PROSPECTUS Filed pursuant to Rule 424(b)(3)
5,271,941 Shares
CHATEAU COMMUNITIES, INC.
Common Stock
This Prospectus relates to the possible offer and sale from time to time of up
to 5,271,941 shares (the "Secondary Shares") of common stock, par value $.01
per share (the "Common Stock"), of Chateau Communities, Inc. (the "Company")
by persons who may have received such shares without registration (the
"Selling Stockholders"). The Secondary Shares may be offered in amounts and
on terms to be set forth herein or in one or more supplements to this
Prospectus (each, a "Prospectus Supplement"). The registration of the
Secondary Shares to which this Prospectus relates does not necessarily mean
that any of the Secondary Shares will be sold by the Selling Stockholders.
The Common Stock is listed on the New York Stock Exchange under the symbol
"CPJ." To ensure that the Company maintains its qualification as a real
estate investment trust (a "REIT"), ownership by any person is limited to 7%
of the outstanding shares of capital stock, with certain exceptions. See
"Restrictions on Transfer of Capital Stock."
The Selling Stockholders from time to time may offer and sell the Secondary
Shares held by them directly or through agents or broker-dealers on terms to
be determined at the time of sale. To the extent required, the names of any
agent or broker-dealer and applicable commissions or discounts and any other
required information with respect to any particular offer will be set forth in
an accompanying Prospectus Supplement. See "Plan of Distribution." Each of
the Selling Stockholders reserves the right to accept or reject, in whole or
in part, any proposed purchase of the Secondary Shares.
The Company will not receive any of the proceeds from the sale by the Selling
Stockholders of any of the Secondary Shares, but has agreed to bear certain
expenses of registration of the Secondary Shares under Federal and state
securities laws.
The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of the Secondary Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions received by them
and any profit on the resale of the Secondary Shares may be deemed to be
underwriting commissions or discounts under the Securities Act.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
____________________
The date of this Prospectus is June 16, 1997.
<PAGE>
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 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
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 is 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 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 files its 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 has 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 Secondary
Shares. 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 and the Secondary Shares, 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Chateau Communities, Inc. 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 (Commission File No. 1-12496).
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997 (Commission File No. 1-12496).
3. The Company's Current Report on Form 8-K, dated May 30, 1997, filed
with the Commission pursuant to the Exchange Act (Commission File No.
1-12496).
2
<PAGE>
4. The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A, filed pursuant to the
Exchange Act, including any amendments or reports filed for the
purpose of updating such description.
All documents subsequently filed by the Company 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 Secondary Shares 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.
The Company 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.
3
<PAGE>
THE COMPANY
The Company is a self-administered and self-managed equity real estate
investment trust ("REIT") that was formed in 1993 to continue and expand the
property operations and business objectives of ownership, management, leasing,
expansion, development and acquisition of manufactured home communities
previously conducted by Chateau Estates, a Michigan co-partnership
("Chateau"). 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, and the
Company is now 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. As of 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 CP
Limited Partnership, a Maryland limited partnership (the "Operating
Partnership") in which as of March 31, 1997 the Company 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.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three months ended Year Ended December 31,
------------------ -----------------------
March 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 4.66 1.82 1.65
</TABLE>
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 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
depreciation and amortization. Management believes that funds from operations
is an important and widely sued measure of the operating performance of REITs
which provides a relevant basis for comparison among REITs. Funds from
4
<PAGE>
operations (i) does not represent cash flow from operations as defined by
generally accepted accounting principles) (ii) should not be considered as an
alternative to net income as a measure of operating performance or to cash
flows from operating, investing and financing activities and (iii) is not an
alternative to cash flows as a measure of liquidity. Funds from operations
does not represent cash generated from operating activities as defined by
generally accepted accounting principles and, therefore, should not be
considered as an alternative to net income as the primary indicator of
operating performance or to cash flows as a measure of liquidity, nor does it
indicate that cash flows are sufficient to fund all cash needs. 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 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 which may be offered by the Selling
Stockholders from time to time hereunder. 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.
5
<PAGE>
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 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 OF CAPITAL STOCK
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
6
<PAGE>
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 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.
SELLING STOCKHOLDERS
The Secondary Shares offered by this Prospectus may be offered from time
to time by the Selling Stockholders named below. The following table sets
forth the names of and the number and percentage of shares of Common Stock
beneficially owned by each Selling Stockholder and the number and percentage
of shares of Common Stock beneficially owned by each Selling Stockholder upon
completion of the offering of the Secondary Shares. Since the Selling
Stockholders may sell all, some or none of their Secondary Shares, no estimate
can be made of the actual aggregate number of Secondary Shares that will be
offered hereby. The number and percentage of shares of Common Stock provided
in the following table represent the number and percentage of shares of Common
Stock the Selling Stockholders hold plus the number of shares of Common Stock
into which OP Units held by the Selling Stockholders may be exchanged, and the
number of shares of Common Stock the Selling Stockholders have the right to
acquire within 60 days from the date of this Prospectus by exercise of
outstanding stock options. For the purpose of determining the percentage of
shares of Common Stock beneficially owned by each Selling Stockholder, OP
Units and outstanding stock options held by each Selling Stockholder are
deemed to have been exchanged, converted or exercised by or on behalf of such
Selling Stockholder, but shall not be deemed to have been exchanged, converted
7
<PAGE>
or exercised for the purpose of determining the percentage of shares of Common
Stock beneficially owned by any other Selling Stockholder.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially
Before Offering Owned After Offering
------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Number of Shares
Shares Percent Offered Number Percent
------ ------- ------- ------ -------
John A. Boll (1) 3,336,718 11.7 3,336,718 0 *
The John A. and Marlene L.
Boll Foundation (2) 240,305 * 240,305 0 *
John A. Boll Irrevocable
Trusts (3) 189,690 * 189,690 0 *
J. Peter Ministrelli(4) 2,504,476 9.0 216,836 2,287,640 8.3
Joe P. Ministrelli, Revocable
Trust(5) 270,739 1.1 270,739 0 *
Leonard Maas(5) 234,958 * 234,958 0 *
Thomas Maas(5) 125,076 * 125,076 0 *
Steven Maas(5) 125,076 * 125,076 0 *
Robert Land(5) 89,443 * 89,443 0 *
Paul C.Kanavos Investment
Ltd.(5) 74,973 * 74,973 0 *
Peter J. Kanavos, Jr.
Investment Ltd.(5) 74,971 * 74,971 0 *
Mark D. Kanavos Investment,
Ltd.(5) 74,971 * 74,971 0 *
William A. Saba(5) 67,091 * 67,091 0 *
Ruth Land(5) 42,647 * 42,647 0 *
George Kloote(5) 32,868 * 32,868 0 *
Phyllis Wieher(5) 17,253 * 17,253 0 *
Bernard Murphy(5) 9,397 * 9,397 0 *
Beaver Creek Arts Foundation 5,742 * 5,742 0 *
Knox Presbyterian Church 5,742 * 5,742 0 *
Alex Terick, Revocable Trust(5) 5,000 * 5,000 0 *
Regina S. Terick, Revocable Trust(5) 5,000 * 5,000 0 *
Detroit Symphony Orchestra
Hall, Inc. 4,593 * 4,593 0 *
Karmanos Cancer Institute 4,593 * 4,593 0 *
Spring Hill Camps 3,828 * 3,828 0 *
Cornerstone Schools Association 3,828 * 3,828 0 *
Macomb Young Men's Christian
Association 3,828 * 3,828 0 *
William Tyndale College 2,871 * 2,871 0 *
Christian Business Men's
Committee of USA, Inc. 1,990 * 1,990 0 *
Walk Thru the Bible Ministries, Inc. 1,914 * 1,914 0 *
</TABLE>
_____________________
*Indicates less than 1%
1. Reflects 2,629,876 shares of Common Stock, 685,482 OP Units, exchangeable
(subject to the provisions of the partnership agreement of the Operating
Partnership) on a one-for-one basis for shares of Common Stock and options to
purchase 21,360 shares of Common Stock. Shares of Common Stock and OP Units
are either held directly by Mr. Boll or by Chateau Estates, a Michigan
co-partnership owned by Mr. Boll together with his spouse. The shares shown
do not include the shares held by the John A. and Marlene L. Boll Foundation
or the John A. Boll Irrevocable Trusts. John A. Boll is Chairman of the Board
of Directors of the Company.
2. John A. Boll, the trustee of the Foundation, is the Chairman of the Board
of Directors of the Company, and is deemed to be the beneficial owner of such
shares.
3. John A. Boll, the trustee of the Trusts, is Chairman of the Board of
Directors of the Company, and is deemed to be the beneficial owner of such
shares.
4. Reflects 2,287,640 shares of Common Stock and 216,836 OP Units exchangeable
(subject to the provisions of the partnership agreement of the Operating
Partnership), on a one-for-one basis, for shares of Common Stock. Shares of
Common Stock and OP Units are owned directly by Mr. Ministrelli or by
Ministrelli Construction Corporation, a company wholly owned by Mr.
Ministrelli.
5. Reflects OP Units exchangeable (subject to the provisions of the partnership
agreement of the Operating Partnership) on a one-for-one basis for shares of
Common Stock.
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
9
<PAGE>
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 Common
Stock 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 Common Stock will also vary depending upon the
terms of the specific securities acquired by such holder.
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.
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 COMMON STOCK 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
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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
foreclosure property) 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 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.
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.
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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 have, 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
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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 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.
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 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 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. 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
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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
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
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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. 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 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
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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 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
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("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.
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
This Prospectus relates to the possible offer and sale from time to time
of any Secondary Shares by the Selling Stockholders. The Company has
registered the Secondary Shares for resale to provide the holders thereof with
freely tradeable securities, but registration of such shares does not
necessarily mean that any of such shares will be offered or sold by the
Selling Stockholders. The Company will not receive any proceeds from the
offering or sale of Secondary Shares by the Selling Stockholders.
17
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The Selling Stockholders may from time to time offer the Secondary Shares
in one or more transactions (which may involve block transactions) on the NYSE
or otherwise, in special offerings, exchange distributions or secondary
distributions pursuant to and in accordance with the rules of the NYSE, in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Secondary Shares (whether such options are listed on an options
exchange or otherwise), or a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
To the extent required at the time a particular offer of Secondary Shares
is made, a Prospectus Supplement will be distributed that will set forth the
names of any underwriters, dealers or agents and any commissions and other
terms constituting compensation from such Selling Stockholders and any other
required information.
The Selling Stockholders may effect such transactions by selling
Secondary Shares to or through broker-dealers or through other agents, and
such broker-dealers or agents may receive compensation in the form of
commissions from the Selling Stockholders, which will not exceed those
customary in the types of transactions involved, and/or the purchasers of
Secondary Shares for whom they may act as agent. The Selling Stockholders and
any dealers or agents that participate in the distribution of Secondary Shares
may be deemed to be "underwriters" within the meaning of the Securities Act
and any profit on the sale of Secondary Shares by them and any commissions
received by any such dealers or agents might be deemed to be underwriting
commissions under the Securities Act.
In the event of a "distribution" of the shares, the Selling Stockholders,
any selling broker-dealer or agent and any "affiliated purchasers" may be
subject to Rule 102 under the Exchange Act, which would prohibit, with certain
exceptions, any such person from bidding for or purchasing any security which
is the subject of such distribution until his participation in that
distribution is completed.
In order to comply with the securities laws of certain states, if
applicable, the Secondary Shares may be sold only through registered or
licensed brokers or dealers.
LEGAL MATTERS
The legality of the Secondary Shares , as well as legal matters described
under "Federal Income Tax Considerations," will be passed upon for the Company
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, and the
consolidated statements of income, stockholders' equity 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 the authority of that firm as experts in accounting and auditing.
18
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No dealer, salesperson or other
individual has been authorized to
give any information or to make 5,271,941 Shares
any representations other than
those contained in this Prospectus
and, if given or made, such
information or representations Chateau Communities,
must not be relied upon as having Inc.
been authorized by the Company.
This Prospectus does not constitute
an offer to sell, or a solicitation
of an offer to buy, the securities
offered hereby in any jurisdiction
where, or to any person to whom,
it is unlawful to make an offer or
solicitation. Neither the delivery of
this Prospectus nor any sale made
hereunder shall, under any circumstances,
create an implication that there has
not been any change in the affairs of
the Company since the date hereof or
that the information contained herein
is correct or complete as of any time
subsequent to the date hereof.
Common Stock
_____________
TABLE OF CONTENTS PROSPECTUS
Page
Available Information . . . . 2
Incorporation of Certain
Documents by Reference . . . 2
The Company . . . . . . . . . 4
Ratio of Earnings to Fixed
Charges . . . . . . . . . . 4
Description of Common Stock . 5
Restrictions on Transfer
of Capital Stock . . . . . . 6
Selling Stockholders . . . . . 7
Federal Income Tax
Considerations . . . . . . . 9
Plan of Distribution . . . . . 17
Legal Matters . . . . . . . . 18
Experts . . . . . . . . . . . 18
_______________ June 16, 1997
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