<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-65057
MPI
Meadows Preservation, Inc.
Rescission Offer
Offer to Refund $802,000 Of Pre-formation Advances
or
Offer To Convert Pre-Formation Advances Into
An Aggregate of 802 Shares of MPI Common Stock
We are making this offering only to those owners of manufactured or mobile
homes who lease lots located in The Meadows Mobile Home Park at 2555 PGA
Boulevard, Palm Beach Gardens, Florida and who previously advanced money to our
predecessor and who have not been refunded such advances.
We are your homeowners' association for purposes of the Florida Mobile Home
Act. We are a for-profit corporation which has succeeded by mergers to the not-
for-profit homeowners' association to which homeowners advanced a total of
$802,000, exclusive of $65,000 previously refunded and $6,000 converted into six
shares of MPI common stock.
Instead of accepting this refund, you can choose to have the money you
advanced converted into shares of common stock of MPI, with each $1,000 you
advanced converted into one share.
Converting your advance into common stock involves certain risks. See
"RISK FACTORS" beginning on page 10.
Whether you choose to accept the refund or to convert your advance into
shares of common stock, you will receive a payment of interest on the money you
advanced at the rate of 10 percent per annum from December 16, 1997 until
March 19, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The officers and directors of MPI are making this offering to refund your
advance or to convert your advance into common stock. They will not be paid for
their efforts.
Prospectus dated February 12, 1999
<PAGE>
MPI
Meadows Preservation, Inc.
2,347 Shares of Common Stock
$1,000 per share
We are making this offering only to the owners of manufactured or mobile
homes who lease lots located in The Meadows Mobile Home Park at 2555 PGA
Boulevard Palm Beach Gardens, Florida. The 2,347 shares offered include an
aggregate, of 802 shares being offered to those homeowners who have previously
advanced an aggregate of $802,000 to MPI's predecessor, exclusive of $65,000
previously refunded and $6,000 converted into six shares of common stock of
MPI.
We are your homeowners' association for purposes of the Florida Mobile Home
Act. We are a general partner in a general partnership that will operate your
mobile home park after this offering. No public market exists for shares of
common stock of MPI and none will exist after this offering. This offer ends on
March 19, 1999.
Purchasing these shares of common stock involves certain risks. See "RISK
FACTORS" beginning on page 10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
Minimum Maximum
------- -------
<S> <C> <C> <C>
Offering Price to the Meadows Homeowners.... $1,000 0 $2,347,000
Underwriting discounts...................... 0 0 0
Proceeds to MPI............................. $1,000 0 $2,347,000
</TABLE>
MPI is offering these shares to the Meadows Homeowners in Florida through
Coastal Financial Security, Inc., a Florida registered broker-dealer acting as
agent for MPI. Coastal Financial Security, Inc. is under no obligation to sell
any of these shares. Coastal Financial Security, Inc. will not act as agent for
any shares offered or sold outside of the State of Florida; an officer of MPI
will offer and sell such shares. For its assistance in acting as agent for MPI,
Coastal Financial Security, Inc. will receive a fee equal to the greater of:
(a) 1% of the proceeds of all shares sold in this offering, including those
shares sold upon conversion of advances into shares of common stock pursuant to
the rescission offer, or (b) $8,800.
Prospectus dated February 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS SUMMARIZING THIS PROSPECTUS...................................... 1
RISK FACTORS........................................................................... 10
EVENTS LEADING TO THIS OFFERING........................................................ 17
THE RESCISSION OFFER................................................................... 20
THE OFFER.............................................................................. 25
USE OF PROCEEDS........................................................................ 25
CAPITALIZATION......................................................................... 27
DIVIDEND POLICY........................................................................ 28
DESCRIPTION OF BUSINESS................................................................ 28
DESCRIPTION OF PROPERTY................................................................ 31
LEGAL PROCEEDINGS...................................................................... 33
SUMMARY OF THE PARTNERSHIP AGREEMENT................................................... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 47
MANAGEMENT............................................................................. 49
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.............................. 53
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS................................ 54
DESCRIPTION OF SECURITIES.............................................................. 65
PLAN OF DISTRIBUTION OF MPI COMMON SHARES.............................................. 67
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.... 69
LEGAL MATTERS.......................................................................... 69
EXPERTS................................................................................ 69
ADDITIONAL INFORMATION................................................................. 69
GLOSSARY............................................................................... 70
FINANCIAL STATEMENTS................................................................... F-1
</TABLE>
i
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QUESTIONS AND ANSWERS SUMMARIZING THIS PROSPECTUS
THESE QUESTIONS AND ANSWERS SUMMARIZE AND HIGHLIGHT SELECTED INFORMATION
FROM THIS PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND WHAT OWNERSHIP OF MPI COMMON SHARES MEANS AND
FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS INVOLVED, YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY. CAPITALIZED TERMS USED IN THIS PROSPECTUS ARE MORE
FULLY DEFINED IN THE GLOSSARY ON PAGE 70.
Q-1. WHAT IS MPI?
A-1. MPI is Meadows Preservation, Inc., a for-profit, stock corporation
organized under the laws of Florida. Its offices are located at 2555 PGA
Boulevard, Palm Beach Gardens, Florida 33410. Its telephone number is (561)
626-0888. MPI is the successor, by mergers, to Meadows Preservation Inc., a
Florida non-stock, non-profit membership corporation. It is both the owner of
The Meadows Mobile Home Park, 2555 PGA Boulevard, Palm Beach Gardens, Florida,
and the homeowners' association for the Park for purposes of the Florida Mobile
Home Act. All of the funds needed to purchase the Park were loaned by an
affiliate of Blue Ribbon Communities Limited Partnership ("BRC"). MPI is
---
committed to contributing the beneficial interest in the Park and all proceeds
of this offering to a general partnership formed by MPI and BRC to operate the
Park.
Q-2. WHAT IS THE PARK?
A-2. The Park is The Meadows Mobile Home Park, which comprises fifty-five acres
of land currently used as a mobile home park, located at 2555 PGA Boulevard,
Palm Beach Gardens, Florida, 33410.
Q-3. WHO ARE THE MEADOWS HOMEOWNERS?
A-3. The Meadows Homeowners are the owners of manufactured or mobile homes who
lease lots located in the Park.
Q-4. WHY WAS MPI ORGANIZED?
A-4. MPI's predecessor, Meadows Preservation, Inc., a non-stock, not-for-
profit, membership corporation ("MPI-1") was organized under the laws of Florida
-----
to be the homeowners' association for the Park. All Meadows Homeowners were
eligible to become members and any Meadows Homeowner who consented in writing to
become a member and paid $1.00 for a membership certificate automatically became
a member. As a non-stock, not-for-profit membership corporation, MPI-1 was
unable to offer stock to its members, the Meadows Homeowners. MPI was organized
as a for-profit, stock corporation in order to permit the members of MPI-1 to
become shareholders. MPI-1 then merged into MPI through a series of mergers.
Q-5. WHAT IS MPI'S PURPOSE?
A-5. MPI is the homeowners' association for purposes of the Florida Mobile Home
Act and is one of two general partners in the Partnership. MPI will transfer
the Beneficial Interest in the Park to the Partnership but will continue to own
the
1
<PAGE>
record title to the Park and will operate the Park through the Partnership.
Q-6. WHAT IS THE PARTNERSHIP?
A-6. The Partnership is The Meadows Resort Partnership, a general partnership
formed by agreement between MPI and BRC (the "Partnership Agreement"). The
---------------------
Partnership will own 100% of the Beneficial Interest in the Park and operate the
Park following this offering. Interests in the Partnership initially will be
comprised of 4,708 partnership units, which are fractional shares of an
ownership interest in the Partnership.
Q-7. WHAT DOES IT MEAN TO OWN THE BENEFICIAL INTEREST IN THE PARK?
A-7. The Beneficial Interest is the economic benefit arising from ownership of
real estate, as distinguished from the "record interest," or "legal title" to
property. MPI, as successor to MPI-1, currently owns both the "Beneficial" and
"record" interests in the Park. MPI has agreed to contribute all of the funds
raised in this offering and the Beneficial Interest in the Park to the
Partnership, but will continue to be the record owner of the Park. As the
record owner, MPI will own the record interest to the Park, but all rights with
respect to the Park, such as the right to collect rent from tenants and the
right to the proceeds from any sale of the Park, will belong to the Partnership.
The Partnership will be treated as owner of the Park for Federal income tax
purposes.
Q-8. HOW MANY PARTNERSHIP UNITS WILL MPI OWN?
A-8. Upon formation of the Partnership, MPI and BRC each agreed to contribute
$1,000 to the Partnership for which they will receive one partnership unit. MPI
will also contribute to the Partnership all of the proceeds of this offering,
and the $7,000 previously received by MPI in the sale of seven MPI common shares
to the directors of MPI, in exchange for partnership units. The partnership
units will be divided between MPI and BRC, but the number of partnership units
to be issued to MPI will not exceed 50 percent of all of the partnership units
and the number of partnership units to be issued to BRC will not be less than 50
percent of all of the partnership units. The maximum number of partnership
units that may initially be issued will not exceed 4,708. Accordingly, the
maximum number of partnership units that may initially be issued to MPI will not
exceed 2,354 and the minimum number of partnership units that may initially be
issued to BRC will not be less than 2,354. MPI will contribute to the
Partnership all of the proceeds of this offering. The number of partnership
units that will be issued by the Partnership to MPI will equal the total amount
contributed by MPI to the Partnership (which will not exceed $2,354,000),
divided by $1,000.
Q-9. WHO ELSE WILL OWN PARTNERSHIP UNITS?
A-9. BRC. MPI and BRC are the only partners in the Partnership. BRC will
purchase all partnership units not purchased by MPI.
Q-10. WHAT RIGHTS AND OBLIGATIONS DOES MPI HAVE AS A GENERAL PARTNER OF THE
PARTNERSHIP?
A-10. As a general partner of the Partnership, MPI has the right to share in
any profits of the Partnership and, unless any creditors of the Partnership
agree
2
<PAGE>
otherwise, is liable for the debts and other obligations of the Partnership.
Q-11. WHAT WILL MPI PAY FOR ITS PARTNERSHIP UNITS?
A-11. MPI will contribute all of the proceeds of the offering, and $7,000 MPI
received from the sale of seven MPI common shares to the directors of MPI, to
the Partnership in return for partnership units, as described in the answer to
Question 8, at the rate of $1,000 for each partnership unit.
Q-12. WHAT WILL BRC PAY FOR ITS PARTNERSHIP UNITS?
A-12. BRC will contribute $1,000 for each partnership unit it acquires from the
Partnership. In addition, BRC will contribute $2,256,000 to the Partnership for
which BRC may in the future receive additional partnership units if lots in the
Park that are unoccupied as of the date of the Partnership Agreement are leased
to tenants. Some or all of these additional partnership units issued to BRC may
be sold to MPI. (See "SUMMARY OF THE PARTNERSHIP AGREEMENT -- Unoccupied Lots -
- - Issuance of Additional Partnership Units to BRC.") To the extent that BRC
does not receive additional partnership units on account of this $2,256,000
contribution, BRC will have a priority right to receive that portion of this
contribution for which it did not receive additional partnership units, without
interest, out of Partnership distributions of net capital proceeds or upon
liquidation of the Partnership.
BRC has also agreed to contribute an additional $200,000 to pay for the
cost of certain capital improvements to the Park. BRC will not be issued
additional partnership units on account of this additional contribution but this
amount will be credited to BRC's partnership capital account. In addition, BRC
will pay $100,000 to MPI, a portion of which shall be applied by MPI to pay
interest to Meadows Homeowners who advanced funds to MPI-1.
Q-13. WHO WILL MANAGE THE PARK?
A-13. MHC Management Limited Partnership ("MHC Management"), a limited
--------------
partnership that, like BRC, is owned by MHC and its affiliates, currently
manages the Park for MPI. Upon MPI's contribution of the Beneficial Interest in
the Park to the Partnership, MHC Management will continue to manage the Park.
Q-14. WHAT FEES WILL BE PAID TO BRC AND/OR ITS AFFILIATES FOR SERVICES IN
ACQUIRING AND MANAGING THE PARK?
A-14. The management agreement to be entered into between the parties will
provide that the Partnership will pay MHC Management a management fee of four
percent of gross revenues from the Park. Based on gross annual revenues of
approximately $1.4 million (299 lots rented at a current average annual rent of
$4,704 per lot), the management fee will initially amount to approximately
$56,000 per year. The Partnership will pay BRC or one of its affiliates a fee of
one percent of the gross revenues from the Park for any period of time that
neither BRC nor any of its affiliates is employed as the manager of the Park. At
the current occupancy and rental rates, such fee would equal approximately
$14,000 per year. Also, the Partnership will pay BRC or one of its affiliates a
one-time placement fee of $120,000 and will reimburse BRC and its affiliates for
all legal fees and expenses paid by BRC in connection with or relating to this
offering,
3
<PAGE>
including the fee to Coastal Financial Security, Inc. for acting as sales agent
in this offering, the MPI-1 corporate restructuring, the acquisition and
financing of the Park, the structuring and documentation of the Partnership and
the Penn Florida Realty LP lawsuit referred to on page 33. These fees and
expenses are estimated to total approximately $468,000. MPI will also pay
interest under the loan MPI received from BRC's affiliate to purchase the Park,
to the extent of the cash available to MPI from the net operating income of the
Park through the date MPI transfers the Beneficial Interest in the Park to the
Partnership. The Partnership will pay to BRC's affiliate any balance in such
interest remaining after MPI pays such amount. As of September 30, 1998, this
balance in interest amounted to approximately $100,000.
Q-15. HOW WILL PROFITS, LOSSES AND CASH DISTRIBUTIONS OF THE PARTNERSHIP BE
SHARED BY MPI AND BRC?
A-15. Generally, profits earned and losses incurred by the Partnership in
owning and operating the Park will be shared by MPI and BRC in proportion to the
number of partnership units owned by each of them. If all 2,347 of the MPI
common shares offered by this Prospectus are sold, BRC and MPI will each own
approximately 50 percent of the partnership units. If MPI sells fewer than
2,347 of the MPI common shares in this offering, it will have less to contribute
to the Partnership and will receive fewer partnership units. For example,
assume MPI sells only 750 MPI common shares, including the seven MPI common
shares already outstanding. Since each $1,000 contributed to the Partnership by
MPI, including the $7,000 received by MPI from the sale of the seven MPI common
shares already outstanding, will give it initially a 1/4708 percentage interest
in the Partnership, $750,000 invested in the Partnership will initially result
in 750/4708 or approximately a 16 percent interest in the Partnership and 16
percent of the profits and losses of the Partnership. Cash distributions from
operations, if any, from the Partnership will also be made to the partners in
accordance with each partner's percentage interest.
QUESTIONS 16 THROUGH 22 RELATE TO THOSE MEADOWS HOMEOWNERS WHO ADVANCED AN
AGGREGATE OF $802,000 TO MPI-1, EXCLUSIVE OF $65,000 PREVIOUSLY REFUNDED AND
$6,000 CONVERTED TO MPI COMMON SHARES.
Q-16. WHAT HAPPENED TO THE MONEY I ADVANCED TO MPI-1?
A-16. Between December 1, 1997 and December 16, 1997, some of the Meadows
Homeowners advanced an aggregate of $802,000 to MPI-1, exclusive of $65,000
refunded at the request of some of the advancing homeowners and $6,000 converted
into MPI common shares, in order to assist in purchasing the Park. These
advances were placed into an interest-bearing bank account at NationsBank.
Q-17. WHAT IS THE RESCISSION OFFER?
A-17. The Rescission Offer is an offer by MPI to return all advances to the
Meadows Homeowners who made such advances to MPI-1 (and who have not already
received a refund) . If you advanced funds, you will be refunded your advance
unless you reject the Rescission Offer and elect to convert your advance into
MPI common shares in accordance with this Prospectus.
Q-18. WHY IS MPI OFFERING TO RETURN THE MONEY I ADVANCED TO MPI-1?
A-18. Your advance was obtained without registration under the Securities Act
of 1933 or the securities laws of any state. The receipt of advances by MPI-1
may have inadvertently violated the registration and antifraud provisions of the
Federal and state securities laws. The possible existence of these violations
has prompted the making of the Rescission Offer. It is the position of MPI that
whether you reject the Rescission
4
<PAGE>
Offer and elect to receive MPI common shares or your advance is returned to you
with interest, you will no longer be able to assert a claim against MPI relating
to any advance made by you to MPI-1. (See "THE RESCISSION OFFER -- Reason For
the Rescission Offer").
Q-19. WHAT HAPPENS IF I ACCEPT THE RESCISSION OFFER?
A-19. If you accept the Rescission Offer, MPI will refund your advance to you
out of its interest-bearing bank account at NationsBank, with interest at the
rate of 10 percent per annum, the legal rate of interest in Florida, from
December 16, 1997 until March 19, 1999. You will not be issued any MPI common
shares on account of your advance.
Q-20. HOW DO I ACCEPT THE RESCISSION OFFER AND RECEIVE A REFUND OF MY ADVANCE?
A-20. To accept the Rescission Offer, you need do nothing. You will
automatically be deemed to have accepted the Rescission Offer unless you
affirmatively reject it.
Q-21. WHAT HAPPENS IF I DON'T RESPOND TO THE RESCISSION OFFER?
A-21. If you do not respond to the Rescission Offer, you will automatically be
deemed to have accepted the Rescission Offer and MPI will refund the entire
amount of your advance, together with interest at the rate of 10 percent per
annum as provided above.
Q-22. HOW DO I REJECT MPI'S RESCISSION OFFER AND CONVERT MY ADVANCE INTO MPI
COMMON SHARES?
A-22. If you decide to use the advance you previously made to buy MPI common
shares, you must affirmatively reject the Rescission Offer. To reject the
Rescission Offer, you must complete and sign the Subscription Agreement enclosed
with this Prospectus, and send it to MPI at 2555 PGA Boulevard, Palm Beach
Gardens, FL 33410, so that it is received by March 19, 1999. If this
Subscription Agreement is received by MPI by March 19, 1999, MPI will convert
your advance into a number of MPI common shares equal to the total amount of
your advance, divided by $1,000, and will issue that number of MPI common shares
to you. In addition, you will receive interest on your advance at the rate of 10
percent per annum from December 16, 1997 until March 19, 1999.
Q-23. WHO CAN BUY THE MPI COMMON SHARES OFFERED BY THIS PROSPECTUS?
A-23. Only Meadows Homeowners are eligible to buy the MPI common shares
offered by this Prospectus (the "Offer").
-----
Q-24. WHAT IS THE COST OF AN MPI COMMON SHARE?
A-24. In this Offer, each MPI common share costs $1,000.
Q-25. HOW MANY MPI COMMON SHARES CAN I BUY?
A-25. You may purchase as many MPI common shares as you like. However, if
the Meadows Homeowners collectively subscribe (either by rejecting the
Rescission Offer or by subscribing for MPI common shares pursuant to this
Prospectus) for more than 2,347 MPI common shares, each Meadows Homeowner who
subscribes for MPI common shares will receive a
5
<PAGE>
proportionately reduced number of MPI common shares and a refund of the extra
purchase price paid. For example, if you subscribe for 8 MPI common shares at a
cost of $8,000 and the Meadows Homeowners collectively subscribe for 2600 MPI
common shares, including the seven MPI common shares already outstanding, you
will receive 8 x 2,354/2,600 = 7.24 or 7 MPI common shares (rounding to the
nearest whole number), plus a refund of $1,000.
Q-26. CAN I BUY MPI COMMON SHARES IF I DIDN'T ADVANCE ANY MONEY TO MPI-1?
A-26. Yes, if you are the owner of a manufactured or mobile home who leases a
lot located in the Park, you are a Meadows Homeowner and are eligible to
purchase MPI common shares, regardless of whether you advanced funds to MPI-1.
Q-27. HOW DO I PURCHASE MPI COMMON SHARES?
A-27. If you advanced funds to MPI-1 and wish to apply those funds to the
purchase of MPI common shares, you must complete and sign the Subscription
Agreement enclosed with this Prospectus and send it to MPI at 2555 PGA
Boulevard, Palm Beach Gardens, FL 33410. MPI MUST RECEIVE YOUR SIGNED
SUBSCRIPTION AGREEMENT BY MARCH 19, 1999. To purchase additional MPI common
shares or, if you have not advanced funds, to purchase MPI common shares, you
must complete the Subscription Agreement to indicate the total number of MPI
common shares you wish to purchase. You must then sign the Subscription
Agreement and send it, together with payment of $1,000 for each MPI common share
that you want to purchase, to MPI at 2555 PGA Boulevard, Palm Beach Gardens, FL
33410. The Offer expires on March 19, 1999. MPI must receive your signed
Subscription Agreement and payment of the purchase price, where applicable, by
March 19, 1999.
Q-28. WHAT ON-GOING PAYMENT(S) WILL I BE OBLIGATED TO MAKE AS AN MPI COMMON
SHAREHOLDER?
A-28. Once you have converted your advance and/or paid your purchase price for
any MPI common shares, you will not have to make any other payments to MPI.
Q-29. WHAT WILL I OWN IF I PURCHASE MPI COMMON SHARES?
A-29. You will own an interest in MPI, which is a general partner of the
Partnership. As the owner of MPI common shares, you will indirectly own an
interest in the Partnership. MPI will contribute the purchase price of each MPI
common share sold pursuant to this offer to the Partnership and, in exchange,
receive one partnership unit for each MPI common share sold. Initially, a
partnership unit will represent a 1/4708 share of ownership in the Partnership.
Because the Partnership will own the Beneficial Interest in the Park, owning MPI
common shares will result in owning an indirect ownership interest in the Park.
Q-30. CAN MY INTEREST IN THE PARTNERSHIP AND IN THE PARK CHANGE?
A-30. Yes. Because additional partnership units may be issued by the
Partnership and also because the number of MPI common shares issued to the
Meadows Homeowners may change, your indirect share of ownership in the
Partnership and in the Park may increase or decrease.
6
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Q-31. ARE THERE ANY RISKS INVOLVED WITH PURCHASING MPI COMMON SHARES?
A-31. There are a number of risks associated with the purchase of MPI common
shares. You should carefully read the "RISK FACTORS" commencing on page 10
for a description of these risks.
Q-32. HOW MANY MPI COMMON SHARES ARE FOR SALE?
A-32. MPI is offering to sell a maximum of 2,347 MPI common shares. This means
that after this offering, the Meadows Homeowners can own in the aggregate no
more than 2,354 MPI common shares since there currently are seven MPI common
shares outstanding.
Q-33. WHAT PRICE WAS PAID FOR THE MPI COMMON SHARES CURRENTLY OUTSTANDING?
A-33. The purchasers paid $1,000 per share for these shares (one share was
issued in exchange for a share of Class A common stock of MPI Three, Inc. which
had been issued for $1,000).
Q-34. WHAT WILL MPI DO WITH THE MONEY IT RECEIVES FROM THE SALE OF MPI COMMON
SHARES?
A-34. MPI will contribute the total proceeds from the sale of MPI common shares
received in this offering to the Partnership in exchange for partnership
units.
Q-35. WILL I RECEIVE ANY RETURN ON ANY MPI COMMON SHARES THAT I PURCHASE?
A-35. Returns cannot be guaranteed. To the extent that MPI receives
distributions from the Partnership and, after paying its expenses and taxes,
elects to distribute any excess cash flow to MPI common shareholders, you will
receive a return on your investment. There can, of course, be no assurance that
the Partnership will be profitable or that it will be able to make distributions
to MPI and BRC. Even if it does make distributions to MPI and BRC, there can be
no assurance that MPI will make distributions to MPI common shareholders after
it pays its expenses and applicable taxes, or, if it does make distributions,
that such distributions will be in any particular amount.
Q-36. WHAT ARE MY RIGHTS AS AN MPI COMMON SHAREHOLDER?
A-36. As an MPI common shareholder, you will have one vote for each MPI common
share you own. MPI's Articles of Incorporation also authorize MPI to issue MPI
preferred stock. Only Meadows Homeowners may own MPI preferred stock. and only
one share of MPI preferred stock may be issued per lot occupied in the Park.
Former members of MPI-1 automatically were issued one share of MPI preferred
stock in MPI's corporate reorganization. The MPI common shareholders will vote
with the MPI preferred shareholders, who have one-fortieth of a vote for each
share of preferred stock they own. The MPI common and preferred shareholders
voting as a group have the right to elect MPI's Board of Directors and to vote
on all other issues submitted to the MPI shareholders by MPI's Board of
Directors. The MPI common shareholders have the right to receive all cash
distributions if declared by the Board of Directors, except that upon
liquidation of MPI, the MPI preferred shareholders have a one time priority
right to receive $25 for each share of MPI preferred stock they own. (See
"DESCRIPTION OF SECURITIES").
7
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Q-37. MUST I OWN MPI COMMON SHARES OR MPI PREFERRED STOCK TO BE A MEADOWS
HOMEOWNER?
A-37. No. Meadows Homeowners are under no obligation whatsoever to purchase
MPI common shares, nor must Meadows Homeowners own preferred stock in order to
lease a lot in the Park.
Q-38. CAN I SELL MY MPI COMMON SHARES IF I NO LONGER WANT THEM?
A-38. You may sell your MPI common shares, but there are a limited number of
persons to whom you may sell them. There is no public market for MPI common
shares and none is likely to develop because, until the Partnership is
terminated or all of BRC's interest in the Partnership is sold or assigned to
MPI or an affiliate of MPI, only Meadows Homeowners (and MPI) may own MPI common
shares. Until the Partnership is terminated or all of BRC's interest in the
Partnership is sold or assigned to MPI or an affiliate of MPI, if you decide to
sell your MPI common shares, you can sell them ONLY to another Meadows Homeowner
or to MPI, and you will have the conditional right to require MPI to buy your
MPI common shares at a price determined by applying a formula. This right is
conditional because such right may not be exercised if MPI is prohibited from
purchasing your shares by the Florida Business Corporation Act and MPI's
Articles of Incorporation. Both that act and MPI's Articles of Incorporation
prohibit corporations from acquiring their own shares or otherwise making a
distribution to shareholders if doing so would cause the corporation to be
unable to pay its debts as they come due in the usual course of business, or
such distribution would cause the corporation to become insolvent. Provisions
of the Florida Business Corporation Act will also prohibit MPI from buying your
MPI common share if any shares of MPI preferred stock are outstanding and your
MPI common share is the only MPI common share outstanding. ALSO, EVEN IF MPI
MAY PURCHASE YOUR MPI COMMON SHARES, THE PRICE WHICH MPI WOULD BE REQUIRED TO
PAY MAY BE LESS THAN THE $1,000 YOU WILL PAY FOR EACH MPI COMMON SHARE. Any
right you may have to sell your MPI common shares to MPI will terminate at such
time as the Partnership between MPI and BRC is terminated or all of BRC's
interest in the Partnership is sold or assigned to MPI or an affiliate of MPI.
(See "SUMMARY OF THE PARTNERSHIP AGREEMENT -- Sale of Partnership Units Relating
to Put Right and Call Right" and "DESCRIPTION OF SECURITIES").
Q-39. WHAT HAPPENS IF I SELL MY HOME IN THE PARK OR MOVE IT OUT OF THE
PARK?
A-39. If you relocate your manufactured or mobile home outside the Park, or if
you sell it, you are required to sell all of the MPI common shares that you own
either to: (1) the person who buys your home or rents the lot on which your home
was located; (2) another Meadows Homeowner; or (3) MPI. As outlined in the
answer to Question 38, until the Partnership is terminated or all of BRC's
interest in the Partnership is sold or assigned to MPI or an affiliate of MPI,
you will have the same conditional right to require MPI to buy your MPI common
shares as reflected in the answer to Question 38. Also, subject to the
provisions of the Florida Business Corporation Act and MPI's Articles of
Incorporation, MPI will have the right to buy all of your MPI common shares at
this same formula price if you fail to sell your MPI common shares by the date
on which you sell or relocate your home. MPI's right to purchase your MPI
common shares will terminate when the Partnership between
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MPI and BRC is terminated or all of BRC's interest in the Partnership is sold or
assigned to MPI or an affiliate of MPI. (See "SUMMARY OF THE PARTNERSHIP
AGREEMENT -- Sale of Partnership Units Relating to Put Right and Call Right" and
"DESCRIPTION OF SECURITIES").
Q-40. WHAT HAPPENS IF MPI DOES NOT HAVE THE MONEY TO BUY MY MPI COMMON
SHARES?
A-40. If MPI is required to purchase your MPI common shares, MPI has the right
to require BRC to purchase such number of MPI's partnership units as is
necessary to pay the purchase price of your MPI common shares, exclusive of any
taxes that MPI may be required to pay as a result of the sale of partnership
units. There can be no assurance that BRC will always have enough funds
available to purchase MPI's partnership units, or that, after such purchase, MPI
will be permitted by the Florida Business Corporation Act and MPI's Articles of
Incorporation to purchase your MPI common shares or, even if it is so permitted,
that it will have enough cash to pay for your MPI common shares. MPI's sale of
partnership units to BRC may result in taxable gain to MPI. MPI's payment of
any such tax liability will reduce MPI's ability to purchase your MPI common
shares and to make distributions to MPI common shareholders.
Q-41. WHAT HAPPENS TO MY MPI COMMON SHARES WHEN I DIE?
A-41. If you own MPI common shares at the time of your death, ownership of
those MPI common shares will pass to your estate and ultimately to your heirs or
other beneficiaries under your will. To maintain ownership of these MPI common
shares, the person who owns the MPI common shares must also own your home or
another home and lease a lot located in the Park. If at any time they do not
own a home and lease a lot located in the Park, they will be required to sell
the MPI common shares to another Meadows Homeowner or to MPI. Until the
Partnership is terminated or all of BRC's interest in the Partnership is sold or
assigned to MPI or an affiliate of MPI, they will have the same conditional
right to require MPI to buy the MPI common shares as you would have, as
reflected in the answer to Question 38, and MPI will have the right to buy all
of the MPI common shares at the formula price as outlined in the answer to
Question 39. These rights are limited by the Florida Business Corporation Act
and MPI's Articles of Incorporation. (See "SUMMARY OF THE PARTNERSHIP AGREEMENT
- -- Sale of Partnership Units Relating to Put Right and Call Right" and
"DESCRIPTION OF SECURITIES").
Q-42. HOW LONG WILL THE PARK REMAIN A MANUFACTURED HOME COMMUNITY?
A-42. The Partnership Agreement provides that while the Partnership exists, the
Park will be used as a mobile home park or manufactured home community unless
otherwise agreed by both MPI and BRC. In addition, even if the Partnership is
liquidated before the tenth anniversary of January 1, 2000, the Park will
nonetheless remain a mobile home park or manufactured home community until the
tenth anniversary of January 1, 2000, unless causes beyond the control of MPI
and BRC, such as zoning changes or condemnation, require otherwise. There is no
assurance that the Park will remain a manufactured home community if the
Partnership is liquidated after January 1, 2010.
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING MPI
COMMON SHARES.
1. THERE WILL BE LIMITED PUBLIC INFORMATION AVAILABLE ABOUT MPI
------------------------------------------------------------
There are only 377 lots in the Park available to be rented and, currently,
only 299 lots are occupied. Meadows Homeowners who own their homes in the Park
jointly with one or more
9
<PAGE>
other persons will be considered one homeowner, however, and MPI common shares
will be issued to them jointly. Therefore, at least initially, in all likelihood
there will not be more than 299 MPI common shareholders, which means that MPI
would not be subject to the reporting requirements of the Securities Exchange
Act of 1934 ("Exchange Act"). Accordingly, even if you and other Meadows
------------
Homeowners purchase all of the common shares offered by this Prospectus, MPI
will probably not be required to file periodic reports with the Securities and
Exchange Commission in 2000 and subsequent years. While MPI intends to provide
annual reports containing unaudited financial statements to its MPI common
shareholders, the information contained in these reports will not be as
extensive as it would be if MPI were subject to the reporting requirements of
the Exchange Act.
2. NEITHER MPI NOR THE PARTNERSHIP HAS ANY OPERATING HISTORY AND MPI HAS
---------------------------------------------------------------------
INCURRED SUBSTANTIAL LOSSES
---------------------------
MPI was organized in June 1998 and has not previously engaged in any
business activity. Its predecessor, MPI-1, was organized in 1988 for the
purpose of serving as the homeowners' association for the Park for purposes of
the Florida Mobile Home Act and, until it acquired the Park in December 1997,
never engaged in any other business activity. MPI's directors and officers are
unpaid volunteers who have limited experience in managing mobile home parks and
neither MPI nor the Partnership is expected to have any full time employees. As
of September 30, 1998, MPI had a negative owners' equity of minus $271,088.
There can be no assurance that MPI or the Partnership will be profitable.
3. THERE ARE RISKS IN OWNING MOBILE HOME PARKS
-------------------------------------------
All investments in real property, including mobile home parks, are
subject to some degree of risk, including the risk of adverse changes in general
economic and local conditions. These risks include excessive building resulting
in an oversupply of manufactured or mobile home spaces and/or alternative
housing or a decrease in employment indirectly reducing demand for such spaces.
Also, prospective tenants may find the Park less attractive due to aging
facilities or for other unknown reasons. Other factors you should consider
include: possible adverse changes in property values; zoning laws; Federal and
local rent controls; other laws and regulations and real property tax rates;
competition by other existing or new parks which may have greater financial or
other resources and the ability of the Partnership to provide for adequate
maintenance and supervision of the Park. Investment in residential property
involves other unpredictable contingencies, including, but not limited to, the
availability and price of fuel and electricity for heating and cooking and
transportation. In addition, the most common purchasers of manufactured or
mobile homes are younger, first-time buyers and retirees. Because of their
often limited income, these tenants of the Park may pose a risk of defaulting on
their rent obligations, resulting in losses to the Partnership and, ultimately,
losses to you as an MPI common shareholder.
4. REGULATIONS GOVERNING MOBILE HOME PARKS COULD CHANGE
----------------------------------------------------
The Florida Mobile Home Act regulates mobile home parks in Florida,
and such parks are the subject of substantial attention in the Florida
legislature. Changes or additions to the
10
<PAGE>
Florida Mobile Home Act may be introduced after the date of this offering that
could adversely impact the Park or the Partnership.
5. MPI MAY NOT BE ABLE TO REFINANCE THE LOAN FROM MHC LENDING
----------------------------------------------------------
The existing loan obtained by MPI-1 from MHC Lending Limited Partnership
("MHC Lending") to finance the acquisition of the Park is due and payable on
-----------
April 30, 1999. It is anticipated that BRC will refinance the portion of this
loan that will not be repaid out of capital contributions to the Partnership.
However, no commitment has yet been obtained to provide a loan for such
refinancing and it may not be possible to refinance the loan on terms
satisfactory to MPI and BRC while the lawsuit against MPI is pending. (See
"LEGAL PROCEEDINGS"). No assurance can be given that replacement financing will
be available or that, if available, it will be available on terms that permit
the Partnership to operate on a profitable basis. (See "DESCRIPTION OF BUSINESS
Management of the Partnership.")
6. MPI WILL BE DEPENDENT ON DISTRIBUTIONS FROM THE PARTNERSHIP
-----------------------------------------------------------
MPI will have no material income-producing assets or activities other than
from its partnership units. This means that MPI will be entirely reliant on
distributions from the Partnership to make distributions to MPI common
shareholders and if those distributions decrease or cease, MPI common
shareholders may receive smaller or no distributions in the future. The
Partnership will be required to distribute up to $2,256,000 to BRC before making
any distributions to MPI to the extent that these funds are generated through
sales or refinancings of Partnership property or through other extraordinary
events. Even if MPI receives distributions from the Partnership, MPI's Board of
Directors, in its discretion, may choose not to distribute such cash or any part
of it that may be left after payment of costs and expenses, including taxes, and
thus may make no cash distributions to MPI common shareholders.
7. MPI'S COSTS AND EXPENSES WILL REDUCE CASH DISTRIBUTIONS TO MPI COMMON
---------------------------------------------------------------------
SHAREHOLDERS
------------
BRC has agreed to advance all costs and expenses incurred in connection
with this offering. Because the Partnership will reimburse BRC for these costs
and expenses, a pro rata portion of such expenses will ultimately be paid out of
funds contributed to the Partnership by MPI and BRC. In addition, MPI is
responsible for all of its other costs and expenses. These other costs and
expenses will include: legal, accounting and other professional service fees;
Federal, state and local taxes; and insurance and other administrative costs.
MPI will use the distributions it receives from the Partnership to finance these
costs and expenses, directly reducing the amount of distributions, if any, that
might otherwise be paid to MPI common shareholders.
8. MPI COMMON SHAREHOLDERS WILL BE SUBJECT TO DOUBLE TAX ON INCOME EARNED BY
--------------------------------------------------------- ----------------
THE PARTNERSHIP
---------------
MPI, as a general partner of the Partnership, will be subject to United
States Federal income tax at a rate of up to 35 percent and Florida franchise
tax at a rate of up to 5.5 percent on
11
<PAGE>
its share of Partnership income. In addition, MPI common shareholders will be
subject to United States Federal income tax on all distributions they receive
from MPI, to the extent of MPI's "earnings and profits," generally as ordinary
income at rates up to 39.6 percent. (See "CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS.")
9. ANNUAL RENT INCREASES MAY BE DISPUTED BY MEADOWS HOMEOWNERS
-----------------------------------------------------------
All tenants of lots in mobile home parks in Florida, including Meadows
Homeowners, have certain statutory rights under the Florida Mobile Home Act with
respect to rent increases. Under the Florida Mobile Home Act, a mobile home park
owner must give each tenant in a mobile home park 90 days' notice of a proposed
rent increase. If a majority of the affected tenants agree, they can insist on
mediation or arbitration of proposed rental increases and, if the parties do not
agree that the decision made in any such mediation or arbitration will be
binding, the tenants may thereafter file an action opposing the rent increase in
the circuit court. For the first ten years of the Partnership's existence,
subject to applicable law and the provisions of the Park's prospectuses (rental
agreements), the Partnership plans to increase rent payable by Meadows
Homeowners at the rate of five percent or, if higher, the annual percentage
increase in the "Consumer Price Index for All Urban Consumers, All Items"
prepared by the Bureau of Labor Statistics of the United States Department of
Labor. BRC and MPI may, however, jointly agree to change the amount of any
rental increase. It is possible that the Meadows Homeowners, especially those
who are not MPI common shareholders, may challenge the proposed or any other
rental increases. To the extent that any such challenge is successful, the
Partnership's revenues would be less than expected, thereby reducing the cash
available for distribution by the Partnership to MPI and, in turn, the amount of
distributions from MPI to the MPI common shareholders.
10. TENANT VACANCIES IN THE PARK WILL ADVERSELY AFFECT PARTNERSHIP INCOME
-----------------------------------------------------------------------
Approximately 78 of the lots in the Park have been vacant for over 17
years. This vacancy history indicates that it may take substantial time to find
a replacement tenant for any existing Meadows Homeowner who moves out of the
Park. The loss of a tenant will reduce the Partnership's income and, thus, the
cash distributions MPI can make to the MPI common shareholders.
11. CAPITAL EXPENDITURES MAY ADVERSELY AFFECT PARTNERSHIP INCOME
------------------------------------------------------------
From time to time, capital expenditures may be required to pay for
renovations and improvements to the Park. To the extent such expenditures are
not payable by tenants, the Partnership will be required to use a portion of the
Park's income to pay for the expenditures, directly reducing distributions to
MPI, and, in turn, any distributions that might otherwise be made to the MPI
common shareholders.
12
<PAGE>
12. YOUR INDIRECT INTEREST IN THE PARTNERSHIP AS AN MPI COMMON SHAREHOLDER
----------------------------------------------------------------------
MAY BE REDUCED BY THE ISSUANCE OF ADDITIONAL PARTNERSHIP UNITS TO BRC
---------------------------------------------------------------------
Under the terms of the Partnership Agreement, BRC will make a supplemental
capital contribution of $2,256,000 on account of the lots in the Park that are
not occupied by tenants as of the date of the Partnership Agreement
(collectively, "Unoccupied Lots"). BRC will not receive partnership units in
---------------
exchange for this contribution unless and until these lots are leased by new
tenants. At that time, additional partnership units will be issued to BRC (for
no additional payment by BRC) based on the value of the newly leased lot and the
value of the partnership units at the time of leasing, as determined by a pre-
set formula. MPI will have the right to buy BRC's additional partnership units
in certain circumstances, but only if, and to the extent that, the new tenant
buys MPI common shares. If the new tenant does not purchase all of the MPI
common shares available to be purchased by such new tenant, then MPI's interest
in the Partnership will decrease, and the proportionate indirect ownership in
the Partnership of each MPI common shareholder will decrease, thereby reducing
such MPI common shareholder's percentage of any cash distributions made by the
Partnership. (See "SUMMARY OF THE PARTNERSHIP AGREEMENT -- Unoccupied Lots --
Issuance of Additional Partnership Units to BRC.")
13. CHANGE IN USE OF THE PARK IS RESTRICTED
---------------------------------------
During the term of the Partnership Agreement, the use of the Park as a
mobile home park may not be changed without the approval of BRC and MPI. The
Partnership Agreement also provides that if the Partnership is liquidated before
the tenth anniversary of the date of the Partnership Agreement, MPI and BRC will
record a restrictive covenant against the title to the Park prohibiting any
change of use as a mobile home park through the tenth anniversary of the date of
the Partnership Agreement (unless such changes are required for reasons outside
MPI's and BRC's control). These restrictions may adversely impact the value of
your investment because the Park cannot be used for any purpose other than as a
mobile home park through the tenth anniversary of the date of the Partnership
Agreement.
14. MPI SHAREHOLDERS WILL HAVE NO DIRECT RIGHT TO MAKE DECISIONS REGARDING THE
--------------------------------------------------------------------------
PARK
----
MPI will act as the MPI shareholders' representative in all Partnership
decisions with respect to the operation and ownership of the Park. Because MPI
is a corporation, the decisions made on its behalf will be made by the Board of
Directors of MPI or the officers of MPI. Although each of the directors has been
or will be elected by MPI's shareholders, MPI's officers and directors may have
little or no experience in managing mobile home parks. This may affect their
ability to make the best decisions on behalf of MPI. In addition, because each
of the officers and directors of MPI will also be a Meadows Homeowner, they may
have a conflict of interest in making decisions in the interest of all of MPI's
shareholders.
13
<PAGE>
15. THE PARTNERS MAY INCUR ENVIRONMENTAL LIABILITY FROM THE PARK
------------------------------------------------------------
Under various Federal, state and local environmental laws, ordinances,
regulations and common law, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws, ordinances and
regulations often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances. MPI
is not aware of any material violations of currently applicable environmental
laws or regulations with respect to the Park. However, no extensive
environmental investigation of the Park has been undertaken and there can be no
assurance that violations have not occurred and will not occur in the future, or
that more stringent laws and regulations will not be enacted in the future. The
Partnership could suffer material adverse consequences, which, in turn, could
adversely affect the value of your investment in MPI or the amount of any
distributions to you.
16. YOU MAY NOT BE ABLE TO SELL OR OTHERWISE TRANSFER YOUR MPI COMMON SHARES
------------------------------------------------------------------------
There is no public market for the sale of MPI common shares. MPI common
shares may not be pledged, mortgaged or encumbered for any purpose and are
subject to certain restrictions on transferability, as described in MPI's
Articles of Incorporation. Even after the restrictions on transferability lapse,
it is not likely that a public market for the sale of MPI common shares will
ever develop. The restrictions on transferability are summarized as follows:
. MPI common shares may be owned only by (1) MPI, (2) Meadows Homeowners, or
(3) the estate of any Meadows Homeowner, so long as such estate owns a mobile
or manufactured home and leases a lot located in the Park.
. Any MPI common shareholder who desires to sell his or her MPI common shares
is permitted to sell them only to MPI or to another Meadows Homeowner.
. MPI has the right to buy any MPI common shares held by an MPI common
shareholder who ceases to be a Meadows Homeowner at a price determined by a
formula, which price may be less than the $1,000 per share price to be paid
by purchasers of such shares in this offering.
. While MPI common shareholders have, so long as the Partnership exists, a
conditional right to require MPI to purchase their MPI common shares at a
formula price, which price may be less than the $1,000 per share offering
price, such right may not be exercised if to do so would cause MPI to be
unable to pay its debts as they come due in the usual course of business, or
such purchase would cause MPI to become insolvent. Moreover, MPI may not
purchase MPI common shares if following such purchase, MPI would have not
have at least one MPI common share outstanding.
. If any MPI common shareholder sells his or her MPI common shares to MPI
before January 1, 2002, the sale price will be only 80 percent of the
formula price.
For a more detailed description of these restrictions on transferability, see
"SUMMARY OF THE PARTNERSHIP AGREEMENT -- Sale of Partnership Units Relating to
Put Right and Call Right" and "DESCRIPTION OF SECURITIES."
14
<PAGE>
17. MPI WILL HAVE LIMITED ABILITY TO TRANSFER PARTNERSHIP UNITS
-----------------------------------------------------------
MPI may not transfer, sell or otherwise dispose of its partnership units
except to BRC or BRC's affiliates. The Partnership Agreement between MPI and BRC
allows BRC to transfer, sell or otherwise dispose of some or all of its
partnership units at any time to:
. an affiliate of BRC;
. any person or entity that acquires BRC's partnership units as a result of a
sale by BRC of a portfolio of assets;
. a successor, by merger or consolidation, to BRC; or
. MPI or an affiliate of MPI, which would thereafter become a substitute
partner.
Thus, not only is MPI's ability to transfer its partnership units limited, but
BRC could be replaced by a partner which is either not known to MPI or with whom
MPI would prefer not to be in partnership.
18. MPI MAY BE REQUIRED TO SELL ITS PARTNERSHIP INTEREST TO BRC IF BRC AND MPI
--------------------------------------------------------------------------
CANNOT RESOLVE A DISAGREEMENT
-----------------------------
Under the Partnership Agreement, if a dispute occurs between MPI and BRC
anytime before the tenth anniversary of January 1, 2000, it will be resolved by
mediation or, if mediation is unsuccessful, by binding arbitration. If a dispute
occurs between MPI and BRC on or after the tenth anniversary of January 1, 2000,
the parties must try to resolve the dispute by mediation. However, if mediation
is unsuccessful, either MPI or BRC can initiate a buy-sell procedure which will
result in either MPI buying all of BRC's partnership units or BRC buying all of
MPI's partnership units (either directly or through an affiliate). In order to
buy BRC's partnership units in either of these circumstances, MPI would almost
certainly have to borrow money from a commercial lender. There can be no
assurance that such financing will be available on terms which would permit MPI
to acquire BRC's partnership units on an acceptable basis. Thus, in the event of
a dispute, MPI may be unable to acquire BRC's partnership units and, therefore,
may be required to sell its partnership units to BRC.
19. MPI AND THE PARTNERSHIP COULD LOSE THE PARK BECAUSE OF AN EXISTING LAWSUIT
--------------------------------------------------------------------------
On December 8, 1997, prospective purchasers which alleged that they had
entered into an agreement to purchase the Park from its then-owners, filed a
complaint against MPI-1 alleging that the Florida Mobile Home Act, which granted
MPI-1 a right of first refusal to purchase the Park, violated the prospective
purchasers' constitutional rights and the prospective purchasers' contractual
right to purchase the Park. These plaintiffs seek damages in an unspecified
amount and the right to purchase the Park. Judgment in favor of the prospective
purchaser could result in MPI-1's acquisition of the Park being rescinded, and
MPI and the Partnership losing the Park. Although a court may order that the
purchase price paid by MPI-1 be refunded if the acquisition is rescinded, there
is no guarantee that such an order would be made, and, in any case, certain
closing costs and other expenses incurred by MPI and the Partnership could not
be recovered.
15
<PAGE>
The Partnership will pay all costs and expenses in connection with the defense
of this complaint. (See "LEGAL PROCEEDINGS").
20. THE INTERESTS OF MPI COMMON SHAREHOLDERS MAY CONFLICT WITH THE INTERESTS OF
---------------------------------------------------------------------------
MPI PREFERRED SHAREHOLDERS
--------------------------
Because MPI common shareholders will effectively own MPI and thereby hold
an indirect ownership interest in the Partnership and the Park, the interests of
the MPI common shareholders may conflict with those of the MPI preferred
shareholders who do not own MPI common shares. For instance, MPI common
shareholders may favor annual increases in rent on lots in the Park because such
increases will increase revenues to the Partnership and could, in turn, result
in potential increases in cash distributions to MPI common shareholders. Because
MPI preferred shareholders are not entitled to these cash distributions from
MPI, but would be required to pay any additional rent as tenants in the Park,
the MPI preferred shareholders would, in all likelihood, not favor such rental
increases.
21. THERE IS NO FIRM COMMITMENT UNDERWRITING IN THIS OFFERING
---------------------------------------------------------
No individual, corporation or other entity has any obligation or commitment
to purchase any MPI common shares in the offering; however, the officers and
directors of MPI have orally indicated that they intend to purchase an aggregate
of 58 MPI common shares in the offering, in addition to the seven MPI common
shares already owned by them. (See "MANAGEMENT -- Management of MPI -- Security
Ownership of Directors, Officers and Certain Security Holders"). Thus, MPI can
give no assurance that it will sell any MPI common shares. Because the number of
MPI common shares sold will determine the number of partnership units that the
Partnership will issue to MPI, which in turn will determine MPI's initial
interest in the Partnership, the fewer MPI common shares sold, the smaller MPI's
initial interest in the Partnership will be.
EVENTS LEADING TO THIS OFFERING
Organization of MPI-1
- ---------------------
Meadows Preservation, Inc., a Florida non-stock corporation and MPI's
predecessor ("MPI-1") was incorporated on March 2, 1988 for the purpose of being
-----
the homeowners' association for The Meadows Mobile Home Park at 2555 PGA
Boulevard, Palm Beach Gardens, Florida (the "Park") in accordance with the
----
Florida Mobile Home Act. MPI-1's Articles of Incorporation provided that MPI-1
"as the mobile home owners' association pursuant to the Florida Mobile Home Act,
Chapter 723, Florida Statutes, shall have the power to negotiate for, acquire
and operate the Meadows Mobile Home Park ... and once acquired, shall have the
power to convert said Park to a condominium, a cooperative form of ownership, or
another type of ownership." The Florida Mobile Home Act generally regulates the
operation of mobile home parks, including rental agreements for the parks' lots
and obligations of the parks' owner. In
16
<PAGE>
addition, the statute provides to the tenants of lots in a mobile home park the
right to form associations that are capable of purchasing the park should the
park's owner decide to sell it, and gives such associations the right of first
refusal to purchase the park under certain circumstances if the owner decides to
sell it.
On October 3, 1997, the then owners of the Park notified MPI-1 of their
intent to solicit offers to purchase the Park. (See "LEGAL PROCEEDINGS"). MPI-1
exercised its right of first refusal and acquired the Park on December 18, 1997
for $12,000,000. BRC's parent, Manufactured Home Communities, Inc. ("MHC"), on
---
behalf of BRC, and MPI-1 entered into a letter of intent dated December 12, 1997
(the "Letter of Intent") which stated:
----------------
(1) BRC or its affiliate would make a loan to MPI-1;
(2) MPI-1 would be converted into a for-profit corporation;
(3) MPI-1, after it was converted into a for-profit corporation, would
endeavor to raise money by selling shares of common stock;
(4) MPI and BRC would form the Partnership;
(5) MPI would contribute all of the funds raised from the sale of its
shares to the Partnership;
(6) MPI would retain the record interest in the Park, but would contribute
the Beneficial Interest to the Partnership and the Partnership would
thereafter own and operate the Park; and
(7) BRC would contribute funds to the Partnership.
Pursuant to the terms of the Letter of Intent, MHC Lending made a loan to
MPI-1 in the amount of the Park's purchase price, $12,000,000, plus closing
costs of $341,693 (the "Loan"). The proceeds of the Loan were used to purchase
----
the Park. The Loan is nonrecourse to MPI, the successor by mergers to MPI-1,
except that MPI is personally liable for losses, damages, costs and expenses
arising from its misapplication of funds, fraud, and default under certain
environmental, tax and insurance provisions of the Loan. The Loan is secured by
a first priority mortgage on the Park and an assignment of all leases and rents
on and from lots in the Park. The maturity date of such Loan, as extended, is
April 30, 1999.
Concurrently with the closing on MPI-1's acquisition of the Park and
pursuant to the provisions of the Letter of Intent, MPI-1 and BRC entered into
an Option Agreement which, as amended, gives BRC the option to purchase the Park
for the same price and on the same terms and conditions as MPI-1 acquired the
Park if, by May 1, 1999, the Closing Date has not occurred and the capital
contributions to be made to the Partnership thereon have not been made. The
Closing Date is three business days after the expiration of the Offer, or
earlier if mutually agreed by MPI and BRC (the "Closing Date"). BRC's option may
------------
be exercised anytime beginning on May 1, 1999 and ending at 5:30 p.m. on May 31,
1999.
Reason for Creation of MPI
- --------------------------
Because Florida law does not provide for not-for-profit corporations to
sell stock or other equity interests, MPI-1 was reorganized into MPI, a Florida
for-profit, stock corporation. This reorganization was effected through a
series of mergers with corporations organized by MPI-1
17
<PAGE>
solely for the purpose of this corporate reorganization. In June 1998, MPI-1
organized MPI as a Florida for-profit, stock corporation. It also organized MPI
Two, Inc. ("MPI-2") as a Delaware non-stock membership corporation and MPI
-----
Three, Inc. ("MPI-3") as a Delaware stock corporation.
-----
On June 30, 1998, MPI-1 was merged into MPI-2 with each member of MPI-1
receiving a non-voting membership interest in MPI-2 (members who were co-owners
of a mobile home located on a lot in the Park were deemed collectively to hold
one membership interest in the Delaware non-stock corporation). On July 1,
1998, MPI-2 was merged into MPI-3 with each member of MPI-2 receiving one share
of non-voting Class B common stock. MPI-3 sold one share of its Class A common
stock to Richard McCann, President and director of MPI-1 and MPI, for $1,000,
and MPI issued one share of common stock of MPI ("MPI Common Share") to MPI-3 in
----------------
exchange for a promise to pay $1,000. On July 2, 1998, MPI-3 was merged into
MPI and the MPI-3 Class A common shareholder, Mr. McCann, received one MPI
Common Share and each holder of Class B common stock of MPI-3 received one share
of preferred stock of MPI ("MPI Preferred Stock"). (See "DESCRIPTION OF
-------------------
SECURITIES").
As a result of these mergers, MPI succeeded to all of the assets,
liabilities and obligations of MPI-1 and each owner of a mobile or manufactured
home in the Park who was a member of MPI-1 became the owner of one share of MPI
preferred stock. The holders of each share of MPI Preferred Stock are entitled
to cast 1/40th of one vote on all matters as to which shareholders of MPI are
entitled to vote. Holders of shares of MPI Preferred Stock will not be entitled
to any distributions or other economic benefits whatsoever, except that upon
liquidation of MPI they will have a preferred right to receive $25 with respect
to each share of MPI Preferred Stock prior to any distributions in liquidation
with respect to the MPI Common Shares. MPI's Bylaws provide that any Meadows
Homeowner who does not already own one share of Preferred Stock shall be
entitled to be issued one share of Preferred Stock upon payment of Twenty-Five
Dollars ($25.00) to MPI, provided that where two or more Meadows Homeowners are
co-owners of a mobile home located on a lot in the Park, only one share of
Preferred Stock shall be issued to such Meadows Homeowners.
Formation of the Partnership
- ----------------------------
On September 30, 1998, MPI and BRC entered into the Partnership Agreement
pursuant to which both MPI and BRC agreed to make initial capital contributions
to the Partnership of $1,000 in exchange for one Partnership Unit. Thereafter,
each of the parties entered into a First Amendment to General Partnership
Agreement dated as of January 27, 1999. For a summary of the terms and
conditions of the Partnership Agreement, as amended, see "SUMMARY OF THE
PARTNERSHIP AGREEMENT."
On September 30, 1998, MPI, BRC and the Partnership entered into a
contribution agreement, as amended by the first amendment to contribution
agreement dated as of January 27, 1999 (the "Contribution Agreement") which
----------------------
provides that on the Closing Date, MPI will contribute to the Partnership all of
the proceeds of the sale of MPI Common Shares received from the Offer plus
$7,000 and the Beneficial Interest in the Park. The Contribution Agreement also
provides that BRC will contribute to the Partnership cash in the total amount of
$7,164,000
18
<PAGE>
less the cash contributed by MPI. Under the terms of the Contribution Agreement,
MPI also agreed to execute a title holding, nominee and agency agreement with
the Partnership (the "Nominee Agreement"), which will provide that MPI will hold
-----------------
the record interest in the Park as nominee for and agent of the Partnership and
the parties will record against the title to the Park a Memorandum of Title
Holding, Nominee and Agency Agreement. Also, BRC will pay to MPI $100,000 to be
applied by MPI, among other things, to the interest to be paid by MPI to those
Meadows Homeowners (the "Advancing Homeowners") who advanced an aggregate of
--------------------
$802,000 to MPI-1, exclusive of $65,000 previously refunded and $6,000 converted
into MPI Common Shares (the "Advances"), pursuant to the Rescission Offer.
--------
The obligations of MPI and BRC to make the contributions of cash and
property on the Closing Date as described above are subject to the conditions
that:
(1) neither MPI nor BRC shall have become insolvent or the subject of
bankruptcy proceedings;
(2) each of MPI and BRC shall have simultaneously made the required
contributions of cash and property to the Partnership;
(3) all of the representations and warranties given by each of MPI and BRC
shall be true and correct;
(4) MPI shall have executed and delivered to the Partnership all necessary
documents;
(5) no liens shall have been recorded against the title to the Park other
than agreed liens, encumbrances, rights and charges; and
(6) MPI shall have paid to MHC Lending that portion of the interest and
other amounts due to MHC Lending under the Loan that have accrued or
are payable through the Closing Date to the extent that MPI has cash
available from the net operating income of the Park. The balance of
such interest and other amounts under the Loan shall be assumed by the
Partnership.
Pursuant to the Partnership Agreement, should any of these conditions not be
satisfied by either Partner, and not waived by the other Partner, upon the other
Partner's notice that the Partnership Agreement is terminated, the Partnership
shall dissolve and commence winding up and liquidating. (See "SUMMARY OF THE
PARTNERSHIP AGREEMENT -- Dissolution and Winding Up"). MPI and BRC expect that
all of these conditions will be satisfied.
THE RESCISSION OFFER
Between December 1, 1997 and December 16, 1997, the Advancing Homeowners
made Advances to MPI-1, which Advances are currently held in an MPI interest-
bearing bank account at NationsBank (the "Park Purchase Account"). This
---------------------
Prospectus includes a Rescission Offer made to all Advancing Homeowners.
Pursuant to the Rescission Offer, unless an Advancing Homeowner affirmatively
rejects the Rescission Offer on or before March 19, 1999, such Advancing
Homeowner will be deemed to have accepted the Rescission Offer.
In
19
<PAGE>
such case, MPI will refund to such Advancing Homeowner all Advances made by such
Advancing Homeowner, together with interest thereon at the rate of 10 percent
per annum from December 16, 1997 (or any later date when the Advancing Homeowner
made the Advance) until March 19, 1999, the date the Rescission Offer will
expire.
If any Advancing Homeowner affirmatively rejects the Rescission Offer by
submitting to MPI a completed, signed Subscription Agreement on or before
March 19, 1999, such Advancing Homeowner shall be deemed to
have subscribed, pursuant to this Prospectus, for so many MPI Common Shares as
shall be equal to the amount of the Advance made by such Advancing Homeowner
divided by $1,000. TO REJECT THE RESCISSION OFFER, THE ADVANCING HOMEOWNER MUST
COMPLETE AND SIGN THE SUBSCRIPTION AGREEMENT (ENCLOSED WITH THIS PROSPECTUS),
AND SEND IT TO MPI. THE RESCISSION OFFER EXPIRES ON MARCH 19, 1999.
-------------------------------------------------
IF MPI DOES NOT RECEIVE FROM THE ADVANCING HOMEOWNER A SIGNED SUBSCRIPTION
- --------------------------------------------------------------------------
AGREEMENT BY MARCH 19, 1999, the Advance made by such Advancing Homeowner
- -----------------------------
will be refunded, with interest, as provided above, and no MPI Common Shares
will be issued to such Advancing Homeowner.
Reason For the Rescission Offer
- -------------------------------
The Advances made by the Advancing Homeowners were obtained without
registration under the Securities Act of 1933, as amended (the "Act"), or the
---
securities laws of any state. Their receipt by MPI-1 may have violated the
registration and antifraud provisions of the Federal and state securities laws.
The possible existence of these violations has prompted the making of the
Rescission Offer. It is the position of MPI that if an Advancing Homeowner
rejects the Rescission Offer to return these funds and elects to receive MPI
Common Shares, such Advancing Homeowner will no longer be able to assert a claim
against MPI in connection with any such possible violations. Even if an
Advancing Homeowner's claim is not extinguished upon rejection of the Rescission
Offer, MPI believes that any such claim would be barred by most of the
applicable statutes of limitations since most of the Advances were made on or
about December 16, 1997, more than one year prior to this Offer. The applicable
statute of limitations for failure to register pursuant to the Act is one year
from the date of the violation. The limitations period for making an untrue
statement or omission in the offer or sale of a security pursuant to the Act and
the Exchange Act is one year from the date such untruth or omission was
discovered or should have been discovered. The limitations period under Florida
law for an action founded on statutory liability is four years. However,
Section 517.211 of the Florida Statutes provides that any claim for rescission
or damages resulting from a sale of a security in violation of Florida's
registration provisions is extinguished 30 days after receipt by the purchaser
of a written offer from the person who made the sale to rescind the purchase and
refund the full amount paid by the purchaser, together with interest at the
legal rate of interest in Florida, payable from the date of purchase through the
date of repayment.
Tax Considerations of the Rescission Offer
- ------------------------------------------
Set forth below is a discussion of the material United States Federal
income tax considerations of the Rescission Offer under the Internal Revenue
Code of 1986, as amended (the "Code"). However, the discussion does not deal
----
with all of the tax consequences of the
20
<PAGE>
Rescission Offer; nor does it deal with all of the tax consequences that may be
significant to particular shareholders, such as dealers in securities,
shareholders who are not individuals and shareholders who are subject to the
alternative minimum tax.
ALL PERSONS AND ENTITIES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF ACCEPTING OR REJECTING THE RESCISSION
OFFER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
For United States Federal income tax purposes, MPI intends to treat the
Advances as if the Advances constituted MPI Common Shares and the Rescission
Offer as a taxable redemption of such MPI Common Shares with a redemption price
equal to the amount paid for such MPI Common Shares (and including in the
redemption price the portion of the payment denominated as interest). However,
the law applicable to the Rescission Offer is unclear and MPI has received
neither an opinion of counsel nor a ruling from the Internal Revenue Service
(the "Service") to that effect. Thus, the Service is not precluded from
-------
successfully asserting a contrary position or otherwise recharacterizing the
transaction in whole or in part. For example, the Service may characterize the
Rescission Offer as the return of the original purchase price (which would be
nontaxable) plus the payment of interest which would be taxable as ordinary
income.
U.S. Holders
- ------------
The following discussion is limited to certain United States Federal
income tax consequences relevant to a U.S. Holder. For this purpose, a "U.S.
----
Holder" means a beneficial holder of MPI Common Shares that for United States
- ------
Federal income tax purposes is:
(1) a citizen or resident (as defined in Code Section 7701(b)) of the
United States;
(2) a corporation, partnership or other entity formed under the laws of
the United States or any political subdivision thereof;
(3) an estate, the income of which is subject to United States Federal
income taxation regardless of its source; or
(4) in general, a trust subject to the primary supervision of a court
within the United States and the control of a United States person as
described in Code Section 7701(a)(30).
Assuming MPI's treatment of the Advances as MPI Common Shares and the
Rescission Offer as a redemption of MPI Common Shares is correct for Federal
income tax purposes, the amount of gain or loss recognized by a U.S. Holder
accepting the Rescission Offer should equal the difference between the amount
received for MPI Common Shares and such U.S. Holder's tax basis in the MPI
Common Shares surrendered. A redemption of MPI Common Shares will be treated as
a sale or exchange for Federal income tax purposes if it:
(1) results in a "complete redemption" of the U.S. Holder 's interest in
MPI under Code Section 302(b)(3);
(2) is "substantially disproportionate" with respect to the U.S. Holder
under Code Section 302(b)(2); or
21
<PAGE>
(3) is "not essentially equivalent to a dividend" with respect to the U.S.
Holder under Code Section 302(b)(1).
These three tests, which are more fully described below, are collectively
referred to herein as the "Redemption Tests." The Redemption Tests are applied
on a shareholder-by-shareholder basis. If a repurchase does not satisfy any of
the Redemption Tests, the payment of the proceeds from the sale will be treated
by MPI as a distribution with respect to the MPI Common Shares, the consequences
of which are more fully described below. Because the Redemption Tests are
applied independently to each MPI Common Shareholder, it is possible that some
persons accepting the Rescission Offer will be subject to distribution treatment
and others will receive tax redemption treatment.
BECAUSE THE APPLICATION OF THE REDEMPTION TESTS IS APPLIED ON A
SHAREHOLDER-BY-SHAREHOLDER BASIS, EACH U.S. HOLDER SHOULD CONSULT HIS OR HER OWN
TAX ADVISORS IN CONNECTION WITH THE POSSIBLE FEDERAL INCOME TAX TREATMENT THAT
MAY APPLY IN EACH U.S. HOLDER'S PARTICULAR CASE.
The acceptance of the Rescission Offer will result in a "complete
redemption" of all the MPI Common Shares owned by a U.S. Holder if either (1)
all of the MPI Common Shares actually and constructively owned by such U.S.
Holder are sold pursuant to the Rescission Offer or (2) all the MPI Common
Shares actually owned by a U.S. Holder are sold pursuant to the Rescission Offer
and the U.S. Holder is eligible to waive and effectively waives constructive
ownership of such MPI Common Shares under procedures described in Code Section
302(c).
The acceptance of the Rescission Offer will be "substantially
disproportionate" with respect to a U.S. Holder if (1) the percentage of MPI's
voting stock owned by the U.S. Holder immediately after the repurchase (taking
into account all MPI Common Shares purchased by MPI pursuant to the Rescission
Offer) equals less than 80 percent of the percentage of MPI's voting stock owned
by such U.S. Holder immediately before the repurchase and (2) such U.S. Holder
after the repurchase owns less than 50 percent of the total combined voting
power of all classes of stock of MPI entitled to vote.
The acceptance of the Rescission Offer will satisfy the "not essentially
equivalent to a dividend" test with respect to a U.S. Holder if, in light of the
U.S. Holder's individual circumstances (including his or her relative interest
in MPI), his or her sale of MPI Common Shares pursuant to the Rescission Offer
results in a "meaningful reduction" of his or her interest in MPI (after giving
effect to and thus treating as not outstanding, MPI Common Shares sold by all
MPI Common Shareholders pursuant to the Rescission Offer). This test may be
satisfied irrespective of the U.S. Holder's failure to satisfy the complete
redemption or substantially disproportionate tests.
In determining whether any of the Redemption Tests are satisfied, there
must be taken into account not only any MPI Common Shares owned by the U.S.
Holder, but also any MPI Preferred Stock and any options (including stock
purchase rights) held by such U.S. Holder, if any, to acquire MPI Common Shares.
The U.S. Holder also must take into account any such
22
<PAGE>
securities (including options) which are considered to be owned by such U.S.
Holder by reason of the constructive ownership rules set forth in Code Sections
318 and 302(c). Contemporaneous or related transactions in stock or stock rights
of MPI may also affect the Redemption Tests.
If the acceptance of the Rescission Offer fails to qualify as a tax
redemption, then the gross proceeds of such transaction will be characterized as
a distribution with respect to MPI's stock taxable as a dividend at ordinary
income tax rates to the extent of MPI's accumulated and current earnings and
profits (on a pro rata basis with other MPI Common Shareholders whose sales fail
to so qualify); any excess will be treated first as a return of capital and then
as a gain from a sale or exchange.
To the extent that a U.S. Holder rejects the Rescission Offer and
receives proceeds, denominated as interest on its Advance, such proceeds will be
characterized as a distribution with respect to MPI's stock taxable as a
dividend to the extent of MPI's accumulated and current earnings and profits.
See "CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS -- Consequences of
Ownership of MPI Common Shares -- U.S. Holders -- Dividends and Other
Distributions."
A U.S. Holder who receives proceeds that are taxed as a dividend should
generally be able to transfer the unrecovered tax basis in the MPI Common Shares
sold to any retained, and possibly constructive, stock interest in MPI.
Any gain (other than dividend income) or loss recognized in a sale should
generally be capital gain or loss to a U.S. Holder who holds his, her or their
MPI Common Shares as capital assets. Capital gain or loss on a sale will
generally be treated as long-term capital gain or loss if the holding period for
the MPI Common Shares exceeds one year. Long-term capital gains of individuals
and other non-corporate taxpayers are taxed at a maximum marginal Federal income
tax rate of 20 percent on most capital assets held for more than one year,
whereas short-term capital gains and other income of such persons are taxed at
the maximum marginal Federal income tax rate of 39.6 percent.
Non-U.S. Holders
- ----------------
The following discussion is limited to certain United States Federal
income tax consequences relevant to a Non-U.S. Holder. For this purpose, a
"Non-U.S. Holder" means any MPI Common Shareholder other than a U.S. Holder.
- ----------------
For purposes of the following discussion, dividends and gain on the sale,
exchange or other disposition of MPI Common Shares will be considered to be
"United States trade or business income" if such income or gain is (1)
effectively connected with the conduct of a trade or business within the United
States of such Non-U.S. Holder or (2) in the case of certain residents of
certain countries which have an income tax treaty in force with the United
States, attributable to a permanent establishment (or, in the case of an
individual, a fixed base in the United States) as such terms are defined in the
applicable treaty.
23
<PAGE>
Assuming MPI's treatment of the Advances as MPI Common Shares and the
Rescission Offer as a redemption of MPI Common Shares is correct for Federal
income tax purposes, pursuant to the Foreign Investment in Real Property Tax
Act, gain recognized by a Non-U.S. Holder accepting the Rescission Offer will be
treated as a sale or exchanges of MPI Common Shares that is subject to United
States Federal income taxation at regular graduated rates pursuant to Code
Section 897, unless an exemption is provided under an applicable tax treaty.
(See "CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS -- Consequences of
Ownership of MPI Common Shares -- Non-U.S. Holders -- Sale, Exchange or
Redemption of MPI Common Shares.") The gain would be treated as effectively
connected with the conduct of a trade or business within the United States and
the sale or other disposition generally would be subject to withholding tax
equal to 10 percent of the amount realized therefrom.
If the acceptance of the Rescission Offer fails to qualify as a tax
redemption, then the amount refunded (including the amount denominated as
interest) will be characterized as a distribution with respect to MPI's stock
taxable as a dividend to the extent of MPI's accumulated and current earnings
and profits. (See "CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS --
Consequences of Ownership of MPI Common Shares -- Non-U.S. Holders -- Dividends
and Other Distributions.")
In addition, distributions, if any, paid on the MPI Common Shares, to the
extent not made from current and/or accumulated earnings and profits of MPI, as
determined for United States Federal income tax purposes, are also treated as
taxable exchanges of stock to which the rules applicable to sales, exchanges and
redemptions apply. (See "CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS --
Consequences of Ownership of MPI Common Shares -- Non-U.S. Holders -- Sale,
Exchange or Redemption of MPI Common Shares.")
To the extent that a Non-U.S. Holder rejects the Rescission Offer and
receives proceeds, denominated as interest on its Advance, such proceeds will be
characterized as a distribution with respect to MPI's stock taxable as a
dividend to the extent of MPI's accumulated and current earnings and profits.
See "CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS -- Consequences of
Ownership of MPI Common Shares -- Non-U.S. Holders -- Dividends and Other
Distributions."
For a discussion of the information reporting and backup withholding
obligations associated with any payment made hereunder, see "CERTAIN UNITED
STATES FEDERAL TAX CONSIDERATIONS -- Consequences of Ownership of MPI Common
Shares -- Non-U.S. Holders -- Information Reporting and Backup Withholding."
THE OFFER
To give each Meadows Homeowner the opportunity to share, indirectly, in
the ownership of the Park, MPI is offering to sell up to 2,347 MPI Common Shares
to Meadows Homeowners pursuant to this Prospectus. Each Meadows Homeowner,
regardless of whether such Meadows Homeowner previously made an Advance to MPI-
1, may purchase any number of MPI Common Shares, up to a maximum aggregate of
2,347 MPI Common Shares. The maximum aggregate number of MPI Common Shares
includes (1) Advances converted into MPI Common Shares,
24
<PAGE>
where Advancing Homeowners submit signed Subscription Agreements and (2) MPI
Common Shares subscribed to by Meadows Homeowners pursuant to this Prospectus.
If MPI receives subscriptions from Meadows Homeowners to purchase more
than 2,347 MPI Common Shares, the shares to be purchased by each subscribing
shareholder (including, without limitation, those Advances converted into MPI
Common Shares by any Advancing Homeowners who did not accept the Rescission
Offer) will be reduced. The number of MPI Common Shares each subscribing
shareholder will be permitted to purchase will be that number equal to the
number of MPI Common Shares subscribed for by such Meadows Homeowner, multiplied
by a fraction, the numerator of which is 2,347 and the denominator of which is
the aggregate number of MPI Common Shares for which MPI receives offers to
subscribe, adjusted to the nearest whole number.
All of the proceeds received by MPI from the sale of MPI Common Shares
pursuant to this offering will be contributed to the Partnership. MPI will
receive in exchange a fractional ownership interest in the Partnership,
including all of the benefits provided in the Partnership Agreement to a general
partner, together with all of the obligations of a general partner to the
Partnership (the "Partnership Units"). (See "USE OF PROCEEDS.")
-----------------
TO ACCEPT THE OFFER, A MEADOWS HOMEOWNER MUST COMPLETE AND SIGN THE
SUBSCRIPTION AGREEMENT AND SEND IT TO MPI. THE OFFER EXPIRES ON MARCH 19,
------------------------------
1999. MPI MUST RECEIVE YOUR SIGNED SUBSCRIPTION AGREEMENT ON OR BEFORE
- ---- ----------------------------------------------------------------
THAT DATE.
- ---------
USE OF PROCEEDS
All costs and expenses of this offering will be initially paid by BRC and
reimbursed to BRC by the Partnership. Thus, if all 2,347 of the MPI Common
Shares offered by this Prospectus are sold, MPI will receive aggregate proceeds
of $2,347,000. If MPI sells less than 2,347 MPI Common Shares, it will receive
proceeds of $1,000 for each MPI Common Share sold.
All of the proceeds received by MPI from the sale of MPI Common Shares
pursuant to this offering, plus $7,000, will be contributed to the Partnership
in exchange for Partnership Units. MPI will contribute $1,000 for each
Partnership Unit acquired. The number of MPI Common Shares sold will determine
the total amount of MPI's contribution to the Partnership and the number of
Partnership Units received by MPI in exchange for such contribution. The number
of Partnership Units issued to MPI will determine MPI's percentage interest in
the Partnership.
BRC will contribute $1,000 for each Partnership Unit it acquires from the
Partnership. BRC will acquire 4,708 Partnership Units less the number of
Partnership Units acquired by MPI. Thus, BRC will contribute to the Partnership
$4,708,000, less the amount of cash proceeds contributed by MPI. In addition,
BRC will contribute $2,256,000 to the Partnership for which BRC may in the
future receive additional Partnership Units if lots in the Park that are
unoccupied as of the date of the Partnership Agreement are leased to tenants.
Some or all of these additional Partnership Units issued to BRC may be sold to
MPI. (See "SUMMARY OF THE
25
<PAGE>
PARTNERSHIP AGREEMENT -- Unoccupied Lots -- Issuance of Additional Partnership
Units to BRC.") To the extent that BRC does not receive additional Partnership
Units on account of this $2,256,000 contribution, BRC will have a priority right
to receive that portion of this contribution for which it did not receive
additional Partnership Units, without interest, upon liquidation of the
Partnership.
BRC has also agreed to contribute an additional $200,000 to pay for the
cost of certain capital improvements to the Park. BRC will not be issued
additional Partnership Units on account of this additional contribution but this
amount will be credited to BRC's partnership capital account. In addition, BRC
will pay $100,000 to MPI, a portion of which shall be applied by MPI to pay
interest to the Advancing Homeowners.
The Partnership will reimburse BRC for all costs and expenses of this
offering paid by BRC including, without limitation, the fee payable to Coastal
Financial Security, Inc. and all legal, accounting and other fees and expenses
incurred by MPI and BRC, or any of BRC's affiliates, in connection with or
relating to the acquisition of the Park by MPI, the financing of such
acquisition, the sale of MPI Common Shares, the reorganization of MPI from a
Florida non-stock, non-profit corporation into a Florida for-profit, stock
corporation, the formation of the Partnership, the transfer of the Beneficial
Interest in the Park to the Partnership and the negotiation and preparation of
the various agreements, documents and writings relating to any of the foregoing.
These costs and expenses are estimated to aggregate approximately $468,000. The
Partnership will also pay any balance in interest remaining under the Loan to
MHC lending after MPI pays interest to the extent of the cash available from the
net operating income of the Park through the Closing Date. As of September 30,
1998, this balance in interest totaled approximately $100,000. All contributions
to the Partnership by MPI and BRC will be used first to pay such expenses, and
the balance will be used to repay a portion of the Loan and to provide operating
capital for the Partnership. (See "SUMMARY OF THE PARTNERSHIP AGREEMENT Capital
Contributions.").
The proceeds of the Loan, $12,341,693, were used to purchase the Park.
The Loan is nonrecourse to MPI, the successor by mergers to MPI-1, except that
MPI is personally liable for losses, damages, costs and expenses arising from
its misapplication of funds, fraud, and default under certain environmental, tax
and insurance provisions of the Loan. The Loan is secured by a first priority
mortgage on the Park and an assignment of all leases and rents on and from lots
in the Park. The maturity date of such Loan, as extended, is April 30,
1999.
CAPITALIZATION
The following table sets forth the capitalization of MPI as of December
31, 1998 and as adjusted to give effect to the issuance and sale of the MPI
Common Shares. The information set forth in the following table should be read
in conjunction with the financial statements and notes thereto included
elsewhere in this Prospectus.
26
<PAGE>
<TABLE>
<CAPTION>
JANUARY 29, 1999
----------------
Actual As Adjusted If
------ --------------
All Shares Sold No Shares Sold
--------------- --------------
<S> <C> <C> <C>
Note Payable, MHC Lending/1/.................... $12,341,693 $ 12,341,693 $ 12,341,693
Total Debt...................................... $12,341,693 $ 12,341,693 $ 12,341,693
STOCKHOLDER'S EQUITY
Common Stock, $.01 par value, 10,000 shares
authorized; 7 shares issued and outstanding as of
January 29, 1999; up to 2,354 shares
to be issued and outstanding as adjusted............. $ .07 $ 23.54 $ .07
Additional Paid-In Capital............................ $ 6,999.93 $2,353,976.46 $ 6,999.93
Preferred Stock, no par value, 400 shares authorized;
235 issued and outstanding--
Liquidation value $25 per share or $5,875........... $ 0 $ 0 $ 0
</TABLE>
/1/ On the Closing Date, the Beneficial Interest in the Park will be transferred
to the Partnership, which will assume this debt. All contributions to the
Partnership by MPI and BRC will be used first to pay expenses of the offering
and the balance in interest remaining under this loan after MPI pays interest in
accordance with the Contribution Agreement. The remaining amounts contributed by
MPI and BRC to the Partnership will be used to provide operating capital for the
Partnership and to repay a portion of this debt. (See "USE OF PROCEEDS"). The
Partnership intends to refinance this debt following the closing on the transfer
of the Beneficial Interest in the Park to the Partnership, but no commitment has
yet been obtained. (See "DESCRIPTION OF BUSINESS -- Description of Business of
the Partnership.")
DIVIDEND POLICY
MPI intends to pay regular quarterly distributions to MPI Common
Shareholders to the extent cash is available after payment of taxes and
operating and other expenses. However, MPI may retain earnings in the sole
discretion of its Board of Directors for any purpose, including the repurchase
of MPI Common Shares. No assurance can be given that any level of distributions
will be made or sustained.
DESCRIPTION OF BUSINESS
Description of Business of MPI
- ------------------------------
MPI currently owns the record interest and the Beneficial Interest in the
Park but will contribute the Beneficial Interest in the Park to the Partnership
on the Closing Date. Thereafter, MPI will be one of two Partners of the
Partnership and will operate the Park through the Partnership.
27
<PAGE>
In addition, MPI will continue to act as the homeowners' association under
the Florida Mobile Home Act. MPI currently has no employees and does not
anticipate hiring any employees. MPI-1 acquired the Park on December 18, 1997
and, until then, had never engaged in any business activities other than being
the homeowners' association for the Park under the Florida Mobile Home Act.
MPI, as MPI-1's successor, does not intend to engage in any activities other
than acting as a general partner of the Partnership and operating the Park
through the Partnership and acting as the homeowners' association under the
Florida Mobile Home Act. In addition, on the Closing Date, MPI will execute the
Nominee Agreement, which will provide that MPI will hold the record interest in
the Park as nominee for and agent of the Partnership and the parties will record
against the title to the Park a Memorandum of Title Holding, Nominee and Agency
Agreement.
You should carefully review the information set forth under "RISK FACTORS"
beginning on page 10 for a description of those distinctive or special
characteristics of MPI's operations or the mobile home park industry which may
have a material impact upon MPI's future financial performance.
It is anticipated that the distributions from the Partnership will be
sufficient to pay MPI's expenses for the six month period following the
consummation of the Offer, and that MPI will not need to raise any additional
funds during this period. The Partnership Agreement provides that MPI is not
obligated to make additional capital contributions or any loans to the
Partnership.
MPI will be subject to the reporting requirements of Section 15(d) of the
Exchange Act this year. Thereafter, it is anticipated that MPI will not be
subject to these reporting requirements. Nevertheless, MPI intends to provide
its MPI Common Shareholders an annual report containing unaudited financial
statements of MPI. MPI's policy with regard to making annual reports to
security holders may be changed by the officers and directors of MPI without a
vote of security holders.
MPI does not intend to engage in transactions with affiliates, officers or
directors unless such transactions are on terms at least as favorable as could
be obtained from unaffiliated independent third parties, are for a bona fide
business purpose and are approved by a majority of disinterested directors.
MPI's principal offices are located at: 2555 PGA Boulevard, Palm Beach
Gardens, Florida, 33410 and its telephone number is: (561) 626-0888.
Description of Business of the Partnership
- ------------------------------------------
BRC and MPI (the "Partners") formed the Partnership on September 30, 1998.
--------
It is anticipated that MPI will convey the Beneficial Interest in the Park to
the Partnership within three business days after the Offer is completed, or
earlier if mutually agreed by the Partners, at which time the Partnership will
acquire, hold, operate and, if and when appropriate, sell the Beneficial
Interest in the Park and engage in any and all activities reasonably related or
incidental thereto. The Partners are required to devote as much time as is
necessary to perform
28
<PAGE>
their duties and must exercise due diligence in causing the Partnership to
comply with all legal requirements applicable to the Partnership.
Pursuant to the Partnership Agreement, BRC is responsible for day-to-day
management and control of the business and affairs of the Partnership. BRC's
responsibilities include arranging and securing the initial financing necessary
to repay the debt due from MPI to MHC Lending (provided the terms of such
financing are consistent with the Property Management and Operation Plan (the
"Operation Plan") attached to the Partnership Agreement), arranging for the
- ---------------
refinancing(s) of such initial financing as may be required and incurring
indebtedness on behalf of the Partnership in the ordinary course of the
Partnership's business. Major decisions require the approval of both Partners.
(See "SUMMARY OF THE PARTNERSHIP AGREEMENT -- Management of the Partnership.")
Distributions of all available net cash flow and net capital proceeds
(after necessary or appropriate reserves have been established), if any, will be
made by the Partnership to MPI and BRC, on a quarterly basis, based on the
number of Partnership Units owned by each approximately 14 days prior to the
date of distribution. (See "SUMMARY OF THE PARTNERSHIP AGREEMENT --
Distributions.")
In December, 1997, MHC Lending loaned $12,341,693.46 to MPI-1. The
Partnership will assume the Loan when the Beneficial Interest in the Park is
transferred to it. It is anticipated that the Partnership will refinance the
Loan after this offering, although no commitment from any lender has yet been
obtained and it may not be possible to refinance the Loan on terms satisfactory
to MPI and BRC while the lawsuit against MPI is pending. (See "LEGAL
PROCEEDINGS").
It is anticipated that the rents from the Park will be sufficient to pay
all expenses of the Partnership, other than those incurred in the refinancing of
the Loan, for the six months following the Offer and that the Partnership will
not need to raise any other additional funds during this period. The Partnership
Agreement provides that neither Partner is obligated to make additional capital
contributions or any loans to the Partnership. BRC has, however, agreed to pay
the costs of marketing the Unoccupied Lots. (See "SUMMARY OF THE PARTNERSHIP
AGREEMENT -- Capital Contributions.")
Initially the Partnership's principal office will be located at: 2555 PGA
Boulevard, Palm Beach Gardens, Florida 33410 and its telephone number will be
(561) 626-0888.
Management of the Park
- ----------------------
MHC Management will manage the Park in accordance with the terms of a
property management and leasing agreement to be entered into between the
Partnership and MHC Management (the "Management Agreement"). MHC Management
--------------------
will receive a management fee of 4 percent of the Partnership's gross annual
revenues. If at any time MHC Management (or another affiliate of MHC) does not
manage the Park, BRC or its affiliate will receive a fee equal to one percent of
the annual gross revenues of the Partnership. BRC or its affiliate will also
receive a one-time placement fee of $120,000 from the Partnership.
29
<PAGE>
The Management Agreement will provide that MHC Management will perform
all services and actions customarily performed or taken by managing agents of
properties of similar nature, location and character to the Park at the
Partnership's expense.
MHC Management will be responsible for:
. collecting all rents and paying expenses of the Park;
. hiring and supervising MHC Management personnel;
. contracting with third parties;
. maintaining the Park's equipment and the common areas of the Park;
. repairs to the Park;
. supervision of Meadows Homeowners' complaints, relocation, tenancies, etc.;
. maintaining insurance on the Park;
. advertising;
. complying with all laws, rules, regulations and other legal requirements;
. leasing currently occupied lots in the Park that become unoccupied;
. preparing an annual operating budget as well as year-end, monthly and
interim operating reports; and
. maintaining the Park's books and records and operating account.
MHC Management will subcontract for some or all of these services at
the Partnership's expense. The Partnership currently has no employees.
The Management Agreement will also provide that the Partnership shall
indemnify MHC Management for all liabilities, claims, suits, damages, judgments,
and reasonable costs and expenses, including reasonable attorneys' fees it
incurs, arising from (1) MHC Management's proper performance under the
Management Agreement; (2) the Partnership's negligent, willful or fraudulent
acts; and (3) the Partnership's performance of actions not permitted by the
Management Agreement.
Environmental Concerns
- ----------------------
Under various Federal, state and local environmental laws, ordinances,
regulations and common law, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances in, under or on such property. Such laws, ordinances and
regulations often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances. MPI
is not aware of any material violations of currently applicable environmental
laws or regulations with respect to the Park and therefore does not currently
contemplate any material capital expenditures for environmental control
facilities. However, no extensive environmental investigation has been
undertaken with respect to the Park and there can be no assurance that
violations have not occurred and will not occur in the future, or that more
stringent laws will not be enacted in the future that may require such
expenditures, or that would otherwise cause the Partnership or MPI to suffer
material adverse consequences.
30
<PAGE>
DESCRIPTION OF PROPERTY
The Meadows Mobile Home Park
- ----------------------------
The Park is located at 2555 PGA Boulevard, Palm Beach Gardens, Florida
33410. The Park consists of 55 acres of property zoned for residential mobile
home use. The Park's lots are divided into two phases: Phase I, constructed in
1968, contains 234 lots; Phase II, constructed in 1981, contains 146 lots, for a
total of 380 lots. The typical mobile home lot in the Park is approximately 60
by 68 feet in size. The smallest lot is 25 by 60 feet and the largest 87 by 72
feet.
The Park's Facilities
- ---------------------
The Park includes the following common facilities: a multiple purpose
building (incorporating a billiard room, social room, bathrooms, storage rooms
and laundry room); a heated pool; a jacuzzi; a deck area; six regulation-size
cement shuffleboard courts; a mobile home (with garage) used as an
administrative office and for storage; a system of private asphalt roads that
run throughout the Park, approximately 1.5 miles in length and 20 feet wide; 32
parking spaces appurtenant to the Park's clubhouse and other facilities; and a
pump house with four auxiliary pumps for use by tenants for irrigation purposes.
Location of the Park
- --------------------
Palm Beach Gardens, Florida was founded in 1959 and is located
approximately 9 miles from West Palm Beach and 406 miles from Tallahassee. It is
the second largest city in Palm Beach County with a population of approximately
35,000 residents.
Rental Prospectus
- -----------------
Each Meadows Homeowner rents a lot in the Park based on the terms of a
prospectus (rental agreement) approved by the State of Florida, Department of
Business and Professional Regulation, Division of Land Sales, Condominiums and
Mobile Homes. The prospectus summarizes the management of the Park and the
rental and other obligations of the tenants to the Park owner. Each prospectus
will continue to operate as a binding agreement between the Partnership, as
owner of the Park, and the applicable Meadows Homeowner.
The amount of "base rent" payable by each tenant is stated in the
prospectus applicable to him or her. In addition to the base rent, tenants are
required to pay: (1) "special use fees" such as security deposits, pet fees,
guest fees and pest control fees; (2) "governmental and utilities charges"
including real estate taxes and special assessments, water, sewer, wastewater,
trash, garbage, and cable television fees; and (3) "miscellaneous financial
obligations" such as delinquent rent charges, returned check charges, costs of
construction of improvements to the Park mandated by statute and future utility,
educational and recreational costs and expenses. The approved prospectus also
requires that the tenants install certain improvements and states that tenants
must comply with the rules and regulations of the Park.
31
<PAGE>
Operating Data
- --------------
The average occupancy rate of the lots in the Park has been approximately 78%
for the last 5 years. Currently, 299 of the 380 lots are occupied by Meadows
Homeowners, 78 lots are unoccupied, 1 lot is used as an office and 2 lots are
unusable due to size and location. The following table summarizes the occupancy
rate of the Park's lots for each of the last 5 years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE OF OCCUPIED LOTS
---- ---------------------------
<S> <C>
1994 78.1%
1995 78.4%
1996 78.1%
1997 78.1%
1998 78.4%
</TABLE>
None of the Meadows Homeowners leases more than 1 percent of the lots. The only
business carried on at the Park is the day-to-day management and administration
of the Park, and the leasing of lots in the Park to new tenants.
The average annual rent paid per lot for each of the last 5 years is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- --- ---- ----
<S> <C> <C> <C> <C> <C>
Average Annual
Rent Per Lot $4,452 $4,488 $4,608 $4,608 $4,704
</TABLE>
The rental prospectuses provide no fixed expiration dates for the leases. The
rental income from the lots in the Park constitutes approximately 99% of the
gross annual revenues of the Park's owner.
The real estate tax rate or "millage" rate for the Park is $21.3802 per $1,000
of the assessed value of the Park's real property. The amount of annual real
estate taxes paid on the Park in 1997 was $163,906 and the amount paid in 1998
was $168,435.
Future Development & Renovations
- --------------------------------
Future renovation projects may include expanding and remodeling the
clubhouse, adding access control to the Park's entrance, redesigning the
entrance and adding an additional entrance to the Park. Any such projects would
be financed out of BRC's additional Capital Contribution of $200,000 towards
capital improvements, the Partnership's revenues or through borrowings.
LEGAL PROCEEDINGS
On December 8, 1997, Penn Florida Realty, L.P., a Delaware limited
partnership, d/b/a PNFLA Realty Limited Partnership and Penn Florida, Inc. (the
"Plaintiffs") filed an action in the Circuit Court for Palm Beach County,
----------
Florida, against MPI-1 seeking declaratory relief pursuant
32
<PAGE>
to Chapter 86, Florida Statutes and damages in an unspecified amount. In their
Second Amended Complaint, the Plaintiffs allege that they had entered into a
contract with the Park's then-owners to purchase the Park for $12,000,000. They
assert that MPI-1 "breached its obligation of good faith and fiduciary duty,"
"conspired with" BRC and certain of BRC's affiliates to defeat the Plaintiffs'
purchase rights, and tortiously interfered with Plaintiffs' purchase rights, all
in order to enable BRC to purchase an otherwise unavailable property or an
interest in such property. Before selling the Park to the Plaintiffs, acting
pursuant to the Florida Mobile Home Act, the owners gave MPI-1, as the
homeowners' association for the Park, notice of the price, terms and conditions
of the intended sale to the Plaintiffs and offered MPI-1 the opportunity to
purchase the Park pursuant to the same price, terms and conditions. MPI-1
thereupon executed an agreement with the owners to purchase the Park and did
purchase the Park for $12,000,000.
In response to these events, the Plaintiffs brought the action described
above, alleging that MPI-1's purchase of the Park pursuant to the Florida Mobile
Home Act violated the Plaintiffs' constitutional and contractual rights. The
Plaintiffs seek judgment (1) finding that Section 723.071, Florida Statutes is
unconstitutional, on its face or as applied, (2) entitling them to close their
purchase of the Park pursuant to the terms of their contract, and/or (3) for
compensatory damages, court costs, and such other relief as the court deems
appropriate. This action is currently in the discovery stage. MPI is the
successor by mergers to MPI-1 and therefore is now the defendant in this
lawsuit. The court denied, without prejudice, a motion for summary judgment
made by MPI.
SUMMARY OF THE PARTNERSHIP AGREEMENT
The rights and obligations of the Partners are governed by the Partnership
Agreement, as amended, and all schedules thereto, which documents have been
filed with the Securities and Exchange Commission (the "Commission") as an
----------
exhibit to this Registration Statement. For information on how to obtain a
copy, see "ADDITIONAL INFORMATION." The following summary and all other
statements in this Prospectus concerning the Partnership Agreement and related
matters merely outline material provisions of, and do not purport to be complete
or in any way modify or amend, the Partnership Agreement. Capitalized terms
used in the following description shall have the meanings given in the
Glossary.
Capital Contributions
- ---------------------
On September 30, 1998, each of the Partners executed the Partnership
Agreement and made an initial Capital Contribution of $1,000 in return for one
(1) Partnership Unit. Each of the Partners executed a First Amendment to General
Partnership Agreement dated as of January 27, 1999. The Partnership Agreement,
as amended, provides that on the Closing Date, MPI is required to make
supplemental Capital Contributions to the Partnership of: (1) all of the cash
proceeds received by MPI in the Offer plus $7,000; (2) the Beneficial Interest
in the Park; and (3) MPI's right, title and interest in all of the intangible
property and tangible personal property acquired by MPI in connection with its
acquisition of the Park. MPI's Beneficial Interest in the Park and its interests
in intangible and tangible personal property will be contributed to the
Partnership subject to the Loan which is secured by such property. MPI may not
contribute more than $2,354,000 in cash proceeds. MPI will receive, in exchange,
that number of Partnership
33
<PAGE>
Units equal to the cash proceeds received in the Offer, plus $7,000, divided by
$1,000. BRC will make a supplemental Capital Contribution of $4,708,000 less the
total amount of cash proceeds contributed by MPI and will receive Partnership
Units for such Capital Contribution equal to $4,708,000 less the amount of MPI's
Capital Contribution, divided by $1,000.
BRC will contribute to the Partnership (1) an additional $2,256,000 on
account of the Unoccupied Lots, for which BRC will not immediately receive any
Partnership Units but will receive up to an additional 2,256 Partnership Units
at such time as the Unoccupied Lots are leased to tenants and (2) $200,000 to be
used by the Partnership to fund capital improvements to the Park, for which BRC
will not receive any Partnership Units, but will receive a credit to its
partnership capital account in the amount of $200,000. (See "SUMMARY OF THE
PARTNERSHIP AGREEMENT -- Unoccupied Lots -- Issuance of Additional Partnership
Units to BRC.")
No Partner may withdraw any Capital Contributions without the consent of
both Partners. Neither Partner will receive any interest, salary or drawing with
respect to its Capital Contributions or for services rendered on behalf of the
Partnership or otherwise, nor shall either Partner have any obligation to
restore a deficit balance in its Capital Account.
Distributions
- -------------
Under the Partnership Agreement, Net Cash Flow shall be distributed, at
quarterly intervals, to the Partners in the ratio of their Percentage Interests
as measured on the applicable Partnership Record Date. "Net Cash Flow" means
-------------
all cash received from Partnership operations not including amounts received as
Capital Contributions, reduced by all cash paid, or amounts used to establish
reasonable reserves, for all Partnership expenses, debt payments, capital
improvements, replacements or other contingencies. "Percentage Interest" means,
-------------------
as to each Partner, an interest in the Partnership determined by dividing the
Partnership Units owned by such Partner by the total number of Partnership Units
then outstanding. The "Partnership Record Date" means, with respect to each
-----------------------
distribution to the Partners, the date that is fourteen (14) days prior to the
date of such distribution (or if such fourteenth (14th) day is not a business
day, the last business day immediately preceding such fourteenth (14th) day).
Net Capital Proceeds, if any, shall be distributed at quarterly intervals
or such other times as shall be mutually agreed by the Partners to the Partners
on the applicable Partnership Record Date. Such distributions shall be made
first, to BRC in an amount equal to $28,200.00 for each Unoccupied Lot that has
not become occupied by a tenant at any time on or before the Partnership Record
Date and thereafter, to the Partners in the ratio of their Percentage Interests.
"Net Capital Proceeds" means the net cash proceeds remaining in the Partnership
--------------------
and available for distribution derived from any excess Capital Contributions,
mortgages or other financings or refinancings, any sales and other dispositions
(other than in the ordinary course of business) of the property of the
Partnership, or any part thereof, any insurance award paid on account of
destruction by casualty or from an eminent domain proceeding or conveyance in
lieu thereof, or any other nonrecurring capital transaction after deduction of
all expenses, charges and taxes incurred by the Partnership in connection with
obtaining such proceeds and of any portion of such proceeds actually applied to
the payment of Partnership indebtedness or to repair, restore or improve the
property of the Partnership and after deduction of amounts used to
establish
34
<PAGE>
reasonable reserves. Net Capital Proceeds shall include all principal and
interest payments with respect to any note or other obligation received by the
Partnership in connection with any sales and other dispositions (other than in
the ordinary course of business) of the property of the Partnership.
Distributions in liquidation will be made in accordance with the Capital
Accounts of the Partners. (See " -- Dissolution and Winding Up.")
Allocations of Profit and Loss
- ------------------------------
Profit of the Partnership for each fiscal year, up to the amount of Net
Cash Flow distributed for such fiscal year, will be allocated in the same
proportion that Net Cash Flow is distributed. To the extent the Profit for the
fiscal year exceeds Net Cash Flow, such excess Profit will be allocated in the
same manner as Profit from a sale or disposition of less than all or
substantially all of the Partnership's assets (see below).
Losses of the Partnership (other than Losses from the sale of all or
substantially all assets or partial sales--see below) for each fiscal year shall
be allocated to the Partners as follows: (1) first, to those Partners with
positive Capital Account balances (determined with certain adjustments) in
proportion to and to the extent of, such Capital Account balances; and (2)
thereafter, to the Partners in the ratio of their Percentage Interests.
Profit resulting from a sale or other disposition of all or substantially
all of the Partnership's assets, or upon dissolution of the Partnership, shall
be allocated to those Partners having negative Capital Accounts (determined with
certain adjustments) in proportion to, and to the extent of, such negative
Capital Accounts. Any remaining such Profit and all Loss resulting from a sale
or other disposition of all or substantially all of the Partnership's assets, or
upon dissolution of the Partnership, shall be allocated to the Partners so as to
produce Capital Accounts for the Partners such that the amounts distributed in
liquidation of the Partnership (see below) will be in the amounts, sequence and
priority set forth with respect to distributions of Net Capital Proceeds. (See
" --Distributions.")
Profit of the Partnership resulting from the sale or other disposition
(other than in the ordinary course of business) of less than all or
substantially all of the Partnership's assets shall be allocated to those
Partners having negative Capital Accounts (determined with certain adjustments)
in proportion to and to the extent of, such negative Capital Accounts. Any
remaining such Profit and all Loss resulting from sale or other disposition
(other than in the ordinary course of business) of less than all or
substantially all of the Partnership's assets shall be allocated to the Partners
so as to produce Capital Accounts for the Partners (computed in the manner set
forth in the preceding sentence) such that if an amount of cash equal to such
positive Capital Account balances were distributed in accordance with such
positive Capital Account balances, such distribution would be in the amounts,
sequence and priority set forth with respect to distribution of Net Capital
proceeds. (See " --Distributions.")
Items of income, gain, loss and deduction arising in the fiscal year in
which there is a sale or other disposition of all or substantially all of the
Partnership's assets or in which the
35
<PAGE>
Partnership is dissolved shall be allocated to the Partners to the extent and in
the manner necessary to produce Capital Accounts for the Partners such that the
amounts distributed pursuant to Dissolution and Winding Up (see below) will be
in the same amounts, sequence and priority as distributions of Net Capital
Proceeds. (See " -- Distributions.")
Neither the Partners nor the Partnership shall make or attempt to make an
election under Code Section 754 to adjust the basis of Partnership property as
provided in Code Sections 734(b) and 743(b).
The Partnership Agreement also contains certain other allocation provisions
intending to comply with Treasury regulations that govern the allocation of
Partnership taxable income and loss.
Meetings of the Partners
- ------------------------
Meetings may be called by either Partner. Notice of the meeting, stating
the nature of the business to be transacted, must be given to the other Partner
no less than seven and no more than 30 days before the meeting. Where a vote of
both Partners is required or permitted, such vote may be given in person or by
telephone or in writing. The vote of the Partners holding more than 50 percent
of the Partnership Interests shall control (except that certain decisions
require the approval of both Partners). (See " -- Management of the
Partnership.")
Each Partner may authorize another person to act for it by executing a
proxy signed by the Partner or its attorney-in-fact. Such proxies are valid for
11 months and are revocable.
BRC or its appointee will conduct all Partnership meetings pursuant to
rules BRC deems appropriate. All such meetings, unless otherwise agreed, will
be held at the principal place of business of the Partnership.
Unoccupied Lots -- Issuance of Additional Partnership Units to BRC
- ------------------------------------------------------------------
BRC (directly or through its affiliates) shall be responsible for marketing
all Unoccupied Lots to potential tenants. On or before March 1 of each year,
BRC shall determine (1) the market value of each Partnership Unit, in accordance
with a specific formula (the "Unit Value") and (2) the market value of each lot
----------
that is occupied by a tenant, in accordance with a specific formula (the
"Occupied Lot Value"). (These formulas are specifically described under " --
- -------------------
Sale of Partnership Units Relating to Put Right and Call Right -- MPI Common
Shareholder's Put Right."). BRC must deliver notice of the Unit Value and
Occupied Lot Value (collectively, the "Values") to MPI in writing and such
------
values will be binding on BRC and MPI until notice of new Values has been
delivered to MPI in writing.
If a new tenant takes possession of an Unoccupied Lot, BRC will receive,
for no additional consideration, additional Partnership Units in an amount equal
to the then-current Occupied Lot Value divided by the then-current Unit Value,
adjusted to the nearest whole number. Thereafter, subject to compliance with
applicable securities laws, MPI shall, not earlier than 183 days after the
Closing Date, and thereafter promptly, offer to sell to the new tenant who has
taken possession of an Unoccupied Lot, a number of MPI Common Shares equal to
the
36
<PAGE>
number of additional Partnership Units BRC received upon the leasing of such
Unoccupied Lot multiplied by: the number of MPI Common Shares then issued and
outstanding (not including any shares held as treasury stock), divided by the
number of Partnership Units held by MPI at that time (the "Stock/Unit Ratio"),
----------------
at a price equal to the Unit Value divided by the Stock/Unit Ratio.
For example, assume that the current Occupied Lot Value is $40,335, the
Current Unit Value is $1,297.98, 1,000 MPI Common Shares were initially issued
by MPI and 1,000 Partnership Units were issued to MPI and that, using its own
funds, MPI has repurchased 250 MPI Common Shares from MPI Common Shareholders,
then, BRC would receive 31 additional Partnership Units and MPI would be
required to offer to sell the new tenant 23 MPI Common Shares at $1,730.64 per
share calculated as follows:
First, determine the number of Partnership Units to be issued by the
Partnership to BRC: $40,335 (the current Occupied Lot Value) $1,297.98 (the
current Unit Value) = 31 (rounded to the nearest whole number).
Second, calculate the Stock/Unit Ratio: 750 (number of outstanding MPI
Common Shares) 1,000 (number of MPI's Partnership Units) = 0.75.
Third, determine the number of MPI Common Shares which MPI would be
required to sell to the new tenant: 31 (the number of Partnership Units issued
to BRC) x 0.75 (the Stock/Unit Ratio) = 23 (rounded to the nearest whole
number).
Next determine the price per share payable by the new tenant: $1,297.98
(the current Unit Value) 0.75 (the Stock/Unit Ratio) = $1,730.64
(See " -- Sale of Partnership Units Relating to Put Right and Call Right" for a
description of how the Occupied Lot Value and Unit Value are calculated and an
example of such calculations.)
If the new tenant accepts the offer to purchase all or some of the MPI
Common Shares, MPI shall issue the applicable MPI Common Shares to the new
tenant in exchange for the purchase price.
MPI is required to give written notice to BRC of the issuance of MPI Common
Shares to the new tenant, and such notice shall constitute MPI's request to
purchase a number of BRC's additional Partnership Units equal to the number of
MPI Common Shares issued to the new tenant, divided by the Stock/Unit Ratio. For
Example: assume 23 MPI Common Shares were issued to the new tenant and the
Stock/Unit Ratio is 0.75, then MPI's notice shall constitute its request to
purchase all 31 of BRC's additional Partnership Units calculated by dividing 23
(the number of MPI Common Shares issued to the new tenant) by 0.75 (the
Stock/Unit Ratio) = 30.6667. (See above for calculation of Stock/Unit
Ratio.)
BRC will sell such additional Partnership Units to MPI upon receipt of the
aggregate purchase price payable by the new tenant and evidence of the issuance
of the MPI Common Shares to the new tenant. BRC, however, is not obligated to
sell to MPI additional Partnership
37
<PAGE>
Units where such sale would cause BRC's Partnership Interest to equal less than
50 percent of all the Partnership Interests, and MPI has agreed not to issue any
MPI Common Shares to the extent that such issuance would cause BRC's Partnership
Interest to fall below 50 percent.
Management of the Partnership
- ------------------------------
Under the Partnership Agreement, the Partners have delegated to BRC full
authority and responsibility to conduct the day-to-day management and control of
the business and affairs of the Partnership including, without limitation, the
authority to make all decisions with respect to the following:
(1) arranging initial refinancing of the Loan from MHC Lending, and
arranging for the refinancing of such debt, if necessary, and
granting, on behalf of the Partnership, all mortgages, encumbrances
and/or security interests required by lender(s) in connection with any
such refinancing, so long as the foregoing complies with the terms set
forth in the Operation Plan (see " -- Operation Plan");
(2) incurring indebtedness on behalf of the Partnership in the ordinary
course of business; and
(3) doing all other things authorized by the Partnership Agreement and
those other things that are necessary, advisable or convenient in
connection with the management, operation or administration of the
Park or the Partnership's business or affairs.
Certain management decisions, however, must be approved by both BRC and MPI.
They include:
(1) the performance of any act in contravention of the Partnership
Agreement;
(2) the sale, exchange or other transfer of all or a substantial portion
of the Park;
(3) arranging financing for the Partnership or securing such financing
(except for the initial refinancing of the Loan from MHC Lending and
the refinancing of such initial refinancing);
(4) changing the designation of the holder of legal record title to the
Park or any other property owned by the Partnership;
(5) dissolving the Partnership;
(6) ceasing or substantially altering the use of the Park as a mobile home
park or manufactured home community;
(7) performing any act that would make it impossible to carry on the
ordinary business of the Partnership;
(8) modifying the amount of the Capital Contribution to be made in
exchange for issuance of a Partnership Unit;
(9) permitting either Partner to withdraw its Capital Contribution;
(10) altering or deviating from the Operation Plan (see " -- Operation
Plan");
(11) approving the annual operating budget for the Property to be prepared
and submitted by the Property Manager;
(12) approving any amendment to the Management Agreement or the appointment
of any replacement manager (unless the replacement manager is an
Affiliate of BRC); and
38
<PAGE>
(13) any other Partnership action requiring the consent of both Partners
under the Partnership Agreement.
BRC also has been designated the "Tax Matters Partner" pursuant to the Code.
Operation Plan
--------------
Unless otherwise agreed by both Partners, the Park will be operated in
accordance with the terms of the Operation Plan. The following is a summary of
the material provisions of the Operation Plan. Because of market conditions or
other factors there is no assurance that the increases in base rent provided for
in the Operation Plan and discussed below will be achieved.
Through the tenth anniversary of January 1, 2000, the base rent payable
by a Meadows Homeowner will increase annually by the greater of: (a) five
percent or (b) the annual percentage increase in the "Consumer Price Index for
All Urban Consumers, All Items" prepared by the Bureau of Labor Statistics of
the United States Department of Labor. Also, through the tenth anniversary of
January 1, 2000, each Meadows Homeowner will pay additional monthly rent equal
to one-twelfth of such Meadows Homeowner's pro rata share of aggregate ad
valorem and non-ad valorem taxes and utilities assessed on the Park, subject to
compliance with the rental prospectus and applicable law. Increases in base rent
beginning on January 1, 2010 will be determined in accordance with the Florida
Mobile Home Act and current industry practices with respect to rents and rental
increases for mobile home parks and manufactured home communities in Florida.
The Partnership shall apply no less than 1.5 percent of the annual gross
revenues of the Partnership to capital improvements or to reserves for capital
improvements to the Park.
Subject to applicable law, BRC or its affiliate will act as the exclusive
sales and marketing agent for the Park and shall have the exclusive right to
develop and market additional lots in the Park, except that Meadows Homeowners
will have the right to sell their manufactured homes independent of BRC or its
affiliate. Meadows Homeowners may sublease their manufactured homes in
accordance with current practice in effect as of the date of the Partnership
Agreement so long as such Meadows Homeowners continue to comply with their
rental agreements, and both the Meadows Homeowners and the sublessees comply
with the Park's rules and regulations. Subject to applicable law, the
Partnership may require the removal from the Park of any manufactured home that
is not maintained in good condition and repair and in compliance with the rules
and regulations.
Indemnification
- ---------------
The Partnership will indemnify any Partner that incurs a personal loss or
damages arising from any act performed by such Partner on behalf of the
Partnership except where such Partner acted in bad faith, was grossly negligent
or engaged in willful misconduct.
Execution of Documents
- ----------------------
The signatures of both BRC and MPI are necessary for the Partnership to
convey title to any real property owned by the Partnership. BRC's signature
alone is necessary and sufficient to execute any promissory notes, trust deeds,
mortgages or other instruments of hypothecation.
39
<PAGE>
Call Right of BRC's Partnership Interest
- ----------------------------------------
On the tenth anniversary of January 1, 2000 and on each fifth anniversary
thereafter (the "Call Exercise Date"), MPI shall have the right to require BRC
------------------
to sell to MPI or certain of its Affiliates all (but not less than all) of BRC's
Partnership Units on terms including the following: (1) MPI shall give BRC
written notice of its exercise of this right at least 90 days before the
applicable Call Exercise Date; and (2) the price for BRC's Partnership Units
shall be the number of Partnership Units held by BRC, multiplied by the then-
current Unit Value (see " -- Sale of Partnership Units Relating to Put Right and
Call Right -- Determination of Unit Value" below), plus $28,200.00 for each
----
Unoccupied Lot that has not become an Occupied Lot by the date on which the sale
of BRC's Partnership Units is consummated.
Sale of Partnership Units Relating to Put Right and Call Right
- --------------------------------------------------------------
MPI Common Shares may be owned only by MPI, Meadows Homeowners or the
estate, beneficiaries or heirs of a deceased Meadows Homeowner, so long as such
estate, beneficiaries or heirs own a mobile or manufactured home and lease a lot
located in the Park (each such person an "Eligible Homeowner"). If an MPI
------------------
Common Shareholder desires to sell some or all of his or her MPI Common Shares,
he or she is required to give written notice to MPI and BRC of such fact,
specifying:
(1) the number of MPI Common Shares owned by such MPI Common Shareholder;
(2) the number of such MPI Common Shareholder's MPI Common Shares proposed
to be sold;
(3) the identity of any proposed purchaser of the MPI Common Shares (who
must be an Eligible Homeowner); and
(4) the date upon which the MPI Common Shareholder reasonably expects to
consummate the sale of such MPI Common Shares.
Such MPI Common Shareholder must give an additional written notice to MPI and
BRC containing the information outlined above promptly upon ceasing to be an
Eligible Homeowner.
MPI Common Shareholder's Put Right
----------------------------------
Each holder of MPI Common Shares has the right to sell his/her MPI Common
Shares to another Eligible Homeowner. Subject to the Florida Business
Corporation Act and MPI's Articles of Incorporation, and until the Partnership
is terminated, each holder of MPI Common Shares also has the right to require
that MPI purchase (the "Put Right") all or a portion of such holder's MPI Common
---------
Shares at the cash price which shall equal the then-current Unit Value, divided
-------
by the Stock/Unit Ratio (the "Put Price"), except that until January 1, 2002,
---------
the Put Price shall equal the then-current Unit Value, divided by the Stock/Unit
-------
Ratio, multiplied by 80 percent.
----------
For example, assume 1,000 MPI Common Shares were initially issued by MPI
and accordingly, 1,000 Partnership Units were issued to MPI. If, using its own
funds, MPI has repurchased 250 MPI Common Shares from MPI Common Shareholders,
and the current Unit Value is $1,200, then the Put Price as of March 31, 1999
would be calculated as follows:
40
<PAGE>
First, calculate the Stock/Unit Ratio: 750 (number of outstanding MPI
Common Shares) divided by 1,000 (number of MPI's Partnership Units) = 0.75.
Next, determine the Put Price: $1,200 (Unit Value) divided by 0.75
(Stock/Unit Ratio) x 80% = $1,280.
This Put Right by a holder of MPI Common Shares may not be exercised by
any such holder if, after giving effect to the purchase of any MPI Common Shares
by MPI, MPI would not have sufficient resources to pay its debts and they come
due or would be insolvent or MPI would have no MPI Common Shares outstanding but
would have MPI Preferred Stock outstanding. This Put Right will terminate at
such time as the Partnership terminates.
Determination of Unit Value
---------------------------
The following defined terms are used in the determination of the Unit
Value:
"Applicable Calendar Year" means the calendar year immediately preceding
the date on which the Unit Value is determined.
"Applicable Portion" means, for each Unoccupied Lot that becomes an
Occupied Lot during any Applicable Calendar Year, a fraction the numerator of
which shall be the number of days in the period commencing on the date that such
Unoccupied Lot becomes an Occupied Lot and ending on December 31 in the same
Applicable Calendar Year, and the denominator of which shall be 365.
"Average Occupied Lot Number" means (i) the number of Occupied Lots on
the first day of the Applicable Calendar Year, plus (ii) the aggregate of the
----
Applicable Portions for the Applicable Calendar Year.
"Occupied Lot Value" from time to time during any Applicable Calendar Year
means (i) the Property Net Operating Income, multiplied by (ii) sixteen (16),
-----------
divided by (iii) the Average Occupied Lot Number.
- -------
"Outstanding Mortgage" means the outstanding principal amount of any
mortgage indebtedness secured by the Park as of the last day of the Applicable
Calendar Year.
"Property Net Operating Income" means the net income of the Partnership
before depreciation expense, mortgage interest expense and extraordinary items
for the Applicable Calendar Year, as determined in accordance with generally
accepted accounting principles.
The Unit Value from time to time shall be equal to:
(i) The Occupied Lot Value, multiplied by (ii) the number of Occupied
----------
Lots as of the last day of such Applicable Calendar Year, minus (iii) the
-----
Outstanding Mortgage, divided by (iv) the aggregate number of Partnership
-------
Units issued and outstanding as of the last day of the Applicable Calendar
Year.
41
<PAGE>
For example, assume that as of January 1, 1999, 295 lots within the Park
are occupied and that on March 31, 1999, two Unoccupied Lots become Occupied
Lots and on August 31, 1999, three Unoccupied Lots become Occupied Lots, such
that as of December 31, 1999 there are 300 Occupied Lots within the Park.
Assume that the Property Net Operating Income for 1999 is $750,000; and as of
December 31, 1999 the Outstanding Mortgage is $6,000,000 and there are 4,700
Partnership Units outstanding. The Unit Value as of March 31, 2000 would be
calculated as follows:
First, determine the Applicable Portions for the lots that become
occupied during the Applicable Calendar Year: 275/365 (for each of the two lots
that become occupied on 3/31/99) and 122/365 (for each of the three lots that
become occupied on 8/31/99). For this purpose the Applicable Calendar Year is
1999 which is the calendar year immediately preceding the date on which the Unit
Value is determined.
Second, determine the Average Occupied Lot Number: 295 (Occupied Lots at
1/1/99) + [(275/365) + (275/365) + (122/365) + (122/365) + (122/365)] = 297.5096
Next, determine the Occupied Lot Value: $750,000 (1999 Property Net
Operating Income) x 16 297.5096 = $40,335.
Finally, determine the Unit Value: $40,335 x 300 (Occupied Lots at
12/31/99) - $6,000,000 (mortgage debt at 12/31/99) 4,700 (Partnership Units at
12/31/99) = $1,297.98.
To exercise the Put Right, such holder of MPI Common Shares shall give at
least 30 days' prior written notice to MPI and BRC of the exercise of the Put
Right (the "Put Notice"). As a condition to its obligation to pay the Put Price
----------
to any MPI Common Shareholder, MPI may require reasonable indemnification from
such MPI Common Shareholder in connection with the exercise of the Put Right.
MPI's Call Right
----------------
If an MPI Common Shareholder ceases to be an Eligible Homeowner for any
reason or a person other than an Eligible Homeowner acquires any right, or claim
of right, to MPI Common Shares (each such person a "Required Seller"), subject
---------------
to the Florida Business Corporation Act and MPI's Articles of Incorporation, and
until the Partnership is terminated, MPI shall have the right (the "Call
----
Right"), at any time thereafter, to purchase all of the MPI Common Shares owned
by the Required Seller in exchange for the Put Price. MPI shall exercise its
Call Right by delivering written notice ("Call Notice") to the record owner of
-----------
such MPI Common Shares at the address of such record owner listed in the books
and records of MPI. Such notice shall specify the date by which the MPI Common
Shares owned or claimed by such Required Seller are required to be transferred
to MPI. As a condition to its obligation to pay the Put Price to any MPI Common
Shareholder, MPI may require reasonable indemnification from such MPI Common
Shareholder in connection with the exercise of the Call Right. MPI shall, at
the request of BRC, exercise the Call Right with respect to the MPI Common
Shares owned by a Required Seller.
42
<PAGE>
The Florida Business Corporation Act and MPI's Articles of Incorporation
prohibit MPI from exercising its Call Right if, after giving effect to the
purchase of any MPI Common Shares by MPI, MPI would not have sufficient
resources to pay its debts and they come due or would be insolvent, or MPI would
have no MPI Common Shares outstanding but would have MPI Preferred Stock
outstanding. This Call Right will terminate at such time as the Partnership
terminates or all of BRC's interest in the Partnership is sold or assigned to
MPI or an affiliate of MPI pursuant to the Partnership Agreement (See " -- Call
Right of BRC's Partnership Interest").
Failure of Required Seller to Transfer MPI Common Shares. If MPI
--------------------------------------------------------
exercises its Call Right, but the Required Seller fails to transfer to MPI such
Required Seller's MPI Common Shares, or to provide the required indemnification
by the date specified in MPI's notice, then, effective as of such specified date
(the "Effective Sale Date"), such Required Seller shall be deemed to have sold
-------------------
his or her MPI Common Shares to MPI. In that event, MPI shall elect either: (a)
to escrow the Put Price for such MPI Common Shares, or (b) that BRC shall fund
the Put Price to be escrowed. If MPI provides written notice to BRC of its
election to require BRC to fund the Put Price, BRC shall pay to MPI the Put
Price in cash to be placed in escrow by MPI. BRC's and MPI's Partnership Units
will thereafter be automatically adjusted as described above in " -- MPI Common
Shareholder's Put Right -- Effect on Partnership Units of BRC's Funding of Put
Price."
Required Seller's Rights. From the Effective Sale Date, such Required
------------------------
Seller's sole right shall be to receive the Put Price for such MPI Common
Shares, as calculated on any Effective Sale Date, upon delivery to MPI of the
certificates for such MPI Common Shares and the required indemnification. The
Required Seller shall not be entitled to receive any dividends or other
distributions from MPI on account of such MPI Common Shares and such shares
shall have no voting or other rights.
Funding of Put Price.
--------------------
Within 7 days of its receipt of the Put Notice, or if MPI exercises its
Call Right, MPI shall elect either (a) to fund the Put Price or (b) that BRC
shall fund the Put Price. If MPI elects to fund the Put Price of any MPI Common
Shares, it may do so solely out of its own funds and not out of borrowed moneys.
MPI shall make its election by giving written notice of such election to BRC
when delivering the Call Notice or within seven days after MPI's receipt of the
Put Notice. MPI's failure to make a timely election as aforesaid shall
conclusively be deemed its election to have BRC fund the Put Price.
Effect on Partnership Units of BRC's Funding of Put Price. Upon receipt by
---------------------------------------------------------
BRC of (1) a Put Notice or a Call Notice, (2) MPI's written election to have BRC
fund the Put Price and (3) evidence acceptable to BRC in its sole discretion
that the MPI Common Shares which are the subject of the Put Notice or the Call
Notice have been validly transferred to MPI and any reasonable indemnification
required has been given, BRC shall pay to MPI, or, at BRC's election, BRC shall
pay directly to the applicable MPI Common Shareholder on MPI's behalf, the Put
Price, in cash. Thereafter, in consideration of payment by BRC of the Put
Price, immediately upon such payment by BRC, and without further action by the
Partnership, MPI, BRC, or the shareholders or directors of MPI:
43
<PAGE>
(A) the number of Partnership Units held by BRC shall be increased by the
number of MPI Common Shares transferred to MPI by the MPI Common
Shareholder pursuant to the Put Right or the Call Right divided by the
-------
Stock/Unit Ratio; and
(B) the number of Partnership Units held by MPI shall be decreased by the
same number.
For example, assume that BRC owns 3,958 Partnership Units and MPI owns 750
Partnership Units. Further, assume that MPI receives a Put Notice with respect
to 5 MPI Common Shares at a time when the Put Price per share is $1,297.98 and
the Stock/Unit Ratio is 0.75. If MPI elects that BRC will fund the Put Price,
then upon payment of the Put Price by BRC, the Partnership Units held by BRC and
MPI shall be adjusted as follows:
First, calculate the amount to be paid by BRC on MPI's behalf: 5 (number of
MPI Common Shares subject to Put Notice) x $1,297.98 (Put Price per share) =
$6,489.90.
Then, adjust the number of MPI Common Shares by the Stock/Unit Ratio: 5
(number of MPI Common Shares) divided by 0.75 (Stock/Unit Ratio) = 6.6667.
Then, increase the number of Partnership Units owned by BRC: 3,958 (number
of Partnership Units owned by BRC) + 6.6667 (number of MPI Common Shares subject
to the Put Notice, adjusted by the Stock/Unit Ratio) = 3,964.6667 (number of
Partnership Units owned by BRC after it funds the Put Price).
And, reduce the number of Partnership Units owned by MPI: 750 (number of
Partnership Units owned by MPI) - 7 (number of MPI Common Shares subject to the
Put Notice, adjusted by the Stock/Unit Ratio) = 743.3333 (number of Partnership
Units owned by MPI after BRC funds the Put Price).
Loans
- -----
The interim Loan made by MHC Lending to finance the acquisition of the Park
will (1) not be treated as a Capital Contribution but shall be a debt due from
the Partnership to such lender and (2) be repayable out of the sum of the
proceeds of the initial refinancing to be arranged by BRC (on behalf of the
Partnership), the initial Capital Contributions made to the Partnership by BRC
and the Capital Contributions made to the Partnership by MPI.
In the event that the Partners or either of them shall determine that
funds, in addition to Net Cash Flow, Net Capital Proceeds and the Capital
Contributions, are required by the Partnership for any reason, BRC, on behalf of
the Partnership, will try to obtain financing from a third party in the amount
required. If such third party financing is reasonably available from a third
party, the Partnership shall borrow such funds from such third party. If no
such financing is reasonably available from a third party, BRC, on behalf of the
Partnership, shall ask the Partners to loan such additional funds to the
Partnership in the proportion of their Percentage Interests. Within 30 days
after such request is made, each Partner shall either loan its proportionate
share of the additional funds to the Partnership upon the terms specified in
said notice, or notify BRC
44
<PAGE>
in writing that it elects not to make such loan (the failure to timely make such
loan or give written notification of the election not to make such loan will
conclusively constitute an election not to make such loan). Either Partner's
failure to make any such loan shall not constitute a default under the
Partnership Agreement.
If the Partnership shall not have received all of the required additional
funds, BRC shall be entitled (but not obligated) to make a loan to the
Partnership in the amount of the shortfall, bearing interest at a reasonable
rate as determined by BRC. Any such loan or advance made to the Partnership
shall not be treated as a Capital Contribution but shall be a debt due from the
Partnership to the Partner making such loan or advance.
Transfer of Partnership Units
- -----------------------------
BRC shall be entitled to transfer, sell or otherwise dispose of its
Partnership Units, or any portion thereof to: (1) an Affiliate of BRC; (2) a
Person that acquires BRC's Partnership Units pursuant to a sale by BRC and/or
its Affiliates of a portfolio of assets; (3) a successor of BRC pursuant to a
merger or consolidation of BRC; or (4) MPI or an Affiliate of MPI. Upon any
such transfer, sale or other disposal, the transferee, purchaser or other
assignee shall become a substitute Partner of the Partnership with all of the
rights, powers and obligations of BRC under the Partnership Agreement.
MPI may not transfer, sell or otherwise dispose of its Partnership Units,
or any portion thereof, except to BRC or BRC's Affiliates.
Any hypothecation, mortgage, pledge or collateralization of Partnership
Units is expressly prohibited and any purported hypothecation, mortgage, pledge
or collateralization by either Partner is null and void and of no legal effect,
except that BRC can hypothecate, mortgage, pledge or collateralize all or any
portion of its Partnership Units at any time after the tenth anniversary of
January 1, 2000. In addition, sale, assignment or transfer of Partnership Units
shall be treated for accounting and Federal tax purposes in accordance with the
Partnership Agreement.
Books and Records
- -----------------
BRC will be required to keep adequate books and records of the Partnership
at BRC's corporate office, setting forth a true and accurate account of all
business transactions arising out of and in connection with the conduct of the
Partnership's business and affairs. Each Partner shall have the right, at any
reasonable time, to have access to and inspect and copy the contents of such
books or records. The Partnership's fiscal year shall be the calendar year.
BRC, in consultation with the Partnership's accountants, will make all decisions
with respect to accounting and tax treatment relating to the Partnership's
business.
Dispute Resolution
- -------------------
If a deadlock between the Partners as to the proper resolution of any
matter or any other dispute between the Partners relating to the Partnership,
the Park, or the Partnership Agreement (a "Deadlock") occurs between the
--------
Partners that is not resolved by the tenth anniversary of
45
<PAGE>
January 1, 2000, the Partners will endeavor to settle such Deadlock by
mediation. If mediation is unsuccessful and binding arbitration is commenced
prior to the tenth anniversary of January 1, 2000, such Deadlock will be
resolved through binding arbitration.
However, if such Deadlock is not resolved before, and is not in binding
arbitration as of the tenth anniversary of January 1, 2000, or if such Deadlock
occurs on or after the tenth anniversary of January 1, 2000, the Partners will
endeavor to settle such Deadlock by mediation and, if mediation is unsuccessful,
either Partner may issue a notice initiating a buy-sell procedure. Each such
notice will constitute offers (the "Buy-Sell Offers") by the Partner giving the
---------------
notice both (i) to sell all of its Partnership Units to the other Partner or
certain of its Affiliates for the price per Partnership Unit set forth in such
notice (the "Buy-Sell Unit Price") and (ii) to purchase or cause certain of its
-------------------
Affiliates to purchase all of the other Partner's Partnership Units for a price
per Partnership Unit equal to the Buy-Sell Unit Price. The buying Partner shall
also obtain (or cause the buying Partner's designated Affiliate to obtain)
discharges of any continuing liability of the selling Partner on account of
Partnership financing or, in lieu thereof, provide to the selling Partner an
indemnification and hold-harmless agreement.
Dissolution and Winding Up
- --------------------------
The Partnership shall dissolve and commence winding up and liquidation
upon the first to occur of any of the following ("Liquidating Events"):
------------------
(1) the sale of all or a substantial portion of the assets of the
Partnership;
(2) MPI and BRC shall each have voted to dissolve, wind up and liquidate
the Partnership;
(3) the happening of any other event that makes it unlawful, impossible or
impractical to carry on the business of the Partnership;
(4) either party shall terminate the Partnership Agreement by providing
written notice to the other if the Registration Statement does not
become effective within six months of filing with the Commission; or
(5) any of the conditions to either Partner's obligation to close under
the Contribution Agreement shall not be satisfied, such Partner shall
not have waived such condition and such Partner shall have given
notice to the other Partner terminating the Partnership Agreement.
Upon the occurrence of a Liquidating Event, the Partnership shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its creditors and the
Partners. The proceeds from liquidation shall be applied, first, to the payment
and discharge of all of the Partnership's debts and liabilities to creditors
other than the Partners, second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners and the balance, if any, to
the Partners in accordance with their Capital Accounts, after giving effect to
all contributions, distributions and allocations for all periods. If either
Partner has a deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall have no
obligation to make any contribution to the capital of the Partnership with
respect to such deficit and such deficit shall not be considered a debt
46
<PAGE>
owed to the Partnership or to any other Person for any purpose whatsoever.
In the event that the Partnership is liquidated on or before the tenth
anniversary of January 1, 2000, the Park shall not be converted to a use other
than a mobile home park or manufactured home community prior to the tenth
anniversary of January 1, 2000 (subject to causes beyond the parties' reasonable
control, including, without limitation, zoning changes, condemnation and
casualty) and, on or before the date such liquidation is completed, the Partners
shall execute and record a restrictive covenant, in recordable form and
otherwise in form and substance reasonably acceptable to both Partners,
prohibiting any such change of use, against the title to the Park.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Plan of Operation
- -----------------
MPI had no revenues from operations until MPI-1 acquired the Park on
December 18, 1997. The Partnership has had no revenues to date. The Beneficial
Interest in the Park will be transferred to the Partnership on the Closing Date.
The plan of operation for the Park for 1998 is as follows: Total net rental
income from the Park is expected to aggregate approximately $1,405,000 for the
calendar year 1998. Other income from the Park is expected to aggregate
approximately $12,000, for total revenues of $1,393,000. Expenses, including
repairs, maintenance, utilities, insurance, taxes and administration are
projected to be approximately $607,000, for a net operating income of
approximately $798,000. Debt service and capital expenses are expected to total
approximately $798,000, resulting in a projected total net cash flow of
approximately $0. The statements made in this paragraph are forward-looking
statements. Actual results could differ materially from these forward-looking
statements. Factors that could cause a material difference include, but are not
limited to, the loss of rent paying tenants in the Park, possible increases in
the prices of utilities and other services, increases in the interest rate on
money borrowed to refinance the purchase of the Park, unanticipated capital
improvements, property tax increases and repairs.
Neither MPI nor the Partnership expects to raise additional funds in the
next 12 months, except to refinance the Loan made by MHC Lending to MPI-1 to
acquire the Park. Neither MPI nor the Partnership plans to perform any research
and development, purchase or sell any significant equipment or hire any
employees.
Year 2000 Problem
- -----------------
The "Year 2000" problem refers to the potential problems occurring at the
turn of the century from computer programs that understand only two digits.
These computer programs may treat the year 2000 as the year 1900, causing the
computer applications to fail or to provide inaccurate data. Such problems
could result in both MPI's and the Partnership's temporary inability to process
transactions or engage in normal business activities. Neither MPI, the
Partnership nor MHC Management has made an assessment of the potential impact of
the Year 2000 problem on the operations of MPI and/or the Partnership's
operations and none of them
47
<PAGE>
intends to do so. Nonetheless, none of them expects the Year 2000 problem to
have a material effect on such operations.
MPI will be responsible for receiving distributions from the Partnership,
if any, paying taxes and other expenses of MPI's operations and making
distributions to its shareholders (if it has funds to distribute). MPI does not
currently use a computer and therefore should not be affected by the Year 2000
problem. However, as the manager of the Park, MHC Management will be
responsible for managing the Park. MHC Management's duties will include
collecting rents and paying expenses, activities which may be impaired by the
Year 2000 problem. MHC Management has advised MPI that it anticipates that its
systems should be Year 2000 compliant by the end of the first quarter of 1999.
However, if any of its systems fail because of the Year 2000 problem, MHC
Management will process the Partnership's accounts manually.
Certain factors beyond the control of MPI, the Partnership and MHC
Management, however, could materially affect operations. There can be no
guarantee that the operations of other entities upon which MPI, the Partnership
and/or MHC Management may rely would not adversely impact MPI and the
Partnership. For example, many public and private providers of fixed income
payments, such as the Social Security Administration and pension plan
administrators, could experience Year 2000 problems resulting in delayed
payments. Because many Meadows Homeowners are retired and may rely on such
fixed income to pay their rent, such delays could result in the inability of
some Meadows Homeowners to pay their rent and ultimately result in a disruption
of revenues to the Partnership. Moreover, utility services to the Park could be
adversely affected if suppliers of such services are not Year 2000 compliant.
Neither MPI nor the Partnership has made any inquiries as to the state of
readiness of any such suppliers to overcome their potential Year 2000 problems.
Neither MPI nor the Partnership has formulated a contingency plan to remediate
any potential Year 2000 problems and none of them intends to do so. MHC
Management believes it will be Year 2000 compliant by the end of the first
quarter of 1999.
MANAGEMENT
1. Management of MPI
-----------------
Executive Officers and Directors of MPI
- ---------------------------------------
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE FOR LAST FIVE
NAME, AGE & RESIDENTIAL ADDRESS OFFICE AND LENGTH OF SERVICE YEARS
- ------------------------------- ---------------------------- ---------------------------------
<S> <C> <C>
Mr. Richard McCann, 54 Principal Executive Officer since Retired since August 1992.
2555 PGA Boulevard #119 September 1998, President since Prior to retirement, employed as an
Palm Beach Gardens, FL February 1998 and Director accountant.
33410 since September 1997
Ms. Theresa Tyrrell, 62 Vice-President since February 1998 Retired since 1980. Prior to
2555 PGA Boulevard #118 and Director since January 1997 retirement, employed as a secretary.
Palm Beach Gardens, FL
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
33410
Mr. Ted Stevenson, 67 Principal Financial Officer since Retired since 1990. Prior to
2555 PGA Boulevard #89 September 1998, Secretary since retirement, employed as manager of
Palm Beach Gardens, FL 33410 August 1996 and Director since national accounts for L'Air Liquide.
January 1997
Ms. Mary Bachiochi, 71 Principal Accounting Officer since Retired since 1991. Prior to
2555 PGA Boulevard #112 September 1998, Treasurer since April retirement, employed as an accounts
Palm Beach Gardens, FL 33410 1998 and Director since February 1998 receivable specialist at a hospital
and surgery center.
Mr. Gerald Flynn, 77 Director since January 1998 Retired since 1985. Prior to
2555 PGA Boulevard #43 retirement, employed as sales
Palm Beach Gardens, FL 33410 executive and consultant for
wholesale forest products business.
Mr. David McNab, 70 Director since January 1997 Retired since February 1986. Prior
2555 PGA Boulevard #180 to retirement, self-employed heating,
Palm Beach Gardens, FL 33410 plumbing and air conditioning
contractor.
</TABLE>
Term of Office of Directors and Officers
- ----------------------------------------
The Bylaws of MPI provide that each director of MPI shall be elected at the
annual meeting of stockholders and shall hold office until the next annual
meeting of stockholders and until their successors are elected and qualify, or
until the earlier of their death, resignation or removal. MPI's Bylaws provide
that MPI's principal officers shall be elected annually by the Board of
Directors at the first meeting after each annual meeting of stockholders and
shall hold office until their successors shall have been elected and qualify, or
until their earlier death, resignation or removal.
Significant Employees
- ---------------------
MPI has no employees and does not expect to hire any employees in the
future.
Legal Proceedings
- -----------------
No MPI director or officer has been involved in any bankruptcy or criminal
proceedings, excluding traffic violations and other minor offenses, in the last
five years.
49
<PAGE>
Remuneration of Directors and Officers
- --------------------------------------
No director or officer of MPI will receive any remuneration for serving as
a director or officer of MPI.
Security Ownership of Directors, Officers and Certain Security Holders
- ----------------------------------------------------------------------
The following table summarizes the security ownership of the directors and
officers of MPI before and after the offering. Each of the directors allocated
$1,000 of Advances previously made by each such director to the purchase price
for one MPI Common Share. In addition, Mr. McCann paid $1,000 for one share of
common stock of MPI-3, a predecessor of MPI. That share was converted into one
MPI Common Share pursuant to the merger of MPI-3 into MPI. MPI's directors and
officers made other Advances to MPI-1, aggregating $58,000, and each of them has
indicated an intention to convert all of such Advances into MPI Common Shares in
this Offer, as illustrated below. There are no outstanding options or warrants
to acquire any MPI Common Shares.
The MPI directors received the shares of MPI Preferred Stock as shown below
in exchange for their membership interests in MPI-1 as the result of the series
of mergers whereby MPI-1 was merged into MPI.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME OF OWNER AMOUNT OWNED BEFORE AMOUNT OWNED AFTER PERCENT OF CLASS
OFFERING OFFERING
<S> <C> <C> <C> <C>
MPI Common Shares Richard McCann 2 18 /1/
- -----------------
Gerald Flynn 1 7 /1/
Mary Bachiochi 1 10 /1/
Theresa Tyrrell 1 10 /1/
David McNab 1 10 /1/
Edward Stevenson 1 10 /1/
MPI Preferred Stock Richard McCann 3/2/ 3 1.3%
- ---------------------
Gerald Flynn 1 1 0.4%
Mary Bachiochi 1 1 0.4%
Theresa Tyrrell 1 1 0.4%
David McNab 1 1 0.4%
Edward Stevenson 1 1 0.4%
</TABLE>
/1/ The percentage of MPI Common Shares owned by each MPI officer and director
will depend on the total number of MPI Common Shares subscribed for by Meadows
Homeowners.
/2/ Mr. McCann leased three lots in the Park and thus held three membership
interests at the time of the merger.
50
<PAGE>
2. Management of BRC
-----------------
BRC was organized in December 1997. It has two partners: MHC Operating
Limited Partnership, an Illinois limited partnership, which owns a 99 percent
limited partnership interest and MHC-QRS Blue Ribbon Communities, Inc., a
Delaware corporation ("MHC-QRS"), organized in December 1997, which owns a one
-------
percent general partnership interest. MHC is the sole shareholder of MHC-QRS
and owns approximately 80 percent of MHC Operating Limited Partnership, while a
variety of persons own the remaining 20 percent interest. Mr. Samuel Zell,
Chairman of the Board of Directors of MHC, certain other officers of MHC and
other entities controlled by Mr. Zell, own in the aggregate approximately 15
percent of MHC's common stock.
MHC is a publicly owned Maryland corporation whose stock is traded on the
New York Stock Exchange. MHC is engaged in the business of owning and operating
manufactured and mobile home communities. MHC is self administered and self
managed and qualifies as a real estate investment trust for Federal income tax
purposes. MHC's communities are residential developments designed for single-
family manufactured homes. Residents own the homes and lease the lots on which
the homes are located. As of December 31, 1997, MHC owned or had a controlling
interest in 121 manufactured home communities throughout the United States. The
majority of MHC's properties are located in Florida, Arizona, Colorado and
California. MHC has approximately 778 full-time employees.
MHC has no financial or managerial commitments or other obligations
whatsoever to BRC, the Partnership or the Park, nor is MHC under any financial
or other obligation or duty to ensure that BRC complies with its obligations
under the Partnership Agreement.
Executive Officers and Directors of MHC-QRS
- -------------------------------------------
NAME & AGE OFFICE AND LENGTH OF SERVICE
- ---------- ----------------------------
Samuel Zell, 56 Chairman and Director since December 1997
Howard Walker, 58 President, Chief Executive Officer and Director
since December 1997
Thomas P. Heneghan, Jr., 34 Executive Vice President, Chief Financial
Officer, Treasurer and Director since December
1997
Ellen Kelleher, 37 Executive Vice President, Assistant Secretary
and Director since December 1997
51
<PAGE>
BUSINESS EXPERIENCE (last 5 years)
- ----------------------------------
TOM HENEGHAN has been Executive Vice President, Chief Financial Officer and
Treasurer of MHC since 1997 and is a member of MHC's management committee. He
was Vice President, Chief Financial Officer and Treasurer from February 1995 to
March 1997. From January 1994 to February 1995, Mr. Heneghan was a member of
the accounting firm Greenberg & Pociask, Ltd. From May 1993 until June 1994, he
was vice president of Capsure Holdings Corp. and from January 1993 to November
1993, he was controller of Capsure Holdings Corp. (a company engaged in the
business of providing surety and fidelity bonds). Mr. Heneghan was vice
president and controller of Great American Management and Investment, Inc. (a
holding company whose primary subsidiary offers products and services to the
building, electrical, automotive and aviation industries) from December 1993 to
December 1994, and controller from January 1993 to November 1993.
ELLEN KELLEHER has been Executive Vice President and General Counsel of MHC
since March 1997 and is a member of MHC's management committee. From March 1994
to March 1997, she was Senior Vice President and General Counsel of MHC. Ms.
Kelleher was a vice president of the law firm Rosenberg & Liebentritt, P.C. from
January 1993 until December 1995 and was an associate at that law firm from
October 1990 until January 1993.
HOWARD WALKER has been a director of MHC since November 1997, President of MHC
since September 1997 and Chief Executive Officer since December 1997. Since
March 1995, Mr. Walker has been President of Realty Systems, Inc., an affiliate
of MHC, and is a member of MHC's management committee. From January 1995 to
March 1995, he was a Vice President of MHC. From August 1994 to January 1995,
Mr. Walker was the principal of Walker Realty Co., a full-service real estate
company. From January 1989 to July 1994, he was a principal and partner of The
Markin Group, a full-service real estate company.
SAMUEL ZELL has been MHC's Chairman of the Board since March 1995 and its Chief
Executive Officer from March 1995 to August 1996. Mr. Zell had been Co-Chairman
of the Board of MHC from its formation in March 1993 until March 1995. From
1983 until its dissolution in 1993, he was a director of Mobile Home
Communities, Inc., MHC's predecessor. Currently, Mr. Zell is chairman of the
board of directors of Equity Group Investments, Inc, an investment company;
American Classic Voyages, Inc., a provider of overnight cruises in the United
States; Anixter International Inc., a distributor of electrical and cable
products; and Jacor Communications, Inc., an owner and operator of radio
stations. He also is chairman of the board of trustees of Capital Trust, a
specialized finance company; Equity Office Properties Trust, an equity real
estate investment trust primarily involved with office buildings; and Equity
Residential Properties Trust, an equity REIT primarily focused on multifamily
residential properties. Mr. Zell is a director of Chart House Enterprises,
Inc., an owner and operator of restaurants; Fred Meyer, Inc., an owner and
operator of grocery stores and discount stores; Ramco Energy plc, an independent
oil company in the United Kingdom; and TeleTech Holdings, Inc., a provider of
customer care solutions.
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Significant Employees
- ---------------------
Neither BRC nor MHC-QRS has any employees, nor do they expect to hire any
employees in the future.
Sales Agent
- -----------
MPI's sales agent with respect to the Offer in Florida is Coastal Financial
Security, Inc., 100 W. Kennedy Boulevard, Suite 880, Tampa, FL 33602.
Counsel
- -------
MPI's counsel with respect to the Offer and the Rescission Offer is Steptoe
& Johnson LLP, 1330 Connecticut Avenue, N.W., Washington, DC 20036. Steptoe &
Johnson LLP is also
counsel to BRC, MHC and various of their affiliates.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
MPI has not been, and does not expect to be in the future, a party to any
transaction in which any officer, director, promoter or principal shareholder of
MPI or any member of their immediate families or any firms or corporations with
which they are associated, had or is to have a direct or indirect material
interest except as described herein. The officers and directors of MPI are
Meadows Homeowners and lease lots in the Park on which their homes are located.
Such leases are on terms similar to those prevailing for comparable transactions
with unaffiliated persons.
In June 1998, Richard McCann, President and a director of MPI paid $1,000
for one share of common stock of MPI-3, a predecessor of MPI. That share was
converted into one MPI Common Share pursuant to the merger of MPI-3 into MPI.
In January 1999, each of the MPI directors acquired 1 MPI Common Share for
$1,000 per share by converting $1,000 of Advances previously made by each of
them to MPI-1 into one MPI Common Share. As a result of the merger of MPI-1
with and into MPI, each of the directors of MPI, except Mr. McCann, received one
share of MPI Preferred Stock in exchange for their membership interests in MPI-
1. Mr. McCann leased three lots in the Park and thus held three membership
interests at the time of the merger, in exchange for which he received three
shares of MPI Preferred Stock.
From January 14, 1998 through March 1, 1998, Mr. McCann acted as interim
Park manager for MHC Management for which he received fees of $2,500 per month.
The governing documents of MPI do not expressly prohibit the directors,
officers, security holders or affiliates of MPI from having a direct or indirect
pecuniary interest in any investment to be acquired or disposed of by MPI or any
transaction involving MPI. Also, the governing documents of MPI do not prohibit
the directors, officers, security holders or affiliates from engaging in
competing businesses, and they may do so.
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BRC's affiliate, MHC, owns and/or manages a number of manufactured home
communities or mobile home parks in Florida, some of which compete or may
compete with the Park.
For a description of other transactions between MPI and certain affiliates
of BRC, see "DESCRIPTION OF PROPERTY -- Management of the Park" and
"DESCRIPTION OF BUSINESS -- Description of Business of the Partnership."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States Federal
income and related tax considerations relevant to MPI Common Shareholders
relating to the purchase, ownership and disposition of MPI Common Shares and
MPI's purchase, ownership and disposition of Partnership Units. This discussion
is based upon the Code, Treasury Regulations, Service rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. There can be no assurance
that the Service will not challenge one or more of the tax consequences
described herein and neither MPI, BRC nor the Partnership has obtained, nor do
they intend to obtain, a ruling from the Service with respect to the United
States Federal income tax, state tax, local tax, foreign tax or other tax
consequences of acquiring or holding the MPI Common Shares or the Partnership
Units. This discussion does not purport to deal with all aspects of United
States Federal income taxation that may be relevant to a particular holder in
light of the holder's particular circumstances (for example, persons subject to
the alternative minimum tax provisions of the Code). Also, it is not intended
to be wholly applicable to all categories of investors, some of which (such as
dealers in securities, banks, insurance companies, tax-exempt organizations and
persons holding MPI Common Shares as part of a hedging or conversion transaction
or straddle or persons deemed to sell MPI Common Shares under the constructive
sale provisions of the Code) may be subject to special rules. The discussion
also does not discuss any aspect of state, local or foreign law or United States
Federal estate and gift tax law applicable to U.S. Holders nor any aspect of
state, local or foreign law or United States Federal gift tax law applicable to
Non-U.S. Holders. In addition, this discussion is limited to original
purchasers of MPI Common Shares who hold such MPI Common Shares as a "capital
asset" within the meaning of Code Section 1221.
As described above, MPI will continue to own the record interest in the
Park, and the Partnership will own the Beneficial Interest in the Park. MPI
will enter the Nominee Agreement with the Partnership, whereby MPI will act as
nominee and agent of the Partnership with regard to the Park. Assuming that MPI
and the Partnership comply with the terms of the Nominee Agreement, it is
expected that the Partnership will be treated as owner of the Park for Federal
income tax purposes.
ALL PROSPECTIVE PURCHASERS OF MPI SHARES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF MPI SHARES AND MPI'S PURCHASE, OWNERSHIP
AND DISPOSITION OF PARTNERSHIP UNITS.
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1. Taxation of MPI as a Corporation
--------------------------------
United States Federal Income Tax. MPI is a corporation that will be
--------------------------------
subject to United States Federal income tax separately from the MPI Common
Shareholders. MPI will be subject to a graduated income tax of 34 percent with
respect to its taxable income exceeding $75,000 but not exceeding $10,000,000.
In determining its net income or loss, MPI will subtract any operating expenses
and other allowable deductions from gross income. Net operating losses, if any,
will be deductible by MPI subject to certain carryback and carryover provisions.
MPI may accumulate its earnings for a bona fide business reason and thus,
although MPI may be subject to tax on its taxable income, MPI may retain such
earnings rather than make a distribution to the MPI Common Shareholders. In the
event that MPI allows its earnings to accumulate beyond the reasonable needs of
the business, it may be subject to an accumulated earnings tax of 39.6 percent.
The after-tax earnings of MPI will be subject to Federal income tax to the MPI
Common Shareholders when distributed to the MPI Common Shareholders. (See " --
Dividends and Other Distributions.")
An alternative minimum tax is imposed on corporations taxable under
Subchapter C of the Code. However, a corporation that had average gross
receipts of $5,000,000 or less for the three taxable years that ended with its
first tax year beginning after December 31, 1996, or had gross receipts of
$5,000,000 or less for the period during which the corporation was in existence
where the corporation was not in existence for the entire three-year period,
will qualify as a "small corporation" and will not be subject to the alternative
minimum tax. MPI believes that it will qualify as a "small corporation" and
should not be subject to an alternative minimum tax.
Florida Franchise Tax. In addition to United States Federal income tax,
---------------------
MPI will be subject to the Florida franchise tax at the rate of 5.5 percent of
MPI's net income. Net income for this purpose is generally a corporation's
adjusted Federal income subject to certain adjustments. MPI believes that,
because it will qualify as a "small corporation" under Code Section 55, MPI will
not be subject to the Florida alternative minimum tax.
2. Consequences of Ownership of MPI Common Shares
----------------------------------------------
A. U.S. Holders. The following discussion is limited to certain United
------------
States Federal income tax consequences relevant to a U.S. Holder. U.S. Holders
should consult their own tax advisors concerning the state, local, estate and
other tax consequences of the purchase, ownership and disposition of MPI Common
Shares.
Dividends and Other Distributions. Distributions, if any, paid on the MPI
---------------------------------
Common Shares, to the extent made from current and/or accumulated earnings and
profits of MPI, as determined for United States Federal income tax purposes,
will be included in a U.S. Holder's income as ordinary income (subject to a
possible dividends received deduction in the case of corporate holders).
Sale or Exchange of MPI Common Shares. Gain or loss realized on the sale
-------------------------------------
or exchange of MPI Common Shares will equal the difference between the amount
realized on such sale or exchange and the U.S. Holder's adjusted tax basis in
such MPI Common Shares. Such gain or
55
<PAGE>
loss will generally be long-term capital gain or loss if the U.S. Holder has
held or is deemed to have held the MPI Common Shares for more than one year.
Long-term capital gain realized on a sale or exchange of MPI Common Shares by an
individual will be subject to certain maximum tax rates and losses realized on a
sale or exchange of MPI Common Shares held by any type of taxpayer may be
limited. Gain on most capital assets held by an individual more than one year is
subject to a maximum tax rate of 20 percent. Deductions for capital losses in
excess of capital
gains for individuals may be limited and are not allowed for corporate
taxpayers. Carryback and carryover of such excess capital losses may be allowed.
Redemption of MPI Common Shares. Pursuant to the Put Right in the
-------------------------------
Partnership Agreement, MPI Common Shareholders may have the right or the
obligation under certain circumstances to sell MPI Common Shares to MPI. (See
"SUMMARY OF THE PARTNERSHIP AGREEMENT -- Put Right.") The sale of the MPI Common
Shares to MPI will be treated as a redemption for Federal income tax purposes.
The treatment accorded to any redemption by MPI of MPI Common Shares can only be
determined on the basis of particular facts as to each holder at the time of
redemption. In general, a U.S. Holder will recognize capital gain measured by
the excess of the amount received by the U.S. Holder upon the redemption over
such U.S. Holder's adjusted tax basis in the MPI Common Shares redeemed
(provided the MPI Common Shares are held as a capital asset) if such redemption
(i) results in a "complete termination" of the U.S. Holder's interest in all
classes of shares of MPI under Code Section 302(b)(3), (ii) is "substantially
disproportionate" with respect to the U.S. Holder's interest in MPI under Code
Section 302(b)(2) or (iii) is "not essentially equivalent to a dividend" with
respect to the U.S. Holder under Code Section 302(b)(1). In applying these
tests, there must be taken into account not only any MPI Common Shares owned by
the U.S. Holder, but also any MPI Preferred Stock and any other options
(including stock purchase rights) to acquire MPI Common Shares. The U.S. Holder
also must take into account any such securities (including options) which are
considered to be owned by such U.S. Holder by reason of the constructive
ownership rules set forth in Code Sections 318 and 302(c).
If the redemption does not meet any of the tests under Code Section 302,
then the redemption proceeds received from the MPI Common Shares will be treated
as a distribution on the MPI Common Shares as described under " -- Consequences
of Ownership of MPI Common Shares in MPI -- U.S. Holders -- Dividends and Other
Distributions". If the redemption is taxed as a dividend, the U.S. Holder's
adjusted tax basis in the MPI Common Shares will be transferred to any other
shares held by such U.S. Holder. If the U.S. Holder owns no other shares in
MPI, under certain circumstances, such basis may be transferred to a related
person, or it may be lost entirely.
Information Reporting and Backup Withholding. A U.S. Holder of MPI Common
--------------------------------------------
Shares may be subject to "backup withholding" at a rate of 31 percent with
respect to certain "reportable payments," including interest payments and
dividend payments. These backup withholding rules apply if the U.S. Holder,
among other things, (i) fails to furnish a social security number or other
taxpayer identification number ("TIN") certified under penalties of perjury
---
within a reasonable time after the request therefor, (ii) furnishes a TIN as to
which the Service provides notification that the TIN is incorrect, (iii) fails
to report properly interest or dividends or (iv) under certain
56
<PAGE>
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such U.S. Holder
is not subject to backup withholding. A U.S. Holder who does not provide MPI
with its correct TIN also may be subject to penalties imposed by the Service.
Any amount withheld from a payment to a U.S. Holder under the backup withholding
rules is creditable against the U.S. Holder's Federal income tax liability,
provided that the required information is furnished to the Service. Backup
withholding will not apply, however, with respect to payments made to certain
holders, including corporations, tax-exempt organizations and certain foreign
persons, provided their exemptions from backup withholding are properly
established.
The Company will report to the U.S. Holders of MPI Common Shares and to the
Service the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
B. Non-U.S. Holders. The following discussion is limited to certain
----------------
United States Federal tax consequences relevant to a Non-U.S. Holder. Non-U.S.
Holders should consult their own tax advisors concerning the state, local,
foreign and other tax consequences of the purchase, ownership and disposition of
the MPI Common Shares.
For purposes of United States Federal withholding tax on dividends
discussed below, a Non-U.S. Holder (as defined above) includes a non-resident
fiduciary of an estate or trust. For purposes of the following discussion,
dividends and gain on the sale, exchange or other disposition of MPI Common
Shares will be considered to be "United States trade or business income" if such
income or gain is (i) effectively connected with the conduct of a trade or
business within the U.S. of such Non-U.S. Holder or (ii) in the case of certain
residents of certain countries which have an income tax treaty in force with the
United States, attributable to a permanent establishment (or, in the case of an
individual, a fixed base) in the United States as such terms are defined in the
applicable treaty.
Dividends and Other Distributions. In general, distributions on MPI Common
---------------------------------
Shares treated as dividend income paid to a Non-U.S. Holder of MPI Common Shares
will be subject to withholding of United States Federal income tax at a 30
percent rate unless such rate is reduced by an applicable income tax treaty.
Dividends that are considered to be United States trade or business income could
be subject to United States Federal income tax at regular ordinary income tax
rates, but are not generally subject to the 30 percent United States Federal
withholding tax if the Non-U.S. Holder makes the appropriate notification to the
payor. To claim the benefit of an income tax treaty or to claim exemption from
withholding because the income is United States trade or business income, the
Non-U.S. Holder must provide to MPI a properly executed Internal Revenue Service
Form 1001 or Internal Revenue Service Form 4224 (or such successor forms as the
Service designates), as applicable, prior to the payment of dividend income.
Under recently issued Treasury Regulations generally promulgated under Code
Sections 1441 and 1442 (the "Withholding Regulations"), the required Forms 1001
-----------------------
and 4224 will be replaced with a new Internal Revenue Service Form W-8. The
Withholding Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. The Service has
announced, however, that it intends to amend the regulations to provide that
such regulations will be generally applicable beginning January 1, 2000 and to
provide certain new transition rules for
57
<PAGE>
satisfying the Withholding Regulations. Under the Withholding Regulations, a
Non-U.S. Holder may under certain circumstances be required to obtain a United
States taxpayer identification number and make certain certifications to MPI.
Special procedures are provided in the Withholding Regulations for payments
through qualified intermediaries. Prospective investors should consult their tax
advisors regarding the effect, if any, of the Withholding Regulations. Any
United States trade or business income received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30 percent rate or such lower rate as may be
applicable under an income tax treaty. Dividends paid to an address in a foreign
country generally are presumed (absent actual knowledge to the contrary) to be
paid to a resident of such country for purposes of the withholding tax discussed
above and for purposes of determining the applicability of a tax treaty rate.
Other recently adopted Treasury Regulations generally promulgated under Code
Section 894 that are effective with respect to payments made on and after
January 1, 1998, provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty, dividends paid to a Non-U.S.
Holder that is an entity should be treated as paid to the entity or those
holding an interest in that entity. Prospective investors should consult their
tax advisors regarding the effect, if any, of the recently adopted regulations.
A Non-U.S. Holder of MPI Common Shares that is eligible for a reduced rate
of United States withholding tax pursuant to an income tax treaty may obtain a
refund of any amounts withheld at the 30 percent statutory rate by filing an
appropriate claim for a refund with the Service.
Sale, Exchange or Redemption of MPI Common Shares. MPI expects to be
-------------------------------------------------
treated as a United States real property holding corporation ("USRPHC") for
------
United States Federal tax purposes because of its ownership through the
Partnership of substantial real estate assets in the United States. A
corporation generally is characterized as a USRPHC if the fair market value of
its interests in United States real property equals or exceeds 50 percent of the
sum of the fair market value of its worldwide real property interests plus its
other assets used or held for use in a trade or business. As a result, pursuant
to the Foreign Investment in Real Property Tax Act, Non-U.S. Holders of MPI
Common Shares are subject to United States Federal income taxation at regular
graduated rates pursuant to Code Section 897 on any gain realized from the sale
or other disposition of such stock, unless an exemption is provided under an
applicable tax treaty. The gain would be treated as effectively connected with
the conduct of a trade or business within the United States and the sale or
other disposition generally would be subject to withholding tax equal to ten
percent of the amount realized therefrom. In addition, distributions, if any,
paid on the MPI Common Shares, to the extent not made from current and/or
accumulated earnings and profits of MPI, as determined for United States Federal
income tax purposes, are also treated as taxable exchanges of stock to which
these rules apply.
Federal Estate Tax. MPI Common Shares owned or treated as owned by an
------------------
individual who is not a citizen or resident of the United States (for Federal
estate tax purposes) will be included in such individual's estate for United
States Federal income tax purposes unless an applicable estate tax treaty
otherwise provides.
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Information Reporting and Backup Withholding. MPI must report annually to
--------------------------------------------
the Service and to each Non-U.S. Holder any dividend that is subject to
withholding. Copies of these information returns may also be made available
under the provisions of a specific treaty or agreement to the tax authorities of
the country in which the Non-U.S. Holder resides.
Generally, information reporting and backup withholding of United States
Federal income tax at a rate of 31 percent may apply to any payments to Non-U.S.
Holders if the payee fails to certify that the holder is a non-United States
person or if MPI or its paying agent has actual knowledge that the payee is a
United States person. The 31 percent backup withholding tax generally will not
apply to dividends paid to foreign holders outside the United States that are
subject to 30 percent withholding as discussed above or that are subject to a
tax treaty that reduces such withholding.
The payment of the proceeds on the disposition of MPI Common Shares to or
through a United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides certification as to its Non-U.S. Holder status under penalty of perjury
or otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a United States person or that the
conditions of any other exception are not, in fact, satisfied. The proceeds of
the disposition by a Non-U.S. Holder of MPI Common Shares to or through a
foreign office of a broker will generally not be subject to backup withholding.
However, if such broker is a United States person, a controlled foreign
corporation for United States tax purposes, or a foreign person 50 percent or
more of whose gross income from all sources for certain periods is effectively
connected with a United States trade or business, information reporting will
apply unless such broker has documentary evidence in its files of the Non-U.S.
Holder's foreign status and has no actual knowledge to the contrary or unless
the Non-U.S. Holder otherwise establishes an exemption. Both backup withholding
and information reporting will apply to the proceeds of such dispositions if the
broker has actual knowledge that the payee is a U.S. Holder.
The Withholding Regulations alter the foregoing rules in certain respects.
The Withholding Regulations provide presumptions under which a Non-U.S. Holder
is subject to information reporting and backup withholding at the rate of 31
percent unless MPI receives certification of the holder's non-United States
status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity, by
the partners, shareholders or other beneficiaries of such entity or (iii) by
certain qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's United States Federal income tax liability, provided that the requisite
procedures for claiming such refund or credit are followed.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH INVESTOR SHOULD CONSULT HIS OR
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<PAGE>
HER OWN TAX ADVISOR AS TO PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES TO HIM OR HER OF PURCHASING, HOLDING AND
DISPOSING OF THE MPI SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGE.
3. Consequences of Ownership of Partnership Units. This section discusses the
----------------------------------------------
Federal income tax consequences to MPI of becoming a Partner in the Partnership
and the Federal income tax consequences to MPI and MPI Common Shareholders of
MPI's ownership of Partnership Units.
Transfer of Cash and the Park for Partnership Units. As described in
---------------------------------------------------
greater detail above, MPI will contribute cash and the Beneficial Interest in
the Park to the Partnership, which will assume the Loan, in exchange for
Partnership Units.
Code Section 721 provides that, as a general rule, no gain or loss is
recognized to a partnership or to any of its partners in the case of a
contribution of property to the partnership in exchange for an interest in the
partnership. In addition, Code Section 731 provides that, as a general rule,
neither a partnership nor a partner recognizes gain or loss on the distribution
by the partnership of property, other than money, to a partner. However,
depending upon the circumstances, a partner's deemed relief from liabilities,
either in connection with a contribution to a partnership or a distribution from
a partnership or a repayment of part or all of such liabilities, could cause the
partner to recognize taxable gain on a contribution or distribution that would
otherwise qualify for tax free treatment under Code Sections 721 or 731.
(See "--Relief from Liabilities/Deemed Cash Distribution.")
Relief from Liabilities/Deemed Cash Distribution. Under the applicable
------------------------------------------------
provisions of the Code, MPI will include in the tax basis for its Partnership
Interest its share of the Partnership's liabilities, determined in accordance
with the Treasury Regulations under Code Section 752. MPI will also include in
the tax basis for its Partnership Interest any capital contributions that it has
actually made to the Partnership and its allocable share of all Partnership
income and gains and reduce its tax basis by the amount of all distributions
that it receives from the Partnership and its allocable share of all Partnership
losses. For purposes of these rules, if MPI's share of Partnership liabilities
is reduced for any reason, MPI will be deemed to receive a cash distribution
equal to the amount of such reduction. MPI will recognize gain as a result of
this deemed cash distribution if, and to the extent that, the deemed cash
distribution exceeds MPI's adjusted tax basis for its Partnership Interest. It
is not expected that MPI will recognize taxable gain as a result of its
contribution of the Beneficial Interest in the Park to the Partnership, which
will assume the Loan, and the refinancing of the Loan. However, future
decreases in MPI's share of Partnership liabilities could result in the
recognition of taxable gain without the receipt of cash. (See " -- Treatment of
Partnership Distributions.")
Treatment of Partnership Distributions. Distributions of money (including
--------------------------------------
deemed distributions resulting from decreases in MPI's share of Partnership
liabilities) by the Partnership to MPI generally will not be taxable to MPI for
Federal income tax purposes to the extent of MPI's aggregate tax basis in its
Partnership Units immediately before the distribution.
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Distributions of money in excess of such tax basis generally will result in gain
in the amount of such excess, a portion of which may be ordinary income. Any
reduction in MPI's share of the Partnership's liabilities, either through
repayment, refinancing or otherwise, will be treated as a distribution of money
to MPI. A decrease in MPI's Percentage Interest in the Partnership because of an
issuance of additional Partnership Units by the Partnership also will decrease
MPI's share of liabilities of the Partnership and thus will result in a
corresponding deemed distribution.
A non-pro rata distribution of money or property may result in ordinary
income to MPI, regardless of its tax basis in its Partnership Units, if such
distribution reduces MPI's share of the Partnership's "unrealized receivables"
(including depreciation recapture) and/or "inventory items" (both as defined in
Code Section 751) (collectively, "Code Section 751 Assets").
-----------------------
Gain or loss attributable to any "inventory items" will be treated as
ordinary gain or loss. Among other things, Code Section 751 Assets include, to
the extent not previously includible in Partnership income, any rights to
payment for services rendered or to be rendered. Unrealized receivables also
include amounts that would be subject to recapture as ordinary income if the
Partnership sold its assets at their fair market value. To the extent MPI
receives a non-pro rata distribution that reduces its share of Code Section 751
Assets, MPI will be treated as having received a distribution of its
proportionate share of Code Section 751 Assets and having exchanged such assets
with the Partnership in return for a portion of the actual distribution made to
MPI equal to the fair market value of its proportionate share of Code Section
751 Assets. This latter deemed exchange will generally result in MPI's
realization of ordinary income under Code Section 751(b). Such income will
equal the excess of (1) the portion of such distribution deemed received in
exchange for MPI 's proportionate share of the Code Section 751 Assets over (2)
its tax basis in the share of such Code Section 751 Assets deemed relinquished
in the exchange. Although the Partnership does not currently expect to make an
actual non-pro rata distribution of money or property, a deemed distribution of
money resulting upon the Partnership's subsequent issuance of additional
Partnership Units would constitute a non-pro rata distribution for purposes of
Code Section 751(b). The Service has ruled that the change in MPI's share of
Code Section 751 Assets that would normally occur upon such an issuance, when
coupled with such deemed distribution of money, will cause the application of
Code Section 751(b).
Initial Basis of Partnership Units. In general, MPI will have an initial
----------------------------------
tax basis for its Partnership Units ("Initial Basis") equal to the money
-------------
contributed and its basis in any assets contributed by MPI to the Partnership,
reduced by its share of the liabilities from which it is relieved and increased
by its share of the liabilities of the Partnership. MPI's Initial Basis for its
Partnership Units will generally be increased by (a) its share of Partnership
taxable income and (b) increases in its share of liabilities incurred by the
Partnership, if any and MPI's initial basis in its Partnership Units will be
decreased (but not below zero) by (i) its share of Partnership distributions,
(ii) decreases in its share of liabilities of the Partnership, (iii) its share
of losses of the Partnership and (iv) its share of nondeductible expenditures of
the Partnership that are not chargeable to capital.
Allocations of Partnership Income, Gain, Loss and Deduction. Under Code
-----------------------------------------------------------
Section 704(b), a partnership's allocation of any item of income, gain, loss or
deduction to a partner will
61
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be given effect for Federal income tax purposes so long as it has "substantial
economic effect," or is otherwise allocated in accordance with the "partner's
interest in the partnership." It is intended that the Partnership will allocate
its income, gain, loss or deduction for each taxable year in a manner consistent
with such requirements. If an allocation does not satisfy these requirements, it
will be reallocated among the Partners on the basis of their respective
interests in the Partnership, taking into account all facts and circumstances.
Code Section 704(c) Tax Allocations with Respect to Contributed Property.
------------------------------------------------------------------------
Pursuant to Code Section 704(c), income, gain, loss and deduction attributable
to economically appreciated or depreciated property that is contributed to a
partnership must be allocated for Federal income tax purposes in a manner such
that the contributor is charged with, or benefits from, the unrealized gain or
unrealized loss associated with the property at the time of contribution. The
amount of such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of the contributed property at the time
of contribution and the adjusted tax basis of such property at the time of
contribution (referred to as "Code Section 704(c) Gain"). The Partnership
------------------------
Agreement requires allocations of income, gain, loss and deduction in a manner
that is consistent with Code Section 704(c).
Effect of Partnership Transactions on MPI. There are a variety of
-----------------------------------------
transactions that the Partnership may undertake with respect to the Park or the
debt secured by the Park which could cause the Partners, including MPI, to
recognize a significant amount of taxable gain, even though little or no cash is
distributable to them as a result thereof. Such transactions include but are
not limited to the sale of the Park. Pursuant to the Partnership Agreement, the
consent of both BRC and MPI is required prior to a sale of all or a substantial
portion of the Park. (See "SUMMARY OF THE PARTNERSHIP AGREEMENT -- Management
of the Partnership.") If the Park is sold in a substantially tax-deferred
installment sale, or is disposed of in a "like-kind" exchange that is
substantially tax-deferred under Code Section 1031, MPI may recognize gain on
such sale or exchange as a result of depreciation recapture (which cannot be
deferred under the installment method of reporting) or as the result of the
receipt of property that is not of like-kind to the property exchanged.
Termination of the Partnership. In the event of the termination of the
------------------------------
Partnership, a distribution of the Partnership property (other than money) will
not result in taxable gain to MPI (except to the extent provided in Code Section
737 for liquidations occurring within seven years of the date of the transfer of
the Beneficial Interest in the Park to the Partnership) and MPI will hold such
distributed property with a basis equal to the adjusted basis of such
Partnership Units, reduced by any money distributed in liquidation. Further,
the liquidation of the Partnership will be taxable to MPI to the extent that any
money distributed in liquidation (including any money deemed distributed as a
result of relief from liabilities) exceeds MPI's tax basis in its Partnership
Units.
Limitations on Deductibility of Losses; Treatment of Passive Activities and
---------------------------------------------------------------------------
Portfolio Income. MPI may not deduct from taxable income its share of the
- ----------------
Partnership losses, if any, to the extent that such losses exceed MPI's adjusted
tax basis in its Partnership Units at the end of the Partnership's taxable year
in which the loss occurs. The "passive loss rules" and the "at risk rules" do
not apply to corporations such as MPI, unless 50 percent or more of the value of
the
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<PAGE>
stock of MPI becomes owned directly or indirectly by five or fewer individuals
during the last half of the taxable year. It is not anticipated that the MPI
Common Shares will be so owned and these rules are therefore expected to be
inapplicable.
Constructive Termination of the Partnership. Under Code Section
-------------------------------------------
708(b)(1)(B), a partnership will be considered to terminate if within a 12-month
period there is a sale or exchange of 50 percent or more of the interests in
partnership capital and profits. Except upon exercise of MPI's call right or
the termination of the Partnership pursuant to a Buy-Sell Closing (see "SUMMARY
OF THE PARTNERSHIP AGREEMENT -- MPI's Call Right" and "Dispute Resolution"), it
is not expected that the Partnership will terminate within the meaning of Code
Section 708(b)(1)(B). In the event of the constructive termination of the
Partnership, the Partnership will be deemed to contribute all of its assets and
liabilities to a new partnership in exchange for an interest in the new
partnership; and, immediately thereafter, the Partnership will be deemed to
distribute interests in the new partnership to the Partners in proportion to
their respective interests in the Partnership in liquidation of the Partnership.
MPI would generally recognize no gain or loss on the deemed receipt of the
interest in the new partnership and no change in the Partnership's basis in the
Beneficial Interest in the Park should result. The deemed new partnership would
be required to depreciate the Beneficial Interest in the Park as if it were
newly-acquired property. Thus, a tax termination would reduce the amount of
depreciation deductions available to the deemed new partnership and allocable to
MPI. A tax termination of the Partnership could also have the adverse effect on
any partner of the Partnership whose tax year is not the calendar year of
requiring the inclusion of more than one year of Partnership tax items in one
tax return of such partners, resulting in a "bunching" of income.
No Section 754 Election. If a partnership files an election under Code
-----------------------
Section 754 (a "Section 754 Election") and a partner transfers its interest, the
--------------------
basis of the partnership's property, with respect to the transferee partner
only, is either increased or decreased by the difference between the purchase
price for its partnership interest and the partner's proportionate share of the
partnership's adjusted basis for all partnership property. Any increase or
decrease resulting from such adjustment is allocated among the partnership's
assets in accordance with rules established under Code Section 755, which
results in an increase or decrease in depreciation deductions with respect to
the transferee partner. After such adjustment has been made, the transferee
partner's share of the adjusted basis of the partnership's property is equal to
the adjusted basis of its partnership interest.
The Partnership does not presently intend to file a Section 754 Election to
adjust the bases of Partnership property following the transfer of a Partnership
Unit because of the cost and tax accounting complexities such an election could
entail. In the absence of a Section 754 Election, MPI may recognize greater
taxable income than it would if a Section 754 Election were made. MPI may
recognize an offsetting capital loss upon liquidation of the Partnership, but
the deductibility of any such capital loss may be limited.
Disposition of Partnership Units by MPI. If Partnership Units are sold or
---------------------------------------
otherwise disposed of by MPI, the determination of gain or loss from the sale or
other disposition will be based on the difference between the amount realized
and the tax basis for such Partnership Units. (See "-- Initial Basis of
Partnership Units.") The sale or other disposition of Partnership Units by
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<PAGE>
MPI is subject to certain restrictions. (See "SUMMARY OF THE PARTNERSHIP
AGREEMENT -- Transfer of Partnership Units.") Upon the sale of Partnership
Units, the "amount realized" will be measured by the sum of the cash and fair
market value of other property received plus the portion of the Partnership's
nonrecourse liabilities allocable to the Partnership Units sold. To the extent
that the amount of cash or property received plus the allocable share of the
Partnership nonrecourse liabilities exceeds MPI's basis for the Partnership
Units disposed of, MPI will recognize gain. The tax liability resulting from
such gain could exceed the amount of cash received upon such disposition. To
the extent that the amount realized upon the sale of Partnership Units
attributable to MPI's share of Code Section 751 Assets of the Partnership
exceeds the basis attributable to those assets, such excess will be treated as
ordinary income.
Sale of MPI Common Shares at Put Price. In the event that an MPI Common
--------------------------------------
Shareholder sells such MPI Common Shareholder's MPI Common Shares to MPI
pursuant to the Put Right set forth in the Partnership Agreement and MPI sells a
number of Partnership Units to BRC, MPI will recognize gain or loss as a result
of such sale. (See "-- Disposition of Partnership Units by MPI.")
Notwithstanding the ability of BRC to elect to pay the Put Price directly to the
MPI Common Shareholder on MPI's behalf, BRC, MPI and the Partnership intend to
treat this transaction for Federal income tax purposes as a sale of Partnership
Units by MPI to BRC in exchange for the Put Price, followed by a redemption of
the MPI Common Shareholder's MPI Common Shares by MPI in exchange for the Put
Price. To the extent that such a sale of Partnership Units by MPI to BRC
results in taxable gain and MPI incurs a Federal or state corporate tax
liability, MPI will be solely responsible for payment of such tax liability.
(See "-- Taxation of MPI as a Corporation.") Any such payment by MPI may reduce
MPI's ability to make distributions to its remaining shareholders.
Tax Shelter Registration. Under Code Section 6111, the person principally
------------------------
responsible for organizing certain "tax shelters" must register the "tax
shelter" with the Service. MPI believes that no interests in a tax shelter are
being offered for sale hereunder and accordingly, that no tax shelter
registration is required.
Partnership Audit Procedures. The Federal income tax information returns
----------------------------
filed by the Partnership may be audited by the Service. Adjustments (if any)
resulting from such an audit may require each Partner to file an amended tax
return and possibly may result in an audit of the Partner's return. Any audit
of a Partner's return could result in adjustments of non-Partnership items.
Partnerships generally are treated as separate entities for purposes of Federal
tax audits, judicial review of administrative adjustments by the Service and tax
settlement proceedings. The tax treatment of Partnership items of income, gain,
loss, deduction and credit is determined at the partnership level in a unified
partnership proceeding rather than in separate proceedings with each partner.
The Code provides for one partner to be designated as the "Tax Matters Partner"
for these purposes. The Partnership Agreement of the Partnership appoints BRC
as the Tax Matters Partner for the Partnership. The Tax Matters Partner is
authorized, but not required, to take certain actions on behalf of the
Partnership and its Partners and can extend the statute of limitations for
assessment of tax deficiencies against Partners with respect to Partnership
items. The Tax Matters Partner will use reasonable efforts to keep each Partner
informed of administrative and judicial tax proceedings with respect to
Partnership items in accordance with
64
<PAGE>
temporary Treasury Regulations issued under Code Section 6223. The Tax Matters
Partner may seek judicial review (to which all the Partners are bound) of a
final Partnership administrative adjustment and, if the Tax Matters Partner
fails to seek judicial review, such review may be sought by any Partner having
at least a one percent interest in the profits of the Partnership and by
Partners having, in the aggregate, at least a five percent profits interest.
Only one judicial proceeding will go forward, however and each Partner with an
interest in the outcome may participate. The Partners will generally be required
to treat the Partnership items on their Federal income tax returns in a manner
consistent with the treatment of the items on the Partnership information
return. In general, this consistency requirement is waived if the partner files
a statement with the Service identifying the inconsistency. Failure to satisfy
the consistency requirement, if not waived, will result in an adjustment to
conform the treatment of the item by the Partner to the treatment on the
Partnership return. Even if the consistency requirement is waived, adjustments
to the Partner's tax liability with respect to the Partnership items may result
from an audit of the Partnership's or the Partner's tax return. Intentional or
negligent disregard of the consistency requirement may subject a Partner to
substantial penalties.
DESCRIPTION OF SECURITIES
The following summary of the terms of MPI Common Shares and MPI Preferred
Stock does not purport to be complete and is subject to and qualified in its
entirety by reference to the Articles of Incorporation and Bylaws of MPI, copies
of which are filed as exhibits to the Registration Statement of which this
Prospectus is a part. (See "ADDITIONAL INFORMATION.")
MPI's authorized shares consist of 10,000 shares of common stock having a
par value of $0.01 of which 7 shares are currently issued and outstanding.
Pursuant to the Offer, MPI will issue a maximum of 2,347 MPI Common Shares. In
addition, MPI has authorized 400 shares of preferred stock having no par value
of which 235 shares are currently issued and outstanding. Subject to any
restrictions that may be imposed by applicable laws or regulations, holders of
MPI Common Shares are entitled to receive ratably such distributions, if any, as
may be declared by the Board of Directors out of legally available funds.
Holders of MPI Preferred Stock will not be entitled to receive any dividends or
distributions except that in the event of any liquidation, dissolution or
winding up of MPI, holders of MPI Preferred Stock will be entitled to $25 with
respect to each share of MPI Preferred Stock. In the event of any such
liquidation, dissolution or winding-up of MPI, each outstanding MPI Common Share
entitles its holder to participate pro rata in the assets that remain after MPI
pays its liabilities and makes the preferred payment to the holders of MPI
Preferred Stock. (See "EVENTS LEADING TO THE OFFERS MADE BY THIS PROSPECTUS --
Reason for Creation of MPI.")
Each outstanding MPI Common Share entitles the holder to cast one vote on
all matters presented to shareholders for a vote, including the election of
directors. Each outstanding share of MPI Preferred Stock entitles the holder to
cast 1/40 of one vote on all matters presented to shareholders for a vote,
including the election of directors.
Transferability of MPI Common Shares and MPI Preferred Stock is restricted,
as provided in the Articles of Incorporation and Bylaws of MPI. Each certificate
representing MPI
65
<PAGE>
Common Shares and MPI Preferred Stock will bear a legend reflecting the
limitations on transferability. These restrictions are summarized as
follows:
MPI Common Shares may be owned only by MPI, another Meadows Homeowner or
the estate of any Meadows Homeowner, so long as such estate owns a mobile or
manufactured home and leases a lot located in the Park. Thus, any MPI Common
Shareholder who desires to sell his or her MPI Common Shares may only sell them
to these eligible owners. Any MPI Common Shareholder who ceases to be or who is
not a Meadows Homeowner is required to sell his or her MPI Common Shares to one
of these eligible owners.
Subject to the limitations discussed below and until either the Partnership
is terminated or all of BRC's interest in the Partnership is assigned or sold to
MPI or an affiliate of MPI, all MPI Common Shareholders have the right to
require MPI to purchase their MPI Common Shares at any time at a price
determined by the formula described under "SUMMARY OF THE PARTNERSHIP
AGREEMENT--Sale of Partnership Units Relating to Put Right and Call Right" in
this Prospectus (the Put Price). MPI, in turn, has the right to require any MPI
Common Shareholder who ceases to be or who is not a Meadows Homeowner to sell
his or her MPI Common Shares to MPI at the Put Price. However, these rights may
be limited by the Florida Business Corporation Act which prohibits MPI from
repurchasing its MPI Common Shares or otherwise making a distribution to
shareholders where such purchase or distribution would cause MPI to be unable to
pay its debts as they come due in the usual course of business, or such purchase
or distribution would cause MPI to become insolvent. The Florida Business
Corporation Act and MPI's Articles of Incorporation also prohibit MPI from
buying MPI Common Shares when, after the purchase of such shares, MPI has at
least one MPI Common Share outstanding.
Following either the termination of the Partnership or the sale or
assignment of all of BRC's interest in the Partnership to MPI and/or one or more
of MPI's affiliates, MPI Common Shareholders will have no right to require MPI
to purchase their MPI Common Shares, and MPI will have no right to require MPI
Common Shareholders to sell their MPI Common Shares to MPI. The restrictions on
transfer of MPI Common Shares will also terminate upon either of such events
occurring.
For a more detailed summary of these restrictions on transfer of MPI Common
Shares, see "SUMMARY OF THE PARTNERSHIP AGREEMENT -- Sale of Partnership Units
Relating to Put Right and Call Right." In addition, you should refer to MPI's
Articles of Incorporation and Bylaws, copies of which are filed as exhibits to
the Registration Statement of which this Prospectus is a part. (See "ADDITIONAL
INFORMATION.")
MPI Preferred Stock may only be transferred to, or owned by, Meadows
Homeowners or the estate of any Meadows Homeowner, so long as such estate owns a
mobile or manufactured home and leases a lot in the Park. Subject to the
limitations of the Florida Business Corporation Act and MPI's Articles of
Incorporation described above, shares of MPI Preferred Stock may be redeemed by
MPI, at MPI's sole election, for $25 per share if an MPI Preferred Stockholder
ceases to be an eligible owner, or any person other than an eligible owner
acquires any right or claim of right to such Preferred Stock.
66
<PAGE>
Neither MPI Common Shareholders nor MPI Preferred Shareholders have any
conversion, exchange, sinking fund, redemption or appraisal rights or any
preemptive rights to acquire unissued MPI Common Shares or MPI Preferred Stock,
nor do they have cumulative voting rights in the election of directors, except
that MPI Common Shareholders may have the right or the obligation to sell their
MPI Common Shares to MPI as discussed above. No MPI Common Shareholder will be
liable to further calls or to assessment by the issuer. All MPI Common Shares
to be issued and outstanding following the consummation of the Offer will be
duly authorized, fully paid and nonassessable. (See "SUMMARY OF THE PARTNERSHIP
AGREEMENT -- Sale of Partnership Units Relating to Put Right and Call
Right.")
PLAN OF DISTRIBUTION OF MPI COMMON SHARES
The MPI Common Shares will be offered to the Meadows Homeowners in Florida
by Coastal Financial Security, Inc., Tampa, Florida, a registered broker-dealer
in Florida acting as agent of MPI. The maximum number of MPI Common Shares which
may be sold pursuant to the Offer will be 2,347. Coastal Financial Security,
Inc. has no obligation to sell any of the MPI Common Shares and is acting on
behalf of MPI in this offering in Florida solely to satisfy a requirement of the
Florida Securities and Investor Protection Act that MPI offer and sell
securities in Florida through a broker-dealer registered in Florida. Coastal
Financial Security, Inc. will receive a fee equal to the greater of: (a) 1% of
the proceeds of all MPI Common Shares sold in the offering, including proceeds
arising from any Advances converted into MPI Common Shares pursuant to the
Rescission Offer, or (b) $8,800.00. The Offer will not be underwritten by
Coastal Financial Security, Inc. or by any other person, and there are no
commitments to purchase any of the MPI Common Shares being offered. The officers
and directors of MPI have orally indicated that they intend to purchase a total
of 58 MPI Common Shares in the Offer.
There is no minimum number of MPI Common Shares that must be sold in order
for the Offer to be effected. Accordingly, there is no arrangement for the
proceeds of the Offer to be returned to Meadows Homeowners if all or any part of
the 2,347 of the MPI Common Shares offered are not sold.
Expenses of the offering are estimated as follows. The Partnership will
reimburse BRC for all of these fees and expenses:
<TABLE>
<S> <C>
Registration Fees 692.37
Sales Agent Fee $ 8,800.00
Printing Fees $ 25,000.00
Blue Sky Fees $ 12,000.00
Legal Fees $330,000.00
Accounting Fees $ 91,000.00
-----------
Total $467,492.37
===========
</TABLE>
MPI has agreed to indemnify Coastal Financial Security, Inc. and its
officers, directors and agents, and each person who controls Coastal Financial
Security, Inc., within the meaning of
67
<PAGE>
Section 15 of the Act, against any claim or liability which may arise under any
applicable federal or state securities laws, and to reimburse Coastal Financial
Security, Inc. and such persons for any expenses (including reasonable
attorneys' fees) incurred in connection with investigating, preparing or
defending any such action or claim based upon: (1) any untrue statement or
omission of material fact contained in this Registration Statement; (2) any Blue
Sky application or other instrument executed or supplied by MPI filed in any
state or province to qualify or register any or all of the MPI Common Shares
under the securities laws thereof; or (3) the Prospectus (or any amendment or
supplement thereto) distributed to Meadows Homeowners in connection with the
offering. MPI will not be not liable to Coastal Financial Security, Inc.,
however, for any claim or liability arising out of any untrue statement or
material omission from the Prospectus (or any amendment or supplement thereto)
made in reliance upon information furnished to MPI by Coastal Financial
Security, Inc. or not corrected by Coastal Financial Security, Inc. upon its
review of such information contained in the Registration Statement and/or the
Prospectus made available to it by MPI.
THE OFFER EXPIRES ON MARCH 19, 1999. TO ACCEPT, YOU MUST DELIVER THE
SUBSCRIPTION AGREEMENT (ENCLOSED WITH THIS PROSPECTUS) TO MPI BY THE CLOSE OF
BUSINESS ON MARCH 19, 1999.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Bylaws of MPI grant the officers and directors of MPI the right to
indemnification by MPI to the fullest extent authorized by the Florida Business
Corporation Act against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such director or officer in
connection with any action, suit or proceeding in which such director or officer
was or is made a party or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that he or she is or was a
director or officer of MPI or is or was serving at the request of MPI as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan. MPI's obligation to indemnify any person who is or was
serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or nonprofit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust enterprise or
nonprofit entity.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of MPI pursuant to the
foregoing provisions, or otherwise, MPI has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
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LEGAL MATTERS
Steptoe & Johnson LLP, 1330 Connecticut Avenue, N.W., Washington, DC has
given its opinion that the MPI Common Shares offered by this Prospectus will,
when sold and fully paid for, be legally issued, fully paid and nonassessable.
EXPERTS
The balance sheets of BRC and MHC-QRS as of September 30, 1998, statement
of revenues and certain expenses for the Park for the nine months ended
September 30, 1998, the balance sheet of MPI-1 as of December 31, 1997, and
statements of income, cash flows and changes in members' equity for each of the
two years in the period then ended, appearing or incorporated by reference in
this Prospectus have been audited by Ernst & Young LLP, independent auditors, to
the extent indicated in their reports thereon also appearing herein. Such
financial statements have also been included herein or incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
expert in accounting and auditing.
ADDITIONAL INFORMATION
MPI has filed with the Commission a Registration Statement with respect to
the MPI Common Shares offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and any amendments thereto. For further information with respect to the
MPI Common Shares offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits and any amendments thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document qualified in
all respects by such reference. The Registration Statement, together with
exhibits and any amendments thereto, may be inspected at the Public Reference
Room of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, DC
20549, without charge and copies of the material contained therein may be
obtained at prescribed rates from the Commission's Public Reference Room in
Washington, DC. You can obtain information about the operation of the
Commission's Public Reference Room by calling the Commission at 1-800-SEC-0330.
The Commission also maintains a Web site that contains reports, proxy and
information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
-----
This Web site can be accessed at http://www.sec.gov.
GLOSSARY
"Act" means the Securities Act of 1933, as amended.
---
"Affiliate" means, with respect to any Person, (i) any Person directly or
---------
indirectly controlling, controlled by or under common control with such Person,
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting securities of such Person, (iii) any officer, director or
general partner of such Person, (iv) any Person who is an officer, director,
general partner, trustee, beneficiary or holder of ten percent (10%) or more of
the voting securities of any
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Person described in clauses (i) through (iii) of this sentence, or (v) any
Person who is a member of the immediate family of any Person described in
clauses (i) through (iv) of this sentence. As used in the Partnership Agreement,
"control" (in the context of the terms "controlling," "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
cause the direction of the management and policies of entities or persons,
whether through the ownership of voting securities, by contract or otherwise.
The term "controlling" means the possession, direct or indirect, of the power to
cause the voting securities to be voted as the Person sees fit.
"Advances" means the moneys advanced to MPI-1 by some of the Meadows Homeowners.
--------
"Advancing Homeowners" means Meadows Homeowners who made Advances to MPI-1.
--------------------
"Asset Value" means, with respect to any asset of the Partnership, the asset's
-----------
adjusted basis for Federal income tax purposes, except as provided in the
Partnership Agreement.
"Beneficial Interest" means the profit, benefit or advantage and the ability to
-------------------
lease, sell, convey, mortgage, encumber, refinance, exchange, dedicate or
otherwise deal with the Park, resulting from ownership of the Park, as
distinguished from the "record interest."
"BRC" means Blue Ribbon Communities Limited Partnership, a Delaware limited
---
partnership and subsidiary of MHC.
"Capital Account" means, with respect to either Partner, the Capital Account
---------------
maintained for such Partner in accordance with the provisions of the Partnership
Agreement.
"Capital Contribution" means, with respect to either Partner, the amount of
--------------------
money and the initial Asset Value of any property (other than money) contributed
by such Partner to the Partnership, reduced by the amount of any liabilities of
such Partner assumed by the Partnership in connection with the contribution or
which are secured by any property contributed by such Partner to the
Partnership.
"Closing Date" shall mean three business days after the expiration of the Offer,
------------
or earlier if mutually agreed by MPI and BRC.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Code Section 704(c) Gain" means generally the amount of unrealized gain or
------------------------
unrealized loss with respect to property contributed to a partnership by a
partner, taking into account any variation between the basis of the property to
the partnership and its fair market value at the time of contribution.
"Code Section 751 Assets" means, collectively, "unrealized receivables"
-----------------------
(including depreciation recapture) and/or "inventory items," both as defined in
Code Section 751.
"Commission" means the Securities and Exchange Commission.
----------
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"Contribution Agreement" means the contribution agreement dated as of September
----------------------
30, 1998 by and between MPI, BRC and the Partnership, as amended by the First
Amendment to Contribution Agreement dated as of January 27, 1999.
"Deadlock" means a deadlock between the Partners as to the proper resolution of
--------
any matter or any other dispute between the Partners relating to the
Partnership, the Park, or the Partnership Agreement.
"Depreciation" means, for each fiscal year or other period, an amount equal to
------------
the depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such fiscal year or other period for Federal income tax
purposes, except that if the Asset Value of an asset differs from its adjusted
basis for Federal income tax purposes at the beginning of such fiscal year or
other period, Depreciation shall be an amount which bears the same ratio to such
beginning Asset Value as the Federal income tax depreciation, amortization or
other cost recovery deduction for such fiscal year or other period bears to such
beginning adjusted tax basis; provided, however, that if the Federal income tax
-------- -------
depreciation, amortization or other cost recovery deduction for such fiscal year
or other period is zero, Depreciation shall be determined with reference to such
beginning Asset Value using any reasonable method selected by BRC. With respect
to any asset of the Partnership for which depreciation is calculated in
accordance with Treasury Regulations Section 1.704-3(d), Depreciation shall be
calculated in the same manner.
"EDGAR" means the Commission's Electronic Data Gathering, Analysis and Retrieval
-----
system.
"Effective Sale Date" means the date specified in the notice given by MPI to a
-------------------
Required Seller by which a Required Seller must transfer his or her MPI Common
Shares and provide the required indemnification to MPI.
"Eligible Homeowner" means any Meadows Homeowner or the estate of a deceased
------------------
Meadows Homeowner, so long as such estate owns a mobile or manufactured home and
leases a lot located in the Park.
"Exchange Act" means the Securities Exchange Act of 1934.
------------
"Florida Mobile Home Act" means the Florida Mobile Home Act, Chapter 723,
-----------------------
Florida Statutes.
"Gross Fair Market Value" means fair market value, unreduced by any liabilities,
-----------------------
except that the initial Gross Fair Market Value of any asset contributed by a
Partner to the Partnership shall be determined by the contributing Partner and
the Partnership.
"Initial Basis" means a partner's initial tax basis for its interest in a
-------------
partnership.
"Letter of Intent" means the letter of intent dated December 12, 1997 by and
----------------
between BRC and MPI-1.
"Loan" means the loan of $12,341,693.46 from MHC Lending to MPI-1.
----
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"Management Agreement" means the agreement by and between MHC Management and the
--------------------
Partnership pursuant to which MHC Management will manage the Park.
"Meadows Homeowners" means the owners of manufactured or mobile homes who lease
------------------
lots located in the Park.
"MHC" means Manufactured Home Communities, Inc., a Maryland corporation.
---
"MHC Lending" means MHC Lending Limited Partnership, an Illinois limited
-----------
partnership.
"MHC Management" means MHC Management Limited Partnership, an Illinois limited
--------------
partnership.
"MHC-QRS" means MHC-QRS Blue Ribbon Communities, Inc., a Delaware corporation.
-------
"MPI" means Meadows Preservation, Inc., a Florida for-profit, stock corporation
---
that, by mergers, is the successor to MPI-1. MPI is making the Rescission Offer
and the Offer pursuant to this Prospectus.
"MPI-1" means Meadows Preservation, Inc., a Florida non-stock, not-for-profit
-----
corporation and the predecessor to MPI.
"MPI-2" means MPI Two, Inc., a Delaware non-stock, membership corporation.
-----
"MPI-3" means MPI Three, Inc., a Delaware stock corporation.
-----
"MPI Common Shareholders" means the owners of the MPI Common Shares.
-----------------------
"MPI Common Shares" means the shares of common stock of MPI, having a par value
-----------------
of $.01.
"MPI Preferred Stock" means the class of preferred stock issued by MPI pursuant
-------------------
to its Articles of Incorporation and Bylaws, having no par value.
"Net Capital Proceeds" means the net cash proceeds remaining in the Partnership
--------------------
and available for distribution derived from any excess Capital Contributions,
mortgages or other financings or refinancings, any sales and other dispositions
(other than in the ordinary course of business) of the property of the
Partnership, or any part thereof, any insurance award paid on account of
destruction by casualty or from an eminent domain proceeding or conveyance in
lieu thereof, or any other nonrecurring capital transaction after deduction of
all expenses, charges and taxes incurred by the Partnership in connection with
obtaining such proceeds and of any portion of such proceeds actually applied to
the payment of Partnership indebtedness or to repair, restore or improve the
property of the Partnership and after deduction of amounts used to establish
reasonable reserves. "Net Capital Proceeds" shall include all principal and
interest payments with respect to any note or other obligation received by the
Partnership in connection with any sales and other dispositions (other than in
the ordinary course of business) of the property of the Partnership.
72
<PAGE>
"Net Cash Flow" means all cash received from Partnership operations not
-------------
including amounts received as Capital Contributions, reduced by all cash paid,
or amounts used to establish reasonable reserves, for all Partnership expenses,
debt payments, capital improvements, replacements or other contingencies.
"Nominee Agreement" means the Title Holding, Nominee and Agency Agreement to be
-----------------
entered into between MPI and the Partnership.
"Non-U.S. Holder" means any MPI Common Shareholder other than a U.S. Holder.
---------------
"Occupied Lots" means all lots within the Park that are occupied by a
-------------
manufactured or mobile home as of the date of the Partnership Agreement or that
become so occupied during the term of the Partnership Agreement.
"Offer" means the offer by MPI to sell MPI Common Shares pursuant to this
-----
Prospectus.
"Operation Plan" means the Property Management and Operation Plan pursuant to
--------------
which MPI and BRC agree to operate the Park.
"Park" means The Meadows Mobile Home Park, located at 2555 PGA Boulevard, Palm
----
Beach Gardens, Florida, 33410.
"Park Purchase Account" means the interest-bearing bank account at NationsBank
---------------------
holding the Advances.
"Partners" means, collectively, MPI and BRC.
--------
"Partnership" means The Meadows Resort Partnership, a Florida general
-----------
partnership to be formed by MPI and BRC.
"Partnership Agreement" means the General Partnership Agreement dated as of
---------------------
September 30, 1998 by and between BRC and MPI, as amended by that First
Amendment to General Partnership Agreement dated as of January 27, 1999.
"Partnership Interest" means an ownership interest in the Partnership, including
--------------------
any and all benefits provided in the Partnership Agreement to a Partner owning a
Partnership Interest, together with the obligations of such Partner owning a
Partnership Interest.
"Partnership Record Date" means, with respect to each distribution to the
-----------------------
Partners, the date that is fourteen (14) days prior to the date of such
distribution (or if such fourteenth (14th) day is not a business day, the last
business day immediately preceding such fourteenth (14th) day).
"Partnership Unit" means a fractional share of a Partnership Interest.
----------------
73
<PAGE>
"Percentage Interest" means, as to each Partner, an interest in the Partnership
-------------------
determined by dividing the Partnership Units owned by such Partner by the total
number of Partnership Units then outstanding.
"Person" means any individual, partnership, corporation, limited liability
------
company, trust or other entity.
"Plaintiffs" means Penn Florida Realty, L.P., a Delaware limited partnership,
----------
d/b/a PNFLA Realty Limited Partnership and Penn Florida, Inc.
"Profit" and "Loss" mean for each fiscal year or other period, an amount equal
------ ----
to the Partnership's taxable income or loss for such fiscal year or other
period, determined in accordance with Code Section 703(a) (for the purposes of
computing Profit and Loss, all items of income, gain, loss or deduction required
to be stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with adjustments as provided in the Partnership
Agreement
"Prospectus" means Part 1 and Part F/S of the Registration Statement.
----------
"Registration Statement" means the registration statement for the sale of MPI
----------------------
Common Shares filed by MPI in accordance with the requirements of the Act.
"Rescission Offer" means the offer by MPI to refund all Advances pursuant to
----------------
this Prospectus.
"Required Seller" means an MPI Common Shareholder who ceases to be a Meadows
---------------
Homeowner or any person other than an Eligible Homeowner who acquires any right,
or claim of right, to MPI Common Shares.
"Section 754 Election" means an election under Code Section 754.
--------------------
"Service" means the Internal Revenue Service.
-------
"Stock/Unit Ratio" means, (i) as of the time immediately prior to any written
----------------
offer to sell MPI Common Shares to new Meadows Homeowners and (ii) as of the
time immediately prior to any transfer of MPI Common Shares to MPI by an MPI
Common Shareholder, the number of MPI Common Shares issued and outstanding (not
including any shares held as treasury stock) divided by the number of
-------
Partnership Units held by MPI.
"Subscription Agreement" means the agreement attached to this Prospectus as
----------------------
Exhibit A.
"TIN" means the taxpayer identification number of the taxpayer issued by the
---
Service.
"Treasury Regulations" mean the income tax regulations, including temporary
--------------------
regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
74
<PAGE>
"Unoccupied Lots" means lots in the Park that are not occupied by tenants as of
---------------
the date of the Partnership Agreement.
"U.S. Holder" means a beneficial holder of MPI Common Shares that for United
-----------
States Federal income tax purposes is: (i) a citizen or resident (as defined in
Code Section 7701(b)) of the United States; (ii) a corporation, partnership or
other entity formed under the laws of the United States or any political
subdivision thereof; (iii) an estate the income of which is subject to United
States Federal income taxation regardless of its source; or (iv) in general, a
trust subject to the primary supervision of a court within the United States and
the control of a United States person as described in Code Section 7701(a)(30).
"USRPHC" means a United States real property holding corporation as such term is
------
defined in the Code.
"Withholding Regulations" means the Treasury Regulations generally promulgated
-----------------------
under Code Sections 1441 and 1442 that will generally be effective on and after
January 1, 1999 pursuant to Treasury Decision 8734.
75
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Financial Statements of Meadows Preservation, Inc. for the years ended F-2
December 31, 1997 and 1996
Statement of Revenues and Certain Expenses of The Meadows for the nine F-13
months ended September 30, 1998
Balance Sheet of MHC-QRS Blue Ribbon Communities, Inc. as of June 30, 1998 F-17
Balance Sheet of Blue Ribbon Communities Limited Partnership as of June F-21
30, 1998
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To the owners of
Meadows Preservation, Inc.
We have audited the accompanying balance sheet of Meadows Preservation, Inc.
(the "Company") as of December 31, 1997 and the related statements of
operations, changes in owners' deficiency and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1997, and the results of its operations and its cash flows for each of the two
years in the period then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 5, 1998, except for Note 3,
as to which the date is
January 28, 1999
F-2
<PAGE>
Meadows Preservation, Inc.
Balance Sheet
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1998
1997 (UNAUDITED)
------------------ ---------------------
Assets
<S> <C> <C>
Cash $ 10,021 $ 7,886
Restricted deposits 876,208 858,340
Accounts receivable - 16,967
Due from management company - 542,113
Rental property:
Land 3,093,726 3,093,726
Improvements 9,281,179 9,338,026
------------------ ---------------------
12,374,905 12,431,752
Accumulated depreciation (11,866) (244,685)
------------------- ---------------------
12,363,039 12,187,067
------------------ ---------------------
Total assets $13,249,268 $13,612,373
================== =====================
Liabilities and Owners' Deficiency
Liabilities
Note Payable $12,341,693 $12,341,693
Accrued interest 39,561 641,951
Accounts payable and accrued expenses - 40,477
Advances payable to homeowners 876,208 858,340
------------------ ---------------------
Total liabilities 13,257,462 13,882,461
Redeemable common stock, $.01 par value, - 1,000
10,000 shares authorized, 1 share issued
and outstanding (at redemption value)
Owners' deficiency
Members' deficiency (8,194) -
Preferred stock deficiency, no par value, - (8,194)
400 shares authorized, 235 shares issued
and outstanding (liquidation value $6,125)
Accumulated deficit (262,894)
Total owners' deficiency (8,194) (271,088)
------------------ ---------------------
Total liabilities and owners' deficiency $13,249,268 $13,612,373
================== =====================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Meadows Preservation, Inc.
Statement of Operations
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, 1998 1997
1996 1997 (UNAUDITED) (UNAUDITED)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Rental revenue - $ 48,367 $1,042,492 $ -
Association revenues 3,099 475 6 386
Interest and other income 165 411 9,142 293
-------------------------------------------------------------------
Total income 3,264 49,253 1,051,640 679
EXPENSES
Association expenses 2,092 $ 9,152 $ 8,825 $253
Depreciation expense 11,866 232,819
Property, operating and maintenance 2,500 318,750
Real estate taxes 6,287 130,500
General and administration expense 494 21,250
Interest 39,561 602,390
-------------------------------------------------------------------
Total expenses $2,092 69,860 1,314,534 253
Net income (loss) $1,172 $(20,607) $ (262,894) $426
===================================================================
Earnings per share (pro forma) - basic
and diluted - - $ (262,894) -
===================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Meadows Preservation, Inc.
Statement of Changes in Owners' Deficiency
<TABLE>
<CAPTION>
Members' Preferred Accumulated
Equity Stock Deficit
-------------------------------------------------
<S> <C> <C> <C>
January 1, 1996 $ 11,241 - -
Net income, year ended December 31, 1996 1,172 - -
-------------------------------------------------
December 31, 1996 12,413 - -
Net loss, year ended December 31, 1997 (20,607) - -
-------------------------------------------------
Deficiency, December 31, 1997 (8,194) - -
Change in equity from merger (unaudited) 8,194 $(8,194) -
Net loss, nine months ended September 30, 1998
(unaudited) - - $(262,894)
-------------------------------------------------
Deficiency, September 30, 1998 (unaudited)
- $(8,194) $(262,894)
=================================================
</TABLE>
See accompanying notes
F-5
<PAGE>
Meadows Preservation, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, 1998 1997
1996 1997 (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,172 $ (20,607) $(262,894) $ 426
Adjustments to reconcile increase in net
income to net cash provided by
operating activities:
Depreciation expense - 11,866 232,819 -
(Increase) decrease in restricted - (876,208) 17,868 -
deposits
Increase (decrease) in advances
payable to homeowners - 876,208 (17,868) -
Increase in accounts receivable - - (16,967) -
Increase in due from management company - - (542,113) -
Increase in accrued interest - 39,561 602,390 -
Increase in accounts payable and accrued - - 40,477 -
expenses
----------------------------------------------------------------------------
Net cash provided by operating activities - 30,820 53,712 426
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in rental property - (12,374,905) (56,847) -
----------------------------------------------------------------------------
Net cash used in investing activities - (12,374,905) (56,847) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 12,341,693 - -
Proceeds from redeemable common stock - - 1,000 -
----------------------------------------------------------------------------
Net cash provided by financing activities - 12,341,693 1,000 -
----------------------------------------------------------------------------
Net increase (decrease) in cash 1,172 (2,392) (2,135) 426
Cash at beginning of period 11,241 12,413 10,021 12,413
----------------------------------------------------------------------------
Cash at end of period $12,413 $ 10,021 $ 7,886 $12,839
============================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Meadows Preservation, Inc.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Meadows Preservation, Inc., a Florida not-for-profit corporation ("MPI") was
formed on March 2, 1988, to be the homeowners' association for the Meadows
Mobile Home Park (the "Property"), a fifty-five acre property containing 381
manufactured home sites located in Palm Beach Gardens, Florida. On July 2,
1998, MPI completed a series of non-cash mergers with entities of the same name
formed in June 1998. The mergers (which occurred in the jurisdictions of two
different states) resulted in MPI becoming a Florida for-profit corporation
which may issue equity securities. This series of mergers did not have any
effect on the operations or purpose of MPI.
On December 12, 1997, MPI entered into a letter of intent with Blue Ribbon
Communities Limited Partnership ("BRC"), an affiliate of Manufactured Home
Communities, Inc. ("MHC"), a public real estate investment trust for the
purchase and operation of the Property. Consistent with the letter of intent,
an affiliate of MHC provided a mortgage loan to MPI which purchased the Property
for a total cost of approximately $12,375,000, including $375,000 of closing
costs, on December 18, 1997. Additionally, the letter of intent called for MPI
to convert into a for profit corporation and endeavor to raise money by selling
shares of common stock (the "Offering") to the owners of mobile homes within the
Property. Upon completion of the Offering, MPI would enter into a to-be-formed
Florida general partnership with BRC, named the Meadows Resort Partnership (the
"Partnership"), which would operate the Property. BRC would be designated as
the exclusive sales and marketing agent for the Property, subject to the right
of homeowners to sell their own homes, and have the right to develop and market
additional lots in the Property. BRC would also have commitments for funding
certain costs of the offering, improvements and legal matters. MPI would
contribute the proceeds from the Offering, the beneficial interest in the
Property and the related mortgage payable to the Partnership which would assume
the obligations of the underlying mortgage. MPI's ownership interest in the
Partnership will be determined based on what the net value of the contributed
assets and liabilities equals as a percentage of total capital contributed in
the Partnership at its inception. One Partnership unit for each $1,000
contributed to the Partnership will be given to each partner. However, in no
event can MPI's interest in the
F-7
<PAGE>
Meadows Preservation, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Partnership be more than fifty percent. MPI anticipates that it would account
for its investment using the equity method and accordingly, would receive its
proportionate ownership share of the operating income and losses in the
Partnership.
Concurrently with the purchase of the Property, MPI entered into an option
agreement which, as amended, gives BRC the option to purchase the Property on
the same terms and conditions as MPI under certain circumstances. This option,
as amended, expires on March 31, 1999. Additionally, should the Offering not
occur, MPI is required to sell the Property to MHC at a price equal to the
outstanding balance on the mortgage.
MPI had originally anticipated funding the down payment for the property
acquisition before the MHC loan was obtained, through advance deposits from
owners of homes within the Property. Accordingly, at December 31, 1997, MPI has
restricted deposits of $876,208 in an interest bearing account which are due to
the homeowners. Included in the $876,208 are advances from officers and
directors of MPI totaling $64,000. The deposits plus accrued interest at ten
percent (10%) would be repaid to the respective homeowners upon completion of
the Offering, At such time, any homeowner may elect to have their deposits
refunded along with accrued interest or to use the deposits to acquire common
shares of stock in MPI at $1,000 per share. Should the Offering not be
completed, it is anticipated that all restricted funds would then be distributed
to the homeowners.
The accompanying 1997 statement of operations reflects the operations of the
homeowners' association for the twelve months ended December 31, 1997, along
with the revenues and expenses of the Property for the period from December 18,
1997 (date of the purchase of the Property) through December 31,1997.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-8
<PAGE>
Meadows Preservation, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RENTAL PROPERTY
Rental property is stated at cost. Depreciation of improvements, which
substantially all consist of pads for manufactured homes, streets, a clubhouse
and a pool, is computed on the straight line basis over 30 years.
RENTAL REVENUE RECOGNITION
Rental income is generated from short term leases and is recorded as revenue
when earned.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The balance sheet as of September 30, 1998, and the statements of operations and
cash flows for the nine month periods ended September 30, 1998 and 1997, and the
statement of owners' equity for the nine months ended September 30, 1998, and
related footnote disclosures are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the results of the interim periods. All such adjustments are of a normal,
recurring nature.
PRO FORMA
Pro forma earnings per share information for the nine months ended September 30,
1998, has been presented as if the one share of common stock had been issued and
outstanding for the entire period from January 1, 1998 through September 30,
1998. No pro forma income tax provision has been provided since MPI sustained
losses in the period (See Note 5).
F-9
<PAGE>
Meadows Preservation, Inc.
Notes to Financial Statements (continued)
2. NOTE PAYABLE
MPI is the borrower under a $12,341,693 mortgage note secured by the Property.
Principal plus accrued interest is due at the earlier of 30 days from the
effective date of the Offering described in Note 1 or February 28, 1999, as
amended. Terms of the note include the accrual of interest at the rate of the
lesser of nine percent per annum, or the rate derived from dividing the net
operating income for the outstanding period of the note, annualized for a full
year, by the annualized outstanding principal note balance; the calculated
interest rate based on this formula is 6.5% for the nine months ended September
30, 1998. Interest expense has been accrued at 9% and 6.5% and amounted to
$39,561 and $602,390 for the periods ended December 31, 1997 and September 30,
1998, respectively. No interest has been paid as of September 30, 1998.
3. MERGERS
As part of the mergers described in Note 1, each of the 235 members of MPI
existing on July 2, 1998, was issued, at no cost, a share of voting preferred
stock in MPI. The terms of the preferred shares entitle each holder to have one
fortieth of one vote for MPI matters on which common shareholders of MPI are
entitled to vote. One preferred share may be owned per household and the
ownership of a preferred share does not preclude the holder from purchasing
common stock in MPI. Upon dissolution of MPI, a priority return of twenty-five
dollars per share will be made to holders of preferred stock from available
funds. Common and preferred shares of MPI may only be owned by owners of mobile
homes within the Property and may not be pledged or encumbered by the owners.
Additionally, an owner of common or preferred stock may only resell shares to
another homeowner in the Property or to MPI. At the request of a common
shareholder, MPI would be required to repurchase common shares for a price
determined by a predefined formula ($800 at September 30, 1998). In no event can
there be less than one share of common stock outstanding at any time.
On the tenth anniversary of the Partnership Agreement (September 30, 1998) and
on each fifth anniversary thereafter, MPI would have a call right to require BRC
to sell to MPI or its affiliates all of BRC's interest in the Partnership at a
price determined based on the then market value of the Property.
F-10
<PAGE>
Meadows Preservation, Inc.
Notes to Financial Statements (continued)
4. CONTINGENCIES
On December 8, 1997, a prospective purchaser of the Property filed a complaint
against MPI alleging that the Florida Mobile Home Act, which granted MPI the
right of first refusal to purchase the property, violated the prospective
buyer's constitutional and contractual right to purchase the Property. In the
suit, the prospective purchaser has requested the court to rescind MPI's
acquisition of the Property. In the event of such rescission, MPI would most
likely not recover the total acquisition costs and the Partnership would not
have a property to operate. However, any loss on the rescission would be offset
by gain on extinguishment of the note payable and related interest.
Additionally, BRC has agreed to indemnify MPI against any expenses in connection
with this complaint. The ultimate outcome of this situation is not presently
determinable. Management intends to defend this action vigorously.
The advance deposits from homeowners may be construed as the purchase of a
security which was offered and sold without registration with the Securities and
Exchange Commission. The receipt of such funds may have inadvertently violated
certain federal and state securities laws. These possible violations have
prompted MPI to make a rescission offer to the homeowners who advanced such
funds (see Note 1). As of December 31, 1997, there have not been any
communications from or fines levied by any regulatory agency related to the
possible violations.
F-11
<PAGE>
Meadows Preservation, Inc.
Notes to Financial Statements (continued)
5. INCOME TAXES
No provision for income taxes has been provided in the accompanying financial
statements for the year ended December 31, 1997, and for the period to July 2,
1998 (date of conversion to a stock corporation), because of MPI's tax status as
a non-taxable homeowners' association. No provision for income taxes has been
provided for the period from July 2, 1998 to September 30, 1998 , due to the
operating loss position of MPI. A deferred tax benefit was not recorded for the
period due to the uncertainty of the ultimate realization of the net operating
loss carryforward created as a result of the operating loss. As of September
30, 1998 , MPI had available a net operating loss carryforward of approximately
$178,000 , which will expire in 2013. There are no material temporary
differences between income tax and financial reporting methods.
6. RELATED PARTY TRANSACTIONS
Prior to the acquisition of the Property by MPI, the Property had a management
agreement with a third party management company. Upon acquisition, this
management contract was canceled and an affiliate of MHC, a related party,
became the management company for the Property. No fees were paid to MHC's
affiliate during 1997. Fees paid to MHC's affiliate amounted to $42,000 in the
nine month period ended September 30, 1998. Such fees are included in property
operating and maintenance expenses on the accompanying statement of operations.
The management company collects all revenues and disburses all expenses related
to the Property from its centralized cash management system. The amount
collected by the management company in excess of the expenses paid as of
September 30, 1998, is due to MPI and amounts to $542,113 .
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying Statement of Revenue and Certain Expenses of
The Meadows (the Property) for the nine months ended September 30, 1998. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures made in the Statement of Revenue and
Certain Expenses. An audit also includes assessing the basis of accounting used
and significant estimates made by management, as well as evaluating the overall
presentation of the Statement of Revenue and Certain Expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission, and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and expenses for the nine
months ended September 30, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 13, 1998
F-13
<PAGE>
THE MEADOWS
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED December 31, 1997
SEPTEMBER 30, 1998 (unaudited)
------------------------------------------------------
REVENUE
<S> <C> <C>
Rental income $1,043 $1,292
Interest and other income 9 29
-----------------------------------------------------
Total revenues 1,052 1,321
CERTAIN EXPENSES
Property operating and maintenance 288 326
Real estate taxes 131 166
Insurance 10 34
Management fees 42 91
Interest expense 602 60
Depreciation 233 9
-----------------------------------------------------
Total expenses 1,306 686
REVENUE IN EXCESS OF EXPENSES $ (254) $ 635
=====================================================
</TABLE>
F-14
See accompanying notes.
<PAGE>
THE MEADOWS
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES
1. DESCRIPTION OF PROPERTY
The Meadows is a 381 site manufactured home community located in Palm Beach
Gardens, Florida (the "Property"). On December 18, 1997, Meadows Preservation,
Inc. ("MPI"), the homeowners' association for the Property, purchased the
Property for approximately $12,375,000, with a mortgage note due to an affiliate
of Manufactured Home Communities, Inc., a public real estate investment trust
("MHC").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying statements of revenue and certain expenses for the nine months
ended September 30, 1998, and the year ended December 31, 1997 (unaudited), were
prepared for purposes of complying with the rules and regulations of the
Securities and Exchange Commission, for inclusion in the Registration Statement
SB-1 of Meadows Preservation, Inc.
In preparation of the Company's statements of revenue and certain expenses
management made estimates and assumptions that effect the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from these estimates.
Rental of manufactured home sites are under short-term operating lease
arrangements. Rental income attributable to such leases is recorded when
earned.
The Property had a management agreement with a third party management company.
Upon acquisition of the Property by MPI, this management contract was canceled
and an affiliate of MHC, a related party, became the management company for the
Property. No fees were paid to MHC's affiliate during 1997. Fees paid to MHC's
affiliate amounted to $42,000 in the nine month period ended September 30, 1998.
Such fees are included in management fees on the statements of revenue and
certain expenses.
UNAUDITED STATEMENT
In the opinion of management, the unaudited statement for the year ended
December 31, 1997, reflects all adjustments necessary for the fair presentation
of the results of the period. All adjustments are of a normal recurring nature.
F-15
<PAGE>
THE MEADOWS
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES (CONTINUED)
3. CONTINGENCIES
On December 8, 1997, a prospective purchaser of the Property filed a complaint
against MPI alleging that the Florida Mobile Home Act, which granted MPI the
right of first refusal to purchase the property, violated the prospective
buyer's constitutional and contractual right to purchase the Property. In the
suit, the prospective purchaser has requested the court to rescind MPI's
acquisition of the Property. In the event of such rescission, MPI most likely
would not recover the total acquisition costs. However, any loss on the
rescission would be offset by a gain on extinguishment of the note payable.
Additionally, BRC has agreed to indemnify MPI against any losses and expenses
in connection with this complaint. The ultimate outcome of this situation is not
presently determined
F-16
<PAGE>
Report of Independent Auditors
To the Shareholder of
MHC-QRS Blue Ribbon Communities, Inc.
We have audited the accompanying balance sheet of MHC-QRS Blue Ribbon
Communities, Inc. (the "Company") as of June 30, 1998. This balance sheet is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Company as of June 30, 1998, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 25, 1998
F-17
<PAGE>
MHC-QRS Blue Ribbon Communities, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30,
JUNE 30, 1998
1998 (Unaudited)
---------------------------------------------
Assets
<S> <C> <C>
Investment in real estate partnership $ 100 $ 100
---------------------------------------------
Total assets $ 100 $ 100
=============================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Due to affiliate $ 100 $ 100
Shareholder's equity
Common Stock, $1 par value, 1,000 shares
authorized, issued and outstanding 1,000 1,000
Less: capital contribution receivable (1,000) (1,000)
---------------------------------------------
Total shareholder's equity - -
---------------------------------------------
Total liabilities and shareholder's equity $ 100 $ 100
=============================================
</TABLE>
See accompanying notes.
F-18
<PAGE>
MHC-QRS Blue Ribbon Communities, Inc.
Notes to Balance Sheet
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
MHC-QRS Blue Ribbon Communities, Inc. (the "Company") was incorporated as a C-
Corporation under the laws of the State of Delaware on December 5, 1997. The
Company is the general partner in Blue Ribbon Communities Limited Partnership, a
Delaware limited partnership ("BRC"), which was formed to act as a general
partner in a to-be-formed Florida general partnership, the Meadows Resort
Partnership ("the Partnership"). The purpose of the Partnership would be to
operate a 381 site manufactured home community named "the Meadows", located in
Palm Beach Gardens, Florida (the "Property"). The other general partner would
be Meadows Preservation, Inc. ("MPI"), the owner of the Meadows.
The Company is a wholly-owned subsidiary of Manufactured Home Communities, Inc.
("MHC"), a public real estate investment trust.
The initial $1,000 capital contribution to the Company was a receivable from MHC
in exchange for the equity interest. As of June 30, 1998 and September 30,
1998, the $1,000 had not been received, and is therefore, reflected as a
reduction of shareholder's equity in the accompanying balance sheet.
As of June 30, 1998 and September 30, 1998, the sole activity of the Company was
its incorporation.
USE OF ESTIMATES
The preparation of the balance sheet requires management to make estimates and
assumptions that affect the amounts reported in the balance sheet and
accompanying notes. Actual results could differ from those estimates.
UNAUDITED INTERIM BALANCE SHEET
The balance sheet as of September 30, 1998, and related footnote disclosures are
unaudited. In the opinion of management, such balance sheet reflects all
adjustments necessary for a fair presentation of the Company's interim financial
position. All such adjustments are of a normal, recurring nature.
F-19
<PAGE>
MHC-QRS Blue Ribbon Communities, Inc.
Notes to Balance Sheet (continued)
2. INVESTMENT IN REAL ESTATE PARTNERSHIP
The Company is the 1% owner and general partner of BRC. The Company has pledged
$100 for its ownership in BRC. The Company accounts for its investment in BRC
using the equity method.
As of June 30, 1998 and September 30, 1998, BRC had no assets or net
equity.
Pursuant to a letter of intent dated December 12, 1997, between BRC and MPI, MPI
would endeavor to raise money by selling shares of common stock to the owners of
manufactured homes within the Property (the "Offering") and enter into the
Partnership described in Note 1 with BRC to operate the Property. In September
1998, the Partnership was formed. Pursuant to the Partnership agreement, BRC
agreed to contribute an amount to the Partnership equal to $4,708,000, less the
amount, if any, of cash proceeds contributed by MPI. A partnership unit would
be issued to BRC and MPI for each $1,000 contributed. BRC would make an
additional contribution of $2,256,000 on account of the unoccupied lots at the
Meadows, for which it will not immediately receive partnership units. BRC can,
however, receive up to 2,256 additional partnership units based on a defined
formula for no additional capital contribution as unoccupied lots in the
Property are leased. MPI may purchase additional partnership units in certain
circumstances, but only to the extent that Property tenants purchase additional
MPI common shares.
BRC would contribute $200,000 to the Partnership for future property
improvements, and will pay $100,000 to MPI for interest and other costs.
Additionally, BRC would pay the costs related to the Offering; such Offering
costs would be reimbursed to BRC from the related offering proceeds, to the
extent funds are available.
BRC may be required at MPI's election to fund the purchase of MPI common shares
from MPI shareholders who wish to sell their shares or become ineligible to own
MPI shares as stipulated in the Partnership Agreement between BRC and MPI. BRC
intends to obtain the necessary funds for the contributions and costs through
future capital contributions from its owners.
F-20
<PAGE>
Report of Independent Auditors
To the Partners of
Blue Ribbon Communities Limited Partnership
We have audited the accompanying balance sheet of Blue Ribbon Communities
Limited Partnership (the "Partnership") as of June 30, 1998. This balance sheet
is the responsibility of the Partnership's management. Our responsibility is to
express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Partnership as of June 30,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 25, 1998
F-21
<PAGE>
Blue Ribbon Communities Limited Partnership
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
JUNE 30,1998 (UNAUDITED)
-------------------------------------------------
<S> <C> <C>
Assets
Total assets $ $
=================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities $ - $ -
Partners' capital
Capital contributions 10,000 10,000
Capital contributions receivable (10,000) (10,000)
-------------------------------------------------
Total liabilities and partners' capital $ - $ -
=================================================
</TABLE>
See accompanying notes.
F-22
<PAGE>
Blue Ribbon Communities Limited Partnership
Notes to Balance Sheet
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Blue Ribbon Communities Limited Partnership ("BRC") is a Delaware limited
partnership that was formed on December 5, 1997. The partners in BRC are MHC-
QRS Blue Ribbon Communities, Inc., a Delaware corporation ("General Partner"),
and MHC Operating Limited Partnership, an Illinois limited partnership ("Limited
Partner"), both affiliates of Manufactured Home Communities, Inc., a public real
estate investment trust ("MHC"). Pursuant to the partnership agreement of BRC,
the partners are required to fund $10,000 in capital contributions. The General
Partner has pledged $100 for a 1% partnership interest and the Limited Partner
has pledged $9,900 for the remaining 99% partnership interest. The
contributions have not yet been paid and are, therefore, reflected as a
reduction of partners' capital in the accompanying balance sheet.
As of June 30, 1998 and September 30, 1998, the sole activity of BRC, with the
exception of entering into the joint venture partnership as described below, was
its formation.
On December 12, 1997, BRC entered into a letter of intent with Meadows
Preservation, Inc. ("MPI"), a homeowners' association for the Meadows Mobile
Home Park (the "Property"), a 381 site manufactured home community located in
Palm Beach Gardens, Florida. Consistent with the letter of intent, an affiliate
of MHC provided a $12,341,693 mortgage loan to MPI for the purchase of the
Property. Additionally, the letter of intent called for MPI to convert to a
for-profit corporation and endeavor to raise money by selling shares of common
stock to the owners of mobile homes within the Property (the "Offering"). BRC
would enter into the to-be-formed Florida general partnership, The Meadows
Resort Partnership (the "Partnership"), with MPI to operate the Property. MPI
would contribute the beneficial interest of the Property, the related loan
payable and the proceeds of the stock offering to the Partnership. After such
contribution by MPI, the Partnership would assume responsibility for the
performance of all obligations under the loan.
F-23
<PAGE>
Blue Ribbon Communities Limited Partnership
Notes to Balance Sheet (continued)
2. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the balance sheet required management to make estimates and
assumptions that affect the amounts reported in the balance sheet and
accompanying notes. Actual results could differ from those estimates.
UNAUDITED INTERIM BALANCE SHEET
The balance sheet as of September 30, 1998, and related footnote disclosures are
unaudited. In the opinion of management, such balance sheet reflects all
adjustments necessary for a fair presentation of BRC's interim financial
position. All such adjustments are of a normal, recurring nature.
2. PARTNERSHIP
On September 30 1998, BRC and MPI entered into the Partnership agreement.
Pursuant to the agreement, BRC has agreed to contribute an amount to the
Partnership equal to $4,708,000, less the amount, if any, of cash proceeds
contributed by MPI. A partnership unit will be issued to BRC and MPI for each
$1,000 contribution, but at no time may BRC's ownership interest be less than
fifty percent. BRC would make an additional contribution of $2,256,000 on
account of the unoccupied lots at the Property, for which it will not
immediately receive partnership units. BRC can, however, receive up to 2,256
additional partnership units based on a defined formula for no additional
capital contribution as unoccupied lots are leased. MPI may purchase additional
partnership units in certain circumstances, but only to the extent that Property
tenants purchase additional MPI common shares. Additionally, BRC would receive
a priority distribution of the $2,256,000 and would also receive stipulated
preferred returns in the event distributions are made from defined excess Net
Capital Proceeds under the Partnership Agreement. BRC may not encumber its
interest in the Partnership for a period of ten years from the execution of
Partnership Agreement.
BRC would be required at MPI's election to fund the purchase of MPI common
shares from MPI shareholders who wish to sell their shares or become ineligible
to own MPI shares as stipulated in the Contribution Agreement between BRC and
MPI. Such shares would be held in treasury by MPI, and BRC's partnership
interest in the Partnership would be increased to reflect the amount funded for
the shares with a corresponding reduction of MPI's interest in the Partnership.
F-24
<PAGE>
Blue Ribbon Communities Limited Partnership
Notes to Balance Sheet (continued)
2. JOINT VENTURE PARTNERSHIP (CONTINUED)
BRC would contribute $200,000 to the Partnership for future property
improvements, and pay $100,000 to MPI for interest and operating costs.
Additionally, BRC would advance the costs related to the offering and
registration of MPI shares described in Note 1. Such costs will be reimbursed
by the Partnership. BRC intends to obtain the necessary funds for such
contributions and costs through future capital contributions from its owners.
For services related to finding the management company (which is an affiliate of
BRC) for the Property, BRC would receive a finder's fee from the Partnership of
$120,000, plus costs paid by BRC related to the offering and registration of
shares by MPI, to the extent funds are available from the initial capital
contributions to the Partnership by MPI. In the event an affiliate of BRC does
not manage the Property, BRC would prospectively be entitled to an annual asset
management fee equal to one percent of annual gross revenues of the Property,
payable in monthly installments for the term of the Partnership. In addition,
BRC would be designated as the exclusive sales and marketing agent for the
Property, subject to the right of the homeowner to sell their own home, and
would have the right to develop and market additional lots in the Property.
On the tenth anniversary of the execution of the Partnership Agreement
(September 30, 1998) and on each fifth anniversary thereafter, MPI would have a
call right to require BRC to sell to MPI or its affiliates all of BRC's interest
in the Partnership at a price determined based on the then market value of the
Property.
F-25
