U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to __________________
Commission file number 000-21470
N' TANDEM TRUST
(Exact name of small business issuer as specified in its charter)
California 33-6109499
_____________________________________________ ___________________
(State or other jurisdiction of incorporation (IRS Employer
or organization Identification No.)
6430 S. Quebec Street, Englewood, Colorado 80111
(Address of principal executive offices)
(303) 741-3707
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d)of the Exchange Act during the past 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 ( )
<PAGE>
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and analysis of Financial
Condition and Results of Operations 11
PART II - Other Information
Item 2. Changes in Securities and use of Proceeds 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
2
<PAGE>
N' TANDEM TRUST
BALANCE SHEET
(unaudited)
September 30,1998
-------------------------------
ASSETS
Property held for investment:
Land $ 3,501,300
Buildings and improvements 6,869,000
Fixtures and equipment 70,300
-------------------------------
10,440,600
Less accumulated depreciation (924,600)
-------------------------------
9,516,000
Investments in joint ventures and limited partnerships 816,400
Cash and cash equivalents 95,300
Deferred financing costs 45,100
Other assets 317,400
------------------------------
Total Assets
$ 10,790,200
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debt $ 7,051,500
Accounts payable 15,300
Accrued expenses 442,700
Tenant deposits and other liabilities 44,100
Due to Advisor and affiliates 408,400
------------------------------
7,962,000
Shareholders' equity:
Preferred shares of beneficial interest,
no par value, unlimited
shares authorized; 98,073
shares issued and outstanding 2,121,700
Common shares of beneficial interest,
no par value, unlimited
Shares authorized; 109,308 shares
issued and outstanding 2,401,400
Cumulative net loss (296,100)
Cumulative distributions (1,398,800)
-------------------------------
2,828,200
-------------------------------
Total Liabilities and Shareholders' Equity $ 10,790,200
===============================
See Accompanying Notes to Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
N' TANDEM TRUST
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30
----------------------------------------------------
1998 1997
------------------------ -----------------------
<S> <C> <C>
REVENUES
Rent and utilities $ 465,800 $ 222,000
Equity in earnings (loses) of joint ventures and limited (5,100) (8,500)
Partnerships
Interest 600 1,500
Other 5,700 2,300
------------------------ -----------------------
467,000 217,300
------------------------ -----------------------
COSTS AND EXPENSES
Property operating 251,000 107,400
Interest 163,900 47,700
Depreciation 109,500 40,800
Advisory fee 39,100 8,700
General and administrative:
Related parties 7,600 6,600
Other 25,900 7,300
------------------------ -----------------------
597,000 218,500
------------------------ -----------------------
Net loss $ (130,000) $ (1,200)
======================== =======================
Preferred Dividends Paid (36,800) (36,800)
======================== =======================
Net loss attributable to Common Shares $ (166,800) $ (38,000)
======================== =======================
Basic and dilutive loss per Common Share $ (1.53) $ (0.42)
======================== =======================
Dividends per Common Share $ 0.31 $ 0.37
======================== =======================
</TABLE>
See Accompanying Notes to Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
N' TANDEM TRUST
STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended September 30
-------------------------------------------------
1998 1997
------------------------ -----------------------
<S> <C> <C>
REVENUES
Rent and utilities $ 1,146,000 $ 735,300
Equity in earnings (loses) of joint ventures and limited (22,100) (22,300)
Partnerships
Interest 1,400 4,500
Other 13,300 9,000
------------------------ -----------------------
1,138,600 726,500
------------------------ -----------------------
COSTS AND EXPENSES
Property operating 552,700 351,900
Interest 387,000 179,500
Depreciation 259,900 122,300
Advisory fee 102,900 37,500
General and administrative:
Related parties 19,000 26,600
Other 48,200 26,800
------------------------ -----------------------
1,369,700 744,600
------------------------ -----------------------
Net loss $ (231,100) $ (18,100)
======================== =======================
Preferred Dividends Paid (110,400) (110,400)
======================== =======================
Net loss attributable to Common Shares $ (341,500) $ (128,500)
======================== =======================
Basic and dilutive loss per Common Share $ (3.31) $ (1.25)
======================== =======================
Dividends per Common Share $ 0.93 $ 1.12
======================== =======================
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
N' TANDEM TRUST
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30
---------------------------------------------
1998 1997
---------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (231,100) $ (18,100)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation 259,900 122,300
Proportionate share of losses of joint ventures and 22,100 22,300
limited partnerships
Joint ventures' and limited partnerships cash distributions (22,100)
Amortization of deferred financing costs 8,100 10,200
Loss on sale of property 0 3,000
Changes in operating assets and liabilities:
(Increase) decrease in other assets (215,600) 23,600
(Increase) decrease in accounts payable 9,500 (11,800)
Increase in accrued expenses 409,500 7,400
Increase (decrease) in tenant deposits and other liabilities 44,100 (19,700)
Increase (decrease) in Due to Advisor and affiliates 114,600 (59,900)
---------------------- ---------------------
Net cash provided by operating activities 399,000 79,300
---------------------- ---------------------
Cash flows from investing activities:
Proceeds from sale of property 0 392,900
Acquisition of property held for investment (5,698,100) (42,600)
Investment in joint ventures and limited partnerships 0 (14,600)
Joint venture and limited partnerships cash distributions 42,900 0
---------------------- ---------------------
Net cash (used in) provided by investing activities (5,655,200) 335,700
---------------------- ---------------------
Cash flows from financing activities:
Issuance of Common Shares to Advisor 478,500 0
Proceeds from note from Advisor 5,001,500 (241,300)
Dividends paid (211,300) (211,800)
Repayment of mortgage notes payable 0 (7,100)
---------------------- ---------------------
Net cash provided by (used in) financing activities 5,268,700 (460,200)
---------------------- ---------------------
Net decrease in cash and cash equivalents 12,500 (45,200)
Cash and cash equivalents at beginning of period 82,800 142,000
---------------------- ---------------------
Cash and cash equivalents at end of period $ 95,300 $ 96,800
====================== =====================
</TABLE>
See Accompanying Notes to Financial Statements
6
<PAGE>
N' TANDEM TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1. THE TRUST
Background
- - ----------
N' Tandem Trust, an unincorporated California business trust (the Trust), was
formed in November 1991 for the purpose of acquiring, managing and selling
existing manufactured home communities. The Advisor of the Trust is The Windsor
Corporation, a California corporation ("the Advisor"). In September 1997,
Chateau Communities, Inc ("Chateau"), a publicly held real estate investment
trust, purchased 100% of the shares of the Advisor.
The Trust was organized to invest in existing, substantially developed and
occupied manufactured home communities. The Trust operates so as to qualify as a
real estate investment trust (a REIT) under Sections 856-860 of the Internal
Revenue Code of 1986, as amended (the "Code"). As a REIT, the Trust distributes
to its shareholders substantially all of its cash flow from operations and, in
any event, at least 95% of its real estate investment trust taxable income.
The Trust was funded through a public offering of common and preferred shares
which commenced in April 1992 and terminated in April 1993.
Montgomery Acquisition; Chateau Investment
- - ------------------------------------------
In an effort to enhance shareholder value, the Trustees in the first quarter of
1998 authorized the Advisor to attempt to identify additional acquisition
opportunities for the Trust. The Advisor located a number of potential
acquisitions and in March of 1998, the Trust acquired a 627-site manufactured
home community in Montgomery, Alabama, for $5.5 million (the "Montgomery
Acquisition"). In order to enable the Trust to make the acquisition, Chateau
offered to make an investment in the Trust. The Trustees accepted such offer
and, on March 30, 1998, the Trust entered into an agreement with Chateau,
pursuant to which Chateau invested $5.5 million in the Trust (the "Chateau
Investment") in exchange for the issuance within 90 days of such investment of
(i) such number of Common Shares of beneficial interest offering Trust (the
"Common Shares") (at a price of $25 per share) as the Trustees may determine;
and (ii) promissory notes in a principal amount of the balance of the investment
(the "Promissory Notes"). In connection with the Chateau Investment, on May 11,
1998, the Trust issued to Chateau (i) 19,139 Common Shares (at a price of $25
per share); and (ii) two Promissory Notes with an aggregate principal amount of
$5,001,525.
1998 Annual Meeting of Shareholders; Approval of Organizational Amendments;
Other Matters
- - ---------------------------------------------------------------------------
On September 23, 1998 the Trust provided to Shareholders a Proxy Statement
seeking the approval of the Trust's shareholders of (i) the conversion of the
Trust from a finite-life entity to an infinite-life entity ("Proposal 1"); (ii)
the amendment and restatement of the Trust's Declaration of Trust (the "Amended
Declaration"), and the adoption of By-laws for the Trust ("Proposal 2", and
together with Proposal 1, the "Organizational Amendments"); (iii) the approval
of a stock option plan for the Trust, through the approval and adoption of the
proposed form of the 1998 Equity Compensation Plan (the "Equity Compensation
Plan Approval" or "Proposal 3"); and (iv) the annual election of trustees of the
Trust. The Proposals were presented and approved by the shareholders at the
Annual Meeting of Shareholders of the Trust held on October 23, 1998.
7
<PAGE>
The principal purposes of the Organizational Amendments were to convert the
Trust from a finite-life to an infinite-life entity, and to remove various
restrictions and limitations and other requirements contained in the existing
Declaration of Trust of the Trust which are not typically found in the more
modern organizational documents of leading real estate investment trusts. The
Amended Declaration also provided for changing the name of the Trust from
"Windsor Real Estate Investment Trust 8" to "N' Tandem Trust."
As discussed in the Proxy Statement, the Trust now intends to move forward with
certain transactions and to effect certain changes including the following: (i)
Chateau, a publicly held real estate investment trust which is the largest
owner/operator of manufactured home communities in the United States and which
is the sole shareholder of the Advisor, will proceed with the purchase of an
additional 130,000 Common Shares or Preferred Shares or a combination thereof
(which will give Chateau an approximate 45% ownership interest in the Trust),
for a purchase price of $25 per share; (ii) the Trust will form an operating
partnership subsidiary in order to facilitate tax-free and/or tax-deferred
acquisitions of additional properties; (iii) the Trust will begin implementing a
growth-oriented business plan (the "Business Plan") intended to cause the Trust
to attain greater size and asset diversity; and (iv) if successful in the
implementation of the Business Plan, the Trust anticipates that it will seek to
list the Common Shares on a national securities exchange or NASDAQ, and if
deemed appropriate, raise additional capital through an underwritten public
offering of the Common Shares or other securities of the Trust.
The Trust's current portfolio of properties is comprised of a 100 percent
ownership interest in three manufactured home community properties and a 40
percent, 11 percent, and 11 percent interest, respectively, in three other
manufactured home community properties. The Trust believes that significant
opportunities exist to acquire additional properties that fit the investment
objectives and guidelines set forth in its Business Plan. The Trust anticipates
that it will focus on acquisitions where the Trust believes there is substantial
opportunity to improve operational and financial results or where for some
reason, because of poor management or otherwise, a property is operating
substantially below its potential.
Additionally, Chateau has advised the Trust that it intends to announce that the
Trust will be a primary vehicle through which Chateau will make investments in
manufactured home communities that do not fit the core asset type typical of the
existing Chateau portfolio, which is characterized by large, stable,
institutional-quality, full amenitized properties. The Trust will employ higher
levels of leverage than Chateau and will focus primarily on "lower profile
assets", meaning properties that (i) are typically not part of a portfolio of
manufactured housing community properties; (ii) are located in tertiary
demographic and geographic markets; (iii) are not managed by a nationally known
manufactured home community operator; (iv) may be managed by an on-site owner
who lives at the property; and (v) may be smaller and are likely to have fewer
amenities and a greater proportion of single-wide homes than the typical Chateau
community. The Trust believes that its affiliation with Chateau will benefit the
Trust by providing it with access to Chateau's national organization, management
team and investment and management philosophies. Through its affiliation with
Chateau, the Trust believes that it will be exposed to a wider range of
acquisition opportunities as a result of Chateau's national organization and
knowledge of the manufactured housing community industry and will benefit from
Chateau's expertise in effectively and efficiently managing properties.
NOTE 2. BASIS OF PRESENTATION
The balance sheet at September 30, 1998 and the related statements of operations
for the three and nine months ended September 30, 1998 and 1997 and the
statements of cash flows for the nine months ended September 30, 1998 and 1997
are unaudited. However, in the opinion of the Advisor, they contain all
adjustments, of a normal recurring nature, necessary for a fair presentation of
such financial statements. Interim results are not necessarily indicative of
results for a full year.
8
<PAGE>
The financial statements and notes are presented as permitted by Form 10-QSB and
do not contain certain information included in the Trust's annual financial
statements and notes on form 10-KSB for the year ended December 31, 1997.
NOTE 3. INVESTMENTS IN JOINT VENTURES AND LIMITED PARTNERSHIPS
The Trust's investments in joint ventures and limited partnerships consist of
interests in three manufactured home communities at September 30, 1998. The
combined condensed results of operations of the joint venture and limited
partnership properties for the nine months ended September 30, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Total revenues $ 915,600 $ 792,500
Expenses:
Property operating 519,600 468,500
Interest 334,900 270,200
Depreciation 206,200 173,600
General and Administrative 7,200 0
------------------- ------------------------
1,067,900 912,300
------------------- ------------------------
Net (loss) $ (152,300) $ (119,800)
=================== ========================
</TABLE>
NOTE 4. EQUITY TRANSACTIONS
The number of Common Shares issued and outstanding include 19,139 shares issued
to Chateau Communities, Inc. which was completed May 11, 1998.
NOTE 5. BASIC AND DILUTIVE LOSS PER COMMON SHARE
Basic and dilutive loss per Common Share is calculated and based on the weighted
average number of Common Shares outstanding during the period and income or loss
available to the Common Shareholders. The weighted average number of Common
Shares outstanding during the three and nine months ended September 30, 1998 was
109,308 and 103,069, respectively and during the three and nine months ended
September 30, 1997 the weighted average was 90,169.
In 1997, the Trust adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share." This accounting standard specifies new
computation, presentation, and disclosure requirements for earnings per share to
be applied retroactively. Among other things, SFAS 128 requires presentation of
basic and diluted earnings per share on the face of the income statement. The
adoption of SFAS 128 resulted in the restatement of the per share results
previously reported increasing the loss per share by $0.41 and $1.02 for the
three and nine months ended September 30, 1997, respectively.
9
<PAGE>
NOTE 6. DEBT
The following table sets forth certain information regarding debt at September
30, 1998.
<TABLE>
<CAPTION>
Interest Rate Maturity Date Principal Balance
<S> <C> <C> <C>
Variable Rate Mortgage debt 8.64 % 6/2/02 $ 2,050,000
Secured Note (Woodland Hills) 9.50 % 4/1/99 3,650,600
Unsecured Note (Woodland Hills) 9.50 % 4/1/99 1,350,900
------------
$ 7,051,500
</TABLE>
NOTE 7. RELATED PARTY TRANSACTIONS
Advisory fee expense represents a fee payable to the Advisor for management of
the Trust's business. The fee is computed based on invested and uninvested asset
levels and is subject to certain subordination provisions. Advisory fee expense
for the three and nine months ended September 30, 1998 was $39,100 and $102,900,
respectively, and $8,700 and $37,500 for the three and nine months ended
September 30, 1997, respectively.
Chateau and/or its predecessor has been providing property management services
to the Trust since 1992. For this service, Chateau is paid a property management
fee, which is based on a percentage of actual gross receipts of the properties.
The total management fees paid to Chateau were $22,900 and $55,600 for the three
and nine months ended September 30, 1998, respectively, and $10,900 and $36,700
for the three and nine months ended September 30, 1997, respectively. In
addition certain direct expenses are paid by Chateau on behalf of the Trust and
then reimbursed by the Trust. These amounts were $7,600 and $19,000 for the
three and nine months ended September 30, 1998, respectively, and $6,500 and
$19,400 for the three and nine months ended September 30, 1997, respectively.
For additional information concerning the Trust's relationship, and
transactions, with Chateau, see Note 1 herein.
10
<PAGE>
N' TANDEM TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, 1998 as compared to three months ended
September 30, 1997
- - --------------------------------------------------------------------------------
Results of Operations
- - ---------------------
The Trust incurred a net loss of $130,000 and $1,200 for the three months ended
September 30, 1998 and 1997, respectively. The net loss per Common Share was
$1.53 in 1998 compared to a net loss of $0.42 in 1997. The increase in the net
loss is primarily due to the increase in interest expense, advisory fee and
depreciation expense incurred due to the Montgomery Acquisition offset by the
increase in the net operating income from the Montgomery Acquisition.
Rent and utility revenues increased from $222,000 in 1997 to $465,800 in 1998
due to the Montgomery Acquisition.
Equity in earnings of joint ventures and limited partnerships represents the
Trust's share of the net income (loss) of six joint venture and limited
partnership properties. Equity in earnings or share of losses of joint ventures
and limited partnerships decreased from a loss of $8,500 in 1997 to a loss of
$5,100 in 1998.
Interest income decreased from $1,500 in 1997 to $600 in 1998, due mainly
to lower cash balances maintained by the Trust.
Property operating expenses increased from $107,400 in 1997 to $251,000 in 1998
due to the Montgomery Acquisition.
Interest expense increased from $47,700 in 1997 to $163,900 in 1998, due to the
issuance of the Promissory Notes, in connection with the Montgomery Acquisition.
Depreciation expense increased from $40,800 in 1997 to $109,500 in 1998 due to
the Montgomery Acquisition.
Advisory fee expense represents a fee payable to the Advisor for management of
the Trust's business. The fee is computed based on invested and uninvested asset
levels and is subject to certain subordination provisions. Advisory fee expense
increased from $8,700 to $39,100 for the three months ended September 30, 1997
and 1998, respectively. The increase is due to the increased invested asset
levels incurred with the Montgomery Acquisition.
General and administrative expenses increased from $13,900 in 1997 to $33,500 in
1998 primarily due to trustee fees paid in August.
Nine months ended September 30, 1998 as compared to nine months ended September
30, 1997
- - --------------------------------------------------------------------------------
Results of Operations
- - ---------------------
The Trust incurred a net loss of $231,100 and $18,100 for the nine months ended
September 30, 1998 and 1997, respectively. The net loss per Common Share was
$3.31 in 1998 compared to a net loss of $1.25 in 1997. The increase in the net
11
<PAGE>
loss is primarily due to the increase in interest expense, advisory fee and
depreciation expense incurred due to the Montgomery Acquisition offset by the
increase in the net operating income from the Montgomery Acquisition.
Rent and utility revenues increased from $735,300 in 1997 to $1,146,000 in 1998
due primarily to the Montgomery Acquisition.
Equity in earnings of joint ventures and limited partnerships represents the
Trust's share of the net income (loss) of six joint venture and limited
partnership properties. Equity in earnings or share of losses of joint ventures
and limited partnerships remained relatively unchanged for the nine months ended
September 30, 1998 and for the same period in 1997.
Interest income decreased from $4,500 in 1997 to $1,400 in 1998, due mainly to
lower cash balances maintained by the Trust.
Property operating expenses increased from $351,900 in 1997 to $552,700 in 1998
due to the Montgomery Acquisition offset by the sale of Griffwood.
Interest expense increased from $179,500 in 1997 to $387,000 in 1998, due to the
issuance of the Promissory Notes, in connection with the Montgomery Acquisition.
Depreciation expense increased from $122,300 in 1997 to $259,900 in 1998 due to
the Montgomery Acquisition.
Advisory fee expense represents a fee payable to the Advisor for management of
the Trust's business. The fee is computed based on invested and uninvested asset
levels and is subject to certain subordination provisions. Advisory fee expense
increased from $37,500 to $102,900 for the nine months ended September 30, 1997
and 1998, respectively. The increase is due to the increased invested asset
levels which incurred with the Montgomery Acquisition.
General and administrative expenses increased from $53,400 in 1997 to $67,100 in
1998 due to Trustee fees paid in 1998.
Changes in Financial Condition
- - ------------------------------
The Trust's primary sources of cash during the nine months ended September 30,
1998 were from the operations of its investment properties, and the Chateau
Investment. The primary uses of cash during the same period were for the
purchase of a manufactured home community, cash dividends, and debt service.
On March 31, 1998, the Trust completed the Montgomery Acquisition for a purchase
price of approximately $5.5 million. In order to enable the Trust to complete
the Montgomery Acquisition, in March 1998 Chateau offered to make an investment
in the Trust. The Trustees accepted such offer and, on March 30, 1998, entered
into an agreement with Chateau, pursuant to which Chateau invested $5.5 million
in the Trust (the "Chateau Investment") in exchange for the issuance within 90
days of such investment of (i) such number of Common Shares (at a price of
$25.00 per share) as the Trustees may determine; and (ii) Promissory Notes in a
principal amount of the balance of the investment. In connection with the
Chateau Investment, on May 11, 1998, the Trust issued to Chateau (i) 19,139
Common Shares (at a price of $25.00 per share); and (ii) two Promissory Notes
with an aggregate principal amount of approximately $5.0 million.
At September 30, 1998, the Trust's total mortgage debt, including its
proportionate share of joint venture and limited partnership debt, was
$8,025,900, consisting entirely of variable rate debt. The average rate of
interest on the variable rate debt was 9.1% at September 30, 1998.
12
<PAGE>
The future sources of cash for the Trust in the near term will be provided from
property operations, and cash reserves. The future uses of such cash will be for
property and Trust operations, debt service, cash dividends to shareholders and
acquisitions of additional properties. The Advisor believes that these sources
of cash are sufficient to meet the working capital requirements of the Trust for
the foreseeable future. Additional capital, will, however, be required for
additional property acquisitions. The Trust would expect to fund such additional
acquisitions through additional equity or debt financings or through the
exchange of its securities or the securities of its new operating partnership
subsidiary for the additional properties. The Trust also intends to seek
additional investments in the Trust from Chateau, and third parties unaffiliated
with the Trust.
In 1997, the Trust adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share." This accounting standard specifies new
computation, presentation, and disclosure requirements for earnings per share to
be applied retroactively. Among other things, SFAS 128 requires presentation of
basic and diluted earnings per share on the face of the income statement. The
adoption of SFAS 128 resulted in the restatement of the per share results
previously reported increasing the loss per share by $0.41 and $1.02 for the
three and nine months ended September 30, 1997, respectively.
Year 2000 Issue
- - ---------------
Background
- - ----------
Management continues to assess the impact of the Year 2000 Issue on its
reporting systems and operations. The Year 2000 Issue exists because many
computer systems and applications abbreviate dates by eliminating the first two
digits of the year, assuming that these two digits are always "19". As a result,
date-sensitive computer programs may recognize a date using "00" as the year
1900 rather than the year 2000. Unless corrected, the potential exists for
computer system failures or incorrect processing of financial and operational
information, which could disrupt operations.
Approach & Costs
- - ----------------
To help facilitate the Trust's continued growth, substantially all of the
computer systems and applications in use in its home office and properties have
been, or are in the process of being upgraded and modified. The Trust is of the
opinion that, in connection with those upgrades and modifications, it has
addressed applicable Year 2000 Issues as they might affect the computer systems
and applications located in the Trust's offices and properties. The Trust
anticipates that implementation of solutions to any Year 2000 Issue which it may
discover will require the expenditure of sums which the Trust does not expect to
be material.
Risks Associated with the Year 2000 Problem
- - -------------------------------------------
The Trust is exposed to the risk that one or more of its vendors or service
providers may experience Year 2000 problems which impact the ability of such
vendor or service provider to provide goods and services. Due to the
availability of alternative suppliers, this is not considered as significant a
risk with respect to the suppliers of goods. The disruption of certain services,
however, such as utilities, could, depending upon the extent of the disruption,
have a material adverse impact on the Trust's operations. To date, the Trust is
not aware of any vendor or service provider Year 2000 issue that management
believes would have a material adverse impact on the Trust's operations. The
Trust, however, has no means of ensuring that its vendors or service providers
will be Year 2000 ready. The inability of vendors or service providers to
complete the Year 2000 resolution process in a timely fashion could have an
13
<PAGE>
adverse impact on the Trust and the effect of non-compliance by vendors or
service providers is not determinable at this time. Residents who pay rent to
the Trust do not pose Year 2000 problems for the Trust given the type and nature
of the Trust's properties and residents.
Widespread disruptions in the national or international economy, including
disruptions affecting the financial markets, resulting from Year 2000 issues, or
in certain industries, such as commercial or investment banks, could also have
an adverse impact on the Trust. The likelihood and effect of such disruptions is
not determinable at this time.
Management expects to have all systems appropriately modified before any
significant processing malfunctions could occur and does not expect the Year
2000 Issue will materially impact the financial condition or operations of the
Trust.
14
<PAGE>
PART II - Other Information
Item 2. Changes in Securities and Use of Proceeds
On October 23, 1998, at the Annual Meeting of Shareholders, the shareholders of
the trust adopted an Amended Declaration of Trust for the Trust which effects
various changes in the rights of the holders of the common shares and Preferred
Shares of the Trust. The Amended Declaration also provides for the exchange of
each Common Share and Preferred Share of the Trust for a share of a new class of
Common Shares and preferred shares, respectively, which will have the various
rights and be subject to the limitations set forth in the Amended Declaration.
Under the Amended Declaration, (i) in keeping with the conversion of the Trust
from a finite-life to an infinite-life entity, the Trust will no longer be
required to make distributions to shareholders of all proceeds from sales or
refinancings of properties; (ii) effective upon the listing of the Common Shares
on any national securities exchange or NASDAQ, the Trust will have the right to
redeem outstanding Preferred Shares upon 60 days' written notice to Preferred
Shareholders, at a redemption price per Preferred Share equal to the Preferred
Share Liquidation Preference, which will equal $25.00 plus any dividends on the
Preferred Shares that are accrued and unpaid following such adoption (the
"Redemption Rights"); and (iii) each holder of Preferred Shares will have the
right, which becomes exercisable if the Preferred Shares are called for
redemption, to convert each Preferred Share held by such holder into one Common
Share, at any time prior to the Redemption Date, by the delivery of notice of
such exercise to the Trust.
The information contained herein is qualified in its entirety by the more
detailed information contained under the caption "Comparison of Terms and
Provisions of Existing Declaration of Trust, Amended Declaration and By-laws" in
the Trust's Definitive Schedule 14A dated October 2, 1998 and such information
is hereby incorporated herein in its entirety by reference.
Item 4. Submission of Matters to a vote of Security Holders
1998 Annual Meeting of Shareholders; Approval of Organizational Amendments;
Other Matters
On September 23, 1998, the Trust mailed to shareholders a Definitive Proxy
Statement seeking the approval of the Trust's shareholders of (i) the conversion
of the Trust from a finite-life entity to an infinite-life entity ("Proposal
1"); (ii) the amendment and restatement of the Trust's Declaration of Trust, and
the adoption of By-laws for the Trust ("Proposal 2", and together with Proposal
1, the "Organizational Amendments"); (iii) the approval of the Equity
Compensation Plan ("Proposal 3"); and (iv) the annual election of trustees of
the Trust.
The Proposals were presented and approved by the Shareholders at the Annual
Meeting of Shareholders of the Trust held on October 23, 1998. Proposal 1 was
approved by (i) the holders of 53,507 Common Shares, or 55.11% of the issued and
outstanding Common Shares and (ii) the holders of 52,906 Preferred Shares, or
54.49% of the issued and outstanding Preferred Shares. Proposal 2 was approved
by (i) the holders of 53,507 Common Shares, or 55.11% of the issued and
outstanding Common Shares, and (ii) the holders of 52,906 Preferred Shares, or
54.49% of the issued and outstanding Preferred Shares. Proposal 3 was approved
by (i) the holders of 68,434 Common Shares, or 62.72% of the issued and
outstanding Common Shares, and (ii) the holders of 52,524 Preferred Shares, or
53.56% of the issued and outstanding Preferred Shares. Gary P. McDaniel, Kenneth
G. Pinder and Richard B. Ray were re-elected as the Trustees of the Trust,
receiving respectively 63,417 votes, 3,258 votes and 2,058 votes.
With respect to Proposal 1, (i) holders of 3,168 Common Shares voted against
Proposal 1 and holders of 1,800 Common Shares abstained, and (ii) holders of
3,857 Preferred Shares voted against Proposal 1, and holders of 2,396 Preferred
Shares abstained.
With respect to Proposal 2, (i) holders of 3,168 Common Shares voted against
Proposal 2, and holders of 1,800 Common Shares abstained, and (ii) holders of
3,857 Preferred Shares voted against Proposal 2, and holders of 2,396 Preferred
Shares abstained.
With respect to Proposal 3, (i) holders of 3,260 Common Shares voted against
Proposal 2, and holders of 4,600 Common Shares abstained, and (ii) holders of
2,629 Preferred Shares voted against Proposal 2, and holders of 4,990 Preferred
Shares abstained.
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Please see Note 1 herein for additional information concerning the
Organizational Amendments and proposed activities of the Trust following the
adoption of the Organizational Amendments.
At the Annual Meeting, the Shareholders also approved the 1998 Equity
Compensation Plan which provides for the discretionary grant by a compensation
committee of the Board of incentive stock options which meet the requirements of
Section 422 of the Code, non-qualified stock options, restricted shares and
dividend equivalent rights.
The information in this item is qualified in its entirety by reference to the
more detailed information contained in the Trust's Definitive Schedule 14A filed
with the Commission on October 2, 1998, and such information is hereby
incorporated herein in its entirety by reference.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits and Index of Exhibits
(3.1) Amended and Restated Declaration of Trust of the Trust*
(3.2) By-laws of the Trust*
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
- - -----------
* Incorporated by reference to the Trust's Definitive Schedule 14A filed October
2, 1998.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
N' Tandem Trust
(Registrant)
By: /s/ Gary P. McDaniel
-------------------------
GARY P. McDANIEL
Trustee
Date: November 16, 1998
