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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11718
MANUFACTURED HOME COMMUNITIES, INC.
(Exact name of registrant as specified in its Charter)
MARYLAND 36-3857664
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
(312) 474-1122
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
24,692,308 SHARES OF COMMON STOCK AS OF APRIL 30, 1996.
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MANUFACTURED HOME COMMUNITIES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995.................................. 3
Consolidated Statements of Operations for the quarters ended March 31, 1996 and 1995.................... 4
Consolidated Statements of Cash Flows for the quarters ended March 31, 1996 and 1995.................... 5
Notes to Consolidated Financial Statements.............................................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................................. 15
ITEM 6. Exhibits and Reports on Form 8-K.................................................................. 15
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MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1996 1995
-------- --------
ASSETS
Investment in rental property:
Land............................................................... $132,483 $127,229
Land improvements.................................................. 345,677 328,667
Buildings and other depreciable property........................... 87,380 87,059
-------- --------
565,540 542,955
Accumulated depreciation........................................... (60,036) (56,403)
-------- --------
Net investment in rental property............................... 505,504 486,552
Cash and cash equivalents............................................. 712 760
Short-term investments (at cost, which approximates market)........... 4,092 1,682
Notes receivable...................................................... 15,105 15,010
Investment in and advances to affiliates.............................. 11,245 10,987
Rents receivable...................................................... 871 935
Deferred financing costs, net......................................... 3,000 3,268
Prepaid expenses and other assets..................................... 3,245 3,430
Due from affiliates................................................... 441 501
-------- --------
Total assets....................................................... $544,215 $523,125
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable............................................. $198,541 $199,066
Line of credit..................................................... 31,000 12,900
Accounts payable and accrued expenses.............................. 10,904 8,759
Accrued interest payable........................................... 1,264 1,258
Rents received in advance and security deposits.................... 4,658 1,792
Distributions payable.............................................. 8,350 7,998
Due to affiliates.................................................. 409 547
-------- --------
Total liabilities............................................... 255,126 232,320
-------- --------
Commitments and contingencies
Minority interests.................................................... 29,104 29,305
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued....................... --- ---
Common stock, $.01 par value
50,000,000 shares authorized; 24,778,016 and
24,502,877 shares issued and 24,668,288 and 24,393,149 shares
outstanding for 1996 and 1995, respectively..................... 247 244
Paid-in capital.................................................... 293,304 288,533
Treasury stock, 109,728 shares of common stock..................... (1,987) (1,987)
Employee notes..................................................... (6,237) (1,565)
Distributions in excess of accumulated earnings.................... (25,342) (23,725)
-------- --------
Total stockholders' equity...................................... 259,985 261,500
-------- --------
Total liabilities and stockholders' equity......................... $544,215 $523,125
======== ========
The accompanying notes are an integral part of the financial statements.
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MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1996 1995
------- -------
REVENUES
Base rental income............................... $22,465 $21,163
Utility and other income......................... 2,299 2,219
Equity in income of affiliates................... 105 167
Interest income.................................. 600 579
------- -------
Total revenues................................ 25,469 24,128
------- -------
EXPENSES
Property operating and maintenance............... 6,897 6,918
Real estate taxes................................ 2,010 1,917
Property management.............................. 1,184 1,297
Corporate expenses............................... 971 1,322
Interest:
Interest incurred............................. 3,926 4,272
Amortization of deferred financing cost....... 268 814
Depreciation..................................... 3,656 3,590
------- -------
Total expenses................................... 18,912 20,130
------- -------
Income before allocation to minority interests... 6,557 3,998
(Income) allocated to minority interests......... (650) (400)
------- -------
Net income....................................... $ 5,907 $ 3,598
======= =======
Net income per weighted average common share
outstanding................................... $ .24 $ .15
======= =======
Distributions declared
per common share outstanding.................. $ .305 $ .295
======= =======
Weighted average common shares outstanding....... 24,664 24,331
======= =======
The accompanying notes are an integral part of the financial statements.
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MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 5,907 $ 3,598
Adjustments to reconcile net income to
cash provided by operating activities:
Income allocated to minority interests........................ 650 400
Depreciation and amortization expense......................... 3,924 4,404
Equity in income of affiliates................................ (105) (167)
Decrease in rents receivable.................................. 64 293
Decrease (increase) in prepaid expenses and other assets...... 104 (177)
Increase in accounts payable and accrued expenses............. 2,013 2,347
Increase in rents received in advance and security deposits... 2,866 2,950
------- -------
Net cash provided by operating activities......................... 15,423 13,648
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments, net........................... (2,410) (4,986)
(Contributions to) distributions from affiliates.................. (153) 10
Collection of principal payments on notes receivable.............. 46 1,552
Acquisition of rental properties.................................. (21,456) (600)
Improvements:
Improvements - corporate...................................... --- (354)
Improvements - rental properties.............................. (646) (774)
Site development costs........................................ (506) (499)
------- -------
Net cash used in investing activities............................. (25,125) (5,651)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options....................... 39 71
Distributions to common stockholders and minority interests....... (8,000) (8,007)
Treasury stock acquired........................................... --- (1,987)
Collection of principal payments on employee notes................ 20 2,021
Proceeds from line of credit...................................... 18,600 ---
Repayments on mortgage notes payable and line of credit........... (1,025) (328)
Debt issuance costs and other..................................... 20 (19)
------- -------
Net cash provided by (used in) financing activities............... 9,654 (8,249)
------- -------
Net (decrease) in cash and cash equivalents.......................... (48) (252)
Cash and cash equivalents, beginning of period....................... 760 1,924
------- -------
Cash and cash equivalents, end of period............................. $ 712 $ 1,672
======= =======
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest............................. $ 3,920 $ 4,211
======= =======
The accompanying notes are an integral part of the financial statements.
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRESENTATION:
These unaudited Consolidated Financial Statements of Manufactured Home
Communities, Inc., a Maryland corporation, and its subsidiaries (collectively,
the "Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the financial statements and notes thereto included in the Company's 1995
Annual Report on Form 10-K. The following Notes to Consolidated Financial
Statements highlight significant changes to the Notes included in the 1995
Annual Report on Form 10-K and present interim disclosures as required by the
SEC. The accompanying Consolidated Financial Statements reflect, in the
opinion of management, all adjustments necessary for a fair presentation of the
interim financial statements. All such adjustments are of a normal and
recurring nature. Certain reclassifications have been made to the prior
periods' financial statements in order to conform with current period
presentation.
NOTE 1 - COMMON STOCK AND RELATED TRANSACTIONS
On April 12, 1996, the Company paid a $.305 per share distribution for the
quarter ended March 31, 1996 to stockholders of record on March 29, 1996.
On January 2, 1996, certain members of management of the Company each
entered into subscription agreements with the Company to acquire 270,000 shares
of the Company's common stock at $17.375 per share. The Company allowed these
individuals to tender notes (the "1996 Employee Notes") in exchange for their
shares. The 1996 Employee Notes accrue interest at 5.91%, mature on January 2,
2005, and are recourse against the employees in the event the pledged shares
are insufficient to repay the obligations.
NOTE 2 - RENTAL PROPERTY
On February 28, 1996, the Company acquired Waterford, located near
Wilmington, Delaware, for a purchase price of approximately $21 million. The
acquisition was funded with an $18.6 million borrowing under the Company's line
of credit with a bank and approximately $2.4 million of working capital.
Waterford consists of 621 developed sites and 110 expansion sites; the cost of
completing the expansion sites will be paid by the seller.
As of April 30, 1996, the Company had contracts outstanding to acquire
certain manufactured housing communities which are subject to satisfactory
completion of the Company's due diligence review. The Company is actively
seeking to acquire additional communities and currently is engaged in
negotiations relating to the possible acquisition of a number of communities.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of"
("SFAS No. 121") is effective for fiscal years beginning after December 15,
1995. The Company evaluates rental properties for impairment when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) from a rental property are less than its carrying
value. Upon determination that a permanent impairment has occurred, rental
properties are reduced to fair value. For the quarter ended March 31, 1996,
permanent impairment conditions did not exist at any of the Company's
properties.
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES RECEIVABLE
At March 31, 1996 and December 31, 1995, notes receivable consisted of the
following (amounts in thousands):
1996 1995
------- -------
$2.0 million note receivable with monthly principal and interest
payments at 9.0%, maturing on 6/10/2003........................... $ 1,726 $ 1,768
$1.2 million purchase money notes with monthly principal and
interest payments at 7%, maturing on 4/30/2001.................... 1,170 1,174
$10 million leasehold mortgage loan with interest accruing at a
stated rate of 12.5% with a pay rate of 8.25%, maturing on
9/1/2013.......................................................... 10,676 10,558
$1.9 million note receivable with monthly interest payments at
prime plus 1.6%, maturing on 4/15/2000............................ 1,533 1,510
------- -------
Total notes receivable............................................ $15,105 $15,010
======= =======
NOTE 4 - LONG-TERM BORROWINGS
At March 31, 1996 and December 31, 1995, long-term borrowings consisted of
the following (amounts in thousands):
1996 1995
-------- --------
$100.0 million mortgage note payable with monthly interest only
payments at LIBOR plus 1.05%, maturing on 3/3/98 (a)................... $100,000 $100,000
First mortgage loan with monthly principal and interest payments at
7.40%, maturing on 3/1/2004........................................... 8,731 8,767
Purchase money note with structured principal and interest payments
at an imputed rate of 7.38%, maturing on 7/13/2004.................... 1,334 1,516
First mortgage loan with monthly principal and interest payments at a
rate of 7.48%, maturing on 8/1/2004................................... 24,780 24,859
$65.0 million first mortgage loan with monthly principal and interest
payments at 8%, maturing on 8/18/2001................................. 63,696 63,924
-------- --------
Total collateralized borrowings....................................... 198,541 199,066
$50.0 million line of credit at LIBOR plus 2% (b)..................... 31,000 12,900
-------- --------
Total long-term borrowings............................................ $229,541 $211,966
======== ========
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LONG-TERM BORROWINGS (CONTINUED)
(a) In December 1995, the Company entered into an agreement fixing the London
Interbank Offered Rate ("LIBOR") on the $100.0 million mortgage note payable
(the "Mortgage Debt") at 5.24% effective January 10, 1996 through January 10,
1997. The value of this agreement is impacted by changes in the market rate of
interest. Had the agreement been entered into on March 31, 1996, the
applicable LIBOR swap rate would have been 5.39%. Each 0.01% increase or
decrease in the applicable swap rate for this agreement increases or decreases
the value of the agreement entered into by the Company versus its current value
by approximately $9,000.
The Company has an interest rate cap for the term of the Mortgage Debt
which eliminates exposure to increases in LIBOR over 6%, plus 1.05%. In
connection with the agreement effective January 10, 1996, discussed above, the
Company sold a portion of the interest rate cap related to 1996 and recorded a
non-cash loss of approximately $650,000 in the fourth quarter of 1995. As of
March 31, 1996, the fair market value of the interest rate cap was
approximately $705,000 as compared to book value of $762,000.
In July 1995 the Company entered into an interest rate swap agreement (the
"Swap") beginning at the maturity of the Mortgage Debt fixing LIBOR on the
refinancing of the Mortgage Debt at 6.4% for the period 1998 through 2003. The
cost of the Swap consisted only of legal costs which were deemed immaterial.
In the event that the Company does not refinance the Mortgage Debt, the risk
associated with the Swap is that the Company would be obligated to perform its
obligations under the terms of the Swap or would have to pay to terminate the
Swap. In either event, the impact of such transaction would be reflected in
the Company's statement of operations. The value of the Swap is impacted by
changes in the market rate of interest. Had the Swap been entered into on
March 31, 1996, the applicable LIBOR swap rate would have been 6.69%. Each
0.01% increase or decrease in the applicable swap rate for the Swap increases
or decreases the value of the Swap entered into by the Company versus its
current value by approximately $38,000.
(b) On May 7, 1996, the Company amended the credit agreement increasing the
$50.0 million line of credit to $100.0 million at LIBOR plus 1.375% and
extended the maturity date to August 17, 1998. In addition, the fee on the
average unused amount was reduced to .15% of such amount from .25%. The
Company paid a $200,000 loan fee which is being amortized over the remaining
period of the amended agreement.
As of March 31, 1996, the carrying value of the property collateralizing the
long-term borrowings was approximately $458 million.
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MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTIONS
Pursuant to the Amended and Restated 1992 Stock Option and Stock Award
Plan (the "Plan") as discussed in Note 12 to the 1995 Annual Report on Form
10-K, certain officers, directors, key employees and consultants have been
offered the opportunity to acquire shares of common stock of the Company
through stock options ("Options"). During the quarter ended March 31, 1996,
Options for 3,000 shares of common stock were exercised.
In 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under the
provisions of SFAS No. 123, companies can elect to account for stock-based
compensation plans using a fair-value-based method or continue measuring
compensation expense for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". SFAS No. 123 requires that companies electing to continue
using the intrinsic value method must make pro-forma disclosures of net income
and earnings per share as if the fair-value-based method of accounting had been
applied.
The Company elected to continue to account for stock-based compensation
using the intrinsic value method. As such, SFAS No. 123 did not have an impact
on the Company's first quarter results of operations or financial position. The
pro-forma information required by SFAS No. 123 will be included in the
footnotes to the Company's 1996 year-end consolidated financial statements.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
There have been no new or significant developments related to the
commitments and contingencies that were discussed in the 1995 Annual Report on
Form 10-K.
NOTE 7 - SUBSEQUENT EVENTS
On May 9, 1996, the Company funded a recourse real estate loan for
$6,050,000 to the partnership which owns Candlelight Village, located in
Columbus, Indiana. The loan has an interest rate of 9.5%, 9.75% and 10% for
the first, second and third years of the loan, respectively, which interest is
payable monthly. Interest and principal are guaranteed by the general partner
of the partnership which owns Candlelight. The loan matures May 8, 1999 at
which time the Company has the option to purchase Candlelight Village.
Candlelight Village consists of 512 sites and 73 expansion sites. For
financial accounting purposes, the Company expects to account for the loan as
an investment in real estate.
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MANUFACTURED HOME COMMUNITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following is a discussion of the interim results of operations,
financial condition and liquidity and capital resources of the Company for the
three months ended March 31, 1996 compared to the corresponding period in 1995.
It should be read in conjunction with the Consolidated Financial Statements
and Notes thereto included herein and the 1995 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO THREE MONTHS ENDED
MARCH 31, 1995
Since March 31, 1995, the gross investment in rental property has
increased from $543 million to $566 million as of March 31, 1996 due to the
acquisition of Waterford on February 28, 1996, partially offset by the sale of
two properties in 1995. The total number of sites has increased from 25,839 as
of March 31, 1995 to 26,284 as of March 31, 1996.
The following table summarizes certain weighted average occupancy
statistics for the quarters ended March 31, 1996 and 1995. "Core Portfolio"
represents an analysis of properties owned during both periods of comparison.
Core Portfolio Total Portfolio
----------------------- ------------------------
1996 1995 1996 1995
------- ------- ------- -------
Total sites 25,553 25,352 25,797 25,839
Occupied sites 24,008 23,651 24,208 24,004
Occupancy % 94.0% 93.3% 93.3% 92.9%
Monthly base rent per site $309.29 $294.65 $309.34 $296.65
Base rental income ($22.5 million) increased $1.3 million or 6.1%. For
the Core Portfolio, base rental income increased approximately $1.4 million or
6.6%, reflecting a 5.0% increase in base rental rates and a 1.6% increase
related to occupancy. Base rental income at Waterford was approximately
$189,000 for the quarter ended March 31, 1996. Partially offsetting this
increase was a $257,000 decrease in base rental income resulting from the sale
of two properties in 1995.
The increase in monthly base rent per site reflected annual rent increases
which went into effect in the first quarter of 1996 at approximately 72% of the
properties, as well as annual rent increases that occurred in the last nine
months of 1995. The 0.8% increase in occupied sites for the total portfolio
was due to improved occupancy in the Southeastern Region's expansion
communities and increased occupancy in the Rocky Mountain Region at a majority
of the properties, partially offset by a decrease in occupied sites in the
Western Region as a result of the sale in 1995 of Catalina.
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MANUFACTURED HOME COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Utility and other income ($2.3 million) increased $80,000 or 3.6%
primarily due to increased other income at a majority of the properties.
Interest income ($600,000) increased $21,000 or 3.6%, primarily due to
interest earned on the $1.9 million of notes receivable funded by the Company
in April 1995 and the 1996 Employee Notes granted on January 2, 1996, partially
offset by a decrease in interest earned on short-term investments. Short-term
investments had average balances for the quarters ended March 31, 1996 and 1995
of approximately $3.4 million and $7.8 million, respectively, which earned
interest income at an effective rate of 5.4% and 4.4% per annum, respectively.
As of March 31, 1996, the Company had cash and cash equivalents and short- term
investments of $4.8 million.
Property operating and maintenance expenses ($6.9 million) decreased
$21,000 or 0.3%. The decrease was primarily due to a decrease in property
payroll of approximately $335,000, partially offset by an increase in utility
expense of approximately $191,000 and an increase in insurance and other
expenses of approximately $154,000. Property operating and maintenance
expenses represented 27.1% of total revenues in 1996 and 28.7% in 1995.
Real estate taxes ($2 million) increased $93,000 or 4.9% due to the
expected increase in assessed values at certain properties in 1996. Real
estate taxes represented 7.9% of total revenues in both 1996 and 1995.
Property management expenses ($1.2 million) decreased $113,000 or 8.7%.
The decrease was primarily due to a decrease in management company payroll of
approximately $462,000. In late March 1995, the Company closed certain of its
regional offices and reduced staffing at others which decreased management
company payroll. Partially offsetting this decrease was the one-time receipt
in 1995 of a $281,000 termination fee related to certain fee-managed contracts
and a $68,000 decrease in other property management company expenses. Property
management expenses represented 4.6% of total revenues in 1996 and 4.7% in
1995.
Corporate expenses ($971,000) decreased $351,000 or 26.6%. The decrease
was due to: (i) decreased professional fees of approximately $137,000
resulting from the write-off in the first quarter of 1995 of legal due
diligence and related costs associated with acquisitions which did not
materialize, and (ii) decreased public company costs. Corporate expenses
represented 3.8% of total revenues in 1996 and 4.4% in 1995.
Interest expense ($3.9 million) decreased by $346,000 or 8.1%. The
decrease was due to lower weighted average outstanding debt balances during the
period, as well as a decrease in the effective interest rate. The weighted
average outstanding debt balances for the quarters ended March 31, 1996 and
1995 were $218.0 million and $226.6 million, respectively. The effective
interest rates were 7.2% and 7.54%, respectively. Interest expense represented
15.4% of total revenues in 1996 and 17.7% in 1995.
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MANUFACTURED HOME COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
In December 1995, the Company entered into an agreement fixing the LIBOR
rate on the Mortgage Debt at 5.24% effective January 10, 1996 through January
10, 1997. The value of this agreement is impacted by changes in the market
rate of interest. Had the agreement been entered into on March 31, 1996, the
applicable LIBOR swap rate would have been 5.39%. Each 0.01% increase or
decrease in the applicable swap rate for this agreement increases or decreases
the value of the agreement entered into by the Company versus its current value
by approximately $9,000.
The Company has an interest rate cap for the term of the Mortgage Debt
which eliminates exposure to increases in LIBOR over 6%, plus 1.05%. In
connection with the agreement effective January 10, 1996, discussed above, the
Company sold a portion of the interest rate cap related to 1996 and recorded a
non-cash loss of approximately $650,000 in the fourth quarter of 1995. As of
March 31, 1996, the fair market value of the interest rate cap was
approximately $705,000 as compared to book value of $762,000.
In July 1995 the Company entered into the Swap beginning at the maturity
of the Mortgage Debt fixing LIBOR on the refinancing of the Mortgage Debt at
6.4% for the period 1998 through 2003. The cost of the Swap consisted only of
legal costs which were deemed immaterial. In the event that the Company does
not refinance the Mortgage Debt, the risk associated with the Swap is that the
Company would be obligated to perform its obligations under the terms of the
Swap or would have to pay to terminate the Swap. In either event, the impact
of such transaction would be reflected in the Company's statement of
operations. The value of the Swap is impacted by changes in the market rate of
interest. Had the Swap been entered into on March 31, 1996, the applicable
LIBOR swap rate would have been 6.69%. Each 0.01% increase or decrease in the
applicable swap rate for the Swap increases or decreases the value of the Swap
entered into by the Company versus its current value by approximately $38,000.
On May 7, 1996, the Company amended it credit agreement on the $50.0
million line of credit ("Credit Facility") increasing the Credit Facility to
$100.0 million at LIBOR plus 1.375% and extended the maturity date to August
17, 1998. In addition, the fee on the average unused amount was reduced to
.15% of such amount. The Company borrowed an additional $2.0 million and $5.0
million under the Credit Facility in April and May 1996, respectively.
Amortization of deferred financing costs ($268,000) decreased $546,000 or
67% primarily due to the write-off in 1995 of approximately $385,000 of loan
costs related to the $50 million line of credit with General Electric Credit
Corp. which expired in March 1995. Amortization of deferred financing costs
represented 1.1% of total revenues in 1996 and 3.4% in 1995.
Depreciation expense ($3.7 million) increased $66,000 or 1.8%.
Depreciation expense on corporate assets was approximately $96,000 and $83,000
for the quarters ended December 31, 1995 and 1994, respectively. Depreciation
expense represented 14.4% of total revenues in 1996 and 14.9% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $48,000 when compared to December
31, 1995. The major components of this decrease were the acquisition of
Waterford, payment of distributions, purchase of short-term investments, and
improvements to rental properties, partially offset by the $18.6 million
borrowing under the line of credit and increased cash provided by operating
activities.
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MANUFACTURED HOME COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash provided by operating activities increased $1.8 million from
$13.6 million for the quarter ended March 31, 1995 compared to $15.4 million
for the same period in 1996. This increase reflected a $2.2 million increase
in Funds From Operations ("FFO"), as discussed below, and decreased accounts
payable accruals.
FFO was defined by the National Association of Real Estate Investment
Trusts ("NAREIT") in March 1995 as net income (computed in accordance with
generally accepted accounting principles ["GAAP"]), before allocation to
minority interests, plus real estate depreciation and after adjustments for
significant non-recurring items, if any. In the first quarter of 1996, the
Company adopted this new definition of FFO which is effective for periods
ending after December 31, 1995. Prior to this adoption, FFO was defined as
income before allocation to minority interests plus certain non-cash items,
primarily depreciation and amortization. Funds available for distribution
("FAD") is defined as FFO less non-revenue producing capital expenditures and
amortization payments on mortgage loan principal. The Company believes that
FFO and FAD are useful to investors as a measure of the performance of an
equity REIT because, along with cash flows from operating activities, financing
activities and investing activities, they provide investors an understanding of
the ability of the Company to incur and service debt and to make capital
expenditures. FFO and FAD in and of themselves do not represent cash generated
from operating activities in accordance with GAAP and therefore should not be
considered an alternative to net income as an indication of the Company's
performance or to net cash flows from operating activities as determined by
GAAP as a measure of liquidity and are not necessarily indicative of cash
available to fund cash needs.
The following table presents a calculation of FFO and FAD for the quarters
ended March 31, 1996 and 1995:
March 31,
1996 1995
------- -------
Computation of funds from operations:
Income before allocation to minority interests........ $ 6,557 $ 3,998
Depreciation on real estate assets................. 3,560 3,507
Amortization of non-recurring items................ --- 385
------- -------
Funds from operations................................. $10,117 $ 7,890 (a)
======= =======
Computation of funds available for distribution:
Funds from operations................................. $10,117 $ 7,890 (a)
Non-revenue producing improvements -
rental properties............................... (646) (774)
------- -------
Funds available for distribution...................... $ 9,471 $ 7,116
======= =======
(a) FFO for the quarter ended March 31, 1995 has been restated pursuant to
the new definition of FFO adopted by the Company for periods ending after
December 31, 1995.
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14
MANUFACTURED HOME COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash used in investing activities increased $19.5 million from $5.7
million for the quarter ended March 31, 1995 to $25.1 million for the quarter
ended March 31, 1996 due to the acquisition of Waterford, partially offset by a
decrease in the purchase of short-term investments. On February 28, 1996, the
Company acquired Waterford, located near Wilmington, Delaware, for a purchase
price of approximately $21 million. The acquisition was funded with an $18.6
million borrowing under the Company's line of credit and approximately $2.4
million of working capital. Waterford consists of 621 developed sites and 110
expansion sites; the cost of developing the expansion sites will be paid by the
seller.
Capital expenditures for improvements were approximately $1.2 million for
the quarter ended March 31, 1996 compared to $1.6 million for the quarter ended
March 31, 1995. Of the $1.2 million, approximately $646,000 represented
improvements to existing sites. The Company anticipates spending approximately
$2.6 million on improvements to existing sites during the remainder of 1996.
The Company believes these improvements are necessary in order to increase
and/or maintain occupancy levels and maximize rental rates charged to new and
renewing residents. The remaining $506,000 represented costs to develop
expansion sites at certain of the Company's properties. The Company is
currently developing an additional 105 sites which should be available for
occupancy in 1996.
Net cash provided by (used in) financing activities increased $17.9
million from $(8.2) million for the quarter ended March 31, 1995 to $9.7
million for the quarter ended March 31, 1996 primarily due to the $18.6 million
borrowing under the line of credit for the acquisition of Waterford.
Distributions to common stockholders and minority interests remained
relatively stable at $8 million for the quarters ended March 31, 1996 and 1995.
On January 12, 1996, the Company paid a $0.295 per share distribution for the
fourth quarter of 1995 to stockholders of record on December 29, 1995. On
April 12, 1996, the Company paid a $0.305 per share distribution for the first
quarter of 1996 to stockholders of record on March 29, 1996. Return of capital
on a GAAP basis was $0.065 for the first quarter of 1996.
On January 2, 1996, certain members of management of the Company each
entered into subscription agreements with the Company to acquire 270,000 shares
of the Company's common stock at $17.375 per share. The Company allowed these
individuals to tender notes (the "1996 Employee Notes") in exchange for their
shares. The 1996 Employee Notes accrue interest at 5.91%, mature on January 2,
2005, and are recourse against the employees in the event the pledged shares
are insufficient to repay the obligations.
The Company expects to meet its short-term liquidity requirements,
including its distributions, generally through its working capital, net cash
provided by operating activities and availability under the existing line of
credit. The Company expects to meet certain long-term liquidity requirements
such as scheduled debt maturities, property acquisitions and capital
improvements by long-term collateralized and uncollateralized borrowings
including its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to working capital.
14
15
MANUFACTURED HOME COMMUNITIES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The discussion in Note 6 of Notes to Consolidated Financial
Statements is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Amendment No. 2 to MHC Operating Limited Partnership
Amended and Restated Partnership Agreement dated
February 15, 1996
10.2 Form of Subscription Agreement between the Company and
certain members of management of the Company
10.3 Form of Secured Promissory Note payable to the Company
by certain members of management of the Company
10.4 Form of Pledge Agreement between the Company and
certain members of management of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K dated February 28, 1996, filed March 15, 1996, relating to
Item 5 - "Other Events - Acquisition or Disposition Assets" on
the acquisition of Waterford.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANUFACTURED HOME COMMUNITIES, INC.
BY: \s\ Thomas P. Heneghan
------------------------------------------
Thomas P. Heneghan
Vice President and Chief Financial Officer
(a duly authorized officer and Chief
Accounting Officer of the Company)
DATE: May 9, 1996
16
1
EXHIBIT 10.1
AMENDMENT NO. 2
TO
MHC OPERATING LIMITED PARTNERSHIP
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
This Amendment No. 2 (the "Amendment") to Amended and Restated MHC
Operating Limited Partnership Amended and Restated Partnership Agreement (the
"Agreement") is made as of February 15, 1996 by Manufactured Home Communities,
Inc., a Maryland corporation and the general partner (the "General Partner") of
MHC Operating Limited Partnership, an Illinois limited partnership (the
"Partnership").
R E C I T A L S
A. The Partners (as defined in the Agreement) executed the Agreement
as of March 3, 1993 and Amendment No. 1 to the Agreement dated as of
August 18, 1994.
B. Pursuant to the power of attorney granted under Section 16 of the
Agreement, the General Partner desires to amend the Agreement to reflect the
amendment set forth herein.
CLAUSES
In consideration of the preceding, as well as the mutual covenants and
provisions set forth below, the General Partner on behalf of all Partners,
amends the Agreement as follows:
1. Section 3.3(b): Section 3.3(b) of the Agreement is hereby deleted in
its entirety and replaced with the following Section 3.3(b):
"The net proceeds of any and all funds raised by or
through the Company through the issuance of additional
shares of stock of the Company (whether common or
preferred) (i) shall be contributed to the Partnership
as additional Capital Contributions, and in such event
the Company shall be issued additional OP Units
pursuant to Section 3.2(B) above or (ii) in the case
of preferred stock, may, at the option of the Company,
be advanced by the Company in consideration of the
issuance of a promissory note having substantially the
same terms and conditions, rights and preferences as the
preferred stock."
2. Reaffirmation of other Terms. The General Partner reaffirms all
other terms contained in the Agreement.
3. Defined Terms. All capitalized terms used herein and not defined
shall have the meanings given such terms in the Agreement.
GENERAL PARTNER:
MANUFACTURED HOME COMMUNITIES, INC., a
Maryland corporation
By: \s\ David A. Helfand
--------------------
Name: David A. Helfand
--------------------
Title: President
--------------------
1
EXHIBIT 10.2
FORM OF SUBSCRIPTION AGREEMENT
This Subscription Agreement, dated as of January 2, 1996 (the
"Agreement"), is entered into by and between Manufactured Home Communities,
Inc., a corporation organized under the laws of the State of Maryland (the
"Corporation"), and ___________ (the "Subscriber").
The Subscriber desiring to subscribe for and acquire shares of the
common stock, $.01 par value per share, of the Corporation (the "Common Stock"),
and the Corporation, desiring to issue such shares of Common Stock to the
Subscriber agree as follows:
1. Subscription for and Issuance of Shares. For the consideration
stated in this Section 1, the Subscriber subscribes for and agrees
to acquire, and the Corporation accepts such subscription and agrees
to issue to the Subscriber, ___________shares of Common Stock (the
"Shares") at the closing price per share on January 2, 1996 (the
"Purchase Price") for a total subscription price equal to the number
of Shares multiplied by the Purchase Price (the "Subscription
Price"). Payment of the Subscription Price shall be made by
delivery by the Subscriber to the Corporation, of a note (the
"Note") which Note shall be secured by the pledge by Subscriber of
certificates representing the Shares purchased by such Subscriber
pursuant to the terms of a pledge agreement (the "Pledge
Agreement"). The Corporation shall acknowledge receipt from the
Subscriber of the Subscription Price tendered by the delivery of the
Note and the Pledge Agreement to the Corporation and, at such time,
the Subscriber shall acknowledge receipt of the certificate or
certificates evidencing the Shares issuable to the Subscriber,
registered in the name of the Subscriber.
2. Representations and Warranties of the Corporation. The Corporation
hereby represents and warrants to the Subscriber as follows:
(a) Organization. The Corporation is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Maryland, with full power to own its
properties and carry on its business as presently conducted
and to enter into and perform this Agreement.
(b) Authorization. All corporate action necessary to authorize
the Corporation to enter into this Agreement and to perform
the covenants and agreements has been duly and validly taken.
Neither the execution of this Agreement nor the performance by
the Corporation of its covenants and agreements hereunder
violates or will violate any provisions of the Articles of
Incorporation, as amended, or By-Laws of the Corporation or of
any agreement, document or instrument to which it is a party
or by which it is bound.
3. Subscriber's Representations, Warranties, Acknowledgements and
Covenants. The Subscriber acknowledges, represents and warrants to
the Corporation as follows:
2
(a) Subscriber's Suitability. The Subscriber (i) has been given an
opportunity to ask, and to the extent the Subscriber has considered
necessary, has asked questions of, and has received answers from,
representatives of the Corporation concerning the terms of this
investment and the affairs of the Corporation, and all such
questions have been answered to the full satisfaction of the
Subscriber; and (ii) has been given or afforded access to all
documents, records, books and additional information which the
Subscriber has requested regarding such matters. In making this
investment, the Subscriber is not relying on any oral information
furnished by or oral representation made by the Corporation or any
one acting on behalf of the Corporation.
(b) Subscriber's Awareness.
(i) The Subscriber understands that the offering and sale of the
Shares has not been registered under the Securities Act of
1933 Act, as amended (the "1933 Act"), or under certain state
securities laws in reliance upon exemptions therefrom for
nonpublic offerings. The Subscriber understands that the
Shares must be held indefinitely unless the sale thereof is
subsequently registered under the 1933 Act and under certain
state securities laws or an exemption or exemptions from such
registration is available and that except as provided herein,
neither the Corporation nor any other person is required to
register the Shares under the 1933 Act, or take any steps to
perfect any exemption therefrom for any resale of the Shares
pursuant to Rule 144 under the 1933 Act, or otherwise transfer
the Shares unless such Shares are registered under the 1933
Act and under any applicable state securities laws, or an
exemption or exemptions from such registration is available;
(ii) The Shares are being purchased by the Subscriber solely for
the Subscriber's own account for investment, and not with a
view to, or for resale in connection with, any distribution.
The Subscriber acknowledges that, with the exception of the
Corporation, no other person has a direct or indirect
beneficial interest in such Shares, and that no other person
has furnished, directly or indirectly, any part of the
Subscription Price. The Subscriber does not intend to dispose
of all or any part of such Shares and understands that such
Shares are being offered and sold pursuant to a specific
exemption under the provisions of the 1933 Act which exemption
depends, among other things, upon the investment intent of the
Subscriber; and
2
3
(iii) The Subscriber understands that no offering memorandum or
sales literature has been filed with or reviewed by certain
state securities administrators because of the representations
made by the Corporation as to the private and limited nature
of this offering. No federal or state agency has passed upon
the Shares or made any finding or determination as to the
merits of this investment.
(c) Authorization and Binding Obligation.
(i) The Subscriber has duly taken any and all action necessary to
authorize such Subscriber's execution and performance of this
Agreement in accordance with its terms;
(ii) This Agreement constitutes the valid and binding obligation of
the Subscriber, enforceable in accordance with its terms; and
(iii) Neither the execution nor the performance of this Agreement
violates or will violate the terms of any agreement, document
or instrument to which the Subscriber is a party or by which
the Subscriber may be bound.
4. Registration Rights. The Subscriber and Corporation agree that if
the Corporation proposes to register any of its securities under the
1933 Act and the form to be used may be used for the registration of
Shares, the Corporation will give prompt written notice ("Piggyback
Notice") to the Subscriber of its intention to effect such
registration and the Corporation will include in such registration,
at the Corporation's expense, the Shares with respect to which the
Corporation has received written requests for inclusion therein
within ten (10) days after the date of sending the Piggyback Notice.
Nothing herein shall affect the right of the Corporation to withdraw
such registration in its sole discretion or require the Corporation
to include the Shares in such registration if the Corporation deems,
in its sole discretion, that the inclusion of the Shares would
adversely interfere with such registration, adversely affect the
Corporation's securities in the public market or otherwise adversely
affect the Corporation.
If the Corporation determines that only a portion of the Shares may
be included without adversely affecting the Corporation, then the
Corporation will include in such registration (i) first, the
securities the Corporation proposes to register and (ii) any other
securities requested to be included in such registration pro-rata on
the basis of the number of shares requested for inclusion in such
registration by each such holder.
5. Notices. Any notices or other communications shall be in writing
and shall be given if sent by certified or registered mail, return
receipt requested, postage prepaid:
3
4
(a) if to the Corporation, to its then principal office;
(b) if to the Subscriber, to the Subscriber's then last known
principal residence address; or to such other persons or at
such other addresses as shall be furnished by any party by
like notice to the others, and such notice or communication
shall be deemed to have been given or made as of the date so
delivered or mailed.
6. REIT Election. The Subscriber acknowledges that the Corporation has
made an election to be treated as "REIT" within the meaning of
Section 856(c) of the Internal Revenue Code of 1986, as amended.
The Subscriber consents to such election and agrees that he shall
not, through any action or failure to act, cause the termination of
the Corporation's REIT election, unless there is a unanimous,
written resolution or consent of all stockholders of the Corporation
which requires them to so act or fail to act.
7. Binding Agreement. This Agreement shall bind and inure to the
benefit of the respective parties hereto, their successors and
assigns.
8. Headings. The headings and descriptive titles contained in this
Agreement are for convenience of reference only and do not modify,
limit or in any way define the interpretation or construction of the
provisions of this Agreement.
9. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Corporation and the Subscriber and
supersedes all prior agreement or understandings relating to the
subject matter hereof.
10. Governing Law. This Agreement is made in the State of Illinois and
shall be governed by, and construed in accordance with, the internal
laws of said State without reference to any principles of conflicts
of laws.
11. Amendments. This Agreement may not be altered or amended except by
a writing executed by any party against whom such alteration or
amendment is sought to be enforced.
12. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which
together shall constitute one and the same instrument.
13. Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal, invalid or unenforceable, all
of the other provisions of this Agreement shall be given effect
separately from such provision or provisions and shall not be
affected by any such determination.
4
5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
MANUFACTURED HOME COMMUNITIES, INC.
By:________________________________
Name: ________________________
Title:________________________
SUBSCRIBER:
__________________________________
1
EXHIBIT 10.3
FORM OF SECURED PROMISSORY NOTE
$_________ January 2, 1996
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, ___________, ("Maker") promises to
pay to the order of Manufactured Home Communities, Inc., a Maryland corporation
("Payee", which term shall mean the holder, from time to time, of this Note),
with an office at Two North Riverside Plaza, Suite 800, Chicago, Illinois 60606,
or at such other place as the holder hereof may from time to time designate, the
principal sum of $_____________ with interest on the unpaid principal balance
from time to time outstanding, at the rate set forth below, with payment of
principal and interest to be made in lawful money of the United States which
shall be legal tender for public and private debts at the time of payment, as
follows:
(a) Interest shall be computed on the basis of a three hundred
sixty five (365) day year but for the actual number of days outstanding,
at a rate per annum equal to five and ninety-one/100 percent (5.91%).
Interest shall be payable quarterly in arrears, commencing on April 15,
1996 and on the fifteenth day of each July, October, January and April
thereafter until the Maturity Date (as such term is hereinafter defined)
out of Net Dividends as hereinafter provided. The total unpaid principal
balance and all accrued but unpaid interest shall be due and payable on
the Maturity Date. All payments of principal or interest shall be made to
the holder of this Note not later than 1:00 p.m. on the date and at the
place of payment designated by the holder hereof as aforesaid, and any
payment received on such date but after such hour shall be deemed to have
been paid to and received by the holder hereof on the next succeeding
business day. If the date on which any payment is required to be made
pursuant to this Note is not a business day, then such payment shall be
due and payable on the next succeeding date which is not a Saturday,
Sunday or legal holiday in the City of Chicago, State of Illinois.
(b) As used in this Note, the term "Maturity Date" shall mean the
date which is the first to occur of (i) January 2, 2005, or (ii) the date
on which the Maker is no longer employed, for any reason whatsoever other
than death or disability (as hereinafter defined), by the Payee or an
affiliate thereof, or (iii) the date on which right to accelerate payment
of this Note accrues to the holder hereof as otherwise provided in this
Note or as provided in that certain Pledge Agreement of even date herewith
(the "Pledge Agreement") given by Maker to Payee to secure the payment of
this Note. For purposes hereof, disability shall mean Maker's inability
to perform his usual and customary employment obligation for ninety (90)
consecutive days.
All such payments shall be made without reduction, and shall not be
subject to any claim or offset of any kind or nature whatsoever.
2
1. Permissible Prepayments.
Provided Maker is not in default under this Note, or the Pledge
Agreement or any other document relating to this Note (collectively, the "Loan
Documents"), the principal amount of this Note or any interest accrued thereon
may at any time and from time to time be prepaid in whole or in part, together
with interest accrued thereon to the date of such prepayment, without premium,
upon not less than ten (10) days' prior written notice to the Payee at the place
of payment designated above.
2. Required Prepayments.
Maker shall be required to pay to Payee all Net Dividends (as
hereinafter defined) within thirty (30) days of receipt thereof by Maker to be
credited against accrued and unpaid interest and the remainder, if any, to
principal. "Net Dividends" shall mean any and all payments made by Payee and
received by Maker solely in his capacity as a stockholder of Payee less that
amount which results from multiplying the maximum rate of federal and state
income taxes then payable by Maker with respect to receipt of such payments.
3. Default.
At the option of Payee, this Note shall become immediately due and
payable, without notice or demand, upon the occurrence at any time of any of the
following:
(a) failure to pay when due any payment of principal or interest
due hereunder; or
(b) the commencement of any proceeding under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt or
receivership law or statute is filed by or against Maker or the Maker
makes an assignment for the benefit of creditors; or
(c) the occurrence of any other default by Maker under this Note;
or
(d) the occurrence of any other Event of Default as defined in and
pursuant to the Pledge Agreement.
4. Remedies.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker promises to pay all costs of collection, including without
limitation attorneys' fees, and all expenses in connection with the protection
or realization of the collateral securing this Note whether or not suit is filed
hereon; such costs and expenses shall include without limitation all costs,
attorneys' fees and expenses incurred by the holder hereof in connection with
any insolvency, bankruptcy, reorganization, arrangement or other similar
proceedings involving the undersigned, vwhich in any way affects the exercise by
the holder of its rights and remedies under this Note or under the Pledge
2
3
Agreement or other agreement securing this Note. Should interest not be paid
when due, it shall thereafter bear like interest as the principal. Additionally,
in the event of any default under this Note, the interest rate provided for
herein shall immediately without notice, increase to three percent (3%) over the
interest rate described in paragraph (a) on page one hereof (the "Default
Interest Rate").
5. Miscellaneous.
A. Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived. To the
extent permitted by applicable law, the defense of the statute of limitations is
hereby waived by the undersigned.
B. No single or partial exercise of any power hereunder or the
Pledge Agreement shall preclude other or further exercise thereof or the
exercise of any other power. The holder hereof shall at all times have the right
to proceed against any portion of the security held herefor in such order and in
such manner as the holder may deem fit, without waiving any rights with respect
to any other security. No delay or omission on the part of the holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Note.
C. This Note is secured by the Pledge Agreement which contains
provisions for the acceleration of the Maturity Date hereof upon the happening
of certain stated events.
D. Maker warrants and represents to Payee that the indebtedness
evidenced by this Note is with respect to an exempt transaction under the
Truth-In-Lending Act, 15 U.S.C. 1601 et seq. This Note has been executed and
delivered in, and shall be governed by and construed under the laws of, the
State of Illinois, and as such is exempt from the limitation upon interest that
may be charged pursuant to the provisions of Chapter 17, Section 6404 of the
Illinois Revised Statutes. Maker hereby submits to personal jurisdiction in said
State for the enforcement of Maker's obligations hereunder, and waives any and
all personal rights under the law of any other state to object to jurisdiction
within such State for the purposes of litigation to enforce such obligations of
Maker. In the event such litigation is commenced, Maker agrees that service of
process may be made and personal jurisdiction over Maker obtained, by service of
a copy of the summons, complaint and other pleadings required to commence such
litigation upon Maker's appointed Agent for Service of Process in such State,
which Agent Maker designates to be:
Sheli Z. Rosenberg
Equity Group Investments, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Maker may designate a substitute attorney as agent, or change the address
to which said copies shall be sent, by notice to Payee at the place and in the
manner more fully provided in the Stock Pledge Agreement.
3
4
E. It is the intention of the parties to conform strictly to the
usury laws, whether state or federal, that are applicable to this Note. All
agreements between Maker and Payee, whether now existing or hereafter arising
and whether oral or written, are hereby expressly limited so that in no
contingency or event whatsoever, shall the amount paid or agreed to be paid to
Payee or the holder hereof, or collected by Payee or such holder, for the use,
forbearance or detention of the money loaned or to be loaned hereunder or
otherwise, or for the payment or performance of any covenant or obligation
contained herein or in the Loan Documents exceed the maximum amount permissible
under applicable federal or state usury laws. If under any circumstances
whatsoever fulfillment of any provision hereof or of the Loan Documents, shall
involve exceeding the limit of validity prescribed by law, then the obligation
to be fulfilled shall be reduced to the limit of such validity; and if under any
circumstances Payee or any other holder hereof shall ever receive an amount
deemed interest by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable usury laws shall
be applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal and such
other indebtedness, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to Maker or to any other person making such
payment on Maker's behalf. All sums paid or agreed to be paid to the holder
hereof for the use, forbearance or detention of the indebtedness of Maker
evidenced hereby outstanding from time to time shall, to the extent permitted by
applicable law, and to the extent necessary to preclude exceeding the limit of
validity prescribed by law, be amortized, prorated, allocated and spread from
the date of disbursement of the proceeds of this Note until payment in full of
the loan evidenced hereby so that the actual rate of interest on account of such
indebtedness is uniform throughout the term hereof. The terms and provisions of
this paragraph shall control and supersede every other provision of all
agreements between Maker and Payee.
F. Time is of the essence with respect to the performance of the
obligations of Maker under this Note, the Pledge Agreement and each other
document securing this Note.
G. This Note consists of four (4) pages.
MAKER:
____________________________
1
EXHIBIT 10.4
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, is made as of this 2nd day of January, 1996
("Agreement"), by and between ___________, having a residence at 1 East
Delaware, 18-G, Chicago, Illinois 60611 ("Pledgor"), and MANUFACTURED HOME
COMMUNITIES, INC., a Maryland corporation ("Pledgee").
RECITALS
A. Pursuant to the terms of that certain Secured Promissory Note
dated as of the date hereof (the "Note") by and between Pledgor and Pledgee,
Pledgee made a loan in the total of $__________ to Pledgor pursuant to the Note.
B. Pledgor owns __________ shares of the issued and outstanding
capital stock of Pledgee.
C. Pledgor wishes to grant security and assurances to Pledgee in
order to secure the payment and performance of its liabilities under the Note
and to that effect to pledge all of the _________ shares of capital stock of
Pledgee owned by the Pledgor (the "Pledged Shares").
D. It is a condition to the making of the loan by the Pledgee that
this Pledge Agreement be delivered by Pledgor to Pledgee.
E. In consideration of the premises and in order to induce Pledgee
to make the loan, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, Pledgor hereby agrees with Pledgee as follows:
1. Pledges. Pledgor hereby pledges, assigns, hypothecates, transfers
and delivers to Pledgee and grants to Pledgee, a lien on and security interest
in all of the Pledged Shares presently owned and in all proceeds thereof, as
collateral security for the prompt and complete payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
liabilities under, arising out of or in connection with the Note, this Pledge
Agreement and the financing agreements executed by Pledgor (all of the foregoing
being referred to hereinafter as the "Liabilities"). All of the capital stock
of the Pledgee owned by the Pledgor is presently represented by the stock
certificates described on Exhibit A, which stock certificates, with undated
stock powers duly executed by Pledgor, are being delivered to Pledgee or
Pledgee's agent simultaneously herewith. For the duration of this Agreement, the
Pledgee or its agent shall maintain possession and custody of the certificates
representing the Pledged Shares, which certificate shall bear a legend noted
conspicuously on the face or back of such certificate stating that future
payments are required to be made in payment of such Pledged Shares.
2. Inducing Representations of Pledgor. Pledgor represents and
warrants to Pledgee that:
(a) Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Shares, and such shares are and will remain
free and clear of all pledges, liens, security interests and other encumbrances
and restrictions whatsoever, except the lien and security interest created by
this Pledge Agreement;
(b) Pledgor has full power, authority and legal right to execute
this Pledge Agreement and to pledge the Pledged Shares;
2
(c) This Pledge Agreement has been duly executed and delivered by
Pledgor and constitutes a legal, valid and binding obligation of Pledgor
enforceable in accordance with its terms;
(d) There are no outstanding options, warrants or agreements with
respect to the Pledged Shares;
(e) To the knowledge of Pledgor, the Pledged Shares have been duly
and validly issued by the Company and are fully paid and nonassessable;
(f) Exhibit A sets forth a true and complete description of the
Pledged Shares;
(g) No consent, approval or authorization of or designation or
filing with any authority on the part of Pledgor is required in connection with
the pledge and security interest granted under this Agreement; and
(h) The pledge, assignment and delivery of the Pledged Shares
pursuant to this Pledge Agreement creates a valid lien on and a perfected
security interest in such Pledged Shares and the proceeds thereof in favor of
Pledgee, subject to no prior pledge, lien, hypothecation, security interest,
charge, option or encumbrance or to any agreement purporting to grant to any
third party a security interest in the property or assets of Pledgor which would
include such Pledged Shares. Pledgor covenants and agrees that it will defend
Pledgee's right, title and security interest in and to such Pledged Shares and
the proceeds thereof against the claims and demands of all persons whomsoever.
3. Stock Dividends, Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor shall become entitled to receive or shall
receive any stock certificate (including, without limitation, any certificate
representing a stock dividend or a stock distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization) option or rights, whether as an addition to, in substitution
for, or in exchange for any of the Pledged Shares, or otherwise relating to the
Pledged Shares, Pledgor agrees to accept the same as Pledgee's agent and to hold
the same in trust for Pledgee and to deliver the same forthwith to Pledgee or
its agent in the exact form received, with the endorsement of Pledgor and, when
necessary or appropriate, undated stock powers duly executed in blank, to be
held by Pledgee or its agent, subject to the terms hereof, as additional
collateral security for the Liabilities and any such additional certificates
shall constitute and be considered Pledged Shares. In case any distribution of
capital stock shall be made on or in respect of any of the Pledged Shares or any
property shall be distributed upon or with respect to any of the Pledged Shares
pursuant to the recapitalization or reclassification of the capital of the
issuer thereof or pursuant to the reorganization thereof, the property so
distributed shall be delivered to Pledgee or its agent by Pledgor to be held by
Pledgee or its agent as additional collateral security for the Liabilities.
4. Administration of Security. The following provisions shall govern
the administration of the Pledged Shares:
(a) So long as no "Event of Default" (which for purposes of this
Agreement shall mean an event of default under the Note or this Pledge
Agreement) has occurred, Pledgor shall be entitled to vote or consent with
respect to the Pledged Shares owned by Pledgor in any manner not inconsistent
with this Agreement, or the Note, or any other document or instrument delivered
or to be delivered pursuant to or in connection with the Note
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3
or this Pledge Agreement. Pledgor hereby grants to Pledgee an irrevocable proxy
to vote the Pledged Shares owned by Pledgor, which proxy shall be effective
immediately upon the occurrence of an Event of Default. After the occurrence of
an Event of Default and upon request of Pledgee, Pledgor agrees to deliver to
Pledgee such further evidence of such irrevocable proxy or such further
irrevocable proxies to vote the Pledged Shares owned by Pledgor as Pledgee may
request.
(b) Upon the occurrence an Event of Default and at any time
thereafter, in the event that Pledgor, as record and beneficial owner of the
Pledged Shares owned by Pledgor, shall have received or shall have become
entitled to receive, any cash dividends or other distributions, Pledgor shall
deliver to Pledgee and Pledgee shall be entitled to receive and retain all such
cash or other distributions as additional security for the Liabilities.
(c) Subject to any sale or other disposition by Pledgee of the
Pledged Shares or other property upon the occurrence of and at time after an
Event of Default hereunder pursuant to this Pledge Agreement, the Pledged Shares
owned by Pledgor and any other property then held as part of such Pledged Shares
in accordance with the provisions of this Pledge Agreement shall be returned to
Pledgor upon full payment, satisfaction and termination of all of the
Liabilities and the termination of the lien and security interest hereby granted
pursuant to paragraph 10 hereof.
5. Rights of Pledgee. Pledgee shall not be liable for failure to
collect or realize upon the Liabilities, or any part thereof, or for any delay
in so doing, nor shall it be under any obligation to take any action whatsoever
with regard thereto. Any or all of the Pledged Shares held by Pledgee or its
agent hereunder may, if an Event of Default has occurred, without notice, be
registered in the name of Pledgee or its nominee, and Pledgee or its nominee may
thereafter without notice exercise all voting and corporate rights and exercise
any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Shares as if it were the
absolute owner thereof, including, without limitation, the right to exchange at
its discretion, any and all of the Pledged Shares upon the merger,
consolidation, reorganization, recapitalization or other readjustment or upon
the exercise by Pledgee of any right, privilege or option pertaining to any of
the Pledged Shares, and in connection therewith, to deposit and deliver any and
all of the Pledged Shares with any committee, depositary, transfer agent,
registrar or to another designated agency upon such terms and conditions as
Pledgee may determine, all without liability except to account for property
actually received by Pledgee, but Pledgee shall have no duty to exercise any of
the aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.
6. Remedies. In the event that all or any portion of the Liabilities
have been declared due and payable, Pledgee, without demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon Pledgor or any
other person (all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Pledged Shares, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver said Pledged Shares, or any part thereof, in one or more
portions at public or private sale or sales or dispositions, at any exchange,
broker's board or at any of Pledgee's offices or elsewhere upon such terms and
conditions as Pledgee may deem advisable and at such prices as Pledgee may deem
best, for any combination of cash or on credit or for future delivery without
assumption of any credit risk, with the right to Pledgee upon any such sale or
sales or dispositions, public or private, to purchase the whole or any part of
said Pledged Shares so sold, free of any right or equity of redemption in any
Pledgor, which right or equity
3
4
is hereby expressly waived or released. Pledgee shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all costs and expenses of every kind incurred therein or
incidental to the safekeeping or otherwise of any and all of the Pledged Shares
or in any way relating to the rights of Pledgee hereunder, including attorney's
fees and legal expenses, to the payment, in whole or in part, of the Liabilities
pursuant to this Pledge Agreement in such order as Pledgee may elect, and only
after so paying over such net proceeds and after the payment by Pledgee of any
other amount required by any provision of law, including, without limitation,
Section 9-504(1)(c) of the Uniform Commercial Code, need Pledgee account for the
surplus, if any, to Pledgor. Pledgor agrees that Pledgee need not give more than
ten days' notice of the time and place of any public sale or of the time after
which a private sale or other intended disposition is to take place and that
such notice is reasonable notification of such matters. No notification need be
given to Pledgor if Pledgor, after default, has signed a statement renouncing or
modifying any right to notification of sale or other intended disposition. In
addition to the rights and remedies granted to Pledgee in this Agreement and in
any other instrument or agreement securing, evidencing or relating to any of the
Liabilities, Pledgee shall have all the rights and remedies of a secured party
under the Uniform Commercial Code of the State of Illinois. Pledgor further
agrees to waive and agrees not to assert any rights or privileges which Pledgor
may acquire under Section 9-112 of the Uniform Commercial Code. Pledgor shall
remain liable for the deficiency if the proceeds of any sale or other
disposition of the Pledged Shares are insufficient to pay all amounts to which
Pledgee is entitled.
7. No Disposition, etc. Without the prior written consent of
Pledgee, Pledgor agrees that Pledgor will not sell, assign, transfer, exchange,
or otherwise dispose of, or grant any option with respect to, the Pledged
Shares, nor will Pledgor create, incur or permit to exist any pledge, lien,
mortgage, hypothecation, security interest, charge, option or any other
encumbrance with respect to any of the Pledged Shares, or any interest therein,
or any proceeds thereof, except for the lien and security interest provided for
by this Pledge Agreement. Without the prior written consent of Pledgee, Pledgor
agrees that Pledgor will not vote to enable the Pledgee to, and will not
otherwise permit the Pledgee to, issue any stock or other securities of any
nature in addition to or in exchange or substitution for any of the Pledged
Shares.
8. Sale of Pledged Shares.
(a) Pledgor recognizes that Pledgee may be unable to effect
a public sale or disposition of any or all the Pledged Shares by reason of
certain prohibitions contained in the Securities Act of 1933, as amended (the
"Act"), and applicable state securities laws, (Pledgee agreeing that to the
extent a public market exists it will use reasonable efforts to cause a public
sale of the Pledged Shares) but may be compelled to resort to one or more
private sales or dispositions thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges and agrees that any such private sale or
disposition may result in prices and other terms (including the terms of any
securities or other property received in connection therewith) less favorable to
the seller than if such sale or disposition were a public sale or disposition
and, notwithstanding such circumstances, agrees that any such private sale or
disposition shall be deemed to have been made in a commercially reasonable
manner. Pledgee shall be under no obligation to delay a sale or disposition of
any of the Pledged Shares to permit the registration of such securities (or
trust certificates representing such securities) for public sale under the Act,
or under applicable state securities laws, even if the Company would agree to do
so.
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5
(b) Pledgor further agrees to do or cause to be done all such
other acts and things as may be necessary to make such sale or sales or
dispositions of any portion or all of the Pledged Shares valid and binding and
in compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales or dispositions, all at Pledgor's expense. Pledgor
further agrees that a breach of any of the covenants contained in this paragraph
8 will cause irreparable injury to Pledgee, that Pledgee has no adequate remedy
at law in respect of such breach and, as a consequence, agrees that each and
every covenant contained in this paragraph shall be specifically enforceable
against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred hereunder.
9. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of Pledgee, Pledgor will execute and deliver
such further documents and do such further acts and things as Pledgee may
reasonably request consistent with the provisions hereof in order to effect the
purposes of this Agreement.
10. Termination. This Pledge Agreement and the lien and security
interest granted hereunder shall terminate upon full and complete performance
and satisfaction of the Liabilities.
11. Pledgee's Duty of Care. Pledgee shall have no duty with respect to
the Pledged Shares other than the duty to use reasonable care in the safe
custody of the Pledged Shares in Pledgee's possession. Without limiting the
generality of the foregoing, Pledgee shall be under no obligation to take any
steps necessary to preserve rights in any of the Pledged Shares against any
other parties but may do so at Pledgee's option. Pledgor will indemnify and
hold Pledgee harmless from all costs and expenses incurred by Pledgee in
connection with the Pledged Shares and this Agreement.
12. Miscellaneous.
(a) Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(b) No Waiver. Pledgee shall not by any act, delay, omission or
otherwise be deemed to have waived any of its rights or remedies hereunder and
no waiver by Pledgee shall be valid unless in writing, signed by Pledgee, and
then only to the extent therein set forth. A waiver by Pledgee of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which Pledgee would otherwise have on any further occasion. No
failure to exercise, nor any delay in exercising on the part of Pledgee any
right, power or privilege hereunder, shall operate as a wavier thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
(c) Cumulative Remedies. The rights and remedies herein provided
are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies provided by law.
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6
(d) Successors. This Agreement and all obligations of Pledgor
hereunder shall be binding upon the successors and assigns of Pledgor, and
shall, together with the rights and remedies of Pledgee hereunder inure to the
benefit of Pledgee and its successors and assigns.
(e) Governing Law. This Agreement shall be governed by, and be
construed and interpreted in accordance with, the internal laws (as opposed to
conflicts of law provisions) of the State of Illinois.
(f) Notices. Any notices, request or other communication required
or desired to be served, given or delivered under this Agreement shall be in
writing and shall be deemed to have been validly served, given or delivered
three (3) days after deposit in the United States mails, registered or certified
mail, with proper postage prepaid and addressed to the party to be notified as
follows:
IF TO PLEDGOR:
WITH A COPY TO:
Ellen Kelleher
Senior Vice President and General Counsel
Manufactured Home Communities
Two North Riverside Plaza
Suite 800
Chicago, Illinois 60606
IF TO PLEDGEE:
Manufactured Home Communities, Inc.
Two North Riverside Plaza
Suite 800
Chicago, Illinois 60606
Attention: Chairman and Chief Executive Officer
WITH A COPY TO:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza
Suite 1601
Chicago, Illinois 60606
Attention: Sheli Z. Rosenberg, Esq.
Or to such other address as either party may hereafter designate for itself by
written notice to the other party in the manner herein prescribed.
(g) Section Headings. The section headings in this Agreement are
for convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions of this Agreement.
(h) Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one Agreement.
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7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the date first above written.
PLEDGOR:
_________________________________
PLEDGEE:
MANUFACTURED HOME COMMUNITIES, INC.,
A MARYLAND CORPORATION
By: ____________________________
Its: ____________________________
8
EXHIBIT A
TO FORM OF PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED SHARES
Class of Number of
Pledged Pledged Certificate Date of
Pledgor Shares Shares Numbers Issuance
------- -------- --------- ----------- --------
5
0000895417
MANUFACTURED HOME COMMUNITIES, INC.
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
4,804
0
871
0
0
38,711
565,540
(60,036)
544,215
25,585
229,541
0
0
247
259,738
544,215
24,764
25,469
0
10,091
971
0
4,194
6,557
0
5,907
0
0
0
5,907
.24
.24
