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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO. 333-65515
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MANUFACTURED HOME COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENT)
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<S> <C>
MARYLAND 36-3857664
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
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TWO NORTH RIVERSIDE PLAZA, SUITE 800
CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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HOWARD WALKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MANUFACTURED HOME COMMUNITIES, INC.
TWO NORTH RIVERSIDE PLAZA, SUITE 800
CHICAGO, ILLINOIS 60606
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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COPIES TO:
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RUTH PINKHAM HARING, ESQ. ELLEN KELLEHER, ESQ.
ROSENBERG & LIEBENTRITT, P.C EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
TWO NORTH RIVERSIDE PLAZA, SUITE 1600 MANUFACTURED HOME COMMUNITIES, INC.
CHICAGO, ILLINOIS 60606 TWO NORTH RIVERSIDE PLAZA, SUITE 800
(312) 466-3612 CHICAGO, ILLINOIS 60606
(312) 466-3647
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement relating to these
securities has been declared effective by the Securities and Exchange
Commission. This Prospectus is neither an offer to sell nor a solicitation of an
offer to buy these securities in any jurisdiction where such offer or sale is
unlawful.
SUBJECT TO COMPLETION DATED NOVEMBER 12, 1998
PROSPECTUS
3,365,575 SHARES
MANUFACTURED HOME COMMUNITIES, INC.
COMMON STOCK
The stockholders of Manufactured Home Communities, Inc. listed below may
offer and sell up to 3,365,575 shares of the Company's Common Stock under this
Prospectus. We may issue the 3,365,575 shares of Common Stock to the selling
stockholders in exchange for their 3,365,575 units of limited partnership
interest in MHC Operating Limited Partnership.
The selling stockholders may offer their shares of Common Stock through
public or private transactions, on or off the New York Stock Exchange, at
prevailing market prices, or at privately negotiated prices.
The Common Stock is listed on the New York Stock Exchange under the symbol
("MHC"). On November 10, 1998, the closing price of the shares of Common Stock
on the New York Stock Exchange was $24.9375. Our address is Two North Riverside
Plaza, Suite 800, Chicago, Illinois 60606.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN MATERIAL RISKS RELEVANT
TO AN INVESTMENT IN OUR SHARES OF COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1998.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in or incorporated by reference into this Prospectus
and any accompanying Prospectus Supplement contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act. We intend the
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 27A of the Securities Act of
1933, as amended (the "Securities Act"). These forward-looking statements relate
to, without limitation, future economic performance, our plans and objectives
for future operations and projections of revenue and other financial items,
which can be identified by the use of forward-looking terminology such as "may,"
"will," "should," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
cautionary statements under the caption "Risk Factors" and other similar
statements contained in this Prospectus or any accompanying Prospectus
Supplement identify important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of the reports, proxy
statements and other information can be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549, upon payment of prescribed
rates, or in certain cases by accessing the Commission's World Wide Web site at
http://www.sec.gov. The public may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. The Company's
shares of Common Stock, par value $0.01 per share (the "Common Stock") are
listed on the New York Stock Exchange ("NYSE") under the symbol "MHC". Such
reports, proxy statements and other information concerning the Company can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act, with respect to the securities offered hereby (the
"Offering") by certain holders (the "Selling Stockholders") of up to 3,365,575
shares of our Common Stock (the "Offerer Stock"). This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules thereto. For
further information regarding the Company and the Offered Stock, reference is
hereby made to the Registration Statement and such exhibits and schedules which
may be obtained from the Commission at its principal office in Washington, D.C.
upon payment of the fees prescribed by the Commission. The Commission maintains
a "web site" that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December
31, 1997, as amended to date.
b. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998.
c. The Company's Current Reports on Form 8-K, filed with the Commission
on June 18, 1998, and Current Reports on Form 8-K/A, filed with the
Commission on February 24, 1998 and August 11, 1998.
d. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A/A, filed on February 22, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all securities to which this Prospectus
relates shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in the
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
applicable Prospectus Supplement or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement. Subject to the foregoing,
all information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to Manufactured Home Communities, Inc., Two North Riverside Plaza,
Suite 800, Chicago, Illinois 60606, Attention: Cynthia McHugh (telephone number:
(312) 474-1122).
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As used herein and in any accompanying Prospectus Supplement, "Company"
means Manufactured Home Communities, Inc., a Maryland corporation, and one or
more of its subsidiaries (including MHC Operating Limited Partnership, an
Illinois limited partnership (the "Operating Partnership")) or as the context
may require Manufactured Home Communities, Inc. only or the Operating
Partnership only.
THE COMPANY
The Company is a fully integrated company which owns and operates
manufactured home communities. The Company, a self-administered and self-managed
equity real estate investment trust, is the general partner of the Operating
Partnership. The Company owns all of its assets and conducts substantially all
of its business through the Operating Partnership and its subsidiaries.
The Company's executive offices are located at Two North Riverside Plaza,
Suite 800, Chicago, Illinois 60606, and its telephone number is (312) 474-1122.
RISK FACTORS
Set forth below are the risks that we believe are material to investors who
purchase or own the Company's shares of Common Stock (which we refer to as the
"Stock") or Units of limited partnership interest of the Operating Partnership
("which we refer to as "Units"), which are exchangeable on a one-for-one basis
for shares of Stock or their cash equivalent. We refer to the Stock and the
Units together as our "securities," and the investors who own Stock and/or Units
as our "securityholders."
OUR PERFORMANCE AND STOCK VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE REAL
ESTATE INDUSTRY
GENERAL. If our assets do not generate income sufficient to pay our
expenses, service our debt and maintain our properties, we may not be able to
make expected distributions to our securityholders. Several factors may
adversely affect the economic performance and value of our portfolio of
manufactured home community properties (the "Properties"). These factors include
changes in the national, regional and local economic climate, local conditions
such as an oversupply of manufactured home sites or a reduction in demand for
manufactured home sites in the area, the attractiveness of our properties to
tenants, competition from other available manufactured home communities and
alternative forms of housing (such as apartment buildings and site-built single
family homes). Our performance also depends on our ability to collect rent from
tenants and pay maintenance, insurance and other operating costs (including real
estate taxes), which could increase over time. The expenses of owning and
operating a property are not necessarily reduced when circumstances such as
market factors and competition cause a reduction in income from the property. If
a property is mortgaged and we are unable to meet the mortgage payments, the
lender could foreclose on the mortgage and take the property. In addition,
interest rate levels, the availability of financing, changes in laws and
governmental regulations (including those governing usage, zoning and taxes) may
adversely affect our financial condition.
NEW ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED AND COMPETITION FOR
ACQUISITIONS MAY RESULT IN INCREASED PRICES FOR PROPERTIES. We intend to
continue to acquire manufactured home community properties. Newly acquired
properties may fail to perform as expected. We may underestimate the costs
necessary to bring an acquired property up to standards established for its
intended market position. Additionally, we expect that other real estate
investors with significant capital will compete with us for attractive
investment opportunities. These competitors include publicly traded REITs,
private REITs and other types of investors. This competition has increased
prices for manufactured home community properties. We expect to acquire
properties with cash from secured or unsecured financings and proceeds from
offerings of equity or debt. We may not be in a position or have the opportunity
in the future to make suitable property acquisitions on favorable terms.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be sold
quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. This inability to respond promptly to changes
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in the performance of our investments could adversely affect our financial
condition and ability to service debt and make distributions to our
securityholders.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE. We carry comprehensive
liability, fire, extended coverage and rental loss insurance on all of our
properties. We believe the policy specifications and insured limits of these
policies are adequate and appropriate. There are, however, certain types of
losses, such as lease and other contract claims, that generally are not insured.
Should an uninsured loss or a loss in excess of insured limits occur, we could
lose all or a portion of the capital we have invested in a property, as well as
the anticipated future revenue from the property. In such an event, we might
nevertheless remain obligated for any mortgage debt or other financial
obligations related to the property.
DEBT FINANCING, FINANCIAL COVENANTS AND DEGREE OF LEVERAGE COULD ADVERSELY
AFFECT OUR ECONOMIC PERFORMANCE
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. Our
business is subject to risks normally associated with debt financing. Cash flow
could be insufficient to pay distributions at expected levels and meet required
payments of principal and interest. We may not be able to refinance existing
indebtedness (which in virtually all cases requires substantial principal
payments at maturity) and, if we can, the terms of such refinancing might not be
as favorable as the terms of existing indebtedness. The total principal amount
of our outstanding indebtedness was $728 million as of September 30, 1998. If
principal payments due at maturity cannot be refinanced, extended or paid with
proceeds of other capital transactions, such as new equity capital, our cash
flow will not be sufficient in all years to repay all maturing debt. If
prevailing interest rates or other factors at the time of refinancing (such as
the possible reluctance of lenders to make commercial real estate loans) result
in higher interest rates, increased interest expense would adversely affect cash
flow and our ability to service debt and make distributions to securityholders.
FINANCIAL COVENANTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. If a
property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the mortgagee could foreclose on the property, resulting
in loss of income and asset value. The mortgages on our properties contain
customary negative covenants which, among other things, limit our ability,
without the prior consent of the lender, to further mortgage the property, and
to discontinue insurance coverage. In addition, our credit facilities contain
certain customary restrictions, requirements and other limitations on our
ability to incur indebtedness, including total debt to assets ratios, secured
debt to total assets ratios, debt service coverage ratios and minimum ratios of
unencumbered assets to unsecured debt. Foreclosure on mortgaged properties or an
inability to refinance existing indebtedness would likely have a negative impact
on our financial condition and results of operations.
OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING. Our Debt to Market Capitalization Ratio (total debt as a percentage
of total debt plus the market value of the outstanding Stock and Units) is
approximately 48% as of September 30, 1998. The degree of leverage could have
important consequences to securityholders, including affecting our ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, development or other general corporate purposes and
making us more vulnerable to a downturn in business of the economy generally.
STOCKHOLDERS' ABILITY TO EFFECT CHANGES IN CONTROL OF THE COMPANY IS LIMITED
PROVISIONS OF OUR CHARTER AND BYLAWS COULD INHIBIT CHANGES IN
CONTROL. Certain provisions of our Charter and Bylaws may delay or prevent a
change in control of the Company or other transaction that could provide our
stockholders with a premium over the then-prevailing market price of their Stock
or which might otherwise be in the best interest of our securityholders. These
include a staggered Board of Directors and the Ownership Limit described below.
Also, any future series of preferred stock may have certain voting provisions
that could delay or prevent a change of control or other transaction that might
involve a premium price or otherwise be good for our securityholders.
WE COULD ADOPT MARYLAND LAW LIMITATIONS ON CHANGES IN CONTROL. Certain
provisions of Maryland law prohibit "business combinations" (including certain
issuances of equity securities) with any person who
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beneficially owns ten percent or more of the voting power of outstanding Stock,
or with an affiliate of the Company who, at any time within the two-year period
prior to the date in question, was the owner of ten percent or more of the
voting power of the outstanding voting Stock (an "Interested Stockholder"), or
with an affiliate of an Interested Stockholder. These prohibitions last for five
years after the most recent date on which the Interested Stockholder became an
Interested Stockholder. After the five-year period, a business combination with
an Interested Stockholder must be approved by two super-majority stockholder
votes unless, among other conditions, our common stockholders receive a minimum
price for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares of common
stock. The Board of Directors has exempted from these provisions under the
Maryland law any business combination with Mr. Zell, certain holders of Units
who received them at the time of the Company's initial public offering, the
General Motors Hourly Rate Employes Pension Trust and the General Motors
Salaried Employes Pension Trust, which we sometimes refer to as the "GM Trusts",
our officers and the officer of Realty Systems, Inc., which we call "RSI," who
acquired Stock at the time the Company was formed and each and every affiliate
of theirs.
WE HAVE A STOCK OWNERSHIP LIMIT FOR REIT TAX PURPOSES. To remain qualified
as a REIT for federal income tax purposes, not more than 50% in value of our
outstanding Stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the federal income tax laws applicable to REITs) at
any time during the last half of any year. See "Certain Federal Income Tax
Considerations -- Taxation of the Company -- Stock Ownership Test." To
facilitate maintenance of our REIT qualification, our Charter, subject to
certain exceptions, prohibits ownership by any single stockholder of more than
5% (in value or number of shares, whichever is more restrictive) of any class or
series of stock. We refer to this as the "Ownership Limit." Our Charter permits
the Board of Directors to increase the Ownership Limit with respect to any class
or series of stock. Further, the Board of Directors is required to waive or
modify the Ownership Limit with respect to a stockholder who would not be
treated as an "individual" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code") if such stockholder's ownership in excess of the Ownership
Limit will not cause a stockholder who is an individual to be treated as owning
Stock in excess of the Ownership Limit or otherwise jeopardize our REIT status.
Absent any such exemption or waiver, Stock acquired or held in violation of the
Ownership Limit will be transferred by operation of law to the Company as
trustee for the benefit of the person to whom such Stock is ultimately
transferred, and the stockholder's rights to distributions and to vote would
terminate. Such stockholder would be entitled to receive, from the proceeds of
any subsequent sale of the Stock transferred to the Company as trustee, the
lesser of (i) the price paid for the Stock or, if the owner did not pay for the
Stock (for example, in the case of a gift, devise of other such transaction),
the market price of the Stock on the date of the event causing the Stock to be
transferred to the Company as trustee or (ii) the amount realized from such
sale. A transfer of Stock may be void if it causes a person to violate the
Ownership Limit. The Ownership Limit could delay or prevent a change in control
of the Company and, therefore, could adversely affect our stockholders' ability
to realize a premium over the then-prevailing market price for their Stock.
WE DO NOT CONTROL RSI
RSI provides sales, leasing, brokerage and construction services to our
properties and we provide RSI with an unsecured credit line to purchase
inventory. Certain persons with significant business relationships with Mr. Zell
control the voting stock and management of RSI, although we own 95% of the
economic interests in RSI. We therefore do not control the timing or amount of
distributions or the management and operations of RSI. As a result, decisions
relating to the declaration and payment of distributions, the credit line and
the business policies and operations of RSI could be adverse to our interests or
could lead to adverse financial results, which could adversely affect our
financial condition and results of operations.
CONFLICTS OF INTEREST COULD RESULT IN DECISIONS NOT IN THE COMPANY'S BEST
INTEREST
MR. ZELL'S AFFILIATES CONTROL OUR MANAGEMENT CORPORATIONS. LP Management
Corp. and DeAnza Group, Inc., which we call the "Management Corporations", are
limited partners of MHC Management Limited Partnership and MHC-DAG Management
Limited Partnership, respectively, which we sometimes
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refer to as the "Management Partnerships." The Management Partnerships provide
property management services and asset management services to certain of our
properties which are encumbered by mortgages. The management contracts for these
services were not negotiated on an arms length basis. While we believe that the
management fees the Management Partnerships receive from these properties are at
current market rates, there is no assurance that these management fees will
equal at all times those fees that would be charged by an unaffiliated third
party. While we generally own 95% of the economic interest in the Management
Corporations, Mr. Zell controls and has a substantial interest in the private
company which has voting control of the Management Corporations. Mr. Zell may
have a conflict with respect to his position at the Company, to enforce the
terms of such management contracts, which could adversely affect our financial
condition and results of operations.
CERTAIN DIRECTORS, OFFICERS AND STOCKHOLDERS HAVE CONFLICTS OF INTEREST AND
COULD EXERCISE INFLUENCE IN A MANNER INCONSISTENT WITH STOCKHOLDERS' BEST
INTEREST. As of March 13, 1998, Mr. Zell and Ms. Sheli Z. Rosenberg (one of the
Company's directors) own (as determined in accordance with the Commission's
rules) approximately 8.8%, and all other directors and executive officers of the
Company as a group own approximately 13.2% of the outstanding Stock (in each
case including Stock issuable upon exchange of Units). In addition, options to
purchase an aggregate of 662,832 shares of Stock have been granted to our
directors and our executive officers as a group. In addition, the GM Trusts own
approximately 9.2% of the Stock (assuming conversion of all Units). Accordingly,
such persons have significant influence on our management and operation. Such
influence might be exercised in a manner that is inconsistent with the interests
of other securityholders.
MR. ZELL AND HIS AFFILIATES CONTINUE TO BE INVOLVED IN OTHER INVESTMENT
ACTIVITIES. Although Mr. Zell entered into a noncompetition agreement at the
time of our initial public offering, he and his affiliates have a broad and
varied range of investment interests, including interests in other real estate
investment companies involved in other forms of housing, including multifamily
housing. Mr. Zell and his affiliates may acquire interests in other companies.
He may not be able to control whether any such company competes with the
Company. Consequently, Mr. Zell's continued involvement in other investment
activities could result in competition to the Company as well as management
decisions which might not reflect the interests of our securityholders.
WE LEASE OUR CORPORATE OFFICES FROM AN AFFILIATE OF MR. ZELL. Our corporate
offices are at Two North Riverside Plaza in Chicago, Illinois. We lease our
office space there from one of Mr. Zell's affiliates. We believe that the lease
terms, including the rental rates, reflect current market terms.
ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY
Federal, state and local laws and regulations relating to the protection of
the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property. The owner or operator may have to pay a
governmental entity or third parties for property damage and for investigation
and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean-up responsibility and liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants. Even if more than one person may have been responsible for
the contamination, each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred. In addition, third parties
may sue the owner or operator of a site for damages and costs resulting from
environmental contamination emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that owners or operators of property containing
asbestos properly manage and maintain the asbestos, that they notify and train
those who may come into contact with asbestos and that they undertake special
precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on real property owners or operators who fail to comply with
these requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
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Independent environmental consultants have conducted Phase I environmental
site assessments at all of our properties. These assessments included, at a
minimum, a visual inspection of the properties and the surrounding areas, an
examination of current and historical uses of the properties and the surrounding
areas and a review of relevant federal, state, and historical documents. Where
appropriate, on a property by property basis, these consultants have conducted
additional testing, including sampling for asbestos, for lead in drinking water,
for soil contamination where underground storage tanks are or were located or
where other past site usages create a potential environmental problem, and for
contamination in groundwater.
These environmental assessments have not revealed any environmental
liabilities at the properties that we believe would have a material adverse
effect on our business, assets, financial condition or results of operations nor
are we aware of any such material environmental liability.
THE MARKET VALUE OF OUR STOCK CAN BE ADVERSELY AFFECTED BY A NUMBER OF FACTORS
CHANGES IN MARKET CONDITIONS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
STOCK. As with other publicly traded equity securities, the value of our Stock
depends on various market conditions, which may change from time to time. Among
the market conditions that may affect the value of our publicly traded
securities are the following: the extent of institutional investor interest in
the Company; the reputation of REITs and manufactured home community REITs
generally and the attractiveness of their equity securities in comparison to
other equity securities (including securities issued by other real estate
companies); our financial condition and performance; and general financial
market conditions.
OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
STOCK. We believe that the market value of a REIT's equity securities is based
primarily upon the market's perception of the REIT's growth potential and its
current and potential future cash distributions, and is secondarily based upon
the real estate market value of the underlying assets. For that reason, the
Stock may trade at prices that are higher or lower than the net asset value per
share. To the extent we retain operating cash flow for investment purposes,
working capital reserves or other purposes, these retained funds, while
increasing the value of our underlying assets, may not correspondingly increase
the market price of our Stock. Our failure to meet the market's expectations
with regard to future earnings and cash distributions would likely adversely
affect the market price of our publicly traded securities.
MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR STOCK. One of
the factors that investors consider important in deciding whether to buy or sell
shares of a REIT is the distribution rates with respect to such shares (as a
percentage of the price of such shares) relative to market interest rates. If
market interest rates go up, prospective purchasers of REIT shares may expect a
higher distribution rate. Higher interest rates would not, however, result in
more funds for us to distribute and, in fact, would likely increase our
borrowing costs and potentially decrease funds available for distribution. Thus,
higher market interest rates could cause the market price of our publicly traded
securities to go down.
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL
To qualify as a REIT, we must distribute to our stockholders each year at
least 95% of our net taxable income (excluding any net capital gain). See
"Certain Federal Income Tax Considerations -- Taxation of the Company -- Annual
Distribution Requirements." Because of these distribution requirements, it is
not likely that we will be able to fund all future capital needs, including for
acquisitions, from income from operations. We therefore will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms or at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings. Moreover, additional equity offerings
may result in substantial dilution of securityholders' interests, and additional
debt financing may substantially increase our leverage.
OUR QUALIFICATION AS A REIT IS DEPENDENT ON COMPLIANCE WITH FEDERAL INCOME TAX
REQUIREMENTS
FAILURE OF THE COMPANY TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE
CONSEQUENCES TO OUR SECURITYHOLDERS. We believe that, since our initial public
offering in March 1993, the Company has qualified
8
<PAGE> 10
for taxation as a REIT for federal income tax purposes. We plan to continue to
meet the requirements for taxation as a REIT. Many of these requirements,
however, are highly technical and complex. The determination that the Company is
a REIT requires an analysis of various factual matters and circumstances that
may not be totally within our control. For example, to qualify as a REIT, at
least 95% of our gross income must come from certain sources that are itemized
in the REIT tax laws. The Company is also required to distribute to stockholders
at least 95% of its REIT taxable income (excluding capital gains). The fact that
we hold our assets through the Operating Partnership and its subsidiaries
further complicates the application of the REIT requirements. Even a technical
or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress
and the Internal Revenue Service (the "Service") might make changes to the tax
laws and regulations, and the courts might issue new rulings that make it more
difficult, or impossible, for the Company to remain qualified as a REIT. We do
not believe, however, that any pending or proposed tax law changes would
jeopardize our REIT status.
In addition, although REITs are prohibited from holding more than 10% of
the voting securities of any corporation, a REIT is not currently prohibited
from holding more than 10% of the value of the stock of a corporation, subject
to the general REIT asset requirements. See "Certain Federal Income Tax
Considerations." As a part of the Federal budget for 1999, President Clinton has
made several proposals affecting REITs. One such proposal, if enacted in its
present form, would prohibit a REIT from holding securities representing more
than 10% of the vote or value of all classes of stock of a corporation, other
than stock of a qualified REIT subsidiary or another REIT. Although stock
currently owned in existing subsidiaries, such as RSI, would be grandfathered
under such proposal, such subsidiaries would be prohibited from acquiring
substantial new assets or engaging in a new trade or business. If enacted in its
present form, the proposal may limit the future activities and growth of the
Company. At this time, it is not possible to predict whether any such proposals,
as currently proposed or as modified by Congress, will be enacted. See "Certain
Federal Income Tax Considerations -- Taxation of the Company -- Clinton
Administration's Proposed Changes to REIT Asset Test."
If the Company fails to qualify for taxation as a REIT and the relief
provisions of the Code do not apply, the Company would be subject to Federal
income tax at regular corporate rates. Also, unless the Service granted the
Company relief under certain statutory provisions, the Company would be
ineligible for qualification as a REIT for four years following the year the
Company first failed to qualify. If the Company failed to qualify as a REIT, the
Company would have to pay significant income taxes and would therefore have less
money available for investments or for distributions to stockholders. This would
likely have a significant adverse affect on the value of our securities. In
addition, the Company would no longer be required to make any distributions to
stockholders. See "Certain Federal Income Tax Considerations -- Taxation of the
Company -- Failure to Qualify."
WE PAY SOME TAXES. Even if the Company qualifies as a REIT, it is required
to pay certain federal, state and local taxes on its income and property. In
addition, any net taxable income earned directly by certain noncontrolled
subsidiaries is subject to federal and state income tax. See "Certain Federal
Income Tax Considerations -- Taxation of the Company."
NO PROCEEDS TO THE COMPANY
The Company will not receive any of the proceeds from sales of Offered
Stock by the Selling Stockholders. All costs and expenses incurred in connection
with the registration under the Securities Act of the offering made hereby will
be paid by the Company, other than any brokerage fees and commissions, fees and
disbursements of legal counsel for the Selling Stockholders and stock transfer
and other taxes attributable to the sale of the Offered Stock, which will be
paid by the Selling Stockholders.
9
<PAGE> 11
SELLING STOCKHOLDERS
The Company may issue the 3,365,575 shares of Offered Stock to Selling
Stockholders holding up to 3,365,575 Units, if and to the extent that such
Selling Stockholders redeem their Units and we issue them shares of Common Stock
in exchange therefor. The following table provides the name of each Selling
Stockholder, the number of shares of Common Stock to be owned upon exchange of
Units by each Selling Stockholder before the offering to which this Prospectus
relates, and the number of shares of Offered Stock offered by each Selling
Stockholder. Since the Selling Stockholders may sell all or some of their
Offered Stock, no estimate can be made of the number of shares of Offered Stock
that will be sold by the Selling Stockholders or that will be owned by the
Selling Stockholders upon completion of the offering. There is no assurance that
the Selling Stockholders will sell any of the Offered Stock. The Offered Stock
represents approximately 10.5% of the total shares of Common Stock (assuming
redemption of all outstanding Units for shares of Common Stock) outstanding as
of September 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME OF SELLING STOCKHOLDER OWNED AND OFFERED HEREBY
- --------------------------- ------------------------
<S> <C>
Alanson L. Howard........................................... 11,637
Allan Family Trust, Robert M. Allan Jr. or Harriet S. Allan,
Trustees.................................................. 15,239
Barbara H. Tippett Revocable Trust, Barbara H. Tippett,
Trustee................................................... 2,790
Robert Blair White.......................................... 35,123
Bond Family 1996 Revocable Living Trust dated 10/22/96,
Robert G. Bond and Carolyn A. Bond, Trustees.............. 32,290
Brock Family Trust, William and Jane E. Brock, Trustees..... 8,362
Corey C. and Jill A. Anderson............................... 11,650
Charles Darin Brassfield Revocable Trust, Joseph A. Sperske,
Trustee................................................... 19,703
Carrier Family 1989 Trust, David and Joyce Carrier,
Trustees.................................................. 29,130
Chamberlain 1991 Trust, Lowell and Patsy Chamberlain,
Trustees.................................................. 3,847
Charles S. and Alice B. Knight.............................. 7,432
Charles E. Jacobson and Claire R. Jacobson.................. 380,580
Frank A. Christopher IRA Rollover........................... 4,059
Colvin Revocable Trust, Oliver P. and Margaret Colvin, Jr.,
Trustees.................................................. 47,111
Don E. and Michele G. Parmiter.............................. 46,006
David Ash Johnson Living Trust of 3/7/88, David Ash Johnson,
Trustee................................................... 21,923
David and Elizabeth Johnson................................. 962
Deel Revocable Trust, Boyd B. and Marilyn Deel, Trustees.... 370,925
Donald C. Christopher....................................... 3,954
Eugene and Arlene S. Weston Trust, Eugene and Arlene S.
Weston, Trustees.......................................... 122,352
Elin M. Johnson............................................. 6,340
FA & AN Christopher Trust, Frank A. and Anna Noreen
Christopher, Trustees..................................... 12,540
Frank A. Christopher........................................ 10,289
Fetters Family Trust, Weir Fetters, Trustee................. 12,414
Ivan F. Finley Family Revocable Trust dated 12/28/81, Ivan
F. and Thelma K. Finley, Trustees......................... 10,618
G. Gervaise Davis, III and Kathleen A. Davis................ 38,343
Harold D. and Lael N. Arbon................................. 20,794
Jerry G. Brassfield Living Trust, Jerry G. Brassfield,
Trustee................................................... 327,765
Jo Ann Brassfield Living Trust, Jo Ann Brassfield,
Trustee................................................... 364,578
Juli Lynn Christopher Trust, Anna Noreen Christopher,
Trustee................................................... 1,143
Kapp Family Trust, Lloyd G. and Joan L. Kapp, Trustees...... 18,820
Kyne Family Trust, Stephen E. and Sheila A. Kyne,
Trustees.................................................. 53,663
Lenora M. Huett Trust, Lenora M. Huett, Trustee............. 24,047
Liddicoat Family Trust, Douglas and Marilyn D. Liddicoat,
Trustees.................................................. 22,230
Lilienstein Family, LP...................................... 2,564
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME OF SELLING STOCKHOLDER OWNED AND OFFERED HEREBY
- --------------------------- ------------------------
<S> <C>
Lisa Karen Christopher Trust, Anna Noreen Christopher,
Trustee................................................... 1,143
Lori Ann Christopher Trust, Frank A. Christopher, Trustee... 1,143
Melissa Brassfield Revocable Trust, Joseph A. Sperske,
Trustee................................................... 19,703
The Melvin S. Campbell Revocable Living Trust dated 4/16/90,
Melvin S. Campbell, Trustee............................... 24,016
Oregon Land Company......................................... 65,547
Robin J. and Roger Best..................................... 11,650
Williams Living Trust dated 9/26/86, Raellen Williams,
Trustee................................................... 17,481
R.E.B. Brassfield Revocable Trust, Robert E. & Judith
Brassfield, Trustees...................................... 89,690
Robert Anthony Brassfield Revocable Trust, Joseph A.
Sperske, Trustee.......................................... 19,703
Roger W.A. Howard........................................... 11,938
Shann Michael Brassfield Revocable Trust, Joseph A. Sperske,
Trustee................................................... 19,703
Sharon J. Attermann......................................... 12,177
Marianne C. Snell Survivors Trust, Marianne C. Snell,
Trustee................................................... 15,372
Andrew Ulrich Jr. and Arline P. Ulrich UAD 9/19/89 FBO by
Andrew Ulrich, et al...................................... 4,064
The Virginia M. Campbell Revocable Living Trust dated
4/16/90, Virginia M. Campbell, Trustee.................... 24,016
Volney E. Howard III........................................ 11,938
V.E. Howard Family Trust, Roger W.A. Howard, Managing
Trustee................................................... 86,366
W. Scott Hroza.............................................. 4,605
Walter A. Hachman........................................... 8,362
Wesley H. Evans............................................. 8,716
Western Mobileparks, Inc.................................... 273,219
William C. and Marjorie A. Iverson.......................... 26,110
Wilmot J. Nicholson Revocable Living Trust, Wilmot J.
Nicholson and Ruth R. Nicholson, Trustees................. 8,540
James Buell Lindgren and for Joyce Arleen Lindgren,
deceased.................................................. 2,175
David Domingo, as Trustee of the Mobileparks West
Liquidating Trust......................................... 13,029
David Domingo, as Trustee of the All Seasons Mobilehome
Community Liquidating Trust............................... 3,970
David Domingo, as Trustee of The Bluffs Mobilehome Community
Liquidating Trust......................................... 8,861
David Domingo, as Trustee of the Coralwood Mobilehome
Community Liquidating Trust............................... 9,660
David Domingo, as Trustee of the Eugene Mobilepark West
Liquidating Trust......................................... 8,443
David Domingo, as Trustee of the Fairview Mobilepark West
Liquidating............................................... 6,490
David Domingo, as Trustee of the Four Seasons Mobilehome
Community Liquidating Trust............................... 3,969
David Domingo, as Trustee of the Kloshe lllahee Mobilehome
Community Liquidating Trust............................... 10,674
David Domingo, as Trustee of the Monte del Lago Mobilehome
Community Liquidating Trust............................... 20,995
David Domingo, as Trustee of the Royal Oaks Mobilehome
Community Liquidating Trust............................... 4,208
David Domingo, as Trustee of the San Jose Mobilepark West #2
Liquidating Trust......................................... 7,976
David Domingo, as Trustee of the San Jose Mobilepark West #3
Liquidating Trust......................................... 5,622
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME OF SELLING STOCKHOLDER OWNED AND OFFERED HEREBY
- --------------------------- ------------------------
<S> <C>
David Domingo, as Trustee of the San Jose Mobilepark West #4
Liquidating Trust......................................... 7,120
David Domingo, as Trustee of the Sea Oaks Mobilehome
Community Liquidating Trust............................... 6,293
David Domingo, as Trustee of the Sedona Venture Liquidating
Trust..................................................... 4,185
David Domingo, as Trustee of the Sunshadow Mobilehome
Community Liquidating Trust............................... 10,160
David Domingo, as Trustee of the Villa Borega Mobilehome
Community Liquidating Trust............................... 14,995
David Domingo, as Trustee of the Westwood Village Mobilehome
Community Liquidating Trust............................... 6,308
Casimer and Angeline Kay.................................... 5,785
Herbert C. and Karen E. Driver.............................. 808
Scott A. and Julie H. Ford Family Trust, Scott A. and Julie
H. Ford, Trustees......................................... 658
Mahendra R. Patel 1985 Revocable Trust, Mahendra R. Patel,
Trustee................................................... 1,317
Robert A. Lasley............................................ 1,317
Helen S. Ullmann............................................ 1,317
Bright Living Trust, Albert and Virginia Bright, Trustees... 24,858
Lucy Valletta............................................... 6,525
Winby Family Trust, Ivor W.S. and Jane Winby, Trustees...... 18,644
James D. and Joy L. Verboncouer............................. 1,169
Barry L. Haase.............................................. 121,304
Robert E. C. Wegner......................................... 30,326
Frank P. Scalzo............................................. 23,111
Boulder Scalzo, L.P......................................... 4,968
Hanson Family Revocable Trust u/d/t dated 6/6/91, Rondell B.
Hanson, Trustee........................................... 44,003
Krueger Family Revocable Trust u/d/t dated 6/27/89, James M.
Krueger, Trustee.......................................... 44,003
Dan G. Olsen................................................ 13,904
---------
Total.................................................. 3,365,575
=========
</TABLE>
12
<PAGE> 14
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of all material Federal income tax
consequences to the Company and holders of Common Stock of the treatment of the
Company as a REIT. This Prospectus addresses the taxation of the Company and the
impact on the Company of its election to be taxed as a REIT. The following
discussion assumes that the Company continues to qualify as a REIT during all
relevant periods. Since these provisions are highly technical and complex, and
because the following discussion is not exhaustive of all possible tax
considerations, each prospective purchaser of Common Stock is urged to consult
his or its own tax advisor with respect to the Federal, state, local, foreign
and other tax consequences of the purchase, ownership and disposition of the
Common Stock. This discussion does not purport to deal with the Federal income
or other tax consequences applicable to all investors in light of their
particular investment circumstances or to all categories of investors, some of
whom may be subject to special rules (including, for example, insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States). As discussed below, the Taxpayer Relief Act of 1997 (the "1997 Act")
contains certain changes to the REIT qualification requirements and to the
taxation of REITs that may be material to a holder of Common Stock but which are
effective only for the Company's taxable years commencing on or after January 1,
1998. In addition, the Internal Revenue Service Restructuring and Reform Act of
1998 (the "1998 Act"), enacted on July 22, 1998, contains certain changes to the
capital gain rules that may be material to a holder of Common Stock.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING,
AND EACH PROSPECTIVE STOCKHOLDER IS ENCOURAGED TO CONSULT WITH HIS OR ITS TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
If certain detailed conditions imposed by the REIT provisions of the Code
are met, entities, such as the Company, that invest primarily in real estate and
that otherwise would be treated for Federal income tax purposes as corporations
generally are not taxed at the corporate level on their "REIT taxable income"
that is currently distributed to stockholders. This treatment substantially
eliminates the "double taxation" (at the corporate and stockholder levels) that
generally results from the use of corporate investment vehicles.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its stockholders would be reduced.
The Company elected REIT status commencing with its taxable year ended
December 31, 1993. In the opinion of Steptoe & Johnson LLP, which has acted as
special tax counsel to the Company, the Company was organized and has operated
in conformity with the requirements for qualification and taxation as a REIT
under the Code for its taxable years ended December 31, 1993, 1994, 1995, 1996
and 1997, and the Company's current organization and method of operation should
enable it to continue to meet the requirements for qualification and taxation as
a REIT. It must be emphasized that this opinion is based on various assumptions
relating to the organization and operation of the Company, the Operating
Partnership, the Management Partnerships, sub-partnerships of the Operating
Partnership created to (i) facilitate mortgage financing (the "Financing
Partnerships") and (ii) facilitate the Company's ability to provide financing to
the owners of manufactured home communities (the "Lending Partnership"), RSI, LP
Management Corp. and De Anza Group, Inc. (collectively, the "Management
Corporations") and the various qualified REIT subsidiaries wholly-owned by the
Company (each a "QRS Corporation") (collectively, the Management Partnerships,
the Financing Partnerships, the Lending Partnership, RSI, the Management
Corporations and the QRS Corporations may be referred to herein as the
"Subsidiary Entities") and is conditioned upon the accuracy of certain
representations made by the Company and the Operating Partnership to Steptoe &
Johnson LLP as to certain relevant factual matters, including (i) matters
related to the organization, past operation, expected future operation, and
assets of the Company, the Operating Partnership and the Subsidiary Entities,
and (ii) that certain services rendered are those usually or customarily
rendered in
13
<PAGE> 15
connection with the rental of space for occupancy only at particular
manufactured home communities. The Company's qualification and taxation as a
REIT depend upon (i) the Company having met for each of its taxable years,
through actual annual operating and other results, the various requirements
under the Code and described in this Prospectus with regard to, among other
things, the sources of its gross income, the composition of its assets, the
level of its distributions to stockholders, and the diversity of its share
ownership, and (ii) the Company's ability to meet such requirements on a
continuing basis. Steptoe & Johnson LLP will not review the Company's compliance
with these requirements on a continuing basis. No assurance can be given that
the actual results of the operations of the Company, the Operating Partnership
and the Subsidiary Entities, the sources of their income, the nature of their
assets, the level of the Company's distributions to stockholders and the
diversity of its share ownership for any given taxable year will satisfy the
requirements under the Code for qualification and taxation as a REIT.
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT, in general
it will not be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to stockholders. The Company may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
If the Company should fail to satisfy either the 75% or the 95% gross
income test (as discussed below), and nonetheless maintains its qualification as
a REIT because certain other requirements are met, it will be subject to a 100%
tax on the greater of the amount by which it fails the 75% or the 95% test,
multiplied by a fraction intended to reflect its profitability. The Company will
also be subject to a tax of 100% on net income from any "prohibited
transaction," as described below. In addition, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior years, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company may also be
subject to the corporate "alternative minimum tax," as well as tax in certain
situations and on certain transactions not presently contemplated. The Company
uses the calendar year both for Federal income tax purposes and for financial
reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Stock Ownership Test. The capital stock of the Company must be held by a
minimum of 100 persons for at least 335 of the days in each taxable year
subsequent to 1993. In addition, at all times during the second half of each
taxable year subsequent to 1993, no more than 50% in value of the capital stock
of the Company may be owned, directly or indirectly and by applying certain
constructive ownership rules, by five or fewer individuals. The Company believes
that it has satisfied both of these tests, and it believes it will continue to
do so. In order to ensure compliance with this test, the Company has placed
certain restrictions on the transfer of its capital stock to prevent further
concentration of stock ownership. Moreover, to evidence compliance with these
requirements, the Company must maintain records which disclose the actual
ownership of its outstanding capital stock. In fulfilling its obligations to
maintain records, the Company must demand written statements each year from the
record holders of designated percentages of its capital stock disclosing the
actual owners of such capital stock. A list of those persons failing or refusing
to comply with such demand must be maintained as a part of the Company's
records. A stockholder failing or refusing to comply with the Company's written
demand must submit with his tax returns a similar statement disclosing the
actual ownership of capital stock and certain other information. The Company's
Charter provides restrictions regarding the transfer of its capital stock that
are intended to assist the Company in continuing to satisfy the stock ownership
requirements. See "Risk Factors -- We Have a Common Stock Ownership Limit for
REIT Tax Purposes". Pursuant to the 1997 Act, for the Company's taxable years
commencing on or after January 1, 1998, if the Company complies with regulatory
rules pursuant to which it is required to send annual letters to holders of
capital stock requesting information regarding the actual ownership of capital
stock, but does not know, or exercising reasonable diligence would not have
known, whether it failed to meet the requirement that it not be closely held,
the Company will be treated as having met the requirement.
14
<PAGE> 16
Asset Tests. At the close of each quarter of the Company's taxable year,
the Company must satisfy two tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
"real estate assets" (including any combination of interests in real property,
interests in mortgages on real property, and stock in other REITs), cash, cash
items and certain government securities. Second, although the remaining 25% of
the Company's assets generally may be invested without restriction, securities
in this class may not exceed either (i) 5% of the value of the Company's total
assets as to any one issuer (other than an interest in a partnership) or (ii)
10% of the outstanding voting securities of any one issuer (other than an
interest in a partnership or stock of a qualified REIT subsidiary or another
REIT). Where the Company invests in a partnership, it will be deemed to own a
proportionate share of the partnership's assets in accordance with its capital
interest. The Company's investment in the Properties through its interest in the
Operating Partnership will constitute qualified assets for purposes of the 75%
asset test.
The Operating Partnership has not owned and will not own any of the voting
stock, but owns 100% of the non-voting stock, of the Management Corporations and
RSI. By virtue of its partnership interest in the Operating Partnership, the
Company is deemed to own its pro rata share of the assets of the Operating
Partnership, including the stock of the Management Corporations and RSI as
described above.
The Operating Partnership has not owned and will not own more than 10% of
the voting securities of the Management Corporations and RSI. In addition, based
upon its analysis of the estimated value of the stock of the Management
Corporations and RSI owned by the Operating Partnership relative to the
estimated value of the other assets owned by the Operating Partnership, the
Company believes that its pro rata share of the stock of the Management
Corporations and RSI held by the Operating Partnership together has not and will
not exceed 5% of the total value of the Company's assets. No independent
appraisals have been obtained, however, to support this conclusion. This 5%
limitation must be satisfied not only on the date that the Company first
acquired stock of the Management Corporations and RSI, but also at the end of
each quarter in which the Company increases its interest in the Management
Corporations and RSI (including as a result of increasing its interest in the
Operating Partnership as a result of the Offering, and as the holders of Units
exercise their exchange rights). Although the Company plans to take steps to
ensure that it satisfies the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps always will be
successful or will not require a reduction in the Operating Partnership's
overall interest in the Management Corporations or RSI.
The Company's indirect interests as a general partner in the Financing
Partnerships and the Lending Partnership are held through the QRS Corporations,
each of which is organized and operated as a "qualified REIT subsidiary" within
the meaning of the Code. Qualified REIT subsidiaries are not treated as separate
entities from their parent REIT for Federal income tax purposes. Instead, all
assets, liabilities and items of income, deduction and credit of the QRS
Corporations will be treated as assets, liabilities and items of the Company.
The QRS Corporations therefore will not be subject to Federal corporate income
taxation, although they may be subject to state or local taxation. In addition,
the Company's ownership of the voting stock of each QRS Corporation will not
violate the general restriction against ownership of more than 10% of the voting
securities of any issuer. The Company may in the future form one or more
additional qualified REIT subsidiaries. For the Company's year ended on December
31, 1997, all of the stock of such subsidiaries must be owned by the Company
from the commencement of each such subsidiary's existence. For taxable years of
the Company beginning on and after January 1, 1998, the Company must own all of
the stock of each such subsidiary, although it will not be required to own such
stock of such subsidiary from the commencement of such subsidiary's existence.
Clinton Administration's Proposed Changes to REIT Asset Test. The Clinton
Administration's budget proposal announced on February 2, 1998 includes a
proposal to amend the REIT asset tests with respect to non-qualified REIT
subsidiaries, such as the Management Corporations and RSI. The proposal would
prohibit a REIT from owning more than 10% of the vote or value of the
outstanding stock of any non-qualified REIT subsidiary. Existing non-qualified
REIT subsidiaries would be grandfathered, and therefore subject only to the 5%
asset test and 10% voting securities test of current law (see "-- Taxation of
the Company -- Asset Tests"), except that such grandfathering would terminate if
the subsidiary engaged in a new trade or business
15
<PAGE> 17
or acquired substantial new assets. As a result, if the proposal were to be
enacted, the Management Corporations and RSI would become subject to the new
10%-vote-and-value limitation if they commenced new trade or business activities
or acquired substantial new assets after the specified effective date. The
Company could not satisfy the new test because it would be considered to own
more than 10% of the value of the stock of the Management Corporations and RSI.
Accordingly, the proposal, if enacted, could materially impede the ability of
the Company to engage in other activities without jeopardizing its REIT status.
Gross Income Tests. For years before 1998, there are three separate
percentage tests relating to the sources of the Company's gross income which
must be satisfied for each taxable year. For years after 1997, there are two
such percentage tests. For purposes of these tests, where the Company invests in
a partnership, the Company will be treated as receiving its proportionate share
of the income and loss of the partnership, and the gross income of the
partnership will retain the same character in the hands of the Company as it has
in the hands of the partnership. See "-- Tax Aspects of the Company's
Investments in Partnerships -- General" below.
1. The 75% Test. At least 75% of the Company's gross income for each
taxable year must be "qualifying income." Qualifying income generally includes
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) dividends or other distributions on stock in other REITs, as
well as gain from the sale of such stock; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale, of real
property acquired at or in lieu of a foreclosure of the mortgage collateralized
by such real property ("foreclosure property"); (vii) commitment fees received
for agreeing to make loans collateralized by mortgages on real property or to
purchase or lease real property; and (viii) certain qualified temporary
investment income attributable to the investment of new capital received by the
Company in exchange for its stock (including Common Stock issued pursuant to the
Offering) during the one-year period following the receipt of such new capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% gross income test (or the 95% gross income test
described below) if the Company, or a direct or indirect owner of 10% or more of
the stock of the Company, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). For the Company's taxable year which began on
January 1, 1998 and for all taxable years thereafter, only partners who own 25%
or more of the capital or profits interest in a partnership are included in the
determination of whether a tenant is a "Related Party Tenant." In addition, if
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person. However, an amount received or accrued generally will
not fail to qualify as rents from real property solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property, the Company generally must not
operate or manage the real property or furnish or render services to tenants,
other than through an "independent contractor" from whom the Company derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent that the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only, and are not
otherwise considered "rendered for the convenience of the occupant". Pursuant to
the 1997 Act, for the Company's taxable years commencing on or after January 1,
1998, rents received generally will qualify as rents from real property
notwithstanding the fact that the Company provides non-customary services so
long as the amount received for such services is de minimis. If the value of the
non-customary service income received with respect to a property (valued at no
less than 150% of the Company's direct costs of performing such services) is 1%
or less of the total income derived from the property, then all rental income
with respect to the property, except the non-customary service income, will
qualify as "rents from real property."
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The Company, through the Management Partnerships and RSI (none of which are
independent contractors), undertakes certain activities and provides certain
services with respect to the Properties and will do the same for any newly
acquired manufactured home community properties. The Company believes that such
activities and services (i) primarily benefit the Company by maintaining and
enhancing occupancy and/or (ii) are activities and services usually or
customarily rendered in connection with the rental of space in manufactured home
communities in the geographic market in which the particular communities are
located and are not services rendered primarily for the convenience of the
occupant. Accordingly, the Company believes that the activities of the
Management Partnerships and RSI have not caused and will not cause the rents
received with respect to the Properties to fail to qualify as rents from real
property for purposes of the 75% gross income test or for purposes of the 95%
gross income test as described below.
2. The 95% Test. In addition to the requirement that the Company derive at
least 75% of its gross income from the sources listed above, at least 95% of the
Company's gross income for the taxable year must be derived from the
above-described qualifying income, or from dividends, interest or gains from the
sale or disposition of stock or other securities that are not dealer property.
Dividends (including the Company's share of dividends paid by the Management
Corporations or RSI) and interest on any obligations not collateralized by an
interest in real property (including interest received on a note receivable from
RSI (the "RSI Note") if the RSI Note is not collateralized by RSI's inventory
and interests in notes secured by real property) are included for purposes of
the 95% gross income test, but not for purposes of the 75% gross income test.
Similarly, for tax years beginning prior to January 1, 1998, any payments made
to the Company under an interest rate swap or cap agreement entered into by the
Company to hedge certain of its variable rate indebtedness is included as
qualifying income for purposes of the 95% gross income test, but not for
purposes of the 75% gross income test. For the Company's tax years commencing on
or after January 1, 1998, such payments made to the Company will so qualify even
though the Company's indebtedness does not bear interest at a variable rate, and
payments pursuant to certain similar financial instruments entered into to
reduce interest rate risks will be treated in a similar manner.
For purposes of determining whether the Company complies with the 75% and
95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property, excluding
certain dealer property held by the Company for at least four years and
excluding foreclosure property and, as a result of the 1997 Act, effective for
the Company's taxable year beginning January 1, 1998, dispositions of property
that occur due to involuntary conversion. See " -- Taxation of the
Company -- General" and "-- Tax Aspects of the Company's Investments in
Partnerships -- Sale of the Properties."
The Company's investment in the Properties, through the Operating
Partnership and the Financing Partnerships, in major part gives rise to rental
income qualifying under the 75% and 95% gross income tests. Gains on sales of
the Properties or of the Company's interest in the Operating Partnership or the
Financing Partnerships generally qualify under the 75% and 95% gross income
tests. The Company believes that income on its other investments, including its
indirect investment in the Management Corporations and in RSI, has not resulted
in the Company failing the 75% or 95% gross income test for any year, and the
Company anticipates that this will continue to be the case. The Company has
received a ruling from the Service that interest income received by the
Operating Partnership with respect to the RSI Note qualifies for purposes of the
75% gross income test provided that the obligation is collateralized by RSI's
inventory and interests in notes secured by real property on the condition that
the RSI Note constitutes the indebtedness of RSI.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the tests on a
schedule attached to its tax return; and (iii) any incorrect information on this
schedule is not due to fraud with intent to evade tax. It is not possible to
state whether in all circumstances the Company would be entitled to the benefit
of these relief provisions. If these relief provisions apply, the Company will,
however, still be subject to a special tax based upon the greater of the amount
by which it fails
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either the 75% or 95% gross income test for that year, less associated expenses.
See "-- Taxation of the Company -- General."
3. The 30% Test. The Company must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. The 1997 Act repeals the 30% gross income
test for taxable years beginning after its enactment. Therefore, the 30% gross
income test will not apply for the Company's taxable year beginning January 1,
1998 and thereafter. However if the 30% income test is not met for the taxable
years of the Company beginning before January 1, 1998, the Company would cease
to qualify as a REIT. See "-- Failure to Qualify." The Company has not had and
does not anticipate that it will have any substantial difficulty in complying
with this test. For the purpose of applying the 30% gross income test, the
holding period of properties and other assets generally will commence on the
date the same are acquired.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, generally is required to make distributions (other than capital gain
distributions) to its stockholders each year in an amount at least equal to (A)
the sum of (i) 95% of the Company's REIT taxable income (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of non-cash income (including, as a result of the 1997 Act,
cancellation of indebtedness and original issue discount income). Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. See "Taxation of Taxable Domestic Stockholders
- -- General." To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its REIT
taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular corporate tax rates. Furthermore, if the Company should fail
to distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain income for such
year, and (iii) any undistributed taxable income from prior periods, the Company
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
The Company has made and intends to make timely distributions sufficient to
satisfy the annual distribution requirements. In this regard, the Partnership
Agreement of the Operating Partnership authorizes the Company, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that the Company
may not have sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to timing differences between the actual receipt of income and
actual payment of expenses on one hand, and the inclusion of such income and
deduction of such expenses in computing the Company's REIT taxable income on the
other hand, or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceed the amount of non-cash deductions
such as depreciation. In order to satisfy the 95% distribution requirement, the
Company will closely monitor the relationship between its REIT taxable income
and cash flow and, if necessary, will borrow funds (or cause the Operating
Partnership or other affiliates to borrow funds) in order to satisfy the
distribution requirement.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Pending Legislation. Bills have been introduced in both the Senate and
House of Representatives that would provide that no dividends-paid deduction is
allowed with respect to distributions made in liquidation of a REIT, when at
least 80 percent of the liquidating REIT is owned by a single corporation. It is
not expected that this legislation, if enacted, would have a material impact on
the Company.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions of the Code do not apply, the
Company will be subject to tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which the Company fails to so qualify will not be
required and, if made, will not be deductible by the
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Company. In such event, to the extent of current and accumulated earnings and
profits, all distributions to stockholders will be taxable as ordinary income,
and, subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company also will be ineligible for
qualification as a REIT for the four taxable years following the year during
which qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds direct or indirect interests in the Operating
Partnership, the Management Partnerships, the Financing Partnerships and the
Lending Partnership and certain other partnerships (each individually a
"Partnership", and collectively the "Partnerships").
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the Properties contributed at
the time of the Company's initial public offering) must be allocated in a manner
such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for Federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership and certain of the Financing Partnerships
were formed by way of contributions of appreciated property. Consequently, the
partnership agreements for such Partnerships require such allocations to be made
in a manner consistent with Section 704(c) of the Code.
In general, the contributing partners will be allocated lower amounts of
depreciation deductions for tax purposes, and increased taxable income and gain
on sale by the Partnerships of the contributed assets, than would have been
allocated to them if the assets had a tax basis equal to their fair market value
at the time of contribution. The allocations will tend to eliminate the Book-Tax
Difference over the life of the Partnerships. However, the special allocation
rules of Section 704(c) of the Code as applied by the Company do not always
entirely rectify the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Partnerships will cause the Company to be
allocated lower depreciation and other deductions, and possibly greater amounts
of taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See " -- Taxation of the Company -- Annual
Distribution Requirements." In addition, to the extent that the carryover basis
of the contributed assets will cause the Company to have greater current and
accumulated earnings and profits, the amount, if any, of distributions to
stockholders that may be treated as a tax-free return of capital will be
reduced. See " -- Taxation of Taxable Domestic Stockholders -- General."
With respect to any Property purchased or to be purchased by any of the
Partnerships subsequent to the formation of the Company, such Property will
initially have a tax basis equal to its fair market value and Section 704(c) of
the Code will not apply.
Sale of the Properties. The Company's share of any gain realized by a
Partnership on the sale of any dealer property generally will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax, and
will have an adverse effect upon the Company's ability to satisfy the income
tests for qualification as a REIT. See " -- Taxation of the Company -- General"
and "-- Gross Income Tests -- The 95% Test." Under existing law, whether
property is dealer property is a question of fact that depends on all the facts
and circumstances with respect to the particular transaction. The Partnerships
have held and intend to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the Properties and other manufactured home communities. In
addition, the Partnerships may make such occasional sales of the Properties as
are consistent with the Company's investment objectives. Based upon such
investment objectives, the Company believes that in
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general the Properties should not be considered dealer property and that the
amount of income from prohibited transactions, if any, will not be material.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
General. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable domestic stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by them as ordinary income and will not be eligible for the
dividends received deduction for stockholders that are corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent that they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the stockholder has held its Common Stock.
On November 10, 1997, the Service issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital gains
dividend as (i) a 20% rate gain distribution (which would be taxable to taxable
domestic stockholders who are individuals, estates or trusts at a maximum rate
of 20%), (ii) an unrecaptured Section 1250 gain distribution (which would be
taxable to taxable domestic stockholders who are individuals, estates or trusts
at a maximum rate of 25%), or (iii) a 28% rate gain distribution (which would be
taxable to taxable domestic stockholders who are individuals, estates or trusts
at a maximum rate of 28%). If no designation is made, the entire designated
capital gain dividend will be treated as a 28% rate gain distribution. Notice
97-64 provides that a REIT must determine the maximum amounts that it may
designate as 20% and 25% rate capital gain dividends by performing the
computation required by the Code as if the REIT were an individual whose
ordinary income were subject to a marginal tax rate of at least 28%. Notice
97-64 further provides that designations made by the REIT only will be effective
to the extent that they comply with Revenue Ruling 89-81, which requires that
distributions made to different classes of shares be composed proportionately of
dividends of a particular type. Distributions that are properly designated by
the Company as capital gain dividends will be taxable to taxable corporate
domestic stockholders as long-term capital gain (to the extent that capital
gains dividends do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which such corporate domestic
stockholder has held its Common Stock. Corporate domestic stockholders may,
however, be required to treat up to 20% of certain capital gain dividends as
ordinary income.
The 1998 Act reduces the required holding period for the application of the
20% and 25% capital gain tax rates from more than 18 months to more than one
year for capital gain properly taken into account on or after January 1, 1998.
It is expected that the Service will issue clarifying guidance (most likely
applying the same principles set forth in IRS Notice 97-64) regarding the
application of the new holding period requirements to capital gain dividend
designations by REITs.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of shares of beneficial
interest (the "Total Dividends"), then the portion of the Capital Gains Amount
that will be allocable to the holders of Common Stock will be the Capital Gains
Amount multiplied by a fraction, the numerator of which will be the total
dividends (within the meaning of the Code) paid or made available to the holders
of the Common Stock for the year and the denominator of which will be the Total
Dividends.
To the extent that the Company makes distributions in excess of current and
accumulated earnings and profits, these distributions are treated first as a
tax-free return of capital to the stockholder, reducing the tax basis of a
stockholder's Common Stock by the amount of such distribution (but not below
zero), with distributions in excess of the stockholder's tax basis taxable as
capital gains (if the Common Stock is held as a capital asset). In addition, any
dividend declared by the Company in October, November or December of any year
and payable to a stockholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Stockholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
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In general, upon any sale or other disposition of Common Stock, a
stockholder will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted basis in such Common Stock for tax purposes. Such gain or
loss will be capital gain or loss if the Common Stock has been held as a capital
asset. In the case of a stockholder that is a corporation, such capital gain or
loss will be long-term capital gain or loss if such Common Stock has been held
for more than one year. Pursuant to the 1998 Act, generally, in the case of a
taxable domestic stockholder who is an individual or an estate or trust, such
capital gain (i) taken into account on or after January 1, 1998, will be taxed
at a maximum rate of 20% if such Common Stock has been held for more than one
year; and (ii) taken into account on or after December 31, 2000, will be taxed
at a maximum rate of 18% if the Common Stock has been held for more than five
years. The 1997 Act allows the Service to issue regulations relating to the
manner in which the capital gain rates will apply to sales of capital assets by
"pass-through entities," which include REITs such as the Company, and to sales
of interests in "pass-through entities." To date, the Service has not issued
such regulations (but see discussion of Notice 97-64 above), but if issued, such
regulations could affect the taxation of gain and loss realized on the
disposition of Common Stock. Stockholders are urged to consult with their own
tax advisors with respect to the new rules contained in the 1997 Act and the
1998 Act.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such Common Stock for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company required to be treated by
such stockholder as long-term capital gains. For stockholders who are
individuals, trusts and estates, the long-term capital loss will be apportioned
among the 20% and 25% long-term capital gain rate groups to the extent that
distributions received by such stockholder were previously included in such rate
groups.
Pursuant to the 1997 Act, the Company may elect to require holders of
Common Stock to include the Company's undistributed net capital gains in their
income for the Company's taxable year beginning January 1, 1998 and thereafter.
If the Company makes such an election, holders of Common Stock will (i) include
in their income as long-term capital gains their proportionate share of such
undistributed capital gains and (ii) be deemed to have paid their proportionate
share of the tax paid by the Company on such undistributed capital gains and
thereby receive a credit or refund for such amount. A holder of Common Stock
will increase its basis in the Common Stock by the difference between the amount
of capital gain included in its income and the amount of the tax it is deemed to
have paid. The earnings and profits of the Company will be adjusted
appropriately.
In addition, distributions from the Company and gain from the disposition
of Common Stock will not be treated as "passive activity" income and therefore
stockholders will not be able to apply losses from "passive activities" to
offset such income.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a stockholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
stock with "acquisition indebtedness" within the meaning of the Code and the
shares of Common Stock held by such stockholder are not otherwise used in an
unrelated trade or business of the tax-exempt entity. However, certain pension
trusts that own more than 10% of a "pension-held REIT" must report a portion of
the dividends that they receive from such a REIT as UBTI. The Company, though,
has not been and does not expect to be treated as a pension-held REIT for
purposes of this rule.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated United States Federal
income tax consequences of the ownership and disposition of Common Stock
applicable to Non-United States Holders of such stock. A "Non-United States
Holder" is any person other than (i) a citizen or resident of the United States,
(ii) a domestic
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partnership or corporation, (iii) any estate (other than a foreign estate the
income of which, from sources without the United States which are not
effectively connected with the conduct of a trade or business within the United
States, is not includable in gross income under subtitle A of the Code), or (iv)
any trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United States
persons have the authority to control all substantial decisions of the trust.
The discussion is based on current law and is for general information only. The
discussion addresses only certain and not all aspects of United States Federal
income taxation. Final regulations dealing with withholding tax on income paid
to foreign persons and related matters (the "New Withholding Regulations") were
promulgated on October 6, 1997. In general, the New Withholding Regulations do
not alter the substantive withholding and information reporting requirements but
unify current certification procedures and forms and clarify and modify reliance
standards. The New Withholding Regulations are generally effective for payments
made on or after January 1, 1999, subject to certain transition rules. The
Service announced on March 27, 1998 that it intends to amend the New Withholding
Regulations to provide that such regulations will generally be applicable
beginning January 1, 2000 and to provide certain new transition rules for
satisfying the withholding certificate or statement requirements of the New
Withholding Regulations. Accordingly, prospective Non-United States Holders are
urged to consult their tax advisors concerning the adoption of the New
Withholding Regulations.
Distributions From the Company.
1. Ordinary Dividends. The portion of dividends received by Non-United
States Holders payable out of the Company's earnings and profits which are not
attributable to capital gains of the Company or of the Operating Partnership and
which are not effectively connected with a United States trade or business of
the Non-United States Holder will be subject to United States withholding tax on
a gross basis at the rate of 30% (unless reduced by treaty). Any amounts
withheld should be creditable against the Non-United States Holder's United
States Federal income tax liability. In general, Non-United States Holders will
not be considered engaged in a United States trade or business solely as a
result of their ownership of Common Stock. In cases where the dividend income
from a Non-United States Holder's investment in Common Stock is (or is treated
as) effectively connected with the Non-United States Holder's conduct of a
United States trade or business, the Non-United States Holder generally will be
subject to United States tax at graduated rates, in the same manner as United
States stockholders are taxed with respect to such dividends (and may also be
subject to the 30% branch profits tax (unless reduced by treaty) in the case of
a Non-United States Holder that is a foreign corporation).
2. Non-Dividend Distributions. Distributions by the Company which are not
dividends out of the earnings and profits of the Company, and which do not
exceed the adjusted basis of the Non-United States Holder's Common Stock, will
not be subject to United States income tax but rather will reduce the adjusted
basis of such Common Stock. Nevertheless, the Company anticipates that tax at
the rate applicable to dividends will be withheld for all distributions to Non
United States Holders. However, the Non-United States Holder may seek a refund
of such amounts from the Service if it is determined that such distribution was,
in fact, in excess of current and accumulated earnings and profits of the
Company. To the extent such a distribution exceeds the adjusted basis of a
Non-United States Holder's Common Stock, it will give rise to tax liability if
the Non-United States Stockholder otherwise would be subject to tax on any gain
from the sale or disposition of his Common Stock as described below.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-United
States Holder, to the extent attributable to gains from dispositions of United
States Real Property Interests ("USRPIs") such as the Properties ("USRPI Capital
Gains"), will be considered effectively connected with a United States trade or
business of the Non-United States Holder and subject to United States Federal
income tax at the rate applicable to United States individuals or corporations
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals) without regard to
whether such distribution is designated as a capital gain dividend. In addition,
the Company will be required to withhold tax equal to 35% (unless reduced by
treaty) of the amount of dividends to the extent such dividends constitute USRPI
Capital Gains. Any amounts withheld should be creditable against the Non-United
States Holder's
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United States Federal income tax liability. Distributions subject to FIRPTA may
also be subject to a 30% branch profits tax (unless reduced by treaty) in the
hands of a foreign corporate stockholder that is not entitled to treaty
exemption.
Although the law is not entirely clear, it appears that amounts designated
by the Company pursuant to the 1997 Act as undistributed capital gains in
respect of shares would be treated with respect to Non-United States Holders in
the manner outlined in the preceding paragraph for actual distributions by the
Company of capital gain dividends. Under that approach, the Non-United States
Holders would be able to offset as a credit against their United States Federal
income tax liability resulting therefrom their proportionate share of the tax
paid by the Company on such undistributed capital gains (and to receive from the
Service a refund to the extent their proportionate share of such tax paid by the
Company were to exceed their actual United States Federal income tax liability).
Dispositions of Common Stock. Unless the Common Stock constitutes a USRPI,
a sale of Common Stock by a Non-United States Holder generally will not be
subject to United States taxation under FIRPTA. The Common Stock will not
constitute a USRPI if the Company is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which, at all times during a specified
testing period, less than 50% in value of its stock is held directly or
indirectly by Non-United States Holders. The Company believes that it has been
and anticipates that it will continue to be a domestically controlled REIT, and
therefore that the sale of Common Stock by a Non-United States Holder will not
be subject to taxation under FIRPTA. Because the Common Stock will be publicly
traded, however, no assurance can be given that the Company will continue to be
a domestically controlled REIT. If the Company does not constitute a
domestically controlled REIT, a Non-United States Holder's sale of Common Stock
generally still will not be subject to tax under FIRPTA as a sale of a USRPI
provided that (i) the Common Stock is "regularly traded" (as defined by
applicable United States Treasury Department regulations) on an established
securities market (e.g., the NYSE, on which the Common Stock is listed) and (ii)
the selling Non-United States Holder held 5% or less of the outstanding Common
Stock at all times during a specified testing period.
If gain on the sale of Common Stock were subject to taxation under FIRPTA,
the Non-United States Holder would be subject to the same treatment as a United
States stockholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of Common Stock could be required to
withhold 10% of the purchase price and remit such amount to the Service. Capital
gains not subject to FIRPTA will nonetheless be taxable in the United States to
a Non-United States Holder in two cases: (i) if the Non-United States Holder's
investment in Common Stock is effectively connected with a United States trade
or business conducted by such Non-United States Holder, the Non-United States
Holder will be subject to the same treatment as a United States stockholder with
respect to such gain, or (ii) if the Non-United States Holder is a nonresident
alien individual who was present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
OTHER TAX CONSIDERATIONS
The Management Corporations and RSI. A portion of the cash to be used by
the Operating Partnership to fund distributions to its partners, including the
Company, comes from the Management Corporations and RSI through payments of
interest on the RSI Note and dividends on the non-voting stock of these entities
which is held by the Operating Partnership. The Management Corporations and RSI
pay Federal and state income tax at the full applicable corporate rates. To the
extent that the Management Corporations and RSI are required to pay Federal,
state or local taxes, the cash available for distribution by the Company to
stockholders will be reduced accordingly.
State and Local Taxes. The Company and its stockholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its stockholders may not conform to the Federal income tax
consequences
23
<PAGE> 25
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Common Stock.
PLAN OF DISTRIBUTION
Any of the Selling Stockholders may from time to time, in one or more
transactions, sell all or a portion of the Offered Stock on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Stock is listed or traded, in negotiated transactions, in underwritten
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The offering price of the Offered
Stock from time to time will be determined by the Selling Stockholders and, at
the time of such determination, may be higher or lower than the market price of
the Common Stock on the NYSE. In connection with an underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from a Selling Stockholder or from purchasers of
Offered Stock for whom they may act as agents, and underwriters may sell Offered
Stock to or through dealers, and such dealers may receive compensation in the
form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agents. Under
agreements that may be entered into by the Company, underwriters, dealers and
agents who participate in the distribution of Offered Stock may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which such underwriters, dealers or agents may be required to make in
respect thereof. The Offered Stock may be sold directly or through
broker-dealers acting as principal or agent, or pursuant to a distribution by
one or more underwriters on a firm commitment or best-efforts basis. The methods
by which the Offered Stock may be sold include: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Offered Stock as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(d) an exchange distribution in accordance with the rules of the NYSE; (e)
privately negotiated transactions; and (f) underwritten transactions. The
Selling Stockholders and any underwriters, dealers or agents participating in
the distribution of the Offered Stock may be deemed to be "underwriters" within
the meaning of the Securities Act, and any profit on the sale of the Offered
Stock by the Selling Stockholders and any commissions received by any such
broker-dealers may be deemed to be underwriting commissions under the Securities
Act.
When a Selling Stockholder elects to make a particular offer of Offered
Stock, a prospectus supplement, if required, will be distributed which will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from such Selling Stockholder and any
other required information.
In order to comply with the securities laws of certain states, if
applicable, the Offered Stock may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the shares of Offered Stock
may not be sold unless they have been registered or qualified for sale in such
state or an exemption from such registration or qualification requirement is
available and is complied with.
The Company has agreed to pay all costs and expenses incurred in connection
with the registration under the Securities Act of the Offered Stock, including,
without limitation, all registration and filing fees, printing expenses and fees
and disbursements of counsel and accountants for the Company. The Selling
Stockholders will pay any brokerage fees and commissions, fees and disbursements
of legal counsel for the Selling Stockholders and stock transfer and other taxes
attributable to the sale of the Offered Stock. The Company also has agreed to
indemnify each of the Selling Stockholders and their respective officers,
directors and trustees and each person who controls (within the meaning of the
Securities Act) such Selling Stockholder against certain losses, claims,
damages, liabilities and expenses arising under the securities laws in
connection with this offering. Each of the Selling Stockholders has agreed to
indemnify the Company, its officers and directors and each person who controls
(within the meaning of the Securities Act) the Company, and each of the other
Selling Stockholders, against any losses, claims, damages, liabilities and
expenses arising under the
24
<PAGE> 26
securities laws in connection with this offering with respect to written
information furnished to the Company by such Selling Stockholder; provided,
however, that the indemnification obligation is several, not joint, as to each
Selling Stockholder.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on (Form 10-K) for the years ended December 31, 1997 and
December 31, 1996 have been audited by Ernst & Young LLP, independent auditors
and for the year ended December 31, 1995 have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their
respective reports thereon included therein and incorporated herein by reference
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
LEGAL MATTERS
The legality of the shares of Offered Stock has been passed upon for the
Company by Rosenberg & Liebentritt, P.C., Chicago, Illinois. Certain tax matters
have been passed upon by Steptoe & Johnson LLP, special tax counsel to the
Company. Rosenberg & Liebentritt, P.C. will rely on Steptoe & Johnson LLP as to
certain matters of Maryland law.
25
<PAGE> 27
---------------------------------------------------------------
---------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Note Regarding Forward-Looking
Statements.................................. 2
Available Information......................... 2
Incorporation of Certain Documents By
Reference................................... 3
The Company................................... 4
Risk Factors.................................. 4
No Proceeds to the Company.................... 9
Selling Stockholders.......................... 10
Certain Federal Income Tax Considerations..... 13
Plan of Distribution.......................... 24
Experts....................................... 25
Legal Matters................................. 25
</TABLE>
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
3,365,575 SHARES
MANUFACTURED HOME
COMMUNITIES, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
NOVEMBER , 1998
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE> 28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses payable by
the Company in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
Registration Fee............................................ $22,836
Printing and Duplicating Expenses........................... 3,000
Legal Fees and Expenses..................................... 30,000
Accounting Fees and Expenses................................ 6,000
Miscellaneous............................................... 3,164
-------
Total..................................................... $65,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Maryland General Corporation Law (the "MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Company's charter, as amended from time to time, and as filed with the State
Department of Assessments and Taxation of Maryland (the "Charter"), contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter of the Company authorizes it to obligate itself to indemnify
its present and former officers and directors and to pay or reimburse expenses
for such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time by the laws of Maryland. The Bylaws
of the Company obligate it to indemnify and advance expenses to present and
former directors and officers to the maximum extent permitted by Maryland law
from time to time. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services, or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation. In addition, the MGCL requires the Company, as conditions to
advancing expenses, to obtain (i) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the applicable
Bylaws and (ii) a written agreement by him or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met. The Bylaws of the Company and each of its
corporate subsidiaries and the partnership agreements for each of the
partnership subsidiaries also permit the Company to provide indemnification and
advance of expenses to a present or former director or officer who served a
predecessor of the Company in such capacity, and to any employee or agent of the
Company or a predecessor of the Company. Finally, the MGCL requires a
corporation (unless its charter provides otherwise, which the Company's Charter
does not) to indemnify a director or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which he is made a
party by reason of his service in that capacity.
The partnership agreements of the Operating Partnership, the Management
Partnerships and the Financing Partnerships also provide for indemnification of
the Company and its officers and directors to the same extent indemnification is
provided to officers and directors of the Company in its Charter, and limits the
II-1
<PAGE> 29
liability of the Company and its officers and directors to the Operating
Partnership, the Management Partnerships and the Financing Partnerships and
their respective partners to the same extent the liability of the officers and
directors of the Company to the Company and its stockholders is limited under
the Company's Charter.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation of
Manufactured Home Communities, Inc. (incorporated by
reference to Exhibits 3.1 and 3.2 to the Registrant's
Registration Statement on Form S-11 (File No. 33-55994)).
3.2 Bylaws of Manufactured Home Communities, Inc. (incorporated
by reference to Exhibit 3.3 to Registrant's Registration
Statement on Form S-11 (File No. 33-55994)).
5.* Opinion of Rosenberg & Liebentritt, P.C. regarding the
legality of the securities being registered.
8.1* Opinion of Steptoe & Johnson LLP regarding certain tax
matters.
23.* Consent of Rosenberg & Liebentritt, P.C. (included as part
of Exhibit 5.1)
23.2* Consent of Steptoe & Johnson LLP (included as part of
Exhibit 8.1)
23.3 Consent of Ernst & Young LLP
23.4 Consent of PricewaterhouseCoopers LLP
24.1* Power of Attorney (included in signature page)
</TABLE>
- -------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in this registration
statement;
provided, however, that subparagraphs (i) and (ii) above shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed with or
II-2
<PAGE> 30
furnished to the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the Securities offered
herein, and the offering of such Securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the Securities offered herein, and the offering of such
Securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to existing provisions or arrangements whereby the
Registrant may indemnify a director, officer or controlling person of the
Registrant against liabilities arising under the Securities Act of 1933, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Chicago, Illinois, on this 11th day of November, 1998.
MANUFACTURED HOME COMMUNITIES, INC.
By: /s/ HOWARD WALKER
-------------------------------------
Howard Walker
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of the 11th day of November, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* Chairman of the Board
- ---------------------------------------------
Samuel Zell
/s/ HOWARD WALKER President, Chief Executive Officer and Director
- ---------------------------------------------
Howard Walker
/s/ THOMAS P. HENEGHAN Executive Vice President and Chief Financial Officer
- ---------------------------------------------
Thomas P. Heneghan
* Chief Accounting Officer
- ---------------------------------------------
Judy A. Pultorak
* Director
- ---------------------------------------------
Sheli Z. Rosenberg
* Director
- ---------------------------------------------
David Helfand
* Director
- ---------------------------------------------
Donald S. Chisholm
* Director
- ---------------------------------------------
Michael A. Torres
* Director
- ---------------------------------------------
Thomas E. Dobrowski
* Director
- ---------------------------------------------
Louis H. Masotti
* Director
- ---------------------------------------------
Gary Waterman
* Director
- ---------------------------------------------
John F. Podjasek, Jr.
-------------------------
* Pursuant to Power of Attorney
By: /s/ HOWARD WALKER
----------------------------------------
Howard Walker, Attorney-in-fact
</TABLE>
II-4
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation of
Manufactured Home Communities, Inc. (incorporated by
reference to Exhibits 3.1 and 3.2 to the Registrant's
Registration Statement on Form S-11 (File No. 33-55994)).
3.2 Bylaws of Manufactured Home Communities, Inc. (incorporated
by reference to Exhibit 3.3 to Registrant's Registration
Statement on Form S-11 (File No. 33-55994)).
5.1* Opinion of Rosenberg & Liebentritt, P.C. regarding the
legality of the securities being registered.
8.1* Opinion of Steptoe & Johnson LLP regarding certain tax
matters.
23.1* Consent of Rosenberg & Liebentritt, P.C. (included as part
of Exhibit 5.1)
23.2* Consent of Steptoe & Johnson LLP (included as part of
Exhibit 8.1)
23.3 Consent of Ernst & Young LLP
23.4* Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included in signature page)
</TABLE>
- -------------------------
* Previously filed.
II-5
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-65515) and related Prospectus of
Manufactured Home Communities, Inc. for the registration of 3,365,575 shares of
its common stock and to the incorporation by reference therein of our report
dated January 28, 1998, except for Note 15, as to which the date is February 23,
1998, with respect to the consolidated financial statements and schedules of
Manufactured Home Communities, Inc. included in its Annual Report (Form 10-K)
for the year ended December 31, 1997, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
November 9, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report dated February 16, 1996, on our audit of the consolidated
statement of operations, changes in stockholders' equity and cash flows and the
financial statement schedules of Manufactured Home Communities, Inc. for the
year ended December 31, 1995 which report is included in the Annual Report on
Form 10-K, as amended. We also consent to the reference to our Firm under the
caption "Experts."
/s/PricewaterhouseCoopers LLP
-----------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
November 9, 1998
