SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
BALCOR/COLONIAL STORAGE INCOME FUND-86
(Name of Subject Company)
BALCOR/COLONIAL STORAGE INCOME FUND-86
(Name of Person(s) Filing Statement)
Limited Partnership Interests
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
Thomas E. Meador James R. Pruett
Chairman President
The Balcor Company Colonial Storage 86, Inc.
Bannockburn Lake Office Plaza 4381 Green Oaks Blvd. West
2355 Waukegan Road, Suite A200 Suite 100
Bannockburn, Illinois 60015 Arlington, Texas 76016
(847)267-1600 (817)561-0100
(Name, Address and Telephone Number of Persons Authorized to
Receive Notice
and Communications on Behalf of the Person(s) Filing Statement)
Copy To:
Herbert S. Wander
Lawrence D. Levin
Katten Muchin & Zavis
Suite 1600
525 West Monroe Street
Chicago, Illinois 60661-3693
(312)902-5654
<PAGE>
Item 1. Security and Subject Company
The name of the subject partnership is Balcor/Colonial Storage Income
Fund-86, an Illinois limited partnership (the "Partnership"). The address of
the Partnership's principal executive offices is 2355 Waukegan Road, Suite
A200, Bannockburn, Illinois 60015. The Partnership's general partners are
Balcor Storage Partners-86, an Illinois partnership ("Balcor") and Colonial
Storage 86, Inc., a Texas corporation ("Colonial," and together with Balcor,
the "General Partners"). The title of the class of equity securities to which
this statements relates is the Partnership's limited partnership interests (the
"Units"), which are held by the Partnership's limited partners (the "Limited
Partners").
Item 2. Tender Offer of the Bidder
This statement relates to the unsolicited tender offer by Public Storage,
Inc., a California corporation ("Public Storage"), to purchase up to 32.5% (but
not more than 32.5%) of the Units at a purchase price of $240 per Unit, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated April 15, 1996 (the "Offer
to Purchase"), and the related letter of transmittal (which together constitute
the "Offer"). The Offer is disclosed in a Tender Offer Statement on Schedule
14D-1 dated April 15, 1996, as filed with the Securities and Exchange
Commission (the "Commission"). The Offer to Purchase states that the address
of the principal executive office of Public Storage is 600 North Brand
Boulevard, Glendale, California 91203-1241.
Item 3. Identity and Background
(a) The name and business address of the Partnership, which is the person
filing this statement, are set forth in Item 1 above.
(b)(1) The Partnership and its affiliates have the following material
contracts, agreements, arrangements and understandings and actual or potential
conflicts of interest with the Partnership, the General Partners and their
affiliates:
The General Partners each own a nominal interest in the Partnership and,
subject to certain preferential rights of the Limited Partners, the General
Partners are entitled to a certain percentage of the annual cash flows of the
Partnership resulting from the operations of the Partnership's properties. The
General Partners also will be entitled to receive distributions from operations
of the Partnership for the last twelve month period of operations in the event
the sale to STP is consummated. The General Partners are entitled, subject to
certain preferential rights of the Limited Partners, to a certain percentage of
the net cash proceeds realized by the Partnership from the sale or refinancing
of the Partnership's properties and may be entitled to commissions arising from
any property sales. In particular, the Partnership will pay to affiliates of
its General Partners a brokerage commission equal to 3% of the amount paid by
the Purchaser in connection with the sale of the properties pursuant to the
Purchase Agreement (the "Purchase Agreement") dated as of March 5, 1996 and
amended April 24, 1996, between the Partnership and Storage Trust Properties,
L.P., a Delaware limited partnership ("STP") as described in Item 4(b)(i)
below. The preferential rights of the Limited Partners subordinate the General
Partners' rights to receive such distributions to the receipt by the Limited
Partners of an agreed upon rate of return.
<PAGE>
The General Partners are reimbursed by the Partnership for certain
administrative expenses incurred by the General Partners in connection with
their management of the Partnership's business. Colonial and an affiliate of
Balcor, The Balcor Company (the "Company"), each fund certain other
administrative expenses of the General Partners that are not reimbursed by the
Partnership.
An affiliate of Colonial (the "Colonial Affiliate") has entered into a
property management and leasing agreement with respect to the properties owned
by the Partnership (the "Property Management Agreement", a copy of which is
attached hereto as Exhibit (c)(1)). The Property Management Agreement provides
for monthly fees to be paid to the Colonial Affiliate in an amount generally
equal to 6% of gross revenues for properties operated as mini-warehouse
facilities and 5% of gross revenues for properties operated as office/warehouse
facilities. The Property Management Agreement is terminable (i) at the option
of the Partnership upon 60 days' prior written notice to the Colonial
Affiliate, (ii) at the option of the Colonial Affiliate upon 270 days' prior
written notice to the Partnership and (iii) automatically upon the withdrawal
of Colonial as a general partner of the Partnership.
(b)(2) The Partnership and its affiliates have the following material
contracts, agreements, arrangements or understandings and actual or potential
conflicts of interest with Public Storage, or its affiliates.
The ownership of a substantial number of Units by any person or entity
presents a potential conflict of interest between such person or entity on the
one hand and the General Partners and any nontendering Limited Partners on the
other hand. If the transactions contemplated in the Offer were to be
consummated, Public Storage could own a substantial number of Units.
Furthermore, following the completion of the Offer, Public Storage may acquire
additional Units through private purchases, one or more future tender offers or
any other means deemed advisable by Public Storage. The ownership of a large
block of Units by Public Storage would enable Public Storage to significantly
influence decisions of the Partnership with respect to certain Partnership
matters.
Holders of a majority of the outstanding Units are entitled to vote to
take any of the following actions: (i) remove the General Partners; (ii) elect
or approve a successor to any removed or withdrawn General Partners; (iii)
dissolve the Partnership; and/or (iv) amend the Partnership's Partnership
Agreement (the "Partnership Agreement"). In order to amend certain provisions
of the Partnership Agreement, approval by the General Partners as well as an
affirmative vote by the holders of a majority of the outstanding Units is
required. Similarly, the consent of the General Partners and an affirmative
vote by the holders of a majority of the outstanding Units is required to sell
all or substantially all of the assets of the Partnership in a single
transaction or a series of related transactions.
Limited Partners holding more than 10% of the Units are entitled to call a
meeting at which the matters described in this Item 3(b)(2) may be submitted to
a vote of the Limited Partners. Therefore, such ownership by Public Storage
may increase the likelihood that any one or more of the actions described in
this Item 3(b)(2) may or may not be taken by the Partnership. Such actions may
conflict with the General Partners' intentions and/or any non-tendering Limited
Partner's desires with respect to such Partnership matters.
<PAGE>
Public Storage has indicated that it does not intend to vote Units it
acquires or owns in favor of the sale of the properties to STP. Public Storage
has also indicated that it may solicit opposition to the Purchase Agreement.
If the sale of the properties to STP was prevented by Public Storage, the
affiliates of the General Partners would not receive their brokerage commission
for the sale of the Partnership's properties as described in Item 4(b)(i) or
its share of cash flow from operations from the current year. In the event a
sale to STP was prevented and certain other conditions were satisfied, the
Partnership would also have to pay STP a termination amount as described in
Item 4(b)(iv) below. Public Storage has stated in the Offer to Purchase that
depending on the number of Units acquired by Public Storage in the Offer,
Public Storage may seek to renew previous discussions it has had regarding the
acquisition of the Colonial Affiliate or otherwise seek to obtain the right to
manage the Partnership's properties.
Since the principal business of Public Storage is the ownership of
self-storage properties which compete with the Partnership's properties in
certain markets, the potential conflict of interest described in this Item
3(b)(2) may be magnified.
If Public Storage successfully completes the Offer, prevents the sale of
the Partnership's properties to STP and causes either of the General Partners
to be removed as general partner by the Limited Partners, such removal may
adversely impact the employment needs of Colonial.
Except as set forth in Items 3(b)(1) above and this Item 3(b)(2), there
are no material contracts, agreements, arrangements or understandings, or any
actual or potential conflicts of interest between the Partnership or any of its
affiliates and (i) the General Partners, their respective executive officers,
directors or affiliates or (ii) Public Storage, or its executive officers,
directors or affiliates.
Item 4. The Solicitation or Recommendation
(a) The General Partners are expressing no opinion and are remaining
neutral with respect to the Offer.
(b) The General Partners believe that the decision whether or not a
Limited Partner should accept the Offer depends on a number of factors,
including the following, which should be considered in connection with such
Limited Partner's individual circumstances:
(i) The Partnership has entered into the Purchase Agreement with
STP, dated as of March 5, 1996 and amended April 24, 1996, and has agreed
to sell to STP all of the Partnership's properties for a purchase price of
$67,100,000 (the "Purchase Price"). The sale to STP is scheduled to close
on May 15, 1996 but may be extended under certain circumstances to July
15, 1996 (the "Closing").
As soon as practicable following the Closing, the General Partners
intend to liquidate the Partnership and distribute the net proceeds from
the sale of the properties and any other funds of the Partnership
available for distribution in the manner set forth in the Partnership
Agreement. The distributions in liquidation are estimated to be
approximately $254 to $257 per Unit. The final determination of the
distributions in liquidation will depend upon certain amounts that may
<PAGE>
vary up through and until the Closing, including (i) net proceeds from the
sale, (ii) closing and solicitation costs and (iii) net cash receipts.
An initial distribution of at least $254 per Unit is expected to be
made no later than 30 days after the sale to STP. The $240 per Unit price
offered by Public Storage is less than the proposed liquidating
distribution.
The sale of the Partnership's properties is subject to the
satisfaction of certain terms and conditions. All of the more significant
conditions (including survey, title and environmental matters) have
already been satisfied. In addition, consummation of the transaction is
subject to approval by the holders of a majority of the outstanding Units.
The General Partners are currently finalizing proxy materials to obtain
the necessary Limited Partner approval. There can be no assurance that
all terms and conditions will be satisfied or that the necessary consent
will be obtained and, therefore, it is possible that the Partnership will
not sell its properties.
Prior to reaching an agreement with STP, the General Partners
reviewed other proposals. On February 12, 1996, the Partnership received
a non-binding proposal from STP to purchase all of the Partnership's
properties for a purchase price of $61,000,000. In addition to evaluating
the STP proposal, the General Partners solicited competing offers from
other prospective Purchasers. The General Partners received several
additional preliminary offers and a revised offer from STP. After a
review of these proposals, the General Partners selected STP's subsequent
offer for $67,100,000. STP has paid $3,350,000 to the Partnership as
earnest money to be held in escrow until consummation of the sale. The
remaining $63,750,000 of the Purchase Price, plus or minus prorations and
credits, if any, will be paid to the Partnership at the Closing. STP will
pay for all closing costs (other than professional fees and commissions)
including, but not limited to, costs of documentation, local and state
transfer stamps, escrow, sales tax, personal property tax, title
commitments, title policies, substantially all environmental assessments
and updated surveys in connection with the sale of the properties. The
Partnership will pay to affiliates of its General Partners a brokerage
commission equal to 3% of the amount paid by the Purchaser in connection
with the sale of the properties.
(ii) The General Partners' estimated liquidating distribution of $254
to $257 per Unit upon consummation of the sale of the Partnership's
properties to STP is payable with respect to all of the outstanding Units.
On the other hand, Public Storage's current Offer is for only 32.5% of the
outstanding Units. If more than 32.5% of the outstanding Units are
tendered to Public Storage, it will only accept 32.5% of the outstanding
Units, with such Units being purchased on a pro rata basis according to
the number of Units validly tendered and not properly withdrawn.
Accordingly, Limited Partners who want to sell all of their Units to
Public Storage may be unable to do so.
(iii) Public Storage has stated in the Offer to Purchase that it
is making the Offer with a view to making a profit. Accordingly, there is
a conflict of interest between Public Storage's desire to purchase the
Units at a low price and the desire of the Limited Partners to sell their
Units at a high price.
<PAGE>
(iv) Public Storage has stated in the Offer to Purchase that it has
adjusted the General Partners' estimated liquidating distribution and has
unilaterally arrived at an Offer Price of $240. The General Partners'
estimated liquidating distribution of $254 to $257 is based on an
assessment of the Partnership's current operations, as well as an analysis
of certain components of the sale to STP, including, but not limited to,
(A) net cash proceeds, (B) estimated closing and solicitation costs and
(C) a reserve for contingencies.
The following table illustrates the range of estimated distributions
in liquidation and the factors considered in arriving at this estimate:
Low High
----------- -----------
Distribution of Net Cash Receipts ("NCR"):
- -----------------------------------------
NCR on hand at 12/31/95 $ 1,360,015 $ 1,360,015
Estimated undistributed NCR 01/01/96 to
Closing 154,774 304,774
Less: NCR distribution to General Partners(1) 708,737 723,737
----------- -----------
Estimated NCR distribution to Limited Partners $ 806,052 $ 941,052
=========== ===========
Distribution of Net Cash Proceeds ("NCP"):
- -----------------------------------------
Adjusted Purchase Price(2) $66,800,000 $67,050,000
Working Capital(3) 716,885 716,885
Less: Real Estate Brokerage Commissions(4) 2,006,000 2,013,000
Less: Estimated Closing and Solicitation Costs 300,000 250,000
Less: Reserve for Contingencies 750,000 550,000
----------- -----------
Estimated NCP Distribution to Limited
Partners(5) $64,460,885 $64,953,885
=========== ===========
Total Estimated Distributions to Limited
- ----------------------------------------
Partners:
--------
Estimated NCR Distribution to Limited Partners $ 806,052 $ 941,052
Estimated NCP Distribution to Limited Partners 64,460,885 64,953,885
----------- -----------
Total Estimated Liquidating Distribution 65,266,937 65,894,937
=========== ===========
Estimated Liquidating Distribution per Unit $ 254 (6) $ 257(6)
=========== ===========
<PAGE>
- ---------------------
(1) Equal to 10% of total distributions of Net Cash Receipts during the 12
month period from July 1, 1995 through June 30, 1996. Limited Partners have
previously received aggregate distributions of $5,572,577 during such period.
(2) See "Plan of Sale and Liquidation - Summary of Purchase Agreement" for
description of possible adjustments to Purchase Price.
(3) Represents return of capital distributable as Net Cash Proceeds.
(4) Equal to 3% of the Purchase Price. Payable to Affiliates of the General
Partners pursuant to the Partnership Agreement.
(5) Pursuant to the Partnership Agreement, Limited Partners are entitled to
receive cumulative distributions in a specified amount prior to the
distribution to the General Partners of any net cash proceeds from a sale of
the Facilities. The entire Net Cash Proceeds from the sale of the Facilities
will be distributed to the Limited Partners due to a deficiency of $14,181,436
in the required cumulative distribution to Limited Partners.
(6) The taxable portion of the liquidating distribution per Unit ranges from
$44.97 to $47.06 assuming a liquidating distribution per Unit of $254 to $257.
<PAGE>
(v) Public Storage owns 3.6% of the outstanding Units and has
indicated a right to acquire an additional 4.2% of the outstanding Units
from a third party. Pursuant to the Offer, Public Storage seeks to
acquire up to 32.5% more of the outstanding Units. Therefore, Public
Storage may be in a position to influence the outcome of any matter on
which the Limited Partners may vote.
(vi) The Partnership is obligated to pay STP a termination amount
equal to $1,342,000 plus half of certain of STP's out-of-pocket expenses
related to entering into the Purchase Agreement, estimated at
approximately $70,000, if (A) the Purchase Agreement is terminated under
certain circumstances, including, but not limited to, withdrawal or
modification of the General Partners' approval of the Purchase Agreement
or the Limited Partners' failure to approve the sale of the Partnership's
properties to STP and (B) within 150 days of such termination, the
Partnership consummates or enters into a definitive agreement with respect
to a merger, the sale of its properties to a party other than STP, a
tender offer (provided such a tender offer is accepted by 40% or more of
the outstanding Units) or similar transaction.
(vii) On January 29, 1996, Public Storage commenced an
unsolicited tender offer to purchase up to 25% of the outstanding Units at
a purchase price of $200 per Unit, which tender offer remained open until
March 12, 1996. On March 21, 1996, Public Storage entered into a private
transaction to acquire additional Units at $240 per Unit, as described in
Item 7(a) below. Public Storage's current Offer is $240 per Unit. Public
Storage did not indicate in its Offer to Purchase the reason it has
increased its offer price by $40 per Unit approximately one month after
the close of the first tender offer. There is no assurance as to whether
or not Public Storage will enter into additional private transactions or
commence additional tender offers at a higher or lower price per Unit in
the future.
(viii) On April 15, 1996, The Partnership distributed a quarterly
distribution of $5.78 per Unit, representing an annualized return of 9.25%
of adjusted original capital. Due to consistent improvement in the
operating performance of the properties, the Partnership has increased its
quarterly distribution by $1.43 per Unit (33%) since January 1994. The
General Partners expect that if the sale to STP is not consummated, the
current level of quarterly distributions will be maintained during 1996.
(ix) On March 20, 1996, Valuation Counselors Group and Darby &
Associates, Joint Venture ("Darby") estimated that as of December 31, 1995
the value of a Unit was $281, based upon an estimate of the present value
of the Partnership's future cash flows and the sale of the Partnership's
properties at year-end 2000, adjusted for (A) the current assets and
current liabilities of the Partnership, (B) the present value of the
Partnership's administrative costs, including management fees, and (C) the
anticipated costs of dissolution and termination of the Partnership. This
calculation is not intended to be a current liquidation value, but rather
the present value of a five (5) year projection of distributions of cash
flows, and therefore may be affected by changing market conditions,
economic factors, interest rates and unforseen events.
The above calculation was based on forecasting individual cash flows
prepared by the General Partners for each property, assuming a year-end
2000 liquidation. The cash flows were discounted at an annual rate of
<PAGE>
10.0% to determine a net present value. Sales proceeds were calculated on
the basis of a 10.0% capitalization rate, adjusted for a 3.0% costs of
sale and discounted at an annual rate of 10.0% to determine a net present
value. This valuation reflects a minor change in the methodology used in
Darby's previous calculations. Such change was made in order to reflect
the General Partners' strategy as of December 31, 1995, for termination of
the Partnership.
(x) According to the most recent issue of Partnership Spectrum
(January/February 1996), trading prices for the Units ranged from a high
of $241 to a low of $190 during the 60 day period ended January 31, 1996.
These prices do not reflect any commissions payable by the sellers to
third parties and, therefore, the actual proceeds received by a seller
will be reduced accordingly. Due in part to the inefficiency of these
secondary markets, there can be no assurance that future secondary trades
will occur or result in similar prices.
(xi) For Limited Partners who desire immediate cash, Public Storage's
offer provides an opportunity to sell at least a portion of their
investment in the Partnership without regard to the Partnership's sale of
its properties.
Item 5. Persons Retained, Employed or to Be Compensated
The Partnership has retained Darby each year since the inception of the
Partnership to provide an annual valuation of the Units. This year the
Partnership will pay Darby a fee of $17,500 plus any out-of-pocket expenses
incurred in connection with these services. None of the Partnership, the
General Partners or any person acting on behalf of any of them has retained any
other persons to make solicitations or recommendations to holders of Units in
connection with the Offer.
Item 6. Recent Transactions and Intent with Respect to Securities
(a) To the best of the General Partners's knowledge, no transactions in
the Units have been effected during the past 60 days by the Partnership, the
General Partners or any partner, executive officer, director, affiliate or
subsidiary of either such entity.
(b) To the best of the General Partners' knowledge, none of the
Partnership, the General Partners, the Company or any partner, executive
officer, director, affiliate or subsidiary of each such entity presently
intends to tender any Units that are held of record or beneficially owned by
such persons pursuant to the Offer.
Item 7. Certain Negotiations and Transactions by the Subject Company
(a) Except as described in Item 4(b)(i) above, no negotiations are being
undertaken or are underway by the Partnership in response to the Offer which
relate to or would result in: (1) an extraordinary transaction such as a
merger or reorganization involving the Partnership or any affiliate controlled
by the Partnership; (2) a purchase, sale or transfer of a material amount of
assets by the Partnership or any affiliate controlled by the Partnership; (3) a
tender offer for or other acquisition of securities by or of the Partnership;
or (4) any material change in the present capitalization or distribution policy
of the Partnership.
<PAGE>
On January 10, 1996, Everest Properties, Inc. ("Everest") commenced an
unsolicited tender offer to purchase up to 4.90% of the outstanding Units at a
purchase price of $160 per Unit. The Everest tender offer expired on February
12, 1996 and Everest advised the General Partners that approximately 4.15% of
the outstanding Units were tendered and purchased.
On January 23, 1996, Public Storage commenced an unsolicited tender offer
to purchase up to 25% of the outstanding Units at a purchase price of $200 per
Unit. The Public Storage tender offer expired on March 12, 1996, and on April
2, 1996, Public Storage reported that approximately 3.77% of the outstanding
Units were tendered. Public Storage also indicated on April 2, 1996 that it
had entered into an agreement with Everest to purchase the Units acquired by
Everest in its tender offer described in this Item 7(a) for $240 per Unit.
Public Storage has asserted in the Offer to Purchase that it currently owns
approximately 3.60% of the outstanding Units and assuming the consummation of
Public Storage's purchase of the Units from Everest, it will own approximately
7.80% of the outstanding Units.
(b) Except for the Purchase Agreement as described in Item 4(b)(i) above,
there are no transactions, General Partner resolutions, agreements in principle
or signed contracts in response to the Offer that relate to or would result in
one or more of the events referred to in Item 7(a).
Item 8. Additional Information to be Furnished
Taxable Limited Partners. Limited Partners that are not exempt from
Federal income tax ("Taxable Limited Partners") will recognize gain on a sale
of a Unit pursuant to the Offer to the extent that the amount realized exceeds
the Limited Partner's adjusted tax basis in such Unit. Notably, any gain
realized by a Taxable Limited Partner may possibly be offset by losses from
other "passive activities" under the passive loss rules of Section 469 of the
Internal Revenue Code of 1986, as amended (the "Code"). In the event a Taxable
Limited Partner realizes a loss on disposition, such loss may be deductible
only to the extent permitted under the passive loss rules and other applicable
limitations. If a Taxable Limited Partner sells all Units (and such Units have
not been aggregated for purposes of the passive loss rules with activities not
currently being sold), loss recognized on the sale should be deductible by such
Taxable Limited Partner against non-passive income, subject to any other
applicable limitations (including capital loss limitations).
A bill passed by the U.S. Congress in November 1995, but vetoed by the
President, would have reduced the tax rate on long-term capital gains and
changed the treatment of long-term capital losses. Currently, it is uncertain
whether any change in the taxation of capital gains and losses will ultimately
be enacted, and if so, what the changes and their effective dates will be.
Limited Partners should consider the possibility of such changes, as well as
other tax law changes, in evaluating the Offer.
In addition, other consideration could affect a Limited Partners' tax
liability, including, but not limited to, alternative minimum taxes and state
income taxes.
<PAGE>
Tax-exempt Limited Partners. Limited Partners that are generally exempt
from Federal income taxation (such as pension and retirement plans and
religious, charitable, scientific, literacy and educational organizations (the
"Tax-exempt Limited Partners")) will generally not be taxable on a sale of
Units pursuant to the Offer. However, in order to avoid tax on the sale,
certain entities exempt under Section 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Code must set aside or reserve the income from the sale for purposes
related to their tax-exempt status, as described in Section 512(a)(3) of the
Code. In addition, to the extent the Units of a Tax-exempt Limited Partner are
considered debt-financed property as a result of borrowing by such Partner, all
or part of the gain from the sale of the Units may be taxable as unrelated
business taxable income (although certain "qualified organizations" may be
excepted from taxation under Section 514(c)(9) of the Code). Also, a
Tax-exempt Limited Partner would be taxable on a sale of Units in the unlikely
event the Units are considered includible in inventory of the Partner or held
primarily for sale to customers in the ordinary course of business.
Item 9. Material to be Filed as Exhibits
(a)(1) Letter to Investors, dated April 26, 1996
(c)(1) The Property Management Agreement
(c)(2) The Darby Valuation Report
(c)(3) Purchase Agreement, dated as of March 5, 1996 between the
Partnership and STP, as amended by First Amendment to Sale
Agreement dated as of April 24, 1996
<PAGE>
Signature. After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: April 26, 1996 BALCOR/COLONIAL STORAGE INCOME
FUND-86
By: Balcor Storage Partners-86, a
general partner
By: The Balcor Company, a partner
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador, Chairman
By: Colonial Storage 86, Inc., a
general partner
By: /s/James R. Pruett
-----------------------------
James R. Pruett, President
<PAGE>
BALCOR/COLONIAL STORAGE INCOME FUND - 86
P.O. Box 7190
Deerfield, Illinois 60015-7190
April 26, 1996
Dear Investor:
On April 15, 1996, Public Storage, Inc. ("Public Storage") announced an
unsolicited offer to purchase up to 77,000 (32.5%) of the outstanding limited
partnership interests ("Units") in Balcor/Colonial Storage Income Fund - 86
(the "Partnership") for a price of $240 per Unit. Your General Partners,
Balcor Storage Partners-86 and Colonial Storage 86, Inc. (the "General
Partners"), are expressing no opinion and are remaining neutral with respect to
the offer by Public Storage. However, in evaluating Public Storage's offer to
purchase Units, you should consider the following:
1. The Partnership has entered into a Purchase Agreement with Storage Trust
Properties, L.P., a Delaware limited partnership ("STP"), dated March 5, 1996,
and has agreed to sell to STP all of the Partnership's properties for a
purchase price of $67,100,000. The sale to STP is scheduled to close on May
15, 1996, but may be extended under certain circumstances to July 15, 1996.
If the sale to STP is consummated, the Partnership anticipates making total
liquidating distributions of $254 to $257 per Unit. An initial distribution of
at least $254 per Unit is expected to be made no later than 30 days after the
sale to STP is consummated. A chart illustrating the factors used to determine
the estimated liquidating distribution is provided on the attached Schedule
14D-9, although the amounts distributed to Limited Partners may vary from the
amounts set forth on the chart. The $240 per Unit price offered by Public
Storage is less than the anticipated liquidating distribution.
Although the sale of the Partnership's properties is subject to the
satisfaction of certain terms and conditions, including approval by the holders
of a majority of the outstanding Units, all of the more significant conditions
(including title, survey and environmental) have already been satisfied and the
General Partners anticipate that if the required Limited Partner approval is
obtained, the sale to STP will be consummated. The General Partners are
currently finalizing proxy materials to obtain the necessary Limited Partner
approval. If Limited Partner approval is obtained and the properties are sold
to STP, the Partnership will be liquidated. There can be no assurance,
however, that the required Limited Partner approval will be obtained or that
other unforeseen event[s] will not delay or prevent the sale to STP.
2. The General Partners' estimated liquidating distribution of $254 to $257
per Unit is for all of the outstanding Units. Public Storage's current offer
of $240 is for only 32.5% of the outstanding Units. If more than 32.5% of the
outstanding Units are tendered by Limited Partners, a portion of any Units so
tendered will not be purchased by Public Storage. Accordingly, Limited
Partners who want to sell all of their Units to Public Storage may be unable to
do so.
<PAGE>
3. Public Storage presently owns 3.6% of the outstanding Units and has
indicated a right to acquire an additional 4.2% of the outstanding Units from a
third party. If Public Storage acquires an additional 32.5% of the outstanding
Units, Public Storage may be in a position to influence the outcome of any
matter on which the Limited Partners may vote.
4. As noted in the Public Storage offer materials, Public Storage is making
its offer with a view to making a profit, and there is accordingly a conflict
between Public Storage's desire to acquire the Units at a low price and the
desire of the Limited Partners to sell their Units at a high price. However,
for Limited Partners who desire immediate cash, Public Storage's offer, while
lower than the estimated liquidating distribution resulting from a sale to STP,
provides an opportunity to sell at least a portion of their investment in the
Partnership.
Under the terms of Public Storage's offer, Public Storage cannot purchase any
tendered Units prior to May 14, 1996, which date may be extended at Public
Storage's option. If you wish to withdraw any Units tendered to Public Storage
at any time prior to 5:00 p.m., E.S.T., on May 14, 1996, (or any extended date)
you may do so by complying with the withdrawal procedures set forth in the
Public Storage offer, an excerpt of which is attached hereto. You should
consult your personal financial, tax and legal advisors as to your personal
situation prior to making a decision regarding Public Storage's offer. If you
wish to retain your Units, you need not take any action regarding Public
Storage's offer.
We strongly urge you to read carefully the attached Schedule 14D-9 for a more
thorough discussion of the Partnership's response to the Public Storage offer.
The Exhibits to Schedule 14D-9 have been omitted but may be obtained at the
Partnership's expense by calling 1-800-422-5267.
Your General Partners will continue to act in the manner that they believe to
be in the best interests of the Partnership and the Limited Partners.
Very truly yours, Very truly yours,
/s/James R. Pruett /s/Thomas E. Meador
James R. Pruett, President Thomas E. Meador, Chairman
Colonial Storage 86, Inc. Balcor Storage Partners - 86
<PAGE>
Excerpts From "Offer to Purchase for Cash Up to 77,000 Limited Partnership
Interests of Balcor/Colonial Storage Income Fund - 86, at $240 Per Interest by
Public Storage, Inc."
Withdrawal Rights
Except as otherwise provided in the Offer, all tenders of Interests pursuant
to the offer are irrevocable, provided that Interests tendered pursuant to the
Offer may be withdrawn at any time prior to the Expiration Date. Tenders of
Interests not accepted for payment by the Company pursuant to the Offer may
also be withdrawn at any time after June 14, 1996.
For withdrawal to be effective, a written or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of the addresses
set forth on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person who tendered the Interests to be
withdrawn, the number of Interests to be withdrawn, and must be signed by the
person(s) who signed the Letter of Transmittal in the same manner as the Letter
of Transmittal was signed. The signature(s) on the notice of withdrawal must
be guaranteed by an eligible guarantor institution (a bank, stockbroker,
savings and loan association or credit union with membership in an approved
signature guarantee medallion program).
If acceptance for payment of, or payment for, Interests is delayed for any
reason or if the Company is unable to accept for payment, or pay for, Interests
for any reason, without prejudice to the Company's rights under the Offer,
tendered Interests may be retained by the Depositary on behalf of the Company
and may not be withdrawn except to the extent that tendering Interest Holders
are entitled to withdrawal rights as set forth herein, subject to Rule 14e-1(c)
under the Exchange Act, which provides that no person who makes a tender offer
shall fail to pay the consideration offered or return the securities deposited
by or on behalf of security holders promptly after the termination or
withdrawal of the tender offer.
All questions as to the form and validity (including timeliness of receipt)
of notices of withdrawal will be determined by the Company, in its sole
discretion, which determination shall be final and binding. Neither the
Company, the Depositary, nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
will incur any liability for failure to give any such notification.
Any Interests properly withdrawn will be deemed not to be validly tendered
for purposes of the Offer. Withdrawn Interests may be re-tendered, however, by
following any of the procedures described in the Offer at any time prior to the
Expiration Date.
<PAGE>
Back Cover of Offer to Purchase
The Letter of Transmittal and any other required documents should be sent or
delivered by each Interest Holder to the Depositary at one of the addresses set
forth below:
The Depositary for the Offer is:
The First National Bank of Boston
By Mail By Hand By Overnight Courier
The First National Bank BancBoston Trust The First National Bank
of Boston of Boston
Shareholder Services Company of New York Corporate Agency &
Reorganization
P.O. Box 1872 55 Broadway 150 Royall Street
Mail Stop 45-01-19 3rd Floor Mail Stop 45-01-19
Boston, MA 02105 New York, NY 10006 Canton, MA 02021
Any questions about the Offer to Purchase may be directed to the Soliciting
Agent at its telephone number set forth below:
The Soliciting Agent for the Offer is:
The Weil Company
(800)478-2605
Any requests for assistance or additional copies of the Offer to Purchase and
the Letter of Transmittal may be directed to the Company at its address and
telephone number set forth below:
Public Storage, Inc.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
(800)421-2856
(818)244-8080
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT, dated as of the 23rd day of January, 1987, is
entered into by and between Colonial Storage Management 86, Inc., a Texas
corporation ("CSM") and Balcor/Colonial Storage Income Fund - 86, an Illinois
limited partnership (the "Partnership").
RECITALS:
A. The Partnership intends to acquire and/or construct and operate certain
mini-warehouse and office/warehouse facilities identified in Schedule I
attached hereto and incorporated herein by this reference, as from time to time
amended or supplemented (each such mini-warehouse or office/warehouse facility
being referred to as a "Property" and, collectively, as the "Properties"); and
B. It is the intention of the Partnership that the Properties be rented on a
rental unit by rental unit basis to corporations, partnerships, individuals or
other entities for use primarily as storage facilities for personal and
business use or facilities offering a combination of office and commercial
warehouse space.
C. The Partnership desires to employ CSM to manage the Properties and CSM
desires to accept said employment, all in accordance with the terms and
conditions of this Agreement as hereinafter set forth.
AGREEMENT:
In consideration of the mutual covenants, promises, representations and
warranties contained herein, the adequacy and accuracy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
EMPLOYMENT
Section 1.1. Employment and Term. The Partnership hereby employs CSM and CSM
hereby accepts such employment as manager of the Properties for a period of
twenty (20) years from the date hereof (or until such Properties are sold) upon
the terms and conditions hereinafter set forth.
Section 1.2. Other Business. The Partnership acknowledges and expressly agrees
that CSM and its affiliates intend to engage in the business of managing
mini-warehouse, office/warehouse and other facilities both for their own
account and for others (whether or not such other facilities may be in direct
or indirect competition with the Partnership). It is further expressly agreed
that CSM and its affiliates may in the future engage in other businesses which
may compete directly or indirectly with the activities of the Partnership.
Section 1.3. Independent Contractor. In the performance of its duties under
this Agreement, CSM shall occupy the position of an independent contractor with
respect to the Partnership. Nothing contained herein shall be construed as
making the parties hereto partners or joint venturers nor, except as expressly
otherwise provided for herein, construed as making CSM an agent or employee of
the Partnership.
<PAGE>
ARTICLE II
DUTIES AND AUTHORITY OF CSM
Section 2.1. General Duties and Authority. Subject only to the restrictions,
limitations and covenants provided in Sections 2.2, 2.3 and 2.4 of this Article
II and the right of the Partnership to terminate this Agreement as provided in
Article VI hereof, CSM shall have the sole and exclusive authority to fully and
completely supervise the Properties and supervise and direct the business and
affairs associated with or related to the daily operations thereof and, to that
end, to cause or direct the Partnership to execute such documents or
instruments and hire or discharge such employees as, in the reasonable judgment
of CSM, may be deemed necessary or advisable. Such duties and authorities shall
include, but not be limited to, the following:
(a) Renting of the Properties. CSM shall establish policies and procedures
for directing the marketing activities of Partnership employees. CSM shall
have the sole discretion, which discretion shall be exercised in good
faith and consistent with reasonable business practices in the locality
where each Property is situated, to establish the terms and conditions of
occupancy by the lessees of rental units in Properties. CSM is hereby
authorized to direct and control Partnership employees in entering into
rental agreements on behalf of, in the name of and for the account of the
Partnership with such lessees and in collecting rent from such lessees.
CSM shall cause the Partnership to advertise in such media and to the
extent CSM deems necessary and appropriate.
(b) Repair, Maintenance and Improvements. CSM shall make and execute, or
supervise and have control over the making and executing of, all decisions
concerning the acquisition of furniture, fixtures and supplies for the
Properties, and the purchase, lease or other acquisition of the same on
behalf of, in the name of and for the account of the Partnership. CSM
shall make and execute, or supervise and have control over the making and
executing of, all decisions concerning the maintenance, repair and
landscaping of the Properties; provided, however, that nothing contained
herein shall preclude the Partnership from requiring maintenance and/or
repairs in addition to those recommended by CSM. All costs incurred in
connection therewith shall be on behalf of, in the name of and for the
account of the Partnership. With the prior written approval of the
Partnership, CSM or Partnership employees acting pursuant to CSM's
direction shall, on behalf of, in the name of and for the account of the
Partnership, negotiate and contract for, and supervise the installation
of, all capital improvements relating to the Properties.
(c) Personnel. CSM or Partnership employees acting pursuant to CSM's
direction shall select all vendors, suppliers, contractors, subcontractors
and employees with respect to the Properties and shall hire, discharge and
supervise all labor and employees required for the operation (including
billings and collections) and maintenance of the Properties, including
attorneys, accountants, consultants and clerical employees. All such acts
shall be on behalf of, in the name of and for the account of the
Partnership and any employee so hired shall be carried on the payroll of
the Partnership and shall not be deemed to be an employee of CSM.
Employees of the Partnership may include, but shall not be limited to,
regional managers, resident managers, assistant managers, relief managers
and administrative and clerical personnel. Where appropriate, CSM may
cause the Partnership to hire employees of CSM (other than CSM's executive
<PAGE>
officers and directors) on a reasonable hourly rate basis (not to exceed
the rate otherwise payable to such employees by CSM) to perform the
necessary management, administrative and clerical services. In such event,
salaries of such personnel payable by CSM may be reduced correspondingly.
All personnel employed by the Partnership in connection with the foregoing
shall be supervised by CSM.
CSM and its employees shall be responsible for the disbursement of
Partnership funds in payment of all expenses incurred in connection with
the operation of the Properties. CSM shall be separately reimbursed for
the direct cost of furnishing such services, but shall not be reimbursed
for the time of its executive officers and directors devoted to
Partnership affairs.
(d) Agreements. CSM and Partnership employees acting pursuant to CSM's
direction shall negotiate and execute on behalf of, in the name of and for
the account of the Partnership such agreements as CSM deems necessary or
advisable for the furnishing of utilities, services, concessions and
supplies and for the maintenance, repair and operation of the Properties
and such other agreements as may benefit the Properties or be incidental
to the matters for which CSM is responsible hereunder.
(e) Other Decisions. CSM shall have control over the daily operation of
the Properties.
(f) Regulations and Permits. CSM shall use its best efforts to cause all
things to be done on behalf of, in the name of and for the account of the
Partnership on the Properties necessary to comply with any statute,
ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Properties with respect to
the use of the Properties or the construction, maintenance, or operation
thereof, and with all orders and requirements of the local Board of Fire
Underwriters or any other body which may hereafter exercise similar
functions. CSM shall cause the Partnership to apply for and attempt to
obtain and maintain on behalf of, in the name of and for the account of
the Partnership all licenses and permits required or advisable (in CSM's
sole judgment) in connection with the management and operation of the
Properties.
(g) Accounting. CSM shall establish, supervise, direct and maintain the
operation of an accounting system and shall cause to be prepared and
delivered to the Partnership, at the Partnership's expense, financial
statements as follows:
(i) On or before thirty (30) days after the close of each calendar
month, a statement of operations showing the results of operation of
each of the Properties for such month and of the fiscal year to date
having annexed thereto a computation of the Property Management Fee,
as such fee is defined in Article IV of this Agreement, for such
month and for the fiscal year to date.
(ii) On or before sixty (60) days after the close of the fiscal year,
a balance sheet and related statement of operations showing the
result of the operations of the Properties during the fiscal year,
both audited and reported on by an independent certified public
accounting firm approved by and retained on behalf of, in the name of
and for the account of the Partnership by CSM and having annexed
<PAGE>
thereto a computation of the Property Management Fee for such fiscal
year. Fees for the independent certified public accounting firm shall
be borne by the Partnership.
(h) Deposits and Disbursements. CSM shall cause the establishment of bank
accounts insured by the Federal Deposit Insurance Corporation in the name
of the Partnership and shall deposit therein all receipts and monies
arising from the operation of the Properties or otherwise received for and
on behalf of the Partnership. CSM shall disburse Partnership funds from
said accounts on behalf of, in the name of and for the account of the
Partnership in such amounts and at such time as disbursement of such
revenues for payment of payroll and other obligations of the Partnership
is required. CSM shall establish and be responsible for administering a
policy for specifying the identity of signatories to the Partnership's
bank accounts and establishing the number of signatures required for
checks of various amounts. Expenses for deposits and disbursements shall
be borne by the Partnership.
(i) Collections. CSM shall supervise and direct personnel in the
collection and billing of all accounts payable and due to the Partnership
with respect to the Properties and shall be responsible for establishing
policies and procedures to minimize the amount of bad debts. Expenses of
collections shall be borne by the Partnership.
(j) Legal Actions. CSM shall cause to be instituted on behalf of, in the
name of and for the account of the Partnership any and all legal actions
or proceedings CSM deems necessary or advisable to collect charges, rents
or other income due to the Partnership with respect to the Properties or
to oust or dispossess lessees or other persons unlawfully in possession
under any lease or otherwise, and to collect damages for breach thereof,
or default thereunder by such lessee or other occupant. The cost of all
such legal actions or proceedings shall be borne by the Partnership.
(k) Insurance. CSM shall use its best efforts to assure that there is
obtained and kept in force fire, comprehensive, liability and other
insurance policies in amounts and from carriers approved by the
Partnership and in amounts generally carried with respect to similar
facilities. CSM shall also obtain and maintain in force on behalf of the
Partnership such additional insurance with respect to the Properties as
the Partnership shall from time to time instruct. All insurance expenses
shall be borne by the Partnership.
(l) Taxes. CSM shall disburse from Partnership funds when due or in
installments (where allowed) all taxes, personal and real, and assessments
properly levied on the Partnership with respect to the Properties on
behalf of, in the name of and for the account of the Partnership. CSM
shall use its best efforts to assure that the Partnership maintains and
implements a procedure for review by Partnership employees of all amounts
assessed on the Properties. All expenses for the disbursement of taxes
shall be borne by the Partnership.
<PAGE>
(m) Budget and Reports. CSM shall submit to the Partnership on or before
December 31 of each calendar year during the term hereof an annual budget
containing an estimate of the projected income (including rent increases
and when same, if any, are scheduled) and necessary expenditures during
the forthcoming calendar year in connection with the management and
operation of the Properties by CSM on behalf of the Partnership. CSM shall
also provide to the Partnership such periodic reports concerning the
management and operation of the Properties by CSM as the Partnership may
reasonably request.
Section 2.2. Restrictions. Notwithstanding anything to the contrary set forth
in this Article II, CSM shall not be required to do, or cause to be done,
anything for the account of the Partnership (i) which may make CSM liable to
third parties, (ii) which may not be commenced, undertaken or pleaded because
of insufficient funds available on the accounts of the Partnership established
pursuant to this Article II after reasonable request from CSM to the
Partnership, (iii) which may, under applicable law, constitute an impermissible
delegation of duties and responsibilities, including but not limited to the
purchase or construction of capital improvements, the sale or disposition of
all or substantially all of the Partnership's assets, and any action which may
result in a change in the Partnership's primary business, (iv) which cannot be
done because of acts of God, strikes, governmental regulations or laws, acts of
war or other types of events beyond CSM's control, whether similar or
dissimilar to the foregoing, or (v) which would violate the terms of the
Agreement and Certificate of Limited Partnership, any other agreement known to
CSM by which the Partnership may be bound, or that certain Registration
Statement No. 33-6669 on Form S-11, as amended from time to time, filed with
the Securities and Exchange Commissions and declared effective on _______, 1986
(the "Registration Statement").
Section 2.3. Limitations on CSM's Authority. Notwithstanding anything to the
contrary set forth in this Article II, CSM shall not, without obtaining the
prior written consent of the Partnership, (i) alter the buildings or other
structures on the Properties in any material manner, (ii) make any arrangements
for a term exceeding one (1) year which are not terminable on thirty (30) days
notice at the will of the Partnership, without penalty, payment or surcharge,
or (iii) incur any unbudgeted expenditure of Partnership funds in excess of
Five Thousand Dollars ($5,000) on any Property without the prior approval of
the Partnership.
2.4. Covenants. CSM covenants that it will operate the Properties in a manner
similar to that in which affiliates of CSM have typically operated other
mini-warehouse and office/warehouse facilities and that the services to be
provided to lessees of rental units in the Properties will not exceed those
customarily rendered in connection with the rental of mini-warehouse and
office/warehouse facilities.
<PAGE>
ARTICLE III
DUTIES OF THE PARTNERSHIP
The Partnership hereby agrees to cooperate with CSM in the performance of its
duties under this Agreement and, to that end, upon the request of CSM, to
provide reasonable temporary office space for CSM's employees on the premises
of the Properties, to give CSM access to all files, books and records of the
Partnership relevant to the Properties and to execute all documents or
instruments and hire and discharge such employees as CSM in its good faith
judgment deems reasonably necessary or advisable to enable it to fulfill its
duties under this Agreement. Such employees shall include, but not be limited
to, regional managers, resident managers, assistant managers, relief managers
and administrative and clerical personnel. It is understood and acknowledged
that some or all of such employees may be employed part-time by the Partnership
and part-time by CSM or its affiliates and/or by owners of other
mini-warehouse, office warehouse or other facilities managed by CSM, some of
which may compete with the Properties.
ARTICLE IV
COMPENSATION TO CSM
Section 4.1. Property Management Fee. So long as the Partnership owns the
Properties, the Partnership shall pay CSM, as the full amount due for the
services herein provided which are actually rendered by CSM pursuant to this
Agreement, a Property Management Fee equal to six percent (6%) of the "Gross
Revenue" derived from or connected with the Properties operated as
mini-warehouse facilities and five percent (5%) of the "Gross Revenue" derived
from or connected with Properties operated as office/warehouse facilities, but
not exceeding that customary for similar property management and leasing
services in the relevant geographical area. In the event the Partnership
consents to a net lease for a term of ten (10) or more years on any Property,
the compensation otherwise payable to CSM shall be reduced to one percent (1%)
of the "Gross Revenue" derived from or connected with such Property, except for
a one time initial leasing fee of three percent (3%) of the "Gross Revenue" on
such lease payable over the first five (5) full years of the original term of
the lease. The term "Gross Revenue" shall mean all receipts (excluding security
deposits, unless and until the Partnership recognizes such security deposits as
income, and amounts received as payments for damages by lessees) of the
Partnership (whether or not received by CSM on behalf of, in the name of or for
the account of the Partnership) arising from the operation of the Properties in
the ordinary course of business including, but not limited to, rental payments
of lessees of rental units of the Properties and all other funds, whether or
not otherwise described herein, paid for the use of the Properties. Gross
Revenue shall be determined on a cash basis. The Property Management Fee for
each month shall be paid on or before 30 days after the close of such month and
shall be calculated on the basis of Gross Revenue for such month.
Section 4.2. Employees Compensated by Partnership. It is understood and agreed
that the Property Management Fee payable to CSM will be in addition to, and
shall not be reduced by, the cost to the Partnership of employing or engaging
those employees and independent contractors engaged by or for the Partnership,
including, but not limited to, the categories of personnel specifically
referred to in Section 2.1(c) hereof.
<PAGE>
ARTICLE V
USE OF TRADEMARKS, SERVICE MARKS
AND RELATED ITEMS
It is understood and agreed that the names "Colonial Self Storage" and
"Colonial Storage Centers" and related trademarks, service marks, slogans,
caricatures, designs and other trade or service items may be utilized for the
non-exclusive benefit of the Partnership in the rental and operation of the
Properties, and in comparable operations elsewhere. It is further understood
and agreed that these names and all such trademarks, service marks, slogans,
caricatures, designs and other trade or service items shall remain and be at
all times the property of CSM or its affiliates, and that, except during the
term hereof, the Partnership shall have no right whatsoever therein. Upon
termination of this Agreement, at any time or for any reason, all such use by
and for the benefit of the Partnership of any such name, trademark, service
mark, slogan, caricature, design or other trade or service item in connection
with the Properties shall, in any event, be terminated and any signs bearing
any of the foregoing shall be removed from view and no longer used by the
Partnership. It is understood and agreed that CSM will use and shall be
unrestricted in its use of such names, trademarks, service marks, slogans,
caricatures, designs or other trade or service items in the management and
operation of mini-warehouse, office/warehouse and other facilities both during
and after the expiration of the term or the termination of this Agreement. CSM
represents and warrants that CSM has the right to the non-exclusive use of the
names and service marks "Colonial Self Storage" and "Colonial Storage Centers"
and hereby agrees to indemnify and defend the Partnership and its general
partners from any and all costs, expenses, attorneys' fees, suits, liabilities,
judgments, damages and claims arising in connection with any claim that the use
of the names and service marks "Colonial Self Storage" and "Colonial Storage
Centers" infringe the name, trademark or service mark of any other person.
ARTICLE VI
TERMINATION
Upon sixty (60) days written notice to CSM pursuant to Article XI hereof, the
Partnership may terminate this Agreement with or without cause. Upon two
hundred seventy (270) days written notice to the Partnership pursuant to
Article XI hereof, CSM may terminate this Agreement with or without cause. This
Agreement shall automatically terminate in the event Colonial Storage 86, Inc.,
an affiliate of CSM, shall voluntarily withdraw as a general partner of the
Partnership.
ARTICLE VII
INDEMNIFICATION
The Partnership hereby agrees to indemnify and hold CSM and its executive
officers, directors, employees and affiliates harmless from any and all costs,
expenses, attorneys' fees, suits, liabilities, judgments, damages and claims
arising from the Partnership's breach of this Agreement or in connection with
the management of the Properties (including the loss of the use thereof
following any damage, injury or destruction) arising from any cause except for
the willful misconduct, negligence or negligent omissions on the part of CSM or
its executive officers, directors, employees or affiliates. CSM and its
executive officers, directors, employees and affiliates also shall not be
<PAGE>
liable for any error of judgment or for any mistake of fact or law, or for
anything which it may do or refrain from doing hereunder, except in cases of
willful misconduct or negligence. CSM and its affiliates hereby agree to
indemnify and hold the Partnership and its general partners harmless from any
and all costs, expenses, attorneys' fees, suits, liabilities, judgments,
damages and claims arising from CSM's breach of this Agreement or in connection
with the management of the Properties arising from the willful misconduct or
negligence of CSM or its executive officers, directors, employees or
affiliates.
ARTICLE VIII
ASSIGNMENTS
Neither this Agreement nor any right hereunder shall be assignable by the
Partnership and any attempt to do so shall be void ab initio. CSM shall have
the right to assign this Agreement to an affiliate, provided, however, that any
such assignee must assume all obligations of CSM hereunder. The Partnership's
rights hereunder will be enforceable against any such assignee and CSM shall
not be released from its liabilities hereunder unless the Partnership shall
expressly agree thereto in writing.
ARTICLE IX
HEADINGS
The headings contained herein are for convenience of reference only and are not
intended to define, limit or describe the scope or intent of any provision of
this Agreement.
ARTICLE X
GOVERNING LAW
The validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties shall be governed by the
laws of the State of Texas. This Agreement shall be deemed performable and
venue for any action brought hereunder shall be in Tarrant County, Texas.
ARTICLE XI
NOTICES
Any notice required or permitted herein to be given shall be given in writing
and shall be personally delivered or mailed, first class postage prepaid, to
the respective addresses of the parties set forth below their signatures on the
signature page hereof, or to such other address as any party may give to the
others in writing.
<PAGE>
ARTICLE XII
SEVERABILITY
Should any term or provision hereof be deemed invalid, void or unenforceable
either in its entirety or in a particular application, the remainder of this
Agreement shall nonetheless remain in full force and effect and, if the
subject, term or provision is deemed to be invalid, void or unenforceable only
with respect to a particular application, such term or provision shall remain
in full force and effect with respect to all other applications. The parties
recognize that broad discretionary authority has been granted by the
Partnership to CSM in the management and direction of the Partnership's
business and financial affairs and it is their intent that such authority be
fully exercised by CSM within the limitations imposed by applicable law. If,
however, any court of competent jurisdiction should render a final judgment
that the authority granted to CSM herein exceeds the bounds of permissible
delegation under applicable law, the parties agree that this Agreement shall be
deemed amended, modified and reformed to the extent necessary to reduce the
scope of authority delegated by the Partnership to CSM as to limit such
authority to that permissible under applicable law as evidenced by the written
legal opinion of counsel to CSM. The parties agree that no determination that
the discretion and authority granted to CSM hereunder exceeds permissible
bounds shall result in this Agreement being declared or adjudged invalid, void
or unenforceable in its entirety; rather, the parties request that any court
examining such issue employ great latitude in reforming this Agreement so as to
make the same, as reformed, valid and enforceable.
ARTICLE XIII
AFFILIATES
"Affiliate", with respect to CSM shall mean (i) any person directly or
indirectly owning, controlling, or holding with power to vote, 10% or more of
the outstanding voting securities or interests of CSM; (ii) any person, 10% or
more of whose outstanding voting securities or interests are directly or
indirectly owned, controlled, or held with power to vote, by CSM; (iii) any
person directly or indirectly controlling, controlled by or under common
control with CSM; (iv) any officer, director or partner directly or indirectly
controlling, controlled by or under common control with CSM; (iv) any officer,
director or partner of CSM; and (v) any company for which CSM acts as an
officer, director or partner.
ARTICLE XIV
SUCCESSORS
This Agreement shall be binding upon and inure to the benefit of the respective
parties hereto and their permitted assigns and successors in interest.
<PAGE>
ARTICLE XV
ATTORNEYS' FEES
If it shall become necessary for either party hereto to engage attorneys to
institute legal action for the purpose of enforcing its rights hereunder or for
the purpose of defending legal action brought by the other party hereto, the
party or parties prevailing in such litigation shall be entitled to receive all
costs, expenses and fees (including reasonable attorneys' fees) incurred by it
in such litigation (including appeals).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
COLONIAL STORAGE MANAGEMENT 86, INC.
By: /s/James R. Pruett
----------------------
James R. Pruett,
Its President
1141 West Pioneer Parkway
Suite 200
Arlington, Texas 76013
BALCOR/COLONIAL STORAGE
INCOME FUND - 86
By: Balcor Storage
Partners - 86
By: Balcor Storage
Partners, Inc.
By: /s/Richard B. Stern
--------------------------
Richard B. Stern
--------------------------
Its First Vice President
----------------------
4849 Golf Road
Skokie, Illinois 60077
AND By: Colonial Storage 86, Inc.
By: /s/James R. Pruett
---------------------------
James R. Pruett, Its
President
<PAGE>
APPRAISAL OF
A TAX-EXEMPT LIMITED PARTNERSHIP INTEREST
AND
A TAXABLE LIMITED PARTNERSHIP INTEREST
IN
BALCOR/COLONIAL STORAGE INCOME FUND-86
(BCSIF-86)
SKOKIE, ILLINOIS
AS OF DECEMBER 31, 1995
<PAGE>
March 20, 1996
The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, IL 60015
Attn: Mr. John K. Powell, Jr. - First Vice President
Gentlemen:
In accordance with your request, we are pleased to submit our opinion of the
Fair Market Value of a Tax-Exempt Limited Partnership Interest and a Taxable
Limited Partnership Interest in:
Balcor/Colonial Storage Income Fund-86
("BCSIF-86" and "The Partnership")
(An Illinois Limited Partnership)
as of December 31, 1995 .
The term "Fair Market Value" is defined as follows:
The amount, in dollars, which a Limited Partnership Interest in Balcor/
Colonial Storage Income Fund - 86 is worth to an investor who purchases
the Interest with the intention of holding it to maturity, who fully un-
derstands the complexities of the investment, and has an interest in the
potential interest income and capital appreciation of the Limited
Partnership Interest. The valuation does not represent the amount that
might be received by a holder of a Limited Partnership Interest should
he/she decide to liquidate the Interest prior to the maturity of the
Partnership.
<PAGE>
The Balcor Company
March 20, 1996
Based on our analyses and conclusions set forth in this report, the estimate of
the Fair Market Value of a Limited Partnership Interest in Balcor/Colonial
Storage Income Fund-86, as of December 31, 1995, was:
1. Tax-Exempt and Taxable Limited Partnership Interests
$281.00
-------
For the year ended December 31, 1995, the value of a Limited Partnership
Interest decreased $1.00 from the year ended December 31, 1994 value of
$282.00, mainly due to setting the termination of the Partnership for the end
of the year 2000. Certain risk rates were reduced. This value of $281.00 was
an increase of $1.00 per Limited Partnership Interest over the December 31,
1995 preliminary value.
On February 2, 1996, a preliminary estimate of the Fair Market Value of a Lim-
ited Partnership Interest in Balcor/Colonial Storage Income Fund-86, as of De-
cember 31, 1995, was provided to the General Partners. Year-end Balance Sheet
financial data was not available, consequently September 30, 1995 Working
Capital numbers were used in the valuation. The preliminary conclusion of the
value of a Limited Partnership Interest as of that date was $280.00.
We have been advised that on March 6, 1996, the Partnership entered into a
purchase contract with an unaffiliated third party to purchase the Partner-
ship's properties for $67,100,000. This proposed sale, to be consummated on or
about May 15, 1996, was not considered in our valuation since this is termed a
liquidation prior to the maturity of the Partnership in the year 2000.
For the year ended December 31, 1994, the value of a Limited Partnership
Interest increased $23.00 as a result of improved cash flow projections based
on increased rentals. Earnings increased 24% in 1994 although actual cash flow
was somewhat less due to capital expenditures. The discount rates were in-
creased 0.50% to reflect the general increase in medium to long term interest
rates.
For the year ended December 31, 1993, the value of a Limited Partnership
Interest increased $5.00 as a result of an improvement in projected cash flows.
A balance sheet adjustment has commenced with the allocation of an estimated
portion of future cash flow to be accrued for certain costs to be incurred re-
lating to the dissolution and termination of the Partnership. These antici-
pated costs are comprised of legal fees, accounting fees, management fees and
other administrative costs. The General Partner, for the year ended December
31, 1995, has accrued an amount equal to the present value of expected fund
charges. For the year ended December 31, 1995, the reserve amount is
$1,768,535.
<PAGE>
The Balcor Company
March 20, 1996
In the valuation of BCSIF-86 for the year ended December 31, 1985, all compo-
nents of income and expenses which had tax consequences from an investment in
the Partnership were adjusted for an estimated 40% tax rate. Because of the
many permutations and combinations of tax benefits available and/or not avail-
able to the taxable investor under the new tax legislation, and the confusion
surrounding the new tax legislation, it has been decided to delete any tax
benefits from the calculation of the value per interest. The Partnership will
provide the tax benefit data to the taxable investor in order for the owner of
the Partnership Interest to apply it to his or her individual tax structure.
A copy of this report is retained in our files, together with the information
from which the report was compiled.
Respectfully submitted,
/s/Raymond Ghelardi /s/Clement H. Darby
Valuation Counselors Group, Inc. Darby & Associates
Raymond Ghelardi Clement H. Darby
Managing Director President
cc: Mr. Martin Dempski
Ms. Mary J. Mojica
Ms. Jayne Kosik
Ms. Jane Cody
<PAGE>
TABLE OF CONTENTS
Statement of Facts and Limiting Conditions
Introduction
Allocation of Profits and Losses
Payments to the Limited Partners and General Partners
Description of the Assets
Valuation of a Limited Partnership Interest
Valuation of the Equity Cash Flows
Valuation of the Offering Expenses
Conclusion of Value
Schedule
A Balance Sheet
B Amortization of Offering Expenses
C Summary of Fair Market Calculation
<PAGE>
STATEMENT OF FACTS AND LIMITING CONDITIONS
Valuation Counselors Group, Inc./Darby & Associates Joint Venture strives to
clearly and accurately disclose the assumptions and limiting conditions that
directly affect an appraisal analysis, opinion or conclusion. In order to as-
sist the reader in interpreting this report, such assumptions are set forth as
follows:
Valuation Counselors Group, Inc./Darby & Associates Joint Venture reserves the
right to make adjustments to the analysis, opinion and conclusions set forth in
the report as deemed necessary by consideration of additional or more reliable
data that subsequently may become available.
No opinion is rendered as to legal fee, property title or mortgage notes re-
lated to the appraised assets, which are assumed to be good and marketable.
It is assumed that no opinion is intended in matters that require legal, engi-
neering or other professional advice which has been or will be obtained from
professional sources; the valuation report will not be used for guidance in
professional matters exclusive of the appraisal and valuation discipline.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; however, no responsibility, whether
legal or otherwise, is assumed for its accuracy and cannot be guaranteed as
being certain. All facts and data set forth in the report are true and accu-
rate to the best of the Appraiser's knowledge and belief. No single item of
information was completely relied upon to the exclusion of other information.
All financial data, operating histories and other data relating to income and
expenses attributed to the assets and the Partnerships have been provided by
Management or its representatives and have been accepted without further veri-
fication except as specifically stated in the report.
It should be specifically noted that the valuation assumes the appraised assets
will be competently managed and maintained by financially sound owners over the
expected period of ownership except where noted, specifically in assets during
the period of foreclosure where Balcor may not have control. This appraisal
engagement does not entail an evaluation of management's effectiveness, nor are
we responsible for future marketing efforts and other management or ownership
actions upon which actual results will depend.
Neither the report nor any portions thereof, especially any conclusions as to
value, the identity of the appraiser or Valuation Counselors Group, Inc./Darby
& Associates Joint Venture shall be disseminated to the public through public
relations media, news media, sales media, prospectus or any other public means
of communications without the prior written consent and approval of Valuation
Counselors Group, Inc./Darby & Associates JointVenture. The date of the
valuation to which the value estimate conclusion applies is set forth in the
report.
The preponderance of working paper support for this valuation is maintained in
the offices of management, Balcor Mortgage Advisors.
Neither the fees nor any of the terms and conditions of the appraisal assign-
ments given to Valuation Counselors Group, Inc./Darby & Associates Joint Ven-
ture by Balcor Mortgage Advisors are contingent upon the values reported.
<PAGE>
No independent investigation of the fair market value of the underlying real
estate assets has been made by Valuation Counselors Group, Inc./Darby &
Associates Joint Venture. We have reviewed the real estate appraisals for
reasonableness, but have assumed the real estate appraisals obtained by Balcor
Mortgage Advisors are independent and accurate.
In the event that this appraisal is used as basis to set a market price for a
Limited Partnership Interest in Balcor/Colonial Storage Income Fund-86, no re-
sponsibility is assumed for the seller's inability to obtain a purchaser at the
value reported herein.
The reader of this valuation report should be fully conversant with the terms
and conditions of Balcor/Colonial Storage Income Fund-86 Limited Partnership as
set forth in the Prospectus, other related documents, and the prior appraisals
of a Limited Partnership Interest in Balcor/Colonial Storage Income Fund-86.
We have discussed the current status and condition of the Real Estate Owned
with the management of Balcor Mortgage Advisors and have accepted their com-
ments as being factual.
<PAGE>
INTRODUCTION
Balcor/Colonial Storage Income Fund-86 (the "Partnership" and "BCSIF-86") is a
limited partnership formed in May 20, 1986 and amended October 9, 1986 pursuant
to the Illinois Limited Partnership Act. The Partnership Agreement provides
for Balcor Storage Partners-86 (a general partnership) and Colonial Storage 86,
Inc. to be the General Partners and for the admission of additional Limited
Partners through the sale of up to 400,000 Limited Partnership Interests (In-
terests) at $250 per Interest.
The Partnership is intended to serve as an investment vehicle for qualified
profit-sharing, pension and other retirement trusts; bank commingled trust
funds for such trusts; Individual Retirement Accounts (IRAs) and plans for
self-employed individuals; government pension and retirement trusts; and other
entities intended to be exempt from Federal income taxation such as certain
religious, charitable, scientific, literary and educational corporations, funds
and foundations ("Tax-exempt Investors" or "Tax-exempt Limited Partners"). The
Partnership is also intended to serve as an investment vehicle for taxable in-
dividuals and entities ("Taxable Investors" or "Taxable Limited Partners").
The Partnership commenced the offering of Interests to the Public on October
14, 1986 and sold $64,226,000 in Limited Partnership Interests through June 15,
1987. The sale was terminated on June 15, 1987 upon the sale of 256,904
Interests.
The principal purpose of the Partnership is to acquire, own, maintain, operate,
lease and hold for capital appreciation and current income, existing mini-
warehouse facilities offering storage space for business and personal use. The
Partnership owned a total of 16 mini-warehouses as of December 31, 1987 having
acquired 4 mini-warehouse facilities in December 1986 and 7 in March 1987. In
addition the Partnership acquired 5 additional mini-warehouses in the second
half of 1987. In the twelve month period ended December 31, 1988, the
Partnership acquired an additional nine mini-warehouses from non-affiliated
entities, making a total of 24 mini-warehouses as of December 31, 1995.
Eleven of the properties which the Partnership acquired were mini-warehouse
facilities purchased from sellers who are affiliates of Colonial. The purchase
price and terms of the acquisitions were negotiated at arm's length between
affiliates of Balcor and the sellers prior to the affiliation of Balcor and
Colonial as General Partners of the Partnership, consistent with the General
Partners' fiduciary duty to the Limited Partners. The purchase price for each
mini-warehouse facility was derived by applying a capitalization formula to the
net operating revenue of each property. In determining the capitalization
formulas, the parties considered values of mini-warehouse facilities owned by
competitors, the locations of the mini-warehouse facilities and the prospects
for long-range appreciation, among other factors.
The Partnership also received independent appraisals for each property it pur-
chased and the purchase price of each such property did not exceed its ap-
praised value. It should be noted that appraisals are estimates of value and
should not be relied upon as measures of true worth or realizable value.
<PAGE>
ALLOCATIONS OF PROFITS AND LOSSES
For Federal income tax purposes each item of the Partnership's profits and
losses for the period prior to October 1, 1986 will be allocated 99% to the
General Partners and 1% on the initial Limited Partner. Therefore, each item
of the Partnership's profits and losses will be allocated 1% to the General
Partners and 99% among the Limited Partners. When a property is sold, the
General Partners will be allocated profits equal to the greater of (I) 1% of
total profits, or (ii) the amounts of Net Cash Proceeds distributed to the
General Partners on account of such sale (in excess of subordinated Net Cash
Receipts), and the balance of profits will be allocated to the Limited Part-
ners. Any losses from the sale of a property will be allocated 1% to the Gen-
eral Partners and 99% among the Limited Partners. Any ordinary income arising
from recapture as a result of the sale or other disposition of Partnership
property, as provided for in sections 467, 751, 1245 or 1250 of the Internal
Revenue Code, shall be allocated to the Partners to whom or to whose predeces-
sors in interest the deduction or other benefit to which said recapture was
attributable was allocated. A General Partner may assign a portion of its in-
terest in the profits, losses and cash distributions from the Partnership to a
partnership for the benefit of certain employees of such General Partner and
its affiliates.
<PAGE>
PAYMENTS TO THE LIMITED PARTNERS AND GENERAL PARTNERS
90% of all Net Cash Receipts available for distribution will be distributed to
the Limited Partners and 10% will be distributed to the General Partners (1% as
a distributive share from operations and 9% as a partnership incentive manage-
ment fee) provided that the General Partners' share of Net Cash Receipts shall
be subordinated to a Cumulative Distribution of 6% during the first 12 month
period after termination of the offering, 8% during the next 12 month period,
and 10% during each 12 month period thereafter. For each period during which
the Cumulative Distribution is not attained, the General Partners' share of Net
Cash Receipts will be deferred to the extent of such deficiency and such de-
ferred portion will be paid to the General Partners only from distributed Net
Cash Proceeds after required subordination levels are attained. A deficiency
in the Cumulative Distribution for a particular year will not by itself cause
the subordination of the General Partners' share of Net Cash Receipts in later
years. However, deficiencies in the Cumulative Distribution for particular
years may be satisfied out of Net Cash Receipts distributed in later years in
excess of the required Cumulative Distribution for those years. Net Cash Re-
ceipts will be computed after the deduction of Partnership expenses. It is not
expected that these rates of return to the Limited Partners will be achieved on
a cumulative basis during the life of the fund; consequently, it is highly un-
likely that there will be any distributions to the General Partners, and none
has been accrued.
The net proceeds of any sale, financing or refinancing (other than a financing
or refinancing within 18 months of the acquisition of a property) will not be
reinvested in new acquisitions. All Net Cash Proceeds available for distri-
bution will be distributed to the holders of Interests until they have received
an amount equal to their Original Capital plus any deficiency in a Cumulative
Distribution of 6% during the first twelve month period following termination
of the offering, 8% during the second twelve month period and 10% during each
twelve month period thereafter. If the receipt of any portion of the General
Partners' share of Net Cash Receipts has been deferred as a result of subordi-
nation to the Cumulative Distribution, any additional Net Cash Proceeds will
then be distributed to the General Partners to the extent of such deferred
amounts. Therefore, holders of Interests will receive 85% and the General
Partners will receive 15% of any additional Net Cash Proceeds available for
distribution. The same comments pertaining to distributions to the General
Partners in the first paragraph pertain to this paragraph.
The Net Cash Receipts and Net Cash Proceeds available for distribution are de-
termined by the General Partners after they create any reserves or make expen-
ditures reasonably necessary or appropriate for the operation of the
Partnership. There is no assurance that the Partnership will generate Net Cash
Receipts or Net Cash Proceeds, or that, if generated, they will be available
for distribution.
All Partnership distributions are made quarterly to the persons recognized as
the holders of Interests as of the last day of the immediately preceding
calendar quarter. Distributions commenced in mid-1987.
Investors received offering period payments on their Interests projected at an
initial rate of 6% per annum from the approximate time of investment until the
termination of the public offering.
The General Partners believe the cash generated from property operations should
enable the Partnership to continue making quarterly distributions to Limited
<PAGE>
Partners. However, the level of future cash distributions to Limited Partners
will be dependent upon the amount of cash flow generated by the Partnership's
properties as to which there can be no assurance. Pursuant to the Partnership
Agreement, the General Partners are entitled to 10% of Net Cash Receipts
available for distribution, subject to certain subordinations in the periods
following the termination of the offering. From the inception of the offering
through September 30, 1995, the General Partners' share of Net Cash Receipts
totaled approximately $3,880,000, of which $3,543,000 is subordinated. The
General Partners are entitled to receive such subordinated amounts only from
distributed Net Cash Proceeds.
Distributions to the Limited Partnership
----------------------------------------
Average Number Annual
Year of Interests Amount Rate Amount Paid
- ---------------------- ------ ------ -----------
1987 (including
offering period) $7.50 $1,926,780
1988 256,904 16.26 6.50% 4,177,259
1989 256,904 17.52 7.01% 4,500,960
1990 256,904 16.82 6.73% 4,321,126
1991 256,904 16.12 6.45% 4,141,292
1992 256,904 16.66 6.66% 4,280,022
1993 256,904 17.22 6.89% 4,423,887
1994 256,904 18.20 7.28% 4,675,652
1995 256,904 20.88 8.35% 5,364,156
<PAGE>
DESCRIPTION OF THE ASSETS
The Partnership owns directly the twenty-four properties described below:
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
201 Cobb Parkway 3.1 47,980 431
Marietta, Georgia
6390 Winchester Road 2.3 39,444 360
Memphis, Tennessee
5675 Summer Avenue 2.4 46,010 377
Memphis, Tennessee
2064 Briarcliff 2.8 45,700 174
Atlanta, Georgia
4333 Jackson Drive 3.1 72,572 612
Garland, Texas
321 East Buckingham Road 2.1 40,701 299
Garland, Texas
3218 South Garnett Road 3.7 57,540 464
Tulsa, Oklahoma
5708 Fort Caroline Road 3.7 67,975 768
Jacksonville, Florida
3401 Avenue K 4.7 87,654 897
Plano, Texas
4301 and 4324 Poplar
Level Road 4.2 81,982 798
Louisville, Kentucky
2719 Morse Road 4.3 62,190 518
Columbus, Ohio
5036 Cleveland Avenue 5.0 65,086 583
Fort Myers, Florida
<PAGE>
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
3281 Western Branch Blvd 5.5 75,201 747
Chesapeake, Virginia
2300 Kangaroo Drive 4.0 47,502 657
Durham, North Carolina
28 W. 650 Roosevelt Rd 5.6 48,145 550
Winfield, Illinois
1131 Semoran Boulevard 3.9 67,159 641
Casselberry, Florida
36 Pine Knoll Road 4.2 50,325 446
Greenville, South Carolina
750 East Third Street 3.3 55,700 450
Lexington, Kentucky
1900 U.S. Highway 19 South 5.4 80,732 748
Tarpon Springs, Florida
7415 W. Dean Road 11.7 205,190 1,107
Milwaukee, Wisconsin
W229 N590 Foster Court and
N5 W22966 Bluemound Road 3.0 49,632 219
Waukesha, Wisconsin
3120 Breckenridge Lane 2.1 34,490 329
Louisville, Kentucky
2275 S. Semoran Boulevard 1.9 30,050 345
Orlando, Florida
11195 Alpharetta Highway 9.1 113,310 680
Roswell, Georgia
<PAGE>
VALUATION OF A LIMITED PARTNERSHIP INTEREST
The valuation methodology used in estimating the Fair Market Value of a Limited
Partnership Interest in Balcor/Colonial Storage Income Fund-86 is based upon
substituting the estimated present value of the Equity Cash Flows in place of
the Investment in Real Estate at Cost, Land, Buildings and Improvements. In
addition, the unamortized portions of the Offering Expenses and Loan Fees were
added to the Assets. For financial reporting purposes, initially the total
Offering Expenses and Loan Fees were deducted from the proceeds of the Limited
Partnership Interests. Current Assets and Current Liabilities remained as
stated and subsequently are called "Net Current Assets." Commencing with the
year December 31, 1993, an amount equal to the present value of the Fund Ad-
ministration Costs has been deducted from the cash flow in anticipation of the
dissolution and termination of the Partnership.
Cash and the present value of the Equity Cash Flows initially were segregated
into the interests of the Tax-exempt Limited Partnership Interests, Taxable
Limited Partnership Interests and General Partner Interest Shares in accordance
with the terms of the Limited Partnership Agreement and the proportionate share
of the Partnership Interests. Credits are no longer calculated for the Taxable
Limited Partnership Interests for the current tax effect and the present value
of the future tax effect of the tax benefits which accrue to them in accordance
with the Agreement; consequently, the values of the Taxable and the Tax-exempt
Limited Partnership Interest Shares are the same.
<PAGE>
SCHEDULE A
BALCOR/COLONIAL STORAGE INCOME FUND - 86
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1995
(AUDITED)
Assets
Cash and cash equivalents $3,595,948
Net Accounts Receivable 87,047
Accrued interest receivable 0
Other 92,649
-----------
$3,775,644
-----------
Mini-warehouse facilities, at cost
Land 16,925,647
Buildings 36,597,146
Furniture, fixtures and equipment 903,419
-----------
54,426,212
Less accumulated depreciation 12,657,526
-----------
Mini-warehouse facilities, net of
accumulated depreciation 41,768,686
Noncompetition Agreements 0
-----------
$45,544,330
===========
Liabilities and Partners' Capital
Accounts payable $ 15,967
Due to affiliates 59,264
Accrued liabilities 361,829
Security deposits 72,678
Deferred income 362,459
-----------
Total liabilities 872,197
Partners' capital (256,904 Limited
Partnership Interests issued and
outstanding) 44,672,133
-----------
$45,544,330
===========
<PAGE>
VALUATION OF THE EQUITY CASH FLOWS
As of December 31, 1995, the General Partner adopted a current strategy to
terminate the Partnership at year-end 2000. Prior to December 31, 1995, the
valuation of a Limited Partnership Interest was based on a ten-year moving pe-
riod. This change resulted in a minor reduction in the value of a Limited
Partnership Interest.
The fair market value of the Equity Cash Flows is equal to the sum of the pre-
sent values of the Operating Cash Flows and the Sales Proceeds. The General
Partner has prepared individual cash flows for each property based on a termi-
nation of the Partnership year-end 2000. The projected Operating Cash Flows
from the properties are increased 4% annually (a reduction from 5% used in
1988) and have been discounted at an annual rate of 10.00% to a net present
value. The Agreement calls for the General Partner to receive 10% of the
Operating Cash Flows and the remaining 90% is Limited Partnership Interests.
The General Partners share, however, is subordinated to the Limited Partners
preferred cumulative rates.
Sales Proceeds are calculated on the basis of a 10.00% capitalization rate for
the year-end 2000, adjusting for a 3% sales commission and a 4% escalation
rate. The net proceeds from the sale have been discounted at an annual rate of
10.00% to a net present value.
For the purpose of this valuation we have included:
A summary of the Equity Cash Flows as of December 31, 1995, is as follows:
Taxable & General
Tax Exempt Partner Total
---------- ------- -----
Operating Cash
Flows $25,162,482 $ 0 $25,162,482
Sales Proceeds 45,238,114 0 45,238,114
----------- ---------- -----------
Total $70,400,596 $ 0 $70,400,596
<PAGE>
VALUATION OF THE OFFERING EXPENSES
The valuation methodology of the Partnership Interests includes the
capitalization of the Offering Expenses and their amortization over the life of
the equity assets and debt assets. As of December 31, 1995, the total unamor-
tized portion of the Offering Expenses was $640,200. The quarterly amortiza-
tion of offering expenses is $213,411. This amount is deducted quarterly from
the preceding quarter's net offering expenses.
SCHEDULE B
TOTAL 2,850,131 AMORTIZATION OF OFFERING EXPENSES:
EQUITY ASSET
QUARTER ENDING TERM # ADJUSTMENTS (S/L 10 YRS) REMAINING
- ---------------------------- -------------------------------------------
31-Dec-86 71,253 2,778,878
31-Mar-87 5,402,010 71,253 8,109,635
30-Jun-87 213,411 7,896,224
30-Sep-87 0 213,411 7,682,813
31-Dec-87 0 213,411 7,469,402
31-Mar-88 0 213,411 7,255,991
30-Jun-88 0 213,411 7,042,580
30-Sep-88 0 213,411 6,829,169
31-Dec-88 0 213,411 6,615,758
31-Mar-89 1 213,411 6,402,347
30-Jun-89 2 213,411 6,188,936
30-Sep-89 3 213,411 5,975,525
31-Dec-89 4 213,411 5,762,114
31-Mar-90 5 213,411 5,548,703
30-Jun-90 6 213,411 5,335,292
30-Sep-90 7 213,411 5,121,881
31-Dec-90 8 213,411 4,908,470
31-Mar-91 9 213,411 4,695,059
30-Jun-91 10 213,411 4,481,648
30-Sep-91 11 213,411 4,268,237
31-Dec-91 12 213,411 4,054,826
31-Mar-92 13 213,411 3,841,415
30-Jun-92 14 213,411 3,628,004
30-Sep-92 12 213,411 3,414,593
31-Dec-92 16 213,411 3,201,182
31-Mar-93 17 213,411 2,987,771
30-Jun-93 18 213,411 2,774,360
30-Sep-93 19 213,411 2,560,949
31-Dec-93 20 213,411 2,347,538
31-Mar-94 21 213,411 2,134,127
30-Jun-94 22 213,411 1,920,716
30-Sep-94 23 213,411 1,707,305
31-Dec-94 24 213,411 1,493,894
31-Mar-95 25 213,411 1,280,483
30-Jun-95 26 213,411 1,067,072
30-Sep-95 27 213,411 853,661
31-Dec-95 28 213,411 640,250
31-Mar-96 29 213,411 426,839
30-Jun-96 30 213,411 213,428
30-Sep-96 31 213,411 17
<PAGE>
CONCLUSION OF VALUE
Based on the various analyses of the components of the Partnership's Interests
presented in this report, our conclusions of value are summarized in the fol-
lowing Schedule C.
SCHEDULE C
SUMMARY OF FAIR MARKET CALCULATION
DECEMBER 31, 1995
Taxable & General
Tax-Exempt Partner Total
---------- ------- -----
Cash:
Working Capital/ $2,903,447 0 2,903,447
Undistributed NCR (1) 0 0 0
Fund Admin Expenses (1,768,535) 0 (1,768,535)
----------- ---------- -----------
$1,134,912 $ 0 $1,134,912
----------- ---------- -----------
Present Value of Equity
Cash Flows:
Operating Cash Flows(1) 25,162,482 0 25,162,482
Sales Proceeds 45,238,114 45,238,114
----------- ---------- -----------
$70,400,596 $ 0 $70,400,596
----------- ---------- -----------
Offering Expenses 640,250 640,250
Total Value of Assets $72,175,758
-----------
Number of Interest 256,904
-------
Value Per Interest $280.94
-------
Rounded $281.00
-------
Adjusted Original Capital $250.00
-------
(1)Current fund distributions are falling short of the L/P's cumulative pre-
ferred return rate, and are projected to continue to fall short such that
cumulative return deficiencies will prohibit the GP from receiving its 10%
share of NCR.
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE (this "Agreement"), is entered into as of the
5th day of March, 1996, by and between STORAGE TRUST PROPERTIES, L.P., a
Delaware limited partnership ("Purchaser"), and BALCOR/COLONIAL STORAGE INCOME
FUND - 86, an Illinois limited partnership ("Seller").
W I T N E S S E T H:
1. PURCHASE AND SALE.
1.1. Purchaser agrees to purchase and Seller agrees to sell at the price
of Sixty Seven Million One Hundred and and No/100 Dollars ($67,100,000.00) (the
"Purchase Price"), those certain twenty-five (25) mini-warehouse facilities
commonly described in Exhibit A attached hereto and legally described in
Exhibit B attached hereto (collectively, the "Real Properties" and individually
a "Real Property") and the "Personal Property" (hereinafter defined), together
with the personal property located on the Real Properties. Each Real Property
shall include all of Seller's right, title and interest in and to all of the
following:
a. all easements, covenants and other rights appurtenant, and all right,
title and interest of Seller, if any, in and to any land lying in the bed
of any street, road, avenue or alley, open or closed, in front of or
adjoining the Real Property;
b. to the extent they may be transferred under applicable law, all
licenses, permits and authorizations presently issued in connection with
the Real Property;
c. all leases and security deposits, if any, in respect of any Real
Property in which Seller holds an interest as a landlord for the use and
occupancy of all or any part of the Real Property ("Leases");
d. all "Service Contracts" (as hereinafter defined); and
e. all engineering reports, surveys and architectural plans, if any.
1.2. Included in the Purchase Price are all signs, signage, gates,
fences, alarms, other security devices, machinery, equipment, desks, chairs,
office furniture, furnishings, computers, books, records (other than computer
software), computer data bases, appliances, utility deposits, tools, lawn
mowers, personal property warranties and other personalty (excluding any
automobiles and trucks) located on each Real Property and used or useable in
the operation and maintenance of the Property which is now owned or which is
hereafter acquired by the Seller between the date of the execution of this
Agreement and the Closing Date (the "Personal Property"). Seller shall deliver
to Purchaser within thirty (30) days after the date hereof a schedule of the
Personal Property on a per Property basis and Seller shall have the right to
exclude from the Personal Property any such Personal Property that becomes
obsolete in the ordinary course of business. Each Real Property and the
Personal Property located at such Real Property shall be referred to
individually as a "Property" and all of such real property and personal
property shall be collectively referred to as the "Properties".
2. PURCHASE PRICE. The Purchase Price shall be paid by Purchaser as follows:
2.1. Upon the execution of this Agreement, the sum of Three Million Three
<PAGE>
Hundred Fifty Thousand and No/100 Dollars ($3,350,000.00) (the "Earnest Money")
to be held in escrow by and in accordance with the provisions of the Escrow
Agreement ("Escrow Agreement") attached hereto as Exhibit E; and
2.2. On the "Closing Date" (hereinafter defined), the balance of the
Purchase Price, adjusted in accordance with the prorations, by federally wired
"immediately available" funds, on or before 11:00 a.m Chicago time.
2.3. Within ten (10) days after the date hereof, Purchaser and Seller
shall agree upon an allocation of the Purchase Price among each Property (the
"Schedule Price") and an allocation of the Schedule Price for each Property
among the following categories: (i) land, (ii) improvements, (iii) Personal
Property, (iv) intangibles and (v) Leases and plans and specifications (the
"Property Breakdown Schedule"). The parties agree that the Schedule Price for
each Property will not be below Seller's federal tax basis for each Property
nor will the amount to be allocated to land and improvements be below Seller's
federal tax basis assigned to land and improvements for each Property. The
parties agree not to take an income tax reporting position inconsistent with
the Schedule Price and Property Breakdown Schedule and such covenant shall
survive the Closing and recording of the Deeds. The parties to this Agreement
further acknowledge that the Schedule Price of each Property shall be used for
determining any transfer, filing, deed, stamp, documentary and other such fees
and taxes.
3. TITLE COMMITMENT AND SURVEY.
3.1. Seller has ordered a title commitment for an owner's standard title
insurance policy issued by Near North National Title Corporation , as agent for
First American Title Insurance Company (hereinafter referred to as "Title
Insurer") for each Real Property (the "Title Commitments"). Seller shall
deliver the Title Commitments and copies of all documents of record creating
exceptions to coverage to Purchaser within twenty-one (21) days after the date
hereof. For purposes of this Agreement, "Permitted Exceptions" as to each of
the Real Properties shall mean: (a) general real estate taxes, association
assessments, special district taxes and related charges not yet due and payable
(which shall be prorated as hereinafter specified); (b) matters caused by the
actions of Purchaser; (c) the Leases; and (d) those matters affecting title to
the Real Properties which are not established as "Unpermitted Exceptions" (as
hereinafter defined) by Purchaser pursuant to Paragraph 5.2 herein. The Title
Commitments shall be conclusive evidence of good title as therein shown as to
all matters to be insured by the title policy for the respective Real Property,
subject only to the exceptions therein stated. On the Closing Date, Title
Insurer shall deliver to Purchaser a standard title policy for the Real
Properties in amounts equal to the Schedule Price of each Real Property in
conformance with the Title Commitments, subject to Permitted Exceptions and
Unpermitted Exceptions waived by Purchaser (the "Title Policy"). If available
in the applicable jurisdiction, Purchaser shall receive from the Title Insurer
the following endorsements to each Title Policy: (i) extended coverage; (ii)
ALTA restrictions endorsement No. 1; (iii) ALTA zoning endorsement No. 3, which
shall include a certification of the number of legal parking spaces and the
fact that the Property may be used in its present zoning as a self-storage
(mini-warehouse); (iv) an access endorsement; and (v) a contiguity endorsement
(if applicable). Notwithstanding the foregoing sentence, to the extent any of
the foregoing endorsements are available in the applicable jurisdiction and
Title Insurer is not able to issue such an endorsement as a result of the
condition of title or zoning, the failure of the Title Insurer to issue such an
endorsement shall not be the default of Seller or a failure of a condition to
<PAGE>
Closing, but should instead be treated in accordance with the terms of
Paragraph 5 herein. Purchaser shall pay for costs of the Title Commitments and
Title Policies and for the cost of any endorsements to, or extended coverage
on, the Title Policies.
3.2. Purchaser has received a survey of each of the Real Properties, such
surveys being described in Exhibit H attached hereto (the "Existing Surveys").
Seller has ordered an updated survey of the Existing Surveys (the "Updated
Surveys") and Seller has requested the survey standards set forth on Exhibit C
and the surveyor's certificate also attached to Exhibit C. The failure of
Seller to deliver an Updated Survey in accordance with the standards set forth
in Exhibit C and containing the surveyor's certificate set forth in Exhibit C
shall not be a default of Seller or a failure of a condition to Closing. To
the extent an Updated Survey raises an Unpermitted Exception, then the
Unpermitted Exception shall be dealt with in accordance with the terms of
Paragraph 5 herein. Purchaser shall pay for the costs of preparing the Updated
Surveys and Seller shall deliver the Updated Surveys to Purchaser within
28 days after the date hereof.
3.3. The obligation of Purchaser to pay various costs set forth in
Paragraphs 3.1 and 3.2 shall survive the termination of this Agreement.
4. PAYMENT OF CLOSING COSTS.
In addition to the costs set forth in Paragraphs 3.1 and 3.2, Purchaser
shall pay for the costs of the documentary or transfer stamps to be paid with
reference to the "Deeds" (hereinafter defined) and all other stamps,
intangible, transfer, documentary, recording, sales tax, personal property tax
and surtax imposed by law with reference to any other sale documents delivered
in connection with the sale of the Properties to Purchaser or otherwise imposed
in connection with the sale of the Properties to Purchaser and all other
charges of the Title Insurer in connection with this transaction.
5. CONDITION OF TITLE.
5.1. Seller agrees to convey to Purchaser fee simple title to each Real
Property and, subject to the terms of Paragraphs 5.3, 5.4 and 5.5, without
defect and free and clear of all liens, encumbrances, easements, tenancies,
covenants, restrictions, reservations, conditions and other exceptions to title
by a special warranty deed (individually a "Deed" and collectively the "Deeds")
in recordable form (and in the form set forth in Exhibit J attached hereto
except for those modifications necessary for compliance with state
requirements), subject to the respective Permitted Exceptions waived or
accepted by Purchaser in accordance with the terms hereof.
5.2. Purchaser shall have until 5:00 p.m. Chicago time of the tenth
(10th) day after Purchaser's receipt of the last to be received of the Title
Commitments, Updated Surveys and documents of record, to examine the Title
Commitments, Updated Surveys and the documents of record (the "Title Review
Period"). Purchaser shall notify Seller ("Unpermitted Exception Notice") in
writing no later than 5:00 p.m. Chicago time on the last day of the Title
Review Period whether any "Unpermitted Exceptions" (as hereinafter defined) are
disclosed in the Title Commitments or Updated Surveys as determined by
Purchaser in its commercially reasonable discretion. Failure to raise any
Unpermitted Exceptions on or before 5:00 p.m. Chicago time on the last day of
the Title Review Period shall be deemed a waiver of any such matter by
Purchaser. Purchaser shall use commercially reasonably efforts to raise
<PAGE>
Unpermitted Exceptions on a Real Property by Real Property basis within ten
(10) days after receipt of the last to be received of the Title Commitment,
Updated Survey and recorded documents as to each Real Property, but Purchaser
shall not waive its rights to raise Unpermitted Exceptions prior to the
expiration of the Title Review Period. As used herein, the term "Unpermitted
Exception" shall mean with respect to any Real Property (provided the same is
not caused by the actions of Purchaser):
(a) Any building encroachment or sign encroachment (i) on real estate not
owned by Seller, (ii) on a setback line, or (iii) in violation of a
binding easement burdening the Real Property;
(b) Any defect in the Seller's chain of title which prevents Seller from
being able to convey title to any Real Property in fee simple at Closing
under the laws of the state in which the Real Property is located;
(c) Any easement which burdens a Real Property such that access or use is
materially compromised;
(d) Any lack of access or easements necessary to operate a Real Property
as a self-storage facility in the manner in which said Real Property has
been operated by Seller prior to Closing; and
(e) Any liens for the payment of money other than those matters set forth
in Paragraph 3.1(a) herein; provided, however, mortgages and
deeds-of-trust shall not be the subject of Paragraph 5.3 and 5.4 but shall
be addressed in Paragraph 5.5 herein;
(f) Lack of contiguity of any parcels constituting a Real Property; and
(g) (i) the failure to be in conformance with the then applicable local
zoning codes, (ii) the failure to be a non-conforming use or have the
status equivalent to a "non-conforming use" and (iii) the existence of an
order by the applicable local jurisdiction which would cause a material
interference with its existing use (other than disclosed in Paragraph 18
herein).
5.3. If Purchaser establishes any Unpermitted Exception in accordance with
the terms set forth in Paragraph 5.2 herein, Seller shall have ten (10) days
from receipt of the Unpermitted Exception Notice to cure said Unpermitted
Exception at Seller's sole cost and expense. If Seller is unable to cure all
Unpermitted Exceptions (the parties agreeing that Seller shall not be required
to cure any Unpermitted Exceptions with the payment of money) on or before the
expiration of said ten (10) days, then within the next ten (10)-day period
Seller shall determine the "Title Costs" (hereinafter defined) with respect to
the Unpermitted Exceptions which Seller has been unable to cure. If the Title
Insurer is unwilling to insure over the Unpermitted Exceptions and the
Unpermitted Exceptions cannot be cured with the payment of money, Seller shall
notify Purchaser of same and Purchaser shall, by written election given to
Seller within five (5) days after Purchaser's receipt of such notice from
Seller, either accept title subject to said Unpermitted Exceptions which cannot
be cured with the payment of money without a reduction in the Purchase Price or
terminate this Agreement. If Purchaser fails to make an election within said
five (5) day period, then Purchaser shall be deemed to have elected to accept
title subject to said Unpermitted Exceptions which cannot be cured with the
payment of money without a reduction in the Purchase Price. If Purchaser
elects to terminate, the Earnest Money together with all interest earned
<PAGE>
thereon shall be immediately returned to Purchaser and thereupon neither party
shall have any rights against the other or any further liability to the other,
except for Purchaser's obligations pursuant to Paragraph 7.1 hereof and as
otherwise specifically set forth in this Agreement. If the Title Insurer is
willing to insure over the Unpermitted Exceptions or if the Unpermitted
Exceptions can be cured with the payment of money, then the amount required to
cure or remove the Unpermitted Exceptions or to cause the Title Insurer to
insure over the Unpermitted Exceptions shall be referred to as the "Title
Costs".
5.4. In the event the Title Costs aggregate a sum that is less than or
equal to $100,000.00, then, at Closing, the parties shall allocate
responsibility for the aggregate Title Costs as follows: (i) Purchaser shall
bear the responsibility for the initial $25,000.00 of Title Costs; (ii) then
Seller shall bear the responsibility for any Title Costs in excess of
$25,000.00 but which do not exceed $50,000.00; (iii) then Purchaser shall bear
the responsibility for any Title Costs in excess of $50,000.00 but which do not
exceed $75,000.00; and (iv) then Seller shall bear the responsibility for any
Title Costs in excess of $75,000.00 but which do not exceed $100,000.00. If
the Title Costs aggregate a sum that is less than or equal to $100,000.00,
then, at Closing, Purchaser shall receive a credit to the Purchase Price equal
to that portion of the Title Costs for which Seller bears responsibility
pursuant to the preceding sentence and Purchaser shall take title to the
Property subject to those Unpermitted Exceptions for which Purchaser receives a
credit or bears responsibility for under this Paragraph 5.4 and those
Unpermitted Exceptions insured over. For example, assuming for illustrative
purposes only, if the Title Costs equal $30,000.00, then Purchaser would only
receive a $5,000.00 credit at Closing (i.e., $30,000.00 less $25,000.00 =
$5,000.00). If instead, the Title Costs equal $60,000.00, then Purchaser would
only receive a $25,000.00 credit at Closing. If instead, the Title Costs equal
$80,000.00, then Purchaser would only receive a $30,000.00 credit at Closing.
If the aggregate Title Costs are greater than $100,000.00, then Seller shall
have the right to elect, by written notice given to Purchaser within five (5)
days after the determination of the aggregate Title Costs, to either (i)
terminate this Agreement (a "Title Termination Notice") in which case this
Agreement shall be terminated and the Earnest Money shall be immediately
returned to Purchaser together with all interest earned thereon and thereupon
neither party shall have any rights against the other or any further liability
to the other, except for Purchaser's obligations pursuant to Paragraph 7.1
hereof and as otherwise specifically set forth in this Agreement, or (ii) give
Purchaser a credit, at Closing, against the Purchase Price equal to the Title
Costs less $50,000.00 (a "Title Credit Notice"). The failure of Seller to
deliver a Title Termination Notice or a Title Credit Notice within the time
period above provided shall be deemed delivery of the Title Termination Notice
as of the last day of the aforesaid five (5) day period. If Seller delivers or
is deemed to deliver a Title Termination Notice, then Purchaser shall have the
right to negate the Title Termination Notice (in which case the Title
Termination Notice shall be null and void and this Agreement shall remain in
full force and effect), by delivering to Seller, on or before five (5) days
after Purchaser's receipt of the Title Termination Notice or deemed receipt of
the Title Termination Notice, a statement agreeing to purchase the Property
with a $50,000.00 credit to the Purchase Price, in which event Seller shall
have no obligation to remove or cause the Title Insurer to insure over such
Unpermitted Exceptions and Seller shall give Purchaser a credit, at the
Closing, equal to $50,000.00.
5.5. Notwithstanding anything contained in this Agreement to the contrary,
<PAGE>
Seller agrees to cause any mortgages or deeds-of-trust securing an obligation
for the payment of money set forth in the Commitments to be released from the
Real Properties at or prior to the Closing at Seller's own cost and expense and
Purchaser agrees that the proceeds of the Purchase Price may be used at the
Closing for such purpose. With respect to any liens evidencing an obligation
for the payment of money placed against a Real Property after the effective
date of its respective Title Commitment (other than those set forth in
Paragraph 3.1(b)) ("New Monetary Lien"), Seller shall not be obligated to
convey title free and clear of such New Monetary Liens and close the
transaction set forth herein, unless such New Monetary Liens were placed on the
Real Property by reason of Seller's affirmative act (e.g., failure to pay just
debts or obligations when due). If Seller elects not to remove such New
Monetary Liens that are not required to be removed, Purchaser shall have the
right to elect to terminate this Agreement by written notice to Seller within
five (5) business days after receipt of Seller's determination respecting said
New Monetary Lien. If Purchaser delivers written notice to Seller of its
election to terminate in accordance with the preceding sentence, then this
Agreement shall terminate and the Earnest Money together with all interest
earned thereon shall be immediately returned to Purchaser and thereupon neither
party shall have any rights against the other or any further liability to the
other, except for Purchaser's obligations pursuant to Paragraph 7.1 and as
otherwise specifically set forth in this Agreement. If Purchaser fails to
deliver written notice of its election to terminate on or before the expiration
of the aforesaid five (5) business day period, Purchaser shall be obligated to
consummate the transaction contemplated herein and take title to the Properties
subject to the New Monetary Liens Seller was not required to remove without a
reduction in the Purchase Price.
6. CONDEMNATION, EMINENT DOMAIN, DAMAGE AND CASUALTY.
6.1. Except as provided in the indemnity provisions contained in
Paragraph 7.1 of this Agreement, Seller shall bear all risk of loss with
respect to the Property up to the earlier of the dates upon which either
possession or title is transferred to Purchaser in accordance with this
Agreement. Notwithstanding the foregoing, in the event of damage to any
Property by fire or other casualty prior to the Closing Date, Purchaser shall
not have the right to terminate its obligations under this Agreement by reason
thereof, but Seller shall have the right to elect to either repair and restore
the Property (in which case the Closing Date shall be extended until completion
of such restoration) or to assign and transfer to Purchaser on the Closing Date
all of Seller's right, title and interest in and to all insurance proceeds paid
or payable to Seller on account of such fire or casualty. Seller covenants to
maintain at all times full replacement cost, all risk casualty insurance
covering each of the Real Properties.
6.2. If between the date of this Agreement and the Closing Date, any
condemnation or eminent domain proceedings are initiated or threatened which
might result in the taking of any part of any Property or the taking or closing
of any right of access to any Property, Seller shall immediately notify
Purchaser of such occurrence. If between the date of this Agreement and the
Closing Date, any condemnation or eminent domain proceedings are initiated,
Purchaser shall be required to proceed with the Closing, in which event Seller
shall assign to Purchaser all of Seller's right, title and interest in and to
any award made in connection with such condemnation or eminent domain
proceedings. Notwithstanding anything contained herein to the contrary, if
Seller delivers notice of condemnation or eminent domain proceedings which are
initiated or threatened between the date of this Agreement and the Closing
Date, Purchaser shall have the right to participate in settlement discussions
<PAGE>
and other conferences relating thereto.
7. INSPECTION AND AS-IS CONDITION.
7.1. Purchaser and the agents, engineers, employees, contractors and
surveyors retained by Purchaser may enter upon each of the Properties, at any
reasonable time and upon reasonable prior notice to Seller, to inspect the
Properties, including a review of Leases located at each of the Properties, and
to conduct and prepare such studies (including, without limitation, the
"Environmental Reports" [hereinafter defined]), tests and surveys (the
"Investigations") as Purchaser may deem reasonably necessary and appropriate.
Since Purchaser has conducted certain of its investigations and tests prior to
the execution of this Agreement, the definition of "Investigations" includes,
without limitation, any and all tests and studies conducted by Purchaser or
Purchaser's agents, architects, engineers, employees, contractors or surveyors
prior to the execution of this Agreement at the Property. Seller has
delivered, or shall deliver, as applicable, to Purchaser (a) a unit dimension
report for the Properties, (b) unaudited year end 1994 and 1995 income
statements and pro-formas for 1996 for the Properties, (c) a rent roll for all
Leases as described in Exhibit Q, (d) a representative sample of the Leases
(including all form exhibits, addenda, or attachments thereto, all form
amendments thereof, all form guarantees thereof, (e) all utility bills for the
twelve (12) months preceding this Agreement, if available, (f) all governmental
licenses, permits, and approvals relating to the Properties, including, without
limitation, all certificates of occupancy, each to the extent in the possession
of Seller, and (g) all construction plans and specifications, to the extent in
the possession of Seller.
All of the foregoing tests, investigations and studies to be conducted
under Paragraphs 7.1 and 7.2 by Purchaser shall be at Purchaser's sole cost and
expense and Purchaser shall restore the Properties to the condition existing
prior to the performance of such tests or investigations by or on behalf of
Purchaser. Purchaser shall defend, indemnify and hold Seller and any
affiliate, parent of Seller, and all shareholders, employees, officers and
directors of Seller or Seller's affiliate or parent (hereinafter collectively
referred to as "Affiliate of Seller") harmless from any and all liability, cost
and expense (including without limitation, reasonable attorney's fees, court
costs and costs of appeal) suffered or incurred by Seller or Affiliates of
Seller for injury to persons or property caused by Purchaser's investigations
and inspection of the Properties. Purchaser shall undertake its obligation to
defend set forth in the preceding sentence using attorneys selected by Seller,
in Seller's sole discretion.
Prior to commencing any such tests, studies and investigations, Purchaser
shall furnish to Seller a certificate of insurance evidencing comprehensive
general public liability insurance insuring the person, firm or entity
performing such tests, studies and investigations and listing Seller and
Purchaser as additional insureds thereunder.
Although Seller is permitting Purchaser to perform the Investigations,
under no circumstances whatsoever shall Purchaser have any right to terminate
this Agreement or seek any adjustment in the Purchase Price or vary any terms
of this Agreement based upon the findings of the Investigations, except solely
as contained in Paragraphs 7.3 and 7.4.
7.2. Seller has ordered a Phase I Environmental Report pursuant to ASTM
Standard E1527-94 for each Property from Law Engineering (the "Environmental
Reports") and Seller shall provide to Purchaser such Environmental Reports to
<PAGE>
Purchaser no later than twenty-eight (28) days after the date hereof.
Purchaser agrees to pay for the costs of the Phase I Environmental Reports when
such costs come due and Purchaser's obligation for said costs shall survive the
Closing and delivery of the Deeds or termination of this Agreement. Seller
makes no representation or warranty concerning the accuracy or completeness of
the Environmental Reports. Purchaser hereby releases Seller and the Affiliates
of Seller from any liability whatsoever with respect to the Environmental
Reports, or, including, without limitation, the matters set forth in the
Environmental Reports, and the accuracy and/or completeness of the
Environmental Reports. Furthermore, Purchaser acknowledges that it will be
purchasing the Properties with all faults disclosed in the Environmental
Reports. Notwithstanding anything contained herein to the contrary,
Purchaser's obligations, as more fully set forth in this Paragraph 7.2 shall
survive the Closing and the delivery of the Deeds and termination of this
Agreement.
7.3. Based on Purchaser's review of the Environmental Reports, if on or
prior to fifteen (15) days after Purchaser's receipt of the Environmental
Reports, Purchaser delivers to Seller the Notice (hereinafter defined)
establishing, in accordance with Paragraph 7.5, any Environmental Material
Defects (hereinafter defined) and the Aggregate Cost (hereinafter defined) of
remedying the Environmental Material Defects is less than or equal to
$500,000.00, then, at Closing, the parties shall allocate responsibility for
the Aggregate Cost as follows: (i) Purchaser shall bear the responsibility for
the initial $125,000.00 of Aggregate Cost; (ii) then Seller shall bear the
responsibility for any Aggregate Cost in excess of $125,000.00 but which does
not exceed $250,000.00; (iii) then Purchaser shall bear the responsibility for
any Aggregate Cost in excess of $250,000.00 but which does not exceed
$375,000.00; and (iv) then Seller shall bear the responsibility for any
Aggregate Cost in excess of $375,000.00 but which does not exceed $500,000.00.
At a Closing where the Aggregate Cost equals a sum that is less than or equal
to $500,000.00, then, at Closing, Purchaser shall receive a credit to the
Purchase Price equal to that portion of the Aggregate Cost for which Seller
bears responsibility pursuant to the preceding sentence and Purchaser shall
purchase the Properties subject to any and all Environmental Material Defects.
For example, assuming for illustrative purposes only, the Aggregate Cost of all
Environmental Material Defects is $200,000.00, then Purchaser would only
receive a $75,000.00 credit at Closing (i.e., $200,000.00 less $125,000.00
equals $75,000.00). If instead, the Aggregate Cost of all Environmental
Material Defects is $300,000.00, then Purchaser would only receive a
$125,000.00 credit at Closing. If instead, the Aggregate Cost of all
Environmental Material Defects is $400,000.00, then Purchaser would only
receive a $150,000.00 credit at Closing.
7.4. If on or prior to fifteen (15) days after Purchaser's receipt of the
Environmental Reports, Purchaser delivers to Seller the Notice establishing, in
accordance with Paragraph 7.5, the Aggregate Cost of remedying the
Environmental Material Defects is greater than $500,000.00, then Seller shall
have the right to elect, by written notice within twenty (20) days after
receipt of the Notice, to either (a) terminate this Agreement (the "Termination
Notice") in which case the Earnest Money deposited by Purchaser shall be
immediately returned to Purchaser together with all interest earned thereon and
thereupon neither party shall have any rights against the other or any further
liability to the other, except for Purchaser's obligations pursuant to
Paragraph 7.1 and as otherwise specifically set forth in this Agreement, or (b)
give Purchaser a credit, at Closing, to the Purchase Price equal to the
difference between the Aggregate Cost for the Environmental Material Defects
<PAGE>
and $250,000.00 (the "Credit Notice") and Purchaser shall purchase the
Properties subject to all the Environmental Material Defects. Failure of
Seller to deliver a Termination Notice to Purchaser within the time period
above provided shall be deemed delivery of a Termination Notice as of the last
day of the aforesaid twenty (20) day period. If Seller delivers or is deemed
to deliver the Termination Notice, then Purchaser shall have the right to
negate the Termination Notice (in which case the Termination Notice shall be
null and void and this Agreement shall remain in full force and effect), by
delivering to Seller, on or before five (5) days after receipt of the
Termination Notice or deemed receipt of the Termination Notice, a statement
agreeing to purchase the Property with a $250,000.00 credit to the Purchase
Price for all the Environmental Material Defects and Purchaser shall purchase
the Property subject to all Environmental Material Defects. For example,
assuming for illustrative purposes only, the Aggregate Cost of the
Environmental Material Defects is $800,000.00, and Seller elects not to
terminate this Agreement, Seller shall give Purchaser at the Closing a credit
equal to $550,000.00 (i.e., $800,000.00 less $250,000.00 equals $550,000.00).
If in the example contained in the preceding sentence, Seller delivered a
Termination Notice and Purchaser elected to negate it, Purchaser's credit at
Closing would be $250,000.00.
7.5. In order to establish an Environmental Material Defect, Purchaser
shall be required to deliver to Seller on or prior to fifteen (15) days after
Purchaser's receipt of the Environmental Reports: (a) as to each Real Property
a copy of the Environmental Report detailing an Environmental Material Defect,
and (b) as to each Real Property a binding written proposal from a responsible
licensed contractor selected by Purchaser setting forth the cost of remedying
the Environmental Material Defect (the "Real Property Cost") reflected in the
Environmental Report (the "Purchaser Estimate"). If the Purchaser Estimate or
"Seller Estimate" (hereinafter defined) includes a cost range for remedying the
particular Environmental Material Defect, the Real Property Cost shall be the
lowest cost set forth in the estimate for the particular Environmental Material
Defect. "Aggregate Cost" shall mean the aggregate of all Real Property Costs.
The Environmental Report and the Purchaser Estimate shall be referred to
collectively hereinafter as the "Notice". If Seller agrees with the Purchaser
Estimate then the Real Property Cost shall equal the amount of the Purchaser
Estimate. If Seller does not agree with the Purchaser Estimate, then Seller
shall deliver to Purchaser, within fifteen (15) days after receipt of the
Notice, a binding written proposal from a responsible licensed contractor
selected by Seller setting forth the costs such contractor will charge for
remedying the applicable defect (the "Seller Estimate"), and the Real Property
Cost shall equal the average of the Purchaser Estimate and the Seller Estimate.
7.6. The term "Environmental Material Defect" shall mean "Hazardous
Materials" (hereinafter defined) located in, on or under the Real Property in
violation of any Environmental Laws (hereinafter defined).
7.7. If this Agreement is terminated in accordance with Paragraph 7.4,
the Earnest Money together with all interest earned thereon shall be
immediately returned to Purchaser and thereupon neither party shall have any
rights against the other or any further liability to the other, except for
Purchaser's obligations pursuant to Paragraph 7.1 and except as otherwise
specifically set forth in this Agreement. Notwithstanding anything contained
herein to the contrary, Purchaser's obligation to indemnify Seller and restore
the Properties, as more fully set forth in Paragraphs 7.1, shall survive the
termination of this Agreement and the Closing and the delivery of the Deeds.
<PAGE>
7.8. To the extent there exists an Environmental Material Defect for which
a third party (other than Purchaser or Seller) is liable, Purchaser and Seller
shall jointly pursue a claim against such liable third party to receive
compensation for any damages suffered by each party hereto as a result thereof.
In the event either party hereto declines by notice to the other to participate
in the joint claim, then the non-declining party shall have the right to pursue
a separate claim against the liable third party to receive compensation
suffered by the non-declining party. Notwithstanding anything contained in
this Paragraph 7 to the contrary, in the event that the Environmental Report,
with respect to any Property, reveals a potential Environmental Material Defect
for which additional testing is required to determine whether an actual
Environmental Material Defect exists and such additional testing cannot be
completed on or before the end of the fifteen (15) day period described in
Paragraph 7.3 or the Environmental Report reveals an Environmental Material
Defect but Purchaser is unable to determine the magnitude of the Real Property
Cost associated with such Environmental Material Defect and such information is
not available and additional testing cannot be accomplished on or before the
end of the fifteen (15) day period described in Paragraph 7.3, then Seller
shall deposit into an escrow established at Title Insurer to be held pursuant
to an escrow agreement in form mutually acceptable to Seller and Purchaser, an
amount equal to $250,000.00 less that portion of the Aggregate Costs for which
Seller has given Purchaser a credit at Closing pursuant to Paragraph 7.3. In
no event shall Seller be required to deposit into said escrow an amount in
excess of $250,000 in the aggregate. Purchaser shall determine the Real
Property Cost with respect to the proposed or actual Environmental Material
Defect which is the subject of the escrow as soon as commercially reasonable,
but in no event later than ninety (90) days after the Closing. In the event
that Purchaser does not determine such Real Property Cost on or before the end
of such ninety (90) day period, then all amounts held in such escrow shall be
returned to Seller including all interest earned thereon and Seller shall have
no further liability for such potential or actual Environmental Material
Defect. Upon delivery of the Purchaser Estimate, Seller shall have the right
to submit a Seller Estimate and the last two (2) sentences of Paragraph 7.5
shall apply. Purchaser grants Seller a license to enter the applicable
Property to determine Seller's Estimate. At such time as the Real Property
Cost with respect to the proposed or actual Environmental Material Defect which
is the subject of the escrow is determined, Title Issuer shall disburse to
Purchaser an amount equal to the additional credit Purchaser would have been
entitled to had such Real Property Costs been included in the Aggregate Costs
prior to Closing (not to exceed the amount of the escrowed funds) and any
remaining balance shall be disbursed to Seller. In no event shall Seller be
liable for any costs related to such potential or actual Environmental Material
Defects which are the subject of the escrow in excess of the amounts deposited
in such escrow. In all events, Seller shall receive any interest earned on the
escrowed funds and such interest shall be disbursed upon the closing of such
escrow.
7.9. Seller makes no representations or warranties relating to the
condition of the Properties other than expressly set forth herein. Purchaser
acknowledges and agrees that it will be purchasing the Properties based solely
upon its inspections and investigations of the Properties, and that Purchaser
will be purchasing the Properties "AS IS" and "WITH ALL FAULTS", based upon the
condition of the Properties as of the date of this Agreement, subject to the
disclosures contained in Exhibit D attached hereto ("Liabilities"), wear and
tear and loss by fire or other casualty or condemnation excepted. Without
limiting the foregoing, Purchaser acknowledges that, except as may otherwise be
specifically set forth elsewhere in this Agreement, neither Seller nor its
<PAGE>
consultants, brokers or agents have made any representations or warranties of
any kind upon which Purchaser is relying as to any matters concerning the
Properties, including, but not limited to, the condition of the land or any
improvements comprising the Properties, the existence or non-existence of
Hazardous Materials, economic projections or market studies concerning the
Properties, any development rights, taxes, bonds, covenants, conditions and
restrictions affecting the Properties, water or water rights, topography,
drainage, soil, subsoil of the Properties, the utilities serving the Properties
or any zoning or building laws, rules or regulations or Environmental Laws
affecting the Properties. Seller makes no representation or warranty that the
Properties comply with Title III of the Americans with Disabilities Act or any
fire code or building code. Purchaser agrees to indemnify and hold Seller and
the Affiliates of Seller harmless from any and all loss, cost and expense
arising out of or in any way related to the Liabilities. Purchaser hereby
releases Seller and the Affiliates of Seller from any and all liability in
connection with any claims which Purchaser may have against Seller or the
Affiliates of Seller, including in connection with the Liabilities, and
Purchaser hereby agrees not to assert any claims for contribution, cost
recovery or otherwise, against Seller or the Affiliates of Seller, relating
directly or indirectly to the existence of asbestos or Hazardous Materials on,
or environmental conditions of, the Properties, whether known or unknown. As
used herein, "Environmental Laws" means all federal, state and local statutes,
codes, regulations, rules, ordinances, orders, standards, permits, licenses,
policies and requirements (including consent decrees, judicial decisions and
administrative orders) relating to the protection, preservation, remediation or
conservation of the environment or worker health or safety, all as amended or
reauthorized, or as hereafter amended or reauthorized, including without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq.,
the Emergency Planning and Community Right-to-Know Act ("Right-to-Know Act"),
42 U.S.C. Section 11001 et seq., the Clean Air Act ("CAA"), 42 U.S.C. Section
7401 et seq., the Federal Water Pollution Control Act ("Clean Water Act"), 33
U.S.C. Section 1251 et seq., the Toxic Substances Control Act ("TSCA"), 15
U.S.C. Section 2601 et seq., the Safe Drinking Water Act ("Safe Drinking Water
Act"), 42 U.S.C. Section 300f et seq., the Atomic Energy Act ("AEA"), 42 U.S.C.
Section 2011 et seq., the Occupational Safety and Health Act ("OSHA"),
29 U.S.C. Section 651 et seq., and the Hazardous Materials Transportation Act
(the "Transportation Act"), 49 U.S.C. Section 1802 et seq. As used herein,
"Hazardous Materials" means: (1) "hazardous substances," as defined by CERCLA;
(2) "hazardous wastes," as defined by RCRA; (3) any radioactive material
including, without limitation, any source, special nuclear or by-product
material, as defined by AEA; (4) asbestos in any form or condition; (5)
polychlorinated biphenyls; and (6) any other material, substance or waste to
which liability or standards of conduct may be imposed under any Environmental
Laws. Notwithstanding anything contained herein to the contrary, Purchaser's
obligations, as more fully set forth in this Paragraph 7.9 shall survive the
Closing and the delivery of the Deed and termination of this Agreement.
7.10. Seller has provided to Purchaser certain unaudited historical
financial information regarding the Properties relating to certain periods of
time in which Seller owned the Property and a pro-forma for 1996. Seller and
Purchaser hereby acknowledge that such information has been provided to
Purchaser at Purchaser's request solely as illustrative material. Seller makes
no representation or warranty that such material is complete or accurate or
that Purchaser will achieve similar financial or other results with respect to
the operations of the Properties, it being acknowledged by Purchaser that
<PAGE>
Seller's operation of the Properties and allocations of revenues or expenses
may be vastly different than Purchaser may be able to attain. Purchaser
acknowledges that it is a sophisticated and experienced purchaser of real
estate and mini-warehouse facilities and further that Purchaser has relied upon
its own investigation and inquiry with respect to the operation of the
Properties and releases Seller and the Affiliates of Seller from any liability
with respect to such historical information. Notwithstanding anything
contained herein to the contrary, Purchaser's obligations, as more fully set
forth in this Paragraph 7.10 shall survive the Closing and the delivery of the
Deeds and termination of this Agreement.
8. CONDITION PRECEDENT TO CLOSING. See insert on pages 21(i) through
21(vi).
9. CLOSING. The closing of this transaction (the "Closing") shall be on May
15, 1996, subject to the terms of Paragraph 8 herein (the "Closing Date"), at
the office of Title Insurer, Chicago, Illinois at which time Seller shall
deliver possession of the Properties to Purchaser. This transaction shall be
closed in accordance with the escrow instructions attached hereto as Exhibit K
(the "Closing Escrow Instructions"). The Purchase Price shall be paid and all
documents necessary for the consummation of this transaction shall be delivered
through escrow on or prior to the Closing Date. The parties shall close by a
"New York style closing", the escrow instructions shall be conformed with such
circumstance and Seller shall execute any gap undertaking required by the Title
Insurer. The escrow costs and fees, including the fees for the New York style
closing, shall be paid by Purchaser.
10. CLOSING DOCUMENTS.
10.1. On the Closing Date, Seller and Purchaser shall execute and deliver
to one another a joint closing statement for each Property. In addition,
Purchaser shall deliver to Seller the balance of the Purchase Price, an
assumption of the documents set forth in Paragraph 10.2.3 and 10.2.4, an
opinion of Mayer Brown & Platt in form satisfactory to Seller stating that the
transaction contemplated by this Agreement is not subject to filing or
notification requirements of the Hart-Scott-Rodino Anti-Trust Improvements Act
of 1976, as amended ("HSR Act"), and such other documents as may be reasonably
required by the Title Insurer in order to consummate the transaction as set
forth in this Agreement.
10.2. On the Closing Date, Seller shall deliver to Purchaser the
following:
10.2.1. the Deeds, subject to Permitted Exceptions and those
Unpermitted Exceptions waived by Purchaser;
10.2.2. a special warranty bill of sale for each Property
conveying the Personal Property (in the form of Exhibit L attached hereto);
10.2.3. assignment and assumption of intangible property for each
Property (in the form attached hereto as Exhibit M), including, without
limitation, the Service Contracts;
10.2.4. an assignment and assumption of leases and security deposits
for each Property (in the form attached hereto as Exhibit N);
10.2.5. non-foreign affidavit (in the form of Exhibit O attached
hereto);
<PAGE>
10.2.6. original, and/or copies of, the Leases in Seller's
possession (which deliveries may be made at the respective Properties);
10.2.7. all documents and instruments reasonably required by the
Title Insurer to issue the Title Policies;
10.2.8. possession of the Properties to Purchaser;
10.2.9. evidence of the termination of the management agreement for
each Property;
10.2.10. notice to the tenants of each Property of the transfer of
title and assumption by Purchaser of the landlord's obligation under the Leases
and the obligation to refund the security deposits (in the form of Exhibit P);
and
10.2.11. an updated rent roll for each Property.
11. DEFAULT BY PURCHASER. ALL EARNEST MONEY DEPOSITED INTO THE ESCROW IS TO
SECURE THE TIMELY PERFORMANCE BY PURCHASER OF ITS OBLIGATIONS AND UNDERTAKINGS
UNDER THIS AGREEMENT. IN THE EVENT OF A DEFAULT OF THE PURCHASER UNDER THE
PROVISIONS OF THIS AGREEMENT, SELLER SHALL RETAIN ALL OF THE EARNEST MONEY AND
THE INTEREST THEREON AS SELLER'S SOLE RIGHT TO DAMAGES OR ANY OTHER REMEDY,
EXCEPT FOR PURCHASER'S OBLIGATIONS TO INDEMNIFY SELLER AND RESTORE THE PROPERTY
AS SET FORTH IN PARAGRAPH 7.1 HEREOF. THE PARTIES HAVE AGREED THAT SELLER'S
ACTUAL DAMAGES, IN THE EVENT OF A DEFAULT BY PURCHASER, WOULD BE EXTREMELY
DIFFICULT OR IMPRACTICAL TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS
BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON,
AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF SELLER'S DAMAGES.
12. SELLER'S DEFAULT. IF THIS SALE IS NOT COMPLETED BECAUSE OF SELLER'S
DEFAULT, EXCEPT AS HEREAFTER SPECIFIED IN THIS PARAGRAPH, PURCHASER'S SOLE
REMEDY SHALL BE THE RETURN OF ALL EARNEST MONEY TOGETHER WITH ANY INTEREST
ACCRUED THEREON, AND THIS AGREEMENT SHALL THEN BECOME NULL AND VOID AND OF NO
EFFECT AND THE PARTIES SHALL HAVE NO FURTHER LIABILITY TO EACH OTHER AT LAW OR
IN EQUITY, EXCEPT FOR PURCHASER'S OBLIGATIONS TO INDEMNIFY SELLER AND RESTORE
THE PROPERTY AS SET FORTH MORE FULLY IN PARAGRAPH 7. NOTWITHSTANDING ANYTHING
CONTAINED HEREIN TO THE CONTRARY, IF SELLER'S DEFAULT IS ITS REFUSAL TO DELIVER
THE CLOSING DOCUMENTS CONTAINED IN PARAGRAPH 10 HEREIN, THEN PURCHASER WILL BE
ENTITLED TO SUE FOR SPECIFIC PERFORMANCE.
13. PRORATIONS.
13.1. Rents (exclusive of delinquent rents, but including prepaid rents);
prepaid associations dues, refundable security deposits (which will be assigned
to and assumed by Purchaser and credited to Purchaser at Closing); fuels;
prepaid operating expenses; management fees in the amount of 6% of prorated
rents credited to Purchaser; real and personal property taxes prorated on a
"net" basis (i.e. adjusted for all tenants' liability, if any, for such items);
operating expenses which are reimbursable by the tenants for the period prior
to the Closing Date less any amount previously paid by the tenants shall be
credited to Seller; and other similar items shall be adjusted ratably as of
11:59 p.m. on the Closing Date, and credited to the balance of the cash due at
Closing. Utilities, including water, sewer, electric, and gas shall be
prorated at Closing based on the most recent ascertainable data. Seller shall
pay at Closing the bills therefor for the period to and including the Closing,
and the Purchaser shall pay the utility bills therefor for all periods
<PAGE>
subsequent thereto. If the utility company will not issue separate bills, the
Purchaser shall receive a credit against the Purchase Price for Seller's
portion and shall pay the entire utility bill after Closing. If Seller has
pre-paid any such utilities (so long as no more than thirty (30) days in
advance in the ordinary course of business), then Purchaser shall be charged
its portion of such payment at Closing. No proration shall be made for utility
expenses that are separately metered to and paid directly by tenants and for
which Seller has no obligation to pay. Furthermore, the Purchaser and the
Seller may accomplish the transfer of utility accounts by arranging for a
change of address on utility billing accounts to the Purchaser's address, if
such a procedure is possible and convenient and mutually acceptable to
Purchaser and Seller. Seller shall be reimbursed at Closing for any utility
deposits which the Seller has deposited with any utility company and which will
be assigned to the Purchaser at Closing. Assessments payable in installments
which are due subsequent to the Closing Date shall be paid by Purchaser. If
the amount of any of the items to be prorated is not then ascertainable, the
adjustments thereof shall be on the basis of the most recent ascertainable
data. The Purchaser shall assume Seller's obligations under the Seller's
existing real estate tax consulting agreements with respect to the Properties,
i.e., those agreements which Seller has entered into with firms who are
entitled to a commission based on services rendered and the extent to which
they are able to achieve a reduction in the real estate taxes otherwise payable
with respect to the Properties. The fees or commissions payable to said
consultants (if any) shall be treated as a portion of the real estate tax
liability to be pro-rated as of the Closing Date. All costs associated with
telephone directory listings and any other prepaid advertisements shall be
prorated as of the Closing Date so that Seller shall be responsible for any
costs associated therewith prior to the Closing Date and Purchaser shall be
responsible for any costs associated therewith arising from and after the
Closing Date. All prorations described in this Agreement (except prorations
for real and personal property taxes which shall be deemed final as prorated on
the Closing Date) shall be subject to post-closing adjustments as necessary to
reflect later relevant information not available at the Closing and to correct
any errors made at the Closing with respect to such prorations; provided,
however, that such prorations shall be deemed final and not subject to further
post-closing adjustments at 5:00 PM Chicago time on the day which is thirty
(30) days following Closing, at which time all prorations shall be deemed final
and not subject to further post-closing adjustment. The provisions of the
preceding sentence shall survive the Closing.
13.2. Rents which are delinquent as of the Closing Date shall not be
prorated. Instead, to the extent that Purchaser is able to collect said
delinquencies, the Purchaser shall be entitled to receive such delinquent rent
attributable to a tenant's occupancy of a portion of the Real Property for any
period prior to the date of Closing, free from any claim thereon by the Seller.
Seller may use whatever lawful means are available to Seller to collect any
delinquencies up to and until the day prior to the Closing Date, provided that
Seller shall not agree to reduce rents for any period of time after Closing in
order to induce any tenants to pay delinquent rents. Seller shall not have the
right subsequent to Closing to seek (by legal action or otherwise) the
collection of any rents delinquent for any period prior to Closing unless the
tenant has vacated the premises under the pertinent Lease before the Closing
Date and said Lease is not assigned to the Purchaser. Furthermore, the Seller
shall not have the right to retain any portion of any security deposit held by
Seller (if any) with respect to any Lease which will remain effective
subsequent to Closing, even though the tenant is delinquent in paying rent as
of the Closing Date.
<PAGE>
13.3. To the extent it is reasonably possible for the Seller to do so,
the Seller shall grant (or shall arrange for the owner thereof to grant) to
Purchaser at Closing a temporary license and right to use the logos currently
used by the Property which are the property of an Affiliate of Seller, in place
advertising, telephone directory listings and advertisements, and telephone
numbers, at each of the Properties pursuant to the following terms and
conditions:
(a) The temporary license granted by this paragraph shall commence on the
Closing Date and shall expire on the day which is one hundred eighty (180)
days subsequent to the date when the public telephone directory pertaining
to each Property is published subsequent to the Closing Date. During such
period, Purchaser shall have the right to use the existing logos, in place
advertising, telephone directory listings and advertisements, and
telephone numbers, with respect to each Property without additional
compensation to the Seller except as set forth in Paragraph 13.1 herein.
Purchaser shall not use the existing logos or trade name on stationery,
business cards, contracts or other documents, and shall not use the
existing trade name in responding to oral inquiries regarding the
Properties except to identify a Property as formerly owned by the Seller.
(b) The Seller stipulates that there is full and adequate consideration
for the license herein granted.
(c) Purchaser shall make arrangements with the pertinent telephone
companies so that all existing telephone directory listings and
advertisements and signs can be replaced in due course and within the
license period specified above. In the event that the publication close
date for any publication in which Seller currently has a telephone
directory listing and/or advertisement occurs after the date hereof but
before the Closing Date, Purchaser shall have the right to place a listing
and/or advertisement in such publication at Purchaser's sole cost and
expense. Such listing and/or advertisement may list the Purchaser's name
and telephone number. Seller may also place a listing and/or
advertisement in such publication, and in the event that Seller decides to
place such a listing and/or advertisement, Seller shall be entitled to a
pro-rata credit for such portion of the cost of such listing and/or
advertisement attributable to the period after Closing.
(d) In the event any third party (such as telephone company or billboard
company) makes a separate charge for the use of such listings or
advertising subsequent to the Closing Date, then Purchaser shall be
responsible to pay same subsequent to the Closing Date (but no such
payment shall accrue to the benefit of the Seller or constitute a credit
against a debt otherwise owed by the Seller to said third party).
(e) Purchaser's temporary license set forth in this paragraph shall
expire on the date(s) set forth above. If Purchaser continues to use the
name currently being used by the Property subsequent to the expiration
date of this temporary license set forth above, then Purchaser shall be
liable for and shall pay to the owner of said rights a license fee equal
to One Hundred Dollars ($100.00) for each day after the permitted date set
forth above for each Property for which Purchaser continues to use the
existing trade name. In no event, however, shall such extended license
period exceed ninety (90) additional days.
(f) If Purchaser continues to use said logos or trade names beyond the
<PAGE>
period allowed above for which a temporary license has been granted, then
Seller (or the owner of said rights) shall have all legal and equitable
remedies authorized by federal law or the laws of the state where such
Property is located to prevent such unauthorized use or to recover any
damages authorized by such laws.
14. SERVICE CONTRACTS. Within thirty (30) days after the date hereof, Seller
shall deliver to Purchaser a copy of all service contracts and advertising
agreements affecting the Properties (the "Delivered Contracts"). Any and all
Delivered Contracts terminable upon thirty (30) days notice without a
termination fee, all advertisement agreements and all other Delivered Contracts
which have not been objected to by Purchaser within ten (10) days after
Purchaser's receipt thereof shall be deemed "Service Contracts." Seller shall
assign the Service Contracts to Purchaser at Closing, and Purchaser shall
assume responsibility and obligations under the Service Contracts. Seller
agrees to terminate any and all management agreements affecting the Properties
as of the Closing Date. Notwithstanding anything contained herein to the
contrary, (a) to the extent any of the Service Contracts are not assignable and
with respect to Delivered Contracts which are not Service Contracts, Seller
shall terminate said agreements as of the Closing Date and Seller shall pay any
and all termination fees required as a result thereof and (b) to the extent any
of the Service Contract requires the consent of the service supplier or product
supplier and, if Seller is unable to obtain such consent, Seller shall
terminate such agreement as of the Closing Date and Seller shall pay any
termination fee required as a result thereof. Seller shall not be required to
pay any fees in connection with obtaining consents for the assignment of a
Service Contract.
15. RECORDING. Neither this Agreement nor a memorandum thereof shall be
recorded and the act of recording by Purchaser shall be an act of default
hereunder by Purchaser and subject to the provisions of Paragraph 11 hereof.
16. ASSIGNMENT. The Purchaser shall not have the right to assign its interest
in this Agreement without the prior written consent of the Seller. Any
assignment or transfer of, or attempt to assign or transfer, Purchaser's
interest in this Agreement shall be an act of default hereunder by Purchaser
and subject to the provisions of Paragraph 11 hereof. Notwithstanding the
foregoing, Purchaser may direct Seller in writing at least five (5) days prior
to the Closing Date to convey the Properties located in Tennessee to an
affiliate of Purchaser without Seller's consent.
17. BROKER. Purchaser and Seller shall each indemnify, defend and hold the
other party hereto harmless from any claim whatsoever (including without
limitation, reasonable attorney's fees, court costs and costs of appeal) from
anyone claiming by or through the indemnifying party any fee, commission or
compensation on account of this Agreement, its negotiation or the sale hereby
contemplated. The indemnifying party shall undertake its obligations set forth
in this Paragraph 17 using attorneys selected by the indemnifying party and
reasonably acceptable to the indemnified party. The provisions of this
Paragraph 17 will survive the Closing and delivery of the Deed. The parties
acknowledge that various affiliates of the general partners of Seller will earn
a disposition fee in connection with the sale of the Properties.
18. REPRESENTATIONS AND WARRANTIES.
18.1. Any reference herein to Seller's knowledge or notice of any matter
or thing shall only mean such knowledge or notice that has actually been
<PAGE>
received by Phillip Schechter (referred to as the "Seller's Representative"),
and any representation or warranty of the Seller is based upon those matters of
which the Seller's Representative has actual knowledge. Any knowledge or
notice given, had or received by any of Seller's agents, servants or employees
shall not be imputed to Seller, the general partner or limited partners of
Seller, the subpartners of the general partner or limited partners of Seller or
Seller's Representative.
18.2. Subject to the limitations set forth in Paragraph 18.1, Seller
hereby makes the following representations and warranties, which
representations and warranties are made to Seller's knowledge and which shall
not survive Closing: (i) except as described on Exhibit D attached hereto,
Seller has no knowledge of any pending or threatened litigation, claim, cause
of action or administrative proceeding concerning the Property; (ii) subject to
the provisions contained in Paragraph 8.1 herein, Seller has the power to
execute this Agreement and consummate the transactions contemplated herein; and
(iii) the rent rolls which Seller has submitted to the Purchaser as described
in Exhibit Q attached hereto and updated as of the Closing Date are accurate as
of the date set forth thereon.
18.3. Purchaser hereby represents and warrants to Seller that
(i) Purchaser has the full right, power and authority to execute this Agreement
and consummate the transactions contemplated herein, (ii) neither Purchaser nor
any of Purchaser's affiliates is a "party in interest" (as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended and
supplemented) to Seller or any general partner or limited partner of Seller,
and (iii) the transaction contemplated in this Agreement is not subject to any
filing notification requirements of the HSR Act.
19. LIMITATION OF LIABILITY.
(a) Neither Seller, nor any of its respective beneficiaries,
shareholders, partners, officers, agents or employees, heirs, successors
or assigns shall have any personal liability of any kind or nature for or
by reason of any matter or thing whatsoever under, in connection with,
arising out of or in any way related to this Agreement and the
transactions contemplated herein, and Purchaser hereby waives for itself
and anyone who may claim by, through or under Purchaser any and all rights
to sue or recover on account of any such alleged personal liability.
(b) Any obligation or liability whatsoever of Purchaser which may arise
at any time under this Agreement or any obligation or liability which may
be incurred by it pursuant to any other instrument, transaction or
undertaking contemplated hereby, shall be satisfied, if at all, out of the
Purchaser's assets only. No such obligation or liability shall be
personally binding upon, nor shall resort for the enforcement thereof be
had to, the trustees, directors, shareholders, officers, employees or
agents of Purchaser, regardless of whether such obligation or liability is
in the nature of contract, tort or otherwise.
20. TIME OF ESSENCE. Time is of the essence of this Agreement. If the final
day of any period which is set forth in this Agreement falls on a Saturday,
Sunday, or legal holiday under the laws of the United States or the State of
Illinois, then in such event, the duration of such period shall be extended to
the next day which is not a Saturday, Sunday, or other legal holiday. Any
reference to a time of day (e.g., 12:00 noon) shall refer to Chicago, Illinois
time.
<PAGE>
21. RADON GAS. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT
HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH
RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED
FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA.
ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM
YOUR COUNTY PUBLIC HEALTH UNIT. THIS PARAGRAPH IS PROVIDED FOR INFORMATIONAL
PURPOSES PURSUANT TO SECTION 404.056(8), FLORIDA STATUTES, (1988).
22. CONSIDERATION. On or before the execution of this Agreement, Purchaser
shall deliver to Seller One Hundred And No/100 Dollars ($100.00) cash (the
"Independent Contract Consideration"), which amount has been bargained for and
agreed to as consideration for Purchaser's right to purchase the Properties
pursuant to this Agreement and for Seller's execution and delivery of this
Agreement. The Independent Contract Consideration is in addition to and
independent of all other consideration provided in this Agreement, and is
nonrefundable in all events.
23. WAIVER OF DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT. Purchaser
waives its rights under the Texas Deceptive Trade Practices-Consumer Protection
Act ("TDTPA"), Section 17.41 et seq., Business & Commerce Code, a law that
gives consumers special rights and protections. After consultation with an
attorney/legal counsel of Purchaser's own selection, Purchaser voluntarily
consents to this waiver. Purchaser covenants, represents and warrants that
such attorney/legal counsel was not directly or indirectly identified,
suggested, or selected by Seller or an agent of Seller.
24. NOTICES. Any notice or demand which either party hereto is required or
may desire to give or deliver to or make upon the other party shall be in
writing and may be personally delivered or given or made by overnight courier
such as Federal Express, by facsimile transmission or made by United States
registered or certified mail addressed as follows:
TO SELLER: c/o The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: Ilona Adams
with copies to: The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: Alan Lieberman
(847) 317-4360
(847) 317-4462 (FAX)
and to: Colonial Storage 86, Inc.
4381 Green Oaks Boulevard West
Suite 100
Arlington, Texas 76016-4468
Attention: James R. Pruett
(817) 561-0100
(817) 572-3036 (FAX)
and to: Katten Muchin & Zavis
525 West Monroe Street
<PAGE>
Suite 1600
Chicago, Illinois 60661-3693
Attention: Daniel J. Perlman, Esq.
(312) 902-5532
(312) 902-1061 (FAX)
and to: Novakov, Davidson & Flynn
750 North St. Paul
Suite 2000
Dallas, Texas 75201
Attention: Steven D. Davidson, Esq.
(214) 922-9221
(214) 969-7557 (FAX)
and one copy to: Craig A. Van Matre, P.C.
1101 East Broadway
Suite 101
P.O. Box 1017
Columbia, Missouri 65205
Attention: Craig A. Van Matre, Esq.
(573) 874-7777
(573) 875-0017 (FAX)
subject to the right of either party to designate a different address for
itself by notice similarly given. Any notice or demand so given shall be
deemed to be delivered or made on the next business day if sent by overnight
courier, or the same day as given if sent by facsimile transmission and
received by 5:00 p.m. Chicago time or on the 4th business day after the same is
deposited in the United States Mail as registered or certified matter,
addressed as above provided, with postage thereon fully prepaid. Any such
notice, demand or document not given, delivered or made by registered or
certified mail, by overnight courier or by facsimile transmission as aforesaid
shall be deemed to be given, delivered or made upon receipt of the same by the
party to whom the same is to be given, delivered or made. Copies of all
notices shall be served upon the Escrow Agent.
25. EXECUTION OF AGREEMENT AND ESCROW AGREEMENT. Purchaser will execute two
(2) copies of this Agreement and three (3) copies of the Escrow Agreement and
forward them to Seller for execution, accompanied with the Earnest Money
payable to the Escrow Agent set forth in the Escrow Agreement. Seller will
forward one (1) copy of the executed Agreement to Purchaser and will forward
the following to the Escrow Agent:
(A) Earnest Money;
(B) One (1) fully executed copy of this Agreement; and
(C) Three (3) copies of the Escrow Agreement signed by the parties with a
direction to execute two (2) copies of the Escrow Agreement and deliver a fully
executed copy to each of the Purchaser and the Seller.
26. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND
OBLIGATIONS OF SELLER AND PURCHASER HEREUNDER DETERMINED, IN ACCORDANCE WITH
THE SUBSTANTIVE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES.
27. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties and supersedes all other negotiations, understandings and
<PAGE>
representations made by and between the parties and the agents, servants and
employees.
28. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
29. CAPTIONS. Paragraph titles or captions contained herein are inserted as a
matter of convenience and for reference, and in no way define, limit, extend or
describe the scope of this Agreement or any provision hereof.
30. PROPERTY MANAGERS. Purchaser and the agents and employees of Purchaser
shall have the right, at any reasonable time and upon reasonable prior notice
to Seller, to contact the on-site managers of each Property to discuss the
Property and each manager's employment at the Property. Seller shall direct
the on-site manager of each Property to answer the reasonable questions of
Purchaser regarding the operation of each Property.
IN WITNESS WHEREOF, the parties hereto have put their hand and seal as of
the date first set forth above.
PURCHASER:
STORAGE TRUST PROPERTIES, L.P., a Delaware
limited partnership
By: Storage Trust Realty, a Maryland Real Estate
Investment Trust, Sole General Partner
By: /s/Craig A. Van Matre
----------------------------
Name: Craig A. Van Matre, Esq.
Its: Attorney-In-Fact
SELLER:
BALCOR/COLONIAL STORAGE INCOME FUND - 86, an
Illinois limited partnership
By: Balcor Storage Partners - 86, an Illinois
general partnership, a General Partner
By: The Balcor Company, a Delaware corporation,
its General Partner
By: /s/Alan Lieberman
-----------------------------
Name: Alan Lieberman
-----------------------------
Its: Senior V.P.
-----------------------------
By: Colonial Storage 86, Inc., a Texas
corporation, a General Partner
<PAGE>
By: /s/James R. Pruett
------------------------------
Name: James R. Pruett
------------------------------
Its: President
------------------------------
ACKNOWLEDGMENT OF COUNSEL FOR PURCHASER
The undersigned has represented Purchaser in connection with the
transaction contemplated by this Agreement and executes this Agreement for the
sole purpose of complying with Section 17.42(a)(3) of the TDTPA, as same
applies to the waiver and release contained in this Agreement.
/s/Craig A. Van Matre
Craig A. Van Matre
Exhibits
A - Common Description of Real Property
B - Legal Description of Real Property
C - Survey Standards and Surveyor's Certificate
D - Pending or Threatened Claims
E - Earnest Money Escrow
F - Intentionally Deleted
G - Intentionally Deleted
H - Description of Existing Surveys
I - Intentionally Deleted
J - Deed
K - Closing Escrow Instructions
L - Bill of Sale
M - Assignment and Assumption of Intangible Property
N - Assignment and Assumption of Leases and Security Deposits
O - Non-Foreign Affidavit
P - Notice to Tenants
Q - Master Rent Roll
8. CONDITION PRECEDENT TO CLOSING.
8.1 INTENTIONALLY DELETED.
8.2 Acquisition Proposals. Unless and until this Agreement shall have
been terminated in accordance with its terms, Seller agrees and covenants (a)
that neither it nor its General Partners shall, and each of them shall direct
and use its commercially reasonable and good faith efforts to cause its
respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by them) not to, directly or indirectly, initiate, solicit or
encourage any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its partners)
with respect to a merger, acquisition, tender offer, exchange offer,
consolidation or similar transaction involving, or any purchase of the
Properties or any equity securities or partnership interests of, Seller, other
than the transactions contemplated by this Agreement (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning, or provide any confidential information or data
to, to have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal; (b) that Seller will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing and will take
the necessary steps to inform the individuals or entities referred to above of
the obligations undertaken in this Section 8.2; and (c) that Seller will notify
Purchaser immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it; provided, however, that nothing
contained in this Section 8.2 shall prohibit the General Partners of Seller,
from (i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
Acquisition Proposal, if, and only to the extent that, (A) the General
Partners, after consultation with and based upon the advice of Katten Muchin &
Zavis, or another nationally recognized law firm selected by Seller, determines
in good faith that such action is required for the General Partners to comply
with their fiduciary duties to their partners under applicable law, (B) prior
to furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Seller provides written notice to Purchaser to the
effect that it is furnishing information to, or entering into discussion or
negotiations with, such person or entity, and (C) Seller keeps Purchaser
informed of the status of any such discussions or negotiations; and (ii) to the
extent applicable, complying with Rule 14e-2 and Rule 14a-9 and any other
applicable provisions or rules promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with regard to an Acquisition Proposal.
Notwithstanding anything to the contrary set forth herein, nothing in this
Section 8.2 shall permit Purchaser or Seller to terminate this Agreement except
as specifically provided in Section 8.4 hereof.
8.3 Consent Solicitation. Seller will take all actions reasonably
necessary in accordance with applicable law and its Partnership Agreement to
solicit and seek to obtain the requisite consent of the limited partners of the
Seller as required by the terms of its Partnership Agreement as promptly as
practicable to consider and vote upon the approval of this Agreement and the
transactions contemplated hereby, subject to the provisions of Section 8.2.
The General Partners of Seller shall recommend that the limited partners of
Seller approve this Agreement and the transactions contemplated hereby, subject
to the provisions of Section 8.2, and shall use its commercially reasonable and
good faith efforts to seek to obtain such approval, including, without
limitation, by having the Consent Solicitation (as hereafter defined) cleared
<PAGE>
by the Commission (as hereafter defined) for mailing to partners as promptly as
practicable and by timely mailing the Consent Solicitation to its limited
partners. If, at any time after the Closing Date, any further action is
reasonably necessary or desirable to carry out the purpose of this Agreement,
the proper officers, directors, trustees or partners of the Seller, the General
Partners and Purchaser shall take all such necessary action. Seller shall
promptly prepare and file with the Securities and Exchange Commission (the
"Commission") as soon as practicable a consent solicitation statement (the
"Consent Solicitation") with respect to the solicitation by the General
Partners of the consent of their partners to this Agreement and the
transactions contemplated hereby. Seller and the General Partners will cause
the Consent Solicitation to comply as to form in all material respect with the
applicable provisions of the Exchange Act and the rules and regulations
thereunder.
8.4 Termination. This Agreement may be terminated and abandoned at any
time prior to the Closing Date:
(a) by mutual written consent of Seller and Purchaser;
(b) by Purchaser if (i) Seller shall have failed to file the Consent
Solicitation with the Commission by April 10, 1996; (ii) Seller shall have
failed as soon as practicable after the Commission has indicated that it
has no further comment thereon to mail the Consent Solicitation to its
partners or to include the recommendation of the General Partners of this
Agreement and the transactions contemplated hereby in the Consent
Solicitation or to otherwise comply with its covenant in Section 8.3;
(iii) the General Partners of Seller shall have recommended that the
partners of Seller accept or approve an Acquisition Proposal by a person
other than Purchaser (or Seller or the General Partners shall have
resolved to do such); or (iv) the General Partners of Seller shall have
withdrawn, amended, modified or changed their approval or recommendation
of this Agreement or any of the transactions contemplated hereby;
(c) by Seller, if the General Partners of Seller recommend to Seller's
partners approval or acceptance of an Acquisition Proposal by a person
other than Purchaser but only in the event that the General Partners of
Seller, after consultation with and based upon the advice of Katten Muchin
& Zavis or another nationally recognized law firm, has determined in good
faith that such action is necessary for the General Partners of Seller to
comply with their fiduciary duties to their partners under applicable law;
or
(d) by either Seller or Purchaser, if the limited partners of Seller do
not consent to the transaction set forth in this Agreement in accordance
with the terms of its Partnership Agreement on or before June 15, 1996
(other than due to the failure of the party seeking to terminate this
Agreement to perform its obligations under this Agreement required to be
performed by it at or prior to June 15, 1996); provided that either
Purchaser or Seller may extend such date from June 15, 1996 until July 15,
1996. Notwithstanding anything contained herein to the contrary, the
Closing Date shall occur on the later of May 15, 1996 or 2 business days
after receipt of the approval of the transaction contemplated herein by
the limited partners of Seller in accordance with the terms of Seller's
partnership agreement.
The right of any party hereto to terminate this Agreement pursuant to this
<PAGE>
Section 8.4 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective partners, employees,
officers, directors, trustees, agents, representatives or advisors, whether
prior to or after the execution of this Agreement.
8.5 Effect of Termination.
(a) In the event of the termination and abandonment of this Agreement
pursuant to Section 8.4 hereof, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party hereto
and all rights and obligations of any party hereto shall cease (i) except
that Purchaser shall receive the Earnest Money and all interest thereon,
(ii) except for Purchaser's obligation to indemnify Seller and restore the
Properties, as more fully set forth in Paragraph 7, and (iii) except as
otherwise specifically set forth herein; provided, however, that nothing
contained in this Section 8.5 shall relieve Seller from any liability
under Section 8.5(b).
(b) If this Agreement terminates (i) as a result of Section 8.4(b) or
(c), and within 150 days of such termination Seller consummates a
transaction which was the subject of an Acquisition Proposal or enters
into a definitive agreement with respect to a transaction which was the
subject of an Acquisition Proposal, or (ii) as a result of Section 8.4(d)
and at the time of such termination an Acquisition Proposal was
outstanding and within 150 days of such termination Seller consummates a
transaction pursuant to any Acquisition Proposal (whether or not
outstanding at the time of such termination) or enters into a definitive
agreement with respect to a transaction pursuant to any Acquisition
Proposal (whether or not outstanding at the time of such termination), in
either such case, upon consummation of such transaction, Seller shall pay
Purchaser an amount (the "Termination Amount") in cash equal to the sum of
(i) $1,342,000, plus (ii) one-half of Purchaser's out-of-pocket costs and
expenses solely relating to any cancellation fee due and payable to Title
Insurer or in connection with the Updated Surveys and the Environmental
Reports (excluding any related fees and disbursements of legal counsel).
For purposes of this Section 8.5(b), an Acquisition Proposal that is in
the form of a tender offer shall be deemed to be consummated only if such
tender offer is accepted by 40% or more of the outstanding limited
partnership interests.
(c) If this Agreement terminates as a result of Section 8.4(b), (c) or
(d), at any time prior to or within 150 days after termination of this
Agreement, Seller shall not enter into any agreement relating to an
Acquisition Proposal with a person other than Purchaser unless such
agreement provides that such person shall be obligated to pay any
Termination Amount due Purchaser under this Section 8.5.
(d) The parties acknowledge and agree that the provisions for payment of
the Termination Amount are included herein in order to induce Purchaser to
enter into this Agreement and to reimburse Purchaser for incurring costs
and expenses related to entering into this Agreement and consummating the
transactions contemplated by this Agreement. The parties hereto agree
that Purchaser's rights to payment of the Termination Amount shall be in
addition to any other rights or remedies pursuant to Paragraph 12.
(e) Notwithstanding any provision to the contrary herein, the aggregate
<PAGE>
amount of the Termination Amount payable to Purchaser pursuant to this
Section 8.5 shall be subject to the limitations set forth in Section 8.6.
8.6 Payment of Termination Amount.
(a) In the event that Seller is obligated to pay Purchaser the
Termination Amount pursuant to Section 8.5, Seller (or any other person to
the extent provided by Section 8.5(c)) shall pay to Purchaser from the
Termination Amount deposited into escrow in accordance with the next
sentence, an amount equal to the lesser of (m) the Termination Amount and
(n) the sum of (1) the maximum amount that can be paid to Purchaser
without causing Purchaser to fail to meet the requirements of Sections
856(c)(2) and (3) of the Internal Revenue Code of 1986, as amended (the
"Code"), determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I) of the
Code ("Qualifying Income"), as determined by Purchaser's certified public
accountants, plus (2) in the event that Purchaser receives either (X) a
letter from Purchaser's counsel as described in Section 8.6(b)(ii), an
amount equal to the Termination Amount less the amount payable under
clause (1) above. To secure Seller's obligation to pay these amounts,
Seller shall deposit into escrow an amount in cash equal to the
Termination Amount with an escrow agent selected by Purchaser and on such
terms (subject to Section 8.6(b)) as shall be agreed upon by Purchaser and
the escrow agent. The payment or deposit into escrow of the Termination
Amount pursuant to this Section 8.6(a) shall be made on or prior to the
date of the event which gives rise to the payment of the Termination
Amount by wire transfer or bank check.
(b) The escrow agreement shall provide that the Termination Amount in
escrow (including any applicable interest thereon) or any portion thereof
shall not be released to Purchaser unless the escrow agent receives any
one or combination of the following: (i) a letter from Purchaser's
certified public accountants indicating the maximum amount that can be
paid by the escrow agent to purchaser without causing Purchaser to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code determined
as if the payment of such amount did not constitute Qualifying Income or a
subsequent letter from Purchaser's accountants revising that amount, in
which case the escrow agent shall release such amount to Purchaser, or
(ii) a letter from Purchaser's counsel indicating that Purchaser received
a ruling from the IRS holding that the receipt by Purchaser of the
Termination Amount (including any applicable interest thereon) would
either constitute Qualifying Income or would be excluded from gross income
within the meaning of Sections 856(c)(2) and (3) of the Code (or
alternatively, Purchaser's legal counsel has rendered a legal opinion to
the effect that the receipt by Purchaser of the Termination Amount
(including any applicable interest thereon) would either constitute
Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and (3) of the Code), in which case the
escrow agent shall release the remainder of the Termination Amount
(including any applicable interest thereon) to Purchaser. Seller agrees
to amend this Section 8.6 at the request of Purchaser in order to (x)
maximize the portion of the Termination Amount (including any applicable
interest thereon) that may be distributed to Purchaser hereunder without
causing Purchaser to fail to meet the requirements of Sections 856(c)(2)
and (3) of the Code, (y) improve Purchaser's chances of securing a
favorable ruling described in this Section 8.6(b) or (z) assist Purchaser
in obtaining a favorable legal opinion from its counsel as described in
<PAGE>
this Section 8.6(b); provided that Purchaser's legal counsel has rendered
a legal opinion to Purchaser to the effect that such amendment would not
cause Purchaser to fail to meet the requirements of Section 856(c)(2) or
(3) of the Code. The escrow agreement shall also provide that any portion
of the Termination Amount (including any applicable interest thereon) held
in escrow for five years shall be released by the escrow agent to Seller.
Seller shall not be a party to such escrow agreement and shall not bear
any cost of or have any liability resulting from the escrow agreement.
(c) Notwithstanding anything to the contrary set forth in this Agreement,
in the event Purchaser is required to file suit to seek all or a portion
of the Termination Amount (including any applicable interest thereon), it
shall be entitled to all expenses, including reasonable attorneys' fees
and expenses, which it has incurred in enforcing its rights hereunder;
provided that payment of such expenses shall be subject to the limitations
of Section 8.6(a) (determined as if such expenses were included in the
Termination Amount).
8.7 Exception. The provisions of this Paragraph 8 shall not apply in any
respect to the offer by Public Storage, Inc. to purchase partnership interests
of Seller as set forth in the Schedule 14d-1 of Public Storage, Inc. and the
related offer to purchase as such documents have been amended or supplement and
are in effect on the date hereof.
March 13, 1996
VIA TELECOPIER
Thomas M. Harrison, Esq.
Van Matre Law Firm
1101 East Broadway
Suite 101
Columbia, Missouri 65105
Re: Balcor/Colonial - Sale to Storage Trust Realty
Dear Tom:
As we discussed, my client has agreed to extend the time for agreeing on
the Schedule Price and the Property Breakdown Schedule (both as defined in the
Agreement of Sale between Storage Trust Properties, L.P. and Balcor/Colonial
Storage Income Fund-86 dated as of March 5, 1996), until March 22, 1996.
Please acknowledge your agreement with this extension by signing a copy of this
letter and returning same to me by telecopier, with original to follow by mail.
Thank you for your attention to this matter. Please feel free to call
should you have any questions.
Very truly yours,
/s/Jacob J. Kaufman
Jacob J. Kaufman
cc: Mr. Phillip Schechter
Daniel J. Perlman, Esq.
The undersigned hereby acknowledges and accepts the foregoing terms and
conditions,
Storage Trust Properties, L.P.
By: /s/Thomas M. Harrison Attorney-in-fact
--------------------------
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF SALE
THIS FIRST AMENDMENT TO AGREEMENT OF SALE (this "Amendment") is made and
entered into as of this 24th day of April, 1996, by and between BALCOR/COLONIAL
STORAGE INCOME FUND - 86, an Illinois limited partnership ("Seller"), and
STORAGE TRUST PROPERTIES, L.P., a Delaware limited partnership ("Purchaser").
RECITALS:
A. Seller and Purchaser are parties to that certain Agreement of Sale,
dated March 5, 1996, as amended ("Agreement"), pursuant to which Purchaser has
agreed to purchase and Seller has agreed to sell certain Real Properties (as
defined in the Agreement).
B. Seller and Purchaser desire to amend the Agreement in accordance with
the terms of this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. All terms not otherwise defined herein shall have the meanings
ascribed to each in the Agreement.
2. Paragraph 5.3 of the Agreement is (i) hereby deleted in its entirety
and (ii) hereby replaced by the following Paragraph 5.3:
5.3 If Purchaser establishes any Unpermitted Exception in
accordance with the terms set forth in Paragraph 5.2 herein, Seller shall
have ten (10) days from receipt of the Unpermitted Exception Notice to
cure said Unpermitted Exception (the parties agreeing that except as
specifically set forth in Paragraph 5.4, Seller shall not be required to
cure any Unpermitted Exceptions with the payment of money). If Seller is
unable to cure all Unpermitted Exceptions at no cost to Seller on or
before the expiration of said ten (10) days, then within the next ten
(10)-day period Seller shall determine the "Title Costs" (hereinafter
defined) with respect to the Unpermitted Exceptions which Seller has been
unable to cure. If the Title Insurer is unwilling to insure over the
Unpermitted Exceptions and the Unpermitted Exceptions cannot be cured with
the payment of money, then Purchaser shall take title to the Real
Properties subject to said Unpermitted Exceptions without a reduction in
the Purchase Price. If the Title Insurer is willing to insure over the
Unpermitted Exceptions or if the Unpermitted Exceptions can be cured with
the payment of money, then the amount required to cure or remove the
Unpermitted Exceptions or to cause the Title Insurer to insure over the
Unpermitted Exceptions shall be referred to as the "Title Costs", which
shall be paid in the manner specified in Paragraph 5.4.
<PAGE>
3. Paragraph 5.4 of the Agreement is (i) hereby deleted in its entirety
and (ii) hereby replaced by the following Paragraph 5.4:
5.4 Seller shall bear the responsibility for the Title Costs in
an amount not to exceed $50,000.00 of aggregate Title Costs.
Purchaser shall bear responsibility for any Title Costs in excess of
$50,000.00. At Closing, Purchaser shall receive a credit to the
Purchase Price equal to the lesser of (a) the aggregate sum of the
Title Costs or (b) $50,000.00, and Purchaser shall take title to the
Property subject to all Unpermitted Exceptions (except for such
Unpermitted Exceptions removed or cured by Seller in accordance with
Paragraphs 5.3). For example, assuming for illustrative purposes
only, if the Title Costs equal $30,000.00, then Purchaser would
receive a $30,000.00 credit at Closing. If instead, the Title Costs
equal $70,000.00, then Purchaser would only receive a $50,000.00
credit at Closing. In no event shall Seller have any obligation to
incur any Title Costs greater than $50,000.00, and in no event shall
Purchaser have the right to terminate the Agreement as a result of
the amount of the Title Costs.
4. Notwithstanding anything contained herein or in the Agreement to the
contrary, at Closing, Purchaser shall receive an additional credit for
verifiable costs incurred by Purchaser in connection with any Phase II
Environmental Reports which Purchaser causes to be undertaken at any time prior
to Closing in an amount not to exceed $17,500.
5. Paragraph 10.2.1 of the Agreement is (i) hereby deleted in its
entirety and (ii) replaced by the following Paragraph 10.2.1:
10.2.1 the Deeds, subject to the Permitted Exceptions and the
Unpermitted Exceptions (except for such Unpermitted Exceptions removed or
cured by Seller in accordance with Paragraph 5.3);
6. Except as specifically modified by this Amendment, the Agreement
shall remain in full force and effect in accordance with the terms thereof and
is hereby adopted, ratified, and confirmed. All references in the Agreement to
the "Agreement" shall hereafter refer to the Agreement as amended by this
Amendment.
7. This Amendment may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which shall constitute one and
the same instrument. In addition, this Amendment may contain more than one
counterpart of the signature page and this Amendment may be executed by the
affixing of the signatures of each of the parties to one of such counterpart
signature pages. All of such counterpart signature pages shall be read as
though one, and they shall have the same force and effect as though all of the
signers had signed a single signature page.
8. The parties hereto agree that a facsimile copy of the signature of
the person executing this Amendment shall be effective as an original signature
and legally binding and effective as an execution counterpart hereof.
[EXECUTION PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
PURCHASER:
STORAGE TRUST PROPERTIES, L.P., a Delaware
limited partnership
By: Storage Trust Realty, a Maryland Real Estate
Investment Trust, Sole General Partner
By: /s/Stephen M. Dulle
--------------------------------------
Name: Stephen M. Dulle
------------------------------------
Its: Chief Financial Officer
-------------------------------------
SELLER:
BALCOR/COLONIAL STORAGE INCOME FUND - 86, an
Illinois limited partnership
By: Balcor Storage Partners - 86, an Illinois
general partnership, a General Partner
By:The Balcor Company, a Delaware
corporation, its General Partner
By: /s/Phillip Schechter
--------------------------------------
Name: Phillip Schechter
------------------------------------
Its: Authorized agent
-------------------------------------
By: Colonial Storage 86, Inc., a Texas
corporation, a General Partner
By: /s/James Pruett
--------------------------------------
Name: James Pruett
------------------------------------
Its: President
-------------------------------------
