<PAGE> 1
As Filed Pursuant to Rule 424(b)(5)
Registration No. 333-04544
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED DECEMBER 10, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 10, 1997)
$120,000,000
CP LIMITED PARTNERSHIP
$75,000,000 % MANDATORY PAR PUT REMARKETED SECURITIES(SM) ("MOPPRS(SM)") DUE
, 2014
$45,000,000 % NOTES DUE , 2007
------------------------
CP Limited Partnership (the "Operating Partnership") is offering the %
MandatOry Par Put Remarketed Securities(SM) ("MOPPRS(SM)") due , 2014
and the % Notes due , 2007 (the "Notes" and, together with the
MOPPRS, the "Offered Securities"). Interest on the Offered Securities will be
payable semiannually on and of each year, commencing
, 1998. Except in the limited circumstances described herein, the
MOPPRS are not subject to redemption by the Operating Partnership on or prior to
, 2004 (the "Remarketing Date"). After the Remarketing Date, the
MOPPRS are subject to redemption by the Operating Partnership, in whole or in
part, at the redemption prices set forth herein plus accrued and unpaid
interest. The Notes are subject to redemption by the Operating Partnership, in
whole or in part, at any time, at the redemption prices set forth herein plus
accrued and unpaid interest. See "Description of Offered
Securities -- Redemption."
The annual interest rate on the MOPPRS to the Remarketing Date is %. ON
THE REMARKETING DATE, THE MOPPRS WILL, IN ALL CASES, BE SUBJECT TO MANDATORY
TENDER TO THE REMARKETING DEALER OR SUBJECT TO REPURCHASE BY THE OPERATING
PARTNERSHIP AS DESCRIBED BELOW. If Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Remarketing Dealer (the "Remarketing Dealer"), has elected to
remarket the MOPPRS as described herein, the MOPPRS will be subject to mandatory
tender to the Remarketing Dealer at a price equal to 100% of the principal
amount thereof for remarketing on the Remarketing Date, except in the limited
circumstances described herein. See "Description of Offered Securities -- Tender
of MOPPRS; Remarketing." If the Remarketing Dealer for any reason does not
purchase all tendered MOPPRS on the Remarketing Date or elects not to remarket
the MOPPRS, or in certain other limited circumstances described herein, the
Operating Partnership will be required to repurchase the entire principal amount
of the MOPPRS from the beneficial owners ("Beneficial Owners") thereof at 100%
of the principal amount thereof plus accrued interest, if any. See "Description
of Offered Securities -- Repurchase."
Ownership of the Offered Securities will be maintained in book-entry form by
or through The Depository Trust Company ("DTC"). Interests in the Offered
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Beneficial Owners of
the Offered Securities will not have the right to receive physical certificates
evidencing their ownership except under the limited circumstances described
herein. Settlement for the Offered Securities will be made in immediately
available funds. The secondary market trading activity in the Offered Securities
will therefore settle in immediately available funds. All payments of principal
and interest on the Offered Securities will be made by the Operating Partnership
in immediately available funds so long as the Offered Securities are maintained
in book-entry form. Beneficial interests in the Offered Securities may be
acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples thereof. See "Description of Offered Securities -- Book-Entry
System" and "-- Same-Day Settlement and Payment."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The MOPPRS will be sold to the public at varying prices relating to
prevailing market prices at the time of resale to be determined by the MOPPRS
Underwriter (as defined herein) at the time of each sale. The net proceeds to
the Operating Partnership will be % of the principal amount of the MOPPRS sold
and the aggregate proceeds, before deducting estimated expenses of $
payable by the Operating Partnership, will be $ , plus accrued interest,
if any, from , 1997. The Notes will be sold in a fixed-price offering
on the terms set forth in the table below. For further information with respect
to the plan of distribution, see "Underwriting."
<TABLE>
<CAPTION>
===========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO OPERATING
PUBLIC(1) DISCOUNT(2) PARTNERSHIP(1)(3)
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<S> <C> <C> <C>
Per Note........................................... % % %
- ---------------------------------------------------------------------------------------------------------------------------
Total.............................................. $ $ $
===========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Operating Partnership and Chateau Communities, Inc. (the "Company") have
agreed to indemnify the Underwriters against or make contributions relating
to certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting estimated expenses of $ payable by the Operating
Partnership.
------------------------
The Offered Securities are offered by the several Underwriters as specified
herein, subject to prior sale, when, as and if issued to and accepted by them
and subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Offered Securities will be made through the
book-entry facilities of DTC on or about , 1997.
------------------------
SOLE MANAGER OF THE MOPPRS
MERRILL LYNCH & CO.
JOINT LEAD MANAGERS AND JOINT BOOKRUNNERS OF THE NOTES
PAINEWEBBER INCORPORATED MERRILL LYNCH & CO.
------------------------
A.G. EDWARDS & SONS, INC.
------------------------
The date of this Prospectus Supplement is , 1997.
- ---------------
"MandatOry Par Put Remarketed Securities(SM)" and "MOPPRS(SM)" are service marks
owned by Merrill Lynch & Co., Inc.
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PROPERTY LOCATIONS
[GEOGRAPHIC PROPERTIES MAP]
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CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE NOTES MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO
COVER THE UNDERWRITERS' SHORT POSITIONS. CERTAIN PERSONS PARTICIPATING IN THE
OFFERING OF THE MOPPRS MAY ENGAGE IN TRANSACTIONS THAT MAINTAIN OR OTHERWISE
AFFECT THE PRICE OF THE MOPPRS. SUCH TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT
TRANSACTIONS AND THE PURCHASE OF MOPPRS TO COVER THE UNDERWRITER'S SHORT
POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
CERTAIN MATTERS DISCUSSED IN THIS PROSPECTUS SUPPLEMENT, THE ATTACHED
PROSPECTUS, AND THE INFORMATION INCORPORATED BY REFERENCE HEREIN INCLUDING,
WITHOUT LIMITATION, STRATEGIC INITIATIVES, MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), AND AS SUCH MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY AND THE OPERATING PARTNERSHIP TO BE MATERIALLY
DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY AND THE OPERATING
PARTNERSHIP TO DIFFER MATERIALLY FROM THE COMPANY AND THE OPERATING
PARTNERSHIP'S EXPECTATIONS ARE DISCLOSED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS ("CAUTIONARY STATEMENTS"),
INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS MADE IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN. ALL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY AND THE OPERATING PARTNERSHIP ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information included elsewhere in this
Prospectus Supplement and the accompanying Prospectus or incorporated herein or
therein by reference. Unless the context otherwise requires, all references in
this Prospectus Supplement to the "Company" or "Chateau," or to the "Operating
Partnership," shall mean Chateau Communities, Inc. or CP Limited Partnership,
respectively, and their subsidiaries on a consolidated basis, as well as their
respective predecessors.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Offered Securities are being issued by CP Limited Partnership (the
"Operating Partnership"), which is the operating partnership of Chateau
Communities, Inc. (the "Company"). The Company, a self-administered and
self-managed equity real estate investment trust ("REIT"), is the largest
owner/manager of manufactured home communities in the United States, based both
on the number of communities and the number of residential homesites owned. At
November 30, 1997, the Operating Partnership owned and operated 131 manufactured
home communities (the "Properties") located in 28 states, with an aggregate of
43,754 homesites. As of that date, the Operating Partnership owned undeveloped
land adjacent to existing communities containing approximately 5,000 expansion
sites zoned for manufactured housing. At September 30, 1997, the total occupancy
rate for the Operating Partnership's homesites, including properties under
development, was approximately 91.8%, and the occupancy rate for the Operating
Partnership's stabilized property portfolio was approximately 94.2%. The
Operating Partnership's portfolio is geographically diversified, with
significant concentrations in the southeastern and midwestern United States,
permitting economies of scale in property management operations. The Operating
Partnership's portfolio is also diversified by resident orientation, with
approximately 28% of the residential homesites in adult-oriented communities and
72% of residential homesites in family-oriented communities. The Operating
Partnership also currently fee manages 6,700 residential homesites in 32
communities, and conducts manufactured home sales and brokerage activities
through its taxable subsidiary, Community Sales, Inc. ("CSI"). In 1997, the
National Manufactured Housing Congress presented the Company with the "National
Operator of the Year" award for an unprecedented fifth consecutive year,
confirming the Company's outstanding reputation for excellence in property
management and operations.
On February 11, 1997, the Company completed a strategic merger of equals
(the "Merger") with ROC Communities, Inc. ("ROC"), in which ROC merged with a
special-purpose merger subsidiary of the Company. As a result of the Merger, the
businesses of the Company and ROC were combined under a single unified
organization.
The Company conducts substantially all of its activities through the
Operating Partnership in which, as of September 30, 1997, it owned, directly and
through ROC (the other general partner of the Operating Partnership), an
approximate 90% general partner interest. As general partners of the Operating
Partnership, the Company and ROC have unilateral control and complete
responsibility for the management of the Operating Partnership and over each of
the Properties. The Company's Common Stock is listed on the New York Stock
Exchange under the Symbol "CPJ."
The Operating Partnership believes that manufactured homes have become an
increasingly popular alternative to site-built homes. According to data
published by the Manufactured Housing Institute, the number of manufactured home
shipments has increased by more than 64% from 1980 to 1996, and from 1986 to
1996 approximately 27% of all new single-family homes sold in the United States
have been manufactured homes. In addition, based on U.S. Census Bureau
statistics from the 1990 Census, manufactured housing represents the fastest
growing sector of the U.S. housing market. According to these statistics, from
1980 to 1990, approximately 29% of all new single-family homes sold in the
United States have been manufactured homes.
The Operating Partnership seeks to maximize long-term growth in income and
portfolio value through active management and expansion of certain of its
existing manufactured home communities and the
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acquisition and selective development of additional communities. The Operating
Partnership focuses on manufactured home communities that it believes to have
growth potential and expects to hold such properties for long-term investment
and capital appreciation.
The Operating Partnership maintains most of its communities free of
indebtedness secured by mortgages. Of the 128 communities owned by the Operating
Partnership at September 30, 1997, only 47 were encumbered by mortgages
(representing 29% of all sites owned). On a pro forma basis as of September 30,
1997 (after giving effect to the Merger and the offering of the Offered
Securities and the application of the net proceeds therefrom), the aggregate
principal amount of all outstanding debt of the Operating Partnership was 38% of
the Adjusted Total Assets (as defined in the Indenture) of the Operating
Partnership, and the aggregate principal amount of all outstanding secured debt
of the Operating Partnership encumbered 12% of the Adjusted Total Assets of the
Operating Partnership.
Senior management of the Company has a combined 100 years of experience in
the manufactured housing community industry. The Company's directors and
executive officers also have a substantial ownership interest in the Operating
Partnership. As of November 30, 1997, such persons owned a total of 5.2 million
shares of Common Stock in the Company and 686,000 units of limited partner
interests ("OP Units") in the Operating Partnership (representing, in the
aggregate, a 21% equity interest in the Operating Partnership).
RECENT DEVELOPMENTS
The Merger
The Company completed the Merger with ROC on February 11, 1997. The Merger
combined the property management, administration, acquisitions, development and
new home sales and brokerage expertise of the two companies under a single
entity. The Merger also brought together the complementary skills and experience
of senior executives of both companies who now form the core of senior
management for the combined organization. Since the Merger, the Company has
integrated the operations and organizational reporting structures of the two
companies, reorganized all aspects of property management under a single
Company-wide system, developed and implemented a combined capital and financing
strategy, implemented a uniform accounting and financial reporting system, and
commenced new business initiatives relating to new community development,
expansions and home sales and brokerage activities. Since the announcement of
the Merger with ROC on July 17, 1996 through September 30, 1997, total return to
stockholders of the Company (stock price appreciation plus dividends) has been
52%.
Recent Acquisitions
Since January 1, 1997, the Operating Partnership has acquired eight
communities (containing a total of approximately 1,200 homesites) for an
aggregate purchase price of approximately $26.3 million (including acquisitions
made by ROC prior to the Merger). These communities are located in Massachusetts
(four), Texas (two), and Georgia (two). As of November 30, 1997, the average
occupancy rate for these communities was 95%. The four Massachusetts properties
represent the Operating Partnership's entrance into the New England marketplace,
in which the Operating Partnership foresees additional attractive acquisition
opportunities in the future.
The Operating Partnership continually evaluates possible property
acquisitions. The Operating Partnership believes that the recent adoption of the
Taxpayer Relief Act of 1997 and the resulting reduction in long-term capital
gains tax rates has encouraged current community owners to begin to seek sales
opportunities, and as a result, the Operating Partnership expects the pace of
its acquisitions to increase over the next six to nine months.
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Development and Expansion
Since the Merger, the Operating Partnership has accelerated its development
activities. During 1997, the Operating Partnership commenced or completed
development projects at ten separate communities in seven states. It has thus
far in 1997 substantially completed the development at these communities of
nearly 700 new homesites. In these developments, the Operating Partnership's
invested cost per site is expected to average approximately $15,000. The
Operating Partnership is also involved in third-party joint ventures to develop
four new communities, containing a potential of 2,000 new homesites. Through
these activities, the Operating Partnership has completed the development of 50
sites thus far in 1997. As of September 30, 1997, the Operating Partnership had
invested an aggregate of approximately $3.0 million in these third-party joint
venture developments, and committed to invest approximately $40 million in such
ventures over the next seven years. At November 30, 1997, the Operating
Partnership owned approximately 5,000 sites in its existing properties that are
suitable for further expansion.
Credit Facilities
In July 1997, the Operating Partnership entered into two new credit
facilities with the First National Bank of Chicago and other lenders, consisting
of a $25 million term loan and a $75 million revolving line of credit, and in
November 1997 expanded the borrowing capacity under these facilities by $14
million (the "First Chicago Credit Facilities"). Effective in July 1997, the
interest rate on the revolving credit facility was reduced to LIBOR plus 110
basis points (from LIBOR plus 150 basis points). In addition, in September 1997
the Operating Partnership secured a $7.5 million revolving line of credit from
Colorado National Bank which bears interest at a rate of LIBOR plus 125 basis
points (the "CNB Facility" and, together with the First Chicago Credit
Facilities, the "Credit Facilities").
Credit Ratings
On November 6, 1997, the Operating Partnership's investment corporate
rating was upgraded to "BBB" by Standard & Poor's Ratings Services. The
Operating Partnership is rated "Baa3" by Moody's Investors Service. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold the Offered Securities and are subject to
revision or withdrawal at any time by the assigning rating agency.
Windsor
In September 1997, the Company completed the acquisition of The Windsor
Corporation ("Windsor"), the general partner of partnerships that own 28
manufactured home communities (containing 5,700 homesites), all of which have
been managed by ROC on a fee basis since 1993 and by the Operating Partnership
since the Merger. The Windsor acquisition was financed with the issuance of
101,239 shares of the Company's Common Stock at a price of approximately $29 per
share and $750,000 in cash.
Organization of CSI
Prior to the Merger, new home sales and commercial brokerage activities at
the Company's communities were conducted by third parties. As a result of the
Merger, the Company acquired the sales and brokerage capabilities of CSI, which
had previously been operated as a taxable subsidiary of ROC, and which is now
operated as a taxable subsidiary of the Operating Partnership. CSI achieved
total sales and brokerage revenues from January 1 through September 30, 1997 of
approximately $13.6 million, involving over 300 new home sales and 600 brokered
sales. The Company anticipates that revenues from sales and brokerage activities
will represent a growing portion of its revenue base for 1998.
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THE OFFERING
Unless otherwise defined herein, capitalized terms used herein have the
meanings provided in the Indenture (as defined herein) or under "Description of
Offered Securities."
Securities Offered......... $75,000,000 aggregate principal amount of %
MandatOry Par Put Remarketed Securities ("MOPPRS")
due , 2014, and $45,000,000 aggregate
principal amount of % Notes due ,
2007 (the "Notes," and, together with the MOPPRS,
the "Offered Securities").
Maturity................... The Stated Maturity Date of the MOPPRS is
, 2014, and the Stated Maturity Date of
the Notes is , 2007.
Mandatory Tender of MOPPRS;
Remarketing and
Repurchase:.............. Provided that the Remarketing Dealer gives the
notice to the Operating Partnership and the Trustee
on a Business Day not later than 60 calendar days
prior to the Remarketing Date of its intention to
purchase the MOPPRS for remarketing, the MOPPRS
will be automatically tendered, or deemed tendered,
to the Remarketing Dealer for purchase on the
Remarketing Date, except in the circumstances
described under "Description of Offered
Securities -- Repurchase" or "-- Redemption."
The purchase price to be paid by the Remarketing
Dealer for the tendered MOPPRS will equal 100% of
the principal amount thereof. When the MOPPRS are
tendered for remarketing, the Remarketing Dealer
may remarket the MOPPRS for its own account at
varying prices to be determined by the Remarketing
Dealer at the time of each sale. If the Remarketing
Dealer for any reason does not purchase all
tendered MOPPRS on the Remarketing Date or elects
not to remarket the MOPPRS, or in certain other
limited circumstances described herein, the
Operating Partnership will be required to
repurchase the MOPPRS from the Beneficial Owners
thereof on the Remarketing Date, at 100% of the
principal amount thereof plus accrued interest, if
any. See "Description of Offered
Securities -- Repurchase."
Optional Redemption........ The MOPPRS are subject to redemption from the
Remarketing Dealer, in whole but not in part, at
the option of the Operating Partnership on the
Remarketing Date at the Optional Redemption Price.
After the Remarketing Date, the MOPPRS are subject
to redemption by the Operating Partnership, in
whole or in part, on substantially the same terms
as the Notes may be redeemed as described below.
The MOPPRS are not otherwise subject to redemption
by the Operating Partnership. The Notes are subject
to redemption, in whole or in part, at the option
of the Operating Partnership at any time, at a
redemption price determined by the Operating
Partnership equal to the sum of (i) the principal
amount of the Notes being redeemed, plus accrued
and unpaid interest thereon to the redemption date,
and (ii) the Make-Whole Amount, if any, with
respect to such Notes. See "Description of Offered
Securities -- Redemption."
Interest Payment Dates..... Interest on the Offered Securities is payable
semiannually on and of each
year, commencing , 1998.
Ranking.................... The Offered Securities will be senior unsecured
obligations of the Operating Partnership and will
rank equally with the Operating Partnership's other
unsecured and unsubordinated indebtedness. As of
September 30, 1997, the Operating Partnership had
outstanding approximately $232.8 million of other
unsecured and unsubordinated indebtedness. In
addition, as of such date the Operating Partnership
and its subsidiaries had outstanding approximately
$115.4 million of secured mortgage debt, which will
rank senior to the Offered Securities.
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Use of Proceeds............ The net proceeds from the sale of the Offered
Securities are estimated to be approximately
$ . The net proceeds will be used
primarily to reduce outstanding balances under the
Credit Facilities. Approximately $112.1 million was
outstanding under these facilities as of November
30, 1997. See "Use of Proceeds."
Limitation on Incurrence of
Debt....................... The Offered Securities contain various covenants
including the following:
Neither the Operating Partnership nor any
Subsidiary may incur any Debt if, after giving
effect thereto, the aggregate principal amount of
all outstanding Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis is
greater than 60% of the sum of (i) the Adjusted
Total Assets of the Operating Partnership and its
Subsidiaries as of the end of the most recent
calendar quarter and (ii) the purchase price of any
real estate assets or mortgages receivable
acquired, and the amount of any securities offering
proceeds received (to the extent that such proceeds
were not used to acquire real estate assets or
mortgages receivable or used to reduce Debt), by
the Operating Partnership or any Subsidiary since
the end of such calendar quarter, including those
proceeds obtained in connection with the incurrence
of such additional Debt.
Neither the Operating Partnership nor any
Subsidiary may incur any Debt secured by any
mortgage or other lien upon any of the property of
the Operating Partnership or any Subsidiary if,
after giving effect thereto, the aggregate
principal amount of all outstanding Debt of the
Operating Partnership and its Subsidiaries on a
consolidated basis which is secured by any mortgage
or other lien on the property of the Operating
Partnership or any Subsidiary is greater than 40%
of the sum of (i) the Adjusted Total Assets of the
Operating Partnership and its Subsidiaries as of
the end of the most recent calendar quarter and
(ii) the purchase price of any real estate assets
or mortgages receivable acquired, and the amount of
any securities offering proceeds received (to the
extent that such proceeds were not used to acquire
real estate assets or mortgages receivable or used
to reduce Debt), by the Operating Partnership or
any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in
connection with the incurrence of such additional
Debt.
The Operating Partnership and its Subsidiaries may
not at any time own Total Unencumbered Assets equal
to less than 150% of the aggregate outstanding
principal amount of the Unsecured Debt of the
Operating Partnership and its Subsidiaries on a
consolidated basis.
Neither the Operating Partnership nor any
Subsidiary may incur any Debt, if, after giving
effect thereto, the ratio of Consolidated Income
Available for Debt Service to the Annual Service
Charge for the four consecutive fiscal quarters
most recently ended prior to the date on which such
additional Debt is to be incurred shall have been
less than 1.5:1 on a pro forma basis after giving
effect to certain assumptions.
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BUSINESS
THE COMPANY AND THE OPERATING PARTNERSHIP
The Offered Securities are being issued by the Operating Partnership, which
is the operating partnership of the Company. The Company, a self-administered
and self-managed equity REIT, is the largest owner/manager of manufactured home
communities in the United States, based both on the number of communities and
the number of residential homesites owned. At November 30, 1997, the Operating
Partnership owned and operated 131 Properties located in 28 states, with an
aggregate of 43,754 homesites. As of that date, the Operating Partnership owned
undeveloped land adjacent to existing communities containing approximately 5,000
expansion sites zoned for manufactured housing. At September 30, 1997, the total
occupancy rate for the Operating Partnership's homesites, including properties
under development, was approximately 91.8%, and the occupancy rate for the
Operating Partnership's stabilized property portfolio was approximately 94.2%.
The Operating Partnership's portfolio is geographically diversified, with
significant concentrations in the southeastern and midwestern United States,
permitting economies of scale in property management operations. The Company's
portfolio is also diversified by resident orientation, with approximately 28% of
the residential homesites in adult-oriented communities and 72% of residential
homesites in family-oriented communities. The Operating Partnership also
currently fee manages 6,700 residential homesites in 32 communities, and
conducts manufactured home sales and brokerage activities through its taxable
subsidiary, CSI. In 1997, the National Manufactured Housing Congress presented
the Company with the "National Operator of the Year" award for an unprecedented
fifth consecutive year, confirming the Company's outstanding reputation for
excellence in property management and operations.
On February 11, 1997, the Company completed the Merger with ROC, in which
ROC merged with a special-purpose merger subsidiary of the Company. As a result
of the Merger, the businesses of the Company and ROC were combined under a
single unified organization.
The Company conducts substantially all of its activities through the
Operating Partnership in which, as of September 30, 1997, it owned, directly and
through ROC (the other general partner of the Operating Partnership), an
approximate 90% general partner interest. As general partners of the Operating
Partnership, the Company and ROC have unilateral control and complete
responsibility for the management of the Operating Partnership and over each of
the Properties. The Company's Common Stock is listed on the New York Stock
Exchange under the Symbol "CPJ."
Senior management of the Company has a combined 100 years of experience in
the manufactured housing community industry. The Company's directors and
executive officers also have a substantial ownership interest in the Operating
Partnership. As of November 30, 1997, such persons owned a total of 5.2 million
shares of Common Stock in the Company and 686,000 OP Units representing in the
aggregate a 21% equity interest in the Operating Partnership.
The Company's and the Operating Partnership's executive and principal
property management offices are located at 6430 South Quebec Street, Englewood,
Colorado 80111 and their telephone number is (303) 741-3707. The Company and the
Operating Partnership have divisional and/or regional property management
offices in Clinton Township, Michigan; Indianapolis, Indiana; Tampa, Florida;
Atlanta, Georgia; and Minneapolis, Minnesota.
OPERATING AND INVESTMENT STRATEGIES
The Operating Partnership seeks to maximize long-term growth in income and
portfolio value through active management and expansion of certain of its
existing manufactured home communities and the acquisition and selective
development of additional communities. The Operating Partnership focuses on
manufactured home communities that have growth potential and expects to hold
such properties for long-term investment and capital appreciation. The Operating
Partnership's investment and operating strategies include:
Operations
- Providing attractive and desirable manufactured home communities for
existing and prospective residents;
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- 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 residents on-site services and accessibility to on-site managers
to maximize retention, encourage home maintenance and improvements and to
minimize turnover;
- 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; and
- Offering potential residents the convenience of purchasing a home in
place in a community.
Acquisitions, Development and Expansions
- Selectively acquiring well-located manufactured home communities that
demonstrate the potential for increases in revenue and cash flow through
professional property management, improved operating efficiencies,
aggressive leasing and, where appropriate, renovation and expansion;
- Acquiring properties in existing markets in order to achieve economies of
scale in management and operations, and in new markets where portfolios
may be acquired with regional management in place;
- Pursuing acquisitions which offer opportunities for expansion and
development, either through the leaseup of existing homesites or the
development of new homesites;
- Utilizing the expertise and relationships developed by management to
identify acquisition opportunities;
- Selectively developing new communities in regions where management has
significant experience and where further development is supported by
favorable demographics and strong market demand; and
- Capitalizing on opportunities to renovate and expand properties
consistent with local market demand.
FINANCING STRATEGIES
The Operating Partnership intends to maintain a conservative and flexible
capital structure that enables it to (i) continue to access the capital markets
on favorable terms; (ii) enhance potential earnings growth; (iii) minimize its
level of encumbered assets; and (iv) limit its exposure to variable rate debt.
The Operating Partnership intends to maintain a debt-to-market capitalization
ratio (i.e., total debt of the Operating Partnership as a percentage of the
market value of outstanding OP Units plus debt) of approximately 50% or less. As
of September 30, 1997, the Operating Partnership had a debt-to-total market
capitalization ratio of 29.5% The Operating Partnership, 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 Operating
Partnership of debt and equity capital, market values of the properties and
other factors. The Operating Partnership's unsecured senior indebtedness has
been rated "investment grade" by Standard & Poor's Ratings Services ("BBB") and
Moody's Investors Service ("Baa3").
PROPERTIES
At November 30, 1997, the Properties consisted of 131 manufactured home
communities located in 28 states, containing 43,754 homesites, of which 40,261
were occupied.
The distribution of the Properties across the United States reflects
management's belief that geographic diversification helps insulate the portfolio
from regional economic influences. At the same time, the Operating Partnership
has sought to create concentrations of properties within each of its primary
regions in order to facilitate effective property management and achieve
economies of scale. In addition to its headquarters in Englewood, Colorado, the
Company maintains divisional and/or regional property management offices in
S-11
<PAGE> 12
Clinton Township, Michigan; Indianapolis, Indiana; Tampa, Florida; Atlanta,
Georgia; and Minneapolis, Minnesota.
In the aggregate, the Properties had a 93% occupancy rate over the last
three years and, as of September 30, 1997, the total occupancy rate for the
Operating Partnership's homesites, including properties under development, was
approximately 91.8%, and the occupancy rate for the Operating Partnership's
stabilized property portfolio was approximately 94.2%. Weighted average rent for
the nine months ended September 30, 1997 was $284 per month. Weighted average
rent is calculated as net rental and utility income for the period, on a monthly
basis, divided by the weighted average occupied sites. Weighted average
occupancy is computed by averaging the occupied sites at the end of each month
in the period. Over the past three years, the Properties have averaged an annual
turnover of homes (where the home is moved out of the community) of
approximately 3%. During this period, the annual change of ownership of homes
within the Properties has been approximately 10% to 12%. The Operating
Partnership believes that the relative stability of its resident base reflects
the Operating Partnership's emphasis on resident relations and property
management and enhances the predictability of future cash flows.
Each of the Properties provides amenities consistent with the market and
type of property (retirement or family living), which may include a clubhouse,
swimming pools and jacuzzis, playgrounds, basketball courts, picnic areas,
tennis courts, shuffleboard courts, golf courses, marinas and cable television
service.
As of November 30, 1997, approximately 29% of the Properties were located
in Florida and 28% in Michigan (based in each instance on the total number of
homesites owned). The Operating Partnership's financial performance may
therefore be affected by adverse changes in economic or other conditions in
these states.
S-12
<PAGE> 13
The following table describes the Properties owned as at November 30, 1997:
<TABLE>
<CAPTION>
COMMUNITIES HOMESITES WEIGHTED
NUMBER AS A AS A AVERAGE
OF PERCENT TOTAL PERCENT RENT PER EXPANSION
STATE COMMUNITIES OF TOTAL HOMESITES OF TOTAL OCCUPANCY(1) HOMESITE(1) SITES
- --------------------------- ----------- ----------- --------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama.................... 1 1% 230 1% 90.4% $ 190 --
California................. 5 4% 977 2% 94.5% 513 --
Colorado................... 5 4% 2,396 5% 96.6% 299 192
Florida.................... 29 22% 12,735 29% 91.5% 284 1,104
Georgia.................... 10 8% 2,774 6% 82.2% 214 164
Iowa....................... 2 2% 489 1% 97.3% 228 --
Idaho...................... 3 2% 508 1% 97.2% 250 --
Illinois................... 3 2% 491 1% 92.7% 211 --
Indiana.................... 5 4% 1,117 3% 96.2% 245 --
Kentucky................... 2 2% 308 1% 95.8% 221 --
Louisiana.................. 2 2% 605 1% 73.1% 141 --
Massachusetts.............. 4 3% 641 1% 96.6% 282 149
Michigan................... 28 21% 12,118 28% 95.4% 311 1,410
Minnesota.................. 5 4% 1,472 3% 94.2% 329 --
Missouri................... 1 1% 134 0% 59.0% 148 155
Montana.................... 1 1% 222 1% 90.1% 197 185
North Carolina............. 2 2% 796 2% 98.0% 251 --
North Dakota............... 3 2% 820 2% 96.1% 224 --
Nevada..................... 1 1% 107 0% 98.1% 381 --
New York................... 3 2% 1,522 3% 84.7% 291 560
Ohio....................... 4 3% 862 2% 87.2% 233 439
Oklahoma................... 1 1% 237 1% 90.3% 167 --
Oregon..................... 2 2% 345 1% 98.6% 315 --
South Carolina............. 1 1% 299 1% 57.9% 155 --
Texas...................... 5 4% 914 2% 74.5% 183 442
Virginia................... 1 1% 289 1% 83.7% 196 229
Washington................. 1 1% 230 1% 97.0% 404 --
Wyoming.................... 1 1% 116 0% 97.4% 207 --
Total/Wtd Average.......... 131 100% 43,754 100% 91.8% $ 284 5,029
</TABLE>
- ---------------
(1) This information is presented as of September 30, 1997.
S-13
<PAGE> 14
OUTSTANDING INDEBTEDNESS
The following table sets forth certain information relating to the secured
and unsecured indebtedness of the Operating Partnership outstanding as of
September 30, 1997:
FIXED RATE DEBT:
<TABLE>
<CAPTION>
INTEREST
PRINCIPAL AMOUNT RATE NUMBER OF
OUTSTANDING PERCENT OF OUTSTANDING MATURITY PROPERTIES
AT SEPTEMBER 30, 1997 TOTAL DEBT AT SEPTEMBER 30, 1997 DATE ENCUMBERED
--------------------- ---------- --------------------- -------- ----------
<S> <C> <C> <C> <C> <C>
MORTGAGE DEBT:
Royal Estates......... $ 190,000 * 6.50% 8/98 1
Marnelle.............. 1,220,000 * 9.00% 10/11 1
Golden Citrus......... 500,000 * 8.00% 1/99 1
Mobile Village........ 682,000 * 8.00% 1/02 1
Macomb................ 16,064,000 4.6% 9.82% 9/99 1
Norton Shores/Ferrand
Estates............ 3,462,000 1.0% 8.00% 4/99 2
Oak Hill.............. 1,225,000 * 8.00% 9/98 1
Del Tura.............. 32,896,000 9.4% 8.40% 6/00 1
REMIC................. 59,247,000 17.0% 7.16% 8/00 38
----------------- ------- ------
Total Mortgage..... 115,486,000 33.2% 7.94% 47
UNSECURED DEBT:
Unsecured Senior
Notes.............. 70,000,000 20.1% 7.52% 11/03
Unsecured Senior
Notes.............. 75,000,000 21.5% 8.75% 3/00
----------------- -------
Total Unsecured.... 145,000,000 41.6% 8.16%
-----------------
Total - Fixed
rate............. 260,487,000 74.8% 8.06%
VARIABLE RATE DEBT:
-----------------
Credit Facilities....... 87,751,000 25.2% 6.77%
Total Debt......... $ 348,237,000 7.74%
=================
</TABLE>
- ---------------
* Represents less than 1%.
INDUSTRY
A manufactured home community is a residential subdivision designed and
improved with homesites for the placement of manufactured homes, including
related improvements and amenities. Manufactured homes are detached, single
family homes which are produced off-site by manufacturers and installed on sites
within the community. Manufactured homes are available in a wide array of
architectural styles and floor plans, offering a variety of amenities,
customization options and on-site built structures.
Modern manufactured home communities are similar to typical residential
subdivisions, and generally contain centralized entrances, paved streets, curbs
and gutters and parkways. In addition, such communities often provide a variety
of amenities to residents, which may include a clubhouse, swimming pools and
jacuzzis, playgrounds, basketball courts, picnic areas, shuffleboard courts,
tennis courts, cable television service and laundry facilities. Utilities are
provided or arranged for by the owner of the community. Some communities provide
water and sewer service through public or private utilities, while others
provide these services to residents from on-site facilities.
The owner of each home in a manufactured home community leases a site from
the community. The manufactured home community is the owner of the underlying
land, utility connections, streets, lighting, driveways, common area amenities
and other capital improvements and is responsible for enforcement of community
guidelines and maintenance. Each home owner within the manufactured home
community is responsible for the maintenance of his home and leased site.
Additionally, manufactured home communities
S-14
<PAGE> 15
tend to have relatively stable resident bases, with relatively few residents
moving manufactured homes out of their communities. Management thus tends to be
less intensive, and capital expenditure needs less significant, relative to
multi-family rental apartment complexes.
According to data published by the Manufactured Housing Institute, the
number of manufactured home shipments has increased by more than 64% from 1980
to 1996, and from 1986 to 1996 approximately 27% of all new single-family homes
sold in the United States have been manufactured homes. In addition, based on
U.S. Census Bureau statistics from the 1990 Census, manufactured housing
represents the fastest growing sector of the U.S. housing market. According to
these statistics, from 1980 to 1990, approximately 29% of all new single-family
homes sold in the United States have been manufactured homes.
The Operating Partnership attributes the growth in manufactured housing
primarily to several factors. First, manufactured homes tend to be more
affordable than traditional site built homes. According to 1996 data supplied by
the Manufactured Housing Institute, the cost of manufactured housing averaged
approximately $27.83 per square foot of living space compared to $58.11 for site
built homes, excluding land. Second, since the introduction of the first "mobile
homes," dramatic improvements in quality, design, amenities and siting have been
introduced to the manufactured home. Since 1976, manufactured homes have been
required to be built in compliance with stringent federal quality regulations
which have improved the industry's product. Third, manufactured homes represent
an attractive life style choice, particularly when located within a community
that offers an appealing amenity package, close proximity to local services,
social activities, low maintenance and a secure environment. Fourth, unlike
apartment complexes and other multi-family rental properties, manufactured homes
represent a means for large numbers of individuals to own their own homes. The
Operating Partnership thus believes that modern manufactured home communities,
such as the Properties, provide an opportunity for increased cash flow and
appreciation in value.
S-15
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Operating Partnership from the sale of the Offered
Securities are estimated to be approximately $ . The net proceeds will
be used primarily to reduce outstanding balances under the First Chicago Credit
Facilities, which mature in May 1999 and currently bear interest at a rate of
6.77% per annum, and under the CNB Facility, which matures in September, 1999
and currently bears interest at a rate of LIBOR plus 125 basis points.
Approximately $112.1 million was outstanding under the Credit Facilities as of
November 30, 1997. Borrowings under the Credit Facilities are available for and
have been used for, among other things, acquisitions, development, expansion and
working capital needs. In addition, the remaining net proceeds of the offering
will be used for general corporate purposes, including the uses for which the
Credit Facilities are available. Pending application of the net proceeds, the
Operating Partnership may invest such proceeds in short-term, interest-bearing
investments, which may include commercial paper, government securities or money
market investments.
S-16
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of September 30, 1997, (i) on an historical basis and (ii) as
adjusted to give effect to the offering of the Offered Securities and the
application of the net proceeds therefrom as described under "Use of Proceeds."
The following table should be read in conjunction with the historical financial
statements and related notes included or incorporated by reference herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage Debt....................................................... $ 115,486 $ 115,486
Unsecured Senior Notes.............................................. 145,000 265,000
Credit Facilities................................................... 87,751 --(1)
Other Notes Payable................................................. 2,002 2,002
Total Debt............................................................ 350,239 382,488
Partners' Capital
OP Units -- 28,225,417 issued and outstanding(2).................... 362,409 362,409
Total Capitalization........................................ $ 712,648 $ 744,897
======== ========
</TABLE>
- ---------------
(1) As of November 30, 1997, the outstanding balance under the Credit Facilities
was approximately $112.1 million.
(2) Includes 2,765,059 OP Units held by limited partners of the Operating
Partnership and 25,469,358 OP Units held by the Company and ROC, the
Operating Partnership's general partners.
S-17
<PAGE> 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Operating Partnership and is qualified by, and should be read in
conjunction with, the information included under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements included in the Operating Partnership's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1996, and in the Operating
Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 incorporated herein by reference. In the opinion of Management, the
historical consolidated financial information of the Operating Partnership for
the nine months ended September 30, 1997 and 1996 includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth herein. The historical financial information is not
necessarily indicative of the results of operations for the future periods. See
"Available Information" and "Incorporation of Certain Documents by Reference" in
the accompanying Prospectus.
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED FOR THE YEAR ENDED
------------------------------- ----------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER, 31
1997 1996 1996 1995 1994
------------- ------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental Income.............................. $ 95,723 $ 50,100 $ 64,695 $ 59,912 $ 47,318
Interest and Other Income.................. $ 2,514 $ 103 $ 2,689 $ 1,943 $ 749
--------- --------- --------- --------- ---------
Total revenues........................... $ 98,237 $ 50,203 $ 67,384 $ 61,855 $ 48,067
========= ========= ========= ========= =========
EXPENSES:
Property operating and administrative...... $ 37,885 $ 20,394 $ 26,870 $ 24,410 $ 19,944
Depreciation and amortization.............. $ 24,144 $ 8,517 $ 11,452 $ 11,014 $ 7,230
Interest and related amortization.......... $ 18,828 $ 9,417 $ 12,962 $ 12,452 $ 5,996
--------- --------- --------- --------- ---------
Total expenses........................... $ 80,857 $ 38,328 $ 51,284 $ 47,876 $ 33,170
--------- --------- --------- --------- ---------
Income before extraordinary item......... $ 17,380 $ 11,875 $ 16,100 $ 13,979 $ 14,897
Extraordinary item......................... $ (829)
--------- --------- --------- --------- ---------
Net income................................. $ 17,380 $ 11,875 $ 16,100 $ 13,150 $ 14,897
========= ========= ========= ========= =========
Weighted average OP Units outstanding...... 26,510 14,907 14,837 14,779 14,189
PER OP UNIT DATA:
Income before extraordinary item........... $ 0.66 $ 0.80 $ 1.09 $ 0.95 $ 1.05
Extraordinary item......................... $ (0.06)
Net income................................. $ 0.66 $ 0.80 $ 1.09 $ 0.89 $ 1.05
CASH FLOW DATA:
Net cash provided by operating
activities............................... $ 35,695 $ 21,329 $ 29,755 $ 28,097 $ 22,584
Net cash provided by (used in) financing
activities............................... $ (5,401) $ 1,790 $ (595) $(24,365) $ 7,056
Net cash (used in) investing activities.... $ (30,565) $ (23,816) $(29,518) $ (6,158) $(46,214)
BALANCE SHEET DATA:
Rental property, before accumulated
depreciation............................. $ 817,647 $ 299,479 $300,631 $276,423 $266,833
Rental property, net of accumulated
depreciation............................. $ 712,499 $ 221,121 $219,338 $206,555 $207,977
Total assets............................... $ 749,794 $ 230,265 $232,066 $212,034 $215,418
Total Debt................................. $ 350,239 $ 153,344 $168,315 $132,700 $132,747
Partners' Capital.......................... $ 362,409 $ 55,462 $ 42,743 $ 60,572 $ 67,111
OTHER DATA:
Funds from operations(1)................... $ 41,350 $ 20,323 $ 27,460 $ 24,898 $ 22,015
Total properties (at end of period)........ 128 47 47 44 43
Total sites (at end of period)............. 43,319 20,113 20,279 19,594 19,185
Weighted average occupied sites............ 37,390 18,813 18,889 18,051 14,913
Annual Service Charge Coverage Ratio(2).... 3.27 3.28 3.23 3.14 5.06
Ratio of Total Debt to Adjusted Total
Assets(2)................................ .35 .32 .35 .29 .30
Ratio of Secured Debt to Adjusted Total
Assets(2)................................ .12 .11 .11 .12 .22
Ratio of Earnings to Fixed Charges(3)...... 1.92 2.26 2.24 2.12 3.47
Ratio of FFO to Fixed Charges(4)........... 3.19 3.15 3.11 2.99 4.65
</TABLE>
- ---------------
(1) Funds from operations ("FFO"), as used above and as defined by the National
Association of Real Estate Investment Trusts, means net income excluding
gains (or losses) from debt restructuring and sales of property, plus
certain depreciation and amortization. Management believes that FFO is an
important measure of operating performance that provides a relevant basis
for comparison among REITs, and industry analysts consider FFO to be an
appropriate measure of the performance of an equity REIT. FFO: (i) does not
represent cash flow from operations as defined by generally accepted
accounting principles; (ii) should not be considered an alternative to net
income as a measure of operating performance or cash flows from operating,
investing and financing activities; and (iii) is not an alternative to cash
flows as a measure of liquidity.
(2) The ratios have the meanings ascribed to them in the Indenture.
(3) Income before extraordinary items plus fixed charges to all fixed charges
from indebtedness outstanding during the period.
(4) FFO plus fixed charges to all fixed charges from indebtedness outstanding
during the period.
S-18
<PAGE> 19
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth selected pro forma consolidated financial
data for the Operating Partnership giving effect to the Merger and certain other
transactions relating to the Merger as if such transactions had occurred on
January 1, 1996. The selected pro forma consolidated financial data for the
Operating Partnership is qualified by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements of the Operating Partnership
included in the Operating Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and in the Operating Partnership's
Quarterly Report and the selected Pro Forma Financial Statements of the Company
on Form 10-Q for the quarter ended September 30, 1997 and the Consolidated
Financial Statements of ROC included in the Company's Current Report on Form 8-K
and the selected Pro Forma Financial Statements of the Company dated December
10, 1997 incorporated herein by reference. The pro forma financial information
is not necessarily indicative of what the financial position and results of
operations of the Operating Partnership would have been as of the dates and for
the periods indicated, nor does it purport to represent or project the financial
position and results of operations for future periods.
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE NINE MONTHS ENDED ENDED
------------------------------- ------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenues....................................... $ 103,672 $99,143 $132,801
Expenses:
Total property, operating, maintenance and
administrative.................................. 39,758 40,591 53,688
Depreciation and Amortization...................... 26,003 25,202 35,022
Interest and related amortization.................. 20,100 18,973 26,123
-------- ------- --------
Total expenses..................................... 85,861 84,766 114,833
Net Income........................................... $ 17,811 $14,377 $ 17,968
-------- ------- --------
Certain Ratios:
Annual Service Charge Coverage Ratio(1)............ 3.24 3.14 3.07
Ratio of Total Debt to Total Adjusted Assets(1).... .35 .33 .33
Ratio of Secured Debt to Total Adjusted
Assets(1)....................................... .12 .12 .12
Ratio of Earnings to Fixed Charges(2).............. 1.88 1.76 1.69
Ratio of FFO to Fixed Charges(3)................... 3.17 3.07 3.01
</TABLE>
- ---------------
(1) The ratios have the meanings ascribed to them in the Indenture.
(2) Net income plus fixed charges to all fixed charges from indebtedness
outstanding during the period.
(3) FFO plus fixed charges to all fixed charges from indebtedness outstanding
during the period.
S-19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Operating Partnership is the largest owner/manager of manufactured home
communities in the United States, based both on the number of communities and
the number of residential homesites owned. At November 30, 1997, the Operating
Partnership's Properties were comprised of 131 manufactured home communities
located in 28 states. Since January 1, 1996, the Operating Partnership has
substantially increased the size of its portfolio. As of that date, the
Operating Partnership owned 44 communities. The increase in the size of the
portfolio has resulted from the Company's Merger with ROC on February 11, 1997
and other community acquisitions. In addition, as a result of the Merger, the
Operating Partnership acquired ROC's third-party property management operations
and its taxable sales and brokerage subsidiary, CSI. Since its organization, the
Company has elected to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code").
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
For the nine months ended September 30, 1997, net income was approximately
$17.4 million, an increase of approximately $5.5 million from the nine months
ended September 30, 1996. The increase was due primarily to the Merger, as well
as acquisitions that were consummated in 1997 and 1996 by the Operating
Partnership or ROC, and increased net operating income from the communities
owned by the Operating Partnership or ROC as of January 1, 1996 (the "Core
Portfolio"). The increase in net operating income from the Core Portfolio was
due to increased occupancy and rental increases partially offset by general
operating expense increases.
Rental revenue in the first nine months of 1997 was approximately $95.7
million, an increase of approximately $45.6 million from the first nine months
of 1996. Approximately 77% of the increase was due to the Merger, and 12% was
due to 1997 and 1996 acquisitions made by the Operating Partnership or ROC. The
remaining 11% increase was due to rental increases and occupancy gains in the
Core Portfolio. Weighted average occupancy for the nine months ended September
30, 1997 was 37,390 sites compared with 18,813 sites for the same period in
1996. On a per site basis, weighted average monthly rental revenue for the nine
months ended September 30, 1997 was $286 compared with $287 in the same period
in 1996. The decrease is due to the properties acquired having a lower per site
monthly rent. For the Core Portfolio, on a per site basis, weighted average
monthly rental revenue for the nine months ended September 30, 1997 was $293
compared with $277 for the same period in 1996, an increase of 5.9%.
Management fee, interest, and other income primarily includes management
fee income for the management of 32 manufactured home communities, equity
earnings from CSI and interest income on notes receivable. The increase in 1997
from 1996 is due primarily to business activities acquired in conjunction with
the Merger.
Property operating and maintenance expense for the nine months ended
September 30, 1997 increased by approximately $11.4 million or 82% from the same
period a year ago. The majority of the increase was due to the Merger and 1997
and 1996 acquisitions. The remaining increase was due to increases in the Core
Portfolio. On a per site basis, monthly weighted average property operating and
maintenance expense decreased approximately 8.3% from $82 in 1996 to $75 in
1997.
Real estate taxes for the first nine months ended September 30, 1997
increased by approximately $3.7 million or approximately 102% from the first
nine months ended September 30, 1996. The increase is due primarily to the
Merger, acquisitions and expansions of communities and general increases. Real
estate taxes may increase or decrease due to inflation, expansions and
improvements of communities, as well as changes in taxation in the tax
jurisdictions in which the Operating Partnership operates.
Administrative expense for the first nine months of 1997 increased due to
the Merger. Administrative expense in 1997 was 5.4% of revenues as compared to
5.8% in 1996.
S-20
<PAGE> 21
Interest and related amortization costs increased for the nine months ended
September 30, 1997 by approximately $9.4 million, as compared with the nine
months ended September 30, 1996. The increase is attributable to the
indebtedness incurred in connection with the Merger and the financing of the
1997 and 1996 acquisitions. Interest expense as a percent of average debt
outstanding decreased to approximately 7.7% in 1997 from approximately 8.6% in
1996. The decrease is due primarily to the lower average interest rate on the
ROC debt assumed in the Merger and the Operating Partnership's use of its lines
of credit (which have a lower average interest rate) to finance borrowings
incurred in connection with the Merger and the 1997 and 1996 acquisitions. The
decrease is also due to the decrease in interest rate, as of July 1997, under
the First Chicago Credit Facilities.
Depreciation expense for the nine months ended September 30, 1997 increased
approximately $15.6 million from the same period in 1996. The increase is
directly attributable to the Merger and certain acquisitions. Depreciation
expense as a percent of average depreciable rental property in 1997 remained
relatively unchanged from 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was approximately $35.7 million
for the nine months ended September 30, 1997, compared to approximately $21.3
million for the nine months ended September 30, 1996. The increase in cash
provided by operating activities was due primarily to the increase in net
operating income.
Net cash used in financing activities for the nine months ended September
30, 1997 was $5.4 million. Use of cash included distributions made to OP
Unitholders of approximately $29.9 million, net borrowings on the lines of
credit of approximately $16.9 million and the payment of approximately $19.9
million to repurchase and retire 750,000 OP Units in connection with the Merger.
The OP Units purchased in 1997 and 1996 as a part of the Merger were purchased
at an average price of approximately $25.75 per unit. This use of cash was
offset partially by proceeds of $25.5 million from the issuance of 984,423 OP
Units at approximately $25.88 per unit.
Net cash used in investing activities for the nine months ended September
30, 1997 was approximately $30.6 million. This amount represented joint venture
investments, acquisitions, capital expenditures and construction and development
costs. Also included is the Windsor acquisition, which was financed with the
issuance of 101,239 shares of Common Stock at a price of approximately $29 per
share and $750,000 in cash. For the nine months ended September 30, 1997,
construction and development costs, including joint ventures, were approximately
$7.2 million, while recurring property capital expenditures, other than
construction and development costs, were approximately $2.9 million. Recurring
property capital expenditures in 1997 increased due to the Operating
Partnership's larger size. Capital expenditures have historically been financed
with funds from operations and it is the Operating Partnership's intention that
such future expenditures will be financed with funds from operations.
On November 6, 1997, the Operating Partnership announced the acquisition of
four manufactured home communities for an aggregate purchase price of $20.0
million. The acquisition was financed with the issuance of 16,480 OP Units and
the remainder with cash funded by the First Chicago Credit Facilities. The
communities are located near Boston, Massachusetts and contain more than 600
homesites.
Future acquisitions of communities and land for development of sites will
be financed through borrowings under credit facilities, the issuance of
additional equity or debt securities, assumption of existing secured or
unsecured indebtedness, the issuance of OP Units or capital contributions by the
Company. The development of expansion sites will be financed primarily by cash
flow from operations and borrowings under the First Chicago Credit Facilities.
The Operating Partnership expects to meet its short-term liquidity
requirements through cash flow from operations and, if necessary, borrowings
under the First Chicago Credit Facilities.
The Operating Partnership anticipates meeting its long-term liquidity
requirements from borrowings under the First Chicago Credit Facilities, from the
issuance of additional debt or equity securities and cash flows from operations.
S-21
<PAGE> 22
MANAGEMENT
The following table sets forth certain information concerning the executive
officers and directors of the Company, which, together with its subsidiary,
serve as the general partners of the Operating Partnership. The Operating
Partnership does not have separate executive management.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John A. Boll.......................... 67 Chairman of the Board of Directors
Gary P. McDaniel...................... 51 Director and Chief Executive Officer
C.G. ("Jeff") Kellogg................. 53 Director and President
Tamara D. Fischer..................... 41 Executive Vice President and Chief Financial Officer
James B. Grange....................... 40 Chief Operating Officer
Rees F. Davis......................... 38 Executive Vice President-Acquisitions
Edward R. Allen....................... 56 Director
Gebran S. Anton, Jr................... 64 Director
James L. Clayton...................... 63 Director
Steven G. Davis....................... 47 Director
James M. Hankins...................... 62 Director
Rhonda G. Hogan....................... 44 Director
James M. Lane......................... 67 Director
Donald E. Miller...................... 66 Director
</TABLE>
Set forth below is a summary of the business experience of the directors
and executive officers of the Company:
John A. Boll has been Chairman of the Board of Directors of the Company
since its inception in 1993. Prior to the formation of the Company, Mr. Boll was
the co-founder, partner and Chief Executive Officer of Chateau Estates, which
was formed in 1966. He was inducted into the MH/RV Hall of Fame in 1992 for his
outstanding contributions to the manufactured housing industry. Mr. Boll was
appointed by the Governor of the State of Michigan to become the first Chairman
of the Michigan Mobile Home Commission, which is the principal Michigan
authority regulating manufactured housing, a position he held for six years. Mr.
Boll also serves on numerous boards of charitable organizations in Michigan and
Colorado.
Gary P. McDaniel has been Chief Executive Officer and a director of the
Company since February 1997. He 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. 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 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 has been President and a director of the Company
since its inception, and was Chief Executive Officer of the Company from its
inception to February 1997. For the five years preceding the formation of the
Company, Mr. Kellogg was President and Chief Operating Officer of Chateau
Estates. He is extremely active in local and national industry associations,
often in leadership positions. Mr. Kellogg is a past President of the Michigan
Manufactured Housing Association and served on the Manufactured Housing
Institute's Community Operations Committee. He is a graduate of Michigan
Technological University with a B.S. in Civil Engineering.
Tamara D. Fischer is Executive Vice President and Chief Financial Officer
of the Company, having served in these roles since the Company's formation.
Prior to joining the Company, Ms. Fischer was employed by Coopers & Lybrand for
11 years and served on the Company's engagement team since 1986. Ms. Fischer is
a Certified Public Accountant and a graduate of Case Western Reserve University.
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James B. Grange is Chief Operating Officer of the Company, having served in
such capacity since February 1997. He served as Executive Vice President and
Chief Operating Officer of ROC from 1993 to February 1997. 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
at ROC since 1982, having started as a Regional Property Manager overseeing ten
properties in three states. 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.
Rees F. Davis, Jr. is Executive Vice President-Acquisitions of the Company,
having served in such capacity since February 1997. He served as Executive Vice
President of Acquisitions and Sales for ROC from 1993 to February 1997. 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 a 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 broker
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 has served as a director of the Company since 1993. He was,
for the five years preceding the formation of the Company, Chairman and Chief
Executive Officer of InterCoastal Communities, Inc., a Florida corporation which
was engaged in operating seven manufactured home communities in Florida. Prior
to joining InterCoastal, Mr. Allen developed a chain of steak houses which he
and his partner sold in 1977 to Green Giant Corporation. He remained as
President for two years, and expanded the chain nearly doubling the number of
restaurants. Mr. Allen is currently active in educational and charitable
organizations, serving as Vice Chairman of the Board of Trustees at the Museum
of Discovery and Science in Fort Lauderdale, Florida and Vice Chairman of the
Board of the Directors of Channel 2 Public Television in Miami, Florida. He is a
graduate of Cornell University.
Gebran S. Anton, Jr. first became a director of the Company in 1993. He is
the owner of Gebran Anton Development Co. and Anton, Zorn & Associates, Inc., a
commercial and industrial real estate broker and former owner of Anton's, a
men's retail chain. He is an incorporator and Director of Community Central
Bank, and a former Chairman of the Board for First National Bank, St. Joseph
Hospital, and Downtown Development Committee. He is extremely active in
charitable organizations, including the March of Dimes, the American Cancer
Foundation and Variety Club International. Mr. Anton was awarded the March of
Dimes Macomb Citizen of the Year 1994, St. Joseph's Mercy Hospital Medallion
Award 1994, Mt. Clemens Business Citizen of the Year 1990 and Macomb
Distinguished Citizen 1985.
James L. Clayton served as a director of ROC from August 1993 until
February 1997 and as a director of the Company since February 1997. He is the
founder, and since 1966 has been the Chairman of the Board and Chief Executive
Officer of, Clayton Homes, Inc., a company 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 BankFirst. 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 institutions. Mr.
Clayton received an undergraduate degree in electrical engineering and a law
degree from the University of Tennessee.
Steven G. Davis has served as a director of the Company since February
1997. He is currently the owner of East Silent Advisors, a real estate
consulting firm. He served as Chief Financial Officer, Executive Vice President
and a director of ROC from 1993 to 1997. 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. Mr. Davis is currently on the advisory boards of Arlen
Capital Advisors and Leroc Partners, Inc. Mr. Davis is a Certified Public
Accountant and is a graduate of the University of San Diego.
James M. Hankins served as a director of ROC from August 1993 to February
1997, and has served as a director of the Company since February 1997. 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
a
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founder of Mobile Home Communities, Inc. in 1969, and served as President and
Chief Executive Officer from 1973 to 1984. Mr. Hankins is a director of several
educational and charitable organizations. He holds a B.S. from the University of
South Carolina and an MBA from Harvard University, and has served as a Captain
in the United States Air Force.
Rhonda G. Hogan has served as a director of the Company since March 1997.
Ms. Hogan is presently a partner of Tishman Speyer Properties. She recently
served on the Board of Directors and as President of The Water Club Condominium
Association, Inc. and is on the Silver Council of the Urban Land Institute. In
addition, she served on the Board of Directors of Barnett Bank of South Florida,
N.A. from 1986 to 1996. Ms. Hogan has also served or currently serves on several
other Boards of Directors and as a member of several councils or institutes
including appointments to State Boards by the Governor and Cabinet. She has been
honored for her achievements in business by national and local newspapers and
magazines. Ms. Hogan received her B.B.A. from the University of Iowa.
James M. Lane first became a director of the Company in 1993. He has
recently retired as the Senior Vice President and Chief Investment Officer of
the Investment Management Division, NBD Bank, Detroit, where he served for
approximately thirteen years. Mr. Lane was associated with the Chase Manhattan
Corporation from 1953 to 1978, attaining the position of Executive Vice
President while also serving as President and Chief Executive Officer of Chase
Investors Management Corporation. He has a B.A. degree in economics from Wheaton
College and an MBA degree in finance from the University of Chicago. Mr. Lane
has served as trustee or, director for several educational institutions and
civic organizations.
Donald E. Miller served as a director of ROC from August 1993 to February
1997, and has served as a director of the Company since February 1997. 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,
which engage in the production and manufacture of rubber products, primarily for
automotive needs. Mr. Miller is a director/trustee of several educational and
charitable organizations and a graduate of the Colorado School of Mines.
Pursuant to the Company's Charter, the directors of the Company are divided
into three classes, and one Class is elected at each Annual Meeting of the
Stockholders for a term of three years. The existing terms of the directors are
as follows: Class I (term expires 2000) -- Messrs. McDaniel, Anton and Lane;
Class II (term expires 1998) -- Messrs. Kellogg, Allen, Hankins and Miller; and
Class III (term expires 1999) -- Messrs. Boll, Clayton and S. Davis and Ms.
Hogan.
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DESCRIPTION OF OFFERED SECURITIES
GENERAL
The % MandatOry Par Put Remarketed Securities ("MOPPRS") due
, 2014 and the % Notes due , 2007 (the
"Notes" and, together with the MOPPRS, the "Offered Securities") each constitute
a separate series of Debt Securities (which are more fully described in the
accompanying Prospectus) to be issued under the Indenture, dated as of
, as amended or supplemented from time to time (the
"Indenture"), between the Operating Partnership and The First National Bank of
Chicago, as trustee (the "Trustee"), which is more fully described in the
accompanying Prospectus. The Indenture does not limit the aggregate principal
amount of Debt Securities which may be issued thereunder. The following
description of the terms of the Offered Securities supplements, and to the
extent inconsistent therewith replaces, the description of the general terms and
provisions of the Debt Securities set forth in the accompanying Prospectus. The
following summaries of certain provisions of the Offered Securities and the
Indenture do not purport to be complete and are qualified in their entirety by
reference to the actual provisions of the Offered Securities and the Indenture,
including the definitions therein of certain terms. The MOPPRS and the Notes
will be senior unsecured obligations of the Operating Partnership and will be
limited to $75,000,000 and $45,000,000 aggregate principal amount, respectively.
The Stated Maturity Date of the MOPPRS is , 2014. The Stated
Maturity Date of the Notes is , 2007. Except in the limited
circumstances described herein, the MOPPRS are not subject to redemption prior
to their Stated Maturity Date at the option of the Operating Partnership. After
the Remarketing Date, the MOPPRS are subject to redemption by the Operating
Partnership, in whole or in part, on substantially the same terms as the Notes
may be redeemed as described below. The Notes are subject to redemption by the
Operating Partnership prior to their Stated Maturity Date, in whole or in part,
at any time, at the redemption prices set forth herein plus accrued and unpaid
interest. See "-- Redemption" below. The Offered Securities will not be subject
to any sinking fund.
The MOPPRS will bear interest at the annual interest rate of % per annum
to , 2004 (the "Remarketing Date"). If the Remarketing Dealer
elects to remarket the MOPPRS, except in the limited circumstances described
herein, (i) the MOPPRS will be subject to mandatory tender to the Remarketing
Dealer at a price equal to 100% of the principal amount thereof for remarketing
on the Remarketing Date, on the terms and subject to the conditions described
herein, and (ii) on and after the Remarketing Date, the MOPPRS will bear
interest at the rate determined by the Remarketing Dealer in accordance with the
procedures set forth below (the "Interest Rate to Maturity"). See "-- Tender of
MOPPRS; Remarketing" below.
Under the circumstances described below, the MOPPRS are subject to
redemption by the Operating Partnership from the Remarketing Dealer on the
Remarketing Date. See "-- Redemption" below. If the Remarketing Dealer for any
reason does not purchase all tendered MOPPRS on the Remarketing Date or elects
not to remarket the MOPPRS, or in certain other limited circumstances described
herein, the Operating Partnership will be required to repurchase the MOPPRS from
the Beneficial Owners thereof on the Remarketing Date, at 100% of the principal
amount thereof plus accrued interest, if any. See "-- Repurchase" below.
The Offered Securities will bear interest from , 1997,
payable semiannually on and of
each year (each, an "Interest Payment Date"), commencing , 1998,
to the persons in whose name the applicable Offered Securities are registered on
the 15th calendar day (whether or not a Business Day) immediately preceding the
related Interest Payment Date (each, a "Record Date"). Interest on each series
of Offered Securities will be computed on the basis of a 360-day year of twelve
30-day months. "Business Day" means any day other than a Saturday, Sunday or a
day on which banking institutions in The City of New York are authorized or
obligated by law, executive order or governmental decree to be closed.
Interest payable on any Interest Payment Date and at maturity or earlier
redemption or repurchase shall be the amount of interest accrued from and
including the next preceding Interest Payment Date in respect of
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<PAGE> 26
which interest has been paid or duly provided for (or from and including
, 1997, if no interest has been paid or duly provided for with
respect to such Offered Security) to but excluding such Interest Payment Date or
the date of maturity or earlier redemption or repurchase, as the case may be. If
any Interest Payment Date or the date of maturity or earlier redemption or
repurchase of an Offered Security falls on a day that is not a Business Day, the
payment shall be made on the next Business Day with the same force and effect as
if it were made on the date such payment was due and no interest shall accrue on
the amount so payable for the period from and after such Interest Payment Date
or date of maturity or earlier redemption, as the case may be.
The Offered Securities will be senior unsecured obligations of the
Operating Partnership and will rank equally with the Operating Partnership's
other unsecured and unsubordinated indebtedness. As of September 30, 1997 the
Operating Partnership had outstanding approximately $232.8 million of other
unsecured and unsubordinated indebtedness which consisted of $75.0 million in
8.75% Senior Notes due March 2, 2000, $70.0 million of 7.52% Senior Notes due
November 24, 2003, and $87.8 million outstanding under the Operating
Partnership's credit facilities, which amount was increased to $104.8 million as
of November 30, 1997. In addition, as of September 30, 1997, the Operating
Partnership and its subsidiaries had outstanding approximately $115.4 million of
secured mortgage debt, which will rank senior to the Offered Securities,
consisting of the $59.2 million REMIC Note and approximately $56.2 million in
the aggregate outstanding under eight mortgage loans. The balance under the
credit facilities will be repaid out of the net proceeds of the Offered
Securities and, upon such repayment, the Operating Partnership expects to have
$100 million available for reborrowing under such facilities.
The Offered Securities will be issued in denominations of $1,000 and
integral multiples thereof.
TENDER OF MOPPRS; REMARKETING
The following description sets forth the terms and conditions of the
remarketing of the MOPPRS, in the event that the Remarketing Dealer elects to
purchase the MOPPRS and remarkets the MOPPRS on the Remarketing Date.
MANDATORY TENDER. Provided that the Remarketing Dealer gives notice to the
Operating Partnership and the Trustee on a Business Day not later than 60
calendar days prior to the Remarketing Date of its intention to purchase the
MOPPRS for remarketing (the "Notification Date"), each MOPPRS will be
automatically tendered, or deemed tendered, to the Remarketing Dealer for
purchase on the Remarketing Date, except in the circumstances described under
"-- Repurchase" or "-- Redemption" below. The purchase price for the tendered
MOPPRS to be paid by the Remarketing Dealer will equal 100% of the principal
amount thereof. See "-- Notification of Results; Settlement" below. When the
MOPPRS are tendered for remarketing, the Remarketing Dealer may remarket the
MOPPRS for its own account at varying prices to be determined by the Remarketing
Dealer at the time of each sale. From and after the Remarketing Date, the MOPPRS
will bear interest at the Interest Rate to Maturity. If the Remarketing Dealer
elects to remarket the MOPPRS, the obligation of the Remarketing Dealer to
purchase the MOPPRS on the Remarketing Date is subject, among other things, to
the conditions that, since the Notification Date, no material adverse change in
the condition of the Operating Partnership and its subsidiaries, considered as
one enterprise, shall have occurred and that no Event of Default, or any event
which, with the giving of notice or passage of time, or both, would constitute
an Event of Default, with respect to the MOPPRS shall have occurred and be
continuing. If for any reason the Remarketing Dealer does not purchase all
tendered MOPPRS on the Remarketing Date, the Operating Partnership will be
required to repurchase the MOPPRS from the Beneficial Owners thereof at a price
equal to the principal amount thereof plus all accrued and unpaid interest, if
any, on the MOPPRS to the Remarketing Date. See "-- Repurchase" below.
The Interest Rate to Maturity shall be determined by the Remarketing Dealer
by 3:30 p.m., New York City time, on the third Business Day preceding the
Remarketing Date (the "Determination Date") to the nearest one
hundred-thousandth (0.00001) of one percent per annum, and will be equal to the
sum of % (the "Base Rate") plus the Applicable Spread (as defined below),
which will be based on the Dollar Price (as defined below) of the MOPPRS.
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<PAGE> 27
The "Applicable Spread" will be the lowest bid indication, expressed as a
spread (in the form of a percentage or in basis points) above the Base Rate,
obtained by the Remarketing Dealer on the Determination Date from the bids
quoted by five Reference Corporate Dealers (as defined below) for the full
aggregate principal amount of the MOPPRS at the Dollar Price, but assuming (i)
an issue date equal to the Remarketing Date, with settlement on such date
without accrued interest, (ii) a maturity date equal to the Stated Maturity Date
of the MOPPRS, and (iii) a stated annual interest rate equal to the Base Rate
plus the spread bid by the applicable Reference Corporate Dealer. If fewer than
five Reference Corporate Dealers bid as described above, then the Applicable
Spread shall be the lowest of such bid indications obtained as described above.
The Interest Rate to Maturity announced by the Remarketing Dealer, absent
manifest error, shall be binding and conclusive upon the Beneficial Owners and
Holders of the MOPPRS, the Operating Partnership and the Trustee.
"Dollar Price" means, with respect to the MOPPRS, the present value, as of
the Remarketing Date, of the Remaining Scheduled Payments (as defined below)
discounted to the Remarketing Date, on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months), at the Treasury Rate (as defined
below).
"Reference Corporate Dealers" mean leading dealers of publicly traded debt
securities of the Operating Partnership in The City of New York (which may
include the Remarketing Dealer or one of its affiliates) selected by the
Remarketing Dealer.
"Treasury Rate" means, with respect to the Remarketing Date, the rate per
annum equal to the semiannual equivalent yield to maturity or interpolated (on a
day count basis) yield to maturity of the Comparable Treasury Issues (as defined
below), assuming a price for the Comparable Treasury Issues (expressed as a
percent of its principal amount), equal to the Comparable Treasury Price (as
defined below) for such Remarketing Date.
"Comparable Treasury Issues" means the United States Treasury security or
securities selected by the Remarketing Dealer as having an actual or
interpolated maturity or maturities comparable to the remaining term of the
MOPPRS being purchased.
"Comparable Treasury Price" means, with respect to the Remarketing Date,
(a) the offer prices for the Comparable Treasury Issues (expressed in each case
as a percent of its principal amount) on the Determination Date, as set forth on
"Telerate Page 500" (or such other page as may replace Telerate Page 500) or (b)
if such page (or any successor page) is not displayed or does not contain such
offer prices on such Business Day, (i) the average of the Reference Treasury
Dealer Quotations for such Remarketing Date, after excluding the highest and
lowest of such Reference Treasury Dealer Quotations, or (ii) if the Remarketing
Dealer obtains fewer than four such Reference Treasury Dealer Quotations, the
average of all such Reference Treasury Dealer Quotations. "Telerate Page 500"
means the display designated as "Telerate Page 500" on Dow Jones Markets Limited
(or such other page as may replace Telerate Page 500 on such service) or such
other service displaying the offer prices specified in (a) above as may replace
Dow Jones Markets Limited. "Reference Treasury Dealer Quotations" means, with
respect to each Reference Treasury Dealer and the Remarketing Date, the offer
prices for the Comparable Treasury Issues (expressed in each case as a
percentage of its principal amount) quoted in writing to the Remarketing Dealer
by such Reference Treasury Dealer by 3:30 p.m. New York City time, on the
Determination Date.
"Reference Treasury Dealer" means each of CS First Boston Corporation,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc and their respective
successors; provided, however, that if any of the foregoing or their affiliates
shall cease to be a primary U.S. Government securities dealer in The City of New
York (a "Primary Treasury Dealer"), the Remarketing Dealer shall substitute
therefor another Primary Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to the MOPPRS, the
remaining scheduled payments of the principal thereof and interest thereon,
calculated at the Base Rate only, that would be due after the Remarketing Date
to and including the Stated Maturity Date; provided, however, that if the
Remarketing Date is not an Interest Payment Date with respect to the MOPPRS, the
amount of the next
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<PAGE> 28
succeeding scheduled interest payment thereon, calculated at the Base Rate only,
will be reduced by the amount of interest accrued thereon, calculated at the
Base Rate only, to the Remarketing Date.
NOTIFICATION OF RESULTS; SETTLEMENT. Provided the Remarketing Dealer has
previously notified the Operating Partnership and the Trustee on the
Notification Date of its intention to purchase all tendered MOPPRS on the
Remarketing Date, the Remarketing Dealer will notify the Operating Partnership,
the Trustee and DTC by telephone, confirmed in writing, by 4:00 p.m., New York
City time, on the Determination Date, of the Interest Rate to Maturity.
All of the tendered MOPPRS will be automatically delivered to the account
of the Trustee, by book-entry through DTC pending payment of the purchase price
therefor, on the Remarketing Date.
The Remarketing Dealer will make or cause the Trustee to make payment to
the DTC Participant of each tendering Beneficial Owner of MOPPRS, by book-entry
through DTC by the close of business on the Remarketing Date against delivery
through DTC of such Beneficial Owner's tendered MOPPRS, of 100% of the principal
amount of tendered MOPPRS that have been purchased for remarketing by the
Remarketing Dealer. If the Remarketing Dealer does not purchase all of the
MOPPRS on the Remarketing Date, it will be the obligation of the Operating
Partnership to make or cause to be made such payment for the MOPPRS, as
described below under "Repurchase." In any case, the Operating Partnership will
make or cause the Trustee to make payment of interest to each Beneficial Owner
of MOPPRS due on the Remarketing Date by book-entry through DTC by the close of
business on the Remarketing Date.
The transactions described above will be executed on the Remarketing Date
through DTC in accordance with the procedures of DTC, and the accounts of the
respective DTC Participants will be debited and credited and the MOPPRS
delivered by book-entry as necessary to effect the purchases and sales thereof.
Transactions involving the sale and purchase of MOPPRS remarketed by the
Remarketing Dealer on and after the Remarketing Date will settle in immediately
available funds through DTC's Same-Day Funds Settlement System.
The tender and settlement procedures described above, including provisions
for payment by purchasers of MOPPRS in the remarketing or for payment to selling
Beneficial Owners of tendered MOPPRS, may be modified to the extent required to
facilitate the tender and remarketing of MOPPRS in certificated form, if the
book-entry system is no longer available for the MOPPRS at the time of the
remarketing. In addition, the Remarketing Dealer may, in accordance with the
terms of the Indenture, modify the settlement procedures set forth above in
order to facilitate the settlement process.
As long as DTC's nominee holds the certificates representing any MOPPRS in
the book-entry system of DTC, no certificates for such MOPPRS will be delivered
by any selling Beneficial Owner to reflect any transfer of such MOPPRS effected
in the remarketing. In addition, under the terms of the MOPPRS and the
Remarketing Agreement (described below), the Operating Partnership has agreed
that, notwithstanding any provision to the contrary set forth in the Indenture,
(i) it will use its best efforts to maintain the MOPPRS in book-entry form with
DTC or any successor thereto and to appoint a successor depositary to the extent
necessary to maintain the MOPPRS in book-entry form, and (ii) it will waive any
discretionary right it otherwise has under the Indenture to cause the MOPPRS to
be issued in certificated form.
For further information with respect to transfers and settlement through
DTC, see "-- Book-Entry System" below.
THE REMARKETING DEALER. The Operating Partnership, the Company and the
Remarketing Dealer have entered into a Remarketing Agreement, the form of which
has been filed as an exhibit to the Registration Statement of which the
Prospectus is a part.
The Remarketing Dealer will not receive any fees or reimbursement of
expenses from the Operating Partnership or the Company in connection with the
remarketing.
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<PAGE> 29
The Operating Partnership and the Company will agree to indemnify the
Remarketing Dealer against certain liabilities, including liabilities under the
Securities Act, arising out of or in connection with its duties under the
Remarketing Agreement.
In the event that the Remarketing Dealer elects to remarket the MOPPRS as
described herein, the obligation of the Remarketing Dealer to purchase MOPPRS
from tendering Beneficial Owners of MOPPRS will be subject to several conditions
precedent set forth in the Remarketing Agreement that are customary in the
Operating Partnership's public offerings, including the conditions that, since
the Notification Date, no material adverse change in the condition of the
Company or the Operating Partnership and its subsidiaries, considered as one
enterprise, shall have occurred and that no Event of Default (as defined in the
Indenture), or any event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default, with respect to the MOPPRS shall
have occurred and be continuing. In addition, the Remarketing Agreement will
provide for the termination thereof, or redetermination of the Interest Rate to
Maturity, by the Remarketing Dealer on or before the Remarketing Date, upon the
occurrence of certain events that are also customary in the Operating
Partnership's public securities offerings.
No Beneficial Owner of any MOPPRS shall have any rights or claims under the
Remarketing Agreement or against the Operating Partnership, the Company or the
Remarketing Dealer as a result of the Remarketing Dealer not purchasing such
MOPPRS.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign at any time as Remarketing Dealer. Resignation of the Remarketing Dealer
shall be effective ten days after the delivery to the Operating Partnership and
the Trustee of notice of such resignation, provided such resignation is
effective prior to the Notification Date, or on or after the Notification Date,
immediately upon the failure of certain conditions described above and as
specified in the Remarketing Agreement. In such case, it shall be the sole
obligation of the Operating Partnership to appoint a successor Remarketing
Dealer.
The Remarketing Dealer, in its individual or any other capacity, may buy,
sell, hold and deal in any of the MOPPRS. The Remarketing Dealer may exercise
any vote or join in any action which any Beneficial Owner of MOPPRS may be
entitled to exercise or take with like effect as if it did not act in any
capacity under the Remarketing Agreement. The Remarketing Dealer, in its
individual capacity, either as principal or agent, may also engage in or have an
interest in any financial or other transaction with the Operating Partnership or
the Company as freely as if did not act in any capacity under the Remarketing
Agreement.
REPURCHASE
In the event that (i) the Remarketing Dealer for any reason does not notify
the Operating Partnership of the Interest Rate to Maturity by 4:00 p.m., New
York City time, on the Determination Date, or (ii) prior to the Remarketing
Date, the Remarketing Dealer has resigned and no successor has been appointed on
or before the Determination Date, or (iii) since the Notification Date, a
material adverse change in the condition of the Company or the Operating
Partnership and its subsidiaries, considered as one enterprise, shall have
occurred or an Event of Default, or any event which, with the giving of notice
or passage of time, or both, would constitute an Event of Default, with respect
to the MOPPRS shall have occurred and be continuing, or any other event
constituting a termination event under the Remarketing Agreement shall have
occurred, or (iv) the Remarketing Dealer elects not to remarket the MOPPRS, or
(v) the Remarketing Dealer for any reason does not purchase all tendered MOPPRS
on the Remarketing Date, the Operating Partnership will repurchase the MOPPRS as
a whole on the Remarketing Date at a price equal to 100% of the principal amount
of the MOPPRS plus all accrued and unpaid interest, if any, on the MOPPRS to the
Remarketing Date. In any such case, payment will be made by the Operating
Partnership to the DTC Participant of each tendering Beneficial Owner of MOPPRS,
by book-entry through DTC by the close of business on the Remarketing Date
against delivery through DTC of such Beneficial Owner's tendered MOPPRS.
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REDEMPTION
The MOPPRS
If the Remarketing Dealer elects to remarket the MOPPRS on the Remarketing
Date, the MOPPRS will be subject to mandatory tender to the Remarketing Dealer
for remarketing on such date, in each case subject to the conditions described
above under "-- Tender of MOPPRS; Remarketing" and "Repurchase" and to the
Operating Partnership's right to redeem the MOPPRS from the Remarketing Dealer
as described in the next sentence. The Operating Partnership will notify the
Remarketing Dealer and the Trustee, not later than the Business Day immediately
preceding the Determination Date, if the Operating Partnership irrevocably
elects to exercise its right to redeem the MOPPRS, in whole but not in part,
from the Remarketing Dealer on the Remarketing Date at the Optional Redemption
Price. The "Optional Redemption Price" shall be the greater of (i) 100% of the
principal amount of the MOPPRS and (ii) the sum of the present values of the
Remaining Scheduled Payments thereon, as determined by the Remarketing Dealer,
discounted to the Remarketing Date on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Rate, plus in either
case accrued and unpaid interest from the Remarketing Date on the principal
amount being redeemed to the date of redemption. If the Operating Partnership
elects to redeem the MOPPRS, it shall pay the redemption price therefor in
same-day funds by wire transfer to an account designated by the Remarketing
Dealer on the Remarketing Date.
Provided that the MOPPRS have not been repurchased or redeemed as described
above, following the remarketing of the MOPPRS, the Operating Partnership will
have the right to redeem the MOPPRS from the Beneficial Owners thereof on
substantially the same terms as the Notes may be redeemed as described below.
Interest on the MOPPRS upon the remarketing thereof shall be calculated at the
Interest Rate to Maturity for all purposes.
The Notes
The Notes are subject to redemption at the option of the Operating
Partnership, in whole or in part, at any time, at a redemption price determined
by the Operating Partnership equal to the sum of (i) the principal amount of the
Notes being redeemed, plus accrued and unpaid interest thereon to the redemption
date, and (ii) the Make-Whole Amount (as defined below), if any, with respect to
such Notes (the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes called for redemption shall have been made available on
the redemption date referred to in such notice, such Notes will cease to bear
interest on the date fixed for such redemption specified in such notice and the
only right of the Holders from and after the redemption date will be to receive
payment of the Redemption Price upon surrender of such Notes in accordance with
such notice.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the security register for the Notes, not less than
30 nor more than 60 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by such Holder to be redeemed. If less than
all of the Notes are to be redeemed, the particular Notes to be redeemed shall
be selected by such method as the Trustee deems fair and appropriate.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption
of any Notes, the excess, if any, of (i) the aggregate present value as of
the date of such redemption of each dollar of principal being redeemed and
the amount of any interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar if
such redemption had not been made, determined by discounting, on a
semiannual basis, such principal and interest at the applicable
Reinvestment Rate (determined on the third Business Day preceding the date
such notice of redemption is given) from the respective dates on which such
principal and interest would have been payable if such redemption had not
been made, over (ii) the aggregate principal amount of the Notes being
redeemed.
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"Reinvestment Rate" means 0.25% plus the yield on treasury securities
at a constant maturity for the most recent week under the heading "Week
Ending" published in the most recent Statistical Release under the caption
"Treasury Constant Maturities" for the maturity (rounded to the nearest
month) corresponding to the remaining life to maturity, as of the payment
date of the principal being redeemed. If no maturity exactly corresponds to
such maturity, yields for the two published maturities most closely
corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the
purpose of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the Make-Whole
Amount shall be used.
"Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded
United States government securities adjusted to constant maturities, or, if
such statistical release is not published at the time of any determination
under the Indenture, then such other reasonably comparable index which
shall be designated by the Operating Partnership.
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below) if,
immediately after giving effect to the incurrence of such additional Debt and
the application of the proceeds thereof, the aggregate principal amount of all
outstanding Debt of the Operating Partnership and its Subsidiaries on a
consolidated basis determined in accordance with GAAP is greater than 60% of the
sum of (without duplication) (i) the Adjusted Total Assets (as defined below) of
the Operating Partnership and its Subsidiaries as of the end of the calendar
quarter covered in the Operating Partnership's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q as the case may be, most recently filed with the
Securities and Exchange Commission (the "Commission") (or, if such filing is not
permitted or made under the Exchange Act, with the Trustee) prior to the
incurrence of such additional Debt plus (ii) the increase, if any, in Adjusted
Total Assets from the end of the calendar quarter minus (iii) the decrease, if
any, in the Adjusted Total Assets from the end of such quarter by the Operating
Partnership or any Subsidiary since the end of such calendar quarter, including
those proceeds obtained in connection with the incurrence of such additional
Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any Encumbrance (as defined below) upon any of the property of
the Operating Partnership or any Subsidiary if, immediately after giving effect
to the incurrence of such additional Debt and the application of the proceeds
thereof, the aggregate principal amount of all outstanding Debt of the Operating
Partnership and its Subsidiaries on a consolidated basis which is secured by any
Encumbrance on property of the Operating Partnership or any Subsidiary is
greater than 40% of the sum of (without duplication) (i) the Adjusted Total
Assets of the Operating Partnership and its Subsidiaries as of the end of the
calendar quarter covered in the Operating Partnership's Annual Report on Form
10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed
with the Commission (or, if such filing is not permitted under the Exchange Act,
with the Trustee) prior to the incurrence of such additional Debt plus (ii) the
increase, if any, in Adjusted Total Assets from the end of the calendar quarter
minus (iii) the decrease, if any, in the Adjusted Total Assets from the end of
such quarter.
The Operating Partnership and its Subsidiaries may not at any time own
Total Unencumbered Assets (as defined below) equal to less than 150% of the
aggregate outstanding principal amount of the Unsecured Debt of the Operating
Partnership and its Subsidiaries on a consolidated basis.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service (as defined
below) to the Annual Service Charge (as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis
after giving effect thereto and to the application of the proceeds therefrom,
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and calculated on the assumption that (i) such Debt and any other Debt incurred
by the Operating Partnership and its Subsidiaries since the first day of such
four-quarter period and the application of the proceeds therefrom, including to
refinance other Debt, had occurred at the beginning of such period; (ii) the
repayment or retirement of any other Debt by the Operating Partnership and its
Subsidiaries since the first day of such four-quarter period had been repaid or
retired at the beginning of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility shall be
computed based upon the average daily balance of such Debt during such period);
(iii) in the case of Acquired Debt (as defined below) or Debt incurred in
connection with any acquisition since the first day of such four-quarter period,
the related acquisition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation; and (iv) in the case of any acquisition or disposition by
the Operating Partnership or its Subsidiaries of any asset or group of assets
since the first day of such four-quarter period, whether by merger, stock
purchase or sale, or asset purchase or sale, such acquisition or disposition or
any related repayment of Debt had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or disposition
being included in such pro forma calculation.
As used herein, and in the Indenture:
"Acquired Debt" means Debt of a Person (i) existing at the time such
Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Debt
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Debt shall be deemed to be
incurred on the date of the related acquisition of assets from any Person
or the date the acquired Person becomes a Subsidiary.
"Adjusted Total Assets" as of any date means the sum of (i)
$281,626,340, which represents the amount determined by multiplying the sum
of the shares of Common Stock of the Company and the OP Units not held by
the Company issued in connection with the 1993 initial public offering of
the Company (the "IPO") by the price per share of Common Stock in the IPO,
(ii) $52,831,381, which represents the principal amount of outstanding Debt
of the Company on the date of the IPO, (iii) the purchase price or cost of
any real estate assets or mortgages receivable acquired (including the
value of any OP Units issued in connection therewith) or real estate assets
developed or capital improvements incurred after the IPO and the amount of
any securities offering proceeds and other proceeds of Debt received after
the IPO and (iv) all other assets of the Operating Partnership acquired
after the IPO (but excluding intangibles and accounts receivable) after
eliminating inter-company accounts and transactions. As of September 30,
1997, the Operating Partnership's Adjusted Total Assets were $993.9
million.
"Annual Service Charge" for any period means the maximum amount which
is payable during such period for interest on, and the amortization during
such period of any original issue discount of, Debt of the Operating
Partnership and its Subsidiaries and the amount of dividends which are
payable during such period in respect of any Disqualified Stock.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights
(other than debt securities convertible into or exchangeable for corporate
stock), warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations (as defined below) of the Operating Partnership
and its Subsidiaries plus amounts which have been deducted, and minus
amounts which have been added, for the following (without duplication): (i)
interest on Debt of the Operating Partnership and its Subsidiaries, (ii)
provision for taxes of the Operating Partnership and its Subsidiaries based
on income, (iii) amortization of debt discount, (iv) provisions for gains
and losses on real estate assets and real estate depreciation and
amortization, (v) the effect of any noncash charge resulting from a change
in accounting principles in determining Earnings from Operations for such
period and (vi) amortization of deferred charges.
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"Debt" of the Operating Partnership or any Subsidiary means any
indebtedness of the Operating Partnership or any Subsidiary, whether or not
contingent, in respect of (i) money borrowed or evidenced by bonds, notes,
debentures or similar instruments, (ii) indebtedness for borrowed money
secured by any Encumbrance existing on property owned by the Operating
Partnership or any Subsidiary, (iii) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the
purchase price of any property or services, except any such balance that
constitutes an accrued expense or trade payable, or all conditional sale
obligations or obligations under any title retention agreement, (iv) the
principal amount of all obligations of the Operating Partnership or any
Subsidiary with respect to redemption, repayment or other repurchase of any
Disqualified Stock or (v) any lease of property by the Operating
Partnership or any Subsidiary as lessee which is reflected on the Operating
Partnership's Consolidated Balance Sheet as a capitalized lease in
accordance with GAAP, to the extent, in the case of items of indebtedness
under (i) through (iii) above, that any such items (other than letters of
credit) would appear as a liability on the Operating Partnership's
Consolidated Balance Sheet in accordance with GAAP, and also includes, to
the extent not otherwise included, any obligation by the Operating
Partnership or any Subsidiary to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), Debt of another Person (other than the
Operating Partnership or any Subsidiary) (it being understood that Debt
shall be deemed to be incurred by the Operating Partnership or any
Subsidiary whenever the Operating Partnership or such Subsidiary shall
create, assume, guarantee or otherwise become liable in respect thereof).
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by the terms of such Capital Stock (or by the
terms of any security into which it is convertible or for which it is
exchangeable or exercisable), upon the happening of any event or otherwise
(i) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise (other than Capital Stock which is, redeemable
solely in exchange for Common Stock), (ii) is convertible into or
exchangeable or exercisable for Debt or Disqualified Stock or (iii) is
redeemable at the option of the holder thereof, in whole or in part (other
than Capital Stock which is redeemable solely in exchange for Common
Stock), in each case on or prior to the Stated Maturity of the Notes.
"Earnings from Operations" for any period means net earnings excluding
gains and losses on sales of investments, extraordinary items, and property
valuation losses, net as reflected in the financial statements of the
Operating Partnership and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP.
"Encumbrance" means any mortgage, lien, charge, pledge or security
interest of any kind.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting
equity securities or (ii) the outstanding equity interests are owned,
directly or indirectly, by such Person. For the purposes of this
definition, "voting equity securities" means equity securities having
voting power for the election of directors, whether at all times or only so
long as no senior class of security has such voting power by reason of any
contingency.
"Total Unencumbered Assets" means the sum of (i) those Undepreciated
Real Estate Assets not subject to an Encumbrance for borrowed money and
(ii) all other assets of the Operating Partnership and its Subsidiaries not
subject to an Encumbrance for borrowed money determined in accordance with
GAAP (but excluding accounts receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the
Operating Partnership and its Subsidiaries on such date, before
depreciation and amortization, determined on a consolidated basis in
accordance with GAAP. For purposes of this definition, the original cost of
each real asset owned by the Operating Partnership and its Subsidiaries as
of the closing date of the IPO shall be determined by reference to each
such asset's contribution to the net operating income of the Operating
Partnership as of the closing date of the IPO.
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"Unsecured Debt" means Debt which is not secured by any Encumbrance
upon any of the properties of the Operating Partnership or any Subsidiary.
See "Description of Debt Securities -- Certain Covenants" in the
accompanying Prospectus for a description of additional covenants applicable to
the Operating Partnership.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance, which are described under "Description of Debt
Securities -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus, will apply to the Notes. Each of the covenants described under
"-- Certain Covenants" herein and "Description of Debt Securities -- Certain
Covenants" in the accompanying Prospectus will be subject to covenant
defeasance. The provisions of Article 14 relating to defeasance will not apply
to the MOPPRS.
NO PERSONAL LIABILITY
No past, present or future director, officer or partner of the Operating
Partnership or any successor thereof shall have any liability for any
obligation, covenant or agreement of the Operating Partnership contained under
the Offered Securities, the Indenture or other debt obligations. Each Holder of
Offered Securities by accepting such Offered Securities waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Offered Securities.
BOOK-ENTRY SYSTEM
Upon issuance, each series of Offered Securities will be represented by a
global security or securities (each, a "Global Security"). Each Global Security
will be deposited with, or on behalf of, DTC. Upon the issuance of such Global
Security, DTC or its nominee will credit the accounts of persons held with it
with the respective principal or face amounts of the Offered Securities
represented by such Global Security. Ownership of beneficial interests in such
Global Security will be limited to persons that have accounts with DTC
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Security will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC. Ownership of beneficial interests in such Global
Security by persons that hold through participants will be shown on, and the
transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to acquire or transfer beneficial interests in such Global
Security.
Payment of principal of and interest on each series of Offered Securities
will be made to DTC or its nominee, as the case may be, as the sole registered
owner and holder of the Global Security for such series for all purposes under
the Indenture. Neither the Operating Partnership, the Trustee nor any agent of
the Operating Partnership or the Trustee will have any responsibility or
liability for any aspect of DTC's records relating to or payments made on
account of beneficial ownership interests in such Global Security or for
maintaining, supervising or reviewing any of DTC's records relating to such
beneficial ownership interests.
The Operating Partnership has been advised by DTC that upon receipt of any
payment of principal of or interest on any Global Security, DTC will immediately
credit, on its book-entry registration and transfer system, the accounts of
participants with payments in amounts proportionate to their respective
beneficial interests in the principal or face amount of such Global Security as
shown on the records of DTC. Payments by participants to owners of beneficial
interests in such Global Security held through such participants will be
governed by standing instructions and customary practices as is now the case
with securities held for customer accounts registered in "street name" and will
be the sole responsibility of such participants.
Neither Global Security may be transferred except as a whole by DTC to a
nominee of DTC. The Global Security representing each series of Offered
Securities is exchangeable for certificated Offered Securities of
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such series only if (x) DTC notifies the Operating Partnership that it is
unwilling or unable to continue as depositary for such Global Security or if at
any time DTC ceases to be a clearing agency registered under the Exchange Act
and the Operating Partnership fails within 90 days thereafter to appoint a
successor, (y) in the case of the Notes only, the Operating Partnership in its
sole discretion determines that such Global Security shall be exchangeable or
(z) there shall have occurred and be continuing an Event of Default (as defined
in the Indenture) or an event which with the giving of notice or lapse of time
or both, would constitute an Event of Default with respect to the securities
represented by such Global Security. In such event, the Operating Partnership
will issue securities of the applicable series in certificated form in exchange
for such Global Security. In any such instance, an owner of a beneficial
interest in the Global Security will be entitled to physical delivery in
certificated form of Offered Securities of such series equal in principal amount
to such beneficial interest and to have such securities registered in its name.
Securities so issued in certificated form will be issued in denominations of
$1,000 or any larger amount that is an integral multiple thereof, and will be
issued in registered form only, without coupons. Subject to the foregoing,
neither Global Security is exchangeable, except for a Global Security for the
same series of Offered Securities of like denomination to be registered in the
name of DTC or its nominee.
So long as DTC, or its nominee, is the registered owner of a Global
Security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Offered Securities represented by such Global Security
for the purposes of receiving payment on such securities, receiving notices and
for all other purposes under the Indenture and such securities. Beneficial
interests in any of the Offered Securities will be evidenced only by, and
transfer thereof will be effected only through, records maintained by DTC and
its participants. Except as provided herein, owners of beneficial interests in
any Global Security will not be entitled to and will not be considered the
Holders thereof for any purposes under the Indenture. Accordingly, each person
owning a beneficial interest in such Global Security must rely on the procedures
of DTC, and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a Holder under the Indenture. DTC will not consent or vote with respect to
the Global Security representing a series of Offered Securities. Under its usual
procedures, DTC mails an Omnibus Proxy to the Operating Partnership as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s (DTC's partnership nominee) consenting or voting rights to those
participants to whose accounts the Offered Securities of a series are credited
on the applicable record date (identified in a listing attached to the Omnibus
Proxy).
DTC has advised the Operating Partnership that DTC is a limited-purpose
trust company organized under New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered under the Exchange Act. DTC
was created to hold the securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations some of whom (and/or
their representatives) own DTC. Access to DTC's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the Securities and Exchange Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for each series of the Offered Securities will be made by the
applicable Underwriters in immediately available funds. All payments of
principal and interest will be made by the Operating Partnership in immediately
available funds.
The Offered Securities of each series will trade in DTC's same-day funds
settlement system until maturity or until such Offered Securities are issued in
definitive form, and secondary market trading activity in such Offered
Securities will therefore be required by DTC to settle in immediately available
funds. No
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assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading-activity in such Offered Securities.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Offered
Securities is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change (including changes in effective dates) or
possible differing interpretations. It deals only with Offered Securities held
as capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding
Offered Securities as a hedge against currency risk or as a position in a
"straddle" for tax purposes, or persons whose functional currency is not the
U.S. dollar. Persons considering the purchase of the Offered Securities should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Offered
Securities arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of an
Offered Security that is for United States Federal income tax purposes (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 (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations), or
(iii) an estate whose income is subject to United States Federal income tax
regardless of its source, or (iv) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust, or (v) any other person whose income or gain in respect
of an Offered Security is effectively connected with the conduct of a United
States trade or business. Notwithstanding the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date, that elect to
continue to be treated as United States persons also will be a U.S. Holder. As
used herein, the term "non-U.S. Holder" means a beneficial owner of Offered
Securities that is not a U.S. Holder.
TAX TREATMENT OF MOPPRS
The United States Federal income tax treatment of debt obligations such as
the MOPPRS is not entirely certain. Because the MOPPRS are subject to mandatory
tender on the Remarketing Date, the Operating Partnership intends to treat the
MOPPRS as maturing on the Remarketing Date for United States Federal income tax
purposes. By purchasing the MOPPRS, the U.S. Holder agrees to follow such
treatment for United States Federal income tax purposes. Based on such
treatment, interest on the MOPPRS will constitute "qualified stated interest"
and generally will be taxable to a U.S. Holder as ordinary interest income at
the time such payments are accrued or received (in accordance with the U.S.
Holder's regular method of tax accounting). Under the foregoing, if the MOPPRS
are issued to the Holder at par value or alternatively, the excess of the par
value over the issue price does not exceed the statutory de minimis amount
(generally 1/4 of 1% of the MOPPRS' stated redemption price at the Remarketing
Date multiplied by the number of complete years to the Remarketing Date from its
issue date), the MOPPRS will not be treated as having original issue discount.
If the MOPPRS are issued at a discount greater than the statutory de
minimis amount, a Holder must include original issue discount in income as
ordinary interest for United States Federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash payments
attributable to such income, regardless of the Holder's regular method of
accounting. In general, the amount of original issue discount included in income
by the initial U.S. Holder of a MOPPRS would be the sum of the daily portions of
original issue discount with respect to such MOPPRS for each day during the
taxable year (or portion of the taxable year) on which such U.S. Holder held
such MOPPRS. The "daily portion" of original issue discount on any MOPPRS is
determined by allocating to each day in any accrual period a ratable portion of
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the original issue discount allocable to that accrual period. An "accrual
period" may be of any length and the accrual periods may vary in length over the
term of the MOPPRS, provided that each accrual period is not longer than one
year and each scheduled payment of principal or interest occurs either on the
final day of an accrual period or on the first day of an accrual period. The
amount of original issue discount allocable to each accrual period is generally
equal to the difference between (i) the product of the MOPPRS' adjusted issue
price at the beginning of such accrual period and appropriately adjusted to take
into account the length of the particular accrual period and (ii) the amount of
any qualified stated interest payments allocable to such accrual period. The
"adjusted issue price" of a MOPPRS at the beginning of any accrual period is the
sum of the issue price of the MOPPRS plus the amount of original issue discount
allocable to all prior accrual periods minus the amount of any prior payments on
the MOPPRS that were not qualified stated interest payments. Under these rules,
U.S. Holders generally will have to include in income increasingly greater
amounts of original issue discount in successive accrual periods.
Under the foregoing treatment, upon the sale, exchange or retirement of a
MOPPRS, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the MOPPRS. A U.S. Holder's adjusted tax basis in
a MOPPRS generally will equal such U.S. Holder's initial investment in the
MOPPRS increased by any original issue discount included in income (and accrued
market discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond premium taken with respect to
such MOPPRS. Such gain or loss will be capital if the MOPPRS is held as a
capital asset.
The Taxpayer Relief Act of 1997 (the "Act") reduces the maximum rates on
long-term capital gains recognized on capital assets held by individual
taxpayers for more than eighteen months as of the date of disposition (and would
further reduce the maximum rates on such gains in the year 2001 and thereafter
for certain individual taxpayers who meet specified conditions). The capital
gains rate for capital assets held by individual taxpayers for more than twelve
months but not more than eighteen months was not changed by the Act ("mid-term
rate"). The Act does not change the capital gain rates for corporations.
Prospective investors should consult their own tax advisors concerning these tax
law changes.
There can be no assurance that the Internal Revenue Service ("IRS") will
agree with the Operating Partnership's treatment of the MOPPRS and it is
possible that the IRS could assert another treatment. For instance, it is
possible that the IRS could seek to treat the MOPPRS as maturing on the Stated
Maturity Date.
In the event the MOPPRS were treated as maturing on the Stated Maturity
Date for United States Federal income tax purposes, because the Interest Rate to
Maturity will not be determined until the Determination Date, the MOPPRS would
be treated as having contingent interest under the Code. In such event, under
Treasury Regulations governing debt instruments that provide for contingent
payments (the "Contingent Payment Regulations"), the Operating Partnership would
be required to construct a projected payment schedule for the MOPPRS, based upon
the Operating Partnership's current borrowing costs for comparable debt
instruments of the Operating Partnership, from which an estimated yield on the
MOPPRS would be calculated. A U.S. Holder would be required to include in income
as ordinary interest an amount equal to the sum of the daily portions of
interest on the MOPPRS that would be deemed to accrue at this estimated yield
for each day during the U.S. Holder's taxable year on which the U.S. Holder
holds the MOPPRS. The amount of interest that would be deemed to accrue in any
accrual period would equal the product of this estimated yield (properly
adjusted for the length of the accrual period) and the MOPPRS' adjusted issue
price (as defined below) at the beginning of the accrual period. The daily
portions of interest would be determined by allocating to each day in the
accrual period the ratable portion of the interest that would be deemed to
accrue during the accrual period. In general, for these purposes, a MOPPRS'
adjusted issue price would equal the MOPPRS' issue price increased by the
interest previously accrued on the MOPPRS, and reduced by all payments made on
the MOPPRS. As a result of the application of the Contingent Payment
Regulations, it is possible that a U.S. Holder would be required to include
interest in income in excess of actual cash payments received for certain
taxable years.
S-37
<PAGE> 38
Under the Contingent Payment Regulations, upon the sale or exchange of a
MOPPRS (including a sale pursuant to the mandatory tender on the Remarketing
Date), a U.S. Holder would be required to recognize taxable income or loss in an
amount equal to the difference, if any, between the amount realized by the U.S.
Holder upon such sale or exchange and the U.S. Holder's adjusted tax basis in
the MOPPRS as of the date of disposition. A U.S. Holder's adjusted tax basis in
a MOPPRS generally would equal such U.S. Holder's initial investment in the
MOPPRS increased by any interest previously included in income with respect to
the MOPPRS by the U.S. Holder, and decreased by any payments received by the
U.S. Holder. Any such taxable income generally would be treated as ordinary
income. Any such taxable loss generally would be treated (i) first as an offset
to any interest otherwise includible in income by the U.S. Holder with respect
to the MOPPRS for the taxable year in which the sale or exchange occurs to the
extent of the amount of such includible interest, and (ii) then as an ordinary
loss to the extent of the U.S. Holder's total interest inclusions on the MOPPRS
in previous taxable years. Any remaining loss in excess of the amounts described
in (i) and (ii) above generally would be treated as short-term, mid-term, or
long term-capital loss (depending upon the U.S. Holder's holding period for the
MOPPRS). All amounts includible in income by a U.S. Holder as ordinary interest
pursuant to the Contingent Payment Treasury Regulations would be treated as
original issue discount.
TAX TREATMENT OF NOTES
Payments of interest on a Note generally will be taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax accounting)
if the Notes are issued at par, or alternatively, the excess of the par value
over the issue price does not exceed the statutory de minimis amount (generally
1/4 of 1% of the Note's stated redemption price at maturity multiplied by the
number of complete years to its maturity from its issue date). If the Notes are
issued at a discount greater than the statutory de minimis amount, a U.S. Holder
must include original issue discount in income as ordinary interest for United
States Federal income tax purposes as it accrues under a constant yield method
in advance of receipt of the cash payments attributable to such income,
regardless of the Holder's regular method of accounting.
Upon the sale, exchange or retirement of a Note, a U.S. Holder generally
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (other than amounts representing
accrued and unpaid interest) and such U.S. Holder's adjusted tax basis in the
Note. A U.S. Holder's adjusted tax basis in a Note generally will equal such
U.S. Holder's initial investment on the Note increased by any original issue
discount included in income (and accrued market discount, if any, if the U.S.
Holder has included such market discount in income) and decreased by the amount
of any payments, other than qualified stated interest payments, received and
amortizable bond premium taken with respect to such Note. Such gain or loss will
be capital if the Note was held as a capital asset.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on an Offered Security, unless such non-U.S. Holder is a
direct or indirect 10% or greater partner of the Operating Partnership, a
controlled foreign corporation related to the Operating Partnership or a bank
receiving interest described in section 881(c)(3)(A) of the Code. To qualify for
the exemption from taxation, the last United States payor in the chain of
payment prior to payment to a non-U.S. Holder (the "Withholding Agent") must
have received in the year in which a payment of interest or principal occurs, or
in either of the two preceding calendar years, a statement that (i) is signed by
the beneficial owner of the Offered Security under penalties of perjury, (ii)
certifies that such owner is not a U.S. Holder and (iii) provides the name and
address of the beneficial owner. The statement may be made on an IRS Form W-8 or
a substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If an Offered Security is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS Form
W-8 or the
S-38
<PAGE> 39
substitute form provided by the beneficial owner to the organization or
institution. The Treasury Department is considering implementation of further
certification requirements aimed at determining whether the issuer of a debt
obligation is related to holders thereof.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes gain upon retirement or disposition
of an Offered Security, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should consult
its tax advisor in this regard.
The Offered Securities will not be includible in the estate of a non-U.S.
Holder unless the individual is a direct or indirect 10% or greater partner of
the Operating Partnership or, at the time of such individual's death, payments
in respect of the Offered Securities would have been effectively connected with
the conduct by such individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Offered Securities to registered owners
who are not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the Offered Securities to a U.S. Holder must be
reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of an Offered Security to (or through) a broker,
the broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller is
a non-U.S. Holder (and certain other conditions are met). Such a sale must also
be reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
S-39
<PAGE> 40
ERISA CONSIDERATIONS RELATING TO THE MOPPRS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties-in-Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in John Hancock Life Ins. v. Harris Trust and Sav.
Bank, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account (e.g.,
through the purchase of an annuity contract). ERISA also imposes certain duties
on persons who are fiduciaries of Plans subject to ERISA and prohibits certain
transactions between a Plan and Parties-in-Interest or Disqualified Persons with
respect to such Plans.
The Operating Partnership and the Remarketing Dealer, because of their
activities or the activities of their respective affiliates, may be considered
to be Parties-in-Interest or Disqualified Persons with respect to certain Plans.
If the MOPPRS are acquired by a Plan with respect to which the Operating
Partnership or the Remarketing Dealer is, or subsequently becomes, a
Party-in-Interest or Disqualified Person, the purchase, holding or sale of
MOPPRS to the Remarketing Dealer could be deemed to be a direct or indirect
violation of the Prohibited Transaction rules of ERISA and the Code unless such
transaction were subject to one or more statutory or administrative exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 75-1, which exempts
certain transactions involving employee benefit plans and certain
broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts certain
transactions between insurance company pooled separate accounts and
Parties-in-Interest or Disqualified Persons; PTCE 91-38, which exempts certain
transactions between bank collective investment funds and Parties-in-Interest or
Disqualified Persons; PTCE 84-14, which exempts certain transactions effected on
behalf of a Plan by a "qualified professional asset manager;" PTCE 95-60, which
exempts certain transactions between insurance company general accounts and
Parties-in-Interest or Disqualified Persons; or PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager." Even if the conditions specified in one or more of these exemptions
are met, the scope of relief provided by these exemptions will not necessarily
cover all acts that might be construed as prohibited transactions.
Accordingly, prior to making an investment in the MOPPRS, a Plan should
determine whether the Operating Partnership or the Remarketing Dealer is a
Party-in-Interest or Disqualified Person with respect to such Plan and, if so,
whether such transaction is subject to one or more statutory or administrative
exemptions, including those described above.
Prior to making an investment in the MOPPRS, Plans should consult with
their legal advisers concerning the impact of ERISA and the Code and the
potential consequences of such investment with respect to their specific
circumstances. Moreover, each Plan fiduciary should take into account, among
other considerations, whether the fiduciary has the authority to make the
investment on behalf of the Plan; whether the investment constitutes a direct or
indirect transaction with a Party-in-Interest or a Disqualified Person; and
whether under the general fiduciary standards of investment procedure and
diversification an investment in the MOPPRS is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition of
the Plan's investment portfolio.
S-40
<PAGE> 41
UNDERWRITING
THE MOPPRS
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "MOPPRS Underwriting Agreement"),
between the Operating Partnership and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "MOPPRS Underwriter"), the Operating Partnership has agreed to
sell to the MOPPRS Underwriter, and the MOPPRS Underwriter has agreed to
purchase from the Operating Partnership, the entire principal amount of the
MOPPRS at a price equal to % of the principal amount thereof.
In the MOPPRS Underwriting Agreement, the MOPPRS Underwriter has agreed,
subject to the terms and conditions set forth therein, to purchase all of the
MOPPRS offered hereby if any are purchased. The MOPPRS Underwriter has advised
the Operating Partnership that the MOPPRS Underwriter proposes to offer the
MOPPRS from time to time for sale in negotiated transactions or otherwise, at
prices relating to prevailing market prices determined at the time of sale. The
MOPPRS Underwriter may effect such transactions by selling MOPPRS to or through
dealers and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the MOPPRS Underwriter and any
purchasers of MOPPRS for whom they may act as agent. The MOPPRS Underwriter and
any dealers that participate with the MOPPRS Underwriter in the distribution of
the MOPPRS may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of MOPPRS by them may be deemed to
be underwriting compensation.
The MOPPRS Underwriter is permitted to engage in certain transactions that
maintain or otherwise affect the price of the MOPPRS. Such transactions may
include over-allotment transactions and purchases to cover short positions
created by the MOPPRS Underwriter in connection with the offering. If the MOPPRS
Underwriter creates a short position in the MOPPRS in connection with the
offering, i.e., if it sells MOPPRS in an aggregate principal amount exceeding
that set forth on the cover page of this Prospectus Supplement, the MOPPRS
Underwriter may reduce that short position by purchasing MOPPRS in the open
market.
In general, purchases of a security to reduce a short position could cause
the price of the security to be higher than it might be in the absence of such
purchases.
Neither the Operating Partnership nor the MOPPRS Underwriter makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the MOPPRS. In
addition, neither the Operating Partnership nor the MOPPRS Underwriter makes any
representation that the MOPPRS Underwriter will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
THE NOTES
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "Notes Underwriting Agreement"), the
Operating Partnership has agreed to sell to each of the Underwriters named below
(the "Notes Underwriters" and, together with the MOPPRS Underwriter, the
"Underwriters"), and each of the Notes Underwriters has severally agreed to
purchase, the respective principal amount of the Notes set forth opposite its
name below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- -------------------------------------------------------------------------------- ------------
<S> <C>
PaineWebber Incorporated........................................................ $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................
A.G. Edwards & Sons, Inc. ......................................................
-----------
Total.............................................................. $ 45,000,000
===========
</TABLE>
S-41
<PAGE> 42
In the Notes Underwriting Agreement, the several Notes Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Notes offered hereby if any are purchased.
The Notes Underwriters have advised the Operating Partnership that they
propose initially to offer the Notes directly to the public at the public
offering price set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession not in excess of % of the
principal amount per Note. The Notes Underwriters may allow, and such dealers
may reallow, a discount not in excess of % of the principal amount per Note to
certain other dealers. After the initial public offering of the Notes, the
public offering price, concession and discount may be changed.
The Notes Underwriters are permitted to engage in certain transactions that
stabilize the price of the Notes. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Notes. If the
Notes Underwriters create a short position in the Notes in connection with the
offering, i.e., if they sell Notes in an aggregate principal amount exceeding
that set forth on the cover page of this Prospectus Supplement, the Notes
Underwriters may reduce that short position by purchasing Notes in the open
market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Operating Partnership nor the Notes Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes. In
addition, neither the Operating Partnership nor the Notes Underwriters make any
representation that the Notes Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
------------------------
The MOPPRS and the Notes are new issues of securities with no established
trading market. The Operating Partnership has been advised by the MOPPRS
Underwriter and the Notes Underwriters that they intend to make a market in the
MOPPRS and the Notes, respectively, but they are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the MOPPRS or the Notes.
The Operating Partnership and the Company have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to make contribution to certain payments in respect thereof.
In the ordinary course of business, the Underwriters and/or their
respective affiliates have engaged and may in the future engage in investment
banking transactions with the Company, the Operating Partnership and certain of
its affiliates.
LEGAL MATTERS
The legality of the Offered Securities will be passed upon for the
Operating Partnership by Rogers & Wells, New York, New York, and for the
Underwriters by Brown & Wood LLP, New York, New York. Rogers & Wells and Brown &
Wood LLP will rely upon Piper & Marbury L.L.P., Baltimore, Maryland, as to
matters of Maryland law.
S-42
<PAGE> 43
PROSPECTUS
$200,000,000
CHATEAU COMMUNITIES, INC.
COMMON STOCK, WARRANTS, PREFERRED
STOCK, DEPOSITARY SHARES AND GUARANTEES
$120,000,000
CP LIMITED PARTNERSHIP
DEBT SECURITIES
Chateau Communities, Inc. (the "Company") may from time to time offer in
one or more series (i) shares of its common stock, par value $.01 per share (the
"Common Stock"); (ii) warrants to purchase Common Stock (the "Warrants"); or
(iii) shares or fractional shares of its preferred stock, par value $.01 per
share (the "Preferred Stock"), which may be issued in the form of depositary
shares (the "Depositary Shares") evidenced by depositary receipts, with an
aggregate public offering price of up to $200,000,000. CP Limited Partnership, a
Maryland limited partnership and a majority-owned subsidiary of the Company (the
"Operating Partnership"), may from time to time offer in one or more series
unsecured non-convertible investment grade debt securities or other
non-convertible debt securities which will be fully and unconditionally
guaranteed by the Company (any such debt securities being referred to herein as
"Debt Securities" and any such guarantees being referred to herein as
"Guarantees"), with an aggregate public offering price of up to $120,000,000.
The Common Stock, Warrants, Preferred Stock, Depositary Shares, Debt Securities
and Guarantees (collectively, the "Offered Securities") may be offered
separately or together, in separate series, in amounts, at prices and on terms
to be determined at the time of offering and set forth in one or more
supplements to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Common Stock,
any public offering price; (ii) in the case of Warrants, the duration, offering
price, exercise price and detachability features; (iii) in the case of Preferred
Stock, the specific title, any distribution, liquidation, redemption,
conversion, voting and other rights and any initial public offering price; (iv)
in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depositary Share; and (v) in the case of Debt
Securities, the title, aggregate principal amount, denominations, maturity,
rate, if any (which may be fixed or variable), or method of calculation thereof,
time of payment of any interest, any terms for redemption at the option of the
Operating Partnership or the holder, any terms for sinking fund payments, rank,
any conversion or exchange rights, any Guarantees, and the initial public
offering price and any other terms in connection with the offering and sale of
such Debt Securities. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for federal income tax
purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about all material federal income tax considerations relating to,
and any listing on a securities exchange of, the Offered Securities covered by
such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth, in the
applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Offered
Securities.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is December 10, 1997.
<PAGE> 44
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING PARTNERSHIP OR ANY
UNDERWRITERS, AGENTS OR DEALERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF OR THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission). Such
reports, proxy statements and other information filed by the Company and the
Operating Partnership may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. The Company and the
Operating Partnership file their reports, proxy statements and other information
with the Commission electronically. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Common Stock of the Company is listed on the New York Stock
Exchange ("NYSE") and similar information concerning the Company can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York, 10005.
The Company and the Operating Partnership have filed with the Commission a
registration statement (of which this Prospectus is a part) on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Offered Securities. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission,
and in the exhibits thereto. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company, the Operating
Partnership and the Offered Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules, which may be examined
without charge at, or copies obtained upon payment of prescribed fees from, the
Commission and its regional offices listed below.
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference herein may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, and as such may involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company and the Operating
Partnership to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company and the Operating
Partnership, are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," estimate," "believe," "intend" or "project" or
the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse
2
<PAGE> 45
effect on the operations and future prospects of the Company and the Operating
Partnership include, but are not limited to, changes in: economic conditions
generally and the real estate market specifically, legislative/regulatory
changes (including changes to laws governing the taxation of REITs),
availability of capital, interest rates, competition, supply and demand for
properties in the Company's and the Operating Partnership's current and proposed
market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company and the Operating Partnership
with the Commission pursuant to the Exchange Act are incorporated by reference
herein and made a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Operating Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
4. The Operating Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1997.
5. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997.
6. The Operating Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1997.
7. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997.
8. The Operating Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997.
9. The Company's Current Report on Form 8-K, dated February 11, 1997,
filed with the Commission on February 26, 1997, pursuant to the
Exchange Act.
10. The Company's Current Report on Form 8-K, dated May 22, 1997, filed
with the Commission on May 30, 1997.
11. The Company's Current Report on Form 8-K, dated June 16, 1997, filed
with the Commission on June 24, 1997.
12. The Company's Current Report on Form 8-K, dated December 10, 1997,
filed with the Commission on December 10, 1997.
13. The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A, including any amendments
or reports filed for the purpose of updating such description.
All documents subsequently filed by the Company or the Operating
Partnership pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act
and prior to the termination of the offering of all Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such document.
Any statement or information contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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<PAGE> 46
The Company and the Operating Partnership will provide without charge to
each person to whom this Prospectus is delivered, upon written or oral request
of such person, a copy of any and all of the information incorporated by
reference into this Prospectus (not including exhibits to the information that
is incorporated by reference unless such exhibits are specifically incorporated
by reference to the information that this Prospectus incorporates). Written
requests for the information described in this paragraph shall be directed to:
Chateau Communities, Inc., 6430 South Quebec Street, Englewood, Colorado 80111.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company, a self-administered and self-managed equity real estate
investment trust ("REIT"), is the largest owner/manager of manufactured home
communities in the United States, based both on the number of communities and
the number of residential homesites owned. On February 11, 1997, the Company
completed a strategic merger of equals (the "Merger") with ROC Communities, Inc.
("ROC"), in which ROC merged with a special-purpose merger subsidiary of the
Company. As a result of the Merger, the businesses of the Company and ROC were
combined. At March 31, 1997, the Company owned and operated 128 manufactured
home communities (the "Properties") located in 27 states, with an aggregate of
42,986 homesites. The Company's portfolio is 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 Company's portfolio is also 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. At March 31, 1997, approximately 94.1% of the Company's
homesites were occupied. In addition, the Company fee manages 6,953 residential
homesites in 34 communities. Also at March 31, 1997, the Company owned
undeveloped land adjacent to existing communities containing approximately 4,200
expansion sites which are zoned for manufactured housing.
The Company conducts substantially all of its activities through the
Operating Partnership in which as of March 31, 1997 it owned, directly and
through ROC (the other general partner of the Operating Partnership), an
approximate 90% general partner interest. As general partners of the Operating
Partnership, the Company and ROC have unilateral control and complete
responsibility for the management of the Operating Partnership and over each of
the Properties. The Company's Common Stock is listed on the NYSE under the
Symbol "CPJ."
The Company's and the Operating Partnership's executive and principal
property management offices are located at 6430 South Quebec Street, Englewood,
Colorado 80111 and their telephone number is (303) 741-3707. The Company and the
Operating Partnership have regional property management offices in Clinton
Township, Michigan; Indianapolis, Indiana; Tampa, Florida; and Atlanta, Georgia.
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement, the
Company and the Operating Partnership intend to use the net proceeds from any
sale of the Offered Securities for working capital and for general corporate
purposes, which may include the repayment of indebtedness, the financing of
capital commitments and possible future acquisitions, expansions and development
of manufactured housing communities.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 30, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------
1997 1996 1995 1994 1993 1992
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............ 2.03 2.24 2.12 3.47 1.31 1.20
Ratio of funds from operations to fixed
charges..................................... 3.25 3.11 2.99 4.65 1.82 1.65
</TABLE>
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<PAGE> 47
Ratio of earnings to fixed charges represents income before extraordinary
item plus fixed charges to fixed charges (principally interest and amortization
of deferred financing costs). Ratio of funds from operations to fixed charges
represents the ratio of funds from operations plus fixed charges to fixed
charges. Funds from operations, as used in the above table and as defined by the
National Association of Real Estate Investment Trusts, means net income
excluding gains (or losses) from debt restructuring and sales of property, plus
certain depreciation and amortization. Management believes 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 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. The ratios for 1993 include
the ratio for certain predecessors of the Company and the Operating Partnership.
The ratios for 1992 represent the ratios of the same predecessors. To date, the
Company has not issued any Preferred Stock. Consequently, the ratios of earnings
to combined fixed charges and preferred stock dividends would not be any
different from the ratios of earnings to fixed charges shown above.
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general term and provisions of the
Indenture under which the Debt Securities are to be issued by the Operating
Partnership. The particular terms of the Debt Securities will be set forth in a
Prospectus Supplement relating to such Debt Securities.
The Debt Securities may be issued by the Operating Partnership, and will be
either (i) non-convertible investment grade Debt Securities or (ii)
non-convertible Debt Securities that are fully and unconditionally guaranteed
by, and are accompanied by Guarantees of, the Company. The Debt Securities will
be issued pursuant to indentures (each an "Indenture") between the Operating
Partnership and a trustee named in the Indenture (the "Trustee"). The form of
each Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, subject to such amendments or supplements as
may be adopted from time to time and is available for inspection as described
above under "Available Information." Each Indenture will be dated as of a date
on or prior to the issuance of the Debt Securities to which it relates. The
Indentures are subject to, and governed by, the Trust Indenture Act of 1939, as
amended (the "TIA"). The statements made hereunder relating to the Indentures
and the Debt Securities to be issued thereunder are summaries of certain
provisions thereof, do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Indentures
and the Debt Securities.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. Except for any series of Debt Securities which is specifically
subordinated to other indebtedness of the Operating Partnership, the Debt
Securities will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership.
Section 301 of the Indenture provides that the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time in or pursuant to authority granted
by the Company and ROC, as general partners of the Operating Partnership, or
indentures supplemental to the Indenture. Prior to the issuance of Debt
Securities of any series, any or all of the following, as applicable (each of
which (except for the matters set forth in clauses (1), (2) and (13) below), if
so provided, may be determined from time to time by the Operating Partnership
with respect to unissued Debt Securities of or within the series when issued
from time to time) and will be set forth in the Prospectus Supplement relating
to the series of Debt Securities:
(1) the title of the Debt Securities of or within the series (which shall
distinguish the Debt Securities of such series from all other series in Debt
Securities);
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<PAGE> 48
(2) any limit upon the aggregate principal amount of the Debt Securities of
or within the series that may be authenticated and delivered under the
Indenture;
(3) the percentage of the principal amount at which the Debt Securities of
the series will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of acceleration
of maturity thereof;
(4) the date or dates, or the method by which such date or dates will be
determined, on which the principal of the Debt Securities of or within the
series shall be payable and the amount of principal payable thereon;
(5) the rate or rates at which the Debt Securities of or within the series
shall bear interest, if any, or the method by which such rate or rates shall be
determined, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest Payment
Dates on which such interest will be payable and the Regular Record Date, if
any, for the interest payable on any Debt Security on any Interest Payment Date,
or the method by which such date shall be determined, and the basis upon which
interest shall be calculated if other than that of a 360-day year consisting of
twelve 30-day months;
(6) the place or places, if any other than or in addition to the Borough of
Manhattan, the City of New York or the City of Chicago, where the principal of
(and premium or Make-Whole Amount, if any) and interest, if any, on Debt
Securities of or within the series may be surrendered for registration of
transfer or exchange and notices or demands to or upon the Operating Partnership
in respect of the Debt Securities of or within the series and the Indenture may
be served;
(7) the period or periods within which, the price or prices (including the
premium or Make-Whole Amount, if any) at which, and other terms and conditions
upon which Debt Securities of or within the series may be redeemed in whole or
in part, at the option of the Operating Partnership, if the Operating
Partnership is to have the option;
(8) the obligation, if any, of the Operating Partnership to redeem, repay
or purchase Debt Securities of or within the series pursuant to any sinking fund
or analogous provision or at the option of a Holder thereof, and the period or
periods within which or the date or dates on which, the price or prices at
which, and other terms and conditions upon which Debt Securities of or within
the series shall be redeemed, repaid or purchased, in whole or in part, pursuant
to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Debt Securities of or within the series
shall be issuable;
(10) if other than the Trustee, the identity of each Security Registrar
and/or Paying Agent;
(11) if other than the principal amount thereof, the portion of the
principal amount of Debt Securities of or within the series that shall be
payable upon declaration of acceleration of the maturity thereof pursuant to
Section 502 of the Indenture or the method by which such portion shall be
determined;
(12) whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest, if any, on the Debt Securities of or
within the series may be determined with reference to an index, formula or other
method (which index, formula or method may be based, without limitation, on one
or more currencies, currency units, composite currencies, commodities, equity
indices or other indices), and the manner in which such amounts shall be
determined;
(13) provisions, if any, granting special rights to the Holder of Debt
Securities of or within the series upon the occurrence of such events as may be
specified;
(14) any deletions from, modifications of or additions to the Events of
Default or covenants of the Operating Partnership with respect to Debt
Securities of or within the series, whether or not such Events of Default or
covenants are consistent with the Events of Default or covenants set forth in
the Indenture;
(15) whether any Debt Securities of or within the series are to be issuable
initially in temporary global form and whether any Debt Securities of or within
the series are to be issuable in permanent global form and,
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<PAGE> 49
if so, whether beneficial owners of interests in any such permanent global Debt
Security may exchange such interests for Debt Securities of such series and of
like tenor of any authorized form and denomination and the circumstances under
which any such exchanges may occur, if other than in the manner provided in
Section 305 of the Indenture, and, if Debt Securities of or within the series
are to be issuable as a global Debt Security, the identity of the depositary for
such series;
(16) the date as of which any temporary global Debt Security representing
Outstanding Securities of or within the series shall be dated if other than the
date of original issuance of the first Debt Security of the series to be issued;
(17) the Person to whom any interest on any Debt Security of the series
shall be payable, if other than the Person in whose name that Debt Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, and the extent to which, or the
manner in which, any interest payable on a temporary global Debt Security on an
Interest Payment Date will be paid if other than in the manner provided in
Section 304 of the Indenture;
(18) the applicability, if any, of Sections 1402 and/or 1403 of the
Indenture to the Debt Securities of or within the series and any provisions in
modification of, in addition to or in lieu of any of the provisions of Article
Fourteen;
(19) if the Debt Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Debt Security
of such series) only upon receipt of certain certificates or other documents or
satisfaction of other conditions, then the form and/or terms of such
certificates, documents or conditions;
(20) if the Debt Securities of or within the series are to be issued upon
the exercise of debt warrants, the time, manner and place for such Debt
Securities to be authenticated and delivered;
(21) the extent to which the Debt Securities of or within the series are
subordinated to other indebtedness; and
(22) any other terms of the Debt Securities of or within the series or of
any Guarantees issued concurrently with such Debt Securities not inconsistent
with the provisions of the applicable Indenture.
All Debt Securities of any one series shall be substantially identical,
except, in the case of Debt Securities issued in global form, as to denomination
and except as may otherwise be provided in or pursuant to such resolution of the
Board of Directors or in any indenture supplemental to the Indenture. All Debt
Securities of any one series need not be issued at the same time and unless
otherwise provided, a series may be reopened, without the consent of the
Holders, for issuances of additional Debt Securities of such series.
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into any other
entity, provided that in any such case, (i) either the Operating Partnership
shall be the continuing entity, or the successor entity (if any other than the
Operating Partnership) shall be an entity organized and existing under the laws
of the United States of America or a State thereof and such successor entity
shall expressly assume the due and punctual payment of the principal of and any
interest (including all Additional Amounts, if any) on all of the Debt
Securities, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Indenture to be
performed by the Operating Partnership by supplemental indenture, satisfactory
to the Trustee, executed and delivered to the Trustee by such entity and (ii)
immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Operating Partnership or any
Subsidiary as a result thereof as having been incurred by the Operating
Partnership or such Subsidiary at the time of such transaction, no Event of
Default, and no event which, after notice or the lapse of time, or both, would
become an Event of Default, shall have occurred and be continuing and (iii) an
Officers' Certificate and an Opinion of Counsel covering such conditions shall
be delivered to the Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "Consolidation, Merger, Sale, Lease
or Conveyance" the Operating Partnership will do or cause to be done all things
necessary to preserve and keep in full force and
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<PAGE> 50
effect its existence, rights and franchises; provided, however, that Operating
Partnership shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of the business of the Operating Partnership, and that the loss thereof is not
disadvantageous in any material respect to the Holders.
Payment of Taxes and Other Claims. The Operating Partnership, will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Operating Partnership or any Subsidiary or upon the income,
profits or property of the Operating Partnership or any Subsidiary, and (ii) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Operating Partnership or any Subsidiary;
provided, however, that the Operating Partnership shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings.
Additional Covenants. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (i) default for
30 days in the payment of any installment of interest or Additional Amounts on
any Debt Security of such series; (ii) default in the payment of the principal
of (or premium, if any, on) any Debt Security of such series at its maturity;
(iii) default in making any sinking fund payment as required for any Debt
Security of such series; (iv) default in the performance of any other covenant
or warranty of the Issuer contained in the applicable Indenture (other than a
covenant added to such Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), such default having
continued for 60 days after written notice as provided in such Indenture; (v)
default in the payment of an aggregate principal amount exceeding a specified
dollar amount of any evidence of indebtedness (including a default with respect
to Debt Securities of any series other than that series) of the Issuer (or by
any Subsidiary, the repayment of which the Issuer has guaranteed or for which
the Issuer is directly responsible or liable as obligor or guarantor) or any
mortgage, indenture or other instrument under which such indebtedness is issued
or by which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled; (vi)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee of the Issuer or any Significant Subsidiary
(as hereinafter defined) or any of their respective property; and (vii) any
other event of default provided with respect to a particular series of Debt
Securities. The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the
Issuer.
If an event of default under the Indentures with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that series may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities or indexed securities, such portion of the principal
amount as may be specified in the terms thereof) of all of the Debt Securities
of that series to be due and payable immediately by written notice thereof to
the Issuer (and to the applicable Trustee if given by the holders). However, at
any time after such a declaration of acceleration with respect to Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) has been made, but before a judgment
or decree for payment of the money due has been obtained by the applicable
Trustee, the holders of not less than a majority in principal amount of
outstanding Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may rescind and
annul such declaration and its consequences if (i) the Issuer shall have
deposited with the applicable Trustee all required payments of the principal of
(and premium, if any) and interest, if any, on the Debt Securities of such
series (or of all Debt Securities then outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (ii) all events of default, other than
the non-payment of accelerated principal (or
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<PAGE> 51
specified portion thereof), or premium (if any) or interest on the Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) have been cured or waived as provided
in the applicable Indenture. Each Indenture also provides that the holders of
not less than a majority in principal amount of the outstanding Debt Securities
of any series (or of all Debt Securities then outstanding under the applicable
Indenture, as the case may be) may waive any past default with respect to such
series and its consequences, except a default (i) in the payment of the
principal of (or premium, if any) or interest, if any, on any Debt Security of
such series or (ii) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the holder of each outstanding Debt Security affected thereby.
The Trustee is required to give notice to the Holders of the Debt
Securities within 90 days of a default under the Indenture; provided, however,
that the Trustee may withhold such notice (except a default in the payment of
the principal of (or the Make-Whole Amount, if any) or interest on any Debt
Securities of any series or in the payment of any sinking fund installment with
respect to Debt Securities of such series if the Responsible Officers of the
Trustee in good faith consider such withholding to be in the interest of such
Holders of the Debt Securities; and provided further that in the case of any
default or breach of the character specified in Section 501(iv) of the Indenture
with respect to the Debt Securities, no such notice to Holders shall be given
until at least 60 days after the occurrence thereof.
The Indenture provides that no Holders of the Debt Securities may institute
any proceedings, judicial or otherwise, with respect to the Indenture or for any
remedy thereunder, unless (i) such Holder has previously given written notice to
the Trustee of a continuing Event of Default with respect to the Securities of
that series; (ii) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder; (iii) such Holder or Holders have offered to the
Trustee indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities to be incurred in compliance with such request; (iv)
the Trustee for 60 days after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding; and (v) no direction
inconsistent with such written request has been given to the Trustee during such
60-day period by the Holders of a majority in principal amount of the
Outstanding Securities of that series; it being understood and intended that no
one or more of such Holders shall have any right in any manner whatsoever by
virtue of, or by availing to, any provision of the Indenture to affect, disturb
or prejudice the rights of any other of such Holders, to obtain or to seek to
obtain priority or preference over any other of such Holders or to enforce any
right under the Indenture, except in the manner herein provided and for the
equal and ratable benefit of all such Holders.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made with the consent
of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Note affected thereby, (a) change
the Stated Maturity of the principal of (or the Make-Whole Amount, if any), or
any interest on, any such Debt Security; (b) reduce the principal amount of, or
the rate or amount of interest on, or any Make-Whole Amount payable on
redemption of, any such Debt Security; (c) change the Place of Payment, or the
coin or currency, for payment of principal of (or the Make-Whole Amount, if any)
or interest on, any such Debt Security; (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any such Debt Security
on or after the Stated Maturity thereof; (e) reduce the percentage of
Outstanding Debt Securities of any series necessary to modify or amend the
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Note.
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities have the right to waive compliance by the Operating Partnership
with certain covenants in the Indenture.
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The Indenture also contains provisions permitting the Operating Partnership
and the Trustee, without the consent of any Holders of the Debt Securities, to
enter into supplemental indentures, in form satisfactory to the Trustee, for any
of the following purposes: (i) to evidence the succession of another Person to
the Operating Partnership and the assumption by any such successor of the
covenants of the Operating Partnership contained in the Indenture and in the
Debt Securities; (ii) to add to the covenants of the Operating Partnership for
the benefit of the Holders of all or any series of Debt Securities (and if such
covenants are to be for the benefit of less than all series of Debt Securities,
stating that such covenants are expressly being included solely for the benefit
of such series) or to surrender any right or power conferred upon the Operating
Partnership by the Indenture; (iii) to add any additional Events of Default for
the benefit of the Holders of all or any series of Debt Securities (and if such
Events of Default are to be for the benefit of less than all series of Debt
Securities, stating that such Events of Default are expressly being included
solely for the benefit of such series); provided, however, that in respect of
any such additional Events of Default such supplemental indenture may provide
for a particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such default or may limit the remedies available to
the Trustee upon such default or may limit the right of the Holders of a
majority in aggregate principal amount of that or those series of Debt
Securities to which such additional Events of Default apply to waive such
default; (iv) to add to or change any of the provisions of the Indenture to
provide that Bearer Debt Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of principal of, or any
premium or interest on, Bearer Securities, to permit Bearer Securities to be
issued in exchange for Registered Securities, to permit Bearer Securities to be
issued in exchange for Bearer Securities of other authorized denominations or to
permit or facilitate the issuance of Debt Securities in uncertificated form;
provided that any such action shall not adversely affect the interests of the
Holders of Debt Securities of any series or any related coupons in any material
respect; (v) to change or eliminate any of the provisions of the Indenture;
provided that any such change or elimination shall become effective only when
there is no Debt Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit of
such provision; (vi) to secure the Debt Securities; (vii) to establish the form
or terms of Debt Securities of any series as permitted by the Indenture; (viii)
to evidence and provide for the acceptance of appointment under the Indenture by
a successor Trustee with respect to the Debt Securities of one or more series
and to add to or change any of the provisions of the Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee; (ix) to cure any ambiguity, to correct or
supplement any provision herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions with respect to matters
or questions arising under the Indenture which shall not be inconsistent with
the provisions of the Indenture; provided such provisions shall not adversely
affect the interests of the Holders of Debt Securities of any series or any
related coupons in any material respect; or (x) to supplement any of the
provisions of the Indenture to such extent as shall be necessary to permit or
facilitate the defeasance and discharge of any series of Debt Securities
pursuant to Sections 1401, 1402 and 1403 of the Indenture; provided that any
such action shall not adversely affect the interests of the Holders of Debt
Securities of such series and any related coupons or any other series of Debt
Securities in any material respect.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Operating
Partnership may discharge certain obligations to Holders of Debt Securities that
have not already been delivered to the Trustee for cancellation and that either
have become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
Trustee, in trust, funds in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be.
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, the Operating Partnership may elect either (a) to defease and be
discharged from any and all obligations with respect to the Debt Securities
(except for the obligations to register the transfer or exchange of the Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in
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<PAGE> 53
respect of the Debt Securities and to hold moneys for payment in trust
("Defeasance") or (b) to be released from its obligations with respect to the
Debt Securities under provisions of the Indenture described under "Certain
Covenants," and its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event or Default with respect to the Debt Securities ("Covenant Defeasance"), in
either case upon the irrevocable deposit by the Operating Partnership with the
Trustee, in trust, of cash or Government Obligations (as deemed below), or both,
which through the scheduled payment of principal and interest in accordance with
their terms will provide money in an amount sufficient to pay the principal of
and interest on the Debt Securities on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of the Debt Securities will not
recognize income, gain or loss for United States Federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service (the "IRS")
or a change in applicable United States Federal income tax laws occurring after
the date of the Indenture.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
In the event the Operating Partnership effects covenant defeasance and the
Debt Securities are declared due and payable because of the occurrence of any
Event of Default other than an Event of Default with respect to provisions of
the Indenture which as a result of such covenant defeasance would no longer be
applicable to the Debt Securities, the cash and Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Debt
Securities at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Debt Securities at the time of the acceleration resulting
from such Event of Default. However, the Operating Partnership would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
GUARANTEES
If the Operating Partnership issues any Debt Securities that are rated
below investment grade at the time of issuance, the Company will fully and
unconditionally guarantee, on a senior or subordinated basis, the due and
punctual payment of principal of or premium, if any, and interest on such Debt
Securities, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
The applicability and terms of any such Guarantees relating to a series of Debt
Securities will be set forth in the Prospectus Supplement relating to such Debt
Securities.
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DESCRIPTION OF COMMON STOCK
STOCK -- GENERAL
The Company's Articles of Incorporation, as amended and supplemented (the
"Charter"), provide that the Company may issue up to 92,000,000 shares of
capital stock, currently consisting of 90,000,000 shares of Common Stock (par
value $.01 per share) and 2,000,000 shares of Preferred Stock (par value $.01
per share), of which, at April 30, 1997, 25,175,114 shares of Common Stock were
issued and outstanding. Up to 2,198,000 shares of Common Stock have been
reserved for issuance under the Company's stock option and incentive plans. In
addition, 2,756,057 shares of Common Stock are reserved for issuance upon the
conversion of outstanding units of limited partner interest ("OP Units") in the
Operating Partnership. The Board of Directors has the authority to classify or
reclassify any authorized but unissued shares of capital stock into one or more
classes or series (including classes or series of preferred stock) and to
establish the terms of such classes or series. Under Maryland law, stockholders
generally are not liable for a corporation's debts or obligations. The following
descriptions do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the more complete descriptions thereof set forth
in the following documents: (i) the Charter and (ii) the Company's By-Laws (the
"By-Laws"), which documents are exhibits to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock or Depositary Shares or upon the
exercise of Warrants issued by the Company. This description is in all respects
subject to and qualified in its entirety by reference to the applicable
provisions of the Company's Charter and its By-laws. The Common Stock is listed
on the NYSE under the symbol "CPJ." The transfer agent and registrar for the
Common Stock is The Huntington National Bank.
All shares of Common Stock offered hereby will, when issued, be duly
authorized, fully paid and nonassessable. Subject to the preferential rights of
any other shares or series of stock and to the provisions of the Company's
Charter regarding "Excess Stock" (as defined below), holders of shares of Common
Stock will be entitled to receive dividends on such stock if, as and when
authorized and declared by the Board of Directors of the Company out of assets
legally available therefor and to share ratably in the assets of the Company
legally available for distribution to its stockholders in the event of its
liquidation, dissolution or winding-up after payment of, or adequate provision
for, all known debts and liabilities of the Company. The Company currently pays
quarterly dividends to holders of Common Stock.
Subject to the provisions of the Company's Charter regarding Excess Stock,
each outstanding share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, and, except as otherwise required
by law or except as provided with respect to any other class or series of stock,
the holders of such shares will possess the exclusive voting power. In the
election of directors, each outstanding shares of Common Stock entitles the
holder to one vote for each director to be elected, but there is no cumulative
voting in the election of directors, which means that the holders of a majority
of the outstanding shares of Common Stock can elect all of the directors then
standing for election and the holders of the remaining shares will not be able
to elect any directors.
Holders of shares of Common Stock have no conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company.
Subject to the provisions of the Company's Charter regarding Excess Stock,
shares of Common Stock will have equal dividend, distribution, liquidation and
other rights, and will have no preference, appraisal or exchange rights.
Pursuant to Maryland law, a corporation generally cannot dissolve, amend
its Charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary
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course of business unless approved by the affirmative vote of stockholders
holding at least two-thirds of the shares entitled to vote on the matter unless
a lesser percentage (but not less than a majority of all of the votes to be cast
on the matter) is set forth in the corporation's Charter. The Company's Charter
does not provide for a lesser percentage in such situations.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), shares of Common Stock must be beneficially owned
by 100 or more persons during at least 335 days of the taxable year of 12 months
(other than the first year) or during a proportionate part of a shorter taxable
year. Also, not more than 50% of the value of the outstanding shares of capital
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year (other than the first year) or during a proportionate part of a
shorter taxable year. (See "Federal Income Tax Considerations").
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Charter, subject to certain exceptions,
provides that, except as otherwise provided below, no holder may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than 7%
(the "Ownership Limit") of the number or value of the issued and outstanding
stock of the Company (or such greater percentage up to 9.8% as shall be
determined by the Board of Directors). The Company's Board of Directors, upon
receipt of a ruling from the IRS and upon such other conditions as the Board of
Directors may direct, may also exempt a proposed transferee from the Ownership
Limit. As a condition of such exemption, the intended transferee must give
written notice to the Company of the proposed transfer no later than the
fifteenth day prior to any transfer which, if consummated, would result in the
intended transferee owning shares in excess of the Ownership Limit. The Board of
Directors of the Company may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure the Company's status as a REIT. Any transfer of shares of
Common Stock or Preferred Stock that would (i) create a direct or indirect
ownership of shares of stock in excess of the Ownership Limit, (ii) result in
the shares of stock being owned by fewer than 100 persons, or (iii) result in
the Company being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no rights
to the shares. The foregoing restrictions on transferability and ownership will
not apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT.
The Company's Charter excludes certain predecessors of the Company (the
"Chateau Contributing Parties") from the Ownership Limit. 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.
Any purported transfer of shares that would result in a person owning
shares of capital stock in excess of the Ownership Limit or cause the Company to
become "closely held" under Section 856(h) of the Code that is not otherwise
permitted as provided above will constitute excess shares ("Excess Stock"), and
shall be deemed to have been transferred to such person or persons (who are
unaffiliated with the Company and the purported transferee), as designated from
time to time by the Company, who shall serve as Trustee or Co-Trustees, as the
case may be, of a Trust for the exclusive benefit of one or more organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code, as Beneficiary of
such Trust. While this Excess Stock is held in trust, any dividends or other
distributions shall be paid to the Trustee and the Trustee shall be deemed to
hold an irrevocable proxy to vote the shares. Subject to the Ownership Limit,
the Excess Stock may be retransferred by the trustee to any person (if the
Excess Stock would not be Excess Stock in the hands of such person). The
Purported Beneficial Transferee shall receive the lesser of (i) the price per
share which such Purported Beneficial Transferee paid for the Common Stock or
Preferred Stock, as the case may be, in the purported Transfer that resulted in
the Excess Stock or, if the Purported Beneficial Transferee did not give value
for such Excess Stock (through a gift, devise or other transaction), a price per
share equal to the Market Price for the shares of the Excess Stock on the date
of the purported Transfer that resulted in the Excess Stock, and (ii) the price
per share received by the Trustee from the sale or other disposition of the
shares of
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Excess Stock held by the Trust. Any proceeds in excess of the amount payable to
the Purported Beneficial Transferee shall be payable to the Beneficiary.
If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the intended
transferee of any Excess Stock may be deemed, at the option of the Company, to
have acted as an agent on behalf of the Company in acquiring such Excess Stock
and to hold such Excess Stock on behalf of the Company.
In addition, Excess Stock shall be deemed to have been offered for sale to
the Company, or its designee, at a price per share equal to the lesser of (i)
the price per share in the transaction that created such Excess Stock (or, in
the case of a devise or gift, the Market Price at the time of such devise or
gift) and (ii) the Market Price of the Common Stock or Preferred Stock to which
such Excess Stock relates on the date the Company, or its designee, accepts such
offer. The Company shall have the right to accept such offer for a period of 90
days after the later of (i) the date of the Transfer which resulted in such
Excess Stock and (ii) the date the Board of Directors determines in good faith
that a Transfer resulting in Excess Stock has occurred, if the Company does not
receive a notice of such Transfer.
All certificates representing shares of 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% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding shares of stock of the Company must give written
notice of such ownership to the Company by January 31 of each year. In addition,
each stockholder shall upon demand be required to disclose to the Company in
writing such information with respect to the direct, indirect and constructive
ownership of shares of Common Stock or Preferred Stock as the Board of Directors
deems reasonably necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of Common Stock or Preferred Stock (if issued and outstanding) might receive a
premium for their shares over the then prevailing market price or which such
holders might believe to be otherwise in their best interest.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Under the Charter, the Company currently has authority to issue 2,000,000
shares of Preferred Stock, none of which is outstanding as of the date of this
Prospectus. In addition, under the Charter the Board of Directors has authority
to classify or reclassify any authorized but unissued shares of any class of
capital stock into classes or series of preferred stock. Prior to issuance of
shares of each series, the Board of Directors is required by the Maryland
General Corporation Law (the "MGCL") and the Charter to fix for each series,
subject to the provisions of the Charter, the terms, preferences, conversion or
other rights, voting powers, restrictions (including restrictions on transfers
of shares), limitations as to distributions, qualifications and terms or
conditions of redemption, and to file articles supplementary to the Charter (the
"Articles Supplementary") reflecting such terms, preferences and other rights.
The Board of Directors could authorize the issuance of shares of Preferred Stock
with terms and conditions that could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares over the then-prevailing
market price or might believe to be otherwise in their best interest.
The Preferred Stock will, upon issuance against full payment of the
purchase price therefor, will be fully paid and nonassessable and will have no
preemptive rights (except as may be granted by the Board of Directors at the
time of issuance). The specific terms of a particular class or series of
Preferred Stock will be described in the Prospectus Supplement relating to that
class or series, including a Prospectus Supplement providing that Preferred
Stock may be issuable upon the exercise of Warrants issued by the Company. The
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description of Preferred Stock set forth below and the description of the terms
of a particular class or series of Preferred Stock set forth in a Prospectus
Supplement do not purport to be complete and are qualified in their entirety by
reference to the articles supplementary relating to that class or series. The
discussion of Excess Stock is also applicable to Preferred Stock.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and the By-Laws and any Articles
Supplementary designating terms of a series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for the specific terms thereof, including, where
applicable, the following:
1. The title of such Preferred Stock;
2. The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such
Preferred Stock;
3. The distribution rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred
Stock;
4. Whether such Preferred Stock is cumulative or not and, if
cumulative, the date from which distributions on such Preferred
Stock shall accumulate;
5. The provision for sinking fund, if any, for such Preferred Stock;
6. The provision for redemption, if applicable, of such Preferred
Stock;
7. Any listing of such Preferred Stock on any securities exchange;
8. The terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock, including the
conversion price (or manner of calculation thereof);
9. Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the
status of the Company as a REIT;
10. The relative ranking and preferences of such Preferred Stock as to
distribution rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company;
11. Any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such class or series
of Preferred Stock as to distribution rights and rights upon
liquidation, dissolution or winding up of the affairs of the
Company;
12. Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
13. Any voting rights of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to distribution rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to Common Stock (and
Excess Stock arising from Common Stock) of the Company, and to all equity
securities ranking junior to such Preferred Stock with respect to distribution
rights and rights upon liquidation, dissolution or winding up of the Company;
(ii) on a parity with all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to distribution rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such
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equity securities rank senior to the Preferred Stock with respect to
distribution rights or rights upon liquidation, dissolution or winding up of the
Company.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any shares of any class or
series of Preferred Stock are convertible into Common Stock will be set forth in
the applicable Prospectus Supplement relating thereto. Such terms will include
the number of shares of Common Stock into which the share of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of such class or series of Preferred Stock or the Company, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such class or series of Preferred
Stock.
RESTRICTIONS ON TRANSFER
The provisions contained in the Charter restricting certain transfers and
limiting the beneficial ownership, directly or indirectly, of the Company's
outstanding capital stock will affect any shares of Preferred Stock that may
from time to time be issued by the Company. See "Description of Common
Stock -- Restrictions on Transfer."
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue Depositary Shares, each of which will represent a
fractional interest of a share of particular class or series of Preferred Stock,
as specified in the applicable Prospectus Supplement. Shares of a class or
series of Preferred Stock represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (the "Preferred Stock Depositary") and the
holders from time to time of the depositary receipts issued by the Preferred
Stock Depositary which will evidence the Depositary Shares ("Depositary
Receipts"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular class or series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the class or series of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipt to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the such Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
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In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless such Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock converted into
Excess Stock or otherwise converted or exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted or converted into Excess
Stock or otherwise), the holders thereof will be entitled to delivery at such
office, to or upon each such holder's order, of the number of whole or
fractional shares of the class or series of Preferred Stock and any money or
other property represented by the Depositary Shares evidenced by such Depositary
Receipts. Holders of Depositary Receipts will be entitled to receive whole or
fractional shares of the related class or series of Preferred Stock on the basis
of the proportion of Preferred Stock represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such shares of
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of shares of Preferred Stock to be withdrawn, the Preferred Stock
Depositary will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of the Depositary Shares representing shares of
such class or series of Preferred Stock so redeemed, provided the Company shall
have paid in full to the Preferred Stock Depositary the redemption price of the
Preferred Stock to be redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The redemption price per
Depositary Share will be equal to the corresponding proportion of the redemption
price and any other amounts per share payable with respect to such class or
series of Preferred Stock. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that will not result in
the issuance of any Excess Stock.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class or series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will no longer
be deemed to be outstanding and all rights of holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will cease, except the
right to receive any moneys payable upon such redemption and any money or other
property to which the holders of such Depositary Receipts were entitled upon
such redemption upon surrender thereof to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series
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of Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by the Preferred Stock Depositary in order to enable the
Preferred Stock Depositary to do so. The Preferred Stock Depositary will abstain
from voting the amount of Preferred Stock represented by such Depositary Shares
to the extent it does not receive specific instructions from the holders of
Depositary Receipts evidencing such Depositary Shares. The Preferred Stock
Depositary will not be responsible for any failure to carry out any instruction
to vote, or for the manner or effect of any such vote made, as long as any such
action or non-action is in good faith and does not result from negligence or
willful misconduct of the Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company, except in connection with
certain exchanges in connection with the preservation of the Company's status as
a REIT. See "Description of Common Stock -- Restrictions on Transfer."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the applicable Preferred Stock Depositary with written
instructions to the Preferred Stock Depositary to instruct the Company to cause
conversion of a class or a series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipts into whole shares of
Common Stock, other shares of a class or series of Preferred Stock (including
Excess Stock) of the Company or other shares of stock, and the Company has
agreed that upon receipt of such instructions and any amounts payable in respect
thereof, it will cause the conversion thereof utilizing the same procedures as
those provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a Depositary Receipt or Receipts will be issued for any Depositary Shares
not to be converted. No fractional shares of Common Stock will be issued upon
conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing Depositary Shares which represent
the Preferred Stock and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Preferred Stock Depositary.
However, any amendment that materially and adversely alters the rights of the
holders of Depositary Receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related Preferred
Stock will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the applicable Depositary Shares
evidenced by the applicable Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the Deposit
Agreement, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related class or series
of Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of any outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series or class of Preferred Stock subject to such Deposit
Agreement consents to such termination, whereupon the Preferred Stock Depositary
will deliver or make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, such number of
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whole or fractional shares of Preferred Stock as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by Preferred Stock Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
preserve the Company's status as a REIT, then the Company will use its best
efforts to list each class or series of Preferred Stock issued upon surrender of
the related Depositary Shares on a national securities exchange. In addition,
the Deposit Agreement will automatically terminate if (i) all outstanding
Depositary Shares have been redeemed, (ii) there shall have been a final
distribution in respect of each class or series of Preferred Stock in connection
with any liquidation, dissolution or winding up of the Company and such
distribution shall have been distributed to the holders of the Depositary
Receipts evidencing the Depositary Shares representing such class or series of
Preferred Stock or (iii) each share of the related Preferred Stock shall have
been converted into stock of the Company not so represented by Depositary
Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and have a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Stock
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of a class or
series of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
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RESTRICTIONS ON TRANSFER
The provisions contained in the Charter restricting certain transfers and
limiting the beneficial ownership, directly or indirectly, of the Company's
outstanding capital stock will affect any Depositary Shares that may from time
to time be issued by the Company. See "Description of Common
Stock -- Restrictions on Transfer."
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under
the Company's stock option plans). The Company may issue Warrants for the
purchase of Common Stock. Warrants may be issued independently or together with
any other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Warrants
will be issued under a separate warrant agreement (each, a "Warrant Agreement")
to be entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any provisions of the Warrants offered hereby. Further terms of the
Warrants and the applicable Warrant Agreements will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (1) the title of such Warrants; (2) the
aggregate number of such Warrants; (3) the price or prices at which such
Warrants will be issued; (4) the designation, terms and number of shares of
Common Stock purchasable upon exercise of such Warrants; (5) the designation and
terms of the Offered Securities, if any, with which such Warrants are issued and
the number of such Warrants issued with each such Offered Security; (6) the
date, if any, on and after which such Warrants and the related Common Stock will
be separately transferable; (7) the price at which each share of Common Stock
purchasable upon exercise of such Warrants may be purchased; (8) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (9) the minimum or maximum amount of such Warrants
which may be exercised at any one time; (10) information with respect to
book-entry procedures, if any; and (11) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of material federal income tax considerations
relevant to the Company is based upon current law, and is not intended as tax
advice. The following discussion is not exhaustive of all possible tax
considerations, and does not give a detailed discussion of any state, local, or
foreign tax considerations. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to a prospective holder of Offered
Securities in light of his or her particular investment or tax circumstances or
to certain types of stockholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws. The tax treatment of a
holder of any Offered Securities will also vary depending upon the terms of the
specific securities acquired by such holder. Additional federal income tax
considerations relevant to holders of the Offered Securities other than Common
Stock may be provided in the applicable Prospectus Supplement relating thereto.
The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations under the
Code, the legislative history of the Code, existing administrative rulings and
practices of the IRS, and judicial decisions. No assurance can be given that
legislative, judicial, or administrative changes will not affect the accuracy of
any statements in this Prospectus with respect to transactions entered into or
contemplated prior to the effective date of such changes.
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EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF THE OFFERED SECURITIES INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company elected to be taxed as a REIT under Sections 856
through 860 of the Code and applicable Treasury Regulations, commencing with its
taxable year ended December 31, 1993. The Company believes that it was organized
and has operated in a manner so as to qualify for taxation as a REIT under the
applicable provisions of the Code, and the Company intends to continue to
operate in such a manner. No assurance can be given, however, that the Company
has operated in a manner so as to qualify or will operate in a manner so as to
remain qualified as a REIT. Rogers & Wells, counsel to the Company ("Counsel"),
has rendered an opinion that commencing with its taxable year ended December 31,
1993, the Company was organized in conformity with the requirements for
qualification and taxation as a REIT, and the Company's proposed method of
operation will enable it to continue to so qualify. It must be emphasized that
Counsel's opinion is based on various assumptions and is conditioned upon
certain representations made by the Company as to factual matters. In addition,
Counsel's opinion is based upon factual representations of the Company
concerning its business and properties and the business and properties of the
Operating Partnership. Unlike a tax ruling, an opinion of counsel is not binding
upon the IRS and no assurance can be given that the IRS will not challenge the
status of the Company as a REIT. Moreover, such qualification and taxation as a
REIT depend upon the Company's ability to meet, through actual annual operating
results, distribution levels, diversity of stock ownership and various other
qualification tests imposed under the Code, discussed below, the results of
which will not be reviewed by Counsel. Accordingly, no assurance can be given
that the actual results of the Company's operations for any taxable year will
satisfy such requirements. See "-- Failure to Qualify."
The following is a description of the material aspects of the federal
income tax consequences to the Company and its stockholders of the treatment of
the Company as a REIT. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
In any year in which the Company qualifies as a REIT, it generally will not
be subject to federal corporate income tax on that portion of its net income
which is distributed currently to stockholders. However, the Company will be
subject to federal income or excise tax as follows: (i) the Company will be
taxed at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains; (ii) under certain circumstances, the Company
may be subject to the "alternative minimum tax" on its items of tax preference,
if any; (iii) if the Company has (1) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by reason of
a foreclosure or otherwise on default of a loan secured by the property) that is
held primarily for sale to customers in the ordinary course of business or (2)
other nonqualifying net income from foreclosure property, it will be subject to
tax at the highest corporate rate on such income; (iv) if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than dispositions of foreclosure property,
and, as a result of the Taxpayer Relief Act of 1997, enacted August 5, 1997 (the
"Taxpayer Relief Act"), effective for the Company's taxable year ending December
31, 1998, dispositions of property that occur due to involuntary conversion)
held primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax; (v) if the Company should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed below), and
has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by a fraction intended to reflect the Company's
profitability; (vi) if the Company should fail to distribute with respect to
each calendar year at least the sum of (1) 85% of its REIT ordinary income for
such year, (2) 95% of its REIT capital gain
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net income for such year, and (3) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed; (vii) if the
Company acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
asset in the Company's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation and the Company
subsequently recognizes gain on the disposition of such asset during the 10-year
period (the "Recognition Period") beginning on the date on which the asset was
acquired by the Company (or the Company first qualified as a REIT), then the
excess of (1) the fair market value of the asset as of the beginning of the
applicable Recognition Period, over (2) the REIT's adjusted basis in such asset
as of the beginning of such Recognition Period will be subject to tax at the
highest regular corporate rate (pursuant to Treasury Regulations issued by the
IRS which have not yet been promulgated).
Organizational Requirements. 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 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) the beneficial ownership of which is held by 100 or
more persons; (vi) during the last half of each taxable year not more than 50%
in value of the outstanding 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); and (vii) that
has the calendar year as its taxable year. In addition, certain other tests,
described below, regarding the nature of its income and assets must also be
satisfied.
The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made to be
taxed as a REIT. In addition, the Company intends to comply with Treasury
regulations requiring it to ascertain the actual ownership of its outstanding
shares. The Taxpayer Relief Act eliminates the rule that a failure to comply
with these regulations will result in a loss of REIT status. Instead, a failure
to comply with the regulations will result in a fine. This provision will be
effective for the Company's taxable year ending December 31, 1998.
As a result of the Merger, ROC became a subsidiary of Chateau, with the
intent that both the Company and ROC would continue to qualify as REITs for the
purposes of the Code. The Company and ROC believe that they have satisfied and
will continue to satisfy the requirements set forth in (i) through (vii) above.
In addition, both the Company and ROC's Charters include certain restrictions
regarding transfer of the their shares. These restrictions are intended (among
other things) to assist the Company and ROC in continuing to satisfy the share
ownership requirements described in conditions (v) and (vi) above. See
"Description of Common Stock -- Restrictions on Transfer." Moreover, to evidence
compliance with these requirements, a REIT must maintain records which disclose
the actual ownership of its outstanding stock. In fulfilling its obligations to
maintain records, both the Company and ROC have and will continue to demand
written statements each year from the record holders of designated percentages
of their stock disclosing the actual owners of such Shares. A list of those
persons failing or refusing to comply with such demand is maintained as a part
of the their respective records. A stockholder failing or refusing to comply
with such written demands must submit with his tax return a similar statement
disclosing the actual ownership of the shares of stock and certain other
information.
The Company 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. Thus, the Company's
"qualified REIT subsidiaries" will not be subject to federal corporate income
taxation, although they may be subject to state or local taxation. (A qualified
REIT subsidiary is a corporation all of the capital stock of which has been
owned by the REIT from the commencement of such corporate existence. The
Taxpayer Relief Act eliminates the requirement that a
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REIT own a qualified REIT subsidiary from the commencement of its corporate
existence. This change will be effective for the Company's taxable year ending
December 31, 1998.)
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 assets and gross income of the partnership shall
retain the same character in the hands of the REIT. Thus, the Company and ROC's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership, CCF, L.P. (the "Financing Partnership") and other
partnerships in which the Operating Partnership holds an interest (the "Subtier
Partnerships") should be treated as assets, liabilities and items of income of
the Company and ROC, to the extent of their respective interest therein, for
purposes of applying the requirements described herein. See "-- Tax Aspects of
the Company's Investments in Partnerships."
Asset Tests. For the Company and ROC to maintain qualification as REITs,
at the close of each quarter of its taxable year, each company must satisfy two
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 (including
(i) real property, (ii) stock or debt instruments purchased with the proceeds of
a stock offering or long-term (at least five years) debt offering of such
Company and held for not more than one year following the receipt of such
proceeds, (iii) interests in mortgages on real property, and (iv) shares in
other REITs), cash, cash items (including receivables) and government
securities. Second, although the remaining 25% of each Company's assets
generally may be invested without restriction, securities in this class may not
exceed either (i) 5% of the value of such Company's total assets as to any one
non-governmental issuer, or (ii) 10% of the outstanding voting securities of any
one issuer.
The Company believes that it and ROC has, and will continue to be able to
comply with the asset tests. More than 75% of the assets of each of the Company
and ROC are real estate assets. In addition, neither Company holds any
securities representing more than 10% of any one issuer's voting securities,
other than any qualified REIT subsidiary or another qualified REIT, or
securities of any one issuer exceeding 5% of the value of its gross assets. The
securities of ROC held by the Company will not cause the Company to violate the
asset tests as long as ROC qualifies as a REIT. If, however, ROC fails to
qualify as a REIT for any reason, the Company would fail the asset tests because
such securities will no longer qualify as real estate assets for purposes of the
75% asset test and the Company owns more than 10% of ROC's voting securities.
After initially meeting the asset tests at the close of any quarter,
neither the Company 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 as may be required to cure any noncompliance. However,
there can be no assurance that such action will always be successful.
Income Tests. For the Company and ROC to maintain qualification as REITs,
there are three separate percentage tests relating to the sources of each
company's gross income which must be satisfied for each taxable year. First, at
least 75% of each company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from (i) rents from real
property (except as modified below); (ii) interest on obligations secured by
mortgages on real property or on interests in real property; (iii) gains from
the sale or other disposition of real property, interests in real property and
interests in mortgages on real property, other than gains from property held
primarily for sale to customers in the ordinary course of the Company's trade or
business; (iv) dividends or other distributions on shares in other REITs, as
well as gain from the sale of such shares; (v) abatements and refunds of taxes
on real property; (vi) income and gain derived from foreclosure property; (vii)
commitment fees received or accrued for entering into agreements to make loans
secured by mortgages on real property or to purchase or lease real property; and
(viii) qualified temporary investment income. Second, at least 95% of each
company's gross income (excluding gross 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 other securities, or from any combination of the
foregoing. Any payments made to the
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Company by a financial institution pursuant to a bona fide interest rate swap or
cap agreement to hedge any variable rate indebtedness incurred or to be incurred
to acquire or carry real property, or interests in real property, and any gain
from the sale or other disposition of such agreement also will be included.
Third, each company must derive less than 30% of its gross income for each
taxable year from the sale or other disposition of (i) real property (including
interests in real property and interests in mortgages on real property) held for
less than four years (other than foreclosure property and property involuntarily
or compulsorily converted), (ii) stock or securities held for less than one
year, and (iii) property in a transaction which is a prohibited transaction. The
Taxpayer Relief Act repeals the 30% gross income test for taxable years
beginning after its enactment on August 5, 1997. Thus, the 30% gross income test
will apply only to the Company's taxable year ending December 31, 1997.
Rents received from a tenant will qualify as "rents from real property" in
satisfying the 75% or the 95% gross income tests described above 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 minimus amount that fail to meet
these conditions. Finally, for rents received to qualify as rents from real
property, a REIT generally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent contractor" which
is adequately compensated from whom the REIT derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services provided by the REIT are of a type that a tax exempt organization
can provide to its tenants without causing its rental income to be unrelated
business taxable income under the Code, which includes those services provided
which are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant". The Taxpayer Relief Act provides a de minimis rule for non-customary
services which is effective for taxable years beginning after August 5, 1997. If
the value of the non-customary service income with respect to a property (valued
at not less than 150% of the Company's direct costs of performing such services)
is 1% or less of the total income derived from the property, then all rental
income except the non-customary service income will qualify as "rents from real
property." This provision will be effective for the Company's taxable years
ending December 31, 1998.
The Company believes that it and ROC have, and will continue to satisfy the
gross income tests discussed above. The Company receives a significant amount of
dividends from ROC, which will be qualifying income for purposes of the 95%
gross income test, and for the 75% gross income test so long as ROC qualifies as
a REIT. In addition, the majority of both the Company and ROC's income will be
derived from their interests in the Operating Partnership and Subtier
Partnerships, which income will, for the most part, qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests.
The Operating Partnership will provide certain services with respect to its
properties and any newly acquired manufactured housing community properties. The
Company believes, however, that the services which it provides are usually or
customarily rendered in connection with the rental of space for occupancy only,
and therefore that the provision of such services will not cause the rents
received with respect to any properties to fail to qualify as rents from real
property for purposes of the 75% and 95% gross income tests. Further, the
Company has obtained a private letter ruling from the IRS holding that certain
services and amenities provided through the Operating Partnership will not cause
its distributive share of rents paid by tenants to be excluded from the
definition of rents from real property.
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. Such management and administrative fees are
not qualifying income for purposes of the 75% and 95% gross income tests. The
Company and ROC's share of the aggregate amount of such fees and other
non-qualifying income in any taxable year, however, should not cause either
company to exceed the limits on non-qualifying income under the 75% or 95% gross
income tests.
If the Company 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 entitled to relief under certain provisions of the Code. It is not
possible, however, to state whether in all circumstances the Company or ROC
would be
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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.
Annual Distribution Requirements. In order to qualify as REITs, both the
Company and ROC are required to distribute dividends (other than capital gain
dividends) to its stockholders each year in an amount which equals or exceeds
(A) the sum of (i) 95% of such company's REIT taxable income (computed without
regard to the dividends paid deduction and the REIT's net capital gain) and (ii)
95% of the net income (after tax), if any, from foreclosure property, minus (B)
the sum of certain items of noncash income (including, as a result of the
Taxpayer Relief Act, inter alia, cancellation of indebtedness income and
original issue discount income.) Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. 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 amount at regular capital gains or
ordinary corporate tax rates, as the case may be. Furthermore, if either company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
years, it will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Both the Company and ROC have made and intend to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. It is
possible that either company, from time to time, may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement, due primarily to
the expenditure of cash for nondeductible expenses such as principal
amortization or capital expenditures. To avoid any problem with the 95%
distribution requirement, the Company and ROC will closely monitor the
relationship between their REIT taxable income and cash flow and, if necessary,
will borrow funds (or cause the Operating Partnership to borrow funds) in order
to satisfy the distribution requirement.
Under certain circumstances, a REIT may be able to rectify a failure to
meet the distribution requirements by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify. If either the Company or ROC fails to qualify for
taxation as a REIT in any taxable year and the special relief provisions do not
apply, the Company (and ROC if it fails to qualify) will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which it
fails to qualify will not be deductible, nor will they be required to be made.
In such event, to the extent of current and accumulated earnings and profits,
all distributions to stockholders will be taxable as ordinary income and,
subject to certain limitations in the Code, corporate distributees may eligible
for the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company (and ROC if it fails to qualify) also will 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 the Company or ROC would be entitled to such statutory
relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN PARTNERSHIPS
General. The Company and ROC hold direct and indirect interests in the
Operating Partnership, the Financing Partnership and the Subtier Partnerships
(together, the "Partnerships").
The Company believes that each of the Partnerships are properly treated as
partnerships for federal income tax purposes. If, however, either the Operating
Partnership, the Financing Partnership and/or a Subtier Partnership was treated
as an association taxable as a corporation, the Company would most likely fail
to qualify as a REIT. See "Federal Income Tax Considerations -- Taxation of the
Company -- Failure to Qualify". Furthermore, in such a situation, any
Partnership treated as a corporation would be subject to corporate income taxes.
Tax Allocations with Respect to the Properties. The Operating Partnership
was originally formed by way of contribution of properties which had appreciated
in value (the "Chateau Properties") at the date of
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contribution. In addition, ROC, contributed or caused to be contributed
properties, which were also appreciated, to the Operating Partnership and
Financing Partnership immediately after the Merger (the "ROC Properties"). 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 Company also inherited most or all of the existing Book-Tax
Differences with respect to OP Units previously exchanged by unitholders. 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 the Chateau Properties over the life of the Operating Partnership
and the Financing Partnership. Under these rules, ROC and/or the Company and the
initial contributors of the Chateau Properties who are OP unitholders are
generally 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 in the hands of the Operating Partnership and the Financing
Partnership and the carryover basis of the contributed Chateau Properties in the
hands of the Operating Partnership could cause the Company (i) to be allocated
lower amounts of depreciation and other deductions for tax purposes that it
would be allocated if such properties had a tax basis equal to their fair market
value at the time of acquisition 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
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 Company purchased the Chateau and ROC Properties and the OP Units exchanged
at their respective fair market values.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate stockholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. The Taxpayer Relief Act
provides that, beginning with the Company's taxable year ending December 31,
1998, if the Company elects to retain and pay income tax on any net long term
capital gain, domestic stockholders of the Company would include in their income
as long term capital gain their proportionate share of such net long term
capital gain. A domestic stockholder would also receive a refundable tax credit
for such domestic stockholder's proportionate share of the tax paid by the
Company on such retained capital gains, and an increase in basis in an amount
equal to the difference between the undistributed long term capital gains and
the amount of tax paid by the Company. To the extent that the Company makes
distributions in excess of its current and accumulated earnings and profits,
such distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholder's tax basis taxable as capital gains (if the Common Stock is
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the
26
<PAGE> 69
Company during January of the following calendar year. Stockholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gains.
Backup Withholding. The Company will report to its domestic stockholders
and to the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such stockholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
domestic stockholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any stockholders who fail to
certify their non-foreign status to the Company. See "-- Taxation of Foreign
Stockholders" below.
Taxation of Tax-Exempt Stockholders. Distributions by the Company to a
stockholder that is a tax-exempt entity generally should not constitute
unrelated business taxable income ("UBTI"), provided that the tax-exempt entity
has not financed the acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code, and that the shares are not otherwise used in an
unrelated trade or business by such tax-exempt entity. In addition, under
certain circumstances, qualified trusts that own more than 10% (by value) of the
Company's shares may be required to treat a certain percentage of dividends as
UBTI. This requirement will only apply if the Company is a "pension-held REIT."
The restrictions on ownership in the Company's Charter should prevent the
Company from being treated as a pension-held REIT.
Taxation of Foreign Stockholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state, and local
income tax laws with regard to an investment in shares, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws.
In general, Non-U.S. Stockholders will be subject to regular United States
federal income taxation with respect to their investment in shares of Common
Stock in the same manner as a U.S. Stockholder (i.e., at graduated rates on a
net basis, after allowance of deductions) if such investment is "effectively
connected" with the conduct by such Non-U.S. Stockholder of a trade or business
in the United States. A Non-U.S. Stockholder that is a corporation and that
receives income with respect to its investment in shares of Common Stock that is
(or is treated as) "effectively connected" with the conduct of a trade or
business in the United States may also be subject to the 30% branch profits tax
imposed under Section 884 of the Code, which is payable in addition to the
regular United States corporate income tax. The following discussion addresses
only the United States federal income taxation of Non-U.S. Stockholders whose
investment in shares of Common Stock is not "effectively connected" with the
conduct of a trade or business in the United States. Prospective investors whose
investment in shares of Common Stock may be "effectively connected" with the
conduct of a United States trade or business should consult their own tax
advisors as to the tax consequences thereof.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the
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<PAGE> 70
gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. Pursuant to current Treasury Regulations, dividends paid to
an address in a country outside the United States are generally presumed to be
paid to a resident of such country for purposes of determining the applicability
of withholding discussed above and the availability of a reduced tax treaty
rate. Under proposed Treasury Regulations, not currently in effect, however, a
Non-U.S. Stockholder who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy certain certification and other requirements.
Distributions made by the Company in excess of its current and accumulated
earnings and profits will not be taxable to a stockholder to the extent they do
not exceed the adjusted basis of the stockholder's shares, but rather will
reduce the adjusted basis of such shares (but not below zero). To the extent
that such distributions exceed the adjusted basis of the Non-U.S. Stockholder's
shares, they will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
shares in the Company, as described below.
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution, to the extent that the Company does not do so any portion of a
distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company, and the amount withheld exceeded the Non-U.S.
Stockholder's United States tax liability, if any, with respect to the
distribution.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with the conduct of a
United States trade or business. Non-U.S. Stockholders would thus be taxed at
the normal capital gain rates applicable to U.S. stockholders (subject to
applicable alternative minimum tax and special alternative minimum tax in the
case of nonresident alien individuals), without regard as to whether such
distributions are designated by the Company as capital gain dividends. Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Company is required by Treasury Regulations to withhold 35% of any
distribution to a Non-U.S. Stockholder that could be designated by the Company
as a capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by the Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of its stock was held directly or
indirectly by foreign persons. The Company believes that it is, and will
continue to be a domestically controlled REIT and therefore, that the sale of
its shares will not be subject to taxation under FIRPTA.
If the gain on the sale of shares were to be subject to tax under FIRPTA,
the Non-U.S. Stockholder would be subject to the same treatment as U.S.
Stockholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and the possible application of the 30% branch profits tax in
the case of foreign corporations), and the purchaser of the shares would be
required to withhold and remit to the IRS 10% of the purchase price.
Notwithstanding the foregoing, gain from the sale or exchange of shares of
Company stock not otherwise subject to FIRPTA and distributions made by the
Company to Non-U.S. Stockholders that are designated as capital gain dividends
(and are not attributable to the sale or other disposition of a United States
real property interest) generally will not be taxable unless the Non-U.S.
Stockholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States. In such case, the nonresident alien individual will be subject to
a 30% United States withholding tax on the amount of such individual's gain.
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<PAGE> 71
OTHER TAX CONSIDERATIONS
Dividend Reinvestment Program. Stockholders participating in the Company's
dividend reinvestment program will be deemed to have received the gross amount
of any cash distributions which would have been paid by the Company to such
stockholders had they not elected to participate. These deemed distributions
will be treated as actual distributions from the Company generally. See "Federal
Income Tax Considerations -- Taxation of Stockholders." Participants in the
dividend reinvestment program are subject to federal income tax on the amount of
the deemed distributions to the extent that such distributions represent
dividends or gains, even though they receive no cash. Shares of Common Stock
received under the program will have a holding period beginning with the day
after purchase, and a tax basis equal to their cost (which is the gross amount
of the deemed distribution).
State and Local Taxes. The Company and its stockholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its stockholders may not conform to the federal income tax advisors
regarding the effect of state and local tax laws on an investment in the Common
Stock of the Company.
PLAN OF DISTRIBUTION
The Company may sell the Common Stock, Preferred Stock, Warrants,
Depositary Shares and Guarantees, and the Operating Partnership may sell the
Debt Securities, through underwriters or dealers, directly to one or more
purchasers (including executive officers of the Company or other persons that
may be deemed affiliates of the Company), through agents or through a
combination of any such methods of sale.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of the sale, at prices related
to such prevailing market prices or at negotiated prices. Further, the
distribution of any Common Stock in one or more special offerings pursuant to a
dividend reinvestment plan or other similar plan of the Company may be effected
from time to time at a fixed price or prices, which may be changed, at market
prices prevailing at the time of the sale, at prices related to such prevailing
market prices or at negotiated prices.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or the Operating Partnership or
from purchasers of the Offered Securities, for whom they may act as agents in
the form of discounts, concessions or commissions. Underwriters may sell the
Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
the Offered Securities may be deemed to be underwriters under the Securities
Act, and any discounts or commissions they receive from the Company or the
Operating Partnership and any profit on the resale of the Offered Securities
they realize may be deemed to be underwriting discounts and commissions under
the Securities Act. Any such underwriter or agent will be identified, and any
such compensation received from the Company or the Operating Partnership will be
described, in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of the Offered Securities will be a new issue with no established trading
market, other than the Common Stock which is listed on the NYSE. Any shares of
Common Stock sold pursuant to a Prospectus Supplement will be listed on the
NYSE, subject to official notice of issuance. The Company or the Operating
Partnership, as the case may be, may elect to list any series of Debt
Securities, Warrants, Preferred Stock or Depositary Shares on an exchange, but
is not obligated to do so. It is possible that one or more underwriters may make
a market in a series of the Offered Securities, but will not be obligated to do
so and may discontinue any market making at any time without notice. Therefore,
no assurance can be given as to the liquidity of, or the trading market for, the
Offered Securities.
Under agreements into which the Company or the Operating Partnership may
enter, underwriters, dealers and agents who participate in the distribution of
the Offered Securities may be entitled to
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<PAGE> 72
indemnification by the Company or the Operating Partnership, as the case may be,
against certain liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company or the Operating Partnership
in the ordinary course of business.
In order to comply with the securities laws of certain states, if
applicable, the Offered Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Offered Securities may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
LEGAL MATTERS
The legality of the Offered Securities will be passed upon for the Company
and the Operating Partnership by Rogers & Wells, New York, New York. Rogers &
Wells will rely on Piper & Marbury L.L.P., Baltimore, Maryland, as to matters of
Maryland law.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995 of the
Company, and the consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996 and
the financial statement schedule for the year ended December 31, 1996, the
consolidated balance sheets as of December 31, 1996 and 1995 of the Operating
Partnership, and the consolidated statements of income, partners' capital and
cash flows for each of the three years in the period ended December 31, 1996,
incorporated by reference in this Registration Statement, have been incorporated
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given upon the authority of that firm as experts in accounting and
auditing.
The consolidated balance sheet as of December 31, 1996 of ROC Communities,
Inc., and the consolidated statements of income, stockholders' equity and cash
flows for the year ended December 31, 1996, incorporated by reference in this
Registration Statement, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given upon the authority
of that firm as experts in accounting and auditing.
The consolidated balance sheet of ROC Communities, Inc. and its subsidiary
as of December 31, 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994, incorporated in this Prospectus by reference from the Company's Current
Report on Form 8-K dated December 10, 1997, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is also
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE> 75
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
OPERATING PARTNERSHIP OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE OPERATING PARTNERSHIP OR THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION 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
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........... S-5
Business................................ S-10
Use of Proceeds......................... S-16
Capitalization.......................... S-17
Selected Historical Consolidated
Financial Data........................ S-18
Selected Pro Forma Consolidated
Financial Data........................ S-19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ S-20
Management.............................. S-22
Description of Offered Securities....... S-25
Certain United States Federal Income Tax
Considerations........................ S-36
Erisa Considerations Relating to the
MOPPRS................................ S-40
Underwriting............................ S-41
Legal Matters........................... S-42
PROSPECTUS
Available Information................... 2
Forward-Looking Information............. 2
Incorporation of Certain Documents by
Reference............................. 3
The Company and the Operating
Partnership........................... 4
Use of Proceeds......................... 4
Ratio of Earnings to Fixed Charges...... 4
Description of Debt Securities.......... 5
Description of Common Stock............. 12
Description of Preferred Stock.......... 14
Description of Depositary Shares........ 16
Description of Warrants................. 20
Federal Income Tax Considerations....... 20
Plan of Distribution.................... 29
Legal Matters........................... 30
Experts................................. 30
</TABLE>
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
$120,000,000
CP LIMITED PARTNERSHIP
$75,000,000 %
MANDATORY PAR PUT
REMARKETED SECURITIES(SM)
("MOPPRS(SM)")
DUE , 2014
$45,000,000 %
NOTES DUE , 2007
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
SOLE MANAGER OF THE MOPPRS
MERRILL LYNCH & CO.
JOINT LEAD MANAGERS AND JOINT
BOOKRUNNERS OF THE NOTES
PAINEWEBBER INCORPORATED
MERRILL LYNCH & CO.
------------------------
A.G. EDWARDS & SONS, INC.
, 1997
"MANDATORY PAR PUT REMARKETED
SECURITIES(SM)" AND "MOPPRS(SM)" ARE
SERVICE MARKS OWNED BY
MERRILL LYNCH & CO., INC.
======================================================
