819 (J)
-------- --------
</TABLE>
<PAGE> 56
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
Footnotes:
- ----------
(A) Payroll and benefits were estimated at $12 per hour for a full-time
manager and $10 per hour for a full-time assistant manager at forty
hours per week each plus benefits at 20%.
(B) Management fees were based upon 5% of effective gross income,
consistent with industry practice.
(C) Advertising cost was based upon the projected cost of Yellow Pages
advertisement for the area (projected at approximately $194 per month).
(D) Office expense was based upon an estimated charge equal to 10(cent) per
rentable square foot, consistent with actual expenditures and
expenditures at comparable facilities.
(E) Utilities expense were estimated at approximately 30(cent) per square
foot of storage space. Such amount is consistent with expenditures
incurred at comparable facilities.
(F) Repairs and maintenance expenses were estimated at 20(cent) per
rentable square foot consistent with expenditures incurred at
comparable facilities.
(G) Insurance expense was increased slightly from the "As Is" value
estimate to $3,750.
(H) Miscellaneous expenses were based upon 10(cent) per rentable square
foot consistent with expenditures at comparable facilities.
(I) Taxes were re-set based upon an effective tax rate of $1.8430 per $100
of assessed value and an assessment equal to the "As Complete, As
Stabilized" value.
(J) We further observe that total expenses approximate 34% of revenues.
Self-storage properties with stabilized occupancy typically show
expense ratios of 30% to 40%.
<PAGE> 57
EXHIBIT L
---------
EXHIBIT L
---------
NET OPERATING INCOME CALCULATION
--------------------------------
"AS COMPLETE, AS STABILIZED"
----------------------------
<TABLE>
<CAPTION>
Annualized
7 months Projected
Ending 12/31/98 First Year
- -------------------------------------------------------------
<S> <C> <C>
INCOME:
- -------
Gross Potential Rent $ 569,269 $ 733,872
Vacancy & Credit Loss (100,542) (88,065)
-------- -------
Gross Rent 468,727 645,807
Other Income 41,268 45,207
------ ------
Effective Gross Income 509,996 691,014
EXPENSES:
- ---------
Payroll & Benefits 43,715 54,912
Management Fees 0 34,551
Advertising 2,011 2,328
Office Expense 21,972 7,400
Utilities 11,371 22,300
Repairs & Maintenance 18,609 14,900
Insurance 3,504 3,750
Miscellaneous 3,603 7,400
Real Estate Taxes 46,122 88,278
Total Expenses 150,906 235,819
------- -------
Net Operating Income $ 359,090 $ 455,195
------- -------
</TABLE>
<PAGE> 58
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
VALUE "AS COMPLETE"
- --------------------
The value "As Complete" is as of the date of the completion of
construction, which is estimated by Liberty management to be August 1, 1999.
The "As Complete" value is the "As Completed, As Stabilized" value
minus the cost of lease-up. The "As Complete, As Stabilized" value was
determined to be $4,820,000. In the following Lease-Up Cost Analysis, the cost
of lease-up was determined to be $13,624, a relatively small cost, due to the
high rents in the area and the low incremental cost of construction. The value
"As Complete" as of August 1, 1999 after deduction of these lease-up costs and
rounding is :
Value "As Complete" $4,775,000
==========
Details of the Lease-Up Cost Analysis are on the following pages.
<PAGE> 59
EXHIBIT L
EXHIBIT L
---------
LEASE-UP COST ANALYSIS
----------------------
"AS COMPLETE"
-------------
<TABLE>
<CAPTION>
RENTAL & TOTAL
MONTHLY CUMULATIVE OTHER MANAGEMENT OTHER YIELD ON LEASE-UP
MONTH ABSORPTION (s.f.) ABSORPTION (s.f.) INCOME (1) FEES (2) EXPENSES (3) COST (4) COST (5)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aug-99 2,000 2,000 $ 1,748 ($87) ($2,639) ($4,900) (5,878)
Sep-99 2,000 4,000 3,497 (175) (2,639) (4,900) (4,217)
Oct-99 2,000 6,000 5,245 (262) (2,639) (4,900) (2,556)
Nov-99 1,000 7,000 6,119 (306) (2,639) (4,900) (1,725)
Dec-99 1,000 8,000 6,994 (350) (2,639) (4,900) (895)
Jan-00 1,000 9,000 7,868 (393) (2,639) (4,900) (64)
Feb-00 1,000 10,000 8,742 (437) (2,639) (4,900) 766
Mar-00 216 10,216 8,931 (447) (2,639) (4,900) 945
------ ------ ------ ------- ------- -------
Totals 10,216 49,145 (2,457) (21,111) (39,200) (13,624)
====== ====== ====== ======= ======= =======
</TABLE>
<PAGE> 60
EXHIBIT L
---------
RECONCILIATION (CONTINUED)
--------------------------
Lease-Up Analysis Footnotes:
- ----------------------------
(1) Potential Gross Rent was estimated earlier in the "As Complete, As
Stabilized" value at $733,872. Other Income is equal to $45,207, for
total gross revenue of $779,079, which equals $10.49 per square foot
per year or approximately $.87 per square foot per month. This analysis
assumes that the subject is leased up at 2,000 square feet per month
for the first three months and 1,000 square feet thereafter to 10,216
square feet, which is 88% of the 11,610 square foot addition. Based on
this lease-up rate, the addition will be leased-up fully by April 1,
1999.
(2) Management fees represent 5% of the calculated income.
(3) Other expenses (excluding management fees) are based on 26% of the
addition's proportionate share of Potential Gross Rent plus Other
Income. These expenses are estimated at $2,639 per month.
(4) The yield on cost is the expected return on construction cost at 12%
per annum until stabilized occupancy is achieved. Liberty estimates the
construction cost of the 11,875 gross square foot expansion to be $21
per square foot or approximately $249,375. This cost estimate is based
on an in-house construction crew and some expenses and profit are not
included. Therefore, the construction cost is calculated based on
Marshall & Swift estimates. The total construction cost of the addition
is estimated as follows: $35.88 construction cost per square foot per
Marshall & Swift, calculated the Cost Approach earlier, plus 15%
entrepreneurial profit, which increases the cost per square foot to
$41.26. The proposed construction is 11,875 gross square feet in size
and the total construction cost is estimated to be $489,963 rounded to
$490,000. A yield of 12% was applied to such cost to derive the yield
requirement of the developer of $4,900 per month.
(5) Lease-up cost represents the excess of management fees, other operating
expenses and yield on construction and land cost over revenues for the
period through stabilization.
<PAGE> 61
EXHIBIT M
---------
AGREEMENT FOR SERVICES
----------------------
<PAGE> 62
AGREEMENT
---------
This Agreement is made as of April 16, 1999 by and between Robert A.
Stanger & Co., Inc., with offices at 1129 Broad Street, Shrewsbury, New Jersey
07702 ("Stanger"), and Provident Bank (collectively "the Company"), with offices
at 1111 Superior Avenue, Cleveland, Ohio 44114 and Liberty Self-Stor, Ltd.
("Liberty") with offices at 8500 Station Street, Suite 100, Mentor, Ohio 44060.
WHEREAS, the Company wishes to retain Stanger to appraise certain
self-storage facilities which are owned by or under contract of purchase by
Liberty and which may be financed by the Company;
WHEREAS, Stanger is willing to provide such services in accordance with
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties agree as follows:
1. APPRAISAL SERVICES: Subject to the provisions of this Agreement,
Stanger will furnish to the Company limited summary appraisal reports (the
"Reports") including certain modifications as requested by the Company for each
property identified in Exhibit A hereto (the "Properties"). The Reports shall be
addressed to the Company. Such Reports will be delivered on or before April 23,
1999.
Stanger's Reports will be certified by a Member of the Appraisal
Institute and will be based in part upon its review of the following
information, which has already been provided by Liberty:
(a) Property descriptive information (including age, size, unit
configurations, land area, etc.);
(b) Financial schedules detailing individual property operating
results and capital expenditures for 1996, 1997 and 1998,
current year operating budgets, year-to-date actual results
and capital budgets to the extent available;
(c) Property acquisition information, including date, price and
terms and available information on any sales transactions
involving the Properties occurring within the past three
years;
(d) Occupancy and rental rate information for each Property for
1996, 1997, 1998 and year to date 1999, and management surveys
as available of recent rental rates and occupancy among
properties which compete in local markets with the subject
Properties;
<PAGE> 63
(e) Available information on any purchases and/or sales of
self-storage properties transacted by the owner or manager of
the Properties over the past twelve months;
(f) Copies of all recent property site inspection reports prepared
by organizations other than Stanger;
(g) Information, as available, from current management of the
Properties concerning potentially competing properties planned
for construction or under development in the local market
where the Property is located; and
(h) Information provided by Liberty regarding subject properties
under construction, redevelopment or expansion including the
timing of expected construction, unit mix, and other features.
In addition to reviewing the above, Stanger representatives will
perform site inspections of each Property for each Report and gather
supplementary information on the local real estate markets as it deems
necessary.
In connection with Stanger's activities on behalf of the Company, the
Company agrees to furnish to Stanger, or request that Liberty furnish to
Stanger, all reasonably available information and data regarding the Properties
in its possession which Stanger reasonably deems appropriate (the
"Information").
2. SCOPE OF REPORTS: The purpose of the Reports referred to above is to
estimate the market value of the Properties "As Is". Additionally, value
estimates "As Complete" (as of the anticipated construction completion date) and
"As Complete, As Stabilized" will be included. Stanger will render to the
Company Reports which complies with USPAP and FIRREA for each property which
will include: a description of the purpose, scope and function of the Report, a
definition of market value, an explanation of the appraisal methodology used, a
description and market area overview, demographic analysis, real estate tax
analysis, market rental rate and gross potential income analysis, expense
analysis, net operating income analysis, survey of buyers of self storage
properties and sales comparable analysis, cost analysis, direct capitalization
analysis, discounted cash flow analysis, and a value reconciliation and
conclusion.
3. PAYMENT: The fee for each report shall be $4,500 for each property.
Such fee shall be paid by the Company to Stanger. However, payment for the
Riverhead, New York and Dayton, Ohio properties will be made directly to Stanger
by Liberty, based on previous agreements.
The Company shall also reimburse Stanger for any out-of-pocket expenses
incurred for travel, meals, lodging, data and communication. Such expenses shall
be billed with the appraisal fee.
4. CONFIDENTIALITY: Any information submitted by the Company or by
Liberty to Stanger
2
<PAGE> 64
in connection with its review and Reports as set forth in Section 1 which is not
otherwise publicly available shall be kept confidential by Stanger and shall not
be released to any other person, unless required by law, without the prior
written consent of the Company and Liberty.
5. USE OF REPORTS: The Reports to be provided by Stanger are intended
to be relied upon and utilized by the Company in connection with the financing
of such Properties. The Reports may be utilized by and relied on by other
lenders participating in such financing. The Reports shall not be reproduced or
excerpted in any securities offering document or used for any other purposes
without the prior written consent of Stanger.
6. RESPONSIBILITIES: Stanger assumes no responsibility under this
Agreement other than to render the services outlined in Section 1. Stanger shall
not be liable for any error in judgment or act or omission provided that it has
acted in good faith, with reasonable care and not in violation of applicable
law. Notwithstanding any provision hereof to the contrary, nothing herein shall
constitute a waiver by, or limitation of, the Company of any right or remedy
afforded by Federal or state securities laws. No third party shall have any
rights against Stanger by reason of this Agreement and Stanger's services in
connection herewith.
If Stanger personnel are requested by the Company to testify in any
proceeding relating to the Reports or the services rendered under this contract,
the Company agrees that it shall compensate Stanger at a rate equal to its then
customary hourly rate for such individual as a consultant and expert, for
whatever time such individual is requested by the Company or otherwise required
to devote to such work.
7. MISCELLANEOUS: This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and the terms
hereof shall not be waived, amended or modified in any respect except by written
agreement, signed by the parties hereto. No assignment of this Agreement or any
rights hereunder shall be effective without the prior written consent of all
parties. Nothing herein shall constitute either party as the agent or
representative of the other party. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of New Jersey
applicable to agreements made and to be performed in the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ROBERT A. STANGER & CO., INC. PROVIDENT BANK
BY:__________________________ BY:_____________________
Robert Gagliano (signature)
Vice President
3
<PAGE> 65
____________________________
(print name)
____________________________
(title)
LIBERTY SELF-STOR LTD.
BY:_______________________
__________________________
(print name)
__________________________
(title)
4
<PAGE> 66
EXHIBIT A
PROPERTY LIST
-------------
1. 1040 Horton's Lane 62,655 square foot self-storage/warehouse
Southold, New York 11971 facility. 11,610 square foot expansion
planned.
2. 99 Mill Road 20,625 square foot self-storage facility
Riverhead, New York 11901 known as Storage Town East, under contract
of purchase by Liberty. 18,150 square foot
expansion planned.
3. 3785 Shihloh Springs Road 19,550 square foot self-storage facility
Dayton, Ohio 45426 with 27,700 square foot expansion.
5
