<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CHATEAU PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 6515 38-3132038
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
19500 HALL ROAD
CLINTON TOWNSHIP, MI 48038
TELEPHONE NUMBER (810) 286-3600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
C.G. KELLOGG
PRESIDENT
CHATEAU PROPERTIES, INC.
19500 HALL ROAD
CLINTON TOWNSHIP, MI 48038
(810) 286-3600
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------------
COPIES TO:
HENRY J. BRENNAN, III, ESQ. JAY L. BERNSTEIN, ESQ.
CHARLES W. ROYER, ESQ. DAVID A. SAKOWITZ, ESQ.
TIMMIS & INMAN L.L.P. ROGERS & WELLS
300 TALON CENTRE 200 PARK AVENUE
DETROIT, MI 48207 NEW YORK, NY 10166
(313) 396-4200 (212) 878-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND
THE SATISFACTION OR WAIVER
OF ALL OTHER CONDITIONS TO THE EXCHANGE DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS INCLUDED HEREIN.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE(1)
<S> <C> <C> <C> <C>
Common Stock, $.01 Par Value.......... 13,109,941(2) $25.00(1) $327,748,525(1) $99,317.74(3)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933. Based on
the average high and low price of Chateau Common Stock on the New York Stock
Exchange on December 18, 1996.
(2) Represents the maximum number of shares of Common Stock issuable upon
consummation of the transactions described herein.
(3) A fee of $48,451.60 was paid previously pursuant to Section 14(g) of the
Securities Exchange Act of 1934.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ROC COMMUNITIES, INC.
6430 SOUTH QUEBEC STREET
ENGLEWOOD, COLORADO 80111
December 23, 1996
TO THE STOCKHOLDERS OF ROC COMMUNITIES, INC.:
In July of this year, ROC Communities, Inc. ("ROC") announced its intention
to complete a strategic business combination with Chateau Properties, Inc.
("Chateau") in order to create the largest owner of manufactured housing
communities in the United States.
Accordingly, you are cordially invited to attend a special meeting of
stockholders of ROC which will be held at its principal executive offices,
located at 6430 South Quebec Street, Englewood, Colorado 80111, on January 28,
1997, at 9:00 a.m., Mountain Standard Time (the "ROC Special Meeting"). At the
ROC Special Meeting, we will seek your approval of a single proposal (the "ROC
Proposal") calling for the adoption of an Amended and Restated Agreement and
Plan of Merger, dated as of September 17, 1996, as amended by the Amendment
thereto dated as of December 20, 1996 (collectively, the "Merger Agreement"),
among ROC, Chateau and R Acquisition Sub, Inc., a Maryland corporation and a
direct subsidiary of Chateau ("RSub"). Pursuant to the Merger Agreement, RSub
will merge with ROC, with ROC surviving such merger (the "Merger"), and the
stockholders of ROC will become stockholders of Chateau.
The Board of Directors of ROC has carefully considered the terms and
conditions of the proposed Merger and has concluded that the ROC Proposal is
advisable, fair to, and in the best interests of ROC and its stockholders. The
ROC Board of Directors has obtained an opinion from its independent financial
advisor, PaineWebber Incorporated, to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
Exchange Ratio, as defined in the Joint Proxy Statement/ Prospectus, is fair
from a financial point of view to ROC stockholders (other than Chateau and its
affiliates). Accordingly, the Board of Directors unanimously recommends that you
vote FOR the ROC Proposal.
THE ACCOMPANYING NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND JOINT PROXY
STATEMENT/PROSPECTUS PROVIDE DETAILED INFORMATION CONCERNING MATTERS TO BE
CONSIDERED AT THE SPECIAL MEETING, THE REASONS FOR YOUR BOARD OF DIRECTORS'
RECOMMENDATION OF THE APPROVAL OF THE MERGER AND ADOPTION OF THE MERGER
AGREEMENT AND CERTAIN ADDITIONAL INFORMATION, INCLUDING, WITHOUT LIMITATION,
INFORMATION ON BOTH ROC AND CHATEAU. YOU ARE URGED TO CAREFULLY CONSIDER ALL OF
THE INFORMATION IN THE ACCOMPANYING MATERIAL. PLEASE DO NOT SEND ANY SHARE
CERTIFICATES AT THIS TIME.
It is important that your shares of ROC common stock be represented at the
ROC Special Meeting, regardless of the number of shares you hold. Therefore,
please sign, date and return your proxy cards as soon as possible, whether or
not you plan to attend the ROC Special Meeting. This will not prevent you from
voting your shares in person if you subsequently choose to attend the ROC
Special Meeting.
Very truly yours,
Gary P. McDaniel
Chairman of the Board
<PAGE>
ROC COMMUNITIES, INC.
6430 SOUTH QUEBEC STREET
ENGLEWOOD, COLORADO 80111
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 28, 1997
------------------------
TO THE STOCKHOLDERS OF ROC COMMUNITIES, INC.:
PLEASE TAKE NOTICE that a Special Meeting of Stockholders of ROC
Communities, Inc., a Maryland corporation ("ROC"), will be held at its principal
executive offices, located at 6430 South Quebec Street, Englewood, Colorado
80111, on January 28, 1997 at 9:00 a.m., Mountain Standard Time, for the
following purposes:
1. To consider and vote on a proposal (the "ROC Proposal") to adopt the
Amended and Restated Agreement and Plan of Merger, dated as of September 17,
1996, as amended by the Amendment thereto dated as of December 20, 1996
(collectively, the "Merger Agreement"), by and among ROC, Chateau Properties,
Inc., a Maryland corporation ("Chateau") and R Acquisition Sub, Inc., a Maryland
corporation and a direct subsidiary of Chateau ("RSub"), providing for the
merger of RSub with ROC, with ROC surviving such merger (the "Merger") and to
authorize the Merger and certain related transactions. The consummation of the
Merger and such related transactions will result in, among other things, the
exchange of the outstanding common stock, par value $.01 per share, of ROC ("ROC
Common Stock") and non-voting redeemable stock, par value $.01 per share, of ROC
("ROC Non-Voting Stock") for common stock, par value $.01 per share, of Chateau,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Merger Agreement is attached as Appendix A
to the accompanying Joint Proxy Statement/Prospectus.
2. To adjourn the ROC Special Meeting to permit further solicitation of
proxies in the event that there are not sufficient votes to approve the ROC
Proposal at the time of the ROC Special Meeting.
3. To transact such other business as may properly come before the meeting,
or any adjournment or postponement thereof.
The Board of Directors of ROC has fixed the close of business on December
23, 1996 as the record date for the determination of the holders of ROC Common
Stock entitled to notice of, and to vote at, the meeting and adjournments or
postponements thereof. The ROC Proposal requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of ROC Common Stock.
ROC stockholders will not be entitled to dissenters' appraisal rights under
Maryland law in connection with the Merger.
Information regarding the proposed Merger, the Merger Agreement and related
matters is contained in the accompanying Joint Proxy Statement/Prospectus and
the annexes thereto, which are incorporated by reference herein and form a part
of this Notice.
WE CORDIALLY INVITE YOU TO ATTEND THE ROC SPECIAL MEETING, BUT REGARDLESS OF
WHETHER YOU PLAN TO BE PRESENT, PLEASE PROMPTLY DATE, MARK, SIGN AND MAIL THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO ADDITIONAL POSTAGE IF
MAILED IN THE UNITED STATES. ANY STOCKHOLDER WHO EXECUTES AND DELIVERS THE PROXY
MAY REVOKE THE AUTHORITY GRANTED THEREUNDER AT ANY TIME PRIOR TO ITS USE BY
GIVING WRITTEN NOTICE OF SUCH REVOCATION TO THE UNDERSIGNED AT 6430 SOUTH QUEBEC
STREET, ENGLEWOOD, COLORADO 80111, BY EXECUTING AND DELIVERING A PROXY BEARING A
LATER DATE OR BY ATTENDING AND VOTING AT THE ROC SPECIAL MEETING. YOUR VOTE IS
IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
By Order of the Board of Directors
of ROC Communities, Inc.
Gary P. McDaniel
Chairman of the Board
Englewood, Colorado
December 23, 1996
PLEASE DO NOT SEND ANY SHARE CERTIFICATES
AT THIS TIME.
<PAGE>
JOINT PROXY STATEMENT OF
<TABLE>
<S> <C> <C>
CHATEAU PROPERTIES, INC. AND ROC COMMUNITIES, INC.
[LOGO] [LOGO]
</TABLE>
THIS JOINT PROXY STATEMENT ALSO SERVES AS
THE PROSPECTUS OF CHATEAU PROPERTIES, INC.
--------------------------
This Joint Proxy Statement/Prospectus relates to the strategic business
combination of ROC Communities, Inc., a Maryland corporation ("ROC"), and
Chateau Properties, Inc., a Maryland corporation ("Chateau"). The combination of
the two companies will be accomplished through the proposed merger (the
"Merger") of R Acquisition Sub, Inc., a Maryland corporation and a subsidiary of
Chateau ("RSub"), with ROC pursuant to an Amended and Restated Agreement and
Plan of Merger dated as of September 17, 1996, as amended by the Amendment
thereto dated as of December 20, 1996 (collectively, the "Merger Agreement").
The terms of this merger of equals provide for the conversion of each
outstanding share of common stock, par value $0.01 per share, of ROC ("ROC
Common Stock") and of each outstanding share of non-voting redeemable stock, par
value $0.01 per share, of ROC ("ROC Non-Voting Stock" and, together with ROC
Common Stock, "ROC Stock") into the right to receive 1.042 shares of common
stock, par value $0.01 per share, of Chateau ("Chateau Common Stock"), as more
fully described in this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
ROC Common Stock in connection with the solicitation of proxies by the Board of
Directors of ROC (the "ROC Board") from holders of outstanding shares of ROC
Common Stock for use at the special meeting of stockholders of ROC scheduled to
be held on January 28, 1997 at its principal executive offices, located at 6430
South Quebec Street, Englewood, Colorado at 9:00 a.m., Mountain Standard Time,
and at any adjournment or postponement thereof. December 23, 1996 has been
established as the record date for voting at the special meeting of stockholders
of ROC. This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Chateau in connection with the solicitation of proxies by the
Board of Directors of Chateau (the "Chateau Board") from holders of outstanding
shares of Chateau Common Stock for use at a special meeting of stockholders of
Chateau to be scheduled to occur as soon as practicable following the approval
of the ROC Proposal (as defined herein) by the ROC stockholders at the ROC
Special Meeting. Information relating to date, time, place and record date for
the Chateau Special Meeting will be provided, following the approval of the ROC
Proposal, to stockholders of Chateau in a supplement to this Joint Proxy
Statement/Prospectus (the "Chateau Supplement"). This Joint Proxy
Statement/Prospectus also sets forth a proposal for each of ROC and Chateau to
allow proxies that have been received by each such company at the time of its
respective Special Meeting to be voted for a meeting adjournment, if necessary,
in order to permit further solicitation of proxies.
Chateau has filed a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering the
13,109,941 shares of Chateau Common Stock to be issued to ROC stockholders in
connection with the Merger. This Joint Proxy Statement/Prospectus together with
the Chateau Supplement also constitutes the Prospectus of Chateau filed as part
of the Registration Statement with respect to the shares of Chateau Common Stock
to be issued in connection with the Merger.
SEE "RISK FACTORS" BEGINNING ON PAGE 29 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY ROC STOCKHOLDERS AND CHATEAU STOCKHOLDERS.
This Joint Proxy Statement/Prospectus is first being mailed to stockholders
of ROC on or about December 24, 1996. This Joint Proxy Statement/Prospectus,
together with the Chateau Supplement, will be first mailed to stockholders of
Chateau on the date set forth in the Chateau Supplement.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representations other than those contained herein, and, if given or made, such
information or representations must not be relied upon as having been
authorized. This document does not constitute an offer or solicitation by anyone
in any state in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation.
--------------------------
The date of this Joint Proxy Statement/Prospectus is December 24, 1996.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Summary, under the captions "SUMMARY--Distribution
Policy," "RISK FACTORS," "THE PROPOSED MERGER AND RELATED
MATTERS--Recommendation of the ROC Board; Reasons for the Merger,"
"--Recommendation of the Chateau Board; Reasons for the Merger," "--Opinion of
Financial Advisor to ROC" and "--Opinions of Financial Advisors to Chateau" and
elsewhere in this Joint Proxy Statement/ Prospectus, including "THE PARTIES" and
"EFFECTS OF THE MERGER ON OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES,"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
ROC, Chateau or the Combined Company (as hereinafter defined) or industry
results to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include the following: general economic and business conditions, which
will affect the performance and value of manufactured housing communities and
the availability of financing; adverse changes in the real estate markets
including, among other things, competition with other companies; risks of real
estate development and acquisition; governmental actions and initiatives;
environmental requirements; and other changes and factors referenced in this
Joint Proxy Statement/Prospectus. See "RISK FACTORS."
AVAILABLE INFORMATION
Chateau has filed with the Commission a Registration Statement on Form S-4
(including all amendments, exhibits, annexes and schedules thereto, the
"Registration Statement") pursuant to the Securities Act and the rules and
regulations promulgated thereunder, covering the Chateau Common Stock to be
issued by it in connection with the Merger. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. Statements made in this Joint
Proxy Statement/Prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement or incorporated by reference herein, reference is made to
the exhibit for a more complete description of the matters involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
information in this Joint Proxy Statement/Prospectus concerning ROC and Chateau
has been furnished by ROC and Chateau, respectively.
ROC and Chateau are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy and information statements and other
information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth St., N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained by mail from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
In addition, ROC Common Stock and Chateau Common Stock are listed on the New
York Stock Exchange ("NYSE") and ROC and Chateau are required to file reports,
proxy and information statements and other information with the NYSE. These
documents can be inspected at the principal office of the NYSE, 11 Wall Street,
New York, New York 10005.
Further, ROC (since May 10, 1996) and Chateau (since August 14, 1996) have
been filing documents with the Commission through the Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system. Accordingly, copies of documents filed
by ROC with the Commission on or after May 10, 1996 or by
ii
<PAGE>
Chateau on or after August 14, 1996, as well as copies of the Registration
Statement (including the exhibits filed therewith), are also available thorough
the Commission's Web site (http://www.sec.gov/).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES ROC AND CHATEAU DOCUMENTS
BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS OF
ROC INCORPORATED HEREIN BY REFERENCE ARE AVAILABLE UPON REQUEST FROM ROBERTA M.
HAYHURST, CORPORATE SECRETARY, ROC COMMUNITIES, INC., 6430 SOUTH QUEBEC STREET,
ENGLEWOOD, COLORADO 80111, (303) 741-3707. DOCUMENTS OF CHATEAU INCORPORATED
HEREIN BY REFERENCE ARE AVAILABLE UPON REQUEST FROM PAMELA R. DAVIS, SECRETARY,
CHATEAU PROPERTIES, INC., 19500 HALL ROAD, CLINTON TOWNSHIP, MICHIGAN 48038,
(810) 286-3600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUESTS SHOULD BE MADE NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE RESPECTIVE
DATES OF THE SPECIAL MEETINGS (AS DEFINED BELOW), AS APPLICABLE.
The following documents of ROC filed with the Commission (File No. 1-12258)
are incorporated herein by reference:
(i) ROC's Annual Report on Form 10-K and Form 10-K/A for the year ended
December 31, 1995;
(ii) ROC's Quarterly Reports on Form 10-Q for the calendar quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996; and
(iii) ROC's Current Reports on Form 8-K dated June 28, 1996 (and the
related Form 8-K/A dated September 9, 1996), July 29, 1996 and September 20,
1996.
The following documents of Chateau filed with the Commission (File No.
1-12496) are incorporated herein by reference:
(i) Chateau's Annual Report on Form 10-K for the year ended December 31,
1995; and
(ii) Chateau's Quarterly Reports on Form 10-Q for the calendar quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996.
In addition, all reports and other documents subsequently filed by ROC and
Chateau pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior
to the date of the Special Meetings shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such reports
and documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained in this
Joint Proxy Statement/Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part of
this Joint Proxy Statement/Prospectus except as so modified or superseded.
ROC AND CHATEAU WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON WHO RECEIVES
THIS JOINT PROXY STATEMENT/PROSPECTUS, UPON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON, A COPY OF SUCH DOCUMENTS INCORPORATED HEREIN BY REFERENCE (NOT INCLUDING
EXHIBITS TO SUCH INFORMATION UNLESS THE EXHIBITS THEMSELVES ARE SPECIFICALLY
INCORPORATED BY REFERENCE). REQUESTS FOR DOCUMENTS SHOULD BE MADE AS SPECIFIED
ABOVE.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS....................................................... ii
AVAILABLE INFORMATION................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................................... iii
SUMMARY................................................................................................. 1
General............................................................................................... 1
The Parties........................................................................................... 6
The Combined Company................................................................................ 6
ROC................................................................................................. 7
Chateau............................................................................................. 8
Recommendations of the Boards of Directors; Reasons for the Merger.................................... 8
ROC................................................................................................. 8
Chateau............................................................................................. 9
Opinions of Financial Advisors........................................................................ 9
ROC; Opinion of PaineWebber......................................................................... 9
Chateau; Opinions of Merrill Lynch and Goldman Sachs................................................ 9
Recent Developments................................................................................... 10
The Stockholders Meetings............................................................................. 11
ROC Special Meeting................................................................................. 11
Chateau Special Meeting............................................................................. 11
The Adjournment Proposal............................................................................ 12
The Merger............................................................................................ 13
The Merger Agreement................................................................................ 13
Stock Option Agreements............................................................................. 15
Charter and By-Laws of the Combined Company......................................................... 15
Certain Other Transactions and Agreements........................................................... 15
Certain Effects of the Provisions of the Merger Agreement and the Other Transactions................ 17
Directors and Executive Officers of the Combined Company Following the Merger......................... 18
Comparison of Stockholder Rights...................................................................... 18
No Dissenters' Rights................................................................................. 18
Accounting Treatment.................................................................................. 18
SUMMARY HISTORICAL FINANCIAL INFORMATION................................................................ 19
Summary Historical Financial Information.............................................................. 19
Chateau............................................................................................. 19
ROC................................................................................................. 20
Combined Company Pro Forma Combined Financial Information............................................. 21
COMBINED COMPANY SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION....................................... 22
Historical and Pro Forma Per Share Information........................................................ 23
Comparative Market Data............................................................................... 24
Distribution Policy................................................................................... 25
Federal Income Tax Consequences of the Merger......................................................... 25
Interests of Certain Persons in the Merger............................................................ 26
Risk Factors.......................................................................................... 28
New York Stock Exchange Listing of Combined Company Common Stock...................................... 28
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
RISK FACTORS............................................................................................ 29
Conflicts of Interest Related to the Merger and the Other Transactions................................ 29
Real Estate Investment Risks.......................................................................... 29
Potential Environmental Liability to the Properties................................................... 30
Change in Nature of Investment Held by ROC Stockholders............................................... 31
Risks Associated with Certain ROC Properties and Income............................................... 32
Potential Conflicts of Interest Arising from Stock Ownership of Exchanging OP Unitholders............. 32
Limits on Change of Control........................................................................... 32
No Dissenters' Rights................................................................................. 33
Risks Relating to Achievement of Benefits............................................................. 33
Dependence on Key Personnel........................................................................... 33
Possible Adverse Effects on Stock Prices Arising from Shares Available for Future Sale................ 33
Impact of Interest Rates and Other Factors on Stock Price............................................. 33
Federal Income Tax Consequences....................................................................... 34
Certain Tax Risks..................................................................................... 35
THE PARTIES............................................................................................. 37
The Combined Company.................................................................................. 37
ROC................................................................................................... 38
Chateau............................................................................................... 39
CAPITALIZATION.......................................................................................... 40
THE STOCKHOLDERS MEETINGS............................................................................... 41
Introduction.......................................................................................... 41
Date, Time and Place of Meetings...................................................................... 41
Matters to Be Considered at the Meetings.............................................................. 41
Record Date and Vote Required......................................................................... 41
The Adjournment Proposal.............................................................................. 43
Proxies............................................................................................... 43
Solicitation of Proxies............................................................................... 43
No Dissenters' Rights................................................................................. 43
THE PROPOSED MERGER AND RELATED MATTERS................................................................. 45
Background of the Merger.............................................................................. 45
Certain Litigation Relating to the Merger............................................................. 51
Recommendation of the ROC Board; Reasons for the Merger............................................... 52
Recommendation of the Chateau Board; Reasons for the Merger........................................... 56
Opinion of Financial Advisor to ROC................................................................... 59
Opinions of Financial Advisors to Chateau............................................................. 65
THE MERGER.............................................................................................. 74
General............................................................................................... 74
Effects of the Merger................................................................................. 74
Effective Time of the Merger.......................................................................... 74
Terms of the Merger................................................................................... 74
Conditions to the Merger; Termination; Waiver and Amendment......................................... 75
No Solicitation; Board Action; Fees and Expenses.................................................... 77
Conduct of ROC's and Chateau's Businesses Pending Completion of the Merger.......................... 80
Indemnification..................................................................................... 84
Representations and Warranties...................................................................... 85
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Benefit Plans and Other Employment Arrangements....................................................... 85
Benefit Plans....................................................................................... 85
Stock Incentive Plan................................................................................ 85
Employment Agreements............................................................................... 85
The Stock Option Agreements........................................................................... 86
General............................................................................................. 86
Repurchases......................................................................................... 86
Registration; Restrictions on Transfer.............................................................. 87
Certain Transactions and Agreements Relating to the Merger............................................ 88
Purchases of Chateau Common Stock by ROC............................................................ 88
Chateau Share Repurchase Program.................................................................... 88
Chateau Securityholder Agreement.................................................................... 88
Chateau Share Issuance.............................................................................. 89
Purchases of ROC Common Stock by Certain Exchanging OP Unitholders.................................. 89
Contribution Agreement.............................................................................. 89
Amended Operating Partnership Agreement............................................................. 89
New Registration Rights Agreement................................................................... 90
Conversion of Common Stock of RSub.................................................................. 90
Chateau By-Law Amendments........................................................................... 90
Voting Agreement.................................................................................... 90
Exchange of Certificates.............................................................................. 90
Dissenting Stockholders............................................................................... 91
Board of Directors of the Combined Company Following the Merger....................................... 91
Benefits of the Merger and the Other Transactions to the Principals of ROC and Chateau................ 92
Federal Income Tax Consequences....................................................................... 93
The Merger.......................................................................................... 93
Tax Consequences of the Merger...................................................................... 95
Additional Tax Consequences of the Merger and the OP Unit Exchange.................................. 95
Additional Tax Consequences of Waiver of the Chateau Stock Dividend by Exchanging OP Unitholders.... 97
Federal Income Tax Considerations Relating to Chateau and ROC......................................... 97
General............................................................................................. 98
Opinions of Counsel................................................................................. 98
Requirements for Qualification...................................................................... 99
Failure to Qualify.................................................................................. 101
Taxation of Stockholders............................................................................ 102
Income Taxation of the Operating Partnership, Financing Partnership, Subtier Partnerships and Their
Partners........................................................................................... 103
Information Reporting Requirement and Backup Withholding Tax........................................ 104
Accounting Treatment.................................................................................. 105
New York Stock Exchange Listing of Common Stock....................................................... 105
DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY.................................................... 106
General............................................................................................... 106
Common Stock.......................................................................................... 106
Preferred Stock....................................................................................... 106
OP Units.............................................................................................. 107
Ownership Limit; Restrictions on Transfer............................................................. 107
Certain Provisions of Chateau's Charter and By-Laws and of Maryland Law............................... 108
Maryland Business Combination Law................................................................... 109
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Control Share Acquisitions.......................................................................... 109
Charter and By-Law Amendments....................................................................... 109
Merger, Sale of Assets and Major Transactions....................................................... 110
Board of Directors.................................................................................. 110
Advance Notice of Director Nominations and New Business............................................. 110
MANAGEMENT OF THE COMBINED COMPANY...................................................................... 111
Directors and Executive Officers of the Combined Company.............................................. 111
Board Classification and Related Matters.............................................................. 113
Compensation of Directors............................................................................. 114
Committees of the Board of Directors of the Combined Company.......................................... 114
Employment Agreements................................................................................. 114
Limitation of Liability and Indemnification........................................................... 116
Equity Participation Plan............................................................................. 116
Annual Bonus Program.................................................................................. 117
Certain Policies of the Combined Company.............................................................. 117
Investment Policies................................................................................. 117
Financing Policies.................................................................................. 118
Conflict of Interest Policies....................................................................... 118
Policies with Respect to Other Activities........................................................... 118
Reporting to Stockholders........................................................................... 119
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMBINED COMPANY.................. 120
COMPARISON OF STOCKHOLDER RIGHTS........................................................................ 122
General............................................................................................... 122
Changes in Control.................................................................................... 122
Classified Board.................................................................................... 122
Maryland Business Combination Law................................................................... 122
Maryland Control Share Statute...................................................................... 122
Stockholder Rights Plan............................................................................. 122
Preferred Stock..................................................................................... 123
Director Nomination Procedures........................................................................ 123
Removal of Directors.................................................................................. 123
Certain Voting Rights................................................................................. 123
Charter and By-Law Amendments......................................................................... 123
Special Meetings...................................................................................... 124
Stockholder Nominations and Proposals................................................................. 124
Redemption and Restrictions on Transfers.............................................................. 124
UPREIT Format......................................................................................... 125
FEDERAL SECURITIES LAW CONSEQUENCES..................................................................... 126
COMBINED COMPANY SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION...................................... 127
SELECTED HISTORICAL FINANCIAL INFORMATION............................................................... 136
Chateau............................................................................................... 136
ROC................................................................................................... 138
EFFECTS OF THE MERGER ON OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES.................................... 139
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EXPERTS................................................................................................. 139
ROC................................................................................................... 139
Chateau............................................................................................... 139
LEGAL MATTERS........................................................................................... 140
GLOSSARY................................................................................................ 141
APPENDIX A AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER........................................... A-1
APPENDIX B OPINION OF PAINEWEBBER...................................................................... B-1
APPENDIX C OPINION OF MERRILL LYNCH.................................................................... C-1
APPENDIX D OPINION OF GOLDMAN SACHS.................................................................... D-1
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SUMMARY
THE FOLLOWING SUMMARIZES CERTAIN INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS
NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION APPEARING OR INCORPORATED BY REFERENCE ELSEWHERE
HEREIN. AS USED HEREIN, THE TERM (I) "ROC" MEANS ROC COMMUNITIES, INC., A
MARYLAND CORPORATION, AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS
PREDECESSORS AND ENTITIES OWNED OR CONTROLLED DIRECTLY OR INDIRECTLY BY ROC,
(II) "CHATEAU" MEANS CHATEAU PROPERTIES, INC., A MARYLAND CORPORATION, AND
UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS PREDECESSORS AND ENTITIES OWNED OR
CONTROLLED DIRECTLY OR INDIRECTLY BY CHATEAU, INCLUDING CP LIMITED PARTNERSHIP,
A MARYLAND LIMITED PARTNERSHIP (TOGETHER WITH ENTITIES OWNED OR CONTROLLED
DIRECTLY OR INDIRECTLY BY IT, THE "OPERATING PARTNERSHIP"), (III) THE "COMBINED
COMPANY" MEANS CHATEAU FOLLOWING THE COMPLETION OF THE MERGER, AND UNLESS THE
CONTEXT OTHERWISE REQUIRES, ENTITIES THAT ARE OR WILL BE OWNED OR CONTROLLED
DIRECTLY OR INDIRECTLY BY THE COMBINED COMPANY FOLLOWING THE MERGER, AND (IV)
"OP UNITS" MEANS THE UNITS OF PARTNER INTEREST (BOTH GENERAL AND LIMITED) IN THE
OPERATING PARTNERSHIP. CERTAIN ADDITIONAL INFORMATION RELATED TO THE CHATEAU
SPECIAL MEETING WILL BE FURNISHED TO STOCKHOLDERS OF CHATEAU IN A SUPPLEMENT TO
THIS JOINT PROXY STATEMENT/PROSPECTUS (THE "CHATEAU SUPPLEMENT") TO BE MAILED TO
STOCKHOLDERS OF CHATEAU TOGETHER WITH THIS JOINT PROXY STATEMENT/PROSPECTUS.
STOCKHOLDERS OF ROC AND STOCKHOLDERS OF CHATEAU ARE URGED TO REVIEW CAREFULLY
THIS JOINT PROXY STATEMENT/PROSPECTUS, EACH OF THE APPENDICES HERETO AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE, AND, IN THE CASE OF CHATEAU, THE
CHATEAU SUPPLEMENT. SEE "GLOSSARY" FOR THE DEFINITION OF CERTAIN CAPITALIZED
TERMS USED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
GENERAL
This Joint Proxy Statement/Prospectus relates to the special meeting of
stockholders of ROC Communities, Inc. and the special meeting of stockholders of
Chateau Properties, Inc. (the "ROC Special Meeting" and the "Chateau Special
Meeting," respectively, and, collectively, the "Special Meetings"). At the
Special Meetings, the ROC stockholders and the Chateau stockholders will each
consider a proposal (the "ROC Proposal" and the "Chateau Proposal,"
respectively) involving the strategic business combination of the two companies
within Chateau (following such combination, the "Combined Company") and, in the
case of the Chateau Special Meeting, a proposal to approve the issuance of
shares of Chateau Common Stock pursuant to the Chateau Share Issuance (as
defined below). The combination of the two companies will be accomplished
through the proposed merger of R Acquisition Sub, Inc., a Maryland corporation
and a subsidiary of Chateau ("RSub"), with ROC (the "Merger"). The Merger and
the series of transactions related thereto will be effected pursuant to an
Amended and Restated Agreement and Plan of Merger, dated as of September 17,
1996, as amended by the Amendment thereto dated as of December 20, 1996
(collectively, the "Merger Agreement"), among ROC, Chateau and RSub, a copy of
which is attached to this Joint Proxy Statement/Prospectus as Appendix A. See
"THE MERGER--Terms of the Merger."
The terms of this merger of equals between ROC and Chateau provide for the
conversion of each outstanding share of common stock, par value $.01 per share,
of ROC ("ROC Common Stock") and of each outstanding share of non-voting
redeemable stock, par value $.01 per share, of ROC ("ROC Non-Voting Stock" and,
together with ROC Common Stock, "ROC Stock") into 1.042 shares of Common Stock,
$.01 par value per share, of Chateau (the "Chateau Common Stock"). The Merger
Agreement also contemplates that Chateau will declare a stock dividend (the
"Chateau Stock Dividend") equal to 0.0316 shares of Chateau Common Stock for
each share outstanding and an equivalent distribution on each OP Unit
outstanding (including those held by Chateau as general partner), payable, upon
consummation of the Merger, to Chateau stockholders and holders of limited
partner OP Units (the "OP Unitholders") of record on the record date to be set
for such dividend to occur prior to such consummation (the "Stock Dividend
Record Date"). The effective exchange ratio for ROC stockholders in the Merger
after giving effect to the conversion of each share of ROC Stock into 1.042
shares of Chateau Common Stock and the payment of the Chateau Stock Dividend is
1.01 to one (the "Exchange Ratio"). In addition, certain limited
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partners who hold an aggregate of 7,568,818 OP Units in the Operating
Partnership (such holders, which include certain directors and officers of
Chateau, being referred to as the "Exchanging OP Unitholders") have entered into
agreements with ROC dated as of December 18, 1996 (collectively, the "Chateau
Securityholder Agreement"), pursuant to which, subject to certain conditions,
they will exercise rights they currently hold to exchange an aggregate of
6,127,575 of such OP Units for shares of Chateau Common Stock in connection with
the Merger (such exchange being referred to as the "OP Unit Exchange"). The
Exchanging OP Unitholders have also been required, as a part of the Merger and
the Other Transactions, to waive (the "Dividend Waiver") the shares of Chateau
Common Stock that they would otherwise receive from Chateau as a result of the
Chateau Stock Dividend with respect to the exchanged OP Units for reallocation
to the other Chateau stockholders, which, assuming the exchange of 6,127,575 OP
Units for shares, effectively increases the amount of the stock dividend to
Chateau stockholders to 0.068 shares of Chateau Common Stock for each share
outstanding on the Stock Dividend Record Date and improves the effective
exchange ratio for Chateau stockholders to 0.98 to one, without reducing the
Exchange Ratio for ROC stockholders. See "THE MERGER--Certain Transactions and
Agreements Relating to the Merger--Chateau Securityholder Agreement." It is not
clear whether the Chateau stockholders must include into income the fair market
value of the Chateau Common Stock received pursuant to the Dividend Waiver. See
"THE MERGER--Federal Income Tax Consequences--Additional Tax Consequences of
Waiver of the Chateau Stock Dividend by Exchanging OP Unitholders."
The Merger Agreement amends and restates an earlier agreement entered into
by the parties dated as of July 17, 1996 (the "Original Merger Agreement"). The
Original Merger Agreement was amended following the announcement by Manufactured
Home Communities, Inc. ("MHC"), a REIT that also owns manufactured housing
communities, of an alternative proposal to acquire Chateau. MHC subsequently
commenced a tender offer for shares of Chateau Common Stock but on November 7,
1996 determined to withdraw such tender offer.
The Merger and the OP Unit Exchange when taken together with certain other
related transactions are expected to be treated as a transfer of shares of ROC
Stock and OP Units to Chateau for Chateau Common Stock qualifying for treatment
under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
As a result, ROC stockholders who exchange their ROC Stock for shares of Chateau
Common Stock are not expected to recognize gain or loss for federal income tax
purposes. Management of ROC and Chateau believe that the Code Section 351
structure benefits ROC stockholders by offering them an opportunity to exchange
their ROC Stock for Chateau Common Stock without recognition of gain or loss for
federal income tax purposes. This result was accomplished without any
anticipated material adverse tax consequences for, or permanent transfer of tax
costs from the Exchanging OP Unitholders to, the Combined Company or its
stockholders following the Merger.
As a result of the Code Section 351 structure, the Combined Company will
have a tax basis in properties owned by ROC and properties owned by the
Operating Partnership, attributable to the OP Units exchanged by the Exchanging
OP Unitholders pursuant to the OP Unit Exchange, determined by reference to
historical cost which is less than the current fair market value of such
properties, and the effect of the lower tax basis is to increase the potential
taxable gain that may be incurred by the Combined Company upon sale of such
properties (or any individual property). However, the Combined Company's
business strategy will generally be to avoid property dispositions and will
instead be focused on expanding portfolio size through acquisitions, expansions
and selective new community development. Thus, none of the potential additional
gain will ever be realized unless property dispositions occur. Further, if,
contrary to the Combined Company's business plan and current expectations, the
Combined Company proceeded to liquidate its entire portfolio, management of ROC
and Chateau estimate, based on pro forma data of the Combined Company as of
September 30, 1996, that the amount of potential additional taxable gain
attributable to the properties contributed to the Combined Company by ROC is
approximately $105 million and the amount attributable to the OP Unit Exchange
is approximately $148 million. Such amount is in addition to the approximately
$31 million of unrealized taxable gain inherent in the Chateau
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properties. As stockholders of the Combined Company following the Merger, the
Exchanging OP Unitholders will bear approximately 29% of the aggregate of all
such potential gain, while remaining stockholders will bear the balance.
Management of ROC and Chateau further expect that if any taxable gain results
from property dispositions following the Merger, the tax effect for stockholders
will be limited to a reduction in the portion of the Combined Company's dividend
otherwise treated as a tax-free return of capital which would have the effect of
accelerating the timing of recognition of gain which stockholders would
otherwise incur on the sale of their shares of Chateau Common Stock. The Merger
and the OP Unit Exchange will thus not result in any transfer of a permanent tax
cost from the OP Unitholders to the Combined Company or its stockholders. See
"THE MERGER--Benefits of the Merger and the Other Transactions to the Principals
of ROC and Chateau" and "--Federal Income Tax Consequences-- Additional Tax
Consequences of the Merger and the OP Unit Exchange."
In order to facilitate the completion of the Merger and the qualification of
the Merger and the OP Unit Exchange as transfers pursuant to Section 351 of the
Code, certain other transactions affecting the capital stock of Chateau and ROC
(together with the OP Unit Exchange, the "Other Transactions") have been, or
will be, effected on or prior to the Effective Time. Between October 14 and
October 16, 1996, ROC purchased 350,000 shares of Chateau Common Stock, which
shares will be cancelled if the Merger is consummated. In addition, between
October 25 and October 28, 1996, Chateau repurchased in open market or
negotiated transactions 450,000 shares of Chateau Common Stock, and, on or prior
to the completion of the Merger, Chateau may repurchase up to an additional
1,000,000 shares of Chateau Common Stock in the open market, in negotiated
transactions or pursuant to a tender offer (such repurchases being referred to
together herein as the "Chateau Share Repurchase Program"). In connection with
the OP Unit Exchange, Chateau will sell after the record date to be set for
voting at the Chateau Special Meeting up to an aggregate of 1,000,000 shares of
Chateau Common Stock to Exchanging OP Unitholders at an average price per share
of not less than the greater of the average price per share paid in the Chateau
Share Repurchase Program or the fair market value of the shares as of the sale
date as determined in good faith by the Chateau Board at the time of issuance
(the "Chateau Share Issuance"). The Chateau Share Issuance is intended to permit
Chateau to partially fund the cost of the Chateau Share Repurchase Program and
will permit Exchanging OP Unitholders to defer all or a portion of the taxable
gain which would otherwise be recognized by such Exchanging OP Unitholders by
virtue of the OP Unit Exchange. See "THE MERGER--Certain Transactions and
Agreements Relating to the Merger." The Chateau Share Issuance shall occur only
upon consummation of the Merger.
Immediately following the Merger, substantially all of the assets, subject
to liabilities, held directly by ROC and Redwood Acquisition Corp., a Maryland
corporation and a wholly owned subsidiary of ROC ("RAC"), will be transferred to
the Operating Partnership. In addition, ROCF, Inc., a Maryland corporation which
functions as ROC's financing subsidiary ("ROCF"), will be merged with a newly
organized Delaware financing limited partnership subsidiary of the Operating
Partnership to be known as CCF, L.P. (the "Financing Partnership"). The assets,
subject to liabilities, held by Chateau through the Operating Partnership will
continue to be held by the Operating Partnership. Upon completion of such
transactions (and after giving effect to the OP Unit Exchange and the
cancellation of the shares of Chateau Common Stock which may be held by ROC upon
the consummation of the Merger, and assuming the maximum number of shares are
purchased under the Chateau Share Repurchase Program and issued under the
Chateau Share Issuance), immediately following the Merger, the Combined Company
will directly and indirectly hold an approximate 90.0% general partner interest
in the Operating Partnership, and non-exchanging OP Unitholders in the Operating
Partnership will continue to hold a combined approximate 10.0% interest therein.
In connection with such transactions, the Amended and Restated Partnership
Agreement of the Operating Partnership (the "Operating Partnership Agreement")
will be further amended and restated as described herein (such Operating
Partnership Agreement, as so amended and restated, being referred to herein as
the "Amended Operating Partnership Agreement"). Following the Merger, the
Combined Company will conduct substantially all of its business activities
through the Operating Partnership. Further, at the first annual meeting of
stockholders of the Combined Company
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following the Merger, the Board of Directors of the Combined Company will
solicit stockholder approval to change the Combined Company's name to "Chateau
Communities, Inc."
The following diagrams illustrate the current organizational structure of
ROC and Chateau and the organizational structure of the Combined Company upon
completion of the Merger.
[LOGO]
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[LOGO]
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THE PARTIES
THE COMBINED COMPANY
Upon completion of the Merger, the businesses of ROC and Chateau will be
combined together within the Combined Company to form the largest owner of
manufactured home communities in the United States, in terms of the number of
communities and the number of residential homesites owned. The Combined Company,
which expects to continue to qualify as a real estate investment trust ("REIT")
under the Code, will own 124 manufactured home communities in 27 states, with an
aggregate of 42,150 residential homesites. The Combined Company's portfolio will
be geographically diversified, but with significant concentrations in the
southeastern and midwestern United States, as well as the Pacific Coast states,
permitting economies of scale in property management operations. The Combined
Company's portfolio will also be diversified by resident orientation, with
approximately 28% of the residential homesites in communities which are
adult-oriented and 72% of residential homesites in communities which are
family-oriented. Included in the Combined Company's 124 community portfolio are
seven development stage communities (the "Oakwood Communities") which ROC and
the Operating Partnership jointly agreed to purchase concurrently with the
execution of the Original Merger Agreement. Six of the Oakwood Communities were
purchased on October 1, 1996 by a limited liability company owned 50% by ROC and
50% by the Operating Partnership, for a purchase price of approximately
$21,200,000, all of which was paid in cash and financed by borrowings on the
respective lines of credit of ROC and the Operating Partnership. One of the
Oakwood Communities was acquired directly by ROC for approximately $1,900,000 in
cash and financed by a borrowing on ROC's line of credit. The Oakwood
Communities contain an aggregate of approximately 2,900 potential homesites, of
which approximately 600 are occupied, approximately 800 are developed and
available for rent and approximately 1,500 are available for future development.
In addition to the Oakwood Communities, the Combined Company will own land
adjacent to existing communities which is suitable for expansion (subject to
obtaining necessary government approvals and licenses) of up to 3,400 additional
homesites. The Combined Company will also manage on a fee basis 36 manufactured
home communities containing 7,167 residential homesites.
Management of the Combined Company will include senior executives of both
ROC and Chateau. ROC and Chateau believe that these senior executives have
unique and complementary skills and that these skills will benefit the Combined
Company by providing broad experience and significant management depth. The
Combined Company will combine ROC's recognized leadership in property
management, administration and acquisitions with Chateau's reputation for
developing premier manufactured home communities (having been involved in the
development of more than 30 communities in the last 30 years) and its expertise
in community expansions. Thus, the Combined Company will have the flexibility to
pursue its growth strategy both internally (through continuing efficiencies in
property management operations, periodic rental rate increases and community
expansions) and externally (through acquisitions and new community development).
The Combined Company's growth strategy will reflect the successful growth
strategies of both ROC and Chateau, and will include the following key elements:
Operations
- Providing attractive and desirable manufactured home communities for
residents and prospective residents;
- Aggressively managing properties to increase operating margins through
rent and occupancy increases and expense controls;
- Maintaining and upgrading communities on a continuous basis through a
program of regular and preventive maintenance and replacement;
- Offering on-site service and accessibility to residents to maximize
retention, encourage home maintenance and improvements and minimize
turnover; and
- Providing frequent personal contact between on-site managers and residents
to foster a sense of pride in the community and to promote the
desirability of each property.
Acquisitions
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- Selectively acquiring well-located manufactured home communities that show
the potential for increases in revenue and cash flow through the
institution of professional property management, the correction of
operating inefficiencies, aggressive leasing activities and, where
appropriate, renovation and expansion;
- Considering acquisitions which offer opportunities for expansion and
development, either through the lease-up of existing homesites or the
development of new homesites; and
- Utilizing the expertise and relationships developed by management to
identify acquisition opportunities and complete acquisitions directly with
sellers prior to the active marketing of the subject properties.
Development and Expansions
- Selectively developing new communities in regions where management has
significant experience and development is supported by high occupancies
for existing properties and strong market demand; and
- Expanding existing communities, where justified by local market conditions
and permitted by zoning and other applicable laws.
Following the Merger, the Combined Company will conduct substantially all of
its business activities through the Operating Partnership, of which existing
subsidiary partnerships of the Operating Partnership (the "Subtier
Partnerships") and the Financing Partnership will be subsidiaries. Upon
completion of the Merger (and after giving effect to the OP Unit Exchange and
the cancellation of the shares of Chateau Common Stock which may be held by ROC
prior to the consummation of the Merger, and assuming the maximum number of
shares are purchased under the Chateau Share Repurchase Program and issued under
the Chateau Share Issuance), the Combined Company will directly and indirectly
hold an approximate 90.0% general partner interest in the Operating Partnership,
and non-exchanging OP Unitholders will continue to hold a combined approximate
10.0% interest therein. Following consummation of the Merger and the Other
Transactions, 20.0% of Chateau Common Stock will be directly owned by officers
and directors of the Combined Company and an additional 2.5% of Chateau will be
beneficially owned by John A. Boll through his beneficial ownership of OP Units.
The Common Stock of the Combined Company will continue to be listed on the
NYSE following the Merger under the symbol "CPJ." The Merger Agreement provides
that, at the first annual meeting of stockholders of the Combined Company
following the Merger, the Board of Directors of the Combined Company will
solicit stockholder approval to change the Combined Company's name to "Chateau
Communities, Inc." If the stockholders of the Combined Company approve such name
change, the Combined Company will change its symbol on the NYSE to appropriately
comport with the name change. The Combined Company's executive offices will be
located at ROC's existing executive offices, 6430 South Quebec Street,
Englewood, Colorado 80111, and its telephone number will be (303) 741-3707.
ROC
ROC is a self-administered and self-managed REIT which was incorporated in
March 1993 to continue and to expand the business of its predecessors (together,
the "ROC Predecessor") and principals, commenced in 1979, of acquiring, owning,
managing, renovating and expanding manufactured home communities throughout the
United States.
As of September 30, 1996, ROC owned a portfolio of 71 manufactured home
communities (the "ROC Properties") in 23 states, aggregating 21,041 residential
homesites. As of December 31, 1995, 1994 and 1993, the occupancy rate of the ROC
Properties was 94%, 95% and 95%, respectively. Weighted average monthly rent per
site for the ROC Properties for the quarter ended September 30, 1996 was $239.
In addition, ROC currently manages, on a fee basis, 36 manufactured home
communities, aggregating 7,167 residential homesites, of which seven
communities, aggregating 1,352 homesites, are owned by certain of its
affiliates. ROC also owns land adjacent to its existing owned communities which
is suitable for expansion (subject to obtaining necessary government approvals
and licenses) of up to 1,900 additional
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homesites. In April 1996, ROC was awarded the Manufactured Home Community
"Operator of the Year" award by the National Manufactured Housing Industry
Association for the fourth consecutive year.
ROC Common Stock is listed on the NYSE under the symbol "RCI." ROC's
executive offices are located at 6430 South Quebec Street, Englewood, Colorado
80111 and its telephone number is (303) 741-3707. ROC has regional property
management offices in Atlanta, Georgia; Indianapolis, Indiana; and Tampa,
Florida.
CHATEAU
Chateau is a self-administered and self-managed equity REIT that was formed
in 1993 to continue and to expand the property operations and business
objectives of ownership, management, leasing, expansion, development and
acquisition of manufactured home communities previously conducted by Chateau
Estates, a Michigan co-partnership, and a group of partnerships affiliated with
Leonard Maas and Intercoastal Communities, Inc. and its affiliates (together,
the "Chateau Predecessor").
As of September 30, 1996, Chateau owned and operated 47 manufactured home
communities located in Michigan, Florida, Illinois, Minnesota and North Dakota
containing 20,003 sites (the "Chateau Properties" and, together with the ROC
Properties, the "Properties"). As of December 31, 1995, 1994 and 1993, the
occupancy rate of the Chateau Properties was 94%, 92% and 93%, respectively.
Weighted average monthly rent per site for the quarter ended September 30, 1996
was $286. Also at September 30, 1996, Chateau owned undeveloped land adjacent to
existing communities suitable for approximately 1,500 expansion sites, which are
zoned for manufactured housing.
Chateau conducts substantially all of its activities through the Operating
Partnership, in which it currently owns an approximate 40.8% general partner
interest. As the sole general partner of the Operating Partnership, Chateau has
unilateral control and complete responsibility for the management of the
Operating Partnership and over each of the Chateau Properties. In April 1996,
Chateau was awarded the Manufactured Home Community of the Year--Eastern Region
Award by the National Manufactured Housing Industry Association for its Del Tura
Country Club community in Florida.
Chateau's Common Stock is listed on the New York Stock Exchange under the
symbol "CPJ." Chateau's executive offices are located at 19500 Hall Road,
Clinton Township, Michigan 48038, and its telephone number is (810) 286-3600.
Chateau has regional property management offices in Minneapolis, Minnesota and
Orlando, Florida.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
ROC
The ROC Board of Directors (the "ROC Board") believes that the Merger is
advisable, fair to and in the best interests of the stockholders of ROC.
Accordingly, the ROC Board has unanimously approved the Merger, the Merger
Agreement and certain related contribution and other transactions (the "Other
Transactions") contemplated thereby and recommends that ROC stockholders vote
FOR the approval of the Merger and the adoption of the Merger Agreement. The
decision and recommendation of the ROC Board is based upon several factors,
including the oral opinion of PaineWebber Incorporated ("PaineWebber"), ROC's
financial advisor for the Merger, given September 17, 1996 (and confirmed by
means of a written opinion dated such date), to the effect that, as of such date
and based upon and subject to certain matters stated therein, the Exchange Ratio
is fair from a financial point of view to ROC's stockholders (other than Chateau
and its affiliates). See "THE PROPOSED MERGER AND RELATED
MATTERS--Recommendation of the ROC Board; Reasons for the Merger" and "--Opinion
of Financial Advisor to ROC."
CHATEAU
The Chateau Board of Directors (the "Chateau Board") believes that the
Merger is advisable, fair to and in the best interests of the stockholders of
Chateau. Accordingly, the Chateau Board has unanimously approved the Merger, the
Merger Agreement, the Other Transactions (including the Chateau Share Issuance)
and the issuance of the Merger Consideration to the ROC stockholders and
recommends that the stockholders of Chateau vote FOR the issuance of the Merger
Consideration to the ROC stockholders
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and FOR the Chateau Share Issuance. The decision and recommendation of the
Chateau Board is also based upon several factors, including the written opinion
of Merrill Lynch & Co. ("Merrill Lynch"), dated September 17, 1996, to the
effect that, as of such date, the Merger Consideration to be paid by Chateau in
the Merger is fair to Chateau and its stockholders (other than ROC and its
affiliates) from a financial point of view, and the written opinion of Goldman,
Sachs & Co. ("Goldman Sachs"), dated September 17, 1996, to the effect that, as
of such date, the Exchange Ratio is fair to Chateau. See "THE PROPOSED MERGER
AND RELATED MATTERS--Recommendation of the Chateau Board; Reasons for the
Merger" and "--Opinions of Financial Advisors to Chateau."
OPINIONS OF FINANCIAL ADVISORS
ROC; OPINION OF PAINEWEBBER
PaineWebber, an independent investment banking firm, has rendered its
written opinion (dated September 17, 1996) to the ROC Board to the effect that,
as of the date of such opinion, based on PaineWebber's review and subject to the
limitations described herein (including, but not limited to, the assumption
that, based on certain representations of ROC's management, the tax effects to
ROC and the ROC stockholders, if any, resulting from the Merger would be
immaterial), the Exchange Ratio is fair from a financial point of view to ROC
stockholders (other than Chateau and its affiliates). PaineWebber also rendered
an opinion in connection with the Original Merger Agreement, dated July 17,
1996, that the ROC Merger Consideration (as defined in the Original Merger
Agreement) to be received by the holders of ROC Common Stock was fair to such
holders from a financial point of view, and it participated as ROC's advisor in
the negotiations with Chateau concerning the Merger and the Other Transactions.
PaineWebber subsequently confirmed its written opinion dated September 17, 1996
by delivery of a written opinion (the "PaineWebber Opinion") dated as of the
date of this Joint Proxy Statement/Prospectus. A copy of the PaineWebber Opinion
is attached to this Joint Proxy Statement/Prospectus as Appendix B and should be
read in its entirety. See "THE PROPOSED MERGER AND RELATED MATTERS--Opinion of
Financial Advisor to ROC."
CHATEAU; OPINIONS OF MERRILL LYNCH AND GOLDMAN SACHS
Merrill Lynch
On September 17, 1996, Merrill Lynch delivered its written opinion to the
Chateau Board, to the effect that, as of such date, the Merger Consideration to
be paid by Chateau in the Merger is fair to Chateau and its stockholders (other
than ROC and its affiliates) from a financial point of view. Merrill Lynch
subsequently confirmed its September 17, 1996 written opinion by delivery of its
written opinion dated the date of this Joint Proxy Statement/Prospectus. In
connection with the Chateau Board's consideration of the Original Merger
Agreement, Merrill Lynch had previously delivered its written opinion on July
17, 1996 to the Chateau Board to the effect that, as of such date and based upon
the assumptions made, matters considered and limits of review as set forth in
such opinion, the merger consideration payable pursuant to the Original Merger
Agreement was fair to Chateau and its stockholders from a financial point of
view. References herein to the "Merrill Lynch Opinion" refer to the written
opinion of Merrill Lynch with respect to the Merger dated the date of this Joint
Proxy Statement/ Prospectus. The full text of the written opinion of Merrill
Lynch, dated as of the date of this Joint Proxy Statement/Prospectus, which sets
forth the assumptions made (including, but not limited to, the assumption that,
based on certain representations of Chateau's management, the tax effects to
Chateau and the holders of Chateau Common Stock resulting from the transactions
contemplated by the Merger Agreement would be immaterial), procedures followed,
matters considered and limits on its review, is attached hereto as Appendix C.
See "THE PROPOSED MERGER AND RELATED MATTERS--Opinions of Financial Advisors to
Chateau."
Goldman Sachs
On September 17, 1996, Goldman Sachs delivered its written opinion to the
Chateau Board to the effect that, as of such date, the Exchange Ratio pursuant
to the Merger Agreement is fair to Chateau. Goldman Sachs subsequently confirmed
its September 17, 1996 written opinion by delivery of its written
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opinion dated as of the date of this Joint Proxy Statement/Prospectus. The full
text of the written opinion of Goldman Sachs, dated the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made (including, but not
limited to, the assumption that, based on certain representations of Chateau's
management, the tax effects to Chateau and the holders of Chateau Common Stock,
if any, resulting from the transactions contemplated by the Merger Agreement
would be immaterial), procedures followed, matters considered and limits on its
review, is attached hereto as Appendix D. See "THE PROPOSED MERGER AND RELATED
MATTERS--Opinions of Financial Advisors to Chateau."
RECENT DEVELOPMENTS
The execution of the Original Merger Agreement by the parties was announced
in a joint press release by ROC and Chateau on July 18, 1996. On August 16,
1996, Samuel Zell, Chairman of MHC, communicated to Chateau MHC's proposal (the
"MHC Proposal") to acquire Chateau for $26.00 per share of Chateau Common Stock
in cash, MHC common shares at a ratio of 1.15 MHC common shares for each share
of Chateau Common Stock or a combination of cash at $26.00 per share and MHC
common shares at such ratio. The closing price of MHC's common stock on August
15, 1996 on the NYSE was $18.125. The MHC Proposal was publicly announced in a
press release by MHC dated August 19, 1996.
On August 20, 1996, Gary Shiffman, President of Sun Communities, Inc.
("Sun"), another REIT that owns manufactured housing communities, contacted
Chateau and indicated that Sun wanted to propose a business combination
involving Sun and Chateau. On that day, the Chateau Board received a written
proposal in which Sun stated that it was prepared to offer shares of Sun common
stock or operating partnership units in Sun's operating partnership to all of
Chateau's stockholders and OP Unitholders at a 0.892 exchange ratio in a merger.
The closing price of Sun's common stock on August 19, 1996 on the NYSE was
$28.00.
On September 4, 1996, MHC's operating partnership ("MHC OP") commenced a
tender offer (the "MHC Tender Offer") for all outstanding shares of Chateau
Common Stock at a price of $26.00 net per share in cash, conditioned upon, among
other things, at least two-thirds of such shares having been validly tendered
and not withdrawn prior to the expiration date. On September 10, 1996, Chateau
received a letter from Sun in which Sun reiterated its commitment to
consummating a merger involving Chateau and Sun. In its letter, Sun indicated
that it was prepared to offer a cash alternative, to the extent desired by
Chateau's stockholders, to its previously announced stock proposal, which Sun
believed would compare favorably with the offer of MHC. Since September 10,
1996, Chateau has not received any further communication from Sun.
On September 17, 1996, the Chateau Board, after carefully considering the
MHC Tender Offer and the Sun Proposal, rejected such transactions for the
reasons stated below in "THE PROPOSED MERGER AND RELATED MATTERS--Recommendation
of the Chateau Board; Reasons for the Merger." Also on that date, the Boards of
Directors of both ROC and Chateau determined the advisability of and voted to
approve the revised Merger Agreement and to recommend the approval of the Merger
and the Merger Agreement to stockholders.
On October 1, 1996, the initial expiration date of the MHC Tender Offer, MHC
announced that a total of approximately 3.0 million shares of Chateau Common
Stock had been tendered, the MHC Tender Offer was being extended to October 23,
1996 and MHC was not waiving any of the offer's conditions. On October 2, 1996,
Mr. Zell sent a letter to Mr. Boll requesting a meeting between representatives
of MHC and Chateau. The Chateau Board convened a telephonic meeting on October
3, 1996 and, after consulting with its legal and financial advisors, declined to
meet with MHC. On October 23, 1996, MHC announced that a total of approximately
2.6 million shares of Chateau Common Stock had been tendered and not withdrawn,
it was further extending the expiration date of the MHC Tender Offer to November
6, 1996 and was not waiving any of the offer's conditions. On November 7, 1996,
MHC announced the formal withdrawal of the MHC Tender Offer.
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THE STOCKHOLDERS MEETINGS
ROC SPECIAL MEETING
The ROC Special Meeting will be held at its principal executive offices,
located at 6430 South Quebec Street, Englewood, Colorado 80111, on January 28,
1997, at 9:00 a.m., Mountain Standard Time. At the ROC Special Meeting, the
holders of ROC Common Stock will be asked to consider and vote upon the ROC
Proposal to authorize the Merger. The ROC Proposal requires the affirmative vote
of the holders of at least two-thirds of the outstanding shares of ROC Common
Stock (the "ROC Stockholder Approval"). Holders of ROC Common Stock are entitled
to one vote for each share held of record on December 23, 1996 (the "ROC Record
Date") on all matters submitted to a vote of the ROC stockholders. As of the ROC
Record Date, there were 12,423,500 shares of ROC Common Stock outstanding.
Gary P. McDaniel, ROC's President and Chief Executive Officer and Chairman
of the ROC Board, Steven G. Davis, ROC's Chief Financial Officer and a ROC
director, James B. Grange, ROC's Chief Operating Officer, and Rees F. Davis,
Jr., ROC's Executive Vice President--Acquisitions (together, the "ROC
Principals"), have executed proxies (as amended, the "ROC Principal Proxies")
granting to Chateau the full power to vote all shares of ROC Common Stock held
by them in favor of the ROC Proposal and against any proposal made in opposition
to or in competition with the ROC Proposal. As of the ROC Record Date, such
individuals held in the aggregate 601,738 shares of ROC Common Stock and other
executive officers and directors of ROC (who have indicated their intention to
vote in favor of the ROC Proposal) held or exercised voting control over, in the
aggregate, 196,104 shares of ROC Common Stock, representing together a total of
approximately 6.4% of all the votes entitled to be cast by holders of ROC Common
Stock at the ROC Special Meeting. See "THE STOCKHOLDERS MEETINGS" and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
CHATEAU SPECIAL MEETING
The Chateau Special Meeting will be scheduled to occur as soon as
practicable following the approval of the ROC Proposal by the ROC stockholders
at the ROC Special Meeting. Information relating to date, time, place and record
date (the "Chateau Record Date") for the Chateau Special Meeting will be
provided to stockholders of Chateau in the Chateau Supplement. It is currently
expected that the Chateau Special Meeting will be held approximately 12 days
after the Chateau Record Date. At the Chateau Special Meeting, the holders of
Chateau Common Stock will be asked to consider and vote upon (i) the Chateau
Proposal to authorize the issuance of the Merger Consideration to the ROC
stockholders in the Merger and (ii) the issuance of up to an aggregate of
1,000,000 shares of Chateau Common Stock pursuant to the Chateau Share Issuance
(the "Chateau Share Issuance Proposal" and, together with the Chateau Proposal,
the "Chateau Proposals"). Each of the Chateau Proposals requires the affirmative
vote of the holders of a majority of the shares of Chateau Common Stock voting
at the Chateau Special Meeting (provided the total vote cast represents over 50%
of the outstanding Chateau Common Stock) (the "Chateau Stockholder Approval").
Holders of Chateau Common Stock on the Chateau Record Date are entitled to one
vote for each share held of record on the Chateau Record Date on all matters
submitted to a vote of the Chateau stockholders.
John A. Boll, Chairman of the Chateau Board, C.G. ("Jeff") Kellogg,
Chateau's President and Chief Executive Officer and a Chateau director, and
Tamara D. Fischer, Chateau's Chief Financial Officer (together, the "Chateau
Principals"), who together hold an aggregate of 26,937 shares of Chateau Common
Stock, have executed proxies (as amended, the "Chateau Principal Proxies")
granting to ROC the full power to vote all shares of Chateau Common Stock held
by them in favor of the Chateau Proposals and against any proposal made in
opposition to or in competition with the Chateau Proposals. In addition, certain
other officers and directors of Chateau, who together hold an aggregate of
45,995 shares of Chateau Common Stock, have expressed to ROC an intention to
vote all shares of Chateau Common Stock held by them as of the Chateau Record
Date in favor of the Chateau Proposal. Further, the Exchanging OP Unitholders,
who include Messrs. Boll and Kellogg, have agreed with ROC pursuant to the
Chateau Securityholder Agreement to the effect that, subject to the approval by
the ROC stockholders of the ROC Proposal and certain other conditions described
herein under "THE MERGER--Certain
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Transactions and Agreements Relating to the Merger--Chateau Securityholder
Agreement," they will exchange an aggregate of 3,768,391 OP Units for shares of
Chateau Common Stock on or prior to the Chateau Record Date, and
contemporaneously with the closing of the Merger, an additional 2,359,184 OP
Units for shares of Chateau Common Stock. OP Unitholders who exchange their OP
Units for shares of Chateau Common Stock on or prior to the Chateau Record Date
will be entitled to vote at the Chateau Special Meeting and they are expected to
vote in favor of the Chateau Proposals because they would be subject to
significant tax liability as a result of the exchange of their OP Units if the
Merger does not occur. Further, ROC has purchased 350,000 shares of Chateau
Common Stock and has agreed with Chateau to vote all such shares in favor of the
Chateau Proposals and against any proposal made in opposition to or in
competition with the Chateau Proposals. After giving effect to the OP Unit
Exchange and the 450,000 shares purchased to date by Chateau in the Chateau
Share Repurchase Program, it is anticipated that, as of the Chateau Record Date,
(i) there will be 9,418,101 shares of Chateau Common Stock outstanding and (ii)
the Chateau Principals, the other Exchanging OP Unitholders and the other
Chateau stockholders who have expressed an intent to vote in favor of the
Merger, combined with the shares of Chateau Common Stock expected to be held by
ROC, will represent in the aggregate 4,194,083 shares of Chateau Common Stock,
whereas 4,709,051 shares would be required to approve the Chateau Proposals
(assuming all shares of Chateau Common Stock outstanding on the Chateau Record
Date are voted at the Chateau Special Meeting). The Chateau Principals, other
Exchanging OP Unitholders and such other Chateau stockholders will therefore
hold approximately 45% of the outstanding shares of Chateau Common Stock, which
is nearly sufficient voting power to approve the Chateau Proposals. See "THE
STOCKHOLDERS MEETINGS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT." Until the first phase of the OP Unit Exchange (which is expected to
occur within one or two days following the ROC Special Meeting), the Merger will
remain subject to a number of conditions and the right of the Board of Directors
of ROC and Chateau to terminate the Merger Agreement in connection with its
acceptance of certain Superior Competing Transactions (as defined in the Merger
Agreement), including a sale of ROC or Chateau, if required by either Board's
exercise of its fiduciary duties. Pursuant to the Merger Amendment, upon the
occurrence of the first phase of the OP Unit Exchange, the Board of Directors of
each of ROC and Chateau will no longer have the right to terminate the Merger
Agreement based on its fiduciary duty to consider certain Superior Competing
Transactions.
THE ADJOURNMENT PROPOSAL
In the event that there are not sufficient votes to approve the ROC Proposal
or the Chateau Proposals at the time of the applicable Special Meeting, unless
such Special Meeting were adjourned in order to permit further solicitation of
proxies the ROC Proposal or the Chateau Proposals could not be approved at the
applicable Special Meeting. In order to allow proxies that have been received by
either ROC or Chateau at the time of the applicable Special Meeting to be voted
for such adjournment, if necessary, each company has submitted the question of
adjournment (each, an "Adjournment Proposal") under such circumstances, and only
under such circumstances, to the respective stockholders of the two companies as
a separate matter for their consideration. A majority of the shares represented
and voting at the applicable Special Meeting is required in order to approve
such adjournment. Each Board of Directors recommends that stockholders vote
their proxies FOR the applicable Adjournment Proposal so that their proxies may
be used for such purposes in the event it should become necessary. Properly
executed proxies will be voted FOR any such adjournment unless otherwise
indicated thereon. If it is necessary to adjourn the Special Meeting, no notice
of the time and place of the adjourned meeting is required to be given to
stockholders other than an announcement of such time and place at the Special
Meeting. This Adjournment Proposal relates only to an adjournment occurring for
the purpose of soliciting additional proxies for the ROC Proposal or the Chateau
Proposals in the event that there are insufficient votes to approve such
proposal at the applicable Special Meeting. In addition, the Board of Directors
of each company retains full authority to postpone the applicable Special
Meeting prior to its being convened without the consent of any stockholder.
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THE MERGER
THE MERGER AGREEMENT
The Merger Agreement, which is dated as of September 17, 1996 and amended as
of December 20, 1996, amends and restates the Original Merger Agreement which
was dated as of July 17, 1996. The Merger Agreement provides that, subject to
the satisfaction or waiver of certain conditions, ROC will merge with RSub,
whereupon the separate existence of RSub will cease and ROC will be the
surviving corporation in the Merger. See "THE MERGER--Effects of the Merger."
The Merger will become effective upon the filing of Articles of Merger for the
Merger with the Department of Assessments and Taxation of the State of Maryland
(the "Effective Time"). At the Effective Time, each outstanding share of ROC
Stock will be converted into the right to receive the Merger Consideration. See
"THE MERGER-- Terms of the Merger." Concurrently with the consummation of the
Merger, the Other Transactions will occur and certain agreements will be entered
into or become effective. For a discussion of these Other Transactions and
agreements, see below, "--Certain Other Transactions and Agreements," and "THE
MERGER--Certain Transactions and Agreements Relating to the Merger."
In addition to obtaining the ROC Stockholder Approval and the Chateau
Stockholder Approval, (i) the obligations of ROC on the one hand and Chateau on
the other to effect the Merger and consummate the Other Transactions are subject
to the absence of orders preventing the consummation of the Merger or of any of
the Other Transactions, the receipt of certain legal opinions as to, among other
things, the Combined Company's status as a REIT, and the satisfaction or waiver
of certain other customary mutual conditions; (ii) the obligations of Chateau to
issue the Merger Consideration to the ROC Stockholders and to consummate the
Other Transactions are further subject to, among other things, receipt of
material consents and waivers from third parties which, if not obtained, would
have a material adverse effect on ROC, receipt of opinions from counsel for ROC
as to ROC's status as a REIT, as to the status of the Financing Partnership as a
partnership for federal tax purposes and as to the treatment of the Merger and
the exchange of OP Units as transfers qualifying for treatment under Section 351
of the Code, and there having been no change in ROC's business, results of
operations or financial condition which would have a material adverse effect on
ROC; and (iii) the obligations of ROC to effect the Merger and consummate the
Other Transactions are also further subject to, among other things, receipt of
consents and waivers from third parties which if not obtained would have a
material adverse effect on Chateau, receipt of opinions from counsel for Chateau
on the status of Chateau as a REIT and on the status of the Operating
Partnership as a partnership for federal tax purposes and on the treatment of
the Merger and the exchange of OP Units as transfers qualifying for treatment
under Section 351 of the Code, and there having been no change in Chateau's
business, results of operations or financial condition which would have a
material adverse effect on Chateau. See "THE MERGER--Terms of the
Merger--Conditions to the Merger; Termination; Waiver and Amendment."
The Merger Agreement may be terminated prior to the Effective Time, whether
before or after the ROC Stockholder Approval and the Chateau Stockholder
Approval are obtained, as follows: (i) by mutual written consent of ROC and
Chateau duly authorized by the respective Boards of Directors of ROC and
Chateau; (ii) by Chateau, upon a breach of any representation or warranty on the
part of ROC set forth in the Merger Agreement, or if any such representation or
warranty of ROC shall, on or prior to the date of the first phase of the OP Unit
Exchange, have become untrue (in either case, having a material adverse effect
on ROC) or the breach in any material respect of any covenant or agreement of
ROC set forth in the Merger Agreement; (iii) by ROC, upon a breach of any
representation or warranty on the part of Chateau set forth in the Merger
Agreement, or if any such representation or warranty of Chateau shall, on or
prior to the date of the first phase of the OP Unit Exchange, have become untrue
(in either case, having a material adverse effect on Chateau) or the breach in
any material respect of any covenant or agreement of Chateau set forth in the
Merger Agreement; (iv) by either ROC or Chateau, if any injunction or other
action preventing the consummation of the Merger shall have become final and
nonappealable; (v) by
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either ROC or Chateau, if the Merger shall not have been consummated before
March 31, 1997 (and if the terminating party has not willfully breached any of
its representations, warranties or covenants in the Merger Agreement); (vi) by
either ROC or Chateau, if either the Chateau Stockholder Approval or the ROC
Stockholder Approval are not obtained; (vii) by ROC, if prior to the date of the
first phase of the OP Unit Exchange the ROC Board shall have withdrawn or
modified its approval or recommendation of the Merger or the Merger Agreement in
connection with the approval and recommendation of a Superior Competing
Transaction (as defined below; see "THE MERGER--Terms of the Merger--No
Solicitation; Board Action; Fees and Expenses"); (viii) by Chateau, if the ROC
Board or any committee thereof shall have (A) prior to the date of the first
phase of the OP Unit Exchange withdrawn or modified in a manner adverse to
Chateau its approval or recommendation of the Merger or the Merger Agreement, or
approved or recommended any Superior Competing Transaction, (B) entered into
certain agreements with respect to any Competing Transaction (see "THE
MERGER--Terms of the Merger--No Solicitation; Board Action; Fees and Expenses")
or (C) resolved to do any of the foregoing; (ix) by Chateau, if prior to the
date of the first phase of the OP Unit Exchange the Chateau Board shall have
withdrawn or modified its approval or recommendation of the issuance of the
Merger Consideration to the ROC stockholders in connection with the approval and
recommendation of a Superior Competing Transaction; (x) by ROC, if the Chateau
Board or any committee thereof shall have (A) prior to the date of the first
phase of the OP Unit Exchange withdrawn or modified in a manner adverse to ROC
its approval or recommendation of the issuance of the Merger Consideration to
the ROC stockholders, or approved or recommended any Superior Competing
Transaction, (B) entered into certain agreements with respect to any Competing
Transaction or (C) resolved to do any of the foregoing; (xi) by ROC if (A) on or
prior to the date of the first phase of the OP Unit Exchange any of the
Exchanging OP Unitholders that have executed the Chateau Securityholder
Agreement has failed to exchange the OP Units it has agreed to exchange by that
date under such agreement and such OP Units have not been replaced by OP Units
held by other OP Unitholders or (B) ten days after the date that each of the OP
Unitholders that has as of the date of the Merger Agreement expressed its intent
to exchange its OP Units for shares of Chateau Common Stock as contemplated by
the Merger Agreement withdraws such intention in writing; and (xii) by Chateau
if (A) within five business days after ROC delivers an Issuance Notice (as
defined in the Merger Agreement) pertaining to the issuance of capital stock in
a cash transaction, Chateau provides written notice to ROC to the effect that,
if ROC proceeds with the issuance contemplated by the Issuance Notice, Chateau
will terminate the Merger Agreement, (B) ROC, notwithstanding such notice from
Chateau, proceeds with the issuance, and (C) Chateau notifies ROC in writing of
the termination of the Merger Agreement within five business days after ROC
notifies Chateau of the closing of the issuance.
If the Merger Agreement is terminated by ROC in certain circumstances
involving a Competing Transaction, then Chateau shall be obligated to pay the
ROC Break-Up Fee of up to a maximum of $10 million, and in certain other
circumstances expenses incurred by ROC in connection with the Original Agreement
and the Merger Agreement and the Other Transactions, up to a maximum of $4
million. If the Merger Agreement is terminated by Chateau in certain
circumstances involving a Competing Transaction, then ROC shall be obligated to
pay the Chateau Break-Up Fee (together with the ROC Break-Up Fee, the "Break-Up
Fees"), up to a maximum of $10 million, and in certain other circumstances
expenses incurred by Chateau in connection with the Original Agreement and the
Merger Agreement and the Other Transactions, up to a maximum of $4 million. The
Merger Agreement provides that the amounts otherwise payable to a party upon
termination of the Merger Agreement shall be reduced by the Total Profit (as
defined below) realized by such party as a grantee under the Option for such
party as described below. See "THE MERGER--Terms of the Merger--No Solicitation;
Board Action; Fees and Expenses."
In addition to customary mutual covenants, each of ROC and Chateau is
subject to covenants applicable prior to the Effective Time requiring them to
operate their respective businesses in the ordinary course and imposing certain
other specific restrictions on such operations. See "THE MERGER--Terms of the
Merger--Conduct of ROC's and Chateau's Businesses Pending Completion of the
Merger--Certain Additional Covenants," "--Covenants of ROC" and "--Covenants of
Chateau."
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Pursuant to the Merger Agreement, ROC and Chateau have agreed to take
certain actions with respect to, and to provide certain benefits under, the
employee benefit plans of ROC and Chateau and the stock option plans of ROC and
Chateau. See "THE MERGER--Benefit Plans and Other Employment Arrangements."
STOCK OPTION AGREEMENTS
As a condition to, and simultaneously with the execution of, the Original
Merger Agreement, ROC and Chateau entered into reciprocal stock option
agreements (together, as amended, the "Stock Option Agreements"), pursuant to
which (i) Chateau granted ROC an option (the "Chateau Option"), exercisable if
the Merger Agreement becomes terminable by ROC under circumstances which could
entitle ROC to receive the ROC Break-Up Expenses or the ROC Break-Up Fee,
regardless of whether the Merger Agreement is actually terminated (see "THE
MERGER--Terms of the Merger--Conditions to the Merger; Termination; Waiver and
Amendment"), to purchase up to 420,000 shares of Chateau Common Stock (subject
to adjustment for changes in capitalization) at an exercise price of $22.25 per
share, the last reported sale price per share of Chateau Common Stock on the
NYSE on July 17, 1996, the date as of which the Original Merger Agreement and
the Stock Option Agreements were executed, and (ii) ROC granted the Operating
Partnership an option (the "ROC Option" and, together with the Chateau Option,
the "Options"), exercisable if the Merger Agreement becomes terminable by
Chateau under circumstances which could entitle the Operating Partnership to
receive the Chateau Break-Up Expenses or the Chateau Break-Up Fee, regardless of
whether the Merger Agreement is actually terminated, to purchase up to 420,000
shares of ROC Common Stock (subject to adjustment for changes in capitalization)
at an exercise price of $22.00 per share, the last reported sale price per share
of ROC Common Stock on the NYSE on July 17, 1996. The exercise of each Option is
subject to certain conditions described in the applicable Stock Option
Agreement. In addition, the Option Agreements provide for limitations on the
amount of Total Profit that may be earned by the grantee under each such
agreements. Each such limitation will be determined in part by the amount of
Break-Up Fees and/or Break-Up Expenses paid in cash to such grantee. See "THE
MERGER--The Stock Option Agreements."
CHARTER AND BY-LAWS OF THE COMBINED COMPANY
The Charter of the Combined Company immediately following the Effective Time
will be the Chateau Charter as in effect at the Effective Time. The By-Laws of
Chateau will be amended and restated, effective at the Effective Time, to create
the By-Laws of the Combined Company (the "Combined Company By-Laws"). See
"DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY."
CERTAIN OTHER TRANSACTIONS AND AGREEMENTS
In order to facilitate the completion of the Merger and the qualification of
the Merger and the OP Unit Exchange for treatment pursuant to Section 351 of the
Code, certain Other Transactions affecting the capital stock of Chateau and ROC
have been, or will be, effected on or prior to the Effective Time. Such Other
Transactions, which are summarized below, would not have been effected in the
absence of the Merger and the MHC Proposal.
- Between October 14 and October 16, 1996, ROC purchased 350,000 shares of
Chateau Common Stock in open market or negotiated transactions, which shares
will be voted in favor of the Chateau Proposals and will be cancelled if the
Merger is consummated.
- In addition, pursuant to the Chateau Share Repurchase Program, between
October 25 and October 28, 1996, Chateau repurchased in open market or
negotiated transactions 450,000 shares of Chateau Common Stock, and, following
the ROC Special Meeting and prior to or contemporaneously with the completion of
the Merger, Chateau may repurchase up to an additional 1,000,000 shares of
Chateau Common Stock in the open market, in negotiated transactions or pursuant
to a tender offer. All shares
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purchased in the Chateau Share Repurchase Program will be cancelled prior to the
Merger. However, the additional shares of Chateau Common Stock that would have
been issuable to stockholders of Chateau pursuant to the Chateau Stock Dividend
with respect to the shares repurchased pursuant to the Chateau Share Repurchase
Program will be allocated among the remaining stockholders and OP Unitholders of
record of Chateau as of the Stock Dividend Record Date.
- In connection with and as an integral part of the Merger, the Exchanging
OP Unitholders have entered into the Chateau Securityholder Agreement with
Chateau, the Operating Partnership and ROC, pursuant to which they have agreed
that, subject to the satisfaction of certain conditions described below, they
will act with ROC and the ROC stockholders to exercise rights the Exchanging OP
Unitholders currently hold to exchange an aggregate of 3,768,391 OP Units for
the same number of shares of Chateau Common Stock on or prior to the Chateau
Record Date, and, contemporaneously with the closing of the Merger, to exchange
an additional 2,359,184 OP Units for the same number of shares of Chateau Common
Stock. The first phase of the OP Unit Exchange is expected to occur within one
or two days following the ROC Special Meeting. The obligations of the Exchanging
OP Unitholders to consummate the OP Unit Exchange, as contemplated by the
Chateau Securityholder Agreement, are conditioned on, among other things, the
following: (i) the ROC Stockholder Approval having been obtained; (ii) the
receipt by the Exchanging OP Unitholders of an opinion of counsel to the effect
that the Merger and the transfer of OP Units by the Exchanging OP Unitholders in
the OP Unit Exchange together qualify as tax-free transfers by the stockholders
of ROC and partially tax-deferred transfers of property by the Exchanging OP
Unitholders to Chateau in exchange for shares of Chateau Common Stock qualifying
for treatment pursuant to Section 351 of the Code; and (iii) the Exchanging OP
Unitholders being reasonably satisfied that, upon completion of the Merger and
the Other Transactions, such Exchanging OP Unitholders, together with the ROC
stockholders and other transferors, will, based on the number of shares of
Chateau Common Stock expected to be outstanding at the Effective Time, together
constitute at least 80% of the outstanding shares of Chateau Common Stock. Based
on the number of shares of Chateau Common Stock expected to be outstanding at
the Effective Time, as adjusted for shares expected to be issued to ROC
stockholders in the Merger, issued to the OP Unitholders in the OP Unit Exchange
and in the Chateau Share Issuance and expected to be repurchased by Chateau in
the Chateau Share Repurchase Program, ROC and Chateau expect that the 80% test
specified in (iii) above will be satisfied. If for any reason such 80% test
cannot be satisfied, it is not expected that the Merger could be consummated as
currently structured.
- In connection with the OP Unit Exchange, Chateau will sell after the
Chateau Record Date up to an aggregate of 1,000,000 shares of Chateau Common
Stock to Exchanging OP Unitholders at an average price per share of not less
than the greater of the average price paid in the Chateau Share Repurchase
Program or the fair market value of the shares as of the sale date determined in
good faith by the Chateau Board. Because the shares of Chateau Common Stock in
the Chateau Share Issuance will be issued after the Chateau Record Date, none of
such shares will be voted on the Chateau Proposals. See "THE MERGER--Chateau
Share Issuance."
In addition, in connection with the consummation of the Merger, certain
additional agreements will be entered into and performed and other actions will
be taken by the parties, as follows:
- Pursuant to the Contribution Agreement among ROC, RAC, Chateau and the
Operating Partnership (the "Contribution Agreement"), substantially all of the
assets, subject to liabilities, held directly by ROC and RAC will be transferred
to the Operating Partnership. In addition, ROCF will be merged with the
Financing Partnership. In exchange for such contributions and in connection with
the ROCF merger, ROC will receive that number of OP Units equal to the number of
shares of Chateau Common Stock issued to the ROC stockholders pursuant to the
Merger, reduced by such number of OP Units, which shall be determined in good
faith by the Combined Company Board, having a fair market value equal to the
value of the 1% general partner interest in the Financing Partnership, which
interest shall be issued to a
16
<PAGE>
wholly owned subsidiary of ROC. The assets, subject to liabilities, currently
held by Chateau through the Operating Partnership will continue to be held by
the Operating Partnership.
- The Amended Operating Partnership Agreement will be adopted, which will,
among other matters, provide that ROC will be admitted as an additional general
partner of the Operating Partnership.
- A new Registration Rights Agreement (the "New Registration Rights
Agreement") will be executed, at or prior to the Effective Time, between Chateau
and certain stockholders of ROC pursuant to which Chateau will grant
registration rights with respect to certain shares of Chateau Common Stock.
- Effective at the Effective Time, the By-Laws of Chateau will be amended to
create the By-Laws of the Combined Company. The amendments will provide for the
initial grouping of directors of the Combined Company into two groups, one of
which is expected to consist of certain existing directors of ROC and the other
of certain existing directors of Chateau, immediately following the Effective
Time, as well as for the creation of a third group of directors upon the
addition of an additional independent director to the Board beginning with the
1997 annual meeting of stockholders of the Combined Company. Each group of
directors will be responsible for initiating Board nominations for director
within such group following the Merger, but will not have any other duties as a
group. The amendments will also fix the size of the Board and specify the
procedures for the nomination of directors by the Board as well as certain other
related matters. Following the Merger, the Board will continue to be divided
into three classes, with terms of each such class expiring in successive years.
See "MANAGEMENT OF THE COMBINED COMPANY--Board Classification and Related
Matters."
- Three of the Exchanging OP Unitholders, John A. Boll, Edward R. Allen and
C.G. Kellogg, who are expected to hold in the aggregate 4,020,596 shares of
Chateau Common Stock upon completion of the Merger, have agreed with Gary P.
McDaniel that, for a period of three years following the Effective Time of the
Merger, they will vote all shares of Chateau Common Stock held by them in favor
of the election as directors of the nominees selected by the Group B Nominating
Committee of the Chateau Board as described herein under "MANAGEMENT OF THE
COMBINED COMPANY--Board Classification and Related Matters."
See "THE MERGER--Certain Transactions and Agreements Relating to the
Merger."
CERTAIN EFFECTS OF THE PROVISIONS OF THE MERGER AGREEMENT AND THE OTHER
TRANSACTIONS
The provisions of the Merger Agreement which require the payment of Break-Up
Fees and allow the exercise of the Options in circumstances relating to the
acceptance by the ROC Board or the Chateau Board of certain Superior Competing
Transactions, as well as certain provisions contained in Maryland law and in the
Charter and By-laws of each of ROC and Chateau, could have the effect of
discouraging or increasing the difficulty of consummating unsolicited
acquisition proposals involving ROC or Chateau, even if holders representing a
majority of the outstanding shares of common stock of either of such companies
considered such alternative transactions to be advantageous. See "THE
MERGER--Terms of the Merger--No Solicitation; Board Action; Fees and Expenses"
and "--The Stock Option Agreements," "COMPARISON OF STOCKHOLDER RIGHTS" and
"DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY." Further, after the OP
Unit Exchange, the Chateau Principals, other Exchanging OP Unitholders and the
other Chateau stockholders that have expressed an intention to vote in favor of
the Chateau Proposal will hold approximately 45% of the outstanding shares of
Chateau Common Stock, which is nearly sufficient voting power to approve the
Chateau Proposals and should be sufficient to prevent the consummation of
competing transactions involving Chateau. Prior to the OP Unit Exchange (which
will not occur until after the ROC Special Meeting), the Merger will remain
subject to a number of conditions and the right of the Board of Directors of
each of ROC and Chateau to terminate the Merger Agreement in connection with its
acceptance of a Superior Competing Transaction (as defined in the Merger
Agreement) or to provide information or to engage in discussions with third
parties
17
<PAGE>
regarding acquisition proposals, if required by such Board's exercise of its
fiduciary duties. Pursuant to the Merger Amendment, upon the occurrence of the
first phase of the OP Unit Exchange, the Board of Directors of each of ROC and
Chateau will no longer have the right to terminate the Merger Agreement based on
its fiduciary duty to consider certain Superior Competing Transactions. If the
Merger Agreement is terminated, the OP Unit Exchange and the Chateau Share
Issuance will not occur. In addition, following consummation of the Merger, the
Board of Directors of the Combined Company will not be subject to any
contractual limitations regarding its ability to consider and respond to any
acquisition proposals.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY FOLLOWING THE MERGER
Effective at the Effective Time, two of the seven directors of Chateau then
in office will resign from the Chateau Board, and the remaining directors then
in office will increase the size of the Chateau Board from seven to ten
directors. The five vacancies on the Chateau Board will be filled by the vote of
the remaining Chateau directors then in office with five nominees selected by
the ROC Board, such that such five nominees together with the five directors of
Chateau then in office will constitute all of the members of the Chateau Board
at the Effective Time. In connection with the 1997 Annual Meeting, the Board
will be expanded to 11 members with the addition of another independent
director. See "MANAGEMENT OF THE COMBINED COMPANY--Directors and Executive
Officers of the Combined Company."
In addition, in accordance with the goal of ROC and Chateau to retain the
skills and expertise of members of senior management of both companies following
the Merger, the Merger Agreement provides for Chateau or the Operating
Partnership to enter into new employment agreements with the following
executives, who will be employed by the Combined Company in the capacities
indicated: Gary P. McDaniel, Chief Executive Officer; C.G. Kellogg, President;
James B. Grange, Chief Operating Officer; Tamara D. Fischer, Chief Financial
Officer; and Rees F. Davis, Jr., Executive Vice President--Acquisitions. Mr.
Kellogg and Ms. Fischer are currently employed by Chateau, and their existing
employment agreements with Chateau will be terminated upon consummation of the
Merger to be replaced with the new agreements. See "MANAGEMENT OF THE COMBINED
COMPANY--Employment Agreements."
COMPARISON OF STOCKHOLDER RIGHTS
ROC and Chateau are incorporated under the Maryland General Corporation Law
(the "MGCL"). ROC stockholders will, upon consummation of the Merger, become
stockholders of Chateau. For a description of certain differences between the
rights of ROC and Chateau stockholders, see "COMPARISON OF STOCKHOLDER RIGHTS."
NO DISSENTERS' RIGHTS
Holders of shares of ROC Common Stock and Chateau Common Stock who do not
vote in favor of the ROC Proposal or the Chateau Proposal, respectively, will
have no appraisal rights in connection with the Merger if it is approved by the
stockholders, I.E., they may not demand the fair value of their stock and will
be bound by the terms of the Merger. See "THE STOCKHOLDERS MEETINGS--No
Dissenters' Rights."
ACCOUNTING TREATMENT
The Merger and Other Transactions will be accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles. These transactions result for financial accounting purposes in the
effective purchase of all the ROC Stock by the Combined Company. Accordingly,
the assets and liabilities of ROC will be adjusted to fair value for financial
accounting purposes and the results of operations of ROC will be included in the
results of operations of the Combined Company for periods subsequent to the
Effective Time.
18
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
CHATEAU
The following summary historical financial information of Chateau and of the
Chateau Predecessor are derived from the Consolidated Financial Statements of
Chateau and the combined financial statements of the Chateau Predecessor
incorporated by reference into this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CHATEAU
CHATEAU PREDECESSOR
---------------------------------------------------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
FOR THE FOR THE
FOR THE NINE MONTHS PERIOD FROM PERIOD FROM
ENDED FOR THE YEAR ENDED NOVEMBER 23 TO JANUARY 1 TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, NOVEMBER 22,
-------------------- -------------------- -------------- ------------
1996 1995 1995 1994 1993 1993
--------- --------- --------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.................................... $ 50,203 $ 45,988 $ 61,855 $ 48,067 $ 4,687 $ 38,926
Property operating and administrative expense..... 20,394 18,421 24,410 19,944 1,867 16,909
Depreciation...................................... 8,517 8,186 11,014 7,230 707 5,823
Interest and related amortization expense......... 9,417 9,312 12,452 5,996 576 12,101
Reorganization costs.............................. -- -- -- -- 1,699 --
--------- --------- --------- --------- -------------- ------------
Income (loss) before extraordinary item........... 11,875 10,069 13,979 14,897 (162) 4,093
Extraordinary item (1)............................ -- (829) (829) -- (2,738) --
--------- --------- --------- --------- -------------- ------------
Income (loss) before limited partners' interest in
Operating Partnership........................... 11,875 9,240 13,150 14,897 (2,900) 4,093
Less--limited partners' interest in Operating
Partnership..................................... 7,017 5,534 7,847 8,860 1,717 --
--------- --------- --------- --------- -------------- ------------
Net income (loss)................................. $ 4,858 $ 3,706 $ 5,303 $ 6,037 $ (1,183) $ 4,093
--------- --------- --------- --------- -------------- ------------
--------- --------- --------- --------- -------------- ------------
BALANCE SHEET DATA:
Real estate, before accumulated depreciation...... $ 299,479 $ 275,319 $ 276,423 $ 266,833 $ 151,069
Real estate, after accumulated depreciation....... $ 221,121 $ 208,279 $ 206,555 $ 207,977 $ 97,755
Total assets...................................... $ 230,265 $ 216,397 $ 212,034 $ 215,418 $ 120,524
Total debt........................................ $ 153,344 $ 135,539 $ 132,700 $ 132,747 $ 52,831
Limited partners' interest in Operating
Partnership..................................... $ 33,298 $ 37,479 $ 36,264 $ 41,569 $ 35,441
Stockholders' equity (owners' deficit)............ $ 22,164 $ 24,998 $ 24,308 $ 25,542 $ 23,424
PER SHARE DATA:
Income (loss) before extraordinary item........... $ .80 $ .68 $ .95 $ 1.05 $ (.01)
Extraordinary item................................ -- (.05) (.06) -- (.20)
--------- --------- --------- --------- --------------
Net income (loss)................................. $ .80 $ .63 $ .89 $ 1.05 $ (.21)
--------- --------- --------- --------- --------------
--------- --------- --------- --------- --------------
Distributions declared per share of common
stock/OP Unit................................... $ 1.215 $ 1.125 $ 1.525 $ 1.425 $ .15
Weighted average shares outstanding............... 6,098 5,914 5,959 5,750 5,750
Weighted average shares and OP Units
outstanding..................................... 14,907 14,744 14,779 14,189 14,081
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities.............................. $ 21,329 $ 19,769 $ 28,097 $ 22,584 $ 4,980 $ 8,659
Financing activities.............................. $ 1,790 $ (16,113) $ (24,365) $ 7,056 $ 15,591 $ (5,983)
Investing activities.............................. $ (23,816) $ (5,054) $ (6,158) $ (46,214) $ (639) $ (3,416)
OTHER DATA:
Funds From Operations(2).......................... $ 20,323 $ 18,187 $ 24,898 $ 22,015 $ 536 $ 9,822
Total properties (at end of period)............... 47 44 44 43 33 33
Total sites (at end of period).................... 20,003 19,594 19,594 19,185 15,261 15,261
Occupied sites (at end of period)................. 19,082 18,341 18,473 17,789 14,117 14,117
Weighted average occupied sites................... 18,813 17,920 18,051 14,913 14,025 14,025
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
OPERATING DATA:
Total revenues.................................... $ 41,367 $ 39,047
Property operating and administrative expense..... 17,712 17,800
Depreciation...................................... 6,431 6,313
Interest and related amortization expense......... 14,303 14,593
Reorganization costs.............................. -- --
--------- ---------
Income (loss) before extraordinary item........... 2,921 341
Extraordinary item (1)............................ -- --
--------- ---------
Income (loss) before limited partners' interest in
Operating Partnership........................... 2,921 341
Less--limited partners' interest in Operating
Partnership..................................... -- --
--------- ---------
Net income (loss)................................. $ 2,921 $ 341
--------- ---------
--------- ---------
BALANCE SHEET DATA:
Real estate, before accumulated depreciation...... $ 147,107 $ 144,248
Real estate, after accumulated depreciation....... $ 100,230 $ 103,520
Total assets...................................... $ 106,449 $ 110,588
Total debt........................................ $ 143,148 $ 142,340
Limited partners' interest in Operating
Partnership.....................................
Stockholders' equity (owners' deficit)............ $ (46,016) $ (42,195)
PER SHARE DATA:
Income (loss) before extraordinary item...........
Extraordinary item................................
Net income (loss).................................
Distributions declared per share of common
stock/OP Unit...................................
Weighted average shares outstanding...............
Weighted average shares and OP Units
outstanding.....................................
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities.............................. $ 8,853 $ 8,682
Financing activities.............................. $ (5,933) $ (3,446)
Investing activities.............................. $ (3,140) $ (5,024)
OTHER DATA:
Funds From Operations(2).......................... $ 9,252 $ 6,554
Total properties (at end of period)............... 33 33
Total sites (at end of period).................... 15,072 14,933
Occupied sites (at end of period)................. 13,861 13,487
Weighted average occupied sites................... 13,683 13,307
</TABLE>
- ------------------------
(1) The extraordinary items represent prepayment penalties and certain other
related costs associated with the early extinguishment of debt.
(2) Funds From Operations, as used in the above table and as defined by the
National Association of Real Estate Investment Trusts ("NAREIT") means net
income excluding gains (or losses) from debt restructuring and sales of
property, plus certain depreciation and amortization. The management of
Chateau and ROC believe that Funds From Operations is an important and
widely used measure of the operating performance of REITs which provides a
relevant basis for comparison among REITs. Funds From Operations: (i) does
not represent cash flow from operations as defined by generally accepted
accounting principles; (ii) should not be considered as an alternative to
net income as a measure of operating performance or to cash flows from
operating, investing and financing activities; and (iii) is not an
alternative to cash flows as a measure of liquidity. Funds from operations
is calculated as follows:
19
<PAGE>
<TABLE>
<CAPTION>
CHATEAU
-------------------------------------------------------------
FOR THE
FOR THE NINE MONTHS PERIOD FROM
ENDED FOR THE YEAR ENDED NOVEMBER 23 TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- -----------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary item................ $ 11,875 $ 10,069 $ 13,979 $ 14,897 $ (162)
Depreciation of rental property........................ 8,448 8,118 10,919 7,118 698
--------- --------- --------- --------- -----
Funds from operations.................................. $ 20,323 $ 18,187 $ 24,898 $ 22,015 $ 536
<CAPTION>
CHATEAU PREDECESSOR
-----------------------------------
FOR THE
PERIOD FROM FOR THE YEAR ENDED
JANUARY 1 TO
NOVEMBER 22, DECEMBER 31,
------------- --------------------
1993 1992 1991
------------- --------- ---------
<S> <C> <C> <C>
Income (loss) before extraordinary item................ $ 4,093 $ 2,921 $ 341
Depreciation of rental property........................ 5,729 6,331 6,213
------ --------- ---------
Funds from operations.................................. $ 9,822 $ 9,252 $ 6,554
</TABLE>
ROC
The following summary historical financial information of ROC and the ROC
Predecessor are derived from the Consolidated Financial Statements of ROC and
the combined financial statements of the ROC Predecessor incorporated by
reference into this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
ROC
ROC PREDECESSOR
---------------------------------------------------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
FOR THE FOR THE
FOR THE NINE MONTHS PERIOD FROM PERIOD FROM
ENDED FOR THE YEAR ENDED AUGUST 25 TO JANUARY 1 TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, AUGUST 24,
-------------------- -------------------- -------------- -------------
1996 1995 1995 1994 1993 1993
--------- --------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues....................................... $ 45,121 $ 37,888 $ 51,502 $ 37,531 $ 9,781 $ 7,844
Property operating and administrative expense........ 20,603 17,097 23,186 17,003 4,246 3,351
Depreciation and amortization........................ 9,330 7,934 10,834 7,879 2,050 1,517
Interest and related amortization expense............ 6,317 4,154 5,955 5,388 1,696 2,438
--------- --------- --------- --------- -------------- ------
Net income (loss).................................... $ 8,871 $ 8,703 $ 11,527 $ 7,261 $ 1,789 $ 538
--------- --------- --------- --------- -------------- ------
--------- --------- --------- --------- -------------- ------
BALANCE SHEET DATA:
Real estate, before accumulated depreciation......... $ 355,844 $ 292,468 $ 291,661 $ 258,517 $ 161,292
Real estate, after accumulated depreciation.......... $ 326,952 $ 272,357 $ 271,550 $ 248,672 $ 159,248
Total assets......................................... $ 343,959 $ 285,202 $ 285,202 $ 269,778 $ 177,427
Total debt........................................... $ 141,142 $ 84,643 $ 84,643 $ 61,618 $ 62,208
Stockholders' equity (owners' deficit)............... $ 189,011 $ 191,634 $ 191,634 $ 199,488 $ 109,890
PER SHARE DATA:
Net income........................................... $ .71 $ .70 $ .93 $ .80 $ .25
Distributions declared per share of common stock..... $ 1.215 $ 1.170 $ 1.56 $ 1.52 $ .52
Weighted average shares outstanding.................. 12,478 12,424 12,424 9,071 7,149
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities............................... $ 22,210 $ 18,836 $ 23,324 $ 15,716 $ 2,952 $ 1,455
Investing activities............................... $ (62,227) $ (31,064) $ (33,161) $ (97,206) $ (163,750) $ (365)
Financing activities............................... $ 41,026 $ 7,181 $ 3,769 $ 76,849 $ 172,159 $ (445)
OTHER DATA:
Funds From Operations (1)............................ $ 18,102 $ 16,563 $ 22,258 $ 15,090 $ 3,839 $ 2,055
Total properties (at end of period).................. 71 66 66 62 48 20
Total sites (at end of period)....................... 21,041 18,078 18,078 16,220 11,058 4,494
Occupied sites (at end of period).................... 19,724 17,097 17,121 15,446 11,003 4,276
Weighted average occupied sites...................... 18,435 16,038 15,967 13,044 10,195 4,269
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
OPERATING DATA:
Total revenues....................................... $ 11,362 $ 10,082
Property operating and administrative expense........ 4,828 4,550
Depreciation and amortization........................ 2,272 2,189
Interest and related amortization expense............ 4,037 4,337
--------- ---------
Net income (loss).................................... $ 225 $ (994)
--------- ---------
--------- ---------
BALANCE SHEET DATA:
Real estate, before accumulated depreciation......... $ 47,733 $ 46,933
Real estate, after accumulated depreciation.......... $ 35,994 $ 37.285
Total assets......................................... $ 37,894 $ 38,843
Total debt........................................... $ 41,827 $ 49,159
Stockholders' equity (owners' deficit)............... $ (6,766) $ (4,919)
PER SHARE DATA:
Net income...........................................
Distributions declared per share of common stock.....
Weighted average shares outstanding..................
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities............................... $ 1,407 $ 1,334
Investing activities............................... $ (803) $ (175)
Financing activities............................... $ (404) $ (1,087)
OTHER DATA:
Funds From Operations (1)............................ $ 2,497 $ 1,195
Total properties (at end of period).................. 20 20
Total sites (at end of period)....................... 4,494 4,494
Occupied sites (at end of period).................... 4,291 4,248
Weighted average occupied sites...................... 4,269 4,269
</TABLE>
- ------------------------
(1) Funds From Operations, as used in the above table and as defined by NAREIT,
means net income excluding gains (or losses) from debt restructuring and
sales of property, plus certain depreciation and amortization. The
management of Chateau and ROC believe that Funds From Operation is an
important and widely used measure of the operating performance of REITs
which provides a relevant basis for comparison among REITs. Funds From
Operations: (i) does not represent cash flow from operations as defined by
generally accepted accounting principles; (ii) should not be considered as
an alternative to net income as a measure of operating performance or to
cash flows from operating, investing and financing activities; and (iii) is
not an alternative to cash flows as a measure of liquidity. Funds from
operations is calculated as follows:
<TABLE>
<CAPTION>
ROC
PREDECESSOR
ROC -------------
-----------------------------------------------------------
FOR THE PERIOD FOR THE
FOR THE NINE MONTHS FROM PERIOD FROM
ENDED FOR THE YEAR ENDED AUGUST 25 TO JANUARY 1 TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, AUGUST 24,
-------------------- -------------------- --------------- -------------
1996 1995 1995 1994 1993 1993
--------- --------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Income............................................ $ 8,871 $ 8,703 $ 11,527 $ 7,261 $ 1,789 $ 538
Depreciation of rental property....................... 8,844 7,506 10,248 7,754 2,045 1,517
Amortization of other intangibles..................... 387 354 483 75 5
--------- --------- --------- --------- ------ ------
Funds From Operations................................. $ 18,102 $ 16,563 $ 22,258 $ 15,090 $ 3,839 $ 2,055
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
Net Income............................................ $ 225 $ (994)
Depreciation of rental property....................... 2,272 2,189
Amortization of other intangibles.....................
--------- ---------
Funds From Operations................................. $ 2,497 $ 1,195
</TABLE>
20
<PAGE>
COMBINED COMPANY PRO FORMA COMBINED FINANCIAL INFORMATION
The following summary pro forma combined financial information for the
Combined Company is derived from the Combined Company Pro Forma Combined
Financial Information.
The unaudited pro forma combined Balance Sheet Data is presented as if the
Merger and the Other Transactions had occurred on September 30, 1996. The
unaudited pro forma combined Statements of Income for the nine-month period
ended September 30, 1996 and the year ended December 31, 1995 are presented as
if the Merger and the Other Transactions had occurred as of January 1, 1995 and
carried forward through September 30, 1996.
Preparation of the pro forma combined financial information was based on
assumptions deemed appropriate by the management of Chateau and ROC and gives
effect to the Merger and the Other Transactions under the purchase method of
accounting in accordance with generally accepted accounting principles and
assumes the Combined Company continues to qualify as a REIT, distributes all of
its taxable income and, therefore, incurs no federal income tax expense during
the periods presented. The pro forma financial information is unaudited and is
not necessarily indicative of the results which actually would have occurred if
the Merger and the Other Transactions had been consummated at the dates
indicated, nor does it purport to represent the future financial position and
results of operations of the Combined Company for future periods. The pro forma
information should be read in conjunction with the historical financial
statements of Chateau and ROC incorporated by reference into this Joint Proxy
Statement/Prospectus.
21
<PAGE>
COMBINED COMPANY
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<TABLE>
<CAPTION>
AS OF OR FOR
THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996(1) 1995(1)
--------------- --------------------
<S> <C> <C>
OPERATING DATA:
Total revenues............................................................. $ 99,143 $ 124,780
Property operating and administrative expense.............................. 40,592 49,634
Depreciation and amortization.............................................. 25,480 33,843
Interest and related amortization expense.................................. 19,674 27,419
--------------- -----------
Income before limited partners' interest................................... 13,397 13,884
Limited partners' interest in the Operating Partnership.................... 1,347 1,461
--------------- -----------
Net income................................................................. $ 12,050 $ 12,423
--------------- -----------
--------------- -----------
BALANCE SHEET DATA:
Real estate, net of accumulated depreciation............................... $ 697,631
Total assets............................................................... $ 720,325
Total debt................................................................. $ 329,486
Limited partners' interest in the Operating Partnership.................... $ 35,577
Stockholders' equity....................................................... $ 319,440
PER SHARE DATA:
Net income................................................................. $ .48 $ .50
Distributions declared per common share.................................... $ 1.215 $ 1.525
Weighted average shares outstanding........................................ 24,945 24,802
Weighted average shares and OP units outstanding........................... 27,733 27,719
CASH FLOW DATA:(2)
Cash flow provided by (used in):
Operating activities....................................................... $ 43,822 $ 51,794
Financing activities....................................................... $ (32,879) $ (52,418)
Investing activities....................................................... $ (11,054) $ (8,530)
OTHER DATA:
Funds From Operations(3)................................................... $ 38,709 $ 47,529
Total properties (at end of period)........................................ 124
Total sites (at end of period)............................................. 42,150
</TABLE>
- ------------------------
(1) See pro forma combined condensed financial statements elsewhere in this
Joint Proxy Statement/Prospectus.
(2) Pro Forma Cash Flow Data is derived from historical cash flow data of
Chateau and ROC and is presented as if the Merger and Other Transactions had
occurred as of January 1, 1995.
(3) Funds From Operations, as used in the above table and as defined by NAREIT,
means net income excluding gains (or losses) from debt restructuring and
sales of property, plus certain depreciation and amortization. The
management of Chateau and ROC believe that Funds From Operations is an
important and widely used measure of the operating performance of REITs
which provides a relevant basis for comparison among REITs. Funds From
Operations: (i) does not represent cash flow from operations as defined by
generally accepted accounting principles; (ii) should not be considered as
an alternative to net income as a measure of operating performance or to
cash flows from operating, investing and financing activities; and (iii) is
not an alternative to cash flows as a measure of liquidity. Pro Forma Funds
from Operations is calculated as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
Income before limited partners' interest........................ $ 13,397 $ 13,884
Depreciation of rental property................................. 24,925 33,162
Amortization of other intangibles............................... 387 483
---------- ----------
Funds From Operations........................................... $ 38,709 $ 47,529
</TABLE>
22
<PAGE>
HISTORICAL AND PRO FORMA PER SHARE INFORMATION
The following table sets forth certain historical, pro forma and pro forma
equivalent information giving effect to the Merger and Other Transactions (see
"SELECTED HISTORICAL FINANCIAL INFORMATION" elsewhere in this Joint Proxy
Statement/Prospectus).
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS AS OF AND FOR THE YEAR ENDED
ENDED SEPTEMBER 30, 1996 DECEMBER 31, 1995
--------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO PRO FORMA PRO PRO FORMA
HISTORICAL FORMA(1) EQUIVALENT(2) HISTORICAL FORMA(1) EQUIVALENT(2)
----------- ----------- ------------- ----------- ----------- ---------------
Net Income per Share of Common Stock Before
Extraordinary Item
Chateau....................................... $ 0.80 $ 0.48 $ 0.50 $ 0.95 $ 0.50 $ 0.52
ROC........................................... $ 0.71 $ 0.50 $ 0.93 $ 0.52
Distributions Declared per share of Common Stock
Chateau....................................... $ 1.215 $ 1.215 $ 1.25(3) $ 1.525 $ 1.525 $ 1.57(3)
ROC........................................... $ 1.215 $ 1.27(3) $ 1.56 $ 1.59(3)
Book Value per Share of Common Stock
Chateau....................................... $ 3.77 $ 12.84 $ 13.25
ROC........................................... $ 15.02 $ 13.38
</TABLE>
- ------------------------
(1) See "COMBINED COMPANY SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION"
elsewhere in this Joint Proxy Statement/Prospectus.
(2) The pro forma equivalent per share amounts are calculated by multiplying pro
forma Net Income per share of Common Stock Before Extraordinary Item, pro
forma Distributions Declared per share and pro forma Book Value per Share of
Common Stock by 1.042 to one for each share of ROC stock and by 1.0316 to
one for each share of Chateau Common Stock so that the per share amounts are
equated to the historical per share values.
(3) Chateau and ROC currently pay a quarterly distribution of $0.405 per share.
Future distributions by the Combined Company, however, will be at the
discretion of its Board of Directors and will depend on certain factors. See
"--Distribution Policy."
23
<PAGE>
COMPARATIVE MARKET DATA
The shares of Chateau Common Stock and ROC Common Stock are designated for
trading on the NYSE under the symbols "CPJ" and "RCI," respectively. The
following table sets forth the distributions paid or declared per share and the
high and low prices per share of Chateau Common Stock and ROC Common Stock
quoted on the NYSE, respectively, for the periods indicated, as reported in
published financial sources:
<TABLE>
<CAPTION>
CHATEAU COMMON STOCK ROC COMMON STOCK
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
HIGH LOW DISTRIBUTIONS HIGH LOW DISTRIBUTIONS
--------- --------- ------------- --------- --------- -------------
1994:
First Quarter.............................. $ 24.250 $ 19.875 $ .350 $ 24.375 $ 20.500 $ .380
Second Quarter............................. 24.250 21.875 .350 24.625 21.250 .380
Third Quarter.............................. 23.625 20.500 .350 21.875 19.125 .380
Fourth Quarter............................. 21.875 18.250 .375 21.250 18.125 .380
1995:
First Quarter.............................. 22.500 18.000 .375 21.375 18.625 .390
Second Quarter............................. 22.625 19.750 .375 22.625 19.750 .390
Third Quarter.............................. 22.500 20.375 .375 23.250 20.625 .390
Fourth Quarter............................. 22.875 20.750 .400 24.000 21.750 .390
1996:
First Quarter.............................. 24.875 22.125 .405 25.125 23.000 .405
Second Quarter............................. 23.875 21.625 .405 24.250 22.625 .405
Third Quarter.............................. 27.000 22.125 .405 24.625 22.000 .405
Fourth Quarter(1).......................... 25.4375 24.000 26.500 23.625
</TABLE>
- ------------------------
(1) Through December 18, 1996.
The following table sets forth the closing price per share of each of
Chateau Common Stock and ROC Common Stock on (i) July 17, 1996, the last trading
day prior to the public announcement of the Original Merger Agreement, (ii)
September 18, 1996, the date of the public announcement of the revised Merger
Agreement, and (iii) December 18, 1996, the most recent date for which prices
were available prior to mailing this Joint Proxy Statement/Prospectus to ROC
stockholders. Information regarding recent prices of Chateau Common Stock and
ROC Common Stock will be set forth in the Chateau Supplement.
<TABLE>
<CAPTION>
CHATEAU COMMON STOCK ROC COMMON STOCK
---------------------- -------------------
<S> <C> <C>
July 17, 1996.................................... $ 22.250 $ 22.000
September 18, 1996............................... $ 24.875 $ 23.750
December 18, 1996................................ $ 25.125 $ 25.875
</TABLE>
At the ROC Record Date, there were 196 holders of record of ROC Common
Stock. The number of the holders of record of Chateau Common Stock as of the
Chateau Record Date will be set forth in the Chateau Supplement.
THE MARKET PRICES OF ROC COMMON STOCK AND CHATEAU COMMON STOCK ARE SUBJECT
TO FLUCTUATION AND MAY BE INFLUENCED BY PURCHASES MADE BY ROC, CHATEAU OR THEIR
RESPECTIVE AFFILIATES AS DESCRIBED HEREIN. ROC STOCKHOLDERS AND CHATEAU
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR ROC COMMON STOCK
AND CHATEAU COMMON STOCK.
24
<PAGE>
DISTRIBUTION POLICY
Each of ROC and Chateau currently pays a regular quarterly distribution of
$.405 per share (which, annualized, equals $1.62 per share).
Distributions by the Combined Company following the Merger will be at the
discretion of the Board of Directors of the Combined Company and will depend on
the Combined Company's actual cash available for distribution, its financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Code and such other factors as the Board of Directors of
the Combined Company (the "Combined Company Board") deems relevant. However, the
Combined Company initially intends to pay regular quarterly distributions of
$.405 per share of Chateau Common Stock. Management of ROC and Chateau believe
that, based in part on unaudited pro forma per share data after giving effect to
the Merger, there will be sufficient cash available to make such distributions.
Assuming the Combined Company makes regular quarterly distributions at the rate
of $.405 per share of Chateau Common Stock, each stockholder of ROC would be
entitled to receive a quarterly distribution equivalent to $.422 per share of
ROC Common Stock (based on an exchange ratio of 1.042 to one) and each
stockholder of Chateau as of the Chateau Record Date will be entitled to receive
a quarterly distribution equivalent to $.432 per share of Chateau Common Stock
(after giving effect to the Chateau Stock Dividend and the Dividend Waiver by
the Exchanging OP Unitholders). See "THE MERGER--Terms of the Merger" and
"--Certain Transactions and Agreements Relating to the Merger--Chateau
Securityholder Agreement."
The Combined Company anticipates that cash available for distribution will
exceed taxable income due to non-cash expenses, primarily depreciation and
amortization, to be incurred by the Combined Company. Distributions by the
Combined Company to the extent of its current or accumulated earnings and
profits for federal income tax purposes, other than capital gain dividends, will
be taxable to stockholders as ordinary dividend income. Any dividends designated
by the Combined Company as capital gain dividends generally will give rise to
capital gain for stockholders. Distributions in excess of the Combined Company's
current or accumulated earnings and profits will be treated as a non-taxable
return of capital to the extent of a stockholder's tax basis in its shares of
Chateau Common Stock, and thereafter as capital gain. Distributions treated as
non-taxable return of capital will have the effect of deferring taxation on such
amount until the sale of a stockholder's shares of Chateau Common Stock or until
such distributions in the aggregate exceed the stockholder's basis in the shares
of Chateau Common Stock. Management of ROC believes that, absent the Merger,
approximately 38% to 40% of its distributions for 1997 would be treated as a
non-taxable return of capital. Management of Chateau believes that, absent the
Merger, approximately 33% to 35% of its distributions for 1997 would be treated
as a non-taxable return of capital. Management of Chateau and ROC believe that,
based in part on unaudited pro forma financial data of the Combined Company as
of September 30, 1996, following the Merger approximately 31% to 34% of
distributions by the Combined Company expected to be made for 1997 will be
treated as a non-taxable return of capital, the same percentage as under the
Original Merger Agreement (which did not involve an OP Unit Exchange).
In order to maintain its qualification as a REIT, the Combined Company will
be required to make annual distributions to its stockholders in an amount equal
to at least 95% of its taxable income (excluding net capital gains). In the
event that cash available for distribution is insufficient to meet these
distribution requirements, the Combined Company could be required to borrow the
amount of the deficiency or sell assets to obtain the cash necessary to make the
distribution required to retain REIT status.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger and the OP Unit Exchange, when taken together with the Other
Transactions, are expected to be treated as a transfer of shares of ROC Stock
and a transfer of OP Units for Chateau Common Stock qualifying for treatment
under Section 351 of the Code. The ROC stockholders who exchange their ROC Stock
for shares of Chateau Common Stock are therefore not expected to recognize
25
<PAGE>
gain or loss for federal income tax purposes, except to the extent that a ROC
stockholder receives cash proceeds in lieu of fractional interests in shares of
Chateau Common Stock. At the closing of the Merger, it is anticipated that
Rogers & Wells and Timmis & Inman, counsel to ROC and Chateau, respectively,
will render opinions to the effect that the Merger will be treated for federal
income tax purposes as a transfer by the ROC stockholders of their shares of ROC
Stock to Chateau in exchange for Chateau Common Stock under Code Section 351. In
the event that the Merger does not qualify as a tax-free transaction, a ROC
stockholder will recognize gain or loss equal to the difference between such ROC
stockholder's tax basis in its ROC Stock and the fair market value at the
Effective Time of the Chateau Common Stock and cash received in exchange
therefor. Such gain or loss will be long term if the ROC Stock was held by such
stockholder for more than one year. See "THE MERGER--Federal Income Tax
Consequences--Tax Consequences of the Merger."
Assuming that the Merger and the OP Unit Exchange qualify as transfers under
Section 351 of the Code, it is expected that the Combined Company will take, as
its tax basis, the tax basis of the OP Units in the hands of the Exchanging OP
Unitholders immediately prior to the OP Unit Exchange, increased by the amount,
if any, of gain recognized by the Exchanging OP Unitholders upon such transfer.
The Combined Company and the Operating Partnership will also carry over the tax
basis of the ROC Properties immediately prior to the Effective Time. Thus, the
Combined Company will have a tax basis in the ROC Properties and the properties
owned by the Operating Partnership, attributable to the OP Units exchanged by
the Exchanging OP Unitholders pursuant to the OP Unit Exchange, determined by
reference to historical cost rather than the fair market value of such
properties. See "THE MERGER--Federal Income Tax Consequences--Additional Tax
Consequences of the Merger and the OP Unit Exchange."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the ROC Board and the Chateau Board,
stockholders should be aware that certain members of the Board of Directors of
each of ROC and Chateau have certain interests in the Merger and the Other
Transactions that are in addition to the interests of the stockholders of ROC
and Chateau generally.
As described herein under "MANAGEMENT OF THE COMBINED COMPANY--Employment
Agreements," upon consummation of the Merger, Gary P. McDaniel, ROC's Chairman,
Chief Executive Officer and President, will become the Chief Executive Officer
of the Combined Company and C.G. ("Jeff") Kellogg, Chateau's current Chief
Executive Officer and President, will serve the Combined Company as President
and, in recognition of the increased size of the Combined Company and the
changing nature of their respective responsibilities, Messrs. McDaniel and
Kellogg will be employed by the Combined Company pursuant to new employment
agreements at higher levels of compensation than are currently the case,
including a base annual salary of $225,000 for each such person, compared to
$180,000 and $185,000, respectively, under current arrangements. James B. Grange
and Rees F. Davis, Jr., both currently officers of ROC, and Tamara D. Fischer,
currently an officer of Chateau, will each be employed by the Combined Company
pursuant to a new employment agreement to be effective at the Effective Time,
also at higher levels of compensation, including base annual salaries of
$190,000, $160,000 and $175,000, respectively, compared to $165,000, $140,000
and $120,000, respectively, under current arrangements. See "MANAGEMENT OF THE
COMBINED COMPANY--Employment Agreements." In addition, all outstanding stock
options under the 1993 ROC Stock Plan and the Chateau Plan will become vested
and immediately exercisable upon or immediately prior to completion of the
Merger. In November 1996 ROC granted options on 126,500 shares of ROC Common
Stock to employees, of which 75,000 options were granted to executive officers,
at an exercise price per share of $24.625. In November 1996 Chateau granted
options on 139,400 shares of Chateau Common Stock to employees, of which 96,000
options were granted to executive officers, at an exercise price per share of
$24.00.
The Exchanging OP Unitholders, who will include three directors of Chateau,
John A. Boll, Edward R. Allen and Mr. Kellogg, have agreed, subject to certain
conditions, to exercise rights they currently hold to exchange an aggregate of
6,127,575 OP Units, out of 8,836,310 total OP Units, for shares of Chateau
26
<PAGE>
Common Stock. Because such rights are being exercised in connection with the
Merger, the exchange of their OP Units is expected to qualify for treatment
pursuant to Section 351 of the Code. As a result of such treatment, the Combined
Company will take as its tax basis in the assets of the Operating Partnership
attributable to such OP Units the tax basis which the Exchanging OP Unitholders
had therein immediately prior to the exchange, increased by the amount, if any,
of taxable gain recognized by the Exchanging OP Unitholders upon such exchange.
If the OP Unit Exchange did not qualify for treatment under Code Section 351,
the Exchanging OP Unitholders would be required to recognize taxable gain as a
result of the OP Unit Exchange in an amount equal to the difference between the
fair market value of the Chateau Common Stock obtained, as of the date of the OP
Unit Exchange, and the tax basis of the OP Units exchanged (without regard to
the share of the Operating Partnership's liabilities included in such tax
basis). In such case, the Combined Company would also obtain a tax basis in the
assets of the Operating Partnership attributable to such OP Units determined by
reference to fair market value.
Following the Merger, it is expected that the Combined Company will focus on
expanding the size of its manufactured housing community portfolio through
acquisitions, expansions and selective new community development. It is not
expected that the Combined Company will seek to sell any of its properties,
although strategic property dispositions of a limited nature may be undertaken
in the future in certain circumstances. If, contrary to the business plan of the
Combined Company and current expectations, property sales do occur (and such
sales are made from existing Chateau properties), one effect of the application
of Section 351 of the Code to the OP Unit Exchange will be that the taxable gain
deferred by the Exchanging OP Unitholders under Section 351 would be recognized
by the Combined Company (or by all of its stockholders, including the Exchanging
OP Unitholders) and the non-exchanging OP Unitholders rather than by the
Exchanging OP Unitholders. Management of ROC and Chateau estimate, based on pro
forma data of the Combined Company as of September 30, 1996, that if the OP Unit
Exchange did not occur, but following the Merger the Combined Company proceeded
to liquidate the entire portfolio of existing Chateau properties, the taxable
gain that would be recognized by the Exchanging OP Unitholders with respect to
OP Units exchanged would have amounted to an estimated $148 million. As
stockholders of the Combined Company, the Exchanging OP Unitholders will,
however, bear a portion of the potential gain upon any sale of the Combined
Company's properties, including those transferred to the Combined Company by
ROC, in accordance with their percentage interests as stockholders in the
Combined Company at such time. In this regard, there is an estimated $105
million of potential taxable gain attributed to properties currently owned by
ROC and transferred to the Combined Company (relating to property appreciation
in the period after ROC's initial public offering). The foregoing is in addition
to an estimated $31 million of potential taxable gain attributed to properties
currently owned by Chateau (relating to property appreciation in the period
after Chateau's initial public offering). Based upon pro forma data of the
Combined Company as of September 30, 1996, management of Chateau and ROC
estimate that the amount of potential additional taxable gain attributable to
the OP Unit Exchange that could possibly be realized upon a taxable disposition
of all of the properties to be owned by the Combined Company (other than the
portion of such gain attributable to and retained by the Exchanging OP
Unitholders through their ownership interest in the Combined Company) to be
approximately $68 million, unless the Operating Partnership terminates for
federal income tax purposes under Section 708 of the Code, in which case the
basis of the Operating Partnership's assets will be increased resulting in a
reduction of the amount of such potential additional taxable gain to
approximately $22 million. Of such $68 million in potential additional taxable
gain, approximately $29.4 million, $2.6 million and $0.6 million are
attributable to OP Units to be exchanged by Messrs. Boll, Allen and Kellogg,
respectively. No other directors of Chateau hold OP Units. The other officers of
Chateau, who together hold an aggregate of 1,756 OP Units, will not participate
in the OP Unit Exchange. See "THE MERGER--Benefits of the Merger and the Other
Transactions to the Principals of ROC and Chateau" and "--Federal Income Tax
Consequences--Additional Tax Consequences of the Merger and the OP Unit
Exchange."
The procedures described herein under "MANAGEMENT OF THE COMBINED COMPANY--
Board Classification and Related Matters" relating to the procedures for
determining Combined Company
27
<PAGE>
Board nominations for directors may have the effect of extending their tenure on
the Combined Company Board.
As described elsewhere in this Joint Proxy Statement/Prospectus, the
directors of Chateau have been named as defendants in litigation with MHC and
various other stockholders of Chateau based in part on allegations that approval
by the directors of the Merger and the Other Transactions constituted a breach
of their fiduciary duties to Chateau stockholders. The approval of the Chateau
Proposal by the Chateau stockholders will allow the Chateau directors to argue
in the context of such litigation that such stockholder ratification insulates
the decisions of the Chateau directors with regard to the Merger and the Other
Transactions from further stockholder scrutiny. For a description of this
litigation, see "THE PROPOSED MERGER AND RELATED MATTERS--Certain Litigation
Related to the Merger."
RISK FACTORS
In considering whether to vote to approve the Merger or the issuance of the
Merger Consideration, as applicable, stockholders of ROC and stockholders of
Chateau should consider, in addition to the other information in this Joint
Proxy Statement/Prospectus, the matters described under "RISK FACTORS,"
including the following risk factors:
- Certain conflicts of interest will continue to be faced by John A. Boll,
Chateau's Chairman, who will continue to own OP Units following the consummation
of the Merger, and may continue to suffer different and more adverse tax
consequences as an OP Unitholder than the Combined Company or its stockholders
upon the sale of properties or upon other transactions that may result in
repayment of indebtedness of the Operating Partnership. Accordingly, Mr. Boll,
for the period he continues to hold OP Units, may have different objectives
compared to the other stockholders of the Combined Company generally regarding
the appropriate timing of property sales or financing transactions involving the
Combined Company or the Operating Partnership. Consequently, ROC stockholders
should be aware that Mr. Boll may seek to influence the Combined Company not to
sell a property, even though such sale might otherwise be financially
advantageous to the Combined Company, or may otherwise seek to influence the
Combined Company to structure financing transactions or refrain from undertaking
certain financing transactions so as to avoid adverse tax consequences to him
personally, even though the stockholders of the Combined Company may have
different interests.
- The Exchanging OP Unitholders, upon consummation of the Merger and after
giving effect to the Other Transactions, will hold in the aggregate
approximately 29% of the outstanding shares of Chateau Common Stock. Although
the Exchanging OP Unitholders have no agreements, arrangements or understandings
to act as a group or otherwise take concerted action with respect to shares of
the Combined Company, they will all have a low tax basis in the shares of
Chateau Common Stock received pursuant to the OP Unit Exchange and, therefore,
may favor a long-term generation of value by the Combined Company rather than
transactions involving a taxable disposition of their shares.
- Risks associated with concentration of properties in certain states.
- Possible adverse effects arising out of the maturity of certain existing
long-term debt of both ROC and Chateau in the year 2000.
- Risk that the shares of Chateau Common Stock to be received pursuant to
the Dividend Waiver will be taxable to the recipients thereof.
NEW YORK STOCK EXCHANGE LISTING OF COMBINED COMPANY COMMON STOCK
The shares of Chateau Common Stock to be issued in the Merger, the OP Unit
Exchange and the Chateau Share Issuance have been approved for listing on the
NYSE, subject to official notice of issuance. See "THE MERGER--Terms of the
Merger--Conditions to the Merger; Termination; Waiver and Amendment."
28
<PAGE>
RISK FACTORS
ROC stockholders and Chateau stockholders should carefully consider, among
other things, the following risk factors before voting to approve the Merger and
the issuance of the Merger Consideration, respectively. Certain statements set
forth below under this caption may constitute "forward-looking statements"
within the meaning of the Reform Act. See "SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS" for additional factors relating to such statements.
CONFLICTS OF INTEREST RELATED TO THE MERGER AND THE OTHER TRANSACTIONS
Certain conflicts of interest related to the Merger and the Other
Transactions exist because certain members of the Board of Directors of each of
ROC and Chateau, especially John A. Boll, Gary P. McDaniel, C.G. ("Jeff")
Kellogg and Edward R. Allen, have certain interests in the Merger and the Other
Transactions that are in addition to the interests of the stockholders of ROC
and Chateau generally. See "THE MERGER--Benefits of the Merger and the Other
Transactions to the Principals of ROC and Chateau."
REAL ESTATE INVESTMENT RISKS
GENERAL
Following the Merger, the Combined Company will continue the business
undertaken separately by ROC and Chateau of owning, operating, managing,
acquiring and developing manufactured housing communities. The business risks to
be faced by the Combined Company will be similar to those now faced separately
by ROC and Chateau. As with other real estate investments, yields available from
manufactured housing communities depend on the amount of income and capital
appreciation generated by the communities in relationship to their cost
(including the cost of capital). If the properties do not generate sufficient
operating cash flow to meet operating expenses, including debt service, capital
expenditures and tenant improvements, income from the property will be adversely
affected. Income from properties may also be adversely affected by the general
economic climate, local conditions, such as an oversupply of or a reduction in
demand for manufactured home sites in the area, the attractiveness of properties
to tenants, zoning or other regulatory restrictions, competition from other
available manufactured home communities or available land for the placement of
manufactured homes outside of established communities and other forms of housing
(such as apartment buildings and site-built single-family homes), and the
ability of the Combined Company to provide adequate maintenance and insurance
and to control operating costs, including site maintenance, insurance premiums
and real estate taxes. Income from properties and real estate values are also
affected by such factors as applicable laws, including tax laws, interest rate
levels and the availability of financing. In addition, real estate investments
are relatively illiquid and, therefore, will tend to limit the ability of the
Combined Company to vary its portfolio promptly in response to changes in
economic or other conditions.
GEOGRAPHIC CONCENTRATION OF PROPERTIES
As of September 30, 1996, approximately 30% of the ROC Properties were
located in the State of Florida, approximately 11% in the State of Colorado,
approximately 11% in the State of Georgia, approximately 7% in the State of New
York, approximately 5% in the State of Indiana and approximately 8% in the
Pacific Coast states of California, Oregon and Washington (based in each
instance on the total number of homesites owned). In no other state did the
total number of homesites of ROC Properties represent in excess of 5% of ROC's
total homesites as of such date. As of September 30, 1996, approximately 57% of
the Chateau Properties were located in the State of Michigan, approximately 31%
in the State of Florida and approximately 6% in the State of Minnesota (based in
each instance on the total number of homesites owned). In no other state did the
total number of homesites in the Chateau Properties represent in excess of 5% of
Chateau's total homesites as of such date. Following the Merger
29
<PAGE>
(after giving effect to the acquisition of the Oakwood Communities),
approximately 30% of the Combined Company's owned properties will be located in
the State of Florida, approximately 28% in the State of Michigan, approximately
6% in the State of Colorado and approximately 6% in the State of Georgia (based
in each instance on the total number of homesites owned). Thus, following the
Merger, the Combined Company's financial performance may be especially
susceptible to changes in economic or other conditions in Florida, Michigan,
Colorado and Georgia.
DEBT MATURITIES
Approximately $168 million of existing long-term debt of both ROC and
Chateau, matures in the year 2000. The weighted average interest rate of such
indebtedness is 8.1% per annum. The Combined Company will not be able to repay
such long-term debt out of its operating cash flow upon maturity but will need
to refinance such indebtedness or seek alternative sources of capital. If
prevailing interest rates or other factors at the time of refinancing result in
higher interest rates on refinancings, the Combined Company's interest expenses
would increase, which would adversely affect the Combined Company's cash
available for distributions, funds from operations and the level of or ability
to make distributions to stockholders. In addition, if the Combined Company were
unable to secure refinancing of such indebtedness on acceptable terms, the
Combined Company might be forced to dispose of properties upon disadvantageous
terms, which might result in losses to the Combined Company and might adversely
affect its cash available for distribution to stockholders. Although the
Combined Company believes that as a result of the Merger it will have enhanced
access to capital and greater financial flexibility, because of the
concentration of debt maturities, the risks associated with debt refinancing
will be greater for the Combined Company than would be the case if more of its
long-term debt matured in different years.
POTENTIAL ENVIRONMENTAL LIABILITY TO THE PROPERTIES
Under various Federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs and removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost of
any required remediation and the owner's liability therefore as to any property
is generally not limited under such enactments and could exceed the value of the
property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner's ability to sell or rent such property and to borrow using
such property as collateral. Persons who arrange for the disposal or treatment
of hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials ("ACMs") into
the air and third parties may seek recovery from owners or operators of real
properties from personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, ROC or Chateau may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances or named a potentially responsible person or otherwise
identified as potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
All of the Properties have been subjected to Phase I or similar
environmental audit after January 1, 1991, completed by independent
environmental consulting companies. These environmental audits have not revealed
any environmental liability that would have a material adverse affect on the
Combined Company's financial condition.
30
<PAGE>
ROC and Chateau are, however, aware of the following environmental issues,
none of which either company believes believe will be material to the Combined
Company's financial condition following the Merger:
- All of the Properties have electrical transformers which contain or may
contain polychlorinated byphenyls ("PCBs"). All transformers are the property of
regional utility companies which bear ultimate financial responsibility for
maintenance of the transformers and clean-up of any adversely affected soils.
- Limited quantities of ACMs are present in various building materials such
as floor coverings, acoustical tiles and decorative treatments located at
certain Properties. The ACMs present at the Properties are generally
non-friable, in good condition, and possess low probabilities for disturbance.
- There are petroleum storage tanks located within several ROC Properties
and one Chateau Property. Based on information presently available to ROC and
Chateau, none of such tanks are currently leaking and no investigation or
corrective action with respect to such tanks has been suggested or required of
ROC and Chateau by any federal, state or local authority or any other party.
- Certain of the Properties contain private sewer and water facilities,
including waste water treatment facilities. Local authorities have alleged that
the waste water treatment facilities at two Chateau Properties are not in
compliance with current standards. In such situations, such authorities have
requested that such facilities be upgraded to meet certain standards and/or be
connected to public water and sewer systems. ROC and Chateau do not consider the
potential costs to be material.
- There is a potential for contamination of certain ROC and Chateau
Properties from reported off-site leaking petroleum underground storage tanks
("USTs") on land in the vicinity of such Properties. Neither ROC nor Chateau is
the owner or operator of any such off-site USTs. No investigative or corrective
action concerning any such leaking USTs has been suggested or required of ROC or
Chateau by any federal, state or local regulatory authority or any other party.
In the event of any contamination caused by leaking off-site USTs, ROC and
Chateau believe that the off-site landowners and UST operators are responsible
for investigation and cleanup of any contamination attributable to the leaking
USTs.
CHANGE IN NATURE OF INVESTMENT HELD BY ROC STOCKHOLDERS
Chateau is organized as an UPREIT, meaning that it conducts its business
through an operating partnership subsidiary in which Chateau serves as the sole
general partner. Chateau's current equity interest in the Operating Partnership
is approximately 39.0%. The balance of the partnership interests in the
Operating Partnership are held by OP Unitholders, including John A. Boll and
Edward R. Allen, who will be the Chairman of the Board of Directors and a
director of the Combined Company, respectively, upon consummation of the Merger.
Prior to entering into the Original Merger Agreement with Chateau, ROC was in
the process of reorganizing its business in the UPREIT format in order to allow
ROC to more efficiently accomplish tax-deferred property acquisitions. ROC has
suspended these efforts because the Combined Company will be structured as an
UPREIT upon completion of the Merger, with the existing Operating Partnership of
Chateau serving as the operating partnership for the Combined Company. See
"COMPARISON OF STOCKHOLDER RIGHTS--UPREIT Format."
Following the Merger, Mr. Boll will continue to own 684,818 OP Units in the
Operating Partnership, which OP Units, upon consummation of the Merger, will be
fully exchangeable on a one-for-one basis for shares of Chateau Common Stock.
Mr. Boll will also directly own shares of Chateau Common Stock. Mr. Boll may
continue to suffer different and more adverse tax consequences as an OP
Unitholder than the Combined Company or its stockholders upon the sale of
certain properties or upon other transactions that may result in repayment of
certain indebtedness of the Operating Partnership. Accordingly, Mr. Boll, for
the period he continues to hold OP Units, may have different objectives compared
to the stockholders of the Combined Company generally regarding the appropriate
timing of property sales or financing
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transactions involving the Combined Company or the Operating Partnership.
Consequently, ROC stockholders should be aware that Mr. Boll may seek to
influence the Combined Company not to sell a property, even though such sale
might otherwise be financially advantageous to the Combined Company, or may
otherwise seek to influence the Combined Company to structure financing
transactions or refrain from undertaking certain financing transactions so as to
avoid adverse tax consequences to him personally, even though the stockholders
of the Combined Company may have different interests.
RISKS ASSOCIATED WITH CERTAIN ROC PROPERTIES AND INCOME
GROUND LEASES
Approximately 1,100 of the 2,212 homesites at ROC's Colony Cove community in
Florida and all of the 220 homesites at ROC's The Colony community in California
(representing together 6.4% of ROC's total homesites) are not owned in fee but
are held pursuant to ground leases which expire by their terms in the years 2022
and 2031, respectively. Consequently, Chateau stockholders should be aware that
the Combined Company may not be able to renew these leases on favorable terms.
In addition, should a condemnation of any of these properties occur, by the
terms of these ground leases, the Combined Company is limited with respect to
the type of damages/award it may pursue against the condemning authority and may
not be able to realize an amount equal to its investment in these Properties.
MANAGEMENT INCOME
For the nine-month period ended September 30, 1996 and the year ended
December 31, 1995, $972,000 and $1,282,000 of ROC's gross revenues,
respectively, consisted of fees earned for managing properties owned by others.
Certain of these properties are owned by affiliates of ROC. These management
agreements expire by their terms on November 30, 1998. Income earned by the
Combined Company for managing properties owned by others does not constitute
"rents from real properties" and is subject to certain limitations imposed by
the Code. See "THE MERGER--Federal Income Tax Considerations Relating to Chateau
and ROC--Requirements for Qualification--Income Tests."
POTENTIAL CONFLICTS OF INTEREST ARISING FROM STOCK OWNERSHIP OF EXCHANGING OP
UNITHOLDERS
The Exchanging OP Unitholders, which include the current Chairman of the
Board, President and one other director of Chateau, will, upon consummation of
the Merger and after giving effect to the Other Transactions, together hold 29%
of the outstanding shares of Chateau Common Stock. Although there is no current
agreement, understanding or arrangement for such Exchanging OP Unitholders to
act together on any matter (other than the election of certain directors
described herein under "THE MERGER-- Certain Transactions and Agreements
Relating to the Merger--Voting Agreement"), they would be in a position to
exercise significant influence over the affairs of the Combined Company if they
were to do so in the future. Due to the low tax basis that the Exchanging OP
Unitholders will have in the shares of Chateau Common Stock that they receive
upon completion of the OP Unit Exchange, they may favor a long-term generation
of value by the Combined Company rather than transactions involving a taxable
disposition of their shares.
LIMITS ON CHANGE OF CONTROL
Certain provisions of the MGCL and the Chateau Charter and Combined Company
By-Laws could have the effect of delaying or preventing a change of control of
the Combined Company even if some of the Combined Company's stockholders deem
such a change to be in the Combined Company's and their best interest. The
provisions in the Chateau Charter and the Combined Company By-Laws are
substantially similar to those contained in the ROC and Chateau organizational
documents, except that ROC does not have a staggered board of directors, while
the terms of the Combined Company's directors will be
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staggered. See "DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY" and
"COMPARISON OF STOCKHOLDER RIGHTS."
NO DISSENTERS' RIGHTS
Under the MGCL, stockholders of ROC or Chateau will not have dissenters'
rights in connection with the Merger if it is approved.
RISKS RELATING TO ACHIEVEMENT OF BENEFITS
ROC and Chateau are large enterprises and considerable management time and
resources will be devoted to their integration. There can be no assurance,
however, that the anticipated benefits from the Merger will be realized or that
the integration will be successfully and timely implemented.
DEPENDENCE ON KEY PERSONNEL
Although the Combined Company will enjoy superior senior management depth
compared to either ROC or Chateau, the Combined Company, following the Merger,
will depend on the services of certain key personnel, including Gary P.
McDaniel, C.G. ("Jeff") Kellogg, James B. Grange, Tamara D. Fischer and Rees F.
Davis, Jr. (each of whom will have an employment agreement with the Combined
Company effective upon consummation of the Merger). ROC and Chateau believe that
the loss of the services of any of these key personnel could have an adverse
effect on the Combined Company. See "MANAGEMENT OF THE COMBINED
COMPANY--Directors and Executive Officers of the Combined Company."
POSSIBLE ADVERSE EFFECTS ON STOCK PRICES ARISING FROM SHARES AVAILABLE FOR
FUTURE SALE
Upon consummation of the Merger and after giving effect to the Other
Transactions, the Combined Company will have outstanding 24,946,742 shares of
Chateau Common Stock. Substantially all of the shares to be issued to the ROC
stockholders in the Merger and those currently outstanding will be freely
tradeable by the holders thereof upon consummation of the Merger. The shares to
be issued to the Exchanging OP Unitholders in the OP Unit Exchange and the
Chateau Share Issuance and the shares that may be issued in the future to OP
Unitholders who do not participate in the OP Unit Exchange will be "restricted
securities" within the meaning of Rule 144 under the Securities Act, but the
holders thereof have resale registration rights with respect to such shares
pursuant to existing registration rights agreements. Further, an additional
1,281,634 shares of Chateau Common Stock will be issuable by the Combined
Company upon exercise of stock options expected to be outstanding upon
consummation of the Merger. It is expected that shares of Chateau Common Stock
to be issued by the Combined Company pursuant to the exercise of outstanding
stock options will be included in an effective registration statement of the
Combined Company and the holders thereof will, therefore, generally be able to
resell such shares without resale restrictions under the Securities Act. Sales
of a substantial number of shares of Chateau Common Stock, or the perception
that such sales could occur, could adversely affect the prevailing market price
for the Chateau Common Stock. If such sales reduce the market price of the
Chateau Common Stock, the Combined Company's ability to raise additional capital
in the equity market could be adversely affected.
IMPACT OF INTEREST RATES AND OTHER FACTORS ON STOCK PRICE
Any significant increase in market interest rates from their current levels
could lead holders of Chateau Common Stock to seek higher yields through other
investments, which could adversely affect the market price of the shares of
Chateau Common Stock. One of the factors that may influence the price of Chateau
Common Stock in public markets will be the annual distribution rate on Chateau
Common Stock as compared with the yields on alternative investments. Moreover,
numerous other factors, such as
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governmental regulatory action and tax laws, could have a significant impact on
the future market price of Chateau Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
The Merger and the OP Unit Exchange, when taken together with the Other
Transactions, are expected to be treated as a tax-free transfer of shares of ROC
Stock and a partially tax-deferred transfer of OP Units for Chateau Common
Stock. The ROC stockholders who exchange their ROC Stock for shares of Chateau
Common Stock are therefore not expected to recognize gain or loss for federal
income tax purposes, except to the extent that a ROC stockholder receives cash
proceeds in lieu of fractional interests in shares of Chateau Common Stock. At
the closing of the Merger, it is anticipated that Rogers & Wells and Timmis &
Inman, counsel to ROC and Chateau, respectively, will render opinions to the
effect that the Merger will be treated for federal income tax purposes as a
tax-free transfer by the ROC stockholders of their shares of ROC Stock to
Chateau in exchange for Chateau Common Stock under Section 351 of the Code.
Stockholders should be aware that an opinion of counsel is not binding on the
IRS or the courts and that the parties have not requested an advance ruling from
the IRS with respect to the tax consequences of the Merger. While Counsel
believes that such exchanges will qualify for treatment under Section 351 of the
Code, there can be no assurance that the IRS will agree with this conclusion. In
the event that the Merger does not qualify as a tax-free transaction, a ROC
stockholder will recognize gain or loss equal to the difference between such ROC
stockholder's tax basis in its ROC Stock and the fair market value at the
Effective Time of the Chateau Common Stock and cash received in exchange
therefor. Such gain or loss will be long term if the ROC Stock was held by such
stockholder for more than one year. See "THE MERGER--Federal Income Tax
Consequences--Tax Consequences of the Merger."
In connection with the Merger and Other Transactions, existing Chateau
stockholders will be allocated certain shares of Chateau Common Stock that have
been waived by the Exchanging OP Unitholders pursuant to the Dividend Waiver.
There is a risk that the IRS will classify as income the fair market value of
the Chateau Common Stock received pursuant to the Dividend Waiver. To the extent
that the Chateau Common Stock received pursuant to the Divdend Waiver is treated
as income, the recipient Chateau stockholders will have income to the extent of
the fair market value of such stock. In such event, the Chateau stockholder's
basis in the Chateau Common Stock received pursuant to the Dividend Waiver will
equal its fair market value, as of the Effective Time, and the stockholder's
holding period for such stock will begin the day after the Effective Day. See
"THE MERGER--Federal Income Tax Consequences--Additional Tax Consequences of
Waiver of the Chateau Stock Dividend by Exchanging OP Unitholders."
Assuming that the Merger and the OP Unit Exchange qualify as transfers under
Section 351 of the Code, it is expected that the Combined Company will take, as
its tax basis, the tax basis of the OP Units in the hands of the Exchanging OP
Unitholders immediately prior to the OP Unit Exchange, increased by the amount,
if any, of gain recognized by the Exchanging OP Unitholders upon such transfer.
The Combined Company and the Operating Partnership will also carry over the tax
basis of the ROC Properties immediately prior to the Effective Time. Thus, the
Combined Company will have a tax basis in the ROC Properties and the properties
owned by the Operating Partnership, attributable to the OP Units exchanged by
the Exchanging OP Unitholders pursuant to the OP Unit Exchange, determined by
reference to historical cost rather than the fair market value of such
properties. Consequently, in the event of a sale of such properties (or any
individual property), gain would be recognized to the extent of such difference,
and taxed to either the Combined Company or the persons who are then
stockholders of the Combined Company, including the Exchanging OP Unitholders,
in accordance with the rules applicable to the taxation of a REIT and its
stockholders. If such gain is taxable to the stockholders of the Combined
Company (because the Combined Company has designated all or a portion of a
dividend paid with respect to Common Stock as a capital gain dividend), then to
the extent that such dividend would have, absent such designation, been a tax
free return of capital, it would have the effect of accelerating recognition of
a
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capital gain which would otherwise not have been recognized by such stockholders
until a later disposition of the shares of the Combined Company. This effect
results because the portion of the dividend which would have been a tax free
return of capital (absent such designation) would have reduced the tax basis of
the shares and would therefore be taxed as a capital gain upon a later sale of
such shares. Management of Chateau and ROC believe that, based in part on
unaudited pro forma financial data of the Combined Company as of September 30,
1996, approximately 31% to 34% of distributions by the Combined Company expected
to be made for 1997 will be treated as a non-taxable return of capital.
Following the Merger, it is anticipated that distributions by the Combined
Company (like those for ROC and Chateau) will exceed the Combined Company's
taxable income due to non-cash expenses, primarily depreciation and
amortization, to be incurred by the Combined Company. Distributions in excess of
taxable income are generally treated as non-taxable returns of capital to
stockholders. One effect of the Merger is that the portion of distributions by
the Combined Company that will represent a return of capital is expected to be
lower than is the case for ROC or Chateau separately. Management of ROC believes
that, absent the Merger, approximately 38% to 40% of its distributions for 1997
would be treated as a non-taxable return of capital. Management of Chateau
believes that, absent the Merger, approximately 33% to 35% of its distributions
for 1997 would be treated as a non-taxable return of capital. Management of
Chateau and ROC believe that, based in part on the September 30, 1996 unaudited
pro forma financial data of the Combined Company, after giving effect to the
Merger and the Other Transactions, approximately 31% to 34% of distributions by
the Combined Company expected to be made for 1997 will be treated as a
non-taxable return of capital. Management of ROC and Chateau estimate that,
under the Original Merger Agreement (which did not involve any OP Unit
Exchange), the percentage of distributions that would have represented a
non-taxable return of capital would also have been approximately 31% to 34%. See
"THE MERGER--Federal Income Tax Consequences--Additional Tax Consequences of the
Merger and the OP Unit Exchange."
CERTAIN TAX RISKS
LIMITS ON OWNERSHIP NECESSARY TO MAINTAIN REIT QUALIFICATION
For the Combined Company and ROC each to qualify as a REIT under the Code,
not more than 50% of the number or value of the outstanding stock of the
Combined Company and ROC may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain exempt entities) during
the last half of a taxable year or during a proportionate part of a shorter
taxable year (other than during its first taxable year). As a result of such
requirements, the Combined Company Charter and the ROC Charter contain
provisions that provide that, subject to certain exceptions described herein
under "DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY--Ownership Limit;
Restrictions on Transfer," no stockholder may own, or be deemed to own by virtue
of the attribution provisions of the Code, more than the Ownership Limit of the
Combined Company or ROC, as the case may be. The current ROC ownership limit is
fixed at 9.8%, while the current Chateau ownership limit, which will be the
ownership limit of the Combined Company is 7.0% (subject to certain exceptions).
REIT CLASSIFICATION
Following the Merger, the Combined Company and ROC intend to continue to
qualify as REITs under the Code. See "THE MERGER--Federal Income Tax
Considerations Relating to Chateau and ROC." A REIT generally is not subject to
federal income tax at the corporate level on income it currently distributes to
its stockholders so long as it distributes at least 95% of its taxable income
(other than net capital gain). As a result of the REIT asset tests, a failure on
the part of ROC to qualify as a REIT would, in turn, cause the Combined Company
to fail to qualify as a REIT. See "THE MERGER--Federal Income Tax Considerations
Relating to Chateau and ROC--Requirements for Qualification--Asset Tests." While
ROC and Chateau believe they have operated so as to qualify as REITs, and that,
following the Merger, the Combined Company and ROC intend to operate so as to
qualify as REITs, no assurance can be given
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in this regard or that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification.
If either the Combined Company or ROC fails to qualify as a REIT, the
nonqualifying entity will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. In addition, if, following the Merger, ROC fails to qualify as a REIT,
the Combined Company similarly will be subject to federal income tax. Unless
entitled to relief under certain statutory provisions, the Combined Company and
ROC would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. The additional tax would
significantly reduce the cash available for distribution by the Combined
Company. See "THE MERGER-- Federal Income Tax Considerations Relating to Chateau
and ROC."
EFFECT OF DISTRIBUTION REQUIREMENTS
To obtain and maintain their status as REITs, both the Combined Company and
ROC generally will be required each year to distribute to their stockholders at
least 95% of their taxable income (other than net capital gain) after certain
adjustments. In addition, both the Combined Company and ROC will be subject to a
4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by them during each calendar year are less than the sum of
85% of their ordinary income for such calendar year, 95% of their capital gain
income for the calendar year and any amount of such income that was not
distributed in prior years. For the year ended December 31, 1995, each of
Chateau and ROC distributed an amount substantially in excess of 95% of its
respective taxable income.
CONSEQUENCES OF FAILURE TO QUALIFY THE OPERATING PARTNERSHIP OR OTHER
PARTNERSHIPS AS PARTNERSHIPS
At the Closing (as defined in the Merger Agreement) of the Merger, ROC and
Chateau will receive opinions of counsel that the Operating Partnership, the
Financing Partnership and each Subtier Partnership are (or will be following the
Merger) properly treated as partnerships for federal income tax purposes. If the
Internal Revenue Service (the "IRS") were to challenge successfully the tax
status of any such partnership as a partnership for federal income tax purposes,
the affected partnership would be taxable as a corporation. In such event, since
the value of either the Combined Company's ownership interest or ROC's ownership
interest in the affected partnership could exceed 5% of the value of the
Combined Company's or ROC's total assets, respectively, the Combined Company or
ROC could cease to qualify as a REIT. The same consequence would follow from a
determination that the affected REIT owned more than 10% of the voting stock of
any partnership that is treated as a corporation. In addition, the imposition of
a corporate tax on the Operating Partnership, the Financing Partnership or any
of the Subtier Partnerships (as defined below) would significantly reduce the
amount of cash available for distribution to stockholders of the Combined
Company. See "THE MERGER--Federal Income Tax Considerations Relating to Chateau
and ROC--Income Taxation of the Operating Partnership, Financing Partnership,
Subtier Partnerships and Their Partners."
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THE PARTIES
THE COMBINED COMPANY
Upon completion of the Merger, the businesses of ROC and Chateau will be
combined together within the Combined Company to form the largest owner of
manufactured home communities in the United States, based both on the number of
communities and the number of residential homesites owned. The Combined Company,
which expects to continue to qualify as a REIT under the Code, will own 124
manufactured home communities in 27 states, with an aggregate of 42,150
residential homesites. The Combined Company's portfolio will be geographically
diversified, with significant concentrations in the southeastern and midwestern
United States, as well as the Pacific Coast states, permitting economies of
scale in property management operations. The Combined Company's portfolio will
also be diversified by resident orientation, with approximately 28% of the
residential homesites in communities which are adult-oriented and 72% of
residential homesites in communities which are family-oriented. In addition to
the Oakwood Communities, the Combined Company will own land adjacent to existing
communities which is suitable for expansion (subject to obtaining necessary
government approvals and licenses) of up to 3,400 additional homesites. The
Combined Company will also manage on a fee basis 36 manufactured home
communities, containing 7,167 residential homesites.
On July 17, 1996, concurrently with the execution of the Original Merger
Agreement, the Operating Partnership and ROC jointly entered into a purchase
agreement to acquire from Oakwood seven development stage manufactured housing
communities located in the states of Florida, Georgia, Mississippi, Ohio, South
Carolina, Texas and Virginia. The Oakwood Communities contain an aggregate of
approximately 2,900 potential homesites, of which approximately 600 are
occupied, approximately 800 are developed and available for rent and
approximately 1,500 are available for future development. On October 1, 1996, a
joint venture owned 50% by ROC and 50% by the Operating Partnership purchased
six of the Oakwood Communities for a purchase price of approximately
$21,200,000, all of which was paid in cash and was financed by borrowings on the
respective lines of credit of ROC and the Operating Partnership. One of the
Oakwood Communities was acquired directly by ROC for approximately $1,900,000 in
cash and financed by a borrowing on ROC's line of credit. Upon consummation of
the Merger, these communities will be part of the Combined Company's portfolio.
The Combined Company's growth strategy will reflect the successful growth
strategies of both ROC and Chateau, and will include the following key elements:
OPERATIONS
- Providing attractive and desirable manufactured home communities for
residents and prospective residents;
- Aggressively managing properties to increase operating margins through
rent and occupancy increases and expense controls;
- Maintaining and upgrading communities on a continuous basis through a
program of regular and preventive maintenance and replacement;
- Offering on-site service and accessibility to residents to maximize
retention, encourage home maintenance and improvements and minimize
turnover; and
- Providing frequent personal contact between on-site managers and residents
to foster a sense of pride in the community and to promote the
desirability of each property.
ACQUISITIONS
- Selectively acquiring well-located manufactured home communities that show
the potential for increases in revenue and cash flow through the
institution of professional property management, the correction of
operating inefficiencies, aggressive leasing activities and, where
appropriate, renovation and expansion;
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- Considering acquisitions which offer opportunities for expansion and
development, either through the lease-up of existing homesites or the
development of new homesites; and
- Utilizing the expertise and relationships developed by management to
identify acquisition opportunities and complete acquisitions directly with
sellers prior to the active marketing of the subject properties.
DEVELOPMENT AND EXPANSIONS
- Selectively developing new communities in regions where management has
significant experience and development is supported by high occupancies
for existing properties and strong market demand; and
- Expanding existing communities, where justified by local market conditions
and permitted by zoning and other applicable laws.
To support its growth strategy, the Combined Company intends to maintain a
conservative capital structure. On a pro forma basis, as of September 30, 1996,
the Combined Company would have had a debt-to-total market capitalization ratio
of approximately 33% (assuming a market price per share of $24.375, the closing
price of the Chateau Common Stock on the NYSE on November 6, 1996, the date of
the termination of the MHC Tender Offer).
Following the Merger, the Combined Company will conduct substantially all of
its business activities through the Operating Partnership, of which it and ROC
will be general partners. Upon completion of the Merger (and after giving effect
to the OP Unit Exchange and the cancellation of the shares of Chateau Common
Stock which may be held by ROC upon the consummation of the Merger, and assuming
the maximum number of shares are purchased under the Chateau Share Repurchase
Program and issued under the Chateau Share Issuance), the Combined Company will
directly and indirectly hold an approximate 90.0% general partner interest in
the Operating Partnership, and the remaining OP Unitholders will hold a combined
approximate 10.0% interest therein. Following consummation of the Merger and the
Other Transactions, 20.0% of Chateau Common Stock will be directly owned by
officers and directors of the Combined Company and an additional 2.5% of Chateau
Common Stock will be beneficially owned by Mr. Boll through his beneficial
ownership of OP Units. See "DESCRIPTION OF CAPITAL STOCK OF THE COMBINED
COMPANY."
The Common Stock of the Combined Company will continue to be listed on the
NYSE following the Merger under the symbol "CPJ." The Merger Agreement provides
that, at the first annual meeting of stockholders of the Combined Company
following the Merger, the Board of Directors of the Combined Company will
solicit stockholder approval to change the Combined Company's name to "Chateau
Communities, Inc." If the stockholders of the Combined Company approve such name
change, the Combined Company will change its symbol on the NYSE to appropriately
comport with the name change. The Combined Company's executive offices will be
located at ROC's existing executive offices, 6430 South Quebec Street,
Englewood, Colorado 80111, and its telephone number will be (303) 741-3707.
ROC
ROC is a fully integrated, self-administered and self-managed REIT which was
incorporated in March 1993 to continue and to expand the business of the ROC
Predecessor and its principals, commenced in 1979, of acquiring, owning,
managing, renovating and expanding manufactured home communities throughout the
United States. As of September 30, 1996, ROC owned a portfolio of 71
manufactured home communities in 23 states, aggregating 21,041 residential
sites. As of December 31, 1995, 1994 and 1993, the occupancy rate of the ROC
Properties was 94%, 95% and 95%, respectively. Weighted average monthly rent per
site for the ROC Properties for the quarter ended September 30, 1996 was $239.
ROC also owns land adjacent to its existing owned communities which is suitable
for expansion (subject to obtaining necessary government approvals and licenses)
of up to 1,900 additional homesites. In addition, ROC currently manages, on a
fee basis, 36 manufactured home communities, aggregating 7,167 residential
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sites, seven of which, containing an aggregate of 1,352 homesites, are owned by
certain of its affiliates. In April 1996, ROC was awarded the Manufactured Home
Community "Operator of the Year" award by the National Manufactured Housing
Industry Association for the fourth consecutive year.
ROC is not currently organized with an operating partnership subsidiary.
However, prior to entering into the execution of the Original Merger Agreement
with Chateau, ROC was in the process of reorganizing its business in the UPREIT
format in order to allow ROC to more efficiently accomplish tax deferred
property acquisitions. ROC has suspended these efforts because the Combined
Company will be structured as an UPREIT upon completion of the Merger.
ROC Common Stock is listed on the NYSE under the symbol "RCI." ROC's
executive offices are located at 6430 South Quebec Street, Englewood, Colorado
80111 and its telephone number is (303) 741-3707. ROC has regional property
management offices in Atlanta, Georgia; Indianapolis, Indiana; and Tampa,
Florida.
CHATEAU
Chateau is a self-administered and self-managed equity REIT that was formed
in 1993 to continue and expand the property operations and business objectives
of ownership, management, leasing, expansion, development and acquisition of
manufactured home communities previously conducted by the Chateau Predecessor.
As of September 30, 1996, the Chateau Properties consisted of 47 manufactured
home communities located in Michigan, Florida, Illinois, Minnesota and North
Dakota and containing 20,003 sites. As of December 31, 1995, 1994 and 1993, the
occupancy rate of the Chateau Properties was 94%, 92% and 93%, respectively.
Weighted average monthly rent per site for the quarter ended September 30, 1996
was $286. Also at September 30, 1996, Chateau owned undeveloped land adjacent to
existing communities suitable for approximately 1,500 expansion sites, which are
zoned for manufactured housing. In April 1996, Chateau was awarded the
Manufactured Home Community of the Year--Eastern Region Award by the National
Manufactured Housing Industry Association for its Del Tura Country Club
community in Florida.
Chateau is currently organized in an UPREIT format which allows it to more
efficiently effect Property acquisitions on a tax deferred basis. Accordingly,
Chateau conducts substantially all of its activities through the Operating
Partnership, in which it currently owns an approximate 39.0% general partner
interest. As the sole general partner of the Operating Partnership, Chateau has
unilateral control and complete responsibility for the management of the
Operating Partnership and over each of the Chateau Properties.
The Chateau Common Stock is listed on the NYSE under the symbol "CPJ."
Chateau's executive offices are currently located at 19500 Hall Road, Clinton
Township, Michigan 48038 and its telephone number is (810) 286-3600. Chateau has
regional property management offices in Minneapolis, Minnesota and Orlando,
Florida.
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CAPITALIZATION
The following table sets forth the historical capitalization of Chateau and
ROC at September 30, 1996 and the pro forma combined capitalization of the
Combined Company as adjusted to give effect to the Merger and the Other
Transactions as if the Merger and the Other Transactions had occurred on
September 30, 1996. The following table should be read in conjunction with the
historical and pro forma financial statements and related notes included
elsewhere in, or incorporated by reference into, this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
COMBINED
COMPANY
CHATEAU ROC PRO FORMA
HISTORICAL HISTORICAL COMBINED
---------- ---------- -----------
Debt............................................................................ $ 153,344 $ 141,142 $ 329,486
Limited partners' interest in Operating Partnership............................. 33,298 35,577
Stockholders' equity............................................................
Common Stock.................................................................. 61 124 249
Non-Voting Stock.............................................................. 2
Additional paid in capital.................................................... 28,517 212,595 325,605
Dividends in excess of accumulated earnings................................... (5,589) (23,710) (5,589)
Notes receivable, officers.................................................... (825) (825)
---------- ---------- -----------
Total stockholders' equity.................................................... 22,164 189,011 319,440
---------- ---------- -----------
Total capitalization........................................................ $ 208,806 $ 330,153 $ 684,503
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
40
<PAGE>
THE STOCKHOLDERS MEETINGS
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Boards of Directors of ROC and Chateau for
use in connection with the Special Meetings and any adjournments or
postponements thereof. It is anticipated that the mailing of the Joint Proxy
Statement/ Prospectus to stockholders of ROC will commence on December 24, 1996.
The date of mailing of the Joint Proxy Statement/Prospectus, together with the
Chateau Supplement, to stockholders of Chateau will be set forth in the Chateau
Supplement.
DATE, TIME AND PLACE OF MEETINGS
The ROC Special Meeting will be held at its principal executive offices,
located at 6430 South Quebec Street, Englewood, Colorado 80111, on January 28,
1997 at 9:00 a.m., Mountain Standard Time. The date, time and location of the
Chateau Special Meeting will be set forth in the Chateau Supplement.
MATTERS TO BE CONSIDERED AT THE MEETINGS
The holders of ROC Common Stock will be asked to consider and vote upon the
ROC Proposal. The ROC Stockholder Approval will have the effect of approving the
Merger and the Merger Agreement, as more fully described under "THE MERGER." The
holders of ROC Common Stock will also be asked to consider and vote upon any
such other matters as may properly come before the ROC Special Meeting.
The holders of Chateau Common Stock will be asked to consider and vote upon
the Chateau Proposals. The Chateau Stockholder Approval will have the effect of
approving the issuance of the Merger Consideration to the ROC stockholders and
the issuance of shares of Chateau Common Stock in the Chateau Share Issuance.
The holders of Chateau Common Stock will also be asked to consider and vote upon
any such other matters as may properly come before the Chateau Special Meeting.
A representative of ROC's independent auditors is expected to be present at
the ROC Special Meeting, and a representative of Chateau's independent auditors
is expected to be present at the Chateau Special Meeting. Each such
representative will have the opportunity to make a statement if he or she
desires to do so. It is expected that such representatives will be available to
respond to appropriate questions.
RECORD DATE AND VOTE REQUIRED
The ROC Board has fixed the close of business on December 23, 1996 as the
record date for the ROC Special Meeting. As of such date, there were 12,423,500
shares of ROC Common Stock outstanding. It is currently expected that the
Chateau Board will fix the Chateau Record Date to occur within one or two days
following the ROC Stockholder Approval and that the Chateau Special Meeting will
be held approximately 12 days thereafter.
The presence in person or by proxy of stockholders owning shares of ROC
Common Stock or Chateau Common Stock representing a majority of the outstanding
shares of ROC Common Stock and Chateau Common Stock, respectively, is necessary
to constitute a quorum at each such meeting. To achieve the ROC Stockholder
Approval, an aggregate of at least 8,282,334 shares of ROC Common Stock,
representing at least two thirds of the outstanding shares of ROC Common Stock,
will need to be voted in favor of the ROC Proposal. To achieve the Chateau
Stockholder Approval of each of the Chateau Proposals, at least a majority of
the shares of Chateau Common Stock voted at the Chateau Special Meeting will
need to be voted in favor of the Chateau Proposals (provided the total vote cast
represents over 50% in interest in the outstanding Chateau Common Stock).
41
<PAGE>
Gary P. McDaniel, ROC's President and Chief Executive Officer and Chairman
of the ROC Board, Steven G. Davis, ROC's Chief Financial Officer and a ROC
director, James B. Grange, ROC's Chief Operating Officer, and Rees F. Davis,
Jr., ROC's Executive Vice President--Acquisitions (the "ROC Principals"), have
executed the ROC Principal Proxies granting to Chateau the full power to vote
all shares of ROC Common Stock held by them in favor of the ROC Proposal and
against any proposal made in opposition to or in competition with the ROC
Proposal. As of the ROC Record Date, such individuals held in the aggregate
601,738 shares of ROC Common Stock and other executive officers and directors of
ROC (who have indicated their intention to vote in favor of the ROC Proposal)
held or exercised voting control over, in the aggregate, 196,104 shares of ROC
Common Stock, representing together a total of approximately 6.4% of all the
votes entitled to be cast by holders of ROC Common Stock at the ROC Special
Meeting. See "THE STOCKHOLDERS MEETINGS" and "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
John A. Boll, Chairman of the Chateau Board, C.G. ("Jeff") Kellogg,
Chateau's President and Chief Executive Officer and a Chateau director, and
Tamara D. Fischer, Chateau's Chief Financial Officer (together, the "Chateau
Principals"), who together hold an aggregate of 26,937 shares of Chateau Common
Stock, have executed the Chateau Principal Proxies granting to ROC the full
power to vote all shares of Chateau Common Stock held by them in favor of the
Chateau Proposals and against any proposal made in opposition to or in
competition with the Chateau Proposals. In addition, certain other officers and
directors of Chateau, who together hold an aggregate of 45,995 shares of Chateau
Common Stock, have expressed to ROC an intention to vote all shares of Chateau
Stock held by them as of the Chateau Record Date in favor of the Chateau
Proposals. Further, the Exchanging OP Unitholders, who include Messrs. Boll and
Kellogg, have agreed with ROC pursuant to the Chateau Securityholder Agreement
to the effect that, subject to the approval by the ROC stockholders of the ROC
Proposal and certain other conditions described herein under "THE
MERGER--Certain Transactions and Agreements Relating to the Merger--Chateau
Securityholder Agreement," they will exchange an aggregate of 3,768,391 OP Units
for shares of Chateau Common Stock on or prior to the Chateau Record Date, and
contemporaneously with the closing of the Merger, an additional 2,359,184 OP
Units for shares of Chateau Common Stock. OP Unitholders who exchange their OP
Units for shares of Chateau Common Stock on or prior to the Chateau Record Date
will be entitled to vote at the Chateau Special Meeting and they are expected to
vote in favor of the Chateau Proposals because they will be subject to
significant tax liabilities as a result of the exchange of their OP Units if the
Merger does not occur. Further, ROC has purchased 350,000 shares of Chateau
Common Stock and has agreed with Chateau to vote all such shares in favor of the
Chateau Proposals and against any proposal made in opposition to or in
competition with the Chateau Proposals. After giving effect to the OP Unit
Exchange and the 450,000 shares purchased to date by Chateau in the Chateau
Share Repurchase Program, it is anticipated that, as of the Chateau Record Date,
(i) there will be 9,418,101 shares of Chateau Common Stock outstanding and (ii)
the Chateau Principals, the other Exchanging OP Unitholders and the other
Chateau stockholders who have expressed an intent to vote in favor of the
Merger, combined with the shares of Chateau Common Stock expected to be held by
ROC, will represent in the aggregate 4,194,083 shares of Chateau Common Stock,
whereas 4,709,051 shares would be required to approve the Chateau Proposals
(assuming all shares of Chateau Common Stock outstanding on the Chateau Record
Date are voted at the Chateau Special Meeting). The Chateau Principals, other
Exchanging OP Unitholders and such other Chateau stockholders will therefore
hold approximately 45% of the outstanding shares of Chateau Common Stock, which
is nearly sufficient voting power to approve the Chateau Proposals. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Until the
first phase of the OP Unit Exchange (which is expected to occur within one or
two days following the ROC Special Meeting), the Merger will remain subject to a
number of conditions and the right of the Board of Directors of ROC and Chateau
to terminate the Merger Agreement in connection with its acceptance of certain
Superior Competing Transactions (as defined in the Merger Agreement), including
a sale of ROC or Chateau, if required by either Board's exercise of its
fiduciary duties. If the Merger Agreement is terminated, the OP Unit Exchange
and the
42
<PAGE>
Chateau Share Issuance will not occur. In addition, following consummation of
the Merger, the Board of Directors of the Combined Company will not be subject
to any contractual limitations regarding its ability to consider and respond to
any acquisition proposals.
For the ROC Proposal and Chateau Proposals, broker non-votes and abstentions
will be considered as present but not voting at the Special Meetings. In the
case of the ROC Proposal, because it requires the approval of a specified number
of outstanding shares of ROC Common Stock, broker non-votes and abstentions will
have the same effect as a vote AGAINST the ROC Proposal. In the case of each of
the Chateau Proposals, because it does not require the affirmative vote of a
specified number of shares of Chateau Common Stock (but instead the approval of
a majority of votes cast on the Chateau Proposals at the Chateau Special
Meeting), broker non-votes and abstentions will not affect the vote on the
Chateau Proposals if a quorum is present at the Chateau Special Meeting. Neither
the ROC Board nor the Chateau Board knows of any other matter that will be
presented for action at either of the Special Meetings. If, however, any other
matter properly comes before either Special Meeting, the persons named in the
proxy or their substitutes will vote thereon in accordance with their best
judgment.
THE ADJOURNMENT PROPOSAL
In the event that there are not sufficient votes to approve the ROC Proposal
or the Chateau Proposals at the time of the applicable Special Meeting, unless
such Special Meeting were adjourned in order to permit further solicitation of
proxies the ROC Proposal or the Chateau Proposals could not be approved at the
applicable Special Meeting. In order to allow proxies that have been received by
either ROC or Chateau at the time of the applicable Special Meeting to be voted
for such adjournment, if necessary, each company has submitted the question of
adjournment (each, an "Adjournment Proposal") under such circumstances, and only
under such circumstances, to the respective stockholders of the two companies as
a separate matter for their consideration. A majority of the shares represented
and voting at the applicable Special Meeting is required in order to approve
such adjournment. Each Board of Directors recommends that stockholders vote
their proxies FOR the applicable Adjournment Proposal so that their proxies may
be used for such purposes in the event it should become necessary. Properly
executed proxies will be voted FOR any such adjournment unless otherwise
indicated thereon. If it is necessary to adjourn the Special Meeting, no notice
of the time and place of the adjourned meeting is required to be given to
stockholders other than an announcement of such time and place at the Special
Meeting. This Adjournment Proposal relates only to an adjournment occurring for
the purpose of soliciting additional proxies for the ROC Proposal or the Chateau
Proposals in the event that there are insufficient votes to approve such
proposal at the applicable Special Meeting. In addition, the Board of Directors
of each company retains full authority to postpone the applicable Special
Meeting prior to its being convened without the consent of any stockholder.
PROXIES
Proxy cards for use at the ROC Special Meeting accompany copies of this
Joint Proxy Statement/ Prospectus mailed to ROC stockholders. Proxy cards for
use at the Chateau Special Meeting will accompany copies of this Joint Proxy
Statement/Prospectus which will be mailed, together with the Chateau Supplement,
to Chateau stockholders at a later date. A stockholder may use the proxy card if
he or she is unable to attend the meeting in person or wishes to have his or her
shares voted by proxy even if he or she does attend the meeting. A proxy may be
revoked by the person giving it at any time before it is exercised, by providing
written notice of such revocation to the Secretary of ROC or Chateau, as
applicable, by submitting a proxy having a later date or by appearing at the
meeting and electing to vote in person. Any proxy validly submitted and not
revoked will be voted in the manner specified therein by the stockholder. If a
stockholder executes a proxy with no instructions indicated thereon, shares
represented by such proxy will be voted in favor of the ROC Proposal or the
Chateau Proposals, as applicable.
43
<PAGE>
SOLICITATION OF PROXIES
ROC and Chateau will bear the expenses of their respective proxy
solicitations. Such solicitations will be by mail but also may be by telephone
or in person by the directors, officers or employees of ROC or Chateau who will
not receive any additional compensation therefor. In addition, ROC has retained
Georgeson & Company Inc., a proxy soliciting firm, to assist in the solicitation
of proxies. ROC anticipates that the cost of such proxy soliciting firm to ROC,
in aggregate, will not exceed $18,000, plus expenses. The telephone number of
Georgeson & Company Inc. is (212) 440-9800. In addition, Chateau has retained
D.F. King & Co., Inc., a proxy soliciting firm, to assist in the solicitation of
proxies. Chateau anticipates that the cost of such proxy soliciting firm to
Chateau, in aggregate, will not exceed $15,000, plus expenses. The telephone
number of D.F. King & Co., Inc. is (212) 269-5550. In addition to the mails,
proxies may be sent and received by telegram, cablegram, datagram or other
electronic transmission.
NO DISSENTERS' RIGHTS
Under the MGCL, stockholders of ROC or Chateau who do not vote in favor of
the ROC Proposal or the Chateau Proposals, respectively, will have no appraisal
rights in connection with the Merger if it is approved by stockholders, I.E.,
they may not demand the fair value of their stock and are bound by the terms of
the Merger.
STOCKHOLDERS SHOULD NOT SEND ANY
SHARE CERTIFICATES WITH THEIR PROXY CARDS.
44
<PAGE>
THE PROPOSED MERGER AND RELATED MATTERS
Certain statements set forth below under this caption may constitute
"forward-looking statements" within the meaning of the Reform Act. See "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" for additional factors relating to
such statements.
BACKGROUND OF THE MERGER
ROC was organized as a public company in 1993 for the purpose of continuing
the business of the ROC Predecessor and ROC's principals, commenced in 1979, of
acquiring, owning, operating, renovating, expanding and managing manufactured
housing communities throughout the United States. ROC completed its initial
public offering in August 1993 and an additional public equity offering in
August 1994. Since its initial public offering, ROC's growth strategy has
focused on superior property management and acquisitions of additional
communities.
Chateau was organized as a public company in 1993 in order to continue the
business commenced by John A. Boll in 1966 of owning, operating and developing
manufactured housing communities primarily in the states of Florida and
Michigan. Chateau completed its initial public offering in November 1993 and the
Operating Partnership completed a public unsecured debt offering in March 1995.
Chateau enjoys a reputation for developing and expanding premier manufactured
home communities, having been involved in the development of more than 30
communities in the last 30 years. Chateau's growth since its inception has been
focused on community expansions and development, achieving operating
efficiencies and, to a lesser extent, new property acquisitions.
Gary P. McDaniel, the President and Chief Executive Officer of ROC, and C.G.
("Jeff") Kellogg, the President and Chief Executive Officer of Chateau, first
held informal discussions relating to a potential business combination involving
the two companies in the spring of 1995. The two executives had known each other
for several years, having participated together in various manufacturing housing
industry association matters. These preliminary discussions did not advance
beyond the conceptual phase.
In April 1996, discussions between Messrs. McDaniel and Kellogg were
reinitiated. The executives informed each other that, although each was not
interested in a sale transaction, each considered the unique benefits to
stockholders and the opportunity to enhance stockholder value that could be
realized if the two companies could be combined. These benefits included the
integration of senior management from the two companies which would combine
ROC's recognized leadership in property management, administration and
acquisitions with Chateau's substantial development and expansion expertise. In
addition, the combination could lead to the creation of a larger company that
would hold the largest portfolio of manufactured housing communities in the
United States and could thus command increased recognition and credibility in
the manufactured housing industry and enhanced access to capital and financial
flexibility. The executives also considered that such increased size might allow
the pursuit of a more aggressive growth strategy, especially involving community
development and portfolio acquisitions. Some of the other unique benefits from
the transaction would also arise out of the combination of ROC's geographically
diverse portfolio with Chateau's geographically focused one. The executives also
recognized that the two companies shared a basic business philosophy and a
vision for their respective organizations that could be best furthered in a
combination transaction, especially one in which the best elements from both
companies could be combined in the successor organization. The executives also
considered the benefits of spreading the expense of operating a public company
over a much larger asset base.
On May 7 and 8, 1996, Mr. McDaniel met with John A. Boll, the Chairman of
the Board of Directors of Chateau, Mr. Kellogg and Tamara D. Fischer, Chateau's
Chief Financial Officer, in Detroit, Michigan, at which time they continued to
discuss the possibility of a merger involving the two companies and the benefits
afforded by such a transaction. On May 16, 1996, Mr. Boll had conceptual
discussions with Timmis & Inman, L.L.P. ("Timmis & Inman"), Chateau's counsel,
with respect to the possibility of a strategic merger.
45
<PAGE>
At meetings in Denver, Colorado on May 21 and 22, 1996, senior management of
ROC and Chateau held further discussions concerning a possible merger.
At the regularly scheduled Board of Directors meeting that followed ROC's
annual meeting on May 24, 1996, Mr. McDaniel informed the ROC Board of the
status of discussions with Chateau. Non-director members of senior management of
ROC and a representative of Rogers & Wells, counsel to ROC, were also present at
this meeting. No formal action was taken by the ROC Board at this meeting.
On May 28, 1996, Mr. Boll met with Timmis & Inman to discuss in detail the
relative merits of a strategic merger with ROC. On May 31, 1996, Mr. Kellogg met
with Timmis & Inman to review the strategic, operational and financial aspects
of a proposed merger with ROC.
Additional discussions between members of ROC's and Chateau's senior
management were also held in Denver, Colorado, on June 5 and 6, 1996. At these
meetings, management reviewed financial data from the two companies and also
discussed the organizational issues for the companies should they proceed with
the merger. The parties subsequently signed a confidentiality agreement to
facilitate their due diligence investigations and discussions.
On June 10, 1996, Mr. Kellogg and Ms. Fischer met with Timmis & Inman to
discuss the structure and details of the potential transaction.
On June 11, 1996, Mr. McDaniel met with Mr. Kellogg and Ms. Fischer in
Detroit, Michigan. On June 12, 1996, a further meeting was held in Detroit, at
which Mr. McDaniel, Steven G. Davis, ROC's Chief Financial Officer, Mr. Kellogg,
Ms. Fischer, and representatives of Merrill Lynch, PaineWebber, the independent
public accountants for the two companies, Rogers & Wells and Timmis & Inman were
in attendance. At this meeting, the outline of a basic transaction structure, as
well as a basic outline for valuing the two companies in the transaction, was
discussed. The parties also agreed that the transaction should be structured as
a strategic alliance involving a merger of equals, without either company being
acquired by the other. A schedule for due diligence review of each of the
companies by the other was also discussed.
On June 17, 1996 in Detroit and on June 18, 1996 in Denver, Mr. McDaniel and
Mr. Boll continued their discussions relating to the transaction.
On June 19, 1996, the ROC Board met again to discuss the possible merger
with Chateau. Present at this meeting were representatives of PaineWebber and of
Rogers & Wells. Mr. McDaniel made a presentation to the ROC Board relating to
the transaction. At this meeting, Mr. McDaniel emphasized the unique strategic
benefits he envisioned could be accomplished through a business combination with
Chateau, and also discussed possible alternatives available to ROC. PaineWebber
representatives made a presentation to the ROC Board regarding certain financial
matters and the potential strategic benefits of the business combination, as
well as certain issues raised by the proposed transaction. Such representatives
also discussed with the directors the fairness opinion that would be requested
by the ROC Board should the discussions with Chateau lead to a definitive
proposal. Counsel to ROC provided the directors with a review of the law
applicable to the Board's consideration of the merger transaction with Chateau.
On June 19, 1996, the Chateau Board met for the first time to discuss the
merger and received a presentation from Merrill Lynch regarding a possible
merger. Mr. Boll advised the Board that a strategic merger was being discussed
and outlined its proposed terms. Mr. Boll then invited representatives of
Merrill Lynch and Timmis & Inman to join the meeting. Mr. Kellogg provided an
overview of the proposed transaction and detailed the strategic and operational
benefits (and possible detriments) of pursuing a business combination with ROC.
Ms. Fischer made a presentation regarding the pro forma financial structure of
the combined companies. Merrill Lynch representatives made a presentation to the
Chateau Board regarding the financial and strategic aspects of a transaction
with ROC. Timmis & Inman discussed with the Board its fiduciary duties in
connection with the consideration of a merger transaction with ROC.
46
<PAGE>
On June 20, 1996, a standstill agreement was executed by the parties with a
view to determining whether a transaction could be completed over the 60-day
time horizon specified in the agreement.
During the week of June 24, 1996, the parties continued to negotiate the
terms of the transaction. Members of senior management of ROC and Chateau, along
with their financial advisors, met in Denver on June 27, 1996, at which time the
parties agreed, in consultation with their financial advisors, that should a
transaction between them be approved, the consideration to be received by their
respective stockholders would be based on the average of the historical ratios
of market prices for shares of ROC Common Stock and Chateau Common Stock for the
quarter ended June 30, 1996.
On July 8, 1996, the ROC Board met to again to discuss the status of the
merger with Chateau. Present at this meeting were representatives of PaineWebber
and of Rogers & Wells. Mr. McDaniel made a presentation to the ROC Board
relating to the status of the negotiations and the agreed to valuation
methodology and also discussed with the ROC Board the issues that were open in
the negotiations, including those relating to board representation following the
Merger.
Over the next week, representatives of ROC and Chateau continued to
negotiate the final terms of the merger transaction, and proceeded to determine
initial board representation issues.
On July 15, 1996, the ROC Board met again to discuss the transaction.
Present at this meeting, in addition to members of the ROC Board, were
representatives of PaineWebber and of Rogers & Wells. PaineWebber
representatives made a further presentation to the ROC Board regarding certain
financial matters relating to the transaction. Counsel to ROC then provided the
directors with a detailed review of then existing drafts of the agreements for
the transaction.
On July 15, 1996, the Chateau Board met again to consider the merger
transaction. Present at this meeting, in addition to members of the Chateau
Board, were representatives of Merrill Lynch, Timmis & Inman, and the accounting
firm of Coopers & Lybrand. Merrill Lynch made a detailed presentation to the
Board regarding financial, valuation and due diligence matters. Counsel to
Chateau reviewed the material terms of the agreements for the transaction and
the results of its due diligence. A representative of Coopers & Lybrand
discussed the accounting ramifications of the proposed transaction and its due
diligence review of ROC's financial statements and accounting policies. Merrill
Lynch delivered its oral opinion to the effect that, as of the date of such
opinion, based on Merrill Lynch's review and subject to the limitations
described therein, the consideration to be received by the holders of Chateau
Common Stock pursuant to the Original Merger Agreement was fair to Chateau and
its stockholders from a financial point of view.
On July 17, 1996, the ROC Board met again. Present at this meeting, in
addition to the members of the ROC Board, were representatives of PaineWebber
and of Rogers & Wells. PaineWebber made a further presentation to the ROC Board
regarding the transaction and presented to the Board its oral opinion to the
effect that, as of the date of such opinion, based on PaineWebber's review and
subject to the limitations described therein, the consideration to be received
by the holders of ROC Common Stock pursuant to the Original Merger Agreement was
fair to such holders from a financial point of view. PaineWebber confirmed such
opinion by delivery of a written opinion dated July 17, 1996. At the conclusion
of this meeting, the ROC Board unanimously approved the Original Merger
Agreement.
On July 17 and 18, 1996, the Chateau Board held three separate board
meetings. Present during each of these meetings were representatives of Merrill
Lynch and Timmis & Inman. During these meetings the status of the merger
negotiations and the definitive agreements was discussed. At the conclusion of
the last meeting, held at 7:00 a.m. on July 18, 1996, the Chateau Board
unanimously approved the Original Merger Agreement and Merrill Lynch confirmed
its fairness opinion by delivery of a written opinion dated July 17, 1996.
In the morning of July 18, 1996, ROC and Chateau issued a joint press
release to the effect that the Original Merger Agreement had been signed.
47
<PAGE>
On August 15, 1996, Samuel Zell, Chairman of the Board of MHC, and David
Helfand, President and Chief Executive Officer of MHC, telephoned Mr. Boll and
suggested that they meet.
On August 16, 1996, Messrs. Zell, Helfand and Boll met in Detroit, Michigan.
Also in attendance at such meeting were representatives of Timmis & Inman and
Merrill Lynch. At the meeting, Mr. Zell communicated MHC's proposal (the "MHC
Proposal") to acquire Chateau for $26.00 per share of Chateau Common Stock in
cash, MHC common shares at a ratio of 1.15 MHC common shares for each share of
Chateau Common Stock or a combination of cash at $26.00 per share and MHC common
shares at such ratio. The closing price of MHC's common stock on August 15, 1996
on the NYSE was $18.125. Mr. Boll asked a number of questions regarding MHC's
offer and indicated that MHC's offer would be considered by the Chateau Board.
Also on August 16, 1996, Mr. Boll contacted Mr. McDaniel and advised him of the
MHC Proposal.
On August 17, 1996, MHC delivered to Mr. Boll and the members of the Board
of Directors of Chateau a letter setting forth the terms of the MHC Proposal.
On August 17, 1996, Chateau retained Fried, Frank, Harris, Shriver &
Jacobson, P.C. ("Fried Frank") as special legal counsel in connection with the
Merger. In addition, on August 21, 1996, Chateau engaged the investment banking
firm of Goldman Sachs to complement the services of its long-standing financial
advisor, Merrill Lynch.
On August 20, 1996, Gary Shiffman, President of Sun, telephoned Mr. Boll and
indicated that Sun wanted to propose a business combination involving Sun and
Chateau. On that day, the Chateau Board received a written proposal in which Sun
stated that it was prepared to offer shares of Sun common stock or operating
partnership units in Sun's operating partnership subsidiary to all of Chateau's
stockholders and OP Unitholders at a 0.892 exchange ratio in a merger. The
closing price of Sun's common stock on August 19, 1996 on the NYSE was $28.00.
At a regularly scheduled Board meeting on August 22, 1996, the Chateau Board
began to review and consider the MHC Proposal and the Sun Proposal. Present at
the meeting were representatives of Timmis & Inman, Fried Frank, Goldman Sachs
and Merrill Lynch. At this meeting, the Chateau Board received reports and
analyses from Chateau's management, financial and legal advisors. Later on
August 22, 1996, representatives of ROC and Chateau, together with their legal
and financial advisors, met in Detroit to discuss developments relating to the
transaction and to consider possible alternative structures for the Merger.
On August 27, 1996, Mr. Boll sent a letter to Mr. Zell stating that Chateau
and its advisors had not had an opportunity to fully evaluate the proposals of
MHC and Sun and would complete their assessment of the proposals in the coming
days.
On August 27, 1996, a meeting of the ROC Board was convened. Present at this
meeting were representatives of PaineWebber and of Rogers & Wells. Mr. McDaniel
made a presentation to the ROC Board relating to the transaction, including the
circumstances relating to the MHC and Sun Proposals. Representatives of Rogers &
Wells also reviewed with the Board certain alternatives that are available to
ROC to seek to enhance the ROC Board's bargaining power and flexibility and
otherwise to preserve and possibly maximize ROC stockholder value in the face of
unsolicited acquisition proposals involving ROC.
On September 4, 1996, MHC OP commenced the MHC Tender Offer. The MHC Tender
Offer, according to the Offer to Purchase dated September 4, 1996, was
conditioned upon, among other things, (i) there being validly tendered and not
withdrawn prior to the expiration date specified in such offer that number of
shares of Chateau Common Stock which, together with shares beneficially owned by
MHC OP, constitutes at least two-thirds of the shares outstanding on such
expiration date, (ii) MHC OP being satisfied, in its sole judgment, that after
consummation of the MHC Tender Offer the restrictions contained in the business
combination provisions of Section 3-601 et seq. (the "Maryland Business
Combination Law") of the MGCL will not apply to a proposed merger involving MHC
and Chateau which
48
<PAGE>
would follow a successful MHC Tender Offer, and (iii) MHC OP being satisfied, in
its sole judgment, that after consummation of the MHC Tender Offer, none of the
shares acquired by MHC OP shall be deemed "Excess Stock" as defined in the
Chateau Charter. MHC stated in its Offer to Purchase that the purpose of the MHC
Tender Offer is to acquire control of, and the entire equity interest in,
Chateau and that MHC intended, as soon as practicable after and substantially
concurrent with, the consummation of the MHC Tender Offer, to propose and seek
to have Chateau consummate a merger or similar business combination with MHC,
pursuant to which each outstanding share of Chateau Common Stock would be
converted into the right to receive an amount in cash equal to the price per
share paid pursuant to the MHC Tender Offer.
On September 4, 1996, MHC issued a press release announcing the commencement
of the MHC Tender Offer and sent a letter to Mr. Boll and the members of the
Board of Directors of Chateau advising them of the MHC Tender Offer.
On September 5, 1996 the Chateau Board held a special meeting to further
consider the MHC Tender Offer and the Sun Proposal, as well as to consider the
desirability of certain changes to the Original Merger Agreement with ROC.
Present at the meeting were representatives of Timmis & Inman, Fried Frank,
Goldman Sachs and Merrill Lynch. At this meeting, a revised structure for the
merger was discussed. Based on a consideration of the Original Merger Agreement,
a preliminary evaluation of the MHC Tender Offer and the Sun Proposal and
certain reports from Chateau's management and legal and financial advisors, the
Chateau Board authorized Chateau management to attempt to negotiate certain
changes to the Original Merger Agreement.
On September 9 and 10, 1996, the legal and financial advisors of ROC and
Chateau met in New York to discuss the status of the transaction, certain
changes in the structure of the transaction and other possible changes to the
terms of the Original Merger Agreement.
On September 10, 1996, Chateau received a letter from Sun in which Sun
reiterated its commitment to consummating a merger involving Chateau and Sun. In
its letter, Sun indicated that it was prepared to offer a cash alternative, to
the extent desired by Chateau's stockholders, to its previously announced
proposal involving stock and operating partnership units, which Sun believed
would compare favorably with the MHC Tender Offer. Additionally, Sun stated that
such cash alternative would not be subject to a financing contingency. Since
September 10, 1996, Chateau has not received any further communications from
Sun.
On September 12, 1996, a further meeting of the ROC Board was convened.
Present at this meeting were representatives of PaineWebber and of Rogers &
Wells. Mr. McDaniel made a presentation to the ROC Board relating to the
developments in the transaction and the status of the negotiations.
Representatives of Rogers & Wells also further reviewed with the Board the
merits of the adoption of a stockholders rights plan and other By-Law amendments
that would have application in the case of unsolicited acquisition proposals
involving ROC.
From September 12 through 16, 1996, representatives of ROC and Chateau,
including their legal and financial advisors, resumed discussions of the
proposed transaction. The representatives discussed certain proposed changes to
the Original Merger Agreement, including the following: (i) changing the
exchange ratio for ROC stockholders from 1.042 to one to the effective 1.01 to
one Exchange Ratio provided in the Merger Agreement by means of a stock dividend
payable to Chateau's stockholders immediately prior to the Merger; (ii) revising
the form of the Original Merger Agreement which contemplated the organization of
a new holding company and the merger of both companies with the new company to
the current structure in which ROC is to merge with a subsidiary of Chateau;
(iii) as a result of the change in the form of the transaction, reducing the
vote required by the Chateau stockholders from at least two-thirds of the
outstanding shares under the Original Merger Agreement to a majority of shares
voted on the Chateau Proposal (provided that the total votes cast represents at
least a majority of outstanding shares of Chateau Common Stock) under the
revised Merger Agreement; (iv) including the OP Unit Exchange in the
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transaction; and (v) effecting changes in certain provisions of the Original
Merger Agreement relating to reimbursement of expenses in the event of
termination of the transaction.
On September 16 and 17, 1996, the Chateau Board held two board meetings.
Present during these meetings were representatives of Merrill Lynch, Goldman
Sachs, Timmis & Inman and Fried Frank. During these meetings, the status of the
merger negotiations and the revised definitive agreements were discussed, along
with the MHC Tender Offer and the Sun Proposal. At the conclusion of the last
meeting, on September 17, 1996, the Chateau Board unanimously approved the
revised Merger Agreement and each of Merrill Lynch and Goldman Sachs delivered
its separate written fairness opinion dated September 17, 1996. Each such
opinion sets forth the assumptions made (including, but not limited to, the
assumption that, based on certain representations made by Chateau's management,
the tax effects to Chateau and the holders of Chateau Common Stock, if any,
resulting from the transactions contemplated by the Merger Agreement would be
immaterial), procedures followed, matters considered and limits on the review
undertaken in connection with such opinion. See "--Opinions of Financial
Advisors to Chateau." In connection with its decision to proceed with the
revised merger with ROC, the Chateau Board, after management's presentation and
consultation with its financial advisors, rejected the MHC Tender Offer and the
Sun Proposal. For a description of the reasons for the Chateau Board's rejection
of the MHC Tender Offer and the Sun Proposal, see "--Recommendation of the
Chateau Board; Reasons for the Merger."
On September 17, 1996, a further meeting of the ROC Board was convened.
Present at this meeting were representatives of PaineWebber and of Rogers &
Wells and non-director executive officers of ROC. Mr. McDaniel made a further
presentation to the ROC Board relating to the developments in the transaction
and the status of the negotiations. Representatives of Rogers & Wells made a
presentation to the Board on the terms of the revised transaction documents.
PaineWebber made a presentation to the ROC Board and also delivered its opinion
to the ROC Board that, based on PaineWebber's review and subject to the
limitations described therein, the Exchange Ratio in the revised Merger
Agreement is fair to the ROC stockholders from a financial point of view. At the
conclusion of the meeting, the ROC Board determined the advisability of and
voted to approve the revised Merger Agreement and to recommend the approval of
the Merger and the Merger Agreement to ROC stockholders. The Board also voted to
adopt a stockholder's rights plan and to approve certain amendments to the ROC
By-Laws that the Board believed would enhance its bargaining power and
flexibility and allow it to better preserve and possibly maximize ROC
stockholder value in the face of unsolicited acquisition proposals involving
ROC.
On the morning of September 18, 1996, the parties executed the revised
Merger Agreement and issued a press release with respect to the terms of the
revised Merger.
On October 1, 1996, the initial expiration date of the MHC Tender Offer, MHC
announced that a total of approximately 3 million shares of Chateau Common Stock
had been tendered, and the MHC Tender Offer was being extended to October 23,
1996 and MHC was not waiving any of the offer's conditions. On October 2, 1996,
Mr. Zell sent a letter to Mr. Boll requesting a meeting between representatives
of MHC and Chateau. The Chateau Board convened a telephonic meeting on October
3, 1996 and, after consulting with its legal and financial advisors, declined to
meet with MHC. On October 23, 1996, MHC announced that a total of approximately
2.6 million shares of Chateau Common Stock had been tendered and not withdrawn
and that it was further extending the expiration date of the MHC Tender Offer to
November 6, 1996 and was not waiving any of the offer's conditions.
On November 7, 1996, MHC and MHC OP terminated the MHC Tender Offer and Mr.
Zell, in a letter to Mr. Boll, made a new proposal which preserved the $26.00
cash price offered to Chateau stockholders but also offered to OP Unitholders a
transaction that would allow them to exchange their OP Units, on a one-for-one
basis, for a convertible preferred operating partnership unit in MHC OP that
provided for an annual dividend of $2.00 per unit. On November 13, 1996, based
in part on advice from
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Merrill Lynch and Goldman Sachs, Chateau announced that its Board had rejected
this most recent proposal as inadequate.
On December 18, 1996, the Exchanging OP Unitholders completed their
execution of the Chateau Securityholder Agreement, pursuant to which they have
agreed that, subject to the satisfaction of certain conditions described herein
under "THE MERGER--Certain Transactions and Agreements Relating to the
Merger--Chateau Securityholder Agreement," they will act with ROC and the ROC
stockholders to exercise rights the Exchanging OP Unitholders currently hold to
exchange an aggregate of 3,768,391 OP Units for the same number of shares of
Chateau Common Stock on or prior to the Chateau Record Date, and,
contemporaneously with the closing of the Merger, to exchange an additional
2,359,184 OP Units for the same number of shares of Chateau Common Stock.
CERTAIN LITIGATION RELATING TO THE MERGER
On September 12, 1996, a complaint was filed in the Circuit Court for
Montgomery County, Maryland by a stockholder of Chateau, Harbor Finance
Partnership, purportedly on behalf of all Chateau stockholders against Chateau
and its directors. The complaint alleges, among other things, that the Chateau
directors have violated their fiduciary duties to stockholders by agreeing to a
business combination with ROC and refusing to endorse the MHC Tender Offer and
seeks, among other things, injunctive relief and unspecified monetary damages,
including attorneys' and experts' fees. Chateau believes the allegations are
entirely lacking in merit and intends to defend against this action.
On September 17, 1996, Chateau filed suit in the United States District
Court for the District of Maryland (the "District Court") against MHC OP and
MHC. In its complaint, Chateau alleges that (i) the MHC Tender Offer has been
made in violation of federal securities laws because it contains untrue
statements of material fact and omits to state material facts and (ii) MHC has
begun a proxy solicitation in opposition to the Merger and has made material
misstatements of facts and omitted to disclose other material facts as part of
that solicitation effort in violation of applicable federal law, and seeks
injunctive relief and monetary damages in respect thereof. In addition, the
complaint seeks a declaratory judgment that (i) the purchase of Chateau Common
Stock pursuant to the MHC Tender Offer would violate Article VI of the Chateau
Charter, (ii) the second step merger proposed in the MHC Tender Offer would be
subject to the restrictions contained in the Maryland Business Combination Law,
and (iii) the Chateau Board is not required to exempt the purchase of Chateau
Common Stock pursuant to the MHC Tender Offer from the ownership limit specified
in the Chateau Charter or from the Maryland Business Combination Law.
On September 25, 1996, MHC OP and MHC filed an answer to Chateau's
complaint, counterclaims and a third-party complaint in the District Court. The
counterclaims name as counterclaim defendants Chateau, ROC and the directors of
Chateau (the "Director Defendants") and allege that, among other things: (i)
Chateau violated Section 14(e) of the Exchange Act by falsely stating that the
Excess Stock provisions in the Chateau Charter would apply to the MHC Tender
Offer, and by failing to disclose the full, negative tax implications of the
revised Merger with ROC; (ii) Chateau violated Section 14(d) of the Exchange Act
by making an unauthorized solicitation designed to discourage stockholders from
tendering their shares of Chateau Common Stock; (iii) Chateau violated Section
14(e) of the Exchange Act by falsely stating that Chateau was prohibited from
negotiating with other parties by the terms of the Merger Agreement; (iv) the
Director Defendants breached their fiduciary duties of good faith and due care
by self-dealing and pursuing their own financial interest to the detriment of
Chateau's stockholders in that Messrs. Boll, Kellogg and Allen each have a
financial interest in favoring the Merger with ROC over a transaction with MHC
and the Director Defendants were expending corporate funds to assure stockholder
approval of the Merger, permitting the transfer of tax liabilities to Chateau
from the Exchanging OP Unitholders and interpreting the Excess Stock provisions
of the Chateau Charter beyond the purpose of preserving Chateau's status as a
REIT; and (v) ROC knowingly participated in and aided and abetted the Director
Defendants' breaches and self dealing.
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The counterclaims seek, among other things, a court order: (i) enjoining
Chateau and the Director Defendants from carrying out the Chateau Share
Repurchase Program; (ii) enjoining ROC from purchasing up to 350,000 shares of
Chateau Common Stock; (iii) enjoining the counterclaim defendants from
consummating or proceeding with the Merger; (iv) directing Chateau to issue
public statements correcting any previously made false statements; (v) declaring
that stock purchased by MHC pursuant to the MHC Tender Offer would not be deemed
Excess Stock under the terms of the Chateau Charter; (vi) directing the Director
Defendants to exempt MHC from the Maryland Business Combination Law; and (vii)
awarding MHC compensatory damages and its costs and expenses, including
attorneys' fees.
In addition, on the same date, MHC OP and MHC filed a motion for a temporary
restraining order, together with a memorandum in support of the motion. The
motion for a temporary restraining order requested the District Court to enjoin
Chateau from purchasing or selling any shares of Chateau Common Stock or from
taking any other actions that would effectively alter the status quo. On
September 26, 1996, the District Court denied MHC's motion for a temporary
restraining order.
On September 25, 1996, MHC also filed a motion in the District Court seeking
a preliminary injunction against, among other things, Chateau and ROC taking
steps to consummate the Merger, repurchasing (or, in the case of ROC,
purchasing) Chateau Common Stock, treating MHC OP's acquisition of more than 7%
of Chateau's outstanding common shares as Excess Stock pursuant to the terms of
the Chateau Charter, or declaring that MHC and MHC OP are subject to the
Maryland Business Combination Law. A hearing on this motion had been scheduled
for November 14, 1996. However, MHC has withdrawn its motion.
On or about September 27, 1996, a purported class action complaint
encaptioned NILES v. CHATEAU PROPERTIES, ET AL. (Case No. 158284) was filed in
the Circuit Court for Montgomery County, Maryland by a stockholder of Chateau
purportedly on behalf of all such stockholders against Chateau and its
directors. The complaint alleges, among other things, that the Chateau directors
have violated their fiduciary duties by agreeing to a business combination with
ROC and by refusing to endorse the MHC Tender Offer or the Sun Proposal, and
seeks injunctive relief and unspecified monetary damages. Chateau believes the
allegations are entirely lacking in merit and intends to defend against this
action.
On October 4, 1996, a purported class action and derivative complaint
encaptioned ZSA ASSET ALLOCATION FUND v. BOLL, ET AL. (Case No. 158652) was
filed in the Circuit Court for Montgomery County, Maryland by a stockholder of
Chateau purportedly on behalf of all such stockholders against Chateau and its
directors and on behalf of Chateau and its stockholders against Chateau's
directors. The complaint alleges, among other things, that the Chateau directors
have violated their fiduciary duties by agreeing to a business combination with
ROC, and by refusing to endorse the MHC Tender Offer or the Sun Proposal, and
seeks injunctive relief and unspecified monetary damages. Chateau believes the
allegations are entirely lacking in merit and that the plaintiff is not entitled
to advance the claims purportedly brought on behalf of Chateau, and intends to
defend against this action.
By an order dated November 1, 1996, the Circuit Court for Montgomery County,
Maryland, consolidated the above three state court cases.
RECOMMENDATION OF THE ROC BOARD; REASONS FOR THE MERGER
The ROC Board believes that the Merger is advisable, fair to and in the best
interests of the stockholders of ROC. Accordingly, the ROC Board has unanimously
approved the Merger, the Merger Agreement and the Other Transactions and
recommends that the stockholders of ROC vote FOR approval of the Merger and
adoption of the Merger Agreement. In reaching this determination, the ROC Board
consulted with ROC's management, as well as its financial advisors, legal
counsel and accountants, and considered a number of factors. The material
factors considered by the ROC Board in reaching the foregoing conclusions are
described below.
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In making its determination with respect to the Merger, the ROC Board
considered the following factors, all of which the ROC Board deemed favorable,
in approving the Merger and the Merger Agreement:
(i) The Merger would significantly increase the size and number of
properties owned by the Combined Company compared to those owned by ROC. In
this regard, the ROC Board noted that, following the Merger, the Combined
Company would own (excluding the Oakwood Communities) 118 manufactured home
communities in 24 states, with an aggregate of 40,832 residential homesites,
and would be the largest owner of manufactured home communities in the
United States (based both on the number of communities and the number of
residential homesites owned). The ROC Board believed that the size of the
Combined Company would enhance its appeal as an investment among both retail
and institutional investors. The ROC Board also believed that the Combined
Company's size would increase recognition and credibility within the
manufactured home community industry and thereby enhance the Combined
Company's ability to attract and consummate favorable acquisitions;
(ii) The Merger would enhance the level of management depth and
experience. Specifically, the ROC Board noted that the Merger would
effectively combine the senior management teams of ROC and Chateau, with the
Combined Company benefiting from the expertise of both groups. In this
regard, the ROC Board viewed favorably the fact that the Merger would
integrate ROC's recognized leadership in property management, administration
and acquisitions with Chateau's expertise in new community development and
expansions;
(iii) The total market capitalization of the Combined Company would be
substantially increased as a result of the Merger and, on a pro forma basis,
was greater than any other REIT specializing in manufactured home
communities. Based in part on discussions with its advisors and lenders, the
ROC Board believed that increased total market capitalization would provide
ROC's stockholders with enhanced liquidity and would make shares of the
Combined Company a more attractive investment for institutional investors.
The ROC Board also believed that the increased total market capitalization
of the Combined Company could lead to an expansion of the share price and
trading multiples of the Combined Company over time, as REITs with larger
total market capitalizations tend to be favored by institutional investors
over those with smaller total market capitalizations. Therefore, the ROC
Board viewed the increase in the total market capitalization of the Combined
Company as favorable to its determination;
(iv) The Merger has been structured as a merger of equals, without
payment of a control premium to the stockholders of either ROC or Chateau.
The ROC Board viewed the structure of the Merger as favorable, in that ROC
was engaging in a strategic combination with a company with similar
strategies and goals, and was not placing itself for sale. The ROC Board
viewed as favorable the fact that the Merger would allow ROC to achieve many
of the same objectives of a large acquisition (for example, increasing size
and total market capitalization) without paying a substantial premium to the
acquired company. Further, the ROC Board viewed as favorable the fact that
the Merger, because it has been structured as a merger of equals, will allow
ROC's stockholders to fully participate in the growth of the Combined
Company while retaining, for the benefit of the Combined Company, the
services of the senior management team of ROC;
(v) The ROC Board reviewed information relating to the financial
performance, business operations and prospects of ROC and Chateau and pro
forma information for the Combined Company, as well as current industry,
economic and market conditions. In this regard, the ROC Board viewed as
favorable to its determination, analysis of ROC's management and PaineWebber
to the effect that the Merger would not result in a material change in ROC's
funds from operations per share in 1996 and 1997. Based upon this analysis,
the ROC Board believed that the Merger would achieve the goals of increasing
the size and market capitalization of the Combined Company and enhancing the
liquidity of the Combined Company's shares, without resulting in material
dilution to funds from operations per share from the perspective of ROC's
stockholders;
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(vi) The Merger would enhance the ability of the Combined Company to
borrow on attractive terms. The ROC Board noted that Chateau's Operating
Partnership possessed an investment grade credit rating and that ROC at the
time had received preliminary indications from two rating agencies that it
would also be given an investment grade credit rating. Subsequently, an
investment grade credit rating by these two rating agencies has in fact been
conferred upon ROC. The ROC Board believed, based in part on discussions
with management and its advisors, that the Combined Company would almost
certainly maintain an investment grade credit rating and could potentially
obtain, as a result of the Merger, a higher credit rating than either ROC or
Chateau could achieve individually. The ROC Board noted that an investment
grade credit rating tends to increase the ability of a company to borrow on
attractive terms, and that a higher rating tends to further enhance this
capability;
(vii) The Merger would lead to on-going operational synergies and
additional cost savings, estimated to be approximately $2.85 million per
annum prior to the offset of the one-time costs associated with the Merger
(which costs are estimated to be approximately $13 million). The ROC Board
believed, based on discussions with management, that the opportunities for
economies of scale and operating efficiencies would result in savings to
annual general and administrative costs and, to a lesser extent, property
operating costs, due to the integration of office facilities, information
systems and support functions, and the elimination of duplicative public
company expenses. Thus, the ROC Board viewed this factor as favorable
because it believed that ROC's stockholders would share in the benefits of
the synergistic savings;
(viii) The increase in size and enhanced financial flexibility and
management depth and resources created from the Merger will allow the
Combined Company to pursue a more aggressive and flexible business plan,
especially in the areas of new community development and in expansions and
acquisitions of existing communities, than could be pursued by ROC as a
stand alone company;
(ix) The terms and conditions of the Merger Agreement, including the
representations and warranties and covenants of the parties, the conditions
to the parties' respective obligations thereunder and the termination
provisions set forth therein;
(x) The ROC Board viewed as favorable the method by which the Merger
Consideration was determined in the Original Merger Agreement and that the
change in the 1.042x exchange ratio reflected in the Original Merger
Agreement to the effective 1.01x Exchange Ratio reflected in the revised
Merger Agreement amounted to an estimated $5,000,000 to $6,000,000 in value
(excluding costs which may be associated with the purchase of shares of
Chateau Common Stock by ROC or Chateau prior to the Merger) and was
justified, in the ROC Board's view, by the substantially enhanced
probability of completing the transaction, the changes in the expense
reimbursement provisions of the Merger Agreement compared to the Original
Merger Agreement and the understanding of the ROC Board that the Exchanging
OP Unitholders would agree to assign to the other stockholders of Chateau
the shares of Chateau Common Stock they would otherwise be entitled to
receive with respect to the OP Units exchanged in the OP Unit Exchange as a
result of the Chateau Stock Dividend;
(xi) The ROC Board viewed as favorable the configuration of the Board of
Directors of the Combined Company following the Merger and the terms and
provisions of the Combined Company Charter and Combined Company By-Laws with
respect to the nomination and election of directors;
(xii) The ROC Board also viewed as favorable that the Merger provides
stockholders of ROC with the opportunity to exchange their existing shares
of ROC Stock for Chateau Common Stock on a basis that is expected to be
tax-free for federal income tax purposes (except to the extent of any cash
received in lieu of fractional shares) (see "THE MERGER--Federal Income Tax
Considerations Relating to Chateau and ROC"); and
(xiii) The opinion, analyses and presentations of PaineWebber described
below under "Opinion of Financial Advisor to ROC," including the opinion of
PaineWebber to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein (including, but not
limited to, the assumption that, based on certain representations of ROC's
management, the tax effects to
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ROC and the ROC stockholders resulting from the Merger will be immaterial),
the Exchange Ratio in the Merger was fair to the holders of ROC Common Stock
(other than Chateau and its affiliates) from a financial point of view. The
ROC Board viewed PaineWebber's opinion as favorable to its determination
because PaineWebber is an internationally recognized investment banking firm
with experience in the valuation of businesses and their securities in
connection with mergers and acquisitions and in providing advisory services
and raising capital for companies in the real estate industry.
In connection with the presentations made by PaineWebber to the ROC Board,
the ROC Board was made aware that, based on the assumptions underlying the
PaineWebber Opinion and as described further herein under "--Opinions of
Financial Advisor to ROC--Contribution Analysis," ROC stockholders are expected
to receive approximately 48.6% of the Combined Company, whereas ROC is expected
to contribute, on a pro forma basis, approximately 50.1% of the FFO for the
Combined Company in 1996 and in 1997. Although these pro forma contributions of
FFO were somewhat higher than the percentage of the Combined Company which ROC
stockholders will receive in the Merger, and thus were not supportive of its
fairness opinion determination, PaineWebber did not view this differential to be
significant, particularly in light of the various other analyses underlying its
opinion.
The ROC Board also considered certain potentially negative factors which
could arise from the Merger. These included, among others, the significant costs
involved in connection with consummating the Merger, the substantial management
time and effort required to effectuate the Merger and integrate the businesses
of ROC and Chateau and the related disruption to ROC operations. The ROC Board
also considered the risk that the anticipated benefits of the Merger might not
be fully realized. The ROC Board further considered issues arising out of the
potential conflicts of interest that certain proposed directors of the Combined
Company who are also currently directors of Chateau and OP Unitholders may face
following the Merger because they will suffer different and more adverse tax
consequences than the Combined Company or its stockholders upon the sale of
properties or upon other transactions that may result in a repayment of
indebtedness of the Combined Company. The ROC Board also considered the
anticipated level of stock ownership of the Exchanging OP Unitholders and the
other matters described in "Risk Factors--Stock Ownership and Interests of
Exchanging OP Unitholders." The ROC Board also considered certain other issues
relating to the reliance by ROC and the Exchanging OP Unitholders on Section 351
of the Code in order to achieve a non-taxable or partially tax-deferred
transaction. The ROC Board was also apprised of the litigation that has
developed arising out of the Merger. ROC's Board was also made aware that
substantially all the long-term debt of the two companies outstanding at the
time of the approval of the Merger Agreement matures in the same year and was
apprised of the relatively high concentration of Chateau's properties in
Michigan and Florida. Further, the ROC Board considered the potential obligation
of ROC to pay the Chateau Break-Up Expenses and/or Chateau Break-Up Fee and the
potential for Chateau to exercise its Option on the terms described herein under
"THE MERGER-- Terms of the Merger--No Solicitation; Board Action; Fees and
Expenses" and "THE MERGER--The Stock Option Agreements." The ROC Board did not
believe that the negative factors were sufficient, either individually or
collectively, to outweigh the advantages of the Merger.
The foregoing discussion of the information and factors considered by the
ROC Board is not intended to be exhaustive but includes all material factors
considered by the ROC Board. The ROC Board did not assign relative weights to
the above factors or determine that any factor was of particular importance. A
determination of various weightings would, in the view of the ROC Board, be
impractical. Rather, the ROC Board viewed its position and recommendations as
being based on the totality of the information presented to, and considered by,
it. In addition, individual members of the ROC Board may have given different
weight to different factors.
In the event the Merger is not consummated for any reason, ROC will continue
to pursue its growth strategy both internally (through continuing efficiencies
in property management operations in addition to periodic rental rate increases)
and externally (primarily through acquisitions and expansions). ROC would also
complete the reorganization of its business in the UPREIT format.
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RECOMMENDATION OF THE CHATEAU BOARD; REASONS FOR THE MERGER
The Chateau Board has determined that the Merger is advisable, fair to and
in the best interests of the stockholders of Chateau. Accordingly, the Chateau
Board has unanimously approved the Merger, the Merger Agreement, the Other
Transactions (including the Chateau Share Issuance) and issuance of the Merger
Consideration to the ROC stockholders and recommends that the stockholders of
Chateau vote FOR the issuance of the Merger Consideration to the ROC
stockholders and FOR approval of the Chateau Share Issuance Proposal. In
reaching the determination that the Merger Agreement and the Merger are in the
best interests of Chateau and its stockholders, the Chateau Board consulted with
management, as well as its financial advisors, legal counsel and accountants and
considered the short-term and long-term interests of Chateau based upon several
factors to which relative weights were not assigned. Among the most important
factors the Chateau Board considered were the following:
(i) The Merger would further the geographic diversity of the properties
owned by Chateau. This increased diversification would reduce exposure to the
vagaries of local economic cycles;
(ii) The Merger would significantly increase the market capitalization of
Chateau and would result in the Combined Company having the largest market
capitalization of any REIT specializing in owing and operating manufactured home
communities. The Chateau Board believed that the increased market capitalization
of the Combined Company would enhance liquidity through increased trading
volumes and encourage investment in the Combined Company by institutional
investors (which tend to favor companies with larger market capitalizations). In
addition, the Chateau Board believed that increased institutional investor
participation could lead to an increase in the trading multiples and share price
of the Combined Company compared to the current trading multiple and share price
of Chateau;
(iii) The Merger would effectively combine the senior management teams of
Chateau and ROC and create a Combined Company with enhanced management depth and
experience and an ability to capitalize on the complementary expertise of each
other's management;
(iv) The Combined Company would have improved access to capital markets
compared to Chateau's current access. The Chateau Board believed, based in part
on discussions with management and its advisors, that the Combined Company
should maintain Chateau's investment grade credit rating and could obtain a
higher credit rating than Chateau could achieve alone;
(v) Chateau and its stockholders would realize the benefit of significant
synergies and on-going operational cost savings, including general and
administrative cost savings as a result of consolidated operating and property
management functions and the elimination of duplicative expenses;
(vi) The improved economic terms for Chateau stockholders, as compared to
the transaction contemplated by the Original Merger Agreement, which will result
from the Chateau Stock Dividend, and effectively reduced the exchange ratio from
1.042 to one to no greater than 1.01 shares of Chateau Common Stock for each
share of ROC Stock and the further improvement in the exchange ratio which will
result from the waiver of the Chateau Stock Dividend by the Exchanging OP
Unitholders and reallocation to Chateau stockholders;
(vii) General industry, economic and market conditions, both current and
projected, the paramount interests of Chateau's stockholders and the potential
impact of the Merger upon the interests of Chateau's employees, suppliers,
creditors and residents as well as the possible impacts on the communities in
which Chateau has operations;
(viii) The written opinion of Merrill Lynch dated September 17, 1996 that,
based upon and subject to certain assumptions (including, but not limited to,
the assumption that, based on certain representations made by Chateau's
management, the tax effects to Chateau and the holders of Chateau Common Stock,
if any, resulting from the transactions contemplated by the Merger Agreement
would be immaterial), as of September 17, 1996, the Merger Consideration to be
paid by Chateau in the Merger is fair to Chateau and its stockholders (other
than ROC and its affiliates) from a financial point of view, as described under
"--Opinions of Financial Advisors to Chateau";
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(ix) The written opinion of Goldman Sachs that, based upon and subject to
certain assumptions (including, but not limited to, the assumption that, based
on certain representations made by Chateau's management, the tax effects to
Chateau and the holders of Chateau Common Stock, if any, resulting from the
transactions contemplated by the Merger Agreement would be immaterial), as of
September 17, 1996, the Exchange Ratio pursuant to the Merger Agreement is fair
to Chateau, as described under "--Opinions of Financial Advisors to Chateau";
(x) Presentations from, and discussions with, senior executives of Chateau,
representatives of Timmis & Inman, Fried Frank, Coopers & Lybrand, Merrill Lynch
and Goldman Sachs regarding the business, financial, accounting and legal due
diligence with respect to ROC and the terms and conditions of the Merger
Agreement;
(xi) Based on the foregoing factors, Chateau's Board's conclusion that the
Merger provides both immediate and long-term benefits to Chateau's stockholders;
(xii) As part of the Merger and pursuant to the OP Unit Exchange, OP
Unitholders will have the opportunity to exchange their OP Units for shares of
Chateau Common Stock on a partially tax-deferred basis. The Chateau Board also
observed that, in order to participate in the OP Unit Exchange, an OP Unitholder
would have to waive the Chateau Stock Dividend otherwise payable to them,
thereby enhancing the exchange ratio for Chateau's existing stockholders. The
Chateau Board believed that the OP Unit Exchange is appropriate, in light of its
fiduciary responsibility both to the Chateau stockholders and to the OP
Unitholders (Chateau being the general partner of the Operating Partnership),
and took into account the fact that (at the time of the approval of the Merger
Agreement) the OP Unitholders indirectly owned approximately 60% of Chateau's
equity and the OP Unitholders currently have the right to exchange their OP
Units for shares of Chateau Common Stock. The Chateau Board also took into
account the fact that at the time of its approval of the Merger Agreement the OP
Unitholders were not committed to participate in the OP Unit Exchange, although
it is a condition to ROC's obligation to consummate the Merger that OP
Unitholders (who, in Chateau's judgment, will exchange a sufficient number of OP
Units to cause the OP Unit exchange and the Merger to satisfy the requirements
of Section 351 of the Code) commit to ROC (prior to the later of 60 days after
the execution of the Merger Agreement or ten days after the clearance of this
Joint Proxy Statement/ Prospectus by the Commission) to exchange their OP Units
for shares of Chateau Common Stock. In connection with the OP Unit Exchange and
the Merger, Section 351 of the Code provides non-taxable or partially
tax-deferred treatment if OP Unitholders, ROC stockholders and other
transferors, taken together, hold at least 80% of the voting shares of the
Combined Company after the Merger, the OP Unit Exchange, the Chateau Share
Repurchase Program and the Chateau Share Issuance. The members of the Chateau
Board who do not hold any OP Units, and represent a majority of the Chateau
Board, further took into account the possible impact of the shifting of
unrecognized gain from the OP Unitholders to the Combined Company (including the
amount, probability and the possible timing of any such gain), with respect to
which such members of the Chateau Board concluded that, in view of the Combined
Company's business plan, the effect of such shifting on the Combined Company and
its stockholders would be immaterial. Such members of the Chateau Board further
took into account the required waiver of the Chateau Stock Dividend by the
Exchanging OP Unitholders and the fact that the OP Unit Exchange permits the OP
Unitholders to obtain Common Stock in the Combined Company and attendant voting
rights. See "THE MERGER--Federal Income Tax Consequences--Additional Tax
Consequences of the Merger and the OP Unit Exchange";
(xiii) The Chateau Board's belief that the Chateau Share Repurchase Program
will provide investors who desire to obtain liquidity for their investment in
Chateau with an opportunity to sell all or a portion of their investment in
Chateau;
(xiv) The Merger will be tax free to the Chateau stockholders except to the
extent stockholders sell their Shares in the Share Repurchase Program;
(xv) The possible additional benefit to the existing Chateau stockholders
resulting from the waiver of the Chateau Stock Dividend by OP Unitholders
exchanging their OP Units for reallocation to such stockholders; and
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(xvi) The confidence in Chateau's strategic plan, including the Merger,
demonstrated by the indicated willingness of John Boll, Edward R. Allen, C.G.
Kellogg and J. Peter Ministrelli to exchange all or a substantial portion of
their OP Units at a ratio of less than one to one (by virtue of their waiver of
the Chateau Stock Dividend).
The Chateau Board also considered certain potentially negative factors which
could arise from the Merger. These included, among others, the significant costs
involved in connection with consummating the Merger, the substantial management
time and effort required to effectuate the Merger and integrate the businesses
of ROC and Chateau and the related disruption to Chateau's operations. The
Chateau Board also considered the risk that the anticipated benefits of the
Merger might not be fully realized. The Chateau Board also considered the fact
that certain ROC Properties are ground leased through the years 2022 and 2031
rather than owned and that the management agreements pursuant to which ROC earns
fee income expire by their terms in November 1998. The Chateau Board also
examined the related party aspects of certain of ROC's community acquisitions
and the difference in accounting policies used by ROC. Further, the Chateau
Board considered the potential obligation of Chateau to pay the ROC Break-Up
Expenses and/or ROC Break-Up Fee and the potential for ROC to exercise its
Option on the terms described herein under "THE MERGER--Terms of the Merger--No
Solicitation; Board Action; Fees and Expenses" and "THE MERGER--The Stock Option
Agreements." The Chateau Board did not believe that these factors were
sufficient, either individually or collectively, to outweigh the advantages of
the Merger.
In connection with its decision to proceed with the Merger, the Chateau
Board carefully considered and then rejected the MHC Offer. The decision to
reject the MHC Offer was based on a number of factors, including the belief of
the Board that the interests of Chateau's stockholders will best be served by a
strategy of continued growth in size and number of properties owned by Chateau,
management of Chateau by a team with superior talent, depth and experience which
shares the Board's strategic vision, and maintaining Chateau's stockholders'
ongoing equity interest in Chateau in order to permit them to share fully in the
anticipated benefits of this strategic plan. In that connection, the Board noted
that (i) the MHC Offer contemplates that Chateau stockholders will lose all
their right to participate in the financial benefits of Chateau's businesses and
to share in the management of Chateau through their rights as holders of voting
securities and (ii) the Merger is a superior strategic alternative as compared
to the MHC Offer based on the factors described above. The Chateau Board took
into account the conditional nature of the MHC Offer, in that the MHC Offer is
subject to a condition that the Board does not believe can be satisfied: MHC OP
being satisfied, in its sole judgment, that after consummation of the MHC Offer
none of the shares of Chateau Common Stock purchased pursuant to the MHC Offer
will be deemed Excess Stock (as defined in the Chateau Charter). In this regard,
Chateau has commenced litigation seeking a declaratory judgment as to the
applicability to the MHC Offer of the provisions of the Chateau Charter relating
to Excess Stock. The Chateau Board also concluded that the terms of the MHC
Offer are inadequate from a financial point of view based on a review of
Chateau's business, financial condition, properties and prospects with Chateau's
management and financial advisors. The Chateau Board also received (i) the oral
opinion of Goldman Sachs that the MHC Offer is inadequate and (ii) the oral
opinion of Merrill Lynch that the MHC Offer is inadequate from a financial point
of view.
In reaching its determination to proceed with the Merger, the Chateau Board
also carefully considered, with the assistance of its financial and legal
advisors, the Sun Proposal. The Chateau Board determined that a combination with
ROC was a superior alternative to a combination with Sun. This conclusion was
based on several factors, including a judgment concerning the quality and
location of Sun's property portfolio, the nature and compatibility of the
combined management teams, and the different development and acquisition
practices of the two companies. More specifically the Chateau Board considered
the following factors: (i) the ROC and Chateau management teams have
demonstrated an ability to identify and complete higher yielding acquisitions
than those completed by Sun; (ii) the Merger with ROC offers greater likelihood
of an improved credit rating and consequently a lower cost of capital; (iii)
certain recent acquisitions by Sun raise concerns regarding Sun's ability to
integrate and assimilate the
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significant number of communities that Chateau would contribute to the Sun
portfolio; (iv) the depth and quality of the management team created by the
Merger with ROC is superior to the Sun management team, especially in the areas
of operations, management, acquisition and development; (v) the Chateau Board
took note of the various financial analyses presented to it by its financial
advisers with respect to the Sun Proposal (as summarized in "--Opinions of
Financial Advisers to Chateau--Financial Analyses") and recognized in this
regard that the dilution analysis presented to it a valuation with respect to
the Sun Proposal that was somewhat higher than that presented to it with respect
to the Merger (as summarized in "--Opinions of Financial Advisers to
Chateau--Financial Analyses--Summary of Dilution Analysis"); and (vi) the
Chateau Board concluded, based on consultations with and the presentations of
its financial advisors, that the short-term financial benefits of the Sun
Proposal were not materially different than those offered by the Merger with ROC
and therefore did not weigh for or against the Sun Proposal.
For a description of the financial and comparative analyses which Merrill
Lynch and Goldman Sachs presented to the Chateau Board, see "Opinions of
Financial Advisors to Chateau--Financial Analyses."
In the event the Merger is not consummated for any reason, Chateau will
continue to pursue its fundamental strategy of capitalizing on the significant
growth opportunities already existing in its portfolio of properties and
acquiring selected new portfolios of properties with the overall goal of
increasing cash available for distribution. Chateau expects to pursue this
internal growth strategy through strategic expansion and renovations, increasing
lease revenue and improving operating margins. In conjunction with this primary
focus, Chateau expects to pursue new developments and acquisitions on a selected
basis.
OPINION OF FINANCIAL ADVISOR TO ROC
ROC retained PaineWebber to render financial advisory services in connection
with a possible strategic business combination with Chateau. In connection with
the engagement, ROC has requested PaineWebber to render an opinion as to whether
the Exchange Ratio is fair, from a financial point of view, to the holders of
ROC Common Stock (other than Chateau and its affiliates). The Exchange Ratio was
determined through negotiations between ROC and Chateau.
Certain members of ROC's management were familiar with certain individuals
at PaineWebber because those individuals assisted ROC in its initial public
offering in August 1993 and its subsequent public offering in August 1994, when
such persons were employed at another investment banking firm. ROC retained
PaineWebber to act as its financial advisor based upon PaineWebber's prominence
as an investment banking and financial advisory firm with experience in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate purposes, especially with
respect to REITs and other real estate companies.
On July 17, 1996, PaineWebber delivered a written opinion to the Board of
Directors of ROC to the effect that, as of the date of such opinion, based on
PaineWebber's review and subject to the limitations described therein, the
merger consideration to be received by the ROC stockholders pursuant to the
Original Merger Agreement was fair to such holders from a financial point of
view.
In September 1996, ROC and Chateau negotiated the revised Merger Agreement,
which, among other things, incorporated an alternative legal structure and made
certain amendments to the financial terms of the proposed Merger. On September
17, 1996, PaineWebber delivered an oral opinion to the Board of Directors of ROC
which was confirmed by a written PaineWebber opinion dated September 17, 1996 to
the effect that, as of the date of such opinion, based on PaineWebber's review
and subject to the limitations described below, the Exchange Ratio is fair to
the holders of ROC Common Stock (other than Chateau and its affiliates) from a
financial point of view. PaineWebber has confirmed such opinion by delivery of a
written opinion dated as of the date of this Joint Proxy Statement/Prospectus
(the "PaineWebber Opinion"). The PaineWebber Opinion does not constitute a
recommendation to any stockholder of ROC as to how any such stockholder should
vote on the Merger. Additionally, the PaineWebber Opinion does not address the
business decision of the Board of Directors of ROC to engage in the Merger.
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A COPY OF THE PAINEWEBBER OPINION DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND CERTAIN LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY PAINEWEBBER, IS
ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE WRITTEN OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE WRITTEN OPINION. STOCKHOLDERS OF ROC ARE
URGED TO READ IN ITS ENTIRETY THE PAINEWEBBER OPINION. THE PAINEWEBBER OPINION
IS ADDRESSED TO THE ROC BOARD AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW OF THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY ROC STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE ROC SPECIAL
MEETING.
In connection with its opinion, PaineWebber, among other things: (i)
reviewed ROC's Annual Reports, Forms 10-K and related financial information for
the three fiscal years ended December 31, 1995, and ROC's Form 10-Q and the
related unaudited financial information for the quarterly period ended September
30, 1996; (ii) reviewed Chateau's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31, 1995, and
Chateau's Form 10-Q and the related unaudited financial information for the
quarterly period ended September 30, 1996; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of ROC and Chateau, furnished to PaineWebber by ROC and
Chateau; (iv) conducted discussions with members of senior management of ROC and
Chateau concerning their respective businesses and prospects; (v) reviewed the
Merger Agreement and certain other agreements prepared in connection with the
Merger; and (vi) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
PaineWebber deemed necessary.
In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available or supplied,
communicated or otherwise made available to PaineWebber by ROC and Chateau, and
PaineWebber has not assumed any responsibility to independently verify such
information or undertaken an independent appraisal of the assets of ROC or
Chateau. With respect to the financial forecasts examined by PaineWebber,
PaineWebber assumed that they were reasonably prepared on bases reflecting the
best currently available estimates and good faith judgments of the respective
managements of ROC and Chateau as to the future performance of ROC and Chateau,
respectively, and their respective assets. Also in that regard, at ROC's
direction, PaineWebber assumed that the tax effects to ROC and the holders of
ROC Common Stock resulting from the transactions contemplated by the Merger
Agreement would be immaterial. At ROC's direction, PaineWebber adjusted
Chateau's projected FFO and First Call FFO estimates for Chateau to reflect
accounting differences between ROC and Chateau. PaineWebber assumed, with ROC's
consent, that all material assets and liabilities (contingent or otherwise,
known or unknown) of ROC and Chateau are as set forth in their respective
consolidated financial statements. The PaineWebber Opinion is based upon
regulatory, economic, monetary and market conditions existing on the date
thereof. Furthermore, PaineWebber has expressed no opinion as to the price or
trading range at which the shares of ROC, Chateau or the Combined Company will
trade at any time.
As described under "THE MERGER--Certain Transactions and Agreements Relating
to the Merger--Chateau Share Repurchase Program," Chateau intends to make
purchases of Chateau Common Stock in the open market, in negotiated transactions
or pursuant to a tender offer prior to completion of the Merger. Chateau has
already purchased 450,000 shares of Chateau Common Stock as part of the Chateau
Share Repurchase Program. Further, ROC has purchased 350,000 shares of Chateau
Common Stock, which shares will be cancelled if the Merger is consummated. At
ROC's direction, PaineWebber made certain assumptions with respect to purchases
of Chateau Common Stock by Chateau or ROC. PaineWebber assumed that a total of
1,500,000 shares of Chateau Common Stock would be purchased with cash financed
by indebtedness. In order to isolate the impact of such purchases on the value
of Chateau,
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PaineWebber assumed that all such purchases would be completed by Chateau. At
ROC's direction, PaineWebber has not assumed that any of the shares purchased
would be subsequently resold and that the shares purchased would be retired
prior to the Merger; however, PaineWebber indicated that resale at an average
cash price at least equal to the average price paid by Chateau in the Chateau
Share Repurchase Program would not impact its fairness opinion determination.
PaineWebber has not assumed any other purchases or sales of Chateau Common Stock
or ROC Common Stock.
Certain of the analyses conducted by PaineWebber in connection with the
PaineWebber Opinion required reference to historical market prices and published
First Call earnings estimates for ROC, Chateau and selected comparative
companies and to the historical results of various broader stock market indices.
In this regard, PaineWebber utilized historical market prices through July 11,
1996. PaineWebber believed that it was not appropriate to utilize subsequent
market prices for ROC Common Stock, Chateau Common Stock or for the common stock
of the selected comparative companies, as such market prices were impacted by
the public announcement on July 18, 1996 of ROC and Chateau's initial agreement
to merge and by the subsequent unsolicited proposals of MHC and Sun to acquire
or merge with Chateau. As such market prices were affected by reactions to the
various public announcements, PaineWebber did not consider such market prices to
be reliable for purposes of its fairness opinion. For purposes of consistency,
PaineWebber also utilized the results of broader stock market indices only
through July 11, 1996 and utilized published First Call FFO estimates as of July
11, 1996.
At ROC's direction, PaineWebber did not take into account for purposes of
its analysis the October 1, 1996, acquisition of the Oakwood Communities
development properties by ROC and Chateau. Since these properties were acquired
principally by ROC and Chateau on a 50/50 basis, PaineWebber concluded that
these properties would not have a material effect on an analysis of the relative
values of ROC and Chateau.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances, and therefore,
such opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of the analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber Opinion. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty, and neither ROC nor PaineWebber assumes
responsibility for the accuracy of such analyses or estimates. The following
paragraphs summarize the significant quantitative and qualitative analyses
performed by PaineWebber in arriving at the PaineWebber Opinion. Unless the
context otherwise requires, references throughout this section to Chateau Common
Stock, shares of Chateau Common Stock and related per share amounts include
shares of Chateau Common Stock issuable upon the exchange of outstanding OP
Units.
HISTORICAL EXCHANGE RATIO ANALYSIS
PaineWebber reviewed the historical implied ratio of the market prices of
ROC Common Stock and Chateau Common Stock and compared this to the effective
1.01x Exchange Ratio. PaineWebber observed that the average ratio for the
calendar quarter ended June 30, 1996 was 1.042x, and the range for the period
was 0.979x to 1.098x. PaineWebber observed that the average ratio for the six
months ended July 11, 1996 was 1.039x, and the range for this period was 0.979x
to 1.098x. PaineWebber observed that the average ratio for the twelve months
ended July 11, 1996 was 1.038x, and the range for this period was 0.961x to
1.107x. PaineWebber noted that the effective 1.01x Exchange Ratio was within the
range of ratios for each period observed. Accordingly, PaineWebber noted that
this analysis supported its conclusions.
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DISCOUNTED EQUITY VALUATION
The discounted equity valuation is based on the assumption that the value of
an equity interest in an ongoing business is equal to the net present value of
expected future cash distributions payable to equity holders plus the present
value of expected future cash flow from the assumed sale of the equity interest
at a future date. To establish a current value under this approach, future cash
flow must be estimated and an appropriate discount rate determined. PaineWebber
analyzed ROC and Chateau based on a discounted cash flow analysis utilizing
projections of FFO and cash distributions per share prepared by the managements
of ROC and Chateau, respectively, for the years 1997 through 2000, inclusive.
PaineWebber derived a range of per share values for each company by calculating
the present value of projected cash distributions and a terminal equity value.
PaineWebber assumed a range of discount rates of 13.5% to 15.0% for both
companies, which PaineWebber believed appropriately reflected the risks inherent
in the ownership of ROC Common Stock and Chateau Common Stock. Terminal equity
values were calculated using projected FFO per share (for the year ended
December 31, 2000) and terminal FFO multiples of 12.00x to 12.75x for both
companies, with the resulting per share value discounted back at discount rates
ranging from 13.5% to 15.0%. The discounted equity valuation produced ranges of
values for ROC Common Stock of $22.92 to $25.21 and for Chateau Common Stock of
$22.35 to $24.57. PaineWebber then divided the high end of the range of ROC
Common Stock values by the low end of the range of Chateau Common Stock values
and the low end of the range of ROC Common Stock values by the high end of the
range of Chateau Common Stock values to produce a range of implied ratios for
the value of ROC Common Stock to Chateau Common Stock. This series of
calculations produced a range of implied ratios of 0.933x to 1.128x. PaineWebber
noted that the effective 1.01x Exchange Ratio was within the range of implied
ratios produced by the discounted equity valuation. Accordingly, PaineWebber
noted that this analysis supported its conclusions.
SELECTED COMPARATIVE PUBLIC COMPANIES ANALYSIS
Using publicly available information, PaineWebber compared selected
historical and projected financial, operating and stock market performance data
of ROC and Chateau to the corresponding data of certain publicly-traded
companies that PaineWebber considered comparative (the "Comparative Companies").
The Comparative Companies represented REITs which focused on ownership of
manufactured home communities. Given the limited number of REITs engaged in this
business, PaineWebber included both ROC and Chateau among the Comparative
Companies. Because of the unique and specialized nature of the manufactured home
community business, PaineWebber did not consider it appropriate to utilize as
Comparative Companies REITs engaged principally in the ownership of other types
of properties, including apartments, retail properties, office properties and
industrial properties. The Comparative Companies thus consisted of ROC, Chateau,
MHC and Sun.
PaineWebber derived ranges of values for ROC Common Stock and Chateau Common
Stock by applying estimated FFO per share of ROC and Chateau, respectively, for
the years ended December 31, 1996 and 1997 to the corresponding range of FFO
multiples for the Comparative Companies for the same periods. The per share FFO
estimates and FFO multiples for the Comparative Companies (including ROC and
Chateau) were based on average First Call FFO estimates for each period. In
calculating the FFO multiples for the selected periods, the July 11, 1996
closing stock prices of the Comparative Companies were used. PaineWebber
observed that (i) the FFO multiples for the Comparative Companies for the year
ended December 31, 1996 ranged from 11.6x to 12.4x and (ii) the FFO multiples
for the Comparative Companies for the year ended December 31, 1997 ranged from
10.5x to 11.5x. Based on estimated FFO per share and FFO multiples for the year
ended December 31, 1996, this method produced a range of values for ROC Common
Stock of $22.50 to $24.06 and for Chateau Common Stock of $21.10 to $22.55.
Based on estimated FFO per share and FFO multiples for the year ended December
31, 1997, this method produced a range of values for ROC Common Stock of $22.05
to $24.15 and for Chateau Common Stock of $20.50 to $22.45. For each time
period, PaineWebber then divided the high end of the range of ROC
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Common Stock values by the low end of the range of Chateau Common Stock values
and the low end of the range of ROC Common Stock values by the high end of the
range of Chateau Common Stock values to produce a range of implied ratios for
the value of ROC Common Stock to Chateau Common Stock. This series of
calculations produced a range of implied ratios of 0.998x to 1.140x, based on
estimated FFO per share and FFO multiples for the year ended December 31, 1996,
and a range of implied ratios of 0.982x to 1.178x, based on estimated FFO per
share and FFO multiples for the year ended December 31, 1997. PaineWebber noted
that the effective 1.01x Exchange Ratio was within the range of implied ratios
produced by the selected comparative public companies analysis for each time
period. Accordingly, PaineWebber noted that this analysis supported its
conclusions.
PRO FORMA MERGER ANALYSIS
PaineWebber performed an analysis of the effect of the Merger on the
Combined Company's FFO per share for 1996 and 1997, based on projected FFO per
share results and other information supplied by management of ROC and Chateau.
The pro forma merger analysis assumed a closing of the Merger on January 1 of
each year presented. PaineWebber combined the projected FFO per share results of
Chateau with the projected FFO per share results of ROC to arrive at projected
FFO per share for the Combined Company. For both ROC and Chateau, PaineWebber
assumed shares and OP Units outstanding were equal to current shares and OP
Units outstanding, adjusted for the pro forma analysis to include shares
issuable in connection with the Merger and shares assumed to be repurchased by
Chateau prior to the Merger. At ROC's direction, PaineWebber assumed net annual
synergistic savings of $2.85 million, reflecting elimination of duplicative
public company and general and administrative expenses and other cost
reductions. In addition to interest expense associated with the repurchase of
Chateau Common Stock, PaineWebber also assumed additional interest expense of
$980,000 to reflect the financing of transaction expenses associated with the
Merger. PaineWebber divided the resulting FFO for the Combined Company by the
number of shares of Chateau Common Stock (including shares issuable upon
exchange of OP Units) expected to be outstanding upon consummation of the
Merger. PaineWebber then compared the resulting pro forma FFO per share in each
year to the projected stand-alone FFO per share of ROC, based on projections
supplied by ROC's management. This analysis indicated that the pro forma impact
of the Merger was neutral (accretive, by an amount less than 1%) to ROC's FFO
per share in 1996 and 1997. PaineWebber noted that the pro forma debt-to-total
market capitalization ratio of the Combined Company was approximately 34.3%
(based on the July 11, 1996 closing prices for ROC Common Stock and Chateau
Common Stock), versus approximately 30.4% for ROC on a stand-alone basis,
excluding in both instances debt which may be incurred in connection with the
acquisition of the Oakwood Communities. PaineWebber did not consider this
increase in leverage to be of a material nature, and therefore concluded that
the pro forma merger analysis as a whole supported its conclusions.
CONTRIBUTION ANALYSIS
PaineWebber reviewed the financial contribution of ROC and Chateau to the
Combined Company on a projected pro forma basis. PaineWebber noted that on a pro
forma basis, ROC stockholders will receive approximately 48.6% of the Combined
Company, assuming the repurchase by Chateau of 1.5 million shares of Chateau
Common Stock prior to the Merger. Using projected FFO per share results and
other information supplied by management of ROC and Chateau for the years ended
December 31, 1996 and December 31, 1997 (assuming current shares and OP Units
outstanding for all periods), and without attributing potential synergistic
savings from the Merger, PaineWebber calculated that ROC would contribute
approximately 50.1% of the FFO for the Combined Company in 1996 and
approximately 50.1% of the FFO for the Combined Company in 1997. Although these
pro forma contributions of FFO were somewhat higher than the percentage of the
Combined Company which ROC stockholders will receive in the Merger, and thus
were not supportive of its fairness opinion determination, PaineWebber did not
view this differential to be significant, particularly in light of the various
other analyses underlying its opinion.
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CAPITALIZATION RATE VALUATION ANALYSIS
The capitalization rate valuation analysis assumes that a value of a company
owning income producing real estate can be determined with reference to the
value of the properties in the company's portfolio. PaineWebber applied ranges
of capitalization rates from 8.50% to 9.25% to the projected 1996 property Net
Operating Income (defined as revenues less property operating expenses, before
interest expense and depreciation) of ROC and Chateau, adjusted in both cases
for assumed management costs and a reserve for capital expenditures. The
projected Net Operating Income data was provided by the managements of ROC and
Chateau, respectively. PaineWebber adjusted the resulting valuation range for
ROC to account for certain miscellaneous assets of ROC and to account (at a
higher capitalization rate) for the value of ROC's third-party management
business. PaineWebber then adjusted the total valuation ranges for both ROC and
Chateau to account for current non-real estate assets and liabilities and to
subtract outstanding debt, thus arriving at a range of equity values for both
ROC and Chateau. PaineWebber divided the range of equity values for ROC and
Chateau by shares and OP Units outstanding for each company to produce ranges of
per share equity values. This method produced a range of values for ROC Common
Stock of $20.48 to $22.21 and for Chateau Common Stock of $20.65 to $22.70.
PaineWebber then divided the high end of the range of ROC Common Stock values by
the low end of the range of Chateau Common Stock values and the low end of the
range of ROC Common Stock values by the high end of the range of Chateau Common
Stock values to produce a range of implied ratios for the value of ROC Common
Stock to Chateau Common Stock. This series of calculations produced a range of
implied ratios of 0.902x to 1.076x. PaineWebber noted that the effective 1.01x
Exchange Ratio was within the range of implied ratios produced by the
capitalization rate valuation analysis. Accordingly, PaineWebber noted that this
analysis supported its conclusions.
In completing the capitalization rate valuation analysis, PaineWebber was
aware that this analysis seeks to value assets in place and is thus most
appropriate in situations where little or no future change in an asset portfolio
is expected. While this was not the case for either ROC or Chateau, PaineWebber
noted that the limitations in the capitalization rate valuation analysis were
similar for both ROC and Chateau. Accordingly, PaineWebber concluded that while
individual valuation ranges for ROC Common Stock and Chateau Common Stock
produced by the capitalization rate valuation analysis might not be useful, the
ratio of such ranges would be useful.
STOCK TRADING HISTORY
PaineWebber reviewed the history of trading prices for ROC Common Stock and
Chateau Common Stock (from January 1, 1994 through July 11, 1996) and reviewed
the trading history of ROC Common Stock and Chateau Common Stock in relation to
the Standard and Poor's 500 Index, each of the Comparative Companies and the
PaineWebber REIT Index. The PaineWebber REIT Index includes over 90 equity REITs
representing every property category, including retail multifamily, manufactured
home, commercial, mixed and lodging. The comparison to the Comparative Companies
was utilized to consider the historical stock performance of ROC and Chateau
relative to companies with similar properties. The comparison to the PaineWebber
REIT Index was utilized to consider the historical stock performance of ROC and
Chateau relative to the REIT market in general. PaineWebber noted that ROC and
Chateau have generally performed consistently with each other and with the
PaineWebber REIT Index. PaineWebber further noted that both ROC and Chateau
generally outperformed MHC and underperformed Sun from mid-1994 through
mid-1996. PaineWebber further noted that both ROC and Chateau generally
underperformed the S&P 500 Index from early 1995 through mid-1996.
Pursuant to an engagement letter dated July 11, 1996, as amended by a letter
agreement dated September 17, 1996, PaineWebber received a fee of $500,000 for
delivery of its fairness opinion on July 17, 1996 and a fee of $250,000 for
delivery of its fairness opinion dated September 17, 1996. PaineWebber is also
entitled to receive a financial advisory fee of $300,000 plus $150,000 for each
month or partial month beginning November 1, 1996 and ending at the earliest of
(a) the date the Merger is consummated, (b) the
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date PaineWebber's engagement is terminated and (c) June 30, 1997. PaineWebber
will receive an additional financial advisory fee of $200,000 if the Merger is
not consummated by June 30, 1997. In the event the Merger is consummated,
PaineWebber will receive a transaction fee of $3,000,000, against which will be
credited the fairness opinion fees and the financial advisory fee described
above. The engagement letter, as amended, also provides that the total fee paid
to PaineWebber will be no less than the fee paid to any individual financial
advisor to Chateau. In addition, PaineWebber will also be reimbursed for its
reasonable out-of-pocket expenses. ROC has also agreed to indemnify PaineWebber,
its affiliates and their respective directors, officers, employees, agents and
controlling persons against certain liabilities, including liabilities under
federal securities laws. In connection with ROC's purchases of shares of Chateau
Common Stock in the open market, PaineWebber will act as ROC's broker and will
receive customary brokerage fees and commissions.
In the past, PaineWebber and its affiliates have provided financial advisory
services and investment banking services to ROC (including acting as an
underwriter for ROC) and received fees for the rendering of these services.
PaineWebber may provide financial advisory services and investment banking
services to the Combined Company in the future, PaineWebber may actively trade
the equity and debt securities of ROC and Chateau for its own account and for
the accounts of its customers and, accordingly, PaineWebber may at any time hold
long or short positions in such securities.
OPINIONS OF FINANCIAL ADVISORS TO CHATEAU
MERRILL LYNCH
On September 17, 1996, Merrill Lynch delivered its written opinion to the
Chateau Board, which opinion will be confirmed in a written opinion to be dated
the date of the Chateau Supplement, to the effect that, as of such dates, the
proposed consideration to be paid by Chateau in the Merger is fair to Chateau
and its stockholders (other than ROC and its affiliates) from a financial point
of view. In connection with the Chateau Board's consideration of the Original
Merger Agreement, Merrill Lynch had previously delivered its written opinion on
July 17, 1996, to the Chateau Board to the effect that, as of such date and
based upon the assumptions made, matters considered and limits of review as set
forth in such opinion, the merger consideration payable pursuant to the Original
Merger Agreement was fair to Chateau and its stockholders from a financial point
of view.
The full text of the written opinion of Merrill Lynch dated September 17 ,
1996, which sets forth the assumptions made, procedures followed, matters
considered and limits on its review, is attached hereto as Appendix C.
THE MERRILL LYNCH OPINION IS ADDRESSED TO THE CHATEAU BOARD AND ADDRESSES
ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW TO CHATEAU AND ITS STOCKHOLDERS
(OTHER THAN ROC AND ITS AFFILIATES) OF THE PROPOSED CONSIDERATION TO BE PAID BY
CHATEAU IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY CHATEAU
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE CHATEAU SPECIAL
MEETING.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch, among other things: (i) reviewed Chateau's Annual Reports, Forms 10-K and
related financial information for the three fiscal years ended December 31, 1995
and Chateau's Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1996 and June 30, 1996; (ii) reviewed ROC's
Annual Reports, Forms 10-K and related financial information for the three
fiscal years ended December 31, 1995 and ROC's Form 10-Q and the related
unaudited financial information for the quarterly periods ended March 31, 1996
and June 30, 1996; (iii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets and prospects
of Chateau and ROC, furnished to it by Chateau and ROC, respectively; (iv)
conducted discussions with members of senior management of Chateau and
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ROC concerning their respective businesses and prospects; (v) reviewed the
historical market prices and trading activity for Chateau Common Stock and ROC
Common Stock and compared them with that of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to Chateau and ROC; (vi)
compared the results of operations of Chateau and ROC with that of certain
companies which Merrill Lynch deemed to be reasonably similar to Chateau and
ROC, respectively; (vii) reviewed the Merger Agreement; and (viii) reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed necessary.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the accuracy
and completeness of all information supplied or otherwise made available to it
by Chateau and ROC, and did not independently verify such information or
undertake an independent appraisal or valuation of the assets of Chateau or ROC.
With respect to the financial forecasts furnished by Chateau and ROC, including
those relating to potential expense savings resulting from the Merger,
acquisitions and new development, Merrill Lynch relied upon, without independent
investigation, the estimates of Chateau's and ROC's management. In addition,
Merrill Lynch assumed that the financial forecasts furnished to it by Chateau
and ROC had been reasonably prepared and reflected the best currently available
estimates and judgment of Chateau's and ROC's management as to the expected
future financial performance of Chateau or ROC, as the case may be. Also in that
regard, based on certain representations of Chateau's management that were
incorporated into such financial forecasts, Merrill Lynch assumed that the tax
effects to Chateau and the holders of Chateau Common Stock resulting from the
transactions contemplated by the Merger Agreement would be immaterial.
The summary set forth below does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create a misleading view of the processes underlying
the Merrill Lynch Opinion. None of the companies used in the analyses described
below for comparative purposes is, of course, identical to Chateau. In its
analyses, Merrill Lynch made numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Chateau's and Merrill
Lynch's control. Any estimates contained in Merrill Lynch's analyses are not
necessarily indicative of actual values, which may be significantly more or less
favorable than as set forth therein. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future and such estimates are inherently subject to
uncertainty. The Merrill Lynch Opinion addresses the ownership position in the
combined company to be received by Chateau's stockholders pursuant to the Merger
on the terms set forth in the Merger Agreement based upon the relative
contributions of Chateau and ROC to the combined company and Merrill Lynch did
not express any opinion as to prices at which the Chateau Common Stock will
trade following the consummation of the Merger or prices which could be obtained
for the Chateau Common Stock in a sale of Chateau following the consummation of
the Merger. In addition, the Merrill Lynch Opinion does not address the relative
merits of the Merger as compared with any other business plan or opportunity
that might be presented to Chateau, including alternative business combinations
with third parties, or the effect of any other arrangement in which Chateau
might engage.
The Chateau Board selected Merrill Lynch to render a fairness opinion
because Merrill Lynch is an internationally recognized investment banking firm
with substantial experience in transactions similar to the Merger and because it
is familiar with Chateau and its business. Merrill Lynch has from time to time
rendered investment banking, financial advisory and other services to Chateau
and to the Operating Partnership for which it has received customary
compensation. Merrill Lynch has also from time to time rendered investment
banking, financial advisory and other services to MHC. Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions,
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leveraged buyouts, negotiated underwritings, secondary distributions of listed
and unlisted securities and private placements.
In the ordinary course of its business, Merrill Lynch may actively trade in
the securities of Chateau and ROC for its own account or for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to a letter agreement dated as of July 11, 1996, as amended on
September 11, 1996, Chateau has agreed to pay Merrill Lynch (i) a retainer fee
of $150,000 and a $500,000 fee for delivery of its fairness opinion in
connection with the merger transaction contemplated by the Original Merger
Agreement (the "Earned Fee"), with such amounts due and payable as set forth
below, (ii) a financial advisory fee of (A) $150,000 per month, commencing with
the month of September 1996 through and including the earlier of (1) the month
in which a merger or similar transaction is consummated and (2) June 1997 and
(B) in the event no merger or similar transaction is consummated on or before
December 31, 1997, an additional financial advisory fee of $300,000 (the
"Advisory Fee") and (ii) if during the period Merrill Lynch is retained by
Chateau or within two years thereafter (A) a merger or similar transaction is
consummated or (B) Chateau enters into an agreement with any person which
subsequently results in a merger or similar transaction which the Chateau Board
has not recommended against, a transaction fee (the "Transaction Fee") equal to
0.38% of the aggregate value (with value defined as cash and/or shares paid for
Chateau's equity plus all liabilities of Chateau on the date such merger or
similar transaction closes) of such merger or similar transaction. However, if a
merger or similar transaction is not consummated and no agreement to consummate
a merger or similar transaction is entered into by Chateau during the period
Merrill Lynch is retained by Chateau, the Earned Fee of $650,000 will be paid
upon termination of Merrill Lynch's engagement if such termination occurs on or
prior to December 31, 1997. The $650,000 will be credited against a Transaction
Fee that subsequently becomes payable. Notwithstanding the foregoing, the
aggregate amount of the Advisory Fee and the Transaction Fee payable to Merrill
Lynch will be no less than the fee payable to any other financial advisor of
Chateau. In addition, the aggregate amount of the Advisory Fee and the
Transaction Fee payable to Merrill Lynch will not exceed $3,000,000 unless the
fee payable to any other financial advisor is in excess of $3,000,000, in which
event the Transaction Fee payable to Merrill Lynch will be no less than such
fee. In addition, Chateau has agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses and to indemnify Merrill Lynch and certain
related persons against liabilities arising out of or in conjunction with its
rendering of services under its engagement, including certain liabilities under
the federal securities laws.
GOLDMAN SACHS
On September 17, 1996, Goldman Sachs delivered its written opinion to the
Chateau Board that, as of the date of such opinion, the Exchange Ratio pursuant
to the Merger Agreement is fair to Chateau. Goldman Sachs will confirm its
September 17, 1996 written opinion by delivery of its written opinion to be
dated as of the date of the Chateau Supplement.
The full text of the written opinion of Goldman Sachs, dated September 17 ,
1996, which sets forth the assumptions made, procedures followed, matters
considered and limits on its review, is attached hereto as Appendix D.
GOLDMAN SACHS' OPINION IS ADDRESSED TO THE CHATEAU BOARD AND ADDRESSES ONLY
THE FAIRNESS TO CHATEAU OF THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY CHATEAU STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE CHATEAU SPECIAL MEETING.
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In connection with its opinion, Goldman Sachs reviewed, among other things,
the Merger Agreement; Annual Reports to Stockholders and Annual Reports on Form
10-K for the three years ended December 31, 1995 of Chateau and ROC; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of Chateau
and ROC; certain other communications from Chateau and ROC to their respective
stockholders; and certain internal financial analyses and forecasts for Chateau
and ROC prepared by the respective managements of Chateau and ROC, including
analyses and forecasts jointly prepared by the managements of Chateau and ROC
and certain cost synergies and revenue enhancements expected to be achieved as a
result of the Merger. Goldman Sachs also held discussions with members of the
senior management of Chateau and ROC regarding the past and current business
operations, financial condition and future prospects of their respective
companies, including the future prospects of the combined company after the
Merger. In addition, Goldman Sachs reviewed the reported price and trading
activity for the Chateau Common Stock and ROC Common Stock, compared certain
financial and stock market information for Chateau and ROC with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations
among real estate investment trusts, and performed such other studies and
analyses as Goldman Sachs considered appropriate.
Goldman Sachs assumed, with Chateau's consent, that the Chateau Stock
Dividend will be declared and paid and any ROC Stock issued in a cash
transaction will be issued as permitted by Section 4.1(b)(iv) of the Merger
Agreement.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs assumed, with Chateau's
consent, that the forecasts referred to in the preceding paragraph had been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the managements of Chateau and ROC, as the case may be, and
that such forecasts will be realized in the amounts and at the times
contemplated thereby. Also in that regard, based on certain representations made
by Chateau's management, Goldman Sachs assumed that the tax effects to Chateau
and the holders of Chateau Common Stock, if any, resulting from the transactions
contemplated by the Merger Agreement would be immaterial. In addition, Goldman
Sachs did not make an independent evaluation or appraisal of the assets and
liabilities of Chateau or ROC or any of their respective subsidiaries, and
Goldman Sachs was not furnished with any such evaluation or appraisals. Goldman
Sachs' opinion does not address the relative merits of the Merger as compared to
any alternative business transactions that might be available to Chateau.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth below, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is identical to Chateau
or ROC or the contemplated transaction. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the Chateau Board as to the
fairness of the Exchange Ratio pursuant to the Merger Agreement to Chateau and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control the parties or their respective
advisors, none of Chateau, ROC, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the Chateau Board was one of
many factors taken into consideration by the Chateau Board, in making its
determination to approve the Merger Agreement.
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Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Chateau selected
Goldman Sachs as a co-financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Chateau and/or ROC for its own account and for the account of
customers. As of the date hereof, Goldman Sachs holds for its own account 5,200
shares of ROC Common Stock.
Under the terms of a letter agreement dated August 21, 1996, between Goldman
Sachs and Chateau (the "Letter Agreement"), Goldman Sachs has acted as financial
advisor with respect to the possible merger with ROC and the offers which MHC
and Sun have made for the stock of Chateau and with respect to the possible
purchase of all or a portion of the stock or assets of Chateau, a purchase by
Chateau of securities or assets of other companies or the sale of Chateau by way
of tender offer, merger or otherwise to ROC, MHC, Sun or any other party. Under
the terms of the Letter Agreement, Chateau will pay Goldman Sachs (a) $375,000
payable at the commencement of the financial advisory relationship; (b) if (in a
transaction that the Chateau Board does not recommend against) at least 20% of
the outstanding stock of Chateau is acquired by any person or group other than
ROC or Chateau itself in furtherance of a transaction with ROC, by means of a
tender offer or merger, private or open market purchases of stock or otherwise,
or if all or substantially all of the assets of Chateau are transferred by way
of sale, distribution or liquidation, an additional 0.50% of the Aggregate
Consideration (as defined below); (c) if Chateau acquires the securities or
assets of another company and no fee has become payable or paid to Goldman Sachs
pursuant to (b) above or (d) below, 2.00% of the aggregate value of such
transaction in the event such aggregate value is less than or equal to $50
million, and 1.50% of the aggregate value of such transaction in the event such
aggregate value is greater than $50 million, but in no event more than the
amounts payable under (b) above or (d) below, less any fees paid pursuant to (a)
above or (e) below; (d) if Chateau consummates a transaction with ROC involving
a stock or asset sale, tender offer, merger or other business combination on or
before December 31, 1996, $1 million, and, if such a transaction is consummated
after December 31, 1996, 0.50% of Aggregate Consideration in each case less any
fees paid or payable pursuant to (a), (b) or (c) above or (e) below; (e) if no
transaction of the type described in (b) or (d) above is consummated on or
before January 1, 1997, $375,000 payable on January 1, 1997 and an additional
$375,000 on each subsequent April 1, 1997, July 1, 1997, October 1, 1997 and
January 1, 1998; and (f) if any party initiates a solicitation of Chateau's
stockholders and a transaction is consummated either with a party other than ROC
or is consummated after December 31, 1996, then the fees payable pursuant to (b)
and (d) above shall be 0.70% of the Aggregate Consideration. For purposes of
(b), (d) and (f) above, "Aggregate Consideration" is defined to include (i) the
aggregate value of all such transactions, plus (ii) any amounts distributed to
stockholders or to limited partners, plus (iii) amounts paid by the purchaser or
Chateau with respect to contingently issuable shares, less any fees paid
pursuant to (a), (c), (d) or (e) above. Chateau has also agreed to reimburse
Goldman Sachs for their reasonable out-of-pocket expenses and to indemnify
Goldman Sachs against certain liabilities, including liabilities under federal
securities laws, arising in connection with the provision of these services.
FINANCIAL ANALYSES
The following is a summary of certain of the financial and comparative
analyses which Merrill Lynch and Goldman Sachs presented to the Chateau Board on
September 17, 1996. The summary includes certain comparative analyses involving
hypothetical combinations with MHC or Sun, but neither Merrill Lynch nor Goldman
Sachs used such analyses in arriving at their respective opinions, and neither
Merrill Lynch nor Goldman Sachs expressed any opinion or view as to the relative
merits of the Merger as
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compared to alternative business transactions, including transactions with MHC
or Sun. Each of Merrill Lynch and Goldman Sachs did, however, render an opinion
to the effect that the MHC Tender Offer is inadequate.
Selected Companies Analysis
Merrill Lynch and Goldman Sachs reviewed and compared certain financial
information, ratios and public market multiples relating to Chateau to
corresponding financial information, ratios and public market multiples for
selected publicly traded companies in the field of manufactured home REITs. The
selected companies were ROC, MHC and Sun (the "Selected Companies"). The
Selected Companies were chosen because they are publicly-traded companies with
operations that, for purposes of the Merrill Lynch and Goldman Sachs analysis,
were considered similar to Chateau's. The multiples of Chateau were calculated
using a price of $22.75 per share of Chateau Common Stock, the closing price of
Chateau Common Stock on the NYSE on July 16, 1996 (the last trading day prior to
the announcement of the Original Merger Agreement) (the "Chateau July 16 Stock
Price"); a price of $23.25 per share of Chateau Common Stock, the closing price
of Chateau Common Stock on the NYSE on August 16, 1996 (the last trading day
prior to the announcement of the MHC Offer) (the "Chateau August 16 Stock
Price"); and funds from operations ("FFO") per share of Chateau Common Stock of
$1.82 for projected 1996 and $1.95 for projected 1997 (each as reported by First
Call). With respect to Chateau and the Selected Companies, Merrill Lynch and
Goldman Sachs considered (A) 1996 and 1997 FFO multiples (based on July 16, 1996
closing market prices and projected 1996 and projected 1997 FFOs as reported by
First Call for the Selected Companies) that ranged from (x) 11.5x to 11.8x for
the Selected Companies compared to 12.5x for the Chateau July 16 Stock Price and
(y) 10.5x to 11.0x for the Selected Companies compared to 11.7x for the Chateau
July 16 Stock Price, respectively; (B) 1996 and 1997 FFO multiples (based on
August 16, 1996 closing market prices and projected 1996 and projected 1997 FFOs
as reported by First Call for the Selected Companies) that ranged from (x) 11.9x
to 12.4x for the Selected Companies compared to 12.8x for the Chateau August 16
Stock Price and (y) 11.1x to 11.4x for the Selected Companies compared to 11.9x
for the Chateau August 16 Stock Price, respectively; (C) dividend yields as of
July 16, 1996 that ranged from 6.8% to 7.3% for the Selected Companies compared
to 7.1% for the Chateau July 16 Stock Price; and (D) dividend yields as of
August 16, 1996 that ranged from 6.5% to 6.8% for the Selected Companies
compared to 7.0% for the Chateau August 16 Stock Price.
Valuation Analysis
Merrill Lynch and Goldman Sachs performed (A) an implied equity valuation
(calculated, with respect to each year in the period from 1997 through 2001, as
the sum of assumed multiples of projected FFO per share for that year ranging
from 11.5x to 12.5x and projected dividends per share through that year, in each
case discounted to present value at assumed discount rates ranging from 12.5% to
14.5%), (B) a discounted cash flow analysis (calculated as the sum of terminal
values per share based on assumed multiples of projected 2001 FFO per share
ranging from 11.5x to 12.5x and the projected 1997-2001 five-year stream of Cash
Available for Distribution ("CAD") per share (FFO less normalized recurring
capital expenditures), in each case discounted to present value at assumed
discount rates ranging from 12.5% to 14.5%), (C) a net asset value summary
(calculated by subtracting outstanding debt and other liabilities from gross
value (based on projected 1997 net operating income at capitalization rates
ranging from 8.50% to 9.50% plus the value of other assets)) and (D) a public
market FFO multiple analysis (calculated by multiplying projected 1996 and 1997
FFO per share by public market multiples ranging from 11.5x to 12.5x projected
1996 FFO per share and 10.5x to 11.7x projected 1997 FFO per share in the
Standalone Case (as defined below) and 11.9x to 12.8x projected 1996 FFO per
share and 11.1x to 11.9x projected 1997 FFO per share in the Combination Cases
(as defined below)), in each case using Chateau's management projections under
the following four scenarios: (1) on a standalone basis for Chateau (the
"Standalone Case"), (2) on a combined basis, assuming the combination of Chateau
and ROC pursuant to which (w) holders of 75% of the OP Units exchange their OP
Units for shares of Chateau Common Stock and waive their rights to receive
Chateau Common Stock in respect of such shares pursuant to the Chateau Stock
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Dividend for reallocation to the other Chateau stockholders, (x) the Chateau
Stock Dividend is paid, (y) the Chateau Share Repurchase Program is completed
and (z) each share of ROC Stock is converted into 1.042 shares of Chateau Common
Stock (the "ROC Combination Case"), (3) on a combined basis, assuming the
combination of Chateau and MHC pursuant to which each share of Chateau Common
Stock and each OP Unit is converted into 1.15 shares of MHC common stock (the
"MHC Combination Case") and (4) on a combined basis assuming the combination of
Chateau and Sun pursuant to which each share of Chateau Common Stock and each OP
Unit is converted into 0.892 shares of Sun common stock (the "Sun Combination
Case" and together with the ROC Combination Case and the MHC Combination Case,
the "Combination Cases"). The ROC Combination Case did not assume the Chateau
Share Issuance (see "THE MERGER--Certain Transactions and Agreements Relating to
the Merger--Chateau Share Issuance"); had that case assumed such issuance,
certain of the valuations would have been somewhat lower. Under its implied
equity valuation, the implied values per share of Chateau Common Stock (rounded
to the nearest $0.25) ranged from (i) $21.25 to $24.50 in the Standalone Case,
(ii) $24.25 to $29.25 in the ROC Combination Case, (iii) $21.75 to $27.00 in the
MHC Combination Case and (iv) $24.75 to $29.75 in the Sun Combination Case.
Under its discounted cash flow analysis, the implied values per share of Chateau
Common Stock (rounded to the nearest $0.25) ranged from (i) $22.25 to $25.50 in
the Standalone Case, (ii) $27.00 to $30.25 in the ROC Combination Case, (iii)
$26.00 to $29.75 in the MHC Combination Case and (iv) $28.25 to $32.25 in the
Sun Combination Case. Under its net asset value summary, the implied net asset
values per share of Chateau Common Stock (rounded to the nearest $0.25) ranged
from (i) $19.75 to $23.25 in the Standalone Case, (ii) $22.75 to $25.50 in the
ROC Combination Case, (iii) $19.25 to $22.50 in the MHC Combination Case and
(iv) $20.50 to $23.75 in the Sun Combination Case. Under its public market FFO
multiple analysis, the implied values per share of Chateau Common Stock (rounded
to the nearest $0.25) ranged from (i) $20.75 to $22.75 in the Standalone Case,
(ii) $24.75 to $26.25 in the ROC Combination Case, (iii) $22.25 to $24.25 in the
MHC Combination Case and (iv) $25.25 to $27.50 in the Sun Combination Case.
Selected Transactions Analysis
Merrill Lynch and Goldman Sachs reviewed certain information relating to the
following 12 pending and consummated selected public transactions in the REIT
industry since 1994: the Merger (as originally proposed and as amended); the
merger contemplated by the Sun Proposal; the merger contemplated by the MHC
Tender Offer; and transactions between (a) Highwoods Properties, Inc. and
Crocker Realty Trust, Inc.; (b) Simon Property Group, Inc. and DeBartolo Realty;
(c) Security Capital U.S. Realty and CarrAmerica Realty Corp.; (d) Bradley Real
Estate, Inc. and Tucker Properties Corp.; (e) BRE Properties, Inc. and REIT of
California; (f) Horizon Outlet Centers, Inc. and McArthur/Glen Realty, Inc.; (g)
Mid America Apartment Communities, Inc. and America First REIT; and (h)
Wellsford Residential Property Trust and Holly Residential Properties, Inc.
(collectively, the "Selected Transactions"). Such review indicated that, for the
Selected Transactions (excluding proposed transactions relating to Chateau), (i)
the premium (discount) of the implied offer price to the target stock price on
the trading day before the transaction was announced ranged from (0.8%) to 38%,
with a mean of 13.1%, compared to a premium of 3.3% over the price of the ROC
Stock on the last trading day prior to the announcement of the Original Merger
Agreement to be paid by Chateau in the Merger and (ii) the implied offer price
expressed as a multiple of the target's projected FFO per share at the
announcement date ranged from 6.6x to 15.5x, with a mean of 10.0x, compared to a
multiple of 10.9x the projected 1997 FFO per share of ROC Stock (as reported by
First Call) to be paid by Chateau in the Merger (based in each case on the
effective exchange ratio after giving effect to the Chateau Stock Dividend and
on the Chateau July 16, 1996 Stock Price).
Summary of Dilution Analysis
Merrill Lynch and Goldman Sachs prepared a summary of dilution analysis of
the financial impact of each of the Combination Cases. Assuming an exchange
ratio of 1.042x (without taking into account any Chateau Stock Dividend or OP
Unitholder exchanges), Merrill Lynch and Goldman Sachs compared the projected
1997 FFO per share of Chateau Common Stock to the projected 1997 FFO per share
of Chateau
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Common Stock in each of the Combination Cases. The Financial Advisors, relying
on Chateau's management assumption that $3.0 million in annual synergies would
result in each of the Combination Cases, performed this analysis under the
following two scenarios: (a) using closing stock prices as of September 3, 1996
and $11.1 million in transaction costs financed at 7.33% and starting from 1997
FFO projections for Chateau, ROC, Sun and MHC as reported by First Call (the
"Market Case") and (b) using the ten-day average closing stock prices as of
September 13, 1996 and $11.2 million in transaction costs in the ROC Combination
Case and $20.4 million in transaction costs in each of the Sun Combination Case
and MHC Combination Case (reflecting payment of a break-up fee) financed at 7.0%
and using 1997 FFO projections for Chateau and for each of the combined
companies prepared by Chateau management (the "Management Case"). Based on such
analyses, (a) in the Market Case, (i) the ROC Combination Case would result in
5.5% accretion to Chateau's stockholders and OP Unitholders; (ii) the Sun
Combination Case would result in 10.4% accretion to Chateau's stockholders and
OP Unitholders and (iii) the MHC Combination Case would result in 0.7% accretion
to Chateau's stockholders and OP Unitholders and (b) in the Management Case, (i)
the ROC Combination Case would result in 8.6% accretion to Chateau's
stockholders and OP Unitholders; (ii) the Sun Combination Case would result in
17.9% accretion to Chateau's stockholders and OP Unitholders; and (iii) the MHC
Combination Case would result in 4.0% accretion to Chateau's stockholders and OP
Unitholders.
Impact of Stock Dividend on Exchange Ratio
Merrill Lynch and Goldman Sachs analyzed the impact of the Chateau Stock
Dividend and of the election by OP Unitholders to exchange their OP Units prior
to such dividend under the following four scenarios: (a) no OP Unitholders
electing to exchange (the "No Exchange Case"), (b) OP Unitholders electing to
exchange 60% of the OP Units (the "60% Exchange Case"), (c) OP Unitholders
electing to exchange 75% of the OP Units (the "75% Exchange Case") and (d) OP
Unitholders electing to exchange 90% of the OP Units (the "90% Exchange Case").
Based on such scenarios, (i) the Chateau Stock Dividend to be received by
Chateau's public stockholders ranged from 3.16% in the No Exchange Case to 6.85%
in the 90% Exchange Case; (ii) the implied market value per share of Chateau
Common Stock held by public stockholders (based on the September 13, 1996
closing price of the ROC Common Stock) ranged from $25.02 in the No Exchange
Case to $25.91 in the 90% Exchange Case; and (iii) the accretion to Chateau's
public stockholders in the Management Case ranged from 8.6% in the No Exchange
Case to 12.2% in the 90% Exchange Case.
Contribution Analysis
Merrill Lynch and Goldman Sachs reviewed certain historical and estimated
future operating and financial information, including, among other things,
revenue, earnings before interest, taxes, depreciation and amortization
("EBITDA") and FFO and CAD for each of Chateau, ROC, Sun and MHC and the
combined entity in each of the Combination Cases based on Chateau, ROC, Sun and
MHC historical financial information and Chateau management's forecasts for
Chateau, and Chateau and ROC managements' forecasts for the ROC Combination Case
and First Call estimates for Sun and MHC. Based on a range of exchange ratios
from 1.000 to 1.040 shares of Chateau Common Stock for each share of ROC Stock,
the analysis indicated that (a) Chateau stockholders would receive between 53.3%
and 54.3% of the total number of shares of the combined entity formed in the
Merger and (b) Chateau stockholders would have contributed to that combined
entity (i) in 1995 (actual), 54.9% of revenue, 56.7% of EBITDA, 52.7% of FFO and
55.4% of CAD; (ii) in projected 1996, 51.8% of revenue, 54.5% of EBITDA, 53.4%
of FFO and 54.9% of CAD; and (iii) in projected 1997, 50.0% of revenue, 52.5% of
EBITDA, 51.6% of FFO and 53.3% of CAD. Based on an exchange ratio of 1.15 shares
of MHC common stock for each share of Chateau Common Stock, the analysis
indicated that (a) Chateau stockholders would receive 39.7% of the total number
of shares of the combined entity formed in the MHC Combination Case and (b)
Chateau stockholders would have contributed to that combined entity (i) in 1995
(actual), 41.1% of revenue, 42.1% of EBITDA, 42.5% of FFO and 44.3% of CAD; (ii)
in projected 1996, 40.3% of revenue, 41.4% of EBITDA, 40.8% of FFO and 42.4% of
CAD; and (iii) in projected 1997, 39.8% of revenue, 41.1% of
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EBITDA, 41.2% of FFO and 43.0% of CAD. Based on an exchange ratio of 0.892
shares of Sun common stock for each share of Chateau Common Stock, the analysis
indicated that (a) Chateau stockholders would receive 45.3% of the total number
of shares of the combined entity formed in the Sun Combination Case and (b)
Chateau stockholders would have contributed to that combined entity (i) in 1995
(actual), 58.3% of revenue, 55.5% of EBITDA, 51.8% of FFO and 53.2% of CAD; (ii)
in projected 1996, 47.2% of revenue, 43.9% of EBITDA, 42.7% of FFO and 44.1% of
CAD; and (iii) in projected 1997, 44.7% of revenue, 42.0% of EBITDA, 42.4% of
FFO and 43.8% of CAD.
Analysis of Exchange Ratios
Merrill Lynch and Goldman Sachs compared the exchange ratio in the
Combination Cases with the historical ratios of the daily market prices of (x)
Chateau Common Stock and ROC Common Stock, (y) Chateau Common Stock and MHC
common stock and (z) Chateau Common Stock and Sun common stock for the last
twelve months leading up to September 13, 1996, which ranged from .88 to 1.11;
1.152 to 1.425; and .810 to .956, respectively.
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THE MERGER
GENERAL
The Original Merger Agreement, dated as of July 17, 1996, among ROC,
Chateau, RSub and Chateau Communities, Inc., has been amended and restated by
the Amended and Restated Agreement and Plan of Merger, dated as of September 17,
1996, among ROC, Chateau and RSub, as amended by the Amendment thereto dated as
of December 20, 1996. The following description of the Merger and the Merger
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached as Appendix A to
this Joint Proxy Statement/Prospectus and incorporated herein by reference.
Stockholders of ROC and stockholders of Chateau are urged to read the Merger
Agreement in its entirety. Capitalized terms used but not defined in this
section shall have the meanings ascribed to them in the Merger Agreement.
EFFECTS OF THE MERGER
The Merger Agreement provides that, subject to the ROC Stockholder Approval
and the Chateau Stockholder Approval and the satisfaction or waiver of the other
conditions to the Merger, RSub will merge with ROC, whereupon the separate
existence of RSub will cease and ROC will be the surviving corporation of the
Merger. At the Effective Time, the conversion of ROC Stock pursuant to the
Merger Agreement will be effected as described below. The Charter of the
Combined Company immediately following the Effective Time will be the current
Charter of Chateau, and the By-Laws of the Combined Company will be the current
By-Laws of Chateau, as amended effective as of the Effective Time, each as
described below in "DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY--
Certain Provisions of Chateau's Charter and By-Laws and of Maryland Law--Charter
and By-Laws Amendments." Following completion of the Merger, the directors and
executive officers of the Combined Company will be the individuals identified
below in "MANAGEMENT OF THE COMBINED COMPANY--Directors and Executive Officers
of the Combined Company." The Merger Agreement provides that, at the first
annual meeting of stockholders of the Combined Company following the Merger, the
Board of Directors of the Combined Company will solicit stockholder approval to
change the Combined Company's name to "Chateau Communities, Inc."
EFFECTIVE TIME OF THE MERGER
Following the ROC Stockholder Approval and the Chateau Stockholder Approval
and subject to satisfaction or waiver of the terms and conditions thereof, the
Merger will become effective upon the filing of Articles of Merger for the
Merger with the Department of Assessments and Taxation of the State of Maryland,
which filing will be made as soon as practicable following such stockholder
approvals. As previously noted, it is anticipated that the Chateau Special
Meeting will be held approximately 12 days after the ROC Special Meeting.
TERMS OF THE MERGER
At the Effective Time, each outstanding share of ROC Stock shall be
converted into the right to receive the Merger Consideration. The Merger
Consideration with respect to each share of ROC Stock will consist of 1.042
fully paid and nonassessable shares of Chateau Common Stock. Each holder of ROC
Stock otherwise entitled to receive a fractional share of Chateau Common Stock
will receive in lieu of any fractional shares of Chateau Common Stock, such
holder's proportionate interest, if any, of the net proceeds from the sale by
the Exchange Agent (as defined below), in one or more transactions on behalf of
all such holders, of the fractional shares of Chateau Common Stock, executed on
the NYSE in round lots to the extent practicable. The Merger Agreement also
contemplates that Chateau will declare the Chateau Stock Dividend, equal to
0.0316 shares of Chateau Common Stock for each share outstanding, and an
equivalent distribution on each OP Unit outstanding, payable to Chateau
stockholders and OP Unitholders of record on the Stock Dividend Record Date. The
effective Exchange Ratio for the Merger after giving effect to the conversion of
each share of ROC Stock into 1.042 shares of Chateau Common
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Stock and the Chateau Stock Dividend is 1.01 to one. From the point of view of
existing Chateau stockholders, as a result of the waiver of the Chateau Stock
Dividend by Exchanging OP Unitholders and the reallocation to Chateau
stockholders of the shares which would otherwise have been received, the
effective exchange ratio will be 0.98 to one. The waiver of the Chateau Stock
Dividend will not impact the Exchange Ratio for ROC stockholders.
CONDITIONS TO THE MERGER; TERMINATION; WAIVER AND AMENDMENT
In addition to the ROC Stockholder Approval and the Chateau Stockholder
Approval, the obligations of ROC on the one hand and Chateau on the other to
effect the Merger and consummate the Other Transactions are subject to the
satisfaction or waiver of certain other conditions including: (i) the absence of
any injunction or other legal prohibition against the Merger or any of the Other
Transactions; (ii) the effectiveness of the Registration Statement and the
absence of a stop order with respect thereto; (iii) the receipt of all "Blue
Sky" or state securities permits and authorizations and items necessary to issue
the shares of Chateau Common Stock as part of the Merger Consideration and the
approval of such shares for listing on the NYSE; (iv) the receipt of certain
legal opinions as to, among other things, the Combined Company's status as a
REIT and that the Combined Company is not an "investment company" as defined in
the Investment Company Act of 1940; (v) the receipt of evidence of the
successful completion of the issuance of RSub Common Stock (as defined below) to
120 persons; and (vi) the taking or obtaining of all material actions by or
filings with governmental authorities required in connection with the Merger and
Other Transactions.
The obligations of ROC to effect the Merger and consummate the Other
Transactions are further conditioned on the following: (i) the continuing
accuracy through the date of the first phase of the OP Unit Exchange in all
material respects of the representations and warranties made by Chateau in the
Merger Agreement; (ii) the performance in all material respects of all
agreements and covenants to be performed by Chateau under the Merger Agreement;
(iii) the receipt of consents and waivers from third parties which if not
obtained would have a material adverse effect on Chateau; (iv) the receipt of
opinions from counsel for Chateau as to the status of Chateau as a REIT and of
the Operating Partnership as a partnership for federal income tax purposes and
regarding the treatment of the Merger and the OP Unit Exchange as transfers of
property qualifying for treatment pursuant to Section 351 of the Code and on
certain other matters; (v) there having been no change in Chateau's business,
results of operations or financial condition through the date of the first phase
of the OP Unit Exchange which would have a material adverse effect on Chateau;
(vi) the execution by Chateau of the New Registration Rights Agreement; and
(vii) reasonable satisfaction of ROC that the Chateau By-Laws have been amended
substantially in accordance with the terms outlined in the Merger Agreement.
Materiality for the purpose of clauses (i), (iii) and (v) above is defined in
the Merger Agreement as events resulting in aggregate net economic losses to
Chateau in excess of $5 million, and ROC would not be obligated to close if the
net economic losses created by the failure of the conditions described in such
clauses to be satisfied exceeded, in the aggregate, $5 million.
The obligations of Chateau to issue the Merger Consideration to the ROC
stockholders and consummate the Other Transactions are further conditioned on
the following: (i) the continuing accuracy through the date of the first phase
of the OP Unit Exchange in all material respects of the representations and
warranties made by ROC in the Merger Agreement; (ii) the performance in all
material respects of all agreements and covenants to be performed by ROC under
the Merger Agreement; (iii) the receipt of consents and waivers from third
parties which if not obtained would cause a material adverse effect on ROC; (iv)
the receipt of opinions from counsel for ROC as to the treatment of the Merger
and the OP Unit Exchange as transfers of property qualifying for treatment
pursuant to Section 351 of the Code and on the status of ROC as a REIT and of
the Financing Partnership as a partnership for federal income tax purposes; (v)
there having been no change in ROC's business, results of operations or
financial condition through the date of the first phase of the OP Unit Exchange
which would have a material adverse effect on ROC; and (vi) the Specified Debt
Obligations (as defined in the Merger Agreement) that shall be assumed by the
Operating Partnership or the Financing Partnership upon consummation of the
transactions contemplated by the Contribution Agreement providing, following
such consummation, that neither ROC, Chateau nor any partner of the Financing
Partnership (other than the Operating Partnership) or the
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Operating Partnership will have any liability for the repayment of such
Specified Debt Obligations. Materiality for the purpose of clauses (i), (iii)
and (v) above is defined in the Merger Agreement as events resulting in
aggregate net economic losses to ROC in excess of $5 million, and Chateau would
not be obligated to close if the net economic losses created by the failure of
the conditions described in such clauses to be satisfied exceeded, in the
aggregate, $5 million.
The Merger Agreement may be terminated prior to the Effective Time, whether
before or after the ROC Stockholder Approval and Chateau Stockholder Approval
are obtained, as follows: (i) by mutual written consent of ROC and Chateau duly
authorized by the respective Boards of Directors of ROC and Chateau; (ii) by
Chateau, upon a breach of any representation or warranty on the part of ROC set
forth in the Merger Agreement, or if any representation or warranty of ROC
shall, on or prior to the date of the first phase of the OP Unit Exchange, have
become untrue (in either case, such that ROC would have net economic losses of
at least $5 million) or the breach in any material respect of any covenant or
agreement of ROC set forth in the Merger Agreement; (iii) by ROC, upon a breach
of any representation or warranty on the part of Chateau set forth in the Merger
Agreement, or if any such representation or warranty of Chateau shall, on or
prior to the date of the first phase of the OP Unit Exchange, have became untrue
(in either case, such that Chateau would have net economic losses of at least $5
million) or the breach in any material respect of any covenant or agreement of
Chateau set forth in the Merger Agreement; (iv) by either ROC or Chateau, if any
permanent injunction or action preventing the consummation of the Merger shall
have become final and nonappealable; (v) by either ROC or Chateau, if the Merger
shall not have been consummated before March 31, 1997 (and if the terminating
party has not willfully breached any of its representations, warranties or
covenants in the Merger Agreement); (vi) by either ROC or Chateau, if either the
Chateau Stockholder Approval or the ROC Stockholder Approval is not obtained;
(vii) by ROC, if prior to the date of the first phase of the OP Unit Exchange
the ROC Board shall have withdrawn or modified its approval or recommendation of
the Merger or the Merger Agreement in connection with the approval and
recommendation of a Superior Competing Transaction; (viii) by Chateau, if the
ROC Board or any committee thereof shall have (A) prior to the date of the first
phase of the OP Unit Exchange withdrawn or modified in a manner adverse to
Chateau its approval or recommendation of the Merger or the Merger Agreement, or
approved or recommended any Superior Competing Transaction, (B) entered into
certain agreements with respect to any Competing Transaction (other than a
confidentiality agreement permitted under the Merger Agreement) or (C) resolved
to do any of the foregoing; (ix) by Chateau, if prior to the date of the first
phase of the OP Unit Exchange the Chateau Board shall have withdrawn or modified
its approval or recommendation of the issuance of the Merger Consideration to
the ROC stockholders in connection with the approval and recommendation of a
Superior Competing Transaction; (x) by ROC, if the Chateau Board or any
committee thereof shall have (A) prior to the date of the first phase of the OP
Unit Exchange withdrawn or modified in a manner adverse to ROC its approval or
recommendation of the issuance of the Merger Consideration to the ROC
stockholders, or approved or recommended any Superior Competing Transaction, (B)
entered into certain agreements with respect to any Competing Transaction (other
than a confidentiality agreement permitted under the Merger Agreement) or (C)
resolved to do any of the foregoing; (xi) by ROC if (A) on or prior to the date
of the first phase of the OP Unit Exchange any of the Exchanging OP Unitholders
that have executed the Chateau Securityholder Agreement has failed to exchange
the OP Units it has agreed to exchange by that date under such agreement and
such OP Units have not been replaced by OP Units held by other OP Unitholders or
(B) ten days after the date that each of the OP Unitholders that has as of the
date of the Merger Agreement expressed its intent to exchange its OP Units for
shares of Chateau Common Stock as contemplated by the Merger Agreement withdraws
such intention in writing; and (xii) by Chateau if (A) within five business days
after the date ROC delivers an Issuance Notice (as defined in the Merger
Agreement) pertaining to the issuance of capital stock in a cash transaction,
Chateau provides written notice to ROC to the effect that if ROC proceeds with
the issuance contemplated by the Issuance Notice Chateau will terminate the
Merger Agreement, (B) ROC, notwithstanding such notice from Chateau, proceeds
with the issuance, and (C) Chateau notifies ROC in writing of the termination of
the Merger Agreement within five business days after ROC notifies Chateau of the
closing of the issuance.
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The parties may, by an appropriate instrument executed at any time prior to
the Effective Time, whether before or after the ROC Stockholder Approval and the
Chateau Stockholder Approval are obtained, amend the Merger Agreement; provided
that after the receipt of such approvals, no amendment or modification may be
made which alters the amount or changes the form of the consideration to be
delivered to the stockholders of ROC or Chateau in the Merger or that in any way
adversely affects such stockholders.
Either of ROC or Chateau may also, at any time prior to the Effective Time:
(i) extend the time for the performance of any of the obligations or other acts
of the other party; (ii) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant thereto; and (iii) subject to limitations on amendment, waive
compliance with any of the agreements or conditions contained in the Merger
Agreement.
NO SOLICITATION; BOARD ACTION; FEES AND EXPENSES
The Merger Agreement provides that each of ROC and Chateau shall not
initiate, solicit (including by way of furnishing non-public information or
assistance) any inquiries or make any proposal that constitutes, or may
reasonably be expected to lead to, any Competing Transaction or authorize or
permit any of its officers, directors or employees or any representative
retained by it to take any such action, and each must notify the other in
writing of all of the relevant details relating to all inquiries and proposals
which it may receive relating to any of such matters. "Competing Transaction"
means any of the following (other than the transactions contemplated by the
Merger Agreement): (i) any merger, consolidation, share exchange, business
combination or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 30% or more of the assets of
ROC or Chateau in a single transaction or series of transactions, excluding any
bona fide financing transactions which do not, individually or in the aggregate,
have as a purpose or effect the sale or transfer of control of such assets;
(iii) any tender offer or exchange offer for 30% or more of the outstanding
shares of capital stock of ROC or Chateau or the filing of a registration
statement under the Securities Act in connection therewith; or (iv) any public
announcements of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
Notwithstanding the above-described non-solicitation provision and other
provisions of the Merger Agreement, to the extent required by the fiduciary
obligations of the Board of Directors of either ROC or Chateau, as determined in
good faith based on the advice of outside counsel, either ROC or Chateau may:
(i) disclose to its stockholders and the OP Unitholders any information required
by law to be disclosed, (ii) in response to an unsolicited request therefor,
participate in discussions or negotiations with, or furnish information pursuant
to a customary confidentiality agreement to, any person in connection with a
Competing Transaction proposed by such person and (iii) approve or recommend
(and, in connection therewith, withdraw or modify its approval or recommendation
of (A) for ROC, the Merger Agreement and the Merger and (B) for Chateau, the
issuance of the Merger Consideration to the ROC Stockholders in the Merger) a
Superior Competing Transaction, which is defined in the Merger Agreement as a
bona fide proposal of a Competing Transaction made by a third party which the
applicable Board of Directors determines in good faith (based on the advice of
its investment banking firm) to be more favorable to its stockholders than the
Merger.
Except as described below, all out-of-pocket costs and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement are to be paid by the party incurring such
expenses. If the Merger Agreement is terminated by reason of the breach by ROC
of any covenant, agreement, representation or warranty contained therein, then
ROC shall be obligated to pay as directed by the Operating Partnership an amount
(the "Chateau Break-Up Expenses") equal to the lesser of (i) the Operating
Partnership's out-of-pocket expenses incurred in connection with the Original
Agreement and the Merger Agreement and the Other Transactions (but in no event
an amount greater than $4 million) (the "Expense Fee Base Amount") or (ii) the
maximum amount payable
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to the Operating Partnership as expenses in connection with the Merger and the
Other Transactions that would not cause Chateau to fail to qualify as a REIT. In
addition, if the Merger Agreement is terminated by reason of: (i) the breach by
ROC of any covenant, agreement, representation or warranty contained therein and
prior to termination of the Merger Agreement ROC shall have received a proposal
for a Competing Transaction and within 12 months after the date of such
termination ROC shall have entered into a definitive agreement providing for a
Competing Transaction that is equally or more favorable to ROC's stockholders
than the Merger from a financial point of view; (ii) the failure of the ROC
Stockholder Approval to be obtained and prior to termination of the Merger
Agreement ROC shall have received a proposal for a Competing Transaction and
within 12 months after the date of such termination ROC shall have entered into
a definitive agreement providing for a Competing Transaction that is equally or
more favorable to ROC's stockholders than the Merger from a financial point of
view; (iii) the withdrawal, modification or change by the ROC Board in any
manner adverse to Chateau of its recommendation of the Merger or the Merger
Agreement in connection with the approval or recommendation of a Superior
Competing Transaction; or (iv) the entry by ROC into any agreement in respect of
a Competing Transaction (other than a confidentiality agreement as contemplated
above) or the ROC Board or any committee thereof having resolved to enter into
such agreement, then ROC shall be obligated to pay as directed by the Operating
Partnership an amount equal to the lesser of (A) $10 million (the "Base Amount")
and (B) the maximum amount payable to the Operating Partnership as a transaction
termination fee that would not cause Chateau to fail to qualify as a REIT (the
"Chateau Break-Up Fee"). In the event that the Operating Partnership is not able
to receive the full Base Amount or Expense Fee Base Amount, as the case may be,
ROC shall place the unpaid amount in escrow to be released upon receipt of a
letter from Chateau's accountants and/or an opinion letter from Chateau's
attorneys indicating that all or a portion of such escrowed amount may be paid,
in which case ROC shall pay the indicated amount to the Operating Partnership.
ROC's obligation to pay any unpaid portion of such expenses shall terminate five
years from the date upon which such expenses first become due.
Notwithstanding anything to the contrary contained above, if the Operating
Partnership realizes any Total Profit pursuant to the ROC Option Agreement and
at any time or from time to time the sum of (i) the Total Profit realized by the
Operating Partnership, (ii) the Chateau Break-Up Fee paid to the Operating
Partnership and (iii) the amount of Chateau Break-Up Expenses paid to the
Operating Partnership exceeds the sum of (i) the Base Amount (which amount shall
be counted as zero if ROC has not become obligated to pay the Chateau Break-Up
Fee under the Merger Agreement) and (ii) the Expense Fee Base Amount (which
amount shall be counted as zero if ROC has not become obligated to pay the
Chateau Break-Up Expenses under the Merger Agreement), then the Chateau Break-Up
Fee and/ or Chateau Break-Up Expenses shall be reduced by such excess, and the
amount, if any, still held in escrow shall be released to ROC, and the Operating
Partnership shall promptly refund the balance of such excess to ROC.
If the Merger Agreement is terminated because (i) on or prior to the record
date for the Chateau Stockholders Meeting any of the Exchanging OP Unitholders
that has executed the Chateau Securityholder Agreement has failed to exchange
the OP Units it has agreed to exchange by that date under such agreement and
such OP Units have not been replaced by OP Units held by other OP Unitholders or
(ii) ten days after the date that each of the OP Unitholders that has as of the
date of the Merger Agreement expressed its intent to exchange its OP Units for
shares of Chateau Common Stock as contemplated by the Merger Agreement withdraws
such intention in writing, then Chateau will pay to ROC up to $2 million in
out-of-pocket expenses incurred in connection with the Original Agreement, the
Merger Agreement or the Other Transactions. If the Merger Agreement is
terminated by reason of the breach by Chateau of any covenant, agreement,
representation or warranty contained therein, then Chateau shall be obligated to
pay as directed by ROC an amount (the "ROC Break-Up Expenses") equal to the
lesser of (i) ROC's out-of-pocket expenses (other than expenses, if any,
reimbursed pursuant to the provision described in the first sentence of this
paragraph) incurred in connection with the Original Merger Agreement and the
Merger Agreement and the Other Transactions (but in no event an amount
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greater than $4 million) and (ii) the maximum amount payable to ROC as expenses
in connection with the Merger and the Other Transactions that would not cause
ROC to fail to qualify as a REIT. In addition, if the Merger Agreement is
terminated by reason of: (i) the breach by Chateau of any covenant, agreement,
representation or warranty contained therein and within 12 months after the date
of termination of the Merger Agreement Chateau shall have entered into a
definitive agreement providing for a Competing Transaction that is equally or
more favorable to Chateau's stockholders than the Merger from a financial point
of view; (ii) the failure of the Chateau Stockholder Approval to be obtained and
within 12 months after the date of termination of the Merger Agreement Chateau
shall have entered into a definitive agreement providing for a Competing
Transaction that is equally or more favorable to Chateau's stockholders than the
Merger from a financial point of view; (iii) the withdrawal, modification or
change by the Chateau Board in any manner adverse to ROC of its recommendation
of the issuance of the Merger Consideration to the ROC stockholders in
connection with the approval or recommendation of a Superior Competing
Transaction; (iv) the entry by Chateau into any agreement in respect of a
Competing Transaction (other than a confidentiality agreement as contemplated
above) or the Chateau Board or any committee thereof having resolved to enter
into such agreement; or (v) if (A) on or prior to the record date for the
Chateau Stockholders Meeting any of the Exchanging OP Unitholders that have
executed the Chateau Securityholder Agreement has failed to exchange the OP
Units it has agreed to exchange by that date under such agreement and such OP
Units have not been replaced by OP Units held by other OP Unitholders or (B) ten
days after the date that each of the OP Unitholders that has as of the date of
the Merger Agreement expressed its intent to exchange its OP Units for shares of
Chateau Common Stock as contemplated by the Merger Agreement withdraws such
intention in writing, and within 12 months after the date of termination of the
Merger Agreement Chateau shall have entered into a definitive agreement
providing for a Competing Transaction that is equally or more favorable to
Chateau's stockholders from a financial point of view, then Chateau shall be
obligated to pay as directed by ROC an amount equal to the lesser of (A) $10
million (reduced by the amount of expenses reimbursed pursuant to the provision
described in the first sentence of this paragraph) and (B) the maximum amount
payable to ROC as a transaction termination fee that would not cause ROC to fail
to qualify as a REIT (the "ROC Break-Up Fee"). In the event that ROC is not able
to receive the full Base Amount or Expense Fee Base Amount, as the case may be,
Chateau shall place the unpaid amount in escrow to be released upon receipt of a
letter from ROC's accountants and/or an opinion letter from ROC's attorneys
indicating that all or a portion of such escrowed amount may be paid, in which
case Chateau shall pay the indicated amount to ROC. Chateau's obligation to pay
any unpaid portion of such expenses shall terminate five years from the date
upon which such expenses first become due.
Notwithstanding anything to the contrary contained above, if ROC realizes
any Total Profit pursuant to the Chateau Option Agreement and at any time or
from time to time the sum of (i) the Total Profit, (ii) ROC Break-Up Fee and
(iii) the amount of ROC Break-Up Expenses exceeds the sum of (i) the Base Amount
(which amount shall be counted as zero, if Chateau has not become obligated to
pay the ROC Break-Up Fee under the Merger Agreement) and (ii) the Expense Fee
Base Amount (which amount shall be counted as zero, if Chateau has not become
obligated to pay the ROC Break-Up Expenses under the Merger Agreement), then the
ROC Break-Up Fee and/or the ROC Break-Up Expenses shall be reduced (it being
agreed that the allocation of the reduction shall be determined in the
discretion of ROC) by such excess, and the amount, if any, still held in escrow
shall be released to Chateau and ROC shall promptly refund the balance of such
excess to Chateau.
The provisions of the Merger Agreement described in this subsection are
intended to increase the likelihood that the Merger and the Other Transactions
will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of such provisions may have the effect of
discouraging persons who might now or prior to the Effective Time be interested
in acquiring all of or a significant interest in, or otherwise effecting a
business combination with, ROC or Chateau, or from
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considering or proposing such a transaction, even if such persons were prepared
to offer to pay consideration to stockholders of ROC or Chateau, as the case may
be, which had a higher value than the shares of Chateau Common Stock to be
received per share of ROC Stock pursuant to the Merger Agreement.
CONDUCT OF ROC'S AND CHATEAU'S BUSINESSES PENDING COMPLETION OF THE MERGER
Covenants of ROC
The Merger Agreement provides that, except as contemplated by the Merger
Agreement, during the period from the date of the Merger Agreement to the
Effective Time, ROC: (i) will carry on its business in the usual, regular and
ordinary course, substantially in the same manner as previously conducted and,
to the extent consistent therewith, use commercially reasonable efforts to
preserve intact its current business organization, goodwill, ongoing businesses
and status as a REIT and (ii) will not (A) except for regular quarterly
dividends not in excess of $.405 per share of ROC Stock (which may be increased
to an amount not in excess of $.425 per share of ROC Stock upon prior notice to
Chateau), declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, split, combine or
reclassify any of its capital stock or partnership interests, or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or partnership interests or
purchase, redeem or otherwise acquire any shares of its capital stock or
partnership interests; (B) issue, deliver or sell, or grant any option or other
right in respect of, any shares of capital stock, any other voting or redeemable
securities of ROC or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible or
redeemable securities except to ROC or any ROC subsidiary (except as
contemplated by the Merger Agreement, the ROC Option Agreement, the exercise of
outstanding ROC Options, the adoption of a stockholder's rights plan and the
issuance of rights or securities thereunder, or the issuance of up to 1 million
shares of capital stock by ROC in a cash transaction (subject to the conditions
described in the last sentence of this paragraph); (C) amend its Charter,
By-Laws, or other comparable charter, partnership agreement or organizational
documents (except for amendments to the Charter or By-Laws of ROC that do not
materially and adversely affect, in the reasonable judgment of the ROC Board,
the prospects for consummation of the Merger and the Other Transactions or the
economic impact of the Merger on the Chateau stockholders); (D) in the case of
ROC or any of its subsidiaries, merge or consolidate with any person (except as
otherwise provided in (E) below); (E) in a transaction involving capital,
securities or other assets or indebtedness of ROC in excess of (1) $10 million,
without providing to Chateau reasonable prior written notice of and an
opportunity to consult in connection with such transaction or (2) $20 million,
without obtaining the prior written consent of Chateau, which consent is not to
unreasonably be withheld or delayed: (I) acquire or agree to acquire by merging
or consolidating with, or by purchasing all or a substantial portion of the
equity securities or assets of, or by any other manner, any business or any
corporation, partnership or other business organization or division thereof or
interest therein or any assets; (II) mortgage or otherwise encumber or subject
to any lien or sell, lease or otherwise dispose of any of its material
properties or assets or agree to do any of the foregoing; or (III) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of ROC, guarantee any debt securities of another person, or
enter into any arrangement having the economic effect of any of the foregoing,
prepay or refinance any indebtedness or make any loans, advances or capital
contributions to, or investments in, any other person (or engage in any
transactions of the types described in clauses (I), (II), and (III) above,
whether or not related, involving, in the aggregate, capital, securities or
other assets or indebtedness of ROC in excess of $40 million), without obtaining
the prior written consent of Chateau, which may be withheld for any reason or no
reason; provided, however, that ROC may, without providing notice to or
obtaining any consent from Chateau, proceed with a debt financing by ROC that
will be at a fixed interest rate for a term not to exceed ten years and in a
principal amount not to exceed $80 million and will provide by its terms that
the lender consents to the assumption or transfer of the debt to the Operating
Partnership upon consummation of the Merger
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and that such debt shall, upon such assumption or transfer, be non-recourse to
the partners of the Operating Partnership; (F) make any tax election (unless
required by law or necessary to preserve ROC's status as a REIT); (G) (1) except
as required by generally accepted accounting principles, the Commission or
applicable law, change in any material manner any of its methods, principles or
practices of accounting in effect on June 30, 1996, or (2) make or rescind any
election relating to taxes, settle or compromise any claim relating to taxes,
except in the case of settlements or compromises relating to taxes on real
property in an amount not to exceed, individually or in the aggregate, $500,000,
or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of its federal income
tax return for the taxable year ending December 31, 1995; (H) adopt any new
employee benefit plan, incentive plan, severance plan, bonus plan, stock option
or similar plan, grant new stock appreciation rights or amend any existing plan
or rights, or enter into or amend any employment agreement or similar agreement
or arrangement (other than as contemplated by the Merger Agreement) or, except
in the ordinary course consistent with past practice, grant or become obligated
to grant any increase in the compensation of officers or employees, except such
changes as are required by law or which are not more favorable to participants
than provisions presently in effect; (I) settle any stockholder derivative or
class action claims arising out of or in connection with the Merger or the Other
Transactions; (J) enter into or amend or otherwise modify any agreement or
arrangement with persons that are affiliates or, as of September 17, 1996, were
officers, directors or employees of ROC or any subsidiary not approved by a
majority of the "independent" members of the ROC Board; or (K) authorize or
commit or agree to take any of the foregoing actions. ROC has agreed that (i)
prior to January 17, 1997 and for the period during the term of the Merger
Agreement occurring after the date of the ROC Special Meeting, it will not issue
any shares of capital stock in a cash transaction unless it first obtains the
prior consent of Chateau (which consent shall not be unreasonably withheld or
delayed) and (ii) following January 17, 1997 (but only on a date that is on or
prior to the date of the ROC Special Meeting), ROC may issue such shares without
obtaining the consent of Chateau, provided that, prior to effecting such
issuance, ROC must notify Chateau of its intention to effect the issuance,
specifying in such notice the number and minimum price of the shares it proposes
to issue, and such issuance may give rise to termination rights in favor of
Chateau.
Covenants of Chateau
The Merger Agreement provides that, except as contemplated by the Merger
Agreement, during the period from the date of the Merger Agreement to the
Effective Time, Chateau: (i) will carry on its business in the usual, regular
and ordinary course, substantially in the same manner as previously conducted
and, to the extent consistent therewith, use commercially reasonable efforts to
preserve intact its current business organization, goodwill, ongoing businesses
and status as a REIT and (ii) will not (A) except for (x) in the case of
Chateau, for regular quarterly dividends not in excess of $.405 per share of
Chateau Common Stock (which may be increased to an amount not in excess of $.425
per share of Chateau Common Stock upon prior notice to ROC), and (y) in the case
of the Operating Partnership, for regular quarterly distributions to the general
and limited partners of the Operating Partnership not in excess of $.405 per OP
Unit (which may be increased to an amount not in excess of $.425 per OP Unit
upon prior notice to ROC), and (z) any distributions by any other wholly owned
Chateau subsidiaries, declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of Chateau's capital stock or the OP
Units or partnership interests or stock in any Chateau subsidiary that is not
directly or indirectly wholly owned by Chateau, other than the Chateau Stock
Dividend (and corresponding adjustment of outstanding OP Units in accordance
with the Operating Partnership Agreement), split, combine or reclassify any of
its capital stock or partnership interests, or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for shares
of its capital stock or partnership interests or, other than for the repurchase
by Chateau of up to 1.5 million shares of Chateau Common Stock or as
contemplated under the exchange provisions of the Operating Partnership
Agreement, purchase, redeem or otherwise acquire any shares of its capital stock
or partnership interests or any options, warrants or rights to acquire, or
security convertible into, shares of its capital stock or partnership units; (B)
issue, deliver or sell, or grant any option or other right in respect of, any
shares of capital stock, any other voting securities of Chateau
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(including partnership interests of the Operating Partnership or interests in
any other subsidiary) or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities except to Chateau or any Chateau subsidiary (except as
contemplated by the Merger Agreement, Chateau's dividend reinvestment plan, the
Chateau Option Agreement, the exercise of outstanding Chateau Options, the
adoption (with the consent of ROC which shall not be unreasonably withheld or
delayed) of a stockholder's rights plan and the issuance (with the consent of
ROC which shall not be unreasonably withheld or delayed) of rights or securities
thereunder, or the issuance of shares of Chateau Common Stock to existing OP
Unitholders of up to the number of shares that may be repurchased by Chateau
under the Chateau Share Repurchase Program (at an average price per share at
least equal to the average price per share paid in such program)); (C) amend its
Charter, By-Laws or any other comparable charter, partnership agreement or
organizational documents (except for By-law amendments that are consented to by
ROC, which consent shall not be unreasonably withheld or delayed); (D) in the
case of Chateau, the Operating Partnership or any other Chateau subsidiary,
merge or consolidate with any person (except as provided in (E) below); (E) in a
transaction involving capital, securities or other assets or indebtedness of
Chateau in excess of (1) $10 million, without providing to ROC reasonable prior
written notice of and an opportunity to consult in connection with such
transaction or (2) $20 million, without obtaining the prior written consent of
ROC, which consent is not to be unreasonably withheld or delayed: (I) acquire or
agree to acquire by merging or consolidating with, or by purchasing all or a
substantial portion of the equity securities or assets of, or by any other
manner, any business or any corporation, partnership or other business
organization or division thereof or interest therein or any assets; (II)
mortgage or otherwise encumber or subject to any lien or sell, lease or
otherwise dispose of any of its material properties or assets or assign or
encumber the right to receive income, dividends, distributions and the like or
agree to do any of the foregoing; or (III) incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt securities of
Chateau or any Chateau subsidiary, guarantee any debt securities of another
person, or enter into any arrangement having the economic effect of any of the
foregoing, prepay or refinance any indebtedness or make any loans, advances or
capital contributions to, or investments in, any other person (or engage in any
transactions of the types described in clauses (I), (II) and (III) above,
whether or not related, involving, in the aggregate, capital, securities or
other assets or indebtedness of Chateau in excess of $40 million), without
obtaining the prior written consent of ROC, which may be withheld for any reason
or no reason; (F) make any tax election (unless required by law or necessary to
preserve Chateau's status as a REIT or the status of the Operating Partnership
as a partnership for federal tax purposes); (G) (1) except as required by
generally accepted accounting principles, the Commission or applicable law,
change in any material manner any of its methods, principles or practices of
accounting in effect on June 30, 1996, or (2) make or rescind any express or
deemed election relating to taxes, settle or compromise any claim relating to
taxes, except in the case of settlements or compromises relating to taxes on
real property in an amount not to exceed, individually or in the aggregate,
$500,000, or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of its
federal income tax return for the taxable year ending December 31, 1995; (H)
except as provided by a severance plan that, by its terms, terminates upon
consummation of the Merger, adopt any new employee benefit plan, incentive plan,
severance plan, bonus plan, stock option or similar plan, grant new stock
appreciation rights or amend any existing plan or rights, or enter into or amend
any employment agreement or similar agreement or arrangement (other than as
contemplated by the Merger Agreement) or, except in the ordinary course
consistent with past practice, grant or become obligated to grant any increase
in the compensation of officers or employees, except such changes as are
required by law or which are not more favorable to participants than provisions
presently in effect; (I) settle any stockholder derivative or class action
claims arising out of or in connection with the Merger or the Other
Transactions; (J) except as provided by a severance plan that, by its terms,
terminates upon consummation of the Merger, enter into or amend or otherwise
modify any agreement or arrangement with persons that are affiliates or, as of
September 17, 1996 were officers, directors or employees of Chateau or any
subsidiary
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not approved by a majority of the "independent" members of the Chateau Board; or
(K) authorize or commit or agree to take any of the foregoing actions.
Certain Additional Covenants
MUTUAL COVENANTS. The Merger Agreement provides that each of ROC and
Chateau will (i) not take any action that would cause its representations and
warranties to become untrue or any conditions to closing not be satisfied; (ii)
cooperate with one another in preparing, responding to the Commission in respect
of, and causing to be mailed to ROC's stockholders and Chateau's stockholders
this Joint Proxy Statement/Prospectus and the Registration Statement on Form S-4
in which it is included; (iii) afford access to information regarding its
business to the other and its representatives and hold in confidence nonpublic
information relating to the other party (subject to customary exceptions); (iv)
use their best efforts to cause the conditions precedent to the Merger and the
Other Transactions to become satisfied and to cause the expeditious consummation
of the Merger and Other Transactions, including, (A) making governmental filings
and taking all reasonable steps to obtain required governmental consents and
approvals, (B) obtaining necessary non-governmental third-party consents, except
that neither ROC nor Chateau is required to consult with the other prior to
making expenditures in obtaining such consents and in no event will make payment
of any such amount in excess of $500,000 in obtaining such consents without
obtaining the prior written consent of the other, which consent is not to be
unreasonably withheld or delayed, and (C) defending legal proceedings
challenging the Merger, the Merger Agreement or the Other Transactions, except
that neither ROC nor Chateau is required to take any such action that would
cause a court or administrative order to be issued restraining consummation of
the Merger; (v) provide prompt notice to the other party of breaches by it of
representations, warranties or covenants in the Merger Agreement; (vi) consult
with one another prior to making any public statements regarding the Merger;
(vii) cooperate with each other in preparing returns and other documents
relating to any Transfer and Gains Taxes related to the Merger or the Other
Transactions and to qualify the Merger and the transfer of OP Units and other
property to Chateau as transfers of property qualifying for treatment under
Section 351 of the Code; (viii) prior to the Effective Time, use their best
efforts to have the NYSE approve for listing, upon official notice of issuance,
the Chateau Common Stock to be issued in the Merger; (ix) use their best efforts
to obtain state securities or "Blue Sky" approvals necessary in connection with
the Merger and the Other Transactions; (x) utilize reasonable efforts to
cooperate with each other to cause the Specified Debt Obligations that shall be
assumed by the Operating Partnership or the Financing Partnership upon
consummation of the transactions contemplated by the Contribution Agreement to
provide that, following such consummation, neither ROC, Chateau nor any partner
of the Financing Partnership (other than the Operating Partnership) or the
Operating Partnership will have any liability for the repayment of such
Specified Debt Obligations; (xi) cause the Chateau Board, prior to the Effective
Time, to adopt an irrevocable resolution to the effect that the ROC Principals
and the present or future affiliates or associates of any of the foregoing or
any other person acting in concert or as a group with any of the foregoing shall
be exempted from the Maryland Business Combination Law and from any successor or
similar statutory provisions; and (xii) comply with certain other customary
covenants.
CERTAIN ADDITIONAL COVENANTS OF ROC. The Merger Agreement provides that (i)
ROC will call, give notice of, and convene the ROC Special Meeting for the
purpose of obtaining the ROC Stockholder Approval; (ii) ROC will not solicit or
take certain other actions in respect of Competing Transactions (see "--Terms of
the Merger--No Solicitation; Board Action; Fees and Expenses"); (iii) ROC will
recommend to its stockholders at the ROC Special Meeting (and any postponement
or adjournment thereof) the approval of the Merger, the Merger Agreement and the
Other Transactions and will use its best efforts (including postponement or
adjournment of the ROC Special Meeting for a reasonable period of time and for a
reasonable number of times) to seek and solicit the ROC Stockholder Approval
(including retention of proxy solicitors); and (iv) ROC will comply with certain
other customary covenants.
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CERTAIN ADDITIONAL COVENANTS OF CHATEAU. The Merger Agreement provides that
(i) Chateau will, following the Merger, cause the Operating Partnership to pay
all Transfer and Gains Taxes, if any, incurred by ROC or Chateau in connection
with the consummation of the Merger or the Other Transactions; (ii) Chateau will
call, give notice of, and convene the Chateau Special Meeting for the purpose of
obtaining the Chateau Stockholder Approval as soon as practicable following the
obtainment of the ROC Stockholder Approval; (iii) Chateau will not solicit or
take certain other actions in respect of Competing Transactions (see "--No
Solicitation; Board Action; Fees and Expenses"); (iv) Chateau will recommend to
its stockholders at the Chateau Special Meeting (and any postponement or
adjournment thereof) the approval of the issuance of the Merger Consideration to
the ROC stockholders and will use its best efforts (including postponement or
adjournment of the Chateau Special Meeting for a reasonable period of time and
for a reasonable number of times) to seek and solicit the Chateau Stockholder
Approval (including retention of proxy solicitors); and (v) Chateau will comply
with certain other customary covenants.
INDEMNIFICATION
ROC will, and, from and after the Effective Time, the Combined Company will,
indemnify, defend and hold harmless each person who is now or has been at any
time prior to the date of the Merger Agreement or who becomes prior to the
Effective Time, an officer or director of ROC against all losses, claims,
damages, costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement of, with the approval of the
indemnifying party (which approval shall not be unreasonably withheld), or
otherwise in connection with any threatened or actual claim, action, suit,
proceeding or investigation in connection with any threatened or actual claim,
action, suit, proceeding or investigation based on or arising out of the fact
that such person is or was a director or officer of ROC at or prior to the
Effective Time, whether asserted or claimed prior to, or at or after, the
Effective Time ("ROC Indemnified Liabilities"), including all ROC Indemnified
Liabilities based on, or arising out of, or pertaining to the Merger Agreement
or the Other Transactions, in each case to the full extent a corporation is
permitted under the MGCL to indemnify its own directors or officers, as the case
may be (and ROC or the Combined Company, as the case may be, will pay expenses
in advance of the final disposition of any such action or proceeding to each
such indemnified party to the full extent permitted by law subject to
limitations set forth in the Merger Agreement). Chateau will, and, from and
after the Effective Time, the Combined Company will, indemnify, defend and hold
harmless each person who is now or has been at any time prior to the date hereof
or who becomes prior to the Effective Time, an officer or director of Chateau
against all losses, claims, damages, costs, expenses (including attorneys' fees
and expenses), liabilities or judgments or amounts that are paid in settlement
of, with the approval of the indemnifying party (which approval shall not be
unreasonably withheld), or otherwise in connection with any threatened or actual
claim, action, suit, proceeding or investigation in connection with any
threatened or actual claim, action, suit, proceeding or investigation based on
or arising out of the fact that such person is or was a director or officer of
Chateau at or prior to the Effective Time, whether asserted or claimed prior to,
or at or after, the Effective Time ("Chateau Indemnified Liabilities"),
including all Chateau Indemnified Liabilities based on, or arising out of, or
pertaining to the Merger Agreement or the Other Transactions, in each case to
the full extent a corporation is permitted under the MGCL to indemnify its own
directors or officers, as the case may be (and Chateau will pay expenses in
advance of the final disposition of any such action or proceeding to each such
indemnified party to the full extent permitted by law, subject to limitations
set forth in the Merger Agreement).
Chateau will cause ROC's current directors' and officers' liability
insurance to be continuously maintained in full force and effect without
reduction in coverage for a period of four years after the Effective Time
(provided that Chateau may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not materially
less advantageous).
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (i) the due organization, power and standing of
Chateau and ROC and similar corporate matters; (ii) the authorization,
execution, delivery and enforceability of the Merger Agreement; (iii) the
capital structure of Chateau and ROC; (iv) conflicts under charters or by-laws,
violations of any instruments or law and required consents or approvals; (v)
certain documents filed by each of Chateau and ROC with the Commission and the
accuracy of information contained therein; (vi) litigation; (vii) conduct of
business in the ordinary course and the absence of certain changes or events;
(viii) the absence of changes in benefit plans; (ix) taxes; (x) loans or
payments to employees, officers or directors; (xi) compliance with laws; (xii)
contracts and indebtedness; (xiii) brokers' and finders' fees with respect to
the Merger; (xiv) environmental matters; (xv) tangible property and assets;
(xvi) books and records; (xvii) the nonapplicability of certain state takeover
laws; (xviii) the accuracy of the information furnished for inclusion in the
Registration Statement; (xix) the percentage of Chateau stockholders and ROC
stockholders, respectively, required to approve the Chateau Proposal (in the
case of Chateau) and the ROC Proposal (in the case of ROC); and (xx) Chateau's
receipt of the Merrill Lynch Opinion and the Goldman Sachs Opinion and ROC's
receipt of the PaineWebber Opinion. The Merger Agreement provides that if the
representations and warranties of each of ROC and Chateau are true as of the
date of the first phase of the OP Unit Exchange, then such representations and
warranties will be deemed to be true as of the date of the closing of the
Merger.
BENEFIT PLANS AND OTHER EMPLOYMENT ARRANGEMENTS
BENEFIT PLANS
Upon and after the Effective Time, the Combined Company or the Operating
Partnership (or their respective successors or assigns) will provide benefits to
former employees of ROC that are not materially less favorable in the aggregate
to such employees than those provided under the ROC Benefit Plans as in effect
on the date of the Merger Agreement. Service with ROC will generally be treated
(but without duplication) as service with the Combined Company for purposes of
participation, vesting and entitlement to benefits (but not pension accruals)
under any Combined Company Benefit Plan, as applicable.
STOCK INCENTIVE PLAN
Immediately prior to or as of the Effective Time, and solely with respect to
individuals employed by ROC or Chateau immediately prior to the Effective Time,
ROC will accelerate the vesting of ROC Stock Options previously granted under
the 1993 ROC Stock Plan and Chateau will accelerate the vesting of Chateau Stock
Options previously granted under the Chateau Plan, causing such options to be
fully vested and immediately exercisable. As of the Effective Time, each
outstanding ROC Stock Option will be assumed by the Combined Company and will be
deemed to constitute an option to acquire the same number of shares of Chateau
Common Stock as the holder would have been entitled to receive pursuant to the
Merger had such holder exercised such ROC Stock Option in full immediately prior
to the Effective Time at a price per share equal to the aggregate exercise price
for the shares subject to such ROC Stock Option divided by the number of full
shares of Chateau Common Stock deemed to be purchasable pursuant to such ROC
Stock Option (rounded upward to the next whole number of shares).
As of the Effective Time, the Combined Company will adopt a new long-term
stock incentive plan and its Board of Directors shall appoint a committee to
administer the plan which is described herein under "MANAGEMENT OF THE COMBINED
COMPANY--Equity Participation Plan."
EMPLOYMENT AGREEMENTS
Consistent with the goal of ROC and Chateau to retain the skills and
expertise of members of senior management of both companies following the
Merger, the Merger Agreement provides for Chateau to enter into employment
agreements with the following executives who will be employed by the Combined
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Company in the capacities indicated: Gary P. McDaniel, Chief Executive Officer;
C.G. Kellogg, President; James B. Grange, Chief Operating Officer; Tamara D.
Fischer, Chief Financial Officer; Rees F. Davis, Jr., Executive Vice
President--Acquisitions. See "MANAGEMENT OF THE COMBINED COMPANY-- Employment
Agreements." Chateau will prepare and execute Employment Agreements for these
executive officers prior to the Effective Time, which Employment Agreements will
provide that they shall become effective at the Effective Time. Mr. Kellogg and
Ms. Fischer are currently employed by Chateau, and their existing employment
agreements with Chateau will be terminated upon consummation of the Merger.
THE STOCK OPTION AGREEMENTS
The following is a brief summary of the material terms of the Stock Option
Agreements, copies of which are attached as exhibits to the Registration
Statement of which this Joint Proxy Statement/ Prospectus is a part. This
summary is qualified in its entirety by reference to the Stock Option
Agreements.
The Stock Option Agreements are intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreements may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of or a significant interest in, or otherwise
effecting a business combination with, ROC or Chateau, or from considering or
proposing such a transaction, even if such persons were prepared to offer to pay
consideration to stockholders of ROC or Chateau, as the case may be, which had a
higher value than the shares of Chateau Common Stock to be received per share of
ROC Stock pursuant to the Merger Agreement.
GENERAL
As a condition to, and simultaneously with the execution of, the Merger
Agreement, ROC and Chateau entered into reciprocal Stock Option Agreements
pursuant to which (i) Chateau granted ROC an Option to purchase, at any time or
from time to time after the Merger Agreement becomes terminable by ROC under
circumstances which could entitle ROC to receive the ROC Break-Up Expenses or
the ROC Break-Up Fee, regardless of whether the Merger Agreement is actually
terminated (a "Trigger Event") (see "--Terms of the Merger--No Solicitation;
Board Action; Fees and Expenses"), up to 420,000 shares of Chateau Common Stock
(subject to adjustment for changes in capitalization) representing approximately
6.9% of the number of shares of Chateau Common Stock outstanding on July 17,
1996, at an exercise price of $22.25 per share, which is equal to the last
reported sale price per share of Chateau Common Stock as reported on the
consolidated tape for the NYSE on July 17, 1996, the date as of which the
Original Merger Agreement and the Stock Option Agreements were executed, and
(ii) ROC granted the Operating Partnership an Option to purchase, at any time or
from time to time after the Merger Agreement becomes terminable by Chateau under
circumstances which could entitle the Operating Partnership to receive the
Chateau Break-Up Expenses or the Chateau Break-Up Fee, regardless of whether the
Merger Agreement is actually terminated, up to 420,000 shares of ROC Common
Stock (subject to adjustment for changes in capitalization) representing 3.4% of
the number of shares of ROC Common Stock outstanding on July 17, 1996, at an
exercise price of $22.00 per share, which is equal to the last reported sale
price per share of ROC Common Stock as reported on the consolidated tape for the
NYSE on July 17, 1996.
The right of a grantee to exercise its Option will terminate on the date
which is 365 days after the date that the issuer of such Option shall notify
such grantee in writing of the occurrence of any Trigger Event.
REPURCHASES
At any time during the period that the Option is exercisable, each Stock
Option Agreement entitles the holder of the Option to require the issuer thereof
to repurchase from the holder all or any portion of
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the Option (or if the Option has been exercised, to repurchase from the holder
all or any portion of the acquired shares at any time prior to the two-year
anniversary of the date that the Option first became exercisable). The amount
that the issuer of an Option will pay to the holder of such Option to repurchase
such Option is (i) the difference between (A) the Market/Offer Price for shares
of such issuer's common stock as of the Notice Date and (B) the exercise price
for the Option, multiplied by (ii) the number of shares of such common stock
purchasable pursuant to such Option (or portion thereof with respect to which
such holder is exercising such rights), but only if the Market/Offer Price is
greater than the exercise price of the Option. The amount that the issuer of an
option will pay to the holder thereof to repurchase shares issued upon exercises
of such option is (i) the greater of the exercise price paid by such holder for
such shares and the Offer Price, as defined below, multiplied by (ii) the number
of such shares to be repurchased. "Market/Offer Price," as of any date, is
defined as the greater of (i) the price per share offered or agreed upon as of
such date pursuant to any tender or exchange offer or other agreed-upon price
with respect to a business combination involving the issuer of such option that
was made prior to such date and (ii) the average last reported sale price per
share of common stock of the issuer as reported on the NYSE consolidated tape
over the period of five trading days immediately preceding the Notice Date.
"Offer Price" is defined as the highest price per share offered pursuant to a
business combination offer involving the issuer of such option.
Notwithstanding the foregoing, a grantee's Total Profit (as defined in the
applicable Stock Option Agreement) may not exceed (i) the amount of Break-Up
Expenses in circumstances, upon termination of the Merger Agreement, that would
allow the grantee to receive only Break-Up Expenses under the Merger Agreement,
or (ii) $10,000,000 in circumstances, upon termination of the Merger Agreement,
that would allow the grantee to receive only the Break-Up Fee under the Merger
Agreement, or (iii) the sum of the amounts specified in (i) and (ii) above in
circumstances, upon termination of the Merger Agreement, that would allow the
grantee to receive both Break-Up Expenses and the Break-Up Fee under the Merger
Agreement; and, if the Total Profit otherwise would exceed such applicable
amounts, the grantee shall either (A) reduce the number of shares of common
stock subject to the Option, (B) deliver to the issuer of the Option for
cancellation shares of the issuer's common stock previously purchased under the
Option, (C) pay cash to the issuer of the Option, or (D) any combination
thereof, so that the grantee's actually realized Total Profit shall not exceed
the applicable amount after taking into account the foregoing actions. Also, an
Option may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined in the applicable Option
Agreement) of more than (i) the amount of Break-Up Expenses in circumstances,
upon termination of the Merger Agreement, that would allow the grantee to
receive only Break-Up Expenses under the Merger Agreement, or (ii) $10,000,000
in circumstances, upon termination of the Merger Agreement, that would allow the
grantee to receive only the Break-Up Fee under the Merger Agreement, or (iii)
the sum of the amounts specified in (i) and (ii) above in circumstances, upon
termination of the Merger Agreement, that would allow the grantee to receive
both Break-Up Expenses and the Break-Up Fee under the Merger Agreement.
REGISTRATION; RESTRICTIONS ON TRANSFER
Upon the occurrence of a Trigger Event, the issuer of an Option will, at the
request of the grantee thereof delivered within 24 months of the occurrence of
the Trigger Event, prepare, file and keep current a registration statement under
the Securities Act covering any shares issued and issuable pursuant to the
Option, subject to such issuer's right to delay the registration in certain
circumstances. The Stock Option Agreements also provide that, during the period
that an Option is exercisable, each grantee shall have the right from time to
time to assign, without expense, all or a portion of the applicable Option to a
third party that qualifies as an "accredited investor" within the meaning of the
Securities Act upon the delivery to the issuer of certain documentation
reasonably satisfactory to such issuer. However, the decision to exercise
registration rights as described above will be made exclusively by the grantee.
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CERTAIN TRANSACTIONS AND AGREEMENTS RELATING TO THE MERGER
In order to facilitate the completion of the Merger and the qualification of
the Merger and the OP Unit Exchange for treatment pursuant to Section 351 of the
Code, certain Other Transactions have been, or will be, effected on or prior to
the Effective Time. Such Other Transactions, which are summarized below, would
not have been effected in the absence of the Merger and the MHC Proposal.
PURCHASES OF CHATEAU COMMON STOCK BY ROC
Between October 14 and October 16, 1996, ROC purchased 350,000 shares of
Chateau Common Stock in open market or negotiated transactions at prices ranging
from $25.125 to $25.50 per share, which shares will be voted in favor of the
Chateau Proposals and will be cancelled if the Merger is consummated.
CHATEAU SHARE REPURCHASE PROGRAM
Pursuant to the Chateau Share Repurchase Program, between October 25 and
October 28, 1996, Chateau repurchased in open market or negotiated transactions
450,000 shares of Chateau Common Stock at prices ranging from $24.625 to $25.00
per share, and, following the ROC Special Meeting and prior to the completion of
the Merger, Chateau may repurchase up to an additional 1,000,000 shares of
Chateau Common Stock in the open market, in negotiated transactions or pursuant
to a tender offer. All shares purchased in the Chateau Share Repurchase Program
will be cancelled prior to the Merger. However, the additional shares of Chateau
Common Stock that would have been issuable to stockholders of Chateau pursuant
to the Chateau Stock Dividend with respect to the shares repurchased pursuant to
the Chateau Share Repurchase Program will be allocated among the remaining
stockholders and OP Unitholders of record of Chateau as of the Stock Dividend
Record Date.
CHATEAU SECURITYHOLDER AGREEMENT
In connection with and as an integral part of the Merger, the Exchanging OP
Unitholders have entered into the Chateau Securityholder Agreement with Chateau,
the Operating Partnership and ROC, pursuant to which they have agreed that,
subject to the satisfaction of certain conditions described below, they will act
with ROC and the ROC stockholders to exercise rights the Exchanging OP
Unitholders currently hold to exchange an aggregate of 3,768,391 OP Units for
the same number of shares of Chateau Common Stock on or prior to the Chateau
Record Date, and, contemporaneously with the closing of the Merger, to exchange
an additional 2,359,184 OP Units for the same number of shares of Chateau Common
Stock. The first phase of the OP Unit Exchange is expected to occur within one
or two days following the ROC Special Meeting. The obligations of the Exchanging
OP Unitholders to consummate the OP Unit Exchange, as contemplated by the
Chateau Securityholder Agreement, are conditioned on, among other things, the
following: (i) the ROC Stockholder Approval having been obtained; (ii) the
receipt by the Exchanging OP Unitholders of an opinion of counsel to the effect
that the Merger and the transfer of OP Units by the Exchanging OP Unitholders in
the OP Unit Exchange together qualify as tax-free transfers by the stockholders
of ROC and partially tax-deferred transfers of property by the Exchanging OP
Unitholders to Chateau in exchange for shares of Chateau Common Stock qualifying
for treatment pursuant to Section 351 of the Code; and (iii) the Exchanging OP
Unitholders being reasonably satisfied that, upon completion of the Merger and
the Other Transactions, such Exchanging OP Unitholders, together with the ROC
stockholders and other transferors, will based on the number of shares of
Chateau Common Stock expected to be outstanding at the Effective Time, together
constitute, at least 80% of the outstanding shares of Chateau Common Stock.
Based on the number of shares of Chateau Common Stock expected to be outstanding
at the Effective Time, as adjusted for shares expected to be issued to ROC
stockholders in the Merger, issued to the OP Unitholders in the OP Unit Exchange
and in the Chateau Share Issuance and expected to be repurchased by Chateau in
the Chateau Share Repurchase Program, ROC and Chateau expect that the 80% test
specified in (iii) above will be satisfied. If for any reason such
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80% test cannot be satisfied, it is not expected that the Merger could be
consummated as currently structured.
CHATEAU SHARE ISSUANCE
In connection with the OP Unit Exchange, Chateau will sell after the Chateau
Record Date up to an aggregate of 1,000,000 shares of Chateau Common Stock to
Exchanging OP Unitholders at an average price per share of not less than the
greater of the average price paid in the Chateau Share Repurchase Program or the
fair market value of the shares as of the sale date determined in good faith by
the Chateau Board. Because the shares of Chateau Common Stock in the Chateau
Share Issuance will be issued after the Chateau Record Date, none of such shares
will be voted on the Chateau Proposals. Holders of shares issued in the Chateau
Share Issuance will not receive the Chateau Stock Dividend with respect to such
shares. The purpose of the Chateau Share Issuance is to partially refinance the
cost of the Chateau Share Repurchase Program and to enable Exchanging OP
Unitholders to defer all or a portion of the taxable gain which would otherwise
be recognized by such Exchanging OP Unitholders by virtue of the OP Unit
Exchange. The Chateau Share Issuance will result in a deferral of this gain for
the Exchanging OP Unitholders but will not result in any transfer of gain to
Chateau, the Combined Company or any stockholder.
In addition, in connection with the consummation of the Merger, certain
additional agreements will be entered into and performed and other actions will
be taken by the parties, as follows:
CONTRIBUTION AGREEMENT
Pursuant to the Contribution Agreement among ROC, RAC, Chateau and the
Operating Partnership, substantially all of the assets, subject to liabilities,
held directly by ROC and RAC will be transferred to the Operating Partnership.
In addition, ROCF will be merged with the Financing Partnership. In exchange for
such contributions and the ROCF merger, ROC will receive that number of OP Units
equal to the number of shares of Chateau Common Stock issued to the ROC
stockholders pursuant to the Merger, reduced by such number of OP Units, which
shall be determined in good faith by the Combined Company Board, having a fair
market value equal to the value of the 1% general partner interest in the
Financing Partnership, which interest shall be issued to a wholly owned
subsidiary of ROC. The assets, subject to liabilities, currently held by Chateau
through the Operating Partnership will continue to be held by the Operating
Partnership.
AMENDED OPERATING PARTNERSHIP AGREEMENT
The Amended Operating Partnership Agreement, which will become effective
immediately following the Effective Time, will among other matters, provide that
ROC will be admitted as an additional general partner of the Operating
Partnership.
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NEW REGISTRATION RIGHTS AGREEMENT
The New Registration Rights Agreement will be executed at or prior to the
Effective Time by Chateau and certain stockholders of ROC pursuant to which the
Combined Company will grant registration rights with respect to certain shares
of Chateau Common Stock.
CONVERSION OF COMMON STOCK OF RSUB
In order for the Merger to be treated as a transfer by the ROC stockholders
of property qualifying for treatment under Code Section 351, in addition to the
other requirements for such qualification as described herein, it will be
necessary for ROC, which will be a subsidiary of the Combined Company following
the Merger, to continue to qualify as a REIT under the Code. To satisfy the
minimum stockholder requirements necessary for REIT qualification, prior to the
Effective Time, 120 individuals will hold 120 shares of common stock, par value
$.0001, of RSub ("RSub Common Stock") and the Combined Company will hold
10,000,000 shares of RSub Common Stock. As a result of the Merger, each
outstanding share of RSub Common Stock will be converted into one share of ROC
and such 120 individuals as well as the Combined Company will hold shares of ROC
Common Stock equal to the number of shares of RSub Common Stock they held
immediately prior to the Merger.
CHATEAU BY-LAW AMENDMENTS
Effective at the Effective Time, the By-Laws of Chateau will be amended to
create the By-Laws of the Combined Company. The amendments will provide for the
initial grouping of directors of the Combined Company into two groups, one of
which is expected to consist of certain existing directors of ROC and the other
of certain existing directors of Chateau, immediately following the Effective
Time, as well as for the creation of a third group of directors upon the
addition of an additional independent director to the Board beginning with the
1997 annual meeting of stockholders of the Combined Company. Each group of
directors will be responsible for initiating Board nominations for director
within such group. following the Merger, but will not have any other duties as a
group. The amendments will also fix the size of the Board and specify the
procedures for the nomination of directors by the Board as well as certain other
related matters. Following the Merger, the Board will continue to be divided
into three classes, with terms of each such class expiring in three successive
years. See "MANAGEMENT OF THE COMBINED COMPANY--Board Classification and Related
Matters."
VOTING AGREEMENT
Three of the Exchanging OP Unitholders, John A. Boll, Edward R. Allen and
C.G. Kellogg, who will hold in the aggregate 4,020,596 shares of Chateau Common
Stock upon completion of the Merger, have agreed with Gary P. McDaniel that, for
a period of three years following the Effective Time of the Merger, they will
vote all shares of Chateau Common Stock held by them in favor of the election as
directors of the nominees selected by the Group B Nominating Committee as
described herein under "MANAGEMENT OF THE COMBINED COMPANY--Board Classification
and Related Matters."
EXCHANGE OF CERTIFICATES
Following the Effective Time, Huntington Bank, N.A., which has been
appointed jointly by ROC and Chateau to act as Exchange Agent (the "Exchange
Agent") in connection with the Merger, shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of ROC Stock ("Certificates"), which shares were
converted into the right to receive the Merger Consideration, (i) a letter of
transmittal (a "Letter of Transmittal") (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration.
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Upon the surrender of any Certificates to the Exchange Agent in connection
with the Merger, by any holder thereof, together with a duly completed and
executed Letter of Transmittal, such holder will be entitled to receive the
applicable Merger Consideration and any dividends or other distributions to
which such holder is entitled as described above.
All Merger Consideration shall be paid upon the surrender of Certificates
and there shall be no further registration of transfers on the stock transfer
books of ROC of the shares of ROC Stock which were outstanding immediately prior
to the Effective Time, except that the cash payments to be made in lieu of
fractional shares that are part of the Merger Consideration shall be made as
soon as practicable after the Exchange Agent determines the aggregate amount of
cash available to make such payments. If, after the Effective Time, Certificates
are presented to the Combined Company for any reason, they shall be cancelled
and exchanged. No interest will be paid or accrued on the Merger Consideration.
No holder of ROC Stock will be entitled to dividends or other rights in respect
of any fractional interest other than cash in lieu of fractional shares of
Chateau Common Stock to which any ROC stockholder may be entitled as part of
such stockholder's Merger Consideration. STOCKHOLDERS OF ROC SHOULD NOT SUBMIT
THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH STOCKHOLDER HAS RECEIVED THE LETTER
OF TRANSMITTAL AND THE ACCOMPANYING INSTRUCTIONS.
Chateau or the Exchange Agent shall be entitled to deduct and withhold from
the Merger Consideration otherwise payable pursuant to the Merger Agreement to
any holder of shares of ROC Stock or Chateau Common Stock such amounts as
Chateau or the Exchange Agent is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Chateau or the
Exchange Agent, such withheld amounts shall be treated for all purposes as
having been paid to the holder of the shares of ROC Stock in respect of which
such deduction and withholding was made by the Chateau or the Exchange Agent.
In the event of a transfer of ownership of ROC Stock which is not registered
in the transfer records of ROC, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment either shall pay any transfer or
other taxes required by reason of such payment being made to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Chateau that such tax or taxes have been paid or are not applicable.
None of Chateau, ROC, RSub or the Exchange Agent shall be liable to any
person in respect of any Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. Any
portion of the Merger Consideration delivered to the Exchange Agent that remains
unclaimed for six months after the Effective Time shall be redelivered by the
Exchange Agent to Chateau, upon demand, and any holders of certificates who have
not theretofore complied with the exchange procedure described above and in the
Letter of Transmittal shall thereafter look only to Chateau for delivery of the
Merger Consideration, subject to applicable abandoned property, escheat and
other similar laws.
DISSENTING STOCKHOLDERS
Holders of shares of ROC Common Stock and Chateau Common Stock who do not
vote in favor of the ROC Proposal or the Chateau Proposal, respectively, will
have no appraisal rights in connection with the Merger should it be approved by
stockholders, I.E., they may not demand the fair value of their stock and will
be bound by the terms of the Merger.
BOARD OF DIRECTORS OF THE COMBINED COMPANY FOLLOWING THE MERGER
Consistent with the goal of ROC and Chateau to accomplish the transactions
described herein as a "merger of equals," the initial Board of the Combined
Company will consist of ten persons, five from the
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existing ROC Board and five from the existing Chateau Board. Beginning with the
1997 annual meeting of stockholders, the Combined Company Board shall be
increased to 11 members. Beginning with such meeting, all directors (including
the nominees from the former ROC Board) will be configured as evenly as possible
through the three classes to which Chateau directors are currently assigned,
with the terms of each class of directors expiring in three successive years.
Mergers, consolidations, share exchanges, recapitalization, dissolutions
involving the Combined Company and sales of all or substantially all of the
assets of the Combined Company will require the approval of at least two-thirds
of the directors then in office. Terms of financing and refinancing of
indebtedness of the Combined Company and its subsidiaries, as well as the
purchase or sale, directly or indirectly, of communities and amendments to the
Operating Partnership Agreement shall also require the approval of at least
two-thirds of the directors then in office. See "MANAGEMENT OF THE COMBINED
COMPANY--Board Classification and Related Matters."
BENEFITS OF THE MERGER AND THE OTHER TRANSACTIONS TO THE PRINCIPALS OF ROC AND
CHATEAU
In considering the recommendation of the ROC Board and the Chateau Board,
stockholders should be aware that certain members of the Board of Directors of
each of ROC and Chateau have certain interests in the Merger and the Other
Transactions that are in addition to the interests of the stockholders of ROC
and Chateau generally.
As described herein under "MANAGEMENT OF THE COMBINED COMPANY--Employment
Agreements," upon consummation of the Merger, Gary P. McDaniel, ROC's Chairman,
Chief Executive Officer and President, will become the Chief Executive Officer
of the Combined Company and C.G. ("Jeff") Kellogg, Chateau's current Chief
Executive Officer and President, will serve the Combined Company as President
and, in recognition of the increased size of the Combined Company and the
changing nature of their respective responsibilities, Messrs. McDaniel and
Kellogg will be employed by the Combined Company pursuant to new employment
agreements at higher levels of compensation than are currently the case,
including a base annual salary of $225,000 for each such person, compared to
$180,000 and $185,000, respectively, under their current employment agreements.
James B. Grange and Rees F. Davis, Jr., both currently officers of ROC, and
Tamara D. Fischer, currently an officer of Chateau, will each be employed by the
Combined Company pursuant to a new employment agreement to be effective at the
Effective Time, also at higher levels of compensation, including base annual
salaries of $190,000, $160,000 and $175,000, respectively, compared to $165,000,
$140,000 and $120,000, respectively, under their current employment agreements.
See "MANAGEMENT OF THE COMBINED COMPANY-- Employment Agreements." In addition,
all outstanding stock options under the 1993 ROC Stock Plan and the Chateau Plan
will become vested and immediately exercisable upon or immediately prior to
completion of the Merger. In November 1996 ROC granted options on 126,500 shares
of ROC Common Stock to employees, of which 75,000 options were granted to
executive officers, at an exercise price per share of $24.625. In November 1996
Chateau granted options on 139,400 shares of Chateau Common Stock to employees,
of which 96,000 options were granted to executive officers, at an exercise price
per share of $24.00.
The Exchanging OP Unitholders, who will include three directors of Chateau,
John A. Boll, Edward R. Allen and C.G. Kellogg, have agreed, subject to certain
conditions, to exercise rights they currently hold to exchange their OP Units
for shares of Chateau Common Stock. Because such rights are being exercised in
connection with the Merger, the exchange of their OP Units is expected to
qualify for treatment under Section 351 of the Code. Pursuant to Code Section
351, no gain or loss will be recognized by the Exchanging OP Unitholders upon
the exchange of OP Units for Chateau Common Stock pursuant to the OP Unit
Exchange, except to the extent provided in Section 357(c) of the Code. For a
description of the deferral of this gain and the amount of the gain not
recognized by Messrs. Boll, Allen and Kellogg, see "-- Federal Income Tax
Consequences--Additional Tax Consequences of the Merger and the OP Unit
Exchange."
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If stockholders of the Combined Company were to sell shares of Chateau
Common Stock prior to any such sale of properties held by the Combined Company
and attributable to the OP Units exchanged in the OP Unit Exchange (or after
such sale if a capital gain dividend was not designated with respect to taxable
gain resulting from such sale), the OP Unit Exchange would have no impact on the
amount of gain or loss to be recognized by such stockholder upon such sale. If
such gain is taxable to the stockholders of the Combined Company (because the
Combined Company has designated all or a portion of a dividend paid with respect
to Common Stock as a capital gain dividend), then to the extent that such
dividend would have, absent such designation, been a tax free return of capital,
it would have the effect of accelerating recognition of a capital gain which
would otherwise not have been recognized by such stockholders until a later
disposition of the shares of the Combined Company. This effect results because
the portion of the dividend which would have been a tax free return of capital
(absent such designation) would have reduced the tax basis of the shares and
would therefore be taxed as a capital gain upon a later sale of such shares.
Similarly, no additional tax would be triggered upon a future tax-free merger of
the Combined Company.
Further, most Exchanging OP Unitholders will have a zero tax basis in the
Chateau Common Stock which they receive in the OP Unit Exchange. Therefore, upon
a later taxable sale of such Chateau Common Stock, such Exchanging OP
Unitholders will at that time recognize the taxable gain which was deferred upon
the OP Unit Exchange under Section 351 of the Code.
The procedures described herein under "MANAGEMENT OF THE COMBINED COMPANY--
Board Classification and Related Matters" relating to the procedures for
determining Combined Company Board nominations for directors may have the effect
of extending their tenure on the Combined Company Board.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material federal income tax
consequences applicable to holders of Chateau Common Stock and ROC Stock that
are expected to result from the Merger and the Other Transactions. This
discussion assumes that each holder holds its Chateau Common Stock or ROC Stock
as a capital asset and does not address all aspects of taxation that may be
relevant to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws, nor does it discuss any
state, local or foreign tax considerations. ACCORDINGLY, CHATEAU STOCKHOLDERS
AND ROC STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the Code, applicable Treasury
Regulations, judicial authority and administrative rulings and practice, all as
of the date of this Joint Proxy Statement/Prospectus. There can be no assurance
that future legislative, judicial or administrative changes or interpretations
will not adversely affect the accuracy of the statements and conclusions set
forth herein. Any such changes or interpretations could be applied retroactively
and could affect the tax consequences of the Merger to Chateau stockholders and
ROC stockholders.
THE MERGER
The Merger, when taken together with the Other Transactions, each of which
is an integral part of the Merger, is expected to be treated as a transfer by
the ROC stockholders of their ROC Stock for Chateau Common Stock qualifying for
treatment under Section 351 of the Code. Rogers & Wells, counsel to ROC, and
Timmis & Inman, counsel to Chateau (collectively "Counsel") will render opinions
at the Closing of the Merger to the effect that the Merger will be treated for
federal income tax purposes as a transfer by the
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ROC stockholders of their shares of ROC Stock to Chateau in exchange for Chateau
Common Stock under Section 351 of the Code. Stockholders should be aware that an
opinion of counsel merely represents counsel's judgment with respect to the
probable outcome on the merits and is not binding on the IRS or the courts and
that the parties have not requested an advance ruling from the IRS with respect
to the tax consequences of the Merger.
Counsel's opinion will be based on certificates and agreements of ROC and
the Exchanging OP Unitholders, upon the facts described in this Joint Proxy
Statement/Prospectus, and certain representations made in writing to such
counsel by the management and representatives of Chateau and ROC. Such opinion
will also be based upon a conclusion that the transaction will not be treated as
a transfer to an investment company under Section 351(e) of the Code. However,
neither the courts nor the IRS has ruled on the application of Section 351(e) in
connection with an exchange of partnership units for shares of a REIT or the
exchange of shares of one REIT for another. While Counsel believes that the
Merger, when taken together with the Other Transactions, will be tax-free to the
ROC stockholders under Section 351 of the Code, there can be no assurance that
the IRS will agree with this conclusion.
Section 351 of the Code provides that no gain or loss is recognized if
property is transferred by one or more persons to a corporation solely in
exchange for stock of such corporation and immediately after such exchange the
transferors own at least 80% of the corporation's voting stock and 80% of all
other classes of the corporation's stock. When a transaction involves more than
one transferor of property, the transaction can qualify under Section 351 if the
transferors as a group satisfy the 80% control test immediately after the
exchange. Although simultaneous transfers are not required, two or more
transferors can be aggregated for purposes of determining control if their
transfers are part of a single integrated transaction.
In the Merger, RSub, a transitory subsidiary of Chateau, will be merged into
ROC with the ROC stockholders receiving Chateau Common Stock and Chateau
receiving ROC Common Stock. Pursuant to the Chateau Securityholder Agreement,
the Exchanging OP Unitholders will act with ROC and the ROC stockholders to
exercise rights such Exchanging OP Unitholders currently hold to exchange an
aggregate of 3,768,391 OP Units for shares of Chateau Common Stock on or prior
to the Chateau Record Date and, contemporaneous with the closing of the Merger,
an additional 2,359,184 OP Units for shares of Chateau Common Stock.
A transitory subsidiary created solely to effect a merger is disregarded for
federal income tax purposes. The merger of RSub into ROC will be characterized
as the transfer by the ROC stockholders of their ROC Stock to Chateau in
exchange for Chateau Common Stock. If only the Merger were considered, the ROC
stockholders would not own 80% or more of Chateau. However, for purposes of the
80% control test of Section 351 of the Code, the Chateau Common Stock received
by the Exchanging OP Unitholders in the OP Unit Exchange and in the Chateau
Share Issuance, and by the ROC stockholders in the Merger, should be aggregated
to satisfy the 80% test. If the IRS decided that the OP Unit Exchange did not
qualify for treatment under Section 351, it is not clear whether the Exchanging
OP Unitholders will be considered part of the transferor group for purposes of
testing the Merger under Section 351.
The Merger may also comply with the statutory requirements of a tax-free
reorganization under Section 368 of the Code. However, a tax-free reorganization
requires that there be a continuity of interest on the part of the historic
owners of the acquired corporation. Thus, for the Merger to satisfy the
continuity of interest requirement, ROC stockholders must receive as
consideration for their ROC Stock a sufficiently direct interest in ROC's former
assets. In accordance with the terms of the Contribution Agreement, ROC and RAC
will, at the Effective Time, transfer all of their assets to the Operating
Partnership in exchange for a general partner interest therein represented by OP
Units. In addition, ROCF will be merged with the Financing Partnership and ROC
will receive additional OP Units as a General Partner of the Operating
Partnership. The IRS has taken the position that if, following a reorganization,
the acquired corporation transfers substantially all of its assets to a
partnership, the reorganization will not qualify as a tax-free reorganization
because the acquired corporation's stockholders do not maintain a
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sufficiently direct interest in the acquired corporation's assets. This position
is based on two Supreme Court decisions which dealt with transfers to subsidiary
corporations. The conclusions reached in these decisions were overturned by
subsequent changes to the Code and it is unclear whether these cases would apply
to a contribution to a partnership. While substantial arguments exist that the
transfer by ROC and RAC of their assets to the Operating Partnership and by ROCF
to the Financing Partnership should not cause the ROC Merger to violate the
continuity of interest requirement, it is unclear whether or not a court would
agree if the issue were to be litigated.
TAX CONSEQUENCES OF THE MERGER
Assuming that the Merger qualifies as a Code Section 351 exchange, the
material federal income tax consequences of the Merger will be as follows:
(i) The Merger will not result in the recognition of gain or loss to
Chateau stockholders with respect to such exchange.
(ii) The exchange in the Merger of ROC Stock for Chateau Common Stock
will not result in the recognition of gain or loss to ROC stockholders with
respect to such exchange, except as described in (iii) below.
(iii) Each stockholder of ROC who receives cash proceeds in lieu of
fractional interests in shares of Chateau Common Stock will recognize gain
equal to the lesser of (A) the amount of such proceeds and (B) the
difference between such ROC stockholder's basis in the ROC Stock exchanged
and the fair market value, at the Effective Time, of the Chateau Common
Stock and cash received in exchange therefor. Any such gain recognized as
described in this paragraph will constitute capital gain if such
stockholder's shares of ROC Stock were held as a capital asset at the
Effective Time.
(iv) The tax basis of the shares of the Chateau Common Stock (including
fractional share interests for which cash is ultimately received) received
by a ROC stockholder will be equal to the tax basis of the shares of ROC
Stock exchanged therefor, decreased by the amount of cash received by such
stockholder, and increased by the amount of gain (if any) recognized by such
stockholder in the Merger.
(v) A stockholder's holding period with respect to the Chateau Common
Stock received in the ROC Merger will include the holding period of the ROC
Stock exchanged in the Merger if such ROC Stock was held as a capital asset
at the Effective Time.
(vi) No gain or loss will be recognized by ROC, Chateau or RSub as a
result of the Merger.
If the Merger is not an exchange under Section 351 of the Code or a
reorganization under Section 368 of the Code, then each ROC stockholder will
recognize gain or loss with respect to its shares of ROC Stock equal to the
difference between such stockholder's basis in its shares and the fair market
value, as of the Effective Time, of the Chateau Common Stock and cash received
in exchange therefor. Such gain will be long-term if the ROC Stock was held by
such stockholder for more than one year. In such event, a ROC stockholder's
aggregate basis in any Chateau Common Stock received will equal its fair market
value, as of the Effective Time, and the stockholder's holding period for such
stock will begin the day after the Effective Day.
ADDITIONAL TAX CONSEQUENCES OF THE MERGER AND THE OP UNIT EXCHANGE
The Merger and the OP Unit Exchange when taken together with certain other
related transactions are expected to be treated as a transfer of shares of ROC
Stock and OP Units to Chateau for Chateau Common Stock qualifying for treatment
under Section 351 of the Code. Management of ROC and Chateau do not anticipate,
for the reasons indicated below, that this Section 351 structure, including the
OP Unit Exchange, will result in any material adverse tax consequences for the
Combined Company or its
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stockholders following the Merger or any permanent transfer of tax cost from the
Exchanging OP Unitholders to other stockholders. Stockholders of ROC and Chateau
should, however, note that, as a result of this Section 351 structure, the
Combined Company will take, as its tax basis, the tax basis of the OP Units
which such OP Units had in the hands of the Exchanging OP Unitholders
immediately prior to the OP Unit Exchange, increased by the amount, if any, of
gain recognized by the Exchanging OP Unitholders upon such transfer. The
Combined Company and the Operating Partnership will also carry over the tax
basis of the ROC Properties immediately prior to the Effective Time. Thus, the
Combined Company will have a tax basis in the ROC Properties and the properties
owned by the Operating Partnership, attributable to the OP Units exchanged by
the Exchanging OP Unitholders pursuant to the OP Unit Exchange, determined by
reference to historical cost rather than the fair market value of such
properties. Consequently, in the event of a sale of such properties (or any
individual property), gain would be recognized to the extent of such difference,
and taxed to either the Combined Company or the persons who are then
stockholders of the Combined Company, including the Exchanging OP Unitholders,
in accordance with the rules applicable to the taxation of a REIT and its
stockholders. See "--Federal Income Tax Considerations Relating to Chateau and
ROC."
Based upon pro forma data of the Combined Company as of September 30, 1996,
management of Chateau and ROC estimate that the amount of potential additional
taxable gain attributable to the OP Unit Exchange that could possibly be
realized upon a taxable disposition of all of the properties owned by the
Combined Company (other than the portion of such gain attributable to and
retained by the Exchanging OP Unitholders through their ownership interest in
the Combined Company) to be approximately $68 million, unless the Operating
Partnership (as described below) terminates for federal income tax purposes
under Section 708 of the Code, in which case the basis of the Operating
Partnership's assets will be increased resulting in a reduction of the amount of
such potential additional gain to approximately $22 million. Assuming a 28%
capital gains tax rate for federal income tax purposes, the tax on such
potential gain would either be $19 million or $6 million (depending on whether
or not there is a partnership termination). The $68 million estimate is based on
the assumption that the potential additional gain attributable to the OP Unit
Exchange alone is $148 million. Since the Exchanging OP Unitholders will, as a
result of the OP Unit Exchange, become stockholders of the Combined Company,
they will continue to bear a portion of the potential gain upon any sale of the
Combined Company's properties, including those transferred to the Combined
Company by ROC, in accordance with their percentage interests as stockholders in
the Combined Company (estimated to be 29%) at such time. Of such $68 million in
potential additional taxable gain, $29.4 million, $2.6 million and $0.6 million
are attributable to OP Units to be exchanged by Messrs. Boll, Allen and Kellogg,
respectively. No other directors of Chateau hold OP Units. The other officers of
Chateau, who together hold an aggregate of 1,756 OP Units, will not participate
in the OP Unit Exchange. In this regard, an estimated $105 million of potential
taxable gain is attributable to properties currently owned by ROC (relating to
property appreciation in the period after ROC's initial public offering) and an
estimated additional $31 million of taxable gain is attributable to properties
currently owned by Chateau (relating to property appreciation in the period
after Chateau's initial public offering).
A partnership terminates for income tax purposes if there is a sale or
exchange of 50% or more of the total interest in partnership capital and profits
within a 12-month period. It is possible that the OP Unit Exchange, in
combination with other transfers of OP Units made within 12 months of the
Effective Date, will result in a termination of the Operating Partnership. Under
existing regulations, in the event of a termination, the Operating Partnership's
tax year would close and the Operating Partnership would be treated for income
tax purposes as if it had made a liquidating distribution of its assets to its
partners, followed by a recontribution of the assets to a "new" partnership. As
a result, the tax basis of the assets of the Operating Partnership would be
increased by approximately $65 million. Although a new depreciation recovery
period would begin on such date, the Operating Partnership's annual depreciation
deductions would be substantially increased and the Operating Partnership would
have lesser taxable income (or greater tax loss) than if no tax termination
occurred (with a corresponding increase in the portion of the
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dividends of the Combined Company which will be treated as a return of capital).
Regulations have been proposed which, if adopted prior to the completion of the
Other Transactions, would not adjust the tax basis of the Operating
Partnership's assets or change their depreciation deductions. Chateau and ROC do
not represent, however, that a tax termination will result from the Merger and
its related transactions or from future direct or indirect transfers of OP Units
to or by Chateau or ROC.
It is the intention of the Combined Company to designate dividends paid as
capital gains dividends to the extent practicable such that the Combined Company
will not pay capital gains tax. To the extent that such gain is taxable to the
stockholders of the Combined Company, it would have the effect of decreasing the
portion of the Combined Company's dividend which would otherwise be treated as a
tax-free return of capital (and which would reduce the tax basis of a
stockholder's shares of Chateau Common Stock), thus resulting in less taxable
gain (or greater taxable loss) upon a later sale by such stockholders of the
shares of the Combined Company. Therefore, the potential impact to the
stockholders of the Combined Company would be to accelerate the timing of the
recognition of gain which such stockholders would otherwise have and would not
result in a transfer to them of a permanent tax cost from the Exchanging OP
Unitholders. Also, a higher portion of distributions to stockholders
attributable to operating income will be taxed as dividends than would have
occurred had Chateau purchased the interests of the Exchanging OP Unitholders in
the Operating Partnership and the ROC Properties at their respective fair market
values. See "--Federal Income Tax Considerations Relating to Chateau and
ROC--Income Taxation of the Operating Partnership, Financing Partnership,
Subtier Partnerships and Their Partners--Tax Allocations with Respect to the
Properties."
ADDITIONAL TAX CONSEQUENCES OF WAIVER OF THE CHATEAU STOCK DIVIDEND BY
EXCHANGING OP UNITHOLDERS
In connection with the Merger, Chateau will declare a stock dividend for
each share of Chateau Common Stock outstanding and an equivalent dividend for
each OP Unit outstanding payable upon consummation of the Merger. Pursuant to
the Chateau Securityholder Agreement, the Exchanging OP Unitholders will waive
the shares of Chateau Common Stock that they would otherwise receive from
Chateau as a result of the Chateau Stock Dividend and such shares will be
distributed to the other Chateau stockholders. There is limited authority as to
whether the Chateau Common Stock received pursuant to the Dividend Waiver will
be taxable income to the existing Chateau stockholders. Accordingly, Counsel is
unable to give an opinion regarding the tax consequences to the existing Chateau
stockholders of the Chateau Common Stock received pursuant to the Dividend
Waiver. To the extent that the Chateau Common Stock received pursuant to the
Dividend Waiver is treated as income, the recipient Chateau stockholders will
have income to the extent of the fair market value of such stock. In such event,
the Chateau stockholder's basis in the Chateau Common Stock received pursuant to
the Dividend Waiver will equal its fair market value, as of the Effective Time,
and the stockholder's holding period for such stock will begin the day after the
Effective Day.
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO CHATEAU AND ROC
The following discussion summarizes certain federal income tax
considerations of general application pertaining to REITs and their
stockholders, is based upon current law and is not tax advice. This discussion
does not address all aspects of taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders (including insurance companies, tax exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws, nor does it give a
discussion of any state, local or foreign tax considerations.
EACH STOCKHOLDER OF CHATEAU AND ROC IS ENCOURAGED TO CONSULT ITS OWN TAX
ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE OWNERSHIP AND SALE
OF THE SHARES OF CHATEAU COMMON STOCK AND OF CHATEAU'S ELECTION TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL,
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FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
ROC and Chateau have each made an election to be taxed as a REIT for federal
income tax purposes commencing with their taxable year ended December 31, 1993.
Management of ROC and Chateau believe that (i) Chateau and ROC were organized
and have operated and (ii) Chateau and ROC will operate in each case in such a
manner so as to qualify for taxation as REITs under the Code. Following the
Merger, Chateau and ROC each intend to continue to operate in such a manner, but
no assurance can be given that either of Chateau or ROC has operated in a manner
so as to qualify or that Chateau or ROC will operate in a manner so as to remain
qualified as a REIT.
OPINIONS OF COUNSEL
In the opinion of Rogers & Wells, (i) commencing with ROC's taxable year
ended December 31, 1993, ROC was organized and has operated in conformity with
the requirements for qualification as a REIT within the meaning of the Code,
(ii) its proposed method of operation will enable it to meet the requirements
for qualification and taxation as a REIT under the Code and (iii) Chateau's
proposed method of operation following the Merger will enable it to meet the
requirements for qualification and taxation as a REIT under the Code. In the
opinion of Timmis & Inman, commencing with Chateau's taxable year ended December
31, 1993, Chateau was organized and has operated in conformity with the
requirements for qualification as a REIT within the meaning of the Code.
It must be emphasized that counsels' opinions are based on various
assumptions and are conditioned upon certain representations made by ROC and
Chateau as to factual matters. In addition, counsels' opinions are based upon
the factual representations of ROC and Chateau concerning their businesses and
properties, and the businesses and properties of the Operating Partnership, the
Financing Partnership and the Subtier Partnerships. Moreover, such qualification
and taxation of Chateau and ROC as REITs depends upon the ability of Chateau and
ROC to meet, through actual annual operating results, distribution levels,
diversity of stock ownership and the various other qualification tests imposed
under the Code discussed below, the results of which have not and will not be
reviewed by counsel. Accordingly, no assurance can be given that the actual
results of Chateau's or ROC's operations for any one taxable year will satisfy
such requirements See "--Federal Income Tax Considerations Relating to Chateau
and ROC-- Failure to Qualify."
A REIT generally is not subject to federal corporate income taxes on that
portion of its ordinary income or capital gain that is timely distributed to
stockholders. However, REITs are subject to federal income tax at regular
corporate rates on any undistributed REIT taxable income and undistributed net
capital gains and also are subject to federal income or excise tax, in certain
circumstances, on certain types of income even though that income is
distributed.
The REIT requirements relating to the federal income tax treatment of REITs
and their stockholders are highly technical and complex. The following is a
general summary of the Code provisions that govern the federal income tax
treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and Treasury Regulations
promulgated thereunder, and administrative and judicial interpretations thereof.
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REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation but
for the provisions of Sections 856 through 859 of the Code; (iv) that is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (v) that has the calendar year as its taxable year; (vi) the
beneficial ownership of which is held by 100 or more persons; and (vii) during
the last half of each taxable year not more than 50% in value of the outstanding
capital stock of which is owned, directly or indirectly, through the application
of certain attribution rules, by five or fewer individuals (as defined in the
Code to include certain entities). In addition, certain other tests, described
below, regarding the nature of a REIT's income and assets must also be
satisfied. The Code provides that conditions (i) through (v), inclusive, must be
met during the entire taxable year and that condition (vi) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (vi) and (vii) will not apply
until after the first taxable year for which an election is made to be taxed as
a REIT.
Chateau has satisfied and after the Merger, will continue to satisfy the
requirements set forth in (i) through (vii) above. See "DESCRIPTION OF CAPITAL
STOCK OF THE COMBINED COMPANY." ROC has satisfied and, after the Merger, will
continue to satisfy the requirements set forth in (i) through (vii) above.
Requirement (vii) will continue to be satisfied after the Merger by virtue of
Chateau's owning more than 99% of ROC's outstanding stock since the Code treats
the stockholders of Chateau as owning the ROC shares owned by Chateau for such
purpose. The ROC Charter will also be amended to include certain restrictions
regarding the transfer of ROC Stock that are intended to assist ROC in
satisfying the share ownership requirements set forth in (vi) and (vii) above.
Upon completion of the Merger, Chateau and/or ROC may have one or more
"qualified REIT subsidiaries." A corporation that is a "qualified REIT
subsidiary" is not treated as a separate corporation for federal income tax
purposes, and all assets, liabilities and items of income, deduction, and credit
of a "qualified REIT subsidiary" are treated as assets, liabilities, and items
of the REIT. In applying the requirements described herein, Chateau's "qualified
REIT subsidiaries" will be ignored, and all assets, liabilities, and items of
income, deduction, and credit of such a subsidiary will be treated as assets,
liabilities and items of Chateau. Chateau's "qualified REIT subsidiaries" will
therefore not be subject to federal corporate income taxation, although they may
be subject to state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is deemed
to own its proportionate share of the assets of the partnership and is deemed to
receive the income of the partnership attributable to such share. In addition,
the character of the assets and gross income of the partnership shall retain the
same character in the hands of the REIT. Thus, Chateau and ROC's proportionate
share of the assets, liabilities and items of income of the Operating
Partnership, the Financing Partnership and the Subtier Partnerships will be
treated as assets, liabilities and items of income of Chateau and ROC, to the
extent of their respective interest therein, for purposes of applying the
requirements described herein, provided that the Operating Partnership, the
Financing Partnership and the Subtier Partnerships are treated as partnerships
for federal income tax purposes. See "--Income Taxation of the Operating
Partnership, Financing Partnership, Subtier Partnerships and Their Partners."
Income Tests
For Chateau and ROC to qualify and maintain qualification as REITs, there
are three gross income requirements that each company must satisfy annually.
First, at least 75% of each company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property," dividends from qualified REITs
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of each company's gross income (excluding
gross
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income from prohibited transactions) for each taxable year must be derived from
the same items which qualify under the 75% gross income test, and from
dividends, interest, and gain from the sale or disposition of stock or
securities or from any combination of the foregoing. Third, short-term gain from
the sale or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of each company's gross
income (including gross income from prohibited transactions) for each taxable
year.
Rents received by each of the companies will qualify as "rents from real
property" only if several conditions (related to the identity of the tenant, the
computation of rent payable and the nature of the property leased) are met.
Neither company anticipates receiving rents in excess of a DE MINIMIS amount
that fail to meet these conditions. Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" who is adequately compensated and from
whom the REIT does not derive any income; provided, however, that the REIT may
directly perform certain customary services (E.G., furnishing water, heat, light
and air conditioning, and cleaning public areas) other than services which are
considered rendered to the occupant of the property (E.G., renting parking
spaces on a reserved basis to tenants).
The Operating Partnership will provide certain services with respect to the
properties. Chateau's and ROC's management believe that the only services to be
provided will be those usually or customarily rendered in connection with the
rental of space for occupancy only. Chateau has received a private letter ruling
from the IRS holding that certain services and amenities provided through the
Operating Partnership would not cause its distributive share of rents paid by
tenants to be excluded from the definition of "rents from real property."
It is expected that both Chateau's and ROC's real estate investments will
give rise to income that will enable them to satisfy each of the income tests
described above. Substantially all of Chateau's and ROC's income will be derived
from their interests in the Operating Partnership, the Financing Partnership and
the Subtier Partnerships, which income will, for the most part, qualify as
"rents from real property" for purposes of the 75% and the 95% gross income
tests. In addition, any dividends paid by ROC to Chateau will be qualifying
income for the 75% gross income test so long as ROC remains qualified as a REIT.
The Operating Partnership will receive fees in exchange for the performance
of certain management and administrative services relating to properties not
owned by the Operating Partnership, the Financing Partnership or the Subtier
Partnerships. Such management and administrative fees are not qualifying income
for purposes of the 75% and 95% gross income tests. Each company's share of the
aggregate amount of such fees and other non-qualifying income in any taxable
year, however, will not cause it to exceed the limits on non-qualifying income
under the 75% or 95% gross income tests.
If either Chateau or ROC fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it is entitled to relief under certain provisions of the Code.
It is not possible, however, to state whether in all circumstances Chateau or
ROC would be entitled to the benefit of these relief provisions. Even if these
relief provisions apply, a tax would be imposed with respect to certain excess
net income.
Asset Tests
In order for Chateau and ROC to qualify and maintain qualification as REITs,
at the close of each quarter of its taxable year each company must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of such company's total assets must be represented by "real estate assets"
(which for this purpose include shares in qualified REITs). Second, not more
than 25% of such company's total assets may be represented by securities other
than those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by the company
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may not exceed 5% of the value of such company's total assets, and such company
may not own more than 10% of any one issuer's outstanding voting securities
(excluding securities of a qualified REIT subsidiary or another qualified REIT).
It is anticipated that Chateau and ROC will be able to comply with these
asset tests. Both companies will be deemed to hold directly their proportionate
shares of all real estate and other assets of the Operating Partnership and
should be considered to hold their proportionate share of all assets deemed
owned by the Operating Partnership through its ownership interest in the
Financing Partnership and the Subtier Partnerships. As a result, each company
plans to hold more than 75% of their assets as real estate assets. In addition,
neither company plans to hold any securities representing more than 10% of any
one issuer's voting securities, other than any qualified REIT subsidiary or
another qualified REIT, nor securities of any one issuer exceeding 5% of the
value of either Chateau or ROC's gross assets, respectively (determined in
accordance with generally accepted accounting principles). The securities of ROC
held by Chateau will not violate the asset tests as long as ROC qualifies as a
REIT. If, however, ROC fails to qualify as a REIT for any reason, Chateau would
fail the asset tests because the ROC Common Stock held by Chateau would not
qualify as a real estate asset for purposes of the 75% asset test and Chateau
would own more than 10% of ROC's voting securities.
After initially meeting the asset tests at the close of any quarter, neither
Chateau nor ROC will lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. It is intended that both Chateau and ROC will maintain adequate
records of the value of their assets to ensure compliance with the asset tests,
and to take such other action within 30 days after the close of any quarter as
may be required to cure any noncompliance. However, there can be no assurance
that such other action will always be successful.
Annual Distribution Requirements
In order to be taxed as REITs, both Chateau and ROC will be required to meet
certain annual distribution requirements. Each company will have to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (i) the sum of (a) 95% of such company's "REIT taxable income"
(computed without regard to the dividends paid deduction and such company's net
capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before such company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration.
To the extent that either company does not distribute all of its net capital
gain or distributes at least 95% (but less than 100%) of its REIT taxable
income, as adjusted, it will be subject to tax on the undistributed portion, at
regular ordinary and capital gains corporate tax rates. Furthermore, if either
company fails to distribute during each calendar year at least the sum of (a)
85% of its REIT ordinary income for such year, (b) 95% of its REIT capital gain
net income for such year, and (c) any undistributed taxable income from prior
periods, such company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Both Chateau and
ROC intend to make timely distributions sufficient to satisfy this annual
distribution requirement.
FAILURE TO QUALIFY
If either Chateau or ROC fails to qualify for taxation as a REIT in any
taxable year, and the relief provisions do not apply, Chateau (and ROC if it
fails to qualify) would be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which either Chateau or ROC fails to qualify will
not be deductible by Chateau nor will they be required to be made. In such
event, to the extent of current or accumulated earnings and
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profits, all distributions to stockholders will be taxable as ordinary income,
and subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends-received deduction. Unless entitled to relief under
specific statutory provisions, Chateau (and ROC if it fails to qualify) will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances either Chateau or ROC would be entitled to
such statutory relief.
TAXATION OF STOCKHOLDERS
Distributions Generally
Distributions to taxable domestic stockholders, other than capital gain
dividends discussed below, will be taxable as ordinary income to such holders up
to the amount of Chateau's current or accumulated earnings and profits. Such
distributions are not eligible for the dividends-received deduction for
corporations. To the extent that Chateau makes distributions in excess of its
current or accumulated earnings and profits, such distributions will first be
treated as a tax-free return of capital, reducing the tax basis in a
stockholder's shares of Chateau Common Stock, and distributions in excess of
such stockholder's tax basis in its respective shares of Chateau Common Stock
are taxable as gain realized from the sale of such shares. Dividends declared by
Chateau in October, November, or December of any year payable to a stockholder
of record on a specified date in any such month will be treated as both paid by
Chateau and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by Chateau during January of the following
calendar year. Stockholders may not include on their own income tax returns any
tax losses of Chateau.
Chateau will be treated as having sufficient earnings and profits to treat
as a dividend any distribution by Chateau up to the amount required to be
distributed in order to avoid imposition of the 4% excise tax discussed above.
As a result, stockholders may be required to treat certain distributions that
would otherwise result in a tax-free return of capital as taxable dividends.
Moreover, any "deficiency dividend" will be treated as a "dividend" (an ordinary
dividend or a capital gain dividend, as the case may be), regardless of
Chateau's earnings and profits.
Capital Gain Dividends
Dividends to domestic stockholders that are properly designated by Chateau
as capital gain dividends will be treated as long-term capital gain (to the
extent they do not exceed Chateau's actual net capital gain) for the taxable
year without regard to the period for which the stockholder has held his stock.
Corporate stockholders, however, may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
Dispositions of Shares of Common Stock
A domestic stockholder will recognize gain or loss on the sale or exchange
of shares of Chateau Common Stock to the extent of the difference between the
amount realized on such sale or exchange and the holder's tax basis in such
shares. Such gain or loss generally will constitute long-term capital gain or
loss if the holder has held such shares for more than one year. Losses incurred
on the sale or exchange of shares of Chateau Common Stock held for six months or
less (after applying certain holding period rules), however, will generally be
deemed long-term capital loss to the extent of any long-term capital gain
dividends received by the U.S. Stockholder with respect to such shares.
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INCOME TAXATION OF THE OPERATING PARTNERSHIP, FINANCING PARTNERSHIP, SUBTIER
PARTNERSHIPS AND THEIR PARTNERS
The following discussion summarizes certain federal income tax
considerations applicable to Chateau's and ROC's investment in the Operating
Partnership, the Financing Partnership and the Subtier Partnerships.
Classification of the Operating Partnership, Financing Partnership and Subtier
Partnerships as
Partnerships
Each of Chateau and ROC will be entitled to include in its income its
distributive share of the income and to deduct its distributive share of the
losses of the Operating Partnership, the Financing Partnership and the Subtier
Partnerships (collectively the "Partnerships") only if the Partnerships are
classified for federal income tax purposes as partnerships rather than as
associations taxable as corporations. An organization formed as a partnership
will be treated as a partnership for federal income tax purposes rather than as
a corporation only if it has no more than two of the four corporate
characteristics that the Treasury Regulations use to distinguish a partnership
from a corporation for tax purposes. These four characteristics are continuity
of life, centralization of management, limited liability, and free
transferability of interests.
None of the Partnerships have requested, nor do they intend to request, a
ruling from the IRS that they will be treated as partnerships for federal income
tax purposes. In the opinion of Timmis & Inman, which is based on the provisions
of the partnership agreements of the Operating Partnership and the Subtier
Partnerships and on certain factual assumptions and representations of Chateau
and ROC, the Operating Partnership has at all times been and will continue to
be, after giving effect to the Merger, and each Subtier Partnership has been,
since its acquisition by Chateau, and will continue to be, after giving effect
to the Merger, treated as partnerships for federal income tax purposes. In the
opinion of Rogers & Wells, which is based on the provisions of the partnership
agreement of the Financing Partnership and on certain factual assumptions and
representations of Chateau and ROC, the Financing Partnership will be treated as
a partnership for federal income tax purposes. Counsel's opinions are not
binding on the IRS or the courts.
If for any reason one of the Partnerships was taxable as a corporation
rather than as a partnership for federal income tax purposes, Chateau and ROC
may not be able to satisfy the requirements for REIT status. See "--Requirements
for Qualification--Income Tests" and "--Requirements for Qualification-- Asset
Tests." In addition, any change in any such partnership's status for tax
purposes might be treated as a taxable event, in which case both Chateau and ROC
might incur a tax liability without any related cash distribution. See
"--Requirements for Qualification--Annual Distribution Requirements." Further,
items of income and deduction of any such Partnership would not pass through to
its partners, and its partners would be treated as stockholders for tax
purposes. Any such Partnership would be required to pay income tax at corporate
tax rates on its net income, and distributions to its partners would constitute
dividends that would not be deductible in computing such Partnership's taxable
income.
Partners, Not Partnerships, Subject to Tax
A partnership is not a taxable entity for federal income tax purposes.
Rather, a partner is required to take into account its allocable share of a
partnership's income, gains, losses, deductions, and credits for any taxable
year of the partnership ending within or with the taxable year of the partner,
without regard to whether the partner has received or will receive any
distributions from the partnership.
Tax Allocations with Respect to the Properties
The Operating Partnership was originally formed by way of contribution of
the Chateau Properties which had appreciated in value at the date of
contribution. In addition, ROC, RAC and ROCF will
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contribute or cause to be contributed the ROC Properties, which are also
appreciated, to the Operating Partnership and Financing Partnership immediately
after the Merger. When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The Combined Company will also inherit
most or all of the existing Book-Tax Differences of the Exchanging OP
Unitholders with respect to the OP Units exchanged in the OP Unit Exchange. The
partnership agreements of the Operating Partnership and the Financing
Partnership require allocations of income, gain, loss and deduction with respect
to contributed properties to be made in a manner consistent with the special
rules in Section 704(c) of the Code and the Treasury Regulations thereunder,
which will tend to eliminate the Book-Tax Differences with respect to the ROC
Properties and of the Exchanging OP Unitholders with respect to the OP Units
exchanged in the OP Unit Exchange over the life of the Operating Partnership and
the Financing Partnership. Under these rules, the Combined Company and the
initial contributors of the Chateau Properties who remain OP Unitholders will
generally be allocated lower amounts of depreciation deductions with respect to,
and increased taxable gain on a sale of, the ROC or Chateau Properties,
respectively. However, because of certain technical limitations, the special
allocation rules of Section 704(c) may not always entirely eliminate the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed ROC
Properties with respect to the OP Units exchanged in the OP Unit Exchange in the
hands of the Operating Partnership or the Financing Partnership and the
carryover basis of the contributed Chateau Properties in the hands of the
Operating Partnership could cause the Combined Company (i) to be allocated lower
amounts of depreciation and other deductions for tax purposes than it would be
allocated if such properties had a tax basis equal to their fair market value at
the Effective Time and (ii) to be allocated lower amounts of taxable loss in the
event of the sale of such a property at a book loss less than the economic or
book loss allocated to it as a result of such sale. The foregoing principles
also apply in determining the earnings and profits of the Combined Company for
purposes of determining the portion of distributions taxable as dividend income.
The application of these rules over time may result in a higher portion of
distributions being taxed as dividends than would have occurred had the Combined
Company purchased the ROC Properties and the OP Units exchanged in the OP Unit
Exchange at their respective fair market values.
INFORMATION REPORTING REQUIREMENT AND BACKUP WITHHOLDING TAX
Both Chateau and ROC will report to its domestic stockholders and the IRS
the amount of distributions paid during each calendar year and the amount of tax
withheld, if any. Under certain circumstances, domestic stockholders may be
subject to backup withholding at a rate of 31% with respect to distributions
paid. Backup withholding will apply only if the holder (i) fails to furnish its
taxpayer identification number ("TIN") (which, for an individual, would be his
Social Security number), (ii) furnishes an incorrect TIN, (iii) is notified by
the IRS that it has failed properly to report payments of interest and
dividends, or (iv) under certain circumstances, fails to certify, under penalty
of perjury, that it has furnished a correct TIN and has not been notified by the
IRS that it is subject to backup withholding for failure to report interest and
dividend payments. Backup withholding will not apply with respect to payments
made to certain exempt recipients, such as corporations and tax-exempt
organizations. Domestic stockholders should consult their own tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption. Backup withholding is not an
additional tax. Rather, the amount of any backup withholding with respect to a
payment to a domestic stockholder will be allowed as a credit against such
stockholder's U.S. federal income tax liability and may entitle such stockholder
to a refund, provided that the required information is furnished to the IRS.
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ACCOUNTING TREATMENT
The Merger and Other Transactions will be accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles. These transactions result for financial accounting purposes in the
effective purchase of all the ROC Stock by the Combined Company. Accordingly,
the assets and liabilities of ROC will be adjusted to fair value for financial
accounting purposes and the results of operations of ROC will be included in the
results of operations of the Combined Company for periods subsequent to the
Effective Time.
NEW YORK STOCK EXCHANGE LISTING OF COMMON STOCK
The shares of Chateau Common Stock to be issued in the Merger, the Chateau
Stock Dividend, the OP Unit Exchange and the Chateau Share Issuance have been
approved for listing on the NYSE, subject to official notice of issuance. See
"--Terms of the Merger--Conditions to the Merger; Termination; Waiver and
Amendment."
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DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY
The following summary of the terms of the capital stock of Chateau, which
will be the capital stock of the Combined Company following the Merger and the
Other Transactions, and certain provisions of the organizational documents of
Chateau does not purport to be complete and is subject to and qualified in its
entirety by reference to the Chateau Charter and the Combined Company By-Laws,
each of which is filed as an exhibit to the Registration Statement of which this
Joint Proxy Statement/Prospectus is a part.
GENERAL
The Chateau Charter provides that Chateau may issue up to 32 million shares
of capital stock, all with a par value of $.01 per share, with 30 million of
such shares being designated as Chateau Common Stock and 2 million of such
shares being designated as Preferred Stock. Upon completion of the Merger and
the Other Transactions, 24,946,742 shares of Chateau Common Stock will be
outstanding, and an additional 2,771,198 shares will be subject to issuance upon
exchange of OP Units held by OP Unitholders in the Operating Partnership,
assuming 6,127,575 OP Units are exchanged in the OP Unit Exchange. No shares of
Preferred Stock will be outstanding.
The Board of Directors of Chateau is authorized (i) to classify and
reclassify any unissued shares of any series of Preferred Stock; (ii) to provide
for the issuance of shares in other classes or series, including preferred stock
in one or more series; (iii) to establish the number of shares in each class or
series; and (iv) to fix the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such class or series.
COMMON STOCK
All shares of Chateau Common Stock, when issued in connection with the
Merger, will be duly authorized, fully paid and nonassessable. Except as
described below, the holders of Chateau Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. No cumulative voting rights for the election of directors will
attach to shares of Chateau Common Stock. Subject to the provisions of law and
any preferential rights with respect to any outstanding capital stock of
Chateau, holders of Chateau Common Stock are entitled to receive ratably such
dividends or other distributions as may be declared by the Chateau Board out of
funds legally available therefor. If Chateau is liquidated or dissolved, subject
to the right of any holders of the capital stock of Chateau to receive
preferential distributions, each outstanding share of Chateau Common Stock will
be entitled to participate ratably in the assets remaining after payment of, or
adequate provision for, all known debts and liabilities of Chateau. Holders of
shares of Chateau Common Stock have no conversion, sinking fund, redemption or
preemptive rights to subscribe for any securities of Chateau.
The transfer agent and registrar for Chateau Common Stock is Huntington Bank
N.A.
PREFERRED STOCK
Additional classes of preferred stock, may be issued from time to time, in
one or more series, as authorized by the Chateau Board. Prior to issuance of
shares of each series, the Chateau Board, or a committee thereof, is required by
the MGCL to fix for each such series, subject to the provisions of the Chateau
Charter regarding Excess Stock, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to the dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted under the MGCL. The Chateau Board has the authority to issue Preferred
Stock with terms and conditions which could have the effect of discouraging a
takeover or other transaction which holders of some, or a majority, of the
shares of Chateau Common Stock might believe to be in their best interests or in
which such holders might receive a premium for their Chateau Common Stock. As of
the date hereof, no preferred stock is outstanding, and Chateau has no present
plans to issue any preferred stock.
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OP UNITS
The OP Units represent partner interests in the Operating Partnership. Upon
completion of the Merger, there are expected to be 27,717,940 OP Units
outstanding, of which 24,946,742 OP Units will be designated as general partner
interests in the Operating Partnership (which will be held exclusively by the
Combined Company and ROC) and 2,771,198 OP Units will be designated as limited
partner interests in the Operating Partnership. The number of general partner OP
Units outstanding will generally equal the number of shares of Chateau Common
Stock outstanding from time to time. Under the Operating Partnership Agreement,
each OP Unit entitles the holder thereof to share ratably in distributions of
Operating Cash Flow and Capital Cash Flow (as defined in the Operating
Partnership Agreement). Management and control over the Operating Partnership
are vested exclusively in the holders of general partner OP Units. Holders of
limited Partner OP Units have no right to vote on any matters affecting the
Operating Partnership, except for certain amendments to the Operating
Partnership Agreement and, under the provisions of the Maryland Revised Uniform
Limited Partnership Act, the approval of mergers involving the Operating
Partnership. Other than with respect to an aggregate of 355,000 OP Units held by
Messrs. Boll and Ministrelli, each limited partner OP Unit, upon completion of
the Merger, will be exchangeable, subject to certain conditions, for shares of
Chateau Common Stock on a one-for-one basis.
OWNERSHIP LIMIT; RESTRICTIONS ON TRANSFER
In order for Chateau to qualify as a REIT under the Code, the Chateau Common
Stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year (other than during its first taxable year). Also, not more than 50%
of the number or value of the outstanding stock of Chateau may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain exempt entities) during the last half of a taxable year or
during a proportionate part of a shorter taxable year (other than during its
first taxable year).
The Chateau Charter provides that, subject to certain exceptions relating to
John A. Boll and J. Peter Ministrelli described below, no stockholder may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than the Ownership Limit, which is equal to 7.0% of the number of shares or
value of the outstanding stock of Chateau. The Board of Directors of Chateau may
waive the application of the Ownership Limit to individual stockholders but only
if it receives a ruling from the IRS to the effect that such waiver will not
jeopardize Chateau's status as a REIT. The Ownership Limit will not apply if the
Chateau Board and the stockholders of Chateau determine that it is no longer in
the best interests of Chateau to qualify as a REIT. Under the Chateau Charter,
the Board of Directors has the authority to increase the Ownership Limit
applicable to stockholders generally, but not in excess of 9.8%.
If shares of Chateau Common Stock and/or Preferred Stock in excess of the
Ownership Limit, or shares which would cause Chateau to be beneficially owned by
fewer than 100 persons or cause Chateau to become "closely held" under Section
856(h) of the Code, are issued or transferred to any person, such issuance or
transfer shall be null and void and the intended transferee will acquire no
rights to Chateau Common and/or Preferred Stock. Shares issued or transferred
that would cause any stockholder to own more than the Ownership Limit or Chateau
to become "closely held" under Section 856(h) of the Code will constitute shares
of Excess Stock. Excess Stock will be held in trust. The trustees of such trust
shall be appointed by Chateau and shall be independent of Chateau and the holder
of Excess Stock. The beneficiary of such trust shall be one or more charitable
organizations selected by Chateau. If after a purported transfer or other event
giving rise to any Chateau Common Stock being deemed Excess Stock and prior to
the discovery by Chateau, dividends or distributions are paid with respect to
the Chateau Common Stock that is deemed Excess Stock, then such distributions
are to be repaid to the trustee upon demand for payment to the charitable
beneficiary. While Excess Stock is held in trust, an interest in that trust may
be transferred to a person whose ownership of Chateau Common Stock would be
permitted under the Ownership Limit provision and would not cause Chateau to be
beneficially owned by fewer than
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100 persons or cause Chateau to become "closely held" under Section 856(h) of
the Code, at which time the Excess Stock would automatically be exchanged for
Chateau Common Stock. In addition, Chateau would have the right, for a period of
90 days beginning on the later of the date of the transfer that caused the
exchange for Excess Stock or the date the Chateau Board has knowledge of the
transfer, to purchase all or any portion of the Excess Stock from the intended
transferee at the lesser of the price paid for the Chateau Common Stock by the
intended transferee and the closing market price for the Chateau Common Stock on
the date the Chateau exercises its option to purchase.
John A. Boll and J. Peter Ministrelli (and certain persons related to each
of them) are the owners, directly or indirectly, of 3,319,207 and 2,360,919 OP
Units, respectively, and, upon completion of the Merger and the Chateau Share
Issuance, will be the holders of 3,098,791 and 2,285,820 shares, respectively,
of Chateau Common Stock (or options to acquire such shares), as well as 684,818
(of which 220,000 are non-exchangeable) and 487,104 (of which 135,000 are
non-exchangeable) OP Units, respectively. Following the Merger, each will be
deemed to beneficially own, for purposes of the five or fewer test described
above, all shares of Chateau Common Stock that each holds directly, as well as
all shares of Chateau Common Stock that may be acquired by him upon exchange of
remaining OP Units or exercise of outstanding stock options. As a result,
immediately following the Merger, John A. Boll and J. Peter Ministrelli (and
certain persons related to each of them) will be deemed to beneficially own
approximately 14.1% and 10.4% of the outstanding shares of Chateau Common Stock.
The Chateau Charter provides that each of John A. Boll and J. Peter Ministrelli
(and certain persons related to each of them) is exempt from the Ownership Limit
up to a maximum level of 14.1% and 10.0%, respectively (but these Ownership
Limits are calculated assuming shares beneficially owned by both Mr. Boll and
Mr. Ministrelli are outstanding).
Except as otherwise described above with regard to increases in the
Ownership Limit, any other change in the Ownership Limit would require an
amendment to the Chateau Charter. Such amendment to the Chateau Charter requires
the approval of holders representing at least two-thirds of the outstanding
shares of Chateau Common Stock and consent of the Chateau Board, provided the
Ownership Limit may not be increased above 9.8%. In addition to preserving
Chateau's status as a REIT, the Ownership Limit may have the effect of
precluding an acquisition of control of Chateau without the approval of the
Chateau Board.
All certificates representing shares of Chateau Common Stock will bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5.0% (or such other percentage between 1/2 of 1% and 5% as
provided in the rules and regulations of the Code) of the value or number of
shares of outstanding Chateau Common Stock or Preferred Stock must provide
Chateau with a written notice of such ownership within 30 days after January 1
of each year. In addition, each direct or indirect stockholder shall upon demand
be required to disclose to Chateau in writing such information with respect to
the direct, indirect and constructive ownership of shares as the Chateau Board
deems necessary to determine Chateau's status as a REIT and to insure compliance
with the Ownership Limit.
CERTAIN PROVISIONS OF CHATEAU'S CHARTER AND BY-LAWS AND OF MARYLAND LAW
The following summary of certain provisions of the MGCL and the Chateau
Charter and Combined Company By-Laws does not purport to be complete, and is
qualified by reference to the MGCL and the Chateau Charter and Combined Company
By-Laws. With regard to the Combined Company By-Laws, the following discussion
assumes the implementation of the Chateau By-Law amendments provided for in the
Merger Agreement. See "COMPARISON OF STOCKHOLDER RIGHTS." Certain provisions in
the Chateau Charter and Combined Company By-Laws relating to the matters
specified below could have the effect of discouraging a takeover or other
transaction which holders of some, or a majority, of the shares of
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Chateau Common Stock might believe to be otherwise in their best interests or in
which such holders could receive a premium for their shares.
MARYLAND BUSINESS COMBINATION LAW
The MGCL prohibits certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person (i) who beneficially owns 10% or more of the voting
power of the corporation's shares or (ii) who is an affiliate or associate of
the corporation who, at any time within the two-year period prior to the date in
question, was an Interested Stockholder (as defined therein) or an affiliate or
an associate thereof. Such business combinations are prohibited for five years
after the most recent date on which the Interested Stockholder became an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the Board of Directors of such corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by all
holders of outstanding shares of voting stock of the corporation, and (b)
two-thirds of the votes entitled to be cast by holders of voting stock of the
corporation other than voting stock held by the Interested Stockholder who will
(or whose affiliate will) be a party to the business combination, or by an
affiliate or associate of the Interested Stockholder, unless, among other
things, the corporation's stockholders receive a minimum price (as defined in
the MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the Board of Directors of the corporation prior to
the time that the Interested Stockholder becomes an Interested Stockholder. The
Chateau Board, in connection with the initial formation of Chateau, has exempted
from these provisions of the MGCL any business combination with the Chateau
Principals, any of their respective present or future affiliates or associates
or any other person acting in concert or as part of a group with any of the
foregoing persons. The ROC Board has exempted from the provisions of the MGCL
any business combination with the ROC Principals, any of their respective
present or future affiliates or associates or any other person acting in concert
or as part of a group with any of the foregoing persons. In recognition of this
existing exemption, pursuant to the Merger Agreement, Chateau has agreed also to
exempt the ROC Principals from these provisions as they relate to Chateau
following the Merger. The exemptions described above are, in accordance with the
provisions of the MGCL, permitted to be granted by the board of directors of a
Maryland corporation. The effect of the exemptions granted by Chateau is that
such provisions of the MGCL will not apply to any business combination involving
Chateau and either the ROC Principals or the Chateau Principals.
The Maryland Business Combination Law could have the effect of discouraging
offers to acquire Chateau and of increasing the difficulty of consummating any
such offer.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror. However, the Chateau By-Laws
contain provisions which exempt Chateau from the control share acquisition
provisions of the MGCL. No assurance can be given, however, that such provisions
may not be removed at any time by amendment of the Chateau By-Laws.
CHARTER AND BY-LAW AMENDMENTS
Except as described below, the Chateau Charter may be amended only with the
affirmative vote of the holders of two-thirds of all of the votes entitled to be
cast on the matter combined with the consent of the Chateau Board of Directors.
The Combined Company By-Laws provide that Board approval to amend the Chateau
Charter requires the affirmative vote of two-thirds of the directors then in
office. Except as
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described below, the Combined Company By-Laws may be amended with the
affirmative vote of at least two-thirds of the Chateau Board. However, the
approval of at least two-thirds of the directors then in office and the approval
of a majority of the outstanding Chateau Common Stock will be required in
connection with amendments to the Combined Company By-Laws relating to the
configuration of the Chateau Board and its committees, including the size of the
Chateau Board and the grouping and classification and indemnification of
directors.
MERGER, SALE OF ASSETS AND MAJOR TRANSACTIONS
The Chateau Charter requires that mergers, consolidations, share exchanges,
recapitalizations and dissolutions involving Chateau and sales of all or
substantially all of the assets of Chateau will require the affirmative vote of
the holders of not less than two-thirds of the outstanding shares of Chateau
Common Stock, and the Chateau By-Laws provide that such transactions require the
approval of at least two-thirds of the directors of the Combined Company then in
office. The Combined Company By-Laws also provide that terms of financing and
refinancing of indebtedness of the Combined Company and its subsidiaries, as
well as the purchase or sale, directly or indirectly, of communities and
amendments to the Operating Partnership Agreement require the approval of at
least two-thirds of the directors of the Combined Company then in office.
BOARD OF DIRECTORS
The Chateau Charter provides that any director, or the entire Chateau Board,
may be removed only for cause and then only by the affirmative vote of at least
two-thirds of the votes entitled to be cast in the election of directors.
The Chateau Charter and the Combined Company By-Laws contain provisions that
create a classified Board of Directors, provide for separate groupings of
directors, fix the size of the Board and specify the procedures for the
nomination of directors by the Board as well as certain other related matters.
See "MANAGEMENT OF THE COMBINED COMPANY--Board Classification and Related
Matters."
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Combined Company By-Laws provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Combined
Company Board and the proposal of business to be considered by stockholders may
be made only (i) pursuant to the Combined Company's notice of the meeting, (ii)
by or at the direction of the Combined Company Board or (iii) by any stockholder
of the Combined Company who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the Combined Company By-Laws;
and (b) with respect to special meetings of stockholders, only the business
specified in the Combined Company's notice of meeting may be brought before the
meeting of stockholders, and nominations of persons for election to the Combined
Company's Board may be made only (i) pursuant to the Combined Company's notice
of the meeting, (ii) by or at the direction of the Combined Company's Board or
(iii) provided that the Combined Company Board has determined that directors
shall be elected at such meeting, by any stockholder of the Combined Company who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Combined Company By-Laws.
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MANAGEMENT OF THE COMBINED COMPANY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY
The following table sets forth information relating to the Directors and
Executive Officers of the Combined Company immediately following the Merger.
Directors are designated by an asterisk.
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John A. Boll*........................................ 67 Chairman of the Board
Gary P. McDaniel*.................................... 51 Chief Executive Officer
C.G. ("Jeff") Kellogg*............................... 53 President
James B. Grange...................................... 40 Chief Operating Officer
Tamara D. Fischer.................................... 41 Chief Financial Officer
Rees F. Davis, Jr.................................... 38 Executive Vice President-Acquisitions
Edward R. Allen*..................................... 56 Director
Gebran S. Anton, Jr.*................................ 64 Director
James L. Clayton*.................................... 62 Director
Steven G. Davis*..................................... 47 Director
James M. Hankins*.................................... 61 Director
James M. Lane*....................................... 67 Director
Donald E. Miller*.................................... 66 Director
</TABLE>
Pursuant to the Chateau Charter, the terms of the existing seven directors
of Chateau are staggered, with terms of each class expiring in three successive
years. With regard to the existing Chateau Board, Messrs. Anton, Lane and Myers
are classified as Class I directors with terms expiring in 1997, Messrs. Allen
and Kellogg are classified as Class II directors with terms expiring in 1998 and
Messrs. Boll and Randolph are classified as Class III directors with terms
expiring in 1999. Effective upon consummation of the Merger, Jay G. Randolph and
Kenneth E. Myers will resign from the Chateau Board, and the remaining directors
then in office will increase the size of the Chateau Board from seven to ten
directors. The five vacancies on the Chateau Board will be filled by the vote of
the remaining Chateau directors then in office (with such remaining directors
being designated as "Group A Directors") with five nominees selected by the ROC
Board (namely, Messrs. McDaniel, Clayton, S. Davis, Hankins and Miller, who will
be designated as "Group B Directors"), such that such five nominees as well as
the five directors of Chateau then in office will constitute all of the members
of the Chateau Board at the Effective Time. The five Group B Directors will
serve as directors until the next annual meeting of the Combined Company
following the Merger, at which time, in accordance with the Board nomination
procedures described below under "Board Classification and Related Matters,"
they are expected to be nominated to serve as directors of the following
classes: (Class I with terms expiring in 2000: Mr. McDaniel); (Class II with
terms expiring in 1998: Messrs. Hankins and Miller); (Class III with terms
expiring in 1999: Messrs. Clayton and S. Davis).
Set forth below is a summary of the business experience of such directors
and executive officers:
John A. Boll will be Chairman of the Board of the Combined Company. He has
been Chairman of the Board of Directors of Chateau since its incorporation. For
the five years preceding the formation of Chateau, Mr. Boll was a partner and
Chief Executive Officer of Chateau Estates which he formed in 1966. Mr. Boll
served for six years as Chairman of the Michigan Mobile Home Commission, which
is the principal Michigan authority regulating manufactured housing.
Gary P. McDaniel will be Chief Executive Officer and a Director of the
Combined Company. He has served as the Chairman of the Board, President and
Chief Executive Officer of ROC since 1993, has been a principal of ROC and its
predecessors since 1979, and has been active in the manufactured home industry
since 1972. From 1972 to 1978, Mr. McDaniel was employed in several capacities
by Mobile Home Communities, Inc (currently MHC). Mr. McDaniel has been active in
several state and national manufactured home associations, including
associations in Florida and Colorado. In 1996, he was named "Industry
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Person of the Year" by the National Manufactured Housing Industry Association.
Mr. McDaniel is on the Board of Directors of the Manufactured Housing Institute.
He is a graduate of the University of Wyoming and served as a Captain in the
United States Air Force.
C.G. ("Jeff") Kellogg will be President and a Director of the Combined
Company. He has been President and Chief Executive Officer and a Director of
Chateau since its formation. For the five years preceding the formation of
Chateau, Mr. Kellogg was President and Chief Operating Officer of Chateau
Estates. He is a past President of the Michigan Manufactured Housing Association
and served on the Manufactured Housing Institute's Community Operations
Committee. Mr. Kellogg is a graduate of Michigan Technological University with a
B.S. degree in Civil Engineering.
James B. Grange will be Chief Operating Officer of the Combined Company. He
has served as Executive Vice President and Chief Operating Officer of ROC since
1993. Mr. Grange served as Executive Vice President, Chief Operating Officer and
a director for ROC's predecessors from 1986 to 1993. He has been responsible for
property management since 1982, having started as a Regional Property Manager
overseeing ten properties in three states. In 1984, he became Vice President of
Operations, overseeing all property operations and marketing. Mr. Grange has
been actively involved in many aspects of the manufactured home industry,
including development, acquisitions, marketing and manufactured home sales. He
is currently a director of the Colorado Chapter of the March of Dimes and is
active in The Manufactured Housing Institute. Mr. Grange is a graduate of the
University of Montana.
Tamara D. Fischer will be Chief Financial Officer of the Combined Company.
She has been an Executive Vice President and Chief Financial Officer of Chateau
since Chateau's formation. Prior to joining Chateau, Ms. Fischer was employed by
Coopers & Lybrand for 11 years and served on the Chateau engagement team since
1986. Ms. Fischer is a CPA and a graduate of Case Western Reserve University.
Rees F. Davis, Jr. will be Executive Vice President--Acquisitions of the
Combined Company. He has served as Vice President of Acquisitions and Sales for
the Combined Company since 1993. Prior to that, Mr. Davis previously served as
Vice President of Acquisitions and Sales and a director for ROC's predecessors
since 1986. From 1984 to 1986, Mr. Davis was active in property acquisitions for
ROC's predecessors, having previously acted as Regional Property Manager. Mr.
Davis is a two-term past officer of the Colorado Manufactured Housing
Association. He is also an active member of The Manufactured Housing Institute
and holds a Colorado real estate brokerage license. Prior to entering into the
manufactured home industry, Mr. Davis was employed in the real estate department
of Shell Oil Company from 1981 to 1983. Mr. Davis is a graduate of Colorado
State University.
Edward R. Allen will serve as a Director of the Combined Company. He has
served as a Director of Chateau since 1993. Mr. Allen was, for the five years
preceding the formation of Chateau in 1993, Chairman and Chief Executive Officer
of InterCoastal Communities, Inc., a Florida corporation, which was engaged in
operating seven manufactured home communities in Florida. Mr. Allen is a
graduate of Cornell University.
Gebran S. Anton, Jr. will serve as a Director of the Combined Company. He
has served as a Director of Chateau since 1993. Mr. Anton is the owner of Gebran
Anton Development Co. and Anton, Zorn & Associates, Inc., a commercial and
industrial real estate broker, where he has been engaged for the past five
years. Mr. Anton is a former Chairman of the Board of First National Bank, a
Director of Bankers Mortgage and a former Chairman of the Board of St. Joseph
Hospital.
James L. Clayton will serve as a Director of the Combined Company. He has
served as a Director of ROC since August 1993. He is the founder, and since 1966
has been the Chairman of the Board and Chief Executive Officer of Clayton Homes,
Inc., a company which is engaged in the manufacture, sale, financing and
management of manufactured homes. Mr. Clayton is a director of Dollar General
Stores and Chairman of the Board of Bank First. In 1991, Mr. Clayton was
inducted into the Horatio Alger Foundation, Washington, D.C. Mr. Clayton is a
trustee or board member of a number of charitable
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institutions. Mr. Clayton received an undergraduate degree in electrical
engineering and a law degree from the University of Tennessee.
Steven G. Davis will serve as a Director of the Combined Company. He has
served as Chief Financial Officer of ROC and its predecessors since March 1993,
and has served as Executive Vice President and a Director of ROC since 1993.
From 1990 to 1993, Mr. Davis served as an officer and director of The Windsor
Group, an owner/operator of 42 manufactured home communities, and, from 1991
through March 1993, as that company's President. From 1985 to 1990, prior to
joining The Windsor Group, he served as Vice President-Direct Investments of
Private Ledger Financial Services, a broker dealer. Mr Davis is a Certified
Public Accountant and has served as a manager for Touche Ross & Co. Mr. Davis is
a graduate of the University of San Diego.
James M. Hankins will serve as a Director of the Combined Company. He has
served as a Director of ROC since August 1993. He is managing general partner of
a partnership which owns and operates destination RV resorts in Arizona. Prior
to organizing the partnership in 1985, Mr. Hankins was President and Chief
Executive Officer of Mobile Home Communities, Inc. (currently MHC), which at the
time was an owner and operator of 31 manufactured home communities located in
eight states and containing more than 11,000 individual home sites. He was a
founder of that company in 1969, and served as Chief Executive Officer from 1973
to 1984. Mr. Hankins is past President of the Board of Directors of Geneva Glen
Camp, a trustee of Kent-Denver School and past President of the Board of
Directors of the Denver Children's Home. He holds a Bachelor of Science degree
from the University of South Carolina and a Masters of Business Administration
from Harvard University. He has also served as a Captain in the United States
Air Force.
James M. Lane will serve as a Director of the Combined Company. He has
served as a Director of Chateau since 1993. Mr. Lane recently retired as the
Senior Vice President in charge of NBD Bank's Trust Investment Division, where
he served for at least five years prior to 1995. Mr. Lane holds degrees from
Wheaton College and the University of Chicago.
Donald E. Miller will serve as a Director of the Combined Company. He has
served as a Director of ROC since August 1993. In May 1994, Mr. Miller was
appointed Vice Chairman of the Board of Directors of The Gates Corporation. From
1987 to May 1994, he was President, Chief Operating Officer and director of The
Gates Corporation and The Gates Rubber Company (collectively "Gates"), which
engage in the production and manufacture of rubber products, primarily for
automotive needs. Mr. Miller began his career with Gates in 1961 and held
various sales and management positions until 1987. Mr. Miller is a director of
Lennox Industries, Inc., Sentry Insurance Co., Mountain States Employers Council
and the Colorado Business Coalition for Health, and he is a trustee of the
Colorado School of Mines. Mr. Miller is a graduate of the Colorado School of
Mines.
BOARD CLASSIFICATION AND RELATED MATTERS
Pursuant to the Chateau Charter, the terms of directors are staggered, with
terms of each class expiring in three successive years. See "--Directors and
Executive Officers of the Combined Company" for a discussion of the initial
classification of directors of the Combined Company following the Merger and the
anticipated classification of the Combined Company Board beginning with the
first annual meeting of the Combined Company following the completion of the
Merger.
The Chateau Charter provides that the directors of the Combined Company may
only be removed for cause and then only upon the vote of holders of at least
two-thirds of the outstanding shares of Chateau Common Stock entitled to vote in
the election of directors.
The Combined Company By-Laws provide that a committee consisting exclusively
of the Group A Directors (the "Group A Nominating Committee"), a committee
consisting exclusively of the Group B Directors (the "Group B Nominating
Committee") and a committee consisting of John A. Boll (or, in the
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event that John A. Boll is no longer a director, a Group A Director selected by
the Group A Directors) and two of his designees (the "Group C Nominating
Committee" and, together with the Group A and Group B Nominating Committees, the
"Nominating Committees") shall be the exclusive nominating committees of the
Board of Directors. Each director nominated by the Board shall be designated as
a director to be part of the Group that corresponds to the Nominating Committee
that initiated such director's nomination. In order to stand for election as a
nominee of the Combined Company Board, each nominee nominated by one of the
Nominating Committees shall also be approved by the full Combined Company Board,
requiring in each case that at least two-thirds of the directors then in office
approve any nominee nominated by any of the Nominating Committees to stand for
election as director. Combined Company Board nominations for director must
initiate at the nominating committee level and then follow the foregoing
procedures. The Combined Company By-Laws also provide that if the term of any
director expires or terminates or such director resigns or is removed from the
Combined Company Board (a "Retiring Director"), the Nominating Committee of the
Group of the Retiring Director (or the full Company Board in the case of a
director that is not part of any Group) shall be exclusively responsible for
nominating a replacement to stand for election to the Combined Company Board at
the next annual meeting of stockholders of the Combined Company to serve for a
term that is coterminous with the term of the Retiring Director, in the case of
any departure before the expiration of such Retiring Director's term, or for a
three-year period, in the case of any departure by a Retiring Director at the
end of such director's term. Prior to such annual meeting, the stockholders of
the Combined Company or the applicable Nominating Committee, subject to the
approval of the full Company Board (or the full Company Board in the case of a
director that is not part of any Group) may fill vacancies resulting from a
director becoming a Retiring Director for a term that expires at such next
annual meeting. Nothing in the foregoing provisions shall prevent nominations
from stockholders in accordance with the procedures specified in the Combined
Company Charter and Combined Company By-Laws, and any director elected as a
result of any stockholder nominations shall not be placed in any of the Group
designations specified above. See "DESCRIPTION OF CAPITAL STOCK OF THE COMBINED
COMPANY--Certain Provisions of Chateau's Charter and By-Laws and of Maryland
Law--Advance Notice of Director Nominations and New Business."
Beginning with the 1997 annual meeting of stockholders, the Combined Company
Board shall be increased to 11 members, with such additional seat on the Board
being filled with an additional Independent Director (as defined below) who
shall be designated by the Group C Nominating Committee and shall be considered
a Group C Director.
COMPENSATION OF DIRECTORS
The Combined Company intends to pay an annual fee of $15,000 to directors
who are not employees of the Combined Company ("Independent Directors"). On
April 15 of each year, the Combined Company intends to grant to each Independent
Director an option to purchase 5,000 shares of Chateau Common Stock, exercisable
at a price per share equal to the fair market value of such shares as of the
grant date. In addition, the Combined Company will reimburse directors for
travel expenses incurred in connection with their activities on behalf of the
Combined Company.
COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMBINED COMPANY
In addition to the Nominating Committees, the Combined Company will have the
additional committees of the Board of Directors described below.
The Combined Company By-Laws provide that each committee (other than the
Nominating Committees) of the Combined Company Board shall consist of members
divided evenly between Group A and Group B Directors.
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AUDIT COMMITTEE
The Combined Company Board has established an Audit Committee that will
consist of two independent directors. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and non-audit fees and reviews the adequacy of the Combined
Company's internal accounting controls. The initial members of the Audit
Committee following the Merger will be Messrs. Allen, Hankins, Lane and Miller.
EXECUTIVE COMPENSATION COMMITTEE
The Combined Company Board has established an Executive Compensation
Committee that will consist of a majority of independent directors to administer
the Combined Company's Stock Option Plan, as well as the two plans assumed from
ROC and Chateau. The Executive Compensation Committee will determine the types
of awards to be granted, the number of shares of which are covered by the award
and the terms and conditions of the awards. The initial members of the Executive
Compensation Committee following the Merger will be Messrs. Allen, Anton,
Clayton and S. Davis.
EMPLOYMENT AGREEMENTS
Consistent with the goal of ROC and Chateau to retain the skills and
expertise of their senior managements for the Combined Company following the
Merger, the Merger Agreement provides for the Combined Company to execute
employment agreements (each, an "Employment Agreement"), effective as of the
Effective Day of the Merger, with each of the following senior officers: Gary P.
McDaniel, C.G. ("Jeff") Kellogg, James B. Grange, Tamara D. Fischer and Rees F.
Davis, Jr. Mr. Kellogg and Ms. Fischer are currently employed by Chateau, and
their existing employment agreements with Chateau will be terminated upon
consummation of the Merger to be replaced by the new agreements. Each Employment
Agreement has an initial term of three years with automatic one-year extensions
commencing on the third anniversary of the Effective Day unless notice of
nonextension is given at least 180 days prior to such anniversary. Each
Employment Agreement provides for: (i) a base salary for Gary P. McDaniel
($225,000); C.G ("Jeff") Kellogg ($225,000); James B. Grange ($190,000); Tamara
D. Fischer ($175,000); and Rees F. Davis, Jr. ($160,000); (ii) an annual target
bonus of up to 80% of such Executive's base salary upon the attainment, among
other things, of increases in funds from operations per share of the Combined
Company (as specified in the Annual Bonus Program described below) with the
bonus for 1997 being calculated assuming the Merger had been consummated on
January 1, 1996; (iii) grants of stock options and shares of restricted stock
under the Combined Company's Equity Participation Plan described below; and (iv)
benefits (including retirement, group life, medical, dental and disability
benefits) on a basis reasonably comparable in the aggregate to those provided to
the Executive immediately prior to the Effective Day.
Each Employment Agreement provides that, if the Executive's employment is
terminated or not renewed by the Combined Company other than for "cause" or
"disability" or by the Executive for "good reason," the Executive will be
entitled to receive the following payments and benefits: (i) a payment in cash
equal to two times the sum of (A) the Executive's annual base salary immediately
prior to the event or circumstance upon which termination of employment is
based, and (B) the then-current annual target bonus; and (ii) for 24 months
immediately following the date of such termination, the continuation of
substantially the same welfare and economically equivalent pension benefits as
the Executive is receiving immediately prior to termination of employment, at
the Combined Company's expense, subject to offset by any such benefits received
from a subsequent employer during such 24-month period. Further, in the event
the employment of either Mr. McDaniel or Mr. Kellogg is terminated as a result
of a "Change of Control" as defined in the Employment Agreement, "two times" in
clause (i) above shall be replaced with "three times" and "24" in clause (ii)
above shall be replaced with "36" each time it appears. Each Employment
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Agreement also provides that, in the event of a termination in the circumstances
described above in this paragraph, all outstanding equity-based awards will vest
and, in the case of options, will remain exercisable for the balance of the
option term. In addition, in the event that the Executive's employment under the
Employment Agreement is terminated for any other reason, other than for "cause,"
including voluntary resignation, death or disability, "two times" in clause (i)
above shall be deleted and "24" in clause (ii) above shall be replaced by "12"
each time it appears. Each Employment Agreement also provides for gross up
payments to be made to compensate the Executives for any "golden parachute
taxes" they might have to pay on payments and benefits provided under the
Employment Agreements.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Maryland law permits a corporation formed in Maryland to include in its
charter a provision eliminating or limiting the liability of its directors and
officers to the corporation or its stockholders for money damages except for (i)
actual receipt of an improper benefit or profit in money, property or services
or (ii) active and deliberate dishonesty established by a final judgment as
being material to the cause of action. The Combined Company Charter has
incorporated such a provision which limits such liability to the fullest extent
permitted by Maryland law.
The Combined Company Charter authorizes it to indemnify its present and
former officers and directors and to pay or reimburse expenses in advance of the
final disposition of the proceeding to the maximum extent permitted from time to
time by the laws of Maryland. The Combined Company By-Laws contain procedures
relating to indemnification matters. The MGCL permits a corporation to indemnify
its present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and was committed in bad faith or as the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services, or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. In addition, the MGCL requires the
Combined Company, as conditions to advancing expenses, to obtain (i) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Combined Company as
authorized by the applicable bylaws or partnership agreement and (ii) a written
statement by or on his behalf to repay the amount paid or reimbursed by the
Combined Company if it shall ultimately be determined that the standard of
conduct was not met.
EQUITY PARTICIPATION PLAN
Pursuant to the Merger Agreement, the Combined Company adopted a plan (the
"Equity Participation Plan") which authorizes the discretionary grant by the
Executive Compensation Committee of awards of options and restricted shares of
Chateau Common Stock. Pursuant to the Equity Participation Plan, 700,000 shares
of Chateau Common Stock, subject to anti-dilutive adjustment, will be reserved
for awards of options and restricted shares of Chateau Common Stock to employees
for the purpose of providing, through the grant of long-term incentives, a means
to attract and retain key personnel and to provide to participating officers and
other key employees long-term incentives for sustained high levels of
performance, and 250,000 additional shares of Chateau Common Stock, subject to
anti-dilutive adjustment, will be reserved for awards as restricted stock over a
three-year period under the Annual Bonus Program. Immediately following the
Effective Time, the Combined Company expects to prepare and file a registration
statement relating to the offer and sale by the Combined Company of shares of
Chateau Common Stock pursuant to the Equity Participation Plan.
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ANNUAL BONUS PROGRAM
The Combined Company will institute an annual bonus program (the "Annual
Bonus Program") for senior executives and other employees. The maximum amount of
any bonus awarded to an employee under the Annual Bonus Program will be 80% of
such employee's base salary. The bonus will be based on the Combined Company's
achievement of increases in funds from operations per share. Each participant in
the Annual Bonus Program may receive a premium bonus (in an amount to be
determined by the Executive Compensation Committee) if such participant elects
to receive his or her bonus in the form of Chateau Common Stock in lieu of cash.
The Combined Company's five senior executive officers will initially be eligible
to receive bonuses pursuant to the Annual Bonus Program, and other employees
will be invited to participate in the future.
CERTAIN POLICIES OF THE COMBINED COMPANY
It is anticipated that the Board of Directors and senior management of the
Combined Company will manage the affairs of the Combined Company in accordance
with the following policies. Neither the Combined Company Charter nor the
Combined Company By-Laws mandate any specific policies and those set forth below
may be modified from time to time at the discretion of the Combined Company
Board without notice to or a vote of the stockholders of the Combined Company,
except that changes in certain policies with respect to conflicts of interest
will be consistent with legal requirements.
INVESTMENT POLICIES
Investments in Real Estate
The Combined Company's investment objectives are to increase cash flow and
the value of the Combined Company's portfolio through continued growth,
including expansion, of the existing portfolio and aggressive acquisition and
development of additional communities and, when possible, the expansion of such
communities. The Combined Company intends to focus its activities on the
manufactured home community business with the primary objective of owning and
acquiring assets for income generation and long term appreciation in value.
Although the Combined Company has no present intention to sell any existing
communities owned by ROC or Chateau, the Combined Company may consider selling
certain communities if appropriate in pursuing its investment strategies. The
Combined Company does not have any policy which limits the amount which may be
invested in a single property. The Combined Company will emphasize equity real
estate investments in its existing markets as well as expansions into markets
adjacent to existing markets. The Combined Company intends to pay for its
acquisition and development activities through offerings of debt and equity
securities, issuances of additional OP Units and borrowings on available lines
of credit.
While the Combined Company will emphasize equity real estate investments in
manufactured home community properties, it may, in its discretion, invest in
mortgages and other interests related to manufactured home community properties,
including mortgages on individual homes. The Combined Company does not presently
intend to invest to a significant extent in mortgages or deeds of trust, but may
do so subject to the investment restrictions applicable to REITs. The mortgages
in with the Combined Company may invest may be either first mortgages or junior
mortgages, and may or may not be insured by a governmental agency.
Investments in Combined Company Securities
The Combined Company may, from time to time, purchase or otherwise acquire
its securities depending upon its evaluation of prices offered, but, other than
the Chateau Share Repurchase Program, it has no present plan to do so.
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Securities of or Interest in Persons Primarily Engaged in Real Estate Activities
and Other Issuers
Subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, the Combined Company may also invest in
securities of entities engaged in real estate activities or securities of other
issuers, including for the purpose of exercising control over such entities, but
the Combined Company would not invest in excess of 5% of its gross assets in any
one of such entities. The Combined Company may acquire all or substantially all
of the securities or assets of entities where such investments would be
consistent with the Combined Company's investment policies. As the Combined
Company does not currently intend to make any investments of this nature, the
Combined Company has not yet developed criteria for such purchases. In any
event, the Combined Company does not intend for its investments in securities to
require its registration as an "investment company" under the Investment Company
Act of 1940, and the Combined Company intends to divest securities before any
such registration would be required.
FINANCING POLICIES
Independent of any financial covenants which may be binding on the Combined
Company, the Combined Company intends to maintain a debt-to-total market
capitalization ratio (I.E., total debt of the Combined Company as a percentage
of the market value of outstanding shares of Chateau Common Stock and OP Units
plus total debt) of approximately 50% or less. This policy differs from
traditional mortgage debt-to-equity ratios which are asset based ratios. On a
pro forma basis, as of September 30, 1996, the Combined Company would have had a
debt-to-total market capitalization ratio of approximately 33% (assuming a
market price per share of the Combined Company of $24.375, the closing price of
the Chateau Common Stock on the NYSE on November 6, 1996, the date of the
termination of the MHC Tender Offer). The Combined Company, however, may from
time to time re-evaluate this policy and decrease or increase such ratio
accordingly in light of then current economic conditions, relative costs to the
Combined Company of debt and equity capital, market values of the properties
opportunities and other factors.
CONFLICT OF INTEREST POLICIES
Without the approval of a majority of the disinterested directors, the
Combined Company will not (i) acquire from or sell to any director, officer or
employee of the Combined Company, or any entity in which a director, officer or
employee of the Combined Company owns more than a 1% interest, or acquire from
or sell to any affiliate of any of the foregoing, any assets or other property
of the Combined Company, (ii) make any loan to or borrow from any of the
foregoing persons, or (iii) engage in any other material transaction with any of
the foregoing persons. Each transaction of the type described above will be in
all respects on such terms as are, at the time of the transaction and under the
circumstances then prevailing, fair and reasonable to the Combined Company. Each
executive officer of the Combined Company has agreed to conduct any and all of
such officer's activities related to the ownership, acquisition, development and
management of manufactured home communities through the Combined Company, except
to the extent of existing investments in residential and commercial real estate
activities held by such executive officers. The Combined Company has no such
policy with respect to its non-employee directors.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Combined Company may, but does not presently intend to, make investments
other than as previously described. All investments (other than short-term
investments) are expected to be related to the manufactured home community
business. The Combined Company will have authority to offer shares of Chateau
Common Stock or other equity or debt securities in exchange for property and to
repurchase or otherwise reacquire Chateau Common Stock or any securities and may
engage in such activities in the future. Similarly, in exchange for property,
the Operating Partnership may offer additional OP Units in the Operating
Partnership that are exchangeable into Chateau Common Stock. The Combined
Company will not engage in trading, underwriting or the agency distribution or
sale of securities of other issuers. At all
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times, the Combined Company intends to make investments in such a manner as to
be consistent with the requirements of the Code to qualify as a REIT unless,
because of circumstances or changes in the Code (or the regulations promulgated
thereunder), the Combined Company Board determines that it is no longer in the
best interest of the Combined Company to continue to have the Combined Company
qualify as a REIT. The Combined Company's policies with respect to such
activities may be reviewed and modified from time to time by the Combined
Company's directors without notice to or the vote of the stockholders. It is
expected that the Combined Company will mail semiannual reports to
securityholders.
REPORTING TO STOCKHOLDERS
Following the Merger, the Combined Company will be required to file reports
and other information with the Commission pursuant to the Exchange Act. In
addition to applicable legal or NYSE requirements, if any, holders of the
Chateau Common Stock will receive annual reports containing audited financial
statements, and semi-annual reports containing unaudited financial information
for the first six months of each fiscal year.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMBINED COMPANY
The following table contains information concerning the ownership of Chateau
Common Stock by each person known to ROC or Chateau that is expected to be a
beneficial owner of more than 5% of Chateau Common Stock upon completion of the
Merger and the Other Transactions, as well as the anticipated ownership of
Chateau Common Stock by each of the Combined Company's directors, by each of the
Combined Company's executive officers and by directors and executive officers as
a group. Directors are designated by an asterisk.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP** PERCENT OF CLASS
- ----------------------------------------------------------------------------------- ------------ -----------------
<S> <C> <C>
John A. Boll(1)*................................................................... 3,584,241 14.1%
Gary P. McDaniel(2)*............................................................... 454,510 1.8%
C.G. ("Jeff") Kellogg(3)*.......................................................... 294,805 1.2%
James B. Grange(4)................................................................. 196,031 ***
Tamara D. Fischer(5)............................................................... 130,873 ***
Rees F. Davis, Jr.(6).............................................................. 195,146 ***
Edward R. Allen(7)*................................................................ 870,458 3.5%
Gebran S. Anton, Jr.(8)*........................................................... 31,287 ***
James L. Clayton(9)*............................................................... 182,779 ***
Steven G. Davis(10)*............................................................... 173,663 ***
James M. Hankins(11)*.............................................................. 28,863 ***
James M. Lane(12)*................................................................. 21,664 ***
Donald E. Miller(13)*.............................................................. 23,966 ***
All directors and executive
officers as a group (13 persons)(14)............................................. 6,188,288 23.7%
J. Peter Ministrelli(15)........................................................... 2,637,894 10.4%
</TABLE>
- ------------------------
** For purposes of this table, a person is deemed to be the beneficial owner of
shares of Chateau Common Stock if that person has the right to acquire such
shares within 60 days of consummation of the Merger by the exercise of any
stock option or any other right to convert or exchange outstanding
securities. OP Units and stock options held by a person are deemed to have
been exchanged or exercised for the purpose of computing the percentage of
outstanding shares of Chateau Common Stock beneficially owned by such
person, but shall not be deemed to have been exchanged or exercised for the
purpose of computing the percentage of outstanding shares of Chateau Common
Stock beneficially owned by any other person. Additionally, for the purposes
of this table, a person or entity shall be deemed to be a beneficial owner
of shares of Chateau Common Stock if such person or entity has or shares
either investment or voting power with respect to such shares.
*** Less than 1%.
1. Reflects 3,098,791 shares of Chateau Common Stock, 464,818 OP Units
exchangeable for an equal number of shares of Chateau Common Stock and
options to purchase 20,632 shares of Chateau Common Stock. Does not include
220,000 shares of Chateau Common Stock which may be obtained on exchange of
currently non-exchangeable OP Units.
2. Reflects 394,595 shares of Chateau Common Stock and options to purchase
59,915 shares of Chateau Common Stock. Chateau Common Stock beneficially
owned by Mr. McDaniel includes an aggregate of 6,252 shares of Chateau
Common Stock held in irrevocable trusts established for the benefit of Mr.
McDaniel's two children. Mr. McDaniel disclaims beneficial ownership of the
Chateau Common Stock held in such trusts.
120
<PAGE>
3. Reflects 71,979 shares of Chateau Common Stock and options to purchase
222,826 shares of Chateau Common Stock.
4. Reflects 136,116 shares of Chateau Common Stock and options to purchase
59,915 shares of Chateau Common Stock.
5. Reflects 11,463 shares of Chateau Common Stock, 776 OP Units exchangeable
for an equal number of shares of Chateau Common Stock and options to
purchase 118,634 shares of Chateau Common Stock.
6. Reflects 135,231 shares of Chateau Common Stock and options to purchase
59,915 shares of Chateau Common Stock.
7. Reflects 849,826 shares of Chateau Common Stock and options to purchase
20,632 shares of Chateau Common Stock.
8. Reflects 10,655 shares of Chateau Common Stock and options to purchase
20,632 shares of Chateau Common Stock.
9. Reflects 182,779 shares of Chateau Common Stock and options to purchase
20,840 shares of Chateau Common Stock. Chateau Common Stock beneficially
owned by Mr. Clayton includes 182,779 shares of Chateau Common Stock owned
by Clayton Homes, Inc. Mr. Clayton disclaims beneficial ownership of the
shares of Chateau Common Stock owned by Clayton Homes, Inc., except to the
extent of his approximate 30% equity interest in Clayton Homes, Inc. Shares
owned by Clayton Homes, Inc. are held by its wholly-owned subsidiary CHM
Parks, Inc.
10. Reflects 115,311 shares of Chateau Common Stock and options to purchase
58,352 shares of Chateau Common Stock.
11. Reflects 8,023 shares of Chateau Common Stock and options to purchase 20,840
shares of Chateau Common Stock. Chateau Common Stock beneficially owned by
Mr. Hankins includes 1,303 shares of Chateau Common Stock owned by Mr.
Hankins' spouse, 2,605 shares of Chateau Common Stock held by Mr. Hankins'
individual retirement account and 1,250 shares of Chateau Common Stock held
by Mr. Hankins as conservator for the estate of Jared M. Hankins.
12. Reflects 1,052 shares of Chateau Common Stock and options to purchase 20,632
shares of Chateau Common Stock.
13. Reflects 3,126 shares of Chateau Common Stock and options to purchase 20,840
shares of Chateau Common Stock. Chateau Common Stock beneficially owned by
Mr. Miller includes 1,042 shares of Chateau Common Stock owned by Mr.
Miller's spouse.
14. Includes shares deemed to be beneficially owned by virtue of ownership of OP
Units and options to purchase shares of Chateau Common Stock.
15. Reflects 2,285,820 shares of Chateau Common Stock and 357,104 OP Units
exchangeable for an equal number of shares of Chateau Common Stock. Mr.
Ministrelli's address is 50-445 Mountain Shadow, La Quinta, CA 92253. Does
not include 135,000 shares of Chateau Common Stock which may be obtained on
exchange of currently non-exchangeable OP Units.
121
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
ROC and Chateau are incorporated under the laws of the State of Maryland and
are governed by the MGCL. Upon consummation of the Merger, ROC stockholders will
become stockholders of Chateau. Their rights as stockholders will continue to be
governed by the MGCL, but instead of being subject to the terms of the Charter
of ROC, as in effect on the date hereof (the "ROC Charter"), and the By-Laws of
ROC, as amended and in effect on the date hereof (the "ROC By-Laws"), their
rights as stockholders will now be governed by the Chateau Charter, which will
be the Charter of the Combined Company (the "Combined Company Charter"), and the
Chateau By-Laws, which, as amended effective as of the Effective Time, will be
the By-Laws of the Combined Company (the "Combined Company By-Laws"). The
following sets forth a summary of the differences between the ROC and Chateau
organizational documents and those of the Combined Company. The following
summary is qualified in its entirety by reference to such organizational
documents, each of which is filed as an exhibit to the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part.
CHANGES IN CONTROL
Certain provisions of both the ROC Charter and the Chateau Charter may have
the effect of discouraging certain transactions that may involve an actual or
threatened change in control of ROC or Chateau.
CLASSIFIED BOARD
Under the Chateau Charter, Chateau maintains a classified Board of
Directors, with each director being elected for a three-year term. ROC does not
maintain a classified Board of Directors. See "DESCRIPTION OF CAPITAL STOCK OF
THE COMBINED COMPANY--Certain Provisions of Chateau's Charter and By-Laws and of
Maryland Law--Board of Directors" and "MANAGEMENT OF THE COMBINED
COMPANY--Directors and Executive Officers of the Combined Company" and "--Board
Classification and Related Matters."
MARYLAND BUSINESS COMBINATION LAW
The Maryland Business Combination Law is currently applicable to both ROC
and Chateau. The Maryland Business Combination Law will also apply to the
Combined Company, except that the Chateau Principals and ROC Principals will be
exempt from the application thereof.
MARYLAND CONTROL SHARE STATUTE
Acquisitions of ROC Stock are currently subject to the control share
provisions of Section 3-701 ET SEQ. of the MGCL (the "Maryland Control Share
Statute"). The Maryland Control Share Statute is not currently applicable to
acquisitions of Chateau Common Stock, nor will it be applicable to acquisitions
of Chateau Common Stock following the consummation of the Merger and the Other
Transactions.
STOCKHOLDER RIGHTS PLAN
ROC is a party to a rights agreement pursuant to which each outstanding
share of ROC Stock also represents the right (a "Right") to purchase one
one-thousandth of a share of Series A Junior Participating Preferred Stock of
ROC, which Rights may have certain anti-takeover effects under certain
circumstances. As of the Effective Time, all of the ROC Rights will be
terminated (without any benefit to the holders thereof) and holders of Chateau
Common Stock will not have any such right.
122
<PAGE>
PREFERRED STOCK
Under the ROC Charter and Chateau Charter, the ROC and Chateau Boards both
have the authority to classify and reclassify any unissued shares of preferred
stock by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares of
stock and may issue capital stock of any class or series from time to time. The
Boards' authority in this regard may enable it to prevent a change in control of
ROC and Chateau. See "DESCRIPTION OF CAPITAL STOCK OF THE COMBINED
COMPANY--Additional Classes of Stock."
DIRECTOR NOMINATION PROCEDURES
The Combined Company By-Laws will contain specific procedures that govern
the manner in which the Board of the Combined Company will nominate directors to
stand for election at Combined Company stockholder meetings. See "MANAGEMENT OF
THE COMBINED COMPANY--Board Classification and Related Matters." The current ROC
and Chateau organizational documents do not contain such provisions.
REMOVAL OF DIRECTORS
Both the ROC Charter and the Chateau Charter provide that a director may be
removed only for cause and only by the affirmative vote of two-thirds of all the
votes entitled to be cast for the election of directors. Furthermore, the
current Chateau By-Laws provide that vacancies on the Chateau Board due to an
increase in the number of directors may be filled by a majority vote of the
entire Chateau Board. Vacancies due to other reasons may be filled by a majority
of the remaining directors although such majority constitutes less than a
quorum. Any individual so elected as director shall hold office until the next
annual meeting of stockholders. Under the Combined Company By-Laws, nominations
to replace a retiring director shall be made by a nominating committee of the
class of such retiring director, and such nominee must also be approved by at
least two-thirds of the directors then in office. Any director so selected shall
stand for re-election at the next annual meeting of stockholders. Under the ROC
Charter, any vacancy on the ROC Board for any reason other than an increase in
the number of directors shall be filled by a majority of the remaining
directors, even if such majority is less than a quorum. Any vacancy in the
number of directors created by an increase in the number of directors may be
filled by a majority vote of the entire ROC Board. Any individual so elected as
director shall hold office until the next annual meeting of stockholders. Any
such vacancy may also be filled by a vote of the stockholders, and a director
selected in such manner shall hold office for the unexpired term of the director
he is replacing. See "MANAGEMENT OF THE COMBINED COMPANY--Board Classification
and Related Matters."
CERTAIN VOTING RIGHTS
In general, mergers, consolidations, share exchanges, recapitalizations and
dissolutions and sales of all or substantially all of the assets of ROC or
Chateau require the approval of such company's Board of Directors and the
concurrence of stockholders representing at least two-thirds of the outstanding
shares of such company's Common Stock. However, under the Combined Company
By-Laws, such transactions will also require the approval of two-thirds of the
directors then in office with the concurrence of the same required stockholder
vote.
CHARTER AND BY-LAW AMENDMENTS
The ROC Charter and the Chateau Charter each require Board approval and the
affirmative vote of at least two-thirds of all the votes entitled to be cast on
the matter for charter amendments. The ROC By-Laws and current Chateau By-Laws
may be amended by a majority vote of such company's Board of Directors present
at a meeting at which a quorum is present.
123
<PAGE>
The Combined Company By-Laws may be amended by a vote of two-thirds of the
directors then in office, with amendments relating to the configuration of the
Board and its committees and indemnification of directors also requiring the
approval of the holders of a majority of the outstanding Chateau Common Stock.
The provisions of the ROC Charter relating to the limitations of liability and
indemnification may only be amended prospectively. The provisions of the Chateau
Charter relating to limitation of liability (but not indemnification) may only
be amended prospectively.
SPECIAL MEETINGS
The ROC By-Laws provide that a special meeting of stockholders may be called
by the President, Chief Executive Officer or the ROC Board. Special meetings of
stockholders shall also be called by the Secretary upon the written request of
the holders of shares entitled to cast not less than 50% of all the votes
entitled to be cast at such meeting. Such request shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
Secretary shall inform such stockholders of the reasonably estimated cost of
preparing and of mailing notice of the meeting, and, upon payment to ROC of such
costs, the Secretary shall give notice to each stockholder entitled to vote at
such meeting.
Under the current Chateau By-Laws and the Combined Company By-Laws, a
special meeting of stockholders may be called by the President, Chief Executive
Officer, or the Board of Directors. Special meetings of stockholders shall also
be called by the Secretary upon the written request of the holders of shares
entitled to cast at least 25% of the votes at such meeting. However, a special
meeting need not be called to consider any matter which is substantially the
same as a matter voted on at any special meeting of stockholders held during the
preceding 12 months, unless the meeting is requested by stockholders entitled to
cast a majority of all the votes entitled to be cast at the meeting.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The ROC By-Laws provide that any stockholder desiring to make a nomination
for the election of directors or a proposal for new business at a meeting of
stockholders must submit written notice to ROC generally not less than 60 or
more than 90 days in advance of the first anniversary of the preceding year's
annual meeting. The current Chateau By-Laws contain, and the Combined Company
By-Laws will contain, similar provisions. The Combined Company By-Laws will also
provide that any director elected as a result of any stockholder nomination
shall not receive any Group designation. See "MANAGEMENT OF THE COMBINED
COMPANY--Board Classification and Related Matters."
REDEMPTION AND RESTRICTIONS ON TRANSFERS
Both ROC and Chateau have elected to be taxed as REITs under the Code. See
"THE PARTIES-- ROC" and "THE PARTIES--Chateau." The requirements for
qualification of a corporation as a REIT include the following: (i) management
of the corporation by one or more directors; (ii) beneficial ownership of the
corporation evidenced by transferable certificates of common stock; (iii)
taxation of the corporation as a domestic corporation but for Sections 856
through 860 of the Code; (iv) the corporation is neither a financial institution
nor an insurance company subject to certain provisions of the Code; (v) calendar
year taxable year; (vi) beneficial ownership of the corporation held by 100 or
more persons on 335 days of each taxable year of 12 months; (vii) during the
last half of each taxable year, not more than 50% in value of the outstanding
common stock of the corporation is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code); and (viii) adherence to certain
specific income and asset tests.
In order for Chateau to qualify as a REIT, the Chateau Charter provides
that, except for certain Existing Holders (as defined therein), no person may
directly or indirectly acquire beneficial or constructive ownership of more than
7% in number of shares or value of outstanding Chateau Common Stock or preferred
stock. With regard to the Existing Holders, which include John A. Boll and J.
Peter Ministrelli, the Chateau Charter provides for restrictions on their
ability to own Chateau Common Stock. The
124
<PAGE>
Chateau Charter further provides that each share beneficially or constructively
owned in violation of the ownership limit shall be void AB INITIO as to the
transfer of such shares and the intended transferee shall acquire no rights in
such shares of Chateau Common Stock or preferred stock. Under the Chateau
Charter, the Chateau Board may from time to time increase the ownership limit,
but not above 9.8%, and may not waive the ownership limit without first
obtaining a ruling from the IRS. The Chateau Charter also contains provisions
designed to enforce the terms of the ownership limit provisions. See
"DESCRIPTION OF CAPITAL STOCK OF THE COMBINED COMPANY--Ownership Limit;
Restrictions on Transfer." The ROC Charter contains similar provisions relating
to the ownership of shares of its stock, except that the ROC ownership limit is
9.8%, and the ROC Board may effect ownership limit changes in different
circumstances than are permitted under the Chateau Charter.
UPREIT FORMAT
Chateau is currently organized, and the Combined Company will be organized,
as an UPREIT which conducts its business through the Operating Partnership in
which Chateau currently holds a 40.8% equity interest. The balance of the
partner interests in Chateau are held by limited partners, including John A.
Boll and Edward R. Allen, who were responsible for Chateau's original
organization. Although not currently organized with an operating partnership
subsidiary, ROC was, prior to entering into the Original Merger Agreement with
Chateau, in the process of reorganizing its business in the UPREIT format. The
Combined Company will be organized in the UPREIT format, with the Operating
Partnership serving as the operating partnership of the Combined Company. See
"THE PARTIES--The Combined Company."
125
<PAGE>
FEDERAL SECURITIES LAW CONSEQUENCES
All Chateau Common Stock issued in connection with the Merger will be freely
transferable, except that any Chateau Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
ROC prior to the Merger may be sold by them only in transactions permitted by
the resale provisions of Rule 145 under the Securities Act, or Rule 144 under
the Securities Act with respect to persons who are or become affiliates of the
Combined Company, or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of the Combined Company or ROC generally
include individuals or entities that control, are controlled by or are under
common control with, the Combined Company or ROC and generally include executive
officers, directors and principal stockholders.
Affiliates (as defined below) may not sell their Chateau Common Stock
acquired in connection with the Merger except pursuant to an effective
registration under the Securities Act covering such shares or in compliance with
Rule 145 under the Securities Act (or Rule 144 under the Securities Act in the
case of persons who become affiliates of the Combined Company) or another
applicable exemption from the registration requirements of the Securities Act.
For purposes of Rule 144 and Rule 145, "Affiliate" means, with respect to any
person, (i) any member of the immediate family of such person; (ii) any partner,
trustee, beneficiary or stockholder of such person; (iii) any legal
representative, successor or assignee of any person referred to in the preceding
clauses (i) and (ii); (iv) any trustee or trust for the benefit of any person
referred to in the preceding clauses (i) through (iii); or (v) any entity which,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person referred to in the
preceding clauses (i) through (iv). In general, Rule 145 under the Securities
Act provides that, for two years following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell Chateau Common
Stock acquired in connection with the Merger only through unsolicited "broker
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 144. Additionally, the number of shares to be sold by an
affiliate (together with certain related persons and certain persons acting in
concert) within any three-month period for purposes of Rule 145 under the
Securities Act may not exceed the greater of 1% of the outstanding Chateau
Common Stock or the average weekly trading volume of such shares during the four
calendar weeks preceding such sale. Rule 145 under the Securities Act will
remain available to affiliates if the Combined Company remains current with its
informational filings with the Commission under the Exchange Act. Two years
after the Effective Time, an affiliate will be able to sell such Chateau Common
Stock without being subject to such manner of sale or volume limitations
provided that the Combined Company is current with its Exchange Act
informational filings and such affiliate is not then an affiliate of the
Combined Company. Three years after the Effective Time, an affiliate will be
able to sell such Chateau Common Stock without any restrictions so long as such
affiliate had not been an affiliate of the Combined Company for at least three
months prior to the date of such sale.
Chateau will execute the New Registration Rights Agreement at or prior to
the Effective Time with certain existing stockholders of ROC, pursuant to which
the Combined Company will grant registration rights with respect to certain
shares of Chateau Common Stock. In addition, Chateau will execute affiliate
agreements (the "Affiliate Agreements") with certain affiliates of ROC who will
receive shares of Chateau Common Stock in the Merger ("Company Securities").
Pursuant to the Affiliate Agreements, such affiliates will agree not to,
directly or indirectly, sell, offer to sell, transfer or otherwise dispose of
any Company Securities, or cause any Company Securities to be sold, transferred
or otherwise disposed of, except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in compliance with Rule 145 under the
Securities Act or (iii) in compliance with another exemption from the
registration requirements of the Securities Act.
126
<PAGE>
COMBINED COMPANY SELECTED PRO FORMA
COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined condensed Balance Sheet is presented as if
the Merger and the Other Transactions had occurred on September 30, 1996. The
unaudited pro forma combined condensed Statements of Income for the nine-month
period ended September 30, 1996 and the year ended December 31, 1995 are
presented as if the Merger and the Other Transactions had occurred as of January
1, 1995 and carried forward through September 30, 1996.
Preparation of the pro forma financial information was based on assumptions
deemed appropriate by the management of Chateau and ROC and gives effect to the
Merger and the Other Transactions under the purchase method of accounting in
accordance with generally accepted accounting principles and the Combined
Company continuing to qualify as a REIT, distributing all of its taxable income
and, therefore, incurring no federal income tax expense during the periods
presented. The pro forma financial information is unaudited and is not
necessarily indicative of the results which actually would have occurred if the
Merger and the Other Transactions had been consummated at the dates indicated,
nor does it purport to represent the future financial position and results of
operations of the Combined Company for future periods. The pro forma information
should be read in conjunction with the historical financial statements of
Chateau and ROC incorporated by reference into this Joint Proxy
Statement/Prospectus.
127
<PAGE>
COMBINED COMPANY
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<TABLE>
<CAPTION>
AS OF OR FOR
THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996(1) 1995(1)
--------------- ------------------
<S> <C> <C>
OPERATING DATA:
Total revenues............................................... $ 99,143 $ 124,780
Property operating and administrative expense................ 40,592 49,634
Depreciation and amortization................................ 25,480 33,843
Interest and related amortization expense.................... 19,674 27,419
--------------- --------
Income before limited partners' interest..................... 13,397 13,884
Limited partners' interest in the Operating Partnership...... 1,347 1,461
--------------- --------
Net income................................................... $ 12,050 $ 12,423
--------------- --------
--------------- --------
BALANCE SHEET DATA:
Real estate, net of accumulated depreciation................. $ 697,631
Total assets................................................. $ 720,325
Total debt................................................... $ 329,486
Limited partners' interest in the Operating Partnership...... $ 35,577
Stockholders' equity......................................... $ 319,440
PER SHARE DATA:
Net income................................................... $ .48 $ .50
Distributions declared per common share...................... $ 1.215 $ 1.525
Weighted average shares outstanding.......................... 24,945 24,802
Weighted average shares and OP units outstanding............. 27,733 27,719
CASH FLOW DATA: (2)
Cash Flow provided by (used in):
Operating activities......................................... $ 43,822 $ 51,794
Financing activities......................................... $ (32,879) $ (52,418)
Investing activities......................................... $ (11,054) $ (8,530)
OTHER DATA:
Funds From Operations (3).................................... $ 38,709 $ 47,529
Total properties (at end of period).......................... 124
Total sites (at end of period)............................... 42,150
</TABLE>
- ------------------------------
(1) See pro forma combined condensed financial statements on the following pages
of this Joint Proxy Statement/Prospectus.
(2) Pro Forma Cash Flow Data is derived from historical cash flow data of
Chateau and ROC and is presented as if the Merger and Other Transactions had
occurred as of January 1, 1995.
(3) Funds From Operations, as used in the above table and as defined by NAREIT,
means net income excluding gains (or losses) from debt restructuring and
sales of property, plus certain depreciation and amortization. The
management of Chateau and ROC believe that Funds From Operations is an
important and widely used measure of the operating performance of REITs
which provides a relevant basis for comparison among REITs. Funds From
Operations: (i) does not represent cash flow from operations as defined by
generally accepted accounting principles; (ii) should not be considered as
an alternative to net income as a measure of operating performance or to
cash flows from operating, investing and financing activities; and (iii) is
not an alternative to cash flows as a measure of liquidity. Pro Forma Funds
from Operations is calculated as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C>
Income before limited partners' interest............................... $ 13,397 $ 13,884
Depreciation of rental property........................................ 24,925 33,162
Amortization of other intangibles...................................... 387 483
------- -------
Funds From Operations.................................................. $ 38,709 $ 47,529
</TABLE>
128
<PAGE>
COMBINED COMPANY
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERGER AND
OTHER
TRANSACTIONS PRO FORMA
CHATEAU ROC ACQUISITIONS PRO FORMA COMBINED
(HISTORICAL) (HISTORICAL) (A) ADJUSTMENTS CONDENSED
----------- ----------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income.......................... $ 48,194 $ 43,599 $ 3,937 -- $ 95,730
Management and other income............ 2,009 1,522 (118) -- 3,413
----------- ----------- --------------- ------------ -----------
Total revenue.......................... 50,203 45,121 3,819 -- 99,143
Expenses:
Property operating, maintenance and
administrative....................... 20,394 20,603 1,733 $ (2,138)(B) 40,592
Depreciation and amortization.......... 8,517 9,330 -- 7,633(C) 25,480
Interest and related amortization...... 9,417 6,317 -- 3,940(D) 19,674
----------- ----------- --------------- ------------ -----------
Total expenses......................... 38,328 36,250 1,733 9,435 85,746
----------- ----------- --------------- ------------ -----------
Income before limited partners'
interest............................... 11,875 8,871 2,086 (9,435) 13,397
Less limited partners' interest in the
Operating Partnership.................. 7,017 -- -- (5,895)(E) 1,347
----------- ----------- --------------- ------------ -----------
Net income............................... $ 4,858 $ 8,871 $ 2,086 $ (3,540) $ 12,050
----------- ----------- --------------- ------------ -----------
----------- ----------- --------------- ------------ -----------
Net income per share of common stock..... $ .80 $ .71 $ .48
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding...... 6,098 12,478 24,945(F)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares and OP Units
outstanding............................ 14,907 12,478 27,733(F)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the pro forma
combined condensed financial statements.
129
<PAGE>
COMBINED COMPANY
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERGER AND
OTHER
TRANSACTIONS PRO FORMA
CHATEAU ROC PRO FORMA COMBINED
(HISTORICAL) (HISTORICAL) ACQUISITIONS(A) ADJUSTMENTS CONDENSED
----------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income.................................. $ 59,912 $ 49,260 $ 11,716 -- $ 120,888
Management and other income.................... 1,943 2,242 (293) -- 3,892
----------- ----------- -------------- ------------ -----------
Total revenue.............................. 61,855 51,502 11,423 -- 124,780
Expenses:
Property operating, maintenance and
administrative.............................. 24,410 23,186 4,888 $ (2,850)(B) 49,634
Depreciation and amortization.................. 11,014 10,834 -- 11,995(C) 33,843
Interest and related amortization.............. 12,452 5,955 9,012(D) 27,419
----------- ----------- -------------- ------------ -----------
Total expenses................................. 47,876 39,975 4,888 18,157 110,896
----------- ----------- -------------- ------------ -----------
Income before limited partners' interest......... 13,979 11,527 6,535 (18,157) 13,884
Less limited partners' interest in the
Operating Partnership.......................... 8,342 -- -- (7,114)(E) 1,461
----------- ----------- -------------- ------------ -----------
Net income....................................... $ 5,637 $ 11,527 $ 6,535 $ (11,043) $ 12,423
----------- ----------- -------------- ------------ -----------
----------- ----------- -------------- ------------ -----------
Net income per share of common stock, before
extraordinary item............................. $ .95 $ .93 $ .50
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding.............. 5,959 12,424 24,802(F)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares and OP units
outstanding.................................... 14,779 12,424 27,719(F)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the pro forma
combined condensed financial statements.
130
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ACCOUNTING TREATMENT
The Merger and Other Transactions will be accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles. For financial accounting purposes these transactions result in the
purchase of all the ROC Stock by the Combined Company. Accordingly, the assets
and liabilities of ROC will be adjusted to acquisition value and the results of
operations of ROC will be included in the results of operations of the Combined
Company for periods subsequent to the Effective Time.
ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
<TABLE>
<S> <C> <C> <C> <C>
(A) Acquisitions--Represents the operating results for 14 communities with a total of 5,410 sites
acquired in 1996 and 1995 by Chateau and ROC from January 1, 1995 to the date of acquisition or the
end of the respective pro forma period, including the acquisition of Oakwood accounted for using the
purchase method of accounting (for a description of Oakwood, see "THE PARTIES--The Combined
Company").
<CAPTION>
FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------------- ---------------
<S> <C> <C> <C> <C>
(B) To reflect cost savings to eliminate duplicative public company
costs and other identified redundancies which have been estimated
based upon historical costs for those items as a result of the
Merger and the Other Transactions $ (2,138) $ (2,850)
---------------- ---------------
---------------- ---------------
(C) To reflect the adjustments in depreciation for the following:
(1) additional depreciation related to the 1995 and 1996
acquisitions for the period from January 1, 1995 to the
date of acquisition or the end of the respective pro
forma period. $ 1,401 $ 3,686
(2) as a result of recording the rental properties of ROC
at acquisition value versus historical cost and
utilizing an estimated average useful life of 20 years
for depreciable property 6,232 8,309
---------------- ---------------
$ 7,633 $ 11,995
---------------- ---------------
---------------- ---------------
(D) To reflect adjustment to interest expense for the following:
(1) additional interest expense related to the 1995 and
1996 acquisitions for the period from January 1, 1995
to the date of acquisition or the end of the respective
pro forma period. Interest was calculated based on
rates in effect during the periods at existing credit
arrangements $ 2,102 $ 6,387
(2) the interest associated with the borrowing on the line
of credit to pay the estimated Merger costs 788 1,125
(3) the interest associated with the borrowing on the lines
of credit to finance the purchase of shares of Chateau
common stock by ROC and the repurchase by Chateau (see
footnote (F)) 1,050 1,500
---------------- ---------------
$ 3,940 $ 9,012
---------------- ---------------
---------------- ---------------
</TABLE>
131
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------------- ---------------
<S> <C> <C> <C> <C>
(E) To adjust the limited partners' ownership interest in the
Operating Partnership based on the outstanding number of OP Units
as a percentage of total outstanding shares of Chateau Common
Stock and OP Units, as follows:
Pro forma net income before limited partners' interest
$ 13,397 $ 13,884
Pro forma minority interest percentage (see footnote (F))
10.0% 10.5%
---------------- ---------------
$ 1,347 $ 1,461
---------------- ---------------
---------------- ---------------
(F) The following adjustments are to reflect the Chateau Common Stock
and OP Unit transactions associated with the Merger and Other
Transactions.
The pro forma weighted average shares and OP Units outstanding are
computed as follows:
Chateau Historical Weighted Average Shares Outstanding
6,098,474 5,959,465
Chateau Stock Dividend (for a description see "THE MERGER--Terms
of the Merger")
387,051 382,659
Exchange of OP Units for shares of Chateau Common Stock
6,150,000 6,150,000
Purchase of Chateau Common Stock by ROC
(350,000) (350,000)
Purchase and retirement of Chateau Common Stock under the Chateau
Share Repurchase Program
(1,350,000) (1,350,000)
Issuance of shares of Chateau Common Stock to the Exchanging OP
Unitholders
900,000 900,000
Issuance of Shares of Chateau Common Stock in connection with the
Merger (assuming there are 12,581,517 shares of ROC Stock
outstanding immediately prior to the Effective Time)
13,109,941 13,109,941
---------------- ---------------
Total Shares
24,945,466 24,802,065
---------------- ---------------
---------------- ---------------
Chateau's Historical Weighted Average OP Units Outstanding
8,808,083 8,819,750
OP Unit Adjustment for Chateau Stock Dividend (for a description
see "THE MERGER--Terms of the Merger")
85,382 89,347
Exchange of OP Units for shares of Chateau Common Stock
(6,150,000) (6,150,000)
Adjustment for OP Units issued in connection with Chateau's
acquisitions
43,876 157,678
---------------- ---------------
Total OP Units
2,787,341 2,916,775
---------------- ---------------
---------------- ---------------
Pro forma weighted average shares and OP Units outstanding
27,732,807 27,718,840
---------------- ---------------
---------------- ---------------
Pro forma weighted average shares
24,945,466 24,802,065
90.0% 89.5%
Pro forma weighted average OP Units
2,787,341 2,916,775
10.0% 10.5%
</TABLE>
132
<PAGE>
COMBINED COMPANY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MERGER AND
OTHER
TRANSACTIONS PRO FORMA
CHATEAU ROC PRO FORMA COMBINED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONDENSED
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Rental property, net................................... $ 221,121 $ 326,952 $ 149,558(A) $ 697,631
Cash and cash equivalents.............................. 247 1,661 -- 1,908
Receivables............................................ 2,334 4,859 -- 7,193
Prepaid expenses and other assets...................... 6,563 10,487 (3,457 (A) 13,593
----------- ----------- ------------- -----------
TOTAL ASSETS......................................... $ 230,265 $ 343,959 $ 146,101 $ 720,325
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Debt................................................... $ 153,344 $ 141,142 $ 35,000(B) $ 329,486
Accounts payable, accrued expenses and other
liabilities......................................... 21,459 13,806 557(A) 35,822
----------- ----------- ------------- -----------
TOTAL LIABILITIES.................................... 174,803 154,948 35,557 365,308
Limited partners' interest in the Operating
Partnership............................................ 33,298 -- (2,279 (C) 35,577
STOCKHOLDERS' EQUITY:
Preferred stock........................................
Common stock........................................... 61 126 62(C) 249
Additional paid in capital............................. 28,517 212,595 84,493(C) 325,605
Dividends in excess of accumulated earnings............ (5,589) (23,710) 23,710 (5,589)
Notes receivable, officers............................. (825) -- -- (825)
----------- ----------- ------------- -----------
TOTAL STOCKHOLDERS' EQUITY........................... 22,164 189,011 108,265 319,440
----------- ----------- ------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $ 230,265 $ 343,959 $ 146,101 $ 720,325
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of the pro forma
combined condensed financial statements.
133
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(A) Represents adjustments to record the Merger and the Other Transactions in
accordance with the purchase method of accounting, assuming a market value
of Chateau Common Stock of $24.375 (which was the closing price of Chateau
Common Stock on November 6, 1996), and the exchange ratio of 1.042 for each
share of ROC Stock as follows:
<TABLE>
<S> <C>
Value of ROC Stock (12,581,517 shares outstanding immediately
prior to the Merger) multiplied by 1.042 and the market value
of Chateau Common Stock........................................ $ 319,555
Merger and the Other Transaction costs (see below)............... 15,000
Acquired outstanding ROC stock options........................... 557
---------
Purchase Price................................................... $ 335,112
---------
---------
</TABLE>
Estimated fees and expenses related to the Merger and the Other
Transactions, as follows:
<TABLE>
<S> <C>
Advisory fees.................................................... $ 8,000
Legal and accounting............................................. 4,000
Severance, contract buyouts and relocation costs................. 1,000
Other, including printing, filing fees and transfer costs........ 2,000
---------
$ 15,000
---------
---------
</TABLE>
Adjustment to reflect investment in rental properties, at acquisition value:
<TABLE>
<S> <C>
Purchase price (see above)....................................... $ 335,112
Historical book value of ROC equity.............................. (189,011)
To adjust ROC historical book value for the elimination of
certain deferred charges in accordance with purchase accounting
including organization costs, abandoned shelf registration
costs and deferred financing costs associated with ROC's
mortgage indebtedness and line of credit deemed to have no
future value................................................... 3,457
---------
Adjustment required to reflect investment in ROC'S rental
property, at acquisition value................................. $ 149,558
---------
---------
</TABLE>
134
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(B) To reflect the increase in the line of credit borrowings due to the
following:
<TABLE>
<S> <C>
(1) Estimated Merger costs....................................... $ 15,000
(2) Purchases of Chateau Common Stock by ROC, repurchases of
Chateau Common Stock under the Chateau Share Repurchase
Program; offset by the issuance of Chateau Common Stock to
the Exchanging OP Unitholders. These transactions assume a
price of $25.00 per share of Chateau Common Stock,
representing the average price of the purchases made in
October 1996................................................. 20,000
---------
$ 35,000
---------
---------
</TABLE>
(C) To adjust limited partners' interest and stockholders' equity to reflect the
Chateau Common Stock and OP Unit transactions in connection with the Merger
and Other Transactions based on ownership computed as follows:
<TABLE>
<CAPTION>
COMMON
SHARES OP UNITS TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Shares of Chateau Common Stock outstanding and Chateau Shares issuable
in exchange for Chateau's OP Units.................................... 6,099,710 8,836,311 14,936,021
Exchange of OP Units for shares of Chateau Common Stock................. 6,150,000 (6,150,000) --
Purchase of Chateau Common Stock by ROC................................. (350,000) (350,000)
Purchase and retirement of Chateau Common Stock under the Chateau Share
Repurchase Program.................................................... (1,450,000) (1,450,000)
Issuance of shares of Chateau Common Stock to the Exchanging OP
Unitholders........................................................... 1,000,000 1,000,000
Shares of Chateau Common Stock issued in exchange for shares of ROC
Stock outstanding..................................................... 13,109,941 -- 13,109,941
Chateau Stock Dividend (for a description see "THE MERGER--Terms of the
Merger").............................................................. 387,091 84,887 471,978
----------- ----------- ------------
Pro Forma Company Shares and OP Units outstanding....................... 24,946,742 2,771,198 27,717,940
----------- ----------- ------------
----------- ----------- ------------
Ownership percentages................................................... 90.0% 10.0% 100.0%
----------- ----------- ------------
----------- ----------- ------------
Pro forma book value.................................................... $ 320,265 $ 35,577 $ 355,842*
----------- ----------- ------------
----------- ----------- ------------
Pro forma book value per common share/OP Unit........................... $ 12.84 $ 12.84 $ 12.84
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
- ------------------------
* Before Notes Receivable, Officers
135
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
CHATEAU
The following selected historical financial information of Chateau and of
the Chateau Predecessor are derived from the Consolidated Financial Statements
of Chateau and the combined financial statements of the Chateau Predecessor
incorporated by reference into this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CHATEAU CHATEAU PREDECESSOR
---------------------------------------------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
FOR THE
YEAR
FOR THE NINE MONTHS FOR THE ENDED
ENDED FOR THE YEAR ENDED FOR THE PERIOD PERIOD FROM DECEMBER
SEPTEMBER 30, DECEMBER 31, FROM NOVEMBER JANUARY 1 TO 31,
-------------------- -------------------- 23 TO DECEMBER NOVEMBER 22, ---------
1996 1995 1995 1994 31, 1993 1993 1992
--------- --------- --------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......................... $ 50,203 $ 45,988 $ 61,855 $ 48,067 $ 4,687 $ 38,926 $ 41,367
Property operating and administrative
expense.............................. 20,394 18,421 24,410 19,944 1,867 16,909 17,712
Depreciation........................... 8,517 8,186 11,014 7,230 707 5,823 6,431
Interest and related amortization
expense.............................. 9,417 9,312 12,452 5,996 576 12,101 14,303
Reorganization costs................... -- -- -- -- 1,699 -- --
--------- --------- --------- --------- -------------- ------------ ---------
Income (loss) before extraordinary
item................................. 11,875 10,069 13,979 14,897 (162) 4,093 2,921
Extraordinary item (1)................. -- (829) (829) -- (2,738) -- --
--------- --------- --------- --------- -------------- ------------ ---------
Income (loss) before limited partners'
interest in Operating Partnership.... 11,875 9,240 13,150 14,897 (2,900) 4,093 2,921
Less--limited partners' interest in
Operating Partnership................ 7,017 5,534 7,847 8,860 1,717 -- --
--------- --------- --------- --------- -------------- ------------ ---------
Net income (loss)...................... $ 4,858 $ 3,706 $ 5,303 $ 6,037 $ (1,183) $ 4,093 $ 2,921
--------- --------- --------- --------- -------------- ------------ ---------
--------- --------- --------- --------- -------------- ------------ ---------
BALANCE SHEET DATA:
Real estate, before accumulated
depreciation......................... $ 299,479 $ 275,319 $ 276,423 $ 266,833 $ 151,069 $ 147,107
Real estate, after accumulated
depreciation......................... $ 221,121 $ 208,279 $ 206,555 $ 207,977 $ 97,755 $ 100,230
Total assets........................... $ 230,265 $ 216,397 $ 212,034 $ 215,418 $ 120,524 $ 106,449
Total debt............................. $ 153,344 $ 135,539 $ 132,700 $ 132,747 $ 52,831 $ 143,148
Limited partners' interest in Operating
Partnership.......................... $ 33,298 $ 37,479 $ 36,264 $ 41,569 $ 35,441
Stockholders' equity (owners'
deficit)............................. $ 22,164 $ 24,998 $ 24,308 $ 25,542 $ 23,424 $ (46,016)
PER SHARE DATA:
Income (loss) before extraordinary
item................................. $ .80 $ .68 $ .95 $ 1.05 $ (.01)
Extraordinary item..................... -- (.05) (.06) -- (.20)
--------- --------- --------- --------- --------------
Net income (loss)...................... $ .80 $ .63 $ .89 $ 1.05 $ (.21)
--------- --------- --------- --------- --------------
--------- --------- --------- --------- --------------
Distributions declared per share of
common stock/OP Unit................. $ 1.215 $ 1.125 $ 1.525 $ 1.425 $ .15
Weighted average shares outstanding.... 6,098 5,914 5,959 5,750 5,750
Weighted average shares and OP Units
outstanding.......................... 14,907 14,744 14,779 14,189 14,081
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities................... $ 21,329 $ 19,769 $ 28,097 $ 22,584 $ 4,980 $ 8,659 $ 8,853
Financing activities................... $ 1,790 $ (16,113) $ (24,365) $ 7,056 $ 15,591 $ (5,983) $ (5,933)
Investing activities................... $ (23,816) $ (5,054) $ (6,158) $ (46,214) $ (639) $ (3,416) $ (3,140)
OTHER DATA:
Funds From Operations (2).............. $ 20,323 $ 18,187 $ 24,898 $ 22,015 $ 536 $ 9,822 $ 9,252
Total properties (at end of period).... 47 44 44 43 33 33 33
Total sites (at end of period)......... 20,003 19,594 19,594 19,185 15,261 15,261 15,072
Occupied sites (at end of period)...... 19,082 18,341 18,473 17,789 14,117 14,117 13,861
Weighted average occupied sites........ 18,813 17,920 18,051 14,913 14,025 14,025 13,683
<CAPTION>
1991
---------
<S> <C>
OPERATING DATA:
Total revenues......................... $ 39,047
Property operating and administrative
expense.............................. 17,800
Depreciation........................... 6,313
Interest and related amortization
expense.............................. 14,593
Reorganization costs................... --
---------
Income (loss) before extraordinary
item................................. 341
Extraordinary item (1)................. --
---------
Income (loss) before limited partners'
interest in Operating Partnership.... 341
Less--limited partners' interest in
Operating Partnership................ --
---------
Net income (loss)...................... $ 341
---------
---------
BALANCE SHEET DATA:
Real estate, before accumulated
depreciation......................... $ 144,248
Real estate, after accumulated
depreciation......................... $ 103,520
Total assets........................... $ 110,588
Total debt............................. $ 142,340
Limited partners' interest in Operating
Partnership..........................
Stockholders' equity (owners'
deficit)............................. $ (42,195)
PER SHARE DATA:
Income (loss) before extraordinary
item.................................
Extraordinary item.....................
Net income (loss)......................
Distributions declared per share of
common stock/OP Unit.................
Weighted average shares outstanding....
Weighted average shares and OP Units
outstanding..........................
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities................... $ 8,682
Financing activities................... $ (3,446)
Investing activities................... $ (5,024)
OTHER DATA:
Funds From Operations (2).............. $ 6,554
Total properties (at end of period).... 33
Total sites (at end of period)......... 14,933
Occupied sites (at end of period)...... 13,487
Weighted average occupied sites........ 13,307
</TABLE>
136
<PAGE>
- ------------------------
(1) The extraordinary items represent prepayment penalties and certain other
related costs associated with the early extinguishment of debt.
(2) Funds From Operations, as used in the above table and as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), means net
income excluding gains (or losses) from debt restructuring and sales of
property, plus certain depreciation and amortization. The management of
Chateau and ROC believe that Funds From Operations is an important and
widely used measure of the operating performance of REITs which provides a
relevant basis for comparison among REITs. Funds From Operations: (i) does
not represent cash flow from operations as defined by generally accepted
accounting principles; (ii) should not be considered as an alternative to
net income as a measure of operating performance or to cash flows from
operating, investing and financing activities; and (iii) is not an
alternative to cash flows as a measure of liquidity. Funds from operations
is calculated as follows:
<TABLE>
<CAPTION>
CHATEAU PREDECESSOR
CHATEAU ------------------------
------------------------------------------------------------- FOR THE
YEAR
FOR THE NINE MONTHS FOR THE YEAR ENDED FOR THE ENDED
ENDED FOR THE PERIOD PERIOD FROM DECEMBER
SEPTEMBER 30, DECEMBER 31, FROM NOVEMBER 23 JANUARY 1 TO 31,
-------------------- -------------------- TO DECEMBER 31, NOVEMBER 22, ---------
1996 1995 1995 1994 1993 1993 1992
--------- --------- --------- --------- ----------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary item.... $ 11,875 $ 10,069 $ 13,979 $ 14,897 $ (162) $ 4,093 $ 2,921
Depreciation of rental property............ 8,448 8,118 10,919 7,118 698 5,729 6,331
--------- --------- --------- --------- ----- ------ ---------
Funds from operations...................... $ 20,323 $ 18,187 $ 24,898 $ 22,015 $ 536 $ 9,822 $ 9,252
<CAPTION>
1991
---------
<S> <C>
Income (loss) before extraordinary item.... $ 341
Depreciation of rental property............ 6,213
---------
Funds from operations...................... $ 6,554
</TABLE>
137
<PAGE>
ROC
The following selected historical financial information of ROC and the ROC
Predecessor are derived from the Consolidated Financial Statements of ROC and
the combined financial statements of the ROC Predecessor incorporated by
reference into this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
ROC ROC PREDECESSOR
---------------------------------------------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
FOR THE
YEAR
FOR THE NINE MONTHS FOR THE ENDED
ENDED FOR THE YEAR ENDED FOR THE PERIOD PERIOD FROM DECEMBER
SEPTEMBER 30, DECEMBER 31, FROM AUGUST 23 JANUARY 1 TO 31,
-------------------- -------------------- TO DECEMBER AUGUST 24, ---------
1996 1995 1995 1994 31, 1993 1993 1992
--------- --------- --------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......................... $ 45,121 $ 37,888 $ 51,502 $ 37,531 $ 9,781 $ 7,844 $ 11,362
Property operating and administrative
expense.............................. 20,603 17,097 23,186 17,003 4,246 3,351 4,828
Depreciation and amortization.......... 9,330 7,934 10,834 7,879 2,050 1,517 2,272
Interest and related amortization
expense.............................. 6,317 4,154 5,955 5,388 1,696 2,438 4,037
--------- --------- --------- --------- -------------- ------------ ---------
Net income (loss)...................... $ 8,871 $ 8,703 $ 11,527 $ 7,261 $ 1,789 $ 538 $ 225
--------- --------- --------- --------- -------------- ------------ ---------
--------- --------- --------- --------- -------------- ------------ ---------
BALANCE SHEET DATA:
Real estate, before accumulated
depreciation......................... $ 355,844 $ 292,468 $ 291,661 $ 258,517 $ 161,292 $ 47,733
Real estate, after accumulated
depreciation......................... $ 326,952 $ 272,357 $ 271,550 $ 248,672 $ 159,248 $ 35,994
Total assets........................... $ 343,959 $ 285,202 $ 285,202 $ 269,778 $ 177,427 $ 37,894
Total debt............................. $ 141,142 $ 84,643 $ 84,643 $ 61,618 $ 62,208 $ 41,827
Stockholders' equity (owners'
deficit)............................. $ 189,011 $ 191,634 $ 191,634 $ 199,488 $ 109,890 $ (6,766)
PER SHARE DATA:
Net income............................. $ 0.71 $ 0.70 $ .93 $ .80 $ .25
Distributions declared per share of
common stock......................... $ 1.215 $ 1.170 $ 1.56 $ 1.52 $ .52
Weighted average shares outstanding.... 12,478 12,424 12,424 9,071 7,149
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities................. $ 22,210 $ 18,836 $ 23,324 $ 15,716 $ 2,952 $ 1,455 $ 1,407
Investing activities................. $ (62,227) $ (31,064) $ (33,161) $ (97,206) $ (163,750) $ (365) $ (803)
Financing activities................. $ 41,026 $ 7,181 $ 3,769 $ 76,849 $ 172,159 $ (445) $ (404)
OTHER DATA:
Funds From Operations (1).............. $ 18,102 $ 16,563 $ 22,258 $ 15,090 $ 3,839 $ 2,055 $ 2,497
Total properties (at end of period).... 71 66 66 62 48 20 20
Total sites (at end of period)......... 21,041 18,078 18,078 16,220 11,058 4,494 4,494
Occupied sites (at end of period)...... 19,724 17,097 17,121 15,446 11,003 4,276 4,291
Weighted average occupied sites........ 18,435 16,308 15,967 13,044 10,195 4,269 4,269
<CAPTION>
1991
---------
<S> <C>
OPERATING DATA:
Total revenues......................... $ 10,082
Property operating and administrative
expense.............................. 4,550
Depreciation and amortization.......... 2,189
Interest and related amortization
expense.............................. 4,337
---------
Net income (loss)...................... $ (994)
---------
---------
BALANCE SHEET DATA:
Real estate, before accumulated
depreciation......................... $ 46,933
Real estate, after accumulated
depreciation......................... $ 37.285
Total assets........................... $ 38,843
Total debt............................. $ 49,159
Stockholders' equity (owners'
deficit)............................. $ (4,919)
PER SHARE DATA:
Net income.............................
Distributions declared per share of
common stock.........................
Weighted average shares outstanding....
CASH FLOW DATA:
Cash flow provided by (used in):
Operating activities................. $ 1,334
Investing activities................. $ (175)
Financing activities................. $ (1,087)
OTHER DATA:
Funds From Operations (1).............. $ 1,195
Total properties (at end of period).... 20
Total sites (at end of period)......... 4,494
Occupied sites (at end of period)...... 4,248
Weighted average occupied sites........ 4,269
</TABLE>
- ------------------------
(1) Funds From Operations, as used in the above table and as defined by NAREIT,
means net income excluding gains (or losses) from debt restructuring and
sales of property, plus certain depreciation and amortization. The
management of Chateau and ROC believe that Funds From Operation is an
important and widely used measure of the operating performance of REITs
which provides a relevant basis for comparison among REITs. Funds From
Operations: (i) does not represent cash flow from operations as defined by
generally accepted accounting principles; (ii) should not be considered as
an alternative to net income as a measure of operating performance or to
cash flows from operating, investing and financing activities; and (iii) is
not an alternative to cash flows as a measure of liquidity. Funds from
operations is calculated as follows:
<TABLE>
<CAPTION>
ROC PREDECESSOR
ROC ------------------------
--------------------------------------------------------- FOR THE
YEAR
FOR THE NINE MONTHS FOR THE YEAR ENDED FOR THE FOR THE ENDED
ENDED PERIOD FROM PERIOD FROM DECEMBER
SEPTEMBER 30, DECEMBER 31, AUGUST 25 TO JANUARY 1 TO 31,
-------------------- -------------------- DECEMBER 31, AUGUST 24, ---------
1996 1995 1995 1994 1993 1993 1992
--------- --------- --------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income.................................... $ 8,871 $ 8,703 $ 11,527 $ 7,261 $ 1,789 $ 538 $ 225
Depreciation of rental property............... 8,844 7,506 10,248 7,754 2,045 1,517 2,272
Amortization of other intangibles............. 387 354 483 75 5
--------- --------- --------- --------- ------ ------ ---------
Funds From Operations......................... $ 18,102 $ 16,563 $ 22,258 $ 15,090 $ 3,839 $ 2,055 $ 2,497
<CAPTION>
1991
---------
<S> <C>
Net Income.................................... $ (994)
Depreciation of rental property............... 2,189
Amortization of other intangibles.............
---------
Funds From Operations......................... $ 1,195
</TABLE>
138
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EFFECTS OF THE MERGER ON OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
The following discussion is based on the unaudited Combined Company Pro
Forma Combined Financial Statements set forth in this Joint Proxy
Statement/Prospectus and should be read in conjunction with those financial
statements, as well as in conjunction with the historical financial statements
of ROC and Chateau which are incorporated by reference into this Joint Proxy
Statement/Prospectus.
Based on pro forma financial data of the Combined Company as of September
30, 1996, upon completion of the Merger and the Other Transactions, the Combined
Company will have annual revenues of more than $130 million. After the Merger,
it is expected that annual savings in property operating, maintenance and
administrative expenses will be approximately $2.8 million. These savings result
from the duplicative costs incurred as part of operating a publicly traded
company, and operating efficiencies that are expected to be realized upon the
combination of the real property portfolios of the two companies.
The Combined Company is expected to have an increase in total indebtedness
of approximately $35 million over the historical September 30, 1996 amount due
to the Merger and Other Transactions. The pro forma operating statements for the
Combined Company reflect an increase in interest expense of approximately $5
million annually over the historical interest costs of Chateau and ROC due to
the 1996 acquisitions, including the Oakwood Communities, and the Merger and
Other Transactions. ROC and Chateau expect that generally the interest rates
which will be available to the Combined Company after the Merger will be less
than the rates available historically to Chateau and ROC. Both Chateau and ROC
have existing lines of credit that bear interest at 150 basis points over LIBOR
and it is expected that the Combined Company will be able to renegotiate these
lines into a single line at a more favorable rate.
The Combined Company will have an increased number of aggregate shares and
OP Units outstanding and will therefore have increased distributions of
approximately $325,000 annually based on Chateau's current dividend of $1.62 per
share annually. Net income of the Combined Company is expected to decrease due
to increased non-cash depreciation charges, however cash flow from operations is
expected to increase.
The Combined Company is expected to meet its short-term liquidity
requirements through cash flow from operations and, if necessary, borrowings
under existing or new revolving credit facilities. The Combined Company is
expected to meet its long-term liquidity requirements from borrowings under
existing or new revolving credit facilities, from the issuance of additional
debt or equity securities and cash flow from operations.
EXPERTS
ROC
The financial statements and the related financial statement schedules
incorporated by reference in the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part from ROC's Annual Report on Form 10-K and
Form 10-K/A for the year ended December 31, 1995 and from ROC's Current Report
on Form 8-K/A dated September 9, 1996 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
CHATEAU
The consolidated balance sheet as of December 31, 1995 and 1994 and the
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1995 and 1994, and for the period November 23, 1993 to
December 31, 1993 of Chateau and the combined statements of income, owners'
deficit and cash flows of Chateau Properties Group for the period January 1,
1993 to November 22, 1993, and the related financial statement schedules
incorporated by reference in this Joint Proxy
139
<PAGE>
Statement/Prospectus have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of Chateau Common Stock offered
pursuant to this Joint Proxy Statement/Prospectus and certain tax matters
related to Chateau described under "THE MERGER--Federal Income Tax
Considerations Relating to Chateau and ROC" and certain tax matters as described
under "THE MERGER--Federal Income Tax Consequences" will be passed upon by
Timmis & Inman L.L.P., Detroit, Michigan. Certain tax matters related to ROC and
the Combined Company as described under "THE MERGER--Federal Income Tax
Considerations Relating to Chateau and ROC" and certain tax matters as described
under "THE MERGER--Federal Income Tax Consequences" will be passed upon by
Rogers & Wells, New York, New York. With regard to certain matters of Maryland
law, Timmis & Inman will rely on the opinion of Miles & Stockbridge, a
professional corporation, Baltimore, Maryland.
140
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Joint Proxy
Statement/Prospectus:
"ACMs" means asbestos-containing materials.
"Affiliate" means, with respect to any person, (i) any member of the
immediate family of such person; (ii) any partner, trustee, beneficiary or
stockholder of such person; (iii) any legal representative, successor or
assignee of any person referred to in the preceding clauses (i) and (ii); (iv)
any trustee or trust for the benefit of any person referred to in the preceding
clauses (i) through (iii); or (v) any entity which, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such person referred to in the preceding clauses (i)
through (iv).
"Affiliate Agreements" means agreements to be executed by Chateau with
certain affiliates of ROC who will receive shares of Chateau Common Stock in the
Merger.
"Amended Operating Partnership Agreement" means the Amended and Restated
Limited Partnership Agreement of the Operating Partnership to be amended and
become effective as the Operating Partnership Agreement of the Operating
Partnership immediately following the Effective Time.
"Annual Bonus Program" means the annual bonus program to be instituted by
the Combined Company for senior executives and other employees.
"Articles of Merger" means the articles of merger on a form prescribed by
the Department of Assessments and Taxation of the State of Maryland.
"Base Amount" means the $10 million factor in calculating payments to ROC or
Chateau in the event of either party entering into a Competing Transaction.
"Book-Tax Difference" means, when property is contributed to a partnership
in exchange for an interest in such partnership, the difference between the
adjusted basis of the contributing partner in the property and the fair market
value of the property at the time of contribution.
"Break-Up Expenses" means the Break-Up Expenses of Chateau or ROC.
"Break-Up Fee" means the Break-Up Fee of Chateau or ROC.
"CAD" means Cash Available for Distribution.
"CAD Method" means the discounted cash flow analysis to projections of CAD.
"Capitalization Rates" means LTM Net Operating Income divided by transaction
purchase price.
"Certificates" means certificates which immediately prior to the Effective
Time represented outstanding shares of ROC Stock.
"Chateau" means Chateau Properties, Inc., a Maryland corporation, and where
the context indicates, entities owned or controlled by such corporation,
including the Operating Partnership.
"Chateau Board" means the Board of Directors of Chateau.
"Chateau Break-Up Expenses" means the lesser of the Operating Partnership's
out-of-pocket expenses incurred in connection with the Merger Agreement and
Other Transactions (but in no event greater than $4 million) or the maximum
amount payable to the Operating Partnership as expenses in connection with the
Merger and the Other Transactions that would not cause Chateau to fail to
qualify as a REIT.
"Chateau Break-Up Fee" means an amount equal to the lesser of (i) $10
million and (ii) the amount payable as a transaction termination fee that would
not cause Chateau to fail to qualify as a REIT.
141
<PAGE>
"Chateau By-Laws" means the By-Laws of Chateau, as amended, supplemented and
corrected and in effect on the date hereof.
"Chateau Charter" means the Articles of Incorporation of Chateau, as
amended, corrected, restated, revived or supplemented and in effect on the date
hereof.
"Chateau Common Stock" means the common stock, par value $0.01 per share, of
Chateau.
"Chateau Indemnified Liabilities" means all losses, claims, damages, costs,
expenses (including attorneys' fees and expenses), liabilities or judgments or
amounts that are paid in settlement of, with the approval of the indemnifying
party (which approval shall not be unreasonably withheld), or otherwise in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based on or arising out of the fact that such person is or was a
director or officer of Chateau at or prior to the Effective Time, whether
asserted or claimed prior to, or at or after, the Effective Time.
"Chateau Option" means ROC's option to purchase up to 420,000 shares of
Chateau Common Stock.
"Chateau Plan" means Chateau's 1993 Long Term Incentive Plan.
"Chateau Predecessor" means Chateau Estates, a Michigan co-partnership, and
a group of partnerships affiliated with Leonard Maas and Intercoastal
Communities, Inc. and its affiliates.
"Chateau Principal Proxies" means the proxies executed by the Chateau
Principals, as amended, granting to ROC the full power to vote certain shares,
together with any other voting security of Chateau that they may own, in favor
of the Chateau Proposal and against any proposal made in opposition to or in
competition with the Chateau Proposal.
"Chateau Principals" means John A. Boll, Tamara D. Fischer and C.G. Kellogg.
"Chateau Properties" means the manufactured communities owned and operated
by Chateau.
"Chateau Proposal" means the single proposal for which Chateau is seeking
approval of the issuance of the Merger Consideration to the ROC stockholders.
"Chateau Special Meeting" means the special meeting of stockholders of
Chateau to which this Joint Proxy Statement/Prospectus relates, to be held at a
time and place to be set forth in the Chateau Supplement.
"Chateau Stock Options" means the outstanding stock options to purchase
shares of Common Stock granted to Chateau employees and directors under the
Chateau Plan.
"Chateau Stockholder Approval" means approval of the issuance of the Merger
Consideration to the ROC stockholders and the approval of the issuance of shares
of Chateau Common Stock in the Chateau Share Issuance, in each case by a vote of
a majority of holders of Chateau Common Stock present in person or by proxy at
the Chateau Special Meeting, assuming the presence of a quorum at such meeting.
"Chateau Supplement" means the supplement to this Joint Proxy
Statement/Prospectus to be mailed to stockholders of Chateau.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Combined Company" means Chateau following the Merger.
"Combined Company Board" means the Board of Directors of the Combined
Company.
"Combined Company By-Laws" means the Amended and Restated By-Laws of the
Combined Company to be adopted effective of the Effective Time of the Merger.
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"Combined Company Charter" means the Amended and Restated Articles of
Incorporation of the Combined Company.
"Competing Transaction" means any of the following (other than the
transactions contemplated by the Merger Agreement): (i) any merger,
consolidation, share exchange, business combination or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 30% or more of the assets of ROC or Chateau in a single
transaction or series of transactions, excluding any bona fide financing
transactions which do not, individually or in the aggregate, have as a purpose
or effect the sale or transfer of control of such assets; (iii) any tender offer
or exchange offer for 30% or more of the outstanding shares of capital stock of
ROC or Chateau or the filing of a registration statement under the Securities
Act in connection therewith; or (iv) any public announcements of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in any
of the foregoing.
"Continuity of Interest Requirement" means that the historic owners of a
merged corporation must maintain a certain degree of beneficial ownership in
order for a merger to qualify as a tax-free reorganization.
"Contribution Agreement" means the agreement to be effective as of the
Effective Time among ROC, RAC, Chateau and the Operating Partnership.
"Debt-to-total market capitalization ratio" means total debt of the Combined
Company as a percentage of the market value of issued and outstanding shares of
Chateau Common Stock and OP Units plus total debt.
"Dividend Method" means the discounted cash flow analysis to projections of
dividends and residual cash per share.
"EDGAR" means the Electronic Data Gathering, Analysis and Retrieval System.
"Effective Day" means the day the Merger becomes effective.
"Effective Time" means the effective time of the Merger which will be
simultaneous with the filing of the Articles of Merger for the Merger with the
Department of Assessments and Taxation of the State of Maryland.
"Employment Agreement" means the employment agreement to be executed by
Chateau or the Operating Partnership, effective as of the Effective Day of the
Merger, with each of the following senior officers: Gary P. McDaniel, C.G.
("Jeff") Kellogg, James B. Grange, Tamara D. Fischer and Rees F. Davis, Jr.
"Equity Participation Plan" means a plan, adopted by the Combined Company
pursuant to the Merger Agreement, which authorizes the discretionary grant by
the Executive Compensation Committee of awards of options and restricted shares
of Chateau Common Stock.
"Excess Stock" means shares of Excess Stock of Chateau.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means the agent who will have responsibility for exchanging
Certificates following the Effective Time.
"Exchange Ratio" means the 1.01 to one effective exchange ratio for the
Merger after giving effect to the conversion of each share of ROC Stock into
1.042 shares of Chateau Common Stock and the Chateau Stock Dividend.
"Executive Compensation Committee" means the Combined Company Board of
Directors' committee which administers the Combined Company's Stock Option Plan,
as well as the two plans assumed from ROC and Chateau.
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<PAGE>
"Expense Fee Base Amount" means the $4 million factor in the Break-Up
Expense calculation.
"FFO" means Funds From Operations.
"Financing Partnership" means a newly organized financing partnership into
which ROCF will merge pursuant to the terms of the Contribution Agreement.
"FIRPTA" means Foreign Investment in Real Property Tax Act of 1980.
"First Call" means an on-line data service available to subscribers which
compiles securities estimates developed by research analysts.
"Fried Frank" means Fried, Frank, Harris, Shriver & Jacobson, P.C., special
counsel to Chateau.
"Goldman Sachs" means Goldman, Sachs & Co.
"Group A Nominating Committee" means a committee consisting exclusively of
the Group A Directors that is one of the nominating committees of the Board of
Directors.
"Group B Nominating Committee" means a committee consisting exclusively of
the Group B Directors that is one of the nominating committees of the Board of
Directors.
"Group C Nominating Committee" means a committee consisting of John A. Boll
and two of his designees.
"IRS" means the Internal Revenue Service.
"Independent Director" means a director who is not an employee of the
Combined Company.
"Letter of Transmittal" means a letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent.
"LTM" means latest twelve months.
"Market/Offer Price" means the higher of (1) the price per share offered or
agreed upon as of a given date pursuant to any tender or exchange offer or other
agreed-upon price, or (2) the average last reported sale price per share of
common stock as reported on the NYSE consolidated tape over the period of five
trading days immediately preceding a given date.
"Maryland Business Combination Law" means the business combination
provisions of Section 3-601 et seq. of the MGCL.
"Maryland Control Share Statute" means the control share provisions of
Section 3-701 et seq. of the MGCL.
"Merger Agreement" means the Amended and Restated Amended and Restated
Agreement and Plan of Merger, dated as of September 17, 1996 among Chateau, RSub
and ROC, as amended by the Amendment thereto dated as of December 20, 1996. The
Merger Agreement is attached to this Joint Proxy Statement/Prospectus as
Appendix A.
"Merger Consideration" means the shares of Chateau Common Stock to be
exchanged for ROC Stock in the Merger.
"Merger" means the merger of ROC with RSub.
"Merrill Lynch" means Merrill Lynch & Co.
"Merrill Lynch Opinion" means each and any fairness opinion rendered by
Merrill Lynch in connection with the Merger.
"MGCL" means the Maryland General Corporation Law.
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"1993 ROC Stock Plan" means ROC's Amended and Restated 1993 Stock Option and
Stock Appreciation Rights Plan.
"NAREIT" means the National Association of Real Estate Investment Trusts, an
industry trade group.
"New Registration Rights Agreement" means the new registration rights
agreement to be executed on or prior to the Effective Time, between Chateau and
certain stockholders of ROC pursuant to which the Combined Company will grant
registration rights with respect to certain shares of Chateau Common Stock.
"NOI" means revenues less property operating expenses, before interest
expense and depreciation.
"Nominating Committees" means, collectively, the Group A, Group B and Group
C Nominating Committees.
"Non-U.S. Stockholders" means non-resident alien individuals, foreign
corporations, foreign partnerships, and foreign trusts and estates.
"Notice Date" means the date on which holders of Options give notice of
their intent to exercise their rights to have Options repurchased.
"NYSE" means the New York Stock Exchange.
"Oakwood Communities" means seven development state communities, six of
which have been acquired by a joint venture of ROC and the Operating
Partnership, and one of which has been acquired by ROC.
"Offer Price" means the highest price per share offered pursuant to a
business combination offer involving the issuer of an option.
"OP Units" means the units of partner interests (both general and limited)
in the Operating Partnership.
"Operating Partnership" means CP Limited Partnership, a Maryland limited
partnership and Chateau's existing operating partnership subsidiary, which will
become the operating partnership of the Combined Company at the Effective Time.
"Operating Partnership Agreement" means the Amended and Restated Limited
Partnership Agreement of the Operating Partnership, as amended and restated
prior to the Effective Time.
"Operating Partnership Agreement Amendment" means the amendment proposed to
be adopted and incorporated as the Amended Operating Partnership Agreement.
"Options" means the ROC Option together with the Chateau Option.
"Original Merger Agreement" means the Agreement and Plan of Merger, dated as
of July 17, 1996, among Chateau, ROC, RSub and Chateau Communities, Inc.
"Other Transaction Agreements" means, collectively, the Contribution
Agreement, the New Registration Rights Agreement and the Amended Operating
Partnership Agreement.
"Other Transactions" means, collectively, the related contribution and other
transactions relating to the Merger contemplated by the Other Transaction
Agreements.
"PaineWebber" means PaineWebber Incorporated.
"PaineWebber Opinion" means each and any fairness opinion rendered by
PaineWebber in connection with the Merger.
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"Partnerships" means, collectively, the Operating Partnership, the Financing
Partnership and the Subtier Partnerships.
"Properties" means, collectively, the ROC Properties and the Chateau
Properties.
"RAC" means Redwood Acquisition Corp., a Maryland corporation and wholly
owned subsidiary of ROC.
"Record Date" means the date on which persons holding the stock of ROC or
Chateau are eligible to vote on the ROC Proposal or Chateau Proposal,
respectively.
"Reform Act" means the Private Securities Litigation Reform Act of 1995, as
amended.
"Registration Statement" means the Registration Statement of which this
Joint Proxy Statement/ Prospectus is a part filed by the Company on Form S-4 and
any amendments, exhibits, annexes and schedules thereto.
"REIT" means a real estate investment trust as defined pursuant to sections
856 through 860 of the Code.
"Reorganization" means a reorganization under Section 368(a) of the Code.
"ROC" means ROC Communities, Inc., a Maryland corporation, and, where the
context indicates, entities owned or controlled by ROC, including, without
limitation, ROCF and Redwood Acquisition Corp.
"ROC Benefit Plans" means any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other employee benefit plan, arrangement or
understanding (whether or not legally binding) providing benefits to any current
or former employee, officer or director of ROC and certain of its affiliates.
"ROC Board" means the Board of Directors of ROC.
"ROC Break-Up Expenses" means the lesser of ROC's out-of-pocket expenses
incurred in connection with the Merger Agreement and Other Transactions (but in
no event greater than $4 million) or the maximum amount payable to ROC as
expenses in connection with the Merger and the Other Transactions that would not
cause ROC to fail to qualify as a REIT.
"ROC Break-Up Fee" means an amount equal to the lesser of (i) $10 million
and (ii) the amount payable as a transaction termination fee that would not
cause ROC to fail to qualify as a REIT.
"ROC By-Laws" means the corporate by-laws established for ROC Communities,
Inc., a Maryland corporation.
"ROC Charter" means ROC's Amended and Restated Articles of Incorporation, as
amended, corrected, restated, revived or supplemented and in effect on the date
hereof.
"ROC Common Stock" means the common stock, par value $.01 per share, of ROC.
"ROC Indemnified Liabilities" means all losses, claims, damages, costs,
expenses (including attorneys' fees and expenses), liabilities or judgments or
amounts that are paid in settlement of, with the approval of the indemnifying
party (which approval shall not be unreasonably withheld), or otherwise in
connection with any threatened or actual claim, action, suit, proceeding or
investigation in connection with any threatened or actual claim, action, suit
proceeding or investigation based on or arising out of the fact that such,
person is or was a director or officer of ROC at or prior to the Effective Time,
whether asserted or claimed prior to or at or after, the Effective Time.
"ROC Non-Voting Stock" means the non-voting redeemable stock, par value $.01
per share, of ROC.
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"ROC Option" means the Operating Partnership's option to purchase up to
420,000 shares of ROC Common Stock.
"ROC Predecessor" means ROC Properties, Inc. and certain other affiliated
companies.
"ROC Principal Proxies" means the proxies executed by the ROC Principals, as
amended, granting to Chateau the full power to vote certain shares, together
with any other voting security of ROC that they may own, in favor of the ROC
Proposal and against any proposal made in opposition to or in competition with
the ROC Proposal.
"ROC Principals" means Gary P. McDaniel, Steven G. Davis, James B. Grange
and Rees F. Davis, Jr.
"ROC Properties" means those real properties beneficially owned by ROC in
its investment capacity as a REIT.
"ROC Proposal" means the single proposal for which ROC is seeking approval
of the Merger, the Merger Agreement and the Other Transactions.
"ROC Special Meeting" means the special meeting of stockholders of ROC to
which this Joint Proxy Statement/Prospectus relates to be held at ROC's
corporate offices, located at 6430 South Quebec Street, Englewood, Colorado, on
January 28, 1997, at 9:00 a.m., Mountain Standard Time.
"ROC Stockholder Approval" means the approval of the Merger, the Merger
Agreement and the Other Transactions by the vote of the holders of ROC Common
Stock required to approve the Merger Agreement and the transactions contemplated
thereby.
"ROC Stock" means, collectively, the ROC Common Stock and ROC Non-Voting
Stock.
"ROC Stock Options" means outstanding stock options to purchase shares of
ROC Common Stock granted to employees of ROC under the 1993 Stock Plan.
"ROCF" means ROCF, Inc., a Maryland corporation and wholly owned financing
subsidiary of ROC.
"Rogers & Wells" means the law firm of Rogers & Wells, counsel to ROC.
"RSub Common Stock" means the common shares, par value $.0001 per share, of
RSub.
"RSub" means R Acquisition Sub Inc., a Maryland corporation and a wholly
owned subsidiary of Chateau.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Meetings" means the ROC Special Meeting together with the Chateau
Special Meeting.
"Stock Option Agreements" means the reciprocal stock option agreements, as
amended, entered into between ROC and Chateau concurrently with entering into
the Merger Agreement.
"Subtier Partnerships" means seven Chateau Properties located in Florida
which are owned indirectly by Chateau and the Operating Partnership through
their ownership in other partnerships.
"Superior Competing Transaction" means any Competing Transaction that is
determined by the Board of Directors of either ROC or Chateau to offer greater
stockholder value than the transaction described in the Merger Agreement.
"Timmis & Inman" means the law firm of Timmis & Inman, L.L.P., counsel to
Chateau.
"TIN" means taxpayer identification number.
"Transfer and Gains Taxes" means all returns, questionnaires, applications
or other documents regarding any real property transfer or gains (including,
without limitation, any New York State Tax on Gains Derived From Certain Real
Property Transfers and New York State Real Estate Transfer Tax), sales,
147
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use, transfer, value added stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the Merger and the Other Transactions (together with
any related interests, penalties or additions to tax).
"Treasury Regulations" means the regulations implementing the Code.
"Trigger Event" means circumstances that could entitle ROC or Chateau to a
Break-Up Fee or Break-Up Expenses under certain provisions of the Merger
Agreement.
"U.S. Stockholder" means a holder of shares of Chateau Common Stock that
(for United States federal income tax purposes) is (i) a citizen or resident of
the United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.
"UBTI" means unrelated business taxable income.
"UST" means underground storage tank.
148
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APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
A-1
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 17, 1996,
AMONG
CHATEAU PROPERTIES, INC.,
ROC COMMUNITIES, INC.,
AND
R ACQUISITION SUB, INC.
A-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
<CAPTION>
ARTICLE I
The Merger
<S> <C> <C> <C>
SECTION 1.1 The Merger............................................................................ A-8
SECTION 1.2 Closing............................................................................... A-8
SECTION 1.3 Effective Time........................................................................ A-8
SECTION 1.4 Effects of the Merger................................................................. A-8
SECTION 1.5 Charters and By-laws.................................................................. A-9
(a) Chateau............................................................................... A-9
(b) ROC................................................................................... A-9
SECTION 1.6 Directors............................................................................. A-9
SECTION 1.7 Officers.............................................................................. A-9
SECTION 1.8 Principal Executive Office............................................................ A-9
SECTION 1.9 Name.................................................................................. A-9
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.1 Effect on Capital Stock............................................................... A-9
(a) Conversion of Stock................................................................... A-9
(b) Conversion of Shares of Common Stock of RSub.......................................... A-10
SECTION 2.2 Exchange of Certificates.............................................................. A-10
(a) Exchange Agent........................................................................ A-10
(b) Provision of Shares................................................................... A-10
(c) Exchange Procedure.................................................................... A-10
(d) Record Dates; Distributions with Respect to Unexchanged Shares........................ A-11
(e) No Further Ownership Rights in ROC Stock.............................................. A-11
(f) No Liability.......................................................................... A-11
(g) No Fractional Shares.................................................................. A-11
(h) Withholding Rights.................................................................... A-12
ARTICLE III
Representations and Warranties
SECTION 3.1 Representations and Warranties of ROC................................................. A-12
(a) Organization, Standing and Corporate Power of ROC..................................... A-12
(b) ROC Subsidiaries...................................................................... A-12
(c) Capital Structure..................................................................... A-13
(d) Authority; Noncontravention; Consents................................................. A-13
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.......................... A-14
(f) Absence of Certain Changes or Events.................................................. A-15
(g) Litigation............................................................................ A-15
(h) Absence of Changes in Benefit Plans; ERISA Compliance................................. A-16
(i) Taxes................................................................................. A-16
(j) No Loans or Payments to Employees, Officers or Directors.............................. A-17
(k) Brokers; Schedule of Fees and Expenses................................................ A-17
(l) Compliance with Laws.................................................................. A-17
(m) Contracts; Debt Instruments........................................................... A-17
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
(n) Environmental Matters................................................................. A-18
(o) Tangible Property and Assets.......................................................... A-19
(p) Books and Records..................................................................... A-19
(q) Opinion of Financial Advisor.......................................................... A-20
(r) State Takeover Statutes............................................................... A-20
(s) Registration Statement................................................................ A-20
(t) Vote Required......................................................................... A-20
SECTION 3.2 Representations and Warranties of Chateau............................................. A-20
(a) Organization, Standing and Corporate Power of Chateau................................. A-20
(b) Chateau Subsidiaries.................................................................. A-20
(c) Capital Structure..................................................................... A-21
(d) Authority; Noncontravention; Consents................................................. A-21
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.......................... A-22
(f) Absence of Certain Changes or Events.................................................. A-23
(g) Litigation............................................................................ A-24
(h) Absence of Changes in Benefit Plans; ERISA Compliance................................. A-24
(i) Taxes................................................................................. A-24
(j) No Loans or Payments to Employees, Officers or Directors.............................. A-25
(k) Brokers; Schedule of Fees and Expenses................................................ A-25
(l) Compliance with Laws.................................................................. A-25
(m) Contracts; Debt Instruments........................................................... A-25
(n) Operating Partnership Agreement....................................................... A-26
(o) Environmental Matters................................................................. A-26
(p) Tangible Property and Assets.......................................................... A-27
(q) Books and Records..................................................................... A-27
(r) Opinion of Financial Advisors......................................................... A-27
(s) State Takeover Statutes............................................................... A-27
(t) Registration Statement................................................................ A-28
(u) Vote Required......................................................................... A-28
ARTICLE IV
Covenants
SECTION 4.1 Conduct of Business by ROC............................................................ A-28
SECTION 4.2 Conduct of Business by Chateau........................................................ A-30
SECTION 4.3 Other Actions......................................................................... A-32
ARTICLE V
Additional Covenants
SECTION 5.1 Preparation of the Registration Statement and the Proxy Statement; Stockholders
Meetings.............................................................................. A-32
SECTION 5.2 Access to Information; Confidentiality................................................ A-34
SECTION 5.3 Best Efforts; Notification............................................................ A-34
SECTION 5.4 Affiliates............................................................................ A-35
SECTION 5.5 Tax Treatment......................................................................... A-35
SECTION 5.6 No Solicitation of Transactions....................................................... A-35
SECTION 5.7 Public Announcements.................................................................. A-35
SECTION 5.8 Listing............................................................................... A-35
SECTION 5.9 Letters of Accountants................................................................ A-36
SECTION 5.10 Transfer and Gains Taxes.............................................................. A-36
</TABLE>
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<TABLE>
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<S> <C> <C> <C>
SECTION 5.11 Benefit Plans and Other Employee Arrangements......................................... A-36
(a) Benefit Plans......................................................................... A-36
(b) Stock Incentive Plans................................................................. A-36
(c) Employment Agreements................................................................. A-37
(d) Cooperation........................................................................... A-37
SECTION 5.12 Indemnification....................................................................... A-37
SECTION 5.13 Operating Partnership Agreement Amendment............................................. A-39
SECTION 5.14 By-laws Amendment..................................................................... A-39
SECTION 5.15 Contribution Agreement................................................................ A-39
SECTION 5.16 Private Placement of Common Stock of RSub............................................. A-39
SECTION 5.17 Chateau Board of Directors............................................................ A-39
SECTION 5.18 Provisions Relating to Certain ROC Indebtedness....................................... A-39
SECTION 5.19 Exemptions from Certain Provisions of the MGCL........................................ A-39
SECTION 5.20 Percentage Ownership.................................................................. A-39
SECTION 5.21 Share Issuance........................................................................ A-39
ARTICLE VI
Conditions Precedent
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger............................ A-40
(a) Stockholder Approval.................................................................. A-40
(b) Listing of Shares..................................................................... A-40
(c) Registration Statement................................................................ A-40
(d) No Injunctions or Restraints.......................................................... A-40
(e) Blue Sky Laws......................................................................... A-40
(f) Opinion Related to REIT Status........................................................ A-40
(g) The Investment Company Act Opinion.................................................... A-40
(h) Evidence of Completion of Private Placement........................................... A-40
(i) Certain Actions and Consents.......................................................... A-40
SECTION 6.2 Conditions to Obligations of Chateau.................................................. A-40
(a) Representations and Warranties........................................................ A-40
(b) Performance of Obligations of ROC..................................................... A-41
(c) Material Adverse Change............................................................... A-41
(d) Opinions Relating to REIT Status...................................................... A-41
(f) Consents.............................................................................. A-41
(g) Certain ROC Indebtedness.............................................................. A-41
SECTION 6.3 Conditions to Obligation of ROC....................................................... A-42
(a) Representations and Warranties........................................................ A-42
(b) Performance of Obligations of Chateau................................................. A-42
(c) Material Adverse Change............................................................... A-42
(d) Opinions Relating to REIT and Partnership Status...................................... A-43
(e) Other Tax Opinion..................................................................... A-43
(f) Consents.............................................................................. A-43
(g) Registration Rights Agreement......................................................... A-43
(h) Chateau By-laws and Related Matters................................................... A-43
(i) Chateau Securityholder Letter Agreement............................................... A-43
ARTICLE VII
Board Actions
SECTION 7.1 Board Actions......................................................................... A-44
</TABLE>
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<TABLE>
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<S> <C> <C> <C>
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.1 Termination........................................................................... A-44
SECTION 8.2 Expenses.............................................................................. A-46
SECTION 8.3 Effect of Termination................................................................. A-49
SECTION 8.4 Amendment............................................................................. A-49
SECTION 8.5 Extension; Waiver..................................................................... A-49
ARTICLE IX
General Provisions
SECTION 9.1 Nonsurvival of Representations and Warranties......................................... A-50
SECTION 9.2 Notices............................................................................... A-50
SECTION 9.3 Interpretation........................................................................ A-51
SECTION 9.4 Counterparts.......................................................................... A-51
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries........................................ A-51
SECTION 9.6 GOVERNING LAW......................................................................... A-51
SECTION 9.7 Assignment............................................................................ A-51
SECTION 9.8 Enforcement........................................................................... A-51
ARTICLE X
Certain Definitions
SECTION 10.1 Certain Definitions................................................................... A-52
Exhibits
A Form of Contribution Agreement
B Form of Operating Partnership Agreement Amendment
C Form of Registration Rights Agreement
D Form of Stock Option Agreement Amendment
E Form of Principal Proxy Agreement Amendments
F Chateau By-Law Amendments
G Terms of Employment Agreements
H Forms of Resale Agreement with ROC Affiliates
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated
as of September 17, 1996, among CHATEAU PROPERTIES, INC., a Maryland corporation
("Chateau"), ROC COMMUNITIES, INC., a Maryland corporation ("ROC"), and R
ACQUISITION SUB, INC., a Maryland corporation and a subsidiary of Chateau
("RSub").
RECITALS
(a) Certain terms used herein shall have the meanings assigned to them in
Article X.
(b) Pursuant to an agreement and plan of merger dated as of July 17, 1996,
among Chateau, ROC, RSub and Chateau Communities, Inc., a Maryland corporation
(the "Original Agreement"), the Boards of Directors of Chateau and ROC
determined that it was advisable and in the best interest of their respective
companies and their stockholders to consummate the strategic business
combination involving ROC and Chateau described in the Original Agreement.
(c) The Boards of Directors of Chateau and ROC have determined that it is
advisable and in the best interest of their respective companies and their
stockholders to amend and restate the terms of the Original Agreement and to
proceed with the strategic business combination involving the two companies on
the terms described in this Agreement, pursuant to which ROC will merge with
RSub and will be the surviving corporation in such merger (the "Merger") and
each issued and outstanding share of common stock, par value $.01 per share, of
ROC (the "ROC Common Stock") and non-voting redeemable stock, par value $.01 per
share, of ROC (the "ROC Non-Voting Stock" and, together with the ROC Common
Stock, the "ROC Stock") will be converted into the right to receive the Merger
Consideration (as defined below).
(d) In connection with the Merger, the following additional transactions
will be effected (the Merger, together with the other documents, agreements and
transactions contemplated by this Agreement, being referred to collectively
herein as the "Transactions"): (i) ROC, Chateau and CP Limited Partnership, a
Maryland limited partnership which is the operating partnership of Chateau (the
"Operating Partnership"), will enter into the Contribution Agreement
substantially in the form of Exhibit A hereto (the "Contribution Agreement") and
immediately following the Merger will perform their respective obligations
thereunder; (ii) the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership (the "Operating Partnership Agreement") will be
amended and restated substantially as provided in the form attached as Exhibit B
hereto (the "Operating Partnership Agreement Amendment"); and (iii) Chateau will
enter into a Registration Rights Agreement (the "Registration Rights
Agreement"), in the form attached as Exhibit C hereto with certain holders
(after giving effect to the Merger) of the Common Stock, par value $.01 per
share, of Chateau (the "Common Stock"). In addition, in connection with and as
an integral part of the Merger, certain OP Unit holders shall transfer at least
that number of OP Units and other property to Chateau in exchange for common
stock of Chateau such that ROC stockholders and transferring OP Unit holders
will when taken together own at least 80% of the issued and outstanding voting
shares of Chateau immediately following the consummation of the Merger.
(e) As a condition to, and simultaneously with the execution of, the
Original Agreement, there was executed and delivered (i) the Chateau Stock
Option Agreement pursuant to which Chateau granted to ROC an option exercisable
upon the occurrence of certain events and (ii) the ROC Stock Option Agreement
pursuant to which ROC granted to the Operating Partnership an option exercisable
upon the occurrence of certain events. As a condition to, and simultaneously
with the execution of, this Agreement, the Option Agreements will be amended as
provided in Exhibit D hereto. The Chateau Option Agreement and the ROC Option
Agreement as so amended are referred to herein as the "Chateau Option Agreement"
and the "ROC Option Agreement" and together as the "Option Agreements."
(f) As a condition to, and simultaneously with the execution of, the
Original Agreement, Agreements and Irrevocable Proxies were executed and
delivered by the ROC Principals and the Chateau Principals (each as defined in
the Original Agreement). As a condition to, and simultaneously with the
execution of,
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this Agreement, the Agreements and Irrevocable Proxies will be amended as
provided in Exhibit E hereto. The Agreements and Irrevocable Proxies executed by
the ROC Principals as so amended are referred to herein as the "ROC Principal
Proxies" and the Agreements and Irrevocable Proxies executed by the Chateau
Principals as so amended are referred to herein as the "Chateau Principal
Proxies."
(g) As a condition to the willingness of each of Chateau and ROC to enter
into this Agreement, holders of units of limited partner interest ("OP Units")
in the Operating Partnership holding in excess of 50% of the outstanding OP
Units have (i) consented to the Operating Partnership Agreement Amendment, and
(ii) expressed in writing to ROC their intent to exchange, subject to certain
conditions, certain of their OP Units for shares of Common Stock on or prior to
the record date for the Chateau Stockholders Meeting (as hereinafter defined).
(h) For federal income tax purposes it is intended that the Merger and the
transfer of OP Units by the holders thereof be viewed as an integrated
transaction and together qualify as tax-free transfers by the stockholders of
ROC and the transferring OP Unit holders to Chateau in exchange for shares of
Common Stock pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code").
(i) ROC, as the surviving corporation in the Merger with RSub, intends that,
following the Merger, it shall continue to be subject to taxation as a real
estate investment trust (a "REIT") within the meaning of the Code.
(j) The parties intend that this Agreement shall in all respects amend,
restate and supersede the Original Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Maryland General Corporation
Law (the "MGCL"), ROC shall be merged with RSub at the Effective Time (as
defined below). Following the Merger, the separate corporate existence of RSub
shall cease and ROC shall continue as the surviving corporation and shall
succeed to and assume all the rights and obligations of RSub in accordance with
the MGCL.
SECTION 1.2 Closing. The closing of the Merger will take place at 10:00 a.m.
Eastern Time on a date to be specified by the parties, which (subject to
satisfaction or waiver of the conditions set forth in Sections 6.2 and 6.3)
shall be no later than the second business day after satisfaction or waiver of
the conditions set forth in Section 6.1 (the "Closing Date"), at the offices of
Rogers & Wells, 200 Park Avenue, New York, New York 10166, unless another date
or place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file the articles of merger or other appropriate documents for the Merger
(the "Articles of Merger") executed in accordance with Section 3-110 of the MGCL
and shall make all other filings or recordings required under the MGCL to effect
the Merger. The Merger shall become effective at such time as the Articles of
Merger have been duly filed with the Department of Assessments and Taxation of
the State of Maryland, or at such other time as Chateau and ROC shall specify in
the Articles of Merger (the time and the day the Merger become effective being,
the "Effective Time" and the "Effective Day"), it being understood that the
parties shall cause the Effective Time to occur on the Closing Date.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the MGCL.
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<PAGE>
SECTION 1.5 Charters and By-laws.
(a) Chateau. The Charter of Chateau shall not be affected by the Merger (the
"Charter"). The By-laws of Chateau as in effect as of the date hereof shall be
amended, effective at the Effective Time, as provided in Exhibit F hereto.
(b) ROC. The Charter and By-laws of ROC as in effect at the Effective Time
shall be the Charter and By-laws of ROC upon consummation of the Merger;
provided, that, such Charter shall be amended such that following the Merger,
after giving effect thereto, the ownership of ROC Common Stock by Chateau shall
not violate the ownership limit described in the ROC Charter.
SECTION 1.6 Directors. Effective at the Effective Time, two of the seven
directors of Chateau then in office shall resign from the Chateau Board of
Directors and, in accordance with the By-law amendments specified in Exhibit F,
the remaining Chateau directors then in office shall increase the size of the
Chateau Board from seven to ten directors. The five vacancies on the Chateau
Board shall be filled by the vote of the remaining Chateau directors then in
office with five nominees selected by the ROC Board of Directors such that such
five nominees as well as the five directors of Chateau then in office shall
constitute all of the members of the Chateau Board of Directors immediately
following the Effective Time. Effective at the Effective Time, the Board of
Directors of ROC, as the surviving corporation to the merger with RSub, will be
configured as follows: three of the directors of ROC shall resign and these
vacancies shall be filled by the vote of the remaining ROC directors with three
nominees selected by the Chateau Board of Directors.
SECTION 1.7 Officers. The officers of Chateau immediately following the
Effective Time shall be as follows:
<TABLE>
<S> <C>
Gary P. McDaniel..................... Chief Executive Officer
C.G. ("Jeff") Kellogg................ President
James B. Grange...................... Chief Operating Officer
Tamara D. Fischer.................... Chief Financial Officer
Executive Vice President
Rees F. Davis, Jr.................... -Acquisitions
</TABLE>
Each such officer shall, as of the Effective Time, be employed by Chateau
and/or the Operating Partnership pursuant to an employment agreement (the
"Employment Agreements") substantially in accordance with the terms outlined in
Exhibit G hereto. The officers of ROC following the Merger shall be chosen by
the Board of Directors of ROC as reconstituted by Chateau in accordance with
Section 1.6 above.
SECTION 1.8 Principal Executive Office. The principal executive office of
Chateau following the Effective Date shall be in Englewood, Colorado.
SECTION 1.9 Name. The Board of Directors of Chateau will, at the first
annual meeting of stockholders of Chateau following the Merger, submit to a vote
of the stockholders of Chateau, a proposal, which shall be recommended by the
Board, to change the name of the Company to "Chateau Communities, Inc." If the
stockholders of Chateau approve such name change, Chateau will change its symbol
on the New York Stock Exchange to appropriately comport with the name change.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates
SECTION 2.1 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of the holder of any shares of ROC Stock:
(a) Conversion of Stock.
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<PAGE>
(i) At the Effective Time, each issued and outstanding share of ROC
Stock shall be converted into the right to receive from Chateau 1.042 fully paid
and nonassessable shares of Common Stock. At the Effective Time, all such shares
of ROC Stock shall no longer be outstanding and shall automatically be canceled
and retired and all rights with respect thereto shall cease to exist, and each
holder of a certificate representing any such shares of ROC Stock shall cease to
have any rights with respect thereto, except the right to receive, upon
surrender of such certificate in accordance with Section 2.2(c), certificates
representing the shares of Common Stock required to be delivered under this
Section 2.1(a) and any cash in lieu of fractional shares of Common Stock to be
issued or paid in consideration therefor upon surrender of such certificate (the
"Merger Consideration") and any dividends or other distributions to which such
holder is entitled pursuant to Section 2.2(d), in each case, without interest
and less any required withholding taxes.
(ii) Notwithstanding the foregoing, the parties understand that the
rights of each stockholder of Chateau under this Section 2.1(a) will be subject
to the ownership limitations and other related provisions contained in the
Chateau Charter.
(b) Conversion of Shares of Common Stock of RSub. Immediately prior to the
Effective Time, RSub shall have issued and outstanding 10,000,120 shares of
common stock ("RSub Common Stock"), 10,000,000 of which shares shall be owned by
Chateau and 120 of which shares shall be held by 120 separate individuals who
are "accredited investors" within the meaning of Rule 501(a) under the
Securities Act of 1933, as amended (the "Securities Act"). At the Effective
Time, each issued and outstanding share of RSub Common Stock shall be converted
into one validly issued, fully paid and non-assessable share of common stock of
ROC, as the surviving corporation in the Merger with RSub.
SECTION 2.2 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Chateau and ROC shall
jointly appoint a bank or trust company to act as exchange agent (the "Exchange
Agent") for the exchange of the Merger Consideration upon surrender of
certificates representing issued and outstanding ROC Stock.
(b) Provision of Shares. Chateau shall provide to the Exchange Agent on or
before the Effective Time, for the benefit of the holders of ROC Stock,
sufficient shares of Common Stock issuable in exchange for the issued and
outstanding shares of ROC Stock pursuant to Section 2.1.
(c) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of ROC Stock (the "ROC Certificates") whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.1, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the ROC Certificates
shall pass, only upon delivery of the ROC Certificates to the Exchange Agent and
shall be in a form and have such other provisions as Chateau may reasonably
specify) and (ii) instructions for use in effecting the surrender of the ROC
Certificates in exchange for the Merger Consideration. Upon surrender of a ROC
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Chateau, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such ROC Certificate shall be entitled to receive
in exchange therefor the Merger Consideration and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(d), and
the ROC Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of ROC Stock which is not registered in the transfer
records of ROC, payment may be made to a person other than the person in whose
name the ROC Certificate so surrendered is registered if such ROC Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment either shall pay any transfer or other taxes
required by reason of such payment being made to a person other than the
registered holder of such ROC Certificate or establish to the satisfaction of
Chateau that such tax or taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 2.2, each ROC Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon
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such surrender the Merger Consideration, without interest, into which the shares
theretofore represented by such ROC Certificate shall have been converted
pursuant to Section 2.1 and any dividends or other distributions to which such
holder is entitled pursuant to Section 2.2(d). No interest will be paid or will
accrue on the Merger Consideration upon the surrender of any ROC Certificate or
on any cash payable pursuant to Section 2.2(d) or Section 2.2(g).
(d) Record Dates; Distributions with Respect to Unexchanged Shares.
(i) From the date of this Agreement, ROC and Chateau shall cooperate to
establish and maintain record and payment dates for regular quarterly cash
dividends on their respective capital stock, such that the record and payment
dates, respectively, for each of ROC and Chateau occur on the same calendar
date.
(ii) No dividends or other distributions with respect to ROC Stock with
a record date after the Effective Time shall be paid to the holder of any
unsurrendered ROC Certificate with respect to the shares represented thereby,
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 2.2(g), in each case until the surrender of such ROC
Certificate in accordance with this Article II. Subject to the effect of
applicable abandoned property, escheat or similar laws, following surrender of
any such ROC Certificate there shall be paid to the holder of such ROC
Certificate, without interest, (A) at the time of such surrender, the amount of
any cash payable in lieu of any fractional share of Common Stock to which such
holder is entitled pursuant to Section 2.2(g) and (B) if such ROC Certificate is
exchangeable for one or more whole shares of Common Stock, (x) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole shares
of Common Stock and (y) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of Common Stock.
(e) No Further Ownership Rights in ROC Stock. All Merger Consideration paid
upon the surrender of ROC Certificates in accordance with the terms of this
Article II (and any cash paid pursuant to Section 2.2(g)) shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
ROC Stock theretofore represented by such ROC Certificates, subject, however, to
the obligation of Chateau to pay, without interest, any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by ROC on such shares in accordance with the terms of
this Agreement or prior to the date of this Agreement and which remain unpaid at
the Effective Time and have not been paid prior to such surrender, and there
shall be no further registration of transfers on the stock transfer books of ROC
of the shares of ROC Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, ROC Certificates are properly
presented to Chateau they shall be canceled and exchanged as provided in this
Article II.
(f) No Liability. None of Chateau, ROC, RSub or the Exchange Agent shall be
liable to any person in respect of any Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. Any portion of the Merger Consideration delivered to the Exchange
Agent pursuant to this Agreement that remains unclaimed for six months after the
Effective Time shall be redelivered by the Exchange Agent to Chateau, upon
demand, and any holders of ROC Certificates who have not theretofore complied
with Section 2.2(c) shall thereafter look only to Chateau for delivery of the
Merger Consideration, subject to applicable abandoned property, escheat and
other similar laws.
(g) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of Common
Stock shall be issued upon the surrender for exchange of ROC Certificates, and
such fractional share interests will not entitle the owner thereof to vote, to
receive dividends or to any other rights of a stockholder of Chateau.
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(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of ROC Stock exchanged in the Merger who would otherwise have been
entitled to receive a fraction of a share of Common Stock (after taking into
account all ROC Certificates delivered by such holder) shall receive, from the
Exchange Agent in accordance with the provisions of this Section 2.2(g), a cash
payment in lieu of such fractional share of Common Stock representing such
holder's proportionate interest, if any, in the net proceeds from the sale by
the Exchange Agent in one or more transactions (which sale transactions shall be
made at such times, in such manner and on such terms as the Exchange Agent shall
determine in its reasonable discretion) on behalf of all such holders of the
aggregate of the fractional shares of Common Stock which would otherwise have
been issued (the "Excess Shares"). The sale of the Excess Shares by the Exchange
Agent shall be executed on the New York Stock Exchange (the "NYSE") through one
or more member firms of the NYSE and shall be executed in round lots to the
extent practicable. Until the net proceeds of such sale or sales have been
distributed to the holders of Certificates, the Exchange Agent will hold such
proceeds in trust (the "Exchange Trust") for the holders of ROC Certificates.
Chateau shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with this sale of the Excess Shares. As soon as
practicable after the determination of the amount of cash, if any, to be paid to
holders of ROC Certificates in lieu of any fractional shares of Common Stock,
the Exchange Agent shall make available such amounts to such holders of ROC
Certificates without interest.
(h) Withholding Rights. Chateau or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of shares of Common Stock or ROC Stock such amounts
as Chateau or the Exchange Agent is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by Chateau or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of ROC Stock, in
respect of which such deduction and withholding was made by Chateau or the
Exchange Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of ROC. ROC represents and
warrants to Chateau as follows:
(a) Organization, Standing and Corporate Power of ROC. ROC is a corporation
duly organized and validly existing under the laws of Maryland and has the
requisite corporate power and authority to carry on its business as now being
conducted. ROC is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership, leasing of its properties or management of properties for others
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of ROC and the
ROC Subsidiaries (as defined below) taken as a whole (a "ROC Material Adverse
Effect").
(b) ROC Subsidiaries. Schedule 3.1(b) to the ROC Disclosure Letter (as
defined below) sets forth each ROC Subsidiary and the ownership interest therein
of ROC. Except as set forth in Schedule 3.1(b) to the ROC Disclosure Letter, (i)
all the outstanding shares of capital stock of each ROC Subsidiary that is a
corporation have been validly issued and are fully paid and nonassessable and
are owned by ROC, by another ROC Subsidiary or by ROC and another ROC
Subsidiary, free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens")
and (ii) all equity interests in each ROC Subsidiary that is a partnership,
limited liability company or trust
A-12
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are owned by ROC, by another ROC Subsidiary or by ROC and another ROC
Subsidiary, free and clear of all Liens. Except for the capital stock of, or
other equity interests in, the ROC Subsidiaries and as provided in Section
4.1(e), ROC does not own, directly or indirectly, any capital stock or other
ownership interest, with a fair market value as of the date of this Agreement
greater than $250,000 in any Person or which represents 10% or more of the
outstanding capital stock or other ownership interest of any class in any
Person. Each ROC Subsidiary that is a corporation is duly incorporated and
validly existing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted and each ROC Subsidiary that is a partnership, limited liability
company or trust is duly organized and validly existing under the laws of its
jurisdiction of organization and has the requisite power and authority to carry
on its business as now being conducted. Each ROC Subsidiary is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership, leasing of its properties or
management of properties for others makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a ROC Material
Adverse Effect.
(c) Capital Structure. The authorized capital stock of ROC consists of
90,000,000 shares of ROC Common Stock, 158,017 shares of ROC Non-Voting Stock
and 9,841,983 shares of preferred stock, par value $.01 per share (the "ROC
Preferred Stock"). On the date hereof, (i) 12,423,500 shares of ROC Common
Stock, 158,017 shares of ROC Non-Voting Stock and no shares of ROC Preferred
Stock were issued and outstanding, (ii) 490,000 shares of ROC Common Stock were
available for issuance under ROC's Amended and Restated 1993 Stock Option and
Stock Appreciation Rights Plan (the "1993 Stock Plan") and (iii) 270,000 shares
of ROC Common Stock were reserved for issuance upon exercise of outstanding
stock options to purchase shares of ROC Common Stock granted to employees of ROC
under the 1993 Stock Plan (the "ROC Stock Options"). On the date of this
Agreement, except as set forth above in this Section 3.1(c), no shares of
capital stock or other voting securities of ROC were issued, reserved for
issuance or outstanding. There are no outstanding stock appreciation rights
relating to the capital stock of ROC. All outstanding shares of capital stock of
ROC are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness of ROC having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of ROC may vote. Except (A) for the ROC Stock Options, (B) as set
forth in Schedule 3.1(c) to the ROC Disclosure Letter, and (C) as otherwise
permitted under Section 4.1, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which ROC or any ROC Subsidiary is a party or by which such
entity is bound, obligating ROC or any ROC Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of ROC or any ROC Subsidiary or
obligating ROC or any ROC Subsidiary to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Except as set forth in Schedule 3.1(c) to the ROC Disclosure
Letter, there are no outstanding contractual obligations of ROC or any ROC
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock of ROC or any capital stock, voting securities or other ownership
interests in ROC or any ROC Subsidiary or make any material investment (in the
form of a loan, capital contribution or otherwise) in any Person (other than a
ROC Subsidiary).
(d) Authority; Noncontravention; Consents. ROC has the requisite corporate
power and authority to enter into this Agreement and, subject to approval of the
Merger, this Agreement and the other Transactions contemplated hereby by the
requisite vote of the holders of the ROC Common Stock (the "ROC Stockholder
Approvals"), to consummate the Transactions contemplated by this Agreement to
which ROC is a party. ROC has the requisite corporate power and authority to
enter into the ROC Option Agreement and to consummate the Transactions
contemplated thereby to which ROC is a party. The execution and delivery of this
Agreement and the ROC Option Agreement by ROC and the consummation by ROC of the
Transactions contemplated hereby and thereby to which ROC is a party have been
duly authorized by all necessary corporate action on the part of ROC, subject to
approval of this Agreement
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pursuant to the ROC Stockholder Approvals. This Agreement and the ROC Option
Agreement have been duly executed and delivered by ROC and constitute valid and
binding obligations of ROC, enforceable against ROC in accordance with their
terms. The ROC Principal Proxies have been duly executed and delivered by the
ROC Principals and constitute valid and binding proxies of the ROC Principals
enforceable in accordance with their terms. Except as set forth in Schedule
3.1(d) to the ROC Disclosure Letter, the execution and delivery of this
Agreement and the ROC Option Agreement by ROC do not, and the consummation of
the Transactions contemplated hereby and thereby to which ROC is a party and
compliance by ROC with the provisions of this Agreement and the ROC Option
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of ROC or any ROC Subsidiary under, (i) the Charter or
By-laws of ROC or the comparable charter or organizational documents or
partnership or similar agreement (as the case may be) of any ROC Subsidiary,
each as amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession, franchise
or license applicable to ROC or any ROC Subsidiary or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation (collectively, "Laws") applicable to
ROC or any ROC Subsidiary, or their respective properties or assets, other than,
in the case of clause (ii) or (iii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have a ROC
Material Adverse Effect or (y) prevent the consummation of the Transactions. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any federal, state or local government or any court, administrative
or regulatory agency or commission or other governmental authority or agency (a
"Governmental Entity"), is required by or with respect to ROC or any ROC
Subsidiary in connection with the execution and delivery of this Agreement or
the ROC Option Agreement by ROC or the consummation by ROC of the other
Transactions contemplated hereby and thereby, except for (i) the filing with the
Securities and Exchange Commission (the "SEC") of (x) a joint proxy statement
relating to the approval by ROC stockholders of the Merger, this Agreement and
the other Transactions contemplated by this Agreement and the approval by
Chateau stockholders of the issuance of the Merger Consideration to the ROC
stockholders (as amended or supplemented from time to time, the "Proxy
Statement") and a registration statement relating to the issuance of the Merger
Consideration (the "Registration Statement") and (y) such reports under Section
13(a) and Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement and the
Transactions contemplated by this Agreement, (ii) the filing of the Articles of
Merger for the Merger with the Department of Assessments and Taxation of the
State of Maryland, (iii) such filings as may be required in connection with the
payment of any Transfer and Gains Taxes (as defined below) and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as are set forth in Schedule 3.1(d) to the ROC Disclosure Letter or (A)
as may be required under (x) federal, state, local or foreign environmental laws
or (y) the "blue sky" laws of various states or (B) which, if not obtained or
made, would not prevent or delay in any material respect the consummation of any
of the Transactions contemplated by this Agreement or otherwise prevent ROC from
performing its obligations under this Agreement in any material respect or have,
individually or in the aggregate, a ROC Material Adverse Effect.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities. ROC has
filed all required reports, schedules, forms, statements and other documents
with the SEC since August 18, 1993 (the "ROC SEC Documents"). All of the ROC SEC
Documents (other than preliminary material), as of their respective filing
dates, complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and, in each case, the rules and regulations
promulgated thereunder applicable to such ROC SEC Documents. None of the ROC SEC
Documents at the time of filing contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
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necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except to the extent such statements
have been modified or superseded by later filed ROC SEC Documents. Other than as
set forth in Schedule 3.1(e) to the ROC Disclosure Letter, there is no
unresolved violation, criticism or exception by any Governmental Entity of which
ROC has received written notice with respect to any ROC report or statement
which, if resolved in a manner unfavorable to ROC, could have a ROC Material
Adverse Effect. The consolidated financial statements of ROC included in the ROC
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except, in the case of interim financial
statements, as permitted by Forms 10-Q or 8-K of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP, the consolidated financial position of ROC and the ROC
Subsidiaries taken as a whole, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of interim financial statements, to normal year-end adjustments). Except as
set forth in the ROC Filed SEC Documents (as defined below), in Schedule 3.1(e)
to the ROC Disclosure Letter or as permitted by Section 4.1 (for the purposes of
this sentence, as if Section 4.1 had been in effect since December 31, 1995),
neither ROC nor any ROC Subsidiary has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by GAAP to
be set forth on a consolidated balance sheet of ROC or in the notes thereto and
which, individually or in the aggregate, would have a ROC Material Adverse
Effect.
(f) Absence of Certain Changes or Events. Except as disclosed in the ROC SEC
Documents filed and publicly available prior to the date of this Agreement
(referred to collectively as the "ROC Filed SEC Documents") or in Schedule
3.1(f) to the ROC Disclosure Letter, since the date of the most recent financial
statements included in the ROC Filed SEC Documents (the "Financial Statement
Date") and to the date of this Agreement, ROC and the ROC Subsidiaries have
conducted their business only in the ordinary course and there has not been (i)
any material adverse change in the business, financial condition or results of
operations of ROC and the ROC Subsidiaries taken as a whole, that has resulted
or would result, individually or in the aggregate, in Economic Losses (as
defined in Section 6.2 below) of $5,000,000 or more (a "ROC Material Adverse
Change"), nor has there been any occurrence or circumstance that with the
passage of time would reasonably be expected to result in a ROC Material Adverse
Change, (ii) except for regular quarterly dividends not in excess of $.425 per
share of ROC Stock, with customary record and payment dates, any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of ROC's capital stock, (iii) any split,
combination or reclassification of any of ROC's capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, or giving the right to acquire by exchange or
exercise, shares of its capital stock or any issuance of an ownership interest
in, any ROC Subsidiary except as permitted by Section 4.1, (iv) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
a ROC Material Adverse Effect or (v) any change in accounting methods,
principles or practices by ROC or any ROC Subsidiary materially affecting its
assets, liabilities or business, except insofar as may have been disclosed in
the ROC Filed SEC Documents or required by a change in GAAP.
(g) Litigation. Except as disclosed in the ROC Filed SEC Documents or in
Schedule 3.1(g) to the ROC Disclosure Letter, and other than personal injury and
other routine tort litigation arising from the ordinary course of operations of
ROC and the ROC Subsidiaries which are covered by adequate insurance, there is
no suit, action or proceeding pending or, to the knowledge of ROC, threatened
against or affecting ROC or any ROC Subsidiary that, individually or in the
aggregate, could reasonably be expected to (i) have a ROC Material Adverse
Effect or (ii) prevent the consummation of any of the Transactions, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against ROC or any ROC Subsidiary having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect.
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(h) Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in the ROC Filed SEC Documents or in Schedule
3.1(h)(i) to the ROC Disclosure Letter and except as permitted by Section 4.1
(for the purpose of this sentence, as if Section 4.1 had been in effect since
December 31, 1995), since the date of the most recent audited financial
statements included in the ROC Filed SEC Documents, there has not been any
adoption or amendment in any material respect by ROC or any ROC Subsidiary of
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other employee benefit plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or former employee,
officer or director of ROC or any ROC Subsidiary or any person affiliated with
ROC under Section 414(b), (c), (m) or (o) of the Code (collectively, "ROC
Benefit Plans").
(ii) Except as described in the ROC Filed SEC Documents or in Schedule
3.1(h)(ii) to the ROC Disclosure Letter or as would not have a ROC Material
Adverse Effect, (A) all ROC Benefit Plans, including any such plan that is an
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), are in compliance with all
applicable requirements of law, including ERISA and the Code, and (B) neither
ROC nor any ROC Subsidiary has any liabilities or obligations with respect to
any such ROC Benefit Plan, whether accrued, contingent or otherwise (other than
obligations to make contributions and pay benefits and administrative costs
incurred in the ordinary course), nor to the knowledge of ROC are any such
liabilities or obligations expected to be incurred. Except as set forth in
Schedule 3.1(h)(ii) to the ROC Disclosure Letter, the execution of, and
performance of the Transactions contemplated in, this Agreement will not (either
alone or together with the occurrence of any additional or subsequent events)
constitute an event under any ROC Benefit Plan, policy, arrangement or
agreement, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee or director. The only severance agreements or severance policies
applicable to ROC or the ROC Subsidiaries are the agreement and policies
specifically referred to in Schedule 3.1(h)(ii) to the ROC Disclosure Letter.
(i) Taxes.
(i) Each of ROC and each ROC Subsidiary has timely filed all Tax Returns
and reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to do so).
Each such Tax Return is true, correct and complete in all material respects. ROC
and each ROC Subsidiary have paid (or ROC has paid on their behalf), within the
time and manner prescribed by law, all Taxes that are due and payable. Except as
disclosed in Schedule 3.1(i)(i) to the ROC Disclosure Letter, the federal, state
and local income, sales and franchise tax returns of ROC and each ROC Subsidiary
have not been audited by any Governmental Entity responsible for tax matters (a
"Taxing Authority"). There are no Tax liens upon the assets of ROC or any ROC
Subsidiary. The most recent financial statements contained in the ROC Filed SEC
Documents reflect an adequate reserve for all material Taxes payable by ROC and
by each ROC Subsidiary for all taxable periods and portions thereof through the
date of such financial statements. Since the Financial Statement Date, ROC has
incurred no liability for Taxes under Section 857(b), 860(c) or 4981 of the
Code, and neither ROC nor any ROC Subsidiary has incurred any liability for
Taxes other than in the ordinary course of business. Except as set forth in
Schedule 3.1(i)(i) to the ROC Disclosure Letter, to the knowledge of ROC, no
event has occurred, and no condition or circumstance exists, which presents a
material risk that any material Tax described in the preceding sentence will be
imposed upon ROC. To the knowledge of ROC, no deficiencies for any Taxes have
been proposed, asserted or assessed against ROC or any of the ROC Subsidiaries,
and no requests for waivers of the time to assess any such Taxes have been
granted or are pending. As used in this Agreement, "Taxes" shall mean any
federal, state, local or foreign income, gross receipts, license, payroll,
employment withholding, property, sales, excise or other tax or governmental
charges of any nature whatsoever, together with any penalties, interest or
additions thereto and "Tax Return" shall mean any
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<PAGE>
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(ii) ROC (A) for all of its taxable years commencing with 1993 through
the most recent December 31, has been subject to taxation as a REIT within the
meaning of the Code and has satisfied the requirements to qualify as a REIT for
such years, (B) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for its tax year ending December 31, 1996, and
(C) has not taken or omitted to take any action which could reasonably be
expected to result in a challenge to its status as a REIT, and, to ROC's
knowledge, no such challenge is pending or threatened.
(j) No Loans or Payments to Employees, Officers or Directors. Except as set
forth in Schedule 3.1(j) to the ROC Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no (i) loan outstanding
from or to any employee or director, (ii) employment or severance contract,
(iii) other agreement requiring payments to be made on a change of control or
otherwise as a result of the consummation of any of the Transactions with
respect to any employee, officer or director of ROC or any ROC Subsidiary or
(iv) any agreement to appoint or nominate any person as a director of ROC or
Chateau.
(k) Brokers; Schedule of Fees and Expenses. No broker, investment banker,
financial advisor or other person, other than PaineWebber Incorporated
("PaineWebber"), the fees and expenses of which, as set forth in an amended
letter agreement between ROC and PaineWebber, have previously been disclosed to
Chateau and will be paid by ROC, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of ROC or any ROC
Subsidiary.
(l) Compliance with Laws. Except as disclosed in the ROC Filed SEC Documents
and except as set forth in Schedule 3.1(l) to the ROC Disclosure Letter, neither
ROC nor any of the ROC Subsidiaries has violated or failed to comply with any
statute, law, ordinance, regulation, rule, judgment, decree or order of any
Governmental Entity applicable to its business, properties or operations, except
for violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a ROC Material Adverse Effect.
(m) Contracts; Debt Instruments.
(i) Neither ROC nor any ROC Subsidiary is in violation of or in default
under, in any material respect (nor does there exist any condition which upon
the passage of time or the giving of notice or both would cause such a violation
of or default under), any material loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise or license, or any
agreement to acquire real property, or any other material contract, agreement,
arrangement or understanding, to which it is a party or by which it or any of
its properties or assets is bound, except as set forth in Schedule 3.1(m)(i) to
the ROC Disclosure Letter and except for violations or defaults that would not,
individually or in the aggregate, result in a ROC Material Adverse Effect. The
properties identified in Schedule 3.1(m) to the ROC Disclosure Letter are
manufactured housing communities owned by various entities affiliated with the
Windsor Corporation (collectively the "Windsor Entities") and managed by ROC
pursuant to that certain Master Property Management Agreement dated July 31,
1990 ("Windsor Agreement") between the Windsor Entities and Windsor Asset
Management, Inc. ("WAMI"), the terms of which Windsor Agreement have been
replaced by the terms of that certain Master Agreement dated November 15, 1991
between ROC Properties, Inc. and WAMI (the "Amended Windsor Agreement"), which
Amended Windsor Agreement has an initial term through November 30, 1998 is
valid, binding and in full force and effect without amendment or modification
(except as set forth herein), and is enforceable against the Windsor Entities
and ROC in accordance with its terms.
(ii) Except for any of the following expressly identified in the most
recent financial statements contained in the ROC Filed SEC Documents and except
as permitted by Section 4.1, Schedule
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3.1(m)(ii) to the ROC Disclosure Letter sets forth (A) a list of all loan or
credit agreements, notes, bonds, mortgages, indentures and other agreements and
instruments pursuant to which any indebtedness of ROC or any of the ROC
Subsidiaries in an aggregate principal amount in excess of $2,000,000 per item
is outstanding or may be incurred and (B) the respective principal amounts
outstanding thereunder on June 30, 1996. For purposes of this Section 3.1(m)(ii)
and Section 3.2(m)(ii), "indebtedness" shall mean, with respect to any person,
without duplication, (A) all indebtedness of such person for borrowed money,
whether secured or unsecured, (B) all obligations of such person under
conditional sale or other title retention agreements relating to property
purchased by such person, (C) all capitalized lease obligations of such person,
(D) all obligations of such person under interest rate or currency hedging
transactions (valued at the termination value thereof), (E) all guarantees of
such person of any such indebtedness of any other person and (F) any agreements
to provide any of the foregoing.
(iii) Schedule 3.1(m)(iii) to the ROC Disclosure Letter sets forth a
complete list of each consulting agreement between ROC and any ROC Subsidiary,
including the annual compensation payable thereunder and the date as of which
such consulting agreement expires.
(n) Environmental Matters. Except as disclosed in Schedule 3.1(n) to the ROC
Disclosure Letter or in the environmental audits/reports listed thereon, each of
ROC and each ROC Subsidiary has obtained all licenses, permits, authorizations,
approvals and consents from Governmental Entities which are required in respect
of its business, operations, assets or properties under any applicable
Environmental Law (as defined below) and each of ROC and each ROC Subsidiary is
in compliance in all material respects with the terms and conditions of all such
licenses, permits, authorizations, approvals and consents and with any
applicable Environmental Law. Except as disclosed in Schedule 3.1(n) to the ROC
Disclosure Letter or in the environmental audits/reports listed thereon:
(i) No Order has been issued, no complaint has been filed, no penalty
has been assessed and no investigation or review is pending or threatened by any
Governmental Entity with respect to any alleged failure by ROC or any ROC
Subsidiary to have any license, permit, authorization, approval or consent from
Governmental Entities required under any applicable Environmental Law in
connection with the conduct of the business or operations of ROC or any ROC
Subsidiary or with respect to any treatment, storage, recycling, transportation,
disposal or "release" as defined in 42 U.S.C. ss. 9601(22) ("Release"), by ROC
or any ROC Subsidiary of any Hazardous Material (as defined below).
(ii) Neither ROC nor any ROC Subsidiary nor any prior owner or lessee of
any property now or previously owned or leased by ROC or any ROC Subsidiary has
handled any Hazardous Material on any property now or previously owned or leased
by ROC or any ROC Subsidiary; and, without limiting the foregoing, (A) no
polychlorinated biphenyl is or has been present, (B) no friable asbestos is or
has been present, (C) there are no underground storage tanks, active or
abandoned and (D) no Hazardous Material has been Released in a quantity
reportable under, or in violation of, any Environmental Law, at, on or under any
property now or previously owned or leased by ROC or any ROC Subsidiary, during
any period that ROC or any ROC Subsidiary owned or leased such property or, to
the knowledge of ROC and its Subsidiaries, prior thereto.
(iii) Neither ROC nor any ROC Subsidiary has transported or arranged for
the transportation of any Hazardous Material to any location which is the
subject of any action, suit, arbitration or proceeding that could be reasonably
expected to lead to claims against ROC or any ROC Subsidiary for clean-up costs,
remedial work, damages to natural resources or personal injury claims,
including, but not limited to, claims under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder ("CERCLA").
(iv) No oral or written notification of a Release of a Hazardous
Material has been filed or should have been filed by or on behalf of ROC or any
ROC Subsidiary and no property now or previously owned or leased by ROC or any
ROC Subsidiary is listed or proposed for listing on the National Priorities List
promulgated pursuant to CERCLA or on any similar state list of sites requiring
investigation or clean-up.
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(v) There are no Liens arising under or pursuant to any Environmental
Law on any real property owned or leased by ROC or any ROC Subsidiary, and no
action of any Governmental Entity has been taken or, to the knowledge of ROC and
its Subsidiaries, is in process which could subject any of such properties to
such Liens, and neither ROC nor any ROC Subsidiary would be required to place
any notice or restriction relating to the presence of Hazardous Material at any
such property owned by it in any deed to such property.
(vi) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or which are in the possession
of, ROC or any ROC Subsidiary in relation to any property or facility now or
previously owned, leased or managed by ROC or any ROC Subsidiary which have not
been listed in Schedule 3.1(n) to the ROC Disclosure Letter and made available
to Chateau prior to the execution of this Agreement.
(vii) As used herein:
(A) "Environmental Law" means any Law of any Governmental Entity
relating to human health, safety or protection of the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or Hazardous Materials in the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), or otherwise relating to the treatment, storage, disposal, transport or
handling of any Hazardous Material; and
(B) "Hazardous Material" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
reasonably be expected to become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid containing levels
of polychlorinated biphenyls (PCBs); (B) any chemicals, materials, substances or
wastes which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import, under any Environmental Law; and
(C) any other chemical, material, substance or waste, exposure to which is now
or hereafter prohibited, limited or regulated by any Governmental Entity.
(o) Tangible Property and Assets. Except as disclosed in Schedule 3.1(o) to
the ROC Disclosure Letter, ROC and its Subsidiaries have good and marketable fee
simple title to, or have valid leasehold interests in, those manufactured home
communities described in Schedule 3.1(o) to the ROC Disclosure Letter, free and
clear of all Liens other than (i) any statutory Lien arising in the ordinary
course of business by operation of law with respect to a liability that is not
yet due or delinquent and (ii) any easement, restriction or minor imperfection
of title or similar Lien which individually or in the aggregate with other such
Liens does not materially impair the value of the property or asset subject to
such Lien or the use of such property or asset in the conduct of the business of
ROC or any such ROC Subsidiary.
(p) Books and Records.
(i) The books of account and other financial records of ROC and each ROC
Subsidiary are in all material respects true, complete and correct, have been
maintained in accordance with good business practices, and are accurately
reflected in all material respects in the financial statements included in the
ROC Filed SEC Documents.
(ii) ROC has previously delivered or made available to Chateau true and
correct copies of the Charter and By-laws of ROC, as amended to date, and the
charter, by-laws, organization documents, partnership agreements and joint
venture agreements of its Subsidiaries, and all amendments thereto. All such
documents are listed in Schedule 3.1(p)(iii) to the ROC Disclosure Letter. ROC
has also delivered to Chateau a copy of a binder for its Director and Officer
liability insurance policy.
(iii) The minute books and other records of corporate or partnership
proceedings of ROC and each ROC Subsidiary that had previously been made
available to Chateau in connection with the execution
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of the Original Agreement, contained, as of the date of the Original Agreement,
in all material respects accurate records of all meetings and accurately reflect
in all material respects all other corporate action of the stockholders and
directors and any committees of the Board of Directors of ROC and the ROC
Subsidiaries which are corporations.
(q) Opinion of Financial Advisor. ROC has received the opinion of
PaineWebber, satisfactory to ROC, a signed version dated September 17, 1996 of
which will be provided to Chateau, with regard to the fairness of the Merger to
the stockholders of ROC from a financial point of view.
(r) State Takeover Statutes. No Takeover Statute (as defined below) of the
State of Maryland, including, without limitation, the control share acquisition
provisions of Section 3-701 et seq. of the MGCL or the business combination
provisions of Section 3-601 et seq. of the MGCL, applies or purports to apply to
the Merger, this Agreement or any of the Transactions.
(s) Registration Statement. The information furnished by ROC for inclusion
in the Registration Statement will not, as of the effective date of the
Registration Statement, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(t) Vote Required. The affirmative vote of at least two-thirds of the
outstanding shares of ROC Common Stock is the only vote of the holders of any
class or series of ROC's capital stock necessary (under applicable law or
otherwise) to approve the Merger, this Agreement and the other Transactions
contemplated hereby.
SECTION 3.2 Representations and Warranties of Chateau. Chateau represents
and warrants to ROC as follows:
(a) Organization, Standing and Corporate Power of Chateau. Chateau is a
corporation duly organized and validly existing under the laws of Maryland and
has the requisite corporate power and authority to carry on its business as now
being conducted. Chateau is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a material adverse
effect on the business, properties, assets, financial condition or results of
operations of Chateau and the Chateau Subsidiaries (as defined below), taken as
a whole (a "Chateau Material Adverse Effect").
(b) Chateau Subsidiaries. Schedule 3.2(b) to the Chateau Disclosure Letter
sets forth each Chateau Subsidiary (as defined below) and the ownership interest
therein of Chateau. Except as set forth in Schedule 3.2(b) to the Chateau
Disclosure Letter, (i) all the outstanding shares of capital stock of each
Chateau Subsidiary that is a corporation have been validly issued and are fully
paid and nonassessable and are owned by Chateau, by another Chateau Subsidiary
or by Chateau and another Chateau Subsidiary, free and clear of all Liens and
(ii) all equity interests in each Chateau Subsidiary that is a partnership
(other than the Operating Partnership) or limited liability company or trust are
owned by Chateau or by Chateau and another Chateau Subsidiary free and clear of
all Liens. Except for the capital stock of or other equity interests in the
Chateau Subsidiaries and as provided in Section 4.2(e), Chateau does not own,
directly or indirectly, any capital stock or other ownership interest, with a
fair market value as of the date of this Agreement greater than $250,000 in any
Person or which represents 10% or more of the outstanding capital stock or other
ownership interest of any class in any Person. Each Chateau Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted and each Chateau
Subsidiary that is a partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Chateau Subsidiary is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or
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leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed
individually or in the aggregate, would not have a Chateau Material Adverse
Effect.
(c) Capital Structure. The authorized capital stock of Chateau consists of
30,000,000 shares of Common Stock and 2,000,000 shares of preferred stock, par
value $.01 per share (the "Chateau Preferred Stock"). On the date hereof, (i)
6,099,710 shares of Common Stock and no shares of Chateau Preferred Stock were
issued and outstanding, (ii) 366,600 shares of Common Stock were available for
grant under Chateau's 1993 Long Term Incentive Plan (the "Chateau Plan"), (iii)
619,150 shares of Common Stock were reserved for issuance upon exercise of
outstanding stock options to purchase shares of Common Stock granted to Chateau
employees and directors under the Chateau Plan (the "Chateau Stock Options"),
and (iv) 8,836,310 shares of Common Stock were reserved for issuance upon
exchange of OP Units for shares of Common Stock pursuant to the Operating
Partnership Agreement. On the date of this Agreement, except as set forth in
this Section 3.2(c), no shares of capital stock or other voting securities of
Chateau were issued, reserved for issuance or outstanding. There are no
outstanding stock appreciation rights relating to the capital stock of Chateau.
All outstanding shares of capital stock of Chateau are, and all shares which may
be issued pursuant to this Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. There are no bonds, debentures, notes or other indebtedness of Chateau
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of Chateau may
vote. Chateau's Percentage Interest (as defined in the Operating Partnership
Agreement) in the Operating Partnership is 40.84%. The OP Units consist of (i)
5,046,303 Exchangeable OP Units (as defined in the Operating Partnership
Agreement) which together represent a 33.79% Percentage Interest in the
Operating Partnership and are exchangeable for Common Stock on a one-for-one
basis into an aggregate of 5,046,303 shares of Common Stock in accordance with
the terms of the Operating Partnership Agreement, subject to adjustment as
provided in the Operating Partnership Agreement, and (ii) 3,720,182 Excess OP
Units (as defined in the Operating Partnership Agreement) which together
represent a 25.37% Percentage Interest in the Operating Partnership and are not
exchangeable except in accordance with the Operating Partnership Agreement.
Schedule 3.2(c) to the Chateau Disclosure Letter sets forth the name, address,
number of Exchangeable OP Units and Excess Units and the Percentage Interest of
each partner in the Operating Partnership. Except (A) for the Chateau Stock
Options and OP Units (which, subject to certain restrictions, may be delivered
to Chateau in exchange for Common Stock), (B) as set forth in Schedule 3.2(c) to
the Chateau Disclosure Letter, (C) as otherwise permitted under Section 4.2, and
(d) as contemplated under Chateau's dividend reinvestment plan, as of the date
of this Agreement there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which Chateau or any Chateau Subsidiary is a party or by which such entity is
bound, obligating Chateau or any Chateau Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of Chateau or of any Chateau
Subsidiary or obligating Chateau or any Chateau Subsidiary to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Except (x) as set forth in
Schedule 3.2(c) to the Chateau Disclosure Letter and (y) as required under the
Operating Partnership Agreement, there are no outstanding contractual
obligations of Chateau or any Chateau Subsidiary to repurchase, redeem or
otherwise acquire any shares of capital stock or other ownership interests in
Chateau or any Chateau Subsidiary or make any material investment (in the form
of a loan, capital contribution or otherwise) in any Person other than the
Operating Partnership.
(d) Authority; Noncontravention; Consents. Chateau has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval by the requisite vote of the holders of the Common Stock required to
approve the issuance of the Merger Consideration to the ROC stockholders (the
"Chateau Stockholder Approvals" and, together with the ROC Stockholder
Approvals, the "Stockholder Approvals"), to consummate the transactions
contemplated by this Agreement to which Chateau is a party. Chateau has the
requisite corporate power and authority to enter into the Chateau Option
Agreement and
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to consummate the Transactions contemplated thereby to which Chateau is a party.
The execution and delivery of this Agreement and the Chateau Option Agreement by
Chateau and the consummation by Chateau of the Transactions contemplated hereby
and thereby to which Chateau is a party have been duly authorized by all
necessary corporate action on the part of Chateau, subject to the approval of
the issuance of the Merger Consideration to the ROC stockholders pursuant to the
Chateau Stockholder Approvals. The execution and delivery of the Operating
Partnership Agreement Amendment has been duly authorized by Chateau and by all
other necessary partnership action, the Operating Partnership Agreement
Amendment will constitute a valid and binding obligation of the Operating
Partnership, enforceable against the Operating Partnership in accordance with
its terms. This Agreement and the Chateau Option Agreement have been duly
executed and delivered by Chateau and constitute valid and binding obligations
of Chateau, enforceable against Chateau in accordance with their terms. The
Chateau Principal Proxies have been duly executed and delivered by the Chateau
Principals and constitute valid and binding proxies of the Chateau Principals
enforceable in accordance with their terms. Except as set forth in Schedule
3.2(d) to the Chateau Disclosure Letter, the execution and delivery of this
Agreement and the Chateau Option Agreement by Chateau do not, and the
consummation of the Transactions contemplated hereby and thereby to which
Chateau is a party and compliance by Chateau with the provisions of this
Agreement and the Chateau Option Agreement will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Chateau or any Chateau
Subsidiary under, (i) the Charter or By-laws of Chateau or the comparable
charter or organizational documents or partnership or similar agreement (as the
case may be) of any Chateau Subsidiary, each as amended or supplemented to the
date of this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Chateau or any Chateau
Subsidiary or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any Laws applicable to Chateau or any Chateau Subsidiary or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights or Liens that individually or in the
aggregate would not (x) have a Chateau Material Adverse Effect or (y) prevent
the consummation of the Transactions. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Chateau or any Chateau Subsidiary in
connection with the execution and delivery of this Agreement or the Chateau
Option Agreement by Chateau or the consummation by Chateau of any of the
Transactions contemplated hereby and thereby, except for (i) the filing with the
SEC of (x) the Proxy Statement and the Registration Statement and (y) such
reports under Section 13(a) and Section 14 of the Exchange Act as may be
required in connection with this Agreement and the Transactions contemplated by
this Agreement, (ii) the filing of the Articles of Merger for the Merger with
the Department of Assessments and Taxation of the State of Maryland, (iii) such
filings as may be required in connection with the payment of any Transfer and
Gains Taxes and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as are set forth in Schedule 3.2(d) to
the Chateau Disclosure Letter or (A) as may be required under (x) federal, state
or local environmental laws or (y) the "blue sky" laws of various states or (B)
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the Transactions contemplated by this
Agreement or otherwise prevent Chateau from performing its obligations under
this Agreement in any material respect or have, individually or in the
aggregate, a Chateau Material Adverse Effect.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities. Chateau
has filed all required reports, schedules, forms, statements and other documents
with the SEC since November 16, 1993 and the Operating Partnership has filed all
required reports, schedules, forms, statements, and other documents with the SEC
since March 2, 1995 (collectively, the "Chateau SEC Documents"). All of the
Chateau SEC Documents (other than preliminary material), as of their respective
filing dates, complied in all material
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respects with all applicable requirements of the Securities Act and the Exchange
Act and, in each case, the rules and regulations promulgated thereunder
applicable to such Chateau SEC Documents. None of the Chateau SEC Documents at
the time of filing contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent such statements have been
modified or superseded by later filed Chateau SEC Documents. Other than as set
forth in Schedule 3.2(e) to the Chateau Disclosure Letter, there is no
unresolved violation, criticism or exception by any Governmental Entity of which
Chateau or the Operating Partnership has received written notice with respect to
any Chateau or Operating Partnership report or statement which, if resolved in a
manner unfavorable to Chateau or the Operating Partnership, could have a Chateau
Material Adverse Effect. The consolidated financial statements of Chateau and
the Operating Partnership included in the Chateau SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of interim financial
statements, as permitted by Forms 10-Q
and 8-K of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly presented, in
accordance with the applicable requirements of GAAP, the consolidated financial
position of Chateau and the Chateau Subsidiaries, taken as a whole, as of the
dates thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of interim financial statements, to
normal year-end adjustments). Except as set forth in the Chateau Filed SEC
Documents (as defined below), in Schedule 3.2(e) to the Chateau Disclosure
Letter or as permitted by Section 4.2 (for the purposes of this sentence, as if
Section 4.2 had been in effect since December 31, 1995), neither Chateau nor any
Chateau Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a consolidated balance sheet of Chateau or the Operating Partnership or in the
notes thereto and which, individually or in the aggregate, would have a Chateau
Material Adverse Effect.
(f) Absence of Certain Changes or Events. Except as disclosed in the Chateau
SEC Documents filed and publicly available prior to the date of this Agreement
(referred to collectively as the "Chateau Filed SEC Documents") or in Schedule
3.2(f) to the Chateau Disclosure Letter, since the date of the most recent
financial statements included in the Chateau Filed SEC Documents (the "Chateau
Financial Statement Date") and to the date of this Agreement, Chateau and the
Chateau Subsidiaries have conducted their business only in the ordinary course
and there has not been (i) any material adverse change in the business,
financial condition or results of operations of Chateau and the Chateau
Subsidiaries taken as a whole, that has resulted or would result, individually
or in the aggregate, in Economic Losses (as defined in Section 6.3 below) of
$5,000,000 or more (a "Chateau Material Adverse Change"), nor has there been any
occurrence or circumstance that with the passage of time would reasonably be
expected to result in a Chateau Material Adverse Change, (ii) except for (A)
regular quarterly dividends (in the case of Chateau) not in excess of $.425 per
share of Common Stock, (B) regular quarterly distributions (in the case of the
Operating Partnership) not in excess of $.425 per OP Unit and (C) any
distributions by any Chateau Subsidiaries (other than the Operating Partnership)
to other Chateau Subsidiaries or to Chateau, in each case with customary record
and payment dates, any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) with respect to any of
Chateau's capital stock or any OP Units, (iii) any split, combination or
reclassification of any of Chateau's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for, or giving the right to acquire by exchange or exercise,
shares of its capital stock or any issuance of an ownership interest in any
Chateau Subsidiary, except as permitted by Section 4.2, (iv) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
a Chateau Material Adverse Effect or (v) any change in accounting methods,
principles or practices by Chateau or any Chateau Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
disclosed in the Chateau Filed SEC Documents or required by a change in GAAP.
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(g) Litigation. Except as disclosed in the Chateau Filed SEC Documents or in
Schedule 3.2(g) of the Chateau Disclosure Letter, and other than personal injury
and other routine tort litigation arising from the ordinary course of operations
of Chateau or the Chateau Subsidiaries which are covered by adequate insurance,
there is no suit, action or proceeding pending or, to the knowledge of Chateau,
threatened against or affecting Chateau or any Chateau Subsidiary that,
individually or in the aggregate, could reasonably be expected to (i) have a
Chateau Material Adverse Effect or (ii) prevent the consummation of any of the
Transactions, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against Chateau or any Chateau
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
(h) Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in the Chateau Filed SEC Documents or in
Schedule 3.2(h)(i) to the Chateau Disclosure Letter and except as permitted by
Section 4.2 (for the purpose of this sentence, as if Section 4.2 had been in
effect since December 31, 1995), since the date of the most recent audited
financial statements included in the Chateau Filed SEC Documents, there has not
been any adoption or amendment in any material respect by Chateau or any Chateau
Subsidiary of any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other employee benefit plan, arrangement or
understanding (whether or not legally binding) providing benefits to any current
or former employee, officer or director of Chateau or any Chateau Subsidiary or
any person affiliated with Chateau under Section 414(b), (c), (m) or (o) of the
Code (collectively, "Chateau Benefit Plans").
(ii) Except as described in the Chateau Filed SEC Documents or in
Schedule 3.2(h)(ii) to the Chateau Disclosure Letter or as would not have a
Chateau Material Adverse Effect, (A) all Chateau Benefit Plans, including any
such plan that is an "employee benefit plan" as defined in Section 3(3) of
ERISA, are in compliance with all applicable requirements of law, including
ERISA and the Code, and (B) neither Chateau nor any Chateau Subsidiary has any
liabilities or obligations with respect to any such Chateau Benefit Plans,
whether accrued, contingent or otherwise (other than obligations to make
contributions and pay benefits and administrative costs incurred in the ordinary
course), nor to the knowledge of Chateau are any such liabilities or obligations
expected to be incurred. Except as set forth in Schedule 3.2(h)(ii) to the
Chateau Disclosure Letter, the execution of, and performance of the Transactions
contemplated in, this Agreement will not (either alone or together with the
occurrence of any additional or subsequent events) constitute an event under any
Chateau Benefit Plan, policy, arrangement or agreement, trust or loan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee or
director. The only severance agreements or severance policies applicable to
Chateau or the Chateau Subsidiaries are the agreement and policies specifically
referred to in Schedule 3.2(h)(ii) to the Chateau Disclosure Letter.
(i) Taxes.
(i) Each of Chateau and each Chateau Subsidiary (including the Operating
Partnership) has timely filed with the appropriate taxing authority all Tax
Returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so). Each such Tax Return is true, correct and complete in all material
respects. Chateau and each Chateau Subsidiary (including the Operating
Partnership) have paid (or Chateau has paid on their behalf), within the time
and manner prescribed by law, all Taxes that are due and payable. Except as
disclosed in Schedule 3.2(i)(i) to the Chateau Disclosure Letter, the federal,
state and local income, sales and franchise tax returns of Chateau and each
Chateau Subsidiary have not been audited by any Taxing Authority. There are no
Tax liens upon the assets of Chateau or any Chateau Subsidiary. The most recent
financial statements contained in the Chateau Filed SEC Documents reflect an
adequate reserve for all material
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Taxes payable by Chateau and by each Chateau Subsidiary for all taxable periods
and portions thereof through the date of such financial statements. Since the
Chateau Financial Statement Date, Chateau has incurred no liability for Taxes
under Section 857(b), 860(c) or 4981 of the Code, and neither Chateau nor any
Chateau Subsidiary has incurred any liability for Taxes other than in the
ordinary course of business. Except as set forth in Schedule 3.2(i)(i) to the
Chateau Disclosure Letter, to the knowledge of Chateau, no event has occurred,
and no condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon Chateau.
To the knowledge of Chateau, no deficiencies for any Taxes have been proposed,
asserted or assessed against Chateau or any of the Chateau Subsidiaries, and no
requests for waivers of the time to assess any such Taxes have been granted or
are pending.
(ii) Chateau (A) for all of its taxable years commencing with 1993
through the most recent December 31, has been subject to taxation as a REIT
within the meaning of the Code and has satisfied the requirements to qualify as
a REIT for such years, (B) has operated, and intends to continue to operate, in
such a manner as to qualify as a REIT for its tax year ending December 31, 1996,
and (C) has not taken or omitted to take any action which could reasonably be
expected to result in a challenge to its status as a REIT, and, to Chateau's
knowledge, no such challenge is pending or threatened. The Operating Partnership
has at all times, and each other Chateau Subsidiary which is a partnership or
files Tax Returns as a partnership for federal income tax purposes has since its
acquisition by Chateau, been classified for federal income tax purposes as a
partnership and not as a corporation or as an association taxable as a
corporation.
(j) No Loans or Payments to Employees, Officers or Directors. Except as set
forth in Schedule 3.2(j) to the Chateau Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no (i) loan outstanding
from or to any employee or director, (ii) employment or severance contract,
(iii) other agreement requiring payments to be made on a change of control or
otherwise as a result of the consummation of any of the Transactions with
respect to any employee, officer or director of Chateau or any Chateau
Subsidiary or (iv) any agreement to appoint or nominate any person as a director
of Chateau.
(k) Brokers; Schedule of Fees and Expenses. No broker, investment banker,
financial advisor or other person, other than Merrill Lynch & Co. ("Merrill
Lynch") and Goldman Sachs & Co. ("Goldman"), the fees and expenses of which, as
set forth in separate letter agreements between Chateau and Merrill Lynch and
Chateau and Goldman, respectively, have previously been disclosed to ROC and
will be paid by Chateau, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the Transactions
based upon arrangements made by or on behalf of Chateau or any other Chateau
Subsidiary.
(l) Compliance with Laws. Except as disclosed in the Chateau Filed SEC
Documents and except as set forth in Schedule 3.2(l) to the Chateau Disclosure
Letter, neither Chateau nor any of the Chateau Subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule, judgment,
decree or order of any Governmental Entity applicable to its business,
properties or operations, except for violations and failures to comply that
would not, individually or in the aggregate, reasonably be expected to result in
a Chateau Material Adverse Effect.
(m) Contracts; Debt Instruments.
(i) Neither Chateau nor any Chateau Subsidiary is in violation of or in
default under, in any material respect (nor does there exist any condition which
upon the passage of time or the giving of notice or both would cause such a
violation of or default under), any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise or license, or
any agreement to acquire real property, or any other material contract,
agreement, arrangement or understanding, to which it is a party or by which it
or any of its properties or assets is bound, except as set forth in Schedule
3.2(m)(i) to the Chateau Disclosure Letter and except for violations or defaults
that would not, individually or in the aggregate, result in a Chateau Material
Adverse Effect.
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(ii) Except for any of the following expressly identified in the most
recent financial statements contained in the Chateau Filed SEC Documents and
except as permitted by Section 4.2, Schedule 3.2(m)(ii) to the Chateau
Disclosure Letter sets forth (A) a list of all loan or credit agreements, notes,
bonds, mortgages, indentures and other agreements and instruments pursuant to
which any indebtedness of Chateau or any of the Chateau Subsidiaries in an
aggregate principal amount in excess of $2,000,000 per item is outstanding or
may be incurred and (B) the respective principal amounts outstanding thereunder
on June 30, 1996.
(iii) Schedule 3.2(m)(iii) to the Chateau Disclosure Letter sets forth a
complete list of each agreement (including a description thereof) made by
Chateau and/or any Chateau Subsidiary with a limited partner of the Operating
Partnership relating to any commitment to maintain any specific debt allocations
or permit any such limited partner to take any action to assure any debt
allocation.
(iv) Schedule 3.2(m)(iv) to the Chateau Disclosure Letter sets forth a
complete list of each consulting agreement between Chateau and any Chateau
Subsidiary, including the annual compensation payable thereunder and the date as
of which such consulting agreement expires.
(n) Operating Partnership Agreement. The execution and delivery of the
Operating Partnership Agreement has been duly authorized, executed and delivered
by Chateau. Assuming due execution by the limited partners of the Operating
Partnership, the Operating Partnership Agreement constitutes a valid and binding
obligation of Chateau enforceable against Chateau in accordance with its terms.
(o) Environmental Matters. Except as disclosed in Schedule 3.2(o) to the
Chateau Disclosure Letter or in the environmental audits/reports listed thereon,
each of Chateau and each Chateau Subsidiary has obtained all licenses, permits,
authorizations, approvals and consents from Governmental Entities which are
required in respect of its business, operations, assets or properties under any
applicable Environmental Law, and each of Chateau and each Chateau Subsidiary is
in compliance in all material respects with the terms and conditions of all such
licenses, permits, authorizations, approvals and consents and with any
applicable Environmental Law. Except as disclosed in Schedule 3.2(o) to the
Chateau Disclosure Letter or in the environmental audits/reports listed thereon:
(i) No Order has been issued, no complaint has been filed, no penalty
has been assessed and no investigation or review is pending or threatened by any
Governmental Entity with respect to any alleged failure by Chateau or any
Chateau Subsidiary to have any license, permit, authorization, approval or
consent from Governmental Entities required under any applicable Environmental
Law in connection with the conduct of the business or operations of Chateau or
any Chateau Subsidiary or with respect to any Release by Chateau or any Chateau
Subsidiary of any Hazardous Material.
(ii) Neither Chateau nor any Chateau Subsidiary nor any prior owner or
lessee of any property now or previously owned or leased by Chateau or any
Chateau Subsidiary has handled any Hazardous Material on any property now or
previously owned or leased by Chateau or any Chateau Subsidiary; and, without
limiting the foregoing, (A) no polychlorinated biphenyl is or has been present,
(B) no friable asbestos is or has been present, (C) there are no underground
storage tanks, active or abandoned and (D) no Hazardous Material has been
Released in a quantity reportable under, or in violation of, any Environmental
Law, at, on or under any property now or previously owned or leased by Chateau
or any Chateau Subsidiary, during any period that Chateau or any Chateau
Subsidiary owned or leased such property or, to the knowledge of Chateau and its
Subsidiaries, prior thereto.
(iii) Neither Chateau nor any Chateau Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location which
is the subject of any action, suit, arbitration or proceeding that could be
reasonably expected to lead to claims against Chateau or any Chateau Subsidiary
for clean-up costs, remedial work, damages to natural resources or personal
injury claims, including, but not limited to, claims under CERCLA.
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(iv) No oral or written notification of a Release of a Hazardous
Material has been filed or should have been filed by or on behalf of Chateau or
any Chateau Subsidiary and no property now or previously owned or leased by
Chateau or any Chateau Subsidiary is listed or proposed for listing on the
National Priorities List promulgated pursuant to CERCLA or on any similar state
list of sites requiring investigation or clean-up.
(v) There are no Liens arising under or pursuant to any Environmental
Law on any real property owned or leased by Chateau or any Chateau Subsidiary,
and no action of any Governmental Entity has been taken or, to the knowledge of
Chateau and its Subsidiaries, is in process which could subject any of such
properties to such Liens, and neither Chateau nor any Chateau Subsidiary would
be required to place any notice or restriction relating to the presence of
Hazardous Material at any such property owned by it in any deed to such
property.
(vi) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or which are in the possession
of, Chateau or any Chateau Subsidiary in relation to any property or facility
now or previously owned or leased by Chateau or any Chateau Subsidiary which
have not been listed in Schedule 3.2(o) to the Chateau Disclosure Letter and
made available to ROC prior to the execution of this Agreement.
(p) Tangible Property and Assets. Except as disclosed in Schedule 3.2(p) to
the Chateau Disclosure Letter, Chateau and its Subsidiaries have good and
marketable fee simple title to, or have valid leasehold interests in, those
manufactured housing communities described in the Chateau Disclosure Letter,
free and clear of all Liens other than (i) any statutory Lien arising in
Schedule 3.2(p) to the ordinary course of business by operation of law with
respect to a liability that is not yet due or delinquent and (ii) any easement,
restriction or minor imperfection of title or similar Lien which individually or
in the aggregate with other such Liens does not materially impair the value of
the property or asset subject to such Lien or the use of such property or asset
in the conduct of the business of Chateau or any such Chateau Subsidiary.
(q) Books and Records.
(i) The books of account and other financial records of Chateau and each
Chateau Subsidiary are in all material respects true, complete and correct, have
been maintained in accordance with good business practices, and are accurately
reflected in all material respects in the financial statements included in the
Chateau Filed SEC Documents.
(ii) Chateau has previously delivered or made available to ROC true and
correct copies of the Charter and By-laws of Chateau, as amended to date, and
the charter, by-laws, organization documents, partnership agreements and joint
venture agreement of its Subsidiaries, and all amendments thereto. All such
documents are listed in Schedule 3.2(q)(ii) to the Chateau Disclosure Letter.
Chateau has also delivered to ROC evidence of its Director and Officer liability
insurance policy.
(iii) The minute books and other records of corporate or partnership
proceedings of Chateau and each Chateau Subsidiary that had previously been made
available to ROC in connection with the execution of the Original Agreement,
contained, as of the date of the Original Agreement, in all material respects
accurate records of all meetings and accurately reflect in all material respects
all other corporate action of the stockholders and directors and any committees
of the Board of Directors of Chateau and the Chateau Subsidiaries which are
corporations.
(r) Opinion of Financial Advisors. Chateau has received the opinion of each
of Merrill Lynch and Goldman, satisfactory to Chateau, a signed version of each
of which will be provided to ROC, with regard to the fairness of the Merger and
the issuance of the Merger Consideration to the ROC stockholders to Chateau and
the stockholders of Chateau from a financial point of view.
(s) State Takeover Statutes. No Takeover Statute of the State of Maryland,
including, without limitation, the control share acquisition provisions of
Section 3-701 et seq. of the MGCL or the business
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combination provisions of Section 3-601 et seq. of the MGCL, applies or purports
to apply to the Merger, this Agreement or any of the Transactions.
(t) Registration Statement. The information furnished by Chateau for
inclusion in the Registration Statement will not, as of the effective date of
the Registration Statement, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(u) Vote Required. The affirmative vote of holders representing a majority
of the shares of Common Stock present (in person or represented by proxy) at the
Chateau Stockholders Meeting (as herein defined) (assuming the total vote cast
represents at least a majority of the outstanding shares of Common Stock as of
the record date for the Chateau Stockholders Meeting) is the only vote of the
holders of any class or series of Chateau's capital stock necessary (under
applicable law, rules of the NYSE or otherwise) to approve the issuance of the
Merger Consideration to the ROC stockholders.
ARTICLE IV
COVENANTS
SECTION 4.1 Conduct of Business by ROC. During the period from the date of
this Agreement to the Effective Time, ROC shall, and shall cause the ROC
Subsidiaries each to, carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use commercially reasonable efforts to preserve
intact its current business organization, goodwill, ongoing businesses and its
status as a REIT within the meaning of the Code. Without limiting the generality
of the foregoing, the following additional restrictions shall apply: During the
period from the date of this Agreement to the Effective Time, except as set
forth in Schedule 4.1 to the ROC Disclosure Letter or as otherwise contemplated
by this Agreement, ROC shall not and shall cause the ROC Subsidiaries not to
(and not to authorize or commit or agree to):
(a) (i) except for regular quarterly dividends not in excess of $.405 per
share of ROC Stock (which may be increased to an amount not in excess of $.425
per share of ROC Stock upon prior notice to Chateau) with customary record and
payment dates, declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of ROC's capital stock or stock in any ROC
Subsidiary that is not directly or indirectly wholly owned by ROC, (ii) except
as permitted by Section 4.1(e), split, combine or reclassify any capital stock
or partnership interests or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
capital stock or partnership interests or (iii) except as permitted by Section
4.1(e), purchase, redeem or otherwise acquire any shares of capital stock of
ROC;
(b) except (i) as permitted under Section 4.1(e), (ii) for the adoption by
ROC of a stockholder's rights plan (which plan can be withdrawn upon
consummation of the Merger and does not materially and adversely affect, in the
reasonable judgment of the ROC Board, the prospects for consummation of the
Merger and the other Transactions or the economic impact of the Merger on the
Chateau stockholders) and the issuance of rights or securities by ROC under such
plan, (iii) for the ROC Option Agreement and the exercise of outstanding ROC
Stock Options, or (iv) for the issuance of up to 1,000,000 shares of capital
stock by ROC in a cash transaction subject to Section 5.21, issue, deliver or
sell, or grant any option or other right, in respect of, any shares of capital
stock, any other voting or redeemable securities of ROC or any ROC Subsidiary or
any securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or redeemable securities
except to ROC or a ROC Subsidiary;
(c) except as otherwise contemplated by this Agreement or amendments to the
Charter or By-Laws of ROC that do not materially and adversely affect, in the
reasonable judgment of the ROC Board, the prospects for consummation of the
Merger and the other Transactions or the economic impact of the
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Merger on the Chateau stockholders, amend the Charter, By-laws, partnership
agreement or other comparable charter or organizational documents of ROC or any
ROC Subsidiary;
(d) except as permitted by Section 4.1(e), in the case of ROC or any of its
Subsidiaries, merge or consolidate with any Person;
(e) (x) in a transaction involving capital, securities or other assets or
indebtedness of ROC or a ROC Subsidiary or any combination thereof in excess of
$10,000,000, without providing to Chateau in each case reasonable prior written
notice of and an opportunity to consult in connection with such transaction or
(y) in a transaction involving capital, securities, other assets or obligations
of ROC or a ROC Subsidiary or any combination thereof in excess of $20,000,000,
without obtaining the prior written consent of Chateau, which consent shall not
unreasonably be withheld or delayed: (i) acquire or agree to acquire by merging
or consolidating with, or by purchasing all or a substantial portion of the
equity securities or assets of, or by any other manner, any business or any
corporation, partnership, limited liability company, joint venture, association,
business trust or other business organization or division thereof or interest
therein or any assets; (ii) mortgage or otherwise encumber or subject to any
Lien or sell, lease or otherwise dispose of any of its material properties or
assets or assign or encumber the right to receive income, dividends,
distributions and the like or agree to do any of the foregoing; or (iii) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of ROC, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, prepay or refinance any indebtedness or
make any loans, advances or capital contributions to, or investments in, any
other person;
(f) engage in any transactions of the types described in clauses (i), (ii)
and (iii) of paragraph (e) above, whether or not related, involving, in the
aggregate, capital, securities or other assets or indebtedness of ROC or a ROC
Subsidiary or any combination thereof in excess of $40,000,000, without
obtaining the prior written consent of Chateau, which may be withheld for any
reason or no reason;
(g) make any tax election (unless required by law or necessary to preserve
ROC's status as a REIT);
(h) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Financial Statement Date, or (ii) make
or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes, except in the case of
settlements or compromises relating to taxes on real property in an amount not
to exceed, individually or in the aggregate, $500,000, or change any of its
methods of reporting income or deductions for federal income tax purposes from
those employed in the preparation of its federal income tax return for the
taxable year ending December 31, 1995, except, in the case of clause (i), as may
be required by the SEC, applicable law or GAAP and with notice thereof to
Chateau;
(i) except as provided in this Agreement, adopt any new employee benefit
plan, incentive plan, severance plan, bonus plan, stock option or similar plan,
grant new stock appreciation rights or amend any existing plan or rights, or
enter into or amend any employment agreement or similar agreement or arrangement
(other than as contemplated under Section 5.11(b)(iv)) or, except in the
ordinary course consistent with past practice, grant or become obligated to
grant any increase in the compensation of officers or employees, except such
changes as are required by law or which are not more favorable to participants
than provisions presently in effect;
(j) settle any stockholder derivative or class action claims arising out of
or in connection with any of the Transactions; and
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(k) enter into or amend or otherwise modify any agreement or arrangement
with persons that are affiliates or, as of the date hereof, are officers,
directors or employees of ROC or any ROC Subsidiary not approved by a majority
of the "independent" members of the Board of Directors of ROC.
SECTION 4.2 Conduct of Business by Chateau. During the period from the date
of this Agreement to the Effective Time, Chateau shall, and shall cause the
Chateau Subsidiaries each to, carry on its businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use commercially reasonable efforts to preserve
intact its current business organization, goodwill, ongoing businesses and its
status as a REIT within the meaning of the Code. Without limiting the generality
of the foregoing, the following additional restrictions shall apply: During the
period from the date of this Agreement to the Effective Time, except as set
forth in Schedule 4.2 to the Chateau Disclosure Letter or as otherwise
contemplated by this Agreement, Chateau shall not and shall cause the Chateau
Subsidiaries not to (and not to authorize or commit or agree to):
(a) (i) except (x) in the case of Chateau, for regular quarterly dividends
not in excess of $.405 per share of Common Stock (which may be increased to an
amount not in excess of $.425 per share of Common Stock upon prior notice to
ROC), and (y) in the case of the Operating Partnership, for regular quarterly
distributions to the general and limited partners of the Operating Partnership
not in excess of $.405 per OP Unit (which may be increased to an amount not in
excess of $.425 per OP Unit upon prior notice to ROC), and (z) any distributions
by any other wholly owned Chateau Subsidiaries, in each case with customary
record and payment dates, declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of Chateau's capital stock or the OP
Units or partnership interests or stock in any Chateau Subsidiary that is not
directly or indirectly wholly owned by Chateau, (ii) except for a one-time 3.16%
Common Stock dividend (and corresponding adjustment of outstanding OP Units in
accordance with the Operating Partnership Agreement) to be declared by Chateau
to its stockholders of record on any date on or prior to the record date
established for the Chateau Stockholders Meeting to approve the issuance of the
Merger Consideration to the ROC stockholders (the payment of which, however,
being conditioned on the Chateau Stockholder Approval having been obtained) or
as otherwise permitted by Section 4.2(e) or as contemplated under the exchange
provisions of the Operating Partnership Agreement, split, combine or reclassify
any capital stock or partnership interests or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
such capital stock or partnership interests or (iii) except for the repurchase
by Chateau of up to 1,500,000 shares of its Common Stock or as contemplated
under the exchange provisions of the Operating Partnership Agreement or as
permitted under Section 4.2(e), purchase, redeem or otherwise acquire any shares
of capital stock of Chateau or OP Units or any options, warrants or rights to
acquire, or security convertible into, shares of capital stock of Chateau or
such OP Units;
(b) except (i) as permitted under or required pursuant to this Agreement,
(ii) Chateau's dividend reinvestment plan, (iii) Section 4.2(e), (iv) the
Chateau Option Agreement, (v) for the adoption (with the consent of ROC which
shall not be unreasonably withheld or delayed) by Chateau of a stockholder's
rights plan and the issuance of rights or securities by Chateau under such plan,
(vi) the issuance of shares of Common Stock by Chateau to its or its
Subsidiaries' existing equity owners of up to the number of shares, if any, that
may be repurchased by Chateau as permitted under Section 4.2(a)(ii) above (at an
average price per share at least equal to the average price per share paid on
such repurchase), (vii) the exercise of outstanding Chateau Stock Options or
(viii) as contemplated under the exchange provisions of the Operating
Partnership Agreement, issue, deliver or sell, or grant any option or other
right in respect of, any shares of capital stock, any other voting or redeemable
securities (including OP Units or other partnership interests) of Chateau or any
Chateau Subsidiary or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting securities or convertible or
redeemable securities except to Chateau or a Chateau Subsidiary;
(c) except as otherwise contemplated by this Agreement or except for By-law
amendments that are consented to by ROC (which consent shall not be unreasonably
withheld or delayed), amend the Charter,
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By-laws, partnership agreement or other comparable charter or organizational
documents of Chateau or any Chateau Subsidiary;
(d) except as permitted by Section 4.2(e), in the case of Chateau, the
Operating Partnership or any other Chateau Subsidiary, merge or consolidate with
any Person;
(e) (x) in a transaction involving capital, securities or other assets or
indebtedness of Chateau or a Chateau Subsidiary or any combination thereof in
excess of $10,000,000, without providing to ROC reasonable prior written notice
of and an opportunity to consult in connection with such transaction or (y) in a
transaction involving capital, securities, other assets or indebtedness of
Chateau or a Chateau Subsidiary or any combination thereof in excess of
$20,000,000, without obtaining the prior written consent of ROC, which consent
shall not unreasonably be withheld or delayed: (i) acquire or agree to acquire
by merging or consolidating with, or by purchasing all or a substantial portion
of the equity securities or assets of, or by any other manner, any business or
any corporation, partnership, limited liability company, joint venture,
association, business trust or other business organization or division thereof
or interest therein or any assets; (ii) mortgage or otherwise encumber or
subject to any Lien or sell, lease or otherwise dispose of any of its material
properties or assets or assign or encumber the right to receive income,
dividends, distributions and the like or agree to do any of the foregoing; or
(iii) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of Chateau or any Chateau
Subsidiary, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, prepay or refinance any indebtedness or make any loans,
advances or capital contributions to, or investments in, any other person;
(f) engage in any transactions of the types described in clauses (i), (ii)
and (iii) of paragraph (e) above, whether or not related, involving, in the
aggregate, capital, securities or other assets or obligations of Chateau or a
Chateau Subsidiary or any combination thereof in excess of $40,000,000, without
obtaining the prior written consent of ROC, which consent may be withheld for
any reason or no reason;
(g) make any tax election (unless required by law or necessary to preserve
Chateau's status as a REIT or the status of the Operating Partnership as a
partnership for federal tax purposes);
(h) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Chateau Financial Statement Date, or
(ii) make or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes, except in the case of
settlements or compromises relating to taxes on real property in an amount not
to exceed, individually or in the aggregate, $500,000, or change any of its
methods of reporting income or deductions for federal income tax purposes from
those employed in the preparation of its federal income tax return for the
taxable year ending December 31, 1995, except, in the case of clause (i), as may
be required by the SEC, applicable law or GAAP and with notice thereof to ROC;
(i) except as provided in this Agreement or by a severance plan that, by its
terms, terminates upon consummation of the Merger, adopt any new employee
benefit plan, incentive plan, severance plan, bonus plan, stock option or
similar plan, grant new stock appreciation rights or amend any existing plan or
rights, or enter into or amend any employment agreement or similar agreement or
arrangement (other than as contemplated under Section 5.11(b)(iv)) or, except in
the ordinary course consistent with past practice, grant or become obligated to
grant any increase in the compensation of officers or employees, except such
changes as are required by law or which are not more favorable to participants
than provisions presently in effect;
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(j) settle any stockholder derivative or class action claims arising out of
or in connection with any of the Transactions; and
(k) except as provided in this Agreement or by a severance plan that, by its
terms, terminates upon consummation of the Merger, enter into or amend or
otherwise modify any agreement or arrangement with persons that are affiliates
or, as of the date hereof, are officers, directors or employees of Chateau or
any Chateau Subsidiary not approved by a majority of the "independent" members
of the Board of Directors of Chateau.
SECTION 4.3 Other Actions. Each of ROC and Chateau shall not and shall cause
its respective subsidiaries not to take any action that would result in (i) any
of the representations and warranties of such party (without giving effect to
any "knowledge" qualification) set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and warranties
(without giving effect to any "knowledge" qualification) that are not so
qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 7.1, any of the conditions to the Merger set forth in
Article VI not being satisfied.
ARTICLE V
ADDITIONAL COVENANTS
SECTION 5.1 Preparation of the Registration Statement and the Proxy
Statement; Stockholders Meetings.
(a) As soon as practicable following the date of this Agreement, ROC and
Chateau shall prepare and file with the SEC a preliminary Proxy Statement in
form and substance satisfactory to each of Chateau and ROC, and ROC and Chateau
will provide on a supplemental basis to the SEC the Registration Statement, in
which the Proxy Statement will be included as a prospectus. Each of ROC and
Chateau shall use its best efforts to (i) respond to any comments of the SEC and
(ii) have the Registration Statement declared effective under the Securities Act
and the rules and regulations promulgated thereunder as promptly as practicable
after such filing and to keep the Registration Statement effective as long as is
necessary to consummate the Merger. ROC shall use its best efforts to mail the
Proxy Statement to the ROC stockholders as promptly as practicable after the
Registration Statement is declared effective; provided that ROC may delay the
mailing of the Proxy Statement to the ROC Stockholders until the condition
specified in Section 6.3(i) has been satisfied. Further, Chateau shall establish
a record date for the Chateau Stockholders Meeting as soon as practicable
following the obtainment of the ROC Stockholder Approval at the ROC Stockholders
Meeting and use its best efforts to mail the Proxy Statement to the Chateau
stockholders as soon as practicable thereafter. Each party will notify the other
promptly of the receipt of any comments from the SEC and of any request by the
SEC for amendments or supplements to the Registration Statement or the Proxy
Statement or for additional information and will supply the other with copies of
all correspondence between such party or any of its representatives and the SEC
with respect to the Registration Statement or the Proxy Statement. The
Registration Statement and the Proxy Statement shall comply in all material
respects with all applicable requirements of Law. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the
Registration Statement or the Proxy Statement, Chateau or ROC, as the case may
be, shall promptly inform the other of such occurrences and cooperate in filing
with the SEC, and Chateau shall file with the SEC and/or mailing to the
stockholders of Chateau and the stockholders of ROC such amendment or supplement
in a form reasonably acceptable to Chateau and ROC.
(b) Chateau covenants that the Proxy Statement shall include the
recommendation of the Board of Directors of Chateau in favor of the issuance of
the Merger Consideration to the ROC stockholders; provided that the
recommendation of Chateau may not be included or may be withdrawn, modified or
amended if Chateau shall approve or recommend a Superior Competing Transaction
(as defined below) or
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enter into an agreement with respect to such Superior Competing Transaction and
the Board of Directors of Chateau determines in good faith that is in compliance
with Section 7.1. ROC covenants that the Proxy Statement shall include the
recommendation of the Board of Directors of ROC in favor of the approval of the
Merger, this Agreement and the other Transactions contemplated hereby; provided
that the recommendation of ROC may not be included or may be withdrawn, modified
or amended if ROC shall approve or recommend a Superior Competing Transaction
(as defined below) or enter into an agreement with respect to such Superior
Competing Transaction and the Board of Directors of ROC determines in good faith
that is in compliance with Section 7.1. Chateau shall furnish all information
concerning Chateau and the holders of Common Stock as may reasonably be
requested in connection with any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of Common Stock pursuant to the Merger, and ROC shall furnish all information
concerning ROC and the holders of ROC Stock as may be reasonably requested in
connection with any such action. Chateau and ROC will use their best efforts to
obtain, prior to the effective date of the Registration Statement, all necessary
state securities or "blue sky" permits or approvals required to carry out the
Merger and the other Transactions contemplated by this Agreement. In connection
with the preparation of the Proxy Statement and the Registration Statement,
Chateau shall use reasonable efforts to cause to be delivered to ROC, prior to
the mailing of such Proxy Statement to ROC's stockholders and Chateau's
stockholders, the opinion dated the date of the Proxy Statement of Timmis &
Inman, subject to certificates, letters and assumptions, reasonably satisfactory
to ROC, that (i) Chateau was organized and has operated in conformity with the
requirements for qualification as a REIT within the meaning of the Code since
1993 and (ii) the Operating Partnership has been during and since 1993 and each
Chateau Subsidiary that is a partnership or limited liability company has been
since its acquisition, and following the Merger shall be treated as of such
date, for federal income tax purposes, as a partnership and not as a corporation
or an association taxable as a corporation. In connection with the preparation
of the Proxy Statement and the Registration Statement, ROC shall use reasonable
efforts to cause to be delivered to Chateau, prior to the mailing of the Proxy
Statement to ROC's stockholders and Chateau's stockholders, the opinion dated
the date of the Proxy Statement of Rogers & Wells, subject to certificates,
letters and assumptions, reasonably satisfactory to Chateau, that (i) ROC was
organized and has operated in conformity with the requirements for qualification
as a REIT within the meaning of the Code since 1993, (ii) the Financing
Partnership (as defined below), following the merger of the Financing Sub (as
defined below) with and into the Financing Partnership as contemplated by the
Contribution Agreement, will be treated as of such date for federal income tax
purposes as a partnership and not as a corporation or as an association taxable
as a corporation and (iii) following the Merger (after giving effect thereto),
Chateau's proposed method of operation will enable it to meet the requirements
for qualification and taxation as a REIT under the Code.
(c) ROC will, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"ROC Stockholders Meeting") for the purpose of obtaining the ROC Stockholder
Approvals. ROC will, through its Board of Directors, recommend to its
stockholders approval of the Merger, this Agreement and the other Transactions
contemplated by this Agreement; provided that prior to the ROC Stockholders
Meeting such recommendation may be withdrawn, modified or amended if ROC shall
approve or recommend a Superior Competing Transaction (as defined below) or
enter into an agreement with respect to such Superior Competing Transaction and
the Board of Directors of ROC determines in good faith that is in compliance
with Section 7.1.
(d) Chateau will, as soon as practicable following the obtainment of the ROC
Stockholder Approval, duly call, give notice of, convene and hold a meeting of
its stockholders (the "Chateau Stockholders Meeting") for the purpose of
obtaining the Chateau Stockholder Approvals. Chateau will, through its Board of
Directors, recommend to its stockholders approval of issuance of the Merger
Consideration to the ROC stockholders; provided that prior to the Chateau
Stockholders Meeting such recommendation may be withdrawn, modified or amended
if Chateau shall approve or recommend a Superior Competing Transaction (as
defined below) or enter into an agreement with respect to such Superior
Competing Transaction and the Board of Directors of Chateau determines in good
faith that is in compliance with Section 7.1.
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SECTION 5.2 Access to Information; Confidentiality. Subject to the
requirements of confidentiality agreements with third parties, each of ROC and
Chateau shall, and shall cause each of its respective subsidiaries to, afford to
the other party and to the officers, employees, accountants, counsel, financial
advisors and other representatives of such other party, reasonable access during
normal business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of ROC and Chateau shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. Each of ROC and Chateau
will hold, and will cause its respective subsidiaries' officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any nonpublic information in confidence to the extent
required by, and in accordance with, and will comply with the provisions of the
letter agreement between ROC and Chateau dated as of June 4, 1996, as amended to
date (as so amended, the "Confidentiality Agreement").
SECTION 5.3 Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of Chateau and ROC agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other in doing, all things necessary, proper or advisable
to fulfill all conditions applicable to such party pursuant to this Agreement
and to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other Transactions contemplated hereby,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all reasonable steps as
may be necessary to obtain an approval, waiver or exemption from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals, waivers or exemption from non-governmental third
parties; provided, however, that if either party is obliged to make
expenditures, or incur costs, expenses or other liabilities to obtain the
consent of any non-governmental party, it shall consult reasonably with the
other party upon reasonable notice prior to making payment of any such amount,
and in no event shall either ROC or Chateau make payment of any such amount in
excess of $500,000 in obtaining such consents without obtaining the prior
written consent of the other, which consent shall not unreasonably be withheld
or delayed, (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging the Merger, this Agreement or
the consummation of the Transactions, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the Transactions contemplated by and to
fully carry out the purposes of, this Agreement; provided, however, that a party
shall not be obligated to take any action pursuant to the foregoing if the
taking of such action or the obtaining of any waiver, consent, approval or
exemption is reasonably likely to result in the imposition of a condition or
restriction of the type referred to in Section 6.1(d). In connection with and
without limiting the foregoing, ROC, Chateau and their respective Boards of
Directors shall (i) take all action necessary so that no "fair price," "business
combination," "moratorium," "control share acquisition" or any other
anti-takeover statute or similar statute enacted under state or federal laws of
the United States or similar statute or regulation (a "Takeover Statute") is or
becomes applicable to the Merger, this Agreement or any of the other
Transactions and (ii) if any Takeover Statute becomes applicable to the Merger,
this Agreement or any other Transaction, take all action necessary so that the
Merger and the other Transactions may be consummated as promptly as practicable
on the terms contemplated by this Agreement and otherwise to minimize the effect
of such Takeover Statute on the Merger and the other Transactions.
(b) ROC shall give prompt notice to Chateau, and Chateau shall give prompt
notice to ROC, if (i) any representation or warranty made by it contained in
this Agreement that is qualified as to materiality becomes untrue or inaccurate
in any respect or any such representation or warranty that is not so qualified
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becomes untrue or inaccurate in any material respect or (ii) it fails to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
SECTION 5.4 Affiliates. Prior to the Closing Date, ROC shall deliver to
Chateau a list identifying all persons who are, at the time this Agreement is
submitted for approval to the stockholders of ROC, an "affiliate" of ROC for
purposes of Rule 145 under the Securities Act. ROC shall use its best efforts to
cause each of such affiliate to deliver on or prior to the Closing Date a
written agreement substantially in the form attached as Exhibit H hereto.
SECTION 5.5 Tax Treatment. Each of Chateau and ROC shall use its reasonable
best efforts (a) to cause the Merger and the transfer of OP Units and other
property by the holders thereof to be viewed as an integrated transaction and
together to qualify for federal income tax purposes as tax-free transfers by the
stockholders of ROC and the transferring OP Unit holders of their shares of ROC
Stock and OP Units and other property to Chateau in exchange for shares of
Common Stock under Section 351 of the Code, and (b) to obtain the opinion of
counsel referred to in Section 6.3(e).
SECTION 5.6 No Solicitation of Transactions. Subject to Section 7.1, each of
Chateau and ROC shall not directly or indirectly, through any officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative, initiate or solicit (including by way of
furnishing nonpublic information or assistance) any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined below), or authorize or permit any of its
officers, directors, employees or agents, attorneys, investment bankers,
financial advisors, accountants, brokers, finders or other representatives to
take any such action. Each of Chateau and ROC shall notify the other in writing
(as promptly as practicable) of all of the relevant details relating to all
inquiries and proposals which it or any of its Subsidiaries or any such officer,
director, employee, agent, investment banker, financial advisor, attorney,
accountant, broker, finder or other representative may receive relating to any
of such matters and if such inquiry or proposal is in writing, each of Chateau
and ROC shall deliver to the other a copy of such inquiry or proposal. For
purposes of this Agreement, "Competing Transaction" shall mean any of the
following (other than the Transactions contemplated by this Agreement): (i) any
merger, consolidation, share exchange, business combination, or similar
transaction involving Chateau (or any of its Subsidiaries) or ROC (or any of its
Subsidiaries), as the case may be; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 30% or more of the assets of Chateau
and its Subsidiaries taken as a whole or ROC and its Subsidiaries taken as a
whole, as the case may be, in a single transaction or series of related
transactions, excluding any bona fide financing transactions which do not,
individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer for
30% or more of the outstanding shares of capital stock of Chateau (or any of its
Subsidiaries) or ROC (or any of its Subsidiaries) or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcements of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
SECTION 5.7 Public Announcements. Chateau and ROC will consult with each
other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
Transactions, including the Merger, and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree that
the initial press release to be issued with respect to the Transactions will be
in the form agreed to by the parties hereto prior to the execution of this
Agreement.
SECTION 5.8 Listing. Chateau will promptly prepare and submit to the NYSE a
supplemental listing application covering the Common Stock issuable in the
Merger. Prior to the Effective Time, Chateau shall
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use its best efforts to have NYSE approve for listing, upon official notice of
issuance, the Common Stock to be issued in the Merger.
SECTION 5.9 Letters of Accountants.
(a) ROC shall use its reasonable best efforts to cause to be delivered to
Chateau and ROC "comfort" letters of Deloitte & Touche LLP, ROC's independent
public accountants, dated and delivered the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
Chateau and ROC, in form and substance reasonably satisfactory to Chateau and
ROC and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
(b) Chateau shall use its reasonable best efforts to cause to be delivered
to ROC and Chateau "comfort" letters of Coopers & Lybrand L.L.P., Chateau's
independent public accountants, dated the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
ROC and Chateau, in form and substance reasonably satisfactory to ROC and
Chateau and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
SECTION 5.10 Transfer and Gains Taxes. Chateau and ROC shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains
(including, without limitation, any New York State Tax on Gains Derived from
Certain Real Property Transfers and New York State Real Estate Transfer Tax),
sales, use, transfer, value added stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the Transactions (together with any related
interests, penalties or additions to tax, "Transfer and Gains Taxes"). From and
after the Effective Time, Chateau shall cause the Operating Partnership to pay
or cause to be paid all Transfer and Gains Taxes.
SECTION 5.11 Benefit Plans and Other Employee Arrangements.
(a) Benefit Plans. Subject to subsections (b) and (c) below, upon and after
the Effective Time, Chateau or the Operating Partnership (or their respective
successors or assigns) shall provide benefits to former employees of ROC and its
Subsidiaries that are not materially less favorable in the aggregate to such
employees than those provided under the ROC Benefit Plans, as in effect on the
date of this Agreement. With respect to any Chateau Benefit Plan which is an
"employee benefit plan" as defined in Section 3(3) of ERISA in which employees
of ROC or its Subsidiaries may participate, solely for purposes of determining
eligibility to participate, vesting and entitlement to benefits but not for
purposes of accrual of pension benefits, service with ROC or its Subsidiaries
shall be treated as service with Chateau or the Operating Partnership, as the
case may be; provided, however, that such service shall not be recognized to the
extent that such recognition would result in a duplication of benefits under
both a ROC Benefit Plan or a Chateau Benefit Plan, on the one hand, and a
benefit plan of Chateau, on the other hand (or is not otherwise recognized for
such purposes under the benefit plans of Chateau or the Operating Partnership).
(b) Stock Incentive Plans.
(i) Immediately prior to or as of the Effective Time and solely with
respect to individuals employed by ROC immediately prior to the Effective Time,
ROC shall cause the ROC Stock Options to be accelerated, thereby causing the ROC
Stock Options to be fully vested and immediately exercisable and solely with
respect to individuals employed by Chateau or the Operating Partnership
immediately prior to that date, Chateau shall cause the Chateau Stock Options to
be accelerated, thereby causing the Chateau Stock Options to be fully vested and
immediately exercisable.
(ii) As of the Effective Time, each outstanding ROC Stock Option shall
be assumed by Chateau and shall be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such ROC Stock Option,
the same number of shares of Common Stock as the holder of
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such ROC Stock Option would have been entitled to receive pursuant to the Merger
had such holder exercised such ROC Stock Option in full immediately prior to the
Effective Time at a price per share equal to the aggregate exercise price for
the shares subject to such ROC Stock Option divided by the number of full shares
of Common Stock deemed to be purchasable pursuant to such ROC Stock Option;
provided, however, that the number of shares of Common Stock that may be
purchased upon exercise of such ROC Stock Option shall not include any
fractional share but shall be rounded upward to the next whole number of shares.
(iii) At the Effective Time, Chateau shall adopt a new long-term stock
incentive plan (the "1996 Chateau Plan") to be administered by a committee
appointed by the Board of Directors. The 1996 Chateau Plan shall provide for
grants of restricted stock, options and other incentive compensation to key
employees and directors of Chateau and its Subsidiaries (after giving effect to
the Merger as provided more fully in Exhibit G hereto).
(c) Employment Agreements. Chateau shall prepare and execute the Employment
Agreements for the executive officers named in Section 1.6 prior to the
Effective Time, which Employment Agreements shall provide that they shall become
effective at the Effective Time.
(d) Cooperation. ROC and Chateau shall cooperate in good faith with respect
to the effectuation of the covenants described in subsections (b) and (c) above.
SECTION 5.12 Indemnification.
(a) (i) ROC shall, and, from and after the Effective Time, Chateau shall,
indemnify, defend and hold harmless each person who is now or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of ROC or any ROC Subsidiary (the "ROC Indemnified Parties")
against all losses, claims, damages, costs, expenses (including attorneys' fees
and expenses), liabilities or judgments or amounts that are paid in settlement
of, with the approval of the indemnifying party (which approval shall not be
unreasonably withheld), or otherwise in connection with any threatened or actual
claim, action, suit, proceeding or investigation in connection with any
threatened or actual claim, action, suit, proceeding or investigation based on
or arising out of the fact that such person is or was a director or officer of
ROC or any ROC Subsidiary at or prior to the Effective Time, whether asserted or
claimed prior to, or at or after, the Effective Time ("ROC Indemnified
Liabilities"), including all ROC Indemnified Liabilities based on, or arising
out of, or pertaining to this Agreement or the Transactions, in each case to the
full extent a corporation is permitted under the MGCL to indemnify its own
directors or officers, as the case may be (and ROC or Chateau, as the case may
be, will pay expenses in advance of the final disposition of any such action or
proceeding to each ROC Indemnified Party to the full extent permitted by law
subject to the limitations set forth in Section 5.12(a)(iii)). Chateau shall,
prior to and after the Effective Time, indemnify, defend and hold harmless each
person who is now or has been at any time prior to the date hereof or who
becomes prior to the Effective Time, an officer or director of Chateau or any
Chateau Subsidiary (the "Chateau Indemnified Parties" and, together with the ROC
Indemnified Parties, the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement of, with the approval of the
indemnifying party (which approval shall not be unreasonably withheld), or
otherwise in connection with any threatened or actual claim, action, suit,
proceeding or investigation in connection with any threatened or actual claim,
action, suit, proceeding or investigation based on or arising out of the fact
that such person is or was a director or officer of Chateau or any Chateau
Subsidiary at or prior to the Effective Time, whether asserted or claimed prior
to, or at or after, the Effective Time ("Chateau Indemnified Liabilities" and,
together with the ROC Indemnified Liabilities, the "Indemnified Liabilities"),
including all Chateau Indemnified Liabilities based on, or arising out of, or
pertaining to this Agreement or the Transactions, in each case to the full
extent a corporation is permitted under the MGCL to indemnify its own directors
or officers, as the case may be (and Chateau will pay expenses in advance of the
final
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disposition of any such action or proceeding to each Chateau Indemnified Party
to the full extent permitted by law subject to the limitations set forth in
Section 5.12(a)(iii)).
(ii) Any Indemnified Parties proposing to assert the right to be
indemnified under this Section 5.12 shall, promptly after receipt of notice of
commencement of any action against such Indemnified Parties in respect of which
a claim is to be made under this Section 5.12 against ROC and/or Chateau
(collectively, the "Indemnifying Parties"), notify the Indemnifying Parties of
the commencement of such action, enclosing a copy of all papers served. If any
such action is brought against any of the Indemnified Parties and such
Indemnified Parties notify the Indemnifying Parties of its commencement, the
Indemnifying Parties will be entitled to participate in and, to the extent that
they elect by delivering written notice to such Indemnified Parties promptly
after receiving notice of the commencement of the action from the Indemnified
Parties, to assume the defense of the action and after notice from the
Indemnifying Parties to the Indemnified Parties of their election to assume the
defense, the Indemnifying Parties will not be liable to the Indemnified Parties
for any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the Indemnified
Parties in connection with the defense. If the Indemnifying Parties assume the
defense, the Indemnifying Parties shall have the right to settle such action
without the consent of the Indemnified Parties; provided, however, that the
Indemnifying Parties shall be required to obtain such consent (which consent
shall not be unreasonably withheld) if the settlement includes any admission of
wrongdoing on the part of the Indemnified Parties or any decree or restriction
on the Indemnified Parties or their officers or directors; provided, further,
that no Indemnifying Parties, in the defense of any such action shall, except
with the consent of the Indemnified Parties (which consent shall not be
unreasonably withheld), consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Parties of a release from all
liability with respect to such action. The Indemnified Parties will have the
right to employ their own counsel in any such action, but the fees, expenses and
other charges of such counsel will be at the expense of such Indemnified Parties
unless (i) the employment of counsel by the Indemnified Parties has been
authorized in writing by the Indemnifying Parties, (ii) the Indemnified Parties
have reasonably concluded (based on advice of counsel) that there may be legal
defenses available to them that are different from or in addition to those
available to the Indemnifying Parties, (iii) a conflict or potential conflict
exists (based on advice of counsel to the Indemnified Parties) between the
Indemnified Parties and the Indemnifying Parties (in which case the Indemnifying
Parties will not have the right to direct the defense of such action on behalf
of the Indemnified Parties) or (iv) the Indemnifying Parties have not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel will be at the
expense of the Indemnifying Parties.
(iii) It is understood that the Indemnifying Parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such Indemnified Parties unless (a) the employment of more than one counsel
has been authorized in writing by the Indemnifying Parties, (b) any of the
Indemnified Parties have reasonably concluded (based on advice of counsel) that
there may be legal defenses available to them that are different from or in
addition to those available to other Indemnified Parties or (c) a conflict or
potential conflict exists (based on advice of counsel to the Indemnified
Parties) between any of the Indemnified Parties and the other Indemnified
Parties, in each case of which the Indemnifying Parties shall be obligated to
pay the reasonable fees and expenses of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any settlement of
any action or claim effected without their written consent (which consent shall
not be unreasonably withheld).
(v) Chateau shall cause ROC's current officers' and directors' liability
insurance to be continuously maintained in full force and effect without
reduction of coverage for a period of four years after the
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Effective Time (provided that Chateau may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which are
not materially less advantageous).
(b) The provisions of this Section 5.12 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Chateau and ROC.
SECTION 5.13 Operating Partnership Agreement Amendment. Chateau hereby
agrees that, immediately prior to the Effective Time, it shall have duly
executed and delivered the Operating Partnership Agreement Amendment.
SECTION 5.14 By-laws Amendment. Chateau will, prior to the Effective Time,
adopt the By-law amendments to be effected at the Effective Time, as
contemplated by Exhibit F.
SECTION 5.15 Contribution Agreement. Immediately following the Effective
Time, Chateau, ROC and the Operating Partnership shall execute and deliver the
Contribution Agreement and shall perform their respective obligations
thereunder.
SECTION 5.16 Private Placement of Common Stock of RSub. ROC shall use its
best efforts to cause 120 "accredited investors" (as defined in Rule 501(a)
under the Securities Act) to purchase, on or prior to the Effective Date, one
share each of RSub Common Stock, at a purchase price of $100 per share.
SECTION 5.17 Chateau Board of Directors. Chateau covenants that,
contemporaneously with the Effective Time, (i) two of the seven directors of
Chateau then in office shall resign from the Chateau Board of Directors and, in
accordance with the By-law amendments specified in Exhibit F, the remaining
Chateau directors then in office shall increase the size of the Chateau Board
from seven to ten directors, and (ii) the five vacancies on the Chateau Board
shall be filled by the vote of the remaining Chateau directors then in office
with five nominees selected by the ROC Board of Directors such that such five
nominees as well as the five directors of Chateau then in office shall
constitute all of the members of the Chateau Board of Directors at the Effective
Time.
SECTION 5.18 Provisions Relating to Certain ROC Indebtedness.
Notwithstanding any other provision of this Agreement, ROC and Chateau shall be
required to utilize reasonable efforts and to cooperate with each other to cause
the condition specified in Section 6.2(f) to be satisfied on or prior to the
Closing Date.
SECTION 5.19 Exemptions from Certain Provisions of the MGCL. Prior to the
Effective Time, the Board of Directors of Chateau shall adopt an irrevocable
resolution to the effect that the ROC Principals and the present or future
affiliates or associates of any of the foregoing or any other person acting in
concert or as a group with any of the foregoing shall be exempted from the
business combination provisions of Section 3-601 et seq. and from the control
share provisions of Section 3-701 et seq. of the MGCL or any successor or
similar statutory provisions.
SECTION 5.20 Percentage Ownership. Chateau agrees that, upon consummation of
the Merger, stockholders of Chateau who had been or are then holders of OP Units
will not then represent more than 34.0% of the outstanding shares of Common
Stock.
SECTION 5.21 Share Issuance. (a) ROC agrees that prior to January 17, 1997
and for the period during the term of this Agreement occurring after the date of
the ROC Stockholders Meeting, it will not issue any shares of capital stock in a
cash transaction as provided in Section 4.1(b)(iv) unless it first obtains the
prior consent of Chateau (which consent shall not be unreasonably withheld or
delayed).
(b) Following January 17, 1997 (but only on a date that is on or prior to
the date of the ROC Stockholders Meeting), ROC may issue such shares without
obtaining the consent of Chateau. However, prior to effecting such issuance, ROC
shall notify Chateau of its intention to effect the issuance, specifying in such
notice (the "Issuance Notice") the number and minimum price of the shares it
proposes to issue, and such issuance may give rise to termination rights in
favor of Chateau as specified in Section 8.1(n).
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of ROC and Chateau to effect the Merger and to consummate
the other Transactions contemplated to occur on the Closing Date is subject to
the satisfaction or waiver on or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. The Stockholder Approvals shall have been
obtained.
(b) Listing of Shares. The NYSE shall have approved for listing the Common
Stock to be issued in the Merger.
(c) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other Transactions shall be in effect.
(e) Blue Sky Laws. Chateau shall have received all state securities or "blue
sky" permits and other authorizations necessary to issue the shares of Common
Stock comprising the Merger Consideration.
(f) Opinion Related to REIT Status. Chateau and ROC shall have received an
opinion dated as of the Closing Date of Timmis & Inman, subject to certificates,
letters and assumptions, reasonably satisfactory to Chateau and ROC that
following the Merger (after giving effect thereto), Chateau's proposed method of
operation will enable it to meet the requirements for qualification and taxation
as a REIT under the Code.
(g) The Investment Company Act Opinion. Chateau and ROC shall have received
an opinion dated as of the Closing Date of Rogers & Wells, subject to
certificates, letters and assumptions, reasonably satisfactory to Chateau and
ROC, to the effect that neither Chateau nor any of its Subsidiaries is an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
(h) Evidence of Completion of Private Placement. Each of ROC and Chateau
shall have received reasonably satisfactory evidence of the completion of the
Private Placement referred to in Section 5.16.
(i) Certain Actions and Consents. All material actions by or in respect of
or filings with any Governmental Entity required for the consummation of the
Transactions shall have been obtained or made.
SECTION 6.2 Conditions to Obligations of Chateau. The obligations of Chateau
to issue the Merger Consideration to the ROC stockholders and to consummate the
other Transactions contemplated to occur on the Closing Date are further subject
to the following conditions, any one or more of which may be waived by Chateau:
(a) Representations and Warranties. The representations and warranties of
ROC (without giving effect to any "materiality" qualification or limitation) set
forth in this Agreement shall be true and correct as of the Closing Date, as
though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another date,
and Chateau shall have received a certificate (which certificate may be
qualified by knowledge to the same extent as such representations and warranties
are so qualified) signed on behalf of ROC by the chief executive officer or the
chief financial officer of ROC to such effect. This condition shall be deemed
satisfied notwithstanding
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any failure of a representation or warranty of ROC to be true and correct as of
the Closing Date (without giving effect to any materiality qualification) if the
aggregate amount of Economic Losses (as defined below) that would reasonably be
expected to arise as a result of the failures of such representations and
warranties to be true and correct as of the Closing Date does not exceed
$5,000,000 (such amount to be calculated by counting in all cases from the first
dollar of such Economic Losses without giving effect to the $5,000,000
limitation set forth in Section 3.1(f)). "Economic Losses," as used in this
Section 6.2, shall mean any and all net damage, net loss (including diminution
in the value of properties or assets which diminution, with regard to permanent
cash flow losses from any property or assets that produces cash flow, shall be
measured by multiplying the annual net cash flow produced by such property or
asset over the 12-month period preceding the date of the applicable loss by a
factor of 10), net liability or expense suffered by ROC and the ROC Subsidiaries
taken as a whole, but shall not include any claims, damages, loss, expense or
other liability resulting from any class action or stockholders' derivative
lawsuits relating to the Transactions against ROC, if any, filed subsequent to
the date of this Agreement or any amounts paid or expenses incurred by ROC in
obtaining non-governmental third party consents, as contemplated by Section 5.3
up to the amount of $500,000 provided therein.
(b) Performance of Obligations of ROC. ROC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Chateau shall have received a
certificate signed on behalf of ROC by the chief executive officer or the chief
financial officer of ROC to such effect.
(c) Material Adverse Change. Since the date of this Agreement, there has
been no material adverse change in the business, results of operations or
financial condition of ROC and the ROC Subsidiaries, taken as a whole, that have
resulted or would result, individually or in the aggregate, in Economic Losses
of $5,000,000 or more. Chateau shall have received a certificate of the chief
executive officer or chief financial officer of ROC to the effect that there has
been no such material adverse change.
(d) Opinions Relating to REIT Status. Chateau shall have received an opinion
dated as of the Closing Date of Rogers & Wells, subject to certificates, letters
and assumptions, reasonably satisfactory to Chateau, that (i) commencing with
its taxable year ended December 31, 1993, ROC was organized and has operated in
conformity with the requirements for qualification as a REIT within the meaning
of the Code, (ii) following the Merger (after giving effect thereto), ROC's
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code and (iii) following the
Merger (after giving effect thereto), the Financing Partnership will be treated
for federal income tax purposes as a partnership and not as a corporation or an
association taxable as a corporation.
(e) Other Tax Opinion. Chateau shall have received an opinion dated as of
the Closing Date from Rogers & Wells, subject to certificates, letters and
assumptions, reasonably satisfactory to Chateau, to the effect that the Merger
will be treated for federal income tax purposes as a tax-free transfer by the
stockholders of ROC of their shares of ROC Stock to Chateau in exchange for
shares of Common Stock, and the transfer by holders of OP Units pursuant to the
CS Letter Agreement (as defined below) shall be treated for federal income tax
purposes as a tax-free transfer by such holders of their OP Units in exchange
for shares of Common Stock under Section 351 of the Code, and no gain or loss
will be recognized by ROC, its stockholders or such holders who transfer OP
Units pursuant to the CS Letter Agreement as a result of such transfers, except
to the extent provided in Sections 357(c) and 1245 of the Code.
(f) Consents. All consents and waivers from third parties necessary in
connection with the consummation of the Transactions shall have been obtained,
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in Economic Losses of
$5,000,000 or more.
(g) Certain ROC Indebtedness. The Specified Debt Obligations (as herein
defined) of ROC or any ROC Subsidiary that are outstanding immediately prior to
the Effective Time, and will remain outstanding and shall be assumed by, or
otherwise become the indebtedness of, the Operating Partnership or the
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Financing Partnership, as the case may be, upon consummation of the transactions
contemplated by the Contribution Agreement, will, following such transactions,
provide by their respective terms to the effect that neither ROC, Chateau nor
any partner of the Financing Partnership (other than the Operating Partnership)
or the Operating Partnership will have any liability for the repayment of the
Specified Debt Obligations. For purposes hereof, "Specified Debt Obligation"
shall include the indebtedness owed by ROC or any ROC Subsidiary under the
Credit Agreement (Revolving) or Credit Agreement (Term), dated as of May 2,
1996, with each of the lenders named therein or under any credit agreements with
Pacific Mutual Insurance Company.
Notwithstanding the foregoing, Chateau shall not be obligated to effect the
Merger if the Economic Losses resulting from the failure of one or more of the
conditions set forth in Sections 6.2(a), 6.2(c) and 6.2(f) to be satisfied (the
determination of whether a failure of any of such conditions has occurred for
the purposes of this sentence being made without giving effect to the $5,000,000
limitations set forth in such sections), in the aggregate, but without
duplication exceeds $5,000,000.
SECTION 6.3 Conditions to Obligation of ROC. The obligation of ROC to effect
the Merger and to consummate the other Transactions contemplated to occur on the
Closing Date is further subject to the following conditions, any one or more of
which may be waived by ROC:
(a) Representations and Warranties. The representations and warranties of
Chateau (without giving effect to any "materiality" qualification or limitation)
set forth in this Agreement shall be true and correct as of the Closing Date, as
though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another date,
and ROC shall have received a certificate (which certificate may be qualified by
knowledge to the same extent as such representations and warranties are so
qualified) signed on behalf of Chateau by the chief executive officer or the
chief financial officer of Chateau to such effect. This condition shall be
deemed satisfied notwithstanding any failure of a representation or warranty of
Chateau to be true and correct as of the Closing Date (without giving effect to
any materiality qualification) if the aggregate amount of Economic Losses (as
defined below) that would reasonably be expected to arise as a result of the
failures of such representations and warranties to be true and correct as of the
Closing Date does not exceed $5,000,000 (such amount to be calculated by
counting in all cases from the first dollar of such Economic Losses without
giving effect to the $5,000,000 limitation set forth in Section 3.2(f)).
"Economic Losses," as used in this Section 6.3, shall mean any and all net
damage, net loss (including diminution in the value of properties or assets
which diminution, with regard to permanent cash flow losses from any property or
assets that produces cash flow, shall be measured by multiplying the annual net
cash flow produced by such property or asset over the 12-month period preceding
the date of the applicable loss by a factor of 10), net liability or expense
suffered by Chateau or the Chateau Subsidiaries taken as a whole, but shall not
include any claims, damages, loss, expense or other liability resulting from any
class action or stockholders' derivative lawsuits relating to the Transactions
against Chateau, if any, filed subsequent to the date of this Agreement or any
amounts paid or expenses incurred by Chateau in obtaining non-governmental third
party consents, as contemplated by Section 5.3 up to the amount of $500,000
provided therein.
(b) Performance of Obligations of Chateau. Chateau shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and ROC shall have received a
certificate of Chateau signed on behalf of Chateau by the chief executive
officer or the chief financial officer of such party to such effect.
(c) Material Adverse Change. Since the date of this Agreement, there has
been no material adverse change in the business, results of operations or
financial condition of Chateau, the Operating Partnership and the other Chateau
Subsidiaries taken as a whole, that have resulted or would result, individually
or in the aggregate, in Economic Losses of $5,000,000 or more. ROC shall have
received a certificate of the chief executive officer or chief financial officer
of Chateau to the effect that there has been no such material adverse change.
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(d) Opinions Relating to REIT and Partnership Status. ROC shall have
received an opinion dated as of the Closing Date of Timmis & Inman, subject to
certificates, letters and assumptions, reasonably satisfactory to ROC, that (i)
commencing with its taxable year ended December 31, 1993, Chateau was organized
and has operated in conformity with the requirements for qualification as a REIT
within the meaning of the Code and (ii) the Operating Partnership has been at
all times (and each Chateau Subsidiary organized as a partnership, joint venture
or limited liability company has since its acquisition by Chateau) and,
following the Merger (after giving effect thereto), will be treated as a
partnership for federal income tax purposes and not as a corporation or an
association taxable as a corporation.
(e) Other Tax Opinion. ROC shall have received an opinion dated as of the
Closing Date from Timmis & Inman, subject to certificates, letters and
assumptions, reasonably satisfactory to ROC, to the effect that the Merger will
be treated for federal income tax purposes as a tax-free transfer by the
stockholders of ROC of their shares of ROC Stock to Chateau in exchange for
shares of Common Stock, and the transfer by holders of OP Units pursuant to the
CS Letter Agreement shall be treated for federal income tax purposes as a
tax-free transfer by such holders of their OP Units in exchange for shares of
Common Stock, under Section 351 of the Code, and no gain or loss will be
recognized by ROC, its stockholders or holders who transfer OP Units pursuant to
the CS Letter Agreement as a result of such transfers, except to the extent
provided in Sections 357(c) or 1245 of the Code.
(f) Consents. All consents and waivers from third parties necessary in
connection with the consummation of the Transactions shall have been obtained,
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in Economic Losses of
$5,000,000 or more.
(g) Registration Rights Agreement. Chateau shall have duly executed and
delivered the Registration Rights Agreement substantially in the form attached
as Exhibit C hereto.
(h) Chateau By-laws and Related Matters. ROC shall be reasonably satisfied
that the Chateau By-laws, effective at the Effective Time, have been amended
substantially in accordance with the terms outlined in Exhibit F hereto and that
all of the other transactions contemplated by Sections 1.5 and 1.6 hereof shall
have been completed or will be completed effective at the Effective Time.
(i) Chateau Securityholder Letter Agreement. Holders of OP Units who,
together with the ROC stockholders and other transferors, will satisfy the 80%
test described below upon completion of the Merger (such OP Unit holders being
referred to herein as the "Transferring Holders"), shall have entered into a
letter agreement with ROC (the "CS Letter Agreement"), pursuant to which such
Transferring Holders will agree with ROC to act with ROC, the ROC stockholders
and other transferors specified in the CS Letter Agreement to transfer to
Chateau on or prior to the Effective Time a sufficient number of OP Units and
other property in exchange for shares of Common Stock such that such shares when
taken together with the number of shares of Common Stock to be issued to the ROC
stockholders pursuant to the Merger and the number of shares of Common Stock
owned by such Transferring Holders and any other transferors making transfers
pursuant to the CS Letter Agreement will together constitute, based on the
number of outstanding shares of capital stock of Chateau expected by the
Transferring Holders to be outstanding at the Effective Time (which number shall
be specified in the CS Letter Agreement), at least 80% of the total combined
voting power of all classes of Chateau stock entitled to vote upon consummation
of the Merger. Each Transferring Holder shall agree in the CS Letter Agreement
to exchange (i) a specified number of OP Units at or prior to the record date
for the Chateau Stockholders Meeting and (ii) a specified number of OP Units on
the Effective Day of the Merger. The CS Letter Agreement shall provide that the
obligation of any Transferring Holder to transfer any OP Units to Chateau shall
be conditioned upon (x) the obtainment of the ROC Stockholder Approval and (y)
the delivery, prior to the date of exchange, of an opinion of Timmis & Inman,
subject to certificates, letters and assumptions deemed reasonably appropriate
by such counsel, to the effect that the transfer of OP Units pursuant to the CS
Letter Agreement shall be treated for federal income tax purposes as a tax-free
transfer by such
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transferors of such OP Units in exchange for shares of Common Stock under
Section 351 of the Code and no gain or loss will be recognized as a result of
such transfers, except to the extent provided under Sections 357(c) or 1245 of
the Code (an approved form of which opinion shall be attached to the CS Letter
Agreement). The CS Letter Agreement shall further provide that the obligation of
any Transferring Holder to transfer any OP Units to Chateau on the Effective Day
shall be conditioned upon the concurrent consummation of the Merger. Further,
John Boll, Edward Allen and C.G. Kellogg shall agree in the CS Letter Agreement
with Gary P. McDaniel that, for a period of three years following the Effective
Time, they will vote all shares of Common Stock held by them in favor of the
Group B nominees as specified in the amendments to the By-laws to be adopted in
accordance with Exhibit F hereto.
Notwithstanding the foregoing, ROC shall not be obligated to effect the
Merger if the Economic Losses resulting from the failure of one or more of the
conditions set forth in Sections 6.3(a), 6.3(c) and 6.3(f) to be satisfied (the
determination of whether a failure of any of such conditions has occurred for
the purposes of this sentence being made without giving effect to the $5,000,000
limitations set forth in such sections), in the aggregate, but without
duplication exceeds $5,000,000.
ARTICLE VII
BOARD ACTIONS
SECTION 7.1 Board Actions. Notwithstanding Section 5.7 or any other
provision of this Agreement to the contrary, to the extent required by the
fiduciary obligations of the Board of Directors of either Chateau or ROC, as
determined in good faith based on the advice of outside counsel, either Chateau
or ROC may:
(a) disclose to its stockholders and OP Unit holders any information
required to be disclosed under applicable law;
(b) in response to an unsolicited request therefor, participate in
discussions or negotiations with, or furnish information with respect to itself
pursuant to a confidentiality agreement no less favorable to itself than the
Confidentiality Agreement (as determined by its outside counsel) to, any person
in connection with a Competing Transaction proposed by such person; and
(c) approve or recommend (and in connection therewith withdraw or modify its
approval or recommendation of (i) for ROC, this Agreement and the Merger and
(ii) for Chateau, the issuance of the Merger Consideration to the ROC
stockholders in the Merger) a Superior Competing Transaction (as defined below)
or enter into an agreement with respect to such Superior Competing Transaction
(for purposes of this Agreement, "Superior Competing Transaction" means a bona
fide proposal of a Competing Transaction made by a third party which a majority
of the members of the Board of Directors of Chateau or ROC, as the case may be,
determines in good faith (based on the advice of its investment banking firm) to
be more favorable to its stockholders than the Merger, as the case may be.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time prior
to the filing of the Articles of Merger for the Merger with the Department of
Assessments and Taxation of the State of Maryland, whether before or after
either of the Stockholder Approvals are obtained:
(a) by mutual written consent duly authorized by the respective Boards of
Directors of Chateau and ROC;
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(b) by Chateau, upon a breach of any representation, warranty, covenant or
agreement on the part of ROC set forth in this Agreement, or if any
representation or warranty of ROC shall have become untrue, in either case such
that the conditions set forth in Section 6.2(a) or Section 6.2(b), as the case
may be, would be incapable of being satisfied by March 31, 1997 (as otherwise
extended);
(c) by ROC, upon a breach of any representation, warranty, covenant or
agreement on the part of Chateau set forth in this Agreement, or if any
representation or warranty of Chateau shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as the
case may be, would be incapable of being satisfied by March 31, 1997 (as
otherwise extended);
(d) by either Chateau or ROC, if any judgment, injunction, order, decree or
action by any Governmental Entity of competent authority preventing the
consummation of the Merger shall have become final and nonappealable;
(e) by either Chateau or ROC, if the Merger shall not have been consummated
before March 31, 1997; provided, however, that a party that has willfully and
materially breached a representation, warranty or covenant of such party set
forth in this Agreement shall not be entitled to exercise its right to terminate
under this Section 8.1(e);
(f) by either Chateau or ROC if, upon a vote at a duly held ROC Stockholders
Meeting or any adjournment thereof, the ROC Stockholder Approvals shall not have
been obtained as contemplated by Section 5.1;
(g) by either Chateau or ROC if, upon a vote at a duly held Chateau
Stockholders Meeting or any adjournment thereof, the Chateau Stockholder
Approvals shall not have been obtained as contemplated by Section 5.1;
(h) by ROC if prior to the ROC Stockholders Meeting, the Board of Directors
of ROC or any committee thereof shall have withdrawn or modified in accordance
with Section 7.1 hereof in any manner adverse to Chateau its approval or
recommendation of the Merger or this Agreement in connection with the approval
and recommendation of a Superior Competing Transaction;
(i) by Chateau if (i) prior to the ROC Stockholders Meeting, the Board of
Directors of ROC or any committee thereof shall have withdrawn or modified in
any manner adverse to Chateau its approval or recommendation of the Merger or
this Agreement in connection with, or approved or recommended, any Superior
Competing Transaction, (ii) ROC shall have entered into any agreement with
respect to any Competing Transaction (other than a confidentiality agreement as
contemplated by Section 7.1(b)) or (iii) the Board of Directors of ROC or any
committee thereof shall have resolved to do any of the foregoing;
(j) by Chateau if prior to the Chateau Stockholders Meeting, the Board of
Directors of Chateau or any committee thereof shall have withdrawn or modified
in accordance with Section 7.1 hereof in any manner adverse to ROC its approval
or recommendation of the issuance of the Merger Consideration to the ROC
stockholders in connection with the approval and recommendation of a Superior
Competing Transaction;
(k) by ROC if (i) prior to the Chateau Stockholders Meeting, the Board of
Directors of Chateau or any committee thereof shall have withdrawn or modified
in any manner adverse to ROC its approval or recommendation of the issuance of
the Merger Consideration to the ROC stockholders in connection with, or approved
or recommended, a Superior Competing Transaction, (ii) Chateau shall have
entered into any agreement with respect to any Competing Transaction (other than
a confidentiality agreement as contemplated by Section 7.1(b)) or (iii) the
Board of Directors of Chateau or any committee thereof shall have resolved to do
any of the foregoing;
(l) by ROC or Chateau if, over any consecutive 20- Trading Day (as herein
defined) period ending prior to the first date of the mailing of the Proxy
Statement to the respective stockholders of ROC and
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Chateau, the average of the ratios determined by comparing the Closing Price (as
herein defined) of the ROC Common Stock to the Closing Price of the Common Stock
on each day over such period is more than 1.20 to one or less than 0.89 to one,
and the party desiring such termination provides notice to the other party
within three business days of the end of such consecutive 20-Trading Day period
but in no event later than the date of the mailing; provided, however, that the
right of either of Chateau or ROC to terminate this Agreement under this Section
8.1(l) shall not be available if, at the time such party proposes to exercise
such termination right, such party has received a bona fide proposal for a
Competing Transaction. For purposes hereof, "Trading Day" shall mean a day on
which the NYSE is open for trading, and "Closing Price" shall mean the last
reported sale price per share of the ROC Common Stock or Common Stock, as the
case may be, as reported on the NYSE consolidated tape on the Trading Day in
question;
(m) by ROC if the condition specified in Section 6.3(i) has not been
satisfied on or prior to the later of November 16, 1996 or ten days after the
SEC has cleared the Proxy Statement for mailing, or if (A) on or prior to the
record date for the Chateau Stockholders Meeting any of the Transferring Holders
that have executed the CS Letter Agreement has failed to exchange the shares it
has agreed to exchange by that date under such agreement and such shares have
not been replaced by shares held by other OP Unit holders or (B) ten days after
the date that each of the OP Unit holders that has as of the date of this
Agreement expressed its intent to exchange its OP Units for shares of Common
Stock as contemplated by this Agreement withdraws such intention in writing; and
(n) by Chateau if (i) within five business days after ROC delivers the
Issuance Notice as contemplated by Section 5.21, Chateau provides written notice
to ROC to the effect that if ROC proceeds with the issuance contemplated by the
Issuance Notice Chateau will terminate this Agreement, (ii) ROC, in spite of
such notice from Chateau, proceeds with the issuance, and (iii) Chateau notifies
ROC in writing of the termination of this Agreement within five business days
after ROC notifies Chateau of the closing of the issuance.
SECTION 8.2 Expenses.
(a) Except as otherwise specified in this Section 8.2 or agreed in writing
by the parties, all out-of-pocket costs and expenses incurred in connection with
this Agreement and the Transactions contemplated hereby shall be paid by the
party incurring such cost or expense.
(b) ROC agrees that if this Agreement shall be terminated pursuant to
Section 8.1(b), then ROC will pay to the Operating Partnership, or as directed
by the Operating Partnership, an amount equal to the Chateau Break-Up Expenses
(as defined below). In addition, ROC agrees that if this Agreement shall be
terminated pursuant to Section 8.1(b), (f), (h) or (i) and, in the case of
Section 8.1(b) or (f), following the date of the Original Agreement and prior to
termination of this Agreement, ROC shall have received a proposal constituting a
Competing Transaction and within 12 months following termination ROC shall enter
into a definitive agreement providing for a Competing Transaction that is
equally or more favorable from a financial point of view to ROC's stockholders
as the Merger, then ROC will pay as directed by the Operating Partnership a fee
in an amount equal to the Chateau Break-Up Fee (as defined below). Payment of
any of such amounts shall be made, as directed by the Operating Partnership, by
wire transfer of immediately available funds promptly, but in no event later
than two business days after the amount is due as provided herein. The "Chateau
Break-Up Fee" shall be an amount equal to the lesser of (i) $10,000,000 (the
"Base Amount") or (ii) the sum of (A) the maximum amount that can be paid to the
Operating Partnership without causing Chateau to fail to meet the requirements
of Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute income described in Sections 856(c)(2) and 856(3) of
the Code ("Qualifying Income"), as determined by independent accountants to
Chateau and (B) in the event Chateau receives a letter from outside counsel (the
"Chateau Break-Up Fee Tax Opinion") indicating that Chateau has received a
ruling from the IRS holding that the Operating Partnership's receipt of the Base
Amount would either constitute Qualifying Income as to Chateau with respect to
Chateau's proportionate share thereof or would be excluded from Chateau's gross
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income for purposes of Sections 856(c)(2) and (3) of the Code (the "REIT
Requirements") or that the receipt by the Operating Partnership of the remaining
balance of the Base Amount following the receipt of and pursuant to such ruling
would not be deemed constructively received prior thereto, the Base Amount less
the amount payable under clause (A) above. In the event that the Operating
Partnership is not able to receive the full Base Amount, ROC shall place the
unpaid amount in escrow and shall not release any portion thereof to the
Operating Partnership unless and until ROC receives any one or a combination of
the following: (i) a letter(s) from Chateau's independent accountants indicating
the maximum amount that can be paid at that time to the Operating Partnership
without causing Chateau to fail to meet the REIT Requirements or (ii) a Chateau
Break-Up Fee Tax Opinion, in which event ROC shall pay to the Operating
Partnership the lesser of the unpaid Base Amount or the maximum amount stated in
the letter(s) referred to in (i) above from time to time. ROC's obligation to
pay any unpaid portion of the Chateau Break-Up Fee (provided ROC has otherwise
complied with its obligations under this provision) shall terminate (and any
amount still held in such escrow shall be released to ROC) on the date that is
five years from the date the Chateau Break-Up Fee first becomes due under this
Agreement. In addition, amounts held in escrow may be earlier released as
provided in Section 8.2(c). The "Chateau Break-Up Expenses" shall be an amount
equal to the lesser of (i) the Operating Partnership's out-of-pocket expenses
incurred in connection with the Original Agreement and this Agreement and the
other Transactions (including, without limitation, all attorneys', accountants'
and investment bankers' fees and expenses) but in no event in an amount greater
than $4,000,000 (such amount not to exceed such $4,000,000 being referred to in
this Section 8.2(b) or (c) as the "Expense Fee Base Amount") and (ii) the sum of
(A) the maximum amount that can be paid to the Operating Partnership without
causing Chateau to fail to meet the requirements of Sections 856(c)(2) and (3)
of the Code determined as if the payment of such amount did not constitute
Qualifying Income, as determined by independent accountants to Chateau and (B)
in the event Chateau receives a Chateau Break-Up Fee Tax Opinion indicating that
Chateau has received a ruling from the IRS holding that the Operating
Partnership's receipt of the Expense Fee Base Amount would either constitute
Qualifying Income as to Chateau with respect to Chateau's proportionate share
thereof or would be excluded from Chateau's gross income for purposes of the
REIT Requirements or that receipt by the Operating Partnership of the remaining
balance of the Expense Fee Base Amount following the receipt of and pursuant to
such ruling would not be deemed constructively received prior thereto, the
Expense Fee Base Amount less the amount payable under clause (A) above. In the
event that the Operating Partnership is not able to receive the full amount of
the Chateau Break-Up Expenses, ROC shall place the unpaid amount in escrow and
shall not release any portion thereof to the Operating Partnership unless and
until ROC receives any one or combination of the following: (i) a letter(s) from
Chateau's independent accountants indicating the maximum amount that can be paid
at that time to the Operating Partnership without causing Chateau to fail to
meet the REIT Requirements or (ii) a Chateau Break-Up Fee Tax Opinion indicating
that Chateau's receipt of the Expense Fee Base Amount would satisfy in whole or
in part the REIT Requirements, in which event ROC shall pay to the Operating
Partnership the lesser of the unpaid Expense Fee Base Amount or the maximum
amount stated in the letter(s) referred to in (i) above from time to time. ROC's
obligation to pay any unpaid portion of the Chateau Break-Up Expenses (provided
ROC has otherwise complied with its obligations under this provision) shall
terminate (and any amount still held in such escrow shall be released to ROC) on
the date that is five years from the date the Chateau Break-Up Expenses first
become due under this Agreement. In addition, amounts held in escrow may be
earlier released as provided in Section 8.2(c).
(c) Notwithstanding anything to the contrary contained in Section 8.2(b)
above, if the Operating Partnership realizes any Total Profit pursuant to the
ROC Option Agreement and at any time or from time to time the sum of (i) the
Total Profit realized by the Operating Partnership, (ii) the Chateau Break-Up
Fee paid to the Operating Partnership and (iii) the amount of Chateau Break-Up
Expenses paid to the Operating Partnership exceeds the sum of (i) the Base
Amount (which amount shall be counted as zero if ROC has not become obligated to
pay the Chateau Break-Up Fee under this Agreement) and (ii) the Expense Fee Base
Amount (which amount shall be counted as zero if ROC has not become obligated to
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pay the Chateau Break-Up Expenses under this Agreement), then the Chateau
Break-Up Fee and/or Chateau Break-Up Expenses shall be reduced (it being agreed
that the allocation of the reduction between the Chateau Break-Up Fee and the
Chateau Break-Up Expenses shall be determined in the discretion of Chateau) by
such excess, and the amount, if any, still held in escrow shall be released from
the escrow account to ROC, and the Operating Partnership shall promptly refund
the balance of such excess to ROC.
(d) Chateau agrees that if this Agreement shall be terminated by ROC
pursuant to Section 8.1(m), then Chateau shall pay to ROC up to $2,000,000 in
out-of-pocket expenses incurred in connection with the Original Agreement, this
Agreement or the other Transactions (including, without limitation, all
attorneys', accountants' and investment banking fees and expenses). Chateau
agrees that if this Agreement shall be terminated pursuant to Section 8.1(c),
then Chateau will pay, as directed by ROC, an amount equal to the ROC Break-Up
Expenses (as defined below). In addition, Chateau agrees that if this Agreement
shall be terminated pursuant to Section 8.1(c), (g), (j), (k) or (m) and, in the
case of Section 8.1(c), (g) or (m) within 12 months following termination of
this Agreement, Chateau shall enter into a definitive agreement providing for a
Competing Transaction that is equally or more favorable from a financial point
of view to Chateau's stockholders as the Merger, then Chateau will pay as
directed by ROC a fee in an amount equal to the ROC Break-Up Fee (as defined
below). Payment of any of such amounts shall be made, as directed by ROC, by
wire transfer of immediately available funds promptly, but in no event later
than two business days after the amount is due as provided herein. The "ROC
Break-Up Fee" shall be an amount equal to the lesser of (i) $10,000,000 reduced
by the amount, if any, paid by Chateau to ROC in accordance with the first
sentence of this Section 8.2(d) (the "Base Amount") and (ii) the sum of (A) the
maximum amount that can be paid to ROC without causing it to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income, as determined by
independent accountants to ROC and (B) in the event ROC receives a letter from
outside counsel (the "ROC Break-Up Fee Tax Opinion") indicating that ROC has
received a ruling from the IRS holding that ROC's receipt of the Base Amount
would either constitute Qualifying Income or would be excluded from gross income
for purposes of Sections 856(c)(2) and (3) of the Code or that the receipt by
ROC of the remaining balance of the Base Amount following the receipt of and
pursuant to such ruling would not be deemed constructively received prior
thereto, the Base Amount less the amount payable under clause (A) above. In the
event that ROC is not able to receive the full Base Amount, Chateau shall place
the unpaid amount in escrow and shall not release any portion thereof to ROC
unless and until Chateau receives any one or a combination of the following: (i)
a letter(s) from ROC's independent accountants indicating the maximum amount
that can be paid at that time to ROC without causing ROC to fail to meet the
REIT Requirements or (ii) a ROC Break-Up Fee Tax Opinion, in which event Chateau
shall pay to ROC the lesser of the unpaid Base Amount or the maximum amount
stated in the letter(s) referred to in (i) above from time to time. Chateau's
obligation to pay the ROC Break-Up Fee (provided Chateau has otherwise complied
with its obligations under this provision) shall terminate (and any amount still
held in such escrow shall be released to Chateau) on the date that is five years
from the date the ROC Break-Up Fee first becomes due under this Agreement. In
addition, amounts held in escrow may be earlier released as provided in Section
8.2(e). The "ROC Break-Up Expenses" shall be an amount equal to the lesser of
(i) ROC's out-of-pocket expenses (other than those expenses, if any, reimbursed
under the first sentence of this Section 8.2(d)) incurred in connection with the
Original Agreement and this Agreement and the other Transactions (including,
without limitation, all attorneys', accountants' and investment bankers' fees
and expenses) but in no event in an amount greater than $4,000,000 (such amount
not to exceed such $4,000,000 being referred to in this Section 8.2(d) or (e) as
the "Expense Fee Base Amount") and (ii) the sum of (A) the maximum amount that
can be paid to ROC without causing it to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute Qualifying Income, as determined by independent
accountants to ROC and (B) in the event ROC receives a ROC Break-Up Fee Tax
Opinion indicating that ROC has received a ruling from the IRS holding that
ROC's receipt of the Expense Fee Base Amount would either constitute Qualifying
Income or would be excluded from gross income for purposes of the REIT
Requirements or that receipt
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by ROC of the remaining balance of the Expense Fee Base Amount following the
receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Expense Fee Base Amount less the amount payable
under clause (A) above. In the event that ROC is not able to receive the full
Expense Fee Base Amount, Chateau shall place the unpaid amount in escrow and
shall not release any portion thereof to ROC unless and until Chateau receives
any one or combination of the following: (i) a letter(s) from ROC's independent
accountants indicating the maximum amount that can be paid at that time to ROC
without causing ROC to fail to meet the REIT Requirements or (ii) a ROC Break-Up
Fee Tax Opinion indicating that ROC's receipt of the Expense Fee Base Amount
would satisfy in whole or in part the REIT Requirements, in which event Chateau
shall pay to ROC the lesser of the unpaid Expense Fee Base Amount or the maximum
amount stated in the letter(s) referred to in (i) above from time to time.
Chateau's obligation to pay any unpaid portion of the ROC Break-Up Expenses
(provided Chateau has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall be
released to Chateau) on the date that is five years from the date the ROC Break-
Up Expenses first become due under this Agreement. In addition, amounts held in
escrow may be earlier released as provided in Section 8.2(e).
(e) Notwithstanding anything to the contrary contained in Section 8.2(d)
above, if ROC realizes any Total Profit pursuant to the Chateau Option Agreement
and at any time or from time to time the sum of (i) the Total Profit, (ii) ROC
Break-Up Fee and (iii) the amount of ROC Break-Up Expenses exceeds the sum of
(i) the Base Amount (which amount shall be counted as zero, if Chateau has not
become obligated to pay the ROC Break-Up Fee under this Agreement) and (ii) the
Expense Fee Base Amount (which amount shall be counted as zero, if Chateau has
not become obligated to pay the ROC Break-Up Expenses under this Agreement),
then the ROC Break-Up Fee and/or the ROC Break-Up Expenses shall be reduced (it
being agreed that the allocation of the reduction shall be determined in the
discretion of ROC) by such excess, and the amount, if any, still held in escrow
shall be released from the escrow account to Chateau and ROC shall promptly
refund the balance of such excess to Chateau.
(f) In the event that Chateau, the Operating Partnership or ROC is required
to file suit to seek all or a portion of the amounts payable under this Section
8.2, and such party prevails in such litigation, such party shall be entitled to
all expenses, including attorney's fees and expenses which it has incurred in
enforcing its rights hereunder; provided that such expenses shall be considered
part of out-of-pocket expenses incurred in connection with this Agreement and
the other Transactions within the definition of Chateau Break-Up Expenses or ROC
Break-Up Expenses, as the case may be.
SECTION 8.3 Effect of Termination. In the event of termination of this
Agreement by either ROC or Chateau as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Chateau, or ROC, other than the last sentence of
Section 5.2, Section 8.2, this Section 8.3 and Article IX and except to the
extent that such termination results from a willful breach by a party of any of
its representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.4 Amendment. This Agreement may be amended by the parties in
writing by action of their respective Boards of Directors at any time before or
after any Stockholder Approvals are obtained and prior to the filing of the
Articles of Merger with the Department of Assessments and Taxation of the State
of Maryland; provided, however, that, after the Stockholder Approvals are
obtained, no such amendment, modification or supplement shall alter the amount
or change the form of the consideration to be delivered to ROC's or Chateau's
stockholders or alter or change any of the terms or conditions of this Agreement
if such alteration or change would adversely affect ROC's stockholders or
Chateau's stockholders.
SECTION 8.5 Extension; Waiver. At any time prior to the Effective Time, each
of ROC and Chateau may (a) extend the time for the performance of any of the
obligations or other acts of the other party,
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(b) waive any inaccuracies in the representations and warranties of the other
party contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the proviso of Section 8.4, waive compliance with
any of the agreements or conditions of the other party contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. Any waivers pursuant to clause (c) of the second preceding sentence
(i) of the provisions of Section 4.1(e) may be given in writing by or on behalf
of Chateau by the chief executive officer of Chateau and (ii) of the provisions
of Section 4.2(e) may be given in writing by or on behalf of ROC by the chief
executive officer of ROC. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to Chateau or RSub, to
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, MI 48038
Attn: C.G. ("Jeff") Kellogg
Fax: (810) 286-1496
with a copy to:
Timmis & Inman L.L.P.
300 Talon Centre
Detroit, MI 48207
Attn: Henry J. Brennan, III
Fax: (313) 396-4229
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attn: Arthur Fleischer
Fax: (212) 859-4000
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<PAGE>
(b) if to ROC, to
ROC Communities, Inc.
6430 S. Quebec Street
Englewood, CO 80111
Attn: Gary P. McDaniel
Fax: (303) 741-3715
with a copy to:
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attn: Jay L. Bernstein, Esq.
Fax: (212) 878-8375
SECTION 9.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
SECTION 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
the Confidentiality Agreement and the other agreements entered into in
connection with the Transactions (a) constitute the entire agreement and
supersedes all prior agreements (including the Original Agreement) and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement and, (b) except for the provisions of Article
II, Section 5.11(b) and (d) and Section 5.12, are not intended to confer upon
any person other than the parties hereto any rights or remedies.
SECTION 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
SECTION 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 9.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Maryland or in any Maryland State court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in the State of Maryland or any Maryland State court in the event
any dispute arises out of this Agreement or any of the Transactions contemplated
by this
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Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
ARTICLE X
CERTAIN DEFINITIONS
SECTION 10.1 Certain Definitions. For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"Chateau Disclosure Letter" means the letter previously delivered to ROC by
Chateau disclosing certain information in connection with the Original
Agreement.
"Chateau Subsidiary" means the Operating Partnership and each other
Subsidiary of Chateau.
"Financing Partnership" means a newly organized financing partnership into
which the Financing Sub will merge pursuant to the terms of the Contribution
Agreement.
"Financing Sub" means ROCF, Inc., a Maryland corporation.
"Knowledge" where used herein with respect to ROC shall mean the knowledge
of the persons named in Schedule 10 to the ROC Disclosure Letter and where used
with respect to Chateau shall mean the knowledge of the persons named in
Schedule 10 to the Chateau Disclosure Letter.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
"ROC Disclosure Letter" means the letter previously delivered to Chateau by
ROC disclosing certain information in connection with the Original Agreement.
"ROC Subsidiary" means each Subsidiary of ROC.
"Subsidiary" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity of which such person
(either directly or through or together with another Subsidiary of such person)
owns 50% or more of the voting stock or other equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity.
IN WITNESS WHEREOF, Chateau, ROC, and RSub have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CHATEAU PROPERTIES, INC.
By: /s/ C.G. Kellogg
Name: C.G. Kellogg
Title: President
ROC COMMUNITIES, INC.
By: /s/ Gary P. McDaniel
Name: Gary P. McDaniel
Title: President and Chief
Executive Officer
R ACQUISITION SUB, INC.
By: /s/ C.G. Kellogg
Name: C.G. Kellogg
Title: President
A-52
<PAGE>
AMENDMENT TO AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Amendment") is entered into as of this 20th day of December, 1996, by and among
CHATEAU PROPERTIES, INC., a Maryland corporation ("Chateau"), ROC COMMUNITIES,
INC., a Maryland corporation ("ROC"), and R ACQUISITION SUB, INC., a Maryland
corporation and a subsidiary of Chateau ("R Sub").
RECITALS:
WHEREAS, Chateau, ROC and R Sub are parties to an Amended and Restated
Agreement and Plan of Merger, dated as of September 17, 1996 (the "Merger
Agreement"); and
WHEREAS, Chateau, ROC and R Sub wish to amend the Merger Agreement in
accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
1. WAIVER AND SATISFACTION OF CONDITIONS. The Merger Agreement is hereby
amended to provide that certain conditions to the parties obligations under the
Merger Agreement and certain of the termination rights of the parties under the
Merger Agreement shall be waived or required to be satisfied in accordance with
the terms of this Section 1, as follows:
(a) Section 6.2(a) of the Merger Agreement is hereby amended to provide
that the condition to the obligation of Chateau to issue the Merger
Consideration to the ROC Stockholders and to consummate the other
Transactions contemplated to occur on the Closing Date shall be deemed
satisfied if the representations and warranties of ROC (without giving
effect to any "Materiality" qualification) set forth in the Merger Agreement
shall be true and correct as of the date of the first exchange of OP Units
by the OP Unitholders as contemplated by Section 6.3(i) (the "First Exchange
Date") (as compared to the Closing Date as provided in the Merger
Agreement);
(b) Section 6.2(c) of the Merger Agreement is hereby amended to provide
that the condition to the obligation of Chateau to issue the Merger
Consideration to the ROC Stockholders and to consummate the other
Transactions contemplated to occur on the Closing Date shall be deemed
satisfied if from the date of the execution of the Merger Agreement through
and including the First Exchange Date (as compared to the Closing Date as
provided in the Merger Agreement) there has been no material adverse change
in the business results of operations or financial condition of ROC, that
have resulted or would result, individually or in the aggregate, in Economic
Losses of $5,000,000 or more. Chateau shall have received on the First
Exchange Date (and not on the Closing Date) a certificate of the chief
executive officer or chief financial officer of ROC to the effect that there
had been no such material adverse change;
(c) Section 6.3(a) of the Merger Agreement is hereby amended to provide
that the condition to the obligation of ROC to effect the Merger and to
consummate the other Transactions contemplated to occur on the Closing Date
shall be deemed satisfied if the representations and warranties of Chateau
(without giving effect to any "Materiality" qualification) set forth in the
Merger Agreement shall be true and correct as of the date of the "First
Exchange Date" (as compared to the Closing Date as provided in the Merger
Agreement);
(d) Section 6.3(c) of the Merger Agreement is hereby amended to provide
that the condition to the obligation of ROC to effect the Merger and to
consummate the other Transactions contemplated to occur on the Closing Date
shall be deemed satisfied if from the date of the execution of the Merger
Agreement through and including the First Exchange Date (as compared to the
Closing Date as
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provided in the Merger Agreement) there has been no material adverse change
in the business results of operations or financial condition of Chateau,
that have resulted or would result, individually or in the aggregate, in
Economic Losses of $5,000,000 or more. ROC shall have received on the First
Exchange Date (and not on the Closing Date) a certificate of the chief
executive officer or chief financial officer of Chateau to the effect that
there had been no such material adverse change;
(e) As of the First Exchange Date, ROC and Chateau shall be deemed to
have waived their respective rights under Section 7.1 of the Merger
Agreement;
(f) ROC and Chateau acknowledge and agree that: (i) their respective
obligations to effect the Merger and consummate the other Transactions are
subject to the satisfaction or waiver of the conditions set forth in
Sections 6.1(b), (c), (f), (g) and (h), Chateau's obligation to issue the
Merger Consideration to the ROC stockholders and consummate the Other
Transactions are subject to the satisfaction or waiver of the conditions set
forth in Sections 6.2(d), (e), (f) and (g) and ROC's obligation to effect
the Merger and to consummate the Other Transactions are subject to the
satisfaction or waiver of the conditions set forth in Sections 6.3(d), (e),
(f), (g) and (i) of the Merger Agreement; (ii) the obligations set forth in
clause (i) are subject to the satisfaction or waiver of the conditions in
clause (i) on or before the First Exchange Date; (iii) once the conditions
set forth in Sections 6.1(b), (c) and (h), 6.2(f) and (g) and 6.3(f), (g)
and (i) have been satisfied or waived in accordance with clause (ii) above,
such conditions will be permanently satisfied or waived for all purposes
under the Merger Agreement; and (iv) the legal opinions to be delivered
pursuant to Sections 6.1(f) and (g), 6.2(d) and (e) and 6.3(d) and (e) on or
before the First Exchange Date in accordance with clause (ii) above shall
each also be restated and redelivered to the relevant parties as of the
Closing Date;
(g) Upon the occurrence of the satisfaction of the conditions set forth
in Sections 6.2(a) and 6.3(a), Chateau and ROC, as applicable, shall be
deemed to have waived their respective termination rights under Sections
8.1(b) (with respect to breaches or inaccuracies in the representations and
warranties only), 8.1(c) (with respect to breaches or inaccuracies in the
representations and warranties only) and upon the First Exchange Date,
Chateau and ROC, as applicable, shall be deemed to have waive their
respective termination rights under Sections 8.1(h), (j) and (l) of the
Merger Agreement.
2. ACCELERATION OF OBLIGATIONS. On or before the First Exchange Date,
Chateau and ROC, as applicable, shall fully comply with and complete their
respective obligations set forth in Sections 5.8, 5.11(c), 5.13, 5.14, 5.15 and
5.16 of the Merger Agreement. In connection with the foregoing, the documents
and agreements required to be executed and delivered in connection with the
covenants contained in Sections 5.9, 5.11(c), 5.13 and 5.15 shall be placed into
escrow with an escrow agent mutually acceptable to ROC and Chateau, with such
documents and agreements to be released from escrow only upon the effectiveness
of the Merger. Notwithstanding the execution and delivery of the foregoing
documents and agreements, such documents and agreements shall not become valid,
binding, enforceable and effective until such release from escrow in accordance
with the foregoing.
3. PERMITTED DIVIDENDS. Section 4.2(a)(ii) of the Merger Agreement is hereby
amended to further provide that the additional shares of Chateau Common Stock
that would have been issuable to stockholders of Chateau pursuant to the 3.16%
Common Stock dividend with respect to the shares of Common Stock repurchased by
Chateau prior to the Stock Dividend Record Date will be allocated among the
remaining stockholders of record of Chateau as of the Stock Dividend Record
Date. Chateau and ROC agree that the 3.16% Common Stock dividend will not be
paid on any shares issued by Chateau to exchanging OP Unit Holders.
4. SHARE ISSUANCE TO TRANSFERRING HOLDERS. Notwithstanding any term or
provision of the Merger Agreement to the contrary, including without limitation
Section 5.1 of the Merger Agreement, Chateau may include in the Proxy Statement
and submit to its stockholders for a vote at the Chateau Stockholder Meeting a
proposal authorizing the issuance of shares of Common Stock to the
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Transferring Holders who enter into the CS Letter Agreement and thereby agree to
exchange their OP Units for shares of Common Stock. Accordingly, the term
Chateau Stockholder Approvals shall be amended to include the approval by the
requisite vote of the holders of the Common Stock required to approve the
issuance of Common Stock to Transferring Holders.
5. CS LETTER AGREEMENT. ROC and Chateau agree that the CS Letter Agreement
to be executed by Transferring Holders will be in the form attached hereto as
Exhibit A.
6. TIMING OF EXCHANGE. Chateau agrees that the record date for the Chateau
Stockholders Meeting shall be no later than three (3) business days following
the ROC Stockholders Meeting at which the Merger has been approved.
7. CAPITALIZED TERMS. Capitalized terms used but not defined in this
Amendment shall have the meanings given them in the Merger Agreement.
8. EFFECT OF AMENDMENT. In the event of a conflict between the terms of this
Amendment and the terms of the Merger Agreement, the terms of this Amendment
shall govern and control. Except as specifically set forth in this Amendment,
the terms and effectiveness of the Merger Agreement are ratified and confirmed
in all respects.
9. COUNTERPARTS. This Amendment may be executed in one or more counterparts,
all of which shall be considered one in the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
IN WITNESS WHEREOF, Chateau, ROC and R Sub have caused this Amendment to be
signed by their respective duly authorized officers, all as of the date first
written above.
<TABLE>
<S> <C> <C>
CHATEAU PROPERTIES, INC.
By: /s/ JOHN A. BOLL
----------------------------------------------
Its: Chairman of the Board
-------------------------------------------
ROC COMMUNITIES, INC.
By: /s/ GARY P. MCDANIEL
----------------------------------------------
Its: President and Chief Executive Officer
-------------------------------------------
R ACQUISITION SUB, INC.
By: /s/ JOHN A. BOLL
----------------------------------------------
Its: Chairman of the Board
-------------------------------------------
</TABLE>
A-55
<PAGE>
APPENDIX B
OPINION OF PAINEWEBBER
B-1
<PAGE>
[LOGO]
December 20, 1996
Board of Directors
ROC Communities, Inc.
6430 South Quebec Street
Englewood, Colorado 80111
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view of the Exchange Ratio in the Proposed Transaction described below to the
holders (other than Chateau Properties, Inc. and its affiliates) of the
outstanding shares of common stock, par value $0.01 per share, and the holders
of the outstanding shares of non-voting redeemable stock, par value $0.01 per
share (such shares of common stock and non-voting redeemable stock being
referred to herein collectively as the "Company Shares"), of ROC Communities,
Inc., a Maryland corporation (the "Company").
Pursuant to the Amended and Restated Agreement and Plan of Merger dated as
of September 17, 1996, as amended by an Amendment thereto dated as of December
20, 1996 (as so amended, the "Merger Agreement"), among Chateau Properties, Inc.
("Chateau"), the Company, and R Acquisition Sub, Inc. ("RSub"), a wholly owned
subsidiary of Chateau, the following transactions, among others, will occur
(collectively, the "Proposed Transaction"): (i) RSub will be merged into the
Company, with the Company surviving (the "Merger"); (ii) in the Merger, each
Company Share will be converted into 1.042 shares of common stock of Chateau;
and (iii) the Company and its subsidiaries will contribute certain of their
assets and liabilities to CP Limited Partnership (the "Operating Partnership")
in exchange for a number of units of limited partnership interest ("OP Units")
substantially equal to the number of shares of common stock of Chateau issuable
to holders of Company Shares pursuant to the Merger. In addition, the Merger
Agreement permits Chateau to (and for purposes of this opinion we have assumed
that it will) declare and pay immediately prior to the Merger a one-time stock
dividend (the "Chateau Stock Dividend") equal to .0316 shares of Chateau common
stock for each share of Chateau's outstanding common stock and for each of the
Operating Partnership's outstanding OP Units. The effective exchange ratio for
the Merger after giving effect to the conversion of each share of ROC Stock into
1.042 shares of Chateau common stock and the payment of the Chateau Stock
Dividend is 1.01 to one (the "Exchange Ratio").
We understand that all approvals required for the consummation of the
Proposed Transaction have been obtained, or prior to consummation of the
Proposed Transaction will be obtained. We have assumed, with your consent, that
the Proposed Transaction will be completed on a tax-free basis and will be
accounted for under the purchase method of accounting.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31, 1995,
and the Company's Forms 10-Q and the related unaudited financial information
for the quarterly period ended September 30, 1996;
(2) Reviewed Chateau's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995, and
Chateau's Forms 10-Q and the related unaudited financial information for the
quarterly period ended September 30, 1996;
B-2
<PAGE>
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company and Chateau, furnished to us by the Company and Chateau;
(4) Conducted discussions with members of senior management of the
Company and Chateau, concerning their respective businesses and prospects;
(5) Reviewed the Merger Agreement;
(6) Reviewed the form of Contribution Agreement among Chateau, the
Company, Redwood Acquisition Corp. and the Operating Partnership;
(7) Reviewed the form of Registration Rights Agreement among Chateau,
certain stockholders of Chateau and certain limited partners of the
Operating Partnership;
(8) Reviewed the Stock Option Agreement between Chateau, as issuer, and
the Company, as grantee, dated July 17, 1996, and the form of the First
Amendment thereto;
(9) Reviewed the Stock Option Agreement between the Company, as issuer,
and the Operating Partnership, as grantee, dated July 17, 1996, and the form
of the First Amendment thereto; and
(10) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was either publicly available or supplied, communicated or
otherwise made available to us by or on behalf of Chateau and the Company, and
we have not assumed any responsibility to independently verify such information
or undertaken an independent appraisal of the assets of Chateau or the Company.
With respect to the financial forecasts examined by us, we have assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the respective managements of the Company
and Chateau as to the future performance of the Company and Chateau,
respectively, and their respective assets. Also in that regard, at the Company's
direction, we have assumed that the tax effects to the Company and the Company's
stockholders resulting from the Proposed Transaction will be immaterial. Our
opinion is based upon regulatory, economic, monetary and market conditions
existing on the date hereof. We have assumed, with your consent, that all
material assets and liabilities (contingent or otherwise, known or unknown) of
the Company and Chateau are as set forth in their respective consolidated
financial statements.
This opinion does not address the business decision of the Board of
Directors of the Company to engage in the Proposed Transaction or constitute a
recommendation to any stockholder of the Company as to how any such stockholder
should vote on the Proposed Transaction. No opinion is expressed herein as to
the price or trading range at which the Company Shares or the shares of common
stock of Chateau may trade at any time.
This opinion has been prepared for the use of the Board of Directors of the
Company and shall not be reproduced, summarized, described or referred to, or
given to any other person or otherwise made public, without the prior written
consent of PaineWebber Incorporated; PROVIDED, HOWEVER, that this letter may be
reproduced in full in the joint proxy statement/prospectus of the Company and
Chateau with respect to the meetings of the stockholders of the Company and
Chateau in connection with the Proposed Transaction.
As you are aware, PaineWebber Incorporated is currently acting as financial
advisor to the Company and will receive a fee for rendering this opinion and
will receive an additional fee upon consummation of the Proposed Transaction. In
the past, PaineWebber Incorporated has provided financial advisory services and
investment banking services (including acting as an underwriter for the Company)
and received fees for the rendering of these services. We may provide financial
advisory or investment banking services to, and act as an underwriter or
placement agent for, the Company or Chateau in the future.
B-3
<PAGE>
In the ordinary course of our business, we trade the equity and debt
securities of the Company and Chateau for our own account and for the accounts
of our customers and, accordingly, may at any time hold long or short positions
in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of the Company Shares (other than Chateau and its affiliates).
Very truly yours
PAINEWEBBER INCORPORATED
By: /s/ DAVID R. JARVIS
------------------------------------------
David R. Jarvis
Managing Director
B-4
<PAGE>
APPENDIX C
OPINION OF MERRILL LYNCH
C-1
<PAGE>
[Letterhead of Merrill Lynch]
September 17, 1996
Board of Directors
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, MI 48038
Gentlemen:
We understand that Chateau Properties, Inc. (the "Company"), ROC
Communities, Inc. (the "Partner") and R Acquisition Sub, Inc., a wholly owned
subsidiary of the Company (the "ROC Purchaser"), propose to amend and restate
the agreement and plan of merger (the "Original Agreement") among the Company,
the Partner, the ROC Purchaser and a company formed by the Company and the
Partner originally entered into on July 17, 1996 (as so amended and restated,
the "Restated Agreement"). Pursuant to the Restated Agreement, the Partner will
be merged with and into the ROC Purchaser in a transaction (the "Merger") in
which each share of the Partner's common stock, par value $0.01 per share (the
"Partner Shares"), will be converted into the right to receive 1.042 shares of
the Company's common stock, par value $0.01 per share (the "Shares"). We further
understand that the Restated Agreement provides that the Company may, and for
purposes of preparing our opinion below we have assumed with your consent that
the Company will, declare a special 3.16% common stock dividend payable in
Shares to shareholders of record on any date on or prior to the record date
established for the meeting of the Company's shareholders to approve the
issuance of the Shares pursuant to the Merger, which dividend shall be payable
subject to approval of the issuance of the Shares pursuant to the Merger by the
Company's shareholders. We have also assumed with your consent that no shares of
capital stock of the Partner will be issued in a cash transaction as permitted
under section 4.1(b)(iv) of the Restated Agreement. The issuance of the Shares
pursuant to the Merger and the Merger are subject to the approval of the
Company's and the Partner's shareholders, respectively.
You have asked us whether, in our opinion, the proposed consideration to be
paid by the Company in the Merger is fair to the Company and its shareholders
from a financial point of view. We understand you have made this request after
having received letters from Sun Communities, Inc. ("Sun") proposing a merger in
which each Share would be exchanged for 0.892 shares of Sun common stock and
letters from a Manufactured Home Communities, inc. ("MHC") proposing a merger in
which each outstanding Share would be exchanged for $26.00 in cash or, in the
alternative, 1.15 shares of MHC common stock, or some combination of the
foregoing. As you are also aware, an affiliate of MHC commenced a tender offer
on September 4, 1996 for all outstanding Shares at a price of $26.00 in cash.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31,
1995 and the Company's Forms 10-Q and the
C-2
<PAGE>
related unaudited financial information for the quarterly periods
ending March 31, 1996 and June 30, 1996;
(2) Reviewed the Partner's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31,
1995 and the Partner's Forms 10-Q and the related unuadited financial
information for the quarterly periods ending March 31, 1996 and June
30, 1996;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and the prospects of the
Company and the Partner, furnished to us by the Company and the
Partner, respectively;
(4) Conducted discussions with members of senior management of the Company
and the Partner concerning their respective businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and the Partner Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to
the Company and the Partner, respectively;
(6) Compared the results of operations of the Company and the Partner with
that of certain companies which we deemed to be reasonably similar to
the Company and the Partner, respectively;
(7) Reviewed a draft of the Restated Agreement dated September 17, 1996;
and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied upon the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
the Partner, and we have not independently verified such information or
undertaken an independent appraisal or evaluation of the assets or liabilities
of the Company or the Partner. With respect to the financial forecasts furnished
by the Company and the Partner, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of the
Company's or the Partner's management as to the expected future financial
performance of the Company or the Partner, as the case may be.
While we reviewed the financial terms of certain transactions involving the
purchase and sale of residential properties, we did not identify any mergers or
acquisitions that we deemed to be relevant for the purpose of our analysis and,
accordingly, did not undertake any analysis comparing the financial terms of the
Merger with other mergers or acquisitions.
In connection with the Merger, we have not been authorized to, and did not,
solicit indications of interest from third parties to purchase the outstanding
Shares or otherwise enter into an business combination with the Company. Our
opinion expressed herein as to the fairness to the Company and its shareholders
from a financial point of view of the consideration to be paid by the Company in
the Merger addresses the ownership position in the combined company to be
received by the Company's shareholders pursuant to the Merger on the terms set
forth in the Restated Agreement based upon the relative contributions of the
Company and the Partner to the combined company and we express no opinion as to
prices at which the Shares will trade following the consummation of the Merger
or prices which could be obtained for the Shares in a sale of the Company
following the consummation of the Merger. In addition, our opinion does not
address the relative merits of the Merger and alternative business combinations
with third parties, including Sun or MHC.
C-3
<PAGE>
This opinion is addressed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder as to how such shareholder
should vote on the issuance of Share pursuant to the proposed Merger.
We have, in the past, provided financial advisory and financing services to
the Company and have received fees for the rendering of such services. In the
ordinary course of our business, we may actively trade in the Shares and the
Partner Shares for our own account and for the account of our customers and,
accordingly, may at any time hold a long or short position in such services.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration to be paid by the Company in the Merger is fair to
the Company and its shareholders (other than the Partner and its affiliates)
from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ John C. Brady
----------------------------------
John C. Brady
Director
Investment Banking Group
C-4
<PAGE>
APPENDIX D
OPINION OF GOLDMAN SACHS
D-1
<PAGE>
Goldman
Sachs
- --------------------------------------------------------------------------------
PERSONAL AND CONFIDENTIAL
September 17, 1996
Board of Directors
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, MI 48038
Gentlemen:
You have requested our opinion as to the fairness to Chateau Properties, Inc.
(the "Company") of the Exchange Ratio (as hereinafter defined) pursuant to the
Amended and Restated Agreement and Plan of Merger dated as of September 17, 1996
(the "Restated Agreement"), among the Company, ROC Communities, Inc. ("ROC") and
R Acquisition Sub, Inc. ("R Sub"), a wholly-owned subsidiary of the Company.
Pursuant to the Restated Agreement, ROC will be merged with R Sub (the "Merger")
and each outstanding share of common stock, par value $0.01 per share, of ROC
(the "ROC Shares") will be converted into the right to receive 1.042 shares of
common stock, par value $0.01 per share, of the Company (such shares are herein
referred to as the "Shares" and such exchange ratio is herein referred to as the
"Exchange Ratio"). The Restated Agreement permits the Company to declare a
special 3.16% stock dividend to holders of Shares of record on any date on or
prior to the record date for the meeting of holders of Shares to approve the
issuance of Shares pursuant to the Merger, and we have assumed for purposes of
rendering our opinion, with your consent, that such special dividend will, in
fact, be declared and paid and that no shares of capital stock of ROC will be
issued in a cash transaction as permitted by section 4.1(b)(iv) of the Restated
Agreement.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain negotiations leading to, the Restated Agreement.
In connection with this opinion, we have reviewed, among other things, the
Restated Agreement; Annual Reports to Stockholders and Annual Reports on Form
10-K for the three years ended December 31, 1995 of the Company and ROC, certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and ROC, certain other communications from the Company and ROC to their
respective stockholders and certain internal financial analyses and forecasts
for the Company and ROC prepared by the respective managements of the Company
and ROC, including analyses and forecasts of certain cost synergies and revenues
enhancements expected to be achieved as a result of the Merger jointly prepared
by the managements of the company and ROC. We also have held discussions with
members of the senior management of the Company and ROC
D-2
<PAGE>
Chateau Properties, Inc.
September 17, 1996
Page Two
regarding the past and current business operations, financial condition and
future prospects of their respective companies, including the future prospects
of the combined company after the Merger. In addition, we have reviewed the
reported price and trading activity for the Shares and ROC Shares, compared
certain financial and stock market information for the Company and ROC with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations among real estate investment trusts, and performed such other
studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the forecasts referred to in the preceding paragraph have been reasonably
prepared on a basis reflecting the best currently available judgements and
estimates of the managements of the Company and ROC, as the case may be, and
that such forecasts will be realized in the amounts and at the times
contemplated thereby. Also in that regard, you have instructed us to assume, and
we have assumed, that the tax effects to the Company and the holders of Shares,
if any, resulting from the transactions contemplated by the Restated Agreement
are immaterial. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or ROC or any of their
respective subsidiaries, and we have not been furnished with any such evaluation
or appraisal. Our opinion does not address the relative merits of the Merger as
compared to any alternative business transactions that might be available to the
Company. Our advisory services and the opinion expressed herein are provided for
the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transactions contemplated by the
Restated Agreement and does not constitute a recommendation to any stockholder
as to how such stockholder should vote on the Issuance of Shares pursuant to the
proposed Merger.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Restated Agreement is fair to the Company.
Very truly yours,
/s/ Goldman, Sachs & Co.
- -------------------------------
(GOLDMAN, SACHS & CO.)
D-3
<PAGE>
Annex C
PERSONAL AND CONFIDENTIAL
September 17, 1996
Board of Directors
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, MI 48038
Gentlemen:
You have requested our opinion as to the fairness to Chateau Properties,
Inc. (the "Company") of the Exchange Ratio (as hereafter defined) pursuant
to the Amended and Restated Agreement and Plan of Merger dated as of Septem-
ber 17, 1996 (the "Restated Agreement"), among the Company, ROC Communities,
Inc.("ROC") and R Acquisition Sub, Inc. ("R Sub"), a wholly-owned
subsidiary of the Company. Pursuant to the Restated Agreement, ROC will be
merged with R Sub (the "Merger") and each outstanding share of common
stock, par value $0.01 per share, of ROC (the "ROC Shares") will be
converted into the right to receive 1.042 shares of common stock, par value
$0.01 per share, of the Company (such shares are herein referred to as the
"Shares" and such exchange ratio is herein referred to as the "Exchange
Ratio"). The Restated Agreement permits the Company to declare a special
3.16% stock dividend to holders of Shares of record on any date on or prior
to the record date for the meeting of holders of Shares to approve the
issuance of Shares pursuant to the Merger, and we have assumed for purposes
of rendering our opinion, with your consent, that such special dividend
will, in fact, be declared and paid and that no shares of capital stock of
ROC will be issued in a cash transaction as permitted by section 4.1(b)(iv)
of the Restated Agreement.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and
other purposes. We are familiar with the Company having acted as its
financial advisor in connection with, and having participated in certain
negotiations leading to, the Restated Agreement.
In connection with this opinion, we have reviewed, among other things, the
Restated Agreement; Annual Reports to Stockholders and Annual Reports on
Form 10-K for the three years ended December 31, 1995 of the Company and
ROC, certain interim reports to stockholders and Quarterly Reports on Form
10-Q of the Company and ROC, certain other communications from the Company
and ROC to their respective stockholders and certain internal financial
analyses and forecasts for the Company and ROC prepared by the respective
managements of the Company and ROC, including analyses and forecasts of
certain cost synergies and revenue enhancements expected to be achieved as a
result of the Merger jointly prepared by the managements of the Company and
ROC. We also have held discussions with members of the senior management of
the Company and ROC regarding the past and current business operations,
financial condition and future prospects of their respective companies,
including the future prospects of the combined company after the Merger. In
addition, we have reviewed the reported price and trading activity for the
Shares and ROC Shares, compared certain financial and stock market information
for the Company and ROC with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations among real estate investment trusts, and
performed such other studies and analyses as we considered appropriate.
<PAGE>
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us
for purposes of this opinion. In that regard, we have assumed, with your
consent, that the forecasts referred to in the preceding paragraph have
been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the managements of the Company and ROC, as the
case may be, and that such forecasts will be realized in the amounts and at
the times contemplated thereby. Also in that regard, you have instructed us
to assume, and we have assumed, that the tax effects to the Company and the
holders of Shares, if any, resulting from the transactions contemplated by
the Restated Agreement are immaterial. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the
Company or ROC or any of their respective subsidiaries, and we have not
been furnished with any such evaluation or appraisal. Our opinion does not
address the relative merits of the Merger as compared to any alternative
business transactions that might be available to the Company. Our advisory
services and the opinion expressed herein are provided for the information
and assistance of the Board of Directors of the Company in connection with
its consideration of the transactions contemplated by the Restated
Agreement and does not constitute a recommendation to any stockholder as to
how such stockholder should vote on the issuance of Shares pursuant to the
proposed Merger.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Restated Agreement is fair to the Company.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE>
Annex D
[ Letterhead of Merrill Lynch ]
Investment Banking
Corporate and Institutional
Client Group
World Financial Center
North Tower
New York, New York 10281-1330
[ Merrill Lynch Logotype ]
September 17, 1996
Board of Directors
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, MI 48038
Gentlemen:
We understand that Chateau Properties, Inc. (the "Company"), ROC
Communities, Inc. (the "Partner") and R Acquisition Sub, Inc., a wholly
owned subsidiary of the Company (the "ROC Purchaser"), propose to amend and
restate the agreement and plan of merger (the "Original Agreement") among
the Company, the Partner, the ROC Purchaser and a company formed by the
Company and the Partner originally entered into on July 17, 1996 (as so
amended and restated, the "Restated Agreement"). Pursuant to the Restated
Agreement, the Partner will be merged with and into the ROC Purchaser in a
transaction (the "Merger") in which each share of the Partner's common
stock, par value $0.01 per share (the "Partner Shares") will be converted
into the right to receive 1.042 shares of the Company's common stock, par
value $.01 per share (the "Shares"). We further understand that the
Restated Agreement provides that the Company may, and for purposes of
preparing our opinion below we have assumed with your consent that the
Company will, declare a special 3.16% common stock dividend payable in
Shares to shareholders of record on any date on or prior to the record
date established for the meeting of the Company's shareholders to approve
the issuance of the Shares pursuant to the Merger, which dividend shall be
payable subject to approval of the issuance of the Shares pursuant to the
Merger by the Company's shareholders. We have also assumed with your
consent that no shares of capital stock of the Partner will be issued
in a cash transaction as permitted by section 4.1(b)(iv) of the Restated
Agreement. The issuance of the Shares pursuant to the Merger and the
Merger are subject to the approval of the Company's and the Partner's
shareholders, respectively.
You have asked us whether, in our opinion, the proposed consideration
to be paid by the Company in the Merger is fair to the Company and its
shareholders from a financial point of view. We understand you have made
this request after having received letters from Sun Communities, Inc.
("Sun") proposing a merger in which each Share would be exchanged for 0.892
shares of Sun common stock and letters from Manufactured Home Communities,
Inc. ("MHC") proposing a merger in which each outstanding Share would be
exchanged for $26.00 in cash or, in the alternative, 1.15 shares of MHC
common stock, or some combination of the foregoing. As you are also aware,
an affiliate of MHC commenced a tender offer on September 4, 1996 for all
outstanding Shares at a price of $26.00 in cash.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December
31, 1995 and the Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ending March 31,
1996 and June 30, 1996;
<PAGE>
(2) Reviewed the Partner's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December
31, 1995 and the Partner's Forms 10-Q and the related unaudited
financial information for the quarterly periods ending March 31,
1996 and June 30, 1996;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Company and the Partner, furnished to us by the
Company and the Partner, respectively;
(4) Conducted discussions with members of senior management of the
Company and the Partner concerning their respective businesses
and prospects;
(5) Reviewed the historical market prices and trading activity for
the Shares and the Partner Shares and compared them with that of
certain publicly traded companies which we deemed to be
reasonably similar to the Company and the Partner, respectively;
(6) Compared the results of operations of the Company and the Partner
with that of certain companies which we deemed to be reasonably
similar to the Company and the Partner, respectively;
(7) Reviewed a draft of the Restated Agreement dated September 17,
1996; and
(8) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other
matters as we deemed necessary.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us
by the Company and the Partner, and we have not independently verified such
information or undertaken an independent appraisal or evaluation of the
assets or liabilities of the Company or the Partner. With respect to the
financial forecasts furnished by the Company and the Partner, we have
assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the Company's or the
Partner's management as to the expected future financial performance of the
Company or the Partner, as the case may be.
While we reviewed the financial terms of certain transactions
involving the purchase and sale of residential properties, we did not
identify any mergers or acquisitions that we deemed to be relevant for the
purpose of our analysis and, accordingly, did not undertake any analysis
comparing the financial terms of the Merger with other mergers or
acquisitions.
In connection with the Merger, we have not been authorized to, and did
not, solicit indications of interest from third parties to purchase the
outstanding Shares or otherwise enter into a business combination with the
Company. Our opinion expressed herein as to the fairness to the Company and
its shareholders from a financial point of view of the consideration to be
paid by the Company in the Merger addresses the ownership position in the
combined company to be received by the Company's shareholders pursuant to
the Merger on the terms set forth in the Restated Agreement based upon the
relative contributions of the Company and the Partner to the combined
company and we express no opinion as to prices at which the Shares will
trade following the consummation of the Merger or prices which could be
obtained for the Shares in a sale of the Company following the consummation
of the Merger. In addition, our opinion does not address the relative
merits of the Merger and alternative business combinations with third
parties, including Sun or MHC.
This opinion is addressed to the Board of Directors of the Company and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the issuance of Shares pursuant to the proposed
Merger.
<PAGE>
We have, in the past, provided financial advisory and financing
services to the Company and have received fees for the rendering of such
services. In the ordinary course of our business, we may actively trade in
the Shares and the Partner Shares for our own account and for the account
of our customers and, accordingly, may at any time hold a long or short
position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion
that the proposed consideration to be paid by the Company in the Merger is
fair to the Company and its shareholders (other than the Partner and its
affiliates) from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its articles of incorporation, the liability of directors and
officers so that no director or officer of the Registrant shall be liable to the
Registrant or to any stockholder for money damages except for the liability of a
director or officer resulting from (i) acts or omissions involving active and
deliberate dishonesty established by a final judgment or (ii) actual receipt of
an improper benefit or profit in money, property or services. The Registrant's
articles of incorporation have incorporated such a provision limiting liability
to the fullest extent permitted by Maryland law.
The Registrant's bylaws require it to indemnify (a) any present or former
director, officer or stockholder or person who, while a director, officer or
stockholder, served or is serving as a trustee, officer, director, stockholder
or partner of another entity at the Registrant's express request who has been
successful, on the merits or otherwise, in the defense of a proceeding to which
he was made a party by reason of service in such capacity, against reasonable
expenses incurred by him in connection with the proceeding, (b) any present or
former director or officer or person who, while a director or officer served or
is serving as a trustee, officer, director, stockholder or partner of another
entity at the Registrant's express request against any claim or liability by
reason of service in such capacity unless it is established that (i) his act or
omission was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful, and (c) any present or former
stockholder against any claim or liability to which he becomes subject by reason
of such status. In addition, the Registrant's bylaws require it to pay or
reimburse, in advance of final disposition of a proceeding, reasonable expenses
incurred by a present or former director, officer or stockholder or person who,
while a director, officer or stockholder, served or is serving as a trustee,
officer, director, stockholder or partner of another entity at the Registrant's
express request made a party to a proceeding by reason of service in such
capacity provided that, in the case of a director or officer, the Registrant
shall have received (1) a written affirmation by such person of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Registrant as authorized by the bylaws and (2) a written undertaking by or
on his behalf to repay the amount paid or reimbursed by the Registrant if it
shall ultimately be determined that the applicable standard of conduct was not
met. The Registrant's bylaws also (x) permit the Registrant to provide
indemnification and payment or reimbursement of expenses to a present or former
director, officer or stockholder who served a predecessor of the Registrant and
to any employee or agent of the Registrant or a predecessor of the Registrant,
(y) provided that any indemnification or reimbursement of expenses permitted by
the bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment of reimbursement of expenses under Section 2-418 of
the Maryland General Corporation Law (the "MGCL") for directors of Maryland
corporations and (z) permit the Registrant to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
Section 2-418 of the MGCL for directors of Maryland corporations.
The partnership agreement of the Operating Partnership also provides for
indemnification of the Registrant and its officers and directors to the same
extent indemnification is provided to officers and directors of the Registrant
in its articles of incorporation, and limit the liability of the Registrant and
its officers and directors to the Limited Partnership and its partners to the
same extent the liability of the officers and directors of the Registrant to the
Registrant and its stockholders is limited under the Registrant's articles of
incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and officers of the Operating Partnership pursuant
to the foregoing provisions or otherwise, the Limited
II-1
<PAGE>
Partnership has been advised that, although the validity and scope of the
governing statute have not been tested in court, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
addition, indemnification may be limited by state securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are filed as part of this Registration Statement:
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 --Amended and Restated Agreement and Plan of Merger by and among ROC Communities, Inc., Chateau
Properties, Inc. and R Acquisition Sub, Inc., as amended (included as Appendix A to the Joint Proxy
Statement/Prospectus included in Part I of this Registration Statement).
3.1 --Amended and Restated Certificate of Incorporation of the Registrant.*
3.2 --Amended and Restated By-Laws of the Registrant.**
4.1 --Specimen of Common Stock Certificate of the Registrant.**
5.1 --Opinion of Timmis & Inman L.L.P. as to the legality of the Common Stock.
5.2 --Opinion of Miles & Stockbridge, a professional corporation.
8.1 --Opinion of Rogers & Wells as to certain tax matters.
8.2 --Opinion of Timmis & Inman L.L.P. as to certain tax matters.
10.1 --Form of Amended Operating Partnership Agreement to become effective at the Effective Time.
10.2 --Contribution Agreement, to become effective at the Effective Time.
10.3 --Form of Registration Rights Agreement, to become effective at the Effective Time.
23.1 --Consent of PaineWebber Incorporated.
23.2 --Consent of Merrill Lynch & Co.
23.3 --Consent of Goldman, Sachs & Co.
23.4 --Consent of Deloitte & Touche LLP.
23.5 --Consent of Coopers & Lybrand L.L.P.
23.6 --Consent of Rogers & Wells (included in its opinion as Exhibit 8.1 herein).
23.7 --Consent of Timmis & Inman L.L.P. (included in its opinions as Exhibits 5.1 and 8.2 herein).
23.8 --Consent of Miles & Stockbridge, a professional corporation (included in its opinion as Exhibit 5.2
herein).
24 --Power of Attorney (included in Part II of this Registration Statement).
99.1 --Form of ROC Proxy Card.
99.2 --Form of Chateau Proxy Card.
99.3 Consent of Gary P. McDaniel, James Clayton, Steven G. Davis, James M. Hankins and Donald E. Miller.
</TABLE>
- ------------------------
* Incorporated by reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995 filed with
the Commission on August 10, 1995 (Commission File No. 1-12496).
** Incorporated by reference to the Exhibits to the Registrant's Registration
Statement of Form S-11 filed with the Commission on November 10, 1993
(Commission File No. 33-69150).
(b) Financial Statement Schedules
The financial statement schedules are incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, the Registrant's Quarterly Report on Form 10-Q
II-2
<PAGE>
for the quarterly period ended September 30, 1996, ROC's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, and ROC's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1996.
(c) Information Provided Pursuant to Item 4(b) of Form S-4
The opinion of PaineWebber Incorporated dated as of September 17, 1996 is
included as Appendix B to the Joint Proxy Statement/Prospectus included in Part
I of this Registration Statement.
The opinion of Merrill Lynch & Co. dated as of September 17, 1996 is
included as Appendix C to the Joint Proxy Statement/Prospectus included in Part
I of this Registration Statement.
The opinion of Goldman, Sachs & Co. dated as of September 17, 1996 is
included as Appendix D to the Joint Proxy Statement/Prospectus included in Part
I of this Registration Statement.
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial BONA FIDE offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) (a) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(b) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
II-3
<PAGE>
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Detroit, State of Michigan, on December 20, 1996.
CHATEAU PROPERTIES, INC.
By: /s/ C.G. KELLOGG
-----------------------------------------
C.G. Kellogg
PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints C.G. Kellogg and Tamara D. Fischer and
each of them (with full power to act alone), his true and lawful
attorneys-in-fact and agents with full power of substitution, in the name and on
behalf of the undersigned, to do any and all acts and things and to execute any
and all instruments which said attorneys and agents, or any of them, may deem
necessary or advisable to enable Chateau Properties, Inc. (the "Registrant") to
comply with the Securities Act of 1933, as amended (the "Securities Act"), and
with the Securities Exchange Act of 1934, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof in
connection with (i) the registration under the Securities Act of shares of
common stock of the Registrant ("Common Stock") and (ii) any and all amendments
thereto or reports that the Registrant is required to file pursuant to the
requirements of federal or state securities laws or any rules or regulations
thereunder. The authority granted under this Power of Attorney shall include,
but not be limited to, the power and authority to sign the name of the
undersigned in the capacity or capacities set forth below to a Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission in
respect of the Common Stock, to any and all amendments (including post-effective
amendments) to that Registration Statement in respect of the same, to any and
all instruments filed as a part of or in connection with that Registration
Statement; and the undersigned hereby ratifies and confirms all that those
attorneys-in-fact and agents, or any of them, shall lawfully do or cause to be
done by virtue hereof.
------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 of Chateau Properties, Inc. has been signed
by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE & CAPACITY DATE
- ------------------------------ -------------------------- -------------------
/s/ JOHN A. BOLL
- ------------------------------ Chairman of the Board of December 20, 1996
John A. Boll Directors
Director, President and
/s/ C.G. KELLOGG Chief Executive Officer
- ------------------------------ (Principal Executive December 20, 1996
C.G. Kellogg Officer)
II-5
<PAGE>
SIGNATURE TITLE & CAPACITY DATE
- ------------------------------ -------------------------- -------------------
Executive Vice President
/s/ TAMARA D. FISCHER and Chief Financial
- ------------------------------ Officer (Principal December 20, 1996
Tamara D. Fischer Financial and Accounting
Officer)
/s/ EDWARD R. ALLEN
- ------------------------------ Director December 20, 1996
Edward R. Allen
/s/ GEBRAN S. ANTON, JR.
- ------------------------------ Director December 20, 1996
Gebran S. Anton, Jr.
/s/ JAMES M. LANE
- ------------------------------ Director December 20, 1996
James M. Lane
- ------------------------------ Director
Kenneth E. Myers
- ------------------------------ Director
Jay G. Rudolph
II-6
<PAGE>
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 --Amended and Restated Agreement and Plan of Merger by and among ROC Communities, Inc., Chateau
Properties, Inc. and R Acquisition Sub, Inc., as amended (included as Appendix A to the Joint Proxy
Statement/Prospectus included in Part I of this Registration Statement).
3.1 --Amended and Restated Certificate of Incorporation of the Registrant.*
3.2 --Amended and Restated By-Laws of the Registrant.**
4.1 --Specimen of Common Stock Certificate of the Registrant.**
5.1 --Opinion of Timmis & Inman L.L.P. as to the legality of the Common Stock.
5.2 --Opinion of Miles & Stockbridge, a professional corporation.
8.1 --Opinion of Rogers & Wells as to certain tax matters.
8.2 --Opinion of Timmis & Inman L.L.P. as to certain tax matters.
10.1 --Form of Amended Operating Partnership Agreement to become effective at the Effective Time.
10.2 --Contribution Agreement, to become effective at the Effective Time.
10.3 --Form of Registration Rights Agreement, to become effective at the Effective Time.
23.1 --Consent of PaineWebber Incorporated.
23.2 --Consent of Merrill Lynch & Co.
23.3 --Consent of Goldman, Sachs & Co.
23.4 --Consent of Deloitte & Touche LLP.
23.5 --Consent of Coopers & Lybrand L.L.P.
23.6 --Consent of Rogers & Wells (included in its opinion as Exhibit 8.1 herein).
23.7 --Consent of Timmis & Inman L.L.P. (included in its opinions as Exhibits 5.1 and 8.2 herein).
23.8 --Consent of Miles & Stockbridge, a professional corporation (included in its opinion as Exhibit 5.2
herein).
24 --Power of Attorney (included in Part II of this Registration Statement).
99.1 --Form of ROC Proxy Card.
99.2 --Form of Chateau Proxy Card.
99.3 Consent of Gary P. McDaniel, James Clayton, Steven G. Davis, James M. Hankins and Donald E. Miller.
</TABLE>
- ------------------------
* Incorporated by reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995 filed with
the Commission on August 10, 1995 (Commission File No. 1-12496).
** Incorporated by reference to the Exhibits to the Registrant's Registration
Statement of Form S-11 filed with the Commission on November 10, 1993
(Commission File No. 33-69150).
<PAGE>
Exhibit 5.1
December 23, 1996
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, Michigan 48038
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of 13,109,941 shares of common stock (the "Common Stock") of
Chateau Properties, Inc., a Maryland corporation (the "Corporation"), we have
examined such corporate records, certificates and documents as we deemed
necessary for the purpose of this opinion. Based on that examination, we
advise you that in our opinion the Common Stock has been duly and validly
authorized and, when issued upon the terms described in the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission (the
"Commission"), will be legally issued, fully paid and nonassessable. As to
matters of Maryland law, we have relied on the opinion of Miles &
Stockbridge, Baltimore, Maryland.
We hereby consent to the filing of this opinion as an exhibit to this
Registration Statement on Form S-4 and to the reference to us under the
heading "Legal Matters" in the Prospectus. In giving our consent, we do not
thereby admit the we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
TIMMIS & INMAN L.L.P.
By
CWR:mda
<PAGE>
[MILES & STOCKBRIDGE LETTERHEAD]
EXHIBIT 5.2
December 20, 1996
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, Michigan 48038
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of 13,109,941 shares of common stock (the "Common Stock") of
Chateau Properties, Inc., a Maryland corporation (the "Corporation"), we have
examined such corporate records, certificates and documents as we deemed
necessary for the purpose of this opinion. Based on that examination, we
advise you that in our opinion the Common Stock has been duly and validly
authorized and, when issued upon the terms set forth in the Registration
Statement filed with the Securities and Exchange Commission (the
"Commission"), will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus. In giving our consent, we do not thereby admit
that we are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
Miles & Stockbridge,
a Professional Corporation
By: /s/ J.W. THOMPSON WEBB
----------------------
Principal
<PAGE>
[LETTERHEAD]
December 24, 1996
ROC Communities, Inc.
6430 South Quebec Street
Englewood, CO 80111
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, MI 48038
Re: REIT Status of ROC Communities, Inc. and Chateau
Properties Inc. and Tax-free Transfer under Section
351 of the Internal Revenue Code (the "Code")
----------------------------------------------------
Gentlemen:
We have been asked by ROC Communities, Inc., a Maryland corporation ("ROC"),
to provide our opinion to ROC and Chateau Properties, Inc., a Maryland
corporation ("Chateau") with respect to certain federal income tax matters in
connection with the transactions contemplated by the Amended and Restated
Agreement and Plan of Merger dated as of September 17, 1996, as amended by the
Amendment thereto dated as of December 20, 1996 (the "Merger Agreement") among
ROC, Chateau and R Acquisition Sub, Inc ("RSub"), a Maryland corporation and a
subsidiary of Chateau. The transactions include the merger of RSub into ROC
(the "Merger") and the exchange by holders ("OP Unitholders") of units of
limited partner interests ("OP Units") in CP Limited Partnership (the "Operating
Partnership") of certain of their OP Units for shares of Common Stock (the "OP
Unit Exchange"). As a part of the Transactions, and in order to participate
in the OP Unit Exchange, the Exchanging OP Unitholders are required, among other
things, to waive (the "Dividend Waiver") all rights which they may have to
receive a stock dividend and corresponding OP Unit distribution with respect
to the OP Units exchanged. The stock
<PAGE>
ROC Communities, Inc.
Chateau Properties, Inc. 2 December 24, 1996
dividend waived will be re-allocated to the Chateau stockholders of record as of
the record date for the stock dividend. We are acting as counsel to ROC in
connection with the Merger and the related transactions. All capitalized
terms used herein have their respective meanings set forth in the Merger
Agreement unless otherwise stated.
In rendering the opinions stated below, we have examined and relied, with
your consent, upon the following:
(i) The Merger Agreement;
(ii) The Joint Proxy Statement/Prospectus, dated
December 24, 1996 (the "Joint Proxy Statement/Prospectus");
(iii) The Registration Statement of ROC dated April 15, 1996 and the
Registration Statement of the Operating Partnership dated
February 23, 1995 (collectively, the "Registration Statements");
(iv) The Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, the Amended and Restated Agreement of
Limited Partnership of RCIP, L.P., and the Agreement of Limited
Partnership of CCF, L.P. (the "Financing Partnership")
(collectively, the "Partnership Agreements");
(v) Each Chateau Securityholder Agreement, dated December 18, 1996
among Chateau, each OP Unitholders, the Operating Partnership and
ROC (collectively, the "Chateau Securityholder Agreement");
(vi) The opinion of Timmis & Inman dated December 24, 1996 to the
effect that Chateau, commencing with its taxable year ended
December 31, 1993, was organized and has operated in conformity
with the requirements for qualification as a REIT within the
meaning of the Code and that the Operating Partnership has been
at all times and, following the Merger (after giving effect
thereto), will continue to be treated as a partnership for
federal income tax purposes;
<PAGE>
ROC Communities, Inc.
Chateau Properties, Inc. 3 December 24, 1996
(vii) The Private Letter Ruling 9627017 (April 1, 1996), issued by the
Internal Revenue Service to Chateau and the Operating
Partnership; and
(viii) Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions referred
to in this letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures of each original document are genuine, (iii) each
party who executed the document had proper authority and capacity, (iv) all
representations and statements set forth in such documents are true and correct,
(v) all obligations imposed by any such documents on the parties thereto have
been or will be performed or satisfied in accordance with their terms and (vi)
Chateau, ROC, the Operating Partnership and the Financing Partnership at all
times have been and will continue to be organized and operated in accordance
with the terms of such documents. We have further assumed, with your consent,
the accuracy of the statements and descriptions of Chateau's, ROC's, the
Financing Partnership's and the Operating Partnership's intended activities as
described in the Merger Agreement, the Joint Proxy Statement/Prospectus, the
Registration Statements, the Partnership Agreements and the Chateau
Securityholder Agreement and that Chateau, ROC, the Financing Partnership and
the Operating Partnership have operated and will continue to operate in
accordance with the method of operation described in the Merger Agreement, the
Registration Statements, the Joint Proxy Statement/Prospectus, the Partnership
Agreements and the Chateau Securityholder Agreement. In addition, we have
assumed, with your consent and without independent verification, that there will
be no sale, exchange or other disposition by any of the stockholders of ROC,
pursuant to a prearranged plan or binding agreement or obligation entered into
or arising prior to the consummation of the Merger, of a number of shares of
Common Stock that would reduce the aggregate number of shares of Common Stock
owned by the ROC stockholders and Exchanging OP Unitholders immediately
following the Merger and Other Transactions (after giving effect thereto) to an
amount less than eighty (80%) percent of the outstanding shares of Common Stock
as of such time.
For purposes of rendering the opinions stated below, we have assumed, with
your consent, the accuracy of the representations
<PAGE>
ROC Communities, Inc.
Chateau Properties, Inc. 4 December 24, 1996
contained in the Certificate of Representations dated December 20, 1996 provided
to us by ROC and RCIP, L.P. (the "ROC Certificate"). These representations
generally relate to the qualification of the Merger and the OP Unit Exchange as
a tax-free transfer, to the classification and operation of ROC as a REIT and to
the organization and operation of ROC and RCIP, L.P. For purposes of rendering
the opinions stated below, we have also assumed, with your consent, the accuracy
of the representations contained in the Certificate of Representations dated
December 23, 1996 provided to Timmis & Inman and us by Chateau and the
Operating Partnership (the "Chateau Certificate"). These representations
generally relate to the qualification of the Merger and the OP Unit Exchange
as a tax-free transfer, to the classification and operation of Chateau as a
REIT and to the organization and operation of Chateau and the Operating
Partnership.
OPINIONS
Based upon and subject to the foregoing, we are of the opinion that:
(i) commencing with its taxable year ended December 31, 1993, ROC was
organized and has operated in conformity with the requirements
for qualification as a REIT within the meaning of the Code;
(ii) following the Merger (after giving effect thereto), ROC's
proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT under the
Code;
(iii) following the Merger (after giving effect thereto), Chateau's
proposed method of operation, as described in the Joint Proxy
Statement/Prospectus included in the Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on
December 24, 1996, will enable it to meet the requirements for
qualification and taxation as a REIT under the Code;
(iv) following the Merger (after giving effect thereto), the Financing
Partnership will be treated for federal income tax purposes as a
partnership and not as a corporation or an association taxable as
a corporation; and
(v) the Merger will be treated for federal income tax purposes as a
tax-free transfer by the stockholders of
<PAGE>
ROC Communities,Inc.
Chateau Properties,Inc. 5 December 24, 1996
ROC of their shares of ROC Stock to Chateau in exchange for shares of
Common Stock, and the transfer by holders of OP Units pursuant to the
Chateau Securityholder Agreement shall be treated for federal income
tax purposes as a tax-free transfer by such holders of their OP Units
in exchange for shares of Common Stock, under Section 351 of the Code,
and no gain or loss will be recognized by ROC, its stockholders or
such holders who transfer OP Units pursuant to the Chateau
Securityholder Agreement as a result of such transfers, except to the
extent provided in Section 357(c) of the Code (which generally
provides that gain results to the extent that liabilities assumed or
to which property is subject exceeds the adjusted basis of the
properties transferred).
The opinions stated above represent our conclusions as to the application of
federal income tax laws existing as of the date of this letter to the
transactions contemplated in the Merger Agreement, the Chateau Securityholder
Agreement and the Joint Proxy Statement/Prospectus and we can give no assurance
that legislative enactments, administrative changes or court decisions may not
be forthcoming that would modify or supersede our opinion. An opinion of counsel
merely represents counsel's judgement with respect to the probable outcome on
the merits and is not binding on the Internal Revenue Service or the courts.
There can be no assurance that positions contrary to our opinion will not be
taken by the Internal Revenue Service, or that a court considering the issues
would not hold contrary to such opinion.
With respect to the tax consequences of the Dividend Waiver, you should be
aware that while Section 305(a) of the Code provides that gross income does not
include any distribution of the stock of a corporation made by such corporation
to its shareholders with respect to its stock, the Dividend Waiver may be viewed
by the Internal Revenue Service as resulting in taxable income to the Chateau
Shareholders. This could include an argument that the Dividend Waiver is not a
distribution of the Common Stock by Chateau to the Chateau Shareholders but
instead a direct transfer of value by the Exchanging OP Unitholders to such
shareholders. Alternatively, even if the distribution of the common stock of
Chateau was characterized as a distribution by Chateau of its common stock, the
Internal Revenue Service could argue that the general rule of nontaxability does
not apply pursuant to the exceptions to tax free treatment under Section 305(b)
or Section 305(c) of the Code. The tax consequences of the Dividend Waiver
<PAGE>
ROC Communities, Inc.
Chateau Properties, Inc. 6 December 24, 1996
will depend upon an interpretation of the particular facts and circumstances.
Because of the limited authority addressing this issue, the outcome is
uncertain.
The opinions set forth above represent our conclusions based upon the
documents, facts and representations referred to above. Any material amendments
to such documents, changes in any significant facts or inaccuracy of such
representations could affect the opinions referred to herein. Moreover, ROC's
and Chateau's qualification and taxation as REITs depends upon ROC's and
Chateau's ability to meet, through actual annual operating results, requirements
under the Code regarding income, assets, distributions and diversity of stock
ownership. Because ROC's and Chateau's satisfaction of these requirements will
depend on future events, no assurance can be given that the actual results of
ROC's and Chateau's operation for any one taxable year will satisfy the tests
necessary to qualify as or be taxed as REITs under the Code. Although we have
made such inquiries and performed such investigations as we have deemed
necessary to fulfill our professional responsibilities as counsel, we have not
undertaken an independent investigation of all of the facts referred to in this
letter, the ROC Certificate and the Chateau Certificate.
The opinions set forth in this letter: (i) are limited tc those matters
expressly covered; no opinion is to be implied in respect of any other
matter; (ii) are as of the date hereof; and (iii) are for the use and benefit
of Chateau, ROC and their respective stockholders, excluding, with regard to
the OP Unit Exchange, the OP Unitholders or their affiliates, and may not be
relied on by any other person or entity without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the Joint
Proxy Statement/Prospectus included in the Registration Statement on Form S-4
filed with the Securities and Exchange Commission on December 24, 1996 and to
the reference to us under the headings "Federal Income Tax Consequences" and
"Federal Income Tax Considerations Relating to Chateau and ROC."
Very truly yours,
/s/Rogers & Wells
<PAGE>
Exhibit 8.2
December 24, 1996
ROC Communities, Inc. Chateau Properties, Inc.
6430 South Quebec Street 19500 Hall Road
Englewood, CO 80111 Clinton Twp., MI 48039
Re: Tax Opinion Regarding Transaction under Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code"). REIT qualification
of Chateau Properties, Inc. and Taxation as Partnerships of CP
Limited Partnership and Chateau Subsidiary Partnerships.
-------------------------------------------------------------------
Ladies and Gentlemen:
We have been asked by Chateau Properties, Inc., a Maryland
corporation ("Chateau") to provide you with our opinion with respect to
certain federal income tax matters in connection with the transactions (the
"Transactions") contemplated by the Amended and Restated Agreement and Plan
of Merger dated as of September 17, 1996, as amended by the amendment thereto
dated as of December 20, 1996 (the "Merger Agreement") among ROC Communities,
Inc. ("ROC"), Chateau and R Acquisition Sub, Inc. ("R Sub"), a Maryland
corporation and wholly owned subsidiary of Chateau. The Transactions include
the merger of R Sub with and into ROC (the "Merger") and the exchange (the
"OP Unit Exchange") by certain holders ("Exchanging OP Unitholders") of
limited partnership interests ("OP Units") in CP Limited Partnership, a
Maryland limited partnership ("Operating Partnership") of an aggregate of
6,127,575 OP Units for an equal number of shares of the $.01 par value per
share common stock ("Common Stock") of Chateau. As a part of the
Transactions, and in order to participate in the OP Unit Exchange, the
Exchanging OP Unitholders are required, among other things, to waive (the
"Dividend Waiver") all rights which they may have to receive a stock
dividend and corresponding OP Unit distribution with respect to the OP Units
exchanged. The stock dividend waived will be re-allocated to the Chateau
stockholders of record as of the record date for the stock dividend. We are
acting as counsel to Chateau in connection with the Transactions. Capitalized
terms used herein but not defined shall have the meanings provided in the
Merger Agreement.
In rendering the opinions expressed herein, we have examined and relied
upon the following (together referred to herein as the "Transaction
Documents"):
(i) The Merger Agreement;
(ii) Separate Chateau Securityholder Agreements each dated December 18,
1996 between each Exchanging OP Unitholder, the Operating Partnership, ROC
and Chateau (the "Exchange Agreements");
<PAGE>
ROC Communities, Inc. and Chateau Properties, Inc. 2
- ------------------------------------------------------------------------------
(iii) The Registration Statement of Chateau on Form S-11 dated
November 16, 1993 and the Registration Statement of the Operating Partnership
on Form S-11 dated February 23, 1995 (the "Registration Statements");
(iv) The Joint Proxy Statement/Prospectus of Chateau and ROC dated
December 24, 1996 (the "Proxy Statement");
(v) The Private Placement Memorandum of Chateau dated November 18,
1996 (the "Chateau Private Placement Memorandum")'
(vi) The Certificate of Representations dated December 23, 1996
provided to us by Chateau and the Operating Partnership (the "Chateau
Certificate") which generally relates to the qualification of the Merger and
the OP Unit Exchange as a tax-free transfer, to the classification and
operation of Chateau as a REIT and the organization and operation of
Chateau the Operating Partnership and each Chateau Subsidiary organized as
partnership joint venture or limited liability company;
(vii) The Certificate of Representations dated December 20, 1996
provided to us and Rogers & Wells by ROC and RCIP, L.P. (the "ROC
Certificates") which generally relates to the qualification of the Merger and
the OP Unit Exchange as a tax-free transfer, to the classification and
operation of ROC as a REIT and the classification and operation of ROC, RCIP,
L.P. and the Financing Partnership;
(viii) The Amended and Restated Agreement of Limited Partnership of CP
Limited Partnership dated November 23, 1994, as amended (the "Operating
Partnership Agreement");
(ix) The partnership agreement or operating agreement of each Chateau
Subsidiary organized as a partnership, joint venture or limited liability
company, as the case may be (the "Partnership Agreements");
(x) The Private Letter Ruling dated April 5, 1996, issued by the
Internal Revenue Service to Chateau; and
(xi) Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions expressed herein.
In our examination of the Transaction Documents, we have assumed: (i)
that all such documents submitted to us are authentic originals, or if
submitted as photocopies, that they faithfully reproduce the originals
thereof, and that such documents have not been subsequently amended; (ii) the
signatures on each original document are genuine; (iii) that all such
documents have been or will be duly executed to the extent required by
persons having proper authority and capacity; (iv) that all representations
and statements set forth in such documents are true and correct; (v) that
any representation or statement made as a belief or qualified "to the
knowledge" of any person, persons
<PAGE>
ROC Communities Inc. and Chateau Properties, Inc. 3
- ------------------------------------------------------------------------------
or entity or similarly qualified is correct and accurate without such
qualification; (vi) that all obligations or commitments imposed by or
described in any such documents on the parties thereto have been or will be
performed or satisfied in accordance with their terms; and (vii) that
Chateau, ROC, the Operating Partnership, the Chateau Subsidiaries, the
Financing Partnership and R Sub at all times have been and will continue to
be organized and operated in accordance with the terms of such documents. We
have further assumed the accuracy of the statements and descriptions of
Chateaus's, ROC's, the Operating Partnership's, each Chateau Subsidiary's and
the Financing Partnership's intended activities as described in the
Transaction Documents. In addition, in rendering the opinion below with
respect to the qualification and taxation of Chateau as a REIT following the
Merger, we have relied, with the consent of Rogers & Wells, on their opinion
dated December 24, 1996, regarding the qualification and taxation of ROC as
a REIT under the Code prior to and following the Merger and the treatment of
the Financing Partnership as a partnership for federal income tax purposes.
In addition, we have further assumed, without independent
verification, that there will be no sale, exchange or other disposition by
any of the stockholders of ROC, pursuant to a prearranged plan or binding
agreement or obligation entered into or arising prior to the consummation of
the Merger, of a number of shares of Common Stock that would reduce the
aggregate number of shares of Common Stock owned by the ROC stockholders and
Exchanging OP Unitholders immediately following the Transactions (after
giving effect thereto) to an amount less than eighty (80%) percent of the
outstanding shares of Common Stock as of such time.
Based upon and subject to the foregoing, it is our opinion that:
(i) commencing with its taxable year ended December 31,
1993, Chateau was organized and has operated in conformity with the
requirements for qualification as a REIT within the meaning of the
Code;
(ii) the Operating Partnership has been at all times (and
each Chateau Subsidiary organized as a Partnership, joint venture or
limited liability company has since its acquisition by Chateau) and,
following the Merger (after giving effect thereto), will be treated as
a partnership for federal income tax purposes and not as a corporation
or an association taxable as a corporation;
(iii) the Merger will be treated for federal income tax
purposes as a tax-free transfer by the stockholders of ROC of their
shares of ROC Stock to Chateau in exchange for shares of Common Stock,
and the transfer by the Exchanging OP Unitholders of OP Units pursuant
to the Exchange Agreements will be treated for federal income tax
purposes as a tax-free transfer by such Exchanging OP Unitholders of
their OP Units in exchange for shares of Common Stock, under Section
351 of the Code, and no gain or loss will be recognized by ROC, its
stockholders or the Exchanging OP Unitholders as a result of such
transfers, except to the extent provided in Section 357(c) of the Code
(which generally provides that gain results to the extent that
liabilities assumed or to which property is subject
<PAGE>
ROC Communities Inc. and Chateau Properties, Inc. 4
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exceeds the adjusted basis of the properties transferred); and
(iv) following the Merger (after giving effect thereto)
Chateau's proposed method of operation as described in the
Joint Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 filed with the Securities and Exchange
Commission on December 24, 1996, will enable it to meet the
requirements for qualification and taxation as a REIT under the Code.
The opinions set forth above represent our conclusions as to the
application of federal income tax laws as of the date of this letter to the
Transactions and are based upon various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. We can give no
assurance that legislative enactments, administrative changes or court
decisions may not be forthcoming which could modify or supercede our opinions.
Any change that is made after the date of this letter in any of the foregoing
or any variations or difference in the facts from those set forth in the
Transaction Documents may affect the conclusions stated herein and we do not
undertake, and hereby disclaim, any obligation to advise you of any changes in
law or fact, whether or not material, which may be brought to our attention at
a later date.
With respect to the tax consequences of the Dividend Waiver, you should
be aware that, while Section 305(a) of the Code provides that gross income does
not include any distribution of the stock of a corporation made by such
corporation to its shareholders with respect to its stock, the Dividend Waiver
may be viewed by the Internal Revenue Service as resulting in taxable income to
the Chateau Shareholders. This could include an argument that the Dividend
Waiver is not a distribution of the Common Stock by Chateau to the Chateau
Shareholders but instead a direct transfer of value by the Exchanging OP
Unitholders to such shareholders. Alternatively, even if the distribution of
the common stock of Chateau was characterized as a distribution by Chateau of
its common stock, the Internal Revenue Service could argue that the general
rule of nontaxability does not apply pursuant to the exceptions to tax free
treatment under Section 305(b) or Section 305(c) of the Code. The tax
consequences of the Dividend Waiver will depend upon an interpretation of
the particular facts and circumstances. Because of the limited authority
addressing this issue, the outcome is uncertain.
The opinions set forth above merely represent our judgment with respect
to the probable outcome on the merits and are not binding on the Internal
Revenue Service or the courts. There can be no assurance that positions
contrary to our opinions will not be taken by the Internal Revenue Service, or
that a court considering the issues would not hold contrary to such opinions.
Further, the opinions set forth above represent our conclusions based
upon the documents, facts, representations and assumptions referred to above.
Any material amendments to such documents, changes in any significant facts
or inaccuracy of such representations could affect the opinions referred to
herein. Moreover, Chateau's qualification and taxation as a REIT depends
upon Chateau's ability to meet, through actual annual operating results,
requirements under the Code regarding income, assets, distributions and
diversity of stock ownership. Because Chateau's satisfaction of these
requirements will depend on future events, no assurance can be given that the
<PAGE>>
ROC Communities, Inc. and Chateau Properties, Inc. 5
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actual results of Chateau's's operations for any one taxable year will satisfy
the tests necessary to qualify as or be taxed as a REIT under the Code.
Although we have made such inquiries and performed such investigations as we
have deemed necessary to fulfill our professional responsibilities as
counsel, we have not undertaken an independent investigation of all of the
facts referred to in this letter or the Transaction Documents.
The opinions set forth in this letter are limited to the matters stated
herein and no opinion is implied or may be inferred beyond the matters
expressly stated herein. This opinion letter shall not be construed as or
deemed to be a guaranty or an insuring agreement.
This opinion is given for the sole benefit of Chateau and ROC and their
respective shareholders and may not be relied upon by any other person or
entity without our prior written consent. We express no opinion as to any
federal income tax issue or other matter except those specifically set forth
above.
We hereby consent to the filing of this opinion as an exhibit to the
Joint Proxy Statement/Prospectus included in the Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on December 24,
1996 and to the reference to us under the headings "Federal Income Tax
Consequences" and "Federal Income Tax Considerations Relating to Chateau and
ROC" in the Prospectus. In giving our consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations of the Securities
and Exchange Commission thereunder.
Very truly yours,
/s/ Timmis & Imman L.L.P.
<PAGE>
CP LIMITED PARTNERSHIP
Amended and Restated Agreement of Limited Partnership
Transfer of the Limited Partnership Interests
("Partnership Interests") represented hereby is restricted
by the terms of this Agreement. In addition, the sale of the
Partnership Interests has not been registered under the
Securities Act of 1933, as amended, nor any state's security law, and
they may not be transferred or sold unless such sale is subsequently
registered or an exemption from registration is available.
<PAGE>
CP LIMITED PARTNERSHIP
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") is made as of the _____ day of ____________, 1996, by and among
CHATEAU PROPERTIES, INC., a Maryland corporation (the "Chateau"), and each of
the limited partners whose names appear as such on Exhibit A attached hereto
(the "Limited Partners"). The Company and the Limited Partners are hereinafter
sometimes individually referred to as a "Partner" or collectively as the
"Partners."
WITNESSETH:
WHEREAS, CP Limited Partnership, a Maryland limited partnership (the
"Partnership"), was formed under the laws of the State of Maryland pursuant to a
Certificate of Limited Partnership filed September 16, 1993 with the Maryland
Department of Assessments and Taxation (the "Original Certificate") and an
Agreement of Limited Partnership dated September 16, 1993, as thereafter amended
and restated and most recently amended on October 24, 1994 and September 26,
1995 (the "Original Partnership Agreement");
WHEREAS, Chateau, ROC Communities, Inc., a Maryland corporation
("ROC"), Chateau Communities, Inc., a Maryland corporation (the "Company")
and a merger subsidiary of the Company have entered into an Amended and
Restated Agreement and Plan of Merger dated as of September 17, 1996, as
amended by the Amendment thereto dated December 20, 1996 (the "Merger
Agreement");
WHEREAS, pursuant to the Merger Agreement, at the Effective Time of the
Mergers, as defined in the Merger Agreement, the merger subsidiary of the
Company shall merge with and into ROC, with ROC being the surviving
corporation in such merger, and certain of the Limited Partners will transfer
OP Units and cash (as defined herein) to Chateau in exchange for shares of
Chateau Common Stock;
WHEREAS, Section 5.15 of the Merger Agreement requires that, immediately
following the Effective Time of the Mergers, as defined in the Merger Agreement,
ROC shall, pursuant to a Contribution Agreement contemplated by the Merger
Agreement (the "Contribution Agreement") (i) contribute to the capital of the
Partnership the Contributor Properties, the Other Assets and the Management
Agreements, as each term is defined in the Contribution Agreement, (ii) cause
its wholly owned subsidiary, Redwood Acquisition Corp., a Maryland corporation
("RAC"), to contribute to the capital of the Partnership the RAC Properties (as
defined in the Contribution Agreement) and (iii) cause its wholly owned
subsidiary, ROCF, Inc., a Maryland corporation, to merge with and into a newly
organized financing partnership subsidiary of the Partnership ("Financing
Partnership"), with the Financing Partnership surviving such merger (the
"Financing Partnership Merger"), and concurrently therewith contribute to the
capital of the Partnership its ninety-nine percent limited partnership interest
in the Financing Partnership to be received pursuant to the Financing
Partnership Merger, all in accordance with the terms of the Contribution
Agreement;
1.
<PAGE>
WHEREAS, upon the effectiveness of this Agreement, and in exchange for the
contributions to the capital of the Partnership as set forth herein, ROC is to
receive OP Units of the Partnership and is to be admitted as a general partner
of the Partnership;
WHEREAS, the Partners desire to amend and restate the Original Partnership
Agreement as set forth herein, to be effective immediately following the
Effective Time of the Mergers, as defined in the Merger Agreement, if and only
if the Mergers and other transactions contemplated by the Merger Agreement and
the Contribution Agreement are consummated in accordance with their respective
terms; and
WHEREAS, if the Mergers and other transactions contemplated by the Merger
Agreement and the Contribution Agreement are not consummated in accordance with
their respective terms, then this amendment shall be void and of no force and
effect whatsoever.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree that, effective immediately following the Effective Time of the
Mergers, as defined in the Merger Agreement, if and only if the Mergers and
other transactions contemplated by the Merger Agreement and the Contribution
Agreement are consummated in accordance with their respective terms, the
Original Partnership Agreement shall be amended and restated in its entirety to
read as follows:
ARTICLE ONE
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Act" shall mean the Maryland Revised Uniform Limited Partnership Act
as amended from time to time, and any corresponding provision of future laws.
"Additional Capital Contributions" shall mean the capital contributions
described 1.2 in Paragraph 4.5 hereof.
1.3 "Adjusted Capital Account Deficit" shall mean, at any time with
respect to any Partner, the deficit balance, if any, in such Partner's Capital
Account, after giving effect to the following adjustments:
(a) Such Capital Account shall be increased by the amounts which
such Partner is deemed obligated to restore as described in the
penultimate sentence of Treasury Regulation Section 1.704-2~)(1) and
Treasury Regulation Section 1.704-2(i)(5), or any successor provisions;
and
(b) Such Capital Account shall be reduced by the amount of the items
described in Treasury Regulation Sections 1.704-1(b)(2) (ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
2.
<PAGE>
The definition of Adjusted Capital Account Deficit is intended to comply
with Treasury Regulation Section 1.704(1)(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
1.4 "Affiliate" shall mean (i) any person or entity directly or indirectly
controlling, controlled by or under common control with any Partner, (ii) any
person or entity owning or controlling five (5%) percent or more of the
outstanding voting interests of any Partner, (iii) any officer, director,
employee, general partner, shareholder or beneficiary of any Partner, or (iv)
any person or entity who is an officer, director, general partner, trustee or
holder of five (5%) percent or more of the voting interests or beneficial
interest of any person or entity described in clause (i) (ii) or (iii) of this
Paragraph.
1.5 "Agent for Service of Process" shall be CT Corp., which is hereby
designated as the Agent of the Partnership for purposes of accepting service of
process for the Partnership.
1.6 "Bankruptcy" of a Partner shall mean (a) the filing by a Partner of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other Federal or state
insolvency law, or a Partner's filing an answer consenting to or acquiescing in
any such petition, (b)the making by a Partner of any assignment for the benefit
of its creditors or the admission by a Partner in writing of its inability to
pay its debts as they mature, or (c) the expiration of sixty (60) days after the
filing of an involuntary petition under Title 11 of the United States Code (or
corresponding provisions of future laws), seeking an application for the
appointment of a receiver for the assets of a Partner, or an involuntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts under any other Federal or state insolvency law, provided that the same
shall not have been vacated, set aside or stayed within such 60 day period.
1.7 "Capital Account" shall mean, with respect to any Partner, a
bookkeeping account maintained by the Partnership for such Partner, which shall
be credited with the amount of such Partner's Capital Contributions paid in cash
to the Partnership, and with such Partner's distributive share of Net Profits
and any items in the nature of income or gain specially allocated pursuant to
Paragraph 6.4 hereof, and which shall be debited with the amount of cash
distributed to such Partner pursuant to any provision of this Agreement, and
such Partner's distributive share of Partnership Net Losses and any items in the
nature of expenses or losses specially allocated pursuant to Paragraph 6.4
hereof. If a Partner makes a contribution of (or receives a distribution of)
non-cash property, such Partner's Capital Account shall be credited (or debited)
with the Gross Asset Value of such property, net of liabilities assumed by the
Partnership (or the Partner) in connection with such contribution (or
distribution) and liabilities to which such property is 'subject. In the case of
a transfer of a Partnership Interest permitted under this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
it related to the transferred interest. In determining the amount of any
liability for purposes of this Paragraph 1.7 there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations. The foregoing provisions and other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b) and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partners shall
determine that it is prudent to modify the
3.
<PAGE>
manner in which the Capital Accounts, or any debits or credits thereto, are
computed in order to comply with such Regulations, the General Partners may make
such modification, provided that such modification is not likely to have a
material effect on the amounts distributable to any Partner pursuant to this
Agreement upon the dissolution of the Partnership. The General Partners also
shall (i) make any adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, or computed
for book purposes, in accordance with Treasury Regulation Section
1.704(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Treasury Regulation Section 1.704-1(b).
1.8 "Capital Cash Flow" of the Partnership shall have the meaning set
forth in Paragraph 6.3 hereof.
1.9 "Capital Contribution" shall mean, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the capital of the Partnership (net of liabilities assumed
by the Partnership in connection with such contribution and liabilities to which
such property is subject) contributed by such Partner to the capital of the
Partnership pursuant to the terms of this Agreement, including the Capital
Contribution made by any predecessor holder of the Partnership Interest of such
Partner.
1.10 "Company" shall mean Chateau Communities, Inc., a Maryland
corporation, the successor in interest to Chateau Properties, Inc., a Maryland
corporation.
1.11 "Depreciation" shall mean, for each fiscal year or other period, an
amount equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to any asset for such year or other period, except that
if the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided that if the federal income tax depreciation,
amortization, or other cost recovery deduction is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partners.
1.12 "General Partner" shall mean the Company and ROC or any other person
(i) admitted to the Partnership and designated as a General Partner in Exhibit A
attached hereto, or who has become a General Partner pursuant to the terms and
conditions of this Agreement, and (ii) who holds a Partnership Interest. General
Partners shall mean all such persons.
1.13 "General Partnership Interest" shall mean the Partnership Interest
owned by the General Partners together with all the rights, benefits and
obligations of the General Partners pursuant to this Agreement. Notwithstanding
anything contained in this Agreement to the contrary, the General Partners shall
at all times have an aggregate interest of not less than a one (1%) percent in
each material item of Partnership income, gain, loss, deduction or credit.
4.
<PAGE>
1.14 "Gross Asset Value" shall mean, with respect to any Partnership
asset, the asset's adjusted basis for federal income tax purposes, except as
follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the General Partners,
and as set forth on Exhibit B attached hereto;
(b) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined
by the General Partners, as of the following times: (i) the acquisition of
an additional interest in the Partnership by any new or existing Partner
in exchange for more than a de minimis Capital Contribution; (ii) the
distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property, as consideration for an interest in the
Partnership, and (iii) the liquidation of the Partnership within the
meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (i) and (ii) above shall be
made only if the General Partners reasonably determine that such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(c) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or 743(b), but only to the extent
that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m) and
Paragraph 6.4(e) hereof; provided that the Gross Asset Values shall not be
adjusted pursuant to this Paragraph 1.14(c) to the extent the General
Partners determine that an adjustment pursuant to Paragraph 1.14(b) is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Paragraph 1.14(c); and
(d) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to Paragraph 1.14(a), (b) or (c) hereof, such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profits
and Net Losses.
1.15 "Gross Income" shall mean, for each fiscal year or other period, the
gross income of the Partnership, as finally determined for federal income tax
purposes.
1.16 "Internal Revenue Code" or "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time (or any corresponding provision of
future laws).
1.17 "Limited Partner" shall mean any person (i) admitted to the
Partnership and designated as a Limited Partner in Exhibit A attached hereto, or
who has become a Limited Partner pursuant to the terms and conditions of this
Agreement, and (ii) who holds a Partnership Interest. "Limited Partners" shall
mean all such persons.
5.
<PAGE>
1.18 "Limited Partnership Interests" shall mean the Partnership Interests
of the Limited Partners.
1.19 "Majority in Interest" shall mean the Limited Partners who, in the
aggregate, own more than one-half (1/2) of the total Percentage Interests owned
by the Limited Partners.
1.20 "Net Profits" and "Net Losses" shall mean, for each fiscal year or
other period, the taxable income of the Partnership as finally determined in
accordance with Internal Revenue Code Section 703(a) for Federal income tax
purposes (for this purpose all items of income, gain, loss or deduction required
to be stated separately pursuant to Internal Revenue Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Profits or Net
Losses shall be added to such taxable income or loss;
(b) Any expenditures of the Partnership described in Internal
Revenue Code Section 705(a)(2)(B) or treated as Internal Revenue Code
Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Net Profits or Net Losses, shall be subtracted from such taxable income or
loss;
6.
<PAGE>
(c) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset
Value of the property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
(d) If the Gross Asset Value of any Partnership asset is adjusted
pursuant to Paragraph 1.14 hereof, the amount of such adjustment shall be
taken into account as gain (if an increase) or loss (if a decrease) from
the disposition of such asset for purposes of computing Net Profits or Net
Losses;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal year
or other period; and
(f) to the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b)
is required pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in complete liquidation
of a Partner's Partnership Interest, the amount of such adjustment shall
be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be taken into account for
purposes of computing Net Profits or Net Losses;
(g) Any items which are specially allocated pursuant to Paragraphs
6.4 or 6.5 hereof shall not be taken into account in computing Net Profits
or Net Losses.
1.21 "Nonrecourse Debt" is any liability of the Partnership for which (as
between the Partnership and the creditor) the creditor's right to repayment is
limited to one or more assets of the Partnership, within the meaning of Section
1.1001-2 of the Treasury Regulations.
1.22 "Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(3) of the Treasury Regulations.
1.23 "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Treasury Regulations.
1.24 "Operating Cash Flow" of the Partnership shall have the meaning set
forth in Paragraph 6.2 hereof.
1.25 "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Section 1.704-2(i)(3) of the Treasury Regulations.
1.26 "Partner Nonrecourse Debt" or "Partner Nonrecourse Liability" have
the meanings set forth in Section 1.704-2(b)(4) of the Treasury Regulations.
7.
<PAGE>
1.27 "Partner Nonrecourse Deductions" has the meaning set forth in
Sections 1.704-2(i)(l) and l.704-2(i)(2) of the Treasury Regulations.
1.28 A "Partner's Share of Partnership Minimum Gain" at the end of any
Partnership fiscal year has the meaning set forth in Section 1.704-2(g) of the
Treasury Regulations.
1.29 A "Partner's Share of Partner Nonrecourse Debt Minimum Gain" at the
end of any Partnership fiscal year has the meaning set forth in Section
1.704-2(i)(5) of the Treasury Regulations.
1.30 "Partners" shall mean, collectively, the General Partners and Limited
Partners. Any reference to a Partner shall, unless the context clearly requires
otherwise, be deemed a reference to any one of the Partners, his or her
predecessor and substituted successor in interest.
1.31 "Partnership" means CP Limited Partnership, a Maryland limited
partnership formed under and pursuant to the Act.
1.32 "Partnership Interest" means a Partner's ownership interest in the
Partnership as set forth on Exhibit A attached hereto, including the right of a
Partner to any and all benefits to which it may be entitled pursuant to this
Agreement, and to the extent not inconsistent with this Agreement, under the
Act, together with the obligations of a Partner to comply with all the terms and
provisions of this Agreement and of the Act.
1.33 "Partnership Minimum Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.
1.34 "Percentage Interest" of a Partner in the Partnership shall mean the
percentage interest of such Partner as stated in Exhibit A of this Agreement, as
such percentage interest may be adjusted from time to time in accordance with
the provisions of this Agreement.
1.35 "Regulations" or "Treasury Regulations" shall mean the Income Tax
Regulations, including Temporary Regulations, promulgated under the Code, as
such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
1.36 "Substitute Limited Partner" shall mean a permitted successor to a
Limited Partner's Partnership Interest pursuant to Paragraph 9.2 hereof who has
been admitted to the Partnership as a Limited Partner.
1.37 "Syndication Expenses" shall mean all expenditures classified as
syndication expenses pursuant to Treasury Regulation Section 1.709-2(b).
Syndication Expenses shall be taken into account under this Agreement at the
time they would be taken into account under the Partnership's method of
accounting if they were deductible expenses.
1.38 "Tax Matters Partner" shall mean the Company who shall have the
rights and authority as described in Paragraph 5.1(1) hereof.
8.
<PAGE>
All references to statutory provisions shall be deemed to include
reference to corresponding provisions of subsequent law.
ARTICLE TWO
CONTINUATION OF PARTNERSHIP, NAME, OFFICE LOCATION AND TERM
2.1 Continuation. The Partnership was originally formed under the name CP
LIMITED PARTNERSHIP, on September 16, 1993 pursuant to the provisions of the
Original Certificate filed as of such date, and the terms of the Act, and the
parties hereto hereby agree to continue the Partnership on the terms and
conditions set forth herein. The General Partners and the Limited Partners shall
continue to carry on the Partnership, as a limited partnership under the Act,
for the purposes set forth herein and in accordance with the provisions of this
Agreement.
The name of the Partnership shall continue to be CP LIMITED PARTNERSHIP,
or such other name or names as shall be selected from time to time by the
General Partners. The Partnership may transact its business under any trade or
fictitious name or names selected by the General Partners at any time and from
time to time.
2.2 Admission of ROC. ROC is hereby admitted to the Partnership as a
General Partner, subject to the terms and conditions of this Agreement.
2.3 Office Location. The location of the principal office of the
Partnership shall be 6430 S. Quebec Street, Englewood, Colorado 80111, or at
such other location as may be designated by the General Partners. Notice of any
change of office shall be given to all Limited Partners prior to or within ten
(10) days after such change in location.
2.4 Amended and Restated Certificate of Limited Partnership. Promptly
after the admission of ROC as a General Partner in the Partnership the General
Partners shall sign a Restated Certificate of Limited Partnership, with respect
to the Partnership on behalf of themselves and the Limited Partners as their
attorney-in-fact pursuant to the power(s) of attorney provided in Paragraph
5.1(k) of this Agreement, and the General Partners shall cause same to be filed
in the office of the Maryland State Department of Assessment and Taxation,
Department of Commerce.
2.5 Term. The term of the Partnership, which commenced on the effective
date of the Original Certificate, shall continue until the winding up and
liquidation of the Partnership and its business is completed following a
Liquidating Event as provided in Paragraph 7.2 hereof.
2.6 Qualification to Do Business. The General Partners shall take all
actions necessary or required to qualify the Partnership to transact business in
all jurisdictions where such qualification is required.
9.
<PAGE>
ARTICLE THREE
PURPOSES AND POWERS OF PARTNERSHIP
3.1 Purpose. The purpose of the Partnership is to acquire, purchase, own,
operate, manage, develop, redevelop, invest in, finance, refinance, sell, lease
and otherwise deal with manufactured housing community properties and assets
related thereto, and interests therein, whether directly or indirectly, alone or
in association with others. The purposes of the Partnership include, but are not
limited to:
(a) acquiring, developing, operating, leasing and managing
manufactured housing community properties and conducting any other lawful
business relating thereto:
(b) mortgaging, exchanging, selling, encumbering or otherwise
disposing of all or any part of a manufactured housing community property
or any interest therein:
(c) constructing, reconstructing, altering, modifying and
subtracting from or adding to a manufactured housing community property or
any part thereof;
(d) organizing and holding partnership interests in partnerships
owning or otherwise having an interest in, whether directly or indirectly,
one or more manufactured housing community properties; and
(e) in general, the making of any investments or expenditures, the
borrowing and lending of money and the taking of any and all actions which
are incidental or related to any of the purposes recited above.
It is agreed that each of the foregoing is an ordinary part of the
Partnership's business and affairs. Property may be acquired subject to, or by
assuming, the liens, encumbrances, and other title exceptions which affect such
property. The Partnership may also be a partner, general or limited, in
partnerships, general or limited, and joint ventures created to accomplish all
or any or the foregoing.
The Partnership purposes may be accomplished by taking any action which is
not prohibited under the Act and which is related to the acquisition, ownership,
development, improvement, operation, management, financing, leasing, exchanging,
selling or otherwise encumbering or disposing of all or any portion of the
assets of the Partnership, or any interest therein.
ARTICLE FOUR
CAPITAL CONTRIBUTIONS, ADMISSION OF PARTNERS, OP UNITS
4.1 Capital Contributions. Each of the Partners (or their respective
predecessors in interest), other than ROC, have heretofore made Capital
Contributions to the Partnership. In connection with the admission of ROC as a
General Partner, and in accordance with the terms of the Contribution Agreement,
ROC is hereby contributing to the capital of the Partnership the amounts and/or
properties set forth on Exhibit C attached hereto, and in exchange therefor the
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Partnership is hereby issuing to ROC _________ OP Units.
4.2 Omitted
4.3 Admission of Partners. Upon admission of a Partner into the
Partnership and receipt of the Partner's Capital Contribution, the Percentage
Interest of the Partner shall be set forth opposite the Partner's name in
Exhibit A attached hereto, which shall be amended as appropriate to reflect
changes in the Percentage Interest of each Partner pursuant to the provisions of
this Agreement.
4.4 Issuance and Conversion of OP Units.
A. The interest of a Partner in the Partnership is sometimes
referred to as being evidenced by one or more "OP Units." The aggregate
total of all OP Units outstanding as of the date of this Agreement and
after giving effect to the Capital Contribution by ROC in accordance with
Paragraph 4.1 hereof is _________________(_______)and the number of OP
Units owned by each Partner is set forth on Exhibit A attached hereto.
B. From time to time, the General Partners, subject to the
provisions of this Paragraph 4.4(B), shall cause the Partnership to issue
additional OP Units either (i) to existing or newly-admitted Partners
(including itself) in exchange for the contribution by a Partner (the
"Contributing Partner") of additional Capital Contributions to the
Partnership, (ii) to the Company upon the issuance by the Company of
additional shares of its common stock ("Common Stock") not in connection
with the exchange of OP Units as provided in Paragraph 4.4(C) hereof,
provided that any net proceeds received by the Company as a result of the
issuance of such additional shares 6f Common Stock are contributed to the
Partnership as additional Capital Contributions, in accordance with
Paragraph 4.5(B) hereof (it being understood that the Company may issue
shares of Common Stock in connection with stock option plans, restricted
stock plans or other employee benefit plans without receiving any proceeds
and that the issuance of such shares shall nonetheless entitle the Company
to additional OP Units). The number of OP Units issued to a Contributing
Partner under clause (i) of this Paragraph 4.4(B) shall be equal to the
quotient (rounded to the nearest whole number) arrived at by dividing (x)
the initial Gross Asset Value of the property contributed as additional
Capital Contributions (net of any debt to which such property is subject
or assumed by the Partnership in connection with such contribution) by (y)
such price as may be determined by the General Partners in connection with
such contributions. The number of OP Units issued to the Company under
clause (ii) of this Paragraph 4.4(B) shall be equal to the number of
shares of Common Stock issued. Upon the issuance of additional OP Units,
or upon the exchange of OP Units for Common Stock as provided in Paragraph
4.4(C) hereof, the Percentage Interests of all of the Partners shall be
adjusted by the General Partners so that the Percentage Interest of each
Partner is equal to the quotient (expressed as a percentage) arrived at by
dividing the number of OP Units held by a Partner by the total number of
OP Units then outstanding. Notwithstanding anything to the contrary
contained herein, in no event shall any additional OP Units be issued
(pursuant to this Paragraph 4.4(B) or
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otherwise) to the extent that the effect of such issuance would be to
reduce the General Partners' aggregate Percentage Interest to less than
one (1%) percent.
C. Subject to the further provisions of this Paragraph 4.4(C), the
Company hereby grants to each Limited Partner the right to exchange any or
all of the OP Units held by that Partner for shares of Common Stock. In
the case of an exchange of OP Units pursuant to this Paragraph 4.4(C), one
OP Unit shall be exchangeable for one share of Common Stock. Such right
may be exercised by a Limited Partner from time to time upon not less than
ten (10) days prior written notice to the Company. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exchange
of OP Units for shares Common Stock, such number of shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding OP Units subject to conversion and not owned by the Company.
No Limited Partner shall, by virtue of being the holder of one or more OP
Units, be deemed to be a shareholder of or have any other interest in the
Company. In the event of any change in the outstanding shares of Common
Stock by reason of any stock dividend, split, recapitalization, merger,
consolidation, combination, exchange of shares or other similar corporate
change, the number of OP Units held by each partner shall be
proportionately adjusted so that one OP Unit remains exchangeable for one
share of Common Stock without dilution. In the event the Company issues
any Common Stock in exchange for OP Units pursuant to this Paragraph
4.4(C), any such OP Units so acquired by the Company shall immediately
thereafter be converted in the hands of the Company into General
Partnership Interests. Notwithstanding the foregoing provisions of this
Paragraph 4.4(C), a Limited Partner shall not have the right to exchange
OP Units for Common Stock if (i) in the opinion of counsel to the Company,
acceptable to such Limited Partner and the Company, the Company would, as
a result of such exchange (or the right to effectuate such exchange), no
longer qualify (or it would be likely that the Company no longer would
qualify) as a real estate investment trust under the Code; or (ii) such
exchange (or the right to effectuate such exchange) would violate the
ownership limitations set forth in the Articles of Incorporation of the
Company; or (iii) such exchange would not, in the opinion of counsel
acceptable to such Limited Partner and the Company, be an exempt
transaction under applicable securities laws.
4.5 Additional Capital Contributions.
A. No Partner shall be assessed or, except as provided in Paragraph
4.5(B) below, required to contribute additional funds or other property
to the Partnership. Any additional funds or other property required by the
Partnership, as determined by the General Partners in their sole
discretion, may, at the option of the General Partners and without any
obligation to do so (except as provided for in Paragraph 4.5(B) below),
be contributed by the General Partners as additional Capital
Contributions. If and when the General Partners or any other Partner makes
additional Capital Contributions to the Partnership, each such Partner
shall receive additional OP Units as provided for in Paragraph 4.4 above.
The General Partners shall also have the right (but not the obligation) to
raise any additional funds required for the Partnership by causing the
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Partnership to borrow the necessary funds from third parties on such terms
and conditions as the General Partners shall deem appropriate in their
sole discretion. If the General Partners elect to cause the Partnership to
borrow the additional funds, they may cause one or more of the
Partnership's assets to be encumbered to secure the loan. No Limited
Partner shall have the right to contribute additional Capital
Contributions to the Partnership without the prior written consent of the
General Partners.
B. The net proceeds of any and all funds raised by or through the
Company or ROC through the issuance of additional shares of common stock
of the Company or ROC, as the case may be, shall be contributed to the
Partnership as additional Capita Contributions, and in such event the
Company or ROC, as the case may be, shall be issued additional OP Units
pursuant to Paragraph 4.4 above.
C. The net proceeds of any and all funds raised by or through the
Company or ROC through the issuance of shares of preferred stock of the
Company or ROC, as the case may be, shall be contributed to the
Partnership as additional Capital Contributions, and in such event the
Company or ROC, as the case may be, shall be issued additional OP Units
pursuant to Paragraph 4.4 above; provided that any such OP Units
("Preferred OP Units") shall have such terms, preferences and limitations
consistent with the terms, preferences and limitations of such preferred
stock. The General Partners shall have the right to amend this Agreement
at their sole discretion and without the consent of any other Partner
solely as to matters respecting the issuance of Preferred OP Units by the
Partnership.
4.6 Return of Capital. Except as expressly provided for in this Agreement,
no Partner shall have the right to demand or to receive the return of all or any
part of his Capital Contributions to the Partnership and there shall be no
priority of one Partner over another as to the return of Capital Contributions
or withdrawals or distributions of Net Profits and Net Losses. No Partner shall
have the right to demand or receive property other than cash in return for the
contributions of such Partner to the Partnership.
4.7 Interest. No interest shall be paid to any Partner on any contribution
to the capital of the Partnership.
4.8 Negative Capital Accounts. No Partner shall be required to pay to the
Partnership any deficit or negative balance which may exist in its Capital
Account.
ARTICLE FIVE
MANAGEMENT OF THE PARTNERSHIP
5.1 Management of Partnership. The General Partners shall be the sole
managers of the Partnership business, and shall have the right and power to make
all decisions and take any and every action with respect to the property,
business and affairs of the Partnership and shall have all the rights, power and
authority generally conferred by law, or necessary, advisable or consistent with
accomplishing the purposes of the Partnership. All decisions or actions made or
taken by the General Partners hereunder shall require the consent of all General
Partners and
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shall be binding upon all of the Partners and the Partnership. The powers of the
General Partners to manage the Partnership business shall include, without
limitation, the power and authority to:
(a)operate any business normal or customary for the owner of or
investor in manufactured housing community property;
(b) perform any and all acts necessary or appropriate to the
operation of the Partnership assets, including, but not limited to,
applications for rezoning, objections to rezoning of other property and
the establishment of bank accounts in the name of the Partnership;
(c) procure and maintain with responsible companies such insurance
as may be available in such amounts and covering such risks as are deemed
appropriate by the General Partner;
(d) take and hold all real, personal and mixed property of the
Partnership in the name of the Partnership or in the name of a nominee;
(e) execute and deliver leases on behalf of and in the name of the
Partnership;
(f) borrow money, finance and refinance the assets of the
Partnership or any part thereof or interest therein;
(g) coordinate all accounting and clerical functions of the
Partnership and employ such accountants, lawyers, property managers,
leasing agents and other management or service personnel as may from time
to time be required to carry on the business of the Partnership;
(h) acquire, encumber, sell, ground lease or otherwise dispose of
any or all of the assets of the Partnership, or any part thereof or
interest therein; and
(i) organize one or more partnerships or corporations which are
controlled, directly or indirectly by the Partnership and make any capital
contributions required pursuant to the partnership agreements of any such
partnership.
(j) The Company is hereby designated as the Tax Matters Partner
("TPM") as defined in Section 6231(a)(7) of the Code. As Tax Matters
Partner, the Company shall have full power and authority to act as such
for the Partnership and the Partners, with all the rights and
responsibilities of that position described in Sections 6222 through 6232
of the Internal Revenue Code. The Tax Matters Partner is authorized to
enter into any settlement with the Internal Revenue Service with respect
to any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes, and in the settlement agreement the Tax Matters
Partners may expressly state that such agreement shall bind all Partners
except that such settlement agreement shall not bind any Partner (i) who
(within the time prescribed
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pursuant to the Code and Regulations) files a statement with the Internal
Revenue Service providing that the Tax Matters Partner shall not have the
authority to enter into a settlement agreement on behalf of such Partner
or (ii) who is a "notice partner" (as defined in Section 6231 of the Code)
or a member of a "notice group" (as defined in Section 6223(b)(2) of
the Code. In addition, except as restricted hereunder, the Company is
hereby authorized to make or revoke any election permitted by the
Partnership by any taxing authority. If the TMP receives notice of a Final
Partnership Administrative Adjustment ("FPAA") or if a request for an
administrative adjustment made by the TMP is not allowed by the United
States Internal Revenue Service ("IRS") and the IRS does not notify the
TMP of the beginning of an administrative proceeding with respect to the
Partnership's taxable year to which such request relates (or if the IRS so
notifies the TMP but falls to mail a timely notice of an FPAA), the TMP
may, but shall not be obligated to, petition a Court for readjustment of
partnership items. In the case of a notice of an FPAA, if the TMP
determines that the United States District Court or Claims Court is the
most appropriate forum for such a petition, the TMP shall notify each
person who was Partner at any time during the Partnership's taxable year
to which the IRS notice relates of the approximate amount by which its tax
liability would be increased (based on such assumptions as the TMP may in
good faith make) if the treatment of partnership items on his return was
made consistent with the treatment of partnership items on the
Partnership's return, as adjusted by the FPAA. Unless each such person
deposits with the TMP, for deposit with the IRS, the approximate amount of
such Partner's increased tax liability, together with a written agreement
to make additional deposits if required to satisfy the jurisdictional
requirements of the Court, within thirty days after the TMP's notice to
such person, the TMP shall not file a petition in such Court. Instead, the
TMP may, but shall not be obligated to, file a petition in the United
States Tax Court.
(k) Each Limited Partner irrevocably appoints the Company as the
Limited Partner's attorney-in-fact on the behalf and in the stead of such
Limited Partner to execute, swear to, and file the Partnership's Amended
and Restated Certificate of Limited Partnership and any amendment or
revocation thereof, and to execute, sign any Partner's name to, swear to,
and file any writing, and to give any notice which may be required by any
rule or law, or which may be appropriate to the effecting of any action by
or on behalf of the Partnership or the Partners which has been taken as
provided in this Agreement. This power of attorney is coupled with an
interest and shall not be revoked by the act, death, or incapacity of any
Partner. This power of attorney shall survive an assignment by any Limited
Partner of his or her interest in the Partnership.
5.2 Limitations on Powers and Authorities of Partners. Notwithstanding the
power of the General Partners set forth in Section 5.1 above, no Partner shall
have the right or power to do any of the following:
(a) do any act in contravention of this Agreement, or any amendment
hereto;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership, except to the extent that such act
is specifically permitted by the terms
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hereof (it being understood and agreed that, except as hereafter provided
in this Paragraph 5.2, a sale of any or all of the assets of the
Partnership, for example, would be an ordinary part of the Partnership's
business and affairs and is specifically permitted hereby); or
(c) confess a judgment against the Partnership.
5.3 Limited Partners. The Limited Partners shall have no right or
authority to act for or to bind the Partnership and no Limited Partner shall
participate in the conduct or control of the Partnership's affairs or business.
5.4 Liability of General Partners. No General Partner shall be liable or
accountable, in damages or otherwise, to the Partnership or to any other Partner
for any error of judgment or for any mistakes of fact or law or for anything
which it may do or refrain from doing hereafter in connection with the business
and affairs of the Partnership except (i) in the case of fraud, willful
misconduct (such as an intentional breach of fiduciary duty or an intentional
breach of this Agreement) or gross negligence, and (ii) for other breaches of
this Agreement, but the liability of a General Partner under this clause (ii)
shall be limited to its interest in the Partnership as more particularly
provided for in Paragraph 5.8 below. No General Partner shall have any personal
liability for the return of any Limited Partner's capital.
5.5 Indemnity. The Partnership shall indenmify and shall hold each General
Partner (and the officer and directors thereof) harmless from any loss or
damage, including without limitation reasonable legal fees and court costs,
incurred by it by reason of anything it may do or refrain from doing hereafter
for and on behalf of the Partnership or in connection with its business or
affairs; provided, however, that (i) the Partnership shall not be required to
indemnify a General Partner (or any officer or director thereof) for any loss or
damage which it might incur as a result of its fraud, willful misconduct or
gross negligence in the performance of its duties hereunder and (ii) this
indemnification shall not relieve a General Partner of its proportionate part of
the obligations of the Partnership as a Partner. In addition, each General
Partner shall be entitled to reimbursement by the Partnership for any amounts
paid by it in satisfaction of indemnification obligations owed by such General
Partner to present or former directors of such General Partner or their
predecessors, as provided for in or pursuant to the Articles of Incorporation
and By-Laws of such General Partner. The right of indemnification set forth in
this Paragraph 5.5 shall be in addition to any rights to which the person or
entity seeking indemnification may otherwise be entitled and shall inure to the
benefit of the successors and assigns or any such person or entity. No Partner
shall be personally liable with respect to any claim for indemnification
pursuant to this Paragraph 5.5, but such claim shall be satisfied solely out of
assets of the Partnership.
5.6 Other Activities of Partners and Agreements with Related Parties. The
General Partners shall devote their full-time efforts in furtherance of the
Partnership business, it being expressly understood that except for any direct
interest in a partnership in which the Partnership and one or more of the
General Partners (or a wholly owned subsidiary thereof) are the only partners
and in which the General Partners (or their wholly owned subsidiaries) have an
aggregate interest of not more than one (1%) percent therein, without the
consent of a Majority
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in Interest the General Partners shall conduct all of their activities with
respect to the manufactured housing community property business exclusively
through the Partnership and shall not conduct or engage in any way in any other
business. Except as may otherwise be agreed to in writing, each Limited Partner,
and its Affiliates, shall be free to engage in, to conduct or to participate in
any business or activity whatsoever, including, without limitation, the
acquisition, development, management and exploitation of real and personal
property (other than property of the Partnership), without any accountability,
liability or obligation whatsoever to the Partnership or to any other Partner,
even if such business or activity competes with or is enhanced by the business
of the Partnership. The General Partners, in the exercise of their power and
authority under this Agreement, may contract and otherwise deal with or
otherwise obligate the Partnership to entities in which the General Partners or
any one or more of the officers, directors or shareholders of the General
Partners may have an ownership or other financial interest, whether direct or
indirect.
5.7 Other Matters Concerning the General Partners.
(a) The General Partners shall be protected in relying, acting or
refraining from acting on any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties.
(b) The General Partners may exercise any of the powers granted or
perform any of the duties imposed by this Agreement either directly or
through agents. The General Partners may consult with counsel,
accountants, appraisers, management consultants, investment bankers and
other consultants selected by them, each of whom may serve as consultants
for the Partnership. An opinion by any consultant on a matter which the
General Partners believe to be within its professional or expert
competence shall be full and complete protection as to any action taken or
omitted by the General Partners based on the opinion and taken or omitted
in good faith. The General Partners shall not be responsible for the
misconduct, negligence, acts or omissions of any consultant or contractor
of the Partnership or of the General Partners and shall assume no
obligations other than to use due care in the selection of all consultants
and contractors.
(c) No mortgagee, grantee, creditor or other person dealing with the
Partnership shall be required to investigate the authority of any General
Partner or secure the approval of or confirmation by any Limited Partner
of any act of any General Partner in connection with the conduct of the
Partnership business.
(d) The General Partners may retain such persons or entities as they
shall determine (including the General Partners or any entity in which the
General Partners shall have an interest or with which it is affiliated) to
provide services to or on behalf of the Partnership. The General Partners
shall be entitled to reimbursement from their Partnership for their
out-of-pocket expenses (including, without limitation, amounts paid and
payable to the General Partners or any entity in which its General
Partners shall have an interest or with which it is affiliated) incurred
in connection with Partnership business. Such expenses shall be deemed to
include the expenses required in connection with the
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administration of the Partnership such as the maintenance of Partnership
books and records, management of the Partnership properties and assets and
preparation of information respecting the Partnership needed by the
Partners in the preparation of their individual tax returns.
5.8 Partnership Exculpation. Except for fraud, willful misconduct and
gross negligence, no Partner shall have any personal liability whatever, whether
to the Partnership or to the other Partners, for the debts or liabilities of the
Partnership or its obligations hereunder, and the full recourse of the other
Partner shall be limited to the interest of that Partner in the Partnership. To
the fullest extent permitted by law, no officer, director or shareholder of the
General Partners shall be liable to the Partnership for money damages except for
(i) active and deliberate dishonesty established by a final judgment or (ii)
actual receipt of an improper benefit or profit in money, property or services.
Without limitation of the foregoing, and except for fraud, willful misconduct
and gross negligence, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) in favor of any other Partner(s) and arising out of, or in connection
with, this Agreement. This Agreement is executed by the officers of each Partner
solely as officers of the same and not in their own individual capacities. No
advisor, trustee, director, officer, partner, employee, beneficiary,
shareholder, participant or agent of any Partner (or of any partner of a
Partner) shall be personally liable in any matter or to any extent under or in
connection with this Agreement, and the Partnership, each Partner and their
respective successors and assigns shall look solely to the interest of the other
Partner in the Partnership for the payment of any claim or for any performance
hereunder.
5.9 General Partner Expenses and Liabilities. All costs and expenses
incurred by the General Partners in connection with their activities as the
General Partners hereunder, all costs and expenses incurred by the General
Partners in connection with their qualification as real estate investment trusts
under the Code and otherwise, other than directors' fees, any income tax
liabilities and any filing or similar fees in connection with maintaining its
continued corporate existence, and all other liabilities incurred or suffered by
the General Partners in connection with the pursuit of their business and
affairs as contemplated hereunder and in connection herewith, shall be paid (or
reimbursed to the General Partners, if paid by the General Partners) by the
Partnership unless and to the extent that any such costs were paid by the
General Partners in connection with the issuance of additional shares of stock
of the Company as contemplated by Paragraph 4.5(B) above.
5.10 Banking. The funds of the Partnership shall be kept in accounts
designated by the General Partners and all withdrawals therefrom shall be made
on such signature or signatures as shall be designated by the General Partners.
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ARTICLE SIX
ALLOCATION OF NET PROFITS AND NET LOSSES
CASH FLOW AND DISTRIBUTIONS
6.1 Allocation of Net Profits and Net Losses.
6.1.1 After giving effect to the special allocations set forth in
Paragraphs 6.4 and 6.5 hereof, Net Profits for any Partnership fiscal year shall
be allocated first, one hundred percent (100%) to the General Partners to the
extent of the excess, if any, of the cumulative Net Losses allocated pursuant to
Paragraph 6.1.4, which have not effectively been reversed under Paragraphs
6.4(a) or 6.4(d) hereof, over the cumulative Net Profits allocated pursuant to
this Paragraph 6.1.1 for all prior fiscal years;
6.1.2 Next, among the Partners in proportion to their respective
Percentage Interests.
6.1.3 After giving effect to the special allocations set forth in
Paragraphs 6.4 and 6.5 hereof, Net Losses for any Partnership fiscal year shall
be allocated among the Partners in proportion to their respective Percentage
Interests.
6.1.4 The Net Losses allocated pursuant to Paragraph 6.1.3 hereof shall
not exceed the maximum amount of Net Losses that can be allocated without
causing any Partner who is not a General Partner to have an Adjusted Capital
Account Deficit at the end of any fiscal year. All losses in excess of the
limitations set forth in this Paragraph 6.1.4 shall be allocated to the General
Partners in proportion to their respective Percentage Interests.
6.2 Distributions of Operating Cash Flow. As used in this Agreement,
Operating Cash Flow shall mean and be defined as the Net Profits or Net Losses
(a Net Loss being treated as a negative Net Profit amount) during the period in
question of the Partnership increased by the following:
(a) Any receipts, but excluding Capital Cash Flow and excluding the
proceeds of any additional Capital Contributions to the Partnership
pursuant to Paragraphs 4.1 and 4.5 hereof, which are not included in Net
Profits including, but not limited to, capital contributions and
withdrawals from operating reserves established by the General Partners;
and
(b) Any non-cash charges (such as Depreciation and amortization)
deducted in determining Net Profits and Net Losses;
- ---and decreased by the following:
(c) All expenditures, including any principal payments with respect
to any indebtedness of the Partnership, which are not deducted in
determining Net Profits or Net Losses; and
(d) Any amounts set aside by the General Partners to provide a
reserve for
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working capital needs, improvements, repairs or replacements or such other
purposes as the General Partners shall determine in their sole discretion,
including but not limited to reserves of cash held for future
acquisitions.
Operating Cash Flow of the Partnership shall be determined by the General
Partners not less frequently than quarterly and shall be distributed to or for
the benefit of the Partners in accordance with the respective Percentage
Interests of the Partners not later than fifteen (15) days following the date of
each such determination, except that with respect to OP Units issued pursuant to
clause (i) of the first sentence of Paragraph 4.4(B) hereof, the distribution
with respect to the calendar quarter in which such OP Units are first issued
shall be pro rated based upon a fraction the numerator of which is the number of
days in such calendar quarter such OP Units were outstanding and the denominator
of which is the total number of days in such calendar quarter.
6.3 Capital Cash Flow. As used in this Agreement, "Capital Cash Flow"
shall mean and be defined as collectively (a) gross proceeds realized in
connection with the sale of any assets of the Partnership, (b) gross financing
or refinancing proceeds, (c) gross condemnation proceeds (excluding condemnation
proceeds applied to restoration of remaining Partnership property) and (d) gross
insurance proceeds (excluding rental insurance proceeds or insurance proceeds
applied to restoration of Partnership property), less (a) applicable closing
costs, (b) the cost to discharge any Partnership financing encumbering or
otherwise associated with the asset(s) involved in any such transaction, (c) the
establishment of reserves (as determined by the General Partners in their sole
discretion, and which may include cash held for future acquisitions), and (d)
other expenses of the Partnership then due and owing. Subject to Paragraph 8.1
below, if applicable, Capital Cash Flow shall be distributed to or for the
benefit of the Partners not less frequently than quarterly and shall be
distributed to the Partners in accordance with the respective Percentage
Interests of the Partners not later than fifteen (15) days following the date of
each such determination.
6.4 Special Allocations. Notwithstanding the foregoing provisions of this
Article Six, the following allocations may apply:
(a) Except as provided in Paragraphs 6.4(b) and 6.4(c) hereof, in
the event any Partner unexpectedly receives any adjustments, allocations,
or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), which create or increase an Adjusted Capital
Account Deficit items of Partnership income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, the Adjusted Capital Account
Deficit created by such adjustments, allocations, or distributions as
quickly as possible; provided that an allocation pursuant to this
Paragraph 6.4(a) shall be made if and only to the extent that such Partner
would have an Adjusted Capital Account Deficit after all allocations
provided for in this Article Six have been tentatively made as if this
Paragraph 6.4(a) were not in this Agreement.
(b) Except as otherwise provided in Regulations Section 1.704-2(f),
notwithstanding any other provision of this Article Six, if there is a net
decrease in
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Partnership Minimum Gain during any Partnership fiscal year, each Partner
shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, for subsequent years) in an amount equal to such
Partner's Share of the net decrease in Partnership Minimum Gain, to the
extent required and in the manner provided by Sections 1.704-2(g) of the
Treasury Regulations. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This
Paragraph 6.4(b) is intended to comply with the minimum gain charge-back
provision of Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(c) Except as otherwise provided in Regulations Section
1.704-2(i)(4), notwithstanding any other provision of this Article Six, if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any. Partnership fiscal
year, each Partner who has a share of the Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5), shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, to the extent required and
in the manner provided by Section 1.704-2(i)(4) of the Treasury
Regulations. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(i)(2). This
Paragraph 6.4(c) is intended to comply with the minimum gain charge-back
provision of Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(d) In the event any Partner has a deficit Capital Account at the
end of any Partnership fiscal year which is in excess of the sum of (i)
the amount such Partner is obligated to restore pursuant to any provision
of this Agreement, and (ii) the amount such Partner is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specifically allocated items of Partnership income and gain in the amount
of such excess as quickly as possible, provided that an allocation
pursuant to this Paragraph 6.4(d) shall be made only if and to the extent
that such Partner would have a deficit Capital Account in excess of such
amount after all other allocations provided for in this Paragraph 6.4 have
been made as if Paragraph 6.4(a) hereof and this Paragraph 6.4(d) were not
in this Agreement.
(e) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or 743(b) is required to
be taken into account in computing Capital Accounts pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m), the amount of such adjustment to
the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and shall be specially allocated to the Partners in
a manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such regulations.
(f) Syndication Expenses for any fiscal year of the Partnership or
other period
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shall be allocated to the Partners in proportion to their Partnership
Interests, provided that if additional Partners are admitted to the
Partnership on different dates, all Syndication Expenses shall be divided
among the Partners who own Partnership Interests from time to time so
that, to the extent possible, the cumulative Syndication Expenses are
allocated with respect to each Partner in proportion to their respective
Partnership Interests. In the event the General Partners determine that
such result is not likely to be achieved through future allocations of
Syndication Expenses, the General Partners may allocate a portion of Net
Profits or Net Losses so as to achieve the same effect in the Capital
Accounts of the Partners, notwithstanding any other provision with this
Agreement.
(g) Nonrecourse Deductions for any fiscal year or other period shall
be allocated among the Partners in accordance with their respective
Percentage Interests.
(h) Partner Nonrecourse Deductions for any fiscal year or other
period shall be allocated to the Partners who bear the economic risk of
loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Treasury
Regulation Section 1.704-2(i)(1).
The allocations set forth in this Paragraph 6.4 (the "Regulatory
Allocations") are intended to comply with certain requirements of Treasury
Regulation Section 1.704-1(b). The Regulatory Allocations may not be
consistent with the manner in which the Partners intend to divide
Partnership distributions. Accordingly, the General Partners are hereby
authorized to divide other allocations of Net Profit, Net Losses, and
other items among the Partners so as to prevent the Regulatory Allocations
from distorting the manner in which Partnership distributions will be
divided among the Partners pursuant to Article 6 hereof. In general, the
Partners anticipate that this will be accomplished by specially allocating
other Net Profit, Net Losses, and items of income, gain, loss, and
deduction among the Partners so that the net amount of the Regulatory
Allocations and such special allocations to each such person is zero.
However, the General Partners shall have discretion to accomplish this
result in any reasonable manner.
6.5 Other Allocation Rules
(a) For purposes of determining the Net Profits, Net Losses, or any
other items allocable to any period, Net Profits, Net Losses, and any such
other items shall be determined on a dally, monthly, or other basis, as
determined by the General Partners using any permissible method under Code
Section 706 and the Regulations thereunder.
(b) Any provision of this Agreement to the contrary notwithstanding,
the allocation of Net Profits or Net Losses for any fiscal year of the
Partnership during which a person acquires a Partnership Interest (other
than on formation of the Partnership) shall take into account the
Partners' varying interests in the Partnership for such fiscal year,
pursuant to any method permissible under Section 706 of the Internal
Revenue Code that is selected by the General Partners.
(c) The Partners are aware of the income tax consequences of the
allocations
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made by this Article Six and hereby agree to be bound by the provisions of
this Article Six in reporting their share of Partnership income and loss
for income tax purposes.
(d) Solely for purposes of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Partnership within
the meaning of Regulations Section 1.752-3(a)(3), the Partners' interests
in Partnership profits are equal to their respective Percentage Interests.
6.6 Tax Allocations; Code Section 704(c)
(a) Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership
for federal income tax purposes and its initial Gross Asset Value in
accordance with any permissible manner or manners under Code Section
704(c) and the Regulations thereunder.
(b) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Paragraph 1.14(b) hereof, subsequent allocations of
income, gain, loss, and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner
or manners as under Code Section 704(c) and the Regulations thereunder.
(c) Any elections or other decisions relating to such allocations
shall be made by the General Partners in any permissible manner under the
Code or the Regulations that the General Partners may elect in their sole
discretion. Allocations pursuant to this Paragraph 6.6 are solely for
purposes of federal, state, and local taxes and shall not affect, or in
any way be taken into account in computing, any Partner's Capital Account
or share of Net Profits, Net Losses, other items, or distributions
pursuant to any provision of this Agreement.
6.7 Amounts Withheld. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partners determine that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to a Limited
Partner shall constitute a loan by the Partnership to such Limited Partner,
which loan shall be repaid by such Limited Partner within 15 days after notice
from the General Partners that such payment must be made unless (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (ii) the General Partners determine, in their
sole and absolute discretion, that such payment may be satisfied out of the
available funds of the Partnership which would, but for such payment, be
distributed to the Limited Partner. Any amounts withheld pursuant to the
foregoing
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clauses (i) or (ii) shall be treated as having been distributed to such Limited
Partner. Each Limited Partner hereby unconditionally and irrevocably grants to
the Partnership a security interest in such Limited Partner's Partnership
Interest to secure such Limited Partner's obligation to pay to the Partnership
any amounts required to be paid pursuant to this Section 6.7. In the event that
a Limited Partner fails to pay any amounts owed to the Partnership pursuant to
this Section 6.7 when due, the General Partners may, in their sole and absolute
discretion, elect to make the payment to the Partnership on behalf of such
defaulting Limited Partner, and in such event shall be deemed to have loaned
such amount to such defaulting Limited Partner and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner
(including, without limitation, the right to receive distributions). Any amounts
payable by a Limited Partner hereunder shall bear interest at the base rate on
corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., 15 days after demand) until such amount is paid in full. Each
Limited Partner shall take such actions as the Partnership or the General
Partners shall request in order to perfect or enforce the security interest
created hereunder.
ARTICLE SEVEN
TERM OF PARTNERSHIP
7.1 Commencement. The term of the Partnership shall be deemed to have
commenced upon the filing of the Original Certificate of Limited Partnership.
7.2 Termination. The term of the Partnership shall end, and the
Partnership shall be dissolved and its affairs wound up in the manner hereafter
provided, solely on the first to occur of the following events ("Liquidating
Event"):
(a) December 31, 2093;
(b) the agreement of those Partners holding at least ninety percent
(90%) of the Percentage Interests of all of the Partners determining that
the Partnership should be dissolved;
(c) the happening of any other event that makes it unlawful,
impossible, or impractical to carry on the business of the Partnership; or
(d) the withdrawal or removal of the last remaining General Partner,
the assignment by the last remaining General Partner of its entire
Partnership Interest (other than by virtue of a merger of such General
Partner), or the happening of any other event that causes any General
Partner to cease to be a general partner under the Act, provided that any
such event shall not constitute a Liquidating Event if the Partnership is
continued pursuant to this Paragraph 7.2.
The Partners hereby agree that, notwithstanding any provision of the Act,
the Partnership shall not dissolve prior to the occurrence of a Liquidating
Event. Upon the occurrence of any
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event set forth in Paragraph 7.2(d) hereof, the Partnership shall not be
dissolved or required to be wound up if within ninety (90) days after such event
a majority in interest (within the meaning of Section 301.7701-2(b)(1) of the
Treasury Regulations, determined in accordance with Revenue Procedure 94-46,
1994-28 I.R.B. 129, or any successor revenue procedure or pronouncement of the
Internal Revenue Service) of all the remaining Partners agree in writing to
continue the business of the Partnership and to the appointment, effective as of
the date of such event, of one or more additional General Partners If the
successor general partner is not a former General Partner, then the interest in
the Partnership of any former General Partner shall be treated thereafter as the
interest of a Limited Partner.
7.3 Continuation. None of the following shall cause a dissolution or
termination of the Partnership: the death, legal incompetency, dissolution or
insolvency of a Limited Partner or the admission of a new General or Limited
Partner. In such event, and subject to other provisions of this Agreement, the
Partnership shall continue among the remaining Partners and the successor to
such Limited Partner's Partnership Interest. In the event of the death of an
individual Partner, such individual Limited Partner's interest in the
Partnership shall be transferred either by will, the laws of intestacy or
otherwise to the legal representative or successor of such individual Limited
Partner.
ARTICLE EIGHT
APPLICATION OF ASSETS
8.1 Dissolution and Liquidation. Upon the happening of any of the events
specified in Paragraph 7.2 hereof, the General Partners shall conclude the
affairs and liquidate the property and assets of the Partnership and the
proceeds of such liquidation shall be applied in the order of priority as
follows:
(a) First, to the payment of, or to a reserve for the payment of,
Partnership liabilities and obligations (other than those described in
Paragraph 8.1(b) hereof) including such provision for contingent or
unforeseen liabilities as the General Partners, or by the person(s)
winding up the affairs of the Partnership in the event there is no
remaining General Partner of the Partnership, may establish for any
contingent or unforeseen liabilities or obligations of the Partnership.
Such reserves established hereunder shall be held for the purpose of
paying any such contingent or unforeseen liabilities or obligations and,
at the expiration of such period as the General Partners, or such
person(s) deems advisable, the balance of such reserves shall be
distributed in the manner provided hereinafter in this Paragraph 8.1 as
though such reserves had been distributed contemporaneously with the other
funds distributed hereunder:
(b) Second, to the General Partners and any Affiliate, an amount
equal to the outstanding principal balance of, and all accrued and unpaid
interest on, any loans made by them to the Partnership, apportioned
between them, pro rata, based on the respective balances of such loans;
and
(c) Then, to the Partners in accordance with their respective
Capital Accounts, after giving effect to all contributions, distributions,
and allocations for all periods.
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To the extent that Partnership assets cannot either be sold without undue
loss or readily divided for distribution in kind to the Partners, then the
Partnership may, as determined by the General Partners or the Trustee appointed
pursuant to Paragraph 8.4 hereof, convey those assets to a trust or other
suitable holding entity established for the benefit of the Partners in order to
permit the assets to be sold without undue loss and the proceeds thereof
distributed to the Partners at a future date. The legal form of the holding
entity, the identity of the trustee or other fiduciary, and the terms of its
governing instrument shall be determined by the General Partners or the Trustee.
8.2 Power of Attorney. The Limited Partners hereby appoint each of the
General Partners as their true and lawful attorney-in-fact to hold, collect and
disburse, in accordance with this Agreement, any Partnership receivables
existing at the time of the termination of the Partnership and the proceeds of
the collection of such receivables, including those arising from the sale of
Partnership property and assets. The foregoing power of attorney (and all other
powers of attorney granted hereunder) is a special power of attorney coupled
with an interest, is irrevocable and shall survive the transfer or assignment by
a Limited Partner of his or her Partnership Interest and the death or disability
of each Limited Partner; provided, however, such power of attorney shall
terminate upon the distribution of the proceeds of all of such receivables in
accordance with the provisions of this Agreement. The General Partners shall be
entitled to reimbursement for the reasonable expenses incurred by them in acting
under this power of attorney.
8.4 Appointment of Trustee. If, at the time of dissolution and winding up
of the Partnership there is no General Partner, or if the General Partners have
failed to act in accordance with this Agreement or are otherwise in default
under the terms of this Agreement, which default has not been cured, those
Limited Partners constituting a Majority in Interest shall appoint a liquidating
trustee ("Trustee") to wind up the affairs and liquidate (and/or, if applicable,
distribute) the property and assets of the Partnership, and such Trustee shall
have all powers necessary under this Article Eight and shall be compensated as
agreed upon by the Majority Interest and such Trustee. Such Trustee may, but
need not, be one of the Limited Partners.
8.5 Date of Termination. The Partnership shall be terminated when all
notes received in connection with the disposition of its assets have been paid
and all of the cash or property available for application and distribution under
Paragraph 8.1 hereof (including amounts held as reserves) shall have been
applied and distributed in accordance therewith.
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ARTICLE NINE
ASSIGNABILITY OF PARTNERSHIP INTERESTS
AND WITHDRAWAL BY A PARTNER
9.1 Assignment by the General Partner. In no event may a General Partner
at any time assign, sell, transfer, pledge, hypothecate or otherwise dispose of
all or any portion of its Partnership Interest, except by operation of law,
which would include a statutory merger or consolidation of a General Partner.
9.2 Limited Partner.
(a) No Limited Partner or Substituted Limited Partner shall, without
the prior written consent of the General Partners (which consent may be
given or withheld in the sole discretion of the General Partners), sell,
assign, distribute or otherwise transfer (a "Transfer") all or any part of
such Partner's interest in the Partnership except by operation of law,
gift (outright or in trust) or by sale or distribution, in each case to or
for the benefit of his spouse or descendants, or to one or more partner,
shareholder, beneficiary or Affiliate of such Partner, except for pledges
or other collateral transfers effected by a Limited Partner to secure the
repayment of a loan, and except for the exchange of OP Units for shares of
common stock of the company, pursuant to Paragraph 4.4(C) hereof. A
Limited Partner shall notify the General Partners of any Transfer of
beneficial interest or other interest which occurs without a transfer of
record ownership, as well as any pledge or other collateral transfer. No
part of the interest of a Limited Partner shall be subject to the claims
of any creditor, any spouse for alimony or support, or to legal process,
and may not be voluntarily or involuntarily alienated or encumbered except
as may be specifically provided for in this Agreement.
(b) An assignee, legatee, distributee or other transferee (whether
by conveyance, operation of law or otherwise) (a "Transferee") of all or
any portion of a Limited Partner's interest in the Partnership shall be
entitled to receive Net Profits, Net Losses and distributions hereunder
attributable to such interest acquired by reason of such Transfer, from
and after the effective date of the Transfer of such interest; provided,
however, anything in this Agreement to the contrary notwithstanding, (a)
no Transfer by a Limited Partner shall be effective until such Transfer
has been consented to by the General Partners, (b) no Transferee shall be
considered a Substituted Limited Partner without the prior written consent
of the General Partners, in their sole discretion, (c) the Partnership and
the General Partners shall be entitled to treat the transferor of such
interest as the absolute owner thereof in all respects, and shall incur no
liability for the allocation of Net Profits and Net Losses or
distributions which are made to such transferor until such time as the
written instrument of Transfer has been received by the General Partners
and the "effective date" of the Transfer has passed. The "effective date"
of any Transfer shall be the last day of the month set forth on the
written instrument of Transfer or such other date consented to in writing
by the General Partners as the "effective date."
(c) Notwithstanding anything to the contrary contained in this
Paragraph 9.2,
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(i) in the event of a permitted transfer under Paragraph 9.2(a) hereof or
in the event an Affiliate distributes, in dissolution and liquidation or
otherwise, all or any portion of its interest in the Partnership, the
permitted transferee and/or partners in such Affiliate receiving such
interest shall become Substituted Limited Partners, and shall succeed to
the rights, interests and obligations of their respective transferor in
the Partnership, in proportion to their respective interests so received,
and (ii) no Transfer shall be effective to the extent that such Transfer
would, by treating the interest in the Partnership so transferred as if it
had been exchanged for Common Stock in accordance with Paragraph 4.4(C)
hereof, violate the limitations on ownership of Common Stock contained in
Article VII of the Articles of Incorporation of the Company.
(d) Admission Adjustments. The General Partners shall, when
necessary, cause this Agreement to be amended from time to time to reflect
the addition or withdrawal of Partners, including the corresponding
adjustments to Percentage Interests and OP Units required pursuant to
Paragraphs 4.4(B), 4.4(C) and 9.2(c) hereof.
9.3 Withdrawal of a Limited Partner. No Limited Partner may retire or
withdraw from the Partnership prior to the dissolution of the Partnership and
the completion of the winding up of the affairs and the liquidation (and/or
distribution, as the case may be) of the property and assets of the Partnership
pursuant to the provisions of Article Eight hereof.
ARTICLE TEN
OBLIGATIONS AND RIGHTS OF TRANSFEREES
10.1 Acceptance of this Agreement. Any person who acquires in any manner
whatsoever any interest in the Partnership, irrespective of whether such person
has accepted and adopted in writing the terms and provisions of this Agreement,
shall be deemed by the acceptance of the benefit of the acquisition thereof to
have agreed to be subject to and bound by all the obligations of this Agreement
to which or by which any predecessor in interest of such person was subject or
bound.
ARTICLE ELEVEN
INVESTMENT REPRESENTATION
11.1 Investment. The Partners represent to each other and to the
Partnership that they are acquiring their respective interests in the
Partnership for their own personal accounts for investment purposes only, and
without a view to pledging, transferring or distributing their Partnership
Interests.
11.2 Restrictive Legend. If at any time the Partnership Interests are
evidenced by certificates or other documents, each such certificate or other
document will contain a legend stating that (i) such Partnership Interests (1)
have not been registered under the Securities Act of 1933 (the "Federal Act") or
the securities laws of any other state, (2) have been issued pursuant to a claim
of exemption from the registration provisions of the Federal Act and any state
securities law which may be applicable, and (3) may not be sold, transferred or
assigned without
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compliance with the registration provisions of the Federal Act and any other
applicable Federal or state securities laws or compliance with applicable
exemptions therefrom, and (ii) sale, transfer or assignment of such Partnership
Interests is further subject to restrictions contained in this Agreement and a
subscription agreement pursuant to which each Limited Partner subscribed for his
or her Partnership Interests, and such Partnership Interests may not be sold,
transferred or assigned unless and to the extent permitted by, and in accordance
with, the provisions of this Agreement and such subscription agreement.
ARTICLE TWELVE
AMENDMENTS
12.1 Amendments to this Agreement. This Agreement shall not be amended
without the prior written consent of the General Partners and a Majority in
Interest; provided, however, that (1) except as otherwise specifically provided
herein, no amendment shall reduce a Partner's interest in the Partnership except
to reflect the admission of additional Partners, unless the Partner consents
thereto in writing, (2) no amendment shall effect any change in this Article
unless all the Partners consent thereto in writing, and (3) Exhibit A may be
modified from time to time by the General Partners to reflect any change in the
Limited Partners or in the interest of any Partner which has been effected by
appropriate action of the parties involved, by filing with the appropriate
authorities an amendment to the Certificate of Limited Partnership setting forth
the Partners and the interest owned by each. Any amendment made pursuant to this
Article may be made effective as of any earlier or later date.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
13.1 Books of Account, Reports.
(a) The General Partners shall keep true and complete books of
account and records of all Partnership transactions. The books of account
and records shall be kept at the principal office of the Partnership. Each
Partner may inspect and make copies of all Partnership books and records,
at reasonable hours and such Partner's expense.
(b) The General Partners shall maintain at the offices of the
Partnership a list of the names and addresses of all Limited Partners
which shall be available to any Limited Partner or designated
representative.
(c) The General Partners shall furnish each Limited Partner a report
setting forth the Partnership assets and liabilities, the Partnership Net
Profits or Net Losses for the year, and the allocation thereof among the
Partners, and such other information relating to the Partnership as may be
reasonably required in order to permit that Partner to file its federal
income tax return for that year.
(d) The fiscal year of the Partnership shall be the calendar year,
unless the Internal Revenue Code requires that some other fiscal year be
utilized.
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13.2 Bank Accounts and Investment of Funds. All funds of the Partnership
shall be deposited in its name in such checking accounts, savings accounts, time
deposits, or certificates of deposit or shall be invested in such other manner
as shall be designated by the General Partners from time to time. Withdrawals
shall be made upon such signature or signatures as the General Partners may
designate.
13.3 Accounting Decisions. All decisions as to accounting matters, except
as specifically provided to the contrary herein, shall be made by the General
Partners in accordance with generally accepted federal income tax accounting
principles consistently applied. Such decisions may be acceptable to the
accountants retained by the Partnership, and the General Partners may rely upon
the advice of the accountants as to whether such decisions are in accordance
with generally accepted federal income tax accounting principles.
13.4 Federal Income Tax Elections.
(a) The Partnership shall, to the extent permitted by applicable law
and regulations and upon obtaining any necessary approval of the
Commissioner of Internal Revenue, elect to use such methods of
depreciation, and make all other federal income tax elections in such
manner, as the General Partners determine to be most favorable to the
Partners. The General Partners may rely upon its tax advisors as to the
unavailability and effect of all such elections.
(b) In the event of a permitted transfer of all or part of the
interest of a Partner, the Partnership may, if the transferee so requests
and if the General Partners in its sole and absolute discretion agrees to
do so, file an election in accordance with Section 754 of the Internal
Revenue Code, or any similar provisions enacted in lieu thereof, and the
regulations promulgated thereunder, to adjust the basis of the Partnership
Property. In the event of the death of a Partner the Partnership shall, if
the successor to such deceased Partner's interest in the Partnership
timely requests, file such election in accordance with section 754 of the
Internal Revenue Code. Each Partner hereby agrees to provide the
Partnership with all information necessary to give effect to such
election.
13.5 Conveyances. Any deed, bill of sale, mortgage, lease, contract of
sale, or other commitment purporting to convey or encumber the interest of the
Partnership in all or any portion of any real or personal property at any time
held in its name shall be signed by any General Partner on behalf of the
Partnership, and no other signature shall be required and any transferee of such
interest and any title company may rely upon the authority herein granted and
conferred.
13.6 Recovery of Attorney's Fees. In any action between the parties to
enforce any of the terms of this Agreement or of any other contract relating to
the Partnership, or an action in any other way pertaining to Partnership affairs
or this Agreement, the prevailing party shall be entitled to recover expenses,
including a reasonable attorney's fee.
13.7 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and may be modified only as provided herein. No
representations, warranties or oral or
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implied agreements have been made or are being relied upon by any party hereto
or his agent except as expressly set forth herein.
13.8 Notices, Etc. Any notice, writing, or other matter, and any
distribution, to be delivered hereunder shall be deemed delivered when delivered
by hand or by telecopy or other facsimile transmission, the first business day
after sent by overnight courier (such as Federal Express), or on the second
business day after deposited in the United States mail with postage prepaid,
return receipt requested, properly addressed to the Partner o whom such notice
is intended to be given at the address for the Partner set forth on the
signature pages of this Agreement, or at such other address as such person may
have previously furnished in writing to the Partnership and each Partner with
copies to:
Timmis & Inman L.L.P.
300 Talon Centre
Detroit, Michigan 48207
Attention: Henry J. Brennan III, Esq.
and:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Jay L. Bernstein, Esq.
13.9 Consent of Limited Partners. Various provisions of this Agreement
require or permit the consent, approval, or agreement, written or otherwise, of
the Partners or some specific proportion thereof. In any such case, the General
Partners may give all the Limited Partners written notice that any Limited
Partner who does not indicate disapproval by written notice to the Partnership
within a specified period of time (not less than 90 days after mailing of the
notice) shall be deemed to have given consent or approval to the action or event
or to have made the agreement referred to in the notice. In such event, any
Limited Partner who does not indicate disapproval by written notice to the
Partnership within the time specified shall be deemed to have given his written
consent, approval, or agreement.
13.10 Meetings. The General Partners shall promptly call an information
meeting of all Limited Partners upon the request by Limited Partners who
constitute a Majority in Interest.
13.11 Further Execution. Upon request of the General Partners from time to
time, the Partners shall execute and swear to or acknowledge any amended
Certificate of Limited Partnership or any other writing which may be required by
any rule or law or which may be appropriate to the effecting of any action by or
on behalf of the Partnership or the Partners which has been taken in accordance
with the provisions of this Agreement.
13.12 Submission to Maryland Jurisdiction. During such time as any Limited
Partner is not a resident of the State of Maryland, such Limited Partner
irrevocably designates the General Partners as his or her agent to accept
service of process in any action or proceeding brought by the Partnership or any
party to this Agreement (but not any third party unless such Limited Partner is
impleaded by the Partnership or a party to this Agreement) against such Partner
and
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arising out of this Agreement or any breach thereof. Such designation shall not
be revoked by the act, death, or incapacity of any Limited Partner and shall
bind heirs, personal representatives, successors, and assigns of such Limited
Partner. The General Partners accepting such service on behalf of a Limited
Partner agrees to give such Limited Partner written notice thereof as soon as
practicable.
13.13 Benefits. This Agreement shall inure to the benefit of and shall
bind the parties hereto, their successors and permitted assigns. None of the
provisions of this Agreement shall be construed as for the benefit of or as
enforceable by any creditor of the Partnership or the Partners or any other
person n6t a party to this Agreement.
13.14 Severability. The invalidity or unenforceability of any provision of
this Agreement in a particular respect shall not affect the validity and
enforceability of any other provision of this Agreement or of the same provision
in any other respect.
13.15 Captions. All captions are for convenience only, they do not form a
substantive part of this Agreement, and they shall not restrict or enlarge any
substantive provisions of this Agreement.
13.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument. The General Partners shall have custody of
counterparts executed in the aggregate by all Partners.
13.17 Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws and decisions of the State of Maryland.
Except to the extent the Act is inconsistent with provisions of this Agreement,
the provisions of the Act shall apply to the Partnership.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
32.
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- --------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
Dated as of _________, 1996,
Among
CHATEAU PROPERTIES, INC.,
ROC COMMUNITIES, INC.
And
CP LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Contributor Contribution of Assets; Assumption of Liabilities ........ 2
2. Merger of ROCF into Financing Partnership ............................ 2
3. Transaction Costs .................................................... 3
4. Closing; Closing Documents and Related Matters ....................... 3
5. Representations and Warranties of Contributor ........................ 5
6. Representations and Warranties of RAC ................................ 5
7. Indemnification for Breach of Representations ........................ 5
8. Number of OP Units ................................................... 6
9. Authorized Signatories ............................................... 6
10. Partial Invalidity ................................................... 6
11. Miscellaneous ........................................................ 6
Schedules
1 Properties
2 Management Properties
<PAGE>
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") made as of the _____
day of ______ 1996, by and between CHATEAU PROPERTIES, INC., a Maryland
corporation (the "Company"), ROC COMMUNITIES, INC., a Maryland corporation (the
"Contributor"), REDWOOD ACQUISITION CORP., a Maryland corporation ("RAC") and CP
LIMITED PARTNERSHIP, a Maryland limited partnership (the "Partnership").
RECITALS
(a) Contributor (i) owns or holds a ground lessee interest in those
manufactured home communities listed in Part A of Schedule 1 hereto (such
communities, together with the improvements thereon, that are owned or ground
leased by Contributor being referred to herein as the "Contributor Properties"),
(ii) is the sole stockholder of RAC, which owns the manufactured home
communities listed in Part B of Schedule 1 hereto (the "RAC Properties"), (iii)
is the sole stockholder of ROCF, Inc., a Maryland corporation ("ROCF"), which
owns or holds a ground lessee interest in those manufactured home communities
listed in Part C of Schedule 1 hereto (such communities, together with the
improvements thereon, that are owned or ground leased by ROCF being referred to
herein as the "ROCF Properties" and, together with the Contributor Properties
and the RAC Properties, the "Properties"), (iv) holds certain other assets, such
as leasehold interests, leases, furniture, fixtures and equipment, related to
its business (the "Other Assets") and (v) provides property management services
in respect of the properties listed in Schedule 2 attached hereto (the
"Management Properties") pursuant to certain property management agreements (the
"Management Agreements").
(b) The Company is the sole general partner of the Partnership.
(c) Contributor, the Company and a merger subsidiary of the Company
have entered into an Amended and Restated Agreement and Plan of Merger dated as
of September 17, 1996 (the "Merger Agreement").
(d) At the Effective Time of the Merger, Contributor shall merge
with a merger subsidiary of the Company with Contributor being the surviving
corporation in such merger, and each issued and outstanding share of capital
stock of Contributor will be converted into the right to receive certain shares
of common stock of the Company.
(e) Section 5.15 of the Merger Agreement requires that, immediately
following the Effective Time of the Merger, Contributor will contribute the
Contributor Properties, the Other Assets and the Management Agreements to the
Partnership and take actions related to ROCF, on the terms and subject to the
conditions set forth herein.
<PAGE>
(f) Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Contributor Contribution of Assets; Assumption of Liabilities. On the
terms and subject to the conditions set forth herein, immediately following the
Effective Time, the Company shall cause Contributor to contribute to the capital
of the Partnership the Contributor Properties, the Other Assets and the
Management Agreements and shall cause RAC to contribute the RAC Properties to
the Partnership. In exchange for such contributions, Contributor shall receive a
general partner interest in the Partnership which shall be expressed as a number
of OP Units (as defined in the Partnership Agreement of the Partnership) ("OP
Units"), which shall be determined in accordance with Section 8, and Contributor
shall be admitted as a co-general partner of the Partnership as contemplated by
the Operating Partnership Agreement Amendment to be executed at the Effective
Time and which shall be effective immediately thereafter. In addition, the
Partnership shall assume and agree to pay when due all liabilities and
obligations of Contributor and RAC (the "Assumed Liabilities"), including,
without limitation: (i) all liabilities and obligations under any mortgage or
other indebtedness; (ii) all liabilities and obligations for ground lease
rentals; (iii) all accrued expenses and all accrued real property taxes and
assessments; (iv) all liabilities and obligations under any and all contracts,
including the Management Agreements (the "Contracts"), to which Contributor is a
party or licenses and permits to which Contributor is subject; (v) any and all
leases of real property or equipment (the "Leases"); (vi) all transfer taxes and
prepayment penalties, if any, due on the contribution contemplated hereby; and
(vii) all other liabilities of Contributor whether contingent or otherwise.
2. Merger of ROCF into Financing Partnership. On the terms and subject to
the conditions set forth herein, the Company shall cause Contributor to cause
ROCF to merge with and into a newly organized financing partnership (the
"Financing Partnership"), with the Financing Partnership surviving such merger
(the "Financing Partnership Merger"). The Financing Partnership will have a
newly organized, wholly owned bankruptcy-remote subsidiary of the Company or
Contributor as its sole general partner (the "Financing Partnership General
Partner"), which shall hold a 1.0% general partner interest in the Financing
Partnership, and the Partnership as its sole limited partner, which shall hold a
99% limited partner interest in the Financing Partnership. In exchange for
causing the Financing Partnership Merger to occur, Contributor shall receive an
additional general partner interest in the Partnership which shall be expressed
as a number of OP Units which shall be determined in accordance with Section 8.
3. Transaction Costs. Except as otherwise specifically set forth herein,
all costs and expenses with respect to the transaction contemplated hereby shall
be borne by the Partnership.
2
<PAGE>
4. Closing; Closing Documents and Related Matters. The transaction
contemplated by this Agreement shall be consummated immediately following the
Effective Time of the Merger (the "Closing"). At the Closing, the Company shall
deliver or cause to be done each of the following:
4.1 The Company shall cause Contributor or RAC (as applicable) to
execute and deliver to the Partnership a general warranty deed with
regard to each of the Contributor Properties and RAC Properties in
form satisfactory to the Partnership conveying to the Partnership
good and insurable fee tide to the contributor Properties and the
RAC Properties (the "Deed"), with respect to each Property owned in
fee by Contributor or RAC, and a general warranty assignment and
assumption of ground lease (with estoppels from ground lessors), in
form satisfactory to the Partnership, conveying to the Partnership
good and insurable leasehold tide to the Property (the "Assignment")
with respect to each Contributor Property ground leased by
Contributor.
4.2 The Company shall cause Contributor or RAC (as applicable) to
execute and deliver to the Partnership a Bill of Sale conveying to
the Partnership all personal property of Contributor and RAC.
4.3 The Company shall cause Contributor or RAC (as applicable) to
execute and deliver to the Partnership and shall cause the
Partnership to execute and deliver to the Company, Contributor or
RAC (as applicable) an Assignment and Assumption of the Leases,
Contracts, Intangible Property and Other Assets.
4.4 The Company shall cause Contributor or RAC (as applicable) to
execute and deliver to the Partnership and shall cause the
Partnership to execute and deliver to the Company, Contributor or
RAC (as applicable) an Assumption Agreement relating to the Assumed
Liabilities.
4.5 The Company shall cause Contributor or RAC (as applicable) to
execute and deliver to the Partnership a FIRPTA Certificate.
4.6 The Company shall cause Contributor or RAC (as applicable) to
transfer to a Partnership bank account designated by the Company all
cash held by Contributor and RAC.
4.7 The Company shall cause Contributor or RAC (as applicable) to
execute and deliver to the Partnership state, county and local
transfer tax returns.
4.8 The Company shall cause Contributor or RAC (as applicable) to assign
and deliver to the Partnership all tide insurance policies
(including the right to receive the proceeds thereunder) currently
held by Contributor with respect to the Contributor Properties and
the RAC Properties (the "Title Policies").
3
<PAGE>
4.9 The Company shall cause Contributor or RAC (as applicable) to
deliver to the Partnership possession of the Contributor Properties
and RAC Properties, subject to the rights of tenants under the
Leases.
4.10 All documents required to effect the organization of the Financing
Partnership and the Financing Partnership General Partner, and the
Financing Partnership Merger, shall be executed, delivered and
filed.
4.11 An executed amendment to the Partnership Agreement of the
Partnership evidencing the admission of Contributor as a co-general
partner and the issuance to Contributor of the OP Units as provided
herein shall be executed and delivered by the requisite parties.
4.12 Such other documents or instruments as may be reasonably necessary
or appropriate for the completion of the transactions contemplated
herein.
5. Representations and Warranties of Contributor. Contributor makes the
following representations and warranties to the Partnership:
5.1 Contributor is a corporation duly organized and validly existing
under the laws of the State of Maryland, and is duly qualified under
the laws of each State or Commonwealth in which any of the
Properties are located to transact business in such State or
Commonwealth, and has been duly authorized by all necessary and
appropriate action to enter into this Agreement and to consummate
the transaction contemplated herein.
5.2 Contributor hereby represents and warrants to the Partnership that
it now owns good and marketable title to or holds leasehold
interests in all of the Contributor Properties and will convey to
the Partnership all of the Contributor Properties free and clear of
all liens, encumbrances, mortgages, easements, and other matters
affecting title other than those matters listed in Schedule B to the
Title Policies and any mortgages discharged after the date such
policies were issued.
6. Representations and Warranties of RAC. RAC makes the following
representations and warranties to the Partnership:
6.1 RAC is a corporation duly organized and validly existing under the
laws of the State of Maryland, and is duly qualified under the laws
of each State or Commonwealth in which any of the RAC Properties are
located to transact business in such State or Commonwealth, and has
been duly authorized by all necessary and appropriate action to
enter into this Agreement and to consummate the transaction
contemplated herein.
6.2 RAC hereby represents and warrants to the Partnership that it now
owns all of the RAC Properties and will convey to the Partnership
all of the RAC Properties free and clear of all liens, encumbrances,
mortgages,
4
<PAGE>
easements, and other matters affecting title other than those
matters listed in Schedule B to the Title Policies.
7. Indemnification for Breach of Representations. Contributor and RAC
shall indemnify, defend, and hold the Partnership harmless from and against any
and all losses, claims, liabilities, judgments and other matters, including but
not limited to, reasonable attorney's fees (the "Losses") arising out of or
incurred in connection with a breach of any representation, warranty or covenant
of Contributor or under Section 5 or 6 of this Agreement.
8. Number of OP Units. The aggregate number of OP Units to be issued to
Contributor, as provided in Section 1 and 2 hereof, shall be equal to the number
of shares of Common Stock, par value $.01 per share, of the Company issued to
the stockholders of ROC in the Merger, reduced by such number of OP Units, which
shall be determined in good faith by the Board of Directors of the Company
immediately following the Merger, having a fair market value equal to the value
of the 1.0% general partner interest in the Financing Partnership issued to the
subsidiary of the Company or Contributor as the case may be, as provided in
Section 2 hereof.
9. Authorized Signatories. The persons executing this Agreement for and on
behalf of the Partnership, Contributor, RAC and the Company each represent that
they have the requisite authority to bind the entities on whose behalf they are
signing.
10. Partial Invalidity. If any term, covenant or condition of this
Agreement is held to be invalid or unenforceable in any respect, such invalidity
or unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein.
11. Miscellaneous.
11.1 This Agreement shall be interpreted and enforced according to the
laws of the State of Maryland without regard to the principles of
conflicts of law.
11.2 All headings and sections of this Agreement are inserted for
convenience only and do not form part of this Agreement or limit,
expand or otherwise alter the meaning of any provisions hereof.
11.3 This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which shall
constitute one and the same agreement.
11.4 The rights and obligations of the Company, Contributor, RAC and the
Partnership herein contained shall inure to the benefit of and be
binding upon the parties hereto and their respective personal
representatives, heirs, successors and assigns.
5
<PAGE>
11.5 The provisions of this Agreement are intended to be for the sole
benefit of the parties hereto and their respective successors and
assigns, and none of the provisions of this Agreement are intended
to be, nor shall they be construed to be, for the benefit of any
third party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day first written above.
COMPANY:
CHATEAU PROPERTIES, INC.
By:___________________________________
Name:
Title:
CONTRIBUTOR:
ROC COMMUNITIES, INC.
By:___________________________________
Name:
Title:
RAC:
REDWOOD ACQUISITION CORP.
By:___________________________________
Name:
Title:
PARTNERSHIP:
CP LIMITED PARTNERSHIP
By: Chateau Properties, Inc.,
its General Partner
By:___________________________________
Name:
Title:
6
<PAGE>
Schedule 1
Properties
<PAGE>
Part A - Contributor Properties
07/19/96
- --------------------------------------------------------------------------------
PROPERTY
NAME CLOSEST CITY ST #SITES
- --------------------------------------------------------------------------------
ROC COMMUNITIES - Unencumber Assets
1 100 Oaks Birmingham AL 241
2 Bermuda Palms Palm Springs CA 186
3 Butler Creek Augusta GA 172
4 Camden Point Kingland GA 269
5 Castlewood Estates Atlanta GA 325
6 Coach Royale Boise ID 93
7 Colonial Coach Atlanta GA 481
8 Colony Cove Sarasota FL 2,212
9 Countryside Village Denver Denver CO 344
10 Countryside Village Jackson Jacksonville FL 643
11 Countryside Village Longmont Longmont CO 310
12 Eastridge San Jose CA 187
13 Foxhall Village Raleigh NC 315
14 Foxwood Farms Orlando FL 375
15 Friendly Village Denver CO 226
16 La Quinta Ridge Palm Springs CA 152
17 Landmark Village Atlanta GA 524
18 Leisure World Brownsville TX 179
19 Oak Orchard Albion NY 235
20 Oakwood Forest Greensboro NC 477
21 Pinecrest Shreveport LA 448
22 Pine Lakes Ranch Denver CO 760
23 Presidents Park Grand Forks ND 174
24 Redwood Estates Denver CO 752
25 Shenandoah Boise ID 147
26 Starlight Ranch Orlando FL 783
27 The Colony Palm Springs CA 220
28 The Orchard San Francisco CA 233
29 Trails End Brownsville TX 290
30 Yorktowne Cincinnati OH 354
31 Royal Estates Kalamazoo MI 154
32 Gold Tree Tampa FL 295
- --------------------------------------------------------------------------------
Subtotal 12,656
- --------------------------------------------------------------------------------
<PAGE>
Part B - RAC Properties
1. Redwood Estates, CO
2. Pine Lakes Ranch, CO
<PAGE>
Part C - ROCF Properties
07/19/96
- ---------------------------------------------------------------
PROPERTY NAME CLOSEST CITY ST # SITES
- ---------------------------------------------------------------
ROC - Encumbered Assets
1 Atlanta Meadows Atlanta GA 75
2 Breazeale Laramie WY 118
3 Casa Linda Las Vegas NV 107
4 Casual Estates Syracuse NY 980
5 Conway Circle Orlando FL 111
6 Countryside Village Great Falls MT 222
7 Crestview Stillwater OK 237
8 Eldorado Daytona Beach FL 126
9 Flamingo Village Richland WA 201
10 Hickory Knoll Indianapolis IN 325
11 Jade Isle Orlando FL 101
12 Knoll Terrace Salem OR 211
13 Lakewood Davenport IA 172
14 Land O'Lakes Orlando FL 177
15 Maple Grove Boise ID 270
16 Mariwood Indianapolis IN 296
17 Marysville Meadows Seattle WA 230
18 Meadowbrook Ithaca NY 254
19 Midway Estates Vero Beach FL 204
20 Mobet Moline IL 191
21 Mobiland Melbourne FL 214
22 Mosby's Point Cincinnati OH 150
23 Oak Grove Albany GA 173
24 Paradise Village Albany GA 226
25 Pendleton Indianapolis IN 102
26 Pinellas Cascades Clearwater FL 238
27 Riverview Portland WA 133
28 Rolling Hills Louisville NY 159
29 Science City Midland MI 170
30 Shadybrook Syracuse NY 89
31 Skyway Indianapolis IN 156
32 Southwind Village Naples FL 338
33 Stonegate Shreveport LA 157
34 Terrace Heights Dubuque IA 315
35 Town & Country, FL Orlando FL 72
36 Twin Pines Goshen IN 200
37 Vance Columbus OH 34
38 Whispering Pines Clearwater FL 397
39 Willo Arms Cleveland OH 262
- --------------------------------------------------------------
Subtotal 8,273
- --------------------------------------------------------------
71 OVERALL TOTAL 20,829
- --------------------------------------------------------------
<PAGE>
Schedule 2
Management Properties
PARTNERSHIP PROPERTY CITY ST SITES
- --------------------------------------------------------------------------------
MANUFACTURED HOME COMMUNITIES:
1. ROLLINGWOOD LTD. PINE RIDGE Alpharetta GA 195
2. ROC1 GOLDEN CITRUS MANOR McAllen TX 122
3. GOLDEN VALLEY Douglasville GA 131
4. MOBILE VILLAGE McAllen TX 100
5. ROC GP CORP. SIESTA ESTATES Amarillo TX 197
6. SOUTH OAKS LTD. SOUTH OAKS Palmetto GA 303
7. STONEGATE PARTNERS STONEGATE, TX Fort Worth TX 294
8. GLEN-MAR LTD. MARNELLE Fayetteville GA 207
-----
TOTAL 1,549
-----
<PAGE>
PARTNERSHIP PROPERTY CITY ST SITES
- --------------------------------------------------------------------------------
1 WPP 3 PONDAROSA Indianapolis IN 147
2 LITTLE EAGLE Indianapolis IN 96
3 THE PINES Gadson SC 201
4 SHADY HILLS Nashville TN 250
5 TRAILMONT Nashville TN 131
6 WPP 4 SUNSET VISTA Magna UT 206
7 SUNRISE VILLAGE Cocoa FL 427
8 WPP 5 LAKESIDE Lithia Springs GA 104
9 PLANTATION ESTATES Lithia Springs GA 137
10 WPP 6 CIRCLE K Las Vegas NV 59
11 CHISHOLM CREEK Wichita KS 250
12 WPP 7 NORTH GLEN VILLAGE Westfield IN 231
13 KINGS & QUEENS Lakeland FL 107
14 THE HILLS Richland WA 221
15 LUCERNE Winterhaven FL 140
16 VILLAGE GLEN Melbourne FL 143
17 WREIT 8 WESTSTAR Tuscon AZ 59
18 EL FRONTIER Tuscon AZ 179
19 GRIFFWOOD Fruitland Park FL 117
20 WPP 3/4 BIG COUNTRY Cheyenne WY 258
21 HARMONY RANCH Thonotosassa FL 192
22 WPP 4/5/6 WINTER HAVEN Winter Haven FL 237
23 RANCHO MARGATE Coconut Creek FL 245
24 WPP 5/6 TOWN & COUNTRY EST. Tuscon AZ 320
25 WPP 6/7 CAREFREE Tampa FL 406
26 A GARDEN WALK Palm Beach Garden FL 464
27 WPP 7/8 LONG LAKE West Palm Beach FL 150
28 Bird Creek BIRD CREEK Temple TX 140
-----
TOTAL 5,727
-----
<PAGE>
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
Chateau Properties, Inc.
and
Certain Stockholders of Chateau Properties, Inc.
and
Certain Limited Partners of
CP Limited Partnership
Dated as of ___________, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. Registration
1.1 Certain Definitions .............................................. 1
1.2 Requested Registration ........................................... 1
1.3 Expenses of Registration ......................................... 3
1.4 Registration Procedures .......................................... 5
1.5 Indemnification .................................................. 6
1.6 Information by Holder ............................................ 8
1.7 Reporting ........................................................ 8
1.8 Transfer of Registration Rights .................................. 8
2. Prior Agreements ...................................................... 9
3. Assignability ......................................................... 9
4. Applicable Law ........................................................ 9
5. Amendments ............................................................ 9
6. Waiver ................................................................ 9
7. Counterparts .......................................................... 9
8. Addresses and Notice .................................................. 9
Exhibit A. Holders ......................................................... A-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is entered into as of _____, __ 1996, among Chateau
Properties, Inc., a Maryland corporation (the "Company"), and certain
stockholders of the Company (the "Holders"). Capitalized terms used herein
shall, unless otherwise defined, have the meanings ascribed to them in Section
1.1 below.
RECITALS
(a) The Company, ROC Communities, Inc., a Maryland corporation ("ROC"),
and R Acquisition Sub, Inc., a Maryland corporation and wholly owned subsidiary
of the Company ("Sub") have entered into an Amended and Restated Agreement and
Plan of Merger, dated as of September __, 1996 (the "Merger Agreement"),
providing for the merger of Sub with and into ROC with ROC being the surviving
corporation and each issued and outstanding share of capital stock of ROC will
be converted into the right to receive certain shares of common stock of the
Company (the "Merger"); and
(b) Pursuant to the Merger and at the Effective Time (as defined in the
Merger Agreement) holders of ROC common stock, par value $0.01 per share ("ROC
Common Stock") and ROC non-voting redeemable stock, par value $.0l per share
(the "ROC Non-Voting Stock" and, together with the ROC Common Stock, "ROC
Stock") will exchange such ROC Stock for common stock, par value $.0l per share
of the Company ("Common Stock"); and
(c) In connection with the Merger and the issuance of Common Stock
pursuant thereto, the Company intends to grant certain registration rights to
the Holders with respect to the Common Stock held or which may be obtained by
each of them;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants herein contained, the parties hereby agree as follows:
1. Registration.
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following meanings:
<PAGE>
(a) "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
(b) "Common Stock" shall mean the Common Stock, par value $.0l per
share, of the Company.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect at the time.
(d) "Holders" shall mean the persons listed on Exhibit A hereto.
(e) "Initiating Holders" shall mean any Holder or Holders who hold
in the aggregate not less than 10,000 of the outstanding Registrable Securities
(excluding Registrable Securities held by any Holder whose registration rights
with respect to such Registrable Securities have terminated pursuant to Section
1.2(d) hereof).
(f) "Partnership Agreement" shall mean the partnership agreement of
the Operating Partnership, as amended by the Operating Partnership Agreement
Amendment.
(g) "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(h) "Registrable Securities" shall mean (i) shares of Common Stock
issued to the Holders in the Merger or (ii) shares of Common Stock issued as a
dividend, split or division or other distribution with respect to or in exchange
for or in replacement of the shares referred to in clauses (i) or (ii).
(i) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, expenses of any regular or special audits incident to or required
by any such registration and fees and disbursements of one special counsel
retained by the Holders, but shall not include Selling Expenses.
(j) "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
2
<PAGE>
(k) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(l) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the Registrable Securities.
1.2 Requested Registration.
(a) If Initiating Holders shall deliver to the Company a written
request that the Company effect a registration with respect to resales by them
of all or a part of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders; and
(ii) as soon as possible, use its best efforts to effect the
proposed registration and to effect all registrations, qualifications or
compliances (including (A) appropriate qualification under applicable blue
sky or other state securities laws in those jurisdictions selected by the
managing underwriter or underwriters designated pursuant to Section 1.2(d)
or, if no such managing underwriter or underwriters is designated, in
those jurisdictions reasonably selected by the Holders who request to
participate in such proposed registration, (B) appropriate compliance with
applicable federal and state laws, requirements and regulations and (C)
listing the Registrable Securities on the New York Stock Exchange) as well
as such other steps as are reasonably necessary to permit or facilitate
the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such
portion of the Registrable Securities of any Holder or Holders joining in
such registration as are specified in a written request received by the
Company within 15 business days after written notice from the Company is
given under Section l.2(a)(i) above.
(b) The Company shall file a registration statement as soon as
possible after receipt of the request or requests of the Initiating Holders
under this Section 1.2, but in any event within 45 days of receipt of such
request or requests; provided that if the Company shall furnish to such
Initiating Holders a certificate signed by the chief executive officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed on or before the date filing would
be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing to
a date not later than 60 days after receipt of such request (provided that the
Company shall not have the right to defer the
3
<PAGE>
filing of a registration statement pursuant to this Section 1.2 (b) more than
once with respect to any such request or requests relating to a particular
registration). The Company shall use its best efforts to cause any filed
registration statements to become effective as soon as practicable after filing.
(c) At the request of an Initiating Holder, the Company will
use its best efforts to prepare the registration statement requested by the
Initiating Holder to be accomplished on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act.
(d) If the Initiating Holders intend to distribute the
Registrable Securities covered by this request by means of an underwriting
(which shall be their decision to make), they shall so advise the Company and
the Company shall include such information in the written notice referred to in
Section 1.2(a)(i) hereof. In such event, the underwriting shall be managed by an
underwriter or underwriters selected by the Company and approved by a majority
in interest of the Initiating Holders. The right of any Holder to include
Registrable Securities in a registration pursuant to Section 1.2 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder). Holders of a majority of the Registrable Securities requested
to be included in such registration shall have the right to negotiate with the
underwriters and to determine all terms of the underwriting, including the gross
price and net price at which the included Registrable Securities are to be sold.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected as above provided.
Notwithstanding any other provision of this Section 1.2, if the underwriters
advise the Initiating Holders and the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten and that the
total amount of securities that all Holders (Initiating and non-Initiating)
request pursuant to this Section 1.2 to be included in such offering exceeds the
amount of securities that the underwriters reasonably believe compatible with
the success of the offering, the Company shall so advise all Holders and the
shares to be included in the registration shall be allocated first among all
Initiating Holders and, if any shares remain, among all non-Initiating Holders
pro rata on the basis of the number of shares of Registrable Securities owned by
such Holders.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such Holder may elect not to be included in the
registration (or the underwritten portion thereof) by delivering a written
notice to the Company at least three days prior to the scheduled initial filing
of the registration statement (or such later date as is agreed to by the Holders
of a majority of the other Registrable Securities requested to be included in
such registration). If shares are so withdrawn from the registration and if the
number of shares to be included in such registration was previously
4
<PAGE>
reduced as a result of marketing factors pursuant to this Section 1.2(d), then
the Company shall offer to all Holders who have included Registrable Securities
in the registration the right to include additional Registrable Securities in
the registration in an aggregate amount equal to the number of shares so
withdrawn, with such shares to be allocated first among all Initiating Holders
and, if any shares remain, among all non-Initiating Holders pro rata on the
basis of the number of shares of Registrable Securities owned by such Holders.
(e) Notwithstanding anything to the contrary contained in this
Agreement, a Holder shall not have the right to request registration or
inclusion in any registration pursuant to this Section 1.2 for the period during
which all shares of Registrable Securities then held or entitled to be held upon
exchange of OP Units by such Holder may immediately be sold under Rule 144
without regard to any volume limitation.
1.3 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 1.2 hereof shall be borne by the Company. All Selling Expenses relating
to Registrable Securities registered by the Holders shall be borne by the
Holders of such securities pro rata on the basis of the number of shares of
Registrable Securities so registered on their behalf.
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to Section 1.2
hereof, the Company will, upon request, inform each Holder as to the status of
each such registration, qualification and compliance. At its expense the Company
will:
(a) keep such registration, and any qualification under state
securities laws which the Company determines to obtain, effective for a period
of 120 days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, except that any registration on Form S-3 (or any form that allows
resales of the Registrable Securities on a delayed or continuous basis under
Rule 415 under the Securities Act), if applicable, or similar forms promulgated
in the future, and any qualification or compliance related thereto, shall be
kept effective until the Holder or Holders have completed the distribution
described in the registration statement; and
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
Notwithstanding anything to the contrary contained herein, the
Company shall not be obligated to register any securities other than Common
Stock.
5
<PAGE>
1.5 Indemnification.
(a) The Company will indemnify each Holder, each of its
officers, directors and partners, and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereof, incident to any such registration,
qualification or compliance, or arising out of or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
such Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company expressly for use in connection with such
registration pursuant to an instrument duly executed by or on behalf of such
Holder or underwriter. It is agreed that the indemnity agreement contained in
this Section 1.5(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent will not be unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors and
partners, and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
amendment or
6
<PAGE>
supplement thereof, incident to any such registration, qualification or
compliance, or arising out of or based upon any omission (or alleged omission)
to state therein 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, and will reimburse the Company, such Holders or such
directors, officers, partners, persons, underwriters or control persons for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that it is
judicially determined that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) was made in such registration statement,
prospectus, offering circular or other document solely in reliance upon and in
conformity with written information furnished to the Company expressly for use
in connection with such registration pursuant to an instrument duly executed by
or on behalf of such Holder. It is agreed that the indemnity agreement contained
in this Section 1.5(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the affected Holder (which consent will not be unreasonably
withheld).
(c) Each party entitled to indemnification under this Section
1.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement, unless such failure is prejudicial to the
Indemnifying Party in defending such claim or litigation. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability with respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.5 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be
7
<PAGE>
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
1.6 Information by Holder. Any Holder of Registrable Securities
included in any registration shall promptly furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company reasonably requests in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
Section 1.2 hereof.
1.7 Reporting. With a view to making available to the Holders the
full benefits of certain rules and regulations of the Commission which at any
time permit the sale of the Registrable Securities to the public without
registration or on short form registration statements, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) so long as a Holder owns any unregistered Registrable
Securities, furnish to such Holder upon request a written statement by the
Company as to its compliance or non-compliance with the reporting requirements
of Rule 144, and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other documents of
the Company as such Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration; and
(d) upon receipt of a request to dispose of stock under Rule
144, use its best efforts promptly to obtain all documents, including an opinion
of the Company's counsel, necessary and appropriate to effect such transfer.
1.8 Transfer of Registration Rights. The rights to cause the Company
to register Registrable Securities granted to the Holders by the Company under
Section 1.2 hereof may be assigned, in whole or in part, by a Holder to a
transferee of such
8
<PAGE>
Holder's OP Units who has been admitted as a Substituted Limited Partner with
respect to such OP Units in accordance with the provisions of the Partnership
Agreement or to a transferee of shares of Common Stock held by such Holder
(which are Registrable Securities) (other than such a transfer effectively
registered under the Securities Act or in compliance with Rule 144). Any such
assignment shall be conditioned upon the transferees agreeing to be bound by the
provisions of this Agreement.
2. Prior Agreements. Upon execution of this Agreement by a given
Holder, this Agreement shall supersede all prior registration rights agreements
each such Holder may otherwise have with respect to the Common Stock or the OP
Units.
3. Assignability. Subject to Section 1.8 hereof, this Agreement
shall be binding upon and shall inure to the benefit of the respective heirs,
successors and assignees of the parties hereto.
4. Applicable Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland, without
regard to the principles of conflicts of law.
5. Amendments. This Agreement may only be amended by a writing
consented to by the Company and by each Holder whose rights would be materially
adversely affected by such amendment.
6. Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
7. Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto.
8. Addresses and Notice. Any notice, demand, request or report
required or permitted to be given or made to the Company or to a Holder under
this Agreement shall be in writing and shall be deemed given or made when
delivered in person or when sent by first class United States mail to the
Company or to the Holder at the address set forth opposite such Holder's name in
Exhibit A or Exhibit B, as applicable, to this Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the Company and the Holders have executed this
Agreement effective as of the date first above written.
CHATEAU PROPERTIES, INC.
By:______________________________
Name:
Title:
[INCLUDE SIGNATURE LINES FOR EACH
PERSON LISTED IN EXHIBIT
A]
10
<PAGE>
EXHIBIT A
HOLDERS
Number of Shares of
Name and Address Common Stock Held
- ---------------- -------------------
Gary P. McDaniel
32023 Country Road 15
Elizabeth, CO 80107
Steven G. Davis
7525 5. Flanders St.
Aurora, CO 80016
Rees F. Davis, Jr.
7137 S. Locust Circle
Englewood, CO 80111
James B. Grange
6830 E. Costilla Circle
Englewood, CO 80112
James L. Clayton
3340 Kingston Pike, Unit 12
Knoxville, TN 37919
Donald E. Miller
5965 E. Princeton
Englewood, CO 80111
James M. Hankins
29 Blue Heron Drive
Greenwood Village, CO 80121
Tucker Hart Adams
The Adams Group, Inc.
1200 Madison, #706
Denver, CO 80206
A-1
<PAGE>
Number of Shares of
Name and Address Common Stock Held
- ---------------- -------------------
A-2
<PAGE>
EXHIBIT 23.1
CONSENT OF PAINEWEBBER INCORPORATED
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of ROC Communities, Inc. as an exhibit to the Joint Proxy
Statement/Prospectus which forms a part of the Registration Statement on Form
S-4 relating to the proposed merger of ROC Communities, Inc. and Chateau
Properties, Inc., and to the references to such opinion in such Joint Proxy
Statement/Prospectus under the captions "Summary--Recommendations of the Board
of Directors; Reasons for the Merger," "Summary--Opinions of Financial
Advisors," "The Proposed Merger and Related Matters--Background of the Merger,"
"The Proposed Merger and Related Matters--Recommendation of the ROC Board;
Reasons for the Merger" and "The Proposed Merger and Related Matters--Opinion of
Financial Advisor to ROC." In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations adopted by the
Securities and Exchange Commission thereunder, nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning "experts" as used in the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
PAINEWEBBER INCORPORATED
BY: /S/ DAVID R. JARVIS
------------------------------------------
David R. Jarvis
Managing Director
New York, New York
December 23, 1996
<PAGE>
EXHIBIT 23.2
December 20, 1996
Board of Directors
Chateau Properties, Inc.
19500 Mall Road
Clinton Township, MI 48038
Gentlemen:
We hereby consent to the inclusion of our opinion letter addressed to
the Board of Directors of Chateau Properties, Inc. ("Chateau Properties") as
Appendix C to the Joint Proxy Statement/Prospectus of Chateau Properties and
ROC Communities, Inc. ("ROC Communities") which form a part of the
Registration Statement on Form S-4 related to the proposed merger of ROC
Communities with a subsidiary of Chateau Properties and to the references
therein to such opinion under the captions "Summary-Recommendations of the
Boards of Directors; Reasons for the Merger-Chateau", "Summary-Opinions of
Financial Advisors-Chateau; Opinions of Merrill Lynch and Goldman Sachs".
"The Proposed Merger and Related Matters-Background of the Merger", "The
Proposed Merger and Related Matters-Recommendation of the Chateau Board;
Reasons for the Merger" and "The Proposed Merger and Related Matters-Opinions
of Financial Advisors to Chateau-Merrill Lynch." In addition, we hereby
consent to references to our oral opinion as to the inadequacy of the MHC
Offer from a financial point of view under the captions "The Proposed Merger
and Related Matters-Recommendation of the Chateau Board; Reasons for the
Merger" and "The Proposed Merger and Related Matters-Opinions of Financial
Advisors to Chateau-Financial Analyses" in the above referenced Joint Proxy
Statement/Prospectus. In giving such consents we do not admit that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within
the meaning of the term "experts" as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/John C. Brady
-----------------------------------
Authorized Officer
Investment Banking Group
<PAGE>
EX. 23.3
[GOLDMAN SACHS LETTERHEAD]
PERSONAL AND CONFIDENTIAL
December 20, 1996
Board of Directors
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, MI 48038
Re: Registration Statement of Chateau Properties, Inc.
relating to Common Stock being registered in
connection with the merger of ROC Communities, Inc.
with a subsidiary of Chateau Properties, Inc.
Gentlemen:
Reference is made to our opinion letter dated September 17, 1996 with
respect to the fairness to Chateau Properties, Inc. (the "Company") of the
Exchange Ratio (as hereafter defined) pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of September 17, 1996 (the "Restated
Agreement"), among the Company, ROC Communities, Inc. ("ROC") and R Acquisition
Sub, Inc. ("R Sub"), a wholly-owned subsidiary of the Company. Pursuant to the
Restated Agreement, ROC will be merged with R Sub (the "Merger") and each
outstanding share of common stock, par value $0.01 per share, of ROC will be
converted into the right to receive 1.042 shares of common stock, par value
$0.01 per share, of the Company (such exchange ratio is herein referred to as
the "Exchange Ratio"). Reference is also made to the oral opinion of our Firm as
to the inadequacy of the MHC Offer (as defined in the Joint Proxy
Statement/Prospectus included in the above-mentioned Registration Statement).
The foregoing opinions are for the information and assistance of the Board
of Directors of the Company in connection with its consideration of the Merger
and are not to be used, circulated, quoted or otherwise referred to for any
other purpose, nor are they to be filed with, included in or referred to in
whole or in part in any registration statement, proxy statement or any other
document, except in accordance with our prior written consent. We understand
that the Company has determined to refer to the foregoing opinions (and include
the foregoing opinion letter) in the above-referenced Registration Statement.
<PAGE>
Chateau Properties, Inc.
December 20, 1996
Page Two
In that regard, we hereby consent to the reference to the opinion of our
Firm contained in the foregoing opinion letter under the captions
"Summary--Recommendations of the Board of Directors; Reasons for the
Merger--Chateau," "Summary--Opinions of Financial Advisors--Chateau; Opinions of
Merrill Lynch and Goldman Sachs," "The Proposed Merger and Related
Matters--Background of the Merger," "The Proposed Merger and Related
Matters--Recommendation of the Chateau Board; Reasons for the Merger" and "The
Proposed Merger and Related Matters--Opinions of Financial Advisors to
Chateau--Goldman Sachs" and to the inclusion of the foregoing opinion letter in
the Joint Proxy Statement/Prospectus included in the above-mentioned
Registration Statement. In addition we hereby consent to the reference to the
oral opinion of our Firm as to the inadequacy of the MHC Offer under the
captions "The Proposed Merger and Related Matters--Recommendation of the Chateau
Board; Reasons for the Merger" and "The Proposed Merger and Related
Matters--Opinions of Financial Advisors to Chateau--Financial Analyses" in such
Joint Proxy Statement/Prospectus. In giving the foregoing consents, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
<TABLE>
<S> <C> <C>
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ----------------------------
(Goldman, Sachs & Co.)
</TABLE>
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Chateau Properties, Inc. on Form S-4 of our reports dated February 2, 1996
(relating to the consolidated financial statements of ROC Communities, Inc.)
and February 23, 1994 (relating to the financial statements of ROC
Controlled, Properties), appearing in the Annual Report on Form 10-K and
10-K/A of ROC Communities, Inc. for the year ended December 31, 1995, and our
reports dated July 26, 1996 (relating to certain real estate properties)
appearing in the Current Report on Form 8-K/A dated September 9, 1996, and
to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
---------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
December 23, 1996
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Chateau Properties, Inc. on Form S-4 of our report dated February 2, 1996, on
our audits of the consolidated balance sheets of Chateau Properties, Inc. as of
December 31, 1995 and 1994 and the consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994, and the period November 23, 1993 to December 31, 1993 and the combined
statements of income, owners' deficit and cash flows of Chateau Properties Group
for the period January 1, 1993 to November 22, 1993 and the financial statement
schedule for the aforementioned periods. We also consent to the reference of our
Firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Detroit, Michigan
December 20, 1996
<PAGE>
EXHIBIT 99.1
PROXY
ROC Communities, Inc.
6430 South Quebec Street
Englewood, Colorado 80111
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints each of ___________________________________
as proxies, each with the power to appoint his substitute, and authorizes each
of them to represent and to vote, as designated below, all shares of common
stock of ROC Communities, Inc. ("ROC") held of record by the undersigned on
December 23, 1996 at a special meeting of stockholders of ROC to be held on
January 28, 1997 or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER WITH
RESPECT TO ALL SHARES OF ROC HELD OF RECORD BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND
IN THE BEST DISCRETION OF SUCH PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
1. To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger, dated as of September 17, 1996, as amended
by the Amendment thereto dated as of December 20, 1996, by and among ROC,
Chateau Properties, Inc., a Maryland corporation ("Chateau") and R
Acquisition Sub, Inc., a Maryland corporation and a direct subsidiary of
Chateau ("RSub"), providing for the merger of RSub with ROC, with ROC
surviving such merger (the "Merger") and to authorize the Merger and
certain related transactions. The consummation of the Merger and such
related transactions will result in, among other things, the exchange
of the outstanding common stock, par value $.01 per share, of ROC and
non-voting redeemable stock, par value $.01 per share, of ROC for common
stock, par value $.01 per share, of Chateau.
_______ FOR _______ AGAINST _______ ABSTAIN
2. To adjourn the ROC Special Meeting to permit further solicitation of
proxies in the event that there are not sufficient votes to approve
the ROC Proposal at the time of the ROC Special Meeting.
_______ FOR _______ AGAINST _______ ABSTAIN
3. In the best discretion of such proxies upon such other business as may
properly come before the meeting or any adjournment thereof.
Please sign this proxy in the space
provided below. Execution by stockholders
who are not individuals must be made
by an authorized signatory.
Dated:______________________________
_____________________________________
Name of Record Owner
Please sign, date and return
this Proxy promptly using the ______________________________________
enclosed envelope. Signature
<PAGE>
Exhibit 99.2
PROXY
Chateau Properties, Inc.
19500 Hall Road
Clinton Township, Michigan 48038
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints each of ___________________________________
as proxies, each with the power to appoint his substitute, and authorizes each
of them to represent and to vote, as designated below, all shares of common
stock of Chateau Properties, Inc. ("Chateau") held of record by the undersigned
on January __,1997 at a special meeting of stockholders of Chateau to be held
on February __, 1997 or any adjournment thereof. This proxy when properly
executed will be voted in the manner directed herein by the undersigned
stockholder with respect to all shares of Chateau held of record by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
Proposals 1, 2 and 3 and in the best discretion of such proxies upon such other
business as may properly come before the meeting or any adjournment thereof.
1. To consider and vote on a proposal to issue 13,109,941 shares of Common
Stock of Chateau in connection with an Amended and Restated Agreement and
Plan of Merger, dated as of September 17, 1996, as amended by the Amendment
thereto dated as of December 20, 1996, by and among Chateau, ROC
Communities, Inc., a Maryland corporation ("ROC") and R Acquisition Sub,
Inc., a Maryland corporation and a direct subsidiary of Chateau ("RSub"),
providing for the merger of RSub with ROC, with ROC surviving such merger
(the "Merger"). The consummation of the Merger and related transactions
will result in, among other things, the exchange of the outstanding common
stock, par value $.01 per share, of ROC and non-voting redeemable stock,
par value $.01 per share, of ROC for common stock, par value $.01 per
share, of Chateau.
_______ FOR _______ AGAINST _______ ABSTAIN
2. To consider and vote on a proposal to issue and sell up to 1,450,000 shares
of Common Stock of Chateau to holders of limited partnership units ("OP
Units") in CP Limited Partnership, a Maryland limited partnership of which
Chateau is the general partner, who have agreed to exchange their OP Units
for shares of Common Stock of Chateau, which issuance and sale shall be at
an average price per share, payable in cash, of not less than the greater
of the average price paid by Chateau in connection with the Chateau Share
Repurchase Program (as defined in the Joint Proxy Statement/Prospectus and
Supplement) or the fair market value of the shares of Common Stock of
Chateau as of the sale date as determined in good faith by the Chateau
Board.
_______ FOR _______ AGAINST _______ ABSTAIN
3. To adjourn the Chateau Special Meeting to permit further solicitation of
proxies in the event that there are not sufficient votes to approve the
Chateau Proposals at the time of the Chateau Special Meeting.
_______ FOR _______ AGAINST _______ ABSTAIN
4. In the best discretion of such proxies upon such other business as may
properly come before the meeting or any adjournment thereof.
Please sign this proxy in the space provided below.
Execution by stockholders who are not individuals
must be made by an authorized signatory.
Dated:____________________________________________
__________________________________________________
Name of Record Owner
Please sign, date and
return this Proxy promptly __________________________________________________
using the enclosed Signature
envelope.
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to being named as a Director of Chateau Properties, Inc. in
the Registration Statement on Form S-4 of Chateau Properties, Inc. as filed
with the Securities and Exchange Commission on December 24, 1996.
December 24, 1996
/s/ Gary P. McDaniel
-----------------------------------
Gary P. McDaniel
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to being named as a Director of Chateau Properties, Inc. in
the Registration Statement on Form S-4 of Chateau Properties, Inc. as filed
with the Securities and Exchange Commission on December 24, 1996.
December 24, 1996
/s/ James Clayton
-----------------------------------
James Clayton
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to being named as a Director of Chateau Properties, Inc. in
the Registration Statement on Form S-4 of Chateau Properties, Inc. as filed
with the Securities and Exchange Commission on December 24, 1996.
December 24, 1996
/s/ Steven G. Davis
-----------------------------------
Steven G. Davis
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to being named as a Director of Chateau Properties, Inc. in
the Registration Statement on Form S-4 of Chateau Properties, Inc. as filed
with the Securities and Exchange Commission on December 24, 1996.
December 24, 1996
/s/ James M. Hankins
-----------------------------------
James M. Hankins
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to being named as a Director of Chateau Properties, Inc. in
the Registration Statement on Form S-4 of Chateau Properties, Inc. as filed
with the Securities and Exchange Commission on December 24, 1996.
December 24, 1996
/s/ Donald E. Miller
-----------------------------------
Donald E. Miller
