<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995 or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-8898
MIP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 52-1394207
- ------------------------------------ ------------------------------------
(State or other jurisdiction of IRS Employer Identification Number
incorporation or organization)
2020 SANTA MONICA BOULEVARD
SUITE #480
SANTA MONICA, CALIFORNIA 90404
------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 449-4444
--------------
(Registrant's telephone number, including area code)
_____________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
The number of shares outstanding of registrant's class of common stock, as of
August 11, 1995, was 9,223,105 common shares ($.01 par value).
<PAGE>
MIP PROPERTIES, INC.
Index to Form 10-Q Report
For the Quarter
Ended June 30, 1995
<TABLE>
<CAPTION>
Part I. Financial Information Page
- ------- ------------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 11
Part II. Other Information (Items 2 through 5 not applicable)
- ------- -------------------------
6. Exhibits and Reports on Form 8-K 12
Signature 12
Exhibits 13
</TABLE>
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
Loan to Joint Venture $ 6,100,000 $ 6,100,000
Investments in Joint Ventures 6,225,100 6,266,100
Non-Earning Loan 3,030,400 3,030,400
Land 5,827,800 5,827,800
Buildings and Improvements (net of
accumulated depreciation of $2,859,500
and $2,389,100 as of June 30, 1995, and
December 31, 1994, respectively) 16,299,600 16,674,600
Land Held for Sale 4,042,800 4,042,800
------------ ------------
41,525,700 41,941,700
Reserve for Losses (8,562,000) (8,562,000)
------------ ------------
32,963,700 33,379,700
CASH 1,199,300 1,799,300
OTHER ASSETS 929,900 728,100
------------ ------------
$ 35,092,900 $ 35,907,100
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage Debt $ 4,756,400 $ 5,107,000
Accounts Payable and Other Liabilities 805,800 674,700
------------ ------------
5,562,200 5,781,700
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock $.01 Par Value, 25,000,000
Shares Authorized, No Shares Outstanding ----- -----
Common Stock, $.01 Par Value, 75,000,000
Shares Authorized, 9,223,105 and
9,206,437 Shares Outstanding as of
June 30, 1995 and December 31, 1994, respectively 92,200 92,100
Additional Paid-In Capital 82,758,800 82,726,700
Accumulated Loss and Dividends
Paid in Excess of Net Income (53,320,300) (52,693,400)
------------ ------------
29,530,700 30,125,400
------------ ------------
$ 35,092,900 $ 35,907,100
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
-1-
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Interest Income $ 231,300 $ 282,900 $ 459,100 $ 635,200
Rental Income 992,700 1,247,200 1,928,300 2,505,300
Joint Venture Losses ( 76,600) (62,500) (243,500) (126,500)
Loss on Disposition of Investments ---- (1,459,200) ---- (1,459,200)
---------- ----------- ---------- -----------
1,147,400 8,400 2,143,900 1,554,800
---------- ----------- ---------- -----------
Expenses:
Mortgage Interest 173,200 102,400 351,000 160,200
Corporate Interest ---- 456,000 ---- 918,700
Corporate Operating Expenses 496,300 503,700 901,100 1,056,300
Rental Operating Expenses 302,300 499,500 662,200 968,900
Depreciation and Amortization 264,000 323,600 509,600 626,200
Strategic Alternative Costs 255,400 ---- 346,900 ----
---------- ----------- ---------- -----------
1,491,200 1,885,200 2,770,800 3,730,300
---------- ----------- ---------- -----------
Loss Before Extraordinary Item (343,800) (1,876,800) (626,900) (2,175,500)
Extraordinary Gain on Debt Forgiveness ---- 1,735,600 ---- 1,757,000
---------- ----------- ---------- -----------
Net Loss ($343,800) ($141,200) ($626,900) ($418,500)
========== =========== ========== ===========
Loss Per Share Before Extraordinary Item ($0.04) ($0.21) ($0.07) ($0.24)
Extraordinary Gain on Debt Forgiveness Per Share ---- 0.19 ---- 0.19
---------- ----------- ---------- -----------
Net Loss Per Share ($0.04) ($0.02) ($0.07) ($0.05)
========== =========== ========== ===========
Dividends Paid Per Share $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
-2-
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1995 1994
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($626,900) ($418,500)
Depreciation and Amortization 509,600 626,200
Equity in Joint Venture Losses 243,500 126,500
Lease Termination Payment 400,000 ----
Cash Received From Rent Subsidy 27,100 252,500
Loss on Disposition of Investments ---- 1,459,200
Extraordinary Gain on Debt Forgiveness ---- (1,757,000)
Net Change in Other Assets and Accounts
Payable and Other Liabilities (11,800) 215,900
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 541,500 504,800
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Joint Venture Equity Contribution (202,500) ----
Mortgage Loan Disbursed ---- (107,000)
Investment in Buildings and Improvements (522,400) (51,300)
Net Proceeds from Disposition of Investments ---- 3,106,600
---------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (724,900) 2,948,300
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Paydowns of Corporate Debt ---- (6,480,400)
Paydowns of Mortgage Debt (416,600) ----
Proceeds from Mortgage Debt ---- 3,345,100
---------- -----------
NET CASH USED IN FINANCING ACTIVITIES (416,600) (3,135,300)
---------- -----------
Net Increase (Decrease) In Cash (600,000) 317,800
Cash at Beginning of the Period 1,799,300 1,390,900
---------- -----------
Cash at End of the Period $1,199,300 $ 1,708,700
========== ===========
Cash Interest Paid $ 351,000 $ 782,500
========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
-3-
<PAGE>
MIP PROPERTIES, INC.
June 30, 1995
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
In accordance with the rules and regulations of the Securities and Exchange
Commission certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. The accompanying interim financial statements
have not been examined by independent public accountants. Although management
believes that the disclosures are adequate to make the information presented
not misleading, it is suggested that these financial statements be read in
conjunction with the Company's 1994 Annual Report on Form 10-K. In the opinion
of management, all adjustments necessary to the fair presentation of the
accompanying financial information have been made.
2. PER SHARE DATA
Net loss per share is based on the weighted average number of common shares
outstanding for the three and six months ended of 9,337,264 and 9,318,216 for
1995 and 9,174,169 and 9,172,795 for 1994, respectively. Common shares granted
but deferred pursuant to the Directors Stock Plan and the Long-Term Incentive
Compensation Plan are included in the weighted average number of shares
outstanding. Total shares issuable pursuant to the Directors Stock Plan are
excluded from the weighted average number of shares outstanding for 1995 and
1994 as their impact is antidilutive. Additionally, fully diluted earnings per
share are not presented because the effect of outstanding options is
antidilutive.
3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The unaudited combined financial position and results of operations of the
unconsolidated joint ventures in which the Company has invested are as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------- -------------
<S> <C> <C>
Assets (principally land, buildings and
improvements) $46,595 $48,172
======= =======
Liabilities (including loans of $9,130 at June
30, 1995, and December 31, 1994, payable
to the Company) $52,995 $53,780
Partners Equity (Deficit) (6,400) (5,608)
------- -------
Total Liabilities & Partners Equity (Deficit) $46,595 $48,172
======= =======
Six Months Ended June 30,
1995 1994
------- -------
Revenue $ 4,241 $ 4,380
Operating Expenses (920) (906)
Interest Expense (2,594) (2,627)
Depreciation and Amortization (785) (1,116)
------- -------
Net Loss $ (58) $ (269)
======= =======
</TABLE>
-4-
<PAGE>
MIP PROPERTIES, INC.
June 30, 1995
Notes to Consolidated Financial Statements (Continued)
3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES CONTINUED
In April 1995, the Shorebreeze Associates joint venture which owns two 100
percent leased office buildings in Redwood City, California, was restructured.
The joint venture ownership is now as follows: Redwood Shores MIP Inc., a
wholly owned subsidiary of MIP, is a 1 percent general partner, MIP is an 89
percent limited partner and the previous general partners are collectively 10
percent limited partners. Under the terms of the restructured joint venture
agreement, MIP is allocated 90 percent of ordinary income and 90 percent of all
losses. Net profits from an extraordinary event are in general allocated first
to the limited partners other than MIP and then in accordance with ownership
percentages. Pursuant to the terms of the joint venture agreement and
generally accepted accounting principles, the Company believes it does not have
a controlling interest and, therefore, Shorebreeze Associates is not
consolidated. Accordingly, 90 percent of the losses from the joint venture are
included in joint venture losses in MIP's statement of operations for the three
and six months ended June 30, 1995.
Additionally, the Phase I $15.1 million and the Phase II $14.7 million third
party loans matured as of June 30, 1995. The partners are in the process of
negotiating extensions and/or refinancing of the loans and the existing lenders
have made offers for extensions and/or forbearances with respect to the loans.
Based on the Company's past experience in negotiating extensions of loans for
itself and certain of its partnerships, including Shorebreeze Associates with
these lenders, the Company believes that it will be able to assist the
partnership in obtaining extensions of the loans. However, no assurance can be
given that the partners will be successful in obtaining any extension or
refinancing of the loans. If Shorebreeze Associates is unable to obtain an
extension or refinancing of the loans, then the lenders will have, among other
remedies, the right to foreclose on the properties which would have a material
adverse effect on the Company's financial position. However, the Company
believes that a foreclosure on the properties is unlikely because the
partnership has a number of viable alternatives, such as further negotiation,
sale, bankruptcy of the partnership, or infusion of additional equity capital.
Currently, all of the cash flow from the Shorebreeze Associates properties is
being paid to the lenders as principal and interest.
4. CORPORATE OPERATING EXPENSES
The breakdown of corporate operating expenses for the three and six months
ended June 30, 1995 and 1994, is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------- -------- ------
<S> <C> <C> <C> <C>
Salaries $ 265 $ 181 $ 445 $ 421
Directors and Officers Liability Insurance 88 130 193 287
Other 143 192 263 348
------- ----- ----- ------
$ 496 $ 503 $ 901 $1,056
======= ===== ===== ======
</TABLE>
In May 1995, the Company extended its employment agreement with Carl C.
Gregory, III, the Company's Chairman of the Board and Chief Executive Officer,
to the earlier of the consummation of a merger or November 30, 1995. Pursuant
to the agreement, Mr. Gregory is entitled to receive a retention bonus of
$135,000 plus accrued vacation upon the expiration of his agreement with the
Company. Mr. Gregory's retention bonus is being accrued ratably through
November 30, 1995. Additionally, in May 1995, Mr. Gregory was awarded a cash
bonus of $65,000 relating to services rendered in 1994 which was recorded as
salary expense in the three months ended June 30, 1995.
-5-
<PAGE>
MIP PROPERTIES, INC.
June 30, 1995
Notes to Consolidated Financial Statements (Continued)
5. STOCKHOLDERS' EQUITY
The Company maintains a Long-Term Incentive Compensation Plan for key employees
covering 200,000 shares of common stock. Under the Plan, stock awards totaling
200,000 shares have been granted. One third of the shares granted vested on
each of February 11, 1993, February 11, 1994, and February 11, 1995. As of
June 30, 1995, 96,334 of the vested shares had been issued, 100,000 shares were
deferred by participants pursuant to the plan, and the remaining 3,666 shares
had been paid out in cash to participants pursuant to the plan.
6. BUILDINGS AND IMPROVEMENTS AND MORTGAGE DEBT
During the first quarter in 1995, a tenant in the San Dimas Corporate Center,
TRW Technar, Inc., exercised the right to terminate its lease as of February
1997 and paid the Company $400,000. This payment was used to offset the
capitalized improvements included in building and improvements related to this
tenant.
Additionally, in March 1995 the Company made a $400,000 paydown on the mortgage
loan secured by Sunwest Retail Plaza, decreasing the total loan amount to
$988,350. In connection with the paydown, the Company paid a fee of
approximately $12,700. The loan matures in January 1996 and bears interest at
prime plus one and one-half percent, or 10.50 percent as of June 30, 1995.
Beginning August 1, 1995 an extension fee of one-tenth of one percent is due
monthly. The loan required a repayment fee of approximately $41,000 as of June
30, 1995, which increased to its maximum of approximately $44,000 on July 27,
1995.
7. POTENTIAL MERGER
On May 21, 1995, the Company signed an Agreement and Plan of Merger (the
"Agreement") to be acquired by JER Partners, LLC, an affiliate of J.E. Robert
Companies. Under the terms of the Agreement, JER Partners, LLC will acquire
100% of the outstanding MIP stock through a merger transaction for $2.475 per
share in cash, or approximately $23.1 million in the aggregate. The proposed
transaction is subject to a number of conditions, including the approval of at
least 80% of the outstanding shares of MIP. Additionally, a newly-formed
wholly owned subsidiary of JER Partners, LLC has entered into an agreement to
sell certain assets to the Company's largest stockholder following the
consummation of the merger.
The Company and JER Partners, LLC are responsible for their own costs and
expenses incurred in connection with the negotiations and execution of the
Agreement. The Company is responsible for all costs and expenses of the
Company and JER Partners, LLC relating to the solicitation of proxies and the
preparation and mailing of the Proxy Statement. The Company estimates that the
aggregate amount of costs and expenses which it will incur with respect to the
merger, the solicitation of proxies, and the preparation and mailing of the
Proxy Statement will be approximately $635,000. Approximately $346,900 has
been expensed as strategic alternative costs through the six months ended June
30, 1995.
-6-
<PAGE>
MIP PROPERTIES, INC.
June 30, 1995
Notes to Consolidated Financial Statements (Continued)
7. POTENTIAL MERGER CONTINUED
All deferred compensation arrangements pursuant to the MIP Properties, Inc.
First Amended and Restated Long-Term Incentive Compensation Plan the Fee
Deferral Plan the ("Plans") shall be terminated once the merger is consummated.
Pursuant to the Plans, immediately prior to the consummation of the merger, the
Company will issue common stock in an amount equal to the number of deferred
shares. A total of 100,000 shares will be issued pursuant to the First Amended
and Restated Long-Term Incentive Plan and 10,492 shares will be issued pursuant
to the Fee Deferral Plan. Included in accounts payable and other liabilities
as June 30, 1995 is an accrual of $241,700 based on the closing market price
of the Company's common stock on June 30, 1995.
Additionally, the Company has entered into retention bonus and severance
payment arrangements with certain employees that become obligations of the
Company only in the event a merger is consummated, which in the aggregate total
approximately $85,000. These amounts have not been accrued in the financial
statements for the period ended June 30, 1995, as stockholder approval for the
merger has not yet been obtained and the merger has not been consummated.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Accounting Standards No. 121 was issued which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets. This
statement, which will be effective in 1996, addresses when impairment losses
should be recognized and how impairment losses should be measured. Although
the Company's analysis of the impact of this statement is not complete, the
Company believes that the adoption of this statement will not have a material
effect on its financial statements.
-7-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
June 30, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Potential Merger
- ----------------
On May 21, 1995, the Company signed an Agreement and Plan of Merger (the
"Agreement") to be acquired by JER Partners, LLC, an affiliate of J.E. Robert
Companies. Under the terms of the Agreement, JER Partners, LLC will acquire
100% of the outstanding MIP stock through a merger transaction for $2.475 per
share in cash, or approximately $23.1 million in the aggregate. The proposed
transaction is subject to a number of conditions, including the approval of at
least 80% of the outstanding shares of MIP. JER Partners, LLC has obtained a
proxy from Palm Finance Corporation and Mr. and Mrs. Markoff who own an
aggregate of 1,380,964 shares of common stock of MIP, or approximately 15% of
all of the outstanding shares of common stock of the Company, to vote such
shares in favor of the merger. J.E. Robert Company, Inc. owns approximately
1.7% of the outstanding shares of common stock of the Company. In addition, a
newly-formed wholly owned subsidiary of JER Partners, LLC has entered into an
agreement to sell certain assets to Palm Finance Corporation following the
consummation of the merger for an estimated purchase price of approximately $1.8
million.
The Agreement may be terminated at any time prior to the filing of the Articles
of Merger with the Maryland State Department of Assessments and Taxation by (i)
mutual written consent of JER Partners, LLC and the Company and (ii) by JER
Partners, LLC or the Company if (a) the other party or parties, as the case may
be, fail to comply in any material respect with any of the covenants in the
Agreement and such failure is not cured within ten (10) business days of written
notice of such breach, (b) any material representation or warranty by the other
party or parties was incorrect in any material respect when made, or (c) the
merger is not consummated by November 30, 1995. Further, in the event of
termination of the Agreement because the Board of Directors of the Company
withdraws or adversely modifies its recommendation of the merger, enters into a
definitive agreement with another party to be acquired by such party, or because
the Company fails to obtain the requisite approval of the holders of at least
eighty percent of the outstanding shares of the Company's common stock by
November 28, 1995, then the Company will be required to pay JER Partners, LLC a
termination fee in the amount of $400,000.
The Company and JER Partners, LLC are responsible for their own costs and
expenses incurred in connection with the negotiation and execution of the
Agreement. The Company is responsible for all costs and expenses of the Company
and JER Partners, LLC relating to the solicitation of proxies and the
preparation and mailing of the Proxy Statement. The Company estimates that the
aggregate amount of costs and expenses which it will incur with respect to the
merger, the solicitation of proxies, and the preparation and mailing of the
Proxy Statement will be approximately $635,000. Approximately $346,900 has been
expensed as strategic alternative costs through the six months ended June 30,
1995.
All deferred compensation arrangements pursuant to the MIP Properties, Inc.
First Amended and Restated Long-Term Incentive Compensation Plan the Fee
Deferral Plan the ("Plans") shall be terminated once the merger is consummated.
Pursuant to the Plans, immediately prior to the consummation of the merger, the
Company will issue common stock in an amount equal to the number of deferred
shares. A total of 100,000 shares will be issued to Carl C. Gregory, III,
Chairman of the Board and Chief Executive Officer, pursuant to the First Amended
and Restated Long-Term Incentive Plan and 5,246 shares will be issued to each of
two directors pursuant to the Fee Deferral Plan. Included in accounts payable
and other liabilities as June 30, 1995 is an accrual of $241,700 based on the
closing market price of the Company's common stock on June 30, 1995.
-8-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
June 30, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTINUED
Additionally, the Company has entered into retention bonus and severance payment
arrangements with certain employees that become obligations of the Company only
in the event the merger is consummated which in the aggregate total
approximately $85,000. These amounts have not been accrued in the financial
statements for the period ended June 30, 1995, as stockholder approval has not
been obtained and the merger has not been consummated.
Employment Contract
- -------------------
In May 1995, the Company extended its employment agreement with Carl C. Gregory,
III, the Company's Chairman of the Board and Chief Executive Officer, to the
earlier of the consummation of a merger or November 30, 1995. Pursuant to the
agreement, Mr. Gregory is entitled to receive a retention bonus of $135,000 plus
accrued vacation upon the expiration of his agreement with the Company. Mr.
Gregory's retention bonus is being accrued ratably through November 30, 1995.
Additionally, in May 1995, Mr. Gregory was awarded a cash bonus of $65,000
relating to services rendered in 1994 which was recorded as salary expense in
the three months ended June 30, 1995.
Recent Accounting Pronouncements
- --------------------------------
In March 1995, Statement of Accounting Standards No. 121 was issued which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets. This
statement, which will be effective in 1996, addresses when impairment losses
should be recognized and how impairment losses should be measured. Although the
Company's analysis of the impact of this statement is not complete, the Company
believes that the adoption of this statement will not have a material effect on
its financial statements.
Liquidity and Capital Resources
- -------------------------------
Based on current information and market conditions, management believes that in
the next twenty-four months there will be sufficient cash from operations to
operate the Company. MIP's mortgage debt, including the debt at the joint
venture level, matures in 1995, 1996 and 1999. Funds to repay mortgage debt are
expected to be generated from the refinancing of existing debt, sales of certain
assets and current cash flow. On June 30, 1995, the two third party loans
related to the Shorebreeze Associates joint venture, which total $29.8 million,
matured. The partners are in the process of negotiating extensions and/or
refinancing of the loans and the existing lenders have made offers for
extensions and/or forbearances with respect to the loans. Based on the
Company's past experience in negotiating extensions of loans for itself and
certain of its partnerships, including Shorebreeze Associates with these
lenders, the Company believes that it will be able to assist the partnership in
obtaining extensions of the loans. However, no assurance can be given that the
partners will be successful in obtaining any extension or refinancing of the
loans. If Shorebreeze Associates is unable to obtain an extension or
refinancing of the loans, then the lenders will have, among other remedies, the
right to foreclose on the properties which would have a material adverse effect
on the Company's financial position. However, the Company believes that a
foreclosure on the properties is unlikely because the partnership has a number
of viable alternatives, such as further negotiation, sale, bankruptcy of the
partnership or infusion of additional equity capital. Currently, all of the
cash flow from the Shorebreeze Associates properties is being paid to the
lenders as principal and interest.
-9-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
June 30, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTINUED
Approximately 1, 10 and 10 percent of the existing leases in MIP's portfolio, on
a square foot basis, expire in 1995, 1996 and 1997, respectively. MIP's ability
to successfully manage tenant turnover and improve the overall leasing of the
portfolio is contingent on various external factors such as business
contractions of significant tenants and a more competitive marketplace.
Although MIP anticipates a satisfactory outcome regarding refinancing and re-
leasing its projects, MIP may be negatively impacted by the conditions in the
real estate and financial markets in general.
At June 30, 1995, the Company had an unfunded commitment of approximately $2.2
million to an existing joint venture. If required, management expects that this
commitment would be funded from available cash, future cash flow and from
additional mortgage debt.
Cash flows from operating activities increased in 1995 primarily due to the
receipt of a one time early cancellation payment of $400,000 from TRW Technar,
Inc., a tenant in San Dimas Corporate Center, offset by Strategic Alternative
Costs of approximately $346,900 and lower rent subsidy receipts related to the
Irwindale Executive Plaza. Cash flows from investing activities decreased due
to tenant improvement costs at the Long Beach Building and Irwindale Executive
Plaza, a joint venture equity contribution to Harbor Point for a second
installment of a leasing commission, and no asset sales in 1995. The change in
cash flows from financing activities between 1995 and 1994 reflect the Company
efforts in 1994 to sell and refinance assets to pay off the corporate debt at a
discount.
The Company believes it has operated so as to qualify as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended. In order to maintain this qualification, the Company must pay
95 percent of its taxable income in dividends. The Company currently
anticipates utilizing available net operating loss carryforwards to offset any
taxable income. Presently, the Company does not anticipate paying any dividends
in 1995.
Results of Operations
- ---------------------
Three Months and Six Months Ended June 30, 1995
- -----------------------------------------------
Consolidated net loss for the three month period ended June 30, 1995, was
($343,800) or ($0.04) per share compared with ($141,200) or ($0.02) per share
for the same period in 1994. Consolidated net loss for the six month period
ended June 30, 1995, was ($626,900) or ($0.07) per share compared with
($418,500) or ($0.05) per share for the same period in 1994. The results from
1994 include a loss of approximately $1.5 million on the sale of a mortgage loan
and extraordinary gain on debt forgiveness of approximately $1.7 million.
The decrease in interest income reflects the sale of the Hacienda Promenade
mortgage loan in June 1994. The decrease in rental income, rental operating
expenses, and depreciation and amortization reflects the sales of Casas Lindas
Apartments in August 1994 and Ontario Airport Business Park in November 1994,
offset by the acquisition via foreclosure proceedings of the Long Beach Building
in January 1994.
The increase in joint venture losses reflects the Company's increased ownership
in the Shorebreeze Associates joint venture.
-10-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
June 30, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTINUED
Mortgage interest increased due to higher average outstanding borrowings of
approximately $3.0 and $0.5 million for the first and second quarters of 1995,
respectively, compared to the first and second quarter of 1994, the accrual of
repayment fees with respect to the Northbay Building and the Sunwest Retail
Plaza mortgage loans and the increased prime rate. There was no corporate
interest expense in 1995 due to the payoff of the corporate debt in August 1994.
Corporate operating expenses decreased due to lower directors and officers
liability insurance premium and lower legal costs, offset by increased
compensation costs. Cash operating expenses on an annualized basis approximate
3.7% of average invested assets.
Strategic alternative costs relate to legal and consulting fees related to the
proposed merger with JER Partners, LLC.
-11-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
June 30, 1995
Part II. Other Information
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K
(a). See Exhibit index.
(b). A Form 8-K was filed on May 26, 1995 reporting under Item 5 the entering
into of the Agreement and Plan of Merger with JER Partners, LLC.
Signature
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIP PROPERTIES, INC.
By /s/ Marsha Z. Day
-----------------
Marsha Z. Day
Duly Authorized Officer and
Chief Accounting Officer
Date August 11, 1995
-----------------------------
-12-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
June 30, 1995
Exhibit Index
<TABLE>
<CAPTION>
Sequentially
------------
Exhibit No. Description of Documents Numbered Page
- ----------- ------------------------ -------------
<C> <S> <C>
10.28 * Plan and Agreement of Merger dated as of
May 21, 1995, by and among MIP Properties,
Inc., JER Partners, LLC and MIP Acquisition
Corporation.
10.29 Employment Agreement dated May 14, 1995 by
and between MIP Properties, Inc. and
Carl C. Gregory, III
27 Article 5 FDS for June 30, 1995 10-Q
</TABLE>
* Previously filed as Exhibit 10.28 to the Company's Form 8-K dated May 22,
1995.
-13-
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
This Agreement, made as of the 14th day of May, 1995, by and between
MIP Properties Inc., a Maryland corporation (the "Company"), and Carl C.
Gregory, III ("Employee").
W I T N E S S E T H:
-------------------
WHEREAS, the Company desires to continue to employ Employee and
Employee desires to continue to be employed by the Company upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. Employment. The Company hereby employs Employee as chief
----------
executive officer, and Employee hereby accepts employment by the Company, upon
the terms and conditions set forth herein. The primary place of employment
shall be at the Company's principal offices, Santa Monica, California, or at
such other location as the Company, with the concurrence of the Employee, may
designate.
2. Term. The term of this Agreement shall commence as of July 1,
----
1995, and shall continue through the Termination Date.
For purposes of this Agreement, the term "Termination Date" shall
mean, as applicable, (i) the effective date of termination for disability in
accordance with Paragraph 6; (ii) the day after Employee's death or the
effective date of Employee's voluntary resignation, as contemplated by
Subparagraph 7(a)(1); (iii) the effective date of termination specified in
writing to Employee, in the case of termination for cause; (iv) the Automatic
Termination Date as defined in Section 7(c); or (v) the termination date
specified in the notice of termination given in accordance with Subparagraphs
7(b), 7(d) or 7(e).
3. Duties. Employee will, during the term hereof:
------
(a) faithfully and diligently do and perform all such acts and duties
and furnish such services as the Board of Directors of the Company shall direct
or as is customary for the chief executive officer, and do and perform all acts
in the ordinary course of the Company's business (with such limits as the Board
of Directors of the Company may prescribe) necessary and conducive to the
Company's best interests; and
(b) devote such time, energy and skill to the business of the Company
and to the promotion of the Company's best interests as is reasonably required
of a person whose employment as the chief executive officer of the Company is
the person's principal occupation and employment.
<PAGE>
4. Compensation.
------------
(a) Subject to the provisions of Paragraph 7 and 8 hereof, the Company
shall pay to Employee for all services to be performed by Employee during the
term of this Agreement a fixed salary at the rate of $22,500 per month, payable
in periodic payments in accordance with the Company's practices for other
executive employees, as such practices may be determined from time to time. All
such payments will be subject to such deductions as may be required to be made
pursuant to law, government regulation or order, or by agreement with, or
consent of, Employee.
(b) In addition to the salary payments set forth above, the Company
agrees that during the term of this Agreement:
(i) Company will provide Employee with an automobile suitable for
his use in connection with his employment without cost to Employee; and
(ii) Employee shall be entitled to reimbursement by the Company
for all reasonable expenses actually and necessarily incurred by him on its
behalf in the course of his employment hereunder, for which he shall submit
vouchers in form satisfactory to the Company.
(c) If Employee is employed by the Company as of the Automatic
Termination Date, or if Employee is terminated by the Company without
cause, Employee shall be entitled to receive on such date (or ten days
thereafter if terminated without cause) a retention bonus equal to One
Hundred Thirty-Five Thousand Dollars ($135,000) (the "Retention Bonus").
However, no Retention Bonus will be payable if Employee's employment by the
Company terminates prior to the Automatic Termination Date, including,
without limitation, (i) if Employee resigns, retires, go on leave or
otherwise terminates employment voluntarily, (ii) the Company terminates
Employee's employment with cause (including, without limitation, criminal
acts, dishonesty, misconduct, poor performance or attendance, etc.), or
(iii) Employee's employment is terminated for reasons related to disability
or death. For purposes of this Agreement, a "Corporate Change" shall mean
(i) a merger or consolidation in which the Company does not survive as a
corporate entity (other than with a wholly-owned subsidiary of the
Company), (ii) the sale, transfer or other disposition of substantially all
of the Company's assets in one transaction or a series of related
transactions, (iii) the acquisition of securities of the Company
representing more than fifty percent (50%) of the combined voting power of
the Company's then outstanding securities by any person, entity or group,
acting alone or in concert with one another in one transaction or a series
of related transactions, (iv) any other event or condition which the Board
determines to constitute a Corporate Change.
5. Benefits. Employee shall be entitled to participate in such life
--------
insurance, medical, dental, pension and retirement plans and other programs as
are made available from time to time by the Company for the benefit of its
employees generally. Employee also shall be entitled to one week of vacation
with pay during each consecutive 3-month period of employment commencing on June
1, 1995, during the term of his employment hereunder, to be taken at such times
and in such periods as Employee and the Company shall mutually determine.
During
-2-
<PAGE>
Employee's employment under this Agreement, Employee shall be entitled to "bank"
up to a maximum of eight weeks of accrued paid vacation in lieu of taking such
vacation. The Company acknowledges that prior to commencement of this Agreement,
Employee has banked eight (8) weeks of vacation.
6. Disability. In the event that Employee is permanently disabled so
----------
as to be unable to fully perform his services hereunder, Employee's obligation
to perform such services will terminate and the Company may terminate this
Agreement upon five days' written notice to Employee. If Employee's employment
by the Company is terminated in accordance with this Paragraph 6, Employee shall
be entitled to an amount equal to his salary, at the monthly rate provided for
in Subparagraph 4(a)(i), through the Automatic Termination Date, less the total
amount of payments received (or to be received) by Employee in respect to such
period under a long-term disability plan or policy maintained by the Company,
but shall not be entitled to receive the Retention Bonus.
7. Termination.
-----------
(a) Employee's employment with the Company shall be terminated (1) by
reason of Employee's death or voluntary resignation; (2) by reason of Employee
becoming permanently disabled, as defined for purposes of Paragraph 6; (3) for
cause; or (4) by reason of a termination notice given in accordance with
Subparagraphs 7(b), 7(d), or 7(e). For purposes of the preceding sentence,
"cause" shall be deemed to exist if, and only if: (i) after 5 days written
notice by the Compensation Committee of the Board of Directors of the Company
(the "Committee") to Employee to perform specified services contemplated by this
Agreement, Employee refuses to perform such services; (ii) after 5 days written
notice by the Committee to Employee to cease engaging in conduct which in good
faith is characterized in the notice as conduct which, if continued to be
engaged in by Employee, can reasonably be expected to significantly and
adversely affect the business or properties of the Company, Employee does not
cease engaging in such conduct; or (iii) Employee engages in acts of dishonesty
or fraud in connection with his services hereunder. If Employee's employment by
the Company is terminated for cause or by reason of his death or voluntary
resignation, Employee shall not be entitled to any portion of his salary, as
provided for in Subparagraph 4(a)(i), which is unearned as of the Termination
Date, or to the Retention Bonus.
(b) The Board of Directors may terminate this Agreement without cause
by giving written notice to Employee, which notice shall specify the termination
date. If Employee's employment by the Company is terminated in accordance with
this Subparagraph 7(b), Employee shall be entitled to payment of an amount equal
to his salary, at the monthly rate provided for in Subparagraph 4(a)(i), through
the Automatic Termination Date, plus the Retention Bonus. Payment of the amount
provided for in this Subparagraph 7(b) shall be deemed to be liquidated damages
for purposes of any suit brought by Employee for damages for breach of this
Agreement. Payment of the amount provided for in this Subparagraph 7(b) shall
be made within ten days of the Termination Date, and such payment shall be
subject to such deductions as may be required by law, government regulation or
order, or by agreement with, or consent of, Employee.
-3-
<PAGE>
(c) This Agreement shall automatically terminate upon the earlier of
the following to occur (the "Automatic Termination Date"): (i) November 30,
1995 and (ii) the date on which any Corporate change (as defined in Section
4(c)) occurs.
(d) If Employee's employment with the Company is terminated at the
request of Employee, as set forth in a written notice of termination that
specifies the termination date, for the reason that a majority of the directors
comprising the Board of Directors are individuals whose elections did not have
the advance written approval of recommendation of a majority of the individuals
who comprised the Board of Directors on the date of this Agreement, Employee
shall be entitled to payment of an amount equal to his salary, at the monthly
rate provided for in Subparagraph 4(a)(i) through the Automatic Termination
Date, but shall not be entitled to receive the Retention Bonus. Payment of the
amount provided for in this Subparagraph 7(d) shall be deemed to be liquidated
damages for purposes of any suit brought by Employee for damages for breach of
this Agreement. Payment of the amount provided for in this subparagraph shall
be made within ten days of the Termination Date, and such payment shall be
subject to such deductions as may be required by law, government regulation or
order, or by agreement with, or consent of, Employee.
(e) If Employee's employment with the Company is terminated at the
request of Employee, as set forth in a written notice of termination that
specifies the termination date, for the reason that the Board of Directors of
the Company has, without the written consent of Employee, significantly limited
the nature of the duties, as described in Paragraph 3(a), which Employee is
engaged to perform by this Agreement, Employee shall be entitled to payment of
an amount equal to his salary, at the monthly rate provided for in Subparagraph
4(a)(i) through the Automatic Termination Date, but shall not be entitled to
receive the Retention Bonus. Payment of the amount provided for in this
Subparagraph 7(e) shall be deemed to be liquidated damages for purposes of any
suit brought by Employee for damages for breach of this Agreement. Payment of
the amount provided for in this Subparagraph 7(e) shall be made within ten days
of the Termination Date and such payment shall be subject to such deductions as
may be required by law, government regulation or order, or by agreement with, or
consent of, Employee.
8. Restrictive Covenant. During Employee's employment with the
--------------------
Company, and for a period of three years following the applicable Termination
Date, Employee shall not,
(a) interfere to the detriment of the Company with any existing
relationship of the Company and any of its employees, agents or representatives;
or
(b) directly or indirectly divert or attempt to divert from the
Company any business in which the Company is actively engaged.
Any breach of this restrictive covenant by Employee will result in
termination of this Agreement and forfeiture by Employee of any and all rights
to unearned salary and to severance pay and supplemental pension benefits unpaid
at the time of breach and in such event the Company shall have no further
obligation to pay any amount to Employee.
-4-
<PAGE>
9. Nondisclosure of Confidential Information. Employee acknowledges
-----------------------------------------
that the Company may disclose certain confidential information to Employee
during the term of this Agreement to enable him to perform his duties hereunder.
Employee hereby covenants and agrees that he will not, without the prior written
consent of the Company, during the term of this Agreement or at any time
thereafter, disclose or give permission to be disclosed to any third party by
any method whatsoever any of the confidential information of the Company. For
purposes of this Agreement, "confidential information" shall include, but not be
limited to, any and all Company confidential or proprietary records, notes,
memoranda, data, ideas, processes, methods, techniques, systems, formulas,
programs, computer software, writings, research, personnel information, borrower
or partner information, the Company's financial information, plans, or any other
Company confidential or proprietary information of whatever nature in the
possession or control of the Company which has not been published or disclosed
to the general public, or which gives to the Company an opportunity to obtain an
advantage over competitors who do not know of or use it. Employee further
agrees that if his employment hereunder is terminated for any reason, he will
leave with the Company and will not take originals or copies of any records,
papers, programs, computer software or documents of any nature whatever which
bear secret or confidential information of the Company.
The foregoing paragraph shall not be applicable if and to the extent
Employee is required to testify in a judicial or regulatory proceeding pursuant
to an order of a judge or administrative law judge issued after Employee and his
legal counsel urge that the aforementioned confidentiality be preserved.
Company shall reimburse Employee for all reasonable costs incurred by Employee
in connection with Employee's efforts to preserve such confidentiality.
The covenants set forth in this Paragraph 9 which are made by Employee
are in consideration of the employment, or continuing employment of, and the
compensation paid to, Employee during his employment by the Company. The
foregoing covenants will not prohibit Employee from disclosing confidential or
other information to other employees of the Company or to third parties to the
extent that such disclosure is necessary to the performance of his duties under
this Agreement.
Any breach of this covenant of nondisclosure will result in the
forfeiture by Employee and all other persons of any and all rights to
compensation unpaid at the time of breach and in such event the Company shall
have no further obligation to pay any amounts related thereto.
10. Additional Remedies. Employee recognizes that irreparable injury
-------------------
will result to the Company and to its business and properties in the event of
any breach by Employee of any of the provisions of Paragraphs 8 or 9 of this
Agreement, and that Employee's continued employment is predicated on the
commitments undertaken by him pursuant to said Paragraphs. In the event of any
breach of any of Employee's covenants under Paragraphs 8 or 9, the Company shall
be entitled, in addition to any other remedies and damages available, to
injunctive relief to restrain the violation of such covenant by Employee or by
any person or persons acting for or with Employee in any capacity whatsoever.
-5-
<PAGE>
11. Indemnification. Employee shall be entitled to indemnification
---------------
to the maximum extent permissible under the Company's Bylaws and Maryland law
with respect to any action, suit or proceeding arising out of or based upon
Employee's exercise of any right granted to Employee pursuant to the terms of
this Agreement.
12. Nonassignment. This Agreement is personal to Employee and shall
-------------
not be assigned by him. Employee shall not hypothecate, delegate, encumber,
alienate, transfer or otherwise dispose of his rights and duties hereunder.
This Agreement shall not be assigned by the Company without the prior written
consent of Employee.
13. Waiver. The waiver by a party of a breach by the other party of
------
any provision of this Agreement shall not be construed as a waiver by such party
of any subsequent breach by the other party.
14. Severability. If any clause, phrase, provision or portion of
------------
this Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision or portion hereof to other
persons or circumstances.
15. Benefit. The provisions of this Agreement shall inure to the
-------
benefit of the Company, its successors and assigns, and shall be binding upon
the Company and Employee, its and his heirs, personal representatives and
successors, including without limitation Employee's estate and the executors,
administrators, or trustees or such estate.
16. Relevant Law. This Agreement shall be construed and enforced in
------------
accordance with the laws of the State of California.
17. Notices. All notices, requests, demands and other communications
-------
in connection with this Agreement shall be made in writing and shall be deemed
to have been given when delivered by hand or facsimile transmission, or 48 hours
after mailing at any general or branch United States Post Office, by registered
or certified mail, postage prepaid, addressed as follows, or to such other
address as shall have been designated in writing by the addressee:
(a) If to the Company:
MIP Properties, Inc.
2020 Santa Monica Blvd., Suite 480
Santa Monica, CA 90404
Attn: the Secretary
(b) If to Employee:
Carl C. Gregory, III
[Home Address]
-6-
<PAGE>
18. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties and supersedes all prior agreements, arrangements,
and communications, whether oral or written, pertaining to the subject matter
hereof; and this Agreement shall not be modified or amended except by written
agreement of the Company and Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
MIP PROPERTIES, INC.
By: /s/ John W. Creighten, Jr.
---------------------------------------
John W. Creighten, Jr.
EMPLOYEE:
/s/ Carl C. Gregory, III
-------------------------------------------
Carl C. Gregory, III
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF MIP PROPERTIES, INC. AS OF AND
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,199,300
<SECURITIES> 0
<RECEIVABLES> 9,130,400
<ALLOWANCES> (8,562,000)
<INVENTORY> 0
<CURRENT-ASSETS> 929,900
<PP&E> 32,395,300
<DEPRECIATION> (2,859,500)
<TOTAL-ASSETS> 35,092,900
<CURRENT-LIABILITIES> 805,800
<BONDS> 4,756,400
<COMMON> 92,200
0
0
<OTHER-SE> 29,530,700
<TOTAL-LIABILITY-AND-EQUITY> 35,092,900
<SALES> 0
<TOTAL-REVENUES> 2,143,900
<CGS> 0
<TOTAL-COSTS> 2,423,900
<OTHER-EXPENSES> 346,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,200
<INCOME-PRETAX> (626,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (626,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (626,900)
<EPS-PRIMARY> (0.070)
<EPS-DILUTED> (0.070)
</TABLE>
