Form 1-A MANUFACTURED HOUSING

  
    1-A
    
      LIVE
      
        
          0001277998
          XXXXXXXX
        
      
    
  
  
    
      Manufactured Housing Properties Inc.
      NV
      2003
      0001277998
      6500
      51-0482104
      19
      0
    
    
      136 Main Street
      Pineville
      NC
      28134
      980-273-1702
      Louis A. Bevilacqua, Esq.
      Other
      2099390.00
      0.00
      45293.00
      40434643.00
      40558982.00
      798211.00
      32764665.00
      33934702.00
      -4932522.00
      40558982.00
      4435269.00
      1380968.00
      1357629.00
      -657651.00
      -0.16
      -0.16
      Liggett & Webb, P.A.
    
    
      Common Stock
      12397480
      56469P209
      OTC Pink Market
    
    
      Series A Cumulative
      1890000
      000000000
      n/a
    
    
      Series B Cumulative
      641254
      56469P308
      n/a
    
    
      n/a
      0
      000000000
      n/a
    
    
      true
    
    
      true
    
    
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      Equity (common or preferred stock)
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      50000
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      1000.0000
      50000000.00
      0.00
      0.00
      0.00
      50000000.00
      Arete Wealth Management, LLC
      5000000.00
      Liggett & Webb, P.A.
      10000.00
      Bevilacqua PLLC
      60000.00
      Bevilacqua PLLC
      12000.00
      44856
      44903000.00
    
    
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      Manufactured Housing Properties Inc.
      Series B Cumulative Redeemable Preferred Stock
      641254
      0
      $6412540.00 ($10.0/share)
    
    
      Manufactured Housing Properties Inc.
      Common Stock
      27900
      0
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      Manufactured Housing Properties Inc.
      Common Stock
      0
      50000
      Issued to board members in consideration for services
      Issued to board members in consideration for services
    
    
      Regulation A for Series B Cumulative Redeemable Preferred Stock and Common Stock issued as bonus shares. Rule 506 of Regulation D of the Securities Act of 1933, as amended, for Common Stock issued to board members.
    
  

 

Preliminary Offering Circular, Dated January 21, 2021

 

AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING STATEMENT FILED WITH THE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF ANY SUCH STATE. WE MAY ELECT TO SATISFY OUR OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF OUR SALE TO YOU THAT CONTAINS THE URL WHERE THE OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.

 

 

Manufactured Housing Properties Inc.

136 Main Street

Pineville, NC 28134

(980) 273-1702; www.mhproperties.com

 

UP TO 50,000 SHARES OF

SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK

 

Manufactured Housing Properties Inc. (which we refer to as “we,” “us,” “our” or “our company”) is offering up to 50,000 shares of Series C Cumulative Redeemable Preferred Stock, which we refer to as the Series C Preferred Stock, at an offering price of $1,000 per share, for a maximum offering amount of $50,000,000.

 

The Series C Preferred Stock being offered will rank, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to our Common Stock and pari passu with our Series A Cumulative Convertible Preferred Stock, which we refer to as our Series A Preferred Stock, and our Series B Cumulative Redeemable Preferred Stock, which we refer to as our Series B Preferred Stock. Each share of Series C Preferred Stock will have an initial stated value equal to $1,000, subject to appropriate adjustment for certain events, which will automatically increase by ten percent (10%) on the fifth (5th) anniversary of the date on which the first share of Series C Preferred Stock is issued. Holders of our Series C Preferred Stock will be entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series C Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of our Common Stock and on a pari passu basis with holders of our Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon. Shares of Series C Preferred Stock will be redeemable by us or by the holders under certain circumstances described elsewhere in this offering circular. The Series C Preferred Stock will have no voting rights (except for certain matters) and are not convertible into shares of our Common Stock. See “Description of Securities” beginning on page 43 for additional details.

 

There is no existing public trading market for the Series C Preferred Stock, and we do not anticipate that a secondary market for the stock will develop. We do not intend to apply for listing of the Series C Preferred Stock on any securities exchange or for quotation in any automated dealer quotation system or other over-the-counter market. Our Common Stock trades on the OTC Pink Market under the symbol “MHPC.”

 

Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 11 before deciding to invest in our securities.

 

 

		Per Share				Maximum Offering
Public offering price		$	1,000			$	50,000,000
Sales commissions(1)(3)		$	60.0			$	3,000,000
Dealer manager fee(1)(3)		$	27.5			$	1,375,000
Proceeds to us, before expenses(2)(3)		$	912.5			$	45,625,000

 

(1)

Selling commissions and the dealer manager fee will equal up to and including 6.00% and 2.75% of aggregate gross proceeds, respectively. Each is payable to the dealer manager. However, we expect the dealer manager to authorize other broker-dealers that are members of the Financial Industry Regulatory Authority, or FINRA, which we refer to as participating broker-dealers, to sell our Series C Preferred Stock. The dealer manager may reallow all or a portion of its selling commissions attributable to a participating broker-dealer. In addition, the dealer manager also may reallow a portion of its dealer manager fee earned on the proceeds raised by a participating broker-dealer to such participating broker-dealer as a non-accountable marketing and due diligence allowance or as a wholesale fee. The amount of the reallowance to any participating broker-dealer will be determined by the dealer manager in its sole discretion.

 

(2)

In addition to the selling commissions and dealer management fee, we have agreed to pay the dealer manager a monthly service fee of $2,500 and to reimburse the deal manager for such expenses incurred in connection with the offering as mutually agreed to by us and the dealer manager. Please see the section captioned “Plan of Distribution” for details regarding the expenses payable in connection with this offering.

 

(3)

The combined selling commissions, dealer manager fee and additional compensation paid to the dealer manager for this offering will not exceed 10% of the aggregate gross proceeds of this offering.

 

The dealer manager of this offering is Arete Wealth Management, LLC. The dealer manager is not required to sell any specific number or dollar amount of shares but will use its “reasonable best efforts” to sell the shares offered. The minimum permitted purchase is generally $10,000 but purchases of less than $10,000 may be made in the discretion of the dealer manager.

 

This offering is being conducted pursuant to Regulation A of Section 3(6) of the Securities Act of 1933, as amended, or the Securities Act, for Tier 2 offerings. This offering will terminate at the earlier of: (1) the date at which the maximum amount of offered Series C Preferred Stock has been sold, (2) the date which is one year after the offering statement of which this offering circular forms a part is qualified by the U.S. Securities and Exchange Commission, or the SEC, subject to an extension of up to an additional one year at the discretion of our company and the dealer manager, or (3) the date on which this offering is earlier terminated by us in our sole discretion.

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or your net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

 

This offering circular follows the disclosure format of Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.

 

Arete Wealth Management, LLC,

as Dealer Manager

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This offering circular and the documents incorporated by reference herein contain, in addition to historical information, certain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation: statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; statements regarding our financing plans or growth strategies; statements concerning litigation or other matters; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

 

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith beliefs as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to:

 

●

the impact of the coronavirus pandemic on our business;

●

changes in the real estate market and general economic conditions;

●

the inherent risks associated with owning real estate, including local real estate market conditions, governing laws and regulations affecting manufactured housing communities and illiquidity of real estate investments;

●

increased competition in the geographic areas in which we own and operate manufactured housing communities;

●

our ability to continue to identify, negotiate and acquire manufactured housing communities and/or vacant land which may be developed into manufactured housing communities on terms favorable to us;

●

our ability to maintain rental rates and occupancy levels;

●

changes in market rates of interest;

●

our ability to repay debt financing obligations;

●

our ability to refinance amounts outstanding under our credit facilities at maturity on terms favorable to us;

●

our ability to comply with certain debt covenants;

●

our ability to integrate acquired properties and operations into existing operations;

●

the availability of other debt and equity financing alternatives;

●

continued ability to access the debt or equity markets;

●

the loss of any member of our management team;

●

our ability to maintain internal controls and processes to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;

●

the ability of manufactured home buyers to obtain financing;

●

the level of repossessions by manufactured home lenders;

●

market conditions affecting our investment securities;

●

changes in federal or state tax rules or regulations that could have adverse tax consequences; and

●

those risks and uncertainties referenced under the caption “Risk Factors” contained in this offering circular.

 

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. Potential investors should not make an investment decision based solely on our company’s projections, estimates or expectations.

 

The specific discussions herein about our company include financial projections and future estimates and expectations about our company’s business. The projections, estimates and expectations are presented in this offering circular only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on our company management’s own assessment of its business, the industry in which it works and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections.

 

 

TABLE OF CONTENTS

 

Summary	1
Risk Factors	11
Use of Proceeds	19
Determination of Offering Price	20
Dividend Policy	20
Market for Common Equity and Related Stockholder Matters	21
Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Our Corporate History and Structure	31
Our Business	32
Our Properties	35
Legal Proceedings	35
Management	36
Executive Compensation	40
Security Ownership of Certain Beneficial Owners and Management	41
Transactions With Related Persons	42
Description of Securities	43
Plan of Distribution	48
Legal Matters	52
Experts	52
Where You Can Find More Information	52
Financial Statements	F-1

 

Please read this offering circular carefully. It describes our business, our financial condition and results of operations. We have prepared this offering circular so that you will have the information necessary to make an informed investment decision.

 

You should rely only on the information contained in this offering circular. We have not, and the dealer manager has not, authorized anyone to provide you with any information other than that contained in this offering circular. We are offering to sell, and seeking offers to buy, the securities covered hereby only in jurisdictions where offers and sales are permitted. The information in this offering circular is accurate only as of the date of this offering circular, regardless of the time of delivery of this offering circular or any sale of the securities covered hereby. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the dealer manager is not, making an offer of these securities in any jurisdiction where the offer is not permitted.

 

For investors outside the United States: We have not, and the dealer manager has not, taken any action that would permit this offering or possession or distribution of this offering circular in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this offering circular must inform themselves about, and observe any restrictions relating to, the offering of the securities covered hereby or the distribution of this offering circular outside the United States.

 

This offering circular includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We believe that the data obtained from these industry publications and third-party research, surveys and studies are reliable.

 

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS OFFERING CIRCULAR. YOU SHOULD NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS OFFEIRNG CIRCULAR IS NOT AN OFFER TO SELL OR BUY ANY SECURITIES IN ANY STATE OR OTHER JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION IN THIS OFFERING CIRCULAR IS CURRENT AS OF THE DATE ON THE COVER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR.

  

 

RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information contained or referred to in this offering circular, before making an investment decision with respect to our securities. If any of the following events occur, our financial condition, business and results of operations (including cash flows) may be materially adversely affected. In that event, the value of your Series C Preferred Stock could decline, and you could lose all or part of your investment.

 

Risks Related to our Business and Industry

 

The coronavirus pandemic may cause a material adverse effect on our business.

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

 

The spread of the virus in many countries continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has had, and could have a significantly greater, material adverse effect on the U.S. economy as a whole, as well as the local economies where our properties are located. The pandemic has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.

 

Most states and cities, including where are our properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it. These rules and restrictions have had a negative impact on the economy and business activity and may adversely impact the ability of our tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due.  In addition, our property managers may be limited in their ability to properly maintain our properties.  Enforcing our rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, include those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the pandemic. If we are unable to enforce our rights as landlords, our business would be materially affected.

 

If the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, our business operations could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

 

The extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this offering circular, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.

 

We may not be able to obtain adequate cash to fund our business.

 

Our business requires access to adequate cash to finance our operations, distributions, capital expenditures, debt service obligations, development and redevelopment costs and property acquisition costs, if any. We expect to generate the cash to be used for these purposes primarily with operating cash flow, borrowings under secured and unsecured loans, proceeds from sales of strategically identified assets and, when market conditions permit, through the issuance of debt and equity securities from time to time. We may not be able to generate sufficient cash to fund our business, particularly if we are unable to renew leases, lease vacant space or re-lease space as leases expire according to our expectations.

 

General economic conditions and the concentration of our properties in Georgia, North Carolina, South Carolina, and Tennessee may affect our ability to generate sufficient revenue.

 

The market and economic conditions in our current markets may significantly affect manufactured housing occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect our revenues, and if our communities do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, current cash flow and ability to pay or refinance our debt obligations could be adversely affected. As a result of the current geographic concentration of our properties in Georgia, North Carolina, South Carolina and Tennessee, we are exposed to the risks of downturns in the local economy or other local real estate market conditions that could adversely affect occupancy rates, rental rates, and property values in these markets.

 

 

Other factors that may affect general economic conditions or local real estate conditions include:

 

●

the national and local economic climate which may be adversely affected by, among other factors, plant closings, and industry slowdowns;

 

●

local real estate market conditions such as the oversupply of manufactured home sites or a reduction in demand for manufactured home sites in an area;

 

●

the number of repossessed homes in a particular market;

 

●

the lack of an established dealer network;

 

●

the rental market which may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates;

 

●

the safety, convenience and attractiveness of our properties and the neighborhoods where they are located;

 

●

zoning or other regulatory restrictions;

 

●

competition from other available manufactured housing communities and alternative forms of housing (such as apartment buildings and single-family homes);

 

●

our ability to provide adequate management, maintenance and insurance;

 

●

increased operating costs, including insurance premiums, real estate taxes and utilities; and

 

●

the enactment of rent control laws or laws taxing the owners of manufactured homes.

 

Our income would also be adversely affected if tenants were unable to pay rent or if sites were unable to be rented on favorable terms. If we were unable to promptly renew the leases for a significant number of sites, or if the rental rates upon such renewal or reletting were significantly lower than expected rates, then our business and results of operations could be adversely affected. In addition, certain expenditures associated with each property (such as real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in income from the property.

 

We face risks generally associated with our debt.

 

We finance a portion of our investments in properties through debt. As of September 30, 2020, our total indebtedness for borrowed money was $32,764,665. We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In addition, debt creates other risks, including:

 

●

failure to repay or refinance existing debt as it matures, which may result in forced disposition of assets on disadvantageous terms;

 

●

refinancing terms less favorable than the terms of existing debt; and

 

●

failure to meet required payments of principal and/or interest.

 

We face risks related to “balloon payments” and re-financings.

 

Certain of our mortgages will have significant outstanding principal balances on their maturity dates, commonly known as “balloon payments.” As of September 30, 2020, our total future minimum principal payments were $32,905,645. There can be no assurance that we will be able to refinance the debt on favorable terms or at all. To the extent we cannot refinance debt on favorable terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial performance and ability to service debt and make distributions.

 

 

We may become more highly leveraged, resulting in increased risk of default on our obligations and an increase in debt service requirements that could adversely affect our financial condition and results of operations and our ability to pay distributions.

 

We have incurred, and may continue to incur, indebtedness in furtherance of our activities. We could become more highly leveraged, resulting in an increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to pay distributions to stockholders.

 

Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition.

 

The terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we had satisfied our payment obligations. If we were to default under our credit agreements, our financial condition would be adversely affected.

 

A change in the United States government policy regarding to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) could impact our financial condition.

 

Fannie Mae and Freddie Mac are a major source of financing for the manufactured housing real estate sector. We could depend on Fannie Mae and Freddie Mac to finance growth by purchasing or guarantying manufactured housing community loans. In February 2011, the Obama Administration released a report to Congress that included options, among others, to gradually shrink and eventually shut down Fannie Mae and Freddie Mac. We do not know when or if Fannie Mae or Freddie Mac will restrict their support of lending to our real estate sector or to us in particular. A final decision by the government to eliminate Fannie Mae or Freddie Mac or reduce their acquisitions or guarantees of our mortgage loans, may adversely affect interest rates, capital availability and our ability to refinance our existing mortgage obligations as they come due and obtain additional long-term financing for the acquisition of additional communities on favorable terms or at all.

 

We face risks relating to the property management services that we provide.

 

There are inherent risks in our providing property management services to the manufactured housing communities on the properties that we own. The more significant of these risks include:

 

●

our possible liability for personal injury or property damage suffered by our employees and third parties, including our tenants, that are not fully covered by our insurance;

 

●

our possible inability to keep our manufactured housing communities at or near full occupancy;

 

●

our possible inability to attract and keep responsible tenants;

 

●

our possible inability to expediently remove “bad” tenants from our communities;

 

●

our possible inability to timely and satisfactorily deal with complaints of our tenants;

 

●

our possible inability to locate, hire and retain qualified property management personnel; and

 

●

our possible inability to adequately control expenses with respect to our properties.

 

We may not be able to integrate or finance our acquisitions and our acquisitions may not perform as expected.

 

We acquire and intend to continue to acquire manufactured housing communities on a select basis. Our acquisition activities and their success are subject to the following risks:

 

●

we may be unable to acquire a desired property because of competition from other well capitalized real estate investors, including both publicly traded REITs and institutional investment funds;

 

●

even if we enter into an acquisition agreement for a property, it is usually subject to customary conditions for closing, including completion of due diligence investigations to our satisfaction, which may not be satisfied;

 

 

●

even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price;

 

●

we may be unable to finance acquisitions on favorable terms;

 

●

acquired properties may fail to perform as expected;

 

●

acquired properties may be located in new markets where we face risks associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area and unfamiliarity with local governmental and permitting procedures; and

 

●

we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations.

 

If any of the above were to occur, our business and results of operations could be adversely affected.

 

In addition, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were to be asserted against us based on ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow.

 

New acquisitions may fail to perform as expected and the intended benefits may not be realized, which could have a negative impact on our operations.

 

We intend to continue to acquire manufactured housing communities. However, newly acquired properties may fail to perform as expected and could pose risks for our ongoing operations including the following:

 

●

integration may prove costly or time-consuming and may divert management’s attention from the management of daily operations;

 

●

difficulties or an inability to access capital or increases in financing costs;

 

●

we may incur costs and expenses associated with any undisclosed or potential liabilities;

 

●

unforeseen difficulties may arise in integrating an acquisition into our portfolio;

 

●

expected synergies may not materialize; and

 

●

we may acquire properties in new markets where we face risks associated with lack of market knowledge such as understanding of the local economy, the local governmental and/or local permit procedures.

 

As a result of the foregoing, we may not accurately estimate or identify all costs necessary to bring an acquired manufactured housing communities up to standards established for our intended market position. As such, we cannot provide assurance that any acquisition that we make will be accretive to us in the near term or at all. Furthermore, if we fail to realize the intended benefits of an acquisition, it may have a negative impact on our operations.

 

Development and expansion properties may fail to perform as expected and the intended benefits may not be realized, which could have a negative impact on our operations.

 

We may periodically consider development and expansion activities, which are subject to risks such as construction costs exceeding original estimates and construction and lease-up delays resulting in increased construction costs and lower than expected revenues. Additionally, there can be no assurance that these properties will operate better as a result of development or expansion activities due to various factors, including lower than anticipated occupancy and rental rates causing a property to be unprofitable or less profitable than originally estimated.

 

We regularly expend capital to maintain, repair and renovate our properties, which could negatively impact our financial condition and results of operations.

 

We may, or we may be required to, from time to time make significant capital expenditures to maintain or enhance the competitiveness of our manufactured housing communities. There can be no assurances that any such expenditures would result in higher occupancy or higher rental rates.

 

 

We may be unable to sell properties when appropriate because real estate investments are illiquid.

 

Real estate investments generally cannot be sold quickly and, therefore, will tend to limit our ability to vary our property portfolio promptly in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance of our property portfolio could adversely affect our financial condition and ability to service our debt and make distributions to our stockholders.

 

We may be unable to compete with our larger competitors, which may in turn adversely affect our profitability.

 

The real estate business is highly competitive. We compete for manufactured housing community investments with numerous other real estate entities, such as individuals, corporations, REITs, and other enterprises engaged in real estate activities. In many cases, the competing concerns may be larger and better financed than we are, making it difficult for us to secure new manufactured housing community investments. Competition among private and institutional purchasers of manufactured housing community investments has led to increases in the purchase prices paid for manufactured housing communities and consequent higher fixed costs. To the extent we are unable to effectively compete in the marketplace, our business may be adversely affected.

 

Actions by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties which could adversely affect our business.

 

We compete with other owners and operators of manufactured housing community properties, some of whom own properties similar to ours in the same submarkets in which our properties are located. The number of competitive manufactured housing community properties in a particular area could have a material adverse effect on our ability to lease sites and increase rents charged at our properties or at any newly acquired properties. In addition, other forms of multi-family residential properties, such as private and federally funded or assisted multi-family housing projects and single-family housing, provide housing alternatives to potential tenants of manufactured housing communities. If our competitors offer housing at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, cash flow, cash available for distribution, and ability to satisfy our debt service obligations could be materially adversely affected.

 

Losses in excess of our insurance coverage or uninsured losses could adversely affect our cash flow.

 

We generally maintain insurance policies related to our business, including casualty, general liability and other policies covering business operations, employees and assets. However, we may be required to bear all losses that are not adequately covered by insurance. In addition, there are certain losses that are not generally insured because it is not economically feasible to insure against them, including losses due to riots or acts of war. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated profits and cash flow from the properties and, in the case of debt that carries recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Although we believe that our insurance programs are adequate, no assurance can be given that we will not incur losses in excess of its insurance coverage, or that we will be able to obtain insurance in the future at acceptable levels and reasonable cost.

 

Costs associated with taxes and regulatory compliance may reduce our revenue.

 

We are subject to significant regulation that inhibits our activities and may increase our costs. Local zoning and use laws, environmental statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations may prevent us from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require us to modify our properties at a substantial cost and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We cannot predict what requirements may be enacted or amended or what costs we will incur to comply with such requirements. Costs resulting from changes in real estate laws, income taxes, service or other taxes may adversely affect our funds from operations and our ability to pay or refinance our debt. Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures, which would adversely affect our business and results of operations.

 

 

Rent control legislation may harm our ability to increase rents.

 

State and local rent control laws in certain jurisdictions may limit our ability to increase rents and to recover increases in operating expenses and the costs of capital improvements. We may purchase additional properties in markets that are either subject to rent control or in which rent-limiting legislation exists or may be enacted.

 

Environmental liabilities could affect our profitability.

 

Under various federal, state and local laws, as well as local ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous substances at, on, under or in such property, as well as certain other potential costs relating to hazardous or toxic substances. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous substances. A conveyance of the property, therefore, does not relieve the owner or operator from liability. As a current or former owner and operator of real estate, we may be required by law to investigate and clean up hazardous substances released at or from the properties we currently own or operate or have in the past owned or operated. We may also be liable to the government or to third parties for property damage, investigation costs and cleanup costs. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination. Contamination may adversely affect our ability to sell or lease real estate or to borrow using the real estate as collateral. Persons who arrange for the disposal or treatment of hazardous substances also may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility owned or operated by another person. In addition, certain environmental laws impose liability for the management and disposal of asbestos-containing materials and for the release of such materials into the air. These laws may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials. In connection with the ownership, operation, management, and development of real properties, we may be considered an owner or operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also may be liable for governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous substances at landfills or other facilities owned by other persons, we may be liable for the removal or remediation costs at such facilities. We are not aware of any environmental liabilities relating to our investment properties that would have a material adverse effect on our business, assets, or results of operations. However, we cannot assure you that environmental liabilities will not arise in the future and that such liabilities will not have a material adverse effect on our business, assets or results of operation.

 

Of the twenty manufactured housing communities we currently operate, five are on well and septic systems. At these locations, we are subject to compliance with monthly, quarterly and yearly testing for contaminants as outlined by each state’s Department of Environmental Protection Agencies. Currently, we are not subject to radon or asbestos monitoring requirements.

 

Additionally, in connection with the management of the properties or upon acquisition or financing of a property, we authorize the preparation of Phase I or similar environmental reports (which involves general inspections without soil sampling or ground water analysis) completed by independent environmental consultants. Based on such environmental reports and our ongoing review of its properties, as of the date of this offering circular, we are not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on our financial condition or results of operations. These reports, however, cannot reflect conditions arising after the studies were completed, and no assurances can be given that existing environmental studies reveal all environmental liabilities, that any prior owner or operator of a property or neighboring owner or operator did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist with respect to any one property or more than one property.

 

We are subject to risks arising from litigation.

 

We may become involved in litigation. Litigation can be costly, and the results of litigation are often difficult to predict. We may not have adequate insurance coverage or contractual protection to cover costs and liability in the event we are sued, and to the extent we resort to litigation to enforce our rights, we may incur significant costs and ultimately be unsuccessful or unable to recover amounts we believe are owed to us. We may have little or no control of the timing of litigation, which presents challenges to our strategic planning.

 

We are dependent on key personnel.

 

Our executive and other senior officers have a significant role in our success. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave depends on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely affect our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.

 

 

Our management is inexperienced in running a public entity.

 

With the exception of Michael Z. Anise, our president, chief financial officer and a director, our management does not have prior experience with the operation and management of a public entity. As a result, they will be learning as they proceed and may be forced to rely more heavily on the expertise of outside professionals than they might otherwise, which in turn could lead to higher legal and accounting costs and possible securities law compliance issues.

 

We have one stockholder that can single-handedly control our company.

 

Our largest stockholder is Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive officer. At present, Mr. Gee beneficially owns approximately 69.89% of our total issued and outstanding Common Stock. Under Nevada law, this ownership position provides Mr. Gee with the almost unrestricted ability to control the business, management and strategic direction of our company. If Mr. Gee chooses to exercise this control, his decisions regarding our company could be detrimental to, or not in the best interests of our company and its other stockholders.

 

We have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our Common Stock.

 

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.

 

A report of our management is included under Item 9A. “Controls and Procedures” of our annual report on Form 10-K for the year ended December 31, 2019. We are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in our annual report. However, if and when we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent auditors.

 

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2019, management identified material weaknesses. These material weaknesses were associated with (i) our lack of proper segregation of duties due to the limited number of employees within the accounting department and (ii) our lack of effective closing procedures. We are undertaking remedial measures, which measures will take time to implement and test, to address these material weaknesses. There can be no assurance that such measures will be sufficient to remedy the material weaknesses identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our stock price.

 

Risks Related to this Offering and Ownership of Our Series C Preferred Stock

 

There is no present market for the Series C Preferred Stock, and we have arbitrarily set the price.

 

We have arbitrarily set the price of the Series C Preferred Stock with reference to the general status of the securities market and other relevant factors. The offering price for the Series C Preferred Stock should not be considered an indication of the actual value of such securities and is not based on our net worth or prior earnings. Although our Common Stock is quoted on the OTC Pink Market, our Series C Preferred Stock will not be eligible for quotation on the over-the-counter market. Accordingly, it will be very difficult for you to liquidate your shares of Series C Preferred Stock and we cannot assure you that such securities could be resold by you at the price you paid for them or at any other price.

 

 

We cannot assure you that we will be able to pay dividends.

 

Our ability to pay dividends on our Series C Preferred Stock is dependent on our ability to operate profitably and to generate cash from our operations and the operations of our subsidiaries. We cannot guarantee that we will be able to pay dividends as required by the terms of our Series C Preferred Stock.

 

We may issue additional debt and equity securities, which are senior to our Series C Preferred Stock as to distributions and in liquidation, which could materially adversely affect the value of the Series C Preferred Stock.

 

In the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is secured by all or up to all of our assets, or issuing debt or equity securities, which could include issuances of commercial paper, medium-term notes, senior notes, subordinated notes or shares. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before distributions to our stockholders. Any preferred securities, if issued by our company, may have a preference with respect to distributions and upon liquidation that is senior to the preference of the Series C Preferred Stock, which could further limit our ability to make distributions to our stockholders. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financing.

 

Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future offerings reducing the value of your Series C Preferred Stock. In addition, we can change our leverage strategy from time to time without approval of holders of our Preferred Stock or Common Stock, which could materially adversely affect the value of our Preferred Stock, including the Series C Preferred Stock.

 

You will not have a vote or influence on the management of our company.

 

All decisions with respect to the management of our company will be made exclusively by the officers, directors, managers or employees of our company. You, as an investor in our Series C Preferred Stock, have very limited voting rights and will have no ability to vote on issues of company management and will not have the right or power to take part in the management of our company and will not be represented on the board of directors of our company. Accordingly, no person should purchase our Series C Preferred Stock unless he or she is willing to entrust all aspects of management to our company.

 

 

USE OF PROCEEDS

 

We estimate that we will receive net proceeds of approximately $44,903,000 if the maximum number of shares of Series C Preferred Stock being offered are sold after deducting the estimated sales commissions, dealer manager fees and offering expenses payable by us.

 

We intend to use the net proceeds from this offering for the acquisition and development of manufactured housing communities and/or recreational vehicle communities and for other general and working capital purposes, which may include the funding of capital improvements at properties.

 

The following table below sets forth the uses of proceeds assuming the sale of 25%, 50%, 75% and 100% of the securities offered for sale in this offering by us. For further discussion, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

		25% of Offering Sold				50% of Offering Sold				75% of Offering Sold				100% of Offering Sold
Offering Proceeds
Shares Sold			12,500				25,000				37,500				1,000,000
Gross Proceeds		$	12,500,000			$	25,000,000			$	37,500,000			$	50,000,000
Selling Commissions (6.00%)			750,000				1,500,000				2,250,000				3,000,000
Dealer Manager Fee (2.75%)			343,750				687,500				1,031,250				1,375,000
Net Proceeds Before Expenses		$	11,406,250			$	22,812,500			$	34,218,750			$	45,625,000
Offering Expenses
Dealer Manager Expenses		$	625,000			$	625,000			$	625,000			$	625,000
Legal & Accounting			75,000				75,000				75,000				75,000
Publishing/EDGAR			5,000				5,000				5,000				5,000
Transfer Agent			5,000				5,000				5,000				5,000
Blue Sky Compliance			12,000				12,000				12,000				12,000
Total Offering Expenses		$	722,000			$	722,000			$	722,000			$	722,000
Amount of Offering Proceeds Available for Use		$	10,684,250			$	22,090,500			$	33,496,750			$	44,903,000
Uses
Acquisition and Development of Manufactured Housing Communities and/or Recreational Vehicle Communities and Working Capital and General Corporate Purposes		$	10,684,250			$	22,090,500			$	33,496,750			$	44,903,000
Total Expenditures		$	10,684,250			$	22,090,500			$	33,496,750			$	44,903,000
Net Remaining Proceeds		$	0			$	0			$	0			$	0

 

As of the date of this offering circular and except as explicitly set forth herein, we cannot specify with certainty all of the particular uses of the net proceeds from this offering. Pending use of the net proceeds from this offering as described above, we may invest the net proceeds in short-term interest-bearing investment grade instruments.

 

The expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve and change. The amounts and timing of our actual expenditures, specifically with respect to working capital, may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

 

The above description of the anticipated use of proceeds is not binding on us and is merely description of our current intentions. We reserve the right to change the above use of proceeds if management believes it is in the best interests of our company.

 

 

DETERMINATION OF OFFERING PRICE

 

There is no trading market for our Series C Preferred Stock, and we do not expect any trading market to develop for the Series C Preferred Stock. The Series C Preferred Stock will be sold at $1,000 per share and it is expected that we will either redeem the Series C Preferred Stock at a redemption price equal to 110% of such original issue price, plus accrued dividends thereon, or that holders of the Series C Preferred Stock will exercise their right to request that we redeem or repurchase the Series C Preferred Stock at a redemption or repurchase price equal to 100% of such original issue price (or 110% after five years), plus accrued dividends thereon, and less certain redemption fees payable if shares are redeemed in the first three years. Accordingly, the $1,000 price per share of Series C Preferred Stock is arbitrary and represents the amount of investment made by an investor for purposes of determining the redemption and repurchase price.

 

DIVIDEND POLICY

 

Dividends on our Series C Preferred Stock being offered will be cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series C Preferred Stock will be entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each share will begin accruing on, and will be cumulative from, the date of issuance and regardless of whether our board of directors declares and pays such dividends. If our articles of incorporation, provisions of Nevada law or our borrowing agreements prohibit us from paying dividends, unpaid dividends will cumulate.

 

Our anticipated source of funds to pay the cumulative dividends for our Series C Preferred Stock will be from net operating income, retained earnings and the proceeds of the refinancing our other indebtedness.  We believe that our net operating income will increase as we deploy the funds raised in this offering in a manner consistent with the use of proceeds described in this offering circular.  We expect that our retained earnings will increase as we increase net operating income and we expect to refinance other indebtedness on our properties based upon our increased net operating income and then use the proceeds of such refinancings along with our retained earnings to repay investors.

 

See also “Risk Factors—Risks Related to this Offering and Ownership of Our Series C Preferred Stock—We cannot assure you that we will be able to pay dividends.”

 

Dividends on our Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series A Preferred Stock are entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of our Series A Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.

 

Dividends on our Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series B Preferred Stock are entitled to receive cumulative dividends in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally defined as our failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. Dividends on shares of our Series B Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.

 

We have never declared dividends or paid cash dividends on our Common Stock. Our board of directors will make any future decisions regarding dividends. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the near future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

 

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our Common Stock is eligible for quotation on the OTC Pink Market under the symbol “MHPC.” The following table sets forth, for the periods indicated, the high and low closing prices of our Common Stock. These prices reflect inter-dealer prices, without retain mark-up or commission, and may not represent actual transactions.

 

		Closing Prices
		High				Low
Fiscal Year Ended December 31, 2020
1st Quarter		$	2.71			$	0.40
2nd Quarter			2.47				0.20
3rd Quarter			6.00				2.00
4th Quarter		$	5.00			$	2.50
Fiscal Year Ended December 31, 2021
1st Quarter (through January 19, 2021)		$	2.90			$	2.50

 

Holders

 

As of January 19, 2021, there were approximately 25 registered holders of our Common Stock. This number excludes the shares owned by stockholders holding shares under nominee security position listings.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table sets forth certain information about the securities authorized for issuance under our incentive plans as of December 31, 2020.

 

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			656,175			$	0.06				343,825
Equity compensation plans not approved by security holders			-				-				-
Total			656,175			$	0.06				343,825

 

In December 2017, our board of directors, with the approval of a majority of stockholders, adopted a Stock Compensation Plan. The Stock Compensation Plan provides for grants stock options and other forms of incentive compensation to officers, employees, directors, advisors or consultants of our company or its subsidiaries. We are authorized to issue up to 1,000,000 shares of Common Stock under this plan.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following selected financial information is derived from our historical financial statements should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein and the “Cautionary Note Regarding Forward-Looking Statements” explanation included herein.

 

Overview

 

We are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. We earn income from leasing manufactured home sites to tenants who own their own manufactured home and the rental of company-owned manufactured homes to residents of the communities.

 

As of September 30, 2020, we owned and operated twenty manufactured housing communities containing approximately 1,308 developed sites, and a total of 461 company-owned manufactured homes.

 

We believe that manufactured housing is accepted by the public as a viable and economically attractive alternative to common stick-built single-family housing. We believe that the affordability of the modern manufactured home makes it a very attractive housing alternative. Manufactured housing is one of the only non-subsidized affordable housing options in the U.S. Demand for housing affordability continues to increase, but supply remains static, as there are virtually no new manufactured housing communities being developed. We are committed to becoming an industry leader in providing this affordable housing option and an improved level of service to our residents, while producing an attractive and stable risk adjusted return to our investors.

 

Recent Developments

 

Impact of Coronavirus Pandemic

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

 

Most states and cities, including where our properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it.

 

We are carefully reviewing all rules, regulations, and orders and responding accordingly. We have taken steps to take care of our employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those employees who are not able to work remotely. We have also taken precautions with regard to employee, facility and office hygiene as well as implementing significant travel restrictions. We are also assessing our business continuity plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor and mitigate developments affecting our workforce, our tenants, and the public at large to the extent we are able to do so.

 

The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of our tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due.  In addition, our property managers may be limited in their ability to properly maintain our properties.  Enforcing our rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the pandemic. If we are unable to enforce our rights as landlords, our business would be materially affected. 

 

If the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, our business operations could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

 

 

The extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this offering circular, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows. See also “Risk Factors” above.

 

Additional Closings of Prior Regulation A Offering

 

During the fourth quarter of 2020, we sold an aggregate of 25,963 shares of Series B Preferred Stock is additional closings of the Regulation A offering described below for total gross proceeds of $259,630. After deducting a placement fee, we received net proceeds of approximately $241,456. We also issued 1,400 shares of Common Stock to additional early investors.

 

Sale of Butternut Property

 

On December 18, 2020, we sold the Butternut manufactured housing community for a sale price of $2.1 million. See “Our Properties” for additional information regarding this property.

 

Refinancings

 

During the fourth quarter of 2020, we refinanced the loans for Hunt Club MHP LLC, Crestview MHP LLC and Maple Hills MHP LLC described under “—Liquidity and Capital Resources—Promissory Notes” below. The new loan for Hunt Club MHP LLC is for a principal amount of $2,445,000, bears interest at a rate of 3.430% and matures on January 1, 2033. The new loan for Crestview MHP LLC is for a principal amount of $4,800,000, bears interest at a rate of 3.250% and matures on December 1, 2030. The new loan Maple Hills MHP LLC is for a principal amount of $2,400,000, bears interest at 3.250% and matures on December 1, 2030. These loans are secured by our real estate assets and guaranteed by Raymond M. Gee, our chairman, chief executive officer and owner of the principal stockholder of our company. 

 

Results of Operations

 

Comparison of Nine Months Ended September 30, 2020 and 2019

 

The following table sets forth key components of our results of operations during the nine months ended September 30, 2020 and 2019, both in dollars and as a percentage of our revenues.

 

		Nine Months Ended September 30, 2020								Nine Months Ended September 30, 2019
		Amount				Percent of Revenues				Amount				Percent of Revenues
Revenue
Rental and related income		$	4,422,002				99.70	%		$	1,963,835				99.02	%
Management fees, related party			13,267				0.30	%			19,448				0.98	%
Total revenues			4,435,269				100.00	%			1,983,283				100.00	%
Community operating expenses
Repair and maintenance			234,996				5.30	%			160,621				8.10	%
Real estate taxes			242,776				5.47	%			110,660				5.58	%
Utilities			402,124				9.07	%			130,744				6.59	%
Insurance			116,123				2.62	%			47,015				2.37	%
General and administrative expense			384,949				8.68	%			227,188				11.46	%
Total community operating expenses			1,380,968				31.14	%			676,228				34.10	%
Corporate payroll and overhead			1,065,624				24.03	%			587,463				29.62	%
Depreciation and amortization expense			1,357,629				30.61	%			496,966				25.06	%
Interest expense			1,288,699				29.06	%			1,076,254				54.27	%
Refinancing costs			-				-				552,272				27.85	%
Total expenses			5,092,920				114.83	%			3,389,183				170.89	%
Net loss		$	(657,651	)			(14.83	)%		$	(1,405,900	)			(70.89	)%
Preferred stock dividends and put option value accretion			(1,355,217	)			(30.56	)%			(90,834	)			(4.58	)%
Net loss attributable to common stockholders		$	(2,012,868	)			(45.38	)%		$	(1,496,734	)			(75.46	)%

 

 

Revenues. For the nine months ended September 30, 2020, we had total revenues of $4,435,269, as compared to $1,983,283 for the nine months ended September 30, 2019, an increase of $2,451,986, or 123.6%. The increase in revenues between the periods was primarily due to $1,672,227 of rental income from the acquisition of four manufactured housing communities subsequent to September 30, 2019.

 

Community Operating Expenses. For the nine months ended September 30, 2020, we had total community operating expenses of $1,380,968, as compared to $676,228 for the nine months ended September 30, 2019, an increase of $704,740, or 104.2%. The increase in community operating expenses was primarily due to expenses related to the acquisition of four manufactured housing communities subsequent to September 30, 2019 totaling $568,672. Excluding the four acquisitions, our community operating expenses increased by $136,068 due to additional repair and maintenance costs incurred during 2020 as we stabilized newly acquired communities.

 

Corporate Payroll and Overhead Expenses. For the nine months ended September 30, 2020, we had corporate payroll and overhead expenses of $1,065,624, as compared to $587,463 for the nine months ended September 30, 2019, an increase of $478,161. Such increase was primarily due to additional audit fees due to our acquisition audits, and additional corporate personnel to support our growth.

 

Depreciation and Amortization Expense. For the nine months ended September 30, 2020, we had depreciation and amortization expense of $1,357,629, as compared to $496,966 for the nine months ended September 30, 2019, an increase of $860,663. The increase was primarily due to the acquisition of four manufactured housing communities subsequent to September 30, 2019.

 

Interest Expense. For the nine months ended September 30, 2020, we had interest expense of $1,288,699, as compared to $1,076,254 for the nine months ended September 30, 2019, an increase of $212,445. The increase was primarily comprised of $407,346 related to new debt associated with our acquisition of four manufactured housing communities subsequent to September 30, 2019. This was offset from the refinancing of five of our manufactured housing communities during the first quarter of 2019, and the payoff and termination of our related party line of credit during the three months ended September 30, 2020.

 

Refinancing Expenses. During the nine months ended September 30, 2019, we refinanced a total of $4,940,750 from our current loans payable to $8,241,000 of new notes payable from five of our ten existing communities, resulting in an additional loan payable of $3,320,859. We used the additional loans payable proceeds from the refinance to retire our convertible note payable of $2,754,550 plus accrued interest and recorded a loss of $552,272 on the refinancing. As of September 30, 2019, the Company wrote off mortgage costs of $68,195 and capitalized $110,039 of mortgage costs due to the refinancing.

 

Net Loss. The factors described above resulted in a net loss of $657,651 for the nine months ended September 30, 2020, as compared to $1,405,900 for the nine months ended September 30, 2019, a decrease of $748,249, or 53.2%.

 

Comparison of Years Ended December 31, 2019 and 2018

 

The following table sets forth key components of our results of operations during the years ended December 31, 2019 and 2018, both in dollars and as a percentage of our revenues.

 

		Year Ended December 31, 2019								Year Ended December 31, 2018
		Amount				Percent of Revenues				Amount				Percent of Revenues
Revenue
Rental and related income		$	2,968,472				98.24	%		$	1,975,312				98.75	%
Management fees, related party			48,319				1.60	%			4,000				0.20	%
Homes sales			4,900				0.16	%			21,000				1.05	%
Total revenues			3,021,691				100.00	%			2,000,312				100.00	%
Community operating expenses
Repair and maintenance			234,770				7.77	%			135,131				6.76	%
Real estate taxes			142,187				4.71	%			81,024				4.05	%
Utilities			212,719				7.04	%			149,516				7.47	%
Insurance			83,975				2.78	%			54,079				2.70	%
General and administrative expense			476,137				15.76	%			256,631				12.83	%
Total community operating expenses			1,149,788				38.05	%			676,381				33.81	%
Corporate payroll and overhead			1,253,383				41.48	%			1,030,527				51.52	%
Depreciation and amortization expense			786,179				26.02	%			534,290				26.71	%
Interest expense			1,312,469				43.43	%			1,001,455				50.06	%
Refinancing costs			552,272				18.28	%			-				-
Total expenses			5,054,091				167.26	%			3,242,653				162.11	%
Net loss before provision for income taxes			(2,032,400	)			(67.26	)%			(1,242,341	)			(62.11	)%
Provision for income taxes			6,347				0.21	%			8,286				0.41	%
Net loss		$	(2,038,747	)			(67.47	)%		$	(1,250,627	)			(62.52	)%
Net income attributable to the noncontrolling interest			-				-				45,766				2.29	%
Net loss attributable to company		$	(2,038,747	)			(67.47	)%		$	(1,296,393	)			(64.81	)%
Total preferred stock dividends			360,937				11.94	%			-				-
Net loss attributable to common stockholders		$	(2,399,684	)			(79.42	)%		$	(1,296,393	)			(64.81	)%

 

 

Revenues. For the year ended December 31, 2019, we had total revenues of $3,021,691, as compared to $2,000,312 for the year ended December 31, 2018, an increase of $1,021,379, or 51.06%. The increase was primarily due to $867,180 of rental income from the acquisition of five manufactured housing communities during 2019. The remaining increase was due to an average 7% increase in occupancy and rental rate increases, and $4,900 related to home sales, and we also recorded $48,319 of property management revenues from a related party in 2019.

 

Community Operating Expenses. For the year ended December 31, 2019, we had total community operating expenses of $1,149,788, as compared to $676,381 for the year ended December 31, 2018, an increase of $473,407. The increase in community operating expenses was primarily due $319,072 of expenses from the acquisition of five manufactured housing communities during 2019. Excluding the acquisitions, our community operating expenses increased resulting from an increase in repair and maintenance costs of $87,960 from prior year.

 

Corporate Payroll and Overhead Expenses. For the year ended December 31, 2019, we had corporate payroll and overhead expenses of $1,253,383, as compared to $1,030,527 for the year ended December 31, 2018, an increase of $222,856, or 21.63%. This increase was primarily due to stock compensation expense of $349,950 during 2019 compared to $171,500 during 2018.

 

Depreciation and Amortization Expense. For the year ended December 31, 2019, we had depreciation and amortization expense of $786,179, as compared to $534,290 for the year ended December 31, 2018, an increase of $251,889, or 47.14%. The increase was primarily due to the acquisition of five manufactured housing communities during 2019.

 

Interest Expense. For the year ended December 31, 2019, we had interest expense of $1,312,469, as compared to $1,001,455 for the year ended December 31, 2018, an increase of $311,014, or 31.06%. The increase was primarily related to the five additional loans related to the five acquisitions of manufactured housing communities during 2019.

 

Refinancing Costs. During the year ended December 31, 2019, we refinanced a total of $4,920,750 from our current loans payable to $8,241,000 of new notes payable from five of our communities, resulting in an additional loan payable of $3,320,859. We used the additional loans payable proceeds from the refinance to retire our related party note payable of $2,754,550 plus accrued interest. As of December 31, 2019, we wrote off refinancing cost totaling $552,272.

 

Net Loss. The factors described above resulted in a net loss of $2,038,747 for the year ended December 31, 2019, as compared to $1,296,393 for the year ended December 31, 2018, an increase of $788,120, or 63.02%.

 

Liquidity and Capital Resources

 

As of September 30, 2020, we had cash and cash equivalents of $2,099,390, including restricted cash of $371,826. In addition to cash generated through operations, we use a variety of sources to fund our cash needs, including acquisitions. We intend to continue to increase our real estate investments. Our business plan includes acquiring communities that yield in excess of our cost of funds and then investing in physical improvements, including adding rental homes onto otherwise vacant sites. Our ability to continue acquiring communities are dependent on our ability to raise capital. There is no guarantee that any of these additional opportunities will materialize or that we will be able to take advantage of such opportunities. The growth of our real estate portfolio depends on the availability of suitable properties which meet our investment criteria and appropriate financing.

 

We will require additional funding to finance the growth of our current and expected future operations as well as to achieve its strategic objectives. We believe that our current available cash along with anticipated revenues will be sufficient to meet our cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all.

 

 

Summary of Cash Flow

 

The following table provides detailed information about our net cash flow for the period indicated:

 

Cash Flow

 

		Nine Months Ended September 30,								Year Ended December 31,
		2020				2019				2019				2018
Net cash provided by (used in) operating activities		$	744,881			$	(503,110	)		$	(950,236	)		$	38,475
Net cash used in investing activities			(1,721,594	)			(10,138,342	)			(22,017,784	)			(210,247	)
Net cash provided by (used in) financing activities			(1,070,308	)			11,912,272				26,656,160				274,108
Net increase (decrease) in cash and cash equivalents			(2,047,021	)			1,270,820				3,688,140				102,336
Cash and cash equivalents at beginning of period/year			4,146,411				458,271				458,271				355,935
Cash and cash equivalent at end of period/year		$	2,099,390			$	1,729,091			$	4,146,411			$	458,271

 

Operating Activities

 

Net cash provided by operating activities was $744,881 for the nine months ended September 30, 2020, as compared to $503,110 net cash used in operating activities for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, the net loss of $657,651, offset by depreciation and amortization in the amount of $1,357,629 and an increase in accrued liabilities in the amount of $25,415 were the primary drivers of the net cash provided by operating activities. For the nine months ended September 30, 2019, the net loss of $1,405,900, a decrease in other assets in the amount of $461,532 due to lender’s escrowed funds held by lender at closing to be released back to us upon the completion of certain capital improvement projects, offset by depreciation and amortization in the amount of $504,542, stock compensation expense in the amount of $329,700, an increase in accounts payable of $230,164, and accrued expenses in the amount of $119,135, were the primary drivers of the net cash used in operating activities.

 

Net cash used in operating activities was $950,236 for the year ended December 31, 2019, as compared to $38,475 net cash provided by operating activities for the year ended December 31, 2018. For the year ended December 31, 2019, the net loss of $2,038,747, a decrease in other assets in the amount of $457,540 due to lender’s escrowed funds held by lender at closing to be released back to us upon the completion of certain capital improvement projects, offset by depreciation and amortization in the amount of $738,789, stock compensation expense in the amount of $349,950, an increase in accounts payable of $156,315, and increase in security deposits $184,886, were the primary drivers of the net cash used in operating activities. For the year ended December 31, 2018, the net loss of $1,250,627, offset by depreciation and amortization in the amount of $534,290, an increase in accrued expenses in the amount of $476,459, and stock compensation expense in the amount of $171,500, were the primary drivers of the net cash provided by operating activities.

 

Investing Activities

 

Net cash used in investing activities was $1,721,594 for the nine months ended September 30, 2020, as compared to $10,138,342 for the nine months ended September 30, 2019. Net cash used in investing activities for the nine months ended September 30, 2020 consisted of the purchase of investment properties in the amount of $1,001,000 and capital improvements in the amount of $720,594, while net cash used in investing activities for the nine months ended September 30, 2019 consisted entirely of the purchase of property.

 

Net cash used in investing activities was $22,017,784 for the year ended December 31, 2019, as compared to $210,247 for the year ended December 31, 2018. Net cash used in investing activities for the year ended December 31, 2019 consisted of $22,022,684 of the purchase of property, offset by proceeds from sale of property in the amount of $4,900. Net cash used in investing activities for the year ended December 31, 2018 consisted of the purchase of property in the amount of $231,247, offset by proceeds of sale of property in the amount of $21,000.

 

 

Financing Activities

 

Net cash used in financing activities was $1,070,308 for the nine months ended September 30, 2020, as compared to $11,912,272 net cash provided by financing activities for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, net cash used in financing activities consisted of repayment of related party notes payable of $1,730,000, repayment of notes payable $641,733, preferred share dividends of $592,008, payment of mortgage costs recorded as debt discount of $244,167, repayment of related party note of $192,326, offset by proceeds from issuance of Preferred Stock of $1,911,792 and proceeds from note payables of $418,134. For the nine months ended September 30, 2019, net cash provided by financing activities consisted of proceeds from notes payable in the amount of $18,481,076, proceeds from the issuance of Preferred Stock in the amount of $1,465,000, proceeds from line of credit in the amount of $3,000,000, proceeds from issuance of common stock in the amount of $68,717 and proceeds from related party note in the amount of $7,075, offset by repayment of notes payable in the amount of $7,898,248, repayment of line of credit in the amount of $2,754,550, capitalized financing costs of $275,519, purchase of treasury stock in the amount of $64,511 and Preferred Stock dividends in the amount of $43,334.

 

Net cash provided by financing activities was $26,656,160 for the year ended December 31, 2019, as compared to $274,108 for the year ended December 31, 2018. For the year ended December 31, 2019, net cash provided by financing activities consisted of proceeds from notes payable in the amount of $25,079,000, proceeds from the issuance of Preferred Stock in the amount of $8,670,606, proceeds from line of credit in the amount of $2,695,000, and proceeds from issuance of common stock in the amount of $72,875, offset by repayment of notes payable in the amount of $5,172,234, repayment of line of credit in the amount of $3,719,550, capitalized financing costs of $608,541, repayments of related party note of $99,801, and purchase of treasury stock in the amount of $119,337. For the year ended December 31, 2018, net cash provided by financing activities consisted of proceeds from related party note in the amount of $448,750 and proceeds from note payables in the amount of $117,014, offset by repayment of notes payable in the amount of $236,551 and non-controlling distributions in the amount of $55,105.

 

Regulation A Offering

 

On November 1, 2019, we launched an offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which we are offering up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for a maximum offering amount of $10,000,000. In addition, we are offering bonus shares to early investors in this offering, whereby the first 400 investors will receive, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.

 

As of September 30, 2020, we sold an aggregate of 615,291 shares of Series B Preferred Stock for total gross proceeds of $6,152,910. After deducting a placement fee and other expenses, we received net proceeds of $5,722,206.

 

Promissory Notes

 

We have issued promissory notes payable to lenders related to the acquisition of our manufactured housing communities. These promissory notes range from 3.3% to 7.0% with 5 to 30 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments. The promissory notes are secured by our real estate assets and $7,397,468 for four assets were guaranteed by Raymond M. Gee, our chairman, chief executive officer and owner of the principal stockholder of our company. 

 

In addition, on May 1, 2020, we received a $139,300 Paycheck Protection Program, or PPP, loan from the United States Small Business Administration under provisions of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP provides that the loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. We used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. However, we cannot provide assurance that the loan will be forgiven.

 

 

The following are terms of these notes:

 

		Maturity Date				Interest Rate				Balance 09/30/20				Balance 12/31/19
Butternut MHP Land LLC			04/10/25				6.000	%		$	1,375,106			$	1,114,819
Butternut MHP Land LLC Mezz			04/01/27				7.000	%			-				280,013
Pecan Grove MHP LLC			02/22/29				5.250	%			3,054,267				3,095,274
Azalea MHP LLC			03/01/29				5.400	%			815,687				835,445
Holly Faye MHP LLC			03/01/29				5.400	%			579,825				574,096
Chatham MHP LLC			04/01/24				5.875	%			1,743,510				1,771,506
Lake View MHP LLC			03/01/29				5.400	%			1,838,780				1,857,266
B&D MHP LLC			04/25/29				5.500	%			1,827,754				1,854,788
Hunt Club MHP LLC			05/01/24				5.750	%			1,424,255				1,447,364
Crestview MHP LLC			07/31/24				5.500	%			4,105,637				4,173,652
Maple Hills MHP LLC			01/01/23				5.125	%			2,636,854				2,688,653
Springlake MHP LLC			11/14/22				3.310	%			4,000,000				4,000,000
ARC MHP LLC			01/01/30				5.500	%			5,224,329				5,300,000
Countryside MHP LLC			03/20/50				5.500	%			3,000,000				-
Evergreen MHP LLC			04/01/32				3.990	%			1,140,341				-
PPP Loan			05/01/22				1.000	%			139,300				-
Totals note payables											32,905,645				28,992,876
Discount Direct Lender Fees											(746,560	)			(633,629	)
Total net of Discount										$	32,159,085			$	28,359,247

 

Metrolina Promissory Note

 

On May 8, 2017, we issued a promissory note to Metrolina Loan Holdings, LLC, or Metrolina, in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, we paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of our Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in our company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This note was to mature in May of 2023. As of September 30, 2020 and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, we paid off the full balance and terminated the note. This related party note was guaranteed by Mr. Gee.

 

Revolving Promissory Note

 

On October 1, 2017, we issued a revolving promissory note to Mr. Gee, pursuant to which we may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of September 30, 2020, and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2020, we had no off-balance sheet arrangements.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Critical accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions. Management believes the following critical accounting policies are affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

 

Revenue Recognition. Our revenues primarily consist of rental revenues and fee and other income. We have the following revenue sources and revenue recognition policies:

 

●

Rental revenues include revenues from the leasing land lot or a combination of both, the mobile home and land at our properties to tenants.

 

o

Revenues from the leasing of land lot or a combination of both, the mobile home and land at our properties to tenants include (i) lease components, including land lot or a combination of both, the mobile home and land, and (ii) reimbursement of utilities and account for the components as a single lease component in accordance with Accounting Standards Codification, or ASC, 842.

 

o

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. We commence rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of utilities are generally recognized in the same period as the related expenses are incurred. Our leases are month-to-month.

 

●

Fee and other income include late fees, violation fees and other revenue arising from contractual agreements with third parties. This revenue is recognized as the services are transferred in accordance with ASC 606.

 

●

Mobile home sale revenues are recognized in accordance with Topic 606 of the Financial Accounting Standards Board, or FASB, ASC for revenue recognition. On January 1, 2018, we adopted Accounting Standards Update, or ASU, 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. We consider revenue realized or realizable and earned when all the five following criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when (or as) we satisfy a performance obligation.

 

Under ASC 842, we must assess on an individual lease basis whether it is probable that we will collect the future lease payments. We consider the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, we write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.

 

Investment Property and Equipment and Depreciation. Property and equipment are carried at cost. Depreciation for Sites and Building is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated until they are put in use, at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current year’s results of operations.

 

Impairment Policy. The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.

 

Stock-Based Compensation. All stock-based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors, including any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are nonforfeitable the measurement date is the date the award is issued.

 

 

Fair Value of Financial Instruments. We follow paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

 

Income Taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We recognize and interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2022. We adopted this standard on January 1, 2020. The adoption of this standard had no impact on our unaudited condensed consolidated financial statements.

 

In March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842): Codification Improvements.” ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors with existing guidance in Topic 842. The ASU requires that the fair value of the underlying asset at lease commencement is its cost reflecting in volume or trade discounts that may apply. However, if there has been a significant lapse of time between the date the asset was acquired and the lease commencement date, the definition of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We have evaluated the impact this standard had on our consolidated financial statements and determined that it had no impact on our consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06 “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity”, which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. We are currently evaluating the potential impact this standard may have on our consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on our condensed consolidated financial statements.

 

 

OUR CORPORATE HISTORY AND STRUCTURE

 

We originally incorporated in the State of Nevada as Frontier Staffing, Inc. on September 3, 2003. Since our incorporation, we have experienced several name changes and have engaged in several different business endeavors. On October 12, 2017, Mobile Home Rental Holdings LLC, a North Carolina limited liability company, which engaged in acquiring and operating manufactured housing properties, merged with and into our company. In connection with the merger, the name of our company was changed to Manufactured Housing Properties Inc., the former business and management of Mobile Home Rental Holdings became the business and management, respectively, of our company at that time.

 

In connection with our acquisitions of manufactured housing communities, we have established various limited liability companies to hold the acquired properties. Following is a summary of our subsidiaries, each of which is owned directly by our company.

 

Name of Subsidiary		State of Formation		Date of Formation		Ownership
Pecan Grove MHP LLC		North Carolina		October 12, 2016			100	%
Azalea MHP LLC		North Carolina		October 25, 2017			100	%
Holly Faye MHP LLC		North Carolina		October 25, 2017			100	%
Chatham Pines MHP LLC		North Carolina		October 31, 2017			100	%
Maple Hills MHP LLC		North Carolina		October 31, 2017			100	%
Lakeview MHP LLC		South Carolina		November 1, 2017			100	%
MHP Pursuits LLC		North Carolina		January 31, 2019			100	%
Mobile Home Rentals LLC		North Carolina		September 30, 2016			100	%
Hunt Club MHP LLC		South Carolina		March 8, 2019			100	%
B&D MHP LLC		South Carolina		April 4, 2019			100	%
Crestview MHP LLC		North Carolina		June 28, 2019			100	%
Springlake MHP LLC		Georgia		October 10, 2019			100	%
ARC MHP LLC		South Carolina		November 13, 2019			100	%
Countryside MHP LLC		South Carolina		March 12, 2020			100	%
Evergreen MHP LLC		Tennessee		March 17, 2020			100	%

 

 

OUR BUSINESS

 

Overview

 

We are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. We earn income from leasing manufactured home sites to tenants who own their own manufactured home and the rental of company-owned manufactured homes to residents of the communities.

 

We own and operate nineteen manufactured housing communities containing approximately 1,249 developed sites and a total of 407 company-owned manufactured homes. The communities are located in Georgia, North Carolina, South Carolina and Tennessee. See “Our Properties” for s description of these housing communities.

 

The Manufactured Housing Community Industry

 

Manufactured housing communities are residential developments designed and improved for the placement of detached, single-family manufactured homes that are produced off-site and installed and set on residential sites within the community. The owner of a manufactured home leases the site on which it is located and the lessee of a manufactured home leases both the home and site on which the home is located.

 

We believe that manufactured housing is accepted by the public as a viable and economically attractive alternative to common stick-built single-family housing. We believe that the affordability of the modern manufactured home makes it a very attractive housing alternative. Manufactured housing is one of the only non-subsidized affordable housing options in the U.S. Demand for housing affordability continues to increase, but supply remains static, as there are virtually no new manufactured housing communities being developed. We are committed to becoming an industry leader in providing this affordable housing option and an improved level of service to our residents, while producing an attractive and stable risk adjusted return to our investors.

 

A manufactured housing community is a land-lease community designed and improved with home sites for the placement of manufactured homes and includes related improvements and amenities. Each homeowner in a manufactured housing community leases from the community a site on which a home is located. The manufactured housing community owner owns the underlying land, utility connections, streets, lighting, driveways, common area amenities, and other capital improvements and is responsible for enforcement of community guidelines and maintenance of the community. Generally, each homeowner is responsible for the maintenance of his or her home and upkeep of his or her leased site. In some cases, customers may rent homes with the community owner’s maintaining ownership and responsibility for the maintenance and upkeep of the home. This option provides flexibility for customers seeking a more affordable, shorter-term housing option and enables the community owner to meet a broader demand for housing and improve occupancy and cash flow.

 

We believe that manufactured housing communities have several characteristics that make them an attractive investment when compared to certain other types of real estate, particularly multifamily, including:

 

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Significant Barriers to Entry. We believe that the supply of new manufactured housing communities will be constrained due to significant barriers to entry in the industry, including: (i) various zoning restrictions and negative zoning biases against manufactured housing communities; (ii) substantial upfront costs associated with the development of infrastructure, amenities and other offsite improvements required by various governmental agencies, and (iii) a significant length of time before lease-up and revenues can commence.

 

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Diminishing Supply. Supply is decreasing due to redevelopment of older parks.

 

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Large Demographic Group of Potential Customers. We consider households earning between $25,000 and $50,000 per year to be our core customer base. This demographic group represents about 43 percent of overall U.S. households, according to 2016 U.S. Census data.

 

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Stable Resident Base. We believe that manufactured housing communities tend to achieve and maintain a stable rate of occupancy, due to the following factors: (i) residents generally own their own homes; moving a manufactured home from one community to another involves substantial cost and effort and often results in the abandonment of on-site improvements made by the resident such as decks, garages, carports, and landscaping; and (iii) residents enjoy a sense of community inherent in manufactured housing communities similar to residential subdivisions.

 

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Fragmented Ownership of Communities. Manufactured housing community ownership in the United States is highly fragmented, with a majority of manufactured housing communities owned by individuals. The top five manufactured housing community owners control approximately 7% of manufactured housing community home sites.

 

 

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Low Recurring Capital Requirements. Although manufactured housing community owners are responsible for maintaining the infrastructure of the community, each homeowner is responsible for the upkeep of his or her own home and home site, thereby reducing the manufactured housing community owner’s ongoing maintenance expenses and capital requirements.

 

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Affordable Homeowner Lifestyle. Manufactured housing communities offer an affordable lifestyle typically unavailable in apartments, including lack of common walls, a yard for each resident, the ability to park by the front door, and a sense of community.

 

Competition

 

There are numerous private companies, but only three publicly-traded REITs that compete in the manufactured housing industry.  Many of the private companies and one of the REITs, UMH Properties, Inc., may compete with us for acquisitions of manufactured housing communities. Many of these companies have larger operations and greater financial resources than we do. The number of competitors, however, is increasing as new entrants discover the benefits of the manufactured housing asset class. We believe that due to the fragmented nature of ownership within the manufactured housing sector, the level of competition is less than that in other commercial real estate sectors.

 

Competitive Strengths

 

We believe that the following competitive strengths enable us to compete effectively:

 

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Deal Sourcing. Our deal sourcing consists of marketed deals, pocket listings, and off market deals.  Marketed deals are properties that are listed with a broker who exposes the property to the largest pool of buyers possible. Pocket listings are properties that are presented by brokers to a limited pool of buyers. Off market deals are ones that are not actively marketed.  As a result of our network of relationships in our industry, only two properties in our portfolio were marketed deals, the rest were off-market or pocket listings.

 

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Centralized Operations. We have centralized many operational tasks, including accounting, marketing, lease administration, and accounts payable.  The use of professional staff and technology allows us to scale efficiently and operate properties profitably by reducing tasks otherwise completed at the property level.

 

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Deal Size. We believe that our small capitalization size with non-institutional deals of less than 150 sites are accretive to our balance sheet.  These sized properties typically have less bidders at lower prices than larger properties.  We can profitably operate these smaller properties through our centralized operations.

 

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Creating Value. Our underwriting expertise enables us to identify acquisition prospects to provide attractive risk adjusted returns.  Our operational team has the experience, skill and resources to create this value through physical and/or operational property improvements.

 

Our Growth Strategy

 

Our growth strategy is to acquire both stable and undervalued and underperforming manufactured housing properties that have current income. We believe that we can enhance value through our professional asset and property management. Our property management services are mainly comprised of tenant contracts and leasing, marketing vacancies, community maintenance, enforcement of community policies, establishment and collection rent, and payment of vendors. Our lot and manufactured home leases are generally for one month and auto renew monthly for an additional month.

 

Our investment mission on behalf of our stockholders is to deliver an attractive risk-adjusted return with a focus on value creation, capital preservation, and growth. In our ongoing search for acquisition opportunities we target and evaluate manufactured housing communities nationwide.

 

We may invest in improved and unimproved real property and may develop unimproved real property. These property investments may be located throughout the United States, but to date we have concentrated in the Southeast portion of the United States. We are focused on acquiring communities with significant upside potential and leveraging our expertise to build long-term capital appreciation.

 

We are one of four public companies in the manufactured housing sector, but we are the only one not organized as a REIT, thereby giving us flexibility to focus on growth through reinvestment of income and employing higher leverage upon acquisition than the REITs traditionally utilize due to market held norms around 50-60%. This can give us a competitive advantage when bidding for assets. Additionally, due to our small size, non-institutional sized deals of less than 150 sites, which have less bidders and lower prices, are accretive to our balance sheet.

 

 

Regulation

 

Federal, State and/or Local Regulatory Compliance

 

We are subject to a variety of federal, state, and/or local statutes, ordinances, rules, and regulations covering the purchase, development and operation of real estate assets. These regulatory requirements include zoning and land use, worksite safety, traffic, and other matters, such as local rules that may impose restrictive zoning and developmental requirements. We are subject to various licensing, registration, and filing requirements in connection with the development and operation of certain real estate assets. Additionally, state and/or local governments retain certain rights with respect to eminent domain which could enable them to restrict or alter the use of our property. These requirements may lead to increases in our overall costs. The need to comply with these requirements may significantly delay development with regard to properties, or lead us to alter our plans regarding certain real estate assets. Some requirements, on a property by property evaluation, may lead to a determination that development of a particular property would not be economically feasible, even if any or all necessary governmental approvals were obtained.

 

We believe that each community has all material operating permits and approvals.

 

Environmental Regulatory Compliance

 

Under various federal, state and/or local laws, ordinances and regulations, a current or previous owner or operator of a property may be required to investigate and/or clean-up hazardous or toxic substances released at that property. That owner or operator also may be held liable to third parties for bodily injury or property damage (investigation and/or clean-up costs) incurred by those parties in connection with the contamination at that site. These laws often impose liability without regard to whether the owner or operator knew of or otherwise caused the release of the hazardous or toxic substances. In addition, persons who arrange for the disposal or treatment of hazardous substances or other regulated materials also may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such persons.

 

The costs of remediation or removal of hazardous or toxic substances can be substantial, and the presence of contamination, or the failure to remediate contamination discovered, at a property we own or operate may adversely affect our ability to develop, sell, lease, or borrow upon that property. Current and former tenants at a property we own may have, or may have involved, the use of hazardous materials or generated hazardous wastes, and those situations could result in our incurring liabilities to remediate any resulting contamination if the responsible party is unable or unwilling to do so.

 

In addition, our properties may be exposed to a risk of contamination originating from other sources. While a property owner generally is not responsible for remediating contamination that has migrated on-site from an off-site source, the contaminant’s presence could have adverse effects on our ability to develop, construct on, operate, sell, lease, or borrow upon that property. Certain environmental laws may create a lien on a contaminated site in favor of the government for damages and costs the government may incur to remediate that contamination. Moreover, if contamination is discovered on a property, environmental laws may impose restrictions on the manner in which that property may be used, or how businesses may be operated on that property, thus reducing our ability to maximize our investment in that property. Our properties have been subjected to varying degrees of environmental assessment at various times; however, the identification of new areas of contamination, a change in the extent or known scope of contamination, or changes in environmental regulatory standards and/or cleanup requirements could result in significant costs to us.

 

Insurance and Property Maintenance and Improvement Policies

 

Our properties are insured against risks that may cause property damage and business interruption including events such as fire, business interruption, general liability and if applicable, flood. Our insurance policies contain deductible requirements, coverage limits and particular exclusions. It is our policy to maintain adequate insurance coverage on all of our properties; and, in the opinion of our management, all of our properties are adequately insured. We also obtain title insurance insuring fee title to the properties in an aggregate amount which we believe to be adequate.

 

It is also our policy to properly maintain, modernize, expand and make improvements to its properties when required.

 

Employees

 

As of September 30, 2020, we had 18 employees, including officers, all of whom are full-time employees.

 

 

OUR PROPERTIES

 

As of September 30, 2020, we owned the following manufactured housing properties:

 

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Pecan Grove – a 81 lot, all-age community situated on 10.71 acres and located in Charlotte, North Carolina. The average occupancy was 100%.

 

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Azalea Hills – a 41 lot, all-age community situated on 7.46 acres and located in Gastonia, North Carolina, a suburb of Charlotte, North Carolina. The average occupancy was 100%.

 

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Holly Faye – a 37 lot all-age community situated on 8.01 acres and located in Gastonia, North Carolina, a suburb of Charlotte North Carolina. The average occupancy was 97%.

 

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Lakeview – a 97 lot all-age community situated on 17.26 acres in Spartanburg, South Carolina. The average occupancy was 100%.

 

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Chatham Pines – a 49 lot all-age community situated on 23.57 acres and located in Chapel Hill, North Carolina. The average occupancy was 100%.

 

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Maple Hills – a 73 lot all-age community situated on 21.20 acres and located in Mills River, North Carolina, which is part of the Asheville, North Carolina, Metropolitan Statistical Area. The average occupancy was 87%.

 

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Hunt Club Forest – a 79 lot all-age community situated on 13.02 acres and located in the Columbia, South Carolina metro area. The average occupancy was 100%.

 

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B&D – a 97 lot all-age community situated on 17.75 acres and located in Chester, South Carolina. The average occupancy was 85%.

 

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Crestview – a 113 lot all-age community situated on 17.1 acres and located in the Ashville, NC MSA, North Carolina, Metropolitan Statistical Area. The average occupancy was 90%.

 

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Spring Lake – three all-age communities with 225 lots situated on 72.7 acres and located in Warner Robins, Georgia. The average occupancy was 97%.

 

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ARC – five all-age communities with 182 lots situated on 39.34 acres and located in Lexington, South Carolina. The average occupancy was 82%.

 

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Countryside – a 110 lot all-age community situated on 35 acres and located in Lancaster, North Carolina. The average occupancy was 90%.

 

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Evergreen – a 65 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee. The average occupancy was 100%.

 

The average occupancy rates above represent an average of total monthly occupancy rates from January 1, 2020 (or date of acquisition) through September 30, 2020. For the nine months ended September 30, 2020, our total portfolio weighted average occupancy rate was 95%.

 

On December 18, 2020, we sold the Butternut manufactured housing community for a sale price of $2.1 million.

 

LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

 

MANAGEMENT

 

Directors and Executive Officers

 

The following sets forth information about our directors and executive officers as of the date of this offering circular:

 

Name		Age		Position
Raymond M. Gee		60		Chairman of the Board and Chief Executive Officer
Michael Z. Anise		44		President, Chief Financial Officer and Director
Andrew Coatley		38		Chief Operating Officer
Adam A. Martin		49		Chief Investment Officer
Chelsea D. Howlett		28		Vice President of Finance
William H. Carter		72		Director
Richard M. Gee		28		Director
James L. Johnson		54		Director
Terry Robertson		77		Director

 

Raymond M. Gee. Mr. Gee has served as chairman of our board of directors and chief executive officer of our company in October 2017 as a result of the merger of Mobile Home Rental Holdings LLC with our company. Mr. Gee has 30 years of experience in commercial real estate, development, and structured finance. He has also served as the chief executive officer of Gvest Capital LLC, which provides management and administrative services to various investment and asset ownership entities, since 2012. Prior to forming Gvest Capital LLC, he was the head of real estate and structured products for Royal & SunAlliance and was in charge of a multi-billion-dollar diversified portfolio. Previously he headed the Latin American real estate practice for Arthur Andersen in Mexico City. Mr. Gee is a graduate of the University of Oklahoma with a BBA in finance/real estate.  Mr. Gee was selected to serve on our board of directors due to his management experience in our industry.

 

Michael Z. Anise. Mr. Anise has served as our chief financial officer and as a member of our board of directors since September 2017 and has served as our president since August 2019. From 2011 to 2017, Mr. Anise was chief financial officer of Crossroads Financial, a commercial finance company. Mr. Anise earned his BS degree in accounting, with a minor in finance, from Florida Atlantic University. Mr. Anise was selected to serve on our board of directors due to finance experience.

 

Andrew Coatley. Mr. Coatley has served as our chief operating officer since October 2019. From 2014 to October 2019, he was the executive property director for Bainbridge Companies providing operational leadership. Mr. Coatley earned a BS degree in education from The Defiance of Ohio.

 

Adam A. Martin. Mr. Martin has served as our chief investment officer since October 2017. From 2009 to September 2017, he was CIO of Gvest Capital LLC, a company that provides management and administrative services to various investment and asset ownership entities. Mr. Martin earned is BA degree in finance and master’s degree in land economics and real estate from Texas A&M University.

 

Chelsea D. Howlett. Ms. Howlett has served as our vice president of finance since January 2021. Ms. Howlett is a licensed Certified Public Accountant in North Carolina and Texas. Prior to joining us, she worked for Ernst and Young, LLP for five and half years as a tax accountant where she advised privately owned businesses and high net worth individuals with tax compliance, planning, and financial reporting. She specialized in businesses with flow-through structures and investments and clients within the real estate sector. During college, Ms. Howlett worked at Trinity Industries, Inc. in their corporate tax department. Ms. Howlett received her master’s degree in accounting from Southern Methodist University and was valedictorian. She also received her BBA degree with a focus in accounting and BA degree in philosophy from Southern Methodist University in 2014.

 

William H. Carter. Mr. Carter has served as a member of our board of directors since March 2018. He has served as president of The Carter Land Company for the past 15 years. The Carter Land Company has provided brokerage services with respect to 144 manufactured housing communities in the Southeast. The firm presently manages apartments, single family houses, commercial warehouses, mobile home parks, self-storage facilities and retail buildings. Mr. Carter was selected to serve on our board of directors due to his experience in our industry.

 

Richard M. Gee. Mr. Gee has served as a member of our board of directors since October 2020. He has served as a Vice President of Gvest Capital LLC since 2018. He specializes in acquisitions and development. Prior to joining Gvest Capital LLC, he was a Policy Analyst in the Texas Senate for two years working for a senator. He is a graduate of the University of North Carolina School of Law and received his BA degree in political science from Southern Methodist University. Mr. Gee was selected to serve on the board of directors due to his real estate development experience.

 

 

James L. Johnson. Mr. Johnson has served as a member of our board of directors since March 2018. He is the founder of Carpet South Design Inc., where he has served as its CEO since 2013. He also owns a majority interest in Piedmont Stair Works Design LLC. The operations of both of these companies target the real estate improvements industry. Mr. Johnson earned his BS degree in business management from the University of Phoenix. Mr. Johnson was selected to serve on our board of directors due to experience in the real estate industry.

 

Terry Robertson. Dr. Robertson has served as a member of our board of directors since December 2018. Since 2007, Mr. Robertson has served as consultant at ROBERTSON Appraisal & Consulting, a real estate appraisal and consulting firm that he founded. Prior to that, he worked at Carroll&Carroll Real Estate Appraisers. Dr. Robertson earned his BBA degree in finance and his PhD from the University of Georgia, and is Professor Emeritus of Price College of Business of the University of Oklahoma. Mr. Robertson is an author of articles and books relating to corporate financial structure, real estate valuation and regional economic development. Dr. Robertson was selected to serve on our board of directors due to finance and real estate investment background.

 

Directors and executive officers are elected until their successors are duly elected and qualified. There are no arrangements or understandings known to us pursuant to which any director or executive officer was or is to be selected as a director (or director nominee) or executive officer.

 

Family Relationships

 

Raymond M. Gee and Richard M. Gee are brothers. There are no other family relationships between any of our directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, except as described below, none of our directors or executive officers has, during the past ten years:

 

●

been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

 

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had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

 

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been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

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been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

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been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

●

been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

 

Corporate Governance

 

Our current board of directors is comprised of six members: Raymond M. Gee, Michael Z. Anise, William H. Carter, Richard M. Gee, James L. Johnson and Terry Robertson. Our board of directors has determined that Messrs. Robertson, Johnson and Carter are independent directors as that term is defined in the rules of the Nasdaq Stock Market.

 

Our board of directors currently has two standing committees, an audit committee and a compensation committee, which perform various duties on behalf of and report to the board of directors. Each of the standing committees is comprised of a majority of independent directors. From time to time, the board of directors may establish other committees.

 

Governance Structure

 

Currently, our chief executive officer is also our chairman. Our board of directors believes that, at this time, having a combined chief executive officer and chairman is the appropriate leadership structure for our company. In making this determination, the board of directors considered, among other matters, Mr. Raymond M. Gee’s experience and tenure, and believed that he is highly qualified to act as both chairman and chief executive officer due to his experience, knowledge, and personality. Among the benefits of a combined chief executive officer/chairman considered by the board of directors is that such structure promotes clearer leadership and direction for our company and allows for a single, focused chain of command to execute our strategic initiatives and business plans.

 

The Board’s Role in Risk Oversight

 

Our board of directors plays an active role, as a whole and also at the committee level, in overseeing management of our risks and strategic direction. Our board of directors regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. Our audit committee oversees the process by which our senior management and relevant employees assess and manage our exposure to, and management of, financial risks. Our compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed about such risks.

 

Audit Committee

 

Our audit committee currently consists of Messrs. Robertson, Anise and Carter, with Mr. Robertson serving as chairman. Our board of directors has determined that each member of our audit committee is able to read and understand fundamental financial statements and has substantial business experience that results in such member’s financial sophistication. Our board of directors further determined that Mr. Robertson possesses the accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of the rules of the Nasdaq Stock Market and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

 

The primary purposes of our audit committee are to assist our board of directors in fulfilling its responsibility to oversee the accounting and financial reporting processes of our company and audits of our financial statements, including (i) retaining and overseeing our independent accountants; (ii) assisting the board in its oversight of the integrity of our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and regulatory requirements; (iii) reviewing and approving the plan and scope of the internal and external audit; (iv) pre-approving any audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to our independent auditors; (vi) reviewing with our chief executive officer and chief financial officer and independent auditors the adequacy and effectiveness of our internal controls; (vii) preparing the audit committee report to be filed with the SEC; (viii) reviewing hedging transactions; and (ix) reviewing and assessing annually the audit committee’s performance and the adequacy of its charter. The role and responsibilities of our audit committee are more fully set forth in a written charter adopted by our board of directors, which is available on our website at www.mhproperties.com.

 

 

Compensation Committee 

 

Our compensation committee currently consists of Messrs. Johnson, Raymond Gee and Robertson, with Mr. Johnson serving as chairman. The primary purposes of our compensation committee are to assist our board of directors in fulfilling its responsibility to determine the compensation of our executive officers and directors and to approve and evaluate the compensation policies and programs of our company, including (i) reviewing from time to time and approving our corporate goals and objectives relevant to compensation and our executive compensation structure and compensation range; (ii) evaluating the chief executive officer’s performance in light of the goals and objectives and determining and approving the chief executive officer’s compensation based on this evaluation; (iii) determining and approving the compensation paid to our chief financial officer and any other executive officers; (iv) determining the compensation of our independent directors; (v) granting rights to indemnification and reimbursement of expenses to any officers, employees or directors; (vi) making recommendations to the board regarding equity-based and incentive compensation plans, policies and programs; and (vii) reviewing and assessing annually the compensation committee’s performance and the adequacy of its charter. The role and responsibilities of our compensation committee are more fully set forth in a written charter adopted by our board of directors, which is available on our website at www.mhproperties.com.

 

The policies underlying our compensation committee’s compensation decisions are designed to attract and retain the best-qualified management personnel available. We routinely compensate our executive officers through salaries. At our discretion, we may reward executive officers and employees through bonus programs based on profitability and other objectively measurable performance factors. Additionally, we use stock options and other incentive awards to compensate our executives and other key employees to align the interests of our executive officers with the interests of our stockholders. In establishing executive compensation, our compensation committee will evaluate compensation paid to similar officers employed at other companies of similar size in the same industry and the individual performance of each officer as it impacts our overall performance with particular focus on an individual’s contribution to the realization of operating profits and the achievement of strategic business goals. Our compensation committee will further attempt to rationalize a particular executive’s compensation with that of other executive officers of our company in an effort to distribute compensation fairly among the executive officers. Although the components of executive compensation (salary, bonus and incentive grants) will be reviewed separately, compensation decisions will be made based on a review of total compensation.

 

Code of Ethics

 

We have adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Such code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations of the code.

 

We are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within four business days following the date of any such amendment to, or waiver from, a provision of our code of ethics.

 

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table – Years Ended December 31, 2020 and 2019

 

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000.

 

Name and Principal Position		Year				Salary ($)				Option Awards ($)(1)				Stock Awards ($)(1)				Total ($)
Raymond M. Gee, Chief Executive Officer			2020				-				-				6,500				6,500
			2019				-				-				2,700				2,700
Michael Z. Anise, President and Chief Financial Officer			2020				150,000				-				6,500				156,500
			2019				150,000				5,230				2,700				157,930
Adam A. Martin, Chief Investment Officer			2020				130,000				-				-				130,000
			2019				130,000				-				-				130,000

 

(1)

The amount is equal to the aggregate grant-date fair value with respect to the awards, computed in accordance with FASB ASC Topic 718.

 

Outstanding Equity Awards at Fiscal Year End

 

The following table includes certain information with respect to the value of all unexercised options and unvested shares of restricted stock previously awarded to the executive officers named above at the fiscal year ended December 31, 2020.

 

		Option Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Option Exercise Price ($)				Option Expiration Date
Michael Z. Anise			236,000				-				-			$	0.01				12/11/2027
Michael Z. Anise			32,333				64,667				-			$	0.27				12/26/2029
Adam A. Martin			240,000				-				-			$	0.01				12/11/2027

 

Director Compensation

 

The table below sets forth our non-executive officer directors’ compensation during the fiscal year ended December 31, 2020.

 

Name		Fees Earned or Paid in Cash ($)				Stock Awards ($)(1)				Total ($)
William H. Carter			10,000				6,500				16,500
Richard M. Gee			4,000				-				4,000
James L. Johnson			10,000				6,500				16,500
Terry Robertson			10,000				6,500				16,500

 

(1)

During the second quarter of 2020, we awarded 10,000 shares of Common Stock to each of our directors under our Stock Compensation Plan. These shares vested in full on the date of issuance. The amount is equal to the aggregate grant-date fair value with respect to the awards, computed in accordance with FASB ASC Topic 718.

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information regarding beneficial ownership of our Common Stock as of January 19, 2021 by (i) each of our officers and directors; (ii) all of our officers and directors as a group; and (iii) each person who is known by us to beneficially own more than 5% of our Common Stock. Unless otherwise specified, the address of each of the persons set forth below is in care of our company, 136 Main Street, Pineville, NC 28134.

 

Name and Address of Beneficial Owner		Title of Class		Amount and Nature of Beneficial Ownership(1)				Percent of Class(2)
Raymond M. Gee, Chairman and Chief Executive Officer (3)		Common Stock			8,665,000				69.89	%
Michael Z. Anise, President, Chief Financial Officer and Director (4)		Common Stock			288,333				2.28	%
Andrew Coatley, Chief Operating Officer (5)		Common Stock			20,000				*
Adam A. Martin, Chief Investment Officer (6)		Common Stock			240,000				1.90	%
William H. Carter, Director		Common Stock			20,000				*
Richard M. Gee, Director		Common Stock			0				*
James L. Johnson, Director		Common Stock			20,000				*
Terry Robertson, Director		Common Stock			20,000				*
All officers and directors as a group (7 persons named above)		Common Stock			9,273,333				74.71	%
Michael P. Kelly (7)		Common Stock			2,000,000				16.13	%
Joseph Jackson (8)		Common Stock			1,254,506				10.12	%

 

*

Less than 1%

 

(1)

Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Except as set forth below, each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our Common Stock.

 

(2)

A total of 12,397,480 shares of our Common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of January 19, 2021. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator.

 

(3)

Includes 20,000 shares of Common Stock held directly and 8,645,000 shares of Common Stock held by Gvest Real Estate Capital LLC. Raymond M. Gee is the Managing Member of Gvest Real Estate Capital LLC and has voting and investment control over the shares held by it.

 

(4)

Includes 20,000 shares of Common Stock held directly and 268,333 shares of Common Stock which Mr. Anise has the right to acquire within 60 days through the exercise of vested options.

 

(5)

Consists of 20,000 shares of Common Stock which Mr. Coatley has the right to acquire within 60 days through the exercise of vested options.

 

(6)

Consists of 240,000 shares of Common Stock which Mr. Martin has the right to acquire within 60 days through the exercise of vested options.

 

(7)

Represents shares held by The Raymond M Gee Irrevocable Trust. Michael P. Kelly is the Trustee of The Raymond M Gee Irrevocable Trust and has voting and investment control over the shares held by it.

 

(8)

Represents shares held by Metrolina Loan Holdings, LLC. Joseph Jackson is the Managing Member of Metrolina Loan Holdings, LLC and has voting and investment control over the shares held by it. The address of Metrolina Loan Holdings, LLC is 108 Gateway Blvd, Suite 104, Mooresville, NC 28117.

 

We do not currently have any arrangements which if consummated may result in a change of control of our company.  

 

 

TRANSACTIONS WITH RELATED PERSONS

 

Transactions with Related Persons

 

The following includes a summary of transactions since the beginning of our 2018 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

 

●

On October 1, 2017, we issued a revolving promissory note to Raymond M. Gee, our chairman and chief executive officer, pursuant to which we may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of September 30, 2020 and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.

 

●

On May 8, 2017, we issued a promissory note to Metrolina in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, we paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of our Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in our company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This note was to mature in May of 2023. As of September 30, 2020 and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, we paid off the full balance and terminated the note. This related party note was guaranteed by Mr. Gee.

 

●

In January 2019, we executed an agreement to acquire the 25% minority interest in Pecan Grove and issued 2,000,000 shares of our Common Stock to Gvest Real Estate Capital LLC, an entity controlled by Mr. Gee, for the minority interest acquisition, which were valued at the historical cost value of $293,241.

 

●

During the years ended December 31, 2019 and 2018, we recorded $48,319 and $4,000, respectively, in revenues related to property management consulting services provided to Gvest Real Estate Capital LLC. During nine months ended September 30, 2020 and 2019, we recorded $13,267 and $19,448, respectively.

 

●

During the year ended December 31, 2019, Mr. Gee received a $50,000 fee for his personal guarantee on a promissory note relating to a loan for one of our acquisitions. During the nine months ended September 30, 2020, Mr. Gee received a $50,000 fee for his personal guarantee on a promissory note relating to a loan for one of our acquisitions and a $70,000 fee for his personal guarantee on a promissory note relating to the refinance of our loans for Butternut MHP Land LLC. The fees were recorded as loan costs and are amortized over the life of the loans.

 

●

In August 2019, we entered into an office lease agreement with Gvest Real Estate Capital LLC for the lease of our offices. The lease is $4,000 per month and is on a month-to-month term. During 2019, we paid $16,000 of rent expense to Gvest Real Estate Capital LLC. Total rent expense for the nine months ended September 30, 2020 and 2019 was $36,000 and $0, respectively.

 

Parent Company

 

As of January 19, 2021, Gvest Real Estate Capital LLC holds approximately 69.73% of our issued and outstanding voting securities. 

 

 

DESCRIPTION OF SECURITIES

 

General

 

The following description summarizes important terms of the classes of our capital stock. This summary does not purport to be complete and is qualified in its entirety by the provisions of our articles of incorporation and our bylaws which have been filed as exhibits to the offering statement of which this offering circular is a part.

 

Our authorized capital stock consists of 200,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share.  

 

As of January 19, 2021, there were 12,397,480 shares of Common Stock, 1,890,000 shares of Series A Preferred Stock and 641,254 shares of Series B Preferred Stock issued and outstanding. No other shares of our capital stock were issued and outstanding as of such date.

 

Common Stock

 

Holders of our Common Stock are entitled to one vote for each share on all matters voted upon by our stockholders, including the election of directors, and do not have cumulative voting rights.  Subject to the rights of holders of any then outstanding shares of our Preferred Stock, our Common Stockholders are entitled to any dividends that may be declared by our board.  Holders of our Common Stock are entitled to share ratably in our net assets upon our dissolution or liquidation after payment or provision for all liabilities and any preferential liquidation rights of our Preferred Stock then outstanding.  Holders of our Common Stock have no preemptive rights to purchase shares of our stock.  The shares of our Common Stock are not subject to any redemption provisions.   The rights, preferences and privileges of holders of our Common Stock will be subject to those of the holders of any shares of our Preferred Stock that we may issue in the future.

 

Preferred Stock

 

Our articles of incorporation further authorize the board of directors to issue, from time to time, without stockholder approval, up to 10,000,000 shares of Preferred Stock. Our board may, from time to time, authorize the issuance of one or more classes or series of Preferred Stock without stockholder approval. Subject to the provisions of our articles of incorporation and limitations prescribed by law, our board is authorized to adopt resolutions to issue shares, establish the number of shares, change the number of shares constituting any series, and provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions on shares of our Preferred Stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences, in each case without any action or vote by our stockholders.

 

One of the effects of undesignated Preferred Stock may be to enable our board to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise. The issuance of Preferred Stock may adversely affect the rights of our common stockholders by, among other things: restricting dividends on the Common Stock; diluting the voting power of the Common Stock; impairing the liquidation rights of the Common Stock; or delaying or preventing a change in control without further action by the stockholders.

 

Series A Preferred Stock

 

On May 8, 2019, we filed a certificate of designation with the Nevada Secretary of State to establish our Series A Preferred Stock. We designated a total of 4,000,000 shares of Preferred Stock as “Series A Cumulative Convertible Preferred Stock.” Our Series A Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to our Common Stock. The terms of the Series A Preferred Stock will not limit our ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of our Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up.

 

Dividend Rate and Payment Dates. Dividends on our Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of our Series A Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.

 

 

Liquidation Preference. The liquidation preference for each share of our Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series A Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

 

Stockholder Optional Conversion. Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof and without the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation preference of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment as set forth in the certificate of designation. In addition, if at any time the trading price of our Common Stock is greater than the liquidation preference of $2.50, we may deliver a written notice to all holders to cause each holder to convert all or part of such holders Series A Preferred Stock.

 

Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of our Series A Preferred Stock and continuing indefinitely thereafter, we shall have a right to call for redemption the outstanding shares of our Series A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of our Series A Preferred Stock, and correspondingly, each holder of shares of our Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares.

 

Further Issuances. We will not be required to redeem shares of our Series A Preferred Stock at any time except as otherwise described above under the caption “Company Call and Stockholder Put Options.” Accordingly, the shares of our Series A Preferred Stock will remain outstanding indefinitely, unless we decide, at our option, to exercise our call right, the holder of the Series A Preferred Stock exercises his put right or the holder of shares of Series A Preferred Stock converts such stock into Common Stock in accordance with the terms of the Series A Preferred Stock. The shares of Series A Preferred Stock are not subject to any sinking fund.

 

Voting Rights. We may not authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend our articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of our outstanding shares of Series A Preferred Stock, voting together as a class. Otherwise, holders of the shares of our Series A Preferred Stock do not have any voting rights.

 

Series B Preferred Stock

 

On December 2, 2019, we filed a certificate of designation with the Nevada Secretary of State to establish our Series B Preferred Stock. We designated a total of 1,000,000 shares of Preferred Stock as “Series B Cumulative Redeemable Preferred Stock.” Our Series B Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series B Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to our Common Stock and pari passu with our Series A Preferred Stock. The terms of the Series B Preferred Stock do not limit our ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of our Series B Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up.

 

Dividend Rate and Payment Dates. Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series B Preferred Stock are entitled to receive cumulative dividends in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally defined as our failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. Dividends on shares of our Series B Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.

 

Liquidation Preference. The liquidation preference for each share of our Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series B Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

 

 

Company Call and Stockholder Put Options. Commencing on November 29, 2024 (the fifth anniversary of the initial closing of this offering) and continuing indefinitely thereafter, we shall have a right to call for redemption the outstanding shares of our Series B Preferred Stock at a call price equal to $15.00, or 150% of the original issue price of our Series B Preferred Stock, and correspondingly, each holder of shares of our Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such holder back to us at a put price equal to $15.00, or 150% of the original issue purchase price of such shares.

 

Further Issuances. We will not be required to redeem shares of our Series B Preferred Stock at any time except as otherwise described above under the caption “Company Call and Stockholder Put Options.” Accordingly, the shares of our Series B Preferred Stock will remain outstanding indefinitely, unless we decide, at our option, to exercise our call right, the holder of the Series B Preferred Stock exercises his put right. The shares of Series B Preferred Stock will not be subject to any sinking fund.

 

Voting Rights. We may not authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend our articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of our outstanding shares of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares of our Series B Preferred Stock will not have any voting rights.

 

No Conversion Right. The Series B Preferred Stock are not convertible into shares of our Common Stock.

 

Series C Preferred Stock

 

Immediately prior to the initial closing of this offering, we will file a certificate of designation with the Nevada Secretary of State to establish our Series C Preferred Stock. We will designate a total of 50,000 shares of Preferred Stock as “Series C Cumulative Redeemable Preferred Stock.” Our Series C Preferred Stock will have following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series C Preferred Stock will rank, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to our Common Stock and pari passu with our Series A Preferred Stock and Series B Preferred Stock. The terms of the Series C Preferred Stock do not limit our ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior in rank to the shares of our Series C Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up.

 

Stated Value. Each share of Series C Preferred Stock will have an initial stated value of $1,000, which is equal to the offering price per share, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting our Series C Preferred Stock. The stated value shall automatically increase one time by ten percent (10%) on the fifth (5^th) anniversary of the date of issuance of the first share of Series C Preferred Stock.

 

Dividend Rate and Payment Dates. Dividends on the Series C Preferred Stock will be cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of our Series C Preferred Stock will be entitled to receive cumulative monthly cash dividends at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each share will begin accruing on, and will be cumulative from, the date of issuance and regardless of whether our board of directors declares and pays such dividends. Dividends on shares of our Series C Preferred Stock will continue to accrue even if any of our agreements prohibit the current payment of dividends or we do not have earnings.

 

Liquidation Preference. Upon a liquidation, dissolution or winding up of our company, holders of shares of our Series C Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of our Common Stock and on a pari passu basis with holders of our Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued but unpaid dividends thereon.

 

 

Redemption Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that we redeem that holder’s Series C Preferred Stock. Our board of directors may, however, suspend cash redemptions at any time in its discretion if it determines that it would not be in the best interests of our company to effectuate cash redemptions at a given time because we do not have sufficient cash, including because our board believes that our cash on hand should be utilized for other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred Stock per quarter and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first served, basis. We will redeem shares at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be:

 

●

11% if the redemption is requested on or before the first anniversary of the original issuance of such shares;

 

●

8% if the redemption is requested after the first anniversary and on or before the second anniversary of the original issuance of such shares;

 

●

5% if the redemption is requested after the second anniversary and on or before the third anniversary of the original issuance of such shares; and

 

●

after the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee shall be subtracted from the redemption price.

 

Please see the certificate of designation, the form of which has been filed as an exhibit to the offering statement of which this offering circular forms a part, for the procedures to request a redemption.

 

Optional Redemption by our company. We will have the right (but not the obligation) to redeem shares of Series C Preferred Stock at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however, that if we redeem any shares of Series C Preferred Stock prior to the fifth (5^th) anniversary of their issuance, then the redemption price shall include a premium equal to ten percent (10%) of the stated value.

 

Mandatory Redemption by our company. We are required to redeem all outstanding shares of Series C Preferred Stock on the tenth (10^th) anniversary of the date of issuance of the first share of Series C Preferred Stock at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon.

 

Optional Repurchase Upon Death, Disability or Bankruptcy of a Holder. Subject to certain restrictions and conditions, we will also repurchase shares of Series C Preferred Stock of a holder who is a natural person (including an individual beneficial holder who holds shares through a custodian or nominee, such as a broker-dealer) upon his or her death, total disability or bankruptcy, within sixty (60) days of our receipt of a written request from the holder or the holder’s estate at a repurchase price equal to the stated value, plus accrued and unpaid dividends thereon. A “total disability” means a determination by a physician approved by us that a holder, who was gainfully employed and working at least forty (40) hours per week as of the date on which his or her shares were purchased, has been unable to work forty (40) or more hours per week for at least twenty-four (24) consecutive months. Please see the certificate of designation, the form of which has been filed as an exhibit to the offering statement of which this offering circular forms a part, for the procedures to request a repurchase.

 

Restrictions on Redemption and Repurchase. We will not be obligated to redeem or repurchase shares of Series C Preferred Stock if we are restricted by applicable law or our articles of incorporation from making such redemption or repurchase or to the extent any such redemption or repurchase would cause or constitute a default under any borrowing agreements to which we or any of our subsidiaries are a party or otherwise bound. In addition, we will have no obligation to redeem shares in connection with a redemption request made by a holder if we determine, as of the redemption date, that we do not have sufficient funds available to fund that redemption. In this regard, we will have complete discretion under the certificate of designation for the Series C Preferred Stock to determine whether we are in possession of “sufficient funds” to fund a redemption request. To the extent we are unable to complete redemptions we may have earlier agreed to make, we will complete those redemptions promptly after we become able to do so, with all such deferred redemptions being satisfied on a first come, first served, basis.

 

Voting Rights. The Series C Preferred Stock will have no voting rights relative to matters submitted to a vote of our stockholders (other than as required by law). However, we may not, without the affirmative vote or written consent of the holders of a majority of the then issued and outstanding Series C Preferred Stock: (i) amend or waive any provision of the certificate of designation or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Series C Preferred Stock (other than an amendment solely for the purpose of changing the number of shares of Series C Preferred Stock designated for issuance as provided in the certificate of designation); (ii) authorize, create or issue shares of any class of stock having rights, preferences or privileges as to dividends or distributions upon a liquidation that are superior to the Series C Preferred Stock; or (iii) amend our articles of incorporation in a manner that adversely and materially affects the rights of the Series C Preferred Stock.

 

No Conversion Right. The Series C Preferred Stock will not be convertible into shares of our Common Stock.

 

 

Anti-takeover Effects of Nevada Law

 

Business Combinations

 

The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; or after the expiration of the three-year period, unless:

 

●

the transaction is approved by the board of directors or a majority of the voting power held by disinterested stockholders, or

 

●

if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.

 

A “combination” is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (c) 10% or more of the earning power or net income of the corporation. In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation’s voting stock.

 

These provisions could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer stockholders the opportunity to sell their stock at a price above the prevailing market price.

 

Control Share Acquisitions

 

The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the Nevada Revised Statutes, which apply only to Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada, prohibit an acquiror, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquiror obtains approval of the target corporation’s disinterested stockholders. These provisions specify three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Once an acquiror crosses one of the above thresholds, those shares in an offer or acquisition, and acquired within 90 days thereof, become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.

 

Anti-takeover Effects of Articles of Incorporation and Bylaws

 

Our articles of incorporation and bylaws also contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of our company or changing our board of directors and management.

 

As noted above, our articles of incorporation authorize our board to issue up to 10,000,000 shares of Preferred Stock without further stockholder approval. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any Preferred Stock could diminish the rights of holders of Common Stock, and therefore could reduce the value of such Common Stock. In addition, specific rights granted to future holders of Preferred Stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board to issue Preferred Stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our Common Stock.

 

In addition, according to our articles of incorporation and bylaws neither the holders of Common Stock nor the holders of Preferred Stock have cumulative voting rights in the election of directors. The lack of cumulative voting makes it more difficult for other stockholders to replace the board of directors or for a third party to obtain control of our company by replacing the board of directors. The bylaws also contain a limitation as to who may call special meetings as well as require advance notice of stockholder matters to be brought at a meeting. Additionally, our bylaws also provide that no director may be removed by less than a two-thirds vote of the issued and outstanding shares entitled to vote on the removal.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our Common Stock is First American Stock Transfer, Inc. with an address at 4747 North 7th Street Suite 170, Phoenix AZ 85014. Their phone number is (602) 485-1346.

 

 

PLAN OF DISTRIBUTION

 

General

 

We are offering up to a maximum of 50,000 shares of our Series C Preferred Stock. The offering is made through Arete Wealth Management, LLC, our dealer manager, on a “best efforts” basis, which means that the dealer manager is only required to use its good faith efforts and reasonable diligence to sell the shares and has no firm commitment or obligation to purchase any specific number or dollar amount of the shares.

 

The shares will be sold at a public offering price of $1,000 per share. The minimum initial investment is at least $10,000 and any additional purchases must be investments of at least $5,000; provided that purchases of less than $10,000 may be made in the discretion of the dealer manager.

 

This offering will terminate at the earlier of: (1) the date at which the maximum amount of offered Series C Preferred Stock has been sold, (2) the date which is one year after the offering statement of which this offering circular forms a part is qualified by the SEC, subject to an extension of up to an additional one year at the discretion of our company and the dealer manager, or (3) the date on which this offering is earlier terminated by us in our sole discretion.

 

Arete Wealth Management, LLC is a securities broker-dealer registered with the SEC and a member firm of FINRA. Its principal business address is 1115 W. Fulton Market, 3rd Floor, Chicago, IL 60607. The dealer manager will manage, direct and supervise its associated persons who will be wholesalers in connection with the offering. We expect the dealer manager to authorize other broker-dealers that are members of FINRA, which we refer to as participating broker-dealers, to sell our Series C Preferred Stock in this offering.

 

Compensation of Dealer Manager and Participating Broker-Dealers

 

We have agreed to pay to the dealer manager a selling commission of 6.00% of the gross offering proceeds and a dealer manager fee of 2.75% of the gross offering proceeds. The dealer manager may reallow all or a portion of its selling commissions attributable to a participating broker-dealer. In addition, the dealer manager also may reallow a portion of its dealer manager fee earned on the proceeds raised by a participating broker-dealer to such participating broker-dealer as a non-accountable marketing and due diligence allowance or as a wholesale fee. The amount of the reallowance to any participating broker-dealer will be determined by the dealer manager in its sole discretion.

 

In addition to the selling commissions and dealer management fee, we have agreed to pay the dealer manager a monthly service fee of $2,500 and to reimburse the deal manager for such expenses incurred in connection with the offering as mutually agreed to by us and the dealer manager.

 

Notwithstanding the foregoing, the combined selling commissions, dealer manager fee and additional compensation paid to the dealer manager for this offering will not exceed 10% of the aggregate gross proceeds of this offering.

 

We will not pay any selling commissions, but will pay dealer manager fees, in connection with the sale of shares to investors whose contracts for investment advisory and related brokerage services include a fixed or “wrap” fee feature. Investors may agree with their broker-dealers to reduce the amount of selling commissions payable with respect to the purchase of their shares down to zero (i) if the investor has engaged the services of a registered investment advisor or other financial advisor who will be paid compensation for investment advisory services or other financial or investment advice, or (ii) if the investor is investing through a bank trust account with respect to which the investor has delegated the decision-making authority for investments made through the account to a bank trust department. The net proceeds to us will not be affected by reducing commissions payable in connection with such sales. Neither the dealer manager nor its affiliates will directly or indirectly compensate any person engaged as an investment advisor or a bank trust department by a potential investor as an inducement for such investment advisor or bank trust department to advise favorably for an investment in the shares offered hereby.

 

No commissions or additional compensation will be payable on shares issued in satisfaction of our redemption payment obligations.

 

 

The table below sets forth the nature and estimated amount of all items viewed as compensation by FINRA, assuming we sell all the shares offered hereby.

 

		Per Share				Maximum Offering
Public offering price		$	1,000			$	50,000,000
Sales commissions(1)(3)		$	60.0			$	3,000,000
Dealer manager fee(1)(3)		$	27.5			$	1,375,000
Proceeds to us, before expenses(2)(3)		$	912.5			$	45,625,000

 

(1)

Selling commissions and the dealer manager fee will equal up to and including 6.00% and 2.75% of aggregate gross proceeds, respectively. Each is payable to the dealer manager. However, the dealer manager may reallow all or a portion of its selling commissions attributable to a participating broker-dealer. In addition, the dealer manager also may reallow a portion of its dealer manager fee earned on the proceeds raised by a participating broker-dealer to such participating broker-dealer as a non-accountable marketing and due diligence allowance or as a wholesale fee. The amount of the reallowance to any participating broker-dealer will be determined by the dealer manager in its sole discretion.

 

(2)

In addition to the selling commissions and dealer management fee, we have agreed to pay the dealer manager a monthly service fee of $2,500 and to reimburse the deal manager for such expenses incurred in connection with the offering as mutually agreed to by us and the dealer manager.

 

(3)

The combined selling commissions, dealer manager fee and additional compensation paid to the dealer manager for this offering will not exceed 10% of the aggregate gross proceeds of this offering.

 

We will be responsible for all expenses related to the issuance and distribution of the Series C Preferred Stock in this offering, including all expenses incident to marketing the offering and submitting filings with federal and state regulatory authorities, legal and accounting fees, and all costs of reproduction and distribution of this offering circular and any amendment or supplement thereto. We estimate that our total offering expenses, excluding the selling commissions and dealer manager fees, be approximately $722,000.

 

To the extent permitted by law and our articles of incorporation, we will indemnify the participating broker-dealers and the dealer manager against certain civil liabilities, including certain liabilities arising under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the dealer manager agreement. Nevertheless, the SEC takes the position that indemnification against liabilities arising under the Securities Act is against public policy and is not enforceable.

 

Purchase of Securities by Our Officers and Directors

 

Our officers and directors and affiliates of our officers and directors are permitted to purchase shares in this offering. Any such purchases shall be conducted in compliance with the applicable provisions of Regulation M. 

 

Investment Procedures

 

Investors must complete and execute a subscription agreement for a specific number of shares and pay for the shares at the time of the subscription. Subscription agreements may be submitted in paper form, or electronically, if electronic subscription agreements and signature are made available to you by your broker-dealer or registered investment advisor. Generally, when submitting a subscription agreement electronically, a prospective investor will be required to agree to various terms and conditions by checking boxes and to review and electronically sign any necessary documents. You may pay the purchase price for your shares by check or wire transfer in accordance with the instructions contained in your subscription agreement. Completed subscription agreements will be sent by your broker-dealer or registered investment advisor, as applicable, to the dealer manager at the address set forth in the subscription agreement. Subscription payments should be delivered directly to the escrow agent, Wilmington Trust, National Association, in accordance with the instructions contained in the subscription agreement. If you send your subscription payment to your broker or registered investment advisor, then your broker or registered investment advisor will immediately forward your subscription payment to the escrow agent. Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part.

 

You may not subscribe to this offering prior to the date offering statement of which this offering circular forms a part is qualified by the SEC. Before such date, you may only make non-binding indications of your interest to purchase securities in the offering. For any subscription agreements received after such date, we have the right to review and accept or reject the subscription in whole or in part, for any reason or for no reason. If rejected, we will return all funds to the rejected investor within ten business days. If accepted, the funds will remain in the escrow account until all conditions to closing have been satisfied or waived, at which point we will have an initial closing of the offering and the funds in escrow will then be transferred into our general account.

 

 

Following the initial closing of this offering, we expect to have several subsequent closings of this offering until the maximum offering amount is raised or the offering is terminated. We expect to have closings on a monthly basis and expect that we will accept all funds subscribed for each month subject to our working capital and other needs consistent with the use of proceeds described in this offering circular.  Investors should expect to wait approximately one month and no longer than forty-five days before we accept their subscriptions and they receive the securities subscribed for.  An investor’s subscription is binding and irrevocable and investors will not have the right to withdraw their subscription or receive a return of funds prior to the next closing unless we reject the investor’s subscription. You will receive a confirmation of your purchase promptly following the closing in which you participate.

 

Investment Amount Limitations

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

As a Tier 2, Regulation A offering, investors must comply with the 10% limitation to investment in the offering. The only investor in this offering exempt from this limitation is an “accredited investor” as defined under Rule 501 of Regulation D. If you meet one of the following tests you should qualify as an accredited investor:

 

●

A person who had individual income in excess of $200,000 in each of the two most recent years or joint income with their spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year

 

●

A person whose individual net worth, or joint net worth with their spouse or spousal equivalent, exceeds $1,000,000

 

●

A director or executive officer of our company

 

●

A person holding one of the following licenses in good standing: General Securities Representative license (Series 7), the Private Securities Offerings Representative license (Series 82), or the Investment Adviser Representative license (Series 65)

 

●

An entity all of whose beneficial equity owners meet one of the conditions in the first two bullets above

 

●

An entity that has total assets in excess of $5,000,000, was not formed for the specific purpose of acquiring the securities offered and is one or more of the following (A) an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended; (B) a corporation, (C) a Massachusetts or similar business trust, (D) a partnership, or (E) a limited liability company

 

●

A trust with total assets exceeding $5,000,000, which was not formed for the specific purpose of acquiring the securities offered and whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the investment in the securities offered

 

●

A bank as defined in section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity

 

●

A broker or dealer registered pursuant to section 15 of the Exchange Act

 

●

An investment adviser registered pursuant to section 203 of the Investment Advisers Act of 1940 or registered pursuant to the laws of a state

 

●

An investment adviser relying on the exemption from registering with the SEC under section 203(l) or (m) of the Investment Advisers Act of 1940, or the Investment Advisers Act

 

●

An insurance company as defined in section 2(a)(13) of the Securities Act

 

●

An investment company registered under the Investment Company Act of 1940, or the Investment Company Act, or a business development company as defined in section 2(a)(48) of the Investment Company Act

 

●

A Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958

 

 

●

A Rural Business Investment Company as defined in section 384A of the Consolidated Farm and Rural Development Act

 

●

A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000

 

●

An employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 and (A) the investment decision is made by a plan fiduciary, as defined therein, in Section 3(21), which is either a bank, savings and loan association, insurance company, or registered investment adviser; or (B) the employee benefit plan has total assets in excess of $5,000,000; or (C) the plan is a self-directed plan with investment decisions made solely by persons who are “accredited investors” as defined therein

 

●

A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act

 

●

A “family office,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act: (A) with assets under management in excess of $5,000,000, (B) that is not formed for the specific purpose of acquiring the securities offered, and (C) whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment

 

●

A “family client,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act, of a family office meeting the requirements in the bullet above and whose prospective investment in the issuer is directed by such family office pursuant to clause (C) of that bullet

 

●

An entity, of a type not listed in the bullets above for entities, not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000.

 

For purposes of calculating net worth a person’s primary residence is not included as an asset; indebtedness that is secured

by a primary residence, up to the estimated fair market value of the primary residence at the time of the purchase of securities, is not included as a liability (except that if the amount of such indebtedness outstanding at the time of the purchase of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess is included as a liability); and indebtedness that is secured by a primary residence in excess of the estimated fair market value of the primary residence at the time of the purchase of securities is included as a liability.

 

In determining income, an investor should add to the investor’s adjusted gross income any amounts attributable to tax exempt income received, losses claimed as a limited partner in any limited partnership, deduction claimed for depletion, contribution to an IRA or Keogh plan, alimony payments, and any amount by which income for long-term capital gains has been reduced in arriving at adjusted gross income.

 

Offer Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the dealer manager that would permit a public offering of the securities offered by this offering circular in any jurisdiction where action for that purpose is required. The securities offered by this offering circular may not be offered or sold, directly or indirectly, nor may this offering circular or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this offering circular comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this offering circular. This offering circular does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this offering circular in any jurisdiction in which such an offer or a solicitation is unlawful.

 

 

LEGAL MATTERS

 

The validity of the shares of Series C Preferred Stock covered by this offering circular will be passed upon by Sherman & Howard L.L.C.

 

EXPERTS

 

The consolidated financial statements of our company for the years ended December 31, 2019 and 2018 have been audited by Liggett & Webb, P.A., an independent registered public accounting firm, to the extent and for the periods set forth in their reports appearing elsewhere herein and in the offering statement, and are included in reliance on such reports, given the authority of said firm as an expert in auditing and accounting.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC an offering statement on Form 1-A under the Securities Act with respect to the units offered in this offering. This offering circular does not contain all of the information set forth in the offering statement. For further information with respect to the units offered in this offering and our company, we refer you to the offering statement and to the attached exhibits. With respect to each such document filed as an exhibit to the offering statement, we refer you to the exhibit for a more complete description of the matters involved.

 

You may inspect our offering statement and the attached exhibits and schedules without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

 

Our SEC filings, including the offering statement and the exhibits filed with the offering statement, are also available from the SEC’s website at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Additionally, we will make these filings available, free of charge, on our website at www.mhproperties.com as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. The information on our website, other than these filings, is not, and should not be, considered part of this prospectus and is not incorporated by reference into this document.

 

 

FINANCIAL STATEMENTS

 

	Page(s)
Manufactured Housing Properties, Inc. Unaudited Condensed Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2020 and 2019	F-2
Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 (as revised)	F-3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	F-4
Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 2019 (as revised) (unaudited)	F-5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)	F-6
Notes to Unaudited Condensed Consolidated Financial Statements	F-7
Manufactured Housing Properties, Inc. Audited Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018	F-22
Report of Independent Registered Public Accounting Firm	F-23
Consolidated Balance Sheets as of December 31, 2019 (as revised) and 2018	F-24
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018	F-25
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2019 (as revised) and 2018	F-26
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018	F-27
Notes to Consolidated Financial Statements	F-28
J & A Real Estate, LLC Statement of Revenues and Certain Expenses for the Year Ended December 31, 2019	F-43
Independent Auditor’s Report	F-44
Statement of Revenues and Certain Expenses for the Year Ended December 31, 2019	F-45
Notes to Statement of Revenues and Certain Expenses	F-46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MANUFACTURED HOUSING PROPERTIES INC.

 

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 

 

 

 

 

 

 

 

 

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

 

		September 30, 2020				December 31, 2019
Assets		(unaudited)				(as Revised)
Investment Property
Land		$	11,378,818			$	10,885,938
Site and Land Improvements			22,007,126				17,466,801
Buildings and Improvements			7,048,699				6,214,725
Total Investment Property			40,434,643				34,567,464
Accumulated Depreciation & Amortization			(2,621,354	)			(1,394,958	)
Net Investment Property			37,813,289				33,172,506
Cash and Cash Equivalents, including restricted cash of $371,826 and $316,035 respectively			2,099,390				4,146,411
Accounts Receivable, net			45,293				31,881
Other Assets			601,010				557,012
Total Assets		$	40,558,982			$	37,907,810
Liabilities
Accounts Payable		$	214,289			$	227,406
Notes Payable, net of $746,560 and $633,629 debt discount			32,159,085				28,359,247
Note Payable – Related Party			605,580				797,906
Note Payable – Line of Credit Related Party			-				1,730,000
Accrued Liabilities			583,922				551,481
Tenant Security Deposits			371,826				316,035
Total Liabilities			33,934,702				31,982,075
Commitments and Contingencies (See note 5)			-				-
Redeemable Preferred Stock – subject to redemption
Series A Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share; 4,000,000 shares authorized; 1,890,000 shares issued and outstanding as of September 30, 2020 and December 31, 2019; redemption value $7,087,500			5,263,375				4,909,000
Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share; 1,000,000 shares authorized; 615,291 and 409,722 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; redemption value $9,229,365			6,293,427				3,973,610
Stockholders’ deficit
Common Stock, par value $0.01 per share; 200,000,000 shares authorized; 12,397,180 and 12,336,080 shares are issued and outstanding as of September 30, 2020 and December 31, 2019, respectively			123,972				123,361
Additional Paid in Capital			(558,758	)			759,849
Accumulated Deficit			(4,497,736	)			(3,840,085	)
Total Stockholders’ Deficit			(4,932,522	)			(2,956,875	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	40,558,982			$	37,907,810

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Revenue
Rental and related income		$	1,615,994			$	794,543			$	4,422,002			$	1,963,835
Management fees, related party			5,004				4,164				13,267				19,448
Total revenues			1,620,998				798,707				4,435,269				1,983,283
Community operating expenses
Repair and maintenance			93,501				65,394				234,996				160,621
Real estate taxes			90,498				42,178				242,776				110,660
Utilities			150,568				50,069				402,124				130,744
Insurance			27,622				21,086				116,123				47,015
General and administrative expense			133,279				66,566				384,949				227,188
Total community operating expenses			495,468				245,293				1,380,968				676,228
Corporate payroll and overhead			311,787				125,229				1,065,624				587,463
Depreciation and amortization expense			485,377				204,719				1,357,629				496,966
Interest expense			385,190				555,786				1,288,699				1,076,254
Refinancing costs			-				-				-				552,272
Total expenses			1,677,822				1,131,027				5,092,920				3,389,183
Loss before provision for income taxes			(56,824	)			(332,320	)			(657,651	)			(1,405,900	)
Provision for income taxes			-				-				-				-
Net Loss		$	(56,824	)		$	(332,320	)		$	(657,651	)		$	(1,405,900	)
Preferred stock dividends and put option value accretion
Series A preferred dividends			89,500				19,000				281,720				43,334
Series A preferred put option value accretion			118,125				23,750				354,375				47,500
Series B preferred dividends			114,413				-				310,288				-
Series B preferred put option value accretion			110,807				-				408,834				-
Total preferred stock dividends and put option value accretion			432,845				42,750				1,355,217				90,834
Net loss attributable to common stockholders		$	(489,669	)		$	(375,070	)		$	(2,012,868	)		$	(1,496,734	)
Weighted average shares - basic and fully diluted			12,395,376				12,799,568				12,369,344				12,738,962
Net loss per share - basic		$	(0.04	)		$	(0.03	)		$	(0.16	)		$	(0.12	)
Net loss per share - fully diluted		$	(0.04	)		$	(0.03	)		$	(0.16	)		$	(0.12	)

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED)

 

		COMMON STOCK								ADDITIONAL				NON				ACCUMULATED				STOCKHOLDERS’
		SHARES				PAR VALUE				PAID IN CAPITAL				CONTROLLING INTEREST				DEFICIT				EQUITY (DEFICIT)
Balance at January 1, 2019			10,350,062			$	103,500			$	451,567			$	293,241			$	(1,801,338	)		$	(953,030	)
Stock option expense			-				-				8				-				-				8
Common Stock issuance for acquisition of minority interest (as revised) Note 2			2,000,000				20,000				273,241				(293,241	)			-				-
Common Stock issuance for line of credit			545,000				5,450				299,750				-				-				305,200
Common Stock issuance for service			-				-				24,500				-				-				24,500
Preferred shares Series A dividends			-				-				(4,667	)			-				-				(4,667	)
Imputed interest			-				-				14,004				-				-				14,004
Net Loss			-				-				-				-				(719,314	)			(719,314	)
Balance at March 31, 2019 (as revised)			12,895,062				128,950			$	1,058,403				-				(2,520,652	)			(1,333,299	)
Stock option expense			-				-				8				-				-				8
Common Stock issuance for cash for line of credit			254,506				2,545				66,172				-				-				68,717
Purchase Treasury Common Stock			(350,000	)			(3,500	)			(61,011	)			-				-				(64,511	)
Imputed interest			-				-				13,857				-				-				13,857
Preferred shares Series A put option value accretion			-				-				(23,750	)			-				-				(23,750	)
Preferred shares Series A dividends			-				-				(19,667	)			-				-				(19,667	)
Net Loss			-				-				-				-				(354,266	)			(354,266	)
Balance at June 30, 2019 (as revised)			12,799,568			$	127,995			$	1,034,012			$	-			$	(2,874,918	)		$	(1,792,911	)
Stock option expense			-				-				8				-				-				8
Imputed interest			-				-				12,872				-				-				12,872
Preferred shares Series A put option value accretion			-				-				(19,000	)			-				-				(19,000	)
Preferred shares Series A dividends			-				-				(23,750	)			-				-				(23,750	)
Net Loss			-				-				-				-				(332,320	)			(332,320	)
Balance at September 30, 2019 (as revised)			12,799,568			$	127,995			$	1,004,142			$	-			$	(3,207,238	)		$	(2,075,101	)
Balance at January 1, 2020 (as revised)			12,336,080			$	123,361			$	759,849			$	-			$	(3,840,085	)		$	(2,956,875	)
Stock option expense			-				-				539				-				-				539
Common Stock issuance to preferred share holders			6,000				60				1,560				-				-				1,620
Preferred shares Series A put option value accretion			-				-				(118,125	)			-				-				(118,125	)
Preferred shares Series A dividends			-				-				(94,500	)			-				-				(94,500	)
Preferred shares Series B put option value accretion			-				-				(127,368	)			-				-				(127,368	)
Preferred shares Series B dividends			-				-				(92,996	)			-				-				(92,996	)
Net Loss			-				-				-				-				(354,165	)			(354,165	)
Balance at March 31, 2020			12,342,080			$	123,421			$	328,959			$	-			$	(4,194,250	)		$	(3,741,870	)
Stock option expense			-				-				539				-				-				539
Common Stock issuance to preferred share holders			2,100				21				546				-				-				567
Common shares issued to board of directors			50,000				500				32,000				-				-				32,500
Preferred shares Series A put option value accretion			-				-				(118,125	)			-				-				(118,125	)
Preferred shares Series A dividends			-				-				(97,720	)			-				-				(97,720	)
Preferred shares Series B put option value accretion			-				-				(170,659	)			-				-				(170,659	)
Preferred shares Series B dividends			-				-				(102,879	)			-				-				(102,879	)
Net Loss			-				-				-				-				(246,662	)			(246,662	)
Balance at June 30, 2020			12,394,180			$	123,942			$	(127,339	)		$	-			$	(4,440,912	)		$	(4,444,309	)
Stock option expense			-				-				646				-				-				646
Common Stock issuance to preferred share holders			3,000				30				780				-				-				810
Preferred shares Series A put option value accretion			-				-				(118,125	)			-				-				(118,125	)
Preferred shares Series A dividends			-				-				(89,500	)			-				-				(89,500	)
Preferred shares Series B put option value accretion			-				-				(110,807	)			-				-				(110,807	)
Preferred shares Series B dividends			-				-				(114,413	)			-				-				(114,413	)
Net Loss			-				-				-				-				(56,824	)			(56,824	)
Balance at September 30, 2020			12,397,180			$	123,972			$	(558,758	)		$	-			$	(4,497,736	)		$	(4,932,522	)

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED)

 

		2020				2019
Cash Flows from Operating Activities:
Net Loss		$	(657,651	)		$	(1,405,900	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
In-kind contribution of interest			-				40,733
Provision for bad debts			3,802				23,820
Stock option expense			1,724				24
Stock compensation expense			32,500				329,700
Write off mortgage cost			-				68,195
Depreciation and amortization			1,357,629				504,542
Changes in operating assets and liabilities:
Accounts receivable			(17,214	)			(44,914	)
Other assets			(43,998	)			(461,532	)
Accounts payable			(13,117	)			230,164
Accrued liabilities			25,415				119,135
Tenant security deposits			55,791				92,923
Net Cash Provided by (Used in) Operating Activities			744,881				(503,110	)
Cash Flows from Investing Activities:
Capital Improvements			(720,594	)			-
Purchases of investment properties			(1,001,000	)			(10,138,342	)
Net Cash Used in Investing Activities			(1,721,594	)			(10,138,342	)
Cash Flows from Financing Activities:
Proceeds from related – party note			-				7,075
Repayment of note payable – line of credit related party			(1,730,000	)			(2,754,550	)
Proceeds from note payable – line of credit related party			-				3,000,000
Proceeds from notes payable			418,134				18,481,076
Repayment of notes payable			(641,733	)			(7,898,248	)
Proceeds from issuance of preferred stock			1,911,792				1,465,000
Proceeds from issuance of common stock			-				68,717
Purchase of treasury stock			-				(64,511	)
Repayment of note payable - related party			(192,326	)			-
Capitalized financing cost			-				(275,519	)
Payment of mortgage costs recorded as debt discount			(244,167	)			(73,434	)
Preferred shares dividends			(592,008	)			(43,334	)
Net Cash Provided by (Used in) Financing Activities			(1,070,308	)			11,912,272
Net change in cash, cash equivalents and restricted cash			(2,047,021	)			1,270,820
Cash, cash equivalents and restricted cash at beginning of the period			4,146,411				458,271
Cash, cash equivalents and restricted cash at end of the period		$	2,099,390			$	1,729,091
Cash, cash equivalents and restricted cash consist of the following:
End of period
Cash and cash equivalents		$	1,727,564			$	1,505,019
Restricted cash			371,826				224,072
Total		$	2,099,390			$	1,729,091
Cash, cash equivalents and restricted cash consist of the following:
Beginning of period
Cash and cash equivalents		$	3,830,376			$	327,122
Restricted cash			316,035				131,149
Total		$	4,146,411			$	458,271
Cash paid for:
Income Taxes		$	-			$	-
Interest		$	1,276,614			$	577,769
Non-Cash Investing and Financing Activities
Purchase of Minority Interest in Pecan Grove (as revised)		$	-			$	293,241
Notes related to acquisitions		$	4,150,000			$	-
Non-cash Preferred stock accretion		$	763,209			$	45,500

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

Organization

 

Manufactured Housing Properties Inc. (the “Company”) is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities.

 

Basis of Presentation

 

The Company prepares its consolidated financial statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The December 31, 2019 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 14, 2020. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

The Company’s formation of all subsidiaries and date of consolidation are as follows:

 

Name of Subsidiary		State of Formation		Date of Formation			Ownership
Pecan Grove MHP LLC		North Carolina			October 12, 2016			100	%*
Butternut MHP Land LLC		Delaware			March 1, 2017			100	%
Azalea MHP LLC		North Carolina			October 25, 2017			100	%
Holly Faye MHP LLC		North Carolina			October 25, 2017			100	%
Chatham Pines MHP LLC		North Carolina			October 31, 2017			100	%
Maple Hills MHP LLC		North Carolina			October 31, 2017			100	%
Lakeview MHP LLC		South Carolina			November 1, 2017			100	%
MHP Pursuits LLC		North Carolina			January 31, 2019			100	%
Mobile Home Rentals LLC		North Carolina			September 30, 2016			100	%
Hunt Club MHP LLC		South Carolina			March 8, 2019			100	%
B&D MHP LLC		South Carolina			April 4, 2019			100	%
Crestview MHP LLC		North Carolina			June 28, 2019			100	%
Springlake MHP LLC		Georgia			October 10, 2019			100	%
ARC MHP LLC		South Carolina			November 13, 2019			100	%
Countryside MHP LLC		South Carolina			March 12, 2020			100	%
Evergreen MHP LLC		Tennessee			March 17, 2020			100	%

 

*

The Company originally acquired a 75% interest. In January 2019, the Company acquired the remaining 25% interest from a related party.

 

All intercompany transactions and balances have been eliminated in consolidation. The Company does not have a majority or minority interest in any other company, either consolidated or unconsolidated.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Revenue Recognition

 

The Company’s revenues primarily consist of rental revenues and fee and other income. The Company has the following revenue sources and revenue recognition policies:

 

●

Rental revenues include revenues from the leasing of land lot or a combination of both, the mobile home and land at our properties to tenants.

 

o

Revenues from the leasing of land lot or a combination of both, the mobile home and land at the Company’s properties to tenants include (i) lease components, including land lot or a combination of both, the mobile home and land, and (ii) reimbursement of utilities and account for the components as a single lease component in accordance with Accounting Standards Codification (“ASC”) 842.

 

o

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease. The Company commences rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of utilities are generally recognized in the same period as the related expenses are incurred. The Company’s leases are month-to-month.

 

●

Fee and other income include late fees, violation fees and other revenue arising from contractual agreements with third parties. This revenue is recognized as the services are transferred in accordance with ASC 606.

 

●

Mobile home sale revenues are recognized in accordance with Topic 606 of the Financial Accounting Standards Board (“FASB”) ASC for revenue recognition. On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when (or as) we satisfy a performance obligation.

 

Under ASC 842, the Company must assess on an individual lease basis whether it is probable that the Company will collect the future lease payments. The Company considers the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, the Company will write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.

 

Accounts Receivable 

 

Accounts receivable consist primarily of amounts currently due from residents. Accounts receivables are reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for losses. The Company records an allowance for bad debt when receivables are over 90 days old.

 

Acquisitions

 

The Company accounts for acquisitions as asset acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the purchase.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Net Income (Loss) Per Share

 

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. Total dilutive securities outstanding as of September 30, 2020 and 2019 totaled 656,175 and 541,334 stock options, respectively, 1,890,000 and 586,000 convertible Preferred Series A shares, respectively, which are convertible into common shares at $2.50 per share for a total of 756,000 and 234,400, respectively, which are not included in dilutive loss per share as the effect would be anti-dilutive.

 

Use of Estimates

 

The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Investment Property and Depreciation

 

Investment property which consists of property and equipment are carried at cost. Depreciation for Sites and Building is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years). Land Development Costs are not depreciated until they are put in use, at which time they are capitalized as Sites and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current period’s results of operations.

 

Impairment Policy

 

The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. There was no impairment during the nine months ended September 30, 2020 and 2019.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.

 

The Company maintains cash balances at banks and deposits at times may exceed federally insured limits. Management believes that the financial institutions that hold the Company’s cash are financially secure and, accordingly, minimal credit risk exists. At September 30, 2020 and December 31, 2019, the Company had approximately $586,000 and $2,553,000 above the FDIC-insured limit, respectively, including restricted cash held for tenant security deposits of $371,826 and $316,035, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Stock Based Compensation

 

All stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors, including any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are nonforfeitable the measurement date is the date the award is issued. The Company recorded stock option expense of $1,724 and $24 during the nine months ended September 30, 2020 and 2019, respectively.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

 

Reclassifications

 

Certain amounts in the prior period presentation have been reclassified to conform with the current presentation.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

 

The Company recognizes interest and penalties, if any, with income tax expense in the accompanying unaudited condensed consolidated statement of operations. As of September 30, 2020, and December 31, 2019, there were no such accrued interest or penalties.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2022. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.

 

In March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842): Codification Improvements.” ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors with existing guidance in Topic 842. The ASU requires that the fair value of the underlying asset at lease commencement is its cost reflecting in volume or trade discounts that may apply. However, if there has been a significant lapse of time between the date the asset was acquired and the lease commencement date, the definition of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06 “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity”, which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited condensed consolidated financial statements.

 

Impact of Coronavirus Pandemic

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

 

Most states and cities, including where the Company’s properties are located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it.

 

The Company is carefully reviewing all rules, regulations, and orders and responding accordingly. The Company has taken steps to take care of its employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those employees who are not able to work remotely. The Company has also taken precautions with regard to employee, facility and office hygiene as well as implementing significant travel restrictions. The Company is also assessing its business continuity plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and the Company will continue to monitor and mitigate developments affecting its workforce, its tenants, and the public at large to the extent the Company is able to do so.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due.  In addition, the Company’s property managers may be limited in their ability to properly maintain the Company’s properties.  Enforcing the Company’s rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the pandemic. If the Company is unable to enforce its rights as landlords, our business would be materially affected. 

 

If the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, the Company’s business operations could be further delayed or interrupted. The Company expects that government and health authorities may announce new or extend existing restrictions, which could require the Company to make further adjustments to its operations in order to comply with any such restrictions. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect the Company’s ability to operate its business and result in additional costs.

 

The extent to which the pandemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted as of the date hereof, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect to the Company’s performance, financial condition, results of operations and cash flows.

 

NOTE 2 – Revision of Prior Year Immaterial Misstatement

 

During the nine months ended September 30, 2020, the Company identified a certain error in recording our minority interest buyout for Pecan Grove during the first quarter of 2019. This error resulted in decreasing our land Investment Property and Equity by $244,321 and had no impact on our income statements.

 

The Company assessed the materiality of this error considering both qualitative and quantitative factors and determined that for both the quarter and fiscal year ended December 31, 2019, the error was immaterial. The Company has decided to correct this error as revisions to our previously issued financial statements and will adjust the Form 10-K when filed in succeeding periods of this fiscal year.

 

The table below present the impact of the revision in the Company’s condensed consolidated financial statements.

 

		December 31, 2019
		As previously reported				Adjustment				As Revised
Balance Sheet / Statement of Changes in Stockholders’ Equity
Investment Property
Land		$	11,130,259			$	(244,321	)		$	10,885,938
Total Investment Property			34,811,785				(244,321	)			34,567,464
Net Investment Property			33,416,827				(244,321	)			33,172,506
Total Assets			38,152,131				(244,321	)			37,907,810
Additional Paid in Capital			1,004,170				(244,321	)			759,849
Total Stockholders’ Deficit			(2,712,554	)			(244,321	)			(2,956,875	)
Total Liabilities and Stockholders’ Deficit		$	38,152,131			$	(244,321	)		$	37,907,810

 

The unaudited condensed consolidated income statement and statement of cash flows are not presented because there is no impact to these statements.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

NOTE 3 – INVESTMENT PROPERTY

 

Investment Property consists of the following as of:

 

		September 30, 2020				December 31, 2019
						(As Revised)
Investment Property
Land		$	11,378,818			$	10,885,938
Site and Land Improvements			22,007,126				17,466,801
Buildings and Improvements			7,048,699				6,214,725
Total Investment Property			40,434,643				34,567,464
Less: accumulated depreciation and amortization			(2,621,354	)			(1,394,958	)
Net Investment Property		$	37,813,289			$	33,172,506

 

Depreciation and amortization expense totaled $485,377 and $204,719 for the three months ended September 30, 2020 and 2019, respectively, and $1,357,629 and $496,966 for the nine months ended September 30, 2020 and 2019, respectively.

 

During the nine months ended September 30, 2019, the Company acquired the 25% minority interest in Pecan Grove MHP LLC. The Company also acquired two manufactured housing communities and accounted for them as asset acquisitions during the nine months ended September 30, 2020 totaling $5,310,767 (See note 8).

 

NOTE 4 – PROMISSORY NOTES

 

Promissory Notes

 

The Company has issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities. These promissory notes range from 3.3% to 7.0% with 5 to 30 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments. The promissory notes are secured by the real estate assets and $7,397,468 for four assets were guaranteed by Raymond M. Gee, the Company’s chairman, chief executive officer and owner of the principal stockholder of the Company. 

 

In addition, on May 1, 2020, the Company received a $139,300 Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration (the “SBA”) under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP provides that the loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. However, the Company cannot provide assurance that the loan will be forgiven.

 

During the nine months ended September 30, 2019, the Company refinanced a total of $4,940,750 from current loans payable to $8,241,000 of new notes payable from five of the communities, resulting in an additional loan payable of $3,320,859. The Company used the additional loans payable proceeds from the refinance to retire the related party note payable described below. During the nine months ended September 30, 2019, the Company wrote off mortgage costs of $68,195 and capitalized $275,519 of mortgage costs due to the refinancing.

 

On April 1, 2020, the Company refinanced the loans for Butternut MHP Land LLC with the existing lender to increase the loan amount to $1,382,269 and to extend the maturity date to April 10, 2025. In addition, the interest rate was changed to 6% per annum, provided that on April 10, 2023 and thereafter, the interest rate shall be equal to (i) the per annum rate of interest identified as the “Prime Rate” as published in the monthly rates section of the Wall Street Journal plus (ii) 1% per annum, adjusted as the first day of each calendar quarter. The loan, as modified, is secured by the real estate assets of Butternut MHP Land LLC and is guaranteed by the Company and Raymond M. Gee. The Company used the proceeds to extinguish and pay off the Butternut MHP Land LLC Mezz loan.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

As of September 30, 2020, the Company recorded $151,365 of mortgage cost related to the two acquisitions.

 

The following are terms of these notes:

 

		Maturity Date		Interest Rate				Balance 09/30/20				Balance 12/31/19
Butternut MHP Land LLC		04/10/25			6.000	%		$	1,375,106			$	1,114,819
Butternut MHP Land LLC Mezz		04/01/27			7.000	%			-				280,013
Pecan Grove MHP LLC		02/22/29			5.250	%			3,054,267				3,095,274
Azalea MHP LLC		03/01/29			5.400	%			815,687				835,445
Holly Faye MHP LLC		03/01/29			5.400	%			579,825				574,096
Chatham MHP LLC		04/01/24			5.875	%			1,743,510				1,771,506
Lake View MHP LLC		03/01/29			5.400	%			1,838,780				1,857,266
B&D MHP LLC		04/25/29			5.500	%			1,827,754				1,854,788
Hunt Club MHP LLC		05/01/24			5.750	%			1,424,255				1,447,364
Crestview MHP LLC		07/31/24			5.500	%			4,105,637				4,173,652
Maple MHP LLC		01/01/23			5.125	%			2,636,854				2,688,653
Springlake MHP LLC		11/14/22			3.310	%			4,000,000				4,000,000
ARC MHP LLC		01/01/30			5.500	%			5,224,329				5,300,000
Countryside MHP LLC		03/20/50			5.500	%			3,000,000				-
Evergreen MHP LLC		04/01/32			3.990	%			1,140,341				-
PPP Loan		05/01/22			1.000	%			139,300				-
Totals note payables									32,905,645				28,992,876
Discount Direct Lender Fees									(746,560	)			(633,629	)
Total net of Discount								$	32,159,085			$	28,359,247

 

Related Party Promissory Note

 

On May 8, 2017, the Company issued a promissory note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This note matures in May of 2023. As of September 30, 2020 and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, the Company paid off the full balance and terminated the loan facility. The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.

 

Revolving Promissory Note

 

On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of September 30, 2020 and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Maturities of Long-Term Obligations for Five Years and Beyond

 

The minimum annual principal payments of notes payable at September 30, 2020 by fiscal year were:

 

2020 (remainder of year)		$	135,491
2021			667,735
2022			4,648,421
2023			3,067,795
2024			7,195,039
Thereafter			17,191,164
Total minimum principal payments		$	32,905,645

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value.

 

Series A Preferred Stock

 

On May 8, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to the Common Stock.

 

Dividend Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have earnings. During the nine months ended September 30, 2020 and 2019, the Company paid dividends of $281,720 and $43,334, respectively.

 

Liquidation Preference. The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series A Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

 

Stockholder Optional Conversion. Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof and without the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation preference of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment as set forth in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater than the liquidation preference of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all or part of such holders’ Series A Preferred Stock.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the nine months ended September 30, 2020 and 2019, the Company recorded a put option value accretion of $354,375 and $47,500, respectively.

 

Voting Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of the outstanding shares of Series A Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series A Preferred Stock do not have any voting rights.

 

As of September 30, 2020, there were 1,890,000 shares of Series A Preferred Stock issued and outstanding. As of September 30, 2020, the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,725,000 and accretion of put options totaling $538,375. As of December 31, 2019, the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,725,000 and accretion of put options totaling $184,000.

 

Series B Preferred Stock

 

On December 2, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares of its preferred stock as Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series B Preferred Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common Stock and pari passu with the Series A Preferred Stock.

 

Dividend Rate and Payment Dates. Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally defined as the Company’s failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. During the nine months ended September 30, 2020 and 2019, the Company paid dividends of $310,288 and $0, respectively.

 

Liquidation Preference. The liquidation preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series B Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

 

Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series B Preferred Stock at a call price equal to $15.00, or 150% of the original issue price of the Series B Preferred Stock, and correspondingly, each holder of shares of Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such holder back to the Company at a put price equal to $15.00, or 150% of the original issue purchase price of such shares. During the nine months ended September 30, 2020 and 2019, the Company recorded a put option value accretion of $408,834 and $0, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Voting Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of outstanding shares of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series B Preferred Stock do not have any voting rights.

 

No Conversion Right. The Series B Preferred Stock is not convertible into shares of Common Stock.

 

On November 1, 2019, the Company launched an offering under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended, for Tier 2 offerings, pursuant to which the Company is offering up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for a maximum offering amount of $10,000,000. In addition, the Company is offering bonus shares to early investors in this offering, whereby the first 400 investors will receive, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock.

 

During the nine months ended September 30, 2020, the Company sold an aggregate of 205,569 shares of Series B Preferred Stock for total gross proceeds of $2,055,690. After deducting a placement fee and other expenses, the Company received net proceeds of $1,911,792.

 

As of September 30, 2020, there were 615,291 shares of Series B Preferred Stock issued and outstanding.

 

Common Stock

 

The Company is authorized to issue up to 200,000,000 shares of Common Stock, par value $0.01 per share. As of September 30, 2020, there were 12,397,180 shares of Common Stock issued and outstanding.

 

Stock Issued for Service

 

In November 2018, the Company issued 350,000 shares of Common Stock for services to an investment bank for advisory services with a fair value of $171,500, and $24,500 of that fair value was expensed during the three months ended September 30, 2019. During year ended December 31, 2019, the Company purchased these shares back for a total of $61,837 and canceled the shares due to the termination of the advisory service agreement with the investment bank.

 

In February 2019, the Company issued an additional 545,000 shares of Common Stock for services to Metrolina with a fair value of $305,200.

 

In April 2020, the Company issued 50,000 shares of Common Stock to board members with a value of $32,500.

 

Stock Issued for Cash

 

In June 2019, the Company issued an additional 254,506 shares of Common Stock for cash of $68,717 to Metrolina upon its exercise of its option to purchase additional stock to maintain up to 10% ownership of the Company’s Common Stock outstanding.

 

During the nine months ended September 30, 2020 and 2019, the Company issued 8,100 and 0 shares of Common Stock, respectively, to early investors in the Regulation A offering, valued at $2,187 and $0, respectively.

 

Stock issued for Acquisition

 

In January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC, which is controlled and owned by Mr. Gee, the Company’s Chief Executive Officer, to acquire the 25% minority interest in Pecan Grove, which were valued at the historical cost value of $293,241.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Equity Incentive Plan

 

In December 2017, the Board of Directors, with the approval of a majority of the stockholders of the Company, adopted the Manufactured Housing Properties Inc. Stock Compensation Plan (the “Plan”) which is administered by the Compensation Committee. As of September 30, 2020, there were 656,175 shares granted and 343,825 shares remaining available under the Plan.

 

The Company has issued options to directors and officers under the Plan. One third of the options vest immediately, and two thirds vest in equal annual installments over a two-year period. The Company issued 519,675 shares in December 2017 and 136,500 shares in December 2019. The Company recorded stock option expense of $1,724 and $24 during the nine months ended September 30, 2020 and 2019, respectively.

 

The following table summarizes the stock options outstanding as of September 30, 2020:

 

		Number of options				Weighted average exercise price (per share)				Weighted average remaining contractual term (in years)
Outstanding at December 31, 2019			656,175			$	0.03				8.7
Granted			-				-				-
Exercised			-				-				-
Forfeited / cancelled / expired			-				-				-
Outstanding at September 30, 2020			656,175			$	0.03				8.2

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all options holders exercised their options on September 30, 2020. As of September 30, 2020, there were 656,175 “in-the-money” options with an aggregate intrinsic value of $2,648,266.

 

The following table summarizes information concerning options outstanding as of September 30, 2020.

 

Strike Price Range ($)				Outstanding stock options				Weighted average remaining contractual term (in years)				Weighted average outstanding strike price				Vested stock options				Weighted average vested strike price
$	0.01				519,675				7.2			$	0.01				519,675			$	0.01
$	0.27				136,500				9.3			$	0.27				45,500			$	0.27

 

The table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted.

 

The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions for grants made during the periods indicated.

 

Stock option assumptions		September 30, 2020				December 31, 2019
Risk-free interest rate			-				0.26	%
Expected dividend yield			-				0.00	%
Expected volatility			-				15.17	%
Expected life of options (in years)			-				10.0

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of September 30, 2020 and December 31, 2019, the outstanding balance on this note was $605,580 and $797,906, respectively.

 

On May 8, 2017, the Company issued a promissory note to Metrolina in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. This note matures in May of 2023. As of September 30, 2020 and December 31, 2019, the balance on this note was $0 and $1,730,000, respectively. During the three months ended September 30, 2020, the Company paid off the full balance and terminated the loan facility. The related party note was guaranteed by Mr. Gee, the Company’s Chief Executive Officer.

 

In January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC, an entity controlled by Mr. Gee, the Company’s Chief Executive Officer, to acquire the 25% minority interest in Pecan Grove, which were valued at the historical cost value of $293,241.

 

In August 2019, the Company entered into an office lease agreement with Gvest Real Estate Capital LLC for the lease of its offices. The lease is $4,000 per month and is on a month-to-month term. Total rent expense for the nine months ended September 30, 2020 and 2019 was $36,000 and $0, respectively, and $12,000 and $0 for the three months ended September 30, 2020 and 2019, respectively.

 

During the three and nine months ended September 30, 2020, the Company recorded $5,004 and $13,267, respectively, in revenues related to property management consulting services provided to Gvest Real Estate Capital LLC, compared to $4,164 and $19,448 during the three and nine months ended September 30, 2019, respectively.

 

During the nine months ended September 30, 2020, Mr. Gee, the Company’s Chief Executive Officer, received a $50,000 fee for his personal guarantee on a promissory note relating to a loan for one of the Company’s acquisitions, and $70,000 fee for his personal guarantee on a promissory note relating to the refinance of our loans for Butternut MHP Land LLC.

 

NOTE 8 – ACQUISITIONS

 

The Company completed two acquisitions during the nine months ended September 30, 2020. These were asset acquisitions from third parties and have been accounted for as asset acquisitions. The acquisition date estimated fair value was determined by third party appraisals.

 

Acquisition Date		Name		Land				Improvements				Building				Acquisition Cost				Total Purchase Price
March 2020		Countryside MHP		$	152,880			$	3,194,245			$	352,875			$	21,642			$	3,721,642
March 2020		Evergreen MHP			340,000				1,111,000				-				138,125				1,589,125
				$	492,880			$	4,305,245			$	352,875			$	159,767			$	5,310,767

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

Pro-forma Financial Information

 

The following unaudited pro-forma information presents the combined results of operations for the nine months ended September 30, 2020 and 2019 as if the above acquisitions of manufactured housing communities had been completed on January 1, 2020 and 2019. Pro-forma for the nine months ended September 30, 2019 includes the three acquisitions during 2019.

 

		Nine months ended September 30, 2020 Consolidated				Acquisitions				Adjustment				Nine months ended September 30, 2020 Pro Forma
Total revenue		$	4,435,269			$	167,618			$				$	4,602,887
Total expenses			5,092,919				60,297								5,153,216
Depreciation and amortization expense			-				-				49,445				49,445
Interest expense			-				-				40,719				40,719
Net income (loss)		$	(657,650	)		$	107,321								(640,493	)
Preferred stock dividends and put option value accretion			1,355,217				-								1,355,217
Net loss attributable to common shareholders		$	(2,012,867	)		$	107,321							$	(1,995,710	)
Weighted average - basic and fully diluted														$	(0.16	)

 

		Nine months ended September 30, 2019 Consolidated				Acquisitions				Adjustment				Nine months ended September 30, 2019 Pro Forma
Total revenue		$	1,983,283			$	664,199			$				$	2,647,482
Total expenses			3,389,183				232,720								3,621,903
Depreciation and amortization expense			-				-				22,331				22,331
Interest expense			-				-				17,669				17,669
Net income (loss)		$	(1,405,900	)		$	431,479								(1,014,421	)
Preferred stock dividends and put option value accretion			90,834				-								90,834
Net loss attributable to common shareholders		$	(1,496,734	)		$	431,479							$	(1,110,255	)
Weighted average - basic and fully diluted														$	(0.09	)

  

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

 

NOTE 9 – SUBSEQUENT EVENTS

 

Series B Preferred Stock

 

On October 27, 2020, the Company completed an additional closing of the Regulation A offering (see Note 6), pursuant to which the Company sold an aggregate of 11,885 shares of Series B Preferred Stock to investors for total gross proceeds of $118,850. After deducting the placement fee, the Company received net proceeds of $110,531. The Company also issued 300 shares of Common Stock to additional early investors.

 

 

 

 

 

 

 

 

 

 

 

 

MANUFACTURED HOUSING PROPERTIES INC.

 

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of:

Manufactured Housing Properties Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Manufactured Housing Properties Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years ended December 31, 2019 and 2018, and the related notes. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ LIGGETT & WEBB, P.A.

 

LIGGETT & WEBB, P.A.

Certified Public Accountants

 

We have served as the Company’s auditor since 2017.

 

Boynton Beach, Florida

April 14, 2020

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2019 AND 2018

 

		2019				2018
		(As Revised)
Assets
Investment Property
Land		$	10,885,938			$	4,357,950
Site and Land Improvements			17,466,801				6,781,845
Buildings and Improvements			6,214,725				1,441,222
Total Investment Property			34,567,464				12,581,017
Accumulated Depreciation & Amortization			(1,394,958	)			(699,184	)
Net Investment Property			33,172,506				11,881,833
Cash and Cash Equivalents			4,146,411				458,271
Accounts Receivable, net			31,881				12,987
Other Assets			557,012				99,472
Total Assets		$	37,907,810			$	12,452,563
Liabilities
Accounts Payable		$	227,406			$	71,091
Notes Payable, net of $633,629 and $140,758			28,359,247				8,945,352
Notes Payable – Related Party			797,906				890,632
Note Payable – Related Party			1,730,000				2,754,550
Accrued Liabilities			551,481				612,819
Tenant Security Deposits			316,035				131,149
Total Liabilities			31,982,075				13,405,593
Commitments and Contingencies (See note 6)			-				-
Redeemable Preferred Stock – subject to redemption
Series A Cumulative Convertible Preferred Stock, par value $0.01 per share; 4,000,000 shares authorized; 1,890,000 and zero shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively; redemption value $7,087,500			4,909,000				-
Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share; 1,000,000 shares authorized; 409,722 and zero shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively; redemption value $6,145,830			3,973,610				-
Stockholders’ equity (deficit)
Common Stock, par value $0.01 per share; 200,000,000 shares authorized; 12,336,080 and 10,350,062 shares are issued and outstanding as of December 31, 2019 and 2018, respectively			123,361				103,500
Additional Paid in Capital			759,849				451,567
Accumulated Deficit			(3,840,085	)			(1,801,338	)
Total Manufactured Housing Properties Inc. Stockholders’ Deficit			(2,956,875	)			(1,246,271	)
Non-controlling Interest			-				293,241
Total Equity (Deficit)			(2,956,875	)			(953,030	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	37,907,810			$	12,452,563

 

See accompanying notes to consolidated financial statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

		2019				2018
Revenue
Rental and related income		$	2,968,472			$	1,975,312
Management fees, related party			48,319				4,000
Home sales			4,900				21,000
Total revenues			3,021,691				2,000,312
Community operating expenses
Repair and maintenance			234,770				135,131
Real estate taxes			142,187				81,024
Utilities			212,719				149,516
Insurance			83,975				54,079
General and administrative expense			476,137				256,631
Total community operating expenses			1,149,788				676,381
Corporate payroll and overhead			1,253,383				1,030,527
Depreciation and amortization expense			786,179				534,290
Interest expense			1,312,469				1,001,455
Refinancing costs			552,272				-
Total Expenses			5,054,091				3,242,653
Net loss before provision for income taxes			(2,032,400	)			(1,242,341	)
Provision for income taxes			6,347				8,286
Net loss		$	(2,038,747	)		$	(1,250,627	)
Net Income attributable to the non-controlling interest			-				45,766
Net Loss attributable to the Company		$	(2,038,747	)		$	(1,296,393	)
Preferred stock dividends
Series A preferred			125,700				-
Series A preferred put option cost			184,000				-
Series B preferred			23,233				-
Series B preferred put option cost			28,004				-
Total preferred stock dividends		$	360,937			$	-
Net Loss attributable to common shareholders		$	(2,399,684	)		$	(1,296,393	)
Weighted average shares – basic and fully diluted			12,624,171				10,100,747
Weighted average – basic and fully diluted		$	(0.19	)		$	(0.13	)

 

See accompanying notes to consolidated financial statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

		PREFERRED STOCK								COMMON STOCK								ADDITIONAL				NON
		SHARES				PAR VALUE				SHARES				PAR VALUE				PAID IN CAPITAL				CONTROLLING INTEREST				ACCUMULATED DEFICIT				STOCKHOLDERS’ DEFICIT
Balance at January 1, 2018			-			$	-				10,000,062			$	100,000			$	238,803			$	302,580			$	(504,945	)		$	136,438
Stock option expense			-				-				-				-				69				-				-				69
Non controlling Interest distributions			-				-				-				-				-				(55,105	)			-				(55,105	)
Stock issued for services			-				-				350,000				3,500				168,000				-				-				171,500
Imputed interest											-				-				44,695				-				-				44,695
Net income (loss)											-				-				-				45,766				(1,296,393	)			(1,250,627	)
Balance at December 31, 2018			-			$	-				10,350,062			$	103,500			$	451,567			$	293,241			$	(1,801,338	)		$	(953,030	)
Stock option expense			-				-				-				-				4,774				-				-				4,774
Common Stock issuance for acquisition of minority interest (as revised)			-				-				2,000,000				20,000				273,241				(293,241	)			-				-
Common stock issuance for related party note			-				-				545,000				5,450				299,750				-				-				305,200
Common stock issuance for cash for related party note			-				-				254,506				2,545				66,172				-				-				68,717
Common stock issuance for service			-				-				25,000				250				6,500				-				-				6,750
Common stock issued to the board			-				-				50,000				500				13,000												13,500
Purchase treasury common stock			-				-				(350,000	)			(3,500	)			(58,337	)			-				-				(61,837	)
Common stock repurchased and retired			-				-				(553,888	)			(5,538	)			(51,962	)			-				-				(57,500	)
Stock issued for services			-				-				-				-				24,500				-				-				24,500
Series A Preferred dividends			-				-				-				-				(125,700	)			-				-				(125,700	)
Accretion Series A Preferred											-				-				(28,004	)			-				-				(28,004	)
Series B Preferred dividends			-				-				-				-				(23,233	)			-				-				(23,233	)
Accretion Series B Preferred											-				-				(184,000	)			-				-				(184,000	)
Common Stock issuance to preferred share holders			-				-				15,400				154				4,004				-				-				4,158
Imputed interest			-				-				-				-				87,577				-				-				87,577
Net loss			-				-				-				-				-				-				(2,038,747	)			(2,038,747	)
Balance at December 31, 2019 (as revised)			-			$	-				12,336,080			$	123,361			$	759,849			$	-			$	(3,840,085	)		$	(2,956,875	)

 

See accompanying notes to consolidated financial statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

		2019				2018
Cash Flows from Operating Activities:
Net Loss		$	(2,038,747	)		$	(1,250,627	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
In-kind contribution of interest			87,577				44,695
Provision for bad debts			10,117				59,657
Stock option expense			4,774				69
Stock compensation expense			349,950				171,500
Write off mortgage cost			68,280				-
Amortization debt discount			47,390				-
Loss on home sales			(11,678	)			-
Depreciation and amortization			738,789				534,290
Changes in operating assets and liabilities:
Accounts receivable			(29,011	)			(26,244	)
Other assets			(457,540	)			(49,501	)
Accounts payable			156,315				35,365
Accrued expenses			(61,338	)			476,459
Other liabilities and deposits			184,886				42,812
Net Cash Provided by (Used in) Operating Activities			(950,236	)			38,475
Cash Flows from Investing Activities:
Purchases of investment properties			(22,022,684	)			(231,247	)
Proceeds from sale of properties			4,900				21,000
Net Cash Used in Investing Activities			(22,017,784	)			(210,247	)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock			72,875				-
Proceeds from related – party note			7,075				448,750
Repayment of notes payable – related party			(99,801	)			-
Proceeds from note payables			25,079,000				117,014
Repayment of notes payable			(5,172,234	)			(236,551	)
Proceeds from issuance of preferred stock			8,670,606				-
Purchase of treasury stock			(119,337	)			-
Capitalized financing cost			(608,541	)			-
Repayment of related party note			(3,719,550	)			-
Proceeds from related party note			2,695,000				-
Preferred shares dividends			(148,933	)			-
Non controlling interest (distributions)			-				(55,105	)
Net Cash Provided by Financing Activities			26,656,160				274,108
Net Change in Cash and cash equivalents			3,688,140				102,336
Cash and cash equivalents at Beginning of the Period			458,271				355,935
Cash and cash equivalents at End of the Period		$	4,146,411			$	458,271
Cash paid for:
Income Taxes		$	6,347			$	8,286
Interest		$	1,084,104			$	751,344
Non-Cash Investing and Financing Activities
Purchase of minority interest in Pecan Grove (as revised)		$	293,241			$	-
Non-cash Preferred stock accretion		$	212,004			$	-

 

See accompanying notes to consolidated financial statements

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

Organization

 

Manufactured Housing Properties Inc. (the “Company”) is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities. Mobile Home Rental Holdings (“MHRH”) was formed in April 2016 to acquire the assets for Pecan Grove MHP in November 2016 and Butternut MHP in April 2017. To continue the acquisition and aggregation of mobile home parks, MHRH intend to raise capital in the public markets. Therefore, on October 21, 2017, MHRH was acquired by and merged with a public entity Stack-it Storage, Inc. (OTC: STAK). As part of the merger transaction, Stack-it Storage, Inc. changed its name to Manufactured Housing Properties Inc. (OTC: MHPC).

 

For accounting purposes, this transaction was accounted for as a reverse merger and has been treated as a recapitalization of Stack-it Storage, Inc. with Manufactured Housing Properties Inc. as the accounting acquirer.

 

Basis of Presentation

 

The Company prepares its consolidated financial statements present the balance sheets, statements of operations. changes in stockholder’s deficit and cash flows of the Company under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

Principle of Consolidation

 

The accompanying financial statements are presented on a consolidated basis the accounts of the Company and its wholly owned subsidiaries. All intercompany balances have been eliminated upon consolidation.

 

The Company’s subsidiaries are all formed as limited liability companies. The acquisition and date of consolidation are as follows:

 

Name of Subsidiary		State of Formation		Date of Consolidation		Ownership
Pecan Grove MHP LLC		North Carolina		October 12, 2016*			100	%*
Butternut MHP Land LLC		Delaware		March 1, 2017			100	%
Azalea MHP LLC		North Carolina		October 25, 2017			100	%
Holly Faye MHP LLC		North Carolina		October 25, 2017			100	%
Chatham Pines MHP LLC		North Carolina		October 31, 2017			100	%
Maple Hills MHP LLC		North Carolina		October 31, 2017			100	%
Lakeview MHP LLC		South Carolina		November 1, 2017			100	%
MHP Pursuits LLC		North Carolina		January 31, 2019			100	%
Mobile Home Rentals LLC		North Carolina		September 30, 2016			100	%
Hunt Club MHP LLC		South Carolina		March 8, 2019			100	%
B&D MHP LLC		South Carolina		April 4, 2019			100	%
Crestview MHP LLC		North Carolina		June 28, 2019			100	%
Springlake MHP LLC		Georgia		October 10, 2019			100	%
ARC MHP LLC		South Carolina		November 13, 2019			100	%

 

*

The Company originally acquired a 75% interest. In January 2019, the Company acquired the remaining 25% interest from a related party.

 

All intercompany transactions and balances have been eliminated in consolidation. The Company does not have a majority or minority interest in any other company, either consolidated or unconsolidated.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Revenue Recognition

 

The Company follows Topic 606 of the Financial Accounting Standards Board Accounting (“FASB”) Accounting Standards Codification (“ASC”) for revenue recognition and Accounting Standards Update (“ASU”) 2014-09. On January 1, 2018, the Company adopted ASU 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when (or as) the Company satisfies a performance obligation. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. There was no impact to revenues as a result of applying ASU 2014-09 for the year ended December 31, 2019, and there have not been any significant changes to the Company’s business processes, systems, or internal controls as a result of implementing the standard.

 

Acquisitions

 

The Company accounts for acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the purchase.

 

Investment Property and Equipment and Depreciation

 

Property and equipment are carried at cost. Depreciation for sites and building is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 25 years). Depreciation of improvements to sites and buildings, rental homes and equipment and vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years). Land development costs are not depreciated until they are put in use, at which time they are capitalized as sites and land improvements. Interest expense pertaining to land development costs are capitalized. Maintenance and repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current year’s results of operations.

 

Impairment Policy

 

The Company applies FASB ASC 360-10, “Property, Plant & Equipment,” to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Stock-Based Compensation

 

All stock based payments to employees, nonemployee consultants, and to nonemployee directors for their services as directors, including any grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the relevant service period in accordance with FASB ASC Topic 718. Stock based payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are nonforfeitable the measurement date is the date the award is issued. The Company recorded stock option expense of $4,774 and $69 during the years ended December 31, 2019 and 2018, respectively.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

 

Net Loss per Share

 

Basic and diluted loss per share amounts are computed based on net loss divided the weighted average number of common shares outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. Total dilutive securities outstanding as of December 31, 2019 and 2018 total totaled 2,299,722 and 0 convertible shares, respectively, and options of 659,175 and 541,334, respectively, which were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the years ended December 31, 2019 and 2018.

 

Management Estimates

 

The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period . Actual results could differ from those estimates.

 

Reclassifications

 

Certain 2018 balances have been reclassified in the 2019 financial statement presentation. The reclassification of loan costs did not have any effects on the financial statements.

 

Cash and Cash Equivalents

 

For purposes of these financial statements, cash and cash equivalents include highly liquid debt instruments with maturity of less than three months.

 

Concentrations of Credit Risk

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. Currently our operating accounts are approximately $2,553,454 above the FDIC limit.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2019. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company has evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07 “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU relates to the accounting for non-employee share-based payments. The amendment in this ASU expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company has evaluated the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.

 

NOTE 2 – FIXED ASSETS

 

The following table summarizes the Company’s property and equipment balances are generally used to depreciate the assets on a straight-line basis:

 

Fixed Assets		2019				2018
Investment Property
Land		$	10,885,938			$	4,357,950
Site and Land Improvements			17,466,801				6,781,845
Buildings and Improvements			6,214,725				1,441,222
Total Investment Property			34,567,464				12,581,017
Accumulated Depreciation & Amortization			(1,394,958	)			(699,184	)
Net Investment Property		$	33,172,506			$	11,881,833

 

Depreciation and amortization expense for the years ended December 31, 2019 and 2018 were $738,789 and $534,290, respectively. Total additional fixed assets during the years ended December 31, 2019 and 2018 were $22,022,684 and $231,247, respectively.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

NOTE 3 – ACQUISITIONS

 

During the fourth quarter 2016, the Company acquired the assets of its first manufactured housing community containing 81 home sites. During the year ended December 31, 2017, the company acquired the assets of six manufactured housing communities containing approximately 360 home sites. The Company had five additional acquisitions during the year ended December 31, 2019. These were asset acquisitions from third parties and have been accounted for as asset acquisitions. The acquisition date estimated fair value was determined by third party appraisals. The acquisition of the manufactured housing communities acquired assets consisted of the following:

 

Acquisition Date		Name		Land (as Revised)				Improvements				Building				Total Purchase Price (as Revised)
November 2016		Pecan Grove MHP		$	1,338,750			$	432,501			$	20,463			$	1,791,714
April 2017		Butternut MHP			85,000				1,130,527				431,618				1,647,145
November 2017		Azalea MHP			149,200				559,936				114,959				824,095
November 2017		Holly Faye MHP			160,000				553,273				3,700				716,973
November 2017		Chatham MHP			940,000				965,900				2,000				1,907,900
November 2017		Lakeview MHP			520,000				1,226,256				53,564				1,799,820
December 2017		Maple Hills MHP			1,165,000				1,943,710				843,885				3,952,595
April 2019		Hunt Club MHP			1,394,275				589,500				3,886				1,987,661
May 2019		B&D MHP			1,750,000				914,061				-				2,664,061
August 2019		Crestview MHP			991,750				2,975,250				1,533,000				5,500,000
November 2019		Springlake MHP			923,213				2,769,637				1,582,650				5,275,500
December 2019		ARC MHP			1,468,750				3,406,250				1,625,000				6,500,000
				$	10,885,938			$	17,466,801			$	6,214,725			$	34,567,464

 

Pro-forma Financial Information (unaudited)

 

The following unaudited pro-forma information presents the combined results of operations for the periods as if the above acquisitions of manufactured housing communities had been completed on January 1, 2018.

 

		For the Years Ended December 31,
		2019				2018
Total Revenue		$	5,039,009			$	4,965,466
Total Expenses			5,830,724				4,641,410
Depreciation & Amortization			1,476,322				1,701,436
Interest Expense			1,850,999				1,866,883
Preferred Stock Dividends / Accretion			360,937				-
Net Income (Loss)		$	(4,479,973	)		$	(3,244,263	)
Net Loss Per Share		$	(0.35	)		$	(0.32	)

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

NOTE 4 – PROMISSORY NOTES

 

Secured Promissory Notes

 

The Company has issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities. These promissory notes range from 4.5% to 7.0% with 20 to 25 years principal amortization. Two of the promissory notes had an initial 6 months period on interest only payments. The promissory notes are secured by the real estate assets and $6,344,894 for three assets were guaranteed by Raymond M. Gee, the Company’s chairman, chief executive officer and owner of the principal stockholder of the Company.

 

During the year ended December 31, 2019, the Company refinanced a total of $4,940,750 from current loans payable to $8,241,000 of new notes payable from five of the communities, resulting in an additional loan payable of $3,320,859. The Company used the additional loans payable proceeds from the refinance to retire the related party note payable described below. As of December 31, 2019, the Company wrote off mortgage costs of $68,280 and capitalized $608,541 of mortgage costs due to the refinancing. As of December 31, 2019, the outstanding balance on these notes was $8,134,996. The following are terms of these notes:

 

		Maturity Date		Interest Rate				Balance 12/31/19				Balance 12/31/18
Butternut MHP Land LLC (see Note 9)		03/30/20			6.500	%		$	1,114,819			$	1,134,971
Butternut MHP Land LLC Mezz (see Note 9)		04/01/27			7.000	%			280,013				287,086
Pecan Grove MHP LLC		11/04/26			4.500	%			3,095,274				1,270,577
Azalea MHP LLC		11/10/27			5.000	%			835,445				598,571
Holly Faye MHP LLC		10/01/38			4.000	%			574,096				462,328
Chatham MHP LLC		12/01/22			5.125	%			1,771,506				1,366,753
Lakeview MHP LLC		12/01/22			5.125	%			1,857,266				1,222,521
B&D MHP LLC		05/02/29			5.500	%			1,854,788				-
Hunt Club MHP LLC		05/01/24			5.750	%			1,447,364				-
Crestview MHP LLC		08/01/24			5.500	%			4,173,652				-
Springlake MHP LLC		11/14/22			4.500	%			4,000,000				-
ARC MHP LLC		01/01/30			5.500	%			5,300,000				-
Maple Hills MHP LLC		01/01/23			5.125	%			2,688,653				2,743,303
Totals note payables									28,992,876				9,086,100
Discount Direct Lender Fees									(692,454	)			(140,758	)
Total net of Discount								$	28,359,247			$	8,945,352

 

Related Party Promissory Note

 

On May 8, 2017, the Company issued a promissory note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. As of December 31, 2019, the balance on this note was $1,730,000. The related party note is guaranteed by Mr. Gee.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Revolving Promissory Note

 

On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of December 31, 2019, the outstanding balance on this note was $797,906. During the years ended December 31, 2019 and 2018, the Company recorded imputed interest related to the note of $87,577 and $44,695, respectively.

 

Maturities of Long-Term Obligations for Five Years and Beyond

 

The minimum annual principal payments of notes payable at December 31, 2019 were:

 

2020		$	480,907
2021			2,254,163
2022			5,329,658
2023			2,996,492
2024 and Thereafter			20,459,561
Total minimum principal payments		$	31,520,781

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value.

 

Series A Preferred Stock

 

On May 8, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, senior to the Common Stock.

 

Dividend Rate and Payment Dates. Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month, which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have earnings. During the year ended December 31, 2019, the Company paid dividends of $125,700.

 

Liquidation Preference. The liquidation preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series A Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Stockholder Optional Conversion. Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof and without the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation preference of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment as set forth in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater than the liquidation preference of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all or part of such holders’ Series A Preferred Stock.

 

Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75, or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to us at a put price equal to $3.75, or 150% of the original issue purchase price of such shares. During the year ended December 31, 2019, the Company recorded a put option cost of $184,000.

 

Voting Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of the outstanding shares of Series A Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series A Preferred Stock do not have any voting rights.

 

As of December 31, 2019, that Company has issued 1,890,000 shares of Series A Preferred Stock for a total of $4,725,000 in cash. As of December 31, 2019, the Series A Preferred stock balance was made up of Series A Preferred Stock totaling $4,725,000 and Accretion of put options totaling $184,000.

 

Series B Preferred Stock

 

On December 2, 2019, the Company filed a certificate of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares of its preferred stock as Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:

 

Ranking. The Series B Preferred Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common Stock and pari passu with the Series A Preferred Stock.

 

Dividend Rate and Payment Dates. Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per share each month, which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally defined as the Company’s failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. During the year ended December 31, 2019, the Company paid dividends of $23,233.

 

Liquidation Preference. The liquidation preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series B Preferred Stock will be entitled to receive the liquidation preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not including, the date of payment with respect to such shares.

 

Company Call and Stockholder Put Options. Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred Stock and continuing indefinitely thereafter, the Company will have a right to call for redemption the outstanding shares of Series B Preferred Stock at a call price equal to $15.00, or 150% of the original issue price of the Series B Preferred Stock, and correspondingly, each holder of shares of Series B Preferred Stock shall have a right to put the shares of Series B Preferred Stock held by such holder back to the Company at a put price equal to $15.00, or 150% of the original issue purchase price of such shares. During the year ended December 31, 2019, the Company recorded a put option cost of $28,004.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Voting Rights. The Company may not authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends or distributions upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of outstanding shares of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series B Preferred Stock do not have any voting rights.

 

No Conversion Right. The Series B Preferred Stock is not convertible into shares of Common Stock.

 

On November 1, 2019, the Company launched an offering under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended, for Tier 2 offerings, pursuant to which the Company is offering up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for a maximum offering amount of $10,000,000. In addition, the Company is offering bonus shares to early investors in this offering, whereby the first 400 investors will receive, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested, for a total of 40,000 shares of Common Stock. As of December 31, 2019 there were 15,400 shares of Common Stock issued with a fair value of $4,158.

 

As of December 31, 2019, the Company sold an aggregate of 409,722 shares of Series B Preferred Stock for total gross proceeds of $4,097,220. After deducting a placement fee and other expenses, the Company received net proceeds of $3,945,606.

 

Common Stock

 

The Company is authorized to issue up to 200,000,000 shares of Common Stock, par value $0.01 per share. As of December 31, 2019, there were 12,336,080 shares of Common Stock issued and outstanding.

 

The Company repurchased and retired 553,888 shares of Common Stock for $57,500 during the fourth quarter of fiscal year 2019.

 

(A)

Stock issued for Service

 

In November 2018, the Company issued 350,000 shares of Common Stock for services to an investment bank for advisory services with a fair value of $171,500, and $24,500 of that fair value was expensed during the three months ended March 31, 2019. During year ended December 31, 2019, the Company purchased these shares back into treasury for a total of $61,837 due to the termination of the advisory service agreement with the investment bank.

 

In February 2019, the Company issued an additional 545,000 shares of Common Stock for services to Metrolina with a fair value of $305,200.

 

In November 2019, the Company issued 50,000 shares of Common Stock to board members with a value of $13,500.

 

In October 2019, the Company issued 25,000 shares of Common Stock for consulting services with a value of $6,750.

 

(B)

Stock issued for Cash

 

In June 2019, the Company issued an additional 254,506 shares of Common Stock for cash of $68,717 to Metrolina upon its exercise of its option to purchase additional stock to maintain up to 10% ownership of the Company’s Common Stock outstanding.

 

In December 2019, the Company issued 15,400 shares of Common Stock to early investors in the Regulation A offering, valued at $4,158.

 

(C)

Stock issued for Acquisition

 

In January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC to acquire the 25% minority interest in Pecan Grove, which were valued at the historical cost value of $293,241.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

(D)

Stock Split

 

In March 2018, the Company completed a 1-for-6 reverse split of its outstanding shares of Common Stock resulting in the reduction of the total outstanding Common Stock from 60,000,000 shares to 10,000,062 shares. The consolidated financial statements have been retroactively adjusted to reflect the stock split.

 

(E)

Equity Incentive Plan

 

In December 2017, the Board of Directors, with the approval of a majority of the stockholders of the Company, adopted the Manufactured Housing Properties Inc. Stock Compensation Plan (the “Plan”) which is administered by the Compensation Committee.

 

The Company has issued options to directors and officers under the Plan. One third of the options vest immediately, and two thirds vest in equal annual installments over a two-year period. All of the options are exercisable at a purchase price of $0.01 per share.

 

The Company recorded stock option expense of $4,774 and $69 during the years ended December 31, 2019 and 2018, respectively.

 

The following table summarizes the stock options outstanding as of December 31, 2019 and 2018:

 

		Number of options				Weighted average exercise price (per share)				Weighted average remaining contractual term (in years)
Outstanding at December 31, 2017			698,000				0.01				10.0
Granted			-				-				-
Exercised			-				-				-
Forfeited / cancelled / expired			(156,666	)			-				-
Outstanding at December 31, 2018			541,334			$	0.01				9.0
Granted			136,500				0.27				10.0
Exercised			-				-				-
Forfeited / cancelled / expired			(21,659	)			-				-
Outstanding at December 31, 2019			656,175			$	0.21				8.7

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all options holders exercised their options on December 31, 2019. As of December 31, 2019, there were 565,175 “in-the-money” options with an aggregate intrinsic value of $1,549,106.

 

The following table summarizes information concerning options outstanding as of December 31, 2019:

 

Strike Price Range ($)				Outstanding stock options				Weighted average remaining contractual term (in years)				Weighted average outstanding strike price				Vested stock options				Weighted average vested strike price
$	0.01				519,675				8.0			$	0.01				519,675			$	0.01
	0.27				136,500				10.0				0.27				45,500				0.27

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

The following table summarizes information concerning options outstanding as of December 31, 2018:

 

Strike Price Range ($)				Outstanding stock options				Weighted average remaining contractual term (in years)				Weighted average outstanding strike price				Vested stock options				Weighted average vested strike price
$	0.01				541,334				9.0			$	0.01				377,000			$	0.01

 

The table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted.

 

The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions for grants made during the periods indicated. 

 

Stock option assumptions		December 31, 2019				December 31, 2018
Risk-free interest rate			0.26	%			1.95	%
Expected dividend yield			0.00	%			0.00	%
Expected volatility			15.17	%			16.71	%
Expected life of options (in years)			10				10

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

On October 1, 2017, the Company issued a revolving promissory note to Raymond M. Gee, the Company’s chairman and chief executive officer, pursuant to which the Company may borrow up to $1,500,000 from Mr. Gee on a revolving basis for working capital purposes. This note has a five-year term with no annual interest and principal payment is deferred until the maturity date. As of December 31, 2019, the outstanding balance on this note was $797,906. During the years ended December 31, 2019 and 2018, the Company recorded imputed interest related to the note of $87,577 and $44,695, respectively.

 

On May 8, 2017, the Company issued a promissory note to Metrolina in the principal amount of $3,000,000. The note is interest only payment based on 8%, and 10% deferred until maturity to be paid with principal balance. The note originally awarded Metrolina 455,000 shares of Common Stock as consideration, which resulted in making Metrolina a related party due to its significant ownership. During the year ended December 31, 2019, the Company paid off the entire balance on the note of $2,754,550 plus interest and amended the agreement to allow for the redeployment of the $3,000,000 available, eliminated the conversion option whereby Metrolina could convert the ratio of total outstanding debt at time of exercise of the option into an amount of newly issued shares of the Company’s Common Stock determined by dividing the outstanding indebtedness by $3,000,000 multiplied by 10% with a cap of 864,500 shares. The amendment resulted in issuing an additional 545,000 shares with a fair value of $305,200 for a total of 1,000,000 shares awarded to Metrolina. The note gives Metrolina the right and option to purchase its pro rata share of debt or equity securities issued to maintain up to 10% equity interest in the Company at the most recent price of any equity transaction for seven years from the amendment dated February 26, 2019. As of December 31, 2019, the balance on this note was $1,730,000. The related party note is guaranteed by Mr. Gee.

 

In January 2019, the Company issued 2,000,000 shares of Common Stock to Gvest Real Estate Capital LLC, an entity controlled by Mr. Gee, to acquire the 25% minority interest in Pecan Grove, which were valued at the historical cost value of $293,241.

 

During the year ended December 31, 2019, the Company entered into an office lease agreement with Gvest Real Estate Capital LLC for the lease of its offices. The lease is $4,000 per month and is on a month-to-month term. Total rent expense for the year ended December 31, 2019 was $16,000.

 

During the years ended December 31, 2019 and 2018, the Company recorded $48,319 and $4,000, respectively in revenues related to property management consulting services provided to Gvest Real Estate Capital LLC.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

During the year ended December 31, 2019, Mr. Gee received a $50,000 fee for his personal guarantee on a promissory note relating to a loan for one of our acquisitions. The fee was recorded as a loan cost and is amortized over the five year life of the loan.

 

NOTE 8 – INCOME TAXES

 

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate taxation, including a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; a limitation of the tax deduction for interest expense; a limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”; and repeal of the federal Alternative Minimum Tax.

 

At December 31, 2019 and 2018, the Company had deferred tax assets principally arising from the net operating loss carry forwards for income tax purposes multiplied by the Federal statutory tax rate of 21%. As management of the Company cannot determine that it is more likely than not that we will realize the benefit of the deferred tax assets, a valuation allowance equal to the deferred tax asset has been established at December 31, 2019 and 2018.

 

As of December 31, 2019 and 2018, the Company had net operating loss carryforwards of approximately $3,057,500 and $1,492,600, respectively. The change in the valuation allowance for the years ended December 31, 2019 and 2018 were $403,987 and $275,525, respectively.

 

The significant components of the deferred tax asset at December 31, 2019 and 2018 was as follows:

 

		For the Years Ended
		December 31, 2019				December 31, 2018
Statutory rate applied to income (loss) before income taxes		$	(520,747	)		$	(322,845	)
Increase in income taxes results from:
Non-deductible expense			123,107				55,606
Change in tax rate estimates			-				-
Change in valuation allowance			403,987				275,525
Income tax expense (benefit)		$	6,347			$	8,286

 

The difference between income tax expense computed by applying the federal statutory corporate tax rate and provision for actual income tax is as follows:

 

		For the Year Ended
		December 31, 2019				December 31, 2018
Income tax benefit at U.S. statutory rate of 34%			-21.00	%			-21.00	%
Income tax benefit - State			-3.33	%			-2.04	%
Non-deductible expense			5.97	%			4.29	%
Change in valuation allowance			19.58	%			21.25	%
Income tax expense (benefit)			1.22	%			2.50	%

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The effects of temporary differences that gave rise to deferred tax assets are as follows:

 

		For the Year Ended
Deferred tax assets:		December 31, 2019				December 31, 2018
Amortization expense		$	11,544			$	7,288
Operating loss carryforwards			780,978				381,247
Gross deferred tax assets			792,522				388,535
Valuation allowance			(792,522	)			(388,535	)
Net deferred income tax asset		$	-			$	-

 

NOTE 9 – SUBSEQUENT EVENTS

 

Additional Closings of Regulation A Offering

 

Subsequent to December 31, 2019, the Company sold an aggregate of 92,640 shares of Series B Preferred Stock for total gross proceeds of $956,400 under the Regulation A offering described above. After deducting a placement fee and other expenses, the Company received net proceeds of approximately $889,452. The Company also issued 3,900 shares of Common Stock to early investors.

 

Countryside Acquisition

 

On January 7, 2020, MHP Pursuits LLC, a wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with J & A Real Estate LLC (“J&A”) for the purchase of a manufactured housing community known as Countryside Estates Mobile Home Park, which is located in Lancaster, North Carolina and totals 110 sites, for a total purchase price of $3.7 million. On March 12, 2020, the closing was completed and the Company’s newly formed wholly owned subsidiary Countryside MHP LLC (“Countryside”) purchased the property.

 

In connection with the closing, on March 12, 2020, Countryside issued a promissory note to J&A in the principal amount of $3,000,000. The remainder of the purchase price, or $700,000, was paid in cash. The note bears interest at the rate of 5.5% per annum, or the maximum rate allowed by applicable law, and is due and payable in full on March 20, 2050. Payments for the first twelve (12) months of the term of the note shall be interest-only in the amount of $13,750 per month. Thereafter, principal and interest, in the amount of $17,201 per month, shall be due and payable based upon a thirty (30) year amortization. If any monthly payment is not received by J&A within fifteen (15) days after the applicable due date, Countryside must pay a late charge in an amount equal to the delinquent amount then due multiplied by 4%. Countryside may prepay the note, in whole or in party, at any time without penalty.

 

The note also contains customary events of default, including: (i) if Countryside shall be in default in the payment of any principal, interest or other amount due under the note and such default shall not be cured within five (5) days after written notice from J&A; (ii) if Countryside shall be in default in the performance of any non-monetary obligation in the note and such default shall not be cured within thirty (30) days after written notice from J&A; or (iii) if Countryside shall default in the due observation or performance of any covenant, condition or agreement contained in the mortgage described below and such default shall not be cured within thirty (30) days after written notice from J&A. Upon the occurrence of an event of default, interest on the aggregate outstanding indebtedness (including accrued interest) of the note shall increase to 5.5% per annum plus the U.S. Prime Rate as measured and reported by the Wall Street Journal and in effect on the date of default, until such aggregate indebtedness is paid in full.

 

The note is secured by a mortgage, assignment of rents and leases, security agreement and fixture filing with respect to the property. The mortgage contains customary representations, warranties and covenants by Countryside and remedies upon an event of default under the note.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Evergreen Acquisition

 

On January 1, 2020, MHP Pursuits LLC, a wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with Evergreen Marketing LLC for the purchase of a manufactured housing community known as Evergreen Pointe Mobile Home Park, which is located in Dandridge, Tennessee and totals 65 sites, for a total purchase price of $1,438,000. On March 17, 2020, the closing was completed and the Company’s newly formed wholly owned subsidiary Evergreen MHP LLC (“Evergreen”) purchased the property.

 

In connection with the closing, on March 17, 2020, Evergreen entered into a loan agreement with Hunt Mortgage Capital, LLC (the “Lender”), for a loan in the principal amount of $1,150,000 and Evergreen issued a promissory note to the Lender in the principal amount of $1,150,000. The remainder of the purchase price, or $288,000, was paid in cash.

 

The note bears interest at a rate of 3.99% per annum and is due and payable on April 1, 2032. The monthly payments under the note are equal to $5,483.65. If any monthly payment is not received by the Lender within ten (10) days after the applicable due date, Evergreen must pay a late charge in an amount equal to the delinquent amount then due multiplied by 5%. Furthermore, if any payment remains past due for thirty (30) days or more, interest on such unpaid amounts shall accrue at the lesser of 7.99% or the maximum rate allowed by applicable law. Evergreen may prepay the note in full, but not in part, at any time if it pays a prepayment premium calculated in accordance with the loan agreement.

 

The note is secured by the property and guaranteed by Mr. Raymond M. Gee, the Company’s Chief Executive Officer, Gvest Capital Real Estate LLC, an entity controlled by Mr. Gee, and the Company (the “Guarantors”).

 

The loan agreement was subject to customary closing conditions and contains customary representations and warranties. The loan agreement also contains customary financial and other covenants for a loan of this type. The loan agreement also contains customary events of default, some of which are subject to cure periods as set forth in the loan agreement, including, but not limited to: (i) any failure by Evergreen to pay or deposit when due any amount required by the note, the loan agreement or any other loan document (as defined in the loan agreement); (ii) any failure by Evergreen to maintain the insurance coverage required by any loan document; (iii) if any warranty, representation, certification, or statement of Evergreen or any Guarantor in the loan agreement or any of the other loan documents is false inaccurate, or misleading in any material respect when made; (iv) the fraud, gross negligence, willful misconduct, or material misrepresentation or material omission by or on behalf of Evergreen or any Guarantor or any of their officers, directors, trustees, partners, members, or managers in connection with the application for, or creation of, the loan or any financial statement, rent roll, or other report or information provided to Lender during the term of the loan; (v) the occurrence of any transfer (as defined in the loan agreement) not permitted by the loan documents; (vi) the occurrence of a bankruptcy event (as defined in the loan agreement); (vii) if a Guarantor is a natural person, the death of such individual, unless certain requirements set forth in the loan agreement are met; (viii) the occurrence of a guarantor bankruptcy event (as defined in the loan agreement), unless certain requirements of the loan agreement are met; (ix) any failure by Evergreen or a Guarantor to comply with certain covenants in the loan agreement; or (x) any failure by Evergreen to perform any of its obligations under the loan agreement or any loan document as and when required.

 

Repayment of Metrolina Note

 

In February 2020, the Company repaid $1,000,000 of principal and accrued interest on the Metrolina related party promissory note.

 

Loan Refinancing

 

On April 1, 2020, the Company refinanced the loans for Butternut MHP Land LLC (see Note 4) with the existing lender to increase the loan amount to $1,388,019 and to extend the maturity date to April 10, 2025. In addition, the interest rate was changed to 6% per annum, provided that on April 10, 2023 and thereafter, the interest rate shall be equal to (i) the per annum rate of interest identified as the “Prime Rate” as published in the monthly rates section of the Wall Street Journal plus (ii) 1% per annum, adjusted as the first day of each calendar quarter. The loan, as modified, is secured by the real estate assets of Butternut MHP Land LLC and is guaranteed by the Company and Raymond M. Gee, who received a loan guarantee fee of $70,000.

 

 

MANUFACTURED HOUSING PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

NOTE 10 – REVISION OF IMMATERIAL MISSTATEMENT

 

Subsequent to December 31, 2019, the Company identified a certain error in recording its minority interest buyout for Pecan Grove during the first quarter of 2019. This error resulted in decreasing the Company’s land Investment Property and Equity by $244,321 and had no impact on the Company’s consolidated income statements.

 

The Company assessed the materiality of this error considering both qualitative and quantitative factors and determined that for the fiscal year ended December 31, 2019, the error was immaterial. The Company has decided to correct this error as revisions to its December 31, 2019 consolidated financial statements.

 

The table below present the impact of the revision in the Company’s consolidated financial statements.

 

		December 31, 2019
		As previously reported				Adjustment				As Revised
Balance Sheet / Statement of Changes in Stockholders’ Equity
Investment Property
Land		$	11,130,259			$	(244,321	)		$	10,885,938
Total Investment Property			34,811,785				(244,321	)			34,567,464
Net Investment Property			33,416,827				(244,321	)			33,172,506
Total Assets			38,152,131				(244,321	)			37,907,810
Additional Paid in Capital			1,004,170				(244,321	)			759,849
Total Stockholders’ Deficit			(2,712,554	)			(244,321	)			(2,956,875	)
Total Liabilities and Stockholders’ Deficit		$	38,152,131			$	(244,321	)		$	37,907,810

 

The consolidated income statement and statement of cash flows are not presented because there is no impact to these statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J & A REAL ESTATE, LLC

 

STATEMENT OF REVENUES AND CERTAIN EXPENSES 

 

FOR THE YEAR ENDED DECEMBER 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEPENDENT AUDITOR’S REPORT

 

To the Members of:

J & A Real Estates, LLC

 

We have audited the accompanying statement of revenue and certain expenses of J & A Real Estate, LLC (the “Company”) for the year ended December 31, 2019 and the related notes to the statement of revenue and certain expenses.

 

Management’s responsibility for Statement of Revenue and Certain Expenses

 

Management is responsible for the preparation and fair presentation of the statement of revenue and certain expenses in conformity with U.S. generally accepted accounting principles. This includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the statement of revenue and certain expenses that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on the statement of revenue and certain expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue and certain expenses is free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenue and certain expenses. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the statement of revenue and certain expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the statement of revenue and certain expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statement of revenue and certain expenses.

 

We believe that our audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the statement of revenue and certain expenses referred to above presents fairly, in all material respects, the statement of revenue and certain expenses described on Note 1 of the Company’s statement of revenue and certain expenses for the year ended December 31, 2019 in conformity with generally accepted accounting principles.

 

Emphasis of Matter

 

We draw attention to Note 1 to the statement of revenue and certain expenses, which describes that the accompanying statement of revenue and certain expenses was prepared for the purposes of complying with the rules and regulations of the Securities and Exchange Commission and is not intended to be a complete presentation of the Company’s revenue and expenses. Our opinion is not modified with respect to this matter.

 

/s/ Liggett & Webb, P.A.

 

LIGGETT & WEBB, P.A.

Certified Public Accountants

 

Boynton Beach, Florida

June 2, 2020

 

 

J & A REAL ESTATE, LLC

STATEMENT OF REVENUES AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2019

 

		For the Year Ended December 31, 2019
REVENUE:
Rental and Related Income			485,445
Total Revenues			485,445
CERTAIN EXPENSES:
Repairs and Maintenance			40,199
Insurance			1,973
Utilities			4,116
Real Estate Taxes			29,018
Salaries and Wages			57,622
Bad Debt			18,317
Total Certain Expenses			151,245
REVENUE IN EXCESS OF CERTAIN EXPENSES		$	334,200

 

See accompanying notes to statement of revenue and certain expenses

 

 

 

J & A REAL ESTATE, LLC

NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2019

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A) Organization and Basis of Presentation

 

J & A REAL ESTATE, LLC (the “Company”) was formed as a limited liability company under the laws of the State of South Carolina.

 

The accompanying statement of revenues and certain expenses has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended, and accordingly, is not representative of the actual results of operations of the properties for the periods presented, due to the exclusion of the following revenues and expenses which may not be comparable to the proposed future operations:

 

●

Depreciation and amortization

 

●

Interest income and expense

 

Except as noted above, management is not aware of any material factors relating to the properties that would cause the reported financial information not to be indicative of future operating results. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for the fair presentation of this statement of revenues and certain expenses have been included.

 

(B) Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

 

(C) Business Segments

 

The Company operates in one segment and therefore segment information is not presented.

 

(D) Operating Expenses

 

Operating expenses represent the direct expenses of operating the properties and consist primarily of real estate taxes, payroll, repairs and maintenance, utilities, insurance and other operating expenses that are expected to continue in the proposed future operations of the properties.

 

 

J & A REAL ESTATE, LLC

NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2019

 

(E) Revenue Recognition

 

The Company follows Topic 606 of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification for revenue recognition and Accounting Standards Update (“ASU”) 2014-09. On January 1, 2019, the Company adopted ASU 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Results for reporting periods beginning after January 1, 2019 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. There was no impact to revenues as a result of applying ASU 2014-09 for the year ended December 31, 2019, and there have not been any significant changes to the Company’s business processes, systems, or internal controls as a result of implementing the standard. The Company recognizes rental income revenues on a monthly basis based on the terms of the lease agreement which are for either the land or a combination of both, the mobile home and land. Home sales revenues are recognized upon the sale of a home with an executed sales agreement. The Company has deferred revenues from home lease purchase options and records those option fees as deferred revenues and then records them as revenues when (1) the lease purchase option term is completed and title has been transferred, or (2) the leaseholder defaults on the lease terms resulting in a termination of the agreement which allows us to keep any payments as liquidated damages.

 

(F) Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2020. The Company is currently evaluating the potential impact this standard may have on the financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2020. Early adoption is permitted. The Company has evaluated the potential impact this standard may have on the financial statements and determined that it has no impact on the financial statements.

 

In June 2018, the FASB issued ASU 2018-07 “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU relates to the accounting for non-employee share-based payments. The amendment in this Update expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, “Revenue from Contracts from Customers.” The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the good or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows or financial condition.

 

 

J & A REAL ESTATE, LLC

NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2019

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

NOTE 2 – COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

NOTE 3 – CONCENTRATION OF RISK

 

The Company’s manufactured housing community is located in South Carolina. These concentrations of assets are subject to the risks of real property ownership and local and national economic growth trends.

 

NOTE 4 – SUBSEQUENT EVENTS

 

On January 7, 2020, the Company entered into a purchase and sale agreement (the “Purchase Agreement”) with MHP Pursuits LLC, pursuant to which MHP Pursuits LLC agreed to purchase all of the assets of the Company for $3.7 million comprised of $1.1 million in home buildings and $2.6 million in land and land improvements.

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency. Most states and cities, including where the Company’s property is located, have reacted by instituting quarantines, restrictions on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it. The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of the Company’s tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. The impact of the pandemic on the Company’s business cannot be reasonably estimated at this time but may materially affect its business.

 

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through June 2, 2020, the date the financial statements were issued.

 

 

PART III – EXHIBITS

 

Exhibit Index

 

Exhibit No.		Description
1.1*		Form of Managing Broker Dealer Agreement
2.1		Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed on April 19, 2018)
2.2		Certificate of Designation of Series A Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 2.2 to the Offering Statement on Form 1-A filed on May 9, 2019)
2.3		Certificate of Designation of Series B Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 5, 2019)
2.4*		Form of Certificate of Designation of Series C Cumulative Redeemable Preferred Stock
2.5		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 10 filed on April 19, 2018)
4.1*		Form of Subscription Agreement
4.2		Form of Subscription Agreement for Series B Preferred Stock Offering (incorporated by reference to Exhibit 4.1 to the Amended Offering Statement on Form 1-A/A filed on October 14, 2019)
6.1		Purchase and Sale Agreement, dated January 1, 2019, between Gvest Finance, LLC and Manufactured Housing Properties Inc. (Pecan Grove) (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K filed on April 1, 2019)
6.2		Purchase and Sale Agreement, dated January 1, 2019, between MHP Pursuits LLC and CKMC, LLC (Hunt Club) (incorporated by reference to Exhibit 6.21 to the Amended Offering Statement on Form 1-A/A filed on October 15, 2019)
6.3		Purchase and Sale Agreement, dated February 27, 2019, between MHP Pursuits LLC and B&D Rental Properties, LLC (B&D) (incorporated by reference to Exhibit 6.23 to the Amended Offering Statement on Form 1-A/A filed on October 15, 2019)
6.4		Purchase and Sale Contract, dated March 1, 2019, between MHP Pursuits LLC and Crestview, LLC and A & A Construction Enterprises, LLC (incorporated by reference to Exhibit 6.22 to the Amended Offering Statement on Form 1-A/A filed on July 31, 2019)
6.5		Purchase and Sale Agreement, dated August 5, 2019, between MHP Pursuits LLC and CSC Warner Robins (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on August 6, 2019)
6.6		Purchase and Sale Agreement, dated November 11, 2019, between MHP Pursuits LLC and The ARC Investment Trust (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 15, 2019)
6.7		Purchase and Sale Agreement, dated January 7, 2020, between MHP Pursuits LLC and Gilmer and Sons Mobile Homes Sales and Rentals, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on January 13, 2020)
6.8		Purchase and Sale Agreement, dated January 7, 2020, between MHP Pursuits LLC and J&A Real Estate, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on January 13, 2020)
6.9		Purchase and Sale Agreement, dated January 1, 2020, between MHP Pursuits LLC and Evergreen Marketing LLC (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 27, 2020)
6.10		Promissory Note issued by Pecan Grove MHP LLC to Carolina Trust Bank on October 28, 2016 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form 10 filed on April 19, 2018)
6.11		Modification Agreement, dated April 1, 2020, among Firstbank, Butternut MHP Land LLC, Butternut MHP Homes LLC, Raymond M. Gee and Manufactured Housing Properties Inc. (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K filed on April 14, 2020)

 

 

Exhibit No.		Description
6.12		Amended and Restated Promissory Note issued by Butternut MHP Land LLC and Butternut MHP Homes LLC to Firstbank on April 1, 2020 (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed on April 14, 2020)
6.13		Promissory Note issued by Azalea MHP LLC to Carolina Trust Bank on November 10, 2017 (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form 10 filed on April 19, 2018)
6.14		Promissory Note issued by Chatham Pines MHP LLC to The Capitol Life Insurance Company on November 12, 2017 (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form 10 filed on April 19, 2018)
6.15*		Business Loan Agreement, dated November 9, 2020, between Maple Hills MHP LLC and Charlotte Metro Federal Credit Union
6.16*		Promissory Note issued by Maple Hills MHP LLC to Charlotte Metro Federal Credit Union on November 9, 2020
6.17		Promissory Note issued by Lakeview MHP LLC to The Capitol Life Insurance Company on November 17, 2017 (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form 10 filed on April 19, 2018)
6.18		Loan Agreement, dated April 1, 2019, between The Capitol Life Insurance Company and Hunt Club MHP LLC (incorporated by reference to Exhibit 6.22 to the Amended Offering Statement on Form 1-A/A filed on October 15, 2019)
6.19*		Loan Agreement, dated December 21, 2020, between Orix Real Estate Capital, LLC and Hunt Club MHP LLC
6.20		Promissory Note issued by B&D MHP LLC to Carolina Trust Bank on May 2, 2019 (incorporated by reference to Exhibit 6.24 to the Amended Offering Statement on Form 1-A/A filed on October 15, 2019)
6.21		Promissory Note issued by Crestview MHP LLC to Liberty Bankers Life Insurance Company on July 31, 2019 (incorporated by reference to Exhibit 6.26 to the Amended Offering Statement on Form 1-A/A filed on October 15, 2019)
6.22*		Business Loan Agreement, dated November 9, 2020, between Crestview MHP LLC and Charlotte Metro Federal Credit Union
6.23*		Promissory Note issued by Crestview MHP LLC to Charlotte Metro Federal Credit Union on November 9, 2020
6.24		Loan Agreement, dated November 14, 2019, between Springlake MHP LLC and Suntrust Bank (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on November 20, 2019)
6.25		Promissory Note issued by Springlake MHP LLC to Suntrust Bank on November 14, 2019 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on November 20, 2019)
6.26		Loan Agreement, dated December 20, 2019, between ARC MHP LLC and Liberty Bankers Life Insurance Company (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on December 27, 2019)
6.27		Promissory Note issued by ARC MHP LLC to Liberty Bankers Life Insurance Company on December 20, 2019 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on December 27, 2019)
6.28		Promissory Note issued by Countryside MHP LLC to J & A Real Estate LLC on March 12, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 27, 2020)
6.29		Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated March 12, 2020, between Countryside MHP LLC and J & A Real Estate LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 27, 2020)
6.30		Loan Agreement, dated March 17, 2020, between Evergreen MHP LLC and Hunt Mortgage Capital, LLC (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on March 27, 2020)

 

 

Exhibit No.		Description
6.31		Promissory Note issued by Evergreen MHP LLC to Hunt Mortgage Capital, LLC on March 17, 2020 (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed on March 27, 2020)
6.32		Promissory Note issued by Mobile Home Rental Holdings LLC to Metrolina Loan Holdings, LLC on May 8, 2017 (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form 10 filed on April 19, 2018)
6.33		First Amendment to Promissory Note, dated September 28, 2017, between Manufactured Housing Properties Inc. and Metrolina Loan Holdings, LLC (incorporated by reference to Exhibit 6.17 to the Offering Statement on Form 1-A filed on May 9, 2019)
6.34		Second Amendment to Promissory Note, dated February 26, 2019, between Manufactured Housing Properties Inc. and Metrolina Loan Holdings, LLC (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K filed on April 1, 2019)
6.35		Revolving Promissory Note issued by Manufactured Housing Properties Inc. to Raymond M. Gee on October 1, 2017 (incorporated by reference to Exhibit 10.18 to the Amendment No. 2 to Registration Statement on Form 10 filed on July 13, 2018)
6.36		Manufactured Housing Properties Inc. Stock Compensation Plan (incorporated by reference to Exhibit 6.21 to the Offering Statement on Form 1-A filed on May 9, 2019)
8.1**		Escrow Agreement
8.2		Escrow Agreement, dated October 4, 2019, by and among Manufactured Housing Properties Inc., Digital Offering LLC and Wilmington Trust, National Association (incorporated by reference to Exhibit 8.1 to the Amended Offering Statement on Form 1-A/A filed on October 14, 2019)
10.1		Power of attorney (included on the signature page of this offering statement)
11.1*		Consent of Liggett & Webb, P.A.
11.2**		Consent of Sherman & Howard L.L.C (included in Exhibit 12.1)
12.1**		Opinion of Sherman & Howard L.L.C
15.1		Code of Ethics and Business Conduct (incorporated by reference to Exhibit 15.1 to the Offering Statement on Form 1-A filed on May 9, 2019)

 

*

Filed herewith

**

To be filed by amendment

 

 

SIGNATURES

 

Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pineville, State of North Carolina, on January 21, 2021.

 

	Manufactured Housing Properties Inc.
	By:	/s/ Raymond M. Gee
		Raymond M. Gee Chairman and Chief Executive Officer
	By:	/s/ Michael Z. Anise
		Michael Z. Anise Chief Financial Officer

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Raymond M. Gee and Michael Z. Anise as true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities, to sign any and all amendments to this offering statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, and generally to do all such things in their names and behalf in their capacities as officers and directors to enable the Company to comply with the provisions of the Securities Act of 1933 and all requirements of the SEC, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, ratifying and confirming all that said attorney-in-fact and agent or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

 

This offering statement has been signed by the following persons, in the capacities, and on the dates indicated.

 

SIGNATURE		TITLE		DATE
/s/ Raymond M. Gee		Chairman and Chief Executive Officer (Principal Executive Officer)		January 21, 2021
Raymond M. Gee
/s/ Michael Z. Anise		Chief Financial Officer and Director (Principal Financial and Accounting Officer)		January 21, 2021
Michael Z. Anise
/s/ William H. Carter		Director		January 21, 2021
William H. Carter
/s/ Richard M. Gee		Director		January 21, 2021
Richard M. Gee
/s/ James L. Johnson		Director		January 21, 2021
James L. Johnson
/s/ Terry Robertson		Director		January 21, 2021
Terry Robertson

 

 

III-4

Exhibit 1.1

 

MANUFACTURED HOUSING PROPERTIES INC.

MANAGING BROKER DEALER AGREEMENT

 

As of {effective date} (the “Effective Date”), this MANAGING BROKER DEALER AGREEMENT (the “Agreement”) is made by and between Manufactured Housing Properties Inc., a Nevada corporation (the “Issuer”), and Arete Wealth Management, LLC, an Illinois limited liability company (the “Managing Broker Dealer”), in connection with the offering and sale by the Issuer of up to 50,000 shares of Series C Preferred Stock of the Issuer (the “Securities”) for a maximum offering of up to $50,000,000. Capitalized terms not otherwise defined herein shall have the meanings given to such terms in the Issuer’s offering circular dated {OFFERING CIRCULAR DATE}, including the exhibits thereto and as may be supplemented or amended from time to time (the “Offering Circular” with therein referenced securities offering constituting the “Offering”).

 

1. Appointment of the Managing Broker Dealer.

 

1.1 On the basis of the representations, warranties, and covenants herein contained, but subject to the terms and conditions herein set forth, the Issuer hereby appoints the Managing Broker Dealer as its agent and managing broker dealer for the purpose of selling the Securities on a “best efforts” basis and to solicit purchasers for the Securities at the price to be paid and otherwise upon the terms and conditions set forth in the Offering Circular. The Managing Broker Dealer shall solicit purchasers for the Securities through an offering exempt from registration pursuant to: (i) Tier II of Regulation A promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and (ii) applicable state blue sky exemptions.

 

1.2 The Managing Broker Dealer is authorized to enlist other members of the Financial Industry Regulatory Authority, Inc. (“FINRA”) acceptable to the Issuer (each a “Selling Group Member”, or collectively the “Selling Group Members”) to solicit investors for the Securities (each a “Investor”, or collectively the “Investors”). The Issuer may also enter into agreements for the sale of the Interests to certain Investors with registered investment advisers (each such adviser an “Introducing RIA”, or collectively the “Introducing RIAs”), and the Managing Broker Dealer shall assist in the administration of such arrangements.

 

1.3 The Securities will be offered during a period commencing on the date of the Offering Circular, {OFFERING CIRCULAR DATE}, and continuing until the offering termination date as defined in the Offering Circular (the “Offering Termination Date”, with such interval defining the “Offering Period”).

 

1.4 Subject to the performance by the Issuer of all the obligations to be performed hereunder and to the completeness and accuracy of all the Issuer’s representations and warranties contained herein, the Managing Broker Dealer hereby accepts such agency and agrees on the terms and conditions herein set forth to use its best efforts during the Offering Period to find qualified Investors for the Securities.

 

2. Representations and Warranties of the Issuer. The Issuer hereby represents and warrants to the Managing Broker Dealer, each of the Selling Group Members, and each of the Introducing RIAs that:

 

2.1 The Issuer is duly organized and validly exists as a corporation in good standing under the laws of the state of Nevada, has all requisite power and authority to enter into this Agreement, and has all requisite power and authority to conduct its business as described in the Offering Circular.

 

2.2 No consent, approval, authorization, or other order of any governmental authority is required in connection with the execution or delivery by the Issuer of this Agreement or the issuance and sale by the Issuer of the Securities, except such as may be required under the Securities Act or applicable state securities laws.

 

 

2.3 No defaults exist in the due performance or observance of any material obligation, term, covenant, or condition of any agreement or instrument to which the Issuer is a party or by which it is bound.

 

2.4 This Agreement, when executed by the Issuer, will have been duly authorized and will be a valid and binding agreement of the Issuer, enforceable in accordance with its terms.

 

2.5 At the time of the issuance of the Securities, the Securities will have been duly authorized and validly issued, and upon payment therefor, will be fully paid and non-assessable and will conform to the description thereof contained in the Offering Circular.

 

2.6 Subject to the performance of the Issuer’s obligations hereunder, the holders of the Securities will have the rights described in the Offering Circular and associated transaction documents.

 

2.7 Subject to Section 3.2, the Offering Circular does not include, nor will it include through and on the Offering Termination Date, any untrue statement of a material fact, nor does it or will it omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

 

2.8 As of the Effective Date, the date of the filing of the offering statement, and at the time of any sale of the Securities (collectively, the “Applicable Date”) the Issuer hereby represents and warrants to the Managing Broker Dealer, each of the Selling Group Members, and Introducing RIAs, that as of the Applicable Date, none of the issuer; any predecessor of the issuer; any affiliated issuer; any director, executive officer, other officer participating in the offering, general partner or managing member of the issuer; any beneficial owner of 20% or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power; any promoter connected with the issuer in any capacity at the time of filing, any offer after qualification, or such sale; any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with such sale of securities; any general partner or managing member of any such solicitor; or any director, executive officer or other officer participating in the offering of any such solicitor or general partner or managing member of such solicitor:

 

2.8.1 Has been convicted, within ten (10) years of any Applicable Date (or five years, in the case of issuers, their predecessors and affiliated issuers) of any felony or misdemeanor that was:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving or making of any false filing with the Securities and Exchange Commission (the “SEC”); or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser, or paid solicitor of purchasers of securities.

 

2.8.2 Is subject to any order, judgment, or decree of any court of competent jurisdiction, entered within five (5) years before any Applicable Date, that, as of such Applicable Date, restrains or enjoins such person from engaging or continuing in any conduct or practice:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving the making of any false filing with the SEC; or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser, or paid solicitor of purchasers of securities.

 

 

2.8.3 Is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions), a state authority that supervises or examines banks, savings associations or credit unions, a state insurance commission (or an agency or officer of a state performing like functions), an appropriate federal banking agency, the U.S. Commodity Futures Trading Commission, or the National Credit Union Administration that:

 

(a) As of any Applicable Date, bars the person from:

 

(i) Association with an entity regulated by such commission, authority, agency, or officer;

 

(ii) Engaging in the business of securities, insurance, or banking; or

 

(iii) Engaging in savings association or credit union activities.

 

(b) Constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten (10) years before any Applicable Date.

 

2.8.4 Is subject to an order of the SEC pursuant to Section 15(b) or 15B(c) of the Securities Exchange Act of 1934 (the “Exchange Act”) or Section 203(e) or (f) of the Investment Advisers Act of 1940 (the “Investment Advisers Act”) that, as of any Applicable Date:

 

(a) Suspends or revokes such person’s registration as a broker, dealer, municipal securities dealer, or investment adviser;

 

(b) Places limitations on the activities, functions or operations of such person; or

 

(c) Bars such person from being associated with any entity or from participating in the offering of any penny stock.

 

2.8.5 Is subject to any order of the SEC entered within five (5) years before any Applicable Date, that, as of such Applicable Date, orders the person to cease and desist from committing or causing a violation or future violation of:

 

(a) Any scienter-based anti-fraud provisions of the federal securities laws including, without limitation, Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act and 17 CFR 240.10b-5, Section 15(c)(1) of the Exchange Act, and Section 206(1) of the Investment Advisers Act, or any other rule or regulation thereunder; or

 

(b) Section 5 of the Securities Act.

 

2.8.6 Is suspended or expelled from membership in, or suspended or barred from association with, a member of a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade.

 

2.8.7 Has filed (as a registrant or issuer), or was named as an underwriter in, any registration statement or Regulation A offering statement filed with the SEC that, within five (5) years of any Applicable Date, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption or, is, as of any Applicable Date, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued.

 

2.8.8 Is subject to a United States Postal Service false representation order entered within five (5) years before any Applicable Date, or is, as of any Applicable Date, subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations.

 

 

2.8.9 The Issuer agrees to immediately notify the Managing Broker Dealer if there is any event or potential event concerning any person described in Rule 262 of Regulation A whereby such person becomes, or is likely to become, a “Bad Actor” during the Offering Period.

 

2.9 The representations and warranties made in this Section 2 are made as of the Effective Date and shall be continuing representations and warranties throughout the term of the Offering Period. In the event that any of these representations or warranties becomes untrue, the Issuer will immediately notify the Managing Broker Dealer in writing of the fact which makes the representation or warranty untrue.

 

3. Duties and Obligations of the Issuer.

 

3.1 The Issuer will comply with all requirements imposed upon it by federal and state securities laws, rules, and regulations to permit the continuance of offers and sales of the Securities in accordance with the provisions of this Agreement and the Offering Circular and will amend or supplement the Offering Circular in order to make the Offering Circular comply with the requirements of applicable federal and state securities laws, rules, and regulations.

 

3.2 If, at any time, any event occurs as a result of which the Offering Circular would include an untrue statement of a material fact or, in view of the circumstances under which it was made, omit to state any material fact necessary to make the statements therein not misleading, the Issuer will notify the Managing Broker Dealer thereof, effect the preparation of an amendment or supplement to the Offering Circular which will correct such statement or omission, and deliver to the Managing Broker Dealer such numbers of copies of such amendment or supplement to the Offering Circular as the Managing Broker Dealer may reasonably request.

 

3.3 The Issuer shall not make any written or oral representations or statements to Investors that contradict or are inconsistent with the statements made in the Offering Circular, as amended or supplemented.

 

3.4 The Issuer will comply with all requirements imposed upon it by Regulation A, the regulations and rules thereunder, and applicable state securities laws.

 

3.5 The Issuer will apply the net proceeds from the Offering received by it in the manner set forth in the Offering Circular.

 

3.6 The Issuer agrees to confirm all orders for purchase of Securities that are accepted by the Issuer and provide such confirmation to the Managing Broker Dealer and the Selling Group Members.

 

3.7 The Issuer will deliver to the Managing Broker Dealer such numbers of copies of the Offering Circular and any amendment(s) or supplement(s) thereto, with all appendices thereto, and such numbers of copies of printed sales literature or other materials as the Managing Broker Dealer may reasonably request in connection with the Offering or for the purposes contemplated by federal and applicable state securities laws.

 

3.8 The Issuer will furnish the holders of the Securities with all reports described in the Offering Circular and applicable Issuer governing documents and will deliver to the Managing Broker Dealer, and make available, upon request, to each Selling Group Member and Introducing RIA, one copy of each such report at the time that such reports are furnished to the holders of the Securities, and any other such other information concerning the Issuer, as may reasonably be requested.

 

3.9 Any officer, director, employee, or affiliate of the Issuer who buys any Securities in connection with the Offering shall do so for investment purposes only and not with the intention of resale or distribution.

 

 

4. Representations and Warranties of the Managing Broker Dealer. The Managing Broker Dealer represents and warrants to the Issuer, each of the Selling Group Members, and each of the Introducing RIAs that:

 

4.1 The Managing Broker Dealer is duly organized and validly exists as a limited liability company in good standing under the laws of the State of Illinois and has all requisite power and authority to enter into this Agreement.

 

4.2 This Agreement, when executed by the Managing Broker Dealer, will have been duly authorized and will be a valid and binding agreement of the Managing Broker Dealer, enforceable in accordance with its terms.

 

4.3 The consummation of the transactions contemplated herein and those contemplated by the Offering Circular will not result in a breach or violation of any order, rule, or regulation directed to the Managing Broker Dealer by any court, any federal or state regulatory body, FINRA, or any administrative agency having jurisdiction over the Managing Broker Dealer or its affiliates.

 

4.4 The Managing Broker Dealer is, and during the term of this Agreement will be, duly registered as a broker dealer pursuant to the provisions of the Exchange Act, a member in good standing with FINRA, and duly registered as a broker dealer in any state where offers are made by the Managing Broker Dealer. The Managing Broker Dealer will comply with all applicable federal and state securities laws, the published rules and regulations thereunder, and FINRA rules.

 

4.5 This Agreement, or any supplement or amendment hereto, may be filed with the SEC or FINRA, if such filing should be required, and may be filed with and may be subject to the approval of applicable federal and applicable state securities regulatory agencies, if required.

 

4.6 The Managing Broker Dealer has established and implemented anti-money laundering compliance programs, in accordance with FINRA Rule 3310 and Section 352 of the Money Laundering Abatement Act and Section 326 of the Patriot Act of 2001, which are reasonably expected to detect and cause reporting of suspicious transactions in connection with the sale of Securities.

 

4.7 Neither the Managing Broker Dealer nor any of its executive officers, directors, general partners, managing members, or officers involved in the offering, registered representatives acting on behalf of the Managing Broker Dealer or persons who own 20.0% or more of the Managing Broker Dealer or any person receiving any direct or indirect compensation from the Managing Broker Dealer with respect to the Offering:

 

4.7.1 Has been convicted, within ten (10) years of any Applicable Date of any felony or misdemeanor that was:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving or making of any false filing with the SEC; or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser, or paid solicitor of purchasers of securities.

 

4.7.2 Is subject to any order, judgment, or decree of any court of competent jurisdiction, entered within five (5) years before any Applicable Date, that, as of such Applicable Date, restrains or enjoins such person from engaging or continuing in any conduct or practice:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving the making of any false filing with the SEC; or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser, or paid solicitor of purchasers of securities.

 

 

4.7.3 Is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions), a state authority that supervises or examines banks, savings associations or credit unions, a state insurance commission (or an agency or officer of a state performing like functions), an appropriate federal banking agency, the U.S. Commodity Futures Trading Commission, or the National Credit Union Administration that:

 

(a) As of any Applicable Date, bars the person from:

 

(i) Association with an entity regulated by such commission, authority, agency, or officer;

 

(ii) Engaging in the business of securities, insurance, or banking; or

 

(iii) Engaging in savings association or credit union activities.

 

(b) Constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten (10) years before any Applicable Date.

 

4.7.4 Is subject to an order of the SEC pursuant to Section 15(b) or 15B(c) of the Exchange Act or Section 203(e) or (f) of the Investment Advisers Act, that, as of any Applicable Date:

 

(a) Suspends or revokes such person’s registration as a broker, dealer, municipal securities dealer, or investment adviser;

 

(b) Places limitations on the activities, functions or operations of such person; or

 

(c) Bars such person from being associated with any entity or from participating in the offering of any penny stock.

 

4.7.5 Is subject to any order of the SEC entered within five (5) years before any Applicable Date, that, as of such Applicable Date, orders the person to cease and desist from committing or causing a violation or future violation of:

 

(a) Any scienter-based anti-fraud provisions of the federal securities laws including, without limitation, Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act and 17 CFR 240.10b-5, Section 15(c)(1) of the Exchange Act, and Section 206(1) of the Investment Advisers Act, or any other rule or regulation thereunder; or

 

(b) Section 5 of the Securities Act.

 

4.7.6 Is suspended or expelled from membership in, or suspended or barred from association with, a member of a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade.

 

4.7.7 Has filed (as a registrant or issuer), or was named as an underwriter in, any registration statement or Regulation A offering statement filed with the SEC that, within five (5) years of any Applicable Date, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption or, is, as of any Applicable Date, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued.

 

4.7.8 Is subject to a United States Postal Service false representation order entered within five (5) years before any Applicable Date, or is, as of any Applicable Date, subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations.

 

4.8 The representations and warranties made in this Section 4 are made as of the Effective Date and shall be continuing representations and warranties throughout the term of the Offering Period. In the event that any of these representations or warranties becomes untrue, the Managing Broker Dealer will immediately notify the Issuer in writing of the fact which makes the representation or warranty untrue.

 

5. Duties and Obligations of the Managing Broker Dealer.

 

5.1 All actions by the Managing Broker Dealer and its respective agents, members, employees, and affiliates shall conform to (i) requirements applicable to broker dealers under federal and state securities laws, rules, and regulations, and (ii) applicable requirements and rules of FINRA.

 

5.2 The Managing Broker Dealer will serve in a “best efforts” capacity in the offering, sale, and distribution of the Securities. The Managing Broker Dealer may offer the Securities as an agent, but all sales shall be made by the Issuer, acting through the Managing Broker Dealer as an agent, and not by the Managing Broker Dealer as a principal. The Managing Broker Dealer shall have no authority to appoint any person or other entity as an agent or sub-agent of the Managing Broker Dealer or the Issuer, except to engage Selling Group Members or Introducing RIAs acceptable to the Issuer in its sole discretion.

 

5.3 All engagements of Selling Group Members will be evidenced by a Soliciting Dealer Agreement in the form attached hereto as Exhibit A. All engagements of Introducing RIAs will be evidenced by a RIA Client Introduction Agreement in the form attached hereto as Exhibit B. When Selling Group Members and Introducing RIAs are engaged in this Offering, the Managing Broker Dealer will use commercially reasonable efforts to cause such Selling Group Members and/or Introducing RIAs to comply with all respective obligations pursuant to both this Agreement as well as the respective Soliciting Dealer Agreement or RIA Client Introduction Agreement.

 

5.4 In the event the Managing Broker Dealer elects to become a Selling Group Member, the Managing Broker Dealer shall separately enter into a Soliciting Dealer Agreement and shall comply with all requirements of the Selling Group Members as set forth in the Soliciting Dealer Agreement.

 

5.5 The Managing Broker Dealer and its employees, officers, or other agents shall make no representations to any prospective Investor other than those contained in the Offering Circular and will not allow any other written materials to be used to describe the potential investment to prospective Investors other than the Offering Circular or supplemental sales literature furnished to the Managing Broker Dealer by the Issuer.

 

5.6 The Managing Broker Dealer will immediately bring to the attention of the Issuer any circumstance or fact which causes the Managing Broker Dealer to believe the Offering Circular, any other literature distributed pursuant to the Offering, or any information supplied by prospective Investors in their subscription materials, may be inaccurate or misleading.

 

5.7 The Managing Broker Dealer will comply in all respects with the subscription procedures and plan of distribution set forth in the Offering Circular.

 

5.8 The Managing Broker Dealer will not engage in any activities hereunder in any state other than those for which the Managing Broker Dealer is a broker or dealer duly registered in such state, or exempt therefrom.

 

5.9 It is understood that no sale shall be regarded as effective unless and until accepted by the Issuer. The Issuer reserves the right in its sole discretion to accept or reject any subscription for Securities in whole or in part for a period of 30 days after receipt of the subscription for Securities. Any subscription for Securities not accepted within 30 days of receipt shall be deemed rejected.

 

5.10 In the event the Managing Broker Dealer receives any customer funds for the Securities, the Managing Broker Dealer will transmit such customer funds, not later than noon of the next business day following receipt of such funds for the Securities, to the applicable escrow or bank account for the Offering.

 

 

5.11 In the event the Issuer has paid the Managing Broker Dealer compensation as set forth in Section 6 hereof, the Managing Broker Dealer shall be obligated to pay Selling Group Members from such funds or direct the payment of such funds, if applicable.

 

6. Compensation.

 

6.1 As compensation for services rendered by the Managing Broker Dealer under this Agreement, the Managing Broker Dealer will be entitled to receive from the Issuer the following compensation, a portion or all of which may be re-allowed to Selling Group Members or other associated persons eligible to receive such compensation:

 

6.1.1 A selling commission (the “Selling Commission”) of up to 6.0% of the purchase price of the Securities sold by the Managing Broker Dealer (the “Total Sales”), which it will re-allow to the Selling Group Members; provided, however, that this amount will be reduced to the extent a lower commission rate is negotiated with a Selling Group Member.

 

6.1.2 A dealer manager fee (the “Dealer Manager Fee”) of up to 2.75% of the Total Sales from which any amount may be re-allowed to the Selling Group Members as a non-accountable marketing and due diligence allowance, re-allowed to certain wholesalers, or waived.

 

6.1.3 A retainer (the “Servicing Fee”), payable monthly for the duration of the Offering Period, in the amount of $2,500 per month payable by either the Issuer or an affiliate of the Issuer.

 

6.1.4 Notwithstanding the forgoing, the Servicing Fee, or any portion thereof, shall not be payable to the Managing Broker Dealer to the extent that such payment would violate FINRA Rule 5110. Any accrued amounts of the Servicing Fee would become payable only at such time as such payment would not violate FINRA Rule 5110.

 

6.2 Subject to Section 5.4, the Managing Broker Dealer may also sell the Securities as a Selling Group Member, thereby becoming entitled to selling commissions.

 

6.3 Notwithstanding the foregoing provisions of this Section 6, the Issuer reserves the right to refuse to accept any or all Subscription Agreements tendered by the Managing Broker Dealer at any time during the Offering Period, and/or to terminate the Offering, in either case, in its sole discretion. Selling Commissions and fees earned prior to such termination remain payable to the applicable parties.

 

6.4 The total underwriting compensation, as such term is used FINRA Rule 5110, paid by the Issuer and its affiliates to the Managing Broker Dealer and Selling Group Members in connection with the Offering shall not exceed 10% of the Total Sales.

 

7. Offering. The Offering of the Securities shall be at the price and upon the terms and conditions set forth in the Offering Circular and the exhibits and appendices thereto and any amendments or supplements thereto.

 

8. Privacy Act.

 

8.1 To protect Customer Information (as defined below) and to comply as may be necessary with the requirements of the Gramm-Leach-Bliley Act, the relevant state and federal regulations pursuant thereto and state privacy laws, the parties wish to include the confidentiality and non-disclosure obligations set forth herein.

 

8.2 “Customer Information” means any information contained on a customer’s application or other form and all nonpublic personal information about a customer that a party receives from the other party. Customer Information shall include, but not be limited to, name, address, telephone number, social security number, health information, and personal financial information (which may include consumer account number).

 

 

8.3 The parties understand and acknowledge that they may be financial institutions subject to applicable federal and state customer and consumer privacy laws and regulations, including Title V of the Gramm-Leach-Bliley Act (15 U.S.C. 6801, et seq.) and regulations promulgated thereunder (collectively, the “Privacy Laws”), and any Customer Information that one party receives from the other party is received with limitations on its use and disclosure. The parties agree that they are prohibited from using the Customer Information received from the other party other than (i) as required by law, regulation or rule, or (ii) to carry out the purposes for which one party discloses Customer Information to the other party pursuant to the Agreement, as permitted under the use in the ordinary course of business exception to the Privacy Laws.

 

8.4 The parties shall establish and maintain safeguards against the unauthorized access, destruction, loss, or alteration of Customer Information in their control which are no less rigorous than those maintained by a party for its own information of a similar nature. In the event of any improper disclosure of any Customer Information, the party responsible for the disclosure will immediately notify the other party.

 

9. Indemnification by the Issuer.

 

9.1 Subject to the conditions set forth below, the Issuer, with respect to the Offering, agrees to indemnify and hold harmless the Managing Broker Dealer and its respective owners, managers, members, partners, directors, officers, employees, agents, attorneys, and accountants (collectively the “MBD Parties” and each a “MBD Party”), against any and all loss, liability, claim, damage and expense whatsoever (“Loss”) arising out of or based upon:

 

9.1.1 Any untrue statement or alleged untrue statement of a material fact contained in the Offering Circular (as amended and supplemented from time to time) or in any application or other document filed in any jurisdiction in order to qualify the Securities under, or exempt the Offering of the Securities from, the registration or qualification requirements of the securities laws thereof;

 

9.1.2 The omission or alleged omission from the Offering Circular (as amended and supplemented from time to time) of a material fact required to be stated therein or necessary to make the statements therein not misleading;

 

9.1.3 The failure of the Issuer to comply with any provisions of federal and state securities law, rules, and regulations, including Regulation A;

 

9.1.4 Any verbal or written representations made in connection with the Offering made by the Issuer, its agents (other than by the MBD Parties or any of its employees or affiliates), employees, or affiliates in violation of federal and state securities law, rules, and regulations, including Regulation A; or

 

9.1.5 The breach by the Issuer of any term, condition, representation, warranty, or covenant in this Agreement.

 

9.2 If any action is brought against any of the MBD Parties in respect of which indemnity may be sought hereunder, the MBD Party shall promptly notify the party or parties against whom indemnification is to be sought in writing of the institution of such action, and the Issuer shall assume the defense of such action. The affected MBD Parties shall have the right to employ counsel in any such case. The reasonable fees and expenses of such counsel shall be at the Issuer’s expense and authorized in writing by the Issuer.

 

9.3 The Issuer agrees to promptly notify the Managing Broker Dealer of the commencement of any litigation or proceedings against the Issuer or any of its respective officers, directors, members, managers, partners, employees, attorneys, accountants, or agents in connection with the Offering of the Securities or in connection with the Offering Circular.

 

 

9.4 The indemnity provided to the MBD Parties pursuant to this Section 9 shall not apply to the extent that any Loss arises out of or is based upon (i) any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Issuer by the Managing Broker Dealer specifically for use in the preparation of the Offering Circular (or any amendment or supplement thereto) or any sales literature, (ii) the failure to qualify the offer and sale of Securities for an exemption from registration under the Securities Act and applicable state securities laws, rules or regulations caused by an action or omission of the Managing Broker Dealer, (iii) the offer or sale by the Managing Broker Dealer of a Security to a person who fails to meet the standards regarding suitability under any applicable federal and state laws, rules, and regulations or FINRA rules or (iv) the breach by the Managing Broker Dealer of its representations, warranties, or obligations hereunder.

 

10. Indemnification by the Managing Broker Dealer.

 

10.1 Subject to the conditions set forth below, the Managing Broker Dealer agrees to indemnify and hold harmless the Issuer and its affiliates and their respective general partners, stockholders, partners, directors, officers, managers, employees, members and agents, each controlling person and each of their respective attorneys and accountants (“Issuer Parties”), against any and all Loss arising out of or based upon:

 

10.1.1 Any verbal or written representations made in connection with the Offering made by the Managing Broker Dealer (other than by the Issuer or its employees or affiliates), employees, or affiliates in violation of the Securities Act, the Exchange Act, Regulation A, the regulations thereunder, applicable requirements and rules of FINRA, or any applicable federal or state securities laws and regulations;

 

10.1.2 The Managing Broker Dealer’s failure to comply with any of the applicable provisions of the Securities Act, the Exchange Act, Regulation A, the regulations thereunder, applicable requirements and rules of FINRA, or any applicable federal or state securities laws and regulations, other than any failure to comply which directly results from acts of the Issuer;

 

10.1.3 The breach by the Managing Broker Dealer of any term, condition, representation, warranty, or covenant in this Agreement;

 

10.1.4 Any untrue statement or alleged untrue statement of a material fact contained in the Offering Circular, (as from time to time it is amended and supplemented), or in any application or other document filed in any jurisdiction in order to qualify the Securities under or exempt the Offering of the Securities from the registration or qualification requirements of the securities laws thereof; provided, however, to the extent, but only to the extent, that the untrue statement or alleged untrue statement of material fact was made by the Managing Broker Dealer, employees, or affiliates or otherwise made in reliance on and in conformity with written information furnished to the Issuer by the Managing Broker Dealer, employees or affiliates; or

 

10.1.5 The omission or alleged omission from the Offering Circular (as from time to time it is amended and supplemented) of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, to the extent, but only to the extent, that the omission or alleged omission of material fact was required to be disclosed by the Managing Broker Dealer, employees, or affiliates or otherwise in reliance on and in conformity with written information furnished, or required to be disclosed, to the Issuer by the Managing Broker Dealer, employees, or affiliates.

 

10.2 If any action is brought against any of the Issuer Parties in respect of which indemnity may be sought hereunder, the Issuer Party shall promptly notify the Managing Broker Dealer in writing of the institution of such action, and the Managing Broker Dealer shall assume the defense of such action. The Issuer Parties shall have the right to employ counsel in any such case. The reasonable fees and expenses of such counsel shall be at the Managing Broker Dealer’s expense, provided that the Managing Broker Dealer will not be obligated to pay for legal fees and expenses for more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions.

 

 

10.3 The Managing Broker Dealer agrees to promptly notify the Issuer of the commencement of any litigation or proceedings against the Managing Broker Dealer or any of the Managing Broker Dealer’s managers, members, officers, directors, partners, employees, affiliates, attorneys, accountants, or agents in connection with the Offering of the Securities or in connection with the Offering Circular.

 

10.4 The indemnity provided to the Issuer pursuant to this Section 10 shall not apply to the extent that any Loss arises out of or is based upon any untrue statement or alleged untrue statement of material fact made by the Issuer or any of its agents (other than the Managing Broker Dealer) or any omission or alleged omission of a material fact required to be disclosed by the Issuer or any of its agents (other than the Managing Broker Dealer).

 

11. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided pursuant to Sections 9 and 10 is for any reason held to be unavailable from the Issuer or the Managing Broker Dealer, the parties shall contribute to the aggregate Loss, liabilities, claims, damages and expenses (including any amount paid in settlement of any action, suit, or proceeding or any claims asserted) in such amounts as a court of competent jurisdiction may determine (or in the case of settlement, in such amounts as may be agreed upon by the parties) in such proportion to reflect the relative fault of the each party in connection with the events described in Sections 9 and 10, which resulted in such Loss, liabilities, claims, damages or expenses, as well as any other equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or the Managing Broker Dealer and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such omission or statement.

 

12. Expenses of the Offering. The Issuer agrees to pay all expenses incident to the performance of its obligations hereunder, including all expenses incident to marketing the Offering and submitting filings with federal and state regulatory authorities; the exemption of the Securities under federal and state securities laws, including fees and disbursements of the Issuer’s counsel; and all costs of reproduction and distribution of the Offering Circular and any amendment or supplement thereto. The Issuer agrees to pay all costs and expenses incident to the Offering whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated. Furthermore, the Issuer shall reimburse the Managing Broker Dealer for such expenses incurred in connection with the Offering by the Managing Broker Dealer as mutually agreed to by the Issuer and the Managing-Broker Dealer.

 

13. Termination and Survival. This Agreement is terminable by any party for any reason whatsoever or for no reason at any time upon written notice to the other parties. Such termination shall not affect the obligations set forth in Sections 6, 9, 10, 11, and 12 which shall survive the sale of, and payment for, the Securities.

 

14. Governing Law; Venue. This Agreement shall be governed by, subject to and construed in accordance with, the laws of the State of Illinois without regard to conflict of law provisions and any dispute between the parties concerning this Agreement shall come within the jurisdiction of the courts of Illinois.

 

15. Severability. If any portion of this Agreement shall be held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be considered valid and operative and effect shall be given to the intent manifested by the portion held invalid or inoperative.

 

 

16. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and together which shall constitute one and the same instrument.

 

17. Modification or Amendment. This Agreement may not be modified or amended except by written agreement executed by the Issuer and the Managing Broker Dealer.

 

18. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and delivered as follows:

 

if sent to the Managing Broker Dealer, shall be mailed or delivered to:

 

Arete Wealth Management, LLC

1115 W. Fulton Market, 3rd Floor

Chicago, IL 60607

 

or if sent to the Issuer shall be mailed or delivered to:

 

Manufactured Housing Properties Inc.

136 Main Street

Pineville, North Carolina 28134

 

The notice shall be deemed to be received on the date of its actual receipt by the party entitled thereto.

 

19. Parties. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto, the parties referred to in Sections 9, 10, and 11 and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under, in respect of, or by virtue of, this Agreement or any provision herein contained.

 

20. Delay. Neither the failure nor any delay on the part of any party to this Agreement to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall a waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any subsequent occurrence.

 

21. Recovery of Costs. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding (and any additional proceeding for the enforcement of a judgment) in addition to any other relief to which it or they may be entitled.

 

22. Entire Agreement. This Agreement contains the entire understanding between the parties hereto and supersedes any prior understandings or written or oral agreements between them respecting the subject matter hereof.

 

IN WITNESS WHEREOF, this Agreement has been executed as of the Effective Date.

 

Manufactured Housing Properties Inc.,			Arete Wealth Management, LLC,
By:			By:
Name:			Name:
Title:			Title:

 

 

EXHIBIT A

 

SOLICITING DEALER AGREEMENT

 

 

MANUFACTURED HOUSING PROPERTIES INC.

SOLICITING DEALER AGREEMENT

 

The undersigned, Arete Wealth Management, LLC, an Illinois limited liability company (the “Managing Broker Dealer”), has entered into an agreement (the “Managing Broker Dealer Agreement”) with Manufactured Housing Properties Inc., a Nevada corporation (the “Issuer”), for the sale of up to 50,000 shares of Series C Preferred Stock of the Issuer (the “Securities”) for a maximum offering of up to $50,000,000. The Managing Broker Dealer has agreed to use its best efforts to form and manage a group of broker dealers (the “Selling Group Members”) and registered investment advisers (“Registered Investment Advisers”) for the purpose of soliciting offers for the purchase of the Securities. The terms of the Offering are set forth in the Issuer’s offering circular dated {OFFERING CIRCULAR DATE}, as may be supplemented or amended from time to time (the “Offering Circular”). The Securities will be offered during a period commencing on the date of the Offering Circular and continuing until the offering termination date as defined in the Offering Circular (the “Offering Termination Date”, with such interval defining the “Offering Period”); provided however, that the Issuer in its sole discretion may terminate the Offering at any time. Terms used but not otherwise defined in this Soliciting Dealer Agreement (this “Agreement”) have the same meanings as in the Offering Circular.

 

You (the Selling Group Member indicated on the signature page, or “You” or “Your”) are invited to become a Selling Group Member and by your confirmation hereof you agree to act in such capacity and to use your best efforts, in accordance with the following terms and conditions, to find qualified investors (the “Investors”) for the Securities. By your acceptance of this Agreement, you will become one of the Selling Group Members and will be entitled to and subject to the terms and conditions in this Soliciting Dealer Agreement.

 

1. Representations and Warranties of the Selling Group Member.

 

1.1 You hereby confirm that the Selling Group Member is duly organized, validly existing, and in good standing under the laws of its registered state with full power and authority to conduct its business. Selling Group Member is qualified, registered, and/or licensed to conduct its business in the jurisdictions that the conduct of its business requires such qualification, registration, or license, and that the Selling Group Member will take all steps necessary to ensure that at all times during the Offering that it remains in good standing and qualified, registered, and/or licensed to do business in such jurisdictions.

 

1.2 You hereby confirm that this Agreement, when executed by Selling Group Member, will have been duly and validly authorized, executed and delivered by the Selling Group Member, and will be a valid and binding agreement of the Selling Group Member, enforceable in accordance with its terms.

 

1.3 You hereby confirm that the Selling Group Member (i) is a member in good standing of the Financial Industry Regulatory Authority, Inc. (“FINRA”), (ii) is qualified and duly registered to act as a broker dealer within all states in which you will sell the Securities, (iii) is a broker dealer duly registered with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iv) will maintain all such registrations and qualifications in good standing for the duration of your involvement in the Offering, (v) has not received any notice of proceedings relating to the revocation or modification of its registration or license as a broker dealer or any other FINRA or governmental licenses or permits which, singly or in the aggregate, if the subject of an unfavorable decision, ruling, or finding, would reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, net worth, earnings, cash flows, business, operations or properties of the Selling Group Member, (vi) will comply with all applicable federal and state laws, rules, and regulations and FINRA rules, (vii) has all required licenses and permits, and will immediately notify the Managing Broker Dealer and the Issuer in writing (a) if any such registration, qualification, license, or permit is terminated or suspended, or (b) if notice of any proceeding relating to the revocation or modification of your registration or license as a broker dealer or any other FINRA or governmental licenses or permits is received by the Selling Group Member.

 

1.4 You hereby confirm that any independent contractors and registered representatives acting on behalf of the Selling Group Member have the appropriate securities registrations and licenses to offer and solicit purchasers for the Securities, and that the Selling Group Member will provide to the Managing Broker Dealer and the Issuer an updated list of registered representatives approved to offer and solicit purchasers for the Securities upon request.

 

 

1.5 You hereby confirm that the consummation of the transactions contemplated herein and those contemplated by the Offering Circular will not conflict with or result in a breach or violation of (a) the charter, bylaws or similar organizational documents of the Selling Group Member, (b) any order, rule or regulation directed to the Selling Group Member by any court or any federal or state regulatory body or administrative agency having jurisdiction over the Selling Group Member or its affiliates, or (c) the terms of any indenture, mortgage, deed of trust, loan or credit agreement, promissory note, lease, statutory trust, servicing agreement, contract, arrangement, understanding, document or any other instrument to which the Selling Group Member is a party or by which it is bound or pursuant to which its assets are subject.

 

1.6 You hereby confirm that there is no claim, action, suit, controversy, audit, arbitration, mediation or proceeding (collectively, any “Action”), before or by any regulatory authority, pending or, to the knowledge of Selling Group Member, threatened, that adversely affects the Offering, to which the Selling Group Member is a party, or to which any of its assets is subject, that would prevent or restrict the consummation of the transactions contemplated by this Agreement. For purposes of this provision, a “regulatory authority” means any of FINRA, the SEC, a U.S. national securities exchange, the United States, any state or other political subdivision thereof and any other foreign or domestic entity or government exercising or having the authority to exercise executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

1.7 You understand that the offering of Securities is made on a “best efforts” basis, as described in the Offering Circular. You further understand and agree that your compensation under this Agreement for the sale of Securities is conditioned upon the Issuer’s acceptance of sales by you, and that the failure to accept a purchase for Securities shall relieve the Issuer, the Managing Broker Dealer or any other party of any obligation to pay you for any services rendered by you in connection with the sale of Securities under this Agreement or otherwise.

 

1.8 You agree that before participating in the Offering, you will have reasonable grounds to believe that based on information made available to you by the Managing Broker Dealer and/or the Issuer through the Offering Circular that all material facts are adequately and accurately disclosed in the Offering Circular and provide a basis for evaluating the Issuer and the Securities.

 

1.9 The Selling Group Member hereby represents and warrants as of the date of this Agreement, the date of the filing of the offering statement, and at the time of any sale of the Securities (collectively the “Applicable Date”) to the Managing Broker Dealer and to the Issuer that neither the Selling Group Member nor any of its executive officers, directors, general partners, managing members, or officers involved in the offering, registered representatives acting on behalf of the Selling Group Member or persons who own 20.0% or more of the Selling Group Member or any person receiving any direct or indirect compensation from the Selling Group Member with respect to the Offering:

 

1.9.1 Has been convicted, within ten (10) years of any Applicable Date of any felony or misdemeanor that was:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving or making of any false filing with the SEC; or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.

 

1.9.2 Is subject to any order, judgment or decree of any court of competent jurisdiction, entered within five (5) years before any Applicable Date, that, as of such Applicable Date, restrains or enjoins such person from engaging or continuing in any conduct or practice:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving the making of any false filing with the SEC; or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.

 

 

1.9.3 Is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions), a state authority that supervises or examines banks, savings associations or credit unions, a state insurance commission (or an agency or officer of a state performing like functions), an appropriate federal banking agency, the U.S. Commodity Futures Trading Commission or the National Credit Union Administration that:

 

(a) As of any Applicable Date, bars the person from:

 

(i) Association with an entity regulated by such commission, authority, agency or officer;

 

(ii) Engaging in the business of securities, insurance or banking; or.

 

(iii) Engaging in savings association or credit union activities.

 

(b) Constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative or deceptive conduct entered within ten (10) years before any Applicable Date.

 

1.9.4 Is subject to an order of the SEC pursuant to sections 15(b) or 15B(c) of the Exchange Act or section 203(e) or (f) of the Investment Advisers Act of 1940 (the “Investment Advisers Act”) that, as of any Applicable Date:

 

(a) Suspends or revokes such person’s registration as a broker, dealer, municipal securities dealer or investment adviser;

 

(b) Places limitations on the activities, functions or operations of such person; or

 

(c) Bars such person from being associated with any entity or from participating in the offering of any penny stock.

 

1.9.5 Is subject to any order of the SEC entered within five (5) years before any Applicable Date, that as of such Applicable Date, orders the person to cease and desist from committing or causing a violation or future violation of:

 

(a) Any scienter-based anti-fraud provisions of the federal securities laws including, without limitation, section 17(a)(1) of the Securities Act of 1933 (the “Securities Act”), section 10(b) of the Exchange Act and 17 CFR 240.10b-5, section 15(c)(1) of the Exchange Act and section 206(1) of the Investment Advisers Act, or any other rule or regulation thereunder; or

 

(b) Section 5 of the Securities Act.

 

1.9.6 Is suspended from membership in, or suspended or barred from association with, a member of a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade;

 

1.9.7 Has filed (as a registrant or issuer), or was or was named as an underwriter in, any registration statement or Regulation A offering statement filed with the SEC that, within five (5) years of any Applicable Date, was the subject of a refusal order, stop order or order suspending the Regulation A exemption or, is, as of any Applicable Date, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued.

 

1.9.8 Is subject to a United States Postal Service false representation order entered within five (5) years before any Applicable Date, or is, as of any Applicable Date, subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations.

 

 

1.9.9 The representations and warranties made in this Section 1 are made as of the date of this Agreement and shall be continuing representations and warranties throughout the term of the Offering. In the event that any of these representations or warranties becomes untrue, the Selling Group Member will immediately notify the Managing Broker Dealer in writing of the fact which makes the representation or warranty untrue.

 

1.9.10 The Selling Group Member may rely upon the representations and warranties made by the Issuer and Managing Broker Dealer in sections 2 and 4 of the Managing Broker Dealer Agreement.

 

2. Duties and Obligations of the Selling Group Member.

 

2.1 You hereby agree to solicit, as an independent contractor and not as the Managing Broker Dealer’s agent, or as an agent of the Issuer or its affiliates, persons acceptable to the Issuer to purchase the Securities pursuant to the subscription agreement (the “Subscription Agreement”) in the form attached to the Offering Circular and in accordance with the terms of the Offering Circular, and to diligently make inquiries as required by this Agreement, the Offering Circular, or applicable law with respect to prospective Investors in order to ascertain whether a purchase of the securities is suitable for the Investor. In accordance with the instructions set forth in the Subscription Agreement, all complete Subscription Agreements and customer funds for the purchase of the Securities received by you with respect to any Subscription Agreement shall be transmitted as provided in in this Agreement. No Subscription Agreement shall be effective unless and until accepted by the Issuer.

 

2.2 Upon authorization by the Managing Broker Dealer, you may offer the Securities at the Offering price set forth in the Offering Circular, subject to the terms and conditions thereof, and you agree to comply in all respects with the purchase procedures and plan of distribution set forth in the Offering Circular.

 

2.3 You will provide each prospective Investor with a copy of the Offering Circular and exhibits and appendices thereto during the course of the Offering and before sale, and advise each such prospective Investor at the time of the initial offering to him or her that the Issuer and/or its agents and consultants will, during the course of the Offering and prior to any sale, accord said Investor and his or her purchaser representative, if any, the opportunity to ask questions of and to receive answers from the Issuer and/or its agents and consultants concerning the terms and conditions of the Offering and to obtain any additional information, which information is possessed by the Issuer or may be obtained by it without unreasonable effort or expense and which is necessary to verify the accuracy of the information contained in the Offering Circular.

 

2.4 All subscriptions solicited by you will be strictly subject to confirmation by the Managing Broker Dealer and acceptance thereof by the Issuer. The Managing Broker Dealer and the Issuer reserve the right in their absolute discretion to reject any subscription for any reason. Neither you nor any other person is authorized to and neither you nor any of your employees, agents, or representatives shall give any information or make any representation other than those contained in the Offering Circular or in any supplemental sales literature furnished by the Managing Broker Dealer or the Issuer for use in making solicitations in connection with the offer and sale of the Securities.

 

2.5 The Issuer or the Managing Broker Dealer will provide you with such number of copies of the Offering Circular and such number of copies of amendments and supplements thereto as you may reasonably request. You will be responsible for correctly placing orders of such materials and will reimburse the Issuer or the Managing Broker Dealer for any costs incurred in connection with unreasonable or mistaken orders. The Managing Broker Dealer also understands that the Issuer may provide you with certain supplemental sales material to be used by you in connection with the solicitation of purchases of the Securities. If you elect to use such supplemental sales material, you agree that such material shall not be used in connection with the solicitation or purchase of the Securities unless accompanied or preceded by the Offering Circular, as then currently in effect, and as it may be amended or supplemented in the future.

 

2.6 You agree not to execute any transaction in which an Investor invests in the Securities in a discretionary account without prior written approval of the transaction by the Investor.

 

 

2.7 You will immediately bring to the attention of the Issuer and the Managing Broker Dealer any circumstance or fact which causes you to believe the Offering Circular, or any other literature distributed pursuant to the Offering, or any information supplied to prospective Investors in their purchase materials, may be inaccurate or misleading.

 

2.8 You will limit the offering of the Securities to persons whom you have reasonable grounds to believe, and in fact believe, after conducting a reasonable inquiry and due diligence of the Offering in accordance with FINRA rules, meet the financial suitability and other Investor requirements set forth in the Offering Circular.

 

2.9 You agree that in recommending to an Investor the purchase or sale of the Securities, you shall have reasonable grounds to believe, on the basis of information obtained from the prospective Investor concerning his or her investment objectives, other investments, financial situation and needs, and any other information known by you, that:

 

2.9.1 The prospective Investor meets the suitability requirements set forth in the Offering Circular and documents associated with the Offering, and the acquisition of Securities by the Investor is a suitable investment for such Investor as may be required by all applicable laws, rules and regulations;

 

2.9.2 The prospective Investor is in a financial position appropriate to enable him or her to realize to a significant extent the benefits described in the Offering Circular;

 

2.9.3 The prospective Investor has a financial net worth sufficient to sustain the risks inherent in an investment in the Securities, including, but not limited to, the total loss of the investment, lack of liquidity, and other risks described in the Offering Circular;

 

2.9.4 The information contained in each completed Subscription Agreement is true and correct in all material respects with respect to such Investor; and

 

2.9.5 Such Investor will be acquiring the Securities for investment and not with a view a toward distribution.

 

2.10 You agree to retain in your records and make available to the Managing Broker Dealer and to the Issuer, for a period of at least six (6) years following the Offering Termination Date, a record of the information obtained pursuant to your engagement hereunder, including without limitation all of the information used by you to determine that (i) each person who purchases the Securities pursuant to a Subscription Agreement solicited by you is within the permitted class of Investors under the requirements of the jurisdiction in which such Investor is a resident, (ii) each such person met the suitability requirements set forth in the Offering Circular and the Subscription Agreement (both at the time of the initial purchase and at the time of any additional purchases), (iii) each such person is suitable for such investment and the basis on which such suitability determination was made, and (iv) a representation of each such person that it is investing for investment and not with a view toward distribution.

 

2.11 You agree that upon request by the Managing Broker Dealer, you will furnish a complete list of all persons who have been offered the Securities and such persons’ place of residence.

 

2.12 You agree that before executing a purchase transaction in the Securities, you will inform the prospective Investor and his or her purchaser representative, if any, of all pertinent facts relating to the liquidity and marketability of the Securities, as appropriate, during the term of the investment.

 

2.13 You hereby undertake and agree to comply with all obligations applicable to you as set forth in FINRA rules, including, but not limited to, any new suitability and filing requirements.

 

2.14 You will refrain from making any representations to any prospective Investor other than those contained in the Offering Circular, and will not allow any other written materials to be used to describe the potential investment to prospective Investors other than the Offering Circular or factual summaries and sales brochures of the Offering prepared by the Issuer.

 

2.15 You will refrain from distributing any material to prospective Investors that is marked “Financial Advisor Use Only”, “Broker Dealer Use Only,” or with similar language or disclosures or any other due diligence material related to the Offering received by You.

 

2.16 The Managing Broker Dealer shall have full authority to take such action as it may deem advisable with respect to all matters pertaining to the Offering. The Managing Broker Dealer shall be under no liability to you except for gross negligence or willful misconduct and for obligations expressly assumed by it in this Agreement. Nothing contained in this section is intended to operate as, and the provisions of this section shall not constitute a waiver by you, of compliance with any provision of the Securities Act, the Exchange Act, and any other applicable federal or state law, rule, and regulations thereunder.

 

 

2.17 Solicitation.

 

2.17.1 In soliciting persons to acquire the Securities, you agree to comply with any applicable requirements of federal and state securities laws, the published rules and regulations thereunder and FINRA rules and, in particular, you agree that you will not give any information or make any representations other than those contained in the Offering Circular and in any supplemental sales literature furnished to you by the Managing Broker Dealer or the Issuer for use in making such solicitations.

 

2.17.2 You will conduct all solicitation and sales efforts in conformity with Regulation A promulgated under the Securities Act and exemptions available under applicable state law.

 

2.18 Anti-Money Laundering Compliance Programs.

 

2.18.1 You will conduct reasonable investigation to ensure that all prospective Investors are not (i) listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the Treasury (“OFAC”) and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable enabling legislation or other Executive Orders in respect thereof (such lists are collectively referred to as “Lists”) or (ii) owned or controlled by, nor act for or on behalf of, any person or entity on the Lists.

 

2.18.2 Each Selling Group Member’s acceptance of this Agreement constitutes a representation to the Managing Broker Dealer that the Selling Group Member has established and implemented an anti-money laundering (“AML”) compliance program (“AML Program”), in accordance with FINRA Rule 3310 and Section 352 of the Money Laundering Abatement Act and Section 326 of the Patriot Act of 2001, which are reasonably expected to detect and cause reporting of suspicious transactions in connection with the sale of Securities. In addition, the Selling Group Member represents that it has established and implemented a program (“OFAC Program”) for compliance with OFAC and will continue to maintain its OFAC Program during the term of this Agreement. Upon request by the Managing Broker Dealer at any time, the Selling Group Member hereby agrees to (i) furnish a copy of its AML Program and OFAC Program to the Managing Broker Dealer for review and (ii) furnish a copy of the findings and any remedial actions taken in connection with the Selling Group Member’s most recent independent testing of its AML Program and/or its OFAC Program.

 

2.18.3 The parties acknowledge that for the purposes of the FINRA rules the Investors who purchase Securities through the Selling Group Member are “Customers” of the Selling Group Member and not the Managing Broker Dealer. Nonetheless, to the extent that the Managing Broker Dealer deems it prudent, the Selling Group Member shall cooperate with the Managing Broker Dealer’s auditing and monitoring of the Selling Group Member’s AML Program and its OFAC Program by providing, upon request, information, records, data and exception reports, related to Investors introduced to, and serviced by, the Selling Group Member (the “Customers”). Such documentation could include, among other things: (i) copies of Selling Group Member’s AML Program and its OFAC Program; (ii) documents maintained pursuant to the Selling Group Member’s AML Program and its OFAC Program related to the Customers; (iii) any suspicious activity reports filed related to the Customers; (iv) audits and any exception reports related to the Selling Group Member’s AML activities; and (v) any other files maintained related to the Customers. In the event that such documents reflect, in the opinion of the Managing Broker Dealer, a potential violation of the Managing Broker Dealer’s obligations in respect of its AML or OFAC requirements, the Selling Group Member will permit the Managing Broker Dealer to further inspect relevant books and records related to the Customers (with respect to the Offering) and/or the Selling Group Member’s compliance with AML or OFAC requirements. Notwithstanding the foregoing, the Selling Group Member shall not be required to provide to the Managing Broker Dealer any documentation that, in the Selling Group Member’s reasonable judgment, would cause the Selling Group Member to lose the benefit of attorney-client privilege or other privilege which it may be entitled to assert relating to the discoverability of documents in any civil or criminal proceedings. The Selling Group Member hereby represents that it is currently in compliance with all AML rules and all OFAC requirements, specifically including, but not limited to, the Customer Identification Program requirements under Section 326 of the USA PATRIOT Act. The Selling Group Member hereby agrees, upon request by the Managing Broker Dealer to (i) provide an annual certification to the Managing Broker Dealer that, as of the date of such certification (A) its AML Program and its OFAC Program are consistent with the AML Rules and OFAC requirements, (B) it has continued to implement its AML Program and its OFAC Program and (C) it is currently in compliance with all AML Rules and OFAC requirements, specifically including, but not limited to, the Customer Identification Program requirements under Section 326 of the USA PATRIOT Act and (ii) perform and carry out, on behalf of both the Managing Broker Dealer and the Issuer, the Customer Identification Program requirements in accordance with Section 326 of the USA PATRIOT Act and applicable SEC and Treasury Department Rules thereunder.

 

 

2.19 Due Diligence.

 

2.19.1 You agree not to rely upon the efforts of the Managing Broker Dealer in (i) performing due diligence related to the Issuer (including its members, managers, officers, directors, employees and Affiliates), the Securities, or the suitability thereof for any Investors and (ii) determining whether the Issuer has adequately and accurately disclosed all material facts upon which to provide a basis for evaluating the Issuer to the extent required by federal and state law, rules, and regulations and/or FINRA. You further agree that you are solely responsible for performing adequate due diligence, and you agree to perform adequate due diligence as required by federal and state law, rules, and regulations and/or FINRA.

 

2.19.2 The Issuer will authorize a collection of information regarding the Offering (the “Due Diligence Information”), which collection the Issuer may amend and supplement from time to time, to be delivered to the Selling Group Member (or their agents performing due diligence) in connection with its due diligence review of the Offering. In the event the Selling Group Member (or its agent performing due diligence) requests access to additional information or otherwise wishes to conduct additional due diligence regarding the Offering, the Issuer will reasonably cooperate with the Selling Group Member to accommodate such request. All Due Diligence Information received by the Selling Group Member in connection with its due diligence review of the Offering is confidential and shall be maintained as confidential and not disclosed by the Selling Group Member, except to the extent such information is disclosed in the Offering Circular.

 

2.20 Electronic Delivery of Information; Electronic Processing of Subscriptions.

 

2.20.1 Pursuant to the Managing Broker Dealer Agreement, the Issuer has agreed to confirm all orders for the purchase of Securities accepted by the Issuer. In addition, the Issuer, the Managing Broker Dealer and/or third parties engaged by the Issuer or the Managing Broker Dealer may, from time to time, provide to the Selling Group Member copies of investor letters, annual reports and other communications provided to the Issuer investors. The Selling Group Member agrees that, to the extent practicable and permitted by law, all confirmations, statements, communications and other information provided to or from the Issuer, the Managing Broker Dealer, the Selling Group Member and/or their agents or customers may be provided electronically, as a preference but not as a requirement.

 

2.20.2 With respect to Securities held through custodial accounts, the Selling Group Member agrees and acknowledges that to the extent practicable and permitted by law, all confirmations, statements, communications and other information provided from the Issuer, the Managing Broker Dealer and/or their agents to Issuer investors may be provided solely to the custodian that is the registered owner of the Securities, rather than to the beneficial owners of the Securities. In such case it shall be the responsibility of the custodian to distribute the information to the beneficial owners of Securities.

 

2.20.3 The Selling Group Member agrees and acknowledges that the Managing Broker Dealer may, as a preference but not as a requirement, use an electronic platform to process subscriptions, including but not limited to the Depository Trust Company (DTC) model. If an electronic platform is used, the Selling Group Member agrees to cooperate with the processing of subscriptions through such an electronic platform if reasonably practical.

 

 

3. Duties and Obligation of the Managing Broker Dealer.

 

3.1 Notifications. Managing Broker Dealer shall provide prompt written notice to the Selling Group Members of any material changes to the Managing Broker Dealer that in its judgment could materially and adversely affect a Selling Group Member with respect to this Offering.

 

4. Compensation.

 

4.1 Subject to certain conditions, and in consideration of your services hereunder, the Managing Broker Dealer will pay you sales commissions and marketing allowances as follows: (i) 6.0% of the purchase price of the Securities sold by you (the “Total Sales”); provided, however, that this amount may be reduced to the extent the Managing Broker Dealer negotiates a lower commission rate with you, in which event the commission rate will be the lower agreed upon rate (the above being referred to as the “Selling Commission”), and (ii) a non-accountable marketing and a due diligence allowance of up to 1.0% of the Total Sales (the “Selling Dealer Allowance”). Payment of the Selling Commission and the Selling Dealer Allowance shall be subject to the following conditions:

 

4.1.1 If the Managing Broker Dealer and Selling Group Member negotiate a lower rate of Selling Commission or Selling Dealer Allowance, the offering price for the associated subscriptions will be reduced by a comparable amount reflecting this decrease. The reduced price (the “NAV Price”) will be calculated in the following manner: 100% minus the reduction in Selling Commission and Selling Dealer Allowance multiplied by the offering price.

 

4.1.2 No Selling Commission or Selling Dealer Allowance will be payable with respect to any Subscription Agreements that are rejected by the Issuer or the Managing Broker Dealer, or if the Issuer terminates the Offering for any reason whatsoever.

 

4.1.3 No Selling Commission or Selling Dealer Allowance will be payable to you with respect to any sale of the Securities by you unless and until such time as the Issuer has received the total proceeds of any such sale and the Managing Broker Dealer has received the aggregate amount of sales commission to which it is entitled.

 

4.2 All other expenses incurred by you in the performance of your obligations hereunder, including, but not limited to, expenses related to the Offering and any attorneys’ fees, shall be at your sole cost and expense, and the foregoing shall apply notwithstanding the fact that the Offering is not consummated for any reason.

 

5. Relationship of Parties. Nothing herein shall constitute the Selling Group Members as an association, partnership, unincorporated business, or other separate entity. The Managing Broker Dealer shall be under no liability to make any payment to you except out of the funds received by it from the Issuer as hereinabove provided. The Managing Broker Dealer shall not be under any liability for, or in respect of the value or validity of the Subscription Agreement, the Securities or the performance by anyone of any agreement on its part, or for, or in respect of any matter connected with this Agreement, except for gross negligence or willful misconduct by the Managing Broker Dealer and for obligations expressly assumed by the Managing Broker Dealer in this Agreement.

 

6. Privacy Act. To protect Customer Information (as defined below) and to comply as may be necessary with the requirements of the Gramm-Leach-Bliley Act, the relevant state and federal regulations pursuant thereto and state privacy laws, the parties wish to include the confidentiality and non-disclosure obligations set forth herein.

 

6.1 Customer Information. “Customer Information” means any information contained on a customer’s application or other form and all nonpublic personal information about a customer that a party receives from the other party. Customer Information shall include, but not be limited to, name, address, telephone number, social security number, health information and personal financial information (which may include consumer account number).

 

 

6.2 Usage and Nondisclosure. The parties understand and acknowledge that they may be financial institutions subject to applicable federal and state customer and consumer privacy laws and regulations, including Title V of the Gramm-Leach-Bliley Act (15 U.S.C. 6801, et seq.) and regulations promulgated thereunder (collectively, the “Privacy Laws”), and any Customer Information that one party receives from the other party is received with limitations on its use and disclosure. The parties agree that they are prohibited from using the Customer Information received from the other party other than (i) as required by law, regulation or rule or (ii) to carry out the purposes for which one party discloses Customer Information to the other party pursuant to this Agreement, as permitted under the use in the ordinary course of business exception to the Privacy Laws.

 

6.3 Safeguarding Customer Information. The parties shall establish and maintain safeguards against the unauthorized access, destruction, loss, or alteration of Customer Information in their control which are no less rigorous than those maintained by a party for its own information of a similar nature. In the event of any improper disclosure of any Customer Information, the party responsible for the disclosure will immediately notify the other party.

 

7. Indemnification by the Issuer.

 

7.1 Subject to the conditions set forth below, the Issuer, with respect to the Offering, agrees to indemnify and hold harmless the Selling Group Member and its respective owners, managers, members, partners, directors, officers, employees, agents, attorneys, and accountants (collectively the “Selling Parties” and each a “Selling Party”), against any and all loss, liability, claim, damage and expense whatsoever (“Loss”) arising out of or based upon:

 

7.1.1 Any untrue statement or alleged untrue statement of a material fact contained in the Offering Circular (as amended and supplemented from time to time) or in any application or other document filed in any jurisdiction in order to qualify the Securities under, or exempt the Offering of the Securities from, the registration or qualification requirements of the securities laws thereof;

 

7.1.2 The omission or alleged omission from the Offering Circular (as amended and supplemented from time to time) of a material fact required to be stated therein or necessary to make the statements therein not misleading;

 

7.1.3 The failure of the Issuer to comply with any provisions of federal and state securities law, rules, and regulations, including Regulation A;

 

7.1.4 Any verbal or written representations made in connection with the Offering made by the Issuer, its agents (other than by the Selling Parties or any of its employees or affiliates), employees, or affiliates in violation of federal and state securities law, rules, and regulations, including Regulation A; or

 

7.1.5 The breach by the Issuer of any term, condition, representation, warranty, or covenant in this Agreement.

 

7.2 If any action is brought against any of the Selling Parties in respect of which indemnity may be sought hereunder, the Selling Party shall promptly notify the party or parties against whom indemnification is to be sought in writing of the institution of such action, and the Issuer shall assume the defense of such action. The affected Selling Parties shall have the right to employ counsel in any such case. The reasonable fees and expenses of such counsel shall be at the Issuer’s expense and authorized in writing by the Issuer.

 

7.3 The Issuer agrees to promptly notify the Selling Group Member of the commencement of any litigation or proceedings against the Issuer or any of its respective officers, directors, members, managers, partners, employees, attorneys, accountants, or agents in connection with the Offering of the Securities or in connection with the Offering Circular.

 

 

7.4 The indemnity provided to the Selling Parties pursuant to this Section 7 shall not apply to the extent that any Loss arises out of or is based upon (i) any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Issuer by the Selling Group Member specifically for use in the preparation of the Offering Circular (or any amendment or supplement thereto) or any sales literature, (ii) the failure to qualify the offer and sale of Securities for an exemption from registration under the Securities Act and applicable state securities laws, rules or regulations caused by an action or omission of the Selling Group Member, (iii) the offer or sale by the Selling Group Member of a Security to a person who fails to meet the standards regarding suitability under any applicable federal and state laws, rules, and regulations or FINRA rules or (iv) the breach by the Selling Group Member of its representations, warranties, or obligations hereunder.

 

8. Indemnification by the Selling Group Member.

 

8.1 Subject to the conditions set forth below, the Selling Group Member agrees to indemnify and hold harmless the Issuer, the Managing Broker Dealer, their affiliates, and their respective general partners, stockholders, partners, directors, officers, managers, employees, members and agents, each controlling person and each of their respective attorneys and accountants (“Issuer Parties”), against any and all Loss arising out of or based upon:

 

8.1.1 Any verbal or written representations made in connection with the Offering made by the Selling Group Member (other than by the Issuer Parties), employees, or affiliates in violation of the Securities Act, the Exchange Act, Regulation A, the regulations thereunder, applicable requirements and rules of FINRA, or any applicable federal or state securities laws and regulations or the Soliciting Dealer Agreement;

 

8.1.2 The Selling Group Member’s failure to comply with any of the applicable provisions of the Securities Act, the Exchange Act, Regulation A, the regulations thereunder, applicable requirements and rules of FINRA, or any applicable federal or state securities laws and regulations, other than any failure to comply which directly results from acts of the Issuer;

 

8.1.3 The breach by the Selling Group Member of any term, condition, representation, warranty, or covenant of the Soliciting Dealer Agreement; or

 

8.1.4 The failure by any Investor to comply with the suitability requirements set forth in the Offering Circular.

 

8.1.5 Any fault in electronic signatures and/or stamped signatures in any form which have been used, obtained or relied upon by the Selling Group Member with respect to this Agreement or any Subscription Agreement.

 

8.2 If any action is brought against any of the Issuer Parties in respect of which indemnity may be sought hereunder, the Issuer Party shall promptly notify the Selling Group Member in writing of the institution of such action, and the Selling Group Member shall assume the defense of such action. The Issuer Parties shall have the right to employ counsel in any such case. The reasonable fees and expenses of such counsel shall be at the Selling Group Member’s expense, provided that the Selling Group Member will not be obligated to pay for legal fees and expenses for more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions.

 

8.3 The Selling Group Member agrees to promptly notify the Issuer of the commencement of any litigation or proceedings against the Selling Group Member or any of the Selling Group Member’s managers, members, officers, directors, partners, employees, affiliates, attorneys, accountants, or agents in connection with the Offering of the Securities or in connection with the Offering Circular.

 

8.4 The indemnity provided to the Issuer Parties pursuant to this Section 8 shall not apply to the extent that any Loss arises out of or is based upon any untrue statement or alleged untrue statement of material fact made by the Issuer Parties or any of its agents (other than the Selling Group Member), or any omission or alleged omission of a material fact required to be disclosed by the Issuer or any of its agents (other than the Selling Group Member).

 

 

9. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided pursuant to Sections 8 and 9 is for any reason held to be unavailable from the Issuer or the Selling Group Member, the parties shall contribute to the aggregate Loss, liabilities, claims, damages and expenses (including any amount paid in settlement of any action, suit, or proceeding or any claims asserted) in such amounts as a court of competent jurisdiction may determine (or in the case of settlement, in such amounts as may be agreed upon by the parties) in such proportion to reflect the relative fault of the each party in connection with the events described in Sections 8 and 9, which resulted in such Loss, liabilities, claims, damages or expenses, as well as any other equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or the Selling Group Member and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such omission or statement.

 

10. Suspension, Termination, and Survival. The Selling Group Member will suspend or terminate the Offering upon request of the Issuer or the Managing Broker Dealer at any time and will resume the Offering upon the subsequent request of the Issuer or the Managing Broker Dealer. This Agreement may be terminated by the Managing Broker Dealer at any time upon written notice to the Selling Group Member. Except as the context otherwise requires, all representations, warranties, and agreements contained in this Agreement shall be deemed to be representations, warranties, and agreements at and as of the Offering Termination Date. Furthermore, the indemnity and contribution agreements contained in Sections 7, 8, and 9 shall remain operative and in full force and effect regardless of any investigation made by the Managing Broker Dealer, the Issuer, and/or any controlling person, and shall survive the sale of, and payment for, the Securities.

 

11. Governing Law; Venue. This Agreement shall be governed by, subject to and construed in accordance with the laws of the State of Illinois without regard to conflict of law provisions and any dispute between the parties concerning this Agreement shall come within the jurisdiction of the courts of Illinois.

 

12. Severability. If any portion of this Agreement shall be held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be considered valid and operative and effect shall be given to the intent manifested by the portion held invalid or inoperative.

 

13. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and together which shall constitute one and the same instrument.

 

14. Modification or Amendment. This Agreement may not be modified or amended except by written agreement executed by the parties hereto.

 

15. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and delivered as follows:

 

if sent to the Managing Broker Dealer, it shall be mailed or delivered to:

 

Arete Wealth Management, LLC

1115 W. Fulton Market, 3^rd Floor

Chicago, IL 60607

 

if sent to the Issuer, it shall be mailed or delivered to:

 

Manufactured Housing Properties Inc.

136 Main Street

Pineville, North Carolina 28134

 

if sent to you, it shall be mailed or delivered to your address set forth below. The notice shall be deemed to be received on the date of its actual receipt by the party entitled thereto.

 

 

16. Parties. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto, the persons referred to in Sections 7, 8, and 9 herein, their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under, in respect of, or by virtue of, this Agreement or any provision herein contained.

 

17. Delay. Neither the failure nor any delay on the part of any party to this Agreement to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall a waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any subsequent occurrence.

 

18. Recovery of Costs. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding (and any additional proceeding for the enforcement of a judgment) in addition to any other relief to which it or they may be entitled.

 

19. Entire Agreement. This Agreement, along with the applicable provisions of the Managing Broker Dealer Agreement, constitute the entire understanding between the parties hereto and supersede any prior understandings or written or oral agreements between them respecting the subject matter hereof.

 

IN WITNESS WHEREOF, this Agreement has been executed as of the date indicated below but shall only be in effect once ALL parties have appended appropriate signatures indicating agreement.

 

	Manufactured Housing Properties Inc.,
	By:	{ISSUER ELECTRONIC SIGNATURE}
	Name:	{NAME OF SIGNATORY}
	Title:	{TITLE OF SIGNATORY}

 

 

MANUFACTURED HOUSING PROPERTIES INC.

SOLICITING DEALER AGREEMENT SIGNATURE PAGE

 

Firm:

 

Firm CRD:

 

By:			Date:
Name:
Title:
Email:
Address:
Phone:

 

AGREED AND ACCEPTED:

 

Arete Wealth Management, LLC

 

By:
Name:	David Hock
Title:	Chief Financial Officer

 

 

EXHIBIT B

 

RIA CLIENT INTRODUCTION AGREEMENT

 

 

MANUFACTURED HOUSING PROPERTIES INC.

RIA CLIENT INTRODUCTION AGREEMENT

 

The undersigned, Arete Wealth Management, LLC, an Illinois limited liability company (the “Managing Broker Dealer”), has entered into an agreement (the “Managing Broker Dealer Agreement”) with Manufactured Housing Properties Inc., a Nevada corporation (the “Issuer”), for the sale of up to 50,000 shares of Series C Preferred Stock of the Issuer (the “Securities”) for a maximum offering of up to $50,000,000. The Managing Broker Dealer has agreed to use its best efforts to form and manage a group of broker dealers (the “Selling Group Members”) and registered investment advisers (“Introducing RIAs”) for the purpose of soliciting offers for the purchase of the Securities. The terms of the Offering are set forth in the Issuer’s offering circular dated {OFFERING CIRCULAR DATE}, as may be supplemented or amended from time to time (the “Offering Circular”). The Securities will be offered during a period commencing on the date of the Offering Circular and continuing until the offering termination date as defined in the Offering Circular (the “Offering Termination Date”, with such interval defining the “Offering Period”); provided however, that the Issuer in its sole discretion may terminate the Offering at any time. Terms used but not otherwise defined in this RIA Client Introduction Agreement (this “Agreement”) have the same meanings as in the Offering Circular.

 

You (the Introducing RIA indicated on the signature page, or “You” or “Your”) are invited to become an Introducing RIA and by your confirmation hereof you agree to act in such capacity. On the basis of the representations, warranties, and covenants contained herein, but subject to the terms and conditions set forth herein, the Issuer and Managing Broker Dealer hereby make the Securities available for purchase by the clients of the Introducing RIA (the “Investor” or “Investors”). By your acceptance of this Agreement, you will become one of the Introducing RIAs and will be entitled to and subject to the terms and conditions in this Agreement.

 

Investors introduced by the Introducing RIA may purchase Securities in the Offering net of 7.0% of brokerage commissions.

 

20. Representations and Warranties of the Introducing RIA.

 

20.1 You hereby confirm that the Introducing RIA is duly organized, validly existing, and in good standing under the laws of its registered state with full power and authority to conduct its business. Introducing RIA is qualified, registered, and/or licensed to conduct its business in the jurisdictions that the conduct of its business requires such qualification, registration, or license, and that the Introducing RIA will take all steps necessary to ensure that at all times during the Offering that it remains in good standing and qualified, registered, and/or licensed to do business in such jurisdictions.

 

20.2 You hereby confirm that this Agreement, when executed by Introducing RIA, will have been duly and validly authorized, executed and delivered by the Introducing RIA, and will be a valid and binding agreement of the Introducing RIA, enforceable in accordance with its terms.

 

20.3 You hereby confirm that the Introducing RIA (i) is qualified and duly registered to act as a registered investment adviser within all states in which you will sell the Securities, (ii) is a registered investment adviser duly registered with either a state authority or the U.S. Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iii) will maintain all such registrations and qualifications in good standing for the duration of your involvement in the Offering, (iv) has not received any notice of proceedings relating to the revocation or modification of its registration which, singly or in the aggregate, if the subject of an unfavorable decision, ruling, or finding, would reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, net worth, earnings, cash flows, business, operations or properties of the Introducing RIA, (v) will comply with all applicable federal and state laws, rules, and regulations, (vi) has all required licenses and permits, and will immediately notify the Managing Broker Dealer and the Issuer in writing (a) if any such registration, qualification, license, or permit is terminated or suspended, or (b) if notice of any proceeding relating to the revocation or modification of your registration is received by the Introducing RIA.

 

 

20.4 You hereby confirm that any independent contractors and investment adviser representatives acting on behalf of the Introducing RIA have the appropriate securities registrations and licenses to offer and solicit purchasers for the Securities, and that the Introducing RIA will provide to the Managing Broker Dealer and the Issuer an updated list of investment adviser representatives approved to offer and solicit purchasers for the Securities upon request.

 

20.5 You hereby confirm that the consummation of the transactions contemplated herein and those contemplated by the Offering Circular will not conflict with or result in a breach or violation of (a) the charter, bylaws or similar organizational documents of the Introducing RIA, (b) any order, rule or regulation directed to the Introducing RIA by any court or any federal or state regulatory body or administrative agency having jurisdiction over the Introducing RIA or its affiliates, or (c) the terms of any indenture, mortgage, deed of trust, loan or credit agreement, promissory note, lease, statutory trust, servicing agreement, contract, arrangement, understanding, document or any other instrument to which the Introducing RIA is a party or by which it is bound or pursuant to which its assets are subject.

 

20.6 You hereby confirm that there is no claim, action, suit, controversy, audit, arbitration, mediation or proceeding (collectively, any “Action”), before or by any regulatory authority, pending or, to the knowledge of Introducing RIA, threatened, that adversely affects the Offering, to which the Introducing RIA is a party, or to which any of its assets is subject, that would prevent or restrict the consummation of the transactions contemplated by this Agreement. For purposes of this provision, a “regulatory authority” means any of FINRA, the SEC, a U.S. national securities exchange, the United States, any state or other political subdivision thereof and any other foreign or domestic entity or government exercising or having the authority to exercise executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

20.7 You agree that before participating in the Offering, you will have reasonable grounds to believe that based on information made available to you by the Managing Broker Dealer and/or the Issuer through the Offering Circular that all material facts are adequately and accurately disclosed in the Offering Circular and provide a basis for evaluating the Issuer and the Securities.

 

20.8 Unless otherwise licensed as such, the Introducing RIA shall not act as a broker or dealer, or take any action that would require it to register as a broker or dealer, in connection with the purchase of Securities by Investors. The Introducing RIA is not an agent of the Issuer or the Managing Broker Dealer and shall have no obligation to advise its clients to purchase the Securities. The Introducing RIA’s fee arrangements with any Investor would not be deemed excessive under applicable regulations.

 

20.9 The Introducing RIA hereby represents and warrants as of the date of this Agreement, the date of the filing of the offering statement, and at the time of any sale of the Securities (collectively the “Applicable Date”) to the Managing Broker Dealer and to the Issuer that neither the Introducing RIA nor any of its executive officers, directors, general partners, managing members, or officers involved in the offering, investment adviser representatives acting on behalf of the Introducing RIA or persons who own 20.0% or more of the Introducing RIA or any person receiving any direct or indirect compensation from the Introducing RIA with respect to the Offering:

 

20.9.1 Has been convicted, within ten (10) years of any Applicable Date of any felony or misdemeanor that was:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving or making of any false filing with the SEC; or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.

 

20.9.2 Is subject to any order, judgment or decree of any court of competent jurisdiction, entered within five (5) years before any Applicable Date, that, as of such Applicable Date, restrains or enjoins such person from engaging or continuing in any conduct or practice:

 

(a) In connection with the purchase or sale of any security;

 

(b) Involving the making of any false filing with the SEC; or

 

(c) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.

 

 

20.9.3 Is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions), a state authority that supervises or examines banks, savings associations or credit unions, a state insurance commission (or an agency or officer of a state performing like functions), an appropriate federal banking agency, the U.S. Commodity Futures Trading Commission or the National Credit Union Administration that:

 

(a) As of any Applicable Date, bars the person from:

 

(i) Association with an entity regulated by such commission, authority, agency or officer;

 

(ii) Engaging in the business of securities, insurance or banking; or.

 

(iii) Engaging in savings association or credit union activities.

 

(b) Constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative or deceptive conduct entered within ten (10) years before any Applicable Date.

 

20.9.4 Is subject to an order of the SEC pursuant to sections 15(b) or 15B(c) of the Exchange Act or section 203(e) or (f) of the Investment Advisers Act of 1940 (the “Investment Advisers Act”) that, as of any Applicable Date:

 

(a) Suspends or revokes such person’s registration as a broker, dealer, municipal securities dealer or investment adviser;

 

(b) Places limitations on the activities, functions or operations of such person; or

 

(c) Bars such person from being associated with any entity or from participating in the offering of any penny stock.

 

20.9.5 Is subject to any order of the SEC entered within five (5) years before any Applicable Date, that as of such Applicable Date, orders the person to cease and desist from committing or causing a violation or future violation of:

 

(a) Any scienter-based anti-fraud provisions of the federal securities laws including, without limitation, section 17(a)(1) of the Securities Act of 1933 (the “Securities Act”), section 10(b) of the Exchange Act and 17 CFR 240.10b-5, section 15(c)(1) of the Exchange Act and section 206(1) of the Investment Advisers Act, or any other rule or regulation thereunder; or

 

(b) Section 5 of the Securities Act.

 

20.9.6 Is suspended from membership in, or suspended or barred from association with, a member of a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade;

 

20.9.7 Has filed (as a registrant or issuer), or was or was named as an underwriter in, any registration statement or Regulation A offering statement filed with the SEC that, within five (5) years of any Applicable Date, was the subject of a refusal order, stop order or order suspending the Regulation A exemption or, is, as of any Applicable Date, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued.

 

20.9.8 Is subject to a United States Postal Service false representation order entered within five (5) years before any Applicable Date, or is, as of any Applicable Date, subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations.

 

 

20.9.9 The representations and warranties made in this Section 1 are made as of the date of this Agreement and shall be continuing representations and warranties throughout the term of the Offering. In the event that any of these representations or warranties becomes untrue, the Introducing RIA will immediately notify the Managing Broker Dealer in writing of the fact which makes the representation or warranty untrue.

 

20.9.10 The Introducing RIA may rely upon the representations and warranties made by the Issuer and Managing Broker Dealer in sections 2 and 4 of the Managing Broker Dealer Agreement.

 

21. Duties and Obligations of the Introducing RIA.

 

21.1 You hereby agree to solicit persons acceptable to the Issuer to purchase the Securities pursuant to the subscription agreement (the “Subscription Agreement”) in the form attached to the Offering Circular and in accordance with the terms of the Offering Circular, and to diligently make inquiries as required by this Agreement, the Offering Circular, or applicable law with respect to prospective Investors in order to ascertain whether a purchase of the securities is suitable for the Investor. Notwithstanding the foregoing, the Introducing RIA is under no obligation to actually consummate on behalf of Investors any transaction or transactions in Securities. In accordance with the instructions set forth in the Subscription Agreement, all complete Subscription Agreements and customer funds for the purchase of the Securities received by you with respect to any Subscription Agreement shall be transmitted as provided in in this Agreement. No Subscription Agreement shall be effective unless and until accepted by the Issuer.

 

21.2 Upon authorization by the Managing Broker Dealer, you may offer the Securities at the Offering price set forth in the Offering Circular, or as amended or superseded in this Agreement, subject to the terms and conditions thereof, and you agree to comply in all respects with the purchase procedures and plan of distribution set forth in the Offering Circular.

 

21.3 You will provide each prospective Investor with a copy of the Offering Circular and exhibits and appendices thereto during the course of the Offering and before sale, and advise each such prospective Investor at the time of the initial offering to him or her that the Issuer and/or its agents and consultants will, during the course of the Offering and prior to any sale, accord said Investor and his or her purchaser representative, if any, the opportunity to ask questions of and to receive answers from the Issuer and/or its agents and consultants concerning the terms and conditions of the Offering and to obtain any additional information, which information is possessed by the Issuer or may be obtained by it without unreasonable effort or expense and which is necessary to verify the accuracy of the information contained in the Offering Circular.

 

21.4 All subscriptions solicited by you will be strictly subject to confirmation by the Managing Broker Dealer and acceptance thereof by the Issuer. The Managing Broker Dealer and the Issuer reserve the right in their absolute discretion to reject any subscription for any reason. Neither you nor any other person is authorized to and neither you nor any of your employees, agents, or representatives shall give any information or make any representation other than those contained in the Offering Circular or in any supplemental sales literature furnished by the Managing Broker Dealer or the Issuer for use in making solicitations in connection with the offer and sale of the Securities.

 

21.5 The Issuer or the Managing Broker Dealer will provide you with such number of copies of the Offering Circular and such number of copies of amendments and supplements thereto as you may reasonably request. You will be responsible for correctly placing orders of such materials and will reimburse the Issuer or the Managing Broker Dealer for any costs incurred in connection with unreasonable or mistaken orders. The Managing Broker Dealer also understands that the Issuer may provide you with certain supplemental sales material to be used by you in connection with the solicitation of purchases of the Securities. If you elect to use such supplemental sales material, you agree that such material shall not be used in connection with the solicitation or purchase of the Securities unless accompanied or preceded by the Offering Circular, as then currently in effect, and as it may be amended or supplemented in the future.

 

 

21.6 You agree not to execute any transaction in which an Investor invests in the Securities in a discretionary account without prior written approval of the transaction by the Investor.

 

21.7 You will immediately bring to the attention of the Issuer and the Managing Broker Dealer any circumstance or fact which causes you to believe the Offering Circular, or any other literature distributed pursuant to the Offering, or any information supplied to prospective Investors in their purchase materials, may be inaccurate or misleading.

 

21.8 You will limit the offering of the Securities to persons whom you have reasonable grounds to believe, and in fact believe, after conducting a reasonable inquiry and due diligence of the Offering, meet the financial suitability and other Investor requirements set forth in the Offering Circular.

 

21.9 You agree that in recommending to an Investor the purchase or sale of the Securities, you shall have reasonable grounds to believe, on the basis of information obtained from the prospective Investor concerning his or her investment objectives, other investments, financial situation and needs, and any other information known by you, that:

 

21.9.1 The prospective Investor meets the suitability requirements set forth in the Offering Circular and documents associated with the Offering, and the acquisition of Securities by the Investor is a suitable investment for such Investor as may be required by all applicable laws, rules and regulations;

 

21.9.2 The prospective Investor is in a financial position appropriate to enable him or her to realize to a significant extent the benefits described in the Offering Circular;

 

21.9.3 The prospective Investor has a financial net worth sufficient to sustain the risks inherent in an investment in the Securities, including, but not limited to, the total loss of the investment, lack of liquidity, and other risks described in the Offering Circular;

 

21.9.4 The information contained in each completed Subscription Agreement is true and correct in all material respects with respect to such Investor; and

 

21.9.5 Such Investor will be acquiring the Securities for investment and not with a view a toward distribution.

 

21.10 You agree to retain in your records and make available to the Managing Broker Dealer and to the Issuer, for a period of at least six (6) years following the Offering Termination Date, a record of the information obtained pursuant to your engagement hereunder, including without limitation all of the information used by you to determine that (i) each person who purchases the Securities pursuant to a Subscription Agreement solicited by you is within the permitted class of Investors under the requirements of the jurisdiction in which such Investor is a resident, (ii) each such person met the suitability requirements set forth in the Offering Circular and the Subscription Agreement (both at the time of the initial purchase and at the time of any additional purchases), (iii) each such person is suitable for such investment and the basis on which such suitability determination was made, and (iv) a representation of each such person that it is investing for investment and not with a view toward distribution.

 

21.11 You agree that upon request by the Managing Broker Dealer, you will furnish a complete list of all persons who have been offered the Securities and such persons’ place of residence.

 

21.12 You agree that before executing a purchase transaction in the Securities, you will inform the prospective Investor and his or her purchaser representative, if any, of all pertinent facts relating to the liquidity and marketability of the Securities, as appropriate, during the term of the investment.

 

21.13 You hereby undertake and agree to comply with all obligations applicable to you including, but not limited to, any new suitability and filing requirements.

 

21.14 You will refrain from making any representations to any prospective Investor other than those contained in the Offering Circular, and will not allow any other written materials to be used to describe the potential investment to prospective Investors other than the Offering Circular or factual summaries and sales brochures of the Offering prepared by the Issuer.

 

21.15 You will refrain from distributing any material to prospective Investors that is marked “Financial Advisor Use Only”, “Broker Dealer Use Only,” or with similar language or disclosures or any other due diligence material related to the Offering received by You.

 

21.16 The Managing Broker Dealer shall have full authority to take such action as it may deem advisable with respect to all matters pertaining to the Offering. The Managing Broker Dealer shall be under no liability to you except for gross negligence or willful misconduct and for obligations expressly assumed by it in this Agreement. Nothing contained in this section is intended to operate as, and the provisions of this section shall not constitute a waiver by you, of compliance with any provision of the Securities Act, the Exchange Act, and any other applicable federal or state law, rule, and regulations thereunder.

 

 

21.17 Solicitation.

 

21.17.1 In soliciting persons to acquire the Securities, you agree to comply with any applicable requirements of federal and state securities laws, the published rules and regulations thereunder and, in particular, you agree that you will not give any information or make any representations other than those contained in the Offering Circular and in any supplemental sales literature furnished to you by the Managing Broker Dealer or the Issuer for use in making such solicitations.

 

21.17.2 You will conduct all solicitation and sales efforts in conformity with Regulation A promulgated under the Securities Act and exemptions available under applicable state law.

 

21.18 Anti-Money Laundering Compliance Programs.

 

21.18.1 You will conduct reasonable investigation to ensure that all prospective Investors are not (i) listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the Treasury (“OFAC”) and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable enabling legislation or other Executive Orders in respect thereof (such lists are collectively referred to as “Lists”) or (ii) owned or controlled by, nor act for or on behalf of, any person or entity on the Lists.

 

21.18.2 Each Introducing RIA’s acceptance of this Agreement constitutes a representation to the Managing Broker Dealer that the Introducing RIA has established and implemented an anti-money laundering (“AML”) compliance program (“AML Program”), in accordance with 31 U.S.C. 5318(h) and Section 352 of the Money Laundering Abatement Act and Section 326 of the Patriot Act of 2001, which are reasonably expected to detect and cause reporting of suspicious transactions in connection with the sale of Securities. In addition, the Introducing RIA represents that it has established and implemented a program (“OFAC Program”) for compliance with OFAC and will continue to maintain its OFAC Program during the term of this Agreement. Upon request by the Managing Broker Dealer at any time, the Introducing RIA hereby agrees to (i) furnish a copy of its AML Program and OFAC Program to the Managing Broker Dealer for review and (ii) furnish a copy of the findings and any remedial actions taken in connection with the Introducing RIA’s most recent independent testing of its AML Program and/or its OFAC Program.

 

21.18.3 The parties acknowledge that for the purposes of the FINRA rules the Investors who purchase Securities through the Introducing RIA are “Customers” of the Introducing RIA and not the Managing Broker Dealer. Nonetheless, to the extent that the Managing Broker Dealer deems it prudent, the Introducing RIA shall cooperate with the Managing Broker Dealer’s auditing and monitoring of the Introducing RIA’s AML Program and its OFAC Program by providing, upon request, information, records, data and exception reports, related to Investors introduced to, and serviced by, the Introducing RIA (the “Customers”). Such documentation could include, among other things: (i) copies of Introducing RIA’s AML Program and its OFAC Program; (ii) documents maintained pursuant to the Introducing RIA’s AML Program and its OFAC Program related to the Customers; (iii) any suspicious activity reports filed related to the Customers; (iv) audits and any exception reports related to the Introducing RIA’s AML activities; and (v) any other files maintained related to the Customers. In the event that such documents reflect, in the opinion of the Managing Broker Dealer, a potential violation of the Managing Broker Dealer’s obligations in respect of its AML or OFAC requirements, the Introducing RIA will permit the Managing Broker Dealer to further inspect relevant books and records related to the Customers (with respect to the Offering) and/or the Introducing RIA’s compliance with AML or OFAC requirements. Notwithstanding the foregoing, the Introducing RIA shall not be required to provide to the Managing Broker Dealer any documentation that, in the Introducing RIA’s reasonable judgment, would cause the Introducing RIA to lose the benefit of attorney-client privilege or other privilege which it may be entitled to assert relating to the discoverability of documents in any civil or criminal proceedings. The Introducing RIA hereby represents that it is currently in compliance with all AML rules and all OFAC requirements, specifically including, but not limited to, the Customer Identification Program requirements under Section 326 of the USA PATRIOT Act. The Introducing RIA hereby agrees, upon request by the Managing Broker Dealer to (i) provide an annual certification to the Managing Broker Dealer that, as of the date of such certification (A) its AML Program and its OFAC Program are consistent with the AML Rules and OFAC requirements, (B) it has continued to implement its AML Program and its OFAC Program and (C) it is currently in compliance with all AML Rules and OFAC requirements, specifically including, but not limited to, the Customer Identification Program requirements under Section 326 of the USA PATRIOT Act and (ii) perform and carry out, on behalf of both the Managing Broker Dealer and the Issuer, the Customer Identification Program requirements in accordance with Section 326 of the USA PATRIOT Act and applicable SEC and Treasury Department Rules thereunder.

 

 

21.19 Due Diligence.

 

21.19.1 You agree not to rely upon the efforts of the Managing Broker Dealer in (i) performing due diligence related to the Issuer (including its members, managers, officers, directors, employees and Affiliates), the Securities, or the suitability thereof for any Investors and (ii) determining whether the Issuer has adequately and accurately disclosed all material facts upon which to provide a basis for evaluating the Issuer to the extent required by federal and state law, rules, and regulations. You further agree that you are solely responsible for performing adequate due diligence, and you agree to perform adequate due diligence as required by federal and state law, rules, and regulations.

 

21.19.2 The Issuer will authorize a collection of information regarding the Offering (the “Due Diligence Information”), which collection the Issuer may amend and supplement from time to time, to be delivered to the Introducing RIA (or their agents performing due diligence) in connection with its due diligence review of the Offering. In the event the Introducing RIA (or its agent performing due diligence) requests access to additional information or otherwise wishes to conduct additional due diligence regarding the Offering, the Issuer will reasonably cooperate with the Introducing RIA to accommodate such request. All Due Diligence Information received by the Introducing RIA in connection with its due diligence review of the Offering is confidential and shall be maintained as confidential and not disclosed by the Introducing RIA, except to the extent such information is disclosed in the Offering Circular.

 

21.20 Electronic Delivery of Information; Electronic Processing of Subscriptions.

 

21.20.1 Pursuant to the Managing Broker Dealer Agreement, the Issuer has agreed to confirm all orders for the purchase of Securities accepted by the Issuer. In addition, the Issuer, the Managing Broker Dealer and/or third parties engaged by the Issuer or the Managing Broker Dealer may, from time to time, provide to the Introducing RIA copies of investor letters, annual reports and other communications provided to the Issuer investors. The Introducing RIA agrees that, to the extent practicable and permitted by law, all confirmations, statements, communications and other information provided to or from the Issuer, the Managing Broker Dealer, the Introducing RIA and/or their agents or customers may be provided electronically, as a preference but not as a requirement.

 

21.20.2 With respect to Securities held through custodial accounts, the Introducing RIA agrees and acknowledges that to the extent practicable and permitted by law, all confirmations, statements, communications and other information provided from the Issuer, the Managing Broker Dealer and/or their agents to Issuer investors may be provided solely to the custodian that is the registered owner of the Securities, rather than to the beneficial owners of the Securities. In such case it shall be the responsibility of the custodian to distribute the information to the beneficial owners of Securities.

 

21.20.3 The Introducing RIA agrees and acknowledges that the Managing Broker Dealer may, as a preference but not as a requirement, use an electronic platform to process subscriptions, including but not limited to the Depository Trust Company (DTC) model. If an electronic platform is used, the Introducing RIA agrees to cooperate with the processing of subscriptions through such an electronic platform if reasonably practical.

 

 

22. Duties and Obligation of the Managing Broker Dealer.

 

22.1 Notifications. Managing Broker Dealer shall provide prompt written notice to the Introducing RIAs of any material changes to the Managing Broker Dealer that in its judgment could materially and adversely affect an Introducing RIA with respect to this Offering.

 

23. Compensation and Expenses.

 

23.1 Introducing RIA shall not receive compensation from the Issuer for introducing Investors to the Issuer or facilitating the purchase of Securities by Investors. Notwithstanding the foregoing, the Issuer, in its sole discretion, may elect to reimburse the Introducing RIA for bona fide due diligence expenses in conjunction with reviewing the Offering and other reasonable marketing costs, but in no circumstances may this constitute transaction-based compensation.

 

23.2 All other expenses incurred by you in the performance of your obligations hereunder, including, but not limited to, expenses related to the Offering and any attorneys’ fees, shall be at your sole cost and expense, and the foregoing shall apply notwithstanding the fact that the Offering is not consummated for any reason.

 

24. Relationship of Parties. Nothing herein shall constitute the Introducing RIAs as an association, partnership, unincorporated business, or other separate entity. The Managing Broker Dealer shall be under no liability to make any payment to you except out of the funds received by it from the Issuer as hereinabove provided. The Managing Broker Dealer shall not be under any liability for, or in respect of the value or validity of the Subscription Agreement, the Securities or the performance by anyone of any agreement on its part, or for, or in respect of any matter connected with this Agreement, except for gross negligence or willful misconduct by the Managing Broker Dealer and for obligations expressly assumed by the Managing Broker Dealer in this Agreement.

 

25. Privacy Act. To protect Customer Information (as defined below) and to comply as may be necessary with the requirements of the Gramm-Leach-Bliley Act, the relevant state and federal regulations pursuant thereto and state privacy laws, the parties wish to include the confidentiality and non-disclosure obligations set forth herein.

 

25.1 Customer Information. “Customer Information” means any information contained on a customer’s application or other form and all nonpublic personal information about a customer that a party receives from the other party. Customer Information shall include, but not be limited to, name, address, telephone number, social security number, health information and personal financial information (which may include consumer account number).

 

25.2 Usage and Nondisclosure. The parties understand and acknowledge that they may be financial institutions subject to applicable federal and state customer and consumer privacy laws and regulations, including Title V of the Gramm-Leach-Bliley Act (15 U.S.C. 6801, et seq.) and regulations promulgated thereunder (collectively, the “Privacy Laws”), and any Customer Information that one party receives from the other party is received with limitations on its use and disclosure. The parties agree that they are prohibited from using the Customer Information received from the other party other than (i) as required by law, regulation or rule or (ii) to carry out the purposes for which one party discloses Customer Information to the other party pursuant to this Agreement, as permitted under the use in the ordinary course of business exception to the Privacy Laws.

 

25.3 Safeguarding Customer Information. The parties shall establish and maintain safeguards against the unauthorized access, destruction, loss, or alteration of Customer Information in their control which are no less rigorous than those maintained by a party for its own information of a similar nature. In the event of any improper disclosure of any Customer Information, the party responsible for the disclosure will immediately notify the other party.

 

 

26. Indemnification by the Issuer.

 

26.1 Subject to the conditions set forth below, the Issuer, with respect to the Offering, agrees to indemnify and hold harmless the Introducing RIA and its respective owners, managers, members, partners, directors, officers, employees, agents, attorneys, and accountants (collectively the “Selling Parties” and each a “Selling Party”), against any and all loss, liability, claim, damage and expense whatsoever (“Loss”) arising out of or based upon:

 

26.1.1 Any untrue statement or alleged untrue statement of a material fact contained in the Offering Circular (as amended and supplemented from time to time) or in any application or other document filed in any jurisdiction in order to qualify the Securities under, or exempt the Offering of the Securities from, the registration or qualification requirements of the securities laws thereof;

 

26.1.2 The omission or alleged omission from the Offering Circular (as amended and supplemented from time to time) of a material fact required to be stated therein or necessary to make the statements therein not misleading;

 

26.1.3 The failure of the Issuer to comply with any provisions of federal and state securities law, rules, and regulations, including Regulation A;

 

26.1.4 Any verbal or written representations made in connection with the Offering made by the Issuer, its agents (other than by the Selling Parties or any of its employees or affiliates), employees, or affiliates in violation of federal and state securities law, rules, and regulations, including Regulation A; or

 

26.1.5 The breach by the Issuer of any term, condition, representation, warranty, or covenant in this Agreement.

 

26.2 If any action is brought against any of the Selling Parties in respect of which indemnity may be sought hereunder, the Selling Party shall promptly notify the party or parties against whom indemnification is to be sought in writing of the institution of such action, and the Issuer shall assume the defense of such action. The affected Selling Parties shall have the right to employ counsel in any such case. The reasonable fees and expenses of such counsel shall be at the Issuer’s expense and authorized in writing by the Issuer.

 

26.3 The Issuer agrees to promptly notify the Introducing RIA of the commencement of any litigation or proceedings against the Issuer or any of its respective officers, directors, members, managers, partners, employees, attorneys, accountants, or agents in connection with the Offering of the Securities or in connection with the Offering Circular.

 

26.4 The indemnity provided to the Selling Parties pursuant to this Section 7 shall not apply to the extent that any Loss arises out of or is based upon (i) any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Issuer by the Introducing RIA specifically for use in the preparation of the Offering Circular (or any amendment or supplement thereto) or any sales literature, (ii) the failure to qualify the offer and sale of Securities for an exemption from registration under the Securities Act and applicable state securities laws, rules or regulations caused by an action or omission of the Introducing RIA, (iii) the offer or sale by the Introducing RIA of a Security to a person who fails to meet the standards regarding suitability under any applicable federal and state laws, rules, and regulations or (iv) the breach by the Introducing RIA of its representations, warranties, or obligations hereunder.

 

27. Indemnification by the Introducing RIA.

 

27.1 Subject to the conditions set forth below, the Introducing RIA agrees to indemnify and hold harmless the Issuer, the Managing Broker Dealer, their affiliates, and their respective general partners, stockholders, partners, directors, officers, managers, employees, members and agents, each controlling person and each of their respective attorneys and accountants (“Issuer Parties”), against any and all Loss arising out of or based upon:

 

27.1.1 Any verbal or written representations made in connection with the Offering made by the Introducing RIA (other than by the Issuer Parties), employees, or affiliates in violation of the Securities Act, the Exchange Act, Regulation A, the regulations thereunder, or any applicable federal or state securities laws and regulations or the RIA Client Introduction Agreement;

 

 

27.1.2 The Introducing RIA’s failure to comply with any of the applicable provisions of the Securities Act, the Exchange Act, Regulation A, the regulations thereunder, or any applicable federal or state securities laws and regulations, other than any failure to comply which directly results from acts of the Issuer;

 

27.1.3 The breach by the Introducing RIA of any term, condition, representation, warranty, or covenant of the RIA Client Introduction Agreement; or

 

27.1.4 The failure by any Investor to comply with the suitability requirements set forth in the Offering Circular.

 

27.1.5 Any fault in electronic signatures and/or stamped signatures in any form which have been used, obtained or relied upon by the Introducing RIA with respect to this Agreement or any Subscription Agreement.

 

27.2 If any action is brought against any of the Issuer Parties in respect of which indemnity may be sought hereunder, the Issuer Party shall promptly notify the Introducing RIA in writing of the institution of such action, and the Introducing RIA shall assume the defense of such action. The Issuer Parties shall have the right to employ counsel in any such case. The reasonable fees and expenses of such counsel shall be at the Introducing RIA’s expense, provided that the Introducing RIA will not be obligated to pay for legal fees and expenses for more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions.

 

27.3 The Introducing RIA agrees to promptly notify the Issuer of the commencement of any litigation or proceedings against the Introducing RIA or any of the Introducing RIA’s managers, members, officers, directors, partners, employees, affiliates, attorneys, accountants, or agents in connection with the Offering of the Securities or in connection with the Offering Circular.

 

27.4 The indemnity provided to the Issuer Parties pursuant to this Section 8 shall not apply to the extent that any Loss arises out of or is based upon any untrue statement or alleged untrue statement of material fact made by the Issuer Parties or any of its agents (other than the Introducing RIA), or any omission or alleged omission of a material fact required to be disclosed by the Issuer or any of its agents (other than the Introducing RIA).

 

28. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided pursuant to Sections 8 and 9 is for any reason held to be unavailable from the Issuer or the Introducing RIA, the parties shall contribute to the aggregate Loss, liabilities, claims, damages and expenses (including any amount paid in settlement of any action, suit, or proceeding or any claims asserted) in such amounts as a court of competent jurisdiction may determine (or in the case of settlement, in such amounts as may be agreed upon by the parties) in such proportion to reflect the relative fault of the each party in connection with the events described in Sections 8 and 9, which resulted in such Loss, liabilities, claims, damages or expenses, as well as any other equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or the Introducing RIA and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such omission or statement.

 

29. Suspension, Termination, and Survival. The Introducing RIA will suspend or terminate the Offering upon request of the Issuer or the Managing Broker Dealer at any time and will resume the Offering upon the subsequent request of the Issuer or the Managing Broker Dealer. This Agreement may be terminated by the Managing Broker Dealer at any time upon written notice to the Introducing RIA. Except as the context otherwise requires, all representations, warranties, and agreements contained in this Agreement shall be deemed to be representations, warranties, and agreements at and as of the Offering Termination Date. Furthermore, the indemnity and contribution agreements contained in Sections 7, 8, and 9 shall remain operative and in full force and effect regardless of any investigation made by the Managing Broker Dealer, the Issuer, and/or any controlling person, and shall survive the sale of, and payment for, the Securities.

 

 

30. Governing Law; Venue. This Agreement shall be governed by, subject to and construed in accordance with the laws of the State of Illinois without regard to conflict of law provisions and any dispute between the parties concerning this Agreement shall come within the jurisdiction of the courts of Illinois.

 

31. Severability. If any portion of this Agreement shall be held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be considered valid and operative and effect shall be given to the intent manifested by the portion held invalid or inoperative.

 

32. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and together which shall constitute one and the same instrument.

 

33. Modification or Amendment. This Agreement may not be modified or amended except by written agreement executed by the parties hereto.

 

34. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and delivered as follows:

 

if sent to the Managing Broker Dealer, it shall be mailed or delivered to:

 

Arete Wealth Management, LLC

1115 W. Fulton Market, 3^rd Floor

Chicago, IL 60607

 

if sent to the Issuer, it shall be mailed or delivered to:

 

Manufactured Housing Properties Inc.

136 Main Street

Pineville, North Carolina 28134

 

if sent to you, it shall be mailed or delivered to your address set forth below. The notice shall be deemed to be received on the date of its actual receipt by the party entitled thereto.

 

35. Parties. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto, the persons referred to in Sections 7, 8, and 9 herein, their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under, in respect of, or by virtue of, this Agreement or any provision herein contained.

 

36. Delay. Neither the failure nor any delay on the part of any party to this Agreement to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall a waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any subsequent occurrence.

 

37. Recovery of Costs. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding (and any additional proceeding for the enforcement of a judgment) in addition to any other relief to which it or they may be entitled.

 

38. Entire Agreement. This Agreement, along with the applicable provisions of the Managing Broker Dealer Agreement, constitute the entire understanding between the parties hereto and supersede any prior understandings or written or oral agreements between them respecting the subject matter hereof.

 

 

IN WITNESS WHEREOF, this Agreement has been executed as of the date indicated below but shall only be in effect once ALL parties have appended appropriate signatures indicating agreement.

 

	Manufactured Housing Properties Inc.,
	By:	{ISSUER ELECTRONIC SIGNATURE}
	Name:	{NAME OF SIGNATORY}
	Title:	{TITLE OF SIGNATORY}

 

 

MANUFACTURED HOUSING PROPERTIES INC.

RIA CLIENT INTRODUCTION AGREEMENT SIGNATURE PAGE

 

Firm:

 

Firm CRD:

 

By:			Date:
Name:
Title:
Email:
Address:
Phone:

 

AGREED AND ACCEPTED:

 

Arete Wealth Management, LLC

 

By:
Name:	David Hock
Title:	Chief Financial Officer

 

 

B-13

 

Exhibit 2.4

 

EXHIBIT A

MANUFACTURED HOUSING PROPERTIES INC.

CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK

 

PURSUANT TO SECTION 78.1955 OF THE
NEVADA REVISED STATUTES

 

Manufactured Housing Properties Inc., a Nevada corporation (the “Company”), does hereby certify that, pursuant to the authority contained in its Amended and Restated Articles of Incorporation, as amended, and in accordance with the provisions of Section 78.1955 of the Nevada Revised Statutes (the “NRS”), the board of directors of the Company (the “Board”) has adopted the following resolution creating the following series of the Company’s Series C Cumulative Redeemable Preferred Stock and determined the voting powers, designations, powers, preferences and relative, participating, optional, or other special rights, and the qualifications, limitations, and restrictions thereof, of such series:

 

RESOLVED, that the Board does hereby provide for the issuance of the following series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:

 

Section 1. Designation and Amount. The series of preferred stock shall be designated as Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”), and the number of shares so designated shall be Fifty Thousand (50,000). Such number of shares may be increased or decreased by resolution of the Board adopted and filed pursuant to Section 78.1955 of the NRS, or any successor provision; provided, however, that no decrease shall reduce the number of authorized shares of Series C Preferred Stock to a number less than the number of such shares then outstanding plus the number of shares reserved for issuance upon the exercise of any then-outstanding options, warrants, convertible or exchangeable securities or other rights for the purchase of shares of Series C Preferred Stock, if any.

 

Section 2. Stated Value.

 

(a) Each share of Series C Preferred Stock shall have an initial stated value equal to $1,000 (the “Stated Value”), which Stated Value will automatically increase by ten percent (10%) on the fifth (5^th) anniversary of the date on which the first share of Series C Preferred Stock was issued.

 

(b) If at any time after the date that this Certificate of Designation was initially filed with the Nevada Secretary of State the Company effects (i) a stock dividend payable in shares of Series C Preferred Stock, (ii) a subdivision of the outstanding Series C Preferred Stock into a greater number of shares of Series C Preferred Stock, or (iii) a combination of the outstanding shares of Series C Preferred Stock, by reclassification or otherwise, into a lesser number of shares of Series C Preferred Stock, then, in any such case, the Stated Value in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.

 

 

(c) Upon any adjustment of the Stated Value of the Series C Preferred Stock, then and in each such case the Company shall give written notice thereof to the registered holders of shares of Series C Preferred Stock (the “Holders”), which notice shall state the new Stated Value resulting from such adjustment and set forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

 

Section 3. Ranking. As to the payment of dividends and the distribution of assets of the Company upon its liquidation, dissolution or winding up, the Series C Preferred Stock shall rank as follows: (a) senior to the Company’s common stock, par value $0.01 per share (the “Common Stock”), and any other class of securities hereafter authorized that is specifically designated as junior to the Series C Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the Company (the “Junior Securities”); and (b) pari passu with the Company’s Series A Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), the Company’s Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), and any class or series of capital stock of the Company expressly designated as ranking on parity with the Series C Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the Company, other than the capital stock referred to in clause (a) (the “Parity Securities”).

 

Section 4. Dividends.

 

(a) Holders shall be entitled to receive for each share of Series C Preferred Stock, and the Company shall pay in cash, subject to the provisions of the NRS and legally available funds therefor, preferential cumulative dividends at the per annum rate of 7% on the Stated Value, payable in arrears in monthly installments on the 15th day of the next following month (or if such date is not a business day, then the next following business day), when and as declared by the Board (the “Preferred Dividends”). Preferred Dividends on shares of Series C Preferred Stock shall also be payable upon any redemption and upon the final distribution date relating to a Liquidation Event (as defined below).

 

(b) Preferred Dividends shall cease to accrue on shares of Series C Preferred Stock on the day immediately prior to any redemption and on the final distribution date relating to a Liquidation Event.

 

(c) Regular dividends shall be payable to the Holders, in accordance with the NRS, as of each regular record date that is the final business day of a calendar month that is also a day on which the Common Stock trades or is eligible for trading on the primary market for such stock. Notwithstanding the foregoing, Holders as of a regular record date must have held their Series C Preferred Stock for more than two business days (each of which must also have been a trading day on which the Common Stock traded or was eligible for trading on the primary market for such stock) in order to be eligible to receive a dividend payment on the next payment date. If the Common Stock no longer trades or is eligible for trading on a trading market, then the requirement in the prior two sentences that a business day shall be a “trading day” shall not apply.

 

 

(d) Preferred Dividends shall be calculated on the basis of a calendar year consisting of twelve 30-day months (or 360 days), and shall begin to accrue on outstanding shares of Series C Preferred Stock from the date of each share’s original issuance until paid, whether or not declared. Preferred Dividends shall accrue whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends at the time such Preferred Dividends become payable or at any other time. Preferred Dividends shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under applicable law or any outstanding indebtedness or borrowings of the Company or any of its subsidiaries, or any other contractual provision binding on the Company or any of its subsidiaries.

 

(e) No dividend shall be declared on any Junior Securities or Parity Securities in respect of any period, nor shall any Junior Securities or Parity Securities be redeemed, purchased or otherwise acquired for any consideration (or any money to be paid into any sinking fund or otherwise set apart for the purchase of any such Junior Securities or Parity Securities), unless all accrued and unpaid Preferred Dividends through the most recent payment date have been or contemporaneously are declared and paid on all then-outstanding shares of the Series C Preferred Stock; provided, however, that this restriction shall not apply to the repurchase by the Company of (i) shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, (ii) shares of Series A Preferred Stock pursuant to the terms of the Certificate of Designation for the Series A Preferred Stock, or terms superior to those contained within such Certificate of Designation from the Company’s perspective, or (iii) shares of Series B Preferred Stock pursuant to the terms of the Certificate of Designation for the Series B Preferred Stock, or terms superior to those contained within such Certificate of Designation from the Company’s perspective.

 

Section 5. Liquidation Preference.

 

(a) In the event of (i) the sale, conveyance, exchange or other disposition of all or substantially all of the assets of the Company, (ii) any acquisition of the Company by means of a consolidation, stock exchange, stock sale, merger or other form of corporate reorganization with any other entity in which the Company’s stockholders prior to any such transaction own less than a majority of the voting securities of the surviving entity (a “Change-in-Control Transaction”), or (iii) the winding up or dissolution of the Company, whether voluntary or involuntary (each such event described in clause (i), (ii) and (iii), a “Liquidation Event”), the Board shall determine in good faith the amount legally available for distribution to stockholders after taking into account the distribution of assets among, or payment thereof over to, creditors of the Company in the manner required by the NRS (the “Net Assets Available for Distribution”). Subject to the provisions of Section 5(d) below, each Holder shall be entitled to be paid out of the Net Assets Available for Distribution, before any payment or distribution is made to the holders of any Junior Securities, and on a pari passu basis with holders of any Parity Securities (if the Liquidation Event triggers a payment obligation on such classes), for each then-outstanding share of Series C Preferred Stock held by such Holder, an amount equal to the Stated Value, as adjusted, plus all accrued and unpaid Preferred Dividends thereon (the “Liquidation Amount”). Notwithstanding the foregoing, a transaction shall not constitute a Liquidation Event if the Board shall have approved such transaction and the sole purpose of the transaction is to change the jurisdiction in which the Company is incorporated or create a holding company with substantially similar series and classes of capital shares, each having substantially the same terms as those that existed immediately prior to the transaction and owned in the same proportions by the persons or entities who held the Company’s securities immediately prior to such transaction. The Holders of a majority of the then issued and outstanding shares of Series C Preferred Stock (the “Requisite Holders”) may vote to determine whether a transaction which otherwise constitutes a Liquidation Event shall be deemed not to be a Liquidation Event for purposes of this Section 5(a).

 

 

(b) If the amount of the Net Assets Available for Distribution is insufficient to pay the full Liquidation Amount, then such Net Assets Available for Distribution shall be distributed ratably to the Holders in proportion to the respective amounts to which such Holders would otherwise be entitled.

 

(c) If any distribution contemplated in this Section 5 is payable in securities or property other than cash, then the value of such distribution shall be the fair market value of such distribution as determined in good faith by the Board.

 

(d) In connection with the occurrence of a Change-in-Control Transaction, the Requisite Holders may vote to receive, in lieu of cash in an amount per share equal to the Liquidation Amount, securities of the successor or purchasing corporation having the same or substantially identical rights, preferences and privileges as the Series C Preferred Stock held immediately prior to such Change-in-Control Transaction.

 

Section 6. Voting Rights. Except as otherwise set forth herein or as required by law, Holders shall not be entitled to vote on any matter on account of their Series C Preferred Stock. If the NRS requires the vote of the Holders, voting as a separate class, to authorize an action of the Company, then the affirmative vote of the Requisite Holders shall constitute the approval of such action by the class, unless the NRS requires a different threshold, in which case such different threshold shall apply.

 

Section 7. Certain Notices. The Company will provide the Holders with prior written notice of any meeting of the stockholders of the Company and written notice of any action taken by the stockholders of the Company without a meeting. The Company will also provide the Holders with at least 20 days’ written notice prior to the consummation of any transaction described in Section 5(a), clauses (i) or (ii), constituting a Liquidation Event.

 

Section 8. Protective Provisions. In addition to any other vote or consent required herein or by law, the affirmative vote or written consent of Requisite Holders, voting together as a single class, given in writing or by a vote at a meeting, shall be required for the Company to:

 

(a) amend or waive any provision of this Certificate of Designation or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Series C Preferred Stock (other than an amendment solely for the purpose of changing the number of shares of Series C Preferred Stock designated for issuance hereunder, as contemplated in Section 1 above);

 

 

(b) authorize, create or issue shares of any class of stock having rights, preferences or privileges as to dividends or distributions upon a liquidation of the Company that are superior to the Series C Preferred Stock; or

 

(c) amend the articles of incorporation of the Company in a manner that adversely and materially affects the rights of the Series C Preferred Stock.

 

Section 9. Redemption and Repurchase.

 

(a) Redemption Request by a Holder.

 

(i) Once per calendar quarter, a Holder may request that the Company redeem that holder’s Series C Preferred Stock. The Board may, however, suspend cash redemptions at any time in its discretion if it determines that it would not be in the best interests of the Company to effectuate cash redemptions at a given time because the Company does not have sufficient cash, including because the Board believes that cash on hand should be utilized for other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding shares of Series C Preferred Stock per quarter and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first served, basis.

 

(ii) Upon receipt of a written notice from a Holder requesting that the Company redeem such Holder’s share(s) (the “Holder Redemption Notice”), the Company may choose to (but shall not be obligated to) redeem the applicable Series C Preferred Stock at a price per share equal to the Stated Value plus an amount equal to all accrued and unpaid Preferred Dividends thereon (whether or not declared), up to but not including the redemption date (the “Redemption Price”), subject, however, to the applicable redemption fee specified below:

 

(A) if the Holder Redemption Notice is given prior to or on the first (1^st) anniversary of the issuance of such Series C Preferred Stock to such Holder, then a 11% redemption fee shall apply;

 

(B) if the Holder Redemption Notice is given after the first (1^st) anniversary of the issuance of such Series C Preferred Stock to such Holder and prior to or on the second (2^nd) anniversary of the issuance of such Series C Preferred Stock to such Holder, then an 8% redemption fee shall apply;

 

(C) if the Holder Redemption Notice is given after the second (2^nd) anniversary of the issuance of such Series C Preferred Stock to such Holder and prior to or on the third (3^rd) anniversary of the issuance of such Series C Preferred Stock to such Holder, then a 5% redemption fee shall apply; and

 

 

(D) if the Holder Redemption Notice is given after the third (3^rd) anniversary of the issuance of such Series C Preferred Stock to such Holder, then no redemption fee shall apply.

 

(iii) Within thirty (30) days after the Company’s receipt of the Holder Redemption Notice, the Company shall provide written notice to such requesting Holder specifying whether all or a portion of the Series C Preferred Stock sought to be redeemed pursuant to the Holder Redemption Notice will be repurchased by the Company (which the Company shall determine in its discretion) (the “Company Redemption Response”). If all or any portion of such Series C Preferred Stock is to be repurchased by the Company, then the Company Redemption Response shall specify the date on which such repurchase and redemption shall occur (the “Redemption Date”), which date shall be no more than sixty (60) days after the giving of the Holder Redemption Notice, and the Company Redemption Response shall include the stock power, if required, described in paragraph (iv) below.

 

(iv) On any Redemption Date and in accordance with this Section 9(a), the Company will, to the extent that it has sufficient funds to consummate a redemption, as determined by the Company in its discretion, and to the extent that it may then lawfully do so under the NRS and such payment is further permitted under the Company’s articles of incorporation (including all related certificates of designation), and any borrowing agreements to which it or its subsidiaries are bound (the “Borrowing Agreements”), in connection with the delivery by such Holder of the applicable items described in paragraph (v) below, redeem the shares specified in the Company Redemption Response by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the Holder, an amount per share equal to the applicable Redemption Price.

 

(v) On or before a Redemption Date, the applicable Holder shall deliver to the Company a stock power duly executed (in the form provided by the Company together with the Company Redemption Response).

 

(vi) From and after the Redemption Date, (A) the shares identified in the Company Redemption Response shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue, and (C) all rights of the Holder of the shares to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price (which right shall be contingent upon the Holder delivering the stock power required under paragraph (v) above); provided, however, that if as of the close of business on the Redemption Date the Company has not paid the Redemption Price with respect to such Holder (other than any case in which the Redemption Price has not been paid due to a failure by the Holder to deliver the stock power required under paragraph (v) above), then the shares to be redeemed shall remain issued and outstanding, and all rights of such Holder with respect to such shares shall continue.

 

 

(vii) If, on any Redemption Date, the Company (A) is unable, by virtue of applicable law or provisions in its articles of incorporation (including all related certificates of designation), to redeem shares of Series C Preferred Stock, or (B) cannot redeem shares of Series C Preferred Stock without constituting a default under any Borrowing Agreements, then such redemption obligation shall be discharged promptly after the Company becomes able to discharge such redemption obligation under applicable law and without causing or constituting a default under Borrowing Agreements, with all such deferred redemption obligations being satisfied based on the order in which any Holder Redemption Notices shall have been received by the Company (i.e., first come, first served).

 

(b) Redemption at the Option of the Company.

 

(i) The Company shall have the right (but not the obligation) to redeem shares of Series C Preferred Stock at a price per share equal to Redemption Price; provided, however, that if the Company redeems any shares of Series C Preferred Stock prior to the fifth-year anniversary of their issuance, then the Redemption Price shall include a premium equal to ten percent (10%) of the Stated Value. To exercise this redemption right, the Company shall deliver written notice to each Holder that all or part of the Series C Preferred Stock will be redeemed (the “Company Redemption Notice”) on a date that is no earlier than twenty (20) and no later than sixty (60) days after the date of the Company Redemption Notice (such date, the “Company Redemption Date”); provided, however, that if the Company elects to redeem less than all of the Series C Preferred Stock, it shall do so ratably among all Holders.

 

(ii) On the Company Redemption Date and in accordance with this Section 9(b), the Company will, at its option (to the extent it may then lawfully do so under the NRS, and for so long as (A) a redemption is permitted under the Company’s articles of incorporation (including all related certificates of designation), and (B) such redemption does not constitute a default under any Borrowing Agreements), redeem the shares specified in the Company Redemption Notice by paying in cash, via wire transfer of immediately available funds to the respective accounts designated in writing by the applicable Holders, an amount per share equal to the Redemption Price.

 

(iii) On or before the Company Redemption Date, each Holder whose shares are being redeemed under this Section 9(b) shall deliver to the Company a stock power, duly executed (in the form provided by the Company together with the Company Redemption Notice).

 

(iv) From and after the Company Redemption Date, (A) the shares identified in the Company Redemption Notice shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue, and (C) all rights of Holders with respect to the shares to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price with respect to such shares (which right shall be contingent upon the Holder delivering the stock power required under paragraph (iii) above); provided, however, that if as of the close of business on the Redemption Date the Company has not paid the Redemption Price with respect to such Holder (other than any case in which the Redemption Price has not been paid due to a failure by the Holder to deliver the stock power required under paragraph (iii) above), then the shares to be redeemed shall remain issued and outstanding, and all rights of such Holder with respect to such shares shall continue.

 

 

(c) Repurchase in the Event of Death, Disability or Bankruptcy.

 

(i) Subject to the terms of this Section 9(c), within sixty (60) days of the death, Total Permanent Disability or Bankruptcy (as each such term is defined in paragraph (iv) below) of a Holder or Beneficial Holder (as defined below) (a “Holder Repurchase Event”), the estate of such Holder or Beneficial Holder (in the event of death) or such Holder or Beneficial Holder or his or her legal representative (in the event of Total Permanent Disability or Bankruptcy) may request that the Company repurchase, in whole but not in part, without penalty, the Series C Preferred Stock held by such Holder (including Series C Preferred Stock of the Holder held in his or her individual retirement accounts) or Beneficial Holder by delivering to the Company a written request for repurchase (a “Repurchase Request”). Any such Repurchase Request shall identify the applicable Holder Repurchase Event. If Series C Preferred Stock is held jointly by natural persons who are legally married, then a Repurchase Request may be made by (A) the surviving Holder (or Beneficial Holder) upon the occurrence of a Holder Repurchase Event arising by virtue of a death, or (B) the disabled or bankrupt Holder or Beneficial Holder (or his or her legal representative) upon the occurrence of a Holder Repurchase Event arising by virtue of a Total Permanent Disability or Bankruptcy. If Series C Preferred Stock is held together by two or more natural persons that are not legally married (regardless of whether held as joint tenants, co-tenants or otherwise), then none of such co-Holders shall have the right to make a Repurchase Request unless a Holder Repurchase Event has occurred for each such co-Holder. A Holder that is not an individual natural person does not have the right to make a Repurchase Request.

 

(ii) Upon receipt of a Repurchase Request, the Company shall designate a date for the repurchase of Series C Preferred Stock (the “Repurchase Date”), which date shall not be later than the sixtieth (60^th) day after the Company is provided with facts or certifications establishing, to the reasonable satisfaction of the Company, the occurrence of the Holder Repurchase Event. On the Repurchase Date, the Company shall, to the extent that it may then lawfully do so under the NRS and such payment is further permitted under its articles of incorporation (including related certificates of designation) and any Borrowing Agreements, pay the Holder or Beneficial Holder, or the estate of the Holder or Beneficial Holder, an amount per share equal to the Stated Value plus all accrued and unpaid Preferred Dividends thereon (whether or not declared), up to but not including the Repurchase Date (the “Repurchase Price”).

 

 

(iii) From and after the Repurchase Date, (A) the shares being repurchased pursuant to the Repurchase Request shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue, and (C) all rights of the Holder with respect to the shares being repurchased shall cease and terminate, excepting only the right to receive the Repurchase Price with respect to such shares (which right shall be contingent upon the Holder delivering a stock power relating to the shares to be repurchased); provided, however, that if as of the close of business on the Repurchase Date the Company has not paid the Repurchase Price (other than any case in which the Repurchase Price has not been paid due to a failure by the Holder to deliver a required stock power), then the shares to be repurchased shall remain issued and outstanding, and all rights of such Holder with respect to such shares shall continue.

 

(iv) For purposes of this Section 9(c):

 

(A) “Bankruptcy” means, with respect to a Beneficial Holder or Holder who is an individual natural person, the (1) commencement of a voluntary bankruptcy case by that Beneficial Holder or Holder; (2) consent to the entry of an order for relief against such Beneficial Holder or Holder in an involuntary bankruptcy case; or (3) consent to the appointment of a custodian of such Beneficial Holder or Holder or for all or substantially all of such person’s property;

 

(B) “Beneficial Holder” means an individual natural person that holds a beneficial interest in Series C Preferred Stock through a custodian or nominee, including a broker-dealer; and

 

(C) “Total Permanent Disability” means, with respect to a Beneficial Holder or Holder who is an individual natural person, a determination by a physician approved by the Company that such person, who was gainfully employed and working at least forty (40) hours per week as of the date on which Series C Preferred Stock was purchased, has been unable to work forty (40) or more hours per week for at least twenty-four (24) consecutive months.

 

(d) Mandatory Redemption by the Company.

 

(i) The Company shall redeem all outstanding shares of Series C Preferred Stock at a price per share equal to Redemption Price on the tenth (10th) anniversary of the first date that a share of Series C Preferred Stock was issued (the “Mandatory Redemption Date”). The Company shall deliver written notice to each Holder within sixty (60) days of the Mandatory Redemption Date indicating that all of the Series C Preferred Stock will be redeemed (the “Company Mandatory Redemption Notice”) on the Mandatory Redemption Date.

 

 

(ii) On the Mandatory Redemption Date and in accordance with this Section 9(d), the Company will (to the extent it may then lawfully do so under the NRS, and for so long as (A) a redemption is permitted under the Company’s articles of incorporation (including all related certificates of designation), and (B) such redemption does not constitute a default under any Borrowing Agreements), redeem all of the then outstanding Series C Preferred Stock by paying in cash, via wire transfer of immediately available funds to the respective accounts designated in writing by the applicable Holders, an amount per share equal to the Redemption Price.

 

(iii) On or before the Mandatory Redemption Date, each Holder shall deliver to the Company a stock power, duly executed (in the form provided by the Company together with the Mandatory Redemption Notice).

 

(iv) From and after the Mandatory Redemption Date, (A) all shares of Series C Preferred Stock shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue, and (C) all rights of Holders with respect to the shares to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price with respect to such shares (which right shall be contingent upon the Holder delivering the stock power required under paragraph (iii) above); provided, however, that if as of the close of business on the Mandatory Redemption Date the Company has not paid the Redemption Price with respect to such Holder (other than any case in which the Redemption Price has not been paid due to a failure by the Holder to deliver the stock power required under paragraph (iii) above), then the shares to be redeemed shall remain issued and outstanding, and all rights of such Holder with respect to such shares shall continue.

 

Section 10. No Sinking Fund. The Company shall not be required to establish any sinking or retirement fund with respect to the shares of Series C Preferred Stock.

 

Section 11. Loss, Theft or Destruction. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of certificates, if any, representing shares of Series C Preferred Stock, and receipt of indemnity or security reasonably satisfactory to the Company (or in the case of mutilation, upon surrender and cancellation of the mutilated certificate), the Company shall cause to be made, issued and delivered, in lieu of such lost, stolen, destroyed or mutilated certificate, a new certificate of like tenor.

 

Section 12. Holder of Record Deemed Absolute Owner. The Company may deem the Holder in whose name shares of Series C Preferred Stock is registered upon the books and records of the Company to be, and may treat such Holder as, the absolute owner of the Series C Preferred Stock for the purpose of paying Preferred Dividends, paying the Redemption Price, paying the Repurchase Price, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability of the Company in respect of the Series C Preferred Stock to the extent of the sum or sums so paid.

 

 

Section 13. Notices. Unless otherwise provided herein, all notices or other communications or deliveries to be provided shall be given in writing and delivered in person, by overnight courier, by first-class mail (registered or certified, return-receipt requested), by facsimile or by email, in each case to the other’s address as provided below:

 

If to the Company:             Manufactured Housing Properties Inc.

136 Main Street

Pineville, NC 28134

Attention: Chief Financial Officer

Email: [email protected]

Facsimile: [*]

 

If to a Holder:                    such Holder’s address as shown on the books and records of the Company or a more recent address that such Holder may have provided in writing to the Company.

 

If given in person, notice shall be treated as given when personally received or, if sent as provided above, the effective date of the notice shall, as applicable, be (a) the date of the written receipt if delivered via overnight courier, (b) three days after the date on which the notice is mailed by first-class mail (registered or return-receipt requested), (c) the date on which the notice is transmitted by confirmed facsimile, or (d) the day after the notice is sent electronically to the email address on record (without receipt of any failure notice).

 

Section 14. Reacquired Shares. If any Series C Preferred Stock is exchanged, redeemed, purchased or otherwise acquired by the Company in any manner, then those shares shall be cancelled, and upon such cancellation shall be returned to the pool of authorized but undesignated and unissued shares of preferred stock of the Company, and thereafter may be reissued as part of a new series of preferred stock of the Company to be created by resolution of the Board as permitted by the NRS and the Company’s articles of incorporation.

 

Section 15. Severability. If any provision of this Certificate of Designation, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, then (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (b) the remainder of this Certificate of Designation and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

 

* * * * * * *

 

 

11

 

Exhibit 4.1

 

 

Manufactured Housing Properties Inc.

 

SUBSCRIPTION AGREEMENT

 

Manufactured Housing Properties Inc. (“we,” “our,” “us,” or the “Company”) is offering a maximum of 50,000 shares of Series C Cumulative Redeemable Preferred Stock, at an offering price of $1,000 per share, for a maximum offering amount of $50,000,000, pursuant to the offering circular dated _________, 2021 (as may be amended or supplemented, the “Offering Circular”). The minimum initial investment is at least $10,000 and any additional purchases must be investments of at least $5,000.

 

The Company expects to conduct closings on a monthly basis until the termination of the offering. For all closings, subscription funds will be deposited into an escrow account. Once a subscription has been submitted and accepted by the Company, an investor will not have the right to request the return of its subscription payment prior to the next closing date. If subscriptions are received on or before a closing date and accepted by the Company prior to such closing, any such subscriptions will be closed on that closing date. If subscriptions are received on or before a closing date but not accepted by the Company prior to such closing, any such subscriptions will be closed on the next closing date. On each closing date, offering proceeds for that closing will be disbursed to us and the shares will be issued to the subscriber.

 

Your broker-dealer or registered investment advisor should mail properly completed and executed documents to our address below. Payment for the shares subscribed for in this subscription agreement may be made by mailing a check or with a wire using the instructions set forth below:

 

MAILING ADDRESS		WIRE INSTRUCTIONS
Manufactured Housing Properties Inc.		Bank: Wilmington Trust Company
136 Main Street		ABA No: 031100092
500 Park Avenue		Acct No:
Pineville, NC 28134		Acct Name:
Attention: Chief Financial Officer		Reference: [Investor Name]
Phone: (980) 273-1702		Address: 166 Mercer Street, Suite 2R, New York, NY 10012

 

Make checks payable to “WILMINGTON TRUST, N.A. as Escrow Agent for Manufactured Housing Escrow”

(Please include name, phone and email address in case of questions)

 

 

1.

Investment Information; Subscription

 

The undersigned investor hereby irrevocably subscribes for and agrees to purchase a number of shares of Series C Cumulative Redeemable Preferred Stock that is equal to the Amount of Subscription set forth below divided by a purchase price per share of $1,000 upon the terms and conditions set forth herein.

 

Amount of Subscription:

$

 

Investment Type:	☐	Initial Investment (minimum initial investment of $10,000 up to any multiple of $5,000)
	☐	Additional Investment (minimum of $5,000 up to any multiple of $5,000)

 

2.

Investment Type (check only one)

 

Non-Custodial Ownership

 

☐ Individual

☐ Joint Tenants with Rights of Survivorship⁽¹⁾

☐ Community Property⁽¹⁾

☐ Tenants in Common⁽¹⁾

☐ Trust

☐ Corporation

☐ Partnership

☐ Limited Liability Company

☐ Qualified Pension or Profit Sharing Plan

☐ Uniform Gift to Minors Act (State of _____________________)

☐ Uniform Transfer to Minors Act (State of _____________________)

☐ Other (Specify) — ___________________________________________

 

Custodial Ownership

 

☐ Traditional IRA⁽²⁾

☐ Roth IRA⁽²⁾

☐ Simplified Employee Pension/Trust (SEP) ⁽²⁾

☐ KEOGH Plan⁽²⁾

☐ Other (Specify) — ___________________________________________⁽²⁾

 

(1) All parties must sign

(2) Owner and custodian signatures required

 

Custodian Information (to be completed by custodian)

 

Name of Custodian: ________________________________________________________________________________

Address: _________________________________________________________________________________________

Phone: ___________________________________________________________________________________________

Custodian Tax ID #: ________________________________________________________________________________

Custodian Account #: _______________________________________________________________________________

 

 

3.

Investor Information

 

Individual/Joint Owners/IRA Accounts

 

Exact name(s) to whom shares are to be registered:

 

Full Name (if different from above): _____________________________________________________________________

Address: ___________________________________________________________________________________________

Phone: _____________________________________________________________________________________________

Email: _____________________________________________________________________________________________

Date of Birth: _______________________________________________________________________________________

Social Security No:

 

Full Name (joint owner if applicable): ____________________________________________________________________

Address: ___________________________________________________________________________________________

Phone: _____________________________________________________________________________________________

Email: _____________________________________________________________________________________________

Date of Birth: _______________________________________________________________________________________

Social Security No:

 

Trusts

 

Name of Trust: ______________________________________________________________________________________

Address: ___________________________________________________________________________________________

Phone: _____________________________________________________________________________________________

Email: _____________________________________________________________________________________________

Name(s) of Trustee(s): ________________________________________________________________________________

Name(s) of Beneficial Owner(s): ________________________________________________________________________

Tax ID: ____________________________________________________________________________________________

 

Corporation/Partnership/Other

 

Name of Entity: _____________________________________________________________________________________

Address: ___________________________________________________________________________________________

Phone: ____________________________________________________________________________________________

Email: ____________________________________________________________________________________________

Name(s) of Authorized Signatories: _____________________________________________________________________

Tax ID: ___________________________________________________________________________________________

 

Please check one of the following options for delivery of investor information:

 

☐

By checking this box, the Company will send certain investor communications to you in electronic form to the e-mail address provided in this section. Investor communications that may be delivered electronically include account statements, tax forms, annual reports, proxy statements and other communications. By electing electronic delivery, you: (i) agree that you have the appropriate hardware and software to receive e-mail notifications and view PDF documents; (ii) understand that you may incur certain costs associated with downloading and printing investor documents; and (iii) understand that electronic delivery also involves risks related to system or network outages that could impair your timely receipt of or access to your documents. The Company may choose to send one or more items to you in paper form despite your consent to electronic delivery. You may also request a paper copy of any particular investor document. Your consent will be effective until you revoke it in writing to the Company.

 

☐

By checking this box, the Company will send all investor communications to you in paper form.

 

 

4.

Distribution Options

 

I hereby authorize the Company or its agent to initiate entries into the account listed below or to send funds directly to the financial institution/individual(s) listed below. This authorization will remain in effect until you notify the Company or its agent in writing to cancel it with time to afford a reasonable opportunity to act on it. This authorization relates solely to this investment. Please select one of the options below:

 

☐ I choose to have my distributions to be directly deposited into my bank account listed below. [Attach voided check and complete information below]

☐ I choose to have checks sent to the person(s) or financial institution listed below. [Distributions for custodial accounts will be sent to the custodian of record]

☐ I choose to have checks sent to the individual(s) listed in Section 3.

 

Bank, Brokerage Firm or Person: ________________________________________________________________________

Mailing Address: ____________________________________________________________________________________

ABA Routing No: ____________________________________________________________________________________

Account No: ________________________________________________________________________________________

Name on Account or FBO: _____________________________________________________________________________

Account Type:   ☐ Checking    ☐ Savings    ☐ Brokerage

 

The deposit services above cannot be established without a pre-printed, voided check. For Electronic Funds Transfers, the signatures of the bank account owner(s) must appear exactly as they appear on the bank registration. If the registration at the bank differs from that on this subscription agreement, all parties must sign below.

 

Signature of Individual/Trustee/Beneficial Owner		Date
Printed Name
Signature of Joint Owner/Co-trustee		Date
Printed Name

 

 

5.

Investor Eligibility Certifications

 

I understand that to purchase the shares, I must either be an “accredited investor” as such term is defined in Rule 501 of Regulation D, or I must limit my investment to a maximum of: (i) 10% of my net worth or annual income, whichever is greater, if I am a natural person; or (ii) 10% of my revenues or net assets, whichever is greater, for my most recently completed fiscal year, if I am a non-natural person.

 

I understand that if I am a natural person I should determine my net worth for purposes of these representations by calculating the difference between my total assets and total liabilities. I understand this calculation must exclude the value of my primary residence and may exclude any indebtedness secured by my primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the shares.

 

I hereby represent and warrant that I meet the qualifications to purchase the shares because (please mark one):

 

☐

I am a natural person, and the aggregate purchase price for the shares I am purchasing in the offering does not exceed 10% of my net worth or annual income, whichever is greater.

 

☐

I am a non-natural person, and the aggregate purchase price for the shares I am purchasing in the offering does not exceed 10% of my revenues or net assets, whichever is greater, for my most recently completed fiscal year.

 

☐

I am an accredited investor.

 

If you marked that you are an accredited investor, please complete Addendum A attached hereto and return it with this subscription agreement. If Addendum A is not received with this subscription agreement, your subscription will not be accepted.

 

6.

Investor Acknowledgements and Representations

 

(a)

I understand that the Company reserves the right to, in its sole discretion, accept or reject this subscription, in whole or in part, for any reason whatsoever, and to the extent not accepted, unused funds transmitted herewith shall be returned to the undersigned in full.

 

(b)

I have received the Offering Circular.

 

(c)

I am purchasing the shares for my own account.

 

(d)

I agree that my rights and responsibilities relative to my ownership of the shares subscribed for in the offering shall be governed by (i) the amended and restated articles of incorporation and the amended and restated bylaws of the Company, which are filed as exhibits to the offering statement of which the Offering Circular forms a part; and (ii) the Certificate of Designation of Series C Cumulative Redeemable Preferred Stock, the form of which is filed as an exhibit to the offering statement of which the Offering Circular forms a part.

 

(e)

I hereby represent and warrant that I am not, and am not acting as an agent, representative, intermediary or nominee for any person identified on the list of blocked persons maintained by the Office of Foreign Assets Control, U.S. Department of Treasury. In addition, I have complied with all applicable U.S. laws, regulations, directives, and executive orders relating to anti-money laundering including but not limited to the following laws: (1) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56; and (2) Executive Order 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) of September 23, 2001.

 

By making the foregoing representations you have not waived any right of action you may have under federal or state securities law. Any such waiver would be unenforceable. The Company will assert your representations as a defense in any subsequent litigation where such assertion would be relevant. This subscription agreement and all rights hereunder shall be governed by, and interpreted in accordance with, the laws of the State of Nevada without giving effect to the principles of conflict of laws.

 

 

7.

Signatures

 

If I am submitting this subscription agreement electronically, then I agree to the following with regard to digital signatures. Digital (“electronic”) signatures, often referred to as an “e-signature”, enable paperless contracts and help speed up business transactions. The 2001 E-Sign Act was meant to ease the adoption of electronic signatures. You and the Company each hereby consents and agrees that electronically signing this subscription agreement constitutes your signature, acceptance and agreement as if actually signed by you in writing. Further, all parties agree that no certification authority or other third-party verification is necessary to validate any electronic signature; and that the lack of such certification or third-party verification will not in any way affect the enforceability of your signature or resulting contract between you and the Company. You understand and agree that your e-signature executed in conjunction with the electronic submission of this subscription agreement shall be legally binding and such transaction shall be considered authorized by you. You agree your electronic signature is the legal equivalent of your manual signature on this subscription agreement. You consent to be legally bound by this subscription agreement’s terms and conditions.

 

Your Consent is Hereby Given: By signing this subscription agreement electronically, you are explicitly agreeing to receive documents electronically including your copy of this signed subscription agreement as well as ongoing disclosures, communications and notices.

 

BY ELECTRONICALLY SIGNING THIS SUBSCRIPTION AGREEMENT OR BY MANUALLY SIGNING THIS SUBSCRIPTION AGREEMENT, I CERTIFY THAT I HAVE THE AUTHORITY TO ENTER INTO THIS SUBSCRIPTION AGREEMENT ON BEHALF OF THE PERSON(S) OR ENTITY FOR WHOSE ACCOUNT THIS SUBSCRIPTION IS PLACED.

 

INVESTOR SIGNATURE:

 

Signature (Investor or Authorized Signatory)		Joint Owner Signature (if applicable)
Printed Name		Printed Name of Joint Owner (if applicable)
Title (if applicable)		Title (if applicable)
Date		Date

 

CUSTODIAL APPROVAL:

 

By executing this subscription agreement, Custodian certifies to the Company that the shares purchased pursuant to this subscription agreement are held for the benefit of the investor named in Section 3 of this subscription agreement (the “Beneficial Owner”) and agrees to notify the Company promptly, but in any event within 30 days, of any changes in the name of the Beneficial Owner or the number of shares held by the Custodian for the benefit of the Beneficial Owner.

 

Signature (Custodian’s Authorized Signatory)
Printed Name
Title

 

SUBSCRIPTION ACCEPTED:

Manufactured Housing Properties Inc.

 

By:
Name:
Title:

 

Date

 

 

Addendum A

 

If you marked that you are an accredited investor as that term is defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended (the “Act”), please complete this Addendum A.

 

If a natural person, I hereby represent and warrant that (mark all that apply):

 

☐	(1)	I had individual income in excess of $200,000 in each of the two most recent years or joint income with my or spousal equivalent in excess of $300,000 in each of those years and have a reasonable expectation of reaching the same income level in the current year
☐	(2)	My individual net worth, or joint net worth with my spouse or spousal equivalent, exceeds $1,000,000.  For purposes of calculating net worth under this paragraph my primary residence is not included as an asset; indebtedness that is secured by my primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, is not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess is  included as a liability); and indebtedness that is secured by my primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities is included as a liability
☐	(3)	I am a director or executive officer of the Company
☐	(4)	I hold one of the following licenses in good standing:  General Securities Representative license (Series 7), the Private Securities Offerings Representative license (Series 82), or the Investment Adviser Representative license (Series 65).

 

If other than a natural person, I represent and warrant that (mark all that apply):

 

☐	(1)	All of the beneficial equity owners of the investor qualify as accredited individual investors under items 1 or 2 above
☐	(2)	The investor is a bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity
☐	(3)	The investor is a broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934, as amended
☐	(4)	The investor is an investment adviser registered pursuant to section 203 of the Investment Advisers Act of 1940 or registered pursuant to the laws of a state
☐	(5)	The investor is an investment adviser relying on the exemption from registering with the Securities and Exchange Commission under section 203(l) or (m) of the Investment Advisers Act of 1940
☐	(6)	The investor is an insurance company as defined in section 2(a)(13) of the Act
☐	(7)	The investor is an investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act
☐	(8)	The investor is a Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958
☐	(9)	The investor is a Rural Business Investment Company as defined in section 384A of the Consolidated Farm and Rural Development Act

 

 

☐	(10)	The investor is a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000
☐	(11)	The investor is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 and (i) the investment decision is made by a plan fiduciary, as defined therein, in Section 3(21), which is either a bank, savings and loan association, insurance company, or registered investment adviser; (ii) the employee benefit plan has total assets in excess of $5,000,000; or (iii) the plan is a self-directed plan with investment decisions made solely by persons who are “accredited investors” as defined therein
☐	(12)	The investor is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940
☐	(13)	The investor has total assets in excess of $5,000,000, was not formed for the specific purpose of acquiring the securities offered and is one or more of the following: (i) an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended; (ii) a corporation; (iii) a Massachusetts or similar business trust; (iv) a partnership; or (v) a limited liability company
☐	(14)	The investor is a trust with total assets exceeding $5,000,000, which was not formed for the specific purpose of acquiring the securities offered and whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the investment in the securities offered
☐	(15)	The investor is an entity, of a type not listed in paragraphs (1) to (14), not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000
☐	(16)	The investor is a “family office,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (17 CFR 275.202(a)(11)(G)-1): (i) with assets under management in excess of $5,000,000, (ii) that is not formed for the specific purpose of acquiring the securities offered, and (iii) whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment
☐	(17)	The investor is a “family client,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (17 CFR 275.202(a)(11)(G)-1)), of a family office meeting the requirements in paragraph (16) above and whose prospective investment in the issuer is directed by such family office pursuant to paragraph (16)(iii) above

 

 

 

Subscription Agreement

Page 8 of 8

Exhibit 6.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 6.16

 

 

 

 

 

 

 

 

Exhibit 6.19

 

 

 

 

 

 

 

MULTIFAMILY LOAN AND SECURITY AGREEMENT

(NON-RECOURSE)

 

BY AND BETWEEN

 

HUNT CLUB MHP LLC,

a South Carolina limited liability company

 

AND

 

ORIX REAL ESTATE CAPITAL, LLC,

a Delaware limited liability company,

d/b/a Lument Capital

 

DATED AS OF

 

December 21, 2020

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

ARTICLE 1 - DEFINITIONS; SUMMARY OF MORTGAGE LOAN TERMS		1
Section 1.01	Defined Terms	1
Section 1.02	Schedules, Exhibits, and Attachments Incorporated	1
ARTICLE 2 - GENERAL MORTGAGE LOAN TERMS		2
Section 2.01	Mortgage Loan Origination and Security	2
(a)	Making of Mortgage Loan	2
(b)	Security for Mortgage Loan	2
(c)	Protective Advances	2
Section 2.02	Payments on Mortgage Loan	2
(a)	Debt Service Payments	2
(b)	Capitalization of Accrued But Unpaid Interest	3
(c)	Late Charges	3
(d)	Default Rate	4
(e)	Address for Payments	5
(f)	Application of Payments	5
Section 2.03	Lockout/Prepayment	5
(a)	Prepayment; Prepayment Lockout; Prepayment Premium	5
(b)	Voluntary Prepayment in Full	6
(c)	Acceleration of Mortgage Loan	6
(d)	Application of Collateral	7
(e)	Casualty and Condemnation	7
(f)	No Effect on Payment Obligations	7
(g)	Loss Resulting from Prepayment	7
ARTICLE 3 - PERSONAL LIABILITY		8
Section 3.01	Non-Recourse Mortgage Loan; Exceptions	8
Section 3.02	Personal Liability of Borrower (Exceptions to Non-Recourse Provision)	8
(a)	Personal Liability Based on Lender’s Loss	8
(b)	Full Personal Liability for Mortgage Loan	9
Section 3.03	Personal Liability for Indemnity Obligations	10
Section 3.04	Lender’s Right to Forego Rights Against Mortgaged Property	10
ARTICLE 4 - BORROWER STATUS		10
Section 4.01	Representations and Warranties	10
(a)	Due Organization and Qualification; Organizational Agreements	10
(b)	Location	11
(c)	Power and Authority	11
(d)	Due Authorization	11
(e)	Valid and Binding Obligations	11
(f)	Effect of Mortgage Loan on Borrower’s Financial Condition	12
(g)	Economic Sanctions, Anti-Money Laundering, and Anti-Corruption	12
(h)	Borrower Single Asset Status	13
(i)	No Bankruptcies or Judgments	14
(j)	No Actions or Litigation	14
(k)	Payment of Taxes, Assessments, and Other Charges	14

 

 

(l)	Not a Foreign Person	15
(m)	ERISA	15
(n)	Default Under Other Obligations	15
(o)	Prohibited Person	15
(p)	No Contravention	15
(q)	Lockbox Arrangement	16
Section 4.02	Covenants	16
(a)	Maintenance of Existence; Organizational Documents	16
(b)	Economic Sanctions, Anti-Money Laundering, and Anti-Corruption	16
(c)	Payment of Taxes, Assessments, and Other Charges	17
(d)	Borrower Single Asset Status	17
(e)	ERISA	18
(f)	Notice of Litigation or Insolvency	19
(g)	Payment of Costs, Fees, and Expenses	19
(h)	Restrictions on Distributions	19
(i)	Lockbox Arrangement	19
ARTICLE 5 - THE MORTGAGE LOAN		20
Section 5.01	Representations and Warranties	20
(a)	Receipt and Review of Loan Documents	20
(b)	No Default	20
(c)	No Defenses	20
(d)	Loan Document Taxes	20
Section 5.02	Covenants	20
(a)	Ratification of Covenants; Estoppels; Certifications	20
(b)	Further Assurances	21
(c)	Sale of Mortgage Loan	21
(d)	Limitations on Further Acts of Borrower	22
(e)	Financing Statements; Record Searches	22
(f)	Loan Document Taxes	23
ARTICLE 6 - PROPERTY USE, PRESERVATION, AND MAINTENANCE		23
Section 6.01	Representations and Warranties	23
(a)	Compliance with Law; Permits and Licenses	23
(b)	Property Characteristics	24
(c)	Property Ownership	24
(d)	Condition of the Mortgaged Property	24
(e)	Personal Property	24
Section 6.02	Covenants	24
(a)	Use of Property	24
(b)	Property Maintenance	25
(c)	Property Preservation	26
(d)	Property Inspections	27
(e)	Compliance with Laws	27
Section 6.03	Mortgage Loan Administration Matters Regarding the Property	28
(a)	Property Management	28
(b)	Subordination of Fees to Affiliated Property Managers	28
(c)	Property Condition Assessment	28

 

 

ARTICLE 7 - LEASES AND RENTS		28
Section 7.01	Representations and Warranties	28
(a)	Prior Assignment of Rents	29
(b)	Prepaid Rents	29
Section 7.02	Covenants	29
(a)	Leases	29
(b)	Commercial Leases	29
(c)	Payment of Rents	30
(d)	Assignment of Rents	31
(e)	Further Assignments of Leases and Rents	31
(f)	Options to Purchase by Tenants	31
Section 7.03	Mortgage Loan Administration Regarding Leases and Rents	31
(a)	Material Commercial Lease Requirements	31
(b)	Residential Lease Form	32
ARTICLE 8 - BOOKS AND RECORDS; FINANCIAL REPORTING		32
Section 8.01	Representations and Warranties	32
(a)	Financial Information	32
(b)	No Change in Facts or Circumstances	32
Section 8.02	Covenants	32
(a)	Obligation to Maintain Accurate Books and Records	32
(b)	Items to Furnish to Lender	33
(c)	Audited Financials	35
(d)	Delivery of Books and Records	35
Section 8.03	Mortgage Loan Administration Matters Regarding Books and Records and Financial Reporting	36
(a)	Lender’s Right to Obtain Audited Books and Records	36
(b)	Credit Reports; Credit Score	36
ARTICLE 9 - INSURANCE		36
Section 9.01	Representations and Warranties	36
(a)	Compliance with Insurance Requirements	36
(b)	Property Condition	37
Section 9.02	Covenants	37
(a)	Insurance Requirements	37
(b)	Delivery of Policies, Renewals, Notices, and Proceeds	37
Section 9.03	Mortgage Loan Administration Matters Regarding Insurance	38
(a)	Lender’s Ongoing Insurance Requirements	38
(b)	Application of Proceeds on Event of Loss	39
(c)	Payment Obligations Unaffected	40
(d)	Foreclosure Sale	41
(e)	Appointment of Lender as Attorney-In-Fact	41
ARTICLE 10 - CONDEMNATION		41
Section 10.01	Representations and Warranties	41
(a)	Prior Condemnation Action	41
(b)	Pending Condemnation Actions	41

 

 

Section 10.02	Covenants	41
(a)	Notice of Condemnation	41
(b)	Condemnation Proceeds	42
Section 10.03	Mortgage Loan Administration Matters Regarding Condemnation	42
(a)	Application of Condemnation Awards	42
(b)	Payment Obligations Unaffected	42
(c)	Appointment of Lender as Attorney-In-Fact	42
(d)	Preservation of Mortgaged Property	42
ARTICLE 11 - LIENS, TRANSFERS, AND ASSUMPTIONS		43
Section 11.01	Representations and Warranties	43
(a)	No Labor or Materialmen’s Claims	43
(b)	No Other Interests	43
Section 11.02	Covenants	43
(a)	Liens; Encumbrances	43
(b)	Transfers	44
(c)	No Other Indebtedness	47
(d)	No Mezzanine Financing or Preferred Equity	47
Section 11.03	Mortgage Loan Administration Matters Regarding Liens, Transfers, and Assumptions	47
(a)	Assumption of Mortgage Loan	47
(b)	Transfers to Key Principal-Owned Affiliates or Guarantor-Owned Affiliates	49
(c)	Estate Planning	49
(d)	Termination or Revocation of Trust	50
(e)	Death of Key Principal or Guarantor; Transfer Due to Death	50
(f)	Bankruptcy of Guarantor	51
(g)	Further Conditions to Transfers and Assumption	52
ARTICLE 12 - IMPOSITIONS		53
section 12.01	representations and warranties	53
(a)	Payment of Taxes, Assessments, and Other Charges	53
Section 12.02	Covenants	54
(a)	Imposition Deposits, Taxes, and Other Charges	54
Section 12.03	Mortgage Loan Administration Matters Regarding Impositions	54
(a)	Maintenance of Records by Lender	54
(b)	Imposition Accounts	54
(c)	Payment of Impositions; Sufficiency of Imposition Deposits	55
(d)	Imposition Deposits Upon Event of Default	55
(e)	Contesting Impositions	55
(f)	Release to Borrower	56
ARTICLE 13 – REPLACEMENTS, REPAIRS AND RESTORATION		56
Section 13.01	Covenants	56
(a)	Initial Deposits to Replacement Reserve Account, Repairs Escrow Account and Restoration Reserve Account	56
(b)	Monthly Replacement Reserve Deposits	56
(c)	Payment and Deliverables for Replacements, Repairs and Restoration	56
(d)	Assignment of Contracts for Replacements, Repairs and Restoration	57
(e)	Indemnification	57

 

 

(f)	Amendments to Loan Documents	57
(g)	Administrative Fees and Expenses	57
Section 13.02	Mortgage Loan Administration Matters Regarding Reserves	58
(a)	Accounts, Deposits, and Disbursements	58
(b)	Approvals of Contracts; Assignment of Claims	64
(c)	Delays and Workmanship	65
(d)	Appointment of Lender as Attorney-In-Fact	65
(e)	No Lender Obligation	65
(f)	No Lender Warranty	66
ARTICLE 14 - DEFAULTS/REMEDIES		66
Section 14.01	Events of Default	66
(a)	Automatic Events of Default	66
(b)	Events of Default Subject to a Specified Cure Period	67
(c)	Events of Default Subject to Extended Cure Period	67
Section 14.02	Remedies	68
(a)	Acceleration; Foreclosure	68
(b)	Loss of Right to Disbursements from Collateral Accounts	68
(c)	Remedies Cumulative	69
Section 14.03	Additional Lender Rights; Forbearance	69
(a)	No Effect Upon Obligations	69
(b)	No Waiver of Rights or Remedies	70
(c)	Appointment of Lender as Attorney-In-Fact	70
(d)	Borrower Waivers	71
Section 14.04	Waiver of Marshaling	72
ARTICLE 15 - MISCELLANEOUS		72
Section 15.01	Governing Law; Consent to Jurisdiction and Venue	72
(a)	Governing Law	72
(b)	Venue	72
Section 15.02	Notice	73
(a)	Process of Serving Notice	73
(b)	Change of Address	73
(c)	Default Method of Notice	73
(d)	Receipt of Notices	73
Section 15.03	Successors and Assigns Bound; Sale of Mortgage Loan	74
(a)	Binding Agreement	74
(b)	Sale of Mortgage Loan; Change of Servicer	74
Section 15.04	Counterparts	74
Section 15.05	Joint and Several (or Solidary) Liability	74
Section 15.06	Relationship of Parties; No Third Party Beneficiary	74
(a)	Solely Creditor and Debtor	74
(b)	No Third Party Beneficiaries	74

 

 

Section 15.07	Severability; Entire Agreement; Amendments	75
Section 15.08	Construction	75
Section 15.09	Mortgage Loan Servicing	76
Section 15.10	Disclosure of Information	76
Section 15.11	Waiver; Conflict	76
Section 15.12	No Reliance	76
Section 15.13	Subrogation	77
Section 15.14	Counting of Days	77
Section 15.15	Revival and Reinstatement of Indebtedness	77
Section 15.16	Time is of the Essence	77
Section 15.17	Final Agreement	77
Section 15.18	Waiver of Trial by Jury	78

 

 

Hunt Club MHP

 

MULTIFAMILY LOAN AND SECURITY AGREEMENT

(Non-Recourse)

 

This MULTIFAMILY LOAN AND SECURITY AGREEMENT (as amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”) is made as of the Effective Date (as hereinafter defined) by and between HUNT CLUB MHP LLC, a South Carolina limited liability company (“Borrower”), and ORIX REAL ESTATE CAPITAL, LLC, a Delaware limited liability company, d/b/a Lument Capital (“Lender”).

 

RECITALS:

 

WHEREAS, Borrower desires to obtain the Mortgage Loan (as hereinafter defined) from Lender to be secured by the Mortgaged Property (as hereinafter defined); and

 

WHEREAS, Lender is willing to make the Mortgage Loan on the terms and conditions contained in this Loan Agreement and in the other Loan Documents (as hereinafter defined);

 

NOW, THEREFORE, in consideration of the making of the Mortgage Loan by Lender and other good and valuable consideration, the receipt and adequacy of which are hereby conclusively acknowledged, the parties hereby covenant, agree, represent, and warrant as follows:

 

AGREEMENTS:

 

ARTICLE 1 - DEFINITIONS; SUMMARY OF MORTGAGE LOAN TERMS

 

Section 1.01 Defined Terms.

 

Capitalized terms not otherwise defined in the body of this Loan Agreement shall have the meanings set forth in the Definitions Schedule attached as Schedule 1 to this Loan Agreement.

 

Section 1.02 Schedules, Exhibits, and Attachments Incorporated.

 

The schedules, exhibits, and any other addenda or attachments are incorporated fully into this Loan Agreement by this reference and each constitutes a substantive part of this Loan Agreement.

 

 

ARTICLE 2 - GENERAL MORTGAGE LOAN TERMS

 

Section 2.01 Mortgage Loan Origination and Security.

 

(a) Making of Mortgage Loan.

 

Subject to the terms and conditions of this Loan Agreement and the other Loan Documents, Lender hereby makes the Mortgage Loan to Borrower, and Borrower hereby accepts the Mortgage Loan from Lender. Borrower covenants and agrees that it shall:

 

(1) pay the Indebtedness, including the Prepayment Premium, if any (whether in connection with any voluntary prepayment or in connection with an acceleration by Lender of the Indebtedness), in accordance with the terms of this Loan Agreement and the other Loan Documents; and

 

(2) perform, observe, and comply with this Loan Agreement and all other provisions of the other Loan Documents.

 

(b) Security for Mortgage Loan.

 

The Mortgage Loan is made pursuant to this Loan Agreement, is evidenced by the Note, and is secured by the Security Instrument, this Loan Agreement, and the other Loan Documents that are expressly stated to be security for the Mortgage Loan.

 

(c) Protective Advances.

 

As provided in the Security Instrument, Lender may take such actions or disburse such funds as Lender reasonably deems necessary to perform the obligations of Borrower under this Loan Agreement and the other Loan Documents and to protect Lender’s interest in the Mortgaged Property.

 

Section 2.02 Payments on Mortgage Loan.

 

(a) Debt Service Payments.

 

(1) Short Month Interest.

 

If the date the Mortgage Loan proceeds are disbursed is any day other than the first day of the month, interest for the period beginning on the disbursement date and ending on and including the last day of the month in which the disbursement occurs shall be payable by Borrower on the date the Mortgage Loan proceeds are disbursed. In the event that the disbursement date is not the same as the Effective Date, then:

 

(A) the disbursement date and the Effective Date must be in the same month, and

 

(B) the Effective Date shall not be the first day of the month.

 

(2) Interest Accrual and Computation.

 

Except as provided in Section 2.02(a)(1), interest shall be paid in arrears. Interest shall accrue as provided in the Schedule of Interest Rate Type Provisions and shall be computed in accordance with the Interest Accrual Method. If the Interest Accrual Method is “Actual/360,” Borrower acknowledges and agrees that the amount allocated to interest for each month will vary depending on the actual number of calendar days during such month.

 

 

(3) Monthly Debt Service Payments.

 

Consecutive monthly debt service installments (comprised of either interest only or principal and interest, depending on the Amortization Type), each in the amount of the applicable Monthly Debt Service Payment, shall be due and payable on the First Payment Date, and on each Payment Date thereafter until the Maturity Date, at which time all Indebtedness shall be due. Any regularly scheduled Monthly Debt Service Payment that is received by Lender before the applicable Payment Date shall be deemed to have been received on such Payment Date solely for the purpose of calculating interest due. All payments made by Borrower under this Loan Agreement shall be made without set-off, counterclaim, or other defense.

 

(4) Payment at Maturity.

 

The unpaid principal balance of the Mortgage Loan, any Accrued Interest thereon and all other Indebtedness shall be due and payable on the Maturity Date.

 

(5) Interest Rate Type.

 

See the Schedule of Interest Rate Type Provisions for additional provisions, if any, specific to the Interest Rate Type.

 

(b) Capitalization of Accrued But Unpaid Interest.

 

Any accrued and unpaid interest on the Mortgage Loan remaining past due for thirty (30) days or more may, at Lender’s election, be added to and become part of the unpaid principal balance of the Mortgage Loan.

 

(c) Late Charges.

 

(1) If any Monthly Debt Service Payment due hereunder is not received by Lender within ten (10) days (or fifteen (15) days for any Mortgaged Property located in Mississippi or North Carolina to comply with applicable law) after the applicable Payment Date, or any amount payable under this Loan Agreement (other than the payment due on the Maturity Date for repayment of the Mortgage Loan in full) or any other Loan Document is not received by Lender within ten (10) days (or fifteen (15) days for any Mortgaged Property located in Mississippi or North Carolina to comply with applicable law) after the date such amount is due, inclusive of the date on which such amount is due, Borrower shall pay to Lender, immediately without demand by Lender, the Late Charge.

 

The Late Charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate pursuant to Section 2.02(d).

 

 

(2) Borrower acknowledges and agrees that:

 

(A) its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Mortgage Loan;

 

(B) it is extremely difficult and impractical to determine those additional expenses;

 

(C) Lender is entitled to be compensated for such additional expenses; and

 

(D) the Late Charge represents a fair and reasonable estimate, taking into account all circumstances existing on the date hereof, of the additional expenses Lender will incur by reason of any such late payment.

 

(d) Default Rate.

 

(1) Default interest shall be paid as follows:

 

(A) If any amount due in respect of the Mortgage Loan (other than amounts due on the Maturity Date) remains past due for thirty (30) days or more, interest on such unpaid amount(s) shall accrue from the date payment is due at the Default Rate and shall be payable upon demand by Lender.

 

(B) If any Indebtedness due is not paid in full on the Maturity Date, then interest shall accrue at the Default Rate on all such unpaid amounts from the Maturity Date until fully paid and shall be payable upon demand by Lender.

 

Absent a demand by Lender, any such amounts shall be payable by Borrower in the same manner as provided for the payment of Monthly Debt Service Payments. To the extent permitted by applicable law, interest shall also accrue at the Default Rate on any judgment obtained by Lender against Borrower in connection with the Mortgage Loan. To the extent Borrower or any other Person is vested with a right of redemption, interest shall continue to accrue at the Default Rate during any redemption period until such time as the Mortgaged Property has been redeemed.

 

(2) Borrower acknowledges and agrees that:

 

(A) its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Mortgage Loan; and

 

(B) in connection with any failure to timely pay all amounts due in respect of the Mortgage Loan on the Maturity Date, or during the time that any amount due in respect of the Mortgage Loan is delinquent for more than thirty (30) days:

 

(i) Lender’s risk of nonpayment of the Mortgage Loan will be materially increased;

 

(ii) Lender’s ability to meet its other obligations and to take advantage of other investment opportunities will be adversely impacted;

 

 

(iii) Lender will incur additional costs and expenses arising from its loss of the use of the amounts due;

 

(iv) it is extremely difficult and impractical to determine such additional costs and expenses;

 

(v) Lender is entitled to be compensated for such additional risks, costs, and expenses; and

 

(vi) the increase from the Interest Rate to the Default Rate represents a fair and reasonable estimate of the additional risks, costs, and expenses Lender will incur by reason of Borrower’s delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquency on the Mortgage Loan (taking into account all circumstances existing on the Effective Date).

 

(e) Address for Payments.

 

All payments due pursuant to the Loan Documents shall be payable at Lender’s Payment Address, or such other place and in such manner as may be designated from time to time by written notice to Borrower by Lender.

 

(f) Application of Payments.

 

If at any time Lender receives, from Borrower or otherwise, any payment in respect of the Indebtedness that is less than all amounts due and payable at such time, then Lender may apply such payment to amounts then due and payable in any manner and in any order determined by Lender or hold in suspense and not apply such payment at Lender’s election. Neither Lender’s acceptance of a payment that is less than all amounts then due and payable, nor Lender’s application of, or suspension of the application of, such payment, shall constitute or be deemed to constitute either a waiver of the unpaid amounts or an accord and satisfaction. Notwithstanding the application of any such payment to the Indebtedness, Borrower’s obligations under this Loan Agreement and the other Loan Documents shall remain unchanged.

 

Section 2.03 Lockout/Prepayment.

 

(a) Prepayment; Prepayment Lockout; Prepayment Premium.

 

(1) Borrower shall not make a voluntary partial prepayment on the Mortgage Loan at any time during the Loan Term, or a voluntary full prepayment on the Mortgage Loan at any time during any Prepayment Lockout Period. Except as expressly provided in this Loan Agreement (including as provided in the Prepayment Premium Schedule), a Prepayment Premium calculated in accordance with the Prepayment Premium Schedule shall be payable in connection with any prepayment of the Mortgage Loan.

 

(2) If a Prepayment Lockout Period applies to the Mortgage Loan, and during such Prepayment Lockout Period Lender accelerates the unpaid principal balance of the Mortgage Loan or otherwise applies collateral held by Lender to the repayment of any portion of the unpaid principal balance of the Mortgage Loan, the Prepayment Premium shall be due and payable and equal to the amount obtained by multiplying the percentage indicated (if at all) in the Prepayment Premium Schedule by the amount of principal being prepaid at the time of such acceleration or application.

 

 

(b) Voluntary Prepayment in Full.

 

At any time after the expiration of any Prepayment Lockout Period, Borrower may voluntarily prepay the Mortgage Loan in full on a Permitted Prepayment Date so long as:

 

(1) Borrower delivers to Lender a Prepayment Notice specifying the Intended Prepayment Date not more than sixty (60) days, but not less than thirty (30) days (if given via U.S. Postal Service) or twenty (20) days (if given via facsimile, e-mail, or overnight courier) prior to such Intended Prepayment Date; and

 

(2) Borrower pays to Lender an amount equal to the sum of:

 

(A) the entire unpaid principal balance of the Mortgage Loan; plus

 

(B) all Accrued Interest (calculated through the last day of the month in which the prepayment occurs); plus

 

(C) the Prepayment Premium; plus

 

(D) all other Indebtedness.

 

In connection with any such voluntary prepayment, Borrower acknowledges and agrees that interest shall always be calculated and paid through the last day of the month in which the prepayment occurs (even if the Permitted Prepayment Date for such month is not the last day of such month, or if Lender approves prepayment on an Intended Prepayment Date that is not a Permitted Prepayment Date). Borrower further acknowledges that Lender is not required to accept a voluntary prepayment of the Mortgage Loan on any day other than a Permitted Prepayment Date. However, if Lender does approve an Intended Prepayment Date that is not a Permitted Prepayment Date and accepts a prepayment on such Intended Prepayment Date, such prepayment shall be deemed to be received on the immediately following Permitted Prepayment Date. If Borrower fails to prepay the Mortgage Loan on the Intended Prepayment Date for any reason (including on any Intended Prepayment Date that is approved by Lender) and such failure either continues for five (5) Business Days, or into the following month, Lender shall have the right to recalculate the payoff amount. If Borrower prepays the Mortgage Loan either in the following month or more than five (5) Business Days after the Intended Prepayment Date that was approved by Lender, Lender shall also have the right to recalculate the payoff amount based upon the amount of such payment and the date such payment was received by Lender. Borrower shall immediately pay to Lender any additional amounts required by any such recalculation.

 

(c) Acceleration of Mortgage Loan.

 

Upon acceleration of the Mortgage Loan, Borrower shall pay to Lender:

 

(1) the entire unpaid principal balance of the Mortgage Loan;

 

(2) all Accrued Interest (calculated through the last day of the month in which the acceleration occurs);

 

(3) the Prepayment Premium; and

 

(4) all other Indebtedness.

 

 

(d) Application of Collateral.

 

Any application by Lender of any collateral or other security to the repayment of all or any portion of the unpaid principal balance of the Mortgage Loan prior to the Maturity Date in accordance with the Loan Documents shall be deemed to be a prepayment by Borrower. Any such prepayment shall require the payment to Lender by Borrower of the Prepayment Premium calculated on the amount being prepaid in accordance with this Loan Agreement.

 

(e) Casualty and Condemnation.

 

Notwithstanding any provision of this Loan Agreement to the contrary, no Prepayment Premium shall be payable with respect to any prepayment occurring as a result of the application of any insurance proceeds or amounts received in connection with a Condemnation Action in accordance with this Loan Agreement.

 

(f) No Effect on Payment Obligations.

 

Unless otherwise expressly provided in this Loan Agreement, any prepayment required by any Loan Document of less than the entire unpaid principal balance of the Mortgage Loan shall not extend or postpone the due date of any subsequent Monthly Debt Service Payments, Monthly Replacement Reserve Deposit, or other payment, or change the amount of any such payments or deposits.

 

(g) Loss Resulting from Prepayment.

 

In any circumstance in which a Prepayment Premium is due under this Loan Agreement, Borrower acknowledges that:

 

(1) any prepayment of the unpaid principal balance of the Mortgage Loan, whether voluntary or involuntary, or following the occurrence of an Event of Default by Borrower, will result in Lender’s incurring loss, including reinvestment loss, additional risk, expense, and frustration or impairment of Lender’s ability to meet its commitments to third parties;

 

(2) it is extremely difficult and impractical to ascertain the extent of such losses, risks, and damages;

 

(3) the formula for calculating the Prepayment Premium represents a reasonable estimate of the losses, risks, and damages Lender will incur as a result of a prepayment; and

 

(4) the provisions regarding the Prepayment Premium contained in this Loan Agreement are a material part of the consideration for the Mortgage Loan, and that the terms of the Mortgage Loan are in other respects more favorable to Borrower as a result of Borrower’s voluntary agreement to such prepayment provisions.

 

 

ARTICLE 3 - PERSONAL LIABILITY

 

Section 3.01 Non-Recourse Mortgage Loan; Exceptions.

 

Except as otherwise provided in this Article 3 or in any other Loan Document, none of Borrower, or any director, officer, manager, member, partner, shareholder, trustee, trust beneficiary, or employee of Borrower, shall have personal liability under this Loan Agreement or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of Borrower under the Loan Documents, and Lender’s only recourse for the satisfaction of such Indebtedness and the performance of such obligations shall be Lender’s exercise of its rights and remedies with respect to the Mortgaged Property and any other collateral held by Lender as security for the Indebtedness. This limitation on Borrower’s liability shall not limit or impair Lender’s enforcement of its rights against Guarantor under any Loan Document.

 

Section 3.02 Personal Liability of Borrower (Exceptions to Non-Recourse Provision).

 

(a) Personal Liability Based on Lender’s Loss.

 

Borrower shall be personally liable to Lender for the repayment of the portion of the Indebtedness equal to any loss or damage suffered by Lender as a result of, subject to any notice and cure period, if any:

 

(1) failure to pay as directed by Lender upon demand after an Event of Default (to the extent actually received by Borrower):

 

(A) all Rents to which Lender is entitled under the Loan Documents; and

 

(B) the amount of all security deposits then held or thereafter collected by Borrower from tenants and not properly applied pursuant to the applicable Leases;

 

(2) failure to maintain all insurance policies required by the Loan Documents, except to the extent Lender has the obligation to pay the premiums pursuant to Section 12.03(c);

 

(3) failure to apply all insurance proceeds received by Borrower or any amounts received by Borrower in connection with a Condemnation Action, as required by the Loan Documents;

 

(4) failure to comply with any provision of this Loan Agreement or any other Loan Document relating to the delivery of books and records, statements, schedules, and reports;

 

(5) except to the extent directed otherwise by Lender pursuant to Section 3.02(a)(1), failure to apply Rents to the ordinary and necessary expenses of owning and operating the Mortgaged Property and Debt Service Amounts, as and when each is due and payable, except that Borrower will not be personally liable with respect to Rents that are distributed by Borrower in any calendar year if Borrower has paid all ordinary and necessary expenses of owning and operating the Mortgaged Property and Debt Service Amounts for such calendar year;

 

 

(6) waste or abandonment of the Mortgaged Property; or

 

(7) grossly negligent or reckless unintentional material misrepresentation or omission by Borrower, Guarantor, Key Principal, or any officer, director, partner, manager, member, shareholder, or trustee of Borrower, Guarantor, or Key Principal in connection with ongoing financial or other reporting required by the Loan Documents, or any request for action or consent by Lender.

 

Notwithstanding the foregoing, Borrower shall not have personal liability under clauses (1), (3), or (5) above to the extent that Borrower lacks the legal right to direct the disbursement of the applicable funds due to an involuntary Bankruptcy Event that occurs without the consent, encouragement, or active participation of Borrower, Guarantor, Key Principal, or any Borrower Affiliate.

 

(b) Full Personal Liability for Mortgage Loan.

 

Borrower shall be personally liable to Lender for the repayment of all of the Indebtedness, and the Mortgage Loan shall be fully recourse to Borrower, upon the occurrence of any of the following:

 

(1) failure by Borrower to comply with the single-asset entity requirements of Section 4.02(d) of this Loan Agreement;

 

(2) a Transfer (other than a conveyance of the Mortgaged Property at a Foreclosure Event pursuant to the Security Instrument and this Loan Agreement) that is not permitted under this Loan Agreement or any other Loan Document;

 

(3) the occurrence of any Bankruptcy Event (other than an acknowledgement in writing as described in clause (b) of the definition of “Bankruptcy Event”); provided, however, in the event of an involuntary Bankruptcy Event, Borrower shall only be personally liable if such involuntary Bankruptcy Event occurs with the consent, encouragement, or active participation of Borrower, Guarantor, Key Principal, or any Borrower Affiliate;

 

(4) fraud, written material misrepresentation, or material omission by Borrower, Guarantor, Key Principal, or any officer, director, partner, manager, member, shareholder, or trustee of Borrower, Guarantor, or Key Principal in connection with any application for or creation of the Indebtedness;

 

(5) fraud, written intentional material misrepresentation, or intentional material omission by Borrower, Guarantor, Key Principal, or any officer, director, partner, manager, member, shareholder, or trustee of Borrower, Guarantor, or Key Principal in connection with ongoing financial or other reporting required by the Loan Documents, or any request for action or consent by Lender; or

 

(6) a Division that is not permitted under this Loan Agreement or any other Loan Document.

 

 

Section 3.03 Personal Liability for Indemnity Obligations.

 

Borrower shall be personally and fully liable to Lender for Borrower’s indemnity obligations under Section 13.01(e) of this Loan Agreement, the Environmental Indemnity Agreement, and any other express indemnity obligations provided by Borrower under any Loan Document. Borrower’s liability for such indemnity obligations shall not be limited by the amount of the Indebtedness, the repayment of the Indebtedness, or otherwise, provided that Borrower’s liability for such indemnities shall not include any loss caused by the gross negligence or willful misconduct of Lender as determined by a court of competent jurisdiction pursuant to a final non-appealable court order.

 

Section 3.04 Lender’s Right to Forego Rights Against Mortgaged Property.

 

To the extent that Borrower has personal liability under this Loan Agreement or any other Loan Document, Lender may exercise its rights against Borrower personally to the fullest extent permitted by applicable law without regard to whether Lender has exercised any rights against the Mortgaged Property, the UCC Collateral, or any other security, or pursued any rights against Guarantor, or pursued any other rights available to Lender under this Loan Agreement, any other Loan Document, or applicable law. For purposes of this Section 3.04 only, the term “Mortgaged Property” shall not include any funds that have been applied by Borrower as required or permitted by this Loan Agreement prior to the occurrence of an Event of Default, or that Borrower was unable to apply as required or permitted by this Loan Agreement because of a Bankruptcy Event. To the fullest extent permitted by applicable law, in any action to enforce Borrower’s personal liability under this Article 3, Borrower waives any right to set off the value of the Mortgaged Property against such personal liability.

 

ARTICLE 4 - BORROWER STATUS

 

Section 4.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 4.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) Due Organization and Qualification; Organizational Agreements.

 

(1) Borrower is validly existing and qualified to transact business, and in good standing in:

 

(A) the state in which it is formed or organized;

 

(B) the Property Jurisdiction; and

 

(C) each other jurisdiction that qualification or good standing is required according to applicable law to conduct its business with respect to the Mortgaged Property and where the failure to be so qualified or in good standing would adversely affect Borrower’s operation of the Mortgaged Property or the validity, enforceability or the ability of Borrower to perform its obligations under this Loan Agreement or any other Loan Document.

 

(2) Borrower’s organizational documents prohibit a Division of Borrower.

 

 

(3) True, correct and complete organizational documents of Borrower, Guarantor and Key Principal have been delivered to Lender prior to the Effective Date. The Ownership Interests Schedule attached hereto as Schedule 8 to this Loan Agreement sets forth:

 

(A) the direct owners of Borrower and their respective interests;

 

(B) the indirect owners (and any non-member managers) of Borrower that Control Borrower (excluding any Publicly-Held Corporations or Publicly-Held Trusts) and their respective interests; and

 

(C) the indirect owners of Borrower that hold twenty-five percent (25%) or more of the ownership interests in Borrower (excluding any Publicly-Held Corporations or Publicly-Held Trusts) and their respective interests.

 

(b) Location.

 

Borrower’s General Business Address is Borrower’s principal place of business and principal office.

 

(c) Power and Authority.

 

Borrower has the requisite power and authority:

 

(1) to own the Mortgaged Property and to carry on its business as now conducted and as contemplated to be conducted in connection with the performance of its obligations under this Loan Agreement and under the other Loan Documents to which it is a party; and

 

(2) to execute and deliver this Loan Agreement and the other Loan Documents to which it is a party, and to carry out the transactions contemplated by this Loan Agreement and the other Loan Documents to which it is a party.

 

(d) Due Authorization.

 

The execution, delivery, and performance of this Loan Agreement and the other Loan Documents to which it is a party have been duly authorized by all necessary action and proceedings by or on behalf of Borrower, and no further approvals or filings of any kind, including any approval of or filing with any Governmental Authority, are required by or on behalf of Borrower as a condition to the valid execution, delivery, and performance by Borrower of this Loan Agreement or any of the other Loan Documents to which it is a party, except filings required to perfect and maintain the liens to be granted under the Loan Documents and routine filings to maintain good standing and its existence.

 

(e) Valid and Binding Obligations.

 

This Loan Agreement and the other Loan Documents to which it is a party have been duly executed and delivered by Borrower and constitute the legal, valid, and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as such enforceability may be limited by applicable Insolvency Laws or by the exercise of discretion by any court.

 

 

(f) Effect of Mortgage Loan on Borrower’s Financial Condition.

 

The Mortgage Loan will not render Borrower Insolvent. Borrower has sufficient working capital, including proceeds from the Mortgage Loan, cash flow from the Mortgaged Property, or other sources, not only to adequately maintain the Mortgaged Property, but also to pay all of Borrower’s outstanding debts as they come due, including all Debt Service Amounts, exclusive of Borrower’s ability to refinance or pay in full the Mortgage Loan on the Maturity Date. In connection with the execution and delivery of this Loan Agreement and the other Loan Documents (and the delivery to, or for the benefit of, Lender of any collateral contemplated thereunder), and the incurrence by Borrower of the obligations under this Loan Agreement and the other Loan Documents, Borrower did not receive less than reasonably equivalent value in exchange for the incurrence of the obligations of Borrower under this Loan Agreement and the other Loan Documents.

 

(g) Economic Sanctions, Anti-Money Laundering, and Anti-Corruption.

 

(1) None of Borrower, Guarantor, or Key Principal, or to Borrower’s knowledge, any Person Controlling Borrower, Guarantor, or Key Principal, or any Person Controlled by Borrower, Guarantor, or Key Principal that also has a direct or indirect ownership interest in Borrower, Guarantor, or Key Principal, is in violation of any applicable civil or criminal laws or regulations, including those requiring internal controls, intended to prohibit, prevent, or regulate money laundering, drug trafficking, terrorism, or corruption, of the United States and the jurisdiction where the Mortgaged Property is located or where the Person resides, is domiciled, or has its principal place of business.

 

(2) None of Borrower, Guarantor, or Key Principal, or to Borrower’s knowledge, any Person Controlling Borrower, Guarantor, or Key Principal, or any Person Controlled by Borrower, Guarantor, or Key Principal that also has a direct or indirect ownership interest in Borrower, Guarantor, or Key Principal, is a Person:

 

(A) against whom proceedings are pending for any alleged violation of any laws described in Section 4.01(g)(1);

 

(B) that has been convicted of any violation of, has been subject to civil penalties or Economic Sanctions pursuant to, or had any of its property seized or forfeited under, any laws described in Section 4.01(g)(1);

 

(C) with whom any United States Person, any entity organized under the laws of the United States or its constituent states or territories, or any entity, regardless of where organized, having its principal place of business within the United States or any of its territories, is prohibited from transacting business of the type contemplated by this Loan Agreement and the other Loan Documents under any other Applicable Law; or

 

(D) that is deemed a Sanctioned Person.

 

(3) Borrower, Guarantor, and Key Principal are in compliance with all applicable Economic Sanctions laws and regulations.

 

 

(h) Borrower Single Asset Status.

 

Borrower:

 

(1) does not own or lease any real property, personal property, or assets other than the Mortgaged Property;

 

(2) does not own, operate, or participate in any business other than the leasing, ownership, management, operation, and maintenance of the Mortgaged Property;

 

(3) has no material financial obligation under or secured by any indenture, mortgage, deed of trust, deed to secure debt, loan agreement, or other agreement or instrument to which Borrower is a party, or by which Borrower is otherwise bound, or to which the Mortgaged Property is subject or by which it is otherwise encumbered, other than:

 

(A) unsecured trade payables incurred in the ordinary course of the operation of the Mortgaged Property (exclusive of amounts for rehabilitation, restoration, repairs, or replacements of the Mortgaged Property) that (i) are not evidenced by a promissory note, (ii) are payable within sixty (60) days of the date incurred, and (iii) as of the Effective Date, do not exceed, in the aggregate, four percent (4%) of the original principal balance of the Mortgage Loan;

 

(B) if the Security Instrument grants a lien on a leasehold estate, Borrower’s obligations as lessee under the ground lease creating such leasehold estate; and

 

(C) obligations under the Loan Documents and obligations secured by the Mortgaged Property to the extent permitted by the Loan Documents;

 

(4) has maintained its financial statements, accounting records, and other partnership, real estate investment trust, limited liability company, or corporate documents, as the case may be, separate from those of any other Person (unless Borrower’s assets have been included in a consolidated financial statement prepared in accordance with generally accepted accounting principles);

 

(5) has not commingled its assets or funds with those of any other Person, unless such assets or funds can easily be segregated and identified in the ordinary course of business from those of any other Person;

 

(6) has been adequately capitalized in light of its contemplated business operations;

 

(7) has not assumed, guaranteed, or pledged its assets to secure the liabilities or obligations of any other Person (except in connection with the Mortgage Loan or other mortgage loans that have been paid in full or collaterally assigned to Lender, including in connection with any Consolidation, Extension and Modification Agreement or similar instrument), or held out its credit as being available to satisfy the obligations of any other Person;

 

(8) has not made loans or advances to any other Person;

 

 

(9) has not entered into, and is not a party to, any transaction with any Borrower Affiliate, except in the ordinary course of business and on terms which are no more favorable to any such Borrower Affiliate than would be obtained in a comparable arm’s length transaction with an unrelated third party; and

 

(10) has not sought and has no plans to Divide at any time during the Loan Term.

 

(i) No Bankruptcies or Judgments.

 

None of Borrower, Guarantor, or Key Principal, or to Borrower’s knowledge, any Person Controlling Borrower, Guarantor, or Key Principal, or any Person Controlled by Borrower, Guarantor, or Key Principal that also has a direct or indirect ownership interest in Borrower, Guarantor, or Key Principal, is currently:

 

(1) the subject of or a party to any completed or pending bankruptcy, reorganization, including any receivership or other insolvency proceeding;

 

(2) preparing or intending to be the subject of a Bankruptcy Event; or

 

(3) the subject of any judgment unsatisfied of record or docketed in any court; or

 

(4) Insolvent.

 

(j) No Actions or Litigation.

 

(1) There are no claims, actions, suits, or proceedings at law or in equity by or before any Governmental Authority now pending against or, to Borrower’s knowledge, threatened against or affecting Borrower or the Mortgaged Property not otherwise covered by insurance (except claims, actions, suits, or proceedings regarding fair housing, anti-discrimination, or equal opportunity, which shall always be disclosed); and

 

(2) there are no claims, actions, suits, or proceedings at law or in equity by or before any Governmental Authority now pending or, to Borrower’s knowledge, threatened against or affecting Guarantor or Key Principal, which claims, actions, suits, or proceedings, if adversely determined (individually or in the aggregate) reasonably would be expected to materially adversely affect the financial condition or business of Borrower, Guarantor, or Key Principal or the condition, operation, or ownership of the Mortgaged Property (except claims, actions, suits, or proceedings regarding fair housing, anti-discrimination, or equal opportunity, which shall always be deemed material).

 

(k) Payment of Taxes, Assessments, and Other Charges.

 

Borrower confirms that:

 

(1) it has filed all federal, state, county, and municipal tax returns and reports required to have been filed by Borrower;

 

(2) it has paid, before any fine, penalty interest, lien, or costs may be added thereto, all taxes, governmental charges, and assessments due and payable with respect to such returns and reports;

 

 

(3) there is no controversy or objection pending, or to the knowledge of Borrower, threatened in respect of any tax returns of Borrower; and

 

(4) it has made adequate reserves on its books and records for all taxes that have accrued but which are not yet due and payable.

 

(l) Not a Foreign Person.

 

Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code.

 

(m) ERISA.

 

Borrower represents and warrants that:

 

(1) Borrower is not an Employee Benefit Plan;

 

(2) no asset of Borrower constitutes “plan assets” (within the meaning of Section 3(42) of ERISA and Department of Labor Regulation Section 2510.3-101) of an Employee Benefit Plan;

 

(3) no asset of Borrower is subject to any laws of any Governmental Authority governing the assets of an Employee Benefit Plan; and

 

(4) neither Borrower nor any ERISA Affiliate is subject to any obligation or liability with respect to any ERISA Plan.

 

(n) Default Under Other Obligations.

 

(1) The execution, delivery, and performance of the obligations imposed on Borrower under this Loan Agreement and the Loan Documents to which it is a party will not cause Borrower to be in default under the provisions of any agreement, judgment, or order to which Borrower is a party or by which Borrower is bound.

 

(2) None of Borrower, Guarantor, or Key Principal is in default under any obligation to Lender.

 

(o) Prohibited Person.

 

None of Borrower, Guarantor, or Key Principal is a Prohibited Person. To Borrower’s knowledge, none of the following is a Prohibited Person:

 

(1) Any Person Controlling Borrower, Guarantor, or Key Principal; or

 

(2) Any Person Controlled by and having a direct or indirect ownership interest in Borrower, Guarantor, or Key Principal.

 

(p) No Contravention.

 

Neither the execution and delivery of this Loan Agreement and the other Loan Documents to which Borrower is a party, nor the fulfillment of or compliance with the terms and conditions of this Loan Agreement and the other Loan Documents to which Borrower is a party, nor the performance of the obligations of Borrower under this Loan Agreement and the other Loan Documents does or will conflict with or result in any breach or violation of, or constitute a default under, any of the terms, conditions, or provisions of Borrower’s organizational documents, or any indenture, existing agreement, or other instrument to which Borrower is a party or to which Borrower, the Mortgaged Property, or other assets of Borrower are subject.

 

 

(q) Lockbox Arrangement.

 

Borrower is not party to any type of lockbox agreement or similar cash management arrangement that has not been approved by Lender in writing, and no direct or indirect owner of Borrower is party to any type of lockbox agreement or similar cash management arrangement with respect to Rents or other income from the Mortgaged Property that has not been approved by Lender in writing.

 

Section 4.02 Covenants.

 

(a) Maintenance of Existence; Organizational Documents.

 

Borrower shall maintain its existence, its entity status, franchises, rights, and privileges under the laws of the state of its formation or organization (as applicable). Borrower shall continue to be duly qualified and in good standing to transact business in each jurisdiction in which qualification or standing is required according to applicable law to conduct its business with respect to the Mortgaged Property and where the failure to do so would adversely affect Borrower’s operation of the Mortgaged Property or the validity, enforceability, or the ability of Borrower to perform its obligations under this Loan Agreement or any other Loan Document. Neither Borrower nor any partner, member, manager, officer, or director of Borrower shall:

 

(1) make or allow any material change to the organizational documents or organizational structure of Borrower, including changes relating to the Control of Borrower, or

 

(2) file any action, complaint, petition, or other claim to:

 

(A) divide, partition, or otherwise compel the sale of the Mortgaged Property, or

 

(B) otherwise change the Control of Borrower.

 

(b) Economic Sanctions, Anti-Money Laundering, and Anti-Corruption.

 

(1) Borrower, Guarantor, Key Principal, and any Person Controlling Borrower, Guarantor, or Key Principal, or any Person Controlled by Borrower, Guarantor, or Key Principal that also has a direct or indirect ownership interest in Borrower, Guarantor, or Key Principal shall remain in compliance with any applicable civil or criminal laws or regulations (including those requiring internal controls) intended to prohibit, prevent, or regulate money laundering, drug trafficking, terrorism, or corruption, of the United States and the jurisdiction where the Mortgaged Property is located or where the Person resides, is domiciled, or has its principal place of business.

 

 

(2) At no time shall Borrower, Guarantor, or Key Principal, or any Person Controlling Borrower, Guarantor, or Key Principal, or any Person Controlled by Borrower, Guarantor, or Key Principal that also has a direct or indirect ownership interest in Borrower, Guarantor, or Key Principal, be a Person:

 

(A) against whom proceedings are pending for any alleged violation of any laws described in Section 4.02(b)(1);

 

(B) that has been convicted of any violation of, has been subject to civil penalties or Economic Sanctions pursuant to, or had any of its property seized or forfeited under, any laws described in Section 4.02(b)(1);

 

(C) with whom any United States Person, any entity organized under the laws of the United States or its constituent states or territories, or any entity, regardless of where organized, having its principal place of business within the United States or any of its territories, is prohibited from transacting business of the type contemplated by this Loan Agreement and the other Loan Documents under any other Applicable Law; or

 

(D) that is deemed a Sanctioned Person.

 

(3) Borrower, Guarantor, and Key Principal shall at all times remain in compliance with any applicable Economic Sanctions laws and regulations.

 

(c) Payment of Taxes, Assessments, and Other Charges.

 

Borrower shall file all federal, state, county, and municipal tax returns and reports required to be filed by Borrower and shall pay, before any fine, penalty, interest, or cost may be added thereto, all taxes payable with respect to such returns and reports.

 

(d) Borrower Single Asset Status.

 

Until the Indebtedness is fully paid, Borrower:

 

(1) shall not acquire or lease any real property, personal property, or assets other than the Mortgaged Property;

 

(2) shall not acquire, own, operate, or participate in any business other than the leasing, ownership, management, operation, and maintenance of the Mortgaged Property;

 

(3) shall not commingle its assets or funds with those of any other Person, unless such assets or funds can easily be segregated and identified in the ordinary course of business from those of any other Person;

 

(4) shall maintain its financial statements, accounting records, and other partnership, real estate investment trust, limited liability company, or corporate documents, as the case may be, separate from those of any other Person (unless Borrower’s assets are included in a consolidated financial statement prepared in accordance with generally accepted accounting principles);

 

 

(5) shall have no material financial obligation under any indenture, mortgage, deed of trust, deed to secure debt, loan agreement, other agreement or instrument to which Borrower is a party or by which Borrower is otherwise bound, or to which the Mortgaged Property is subject or by which it is otherwise encumbered, other than:

 

(A) unsecured trade payables incurred in the ordinary course of the operation of the Mortgaged Property (exclusive of amounts (i) to be paid out of the Replacement Reserve Account or Repairs Escrow Account, or (ii) for rehabilitation, restoration, repairs, or replacements of the Mortgaged Property or otherwise approved by Lender) so long as such trade payables (1) are not evidenced by a promissory note, (2) are payable within sixty (60) days of the date incurred, and (3) as of any date, do not exceed, in the aggregate, two percent (2%) of the original principal balance of the Mortgage Loan; provided, however, that otherwise compliant outstanding trade payables may exceed two percent (2%) up to an aggregate amount of four percent (4%) of the original principal balance of the Mortgage Loan for a period (beginning on or after the Effective Date) not to exceed ninety (90) consecutive days;

 

(B) if the Security Instrument grants a lien on a leasehold estate, Borrower’s obligations as lessee under the ground lease creating such leasehold estate; and

 

(C) obligations under the Loan Documents and obligations secured by the Mortgaged Property to the extent permitted by the Loan Documents;

 

(6) shall not assume, guaranty, or pledge its assets to secure the liabilities or obligations of any other Person (except in connection with the Mortgage Loan or other mortgage loans that have been paid in full or collaterally assigned to Lender, including in connection with any Consolidation, Extension and Modification Agreement or similar instrument) or hold out its credit as being available to satisfy the obligations of any other Person;

 

(7) shall not make loans or advances to any other Person;

 

(8) shall not enter into, or become a party to, any transaction with any Borrower Affiliate, except in the ordinary course of business and on terms which are no more favorable to any such Borrower Affiliate than would be obtained in a comparable arm’s-length transaction with an unrelated third party; or

 

(9) shall not Divide.

 

(e) ERISA.

 

Borrower covenants that:

 

(1) no asset of Borrower shall constitute “plan assets” (within the meaning of Section 3(42) of ERISA and Department of Labor Regulation Section 2510.3-101) of an Employee Benefit Plan;

 

(2) no asset of Borrower shall be subject to the laws of any Governmental Authority governing the assets of an Employee Benefit Plan; and

 

(3) neither Borrower nor any ERISA Affiliate shall incur any obligation or liability with respect to any ERISA Plan.

 

 

(f) Notice of Litigation or Insolvency.

 

Borrower shall give immediate written notice to Lender of any claims, actions, suits, or proceedings at law or in equity (including any insolvency, bankruptcy, or receivership proceeding) by or before any Governmental Authority pending or, to Borrower’s knowledge, threatened against or affecting Borrower, Guarantor, Key Principal, or the Mortgaged Property, which claims, actions, suits, or proceedings, if adversely determined reasonably would be expected to materially adversely affect the financial condition or business of Borrower, Guarantor, or Key Principal, or the condition, operation, or ownership of the Mortgaged Property (including any claims, actions, suits, or proceedings regarding fair housing, anti-discrimination, or equal opportunity, which shall always be deemed material).

 

(g) Payment of Costs, Fees, and Expenses.

 

In addition to the payments specified in this Loan Agreement, Borrower shall pay, on demand, all of Lender’s out-of-pocket fees, costs, charges, or expenses (including the reasonable fees and expenses of attorneys, accountants, and other experts) incurred by Lender in connection with:

 

(1) any amendment to, or consent, or waiver required under, this Loan Agreement or any of the Loan Documents (whether or not any such amendments, consents, or waivers are entered into);

 

(2) defending or participating in any litigation arising from actions by third parties and brought against or involving Lender with respect to:

 

(A) the Mortgaged Property;

 

(B) any event, act, condition, or circumstance in connection with the Mortgaged Property; or

 

(C) the relationship between or among Lender, Borrower, Key Principal, and Guarantor in connection with this Loan Agreement or any of the transactions contemplated by this Loan Agreement;

 

(3) the administration or enforcement of, or preservation of rights or remedies under, this Loan Agreement or any other Loan Documents including or in connection with any litigation or appeals, any Foreclosure Event or other disposition of any collateral granted pursuant to the Loan Documents; and

 

(4) any Bankruptcy Event or Guarantor Bankruptcy Event.

 

(h) Restrictions on Distributions.

 

No distributions or dividends of any nature with respect to Rents or other income from the Mortgaged Property shall be made to any Person having a direct ownership interest in Borrower if an Event of Default has occurred and is continuing.

 

(i) Lockbox Arrangement.

 

Borrower shall not enter into any type of lockbox agreement or similar cash management arrangement that has not been approved by Lender in writing, and no direct or indirect owner of Borrower shall enter into any type of lockbox agreement or similar cash management arrangement with respect to Rents or other income from the Mortgaged Property that has not been approved by Lender in writing. Lender’s approval of any such cash management arrangement may be conditioned upon requiring Borrower to enter into a lockbox agreement or similar cash management arrangement with Lender in form and substance acceptable to Lender with regard to Rents and other income from the Mortgaged Property.

 

 

ARTICLE 5 - THE MORTGAGE LOAN

 

Section 5.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 5.01are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) Receipt and Review of Loan Documents.

 

Borrower has received and reviewed this Loan Agreement and all of the other Loan Documents.

 

(b) No Default.

 

No default exists under any of the Loan Documents.

 

(c) No Defenses.

 

The Loan Documents are not currently subject to any right of rescission, set-off, counterclaim, or defense by either Borrower or Guarantor, including the defense of usury, and neither Borrower nor Guarantor has asserted any right of rescission, set-off, counterclaim, or defense with respect thereto.

 

(d) Loan Document Taxes.

 

All mortgage, mortgage recording, stamp, intangible, or any other similar taxes required to be paid by any Person under applicable law currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection, or enforcement of any of the Loan Documents, including the Security Instrument, have been paid or will be paid in the ordinary course of the closing of the Mortgage Loan.

 

Section 5.02 Covenants.

 

(a) Ratification of Covenants; Estoppels; Certifications.

 

Borrower shall:

 

(1) promptly notify Lender in writing upon any violation of any covenant set forth in any Loan Document of which Borrower has notice or knowledge; provided, however, any such written notice by Borrower to Lender shall not relieve Borrower of, or result in a waiver of, any obligation under this Loan Agreement or any other Loan Document; and

 

 

(2) within ten (10) days after a request from Lender, provide a written statement, signed and acknowledged by Borrower, certifying to Lender or any person designated by Lender, as of the date of such statement:

 

(A) that the Loan Documents are unmodified and in full force and effect (or, if there have been modifications, that the Loan Documents are in full force and effect as modified and setting forth such modifications);

 

(B) the unpaid principal balance of the Mortgage Loan;

 

(C) the date to which interest on the Mortgage Loan has been paid;

 

(D) that Borrower is not in default in paying the Indebtedness or in performing or observing any of the covenants or agreements contained in this Loan Agreement or any of the other Loan Documents (or, if Borrower is in default, describing such default in reasonable detail);

 

(E) whether or not there are then-existing any setoffs or defenses known to Borrower against the enforcement of any right or remedy of Lender under the Loan Documents; and

 

(F) any additional facts reasonably requested in writing by Lender.

 

(b) Further Assurances.

 

(1) Other Documents As Lender May Require.

 

Within ten (10) days after request by Lender, Borrower shall, subject to Section 5.02(d) below, execute, acknowledge, and deliver, at its cost and expense, all further acts, deeds, conveyances, assignments, financing statements, transfers, documents, agreements, assurances, and such other instruments as Lender may reasonably require from time to time in order to better assure, grant, and convey to Lender the rights intended to be granted, now or in the future, to Lender under this Loan Agreement and the other Loan Documents.

 

(2) Corrective Actions.

 

Within ten (10) days after request by Lender, Borrower shall provide, or cause to be provided, to Lender, at Borrower’s cost and expense, such further documentation or information reasonably deemed necessary or appropriate by Lender in the exercise of its rights under the related commitment letter between Borrower and Lender or to correct patent mistakes in the Loan Documents, the Title Policy, or the funding of the Mortgage Loan.

 

(c) Sale of Mortgage Loan.

 

Borrower shall, subject to Section 5.02(d) below:

 

(1) comply with the reasonable requirements of Lender or any Investor of the Mortgage Loan or provide, or cause to be provided, to Lender or any Investor of the Mortgage Loan within ten (10) days after the request, at Borrower’s cost and expense, such further documentation or information as Lender or Investor may reasonably require, in order to enable:

 

(A) Lender to sell the Mortgage Loan to such Investor;

 

 

(B) Lender to obtain a refund of any commitment fee from any such Investor; or

 

(C) any such Investor to further sell or securitize the Mortgage Loan;

 

(2) ratify and affirm in writing the representations and warranties set forth in any Loan Document as of such date specified by Lender modified as necessary to reflect changes that have occurred subsequent to the Effective Date;

 

(3) confirm that Borrower is not in default in paying the Indebtedness or in performing or observing any of the covenants or agreements contained in this Loan Agreement or any of the other Loan Documents (or, if Borrower is in default, describing such default in reasonable detail); and

 

(4) execute and deliver to Lender and/or any Investor such other documentation, including any amendments, corrections, deletions, or additions to this Loan Agreement or other Loan Document(s) as is reasonably required by Lender or such Investor.

 

(d) Limitations on Further Acts of Borrower.

 

Nothing in Section 5.02(b) and Section 5.02(c) shall require Borrower to do any further act that has the effect of:

 

(1) changing the economic terms of the Mortgage Loan set forth in the related commitment letter between Borrower and Lender;

 

(2) imposing on Borrower or Guarantor greater personal liability under the Loan Documents than that set forth in the related commitment letter between Borrower and Lender; or

 

(3) materially changing the rights and obligations of Borrower or Guarantor under the commitment letter.

 

(e) Financing Statements; Record Searches.

 

(1) Borrower shall pay all costs and expenses associated with:

 

(A) any filing or recording of any financing statements, including all continuation statements, termination statements, and amendments or any other filings related to security interests in or liens on collateral; and

 

(B) any record searches for financing statements that Lender may require.

 

(2) Borrower hereby authorizes Lender to file any financing statements, continuation statements, termination statements, and amendments (including an “all assets” or “all personal property” collateral description or words of similar import) in form and substance as Lender may require in order to protect and preserve Lender’s lien priority and security interest in the Mortgaged Property (and to the extent Lender has filed any such financing statements, continuation statements, or amendments prior to the Effective Date, such filings by Lender are hereby authorized and ratified by Borrower).

 

 

(f) Loan Document Taxes.

 

Borrower shall pay, on demand, any transfer taxes, documentary taxes, assessments, or charges made by any Governmental Authority in connection with the execution, delivery, recordation, filing, registration, perfection, or enforcement of any of the Loan Documents or the Mortgage Loan.

 

ARTICLE 6 - PROPERTY USE, PRESERVATION, AND MAINTENANCE

 

Section 6.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 6.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) Compliance with Law; Permits and Licenses.

 

(1) To Borrower’s knowledge, all improvements to the Land and the use of the Mortgaged Property comply with all applicable laws, ordinances, statutes, rules, and regulations, including all applicable statutes, rules, and regulations pertaining to requirements for equal opportunity, anti-discrimination, fair housing, and rent control, and Borrower has no knowledge of any action or proceeding (or threatened action or proceeding) regarding noncompliance or nonconformity with any of the foregoing.

 

(2) To Borrower’s knowledge, there is no evidence of any illegal activities on the Mortgaged Property.

 

(3) To Borrower’s knowledge, no permits or approvals from any Governmental Authority, other than those previously obtained and furnished to Lender, are necessary for the commencement and completion of the Repairs or Replacements, as applicable, other than those permits or approvals which will be timely obtained in the ordinary course of business.

 

(4) All required permits, licenses, and certificates to comply with all zoning and land use statutes, laws, ordinances, rules, and regulations, and all applicable health, fire, safety, and building codes, and for the lawful use and operation of the Mortgaged Property, including certificates of occupancy, apartment licenses, or the equivalent, have been obtained and are in full force and effect.

 

(5) No portion of the Mortgaged Property has been purchased with the proceeds of any illegal activity.

 

 

(b) Property Characteristics.

 

(1) The Mortgaged Property contains at least:

 

(A) the Property Square Footage;

 

(B) the Total Parking Spaces; and

 

(C) the Total Residential Units.

 

(2) No part of the Land is included or assessed under or as part of another tax lot or parcel, and no part of any other property is included or assessed under or as part of the tax lot or parcels for the Land.

 

(c) Property Ownership.

 

Borrower is sole owner or ground lessee of the Mortgaged Property.

 

(d) Condition of the Mortgaged Property.

 

(1) Borrower has not made any claims, and to Borrower’s knowledge, no claims have been made, against any contractor, engineer, architect, or other party with respect to the construction or condition of the Mortgaged Property or the existence of any structural or other material defect therein; and

 

(2) neither the Land nor the Improvements have sustained any damage other than damage which has been fully repaired, or is fully insured and is being repaired in the ordinary course of business.

 

(e) Personal Property.

 

Borrower owns (or, to the extent disclosed on the Exceptions to Representations and Warranties Schedule, leases) all of the Personal Property that is material to and is used in connection with the management, ownership, and operation of the Mortgaged Property.

 

Section 6.02 Covenants.

 

(a) Use of Property.

 

From and after the Effective Date, Borrower shall not, unless required by applicable law or Governmental Authority:

 

(1) change the use of all or any part of the Mortgaged Property;

 

(2) convert any individual dwelling units or common areas to commercial use, or convert any common area or commercial use to individual dwelling units;

 

(3) initiate or acquiesce in a change in the zoning classification of the Land;

 

(4) establish any condominium or cooperative regime with respect to the Mortgaged Property;

 

 

(5) subdivide the Land; or

 

(6) suffer, permit, or initiate the joint assessment of any Mortgaged Property with any other real property constituting a tax lot separate from such Mortgaged Property which could cause the part of the Land to be included or assessed under or as part of another tax lot or parcel, or any part of any other property to be included or assessed under or as part of the tax lot or parcels for the Land.

 

(b) Property Maintenance.

 

Borrower shall:

 

(1) pay the expenses of operating, managing, maintaining, and repairing the Mortgaged Property (including insurance premiums, utilities, Repairs, and Replacements) before the last date upon which each such payment may be made without any penalty or interest charge being added;

 

(2) keep the Mortgaged Property in good repair and marketable condition (ordinary wear and tear excepted) (including the replacement of Personalty and Fixtures with items of equal or better function and quality) and subject to Section 9.03(b)(3) and Section 10.03(d) restore or repair promptly, in a good and workmanlike manner, any damaged part of the Mortgaged Property to the equivalent of its original condition or condition immediately prior to the damage (if improved after the Effective Date), whether or not any insurance proceeds received upon an event of loss or any amounts received in connection with a Condemnation Action are available to cover any costs of such restoration or repair;

 

(3) commence all Required Repairs, Additional Lender Repairs, and Additional Lender Replacements as follows:

 

(A) with respect to any Required Repairs, promptly following the Effective Date (subject to Force Majeure, if applicable), in accordance with the timelines set forth on the Required Repair Schedule, or if no timelines are provided, as soon as practical following the Effective Date;

 

(B) with respect to Additional Lender Repairs, in the event that Lender determines that Additional Lender Repairs are necessary from time to time or pursuant to Section 6.03(c), promptly following Lender’s written notice of such Additional Lender Repairs (subject to Force Majeure, if applicable), commence any such Additional Lender Repairs in accordance with Lender’s timelines, or if no timelines are provided, as soon as practical;

 

(C) with respect to Additional Lender Replacements, in the event that Lender determines that Additional Lender Replacements are necessary from time to time or pursuant to Section 6.03(c), promptly following Lender’s written notice of such Additional Lender Replacements (subject to Force Majeure, if applicable), commence any such Additional Lender Replacements in accordance with Lender’s timelines, or if no timelines are provided, as soon as practical;

 

 

(4) make, construct, install, diligently perform, and complete all Replacements, Repairs, Restoration and any other work permitted under the Loan Documents:

 

(A) in a good and workmanlike manner as soon as practicable following the commencement thereof, free and clear of any Liens, including mechanics’ or materialmen’s liens and encumbrances (except Permitted Encumbrances and mechanics’ or materialmen’s liens which attach automatically under the laws of any Governmental Authority upon the commencement of any work upon, or delivery of any materials to, the Mortgaged Property and for which Borrower is not delinquent in the payment for any such work or materials);

 

(B) in accordance with all applicable laws, ordinances, rules, and regulations of any Governmental Authority, including applicable building codes, special use permits, and environmental regulations;

 

(C) in accordance with all applicable insurance and bonding requirements; and

 

(D) within all timeframes required by Lender, and Borrower acknowledges that it shall be an Event of Default if Borrower abandons or ceases work on any Repair at any time prior to the completion of the Repairs for a period of longer than twenty (20) days (except when Force Majeure exists and Borrower is diligently pursuing the reinstitution of such work, provided, however, any such abandonment or cessation shall not in any event allow the Repair to be completed after the Completion Period, subject to Force Majeure); and

 

(5) subject to the terms of Section 6.03(a), provide for professional management of the Mortgaged Property by a residential rental property manager satisfactory to Lender under a contract approved by Lender in writing;

 

(6) give written notice to Lender of, and, unless otherwise directed in writing by Lender, appear in and defend any action or proceeding purporting to affect the Mortgaged Property, Lender’s security for the Mortgage Loan, or Lender’s rights under this Loan Agreement; and

 

(7) upon Lender’s written request, submit to Lender any contracts or work orders described in Section 13.02(b).

 

(c) Property Preservation.

 

Borrower shall:

 

(1) not commit waste or abandon or (ordinary wear and tear excepted) permit impairment or deterioration of the Mortgaged Property;

 

(2) not (or otherwise permit any other Person to) demolish, make any change in the unit mix, otherwise alter the Mortgaged Property or any part of the Mortgaged Property, or remove any Personalty or Fixtures from the Mortgaged Property, except for: (A) alterations required in connection with Repairs and Replacements; or (B) the replacement of tangible Personalty or Fixtures, provided (i) such Personalty or Fixtures are replaced with items of equal or better function and quality, and (ii) such replacement does not result in any disruption in occupancy (other than in connection with the routine re-leasing of units);

 

 

(3) not engage in or knowingly permit, and shall take appropriate measures to prevent and abate or cease and desist, any illegal activities at the Mortgaged Property that could endanger tenants or visitors, result in damage to the Mortgaged Property, result in forfeiture of the Land or otherwise materially impair the lien created by the Security Instrument or Lender’s interest in the Mortgaged Property;

 

(4) not permit any condition to exist on the Mortgaged Property that would invalidate any part of any insurance coverage required by this Loan Agreement; or

 

(5) not subject the Mortgaged Property to any voluntary, elective, or non-compulsory tax lien or assessment (or opt in to any voluntary, elective, or non-compulsory special tax district or similar regime).

 

(d) Property Inspections.

 

Borrower shall:

 

(1) permit Lender, its agents, representatives, and designees to enter upon and inspect the Mortgaged Property (including in connection with any Replacement, Repair, or Restoration, or to conduct any Environmental Inspection pursuant to the Environmental Indemnity Agreement), and shall cooperate and provide access to all areas of the Mortgaged Property (subject to the rights of tenants under the Leases):

 

(A) during normal business hours;

 

(B) at such other reasonable time upon reasonable notice of not less than one (1) Business Day;

 

(C) at any time when exigent circumstances exist; or

 

(D) at any time after an Event of Default has occurred and is continuing; and

 

(2) pay for reasonable costs or expenses incurred by Lender or its agents in connection with any such inspections.

 

(e) Compliance with Laws.

 

Borrower shall:

 

(1) comply with all laws, ordinances, statutes, rules, and regulations of any Governmental Authority and all recorded lawful covenants and agreements relating to or affecting the Mortgaged Property, including all laws, ordinances, statutes, rules and regulations, and covenants pertaining to construction of improvements on the Land, fair housing, and requirements for equal opportunity, anti-discrimination, and Leases;

 

(2) procure and maintain all required permits, licenses, charters, registrations, and certificates necessary to comply with all zoning and land use statutes, laws, ordinances, rules and regulations, and all applicable health, fire, safety, and building codes and for the lawful use and operation of the Mortgaged Property, including certificates of occupancy, apartment licenses, or the equivalent;

 

 

(3) comply with all applicable laws that pertain to the maintenance and disposition of tenant security deposits;

 

(4) at all times maintain records sufficient to demonstrate compliance with the provisions of this Section 6.02(e); and

 

(5) promptly after receipt or notification thereof, provide Lender copies of any building code or zoning violation from any Governmental Authority with respect to the Mortgaged Property.

 

Section 6.03 Mortgage Loan Administration Matters Regarding the Property.

 

(a) Property Management.

 

From and after the Effective Date, each property manager and each property management agreement must be approved by Lender. If, in connection with the making of the Mortgage Loan, or at any later date, Lender waives in writing the requirement that Borrower enter into a written contract for management of the Mortgaged Property, and Borrower later elects to enter into a written contract or change the management of the Mortgaged Property, such new property manager or the property management agreement must be approved by Lender. As a condition to any approval by Lender, Lender may require that Borrower and such new property manager enter into a collateral assignment of the property management agreement on a form approved by Lender.

 

(b) Subordination of Fees to Affiliated Property Managers.

 

Any property manager that is a Borrower Affiliate to whom fees are payable for the management of the Mortgaged Property must enter into an assignment of management agreement or other agreement with Lender, in a form approved by Lender, providing for subordination of those fees and such other provisions as Lender may require.

 

(c) Property Condition Assessment.

 

If, in connection with any inspection of the Mortgaged Property, Lender determines that the condition of the Mortgaged Property has deteriorated (ordinary wear and tear excepted) since the Effective Date, Lender may obtain, at Borrower’s expense, a property condition assessment of the Mortgaged Property. Lender’s right to obtain a property condition assessment pursuant to this Section 6.03(c) shall be in addition to any other rights available to Lender under this Loan Agreement in connection with any such deterioration. Any such inspection or property condition assessment may result in Lender requiring Additional Lender Repairs or Additional Lender Replacements as further described in Section 13.02(a)(9)(B).

 

ARTICLE 7 - LEASES AND RENTS

 

Section 7.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 7.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

 

(a) Prior Assignment of Rents.

 

Borrower has not executed any:

 

(1) prior assignment of Rents (other than an assignment of Rents securing prior indebtedness that has been paid off and discharged or will be paid off and discharged with the proceeds of the Mortgage Loan); or

 

(2) instrument which would prevent Lender from exercising its rights under this Loan Agreement or the Security Instrument.

 

(b) Prepaid Rents.

 

Borrower has not accepted, and does not expect to receive prepayment of, any Rents for more than two (2) months prior to the due dates of such Rents.

 

Section 7.02 Covenants.

 

(a) Leases.

 

Borrower shall:

 

(1) comply with and observe Borrower’s obligations under all Leases, including Borrower’s obligations pertaining to the maintenance and disposition of tenant security deposits;

 

(2) surrender possession of the Mortgaged Property, including all Leases and all security deposits and prepaid Rents, immediately upon appointment of a receiver or Lender’s entry upon and taking of possession and control of the Mortgaged Property, as applicable;

 

(3) require that all Residential Leases have initial terms of not less than six (6) months and not more than twenty-four (24) months (however, if customary in the applicable market for properties comparable to the Mortgaged Property, Residential Leases with terms of less than six (6) months (but in no case less than one (1) month) may be permitted with Lender’s prior written consent), provided however, Short-Term Rentals (regardless of the duration of the term) shall not be permitted unless otherwise expressly approved by Lender in writing; and

 

(4) promptly provide Lender a copy of any non-Residential Lease at the time such Lease is executed (subject to Lender’s consent rights for Material Commercial Leases in Section 7.02(b)) and, upon Lender’s written request, promptly provide Lender a copy of any Residential Lease then in effect.

 

(b) Commercial Leases.

 

(1) With respect to Material Commercial Leases, Borrower shall not:

 

(A) enter into any Material Commercial Lease except with the prior written consent of Lender; or

 

 

(B) modify the terms of, extend, or terminate any Material Commercial Lease (including any Material Commercial Lease in existence on the Effective Date) without the prior written consent of Lender.

 

(2) With respect to any non-Material Commercial Lease, Borrower shall not:

 

(A) enter into any non-Material Commercial Lease that materially alters the use and type of operation of the premises subject to the Lease in effect as of the Effective Date or reduces the number or size of residential units at the Mortgaged Property; or

 

(B) modify the terms of any non-Material Commercial Lease (including any non-Material Commercial Lease in existence on the Effective Date) in any way that materially alters the use and type of operation of the premises subject to such non-Material Commercial Lease in effect as of the Effective Date, reduces the number or size of residential units at the Mortgaged Property, or results in such non-Material Commercial Lease being deemed a Material Commercial Lease.

 

(3) With respect to any Material Commercial Lease or non-Material Commercial Lease, Borrower shall cause the applicable tenant to provide within ten (10) days after a request by Borrower, a certificate of estoppel, or if not provided by tenant within such ten (10) day period, Borrower shall provide such certificate of estoppel, certifying:

 

(A) that such Material Commercial Lease or non-Material Commercial Lease is unmodified and in full force and effect (or if there have been modifications, that such Material Commercial Lease or non-Material Commercial Lease is in full force and effect as modified and stating the modifications);

 

(B) the term of the Lease including any extensions thereto;

 

(C) the dates to which the Rent and any other charges hereunder have been paid by tenant;

 

(D) the amount of any security deposit delivered to Borrower as landlord;

 

(E) whether or not Borrower is in default (or whether any event or condition exists which, with the passage of time, would constitute an event of default) under such Lease;

 

(F) the address to which notices to tenant should be sent; and

 

(G) any other information as may be reasonably required by Lender.

 

(c) Payment of Rents.

 

Borrower shall:

 

(1) pay to Lender upon demand all Rents after an Event of Default has occurred and is continuing;

 

 

(2) cooperate with Lender’s efforts in connection with the assignment of Rents set forth in the Security Instrument; and

 

(3) not accept Rent under any Lease (whether a Residential Lease or a non-Residential Lease) for more than two (2) months in advance.

 

(d) Assignment of Rents.

 

Borrower shall not:

 

(1) perform any acts or execute any instrument that would prevent Lender from exercising its rights under the assignment of Rents granted in the Security Instrument or in any other Loan Document; or

 

(2) interfere with Lender’s collection of such Rents.

 

(e) Further Assignments of Leases and Rents.

 

Borrower shall execute and deliver any further assignments of Leases and Rents as Lender may reasonably require.

 

(f) Options to Purchase by Tenants.

 

No Lease (whether a Residential Lease or a non-Residential Lease) shall contain an option to purchase, right of first refusal to purchase or right of first offer to purchase, except as required by applicable law.

 

Section 7.03 Mortgage Loan Administration Regarding Leases and Rents.

 

(a) Material Commercial Lease Requirements.

 

Each Material Commercial Lease, including any renewal or extension of any Material Commercial Lease in existence as of the Effective Date, shall provide, directly or pursuant to a subordination, non-disturbance and attornment agreement approved by Lender, that:

 

(1) the tenant shall, upon written notice from Lender after the occurrence of an Event of Default, pay all Rents payable under such Lease to Lender;

 

(2) such Lease and all rights of the tenant thereunder are expressly subordinate to the lien of the Security Instrument;

 

(3) the tenant shall attorn to Lender and any purchaser at a Foreclosure Event (such attornment to be self-executing and effective upon acquisition of title to the Mortgaged Property by any purchaser at a Foreclosure Event or by Lender in any manner);

 

(4) the tenant agrees to execute such further evidences of attornment as Lender or any purchaser at a Foreclosure Event may from time to time request; and

 

(5) such Lease shall not terminate as a result of a Foreclosure Event unless Lender or any other purchaser at such Foreclosure Event affirmatively elects to terminate such Lease pursuant to the terms of the subordination, non-disturbance and attornment agreement.

 

 

(b) Residential Lease Form.

 

All Residential Leases entered into from and after the Effective Date shall be on forms approved by Lender.

 

ARTICLE 8 - BOOKS AND RECORDS; FINANCIAL REPORTING

 

Section 8.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 8.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) Financial Information.

 

All financial statements and data, including statements of cash flow and income and operating expenses, that have been delivered to Lender in respect of the Mortgaged Property:

 

(1) are true, complete, and correct in all material respects; and

 

(2) accurately represent the financial condition of the Mortgaged Property as of such date.

 

(b) No Change in Facts or Circumstances.

 

All information in the Loan Application and in all financial statements, rent rolls, reports, certificates, and other documents submitted in connection with the Loan Application are complete and accurate in all material respects. There has been no material adverse change in any fact or circumstance that would make any such information incomplete or inaccurate.

 

Section 8.02 Covenants.

 

(a) Obligation to Maintain Accurate Books and Records.

 

Borrower shall keep and maintain at all times at the Mortgaged Property or the property management agent’s offices or Borrower’s General Business Address and, upon Lender’s written request, shall make available at the Land:

 

(1) complete and accurate books of account and records (including copies of supporting bills and invoices) adequate to reflect correctly the operation of the Mortgaged Property; and

 

(2) copies of all written contracts, Leases, and other instruments that affect Borrower or the Mortgaged Property.

 

 

(b) Items to Furnish to Lender.

 

Borrower shall furnish to Lender the following, certified as true, complete, and accurate in all material respects, by an individual having authority to bind Borrower (or Guarantor, as applicable), in such form and with such detail as Lender reasonably requires:

 

(1) within forty-five (45) days after the end of each first, second, and third calendar quarter, a statement of income and expenses for Borrower on a year-to-date basis as of the end of each calendar quarter;

 

(2) within one hundred twenty (120) days after the end of each calendar year:

 

(A) for any Borrower that is an entity, a statement of income and expenses and a statement of cash flows for such calendar year;

 

(B) for any Borrower that is an individual, or a trust established for estate-planning purposes, a personal financial statement for such calendar year;

 

(C) when requested in writing by Lender, balance sheet(s) showing all assets and liabilities of Borrower and a statement of all contingent liabilities as of the end of such calendar year;

 

(D) if an energy consumption metric for the Mortgaged Property is required to be reported to any Governmental Authority, the Fannie Mae Energy Performance Metrics report, as generated by ENERGY STAR^® Portfolio Manager, for the Mortgaged Property for such calendar year, which report must include the ENERGY STAR score, the Source Energy Use Intensity (EUI), the month and year ending period for such ENERGY STAR score and such Source Energy Use Intensity, and the ENERGY STAR Portfolio Manager Property Identification Number; provided that, if the Governmental Authority does not require the use of ENERGY STAR Portfolio Manager for the reporting of the energy consumption metric and Borrower does not use ENERGY STAR Portfolio Manager, then Borrower shall furnish to Lender the Source Energy Use Intensity for the Mortgaged Property for such calendar year;

 

(E) a written certification ratifying and affirming that:

 

(i) Borrower has taken no action in violation of Section 4.02(d) regarding its single asset status;

 

(ii) Borrower has received no notice of any building code violation, or if Borrower has received such notice, evidence of remediation;

 

(iii) Borrower has made no application for rezoning or received any notice that the Mortgaged Property has been or is being rezoned; and

 

(iv) Borrower has taken no action and has no knowledge of any action that would violate the provisions of Section 11.02(b)(1)(F) regarding liens encumbering the Mortgaged Property;

 

 

(F) an accounting of all security deposits held pursuant to all Leases, including the name of the institution (if any) and the names and identification numbers of the accounts (if any) in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Lender to access information regarding such accounts; and

 

(G) written confirmation of:

 

(i) any changes occurring since the Effective Date (or that no such changes have occurred since the Effective Date) in (1) the direct owners of Borrower, (2) the indirect owners (and any non-member managers) of Borrower that Control Borrower (excluding any Publicly-Held Corporations or Publicly-Held Trusts), or (3) the indirect owners of Borrower that hold twenty-five percent (25%) or more of the ownership interests in Borrower (excluding any Publicly-Held Corporations or Publicly-Held Trusts), and their respective interests;

 

(ii) the names of all officers and directors of (1) any Borrower which is a corporation, (2) any corporation which is a general partner of any Borrower which is a partnership, or (3) any corporation which is the managing member or non-member manager of any Borrower which is a limited liability company; and

 

(iii) the names of all managers who are not members of (1) any Borrower which is a limited liability company, (2) any limited liability company which is a general partner of any Borrower which is a partnership, or (3) any limited liability company which is the managing member or non-member manager of any Borrower which is a limited liability company; and

 

(H) if not already provided pursuant to Section 8.02(b)(2)(A) above, a statement of income and expenses for Borrower’s operation of the Mortgaged Property on a year-to-date basis as of the end of each calendar year;

 

(3) within forty-five (45) days after the end of each first, second, and third calendar quarter and within one hundred twenty (120) days after the end of each calendar year, and at any other time upon Lender’s written request, a rent schedule for the Mortgaged Property showing the name of each tenant and for each tenant, the space occupied, the lease expiration date, the rent payable for the current month, the date through which rent has been paid, and any related information requested by Lender; and

 

(4) upon Lender’s written request (but, absent an Event of Default, no more frequently than once in any six (6) month period):

 

(A) any item described in Section 8.02(b)(1) or Section 8.02(b)(2) for Borrower, certified as true, complete, and accurate by an individual having authority to bind Borrower;

 

(B) a property management or leasing report for the Mortgaged Property, showing the number of rental applications received from tenants or prospective tenants and deposits received from tenants or prospective tenants, and any other information requested by Lender;

 

 

(C) a statement of income and expenses for Borrower’s operation of the Mortgaged Property on a year-to-date basis as of the end of each month for such period as requested by Lender, which statement shall be delivered within thirty (30) days after the end of such month requested by Lender;

 

(D) a statement of real estate owned directly or indirectly by Borrower and Guarantor for such period as requested by Lender, which statement(s) shall be delivered within thirty (30) days after the end of such month requested by Lender;

 

(E) for any Guarantor, by the later of thirty (30) days after the date requested by Lender and the date one hundred twenty (120) days after the end of the most recent calendar year:

 

(i) that is an entity, a statement of income and expenses and a statement of cash flows for such calendar year;

 

(ii) that is an individual, or a trust established for estate-planning purposes, a personal financial statement for such calendar year; and

 

(iii) balance sheet(s) showing all assets and liabilities of Guarantor and a statement of all contingent liabilities as of the end of such calendar year; and

 

(F) a statement that identifies:

 

(i) the direct owners of Borrower and their respective interests;

 

(ii) the indirect owners (and any non-member managers) of Borrower that Control Borrower (excluding any Publicly-Held Corporations or Publicly-Held Trusts) and their respective interests; and

 

(iii) the indirect owners of Borrower that hold twenty-five percent (25%) or more of the ownership interests in Borrower (excluding any Publicly-Held Corporations or Publicly-Held Trusts) and their respective interests.

 

(c) Audited Financials.

 

In the event Borrower or Guarantor receives or obtains any audited financial statements and such financial statements are required to be delivered to Lender under Section 8.02(b), Borrower shall deliver or cause to be delivered to Lender the audited versions of such financial statements.

 

(d) Delivery of Books and Records.

 

If an Event of Default has occurred and is continuing, Borrower shall deliver to Lender, upon written demand, all books and records relating to the Mortgaged Property or its operation.

 

 

Section 8.03 Mortgage Loan Administration Matters Regarding Books and Records and Financial Reporting.

 

(a) Lender’s Right to Obtain Audited Books and Records.

 

Lender may require that Borrower’s or Guarantor’s books and records be audited, at Borrower’s expense, by an independent certified public accountant selected by Lender in order to produce or audit any statements, schedules, and reports of Borrower, Guarantor, or the Mortgaged Property required by Section 8.02, if:

 

(1) Borrower or Guarantor fails to provide in a timely manner the statements, schedules, and reports required by Section 8.02 and, thereafter, Borrower or Guarantor fails to provide such statements, schedules, and reports within the cure period provided in Section 14.01(c);

 

(2) the statements, schedules, and reports submitted to Lender pursuant to Section 8.02 are not full, complete, and accurate in all material respects as determined by Lender and, thereafter, Borrower or Guarantor fails to provide such statements, schedules, and reports within the cure period provided in Section 14.01(c); or

 

(3) an Event of Default has occurred and is continuing.

 

Notwithstanding the foregoing, the ability of Lender to require the delivery of audited financial statements shall be limited to not more than once per Borrower’s fiscal year so long as no Event of Default has occurred during such fiscal year (or any event which, with the giving of written notice or the passage of time, or both, would constitute an Event of Default has occurred and is continuing). Borrower shall cooperate with Lender in order to satisfy the provisions of this Section 8.03(a). All related costs and expenses of Lender shall become due and payable by Borrower within ten (10) Business Days after demand therefor.

 

(b) Credit Reports; Credit Score.

 

No more often than once in any twelve (12) month period, Lender is authorized to obtain a credit report (if applicable) on Borrower or Guarantor, the cost of which report shall be paid by Borrower. Lender is authorized to obtain a Credit Score (if applicable) for Borrower or Guarantor at any time at Lender’s expense.

 

ARTICLE 9 - INSURANCE

 

Section 9.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 9.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) Compliance with Insurance Requirements.

 

Borrower is in compliance with Lender’s insurance requirements (or has obtained a written waiver from Lender for any non-compliant coverage) and has timely paid all premiums on all required insurance policies.

 

 

(b) Property Condition.

 

(1) The Mortgaged Property has not been damaged by fire, water, wind, or other cause of loss; or

 

(2) if previously damaged, any previous damage to the Mortgaged Property has been repaired and the Mortgaged Property has been fully restored.

 

Section 9.02 Covenants.

 

(a) Insurance Requirements.

 

(1) As required by Lender and applicable law, and as may be modified from time to time, Borrower shall:

 

(A) keep the Improvements insured at all times against any hazards, which insurance shall include coverage against loss by fire and all other perils insured by the “special causes of loss” coverage form, general boiler and machinery coverage, business income coverage, and flood (if any of the Improvements are located in an area identified by the Federal Emergency Management Agency (or any successor) as an area having special flood hazards and to the extent flood insurance is available in that area), and may include sinkhole insurance, mine subsidence insurance, earthquake insurance, terrorism insurance, windstorm insurance and, if the Mortgaged Property does not conform to applicable building, zoning, or land use laws, ordinance and law coverage;

 

(B) maintain at all times commercial general liability insurance, workmen’s compensation insurance, and such other liability, errors and omissions, and fidelity insurance coverage; and

 

(C) maintain builder’s risk and public liability insurance, and other insurance in connection with completing the Repairs or Replacements, as applicable.

 

(b) Delivery of Policies, Renewals, Notices, and Proceeds.

 

Borrower shall:

 

(1) cause all insurance policies (including any policies not otherwise required by Lender) which can be endorsed with standard non-contributing, non-reporting mortgagee clauses making loss payable to Lender (or Lender’s assigns) to be so endorsed;

 

(2) promptly deliver to Lender a copy of all renewal and other notices received by Borrower with respect to the policies and all receipts for paid premiums;

 

(3) deliver evidence, in form and content acceptable to Lender, that each required insurance policy under this Article 9 has been renewed not less than fifteen (15) days prior to the applicable expiration date, and (if such evidence is other than an original or duplicate original of a renewal policy) deliver the original or duplicate original of each renewal policy (or such other evidence of insurance as may be required by or acceptable to Lender) in form and content acceptable to Lender within ninety (90) days after the applicable expiration date of the original insurance policy;

 

 

(4) provide immediate written notice to the insurance company and to Lender of any event of loss;

 

(5) execute such further evidence of assignment of any insurance proceeds as Lender may require; and

 

(6) provide immediate written notice to Lender of Borrower’s receipt of any insurance proceeds under any insurance policy required by Section 9.02(a)(1) above and, if requested by Lender, deliver to Lender all of such proceeds received by Borrower to be applied by Lender in accordance with this Article 9.

 

Section 9.03 Mortgage Loan Administration Matters Regarding Insurance

 

(a) Lender’s Ongoing Insurance Requirements.

 

Borrower acknowledges that Lender’s insurance requirements may change from time to time. All insurance policies and renewals of insurance policies required by this Loan Agreement shall be:

 

(1) in the form and with the terms required by Lender;

 

(2) in such amounts, with such maximum deductibles and for such periods required by Lender; and

 

(3) issued by insurance companies satisfactory to Lender.

 

BORROWER ACKNOWLEDGES THAT ANY FAILURE OF BORROWER TO COMPLY WITH THE REQUIREMENTS SET FORTH IN SECTION 9.02(a) OR SECTION 9.02(b)(3) ABOVE SHALL PERMIT LENDER TO PURCHASE THE APPLICABLE INSURANCE AT BORROWER’S COST. SUCH INSURANCE MAY, BUT NEED NOT, PROTECT BORROWER’S INTERESTS. THE COVERAGE THAT LENDER PURCHASES MAY NOT PAY ANY CLAIM THAT BORROWER MAKES OR ANY CLAIM THAT IS MADE AGAINST BORROWER IN CONNECTION WITH THE MORTGAGED PROPERTY. IF LENDER PURCHASES INSURANCE FOR THE MORTGAGED PROPERTY AS PERMITTED HEREUNDER, BORROWER WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING INTEREST AT THE DEFAULT RATE AND ANY OTHER CHARGES LENDER MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR THE EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE SHALL BE ADDED TO BORROWER’S TOTAL OUTSTANDING BALANCE OR OBLIGATION AND SHALL CONSTITUTE ADDITIONAL INDEBTEDNESS. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE BORROWER MAY BE ABLE TO OBTAIN ON ITS OWN. BORROWER MAY LATER CANCEL ANY INSURANCE PURCHASED BY LENDER, BUT ONLY AFTER PROVIDING EVIDENCE THAT BORROWER HAS OBTAINED INSURANCE AS REQUIRED BY THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

 

(b) Application of Proceeds on Event of Loss.

 

(1) Upon an event of loss, Lender may, at Lender’s option:

 

(A) hold such proceeds in the Restoration Reserve Account to be applied to reimburse Borrower for the cost of Restoration (in accordance with Article 13 and Lender’s then-current policies relating to the Restoration of similar multifamily residential properties); or

 

(B) apply such proceeds to the payment of the Indebtedness, whether or not then due; provided, however, Lender shall not apply insurance proceeds to the payment of the Indebtedness and shall permit Restoration pursuant to Section 9.03(b)(1)(A) if all of the following conditions are met:

 

(i) no Event of Default has occurred and is continuing (or any event which, with the giving of written notice or the passage of time, or both, would constitute an Event of Default has occurred and is continuing);

 

(ii) Lender determines that the combination of insurance proceeds and amounts provided by Borrower will be sufficient funds to complete the Restoration;

 

(iii) Lender determines that the Net Cash Flow generated by the Mortgaged Property after completion of the Restoration will be sufficient to support a debt service coverage ratio not less than the debt service coverage ratio immediately prior to the event of loss, but in no event less than 1.0x (the debt service coverage ratio shall be calculated on a thirty (30) year amortizing basis (if applicable, on a proforma basis approved by Lender) in all events and shall include all operating costs and other expenses, Imposition Deposits, deposits to Collateral Accounts, and Mortgage Loan repayment obligations);

 

(iv) Lender determines that the Restoration will be completed before the earlier of (1) one year before the stated Maturity Date, or (2) one year after the date of the loss or casualty; and

 

(v) Borrower provides Lender, upon written request, evidence of the availability during and after the Restoration of the insurance required to be maintained by Borrower pursuant to this Loan Agreement.

 

(2) Notwithstanding the foregoing, if any loss is estimated to be in an amount equal to or less than $75,000, Lender shall not exercise its rights and remedies as power-of-attorney herein and shall allow Borrower to make proof of loss, to adjust and compromise any claims under policies of property damage insurance, to appear in and prosecute any action arising from such policies of property damage insurance, and to collect and receive the proceeds of property damage insurance; provided that each of the following conditions shall be satisfied:

 

(A) Borrower shall immediately notify Lender of the casualty giving rise to the claim;

 

 

(B) no Event of Default has occurred and is continuing (or any event which, with the giving of written notice or the passage of time, or both, would constitute an Event of Default has occurred and is continuing);

 

(C) the Restoration will be completed before the earlier of (i) one year before the stated Maturity Date, or (ii) one year after the date of the loss or casualty;

 

(D) Lender determines that the combination of insurance proceeds and amounts provided by Borrower will be sufficient funds to complete the Restoration;

 

(E) all proceeds of property damage insurance shall be issued in the form of joint checks to Borrower and Lender;

 

(F) all proceeds of property damage insurance shall be applied to the Restoration;

 

(G) Borrower shall deliver to Lender evidence satisfactory to Lender of completion of the Restoration and obtainment of all lien releases;

 

(H) Borrower shall have complied to Lender’s satisfaction with the foregoing requirements on any prior claims subject to this provision, if any; and

 

(I) Lender shall have the right to inspect the Mortgaged Property (subject to the rights of tenants under the Leases).

 

(3) If Lender elects to apply insurance proceeds to the Indebtedness in accordance with the terms of this Loan Agreement, Borrower shall not be obligated to restore or repair the Mortgaged Property. Rather, Borrower shall restrict access to the damaged portion of the Mortgaged Property and, at its expense and regardless of whether such costs are covered by insurance, clean up any debris resulting from the casualty event, and, if required or otherwise permitted by Lender, demolish or raze any remaining part of the damaged Mortgaged Property to the extent necessary to keep and maintain the Mortgaged Property in a safe, habitable, and marketable condition. Nothing in this Section 9.03(b) shall affect any of Lender’s remedial rights against Borrower in connection with a breach by Borrower of any of its obligations under this Loan Agreement or under any Loan Document, including any failure to timely pay Monthly Debt Service Payments or maintain the insurance coverage(s) required by this Loan Agreement.

 

(c) Payment Obligations Unaffected.

 

The application of any insurance proceeds to the Indebtedness shall not extend or postpone the Maturity Date, or the due date or the full payment of any Monthly Debt Service Payment, Monthly Replacement Reserve Deposit, or any other installments referred to in this Loan Agreement or in any other Loan Document. Notwithstanding the foregoing, if Lender applies insurance proceeds to the Indebtedness in connection with a casualty of less than the entire Mortgaged Property, and after such application of proceeds the debt service coverage ratio (as determined by Lender) is less than 1.25x based on the then-applicable Monthly Debt Service Payment and the anticipated ongoing Net Cash Flow of the Mortgaged Property after such casualty event, then Lender may, at its discretion, permit an adjustment to the Monthly Debt Service Payments that become due and owing thereafter, based on Lender’s then-current underwriting requirements. In no event shall the preceding sentence obligate Lender to make any adjustment to the Monthly Debt Service Payments.

 

 

(d) Foreclosure Sale.

 

If the Mortgaged Property is transferred pursuant to a Foreclosure Event or Lender otherwise acquires title to the Mortgaged Property, Borrower acknowledges that Lender shall automatically succeed to all rights of Borrower in and to any insurance policies and unearned insurance premiums applicable to the Mortgaged Property and in and to the proceeds resulting from any damage to the Mortgaged Property prior to such Foreclosure Event or such acquisition.

 

(e) Appointment of Lender as Attorney-In-Fact.

 

Borrower hereby authorizes and appoints Lender as attorney-in-fact pursuant to Section 14.03(c).

 

ARTICLE 10 - CONDEMNATION

 

Section 10.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 10.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) Prior Condemnation Action.

 

No part of the Mortgaged Property has been taken in connection with a Condemnation Action.

 

(b) Pending Condemnation Actions.

 

No Condemnation Action is pending or, to Borrower’s knowledge, is threatened for the partial or total condemnation or taking of the Mortgaged Property.

 

Section 10.02 Covenants.

 

(a) Notice of Condemnation.

 

Borrower shall:

 

(1) promptly notify Lender of any Condemnation Action of which Borrower has knowledge;

 

(2) appear in and prosecute or defend, at its own cost and expense, any action or proceeding relating to any Condemnation Action, including any defense of Lender’s interest in the Mortgaged Property tendered to Borrower by Lender, unless otherwise directed by Lender in writing; and

 

(3) execute such further evidence of assignment of any condemnation award in connection with a Condemnation Action as Lender may require.

 

 

(b) Condemnation Proceeds.

 

Borrower shall pay to Lender all awards or proceeds of a Condemnation Action promptly upon receipt.

 

Section 10.03 Mortgage Loan Administration Matters Regarding Condemnation.

 

(a) Application of Condemnation Awards.

 

Lender may apply any awards or proceeds of a Condemnation Action, after the deduction of Lender’s expenses incurred in the collection of such amounts, to:

 

(1) the restoration or repair of the Mortgaged Property, if applicable;

 

(2) the payment of the Indebtedness, with the balance, if any, paid to Borrower; or

 

(3) Borrower.

 

(b) Payment Obligations Unaffected.

 

The application of any awards or proceeds of a Condemnation Action to the Indebtedness shall not extend or postpone the Maturity Date, or the due date or the full payment of any Monthly Debt Service Payment, Monthly Replacement Reserve Deposit, or any other installments referred to in this Loan Agreement or in any other Loan Document.

 

(c) Appointment of Lender as Attorney-In-Fact.

 

Borrower hereby authorizes and appoints Lender as attorney-in-fact pursuant to Section 14.03(c).

 

(d) Preservation of Mortgaged Property.

 

If a Condemnation Action results in or from damage to the Mortgaged Property and Lender elects to apply the proceeds or awards from such Condemnation Action to the Indebtedness in accordance with the terms of this Loan Agreement, Borrower shall not be obligated to restore or repair the Mortgaged Property. Rather, Borrower shall restrict access to any portion of the Mortgaged Property which has been damaged or destroyed in connection with such Condemnation Action and, at Borrower’s expense and regardless of whether such costs are covered by insurance, clean up any debris resulting in or from the Condemnation Action, and, if required by any Governmental Authority or otherwise permitted by Lender, demolish or raze any remaining part of the damaged Mortgaged Property to the extent necessary to keep and maintain the Mortgaged Property in a safe, habitable, and marketable condition. Nothing in this Section 10.03(d) shall affect any of Lender’s remedial rights against Borrower in connection with a breach by Borrower of any of its obligations under this Loan Agreement or under any Loan Document, including any failure to timely pay Monthly Debt Service Payments or maintain the insurance coverage(s) required by this Loan Agreement.

 

 

  

ARTICLE 11 - LIENS, TRANSFERS, AND ASSUMPTIONS

 

Section 11.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 11.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) No Labor or Materialmen’s Claims.

 

All parties furnishing labor and materials on behalf of Borrower have been paid in full. There are no mechanics’ or materialmen’s liens (whether filed or unfiled) outstanding for work, labor, or materials (and no claims or work outstanding that under applicable law could give rise to any such mechanics’ or materialmen’s liens) affecting the Mortgaged Property, whether prior to, equal with, or subordinate to the lien of the Security Instrument.

 

(b) No Other Interests.

 

No Person:

 

(1) other than Borrower has any possessory ownership or interest in the Mortgaged Property or right to occupy the same except under and pursuant to the provisions of existing Leases, the material terms of all such Leases having been previously disclosed in writing to Lender; or

 

(2) has an option, right of first refusal, or right of first offer (except as required by applicable law) to purchase the Mortgaged Property, or any interest in the Mortgaged Property.

 

Section 11.02 Covenants.

 

(a) Liens; Encumbrances.

 

Borrower shall not permit the grant, creation, or existence of any Lien, whether voluntary, involuntary, or by operation of law, on all or any portion of the Mortgaged Property (including any voluntary, elective, or non-compulsory tax lien or assessment pursuant to a voluntary, elective, or non-compulsory special tax district or similar regime) other than:

 

(1) Permitted Encumbrances;

 

(2) the creation of:

 

(A) any tax lien, municipal lien, utility lien, mechanics’ lien, materialmen’s lien, or judgment lien against the Mortgaged Property if bonded off, released of record, or otherwise remedied to Lender’s satisfaction within sixty (60) days after the earlier of the date Borrower has actual notice or constructive notice of the existence of such lien; or

 

(B) any mechanics’ or materialmen’s liens which attach automatically under the laws of any Governmental Authority upon the commencement of any work upon, or delivery of any materials to, the Mortgaged Property and for which Borrower is not delinquent in the payment for any such work or materials; and

 

 

(3) the lien created by the Loan Documents.

 

(b) Transfers.

 

(1) Mortgaged Property.

 

Borrower shall not Transfer, or cause or permit a Transfer of, all or any part of the Mortgaged Property (including any interest in the Mortgaged Property) other than:

 

(A) a Transfer to which Lender has consented in writing;

 

(B) Leases permitted pursuant to the Loan Documents;

 

(C) [reserved];

 

(D) a Transfer of obsolete or worn out Personalty or Fixtures that are contemporaneously replaced by items of equal or better function and quality which are free of Liens (other than those created by the Loan Documents);

 

(E) the grant of an easement, servitude, or restrictive covenant to which Lender has consented, and Borrower has paid to Lender, upon demand, all costs and expenses incurred by Lender in connection with reviewing Borrower’s request (including reasonable attorneys’ fees and a $5,000 review fee, which shall be in lieu of any other Review Fee or Transfer Fee);

 

(F) a lien permitted pursuant to Section 11.02(a) of this Loan Agreement; or

 

(G) the conveyance of the Mortgaged Property following a Foreclosure Event.

 

(2) Interests in Borrower, Key Principal, or Guarantor.

 

Other than a Transfer to which Lender has consented in writing, Borrower shall not Transfer, or cause or permit to be Transferred:

 

(A) any direct or indirect ownership interest in Borrower, Key Principal, or Guarantor (if applicable) if such Transfer would cause a change in Control;

 

(B) a direct or indirect Restricted Ownership Interest in Borrower, Key Principal, or Guarantor (if applicable);

 

(C) fifty percent (50%) or more of Key Principal’s or Guarantor’s direct or indirect ownership interests in Borrower that existed on the Effective Date (individually or on an aggregate basis);

 

(D) the economic benefits or rights to cash flows attributable to any ownership interests in Borrower, Key Principal, or Guarantor (if applicable) separate from the Transfer of the underlying ownership interests if the Transfer of the underlying ownership interest is prohibited by this Loan Agreement; or

 

 

(E) a Transfer to a new key principal or new guarantor (if such new key principal or guarantor is an entity), which entity has an organizational existence termination date that ends before the Maturity Date.

 

Notwithstanding the foregoing, if a Publicly-Held Corporation or a Publicly-Held Trust Controls Borrower, Key Principal, or Guarantor, or owns a direct or indirect Restricted Ownership Interest in Borrower, Key Principal, or Guarantor, a Transfer of any ownership interests in such Publicly-Held Corporation or Publicly-Held Trust shall not be prohibited under this Loan Agreement as long as (i) such Transfer does not result in a conversion of such Publicly-Held Corporation or Publicly-Held Trust to a privately held entity, and (ii) Borrower provides written notice to Lender not later than thirty (30) days thereafter of any such Transfer that results in any Person owning ten percent (10%) or more of the ownership interests in such Publicly-Held Corporation or Publicly-Held Trust.

 

(3) Transfers of Non-Controlling Interests.

 

Transfers of direct or indirect limited partnership or non-managing member interests in Borrower that result in a Transfer of fifty percent (50%) or more of the limited partnership or non-managing membership interests shall be consented to by Lender if such Transfer satisfies the following conditions:

 

(A) Key Principal or Guarantor (as applicable) Controls Borrower with the same rights and abilities as Key Principal or Guarantor (as applicable) Controls Borrower immediately prior to the date of such Transfer;

 

(B) such Transfer satisfies the requirements of Section 11.02(b)(2)(C);

 

(C) Borrower shall provide Lender not less than thirty (30) days prior written notice of the proposed Transfer and obtain Lender’s approval;

 

(D) Borrower shall provide with its notice to Lender an organizational chart reflecting, and all organizational documents relevant to, the proposed Transfer;

 

(E) Borrower shall provide with its notice to Lender a certification that no change of Control of Borrower or Key Principal shall occur as a result of such Transfer;

 

(F) the transferee shall not be, as of the date of the Transfer, a Prohibited Person if, as a result of the Transfer, the transferee will own twenty-five percent (25%) or more of the direct or indirect ownership interests in Borrower (or, if any other investor will own twenty-five percent (25%) or more of the direct or indirect ownership interests in Borrower that did not own twenty-five percent (25%) or more before the Transfer, such investor shall not, as of the date of the Transfer, be a Prohibited Person);

 

(G) Borrower shall pay to Lender:

 

(i) concurrently with its notice to Lender, the Review Fee plus a Transfer Fee of $25,000; and

 

 

(ii) upon demand, any out-of-pocket costs and expenses, including reasonable attorneys’ fees and expenses, incurred by Lender in connection with its review of the Transfer request; and

 

(H) Borrower shall execute upon demand such documents or certifications as Lender reasonably requires in order to confirm the post-transfer ownership structure, compliance with the stated conditions, and any other relevant factual matter.

 

(4) Name Change or Entity Conversion.

 

Lender shall consent to Borrower changing its name, changing its jurisdiction of organization, or converting from one type of legal entity into another type of legal entity for any lawful purpose, provided that:

 

(A) Lender receives written notice at least thirty (30) days prior to such change or conversion, which notice shall include organizational charts that reflect the structure of Borrower both prior to and subsequent to such name change or entity conversion;

 

(B) such Transfer is not otherwise prohibited under the provisions of Section 11.02(b)(2);

 

(C) Borrower executes an amendment to this Loan Agreement and any other Loan Documents required by Lender documenting the name change or entity conversion;

 

(D) Borrower agrees and acknowledges, at Borrower’s expense, that (i) Borrower will execute and record in the land records any instrument required by the Property Jurisdiction to be recorded to evidence such name change or entity conversion (or provide Lender with written confirmation from the title company (via electronic mail or letter) that no such instrument is required), (ii) Borrower will execute any additional documents required by Lender, including the amendment to this Loan Agreement, and allow such documents to be recorded or filed in the land records of the Property Jurisdiction, (iii) Lender will obtain a “date down” endorsement to the Lender’s Title Policy (or obtain a new Title Policy if a “date down” endorsement is not available in the Property Jurisdiction), evidencing title to the Mortgaged Property being in the name of the successor entity and the Lien of the Security Instrument against the Mortgaged Property, and (iv) Lender will file any required UCC-3 financing statement and make any other filing deemed necessary to maintain the priority of its Liens on the Mortgaged Property; and

 

(E) no later than ten (10) days subsequent to such name change or entity conversion, Borrower shall provide Lender (i) the documentation filed with the appropriate office in Borrower’s state of formation evidencing such name change or entity conversion, (ii) copies of the organizational documents of Borrower, including any amendments, filed with the appropriate office in Borrower’s state of formation reflecting the post-conversion Borrower name, form of organization, and structure, and (iii) if available, new certificates of good standing or valid formation for Borrower.

 

 

(5) No Delaware Statutory Trust or Series LLC Conversion.

 

Notwithstanding any provisions herein to the contrary, no Borrower, Guarantor, or Key Principal shall convert to a Delaware Statutory Trust or a series limited liability company.

 

(6) Plans of Division.

 

Borrower shall not Divide. Lender shall consent to a Division by Guarantor or Key Principal provided that:

 

(A) Lender receives written notice at least thirty (30) days prior to the effective date of such Division, which notice shall include (i) a certification acceptable to Lender that such Division is not otherwise prohibited under the provisions of Article 11, (ii) a copy of the plan of division, and (iii) organizational charts that reflect the organizational structure of Borrower, Guarantor, and Key Principal both prior to and subsequent to such Division;

 

(B) no later than ten (10) days subsequent to such Division, Borrower shall provide Lender (i) the certificate of division or such other documentation filed with the appropriate office evidencing such Division, (ii) copies of the organizational documents of Borrower (if amended), Guarantor, and Key Principal, including any amendments thereto, that reflect the post-Division organizational structure, and (iii) new certificates of good standing or valid formation for Borrower (if amended), Guarantor, and Key Principal; and

 

(C) Borrower has paid to Lender, upon demand, all costs and expenses incurred by Lender in connection with reviewing Borrower’s request (including reasonable attorneys’ fees and a $25,000 review fee, which shall be in lieu of any other Review Fee or Transfer Fee).

 

(c) No Other Indebtedness.

 

Other than the Mortgage Loan, Borrower shall not incur or be obligated at any time with respect to any loan or other indebtedness (except trade payables as otherwise permitted in this Loan Agreement), including any indebtedness secured by a Lien on, or the cash flows from, the Mortgaged Property.

 

(d) No Mezzanine Financing or Preferred Equity.

 

Neither Borrower nor any direct or indirect owner of Borrower shall: (1) incur any Mezzanine Debt other than Permitted Mezzanine Debt; (2) issue any Preferred Equity other than Permitted Preferred Equity; or (3) incur any similar indebtedness or issue any similar equity.

 

Section 11.03 Mortgage Loan Administration Matters Regarding Liens, Transfers, and Assumptions.

 

(a) Assumption of Mortgage Loan.

 

Lender shall consent to a Transfer of the Mortgaged Property to and an assumption of the Mortgage Loan by a new borrower if each of the following conditions is satisfied prior to the Transfer:

 

(1) Borrower has submitted to Lender all information required by Lender to make the determination required by this Section 11.03(a);

 

 

(2) no Event of Default has occurred and is continuing, and no event which, with the giving of written notice or the passage of time, or both, would constitute an Event of Default has occurred and is continuing;

 

(3) Lender determines that:

 

(A) the proposed new borrower, new key principal, and any other new guarantor fully satisfy all of Lender’s then-applicable borrower, key principal, or guarantor eligibility, credit, management, and other loan underwriting standards, which shall include an analysis of (i) the previous relationships between Lender and the proposed new borrower, new key principal, new guarantor, and any Person in Control of them, and the organization of the new borrower, new key principal, and new guarantor (if applicable), and (ii) the operating and financial performance of the Mortgaged Property, including physical condition and occupancy;

 

(B) none of the proposed new borrower, new key principal, and any new guarantor, or any owners of the proposed new borrower, new key principal, and any new guarantor, are a Prohibited Person; and

 

(C) none of the proposed new borrower, new key principal, and any new guarantor (if any of such are entities) shall have an organizational existence termination date that ends before the Maturity Date;

 

(4) [reserved];

 

(5) the proposed new borrower has:

 

(A) executed an assumption agreement acceptable to Lender that, among other things, requires the proposed new borrower to assume and perform all obligations of Borrower (or any other transferor), and that may require that the new borrower comply with any provisions of any Loan Document that previously may have been waived by Lender for Borrower, subject to the terms of Section 11.03(g);

 

(B) if required by Lender, delivered to the title company for filing and/or recording in all applicable jurisdictions, all applicable Loan Documents including the assumption agreement to correctly evidence the assumption and the confirmation, continuation, perfection, and priority of the Liens created hereunder and under the other Loan Documents; and

 

(C) delivered to Lender a “date-down” endorsement to the Title Policy acceptable to Lender (or a new title insurance policy if a “date-down” endorsement is not available);

 

(6) one or more individuals or entities acceptable to Lender as new guarantors have executed and delivered to Lender:

 

(A) an assumption agreement acceptable to Lender that requires the new guarantor to assume and perform all obligations of Guarantor under any Guaranty given in connection with the Mortgage Loan; or

 

(B) a substitute Non-Recourse Guaranty and other substitute guaranty in a form acceptable to Lender;

 

 

(7) Lender has reviewed and approved the Transfer documents; and

 

(8) Lender has received the fees described in Section 11.03(g).

 

(b) Transfers to Key Principal-Owned Affiliates or Guarantor-Owned Affiliates.

 

(1) Except as otherwise covered in Section 11.03(b)(2) below, Transfers of direct or indirect ownership interests in Borrower to Key Principal or Guarantor, or to a transferee through which Key Principal or Guarantor (as applicable) Controls Borrower with the same rights and abilities as Key Principal or Guarantor (as applicable) Controls Borrower immediately prior to the date of such Transfer, shall be consented to by Lender if such Transfer satisfies the applicable requirements of Section 11.03(a) as they would relate to such transferee, other than Section 11.03(a)(5).

 

(2) Transfers of direct or indirect interests in Borrower held by a Key Principal or Guarantor to other Key Principals or Guarantors, as applicable, shall be consented to by Lender if such Transfer satisfies the following conditions:

 

(A) the Transfer does not cause a change in the Control of Borrower; and

 

(B) the transferor Key Principal or Guarantor maintains the same right and ability to Control Borrower as existed prior to the Transfer.

 

If the conditions set forth in this Section 11.03(b) are satisfied, the Transfer Fee shall be waived provided Borrower shall pay the Review Fee and out-of-pocket costs set forth in Section 11.03(g).

 

(c) Estate Planning.

 

Notwithstanding the provisions of Section 11.02(b)(2), so long as (1) the Transfer does not cause a change in the Control of Borrower, and (2) Key Principal and Guarantor, as applicable, maintain the same right and ability to Control Borrower as existed prior to the Transfer, Lender shall consent to Transfers of direct or indirect ownership interests in Borrower and Transfers of direct or indirect ownership interests in an entity Key Principal or entity Guarantor to:

 

(A) Immediate Family Members of such transferor, each of whom must have obtained the legal age of majority;

 

(B) United States domiciled trusts established for the benefit of the transferor or Immediate Family Members of the transferor; or

 

 

(C) partnerships or limited liability companies of which the partners or members, respectively, are comprised entirely of (i) such transferor and Immediate Family Members (each of whom must have obtained the legal age of majority) of such transferor, (ii) Immediate Family Members (each of whom must have obtained the legal age of majority) of such transferor, or (iii) United States domiciled trusts established for the benefit of the transferor or Immediate Family Members of the transferor.

 

If the conditions set forth in this Section 11.03(c) are satisfied, the Transfer Fee shall be waived provided Borrower shall pay the Review Fee and out-of-pocket costs set forth in Section 11.03(g).

 

(d) Termination or Revocation of Trust.

 

If any of Borrower, Guarantor, or Key Principal is a trust, or if Control of Borrower, Guarantor, or Key Principal is Transferred or if a Restricted Ownership Interest in Borrower, Guarantor, or Key Principal would be Transferred due to the termination or revocation of a trust, the termination or revocation of such trust is an unpermitted Transfer; provided that the termination or revocation of the trust due to the death of an individual trustor shall not be considered an unpermitted Transfer so long as:

 

(1) Lender is notified within thirty (30) days of the death; and

 

(2) such Borrower, Guarantor, Key Principal, or other Person, as applicable, is replaced with an individual or entity acceptable to Lender, in accordance with the provisions of Section 11.03(a) within ninety (90) days of the date of the death causing the termination or revocation.

 

If the conditions set forth in this Section 11.03(d) are satisfied, the Transfer Fee shall be waived; provided Borrower shall pay the Review Fee and out-of-pocket costs set forth in Section 11.03(g).

 

(e) Death of Key Principal or Guarantor; Transfer Due to Death.

 

(1) If a Key Principal or Guarantor that is a natural person dies, or if Control of Borrower, Guarantor, or Key Principal is Transferred, or if a Restricted Ownership Interest in Borrower, Guarantor, or Key Principal would be Transferred as a result of the death of a Person (except in the case of trusts which is addressed in Section 11.03(d)), Borrower must notify Lender in writing within ninety (90) days in the event of such death. Unless waived in writing by Lender, the deceased shall be replaced by an individual or entity within one hundred eighty (180) days, subject to Borrower’s satisfaction of the following conditions:

 

(A) Borrower has submitted to Lender all information required by Lender to make the determination required by this Section 11.03(e);

 

(B) Lender determines that, if applicable:

 

(i) any proposed new key principal and any other new guarantor (or Person Controlling such new key principal or new guarantor) fully satisfies all of Lender’s then-applicable key principal or guarantor eligibility, credit, management, and other loan underwriting standards (including any standards with respect to previous relationships between Lender and the proposed new key principal and new guarantor (or Person Controlling such new key principal or new guarantor) and the organization of the new key principal and new guarantor);

 

 

(ii) none of any proposed new key principal or any new guarantor, or any owners of the proposed new key principal or any new guarantor, is a Prohibited Person; and

 

(iii) none of any proposed new key principal or any new guarantor (if any of such are entities) shall have an organizational existence termination date that ends before the Maturity Date; and

 

(C) if applicable, one or more individuals or entities acceptable to Lender as new guarantors have executed and delivered to Lender:

 

(i) an assumption agreement acceptable to Lender that requires the new guarantor to assume and perform all obligations of Guarantor under any Guaranty given in connection with the Mortgage Loan; or

 

(ii) a substitute Non-Recourse Guaranty and other substitute guaranty in a form acceptable to Lender.

 

(2) In the event a replacement Key Principal, Guarantor, or other Person is required by Lender due to the death described in this Section 11.03(e), and such replacement has not occurred within such period, the period for replacement may be extended by Lender to a date not more than one year from the date of such death; however, Lender may require as a condition to any such extension that:

 

(A) the then-current property manager be replaced with a property manager reasonably acceptable to Lender (or if a property manager has not been previously engaged, a property manager reasonably acceptable to Lender be engaged); or

 

(B) a lockbox agreement or similar cash management arrangement (with the property manager) reasonably acceptable to Lender during such extended replacement period be instituted.

 

If the conditions set forth in this Section 11.03(e) are satisfied, the Transfer Fee shall be waived, provided Borrower shall pay the Review Fee and out-of-pocket costs set forth in Section 11.03(g).

 

(f) Bankruptcy of Guarantor.

 

(1) Upon the occurrence of any Guarantor Bankruptcy Event, unless waived in writing by Lender, the applicable Guarantor shall be replaced by an individual or entity within ninety (90) days of such Guarantor Bankruptcy Event, subject to Borrower’s satisfaction of the following conditions:

 

(A) Borrower has submitted to Lender all information required by Lender to make the determination required by this Section 11.03(f);

 

 

(B) Lender determines that:

 

(i) the proposed new guarantor fully satisfies all of Lender’s then-applicable guarantor eligibility, credit, management, and other loan underwriting standards (including any standards with respect to previous relationships between Lender and the proposed new guarantor and the organization of the new guarantor (if applicable));

 

(ii) no new guarantor is a Prohibited Person; and

 

(iii) no new guarantor (if any of such are entities) shall have an organizational existence termination date that ends before the Maturity Date; and

 

(C) one or more individuals or entities acceptable to Lender as new guarantors have executed and delivered to Lender:

 

(i) an assumption agreement acceptable to Lender that requires the new guarantor to assume and perform all obligations of Guarantor under any Guaranty given in connection with the Mortgage Loan; or

 

(ii) a substitute Non-Recourse Guaranty and other substitute guaranty in a form acceptable to Lender.

 

(2) In the event a replacement Guarantor is required by Lender due to the Guarantor Bankruptcy Event described in this Section 11.03(f), and such replacement has not occurred within such period, the period for replacement may be extended by Lender in its discretion; however, Lender may require as a condition to any such extension that:

 

(A) the then-current property manager be replaced with a property manager reasonably acceptable to Lender (or if a property manager has not been previously engaged, a property manager reasonably acceptable to Lender be engaged); or

 

(B) a lockbox agreement or similar cash management arrangement (with the property manager) reasonably acceptable to Lender during such extended replacement period be instituted.

 

If the conditions set forth in this Section 11.03(f) are satisfied, the Transfer Fee shall be waived, provided Borrower shall pay the Review Fee and out-of-pocket costs set forth in Section 11.03(g).

 

(g) Further Conditions to Transfers and Assumption.

 

(1) In connection with any Transfer of the Mortgaged Property, or an ownership interest in Borrower, Key Principal, or Guarantor for which Lender’s approval is required under this Loan Agreement (including Section 11.03(a)), Lender may, as a condition to any such approval, require:

 

(A) additional collateral, guaranties, or other credit support to mitigate any risks concerning the proposed transferee or the performance or condition of the Mortgaged Property;

 

 

(B) amendment of the Loan Documents to delete or modify any specially negotiated terms or provisions previously granted for the exclusive benefit of original Borrower, Key Principal, or Guarantor and to restore the original provisions of the standard Fannie Mae form multifamily loan documents, to the extent such provisions were previously modified; or

 

(C) a modification to the amounts required to be deposited into the Reserve/Escrow Account pursuant to the terms of Section 13.02(a)(3)(B).

 

(2) In connection with any request by Borrower for consent to a Transfer, Borrower shall pay to Lender upon demand:

 

(A) the Transfer Fee (to the extent charged by Lender);

 

(B) the Review Fee (regardless of whether Lender approves or denies such request); and

 

(C) all of Lender’s out-of-pocket costs (including reasonable attorneys’ fees) incurred in reviewing the Transfer request, regardless of whether Lender approves or denies such request.

 

ARTICLE 12 - IMPOSITIONS

 

Section 12.01 Representations and Warranties.

 

The representations and warranties made by Borrower to Lender in this Section 12.01 are made as of the Effective Date and are true and correct except as disclosed on the Exceptions to Representations and Warranties Schedule.

 

(a) Payment of Taxes, Assessments, and Other Charges.

 

Borrower has:

 

(1) paid (or with the approval of Lender, established an escrow fund sufficient to pay when due and payable) all amounts and charges relating to the Mortgaged Property that have become due and payable before any fine, penalty interest, lien, or costs may be added thereto, including Impositions, leasehold payments, and ground rents;

 

(2) paid all Taxes for the Mortgaged Property that have become due before any fine, penalty interest, lien, or costs may be added thereto pursuant to any notice of assessment received by Borrower and any and all taxes that have become due against Borrower before any fine, penalty interest, lien, or costs may be added thereto;

 

(3) no knowledge of any basis for any additional assessments;

 

(4) no knowledge of any presently pending special assessments against all or any part of the Mortgaged Property, or any presently pending special assessments against Borrower; and

 

(5) not received any written notice of any contemplated special assessment against the Mortgaged Property, or any contemplated special assessment against Borrower.

 

 

Section 12.02 Covenants.

 

(a) Imposition Deposits, Taxes, and Other Charges.

 

Borrower shall:

 

(1) deposit the Imposition Deposits with Lender on each Payment Date (or on another day designated in writing by Lender) in amount sufficient, in Lender’s discretion, to enable Lender to pay each Imposition before the last date upon which such payment may be made without any penalty or interest charge being added, plus an amount equal to no more than one-sixth (1/6) (or the amount permitted by applicable law) of the Impositions for the trailing twelve (12) months (calculated based on the aggregate annual Imposition costs divided by twelve (12) and multiplied by two (2));

 

(2) deposit with Lender, within ten (10) days after written notice from Lender (subject to applicable law), such additional amounts estimated by Lender to be reasonably necessary to cure any deficiency in the amount of the Imposition Deposits held for payment of a specific Imposition;

 

(3) except as set forth in Section 12.03(c) below, pay all Impositions, leasehold payments, ground rents, and Taxes when due and before any fine, penalty, interest, lien, or costs may be added thereto;

 

(4) promptly deliver to Lender a copy of all notices of, and invoices for, Impositions, and, if Borrower pays any Imposition directly, Borrower shall promptly furnish to Lender receipts evidencing such payments; and

 

(5) promptly deliver to Lender a copy of all notices of any special assessments and contemplated special assessments against the Mortgaged Property or Borrower.

 

Section 12.03 Mortgage Loan Administration Matters Regarding Impositions.

 

(a) Maintenance of Records by Lender.

 

Lender shall maintain records of the monthly and aggregate Imposition Deposits held by Lender for the purpose of paying Taxes, insurance premiums, and each other obligation of Borrower for which Imposition Deposits are required.

 

(b) Imposition Accounts.

 

All Imposition Deposits shall be held in an institution (which may be Lender, if Lender is such an institution) whose deposits or accounts are insured or guaranteed by a federal agency and which accounts meet the standards for custodial accounts as required by Lender from time to time. Lender shall not be obligated to open additional accounts, or deposit Imposition Deposits in additional institutions, when the amount of the Imposition Deposits exceeds the maximum amount of the federal deposit insurance or guaranty. No interest, earnings, or profits on the Imposition Deposits shall be paid to Borrower unless applicable law so requires. Imposition Deposits shall not be trust funds or operate to reduce the Indebtedness, unless applied by Lender for that purpose in accordance with this Loan Agreement. For the purposes of 9-104(a)(3) of the UCC, Lender is the owner of the Imposition Deposits and shall be deemed a “customer” with sole control of the account holding the Imposition Deposits.

 

 

(c) Payment of Impositions; Sufficiency of Imposition Deposits.

 

Lender may pay an Imposition according to any bill, statement, or estimate from the appropriate public office or insurance company without inquiring into the accuracy of the bill, statement, or estimate or into the validity of the Imposition. Imposition Deposits shall be required to be used by Lender to pay Taxes, insurance premiums and any other individual Imposition only if:

 

(1) no Event of Default exists;

 

(2) Borrower has timely delivered to Lender all applicable bills or premium notices that it has received; and

 

(3) sufficient Imposition Deposits are held by Lender for each Imposition at the time such Imposition becomes due and payable.

 

Lender shall have no liability to Borrower or any other Person for failing to pay any Imposition if any of the conditions are not satisfied. If at any time the amount of the Imposition Deposits held for payment of a specific Imposition exceeds the amount reasonably deemed necessary by Lender to be held in connection with such Imposition, the excess may be credited against future installments of Imposition Deposits for such Imposition.

 

(d) Imposition Deposits Upon Event of Default.

 

If an Event of Default has occurred and is continuing, Lender may apply any Imposition Deposits, in such amount and in such order as Lender determines, to pay any Impositions or as a credit against the Indebtedness.

 

(e) Contesting Impositions.

 

Other than insurance premiums, Borrower may contest, at its expense, by appropriate legal proceedings, the amount or validity of any Imposition if:

 

(1) Borrower notifies Lender of the commencement or expected commencement of such proceedings;

 

(2) Lender determines that the Mortgaged Property is not in danger of being sold or forfeited;

 

(3) Borrower deposits with Lender (or the applicable Governmental Authority if required by applicable law) reserves sufficient to pay the contested Imposition, if required by Lender (or the applicable Governmental Authority);

 

(4) Borrower furnishes whatever additional security is required in the proceedings or is reasonably requested in writing by Lender; and

 

(5) Borrower commences, and at all times thereafter diligently prosecutes, such contest in good faith until a final determination is made by the applicable Governmental Authority.

 

 

(f) Release to Borrower.

 

Upon payment in full of all sums secured by the Security Instrument and this Loan Agreement and release by Lender of the lien of the Security Instrument, Lender shall disburse to Borrower the balance of any Imposition Deposits then on deposit with Lender.

 

ARTICLE 13 – REPLACEMENTS, REPAIRS, AND RESTORATION

 

Section 13.01 Covenants.

 

(a) Initial Deposits to Replacement Reserve Account, Repairs Escrow Account, and Restoration Reserve Account.

 

(1) On the Effective Date, Borrower shall pay to Lender:

 

(A) the Initial Replacement Reserve Deposit for deposit into the Replacement Reserve Account; and

 

(B) the Repairs Escrow Deposit for deposit into the Repairs Escrow Account.

 

(2) After an event of loss, Borrower shall deliver or cause to be delivered to Lender any insurance proceeds received under any insurance policy required to be maintained in accordance with Article 9.

 

(b) Monthly Replacement Reserve Deposits.

 

Borrower shall deposit the applicable Monthly Replacement Reserve Deposit into the Replacement Reserve Account on each Payment Date.

 

(c) Payment and Deliverables for Replacements, Repairs, and Restoration.

 

Borrower shall:

 

(1) pay all invoices for Replacements, Repairs, and Restoration, regardless of whether funds on deposit in the applicable Reserve/Escrow Account are sufficient to pay the full amount of such invoices, prior to any request for disbursement from such Reserve/Escrow Account (unless Lender has agreed to issue joint checks in connection with a particular Replacement, Repair, or Restoration);

 

(2) pay all applicable fees and charges of any Governmental Authority on account of the Replacements, Repairs, and Restoration, as applicable;

 

(3) provide evidence satisfactory to Lender of completion of the Replacements, Restoration (within the period required under Section 9.03(b)(1)(B)(iv) or such other period required by Lender), and any Required Repairs (within the Completion Period or within such other period or by such other date set forth in the Required Repair Schedule and any Borrower Requested Repairs and Additional Lender Repairs (by the date specified by Lender for any such Borrower Requested Repairs or Additional Lender Repairs)); and

 

 

(4) prior to commencement of any Restoration, Borrower shall deliver to Lender, for Lender’s review and approval:

 

(A) a copy of the plans and specifications for the Restoration; and

 

(B) a copy of all building and other permits and authorizations required by any law, ordinance, statute, rule or regulation of the Governmental Authority to carry out the Restoration.

 

(d) Assignment of Contracts for Replacements, Repairs, and Restoration.

 

Borrower shall collaterally assign to Lender as additional security any contract or subcontract for Replacements, Repairs, or Restoration, upon Lender’s written request, on a form of assignment approved by Lender.

 

(e) Indemnification.

 

If Lender elects to exercise its rights under Section 14.03 due to Borrower’s failure to timely commence or complete any Replacements, Repairs, or Restoration, Borrower shall indemnify and hold Lender harmless for, from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations, and costs or expenses, including litigation costs and reasonable attorneys’ fees, arising from or in any way connected with the performance by Lender of the Replacements, Repairs, or Restoration or the investment of the Reserve/Escrow Account Funds; provided that Borrower shall have no indemnity obligation if such actions, suits, claims, demands, liabilities, losses, damages, obligations, and costs or expenses, including litigation costs and reasonable attorneys’ fees, arise as a result of the willful misconduct or gross negligence of Lender, Lender’s agents, employees, or representatives as determined by a court of competent jurisdiction pursuant to a final non-appealable court order.

 

(f) Amendments to Loan Documents.

 

Subject to Section 5.02, Borrower shall execute and deliver to Lender, upon written request, an amendment to this Loan Agreement, the Security Instrument, and any other Loan Document deemed necessary or desirable to perfect Lender’s lien upon any portion of the Mortgaged Property for which Reserve/Escrow Account Funds were expended.

 

(g) Administrative Fees and Expenses.

 

Borrower shall pay to Lender:

 

(1) by the date specified in the applicable invoice, the Repairs Escrow Account Administrative Fee, the Replacement Reserve Account Administration Fee, and the Restoration Reserve Account Administration Fee for Lender’s services in administering the Reserve/Escrow Accounts and investing the Reserve/Escrow Account Funds;

 

(2) upon demand, a reasonable inspection fee, not exceeding the Maximum Inspection Fee, for each inspection of the Mortgaged Property by Lender in connection with a Repair, Replacement, or Restoration item, plus all other reasonable costs and out-of-pocket expenses relating to such inspections; and

 

 

(3) upon demand, all reasonable fees charged by any engineer, architect, inspector or other person inspecting the Mortgaged Property on behalf of Lender for each inspection of the Mortgaged Property in connection with a Repair, Replacement, or Restoration item, plus all other reasonable costs and out-of-pocket expenses relating to such inspections.

 

Section 13.02 Mortgage Loan Administration Matters Regarding Reserves.

 

(a) Accounts, Deposits, and Disbursements.

 

(1) Custodial Accounts.

 

(A) The Replacement Reserve Account shall be an interest-bearing account that meets the standards for custodial accounts as required by Lender from time to time. Lender shall not be responsible for any losses resulting from the investment of the Replacement Reserve Deposits or for obtaining any specific level or percentage of earnings on such investment. All interest, if any, earned on the Replacement Reserve Deposits shall be added to and become part of the Replacement Reserve Account; provided, however, if applicable law requires, and so long as no Event of Default has occurred and is continuing under any of the Loan Documents, Lender shall pay to Borrower the interest earned on the Replacement Reserve Account not less frequently than the Replacement Reserve Account Interest Disbursement Frequency.

 

(B) Lender shall not be obligated to deposit the Repairs Escrow Deposits or any funds held in the Restoration Reserve Account into an interest- bearing account.

 

(C) In no event shall Lender be obligated to disburse funds from any Reserve/Escrow Account if an Event of Default has occurred and is continuing.

 

(2) Disbursements by Lender Only.

 

Only Lender or a designated representative of Lender may make disbursements from the Reserve/Escrow Accounts and the Repairs Escrow Account. Except as provided in Section 13.02(a)(8), disbursements shall only be made upon Borrower request and after satisfaction of all conditions for disbursement.

 

(3) Adjustment to Deposits.

 

(A) Mortgage Loan Terms Exceeding Ten (10) Years.

 

If the Loan Term exceeds ten (10) years (or five (5) years in the case of any Mortgaged Property that is an “affordable housing property” as indicated on the Summary of Loan Terms), a property condition assessment shall be ordered by Lender for the Mortgaged Property at the expense of Borrower (which expense may be paid out of the Replacement Reserve Account if excess funds are available). The property condition assessment shall be performed no earlier than the sixth (6th) month and no later than the ninth (9th) month of the tenth (10th) Loan Year and every tenth (10th) Loan Year thereafter if the Loan Term exceeds twenty (20) years (or the fifth (5th) Loan Year in the case of any Mortgaged Property that is an “affordable housing property” as indicated on the Summary of Loan Terms and every fifth (5th) Loan Year thereafter if the Loan Term exceeds ten (10) years). After review of the property condition assessment, the amount of the Monthly Replacement Reserve Deposit may be adjusted by Lender for the remaining Loan Term by written notice to Borrower so that the Monthly Replacement Reserve Deposits are sufficient to fund the Replacements as and when required and/or the amount to be held in the Repairs Escrow Account may be adjusted by Lender so that the Repairs Escrow Deposit is sufficient to fund the Repairs as and when required.

 

 

(B) Transfers.

 

In connection with any Transfer of the Mortgaged Property, or any Transfer of an ownership interest in Borrower, Guarantor, or Key Principal that requires Lender’s consent, Lender may review the amounts on deposit, if any, in the Reserve/Escrow Accounts, the amount of the Monthly Replacement Reserve Deposit and the likely repairs and replacements required by the Mortgaged Property, and the related contingencies which may arise during the remaining Loan Term. Based upon that review, Lender may require an additional deposit to the Replacement Reserve Account, the Repairs Escrow Account, or the Restoration Reserve Account, or an increase in the amount of the Monthly Replacement Reserve Deposit as a condition to Lender’s consent to such Transfer.

 

(4) Insufficient Funds.

 

Lender may, upon thirty (30) days’ prior written notice to Borrower, require an additional deposit(s) to the Replacement Reserve Account, the Repairs Escrow Account, or the Restoration Reserve Account, or an increase in the amount of the Monthly Replacement Reserve Deposit, if Lender determines that the amounts on deposit in any of the Reserve/Escrow Accounts are not sufficient to cover the costs for Required Repairs, Required Replacements, or the Restoration or, pursuant to the terms of Section 13.02(a)(9), not sufficient to cover the costs for Borrower Requested Repairs, Additional Lender Repairs, Borrower Requested Replacements, or Additional Lender Replacements. Borrower’s agreement to complete the Replacements, the Repairs, or the Restoration as required by this Loan Agreement shall not be affected by the insufficiency of any balance in the Reserve/Escrow Accounts.

 

(5) Disbursements for Replacements, Repairs, and Restoration.

 

(A) With respect to Replacements, disbursement requests may only be made after completion of the applicable Replacements and only to reimburse Borrower for the actual approved costs of the Replacements. Lender shall not disburse from the Replacement Reserve Account the costs of routine maintenance to the Mortgaged Property or for costs which are to be reimbursed from any other Reserve/Escrow Account. Disbursement from the Replacement Reserve Account shall not be made more frequently than the Maximum Replacement Reserve Disbursement Interval. Other than in connection with a final request for disbursement, disbursements from the Replacement Reserve Account shall not be less than the Minimum Replacement Reserve Disbursement Amount.

 

 

(B) With respect to Repairs, disbursement requests may only be made after completion of the applicable Repairs and only to reimburse Borrower for the actual cost of the Repairs, up to the Maximum Repair Cost. Lender shall not disburse any amounts which would cause the funds remaining in the Repairs Escrow Account after any disbursement (other than with respect to the final disbursement) to be less than the Maximum Repair Cost of the then-current estimated cost of completing all remaining Repairs. Lender shall not disburse from the Repairs Escrow Account the costs of routine maintenance to the Mortgaged Property or for costs which are to be reimbursed from any other Reserve/Escrow Account. Disbursement from the Repairs Escrow Account shall not be made more frequently than the Maximum Repair Disbursement Interval. Other than in connection with a final request for disbursement, disbursements from the Repairs Escrow Account shall not be less than the Minimum Repairs Disbursement Amount.

 

(C) With respect to Restoration, disbursement requests may only be made after completion of the applicable Restoration and only to reimburse Borrower for the actual approved costs of the Restoration. Each disbursement shall be equal to the amount of the actual approved costs of the Restoration items covered by the disbursement request. In addition, Lender shall not disburse any amounts which would cause the funds remaining in the Restoration Reserve Account after any disbursement (other than with respect to the final disbursement) to be less than the then-current estimated cost of completing all remaining Restoration. Lender shall not disburse from the Restoration Reserve Account the costs of routine maintenance to the Mortgaged Property or for costs which are to be reimbursed from any other Reserve/Escrow Account. Disbursement from the Restoration Reserve Account shall not be made more frequently than the Maximum Restoration Reserve Disbursement Interval. Other than in connection with a final request for disbursement, disbursements from the Restoration Reserve Account shall not be less than the Minimum Restoration Reserve Disbursement Amount.

 

(6) Disbursement Requests.

 

Borrower must submit a disbursement request in writing for each disbursement from a Reserve/Escrow Account, which disbursement request must specify the items of Replacement, Repairs, or Restoration for which reimbursement is requested (provided that for any Borrower Requested Replacements, Borrower Requested Repairs, Additional Lender Replacements, and Additional Lender Repairs, Lender shall have approved the use of the Reserve/Escrow Account Funds for such replacements or repairs pursuant to the terms of Section 13.02(a)(9)), and must:

 

(A) if applicable, specify the quantity and price of the items or materials purchased, grouped by type or category;

 

(B) if applicable, specify the cost of all contracted labor or other services, including architectural services, involved in the Replacement, Repair, or Restoration for which such request for disbursement is made;

 

(C) if applicable, include copies of invoices for all items or materials purchased and all contracted labor or services provided;

 

 

(D) include evidence of payment of such Replacement, Repair, or Restoration satisfactory to Lender (unless Lender has agreed to issue joint checks in connection with a particular Repair, Replacement, or Restoration item as provided in this Loan Agreement);

 

(E) if applicable, contain a certification by Borrower that the Repair, Replacement, or Restoration has been completed lien free and in a good and workmanlike manner, in accordance with any plans and specifications previously approved by Lender (if applicable) and in compliance with all applicable laws, ordinances, rules, and regulations of any Governmental Authority having jurisdiction over the Mortgaged Property, and otherwise in accordance with the provisions of this Loan Agreement; and

 

(F) if applicable, include evidence that any certificates of occupancy required by applicable laws or any Governmental Authority have been issued.

 

(7) Conditions to Disbursement.

 

In addition to each disbursement request and information required in connection with such disbursement request, Lender may require any or all of the following at the expense of Borrower as a condition to disbursement of Reserve/Escrow Account Funds (provided that for any Borrower Requested Replacements, Borrower Requested Repairs, Additional Lender Replacements, and Additional Lender Repairs, Lender shall have approved the use of the Reserve/Escrow Account Funds for such replacements or repairs pursuant to the terms of Section 13.02(a)(9)):

 

(A) an inspection by Lender of the Mortgaged Property and the applicable Replacement, Repair, or Restoration item;

 

(B) an inspection or certificate of completion by an appropriate independent qualified professional (such as an architect, engineer or property inspector, depending on the nature of the Repair, Replacement, or Restoration) selected by Lender;

 

(C) either:

 

(i) a search of title to the Mortgaged Property effective to the date of disbursement; or

 

(ii) a “date-down” endorsement to Lender’s Title Policy (or a new Lender’s Title Policy if a “date-down” is not available) extending the effective date of such policy to the date of disbursement, and showing no Liens other than (1) Permitted Encumbrances, (2) liens which Borrower is diligently contesting in good faith that have been bonded off to the satisfaction of Lender, or (3) mechanics’ or materialmen’s liens which attach automatically under the laws of any Governmental Authority upon the commencement of any work upon, or delivery of any materials to, the Mortgaged Property and for which Borrower is not delinquent in the payment for any such work or materials; and

 

 

(D) an acknowledgement of payment, waiver of claims, and release of lien for work performed and materials supplied from each contractor, subcontractor or materialman in accordance with the requirements of applicable law and covering all work performed and materials supplied (including equipment and fixtures) for the Mortgaged Property by that contractor, subcontractor, or materialman through the date covered by the disbursement request (or, in the event that payment to such contractor, subcontractor, or materialman is to be made by a joint check, the release of lien shall be effective through the date covered by the previous disbursement).

 

(8) Joint Checks for Periodic Disbursements.

 

Lender may, upon Borrower’s written request, issue joint checks, payable to Borrower and the applicable supplier, materialman, mechanic, contractor, subcontractor, or other similar party, if:

 

(A) the cost of the Replacement, Repair, or Restoration item exceeds the Replacement Threshold, the Repair Threshold, or the Restoration Threshold, as applicable, and the contractor performing such Replacement, Repair, or Restoration requires periodic payments pursuant to the terms of the applicable written contract;

 

(B) the contract for such Replacement, Repair, or Restoration item requires payment upon completion of the applicable portion of the work;

 

(C) Borrower makes the disbursement request after completion of the applicable portion of the work required to be completed under such contract;

 

(D) the materials for which the request for disbursement has been made are on site at the Mortgaged Property and are properly secured or installed;

 

(E) Lender determines that the remaining funds in the Reserve/Escrow Account are sufficient to pay the cost of the Replacement, Repair, or Restoration item, as applicable, and the then-current estimated cost of completing all remaining Required Replacements, Restoration, or Required Repairs (at the Maximum Repair Cost), as applicable, and any other Borrower Requested Replacements, Borrower Requested Repairs, Additional Lender Replacements, or Additional Lender Repairs that have been previously approved by Lender;

 

(F) each supplier, materialman, mechanic, contractor, subcontractor, or other similar party receiving payments shall have provided, if requested in writing by Lender, a waiver of liens with respect to amounts which have been previously paid to them; and

 

(G) all other conditions for disbursement have been satisfied.

 

 

(9) Replacements and Repairs Other than Required Replacements or Required Repairs.

 

(A) Borrower Requested Replacements and Borrower Requested Repairs.

 

Borrower may submit a disbursement request from the Replacement Reserve Account or the Repairs Escrow Account to reimburse Borrower for any Borrower Requested Replacement or Borrower Requested Repair. The disbursement request must be in writing and include an explanation for such request. Lender shall make disbursements for Borrower Requested Replacements or Borrower Requested Repairs if:

 

(i) they are of the type intended to be covered by the Replacement Reserve Account or the Repairs Escrow Account, as applicable;

 

(ii) the costs are commercially reasonable;

 

(iii) the amount of funds in the Replacement Reserve Account or Repairs Escrow Account, as applicable, is sufficient to pay such costs and the then-current estimated cost of completing all remaining Required Replacements or Required Repairs (at the Maximum Repair Cost), as applicable, and any other Borrower Requested Replacements, Borrower Requested Repairs, Additional Lender Replacements or Additional Lender Repairs that have been previously approved by Lender; and

 

(iv) all conditions for disbursement from the Replacement Reserve Account or Repairs Escrow Account, as applicable, have been satisfied.

 

Nothing in this Loan Agreement shall limit Lender’s right to require an additional deposit to the Replacement Reserve Account or an increase to the Monthly Replacement Reserve Deposit in connection with any such Borrower Requested Replacements, or an additional deposit to the Repairs Escrow Account for any such Borrower Requested Repairs.

 

(B) Additional Lender Replacements and Additional Lender Repairs.

 

Lender may require, as set forth in Section 6.02(b), Section 6.03(c), or otherwise from time to time, upon written notice to Borrower, that Borrower make Additional Lender Replacements or Additional Lender Repairs. Lender shall make disbursements from the Replacement Reserve Account for Additional Lender Replacements or from the Repairs Escrow Account for Additional Lender Repairs, as applicable, if:

 

(i) the costs are commercially reasonable;

 

(ii) the amount of funds in the Replacement Reserve Account or the Repairs Escrow Account, as applicable, is sufficient to pay such costs and the then-current estimated cost of completing all remaining Required Replacements or Required Repairs (at the Maximum Repair Cost), as applicable, and any other Borrower Requested Replacements, Borrower Requested Repairs, Additional Lender Replacements, or Additional Lender Repairs that have been previously approved by Lender; and

 

(iii) all conditions for disbursement from the Replacement Reserve Account or Repairs Escrow Account, as applicable, have been satisfied.

 

 

Nothing in this Loan Agreement shall limit Lender’s right to require an additional deposit to the Replacement Reserve Account or an increase to the Monthly Replacement Reserve Deposit for any such Additional Lender Replacements or an additional deposit to the Repairs Escrow Account for any such Additional Lender Repair.

 

(10) Excess Costs.

 

In the event any Replacement, Repair, or Restoration item exceeds the approved cost set forth on either the Required Replacement Schedule for Replacements, the Maximum Repair Cost for Repairs, or the initial cost approved by Lender for Restoration, as applicable, Borrower may submit a disbursement request to reimburse Borrower for such excess cost. The disbursement request must be in writing and include an explanation for such request. Lender shall make disbursements from the applicable Reserve/Escrow Account, if:

 

(A) the excess cost is commercially reasonable;

 

(B) the amount of funds in the applicable Reserve/Escrow Account is sufficient to pay such excess costs and the then-current estimated cost of completing all remaining Required Replacements, Restoration, or Required Repairs (at the Maximum Repair Cost), as applicable, and any other Borrower Requested Replacements, Borrower Requested Repairs, Additional Lender Replacements, or Additional Lender Repairs that have been previously approved by Lender; and

 

(C) all conditions for disbursement from the applicable Reserve/Escrow Account or the Repairs Escrow Account have been satisfied.

 

(11) Final Disbursements.

 

Upon completion and satisfaction of all conditions for disbursements for any Repairs and Restoration, and further provided no Event of Default has occurred and is continuing, Lender shall disburse to Borrower any amounts then remaining in the Repairs Escrow Account or the Restoration Reserve Account, as applicable. Upon payment in full of the Indebtedness and release by Lender of the lien of the Security Instrument, Lender shall disburse to Borrower any and all amounts then remaining in the Reserve/Escrow Accounts (if not previously released).

 

(b) Approvals of Contracts; Assignment of Claims.

 

Lender retains the right to approve all contracts or work orders with materialmen, mechanics, suppliers, subcontractors, contractors, or other parties providing labor or materials in connection with the Replacements, Repairs, or Restoration. Notwithstanding Borrower’s assignment (in the Security Instrument) of its rights and claims against all Persons supplying labor or materials in connection with the Replacements, Repairs, or Restoration, Lender will not pursue any such right or claim unless an Event of Default has occurred and is continuing or as otherwise provided in Section 14.03(c).

 

 

(c) Delays and Workmanship.

 

If any work for any Replacement, Repair, or Restoration item has not timely commenced, has not been timely performed in a workmanlike manner, or has not been timely completed in a workmanlike manner, Lender may, without notice to Borrower:

 

(1) withhold disbursements from the applicable Reserve/Escrow Account;

 

(2) proceed under existing contracts or contract with third parties to make or complete such Replacements, Repairs, or Restoration items;

 

(3) apply the funds in the applicable Reserve/Escrow Account toward the labor and materials necessary to make or complete such Replacements, Repairs, or Restoration items, as applicable; or

 

(4) exercise any and all other remedies available to Lender under this Loan Agreement or any other Loan Document, including any remedies otherwise available upon an Event of Default pursuant to the terms of Section 14.02.

 

To facilitate Lender’s completion and performance of such Replacements, Repairs, or Restoration items, Lender shall have the right to enter onto the Mortgaged Property and perform any and all work and labor necessary to make or complete the Replacements, Repairs, or Restoration and employ watchmen to protect the Mortgaged Property from damage. All funds so expended by Lender shall be deemed to have been advanced to Borrower, and included as part of the Indebtedness and secured by the Security Instrument and this Loan Agreement.

 

(d) Appointment of Lender as Attorney-In-Fact.

 

Borrower hereby authorizes and appoints Lender as attorney-in-fact pursuant to Section 14.03(c).

 

(e) No Lender Obligation.

 

Nothing in this Loan Agreement shall:

 

(1) make Lender responsible for making or completing the Replacements, Repairs, or Restoration;

 

(2) require Lender to expend funds, whether from any Reserve/Escrow Account, or otherwise, to make or complete any Replacement, Repair, or Restoration item;

 

(3) obligate Lender to proceed with the Replacements, Repairs, or Restoration; or

 

(4) obligate Lender to demand from Borrower additional sums to make or complete any Replacement, Repair, or Restoration item.

 

 

(f) No Lender Warranty.

 

Lender’s approval of any plans for any Replacement, Repair, or Restoration, release of funds from any Reserve/Escrow Account, inspection of the Mortgaged Property by Lender or its agents, representatives, or designees, or other acknowledgment of completion of any Replacement, Repair, or Restoration in a manner satisfactory to Lender shall not be deemed an acknowledgment or warranty by Lender to any Person that the Replacement, Repair, or Restoration has been completed in accordance with applicable building, zoning, or other codes, ordinances, statutes, laws, regulations, or requirements of any Governmental Authority, such responsibility being at all times exclusively that of Borrower.

 

ARTICLE 14 - DEFAULTS/REMEDIES

 

Section 14.01 Events of Default.

 

The occurrence of any one or more of the following in this Section 14.01 shall constitute an Event of Default under this Loan Agreement.

 

(a) Automatic Events of Default.

 

Any of the following shall constitute an automatic Event of Default:

 

(1) any failure by Borrower to pay or deposit when due any amount required by the Note, this Loan Agreement or any other Loan Document;

 

(2) any failure by Borrower to maintain the insurance coverage required by any Loan Document;

 

(3) any failure by Borrower to comply with the provisions of Section 4.02(d) relating to its single asset status;

 

(4) if any warranty, representation, certification, or statement of Borrower or Guarantor in this Loan Agreement or any of the other Loan Documents is false, inaccurate, or misleading in any material respect when made;

 

(5) fraud, gross negligence, willful misconduct, or material misrepresentation or material omission by or on behalf of Borrower, Guarantor, or Key Principal or any of their officers, directors, trustees, partners, members, or managers in connection with:

 

(A) the application for, or creation of, the Indebtedness;

 

(B) any financial statement, rent roll, or other report or information provided to Lender during the term of the Mortgage Loan; or

 

(C) any request for Lender’s consent to any proposed action, including a request for disbursement of Reserve/Escrow Account Funds or Collateral Account Funds;

 

(6) the occurrence of any Transfer not permitted by the Loan Documents;

 

(7) the occurrence of a Bankruptcy Event;

 

(8) the commencement of a forfeiture action or other similar proceeding, whether civil or criminal, which, in Lender’s reasonable judgment, could result in a forfeiture of the Mortgaged Property or otherwise materially impair the lien created by this Loan Agreement or the Security Instrument or Lender’s interest in the Mortgaged Property;

 

 

(9) if Borrower, Guarantor, or Key Principal is a trust, or if Control of Borrower, Guarantor, or Key Principal is Transferred or if a Restricted Ownership Interest in Borrower, Guarantor, or Key Principal would be Transferred due to the termination or revocation of a trust, the termination or revocation of such trust, except as set forth in Section 11.03(d);

 

(10) any failure by Borrower to complete any Repair related to fire, life, or safety issues in accordance with the terms of this Loan Agreement within the Completion Period (or such other date set forth on the Required Repair Schedule or otherwise required by Lender in writing for such Repair); or

 

(11) any exercise by the holder of any other debt instrument secured by a mortgage, deed of trust, or deed to secure debt on the Mortgaged Property of a right to declare all amounts due under that debt instrument immediately due and payable.

 

(b) Events of Default Subject to a Specified Cure Period.

 

Any of the following shall constitute an Event of Default subject to the cure period set forth in the Loan Documents:

 

(1) if Key Principal or Guarantor is a natural person, the death of such individual, unless all requirements of Section 11.03(e) are met;

 

(2) the occurrence of a Guarantor Bankruptcy Event, unless requirements of Section 11.03(f) are met;

 

(3) any failure by Borrower, Key Principal, or Guarantor to comply with the provisions of Section 5.02(b) and Section 5.02(c); or

 

(4) any failure by Borrower to perform any obligation under this Loan Agreement or any Loan Document that is subject to a specified written notice and cure period, which failure continues beyond such specified written notice and cure period as set forth herein or in the applicable Loan Document.

 

(c) Events of Default Subject to Extended Cure Period.

 

The following shall constitute an Event of Default if the existence of such condition or event, or such failure to perform or default in performance continues for a period of thirty (30) days after written notice by Lender to Borrower of the existence of such condition or event, or of such failure to perform or default in performance, provided, however, such period may be extended for up to an additional thirty (30) days if Borrower, in the discretion of Lender, is diligently pursuing a cure of such; provided, further, however, no such written notice, grace period, or extension shall apply if, in Lender’s discretion, immediate exercise by Lender of a right or remedy under this Loan Agreement or any Loan Document is required to avoid harm to Lender or impairment of the Mortgage Loan (including the Loan Documents), the Mortgaged Property or any other security given for the Mortgage Loan:

 

(1) any failure by Borrower to perform any of its obligations under this Loan Agreement or any Loan Document (other than those specified in Section 14.01(a) or Section 14.01(b) above) as and when required.

 

 

Section 14.02 Remedies.

 

(a) Acceleration; Foreclosure.

 

If an Event of Default has occurred and is continuing, the entire unpaid principal balance of the Mortgage Loan, any Accrued Interest, interest accruing at the Default Rate, the Prepayment Premium (if applicable), and all other Indebtedness, at the option of Lender, shall immediately become due and payable, without any prior written notice to Borrower, unless applicable law requires otherwise (and in such case, after any required written notice has been given). Lender may exercise this option to accelerate regardless of any prior forbearance. In addition, Lender shall have all rights and remedies afforded to Lender hereunder and under the other Loan Documents, including, foreclosure on and/or the power of sale of the Mortgaged Property, as provided in the Security Instrument, and any rights and remedies available to Lender at law or in equity (subject to Borrower’s statutory rights of reinstatement, if any). Any proceeds of a Foreclosure Event may be held and applied by Lender as additional collateral for the Indebtedness pursuant to this Loan Agreement. Notwithstanding the foregoing, the occurrence of any Bankruptcy Event shall automatically accelerate the Mortgage Loan and all obligations and Indebtedness shall be immediately due and payable without written notice or further action by Lender.

 

(b) Loss of Right to Disbursements from Collateral Accounts.

 

If an Event of Default has occurred and is continuing, Borrower shall immediately lose all of its rights to receive disbursements from the Reserve/Escrow Accounts and any Collateral Accounts. During the continuance of any such Event of Default, Lender may use the Reserve/Escrow Account Funds and any Collateral Account Funds (or any portion thereof) for any purpose, including:

 

(1) repayment of the Indebtedness, including principal prepayments and the Prepayment Premium applicable to such full or partial prepayment, as applicable (however, such application of funds shall not cure or be deemed to cure any Event of Default);

 

(2) reimbursement of Lender for all losses and expenses (including reasonable legal fees) suffered or incurred by Lender as a result of such Event of Default;

 

(3) completion of the Replacement, Repair, or Restoration for any other replacement or repair to the Mortgaged Property; and

 

(4) payment of any amount expended in exercising (and the exercise of) all rights and remedies available to Lender at law or in equity or under this Loan Agreement or under any of the other Loan Documents.

 

Nothing in this Loan Agreement shall obligate Lender to apply all or any portion of the Reserve/Escrow Account Funds or Collateral Account Funds on account of any Event of Default by Borrower or to repayment of the Indebtedness or in any specific order of priority.

 

 

(c) Remedies Cumulative.

 

Each right and remedy provided in this Loan Agreement is distinct from all other rights or remedies under this Loan Agreement or any other Loan Document or afforded by applicable law, and each shall be cumulative and may be exercised concurrently, independently, or successively, in any order. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of additional default by Borrower in order to exercise any of its remedies with respect to an Event of Default.

 

Section 14.03 Additional Lender Rights; Forbearance.

 

(a) No Effect Upon Obligations.

 

Lender may, but shall not be obligated to, agree with Borrower, from time to time, and without giving notice to, or obtaining the consent of, or having any effect upon the obligations of, Guarantor, Key Principal, or other third party obligor, to take any of the following actions:

 

(1) the time for payment of the principal of or interest on the Indebtedness may be extended, or the Indebtedness may be renewed in whole or in part;

 

(2) the rate of interest on or period of amortization of the Mortgage Loan or the amount of the Monthly Debt Service Payments payable under the Loan Documents may be modified;

 

(3) the time for Borrower’s performance of or compliance with any covenant or agreement contained in any Loan Document, whether presently existing or hereinafter entered into, may be extended or such performance or compliance may be waived;

 

(4) any or all payments due under this Loan Agreement or any other Loan Document may be reduced;

 

(5) any Loan Document may be modified or amended by Lender and Borrower in any respect, including an increase in the principal amount of the Mortgage Loan;

 

(6) any amounts under this Loan Agreement or any other Loan Document may be released;

 

(7) any security for the Indebtedness may be modified, exchanged, released, surrendered, or otherwise dealt with, or additional security may be pledged or mortgaged for the Indebtedness;

 

(8) the payment of the Indebtedness or any security for the Indebtedness, or both, may be subordinated to the right to payment or the security, or both, of any other present or future creditor of Borrower; or

 

(9) any other terms of the Loan Documents may be modified.

 

 

(b) No Waiver of Rights or Remedies.

 

Any waiver of an Event of Default or forbearance by Lender in exercising any right or remedy under this Loan Agreement or any other Loan Document or otherwise afforded by applicable law, shall not be a waiver of any other Event of Default or preclude the exercise or failure to exercise of any other right or remedy. The acceptance by Lender of payment of all or any part of the Indebtedness after the due date of such payment, or in an amount which is less than the required payment, shall not be a waiver of Lender’s right to require prompt payment when due of all other payments on account of the Indebtedness or to exercise any remedies for any failure to make prompt payment. Enforcement by Lender of any security for the Indebtedness shall not constitute an election by Lender of remedies so as to preclude the exercise or failure to exercise of any other right available to Lender. Lender’s receipt of any insurance proceeds or amounts in connection with a Condemnation Action shall not operate to cure or waive any Event of Default.

 

(c) Appointment of Lender as Attorney-In-Fact.

 

Borrower hereby irrevocably makes, constitutes, and appoints Lender (and any officer of Lender or any Person designated by Lender for that purpose) as Borrower’s true and lawful proxy and attorney-in-fact (and agent-in-fact) in Borrower’s name, place, and stead, with full power of substitution, to:

 

(1) use any Reserve/Escrow Account Funds for the purpose of making or completing the Replacements, Repairs, or Restoration;

 

(2) make such additions, changes, and corrections to the Replacements, Repairs, or Restoration as shall be necessary or desirable to complete the Replacements, Repairs, or Restoration;

 

(3) employ such contractors, subcontractors, agents, architects, and inspectors as shall be required for such purposes;

 

(4) pay, settle, or compromise all bills and claims for materials and work performed in connection with the Replacements, Repairs, or Restoration, or as may be necessary or desirable for the completion of the Replacements, Repairs, or Restoration, or for clearance of title;

 

(5) adjust and compromise any claims under any and all policies of insurance required pursuant to this Loan Agreement and any other Loan Document, subject only to Borrower’s rights under this Loan Agreement;

 

(6) appear in and prosecute any action arising from any insurance policies;

 

(7) collect and receive the proceeds of insurance, and to deduct from such proceeds Lender’s expenses incurred in the collection of such proceeds;

 

(8) commence, appear in, and prosecute, in Lender’s or Borrower’s name, any Condemnation Action;

 

(9) settle or compromise any claim in connection with any Condemnation Action;

 

(10) execute all applications and certificates in the name of Borrower which may be required by any of the contract documents;

 

 

(11) prosecute and defend all actions or proceedings in connection with the Mortgaged Property or the rehabilitation and repair of the Mortgaged Property;

 

(12) take such actions as are permitted in this Loan Agreement and any other Loan Documents;

 

(13) execute such financing statements and other documents and to do such other acts as Lender may require to perfect and preserve Lender’s security interest in, and to enforce such interests in, the collateral; and

 

(14) carry out any remedy provided for in this Loan Agreement and any other Loan Documents, including endorsing Borrower’s name to checks, drafts, instruments and other items of payment and proceeds of the collateral, executing change of address forms with the postmaster of the United States Post Office serving the address of Borrower, changing the address of Borrower to that of Lender, opening all envelopes addressed to Borrower, and applying any payments contained therein to the Indebtedness.

 

Borrower hereby acknowledges that the constitution and appointment of such proxy and attorney-in-fact are coupled with an interest and are irrevocable and shall not be affected by the disability or incompetence of Borrower. Borrower specifically acknowledges and agrees that this power of attorney granted to Lender may be assigned by Lender to Lender’s successors or assigns as holder of the Note (and the other Loan Documents). The foregoing powers conferred on Lender under this Section 14.03(c) shall not impose any duty upon Lender to exercise any such powers and shall not require Lender to incur any expense or take any action. Borrower hereby ratifies and confirms all that such attorney-in-fact may do or cause to be done by virtue of any provision of this Loan Agreement and any other Loan Documents.

 

Notwithstanding the foregoing provisions, Lender shall not exercise its rights as set forth in this Section 14.03(c) unless: (A) an Event of Default has occurred and is continuing, or (B) Lender determines, in its discretion, that exigent circumstances exist or that such exercise is necessary or prudent in order to protect and preserve the Mortgaged Property, or Lender’s lien priority and security interest in the Mortgaged Property.

 

(d) Borrower Waivers.

 

If more than one Person signs this Loan Agreement as Borrower, each Borrower, with respect to any other Borrower, hereby agrees that Lender, in its discretion, may:

 

(1) bring suit against Borrower, or any one or more of Borrower, jointly and severally, or against any one or more of them;

 

(2) compromise or settle with any one or more of the persons constituting Borrower, for such consideration as Lender may deem proper;

 

(3) release one or more of the persons constituting Borrower, from liability; or

 

(4) otherwise deal with Borrower, or any one or more of them, in any manner, and no such action shall impair the rights of Lender to collect from any Borrower the full amount of the Indebtedness.

 

 

Section 14.04 Waiver of Marshaling.

 

Notwithstanding the existence of any other security interests in the Mortgaged Property held by Lender or by any other party, Lender shall have the right to determine the order in which any or all of the Mortgaged Property shall be subjected to the remedies provided in this Loan Agreement, any other Loan Document or applicable law. Lender shall have the right to determine the order in which all or any part of the Indebtedness is satisfied from the proceeds realized upon the exercise of such remedies. Borrower and any party who now or in the future acquires a security interest in the Mortgaged Property and who has actual or constructive notice of this Loan Agreement waives any and all right to require the marshaling of assets or to require that any of the Mortgaged Property be sold in the inverse order of alienation or that any of the Mortgaged Property be sold in parcels or as an entirety in connection with the exercise of any of the remedies permitted by applicable law or provided in this Loan Agreement or any other Loan Documents.

 

Lender shall account for any moneys received by Lender in respect of any foreclosure on or disposition of collateral hereunder and under the other Loan Documents provided that Lender shall not have any duty as to any collateral, and Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers. NONE OF LENDER OR ITS AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR REPRESENTATIVES SHALL BE RESPONSIBLE TO BORROWER (a) FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED PURSUANT TO A FINAL, NON- APPEALABLE COURT ORDER BY A COURT OF COMPETENT JURISDICTION, OR (b) FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

 

ARTICLE 15 - MISCELLANEOUS

 

Section 15.01 Governing Law; Consent to Jurisdiction and Venue.

 

(a) Governing Law.

 

This Loan Agreement and any other Loan Document which does not itself expressly identify the law that is to apply to it, shall be governed by the laws of the Property Jurisdiction without regard to the application of choice of law principles.

 

(b) Venue.

 

Any controversy arising under or in relation to this Loan Agreement or any other Loan Document shall be litigated exclusively in the Property Jurisdiction without regard to conflicts of laws principles. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in relation to this Loan Agreement or any other Loan Document. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence, or otherwise.

 

 

Section 15.02 Notice.

 

(a) Process of Serving Notice.

 

Except as otherwise set forth herein or in any other Loan Document, all notices under this Loan Agreement and any other Loan Document shall be:

 

(1) in writing and shall be:

 

(A) delivered, in person;

 

(B) mailed, postage prepaid, either by registered or certified delivery, return receipt requested;

 

(C) sent by overnight courier; or

 

(D) sent by electronic mail with originals to follow by overnight courier;

 

(2) addressed to the intended recipient at Borrower’s Notice Address and Lender’s Notice Address, as applicable; and

 

(3) deemed given on the earlier to occur of:

 

(A) the date when the notice is received by the addressee; or

 

(B) if the recipient refuses or rejects delivery, the date on which the notice is so refused or rejected, as conclusively established by the records of the United States Postal Service or such express courier service.

 

(b) Change of Address.

 

Any party to this Loan Agreement may change the address to which notices intended for it are to be directed by means of notice given to the other parties identified on the Summary of Loan Terms in accordance with this Section 15.02.

 

(c) Default Method of Notice.

 

Any required notice under this Loan Agreement or any other Loan Document which does not specify how notices are to be given shall be given in accordance with this Section 15.02.

 

(d) Receipt of Notices.

 

Neither Borrower nor Lender shall refuse or reject delivery of any notice given in accordance with this Loan Agreement. Each party is required to acknowledge, in writing, the receipt of any notice upon request by the other party.

 

 

Section 15.03 Successors and Assigns Bound; Sale of Mortgage Loan.

 

(a) Binding Agreement.

 

This Loan Agreement shall bind, and the rights granted by this Loan Agreement shall inure to, the successors and assigns of Lender and the permitted successors and assigns of Borrower. However, a Transfer not permitted by this Loan Agreement shall be an Event of Default and shall be void ab initio.

 

(b) Sale of Mortgage Loan; Change of Servicer.

 

Nothing in this Loan Agreement shall limit Lender’s (including its successors and assigns) right to sell or transfer the Mortgage Loan or any interest in the Mortgage Loan. The Mortgage Loan or a partial interest in the Mortgage Loan (together with this Loan Agreement and the other Loan Documents) may be sold one or more times without prior written notice to Borrower. A sale may result in a change of the Loan Servicer.

 

Section 15.04 Counterparts.

 

This Loan Agreement may be executed in any number of counterparts with the same effect as if the parties hereto had signed the same document and all such counterparts shall be construed together and shall constitute one instrument.

 

Section 15.05 Joint and Several (or Solidary) Liability.

 

If more than one Person signs this Loan Agreement as Borrower, the obligations of such Persons shall be joint and several (solidary instead for purposes of Louisiana law).

 

Section 15.06 Relationship of Parties; No Third Party Beneficiary.

 

(a) Solely Creditor and Debtor.

 

The relationship between Lender and Borrower shall be solely that of creditor and debtor, respectively, and nothing contained in this Loan Agreement shall create any other relationship between Lender and Borrower. Nothing contained in this Loan Agreement shall constitute Lender as a joint venturer, partner, or agent of Borrower, or render Lender liable for any debts, obligations, acts, omissions, representations, or contracts of Borrower.

 

(b) No Third Party Beneficiaries.

 

No creditor of any party to this Loan Agreement and no other Person shall be a third party beneficiary of this Loan Agreement or any other Loan Document or any account created or contemplated under this Loan Agreement or any other Loan Document. Nothing contained in this Loan Agreement shall be deemed or construed to create an obligation on the part of Lender to any third party and no third party shall have a right to enforce against Lender any right that Borrower may have under this Loan Agreement. Without limiting the foregoing:

 

(1) any Servicing Arrangement between Lender and any Loan Servicer shall constitute a contractual obligation of such Loan Servicer that is independent of the obligation of Borrower for the payment of the Indebtedness;

 

 

(2) Borrower shall not be a third party beneficiary of any Servicing Arrangement; and

 

(3) no payment by the Loan Servicer under any Servicing Arrangement will reduce the amount of the Indebtedness.

 

Section 15.07 Severability; Entire Agreement; Amendments.

 

The invalidity or unenforceability of any provision of this Loan Agreement or any other Loan Document shall not affect the validity or enforceability of any other provision of this Loan Agreement or of any other Loan Document, all of which shall remain in full force and effect, including the Guaranty. All of the Loan Documents contain the complete and entire agreement among the parties as to the matters covered, rights granted, and the obligations assumed in this Loan Agreement and the other Loan Documents. This Loan Agreement may not be amended or modified except by written agreement signed by the parties hereto.

 

Section 15.08 Construction.

 

(a) The captions and headings of the sections of this Loan Agreement and the Loan Documents are for convenience only and shall be disregarded in construing this Loan Agreement and the Loan Documents.

 

(b) Any reference in this Loan Agreement to an “Exhibit” or “Schedule” or a “Section” or an “Article” shall, unless otherwise explicitly provided, be construed as referring, respectively, to an Exhibit or Schedule attached to this Loan Agreement or to a Section or Article of this Loan Agreement.

 

(c) Any reference in this Loan Agreement to a statute or regulation shall be construed as referring to that statute or regulation as amended from time to time.

 

(d) Use of the singular in this Loan Agreement includes the plural and use of the plural includes the singular.

 

(e) As used in this Loan Agreement, the term “including” means “including, but not limited to” or “including, without limitation,” and is for example only and not a limitation.

 

(f) Whenever Borrower’s knowledge is implicated in this Loan Agreement or the phrase “to Borrower’s knowledge” or a similar phrase is used in this Loan Agreement, Borrower’s knowledge or such phrase(s) shall be interpreted to mean to the best of Borrower’s knowledge after reasonable and diligent inquiry and investigation.

 

(g) Unless otherwise provided in this Loan Agreement, if Lender’s approval, designation, determination, selection, estimate, action, or decision is required, permitted, or contemplated hereunder, such approval, designation, determination, selection, estimate, action, or decision shall be made in Lender’s sole and absolute discretion.

 

(h) All references in this Loan Agreement to a separate instrument or agreement shall include such instrument or agreement as the same may be amended or supplemented from time to time pursuant to the applicable provisions thereof.

 

(i) “Lender may” shall mean at Lender’s discretion, but shall not be an obligation.

 

 

(j) If the Mortgage Loan proceeds are disbursed on a date that is later than the Effective Date, as described in Section 2.02(a)(1), the representations and warranties in the Loan Documents with respect to the ownership and operation of the Mortgaged Property shall be deemed to be made as of the disbursement date.

 

Section 15.09 Mortgage Loan Servicing.

 

All actions regarding the servicing of the Mortgage Loan, including the collection of payments, the giving and receipt of notice, inspections of the Mortgaged Property, inspections of books and records, and the granting of consents and approvals, may be taken by the Loan Servicer unless Borrower receives written notice to the contrary. If Borrower receives conflicting notices regarding the identity of the Loan Servicer or any other subject, any such written notice from Lender shall govern. The Loan Servicer may change from time to time (whether related or unrelated to a sale of the Mortgage Loan). If there is a change of the Loan Servicer, Borrower will be given written notice of the change.

 

Section 15.10 Disclosure of Information.

 

Lender may furnish information regarding Borrower, Key Principal, or Guarantor, or the Mortgaged Property to third parties with an existing or prospective interest in the servicing, enforcement, evaluation, performance, purchase, or securitization of the Mortgage Loan, including trustees, master servicers, special servicers, rating agencies, and organizations maintaining databases on the underwriting and performance of multifamily mortgage loans. Borrower irrevocably waives any and all rights it may have under applicable law to prohibit such disclosure, including any right of privacy.

 

Section 15.11 Waiver; Conflict.

 

No specific waiver of any of the terms of this Loan Agreement shall be considered as a general waiver. If any provision of this Loan Agreement is in conflict with any provision of any other Loan Document, the provision contained in this Loan Agreement shall control.

 

Section 15.12 No Reliance.

 

Borrower acknowledges, represents, and warrants that:

 

(a) it understands the nature and structure of the transactions contemplated by this Loan Agreement and the other Loan Documents;

 

(b) it is familiar with the provisions of all of the documents and instruments relating to such transactions;

 

(c) it understands the risks inherent in such transactions, including the risk of loss of all or any part of the Mortgaged Property;

 

(d) it has had the opportunity to consult counsel; and

 

(e) it has not relied on Lender for any guidance or expertise in analyzing the financial or other consequences of the transactions contemplated by this Loan Agreement or any other Loan Document or otherwise relied on Lender in any manner in connection with interpreting, entering into, or otherwise in connection with this Loan Agreement, any other Loan Document, or any of the matters contemplated hereby or thereby.

 

 

Section 15.13 Subrogation.

 

If, and to the extent that, the proceeds of the Mortgage Loan are used to pay, satisfy, or discharge any obligation of Borrower for the payment of money that is secured by a pre-existing mortgage, deed of trust, or other lien encumbering the Mortgaged Property, such Mortgage Loan proceeds shall be deemed to have been advanced by Lender at Borrower’s request, and Lender shall be subrogated automatically, and without further action on its part, to the rights, including lien priority, of the owner or holder of the obligation secured by such prior lien, whether or not such prior lien is released.

 

Section 15.14 Counting of Days.

 

Except where otherwise specifically provided, any reference in this Loan Agreement to a period of “days” means calendar days, not Business Days. If the date on which Borrower is required to perform an obligation under this Loan Agreement is not a Business Day, Borrower shall be required to perform such obligation by the Business Day immediately preceding such date; provided, however, in respect of any Payment Date, or if the Maturity Date is other than a Business Day, Borrower shall be obligated to make such payment by the Business Day immediately following such date.

 

Section 15.15 Revival and Reinstatement of Indebtedness.

 

If the payment of all or any part of the Indebtedness by Borrower, Guarantor, or any other Person, or the transfer to Lender of any collateral or other property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’ rights, including provisions of the Insolvency Laws relating to a Voidable Transfer, and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the advice of its counsel, then the amount of such Voidable Transfer or the amount of such Voidable Transfer that Lender is required or elects to repay or restore, including all reasonable costs, expenses, and attorneys’ fees incurred by Lender in connection therewith, and the Indebtedness shall be automatically revived, reinstated, and restored by such amount and shall exist as though such Voidable Transfer had never been made.

 

Section 15.16 Time is of the Essence.

 

Borrower agrees that, with respect to each and every obligation and covenant contained in this Loan Agreement and the other Loan Documents, time is of the essence.

 

Section 15.17 Final Agreement.

 

THIS LOAN AGREEMENT ALONG WITH ALL OF THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. All prior or contemporaneous agreements, understandings, representations, and statements, oral or written, are merged into this Loan Agreement and the other Loan Documents. This Loan Agreement, the other Loan Documents, and any of their provisions may not be waived, modified, amended, discharged, or terminated except by an agreement in writing signed by the party against which the enforcement of the waiver, modification, amendment, discharge, or termination is sought, and then only to the extent set forth in that agreement.

 

 

Section 15.18 WAIVER OF TRIAL BY JURY.

 

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF BORROWER AND LENDER (a) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR THE RELATIONSHIP BETWEEN THE PARTIES AS BORROWER AND LENDER, THAT IS TRIABLE OF RIGHT BY A JURY, AND (b) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

 

IN WITNESS WHEREOF, Borrower and Lender have signed and delivered this Loan Agreement under seal (where applicable) or have caused this Loan Agreement to be signed and delivered under seal (where applicable) by their duly authorized representatives. Where applicable law so provides, Borrower and Lender intend that this Loan Agreement shall be deemed to be signed and delivered as a sealed instrument.

 

[Remainder of Page Intentionally Blank]

 

 

	BORROWER:
	HUNT CLUB MHP LLC, a South Carolina limited liability company
	By:	Manufactured Housing Properties Inc., a Nevada corporation, its Sole Member
	By:	/s/ Michael Z. Anise
		Michael Z. Anise
		President

 

 

	LENDER:
	ORIX REAL ESTATE CAPITAL, LLC, a
	Delaware limited liability company
	By:	/s/ April Swan-Rosney
		April Swan-Rosney
		Vice President

 

 

SCHEDULES & EXHIBITS

 

Schedules
Schedule 1	Definitions Schedule (required)	Form 6101.FR
Schedule 2	Summary of Loan Terms (required)	Form 6102.FR
Schedule 2	Addenda – Summary of Loan Terms (Manufactured Housing Community)	Form 6102.01
Schedule 2	Addenda to Schedule 2 – Summary of Loan Terms (Additional Reserve Escrows)	Form 6102.25
Schedule 3	Schedule of Interest Rate Type Provisions (required)	Form 6103.FR
Schedule 4	Prepayment Premium Schedule (required)	Form 6104.01
Schedule 5	Required Replacement Schedule (required)	Form 6001.NR
Schedule 6	Required Repair Schedule (required)	Form 6001.NR
Schedule 7	Exceptions to Representations and Warranties Schedule (required)	Form 6001.NR
Schedule 8	Ownership Interests Schedule	Form 6001.NR
Exhibits
Exhibit 1	Modifications to Multifamily Loan and Security Agreement (Manufactured Housing Community)	Form 6208
Exhibit 2	Modifications to Multifamily Loan and Security Agreement (Quarterly Income and Expense Statements and Rent Roll – Exemption)	Form 6214
Exhibit 3	Modifications to Multifamily Loan and Security Agreement (Additional Reserve Escrows)	Form 6268
Exhibit 4	Modifications to Multifamily Loan and Security Agreement (Waiver of Imposition Deposits)	Form 6228

 

[Remainder of Page Intentionally Blank]

 

 

Borrower hereby acknowledges and agrees that the Schedules and Exhibits referenced above are hereby incorporated fully into this Loan Agreement by this reference and each constitutes a substantive part of this Loan Agreement.

 

		Borrower Initials

 

 

SCHEDULE 1

TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Definitions Schedule

(Interest Rate Type – Fixed Rate)

 

Capitalized terms used in the Loan Agreement have the meanings given to such terms in this Definitions Schedule.

 

“Accrued Interest” means unpaid interest, if any, on the Mortgage Loan that has not been added to the unpaid principal balance of the Mortgage Loan pursuant to Section 2.02(b) (Capitalization of Accrued But Unpaid Interest) of the Loan Agreement.

 

“Additional Lender Repairs” means repairs of the type listed on the Required Repair Schedule but not otherwise identified thereon that are determined advisable by Lender to keep the Mortgaged Property in good order and repair (ordinary wear and tear excepted) and in good marketable condition or to prevent deterioration of the Mortgaged Property.

 

“Additional Lender Replacements” means replacements of the type listed on the Required Replacement Schedule but not otherwise identified thereon that are determined advisable by Lender to keep the Mortgaged Property in good order and repair (ordinary wear and tear excepted) and in good marketable condition or to prevent deterioration of the Mortgaged Property.

 

“Amortization Period” has the meaning set forth in the Summary of Loan Terms.

 

“Amortization Type” has the meaning set forth in the Summary of Loan Terms.

 

“Bankruptcy Event” means any one or more of the following:

 

(a) the commencement, filing or continuation of a voluntary case or proceeding under one or more of the Insolvency Laws by Borrower;

 

(b) the acknowledgment in writing by Borrower (other than to Lender in connection with a workout) that it is unable to pay its debts generally as they mature;

 

(c) the making of a general assignment for the benefit of creditors by Borrower;

 

(d) the commencement, filing or continuation of an involuntary case or proceeding under one or more Insolvency Laws against Borrower; or

 

(e) the appointment of a receiver (other than a receiver appointed at the direction or request of Lender under the terms of the Loan Documents), liquidator, custodian, sequestrator, trustee or other similar officer who exercises control over Borrower or any substantial part of the assets of Borrower;

 

provided, however, that any proceeding or case under (d) or (e) above shall not be a Bankruptcy Event until the ninetieth day after filing (if not earlier dismissed) so long as such proceeding or case occurred without the consent, encouragement or active participation of Borrower, Guarantor, Key Principal, or any Borrower Affiliate (in which event such case or proceeding shall be a Bankruptcy Event immediately).

 

 

“Borrower” means, individually (and jointly and severally (solidarily instead for purposes of Louisiana law) if more than one), the entity (or entities) identified as “Borrower” in the first paragraph of the Loan Agreement.

 

“Borrower Affiliate” means, as to Borrower, Guarantor or Key Principal:

 

(a) any Person that owns any direct ownership interest in Borrower, Guarantor or Key Principal;

 

(b) any Person that indirectly owns, with the power to vote, twenty percent (20%) or more of the ownership interests in Borrower, Guarantor or Key Principal;

 

(c) any Person Controlled by, under common Control with, or which Controls, Borrower, Guarantor or Key Principal;

 

(d) any entity in which Borrower, Guarantor or Key Principal directly or indirectly owns, with the power to vote, twenty percent (20%) or more of the ownership interests in such entity; or

 

(e) any other individual that is related (to the third degree of consanguinity) by blood or marriage to Borrower, Guarantor or Key Principal.

 

“Borrower Requested Repairs” means repairs not listed on the Required Repair Schedule requested by Borrower to be reimbursed from the Repairs Escrow Account and determined advisable by Lender to keep the Mortgaged Property in good order and repair and in a good marketable condition or to prevent deterioration of the Mortgaged Property.

 

“Borrower Requested Replacements” means replacements not listed on the Required Replacement Schedule requested by Borrower to be reimbursed from the Replacement Reserve Account and determined advisable by Lender to keep the Mortgaged Property in good order and repair and in a good marketable condition or to prevent deterioration of the Mortgaged Property.

 

“Borrower’s General Business Address” has the meaning set forth in the Summary of Loan Terms.

 

“Borrower’s Notice Address” has the meaning set forth in the Summary of Loan Terms.

 

“Business Day” means any day other than (a) a Saturday, (b) a Sunday, (c) a day on which Lender is not open for business, or (d) a day on which the Federal Reserve Bank of New York is not open for business.

 

“Collateral Account” means any account designated as such by Lender pursuant to a Collateral Agreement or as established pursuant to the Loan Agreement, including the Reserve/Escrow Account.

 

“Collateral Account Funds” means, collectively, the funds on deposit in any Collateral Account, including the Reserve/Escrow Account Funds.

 

“Collateral Agreement” means any separate agreement between Borrower and Lender and any other party (if applicable) for the establishment of any other fund, reserve or account related to the Mortgage Loan or the Mortgaged Property.

 

 

“Completion Period” has the meaning set forth in the Summary of Loan Terms.

 

“Condemnation Action” has the meaning set forth in the Security Instrument.

 

“Control” (including with correlative meanings, such as “Controlling,” “Controlled by” and “under common Control with”) means, as applied to any entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management and operations of such entity, whether through the ownership of voting securities or other ownership interests, by contract or otherwise.

 

“Credit Score” means a numerical value or a categorization derived from a statistical tool or modeling system used to measure credit risk and predict the likelihood of certain credit behaviors, including default.

 

“Debt Service Amounts” means the Monthly Debt Service Payments and all other amounts payable under the Loan Agreement, the Note, the Security Instrument or any other Loan Document.

 

“Default Rate” means an interest rate equal to the lesser of:

 

(a) the sum of the Interest Rate plus four (4) percentage points; or

 

(b) the maximum interest rate which may be collected from Borrower under applicable law.

 

“Definitions Schedule” means this Schedule 1 (Definitions Schedule) to the Loan Agreement.

 

“Division” means the filing of a certificate of division, adoption of a plan of division, amending of any organizational documents, or any other actions taken, permitted, or consented to in order to divide a Person into two or more Persons pursuant to a plan of division such as contemplated under the Delaware Limited Liability Company Act or any other similar requirement of law in any jurisdiction. The term “Divide” shall have a correlative meaning.

 

“Economic Sanctions” means any economic or financial sanction administered or enforced by the United States Government (including, without limitation, those administered by OFAC at http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets- Control.aspx), the U.S. Department of Commerce, or the U.S. Department of State.

 

“Effective Date” has the meaning set forth in the Summary of Loan Terms.

 

“Employee Benefit Plan” means a plan described in Section 3(3) of ERISA, regardless of whether the plan is subject to ERISA, or a “plan” as defined in Section 4975(e)(1) of the Internal Revenue Code.

 

“Enforcement Costs” has the meaning set forth in the Security Instrument.

 

“Environmental Indemnity Agreement” means that certain Environmental Indemnity Agreement dated as of the Effective Date made by Borrower to and for the benefit of Lender, as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time.

 

 

“Environmental Inspections” has the meaning set forth in the Environmental Indemnity Agreement.

 

“Environmental Laws” has the meaning set forth in the Environmental Indemnity Agreement.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” shall mean, with respect to Borrower, any entity that, together with Borrower, would be treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code, or Section 4001(a)(14) of ERISA, or the regulations thereunder.

 

“ERISA Plan” means any employee pension benefit plan within the meaning of Section 3(2) of ERISA (or related trust) that is subject to the requirements of Title IV of ERISA, Sections 430 or 431 of the Internal Revenue Code, or Sections 302, 303, or 304 of ERISA, which is maintained or contributed to by Borrower or its ERISA Affiliates.

 

“Event of Default” means the occurrence of any event listed in Section 14.01 (Events of Default) of the Loan Agreement.

 

“Exceptions to Representations and Warranties Schedule” means that certain Schedule 7 (Exceptions to Representations and Warranties Schedule) to the Loan Agreement.

 

“First Payment Date” has the meaning set forth in the Summary of Loan Terms.

 

“First Principal and Interest Payment Date” has the meaning set forth in the Summary of Loan Terms, if applicable.

 

“Fixed Rate” has the meaning set forth in the Summary of Loan Terms. “Fixtures” has the meaning set forth in the Security Instrument.

 

“Force Majeure” shall mean acts of God, acts of war, civil disturbance, governmental action (including the revocation or refusal to grant licenses or permits, where such revocation or refusal is not due to the fault of Borrower), strikes, lockouts, fire, unavoidable casualties or any other causes beyond the reasonable control of Borrower (other than lack of financing), and of which Borrower shall have notified Lender in writing within ten (10) days after its occurrence.

 

“Foreclosure Event” means:

 

(a) foreclosure under the Security Instrument;

 

(b) any other exercise by Lender of rights and remedies (whether under the Security Instrument or under applicable law, including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, as a result of which Lender (or its designee or nominee) or a third party purchaser becomes owner of the Mortgaged Property;

 

(c) delivery by Borrower to Lender (or its designee or nominee) of a deed or other conveyance of Borrower’s interest in the Mortgaged Property in lieu of any of the foregoing; or

 

(d) in Louisiana, any dation en paiement.

 

“Goods” has the meaning set forth in the Security Instrument.

 

 

“Governmental Authority” means any court, board, commission, department or body of any municipal, county, state or federal governmental unit, or any subdivision of any of them, that has or acquires jurisdiction over Borrower or the Mortgaged Property or the use, operation or improvement of the Mortgaged Property.

 

“Guarantor” means, individually and collectively, any guarantor of the Indebtedness or any other obligation of Borrower under any Loan Document.

 

“Guarantor Bankruptcy Event” means any one or more of the following:

 

(a) the commencement, filing or continuation of a voluntary case or proceeding under one or more of the Insolvency Laws by Guarantor;

 

(b) the acknowledgment in writing by Guarantor (other than to Lender in connection with a workout) that it is unable to pay its debts generally as they mature;

 

(c) the making of a general assignment for the benefit of creditors by Guarantor;

 

(d) the commencement, filing or continuation of an involuntary case or proceeding under one or more Insolvency Laws against Guarantor; or

 

(e) the appointment of a receiver, liquidator, custodian, sequestrator, trustee or other similar officer who exercises control over Guarantor or any substantial part of the assets of Guarantor, as applicable;

 

provided, however, that any proceeding or case under (d) or (e) above shall not be a Guarantor Bankruptcy Event until the ninetieth day after filing (if not earlier dismissed) so long as such proceeding or case occurred without the consent, encouragement or active participation of Borrower, Guarantor, Key Principal, or any Borrower Affiliate (in which event such case or proceeding shall be a Guarantor Bankruptcy Event immediately).

 

“Guarantor’s General Business Address” has the meaning set forth in the Summary of Loan Terms.

 

“Guarantor’s Notice Address” has the meaning set forth in the Summary of Loan Terms.

 

“Guaranty” means, individually and collectively, any Payment Guaranty, Non-Recourse Guaranty or other guaranty executed by Guarantor in connection with the Mortgage Loan.

 

“Immediate Family Members” means a child, stepchild, grandchild, spouse, sibling, or parent, each of whom is not a Prohibited Person.

 

“Imposition Deposits” has the meaning set forth in the Security Instrument.

 

“Impositions” has the meaning set forth in the Security Instrument.

 

“Improvements” has the meaning set forth in the Security Instrument.

 

“Indebtedness” has the meaning set forth in the Security Instrument.

 

“Initial Replacement Reserve Deposit” has the meaning set forth in the Summary of Loan Terms.

 

 

“Insolvency Laws” means the United States Bankruptcy Code, 11 U.S.C. Section 101, et seq., together with any other federal or state law affecting debtor and creditor rights or relating to the bankruptcy, insolvency, reorganization, arrangement, moratorium, readjustment of debt, dissolution, liquidation or similar laws, proceedings, or equitable principles affecting the enforcement of creditors’ rights, as amended from time to time.

 

“Insolvent” means:

 

(a) that the sum total of all of a specified Person’s liabilities (whether secured or unsecured, contingent or fixed, or liquidated or unliquidated) is in excess of the value of such Person’s non-exempt assets, i.e., all of the assets of such Person that are available to satisfy claims of creditors; or

 

(b) such Person’s inability to pay its debts as they become due.

 

“Intended Prepayment Date” means the date upon which Borrower intends to make a prepayment on the Mortgage Loan, as set forth in the Prepayment Notice.

 

“Interest Accrual Method” has the meaning set forth in the Summary of Loan Terms.

 

“Interest Only Term” has the meaning set forth in the Summary of Loan Terms.

 

“Interest Rate” means the Fixed Rate.

 

“Interest Rate Type” has the meaning set forth in the Summary of Loan Terms.

 

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

 

“Investor” means any Person to whom Lender intends to (a) sell, transfer, deliver or assign the Mortgage Loan in the secondary mortgage market, or (b) sell an MBS backed by the Mortgage Loan.

 

“Key Principal” means, collectively:

 

(a) the natural person(s) or entity that Controls Borrower that Lender determines is critical to the successful operation and management of Borrower and the Mortgaged Property, as identified as such in the Summary of Loan Terms; or

 

(b) any natural person or entity who becomes a Key Principal after the date of the Loan Agreement and is identified as such in an assumption agreement, or another amendment or supplement to the Loan Agreement.

 

“Key Principal’s General Business Address” has the meaning set forth in the Summary of Loan Terms.

 

“Key Principal’s Notice Address” has the meaning set forth in the Summary of Loan Terms.

 

“Land” means the land described in Exhibit A to the Security Instrument.

 

“Last Interest Only Payment Date” has the meaning set forth in the Summary of Loan Terms, if applicable.

 

 

“Late Charge” means an amount equal to the delinquent amount then due under the Loan Documents multiplied by five percent (5%).

 

“Leases” has the meaning set forth in the Security Instrument.

 

“Lender” means the entity identified as “Lender” in the first paragraph of the Loan Agreement and its transferees, successors and assigns, or any subsequent holder of the Note.

 

“Lender’s General Business Address” has the meaning set forth in the Summary of Loan Terms.

 

“Lender’s Notice Address” has the meaning set forth in the Summary of Loan Terms.

 

“Lender’s Payment Address” has the meaning set forth in the Summary of Loan Terms.

 

“Lien” has the meaning set forth in the Security Instrument.

 

“Loan Agreement” means the Multifamily Loan and Security Agreement dated as of the Effective Date executed by and between Borrower and Lender to which this Definitions Schedule is attached, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

 

“Loan Amount” has the meaning set forth in the Summary of Loan Terms.

 

“Loan Application” means the application for the Mortgage Loan submitted by Borrower to Lender.

 

“Loan Documents” means the Note, the Loan Agreement, the Security Instrument, the Environmental Indemnity Agreement, the Guaranty, all guaranties, all indemnity agreements, all Collateral Agreements, all O&M Plans, and any other documents now or in the future executed by Borrower, Guarantor, Key Principal, any other guarantor or any other Person in connection with the Mortgage Loan, as such documents may be amended, restated, replaced, supplemented or otherwise modified from time to time.

 

“Loan Servicer” means the entity that from time to time is designated by Lender to collect payments and deposits and receive notices under the Note, the Loan Agreement, the Security Instrument and any other Loan Document, and otherwise to service the Mortgage Loan for the benefit of Lender. Unless Borrower receives notice to the contrary, the Loan Servicer shall be the Lender originally named on the Summary of Loan Terms.

 

“Loan Term” has the meaning set forth in the Summary of Loan Terms.

 

“Loan Year” has the meaning set forth in the Summary of Loan Terms.

 

“Material Commercial Lease” means:

 

(a) any Lease that, individually or in the aggregate with other Leases entered into with the same tenant, comprises five percent (5%) or more of the total gross income at the Mortgaged Property on an annualized basis; or

 

 

(b) regardless of the percentage of the total gross income at the Mortgaged Property that it comprises, any Lease relating to:

 

(1) solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other electrical power generation equipment, and any related power purchase agreement; or

 

(2) any dwelling unit at the Mortgaged Property leased to Guarantor, Key Principal, or another Borrower Affiliate.

 

“Maturity Date” has the meaning set forth in the Summary of Loan Terms.

 

“Maximum Inspection Fee” has the meaning set forth in the Summary of Loan Terms.

 

“Maximum Repair Cost” shall be the amount(s) set forth in the Required Repair Schedule, if any.

 

“Maximum Repair Disbursement Interval” has the meaning set forth in the Summary of Loan Terms.

 

“Maximum Replacement Reserve Disbursement Interval” has the meaning set forth in the Summary of Loan Terms.

 

“Maximum Restoration Reserve Disbursement Interval” has the meaning set forth in the Summary of Loan Terms.

 

“MBS” means an investment security that represents an undivided beneficial interest in a pool of mortgage loans or participation interests in mortgage loans held in trust pursuant to the terms of a governing trust document.

 

“Mezzanine Debt” means a loan to a direct or indirect owner of Borrower secured by a pledge of such owner’s interest in an entity owning a direct or indirect interest in Borrower.

 

“Minimum Repairs Disbursement Amount” has the meaning set forth in the Summary of Loan Terms.

 

“Minimum Replacement Reserve Disbursement Amount” has the meaning set forth in the Summary of Loan Terms.

 

“Minimum Restoration Reserve Disbursement Amount” has the meaning set forth in the Summary of Loan Terms.

 

“Monthly Debt Service Payment” has the meaning set forth in the Summary of Loan Terms.

 

“Monthly Replacement Reserve Deposit” has the meaning set forth in the Summary of Loan Terms.

 

“Mortgage Loan” means the mortgage loan made by Lender to Borrower in the principal amount of the Note made pursuant to the Loan Agreement, evidenced by the Note and secured by the Loan Documents that are expressly stated to be security for the Mortgage Loan.

 

“Mortgaged Property” has the meaning set forth in the Security Instrument.

 

“Multifamily Project” has the meaning set forth in the Summary of Loan Terms.

 

 

“Multifamily Project Address” has the meaning set forth in the Summary of Loan Terms.

 

“Net Cash Flow” means, for any specified period, the total of (a) the net rental income for the Mortgaged Property, plus (b) other allowable income for the Mortgaged Property, if any, minus (c) operating expenses for the Mortgaged Property, minus (d) the full amount underwritten for the Replacement Reserve Account (regardless of whether deposits have been or will be waived or reduced), and as adjusted for economic vacancy and other factors by Lender for the specific asset class or loan type.

 

“Non-Recourse Guaranty” means, if applicable, that certain Guaranty of Non-Recourse Obligations of even date herewith executed by Guarantor to and for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

 

“Note” means that certain Multifamily Note of even date herewith in the original principal amount of the stated Loan Amount made by Borrower in favor of Lender, and all schedules, riders, allonges and addenda attached thereto, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

 

“O&M Plan” has the meaning set forth in the Environmental Indemnity Agreement.

 

“OFAC” means the United States Treasury Department, Office of Foreign Assets Control, and any successor thereto.

 

“Ownership Interests Schedule” means that certain Schedule 8 (Ownership Interests Schedule) to the Loan Agreement.

 

“Payment Date” means the First Payment Date and the first day of each month thereafter until the Mortgage Loan is fully paid.

 

“Payment Guaranty” means, if applicable, that certain Guaranty (Payment) of even date herewith executed by Guarantor to and for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

 

“Permitted Encumbrance” has the meaning set forth in the Security Instrument.

 

“Permitted Mezzanine Debt” means Mezzanine Debt incurred by a direct or indirect owner or owners of Borrower where the exercise of any of the rights and remedies by the holder or holders of the Mezzanine Debt would not in any circumstance cause (a) a change in Control in Borrower, Key Principal, or Guarantor, or (b) a Transfer of a direct or indirect Restricted Ownership Interest in Borrower, Key Principal, or Guarantor.

 

“Permitted Preferred Equity” means Preferred Equity that does not (a) require mandatory dividends, distributions, payments or returns (including at maturity or in connection with a redemption), or (b) provide the Preferred Equity owner with rights or remedies on account of a failure to receive any preferred dividends, distributions, payments or returns (or, if such rights are provided, the exercise of such rights do not violate the Loan Documents or are otherwise exercised with the prior written consent of Lender in accordance with Article 11 (Liens, Transfers and Assumptions) of the Loan Agreement and the payment of all applicable fees and expenses as set forth in Section 11.03(g) (Further Conditions to Transfers and Assumption) of the Loan Agreement).

 

 

“Permitted Prepayment Date” means the last Business Day of a calendar month.

 

“Person” means an individual, an estate, a trust, a corporation, a partnership, a limited liability company or any other organization or entity (whether governmental or private).

 

“Personal Property” means the Goods, accounts, choses of action, chattel paper, documents, general intangibles (including Software), payment intangibles, instruments, investment property, letter of credit rights, supporting obligations, computer information, source codes, object codes, records and data, all telephone numbers or listings, claims (including claims for indemnity or breach of warranty), deposit accounts and other property or assets of any kind or nature related to the Land or the Improvements, including operating agreements, surveys, plans and specifications and contracts for architectural, engineering and construction services relating to the Land or the Improvements, and all other intangible property and rights relating to the operation of, or used in connection with, the Land or the Improvements, including all governmental permits relating to any activities on the Land.

 

“Personalty” has the meaning set forth in the Security Instrument.

 

“Preferred Equity” means a direct or indirect equity ownership interest in, economic interests in, or rights with respect to, Borrower that provide an equity owner preferred dividend, distribution, payment, or return treatment relative to other equity owners.

 

“Prepayment Lockout Period” has the meaning set forth in the Summary of Loan Terms.

 

“Prepayment Notice” means the written notice that Borrower is required to provide to Lender in accordance with Section 2.03 (Lockout/Prepayment) of the Loan Agreement in order to make a prepayment on the Mortgage Loan, which shall include, at a minimum, the Intended Prepayment Date.

 

“Prepayment Premium” means the amount payable by Borrower in connection with a prepayment of the Mortgage Loan, as provided in Section 2.03 (Lockout/Prepayment) of the Loan Agreement and calculated in accordance with the Prepayment Premium Schedule.

 

“Prepayment Premium Period End Date” or “Yield Maintenance Period End Date” has the meaning set forth in the Summary of Loan Terms.

 

“Prepayment Premium Period Term” or “Yield Maintenance Period Term” has the meaning set forth in the Summary of Loan Terms.

 

“Prepayment Premium Schedule” means that certain Schedule 4 (Prepayment Premium Schedule) to the Loan Agreement.

 

“Prohibited Person” means:

 

(a) any Person with whom Lender or Fannie Mae is prohibited from doing business pursuant to any law, rule, regulation, judicial proceeding or administrative directive; or

 

(b) any Person identified on the United States Department of Housing and Urban Development’s “Limited Denial of Participation, HUD Funding Disqualifications and Voluntary Abstentions List,” or on the General Services Administration’s “System for Award Management (SAM)” exclusion list, each of which may be amended from time to time, and any successor or replacement thereof; or

 

 

(c) any Person that is determined by Fannie Mae to pose an unacceptable credit risk due to the aggregate amount of debt of such Person owned or held by Fannie Mae; or

 

(d) any Person that has caused any unsatisfactory experience of a material nature with Fannie Mae or Lender, such as a default, fraud, intentional misrepresentation, litigation, arbitration or other similar act.

 

“Property Jurisdiction” has the meaning set forth in the Security Instrument.

 

“Property Square Footage” has the meaning set forth in the Summary of Loan Terms.

 

“Publicly-Held Corporation” means a corporation, the outstanding voting stock of which is registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended.

 

“Publicly-Held Trust” means a real estate investment trust, the outstanding voting shares or beneficial interests of which are registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended.

 

“Rents” has the meaning set forth in the Security Instrument.

 

“Repair Threshold” has the meaning set forth in the Summary of Loan Terms.

 

“Repairs” means, individually and collectively, the Required Repairs, Borrower Requested Repairs, and Additional Lender Repairs.

 

“Repairs Escrow Account” means the account established by Lender into which the Repairs Escrow Deposit is deposited to fund the Repairs.

 

“Repairs Escrow Account Administrative Fee” or “Repairs Escrow Account Administration Fee” has the meaning set forth in the Summary of Loan Terms.

 

“Repairs Escrow Deposit” has the meaning set forth in the Summary of Loan Terms.

 

“Replacement Reserve Account” means the account established by Lender into which the Replacement Reserve Deposits are deposited to fund the Replacements.

 

“Replacement Reserve Account Administration Fee” has the meaning set forth in the Summary of Loan Terms.

 

“Replacement Reserve Account Interest Disbursement Frequency” has the meaning set forth in the Summary of Loan Terms.

 

“Replacement Reserve Deposits” means the Initial Replacement Reserve Deposit, Monthly Replacement Reserve Deposits and any other deposits to the Replacement Reserve Account required by the Loan Agreement.

 

“Replacement Threshold” has the meaning set forth in the Summary of Loan Terms.

 

“Replacements” means, individually and collectively, the Required Replacements, Borrower Requested Replacements and Additional Lender Replacements.

 

 

“Required Repair Schedule” means that certain Schedule 6 (Required Repair Schedule) to the Loan Agreement.

 

“Required Repairs” means those items listed on the Required Repair Schedule.

 

“Required Replacement Schedule” means that certain Schedule 5 (Required Replacement Schedule) to the Loan Agreement.

 

“Required Replacements” means those items listed on the Required Replacement Schedule.

 

“Reserve/Escrow Account Funds” means, collectively, the funds on deposit in the Reserve/Escrow Accounts.

 

“Reserve/Escrow Accounts” means, individually and collectively, the Replacement Reserve Account, the Repairs Escrow Account, and the Restoration Reserve Account.

 

“Residential Lease” means a Lease of an individual dwelling unit.

 

“Restoration” means any work and improvements required to be performed to the Mortgaged Property following a casualty or event of loss as set forth in plans and specifications approved by Lender.

 

“Restoration Reserve Account” means, if applicable, the account established by Lender into which insurance proceeds are deposited in order to fund a Restoration following a casualty or event of loss.

 

“Restoration Reserve Account Administration Fee” has the meaning set forth in the Summary of Loan Terms.

 

“Restoration Threshold” has the meaning set forth in the Summary of Loan Terms.

 

“Restricted Ownership Interest” means, with respect to any entity, the following:

 

(a) if such entity is a general partnership or a joint venture, fifty percent (50%) or more of all general partnership or joint venture interests in such entity;

 

(b) if such entity is a limited partnership:

 

(1) the interest of any general partner; or

 

(2) fifty percent (50%) or more of all limited partnership interests in such entity;

 

(c) if such entity is a limited liability company or a limited liability partnership:

 

(1) the interest of any managing member or the contractual rights of any non-member manager; or

 

(2) fifty percent (50%) or more of all membership or other ownership interests in such entity;

 

 

(d) if such entity is a corporation (other than a Publicly-Held Corporation) with only one class of voting stock, fifty percent (50%) or more of voting stock in such corporation;

 

(e) if such entity is a corporation (other than a Publicly-Held Corporation) with more than one class of voting stock, the amount of shares of voting stock sufficient to have the power to elect the majority of directors of such corporation; or

 

(f) if such entity is a trust (other than a land trust or a Publicly-Held Trust), the power to Control such trust vested in the trustee of such trust or the ability to remove, appoint or substitute the trustee of such trust (unless the trustee of such trust after such removal, appointment or substitution is a trustee identified in the trust agreement approved by Lender).

 

“Review Fee” means the non-refundable fee of $3,000 payable to Lender.

 

“Sanctioned Country” means a country subject to either a targeted or comprehensive country-wide sanctions program administered and enforced by OFAC, which list is updated from time to time.

 

“Sanctioned Person” means (a) a Person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC, available at http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx, or as otherwise published from time to time; (b) (1) an agency of the government of a Sanctioned Country, (2) an organization controlled by a Sanctioned Country, or (3) a Person resident in a Sanctioned Country, to the extent any Person described in clauses (1), (2) or (3) is the subject of a sanctions program administered by OFAC; and (c) a Person whose property and interests in property are blocked pursuant to an Executive Order or regulations administered by OFAC consistent with the guidance issued by OFAC.

 

“Schedule of Interest Rate Type Provisions” means that certain Schedule 3 (Schedule of Interest Rate Type Provisions) to the Loan Agreement.

 

“Security Instrument” means that certain multifamily mortgage, deed to secure debt or deed of trust executed and delivered by Borrower as security for the Mortgage Loan and encumbering the Mortgaged Property, including all riders or schedules attached thereto, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

 

“Servicing Arrangement” means any arrangement between Lender and the Loan Servicer for loss sharing or interim advancement of funds.

 

“Short-Term Rental” means any Lease or master Lease (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit, for which the intended occupancy of the dwelling unit is for a period or periods of less than thirty (30) days, irrespective of the stated term of the Lease, including any Lease:

 

(a) for corporate tenant and guest suite purposes; or

 

(b) with an agreement or arrangement between either:

 

(1) Borrower and a tenant whereby the tenant may enter into a separate agreement or arrangement with a Short-Term Rental Provider to offer Short-Term Rentals at the Mortgaged Property; or

 

 

(2) Borrower and a Short-Term Rental Provider, pursuant to which tenants may offer Short-Term Rentals at the Mortgaged Property.

 

“Short-Term Rental Provider” means any platform or provider (including any internet or online service platform or provider) that offers Short-Term Rental services and arrangements, including booking and reservation services to guests and customers.

 

“Software” has the meaning set forth in the Security Instrument.

 

“Summary of Loan Terms” means that certain Schedule 2 (Summary of Loan Terms) to the Loan Agreement.

 

“Taxes” has the meaning set forth in the Security Instrument.

 

“Title Policy” means the mortgagee’s loan policy of title insurance issued in connection with the Mortgage Loan and insuring the lien of the Security Instrument as set forth therein, as approved by Lender.

 

“Total Parking Spaces” has the meaning set forth in the Summary of Loan Terms.

 

“Total Residential Units” has the meaning set forth in the Summary of Loan Terms.

 

“Transfer” means:

 

(a) a sale, assignment, transfer or other disposition (whether voluntary, involuntary, or by operation of law), other than Residential Leases, Material Commercial Leases or non- Material Commercial Leases permitted by the Loan Agreement;

 

(b) a granting, pledging, creating or attachment of a lien, encumbrance or security interest (whether voluntary, involuntary, or by operation of law);

 

(c) an issuance or other creation of a direct or indirect ownership interest;

 

(d) a withdrawal, retirement, removal or involuntary resignation of any owner or manager of a legal entity; or

 

(e) a merger, consolidation, dissolution, Division or liquidation of a legal entity.

 

“Transfer Fee” means a fee equal to one percent (1%) of the unpaid principal balance of the Mortgage Loan payable to Lender.

 

“UCC” has the meaning set forth in the Security Instrument.

 

“UCC Collateral” has the meaning set forth in the Security Instrument.

 

“Voidable Transfer” means any fraudulent conveyance, preference or other voidable or recoverable payment of money or transfer of property.

 

“Yield Maintenance Period End Date” or “Prepayment Premium Period End Date” has the meaning set forth in the Summary of Loan Terms.

 

“Yield Maintenance Period Term” or “Prepayment Premium Period Term” has the meaning set forth in the Summary of Loan Terms.

 

[Remainder of Page Intentionally Blank]

 

 

SCHEDULE 2

TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Summary of Loan Terms

(Interest Rate Type - Fixed Rate)

 

I. GENERAL PARTY AND MULTIFAMILY PROJECT INFORMATION

 

Borrower		HUNT CLUB MHP LLC, a South Carolina limited liability company
Lender		ORIX REAL ESTATE CAPITAL, LLC, a Delaware limited liability company, d/b/a Lument Capital
Key Principal		Raymond M. Gee Gvest Real Estate Capital LLC Manufactured Housing Properties Inc.
Guarantor		Raymond M. Gee Gvest Real Estate Capital LLC Manufactured Housing Properties Inc.
Multifamily Project		Hunt Club MHP

 

ADDRESSES

 

Borrower’s General Business Address		136 Main Street Pineville, North Carolina 28134
Borrower’s Notice Address		136 Main Street Pineville, North Carolina 28134 Email: [email protected]
Multifamily Project Address		7201 Hunt Club Road Columbia, South Carolina 29223
Multifamily Project County		Richland
Key Principal’s General Business Address		136 Main Street Pineville, North Carolina 28134
Key Principal’s Notice Address		136 Main Street Pineville, North Carolina 28134 Email: [email protected]
Guarantor’s General Business Address		136 Main Street Pineville, North Carolina 28134

 

 

Guarantor’s Notice Address		136 Main Street Pineville, North Carolina 28134 Email: [email protected]
Lender’s General Business Address		10 West Broad Street, 8th Floor Columbus, Ohio 43215
Lender’s Notice Address		ORIX Real Estate Capital, LLC, d/b/a Lument Capital 2001 Ross Avenue, Suite 1900 Dallas, Texas 75201 Attention: Loan Administration Email: [email protected]
Lender’s Payment Address		Via Regular Mail:   ORIX Real Estate Capital, LLC, d/b/a Lument Capital P.O. Box 846019 Dallas, Texas 75284-6019   Via Overnight Courier:   ORIX Real Estate Capital, LLC, d/b/a Lument Capital Bank of America Lockbox Services Attn: Lockbox # 846019 1950 N. Stemmons Freeway, Suite 5010 Dallas, Texas 75207   Wire Remittance Information:   Bank Name: Bank of America City & State: New York, NY Account Name: ORIX Real Estate Capital, LLC ABA Number: 026-009-593 Account Number: 4632417313 Ref: 4015278 Email: [email protected]   ACH Remittance Information:   Bank Name: Bank of America City & State: New York, NY Account Name: ORIX Real Estate Capital, LLC ABA Number: 011-000-138 Account Number: 4632417313 Ref: 4015278 Email: [email protected]

 

 

II. MULTIFAMILY PROJECT INFORMATION

 

Property Square Footage		13.02 acres
Total Parking Spaces		162
Total Residential Units		79 pad sites
Affordable Housing Property		☐ Yes ☒ No

 

III. MORTGAGE LOAN INFORMATION

 

Amortization Period		Three Hundred Sixty (360) months
Amortization Type		☒ Amortizing ☐ Full Term Interest Only ☐ Partial Interest Only
Effective Date		As of December 21, 2020
First Payment Date		February 1, 2021
Fixed Rate		3.430%
Interest Accrual Method		☐ 30/360 (computed on the basis of a three hundred sixty (360) day year consisting of twelve (12) thirty (30) day months)   Or   ☒ Actual/360 (computed on the basis of a three hundred sixty (360) day year and the actual number of calendar days during the applicable month, calculated by multiplying the unpaid principal balance of the Mortgage Loan by the Interest Rate, dividing the product by three hundred sixty (360), and multiplying the quotient obtained by the actual number of days elapsed in the applicable month)

 

 

Interest Only Term		Zero (0) months
Interest Rate		The Fixed Rate
Interest Rate Type		Fixed Rate
Loan Amount		$2,445,000.00
Loan Term		One Hundred Forty-Four (144) months
Loan Year		The period beginning on the Effective Date and ending on the last day of December, 2021, and each successive twelve (12) month period thereafter
Maturity Date		January 1, 2033, or any earlier date on which the Indebtedness becomes due and payable by acceleration or otherwise
Monthly Debt Service Payment		$10,883.83
Prepayment Lockout Period		The 0 Loan Year of the term of the Mortgage Loan

 

IV. YIELD MAINTENANCE/PREPAYMENT PREMIUM INFORMATION

 

Yield Maintenance Period End Date   or   Prepayment Premium Period End Date		The last day of June, 2032
Yield Maintenance Period Term   or   Prepayment Premium Period Term		One Hundred Thirty-Eight (138) months

 

 

V. RESERVE INFORMATION

 

Completion Period		Within [See Schedule 6] months after the Effective Date or as otherwise shown on the Required Repair Schedule
Initial Replacement Reserve Deposit		$0.00
Maximum Inspection Fee		$1,000.00
Maximum Repair Disbursement Interval		One (1) time per calendar month
Maximum Replacement Reserve Disbursement Interval		One (1) time per calendar month
Maximum Restoration Reserve Disbursement Interval		One (1) time per calendar month
Minimum Repairs Disbursement Amount		$5,000.00
Minimum Replacement Reserve Disbursement Amount		$5,000.00
Minimum Restoration Reserve Disbursement Amount		$10,000.00
Monthly Replacement Reserve Deposit		$421.33 (WAIVED)
Repair Threshold		$10,000.00
Repairs Escrow Account Administrative Fee		$500.00, payable one time
Repairs Escrow Deposit		$47,625.00
Replacement Reserve Account Administration Fee		N/A
Replacement Reserve Account Interest Disbursement Frequency		Monthly
Replacement Threshold		$15,000.00
Restoration Reserve Account Administration Fee		$500.00, payable one time
Restoration Threshold		$50,000.00

 

[Remainder of Page Intentionally Blank]

 

 

MODIFICATIONS TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

ADDENDA TO SCHEDULE 2 – SUMMARY OF LOAN TERMS

(Manufactured Housing Community)

 

VI. MANUFACTURED HOUSING COMMUNITY INFORMATION

 

Initial Deposit		Not Applicable
Manufactured Community Name		Hunt Club MHP
Maximum Seasonal Reserve Disbursement Interval		Not Applicable
Number of Sites		79
Seasonal Reserve Interest Disbursement Frequency		Not Applicable

 

 

[Remainder of Page Intentionally Blank]

 

 

MODIFICATIONS TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

ADDENDA TO SCHEDULE 2 – SUMMARY OF LOAN TERMS

(Additional Reserve Escrows)

 

VII. ADDITIONAL RESERVE ESCROWS

 

P&I Reserve Deposit		$65,303.00
P&I Reserve Account Interest Disbursement Frequency		Quarterly

 

[Remainder of Page Intentionally Blank]

 

 

SCHEDULE 3

TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Schedule of Interest Rate Type Provisions

(Fixed Rate)

 

1. Defined Terms.

 

Capitalized terms not otherwise defined in this Schedule have the meanings given to such terms in the Definitions Schedule to the Loan Agreement.

 

2. Interest Accrual.

 

Except as otherwise provided in the Loan Agreement, interest shall accrue at the Interest Rate until fully paid.

 

[Remainder of Page Intentionally Blank]

 

 

SCHEDULE 4

TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Prepayment Premium Schedule

(Standard Yield Maintenance – Fixed Rate)

 

1. Defined Terms.

 

All capitalized terms used but not defined in this Prepayment Premium Schedule shall have the meanings assigned to them in the Loan Agreement.

 

2. Prepayment Premium.

 

Any Prepayment Premium payable under Section 2.03 (Lockout/Prepayment) of the Loan Agreement shall be computed as follows:

 

(a) If the prepayment is made at any time after the Effective Date and before the Yield Maintenance Period End Date, the Prepayment Premium shall be the greater of:

 

(1) one percent (1%) of the amount of principal being prepaid; or

 

(2) the product obtained by multiplying:

 

(A) the amount of principal being prepaid,

 

by

 

(B) the difference obtained by subtracting from the Fixed Rate on the Mortgage Loan, the Yield Rate (as defined below) on the twenty-fifth (25th) Business Day preceding (i) the Intended Prepayment Date, or (ii) the date Lender accelerates the Mortgage Loan or otherwise accepts a prepayment pursuant to Section 2.03(d) (Application of Collateral) of the Loan Agreement,

 

by

 

(C) the present value factor calculated using the following formula:

 

	1 - (1 + r)-n/12
	r

 

[r =

Yield Rate

 

n =

the number of months remaining between (i) either of the following: (x) in the case of a voluntary prepayment, the last day of the month in which the prepayment is made, or (y) in any other case, the date on which Lender accelerates the unpaid principal balance of the Mortgage Loan and (ii) the Yield Maintenance Period End Date.

 

 

For purposes of this clause (2), the “Yield Rate” means the yield calculated by interpolating the yields for the immediately shorter and longer term U.S. “Treasury constant maturities” (as reported in the Federal Reserve Statistical Release H.15 Selected Interest Rates (the “Fed Release”) under the heading “U.S. government securities”) closest to the remaining term of the Yield Maintenance Period Term, as follows (rounded to three (3) decimal places):

 

 

 

a =

the yield for the longer U.S. Treasury constant maturity

b =

the yield for the shorter U.S. Treasury constant maturity

x =

the term of the longer U.S. Treasury constant maturity

y =

the term of the shorter U.S. Treasury constant maturity

z =

“n” (as defined in the present value factor calculation above) divided by twelve (12).

 

For purposes of this clause (2), if the Yield Rate is calculated to be zero, the number 0.00001 shall be deemed to be the Yield Rate.

 

Notwithstanding any provision to the contrary, if “z” equals a term reported under the U.S. “Treasury constant maturities” subheading in the Fed Release, the yield for such term shall be used, and interpolation shall not be necessary. If publication of the Fed Release is discontinued by the Federal Reserve Board, Lender shall determine the Yield Rate from another source selected by Lender. Any determination of the Yield Rate by Lender will be binding absent manifest error.]

 

(b) If the prepayment is made on or after the Yield Maintenance Period End Date but before the last calendar day of the fourth (4th) month prior to the month in which the Maturity Date occurs, the Prepayment Premium shall be one percent (1%) of the amount of principal being prepaid.

 

(c) Notwithstanding the provisions of Section 2.03 (Lockout/Prepayment) of the Loan Agreement, no Prepayment Premium shall be payable with respect to any prepayment made on or after the last calendar day of the fourth (4th) month prior to the month in which the Maturity Date occurs.

 

[Remainder of Page Intentionally Blank]

 

 

SCHEDULE 5 TO

MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Required Replacement Schedule

 

 

 

 

SCHEDULE 6 TO

MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Required Repair Schedule

 

 

 

[Remainder of Page Intentionally Blank]

 

 

SCHEDULE 7 TO

MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Exceptions to Representations and Warranties Schedule

 

NONE

 

[Remainder of Page Intentionally Blank]

 

 

SCHEDULE 8 TO

MULTIFAMILY LOAN AND SECURITY AGREEMENT

 

Ownership Interests Schedule

 

 

 

[Remainder of Page Intentionally Blank]

 

 

EXHIBIT 1

 

MODIFICATIONS TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

(Manufactured Housing Community)

 

The foregoing Loan Agreement is hereby modified as follows:

 

1. Capitalized terms used and not specifically defined herein have the meanings given to such terms in the Loan Agreement.

 

2. The Definitions Schedule is hereby amended by adding the following new definitions in the appropriate alphabetical order:

 

“Borrower’s Homes” has the meaning set forth in the Security Instrument.

 

“Community” means the manufactured housing community known as the Manufactured Community Name, located on the Mortgaged Property, owned and operated by Borrower, consisting of approximately the Number of Sites, and related amenities, landscaping, roads and infrastructure.

 

“Home Owner” means a Person who owns a Manufactured Home located or to be located in the Community.

 

“Manufactured Community Name” has the meaning set forth in the Summary of Loan Terms.

 

“Manufactured Home” has the meaning set forth in the Security Instrument.

 

“Number of Sites” has the meaning set forth in the Summary of Loan Terms.

 

“Rules and Regulations” means written rules and regulations governing tenant conduct for the Community.

 

“Site” has the meaning set forth in the Security Instrument.

 

3. Section 4.01(h) (Borrower Status – Representations and Warranties – Borrower Single Asset Status) of the Loan Agreement is hereby amended by adding the following provision to the end thereof:

 

(11) does not engage in the retail sale or financing of Manufactured Homes and does not rent Manufactured Homes under Leases which provide that upon payment of the stipulated rent or a nominal charge, Borrower shall convey title to the Manufactured Home to the lessee.

 

4. Reserved.

 

 

5. Section 4.02(d) (Borrower Status – Covenants – Borrower Single Asset Status) of the Loan Agreement is hereby amended by adding the following new language at the end thereof:

 

In particular, and without limiting the foregoing, Borrower is not and shall not engage in the retail sale or financing of Manufactured Homes. Borrower shall not rent Manufactured Homes under Leases which provide that upon payment of the stipulated rent or a nominal charge, Borrower shall convey title to the Manufactured Home to the lessee.

 

6. Section 6.01 (Property Use, Preservation and Maintenance – Representations and Warranties) of the Loan Agreement is hereby amended by adding the following provisions to the end thereof:

 

(f) Manufactured Housing Community.

 

(1) The Community is located on the Mortgaged Property and is owned and operated by Borrower;

 

(2) construction of the Community is complete;

 

(3) the Community complies with all local, state and federal laws and regulations governing Manufactured Homes and manufactured home communities;

 

(4) all public and private utilities on the Mortgaged Property comply with local conditions and code requirements;

 

(5) the Community has paved roads;

 

(6) the Community consists of approximately the Number of Sites;

 

(7) the Community has at least fifty (50) Sites;

 

(8) a minimum of fifty percent (50%) of existing Sites accommodate double wide Manufactured Homes in compliance with local zoning and ordinances;

 

(9) the percentage of tenant-occupied Manufactured Homes does not exceed twenty-five percent (25%);

 

(10) Borrower has clear title to the Borrower’s Homes;

 

(11) no Borrower’s Home is subject to any Lien, claim (including condemnation proceedings or the total or partial taking of the Improvements, the Fixtures, the Personalty, or any other part of the Mortgaged Property under the power of eminent domain or otherwise and including any conveyance in lieu thereof), or encumbrance other than Lender’s lien and Permitted Liens;

 

(12) all Manufactured Homes in the Community conform to the requirements of the federal Manufactured Home Construction And Safety Standards of 1974 (42 U.S.C. chap. 70; 24 C.F.R. Part 3280);

 

(13) all Manufactured Homes are professionally skirted;

 

(14) hitches on all Manufactured Homes are concealed;

 

 

(15) the Community has a minimum of two (2) paved parking spaces per Site, which may be on or off-street, as permitted by local ordinance;

 

(16) check if applicable: ☐ the Community has a septic system or a private treatment plant system that (A) has passed an inspection by a qualified engineer, (B) does not have a record of operating violations, (C) has required licensing, and (D) is not owned by a separate entity;

 

(17) check if applicable: ☐ applicable law requires public sewer hookup, and the Community has established a special escrow to cover all hook-up costs including tap fees; and

 

(18) check if applicable: ☐ applicable law requires public water hookup, and the Community has established a special escrow to cover all hook-up costs including tap fees, or ☐ the Community has a private water well system that (A) has passed an inspection by a qualified engineer, (B) does not have a record of operating violations, (C) has required licensing, and (D) is not owned by a separate entity.

 

(g) Operation of the Community.

 

(1) Borrower does not engage in the retail sale or financing of Manufactured Homes;

 

(2) Borrower does not rent Manufactured Homes under Leases providing that upon payment of the stipulated rent or a nominal charge, Borrower shall convey title to the Manufactured Home to the lessee;

 

(3) the Community has Rules and Regulations that are appropriate and enforceable and maintain the viability and physical condition of the Community;

 

(4) each Lease arises from a bona fide lease of a Site to a Home Owner or a tenant in possession of a Borrower’s Home;

 

(5) there are no other agreements between Borrower and a Home Owner other than the Lease and the Rules and Regulations; and

 

(6) Borrower has complied with all laws and regulations applicable to (A) each Home Owner’s application for credit, (B) the advertising, making and servicing of each Lease, (C) the development, ownership and operation of the Community, including but not limited to the Federal Trade Commission Act and all rules and regulations promulgated thereunder; 24 C.F.R. Part 201 concerning manufactured home location standards; the Equal Credit Opportunity Act and all rules and regulations promulgated thereunder; the Fair Credit Reporting Act and all rules and regulations promulgated thereunder; the Fair Housing Act and all rules and regulations promulgated thereunder; the Real Estate Settlement Procedures Act, and all other applicable Federal, state, and local laws, regulations, rules, and ordinances, as any of the foregoing from time to time may be amended.

 

 

7. Section 6.02 (Property Use, Preservation and Maintenance – Covenants) of the Loan Agreement is hereby amended by adding the following provision to the end thereof:

 

(f) Location of Mortgaged Property; Site Stability.

 

(1) Until all amounts owed under the Loan Documents are paid in full, the Borrower’s Homes shall be located on the Mortgaged Property at the Multifamily Project Address;

 

(2) Borrower shall not move the Borrower’s Homes from the Site without Lender’s prior written permission, nor shall Borrower permit any Manufactured Home which is not among the Borrower’s Homes to be moved from the Site, except in accordance with the terms of the Lease for the Site of such Manufactured Home;

 

(3) the Community shall be located on the Mortgaged Property and shall be owned and operated by Borrower;

 

(4) the Community shall comply with all local, state and federal laws and regulations governing Manufactured Homes and manufactured home communities;

 

(5) all public and private utilities on the Mortgaged Property shall comply with local conditions and code requirements;

 

(6) the Community shall have paved roads;

 

(7) the Community shall consist of approximately the Number of Sites;

 

(8) the Community shall have at least fifty (50) Sites;

 

(9) a minimum of fifty percent (50%) of existing Sites shall accommodate double wide Manufactured Homes in compliance with local zoning and ordinances;

 

(10) the percentage of tenant-occupied Manufactured Homes shall not exceed twenty-five percent (25%);

 

(11) Borrower shall have clear title to the Borrower’s Homes;

 

(12) no Borrower’s Home shall be subject to any Lien, claim (including condemnation proceedings or the total or partial taking of the Improvements, the Fixtures, the Personalty, or any other part of the Mortgaged Property under the power of eminent domain or otherwise and including any conveyance in lieu thereof), or encumbrance other than Lender’s lien and Permitted Liens;

 

(13) all Manufactured Homes in the Community shall conform to the requirements of the federal Manufactured Home Construction And Safety Standards of 1974 (42 U.S.C. chap. 70; 24 C.F.R. Part 3280);

 

(14) all Manufactured Homes shall be professionally skirted;

 

 

(15) hitches on all Manufactured Homes shall be concealed;

 

(16) the Community shall have a minimum of two (2) paved parking spaces per Site, which may be on or off-street, as permitted by local ordinance;

 

(17) Borrower shall not engage in the retail sale or financing of Manufactured Homes;

 

(18) Borrower shall not rent Manufactured Homes under Leases providing that upon payment of the stipulated rent or a nominal charge, Borrower shall convey title to the Manufactured Home to the lessee;

 

(19) the Community shall have Rules and Regulations that are appropriate, enforceable, and shall maintain the viability and physical condition of the Community;

 

(20) there shall be no other agreements between Borrower and a Home Owner other than the Lease and the Rules and Regulations; and

 

(21) Borrower shall comply with all laws and regulations applicable to (A) each Home Owner’s application for credit, (B) the advertising, making and servicing of each Lease, (C) the development, ownership and operation of the Community, including but not limited to the Federal Trade Commission Act and all rules and regulations promulgated thereunder; 24 C.F.R. Part 201 concerning manufactured home location standards; the Equal Credit Opportunity Act and all rules and regulations promulgated thereunder; the Fair Credit Reporting Act and all rules and regulations promulgated thereunder; the Fair Housing Act and all rules and regulations promulgated thereunder; the Real Estate Settlement Procedures Act, and all other applicable Federal, state, and local laws, regulations, rules, and ordinances, as any of the foregoing from time to time may be amended.

 

8. Reserved.

 

9. Section 7.02(a)(3) and Section 7.02(a)(4) (Leases) of the Loan Agreement are hereby deleted and restated in their entirety and a new Section 7.02(a)(5) is hereby added as follows:

 

(3) require that all Residential Leases for Sites (A) comply with applicable law and (B) have initial lease terms of not less than six (6) months and not more than twenty-four (24) months (however, if customary in the applicable market for properties comparable to the Mortgaged Property, Residential Leases for Sites with terms of less than six (6) months (but in no case less than one (1) month) may be permitted with Lender’s prior written consent), provided however, (i) Short-Term Rentals (regardless of the duration of the term) shall not be permitted unless otherwise expressly approved by Lender in writing, and (ii) this Section 7.02(a)(3) shall not apply to any lease, license, or other rental agreement with respect to recreational vehicles having a term of less than one (1) month; such lease, license, or other rental agreement being a non-Material Commercial Lease;

 

 

(4) not permit any Residential Lease for a Site to contain an option to purchase or right of first refusal to purchase or right of first offer to purchase (except when such option or right is required by applicable law); and

 

(5) (i) promptly provide Lender a copy of any non-Residential Lease at the time such Lease is executed (subject to Lender’s consent rights for Material Commercial Leases in Section 7.02(b) (Commercial Leases)) and, (ii) upon Lender’s written request, promptly provide Lender a copy of each Residential Lease for a Site (including any lease, license, or other rental agreement with respect to recreational vehicles) then in effect.

 

10. Reserved.

 

11. Section 7.03(b) (Residential Lease Form) of the Loan Agreement is hereby deleted and restated in its entirety to read as follows:

 

(b) Residential Lease for Site Form.

 

All Residential Leases for Sites entered into from and after the Effective Date shall be on forms approved by Lender. Borrower shall give Lender thirty (30) days written notice of any material changes to the Rules and Regulations and the form of the Residential Lease for a Site.

 

12. Reserved.

 

13. Section 14.01(a) (Events of Default – Automatic Events of Default) of the Loan Agreement is hereby amended by adding the following provision as Section 14.01(a)(12):

 

(12) any change by Borrower in the occupancy requirements for Residential Leases for Sites regarding age restrictions.

 

14. Section 14.02(a) (Remedies – Acceleration; Foreclosure) of the Loan Agreement is hereby amended by adding the following new language to the end thereof:

 

At Lender’s option, Lender may repossess the Borrower’s Homes peacefully without Borrower’s permission. Lender also may require Borrower to make the Borrower’s Homes available to Lender at a place Lender designates that is reasonably convenient to Borrower and Lender. At Lender’s option, Lender may detach and remove the Borrower’s Homes from the Mortgaged Property, or Lender may take possession of it and leave it on the Mortgaged Property. Borrower agrees to cooperate with Lender if Lender exercises these rights. After Lender repossesses, Lender may then sell the Borrower’s Homes and apply what Lender receives to Lender’s reasonable repossession, repair, storage, and sale expenses, and then toward any other amounts Borrower owes under the Loan Documents, as allowed by law.

 

15. Reserved.

 

[Remainder of Page Intentionally Blank]

 

 

EXHIBIT 2

 

MODIFICATIONS TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

(Quarterly Income and Expense Statements and Rent Roll - Exemption)

 

The foregoing Loan Agreement is hereby modified as follows:

 

1. Capitalized terms used and not specifically defined herein have the meanings given to such terms in the Loan Agreement.

 

2. Section 8.02(b) (Items to Furnish to Lender) of the Loan Agreement is hereby amended by adding the following provision at the end thereof:

 

Borrower shall not be required to furnish Lender the quarterly statements of income and expense and the quarterly rent roll pursuant to Sections 8.02(b)(1) and 8.02(b)(3) (Items to Furnish to Lender) of this Loan Agreement until (1) such time as Lender provides written notice to Borrower that compliance with such Sections is required, or (2) an Event of Default has occurred (in which event compliance with such Sections shall be required whether or not Borrower receives notice from Lender to comply with such Sections).

 

 

EXHIBIT 3

 

MODIFICATIONS TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

(Additional Reserve Escrows)

 

The foregoing Loan Agreement is hereby modified as follows:

 

1. Capitalized terms used and not specifically defined herein have the meanings given to such terms in the Loan Agreement.

 

2. The Definitions Schedule is hereby amended by adding the following new definitions in the appropriate alphabetical order:

 

“Coverage Test” means the actual amortizing debt service coverage ratio of the Mortgaged Property of not less than 1.35:1.00 determined by dividing the Net Cash Flow by the annual principal and interest payments calculated at the Interest Rate if a fixed rate loan or at the comparable fixed note rate at the time of underwriting if an adjustable rate loan, as determined by Lender in accordance with the Underwriting and Servicing Requirements.

 

“P&I Reserve Account” means a custodial account established by Lender into which the P&I Reserve Deposits are deposited.

 

“P&I Reserve Account Funds” means the funds on deposit from time to time in the P&I Reserve Account.

 

“P&I Reserve Account Interest Disbursement Frequency” means the period set forth in the Summary of Loan Terms for disbursement of interest from the P&I Reserve Account.

 

“P&I Reserve Deposit” means the amount set forth on the Summary of Loan Terms to be deposited into the P&I Reserve Account.

 

“P&I Shortfall” means any amount of principal and/or interest due under the Loan Documents that cannot be funded from the operation of the Mortgaged Property.

 

“Underwriting and Servicing Requirements” means Lender’s overall requirements for the Mortgaged Property in connection with similar loans sold or anticipated to be sold to Fannie Mae, pursuant to Fannie Mae’s then current guidelines, including requirements relating to appraisals, property condition assessments, environmental site assessments, and servicing and asset management, as such requirements may be amended, modified, updated, superseded, supplemented or replaced from time to time.

 

3. The following article is hereby added to the Loan Agreement as Article 16 (Additional Reserve Escrows):

 

 

ARTICLE 16 – ADDITIONAL RESERVE ESCROWS

 

Section 16.01 P&I Reserve.

 

(a) Deposit to P&I Reserve Account.

 

On the Effective Date, Borrower shall pay to Lender the P&I Reserve Deposit for deposit into the P&I Reserve Account. The P&I Reserve Account will provide Lender with a contingent source of funding in the event of a P&I Shortfall.

 

(b) Administrative Fees and Expenses; Costs of Collection.

 

Borrower shall pay within ten (10) days of request from Lender (1) all reasonable costs and expenses incurred by Lender in connection with collecting, holding and disbursing the P&I Reserve Account Funds pursuant to this Section 16.01 (P&I Reserve); and (2) all costs and expenses incurred by Lender (including court costs and attorneys’ fees and expenses) in exercising any of Lender’s rights or obligations pursuant to the terms of this Loan Agreement or holding the P&I Reserve Account Funds.

 

(c) Accounts, Deposits and Disbursements.

 

(1) Custodial Account.

 

The P&I Reserve Account shall be deemed a Collateral Account under this Loan Agreement and any P&I Reserve Account Funds shall be deemed part of the Collateral Account Funds under this Loan Agreement. The P&I Reserve Account shall be an interest-bearing account which meets the standards for custodial accounts as required by Lender from time to time. Lender shall not be responsible for any losses resulting from the investment of the P&I Reserve Account Funds or for obtaining any specific level or percentage of earnings on such investment. All interest earned on the P&I Reserve Account Funds shall be added to and become part of such P&I Reserve Account; provided, however, if applicable law requires, and so long as no Event of Default has occurred and is continuing under any of the Loan Documents, Lender shall pay to Borrower the interest earned on the P&I Reserve Account not less frequently than the P&I Reserve Account Interest Disbursement Frequency. In no event shall Lender be obligated to disburse funds from the P&I Reserve Account if an Event of Default has occurred and is continuing at the time the disbursement request is made, other than an Event of Default occurring due to the failure of Borrower to make any required payment of principal and interest that would be cured by a disbursement from the P&I Reserve Account.

 

(2) Disbursements from P&I Reserve Account.

 

(A) In the event of a P&I Shortfall, upon a written request from Borrower (in accordance with the terms of Section 16.01(c)(3) (Disbursement Requests) below) and satisfaction of the requirements set forth in this Section 16.01(c)(2) (Disbursements from P&I Reserve Account), Lender shall disburse funds from the P&I Reserve Account to pay such P&I Shortfall.

 

(B) Nothing in this Loan Agreement shall obligate Lender to apply all or any portion of the P&I Reserve Account Funds to cure any Event of Default, other than an Event of Default occurring due to a P&I Shortfall that would be cured by a disbursement from the P&I Reserve Account, or to reduce the Indebtedness.

 

(C) Lender shall not disburse funds from the P&I Reserve Account for any costs which are to be reimbursed from any other Reserve/Escrow Account or other Collateral Account. Disbursement from the P&I Reserve Account shall not be made more frequently than once a month.

 

 

(3) Disbursement Requests.

 

(A) Each request for disbursement from the P&I Reserve Account shall be in writing and must be received by Lender no later than ten (10) Business Days before the next Monthly Debt Service Payment date. Each request shall:

 

(i) specify the amount of the disbursement that Borrower requires to cover the P&I Shortfall;

 

(ii) unless already delivered to Lender, include certified current financial statements from Borrower’s operation of the Mortgaged Property, for the prior month, and reconciled bank statements for the three (3) months preceding such request;

 

(iii) a written explanation of the circumstances causing such P&I Shortfall, together with Borrower’s written plans, to the extent available, to correct such circumstances;

 

(iv) a certification by Borrower that no Event of Default has occurred and is continuing under the Loan Documents (other than an Event of Default that would be cured with the disbursement to fund the P&I Shortfall); and

 

(v) such other information regarding the Mortgaged Property as Lender reasonably requests (collectively, the “P&I Disbursement Request Supporting Information”).

 

(B) Lender shall review the P&I Disbursement Request Supporting Information to verify the amount of the P&I Shortfall. Lender may adjust the requested amount of the disbursement from the P&I Reserve Account if Borrower’s calculation of the amount of the P&I Shortfall or the required disbursement is incorrect.

 

(C) Borrower hereby acknowledges and agrees that any disbursement from the P&I Reserve Account by Lender shall be in accordance with the terms set forth in this Section 16.01(c) (Accounts, Deposits and Disbursements). Borrower authorizes and directs Lender to make disbursements from the P&I Reserve Account and to apply such disbursements against P&I Shortfalls. All disbursements shall be expressly conditioned upon no Event of Default or event or condition which, with the giving of notice or the passage of time, or both, would give rise to an Event of Default (other than any resulting Event of Default that would be cured with the requested disbursement), existing at either the time Borrower requests a disbursement from the P&I Reserve Account or the time of such disbursement. Borrower is and shall remain obligated and responsible for the payment of all amounts due under the Loan Documents regardless of whether any disbursements from the P&I Reserve Account are made by Lender pursuant to the terms of this Loan Agreement.

 

 

(d) Final Disbursement of P&I Reserve Account Funds.

 

Unless previously released or applied by Lender pursuant to the terms of this Section 16.01 (P&I Reserve), Lender shall disburse to Borrower any and all remaining P&I Reserve Account Funds in the P&I Deposit Account on the earlier of:

 

(1) the date thirty (30) days following Borrower’s written request for such disbursement provided the following conditions are satisfied:

 

(A) such request is not made before the first day of the month following the date nine (9) months after the Effective Date; and

 

(B) the Mortgage Loan has satisfied the Coverage Test for at least one (1) quarter immediately prior to such request (with Net Cash Flows for such quarter determined on an annualized basis); or

 

(2) the date that is the first day of the month following the date thirty- six (36) months after the Effective Date.

 

Section 16.02 Lender as Attorney-In-Fact.

 

Borrower hereby authorizes and appoints Lender as attorney-in-fact pursuant to Section 14.03(c) (Appointment of Lender as Attorney-In-Fact).

 

[Remainder of Page Intentionally Blank]

 

 

EXHIBIT 4

 

MODIFICATIONS TO MULTIFAMILY LOAN AND SECURITY AGREEMENT

(Waiver of Imposition Deposits)

 

The foregoing Loan Agreement is hereby modified as follows:

 

1. Capitalized terms used and not specifically defined herein have the meanings given to such terms in the Loan Agreement.

 

2. The Definitions Schedule is hereby amended by adding the following new definitions in the appropriate alphabetical order:

 

“Insurance Impositions” means the premiums for maintaining all Required Insurance Coverage.

 

“Required Insurance Coverage” means the insurance coverage required pursuant to Article 9 (Insurance) of the Loan Agreement and under any other Loan Document.

 

3. Section 12.02 (Imposition Deposits, Taxes, and Other Charges – Covenants) of the Loan Agreement is hereby amended by adding the following provisions to the end thereof:

 

(b) Conditional Waiver of Collection of Imposition Deposits.

 

(1) Notwithstanding anything contained in this Section 12.02 (Imposition Deposits, Taxes, and Other Charges – Covenants) to the contrary, Lender hereby agrees to waive the collection of Imposition Deposits for Insurance Impositions, provided, that:

 

(A) Borrower shall pay such Insurance Impositions directly to the carrier or agent ten (10) days prior to expiration or as necessary to prevent the Required Insurance Coverage from lapsing due to non- payment of premiums;

 

(B) Borrower shall provide Lender with proof of payment acceptable to Lender of all Insurance Impositions within five (5) days after the date such Insurance Impositions are paid; and

 

(C) Borrower shall cause its insurance agent to provide Lender with such certifications regarding the Required Insurance Coverage as Lender may request from time to time evidencing that the Insurance Impositions have been paid in a timely manner and that all of the Required Insurance Coverage is in full force and effect.]

 

(2) Lender reserves the right to require Borrower to deposit the Imposition Deposits with Lender on each Payment Date for Insurance Impositions in accordance with this Section 12.02 (Imposition Deposits, Taxes, and Other Charges – Covenants) upon:

 

(A) Borrower’s failure to pay Insurance Impositions or to provide Lender with proof of payment of Insurance Impositions as required in this Section 12.02(b) (Conditional Waiver of Collection of Imposition Deposits);

 

 

(B) Borrower’s failure to maintain insurance coverage in accordance with the requirements of Article 9 (Insurance);

 

(C) the occurrence of any Transfer which is not permitted by the Loan Documents, or any Transfer which requires Lender’s consent; or

 

(D) the occurrence of a default under any of the other terms, conditions and covenants set forth in this Loan Agreement or any of the other Loan Documents.

 

(3) Except as specifically provided in this Section 12.02(b) (Conditional Waiver of Collection of Imposition Deposits), the provisions of Article 9 (Insurance) shall remain in full force and effect.

 

Exhibit 6.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 6.23

 

 

 

 

 

 

 

 

Exhibit 11.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the use in the Registration Statement on Form 1-A of our report dated April 14, 2020 relating to the December 31, 2019 and 2018 consolidated financial statements of Manufactured Housing Properties, Inc.

 

We also consent to the reference to our Firm under the caption "Experts" in the Registration Statement.

 

/s/ Liggett & Webb, P.A.

LIGGETT & WEBB, P.A.

Certified Public Accountants

 

Boynton Beach, Florida

January 21, 2021